Transcript Value Propositions Overview

Presentation to the
Portfolio Committee
20 November 2012
Slide 1
Agenda
BBI at a glance
Chairperson
Unpacking the Mandate
Chief Executive Officer
Operational Overview
Chief Financial Officer
Audited Financial Results
Chief Financial Officer
Road Map
Chief Executive Officer
Slide 2
BBI at a glance
Slide 3
Mandate
Broadband Infraco’s legislative mandate is set out in the Broadband Infraco Act No. 33 of 2007
(the “Act”).
The main objectives as set out in the Act are to
expand the availability and affordability of access to
electronic communications;
 Including but not limited to under developed and
under serviced areas;
 In support of projects of National Interests;
 In
accordance
with
the
Electronic
Communications Act and commensurate with
international best practice and pricing;
 Through
the
provision
of
electronic
communications network services and electronic
communications services.
Slide 4
Broadband Infraco proposition re-stated
Strengths
Unique Strengths
Regional connectivity
National connectivity

Exclusive servitude access:
Eskom & Transnet
Latent strengths

Shareholding

Maintenance teams in the field

Network Operating Centre
Relative Strengths

Very High service level records
(managed fibre)

Stable network functionality

Above-average Mean Time To
Respond standards.

Expanded national footprint: 110
Customer termination sites, 151
long distance sites and over 12
700km fibre optic

