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Impact of 2008 crisis on mobile operators in Nordic-Baltic region_presentation
1. THE IMPACT OF THE CURRENT CRISIS
ON THE ICT INDUSTRY IN THE NORDIC-BALTIC REGION
AN EXAMPLE OF MOBILE OPERATORS
IN FINLAND AND SWEDEN VS LATVIA AND ESTONIA
AM SMIB 2007 – 2008, Part-Time
By: Olga EFREMENKO
Director: Serge BESANGER, PhD
2. CONTENT
Smart Region
Global Crisis
Crisis in the four countries
Impact of ICT on GDP growth
ICT in the four countries
Mobile Services – Trends
Mobile Services in the four countries
Mobile S
Services – Impact of the crisis
f
Mobile Services – Recommendations by Analysts
Gl b l Vi i of th f
Global Vision f the four C i
Companies
Mobile Segment – Revenues and Profits
Mobile Segment – Positioning in the four markets
Financial Structure
Global Vision
Response of the markets
Conclusion
3. SMART REGION - PROSPEROUS FUTURE
Economic success of Baltic countries
EU accession Current GDP, in bln USD
500
markets liberalization 450
p
important FDIs inflows from Nordics 400
350
low labor cost 300
Important GDP growth 250
200
150
Example of FDI 100
50
Estonia: 21,5% of GDP in 2005 0
2004 2005 2006 2007
Cooperation between Baltic and Nordic countries Latvia Estonia Finland Sweden
Index of Economic Freedom by Fraser Institute Source : IMF
Finland Sweden Estonia Latvia FDIs, 2004-2006
7,7 7,4 7,9 7,3 25,0%
20,0%
15,0%
A region with prosperous future in 2007 10,0%
The most competitive economies in the world 5,0%
Sophisticated companies 0,0%
Strong assets base 2004 2005 2006
Strong innovative capacity Latvia Estonia Finland Sweden
High professional skills Source : WTO, 2009
4. GLOBAL CRISIS
Transmission of stress
Global imbalance of payment
IMF: “Global imbalances may have been a factor behind the buildup of
macroeconomic and financial excesses that led to the crisis.”
Transmission of the Financial Stress
capital outflows from emerging economy
declines in exports to advanced economies
p
More vulnerable emerging economies
Double exposure
bank lending exposure to advanced economies
Twin, current account and fiscal, deficit
Bank lending in Latvia, in % Exposure to crisis, 2002–06
Source : IMF
5. CRISIS IN THE 4 COUNTRIES
20
Current account balance in bln USD
balance,
NORDICS BALTICS
0
2004 2005 2006 2007 2008 2009 2010
Swedish banks => stopped Overheating economies in 2006
-20
lending operations in Baltics Slowdown after foreign banks Finland Sweden
stopped lending operations Estonia Latvia
Western Europe EuroArea
Recession: in Q4’08 GDP growth -40 CEE Central Europe
in Finland -1,3%, Sweden - 2 4%
1 3% 2,4%. Decline Increase
20 Real GDP , History and Forecast
loans availability prices
Trade balance: very serious real estate, wages
construction 10
situation
activities => weakened
Finland s
Finland’s exports - 14% 0
consummation competitiveness
Sweden’s exports -7,2%, Imports -5,4% 2004 2005 2006 2007 2008 2009 2010
Recession: May 2008 -10
Sweden, Dec. 2008: an Sweden Finland Euro Area
-20 Estonia Latvia
economic stimulus package
p g Estonia: better stamina Macroeconomic stability
(employment and infrastructure) lower public debt at 3,8% vs 17% Latvia
higher government reserves at 10%
Latvia, Dec. 2008: a rescue
package
- Baltics painf l recessions
Baltics: painful
- Nordics: a stronger position
Source: Baltic Sea Region Report, 2008
6. IMPACT OF ICT ON A GDP GROWTH
Link between ICT development and GDP growth
Production function
Mobile telephony in economy growth
where Qt - real Gross Value Added
KPt – investments in ICT, INF, Other McKinsey, 2006:
HLt - employment
B – efficiency
+8% to a nation’s GDP
nation s
x2 positive effect => emerging countries
GDP Growth
Direct impact from mobile operators
Indirect impact from
mobile phones
where w - labor share
software manufacturers
content providers
end-user increased productivity
ICT investments as a main contributor to the GDP growth
7. ICT IN THE FOUR COUNTRIES
Nordic model for the rest of the world
GSM networks, Nokia and Ericsson
high-skilled researchers
innovation
wealthy economies with good welfare system
Baltic economic growth propelled the ICT development
g p p p
Estonia “the E-land of Skype, mobile payments and electronic ID cards”
Latvia is lagged behind => potential for growth
Market environment in 4 countries Usage in 4 countries
g
Capacity for
Venture capital
innovation
availability
Quality of
Accessibility of digital Extent of business
Financial market
Financial market content
t t Internet use
I t t
scientific research
sophistication
institutions
Intellectual Availability of Presence of ICT in Government success
property latest government offices in ICT promotion
protection technologies
Availability of
ICT use and
government online
government efficiency
Laws relating to services
High‐tech exports
ICT
Burden of
Extent and effect
government Estonia Latvia Finland Sweden
of taxation
regulation
Estonia Latvia Finland Sweden
Source of data: World Economic Forum by INSEAD, 2008
8. MOBILE SERVICES: FROM FIXED TO MOBILE
F fi d t bil i
From fixed to mobile services
Tele2: “more customers cut the cord and move from fixed to mobile services”.
