Telenor Asa S/Adr

Good morning and welcome to the fourth quarter results. Let me start off with a value creation strategy we presented at our Capital Markets Day back in September and the direction we have for each of our four business areas. Firstly, to be a leading Nordic telco with profitable growth. This means growing both core connectivity and new services. with a sharp focus on margin expansion through modernization. Secondly, to develop a strong and more independent Asia, focused on realizing synergies, driving operational efficiency, and delivering cash flow. Thirdly, to crystallize values in a leading Nordic infrastructure company, to mean further operational improvements and transactions to visualize and monetize the values in these operations. And finally, to continue developing the Telenor AMP portfolio over adjacent businesses through organic growth, partnership, and transactions. On the ESG side, just this week, We had an opportunity to host and share our experiences from setting and implementing science-based targets with other Norwegian companies. We are happy to work together with the industry, as well as with our stakeholders, in establishing ways to address scope 1, 2, and 3 emissions. Throughout Q4, we also continued to focus on energy efficiency. A PPA sourcing process was initiated in Finland and is expected to conclude during this year. This adds to the PPAs already secured in Denmark and in Norway. Then to the quarter. The four-quarter results shows that we are well underway on executing on the strategic agenda I just went through. I'm very pleased to see the growth in the Nordics is continuing with a mobile service revenue growth of 5% in this quarter. And as you may remember, we had a 4% mobile growth in the Nordics in the last quarter. Profitable growth will also require continued modernization and efficiency improvements. We have now reached an important milestone as we have shut down the last copper-based subscriber in Norway. This makes us the first legacy-free incumbent in the whole of Europe, ready to move forward with our modernization program. We have, as you know, also completed two large M&A transactions to visualize true value of our assets. The closing of Celcom DigiMerger in Malaysia marked a successful outcome of a process that started almost two years ago. And yesterday, we also completed the sale of 30% of our Norwegian fiber assets in a transaction that will benefit the future fiber rollout in Norway. Combined with healthy earnings in 2022, the SELCOM digital transaction contributed to a record high net income of 45 billion. Overall, I'm satisfied with this quarter. The investments we have done and the modernization programs we have been running now for several years are starting to really yield results. Despite a high investment level last year, we were generating 11 billion in free cash flow. And in a year of volatility, the good underlying EBITDA performance is driven by efficiency program and strong operational performance. Let me then move to Malaysia. Almost two years have passed since we announced that we are in discussions about the merger of Ditchie and Celcom in Malaysia. This merger process takes time, but we have used the time well for our integration planning. Now, all the pieces are finally moved into place, such that we can close a transaction, and we did that on the 30th of November last year. This large transaction positioned the new company, Selcom Digi, as the leading telecom operator in Malaysia, and as the largest tech company at the stock exchange in Malaysia. This should position us well as a market leader to take part of the future growth in the Malaysian market. With the current market capitalization of around 115 billion Norwegian crowns, Telenor's one-third of the company is valued to around 38 billion. And as a result of the transaction, our assets were re-evaluated, generating a gain of 33 billion Norwegian crowns. In the merger process, we and our merger partner identified synergies of around 18 billion Norwegian crowns on a 100% basis. And the company has now taken on the work to realize these synergies. We expect this to create significant value in the years to come. And for the shareholders of Telenor, this transaction should be dividend accretive from 2024 and onwards. Moving to Thailand, after finalizing the merger in Malaysia, there is more to come, as we have talked about before. As we know, we are closing in on completion of the merger also in Thailand. A major step forward was made by the board of directors in both TRUE and DTAC by calling for a joint shareholder meeting on the 22nd of February to conclude on the final matters. And as earlier communicated, we expect closing before the end of this quarter. In many aspects, this transaction is two to three times larger than the Malaysian merger. And it is in fact the largest ever telecom M&A transaction in Southeast Asia. As in Malaysia, we therefore expect significant synergies coming out of combining these two assets into the new company. We are, as we also are doing in Malaysia, here also creating a clear number one player in the market with 55 million customers, with the scale and capabilities to be at the forefront of the digital shift we see for consumers and businesses. For DTAC, this means a transition from a mobile-only operator into a full-fledged service provider. The new company will have a leading market position on both mobile, on fixed broadband, on TV, and on digital services. This is, as we call it, a merger with a spirit of equals. with an aim for both of the principal shareholders to retain around 30% ownership in the combined company. And on this background, Terranor and the CP Group will have a balanced representation on the board and also a balanced representation in the top management team, including strong candidates from both DTAC and from the Terranor Group. Then back to the Nordics. And also in line with our strategy. Yesterday, we delivered on the plan to crystallize values from our infrastructure assets. This was done through the sale of a minority part of our Norwegian passive fiber assets to KKR and Oslo