Telkom Sa Soc Ltd. · JSE:TKG
Telkom Sa Soc — Telkom — H1 FY2008 Earnings Presentation
57 slides from Telkom Sa Soc's earnings presentation, November 2007
Slide 1: Group interim results for the six months ended September 30, 2007
Providing for the Bandwidth Explosion Telkom SA Limited Group interim results for the six months ended September 30, 2007
Slide 2: Cautionary statement on forward looking statements
Cautionary statement on forward looking statements All of the statements included in this presentation, as well as oral statements that may be made by us or by officers, directors or employees acting on behalf of us, that are not statements of historical facts constitute or are based on forward-look
Slide 3: Group Overview
Group Overview Reuben September 3
Slide 4: Core Strategy - Defend & Grow Revenues
Strategy Core Strategy - Defend & Grow Revenues 4
Slide 5: Defend Revenues
Defend Revenues • Increase annuity revenues – Drive to increase subscription revenues – Long term contracts • Rebalance tariffs – To align with cost structures to combat arbitrage • Build retention through bundling – Offer attractive value propositions 5
Slide 6: Grow Revenues
Grow Revenues Fixed/Mobile Platform: • Become an Integrated Service Provider across the Fixed and Fixed/ Mobile Mobile value chain • Position entity as a competitive convergence solutions provider Geographic Reach Data • Expand into Africa through the Integrated Service Provider Strategy Geographic
Slide 7: Enabling strategies
Enabling strategies • NGN deployment • Product innovation through convergence and mobility • Competitive pricing models • Cost management • Stakeholder engagement • Customer centricity • Employee engagement • Acquisitive growth • Effective organisational structures Protecting our EBITDA margin is vi
Slide 8: Fixed / Mobile growth
Fixed / Mobile growth • Become an Integrated Service Provider across the fixed and mobile value chain • Position entity as a competitive convergence solutions provider • Enable increased penetration in under serviced areas • Decrease cost of providing services in sparsely populated areas Internation
Slide 9: Converged Services and Data growth
Converged Services and Data growth Telcos strengths Commoditising IT infrastructure IT companies strengths Business Managed Data centre Desktop Application Connectivity process networks outsourcing support Services services • Access • WAN/VPN • Server & • Desktop • IT consulting • Business –Diginet
Slide 10: Geographic growth
Geographic growth Pan Pan African African service service provider provider strategy strategy • Goal is to cover major cities in Africa • Expand international connectivity of major cities through hub and cluster strategy • Focus on data connectivity • Dual fixed/ wireless licenses • Expansion of Afr
Slide 11: Management restructuring
Management restructuring The new EXCO structure has been designed to: • Create specialised focus areas to service customer segments • Ensure a coherent Group approach to marketing, pricing and product and services development • Enhance effective and efficient resource utilisation • Increase the cohe
Slide 12: Financial summary
Financial summary • 8.3% growth in Group operating revenue to R27.2bn • 37.5% Group EBITDA margin • 4.8% decrease in Group operating profit to R7.3bn • 15.1% decrease in Group headline earnings per share to 742.3 cents per share • 38.2% fixed-line EBITDA margin • 33.3% mobile EBITDA margin Aggressiv
Slide 13: Financial overview
Financial overview Deon Fredericks 13
Slide 14: Group income statement
Group income statement Six months ended EBITDA margin % ZAR million Sep 06 Sep 07 % 40.7 Operating revenue 25,147 27,227 8.3 38.3 Other income 213 204 (4.2) 37.5 Operating expenses (17,675) (20,118) 13.8 Operating profit 7,685 7,313 (4.8) Sep 06 Mar 07 Sep 07 Investment income 170 130 (23.5) EBITDA
Slide 15: Group balance sheet
Group balance sheet 60% net debt to equity Six months ended (%) 60.0 ZAR million Sep 06 Sep 07 % 42.0 Non-current assets 45,042 52,284 16.1 31.3 Current assets 10,309 11,311 9.7 Total assets 55,351 63,595 14.9 Sep 06 Mar 07 Sep 07 Capital & reserves 28,000 29,575 5.6 9% return on assets (%) Non-curr
