Tele2 AB (publ)

Ladies and gentlemen, thank you for standing by and welcome to the Tele2 Q2 Interim Report 2021 conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. I must advise you that this conference being recorded today And I would now like to hand the conference over to your speaker today, Shell Johnson. Please go ahead.

Thank you very much, operator. Good morning, everyone, and welcome to the second quarter report for 32. With me today I have Mika Larsson, our CFO, and Samuel Scott, our Chief Commercial Officer. Today we'll walk you through the results for the quarter, and we will run a Q&A session afterwards where we can address your questions. Since I became CEO of Tele2, I've talked about the challenges that we have faced and dealt with during an ongoing pandemic in order to reach our goals. With a post-pandemic society on the horizon, I can now safely say that we are overcoming those challenges, and we are starting to see a turnaround in the financial results. At the Capital Markets Day in May, we presented our plans for our commercial business, as well as the crucial IT and technology transformation that enables it all. I'm happy to see that the plans we have set to you as we go through the figures of this quarter. So let's then turn over to the numbers. End-user service revenue returned to 2% growth for the group in the quarter as Baltics continued to grow really well, and we saw Sweden stabilizing as we grew in Sweden B2C, and we saw a trend shift in Sweden B2B compared to previous quarters. Strong performance in the Baltics, execution of the business transformation program, and lower commercial spending in Sweden, led to an underlying EBITDA growth of 8%. We continue to invest in 5G in Sweden, but we are not yet at our full-year run rate, which you can see in our capex for the quarter. We expect to increase the speed in the second half and onwards as we ramp up the 5G rollout in Sweden, and eventually start in the Baltics once we have acquired the spectrum. During the quarter, we paid out 3 SEC to our shareholders, which was the first half of the ordinary dividend. And in July, we paid an extraordinary dividend of 3 SEK. The remaining 3 SEK of the ordinary dividend is scheduled for October, meaning that we will have distributed 9 SEK this year to shareholders. This is in line with our ambition of having superior shareholder return. We successfully combined two of the most iconic consumer brands in Sweden into one strong premium brand. which concludes the first phase of our FNC journey. During this phase, we have shown that we're willing to take responsibility in the market through our value-based strategy, and we see that our more for more price adjustments are now improving the top line. With rolling revenues now roughly at the same level as last year, and other areas that were particularly affected by the pandemic, such as TV and mobile prepaid stabilizing, we were able to grow the Sweden B2C business for the first time in a long while. In Sweden B2B, we continue our multi-segment approach to take market share within SME, increase profitability in large private enterprise, and defend our position within the large public enterprise segments. The initial results look promising, and we see that the new mobile portfolio for small business launched in the first quarter is starting to bear fruit. While it will take some time to turn the B2B business back to growth, we start and we are on track towards stabilization in 2022. We see the fantastic performance in the Baltics continue with strong end-user service revenue and underlying EBITDA growth. This is done through our more-for-more strategy as we monetize the increased demand for data and leverage our different market positions in each market. But let's now move over to the Swedish consumer segment on slide four. The consumer market is in a similar state as the previous quarter, with lower activity due to COVID-19 restrictions. Together with the price adjustments, which always come with slightly elevated churn, this led to a negative net intake in mobile postbates. In fixed broadband, we really saw how resilient the business is, as net intake remained relatively strong, despite headwinds from the pandemic, pricing adjustments, and the removal of one of the most well-known fixed broadband brands in the Swedish market. And cable and fiber TV turned around as the revenue from premium sports is back. Total end user service revenue increased 1% as growth in mobile for space, fixed broadband, and cable and fiber TV compensated for a continued decline in legacy services. And then let's move on to B2B on the next slide. Mobile net intake was positive with 10,000 revenue generating units in the quarter. driven by improved net intake in the small segment and new contracts within the large segment. Mobile apps will continue to decline, although at a lower rate as roaming headwinds neutralized in the quarter. While we saw improvements within mobile and solutions, total end-user service revenue declined by 2%, mainly driven by continued decline in legacy fixed services. On the whole, I would say the performance is in line with the trajectory we laid out at the capital markets day. We are seeing a trend shift which should continue throughout the year and then lead to stabilization in 2022. The price pressure, of course, persists since it is a tough market. However, aftertrends are already improving slightly compared to previous periods, even if you exclude rolling. While we have a journey ahead of us to get back to growth, I think it is a good sign that we can get volume growth while maintaining discipline on prices. So then let's turn to slide six for the whole of Sweden. End-user service revenue was flat in Sweden as growth in B2C compensated for decline in B2B. Underlying EBITDA increased by 7% through continued execution of the business transformation program, lower commercial spend, and less headwinds related to the pandemic. We continue to see strong cash conversion of 65% despite increased capitalization. And then let's turn to Baltics on slide eight. We saw strong net intake in the quarter for the Baltics, driven by mobile post trade in Latvia and Lithuania. We continue to see strong growth due to continued monetization of data driven by price adjustments through more and more campaigns, and a slight recovery of roaming revenue in Latvia and Estonia. We'll turn to the next slide, please. We continue to see fantastic financial results across the Baltic markets. End-user service revenue increased by 13% in a quarter, with strong growth across all markets, as COVID-19 headwinds started to abate and showed signs of slight recovery. Higher end-user service revenue led to an underlying EBITDA growth of 10% on an organic basis. Strong growth in underlying EBITDA, together with low capital intensity at as we are in between investment cycles ahead of the 5G launch and the Spectrum acquisition, overall led to an 83% cash conversion. With that, I would like to hand over to Mikael to go through the financial overview.

