Elisa Oyj Ord A

Good morning everyone and welcome to ELISA's second quarter 2024 interim report, analyst meeting and conference call. I'm Vesa Sahivirta, head of university relations, and now we have a quite familiar team, CEO Topi Manner for the second time and CFO Jari Kinnunen, who has been here quite many times. And regarding one milestone, I just want to say that this is 100th interim report at ELISA for me. And last 41 of those actually has been the best ever in company's history in a year-to-year comparison. So quite a great continuous improvement indeed. But now to the agenda of the day. We start the presentation, followed by Q&A. And Topi will start the presentation. So I give word to Topi, please go ahead.

Thank you, Vesa, and good day, everybody. And by the way, Vesa, congratulations for the 100th quarterly report. That's quite amazing, I must say. And also the 41 quarters of improving result for ELISA. That is certainly noteworthy as well. So thank you, everybody, for joining this Q2 call of ELISA. The main headline for our... second quarter this time is that our earnings continued to develop well and we also started to see improving performance on the B2B side of the business which as you would remember in our case includes our home market corporate business both in Finland and in Estonia and then the international digital services part of the organization which separately enjoyed a revenue growth of 21% on year-on-year basis during the quarter. So looking at the Q2 highlights, our revenue increased by 2% and EBITDA was up by 4%. So if you would be looking on the decimal basis, then the EBITDA improved with a couple of decimals in comparison to Q1. Mobile service revenue increased by 4.7%, so in line of our mid-single digit growth expectation for the mobile service revenue. As stated, we saw improving signals and improving performance in business-to-business side of the business. And also the B2C segment continued to develop strongly. In international digital services, the revenue increased by 21%, as mentioned. That was boosted by the small Bolton M&A that we have been doing during the first part of the year. If we look at the organic growth for IDS on year-on-year basis, that improved to 7%. And we reiterate our target of double digit organic growth for IDS during the full year of 2024. In Finland, the postpaid churn remained at the same level at 15% in comparison to previous quarter, and then the postpaid subscriptions grew by 42,000 approximately. Of that, M2M and IoT subscriptions constituted 47,000 subscriptions. In terms of the fixed broadband, the subscription base increased by 600. And just recently, we also made two small acquisitions of fiber networks in the northeastern part of Finland and in the eastern part of Finland from Kaizanet. We continue to enjoy good 5G momentum and at this point of time the network covers more than 64% of the Finnish population. At this point of time, we are also differentiating our subscription offering positively from competition as we, during the quarter, included the 5G standalone functionality for all of our new subscriptions, both to consumers and corporates, actually as the first operator in Europe. And with respect to guidance, we are reiterating our full year outlook as part of this report. So with respect to Epita, the growth was driven by the mobile service revenue as well as efficiency. There were actually several components impacting the revenue growth. The main growth drivers were related to mobile and fixed service revenue, and as mentioned, to IDS. In terms of the decreases, the business disposals of Videra, that we sold at the end of last year and the discontinuation of Viaplay cooperation, they both impacted revenue negatively, but both actually improved profitability. Also, the service number regulation change impacted revenue negatively and the same goes for equipment sales. In this economic environment, With the sluggish sentiment among the consumers and corporates alike, consumers and corporates are prolonging the interval of changing their phones, and also the average price of phones is decreasing, thus impacting equipment sales negatively. Interconnection was also changed, driven by regulation, but here we would need to remember that that change is EBITDA neutral as asymmetric reduction is made on the cost side as is the impact on revenue. When we look at the EBITDA that was driven by mobile services, the mentioned business disposals of Videra and Viaplay, and also the efficiency improvements that we made earlier during the year that now start to bear fruit to some extent during the Q2 and then to full extent on the coming quarters. Our EBITDA landed at 190 million euros and the EBITDA percentage on year-on-year basis increased to 35.1%. Mobile service revenue, as mentioned, was up 4.7%. During the previous quarter, we still had a tail impact of earlier made price increases impacting the MSR growth. That was not the case during Q2. So the number of 4.7% is, to a large extent, to a very large extent, driven by 5G upselling. ARPU growth was 5.5% during the quarter, pretty similar growth both on consumers as well as on corporate side of the business, yet again driven by 5G upselling. When we look at the competitive landscape at this point of time, that is largely the same as it was during the first part of the year, but we do see some campaigning in 4G at this point of time. So competition remains normal, keen, tight as normal. The journey was basically stable at 15%. When we look at the segments, the consumer segment, as stated, continues to perform strongly with EBITDA growth of 5%. When decomposing the revenue development, we will need to take into consideration the VIA Play discontinuation, as well as the mentioned impact on equipment sales, as well as interconnection. When we look at the EBITDA percentage, the 41%, and if we look at that on a decimal basis, that is one of the best, if not the best, EBITDA percentage that we have had over the years in consumer segments. So, profitability-wise, delivering strongly. In terms of corporate customers, as stated, we started to see a pickup during the quarter. Companies, especially at the large end of the spectrum, start gradually to invest