Síminn — Investor Presentation 2020

Oct 27, 2020

Q3 2020 Results

Orri Hauksson og Óskar Hauksson
28 October 2020

---

Highlights in Q3 and 9M 2020

	Q3 2020	9M 2020
Revenue	7.225 m.kr.
Q3 2019: 7.098 m.kr.	21.747 m.kr.
9M 2019: 21.175 m.kr.
EBITDA *	2.933 m.kr.
Q3 2019: 2.817 m.kr.	8.106 m.kr.
9M 2019: 7.788 m.kr.
EBITDA % *	40,6%
Q3 2019: 39,7%	37,3%
9M 2019: 36,8%
EBIT *	1.409 m.kr.
Q3 2019: 1.367 m.kr.	3.554 m.kr.
9M 2019: 3.752 m.kr.
CAPEX	1.088 m.kr.
Q3 2019: 2.115 m.kr.	4.359 m.kr.
9M 2019: 4.984 m.kr.
NIBD / 12M EBITDA *	Cash	Cash generated by operation
1,36
4F 2019: 1,52	714 m.kr.
4F 2019: 217 m.kr.	9.086 m.kr.
9M 2019: 8.173 m.kr.

Operation Q3 2020

• Revenue growth was 1,8% between years
• Growth is mainly due to TV services and equipment sale
• Decline in Mobile due to lower income from roaming charges
• Cost reductions in Q2 pay off in Q3
• Wage expenses decreased by 167 m.kr. from Q3 2019
• Staff expenses decreased due to staff working from home
• Sales and marketing expenses decreased
• The effect of a weaker exchange rate is considerable
• In particular, long-term contracts with key suppliers

• Interest expenses decrease by 110 m.kr.

• Without government fine in Q2 2020

---

Operation

---

Income Statement

Income statement	Q3			9M
	2020	2019	%	2020	2019	%
Net sales	7.225	7.098	1,8%	21.747	21.175	2,7%
Cost of sales	(3.819)	(3.523)	8,4%	(11.739)	(10.539)	11,4%
Operating expenses	(1.997)	(2.208)	-9,6%	(6.954)	(6.884)	1,0%
EBIT	1.409	1.367	3,1%	3.054	3.752	-18,6%
Net financial items	(149)	(232)	-35,8%	(597)	(814)	-26,7%
Income tax	(246)	(238)	3,4%	(596)	(628)	-5,1%
Net profit	1.014	897	13,0%	1.861	2.310	-19,4%
EBITDA	2.933	2.817	4,1%	7.606	7.788	-2,3%
EPS	0,11	0,10	10,0%	0,21	0,26	-19,2%

Revenue

EBITDA*

EBIT*

Operation 9M 2020

• Irregular items affect EBITDA comparisons between years
• Government fine charged in Q2 2020 - 500 m.kr.
• Costs due to redundancies in Q2 2020 - 125 m.kr.
• Compensation charged in Q1 2019 - 50 m.kr.
• Gain on sale of store in Kringlan Mall in Q2 2019 - 164 m.kr.
• Revenue due to the closure of the loyalty program in Q1 2019 - 112 m.kr.
• Adjusted for irregular items, EBITDA and profit are growing between years

• Interest expenses decrease by 250 m.kr. from the previous year

• Without fine in Q2 2020

---

Revenue by segments

Segments	Q3				9M
	2020	2019	Breyting	%	2020	2019	Breyting	%
Mobile	1.406	1.523	(117)	-7,7%	4.110	4.308	(198)	-4,6%
Fixed voice	423	444	(21)	-4,7%	1.299	1.368	(69)	-5,0%
Internet & network	2.210	2.142	68	3,2%	6.554	6.420	134	2,1%
TV	1.531	1.423	108	7,6%	4.614	4.054	560	13,8%
IT services	874	865	9	1,0%	3.063	2.737	326	11,9%
Equipment sales	567	456	111	24,3%	1.481	1.321	160	12,1%
Other revenue	214	245	(31)	-12,7%	626	967	(341)	-35,3%
Total revenue	7.225	7.098	127	1,8%	21.747	21.175	572	2,7%

Mobile

Internet & network

TV

IT services

---

Operation Q3 2020

Good results in Q3 - Revenues increase and cost reductions pay off

• Total revenue 7.225 m.kr. in Q3 2020, up by 127 m.kr. from last year
• Growth in equipment sales at Síminn and services related to Internet & network and TV
• Equipment sales up by 24%
• Internet & network increased by more than 3%
• Revenue from internet increased by more than 4%
• TV revenues grow by almost 8%
• Advertising revenue unchanged from Q3 2019
• Premium income increased by 18% from Q3 2019
• Mobile revenues decline by 114 million or almost 8%
• Travel related income decreases by 150 m.kr. from Q3 2019 due to less travel
• Income from Prenna grows by 25 m.kr. from 3Q 2019
• Subscription income from the domestic market does not change much
• Sensa's revenue is similar to Q3 2019, but EBITDA increases by 25%
• Revenue and profit of Míla similar to Q3 2019

