Tele2 AB (publ)

Thank you very much, and good morning, everyone. Welcome to the Q1 report call of Teletubbies. With me here in the room, I have Mikael Larsson, our CFO, and Samuel Scott, our Chief Commercial Officer. Today, we'll walk you through the results for the quarter, followed by a Q&A session where we can address your questions. Let me start by saying that over the past 12 months, Teletubbies has dealt with significant uncertainty in our markets caused by the pandemic as well as regulatory and predictability by defending underlying EBITDA, and we've been able to continue distributing cash to our shareholders while maintaining a strong balance sheet. While the pandemic continues to impact our business, the future is more predictable, meaning that we can now turn our focus back towards achieving growth later in the year and make the investments necessary to prepare the company for the future and achieve our mid-term guidance. Moving to slide two, The end-user service revenue declined by 1% and a quarter on the group level, primarily caused by headwinds from the pandemic, including lower international roaming revenue. We continue to see the underlying business perform well, and we see that excluding the negative headwinds stemming from the pandemic, end-user service revenue would have been roughly flat year on year. Strong performance in the Baltics. Execution of the business transformation program in Sweden and lower commercial spending led to an underlying EBITDA growth of 6%, partly helped by easier comparisons compared to last year, as bad debt provisions of roughly 35 million SEK were taken in Q1 2020. As previously reported, SEDE2 acquired 100 MHz in the Swedish 3.5 GHz spectrum auction through NETFROM Mobility during the quarter, which lays the foundation for the nationwide rollout of 5G in Sweden. We are now in full planning and execution mode, and we expect the peak of the rollout to be in 2022 and 2023. We now also have more clarity of the business going forward. As a result, the board intends to call for an extraordinary general meeting in June to propose an extraordinary dividend of 3 kronor per share to be paid in July 2021. This is yet another sign of the resilience in our business model and the potential trajectory of the company going forward. In Sweden, consumer, we see the strength of our value-led strategy as price adjustments on the back of our more-to-more strategy continues to deliver solid end-user service revenue in our mobile post-paid and fixed broadband segments, further asserting our premium position. In the quarter, we took the next step by executing front- and back-book price adjustments on our convict brand, and we will continue to execute all our more for more strategy in our premium brands during 2021. However, this was offset by headwinds stemming from the pandemic and continued decline in legacy services, resulting in Sweden consumer declining this quarter. In Sweden, the B2B market remains competitive within all segments, and while we saw positive net intake both in the large and small segments, End-user service revenue remains under pressure by loss of roaming revenues, continued decline in legacy services, and price pressure. We launched new product portfolios, including new price plans in small in January, in order to boost sales. The first indication shows promising results, but it's still early days, and we will continue monitoring this going forward. In the Baltics, there were nationwide restrictions in society during the quarter, which created less activity in the markets and lower international roaming revenues. Despite this, we saw strong momentum during the quarter, delivering strong top-line growth through ASPE growth and higher equipment sales, which filtered through to underlying EBITDA. So let's move over to the Swedish consumer segment. During the quarter, the Swedish government imposed restrictions to mitigate the spread of the COVID-19 virus, which negatively affected the activity in the physical channels, resulting in a negative net intake in mobile postbates. Mobile postbate ASPU was roughly flat, as roaming took about 1.5 percentage points off the ASPU growth, which would otherwise have been positive on back of the price adjustments made last year. Strong volume growth last year led to a 2% growth in mobile postpaid end-user service revenue. The price adjustments made in the comic brand are still too early to impact the financials, and we estimate the effect to start in Q2 with a full effect in the second half of 2021. TIX program, which has showed steady growth quarter after quarter, continued to do so with a 5% growth driven by ASPU and net intake. In TV, we see continuous recovery in end-user service revenue on the back of actual improvements from the previously dire situation in Q2 and Q3 last year, when live sport events were not broadcasted. The business is still impacted by the churn that occurred during these quarters, where we see promising signs of stabilization over the next few quarters as this effect recedes. Total end-user service revenue declined by 2%, as growth in mobile postbid and fixed broadband was offset by the COVID-19 headwinds. Let's continue with Sweden B2B on the next slide. Mobile net intake was positive in the quarter, driven by positive development in the small segment and new contracts within the large segment. The market remains tough with price pressure in addition to the headwinds caused by the pandemic, overall resulting in a declining mobile output year on year. Together with a continued decline in primarily legacy fixed services, end-user service revenue continued to decline in the quarter. We continue our efforts to set the Swedish B2B business on a path to civilization. In the large segment, we launched several new products, and we continue to see positive uptake in handsets and accessories. In the small segment, we ramped up digital sales capabilities and continued the customer migration to the target IT architecture for both fixed and mobile services. So please turn to slide 6 for an overview of Sweden. End-user service revenue declined in Sweden by 3%, driven by continued price pressure within B2B and headwinds related to the COVID-19 pandemic. Underlying EBITDA increased 4%, as headwinds from the pandemic were offset by continued execution of the business transformation program. Temporarily lower commercial spend, and bad debt provision of approximately 35 million SEK in Q1 2020. We continue to see strong cash conversion of 66%, despite increased capex related to the 5G rollout in Sweden and IT investments related to the business transformation program. Let's take a look at the Baltics on slide 8. Net intake was positive in the quarter for the Baltics, driven by positive trends in Latvia. Despite the lockdown in Lithuania, we saw strong ASPU growth due to continued monetization of data through our more-for-more strategy. In Estonia and Latvia, we continue to see positive ASPU growth despite headwinds from the pandemic, negatively affecting roaming revenue. Please turn to the next slide. We are happy to see continued strong end-user service revenue growth in the quarter of 8% in the Baltics despite hundreds of the pandemic. Higher end-user service revenue and equipment sales together with budget provisions in Q1 2020 led to an underlying EBITDA growth of 17% on an organic basis. Strong growth in underlying EBITDA together with low capital intensity as we are in between investment cycles led to an 82% cash conversion. With that, I would like to hand over to Michael.

