CEO Word Q2 2016
Tele2’s second quarter results reflect a continuation of the improved momentum we experienced towards the end of the first quarter. Our Value Champion strategy and positioning is driving strong customer growth in the Netherlands and in Sweden we are seeing a return to mid single digit growth in mobile end-user service revenue both in Consumer postpaid and Large Enterprise. Our Challenger spirit is driving excellent progress in the integration of the Tele2/Altel JV in Kazakhstan, with respect to synergy realization and a step up in pricing. And as we roll out 4G across our footprint, we are particularly proud of the data monetization we are seeing in the Baltics.
The most exciting news in the quarter was of course the announcement of our intention to acquire TDC, one of the strongest B2B service providers in Sweden. This is a highly complementary business which will be value accretive, drive growth in our most important market and which we look forward to closing and integrating later this year.
This quarter, Group mobile enduser service revenue, on a like for like basis, increased by 2 percent year on year. Group EBITDA declined, as expected, as a result of our mobile investment in the Netherlands but also lower EBITDA in Sweden which was negatively impacted by increased sales and marketing spend and non-recurring items. Our investment in the Netherlands continues to have an impact on CAPEX and Group cash flow, however this is balanced by strong cash generation in our established Swedish and Baltic businesses.
Swedish consumer mobile continues to be strong with postpaid growth of 5 percent year on year, driven by Comviq market share development. Competition in the B2B SME segment has subsided but the market remains tough, and is a drag to our overall revenue development. However, Large Enterprise continues to deliver strong progress, and during the quarter we added some important customers to our portfolio. It is with great excitement that we are now preparing for the closing of the acquisition of TDC, a merger that will step change Tele2’s strategy to be the customer champion in both Consumer and B2B, and create significant shareholder value.
During the quarter OpenSignal announced that Tele2 Sweden had achieved the best score for 4G coverage ahead of all the other Nordic operators. Having now reached 87 percent geographic coverage we are increasingly providing our customers with a great connectivity experience, no matter where they are.
The Baltic region’s underlying revenue growth continues to be strong thanks to an ever increasing demand for data combined with creative data centric pricing models. Our 4G coverage is now above 97 percent in the region, and in Lithuania the usage of 4G surpassed the usage of 3G for the first time. Despite the new roaming regulation hampering our progress in the Baltics, profitability improved in the quarter with EBITDA margin reaching 38 percent in Lithuania.
In the Netherlands, momentum has continued since the launch of the iPhone and the new SIM only line up. As a result, customer intake has almost doubled compared to the first quarter. Despite intense competition we stand out from the incumbent-like telcos with our Fun Rebel positioning and continue to take a substantial share of Dutch postpaid switchers. I am particularly proud that our Fun Rebel campaign with the “drown yourself in data” theme, was awarded a number of prestigious awards in the quarter, but most importantly in winning the SAN Accent award for the best ad campaign of the year. Data usage on our own network is increasing as we have now reached outdoor population coverage above 97 percent and indoor of 81 percent. During the quarter we also opened our 9th retail store. In our fixed consumer broadband business we continued the positive intake trend from the first quarter after many quarters of decline.
In Kazakhstan, on a like for like basis mobile end-user service revenue yet again grew double digits as a result of an increasing customer base and price increases. Despite substantially changing our pricing tariffs, we have managed to maintain a price leadership position resulting in a solid intake of more than 100,000 customers. Whilst our business is progressing positively, so is the integration of the joint venture and we have now finalized more than half of the integration milestones, enabling synergies to start filtering through and therefore a good EBITDA development.
The Challenger program is developing in line with expectations, well on track for the SEK 1bn target in 2018 and to date more than 75 projects have been initiated. Efficiency savings have been achieved by creating a platform for consolidation and de-duplication of tasks through the integration of roles in Sweden and Netherlands into the Shared Operations organization. The out-sourced Indian organization is now staffed with around 100 employees that support our Swedish and Dutch markets with financial and customer back office tasks.
At our AGM in May I highlighted the exciting trends and opportunities ahead for mobile connectivity and why I believe Tele2 is well positioned to take advantage of these trends. The trends reveal exponential growth of data, increased mobile internet penetration, increased handset penetration, as well as opportunities for growth in the IoT and 5G arena. Our Value Champion strategy, combined with a relentless focus on offering the best wireless technologies with a challenger cost structure, will lead us to sustainable value creation for our customers, employees and our shareholders.
President and CEO