iDTV - Telenet

Telenet, at the Heart
of Communication,
Information and
Entertainment
Telenet Q1 2006 Results
May 29, 2006
Disclaimer:
> Safe Harbor
Safe Harbor
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995 Various statements contained in this document constitute “forward-looking
statements” as that term is defined under the Private Securities Litigation Reform Act
of 1995. Words like “believe,” “anticipate,” “should,” “intend,” “plan,” “will,” “expects,”
“estimates,” “projects,” “positioned,” “strategy,” and similar expressions identify these
forward-looking statements, which involve known and unknown risks, uncertainties
and other factors that may cause our actual results, performance or achievements or
industry results to be materially different from those contemplated, projected,
forecasted, estimated or budgeted whether expressed or implied, by these forwardlooking statements. These factors include: potential adverse developments with
respect to our liquidity or results of operations; our significant debt payments and
other contractual commitments; our ability to fund and execute our business plan; our
ability to generate cash sufficient to service our debt; interest rate and currency
exchange rate fluctuations; our ability to complete the integration of our billing
systems; the impact of new business opportunities requiring significant up-front
investments; our ability to attract and retain customers and increase our overall
market penetration; our ability to compete against other communications and content
distribution businesses; our ability to maintain contracts that are critical to our
operations; our ability to respond adequately to technological developments; our
ability to develop and maintain back-up for our critical systems; our ability to continue
to design networks, install facilities, obtain and maintain any required governmental
licenses or approvals and finance construction and development, in a timely manner
at reasonable costs and on satisfactory terms and conditions; our ability to have an
impact upon, or to respond effectively to, new or modified laws or regulations. We
assume no obligation to update these forward-looking statements contained herein to
reflect actual results, changes in assumptions or changes in factors affecting these
statements
2
2
Q1 2006 Highlights:
> Triple play boosts subscriber growth
Triple Play
¾ 185K triple play customers, 24% growth of triple play customer base YoY
Subscriber
¾ More than 228,000 RGUs added in TV, Internet & telephony YoY
Growth Combined
¾ Reduced churn levels
With Stable ARPU
¾ Internet & Telephony ARPUs have been stable at H2 05 levels
¾ Flexview functionality launched on April 18
iDTV
iDTV
¾ 150 000 Boxes sold (end April 06), about 10% penetration
¾ Prime and thematic take-up well on track
¾ Growing iDTV net ARPU
¾ Satisfactory revenue growth despite continuing competitive pressure
Telenet Solutions
¾ Good take up in SME segment
¾ Contract wins in 3 major cities: Antwerp, Ghent and Kortrijk
3
3
Q1 2006 Highlights:
> First quarter reporting a net profit and strong cash flows
Revenue Growth
EBITDA
Operating Profit
Net Profit
Capex
Free Cash Flow
¾ Revenues up by 2% compared to Q4 05 and up 11% versus Q1 05
¾ EBITDA increased 9% versus Q4 05 and 4% versus Q1 05
¾ Operating Profit up by 60% versus Q4 05 and up by 2% versus Q1 05
¾ First quarter showing a profit of € 5 Million versus a loss, corrected for
one off debt extinguishment costs of € 5.1million in Q4 2005 and €
17.3 million in Q1 2005
¾ Capex of € 42.6 Million, excluding € 6.3 million land and Hypertrust
acquisition
