Financial Report July – September 2015 November 3rd, 2015 TDC Group
1
Disclaimer This Report may include statements about TDC’s expectations, beliefs, plans, objectives, assumptions or future events or performance that are not historical facts and may be forward-looking. These statements are often, but not always, formulated using words or phrases such as "are likely to result", "are expected to", "will continue", "believe", "is anticipated", "estimated", "intends", "expects", "plans", "seeks", "projection" and "outlook" or similar expressions or negatives thereof. These statements involve known and unknown risks, estimates, assumptions and uncertainties that could cause actual results, performance or achievements or industry results to differ materially from those expressed or implied by such forward-looking statements. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this financial report. Key factors that may have a direct bearing on TDC’s results include: the competitive environment and the industry in which TDC operates; contractual obligations in TDC’s financing arrangements; developments in competition within the domestic and international communications industry; information technology and operational risks including TDC’s responses to change and new technologies; introduction of and demand for new services and products; developments in demand, product mix and prices in the mobile and multimedia services market; research regarding the impact of mobile phones on health; changes in applicable legislation, including but not limited to tax and telecommunications legislation and anti-terror measures; decisions made by the Danish Business Authority; the possibility of being awarded licences; increased interest rates; the status of important intellectual property rights; exchange-rate fluctuations; global and local economic conditions; investments in and divestment of domestic and foreign companies; and supplier relationships. As the risk factors referred to in this Report could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made in this Report, undue reliance is not to be placed on any of these forward-looking statements. New factors will emerge in the future that TDC cannot predict. In addition, TDC cannot assess the impact of each factor on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those described in any forward-looking statements. The Market shares included in this report are estimated by TDC Market Intelligence and may change with retrospective effect as increased knowledge of the market is obtained. The total market is defined to include residential and business. Market shares for landline voice, broadband and TV are based on number of lines and mobile voice is based on the number of SIM cards, excluding Prepaid cards and Data only SIM cards.
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CEO comments at a glance
TDC Group reaffirms 2015 guidance on all
parameters A strong quarter in Norway/Sweden (e.g. 8%
EBITDA growth in Get)… ... but unsatisfactory EBITDA decrease of 12% in
Denmark Improved retail mobile voice churn, resulting in net
adds of 13k vs. Q2 Management focus on renewing TDC’s strategic
plan for the coming years
Pernille Erenbjerg, Group CEO
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Financial Highlights TDC Group
DKKm
Q3 2015
Reported
Organic
2015
Growth, % Reported
5,898
4.5
(3.2)
18,121
Gross Profit % margin
4,336 73.5
3.7 1 (0.6)
(4.8)
13,166 72.7
4.1 1 (1.3)
(1,799)
(7.7)
1.5
(5,742)
(7.8)
2,537 43.0
1.0 1 (1.5)
(7.0)
7,424 41.0
(1,018)
(29.4)
(5.0)
1,333
(9.4)
3.0
0.9
EBITDA % margin
Capex EFCF Adjusted NIBD/EBITDA
2.
Growth, %
Revenue
Opex
1.
Year to date
2
6.1
1.5 1 (1.8)
(3,203)
(22.9)
2,447
(16.4)
Organic
(2.1) (4.6)
0.7 (7.3)
2
(3.1)
1
Percentage points Adjusted for the inclusion of Get 4
Q3 2015 performance per business line
1
2
3
1
Consumer: Negative EBITDA development (-7.7%) from pressure on landline voice and mobility service
2
Business: Substantial EBITDA leakage (-16.3%) across products and segments
3
Norway: Strong EBITDA growth in Get (8.2% YoY); TDC Norway EBITDA affected by a one-off in Q3 2015
1. 2.
Business line absolute figures and growth rates exclude eliminations and therefore do not amount to total Group figures The absolute figures show Get’s contribution to TDC Group’s financial results, while the growth figures show Get’s growth from Q3 2014 to Q3 2015 in local currency 5
Quarterly EBITDA trends Denmark1
Norway
Sweden
Reported YoY EBITDA growth -3.1%
-0.4%
0.9%
DKKm 2.5%
1.0%
59
25
315
308
23
173 (61) (3) (16) (80)
Q3 14
257
0
(159)
(206)
(25) (11)
(28)
Q4 14
Q1 15 2
(255)
Q2 15
DKKm
-5.4%
-7.3%
-7.7%
3 (26) (13) (36)
15
9
25
53 1
(226)
(249)
(22) (141)
Q3 14
2.
