Terms and Conditions s3

Tuesday, 22 October 2013

LARS TORSTENSSON: Good morning, everyone, and welcome to Tele2’s Q3 2013 conference call. I would also like to welcome everyone that has joined us via the web and can watch us today going through the quarterly results. Together with me today I have, of course, our president and CEO, Mats Granryd, and also Lars Nilsson, our CFO. But that is enough said by me. Mats, would you like to take us through the quarterly results?

MATS GRANRYD: I will do that. Thank you very much, Lars. This is a new setting that we’re trying, so if it’s not perfect, just bear with us. I will also be fairly quick in my presentation, to leave enough room for questions later on.

First, third-quarter result. Solid intake, 263,000 customers in the quarter. EBITDA, SEK 1.5 million, sales SEK 7.5 billion and 3% mobile service revenue growth. The underlying service revenue growth for the Group was 5%. And Capex pretty much in line with what we have said. A quarter that we are not happy with, a quarter that we were hoping to get a stronger EBITDA from. Sales more or less okay but the profitability is below our own expectations.

Before we go in on the third quarter, though, I would like to highlight the reasons why we are changing our outlook for 2015. The first thing is that we’re seeing an increased speed of shift from voice to data, literally across our footprint. The second thing is that the pay-as-you-go price plans that we have all been brought up with are diminishing quicker than we have anticipated, in favour of bucketised pricing, also pretty much across our footprint. Thirdly is that the deterioration of our fixed-line business is going faster than what we have anticipated.

These three trends are the reasons why we’re changing the guidance to what you see now on the slide. Sales not that big of a difference, but on the profitability level it is a fairly significant decline. We can also see that we have given an indication on dividends for 2013.

This is, of course, something that we need to discuss fully later on. However, I would like to emphasise that the strategy is unchanged. We know exactly where we are positioned in the value chain. We are an access provider. That is core to our business. Scale is really important for us to get efficiency into our operations. Thirdly, which is possibly the most important, is to have solid customer relations. That is why we’re putting a lot of emphasis on it in this report but also in the work that we’re doing with our customer-care Q4 results. So we’re not here to flip-flop. We believe that the strategy is intact. We have seen these trends that I described before previously and we have discussed them with all of you but they’re just happening faster than what we thought.

If we then go into the report and start with Sweden. A good customer-intake quarter - 60,000 new customers. Underlying service revenue with 1% increase and an EBITDA of 30%. We were hoping to get a better result, honestly.

Five areas I would like to go through: Comviq, Tele2 residential, operations, our business portfolio and customer operations. Maybe I would like to just say one word on Comviq, where we are seeing a trend shift. Last year, Q3, 2012, we had a loss of 26,000 customers. This quarter we had an increase of 20,000, so we are turning the corner when it comes to customer intake on Comviq. But if we look into more detail on Comviq, we can see that we have gained the number one price position in the Swedish market. We can also see the first trend that I talked about, the pay-as-you-go to bucketised price plans. We now have 31% of our portfolio in Comviq on bucketised price plans. Fastpris is Swedish for fixed price. That is a fairly dramatic change. 70% of our sales are online, and, as you can see, the bottom right-hand graph, portings in and out, and we are now almost on breakeven. We’re almost porting as many customers in as we’re porting out, from previously being hugely negative. So that is good work that has been done in the Comviq department.

In order to increase our transparency to our customers, we have launched an app that shows easily how much data you have consumed. You can go in and get a real-time rating on your invoice, you can do upsale of you data or buy more data once your bucket has been consumed. This is something that we believe is going to help our upsale of data.

From a store perspective we have now rolled out 108 stores in the To Go concept in Sweden. We have launched another three or four stores in Sweden. We now have 54 stores open. On the handset side, as you can see, Samsung and iPhone 5 are the two top best sellers. We have a smartphone penetration of 80%. It looks like it’s levelling off. It will be really interesting to see what this graph looks like in the fourth quarter once 5S and 5C have been launched to see what the changes are there.

Bucket price plans I think is important to look into. In Sweden on the residential side, we have 48% of our customer base on bucketised price plans and almost 80% of all new customers coming in are on fixed bucketised price plans. This is, of course, a huge shift in the way that we are doing business.

We can also see that 58%, more than half of the consumers that are hitting the roof, the limit of data in their bucket, are actually opting to buy more data, and that is a very encouraging sign as well, but we do need to see this flow through to the bottom line. It is still too early to make any good assumption on if 58% is good or if needs to be pushed up even further.

On the usage, 4G versus 3G, we are in a huge 4G demand as you can see. It is almost 50% more data being pushed through in our 4G offering versus our 3G offering, and this is something that we are proud of. We are continuing to build out the 3G network. We have a lot of legacy customers, obviously, on 3G and that needs to be augmented as well, but we are pushing in quite a lot of Capex into 4G.

On the business-to-business side our hero product is soft switch, which is doing very well. We also have the roaming package in the Nordic countries are doing very well. We have signed up several big brand names in Sweden and we are doing good positioning in the market. We have a reasonably good product portfolio, but what we also need to be aware is that the sales cycles on the business-to-business side are much longer than in normal residential sales, so we need to have more patience here in the business-to-business side.

Customer satisfaction is doing very well. You can see we’re approaching 85%, the world-class level, so it think that has just continued to do the good work that we’re doing in Sweden. So the forward-looking statement for Sweden for 2013 is intact. We are not revising it upwards or downwards. It’s the same level.

