Q Financial Results Conference call for investors May 15 th, 2014

Transcription

1 Q1 214 Financial Results Conference call for investors May 15 th, 214

2 Disclaimer Some of the information included in this material contains forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those in the forward-looking statements as a result of various factors. For a more detailed description of these risks and factors, please see Netia's most recent financial report and press release. Netia undertakes no obligation to publicly update or revise any forward-looking statements. investor.netia.pl 2

3 Netia Group highlights Q1 214 Revenue was PLN 434m for Q1 214 (-4% q-o-q and -12% y-o-y) 3% of the annual and 14% q-o-q drop attributable to MTR reductions Profitability resilient to revenue decline Adjusted EBITDA was PLN 134m for Q1 214 (+8% q-o-q and -5% y-o-y) EBITDA was PLN 126m for Q1 214 (+9% q-o-q and -9% y-o-y) Netia generated PLN 83m Adjusted OpFCF 2 for Q1 214 (+13% q-o-q and -16% y-o-y) Net debt at PLN 261m on March 31, 214 (-1% q-o-q and -44% 3 y-o-y), representing.52x of Adjusted EBITDA guidance of PLN 55m for 214 full year Total RGUs at 2,477k on March 31, 214 (-2% q-o-q and -6% y-o-y) On April 23, 214 Netia s Supervisory Board appointed Mr. Adam Sawicki as President of the Management Board and Chief Executive Officer, effective June 2, 214 New Divisional structure (Project N 2 ) running with effect from April 214 CDN Integration Project virtually concluded with completion of IT integration and withdrawal of Dialog brand in April 214 DPS of 42 groszy per share (PLN 146m) proposed to AGM in accordance with distribution policy PLN 2m buy-back program proposed as backup to distribution policy Full Year 214 guidance maintained Revenues Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Adjusted EBITDA Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Adjusted OpFCF Adjusted EBITDA excludes as appropriate, one-off costs related to restructuring, integration, M&A activity, impairment 2 Adjusted OpFCF = Adjusted EBITDA less Capex excluding integration Capex; Capex = investments in tangible and intangible fixed assets 3 If restricted cash of PLN 131m is included in the prior year comparative, Net debt fell by 22% investor.netia.pl 3 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214

4 B2B & B2C Rebounding B2C and stable B2B profitability despite pressure on top line B2B 1, B2C 1,3,4 Other (unallocated expenses and Petrotel) % 49.4% 4.3% 37.1% 54.1% 41.4% 5.9% 49.6% 31.3% 38.3% Q1 213 Q2 213 Q3 213 Q4 213 Q % 19.9% Revenues Adjusted EBITDA margin % FCF % 26.8% 19.2% 28.1% 2.7% 24.9% 12.4% 29.6% 24.% Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Revenues Adjusted EBITDA margin % FCF % 5.9% 6.1% 6.3% 4.6% 3.6% % % 7.3% Q1 213 Q2 213 Q3 213 Q4 213 Q % 4.8% 8% 7% 6% 5% 4% 3% 2% 1% % 4% 35% 3% 25% 2% 15% 1% 5% % 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % Opex Capex Opex as % of Revenue Capex as % of Revenue investor.netia.pl 4 1 Operating segments reorganized from July 213 into two major segments: B2B and B2C 2 B2B comprises Business and Carrier customers sub-segments 3 B2C comprises Residential and SOHO customers sub-segments 4 Excluding Petrotel Revenue was PLN 174m in Q1 214 (-2% q-o-q and -11 % y-o-y) RGUs: 484k (+1% q-o-q, +5% y-o-y) Voice ARPUs under pressure and lower transit revenue due to MTR declines Adjusted EBITDA was PLN 87m for a margin of 49.6% in Q1 214 Capital expenditure at PLN 2m in Q1 214 resulted in Adjusted OpFCF at the level of PLN 67m Revenue was PLN 253m in Q1 214, down by 4% compared to Q4 213 and down by 11% y-o-y RGUs: 1,959k (-3% q-o-q, -9% y-o-y) Substantial growth in TV (by 39% y-o-y and 6% q-o-q) and progress in on-net broadband Adjusted EBITDA was PLN 75m for a margin of 29.6% in Q1 214 helped by lower advertising and lower SAC spending Capital expenditure at PLN 14m in Q4 213 resulted in Adjusted OpFCF at the level of PLN 61m Net of Petrotel EBITDA, unallocated costs of support functions (Finance, IT, HR, Management & Supervisory Boards, etc) running around 6% of revenue in Q1 214 Unallocated capex in Q1 214 mainly related to IT, including CDN integration capex, and CPE stock increases As part of the N 2 Project (see slide 9) Management expects to allocate most of Other expenses and Other capex to either B2B or B2C in the reported results by Q3 214 (comparatives will be restated)

