Telenor Asa S/Adr

Hi everyone, and welcome to Telenor's fourth quarter results call. I'm Frank Møhr, Head of Investor Relations, and with me here today is Sigve Brekke and our CFO Tone Heggland Bakke. In the interest of good housekeeping, I would like to note that within today's presentation, references to growth rates will be on an organic, like-for-like currency basis. And please also note that both the report and the presentation have been published on our website. As for today's agenda, Sigve will provide an overview of our strategic and operational progress for the quarter, and Tone will present more details on our financial results. She will also give an update on our new guidance for 2024 and how we are tracking towards our midterm outlook. After that, we will open up the floor for questions. Without further ado, I'll turn it over to Sigvall.

Thank you, Frank, and a very good morning to everyone. This was another strong quarter for the Telenor Group, and I'm pleased to say that we continue to execute in line with our plan, not only for 2023, but also now going into 2024. One of the highlights this year is the growth in Nordic mobile service revenues. where we have since the fourth quarter in 2022 posted five consecutive quarters with 5% underlying growth. The main driver of this has been our more for more price adjustments and the services, especially security services that we have put on top of connectivity across the Nordic region. Then to the other highlight, which is the quite comprehensive list of strategic emanation sections we have executed the last year. The focus has been to simplify the group, mitigate risk, and to drive our value creation. We have completed the largest telecom merger ever in Southeast Asia, in Thailand when we closed the merger there. We have announced the sale of Telenor Pakistan, we have monetized a minority stake of our Norwegian fiber network, and we have exited Workgroup 2 and Telno Satellite, two of the companies in our AMP portfolio. These transactions have demanded strong efforts and significant work in many teams across Telenor. I would like to extend a big thank you to all our employees that have been a part of delivering this impressive M&A agenda. And as you see on the slide, we exceeded our cash flow ambitions with 50 billion kroner in total cash flow for the year. Two thirds of the 15 billion cash flow comes from the organic growth and one third comes from deal activities I just mentioned. And having looked back at the numbers, I see that it is actually the best fourth quarter in 10 years when it comes to the overall combination of revenue growth, EBITDA growth and the free cash flow. This overview here brings us back to the capital market stay we had in September 2022. And it illustrates where we now are in our execution of the strategy we laid out at the CMD. Overall, we believe we are well on track with the two years left of the targeted period. In the Nordics, we show sound profitable growth in line with the outlook we provided for 2023. Still, we know we have room for further improvements. And we are well underway in setting ourselves up for transformation and delivering on cross-regional Syngy areas. In Finland, DNA has shown strong financial performance in the quarter, actually the whole last year. Their operation was also recognized by achieving the Finnish Quality Award. In addition, they won the EPSI Customer Satisfaction Award. In Norway, customers are enjoying, I think I want to call it, a fantastic mobile network with supreme coverage. In Q4, we were happy to receive the award from the Auckland Speedtest for the fastest mobile network in the country for the sixth year in a row. And also the award for the best mobile network. It shows how important mobile coverage and a solid mobile network is for our customers in Norway. For the Nordics, we have been able to keep OPEC's growth well below inflation levels throughout the year. But we have not quite performed in line with the nominal reduction ambition we set at the CMD in 2022, when inflation expectations were much lower. However, Norway has managed to keep OPEC flat in 2023, in a year where the inflation in Norway was around 5-6%. This year, we will further sharpen the cost focus both through Nordic level synergies and also country specific transformation measures. Investments in the Nordics will stay at an elevated level also in this year due to the regulatory commitments we have in Sweden. However, as said before, In 2025, I remain confident that CapEx will be 2 billion NOx lower versus what we had in 2022, as the Nordic network modernization rollouts start to taper off. Asia is also progressing according to the plan. What we have done is to improve industry structures with creation of two market leading players in Malaysia and in Thailand. This