Magyar Telecom B.V. Investor Presentation for the period ended June 30, 2015
David Blunck, CEO Invitel Andrea Rába, co-CFO Invitel August 14, 2015
Safe Harbor Statement
This presentation of Magyar Telecom B.V. (the ”Company”) contains “forward-looking statements”. These and all forward-looking statements are only predictions or statements of current plans that are constantly under review by the Company. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. These forward-looking statements are all based on currently available operating, financial, and competitive information and are subject to various risks and uncertainties. Actual results could differ materially from those expressed in the forward-looking statements for a variety of reasons, including but not limited to: fluctuation in foreign exchange rates and interest rates; changes in Hungarian and Central and Eastern European economic conditions and consumer and business spending; the amount that the Company invests in new business opportunities and the timing of those investments; the mix of services sold; competition; management of growth and expansion; future integration of acquired businesses; the performance of IT Systems; technological changes; the Company's indebtedness; and government regulation. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the Company's financial reports, which are available on the Company’s website, www.invitel.hu. Accordingly, investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made. The Company does not undertake to update such statements to reflect the impact of circumstances or events that arise after the date the statements are made.
2
Overview
•
Solid financial performance in the second quarter
• • • • •
EBITDA flat to prior year in Q2, up in the first six months Gross margin stabilizing but still down year-on-year Operating expense reductions offsetting margin declines Cash roughly flat in the quarter, closing at €21.4m
Hungarian macro picture remains broadly encouraging
• •
Household income and economic activity indicators rising Businesses remain cautious – credit creation still heavily supported by Central Bank actions
•
Reaffirming full year guidance
•
We continue to invest in our focus areas of TV and IT Services
•
Utility Tax relief introduced for high-speed network builds and upgrades
3
Investment focus: Speed & Convergence
•
•
The investment focus in our Residential business is network speed, with FTTx upgrades supporting our TV-led strategy
•
32% of our in-LTO households are now upgraded to GPON or VDSL, up from 21% a year ago
• •
Substantial upgrade program underway – 160,000 homes this year 43% of the in-LTO network (365,000 homes) upgraded to FTTx by year end
In our Corporate unit, technology convergence underpins investment priorities – create platforms for IT Services
• • •
All-IP Network deployment Expanded Cloud offerings
Unified Communications offerings
4
Utility Tax relief for high-speed network upgrades
• • • • • • •
Hungarian utilities, fixed line telecom providers and cable operators have been subject to a per-meter tax on utility lines, the so-called “Utility Tax”, since 2013 The Utility Tax, in Invitel’s case €7m annually, is calculated using the length of network owned on first day of each calendar year In mid-June 2015 the Hungarian Parliament introduced 5-year Utility Tax relief for new 100+ mb/second-capable network and network upgraded to that speed The exemption applies to 100+ mb/second network sections built or upgraded after 25 June 2015 The tax relief will reduce Invitel’s Utility Tax liability beginning next year The Utility Tax exemption is a significant financial incentive to accelerate the roll-out of high-speed networks We expect a Utility Tax reduction in excess of €1m next year as a result of upgrade efforts undertaken in the second half of this year
