Tele2 AB (publ)

to the Tally 2 Q3 Interim Report 2021 conference call. At this time, all participants are in the 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 one on your telephone. I must advise you that this conference is being recorded today on Tuesday, the 19th of October, 2021. I would now like to hand the conference over to your speaker today, Shell Johnson. Please go ahead.

Thank you very much and good morning everyone. Welcome to the Q3 report call for Tele2. With me in the room here today I have our Interim CFO Peter Landgren, our Chief Commercial Officer Henrik de Groot and our Head of B2B Stefan Trampus. I'm glad to present to you today the second consecutive quarter of growth with good results across all segments. Sweden B2B in particular turned to growth for the first time in several years, while we saw commercial momentum picking up in Sweden B2C. During the quarter, we also finalized the consolidation of our international footprint through the divestment of T-Mobile Netherlands. While I am impressed by the development and efforts of the management and employees in the Netherlands, we clearly stated during the Capital Markets Day that our mid-term strategic ambition is to be the leading operator in the Nordics and the Baltics. Thus, our focus will be on this specific region. As we will now go through this quarter's numbers, I'm even more confident about reaching the ambitions that we set out earlier this year. The group end-user service revenue showed a growth of 2% in the quarter on the back of strong performance in the Baltics, growth in both Sweden B2C and B2B, and a slight tailwind from roaming. Underlying EBITDA grew by 5% for the group in the quarter, driven by end-user service revenue growth and continued execution of the business transformation program in Sweden. As I mentioned earlier, we closed the T-Mobile Netherlands sale in the quarter, marking an important milestone for the company. The board intends to propose an extraordinary dividend of at least 11 SEK per share, pending receivable of cash proceeds. This gives further proof of our mid-term ambition of having the best industry shareholder returns. During the quarter, we paid out an extraordinary dividend of 3 SEK per share to our shareholders. Together with the second tranche of the ordinary dividend of 3 SEK per share paid out in October, Tele2 will have distributed 9 SEK per share this year to shareholders. This is yet another proof of our mid-term ambition. In Sweden B2C, we see that our value-led strategy through price adjustments on the back of product improvements are continuing to bear fruit. while net intake in mobile postpaid turned positive. After a successful 5G launch last year on the premium Tele2 brand, we now launched 5G on Comvig to further assert our strong position in the mid-tier segment. This gives us an enhanced product offering prior to a quarter with seasonally higher activity for handsets. I'm very proud to say that Sweden B2B saw growth in the quarter. We're in the middle of a major turnaround within B2B, And Stefan and his team is doing an amazing job to fulfill the ambitions that we presented to you on a capital market stay. Our more granular approach with clearly defined segments and a developed understanding of how to balance value and volume has led to a major improvement in performance. Our operations in the Baltics are clearly performing very well, both in terms of end-user service revenue and underlying EBITDA growth. We see that our more for more strategy is very much working as we monetize the increased demand for data by our customers. But let's move over to the Swedish consumer segment on slide four. With previous modest market activity, commercial activity started to pick up in the quarter, and we saw positive net intake for mobile post-dates. With price adjustments made previously during the year having full effect in the quarter and a slight tailwind from roaming, we were able to grow mobile postpaid ASPU by 3%. As a result, we saw mobile postpaid end-user service revenue of 2%, so growth in that of 2%. Fixed broadband continues to show steady growth, both in terms of volume and ASPU, leading to a solid end-user service revenue growth in the quarter of 4%. In the cable and fiber segment within digital TV, we see continued strong ASPU development on the back of pandemic unwind, as we now had a full quarter of premium sports. Combined with a growing contribution from ComHem Play+, this fully offset the slight decline of RGU's and we were able to grow end-user service revenue by 1%. With a strong ASPU development in our core services and pandemic recovery, we were able to grow total end-user service revenues in Sweden B2C by 1%. Let's continue with Sweden B2B on the next slide. Mobile net intake was positive with 17,000 revenue-generating units in the quarter, driven by positive net intake in all three segments. Mobile SPU declined by 4%, While still declining, this is a clear improvement in the trend as we see SME intake contributing to a better mix and focus on profitability in large public and private starting to have an effect. We also see a slight tailwind from roaming in the quarter. With increasing mobile volumes, continued growth within IoT and solution sales, we were able to offset the decline in the legacy fixed services and total end-user service revenue grew by 1%. And now let's move to an overview of Sweden on slide six. End-user service revenue grew by 1% in Sweden as both B2C and B2B segments saw growth. Underlying EBITDA increased by 4% through end-user service revenue, wholesale revenue growth, and structural cost savings related to the business transformation