Síminn — Investor Presentation 2019

Oct 29, 2019

Q3 2019 Results

Orri Hauksson and Óskar Hauksson

30 October 2019

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Highlights in Q3 2019

FINANCE

| EBITDA
2.817 m.kr. | EBITDA ratio
39,7% | Cash
557 m.kr. |
| --- | --- | --- |
| Net debt / EBITDA*
1,57 | CAPEX
2.115 m.kr. | Equity ratio
55,4% |

*EBITDA trailing twelve months

HIGHLIGHTS

• 20% revenue growth in TV – The launch of Siminn Sport a success
• Less seasonality in performance since the importance of roaming and data traffic revenue is declining
• Investment in content is a significant factor in Q3 CAPEX
• Increasing margin pressure at Sensa in spite of revenue growth
• Revenue growth at Míla and stable performance

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Q3 2019 - Results

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Revenue by segments Q3 2019

	Q3 2019	Q3 2018	Change	Change %
Mobile	1.523	1.605	( 82)	-5,1%
Fixed voice	444	466	( 22)	-4,7%
Internet & network	2.142	2.153	( 11)	-0,5%
TV	1.423	1.190	233	19,6%
IT services	865	861	4	0,5%
Equipment sales	456	456	0	0,0%
Other revenue	245	238	7	2,9%
Total revenue	7.098	6.969	129	1,9%

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Income statement Q3 2019

	Q3 2019	Q3 2018	Change	Change in %
Net sales	6.958	6.828	130	1,9%
Cost of sales	(3.523)	(3.371)	(152)	4,5%
Gross profit	3.435	3.457	(22)	-0,6%
Gross profit ratio	49,4%	50,6%
Other operating income	140	141	(1)	-0,7%
Operating expenses	(2.208)	(2.156)	(52)	2,4%
Operating profit	1.367	1.442	(75)	-5,2%
Operating profit/Net sales	19,6%	21,1%
Finance income	55	49	6	12,2%
Finance cost	(296)	(246)	(50)	20,3%
Net exchange rate differences	9	(14)	23
Net financial items	(232)	(211)	(21)	10,0%
Income tax	(238)	(253)	15	-5,9%
Net profit	897	978	(81)
Depreciation	(1.450)	(1.165)	(285)
EBITDA*	2.817	2.607	210	8,1%
EBITDA ratio	39,7%	37,4%
EBIT	1.367	1.442	(75)
EBIT ratio	19,3%	20,7%

*Restated according to changes made to treatment of TV rights

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Cash flow Q3 2019

	Q3 2019	Q3 2018*
Cash flow from operating activities
Operating profit	1.367	1.442
Operational items not affecting cash flow:
Depreciation and amortisation	1.450	1.165
Other items not affecting cash flow	(2)	5
	2.815	2.612
Changes in current assets and liabilities	1.209	(97)
Cash generated by operation	4.024	2.515
Net interest expenses paid during the period	(240)	(197)
Payments of taxes during the period	(194)	(52)
Net cash from operating activities	3.590	2.266
Investing activities
Net investment in property, plant and equipments	(2.115)	(1.192)
Investing activities	(2.115)	(1.192)
Financing activities
Buyback of ordinary shares	(942)	0
Proceeds from the exercise of share options	0	174
Payments of non-current liabilities	(287)	(287)
Payment of long term lease	(138)	0
Bank loans, increase (decrease)	(57)	(575)
Financing activities	(1.424)	(688)
Increase (decrease) in cash and cash equivalents	51	386
Translation effects on cash	(4)	1
Cash and cash equivalents (beginning-of-period)	510	183
Cash and cash equivalents (end-of-period)	557	570

*Restated according to changes made to treatment of TV rights

Cash generated by operation

Net cash from operating activities

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9M 2019 - Results

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Operation 9M 2019

Strong impact of Síminn Sport

• The Premier League started in August – Revenue impact of Síminn Sport exceeds expectations
• Sale of Premium subscriptions and stand alone Síminn Sport subscriptions off to a strong start
• Premium subscriptions increase by 3.000 since August

• 54% growth in ad sales in Q3 and 11% YoY

• Strong growth in TV

• Revenue from Premium TV services has increased by 330 m.kr. or 30%

• Home Packages have increased by 5.100 YoY

• Wholesale and roaming are responsible for revenue decline in mobile in Q3

• Growth in domestic market but the corporate market still facing ARPU pressure

• Revenue decline from roaming and wholesale is 250 m.kr. compared to 2018.

