Síminn — Investor Presentation 2020

Feb 20, 2020

Q4 2019 Results

Full year 2019

Orri Hauksson og Óskar Hauksson
20 February 2020

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Highlights in Q4 2019

FINANCE

| EBITDA
2.728 m.kr. | EBITDA ratio
34,5% | Cash
217 m.kr. |
| --- | --- | --- |
| Net debt / EBITDA*
1,52 | CAPEX
1.385 m.kr. | Equity ratio
55,9% |

*EBITDA trailing twelve months

HIGHLIGHTS

• 18% EBITDA growth since Q4 2018 or 410 m.kr. (1)
• 28% EBIT growth and Net profit increases 37% (2)
• 20% TV revenue growth – Total revenues increase by 4,7%
• Strong quarter for Sensa both in terms of results and revenue
• The fiber rollout project at Míla progressing well – New connections are exceeding expectations

(1) Taking IFRS 16 into account
(2) Adjusted for Impairment of goodwill in 2018

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Q4 2019 - Results

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Operations in Q4 2019

4,7% Revenue growth since Q4 2018

• The revenue growth in Q4 is driven by TV operations and the performance of Sensa
• Sensa’s solutions are in strong demand from both the private and the public sector. Q4 was the best quarter in 2019.

• Growth in all TV products during the quarter apart from a slight reduction in resale of foreign channels.

• Síminn Sport in full operations in Q4

• Revenue from standalone subscriptions were 95 m.kr. in Q4

• The reduction in mobile revenue in Q4 solely related to the set-back in tourism in Iceland and foreign operations of Síminn

• ARPU increasing in the domestic market but the corporate market is still decreasing

• Þrenna still growing – Close to 1.200 new subscriptions in Q4

• Increase in Home Package subscriptions – Around 2.000 new subscribers in Q4

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Operations in Q4 2019

18% EBITDA Growth in Q4 without the effect of IFRS 16

• 28% EBIT increase in Q4 and Net Profit increases by 37%
• Adjusted for the write-down of goodwill at Míla in Q4 2018
• Ongoing focus on cost reduction has positive effect in Q4
• Payroll expenses decrease by 3,3% since Q4 2018
• FTE’s decrease by 49 – Reduction in all group companies
• Improved roaming agreements and improved control decrease interconnection expenses
• Síminn Sport did not increase total sales- and marketing expenses
• Interest expense reduce by 42 m.kr. from Q4 2018
• Interest expenses from lease liabilities (IFRS 16) are 68 m.kr. in Q4
• CAPEX decreases by 228 m.kr. or 13% from Q4 2018

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Revenue by segments Q4 2019

	Q4 2019	Q4 2018	Change	Change %
Mobile	1.464	1.489	(25)	-1,7%
Fixed voice	435	455	(20)	-4,4%
Internet & network	2.153	2.095	58	2,8%
TV	1.567	1.304	263	20,2%
IT services	1.425	1.292	133	10,3%
Equipment sales	611	620	(9)	-1,5%
Other revenue	241	289	(48)	-16,6%
Total revenue	7.896	7.544	352	4,7%

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Income statement Q4 2019

	Q4 2019	Q4 2018	Change	Change in %
Net sales	7.770	7.420	350	4,7%
Cost of sales	(4.367)	(4.196)	(171)	4,1%
Gross profit	3.403	3.224	179	5,6%
Gross profit ratio	43,8%	43,5%
Other operating income	126	124	2	1,6%
Operating expenses	(2.367)	(2.443)	76	-3,1%
Impairment losses	0	(2.990)	2.990	-100,0%
Operating profit	1.162	(2.085)	3.247	-155,7%
Operating profit/Net sales	15,0%	-28,1%
Finance income	45	60	(15)	-25,0%
Finance cost	(274)	(240)	(34)	14,2%
Net exchange rate differences	(2)	(25)	23
Net financial items	(231)	(205)	(26)	12,7%
Income tax	(171)	(146)	(25)	17,1%
Net profit	760	(2.436)	3.196
Depreciation	(1.566)	(4.209)	2.643
EBITDA*	2.728	2.124	604	28,4%
EBITDA ratio	34,5%	28,2%
EBIT	1.162	(2.085)	3.247
EBIT ratio	14,7%	-27,6%

