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Investor & Analyst Meeting Friday 28 February 2014. Slide 1. Agenda. Introduction Dominique Leroy - CEO. 2013. Group financials Ray Stewart. Consumer Dominique Leroy. Business Jan Manssens. BICS Daniel Kurgan. strategic focus for 2014 and beyond.

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  1. Investor & Analyst Meeting Friday 28 February 2014 Slide 1

  2. Agenda Introduction Dominique Leroy - CEO 2013 Group financials Ray Stewart Consumer Dominique Leroy Business Jan Manssens BICS Daniel Kurgan strategic focus for 2014 and beyond Transform & Invest to return to Growth Dominique Leroy & Geert Standaert Outlook 2014 & Shareholder return Ray Stewart Slide 2

  3. Group Financials Ray Stewart CFO Ray Stewart Slide 3

  4. Group revenue impacted by regulation, pressure on mobile in segments ; and in Q4 by lower BICS revenue FY2013(in mio€) -3.8% reported Q4 2013 (in mio €) -5.0% Like-for-Like -2.2% reported -2.9% Like-for-like Slide 4 Slide 4

  5. Good cost managementOperating expenses (total of HR & non-HR) slightly down vs. 2012 -5.0% 903 924 +1.7% +1.4% 1,126 1,142 FY -2.3% FY’13 non-HR expenses 2.3% lower. Cost containment more than offsetting the normal cost inflation. FY’13 HR expenses 1.4% higher. Inflation based salary indexation more than offsetting lower personnel base Slide 5

  6. Group Ebitdaimpacted by regulation and mobile margin pressure. Q4 2013 showing slight improvement from previous quarters -3.7% reported Q4 2013 (in mio €) -8.3% Like for Like -4.9% reported FY2013(in mio €) -8.7% Like-for-like Slide 6

  7. EUR 852 million invested, or 13.5% of Group revenue, spectrum license excluded • Increased network investments vs. 2012: • to maintain network superiority on mobile speed and coverage, • substantially increased bandwidth on fixed network via dlm and vectoring technology • making operations leaner through a simplified network • bought the 800 MHz spectrum for € 120 m * * *This does not include the € 120 miocapex paid for a 800 Mhz spectrum Slide 7

  8. FY 2013 performance versus guidance • Belgacom met its FY guidance for EBITDA and Capex, while the revenue guidance was just missed as BICS revenue declined in Q4’13. *Compared to the restated 2012 EBITDA of € 1,801 m, following the retrospective application of IAS19R ** excl. € 120m for 800 MHz spectrum Slide 8

  9. FY’13 Free Cash Flow of € 505 million Q4 • Belgacom generated € 95m of FCF in Q4’13, or € -59m YoY. Main drivers for the FCF decline are : • lower EBITDA, • higher cash paid for Capex • Higher cash paid for income tax • partly offset by a favorable evolution in working capital. FY The 800 Mhz spectrum license acquired in Dec’13 for €120m will be paid in yearly installments , over a 20 year period. This Capex is not included in the FCF as it is a non-cash transaction. The annual reimbursement of €6 m is considered as a financing activity in the cash flow statement. * Excluding non-recurring and non-cash related items Slide 9

  10. 2015 2016 2018 2023 € € 950m € 500m € 100m 145m Sound financial position • Net financial debt at € 1,815m, € 214m higher versus end 2012 • The outstanding long term financial gross debt amounted to € 2.1Bio • Credit ratings: Standard & Poor’s A; Moody’s A1 – both stable outlook • Debt maturing 2026 2028 € 73m € 150m Slide 10

  11. Consumer Business Unit Consumer Business Unit Dominique Leroy CEO Dominique Leroy Slide 11

  12. Consumer Business Highlights Our convergence strategy remains successful and is materialised through more value for the customer and new solutions. Despite a rough 2013 on the mobile market, we returned to customer growth for postpaid thanks to strong acquisition campaigns and a persistent churn management. The pressure on mobile prices resulted in mobile revenue decline. Since Q4’13 we see that it is slowly recovering. The strong performance for TV and Fixed Internet combined with the contribution of Tango and Scarlet partly compensated for the loss on mobile service revenue. Our focus will be on growing through the convergence experience and mobile leadership. Slide 12

  13. CBU revenues under pressure by mobile disruption, partly compensated by solid fixed revenue and contribution of Scarlet and Tango -4.2% Reported* Q4 2013 (in mio €) * like-for -like idem, no one-off effects in Q4 -4.1% reported FY2013(in mio €) -4.4% Like-for-like Slide 13

