Interim Financial Report
January-September 2013
November 1, 2013
TDC Group
Disclaimer
This presentation 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
thisreport. The 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 the 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 by the Danish Business Authority; the possibility of
being awarded licences; increases in interest rates; status of important intellectual property rights; exchange-rate
fluctuations; global and local economic conditions; investments in and divestments of domestic and foreign companies;
and supplier relationships
2
Q3 Highlights
•
Revenue down by 4.4% in Q3, which is an improvement on the H1 2013 development, with continued
negative effects from regulation (accounting for approx. 50% of reported revenue decline)
Financial
•
Gross profit down by 3.3% in Q3 vs. -4.3% in H1 2013, positively influenced by our best mobility services
performance for a couple of years
•
•
•
Opex savings of 5.8% resulted in EBITDA declining by only 1.4% in Q3; highest EBITDA margin ever (43.3%)
EFCF YoY growth of 14.3%
2013 revenue guidance revised from DKK 25.0-25.5bn to DKK 24.5-25.0bn following a lower than expected
revenue from low-margin areas (Nordic and handset sales)
•
Unchanged 2013 EBITDA, capex and DPS guidance, as higher than expected opex savings compensated for
minor gross profit shortfall
Operational
•
Small increases in business and residential mobile ARPUs vs. Q2 2013, positively affected by increased
roaming
•
Strong intake in mobile subscribers in TDC brand, but residential mobile net adds down by 8k due to
continued drain on low ARPU subscribers and one-off migration churn following M1/Fullrate integration
•
•
•
•
Continued strong TV net adds in the TDC brand (+5k vs. Q2) fuelled by HomeTrio Mobil intake
Loss of organised customers affected the YouSee brand Q3 net adds on TV (-4k) and broadband
Best Q3 number of fault-handling hours in more than four years driven by few faults
Increased recommend score (66) and customer satisfaction score (76)
3
Financial Highlights
DKKm
Q3
2012
YTD
2013 Growth %
2012
2013 Growth %
Revenue
6,348
6,069
(4.4)
19,568
18,456
(5.7)
Gross Profit
4,599
4,448
(3.3)
13,946
13,390
(4.0)
72.4
73.3
71.3
72.6
% margin
Opex
-
-
(1,933)
(1,820)
5.8
(6,199)
(5,788)
6.6
% margin
(30.5)
(30.0)
-
(31.7)
(31.4)
-
EBITDA
2,666
2,628
7,747
7,602
% margin
42.0
43.3
39.6
41.2
Capex
(798)
(764)
(1.4)
-
-
(2,581)
(2,516)
2,234
2,637
18.0
Group FTE EoP
9,246
8,937
(3.3)
Domestic FTE EoP
8,020
7,692
(4.1)
EFCF
1,186
1,356
4.3
(1.9)
14.3
2.5
4
New mobile network partnership
Contract facts
Expected outcome
•
•
Protect TDC’s leading network position
•
More “value for money”: Substantial
improvement of capacity and 3G & 4G coverage
•
4G coverage obligations met ahead of time
•
New quality regime moves focus from network
quality to customer experience
•
•
6 years contract signed with Huawei,
replacing Ericsson, with an expected total
contract value of approximately DKK 4bn
Huawei will supply build out services, mobile
RAN equipment for 2G, 3G and 4G as well as
operating and maintenance services
Swap of current Ericsson equipment expected
to be finalised over the next 1½ years
3G (21 Mbps)
% of population
3G (42 Mbps)
% of population
85
70
4G
% of population
70
99
72
39
44
54
40
2012
2013E
2015E
2012
2013E
2015E
2012
2013E
2015E
5
Launch of a variety of new products and services to target
households and maintain TV & BB position
Stronger household offerings…
Mobile Family plans
… and freedom of choice
Broadband ”Mix it yourself”
• Significant change in intake split - doubling
family subscription share since launch
• New ”pick & choose” YouSee broadband
