Tele2 AB (publ)

Good day and thank you for standing by. Welcome to the Tele2 Fourth Quarter Interim Report 2023 conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be the question and answer session. To ask a question during the session, you need to press star 11 on your telephone keypad and wait for your name to be advising. To withdraw a question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Shell Johnson. Please go ahead.

Thank you very much, operator. Good morning, everyone, and welcome to Tele2's report call for the fourth quarter of 2023. We are very happy that you are taking the time with us this morning. And with me here in Shista today, I have Charlotte Hansen, our group CFO, Henrik Dithroth, our chief commercial officer, and Stefan Trampus, our head of B2B. So please turn to slide two for the highlights. 2023 turned out to be eventful in many ways. And if I were to single out a few specific events beyond the financial ones, I would mention the Financial Times ranking of 32 as the number one among Europe's climate leaders, as well as the top spot our B2B team recently achieved in the Swedish Quality Survey, SKEI, based on real customer experience. So while these achievements make us proud, we will of course continue our work on customer experience and sustainability going forward. I'm glad to report a strong end of 2023 as we grew organic underlying EBITDA by 4% in the fourth quarter, while maintaining solid end-user service revenue growth of 3%. For the full year, we grew end-user service revenue by 4% and underlying EBITDA by 2%, which combined with 13.5% CapEx sales ratio was in line with our 2023 guidance in a challenging year, largely characterized by inflation. Following strong equity-free cash flow during the year, our balance sheet remains strong with leverage at the bottom end of our target range. Consequently, our board of directors proposes an ordinary dividend of 6 kroner per share, an increase from 6.80 last year, to be paid in two tranches. in May and October. We're also launching a new strategy execution program, which covers the next three years. Through this program, we will, simply put, shift focus from fixing legacy IT towards our go-to-market efforts. Developing outstanding digital tools and channels aimed at radically improving customer experience and value. The program will also, as an effect, allow us to reduce 600 million of costs over the next three years. I will soon present this in more detail. Please move to page three. End-user service revenue grew by 3% organically, with solid performance across operations, including continued growth acceleration in B2C Sweden. Underlying EBITDA grew by 4%, mostly as end-user service revenue grew more than offset inflationary pressures. We had a solid equity-free cash flow this quarter, despite working capital impacts from seasonally high-level equipment funding. In Sweden B2C, we saw solid volume growth in mobile postbates. End-user service revenue growth in connectivity was also solid, driven by fixed broadband at 8% and mobile postbates at 5%. Sweden B2B delivered continued solid and broad-based end-user service revenue growth. supported by improving mobile ASPU. Our term also stood out as mentioned in the recent survey from the Swedish Quality Index with the most satisfied business customers in both broadband and mobile, which we are very proud of. Vaultix had another good quarter with strong ASPU-driven end-user service revenue growth and good underlying EBITDA growth. Then let's look at Swedish consumer. Q4 was yet another quarter with solid volume growth in mobile postpaid, driven by lower churn and strong sales of unlimited and family products. Mobile after increased slightly year over year, but grew more than 2% when excluding dilution from free broadband RGUs. In fixed broadband, we saw stable RGU development in the quarter due to fewer campaigns and less discounts, whereas aftergrowth was strong thanks to price adjustments and uptake of higher average speeds. Our digital TV, cable, and fiber business remained stable in terms of volume, whereas Afto was slightly down due to decline of legacy add-on products. Moving to slide six. Mobile end-user service revenue grew by 3%, driven by a continued acceleration in mobile postbates, which delivered a multi-year high end-user service revenue growth of 5%. In contrast, our prepaid business continued to contract in line with previous quarters, following the registration requirement since February 2023. With an impressive 8% end-user service revenue growth, fixed broadband also delivered a multi-year high, thanks to both ASPU and volume growth. End-user service revenue for digital TV declined by 3%, mostly driven by continued decline in the legacy DTT business. And now 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 2%, or 4% underlying when adjusted for a one-off deal in solutions in Q4 of 2022. Our copper decommissioning has now approached 90% completion rate. Mobile net intake amounted to 3,000 RGUs in Q4, alongside continued ASPR improvements. The macroeconomic situation continues to affect some of our customer groups more than others, however, with moderate impact on our overall business. And then let's move to an overview of Sweden. End-user service revenue growth for a total Swedish operation ended at 2%, driven by both B2C and B2B. Underlying EBITDA turned to 3% growth, mostly as higher end-user service revenue exceeded inflationary pressures and continued margin pressure from product mix changes as legacy services are declining. The cash conversion of 58% is reflecting full-year CapEx sales of 15%. Let's continue with the Baltics on slide 10. The total number of Baltic mobile post-it customers continued to increase in a quarter. Organic OSPU continued to grow at a healthy rate, largely driven by Lithuania, and our more-for-more strategy, price adjustments and prepaid to post-paid migration. And when looking at the Baltic's financials, the Asper growth combined with some volume growth in mobile post-paid led to 8% organic end-user service revenue growth for the Baltics as a whole, driven by Lithuania and Latvia. Underlying EBITDA also grew at 8% organically, as end-user service revenue and somewhat lower energy costs exceeded inflationary pressures. Cash conversion remains at excellent levels and reached 74% by year end thanks to strong underlying EBITDA despite full year capital sales of 10% due to ongoing 5G rollouts. With that I hand it over to Charlotte who will go through the financial overview.

