Elisa Oyj
OMXH:ELISA
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Elisa Oyj
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Good morning, everyone, and welcome to Elisa's Fourth Quarter 2018 Conference Call. My name is Vesa Sahivirta, Head of Investor Relations. And here together with me is a very familiar team: Veli-Matti Mattila, our CEO; and Jari Kinnunen, our CFO; and some audience. We start this presentation with -- sorry, this meeting with a presentation, followed by Q&A. And in Q&A, we take first questions from the floor if we have and then from the conference call lines.And I think we are ready to start, so I give word to Veli-Matti. Please.
Thank you, Vesa, and welcome to Elisa's financial results review for 2018 and fourth quarter, on my behalf as well.We had another record quarter again. Our revenue was approximately the same level as last year. We saw growth in consumer segment and some decline in the corporate segment. Our comparable EBITDA was growing by 3% and mobile service revenue grew 1.5% due to the upselling continuing as well as good demand for our premium subscriptions, where we have very customer-friendly good roaming services.Postpaid voice churn was up from 17.2% to 18.2%. And we see competitive landscape to be quite intensive also, characterized by a lot of campaigning and promotions. Elisa's competitiveness is very strong by many factors, and we can operate in different kind of market environments, as you can see from the results.Postpaid mobile subscriptions declined by 4,700, but our fixed broadband, again, increased by 4,300. And our board made a decision to propose to the AGM about the dividend EUR 1.75 per share.Looking at the whole year. We see in 2018 a 2.5% increase in revenues, EBITDA growing 4.2% and earnings per share, 4.8%. And our full year earnings per share, EUR 1.95, is the best ever result we have done. It is already fifth time in a row the best year. Capital expenditures came slightly down, EUR 228 million, remaining in our guidance, 12% of revenues. We saw mobile service revenue in the full year growing by 2%, and mobile subscription base was pretty flat. We have, of course, a lot of passive subscriptions during the year that we have lost. And of course, the competitive landscape has made it also clear that there is some churn in the segment of mobile.Mobile -- sorry, the fixed broadband subscribers, the number of that was increasing somewhat. And also, we see the postpaid voice average revenue per user growing during the year. Mobile data was growing 30% year-on-year.Coming back to the fourth quarter, the revenue was slightly down, minus 0.4%. We had, of course, some divestments during the year, impacting also year-on-year comparison to the fourth quarter. We saw growth, however, in the mobile and digital service businesses, in equipment sales as well as in Estonia's business. Mobile service revenue was growing 1.1% (sic) [ 1.5% ], and 4G upselling with higher speeds is continuing. Of course, we had some campaigning and also price competition impacting on revenue growth, and there was also some product changes we were doing also to have a impact to mobile service revenue growth.EBITDA grew to EUR 159 million (sic) [ EUR 158 million ], and EBITDA percentage was 33.6, which is 1.1 percentages higher than year ago. Also, as you were seeing, our full year EBITDA percentage was 34.9, so we are step by step going towards our medium-term target.Average revenue per user was 18.7, so -- or sorry, EUR 20.5, which is same as corresponding quarter a year ago, but slightly better than third quarter.Then if we take a look on our segments. In the consumer side, revenue was up 1%, and EBITDA is plus 7%. Positively contributing to the revenues as well as to the EBITDA are mobile and digital service businesses as well as equipment sales. Traditional fixed services continue to decline slightly, and we saw also some divestment impacting to the fourth quarter of consumer business. In the corporate side, we had revenue declining 2% and EBITDA 4%. We had a bit more divestments in the Corporate side impacting but also the traditional fixed services declining, basically at the same level as earlier. And in the digital service businesses, we saw some revenue decline for corporate segment. In the mobile service revenues, we got growth as well as the equipment sales force contributing positively to the revenues in the corporate segment.We continue to execute determinedly our 3 focus area strategy. And in all the areas, we see going forward a strong potential for value creation.In the mobile business, the number of smartphones or the penetration of smartphone in our network is increasing. 82% of all the handsets are now smartphones, new type of smartphones, and 96% of those are 4G capable. This year, as everybody knows, we are slowly starting to get also 5G devices, but we are not yet reporting those. That is coming then later.Also, the change to the data bundles continues. So now, 68% of our customers have fixed monthly fee bundle, and of all the subscriptions, 66% are at 4G speeds. So the 3G to 4G upgrade -- upselling continues as well as the upselling in 4G subscriptions from lower level to higher speeds.But also, the premium bundles or premium subscriptions, where we have unique unlimited usage for consumers in the Nordic and Baltic countries, seems to be more and more attractive to our customers, also creating excellent potential for upselling.In our digital service businesses, Elisa, be it the IPTV and our IT services are doing well. We are launching new original content in the Elisa Viihde, for example, Arctic Circle, which was the all-time most-watched series in Elisa Viihde. And also, the