Thank you, Charles, and good morning, everyone. Please turn to page 11 in the presentation. As in previous quarters, we have taken this slide to illustrate each revenue line, excluding roaming. Please keep in mind that there are non-roaming-related effects from the pandemic and FX rates affecting the numbers as well. As we are not out of the pandemic yet, Outbound roaming revenue dropped by 63% compared to Q1 previous year, equal to 47 million SEK, with the majority of the impact in Sweden B2C and B2B. Within Sweden B2C, mobile postpaid and broadband continues to perform well by growing 3% and 5% respectively, driven by both volume growth and price adjustments in previous years. Total end-user service revenue in Sweden B2C declined by 1% in the quarter, excluding roaming, as growth in mobile post base and fixed broadband was offset by decline in legacy services and non-roaming-related pandemic headwinds. In Sweden B2B, end-user service revenue, excluding roaming, declined by 4%, driven by continued price pressure in the market, and declined in fixed legacy services. In the Baltics, we saw continued strong momentum, resulting in 10% growth in end-user service revenue, excluding roaming, driven by higher ASPU on the back of our more-for-more strategy. For the group, this led to slight end-user service revenue decline of 0.2% in the quarter, excluding roaming. Please turn to slide 12 for a walkthrough of the group results. Underlying EBITDA increased by 6% organically, driven by continued strong development in the Baltics, execution of the business transformation program in Sweden, temporarily lower commercial spend in Sweden prior to the consolidation of our two premium brands, as well as bad debt provisions made in Q1 last year. Items' effect and comparability increased year-on-year, and this was primarily driven by restructuring costs related to the business transformation program in Sweden. The increase in operating profit was mainly explained by growth in underlying EBITDA. Let's continue by looking at cash flow on slide 13. CapEx paid increased year-on-year, as it includes a SEK 333 million payment for the 100 MHz that Teletubbe bought through our joint venture, Netform Mobility, together with Telenor, in the high-frequency spectrum auction in January this year. Taxes paid decreased compared to Q1 2020, as it includes repaid preliminary tax in Sweden in this quarter. Despite increased capex levels, we continue to deliver strong equity-free cash flow in the quarter of 820 million SEK. And over the last 12 months, our continuing operations have generated 4.3 billion SEC of equity-free cash flow, or roughly 6.3 SEC per share. Please move to slide 14 for an overview of the capital structure. Leverage decreased due to cash generation in the quarter, and we are now in the bottom end of the target range of 2.5 to 3 times ahead of dividend payouts. As Shell mentioned previously, the board has now proposed an extraordinary dividend of three SEC per share on top of the already proposed six SEC per share in ordinary dividend. This results in a proposed total dividend of nine SEC per share to be paid during 2021. Even with this level of shareholder remuneration, we are confident that leverage will remain within our target range. as we continue to generate cash and grow underlying EBITDA in line with our guidance for 2021 and beyond. Let's continue with slide 15, where we'll show an update of the business transformation program. We saw roughly 70 million SEK in cost reductions affecting the P&L in this quarter. This includes effects from the reductions already achieved in 2020, as well as continued execution during Q1. mainly within our now-merged technology and IT departments. We reached an annualized run rate of 300 million in the end of Q1 2021, up from 250 million at the end of last year. We remain committed to reach roughly half of the target of at least $1 billion in savings out of our business transformation program by the end of this year, although back-end loaded within the year. And with that, I will hand over to hand back to yourself for some concluding remarks.