Thank you, Kjell, 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 the organic growth numbers on the slide are adjusted for F-exchanges. As we can see on this slide, and as Shell previously mentioned, we now see some pandemic headwinds starting to abate in the quarter, and in the comparable figures, we have for the first time a full quarter of COVID-19 impact. As a result, we see outbound roaming giving a slight tailwind of 18 million SEC for the group in the quarter, but we are able to grow end-user service revenue even if we exclude this from the numbers. Mobile postpaid grew by 1% ex-rooming, and fixed broadband increased by 5%, driven primarily by price adjustments. We saw most of the effect of the price adjustments this quarter, and we expect a full effect from Q3. As premium sport content now has returned, we are able to grow our cable and fiber TV business with 3% compared to Q2 2020. However, it did not fully compensate the continued decline in the legacy DTT business, resulting in digital TV end-user service revenue declining by 2% in the quarter. Total end-user service revenue in Sweden B2C grew by 0.3% in the quarter, excluding roaming, as growth in mobile postpaid, fixed broadband, and cable and fiber TV was offset by decline in legacy services. In Sweden B2B, slightly improved trends within mobile and solutions were not able to fully compensate for the continued decline in fixed legacy services, and end-user service revenue declined by 2% excluding roaming. And in the Baltics, we see continued strong performance resulting in 12% growth in end-user service revenue, excluding roaming. And this was driven by high ASPR growth on the back of price adjustments through our more-for-more strategy and also pre- to post-paid migration. All of this resulted in the group growing end-user service revenue by 1.6% excluding roaming and 2.0% including roaming in the quarter. And this marks a turning point for our business from the negative growth numbers we have seen for the group over the last quarters. Let's move on and turn to slide 12 for a walkthrough of the group results. Continued strong development in the Baltics, execution of the business transformation program in Sweden, and lower commercial spend draw an underlying EBITDA increase of 7% organically. Items affecting comparability was roughly at the same level as Q2 2020 and was mainly driven by restructuring costs related to the business transformation program in Sweden. Depreciation and amortization increased during the quarter as we now start to amortize the book value of the Comhem brand following the merger with the Tele2 brand in the quarter. We also saw some impairments related to the IT transformation in the quarter. The release of a provision related to a tax dispute with the Swedish tax authorities resulted in a positive non-cash effect in the quarter of 21 million SEK on net interest and 350 million SEK on income tax. Let's continue by looking at cash flow on slide 13. Timing of customer equipment capex in Q2 last year led to a decrease of capex paid this quarter compared to Q2 2020. We saw a positive change to working capital in this quarter, and that was primarily explained by external handset financing in the Baltics. Taxes paid were affected by timing of withholding tax on intercompany dividends from the Baltics. And finally, we continue to see strong cash flow generation with equity-free cash flow of roughly 1.3 billion SEC in the quarter and 4.7 billion SEC in the last 12 months. And that is equivalent to roughly 6.8 SEC per share. Please move on to slide 14 for an overview of the capital structure. Leverage was unchanged compared to last quarter as growth in underlying EBITDA was offset by the distribution of the first tranche of the ordinary dividend in April. We continue to be in the lower end of our target range of 2.5 to 3 times ahead of the extraordinary dividend which was paid out in the beginning of July. If we are just for this, leverage would have been 2.7 end of June. So, so far this year, we have distributed six SECs, and in October, we'll pay out another three SECs per share as the second tranche of the ordinary dividend. And we can do this while maintaining our leverage comfortably within our target range. On top of the underlying cash generation of the business and re-levering effect of growing underlying EBITDA, we also have the opportunity to crystallize value for our shareholders through our stake in T-Mobile Netherlands. Since the Netherlands is not part of our group cash flow, a potential exit and distribution of the proceeds would not affect our ability to distribute cash to shareholders and maintain a very generous remuneration policy afterwards. Let's continue with slide 15, where we'll show an update of the business transformation program. We continue to execute on the program, and we reach an annualized run rate of 350 million SEC at the end of Q2. This resulted in 80 million SEC in cost reductions from the business transformation program affecting the P&L during this quarter. The savings during the quarter comes from efficiency improvements within the technology, IT, and commercial organizations, as well as support functions. We remain committed to reach roughly half of the 1 billion SEX target by the end of this year and the rest by the end of 2022. And with that, I will hand back to you, Shell, to go through the updated guidance and our key priorities going forward.