Pensionsforsikring. The transaction values the business to 36 billion and goes to illustrate the values we have built up in our fiber investments over the last 10 years. The sale, minority sale of 30% of the fiber business yields the proceeds of 10.8 billion. This will strengthen the balance sheet of Telenor and also support further investment into fiber network in Norway. In addition to the value crystallization, as we communicated at our capital markets day, in the infrastructure business, our ambition is also to create more value out of our digital infrastructure. The fiber deal confirms the value of our assets, and we will now continue to create value both within fiber and our towers. And in addition to that, we are also exploring opportunities with our data centers. Let me then turn from transactions to our daily operations. At the Capital Markets Day, we highlighted growth in the Nordics as a key strategic priority in the three-year plan that we presented. And looking at this graph, I must say I'm pleased to see that the decision we have made over the last year is now translating into a solid mobile service revenue growth of 5% in a quarter. And with this, we have a good growth momentum also going into 2023. The growth you see here is driven by three key elements. First, for several quarters, we have talked about the increase we have in our value-added services, such as security and insurance. These services have been and continue to be a solid growth contributor. Revenues from these services are now growing in the range of 12-13% year-on-year, and in Norway is contributing to around half of the upper growth we see in this quarter. The other growth elements are growth in 5G connectivity and the selective price adjustments we have implemented across the markets and across most customer segments. Growth is, however, only part of the ambition, and to improve profitability, we also need to keep modernizing ourselves. In Q4, we saw an EBITDA in our home market in Norway decline by 3%. Part of this can be explained by higher energy costs, but the main headwind continued to come from the effects of the copper decommissioning. The EBITDA growth of 6%, excluding carbon energy, is representing a material improvement compared with the 2% growth we had in the last quarter. We have done significant modernization programs the last year in Telenor, and we are not done yet. We took the decision to move away from copper network already back in 2018. And the last years, this has been one of the biggest projects we have been running in Telenor. And as you can see on this graph to the right, this has cost us around 3 billion Norwegian crowns in lost EBITDA from 2019 through 2022. The upside, however, is that we now can move forward with a legacy-free, future-proof network as the first incumbent, as I said, in Europe. The last POTS and DSL retail lines were closed in December. And as you can see from the graph, we expect a significant lower EBITDA headwind from copper in 2023 and going forward. The last quarter, I talked about the plans we have for continuing our modernization of Telenor Norway. Digitalization is driving constant change, and it's fundamental to stay relevant for our customers. Touch-free operations. You have heard me talking about that several times before. And that is continuing to be an ambition and focus for us. How we digitalize to simplify and automate processes to improve quality for our customers, but also to reduce costs. We believe. that we are in the forefront in the industry when it comes to touch-free operations. 75% of our technology operations in Norway are not touch-free, with a network being more than 90%. These proactive technology shifts enable us to move onto the next phase of modernization and to focus on resources and new initiatives. In Norway, we are simplifying our organization and the processes and changing the way of work. As a part of this, we have just announced that we are merging two divisions, two customer divisions, into one customer division. In addition to that, we built one customer service to serve all our customers at one telenor across the different commercial lines that we have. This frees up resources, and we therefore recently announced a downsizing of around 400 FTEs in Norway. This will come from a reduction of around 200 fixed employees and another 200 from fewer external consultants, turnover, and structural initiatives. In total, this is estimated to reduce the number of FTEs in our Norwegian operation and consultants within the range of 10 to 12%. As you know, We have now also gathered all the foreign-born Nordic units under one Terranor Nordic management. With that, we are strengthening the collaboration across the Nordic region, and we are developing a Nordic operating model to support speed and agility in the local markets, and at the same time, taking out cost synergies through shared and common solutions. Focus is on the technology and IT domain, as well as support functions like HR and finance. The financial impact of these initiatives, mainly OPEX and CAPEX, are now, as we discussed at the CMD, expected to come within the three-year period. Summing up. We are well on our way to fulfill the ambitions we set out for the first 12 months when we had our capital markets day in September. We have closed the merger in Malaysia. We have closed the sale of 30% and visualized values of our fiber assets in Norway. And we have completed the decommissioning of the copper network. We are moving thoughts at closing of the large merger in Thailand also during this quarter. Entering 2023, my and my management team's key focus will continue to be profitable growth in the Nordics. We have, as you can see, got off to a good start with the mobile revenue growth we saw in the last quarter, strengthening position and realizing synergies in Asia. We will also continue to work with our structural agenda in Asia. Our plans are to contribute to crystallized values in our infrastructure portfolio, and we will continue to oversee and contribute to a positive development in our AMP portfolio. And with that, let me welcome Tone, our CFO, on the stage.