international series, Bullets, was very well taken, and it was also most-watched when it came before Arctic Circle. In our IT business, the combined unified IT+C offering, the demand for that is continuously increasing, and we had strong sales for that combined offering. Also, Elisa has got a very good preference in the corporate market for all business sizes in the fourth quarter survey.For our international digital service businesses, Videra continues its strengthening of product and service portfolio. We are technology independent. We are a service provider who can provide video conference services with all Cisco, Polycom and Microsoft teams, cloud services and so forth, so we can really make interoperability and quality for video services for our large international customers. Also, we have got the first customers in Asia, and together with Vodafone, we have more and more market in -- to the Asian customers. We have also delivered Multivendor SON solution for an international operator customer, and also Elisa Smart Factory Solutions is getting more and more traction now. We have deployed already in -- and have in use our Smart Factory Solutions in 8 countries.Actually, yesterday, we were receiving the Finnish Quality Award. It was, of course, a result of multiple years of continuous improvement and focus on excellence and quality, and this is one of the cornerstones of Elisa's competitiveness. Now we got the recognition by getting this Finnish Quality Award with -- which has not been received with the large companies like Elisa for a long, long time. We, of course, have created this situation or status and position by continuous improvement by all Elisa employees and the systematic way to develop quality and customer experience in all parts of our operation continues. And this reward is a proof that we have a very good system which has a lot of potential to create improvements for our customers and also in terms of productivity, cost efficiency, quality and so forth.Finally, I give you the outlook and guidance for the 2019. We see positive development in the macroeconomic environment slightly decelerating in Finland, and also, the competitive landscape remains key. Our revenue is expected to be at the same level or slightly higher than in 2018. Our comparable EBITDA will be at the same level or slightly higher than in 2018. First quarter of the year will be at last year's level. Capital expenditures will be according to our guidance, earlier guidance, is maximum 12% of revenues. And now I give the word for Jari, please.
Thank you. Q4 continued the long series of best-ever quarters and also best-ever financial years in terms of earnings growth. Revenue was flat or slightly negative, minus 0.4%. However, that includes divestments. And net of divestments and acquisitions is minus 0.7% negative impact, so the organic growth is 0.3%.In consumer segment, service revenue growth was EUR 2 million. Corporate segment service revenue was negative EUR 3 million, and most of the disposals impact is in corporate segment revenues. EBITDA growth was 3% or EUR 4.5 million to EUR 158 million, and margin improvement was 1% point to 33.6%; last year, 32.5%. EBIT growth was 3.6%, EUR 3.4 million. Earnings per share was growing 3%, and reported EPS was EUR 0.02 higher, EUR 0.49, and includes tax benefit of old tax losses carried forward.Strong positive development continued in Estonia, and revenue growth was 6%; EBITDA growth, 13%; and both of that is organic growth. Also, EBITDA margin improved clearly to 32.6% from 30.5% last year. Mobile -- both mobile and fixed services growing. Also, mobile postpaid base was growing, with 3,600 subscriptions.Churn reduced slightly to 8.2%. And integration of acquired Starman and Santa Monica, these acquisitions that we did, made in 2017, integration work is progressing according to plan, and synergy estimates are valid.Our CapEx was EUR 92 million in Q4, excluding license investment, EUR 66 million. And for the full year CapEx, EUR 228 million, excluding license fees, very much in line with our guidance, 12% CapEx to sales. This 3.5 gigahertz license investment, EUR 26 million, will be cash flow-wise divided in 5 years annual installments. And for this year, CapEx continues to be -- CapEx guidance continues to be 12% from revenues.Also, cash flow was developing positively, and in Q4 was EUR 52 million. And comparable cash flow, EUR 57 million, EUR 9 million growth or 19% growth against last year, biggest impact coming from EBITDA growth and lower CapEx.For the whole year, our comparable cash flow was growing 14% or EUR 36 million to EUR 282 million, very much same drivers as in Q4. Also, net working capital change was slightly positive compared to previous year, and strong cash conversion continues, so for EBITDA operating cash flow conversion in Q4 was 58 million -- 58%.Capital structure continues to be in targets. Net debt to EBITDA year-end was 1.7; equity ratio, 42.4%. We did refinancing in December, EUR 100 million revolving 7-year loan at less than 0.5% interest. And currently, average interest rate for interest-bearing debt is in the range of 1.5%. Return ratios remain to be at good level. Return on equity, 28.6%; and return on investments, 18.3%. And the board makes a proposal to AGM for dividend EUR 1.75 per share, which is a continuation of several years' strong track record of distributions and growing distributions, 6% growth against last year; a payout ratio, 90%; and total distribution amount, EUR 280 million. Payment date is 16th of April, ex-dividend date, 4th of April. And additionally, there is a proposal to the AGM for 5 million shares buyback authorization.And now I will give word to Vesa, please.