Thank you, Mikael. Please turn to slide 17 for our key priorities going forward. With the future being more predictable and a solid plan in place, it is now time to execute and invest in growth. In the coming quarters, we will execute on the necessary initiatives that will ensure success in the post-pandemic world. This includes investments that are essential for delivering a great service. secure our premium position in the market, and support our more-for-more strategy. In Sweden B2C, we will consolidate our two premium brands in the second quarter of 2021. This will enable us to take the next step in our brand optimization journey and unlock the full potential of FMC in the Swedish consumer market. This, however, is just the first step in a longer journey which involves migrating to an IT architecture that enables both significant cost reduction over time and more commercial flexibility. While Sweden B2B still faces structural headwinds caused by external factors and historical inefficiencies, we see initial indicators of improvement in both the small and large segments as a result of our efforts to transform the business. We will continue our efforts to take market share in the small and medium segment while defending our position in the large segment. and focus on profitability. And the Baltics will build on the current momentum and execute our mobile-centric convergence strategy while preparing for a nationwide rollout of 5G once the spectrum auctions are concluded. We will also further develop our FMC opportunities by looking at our own and third-party infrastructure capabilities. We will continue executing on the business transformation program to deliver at least one billion SEK of savings by the end of 2022. One of the key steps in this transformation was the consolidation between tech and IT, which was executed in the beginning of the quarter. This has laid the foundation for a more end-to-end oriented organization that is essential not only from a CapEx and OpEx optimization perspective, but also serving our customer better by having a holistic, harmonized, IT and network landscape. While we are planning and executing on the 5G build-out, we will continue to improve our already efficient infrastructure portfolio setup and explore new ways to optimize the value chain. With a strong quarterly performance and underlying EBITDA growth, it is now time to invest in growth in order for us to reach end-user service revenue growth and deliver on our 2021 and mid-term guidance. With that, I'll hand it over to the operator for a Q&A.

Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. One question per analyst. And to answer your question, please press the bell or hash key. Please stand by while we compile the Q&A question. We have a question that just came through. It comes from the line of Peter Nielsen from ABG. Please ask your question.

Thank you very much. Good morning, gentlemen. Excuse me. Just a question, Claire, on your comments about making the necessary investments in future growth, which you're referring to. Are you primarily... talking about external investments here, i.e., investments in the market, rebranding, et cetera, or are you also referring to internal investments in your own systems, which I believe you alluded to? And can I just ask a follow-up? You talk about improved or lower unpredictability in the market. Sweden has, of course, seen increased restrictions pandemic restrictions in this quarter. How do you see the market environment of Sweden coming out of this, of the pandemic and the length of the recovery and impact on the overall market environment? Any comments and comments would be appreciated. Thank you very much.

Yeah. Well, we are clearly investing into the brand consolidation. It's a big, big initiative and actually fundamental to the whole transaction between Teletubbies and Comhemp. So that when this comes out to the market, it's a special day in the history of this company. And that of course allows us to have a new and improved approach to the premium segment in the Swedish market. So that's something we're investing into. And you know very well that we're investing also into the interface for our TV customers, both as a potential freestanding play product or as an interface option for our Comham customer base. So there are numerous initiatives inside the business that we are investing into. And some of them, of course, are then giving us a lower office, like we took you through with the Brand X launch when we come a little bit further down the road. So I hope this is the kind of things you were wondering about. When it comes to the market sentiment going forward, What I'm trying to do now is to build a bridge between one year ago, out of an abundance of caution, focusing on profitability, and I think it was the right move, and now seeing that some countries are coming out of the pandemic. Sweden will not be out of the pandemic in Q2, and probably not fully, at least, in Q3. But for me, I need to mobilize the organization and the mindset and the thinking towards where we should be in six to nine to 12 months. and not where we're going to be in three weeks. So I'm starting to signal to you that we are starting to think more with a growth mindset and not only in terms of protecting profitability, which we, of course, are going to work on as well. But the shift will go back to focusing more on getting growth, in particular in the Swedish market. In the Baltics, of course, we have phenomenal growth. I hope that answers your question.

That's perfect. Oh, it does. That's perfect. Thank you very much. That's very helpful. Thank you, Kev.

Your next question from the line of Leek Medial from SofGen. Please ask your question.

Everybody, it was a quick question on FMC, please. What do you think of the opportunities there? Could you give us a little bit of an update on what you would be aiming at? If it's share-based, how do you avoid creating a B2C price war, for want of a better phrase, in Sweden? Also, could you mention on the marketing, Shell, if possible, how much lower was the marketing this quarter than last year? And again, linked with the FMC stuff and the single brand, should we expect that to rise sharply again next quarter? Thank you.

I think you should expect that our marketing spend over Q1 and Q2 combined is... by and large what you have been used to in the past. So see that as a whole. We're just giving you an indication that it was a bit lower in Q1 because we will be doing a launch in Q2. So in total, those two quarters will not be outside of the ordinary. The FMC opportunity is at the core of why Tele2 and ComHem became one company. the belief that we can build a strong premium brand. And I internally sometimes use the phrase one out of two in 22. And those of you who remember Janne Karlsson many, many years ago, we talked about one out of five in 95. I think we have an opportunity together with the incumbent to be two players that have a full suite of infrastructure and opportunities towards the premium segment in Sweden. And we have a really very well-functioning mid-tier operation in Convict. So setting those two in the right positioning is a key element of our value creation journey. I don't know, maybe Samuel, do you want to add something to that?

