Telenor Asa S/Adr

Good morning, and welcome to Telenor's Q3 results call. I'm Frank Måø, Head of Investor Relations here at Telenor. I'm presenting today our CEO, Benedicte Schilbred-Fassmø, and our CFO, Torbjørn Vist. Before we get started, just a few quick notes. Unless we say otherwise, all growth rates are organic and made on a constant currency basis. When we mention EBITDA, we're referring to adjusted EBITDA. And for the Q&A, please just ask one question with a short follow-up if needed, so that everyone gets a chance. And with that, I'll hand it over to Bendicte.

Thank you, Frank, and good morning, everyone. This quarter, we've seen a challenging external environment. Hybrid warfare, extreme weather and a high level of cyber threats have all impacted power and communications. And these events are a reminder of how crucial robust digital infrastructure is. And at the same time, they give us opportunities to help customers build resilience, thanks to our strong network and technology foundation. Today, we are reporting another solid quarter, mainly driven by strong results in the Nordics. Our commercial strategy and ongoing transformation efforts continue to pay off, with EBITDA in the Nordics up 8% and 50,000 new mobile customers added. In Asia, however, we do see a bit of a more mixed picture. On one hand, we grew service revenues and EBITDA by 4%, with positive contributions from both Pakistan and Grameenphone in Bangladesh. On the other hand, we continue to expect challenges in the region, as Torbjörn will get back to, including the macroeconomy and headwinds tied to the cost of supporting data growth, including Spectrum. Thanks to the dedication of our employees across the group, we have delivered an EBITDA growth of 5.4% and a free cash flow before M&A of 4.2 billion this quarter. And this represents a 50% year-on-year increase due to higher EBITDA, prudent capex and supportive working capital management. And with three quarters now behind us, we are reaffirming our expected performance for 2025, and we are tightening our guidance ranges. So let me walk you through the key developments in the Nordics and Asia before Torbjörn takes you through the financials in more detail. The Nordics continued to deliver strong results with momentum across all business units. Organic service revenues in the Nordics rose 2.1% as OPEX declined by the same percentage year over year, driving the 8% increase in EBITDA. Breaking it down, gross profit improved, supported by upselling, pricing, product mix, and increased wholesale revenues. Ongoing transformation programs helped lower OPEX, even though we spent more on sales, marketing, and business resilience. And again, Norway remained our top performer with 2.3 service revenue growth and 9.2 EBITDA growth. And that was also supported by the national roaming agreement announced last year. In Sweden, top line growth was flat due to our fixed transformation initiative, but EBITDA grew 7.5% thanks to improved gross margins and OPEX efficiencies, especially in customer service. We made good progress in the mass market mobile segment, increasing both APU and our customer base, though the enterprise segment in Sweden remained very challenging. In Finland, DNA grew service revenues by 2% year over year. This was supported by net additions of 28,000 mobile customers and 3,000 fixed customers during the quarter. For this quarter, DNA grew EBITDA by 5% and quite a bit more on an underlying basis. Denmark delivered 5% growth powered by strong mobile and fixed wireless access. EBITDA was up 4% despite strategic channel shifts and a huge transformation effort. Overall, the Nordics delivered a strong performance. In Asia, we continued to make operational progress despite a tough external backdrop. Grameenphone delivered growth in both service revenues and EBITDA, though the upswing was softer than hoped. The macro context is still fragile and data price competition is intense. During my recent trip there, I could genuinely feel a sense of optimism building up among the people as the election approaches early next year. Telenor Pakistan delivered 17% year over year EBITDA growth, which is actually great to see. Nevertheless, a key milestone for us was the Competition Authority approval for the sale to PTCL. We are now awaiting the last approvals and aiming to close the transaction during the next few months. In Malaysia, we recognized half a billion adjustment to our share of Cellcom Digi's second quarter results. This was due to the financial profile of its associated 5G network company, DNB. And Torbjörn will cover that in more detail. In Thailand, True continued to improve profitability and reduce leverage in Q2. Next week, a first-ever interim dividend is expected to be proposed with payment in Q4. On October 1st, we announced a strategic procurement partnership with Vodafone. And this collaboration brings together the scale and expertise of two global leaders serving over 550 million customers across 23 markets. And by combining the strength of our two organizations and an annual spend of altogether 300 billion NOCs, we can unlock significant value within sourcing. As we gradually face this in towards the latter part of this decade, we expect this partnership to provide meaningful value creation. And for Telenor, this translates into enhanced competitiveness and improved cost efficiency. It also strengthens our attractiveness to suppliers and partners while bolstering supply chain resilience. a very critical capability in today's evolving geopolitical and technological environment. The partnership is also grounded in a shared sustainability commitment, reinforcing our leadership in responsible sourcing and business practices. Ultimately, this partnership is about creating long-term value for both our customers and shareholders. And with that, I'll hand you over to Torbjörn for more on the financials. Here you go, Torbjörn.