¾ € 14.9 Million Free Cash Flow (excluding debt repayments)
4
4
Q1 2006 Results
Leo Steenbergen - CFO
5
5
Operational Results:
> Triple play subscribers growth of 24%
Highlights
Highlights
Triple Play Stats *
185
1.44
26.4
27.5
¾ 185,000 triple play customers in
Q1 06 on Telenet network
149
1.37
¾ 24% year on year growth in triple
plays subs
Q1 05
Q1 06
Triple Play
Customers (000)
Q1 05
Q1 05
Q1 06
RGU/Unique
Customer
Q1 06
¾ Continued increase in RGUs per
unique customer
€ ARPU/Unique
Customer
¾ 88,000 triple play customers in
Q1 06 on the partner network
* Numbers relate to customers on the Telenet network only
6
6
Telephony:
> Subscriber growth of 24%
Telephony Key Stats *
381
14.1%
Highlights
Highlights
¾ 381,000* Subscribers at the end of Q1 2006
34.9
31.6
10.6%
¾ Y-on-Y growth: 73,000 net additions
308
¾ Q-on-Q growth: 17,000 net additions
Q1 05
Q1 06
RGUs (000)
Q1 05
Q1 06
Churn
Q1 05
¾ ARPU stable vs second half of 2005
Q1 06
€ ARPU
¾ Churn stable vs second half of 2005
* Excludes carrier pre-selection customers, but includes Freephone/FreeSurf bundle customers and business telephony subscribers
7
7
Internet:
> Steady growth, stable ARPU and low churn
Highlights
Highlights
Internet Key Stats *
650
9.5%
8.8%
32.7
33.2
¾ 650,000 subscribers at the end of Q1 06
559
¾ 91,000 Net additions, 16% Y-on-Y
growth
¾ Q-on-Q growth: 26,000 net additions
Q1 05
Q1 06
RGUs (000)
Q1 05
Q1 06
Churn
Q1 05
Q1 06
€ ARPU
¾ Low churn
¾ Stable internet ARPU
* Excludes FreeSurf narrowband internet customers, but includes business broadband internet subscribers
8
8
iDTV:
> Continued Progress
iDTV Key Stats
Highlights
Highlights
¾ 131,500 “Digibox” and “Digicorder” set top
boxes sold at the end of Q1 2006
132
116
84
75
44
¾ 115,500 iDTV Smartcards activated by
quarter end
36
Q3 05
Q4 05
Q1 06
Sales (000)
Q3 05
Q4 05
Q1 06
RGUs (000)
9
9
Revenues:
> Growth continues
Q1 2005
Q1 2006
% change
Basic cable television
50.0
49.8
- 0%
Premium cable television
13.8
11.2
- 19%
2.0
8.3
+ 323%
Residential broadband internet
53.6
63.9
+ 19%
Residential telephony
41.2
46.7
+ 13%
Business services
16.8
17.8
+ 6%
177.3
197.6
+ 11%
EU GAAP - in € millions
Revenues
Cable Distributors / Other *
Total Revenues
¾ Residential revenues grew by 12% in Q1 06
¾ Total Y-on-Y revenue growth accelerated from 7% in Q1 05 to 11% in Q1 06
¾ BB internet and telephony remain growth engines
¾ Premium revenues have decreased following the introduction of new pricing structure
¾ Telenet Solutions revenues grew 6%, accelerating from 4% in second half 2005
* Includes Digibox and Digicorder set top box sales
10
10
Expenses:
> Roll out iDTV drives expense increase
EU GAAP - in € millions
Expenses
Payroll Cost
Depreciation
Amortization
Amortization of broadcasting rights
Network operating and service costs
Advertising, marketing and dealer commissions
Net foreign exchange transaction (gains)/losses
Other costs
Total Expenses by Nature
Q1 2005
Q1 2006
% change
25.9
36.4
9.7
3.2
46.3
11.2
0.2
8.5
141.4
28.1
40.1
10.6
1.3
58.4
14.1
0.0
8.2
160.8
+ 9%
+ 10%
+ 10%
- 60%
+ 26%
+ 25%
N/A
- 3%
+ 14%
¾ Total expenses are up 14% compared to Q1 2005, driven by the roll out of iDTV
¾ Total expenses are however 6% lower than in Q4 2005
¾ Network operating and service cost up 26%, reflecting increased customer services cost,
supporting the customer growth and roll out of iDTV, as well as increased content cost
¾ Sales and marketing expenses in line with Q4 2005, supporting roll out of iDTV; SAC
reduced by 9% to €80 per gross addition
11
11
Income Statement:
> First Profitable Quarter
EU GAAP - in € millions
Q1 2005
Q1 2006
% change
+ 12%
+ 6%
+ 11%
Revenues
Residential Services
