Telenor Asa S/Adr

good morning and welcome to telenor's results call for the second quarter my name is frank moyer head of investor relations here and i'm joined by our group ceo benedictus as well as our group cfo um Before we kick off, a couple of housekeeping items as usual. On this call, all numbers are in Norwegian kronor, and growth rates are referred to on an organic, like-for-like currency basis, unless otherwise stated. For simplicity, comments on this call referring to EBITDA are referring to adjusted EBITDA. And for those who wish to ask questions after our prepared remarks, we kindly ask you to limit yourself to only one question and a related follow-up in case you need a clarification. So without further ado, Benedicte, the floor is yours.

Thank you very much, Frank, and good morning, everyone. We really appreciate your taking the time to join us today. We experience profound geopolitical shifts and changes in tariffs and trade policies by the day. Fortunately, short term, these effects for Telenor are limited. However, longer term, it may imply changes affecting all markets, including Telenor. But despite what's happening around us, we are really proud to present very strong results for the second quarter. We saw exceptional performance in the Nordics driven by double-digit EBITDA growth in Norway and the Nordic business area. We also saw improved performance in Asia in infrastructure whilst AMP continued to lag our performance ambitions. In the Nordics, the strong execution is the result of a well-established commercial strategy and a transformation program which is driving both improved customer experiences as well as operational efficiencies. These radical improvement efforts are far from finished and will continue to be key for us in the coming years. All in all, on the bottom line, these effects trickle down through the P&L, driving adjusted EPS growth to 33% in the quarter. As a leading telco in the Nordic, both fixed and mobile services are core markets for us. And we have recently announced our intention to expand our fiber reach in Norway through an M&A transaction. And today we also announced the plan to upgrade all of DNA's housing associations in Finland to fiber over the next years to the benefit of our customers. And finally, we reiterate our top line, CapEx and free cash flow outlook for the year. We raise a bit of guidance for the Nordics and for Group on the back of the solid performance in the first half. So let me take you through the key developments in the Nordics and Asia before Torbjörn takes you through the finer details. Service revenue growth in the Nordic rebounded in Q2 to match the growth level from one year earlier. The 3.7 service revenue growth in the Nordics was supported by ARPA growth across markets and positive subs development in Sweden, Denmark and Finland. In terms of results, it was one of those rare quarters in which nearly everything moved in our favor, especially in Norway, as you can see from the dotted line on the right side of this page. The EBITDA growth of 16.1% in Norway is a level we have not seen for more than a decade. Together with continued growth in Finland and Sweden and progress on the Nordic transformation program, this actually resulted in 12.5% EBITDA growth for the Nordics as a whole. As you might have seen, we recently announced the acquisition of Global Connect's consumer fiber business in Norway at an enterprise value of 6 billion NOx. With this deal, we will acquire their access infrastructure and welcome about 140,000 new fiber customers to Telenor. And this will increase our subscriber share from 22% to 29% of the fiber market. This will strengthen our foundation as the leading digital infrastructure provider in Norway once the competition authority approval has been secured. The transaction will benefit our customers and enable us to reap significant cost synergies while leveraging economies of both scope and scale. Telenor Norway has the only fiber network that is open to wholesale competitors. And this deal will entail an increased reach for this open network. Then moving on to Finland, where we today announced a plan to upgrade DNA's market leading fixed broadband infrastructure to become an all fiber network for housing associations customers by 2028. Fiber and fixed investments are, of course, a key part of our regular capex in Finland. However, this entails a significant step up in totaling around 120 million euros in fiber investments over the medium term. And it will start later this year. Then I'll give you some key points on our Asian businesses. In Asia, we continue to grow our results despite a challenging macro and regulatory environment. True in Thailand continued to deliver very decent performance over the first quarter. And we noted that management were clear that there is still room for significant growth and efficiency improvements, and that they've embarked on a transformational journey to address this. The company also reiterated the intention to recommend a dividend to the board later this year. We also found that the recent Spectrum auction in Thailand was encouraging as it reinforces a sound industry structure in the country. In Malaysia, our key ownership priority is to ensure that SACOM Digi has a laser focus to drive cost efficiencies and to address top-line pressure and mounting headwinds from the country's unprecedented 5G approach. Whilst Malaysia has an intensely competitive telecoms market with five active mobile operators, Celcom Digi has nevertheless been able to uphold a steady dividend flow to its shareholders. In Bangladesh, Grameen Phone executed well this quarter against a tough year-over-year comparison or comparable, but both commercially and in terms of cost efficiency. However, we acknowledge that the recovery we had been hoping for this year is more likely to be a post-election story during 2026. Finally, Telenor Pakistan continued its streak of impressive operational performance. On the other hand, the tax authorities in Pakistan have more actively pursued collection of disputed tax claims. We stand firm on our sale of Telenor Pakistan. The sale is set to create a stronger company with the capacity to develop and invest in future-proof digital infrastructure for Pakistan. However, there's been no regulatory clearance of the sale to PTCL. And this delay is a challenging situation for Telenor Pakistan, and it risks hampering 5G investments and the digital development of the country. The Telkom regulator PTA supports the transaction, which we expect will be approved by the competition authority, enabling a closing we hope for in the second half of 2025. And with this, I'll hand you over to Torbjörn for the financials.

