Telenor Asa S/Adr

Hi, everyone, and welcome to Telenor's first quarter results call. I'm Frank Måø, Head of Investor Relations at Telenor, and with me today, I have Sigve Brekke, our CEO, and our CFO, Tone Heggland Bakke. I would like to note that within today's presentation, references to growth rates will be, as usual, on an organic, like-for-like currency basis. On today's agenda, we'll kick off with Sigve's highlights of the quarter and then update on the progress in the three of our business areas. And next, Tone will go through our financial results and outlook before Sigve sums it all up. Then finally, as always, we will open up for questions. Then let me turn it over to Sigve. Yeah.

Thank you, Frank. And a very good morning to everyone. I am very pleased with our performance in this first quarter. We deliver high and profitable growth. We deliver a strong cash flow, and we continue to execute on a strategy that works. At the Capital Markets Day back in 2022, we set out to reshape Telenor. And we outlined both the direction for operations, for organization, and the way we are looking at ownership, together with our financial ambitions through 2025. We are now halfway there in the strategy period, and the results we are announcing today are another demonstration that we are on track to reach our ambitions. We are showing strong and profitable growth in the Nordics, we'd actually know all the business units in the Nordics contributing to both revenue and EBITDA growth. And in Asia, the synergies are beginning to come true, both in Malaysia and in Thailand. Together, this will give us a strong foundation for our long-term value creation. In Q1, we grew our service revenues with 6%. we achieved a 7% EBITDA growth, and in addition, we generated a total free cash flow of 5.4 billion in the quarter. We did this by driving revenue growth and cost discipline in the Nordics and through our cash flow focused in Asia. The Nordic operation delivered even stronger numbers in the first quarter than what we had expected. And in Asia, we are ahead of our plans in synergy realisation in the two merge entities. With this, we are well on track with our full year and midterm financial ambitions. Now, let me zoom in on the Nordics, our biggest contributor to the Group Topline and Ebitda growth. And you see that on this slide. Nordics had a very strong start of the year. Our ambition in this region is to generate profitable growth and focus on revenue market share and capital returns. And Q1 was just another quarter where we delivered mobile service revenue growth at or in this quarter, even above the 5% level you have seen now several quarters in a row. But this time we also delivered a 5% total service revenue growth. We achieved this by monetizing on our strong networks and service capabilities through our more for more pricing strategy. This approach that we have talked about now for several quarters is how we do pricing adjustments. It's enabled by our continued focus on improving the customer experience and meeting our customers' communication and service needs. For example, in the first quarter alone, We have stopped more than half a billion attempts of digital criminal activities for our customers in Norway alone. We have taken then a leading security position in the Norwegian market, in addition to the network position that we already had. And we continue now to see increased demand for security related services. The benefits of having world class network were also visible on the cost side. as we were able to bring down fault handling costs quite substantially in Norway. In addition, we benefit now from a very strong cost discipline across the Nordic businesses. These factors contribute to a flat OPEX, enabling us to reach an EBITDA growth of 8% in the quarter. As we now are executing on our transformation programs, The focus is on common Nordic share services, common Nordic network and IT operations, and we have also started to address the commercial area, in particular the B2B segment. However, the performance you see in this quarter is driven by the momentum we had from efficiency measures we took in 2023, in addition to overall cost discipline and some timing effects. There are also some positive regulatory news from Norway in this quarter. I will say finally. On the fixed side, the regulator's updated position and analysis suggest further deregulation for our cyber business in Norway. And on the mobile side, the regulator communicated the first steps into what we hope will be a full deregulation of the wholesale market within the coming three years, after 20 years now of heavy regulations. So, while the first quarter was indeed a good one in the Nordics, I'm even more happy about our attractions on the transformation program, which is building a strong foundation for where we will be in the medium term and at the end of this decade. I'm convinced that our agenda for cross-regional synergies, evolving towards a cloud native technology stack, as well as using AI to completely change our customer journeys, will be a foundation for long-term performance. This brings me to our digital infrastructure. To succeed with our transformation, We need to continue our development to become a digital cloud-based and AI-enhanced telco. To do this, we have to rely on public cloud partners for many IT workloads. Some of the more critical and sensitive workloads, however, will require a different setup with sovereign cloud governance. In practice, this means that data processing and storage will need to be done on local soil. with a high degree of security and sovereign control. To meet this, we need a modern, green and secure data center as a foundation. We have therefore formed a joint venture named SkyGar, together with two other Norwegian-owned partners. The plan is to launch the first out of three data centers in the Oslo region during the first half of 2025. Skygar has strong focus on energy efficient operations and meeting customers high security and sovereignty requirements. It is estimated that the modern data centers will reduce energy requirements with up to 50% when compared to traditional ones. Furthermore, surplus heat from the new data centers