tele2 ab q2 2011 presentation
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SECOND QUARTER 2011
Tele2 ABJuly 20, 2011
2010-10-202
Agenda
• About Q2 2011
• Financial Review
• Guidance and concluding remarks
2010-10-203
Highlights Q2
Tele2 Group
• Total customer base amounted to more than 32 million customers. Net customer intake for the group in Q2 was 1,052,000 (1,096,000).
• Net sales grew by 6 percent (currency-adjusted), driven by mobile sales.
• EBITDA grew by 7 percent (currency-adjusted).
• EBITDA margin amounted to 27 (27) percent (currency-adjusted).
2010-10-204
Highlights Tele2 Russia
• 720,000 (1,113,000) new customers in Q2 2011.
• Net sales grew by 23 percent (currency-adjusted).
Moscow
Q2 10 Q3 10 Q4 10 Q1 11 Q2 1115
16
17
18
19
20
21
22
CUSTOMER BASEMillion customers
Q2 10 Q3 10 Q4 10 Q1 11 Q2 110
1,000
2,000
3,000
4,000
5,000
31%
32%
33%
34%
35%
36%
37%
38%
EBITDA 12'M rolling (left) EBITDA margin 12'M rolling (right)
EBITDA 12’M ROLLING AND EBITDA MARGIN 12’M ROLLING
2011 guidance
SEK Million Percent
2010-10-205
3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Apr11 May110%
10%20%30%40%50%60%70%80%90%
100%
NET ADDITIONS
Mobile market overview Russia
Source: AC&M – 1Q11 Report, Analysys Mason – Russia Country report, Dec 2010*Preliminary estimate
Q2 10 Q3 10 Q4 10 Q1 11 Q2 11180
190
200
210
220
230
240
250
180
190
200
210
220
230
240
250
MoU (left-hand side) ARPU (right-hand side)
MoU AND ARPU RUSSIAMin
Q1 08
Q2 08
Q3 08
Q4 08
Q1 09
Q2 09
Q3 09
Q4 09
Q1 10
Q2 10
Q3 10
Q4 10
Q1 11
Q2 11
*4%
6%
8%
10%
12%
14%
Q2 10 Q3 10 Q4 10 Q1 11 Q2 11200
400
600
800
1,000
1,200
1,400
NET INTAKE TELE2 RUSSIAThousands
RUB
Mobile TeleSystemsVimpelcomMegafon Tele2
QUARTERLY CHURN TELE2 RUSSIAPercent
Percent
2010-10-206
SUBSCRIBER BASE GROWTH YoY, 1Q11
0% 5% 10% 15% 20% 25%
3%
3%
9%
23%
0% 10% 20% 30% 40%
12%
5%
12%
30%
• Best in the market growth rates
• Price/quality balance – a primary reason for growth
• Improving EBITDA margin despite of subscriber base growth
Tele2 Russia’s performance vs. competitors
REVENUE GROWTH YoY, 1Q11
Source: AC&M Consulting 1Q11 Report; Company data
2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q1120%
30%
40%
50%
60%
39%
EBITDA MARGINPercent
Mobile TeleSystemsVimpelcomMegafon Tele2
2010-10-207
Tele2’s regional expansion opportunitiesCOVERAGE MAP
Market Population(million)
Total Market 142
Tele2 operations
61
Won licences 1
Combined Tele2 footprint 62
The results of the first GSM tender: Tele2 got licences in 6 new regions in the Far East
Moscow
2010-10-208
Highlights Tele2 Sweden • Increased mobile revenue growth of 10 percent.
• 32,000 (45,000) mobile postpaid customers added.
• Mobile EBITDA margin amounted to 32 (34) percent.