Voice minutes in Western Europe
Mobile broadband connections in Europe, 2008 vs 2014
European Customer of Mobile broadband in 2008 vs 2014
Will prevail:
Consumers
Prepaid subscriptions
Complementary rather than new/substitutive
Source: Analysis Mason, 2009
9. MOBILE SERVICES: DATA REVOLUTION
Mobile Market Revenue sources in Western Europe
Mobile data (non-voice): services with high value added
Internet (emails, browsing), video, photos, music
TV on mobile
Social networking
g
Consummation
Voice, SMS: unchanged
Mobile data: fast growth (2006), principal driver for the future
Revenues in Western Europe
Total Mobile services revenues: x2 in 10 years
y
Sources of ARPU
subscription fee Non-voice ARPU from high value-added services
voice (+possible connection fees)
Mobile data
SMS
Non-voice ARPU share
2002: 13% of total ARPU
2012: 33% of total ARPU (forecast)
Next 5 years Analysis Mason:
years,
- less pronounced disparities in ARPU rates
- the ARPU will fall
-Mobile broadband: 5,7% of telecoms revenues (vs 1,7%) Source: Analysis Mason, 2007
10. MOBILE SERVICES: COMPETITION
Intense Technology competition
Growing demand speed increase upgrades
Speeds by technology
2G- GSM 2,5G – GPRS 3G – UMTS 3,5G - HSPDA
9,6 Kb/s 115 Kb/s 2 Mb/s 7,2 Mb/s
Fierce Price competition
The prices are falling down in EU: -26% in 3 years
Main factors of the prices decline: Also affecting the prices:
growth of the mobile broadband network coverage
new actors (low-cost) speed
11. MOBILE SERVICES IN THE FOUR COUNTRIES
Mature markets with
high penetration
Faster growth in Baltics
2001: 80% in Finland and Sweden
40% in Estonia, 28% in Latvia
3G subscriptions in 2007
higher than EU average in Sweden and Finland
low in Estonia (4,3%) => high potential
Lowest and declining prices
Finland, Sweden and Estonia: the lowest prices in EU
Finnish prices were the lowest in EU
45,00 3 price types of mobile calls, Apr.2008, EUR/ month
Development of Price Type 1, EUR/month 250,0
40,00
Finland 200,0
35,00
30,00
, Sweden 150,0
150 0
25,00
Denmark 100,0
20,00
15,00 50,0
Norway
10,00
10 00
0,0
5,00 Average of 19 EU Finland Estonia Sweden Denmark Norway Switzerland Spain Italy Av 19 EU
countries Price Type 1 12,7 15,7 13,6 16,7 16,0 42,4 35,2 31,9 29,2
0,00
Price Type 2 19,9 35,3 26,6 33,0 34,4 74,0 78,4 72,7 54,7
2005 2006 2007 2008
Price Type 3 51,9 92,5 62,8 125,7 121,5 128,6 228,0 234,6 145,9
12. MOBILE SERVICES IN NORDICS AND BALTICS
NORDICS BALTICS
Heavy investments by Nordic operators
Fixed replaced in 5 years
Fixed call minutes: 30% Finland, 75% Sweden Mobile broadband
as a th
threat t fi d
t to fixed
Competition Mobile voice price premium
HHI: below 0% in 2 years
Intense competition,
especially Mobile-only households
value-added services - Latvia: 52%
- Estonia : 35% in 2008
Competition
“The mobile communications services
market operates under severe competition ”
competition.
“The profit margins are eroding year by year.”