Thank you. You have heard from Sigve on the main points in the quarter with the large M&A transactions and the positive trends we see in the Nordic mobile business. 2022 has been marked by volatility and unknowns. Our main focus has been on strategic development and our operational performance. And I'm pleased with the execution capabilities in the organization and how we have been able to deliver this year. Overall, we show 2% organic growth for the fourth quarter and stable EBITDA. This means that we end the year with 2% organic revenue growth and 1% growth in EBITDA, in line with our guidance. We also deliver within the guidance for CAPEX at just below 17% CAPEX for the full year. Free cash flow was close to 11 billion for the year, despite high investments in 5G and fiber. And this cash flow is somewhat higher than the level we outlined at the CMD in September. The service revenue growth of 2% mainly reflects strength in Nordic Mobile, Bangladesh, and strong growth in Telenor Maritime and Connection. Sigve highlighted a growth of around 5% for the Nordic mobile business, and as you can see, we saw growth rates from 3% to 7% across the Nordic businesses, when we exclude the significant 1% group drag from copper. Grameen Phone in Bangladesh delivered 4% growth despite the SIM sales ban that was lifted in the beginning of January. We are now back to normal business here. Finally, we saw positive momentum in Telnor Maritime, mainly owing to the return of cruise traffic and double-digit growth in our IoT business of connection. Both of these had good contribution to the 2% growth rate. As you know, Digi is deconsolidated and DTEK will be deconsolidated once the merger closes. This will materially change the revenue composition and these companies accounted for around one third of the revenues in 2021. For reference, we would have seen organic revenue growth of close to 3% if we had excluded DTEK also in 2022. And now to OPEX. We report an 8% or 620 million OPEX increase in Q4 compared to the same period last year. 250 million of the increase reflects higher energy cost, and adjusted for this, the increase was around 5%. Another 175 million was driven by one-time effects impacting Bangladesh and other units. And as you see in the graph to the right, the cost increases for more regular items such as personnel, sales and marketing, and operations and maintenance were more moderate. In the graph to the left, you see the cost increase split by country. And by the looks of it, OPEX decreases by 10 million in Bangladesh in the quarter. That needs to be seen together with the high increase in other and elimination and underlying costs in Bangladesh increased around 100 million. For 2022 as a whole, we see OPEX increase of around 5% driven by energy and sales and marketing costs in particular. At the CMD and the third quarter, we highlighted the uncertainties regarding the outlook for energy costs. As it turned out, Q4 prices ended somewhat lower than Q3 prices, and by this we also saw lower level than what we outlined on the CMD. Nevertheless, the energy cost levels were still around 40% higher than in the fourth quarter of 21. And for the full year, we saw energy cost increase with around 1 billion NOK to a total of 3.9 billion. Looking into 2023, we have around 80% of the Nordic energy exposed to spot prices and around 20% on hedged prices. As we stand now, our best assessment, given the prices we currently observe, is that energy prices in the Nordics will have a fairly neutral impact on the EBITDA from 2022 to 2023. However, the facing during the year may naturally be different. As you know, we have PPA agreements that will come into effect in Norway towards the end of this year and in the second half of 2024 in Denmark. These agreements have pricing more in line with historical averages as we have talked about before. Moving to EBITDA. The organic EBITDA was stable in the fourth quarter with a negative impact of five percentage points from energy and copper. In Norway, the reported EBITDA is down 3% compared to the negative 9% we reported last quarter. And Sigve gave you more insight into this. In Sweden and Denmark, we continue to see EBITDA growth from improved top-line momentum, while EBITDA in Finland continue to be impacted by increased group charges and energy costs. In Thailand, we see continued headwind from reduced affordability in the market as the COVID recovery is still to materialize. Despite this, we see strong cost control and lower sale of handsets, resulting in a solid EBITDA growth of 3% in the quarter. As mentioned on the OPEX, the figures from Bangladesh include some special elements this quarter, and a strong positive EBITDA contribution from Bangladesh is on the group level partly off-site by an opposite effect under eliminations. Other items under other eliminations were positively driven by improvements in the AMP portfolio. Pakistan continues to be tough, with macroeconomic putting pressure on the financial performance and result in a 17% reduction in EBITDA, which is mainly driven by both lower revenues, but also the high energy cost in particular. When entering 2022, we knew we would have negative impacts from copper and project cost, which took down