Síminn — Investor Presentation 2020

Apr 28, 2020

Q1 2020 Results

Orri Hauksson og Óskar Hauksson
29 April 2020

---

Highlights in Q1 2020

FINANCE

EBITDA
2.735 m.kr.
Q1 2019: 2.369 m.kr.

EBITDA ratio
37,7%
Q1 2019: 34,0%

Cash
1.148 m.kr.
Q4 2019: 217 m.kr.

Net debt / EBITDA
1,35
Q4 2019: 1,52
EBITDA trailing twelve months

CAPEX
1.935 m.kr.
Q1 2019: 1.147 m.kr.

Equity ratio
56,9%
Q4 2019: 55,9%

HIGHLIGHTS

• The Group's revenue growth was 4.1% YoY
• Growth in all segments except for Siminn equipment sales and fixed voice revenues
• EBITDA increases by 15.4% YoY and EBIT by 11.1%
• Net Profit increases by 24.2% YoY
• CAPEX - TV rights of the Premier League were paid in Q1 2020 compared to Q2 2019
• Low effect of COVID-19 on Q1

---

Operations in Q1 2020

4,1% Revenue Growth Compared to Q1 2019

• Total revenue ISK 7,246 millions in Q1 2020 up by ISK 284 millions compared to Q1 2019
• Strong start to 2020 – Revenue growth in mobile, internet and TV
• The highest growth was in TV revenue or 19% - Síminn Sport a successful addition to our portfolio but other segments strong as well
• Around 37.500 subscribers to the Home package – Increase by 500 in Q1 and 4.200 YoY
• 44.000 with Premium TV – Small increase in Q1 and 4.500 YoY
• Mobile revenue return to growth
• The success of Prenna continues and was the key driver in the revenue growth
• Subscription revenue contract slightly decline
• ARPU in the domestic market is returning to growth after 6 years of decline – The corporate market stabilizing.
• Small growth in internet revenue
• Subscriptions increase by 1.000 YoY
• Equipment sales at the parent company and fixed line revenue contract YoY
• Revenue growth at Sensa
• Consulting revenue increase and sales of security solutions increase

---

Operations Q1 2020

15,4% EBITDA Growth Compared to Q1 2019

• EBIT increases by 11,1% á from Q1 2019 and net profit increases by 24,2%
• Ongoing focus on cost has positive effect in Q1
• Wage expenses decrease by 2,9% YoY
• Reduction in FTE’s in 2019 the reason – FTE’s in the group below 600 at the end of Q1 2020
• Cost of sold services increases due to increased focus on domestic TV content production
• The increase in depreciation is related to increased investments in content and TV rights
• Variable cost decreases YoY – Part of the reason is COVID-19 which effected cost items such as travel cost and marketing cost at the end of Q1
• Interest expenses decrease since funding is with floating rates. Exchange rate losses were 61 m.kr. in Q1 – Net financial items decline by 43 m.kr. YoY
• CAPEX increases YoY – The broadcasting rights of the English Premier League were paid in Q1 2020 but Q2 in 2019
• With over 1 billion in cash the company has strong cash position
• Síminn exercised an option to cancel scheduled repayments of loans in 2020
• Leverage ratio below the lower end of debt policy – Favorable rate terms

---

Operation in Q1 2020

The Effects of COVID-19 on Síminn

• The effects of COVID-19 are small in Q1 but will appear in Q2
• Operations have run smoothly in spite of significant changes
• Most of the staff work from home
• Services for the most parts uninterrupted – Stores closed temporarily
• The lesson from last week will be that changes to certain aspects of our business model can happen quicker than previously thought
• Síminn has not experienced churn in key products effected by COVID-19
• Significant increase in TV consumption has not much effect on revenue – Included in subscriptions
• Roaming revenue decline by 12% YoY
• The importance of roaming revenue has been declining
• Roaming revenues were expected to decline 10% this year but will decline much more
• Expected effect on margin in Q2 – Q4 are 150 – 200 m.kr.
• Advertisement revenue in line with expectations in Q1 – The market is slowing down
• High growth in non-linear advertising revenue

---

Operation in Q1 2020

The Effects of COVID-19 on Síminn cont.

