DNA sijoituskohteena - DNA Plc

DNA as an investment

We want to make our customers’ lives more inspiring, productive and entertaining

The cornerstone of DNA’s strategy is customer satisfaction

DNA’s vision and mission are the most satisfied customers in the market. We want to make our customers’ lives more inspiring, productive and entertaining. We provide connections, services and devices in a clear, easy and cost-efficient manner.

DNA's strategy implementation

CEO's review: DNA had a strong first half – net sales and profitability increased also in the second quarter 

DNA had a strong first half of 2017. Our net sales increased 5% to EUR 432.7 million. Growth of service revenue (net sales less sales of devices and interconnection charges) continued, and good development of mobile device sales also had a positive effect on net sales. Service revenue was boosted in particular by the growth in the amount of mobile subscriptions and increased share of 4G subscriptions. In January-June, our profitability continued to improve and our operating result grew 25.2% and was EUR 59.4 million, or 13.7% (11.5%) of net sales.

Our results continued to develop favourably in the second quarter. Our EBITDA increased 15.5% and was EUR 67.6 million and our operating result grew 36.8% to EUR 30.5 million. The result of the second quarter was also fuelled by the improved cost-efficiency of our modern network platforms. While we expect operative capital expenditure to increase during the second half of the 2017, it will remain at a lower level than in 2016.

Demand for mobile communications services developed favourably in the second quarter. Mobile communication network subscription volumes were up 86,000 from the reference period. DNA’s revenue per user (ARPU) improved and was EUR 18.5 in the second quarter. The subscription turnover rate (CHURN), which increased in the first quarter due to changes in the price and product design of certain subscription types, returned back to its normal level during the second quarter. Our broadband and cable television subscriptions increased in total by 21,000 subscriptions, adding 9,000 new subscriptions to our fixed-network subscription base (fixed voice, fixed broadband and cable television).

The new EU roaming regulation entered into force on 15 June 2017. Since then, our customers have paid the domestic rate for roaming calls and messages in the EU, and the unit price of data used in the EU fell by more than 90%. The new EU pricing scheme is valid within fair usage limits and for periodic roaming. We also launched new subscriptions in June that include an EU data package in the monthly fee.

After the new “roam like at home” rules came into force, our customers’ use of mobile data abroad has multiplied. Similarly, foreign travellers now use more mobile communications services while visiting Finland. Our customers’ phone calls and text messages in EU countries have also increased by dozens of percentages. Our roaming costs are compensated by the EU-baseline tariff of old subscriptions and the higher price of the new subscriptions with an EU data package.

We took another important step toward 5G by testing data transfer at 1 Gbps speed in our mobile communications network. 

Competition is expected to remain intense for the rest of the year and our outlook for 2017 remains unchanged. We will continue to serve our customers with our strategic objectives in mind.

Jukka Leinonen

DNA is one of the leading Finnish telecommunications operators

DNA’s business operations are divided into consumer and corporate business. In 2016, DNA’s net sales amounted to EUR 858.9 million, of which the share of consumer business was 73.5 per cent and the share of corporate business 26.5 per cent.

Of the total net sales of the market, the share of the three largest telecommunications operators in Finland, DNA, Elisa and Sonera, is almost 90 per cent. Growth opportunities for DNA’s business are offered, for example, the high smart phone penetration and the continuously increasing demand for 4G subscriptions, which contributes to higher use of mobile data. In 2016, DNA managed to grow its subscription base more rapidly than its competitors: its mobile subscription base grew by 121,000 subscriptions, while its fixed broadband subscription base grew by 4,000 subscriptions.

DNA has a strong market position in all product categories and increasing market shares

DNA is the third largest player in the Finnish mobile communications market (voice and data services). In the fixed-network broadband market, DNA holds the third position. In the cable television market, DNA is the largest player in Finland. During the past few years, DNA’s market shares have grown. In mobile communications, for example, DNA’s market share has grown from 24 per cent in 2013 to 27 per cent in 2016, and in fixed-network broadband from 21 to 26 per cent.

The cornerstone of DNA’s strategy is customer satisfaction, and At DNA, the customer comes first; we place special emphasis on customer experience. DNA provides connections, services and devices that are of high quality, fairly priced and easy to use. DNA’s service offering is highly competitive as evidenced by its high and growing NPS (Net Promoter Score) scores show.

Trends that will help DNA grow its business in the future include the increasingly networked lifestyle, new mobile devices with their applications, new TV and home entertainment services, the rapid growth of mobile data and high-speed data subscriptions, the increasing business criticality of ICT in companies, and the Industrial Internet of Things.

DNA’s risk management process and risks and business uncertainties

Risk management process 

The Board of Directors decides on the objectives and principles of risk management and confirms the company’s risk management policy. The Board monitors the implementation of risk management. The Board of Directors has established an Audit Committee. Its risk management duties are defined in the Audit Committee Charter, which is confirmed by the Board of Directors. 

