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Edited Transcript of ELISA.HE earnings conference call or presentation 12-Jul-19 9:00am GMT

Q2 2019 Elisa Oyj Earnings Call

Helsinki Jul 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Elisa Oyj earnings conference call or presentation Friday, July 12, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jari Kinnunen

Elisa Oyj - CFO & Member of Executive Board

* Veli-Matti Johannes Mattila

Elisa Oyj - CEO, President & Member of Executive Board

* Vesa Sahivirta

Elisa Oyj - Director of IR

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Conference Call Participants

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* Abhilash Mohapatra

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Adam M. Fox-Rumley

HSBC, Research Division - Analyst, Global Telecoms, Media and Technology Research

* Andrew J. Lee

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Artem Beletski

SEB, Research Division - Analyst

* Henrik Herbst

Crédit Suisse AG, Research Division - Research Analyst

* Matti Riikonen

Carnegie Investment Bank AB, Research Division - Financial Analyst

* Nicholas Prys-Owen

UBS Investment Bank, Research Division - Equity Research Analyst of European Telecoms

* Panu Laitinmäki

Danske Bank Markets Equity Research - Senior Analyst

* Peter-Kurt Nielsen

ABG Sundal Collier Holding ASA, Research Division - Lead Analyst

* Sami Sarkamies

Nordea Markets, Research Division - Senior Analyst of TMT

* Simon Alexander Arulraj Coles

Barclays Bank PLC, Research Division - Research Analyst

* Siyi He

Citigroup Inc, Research Division - VP

* Stefan Gauffin

DNB Markets, Research Division - Analyst

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Presentation

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Vesa Sahivirta, Elisa Oyj - Director of IR [1]

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Good morning, everyone, and welcome to Elisa Second Quarter 2019 Investor Meeting and Conference Call. I'm Vesa Sahivirta, Head of the Investor Relations and here together with me is the very familiar team, CEO, Veli-Matti Mattila; CFO Jari Kinnunen. We have also some audience and some of my colleagues here. Welcome. We start this meeting with a presentation followed by Q&A; and first, we take questions from the audience and then from the conference call lines. Veli-Matti will go through the Q2 report and Jari will focus more on finances.

And now we are ready to start so I give the word back to Veli-Matti, please.

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [2]

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Thank you, Vesa, and welcome on my behalf as well to our second quarter report and just let's get started. For the first -- the second quarter was another good quarter, our execution was going according to our plan. Our revenue was slightly down. We saw growth in comparable EBITDA. Mobile service revenue growth came to 1.9%. We also had a postpaid voice churn slightly down from 19.7% to 18.0%. Postpaid mobile subscriptions growth was up to 27,000, and we have fixed broadband subscription amounts base go down 5,100. We made Polystar acquisition and completed it during the quarter. And we have also started the sale of 5G services with new phones, first phones and subscriptions in commercial use. The revenue came down mainly due to the fact of that the equipment sales came down slightly, also interconnection prices have decreased in Finland and also we had still some divestment impacts to the revenues. In mobile service revenues, the 4G speed up-selling continues very nicely.

We also have sold our first 5G subscriptions. We have made some product changes, but we have also seen, as we have earlier communicated the impacts now from the earlier price decreases in some large corporate customer cases and also from some public sector customer cases.

EBITDA was slightly up and, of course, we got some benefit from IFRS 16 but regardless of that, we saw year-on-year comparable EBITDA growth, somewhat and of course, our productivity improvements as earlier said, have worked. In terms of the churn, the churn came down as we earlier communicated. We had slightly higher growth -- slightly higher churn in the first quarter, coming from the corporate sector, but as we communicated those, that time we -- our competitiveness is strong and the churn came slightly down. In regarding to the ARPU, even if we had some growth in the postpaid subscription side, the ARPU came down mainly due to the lower interconnection prices also based on the fact that in some of the larger corporate B2B side these lower prices earlier indicated they now came more into effect.

When we look at the segments. In the consumer side, revenue came down 1% and EBITDA was growing 3% year-on-year. In the corporate segment side, revenue was coming also down with 1% and EBITDA was growing 6% year-on-year. Pretty much the same reasons in both segments for the revenue impacts as well as to the growth in profitability. We continue to execute our strategy with 3 focused areas and if we think about the mobile data selling, the growth in smartphone -- 4G smartphone penetration, is increasing. We still have growth there now having 84% of all the smartphones -- all the phones being smartphones and pretty much of those 4G phones. And the 4G penetration in subscription is now 70% and the lowest speed level 50 megabit per second penetration in our subscription base is now 33%, which indicates that after getting customers to the lowest speed level of 5G, we are getting more and more customers to the higher speed levels in 4G and also now starting to have gradually some of the early first movers to 5G speeds.

So there is a very good business model what we have done on past couple of years in 4G to sell speed and upsell customers to higher speed levels. It is very suitable to 5G as well, even if we believe that in the 5G era, we will have other business models as well to benefit our revenue, mobile service revenue growth.

