The pressure on TDC Groups revenue and gross profit persisted in the second quarter of the year, yet the Group confirms its 2014 guidance with the pay-out of interim dividends. Profit before depreciation, amortisation and special items (EBITDA) declined by 3.2% compared with Q2 2013.
In connection with TDC Groups Financial Statements for the second quarter of 2014, Carsten Dilling, President and Chief Executive Officer of TDC, says:
Q2 shows continued pressure on organic revenue and gross profit developing in line with 2013 full-year results. Yet, TDC Group delivered a strong cash flow, up 40.1% on Q2 2013 (14.4% in H1) driven primarily by working capital improvements and savings of 5.8% in operating expenses. TDC Group confirms its 2014 guidance, including improved organic revenue developments in H2, e.g. due to a new iPad sales agreement and a number of price changes with effect from 1 July.
In the mobile market, the development in net loss of residential customers (39,000 in Q2) remained far from satisfactory. However, via a range of retention initiatives we have generated a positive trend over the quarter, and a part of the loss resulted from low ARPU customers. By launching the innovative mobile concept Telmore Play at the end of the quarter, we set a new agenda with a product that focuses on content rather than price. The product has received intense publicity and great interest from our customers with more than 20k subscribers signing up in the first six weeks since its launch in June.
We are currently developing our future operating model, and recently signed a contract with Sitel, a large international and professional customer service and support provider that will take over more than 800 TDC employees in the autumn. This agreement is attractive for TDC with savings on operational expenses but also as it is expected to contribute to a positive development in customer satisfaction. TDC Group will also invest in further developing the remainder of its customer-centric functions, including our new centre in Flensburg, Germany.
We completed the divestment of TDC Finland in Q2. Of the proceeds we have earmarked DKK 500m for investments in the continuing business in the coming 18 months. We are currently working with a pipeline of initiatives including digitalisation as well as smaller bolt-on acquisitions.
In Q2, TDC Group continued accelerating its expansion of Denmarks best network, resulting in coverage improvements for high-speed landline broadband and 4G we are now able to deliver 4G outdoor coverage to 85% of the Danish population. In 2014, we expect a total investment level of DKK 3,7bn, equaling approx. 16% of revenue, which is among the highest compared to TDC's European peers.
Calls for a public focus on quality
In conjunction with the publication of the Financial Statements, Carsten Dilling is urging the public authorities to focus more on quality when procuring telecommunications services from Danish telecommunications companies. In his opinion, the current sole focus on low prices promotes neither investments in innovation nor new infrastructure.
For decades, with approx. 60% of the nations telecom infrastructure investments, TDC Group has contributed significantly to expanding Denmarks telecom infrastructure, and expects to play an important role in fulfilling the Danish Governments ambitious objectives for the area, e.g. within high-speed internet in Denmark and the development of health-care solutions, such as telemedicine.
However, TDC Group is facing a number of challenges:
1) Within digitalised health-care solutions, the public sector has so far demonstrated very little action to support politicians' visionary ambitions concerning rehabilitation or the treatment of patients with chronic diseases. There is a lack of prioritisation of public investments in the area, even though digitalisation can improve the quality of life for many such patients and significantly reduce health-care costs for society.
2) In Q2, three large public tenders for provision of telecommunications services for regional and municipal authorities etc. (SKI) were concluded, with TDC Group winning one and losing the other two. All three tenders resulted in considerably lower price levels than the current contracts, and TDC Group could not match the prices for the two lost tenders while complying with laws regulating competition.
3) Within broadband, where TDC Group is subject to public price regulation, the Danish Business Authority is currently revising its pricing calculation model. The preliminary draft will result in a 2015 price level that is significantly lower than the level the EU recommends for its member countries. Wholesale pricing in DK will therefore be much lower than in other EU member countries, without any reason for Denmark to differ.
Both public telecommunications tenders and public wholesale price regulation focus almost exclusively on low prices, at the expense of quality, excellent customer experiences and innovative solutions. Yet these three factors are natural drivers for achieving the Governments objectives and constitute incentives for the telecoms industry, and TDC Group in particular, to continue investing in mobile networks and high-speed broadband in Denmark.
For more information:
TDC Press, tel. +45 70 20 35 10
The Financial Statements can be downloaded at investor.tdc.com
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The pressure on TDC Groups revenue and gross profit persisted in the second quarter of the year, yet the Group confirms its 2014 guidance with the pay-out of interim dividends. Profit before depreciation, amortisation and special items (EBITDA) declined by 3.2% compared with Q2 2013.
