Strong revenue growth ahead of Telio listing on the Oslo Stock Exchange
Telio Holding ASA, Quarterly report - First quarter 2006
Telio Holding continues its strong topline growth. Revenues for the quarter were NOK 66.2 million, compared to NOK 27.8 million in the first quarter of 2005 (138% year on year growth) and compared to NOK 54.8 million in the fourth quarter of 2005 (21% quarter on quarter growth).
During the quarter, Telio has also worked extensively on detailing its strategy to launch mobile VoIP and enter new international markets to drive further growth. During the second quarter, Telio will launch a GSM service to its customers in Norway as a first step for making Telio a mobile VoIP operator. Internationally, the plan is to launch a second line service targeted to very high volume users in Europe late 2006.
Preparation for listing Telio Holding on the Oslo Stock Exchange (OSE) is on track. Telio sent its application to OSE on April 26. It is expected that the application will be approved on May 29, and that Telio will be listed early June.
Highlights during the quarter
· Continued high revenue growth
· Increased net customer growth vs. last quarter. 12,200 customers added in total during the quarter bringing the total customer base to above 90,000 at the end of Q1, of which 73,000 in Norway.
· Aggressive strategy for growth internationally and mobile in place
· Listing and IPO process on track for Q2
· Telio continues to consolidate the market by acquiring assets from IPtech
Business update
Customer growth
In Q1 the strong customer growth continued. Telio ended the quarter with 90,300 customers, distributed as follows:
· Norway: 73,000 – growth of 9,600 customers
· Denmark: 14,100 (13,100 Musimi accounts plus 1,000 Tellio customers) – growth of 1000 subscribers
· Netherlands: 3,200 – growth of 1,600 subscribers
Q1 was a good quarter in Norway with 9,600 net new subscribers.
In Denmark, Telio has two platforms – Musimi and Tellio. Musimi are more of a self service platform for technically literate customers. The customers of Musimi are defined as accounts and some accounts are probably not active. Tellio in Denmark has had good progress and has now attracted approx. 1,000 customers with very limited marketing. In March, a new sales and marketing director joined Tellio in Denmark.
In Netherlands approx. 1,000 customers were moved to Telio’s platform as a consequence of the agreement with XMS made in Q4. As the XMS fibre to the home project is rolled out, more customers are expected to join Telio.
Structural events
In January, Telio acquired certain assets from IPtech. The assets included unused commercials on TV2, a sales agreement with TV2Nettavisen, the JustIP brand name. Subsequently, the previous owners were to close down its service to the IPtech customer base.
In March, Telio’s Swedish partner Glocalnet was acquired by Telenor. As a consequence, Telio terminated its white label agreement with Glocalnet. There are no outstanding issues between the two parties after the termination of the agreement.
After the end of the quarter, Telio has renegotiated its distribution contract with Narvesen in Norway. In the previous contract, Telio had to pay a monthly fee per customer acquired through Narvesen as long as the customers remained with Telio. The parties have agreed to terminate this clause based on a one off payment from Telio.
Further, as of May 1 Telio has in-sourced its telemarketing operation through a company called Salgssenteret Lillehammer AS that is wholly owned by Telio Telecom AS. The in-sourcing has been done to reduce marketing cost and improve customer acquisition effectiveness.
Growth strategy
Telio has outlined an aggressive mobile and international strategy.
In mobile, Telio will launch a GSM service to its customers in Norway during the second quarter. This will be the first step for making Telio into a mobile operator. Ultimately, as 4G IP based networks are rolled out, Telio will be able to offer the current VoIP service as a mobile service.
Internationally, the choice of strategy reflects the complexity of the current international regulatory regime. Therefore, Telio has decided to initially launch a second line service targeted to very high volume users in Europe. As the regulatory regime ripens and as local customer bases are built, Telio will continue to move into specific countries.
Stock market listing
Telio has decided to apply for a listing on the Oslo stock exchange (OSE). During the quarter, good progress was made as Telio applied for the listing on April 26. The listing is expected to be approved by the OSE on May 29, and the company expects to be listed early June.
Telio also plans an Initial Public Offering (IPO) in conjunction with the listing process, but the final structure of the offering has yet to be determined.