I think just to add, and of course this is something we will come back to along the way, but what we've done so far is to focus on starting to loyalize the overlap cross-brands. And now we're moving towards the next phase, which will be focusing on building this joint customer experience within one brand. And that will give a complete new and very big opportunity to both cross-sell but also loyalize and become even smarter in our more-for-more strategy.

So strategically, the belief is that there will be two premium players. And then there will be one player that has some of these elements, but not enough. And then there will be one pure mobile-only player. And within the premium segment, we can, like Samuel explains, loyalize a part of the market through an integrated offering.

Okay, that's great. Thank you very much, both.

Your next question comes from the line of Maurice Patrick from Workplace. Please ask your question.

Yeah, morning, guys. Thanks for taking the question. Just to kind of come back to your point on growth, I mean, you've made a clear point about wanting to target growth again this year. Your net ads and post-pay were negative in the first quarter. They were negative in the last quarter as well. And you said at the time there was more of a focus on value of volume. Should we interpret that as, when you talk about growth, sort of ARPU growth or subs growth? I mean, could there be a shift in terms of how aggressive you are on the channel rather than your sort of statement last couple of quarters around very much focusing on the existing base rather than new customers?

Thank you. Yeah. I would say that we are taking a lot of strategic responsibility in setting this market now. You will see that we have moved out of the no-frill segment very clearly. We are now putting together two of the strongest brands in Sweden into one to build a premium position. When I've spoken about value over volume, that has, to some extent, been related to B2C, but it has been even more related to our B2B business. But I think historically, Teletubbies has been quite volume-driven. Now we are value-driven. This is what Samuel keeps talking about all the time. So that shift has changed. been underway. But, you know, Maurice, when I talk about growth, you know, I don't want to, we can break it down into components, whether that is RGUs or it's OSPU. At the end of the day, the growth that I want to see is top-line growth in our Swedish business. So when I talk about growth, it is to return Sweden to some element of positive growth. And as you, of course, know very, very well, to gear an organization back towards growth takes a bit of time. So by signaling it to everyone now that we're starting to shift in that direction because we see more of an end to COVID and sending a signal about what the priorities will be going forward. And then it's going to come back gradually. It's going to be a process. It's going to take a bit of time, but we're working on it. It's very clear.

Thank you.

Your next question is on the line of Stefan Jaufen from BNB Bank. Please ask your question.

Yes, Lau. I would like to focus a little bit on the mobile B2B development. There's still significant ARP pressure in the quarter and no real shift yet seen on that front. At the same time, you have launched new price plans and simplified the price plans. How do you think that that will affect the B2B business going forward? Should we expect a stabilization near term in the RP pressure?

Yeah, thank you, Stefan. When I speak about B2B, I'm trying to be as transparent as I can be. And the reality is, of course, when you have a downward trend for some time, it takes a little bit of time to turn that momentum around. But what we're doing now is that we have a much more clear strategy and we have a much clearer segment understanding and segment approach. We know where we want to be focused more on volume. We know where we want to be more focused on value. And the message I have to you now is that for us, this is becoming much more clear. And I think Stefan and others have done a good job at that. And the early indicators from the market in terms of volume in small and value in large is that we may have been past the turning point. But I'm not going to sell you a story saying that this is going to happen very quickly. But my intention, my objective, and Stefan is very, very committed to this, is to move towards stabilization in this year and that you can see a tangible difference in the growth rate, negative growth rate that you saw last year coming into this year. So that's where we are. I'm sending a little bit more positive signals now than three months ago, much more positive signals than six months ago, but I do have a huge amount of respect for that. This is a journey that takes a lot of hard work. Can you get an answer to that, Stefan?

Yes. If I could just add a quick question on fixed broadband price, could you state the magnitude of the price increase as compared to last year?

Hi, Stefan. Sami here. So it's roughly in line with what we did last year. Okay. That's fair.

Thank you.

Your next question is from the line of Ulrich Rutt from Jefferies. Please ask your question.

I was wondering how you view your efforts and plans in relation to what Telia is talking about in terms of improving customer experience, customer experience overall and investing in that and really talking about the impact on their side as well. How do you view that vis-a-vis your plan? Does it make it harder? In some ways, is it almost moving in the same direction, so therefore sort of helpful for both, or how do you see that? And if I could just come back to Nick's question on the commercial spend, it would be very helpful if you could actually quantify what the Q1 effect from the marketing was. I understand it should be flat year-on-year for the first half, but obviously you grew faster this quarter than your four-year guidance, so it would be helpful to single out how much you had sort of unusually low from the commercial spending in the first quarter. Thank you.