Finland the leader
Mobile-only: 47% in 2005
low-cost to prevent leaving for competitors
1st to launch 2G; 2,5G; SMS, mobile TV (2005)
; , ; , ( )
2006 – mobile TV in Sweden highly valuable customers
Estonia the leader
- Mature markets with decreasing prices and high competition
- ARPU: declined voice compensated by increased non-voice revenues
13. MOBILE SERVICES: IMPACT OF THE CURRENT CRISIS
Supply side: Mixed messages
Europe, End 2008 - optimistic view: financially strong operators, fast growing traffic (iPhone)
Global vision: less optimistic
End 2008, ITU: ”The global economic downturn may slow the rapid move to 3G and other new technologies.”
March 2009: are getting impacted by the crisis
restricted access to capital
consumers limited spending
cost reduction plans
Investments: different opinions
TeliaSonera - Higher speeds require continued driving investments in the industry
Nokia - Infrastructure investments by -5% in 2009
Analysis Mason - More disciplined investments in next-generation networks and technologies
M.Agrawal - Right time for new services and investments as opportunities (mobile)
Demand side: more difficult to predict
NORDICS BALTICS
IDC on the crisis: BuddeComm’s on the crisis:
''M bil b db d … market i the Nordics i expected
'Mobile broadband k in h N di is d lower consummation and increased funding costs for
continue the strong development …”. CAPEX and/or operating activities
“…voice and broadband will cushion most telecom
service providers from decreasing consumer spending”.
14. MOBILE SERVICES: RECOMMENDATIONS BY ANALYSTS
Focus on delivering value: price as the dominant factor to select a service provider
Focus on core products: nice-to-have services are discretional due to reduced spending
Cost control:
serious threat for the companies with heavy debts
to build up cash reserves
Competition: market consolidation
“…struggling players may be acquired at a reduced price.”
“By keeping internal costs under control and focusing on recession-friendly
products, operators can protect themselves from the worst implications of the
forthcoming recession and discourage unwanted suitors.”
Analysis Mason
15. MOBILE SERVICES: OUR INVESTIGATIONS
Impact in Nordic and Baltic markets ? If yes similar?
yes,
Sales affected?
Profitability margins similar to the previous years?
Have actors already suffered and benefited from the crisis?
Ch
Changes in market positioning of the actors ?
i k t iti i f th t
Investments cuts or raises?
Financial health for 2009?
16. CEOS ABOUT THE CRISIS AND RESULTS
Harri Koponen the President and CEO
Koponen, Lars Nyberg President and CEO
Nyberg,
“The company has not yet been affected by the “We reported record high earnings for the fourth
current turmoil and customers are still demanding quarter and the full year... The worsening
telecom services in a similar manner as before.” economic trends, particularly in the Baltic
countries, h d no material effect on usage i our
i had i l ff in
markets in 2008”.
Valdo Kalm, Chairman of the Management Board Veli-Matti Mattila, President and CEO
“…economic
…economic crisis has had less impact on the
telecommunications sector than on the economy generally. 2008 “… the telecom operator business did not suffer
was successful for telecommunications companies on the whole and significant amounts of economic instability during
the market continued to grow. However, a reduction in demand did the report year.
appear in the private segment and by the end of the year, also in the
business segment… However, the impact of the economic
g , p
…ELISA’s revenue decreased by 5% in 2008. Reasons
recession was added to the natural deceleration of the growth of …included l
i l d d lower mobile i t
bil interconnection f
ti fees b th i Fi l d
both in Finland
traditional communications services, and therefore, new fields of and Estonia, as well as declined equipment sales and
activity are increasingly playing an important role in the revenues decreases in the number of traditional fixed network
of telecommunications companies.” subscriptions and the volume of traffic.”
12000
Size of the companies by total revenues, in EUR
10000
8000
6000
4000
2000
0
TELIASONERA TELE2 ELISA EESTI
2008 10017 3820 1485 396
2007 8902 3701 1568 400
2006 8414 3641 1518 369
17. GLOBAL VIEW OF THE COMPANIES
Leader in Nordics, Baltics, Eurasia (Sweden) Alternative operator in Nordics, Baltics, Russia, Central and
Western Europe (Sweden)
Strategy: to maintain its leading position …focusing on …
focusing
migration from traditional fixed telephony to mobile…, delivering DNA: a challenger, a fast-mover
high speed mobile data services….