  14. CBU Mobile Service Revenue Mobile Service revenue showing first signs of recovery in Q4’13, some mobile disruption effects started to annualise Mobile service revenue showing first signs of recovery in Q4’13 Evolution re-priced postpaid customers 73% of CBU customers re-priced, pace slowing. Financial impact from remaining 27% expected to be low. Slide 14

  15. Mobile Postpaid We increased our Postpaid subscriber base by >200K in 2013. Mobile disruption had significant ARPU impact, though somewhat stabilising. postpaid churn back to acceptable levels solid Postpaid net adds ‘out of bundle’ revenue dropped with ~50% stabilising around 10% of total postpaid revenue Blended postpaid ARPU showing some stabilisation Slide 15

  16. Mobile Prepaid In a shrinking prepaid market the customer loss is slowing down. Prepaid ARPU is less impacted. Prepaid churn remains high with new telco law removing postpaid barriers Prepaid loss continued, though is slowing since its peak in Q1’13 Prepaid ARPU impact less significant Slide 16

  17. Launch of 4G for all in January Combined with a differentiated and high-end abundant offer is showing promising results High-end abundant offer SMART 50 4G in Brussels 4G access for all x 2.5 active 4G users 4G traffic increase + 68% Approx. 25% of data traffic is situated in the Brussels Region End February already >31% population coverage Differentiated offer in function of pricing plan Upside potential higher than possible cannibalisation Slide 17

  18. Mobile pressure partly offset by solid performance of Fixed Internet… +3.6% Fixed internet customer evolution Fixed internet ARPU evolution 4.5% Revenue increase in 2013 Driven by growing customer base & price changes Slide 18

  19. …and Belgacom TV Belgacom TV customer evolution Belgacom TV arpuevolution +6.7% 13.3% Revenue increase in 2013 75% ofCBU Internet customers have Belgacom TV Continuously evolving customer usage experience TV Replay Test phase in Wallonia Launched in Flanders Content Passes, VoD, … TV Everywhere Evolution active users Slide 19

  20. Our convergence strategy remains Belgacom’s main force…. CBU pack evolution % Packs with mobile voice component Revenue generating units (RGU) All Packs contain 3G mobile internet volume (smartphone, tablet or laptop) All Packs include TV Everywhere (on 3G, 4G, Wi-Fi) Pilot launch of Belgacom Cloud Up to 6 mobile subscriptions in a Pack 5G storage volume in Pack Slide 20

  21. …as well as our diverse and locally anchored distribution channel Human interaction Belgacom Centers Partners Contact Centers 50% ‘convergent’ agents 133 shops Consumer electronics & telco specialists Device Website Digital interaction 10% of Sales via website ~870K down-loads in 2013 Slide 21

  22. Consumer Business Unit Enterprise Business Unit Jan Manssens VP Enterprise Business Planning Dominique Leroy Slide 22

  23. EBU stood its ground in 2013, which was a very challenging year, marked by a difficult economic & competitive environment. • EBU continued mobile customer growth through network differentiation and competitive pricing. We see first signs of recovery on mobile service revenues since Q4’13, though re-pricing still ongoing. • In IT we managed to slightly grow in a stagnating market. The benefits of Telco – IT convergence are materialising. We create value through cross-selling and there is a positive impact on customer loyalty. • In 2014 EBU therefore continues its strategy. We focus on maintaining our Telco leadership by differentiation through convergence and servicing while we grow in adjacent IT. Enterprise Business Highlights Slide 23

  24. EBU revenuespressured by mobile disruption and roaming regulation -3.8% Reported* Q4 2013 (in mio €) *like-for -like idem, no one-off effects in Q4 -4.2% reported FY2013(in mio €) -4.3% Like-for-like Slide 24

  25. EBU mobile differentiation strategy successfulmobile churn under control & subscriber base increased with >140k cards Continued customer growth in a highly competitive, saturated market % EBU Packs with mobile voice component Mobile Acquisition EBU (K cards) Slide 25

  26. EBUmobile revenueunder pressurefurther erosion to be controlled mobile service revenue showing first signs of recovery in Q4’13 adv. data revenue showing upward trend with regulation impact lessening SME ‘out of bundle’ revenue down ~50%, stabilising around 10% of total SME mobile revenues Evolution re-priced SME customers Slide 26