• Growth in net adds since launch of new
mobile voice portfolio week 28
• Freely chose distribution between
Fullrate TV re-launch
• No frills, low cost
IPTV (Launch Sep. 27)
• 600 new TV customers
per week since launch
• 42% are entirely new
Fullrate customers
• 75% of customers from
competitors
portfolio to counter utilities’ symmetric fiber
download & upload speeds online
TV ”Mix it yourself”
• Launch February 2014
• First mover to liberate
packages and ensure
freedom of choice
among 100+ channels
• Freely choose 10 or 34
channels on top of
basic package
• 86% on up sale product
6
Customer satisfaction KPI’s
Unacceptable customer experiences
1
Index
98
74
68
56
Q3 09
Q3 10
Faults correction time
Q3 11
Q3 12
49
•
Continued YoY improvement in number of
unacceptable customer experiences
•
Fewer cable and volume faults drive continued
Q3 YoY reductions in number of fault handling
hours (16.6%)
•
Customer satisfaction back to record high score
of 76 after a minor decrease in Q2 2013
Q3 13
2
Index
Customer satisfaction
Index
234
76
222
74
206
71
187
Q3 09
1
2
Q3 10
Q3 11
Q3 12
156
66
Q3 13
Q3 09
Q3 10
72
Q3 11
Q3 12
Q3 13
Q1 2009 = Index 100. A lower index equals a more positive customer experience
Compared to TDC Factsheet, Q3 2011 is normalised by subtracting 26.500 hours due to the heavy rainfall in July 2011 (Copenhagen cloudburst)
7
Mobility Services
ARPU (subscriptions)
181
121
168
117
Q3 12
DKK/month
166
Q4 12
120
117
115
Q1 13
163
161
Q2 13
•
Significant regulatory impact (-9%)
on reported revenue, but
significant improvement in YoY
decreases in organic revenue and
gross profit vs. H1 2013 and 2012
levels
•
Small increase in business and
residential ARPU (+DKK 2-3 vs. Q2
2013) affected by increased
roaming due to seasonality
•
Improved intake in the TDC brand,
but net adds down by 8k due to
drain on low ARPU subscribers and
migration churn in M1/Fullrate
Q3 13
RGU net adds (subscriptions)
‘000
18
8
12
8
-7
12
-8
-26
-27
-37
Q3 12
Residential
1
Q4 12
Q1 13
Q2 13
Q3 13
Business
Compared to TDC Factsheet, Q3 data have been adjusted to reflect a movement of 8k “Fullrate Erhverv” RGUs from Consumer to Business
8
Landline Telephony
ARPU
DKK/month
366
345
139
138
Q3 12
136
132
Q4 12
367
335
Q1 13
348
135
Q2 13
Q3 13
RGU net adds
-10
-11
-25
Residential
1
Q4 12
-10
-11
•
Residential net adds continues to
be negatively affected by
successful HomeTrio Mobil
•
Business’ strategy of selling
integrated solutions showed solid
progress, as “TDC One” more than
doubled RGUs vs. Q2
-24
-35
Q3 12
Low traffic revenue during
summer months negatively
affected Business ARPU (down
DKK 19 vs. Q2)
‘000
-7
-22
•
Q1 13
Q2 13
-33
Q3 13
Business
Compared to TDC Factsheet, Q3 data have been adjusted to reflect a movement of 7k “Fullrate Erhverv” RGUs from Consumer to Business
9
Broadband
ARPU
DKK/month
303
301
180
181
Q3 12
298
181
Q4 12
295
181
Q1 13
283
181
Q2 13
Substantial Business ARPU decline
(DKK 12 vs. Q2) due to continued
migrations to a new generation of
low-ARPU products
•
Slowdown in YouSee’s RGU growth
with a level development vs. Q2
2013. High intake rates were
maintained, but churn was affected
by loss of some organised
customers
Q3 13
RGU net adds
‘000
12
8
•
8
4
0
-1
-3
-3
-4
-6
Q3 12
Residential
1
Q4 12
Q1 13
Q2 13
Q3 13
Business
Compared to TDC Factsheet, Q3 data have been adjusted to reflect a movement of 15k “Fullrate Erhverv” RGUs from Consumer to Business
10
TV
ARPU
DKK/month
319
301
Q3 12
236
228
224
323
314
Q4 12
Q1 13
323
238
Q2 13
232
Continued strong RGU net adds in
TDC/Fullrate brand (+5k vs. Q2)
fuelled by HomeTrio Mobile intake,
while YouSee net adds were
negatively affected by the loss of
organised customers (4k RGUs)
•
TV ARPU decreased by DKK 6 vs.