5
6
Q2 Residential Customer Metrics (1) C
In-LTO Copper
F
In-LTO FTTx
Customers (#)
356k
Ca
Cable
Invitel
ARPA (HUF)
RGUs (#)
Average revenue per customer
Revenue generating units
352k
RGU/Customer (#)
Penetration % Customers / Homes Passed
682k 653k
2.7
2.7
F
F
32%
32% Ca
6,450 31%
F
6,180
31%
C F
233k
28%
218k
C
395k
C
C
92k Ca
31k
93k
5,100
Ca
Ca
42k F
F
C
C
Ca
1.9
Ca
Ca
176k
C
Ca
82k
18% 1.9
191k Ca
26%
2.1
5,390
5,140 4,980
381k
C
1.8
F
C
16% F
C
1.7
110k F
1.7
Q2 2015
Q2 2014
F
4,850
4,740
Q2 2014
Q2 2015
Q2 2014
Q2 2015
Q2 2014
Q2 2015
Q2 2014
On-net Residential/SOHO customers and RGUs at end of period excluding mobile broadband RGUs; ARPA excludes equipment sales and DVB-T revenue share
Q2 2015
7
Q2 Residential Customer Metrics (2) C
In-LTO Copper
F
In-LTO FTTx
Triple-play %
Ca
Cable
Invitel
Multi-play %
3P / Total Customers
TV uptake %
2P+3P / Total Customers
Sales with TV / Total sales
86% 68%
67%
99%
F
F
F
Ca
99%
80%
TV Customer %
Churn %
TV customers / Total customers
Quarterly average annualized
90%
91%
Ca
Ca
10.4% C
F
Ca
75% F
68% F
73%
9.9%
F
9.7% C
67% 9.1%
F
9.1%
Ca
38%
45%
Ca
69%
29% 63%
C
C
15%
Q2 2014
17%
63% 58% C
8.2% Ca
47%
Ca
29%
42% 59%
Ca
Ca
23%
63%
C
C
42% C
18%
21% C
F
8.1%
7.8%
C
54%
51%
Q2 2015
Q2 2014
On-net Residential/SOHO customers at end of period
Q2 2015
Q2 2014
Q2 2015
Q2 2014
Q2 2015
Q2 2014
Q2 2015
8
Q2 Residential Network Metrics C
In-LTO Copper
F
In-LTO FTTx
Ca
Cable
Invitel
Homes Passed (HP) by Technology
High-speed HP
High-speed HP %
FTTx + D3
% of FTTx / In-LTO, % of D3 / Cable HP
FTTx GPON 92k
VDSL 175k
267k
471k
(32%)
843k
70%
In-LTO HP
Ca
58%
Copper IPTV
Ca
395k (47%)
345k
267k
Not IPTV capable
41%
F
181k (20%)
30%
175k
Ca
Ca
204k
32% F
21% 171k
F
Docsis3 Cable
204k
Digital 195k
(70%)
Not Docsis3 capable
89k (30%)
293k Cable HP
Q2 2014
Q2 2015
Q2 2014
Q2 2015
Financial Information for the quarter ended June 30, 2015 For the quarter ended June 30, 2015 2014
9
Change
Change %
For the quarter ended June 30, 2015 2014
(in thousands of EUR) Revenue
35,803
37,991
Segment Cost of Sales
(7,253)
(8,149)
Segment Gross Margin Segment Gross Margin %
28,549 80%
29,842 79%
(15,020)
(16,178)
Adjusted EBITDA(2) Adjusted EBITDA Margin % (3)
13,529 38%
13,664 36%
Non-recurring Items (4)
(1,407)
EBITDA(2) EBITDA Margin % (3)
12,123 34%
Adjusted Operating Expenses (1)
Change
Change %
(in millions of HUF)
(2,189)
(6%)
10,957
11,625
(668)
(6%)
11%
(2,220)
(2,494)
274
11%
(1,293)
(4%)
8,737 80%
9,131 79%
(394)
(4%)
1,158
7%
(4,589)
(4,945)
355
7%
(136)
(1%)
4,148 38%
4,187 36%
(39)
(1%)
(1,521)
113
7%
(432)
(467)
36
7%
12,144 32%
(21)
(0%)
3,716 34%
3,719 32%
(3)
(0%)
896
The average EUR:HUF exchange rates were 306.11 in Q2 2015 and 305.94 in Q2 2014 (1) Adjusted Operating Expenses do not include non-recurring items presented below Adjusted EBITDA (2) EBITDA and Adjusted EBITDA are non-IFRS financial measures. See the reconciliation to net income on slide 10 (3) EBITDA Margin % and Adjusted EBITDA Margin % are EBITDA and Adjusted EBITDA as a percentage of Revenue (4) Non-recurring items for the quarter ended June 30, 2015 mainly include cost of operational restructuring (€1 million) and non-cash vacation accrual (€0.3 million)
EBITDA Reconciliation to Net Income for the quarter ended June 30, 2015 For the quarter ended June 30, 2015 2014
10
Change
Change %
(in thousands of EUR) EBITDA(1) EBITDA Margin % (2) Depreciation and amortization Net financial expense Foreign exchange gains (losses), net Gains (losses) on derivatives Taxes on net income Net profit / (loss) for the period
For the quarter ended June 30, 2015 2014
Change
Change %
(in millions of HUF)
12,123 34%
12,144 32%
(21)
(0%)
3,716 34%
3,719 32%
(3)
(0%)
