Telenor Asa S/Adr

Good morning and welcome to Telenor's third quarter results presentation for 2026. Joining me today are our president and CEO Benedicte Schilbred Fasmer and our CFO Torbjorn Wist. We'll follow our usual format today. Benedicte will begin with the quarter's main developments, the financial highlights of our new organization, as well as an update on our main markets. Torbjorn will then cover the financial performance and outlook, followed by Benedicte's final remarks before we open the line for questions. Before we begin, a reminder that in this presentation revenue and EBITDA growth rates are organic and currency neutral and that all EBITDA references are made to adjusted EBITDA. And with that Benedicte, over to you.

Thank you so much, Frank, and good morning, everyone. In the third quarter, we continued to execute on our priorities and delivered a strong cash flow. Markets remained competitive, but disciplined cost management helped us offset soft revenue growth, inflation and temporary transformation costs. Sweden maintained its strong performance, Norway improved sequentially, and Grameen Fern returned to modest growth. During the quarter, we announced the acquisition of Bahnhof, and together with the previously announced acquisitions of Global Connect and Enivest, we are deploying capital to build scale in attractive, mature Nordic fixed markets. These acquisitions add more than 650,000 consumer broadband relationships and will strengthen our competitive positions in both Norway and Sweden. We also reorganized, becoming a leaner organization and changed the leadership team. We completed the connection partnership, taking another step towards a more Nordic-centric Telenor. And we kept investing in our high quality networks and customer experience to support growth. We continue to simplify the business and we are announcing today an acceleration of our share buyback program. In other words, we kept delivering on our key drivers for value creation, strengthening the customer experience, efficiency and capital allocation, and through this supporting the increase in return on capital and dividends over time. Finally, we reaffirm our full-year outlook and our longer-term ambitions remain unchanged. Turning to the headline numbers. Group service revenues grew 1.6% to 14.8 billion, while EBITDA increased 1.5% to 8.8 billion. Cash generation was particularly strong in Q3. Free cash flow before M&A reached 4.7 billion, up 13% year-on-year, while adjusted earnings per share increased 45% to 2.70 kroner. With leverage at 1.2 times well below our target range, we retain flexibility to combine shareholder distributions with targeted investment, including the recently announced broadband acquisitions. and Torbjorn will elaborate more on this later. An important step this quarter was reorganizing Telenor, taking out the business area layer and establishing the new group leadership team. This makes us better positioned for delivering on our strategy with a simpler organization, decisions closer to the customers, clearer accountability, and a stronger ability to scale technology and capabilities across Telenor. Simplifying our organizational structure will deliver around 0.4 billion in total savings. We are already seeing some of the benefits in Asia with the majority of the remaining 0.3 billion to be phased in from the end of this year and a minor portion from mid-27. Turning to the Nordic markets. where we continue to transform the business while working to strengthen our commercial momentum. In Norway, disciplined cost management drove a clear sequential improvement. Promotional activity in B2C remained unusually high. B2B ARPU developed positively and we added 5,000 fiber customers. In Sweden, we continued the fixed and customer service transformation, helping lift the EBITDA margin to 44%. This demonstrates the operating leverage available when healthy market dynamics, commercial execution and structural efficiencies reinforce each other. Mobile service revenues grew 4.5% with 35,000 mobile net ads during the quarter. In Denmark, mobile APU supported 4% service revenue growth. However, margins did not keep quite pace in Q3. Product mix, continued high transformation costs and an increase in sales cost weighed on profitability. In Finland, customer momentum improved and churn declined year over year. Competition intensified within B2B and fixed. The data center connectivity contract with Google also shows how we can monetize the strengths of our network. Across the region, our priorities are to improve customer experience and commercial execution while structurally improving the cost base through continuous transformation. Moving to Asia, Grameenphone showed resilience. Despite continued pressure in the economy, we returned to modest service revenue growth in Bangladesh. Our recently revamped voice and data packages supported the continued and ongoing shift from voice to data. In addition, we grew the customer base by around 600,000 subscribers. Cost discipline also supported performance. However, given the high inflationary environment and the placing of some costs into Q4, the improved performance this quarter should not be extrapolated into a new run rate. In Malaysia, Selcom Digi continued to provide staple dividends, supporting the cash contribution from Asia. The company secured a 2.6 GHz 5G license and saw significant progress on the 5G side. The D&B 5G joint venture moved more than double its Spectrum portfolio and refinanced the business. Before moving on, let me briefly address the recent developments relating to the Myanmar legal matters. First, a local district court in Norway allowed a class action case to proceed regarding the alleged disclosure of customer data, a decision we have appealed. Secondly, in September Telenor became the subject of a police investigation and has been charged in connection with sanctions regulations and alleged complicity in crimes against humanity. Telenor entered Myanmar in 2014 to expand connectivity in a country emerging from decades of military rule. After this development was suddenly and brutally reversed in the 2021 coup, our employees faced grave personal risks if they resisted military orders. While complying raised profound legal, ethical and human rights concerns. Left with no good options, Telenor decided to exit Myanmar. We remain deeply mindful of the immense suffering endured by the people of Myanmar following the military coup. However, we do maintain that Telenor committed no criminal offence under the circumstances prevailing at the time. So, turning to the corporate development portfolio, which was previously organized under Business Area AMP, this also now includes our sovereign data assets, the Telenor AI Factory, the Sovereign Cloud Project, and our stake in the Shiga data centers. The key milestone this quarter was completing the sale of 50% of Telenor Connection to Ferdinand in September. The partnership crystallizes value while retaining exposure to an attractive IoT business, where both revenues and EBITDA grew 18% over the last 12 months. We also saw further momentum in defense, with KNL being awarded another framework agreement, this time with the Danish Armed Forces. Although the portfolio represents a smaller part of Telenor, it combines several attractive growth assets and contributes meaningfully to group value creation. At the end of Q3, the portfolio had a net asset value of 11.4 billion, having generated more than 10 billion in proceeds since Q4 2022. And with this, let me hand you over to Torbjorn for the financials.

