Embed Size (px)
Citation preview
Telkom Results Presentation
For the year ended 31 March 2010
making it happen – taking Telkom forward 2
Forward looking statementSpecial note regarding forward-looking statementsMany 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, constitute or are based on forward looking statements.All statements, other than statements of historical facts, including, among others, statements regarding our mobile and other strategies, future financial position and plans, objectives, capital expenditures, projected costs and anticipated cost savings and financing plans, as well as projected levels of growth in the communications market, are forward looking statements. Forward looking statements can generally be identified by the use of terminology such as “may”, “will”, “should”, “expect”, “envisage”, “intend”, “plan”, “project”, “estimate”, “anticipate”, “believe”, “hope”, “can”, “is designed to” or similar phrases, although the absence of such words does not necessarily mean that a statement is not forward looking. These forward looking statements involve a number of known and unknown risks, uncertainties and other factors that could cause our actual results and outcomes to be materially different from historical results or from any future results expressed or implied by such forward looking statements. Among the factors that could cause our actual results or outcomes to differ materially from our expectations including but not limited to those risks identified in Telkom’s most recent annual report which are available on Telkom’s website at www.telkom.co.za/ir.We caution you not to place undue reliance on these forward looking statements. All written and oral forward looking statements attributable to us, or persons acting on our behalf, are qualified in their entirety by these cautionary statements. Moreover, unless we are required by law to update these statements, we will not necessarily update any of these statements after the date of this document, either to conform them to actual results or to changes in our expectations.
OverviewReuben September
4
Presentation Overview
o Telkom under pressure – economic conditions, regulations and competition
o Mobile and broadband to improve Telkom SA offering - Mobile launch imminent
o Multi-Links – realise shareholder value through partnerships or exit
o EBITDA improvement plan signed off by business units
o Capex tightly controlled, cash flow is king
o Organisational renewal – key enabler of Telkom’s success
5
Group normalised financial features
Rm Rm Cents
Normalised
(15.2%)
0.7%
Normalised free cash flow increased to R5.5 billion
(11.2%)
36,784
11,574
37,029
9,809
532.7 473.0
OperatingRevenue
EBITDA HEPS
2009 2010
115125
260
175
2009 2010
Ordinary SpecialCents per share
6
Traffic revenue
Local
Long distance
Fixed-to-fixed
International
Calling Plans
2009 2010 %
3,634 3,205 (11.8)
2,036 1,805 (11.3)
7,409 6,452 (12.9)
11 37 236.4
933 910 (2.5)
1,300 1,484 14.2
Retaining customers is key
Voice revenues cannibalised by:
o Subscription based plans
o Virtual private networks
o Managed network services
o Mobile substitution
Fixed-to-mobile
Rm
7
Defend and grow highlights
Revenue (Rm) 2009 2010 %Line Rental 4,929 4,989 1.2Calling Plans 1,300 1,484 14.2CPE rental 797 824 3.4Value added services 338 345 2.1International other 23 22 (4.3)Total Voice Annuity Revenue 7,387 7,664 3.7
Subscription based plans
o Closer package subscribers increased by 20.6% to 694,348
o Do Broadband subscribers increased by 25.4% to 236,512
o Supreme Call subscribers increased by 41.2% to 20,873
Telkom continues to offer customers greater value
Data revenue29
,979 188,
540
33,2
26 236,
512
Managed data network sites
Do Broadband ADSL Internet all access
2009 2010
Total data revenue increased by 7.1% to
R10 billion
Subscribers
Voice and data annuity revenue constitute 47.6% of total revenue
10.8%
Data annuity revenue (Rm) 2009 2010 %Data connectivity 4,951 5,136 3.7Leased line facilities 1,858 2,008 8.1Internet access and related services 1,525 1,721 12.9
Managed data network services 891 1,033 15.9Multimedia services 84 71 (15.5)Total data annuity revenue 9,309 9,969 7.1
25.4%
18.1% 20.9%
549,
015
647,
462
423,
198
511,
535
Interconnection revenue
2009 2010 %
Mobile to fixed 560 531 (5.2)
International mobile outgoing 356 512 43.8
Fixed domestic interconnection 111 228 105.4
International interconnection 1,057 1,337 26.5
TOTAL 2,084 2,608 25.1
MTR cuts - revenue decreased by R71 million and payments to mobile operators decreased R64 million for the month of March 2010
Rm
EBITDA improvement – targeting R2 billion +
Telkom has developed an end state visiono Sustainable model to serve customers effectively,
e.g.• access strategy • optimising product portfolio • sale channel usage• field force and contact centre effectiveness
o Extract non-labour efficiencies, e.g.• procurement excellence • revenue assurance
o Explore new business models to improve profitability, e.g.
