Tele2 AB (publ)

Good day and thank you for standing by. Welcome to the Tele2 Q3 Interim Report 2023 conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I will now like to hand the conference over to your speaker today, Kjell Jönsson, CEO. Please go ahead.

Yeah, thank you very much, operator. Good morning, everyone, and welcome to Tele2's report call for the third quarter of 2023. With me here in Kista today, I have Charlotte Hansen, our group CFO, Henrik de Groot, our chief commercial officer, and Erfan Trampus, our head of B2B. And then let's just move to the slide two. I'm very happy to see that our firm focus on top-line growth once again paid off in the third quarter, which marked the 10th consecutive quarter of organic end-user service revenue growth for Teletubbies. When it comes to EBITDA growth, we have previously talked about the backend load at 2023 due to phasing of backbook pricing, abating content cost headwinds, and lower energy costs. In the third quarter, We grew organic EBITDA by 3%, admittedly supported by lower energy costs year over year. We're nevertheless optimistic about prospects to grow EBITDA meaningfully also in Q4, where we don't foresee any major year over year movement on energy costs. We're also happy about our strong cash generation in the third quarter. Another important milestone was the favorable outcome of the Swedish Spectrum auction, where we secured Spectrum in all the offered bands at reasonable costs. In the end, the leverage is well below the lower end of our target range. On a pro forma basis, including the second ordinary dividend tranche and the first installment of the Spectrum, we're still only at 2.6 times. In the third quarter, we demonstrated innovation in our customer broadband segment as we launched a broadband connection guarantee where we link our fixed and mobile connectivity for superior reliability and consequently high customer value based on our FMC capabilities. In addition, we're very pleased to see positive developments in customer loyalty and churn for the Tele2 brand in Sweden as we're gradually moving away from various legacy limitations. In terms of sustainability, CD2 was recently awarded for the most transparent sustainability reporting on Stockholm OMX large cap. So with that, let's move to page three. So end-user service revenue grew by 3% organically, driven by the Baltics and Sweden B2B. Underlying EBITDA grew by 3% as end-user service revenue growth, transformation savings, and lower energy costs more than offset inflationary pressures. We had a very strong equity-free cash flow this quarter. The main driver for the year-over-year improvement was a significantly better working capital, followed by good growth in EBITDA. In Sweden B2C, we saw solid net intake for mobile postpaid and fixed broadband. End-user service revenue continued to grow slightly, with increasing growth rates in fixed broadband and mobile postpaid, partly offset by increasing legacy headwinds. Backbook pricing will contribute somewhat more in Q4 because we are reaching the full run rate. Sweden B2B delivered continued solid and broad-based end-user service growth, as growth in mobile and solutions continued to exceed decline in fixed legacy services. Our vaulting operations delivered yet another impressive quarter, both in terms of top-line and bottom-line growth. and we continue to roll out 5G at high pace across our markets. Let's move then to Swedish consumer on slide five. The overall consumer telecom market is demonstrating resilience in the face of inflationary pressure. Our mobile post-paid business, so solid net intake driven by the Tele2 brand, including family subscriptions. Astro was flat year over year, but grew by a low single digit when excluding dilution from free mobile broadband RGUs. In fixed broadband, we saw continued good RGU growth driven by FMC and lower churn, alongside healthy growth supported by pricing. Our digital TV, cable, and fiber business remained stable in the quarter. And then moving to page six, Mobile end-user service revenue grew slightly, driven by somewhat improving post-pay growth, which more than offset another full quarter of prepaid registration effects. In fixed broadband, end-user service revenue growth reached 7%, thanks to both volume and absolute growth. End-user service revenue for digital TV declined by 3%, with largely stable sales in cable and fiber, and continued decline in the legacy D2T business. And then moving to B2B, we continue to execute on our successful B2B strategy, and all customer segments are contributing to the solid end-user service revenue growth of 4%. Again, our growth area exceeded the decline in legacy services, where our copper decommissioning has approached 80% completion rate. Mobile net intake amounted to 4,000 RGU's In a seasonally slow Q3, ASPU was slightly up year over year. 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. During the quarter, we have reclassified some RGU's previously reported in mobile to IoT subscriptions. which has led to a reduction in mobile RGUs and an increase in mobile after excluding IoT. The reclassification has also been done retroactively. The updated historical numbers are available in our Q3 Excel file on the web. And then let's move to slide eight. So for Sweden overall, end-user service revenue growth for the total Swedish operations ended at 2%, driven by continued solid performance in B2B and slightly improving performance in B2C. International roaming had a positive effect of 8 million sec year-over-year. Underlying EBITDAO declined by 1% as higher end-user service revenue, continued transformation benefit, and lower energy costs were more than offset by inflationary pressures and continued margin pressure from product mix changes as legacy services declined. Nevertheless, Q3 marks a clear improvement versus the previous couple of quarters. The cash conversion of 58% is reflecting group pack capital sales of 14% during the last 12 months. And then let's move to Baltic. The total number of Baltic mobile postpaid customers continue to increase in the quarter. Organic ASPU continue to grow at a healthy rate across markets, thanks to our more for more strategy price adjustments, and to some extent, prepaid to postpaid migrations. And turning to the financials on the next page, the overall volume and AFPI growth generated a solid 9% organic end-user service revenue growth for the Baltics. Our top line, combined with lower energy costs, has outpaced other inflationary pressures, leading to a strong 15% organic growth in underlying EBITDA. Cash conversion remains at very high levels thanks to strong underlying EBITDA, despite continued significant CapEx run rate due to ongoing 5G rollouts. And with that, I hand over to Charlotte for financials.

