M&A Announcement

Nov 7, 2016

Thank you for standing by, and welcome to the Telia Acquires Romero in Norway Conference Call. At this time, all participants are in listen only mode. There will be a presentation followed by a question and answer session. I must advise you this conference is being recorded today, Monday, 11/07/2016. I'll turn the conference over to your speaker today, Christian Luigi. Please go ahead, sir. Good morning. Thank you very much, and welcome to this short, brief presentation on the acquisition of Oneiro in Norway. I'm here today with Jesper Vindrocht, Investor Relations and also Abraham Foss, our CEO in Norway, that will help me to guide you through this presentation. I will start out briefly here to say I'm very happy to announce this today. There is a presentation on our web page for on this acquisition. You have seen the press release, but there's also presentation on the web. Please find your way there. The acquisition is the second in Norway now in two years' time. It's part of our strategy of strengthening our position and shaping the Nordic royalty footprint. This is a good acquisition similar to the Tele2 acquisition made two years ago or announced two years ago and got approval one point five years ago. We are closing the gap on the B2B segment in Norway. We have said that we want to close the gap both in B2B and the fixed to improve our converged offering in B2B and B2C. The synergies are very similar to the Tele2 acquisition. Thus, is a good customer base with a good employee base. Meanwhile, the biggest synergy will come out of the transfer of the customers onto our own network, and we'll come back to that. This is a deal that is subject to approval to the Norwegian competition authorities, and that is the only thing outstanding, and we expect that to close in quarter one next year. I will now leave to Abraham to go through a little bit what Premier is, the way to create a full service provider with this acquisition, our B2B market position and the strategic match. So please, Ebrahim, help us through here. Thank you. Sonero is Norwegian operator founded in 2008 and have built up a position in the B2B segment also including a recent acquisition of Ventelo going to two years back in time. The operation is directed towards small and medium sized businesses as well as the public segment. And they have approximately 250 mobile 250,000 mobile subscriptions into 25,000 invoice customers. The organization comprises of roughly a 180 employees and it's a full service offering with the sales net sales of 1,100,000,000.0 with an adjusted EBITDA of NOK 200,000,000 expected for this year. As Christian told, this is there are two major things that we've done in Norway during the last two years. One is the acquisition of Tel two and thereby building a strong position in the b to c segment, just a little bit smaller than Telenor, but not much. So we have a very strong position in the B2C segment. On the same time, we've invested significantly in an upgraded network in Norway, with now award winning network both from a quality issue point of view, for coverage point of view, and from a speed point of view. So that's the two major thing. This third element is then completing the b two b segment and making it our us more competitive into b the more complex b two b segment. And as such, it's important part of a long term plan. The strength of market positioning B2B is both linked to the market share in itself where we will then have a combined revenue market share of roughly 27%. And we will then also in especially two specific segments, meaning the public segment, have some large public organizations in Norway, among them police and the defense army and as well as the SME segment. And as I mentioned, roughly 250,000 subscriptions. The strategic so and think the strategic fit then we end up with a portfolio of brands with both Telia and Fornero in the B2B segment as well as Telia, Chess, Michael and One Cloud in specific segments within the B2C segment. So we complete our weaknesses from a segment point of view and we increase our go to market muscle in the B2B segment. We complete our product and service offering, which we can then use across the whole, our whole customer base. And also, Sunero brings a very good process oriented culture into the B2B segment, which we also intend to capitalize on across our company. And I think that gives an overview of the strategic rationale and then maybe just then you should then move on on the synergy history. Thank you very much, Ebrahim. Yes, we have a strong synergy track record in Norway. We have acquired Tele2 and we have realized synergies above 1,000,000,000 since that acquisition, and that was also in line with what we promised. We also continued to improve the EBITDA in the Norwegian operation in quarter three. And now we announced this deal where this is an operation that has around 20% EBITDA margin or EUR 200,000,000 in profit as stand alone, but we estimate yearly cost synergies of EUR 400,000,000 to come through fully in 2018. These will be limited in 2017 based on that the deal is not expected to be equivalent in quarter one, and then it will be a transition of the customers over that year. The margin then will then go down slightly in total, meanwhile, be very close to the current one because this is a small addition in the total. And net debt impact from this deal will be minor as this is an accretive deal after the synergies. Summarizing, I think I'd like to remind ourselves again what Ebrahim said about our network in Norway since the Tele2 acquisitions. Said also part of that acquisition was to increase the speed of the CapEx rolled out in Norway and was expected up to be done up to 2019 to be on par with Telenor. And that is something we succeeded, I think, with very well with the what we got this summer. And this also helps us now when we take the next step in Norway, adding these customers, and they will be sort of welcomed to a network that is on par in Norway. We will strengthen our B2B market share and then be a good vendor, but also a good competitor in the Norwegian market. We have sizable synergies that we also have shown in the past that