Telenor Asa S/Adr

Good morning and welcome to Telenor's third quarter results call. I'm Frank Moe, Head of Investor Relations, and joining me today I have Sigve Brekke, our CEO, as well as Acting CFO Kasper Korbe. As always in the presentation today, all growth rates are referred to on an organic, like-for-like basis. We have a short and sweet agenda today along the same lines as usual. And using a new format for our Q&A this time, we would appreciate if analysts would turn cameras on when asking your question. And with that, Sigvard, the floor is yours.

Thank you, Frank, and good morning to everyone. Welcome to a sunny day here in Oslo. In the third quarter, we continued to execute on our strategy. We delivered steady financials while also navigating the challenges we have had in Bangladesh. We continued to grow in the Nordics and we were delivering a growth of close to 5%. Our transformation program is progressing well and we have a good momentum now for SIEM OPEX going down already, now going into the fourth quarter and further into 2025. In Asia, True Cooperation, where we own 30.3%, continued to be on track following the merger last year. Both their second quarter report in August, where the financial outlook was raised, and their third quarter report, which was out last Friday, were testaments to steady progress on realizing the large-scale merger benefits that we planned for two years ago. And as I will come back to in a minute, Grameenphone in Bangladesh faced tough macro headwinds in the quarter. This was a drag on the overall group growth. However, we will believe that this is temporary. Nevertheless, we generated free cash flow of 2.8 billion in the quarter, totaling 8.3 billion year to date. A final highlight is that with now three quarters of the year behind us, we have tightened in our 2024 financial outlooks. Most importantly, I'm happy to say that we are now able to narrow in the free cash flow guidance to the upper half of the previous interval. That is indicating an EBITDA growth for the Nordics of around 6% for the full year. Kasper will talk more about this later. Let me dig a bit into the Nordics. At our capital markets day back in 2022, we set a bold ambition of growing service revenues in the low to mid single digit. We also said that we plan to take out structural costs and generate mid single digit EBITDA growth. Two years later, this is exactly what we have done. And this also goes for the third quarter. We have kept developing and monetizing our strong networks and brands while creating growth on top of connectivity through our capital light value added services in areas such as security, safety and TV. In the third quarter, while meeting tougher camps from last year and a much lower inflation economy, we generated 4% mobile service revenue growth and 5% EBITDA. We did this by offering our customers more value, more volume, speed and features, and also charging accordingly higher prices, which has resulted in an upper growth across the region. We call this more for more pricing logic. We also did this while turning in positive net subscriber addition in all our four Nordic country operations, close to 60,000 net subscribers now in the quarter, as customers saw the value and strength of our offerings. And finally, we did this while at the same time continuing to take out structural costs and drive operating leverage. Executing on this strategy also prepared the ground for even better efficiencies in the current quarter and for 2025 and for the next years ahead. This is why we expect OPEX reductions now going into the fourth quarter and a full year reduction in 2025. Going forward, I'm confident that the transformation strategy we have in place paves the way for sustaining growth, even in a lower inflationary environment. I also see the potential for a multi-year period of lower and lower OPEX and for also lower capital intensity than we have today. Let me turn to Asia, and this time I will spend a little time on Bangladesh. As I stood here in July, presenting the second quarter results, large-scale student demonstrations were about to break out in Bangladesh. This developed into widespread social unrest that was met with violence from police and security forces. All of this led to the country coming to a standstill, including the forced closure of the mobile data networks and also imports and exports. On August 5, the military stepped in, the prime minister left the country, the government was toppled, and a new interim government was announced. In the weeks following this, there was a lack of law and order in the country. Many business sectors, including the big garment industry, remained closed. As they started to gradually reopen, the country was also hit by flooding. Since the unrest, we have seen lower circulation of cash in the economy than what we historically have seen. But we have also now seen a gradually more stable situation. Into October, we have noted some early signs that the economy may be starting to pick up again. And in previous crises in the countries, mobile communication services have always proven to be crucial for both businesses and individuals. This being said, Looking at our daily revenue development, our daily revenues were 10% below trends in the latter half of Q3. But moving into October, we saw an 8% below trend. We do think that this is a macro-driven setback and that it's temporary. Our 25-year experience in this country is that interim technocrat governments can be a source of stability. We also saw this some years ago when we had a similar situation. We now observe a climate for renewed optimism in the country, politically, socially, and by extension, also economically. I have witnessed this myself during my recent two visits to Bangladesh. So, what are we then doing to mitigate the situation and protect our cash flow? The team on the ground in Bangladesh is moving full steam ahead in terms of revamping the marketing mix and adopting offerings to the more prudent and spending situation, as well as stimulating for higher spending customers. While Grameen Farm is a very efficient operator, there is still and there are always things to do on the cost side. And in addition, we will be extra prudent with how we allocate capex in the current environment. We do this to protect the cash flow and our ability to continue the dividend take-out. While it may take a few quarters, potentially even a full year, to get fully back to the growth we used to have in Bangladesh, I'm confident in the strength and the flexibility of the Al-Agra Min Fund organization. Finally, I also want to mention Pakistan. The strong effort by the team on the ground has led this operation to swing back to profitable growth despite the inflationary environment and despite the ongoing merger process, and thus offsetting some of the setbacks we saw in Bangladesh this quarter. The divestment approval process is ongoing, quite in line with our plan. For process reasons, we now expect closing to slip into the early start of next year. Although it's taken a little bit more time than we had hoped for, I'm not concerned about the outcome. And by that, I hand over to Kasper to take us through the financials.