Thank you Kjell and good morning everyone. Please turn to page 13. So first a few comments on the group P&L. In Q4, total revenue grew by 2% organically, whereas end-user service revenue grew slightly more than 3% organically. In Q4, we had a revenue increase of 13 million from international roaming year-on-year, hence roughly in line with the contributions in the previous couple of quarters. Underlying EBITDA grew by 6% in SEC terms and close to 5% organically. The underlying EBITDA grew slightly more than 4% organically, mostly as the end-user service revenue grows more than offset inflationary pressure and continued margin pressure from product mix changes as legacy services decline. In Q4, we had 11 million tail width from energy year on year. As you can see on the slide, our net financial items increased by 80 million year on year due to high financing costs for outstanding debts And by year end, we had a death mix of 66% fixed rates and 34% floating rates. With that follows, for every one percentage point rate change by our central bank, our annualized financial expenses on loans with floating rates move by around 19. And during 2024, we have some 4 billion SEC maturing, of which the majority is fixed and matures during the first half of the year. Then finally, the income tax was decreased due to higher taxable profits and increased due to higher taxable profits. And because last year was positively impacted by tax reductions related to investments made during the pandemic. And let's move to the cash flow. CapEx paid increased in Q4 compared to last year due to continued high CapEx levels and the first charge of the recently acquired spectrum in Sweden. Changes in working capital were negative in Q4 as expected, mainly driven by seasonally high levels of equipment funding, leading to modest positive working capital for full year 2023. With that said, one of our focus areas a year ago was to reduce our inventory levels. which we have achieved following a reduction of some 400 million. Another focus area was to improve the invoicing process towards Net4Mobility related to our network modernization. Here we have made tangible progress in 2023, although partly offset by new investments as we continue our 5G rollout. Working capital remains a priority for us also going forward, and our ambition is to keep working capital cash flow neutral in 2024. Net financial items paid increased due to higher interest rates both on loans and leases and coupon timing. Taxes paid declined predominantly due to tax refund related to year 2022. All in all, our equity free cash flow for Q4 ended at 0.5 billion, slightly above last year's level. And over the last 12 months, we have generated 4.7 billion of equity-free cash flow, corresponding to 6.8 krona per share, and consequently, in line with the dividend payments during the year. So let's move to slide 15 for our capital structure. By year end, economic net debt amounted to 25.6 billion, hence unchanged compared to year end 2022, Our leverage ended at 2.5 times, which is in the lower end of our target range, 2.5 to 3 times. And with that, I hand over to Shell to introduce the next phase of our strategy execution.

Yeah, thank you very much, Charlotte. And I'd like to use the opportunity to take a little bit longer perspective. As you may remember, I have been here for a little bit more than three years. And over these last three years, we have spent a lot of time and effort working on integrating different parts of the business. Historically, of course, we consist of Tele2, Comvik, Comhem, Boxer, and those with a long memory will remember that we also many years ago bought the TDC operations in Sweden. All of these brands typically have their own stack and their own billing. And over the last two to three years, we've made a huge effort to consolidate these assets, these legacy platforms, into two, one for consumer and one for B2B. And internally, we call that the legacy consolidation. The good thing now is that this spring, when we put these things together, we will start freeing up capacity to what we internally refer to as the development opportunity, where we will be more focused on developing customer experience, new go-to-market, digital channels, and all of these things lead to improvements in the way we interact with customers, into improvements in our cost base. And of course, the focus on value is also substantial change that we have been through over the last few years. Historically, quite a lot of focus on volume, now more on value, and you're starting to see it in the numbers. We are also starting to see it in the customer loyalty. So I feel that we are now turning the page on a new chapter for Tele2. And if you look into the strategy execution program on the next page, I would like to highlight that this is all about creating customer value. This is about creating great digital channels. We already do a lot of the customer interaction in Convict digitally. We want to be doing more of that in the Tele2 brand. And we, of course, want to help Stefan in running B2B with the best tools available. And that is a primary target for us going forward. Self-service is, of course, an important part of the customer's interactions with us. We want to dedicate more time and effort to developing these solutions. And as we always say, we are well underway. We're building a great 5G network where we, for regulatory reasons, basically have to replace everything. that we have in network mobility, and that will be done by the end of this year. And next year, we will replace Sunab with our own new network. And after that, we will be down to demand-driven investments, which will be lower costs and lower capex. And then when we talk about strategy execution programs, they typically are labeled cost programs. I would like to emphasize that Actela 2 now, the SEP as we call it, is a value-led program. which has cost savings as a consequence. But we're going to follow up these cost savings that we have identified meticulously over the next three years. And we're going to save those 600 million. And they will be saved in a fairly equal way over the years, actually maybe a bit more than a third in the first year. So this is all about reshaping customer journeys. It's about optimizing our go-to markets. And of course, as an effect, we're going to realize these cost savings that we have identified. Which leads us over to the guiding section, where we, for 2024, uphold a similar growth level at 3% to 4%. We'll be growing 1% to 3% on EBITDA. And we expect the CapEx sales to remain unchanged at 13% to 14%. This is a reflection of the heavy network investments and also intensified customer-centric transformation, which comes with some upfront costs. For 2024, we can also say that we currently estimate an energy cost headwind around 90 million year-over-year, of which 35 million relates to the energy support received in 2023. So this is in the numbers. We expect a slower Q1 with roughly flattish organic underlying EBITDA year-over-year. This is due to factors as yearly indexations of OPEX items, the fact that we are into between two cost savings programs. Some of the facing of the expansion cost of course comes in due to good sales last year. However we are executing front-end loaded price increases which should contribute meaningfully from the latter part of Q1 and even more of course throughout Q2. So expect a better Q2 than Q1. Our midterm outlook is unchanged for low- to mid-single-digit organic end-user revenue growth, mid-single-digit organic underlying EBITDA growth, as we will benefit from new levels of efficiency and value creation from the strategy execution program. In 2025, we expect 13% to 14% capex to sales, driven by the final stage of the major 5G expansion in Sweden, as we have to shut down the Sunab 3G joint venture by the end of the year. The spectrum that is allocated to Sunab will by that time be moved to net mobility. So we'd have to execute that change during 25 from a regulatory point of view. From 26, we expect and we are fully committed to CapEx sales that comes down to historical levels of 10 to 12% as our network will return to being completely demand driven. So with that, I'll hand it over to the operator for Q&A.