Mission: to provide price leading and easy to use
Low cost companies communication services
Sweden Finland Estonia Latvia Nordics: cash cow + test bed for new services
Mobile
Fixed
Other
(IT
solutions)
Market leader in Finland, operates in Nordics, Baltics, Russia
Largest local holding of telecoms and IT companies (Estonia) (Finland)
EMT - largest mobile operator, the 1st 3G network Finland:
Elion - leader in the fixed-line market market leader in 3G
Estonia:
TeliaSonera is the shareholder at 60% Best 2G network
18. SEGMENTS IN 2008
Sales by Segment Operating Income by Segment
Mobile segment is a significant part of each portfolio Operating Income comes also largely from this segment
TeliaSonera: Mobile, Fixed: 45% each, Eurasia 10% TeliaSonera: Eurasia 48%, Mobile 33%, Fixed 19%
Tele2: Mobile 60%, Fixed 15%, Other 20% Tele2: Mobile at 60% covers -40% fm Fixed + Other
ELISA: Mobile 62% Fixed 38%
62%, ELISA: Mobile at 57% and Fixed at 43%
EESTI: Mobile 48%, Fixed 47% EESTI: Mobile at 63% and 34% at Fixed
100%
100%
80% 80%
60% 60%
40%
40%
20%
20%
0%
0%
-20%
-20% -40%
TELIASONERA TELE2 ELISA EESTI TELIASONERA TELE2 ELISA EESTI
Other 964 869 -49 18 Other 1327 -194 -4 3
Fixe 4346 591 615 187 Fixe 522 -112 117 40
Mobile 4707 2366 919 191 Mobile 921 472 151 74
19. MOBILE SEGMENT: MARKET SHARES
OTHERS 2,5 OTHERS 5 OTHERS 3
OTHERS 8
Market Shares in 2007 TRE 8 DNA 5 ELISA
TELENOR 20
Leading TeliaSonera: present in each market 21 TELE2
ELISA TELE2 46
TELE2 50
29
25
Nordics: through its trademark
Baltics: as a s a e o de
a t cs shareholder
TELIASONERA TELIASONERA TELIASONERA
TELIASONERA 48
43 40 46
SWEDEN FINLAND ESTONIA LATVIA
Share of each market in Global Sales
Nordics: the “cash cow region” for Tele2 and TeliaSonera. Elisa’s share in Finland: 50%
Together 3 Baltic countries represent 16% and 18% of total sales for TeliaSonera and Tele2
20. MOBILE SEGMENT: REVENUES
Revenues
Net Sales Changes in Mobile Segment, 2008 vs 2007
Good global revenues for TeliaSonera and Tele2, but negative for ELISA
and EESTI
20,0%
20 0%
15,0%
10,0%
Region: the performance is lower than the global one 5,0%
Nordics: slight increase, no impact of the crisis 0,0%
-5,0%
Baltics: affected by the strong economic downturn -10,0%
-15,0%
-20,0%
Telia Telia Telia Telia
TeliaSonera about Baltics: ELIS ELIS ELIS EES
Sone Tele2 Sone Tele2 Sone Sone Tele2 Tele2
A A A TI
ra ra ra ra
weaker economic development affected equipment sales ,
the
th revenue d li d d t th l
declined due to the lower prices
i Global Sweden Finland Latvia Estonia
Q4'08vsQ4'07 Chg 10,0% 14,9% -7,5% 5,0% 1,9% 1,0% -7,5% -1,0% 15,7% -6,7% -14,8% -8,7%
and in case of Estonia, to lower interconnection fees.
