Tele2 AB (publ)

Good day and thank you for standing by and welcome to Tele2Q2 Interim Report 2023. At this time all participants are in a list and only mode. After the speaker presentation there will be a question and answer session. To ask a question you will need to press star 1 1 on your telephone. I will now end the conference over to the CEO Shell Jensen. Please go ahead sir.

Thank you, operator, and good morning, everyone. Welcome to Tele2's report call for the second quarter of 23. With me here in Kyrsta today, I have Charlotte Hansson, our group CFO, and Henrik de Groot, our chief commercial officer. Can I please ask you to turn to slide two for some highlights? So by now, you're all aware that growth is an absolute necessity for any company to be successful over time. regardless if it's operating in a mature market with fierce competition. I'm therefore very pleased to see the strong growth we delivered in Q2, despite challenging macro conditions. Once again, our colleagues in the Baltics delivered fantastic numbers. Swedish B2B uphold their momentum and the big tanker that is Swedish B2C, that for years was heading in the wrong direction, has now turned around, calibrated the compass and is getting ready to accelerate. It is, however, a stormy ocean to navigate. Inflation, interest rates and general uncertainties are affecting us all in one way or the other. Companies exposed to retail will have a challenging year ahead. Yet, as CEO of Teletoo, I'm optimistic about our ability to maintain a good balance between investments and continued healthy shareholder remuneration. As you might have noticed, our strong cash generation in the first half of the year largely cover the first tranche of the dividend despite high investment levels. We go into these uncertain times with a strong balance sheet and a high pace of development in our IT transformation and 5G rollout and have a very good opportunity to invest to ensure a strengthened C2 long term. One example of that is the digital customer journey where the telco industry is still behind many other industries. It is becoming increasingly important for us to get less dependent on third-party retail, and instead welcome new and care for existing customers in our own digital universe. It's more efficient and reduces charge. Customers reaching us digitally are more loyal and more satisfied. It is also a cornerstone in our strategy to build a real FMC category in the market, where we compete with value and service over unsustainable discounts. Tele2 has unique capabilities to lead this category, including our mobile, broadband, and aggregated TV and streaming services. But it requires our services to be highly reliable and a customer journey easy to understand, and that's the way we're heading at speed right now. While running as fast as we can to reach our targets, I'm happy that we in parallel managed to do it in a sustainable way. In May, the Financial Times ranked Teletubbies as Europe's number one climate leader, something we're very proud of. Before jumping into our financial and operational performance in Q2, I'd like to highlight that we today update some of our guidance parameters for 2023 and for our midterm ambitions. This is based on our proven ability to grow over time and the opportunity we see from investing in our capabilities during times of uncertainty. We are confident about our ability to combine 5G and spectrum investments with preserved healthy leverage and dividend levels. Charlotte will soon walk you through the details of the guidance changes. And with that, please turn to page three for a summary of the second quarter. End-user service revenue grew by close to 4% organically, driven by the Baltics and Sweden B2B. Underlying EBITDA was largely unchanged organically, mostly due to timing as we observe and expect gradual improvement supported by further effects from ongoing back book pricing and from abating headwinds from content and energy. Equity free cash flow improved significantly here but driven positive working capital. Sweden B2C saw solid net intake for mobile postpaid and fixed broadband. End user service revenue grew slightly thanks to strong growth in core connectivity offset by decline in legacy services. Backbook pricing has contributed to revenues in Q2 and will contribute more in the coming quarters as we approach full run rates. Sweden B2B delivered continued solid and broad-based end-user service growth, as well as solid net intake of mobile postmates. And our Baltic operations experienced yet another excellent quarter, both in terms of top-line and bottom-line growth. We have also continued rollout of 5G services at a high pace across our markets. Let's then move to the Swedish consumer segment on slide 5. The quarter has been characterized by continued pricing activity in the market, primarily on mobile family offerings and in the broadband value chain. The slower consumer demand on handsets continued, both in the operator cluster and third-party retail. Mobile PostPaid saw strong net intake with healthy support from Tele2 Unlimited, including the family proposition. In fixed broadband, we saw continued solid RGU growth driven by FMC and lower churn, alongside healthy ASPU growth supported by pricing. In the digital TV, cable, and fiber business, we are marginally down on RGUs and marginally up on ASPU. And then moving to slide six, please. Mobile end-user service revenue grew slightly, driven by improving post-pay growth, which more than offset the first full quarter with prepaid registration. In fixed broadband, end-user service revenue growth accelerated to 5%, thanks to both volume and OSPI growth. End-user service revenue for digital TV declined slightly, with stable sales in cable and fiber, and continued decline in the legacy DTT business. The new BioPlay-infused packages continue to contribute positively to both subsegments. And then let's move to B2B, slide 7. We continue to hold on to our overall strategy, and all business segments are contributing to the solid end-user service revenue growth of 5%. Our core services that have fueled growth for a long time continue to do so also in this quarter, offsetting further decline in legacy services. Mobile net intake amounted to 11,000 RGUs. The Q2 ASBU was stable year over year, excluding a minor positive one-off, which, however, has been offset by a similar negative one-off elsewhere in B2B. Our solutions business posted healthy revenue growth despite remaining supply chain issues. The macroeconomic situation, which we continue to monitor closely, is affecting some of our customer groups more than others, but so far, without significant impact on our business. And then we move to slide eight for Sweden overview. End-user service revenue growth for the combined Swedish operations increased to 2%, driven by a strong performance in B2B and improving performance to C. International roaming had a positive year-over-year effect of 7 million as compared to 15 million in Q1. Underlying EBITDA fell by 5% as inflation and content costs exceeded end-user service revenue and transformation benefits ahead of more back-book pricing effects and annualizing content costs in the coming quarters. Cash conversion remains strong at 51%, impacted by an increasing capex run rate as we are rolling out real 5G and remote PHY at a high pace. And then moving to the Baltic, slide 10, Across our Baltic markets, the number of mobile postpaid customers continued to increase, and so did all prepaid customer bases this quarter. We have continued to see organic ASPU growth across markets during Q2, resulting from our more-for-more strategy, price adjustments, and, to some extent, prepaid to postpaid migration. And in Baltic financials, slide 11, ASPU and volume growth in mobile postpaid led to organic end-user service revenue growth across markets, resulting in 12% end-user service revenue growth for the Baltics overall. Our strong top line, combined with successful cost control, has outpaced increasing personnel costs and slightly increasing energy costs, leading to an outstanding 15% organic growth in underlying EBITDA. We continue to see a very high cash conversion, thanks to strong underlying EBITDA, while impacted by significantly increasing CapEx run rate due to ongoing 5G rollouts. And with that, I hand over to Charlotte for the financial overview.