• payphones, • directory services• IT application development and maintenance –
strategic partnering
EBITDA improvement - proposed master plan
Wave 1 (2010/11) Wave 2 (2011/12) Wave 3 (2012/13)
Network & IT
• Field Force Effectiveness (network infrastructure planning & field operations)
• ITS outsourcing
• Access strategy – Copper decommissioning
• Further network opportunities
Product & marketing
• Product portfolio optimisation (commercial) • Payphones
• Product portfolio optimisation (platform)
Customer & channel • Revenue assurance
• Electronic billing & payments• Channel Mix Optimisation1
• Contact centre outsourcing• Contact centre effectiveness
Corporate services
• Procurement• HR initiatives• Shared Services
Benchmarks
EBITDA improvement - achievements to date
Launched voluntary separation package for management
Reduced average handling times by 25% in the contact centre pilot
Savings achieved to date - R214 million – cost efficiencies throughout company
13
Multi-Links – financial features
Revenue
EBITDA Loss
Impairments
o Total revenue increased 35.1% to NGN36.5 billiono Traffic revenue decreased 6.2% to NGN16.4 billiono Interconnection revenue increased 315.3% to NGN14.1billion
• Switched hubbing: NGN10.5 billiono Data revenue increased 81.8% to NGN3.1 billion
o Operating expenses increased 67.7% to NGN51.2 billiono EBITDA loss increased 191.6% to R659 million
• Handset write-downs: R298 million • Subsidies: R227 million
o Negative EBITDA margin of 34.9%
o Goodwill impaired by R2,148 milliono Assets impaired by R3,012 milliono Multi-Links reflecting zero net asset value in Group balance
sheet
14
Multi-Links – operational features
Subscriber growth
Capital projects
ARPU
o Voice subscribers increased 18.7% to 2.2 million at 31 March 2010
o Data subscribers increased 1,580.0% to 45,340
o Data contributes 8.6% to Naira revenue
o ARPU declines from US$12 to US$6 at 31 March 2010 due to:
• Distribution channels incentivised towards volume
• Competitive pressures, lack of scale
• Good EVDO growth but relatively small
o Rolled out additional 373 base transceiver stations
o 4,639 km of fibre and additional 2,034 km through swapping
o Switch capacity subscribers increased from 2.8 million to 4 million
o Extended coverage to 22 states
Multi-Links focus areas
o Targeted initiatives to grow profitable revenue
• Segmentation of existing customer base
• Continued growth in mobile broadband• Increasing wholesale and enterprise
services
o Renegotiate major contracts, attack fixed cost base
• Distribution costs• Tower costs• Network management costs• IT costs• Expat costs
CDMA technology increasingly disadvantaged
o Focus on data centric products, broadband and VPN
o Board considering how best to reduce exposure to risk in Nigeria
Improve current operations Strategic direction
Roaming agreements
signed
Initial 40% own traffic coverage
Co-locations signed
Brand and products
developed
Distribution agreements signed
IT systems in place
16
Telkom Mobile
Mobile launch - imminent
Telkom mobile
o Focus on simplicity, quality and value
o Launching pre-paid, post-paid and hybrid voice & data, 2G voice & data, 3G voice & data
o Differentiated services
o Domestic roaming agreement signed with MTN
• Covers voice, 2G & 3G data, SMS, MMS & USSD
• Floor price includes minutes; unutilised minutes roll-over for 12 months
o International roaming agreement close to conclusion
o Full national and international roaming from launch
Telkom mobile
o Dual ran software – provides 2G & 3G cost-effectively
o Software upgrade to 4G in future