Q3 15
-1.4%
(134)
Q4 14
(180)
(23) (195)
Q1 15
•
YoY increase in reported EBITDA driven by the acquisition of Get; Q3 is the last quarter with full effect from the acquisition
•
Organic EBITDA decrease in Q3 at the same level throughout 2015 (-7%), as the worsened development in Denmark is cushioned by improvements in Sweden/Get and a positive one-off in TDC Norway
(1)
Organic2 YoY EBITDA growth
1.
(283)
0 (201)
Q2 15
-7.0%
(195)
Q3 15
Eliminations between countries included in Denmark numbers Adjusted for regulation, acquisitions/divestments, sales of assets and forex 6
Continued growth in our cable activities Get (Pre TDC)
Get
YouSee
Share of TDC
TDC Group cable revenue1,2
29%
DKKm
31% +4%
5,425
5,619
1,674
1,761
3,751
3,858
YTD 14
YTD 15
TDC Group cable EBITDA1,2
DKKm
•
Revenue and EBITDA YTD growth in both Get and YouSee
•
Our cable activities now represent 35% of TDC Group EBITDA, up by 5 pp YoY on a pro forma basis
•
Our cable based customer base consist of 1.5m TV subscribers of which 50% are broadband penetrated. 56% of all TDC Groups broadband subscribers are on a cable network, the remainder is on copper/fibre
Cable customers in Q3 2015
‘000
Share of TDC Group B2C customers
35%
30%
2.
56%
1,535
+6%
1.
85%
2,444
2,584
801
873
1,643
1,711
YTD 14
YTD 15
1,107 (10%)
776 439 (40%)
428 (90%)
337 (79%)
TV (Box penetration)
Broadband (BB penetration)
Pro forma reporting including Get before acquisition and with fixed exchange rates for comparative reasons (Q1-Q3 exchange rate of 0.848 DKK/NOK applied) YouSee activities include TV, BB, mobile and digital services, as well as cable installation work in Operations. Costs from Danish cost centres related to YouSee activities are obtained by using activity based modelling
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Transforming YouSee from a flow TV supplier to a high speed entertainment universe May 2015
High speed broadband to all customers >400K broadband customers upgraded to 50+ mbps
Aug 2015
Live TV through web and app to all customers Increased access to YouSee’s entertainment universe through an app
Dec 2015
300 mbps available to all customers
Q1 2016
Top quality entertainment experience across all screens
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Mobility services in Denmark Consumer
Business
YoY growth
Market share, %
Organic1 YoY gross profit growth
-6.1%
(74)
-5.8%
-11.1%
DKKm
-13.2%
(68)
•
Consumer’s mobile voice customer base up by 11k vs. Q2; improved churn rates YoY for the 2nd consecutive quarter due to cross selling to existing TV and broadband customers
•
Consumer’s mobile voice ARPU down by 4.1% YoY
•
Business’ mobile voice ARPU down by 15.1% YoY
(86)
(155) Q4 14
Organic gross profit development improved compared with the last quarters driven by development in Consumer subscriber base
-7.5%
(129) Q3 14
•
Q1 15
Q2 15
Mobile voice ARPU
Q3 15
DKK/month
Mobile voice RGU net adds & market share 42%
42%
41%
41%
‘000 41%
159 144 122
119
139 116
135
133 114
117
13
10 4 (4) (15)
Q3 14
1. 2.