• Subscription of Síminn Sport not billed in April and May and uncertainty in the future
• Every month lost subscription revenue is around 30 m.kr. in

• The English Premier League still expected to be completed – Will to some extent fill the void left by the 2020 Olympics and the UEFA Euro 2020

• The revenue from domestic companies which are left virtually without income as a result of the crises is around 500 m.kr. on annual basis

• Around 1.300 companies in this category
• Majority is telco revenue, but it also includes revenues from IP net, hosting and Call Center solutions
• Likely that some part of revenue will move from the corporate to the residential market
• The largest single customer of the 1.300 companies generated 20 m.kr. in revenue in 2019
• Government response to COVID-19 benefit customers of Síminn

---

Operation in Q1 2020

The Effects of COVID-19 on Síminn cont.

• Síminn is willing to assist customers through this difficult period incl. temporary cancellation of all costs for customers
• Defaults normally low at Síminn
• Bad debt write-off normally under 100 m.kr. annually – The highest write-off was 150 m.kr. in 2009 following the banking crisis but defaults returned to normal in 2010
• Still no signs of increased defaults
• Bad debt allowance increased in Q1 and also room for additional defaults within the current bad debt allowance model
• The revenue effect on Míla will be low
• Sensa with little exposure to the travel industry and business segments which are mostly effected by COVID-19
• The general contraction on the domestic economy poses more challenge for Sensa
• The devaluation of the ISK puts pressure on expenses and CAPEX
• Cost increases as a result of weaker ISK over 100 m.kr. in 2F – 4F
• More pressure on equipment sales margin

---

Operation in Q1 2020

The Effects of COVID-19 on Síminn cont.

• In light of higher revenue uncertainty and pressure on FX related expenses certain variable expenses will be cut by 300 m.kr. In Q2 – Q4
• Marketing expenses reduced and certain events cancelled
• Sales expenses temporarily reduced
• Consulting fees will be reduced since certain projects have been delayed or cancelled
• IT expenses reduced in co-operation with key IT vendors

• Travel expenses and certain staff related expenses automatically reduce

• Wage expenses will be lower than expected this year

• Fewer FTE’s
• Overtime pay and performance related pay reduces
• Wage inflation highly unlikely in this environment
• The outbreak assists the digitalization process

---

Revenue by segments Q1 2020

	Q1 2020	Q1 2019	Change	Change %
Mobile	1.386	1.357	29	2,1%
Fixed voice	445	465	(20)	-4,3%
Internet & network	2.166	2.135	31	1,5%
TV	1.583	1.331	252	18,9%
IT services	1.042	951	91	9,6%
Equipment sales	418	425	(7)	-1,6%
Other revenue	206	298	(92)	-30,9%
Total revenue	7.246	6.962	284	4,1%

---

Segments

Síminn Parent - Revenue less dependent on usage

• In recent years revenue from usage as a proportion of total revenue has reduced.
• Usage revenue Q1 2015 was 27%
• Usage revenue Q1 2020 was 14%
• More stability in revenue and less fluctuations

Usage as a proportion of total revenue
exl. equipment sale

---

Income statement Q1 2020

	Q1 2020	Q1 2019	Change	Change in %
Net sales	7.246	6.962	284	4,1%
Cost of sales	(3.802)	(3.425)	(377)	11,0%
Operating expenses	(2.214)	(2.430)	216	-8,9%
EBIT	1.230	1.107	123	11,1%
Net financial items	(270)	(313)	43	-13,7%
Income tax	(196)	(179)	(17)	9,5%
Net profit	764	615	149	24,2%
EBITDA	2.735	2.369	366	15,4%
EPS	0,09	0,07	0,02	28,6%

*Restated according to changes made to treatment of TV rights

---

Balance sheet

Assets	31.3.2020	31.12.2019
Non-current assets
Property, plant and equipment	18.973	18.716
Right-of-use assets	4.954	5.118
Intangible assets	34.023	34.265
Other non-current assets	470	472
Non-current assets	58.420	58.571
Current assets
Inventories	1.844	1.751
Accounts receivables	3.283	4.188
Other current assets	1.021	794
Cash and cash equivalents	1.148	217
Current assets	7.296	6.950
Total assets	65.716	65.521
Equity and liabilities	31.3.2020	31.12.2019
---	---	---
Equity
Total equity	37.397	36.632
Non-current liabilities
Borrowings	15.151	14.481
Finance lease	4.498	4.632
Accounts payables	0	353
Deferred tax liabilities	719	802
Non-current liabilities	20.368	20.268
Current liabilities
Bank loans	400	600
Accounts payables	3.022	3.533
Current maturities of borrowings	888	1.750
Other current liabilities	3.641	2.738
Current liabilities	7.951	8.621
Total equity and liabilities	65.716	65.521