Moving on the 5G. We have as said, started first the presales of Huawei, OnePlus, HTC and ZTE devices. We have started the sales -- real sales of 5G mobile broadband subscriptions. We have 2 different speed tiers, so we have 600 megabits per second with the price of EUR 35 per month and 1 gigabit per second with the price of EUR 45 per month. And the first 5G phones have been sold also and delivered to customers and they are in commercial use. We have the widest 5G coverage now in Nordic countries in the city of Turku. We have also coverage in 3 other cities: in Helsinki, Tampere and Jyväskylä. Of course, early on, these coverages are still limited to the city centers, but that's the -- but the coverage will be expanding based on the demand we start to see and of course, that is very much going hand-in-hand in the increasing device offering that we'll be expanding also later this year and more next year and the following year with more and more affordable smartphones but also with other devices like the different devices for IoT cases.

We're also actively enabling 5G for new services and innovations that may take place in the Finnish and Estonian markets. Later on, we have startups developing 5G services with our co-creation challenge, and the winners will be announced in the Slush in November -- Slush event in November. We have also made 4G -- 5G broadcast, TV broadcast 4K, TV broadcast first in Finland and of course, the [IoT] is very lucrative area and there we have corporation with more than 100 B2B customers and more to come.

So the subscription and device sales has started, commercial use early lower volume sales, of course, at the moment, but the first movers are now using 5G in Finland and the application area is also enlarging and developing. In our digital service business, the original content is moving well ahead in Elisa Viihde. Our Arctic Circle original series has now been sold to more than 20 countries, for example, ZDF will be broadcasting that in Germany. Also the -- All the Sins, original series this spring was one of the successes and continued successes of Elisa Viihde, original series production and coproduction with others. We also are involved with e-sports and the engagement is expanding. For example, we had for 1 game, we had more than almost 0.5 million viewers in Twich in May, just alone. In the international digital service businesses, we completed, as said, the Polystar star acquisition, a Swedish analytics and assurance software company. As earlier also indicated, we want to speed up the automation also potentially our smart factory management businesses with acquisitions and this was one that we now completed. Also, our smart -- Elisa Smart Factory, management business continues to move ahead very nicely, having a larger and larger customer base internationally and also some new solutions in the offering have been released. And finally about the outlook and guidance, unfortunately, the positive development of the macroeconomic environment in Finland seems to be decelerating. We have competition still remaining keen in the Finnish market, and we reiterate our guidance that our revenue will be same level or slightly higher than in 2018. Comparable EBITDA will be same level or slightly higher than 2018 and our capital expenditures will be maximum 12% of revenues.

And then I turn the word to Jari, please.

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Jari Kinnunen, Elisa Oyj - CFO & Member of Executive Board [3]

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Thank you. Let's start with profit and loss, as mentioned by Veli-Matti, Q2 was, again, a good quarter and in line with expectations and guidance. Revenue change was minus 1.3% or EUR 6 million, mainly coming -- negative impact coming from interconnection price decreases. So interconnection and roaming decreased by EUR 4 million, another negative impact from equipment sales minus EUR 4 million.

Net impact from divestments and acquisitions in Q2 was EUR 2 million, that includes Polystar 1 month consolidation and divestments done last year. And excluding those items in both segments, service revenues in corporate customers was slightly negative EUR 2 million and consumer segment positive EUR 2 million. In both segments, traditional fixed-line services continuing in decreasing trend growth in both segments in domestic digital services and in consumer segment, mobile services. In consumer segment, the mobile services were, in Q2, slightly negative. And earnings development EBITDA was -- excluding one-offs was increasing EUR 7 million or 4.4% and reported EBITDA, we had EUR 5 million one-offs out of that EUR 4 million relates to personal reductions, costs and EUR 1 million relates to Polystar acquisition -- transaction costs. This EUR 7 million change in comparable EBITDA out of that EUR 4.2 million is coming from IFRS 16 change. Polystar impact is approximately EUR 400,000. So we have continued with productivity improvement measures as we communicated earlier and will continue with those and they will contribute more in the second half, as we have said earlier.

EBITDA margin, comparable EBITDA margin increased clearly to 36.2% and even excluding IFRS 16 change, it was 35.4%. So clearly up from last year. EBIT, comparable EBIT was slightly down from last year. Depreciations increased EUR 7.5 million. Out of that EUR 4.5 million comes from IFRS 16 change, approximately EUR 0.5 million relates to license, 5G license that was acquired end of last year and depreciations from that. Also, we had in Q2 EUR 1 million one-off type of write-down in depreciations, relating to assets that are not used anymore.

EPS was EUR 0.47, comparable EPS EUR 0.47, same as last year. Then if you look Estonia performance, which continued to be positive, revenue increased by 1.2% and EBITDA strong improvement EUR 1.2 million or 9%. Mobile and fixed services growing, postpaid churn still low level at 7.9% and postpaid subscription base increasing 1,700. Total CapEx was EUR 61 million and, excluding IFRS 16 change, EUR 55 million. So in line with 12% revenue guidance, 2/3 in consumer segment, 1/3 in corporate segment and main CapEx in 4G network capacity and coverage, other network and IT investments.