Moving on to Norway, 2,000 customers net intake. We added 5,000 mobile customers. The underlying service revenue growth on the mobile segment was 2%, pretty much in line with what we had expected. Thing things I would like to go through in Norway: customer trends, network operations and customer operations. If we look at some of the customer trends, smartphone penetration is now nine out of ten being sold, literally the same level as in Sweden. You can see the bucketised price trend is actually even stronger in Norway than what it is Sweden. 75% of all residential customers are on fixed price plans, and that is the same number as Sweden with 48%, so the trend here is even quicker. You can also see the fixed-line deterioration in favour of our mobile subscriptions. So fixed is going down and pay-as-you-go is going down in favour of bucketised price plans. Those are clear trends that are supporting our long-term revised guidance trends.

Important in Norway are obviously sites, population coverage and seeing that we are managing to move traffic on to our own network, which we are. You can see we have more sites ready, we have an increased population coverage and we have up 40% of the traffic on our own network. From that perspective we feel confident that this is the right strategy going forward.

World-class customer service. We are very close to showing world-class customer service in Norway, a very solid performance from the Norwegian team, very close to 85%.

The forward-looking statement in Norway: revenue is down slightly, SEK 3.9 billion to SEK 4 billion, earlier SEK 4.2 billion to SEK to 4.3 billion. On the other hand, EBITDA we’re guiding up slightly. From SEK 70 million to SEK 80 million, now it is SEK 80 million to SEK 90 million. Cash flow remains the same levels.

Moving then on to the Netherlands, a strong customer intake on the MVNO side, 56,000 customers. Still losing on our fixed business, obviously, as you can see, net intake being 38,000 customers. Service revenue underlying on mobile, 74%, very strong. The trends are trending up except EBITDA which is again trending down, and that is of concern. One should know that we are investing heavily in the Netherlands, not only on the network side but also investing in getting the mobile customers on board.

Four areas that I would like to talk you through: business, residential, network operations and customer operations. If we start with the business side. In the quarter we have signed up ABN Amro, which is a prestigious bank in the Netherlands, as you all area aware of, 600 ATMs and 400 offices are now connected through our Tele2 fixed access. Our product portfolio is not as strong here as it is in Sweden. We are lacking a good mobile offering, coupled with our fixed-line offering, and that is something that we are working with for the coming quarters.

Broadband, I must say is under serious pressure in the Netherlands. There is a lot of aggression on the fixed side. Promotions are all over the place. High speeds, and price levels are decreasing. For us this is a very troublesome situation where we are not strong enough on our fixed portfolio. So fibre to the home, we’re doing that through Reggefiber, still several quarters away until we see enough momentum in that relationship in order to get us to where we want to be, as well as on the VDSL side. So this is an area of concern. It’s also the third reason why we have changed the times, as you saw in the first couple of slides.

However, the MVNO is going very strong, as you can see. Six quarters in a row we are outperforming the market. We believe we will do that in the third quarter as well. We haven’t seen the numbers yet from our competitors, but we have a good healthy mobile subscriber growth in the quarter.

This is a slide that I think you are all very much aware of. We are passive site sharing with T-Mobile in the Netherlands. We’ve signed a ten-year site-sharing agreement with T-Mobile and a five-year MVNO agreement with T-Mobile. I think from that perspective we’re fine.

We’ve also signed up, on the RAN side, NSN, core Huawei and Mavenir on IMS and voice-over platforms, so that is also taken care of. We are also now starting to build out the network. We have an increased number of site leases and we’re starting to do civil works. To the left you can see our first base station being built. It’s not on air, but it’s being built. That was in August of this year.

Customer satisfaction is, of course, a challenge to have a good level on when we’re having such a poor offering on the fixed side. However, that’s no excuse. We just need to make sure that we have a positive trend on our customer voice that needs to be corrected in the coming quarters.

The forward-looking statement is pretty much the same except cash flow, where we have taken it down from SEK 2 billion to SEK 2.5 billion, to SEK 1.5 billion to SEK 1.7 billion. All the other guidance is intact.

Moving on to Central Europe and Eurasia. Germany and Austria are doing fine. Germany is adding a lot of mobile customers. EBITDA is 22% if we exclude the mobile customers. With the customers it’s down to 8%, again a transition away from legacy fixed into the more future mobile environment. Austria I would say is very much on target where we want it to be, strong on business-to-business in the quarter.

Just a graph showing the kick that we are having fixed as a service, fixed mobile as a service and also in our mobile offering when we’re approaching the market through a service-provider arrangement. It’s never going to be a blockbuster, but it’s at least bucking the trend of negative customer intake.

The Baltic States, Latvia, Estonia and Lithuania. I think Estonia have had a horrible ride for 2013. We believe we can see a slight trend shift in Estonia. Customer intake, the price pressure is easing off slightly. Latvia has had a good strong customer intake, 24,000, and I think that is also on a better course going forward. I think we have been skilled to navigate through the Latvia (inaudible) in a good way. Lithuanian, the star, is going very well at 33% EBITDA margin. We are now number one regardless of how we measure, in the markets. So, very well done from Lithuania.

Croatia is actually doing better this quarter. The third quarter is normally a strong quarter for Croatia. We just need to make sure that the fourth quarter and first quarter are equally strong. We had a 50,000 new customer intake, which is very encouraging, and we have a 13% margin. Again, we’re not happy with the duration that we’ve had to wait for this turnaround, however if the turnaround is now here, then we’re fine. We have changed the leadership team, as I said before, and I think that is the right decision in Croatia.

Kazakhstan. You might be surprised with such a low net intake. That is, of course, nothing that we’re proud of, but it has a very clear explanation, and I will come back to that in a little while. Mobile net sales good with 23% and the EBITDA margin is now down to only minus 10%.