o Software Definable Radio – significant flexibility and spectrum efficiency
o Backhaul is IP over Ethernet or IP over TDM
o Using infrastructure sharing and co-location to reduce capex spend
o 2,000 base stations in process of being constructed in year one
19
MWeb Africa and Africa Online
o Integration complete by end September 2010 – one board
of directors, one executive committee, single country
managers
o Rebranded as iWay Africa
o New drive to push ISP business up ICT value chain
o Developing Pan-African city to city backbone infrastructure
and hub to international cable access infrastructure
o Footprint covers 32 African countries including primary
locations and distributorships
Providing connectivity throughout Africa to our global customers
SAT3/SAFESeacomEASSy (Jun 2010)WACS (Jun 2011)EIG (Jun 2010)SMW3COL3
Telkom core global submarine cable network (current & future)
o SAT3 and SAFE upgraded to full design capacity – in excess of 300Gb/s and 400Gb/s respectively
o EASSY scheduled to be operational by August 2010 –design capacity of 1.4Tb/s
o Europe/India gateway schedules to be operational by January 2011 – design capacity of 3.84Tb/s
o The West African Cable System (WACS) operational by mid 2011 – design capacity of 5.12Tb/s
o Columbus 3 upgraded October 2009
Telkom providing substantially more international bandwidth
21
Data Centre OperationsCybernest launched in November 2009o Independent business unit – autonomy and agility
o Telkom’s total Data Centre’s capacity largest in South Africa – 9700 m2
o Nominated by Cisco as the Most Innovative Data Centre Project of the year – green approach
o Selected IT staff transferred to Cybernest
o Appointed seasoned industry experts, formed dedicated Sales and Marketing division
o Leveraged off existing client base; size of deals won is increasing as credibility grows
o Key partnerships – EMC for storage, Cisco for data centre technology and VM ware for virtualisation – solutions tailor fit to customer requirements
o Trend towards Cloud Computing gaining momentum – new shared virtual hosting offering launched
“Telkom has ability to deliver on its strategy”Leadership, committed staff, capital, technology, innovation
“Telkom has ability to deliver on its strategy”Leadership, committed staff, capital, technology, innovation
2010 World cup
World class technology for 2010:o Compliant to FIFA specifications
• Dual optic-fibre routes – redundancy with no single point of failure from stadium to broadcast centre
• 99.99 percent availability of network without failure during matches
• Self healing capability of network• 40Gb/s bandwidth capacity for high definition TV
broadcasting from each stadium
o Track record:• Flawless delivery of:
– Preliminary Draw - Nov 07– Confederations’ Cup draw - 14 to 18 Jun 09– Confederations’ Cup - June 09– World Cup final draw - 4 Dec 09
FIFA demanded 99.9% - we gave 100%
Financial overviewPeter Nelson
Group normalised statement of comprehensive income ZAR million 2009
Normalised2010
Normalised %
Operating Revenue 36,784 37,029 0.7
Other income 351 402 14.5
Operating expenses (30,220) (32,746) 8.4
Operating profit 6,915 4,685 (32.2)
Investment income 183 508 177.6
Finance charges and fair value movements (2,434) (1,355) (44.3)
Taxation (2,219) (1,566) (29.4)
Profit from continuing operations 2,445 2,272 (7.1)
EBITDA 11,574 9,809 (15.2)
EBITDA margin (%) 31.5 26.5 (15.9)
Basic earnings per share (cents) 483.1 425.2 (12.0)
Headline earnings per share (cents) 532.7 473.0 (11.2)
Unusual items impacting results2009o Effect of elimination of revenue from and payments to Vodacom in the prior
