Operations & Wholesale

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Glossary

In 2009, Operations & Wholesale’s revenue and EBITDA were DKK 2,582m and DKK 1,498m, respectively, compared with DKK 2,748m and DKK 1,574m in 2008. The EBITDA margin was 58.0% in 2009 compared with 57.3% in 2008.

At year-end 2009, Operations & Wholesale had 4,409 full-time employee equivalents compared with 4,406 in 2008, and 0.9m customers at year-end 2009, down 2.1% compared with year-end 2008. This resulted primarily from TDC's acquisition of Fullrate, which moved Fullrate's customer portfolio from Wholesale to Consumer.

Operations & Wholesale successfully implemented extensive cost reductions from 2008 to 2009. The decline in EBITDA in 2009 was therefore a result of the divestment and outsourcing of business activities in both 2008 and 2009, and loss of service-provider revenue from Fullrate after the acquisition. Adjusted for these impacts, EBITDA increased by approximately 2% in 2009.

Revenue

Operations & Wholesale's revenue decreased by DKK 166m or 6.0% to DKK 2,582m in 2009. This overall decline was due partly to lower transit traffic after the divestment of the international voice business, and lower internet and network revenue due to Consumer’s acquisition of Fullrate. Moreover, sale of the satellite business and outsourcing of the mobile network in 2008 affected the revenue development negatively. Excluding these issues, revenue increased by approximately 2%. The adjusted revenue increase was driven mainly by an increase of DKK 80m in mobility services due to more customers, although this was partly offset by lower mobile termination charges1 and lower international mobile roaming charges caused by national and EU price regulation, respectively. The economic downturn also had an impact on roaming revenue involving a 12% decrease in roaming traffic on TDC's mobile network in Denmark. Moreover, fewer service-provider landline customers also had a negative effect on revenue.

In 2008, Operations & Wholesale's revenue decreased to DKK 2,748m, down by DKK 853m or 23.7%, of which DKK 781m related to Wholesale. The decrease was driven primarily by a DKK 600m decrease in landline telephony due to less revenue from transit traffic as a result of the divestment of international voice business. Traditional landline telephony was also negatively affected by fewer customers. Revenue from mobility services also decreased by DKK 142m due to fewer customers as a consequence of the loss of Debitel, lower mobile termination charges and lower international mobile roaming charges caused by price regulation.

Gross profit

In 2009, gross profit decreased by DKK 119m or 5.3% to DKK 2,146m. Wholesale accounted for DKK 167m of the decrease in gross profit due chiefly to fewer landline customers. Transmission costs increased by DKK 7m in spite of lower total activity. This was a result of the rising activity in mobility services where transmission costs are higher than in landline telephony. However, cost of goods sold decreased by DKK 54m due to cost savings, primarily in Installations, and thus contributed positively to the gross profit development.

In 2008, gross profit decreased by DKK 326m or 12.6% to DKK 2,265m, which largely reflected the fall in revenue but was partly offset by a DKK 525m reduction in transmission costs to DKK 377m that related primarily to the divestment of the international voice business. Transmission costs also decreased following reduced mobile termination charges. Cost of goods sold was almost unchanged, and decreased by DKK 2m to DKK 106m in 2008.

Income before depreciation, amortization and special items (EBITDA)

In 2009, EBITDA decreased by DKK 76m, or 4.8% to DKK 1,498m. This was caused mainly by a DKK 119m decrease in gross profit, but was also negatively affected by a DKK 114m reduction in other income and expenses, which reflected lower gains from divestment and outsourcing of business activities. This was partly compensated for by a DKK 256m or 9.8% reduction in other external expenses to DKK 2,343m that related to lower property, facility management and IT equipment costs, and a decrease in wages, salaries and pension costs of DKK 233m, or 14.1%, to DKK 1,414m. The latter was driven by the full-year FTE effect of outsourcing and divestments and further streamlining of the organization.

In 2008, EBITDA rose by DKK 154m or 10.8% to DKK 1,574m. The positive EBITDA development was a result of Operations & Wholesale's successful implementation of cost reductions on other external expenses and wages, salaries and pension costs, which more than compensated for the decrease in gross profit. Wages, salaries and pension costs decreased by DKK 271m or 14.1% to DKK 1,647m in 2008 as a consequence of outsourcing 886 full-time employee equivalents to Ericsson and CSC, which took place in March and June 2008. However, the wage reduction related to the outsourcing was partly offset by an increase in other external expenses. Still, other external expenses decreased by DKK 119m, or 4.4% to DKK 2,599m, which related chiefly to lower personnel-related costs due to fewer employees, as well as lower consultancy costs.

Selected financial and operational data Excluding special items
Operations & Wholesale    2009  2008  2007   Growth in %  Growth in %
                2009 vs. 2008  2008 vs. 2007
                    
    DKKm               
Revenue    2,582  2,748  3,601  (6.0) (23.7)
   Wholesale    2,235  2,390  3,171  (6.5) (24.6)
   Other    347  358  430  (3.1) (16.7)
   Landline telephony    623  889  1,489  (29.9) (40.3)
   Mobility services    590  510  652  15.7  (21.8)
   Internet and network    945  982  983  (3.8) (0.1)
   Other    424  367  477  15.5  (23.1)
Transmission costs and cost of goods sold    (436) (483) (1,010) 9.7  52.2 
Gross profit    2,146  2,265  2,591  (5.3) (12.6)
Other external expenses    (2,343) (2,599) (2,718) 9.8  4.4 
Wages, salaries and pension costs    (1,414) (1,647) (1,918) 14.1  14.1 
      (4,193) (4,729) (5,646) 11.3  16.2 
Operating expenses allocated to other business lines    3,009  3,341  3,327  (9.9) 0.4 
Operating expenses before depreciation, etc.    (1,184) (1,388) (2,319) 14.7  40.1 
Other income and expenses    100  214  138  (53.3) 55.1 
EBITDA    1,498  1,574  1,420  (4.8) 10.8 
                    
Key financial ratios                  
EBITDA margin  % 58.0  57.3  39.4     
                    
Customer base (end-of-year) '000               
Landline customers    242  297  369  (18.5) (19.5)
Mobile customers    316  227  221  39.2  2.7 
Mobile broadband- and data customers      100.0   
Internet customers    139  124  134  12.1  (7.5)
Other networks and data connections    240  313  249  (23.3) 25.7 
TDC TV customers         
Customer base, total    944  964  973  (2.1) (0.9)
    DKK /               
ARPU (yearaverage) month               
PSTN/ISDN    100  100  n.a.    
Mobile voice, Service Provider    120  93  n.a. 29.0   
                    
Number of employees    4,409  4,406  5,557  0.1  (20.7)
  1. The negative impact on EBITDA from price reductions on mobile termination was relatively low due to the spill-over effect on TDC’s costs.