FY08vsFY07 Chg 8,0% 15,4% -6,2% 3,0% 6,4% 1,0% -6,2% -1,0% 12,2% -3,2% -12,0% -5,7%
25%
20%
Zoom on Non-voice revenues* of TeliaSonera 15%
10%
Increasing trend for the 4 markets: 5%
Finland: largest revenues 0%
Sweden: largest growth Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
Latvia: stable 2008 2007
Estonia: lowest revenues Sweden 19% 17% 16% 17% 13% 13% 11% 11%
Finland 21% 17% 18% 18% 17% 16% 15% 15%
Latvia 16% 15% 15% 16% 15% 15% 13% 15%
*SMS, MMS, mobile-data, content and other non-voice services
Estonia 12% 11% 10% 11% 10% 8% 8% 8%
21. MOBILE SEGMENT: PROFITS
EBITDA 40,0%
30,0%
20,0%
10,0%
0,0%
Global EBITDA changes: “+” TeliaSonera,Tele2,EESTI, “-” ELISA ‐10,0%
‐20,0%
TeliaSonera higher sales and improved cost efficiency ‐30,0%
‐40,0%
Elisa effect of interconnection fees changes
g Telia
ELIS
Telia Telia
ELIS
Telia
Tele ELIS EES
Sone Tele2 Sone Tele2 Sone Sone Tele2
A A 2 A TI
ra ra ra ra
Region: general opposite, declining trend (Q4’08!) GLOBAL Sweden Finland Latvia Estonia
Nordics: “+” the highest: +7% CHG Q4'08 vs Q4'07 24,2% 19,4% -1,8% -5,7% 34,4% 4,5% -1,4% 0,6% -33,3%-11,1%15,5%
Baltics: “-”, the lowest: -12,5% CHG FY'08 vs FY'07 10,1% 22,2%-11,0% 2,5% 1,8% 6,9% -2,9% -5,5% -12,5% -4,3% 2,8% 1,9%
EBITDA margins
Global
Gl b l margins h
i have an i increasing t d
i tendency in FY’08
i
Region:
higher than the global margins
sometimes the opposite, declining trend
Customers
Global high increase in subscriptions 6000
5000
Tele2 +14%, TeliaSonera +10%, ELISA +8%
4000
Nordics: similar trend at +8%+11% 3000
Baltics: lighter increases +2%+5% in Estonia, +4% to -1,4% in Latvia 2000
1000
0
TeliaSonera: usage growth i th B lti countries remained l
T li S th in the Baltic ti i d largely
l TeliaS TeliaS TeliaS
Tele2 ELISA Tele2 Tele2 ELISA EESTI
unaffected by the weaker economic development. onera onera onera
Sweden Finland Latvia Estonia
FY 2008 5334 3358 2676 2541 1056 1106 502 337 779
FY 2007 4807 3099 2449 2334 1015 1122 492 322 765
22. MOBILE SEGMENT: REVENUE & PROFITS PER CUSTOMER
35,0
ARPU
30,0
Lower than global ARPU in the 4 markets (except Tele2). 25,0
20,0
As predicted by the analysts, the ARPU had 15,0
-a declining trend with the amplitude of +2% -7%
10,0
except Tele2 Latvia
5,0
-an adjusting tendency to move towards EUR 20
an
0,0
Telia Telia Telia Telia
Tele ELIS ELIS Tele ELIS EES
Sone Sone Tele2 Sone Sone Tele2
Other observations: ra
2 A
ra ra
A
ra
2 A TI
the lowest global ARPU at Tele2 GLOBAL Sweden Finland Latvia Estonia
Tele2 Latvia: the only ARPU +19% (in EUR)
y ( ) FY 2008 26 4
26,4 11,0
11 0 26,6
26 6 20,1
20 1 18,6
18 6 29,9
29 9 15,1
15 1 20,1
20 1 13,6
13 6 16,8
16 8 24,5
24 5 25,2
25 2
ELISA Estonia: the strongest decrease at -16% FY 2007 28,1 11,4 30,7 20,7 18,1 30,8 17,5 20,1 11,4 16,9 29,2 27,2
TeliaSonera Finland: the highest ARPU despite lowest prices
140
120
EBITDA per customer 100
80
Global trends: 60
40
ELISA: the biggest loss (-18%) but the highest profit (EUR 92)
20
Tele2: best performance (+12%) but the weakest profit (EUR 32) 0
Telia Telia Telia Telia
ELIS ELIS Tele ELIS EEST
Soner Tele2 Soner Tele2 Soner Soner Tele2
The Region performs better than the global average A A 2 A I
a a a a
except ELISA Finland GLOBAL Sweden Finland Latvia Estonia
FY 2008 88 32 92 90 76 111 58 104 56 64 110 116
FY 2007 83 29 113 93 78 109 65 109 61 65 112 116
TeliaSonera: the leader with the highest profits in each market
EUR90 in Sweden - EUR116 in Estonia * Figures are translated into EUR for Tele2, TeliaSonera reporting in SEK, average exchange rates
SEK/EUR used are for FY 2008: 9,67, for FY 2007: 9,24
23. POSITIONING IN SWEDEN
Sales, Number of the customers, EBITDA as the size of balls
MARKET POSITION TELIASONE
16000
TELIASONER RA FY'08
Swedes switch from Fixed to Mobile services A FY'07
14000
Both companies gained shares due to higher mobile data
TeliaSonera: maintained its leading position 12000
Customers +11%, Sales +3,3%, EBITDA +2,5%
Sales, in thds SEK
10000
Tele2 is evolving faster
Customer base +8 4% Sales +6 4% EBITDA +2%
+8,4%, +6,4%, 8000 TELE2
t
FY'08
6000
TELE2
FY'07
PROFITABILITY PER CUSTOMER 4000
Declined profitability: subscriptions grew faster than the global revenues 2000
Number of the customers
Smaller distance: leading TeliaSonera approached Tele2’s
0
TeliaSonera - significant losses: ARPU -7%, EBITDA/customer -8% 0 1000 2000 3000 4000 5000 6000 7000
Tele2 - slight loss in ARPU and significant loss in profit : ARPU - 2%
2%,
EBITDA/customer -6%.