  27. IT of strategic importance for EBUclear benefits on Telco convergence EBU’ IT: total revenues (mio €) and Telindus France (potential disposal in 2014) BenefitsIT – Telco convergence arematerialising 1 • IT = 32% of EBU total 2013 revenues • pure cloud + 12% full year 2013 • security +43% full year 2013 new EBU growth 2 • in >80% of cases cloud, LAN or UC customers, also have at least one telecom service cross-sell effect 3 • telco+IT customers have significantly lower telco churn • customers with 4 to 5 IT products/services, have nearly no telco churn churn reduction effect Slide 27

  28. EBU’s strategy is Telco/IT convergencemaking it concrete with an example: New Way of Working New Way Of Working (NWOW) = Organize business around people by creating flexible workplaces facilitating collaboration between all stakeholders. Servicing Convergence As-a-service • fix + mobile voice / data / video: secure and anywhere network access. • managed and secureddevices: laptops, tablets & smartphones • applications: e-mail, portals, video conferencing, collaboration tools • E2E servicing • security and privacy assurance • guaranteed SLA’s • self service tools • delivered ‘as-a-service’ with a fixed fee per user per month Slide 28

  29. Consumer Business Unit BICS Daniel Kurgan CEO Dominique Leroy Slide 29

  30. BICS Products and Services Sending End user Receiving End user Service Providers Local partner • Fixed Operators • Mobile Operators • MVNOs • OTTs • xSPs • Fixed Operators • Mobile Operators • xSPs Wholesale only, International only • Voice Collecting & terminating international voice traffic all over the world MESSAGING: Ensuring worldwide interoperability for SMS & MMS ROAMING: Transport: Signalling, 3G (data) roaming exchange (GRX), IPX Enabling / Processing: “plug & play”, roaming hub, VAS Terrestrial, submarine, satellite (managed) bandwidth • Mobile Data • Capacity & Infra-structure Slide 30

  31. Global Presence Network • 100+ Points of Presence (PoPs) • Ownership in 40 submarine cables • Satellite connectivity to “hard to reach” countries Slide 31

  32. Market Segments • 2012 revenue • CAGR bottom line (mid-term) Slide 32

  33. Part of business is volatile: 2014 revenue to decline YoY due to end of commercial agreement of limited duration Growth of Peer to Peer VoIP (Skype) impedes market volume growth Termination rate downward trend pressures revenue and margins Currency fluctuation (mainly EUR/USD) impacts revenue and margin VOICE commodity in declining trend, managed to protect margins - OTT are also new voice customers (Skype Out, Google Voice, …) BICS has the best traffic mix with very high emerging markets exposure (AMEA) Very limited CAPEX requirements to scale it up; BICS has done all the main investments (NGN, OSS & BSS) +  mass volume, low profitability, in decline Slide 33

  34. Messaging and Roaming transactions still growing steadily Opportunities provided by new segments (OTT, MVNO), new applications (Machine to Machine, Application to Person) and technology evolution (4G) BICS’ unrivalled customer base is a USP Mobile Datavolume growth but price pressure - Increasing competition in attractive segment. Price pressure on the core services +  global market growth, fierce competition, need for differentiation Slide 34

  35. Going Forwardcreate more value Improve the mix with lower revenue but high margin products Extend the product portfolio with a set of value added services : business intelligence, fraud protection and remediation, advanced roaming features… Leverage on the footprint and the customer base (400+ GSM operators) new services are the catalysts for long term bottom line growth Slide 35

  36. Strategic priorities Dominique Leroy CEO Ray Stewart Slide 36

  37. Strategic Priorities : ‘Fit for Growth’ Grow Back to sustainable growth Efficient Organisation Customer Experience Good to Gold culture Transform Brand differentiation Simplification Leader in convergent services Invest Seamless network and IT Slide 37

  38. Invest Access networks • To build the foundation of our next wave of growth • Maintain mobile leadership and further deploy 4G • Push legacy copper network to max capabilities (vectoring, DLM) • Gradually introduce FTTH IT and systems • Push digital (e-sales, e-services) • Renew selling and ordering • Support end-to-end processes • Improve systems stability and (cyber) security Convergence services • Build seamless fixed-mobile hand-over • Push TV replay, TV everywhere • Leverage cloud, unified communication and collaboration • Develop ICT as a service and security Brand image • Enrich entertainment offer • Introduce new CPE for better in-house experience We estimate our annual investment needs to be around €900m over the coming years to cover network, convergence, new services and content needs Slide 38