The CEO is responsible for the practical organisation of risk management and maintenance of the risk management policy. 

The risk management process provides reports on risks and risk management methods to the DNA Executive Team, Audit Committee and Board of Directors. Operational plans for the management of significant risks are drafted based on risk management reports, and the Executive Team and Audit Committee monitor the implementation of these plans. At DNA, risk management consists of identification and assessment of risks, development of risk management strategies, planning and implementation of risk management methods, monitoring of risk management results as well as continuous improvement of risk management competence. 

The annual risk management plan is aligned with the annual plan of DNA’s strategy process. The ambition is to update DNA’s risk map annually and to draft 1 or 2 reports on the key risks and uncertainties and their management for DNA’s Executive Team, Audit Committee and Board of Directors. 
DNA’s Executive Team selects the key risks and assigns persons to be responsible for them. These persons document appropriate risk management methods and development measures for their responsibility area and submit them to the CEO for approval. The responsibility for a risk is assigned to a person who, based on their role in the company, is best qualified to understand the risk and determine how its management should be developed. Several persons can share a responsibility for a risk. Risk management processes are aligned with internal control methods.

Risks and business uncertainties according to Half Year Financial Report 2017

Strategic and operative risks

The Finnish telecommunications market is characterised by tough competition between established operators, and a high degree of penetration of telecommunications solutions. DNA mainly operates in Finland, a market where the number of mobile phones per capita is among the highest in the world, which limits the prospects of future growth in the number of subscriptions.

DNA closely monitors changes in the operating environment and the resulting possible new business opportunities, which always involve higher risks than conventional and established business operations.

New communication methods and continuous technological development

The rapid phase of technological development affects the entire telecommunication industry and DNA’s business. Alongside traditional communications methods, technological development and new types of services and devices can create new revenue models. Customer behaviour can change rapidly if new services are reliable and easy to use.

As new communications methods gain widespread popularity, they have an impact on the traditional business of operators.

Intense competition in entertainment business

International players have a strong presence in the competitive environment of TV and entertainment services. DNA’s competitors include traditional operators, but increasingly also OTT (over-the-top) service providers that deliver content over the Internet to mobile devices. The role of media companies’ own distribution channels and services is also becoming more important.

The ongoing shift in media use will provide both new risks and opportunities while content rights are being negotiated. DNA monitors the TV and entertainment service market intensively and continuously enhances its service offering to anticipate changes in the market.

System and network risks

The nature of DNA’s operations and customer requirements place high demands on DNA’s information systems and network infrastructure. DNA’s business is capital-intensive, and the Group’s success depends on its ability continuously to maintain and improve its network infrastructure. Use of mobile devices that have a constant network connection is increasing strongly among both business and private users. M2M subscriptions and the Internet of Things (IoT) will further expand the volume of data traffic. As the IoT becomes more common, for example through the introduction of new kinds of smart devices, the role of good information security, data security and the high operational network reliability gain in importance.

DNA makes significant investments in high-quality data systems and data analytics tools, for instance to deepen customer understanding and to create a good omnichannel customer experience. DNA’s business operations are dependent on information systems, which involve several interconnected risks but also provide business-critical opportunities for utilising data.

Regulatory risks

Both national and EU regulation have significant impact on the operation of the telecommunications market in Finland. The authorities’ ability to influence the price level of DNA’s products and services as well as the wholesale products that DNA procures from other operators and the cost structure and criteria used in distributing frequencies, may have a significant impact on DNA’s business.

During the review period, regulatory initiatives indicating significant risks to DNA included the new European Electronic Communications Code, EU Data Protection Regulation, roaming regulation as well as authority decisions on significant market power (SMP).

Financing risks

In order to manage the interest rate risk, the Group’s borrowings have been spread between fixed- and variable-rate instruments. In order to manage liquidity risk, in addition to liquid assets the Group uses credit limits. To manage customer credit risk, the credit history of new customers is checked as part of the ordering process. The Group’s foreign interest risk is insignificant, since the majority of its cash flow is euro denominated.

Damage risk

In anticipation of possible unforeseen damage risks, DNA has continuous insurance policies covering aspects of its operations including personnel, property, business interruption, third-party liability and criminal action. There is a specific insurance in place for cyber damage risks. Damage risks are prevented and minimised by means such as security guidelines and personnel training.

Large-scale changes continue in telecommunications markets

The number of connected devices continues to grow – and so does the volume of data transmitted in mobile and fixed networks. Popularity of pay-TV and various types of video services is also increasing. Working in companies is increasingly mobile and flexible today. All this sets new kinds of requirements for the quality and availability of operators’ systems and network infrastructure.