(10,270) (3,651) (85) (94) (644)
(11,008) (3,519) (73) (15) (646)
738 (131) (11) 80 3
7% (4%) (15%) 548% 1%
(3,144) (1,135) (39) 2 (197)
(3,368) (916) (156) (29) (198)
224 (219) (116) 31 1
7% (4%) (16%) 550% 1%
(2,621)
(3,119)
498
16%
(797)
(948)
151
16%
Headcount
1,160
1,164
• Financing expenses, net mainly include third party interest expense on the 2013 Notes • Taxes on net income mainly include local business tax
(1) EBITDA is a non-IFRS financial measure (2) EBITDA Margin % is EBITDA as a percentage of Revenue
Financial Information for the period ended June 30, 2015
11
For the period ended June 30, 2015 2014
Change
Change %
(in thousands of EUR) Revenue
For the period ended June 30, 2015 2014
Change
Change %
(in millions of HUF)
73,247
74,954
(1,708)
(2%)
22,519
23,006
(487)
(2%)
Segment Cost of Sales
(14,679)
(15,803)
1,124
7%
(4,513)
(4,851)
338
7%
Segment Gross Margin Segment Gross Margin %
58,568 80%
59,151 79%
(1%)
18,006 80%
18,156 79%
(149)
(1%)
(36,360)
(38,070)
1,710
4%
(11,179)
(11,685)
506
4%
Adjusted EBITDA(2) Adjusted EBITDA Margin % (3)
22,207 30%
21,081 28%
1,126
6%
6,828 30%
6,470 28%
357
6%
Non-recurring Items (4)
(2,480)
(2,856)
376
13%
(763)
(877)
114
13%
EBITDA(2) EBITDA Margin % (3)
19,727 27%
18,225 24%
1,503
8%
6,065 27%
5,594 24%
471
8%
Adjusted Operating Expenses (1)
(583)
The average EUR:HUF exchange rates were 307.45 in Q2 2015 and 306.94 in Q2 2014 (1) Adjusted Operating Expenses do not include non-recurring items presented below Adjusted EBITDA and contain Utility Tax for the full year of 2015 and 2014 recorded in January 2015 and 2014 in the amount of €6.8 million and €6.7 million, respectively (2) EBITDA and Adjusted EBITDA are non-IFRS financial measures. See the reconciliation to net income on slide 12 (3) EBITDA Margin % and Adjusted EBITDA Margin % are EBITDA and Adjusted EBITDA as a percentage of Revenue (4) Non-recurring items for the six month period ended June 30, 2015 mainly include cost of operational restructuring (€1.3 million), non-cash vacation accrual (€0.7 million) and expenses relating to strategic projects (€0.1 million)
EBITDA Reconciliation to Net Income for the period ended June 30, 2015 For the period ended June 30, 2015 2014
12
Change
Change %
(in thousands of EUR) EBITDA(1) EBITDA Margin % (2) Depreciation and amortization Financing expenses, net Foreign exchange gains (losses), net Gains (losses) on derivatives Taxes on net income Net profit / (loss) for the period
19,727 27%
18,225 24%
1,503
(20,136) (7,291) (129) 7 (1,273)
(21,592) (7,032) (508) (95) (1,292)
(9,095)
(12,294)
6,065 27%
5,594 24%
471
1,456 (260) 379 101 19
7% (4%) 75% 107% 1%
(6,191) (2,242) (40) 2 (391)
(6,627) (2,158) (156) (29) (397)
437 (83) 116 31 5
7% (4%) 75% 107% 1%
3,199
26%
(2,796)
(3,773)
977
26%
1,160
1,164
Taxes on net income mainly include local business tax
(2) EBITDA Margin % is EBITDA as a percentage of Revenue
Change %
8%
Financing expenses, net mainly include third party interest expense on the 2013 Notes
(1) EBITDA is a non-IFRS financial measure
Change
(in millions of HUF)
Headcount
• •
For the period ended June 30, 2015 2014
8%
Segment Gross Margin for the quarter ended June 30, 2015
For the quarter ended June 30, 2015 2014
13
Change
Change %
(in thousands of EUR)
Residential Voice In
For the quarter ended June 30, 2015 2014
Change
Change %
(in millions of HUF)
5,585
5,705
(120)
(2%)
1,710
1,746
(36)
(2%)
389
458
(69)
(15%)
119
140
(21)
(15%)
Residential Internet
4,795
5,033
(238)
(5%)
1,468
1,540
(72)
(5%)
Residential TV
1,030
822
208
25%
315
252
64
25%
Cable
3,640
3,373
267
8%
1,114
1,032
82
8%
15,439
15,390
48
0%
4,726
4,709
17
0%
Corporate Voice
3,171
3,461
(290)
(8%)
971
1,059
(88)
(8%)
Corporate ICT
1,023
1,090
(66)
(6%)
313
334
(20)
(6%)
Corporate Data
3,317
3,288
28
1%
1,016