Investments in shares was higher EUR 89 million and of course, relates mainly to Polystar acquisitions and some other minor share purchases. Cash flow growth was strong, comparable cash flow growing from EUR 87 million last year to EUR 102 million, 17% growth. Positive -- net working capital change was positive in year-on-year comparison. CapEx was lower as well as paid taxes lower. IFRS 16 impacted positively EUR 4 million. And half-year comparable cash flow EUR 170 million, which is EUR 30 million higher than year ago or 22%. And if you look at operating cash flow conversion still high at 66%. Then capital structure, which still remain as well according or in line with targets, net debt-to-EBITDA was 2x, somewhat higher against end of last year and Q1. We had dividend payments and of course, Polystar acquisition impacting somewhat IFRS 16 impact to net debt as well as assets is EUR 70 million. And end of Q2 and going forward, we see that net debt-to-EBITDA goes and reduces down as cash flow generates in the second half.

Return ratios are at good level, return on equity was 28% and return on investments 17.1%. We completed a month ago Polystar acquisition. Polystar offers and provides software solutions to network -- management and network operations to mobile operators and is very complementary to our own Elisa Automate service offering and interesting offers and interesting opportunity to accelerate growth. Polystar headquarters in Stockholm, subsidiaries in North America, Australia, Singapore and Russia. Approximately 200 employees and more than 100 customers in 50 countries. Acquisition price, enterprise value was EUR 70 million. Additional EUR 5 million, maximum EUR 5 million acquisition price if growth targets are achieved. Polystar last financial year ending April, revenue was EUR 38 million, EBIT EUR 6.4 million. And we started consolidation now 1st of June and impacting Q2 figures revenue EUR 3 million and, as I said, EBITDA EUR 400,000. And this acquisition is EPS positive from day one and no impact on midterm targets nor dividend payment capabilities.

And now I give back to Vesa, please.

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Questions and Answers

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Vesa Sahivirta, Elisa Oyj - Director of IR [1]

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Thank you, Jari. And now we move on to Q&A part and we start from the audience first question comes here. Matti?

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Matti Riikonen, Carnegie Investment Bank AB, Research Division - Financial Analyst [2]

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It's Matti Riikonen, Carnegie. Couple of questions. First, about mobile service revenue. I think you mentioned in Q1 that you would expect mobile service revenue to start accelerating as of Q2 and that was not the case. So do you still think that there's potential to -- mobile service revenue to accelerate in the second half? Second question is that related to the restructuring costs, which you book as extraordinary, I think in earlier years you had a habit of making a lot of cost reductions but you did not show that many one-off restructuring costs. So I am wondering what is the reason to book them as extra now. And do you still expect that there would be additional one-off costs in the second half related to the cost savings?

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [3]

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All right, in regards to the MSR, I don't know where you have heard about us saying that MSR is accelerating. What we have been trying to communicate at least is that we don't give guidance for MSR, but we see that the MSR will have a positive sign in the growth rate. But we have not taken any position for a couple of quarters what the growth rate will be because of the competitive dynamics changing in the market very heavily. But we see that with the upselling of our higher speeds to customers as well as with some product changes, we can generate some positive development on the mobile service revenue growth rate itself. But I'm sorry, if we have miscommunicated, it made the wrong impression. But clearly, we have been very consistent or communicated, we don't give any guidance where the MSR will be. But if we have said that it will be with the positive sign with the growth rate going forward. In terms of the restructuring costs, we have made some restructurings during the quarter, but I let Jari to explain a bit more further thesis on that.

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Jari Kinnunen, Elisa Oyj - CFO & Member of Executive Board [4]

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Regarding those, there is no change in accounting or booking them and treating them. We always had personal reduction-related expenses as one-off expenses and these reduction costs in Q2 as well as in Q1, they all relate to personal reductions. And this is the way that we booked those earlier as well, no change in that.

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Matti Riikonen, Carnegie Investment Bank AB, Research Division - Financial Analyst [5]

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And do you expect that they would -- you would still have those in the second half? Or are you mainly done with the cost savings now and the impact of those would be seen more here?

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Jari Kinnunen, Elisa Oyj - CFO & Member of Executive Board [6]

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Cost savings are also coming from various sources, so it's not only these reductions. So there are many productivity improvement measures ongoing and taking place. But we don't give any forecast regarding restructuring costs.

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Matti Riikonen, Carnegie Investment Bank AB, Research Division - Financial Analyst [7]

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All right. Then finally, when you add Polystar into your numbers from June, don't you think that with a revenue contribution from Polystar, do you think it would be fair to guide or change your guidance so that the top line should be growing and it should not be possible to remain top line as flat with the Polystar included as I assume that it's part of your guidance at the moment?

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [8]

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Yes. We reiterated. From the Polystar, we will get half a year of revenue to our numbers and we reiterated our guidance which says same level or slightly higher.

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Vesa Sahivirta, Elisa Oyj - Director of IR [9]

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Okay. Next question, Sami.

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Sami Sarkamies, Nordea Markets, Research Division - Senior Analyst of TMT [10]

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Sami Sarkamies, Nordea Markets. I have couple of questions. Firstly on net adds development in Q2. You were quite successful on the mobile side. Would it be possible to get a bit more color on how did you achieve the positive net adds? And then on the fixed side, you did lose quite a bit of broadband customers. So were there any exceptional developments in Q2? So that would be my first question.