Q4 14
Q1 15
Q2 15
Q3 15
Q3 14
(21)
Q4 14
(2)
11 2
(16)
Q1 15
Q2 15 2
Q3 15
Adjusted for regulation and acquisitions/divestments Business net adds in Q2 2015 influenced by a movement of 3k Justfone RGUs from Wholesale to Business 9
Mobile spectrum licenses and upcoming auctions Upcoming mobile frequency licenses to be auctioned1 2011
2013
Low frequency licenses
2015
2017
2019 2020 2021
800 MHz
900 MHz
700 MHz
2x20Mhz B 2x10Mhz A2
2x30MHz
TBD by EU
High
2600 MHz
1800 MHz
2100 MHz
frequency
2x70MHz
2x65MHz
2x60MHz
•
In 2012, TDC acquired 2x20MHz of the 800 MHz license, which was a primary catalyst in TDC reaching the position as Denmark’s best mobile network
•
Next auction will be the 1800 MHz license, as the existing licenses expire in December 2016. The auction is expected to be concluded before summer 2016
•
A series of licenses will be up for auction in the next few years: 1800 MHz, 900 MHz (2019), possibly 700 MHz (2020) and 2100 MHz (2021)
licenses
Current distribution of frequencies 2600 MHz
2100 MHz
1800 MHz
MHz 900 MHz
Low vs high frequency spectrum
800 MHz High frequency: +
144
40 86
Capacity/speed in cities and in indoor environments Low frequency:
30
+
Long range coverage (countrywide)
+
Capacity/speed in rural areas and cities
20 15
43
40 10 15
22
1. 2.
9 20
21
TDC
T&T
10
10
5
0
•
A mix of frequency licenses are needed in order to be cost effective and provide needed coverage
Hi3G
Licenses generally lasts for 20 years A license had limitations to Sealand, Bornholm and Jutland 10
Internet & network in Denmark Consumer
Business
Wholesale2
Organic1 YoY gross profit growth
-0.8%
(9)
-1.2%
-1.1%
(14)
(13)
Market share, %
YoY growth
DKKm
-2.8%
-4.7%
(33) (56) Q3 14
Q4 14
Q1 15
Q2 15
•
Gross profit deterioration in Q3 due to Business, partly affected by loss of some large contracts on network capacity
•
Customer growth in YouSee offset by loss in TDC brand due to increased price competition following the new wholesale prices (LRAIC), also negatively affecting Wholesale ARPU (-18.2% YoY)
Q3 15
Broadband ARPU
DKK/month
Broadband RGU net adds & market share 59%
281
268
187
262
121
191
105
191
93
57%
56%
1
3 3 (4)
116
58%
262
255
192
189
58%
‘000
0
3 (6)
6 (5)
99
6
(7)
4 0 (5)
(7)
Q3 14 1. 2.
Q4 14
Q1 15
Q2 15
Q3 15
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15
Adjusted for regulation and acquisitions/divestments Including xDSL resale, BSA and VULA 11
TV in Denmark TDC/Fullrate brand
YouSee brand
YoY growth
Organic1 YoY gross profit growth
-3.2%
-4.2%
0.2%
Market share, %
DKKm
1.2%
1.4%
7
8
1
(18) (24) Q3 14
Q4 14
Q1 15
Q2 15
ARPU
•
Continued TV customer growth in the TDC brand and Fullrate vs. Q2 2015
•
Continued net loss of YouSee TV customers due to leakage of both individual customers and antenna associations
•
Small ARPU decline vs. Q2 2015 in TDC brand/Fullrate and YouSee due to changed product mix
Q3 15
DKK/month
RGU net adds & market share 54%
312
307
303 233
231
306 245
55%
54%
‘000 54%
54%
303 243
241
7 (8)
10
9
4
(4) (12)
3 (6)
(27)
Q3 14 1.
Q4 14
Q1 15
Q2 15
Q3 15
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15
Adjusted for acquisitions/divestments
12
Get Broadband
TV
YoY growth
EBITDA1
12.0%
317
Q3 14
NOKm
9.6%
9.9%
309
322
Q4 14
Q1 15
9.0%
365
Q2 15
Residential ARPU
274 246
343
280
279
275 248
248
Get delivered strong YoY gross profit and EBITDA growth of 6.4% and 8.2%, respectively
•
Customer growth in Get on broadband and TV; broadband penetration up 1 percentage point vs. Q2 2015 to 79%
•
Get household ARPU rose by 3% YoY driven by higher broadband penetration and higher TV ARPU
Q3 15
NOK/month
248
• 8.2%
Residential RGU net adds
‘000
278 247
8
6 8 4 1 Q3 14
1.