Thank you, Sigve, and good morning all. We saw group service revenues growing by 2.1% and EBITDA by 1.8% in the third quarter, as the 3% negative top-line growth in Grameenphone weighted on our numbers driven by what Sigvard just described. This being said, I'm happy that we once again are able to report a set of numbers from the Nordics and for the rest of Asia that supports our outlook and medium-term ambitions. Capital sales at 14% was also slightly lighter than they originally anticipated for the quarter. Following strong commercial and cost execution, together with some pushing forward of CapEx related payments, we generated 2.8 billion in free cash flow in the quarter, and 8.3 billion year to date. Including also M&A proceeds, the year to date number is 10.3 billion. Let's take a closer look at how we are performing. For Telenor Nordics, service revenue growth tapered off a little bit in the third quarter, quite in line with the previous output commentary, as we met tougher comparables from last year. The growth of 3.2% was mainly driven by consumer mobile, with RP growth coming from our more for more price increase execution. On the B2B side, we see the same trends as in previous quarters in Norway, Sweden, and Denmark. There's reasonable growth in the mass market B2B, with tough competition and continued RP erosion in the enterprise segment. In Finland, the situation is a bit different, where DNA is a challenger in B2B, growing service revenue in this market segment in the double digits, also in this third quarter. We had positive net mobile subscriber additions throughout the Nordics in Q3. While in fixed, the growth in fiber connection was offset by decline on the cable side. In Norway, brand surveys showed that Telenor has a superior network and security position among customers. This, together with otherwise solid commercial execution in Q3, also manifested in lower churn. In Finland and Sweden, growth was relatively broad-based across segments. DNA was again the main contributor to the top-line growth, delivering another strong quarter and service revenue growth of 6%, driven by both mobile B2C and B2B. In Sweden, B2B and fixed was accretive for overall growth, while mobile B2C also contributed decently. In Denmark, following a tough first half with new consumer credit regulation, subscriber growth was reignited with new financing and distribution partners contributing to stronger sales. In Q3, we also saw satisfactory operating leverage in the Nordic business. The combination of continued service revenue growth and just a modest OPEX growth of 1.4% for Telenor Nordics generated EPR growth of 4.6%. All business units grew in at least the low to mid second digits, with DNA in Finland leading the growth in relative terms, growing close to 7%, while the biggest absolute contribution came from Norway. Then turning to Asia, where the impact from Bangladesh is particularly visible in our numbers. While Pakistan grew both service revenues and EBITDA, and thus partly offset this effect, Asia's service revenues contracted 1.2% and EBITDA came off 3% in the third quarter. As you might recall, we report our listed Asian associate companies with a one-quarter lag. Among them, I would like to highlight the performance of True in Thailand. There, we saw strong effects from synergy and integration efforts in the second quarter, which was reported in August, and in the third quarter, which was published on Friday last week. With EBITDA growth of 17% in Q3 and making solid headway on net debt reduction, leverage is already below the company's target level for year-end 25. With this continued progress, we find True well-placed to deliver on its full-year outlook and ambitious medium-term goals. For Cellcom Digi, the dividend continues to be paid on a quarterly basis. As for performance, we expect the company to work actively on revenue growth and get improving net benefits of the synergies going forward. Last month, Selcom Digi won the award for best mobile coverage by Ukla Speedtest, showing their progress on the network integration. Then, zooming back out at the group level, we see a solid service revenue performance across the group, except for Grameenphone in Bangladesh. The growth of 2.1% was mainly driven by our continued execution of more for more price adjustments across the portfolio. Looking at group-level OPEX, this increased by 2%. In the Nordics, OPEX came in at 1%, as mentioned already. Although we saw a slight increase in OPEX this quarter, the time-facing of sales and marketing spend we have talked about in the previous earnings calls materialized as expected. Still, we have a good starting point for seeing OPEX going down in the fourth quarter and in 2025 for Nordics. I'm happy to say that also this quarter, we see the effects from our transformation efforts in Nordics coming true and once again resulting in a decline in operation and maintenance expenses. This more than offsets the increase within that category from Asia. Finally, the strong energy headwinds in Asia seen in the first half have calmed down a bit, although we expect this could pick up again for the last part of the year. Moving to Group EBITDA, we continue to see Nordics being the main