Thank you, Kjell, and good morning, everyone. Please turn to page 13. First, a few comments on the group P&L. In Q2, our total revenue grew by 3% organically, while end-user service revenue grew by close to 4%, driven by the Baltics and Sweden B2B. Our underlying EBITDA grew by 3% in SEC terms, while 1% organically. On the other hand, underlying EBITDA was largely flat organically as end-user service revenue growth and cost savings related to the business transformation program were offset, mainly by inflationary pressure and content costs, the latter of which will largely annualize in Q3. In Q2, we had a modest 13 million headwind from energy year on year, despite the 10 million electricity support in Sweden. Looking ahead, we currently estimate some tailwind from energy costs during the second half of the year, in addition to expectations of another 25 million electricity support in Sweden. In Q2, we saw a revenue increase of 10 million from international roaming. However, this was clearly lower than the 20 to 30 million year-on-year increase we have seen in the previous several quarters. I would also like to comment on the net financial items, where we only see a modest increase year on year, despite higher interest rates. But this, in fact, includes the 77 million financial gain related to the bond buyback in the quarter. By Q2, we had a debt mix of 66% fixed rates and 34% floating rates. And with that follows that for every one percentage point rate hike by our central bank, Our annualized financial expenses increased by around 100 million. So please look at the cash flow on slide 14. CapEx paid was slightly higher in Q2 compared to last year due to higher network investments. Working capital continued to improve in Q2 and was mainly impacted by lower levels of equipment receivables as expected. We continue to have working capital as one of our priorities for the year. Net financial items paid increased due to high interest rates, both on loans and leases. All in all, our equity-free cash flow for Q2 ended at a strong 1.2 billion, some 400 million above last year's level. And over the last 12 months, we have generated 4.1 billion of equity-free cash flow, corresponding to a 5.9 krona per share. And please move to slide 15 for our capital structure. At the end of June, economic net debt amounted to 25.9 billion, representing a slight 0.2 billion increase compared to year-end 2022, as the first tranche of a dividend was largely covered by a strong cash flow. Leverage stood at 2.55 times at the end of June, which is slightly above and below our target range of 2.5 to 3 times. In May, we successfully issued a heavily oversubscribed €500 million bond maturing in 2029. We also repurchased €306 million worth of existing bond. The second tranche of the ordinary dividend will be paid in October. And let's move to slide 16. This will be the last update of our business transformation program, which now has been successfully completed. During Q2, we executed the final stages of optimizations within legacy IT and networks, which led to an annual run rate savings of just above $1 billion by the end of June, and in line with the target set some three years ago. The P&L effect of this was $240 million in the quarter, with a net effect of $85 million compared to Q2 2022. So please go to slide 17 for our 2023 financial guidance. Following the first half of 2023, which has generated close to 4% organic end-user service revenue growth and the CapEx run rate above our upper end of the 2.8 to 3.3 billion range, we find it prudent to update our 2023 financial guidance accordingly. Consequently, we adjust our guidance for end-user service revenue growth from low single-digit to low to mid-single-digit growth. while leaving our guidance for underlying EBITDA unchanged at low single duty growth due to timing and continued inflationary pressure. We also rephrase our CAPEX guidance to the more commonly used percentage of sales model and guide for less than 14% CAPEX of sales in 2023. Let's move to slide 18 for an update of our mid-term ambitions. First, in line with our standard practice, we will announce our 2024 financial guidance in relation to the full year 2023 results presentation. However, given the revisions of our 2023 guidance, we also make similar adjustments to our mid-term ambitions. So we adjust end-use of services revenue growth from low single-digit to low to mid-single-digit growth. whereas our mid-single-digit growth ambitions for underlying EBITDA remains unchanged. We then foresee capex sales in the range of 10 to 14%, with 2024 in the upper end of the range, followed by a gradual decline towards the lower end of the range during 2025 to 2026. And with that, I hand over to Shell to go through our key priorities going forward.