tele2 - third quarter 2011
DESCRIPTION
The presentation from Tele2s Q3 2011TRANSCRIPT
THIRD QUARTER 2011
Tele2 AB19 October 2011
2
Agenda
• About Q3 2011
• Financial Review
• Concluding remarks
3
Tele2 Group Q3 highlights
Q3 Financials
• In the third quarter, group net sales (curr. adj.) grew by 6 percent
• All time high EBITDA (curr. adj.) amounted to SEK 2 893 mn, corresponding to an increase of 8 percent
• EBITDA margin (curr. adj.) amounted to 28 percent
Q3 Operational
• Tele2’s customer base amounted to 33.5 million customers
• Russian subscriber base reached 20.4 million customers and subscriber base in Kazakhstan surpassed 1 million customers
• Tele2 acquired Network Norway
4
FocusContinue strong growth in customer intake, maximizing the 2G opportunityEnsure that newcomer and challenger regions reach the same operational trends as defender regionsEvaluate possibilities to expand carefully its operations through new licenses as well as by complementary acquisitions
Market Area Russia: Overview
Population Appr. 140 million
Tele2 Russia43 regions of Russian Federation20.4 million subscribersMobile operator #4 in Russia in terms of subscribers and revenue
Represents 30% of total net sales Q3 2011
5
Q3 Highlights Tele2 Russia
Moscow
30%
35%
40%
45%
50%
600
800
1000
1200
1400
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11
400
650
900
1 150
1 400
14 000
16 000
18 000
20 000
22 000
Q3 10 Q4 10 Q1 11 Q2 11 Q3 110%
10%
20%
30%
40%
50%
2 400
2 600
2 800
3 000
3 200
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11
Customer base (left)
Customer net intake (right)
EBITDA margin (right) YoY net sales growth (right)
EBITDA (left) Net sales (left)
SEK Million SEK Million Thousands of customers
EBITDA and EBITDA MARGIN
NET SALES and YoY NET SALES GROWTH
CUSTOMER BASE and CUSTOMER INTAKE
Region’s position Market share EBITDA
Defender (10 regions) Leader in the region (avg. 46%)
≥ 35%(avg. 47%)
Challenger (17 regions) ≥ 20% (avg. 31%)
< 35%(avg. 31%)
Newcomer (16 regions) < 20% (avg. 17%)
≥ 0
6
RUR/month
Understanding Russia’s mobile market
SUBSCRIBER MARKET SHARE
NET ADDITIONS
MOBILE SUBSCRIBERS AND PENETRATIONMillion
ARPU DEVELOPMENT TELE2 RUSSIA
0%
5%
10%
15%
20%
25%
30%
35%
Q2 10 Q3 10 Q4 10 Q1 11 Q2 11
Tele2 VimpelcomMegaFon MTS
-40%
-20%
0%
20%
40%
60%
80%
100%
100%
120%
140%
160%
180%
50
100
150
200
250
06 07 08 09 10 11F 12F 13F 14F 15F
Subscribers Penetration
Percent
200
208
215
223
230
Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311
Percentage of total number of subscribers
7
Tele2 Russia: Regulatory update
With regards to regulation of use of frequencies in Russia, the following should be highlighted:
• The Regulator in principle admits that Technology Neutrality can be applied to 900/1800 MHz spectrum. However, to avoid GSM service quality deterioration if the LTE is launched alongside GSM frequencies, this topic has to be examined further. The study shall be finished by March 2012.
• The Regulator has also announced that it is possible for seven operators to run LTE services in Russia starting from 2015 onwards, and that the new LTE license tenders will be run by the end of Q1 2012.