1,006
9
1%
Corporate Internet
2,656
2,703
(47)
(2%)
813
827
(14)
(2%)
Wholesale
2,944
3,910
(966)
(25%)
899
1,197
(297)
(25%)
Corporate & WS Total
13,110
14,452
(1,342)
(9%)
4,011
4,422
(411)
(9%)
Total Segment Gross Margin
28,549
29,842
(1,293)
(4%)
8,737
9,131
(394)
(4%)
Residential Voice Out
Residental Total
Segment Gross Margin for the period ended June 30, 2015
For the period ended June 30, 2015 2014
14
Change
Change %
(in thousands of EUR)
Residential Voice In
For the period ended June 30, 2015 2014
Change
Change %
(in millions of HUF)
11,228
11,317
(89)
(1%)
3,452
3,474
(22)
(1%)
786
961
(175)
(18%)
242
295
(53)
(18%)
Residential Internet
9,645
10,025
(380)
(4%)
2,965
3,077
(112)
(4%)
Residential TV
2,021
1,551
471
31%
621
476
145
31%
Cable
7,234
6,610
624
9%
2,224
2,029
195
9%
30,913
30,463
450
2%
9,504
9,350
154
3%
Corporate Voice
6,422
7,087
(665)
(9%)
1,974
2,175
(201)
(9%)
Corporate ICT
2,092
2,055
37
2%
643
631
12
2%
Corporate Data
6,434
6,545
(111)
(2%)
1,978
2,009
(31)
(2%)
Corporate Internet
5,315
5,379
(64)
(1%)
1,634
1,651
(17)
(1%)
Wholesale
7,391
7,621
(230)
(3%)
2,272
2,339
(67)
(3%)
Corporate & WS Total
27,654
28,689
(1,034)
(3%)
8,502
8,806
(303)
(3%)
Total Segment Gross Margin
58,568
59,151
(583)
(1%)
18,006
18,156
(149)
(1%)
Residential Voice Out
Residental Total
Capital Expenditure for the period ended June 30, 2015
For the period ended June 30, 2015 2014
15
Change
For the period ended June 30, 2015 2014
Change %
(in thousands of EUR)
Change
Change %
(in millions of HUF)
Variable Capex
(7,332)
(7,402)
70
1%
(2,254)
(2,272)
18
1%
Fixed Capex
(2,657)
(2,955)
298
10%
(817)
(907)
90
10%
Base Capex Base Capex to Revenue %
(9,990) 14%
(10,358) 14%
368
3%
(3,071) 14%
(3,179) 14%
108
3%
Project Capex Project Capex to Revenue %
(4,410) 6%
(12) 0%
(4,398)
-
(1,356) 6%
(4) 0%
(1,352)
-
(14,399) 20%
(10,370) 14%
(4,030)
(39%)
(4,427) 20%
(3,183) 14%
(1,245)
(39%)
Total Capex Total Capex to Revenue %
•
Project Capex mainly includes 60,800 HP FTTx upgrades and backbone capacity upgrades
Cash Flow Statement for the period ended June 30, 2015
16
Cash Flow Statement For the period ended June 30, (in thousands of EUR) Net cash provided by operating activities excluding interest paid
2015
2014
17,837
19,751
Purchase of property, plant and equipment and intangible assets Proceeds from sale of property, plant and equipment and intangible assets
(13,255) 1,693
(15,682) 379
Net cash used in investing activities
(11,562)
(15,303)
Cash flow available for debt service
6,275
4,448
Interest paid
(5,633)
(5,541)
Net cash used in financing activities including interest paid
(5,633)
(5,541)
Effect of exchange rate changes on cash and cash equivalents
(35)
(715)
Cash flow after debt service
607
(1,808)
20,823 21,430 607
21,702 19,894 (1,808)
Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Net increase / (decrease) in cash and cash equivalents
17
Other Financial Information
As of June 30, 2015 (in thousands of EUR) Balance Sheet Data (at period end): Cash and cash equivalents Third party debt (1)
21,430 156,144
Other Pro-forma Financial Data: Annualized Adjusted EBITDA (2) Net third party debt (3)
51,192 134,714
Ratio of Net third party debt to Annualized Adjusted EBITDA
2.6x
(1) Third party debt includes long term debt from the 2013 Notes but excludes liabilities relating to finance leases and liabilities relating to derivative financial instruments (2) Annualized Adjusted EBITDA is calculated by multiplying Adjusted EBITDA before Utility Tax for the six month period ended June 30, 2015 by two less Utility Tax for the full year of 2015 in the amount of €6.8 million recorded in January 2015. Annualized Adjusted EBITDA is a non-IFRS financial measure (3) Net third party debt equals third party debt less cash and cash equivalents