• Increasing margin pressure at Sensa in spite of revenue growth

• Modest revenue growth at Míla and the cost side is well managed

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Operation 9M 2019

Cost unchanged YoY

• Excluding cost of goods sold and depreciation cost is virtually unchanged
• Cost of goods sold increases 200 m.kr., mainly at Sensa
• Provision of 50 m.kr. was expensed in Q1 as a result of damages ruling against Síminn

• Content cost increases by 50 m.kr. due to increased emphasis on local TV content

• Payroll expenses unchanged

• Average number of FTE’s 40 fewer than in 2018

• Cost is under control

• IT cost decreasing and will continue on that trend

• The cost of Síminn Sport as expected

• Financial expenses

• Interest expense from lease liability (IFRS 16) was 2019 m.kr. in 2019
• Penalty rates due to damages ruling (a provision of 50 m.kr.) was expensed in Q1
• Lower interest cost of long term funding in spite of margin increase

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Revenue by segments 9M 2019

	9M 2019	9M 2018	Change	Change %
Mobile	4.308	4.643	(335)	-7,2%
Fixed voice	1.368	1.427	(59)	-4,1%
Internet & network	6.420	6.777	(357)	-5,3%
TV	4.054	3.499	555	15,9%
IT services	2.737	2.443	294	12,0%
Equipment sales	1.321	1.432	(111)	-7,8%
Other revenue	967	775	192	24,8%
Total revenue	21.175	20.996	179	0,9%

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Income statement 9M 2019

	9M 2019	9M 2018	Change	Change in %
Net sales	20.539	20.505	34	0,2%
Cost of sales	(10.539)	(10.283)	(256)	2,5%
Gross profit	10.000	10.222	(222)	-2,2%
Gross profit ratio	48,7%	49,9%
Other operating income	636	491	145	29,5%
Operating expenses	(6.884)	(6.711)	(173)	2,6%
Operating profit	3.752	4.002	(250)	-6,2%
Operating profit/Net sales	18,3%	19,5%
Finance income	151	153	(2)	-1,3%
Finance cost	(953)	(727)	(226)	31,1%
Net exchange rate differences	(12)	(9)	(3)
Net financial items	(814)	(583)	(231)	39,6%
Income tax	(628)	(701)	73	-10,4%
Net profit	2.310	2.718	(408)
Depreciation	(4.036)	(3.395)	(641)
EBITDA*	7.788	7.397	391	5,3%
EBITDA ratio	36,8%	35,2%
EBIT	3.752	4.002	(250)
EBIT ratio	17,7%	19,1%

*Restated according to changes made to treatment of TV rights

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e

Balance sheet

	30.9.2019	31.12.2018*
Assets
Non-current assets
Property, plant and equipment	23.875	18.059
Intangible assets	34.203	32.473
Other non-current assets	450	424
Non-current assets	58.528	50.956
Current assets
Inventories	1.702	1.437
Accounts receivables	3.638	4.313
Other current assets	979	882
Cash and cash equivalents	557	1.246
Current assets	6.876	7.878
Total assets	65.404	58.834
Equity and liabilities
Equity
Total equity	36.240	35.202
Non-current liabilities
Borrowings	14.758	15.631
Finance lease	4.744	0
Payables	353	0
Deferred tax liabilities	835	898
Non-current liabilities	20.690	16.529
Current liabilities
Bank loans	220	450
Accounts payables	3.298	2.997
Current maturities of borrowings	1.696	1.150
Other current liabilities	3.260	2.506
Current liabilities	8.474	7.103
Total equity and liabilities	65.404	58.834

Equity ratio

Net interest bearing debt

*Restated according to changes made to treatment of TV rights

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Cash flow 9M 2019

	9M 2019	9M 2018*
Cash flow from operating activities
Operating profit	3.752	4.002
Operational items not affecting cash flow:
Depreciation and amortisation	4.036	3.395
Other items not affecting cash flow	(167)	(87)
	7.621	7.310
Changes in current assets and liabilities	552	33
Cash generated by operation	8.173	7.343
Net interest expenses paid during the period	(768)	(581)
Payments of taxes during the period	(369)	(365)
Net cash from operating activities	7.036	6.397
Investing activities
Net investment in property, plant and equipments	(5.014)	(3.800)
Other investment	30	2
Investing activities	(4.984)	(3.798)
Financing activities
Dividend paid	(330)	(311)
Purchase of own shares	(942)	(1.068)
Payment of long term lease	(402)	0
Net Financing activities	(1.092)	(1.362)
Financing activities	(2.766)	(2.741)
Increase (decrease) in cash and cash equivalents	(714)	(142)
Translation effects on cash	25	(6)
Cash and cash equivalents at the beginning of the year	1.246	718
Cash and cash equivalents at the end of the year	557	570