WACS investment
International connectivity Interlinking East & West
Coast international cables
Slide 5
Unpacking the mandate
Slide 6
Mandate
Broadband Infraco’s legislative mandate is set out in the Broadband Infraco Act No. 33 of 2007
(the “Act”).
Mandate Objectives
Regulatory including
licensing
Status to date
2008 = 6 000km
Expand the availability and
affordability
of
access
to
electronic communications
Licensed in 2009.
Operates
within the ROU contract
Among others connect under
developed and under serviced
areas
Universal access obligations to
deliver to areas with no access
17 USAL POPs (2012)
International best practice and
pricing
Obligation to be lower than the
market
Market price decline
Support of projects of National
Interests
ECNS issued / ECS status
2012= 12 675km
Enabled connectivity for Science
Projects in NC and reserved
capacity on WACS
Slide 7
Shareholder funds and investment : 2007 to 2012 FY
R’000
• Industrial Development
Corporation R474m
Capital investment
R1 645m
• Details of investment
made by BBI
• Department of Public
Enterprises R1 351m
• Cash generated from
Shareholder funds
R1 825m
operation R262m to
12 675km of fibre
fund operation
151 long distance sites
Slide 8
Expanding Access: Enabling Serving Delivery R444.7m
Expansion: R444.7million was invested to connect Government through SITA.
This was to have the South Ring between Gauteng, Kwa-Zulu Natal Western Cape.
It covered seven provinces. Limpopo and Mpumalanga are excluded
Kwa-Zulu Natal
Ulundi R9.7m
Western Cape
George R1.3m
Eastern Cape
Gauteng
Grahamstown R1.6m
Pretoria CBD
Megawatt
North Station
R109.4
Closing the ring
Northern Cape
North West
Free State
Upington R314m
Mafikeng R7.5m
Welkom R1.0m
Slide 9
Expanding Access: Broadband to all: R317.2m
Kwa-Zulu Natal
R74.3m
Duff to Stanger to Zinkwazi then
Athene R64.1m
Mpumalanga
R11.8m
Gauteng, Kwa-Zulu &
Western Cape: R160.8m
Increase capacity on the Golden
triangle R116.2 m i.e. 38 PoP and
Fibre deployment
Ermelo
Internet
Protocol:
network: R44.6m
Provisioning services to Secunda
R1.9m
to
Geluksplaas
then
Witbank R9.9m
North Station to Durban : creation
of parallel link R6.8m
Oribi, Eros & Kokstad
R3.4m
Free State
R14.9m
Welkom R2.3m
Scalable
Limpopo
R10.9
Eastern Cape
R44.5m
Uniondale
,
Louterwater
then
Melkhout: R35.8m
Bethlehem to Sorate R1.7m
Megawatt to Bloemfontein
deployment of fibre R10.9m
Grahamstown alternative route
connecting Rhodes university
R8.7m
NSN, Belabela, to
Modimolle, Mokopane then
Polokwane
R10.9m
Slide 10
Expanding Access: Underserviced areas
Northern Cape
De Aar
Copperton/
Prieska
Douglas
Colesburg
Limpopo
Mopani
Kwa-Zulu Natal
Uthukela
Mpumalanga
Nkangala
Motsweding
Ugu
Bohlabela
Umgungundlovu
Zululand
Eastern Cape
Free state
Northwest
Amatole
Lejweleputswa
Capricorn
Gauteng
Central
OR Tambo
Slide 11
SADC Integration: R36.7m
R36.7 million was incurred
enable regional integration
telecommunications services
Swaziland: Created new route that
goes through Pietretief then
Mahamba
Namibia: Created new route Aries,
Schuibsdrift then Onseepkans
Mozambique:
Kamedien
Komatipoort on the TFR fibre
Zimbabwe
Beitbridge
R9.3m
to
of
Swaziland
Mahamba
R15.8
Botswana
to
South Africa
Zimbabwe:
Beitbridge.
Soekmekaar
to
Mozambique
Komatipoort
R1.4m
Namibia
Onseepkans
R10.2m
Lesotho
Maseru
Slide 12
Enable Connectivity to the world R503.7m
EAST(OTHER UNDER SEA CABLE)
KWA-ZULU NATAL
WEST (WACS)
MNTUNZI INTERCONNECT
WESTERN CAPE AND NORTHERN CAPE
R31.7M
YSTERFONTEIN AND CARNAVON
WACS : R440.5 ANDSALT/KAT: R32.0m
The SALT/ KAT project interconnect the telescope to Cape Town. International scientists community
will require capacity to do research.
Route from Cape Town to Sutherland via Laingsburg
KAT Cape Town to Carnarvon
Slide 13
Enabled Quality Services: R89.9m
It cost the company R89.9m to provision quality services to its customers.
Network Operating Centre :
R47.5m
Establishment of the NOC:
R15.2m
Testing Equipment
R15.5m
Monitoring system
R10.9m
Equipment for technicians
Remote
Fibre
Test
System:
pre-emptive
analysis of the fibre status:
R5.1m
in the filed to detect faults
as directed by the NOC:
Upgrade
of
the
TNMS
R15.5m
R32.3m
Environmental
System : R5.8m
Alarm
Transmission equipment R16.0m
Battery replacement program R1.2m
Service cards R14.8m
Slide 14
Operational review
Slide 15
Key performance areas
PROJECTS
PERFORMANCE
• Challenges due to breakdown in internal controls in 2010/2011, resulting in time
delays and under expenditure.
• Measures being implemented to ensure proper planning and execution
• WACS was implemented within budget and planned time lines
• Availability of customer services in accordance with commercial contracts better at
99.81% compare to 99.95%
• Availability at the services level (protected) 99.94% better than target of 99.5%
• Actual time to restore core network faults 4.73hrs target of 8hrs
• 55 Point of Presence in the Underserviced areas were implemented
• Additional 293km of fibre deployed during the year under review
EXPANSION
• 6 Open Access Point of Presence were achieved
