WIND Telecomunicazioni First Half 2014 Results August 7, 2014
H1 2014 Highlights Revenues EBITDA Op. FCF (EBITDA CAPEX) NFI Debt Optimization WIND continues to outperform the market with total revenue of 2,290 million, declining by 8.2% YoY Mobile service revenue down 10.9% YoY, as a result of the rolling cannibalization effect of 2013 price competition, MTR cut and the material decline in SMS revenue Mobile internet revenue confirms double digit growth, up 21.1% EBITDA at 865 million, declining by 7.6% YoY, with pressure on revenue partially compensated by cost efficiency measures EBITDA margin increases 0.3 p.p. to 37.8% thanks to cost efficiency measures Continued strong Op. FCF generation of approximately 1.12 billion in H1 2014 LTM Net Financial Indebtedness at 10,544 million vs. 9,145 million as of December 2013, increase mainly due to WAHF PIK notes refinancing Net debt / EBITDA at 5.6x Successful refinancing of approximately 8 billion of notes shifting the first material maturity to 2019 and reducing the average cost of debt by 3 p.p. providing significant interest savings of ~ 300 million per year 2
Difficult Environment and Weak Market GDP Growth* 1.2 0.6 0.2 1.0 2012 2013 2014E 2015E -1.9-2.4-1.9-2.4 ECB CSC Unemployment Trend* Highlights GDP expected to return to mild growth in 2014 Family consumption index still negative Unemployment remains the biggest concern with youth component steadily above 40% Italian TLC market value contraction in H1 2014 expected to continue also in H2 but with an improving trend 12.2 12.8 12.6 12.5 Main operators maintain a more benign approach to promotions leading to: 10.7 ECB CSC lower gross additions with negative net additions for main players 2012 2013 2014E 2015E churn reduction * Source: ECB (May 14), CSC (Jun 14) 3
but WIND Strengthens its Market Position Mobile Market Share (SIM)* Fixed Broadband Market Share** ~ 28% in consumer segment 22.8% 23.3% 24.3% 24.5% 15.8% 16.3% 16.0% 15.8% 6.4% 6.1% 6.3% 6.2% Others 9.9% 10.3% 10.6% 11.0% Player 4 11.8% 13.1% 14.2% 14.5% Player 3 13.1% 12.6% 12.8% 13.1% Player 4 32.4% 31.7% 31.0% 30.1% Player 2 52.9% 51.9% 50.6% 50.4% Player 1 34.9% 34.7% 34.1% 34.3% Player 1 2011 2012 2013 H1 2014 2011 2012 2013 H1 2014 * Source: Internal estimates; excluding MVNO ** Source: Internal estimates 4
in Core Areas of its Proposition Best Customer Relationship Maintain leadership in mobile customer satisfaction Consistent outperformer on NPS Player 1 Player 2 Leading Reputation WIND Infostrada classified as the most appreciated telecoms operator in Italy in terms of customer experience by a primary customer satisfaction research observatory in July Player 4 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 WIND is the only telecoms operator ranked in the top twenty leading Italian companies by reputation* Positioning Enhancing the focus on mobile data and digital services Smart value for money proposition: clear, transparent and simple offer Renewing the All Inclusive proposition More than ~ 65% of mobile customers on bundle offerings * Source: Italy Rep. Track May 2014 issued by Italian Reputation Institute 5
Evolving to the Digital World WIND Digital Self Care Areas Access increase 127% vs. H1 2013 Social Approach WIND leader in Italy as the fastest* company on answering customers via Facebook and Twitter Digital top ups +74% vs. H1 2013 WIND Digital innovative offering with customer interaction exclusively through digital channels (sale, selfcare, top-ups, etc) My WIND App My WIND App for smart-phones and tablets downloaded more than 5 million times Google Play Revenue share model with Google play: WIND the only operator in Italy with carrier billing active with approximately 3 million downloads YoY Roll out for Windows phone customers started in June * Sources: Blogmeter and Socialbakers 6
