Highlights from

Group Annual Report 2014

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2014 at a glance

Expanded business potential and major commercial events

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Highlights Highlights

Highlights

“We are satisfied with meeting our financial targets for 2014”
Carsten Dilling, President & CEO

  • Key highlights
  • More highlights
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Checked

TDC Group met the 2014 guidance on revenue, EBITDA, capex and dividend

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Cash

Stable, high cash flow generation supports pay-out of the remaining part of the guided DPS

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Mobile

Loss of 153k residential mobile customers, and Business mobile ARPU down by 12%

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Network

Continued strong increase in number of broadband customers in Consumer (17k)

Financial and operational highlights

Gross profit in Business down by 7.2% due to increased price pressure across segments and products from renegotiations in the high-end segment (including public tenders (SKI)), and spill-over effects from the B2C mobile market in the low-end segment

Strong growth in TV customers (26k). However, due to downward migration and faster than ex-pected migration to the new TDC TV portfolio with lower margin organic TV gross profit decreased by 1.5%

EBITDA growth of 0.8% in Sweden, while Norway faced an EBITDA decrease of 14.8% (both in local currencies) excluding EBITDA from Get (NOK 205m)

Organic opex savings of 3.4% despite substantial staff increase in Channels

Strategic highlights

Acquisition of Norwegian cable-TV company Get completed as of 20 October 2014; integration off to a good start, with synergy potential confirmed post closing

Customer satisfaction and recommend scores down by 3 and 2 index points, respectively, affected by an influx of inbound calls as a consequence of instability in new products and challenged execution of price and product changes in 2014

Capex increase of DKK 303m (8.4%) affected by increased mobile 4G coverage from 70% to 98% during the year, as well as the inclusion of capex from Get

Strategic partnership with Trefor regarding access to its fibre network and managed service on operations with effect from H2 2015

“TDC Group aims to be the leading Scandinavian communications solutions and home entertainment company”

Highlights Highlights

Key figures

TDC Group met the 2014 guidance on revenue, EBITDA, capex and dividend while maintaining a market-leading position in all product areas

  • Financial
  • Market shares
  • Revenue
    Revenue
  • EBITDA
    EBITDA
  • EFCF
    EFCF
  • Capex
    Capex
  • Mobility services
    Mobility services
  • TV
    TV
  • Broadband
    Broadband
  • Landline voice
    Landline
Highlights Highlights

Performance

In 2014, TDC Group saw a revenue decline of 2.7% while gross profit decreased by 1.9%

  • Mobility services
  • TV
  • Internet & network
  • Landline voice
  • Norway
  • Sweden
  • Other services
  • Mobility services

    Revenue from mobility services in Denmark decreased by 8.2% to DKK 5,161m in 2014 and was negatively affected by regulation. During 2014, TDC Group experienced an unsatisfactory development in the residential customer base, driven by price pressure and a focus on premium products. Business’ ARPU decreased by DKK 19, driven by continued price competition. Gross profit decreased by 5.8% to DKK 4,579m, and the gross profit margin rose from 86.5% to 88.7%.

    • Revenue
      Mobility services
    • RGUs and ARPUs
      Mobility services
  • TV

    Revenue from TV in Denmark increased by 2.5% to DKK 4,242m in 2014. TDC Group confirmed its position as the leading supplier of pay-TV in Denmark, and attracted 26k new customers. ARPU in TDC/Fullrate developed negatively while YouSee’s ARPU remained level.

    During 2014, TDC Group improved content in TV packages, resulting in increased content costs and put the gross profit development under pressure, leading to an unexpected loss of 1.4% to DKK 2,249m.

    • Revenue
      TV
    • RGUs and ARPUs
      TV
  • Internet & network

    Revenue from internet & network in Denmark decreased slightly by 0.8% to DKK 5,266m. This was due to an almost level development in TDC Group’s broadband customer base, as growth in the residential segment driven by strong product offerings and cross-sales to existing customer’s was offset by loss of customers in Business. A similar development was seen in the ARPUs.

    Gross profit decreased by 1.5% to DKK 4,791m in 2014.

    • Revenue
      Internet & network
    • RGUs and ARPUs
      Internet & network
  • Landline voice

    Revenue from landline voice in Denmark declined by 13.2% to DKK 2,809m in 2014. TDC Group’s customer base continued to decline, with a loss of 147k residential customers, of which 66k were PSTN-only. As customers tend to choose mobile-only, the landline voice market decreased overall. ARPU decreased slightly in both the residential and business market. Gross profit decreased by 13.9% to DKK 2,605m.

    • Revenue
      Landline voice
    • RGUs and ARPUs
      Landline voice
  • Norway

    Revenue in 2014 increased by NOK 435m (hereof NOK 452m from Get), and gross profit rose by NOK 311m hereof NOK 342m from Get which was partly offset by a negative development of NOK 31m from TDC Norway. Revenue in TDC Norway decreased by NOK 17m or 1.7% as losses in the high-margin operator business (landline and mobility services) was partly counterbalanced by growth in the low-margin Direct business.

    • Revenue
      Norway
  • Sweden

    Revenue decreased by 1.3% to SEK 3,094m in 2014. The operator business remained level with 2013, as growth in mobility services and internet & network outweighed a negative development in landline voice. Growth in the integrator business stalled in 2014 as revenue decreased by 2.9%, driven mainly by a decrease in the Direct business and service agreements, while revenue from project sales continued to grow.

    • Revenue
      Sweden
  • Other services

    Revenue increased by 2.5% to DKK 2,058m, driven mainly by paper communication fees with full gross profit effect. This was partly offset by lower sales of low-margin mobile handsets without subsidies. This development triggered a total increase in gross profit of 30.7%, up to DKK 1,214m and considerably improved the gross profit margin from 46.3% in 2013 to 59.0% in 2014.