Despite undergoing market changes, the competitive environment of the Finnish telecommunications markets is fairly stable. Total net sales of the three biggest telecom service providers – DNA, Elisa and Sonera – is about 90 per cent of the net sales of the markets. Also, no new operators aggressively seeking market shares have emerged. All three leading operators provide both mobile and fixed network services for consumer and corporate customers.

The weak financial situation has affected the telecommunications industry less than many other industries because the demand for data communication services is fairly stable.

Finns are among the leading users of mobile communications in the world

In 2015, net sales of the mobile telecommunications markets in Finland amounted to EUR 1.9 billion(1, and mobile penetration is among the highest in the world. Although mobile penetration was as high as 167 per cent(2 at the end of 2015, subscriber numbers continue to grow.

Finland has the highest mobile penetration in the world

Finland has the highest mobile penetration in the world
Source: IDC

Proportionally, Finland is also the country with the largest number of postpaid subscriptions in Europe. At the end of 2015, as much as 92 per cent of the voice and data service subscribers in the mobile network had a postpaid subscription(3.

Almost all subscriptions supported unlimited data at a fixed monthly fee. Unlimited data combined with high-quality mobile networks has led to a high degree of use of mobile broadband in Finland. In 2015, Finns were the most active mobile data users in the world.

Finns are the most active mobile data users in the world

Finns are the most active mobile data users in the world
Source: tEfficient

Finland has lower fixed broadband penetration than EU countries on average

In 2015, net sales of the fixed telecommunications markets in Finland totalled approximately EUR 1.2 billion(4. Of this, fixed broadband services are estimated to account for approximately 81 per cent.

Approximately 57 per cent of Finnish households have a fixed broadband connection(5. The figure is smaller than in the EU-15 countries on average(6. This is particularly due to high mobile broadband penetration and mobile data subscriptions with unlimited data. In particular, demand for fast, fixed broadband services is expected to grow as popularity of services requiring higher bandwidth, such as streaming video services, increases.

Fixed broadband penetration

Fixed broadband penetration in Finland
Source: Finnish Communications Regulatory Authority, IDC

The pay-TV and video service market is growing

Finnish households mainly use the digital terrestrial TV network and the cable TV network for watching television content but more and more also services provided over the broadband network (e.g. Yle Areena and Netflix). The popularity of cable TV subscriptions has continued to grow steadily, and as many as about 60 per cent of households already receive television content from cable TV network. The number of terrestrial TV households has decreased slightly, but the terrestrial TV network is still the television network most often used in sparsely populated areas and at summer houses in Finland.

The Finnish pay-TV and video service market was estimated to amount to about EUR 235 million in 2015(7. Around 35 per cent of the Finnish households subscribe to pay-TV content(8. Linear broadcasts of cable and terrestrial TV network are the most common way to consume pay-TV content, especially HD sports broadcasts. The growth of the market in the past few years has been particularly attributable to the popularity of streaming and video-on-demand services used over the broadband connection.

Cable television continues to grow in popularity

Cable television continues to grow in popularity
Source: Finnish Communications Regulatory Authority, Statistics Finland

DNA has a strong position in mobile communications, fixed broadband and cable television

DNA has a strong position in all three markets: mobile communications, fixed broadband and cable television. In the cable television market, DNA is the largest player in Finland. In mobile communications and fixed broadband, DNA is a strong number three.

The way of working in companies is changing

Corporate markets comprise telecommunications services and value added services of corporate networks, IT services, IT software and equipment markets. The value of telecommunications markets is estimated to be EUR 1.2 billion, and the value added services markets – essential to DNA – are estimated at EUR 200–300 million (9. IT services and equipment markets form the largest part of the total markets, and their value is estimated to be EUR 6.2 billion(10.

Of telecommunications operators, DNA, Elisa and Sonera provide comprehensive telecommunications and network service solutions. IT service companies, in turn, focus on network value added services, IT services and equipment markets.

Today, working in companies is increasingly mobile, networked and flexible. This is reflected in the telecommunications services that companies require. Mobile data increases in importance, and cloud services gain popularity. The Industrial Internet and the Internet of Things (IoT) will further increase the mobile data volume and provide new growth opportunities for operators.

1) Source: FICORA
2) Source: FICORA, IDC
3) Source: Gartner LINE (Marketvisio)
4) Source: FICORA
5) Source: FICORA
6) Source: FICORA
7) Source: Valor, Finnpanel, TNS Gallup.
8) Source: IHS, DNA’s estimate
9) Source: The company, based on IDC’s and GartnerMarketVision’s data
10) Source: Gartner

Responsible investment

DNA is committed to continuous business development, while considering the needs of its environment and stakeholders. DNA’s responsibility policy creates value for the company’s owners in the long run, and addresses the risks and opportunities related to corporate responsibility. As a Finnish telecommunications group, DNA wants to assume responsibility for reducing emissions and improving energy efficiency.