5 Total Netia Continued RGU growth on own networks Total Netia RGUs ( ) On-net Netia RGUs ( ) 3, -1.7% -1.2% -1.3% -1.9% +.5% +.9% +1.2% +.9% 3, 2,5 2,638 2,592 2, , , ,5 2, , 1,5 1, 1,595 1,551 1,519 1,489 1,451 1,5 1, 1,136 1,142 1,152 1,166 1, Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Voice Broadband TV Mobile Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 On-net Voice On-net Broadband TV Comments Netia continues to grow RGUs on its own networks due to B2B voice, broadband (both B2B and B2C) services and B2C TV services (+4% y-o-y) Drop in total RGUs results from strategic defocus of lower margin WLR and BSA services Positive net additions on TV services reflect sales of smooth streaming based TV (adaptive IP) which is available over a wider footprint than IPTV investor.netia.pl Source: Company 5

6 B2B & B2C Total RGUs by Segment B2B RGUs B2C RGUs ( ) ( ) % 79% 79% 8% 8% % 8% 7% 6% 5% 4% 3% 2% 2,5 2, 1,5 1, 5 35% 36% 37% 38% 34% 2,142 2,93 2,56 2,14 1, % 35% 3% 25% 2% 15% 1% 5% Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 1% Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 % Total B2B RGUs Own Network RGUs Own Network (%) Total B2C RGUs Own Network RGUs Own Network (%) Comments Sequential B2B RGUs increase in on-net services both voice and data Moderate on-net RGUs growth in B2C driven mainly by TV products and NGA broadband access with acceleration of this trend a key Management priority In subsequent periods we expect continued declines in off-net RGUs while on-net RGUs, including TV services, B2C broadband and B2B services generally, are targeted to grow investor.netia.pl Source: Company 6

7 Total Netia financial performance Revenue development by service Revenue breakdown by service 6 Data revenue 1 breakdown by access Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Voice Revenues Data Revenues Other Revenues Own network - broadband Regulated access - broadband Own network - other data Voice revenue breakdown by access Other revenue Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Own network Regulated access Indirect voice and other Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Interconnect Wholesale Other 1 Including revenues from VAS, elsewhere reported as Other Telecommunication revenue investor.netia.pl 2 Includes revenues from TV services 7

8 Netia strategic projects N 2 Project update Target Organisation operational from Q2 214 N 2 Project is on track B2C Business Unit B2B Business Unit HOME Sales SOHO Sales BUSINESS Sales CARRIER Sales B2C Provisioning B2B Provisioning B2C Customer Care B2B Customer Care B2C Marketing B2C Product B2B Marketing B2C Product Network Factory IT Factory Group Corporate Services HQ Direct Costs Allocated Costs based on SLAs Other Costs Pre-deployment phase of N 2 Project completed New governance model devolves power to B2B and B2C Operational processes defined and described Cost allocation model designed and under implementation New middle Management structure and employment reductions confirmed New organisation up and running for Q2 214 Financial reporting expected to fully reflect changes and restate history by Q3 214 with revenue segmentation unaffected by these changes Improved financial performance from each Division and even better cost control are key deliverables from changes investor.netia.pl 8

9 Netia strategic projects CDN Integration Summary Netia successfully completed the Dialog customer database migration into common billing and CRM platforms during April 214. The CDN Integration Project is now effectively complete. IT Core systems migration in numbers 34k customers 61m financial documents 5 tariffs 725k interactions with customers Synergies Summary Project run during PLN 265m project synergies delivered in (25% above plan) PLN 15m additional net Cash Flow generated 95 projects delivering synergies completed Group headcount reduced by over 3% from 211 Proforma peak of 2,787 to 1,917 in December 213 Comments One Netia Brand for Group introduced with withdrawal of Dialog brand for Dialog legacy customers One common set of products implemented and available to all customers Clients served by one of two legal entities (Netia SA or Dialog Sp. z o.o.) One customer service platform and one billing system Future synergies in IT, Finance and Customer Care to be extracted during 214 now that IT platforms are common investor.netia.pl 9