and Investing on Network Performance and Quality Mobile Network CAPEX* GSM network completed: 99.86% population coverage with GPRS/EDGE nationwide coverage HSPA+ network developed: 96.65% population ( mln / %) 16.7% 15.8% LTM CAPEX / revenue* coverage at 21 Mbps and 42 Mbps in major Italian cities LTE available in Rome, Milan, Bologna, Turin, Padua, Bari, Naples and main airports. LTE plan: 30% of population coverage by the end of 2014 345 309 Fixed Network and Backbone 1,458 LLU sites: c. 60% direct population coverage in all major Italian cities Solid fiber optic backbone of 21,726 km, supporting both fixed and mobile businesses * CAPEX excludes LTE costs CAPEX 2013 excludes 134mln of non-cash increase in Intangible Assets related to the contract with Terna in relation to the Right of Way of WIND s backbone Figures as of June 30 7
H1 2014 Operational Performance
Maintaining Positioning in Mobile (mln) Customer Base 22.3-1.9% 21.9 Highlights WIND s customer base declines slightly (-1.9% YoY) to 21.9 million, although at a lower rate than that experienced by the overall market, leading to an increase in market share, consumer market share approaches 28% ( / %) 33.4% ARPU 38.6% % Data on Total Data ARPU increases 2.7 p.p. reaching 39% of total ARPU 2Q 2014 ARPU improving trend vs. 1Q 2014 12.4-11.0% 11.0 Increasing penetration of All Inclusive bundles drives double digit growth in both usage and voice traffic 9
Resilient Mobile Internet Growth Performance ( mln) Mobile Internet Revenue Highlights 222 +21.1% 269 The increased penetration in CB of All Inclusive bundles coupled with the take-up in smartphones Mobile Internet CB* penetration leads to a double digit growth in Internet revenue ( 000) In line with other mature markets H1 is affected by 7,604 +27.1% 9,667 a material decline in SMS revenue driven by increased penetration of instant messaging apps * Mobile Internet includes customers that have performed at least one mobile Internet event in the previous month 10
Fixed-Line Delivering on Profitability ( 000) Voice Subscribers 3,040 2,902 Highlights 2,450-1.4% 2,415 Direct (LLU) Fixed LLU subscribers substantially stable (-1.4%) reflecting the pull sales strategy and focus on 591 487 ARPU Indirect acquisition of high value customers in order to increase EBITDA margin ( ) Fixed-line ARPU declines 4.4% YoY with the 31.2-4.4% 29.8 growth in data ARPU partially compensating the decrease in voice component 11
Fixed Broadband ARPU Growth Broadband Subscribers Broadband ARPU ( 000) ( ) 21.3-1.4% 2,211 2,180 20.2 20.2 20.4 20.5 20.8 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 ( 000) Dual-play Subscribers 1,863 +0.9% 1,881 Highlights Fixed Broadband customer base substantially stable in line with the strategy focused on quality and on dual-play offerings selected by 1.9 million customers (+1% YoY) BB ARPU increases thanks to the increased penetration of higher value dual play customers 12
H1 2014 Financial Performance
Revenue and EBITDA Total Total Revenues Highlights ( mln) 2,495 189-8.2% 2,290 216 Other rev. + CPE 2,306-10.1% 2,074 TLC service revenue Total revenue declines 8.2% with service revenue down 10.1% as a combined result of the rolling cannibalization effect of 2013 price competition, material decline in SMS revenue and the MTR cut EBITDA / Margin ( mln / %) 37.5% 37.8% EBITDA declines 7.6% YoY with positive impact from cost savings partially compensating the -7.6% pressure on top line 936 865 EBITDA margin increases 0.3 p. p. to 37.8% 14