Q2 10 Q3 10 Q4 10 Q1 11 Q2 112,000
2,100
2,200
2,300
2,400
0%2%4%6%8%10%12%14%16%18%
MOBILE NET SALES AND MOBILE YoY NET SALES GROWTH
Mobile net sales (left)Mobile YoY net sales growth (right)
MOBILE EBITDA 12’M ROLLING AND MOBILE EBITDA MARGIN 12’M ROLLING
PercentPercentSEK Million
Q2 10 Q3 10 Q4 10 Q1 11 Q2 112,600
2,650
2,700
2,750
2,800
2,850
20%
25%
30%
35%
40%
45%
50%
Mobile EBITDA 12'M rolling (left)Mobile EBITDA margin 12'M rolling (right)
SEK Million
2010-10-209
Smartphones are taking over the scene
SHIPMENT OF HANDSETS TELE2 SWEDENPercentage of total shipments
Mar 11 Apr 11 May 11 Jun 1150%
60%
70%
80%
90%
100%
Mar 11 Apr 11 May 11 Jun 1130%
35%
40%
Smartphone Regular
INSTALL BASE TELE2 SWEDEN (POSTPAID)Percentage of total installed base
Smartphones corresponded to 88% of Tele2’s total shipments of handsets in June 2011.
2010-10-2010
Smartphones are driving data consumption
Apr 11 May 11 June 110
100,000
200,000
300,000
400,000
500,000
600,000
0
100
200
300
400
500
600
Android Users iOS Users Android Data iOS Data
USERS AND DATA CONSUMPTION: ANDROID vs iOS
(TELE2 SWEDEN)Users MB
In June 2011, the average Tele2 iOS user consumed 91% more data than the average Tele2 Android user.
Approximately 50% of all smartphones sold were Apple-branded.
SALES OF HANDSETS BY BRAND(TELE2 SWEDEN, OWN SALES CHANNELS)
Apple
Samsung
HTC
Sony Ericsson
ZTENokia
LG
Motorola
BlackBerry
Rim
Percent
Jan 2011 Feb 2011
Mar 2011
Apr 2011 May 2011
Jun 20110%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010-10-2011
The 4G roll-out continues
99%* 4G
coverage
End of 2012
2011
*Percentage of the population
4G roll out status Q2 2011:Roll out completed in 14
cities covering 40% of the population
• Next generation’s mobile broadband already launched.
• We see 4G handsets and tablets coming in 2H 2011.
2010-10-2012
• The Netherlandso BBned integration fully completed.
- Restructuring cost of SEK 48 million in Q2 affecting EBITDA.
• Germanyo Maintained leading position in the CPS
segment. Improved EBITDA contribution to 38.6% in Q2.
o Positive EBITDA contribution in fixed broadband due to wholesale agreement.
• Austriao The focus on expanding the B2B
segment resulted in several major customer contracts.
o Financial development continued to improve versus last year.
Highlights Tele2 Western Europe
Q2 10 Q3 10 Q4 10 Q1 11 Q2 110
500
1,000
1,500
2,000
2,500
EBITDA 12'M ROLLINGSEK million
Netherlands Austria Germany
2010-10-2013
Licence Renewal / Frequency AuctionA
uction 2015A
uctioned 2010A
uction early 2012
• In Q1 2012, all existing spectrum in the 900 and 1.800 MHz bands will be redistributed.
• All spectrum licenses are 'technology neutral‘.
• A new block of 2x30 MHz spectrum in the 800 MHz 'Digital Dividend' band will be auctioned with a block exclusively reserved for newcomers to bid on.
2010-10-2014
Highlights Tele2 Baltic Region
• Stabilizing economy leading to better operationalenvironment.
• Positive net customer intake of 75,000 customers inthe Baltic region in Q2.
• Strong EBITDA margin of 33% in the Baltic region.
Q2 10 Q3 10 Q4 10 Q1 11 Q2 11-200
-100
0
100
200
300
EBITDA – CAPEX SEK Million
EBITDA CAPEX
EBITDA - CAPEX
Q2 10 Q3 10 Q4 10 Q1 11 Q2 11-40
-20
0
20
40
60
80
NET INTAKEThousands
Estonia Lithuania Latvia
2010-10-2015
Highlights Tele2 Croatia
• Goal to deliver positive free cash flow 2H 2011.
• Solid net intake of 27,000 customers in Q2.
• Tele2 brand re-launched with new communicationplatform.
EBITDA – CAPEXSEK Million
Q2 10 Q3 10 Q4 10 Q1 11 Q2 11500
600
700
800
0
10
20
30
40
50
60
70
80
90
CUSTOMER STOCK AND NET INTAKE
Customer stock (left) Net intake (right)Q2 10 Q3 10 Q4 10 Q1 11 Q2 11
-80
-60
-40
-20
0
20
40
EBITDA CAPEX EBITDA - CAPEX
ThousandsThousands
2010-10-2016
Highlights Tele2 in Kazakhstan
• Commercial launch of the Tele2 brand in five regions.