10 B2B Overview investor.netia.pl 1

11 B2B Operations RGUs and ARPU by Customer Location RGUs by type Customers Locations and RGUs 1 ( ) ( ) % % % % % 42 3% % % 36 % Q1 213 Q2 213 Q3 213 Q4 213 Q x 6.2x 6.2x 6.4x 6.5x Q1 213 Q2 213 Q3 213 Q4 213 Q Voice Broadband Other Customer locations RGUs RGUs x Revenue by service ( ) Average ARPU per Customer Location (PLN) Q1 213 Q2 213 Q3 213 Q4 213 Q Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Broadband Other Data Voice Other services investor.netia.pl 1 Analyses B2B broadband and voice revenues. B2B Other Data network revenues and Other Services revenues excluded Source: Company 11

12 B2B Operations Netia Brand among the strongest business brands Netia was awarded Business Superbrands 213/214 for the strongest brands on the Polish market. Netia was also awarded the Certified Created in Poland Business Superbrands, as one of the Polish brands exceptionally good in competition with foreign brands. investor.netia.pl 12

13 B2B financial performance Adjusted B2B EBITDA bridge for Q Actual 1Q 213 vs 1Q Adjusted EBITDA Q1 213 RGU reve change ARPU reve change IC and Other Service cost change Acquisition cost Retention Costs Variable cost A&P cost Other fixed costs Adjusted EBITDA Q1 214 Increase in Adjusted EBITDA Decrease in Adjusted EBITDA Comments ARPU decline related mainly to voice services lowers B2B revenue and EBITDA margin between periods Lower interconnect revenue together with falling services costs reflect the impact of MTR cuts from 15 gr to 8 gr and 4 gr in the course of 213. Customer ARPUs still negatively affected by repricing of calls to mobiles investor.netia.pl 13

14 B2C Overview investor.netia.pl 14

15 B2C Operations RGUs and ARPU by Customer RGUs by access type ( ) Customer Locations and RGUs ( ) 2,5 2,142 2,93 2,56 2,14 1,959 2,5 1.37x 1.38x 1.38x 1.4x 1.4x 1.4 2, 2, 2,142 2,93 2,56 2,14 1, ,5 1,45 1,353 1,311 1,263 1,27 1, , 1, ,569 1,522 1,485 1,442 1, Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 On-net RGUs Off-net RGUs - Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Customer locations RGUs RGUs x. Average ARPU per Customer Location PLN Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 investor.netia.pl Source: Company Comments Defocusing off-net services results in drop of B2C RGUs RGUs down 8.5% y-o-y with share of on-net RGUs up by 4 pp to 38% TV cross-sell, higher BB speeds and unlimited voice keeping ARPU per customer relatively stable On-net cross-sell increases number of RGUs per customer Most customer losses are single play WLR or off-net broadband 15

16 B2C Operations RGUs by service Broadband ports ( ) TV services ( ) Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Copper Ethernet WiMAX LLU BSA Voice lines 1,2 1, ( ) 1, Comments 1, ,84 1, , ` Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Own network LLU (VoIP) WLR TV services passed 126k in Q1 214 (6% q-o-q and 39% y-o-y) ` Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Defocusing WLR reflected in drop in voice RGUs Slightly growing on-net broadband customer base. 46% customers served directly via Netia s own network (+2% y-o-y) 35 % of On-net broadband customers now take TV services from Netia investor.netia.pl Source: Company 16

17 B2C financial performance Adjusted B2C EBITDA bridge for Q Actual 1Q 213 vs 1Q Adjusted EBITDA Q1 213 RGU reve change ARPU reve change IC and Other Service cost change Acquisition cost Retention Costs RGU Variable cost A&P cost Other fixed costs Adjusted EBITDA Q1 214 Increase in Adjusted EBITDA Decrease in Adjusted EBITDA Comments Revenue decline driven mainly by off-net RGU declines Lower service cost reflects lower off-net rental payments to incumbent and lower interconnection costs EBITDA up 4% y-o-y due to strict cost control and scalability of off-net business model as lower SAC, lower advertising, and lower variable costs investor.netia.pl 17