Thank you, Jari and Veli-Matti. And now we move on to Q&A part and ask first if there are any questions from the audience. No, we don't have. So we'll take the first question from the conference call lines, please.
First question comes from the line of Ash Mohapatra of Berenberg.
This is Abhilash at Berenberg. I have 2, please. The first one is on your new mobile tariffs. You seemed to have replaced the old 100 megs tariff, which had a promo price of EUR 27.90, with 2 new plans. There's a 150-meg offer at EUR 29.90, but there's also now a lower-speed, 50-meg tariff at EUR 26.90, which is obviously a price point below the old plan. So just wondering what the thinking is behind that, and whether having this low price alternative is a drag to your upselling ambitions? And the second question is just a clarification on your EBITDA guidance, where you expect Q1 EBITDA to be flattish before then picking up through the rest of the year. Just wondering what is driving that, is it phasing of costs? Or is it perhaps top line driven and you expect the top line to pick up as comps in mobile get easier from Q2? Or is it just something else altogether?
All right. Thank you very much for your questions. The pricing in the mobile -- with the mobile data continues to develop actively. And I'm not going to go into details what's behind on each and every change that we do, unfortunately, also for competitive reasons. But what I'm responding to you is that we are, of course, optimizing our pricing to first respond to the market demand we see of various different subsegments in the market to capitalize the growth opportunity for upselling and getting also the increased value when we provide increased value to customers. On the other hand, we, of course, have to be acting according to what's -- everything else is going on in the marketplace. We are not acting only in a silo as Elisa alone, but we have, of course, competition going on. So these factors are influencing, but we are continuously fine-tuning the portfolio of our tariffs for various kinds of segments of subscribers in the mobile data. But of course, saying that, we see continuous demand for higher speeds and also willingness to pay. But as said earlier, we have also competition, which is sometimes more keen for market share than additional ARPU. EBITDA, in terms of the -- our guidance and for expecting flat for first quarter and flat to slightly higher for the rest of the year, we have seen campaigning and price discounts as well as promotions quite heavily in the second half of last year. And our accelerated impact -- continuous productivity improvement measures in several areas, they will start to contribute more after the first quarter. So it's really our productivity improvements that are getting more and more results in the later part of the year.
Our next question comes from the line of Panu Laitinmäki of Danske Bank.
I have 2 questions. The first one is really a follow-up to the previous one about Q1 guidance. Can you quantify or give some examples of the efficiency improvement measures that you see impacting after Q1? And or -- are these kind of related to the synergies that you have talked about earlier? Or are these kind of new measures? And if they are new measures, kind of where do you find potential to improve given that you have been doing this kind of -- for some time? And then my second question is on mobile service revenue growth. Can you split the Q4 number to Finland and Estonia? How does it look like between those countries?
All right, and I start from the later one. We are not really giving different numbers for Finland and Estonia. We are giving the one number. We are not disclosing those separately. For the first quarter, it is not -- we, of course, have assumption that is still to come from some of our acquisitions, but what we see is that we can still accelerate the continuous improvement measures in several areas. So I won't -- I will not pinpoint any particular area. We have a very good system to improve productivity in several areas of our activities with, let's say, simplifying, with the -- increasing the automization, accelerating some of those kinds of improvements. And when we start to accelerate a bit of those, of course, it will take some time, which means that they will start to bring additional impact on top of everything else that we have been constantly improving or having the system in place. They will start to create a great impact after first quarter.
Our next question comes from the line of Henrik Herbst of Credit Suisse.
I had a few questions. Firstly, just going back to competition. You're saying that competition was pretty tough in the second half of '18. Can you just give any comment whether that sort of eased in January, or we're still sort of waiting for a bit of an improvement in competitive dynamics? Then secondly, I mean, in the past, you've managed to offset some price competition on sort of the benchmark 4G bundles with price increases on legacy tariffs. Just wondering whether you have any more you can -- you think you can do there and sort of see some improvement? And then also, in terms of the productivity measures you're talking about, you're saying you're accelerating the cost productivity measures. Is that sort of -- or is that it? Or are you actually finding more cost savings to be made? Or is it just a matter of timing?
