Tele2 AB (publ)

Good morning, everyone, and welcome to Tele2's report call for the first quarter of 2022. With me here in Kista, I have Charlotte Hansson, our group CFO, Henrik de Groot, our chief commercial officer, and Stefan Trampus, our head of B2B. But before we go into the results for the first quarter, I'd like to say a couple of words about the war in Ukraine that has had a profound impact on society as a whole and for the people here at Tele2. The war has caused major uncertainty and stress for all of us, and we are participating in efforts to help some of the people that are suffering from the atrocities by temporarily offering customers in Sweden, Baltics, and Ukraine free calls and text messages to and from Ukraine and free roaming for customers located in Ukraine. And then I'd like to turn your attention to the results of the quarter, moving to slide two. I'm really happy to see a great start to 2022. both in terms of end-user service revenue and underlying EBITDA growth. End-user service revenue grew by 3% for the group, driven by both the Baltics and Sweden B2B. It is especially encouraging to see the impressive dynamics within Sweden B2B that now is able to grow with 3% in end-user service revenue. The strong end-user service revenue growth, together with continued growth within Sweden wholesale and execution of the business transformation program in Sweden, resulted in underlying EBITDA growth of 6% for the group. As we previously have announced, we are happy to see the T-Mobile Netherlands transaction finalized, and with the proposed extraordinary dividend from the cash proceeds and the proposed ordinary dividend we are able to offer our shareholders a significant dividend yield for 2022. I'm also happy to see the new strategic partnership together with Viaplay that we announced in the quarters. Through this agreement, we are able to modernize our TV proposition and prove that our aggregated model, which historically has been successful in the linear world, also works in the streaming world. Within fixed broadband, we see continued strong performance, both from an ASPU and volume perspective. And in the TV segment, Tele2 Play Plus continues to provide promising results ahead of the new TV propositions. We continue to see an improvement within Sweden B2B and user service revenue driven by the mobile and solution segments. Within the mobile segment, we see the improvement coming from both a volume and aspect perspective, which is very promising. Even though we have not seen any material impact on supply chain issues in this quarter, we prepare for different scenarios and continue to monitor the situation. In the Baltics, we experienced yet another quarter of fantastic performance, both in terms of end-user service revenue and underlying EBITDA. Here, we see more pressure from a cost perspective than in Sweden, especially in terms of electricity costs, which offsets some of the underlying EBITDA growth. We also, in a quarter, further improved our spectrum portfolio by acquiring spectrum in Latvia in the 1500 MHz band. Let's then move over to the Swedish consumer segment on slide four. Mobile post-bates saw lackluster net intake as competitors ran intense campaigns and high commission in external retail during the quarter, while some COVID-19 restrictions still hampered market activity. Mobile auspices saw a slight decline in the quarter, partly driven by a 10 million SEC negative one-off in the quarter. Fixed broadband continues to show good performance, both from an ASPU and a volume perspective. And we see that the price adjustments that we did last year are continuing to have a positive effect on the base. In digital TV, cable and fiber, we see continued contribution from Tele2 Play Plus, which helps to grow the ASPU in the quarter. However, the overall customer base continues to decline, which hampers end-user service revenue growth. Moving to slide five. Mobile postpaid end-user service revenue was flat in a quarter, as a slight ASPU decline was compensated by slight volume growth. We see continued end-user service revenue growth in a fixed broadband of 4%, driven by both ASPU and volume growth. Total end-user service revenue for digital TV declined by 4% in a quarter, primarily driven by continued decline in the legacy DTT TV service due to a declining customer base. Then let's continue with Sweden B2B on the next slide. The mobile net intake continued to be strong in the quarter, driven by new contracts, both within SME and large segments. The mobile aspect trend continues to show improvements, with a slight decline of just 1%. Continued mobile volume growth and strong growth in the solution business was able to fully offset the decline in the legacy fixed business, resulting in Sweden B2B growing end-user service revenue by 3% in the quarter. And then let's turn for an overview of Sweden. End-user service revenue was flat in Sweden, as growth in Sweden B2B was offset by a continued decline in the legacy services within Sweden Consumer. Underlying EBITDA increased by 5% in the quarter compared to last year, driven by slight end-user service revenue growth, Sweden wholesale, and contribution from the Business Transformation Programme. We should note that the mechanics of our negotiations with NEMT led to some cost avoidance in Q1, and that costs related to this contract will apply going forward when we use more content to upsell and promote growth in the TV business. Overall, we continue to see strong cash conversion of 65% as continued underlying EBITDA growth offsets higher capex levels. And then let's move to the Baltics. And we are happy that, similar to previous quarters, we continue to see strong volume and aftergrowth in all markets, as roaming is starting to come back in a meaningful way, and we are able to monetize data through our more-for-more strategy. In Estonia, we were able to successfully execute on our customer acquisition campaigns, which yielded a good net intake for the quarter. And then moving on. This Australian volume growth led to a strong end-user service revenue growth for all markets, and we saw the Baltics grow by 13%. The end-user service revenue growth in the quarter was able to offset the increased pressure from rising inflation rates, which resulted in underlying EBITDA growth of 8%. We continue to see a high cash conversion for the Baltics due to the strong performance and relatively low capex levels prior to the nationwide 5G rollout. And with that, I'd like to hand over to Charlotte, who will go through the financial overview.