Yeah, let me go with the first one, and then Mika will do the second one. We've talked a lot about how we're going to do Brand X. We are now announcing we're going to do it in Q2 of this year, so now you have clarity, more clarity about the timing. And that is, of course, in the direction that you are describing, where we are going to work on our customer experience. I want to emphasize that, okay, we've been working with this for a year, But when we do the launch, we're going to also develop that proposition in phases, very defined phases over the next year. And, of course, it's a journey that never ends. But we're doing that to simplify not only the customer interface and the relationship between us and the customer base, but also our own technical infrastructure. And I find it completely natural. I don't have any detailed knowledge of Telia's plans, but I find it completely natural if they work in the same direction. They clearly have the potential to build a premium position in the Swedish market, and I think that's actually, on balance, helpful for us, because we will be building that segment together, in a way, as hard competitors, but it will also focus our intention more towards the more for more and the premium, And we have made a very, very visible step of going out of the absolute no-frills. How Telia relates to that is, of course, for them to decide. I don't know. But overall, I think it's natural that we are both moving in this direction. And then maybe for the second question, Mikael, to the extent when we go all the way.

Yeah, I will not go all the way. I'm sorry for that, but we don't. We cannot be that easily about the exact deviation on the one cost line between the quarters. But normally when we talk about when we have a bit higher or a bit lower marketing spend, it's call it a couple of tenths of millions in that quarter. And it's of that magnitude for this quarter as well versus what we expect to spend in Q2.

That's very helpful. Thank you very much for both answers.

Thank you.

Your next question comes from the line of Andrzej Kabryczak from UBS. This is your question.

Thanks for the presentation. My question is more of a follow-up in sorts relating to the B2C mobile and the weakness in terms of the net addition. So you mentioned a couple of potential reasons for that. One of these is the lower commercial spend abandoning the neutral segments, which I'm sure had some impact on your prepaid as well as some of the price increases that you've done over the past couple of quarters. Can you just maybe dissect a bit and talk a bit more about, you know, the weakness in terms of the net ads for Q1Q and then when you expect that to turn around? Thank you.

Yeah, I can talk and I will hand over to Samuel. Clearly, the B2C mobile business is impacted by lower traffic to stores, and it also impacts the prepay, just as you correctly point out. So some of these things clearly have an impact and will, in all fairness, have an impact with us in the second quarter as well, due to reasons that are outside of our control. Maybe Samuel wants to elaborate a bit, but that's basically what's happening.

No, I think it's rather easy. We have some spillover effects from Q4, of course, and then Q1 for us is a quarter impacted by the pandemic, a bit lower spend gearing up for Q2 and Brand X launch, and we're in the midst of a pricing cycle. So, kind of natural explanations to a bit of a cyclical development in NetAds.

Thank you. And if I may have one short follow-up, please. I mean, you're talking about the, you know, abandoning the no-sell segment and positioning these brands in line with the price increases. to a bit more premium segment? Where are some of the early learnings from that process? Because clearly that's something that's going to intensify in the second quarter as well. Thank you.

Yeah, I mean, we're not abandoning big segments of the market. It's very important that we are not misunderstood in that direction. We just think that we have a tool that can handle that. We can use our Convict brand forcefully in the market to serve pretty much every need we will have there And I've said before, if there are some customers who would join us for a 40-kroner subscription in some kind of campaign at some point, then we probably can live without it. And with the structure of this market, with us as a relatively big number two and Telia there, I think it's important that we show that we are not as volume-focused as we were in the past. But it's not like we're going to let significant segments of this market stay out of the reach of our propositions. Thank you very much.

Your next question from the line of Andrew Lee from Goldman Sachs. Please ask your question.

I had a clarification for my question. All the conversation about the return to growth at the end of this year and the predictability that you've mentioned – throughout the call that supported the extraordinary dividend. Are you prepared to, as you put a couple of minutes ago, to go all the way in terms of also guiding within that that Swedish end-user service revenues can return to growth within the year? Is that possible? And then the question – was really on the Swedish B2B path to stabilisation. X the one-offs from the 1Q20, there were no major underlying improvements in this quarter. So what are the initial indicators you mentioned that offer signs for hope here? Any colour around that would be helpful. Thanks.

It is simply the fact that we see some improvements in volumes in small, and we do see that we are, with our approach where we're not totally volume-focused in large, still able to win contracts that are helpful to us. But I said earlier on that I want to be very, very transparent with you. It is a journey that is going to take some time. I'm just telling you that I'm more positive about this now than I was three months ago and much more positive than six months ago And then I hope that we will be able to show you numbers that take us towards stabilization throughout this year. That is basically the message. There was a first question.

I'm sorry if I... Yeah, the return to growth maybe is that in end-user service in Sweden as well, which is obviously what the investors are most focused on.