18 NGA upgrade Further progress with 7k HPs rolled-out in Q1 NGA and TV potential coverage for Netia post Aster CATV acquisition (' homes passed) Note: TV Ready HPs based on ADSL+, LLU and ETTH (with bandwidth +14 Mb/s) come on top of NGA HPs thus producing the total TV (3play) potential for New Netia s addressable market (homes passed) Note: For illustrative purposes only NGA roll out status Homes passed (HP) NGA HP TV ready HP NGA HP TV ready HP Cu 1, , ,138 ETTH PON Total 2,49 1,288 1,695 1,334 1,741 CATV Total Proforma March 31, 213 With ongoing upgrades 1 2,936 1,288 1,695 1,734 2,141 % of Total on-net HP 44% 58% 59% 73% LLU 4,93-2,163-2,163 Total 7,866 1,288 3,858 1,734 4,34 CATV integration project update Acquisition of part of ex-aster network completed on May 1, 213 In Q2 213 the Company began a project to integrate the HFC networks and prepare for a commercial launch which is now planned for Q3, 214 The following key milestones have been accomplished : Product and operational processes design, implementation of HFC technical solutions, first part of CPE ordered Network operational hand-over from UPC to Netia - 7% completed at the end of Q1 214, 1% realization expected by end of Q2, 214 HFC products technical tests (friendly user tests) ongoing with performance in line with assumptions As at March 31, 214, Netia covered in total 1,288k households with its NGA networks and a further 47k HPs on non upgraded networks can receive sufficient bandwidth to receive TV services Including all LLU and own network ADSL2+ and ETTH HPs with bandwidth above 14 Mb/s, Netia is able to provide TV services based on smooth streaming technology to nearly 3.9 million households which gives coverage of 28% of all HPs in Poland Netia has advanced plans to expand its NGA coverage and once all upgrade projects are completed, Netia expects to cover in total approximately 1,734k NGA HPs which can be reached with 3play service bundles (TV + fixed NGA broadband + fixed voice) with a further 2,57 HPs that can support TV services without network upgrade 1 Adaptation of ex-aster CATV infrastructure investor.netia.pl 18

19 Group Financial Overview investor.netia.pl 19

20 Financial Performance Key figures for 213 and Q (PLN ) Q1 Q2 Q3 Q4 214 q-o-q% Revenues 49,69 477, ,76 45, ,371 (3.6%) Change (y-o-y%) (9.8%) (11.%) (12.3%) (13.2%) (11.5%) Gross profit 161, , ,14 137, , % Gross margin (%) 33.% 32.5% 34.2% 3.6% 32.6% Adjusted EBITDA 1 Margin (%) 142,5 28.9% 14, % 144, % 124, % 134,44 31.% 8.3% Change (y-o-y%) 6.8% (1.%) (8.5%) (14.1%) (5.3%) Adjusted EBIT 1 Margin (%) 3, % 3, % 34, % 15, % 29, % 92.% Comments Sequentially lower revenue in Q1 214 was driven mainly by lower fixed voice revenue, particularly WLR, and continued MTR related ARPU reductions in B2B segment The sequential increase in Adjusted EBITDA margin reflects mainly decreased advertising and promotion cost and higher gross margin on lower network operating costs investor.netia.pl 1 Adjusted EBITDA, and Adjusted EBIT exclude as appropriate: M&A related expenses, New Netia integration & restructuring costs, impairment provision and decrease in provision for Universal Service Obligation 2

21 Financial Performance Adjusted EBITDA reconciliation to Net Result PLN Q1 213 Q1 214 Change Adjusted EBITDA 142,5 134,44-5 % Unusual Items: M&A related costs (271) - nm EBITDA Depreciation and amortization (111,349) (15,294) -5% EBIT Net financial expenses (7,412) (4,551) 5-39% Net profit Average number of outstanding shares (basic) 1 Dialog and Crowley integration project costs down 2% y-o-y as the 4 Impairment charge of PLN 2.5m recorded upon the decision to active project scope runs down discontinue using Dialog s trademark from Q New Netia integration costs (2,229) (1,776) 1-2% Restructuring costs (884) (3,641) % N2 Project costs (B2B/B2C Split) Impairment charge for non-current assets Mainly provisions for staff redundancies related to Netia s reorganisation into B2B and B2C Business Units (N2 Project) Implementation costs for the N 2 project for H ,621 27,272 13, ,33, ,978 2,684 Profit /(Loss) before tax 19,86 16,133-19% Current tax and deferred tax income (6,716) (5,18) -23% 1, ,91,774 EPS (in PLN, basic) % (542) (2,53) nm nm -9% -24% -17% Acquisition loan repayments resulted in lower net interest expenses 3 4 na investor.netia.pl 21