has bolstered our position because going into partnership in these markets, setting up strong governance models, and the conclusion of exiting and selling to North Pakistan have contributed to our goal of de-risking the Asian portfolio. We are now well positioned and prepared to further explore and exploit strategic opportunities and we call it optionalities for our future position in Asia. At the Capital Markets Day, we communicated our focus on developing and extracting value from our infrastructure business. The fiber deal is now completed, and extensive work has been done in terms of streamlining the tower business and setting ourselves up to potentially crystallize the tower values we have in the Nordics. And when it comes to our fourth business area, AMP, this area has also gone through some material changing during the year, in line with the strategy of develop or divest assets in the portfolio. We have this year completed the sale of Workgroup 2 and Telenor Satellite, and we continue to prioritize capital towards high return activities. We have done all this according to the sustainable business principles that we have, meeting key ESG targets and setting new ones. The execution of scope one to two climate targets remains, They are a little bit challenging in Asia due to the shortage of available clean energy. But we have made solid progress here. We are tracking well in the Nordics, and we are ahead of our scope three targets for the group. Then, I would like to say a few words about how we are performing our business in Nordics and Asia, also the transformation that we have embarked on. In the Nordics, we are working on a transformation program that will yield tangible business benefits in the four Syngy areas that you see on the left hand side of this slide. I think I can say that we are already cutting edge in many aspects, but we still have legacy parts in our network and IT systems that need to be modernized. we have duplication of activities across the four operating companies in the Nordics. And those duplications can be removed. And the potential to transform the customer experience by pooling our resources and deploying the latest technologies. To do this transformation, we see a significant potential to ramp up the use of not only advanced analytics, but also the experience we have in AI and machine learning, and the investments we are now making into generative AI. In the IT domain, we are accelerating our cloud strategy, boosting the share of SaaS-based applications to 70% in 2024. In the network area, we still have a multi-year journey ahead of us, but we will double the cloud native workloads in 24 and giving us far better flexibility, scalability, and simplicity. We are accelerating the deployment of common back office functions. This year, our aim is to double the shared cost activity base to 700 million NOCs. We already see significant savings, but this is only the start. We aim to deploy common data management analytics to drive efficiency through automation. In the commercial area, we are moving towards common product launches across the Nordics, especially in the B2B segment and being much more data driven in how we approach customers in real time. And finally, We have launched a program of working capital initiatives that will deliver structural improvements and efficiencies in capital use. These efforts will entail further rightsizing of our business. Based on our transformation efforts, we are aiming for a flat OPEX for the Nordics in 2024, despite the inflationary environment. followed by a nominal OPEX reduction in 2025. Then moving to our transformation in Asia. We are now deep into the integration work of the two transformative transactions in our associated companies in Thailand and Malaysia. I see a potential of not only getting back to growth in these two markets, after the market consolidations, but also to deliver on the large efficiency potential we have announced. These cost synergies come from unifying the network grids, revamping distribution and improving organizational structures. For instance, in Thailand, we are supporting through in rightsizing and future fitting the organization. I see a really large scale potential here. In Bangladesh, we will continue to focus on taking out the full growth potential while also growing cash flow. After our strategic review of Telenor Pakistan, as you know, we concluded that an exit through a sale to PTCL, the main owner of EUFON, was the best option. We expected this deal to close during the year. All in all, I believe we are on track to what we said at the Captain Marcus Day, where we talked about 5 billion NOX in free cash flow from Asia in 2025. We also said we would like to de-risk our positions and secure repatriation of cash. And with that, I will hand over to Tone.