8
Market Area Nordic: Overview
Population 14.4 million
Tele2 Sweden and Tele2 Norway Home market and test bed for new services
Represents 38% of total net sales Q3 2011Sweden 31%; Norway 7%
FocusSweden: Building on mobile growth and 4G roll-out coupled with household/ corporate fiber strategyNorway: Integration of recently acquired Network Norway
9
Q3 Highlights Tele2 Sweden
• Net sales grew by 3% amounting to SEK 3,222 mln and EBITDA amounted to SEK 861 mln
• Rationalisation within the Swedish organisation with savings target of SEK 100 mn in personnel cost annually
SEK 45 mln one-off cost
0%
5%
10%
15%
20%
1500
2000
2500
3000
3500
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11-40
0
40
80
120
4600
4650
4700
4750
4800
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11
EBITDA and EBITDA MARGIN
NET SALES and YoY NET SALES GROWTH
CUSTOMER BASE and CUSTOMER INTAKE
Mobile Fixed telephonyFixed broadband Other Customer base (left) Customer net intake (right)
EBITDA margin (right) YoY net sales growth (right)
SEK Million SEK Million Thousands of customers
0%
10%
20%
30%
40%
200
400
600
800
1000
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11
10
Mobile operational performance
84%
16%
Mobile voice
Mobile data
MOBILE REVENUE DISTRIBUTION TELE2 SWEDEN
MOBILE REVENUE and MOBILE EBITDA MARGIN TELE2 SWEDENSEK Million
Revenue (left) EBITDA margin (right)
We believe mobile revenue will continue to grow driven by a strong customer demand for data
28%
30%
32%
34%
36%
2100
2200
2300
2400
2500
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11
11
Smartphone market development
*Postpaid residential, quantity of handsets
0%
25%
50%
75%
100%
Last year TodayHigh end Mid range Low end
0%
25%
50%
75%
100%
1103 1104 1105 1106 1107 1108 1109
SMARTPHONE PRICE RANGE
SMARTPHONE MARKET SHARE*
Sales of top ten mobile phones Tele2 Sweden (Sept 2011)
1. iPhone 4 16 Black2. Samsung Galaxy S23. Huawei Sonic4. SE Cedar5. Samsung Galaxy Gio6. ZTE Blade7. Samsung Galaxy Ace8. SE Xperia Ray9. iPhone 4 32GB 10. HTC Sensation
Regular phone Smartphone
12
Benefits of mobile networks in JVs
0
70
140
210
280
350
2012 2013 2014
SEK Million
• Significant benefits can be obtained from network sharing
• Net4Mobility rolling out state of the art 4G network with improved 2G capabilities through EDGE
MOBILE EBIT SAVING NET4MOBILITY
We are building Sweden’s best 2G/4G network expecting to cover 99% of population by end 2012
13
Q3 Highlights Tele2 Norway
• The Tele2 Norway / Network Norway / Mobile Norway integration continues at full speed
• New management team appointed on the 5th of October• Revenue is SEK 705 mln and EBITDA is SEK -19 mln, the latter
a consequence of reduced MTR
50%50%
14
Market shares on Norweigan market
53.4 %
20.2 %
5.5 %
6.3 %
7.8 %
2.8 % 3.9 %
Telenor
NetCom (Telia Sonera)
Chess (Telia Sonera)
Network Norway (with OneCall and Lebara)Tele2
Ventelo
Others
Det norske markedet for elektroniskekommunikasjonstjenster 2010”,Post- og teletilsynet, 20 May 2011.