So I think you should take my statement as directional. We're not doing anything to our guidance at this point, but it's directional. And not only am I speaking to you, it will be also directional inside the company. Because it was absolutely right to focus on EBITDA and control and these things when we had this uncertainty one year ago. And now we need gradually to move back to a growth mindset. And growth doesn't come one week after you start... investing for it. You see we are investing quite a lot in our platform around ComHand Play, Play Plus, and we need it for two specific purposes. We will be investing quite a lot into our premium consolidated FMC brand, and of course we're investing into the business in general. But my statement is more directional at this stage.

Okay, thank you.

Your next question, from the line of Johanna Altebis from SEB.

Yes, thank you. Sorry for repeating some of what has already been asked, but I just wanted to understand a bit more on the B2B, because in SME, obviously, you lowered prices, and we discussed this, I think, in the Q&A, Now you've mentioned some initial signs that you own volumes. Is it much related to the fact that you have this all-you-can-eat offer for 349, and how have you seen competition respond? I think Telenor has cut prices as well, and how do you foresee this playing out? Is it a risk here that you are seeing short-term volumes and then competition will follow suit and you will not have the volume uptake as you see now? That's sort of what I'm getting to. And then, if I may, another question for Michael, if you can give us any update on the Dutch business and potential exit opportunities. Thank you.

Your question is well put, although I need to clarify it and make it a little bit more granular. You say that we cut prices and got more volume. On the face of it, you're right. But if you look at the total picture, you also have to adjust for the fact that discounts were taken away. So we have actually streamlined the portfolio so that the net adjustment is far smaller than the headline price change. And how will that play out in the market? Well, we do know that there is a player that offers a lower price in the market. And the litmus test of that is going to be how do volumes develop going forward when we see that there are different players with different propositions in the market. And where we are right now, it looks okay. I mean, it's not like it's fantastic and everything is great, but it is showing a positive development, and I'm happy with that. So I don't want the takeaway to be that we have reduced prices significantly for purely volume reasons. We have actually streamlined and taken away subsidies as well.

Moving to the Netherlands, We can't comment on Q1 since Deutsche Telekom has not released their Q1 results yet. So everything I say relates to Q4. But the operating performance is great in the business. I mean, if you look at this from a longer perspective, we have moved from two and a half years ago, we were a weak number four player in this market. And today we own 25% of the number one mobile operator in the Netherlands. which are also going into fixed and offer FMC propositions to the customers now. So we are very happy shareholders of this asset. Then long-term, nothing has changed from what we have said in previous quarters. Over time, of course, we are there to maximize value out of the 25% stake we own in that asset. but no update except for that. So we will repeat what we have said in previous quarters.

Just a follow-up there, Michael. So assuming sort of no exit will take place, but is it still so that you expect to receive dividends in 2022?

We can't give you any details. promise or anything, because that would be like giving guidance for that company. But over time, as soon as the company, leverage in the company will fall under a certain threshold, then we are entitled to dividends, yes. And this year we didn't receive it because of the spectrum payments. Next year will be different, of course.

Exactly. Thank you.

Thank you.

Next question comes from the line of Steve Malcolm from Redburn. He has your question.

Good morning, Clive. Can you hear me okay? So I'll go for a couple. Just coming back to the point in marketing expenditure, if I look at your income statement, looking at EBITDA that way, it seems pretty clear that all the EBITDA growth came from reduced selling expenses in the quarter. If I look at 2020, your selling expenses rose 4%. In Q1, they were down about 9% year on year. Can you just help us understand, you know, what drove that? Obviously, lower market expenditure. I guess what you're saying is that some of the B2B discounts were taken out. Maybe that goes into the line as well. And also, you know, whether there was a COVID benefit there, whether you're seeing lower costs because you're unable to open your physical stores and how we should think about that selling expense line through the rest of the year. That'd be really helpful. Thanks. And then just a quick one on sort of convergence. I guess there's lots of ways to dice and slice convergence. You clearly have, you know, broadband customers that may be, you know, where the broadband customer isn't taking a Tally 2 mobile contract. Equally, Tilly will have broadband customers where you have the mobile contract. You know, when you think about that going forward, are you taking specific measures to protect that bit of a mobile base? Or do you think the overall sort of single brand premium strategy will be enough to preserve your market share where Tilly is maybe under-indexing on mobile? Thanks.

If I start now, if you're comparing two lines in the – or one line, two periods in the group consolidated income statement, I assume that is what you're doing. And then you have a lot of other movements in there as well. You have, as an example, last year you have the bad debt provision on that line, the 35 million for the group, 25 million for Sweden, 10 Baltics. So that is one component.

And then, of course, you also – Does that go into selling expenses or admin expenses? That goes into selling, is it?

Selling.

Okay, thank you.

In the admin, the decrease is more explained out of the business transformation program, the reduction in admin expenses. But then, of course, some of it can be attributed to selling as well, some of the savings we are doing there.