Q2, due to migration to smaller TV
packages under the YouSee brand
and the fact that Q2 included a
one-off boost from a pay-per-view
boxing event
•
The number of streaming events
doubled vs. Q3 2012. However,
growth rates have slowed due to
competition
Q3 13
RGU net adds
‘000
6
5
•
8
6
3
-6
5
-6
-6
-16
Q3 12
Q4 12
TDC/Fullrate brand
Q1 13
Q2 13
Q3 13
YouSee brand
11
Nordic
Revenue
DKKm
3,304
3,178
751
591
242
249
1,236
1,195
931
1,075
1,143
YTD 11
YTD 12
YTD 13
3,056
800
207
1,118
Landline Telephony
Mobility
Internet & network
DKKm
474
493
241
256
117
117
129
118
125
-5
-9
112
-4
YTD 11
YTD 12
YTD 13
199
TDC Sweden
TDC Norway
TDC Finland
Revenue growth lower than
expected due to increased price
pressure across countries resulting
in lower ARPUs in landline voice,
IP-VPN and mobility services
•
Gross profit margin up from
40.3% in Q3 2012 to 42.6% in Q3
2013
•
Market shares maintained across
products and countries
Terminal eq.
EBITDA
429
•
Other, incl. eliminations
12
Group
financials
Q3 2013
13
Revenue Bridge
DKKm
Q3
YTD
2012
6,348
Forex
29
Acq/Div & Sale of assets
Regulatory
19,568
10
1
32
139
Domestic landline
35
Domestic mobility services
28
Domestic TV
53
2
37
Nordic
45
2013
6,069
Organic growth -2.0%
YTD growth
527
103
Domestic internet & network
Domestic terminal equipment, etc.
35
(11.5%)
322
-4.4%
70
-5.7%
(1.7%)
150
(3.1%)
181
6.2%
111
180
(5.6%)
(5.4%)
18,456
Organic growth -3.4%
Regulatory includes mobile termination rates regulation (voice and SMS), international roaming regulation and various fixed line regulation (ULL, leased line,
BSA, VULA and fixed line interconnect)
2 Terminal equipment, etc. includes mobile and landline phones and equipment sales in Consumer and Business (incl. NetDesign), including sale of smart
phones without subsidies. In addition to terminal equipment, the category also contains eliminations and income from systems integration, installation
work, operator service, service fees, and rental of masts
1
14
EBITDA Bridge
DKKm
Q3
YTD
2012
2,666
7,747
Forex
7
3
Acq/Div & Sale of assets
2
3
Regulatory
1
30
GP - domestic landline
159
84
GP - domestic internet & network
(9.0%)
227
33
(1.7%)
62
-1.4%
GP - domestic mobility services
GP - domestic TV
GP - Nordic
6
2013
1
112
34
19
Opex
-1.9%
16
GP - domestic terminal equipment, etc.