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [11]

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All right. In regards to the net adds, mostly coming from the corporate side and we have had a, let's say, good success while we have seen in the large Corporate Customers segment, the heavier price competition starting already early last year as we have communicated earlier creating some more churn for our first quarter this year but also with our competitiveness we have gained customers as we have responded to this competition, we have been quite successful. So for example, in the public sector, large deals, we have been winning and we are now showing that results which continues to be visible from these public-sector deals that are rolling in still this year and maybe some of that next year as well. But those -- in some of these last customer deals, the price levels have been quite low as well as these public sector deals, generally, they are of the lower ARPU. So that's why the ARPU impact has been negative even if we have had increase in net adds but of course, this increased customer base is giving us a very good base to sell other services that we have for portfolio from IT to other digital services to these customers. In terms of the fixed broadband side, we have some larger B2B customers who stopped buying fixed broadband to their staff, to their homes. So we got some kind of one-off type of decrease there which explains mostly this decrease of fixed broadband customer base. Other than that, the fixed customer base is quite stable. However, there is, of course, more and more MDU type of customer base there. So there is a slight erosion in ARPU in that fixed broadband customer base but again, the customer base is very good and we see various different kind of other services that we can sell on top of this good customer base.

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Sami Sarkamies, Nordea Markets, Research Division - Senior Analyst of TMT [12]

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Okay, then my second question would be on your 5G vendor selection. There's been plenty of news flow regarding Huawei that you have been ramping up in the recent years. So can you share your thoughts regarding this topic at the moment? So obviously, we have had this security concerns for some time but then more recently also other angles to this topic.

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [13]

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Well, yes, this topic is quite heated and maybe overheated and there may be a bit mixture of trade, global trade war discussion and activities, events and then cyber threat discussions. And of course, very important would be that those 2 different -- important topics are not mixed together. The trade policies and the global trade rules and discussions are 1 topic. There are certainly issues on a global level has to be dealt with. Cyber threats and cyber development overall is an important, serious topic and there are solutions to that. Now we having the discussion there's certain maybe agendas to mix these 2, which is a bit unfortunate because then we are creating wrong impressions. But to answer your question really we are in the middle of our 5G vendor selections, so I cannot really comment on which direction we are going. I don't even know myself yet properly where we are heading, but we, of course, have very active discussions and active vendors working with us with -- in order to provide us good solutions to really ramp up volumes in 5G when the time comes.

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Sami Sarkamies, Nordea Markets, Research Division - Senior Analyst of TMT [14]

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And then finally housekeeping question regarding Polystar. Could you share the EBITDA contribution for first half of this year and then for last year as well?

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [15]

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You mean Polystar's EBITDA contribution to Elisa's numbers?

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Sami Sarkamies, Nordea Markets, Research Division - Senior Analyst of TMT [16]

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I mean, their first half EBITDA number and then their EBITDA for last year, if you can share those numbers?

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [17]

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Jari, you can maybe answer to that, please?

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Jari Kinnunen, Elisa Oyj - CFO & Member of Executive Board [18]

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Yes. It's -- we gave in the notes the net impact of 6 months if it had been consolidated, it's net results, EUR 1.8 million. It's not EBITDA, it's net earnings and it includes depreciations from the customer base. So we have allocated from the purchase price EUR 8 million -- EUR 8.5 million to customers, which is depreciated in 4 years’ time.

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Vesa Sahivirta, Elisa Oyj - Director of IR [19]

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All right. Next question comes here, Panu.

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Panu Laitinmäki, Danske Bank Markets Equity Research - Senior Analyst [20]

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Panu Laitinmaki from Danske Bank. I have a question on the mobile data volumes. It seems that very strong growth is starting to level off and Q2 was the first quarter when the data volume was actually down from the previous quarter in many years based on your figures and the year-on-year growth is kind of flattening. So what are your thoughts on this? Is this positive kind of reducing the pressure to increase the network capacity? Or is it the other way around that when the 5G is coming the kind of, demand has already saturated and there will be perhaps less need to upgrade?

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [21]

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Well, I think I believe strongly that the mobile data usage will grow. Of course, we have had strong growth in terms of the volumes. They are still increasing but, of course, since there is certain leveling off time to time in any development we start to see in mobile data. But now when we are moving to 5G, gradually in the beginning now and maybe next year more and following it even definitely more, it is evident that there will be volume growth. On one hand, of course, the volume growth decrease is good for -- in terms of our CapEx or OpEx base. But we are not, as we have never been feared for -- fearing the fact that the customers are using plenty. Because then it means that the customers are getting value and then they are more willing to pay more for the higher speeds. So we strongly believe that that's one very good business model to continue with 5G for customers to take more speeds with their subscriptions. There will be applications and there are already applications that where you can see clear difference when you use good 4G subscription versus the 5G subscription. And there are more applications like that to come in the coming months and years. So we foresee, let's say, business model with the speed based tiering to continue to be successful. Of course, the competitive situation in the market always then has an impact, is it very successful? Or successful? But we're also working on IoT side. There is additional revenue potential on the IoT side when that really gets off and maybe also some other new, let's say, performance improvements that 5G will bring in due time comparing to the 4G.

