Overview presentation September Telkom SA Limited Overview [1]

Transcription

1 Overview presentation September 2005 Telkom SA Limited Overview [1]

2 Cautionary statement on forward looking statements All statements contained herein, as well as oral statements that may be made by us or by officers, directors or employees acting on behalf of the Telkom Group, that are not statements of historical fact constitute forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995, specifically Section 27A of the US Securities Exchange Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause our actual results 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 are those risks identified under the caption Risk Factors contained in item three of Telkom s most recent annual report on Form 20-F filed with the U.S. Securities Exchange Commission ( SEC ) and Telkom s other filings with the SEC, available on Telkom s website at including, but not limited to, increased competition in the South African fixed-line and mobile communications markets; developments in the regulatory environment and further liberalisation of the telecommunications market; Telkom s ability to reduce expenditure, customer non-payments, theft and bad debt; the outcome of arbitration or litigation proceedings, including the outcome of Telkom s hearing before the Competition Commission related to the VANS litigation and its proceedings with Telcordia Technologies Incorporated and others; the impact of the Municipal Property Rates Act, the ability of Vodacom and Telkom to expand their operations in other African countries and the general economic, political, social and legal conditions in South Africa and those countries; fluctuations in the value of the Rand and inflation rates; our ability to retain key personnel; and other matters not yet known to us or not currently considered material by us. You should not place undue reliance on these forward-looking statements. All written and oral forwardlooking 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 hereof either to conform them to actual results or to changes in our expectations. This presentation may contain certain non-gaap financial measures. Reconciliations between the non-gaap financial measures and the GAAP financial measures are available on the company s website at Telkom SA Limited Overview [2]

3 Overview Telkom SA Limited Overview [3]

4 Group profile At March 31, 2005 Listed on the JSE Securities Exchange, South Africa and NYSE Telkom is the incumbent fixed-line operator in South Africa 50% stake in Vodacom, the leading mobile operator in South Africa JV partners - Vodafone and Venfin Group revenue of ZAR 43.1bn (USD 6.9bn) 4.7 million fixed-lines 12.8 million mobile customers in South Africa 2.7 million mobile customers in rest of Africa 225,280 internet customers in South Africa #1 in SA Telkom SA Limited Overview [4]

5 Group shareholders Government and PIC hold the class A and B shares respectively which have special rights PIC sold 6.7% of Telkom isssued shares to a BEE group Elephant Consortium in May 2005 Telkom subsidiaries repurchased 23.6m shares or 4.2% held as treasury shares Government PIC Investment Corporation Free float 37.7% 8.4% 43% 4.2% Treasury Total shares in issue of 557million Elephant Consortium 6.7% Telkom SA Limited Overview [5]

6 Chief officers Chief Executive Officer Papi Molotsane Chief Financial Officer Kaushik Patel Chief Operating Officer Reuben September Chief Sales & Marketing Officer Nombulelo Moholi Chief Corporate Affairs Officer Mandla Ngcobo Chief Technical Officer currently vacant Telkom SA Limited Overview [6]

7 Group financial highlights 7% increase in revenue 41% EBITDA margin In ZAR billion 43 EBITDA margin (%) % increase in free cash flow In ZAR billion % growth in HEPS 1 In ZAR cents Headline earnings per share 350% increase In dividends per share to 900 ZAR cents per share Ordinary -400 cents per share Special cents pershare Telkom SA Limited Overview [7]

8 Delivering on strategic targets Customer growth and retention 32% growth in managed data network sites to 11,961 49% growth in internet customers to 225,280 38% growth in mobile customers to 15,4 million 188% growth in ADSL customers to 58,532 Operational excellence 12% improvement in fixed lines per employee 12% reduction in vehicle fleet 28% improvement in mobile customers per employee Sustaining market place R5.2bn BEE spend, 62% of procurement spend Trained 1,370 BEE suppliers Telkom ranked most empowered company 2 nd consecutive year amongst the top 185 JSE companies Telkom SA Limited Overview [8]

