THE IMPACT OF THE CURRENT CRISIS
ON THE ICT INDUSTRY IN THE NORDIC-BALTIC REGION


             AN EXAMPLE OF MOBILE OPERA...
CONTENT
          Smart Region
          Global Crisis
          Crisis in the four countries

          Impact of ICT on ...
SMART REGION - PROSPEROUS FUTURE
Economic success of Baltic countries
   EU accession                                     ...
GLOBAL CRISIS
                                                                          Transmission of stress
  Global im...
CRISIS IN THE 4 COUNTRIES
                                                                                    20
         ...
IMPACT OF ICT ON A GDP GROWTH
Link between ICT development and GDP growth

Production function



                        ...
ICT IN THE FOUR COUNTRIES
Nordic model for the rest of the world
         GSM networks, Nokia and Ericsson
         high-s...
MOBILE SERVICES: FROM FIXED TO MOBILE
   F    fi d t     bil      i
   From fixed to mobile services
           Tele2: “mo...
MOBILE SERVICES: DATA REVOLUTION
                                                                        Mobile Market Rev...
MOBILE SERVICES: COMPETITION
  Intense Technology competition
        Growing demand     speed increase       upgrades



...
MOBILE SERVICES IN THE FOUR COUNTRIES
  Mature markets with
high penetration

 Faster growth in Baltics
        2001: 80% ...
MOBILE SERVICES IN NORDICS AND BALTICS
                       NORDICS                                               BALTIC...
MOBILE SERVICES: IMPACT OF THE CURRENT CRISIS
      Supply side: Mixed messages
            Europe, End 2008 - optimistic ...
MOBILE SERVICES: RECOMMENDATIONS BY ANALYSTS


    Focus on delivering value: price as the dominant factor to select a ser...
MOBILE SERVICES: OUR INVESTIGATIONS


          Impact in Nordic and Baltic markets ? If yes similar?
                    ...
CEOS ABOUT THE CRISIS AND RESULTS
         Harri Koponen the President and CEO
               Koponen,                    ...
GLOBAL VIEW OF THE COMPANIES

  Leader in Nordics, Baltics, Eurasia (Sweden)                       Alternative operator in...
SEGMENTS IN 2008

    Sales by Segment                                              Operating Income by Segment

    Mobil...
MOBILE SEGMENT: MARKET SHARES

                                                        OTHERS 2,5         OTHERS 5        ...
MOBILE SEGMENT: REVENUES

Revenues
                                                                                       ...
MOBILE SEGMENT: PROFITS
EBITDA                                                                              40,0%
        ...
MOBILE SEGMENT: REVENUE & PROFITS PER CUSTOMER

                                                                        35...
POSITIONING IN SWEDEN
                                                                                      Sales, Number ...
POSITIONING IN FINLAND
                                                                                      Sales,
      ...
POSITIONING IN ESTONIA
                                                                                           Sales,
 ...
POSITIONING IN LATVIA
                                                                                                Sale...
FINANCIAL STRUCTURE – SHORT TERM

IMF about companies’ financial health worldwide : the crisis deteriorated balance sheets...
FINANCIAL STRUCTURE – LONG TERM
 IMF about companies’ fi
      b t        i ’ financial h lth worldwide
                  ...
FINANCIAL STRUCTURE – ZOOM TELE2 IN THE REGION


                                                              40,0%
     ...
GLOBAL VISION - INVESTMENTS



Analysts: keep investing into the core business in spite of the crisis



     CAPEX in 200...
GLOBAL VISION OF THE FINANCIAL HEALTH
   Resemblance of the players by majority of the indicators
   Changes
            E...
RESPONSE OF THE MARKETS – SHARES’ PERFORMANCE

Stock markets: -20–60% of value in June-Dec. 2008

R. Wood,
R Wood Analysis...
RESPONSE OF THE MARKETS – PRICES & EARNINGS/ SHARE


           Price changes*, last quarter                         Earni...
CONCLUSION

   Strong crisis in Baltic countries, more stable situation in Nordics

   Latvia has a potential for ICT deve...
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Impact of 2008 crisis on mobile operators in Nordic-Baltic region_presentation

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The thesis is dedicated to the analysis of the impact of 2008 crisis on 4 mobile operators in Nordic-Baltic region.

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Impact of 2008 crisis on mobile operators in Nordic-Baltic region_presentation

  1. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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
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