contributor with 4.6% organic growth. AMP continues this soft trend with a 0.8 percentage points negative contribution, where LINX continues to be the main drag. In addition, the impact of Bangladesh also weighted on the group numbers. As we see it, both AMP and Grameenvon are temporary drags given quite unusual conditions. All in all, this led to an EBITDA growth of 2% this quarter. Next, let me highlight the most notable items affecting the profit and loss statement, as well as our balance sheet and cash flows. Looking at the P&L, we have another quite clean quarter with only one item to comment on. The EBITDA before other income and expenses landed at 9.2 billion in Q3, as the divestment of satellites offset the underlying organic growth. As for the previous quarter, we have on the net financial income and expense line a fair value adjustment related to our indirect ownership in Truecorp of 615 million kroner. Measured in Norwegian kroner, the share price of True was up 44% during the quarter, which in turn impacts this indirect portion of our ownership. Mark that a part of this was converted to direct ownership back in July. The revaluation adjustment was also the key factor behind the EPS increase to 2.39 kroner this quarter. As for cash flow, we have another solid quarter. So far this year, we have generated free cash flows before M&A of 8.3 billion, 2.8 billion of which were made in the third quarter. This was driven by strong operational performance in the Nordics, also helped by seasonally low interest payments in Q3, dividends received from Selcon Digi, and CapEx numbers, both booked and paid, which was slightly lower than expected in the Nordics. On the working capital side, we saw, as indicated in Q2, a negative impact from working capital due to phasing from the previous quarter. Continued working capital management helped limit the unwinding of the large improvements seen in the first half. There was also an outflow of 0.7 billion to non-controlling shareholders of Grameenphone this quarter, as we repatriated the first half year, 2024, net profits as dividend in Q3. Note that 0.2 billion of the 0.9 billion in minority payouts we talked about in the previous quarter will be paid in Q4 due to the timing of local withholding tax. The balance sheet of the group remains strong, with 83.5 billion in net interest rate debt and a net leverage ratio of 2.3 times. The favorable FX impact on net interest-bearing debt of 2.3 billion kroner we saw in Q2 was reversed as the quarter closed with a weaker knock. This led to a 2.4 billion increase in net debt in the third quarter. As always, there are several factors which can lead to net leverage fluctuations between quarters. including to a level above the leverage range, as happened in Q2 last year. This time, factors such as the speed of recovery in Bangladesh, back-end-loaded cap expense, the volatility of the euro NOC, and the second tranche of the full-year dividends will be key factors impacting whether net leverage is going to end up at year end. This brings us to the financial outlook. With solid performance in the first three quarters of the year, we have narrowed and updated our overall outlook. For Telno Nordics, based on a service revenue growth of 4.1% for the first nine months, we narrow our 2024 service revenue outlook to 3% to 4% growth from low to mid single digits previously. In line with what you stated in the second quarter report, growth in the last part of the year is expected to be lower than in the first half due to tougher year-on-year comparables. We also noted that inflation in the Nordic region has come down from the mid to high single digits in the first half of last year to low single digits levels at present. For Nordics, we expect around 6% organic EBITDA growth. This compares to our previous guidance of mid single digit organic growth. We foresee capital sales of slightly below 17%. And this is a minor change from around 17% in our previous outlook. CapEx was somewhat behind plan in Norway in Q3, of which we are aiming to catch up a fair chunk, and we have significant regulatory obligations in Sweden ahead of us for completion in Q4. For the group, we expect 3-4% organic EBITDA growth before other items in 2024. This has changed from mid-second digit growth due to the macro headwinds in Bangladesh that we discussed in depth earlier. On free cash flow, we have tightened the range towards the upper half of the previous 9 to 10 billion targets, based on the solid performance so far. Still, I would like to emphasize that there is still a bit of uncertainty as to exactly where the year ends up. Our capex is not only back-end loaded in a year, but from a payment perspective, also back-end loaded in the fourth quarter. With high investment activity in Q4, there will always be some uncertainty related to external factors, such as permits, as well as the exact timing of project milestones recognitions, which in turn is impacting supplier invoicing. In addition, with typically 60 days payment terms, there will always be some uncertainty whether the cash effect will impact the cash flow in Q4 this year or Q1 next year. And with that, I hand the word back to you, Sigve, for some concluding remarks.