Long term market share of 25% and alignment with Tele2 Group targets
MOBILE REVENUE MARKET SHARES
15
Market Area Western Europe: Overview
FocusNetherlands Grow in mobile and SMEAustria Continue growth in B2BGermany Grow FVM product
Population106 million
Leading the group in business to business services and consumer fixed broadband
Represents 20% of total net sales Q3 2011Netherlands 14%; Germany 3%; Austria 3%
16
Q3 Highlights Tele2 Netherlands
• Tele2 Netherlands reached EBITDA of 35% on broadband
• Re-organisation in Q2 becomes visible in bottom line result
• On-going evaluation of possibilities for Tele2 Netherlands to become MNO
-20%
-10%
0%
10%
20%
0
400
800
1200
1600
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11-40
-30
-20
-10
0
800
900
1000
1100
1200
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11
Mobile Fixed telephonyFixed broadband Other
EBITDA margin (right) YoY net sales growth (right)
Customer base (left) Customer net intake (right)
27%
29%
31%
33%
35%
0
125
250
375
500
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11
SEK Million SEK Million Thousands of customers
EBITDA and EBITDA MARGIN
NET SALES and YoY NET SALES GROWTH
CUSTOMER BASE and CUSTOMER INTAKE
17
Evaluating a move from MVNO to MNO
RATIONALE
Customers increasingly demand mobility
Strong Group experience in mobile data networks
The opportunity in NL is unique and now. The upcoming auction will set the scene till 2030
AUCTION CONDITIONS
Auction planned for Q2 2012
2x10 MHz reserved in the valuable 800 MHz band for new entrants
Auction start price per 2x5MHz 800 license is EUR 35 mln
Roll out obligation for low frequencies will be stricter than for high frequencies
18
Q3 Highlights Tele2 Germany and Tele2 Austria
• Both markets are strong cash flow contributors to the Group
• Tele2 Germany: Fixed via Mobile product has taken off; 14,000 customers migrated from existing customers base
• Tele2 Austria: Strong sales performance and improved profitability within B2B
15%
20%
25%
30%
35%
Q3 10 Q4 10 Q1 11 Q2 11 Q3 1115%
20%
25%
30%
35%
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11
TELE2 GERMANYEBITDA MARGIN
TELE2 AUSTRIAEBITDA MARGIN
19
FocusStability and improvements in BalticsGrowth in revenue, profits and market share in CroatiaEstablish Tele2 in all regions and continue to grow rapidly in Kazakhstan
Market Area Central Europe and Eurasia: Overview
Population28 million
Represents 13% of total net sales Q3 2011Estonia 2%; Latvia 3%; Lithuania 3%; Croatia 4%; Kazakhstan 1%
20
Q3 Highlights Tele2 Lithuania
-30%
-23%
-15%
-8%
0%
250
275
300
325
350
Q3 10 Q4 10 Q1 11 Q2 11 Q3 1125%
30%
35%
40%
45%
60
80
100
120
140
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11
• Tele2 Lithuania had a positive net intake of 22,000 customers
• EBITDA margin amounted to 37% (37%)
EBITDA (left) EBITDA margin (right)
Net sales(left) Net sales YoY growth (right)
SEK Million SEK Million
EBITDA and EBITDA MARGIN
NET SALES and YoY NET SALES GROWTH
-50
0
50
100
150
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11
EBITDA-CAPEXEBITDA CAPEX
SEK Million
EBITDA-CAPEX
21
Q3 Highlights Tele2 Latvia
-30%
-23%
-15%
-8%
0%
250
270
290
310
330
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11
• Tele2 Latvia had a positive net intake of 13,000 customers
• Tele2 reached an EBITDA margin of 34% (32%)
20%
25%
30%
35%
40%
40
60
80
100
120
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11EBITDA (left)
EBITDA margin (right)
Net sales(left) Net sales YoY growth (right)
-40
0
40
80
120
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11
EBITDA-CAPEXEBITDA CAPEX
EBITDA and EBITDA MARGIN