*Restated according to changes made to treatment of TV rights

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Cash flow Q4 2019

	Q4 2019	Q4 2018*
Cash flow from operating activities
Operating profit	1.162	(2.085)
Operational items not affecting cash flow:
Depreciation and amortisation	1.566	4.209
Other items not affecting cash flow	(3)	0
	2.725	2.124
Changes in current assets and liabilities	(633)	(291)
Cash generated by operation	2.092	1.833
Net interest expenses paid during the period	(224)	(169)
Payments of taxes during the period	(397)	20
Net cash from operating activities	1.471	1.684
Investing activities
Net investment in property, plant and equipments	(1.319)	(1.275)
Other investment	(66)	139
Investing activities	(1.385)	(1.136)
Financing activities
Buyback of ordinary shares	(368)	(174)
Payment of long term lease	(150)	0
Payments of non-current liabilities	(288)	(288)
Bank loans, increase (decrease)	380	450
Financing activities	(426)	162
Increase (decrease) in cash and cash equivalents	(340)	710
Translation effects on cash	0	(34)
Cash and cash equivalents (beginning-of-period)	557	570
Cash and cash equivalents (end-of-period)	217	1.246

*Restated according to changes made to treatment of TV rights

Cash generated by operation

Net cash from operating activities

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2019 - Results

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Operation 2019

Revenue and EBITDA Increase YoY

• Positive impact of Síminn Sport – Financial outcome in line with expectations
• Increase in Home Package subscriptions – 4.250 new subscribers in 2019
• Around 50% of the increase in Q4 2019
• 1.700 new internet subscriptions in 2019
• The loss of wholesale revenue and the effect of lower roaming- and satellite revenue was mainly felt in early 2018 – Will have lower effect on comparison going forward
• ARPU in the domestic market is increasing slightly
• Still pressure on prices in the corporate market – Pricing not sustainable
• 9,4% revenue growth at Sensa in 2019
• The slower economy in Iceland is effecting margins
• EBIT at Míla increases by 68 m.kr. YoY – Adjusted for the write-down of goodwill in 2018

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Operation 2019

Stronger Performance in H2 of 2019

• Cost of sold services increases by 427 m.kr.
• 310 m.kr. as a result of higher depreciation, mainly from content rights

• Production cost of TV content increases by 90 m.kr. YoY due to increased Icelandic content production

• Average FTE’s decrease by 52 or 7,4%

• The reduction was mainly in H2 of 2019

• Slight reduction in payroll expenses YoY

• Funding of Síminn is all with floating interest rates and in Icelandic krona

• The reduction in interest rates has positive effect in Síminn
• Margin on funding was increased in 2019

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Revenue by segments 2019

	2019	2018	Change	Change %
Mobile	5.772	6.132	( 360)	-5,9%
Fixed voice	1.803	1.882	( 79)	-4,2%
Internet & network	8.573	8.872	( 299)	-3,4%
TV	5.621	4.803	818	17,0%
IT services	4.162	3.735	427	11,4%
Equipment sales	1.932	2.052	( 120)	-5,8%
Other revenue	1.208	1.064	144	13,5%
Total revenue	29.071	28.540	531	1,9%

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Key figures from subsidiaries