9 Segment summary In ZARm FY Mar-04 FY Mar-05 Y-Y% Fixed-line Operating revenue 30,906 31, Operating profit 6,628 7, EBITDA 12,609 12, EBITDA margin (%) Capex to revenue (%) Mobile (50% Vodacom) Operating revenue 11,428 13, Operating profit 2,619 3, EBITDA 3,884 4, EBITDA margin (%) Capex to revenue (%) Telkom SA Limited Overview [9]

10 Macro environment Telkom SA Limited Overview [10]

11 The macro economic environment Real GDP (% yoy) Apr-00 Aug-00 Dec-00 Apr-01 Aug-01 Dec-01 Apr-02 Aug-02 Dec-02 Apr-03 Aug-03 Dec-03 Apr-04 Aug-04 Dec-04 Growth is picking up on the back of strengthening private consumption and as a result of earlier fiscal and monetary policies. Surging commodity prices, credible policies and economic stabilization underpin sustained exchange rate strength. Decisive policy decisions have successfully brought inflation in line with target (3 6%). Interest rates are at 10.5%, the lowest in 24 years. CPIX (% yoy) ZAR:$ exchange rate /01/2005 Apr-00 Aug-00 Dec-00 Apr-01 Aug-01 Dec-01 Apr-02 Aug-02 Dec-02 Apr-03 Aug-03 Dec-03 Apr-04 Aug-04 Dec-04 4/3/2000 6/26/2000 9/18/ /11/2000 3/5/2001 5/28/2001 8/20/ /12/2001 2/4/2002 4/29/2002 7/22/ /14/2002 1/6/2003 3/31/2003 6/23/2003 9/15/ /8/2003 3/2/2004 5/25/2004 8/17/ /9/2004 Telkom SA Limited Overview [11]

12 Fixed-line voice market Fixed-line penetration % of population Year ended March 31, In September 2004, the Minister granted a second national operators (SNO) licence Licence not yet issued by regulator Sentech granted a carrier of carrier international licence Value-added network service licencees may carry voice over their networks Telkom SA Limited Overview [12]

13 Fixed-line data market Telkom customers Mar 31, 2005 ADSL customers ,532 % change % revenue market share 1 of SA VANS and ISP market Internet customers (thousands) 225, Managed data networks 11, Telkom 25% Telkom has a VANS license and is an ISP (Telkom Internet) Estimated 160 value-added network licensees and 200 ISPS (3-4 major players) Sentech (100% government owned) Multimedia license Other 75% 5.2m Internet users 2 in SA 1. BMI Technologies, Report 2004; 2. BMI-T Report Q Telkom SA Limited Overview [13]

14 Mobile markets SA mobile penetration % of population Year ended March 31, Three mobile operators in South Africa MTN and Vodacom operating since 1994 Cell C operating since November % market share March 31, 2005 Cell-C 9% MTN 35% Vodacom 56% Telkom SA Limited Overview [14]

15 Recent developments Telkom SA Limited Overview [15]

16 Latest regulatory developments VANS regulations VANS regulation published in May 2005 Addresses applications process and fees Rights still unclear Tariff regulation ADSL S27 findings by ICASA Final regulation approved by Minister in August 2005 Productivity factor increased from 1.5% to 3.5% Tariffs filed for September 2005 Main issue raised: duplication of charges (i.e. line rental & ADSL service fee) ICASA proposal: once off access charge at inception of service Mobile prices S27 enquiry Main issues raised: excessive mobile phone costs Submission due in September Telkom SA Limited Overview [16]

17 New fixed-line tariffs filed for September Tariff adjustments for September 2005 % change from Jan % 8.4% 6.0% -3.0% -10.0% -5.0% -10.9% Overall ILD DLD Local Connection Rental Data Telkom SA Limited Overview [17]

18 Vodacom quarterly update SA customers In thousands 11% Outside SA customers In thousands 11% 12,838 14,289 Mar 2005 Jun 2005 SA ARPU In ZAR 8% SA Churn % ,645 2,927 Mar 2005 Jun 2005 Mar 2005 Jun 2005 Mar 2005 Jun 2005 Telkom SA Limited Overview [18]