All right. Thank you very much for your questions. In regards to the competitive situation, and especially what's going on in January, of course, we've seen January month, basically, we don't see any major difference in the competitive activities. Overall, of course, the quarters are somewhat different. Of course, the fourth quarter has a lot of different campaigning seasons, which may make the fourth quarter a bit more intensive for that matter. But overall, the competitive dynamics remains the same. In terms of offsetting with price increases, for example, some of the declines or campaign pricings or promotions, yes, we continue to do certain price increases in certain, let's say, subscription areas. That is a possibility. And of course, there are value that we additionally bring when we do these product changes where some price increases may happen as well. In terms of the productivity improvement, yes, we have additional and accelerated kind of development efforts that we see that can bring some additional cost savings faster than our kind of plan had been earlier. And of course, there is also some, like I said, some simplification, some accelerated automization and those kind of things that can contribute after first quarter more.
Our next question comes from the line of Matti Riikonen of Carnegie.
Matti Riikonen, Carnegie. Two questions, if I may. First of all, when you guide for EBITDA for '19, does that include the positive EBITDA impact from the IFRS 16 that you mentioned at your CMD? So is that included in the guidance or not? Or do you consider it as an item affecting comparability?
The answer is yes.
So it's included. But isn't it so that, if the EUR 13 million EBITDA that you talked about at the CMD is included, then if you are guiding flat or slightly increasing EBITDA, that would mean that, actually, on a fully comparable basis, you would be expecting EUR 30 million less EBITDA than in 2018?
Well, we are guiding flat to slightly improved EBITDA. And the comparables, like we see, is exactly that the -- this year's numbers, they have IFRS 16, as we have to report, but we are giving a range, so I cannot really have a definite answer to your question.
Okay. Then secondly, you mentioned that in your digital corporate services, you had a decline, or that was one of the explanations why corporate business came down. We are quite used to hearing from you that corporate services and the digital services in particular are growing. So I was wondering whether you could give some additional info what is actually behind those -- that decline. Is it temporary? Is it something that we should expect to continue?
With price erosion in the corporate service businesses, we see some, maybe extra price erosion, especially in the corporate IP business side.
All right. Then finally, some of your competitors use fixed-term contracts in mobile. And in this competitive environment, it seems to be quite a successful strategy. You don't use that as a tool, but you have lost clients or subscribers in Q4. Have you even considered that you would basically meet that offer so that you would treat customers basically the same way as your competition does, maybe easing some of the churn that you are seeing at the moment?
Well, the basic reason for churn is that we haven't really get into all of those -- all of the kind of most aggressive campaign pricings. That is the main reason. In terms of the fixed contracts, we have a strong view that the long-term customer satisfaction and the long-term financial benefit is created by having no fixed contracts. And we continue with our long-term development of our business with that.
Our next question comes from the line Stefan Gauffin of DNB.
Coming back to the Q1 '19 guidance. Just have to understand what you're really saying. In Q4, you improved EBITDA EUR 4 million year-over-year and the normal seasonal variation is for Q1 to be higher versus Q4, but same as Q1 2018 would mean an EBITDA decline quarter-over-quarter. Is that actually what you are guiding for?
Well, we are guiding in relation to the first quarter last year, and we are saying that the first quarter '19 is same level as same -- first quarter '18. That's what we are guiding. Rest of the year, same level or slightly higher.
Our next question comes from the line of Peter Nielsen of ABG.
A couple of questions, please. If I can just return to the revenue growth or sort of the lack of growth, we are seeing growth in mobile service revenues. We are seeing quite strong growth in Estonia. And why are we not seeing better top line growth? Have you seen accelerated pressures on the fixed line business in Finland? Is that behind it, please? And then just secondly, could you talk a bit about, Veli-Matti, please, the commercial momentum you're seeing in your new digital services businesses? I know you talked about some decline on the corporate side, but some of the new businesses, Elisa Automate, Smart Factory, et cetera, you talked a bit about, which you discussed at the Capital Markets Day. Can you tell us, please, if the good momentum here in uptake is continuing? Have you received any new sort of important orders on these businesses?