we can deliver on, and this is really a good strategic fit and will improve our customer offering. And with that, I'd like to lead to Q and A from the audience, if there's any. Thank you. We'll now begin the question and answer session. Your first question comes from the line of Robert Slower. Please go ahead. Good morning, everybody. I was just wondering, this is a consolidation between number two and number three in the market. Is it you see it going through without any remedies? Or could it be some pushback from on that? And since this consolidation, do you expect better pricing, a better market going forward as what I assume is one of the more aggressive players is taken out by you? Thank you. I think we will pass on any market repair discussions on the pricing. We have been focusing on a good customer base and the synergies from the cost side that we'll get through. I'll leave to Abraham to elaborate a little bit on the regulatory part, which is a Norwegian regulatory question, not European. We do based on the history and the dialogues that we have continuously with the authorities, we do not we definitely expect this to go through. This is a specific dynamics in the B2B segment and Telenor is very strong in that segment already. This deal will actually increase the competition in the B2B segment based on that fact. We do not expect any remedies to occur. And this a fairly straightforward company and segment base. Okay. Thank you very much. Thank you. Your next question comes from the line of Usman Ghazi. Please go ahead. Hello, gentlemen. Thank you for taking the question. I was just looking at the regulatory data. In that, it shows that while Telenor has a very high market share in Business Mobile in the fixed broadband segment, I mean, Telenor's market share is sitting at around 27%. Mean, mainly the market share being taken by the utility companies now. So what kind of the incumbent has lost so much share in Norway in B2B because of the strength of the utilities? I mean why does Ferneiro, you know, improve your strategic positioning specifically? Thank you. Hey, Ram. You want to take that question, please? Yeah. Yes, sir. I want to the extent that I I might not have fully understood it, but let me try to explain it and then you can guide me with a revised question. Telenor has 60 is between 6070% market share in the B2B segment in Norway. So they are very, very strong and dominant player. And then on top of that, they have then also MNU players like Flonero today, meaning that they cover a lot on that market. Through our doubling of our market position through our existing 131314% revenue share and from NEROS between 1314% revenue share. We will be both have a customer base, which is much broader, especially within both the SME segment and as well as the public sector, which is important. But also, in addition, it will strengthen our position because they have VUMERO has a pretty smooth go to market muscle, which we intend to capitalize on going forward. They will also complete on the product side, on mobile switchboard capabilities, which we also will capitalize on going forward. And it's also so that in the B2B segment, there are enough specific issues that you need to sort of address and set up. And by having this more scale within the B2B segment, it makes us able to focus with the scale and force, which is better than the existing relatively speaking, limited position compared to the B2C. And even I'm not sure if that answered your question, so please go Yes. No, partly does. You focus it with Feneris on the mobile market, I guess, in the business segment where where Telenor does have high marketing. Absolutely. Yes. Absolutely. They they have they have a broad offering. Mhmm. So so Foneros has the ability to to cover all communication services from a a also sort of network agnostically. But the main focus in Fornero is definitely from a mobile account of view. So the follow-up my follow-up question would be that if I look at the fixed market, the fixed broadband market in the B2B segment, it's the utilities that have a very high market share, it seems, around 40% with Telenor's market share having gone down to around 28%. Now given the benefit of cross sell in the B2B space, I mean, we be looking for follow-up kind of collaborations with the utility companies if you're really going to make a push in this segment? If Christian, I'll allow myself to answer that. Yes. We are we have just launched in the Telia brand, Telia Fiber, where we actually go together with the company BroadNet out in the market. So there's a it's a good question in terms of being able to cover to deliver services both from a mobile point of view as well as from a fixed point of view. And is Fonenos doing that today and we're also doing that with Telia. The next question or next aspect of the question is to what extent do we need to own that kind of infrastructure also in the future? And that's a longer question and at least I'll refer to that as a part of the long term strategic question within our convergent story within the Telia company. But short term, it's actually more important just being able to cover those needs for the customer. And then the mobile is by far the most important angle in the B2B segment short term. Your next question comes from the line of Mads Worsendow. The acquisition today, you've become very strong in Corporate Mobile and now also you're very strong in Consumer Mobile. Do you have ambitions also to move into TV perhaps in Norway or further grow the business into other segments? I'll take that, Ebrahim. I mean we have said that we want to in all Nordic footprints and work with our converged offering, and this is based on the corporate side, as you say. We will come back to how we see it on the fixed side. But we have said that we are continuously looking at the fixed side also in Norway, but without specifying exactly how and when we will be able to do something there. Your next question comes from the line of Peter Nielsen. Yes, just a quick one, please. You're not mentioning talking about integration costs. Will there be any of any significance on this purchase? You. Ebrahim, you want to mention that? Or