yearo Impact of the FIFA contract of R119 million revenue, operating expenses of
R119 million and R133 million amortisationo Impairment of goodwill of Multi-Links of R462 million and Africa Online of R39
milliono Vodacom transaction expenses of R177 milliono Fair value loss on Multi-Links put option of R409 milliono Vodacom and Swiftnet deferred tax asset R454 million2010o Impact of the sale of our 15% stake in Vodacom and unbundling of the
remaining 35% amounted to an after tax profit of R40.5 billiono Impairment of goodwill and net asset value of Multi-Links of R5,160 milliono STC on special dividend of R135 milliono Profit on disposal of Telkom Media of R68 milliono Impact of the FIFA contract of R398 million revenue, operating expenses of
R357 million and R80 million amortisation
Telk
om S
A
Cor
pora
te C
entre
Normalised EBIT contributors(R2,230 million)
EBIT
200
9
EBIT
201
0
(1,571)M
ulti-
Link
s
Afri
ca O
nlin
e
Inte
rnat
iona
l
MW
EB
Afri
ca
6,915
4,685
ZAR million
Trud
on
Sw
iftne
t
1591
(16) (1)
(567)
(100)
(81)
Effect of adjustments on basic earnings per share
Basic earnings2009
Rm2009 cents
2010 Rm
2010 cents
Basic earnings as reported (Rm) 2,308 461.0 37,352 7,404.7Vodacom (899) (179.6) (40,506) (8,029.9)
Vodacom eliminations (655) (130.9)Vodacom transaction expense 177 35.4Vodacom deferred tax asset (421) (84.1)Profit on sale of Vodacom (44,223) (8,766.8)Taxation relating to the sale of Vodacom 1,774 351.7TCSP Compensation expense 951 188.5STC on R19 special dividend 977 193.7Fair value loss on Vodacom shares 15 3.0
Other 1,010 175.2 5,299 1,050.4Multi-Links put option revaluation 409 81.7Impairment 501 100.1 5,160 1,022.9Swiftnet deferred taxation asset (33) (6.6) 33 6.5STC on R2.60 special dividend 135 26.8Profit on sale of Telkom Media (68) (13.5)FIFA transaction 133 26.6 39 7.7
Normalised basic earnings 2,419 483.1 2,145 425.2
Effect of adjustments on headline earnings per share
Headline earnings2009
Rm2009 cents
2010 Rm
2010 cents
Headline earnings as reported (Rm) 3,057 610.5 236 46.8
Vodacom (899) (179.5) 1,943 385.2Vodacom eliminations (655) (130.8)
Vodacom transaction expense 177 35.4
Vodacom deferred tax asset (421) (84.1)
TCSP Compensation expense 951 188.5STC on R19 special dividend 977 193.7Fair value loss on Vodacom shares 15 3.0
Other 509 101.7 207 41.0Multi-Links put option revaluation 409 81.7
Swiftnet deferred taxation asset (33) (6.6) 33 6.5STC on R2.60 special dividend 135 26.8FIFA transaction 133 26.6 39 7.7
Normalised headline earnings 2,667 532.7 2,386 473.0
Normalised finance charges and fair value movements
ZAR million 2009 Normalised
2010 Normalised %
Interest expense 1,732 1,313 (24.2)
Local loans 1,895 1,535 (19.0)
Foreign loans - 11 -
Finance charges capitalised (163) (233) 42.9
Foreign exchange losses and fair value movements 702 42 (94.0)
Fair value adjustment on derivative instruments 434 (16) (103.7)
Foreign exchange losses 268 58 (78.4)
Total 2,434 1,355 (44.3)
9,73
7
18,2
75
2009 2010
Group interest-bearing debt
(46.7%)
Group statement of financial position
ZAR million 2009 2010 %
Non-current assets 51,002 44,518 (12.7)
Current assets 11,287 12,301 9.0
Disposal group held for sale 23,482 - -
Total assets 85,771 56,819 (33.8)
Capital & reserves 35,495 30,264 (14.7)
Non-current liabilities 16,970 14,204 (16.3)
Current liabilities 17,433 12,351 (29.2)
Disposal group held for sale 15,873 - -
Total equity & liabilities 85,771 56,819 (33.8)
Net debt 15,497 4,723 (69.5)
1.3
0.5
2009 2010
0.5x net debtto EBITDA
13.6% return on assets