• Strong net intake of 355,000 (-48,000) customers.
CUSTOMER STOCK AND NET INTAKE
Q2 10 Q3 10 Q4 10 Q1 11 Q2 11-100
100
300
500
700
900
-100
0
100
200
300
400
Customer stock (left) Net intake (right)
ThousandsThousands
2010-10-2017
Agenda
• About Q2 2011
• Financial Review
• Guidance and concluding remarks
2010-10-2018
Q2 2011 Group results
SEK million Q2 11 Q2 10 Change %
Net Sales 9 998 10 539
EBITDA 2 711 2 687 0.9%
- EBITDA margin (%) 27% 25%
Depreciation and Joint Ventures -935 -920
- Depreciation of Net sales (%) 9% 9%
One-off items -57 527
EBIT 1 719 2 294 -25%
Normalized EBIT 1 776 1 767
- Normalized EBIT margin (%) 18% 17%
Financial items -214 -224
Taxes -397 -421
Net profit/loss 1 108 1 649
Net result, discontinued operations 5 -5
Net result total operations 1 113 1 644
One-off item of 527 affecting Q210 EBIT
2010-10-2019
Currency movements (vs. SEK)
YoY difference in YTD Ave FX rates, 2011 vs. 2010
EUR -8.7%
RUB -9.3%
EUR/EUR pegged and RUB currencies approximately 2/3 of sales and EBITDA
End of Q2 spot rate vs. 31/12-2010
EUR 1.6%
RUB 1.5%
2010-10-2020
Currency-adjusted Sales and EBITDA (excl. one-off)
cc
CURRENCY-ADJUSTED EBITDA, TOTAL +7 %SEK Million
CURRENCY-ADJUSTED SALES, TOTAL +6.3 %SEK Million
c
MA Western Europe MA Central EuropeMA Russia MA Nordic Kazakhstan
Q2 10 Q2 110
2000
4000
6000
8000
10000
12000
+1%
+23%
-1%
+3%
Q2 2010 Q2 2011
-500
0
500
1,000
1,500
2,000
2,500
3,000
3,500
+1%
-2%
+32%
+2%
2010-10-2021
Taxes
Taxes in income statement YTD Q2 11 Q2 10
Normal -818 -397 -421
One-Off - - -
Total -818 -397 -421
Taxes in cash flow Q2 11 Q2 10
Normal -520 -325 -195
Deferred tax assets amounted to SEK 3.2 (3.1) billion
2010-10-2022
SEK million Q2 11 Q2 10
OPERATING ACTIVITIES
Cash flow from operations, before paid tax 2 604 3 065
Cash flow from operations, paid taxes -325 -195
Changes in working capital -75 52
Cash flow from operating activities 2 204 2 922
INVESTING ACTIVITIES
CAPEX -1 261 -909
Cash flow after CAPEX 943 2 013
Cash flow for Q2 2011
Negative change in working capital affected by increased instalment sales of handsets
2010-10-2023
Q2 10 Q3 10 Q4 10 Q1 11 Q2 110.0
2,500.0
5,000.0
7,500.0
10,000.0
12,500.0
15,000.0
17,500.0
20,000.0
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
Pro Forma Net Debt Pro Forma Net Debt / EBITDA 12'M ROLLING Upper limitLower limit Linear (Lower limit)
Group financial profilePROFORMA NET DEBT INCL. JV / EBITDA 12’M ROLLING
SEK Billion Ratio
Ordinary dividendExtraordinary dividend
Upper limit
Lower limit
2010-10-2024
Bal. sheet consideration / Fin. leverage
Shareholder remuneration
Cash / Buffer
M&A / New growth opportunities
When available, invest in value accretive M&A or new business opportunities
meeting Tele2’s strict financial hurdles
Enhance shareholder value by distributing recurring cash to shareholders
Retain financial buffer
Prudent assessment based on (a) status of operations, (b) future strategic opportunities, (c) competitive landscape and (d) general macroeconomic status
CASH
GENERATION
2010-10-2025
Net debt and dividend targets
Shareholder remuneration“Tele2 will seek to pay a progressive ordinary dividend of no less than 50 percent of net income excluding one-off items. Extraordinary dividends and the authority to purchase Tele2’s own shares will be recommended or sought when the anticipated total return to shareholders is deemed to be greater than the achievable returns from the deployment of the capital within the group's operating segments or the acquisition of assets within Tele2’s economic requirements.”