Slide 16: Group cash flow
Group cash flow Six months ended ZAR millions Sep 06 Sep 07 % Cash generated from operations 9,046 8,313 (8.1) Dividend paid (4,726) (5,712) 20.9 Cash generated from operating activities 772 683 (11.5) Investing activities (4,102) (7,028) 71.3 Financing activities (817) 4,520 (653.2) Net increase in
Slide 17: Group Capital investment
Group Capital investment 4,443 Expenditure 4,190 6.0% ZAR millions 2,647 2,599 1,648 1,571 148 20 Fixed-line Mobile Other Group Capex to revenue % 16.4 16.4 16.7 16.3 16.2 16.1 14.4 3.8 Fixed-line Mobile Other Group Sep 06 Sep 07 Fixed and mobile investment a priority for growth 17
Slide 18: Segmental contribution
Segmental contribution before eliminations Fixed-line Mobile Other 3.2% 2.5% 0.8% 39.0% 40.3% 40.1% 56.7% 58.5% 58.9% Operating revenue Profit attributable to Operating profit equity holders Fixed-line business remains the major contributor to the Group 18
Slide 19: Fixed-line business
Fixed-line business Deon Fredericks 19
Slide 20: Fixed-line profitability
Fixed-line profitability Six months ended ZAR millions Sep 06 Sep 07 % Operating profit 5,316 4,286 (19.4) Operating profit margin (%) 33.2 26.6 EBITDA 7,031 6,153 (12.5) EBITDA margin (%) 43.9 38.2 Operating profit margin EBITDA margin % % 33.2 (19.9%) (13.0%) 43.9 26.6 38.2 Sep 06 Sep 07 Sep 06 Se
Slide 21: Fixed-line income statement
Fixed-line income statement EBITDA margin Six months ended % 43.9 ZAR million Sep 06 Sep 07 % Operating revenue 16,025 16,108 0.5 38.6 38.2 Other income 563 189 (66.4) Operating expenses (11,272) (12,011) 6.6 Sep 06 Mar 07 Sep 07 Operating profit 5,316 4,286 (19.4) Operating profit margin Investment
Slide 22: Fixed-line operating profit drivers
Fixed-line operating profit drivers ZAR million (R1,030 million) 5,316 374 354 265 4,286 152 117 37 112 83 ` Operating Profit Other income Selling, Payments to Depreciation, Services Employee Operating Operating Operating Profit Sep 2006 general and other operators amortisation, rendered expenses re
Slide 23: Fixed-line revenue
Fixed-line revenue ZAR million 0.5% 16,108 16,025 Sep 06 (9.6%) Sep 07 8,448 7,636 9.8% 16.7% 3,975 3,621 3,559 3,050 6.7% (16.0%) 781 833 125 105 Total Subscription & Traffic Interconnect Data Other connection Competition and aggressive price reductions leading to revenue pressure 23
Slide 24: Fixed-line traffic
Fixed-line traffic 0.2% Traffic revenue ZAR millions 3,788 3,794 (22.3%) 2,735 (14.9%) 2,125 1,432 1.0% 1,219 493 498 Local Long distance Fixed-to-mobile International outgoing Traffic volumes Millions of minutes (17.8%) Sep-06 8,658 Sep-07 7,114 2.2% 3.9% 15.1% 2,297 2,347 2,093 2,014 305 265 Local
Slide 25: Annuity revenue
Annuity revenue Six months ended Annuity revenue Sep 06 Sep 07 % Line Rental 2,195 2,349 7.0 Calling Plans / packages 247 441 78.5 CPE rental 308 373 21.1 Value added services 153 165 7.8 International other 11 12 9.1 Total annuity revenue 2,914 3,340 14.6 • Annuity revenue includes all subscription
Slide 26: Fixed-line operating expenses
Fixed-line operating expenses Six months ended ZAR millions Sep 06 Sep 07 % Total (Rm) Employee expenses 3,526 3,414 (3.2) 6.6% 12,011 Payments to other operators 3,097 3,362 8.6 11,272 SG&A 1,491 1,845 23.7 Services rendered 1,069 1,186 10.9 Operating leases 374 337 (9.9) Depreciation, amortisation
Slide 27: Fixed-line Employee expenses
Fixed-line Employee expenses Six months ended Total (Rm) (3.2%) ZAR millions Sep 06 Sep 07 % 3,526 3,414 Salaries and wages 2,460 2,770 12.6 Benefits 1,375 1,022 (25.7) Other 14 3 (78.6) Labour capitalised (323) (381) 18.0 Sep 06 Sep 07 Skills mix drives growth in salary expenses 27
Slide 28: Fixed-line Selling, General and Administrative expenses
Fixed-line Selling, General and Administrative expenses Six months ended Total (Rm) 23.7% ZAR million Sep 06 Sep 07 % 1,845 1,491 Materials & Maintenance 932 1,044 12.0 Marketing 216 271 25.5 Bad debts 62 89 43.5 Sep 06 Sep 07 Other 281 441 56.9 Ensuring service reliability and product positioning 2
Slide 29: Fixed-line capex