---

Operation Q3 2020

Good results in Q3 - Revenues increase and cost reductions pay off

• FTE's has decreased by 50 since the beginning of the year
• The largest decrease in Q2 - Savings appear in Q3 and the decrease from Q3 2019 amounted to a total of 167 m.kr.
• Outsourcing software development reduces labor costs by 300 m.kr. on an annual basis but will not have a significant effect on Síminn's total costs in the coming months
• The effects of the weakening of the exchange rate are becoming increasingly apparent
• Mainly it affects service agreements from parties such as Ericsson, Cisco and Farice
• The increase in depreciation and amortization is mainly due to increased investments in content rights but also due to infrastructure investment at Míla
• Various variable expenses are reduced
• The reduction is largely due to COVID-19, which automatically affects travel and other staff related expenses.
• Sales and marketing expenses cut due to changed circumstances
• Interest expenses on long-term loans were ISK 107 million at Q3 2020, compared to 218 m.kr. in Q3 2019

---

Operation Q3 2020

Rapid adaptation to changing external conditions

• Revenue growth between years shows the strength in the company's product range
• 14% growth in TV revenue and 11% growth in IT revenue
• Revenue from internet services increase
• The negative effects of COVID are mainly reflected in lost revenue from domestic and foreign tourists
• Revenue reduction by 300 m.kr. between years
• The cost restraint is high, but the weakening of the ISK has an effect
• Up to 600 m.kr. increase in the cost of services sold
• One third is due to increased production of domestic content for TV
• Just over 200 m.kr. are cost increases that can largely be attributed to the effects of the exchange rate
• Advertising revenue has risen by 22% between years
• Defaults have not risen much yet - less than expected

---

5

Balance Sheet and Cash Flow

---

e

Balance Sheet

Assets	30.9.2020	31.12.2019
Non-current assets
Property, plant and equipment	19.093	18.716
Right-of-use assets	4.711	5.118
Intangible assets	33.576	34.265
Other non-current assets	596	472
Non-current assets	57.976	58.571
Current assets
Inventories	1.447	1.751
Accounts receivables	3.099	4.188
Other current assets	896	794
Cash and cash equivalents	714	217
Current assets	6.156	6.950

Total assets 64.132 65.521

Net interest bearing debt

Equity ratio

Equity and liabilities	30.9.2020	31.12.2019
Equity
Total equity	36.561	36.632
Non-current liabilities
Borrowings	14.576	14.481
Finance lease	4.308	4.632
Accounts payables	0	353
Deferred tax liabilities	635	802
Non-current liabilities	19.519	20.268
Current liabilities
Bank loans	0	600
Accounts payables	3.038	3.533
Current maturities of borrowings	1.463	1.750
Other current liabilities	3.551	2.738
Current liabilities	8.052	8.621
Total equity and liabilities	64.132	65.521

Net debt to EBITDA*

Return on Equity

• Without government fine in Q2 2020

---

Cash Flow

Cash Flow	9M 2020	9M 2019
Cash flow from operating activities
Operating profit	3.054	3.752
Operational items not affecting cash flow:
Depreciation and amortisation	4.552	4.036
Other items not affecting cash flow	(5)	(167)
	7.601	7.621
Changes in current assets and liabilities	1.485	552
Cash generated by operation	9.086	8.173
Net interest expenses paid during the period	(557)	(768)
Payments of taxes during the period	(499)	(369)
Net cash from operating activities	8.030	7.036
Investing activities
Net investment in property, plant and equipments	(4.190)	(5.014)
Other investment	(169)	30
Investing activities	(4.359)	(4.984)
Financing activities
Dividend paid	(500)	(330)
Purchase of own shares	(1.433)	(942)
Payment of long term lease	(440)	(402)
Net Financing activities	(792)	(1.092)
Financing activities	(3.165)	(2.766)
Increase (decrease) in cash and cash equivalents	506	(714)
Translation effects on cash	(9)	25
Cash and cash equivalents at the beginning of the year	217	1.246
Cash and cash equivalents at the end of the period	714	557

Free Cash Flow*

Free Cash Flow*

*Free cash flow consists of cash from operations before interest less investing activities

---

CAPEX

---

Investing activities

CAPEX 9M 2020

• Investment activities in 9M 2020 are 625 m.kr. less than in the same period last year, mainly due to TV content rights and Mila
• Investments without TV rights are about 500 m.kr. less than in the same period in 2019, with the largest difference being Mila investments, which are 350 m.kr. lower than the year before
• Fiber optic projects in rural areas are postponed due to the PTA announcement of increased obligations on Mila, which will make planned investments in dozens of municipalities unprofitable
• Cost of indoor wiring per home have fallen sharply between years.