Revenue and EBITDA Mobile Total Revenues Highlights ( mln) 1,815 172-8.6% 1,660 194 Other rev. + CPE Total mobile revenue declines 8.6% as a combined result of: 1,644-10.9% 1,465 TLC service revenue Impressive growth in mobile Internet revenue, up 21.1% EBITDA / Margin Decline in voice revenue mainly driven by the mentioned intense price pressure in 2013 and MTR cut ( mln / %) 41.5% 41.7% Q2 service revenue (-11.1%) in line vs. previous quarter (-10.6%) -8.2% 754 692 H1 2014 EBITDA declines 8.2% to 692 million mainly due to the service revenue decline EBITDA Margin increases 0.2 p.p. 15
Revenue and EBITDA Fixed-Line Total Revenues Highlights ( mln) 680 17-7.2% 631 22 Other rev. + CPE Fixed-line total revenue decreases 7.2% YoY due 663-8.1% 609 TLC service revenue to lower service revenue, down 8.1%, mainly due to the decline in the fixed-line customer base, as a result of the focus on higher margin LLU customers, and due to the ongoing decline in ( mln / %) EBITDA / Margin 27.4% voice volumes resulting from fixed to mobile substitution 26.7% EBITDA at 173 million with 0.7 p.p. increase in -5.0% margin thanks to the strategy focused on higher 182 173 value customers and pull sales channels partially offsetting the decline in service revenue 16
P&L Highlights ( mln) H1 2014 H1 2013 Change % Revenues 2,187 2,444 (10.5)% Other revenues 104 52 n.m. Total Revenues 2,290 2,495 (8.2)% EBITDA 865 936 (7.6)% D&A (612) (631) 3.0% EBIT 253 305 (17.1)% Financial Income and expenses (695) (430) (61.4)% EBT (442) (126) n.m. Income Tax 39 (47) n.m. Net result (403) (173) n.m. 17
Capitalization ( mln) As of December 31, 2013 As of June 30, 2014 June 30, 2014/ LTM EBITDA Cash and Equivalents (141) (84) * (0.0x) Bank Loan 2,420 2,519 1.3x Senior Secured Notes 2018 3,133 3,145 1.7x Senior Secured Notes 2019 150 150 0.1x Senior Secured Notes 2020 400 402 0.2x Total Bank Loan + SSN 5,962 6,132 3.3x Senior Notes 2017 2,779 - - Senior Notes 2021-3,786 2.0x Ministry LTE Liability 250 255 0.1x Derivatives and Other ** 154 371 0.2x Total Net Debt excluding Intercompany Loan 9,145 10,544 5.6x Intercompany Loan to WAHF *** (938) (0.5x) Total Net Debt 9,145 9,606 5.1x Cash Net Debt 9,013 9,338 Interest Accrued 217 142 Fees to be amortized (240) (246) Derivatives MTM 154 371 LTM EBITDA 1,873 * Cash and cash equivalents net of the amounts held in escrow in relation to repayment on July 15, 2014 of the 2017 Senior Notes not tendered ** Includes receivable from Wind Telecom until Dec 2013, set off as part of April 2014 refinancing *** Loan to Wind Acquisition Holdings Finance S.p.A. for repayment of WAHF SA PIK Notes 18
Significant Improvement in Debt Maturity Profile Q1 2014 ( mln) 1,261 2,678 81 81 3,216 2,015 81 425 150 340 2014 2015 2016 2017 2018 2019 2020 2021 TLA TLB LTE Liability Italian State Senior Secured Notes 2018 Senior Secured FRN Senior Secured Notes 2020 HY 2017 PIK ( mln) H1 2014 Pro-forma for April and July Refinancing 575 425 81 81 81 174 150 1,608 3,495 3,779 2014 2015 2016 2017 2018 2019 2020 2021 TLA TLB LTE Liability Italian State New Senior Secured Notes 2020 Senior Secured FRN Senior Secured Notes 2020 New FRN 2020 New Senior Notes 2021 Notional amounts. USD tranche has been converted at CCS EUR/USD Exchange Rate 19
Thank you 20