NET SALES and YoY NET SALES GROWTH
EBITDA-CAPEX
SEK Million SEK Million SEK Million
22
Q3 Highlights Tele2 Estonia
-20%
-15%
-10%
-5%
0%
195
205
215
225
235
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11
• Substantial efforts to increase efficiency show results
• Tele2 Estonia reached an EBITDA margin of 31% (24%)
15%
20%
25%
30%
35%
40
50
60
70
80
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11-30
0
30
60
90
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11EBITDA (left)
EBITDA margin (right)
Net sales(left) Net sales YoY growth (right)
EBITDA-CAPEXEBITDA CAPEX
EBITDA and EBITDA MARGIN
NET SALES and YoY NET SALES GROWTH
EBITDA-CAPEX
SEK Million SEK Million SEK Million
23
Q3 Highlights Tele2 Croatia
-14%
-7%
0%
7%
14%
250
300
350
400
450
Q3 10 Q4 10 Q1 11 Q2 11 Q3 110%
3%
6%
9%
12%
0
15
30
45
60
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11
• Positive free cash flow of SEK 86 mln• Solid net intake of 45,000 customers • EBITDA margin amounted to 11% (4%)
EBITDA (left) EBITDA margin (right)
Net sales(left) Net sales YoY growth (right)
-80
-40
0
40
80
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11* YoY net sales growth positive in local currency
EBITDA-CAPEXEBITDA CAPEX
EBITDA and EBITDA MARGIN
NET SALES and YoY NET SALES GROWTH*
EBITDA-CAPEX
SEK Million SEK Million SEK Million
24
Tele2 Croatia forward looking statement
The following assumptions should be taken into account when estimating the Croatian mobile operations in 2011:
• Tele2 expects Croatia to reach an EBITDA margin of 20 percent by Q3 2013 (earlier free cash flow break-even by 2H 2011)
25
Q3 Highlights Tele2 Kazakhstan
SEK
0
30
60
90
120
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11-200
0
200
400
600
0
300
600
900
1200
Q3 10 Q4 10 Q1 11 Q2 11 Q3 1150
60
70
80
90
10
20
30
40
50
01 11 02 11 03 11 04 11 05 11 06 11 07 11 08 11 09 11
Min
• Commercial launch of Tele2 brand completed in 8 regions
• Solid net intake of 459,000 customers• Total number of customers surpassed
1.1 million
Net salesMinutes of use (right)
Customer base (left) Customer intake (right)
ARPU (left)
NET SALES ARPU and MINUTES OF USE
SEK Million Thousands of customers
CUSTOMER BASE and CUSTOMER INTAKE
26
All regions launched by year-end
Almaty
Karagandy
KokshetauAstana
AktobeOral
AktauKyzyl-Orda
Kostanay
Petropavl
Pavlodar
Shymkent
Taraz
SemeyOskemen
Atyrau
Pavlodar launched on
1st of October
27
Tele2 Kazakhstan forward looking statement
The following assumptions should be taken into account when estimating the operational performance of the total operations in Kazakhstan:
• Tele2 expects the subscriber base to reach 2.3-2.5 million by year-end 2012
• Tele2 expects an EBITDA contribution in 2011 of appr. SEK -400 (earlier -500) million
• Tele2 expects capex to be appr. SEK 1,000 million (earlier in the range of SEK 1,200-1,400 million) by year-end 2011
• Tele2 expects to reach EBITDA break-even by 2H 2013 • Tele2 expects to reach a long-term mobile customer market share of
30 percent
2010-10-2028
Agenda
• About Q3 2011
• Financial Review
• Concluding remarks
2010-10-2029
Q3 2011 Group resultsSEK million Q3 11 Q3 10 Change %Net Sales 10 340 9 989 +3.5%
EBITDA 2 893 2 751 +5.2%- EBITDA margin (%) 27.9% 27.5%
Depreciation and Joint Ventures -923 -885
- Depreciation of Net sales (%) 9% 9%
One-off items -20 17
EBIT 1 950 1 892 +3.1%Normalized EBIT 1 970 1 875
- Normalized EBIT margin (%) 19% 19%
Financial items -263 -16
Taxes -428 608
Net profit/loss 1 259 2 484
Net result, discontinued operations 1 29
Net result total operations 1 260 2 513
One-off item of SEK 1,049 mlnaffecting Q310
2010-10-2030