YTD growth
(3.0%)
70
4.3%
(14.2%)
114
1.3%
17
113
7.0%
436
2,628
7,602
Organic growth 0.0%
Organic growth 0.1%
Regulatory includes international roaming regulation and various fixed line regulation (ULL, leased lines, BSA, VULA and fixed line interconnect)
15
Domestic YoY organic gross profit
Mobility services
DKKm
•
Positive development in mobility services driven by
improved ARPU trends in both Business and
Consumer
•
Landline gross profit back on normal level after
strong Q2
•
Continued positive impact from TV gross profit
-16
-31
-65
-74
-83
Q3 12
Q4 12
Q1 13
Q2 13
Landline
Q3 13
DKKm
TV
DKKm
43
-71
-40
-53
-103
-18
33
-84
26
23
-58
-43
11
-36
-96
-11
-114
-107
Q3 12
Q4 12
Landline telephony
-33
Q1 13
-117
Q2 13
Q3 13
Q3 12
Q4 12
Q1 13
Q2 13
Q3 13
I&N
16
Opex & Capex
Organic YoY opex savings
7.6%
3.9%
DKKm
9.1%
5.9%
5.8%
196
159
123
68
81
79
Q3 12
48
Q1 13
Wages & personnel related cost
Q2 13
External expenses
Capex
3,421
FTEs and temps down 4.7% YoY
•
Q3 2013 capex down 4.3% vs. Q3
2012. YTD capex spend on mobile
network approx. 20% lower than
expected due to Huawei negotiations
•
Increased spending on remote DSLAMs
to ensure higher broadband speed
•
Continued large investment in customer
installations, but at a slightly lower level
than in 2012
35
78
Q3 13
YoY change
DKKm
3,700
3,492
2,581
2011
•
113
5
Q4 12
Organic opex savings of 5.8% driven by
considerable savings in external
expenses of 10.3% as a result of
optimised marketing spend, reduced
consultancy costs and decreased
contractors costs due to fewer faults
128
76
36
127
•
2012
YTD 2012
2,516
YTD 2013
2013E
17
Income Statement (extract form)
TDC Group
DKKm
Q3
2012
2013
Revenue
6,348
6,069
Gross profit
Opex
4,599
EBITDA
Depreciation, amortisation and impairment losses
Net financials
1
Profit before tax
Income taxes
1
YTD
2012
2013
(4.4)
19,568
18,456
(5.7)
4,448
(3.3)
13,946
13,390
(4.0)
(1,933)
(1,820)
5.8
(6,199)
(5,788)
6.6
2,666
2,628
(1.4)
7,747
7,602
(1.9)
(1,235)
(1,269)
(2.8)
(3,694)
(3,707)
(0.4)
(309)
(215)
(708)
(583)
1,122
(43)
1,144
(267)
%
30.4
2.0
NM
3,345
(692)
3,312
(401)
Profit for the period excl. special items
1,079
877
(18.7)
2,653
2,911
Profit for the period
1,134
600
(47.1)
3,120
2,333
%
17.7
(1.0)
42.1
9.7
(25.2)
Incl. profit from joint ventures and associates as well as interest on pension assets
18
Equity Free Cash Flow
DKKm
YTD 2012
EBITDA
Change in NWC
2,234
(38)
145
257
(105)
Net interest paid
2
Income tax paid
21
Capex
1
YTD 2013
•
Substantial YTD NWC improvement in
receivables due to both changes in
invoicing cycle and smartphone
financing (transferred to external
partner throughout 2012)
•
Cash outflow from capex was DKKm
89m lower than in 2012
•
Cash outflow from special items
improved due to lower payment for
redundancy programmes and vacant
tenancies
27
+18.0%
144
91
89
Special items
Other
Q3 growth
119
78
(3)
60
2,637
Including adjustment for non-cash items, pension contributions, payments related to provisions, realized currency translation
adjustments and finance lease repayments
1
19
Guidance
Revised FY 2013 guidance on revenue; other guidance parameters remain unchanged
•
•
•
•
Revenue below our expectations mainly
due to the low margin areas handset
sales and Nordic
Higher than expected opex savings
compensate the minor gross profit
shortfall; hence EBITDA guidance
remain unchanged
Huawei negotiations have delayed the
expected step up in our mobile
investments on 4G vs. 2012 levels;
catch up expected in Q4
Revenue
2013 Guidance
Revised
2013 Guidance
DKK 25.0-25.5bn
DKK 24.5-25.0bn
EBITDA
DKK 10.0-10.2bn
Capex
DKK 3.7bn
DPS
DKK 3.70
EFCF growth supporting the guided DPS
20
Regulation
Price regulation
Rates
Voice MTR (DKK)
2009
2010
2011
2012
2013
0.54
0.44
0.33
0.23
0.08
0.07
0.06
0.16
0.12
0.08
0.06
0.04
0.70
0.45
0.20
SMS MTR (DKK)
0.20
Data roaming (EUR)
Revenue loss
1
~2.15
DKKm
1
Gross profit loss
2014E 2015E
DKKm
~650
485
2012
1
~175
2013E
200-300
123
2014E
2012
100-125
2013E
• Regulatory adjustments
on voice and SMS MTR
continue in 2014 and
2015 but at a much lower
level
• New statements
regarding level retail voice
prices within the EU
(‘Roam like at Home’).