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Vesa Sahivirta, Elisa Oyj - Director of IR [22]

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All right. The next question, Artem, please.

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Artem Beletski, SEB, Research Division - Analyst [23]

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Artem Beletski from SEB. Couple of questions from my side. So starting with strong net intake what comes to postpaid in Finland. You mentioned about some public-sector wins, which have been impacting the number in Q2 but apparently, some further flow will be visible in coming quarters, what comes to new customers? How big is this number? Are we talking about some 10,000 or how many subscribers you have on your channel, yet feasibly on your numbers? And then maybe the second question is relating to Polystar acquisition, which is quite nicely filling your offering what comes to Elisa Automate. Do we need to make some further M&A in Elisa Automate going forward or do we see that your portfolio is now basically completed? On that front and maybe just generally on digital services, how good M&A opportunities are you still sitting there? And how eager you are implement them in coming years?

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [24]

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All right. Regarding the net ads, we are not giving a guidance for net add development going forward. But what we can say, for example, from this public customer deals because they are quite large framed contracts, so we have tens of thousands of new customers coming in, in coming quarters. Timing is a bit, still of course, up to the customers but we, of course, are actively working to get to the best mobile networks in Finland. But then the net impact is, of course, dependent how we will compete in the other customer cases, however, we are quite comfortable on our competitiveness as we have been able to show with these numbers and these executions in the past quarters but just taking along these public-sector customers, there are tens of thousands of subscriptions coming in the next quarters. In terms of the Polystar, we have -- as we have communicated, we have a strategy to grow our digital services, the international digital service businesses, also with the help of acquisitions. First, now, bolt-on small-medium type of businesses and we are not in a desperate need, but we see that as a first further opportunity to accelerate. Now the Polystar is opening us doors to 100 other operators with their sales force and we can have Elisa Automate product line introduced to them and slightly have a positive impact to Elisa Automate sales while Polystar is executing their very successful own business at the same time. So they are very complementary. We are not in a desperate need to buy further companies, but we have an opportunity, of course, and there are quite a few potential targets that we might buy. But we are not in a desperate need. We, of course, want to make value increasing acquisitions so that they are creating shareholder value to our shareholders but also that they are nicely fitting to the Elisa Automate Polystar family. Overall, with our digital service businesses, international digital service business service taking the smart factory and video conference also we have also potential M&A opportunities there. No desperate need to buy something but more as an opportunity to find suitable good deals.

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Artem Beletski, SEB, Research Division - Analyst [25]

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Maybe just a quick follow-up relating to cost efficiency actions and basically versus the messages still unchanged to what comes to benefits that we basically have seen some in Q2 and full benefits will be visible in second half of this year? Is this still the message?

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [26]

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Exactly. As we have said, we have accelerated productivity improvements, taking more impact to the second half of the year. We are executing according to the plan. And if I may add just the one clarification or add to the earlier answer, while we have this bolt-on acquisition opportunities inside for the coming quarters, those will not have impact on our dividend policy.

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Vesa Sahivirta, Elisa Oyj - Director of IR [27]

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All right. Thank you. At the moment, we don't have any further questions from the audience, and there are few questions coming from the conference call lines. Let's take the first one, please.

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Operator [28]

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(Operator Instructions) Our first question comes from the line of Abhilash Mohapatra from Berenberg.

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Abhilash Mohapatra, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [29]

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I'd just like to come back to the sort of corporate segment given the performance there. Because you obviously saw a very sharp decline in the ARPU. I think ARPU was down about 5% year-on-year and you've talked about some change in subscriber mix as some of these lower-priced sort of new contract come into effect. So I am just wondering as we sort of roll forward and be sort of new tens of thousands sort of new customers that you expect to onboard in the coming quarters? I'm just trying to think, is it fair to assume that we should see sort of ARPUs continuing to come down for a while as you sort of move towards the new lower level of ARPU because of this deflationary pressure? And just as a follow-up on that, can I just also confirm if these, sort of, corporate net adds have any sort of significant machine-to-machine kind of SIMS in there which might also be deflationary for ARPU?

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [30]

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All right. These corporate net adds doesn't have any significant amount of machine-to-machine subscriptions in them. So they are quite kind of normal subscriptions for persons to use in the companies or organizations. In terms of the ARPU forecast, like said, we are not giving ARPU forecast neither but, of course, while we are adding lower ARPU public sector customers, it has a dilutive impact of the ARPU but we have also positive impact to ARPU from upselling higher speeds in the rest of the B2B customer base which is much bigger than even if we are adding some tens of thousands of B2B customers, our corporate customer base is much, much bigger. So what the kind of net impact for the ARPU development of these 2 different trends will be remains to be seen, but the main thing is that we see quite positive development of the mobile service revenue side overall on absolute terms for the corporate segment.