Currency movements (vs. SEK)
YoY difference in YTD Ave FX rates, 2011 vs. 2010
EUR -6.6%
RUB -8.3%
EUR/EUR pegged and RUB currencies approximately 2/3 of sales and EBITDA
End of Q3 spot rate vs. 31/12-2010
EUR +3.0%
RUB -4.3%
2010-10-2031
0
2 000
4 000
6 000
8 000
10 000
12 000
Q3 10 Q3 110
500
1 000
1 500
2 000
2 500
3 000
3 500
Q3 10 Q3 11
Currency-adjusted sales and EBITDA (excl. one-off)
CURRENCY-ADJUSTED EBITDA, TOTAL +8 %SEK Million
CURRENCY-ADJUSTED SALES, TOTAL +6%SEK Million
MA Western Europe MA Central Europe and Eurasia MA Russia MA Nordic
+1%
+20%
-1%
+10%
-1%
+29%
-6%
+9%
2010-10-2032
Taxes
Taxes in income statement YTD Q3 11 Q3 10
Normal -1 196 -428 -441
One-Off - - 1 049
Total -1 196 -428 608
Taxes in cash flow Q3 11 Q3 10Normal -785 -235 -152
Deferred tax assets amounted to SEK 3.2 (3.3) billion
2010-10-2033
SEK million Q3 11 Q3 10OPERATING ACTIVITIESCash flow from operations, before paid tax 2833 2733Cash flow from operations, paid taxes -235 -152
Changes in working capital 77 39Cash flow from operating activities 2675 2 620
INVESTING ACTIVITIESCAPEX -1 073 -923Cash flow after CAPEX 1 602 1 697
Cash flow for Q3 2011
2010-10-2034
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
0.0
2.5
5.0
7.5
10.0
12.5
15.0
17.5
20.0
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11Pro Forma Net Debt #REF!Pro Forma Net Debt / EBITDA 12'M ROLLING
Group financial profile
PROFORMA NET DEBT INCL. JV / EBITDA 12’M ROLLING
SEK BillionRatio
Ordinary dividendExtraordinary dividend
Upper limit
Lower limit
2010-10-2035
Debt profile September 2011
1.3 bn2.0 bn2.7 bn0.3 bn
Gross debt position SEK 14.1 bn
Net debt amounts to 11.2 bn
RCF (SEK)RCF (EUR)Kazakhstan debtRubel bondOff balance sheet
7.8 bn
2010-10-2036
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
2010-10-2037
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 liabilities.”
2010-10-2038
Group financialsMobile Fixed telephony OtherFixed broadband
22%
24%
26%
28%
30%
1500
2000
2500
3000
3500
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11
GROUP EBITDA and GROUP EBITDA MARGIN
4000
6000
8000
10000
12000
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11
0
400
800
1200
1600
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11
GROUP CAPEX
18%
20%
22%
24%
26%
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11
ROCE
GROUP NET SALES
SEK Million SEK Million
SEK Million Percent
Group EBITDA margin
2010-10-2039
Group mobile EBITDA
GROUP MOBILE EBITDASEK Million Percent
25.0%
27.5%
30.0%
32.5%
35.0%
0
750
1 500
2 250
3 000
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11
Mobile EBITDA on own infrastructure Mobile EBITDA (MVNO)
Mobile EBITDA margin on own infrastructure Total mobile EBITDA margin
2010-10-2040
Sweden mobile revenue explainedSWEDEN MOBILE REVENUE WATERFALLSEK Million
Revenue Q3 2010 Non recurring Adjusted external revenue
Underlying mobile Mobile equipment Revenue Q3 2011
2218 -32103 (+4.7%) 2368
2186 79 (+3.6%)
2010-10-2041
EBITDA Q3 2010 GM2 (incl SUNAB) Other N4M EBITDA Q3 2011
Sweden mobile EBITDA explained
SWEDEN MOBILE EBITDA WATERFALLSEK Million
748 26 (+3.5%) -47 (-6.2%)722
-5 (-0.7%)
N4M -13
Challenge Sweden -34
2010-10-2042
Agenda
• About Q3 2011
• Financial Review
• Concluding remarks
2010-10-2043
Concluding remarks
• We experience yet another record quarter in the third quarter of 2011.
• We and our industry have shown good resilience towards current financial turmoil.
• We constantly chase unnecessary costs in order to stay on our toes.
• We are part of a growth industry, where data is forecasted to grow.
• We offer the best of both worlds.
2010-10-2044
Q&A
2010-10-2045