19 Vodacom new tariffs Launch Happy Hours R1.49 per minute on-network weekday betweeen 17:00 and 20:00 for contract an prepaid Compared to tariffs of R1.76, R2.55 and R3.25 per minute for peak on network calls R2.99 per minute for all prepaid peak calls High end average contract price increases of 1.5% and 2.2% for Talk 500 and Talk 100 respectively Telkom SA Limited Overview [19]

20 Telkom SA Limited Overview [20]

21 A more competitive fixed-line business 16% growth in fixed-line data revenue Accelerated ADSL rollout plans Significant price reductions EBITDA margin of 41% 11% reduction in headcount 12% reduction in vehicle fleet Telkom SA Limited Overview [21]

22 Some growth in fixed-line customer base Fixed access lines In thousands (external lines) 1.0% ISDN channels In thousands 9.8% ISDN 15% Line contribution March 31, 2005 Payphones 4% 563 4,709 4,680 4, Prepaid 18% Postpaid 63% 21% reduction in fixed access line disconnections Telkom SA Limited Overview [22]

23 Successfully moving minutes to ADSL Local traffic revenue In ZAR million (3%) Local minutes In millions (6%) 5,616 5,910 5,746 20,396 20,547 19,314 Excluding ADSL impact local minutes increased 4.5% Local minutes (excl ADSL impact) In millions 20,396 Telkom SA Limited Overview [23] 21,446 22, % 5% reduction Local call rate 38 cents per min from 1 September 2005

24 Price reductions in long distance DLD revenue DLD minutes 10% reduction In ZAR million 3,562 3,770 (5.1%) 3,579 In millions 4,728 4,616 (3.5%) 4,453 in domestic long distance tariffs from 1 Jan 2005 and further 10% reduction from 1 September 2005 Domestic long distance call rate 80 cents per min from 1 September 2005 Telkom SA Limited Overview [24]

25 Competitive international rates ILD revenue In ZAR million 1,284 1,312 (13.5%) 1,135 ILD minutes In millions (2.8%) % reduction on average in international long distance tariffs from 1 Jan 2005, tariffs unchanged in September 2005 US/UK/Australia call rate R1.70 per min on circuit switching and R1.20 per min for VOIP Telkom SA Limited Overview [25]

26 Strong data, internet and ADSL growth 32% growth in managed data network sites to 11,961 49% growth in internet customers to 225,280, of which 10% are broadband 188% growth in ADSL customers to 58,532 Launched WIFI Telkom T-Zones commercially 16% growth in data revenue ZAR million 4,425 5,023 5,808 11% reduction Average price decrease in data products from 1 September 2005 Telkom SA Limited Overview [26]

27 Investing for new services Capex for customer growth ADSL services New line growth e.g. gated communities Data connectivity and business systems Links for the mobile operator 3G rollouts Capex to evolve the network Evolving transport network to high speed and improved reliability Softwitch deployed in trial Legacy switches upgraded to interface with softswitch and new services capability Capex to increase efficiencies Workforce management Asset management Customer relationship management Expansion 46% R4.1 billion Fixed-line capital expenditure Evolution 18% Efficiencies 29% Support 7% Telkom SA Limited Overview [27]

28 Telkom SA Limited Overview [28]

29 Strong performance from Vodacom 20% growth in operating revenue to R27.3 billion 24% growth in EBITDA to R9.6 billion 35.1% EBITDA margin 24% growth in operating profit 27% growth in net profit Dividends paid of R3.4 billion 38% growth in total customers In thousands 8,647 11,217 15, % of Vodacom, Telkom consolidates 50% Telkom SA Limited Overview [29]

30 Leading mobile operator in SA Customers In thousands 32% Gross connections In thousands 24% 23 million Estimated mobile customers in SA 7,874 9,725 12,838 ARPU 3,495 4,998 6,180 Churn MTN 35% Cell C 9% Market share at 31 March 2005 In ZAR % Vodacom 56% Telkom SA Limited Overview [30]