Thank you very much, Benedicte. And good morning to everybody on this call on such a fine summer's day here in Oslo. It does feel great to be basking in the additional sunshine provided by this strong set of results. I was tempted to wear shades, but my R&D department said no. Now, starting with the Q2 financial highlights for the group. In the second quarter, service revenues totaled 16.5 billion, which represents a 2.9% annual increase. EBITDA reached 9.3 billion, up 8% year over year. Now, this growth was largely supported by the exceptional performance in Telenor Nordics. In Q2, adjusted EPS came in at 2.22 kroners, up 33% from last year, on the back of the stronger EBITDA and increased contribution from associates and joint ventures. Free cash flow before M&A came in at 1.6 billion, somewhat dented by the development in operating working capital, provision outflow for annual bonuses, and a negative 0.2 billion cash flow in Asia. The latter was mostly due to dividends to non-controlling interest in Grameenphone and a disputed legacy tax case that was surprisingly collected by the authorities in Pakistan. Our capex to sales ratio was 13.5%, which is 1.9 percentage points lower than the same period last year. The leverage ratio ended at 2.4 times, influenced by the timing of dividend payment in May, as well as unfavorable currency effects. Now, as you've heard from both Benedicte and me before, driving return on capital remains a top priority for Telenor. Our key external metric for this is return on capital employed, which came in at 8.8% for the last 12 months. Now, if you were to exclude the associated companies we have in Asia, True and Cellcom Digi, the group return on capital employed would have been 13.2% for the rest of the group. Then zooming in on the top line, the annual group service revenue growth of 2.9% was somewhat affected by the economical setback in Bangladesh following the events in Q3 last year. Nordics was the main driver of the top line with 3.7% growth, with mobile services growth ticking in at a solid 5.6%. I am particularly pleased to note that this growth metric was back over the 5% level, around which we had a strong streak over several quarters during 2023 and 2024. The group OPEX was quite stable in the second quarter, increasing 0.7% down from the 1.9% increase in the first quarter. This was mainly driven by our Nordic transformation program, cost discipline in Grameen phone and lower energy prices in Pakistan. The increased costs in AMP are mainly related to the cyber defense business, which is now being gradually built up. We also saw some increase in corporate cost in conjunction with a changed internal cost allocation from the end of 24, as we explained in the first quarter. The main cost category of OPEX increase was sales and marketing in the Nordics, two thirds of which were incurred in Denmark. And this is mainly related to increased market activities and elevated churn levels in Denmark. However, this increase was more than offset in the Nordics by our transformation efforts, resulting in efficiencies on the personnel side, as well as within operation and maintenance costs. Parts of the transformation also included transfer of the cybersecurity and B2C cloud businesses from Norway to AMP on the 1st of September 24 and the 1st of May 25, respectively. As a result, OPEX came down 1.6% in the Nordics with a 3.8% reduction in Norway as the main contributor this quarter. These numbers were partially helped by the mentioned transfer of businesses to AMP, which reduced OPEX in the Nordics by 0.6 percentage points and 1.4 percentage point in Norway. Group-adjusted EBITDA amounted to 9.3 billion, which is an increase of 8.3% year over year. Asia contributed positively, partly offset by group effects similar to the ones we discussed in Q1, but again, the main driver was the performance in the Nordics. And in this business area, we saw EBITDA growth deviating from the recent trajectory. As you can see on the right hand side, Telenor Norway was the bellwether this quarter with an exceptional growth of 16.1%, but with both DNA and Sweden following suit with growth rates closing in on 10%. Now let me double click on the EBITDA growth for this quarter. As you might recall from our previous call, where we mentioned that the year-on-year EBITDA growth in Q1 would have been 7.5% in the absence of the TVVAT provisions in Norway. Now, given this starting point, the growth this quarter of 12.5% was five percentage points higher. In the sequential bridge you can see on the screen, you