Financials
Total revenues in the Q1 06 of NOK 66.2 million were up 138% compared to NOK 27.8 million in Q1 05. Revenues for the Q1 05 included NOK 5.8 million in one time termination revenues. Adjusting for this item, revenues increased by 201%. Revenue growth was driven by an increased customer base, partly offset by a change in call buckets to four major destinations and reduced average subscriptions fees. Further, the installation of an SS7 (interconnection equipment) in the beginning of the quarter had a positive impact on overall termination revenues.
Costs of connection and traffic charges were NOK 29.9 million in Q1 06 (45% of revenues) compared to NOK 11.6 million in Q1 05 (42% of revenues). Adjusting for one-time termination revenues of NOK 5.8 million, the costs of connection and traffic costs were 53% of revenues in Q1 05. Improved interconnect agreements is the main reason for the reduced traffic costs as a percentage of revenues.
Salaries and personnel costs were NOK 9.0 million in Q1 06 (14% of revenues) compared to NOK 5.7 million (21% of revenues) in Q1 05. Total salaries and personnel costs include NOK 0.9 million in share based payment (NOK 0.7 million in Q1 05), which is accounted for in accordance with IFRS 2. Engineering compensation amounting to NOK 0.6 million has been capitalised as intangible assets (NOK 0.7 million in Q1 05) in accordance with IAS 38.
Selling and marketing costs were NOK 7.8 million in Q1 06 (12% of revenues) compared to NOK 1.5 million in 2005 (5% of revenues) in Q1 05. Sales and marketing costs have increased compared to last year due to the expensing of internet marketing rights acquired from IPtech, advertising campaigns on TV and other media, and more extensive telemarketing activities. Sales and marketing excluding the expensed portion of the IPtech rights were NOK 6.3 million (10% of revenues) in Q1 06.
Other operating expenses were NOK 15.2 million in Q1 06 (23% of revenues) compared to NOK 4.6 million (17% of revenues) in Q1 05. Other operating expenses include costs relating to the ongoing listing process of approx. NOK 2.7 million. Excluding theses costs, total other operating expenses were NOK 12.7 million (19% of revenues) in Q1 06. Other operating expenses have primarily increased due to increased use of temporary support staff, increased provisions for bad debt, and invoicing costs.
Total operating losses in Q1 06 were NOK 2.2 million (operating profits of NOK 2.4 million in Q1 05).
Operating profits excluding revenues and costs relating to sales marketing activities and excluding significant special items in Q1 06 was NOK 5.6 million (NOK -3.4 million in Q1 05).
Losses before income tax in Q1 06 were NOK 3.0 million (profits of NOK 2.4 million in Q1 05). The tax expense was NOK -1.8 million in Q1 06 and the losses for the period NOK 1.1 million. Basic and diluted earnings per share in Q1 06 were NOK –0.06 (NOK 0.13 and 0.11 respectively in Q1 05).
Cash and cash equivalents increased by NOK 3.9 million during the quarter to NOK 36.0 at the end of Q1 06 (NOK 32.1 million at the end of Q4 05). Deferred income (current liability) increased by NOK 2.4 million during the quarter mainly due to growth in the customer base. Deferred income at the end of Q1 06 was NOK 47.0 million of which NOK 34.4 has been collected and is non-refundable. Total financial lease debt was NOK 30.5 million at the end of Q1 06 (NOK 16.9 mill at the end of Q4 05) out of which NOK 14.4 million (8.3 million at the end of Q4 05) was classified as current liabilities (payable within one year from the balance sheet day).
Net cash generated from operating activities during Q1 06 was NOK 18.8 million (NOK 10.5 million during Q1 05) and financing activities NOK 7.8 million (NOK – 0.3 million during Q1 05) were partially offset by capital expenditure and investment in intangible assets of NOK 23.0 million (NOK 9.1 million during Q1 05). Capital expenditures include an investment in a SS7 which enabled an interconnect agreement with Telenor Telecom Solutions AS in January.
Consolidated equity was NOK 41.4 million at the end of Q1 06 (equity ratio of 23%) compared to NOK 41.5 million at the end of 2005 (equity ratio of 27%).