Okay, so we should expect that selling expense line to bounce back as the bad debt annualizes and you spend more marketing for the rest of the year, yeah?

Yes, and selling is, of course, very much volume. If we take in more volume, then you will see that line go up as well. Some of it comes immediately in the quarter. Some of it is accrued over 12 to 24 months under IFRS.

Okay. Okay, great.

The other question, I hope I understood it correctly. I'll at least start based on my understanding, and The first stage that we have undertaken is to combine the direct overlaps between Tele2 and Komhem, and that is broadly done. So the next step now is, of course, to take the customer bases that are not directly overlapped, and that's, of course, a bigger chunk of people. So we're going to go after those segments now when we are launching the Brand X, and the functionality – had to be developed for that so that we can go and offer this to one of our broadband customers as an option. We had to spend some time preparing that kind of functionality. Now we are starting to roll it out quite soon when we go with the launch.

I guess the question is more, I think intuitively it's easy to see you upselling mobile into the click space, but clearly Chile is going to do the same thing. There will be places where you have Teletoon and Combiq mobile customers that they may be on a Celia broadband subscription. So, you know, are there measures that you can take to – there's threats and opportunities, and that's a threat, to try and preserve that market, that mobile market share where, you know, Celia makes the opportunity, or do you think you can do enough with the overall single-brand strategy, you know, to preserve your market share in those areas where you may be more vulnerable?

Clearly, I mean, we both have the opportunity. That's what I was saying initially, that we are the two players that have this opportunity in full. And we will both be pursuing broadly similar strategies. So it's a bit about having time to market. It's a bit about having the proposition ready. And then, of course, it's down to the game. Who can get there first?

Samuel? No, but I think just to add and remind that Yes, this is what we're going to do, but we have a more for more approach to it. We're not going to chase penetration with huge discounts. That's not the name of our game. The name of our game is to provide value for more benefits to our customers and thereby grow the FMC base. So, I mean, we're chasing value and customer benefits, not penetration and discounts.

Okay, great. Can I ask one quick follow-up on ComHem Play Plus, just what you're seeing from customers that are moving into the non-discounted phase of that, you know, having stopped paying. Are you seeing any material turn there, or are you seeing customers staying with it and paying the 69 sec per month?

I mean, of course, we have customers dropping off after this free period. That's natural for any kind of digital business. But the stay rate, as we call it, is more or less spot on what we predicted. So, so far, so good. But as we keep on saying, this is a learning experience for us. It's an investment, and it's still early days of customers rolling into kind of a paying phase. a paying product, but so far our predictions are holding up.

Okay. Thank you.

Next question from the line of . From Morgan Stanley, please answer your question.

Thanks very much. Good morning, everyone. I just wondered if you can say a few more words around infrastructure. You kind of alluded to it in the closing remarks. Just have you got any fresh thoughts around the viability of separating some of your infrastructure assets? Do you think that will be value accretive in the longer term in your view?

Well, it will clearly be possible to do a separation if we choose to do so. Now we're in the middle of the process of detailing out the shutdown of Sunav. And of course, when 3G starts closing down when we get clarity on which towers will be with us and these things and the same also with our partners at Tenenor there are things we can be talking about and the opportunity does exist I just emphasize like I always do that if we do this it's because it's going to make sense not only in 2022 but also in five years from now so you can see that with our balance sheet we're able to to run our business and pay a healthy dividend. But we're definitely spending time on this issue. We are.

Okay. Do you think it will be an issue that you'll explore more detail at the Capital Markets Day?

Let's see where we are at that point of time. I would love to share details with you if you feel that that's the right moment.

Okay. Thank you.

Your next question comes from Frederick Little from Danske Bank. Please answer your question.

Thank you. Hello, everybody. Thanks for taking my question. I just wanted to come back a little bit on the cost side and the transformation program that you are running in a good way. We have the figures and everything, but could you sort of put some color on it, where you are right now, the experience having sort of been in the transformation program for more than a year now, and what you see sort of happening in the next few quarters, just to get a feel on what you're actually doing underneath all the figures. Thank you.

Good morning. I can start, and then Michelle and Samuel can fill in. I mean, what we are doing behind the scenes is, of course, It's very focused around, I would say, both tech and IT. In tech, we are combining the network, the core networks of Tele2, the former TDC business, and ComHem business. That's one big project. Another one is to build the future IT stack for B2C. And that's being built now. We are in the process. end stage of phase one of that project. And then that phase will end the day we will launch the one common premium brand. But we will not be completely done by that time. Then we will see continued development into this IT stack, and we'll also have custom migrations in the end of this year and next year. And that's why we have said all the time that the positive effects out of this Transformation, it's back and loaded over the three years, as we'll not see the positive effects in the P&L until we decommission the infrastructure we will not use for the future. So that will come in 2022. But from a customer experience perspective, sales marketing perspective, the positive effects will come later this year already. You will start to see them later this year, as Shell emphasized earlier today.