Thank you, Benedicte, and good morning, everyone. Let's dive straight into the Q3 financial highlights. Group service revenues in the quarter reached 16.3 billion, which is up 2.7% year on year. The adjusted EBITDA was 9.5 billion, up 5.4%, mainly driven by the strong 8% EBITDA growth in the Nordics. In Q3, adjusted EPS was 1.85 kroners, down 3% from last year, mainly due to the half a billion accounting adjustment for Cellcom Digi that Benedicte mentioned in her remarks. Without this adjustment, the EPS growth would have been 18%. Now, we generated a solid free cash flow before M&A of 4.2 billion during the quarter, which is up 50% year on year on the back of our EBITDA growth and slightly reduced capex. The group capex to sales ratio was 13.3%, 0.7 percentage points lower than in the same period last year. The leverage ratio ended up at 2.3 times within our target range, and this was supported by both the free cash flow profile as well as slightly favorable end-of-quarter currency movements as the Norwegian kronor strengthened against pretty much all our currencies. As previously stated, driving return on capital employed over time remains a top priority for us. Return on capital employed came in at 8.6 for the last 12 months, up 0.6 percentage points from last year. If you exclude all our non-controlled companies, the group return on capital employed would have been close to 14%. Let's zoom in then on the top line. The group service revenue growth of 2.7% year on year remained constrained by weak macroeconomic conditions in Bangladesh. The Nordics were the main contributor to group growth, with service revenues up 2.1%. If you exclude the 56 million adjustment to the first half service revenues in DNA, underlying growth for the Nordics would have been 2.6%. Nordic mobile service revenue growth of 3.2% was mainly driven by Norway, Denmark, as well as DNA in Finland. Pakistan continued its strong momentum and Grameenphone contributed positively for the first time since the second quarter of 2024. If we turn to OPEX, Telenor Nordics delivered a solid reduction in OPEX in the third quarter, declining 2.1% year over year, driven by lower personnel costs and a successful transformation activities, with Sweden standing out as a key contributor. FTEs across the region were reduced by 3%. Denmark saw higher OPEX largely attributed to the higher commissions in recent quarters, as well as higher costs linked to its ongoing and important IT transformation effort, while Finland benefited from lower personnel costs and positive effects from a minor reclassification. Overall, the rise in sales and marketing expenses was driven by amortization of subscriber costs. For the Nordics, this resulted in a 5% year-over-year increase in sales and marketing spend. OPEX in Asia rose 3.7% year-on-year, mainly due to higher O&M costs, as well as personnel costs in Grameenphone, as well as Telenor Pakistan. AMP recorded a 21% increase in OPEX, reflecting growth initiatives, as well as the transfer of two businesses from Telenor Norway, as we mentioned in Q2. Overall, there was a modest uptick of 1.3% in Group OPEX in the third quarter, underscoring our progress of transformation activities, cost discipline. Then turning to EBITDA. EBITDA for the group was up 5.4% in Q3. Asia contributed positively, partly offset by group effects similar to the ones we've discussed before. But the main driver this quarter was the performance in the Nordics. And in this business area, EBITDA grew 8% in Q3. And as you can see on the right-hand side of the slide, Telenor Norway was the cornerstone this quarter. The performance in Norway was driven by service revenue growth as well as wholesale revenues, mainly from the national roaming agreement highlighted during our Q2 presentation. On a side note, we still forecast the full year revenues from this contract to be more than half a billion for 2025 as a whole. Together, these factors paid way for a 9.2% year-on-year growth for Norway. Now, DNA also had a reported EBITDA increase of 5%, despite booking of catch-up items. And this was driven by strong gross profit. Sweden reported an EBITDA growth of 7.5%, supported by growing gross profit and a solid OPEX decline. So with that, let me move to Asia. Our two consolidated companies in Asia delivered service revenues of 4.3 billion and EBITDA of 2.5 billion. representing organic growth of more than 4% for both metrics. This was mainly driven by Telenor Pakistan's continued high EBITDA growth, supported by ARPU uplift and lower energy costs. Grameen Fon returned to growth in both top line and EBITDA, which is good to see, though the upswing was softer than hoped, despite the easier comparables due to the impact of the regime change we saw in Bangladesh in Q3 last year. As you know, the market is gradually transitioning from voice to data, which is challenging as competition in data is quite intense. Grameenphone has had subdued 4G investments with capex to sales of 9% over the past four quarters due to the macro situation. But given the data demand from our customers, we will eventually need to dial this up a bit again to accommodate for expanded data coverage. Among our associates, True reported 2.6% year-on-year EBITDA growth for its second quarter and continued its deleveraging profile. The company nudged down its full-year outlook following a network outage as well as some of the macro headwinds. True has stated plans to propose an interim dividend in conjunction