the EBITDA with around 1.1 billion. And the high energy cost has taken the EBITDA down with another 1 billion, or equivalent to 3%. On the positive side, we've had one-offs of around 1.2 billion this year, and a strong operational performance has contributed with 1.2 billion to the EBITDA. Summing up, we ended the year with organic EBITDA growth of 1% to 42.4 billion Norwegian kroner. This is in line with the EBITDA guiding we presented at the beginning of last year. Both for fourth quarter and 2022 as a whole, we see record high net income to equity holders of Telenor. This comes mainly from the closing of the merger in Malaysia, combined with ordinary result in tax effects, result in net income of 38 billion in the quarter and 45 billion for the full year. In line with our strategy to reshape Telenor, we organized mobile businesses in Asia in a legal entity under Telenor Asia. As part of this process, a deductible tax loss of Norwegian kroner 14 billion has been realized. These losses have already been incurred and recognized in the financial accounts in previous periods, but the tax impact of the previous accounting losses are now realized. It is worth noting that closing of the transaction in Thailand will generate similar type of effects in 2023. As Sigve mentioned yesterday, we closed the sale of the 30% of the fiber business in Norway. This will contribute to 10.8 billion in cash flow and have a positive impact on equity in the first quarter. CapEx in the quarter came in at 4.5 billion, or 18% of sales. For the full year, CapEx to sales ended at 16.8%. With regards to the leverage ratio, we are adjusting the calculation to account for dividend from associated companies following the deconsolidation of the assets in Asia. Based on the adjusted definition, the leverage ratio at year end stood at 2.2 times. Turning to cash flow, free cash flow from operations in Q4 came in at 2.4 billion, whereas cash flow from M&A was negative 1.6 billion. The negative contribution from M&A is the result of the deconsolidation of Digi and cash outlay in relation to closing of this transaction of 700 million kroner. For the full year 2022, free cash flow ended at 10.6 billion, of which 9.9 billion was from operations and before M&A activities. This cash flow is slightly above the level that we outlined for 2022 on the CMD in September. Going forward, the free cash flow outlook excluding M&A remains unchanged from the CMD. The cash flow before M&A for 2023 is expected to come in below 2022 as the deconsolidation of the cash flows in Malaysia and Thailand will only be partly offset by dividends received. From 2024 and 2025, we expect to see a ramp up in dividends from Asia, which over time will make these transactions dividend-incretive to the shareholders of Telenor. We expect to realize large synergies in both Malaysia and Thailand. The Celcom Digi transaction in Malaysia is expected to have a shorter integration period than Thailand before we reach the full run rate of synergies. In the Nordics, we expect to see improved free cash flow contribution throughout the period, supported by both EBITDA growth and a nominal capex reduction of around 2 billion in the period 2022 to 2025. Our results, cash flow and strong financial position enable us to deliver in line with our dividend policy. For 2022, shareholder remuneration will include both ordinary dividends and share buybacks. The share buyback is based on the sale of the 30% of the Norwegian fiber business. Following the EGM last week, the board intends to use 35% of the proceeds from the sale for share buybacks. The buyback program will start now in February, and an agreement is in place to redeem a proportionate share of the Norwegian state's shareholding. The proposed ordinary dividend is 9.4 kroner per share, which is in line with the policy to have a nominal increase in dividend per share. The proposal is subject to approval by the AGM in May, and the payout is planned in two tranches of five kroner per share in May and 4.4 kroner per share in October. Then let me round off with a view on the outlook for 2023. From Q1 this year, we will change the reporting structure to reflect the new business area structure. In line with the strategy as outlined on the CMD and based on the changes we are making to our portfolio, our guidance for 2023 is related to the Nordics operation. In the Nordics in 2023, we expect low to mid single digit growth in both organic service revenue and EBITDA. And we expect a capex to sales ratio of around 17%. Looking further ahead, we see a midterm outlook for low to mid single digit growth in revenue and mid single digit growth in EBITDA. This is unchanged from the midterm outlook we presented at the CMD. We are now also able to add some more flavor on our expected CapEx profile in the Nordics. And this is showing our ambition to cut CapEx in nominal terms by around 2 billion in the period from 2022 to 2025. These ambitions are consisted with the cash flow outlook we have presented, our capital allocation priorities, and our stated dividend policies. With that, I would like to thank you for your time and welcome Sigvon Stage.

Thank you, Tone. And then we are ready for questions. Yes. So please open up the line.