Q4 14
Q1 15
Q2 15
Q3 15
Q3 14
5
6 4 1 Q4 14
Q1 15
Q2 15
2 Q3 15
Including Gets historical data before the acquisition as of November 2014
13
Sweden Operator
Integrator
YoY growth
Revenue
-2.4%
700
SEKm
4.7%
6.9%
10.7%
862
836
830
365
378
384
497
458
446
389
Q4 14
Q1 15
Q2 15
Q3 15
357
343 Q3 14
EBITDA
10.1%
•
Strong revenue growth for the 4th consecutive quarter; since Q2 this has also resulted in GP and EBITDA growth
771
•
Growth in mobile subscriptions fuelled by increased sale of combined business solutions including mobile
•
Migration to the new MVNO contract with TeliaSonera is progressing as planned
382
SEKm
Operator RGUs
‘000
Mobile subscriptions 2.8%
-24.5%
110
-22.0%
96 80
1.2%
1.8%
112 86 87
Q3 14
1.
Q4 14
Q1 15 1
IP-VPN
Q2 15
Q3 15
101
119
137
145
17.5
17.6
18.0
18.1
18.1
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15
Negatively affected by a positive one-off on transmission costs in Q1 2014 (SEK 18m) due to reversed provision related to regulatory pricing decisions 14
Opex & capex YoY growth
Organic1 YoY opex development
5.8%
-2.3%
-0.1%
DKKm
0.9%
1.5%
•
Organic opex savings in Q3 YoY driven by a reduced spend in Denmark on facility, IT, marketing and fewer faults at customer sites leading to lower costs to contractors and wages in cost centre
•
YTD investment spending increased relating mainly to the inclusion of Get, but also targeted IT investments in Denmark on digitalisation and preparation of Trefor’s network for delivery of TDC products contributed to the increase
103
18
27
(2) (44) Q3 14
Q4 14
Q1 15
Q2 15
FTE development
Q3 15
‘000
Capex, YoY growth
DKKm
Get +596 -1.8% 44
8,906
260
704
76
11
7
3,203
8,749
762
515 2,607
Q3 2014
1.
Outsourcing
Acqusitions
Efficiency improvements
Q3 2015
YTD 2014
Get
IT
Network
Customer YTD 2015 installations
Adjusted for acquisitions/divestments, sales of assets and forex
15
Equity Free Cash Flow DKKm
YTD 2014
2,928
766
EBITDA (excl. Get)
Capex (excl. Get)
(255)
(33)
39
EBITDA-Capex (Get)
YoY growth Q3 15
358
Net interest paid
Other1
YTD 2015
Adjusted NIBD/EBITDA 1.
•
Growth in special items mainly related to redundancies
•
EFCF full-year expected to be at the same level as 2014. A negative EBITDAcapex contribution from the Danish business, offset by positive cash contribution from Get as well as lower tax paid
101
58 -16.4%
Special items
Negative impact from income tax paid as Q3 2014 included a refund from prior years following the final resolution of a dispute with the tax authorities in Denmark
89
Change in NWC
Income tax paid
•
19
43
260
(220)
125
110
24
26
2,447
3.0
Including adjustment for non-cash items, pension contributions, payments related to provisions and finance lease repayments
16
Guidance 2015 reaffirmed on all parameters
2015 guidance
1. 2.
Organic revenue
Same development as in 2014 (-2.5%)
EBITDA1
At the same level or slightly better than 2014 (DKK 9.8bn)
Capex
~DKK 4.3bn
DPS
DKK 2.50
YTD performance
Status
-2.1%
On track
DKK 7.4bn2
On track
DKK 3.2bn
On track
DKK 1.00
On track
Assuming an exchange rate of ~0.85 DKK/NOK Corresponding to YoY EBITDA growth of +1.5% 17
Q&A
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A.1 Landline Voice in Denmark Consumer
Market share, %
YoY growth
Business
Organic1 YoY gross profit growth
-11.9%
(86)
Q3 14
-14.0%
-12.2%
(82)
DKKm
-13.1%
•
Consumer churn rates have stabilised at the same level as before the price increases one year ago
•
Business ARPU decrease of DKK 26 in Q3 YoY driven mainly by the Public segment due to negative effects from SKI renegotiations in 2014
(84)
(100) Q4 14
-16.6%
(106) Q1 15
Q2 15
ARPU
Q3 15
DKK/month
RGU net adds & market share 67%
346
338
329
332
139
144
142
66%
65%
64%
(29)
(27)
320
(39)
138
67%
‘000
(37)
(40)
142 (11) (9)
Q3 14
1.