to connectivity, to software and to IT services. And we start to see first signals of that improving outlook. The revenue increased with 6% and EBITDA improved with 2% after a couple of challenging quarters during the past 12 months. The revenue growth was driven especially by fixed services and mobile services and also the IDS side of the business. The business disposals and the regulatory changes as well as the equipment sales will need to be taken into consideration also when analyzing the revenue growth on B2B segment. The EBITDA percentage on B2B decreased with a notch to 26%, driven by some large, a bit lower margin deals. Looking forward, we see a stable outlook for the EBITDA margin in B2B segment. So basically, no change there outside of some quarterly fluctuation. Looking at our strategy, we are all about building a sustainable future through digitalization. And our key strategic focus areas remain the same. We want to increase mobile and fixed service revenues. And here, especially the 5G up sales and continued investments in fiber play a big role. In terms of growing digital service businesses, IDS growth, improving is definitely important. And then taking a bit longer perspective, we see opportunities for growth in digital services revolving around the needs that our customers have in their homes. and secondly, also in corporate IT services. In terms of improving efficiency and quality, we continue to leverage the strengths that we have in continuous improvement in the culture of excellence and then certainly we'll be focusing on the efficiency and productivity of the business also by means of utilizing AI and automation going forward. The migration to higher speeds continues. This is a source of sustainable growth for ELISA. And when we look at now the penetration of higher speeds, which we define as speeds higher than 200 megabits, the penetration is 55%. And customers do value speed, and they are willing to pay for it, and they are happy when they get it. That is clearly witnessed by our customer satisfaction surveys and Net Promoter Score, where there's a marked difference between 4G customers and 5G customers in favour of the 5G customers. Currently, 59% of the smartphones are 5G devices, meaning that there's potential for us to grow in our penetration also in terms of the device landscape. If you look at the trend line of the penetration closely, you would see a slight uptick during the past quarter. And that uptick is basically accountable for the corporate 5G sales gaining momentum. So far, especially the large companies have been somewhat conservative in terms of taking 5G into use due to the overall macroeconomic environment, and they have been trailing back the consumers and the SMEs. But now we see that bigger companies are starting to convert their subscriptions to 5G. And as stated, that is the source of the uptick and an encouraging signal for the sales going forward. We have a leading position in 5G in our home market, and we are increasing our investments and meeting the customer demand in terms of fiber network. As stated, our current 5G population coverage is already over 94% in Finland and over 76% in Estonia. And when we look at the average billing increase when customers transfer from 4G to 5G, that remains intact, namely being €3 per month increase when customers take the 5G subscriptions into use. And I stated as the first telco in Europe, we have now included the 5G standalone functionality to our new subscriptions for consumers and corporates alike. So in this one, we are clearly a frontrunner on a global telco space. With the 5G standalone, which we call 5G+, customers are getting a better quality network more resilient network, they are getting better speeds, they are getting better energy consumption that translates into better battery life in their phone. Also, 5G network enables new functionalities like the slicing functionality that we are utilizing, for example, in our fixed wireless access offering. So here we are clearly differentiating from our competition and from the global telco space as a technology frontrunner. As mentioned, in the fiber space, we made two small acquisitions, buying two fiber networks in eastern and northeastern parts of Finland from Kaizenet. With that, we added some 14,000 homes passed and some 6,000 homes connected. So this is an example of, you know, additional measures in addition to organic growth that we are doing around the fiber business. In our ideas part of the business, due to the sluggish macro environment during the past 12 months, companies have been a little bit prolonging their projects. And while we have been having a strong order backlog, that has been impacting our revenue development. But now, during the quarter, we start to see these project implementations picking up speed. and that is visible in our revenue. So IDS revenue increased by 21% and the growth was boosted by the small acquisitions that we made during the early part of the year. We have a good order backlog and also good order intake. And as stated, we are reiterating our target to have double digit organic growth during the full year of 2024. We have always expected that growth to be somewhat backloaded during the year. When we look at ELISA Polistar separately, it's worthwhile to note that during the quarter we successfully renewed the quality and data security certificates in that part of the business. And we do have a good degree of order backlog as well as order intake. In industry side of the business, we successfully completed the leanware acquisition and we have at present time a strong order intake in that part of the business. In distributed energy storage, the startup that we have within the company around energy solutions, we actually included the solar energy utilization to that DES solution. And we also got the first customer to utilize it, namely Olkom, which is the local telecom of Åland Islands in Finland. In terms of domestic digital services, when we start from entertaining services around the consumer side, it's worthwhile to note that this year marks the 10th anniversary of ELISA original series and also our money shot. series that is actually the 40th original series won an award in