Balance sheet“Tele2 has a target net debt to EBITDA ratio of between 1.25 and 1.75 times over the medium term. The company’s longer term financial leverage should be in line with the industry and the markets in which it operates and reflect the status of its operations, future strategic opportunities and contingent.”
2010-10-2026
Debt profile June 2011
8.8 bn0.9 bn
2.9 bn
2.4 bn
Gross debt position SEK 15.0 bn
Net debt amounts to 12.9 bn
RCF (SEK) Kazakhstan debt
Rubel bond Off balance sheet
2010-10-2027Sources: Raiffeisenbank. Calculated by adding “fair” spread differential of 40bps to nearest Vimpelcom and MTS bond yields to account for difference in maturity compared to Tele2 Russia bonds.
Fairly adjusting for differences in maturity, the placement was executed at a yield 5bps tighter than Vimpelcom and 12bps wider than MTS
Tele2 Russia Prices in Line with Much Larger Russian Peers
2010-10-2028
Group EBITDA, Sales and Capex
Q2 10 Q3 10 Q4 10 Q1 11 Q2 110
2,000
4,000
6,000
8,000
10,000
12,000
GROUP SALESSEK Million
Q2 10 Q3 10 Q4 10 Q1 11 Q2 110
200400600800
1,0001,2001,4001,600
GROUP CAPEXSEK Million
Q2 10 Q3 10 Q4 10 Q1 11 Q2 110
500
1,000
1,500
2,000
2,500
3,000
0.23
0.24
0.25
0.26
0.27
0.28
GROUP EBITDASEK Million / Percent
Q2 Q3 Q4 Q1 Q210.0%
15.0%
20.0%
25.0%
ROCEPercent
Mobile Fixed telephony OtherFixed broadband
Mobile Fixed telephony OtherFixed broadband
Mobile Fixed telephony OtherFixed broadband
2010-10-2029
Group mobile EBITDA
Q2 10 Q3 10 Q4 10 Q1 11 Q2 110
500
1,000
1,500
2,000
2,500
0%
5%
10%
15%
20%
25%
30%
35%
40%
GROUP MOBILE EBITDASEK MILLION / PERCENT
Mobile EBITDA on own infrastructure Mobile EBITDA (MVNO)
Mobile EBITDA margin on own infrastructure Total mobile EBITDA margin
2010-10-2030
Sweden mobile revenue explained
Extern
al re
venu
e Q2
2010
Non re
curri
ng
Adjus
ted
exte
rnal
reve
nue
Under
lying
mob
ile
Insta
lmen
t & JV
rev
Extern
al re
venu
e Q2
2011
2096
-51
2045
+100 (+5%)+162 (+8%)
2307SWEDEN MOBILE REVENUE WATERFALL
SEK MILLION
2010-10-2031
Sweden mobile EBITDA explained
EBITDA Q2 2010
GM2 SUNAB N4M Expansion cost
Call center service
Other EBITDA Q2 2011
722
94 -22-11 -33
-16 1 735
SWEDEN MOBILE EBITDA WATERFALLSEK MILLION
2010-10-2032
Agenda
• About Q2 2011
• Financial Review
• Guidance and concluding remarks
2010-10-2033
Tele2’s general group targets
• Maintain Best Deal position.
• Targeting a long-termmobile EBITDA margin on owninfrastructure of at least 35 percent.
• All operations should have the ambition of reaching a ROCE of at least 20 percent.
• The capability to reach a Top 2 position, in terms of customer market share, in an individual country or region.
2010-10-2034
The following assumptions should be taken into account when estimating results for the Swedish mobile operations in 2011:
• Tele2 expects mobile service revenue to grow with mid single digits (earlier high single digits for mobile revenue)
• Tele2 expects a similar EBITDA contribution in 2011 as in 2010 due to instalments and start up costs related to joint venture Net4Mobility.
Sweden outlook (changed)
2010-10-2035
Tele2 has GSM licences in 43 regions in Russia covering approximately 62 million inhabitants. The following assumptions should be taken into account when estimating the operational performance of the total operations in Russia in 2011:
• Tele2 expects the subscriber base to reach 21 million (earlier 20-21 million) by year-end 2011.