31 Successful launch of 3G service in SA SMS s transmitted In billions GPRS users In thousands 100 Launched first 3G network in SA Launch of Vodafone Live! services MMS users In thousands % growth in data revenue to R1.3 bn R400 million capital expenditure on 487 3G base stations 10,853 active 3G users on network at 31 March % of Vodacom, Telkom consolidates 50% Telkom SA Limited Overview [31]

32 Strong mobile growth outside SA borders Customers In thousands 77% , , , ,645 Total Tanzania DRC Mozambique Lesotho ARPU per month In ZAR 2.6 million mobile customers outside of South Africa Tanzania DRC Mozambique Lesotho Telkom SA Limited Overview [32]

33 Telkom SA Limited Overview [33]

34 Increasing group profitability ZAR million Operating revenue , ,117 % % EBITDA margin Other income Operating expenses 255 (31,494) 280 (32,175) Operating profit 9,245 11, Investment income Finance charges Taxation 322 (3,264) (1,711) 350 (1,695) (3,070) 8.7 (48.1) % operating profit margin Net profit Basic earnings per share (cents) 4, ,807 1, EBITDA 16,493 17, Telkom SA Limited Overview [34]

35 Segment contribution Segment contribution (after inter-segmental eliminations) March 31, 2005 Operating revenue Operating profit Net profit Mobile 28% Mobile 22% Mobile 17% Fixed 72% Fixed 78% Fixed 83% Telkom SA Limited Overview [35]

36 Strengthened group balance sheet In ZAR million % 26% net debt to equity Non-current assets 42,841 42,672 (0.4) 108 Current assets 10,322 14, Total assets 53,163 57, % return on assets Capital and reserves Non-current liabilities 22,572 16,420 27,073 13, Current liabilities 14,171 16, Total equity and liabilities 53,162 57, Net debt 13,362 6,941 (48.1) 10 Telkom SA Limited Overview [36]

37 Capital investment to support growth Capital expenditure In ZAR million ,862 4,103 5,307 10% 5,850 Maintained capital expenditure to revenue within guidance range of 12% - 15% 1,445 1,747 Fixed-line Mobile Total Capex to revenue % Fixed-line Mobile Group Telkom SA Limited Overview [37]

38 Increased group cash flow level ZAR million % 12% increase in operating free cash flow to R10 billion Cash generated from operations Dividend paid Operating activities 14,432 (548) 13,884 16,340 (629) 15, Higher capital expenditure and increase in investment in retirement funding vehicle Investing activities (5,423) (6,306) 16.3 Financing activities Net decrease in cash Cash at end of year (6,481) 1,980 2,796 (9,897) (492) 2, (124.8 ) 17.7 Includes repurchase of shares of R1.7bn and short-term cash investments of R3.8bn Telkom SA Limited Overview [38]

39 Strong growth in shareholder returns Dividends per share In ZAR cents 350% Level of dividend ensures that net debt to equity remains within targeted level of 50%-70% % dividend 8.1 yield Annual Special Total Based on share price of R on 31 May 2005 Telkom SA Limited Overview [39]

40 Telkom SA Limited Overview [40]

41 Future strategic direction Transform traditional business Move to IP based network Aggressive rollout of ADSL Offer converged IP services Growth engines VAN/ISP/IT services Wholesale services Mobility Outside SA Our vision is to be a leading communications company Telkom SA Limited Overview [41]

42 Financial outlook for March EBITDA target was to achieve 39%, 41% achieved EBITDA margin in 2006 is expected to be impacted by the introduction of competition, price reductions in data services and more aggressive rollout of IP network, target to maintain above 40% Capital expenditure in 2006 is expected to be closer to the top end of our guidance of 12%-15% as we more aggressively rollout ADSL and our IP network Debt levels are expected to be maintained to achieve net debt to equity ratio of 50%-70% Telkom SA Limited Overview [42]

43 Investor relations Belinda Williams Tel: Fax: Telkom SA Limited Overview [43]