Fixed-line capex Six months ended ZAR millions Sep 06 Sep 07 % Baseline expansion 1,377 1,854 34.6 Revenue generation 93 6 (93.5) Network evolution 273 204 (25.3) Sustainment 173 114 (34.1) Efficiencies & improvements 417 352 (15.6) Support 122 89 (27.0) Regulatory 130 5 (96.2) Other 14 23 64.3 Tota
Slide 30: Mobile business
Mobile business Deon Fredericks 30
Slide 31: Mobile financial highlights
Mobile financial highlights 100% Vodacom (50% consolidated) Operating revenue Cash generated from operations 22,815 ZAR million ZAR million 6,879 17.2% 26.1% 5,454 19,466 Sep 06 Sep 07 Sep 06 Sep 07 Operating profit Capital expenditure1 5,714 3,296 15.1% 4.9% ZAR million ZAR million 4,965 3,142 Sep
Slide 32: Leading the South African mobile market
Leading the South African mobile market Customers Gross connections Thousands Thousands 23,297 5,845 15.3% 10.1% 20,201 5,308 Sep 06 Sep 07 Sep 06 Sep 07 ARPU1 Churn ZAR % 124 45.9 6.7% (4.0%) 119 43.0 Sep 06 Sep 07 Sep 06 Sep 07 New disconnection rules affect pre-paid churn 1. Blended ARPU 32
Slide 33: Guidance for 2007/2008
Guidance for 2007/2008 Fixed-line EBITDA margin between 37% and 40% Capex/revenue 18% – 22% Group Net debt to equity of 50% to 70% 33
Slide 34: Operational Overview
Operational Overview Reuben September 34
Slide 35: 2011 broadband plan
2011 broadband plan Today 2011 ADSL – 8.5% penetration of fixed ADSL – 15-20% penetration of fixed access lines access lines Up to 4Meg Up to 10Meg Legacy TDM network 3rd Generation IP network Stand alone access, voice and Internet Integrated communication and value propositions entertainment Intera
Slide 36: ADSL Year-On-Year Growth
ADSL Year-On-Year Growth 335,112 255,633 143,509 58,278 20,145 2,632 2003 2004 2005 2006 2007 Sep 07 • Increased ADSL footprint to 2,501 DSLAMs • 4.9% growth in 2MB services to 163,430 over six months • 76.2% growth in ADSL from Sept 2006 to Sept 2007 Significant growth driven by Self Install Option
Slide 37: Self install update
Self install update 16000 14000 12000 10000 8000 6000 4000 2000 0 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep 06 06 06 06 06 06 06 07 07 07 07 07 07 07 07 07 Contractor Technician Self-Install • Self Install Option (SIO) is a key enabler of accelerated ADSL growth • The YTD perfo
Slide 38: Do Broadband
Do Broadband • Launched May 2007 • Bundled DSL access and Telkom Internet • 3 bundled options • Entry level option R199 per month • Host of value added services through Do Broadband Portal Multimedia portal – driver for ADSL growth 38
Slide 39: WiMAX – complementing ADSL sweet spots
WiMAX – complementing ADSL sweet spots • Additional 71 base stations targeted • 27 sites fully operational • Internet WiMAX products launched • Voice service planned to be launched by March 2008 Balanced approach of wire and wireless technology 39
Slide 40: Data Services
Data Services Six months ended ZAR millions Sep 06 Sep 07 % Managed data networks 255 313 22.7 (Satellite & VPN Services) Leased lines facilities 803 899 12.0 Internet access and related services 423 537 27.0 Multimedia services 47 35 (25.5) Data connectivity 2,093 2,191 4.7 • Telkom currently has 2
Slide 41: Bundled packages
Bundled packages Six months ended Subscriber numbers Sep 06 Sep 07 % Telkom Closer 180,168 396,589 120.1 Closer 1 2,671 5,144 92.6 Closer 2 63,223 166,144 162.7 Closer 3 114,274 179,599 57.2 Closer 4 - 39,674 Closer 5 - 6,028 Do Broadband - 78,780 SupremeCall 2,037 11,250 452.3 Attractive value prop
Slide 42: Capabilities of NGN
Capabilities of NGN • Improved customer service experience – Self-service – Flexible billing and bandwidth usage – Diversified offerings bring convenience, flexibility and cost saving benefits • Improved service delivery – Automation of service delivery – Self-service tools will reduce operational l
Slide 43: Key NGN achievements
Key NGN achievements • National and Local Transport Network SDH Transport – Network increased by 167 nodes Network growth • Bandwidth potential to increase by 1.2 Tbit/s - 17% – 93 being installed, 128 being planned for next 6 months • Bandwidth potential to increase by 2.2 Tbit/s – 47% for the next