Business Services
Total Revenues
160.5
16.8
177.3
179.8
17.8
197.6
Expenses
Total Expenses (excl. Depreciation & Amortization)
Total Expenses (excl. D&A)
(92.1)
(92.1)
(108.8)
(108.8)
EBITDA
EBITDA Margin
85.2
88.7
48.1%
44.9%
35.9
36.7
+ 2%
(39.6)
(10.4)
(21.6)
1.8
N/A
(3.2)
(11.8)
(17.3)
5.0
EBITDA
Operating Profit
Net Profit / Loss
Operating Profit
Net Interest Expense
Net Gains / (Losses) on Derivative Instruments
Income Tax Expense
Net Profit/loss adjusted for Debt Extinguishment Cost
1
Debt Extinguishment Cost
Net Profit/loss
(6.8)
0.0
(24.1)
5.0
+ 18%
+ 18%
+ 4%
N/A
N/A
N/A
¾ EBITDA increased by 9% versus Q4 2005 and by 4% versus Q1 2005 to € 88.7 million
¾ EBITDA margin at 44.9% versus 42% and 48% in Q4 and Q1 2005 respectively, well within guidance
¾ Operating profit up 60% and 2% versus Q4 and Q1 2005 respectively to € 36.7 million
¾ Interest Expenses down by 15% and 45% versus Q4 and Q1 2005 respectively
¾ Q1 2006 was first profitable quarter ever, generating € 5.0 million of Net Profit. We however anticipate a
negative impact on net profit of incurring a debt extinguishment cost of up to € 25 million in Q2 2006
¾ Cumulative tax loss carry-forwards totaled € 764 million as of December 31 2005
1
Debt extinguishment cost pursuant to redemptions on the Senior Credit Facility in March 2005
12
12
Capital Expenditures:
> Telenet continues investing in growth
Capital Expenditures – EU GAAP
31.7
Highlights
42.6(1)
¾ Capital Expenditures up by €11.5
million to €42.6 million, excluding a €5.8
million one off investment in land and
€0.5 million acquisition of Hypertrust
100%
90%
80%
70%
¾ CAPEX in line with guidance
60%
50%
85%
40%
¾ 85% of capital expenditures remain
growth driven:
30%
20%
¾
¾
¾
10%
0%
Q1 05
Subscriber capex
Development and IT
Maintenance & Other
(1)
Subscriber growth
Network growth
IT and development
Q1 06
Network growth
Content
Capital Expenditures exclude a one off investment in land and Hypertrust
13
13
Free Cash Flow:
> Healthy FCF conversion despite increasing capex
FCF Conversion
Cash Flow
EU GAAP - in € millions
Cash Flow from
Operating
Activities
EBITDA
Non cash items & WC changes
Interest Expenses1
Cash Flow from Operating Activities
Investment in tangible assets
Cash Flow from
Investments in intangible assets2
Investing Activities Acquistions (Hypertrust in Q1 2006)
Cash Flow from Investing Activities
Cash Flow from
Financing
Activities
Net Cashflow
Net Debt Redemptions
Net Proceeds Capital Increases
Other (including redemption premium)
Cash Flow from Financing Activities
Cash at beginning of period
Cash at end of period
Net Cash Generated
Q1 2005
Q1 2006
% change
85.2
(2.3)
(39.6)
43.3
88.7
(3.3)
(21.6)
63.8
+ 4%
N/A
- 45%
+ 48%
(28.7)
(2.9)
0.0
(31.7)
(43.7)
(4.8)
(0.5)
(48.9)
+ 52%
+ 62%
N/A
+ 54%
(110.0)
0.0
(130.4)
0.0
+ 19%
N/A
N/A
(110.0)
(130.4)
145.2
46.7
(98.5)
210.4
94.9
(115.5)
+ 45%
+ 103%
56%
2003
53%
2004
51%
47%
2005
Q1 06
Stable Working Capital Contribution
Days
DPO
12 0
10 0
80
¾ Strong Operational and FCF
DSO
60
40
¾ Healthy FCF conversation rate
20
¾ Stable Working capital buffer
0
Q1 0 5
Q2 0 5
Q3 0 5
Q4 0 5
Q1 0 6
Free Cash Flow (“FCF”) conversion
defined as (EBITDA – Capex)/ EBITDA
1
Includes general cash and non-cash interest expenses
2 Includes certain content right contracts
14
14
Capital Structure:
> Senior Credit Facility has been successfully refinanced
Highlights – Refinancing Senior Credit Facility
Interest Cover Ratio1
5
¾
Size: Total: €1,000 Million / €800/Million committed
¾
Structure:
¾
Term Loan A: € 600 Million (drawn)
¾
Revolving Loan B: € 200 Million (undrawn)
¾
Term Loan C: € 200 Million (undrawn)
¾
Interest Rate Margin:
¾
Margin Rachet (maximum of 1.25%)
¾
Current interest rate: Euribor + 1.00%
¾
Commitment Fee: 40% of Interest Margin
¾
Covenants:
¾
Interest Cover Ratio (Tot. Interest/EBITDA)
¾
Leverage Ratio (Cash Pay Debt/EBITDA)
¾
Minimum Headroom is 25%
¾
Term: 5 years, with back ended amortisation schedule
¾
Interest saving of €6.8 Million on a full year basis
4
3
4.1x
2
1
1.3x
0.6x
0
2002*
2003*
2.0x
2.4x
2004
2005
Q1 06
Amortisation Table
Senior Credit Facility
400
Bonds
300
200
370
368
301
100
44
0
52
62
72
2006 2007 2008 2009 2010 2011 2012 2013 2014
*
2002-03 LTM EBITDA have been calculated on a US GAAP Basis
1 Interest Cover ratio is calculated as LTM EBITDA / Net Interest expenses
15
15
Balance sheet:
> Strengthening capital structure
EU GAAP - in € millions
Assets
Non-Current Assets
Current Assets
Cash and Cash Equivalents
Total Assets
Equity
Total Equity
²
Total Equity
Non-Current
Liabilities
Senior Debt
Senior Notes (*)
Senior Discount Notes
Capital Leases
Deferred Financing Cost
Other non-current Liabilities
Non-Current Liabilities
Current Liabilities Current Portion of Long Term Debt
Accounts Payable
Unearned Revenues
Other Current Liability
Current Liabilities
Total Liabilities
Q4 2005
Q1 2006
% change
2,235.7
125.3
210.4
2,221.3
124.5
94.8
- 1%
- 1%
- 55%
2,571.4
2,440.6
- 5%
709.1
709.1
712.9
712.9
+ 1%
+ 1%
629.1
368.4
220.9
115.0
(44.7)
55.7
1,344.4
629.1
368.4
221.4
109.6
(39.5)
60.2
1,349.182
+ 0%
+ 0%
+ 0%
- 5%
- 12%
+ 8%
+ 0%
156.1
174.7
112.9
74.1
517.8
25.6
165.0
113.5
74.4
378.5
- 6%
- 1%
- 0%
- 27%
2,571.4
2,440.6
- 5%
(*) Senior Notes redeemed in January 2006
16
16
Business environment
17
17
Telephony:
> Continued progress
Highlights
Quarterly net adds Telephony
¾ Successful cross-sell from iDTV and
internet to telephony
25
¾ ARPU stable versus second half of
2005
20
¾ Half of telephony customer base is on
flat rate plans
15
¾ Next level of momentum by
introducing new telephony tariff plan
‘FreePhone 24’. Risk of ARPU decline
has been absorbed in full year plan.
10
5
0
4Q04
1Q05
2Q05
3Q05
4Q05
1Q06
18
18
Internet:
> Satisfactory net adds
Highlights
Quarterly net adds Internet
30
¾ Telenet product offering reinforced by the
doubling of the downstream speed and a
50% increase of the upstream speed
25
¾ ARPUs have remained stable
20
¾ Churn remains stable
35
15
¾ 66% of new sales in core and higher tier
products (representing 85% customer
base)
10
5
0
4Q04
1Q05
2Q05
3Q05
4Q05
1Q06
19
19
iDTV:
> Premium & Premium enabled services
iDTV-enabled smartcards
Former Canal+ smartcards
PRIME
Thematic
and extra
channels
On demand
Applications
+
Digibox
Digicorder
• Full multi channel distribution in our entire region
Additional ARPU iDTV
Blended ARPU “Premium & premium enabled”
20
20
iDTV:
> Accelerating growth in ‘Premium & Premium Enabled’ customer base
Total RGU’s Premium & Premium Enabled
Premium & Premium enabled Revenues
200.000
180.000
160.000
140.000
120.000
100.000
80.000
60.000
40.000
20.000
0
Q1 05
Q2 05
Q3 05
Q4 05
Q1 06
Q3 0 5
Prime (non iDTV)
iDTV Prime
Q4 0 5
Q1 0 6
iDTV non Prime
¾ Erosion ‘Premium’ customer base halted
¾ Premium (=Smart Card Activated) RGU’s increased from 161,000 at the end of 2005 to
189,000 at the end of Q1 2006
¾ Premium revenues decreased because of lower price positioning
21
21
iDTV:
> Doubling of paying on demand view-rate
iDTV-enabled smartcards
Monthly Paying View Rate / iDTV RGU
1.3
0.7
10/05
22
11/05
12/05
01/06
02/06
03/06
22
iDTV:
> Interactive programs
¾ More than 60 broadcast programs from main broadcasters with interactive
features such as access to additional information and participation via voting
and playing along.