Thank you, Sigve, and good morning, everyone. 2023 was a year of significant geopolitical, climatic, and macroeconomic turbulence. Amid all this, I'm happy to say that Telenor's operations and key financials represented stable momentum. Top-line revenue growth was 4%. EBITDA growth for the year was 3%, but actually well above 4% if we adjust for the non-cash reversal in Pakistan in the third quarter of 2022. And then after a slow first half of the year when it comes to free cash flow, I'm pleased to report that we closed the year with a strong free cash flow of 9.5 billion Norwegian kroner and totaling 15 billion when including the M&A activities following the intense execution on our structural agenda. Moving to the fourth quarter, which represented a solid finish to the year. We grew top line service revenues with 5%, with good results both in Nordics and in Asia. As to EBITDA, we also performed well with 4% growth. CapEx intensity was just below 15% this quarter, and free cash flow for the quarter ended at a solid 5 billion, which I will come back to more in detail. But first, I will get more into the details of the development and key drivers. starting up with the group figures service revenues for the group has been on a good trend throughout the year with a strong finish in q4 with five percent organic growth coming from four percent in the nordics and seven and a half percent in asia as the key contributors on group level Moving to OPEX, inflation and particularly energy in Asia continue to impact us both in the fourth quarter and for the full year. OPEX for the group increased by 5% both in the quarter and for the year. A key driver for the increase in Asia is Asia, which in Q4 was 17% and was impacted by higher energy costs and lower comparables last year in the fourth quarter in Grameen phone. In the Nordics, inflation in the region averaged around 6% in 2023, ranging from around 3% in Denmark and up to almost 9% in Sweden. This clearly affected our cost performance. However, our structural cost reduction efforts managed to offset a good part of this, with OPEX coming up only 3%, both in the quarter and for the full year. Two of the four business units in the Nordics actually had flat OPEX in 2023. In Norway, as we said, where inflation averaged 5-6% for the year, we managed to keep OPEX flat in 2023 due to the transformational efforts. The Danish operation also continued to deliver well and had a flat OPEX during 2023. This brings us to group EBITDA, which increased by 4% in the fourth quarter. Nordics was an important EBITDA growth contributor, growing with 5%, and so was Asia, growing by 4.4%. We had a relatively neutral impact from energy for the group year on year, with approximately 0.1 billion NOC tailwind in the Nordics, offset by a similar headwind in Asia. AMP, our portfolio of non-core and adjacent businesses, had a weakening trend throughout the year. The main driver of this was teleno links, as I mentioned on our third quarter call. Coming from a strong 2022, we now see the voice and messaging business declining, with links also facing structural headwinds driven by technology changes. Going forward, we continue to see profitable growth for Connexion, our IoT company. On the associated assets, while we took impairments on Alente and Carousel, we continue to see sound development in our growth assets. Following these changes and developments, we expect a reset of the EBITDA and free cash flow levels of AMP in 2024. On valuation on the AMP portfolio, we have now, during this year, confirmed the upper end of the valuation range we gave at the CMD when we talked about the 10 to 15 billion NOC. After taking out around 4 billion in cash in 2023, we now estimate the value of the remaining portfolio in AMP to be in the area of 10 billion kroner. Moving to the Nordics part of our business. In the Nordics, growth in service revenue came at 3.8% for the quarter and 3.4% for the year. We have been able to maintain the 5% growth level on the mobile side for several quarters now. In fixed, service revenues have trended up as legacy handling diminished during the year, but growth was still muted at 1.2% in the fourth quarter. Looking at the country operations, DNA in Finland delivered another strong quarter with 9% mobile service revenue growth, and Sweden contributed well with 4% growth in total service revenues in the fourth quarter. Going into 2024, we have seen constructive pricing moves in the Swedish market, building on the positive moves in the low- and mid-tier segments last year. Norway grew service revenue close to 3% overall. Zooming further in on Norway, revenue growth has been in line with plan, as I showed on the previous slide. As to EBITDA, and compared to a very strong previous quarter, Q4 is softer with a flat development. The underlying growth on the chart to the right is adjusting for the typical swing factors we have been