stomer, in SEK
100
Tele2
90 FY'07
80
70
STRATEGY
Monthly EBITDA per cus
TeliaSon
60
TeliaSon era FY'07
50
Continued investments into 4G networks + capacities Tele2 era FY'08
40
FY'08
TeliaSonera: network development (4G in Stockholm); efficiency plan (-1900 jobs) 30
y
20
Tele2: x2 CAPEX to EUR 87 mln 10
ARPU, in SEK
0
180,0 190,0 200,0 210,0 220,0 230,0
Normal market development, no signs of the crisis
24. POSITIONING IN FINLAND
Sales,
Sales Number of the customers, EBITDA as the size of balls
customers
MARKET POSITION 1200
TELIASONE TELIASONE
RA FY'07 RA FY'08
Regulatory interventions offset the sales gained by higher subscriptions and usage1000
of
Sales, in thds EUR
mobile data
ob e
A big move in subscriptions acquisition, almost equal customer bases
800
TeliaSonera: strengthened ELISA
Customers +9%, Sales +6%, EBITDA +12% 600 FY'07 ELISA
FY'08
ELISA: weakened
Customer base +9%, Sales -6%, EBITDA -3% due to reduced interconnection400
fees and equipment sales
200
Number of the customers
PROFITABILITY PER CUSTOMER
0
Improved for TeliaSonera and highly reduced for ELISA 2200 2300 2400 2500 2600 2700 2800
12
TeliaSonera : ARPU -3%, EBITDA/customer +2,3%
T li S
TeliaSone
10 ra FY'08
ELISA : ARPU - 14%, EBITDA/customer -11% due to increased subscriptions,
Month EBITDA per us in EUR
lower interconnection fees from other operators.
8
ser,
TeliaSone
STRATEGY 6
ra FY'07
Continued investments into network by both players 4 ELISA
ELISA
FY'08 FY'07
TeliaSonera: continued investments
hly
ELISA: CAPEX +13% in FY’08, +17% in Q4’08 => 3G network + new services to re- 2
gain the market position in 2009 ARPU, in EUR
0
Normal market development except declined equipment sales for ELISA 0,0 10,0 20,0 30,0 40,0
25. POSITIONING IN ESTONIA
Sales,
Sales Number of the customers, EBITDA as the size of balls
customers
MARKET POSITION 300
EESTI
FY'07
Challenging market conditions due to weakened economic situation (Q4’08!) :
250
consumer behavior, regulations, lower equipment sales, price pressure
Decreased revenues, an opposite to the global companies’ trend
revenues companies
Sale in thds EUR
R
Maintained positions regarding to each other 200
Slightly gained customers EESTI
FY'08
EESTI: leader, maintained (3G iPhone) 150 ELISA FY'07 TELE2
Customers +2%, Sales -6% (-9% Q4’08), EBITDA +2% FY'08**
es,
Tele2 : price leader, maintained 100
Customers +2%, Sales -3% (-11% Q4’08), EBITDA -4% TELE2
ELISA
FY'08 FY'07
ELISA: weakened 50
Customers +5%, Sales -12%(-15% Q4’08) (
( ) (interc. fees), EBITDA +3%
)
Number of the customers, thds
0
PROFITABILITY PER CUSTOMER 0 200 400 600 800 1000
12 EESTI EESTI
Revenues per subscriber decreased except Tele2, p
p p profits stood almost unchanged:
g FY'08
FY 08 FY'07
FY 07
10
EESTI: ARPU -7%, unchanged EBITDA/customer
Tele2: price leader & high-value segments ARPU -1% & EBITDA/customer
thly EBITDA per user,EUR
ELISA: ARPU -16%, EBITDA/customer -2% 8 Tele2
FY'07 ELISA ELISA
u
FY'08 FY'07
STRATEGY 6
EESTI: CAPEX -13% (EUR 48 mln), new 3G in big cities, 2G improvement Tele2
