Annual Report Annual 2009 Annual Report 2009 TDC_arsrapport_omslag_DK_UK 18mmryg.indd 3 08/02/10 17:00:00 TDC Annual Report 2009 TDC Annual Report 2009 Table of Contents Letter from the CEO 4 Highlights of the year 6 Financial and operational highlights 6 Major corporate events 7 TDC at a glance 10 TDC’s transformation since 2005 16 Selected financial and operational data 24 Business activities 26 Customers 26 Consumer 32 TDC Business 38 TDC Nordic 44 Operations & Wholesale 50 YouSee 56 Sunrise 60 Employees 62 Guidance 64 Management’s Discussion and Analysis of Financial Statements 65 The TDC Group 66 Consumer 76 TDC Business 79 TDC Nordic 82 Operations & Wholesale 85 YouSee 88 Sunrise 91 Risk management 94 Operational risk management 94 Financial management and market risk disclosures 94 Risk factors 99 Domestic business activities 99 International business activities 105 Financial and taxation risks 107 Other risks 108 Safe Harbor Statement 110 TDC’s social responsibility 114 Corporate governance 117 Financial Statements 125 Management 226 Shareholder information 230 Glossary and definitions 232 3 Letter from the CEO TDC Annual Report 2009 Letter from the CEO Strong performance despite a challenging environment Market-leading innovation and brands The Nordic telecommunications market, which has TDC once again proved its innovation capacity. In January, historically been characterized by high competition and we launched our HomeDuo and HomeTrio multi-play offers. strict regulation, was put under even more pressure by the Within triple­play bundles, TDC’s practically 0% market recession in 2009. The Danish and Swedish Gross Domestic share soared to more than 60% by the end of the year. One Products declined by 4.3%1 and 4.4%2, respectively, and month ahead of Denmark’s nationwide analog switch-off on Danish consumer spending fell by a record 4.7%3. The Swiss November 1, 2009, YouSee removed its TV­signal encryp­ market was also influenced by the adverse macroeconomic tion, providing almost all YouSee’s customers with digital TV environment albeit to a smaller degree. at no additional charge. Such innovative moves allowed TDC to extend its leadership in the Danish TV market and build a I am pleased that TDC managed to deliver a strong per­ strong platform for future growth. formance under these conditions. Our top line grew by 0.9%, our customer base grew by 4.6%, EBITDA was up by In Denmark, we took the final step in moving from a single- 6.9%, cash flow from operating activities was up by 48.2% brand culture to being a truly multi­brand company making while we reduced our net debt by DKK 1.4bn. after dividend the most of the significant intrinsic potential in powerful payments of DKK 8.0bn. In 4Q 2009, we reached an impor­ brands such as TDC, NetDesign, YouSee, Dansk Kabel­T V, tant milestone, as we managed to stabilize revenue in Telmore and Fullrate. Each brand plays a distinct role in Nordic Business after three consecutive years of decline. covering all segments of the residential, public and corpo­ rate markets within telecommunications, TV and systems In 2009, we also reinforced our strong, leading domestic integration. market positions in all our lines of business, including consumer landline and mobile telephony, broadband, TV, This year, we also continued to invest heavily in establishing business communications, wholesale and systems integra­ best­in­class networks across all our platforms (copper, tion. Finally, we fully delivered on our promises to our cable, fiber and mobile) to enable the provision of such shareholders. cutting­edge services and products with the aim of maxi­ mizing reliability and speeds for Danish customers – now Competitive and focused market platform and in the future. In particular, we prioritized the upgrade of In 2009, we completed the strategic shift of our focus on our cable infra structure to DOCSIS 3.0, and extended our the Nordic communications markets. We divested our optical fiber reach to the point that now, including our cable shareholding in Invitel in Hungary and signed an agreement footprint, the vast majority of Danish households can to merge Sunrise and Orange Switzerland subject to receive high broadband speeds of at least 20 Mbps. confirmatory due diligence and regulatory approval. Sunrise successfully launched new mobile rate plans and We firmly believe that in-market scale and synergies are key assumed a position as the leading provider of flat-rate value creation drivers. We therefore strengthened our products, while significantly expanding its ULL subscriber domestic market platform through five targeted add-on base. acquisitions during 2009: Fullrate (the leading no­frills broadband provider), A+ (a supplier of broadband services Reinforced customer focus to antenna and housing associations), the most attractive We provide millions of excellent customer experiences every utility fiber network in Denmark from DONG Energy, and day, and our brands are all leaders within their specific Unotel and M1 (two mobile service operators). We are segments. However, for situations where we fail to live up to already witnessing the initial benefits of these key strategic the standards that our customers rightfully expect from us, moves and expect their full potential to be further demon­ we have launched extensive efforts to further improve strated in the next two years. customer experiences across our Company. This ongoing end-to-end process effort aims at reinforcing our Both in the Nordic region and Switzerland, TDC experienced customer­centric focus throughout the Company. a positive development in its market shares in 2009. 