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Abhilash Mohapatra, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [31]

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Okay. Thanks, and just a very quick follow-up on that. In terms of these sort of underlying trends you say, obviously you're sort of seeing success in being able to upsell your corporate customers onto higher sort of value packages. I'm just trying to think about the sort of push and pull there. So you've got -- that's a positive. But then on sort of negative side, you've seen more pricing pressure then maybe you try to renegotiate contracts or renew contracts with some of your Corporate Customers? And is the net of those 2 still a positive for you?

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [32]

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Well, as maybe we have earlier discussed, the corporate segment really for us is consisting of 3 different areas. The entrepreneurs, the SME segment and then the large customer segment and the competitive dynamics varies in these 3 segments. What we have now seen mainly is the, let's say, more intensive competition in the large customer segment, which is maybe 1/3 of the total mobile -- our total B2B segment, and in that area, we have clearly seen our competitiveness. We have seen some ARPU decline for some customers and now for these new public-sector customers but overall -- what we see overall for the corporate segment with these 3 sub-segments that the tough competitive situation is overall and in general pretty much what it has been always and we are comfortable that we can have positive development for the total revenue in the corporate segment.

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Operator [33]

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Our next question come from line of Stefan Gauffin from DNB.

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Stefan Gauffin, DNB Markets, Research Division - Analyst [34]

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Coming back to the mobile data growth, it declined quarter-on-quarter. Can you give some -- can you explain if there are any sort of one-off type impact in here? And secondly, have you seen any change in the momentum relating to speed upgrades for the subscriber base? And so it's a question on if subscribers are waiting now to jump onto 5G?

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [35]

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All right. In terms of mobile data growth rate changing from 2.1%, we had, in the first quarter to 1.9%. They are relatively close to each other when you think about the different dynamics that is taking place but, of course, the negative impact to the mobile service revenue growth is coming from the corporate segment, large customer segment, some customer cases where these lower prices we've experienced, especially last year for some cases have now materialized. So that has been the slight negative impact that we have seen. In terms of the speed upgrade momentum, we see customers moving ahead with 4G speed upgrades still. We don't see so much customers yet starting to wait for 5G in order to -- because we have a very good 4G higher speed as well to offer before customers who many are expecting to have a bit less, more affordable 5G devices coming next year. So that's what they are more waiting than waiting for speed upgrades.

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Stefan Gauffin, DNB Markets, Research Division - Analyst [36]

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Can I come back, I was talking about the mobile data, the 1 million gigabyte, that has been growing every quarter and now it's a sequential decline. I'm just wondering if there is something that's impacting this.

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [37]

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Like I said already earlier when I addressed this same question that sometimes with these developments, there are some leveling off but we are very comfortable that the usage will continue to grow with our customer base, customers continuously moving to higher and higher speed subscriptions where they can kind of consume more mobile data for their video and other applications.

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Operator [38]

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Our next question come from the line of Henrik Herbst from Crédit Suisse.

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Henrik Herbst, Crédit Suisse AG, Research Division - Research Analyst [39]

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I had 2 questions. Firstly, I just follow up on B2B again. So I guess you've got a pretty good visibility on big contracts coming in. I presume you would have the same visibility on contracts lost and sort of customers migrating off to other operators, are you seeing any of that? Or is it, sort of, more of a question what contracts will be up for renewal and whether you'll sort of win or lose contracts from here on? And then secondly if you can give an update may be on the competition in the consumer segment, I guess, it was pretty tough last year and got a little bit better in Q1. It sounded like in sort of what you're seeing below the line promotions, et cetera, in Q2. That would be great.

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [40]

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All right. Well, we started to see, as earlier communicated, we started see some new kind of behavior for pricing in some of the large customers, Corporate Customers early last year, and we lost some customers as we explained first quarter. And we saw the increased churn because we had the migration of those customers out from Elisa during the first quarter. While understanding that there are also some new dynamics in the corporate large customer segment pricing, sometime last year we, of course, learned about that and since then we have been very competitive and I'm not expecting us to lose customer base. We are not searching for more increase in our market share in large B2B customer base but since we have been now learning to use the pricing different way what we learned, we have been winning actually more than we have lost and definitely we cannot defend as longtime we have said that we are defending our market share even with a cost of some short-term paying with lower prices. When it comes to the consumer segment the competitive intensity didn't change in second quarter so much comparing to the first quarter. However, of course, the competitive intensity now in the second quarter was not at all to the level what we saw a year ago at the same time.

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Henrik Herbst, Crédit Suisse AG, Research Division - Research Analyst [41]

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That's great. But given your -- the visibility you've got in sort of contracting B2B, you're not expecting to have a big outflow of customers in the second half? Is that correct? Did I understand that correct?

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [42]

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Yes.

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Jari Kinnunen, Elisa Oyj - CFO & Member of Executive Board [43]

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Yes.

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Operator [44]

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Our next question comes from the line of Siyi He from Citi.