*Restated according to changes made to treatment of TV rights

Cash generated by operation

Net cash from operating activities

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CAPEX development

Investing activities 9M 2019

*Restated according to changes made to treatment of TV rights

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Operation and CAPEX 9M 2019

Impact of IFRS 16 and capitalization of TV rights

• The table shows the effect of IFRS 16 and capitalization of TV rights on the income statement and Investment activities for the first 9M of 2018 and comparison with 9M 2019.

Amounts in m.ISK	9M 2018
	9M 2018*	Adjusted	9M 2019	Difference
EBITDA	7.398	7.989	7.788	-201
Depreciation	3.395	3.883	4.036	154
Net financial items	583	778	814	36
Profit for the period	2.718	2.645	2.310	-335
Investment activities	3.798	3.798	4.984	1.186

*Restated according to changes made to treatment of TV rights

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Highlights

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Síminn Sport

• 40% of homes have access to Síminn Sport
• Premium TV service still growing – Record number of subscribers
• Strong in OTT TV service
• Brennan still growing despite new direct competition
• Focus on robotics
• Lending started under the Pay brand
• 4G coverage is now available or 99,42% of the population

Premier League

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Míla

• 15.000 new fiber connections in 2019. The goal was 12.000.
• 8.000 in the capital area
• 7.000 in rural areas.
• 30.000 homes with active fiber from Míla
• Co-Operation agreements beneficial for the project
• Gagnaveita Reykjavíkur
• Tengir in Akureyri

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Sensa

• Sale of cloud service growing this year
• Sensa involved in large projects
• Increased demand for advisors in cloud services
• Security the theme following a few large scale thefts in recent months
• Education for clients
• Health check on systems

sensa

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Outlook for 2019

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Outlook 2019

Unchanged Outlook – Long Term Prospects are Good

• The Launch of Síminn Sport a success
• Subscription sales during the first weeks exceed estimates
• Síminn Sport fits well to other product offerings at Síminn

• Supports ambitious sales targets for 2020

• Strong sales performance in key products

• Opportunity related to further distribution of Premium TV service

• Growth in domestic mobile revenue and positive outlook – Fierce price competition remains in the corporate market

• Stable operations at Míla and good cost control

• Sensa is the most cyclical part of the group hence most effected by slower economy
• Further reduction in FTE’s during the next quarters and lower payroll expenses expected

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CAPEX development

Long term CAPEX view

*Restated according to changes made to treatment of TV rights

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Guidance for 2019

With effects of IFRS 16 and capitalization of TV rights

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Appendix

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Business segments

• Mobile: Revenue from mobile services in Iceland and abroad, whether traditional GSM service, satellite service or other mobile service.
• Fixed voice: Revenue from fixed voice service (fees and traffic).
• Internet & network: Revenue from data service, incl. xDSL service, GPON, Internet, IP net, core network, local loop and access network.
• TV: Revenue from TV broadcast and distribution and Síminn TV (fees, traffic and advertisement).
• IT services: Revenue from hosting and operations, advisor fees and sold service and IT related hardware sales.
• Equipment sales: Revenue from sale of telco equipment.
• Other revenue: Revenue from i.e. sold telco service and hosting.

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Disclaimer

Information contained in this presentation is based on sources that Síminn hf. ("Síminn" or the "company") considers reliable at each time. Its accuracy or completeness can however not be guaranteed. This report contains forward-looking statements that reflect the management's current views with respect to certain future events and potential financial performance. Although the management believe that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. The forward looking information contained in this presentation applies only as at the date of this presentation.

Síminn does not undertake any obligation to provide recipients of this presentation with any further information on the company or to make amendments or changes to this publication should inaccuracies or errors be discovered or opinions or information change. Other than as required by applicable laws and regulation.

This presentation is solely for information purposes and is not intended to form part of or be the basis of any decision making by its recipients. Nothing in this presentation should be construed as a promise or recommendation.

Statements contained in this presentation that refer to the company's estimated or anticipated future results or future activities are forward looking statements which reflect the company's current analysis of existing trends, information and plans. Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially depending on factors such as the availability of resources, the timing and effect of regulatory actions and other factors.

By the receipt of this presentation the recipient acknowledges and accepts the aforesaid disclaimer and restrictions.

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