also see that Sweden contributed with a further 0.6 percentage points to Nordic's EBITDA growth, but that the rest of the performance hikes are mostly driven by factors in Norway. Growth in service revenues in Norway explained 2.6 percentage points of EBITDA growth. Around 1 percentage point of this number was driven by the timing of back book price changes, which were made earlier in the quarter this year. In addition, we saw full quarter impact from the roaming agreement with Lyse Tela or ICE, which came into effect in mid-March. In addition, traffic volumes under the agreement were higher than originally anticipated. We now expect roaming revenues of more than half a billion for 2025 as a whole versus the previous estimate of around 0.4 billion. Taken together, the service revenue and roaming revenue effects in Norway contributed around five percentage points of the EBITDA growth for Telenordics. Other gross profit improvements and structural reduction in OPEX also contributed positively by around one percentage point. Summing this up, Nordics experienced a 12.5% year-on-year growth in adjusted EBITDA, a quite exceptional level. While I as a CFO would like to get used to such levels, I think it is unrealistic to assume this on a regular basis going forward, but we're certainly very pleased with the performance in Q2. Turning to Asia, where the profitability of our businesses measured in local currency continue to strengthen. Starting with our consolidated businesses in Asia, while nominal revenues and EBITDA are down, the overall organic growth numbers are both in the black disc quarter. In organic terms, Telenor Pakistan delivered exceptional performance, helped by the continued optimization of data prices, leading to an ARPU growth of 18%, as well as continued support from reduced energy prices. EBITDA growth of 28% is, of course, quite out of the ordinary. Note, however, that Pakistani tax authorities have been even more active than previously in enforcing tax collection, including on disputed legacy tax cases. The surprising collection cost in this quarter cost us almost a quarter of a billion Norwegian kroners. Also note that the reported nominal kroner numbers shown here were materially impacted by the FX weakening in both Pakistan and Bangladesh, partly due to macro and partly due to the general weakening of the US dollar. Turning to our two associated companies in Thailand and Malaysia. The earnings contribution from these two major companies, which we report with one quarter lag, was positive. This was particularly the case for Truecorp, which reported positive net profit for the first time. Given our historical experiences with spectrum auctions in Thailand, we were particularly encouraged by the outcome of the recent auction. The outcome, in our view, was a de-risking event, allowing True to optimize its overall spectrum costs going forward. In Cellcom Digi, as Benedicte said, the market is super competitive, but the company is on track with synergy realization and network rollout. While EBIT increased by 21%, quite a large number, this was mainly due to a write-down that impacted the same quarter last year, hence boosting this growth rate. Going forward, we believe it will be key for Malaysia to ensure a long-term solution for 5G that is financially and operationally viable for all market participants. Next, let me highlight some of the most notable items affecting the P&L statement this quarter before moving to our cash flows and leverage. The reported EBITDA was 9.9 billion, while the adjusted EBITDA landed on 9.3. On other items, we booked a 535 million gain from the cloud storage JV with Jotter Cloud that we announced earlier this year. Moving further down, we have a minor catch-up amortization of 63 million in Sweden, weighing a little bit on the DNA line. All in all, we generated net income to equity holders of 3.7 billion in Q2, leading to a significant improvement in adjusted EPS to 2.2 kronors per share. Then moving to cash flows. We generated free cash flows before M&A of 4.6 billion in the first half of the year, 1.6 billion of which was brought in during the second quarter. Now, let me walk you through the various steps of the Q2 EBITDA to free cash flow bridge. As we talked about last time, we have significantly and seasonally higher interest payments in the second and fourth quarter of the year. This quarter, net interest paid was twice as high as in the previous quarter, in line with the usual pattern. Income taxes paid were higher than expected due to a quarter of a billion tax