I just think it shows how important the move we are doing with BrandX that we've spoken about. And we're now telling you that this is going to happen. Last time I said it's going to happen this year and it's not going to be a December exercise. Now I'm telling you it's going to happen in Q2. So you're getting predictability on timing. And then, of course, the cost effects are, in a way, secondary effects to the market propositions that we're building.

Correct. Thank you. Thank you very much. Thank you.

Your next question is on the line now. C.E. from Citi. Please answer your question.

Thank you very much for taking my questions. I have a couple, please. And I think last year, I think in Q2, we talked about temporary savings, our operations because of the pandemic. And some of your peers now citing out-of-bundle revenues, high out-of-bundle revenues in Q2 from high usage at the start of pandemic. So I wonder if you can help us to think about the potential tailwinds that you had last year, how is that going to impact this year's EBITDA evolution? And a second question, a quick one. You talk about the growth and IT modernizations And if you think about the growth profile you have in mind and the budget to deliver on that, and how does it compare to the budget that you inherited when you first joined? Thank you very much.

Good morning. I can start with number one. Of course, the temporary savings we did in Q2 last year, I mean, that will result in tougher comparables when we come to Q2, end of Q2 this year. So it's something you have to It's embedded in our financial guidance for the full year 2021, of course. But that is something you will see in Q2. Not massive, but there is one effect there. Yes. I hope that answers your question, your first question.

Yeah, the other one. I mean, the budget I inherited finished on the 1st of January. So, but... Having done this in several companies now, you always get surprises, and it's a question of how you deal with surprises and set the tonality. So we have our mid-term guidance to you, which we have delivered. We have given you a guidance for this year, and in the day-to-day operations, that means that sometimes you have to reallocate, and you have to chase maybe Sometimes it costs a little bit harder to get to those targets. And we are making a push for sort of back office expenses. One more round, we're looking at that, so that we can afford to invest into the business. And I'm quite positive that we can do that. And if we are to invest in the business, there is only one bag of money, and that money needs to cover everything. And the place where I would like to put harder scrutiny is to see what we can do in terms of the non-market-facing expenses. I don't want to do short-term cuts on marketing spend. I definitely don't want to cut our capex lower than it should be. So I think we pretty well know what we have to do. It's relatively clear to us.

That's very clear. Thank you very much.

Your last question is on the line of Adam Fox-Rumley from HSBC. Please ask your question.

Thank you very much. You've mentioned in your prepared comments that you've launched some new products for large corporate customers in the quarter. I wondered if you could give us a bit more detail there on whether you're satisfied that your current product portfolio stacks up sufficiently well against the incumbents.

Well, it's not only against the incumbent. The broadband market is not only a game between us, Telia and Telenor. There are other players in this market. So it's not necessarily so that what we do is always a reaction to or a plan to overtake them. I'd like to say that first. I'm not prepared to go too much into detail on the specific product. It's just product updates that Stefan brings into his new position. You can see what I find really cool about Stefan is that, first of all, he's putting together a strategy. He's very clear about his segmentation strategy. And then he also finds time to go out and make sure that we can get our food delivered from different shops in Germany. in Stockholm to begin with, with 5G technology, with an Italian developed a robot that drives around in the streets. The guy brings creativity into it, and I think it's nice because B2B has often been seen as a very conservative business that has looked the same all the time. It's all about volume and price. What we're doing in terms of now starting to embrace 5G and what we're doing in IoT is also a part of that equation of updating our product portfolio and our thinking.

If I could just have a very quick follow-up. I think I asked last quarter whether or not you changed your sales incentives for your business division. I think you said that it was in process of happening. Has that now been finalized?

The incentive structure in B2B has definitely changed and we're moving away from something that was very much volume focused to a much more granular approach and I think it's an absolute necessity to get the mindset change and to focus on value in those segments where we really should focus on value and then to steer people towards volume where we want to steer towards volume. But we need to be granular segment by segment And this has happened. It was absolutely essential. Got it.

Thanks very much.

Okay, I think that took us to the end. Sorry?

Do we have more questions?

I think we have come to the end. I'd like to thank you for taking the time to share this hour with us, and thank you for lots of good questions. I'm very happy to see that despite lots of challenges that we're all facing in our everyday life and that we face as businesses, we are able to continue delivering what I would call a good growth story in terms of our profitability. I'm very happy that we've been able to pay a dividend to our shareholders, which I think they will appreciate. I have told you that I'm more optimistic around our B2B than I was before. Lots of hard work to do, but I think we're doing the right things, and I start seeing from indicators of it. And I'm really excited about the fact that we're going to launch, finally, the Brand X, where we position ourselves as a premium player in the Swedish market, and it enables us to deliver on simplifying IT infrastructure and take out the significant amount of costs throughout 2022. So I think we're well underway. We have lots of work to do, but I think we know what to do, and that's the most important thing. Thank you very much for joining us.