Thank you, Kjell, and good morning, everyone. Please turn to page 12 in presentation. Strong end-user service revenue and growth of Sweden Wholesale, coupled with continued execution of the business transformation program, resulted in solid underlying EBITDA. However, this was partly offset by headwinds stemming from rising inflation rates, primarily in the Baltics. In total, underlying EBITDA increased by 6% in the quarter. Depreciation and amortization continues to be higher on a quarterly basis compared to last year, as we started amortizing the Comhem brand in May 2021, when we consolidated the old Tele2 and Comhem brands into the new Tele2 brand. Results from associated companies and joint ventures increased significantly in the quarter compared to last year, as we saw a 1.6 billion SEK impact from the capital gain from the T-Mobile Netherlands divestment, which was completed in a quarter. Effect losses from hedges connected to the T-Mobile Netherlands transaction was the primary reason as to why we saw net interest and other financial items increasing by roughly 100 million SEK in Q1 2022 compared to Q1 2021. So let's continue with the cash flow on slide 13. CapEx paid was lower in the quarter compared to last year, as we had a spectrum payment in Sweden related to the 3.5 gigahertz spectrum auction of 333 million SEK in Q1 last year. And changes in working capital was negative in the quarter, primarily driven by timing of accounts payable. Taxes paid increased in Q1 2022 compared to last year, after the final tax payment related to the fiscal year of 2020 in the quarter. We continue to see strong equity-free cash flow with 900 million SEC generated in the quarter, yielding an equity-free cash flow from continuing operations of 5.9 billion SEC in the last 12 months. Please move to slide 14 for the capital structure. At the end of the quarter, we saw economic net debt decrease to 14.3 billion SEK, driven by the cash proceeds received from the T-Mobile Netherlands transaction and cash generated in the quarter, which resulted in a leverage of 1.5. We expect to pay out the cash proceeds from the T-Mobile Netherlands and the first tranche of the ordinary dividends in May, once our shareholders have voted for the two propositions. If we adjust for these two payments, leverage would have been 2.6. Please turn to slide 15 where we will update you on the progress of the business transformation program. During the quarter, we made significant progress within the business transformation program. We have started migrating the first batches of customers on the Tele2 brand onto the new IT stack. So far, this has been going smoothly, and we expect it to be done later in the year. upon when we will start migrating customers from Convict and Boxer onto the new IT stack. We also continue to make optimizations within the organization, primarily in the technology and IT organization. The annual run rate of the business transformation program was 600 million SEC by end of Q1. The P&L effect of this was 140 million SEC in the quarter, with a net effect of 70 million SEC compared to Q1 2021. And with that, I will hand over to Chef.

Thank you, Charlotte. And then please turn to slide 16 for a summary of the key priorities going forward. In Sweden, we have now finished the golden clusters and have started the wider 5G rollouts. Similarly, on the fixed side, we will try to further ramp up the speed on our RemoteFi project in order to gain the benefits from this investment as soon as possible. Both of these projects are key for us in order to increase customer satisfaction, which will support our more-for-more strategy for years to come. We will continue executing on the business transformation program to deliver at least 1 billion SEC of savings by the end of Q2 2023. In Sweden Consumer, we will continue to balance value and volume in order to build sustainable growth while gearing up our capabilities to address the 1.3 million non-FMC households. We will also continue to build our premium brand in order to increase customer satisfaction that we can monetize through reduced churn or price adjustments on the back of product improvements. During 2021, a lot of focus went into stabilizing the B2B business in Sweden. And now that we have achieved that, we will turn our focus towards the TV business, which has historically been the second drag on Swedish end-user service revenue growth. The agreement with Viaplay is a key part in this strategy, and now we have a more competitive offer out in the market. We will start migrating linear customers onto our new TV propositions during Q2, and we will launch our streaming propositions later in the year. In Sweden B2B, we will continue the turnaround that we started during the second half of 2021 by executing on our new granular approach with clearly defined segments. Going forward, our ambition is to grow in the business for the full year. But as in any business, it usually does not develop in a straight line, and fluctuations should always be expected. But we are witnessing a very important and sustainable shift within B2B. In the Baltics, we will continue to build on the performance that we've seen and execute on our mobile-centric convergence strategy through more-for-more offers in order to make sure that we can sustain the growth. With the 5G auctions now concluded in Latvia, we'll start to ramp up the 5G rollout while preparing for the auctions in Lithuania and Estonia, which we expect to occur this year. At the same time, we will continue to develop and explore FMC capabilities. During the quarter, we signed a wholesale agreement with Baltcom in Latvia, which means that we now have FMC capabilities in all countries. We've had a really good start to the year, with low single-digit end-user service revenue and mid-single-digit growth in underlying EBITDA in the quarter. When we presented the recent Q4 results, I said that Tele2 is a growth company at heart, and that we are witnessing the positive results from our strategic initiatives. With yet another quarter completed, I'm even more certain that we can reach the goals that we've set for ourselves. And with that, I'd like to turn it over for some questions, please.