22 Financial Performance Investment overview Capital investments by Type Capital investments by Operating Segments F 1 Q1 213 Q F 1 Q1 213 Q1 214 B2B B2C Other Comments Network & IT Broadband & NGA CPE broadband (Netia Spot routers) IPTV (incl. Dedicated CPE - Netia Player) D+C Integration Capex Purchase of former Aster CATV network Purchase of former head-office freehold Capital investment in existing network and IT reflect extension of transmission network capacity to activate new business customers Investments in broadband networks include mainly NGA development and upgrades for residential clients and works on integrating with Netia s broadband network the cable networks in Warsaw and Kraków, which were acquired from UPC Polska in May 213 As part of the N 2 reorganisation, Management expects all capex will be substantially allocated to B2B and B2C 1 Published capital investment guidance excludes integration and restructuring capex investor.netia.pl 22

23 Financial Performance Operational FCF, Dividends and Financial Leverage Adjusted Operating FCF 1 and Financial Leverage Acquisition of CDN in x x x F -77 Adjusted Operating FCF Financial Leverage Dividends and other distributions E Comments Netia proposing a PLN 146m (42 groszy) dividend to its AGM in accordance with the distribution policy Net Debt decreased from PLN 291m to PLN 261m during Q1 214 with the Group`s leverage now at.52x Adjusted EBITDA guidance of PLN 55m for 214 full year Adjusted Operating FCF robust at a forecast PLN 35m and 17.5% of revenue for 214 despite falling RGUs Operational FCF in Q1 was PLN 83m (-16% y-o-y and +13% q-o-q), on track for full year target as capex spending expected to slow in coming quarters 1 Adjusted operating FCF = Adjusted EBITDA less Capex; Adjusted EBITDA as reported less investments in tangible and intangible fixed assets, excluding integration investments and acquisitions 2 Including Buy-Back program 3 Leverage = Net debt/adjusted EBITDA investor.netia.pl 23

24 214 Guidance & Distribution Policy Guidance maintained 214 Full Year Guidance Distribution Policy Revenues () Adjusted EBITDA () Adjusted EBITDA margin Adjusted EBIT () Capex () Adjusted OpFCF () The above financial guidance excludes the impact of one-off integration costs and one-off integration Capex related to Dialog and Crowley acquisitions 1, % Unchanged Policy Based on its free cash flow projections, Management estimates that the Company may distribute up to PLN 146m, pro forma PLN.42 per outstanding share from 214 onwards with some scope to moderately increase payments over time. Leverage may rise to 1.x EBITDA in the medium term to facilitate such payments. Proposal for 214 Management is proposing a PLN.42 dividend payout Management is proposing a new PLN 2m share buy-back program to maximise flexibility in the form of payment of future distributions No RGU guidance for 214 as Management focuses on product features, restructuring and cost reduction. Nonetheless on-net RGUs expected to grow investor.netia.pl 24

25 Conclusions Netia delivered robust financial performance in Q1 214, demonstrating the business resilience against strong competition and heavy price discounting in a difficult market environment Continuing progress in TV services, on-net broadband and B2B RGUs in parallel with a strategic defocus from low margin, off-net services is supporting profit margins Cash generative B2B segment balances pressure on B2C segment whilst leveraging the existing network asset base Reorganization to form B2B and B2C operating divisions (N 2 project) went live in April with twin objectives of improving both commercial performance and operational efficiency along the service value chain Netia s financial standing very strong with leverage at.52x of the 214 Adjusted EBITDA guidance, providing flexibility to fund both distributions and acquisitions Management is proposing PLN.42 per share dividend to the AGM Full Year Guidance for 214 maintained New CEO, Mr. Adam Sawicki to start as of June 214 investor.netia.pl 25

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