can be utilized into the district's heating network. You may ask, why should Telenor do this? What is our edge in this business? Well, I firmly believe that Telenor's ownership, the scale of our business, the workloads we bring, as well as the competence and trust we have, provide us with a competitive edge in the sovereign data center market. The data centers we are building will have only Norwegian owners, will be governed by the Norwegian security law and fulfill sovereign requirements. This is why we announced also our AI collaboration with NVIDIA in March this year. We will bring in their cutting edge technology into our data centers. AI and cloud solutions built on the NVIDIA ecosystem, as well as technology from other partners, will be the cornerstone of Telenor Nordic's transformation program going forward. Then let me turn to Asia. Our associated company, True in Thailand, posted a strong fourth quarter report in February. As they stated in their report, True is on an accelerated track with regards to capturing merger integration benefits. Synergy Momentum enabled True to provide a 2024 outlook of 9% to 11% EBITDA growth and a positive normalized net profit. which was previously indicated for next year. This is also supported by growth now coming from the return of tourists to Thailand and from a more rational market. All of this support our ambition for true to resume dividend payment into 2025. Selkom Ditchie in Malaysia has communicated a progressive dividend policy in line with the ambitions when they closed this merger. As a result of that, we continue to receive quarterly dividends, as we also did in this quarter, from Selkom Dici. And on the sustainability side, we are pleased to see both True and Selkom Dici's commitment to setting a long-term net zero emission target, supporting TELNOR's overall ambition. Grameenfaan in Bangladesh. In the country, we see an improvement in the political stability following the January election. We will continue our efforts to mitigate political and macro risk going forward. EBITDA growth in Grameenfound in Q1 was held back by rise in energy costs that take away some of the subsidies, which we expect will remain a headwind also for the remainder of 2024. While Grameenfound grew positively in the quarter, I also believe that potential is even higher. And I expect the company's performance to improve now that the political and economic environment is more stable. Finally, as you know from our strategic review of Telenor Pakistan, we have concluded with an exit. While the investment process is ongoing, I continue to be very impressed with the management teams and their ability to not only carry on business as usual, but keep improving all the strong operational and financial performance in a very challenging market. And summing up in Asia, our focus is synergy realisation and cash repatriation. I believe we are well on track to deliver the 5 billion in free cash flow from Asia in 2025, in line with what we said at our capital markets day. And with that, I hand over to Tomer.

Thank you, Sigve, and good morning, everyone. This quarter represents a strong start to the year. The financials we deliver for Q1 are supportive of the outlook we have provided for the year and our ambitions towards 2025. We now start to see that service revenue growth, gross margin improvements and tight operational execution flow through as operational leverage in our business. For the group, service revenues grew by 5.6% and for EBITDA, the 6.9% growth was particularly supported by the OPEX discipline and strong results in the Nordic. Free cash flow before M&A ended at 3.3 billion and 5.4 billion when including the sale of Telenor Satellite. Now, let's start with taking a look at the two largest business areas. Starting with the Nordics, all four business units contributed positively to the service revenue growth of 5%. We also continue to generate strong growth in mobile service revenue, now reaching 7%, coming from ARPU growth, and despite that we do see some subscriber headwinds in Norway and Denmark. DNA in Finland was the star performer this quarter, with mobile service revenue growth reaching the double digits and overall service revenues growing 9%. Growth across the region is the result of our more-for-more strategy and adding value to our subscription portfolios over the last years. B2C ARPU was the key contributor across the Nordics, but also in Sweden we see net ads on the B2B side leading to noteworthy growth. Based on the revenue growth, improved gross margin and OPEX discipline, Nordic EBITDA grew 8.3%. We work systematically with identifying and realizing improvement opportunities for both the fixed and the variable parts of the cost base. A couple of words on the gross margin, which was up 3.3 percentage point year over year. The improvement is partially explained by lower handset sales. It's also lower energy cost, but also a wider improvement agenda in the Nordics. Finally, the more for more strategy also has an accretive impact. The EBITDA expansion in the quarter was somewhat helped by easy comps in Denmark and some energy tailwind. The PPA in Norway, the energy agreement as we talked about before, came in from the month of March this year. The overall EBITDA trend is positive and still EBITDA in the mid single digit, even if we're just for these single elements. Again, DNA had the most significant contribution to the EBITDA in the Nordics with their 16% growth. They did this through the powerful combination of generating double-digit mobile service revenue growth combined with limited OPEX growth. It's also worth noticing our Danish operation, which continues to deliver impressive results in a very challenging market. moving from Nordics to our consolidated businesses in Asia. As for the performance in Grameenphone and Telno, Pakistan, organic service revenues grew 6%. While data continues to be a significant growth driver in this region, its impact of growth has diminished somewhat compared to previous quarters. However, going forward, data growth increasing the subscriber base and ARPU continue to be important levers for us. EBITDA grew 5.3% and was negatively affected by the OPEX increase from energy