Q4 14
Q1 15
Q2 15
Q3 15
Q3 14
(8)
(5) (11) Q4 14
Q1 15
Q2 15
Q3 15
Adjusted for regulation and acquisitions/divestments
19
A.2 Other services Sale of handsets
NetDesign
Other
YoY growth
Revenue
-2.5%
DKKm
25.9%
17.7%
-1.3%
476
204
538 212
137 212
135
189
Q3 14
Q4 14
218
440
434
143
107
217
24.3%
208
108
79
119
Q1 15
Q2 15
Q3 15
Gross Profit
DKKm 55.3%
Revenue from mobile handsets sold with a positive margin decreased YoY in Q3, as a result of lower sales in Consumer to third-party vendors as well as customers awaiting the release of a new iPhone
•
Diminishing YoY impact on revenue and gross profit development from the paper communication fees, as the fees were introduced in July 2014 and since then more customers transferred to fully electronic communication
•
TDC’s Security Operations Centre, offering end-to-end cyber security to B2B customers, has obtained the CERT certificate, confirming its capability to provide first-class detection and response
-8.8%
680 279
•
11.2%
4.3%
-4.6%
288
292
293
Other services consist of… Mobile handsets
368 307
Eliminations Paper communication fees
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15
20
A.3 Operational KPI’s Non-acceptable customer experiences1
71
Q3 14
73
Q4 14
Index YTD
67
Q1 15
Q2 15
65
Q3 15
Hours ('000)
167
Q3 14 1. 2.
Q4 14
('000)
74
Faults correction time
147
Answered calls
139
Q1 15
2,173
2,191
Q3 14
Q4 14
2,334 1,995
Q1 15
Q2 15
TDC Recommend score2
2,189
Q3 15
Index YTD
65
65
63
64
64
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15
140 124
Q2 15
Q3 15
Q1 2009 = Index 100. A lower index equals a more positive customer experience (e.g. an index of 60 equals a reduction in share of non-acceptable customer experiences of 40% since Q1 2009) Recommend score is TDC’s variant of the Net Promoter Score (Would you recommend TDC to family and friends/colleagues and business associates). 100 is maximum score (0-100 scale)
21
A.4 Regulatory update Revenue loss from regulation1
DKKm
656
253
•
Roaming: ‘Roam-like-at-home’ regulation will be a two step process. Firstly, retail roaming prices will be reduced to current wholesale prices from May 20163. Secondly, retail prices will be equivalent to ‘Roam-like-at-home’ prices from June 2017. Still, there is uncertainty concerning impact on future wholesale prices. TDC expects the commercial pressure on roaming prices to continue in the transition period
•
LRAIC: Revision of fixed network wholesale prices with effect as of 1 January 2016 will result in only minor price adjustments
•
Coax: Previously expected requirement to resell a TV package on coax has been withdrawn. Instead, a data-only solution will be introduced in Q1 2016
•
Fibre: TDC’s obligation to connect wholesale fibre customers, who are located within 30 meters of TDC’s fibre network, may result in investments with a long payback
~250 ~100
2013
2014
2015
Gross profit loss from regulation2
183
2013
1. 2. 3.
2016
DKKm
128
~125
~100
2014
2015
2016
Regulatory includes mobile termination rates regulation (voice and SMS), international roaming regulation and various landline regulations (ULL, leased lines, BSA, VULA and interconnect) There is no gross profit loss caused by mobile termination rates regulation (voice and SMS) Applies to customer with a package product. Customers with a ‘Pay-as-you-go’ product can be charged the domestic retail price plus a wholesale charge, however the combined price must not exceed the current regulated retail roaming price
22