Such regulatory changes
will impact TDC’s revenue
related to roaming in the
EU, but is not included in
the data shown on the left
side
2014E
Non-regulated rates
21
Q&A
22
Appendix
New KPIs in TDC Factsheet
Share of ARPU from variable traffic
%
75
Residential landline
Business landline
70
Residential mobile
Business mobile
65
•
Decreasing share of ARPUs from variable traffic;
especially mobility services ARPUs are less
dependent on volatile traffic
•
Share of RGUs with entry level TV package only has
increased since 2011 as downward migration in
YouSee brand offset positive up sale in TDC brand
•
Full service enabled RGUs increased and approx.
25% of Consumers TV RGUs now have a TV box
•
Continued success in sales of bundled packages
including both TV and BB. PSTN-only RGU base
diminishes at a steady rate
60
55
50
45
40
35
30
0
Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13
TV KPIs
%
Access lines KPIs
487
23.5%
18.9%
19.1%
19.6%
%
21.5%
38.4%
36.1%
34.6%
24.8%
329
394
31.4%
27.0%
19.0%
Q3 11
Q3 12
Share of RGUs with entry level TV package only
Q3 13
Full service enabled RGUs
Q3 11
TDC brand triple play
Q3 12
YouSee brand dual play
Q3 13
PSTN-only base,
in thousands
24
Quarterly Revenue and EBITDA trends
Reported YoY quarterly Revenue growth
%
Organic¹ YoY quarterly Revenue growth
(0.7)
(1.9)
(2.0)
%
(1.1)
(2.0)
(4.4)
(3.8)
(6.1)
Q3 12
Q4 12
Q1 13
(4.4)
(6.5)
Q2 13
Reported YoY quarterly EBITDA growth
Q3 13
%
Q3 12
Q4 12
Q1 13
Q2 13
Organic2 YoY quarterly EBITDA growth
Q3 13
%
1.4
0.0
(0.2)
(1.4)
(1.6)
(1.1)
(1.4)
(2.8)
(3.0)
(3.3)
Q3 12
Q4 12
Q1 13
Q2 13
Q3 13
Q3 12
Q4 12
Q1 13
Q2 13
Q3 13
Adjusted for regulation (mobile termination rates (voice and SMS), international roaming, PSTN resale), acquisitions/divestments, sales
of assets, and FOREX
2 Adjusted for regulation (international roaming, PSTN resale), acquisitions/divestments, sales of assets, and FOREX
1
25
Estimated TDC Group Market Shares 1
Landline Telephony
71%
Q3 12
70%
Q4 12
Mobility Services
%
70%
Q1 13
69%
Q2 13
2
Broadband
%
69%
Q3 13
%
44%
44%
43%
43%
43%
Q3 12
Q4 12
Q1 13
Q2 13
Q3 13
61%
61%
60%
60%
60%
Q3 12
Q4 12
Q1 13
Q2 13
Q3 13
TV
%
52%
52%
52%
52%
52%
Q3 12
Q4 12
Q1 13
Q2 13
Q3 13
Market shares for total market 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. Source: TDC Market Intelligence
2 Mobile subscriptions (excl. prepaid cards)
1
26