16.3
13.6
2009 2010
Group normalised free cash flow
ZAR million 2010
Cash generated from operations 8,063
Add back: CGT liability 1,353
STC on R19 dividend 977
STC on R2.60 special dividend 135
Normalised cash generated from operations 10,621
Proceeds on disposal of PPE and intangibles assets 21
Additions on PPE and intangibles (4,545)
Additions to other investments -
Acquisition on MWEB Africa (497)
Normalised free cash flow 5,507
Normalised free cash flow improvement
Telkom SA revenue
(0.7%)
3.0%
(9.3%)
25.1%
7.1%
ZAR million
Telkom SA traffic revenueTr
affic
vol
umes
Traf
fic re
venu
e
8,82
2
3,63
1
4,11
3
13
656
3,54
6
6,96
3
3,23
8
3,64
6
47
655
3,80
5
Local Long distance Fixed-to-mobile Fixed-to-fixed International outgoing Calling plans
(21.1%)
(10.8%) 7.3%
(0.2%)261.5%
(11.4%)
3,63
4
2,03
6
7,40
9
11
933 1,30
0
3,20
5
1,80
5
6,45
2
37
910 1,
484
Local Long distance Fixed-to-mobile Fixed-to-fixed International outgoing Calling plans
(11.8%)14.2%
(2.5%)236.4%
(12.9%)
(11.3%)
ZAR
milli
on
Milli
ons
of
min
utes
Group normalised operating expenses drivers
Category Segment Driver
Employee expenses Telkom SA • Annual salary increases and an adjustment to accelerate the
elimination of disparities
SG&A Telkom SAMulti-Links
• Higher maintenance cost on new technologies and higher maintenance material cost
• Write down of slow moving and technology obsolete inventory• ICASA changed base of calculation of license fees• Marketing fees
Service fees Telkom SA• Increased electricity• Increased maintenance on the preparation of the sites for the
Soccer World Cup
Operating leases Multi-Links
• Increased utilisation of leased infrastructure as opposed to owned
• Increased maintenance costs as equipment comes out of warranty
Depreciation, amor-tisation, impair-ments & write-offs
Telkom SAMulti-Links • Investment in network and data processing equipment
Group normalised operating expenses
ZAR million 2009 2010 %
Employee expenses 8,015 8,925 11.4
Payments to other operators 8,430 8,386 (0.5)
SG&A 5,704 6,643 16.5
Service fees 2,579 2,702 4.8
Operating leases 833 966 16.0
Depreciation, amortisation, impairments and write-offs 4,659 5,124 10.0
Group normalised operating expenses
8.4%
30,2
20
32,7
46
2009 2010
Company normalised operating expenses – H1 vs H2
Telkom SA operating expenses
ZAR million 2010 H1 2010 H2 % 2009 2010 %
Employee expenses 4,178 4,292 2.7 7,631 8,470 11.0
Payments to other operators 3,929 3,514 (10.6) 7,536 7,443 (1.2)
SG&A 2,551 2,308 (9.5) 4,280 4,859 13.5
Service fees 1,320 1,330 0.8 2,583 2,650 2.6
Operating leases 333 320 (3.9) 613 653 6.5
Depreciation, amortisation, impairments and write-offs 2,208 2,398 8.6 4,225 4,606 9.0
Total 14,519 14,162 (2.5) 26,868 28,681 6.7
Group capital expenditure – major items
ZAR million 2009 2010 %
Access network 587 402 (31.5)Legacy 452 284 (37.2)Mobile - 181 -Next Generation Network 2,180 1,095 (49.8)Fiber 757 567 (25.1)International 240 289 20.4Information operations 431 202 (53.1)Customer premises equipment 432 299 (30.8)Facilities 711 437 (38.5)Other 796 414 (48.0)Telkom SA 6,586 4,170 (36.7)Corporate Centre 87 57 (34.5)Multi-Links 2,791 1,036 (62.9)Other International 80 50 (37.5)Other South Africa 85 64 (24.7)Total 9,629 5,377 (44.2)
Group debt comparison
ZAR million 2009 2010 Movement
TL 12 1,059 1,059 -TL 15 1,159 1,159 -TL 20 1,325 1,374 49Syndicated loan 1 817 - (817)Syndicated loan 2 3,266 3,268 2Private placements 1,480 1,711 231Fixed term loan 2,000 - (2,000)Commercial paper bills 5,476 - (5,476)Foreign loan 138 109 (29)Finance leases 984 950 (34)Total Telkom SA 17,704 9,630 (8,074)Subsidiaries 571 107 (464)Total 18,275 9,737 (8,538)