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Siyi He, Citigroup Inc, Research Division - VP [45]

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I just want to follow up on the B2B side if you don't mind. I mean if I kind of understand is that your ARPU is down 5%, but obviously you had good adds and the reducing churn. I was just wondering -- and if it's fair to say that your B2B strategy now is to be more proactively repricing your offers to keep your dominant position? I mean, I understand that your competitor has been quite pricing aggressive, but given that you are successful in capturing the municipality public contracts, I wonder if you see -- have any response so far from your rivals? And my second question is on the Polystar. I was wondering if you can give us some visibilities on how the business has been growing in terms of the revenue and the EBITDA over the past, let's say, 2 to 3 years?

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [46]

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Okay. In regards to the B2B side, the competitive dynamics, like I said, for the first, is a bit different in relation to which subsegment we are talking about B2B business. When we talk about the large customer segment, the situation varies really very much on case-by-case basis. For many of the customers, we have very good competitive situation because our quality of service in the past couple of years is really very, very good. Our customers are really happy customers. We have also been able to provide the largest portfolio of the different kind of digital services to our customers also making our customers even more happy and every now and then when somebody is knocking our customers door with very low prices, they also learn to respond to those kinds of things a bit more than we did. So in that respect, we see that we are in a very competitive position. Of course, when some of the customer cases in the last customer segment will be repriced with lower price level a bit more we, of course, continue more fiercely with our productivity development in order to make sure that we are making good profit and as you have seen the profitability of the Corporate Customers segment has gone upwards. In terms of the Polystar numbers, again, I refer to Jari, that Jari can give you a bit light on that, please.

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Jari Kinnunen, Elisa Oyj - CFO & Member of Executive Board [47]

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Yes, Polystar has had good growth numbers in the past years indeed. Revenue has been growing with double-digit growth rates and also margins have been improving so that the EBIT margin is clearly in double digits area. '19 -- 2019 versus 2018, there was 17% growth in revenue and even much higher growth in earnings, however, that was partly held by currency exchanges but excluding -- even excluding those EBIT margin, as said, is clearly in double-digit area.

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Operator [48]

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Our next question comes from the line of Andrew Lee from Goldman Sachs.

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Andrew J. Lee, Goldman Sachs Group Inc., Research Division - Equity Analyst [49]

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Just a question on a topic that is being raised in almost every other conference call over the last few 3, 6 months with operators, but you haven't touched on, which is just on your network and particularly your mobile towers. Other operators basically having to try and look to these to drive efficiencies, given that their returns are, say, minimal. But presumably, you have an opportunity to raise returns further by being more efficient with your towers. And just wondered if you could give us a little bit of color in terms of how you think about maximizing the efficiency of your mobile towers? What kind of degree of network sharing you have at the moment? And what, if any, is the opportunity there?

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [50]

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All right. Thank you, Andrew. In regards to the towers, of course that's one area where we also are looking always to improve our efficiency productivity. At the moment, as you know -- may know, in Finland that we are sharing somewhat the usage of towers between all the 3 operators. We have 1 situation where our 2 competitors also share their networks in the eastern part of Finland, where there is 15% of the population. There is nothing specific in terms of the efficiency but of course, that's an area where we look at all the kinds of opportunities to improve our efficiency which will help us going forward as well as one ingredient of our efficiency improvement.

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Operator [51]

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Our next question comes from the line of Peter-Kurt Nielsen from ABG.

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Peter-Kurt Nielsen, ABG Sundal Collier Holding ASA, Research Division - Lead Analyst [52]

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You would be swell to hear that I have another question on the corporate segment, please, but I'll be specific. Since given the size of these net adds from the public sector, could you tell us, Veli-Matti, or an indication, what is the ARPU we are talking about here? Is it 4, 5 years for these public sector contracts, please?

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [53]

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Thank you, Peter-Kurt. I'm sorry, I cannot give you our customers' prices. So I cannot really give you any light into that. But just as an indication, the numbers you gave seems to -- a bit low to me.

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Peter-Kurt Nielsen, ABG Sundal Collier Holding ASA, Research Division - Lead Analyst [54]

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Okay. And did you want to, secondly, just that -- is there any significant new corporate contracts coming out for renewal, without being specific, over the coming year or 2 perhaps that you would say or highlight towards, not names mentioned, of course, but any periods with particular renewal of contracts that are coming up?

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [55]

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The corporate B2B customers they are kind of renewing their contracts, as you may know, continuously depending on how long contract periods they have from 1 year to even to 7 year. There's no kind of change with the rhythm or -- so how the contracts will be renewed going forward. So there is no acceleration of contract renewal, not so much deceleration. That's quite a business as normal for us that there will be coming contract renewals with a certain pace continuously. And of course we are quite active, of course, to make sure that our customers are happy to continue without any major administrative hassle for negotiating with many vendors and so forth, but just continue with the good service they have got from us.

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Operator [56]

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Our next question comes from the line of Adam Fox-Rumley from HSBC.

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Adam M. Fox-Rumley, HSBC, Research Division - Analyst, Global Telecoms, Media and Technology Research [57]

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I had 2 questions, please. Firstly, I wanted to ask about the strategy around mobile equipment sales. If I look back over the last few years that the level of sales are up quite substantially, but now it's down maybe 10% for the last couple of quarters in a row. So I wondered if anything had changed in your appetite for those sales or whether it's a market thing. And then secondly, if I look at the difference between the churn levels in Estonia or in Finland, there is an enormous difference. And the trajectory in Estonia has been very positive over the course of the last year or so. And so I wondered if you could talk about what you're doing there to improve churn. And whether or not there's any scope to take any learnings back into Finland or whether it's all just completely market-specific and a function of the prevailing competition?