with its Q3 reporting, which is due already next week. In the quarter, we received 350 million in dividends from Celcom Digi, as the company increased its dividend per share, while also reporting 5G traffic costs. Taken together, Asia's profitability improved during Q3, despite the relatively challenging external backdrop. However, we do see some short- to mid-term risks and headwinds in Asia. Among the risks we see, we have touched on in the past, I would like to highlight three that will affect us. First, in Malaysia, the 5G landscape remains challenging. Celcom Digi's associated company, originally a 5G network for all telcos, is undergoing the final stages of privatization. Its recently reported financials suggest a lack of sustainable long-term financial situation in this associated company. Excuse me. We're working with partners to support a restructuring with the aim of helping Cellcom Digi ensure a competitive 5G company setup. However, the outcome of this process remains to be seen. The financial profile of the 5G NetCo is also the backdrop for the 530 million adjustment to our share of results from Cellcom Digi this quarter, as mentioned earlier. This quarter, we have only one year left until a major chunk of our spectrum in Bangladesh needs to be removed. This will entail a step up in spectrum payments for up to four renewed licenses, as these spectrum licenses were paid for years ago. As always, our spectrum resources webpage on telenor.com gives you full details on our spectrum portfolio. In addition, spectrum pricing in the country has historically been two times the global median despite a much lower GDP per capita in the country, as you can see in the graph in the middle of the page. We're hoping, finally, competition authority clearance was recently granted to PTCL for the takeover of Telenor Pakistan. Very pleased to see that. We're hoping for a smooth process from here onwards and look forward to closing the transaction soon. Given the recent strong performance, we expect Telenor Pakistan to contribute around half a billion kroners in free cash flow for 2025. And note, of course, that this contribution will end once this sale is complete. Then moving back up to the group level and let's look at the P&L, cash flows and leverage. There are three items in the P&L this quarter that I would like to highlight. First, we have the adjustment we made related to SELCOM DG mentioned earlier. This reduces our share of net income from associated companies. Second, we book a 269 million reversal of impairment of our shares in True. Note that as we said in Q2, all of our shares in True are now directly owned. Finally, on income tax, we book a 312 million provision for withholding tax on retained earnings in associated companies. This is the main reason why the effective tax rate increased to 33% from 26% in Q3 last year. All in all, we generated net income to equity holders of 3 billion in Q3 and an adjusted EPS of 1.85 kroners per share. Moving to free cash flows. The free cash flow in Q3 was driven by the strong operational performance in the Nordics. We paid almost 1 billion in income taxes, of which 70% is in Grameenphone. As we have discussed before, we have seasonally lower interest payments in Q1 and Q3, and as usual, spectrum payments are very small in Q3. Networking capital contributed negatively by 0.3 billion, mainly due to high activity in Norway and increased receivables. CapEx paid amounted to 2.6 billion in line with the quarters CapEx booked. Other lease payments amounted to a total of 1 billion, a figure slightly below the indicated average for the year. As Grameenphone and Telenor Fiber streamed up interim dividends, we also paid out a total of 600 million to non-controlling shareholders. On a side note, around 1.1 billion of the Q3 Grameenphone NCI was staggered and is due for payment in Q4. Altogether, this led to the free cash flow coming in at 4.2 billion, a solid 50% increase year on year. Then moving to the debt side, net interest-repairing debt excluding license obligations ended the quarter at 85 billion, which is down 5.2 billion quarter on quarter, benefiting from a 1.1 billion FX gain as the Kroner strengthened against all our key debt currencies. At the end of the quarter, leverage stood at 2.3 within our 1.8 to 2.3 target range. We maintain a resilient balance sheet and prudent maturity profile, and our dividend policy ensures predictable shareholder remuneration. Then let's move to our outlook update. Heading into Q4 and our upcoming capital markets day on November 11th, our full year 25 outlook pillars remain unchanged. We're tightening the ranges based on our solid year-to-date execution and our visibility for the year. For the Nordics, we see 2% to 3% service revenue growth, 8% to 9% EBITDA growth, and capex to sales is confirmed around 14%. As we stated in Q2, on the decimal side, the capex number is more likely than not going to be somewhat on the north side of 14%, considering the investments we announced earlier this year with regards to resilience and fiber in Finland. For the group, outlook for adjusted EBITDA growth is tightened to 5% to 6% from mid-single digit previously. We maintain our view of around 13 billion free cash flow before M&A, We believe that the contribution from Asia will probably be a bit less than a third. All in all, the updated outlook reaffirms our overall traction for the full year. And with this, Benedicte, I believe it is time to wrap it all up.