President & CEO, Accountor Group, Accountor Group (Accountor Holding Oy)
Tele2 Capital Markets Day 2011 - Niklas Sonkin 01
Niklas Sonkin, Market Area Director, Central Europe and Eurasia speaks at Tele2's Capital Markets Day 2011 (Part 1)
About Niklas Sonkin
At Tele2's Capital Markets Day in 2011, Niklas Sonkin, then Market Area Director for Central Europe and Eurasia, discussed the performance and strategy of the region, which included the Baltics, Croatia, and Kazakhstan. He stated that the company had achieved cash flow positivity in the region ahead of its previous commitment, saying, "We promised to the market last year that we will break even on cash flow by second half this year. We have done that already, so we are now cash flow positive and we continue to be cash flow positive on quarterly basis from now on." Sonkin also reflected on Tele2's entry into Croatia, describing it as a mistake. He said the company had "assumed that Croatian people are like everybody else," adding that they are "very proud of being Croatian" and "value quality" using "German quality as their benchmark." He noted that the Croatian business had been considered problematic but had since become profitable and was now the market leader in absolute profitability, though he cautioned that maintaining that position required continued effort.
Transcript (16 segments)
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Niklas Sonkin0:01
Hello, thank you. Hello everybody. It's very nice to be here after two years of hard work. I participated in the Capital Market in 2009, a couple of months after I joined the company. And hello everybody on the web. We have lots of people, I hope, watching us on the web, especially in Kazakhstan. We don't have people in Kazakhstan here because they are selling very much right now in Astana.
The market area Central and Eurasia consists of five different markets. We have the Baltics, we have Croatia, and we have Kazakhstan. In all, about 28 million people live in these market areas. In the countries where we operate, we have 5 million of those as our customers today. So plenty of room to grow—at least 23 million if I can calculate correctly. And the population is growing in some of the countries.
The key focus areas for me as market area director are four things. The first one is to continue to have stable cash flows and profitability in the Baltics with improvements, and I'm coming back to what those improvements could be. Secondly, to continue to grow market share and profitability in Croatia. Two or three years ago, Croatian business in T2 was considered very problematic. There was a lot of discussion that we should exit that market, etc. We made a promise in 2009 to make it EBITDA positive. We have done that and hopefully some more.
Thirdly, we are growing rapidly in Kazakhstan. It's a key priority for us to roll out the T2 brand in the whole country and to continue to grow rapidly. And as a fourth focus area, we're constantly looking for expansion opportunities in the region, meaning new countries, new operations.
Let's start with the Baltics. In Estonia, during the last years our development has been quite boring, to be honest—relatively flat development. We had lots of things in the macroeconomics there. Now it's a little bit better than it was a couple of years ago, and the environment is becoming healthy. But our performance has been boring.
What we have done there is we have changed part of the management, the CEO. We want to see more action. We want to be more aggressive in the market and change this development so that we take more market share and challenge the market leader. We will do a lot of things there during the next couple of years. One of those is that we will renew our technical infrastructure to be in line with that modern architecture. And as Jari mentioned, we will focus on data, especially small-screen data, meaning the handsets and data consumption with those, among other things.
In Latvia, we are number two in terms of revenue and customer market share—number one there. We have improved our profitability. We continue to be efficient. We have some challenges with very aggressive competitors, but we are doing fine. So basically there we just need to hold our position and gradually bridge the gap with the revenue market leader.
Lithuania continues to be the star performer in our Baltic operation, with almost 50% of the market when it comes to customers. We are number one in service revenue, and service revenue is revenue excluding hardware sales and some other elements. In total revenue, we are number two. We are number one in absolute profitability. That's the first market, I think, in T2 group where we have reached that position. The challenge is to keep that position, and it's not easy. The organization easily becomes lazy. They might think, well, we have achieved everything we can. That's not true. We need to define new challenges and keep up the spirit in the company. We have good management there. I believe we can do that.
Now, what comes to Croatia. First of all, the culture in Croatia is fairly different to some of the other markets where we operate. We made a mistake when we entered the market many years ago by assuming that Croatian people are like everybody else. They are very proud—very proud of being Croatian. They think everything that comes to Croatia is the best in the world. They value quality and they use German quality as their benchmark. We started almost like a virtual mobile operator with 10 base stations. We still suffer from a relatively low quality perception, partly because of that.
The economic environment is healing. It's not great yet, but it's healing, and it's possible to improve our performance. You can see from these numbers that we are actually growing, and we have been able to accelerate the growth, especially if you look at the lower chart—the customer market share. We have doubled our customer market share in a couple of years' time, starting from late 2009. The customer market share at the end of August was 18%. That's still not enough, but the direction is good.
We have also improved our revenue market share, and actually we are the only one growing in that market right now. We are getting customers from both big competitors. We are improving our profitability, and we have really been able to improve our perception amongst the consumers. How we have done that—it's a complicated operation requiring lots of attention from our people, both in Croatia and also in central functions.
What we have basically done there is we have implemented a crocodile strategy: revenues up, cost down, and profit will improve, as you see from this chart. And here we also give some new information for you—information that has not been released before. First of all, the EBITDA for the full quarter three is estimated to be 36 million kunas. It's the record in T2 Croatia history. We have been EBITDA positive since the second quarter of 2009.
We promised to the market last year that we will break even on cash flow by the second half of this year. We have done that already. So we are now cash flow positive, and we will continue to be cash flow positive on a quarterly basis from now on. We also give new guidance on EBITDA levels: we're going to reach 20% EBITDA margin by the third quarter of 2013.
How we are doing this. First of all, I said that we started with 10 base stations. We were relying on national roaming. We still are to some extent, but we have today about 85% of the traffic on our own infrastructure. The rest, 15%, is on our competitors' network. We are gradually taking that amount down by expanding our network, closing the so-called location areas so that we can get the traffic to our own network, because it's more profitable for us in doing that.
Secondly, we have done quite many things on the commercial side, focusing on price perception and quality perception, and also communication which talks to the local people in the Croatian market. We have changed our marketing platform. We are using the 'cop with pride' concept, which is famous in T2. We're using the Swedish 'Frank' concept, but we named that 'Gregor' and localized that sheep to be a Croatian sheep. 'Ino' means that you can have the sheep and the money at the same time. Basically, in English the proverb means you can have the cake and eat it.
We launched this concept in early summer with very good results. And the reason why I'm telling this to you now is that this development in profitability and cash flow is not an accident. We believe that it will continue because we have been able to improve the underlying marketing KPIs quite dramatically. I will not go into the details here, just pick one of them, which is brand consideration. Last year it was at the level of 13—meaning that about 13% of the population would consider buying T2 services, and that's essentially the maximum our market share can be. We realized that we have to...