	2019	2018*	Change	Change %
Siminn hf.
Revenue	23.391	23.232	159	0,7%
EBITDA	6.224	5.685	539	9,5%
EBITDA ratio	26,6%	24,5%
EBIT	2.915	2.959	-43	-1,5%
EBIT ratio	12,5%	12,7%
CAPEX	3.552	2.444	1.107	45,3%
CAPEX to revenue	15,2%	10,5%
Mila ehf.
Revenue	6.315	6.432	-116	-1,8%
EBITDA	3.866	3.419	446	13,1%
EBITDA ratio	61,2%	53,2%
EBIT	1.828	-1.230	3.058	-248,7%
EBIT ratio	29,0%	-19,1%
CAPEX	2.710	2.688	22	0,8%
CAPEX to revenue	42,9%	41,8%
Sensa ehf.
Revenue	4.795	4.384	410	9,4%
EBITDA	421	423	-2	-0,5%
EBITDA ratio	8,8%	9,6%
EBIT	168	172	-4	-2,4%
EBIT ratio	3,5%	3,9%
CAPEX	106	308	-202
CAPEX to revenue	2,2%	7,0%

*Restated according to changes made to treatment of TV rights

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Income statement 2019

	2019	2018	Change	Change in %
Net sales	28.309	27.925	384	1,4%
Cost of sales	(14.906)	(14.479)	(427)	2,9%
Gross profit	13.403	13.446	(43)	-0,3%
Gross profit ratio	47,3%	48,2%
Other operating income	762	615	147	23,9%
Operating expenses	(9.251)	(9.154)	(97)	1,1%
Impairment losses	0	(2.990)	2.990	-100,0%
Operating profit	4.914	1.917	2.997	156,3%
Operating profit/Net sales	17,4%	6,9%
Finance income	196	213	(17)	-8,0%
Finance cost	(1.227)	(967)	(260)	26,9%
Net exchange rate differences	(14)	(34)	20
Net financial items	(1.045)	(788)	(257)	32,6%
Income tax	(799)	(847)	48	-5,7%
Net profit	3.070	282	2.788
Depreciation	(5.602)	(7.604)	2.002
EBITDA*	10.516	9.521	995	10,5%
EBITDA ratio	36,2%	33,4%
EBIT	4.914	1.917	2.997
EBIT ratio	16,9%	6,7%

*Restated according to changes made to treatment of TV rights

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Balance sheet

	31.12.2019	31.12.2018*
Assets
Non-current assets
Property, plant and equipment	18.716	18.059
Right-of-use assets	5.118	0
Intangible assets	34.265	32.473
Other non-current assets	472	424
Non-current assets	58.571	50.956
Current assets
Inventories	1.751	1.437
Accounts receivables	4.188	4.313
Other current assets	794	882
Cash and cash equivalents	217	1.246
Current assets	6.950	7.878
Total assets	65.521	58.834
Equity and liabilities
Equity
Total equity	36.632	35.202
Non-current liabilities
Borrowings	14.481	15.631
Finance lease	4.632	0
Accounts payables	353	0
Deferred tax liabilities	802	898
Non-current liabilities	20.268	16.529
Current liabilities
Bank loans	600	450
Accounts payables	3.533	2.997
Current maturities of borrowings	1.750	1.150
Other current liabilities	2.738	2.506
Current liabilities	8.621	7.103
Total equity and liabilities	65.521	58.834

Equity ratio

Net interest bearing debt

*Restated according to changes made to treatment of TV rights

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Cash flow 2019

	2019	2018*
Cash flow from operating activities
Operating profit	4.914	1.917
Operational items not affecting cash flow:
Depreciation and amortisation	5.602	7.604
Other items not affecting cash flow	(170)	(87)
	10.346	9.434
Changes in current assets and liabilities	(81)	242
Cash generated by operation	10.265	9.676
Net interest expenses paid during the period	(992)	(750)
Payments of taxes during the period	(766)	(345)
Net cash from operating activities	8.507	8.581
Investing activities
Net investment in property, plant and equipments	(6.333)	(5.575)
Other investment	(36)	141
Investing activities	(6.369)	(5.434)
Financing activities
Dividend paid	(330)	(311)
Purchase of own shares	(1.310)	(1.068)
Payment of long term lease	(552)	0
Net Financing activities	(1.000)	(1.200)
Financing activities	(3.192)	(2.579)
Increase (decrease) in cash and cash equivalents	(1.054)	568
Translation effects on cash	25	(40)
Cash and cash equivalents at the beginning of the year	1.246	718
Cash and cash equivalents at the end of the year	217	1.246

*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 2019

*Restated according to changes made to treatment of TV rights

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Operation and CAPEX 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 2018 and comparison with 2019.