DNA committed to Society’s Commitment to Sustainable Development

DNA has signed up to Society’s Commitment to Sustainable Development, under which the company undertakes to reduce the climate impacts of its operations. Moreover, DNA enables its customers to reduce their environmental impact by offering them products and services for the sustainable digitalization of business.

Organisation of corporate responsibility at DNA

The primary responsibility for corporate responsibility at DNA lies with the CEO. The Sustainability Manager reports to the Executive Team and the Board of Directors on the success of DNA’s corporate responsibility objectives every six months. The body which ultimately accounts for DNA’s corporate responsibility is the Board of Directors. It is responsible, for example, for approving DNA’s corporate responsibility report annually.

DNA’s responsibility strategy and objectives

DNA’s responsibility strategy comprises three areas: the customer, the society and meaningful work. DNA is also continuously enhancing areas such as responsible procurement, privacy and data security, Code of Conduct compliance and waste recycling.

Strategic areas and the related goals in a nutshell:

Strategic area

Objectives

Examples of measures

Customer
We look after the customer. DNA must understand what the customer needs and provide suitable solutions. The customer understands what can be achieved with our services and is aware of key issues in the digital world.

DNA acts as an enabler in the society, making customers’ lives more inspiring, productive and entertaining while also preventing digital exclusion.
 
  • Responsibility in our customer-facing functions is a key theme in our internal responsibility training and communications
  • DNA’s and Telia’s shared network enables a fast 4G network in sparsely populated areas in Northern and Eastern Finland
  • As the main partner of the “HundrED – 100 Koulua” initiative, DNA supports education innovations in Finnish schools
Society
DNA plays a significant role in society by providing important communication connections and maintaining infrastructure that is critical to the operation of the society.  Our continuously expanding networks consume a lot of energy. We want to be responsible and do our part to combat climate change. 
  • While the expansion of DNA’s networks continues, we aim to reduce our total emissions by 15 per cent by 2020 from the levels reported in 2014
  • We will improve the energy-efficiency of our radio network and reduce emissions from radio network in proportion to annual data transfer volumes by 80 per cent by 2020 from 2014
  • All the electricity that DNA buys directly is produced entirely with renewable energy
  • Modernisation of DNA’s radio network continued as planned, improving energy-efficiency
  • Investments in the energy-efficient LTE technology help reduce emissions
  • Constructing and sharing a network with Telia is more energy-efficient because the technology is shared
Meaningful work
We will increase corporate responsibility know-how and understanding at DNA.

Each DNA employee is familiar with the key responsibility objectives and understands how they personally can help the company achieve them.

 
  • Nearly a thousand DNA employees have participated in DNA’s responsibility training 
  • DNA Group's Code of Conduct obliges all employees.
  • DNA's advanced “Genuine method of working” allows DNA employees to work from home without having to agree on each occasion separately with the supervisor. According to the results, CO2 emissions from work-related travel can be cut by some 40 per cent annually when employees work remotely at home for example.

 

Market outlook

Market outlook according to Half Year Financial Report 1-6/2017


The Finnish economy has returned to the growth path and the value of the telecommunications market has also returned to growth. Competition is expected to remain intense in 2017 in the mobile communications and fixed-network broadband markets.

Mobile data use will continue to grow as private and business users increase their use of digital services and OTT video services. This trend will expand the number of faster and unlimited 4G subscriptions as well as mobile data usage per subscription. Customers are prepared to pay more for faster data connections. In 2017, almost all of the new smart phones sold will support 4G.

Use of mobile devices that have a constant network connection and IP-based communication solutions is increasing strongly among both business and private users. 

In the mobile communication networks, SMS and voice traffic is expected to fall slightly. The decline of the market for fixed-network voice services is expected to continue.

In the consumer market, demand for fast broadband subscriptions and entertainment services is expected to increase, driven in particular by the popularity of streaming and on-demand video services.

Fixed-network broadband customers are expected to continue to switch to housing association broadband subscriptions and faster speeds. The fixed-network broadband subscription base is expected to remain relatively steady. 

Companies and organisations increasingly need to implement new ICT solutions to improve the productivity of their business. More mobile and versatile ways of working will boost demand for services such as cloud and video conference services. Companies transfer their applications to cloud services to increase their operational efficiency, which will boost the demand for secure high-speed connections. The demand for Industrial Internet solutions, and subsequently for M2M subscriptions, is expected to grow.

DNA’s outlook for 2017 remains unchanged

DNA’s net sales are expected to remain at the same level and the comparable operating result is expected to improve somewhat in 2017 compared to 2016. The Group’s financial position and liquidity is expected to remain at a healthy level.