Investors/Analysts Meet October 25 th, 2005
Safe Harbor Statement Some of the statements herein constitute forwardlooking statements that do not directly or exclusively relate to historical facts. These forward-looking statements reflect our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors, many of which are outside our control. Important factors that could cause actual results to differ materially from the expectations expressed or implied in the forward-looking statements include known and unknown risks. Because actual results could differ materially from our intentions, plans, expectations, assumptions and beliefs about the future, you are urged to view all forward-looking statements contained herein with caution. VSNL does not undertake any obligation to update or revise forward looking statements, whether as a result of new information, future events or otherwise.
Agenda Financial Highlights Q2 FY06 H1FY06 Vs. H1FY05 Q2FY06 Vs. Q1 FY06 Updates on Acquisitions Strategies for growth
Financial Highlights Q2 FY06
Financial Highlights Q2 FY06 Revenue growth of 19%, EBITDA growth of 11% and EPS growth of 3% over Q2 of previous year All the subsidiaries have shown revenue growth All business units have shown volume growth With respect to Q1 FY06, revenues have remained flat, EBIDTA and PBT have declined Agreed to acquire Teleglobe Inc. for $239 million Agreed to acquire Tata Power Broadband for Rs.239 crores Alliance with Thomson to jointly explore opportunities in the Indian media and entertainment market Capex till 30 th Sept ~Rs.350 Cr
Financial Results Q2 FY06 Particulars (Rs Cr) For the quarter ended For the half year ended September 30, September 30, 2005 2004 2005 2004 (unaudited) (unaudited) (unaudited) (unaudited) 1 Net Sales/ Income from operations 930 779 1,829 1,574 2 Other Income 32 29 61 53 Total Income 961 808 1,890 1,627 3 Total Expenditure 824 607 1,406 1,176 a. Network Cost 534 491 1,036 971 b. Operating and Other Expenses 152 81 272 136 c. Salaries and Related Costs 53 35 98 70 4 Depreciation 89 57 169 112 5 Prior Period Adjustments (3) - (19) - 6 Profit before taxes and exceptional items 137 144 334 339 7 Profit Before Tax 137 144 334 339 8 Provision for Taxation 46 56 116 124 9 Net Profit 91 88 218 215
H1FY06 vs. H1FY05
H1 FY06 v/s H1 FY05 Operating revenue has increased by 16% All the business segments have shown revenue growth All the business segments have shown volume growth EBIDTA has grown by 11% and PAT has increased by 1% EPS for H1FY06 at Rs. 7.65 as against EPS for H1FY05 at Rs. 7.54
Revenue Growth in all segments Rs.1574 Cr Rs.1829 Cr Others Others Corporate Data NLD 19% 130% Corporate Data NLD ILD 7% ILD H1 FY05 H1 FY06
Volume Growth in all segments NLD Dom Bw 168% 240% NLD 41% ILD Dom Bw 65% Intl Bw ILD Intl Bw H1 FY05 H1 FY06 H1 FY05 H1 FY06
Cost analysis H1FY06 vs. H1FY05 Network costs increased by 7% on account of increase in volumes in ILD, NLD and corporate data business Operating expenses increased on account of Increased spend on R & M with increased asset base, asset capitalized in H1FY06 ~Rs. 475 cr. Increase in Marketing and Advertisement spend Increase in provisioning for bad debts Salaries increased by 40% on account increased manpower count in line with business growth and increase in salaries
Q2 FY06 vs. Q1 FY06
(Rs. Cr) Q2 Q1 FY06 FY06 INCOME: 1 TRAFFIC REVENUES 930 915 2 OTHER INCOME 17 11 3 INTEREST INCOME (net) 14 18 4 TOTAL INCOME 961 944 EXPENDITURE: 5 SALARIES AND RELATED COSTS 53 46 6 NETWORK COSTS 534 502 7 OPERATING AND OTHER EXPENSES 152 120 8 DEPRECIATION 89 80 9 PRIOR PERIOD ADJUSTMENTS (3) 10 TOTAL EXPENDITURE 824 747 PROFIT BEFORE TAXES AND EXCEPTIONAL ITEMS 137 197 PROFIT BEFORE TAXES 137 197 11 TAXES (Refer Note B, Schedule 20) - - (a) CURRENT TAX (51) (68) (b) DEFERRED TAX 6 (1) (c) FRINGE BENEFIT TAX (1) (1) - - PROFIT AFTER TAXES 91 127
Sequential analysis Q2 v/s Q1 All business segments have shown volume growth ILD volumes have increased ~9% NLD volumes have shown significant growth ~20% Data segment volumes have grown ~16% Total revenues flat for Q2FY06 despite tariff impact PBT margin declined from 21% to 15% on account of Increased network costs by 6% due to higher ILD volumes and rise in ILD outgoing cost. ILD retentions declined by ~8%. Salary costs increased by 15% as manpower count increased by 202 in line with the business growth and salary revisions Operating expenses increased by 26% on account of onetime expenses due to M&A activities, provisions for bad debts and R & M Depreciation increased by 12% on account of increase in addition to asset base in Q2 by ~180% over Q1
Update on Acquisitions
Tyco Global Network Deal completed on June 30 th 2005 Integration process has been started with the help of a global consulting outfit. TGN is expected to be cash profit positive by FY07 VSNL now has 30 points of presence in 12 countries across North America, Europe and Asia VSNL gets ~ 60,000 km of state of art under sea cable assets which were built at a cost of ~ USD 2.5 bn ~ 125 customers, ~ 200 employees, global skill sets in bandwidth business. Strategic Benefits: Will place VSNL as a major player in the key global telecom infrastructure market. Enable a foray into the following business segments: Wholesale international bandwidth/carriers sale, International enterprise connectivity and International enterprise value added/managed services TGN along with VSNL s investment in consortium cables landing in India will provide an edge in the India-centric enterprise connectivity/value added services market
SNO license in South Africa The Department of Communications, Government of South Africa, decides to allot an effective 26% strategic equity share to Tata/VSNL. The other partners are State owned enterprises Eskom & Transtel (15% each) Black Empowerment Enterprise - Nexus Connexions (19%) Private consortiums Communitel & Two Consortium (12.5% each) Total project cost estimated to be Rs 5,000-6,000 Cr. Tata/VSNL s investment is estimated to be Rs.850 1,000 Cr over a period of 4 years SNO will be the second player in fixed line telecom market. Government-owned Telkom SA, is the incumbent monopoly player. SNO will initially focus on high margin data business and also provide domestic and international voice, including internet and broadband services. Overall size of telecom services market in South Africa (2004) estimated at ~ USD 12 billion (almost equal split in fixed and mobile). The South Africa venture is expected to provide the anchor for VSNL to achieve a footprint in other African countries.