---

Balance sheet

Net interest bearing debt
16.014
31.12.2019

14.691
31.3.2020

---

Cash flow Q1 2020

	Q1 2020	Q1 2019
Cash flow from operating activities
Operating profit	1.230	1.107
Operational items not affecting cash flow:
Depreciation and amortisation	1.505	1.262
	2.734	2.369
Changes in current assets and liabilities	1.000	(307)
Cash generated by operation	3.734	2.062
Net interest expenses paid during the period	(213)	(263)
Payments of taxes during the period	(125)	(88)
Net cash from operating activities	3.396	1.711
Investing activities
Net investment in property, plant and equipments	(1.824)	(1.177)
Other investment	(111)	30
Investing activities	(1.935)	(1.147)
Financing activities
Payment of long term lease	(144)	(131)
Net Financing activities	(392)	(737)
Financing activities	(536)	(868)
Increase (decrease) in cash and cash equivalents	925	(304)
Translation effects on cash	6	24
Cash and cash equivalents at the beginning of the year	217	1.246
Cash and cash equivalents at the end of the year	1.148	966

Operational Free Cash Flow

Operational Free Cash Flow
* Operational Free Cash Flow consists of Cash generated by operation less taxes and Investing activities

---

CAPEX development

Investing activities Q1 2020

*Restated according to changes made to treatment of TV rights

---

Highlights

---

S

Síminn

• Continuous improvement in Síminn’s operations
• Securing even better WiFi customer experience
• Mergers of business units such as customer service centers
• Update of various customer interfaces
• Increased self-service opportunities

---

Míla

• The fiber project is progressing well
• 2.900 new fiber connections in Q1
• Generally, rollout is slower in Q1
• 1.700 in the capital area
• 1.200 in rural areas
• 35.000 homes with active fiber from Míla
• Good progress in rural areas
• Míla is strengthening the reserve power in North Iceland after severe weather in December
• Emergency processes has been reviewed and reserved power has been strengthened in Grindavík area where seismicity has been active

---

Sensa

• Good project position and steady growth in operating and hosting solutions
• High demand for cloud-based solutions
• The COVID-19 pandemic has led to increased demand for various teleworking and video conferencing solutions. In addition, the focus on security solutions has increased.
• Sensa is strong in this field and has a great knowledge of different needs of its customers
• Sensa is proud to have helped creating the Rakning C-19 app
• The company's service has been successful with employees working from home, with emphasis on employee separation to ensure full service.

---

Outlook for 2019

---

Outlook for 2020

The Guidance for 2020 is Still in Effect

• The outlook was very positive when guidance was issued in February
• The outlook now is more uncertain and certain revenue segments of Síminn will take a hit
• The devaluation of the ISK puts pressure on expenses and makes CAPEX adjustments necessary
• Uncertain development in defaults by customers
• Sensa with strong performance in Q1 but revenues at Sensa are less predictable than Síminn
• Wage expenses will be lower than estimated and certain variable expenses will be cut by 300 m.kr. In Q2 – Q4
• Ongoing cost cut continues
• Síminn believes that strong performance at the start of 2020 and actions taken to mitigate the operational effect of COVID-19 will secure that EBITDA will be within guidance for 2020
• CAPEX will most likely be at the lower end of guidance

---

Outlook 2020

Financing and share buybacks

• Síminn’s financing is with variable interest rates and linked to REIBOR
• Decline in interest rates will deliver at least 150 m.kr. in lower finance expenses than budgeted
• Because debt is below target, it was decided to cancel scheduled repayments in 2020
• The option allows Síminn to cancel up to ISK 2,4 billion until final maturity
• Annual repayments are 1.150 m.kr. – Repayments cancelled in 2020 are 960 m.kr.
• 500 m.kr. dividend paid in April in accordance with the decision of the AGM
• Share buybacks will start in May
• The initial amount will be 500 m.kr.
• The dividend policy states that at least 50% of profit after tax is distributed to shareholders.

---

Guidance for 2020

---

❤

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.

---