price hikes. Then, moving to the group level. We see that service revenues remain on a positive trend from the 3% growth we saw in Q1 last year to the nearly 6% growth we see this quarter. Nordics remain the main contributor to the group, but Asia is also contributing solidly with their 6% growth. Then a quick look at group costs. Telno Nordics delivered a flat OPEX in Q1 on the back of the new Nordic operating model. Three main elements are contributing to this. First, we see full effect of cost efficiencies and FTE reductions made through 2023. Second, we had lower fault handling costs in Norway. And third, the general cost discipline was strong. And finally, there was also an element of temporarily lower marketing costs due to the timing of the launch of our new mobile subscription portfolio in Norway in the quarter. And we expect market spending from an overall basis to normalize in the current quarter. The group OPEX was up 4%, affected by 25% increase in energy cost, driven by Asia, where energy is, as you know, booked on the OPEX line. About 75% of this energy cost increase was related to higher energy tariffs in Pakistan. Solid top line growth across the businesses of the group, coupled with strong management of both fixed and variable cost, led to the EBITDA growth of 6.9%. Next, let me highlight the most notable items affecting the P&L leverage and cash flow before I move to the outlook. Reported EBITDA closed at 9.8 billion, an increase of 1.9 billion from last quarter. The main contributor to this nominal growth is the gain from the sale of Telenor Satellite of nearly 1.4 billion. This is booked under other income and expenses, and then for the avoidance of doubt, this is excluded from the EBITDA boy figure we focus on throughout this presentation. On the associated companies line, there is a 7 billion positive effect related to True and reversal of close to the entire impairment we made in Q4. This is based on the share price of True Corporation as per the end of the first quarter. In addition to this, on the net financials line, we booked another reversal related to True and a fair value adjustment of the joint venture shareholder loan amounting to 1 billion NOK. Following this, there will not be any adjustment to the carrying amount of our direct ownership in True besides the quarterly net results, unless there is a significant or prolonged decline in the share price of True. As such, it will only be going forward the shareholder loan that will be on a quarterly mark to market valuation in our books from here on. And please refer to note four in our report for further details on this. The balance sheet of the group remains strong with 79 billion in net interest bearing debt and a net leverage of 2.2. The leverage ratio will continue to be subject to fluctuation between quarters caused by macro factors such as FX volatility and also cash flow fluctuation. In addition, our leverage will be affected by the semi-yearly dividend payments. Also during this summer, we will complete the government's portion of the 2023 Sharebuy program amounting to 1.9 billion kroner. All these factors could lead to leverage fluctuation between quarters, like we saw in the second quarter last year. Staying on the cash flow topic, in Q1, we generated a strong free cash flow of 5.4 billion, of which 3.3 billion was before M&A. We provide further cash flow details on this slide as you see. Starting with the EBITDA, the growth of 7% was a significant contributor to the improved cash flow. Our net working capital improved by 7.9 billion, driven by structural improvements, somewhat favorable facing effects, and a minor portion of third-party handset financing. On the other side, paid capex was a bit high this quarter, where we had some spillover from the capex in the fourth quarter last year. On the topic of seasonality, interest paid was relatively low in Q1 due to quarterly differences in bond interest payments. Our regular interest payments related to bonds are typically around twice as high in Q2 and Q4 compared to the first and the third quarters. As Sigve said, we continue to receive dividend from Cellcom Digi in Malaysia on a quarterly basis. And in this quarter, we also receive dividend from Alente. Contribution from M&A was mainly related to the sale of Telenor Satellite. All in all, we deliver yet a quarter with solid free cash flow, both organically and including M&A. We expect fluctuations in free cash flow between quarters, although not as pronounced as we experienced last year. For example, in Q2, we do expect some periodic payment related to net interest, as I just mentioned, spectrum in Pakistan, and licenses and minority dividends in Grameenphone. As a reminder, this year we might also be faced with late payments related to the legacy cases we settled in Bangladesh last year. These numbers, as we have said before, could be quite significant and are, as you already know, not included in our free cash flow outlook for the year and the target range we gave last quarter. This brings us to the outlook for the year. The year started on a strong note for us, perhaps even stronger than we had expected three months ago. This makes us even more confident in the 2024 outlook we provided last quarter. That said, we will likely continue to see variation between quarters, not only on free cash flow, but maybe also on service revenue and EBITDA growth. We make no changes to the 2024 guidance. In the Nordics, we keep the low single digit service revenue outlook and mid single digit EBITDA outlook. And although CAPEX was on the low side in Q1, we still expect 2024 to be a year of significant investments at around 17% of sales. On the group level, we also maintain our mid-single-digit EBITDA outlook, as well as our free cash flow ambitions for 2024. As this is my final quarter as Telenor CFO, I'm glad to say that I'm leaving a company that is well on course to deliver on the strategy and fulfill the ambitions we communicated in September 2022. And also a company that is in good shape to continue to create value, both for customers, shareholders, and the society a lot. Thank you. And with that, Sigve, I hand the word back to you for some concluding remarks.