1 Ministry of Finance projection in Economic Survey, December 2009. 2 Swedish National Institute of Economic Research projection in Economic Tendency Survey, December 2009. 3 Ministry of Finance projection in Economic Survey, December 2009. 4 Letter from the CEO TDC Annual Report 2009 Social responsibility efficient and competitive of all the European incumbents. In 2009, we reinforced our commitment to social respon­ Yet, by focusing on our core strengths and with continued sibility by joining forces with the Red Cross on providing IT disciplined execution, we can do much more to further and telecommunications facilities in disaster scenarios. We improve our business and create added value for all our key committed to the UN Global Compact, the world’s largest stakeholders: customers, employees, share holders, and the network for social responsibility and also signed an agree­ communities in which we operate. ment with the Danish Electricity Savings Trust in which we commit to increasing energy efficiency by 15% annually and We will maintain our focus on generating strong and reducing our CO2 emissions by 5% by 2014. growing cash flows in the years ahead and on our policy of financial discipline. TDC played a crucial role in facilitating the industrial revo­ lution and subsequently in the digital transformation of 2010 must-win battles Denmark, and we continue to assume our role and respon­ TDC has defined a number of must-win battles for 2010 to sibility as the backbone of Denmark’s world­leading further progress toward fulfilling its ambition. On the communications infrastructure. TDC has continuously customer front, we will focus on further improving the upgraded its technology and can now deliver first-class customer experience, based on an end­to­end process mobile and IP solutions, services and contents via best­in­ approach and upgrade of customer touchpoints. We will class infrastructures. pursue profitable growth pockets and new revenue streams to further reinforce our top line. We will continue to invest in In the years to come, TDC will continue to push the tech­ and leverage our multiple brands and world­class networks. nological boundaries to benefit our residential and corpo­ We will maintain strong cost and cash discipline across rate customers and society at large. business lines and relentlessly focus on efficiency. Finally, we are committed to bolstering our winning culture, Navigating change increasing leadership capabilities and improving employee Due to the persistent pressure on our Nordic revenues motivation and productivity across the organization. caused by price competition, the recession, and the decline in traditional landline telephony, 2009 was another year with employee reductions for TDC. In collaboration with the unions, we continued to leverage attrition and voluntary agreements. While undergoing such changes naturally challenges any organization, we remain committed to the basic change principles of openness, respect and fairness. At Sunrise, the employees have handled the inevitable uncertainty caused by the announced merger with Orange in an exemplary and professional manner and are maintain­ ing the necessary focus on daily operations. Our employees deserve significant credit for their commit­ ment and determination to succeed. Their dedication to TDC and the success of our company are sources of motivation for the Executive Committee. We will carry on working tirelessly to move the company forward and keep the well­ being of the TDC organization in focus. The years ahead Henrik Poulsen Today, following its ongoing successful transformation in CEO & President recent years, TDC stands out as one of the most focused, TDC A/S 5 Highlights of the year TDC Annual Report 2009 Highlights of the year Financial and operational highlights In 2009, Group gross profit increased by 2.4% compared with 2008. Nordic Business’ gross profit declined by only Improved revenue trend and strong earnings 0.2% despite the revenue decline, whereas gross profit in and cash-flow performance were achieved Sunrise increased by 12.0% despite a difficult macroeconomic environment Despite the challenging macroeconomic environment, in- come before depreciation, amortization and special items In 2009, Group revenue increased by DKK 330m to DKK (EBITDA) rose by 6.9% to DKK 13,046m, compared with 35,939m compared with 2008. Adjusted for acquisitions 2008, leading to an improvement in the EBITDA margin in and divestments, outsourcing and currency effects, revenue the TDC Group of 2 percentage points to 36.3% in 2009.