• IP core switches were implemented in the Golden Triangle to ensure that BBI can
sell capacity smaller than 155mbps: Target SMME and Municipalities
Slide 16
Network Performance
101.00%
YTD Customer Average
Average
Contracted Expectation
100.00%
99.00%
98.00%
97.00%
96.00%
95.00%
94.00%
Customer availability exceeded all contractual obligations.
Note : The MSA with Neotel has been signed at 99.5% and rebates can only be incurred after completion of the
migration process is complete.
Broadband Infraco is working on ensuring that we meet the service level requirements.
Slide 17
Performance indicators
Employees
Unit
2012
2011
2010
% Var.
2011-2012
Compensation to employees
Rm
85
64
49
32
Number of employees
#
168
156
76
8
Black representation in senior
management
%
72
80
67
Women representation in Senior
Management
%
44
12
19
Rm
1.6
1.7
1.4
(6)
R’000
9.5
10.9
18.4
(13)
Total training spend
Average training spend per employee
Staff compliment at the end of financial year was 168 of which 39% was female and it is the Company’s drive to improve on
this.
The process of addressing and correcting the breakdown in internal controls that were observed in the 2010/2011 resulted
in a number of vacancies in key positions.
For the first six months of the financial year, one permanent executive position out of the eight funded positions was filled.
Most of these positions were filled at the end of the financial year.
Slide 18
Developing ICT Skills
BBI staff compliment is 168, of which 53% is made up of technical employees.
52% of the technical team are under the age of 35, opportunity to develop skill for
the country ICT requirements.
Gender profile
Male
Race profile
Female
African
Coloured
Age profile
Indian
White
35
36-39
40
19%
11%
22%
1%
8%
52%
81%
26%
80%
Slide 19
Audited Financial Results
Slide 20
Financial overview
• Positive cash was generated from operating activities of R52.0m during the year.
• Revenue growth of 32% included an IFRS adjustment of R92.0m in 2010/2011 financial year, resulted in a 1% real
growth.
• A new Master Sale Agreement was concluded with Neotel five years after the expiry of the ROU
• 73% of procurement spend on BBBEE based on the DTI framework.
Slide 21
Internal control overview
• Unqualified audit report.
• Irregular expenditure identified by management and reported, back date to 2008/2009 financial year.
• Actions taken against employees was taken in accordance with Company Policy that are aligned to the Labour
Relations Act.
• Policies and procedures were reviewed and where required developed and employees were trained to ensure
proper implementation.
Slide 22
Key financial indicators
Unit
Audited March
2012
Audited March
2011
Audited
March 2010
Revenue growth
%
32
(3)
11
Gross profit margin
%
30
12
23
Net profit (loss) margin
%
(35)
(69)*
(33)
EBITDA - loss
R’m
(26.6)
(81.2)
(9.7)
Working capital
ratio
6.1
9.3
7.48
Capital expenditure
R’m
155.5
536.6
245.3
Capital to revenue
ratio
0.39
1.8
0.8
Cash balances
R’m
442.2
529.1
851.8
Slide 23
Statement of financial performance
R’000
Audited March
2012
R’000
Audited March 2011
R’000
Variance
393 563
297 560
32%
Cost of sales
(275 370)
(261 149)
-5%
Gross profit
118 193
36 411
225%
Operating expenses
(258 585)
(244 120)
-6%
Results from operations
(140 392)
(207 709)
32%
Finance income
53 877
47 506
13%
Finance costs
(8 707)
(45 405)
81%
Profit/ (Loss) before taxation
(95 222)
(205 608)
54%
-
(1 324)
(95 222)
(206 932)
Revenue
Income tax expense
Profit/ (Loss) for the year
54%
Slide 24
Revenue growth
R’m
400
Year on Year revenue movement
was due to the following:
350
Gaining four new customers
300
e.g. Vodacom, Seacom, BCX
250
etc.
92
10
25
1
17
200
394
Growing revenue base from
the existing customers.
The price decline factored by
the Company as part of its
mandate of bringing the cost as
150
273
273
Price
decline
New:
Managed
service
customers
290
300
301
100
50
0
well as market movement of
-50
broadband down resulted in a
R25.0m reduction in revenue
298
-100
The R92.0 million represent the
-150
impact of accounting treatment
-200
Revenue
2011
New: IRU
Additonal
IFRS
Maintenance adjustment
and
opeartions
Revenue
2012
on the agreement with
customers.
Slide 25
Fixed costs*
Broadband cost are largely fixed or semi fixed with
changes not having a direct impact/link to the revenue
line.
The main drivers of the costs are fibre km and state of
the network.
As the company increases its fibre through lease
instead of building the cost of sale of increases.
The lease maybe increased as part of providing
redundancy and meeting service level requirements.
The industry norm is that if three fibre lines are
provided the direct charge to customers is 10% more
on the price not 100% recoverability.
The condition of the network also affect cost spend
for maintenance.
The Outsource and Managed service fees were paid to
Neotel as part of the ROU agreement that expired on 7
January 2012.
Neotel was responsible for overseeing the
maintenance of BBI network and Network
Operating Centre (NOC).
As of 8 January 2012, Broadband Infraco have a
complete control over its network and NOC.