• Tele2 expects ARPU to remain stable in local currency.
• Tele2 expects Russia’s total EBITDA margin to evolve in the range of 38-40 (earlier 36-39) percent.
• Tele2 expects capex in Russia to be approximately SEK 2,000 million by year-end 2011.
Russia outlook (changed)
2010-10-2036
Concluding remarks
Russia• Record EBITDA contribution.
Nordic• Robust mobile revenue growth.
Western Europe• Tele2 Netherlands finalized the integration
of BBned.
Central Europe & Eurasia • Successful launch of Tele2’s operations in
Kazakhstan led to record customer intake.
2011: Also an investment year• Russia
• Kazakhstan
• Sweden
• Norway
In short, all our markets are doing well.
2010-10-2037
Q&A
2010-10-2038
2010-10-2039
APPENDIX
2010-10-2040
Mobile market overview Russia
Source: AC&M Consulting – 1Q11 Report
* FDP Group, 1Q2011
2006 2007 2008 2009 2010 1Q110%
5%
10%
15%
20%
25%
30%
35%
40%
MOBILE MARKET SHAREPercent of active subscribers
2006 2007 2008 2009 2010 1Q110%
5%
10%
15%
20%
25%
30%
35%
MOBILE MARKET SHAREPercent of retail revenues
Average TELE2 share (all Russia): 8.6%Average TELE2 share (old regions): 41%*Average TELE2 share (new regions): 17%*
Average TELE2 share (total 37): 31%*
Mobile TeleSystemsVimpelcomMegafon Tele2
2010-10-2041
Mobile data market
MTS Vimpelcom Megafon Tele2
11%
8%
13%
9%
BIG4 DATA REVENUE BREAKDOWNPercent of total revenue, Federal, 1Q 11
20%
33%29%
17%
BIG4 DATA REVENUE BREAKDOWN Percent of total revenue, Tele2 Regions, 1Q11
VimpelCom
Megafon
MTS
Tele2
Samma text som Q1
Source: Tele2 regions internal data; J’son & Partners 2011, AC&M Consulting 1Q11 Report;
• EDGE enabled mobile network
• Great price and smart packaging
• Large difference between major cities vs. rural areas
2010-10-2042
Newly introduced cheap smartphones and feature phones suit our customers
• Smartphones are dominating sales.• 50% of the sales of the cheap smartphone ZTE Blade
are to prepaid customers.• iOS has the highest share of sales, but Android still
represents the largest share of our smartphone customer stock.
1 iPhone4 16 GB
2 Huawei U3100
3 Sony Ericsson Xperia Arc
4 Samsung Galaxy S II
5 iPhone4 32 GB
6 Samsung Galaxy S
7 Samsung E1080
8 HTC Incredible
9 Samsung Galaxy Mini
10 ZTE Blade
Top 10 phone sales in Tele2 Stores (Apr-Jun)
In total, 9 out of 10 sold phones are smartphones
Handset trends
2010-10-2043
2001 2002 2003 2004 2005 2006 2007 2008 20090%
20%
40%
60%
80%
100%
FIXED VS. MOBILE PERSPECTIVESWE TELECOM REVENUES (%)
Fixed Mobile
Swedish telecom market trends
Sources: Parella Weinberg Partners , Analysys Mason, PTS
2010 2011 2012 2013 2014 20150
20,00040,00060,00080,000
100,000120,000140,000
MOBILE DATA TB USAGE (RESIDENTIAL)
TERABYTE
Mobile data is increasing, driven by smartphones and
mobile broadband
2010 2011 2012 2013 2014 20150%
10%20%30%40%50%60%70%80%90%
100%
MOBILE CONNECTIONS SWEDENPERCENT
2G 3G 4G
2010-10-2044
2009 2010 2011 2012 2013 20140%
20%
40%
60%
80%
100%
SMARTPHONES vs. FEATURE PHONESShare of total market
Smartphones Feature phones
Smartphones change the customers’ behaviour
More than 60 percent of Tele2’s prepaid customers converting to postpaidchange to a smartphone
The Swedish mobile marketTele2 customers’ demand for data solutions
is increasing rapidly
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
SALES OF DATA PACKAGES
400%
Sources: Analysys Mason; internal company data