All right. Thank you very much. In terms of the revenue growth, one has to keep in mind that we also had some divestments last year impacting the revenue year-on-year comparison. In terms of fixed business to be more under price pressure, there is not abnormal price pressure in fixed side, that is not contributing. But of course, there has been, overall, let's say, price erosion in all of the -- almost all of the product areas, and quite heavy price discounting competition in, let's say, overall, in different business areas, both consumer, as well as in corporate side. So that is, overall, taking some toll on the revenue growth. In terms of the momentum for our new international digital services businesses, the momentum is continuously moving ahead. And without going into the, let's say, more into the specific deals or contracts we are making, I can say that there is accelerated demand, both for the Elisa Automate and Elisa Smart Factory business lines, and we are very positive on the outlook. But of course, it remains to be seen how successful finally we will be, but the good momentum continues.
Our next question comes from the line of Simon Coles at Barclays.
Simon from Barclays. You've been very clear on guidance in Q1. I was just wondering, are you factoring any [indiscernible], or is it assuming that the competitive landscape remains how it is at the moment for the rest of the year?
Can you repeat your question? Because, Simon, there were some problems on the line, so I really didn't hear your question.
No problem. It's just on the guidance. So you've been very clear about what's happening in driving Q1. I was just wondering if the full year guidance, does that assume that the competitive landscape remains the same throughout the rest of the year, or that there is some improvement?
Well, overall, we are not -- in regards to our guidance, we are not expecting any major change to either direction in competitive landscape the full year going forward from where we are with the competitive situation at the moment.
Our next question comes from the line of Terence Tsui of Morgan Stanley.
I joined the call a little bit late, so apologies if these questions have already been asked. I just wondered if you can clarify the comments around IFRS 16. Because I know in the Capital Markets Day, you said that your EBITDA for this coming year should receive a benefit from IFRS 16. And now with your new guidance for Q1 2019, are you basically saying that EBITDA in Q1 2019 will be declining if you didn't have the benefit from this new accounting adjustment? And then secondly, there are lots of questions so far about slowing top line. I just wondered what your visibility is around potential M&A, whether you could be looking at maybe bolt-on acquisitions like you've done in the past to try and reaccelerate the top line again.
All right. Thank you, Terence, for your questions. The IFRS for '19 has to be included in the number, so they are included. And as we told in the Capital Markets Day, it is approximately EUR 3 million per quarter, so that is included in our number first quarter '19. It was not in first quarter '18 and we are guiding same level with these numbers included. In terms of the top line, as we also explained in the Capital Markets Day and earlier, we, of course, are actively scanning M&A opportunities in telco side, IP business, but also in regards to our digital service businesses. So the bolt-on acquisitions are very potential ingredients in our top line growth in the future.
Maybe add one thing to your Q1 question. It is also so that we have negative impact from the divestments relating Q1. So that is also included in the guidance. So post Q1 '18, divestments impact negatively Q1 '19, which they did not Q1 '18.
[Operator Instructions] And our next question comes from the line of Adam Fox-Rumley of HSBC.
I wondered if you could just talk about your priorities for CapEx spend in 2019, please. I guess, especially I'm interested in how much in the kind of proportion of spend that's going towards fiber build versus what you'd spent in 2018.
Okay. We haven't really made disclosement of the CapEx more in details, but of course, fiber investment is an important element in our investments. So this year, no major change comparing to what we did last year.
So the run rate is expected to be approximately the same as the build-out rate that you've done this year? Maybe you could remind us what you've done this year, that would be helpful.
We are not disclosing the exact numbers for different items for investment.
Our next question comes from the line of Sami Sarkamies of Nordea.
I have 2 questions. Firstly, we've been spending plenty of time in the past to understand the MSR trends. Are you ready to call the bottom as MSR growth rate improves somewhat in Q4 from the Q3 level? And then second question, you did mention product changes related to MSR development in Q4. Can you still elaborate on these a bit more, how they impacted mobile KPIs in Q4 and will impact them going forward?
All right. Thank you for your questions, Sami. MSR development, we are not giving any guidance on that other than we believe that based on the good demand for higher speeds and willingness to pay for customers, and understanding also that there are quite intensive competitive situation in the market will play. Having all these, we still believe that there is a positive growth trend in MSR, but we are not giving any guidance on the number. In terms of the product changes, in fourth quarter, there are different kind of changes we do, also including some price changes, so we are not going to get into details, but we, of course, continue to do those as well in the future.
Can I ask a follow-up question? I mean, these changes you made in Q4, did they have a positive impact in Q4 already, or will have going forward?
They have had some positive effects, but not any major positive effects.
And there are no further questions at this time. Please go ahead, speakers.
Thank you to the conference call lines, and thank you for the questions. There seems to be no question from the audience, so at this point, we thank you for participating in this conference call, and have a nice day. Thank you, bye.
Thank you.
Thank you.