‘* Amounts in Rand millions
‘** The agreement expired on 7 Jan 2012
Slide 26
Capital expenditure
This is an area where there were significant breakdowns in the internal control environment that resulted in the following:
Qualified audit report due to the irregular expenditure and
Intervention by the Executive Authority exercising oversight, putting a hold on projects that were not properly authorised until
corrective measures are implemented.
Table 1: Capital programme : 2011/2012
Audited March 2012
R’000
Audited March 2011
R’000
Variance
Notes
-72%
a
National Backhaul
69 752
International capacity : WACS
84 198
283 188
-70%
b
Office equipment and software
1 528
3 473
-56%
c
155 000
536 600
-71%
Total capital expenditure
249 953
Notes:
a.
The lower expenditure was due to organisational realignment to address the governance issues which resulted in vacant positions
and a delay in executing the capital programme. The vacancies arose as part of the drive to address governance matters. Some
employees were dismissed and others resigned.
b.
The decline in WACS is part of the planned project timelines and budget, as the project was due to be launched in May 2012. Total
investment at the end of the financial year was R440.5 million.
c.
Expenditure for office equipment were in line with the Company’s requirements, taking into account staff numbers and the life of the
equipment.
Slide 27
Capital expenditure
The investment in the national backhaul for the financial year ended 31 March 2012 of R69.7 million was in the following areas.
Table : Major capital projects for : 2011/2012
Province
Project Name/
Benefit
Amount
R’000
Northern Cape: Carnarvon
Southern African Large Telescope (SALT) and the
Karoo Array Telescope (KAT)
Enable National Science Project
Northern Cape: Upington
Link Upington to Schuidsdruft
2nd line to provide redundancy
All provinces
Battery Replacement Programme
Address technology life cycle
Gauteng, KZN and WC
IP core Phase 1
Ability to sell scalable capacity
Regional connectivity
International gateway: Swaziland, Zimbabwe,
Namibia borders
Regional connectivity as per the
mandate and customer
requirements
Eastern Cape: Grahamstown
Grahamstown Alternate Route
Improve quality of services
1 275
Kwa-Zulu Natal: Mtunzini
10G capacity links in Mtunzini
Improve quality of services
2 067
All provinces
Fibre replacement in short distances
Address technology life cycle and
save repair costs
2 987
All provinces
Establishment of 11 Points of Presence throughout
the country: Phase 1
Improve accessibility and grow the
business
8 049
32 000
667
3 068
13 746
Slide 28
Statement of cash flows
700
54
600
52
-
500
38
84
71
400
300
529
529
581
543
459
200
388
442
100
-100
Cash as at Mar
2011
Operating
activities
Finance income Finance costs
WACS
National capex Cash as at Mar
2012
-200
The 16% movement year on year is mainly due to
Cash revenue growth from connecting the CSIR in the Northern Caper for project of National Importance.
Finance income was through investment of funds as per the Company Policy.
Investment in WACS is part of acquiring the international connectivity that enable among others SKA
connectivity.
Finance cost movement was as a result of the movement of foreign currency incurred in the 2010/2011 on
the WACS investment.
The National CAPEX of R71.0m include national backhaul connectivity and office equipment.
At year end the Company had sufficient cash to operate as a going concern. Measures are being
implemented to continue improving the company's liquidity position.
Slide 29
Irregular Expenditure
Identified in 2011/2012
Incurred in 2011/2012:
Initial
process
followed
but
contract was value was exceeded
R3.9m
Indentified in 2010/2011
Incurred in 2010/2011
R130.0m
Goods and services were
received by the company or
for the benefit of the
company
Loss of the advantage of
competitive
bidding
to
determine the best possible
price from the market.
Incurred prior to 2011/2012:
Processes were not followed for
procurement
R69.5m
Transition from
Eskom to BBI
R9.7m
Review and /or investigations
were
conducted
to
determined the impact of the
financial loss if any.
Matter
under
investigation
by the Accountant
General’s office
Processes
have
been
implemented to avoid future
irregularities.
Training conducted for both
the employees and directors.
Post transition
R59.8m
Slide 30
Supplier Chain Management
12% of capital expenditure : Black Women
R4.7m
54% of capital expenditure : Black Owned
Companies: R21.4m
1% expenditure on professional firms owned
by Black Women
R5.9m
expenditure
on
Black
professional firms representing 27%
owned
Broadband Infraco’s spending with
companies meeting the necessary
level 1 to level 4 B-BBEE contributor
requirements amount to 73% of the
spend
Black Women procurement spend is
significantly low on especially on
provision of professional services,
installation of fibre and other related
services
Focus on improving as part of the
Company CSDP and Company
policies and procedures.
Broadband Infraco procurement
strategy is moving towards regional
procurement activities. The first