*Restated according to changes made to treatment of TV rights

---

Highlights

---

Síminn

• The first 5G transmitters are being installed for testing
• The aim is to install 2-4 transmitters before the end of the year
• The 5G system will be built in accordance with the frequency license from the PTA

• Síminn's mobile network is built up with equipment from the Swedish company Ericsson

• Further development of the 4G system is underway

• In the last three months, 16 new transmission points have been added

• Síminn's 4G system is currently available in 518 locations throughout the country

• Work is in full progress due to the transfer of units from Síminn to Míla

• It is expected that by the end of the year, more part of network operations will be transferred from Síminn to Míla
• The project is extensive, and the companies have received assistance from the consulting company McKinsey

---

Síminn

• The usage of Síminn Premium SVOD has increased significantly
• Delays in material from foreign suppliers have made the work of the program department more complicated
• However, they have been successful in finding new material and speeding up other material as well as directing the audience to older quality material
• TV ratings are also at the highest levels thanks to good quality content on Síminn’s television station
• 30 new series for the kids arrived in the Premium service, which has caused a great deal of excitement among the youngest viewers
• The third series of the Icelandic show Venjulegt fólk premiered in October and has already been a hit

---

Mobile data traffic increase related to status of Covid-19

Data traffic in mobile network

Data traffic - Foreign roaming users

Data traffic increases

• Data traffic in Simin's mobile network increases more between years in March/April and October
• Associated with to changes in consumption behavior due to Covid 19

• Easter peak in usage not visible this year

• Roaming data traffic is declining rapidly again

• The traffic of foreign visitors on Simin's network began to increase in June with less travel restrictions
• Traffic began to decline rapidly in August and September
• The traffic in recent weeks, however, is higher than it was this spring

---

Míla

• The installation of Míla's fiber optics exceeds expectations and connected spaces have exceeded 90 thousand
• In the first 9 months of the year, Míla has carried out 9 thousand fiber optic installations for homes

• The number of users has grown to 37 thousand

• Fewer projects related to fiber-optic installation in rural area than planned due to recent PTA market analysis

• Several projects have been postponed

• Míla has nevertheless achieved its overall goals for the year 2020

• Two large projects in the development of infrastructure that increase security are progressing well and are in line with plans

• Laying of fiber optics over the highlands
• Strengthening reserve power in the northern part of the country

---

Sensa

• Revenues are above plan so far this year and the company's results are good
• Sensa took over the operation of the IT environment of Kópavogur
• Implementation went well despite obstacles
• Service surveys show that employees are satisfied with Sensa's service
• Sensa was selected following a tender to provide the City of Reykjavík with network and teleconferencing equipment for renewal and additions to the city's system
• The autumn is lively, a variety of projects in progress, ranging from cloudization of companies and institutions to infrastructure renewal for large customers

---

Outlook for 2020

---

Outlook for 2020

Outlook unchanged - EBITDA close to the upper limit

• At the end of May, the company's EBITDA guidance for 2020 was lowered to 9.9 - 10.3 b.kr. following the fine from the Competition Authority
• The decision of the Competition Appeals Committee is expected before the end of the year
• Costs have been adjusted to changed circumstances
• Wage costs have been reduced and other cost savings will amount to around 300 m.kr. during the year
• Revenue effect of COVID-19 less than expected
• Defaults have not risen since Q2 this year
• Sales have been successful this autumn and so far, there has not been much effect from the economic downturn
• EBITDA will be close to the upper limit of the guidance
• Investments will be at the lower end of the guidance
• Refinancing is under consideration
• Direct financing of Míla under consideration
• Share buyback will resume in November
• 500 m.kr. and a daily maximum of 2 m.kr. at nominal value

---

Guidance for 2020

---

Shareholders

Shareholders 22.10.2020	Position	% O/A
Stoðir hf.	1.300.000.000	14,86%
Lifeyrissjóður verslunarmanna	1.119.675.792	12,80%
Gildi - lifeyrissjóður	819.216.544	9,36%
Lifeyrissj.starfsm.rík. A-deild	764.925.000	8,74%
Stapi lifeyrissjóður	401.001.106	4,58%
Birta lifeyrissjóður	350.748.814	4,01%
Brú Lifeyrissjóður starfs sveit	280.807.620	3,21%
Söfnunarsjóður lifeyrisréttinda	278.399.167	3,18%
Stefnir - ÍS 15	267.814.725	3,06%
Frjálsi lifeyrissjóðurinn	217.437.279	2,48%
Top 10 shareholders	5.800.026.047	66,29%
Other Shareholders	2.715.294.269	31,03%
Shares outstanding	8.515.320.316	97,32%
Own shares	234.679.684	2,68%
Total number of shares	8.750.000.000	100,00%

• Stoðir hf.
• Lifeyrissjóður verslunarmanna
• Gildi - lifeyrissjóður
• Lifeyrissj.starfsm.rík. A-deild
• Stapi lifeyrissjóður
• Birta lifeyrissjóður
• Brú Lifeyrissjóður starfs sveit
• Söfnunarsjóður lifeyrisréttinda
• Stefnir - ÍS 15
• Frjálsi lifeyrissjóðurinn
• Other Shareholders
• Own shares

Shareholders

• The company's policy is to pay a minimum of 50% of profit after tax in dividends and/or share buyback annually
• Dividend of 500 m.kr. paid in April in accordance with the resolution of the AGM
• The company has bought own shares for ISK 1,500 million since last AGM and own shares today 2.68%
• In total, the company has spent 65.1% of the company's profit on dividends and share buyback program

---

❤

Appendix

---

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.

---

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.

---