Amounts in m.I5K	2018	2018*	2018 Adjusted	2019	Difference
EBITDA	8.752	9.521	10.311	10.516	205
Depreciation	6.835	7.604	8.254	5.602	-2.652
Net financial items	788	788	1.048	1.045	-3
Profit	282	282	186	3.070	2.884
Investment activities	4.614	5.434	5.434	6.369	935

*Restated according to changes made to treatment of TV rights

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Dividend and share buyback

The dividend policy for Síminn hf. states that Síminn intends to distribute between 20 - 50% of after-tax profit to shareholders through dividend and/or share buyback.

Amended dividend policy is that Síminn intends to distribute at least 50% of after-tax profit to shareholders through dividend and/or share buyback in accordance with law and regulation at any given time.

The proposal at the Annual General Meeting on March 12th 2020

1. Pay 500 m.kr. in dividend
2. Request authorization to buy up to 10% of own shares during the next 18 months
3. Reduce the companies share capital by cancelling 500 million of own shares

Share buy-back program will be based on the amended dividend policy. The exact timescale and amount is still undecided.

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Highlights

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Icelandic Customer Satisfaction Index - Telco

• Síminn - highest jump in positive score in the telco category
• Síminn’s policy is showing progress
• Decrease churn

ÍSLENSKA
ÁNAEGJUYOGIN

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• Síminn Sport aired in Q3
• Wholesale agreements with Sýn and Nova to sell Síminn Sport
• Síminn has requested distribution of Síminn Premium TV over Sýn's network
• Domestic content such as Venjulegt fólk og Pabbi skoðar heiminn is successful

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Sjønvarpi Símans Premium – SVOD service

Streaming per week from 2017 – February 2020

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Síminn

• Síminn, Sýn and Nova have signed a letter of intent with the aim of exploring the basis for further cooperation and network sharing.
• The main purpose:
• Share telco infrastructure
• Increase public safety
• Increase efficiency
• Reduce environmental effect
• Increase automation

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Míla

• 17.000 new fiber connections in 2019
• 9.500 in the capital area
• 7.500 in rural areas
• 32.000 homes with active fiber from Míla at year end 2019
• Increase of 10.000 homes
• The core infrastructure of Míla performed well in the severe weather that hit Iceland at the end of the year

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Sensa

• Demand for Sensa’s cloud-based services increased sharply last year
• Sensa has acquired the information technology company HUX to further support the increased focus on cloud-based services
• Increased demand for security services

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Outlook for 2019

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Outlook 2020

Positive Outlook in Slowing Economy

• Strong sales of key products in the first weeks of 2020
• Mobile ARPU increasing the domestic market
• Fierce competition in the corporate market
• Steady growth in fixed line services
• Further TV revenue growth expected – Síminn Sport will be part of Síminn’s offering for the whole year 2020
• The outlook for Sensa is positive – The acquisition of HUX strengthen cloud based service offerings
• The fiber rollout at Míla reduces churn and strengthens revenue base
• Síminn Pay off to a strong start – Fast increase in partners

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Outlook 2020

Positive Outlook in Slowing Economy

• Further reduction in payroll expenses – The reduction in the latter half of 2019 will benefit Síminn going forward
• Investment in IT in 2019 will result in lower operation expenses
• Production cost of domestic content is increasing
• High demand for local content
• New agreement with Farice effective from 1 January 2020
• Lack of options makes negotiating position difficult – Increase in cost
• Síminn, like other domestic companies, is not immune to the slower economy in Iceland
• CAPEX has reached its peak – The fiber rollout at Míla will continue albeit at a slower pace
• Better cash flow allows the company to reconsider its capital structure

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Guidance for 2020

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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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