  39. Transform Develop superior customer experience • Product usage experience (TV Everywhere, FON, …) • Touchpoints experience (call centers, technicians, …) • End-to-end process (first time right) • 360°customer communication quality Simplify to structurally reduce cost • Products and services portfolio • Network • IT and platforms • E sales and services Build efficient organization • Simpler and leaner organization for faster decision • Reduction of resource costs leveraging pension wall • Right talent at right place • Real performance management Improve brand differentiation • Address different segments with differentiated offers (Scarlet) • Push convergence via triple-play, quad-play and ICT services • Reinforce brand investment To support the transformation and commercial brand image, we foresee about € 20m exceptional spending (mainly opex) in 2014. As from 2014, we ambition to keep workforce cost at least flat over the next 5 years, while pursuing additional cost savings building up to another €100m annually by 2018 (HR and non-HR opex). Slide 39

  40. Grow Regain market shares • Exploit mobile leadership • Improved broadband experience • Roll-out fiber in greenfield and gradually in brownfield to offer the ultimate broadband experience • Superior customer experience (web, shops of the future, …) Leverage convergence value • Deliver solution-centricity to unlock value in EBU • Exploit upselling potential to quad-play • Leverage seamless network integration and convergent applications Capture new growth potential • Pursue data monetization • Leverage entertainment platform • Seize the opportunities of cloud and security • Be selective in development of new innovative services We ambition to return to top line andEBITDA growth within 2 years Slide 40

  41. Network and Simplification Geert Standaert EVP Service Delivery Engine & Wholesale Ray Stewart Slide 41

  42. Network & simplification strategy Invest and transform to return to growth Strategic focus is to invest in our Access Networks, in Simplicity and in better Customer Service Transform to reduce cost Invest in Mobile Invest in Fixed Accelerate simplification of networks to decrease operational costs and employ new IT enablers to simplify products & processes for better customer service & higher efficiency Maintain our mobile network leadership by using all our assets while coping in an intelligent way with the strong mobile data growth Push our legacy copper network to maximum capabilities while gradually introducing FTTH in function of copper network renewal Slide 42

  43. Invest in Mobile Maintain mobile network leadership 1 Best mobile 3G network Best mobile 4G network Belgacom is determined to maintain its mobile leadership through continued investment • Significantly better 3G indoor coverage in comparison with competition • Further improvement of 3G indoor coverage by addressing weak spots and coverage on railway lines • First to reach 50% outdoor population coverage and first to deploy 4G in Brussels (11/02) in line with adapted regulations • Nationwide4G coverage by EO 2014 3G indoor coverage 1 Number of Belgians reached with 4G coverage 2 1 Result based on Q4 2013 national drive test conducted by independent agency CommSquare | 2 Number of Belgians reached with 4G coverage on 21/02/2014. With Mobistar 4G in test phase no data is available Slide 43

  44. Invest in Mobile Zoom-in: importance of Brussels in Mobile business 1 Best mobile Voice network in the Brussels region Best mobile 3G network in the Brussels region High business importance of large urban area of Brussels with nearly a quarter of all data traffic of Belgacom driven by this area. Therefore, important to be a first mover in 4G seen high market potential • High concentration of large enterprises and European & International institutions in capital of Europe • Strongly positioned in Brussels with substantially better 3G indoor coverage vs competition • 350.000 commuters working in the Brussels region every day next to 1.1 million inhabitants • High quality mobile voice network in Brussels with 40% less interrupted voice calls vs competition 3G indoor coverage in Brussels Region 1 Level of non-interrupted calls in Brussels region 1 1 Result based on Q4 2013 national drive test conducted by independent agency CommSquare measured throughout the 19 communes of the Brussels Capital Slide 44

  45. Invest in Mobile Best mobile experience for our customers 1 Seamless convergence of network connectivity Speed tiering with 4G for everyone • Belgacom to bring the best mobile experience possible to its customers in a technology agnostic way through implementation of 4G speed tiering and through introduction of seamless convergence of network connectivity • All customers with 4G capable devices will have access to 4G through 2 different experience levels • TIER 1 customers to benefit from maximum 4G capabilities while TIER 2 customers enjoy a 4G experience capped at 20 Mbps • Employ our fixed assets for better mobile experience with our nationwide network of 800.000 WiFi hotspots (EO JAN) • Implement seamless handover of device-connectivity between fixed & mobile via intelligent steering and EAP-SIM technology • With quickly emerging need for 4G, high focus required to avoid over-investment in 3G capacity passed forecasted inflection • Through tiering, ~10% of 3G data traffic on 4G capable devices can be already pushed to 4G in 2014 • Employ intelligent steering to assure highest data experience on mobile devices by selecting best available network • Clever off-load strategythrough transparent handover of device connectivity from WiFi to WiFi, WiFi to 3G/4G or 3G/4G to WiFi 1 1 2 2 Slide 45