Slide 44: 1000% increase in bandwidth potential over the next 2 years
National Layer – core bandwidth National Layer build plans National Automatically Switched Transport Network pint of presence International fibre uplinks Polokwane 80 Wavelength 10 Gbit/s Capable DWDM Network by end of Phase 1 80 Wavelength 10 Gbit/s Capable Nelspruit DWDM Network by end of Phase 2
Slide 45: 1600% increase in bandwidth potential over the next 2 years
Metro Layer – core bandwidth 1600% increase in bandwidth potential over the next 2 years Aligning capacity to Metro demand 45
Slide 46: New NGN products
New NGN products • Easy VPN available to wholesale customers over ADSL network • VPN Lite recently launched (retail VPN for SMMEs using Easy VPN with advanced self help and online charging solution) • Telkom Mobility enhanced to allow access via 3G. Allows corporate employees to access head office n
Slide 47: Customer centricity
Customer centricity • Customer Centricity at the core of the Corporate Strategy – Established a Customer Centricity Office in May 2006 – Overseeing this strategic drive at enterprise level • Formulation of a Customer Centricity Roadmap – 67 initiatives aimed at building foundational customer centric
Slide 48: Key elements of journey towards Customer Centricity
Key elements of journey towards Customer Centricity Competitive Current position Customer Profitability Advantage Customer Portfolio Management for Customer Mass & Enterprise markets Promise Campaign Management Management Differentiated Organizational treatment plan for high value Customer Change Re
Slide 49: Customer segmentation
Customer segmentation • Segment customers according to value and needs • Understand customer equity and break-even points • Differentiated value and service to high-value customers • Anticipate customer needs • Easily identify value enhancers and cross selling opportunities • Call centre master plan
Slide 50: Telkom Media
Telkom Media Granted a commercial satellite and cable subscription broadcast license in September 2007 • License to be issued after negotiations with ICASA • Targeting the under-served LSM 5 – 8 market: over 40% of SA households • Offering element of choice and value for money • Package flexibility
Slide 51: Telkom Media (cont)
Telkom Media (cont) • Funding required R7.5 billion • Telkom Board approved funding of R800 million (Capex & Opex) • Business plan and go-to-market strategy being aligned with current market dynamics • License fees and operational expenditure to September 30, 2007 - R55 million • Commencement of ser
Slide 52: Multi-Links
Multi-Links A private telecommunications operator in Nigeria with a Unified Access License allowing fixed, mobile, fixed-wireless, international and data services • Acquired in April 2007 for R1,985 million • Contribution for 5 months to September 30, 2007 – Revenue - R310 million – Net profit - R5
Slide 53: Multi-Links (cont.)
Multi-Links (cont.) • Aggressive roll-out of NGN infrastructure • Allows maximum efficiency and minimal network opex cost • Expected capex at March 2008 – R1.6 billion (USD 228 million) • Suite of IP Enterprise Solutions allows differentiation in Nigerian market • Plans to launch carrier quality who
Slide 54: Africa Online
Africa Online An Internet Services Provider with operations in Kenya, Tanzania, Cote d’Ivoire, Ghana, Uganda, Namibia, Swaziland, Zambia and Zimbabwe • Acquired for R150m in February 2007 • Contributed to September 30, 2007 – Revenue - R46 million – Opex - R53 million – Net loss - R7 million • Expec
Slide 55: Africa Online (cont.)
Africa Online (cont.) • Focusing on aggressive wireless broadband infrastructure roll-out • Expected capex at March 2008 – R80 million (USD 11.6 million) • Expected capex at March 2010 – R137 million (USD 20 million) • Intends to grow presence from 9 – 15 countries within 3 years • Capitalising on s
Slide 56: Conclusion: Providing for the bandwidth explosion
Conclusion Providing for the bandwidth explosion 56
Slide 57: Investor Relations
Investor Relations Nicola White Tel: +27 12 311 5720 Fax: +27 12 311 5721 E-Mail: [email protected] 57