payment in Pakistan, as I mentioned previously, and capex, both paid and booked, amounted to 2.8 billion in the quarter. On the working capital side, we saw a negative 0.7 billion change, mostly from the Nordics. Excuse me. Around a quarter of this comes from payment of the Norway TV VAT case we provided for over the last two quarters. The rest mostly relates to natural variations in tax cycles and timing of prepaid revenue. We did not make use of any handset financing this quarter, which had a positive contribution in the same quarter of last year. We had a 0.2 billion in spectrum related payments in Bangladesh and Denmark. And during the quarter, we received a 345 million dividend from Celcom Digi. Other lease payments, including prepayments, amounted to a total of 1.1 billion, a figure largely consistent with the indicated average level that we have previously communicated. Now, it doesn't perhaps need to be said, but when we benefit from the upstreaming of dividends, our co-shareholders do so as well. And in the quarter, we paid 0.9 billion to non-controlling interest in Grameenphone. Note that for Q3, Grameenphone has declared an interim dividend of its full net profit for the first half of 2025. This will cause a cash outflow of 0.6 billion in dividend to non-controlling shareholders, as well as withholding tax in this third quarter. Finally, we had an M&A outflow of 0.6 billion, of which 0.5 billion was related to the last tranche of conversion from partial indirect ownership in True to direct ownership. Based on the original agreement we had with CP Group, the final transaction would be done at market value. And following this, all of our shares in True are now directly held. Summing up, we ended Q2 with 1.6 billion of free cash flow before M&A and 1 billion in total free cash flow. Then to the main highlights from the balance sheet. In Q2, we had $90 billion in net interest-bearing debt, with $100 billion in gross debt, less $3.4 billion in license obligations, and $6 billion in cash. This quarter, our leverage ratio ended at 2.4 times, partly following our dividend payment in May of $6.5 billion. We also saw currency changes, increasing our net debt by some 3 billion in the quarter, mainly driven by the 4.5% quarter-on-quarter strengthening of the euro versus the NOKI, all of which took place during the last 10 days of June. As previously stated, FX, macro and seasonality factors can lead to net leverage fluctuations between quarters, sometimes resulting in a level just outside the range as we saw now. And we do expect to return back within our target leverage range during 2025. And this brings us to the financial outlook for the year. Based on the strong performance in the first half, and particularly in the second quarter, we have revised our outlook for 2025. As you can see from this slide, we have raised the EBITDA outlook for the Nordics to high single digit growth, while the group EBITDA growth is raised to mid single digit growth. We reaffirm the other outlook elements for the year. You will also see that the first half actuals are broadly in line with our revised full year outlook. The free cash flow both from Q1 and Q2 has come in somewhat above our own expectations. As such, we reiterate our expectation of a back-end loaded 2025 free cash flow due to the cash flow profile in Asia. As we raise the EBITDA outlook to high single digits for the Nordics, let me be clear that we do not find it prudent to assume that EBITDA growth in the Nordics will continue at the levels seen in the first half. While we continue to pursue meaningful transformation-driven OPEX decline for the full year, in the second half, we do expect higher spending on sales and marketing or market activities, as well as further strengthening of business resilience, particularly in Norway. We also reiterate the capex sales outlook for the Nordics of around 14%. However, in the second half, we will make some of the new fiber investments in Finland, as well as some resilience-related investments in Norway. As such, the decimal rounding is more likely to be on the upside of 14% rather than on the downside. For free cash flow, we continue to expect around 13 billion before M&A for the full year, covering our dividend payments during 2025. We feel that we have good business and cash flow momentum in the Nordics, while for Asia, we currently expect around one third of the 13 billion to be generated in that region, including dividend payments from True in Q4. With that, I'd like to hand over to Benedicte for the concluding remarks.