procurement activity of this nature
was done in the Northern Province
for the survey and installation of
fibre on the Eskom network.
Slide 31
Road Map 2013 and beyond
Slide 32
Provincial Broadband Segmentation
Provinces with immense commercial
imperative
[to a lesser
extent]
Gauteng
Western
Cape
KwaZulu
Natal
Free State
Commercial
powerhouse
of
Southern Africa;
33, 9% of the
National Economy
and 10% of the
total GDP of the
African Continent;
high
infrastructure;
some
rural
underserviced
areas;
45/7%
traffic
Up to 16,8% traffic
origination;
second
most
important province
in
terms
of
economic activity;
some
underserviced
townships
10.8%
traffic
origination; high
infrastructure
in
urban areas with
gaps
in
rural
areas
4.7%
traffic
origination; a most
strategic province
by
virtue
of
centrality
and
strategic location
Broadband Infraco will pursue these
provinces
purely
commercially;
redundancy/diversity;
Higher
SLA’s;
Private sector will also target them; Wider
Pop Access
KZN footprint
Western Cape footprint
•
•
•
Free State footprint
Gauteng footprint
Neotel-Vodacom-MTN (and SANRAL) Fibre Co-Build initiative:
Johannesburg-Durban and Johannesburg-Bloemfontein are both
just over 90% complete and should be by early 2013..
Bloemfontein-Cape Town is more than 50% finished, and is
expected to be complete in mid 2013.
FibreCo build from Bloemfontein to Cape Town
Where large metropolitan municipalities are initiating own fibre
roll-outs (City of Johannesburg; City of Cape Town; City of
Tshwane; Ekurhuleni Metropolitan Municipality; eThekwini
Slide 33
Provincial Broadband Segmentation
Broadband Infraco Limpopo footprint
Provinces for case-based engagement
Eastern Cape
Mpumalanga
Limpopo
3.8% traffic origination;
high economic growth
hubs
6.2% traffic origination;
significant potential
4.1% traffic origination;
vibrant
broadband
policy deliverables
Broadband Infraco Mpumalanga footprint
These provinces represent great opportunity; and
will be pursued as a matter of first priority
(backhaul; metro access and last mile) partnerships
with the private and public sector.
The private sector has very low appetite for these
provinces because of the lower economic activities
Broadband Infraco Eastern Cape footprint
The roll out of broadband in these provinces needs
to be driven by a socio economic benefit
Slide 34
Provincial Broadband Segmentation
Provinces with Socio-Economic imperative
North West
Northern Cape
5.9% traffic origination; poor
infrastructure spread.
2.1% traffic origination; sparsely
populated (less than a million)
with very poor infrastructure;
Broadband Infraco Northern Cape footprint
These provinces do not represent a
viable commercial business case.
Purely universal access roll-out.
Shareholder or provincial/customer
funding required. Partnerships are an
imperative
With the low population densities as
well as the low GDP alternate
technologies that require spectrum
have to be explored
Broadband Infraco North West footprint
Slide 35
Collaboration with State
Owned Entities e.g.
Sentech, TFR
Expand footprint
especially in rural areas
Government as anchor
customer
Operational
efficiencies
Connection of National
and International
network
Focus on CSDP for
regional involvement
Collaboration with
Eskom on accreditation
of Suppliers
Improve BEE rating
Capital expenditure
Improve capacity
utilisation
EBITDA
Market position
Sell small capacity to
meet the Provincial and
local government
requirements and SMME
Supply Chain Management
Short to Medium term targets
Strengthen and
enhance the quality of
the network
Technology evolution
and technology life
cycle on existing old
network equipment
Access links to
stimulate take-up of
existing capacity
Slide 36
Collaboration with
stakeholders
Network performance
improvement
Strategic Infrastructure
Projects (SIP)
SIP 15 : expanding access to
communication technology.
SIP 16 : Supporting global
science projects viz Square
Kilometre Array and Meerkat,
Eg. 70% of the current
available capacity on the
West Africa Cable System
(WACS) reserved for these
specific projects.
Manage quality and safety
of the network
Increase capacity utilisation
Licence condition and
Licence
condition
and
compliance
thereof
compliance thereof
Continuous engagement on
Continuous
engagement on
regulatory framework
regulatory framework
Regulator
Critical to sustainability of
the business
Business Partners
Customers
Short to Medium term targets
Spectrum and access
potentials
Slide 37
Short to Medium term targets
Enhance talent
management
Support on future
plans
and
expansions
Improve
partnering on
environmental
issues
Increase regional
participations
Maintain a shorter
payment terms
for SMME’s
Retention and
attraction strategy
Employees
As provider of
capital, report on
financial
performance and
overall
sustainability
of
the company
Suppliers
Shareholders
Performance
management
Regular
engagements and
consultation with
employees and
organised labour
Enhance employee
related policies
Improve condition
of services and
provide basic
employee benefits
Slide 38
Questions
Slide 39
Connect. Growth, UNLOCKED.