Shareholder information
The total number of shares outstanding at the end of Q1 06 was 17,957,500 (17,957,500 at the end of Q4 05) out of which 16,750 shares were owned by Telio Holding ASA at the end of Q1 06 (33,500 shares at the end of Q4 05). The total number of shareholders were 205 at the end of Q1 06 (189 at the end of Q4 05) and 20% of the shares were registered abroad at the end of Q1 06 (28% at the end of Q4 05).
Total outstanding options at the end of Q1 06 were 2,915,000 (2,868,000 at the end of Q4 05) with an average strike of NOK 15.65 (vs. NOK 13.77 at the end of Q4 05).
Employees have exercised 295,000 options on April 6 whereby the equity was increased by NOK 2,200,00 out of which NOK 2,950 was share capital.
The nominal value of the share was increased from NOK 0.01 to NOK 0.1 in the Annual Shareholders meeting on April 7, 2006. The increase was funded via a bonus issue, increasing the share capital by NOK 1,642,725 to NOK 1,825,250.
Outlook
Operations
Telio expects continued customer growth in Q2. In Q2, Telio will launch the GSM offering aimed at current customers. The product will be priced as a feature which means very attractive pricing for Telio’s customers. Furthermore, Telio expects to undertake the IPO and be listed on the Oslo stock exchange at the end of the Q2.
Financials
Telio expects continued top line growth in Q2. On the costs side, Telio expects some one time costs related to setting up the internal telemarketing channel, one time costs related to the renegotiated Narvesen agreement, and costs in relation to the ongoing listing process. In general, Telio expects increased marketing expenses to fuel further customer growth.
(in thousands of NOK)
31.03.2006 / 31.03.2005 / 31.12.2005
ASSETS
Non-current assets
Property, plant and equipment / 43,004 / 18,888 / 32,768
Intangible assets / 35,135 / 13,583 / 28,731
Deferred income tax assets / 9,449 / 3,199 / 5,015
87,588 / 35,670 / 66,514
Current assets
Trade and other receivables / 55,842 / 22,888 / 55,695
Cash and cash equivalents / 36,017 / 7,133 / 32,124
91,859 / 30,021 / 87,819
Total assets / 179,447 / 65,691 / 154,333
EQUITY
Capital and reserves attributable to equity holders of the Company
Share capital / 179 / 170 / 179
Other reserves / 49,891 / 31,676 / 48,835
Retained earnings / (8,665) / (8,496) / (7,559)
Total equity before minority interest / 41,405 / 23,350 / 41,455
Minority interest / 16 / - / 21
Total equity / 41,421 / 23,350 / 41,476
LIABILITIES
Non-current liabilities
Borrowings / 16,108 / 1,870 / 8,474
Deferred income tax liabilities / 52 / 92 / 52
16,160 / 1,962 / 8,526
Current liabilities
Trade and other payables / 54,968 / 13,994 / 48,403
Current income tax liabilities / 5,427 / 1,190 / 2,960
Borrowings / 14,448 / 1,157 / 8,349
Deferred income / 47,023 / 24,038 / 44,619
121,866 / 40,379 / 104,331
Total liabilities / 138,026 / 42,341 / 112,857
Total equity and liabilities / 179,447 / 65,691 / 154,333
Oslo 4. May 2006
Espen Fjogstad Erik Osmundsen Richard Kosowsky (Chairman of the board)
Christian Rynning-Tønnesen Aril Resen Arild Nilsen (CEO)
Telio Holding ASA – Quarterly report – First quarter 2006
Consolidated income statement(in thousands of NOK)
1st quarter Year
2006 / 2005 / 2005
Sales / 66,121 / 26,564 / 152,067
Other revenues / 77 / 1,279 / 10,059
Total revenue / 66,198 / 27,843 / 162,126
Cost of connections and traffic charges / (29,930) / (11,599) / (70,242)
Salaries and personnel costs / (9,003) / (5,732) / (27,896)
Selling and marketing costs / (7,754) / (1,519) / (15,215)
Other expenses / (15,232) / (4,601) / (33,125)
Depreciation and amortisation / (6,440) / (1,987) / (11,791)
Operating profit (loss) / (2,161) / 2,405 / 3,857
Finance costs / (816) / (53) / (456)
Profit (loss) before income tax / (2,977) / 2,352 / 3,401
Income tax (expense) income / 1,866 / (133) / (224)