    • Revenue
      Other services
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Guidance Guidance

Guidance

TDC Group met its 2014 financial guidance on all parameters. This included an expected materialisation of the majority of the underlying assumptions

  • 2014
  • 2015
  • Organic revenue,
    Lower decrease than in 2013 (-3.5%)
    2014 actuals:
    -2.5%
    Passed
  • EBITDA,
    above 9.7bn
    2014 actuals:

    9.8bn
    Passed
  • Capex,
    ~ 3.8bn
    2014 actuals:

    3.9bn
    Passed
  • Dividend,
    2.50 DKK per share
    2014 actuals:

    2.50DKK per share
    Passed

Guidance 2014

Better than expected
  • Broadband net adds and ARPU in Consumer
  • Commercial management initiatives in Consumer
Worse than expected
  • Increased price pressure in the B2B market across segments and products
  • Unsatisfactory residential mobile net adds
  • Faster-than-expected migration to smaller TV packages and to (lower ARPU) TDC TV portfolio
  • EBITDA development in TDC Norway
As expected
  • Regulation, landline voice gross profit, opex savings, EBITDA growth in Sweden, capex and cash flow
  • Organic revenue development,
    at the same level as 2014:
    -2.5%
  • EBITDA
    at the same level or slightly better than 2014:
    ≥9.8bn
    assuming NOK forex of 0.85 NOK/DKK
  • Capex:


    ~4.3bn
  • Dividend
    of

    2.50DKK per share
    Of this DKK 1.00 per share will be paid out in connection with Q2 2015 Earnings Release

2015 guidance assumptions

  • Increased GP drain across products in Business vs. 2014 level
  • Deteriorated mobility services GP development, but improved net adds performance in Consumer
  • Regulation effects at 2014 level, but Wholesale’s GP development negatively affected by contraction in our MVNO business
  • Unchanged YoY GP decrease in the Danish landline business
  • Return of growth in TV GP due to ARPU uplifts and TDC TV net adds
  • Growth rates in Get slightly below historical level
  • Level EBITDA development in Sweden
  • Reduced organic opex savings vs. 2014 level
  • Capex (excl. Get) at 2014 level
  • DKK/NOK exchange rate of 0.85
Strategy Strategy

Strategy

“Our strategic focus remains on seamlessly integrated solutions”
Vagn Sørensen, Chairman of the Board of Directors

  • 2014 execution
  • 2015 focus and going forward

2014 execution

Through its strong commercial focus in 2014, TDC Group made good progress in providing seamlessly integrated solutions to customers across brands. The roll-out of landline and mobile networks was accelerated, and TDC Group was transformed as the future operating model continues its ongoing development.

  • Launch of new TV portfolio in TDC and mix-it-yourself product portfolios in YouSee
  • New TDC/YouSee Play TV & Films apps launched with a seamless interface across screens and on-demand functionality
  • Launch of Telmore Play; an innovative premium mobile subscription, with a broad selection of digital content services
  • TDC One enhanced with new collaboration tools
  • TDC Sweden acquired Viridis IT
  • Expanded portfolio of products and services to drive future growth: Bet25, Blockbuster and es-tablishment of TDC Security for the B2B market
  • Significant progress on mobile network roll-out successfully completing the mobile swap
  • Landline infrastructure: Pair bonding resulted in a 6 PPT increase in pop. coverage of 100+ Mbps
  • Customer support was outsourced to Sitel
  • Disappointing development in customer satisfaction. Challenged execution of price and product changes as well as instability in recently launched products affected the number of inbound calls. This caused a decline in the recommend score and CSAT, while unacceptable customer experiences increased
  • High mobile churn across consumer brands
  • Highly aggressive price pressure from competition in the Danish business market has led to the loss of public agreements (SKI)
  • Concerning business market trends, where ARPU levels declined
  • The interim results for the number of high-ARPU households (305k) and CaaS revenue (DKK 613m) respectively, were not satisfactory
  • The digitalisation of TDC has progressed at a much slower pace than expected
  • Commercial pressure on free EU roaming increased

2015 focus and going forward

The TDC+ programme, based on three pillars, was launched to realise TDC Group’s ambition to be the leading Scandinavian communications solutions and home entertainment company. The three pillars are: TAK+ to improve customer experience and digitalisation, CORE+ to cultivate new business opportunities, and SMART+ to optimise business and processes.

Strategy Model
TDC Model mobile
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Ambition

Leading Scandinavian communications solutions and home entertainment company

Integrated entertainment and communications solutions to households
Integrated communications solutions to businesses

TDC+

TAK+

Focus on customer journeys and differentiated service

Focus on accelerating existing TAK initiatives and reducing the number of unacceptable customer experiences

Focus on digitalisation to simplify being a customer online

Core+

Focus on growth and increased sales on top of the existing core business areas and additional sales to our customers, including Blockbuster, Bet25, Security, and new infrastructure

SMART+

Focus on optimising the business: ­Simplification and better use of platforms, simpler ­operating model, improving economies of scale and optimising end-to-end processes

People+

Focus on empowerment of employees

Focus on drive, motivation and being pro-active

Focus on next level teamwork in a functional organisation

Strategy Strategy

Did you know that…

… TDC paid DKK 1.2bn in corporate income taxes and DKK 4.5bn in VAT and taxes on behalf of the employees in 2014

… in 2014, TDC’s foreign and domestic investors received dividends of DKK 3.0bn to the benefit of e.g. pension funds

… TDC had 8,594 full-time employees and paid DKK 4.2bn in wages and pension in 2014

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