showing over several quarters, namely relating to the copper decommissioning headwind, energy cost, and adjustments related to our B2C handset swap program. At 2% underlying growth in Q4, that was lower than the 5% underlying growth we saw in Q3. This is mainly explained by two things. Firstly, on the OPEX, we see a series of accruals and minor cost items adding up in the fourth quarter. And secondly, we saw some gross margin underperformance within device sales. We expect OPEX enhanced margins performance to improve in 2024. While Norway's EBITDA trend over the last few quarter is encouraging, we still see some variability in the performance and continue to drive transformation and efficiency agenda. EBITDA growth in Nordics remained strong at 5% in the fourth quarter. Failure ended at 3.7 in line with the guiding. Although the growth is somewhat lower than the very strong previous quarter, we continue to see a positive trend in the Nordics. Our Finnish operation DNA was the main contributor this quarter with 17% growth. This was helped by energy costs that fell by 25% year over year. However, and adjusted for this growth was still in the double digits. Both Sweden and Denmark also generated solid EBITDA growth in the quarter. Norway, Finland and Denmark were helped by lower energy costs this quarter. The PPAs we have entered into will remove some of the volatility related to energy costs in the Nordics and particularly this year as PPA in Norway and Denmark comes into effect during the year. Then moving to Asia. Let me start with Grameenphone and Telno Pakistan, our consolidated businesses. Organic service revenue grew by 7.5% with increased data usage and price adjustments as the main growth drivers. EBITDA grew 4.4%. In Grameenphone, we see ARPA growth of 5.5% year-over-year due to price uplifts and data usage growth. As said, we concluded a strategic review of Pakistan in December with the decision to exit. The deal we announced in December with PTCL values Telno-Pakistan at 5.3 billion Norwegian kroner on a cash and debt-free basis. This includes repayment of intercompany loans of 3.5 billion and reduced interest bearing liabilities of 1.8 billion, including leases. The transaction is subject to regulatory approvals and other customary terms and conditions and is expected to close later this year, as we have said. We continue to focus on free cash flow in Asia in line with our CMD ambition, with dividend and SELCOM Digi and True being important for our mid-term ambitions. Selcom Digi paid out an accretive dividend in 2023 in line with their progressive dividend commitment. We continue to have a positive outlook here for 2024 and onwards. For True, we are working to return to dividends as we go into 2025. Now, let's take a look at the key remaining financial topics for the group this quarter and at year end. Starting with the P&L and looking at some of the elements below EBITDA. This quarter, we had some special items, mainly impairments, that impacted our P&L. When we completed the merger of DTEK and TRUE in the first quarter of 2023, we booked a Norwegian kroner 18.5 billion gain on the discontinued business line, and the share price started trading at 8.15 taibat per share. At the end of 2023, the share price stood at about 5.05. Due to the significant reduction in the share price, we have marked to market value the true asset as we pre-announced on Monday. In Q4, this led to an overall write-down of 8.7 billion kroner, consisting of 8 billion impairment on the associated company line and a fair value adjustment to the shareholder loan that is booked in net financial items. Based on this and going forward, we will continue to use the mark-to-market principle for the valuation of True in our books on a quarterly basis. This implies that there will be a positive or negative impact on our books depending on True's share price development. As an example, if the current quarter were to close at yesterday's share price in True, there would have been a 3.6 billion positive mark-to-market effect on the associated company level. For the full year 2023, we had a net income to equity holders of Telenor Assa of 13.7 billion, equivalent to an earnings per share of 9.9 kroner. Moving to the balance sheet, we ended 2023 with 80 billion Norwegian kroner in net interest bearing debt. Leverage ended at 2.2 times EBITDA as for the previous quarter. I have previously talked about the various macro factors impacting our financial performance. We expect these macro elements to remain prevalent in 2024. And this is particularly relating to currency volatility in general and including the staggered availability of dollars and euros in Bangladesh. Volatility in energy prices and subsidy levels in Bangladesh and Pakistan. And finally, we continue to see inflation and interest rates as key elements. Moving to free cash flow. We came out of 2023 with a solid free cash flow. In