Debt maturity as at 31 March 2010
ZAR million 2010
Maturing in the 2010 calendar year
Private placing (PP02 and PP03) 1,780
Foreign loan 10
Maturing in the 2011 calendar year
Foreign loan 14
Maturing in the 2012 calendar year
TL12 1,060
Foreign loan 9
Maturing after 2012
Syndicated loans (maturing in 2013) 3,280
TL15 (maturing in 2015) 1,160
TL20 (maturing in 2020) 2,500
Foreign loans (maturing between 2013 – 2025) 76
Guidance
Capex expected to range between 20% and 25% of revenue
Long term net debt to EBITDA of 1.4x
Au Revoir – TKG Group CEO to retirePrior to becoming CEOo Established an undersea fibre cable system around the African
contento Set up the National Network Operations Centre (NNOC)o Drove network digitalisation and upgrade initiativeso Embedded Next Generation Technologies to support fixed-mobile
converged servicesAs CEOo Led the withdrawal from Telkom Mediao Strengthened the core fixed line businesso Negotiated with Vodafone and 3 Presidents for the disposal of
Telkom’s 50% interest in Vodacomo Launched Cybernesto Drove the transformation of Telkom into strategically focused and
distinct profit & loss focused business unito Drove the entry of Telkom into mobile marketo Improved employee engagement levels through a participative
culture revitalisation processo Providing seamless broadcast of the 2010 FIFA World Cup
A life and vision, dedicated to Telkom
Au Revior cont.
As he leaves....
o The strategy is in place
o The structure is in place
o All the operating components necessary to provide the full spectrum of converged services are in place
o Investment in NGN set to begin reaping rewards and provide competitive advantage in the fixed, mobile and data environments
o A workable plan to improve EBITDA by R2bn is in place
o Provisions for the future of the IT-Telecoms environment are in place – e.g. cloud computing and data centre hosting
Telkom is ready to make it happen !
For information purposes
Multi-Links statement of comprehensive incomeexcluding Impairment
Naira millions 2009 2010 %
Operating revenue 27,061 36,548 35.1
Other income 3 266 -
Operating expenses (34,111) (57,192) 67.7
Operating profit (7,047) (20,378) 189.2
EBITDA (2,814) (12,927) 359.4
EBITDA margin (%) (10.4) (35.4) 240.2
Average Naira/Rand exchange rate N14.39 N19.34 34.4
Closing rate at beginning of the period N14.39 N15.56 8.1
Closing rate at end of the period N15.56 N20.58 32.3
Multi-Links operating expenses excluding impairment
Naira millions 2009 2010 %
Employee expenses 1,888 2,298 21.7
Payments to other operators 9,369 16,240 73.3
SG&A 15,405 25,582 66.1
Service fees 459 363 (20.9)
Operating leases 2,757 5,258 90.7
Depreciation, amortisation, impairments and write-offs 4,233 7,451 76.0
Multi-Links statement of financial position
Naira millions 2009 2010 %
Non-current assets 64,829 13,361 (79.4)
Current assets 22,746 7,889 (65.3)
Total assets 87,575 21,250 (75.7)
Capital & reserves (20,483) (38,987) 90.3
Non-current liabilities 86,828 39,545 (54.5)
Current liabilities 21,230 20,692 (2.5)
Total equity & liabilities 87,575 21,250 (75.7)
ZAR million 2009 2010 %
Operating Revenue 33,659 33,911 0.7
Other income 524 21,298 -
Operating expenses (29,478) (37,032) 25.6
Operating profit 4,705 18,177 286.3
Investment income 2,907 800 (72.5)
Gain on distribution of a asset - 30,466 -
Finance charges and fair value movements (1,460) (2,727) 86.8
Taxation (625) (4,854) 676.6
Net profit 5,527 41,862 657.4
Telkom Company statement of comprehensive income