4
FY'08
Tele2 : CAPEX +79% (EUR 19 mln), focus on business segment
ELISA: CAPEX +26% (EUR 15 mln), to re gain the market share, focus on prepaid products
mln) re-gain share products,
Mont
2
business segment and mobile data. ARPU, in EUR
Impacted by the crisis 0
0,0 10,0 20,0 30,0 40,0
26. POSITIONING IN LATVIA
Sales,
Sales Number of the customers, EBITDA as the size of balls
customers
MARKET POSITION
3500
TELIASONER TELIASONER
Violent crisis, challenging economic conditions (Q4’08!) A FY'07 A FY'08
3000
Fierce price competition
Both actors approached each other
2500
TELE2 FY'08
TeliaSonera: leader in sales (iPhone 3G), improved
Customers +4%, Sales – 1% (FY’08, Q4’08) due to fierce competition, lower 2000
Sales in thds SEK
terminal sales, EBITDA -5,5% despite lower costs
1500
Tele2 : leader in number of customers, improved
Aggressive strategy by increased marketing activities => high-value ARPU customers 1000
TELE2 FY'07
Customers – 1,4%, Sales +12% (FY’08), +16% (Q4’08), EBITDA -12,5%
500
Number of the customers
PROFITABILITY PER CUSTOMER 0
980 1000 1020 1040 1060 1080 1100 1120 1140
Reduced distance 120,00
TeliaSone
TeliaSonera - higher profitability per customer: + 41% sales +83% profit
83% ra FY 07
FY'07
K
Monthly EBITDA per user, In SEK
ARPU -5%, EBITDA/customer -9% 100,00
Tele2 is the only player to gain ARPU contrary market trends
ARPU + 19% in EUR, +14% in SEK, EBITDA/customer -11%
80,00 Tele2
FY'07 TeliaSone
ra FY'08
STRATEGY 60,00
Tele 2: CAPEX +64% (EUR 21 mln) in FY’08, x2 in Q4’ 08 (EUR 6 mln). 40,00
The recession as an opportunity: price-sensitive customers, business segment, state companies Tele2
TeliaSonera: no info FY'08
20,00
20 00
ARPU, in SEK
Impacted by the crisis
0,00
0,0 50,0 100,0 150,0 200,0 250,0 300,0
27. FINANCIAL STRUCTURE – SHORT TERM
IMF about companies’ financial health worldwide : the crisis deteriorated balance sheets
liquidity
Current Ratio: deteriorated for 3 companies
EESTI: in a very safe p
y position
Tele2: at the highest risk
Operating Cash Flow Ratio: all companies, except TeliaSonera, improved their operating cycles
EESTI: the strongest
Tele2: improved but still at risk
ELISA: improved the results
Current ratio + OCF
TeliaSonera, Tele2 and EESTI: Investing and Financing activities helped improve the liquidity situation
ELISA: its positive Operations’ results offset by other activities
28. FINANCIAL STRUCTURE – LONG TERM
IMF about companies’ fi
b t i ’ financial h lth worldwide
i l health ld id
Subprime crisis 2007: Equity/Assets, Debt/Equity
Sept. 2008: risks of defaults
Equity Ratio
TeliaSonera, ELISA -5%: less resources for development
Tele2: +5% freer using more Equity
EESTI: good cushion, stable since 2006
Gearing
•High gearing => vulnerability: the products cover higher costs of loans, obligation to pay regardless bad sales
ELISA: the riskiest, 20% of its business in Estonia
Tele2: low but strengthened since 2006
EESTI: the strongest, a perfect cushion
Return on Assets : high ROA = more money earned on less investment.