Q4, as I said, we generated 5.5 billion. Of this amount, 4.9 billion was generated organically with main drivers being EBITDA and a 2.4 billion tax refund from the tax authorities as we announced in November. Contribution from M&A was 0.6 billion kroner from working group two. CapEx was fronted loaded in the year with also a small time facing going into 2024. We paid more than 500 million in Spectrum CapEx with the main part relating to the auction in Sweden in September. We continue to receive steady quarterly dividends from Cellcom Digi in Malaysia. All in all, we deliver a solid free cash flow. Now, moving to our outlook. I would like to start by revisiting what we stated at the capital markets day in 2022 for the period from 2022 to 2025. As shown by the first two columns on this chart, when comparing to the actuals for 22 and 23, we did outperform our original free cash flow ambition represented by the red dots. and we delivered a significant net contribution from M&A on top of this. We originally said that we expected a cashflow dip in 2023 due to the deconsolidation effects from DTAC and DIGI. In total, this represented a headwind of more than 2 billion for the year. Also going into last year, we talked about a somewhat steeper cash flow decline in 2023, as we outperformed our ambitions also in 2022. Now we see that 2023 also came in above our expectation, partly supported by the mentioned 2.4 billion in tax refund, but this was then offset by the 1.7 billion special payments in Bangladesh in the second quarter, and also the phasing and timing of the deconsolidation effects of DTAC, which were above our estimates at the CMD. This means that when we now look at 2024 and 2025, we believe we remain on track to our stated midterm ambitions, despite various moving parts since that ambition was laid out. This brings us to the shareholder remuneration. Consistency and predictability is important for us when it comes to dividend. The proposed dividend is 9.5 kroner per share, which is in line with our policy to have a nominal increase in dividend per share. The proposal is, as always, subject to approval by the AGM in May, and a payout is planned in two tranches of 5 kroner per share in May and 4.5 kroner per share in October of 2024. In addition to dividend, our shareholder remuneration also includes buybacks of 3.7 billion kronor, of which 1.7 billion was bought in the open market last year, and the rest will be bought back from the Norwegian state this summer, as per our usual agreement. Now I will take you through the outlook for 2024. For Telno-Norways, we expect low single digit growth in service revenues. Finland is expected to remain strong. We see encouraging signs in Sweden with regards to pricing, and we see a more nuanced market environment in Norway with somewhat tougher competition in the price sensitive segment. We expect mid single digit organic growth in Nordic EBITDA. The outlook is supported by a flat OPEX ambition for the Nordics in 2024, despite the inflationary environment. As Sigve said, for 2025, we expect a slight nominal decrease in OPEX in the Nordics. This is an update from our earlier ambition of net OPEX reduction in Nordics by a CAGR of 1 to 3% from 23 to 25. This is in the context of the fairly significant higher than expected inflation compared to our original planning assumption. The effect of the planned transformation measures in the Nordic will likely be somewhat back and loaded in the year, setting us up with good speed into 2025. We expect a Nordic CapEx to sales ratio to remain around 17%, same as for 23. For the group, we guide for mid single digit EBITDA growth in 24, supported by the Nordics and good operating trends in Asia and infrastructure. AMPs earnings will be impacted by the recent exits, tempered with links facing both temporary and structural headwinds. Finally, we expect to deliver a free cash flow before M&A of 9 to 10 billion in 2024. Note that this range does not factor in potential typical one-off items related to prior years activities, such as the previously mentioned late payments in Bangladesh. And also note that satellite is no longer included. The free cash flow for 2023 with this definition would have been a bit north of 8 billion kronor. As such, we are on track towards our 2025 ambition of covering our nominal dividend per share by free cash flows. Going forward, the key building blocks to reaching this target are continued mid-single-digit EBITDA growth for Nordics. This will be supported by top-line growth and a nominal slight decrease in 2025 in OPEX. Then there is the 2 billion lower CAPEX for the Nordics in 2025 versus 2022. And finally, on Nordics, cash flow from our structural working capital initiatives. In Asia, we expect growth in free cash flow from GDP, and we expect ramping up of synergies and dividends from our associates. With that, Sigve, I believe we are ready for questions.