Teleglobe acquisition: Consideration Agreed to acquire Teleglobe Intl. Holdings on July 25, 2005 Enterprise Value: USD 239 million Equity Offer: USD 4.50 per share (value: USD 178 mn) 22% premium to previous close of share price Incl. net debt of USD 61 mn Transaction structured as an Amalgamation under Bermuda law Subject to Shareholder and Regulatory / Government approvals. The acquisition is likely to completed in Jan Mar quarter
Teleglobe: Highlights* Leading wholesale international voice player with over 1400 customers Over 13 billion minutes of traffic globally, No. 1 in VoIP globally (ITXC acquisition) Extensive signaling network Maintaining interconnectivity with more than 90% of the worldwide GSM subscriber base with more than 380 mobile operators as customers. Over 200 direct and bilateral agreements Three lines of business namely: Voice, Data and VAS Ownership Interest in over 80 submarine and fibre systems Owns 70% in CANTAT3 (Can-Eur) & 100% in CANUS (Can- US) Global network constructed at an estimated value of USD 2 bn since 1990 * Source: Teleglobe website
Teleglobe s International Network* * Source: Teleglobe website
Teleglobe s International Network contd.* * Source: Teleglobe website
Teleglobe s International Network contd.* * Source: Teleglobe website
Tata Power Broadband VSNL and Tata Power Co. Ltd. executed MoU wherein VSNL would be acquiring TPBB at an enterprise value of Rs.239 Cr TPBB s key business is sale of bandwidth for wholesale and retail applications Has over 800 kms of optical fibre infrastructure, up and running with 650 kms in Mumbai and 150 kms in Pune It has 40 key clients which includes private telecom service providers, ISPs, Data and Contact centre
Strategies for Growth
Wholesale Voice Volume growth due to aggressive pricing Aggressive rates offered to the major carriers. Major share of un-aligned NLD Traffic Aggressively pursuing un-aligned Access providers to route their Inter-Circle traffic Inter-connectivity with major cellular operators established. TTSL subscriber growth likely to help build volumes. Overseas Sri Lanka Commercial traffic flowing with all operators including SLT Major share of non - SLT outgoing traffic Growth in data services Overseas UK/US Commercial voice traffic commenced Teleglobe acquisition VSNL becomes a global international wholesale voice player
Enterprise Business: Drivers International connectivity As per NASSCOM the demand is expected to double over the next 5 years Domestic connectivity Demand is expected to grow 8 folds in the next 5 years as per the industry estimates Internet connectivity Demand is expected to grow 15 folds over the next 5 years driven by retail broadband penetration Managed services Managed services is expected to double over next 5 years Source: Industry / VSNL estimates
Enterprise Business: Strategic Initiatives Monetise existing infrastructure by capitalising on the emerging carrier s opportunity Selectively build last mile infrastructure to improve product offering Deploy a proactive and differentiated VPN offering Re-invigorate account and channel management to maximise share of enterprises and SMEs Develop a managed services portfolio to enhance revenues and lock-in customers
IBG - Strategies Establish VSNL as a meaningful global player in the communications market Leverage the size and reach of TGN to move beyond simple connectivity products, and beyond the India-route Complement and strengthen the VSNL domestic portfolio Enhance shareholder value
Truly Global VSNL* Ownership of the most advanced global submarine cable system Leading provider of international submarine cable bandwidth Top 3 provider of international wholesale voice No. 1 wholesale VoIP service provider Tier-1 ISP Leading IP transit provider Leading presence in India and Sri Lanka wholesale voice & enterprise data markets Gateway into Africa through South Africa SNO licence * post Teleglobe acquisition
Challenges Wholesale Direct Customer Access CAC Calling Cards Grey Market & Access Deficit Charges (ADC) Unified License Regime (ULR) Enterprise Pricing pressure IP-VPN and last mile Retail Last Mile Broadband market growth International TGN Teleglobe completion SNO
VSNL s Vision Become a leading global telecommunications company, a partner of choice to Enterprises, Carriers and select Retail Customer segments worldwide And the journey is well under way
THANK YOU