Thank you, Benedicte, and heartily good morning to everyone on the call. I'll take you through first the main financial drivers, starting with group service revenues. The group returned to growth after a softer second quarter, with service revenues increasing 1.6% to 14.8 billion. On an aggregated basis, the four Nordic telcos grew service revenues by half a percent. Denmark delivered solid growth, Norway was broadly stable, and Sweden and Finland recorded modest increases. Asia returned to slight growth, while other units contributed positively, led by connection of managed IoT business. Turning to costs. Group OPEX remained broadly stable, increasing 0.3% year on year. Cost discipline and efficiency measures largely offset inflation, transformation activity, higher sales costs and energy costs. In this regard, Norway is a good example. OPEX came down even with transformation activity at its peak. As to the OPEX reduction in Asia, the downscaled Asian headquarters contributed to cost savings, while one-off effects of 51 million kroners more than explained the year-over-year decline. Energy costs increased in Asia due to reduced electricity subsidies in Bangladesh from June. Some market spending shifted from Q3 into Q4, while higher churn in recent quarters affected Q3 sale costs with a lag. Despite this phasing, our transformation initiatives continue to improve structural cost efficiency. Together, these revenues and cost developments lifted Group EBITDA to 8.8 billion, up 1.5% organically. Sweden made the strongest Nordic contribution combining commercial momentum with the benefits of fixed transformation. Other units also contributed positively and Asia returned to modest growth. Norway was broadly stable while Denmark continued to weigh. Q3 is seasonally the strongest EBITDA quarter of the year, with a five-year average of 4-5% quarter-over-quarter growth. As such, this quarter's sequential EBITDA growth of 10% represents a notable improvement. Now, looking at the four Nordic telcos together, service revenues grew 0.5% and EBITDA was broadly stable, up 0.2%. Sweden's solid gross profit growth helped offset the pressure from product mix and lower gross margins in Denmark and Finland. We expect Denmark to show meaningful performance improvements in the fourth quarter. 2026 remains the peak transition year. As implementation costs roll off, we expect the benefits to become increasingly visible in customer experience, earnings, and cash flow. In Norway, service revenues were broadly stable and EBITDA declined 0.4% against a strong comparable quarter last year. Note, however, that excluding the business transfers of IoT and coastal radio that we talked about in previous quarters, EBITDA growth would have been plus 1%. Transformation savings, discipline spending, and some timing effects helped offset inflation and the costs of moving from legacy systems to the cloud. Commercially, we launched a new Sikre mobile subscription in August, followed by more for more price increases for new subscriptions in September. Together with fiber growth, this supports our commercial agenda, although promotional intensity in the market remains unusually high and is expected to continue for the remainder of the year. In Sweden, the combination of commercial execution and simplification is clearly visible in the results. EBITDA grew 3.8%, marking the 15th consecutive quarter of growth, and the margin reached an all-time high of 44%. Behind that, gross profit grew 3.3%, while our transformation initiatives and organizational changes supported structural efficiencies. Excluding sales and marketing, OPEX fell 2%. In Denmark, service revenues grew 4% while EBITDA declined 4.9%. Campaign pricing and a mixed shift towards third-party fiber and content pressured gross margins, while commissions relating to prior periods increased OPEX. Broader operational benefits from the IT transformation in Denmark are expected from mid-27. We therefore remain measured at the pace of near-term improvement while retaining confidence in the medium to long-term opportunity. In Finland, service revenues grew 0.6% and EBITDA was broadly stable. We saw higher customer growth and lower churn while mobile ARPU was flat after excluding last year's accounting adjustment. Improved consumer pricing was offset by increased build-up of IFRS 15 gift voucher deductions. Competition remains intense in consumer fixed and business mobile. Our priority is to convert the improved customer momentum into profitable growth. Turning to Asia, service revenues grew 0.3% and EBITDA increased 0.9%. Grameenfonds improvement included a one-time settlement while the downsized regional headquarters and a provision reversal also supported Asia's EBITDA. From our investments in Cellcom Digi and True, we received around 0.4 billion in dividends during the quarter. In other units, Towers benefited from co-location growth and pricing in Norway, while Connection continued to contribute strongly before its deconsolidation on the 10th of September, as Benedicte mentioned earlier. KNL delivered