  46. Invest in Fixed Dynamic investment track ahead of us 2 Speed evolution in Mbps 2014 to >2018 • Push our legacy copper network to maximum capabilities while gradually preparing for the introduction ofFiber-To-The-Home (FTTH) in Brownfield areas in function of copper network renewal up-to1000 Mbps • FTTH in Brownfields areasin function of copper network renewal Trial 2014 6 up-to200 Mbps • Download speed • FTTH in new zonings 5 Start Q1 2014 up-to 100 Mbps • Vectoring + Dynamic Line Management for Vectoring 4 Start Q2 2015 up-to 70 Mbps • Vectoring on VDSL2 for customers < 700 m 3 Start Q1 2015 • Vectoring on VDSL2 for customers < 400 m 2 Start Q1 2014 up-to50 Mbps • Dynamic Line Management on VDSL2 1 Done Q1 2013 30Mbps • VDSL2 Slide 46

  47. Invest in Fixed Step Dynamic Line Management & Step Vectoring 2 1 2 Vectoring workinglive on our network today Fast track Dynamic Line Management (DLM) After 2.5 years of intensive engineering efforts in close collaboration with Alcatel-Lucent the Vectoring technology has been proven to work on our network. Mass roll-out started at beginning of 2014 DONEQ1 2013 STARTQ1 2014 DLM monitors stability of lines and dynamically applies maximum possible speed when a line is sufficiently stable Vectoring technology cancels crosstalk in the copper cables resulting in a significant bit rate increase of copper lines • To up-to-50 Mbps speeds – One third of our VDSL2 lines already receives a 50 Mbps speed • 30% higher average speed experience – Thanks to DLM, the average speed experience increased with 30% • Vectoring is working – Vectoring works on our network with 70 Mbps download speeds at videograde quality • Roll-out started– Mass deployment started to activate Vectoring for customers < 400m (60% of population) 1 1 2 2 Slide 47

  48. Invest in Fixed Zoom-in: Vectoring working live in our network today 2 Results from the technical field trials Powerfulvectoring technology Belgacom is First in the World with nationwide activation of the Vectoring technology on an existing VDSL2 network for a significantly better broadband experience Through cancellation of crosstalk on a VDSL2 line, Vectoring proofs to enable remarkably higher speeds In-depth technical field trials were conducted involving 1000+ customers with both moderate, high and excessive crosstalk • Speed boost to 70 Mbps – 98% of Vectored lines < 400m in the technical field trial synchronised to 70Mbps • Videograde quality maintained – 98% of vectored lines adhere to the required high-quality videograde criteria of IPTV • No impact on installed-base – Performance of existing modem installed base is fully maintained after Vectoring activation Effect of enabling Vectoring on VDSL2 lines part of the Technical Field Trials (in Mbps) 1 Capping at 70 Mbps video-grade speed TO 2 Attainable bitrate in Mbps0 FROM 3 Attenuation Slide 48

  49. Invest in Fixed Step Vectoring optimization & Step DLM on top 2 4 3 Dynamic Line Management on top of Vectoring Further optimization of Vectoring technology To further increase bandwidth the Vectoring technology will be further optimized to support higher ranges while Dynamic Line Management (DLM) will be employed on top of Vectoring to reach up-to-100 Mbps speeds STARTQ1 2015 STARTQ2 2015 Extend Vectoring capabilities beyond 400 meter through further optimization of the technology (between 400-700m) Belgacom is the only operator with the in-house developed technology DLM that brings speed at maximum line capabilities • 80% of population – Through this evolution, 80% of population will benefit from Vectoring speeds • Towards 100 Mbps – DLM will be applied on top of our Vectored lines to increase speeds to up-to-100Mbps in videograde quality 1 2 Slide 49

  50. Invest in Fixed Step FTTH in new zonings & Step FTTH in Brownfields 2 5 6 Belgacom will deploy Fiber-To-The-Home (FTTH) deployment in new residential zonings and will gradually and selectively introduce FTTH in function of the step-by-step renewal of our copper network FTTH in new zonings FTTH in brownfields STARTQ1 2014 TRIAL2014 Fiber deployment costs are comparable to copper deployment for new residential zonings • Prepare for FTTH in Brownfield areas to allow gradual replacement of the legacy copper network over time • FTTH in Greenfields – FTTH Greenfield development and pre-equipment of new residential zonings • FTTH in Brownfields – Small scale FTTH trial will be prepared and started 1 2 Slide 50

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