program. Cash conversion continues to be high in the quarter at 65%. As we keep growing underlying EBITDA, and the full run rate of 5G rollout has not yet been reached. Then let's look at the Baltics on slide 8. Our operations in the Baltics are performing well, both in terms of absolute numbers and in relation to our competitors. Net intake was strong in the quarter for the Baltics, driven by mobile post-pay growth in Lithuania and Latvia. We saw ASPR growth on similar levels as in Q2, as we continue to monetize increased data consumption through our more-for-more strategy and are helped by a slight tailwind from roaming. Let's move to the next slide. We see continued strong end-user service revenue of 12% in the quarter with growth across all markets driven by ASPRU and volume growth. Higher end-user service revenue led to an underlying EBITDA growth of 6% on an organic basis. Cash conversion saw slight decline compared to previous quarters, as continued underlying EBITDA growth was offset by slightly higher capex, as we now have started to modernize our core networks to prepare for 5G. So after this little overview, I'd like to hand over to Peter 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 included this slide to illustrate the top line development with the roaming impact on a separate line. Please keep in mind that the organic growth rates on this slide are adjusted for currency movements. With the restrictions now starting to ease up, we now see a gradual roaming recovery. And as a result, outbound roaming provided tailwind of 29 million SEC in the quarter. However, even if we stripped out the roaming effect, we see the underlying business improving, and we were able to grow end-user service revenue by 1.9% ex-roaming. In Sweden BTC, mobile postpaid grew by 1% ex-roaming and fixed broadband by 4%, driven by price adjustments and also volume growth in fixed broadband. Within TV, we are helped by somewhat easier comps as sports broadcasts were shut down part of Q3 last year. And now we also see ComHem Play Plus starting to contribute to the top line. But this didn't fully compensate the continued decline in the legacy DTT business, resulting in TV end-user service revenue declining by 2%. And to summarize, Sweden BTC end-user service revenue was quite flat, excluding roaming, as growth in the core services was offset by the legacy decline. And I shall mention, we now see Sweden B2B growing for the first time in several years, as the business shows good progress. Growth in mobile and solutions was fully compensating the declining legacy fixed services. Our Baltic friends continue to deliver fantastic growth, and user service revenue was up by 11% excluding roaming, with new customers added, price adjustment, and upselling, all enabled by our more for more strategy. So to conclude, this marks the second consecutive quarter of end-user service revenue for the group, end-user service revenue growth for the group. So please turn to slide 12 for the group results. The end-user service revenue growth, along with the continued execution on the business transformation program, were the main factors behind the mid-single-digit growth in underlying EBITDA. Items affecting comparability of minus 75 million SEC were mainly related to restructuring costs attached to the business transformation program. And please note that last year's figure included a positive one-off of around 110 million SEC. DNA increased compared to last year as we continue to amortize the book value of the Comhem brand following the merger with the Teletubbe brand in the second quarter. And finally, results from associated companies and JVs improved. largely related to our 25% stake in T-Mobile Netherlands. So let's have a look at the cash flow on slide 13. We continue to see strong cash generation with equity-free cash flow of 1.9 billion SEK in the quarter. Compared to last year, it improved by some 200 million SEK with underlying EBITDA growth as the key driver. We also had a positive change to working capital where external asset financing in the Baltics contributed. Net financial items paid also improved as we benefit from lower interest rates compared to last year. And finally, looking at the last 12 months, equity-free cash flow of 4.9 billion SEK has been generated, which is equivalent to some 7 SEK per share. So please move to slide 14 for an overview of the In the third quarter, the extraordinary dividend of 3 SEC per share was paid. Leverage or economic net debt to underlying EBITDA still stayed in the lower end of our 2.5 to 3 target range as a result of the strong cash generation and the underlying EBITDA growth in the quarter. In October, the second tranche of the ordinary dividend was also paid, and if we adjust for this leverage, would have been at around 2.7 at the end of Q3. And worth repeating, we have now paid 9 SEK per share in total dividends to our shareholders in 2021, and as already communicated, the Board intends to propose another extraordinary dividend of at least 11 SEK per share once the divestment of T-Mobile Netherlands is finalized. So let's continue with slide 15 and the progress on the business transformation program. So we continue to execute on the program and we reached annualized run rate savings of 425 million SEK at the end of Q3. And this resulted in 90 million SEK of cost reductions affecting the P&L in the quarter. And the efficiency improvements adding during this quarter came from the technology, IT, and commercial organizations. And we remain committed to the saving targets of at least 1 billion SEK. And with that, I'd like to hand back to Kjell to cover our key priorities going forward.