triple-digit growth in Q3. We expect growth in KNL to continue at a solid rate in coming years, but note that EBITDA growth may be limited in Q4, given particularly backend-loaded deliveries last year. Partly offsetting this, termination of the true procurement contract had an impact of around 75 million year over year. This will also affect the comparison in Q4 in a similar manner. Then turning to the group's profit and loss statement. The main item to highlight is the gain of around 7 billion from selling 50% of connection. This increased both reported, unadjusted EBITDA and net income, taking net income attributable to shareholders to 9.8 billion. Given the size of that gain, as well as a smaller gain relating to FX and a loss on our holding in True, it is useful to look separately at adjusted earnings. Excluding adjustment items, net income was 3.7 billion and earnings per share was 2.7 kroners, up 45% year over year. Elsewhere in the P&L, depreciation and amortization were lower year on year, while net financial expenses increased because of a lower share price of True. Other expenses included 323 million relating to restructuring and workforce reduction costs. These costs are excluded from adjusted EBITDA. Then turning to free cash flow before M&A, which came in at 4.7 billion, up 13% year on year. Solid operating cash generation and a positive working capital contribution related to a temporary change in VAT collection schedule in Bangladesh supported the working capital development. We expect this 0.8 billion working capital timing in Bangladesh to be reversed in the fourth quarter. No additional third-party handset financing has been made year to date, but as last year, we expect a contribution from this in the fourth quarter. Including M&A, mainly the connection transaction, total free cash flow reached 8.5 billion. The quarter's strong organic free cash flow generation further strengthened our balance sheet. The connection proceeds and a stronger NOKI also contributed to the sequentially lowered leverage. Net interest bearing debt ended September at 42.5 billion with leverage at 1.2 times below our target range of 1.8 to 2.3. This gives us a strong starting point for capital allocation. Our 15 billion buyback program is an important part of shareholder returns. We now aim to complete the program within two years rather than three subject to sufficient stock liquidity. As of the 23rd of October, we had repurchased shares for 2.8 billion or 77% of the first year program. This of course relates to the market purchases. Alongside buybacks, yesterday we paid the second dividend tranche of 6.4 billion. Our capital allocation commitments also include the announced acquisitions of Global Connect, Anyvest and Bahnhof that Benedicte mentioned. In addition, we have committed to funding potential M&A in connection and in total these M&A transactions sum up to 16 billion. Importantly, these transactions will also make a meaningful EBITDA contribution in the years ahead, especially following the integration period when the synergies are fully realized. So, we continue to balance attractive shareholder distributions with value-accretive investments in our Nordic business with a disciplined approach to capital allocation. So let me conclude by reaffirming the outlook for the full year 2026. Following the organizational changes, the outlook now represents the four Nordic telcos on an aggregated basis. The resulting growth rates are almost identical to those previously reported for the Nordic business area. For the four Nordic telcos in aggregate, excluding the Q2 TVVAT items, we continue to expect flat to low single digit growth in both service revenues and EBITDA, with capex to sales of around 14%. For the group, we expect flat to slightly negative EBITDA growth and free cash flow before M&A of around 10 billion, excluding dividends from associates and incremental spectrum payments. As mentioned in previous quarters, we made incremental spectrum payments of 0.3 billion in Q1, and there is potential for further payments this year, depending on the ongoing spectrum renewal process in Bangladesh. Incremental net savings from transformation efficiencies are set to materialize from 27 onwards, including transformation benefits in Denmark, which will follow from mid-27. As we look to Q4, we expect a campaign-driven finish to the year in some markets, with notable sales and marketing spend towards year-end. For Grameenphone, continued macro pressure and the presumed absence of positive one-offs means that the fourth quarter performance is expected to be more in line with the first half quarters than with Q3. Also, note that our other units segment had a particularly strong finish last year, including some significant one-off elements. For full transparency on the outlook details as well as the impact on the year-on-year comparisons, we have added a new slide in the appendix of the presentation that sets out the key outlook exclusions and housekeeping items. So with that, Benedicte, I'll hand back to you for some concluding remarks.