Cannes festival earlier in June. We also added Max as well as MTV Katsoma Plus to our streaming service portfolio, thus improving our offering to all of our customers. We also did a small cleanup of our business portfolio by selling Elisa Kirja, Elisa Book, to BookBeat. When we look at the corporate digital services, namely IT services, we clearly have strengthened competitiveness. AI and automation are increasingly now incorporated to our IT services, to those that we offer to our customers, but also to our own service production. We have strong customer interests for our GenAI use cases, and we have a good track record of bringing tangible benefits to our customers that also enable scalability in our customers' business. Our use case funnel for AI is growing rapidly, so that's a very encouraging signal. And we also have first AI solutions deployed in our IT end-to-end end-user service production, improving scalability and productivity in our own business. Geopolitical uncertainties are driving at this point of time the demand for cybersecurity services, and there we are well positioned on the market with differentiating product and service, and that is really visible in the intake of new customers in this part of the business. One of the highlights for the quarter was that the Time magazine listed world's most sustainable companies in partnership with Statista. And in that ranking, we landed on a position of number 66. So, Schneider Electric was ranked as number one. And in our close proximity, we had very well-known international brands. For example, Microsoft was ranked number 64 and Puma was ranked number 67. We were also... ranking the best Finnish company in terms of sustainability, according to Time magazine and Statista. So this is a testament of, you know, the consistent systematic work that has been done around sustainability in ELISA over the years and something to be proud of. And then to wind up with our outlook and guidance, as stated, we are reiterating our guidance. So we expect the revenue to be at the same level or slightly higher than in 2023. And the same goes for EBITDA. We expect that to be at the same level or slightly higher than in 2023. As for capex, we have some quarterly fluctuation, but for the full year, we expect to stay within the bracket of 12% to 13% capex of revenue. So with that, I will hand over to Jari, who will go through his slides before we take the Q&A. So thank you very much.

Thank you. Let's start with profit and loss. Q2 was continuing. good trend with earnings growth and EBITDA growth accelerated now fourth consecutive quarter in role. So solid performance continuing. Revenue 1.6% growth, also that one improved from Q1. Still negatively impacted by divestments and net impact from divestments and acquisitions. is approximately 1%, so organic growth about 2.5%. Also in the reported growth impacting interconnection price change, that was beginning of the year, 3 million negative change. and equipment sales also impacting in both segments, like is the case with interconnection, negative 6 million. Service revenue growth was strong in corporate segment, 14 million and half of that coming from one big corporate deal in Estonia relating to software licenses and equipment. Also services in IDS or organic road in IDS contributing contributing to corporate segment change like is the case with domestic mobile and fixed services and digital services as well. Consumer segment, 3 million increase in service revenues, mobile services growing, negative impact from fixed voice and ending of streaming cooperation agreement last year. Epidemic growth was 4% to 190 million, margin improved from 34.3% to 35.1% mobile service revenue. Also efficiency measures as well as divestments from last year impacting positively to margin. EBIT growth was 4.8%, also EBIT margin improved to 22.4%. EBS growth 2.4% to 0.50 euro cents. In Estonia, strong revenue growth, 9% or 5 million, as mentioned, impacted by this approximately 7 million deal relating to licenses and equipment. The negative revenue impact from interconnection, also in Estonia there was interconnection price change, beginning of the year and mobile equipment sales also lower than year before. Overall, general economy situation in Estonia is still somewhat challenging, and for example, inflation rate, although decreasing, is still higher than in Finland or other European countries. And Epida nevertheless continued to develop positively 1% growth. In mobile subscriptions, postpaid was slightly decreasing, 2,100. Prepaid, 400. Increased churn was somewhat higher, 11.9% from Q1. Then moving to CAPEX, reported CAPEX in Q2 was 84 million, excluding licenses and lease agreements and acquisitions. 81 million, which is the guided CAPEX, and it is higher at 15% from the revenues. There are quarterly variations, and for the whole year, the capex guidance, 12-13% from revenues is intact. Main investments continue to be in 5G network, extending coverage, and in fixed site continuing fiber investments and IT investments. Comparable gas flow was 94 million. Somewhat lower than a year ago. Positive change coming from higher EPIDA and lower license fee payments. Negative impact from higher CAPEX and interest, and although net working capital change was positive, but it was less positive than a year ago, so impacting slightly negative to cash flow. First half cash flow 180 million, slightly higher than a year ago, EPIDA and lower license fee payments as well as networking capital change impacting positively and CAPEX and higher interest having a negative impact. EPIDA operating cash flow conversion was 58% in Q2. Then moving to capital structure and solid capital structure, as well as financial position, continuing net debt in line with the target 1.8 times equity ratio. 35% decreasing from Q1 as a result of dividend decision in Q2 and equity ratio then improving in coming quarters after that. Return ratios continue at a good level, return on equity 30.7% and return on investments 18.7%. And in terms of debt maturities, there is no major maturities in the near term. Next, fixed interest loan maturity is 2026, and average interest expense is currently at 2.6%. And now I give the word to Vesa, please.