Thank you, Kjell, and good morning, everyone. Please turn to page 13. First, a few comments on the group P&L. In Q3, total revenue was flat organically, whereas end-user service revenue goes slightly more than 3%. Our underlying EBITDA grew by 6% in SEC terms, while close to 4% organically. The underlying EBITDA grew by close to 3% organically, as end-user service revenue growth, cost savings related to the finalized business transformation program, and lower energy costs more than offset inflationary pressures and continued margin pressure from product mix changes as legacy services declined. In Q3, we had 64 million tailwinds from energy year-on-year, which included a final 25 million electricity support in Sweden. For Q4, we currently estimate a slight headwind from energy costs year-on-year. In Q3, we saw a revenue increase of 11 million from international roaming year-on-year, the same year-on-year increase as in Q2. As you can see on the slide, our net financial items increased by 100 million year on year due to high interest rates, both on loans and leases. And by Q3, 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 on loans increased by around 100 million. So let's look at the cash flow on slide 14. CapEx paid was slightly lower in Q3 compared to last year, simply due to timing, as our balance sheet CapEx was significantly higher than last year. Working capital continued to improve in Q3. It was mainly impacted by unusually high levels of accounts payable, which we expect to revert in Q4. And working capital remains a priority for us also going forward. Net financial items paid increased due to high interest rates, both on loans and leases. All in all, our equity-free cash flow for Q3 ended at a strong 1.9 billion, some 500 million above last year's level. And over the last 12 months, we have generated 4.6 billion of equity-free cash flow, corresponding to 6.7 krona per share. Please move to slide 15 for our cash flow. At the end of September, economic net debt amounted to 23.9 billion, representing a 1.8 billion decrease as compared to year-end 2022, despite the payout of the first tranche of our ordinary dividends. Leverage stood at 2.3 times at the end of September, which is well below the lower end of our target range of 2.5 and 3 times. And as Shell mentioned earlier, on a performer basis, including the second ordinary dividend tranche, and the first installment of the spectrum, we're still only at 2.6 times. The second charge of the ordinary dividend was paid last week, and the first charge of the spectrum will be paid later this month. So let's move to slide 16 for our financial outlook. Following the first nine months of 2023, which has generated close to 4% organic end-user service revenue growth and 1% organic underlying EBITDA growth, we reiterate our financial guidance for 2023 and our mid-term ambition. When it comes to this year's guidance, I'll just repeat what Shell said earlier. We are optimistic about prospects to grow EBITDA meaningfully, also in Q4, where we don't foresee any major year-on-year movements on energy costs. And our capex guidance to sales for 2023 is below 14%, and we are at 13% so far this year, year-to-date. Finally, in line with our standard practice, we will announce our 2024 financial guidance in relation to the full-year 2023 results. And with that, I hand over to Shell to go through our key priorities going forward.