¾ From the top 3 formats (Sterren op de Dansvloer (VTM), Thuisploeg (VRT)
and Eurosong (VRT), about 25.000 paying transactions were reached in Q1
2006
¾ Not included in Q1 2006 and launched on April 1, 2006, Peking Express from
SBS: almost 50% of the iDTV viewers watching the program have used the
application
¾ For Q2 2006, we have, amongst others, two promising programs:
¾ Canvascrack (VRT): Innovating with participants inviting own relatives and
friends to play against each other
¾ WorldCup (SBS and VMMa): information (all statistics on soccer teams,
players and games) and participation (vote for the best player)
¾ Telenet retains exclusive rights for VOD and interactivity with SBS and VMMa
23
23
iDTV:
> LifeTV
¾ New local channel made by proven media
professionals
¾ Experiment with new concepts in programming
and advertising
¾ First phase focuses on analog launch with the
option to expand to rich interactive programming
in Q4 2006
¾ Telenet thereby emphasizes its commitment to
partnerships in the media business
24
24
iDTV:
> Growing net ARPU is on track
Highlights
Incremental Net ARPU
¾ Strong uptake of Prime & thematic
packages
10 ,0
12 ,5
¾ Promising uptake of recently launched
SVOD
10 ,5
10 ,3
¾ Strong pick up VOD services
Q4 05
B asic C aT V
Q1 06
iD T V A R PU
¾ Distribution of higher end Digicorder STB
started in January 2006
¾ Recording function “Flexview” has been
activated on April 18
25
25
Triple play:
> Good progress
% dual and triple play on total new acquisitions
Triple Play Long Term Goals
2010
Q1 06
12%
20%
20%
40%
40%
68%
Highlights
Q3 05
Q4 05
Q1 06
¾ ~ 25% Dual & Triple play on new
acquisitions
% triple play subscribers
¾ Triple play strategy well on track
% dual play subscribers
¾ iDTV main catalyst for boosting dual and
triple play on new acquisitions
% single play subscribers
26
26
Telenet Solutions:
>Strong sales converted into revenue growth
New Sales
Highlights
¾ Service portfolio for the fixed line SME market
completed: bundled service of Voice & Data
¾ Q1 2006 strongest sales quarter ever
¾ Revenue growth in all segments
Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06
Revenues Telenet Solutions
¾ Competitive pressure remains a consistent factor:
¾ Price erosion levels in line with estimates
¾ Won projects outpace some contracts lost to
the competition
¾ Telenet Solutions strong partner for local
authorities
Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06
¾ Conversion of orders into revenues will take one to
two quarters
27
27
Telenet Solutions:
> Sales via Partners is taking off now
Evolution in # Partners
Q2 05
Q3 05
Q4 05
Evolution Order Intake Partner Channel
Q1 06
Q3 05
Q4 05
Q1 06
Key Contributing Partners
28
28
Recent updates:
MVNO
WiFi
Portal
Cost to Serve
Efficiencies
Walloon
Cable
9On track for launch this summer
9Wireless Data Division maintains its lead in Belgium with
nearly 1100 hotspots activated at the end of Q1 2006
9Total web presence exceeding 250.000 unique visitors per
day
9Good progress in lean 6sigma projects resulting in cost
efficiencies
9Submitted offer for first round; preparing for second round
29
29
Business environment:
> Financial Outlook
Revenue
Growth
9 Revenues grow by 10-15% (high end)
EBITDA
9 EBITDA margin around 42-45%
Capital
9 Capital Expenditures between € 190-210 Million
Expenditures
iDTV
Penetration
9 Close to 20% penetration by the end of 2006
30
30