Tele2: +5% Equity -1% Debt => best evolution of the ROA but still the lowest
ROA -1% but different efforts for the 3 companies:
ELISA: -5% Equity +22% Debt => good performance, must have struggled
TeliaSonera: -5% E it -5% D bt => no more profit
T li S 5% Equity 5% Debt > fit
EESTI: stable Equity +5% Debt => no more profit, best Assets performance
29. FINANCIAL STRUCTURE – ZOOM TELE2 IN THE REGION
40,0%
40 0%
Assets efficiency
A t ffi i
35,0%
30,0%
Low group’s global average EBIT/Assets at 6%
25,0%
25 0%
Region: much better performance (Latvia) 20,0%
15,0%
Sweden: stood unchanged
10,0%
10 0%
Baltics: significant deterioration due to the crisis 5,0%
0,0%
2008 2007 2008 2007 2008 2007 2008 2007
Latvia: reduced by 2 in 2008
Total global Sweden Estonia Latvia
Total EBIT/Assets 6,0% 2,7% 12,1% 11,9% 16,0% 21,1% 18,0% 34,3%
Mobile EBIT/Assets 10% 8% 15% 14% 15% 21% 23% 34%
Mobile segment performs better than Mobile + Fixed
30. GLOBAL VISION - INVESTMENTS
Analysts: keep investing into the core business in spite of the crisis
CAPEX in 2008
TeliaSonera, Tele2: +22%, +14%
, ,
ELISA, EESTI -11%, -13%
CAPEX/Sales in 2008
11%-15% of Sales in general
changed by 1% for all players in 2008
31. GLOBAL VISION OF THE FINANCIAL HEALTH
Resemblance of the players by majority of the indicators
Changes
EBITDA margin by 1% for all actors Equity/Assets by 5% in 2 cases
Gearing in 3 cases ROA, ROE in 3 cases, in 1
Position of each company
EESTI: strongest performer- lower costs, improved margins, TeliaSonera: good position but too high costs and gearing
high profitability but deteriorated gearing + decreased CAPEX
Tele2: fastest evolution, the highest but decreased costs, ELISA: the riskiest position due to a very high gearing ratio but
lowest but improved EBITDA margin, the 2nd low gearing ROA, ROE, Costs/Sales are good
EQUITY/ ASSETS
Year 2007 EQUITY/ ASSETS
100%
Year 2008 100%
80% 86% 80% 86%
COSTS TO SALES 97% GEARING COSTS TO SALES 91% GEARING
60% 60%
72% 93%
40% 71% 40%
72% 20% 48%
28% 15% 43%
20% 34%
15%
0%
-20% 0%
14% 12% -20%
CAPEX TO SALES -40% ROA CAPEX TO SALES -20% ROA
-4% -25% 30% 9% 9% 29%
10%
-4%
23%
24%
33%
35% 38%
37%
INCOME/ SALES ROE INCOME/ SALES ROE
EBIDTA Margin EBIDTA Margin
TELIASONERA TELE2 ELISA EESTI TELIASONERA TELE2 ELISA EESTI
32. RESPONSE OF THE MARKETS – SHARES’ PERFORMANCE
Stock markets: -20–60% of value in June-Dec. 2008
R. Wood,
R Wood Analysis Mason: “However many of the major operators’ stocks have substantially outperformed the
However, operators
national indices.”
shares’ performance of the 4: similar to the market indices
3 companies: performed better than their local indices
TELE2 EESTI
Worse performance than one of the market Today: 20% of difference with OMXT
index: Nov.2008
33. RESPONSE OF THE MARKETS – PRICES & EARNINGS/ SHARE
Price changes*, last quarter Earning per Share*, 2006-2011
Annual results => the markets reaction Tele2: from -8 SEK to 9 SEK
EESTI: +19% TeliaSonera, ELISA: unchanged
ELISA: -11%
11% EESTI : earnings to weaken in 2009
Tele2, TeliaSonera: slight change
30,0
20,0
10,0
15
0,0
-10,0
10
-20,0 5
-30,0 0
-40,0 -5
-50,0 -10
1 month last quarter 1 year 2006 2007 2008 2009 2010 2011
TeliaSonera, SEK -1,0 1,8 -26,9 TeliaSonera 3,78 3,94 4,23 4,23 4,45 4,65
Tele2, SEK 2,5 0,7 -44,8 Tele2 -8,14 -3,75 5,44 7,4 8,59 9,21
Elisa, EUR -7,3 -10,7 -29,3 Elisa 0,97 1,38 1,12 1,12 1,19 1,24
EESTI, EEK 4,2 18,9 -35,3 EESTI 9,49 10,91 10,4 9,34 9,86 10,25
* in reported currencies
34. CONCLUSION
Strong crisis in Baltic countries, more stable situation in Nordics
Latvia has a potential for ICT development => the economy re-launch
Nordic Mobile markets: no impact of the crisis, normal market development
Baltic Mobile markets: affected by the crisis
The performance of Tele2 and TeliaSonera: unaffected by the crisis in the Baltics
EESTI is the best performer, weakened ELISA’s position
Strong global financial stamina but weakened in 2008.
“Telecom is a good business to be in.”
Telecom in.
Lars Nyberg, CEO of TeliaSonera
Announcement of Q3 2008 Results
“Operators that focus on how to shape their telecoms businesses to emerge
stronger from the recession will be the next decade's great companies.”
Rupert Wood, Analysis Mason