18
Balance sheet
(in thousands of EUR) Non-Current Assets Intangible Assets Property, Plant and Equipment Other Non-Current Financial Assets Current Assets Cash and Cash Equivalents Trade and Other Receivables Other Current Assets
Total Assets Equity Share Capital Reserves Cumulative Translation Reserve Accumulated Losses Non-Controlling Interest Non-Current Liabilities Borrowings Other Non-Current Liabilities Current Liabilities Trade and Other Payables Other Current Liabilities
Total Equity and Liabilities
As of June 30, 2015
As of March 31, 2015
As of December 31, 2014
24,536 182,898 44 207,478
26,503 193,119 47 219,669
25,123 188,210 43 213,376
21,430 18,940 1,620 41,990
21,666 20,021 1,942 43,629
20,823 19,412 1,329 41,564
249,468
263,298
254,940
297,148 137,848 (83,222) (306,543) 11 45,242
297,148 137,848 (72,966) (303,923) 12 58,119
297,148 137,848 (83,300) (297,449) 12 54,259
156,144 9,050 165,194
154,598 9,836 164,434
154,598 9,614 164,212
24,231 14,801 39,032
22,016 18,729 40,745
18,378 18,091 36,469
249,468
263,298
254,940
19
2015 Financial Expectations
Revenue
flat to 2014
EBITDA
flat to down 2%
Base Capex
16-18% of revenue
Project Capex
up to 8% of revenue
Adjusted EBITDA
Variable and Fixed Capex, ex Projects
depending upon cash balance
Fiber builds, backbone extension, B2B capability upgrades
Cash
maintain balance above €15m
Appendix
20
Non-IFRS Financial Measures
Magyar Telecom B.V. has included certain non-IFRS financial measures in this presentation, including EBITDA and Adjusted EBITDA. Reconciliations of the differences between EBITDA and Adjusted EBITDA and the most directly comparable financial measure calculated and presented in accordance with IFRS is included in this presentation. The non-IFRS financial measures presented are by definition not a measure of financial performance or financial condition under IFRS and are not alternatives to operating income or net income/loss reflected in the income statement and statement of comprehensive income (loss) and are not necessarily indicative of cash available to fund all cash flow needs. These non-IFRS financial measures used may not be comparable to similarly titled measures of other companies. Management uses these non-IFRS financial measures for various purposes including: measuring and evaluating the Company’s financial and operational performance and its financial condition; making compensation decisions; planning and budgeting decisions; and financial planning purposes. Magyar Telecom B.V. believes that presentation of these non-IFRS financial measures is useful to investors because it (i) reflects management’s view of core operations and cash flow generation and financial condition upon which management bases financial, operational, compensation and planning decisions and (ii) presents a measurement that equity and debt investors and lending banks have indicated to management is important in assessing the Company's financial performance and financial condition. While Magyar Telecom B.V. utilizes these non-IFRS financial measures in managing its business and believes that they are useful to management and to investors for the reasons described above, these non-IFRS financial measures have certain shortcomings. In particular, these EBITDA and Adjusted EBITDA measurements do not take into account changes in working capital and financial statement items below income from operations, and the resultant effect of these items on the Company’s cash flows. Management compensates for the shortcomings of these measures by utilizing them in conjunction with their comparable IFRS financial measures. The information in this presentation should be read in conjunction with the financial statements and footnotes contained in the Company's financial reports.