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [58]

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All right. In terms of the device sales, we are the largest seller of mobile devices in Finland and we are -- we have very much appetite for that going forward. Now the development in past quarters, again, there has been some impact from the Google, Huawei Android kind of announcements but also the different quarters have a bit different timing for new gadget or device introductions to the market. And there are some other elements impacting on how much we are selling time to time. We had pretty good successful quarters, very successful quarters with some introductions with the comparable quarters. So that also has some impact that when you don't have very good quarters then it looks like it is, and it is then showing a bit negative. But going forward, of course, we have appetite and we are the first one who has introduced 5G devices to Finnish market and we continue to provide a very good portfolio of devices to our customers.

In terms of the churn in Estonian market being quite much lower. Yes, the Estonian market is different market environment comparing to Finland, like all the countries pretty much have a bit different competitive dynamics. Of course, our organization in Estonia has executed and performed really well. And certainly we are taking learnings and we have been taking learnings from our Estonian operations, anything we can learn. And also other directions. That's what we do constantly with our business that we take learnings to both directions.

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Adam M. Fox-Rumley, HSBC, Research Division - Analyst, Global Telecoms, Media and Technology Research [59]

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If I could just follow up on that last one. Those are helpful comments. Has the addition of Starman in Estonia led to improvements there?

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [60]

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Of course, the Starman acquisition has helped us to even improve the, let's say, customer stickiness because many customers have now more and more services from us. Also, as we expected and we planned, the cross-selling has been working pretty well between the Starman and our Elisa service portfolios.

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Operator [61]

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Our next question comes from the line of Nick Prys-Owen from UBS.

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Nicholas Prys-Owen, UBS Investment Bank, Research Division - Equity Research Analyst of European Telecoms [62]

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Most of them, they've been asked, but perhaps just 2 follow-ups on the early questions around revenue guidance. I appreciate you don't guide on individual revenue line items, but given the reiteration of guidance this morning, I was just wondering if you can help us think about how you see the broad building blocks to go from the slight negative position we have here in H1 today to the guidance of flat to slight growth? And then presumably when you set your guidance, you weren't factoring the benefit of Polystar into these numbers. So can I just confirm that you believe you'd still be able to achieve your revenue guidance without the positive benefit of Polystar?

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [63]

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Thanks for your question. I didn't quite hear well your first question. Can you repeat the first one? Because there was some...

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Nicholas Prys-Owen, UBS Investment Bank, Research Division - Equity Research Analyst of European Telecoms [64]

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Yes. Just wanted to understand, I suppose, how we go from the situation we have in H1 where it was just slightly negative to a position of flat-to-slight growth in terms of full year revenues and then there was just the question on Polystar.

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [65]

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So you're talking about the total revenue at Elisa?

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Nicholas Prys-Owen, UBS Investment Bank, Research Division - Equity Research Analyst of European Telecoms [66]

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Correct. Yes.

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [67]

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Okay. As you -- as we have said that we have had some divestment to impact the first half of the revenue, the interconnection prices to decline and now also the momentum in the device sales side being a bit less successful as we had with the comparables. Those are the main reasons for decline. How that will develop going forward? We, of course, are very comfortable for our guidance for same level or slightly higher revenue development for the full year. And you asked also that whether that would hold without Polystar, the answer is yes.

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Operator [68]

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Our next question comes from the line of Simon Coles from Barclays.

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Simon Alexander Arulraj Coles, Barclays Bank PLC, Research Division - Research Analyst [69]

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Simon Coles from Barclays. And just on the fixed revenue which you haven't really talked about much. The CMD you gave had some quite helpful indication on what the different revenue lines in the fixed revenues are doing. Has there been any major changes to that? Are you seeing anything different in some of those lines? Just wondering if you can give us some more color on what the drivers are on the fixed revenues, that would be great.

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Veli-Matti Johannes Mattila, Elisa Oyj - CEO, President & Member of Executive Board [70]

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All right. In terms of the fixed revenue side, there are several drivers or fixed net revenue streams that are coming. The fixed broadband has been slightly down now because of some of the price pressure coming from the MDU business and also the -- some decline that we said, which was partly one-off type of decline. Other than that the fixed -- the fixed broadband revenue side is pretty stable. Fixed voice, of course, bringing the revenues down. Then we have some corporate data networking and cybersecurity and some other areas where we see a pretty good stable or slightly growing development on the fixed revenue side.

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Operator [71]

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And as there are no further questions registered at this point, I will hand the word back to the speakers for any closing comments, please.

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Vesa Sahivirta, Elisa Oyj - Director of IR [72]

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Okay. Thank you for those questions. Any further question by audience? No, there seems to be no further questions. So thank you for participating in this meeting and conference call. And we wish you a very nice summertime. Goodbye.