there is some price increase, they're not that high actually. Yeah. We have calculated with some slight integration costs linked to two issues. One is to make sure that we are offensive in the bigger customers where there might be some need to extend our network specifically, but that's that can only be that can only be accurately measured as we implement. And then as well as there's going to be a customer integration, of course migration, of course, with the change of SIM cards. So that will that will be adjusted for. But it's it's that's not a significant part of the business case. So relatively minor? Relatively minor. Yes. Thank you. Thank you. Your next question comes from the line of Henry Hertz. Please go ahead. Yes, thanks very much. I was just wondering, I just want to follow-up a little bit on Bordnet and the cross sell potentially seeing between Fornero and BroadNet. And also if you could elaborate a little bit on what you actually get access to with BroadNet. Is that mainly a fiber to the business thing or and a little bit about our footprint and the cross sell opportunity with Fanon? Ibrahim, you give some sort here, crisp answer on that, on the broadband side? On the BroadNet side, BroadNet is a is a fixed as you probably know, and that's why you ask of the b to b focused player with also on the transportation network. So we have a relation to Broadna both in terms of white labeling their offerings out in the Telia fiber market as well as also looking into extending our part of the mobile network or the fixed part of the mobile network. But other than that, this is not just then then this transaction will not have any if if I understood you correctly, this transaction will not have any significant impact on that part. And then the so then the question is whether how is our relation to BroadNet in a long term converse setting, but that's a different matter, and I don't think I should comment on that as such. Okay. Thanks. Thank you. Your next question comes from the line of Adam Foxworthy. Please go ahead. Thanks very much. I wondered if you could talk about the go to market strategy of Finero. Are there any substantial differences with Telia, for example? Does it have better difference or better relationship with channel partners, for example? And then secondly, I wondered if you could just make some comments around the level of churn in the B2B market at the moment. Is it better or worse than the consumer market? And how would you expect that to evolve? Okay. Abraham, if you give us some flavor on the go market, the churn, I'm not sure if we have all the data points on that, but you can give some kind of high level view on that also compared to the overall churn in our as they are provided in our results, Ebrahim? Well, the churn is relatively smaller than in the B2C segment. And that's, of course, linked to the more complex offerings and the more tightly sort of, I wouldn't say integrated, but tightly linked between any supplier or operator and the customer. I don't think I want to go into percentages here because then that varies from segment to segment. There's a big difference between the public segment as opposed to the private segment and so on and so forth. In general, I can say that has had a good churn history and has a long term standing with major customers. So we're very enthusiastic about that. When it comes to the go to market model, it's different. And that's intriguing because they are running agent, tightly managed agent model with a very strictly process oriented and a very hungry sales organization. And typically, a smaller type of business run with very strong incentives mechanism but managed centrally in terms of having strong focus on the many dialogues that takes place with the customers. So they have more than 100 agents that are running in or not running, but what engaging in a in a very strictly managed customer dialogues. That is that is different than the broader channel channel setup that we have in Telia. So it complements the way we are operating. And it we're definitely going to spend a lot of time, and there's a limit limit what we can discuss in detail these kind of issues before we actually engage together. But there's definitely we're going to leverage on both angles going forward. So we do not intend to just swallow the go to market operation in Formero and then put it into a Telia context. We were definitely looking into how we can leverage these kind of mechanisms in the broader context. And that's what we're going to spend a lot of time in 2017 on doing exactly that. Thank you. Thank you. Question from the line of Usman Ghazi. Just on synergies, I mean, mentioned cost synergies, but there are no revenue synergies that being indicated. I was just wondering if you could give us some idea of how to think about that. Thank you. I think we will not guide you on the revenue synergies as we have done also before. So this is a deal where we have clear cost synergies, and they are EUR 400,000,000, and that is what we will focus on. As Ebrahim said, this may bring more competition actually partly in the market, but it's strong, stable, strategic fit and addition to our offering, and will help us driving our business case. But that's all we will say. Sorry. The purpose of the question is just to gauge whether this is a cost savings driven deal or whether this is something broader than that. Yeah. I mean, we we presented it as a cost saving driven deal. Okay. But it's also, over time, will strengthen our position in in Norway and help us to to drive the the speed, which is something we we need to strengthen. And that's why it's gonna help the both on the offering side. But we're not gonna guide you anything on on sort of revenue synergies on top of this. Okay. Thank you. There are no further questions at this time, sir. Okay. Good. Then I thank you all for participating today. It's been good to have you on board and listen to this very positive deal. And thank you, Abraham, for helping me to this press conference. And I'll talk to you soon again then. Thank you. Thank you. Bye bye. That does conclude our conference for today. Thank you for participating. You may all disconnect.