Thank you. Dear participants, as a reminder, to ask a question, you need to press star one one on your telephone keypad and wait for a name to be announced. To withdraw a question, please press star one one again. To ensure everyone has the opportunity to ask a question today, please limit yourself just to one question. Please stand by, we'll compile the Q&A roster at this moment. And now we're going to take our first question, and it comes from a line of Andrew Lee from Goldman Sachs. Your line is open. Please ask your question.

Hi. Good morning, everyone. I had a question just around the EBITDA growth compared to the end-user service revenue growth. So I guess investors this morning were positively surprised by the end-user service revenue growth you're aiming for or guiding in 2024, but were negatively surprised, certainly relative to that, with the underlying EBITDA growth. Shell, you went through a couple of the headwinds to EBITDA just a couple of minutes ago. You mentioned energy cost headwinds of 90 million amongst other things and some yearly indexations of cost savings. But I wondered if you could break down the cost headwinds a bit more clearly in 2024 because it's obviously quite anomalous for a fixed cost telco to have such poor operational gearing. And then maybe if I could just ask a follow-up, we're just trying to understand how your mid-term outlook of mid-single-digit EBITDA growth balances with that low EBITDA growth in 2024. Is your mid-single-digit mid-term outlook what you hope to get to in the mid-term? Or do you still think you can average mid-single-digit growth in the medium term? Thank you.

Thank you, Andrew. Yeah, so we're clearly planning for moving to mid-single-digit later in the period, as we are guiding for. And obviously, we see mid-single-digit coming in in Q4 2023. Now the task is, of course, to make sure that we do that throughout a full year. and without having these quarterly variations that we see. I think it's partly down to the model that we have and many other telcos with more for more, where you have some roll-off and then you start doing it again next year. That gives you a slower start to the year. We want to even out that thing. And of course, we do still have the cost increases from inflation in the OPEC space coming in in the early part of this year. We see that that should abate over time. So it's just a transition into making sure that we can do pricing at the time that corresponds to other cost increases in the business. And of course, we'll be benefiting from the improvements we do in the program. The program is not only about saving costs in terms of internal costs. It's also about spending less money on external retail and commissions and We have moved more over to a subsidized model where we see more customer loyalty. We have customers in binding, which gives us a chance to have longer customer relationships. So it's a quite fundamental retake on the model. Tele2, the brand Tele2, did not use, for example, handset binding before. And it's something that we have actually spent some time to reintroduce from an IT perspective. We see very positive effects of it. We see the majority of our sales are in some sort of binding, and of course the base is increasingly becoming bound to us, and we see churn coming down. On the cost side, beyond that, we do have a program here that will lead to some reduced internal costs. That is something I'd like to maybe also speak a bit more about at a later point in time. process that we should go through in a proper way before we communicate too much around it. But the plans are very clear and robust in terms of what we're going to achieve.

Just a quick follow-up. You're talking about energy cost headwinds and then cost indexation for inflation. Given you're saying that you're going to get a third of your 600 million savings in 2024 or a bit more, that Cost inflation sounds like it's quite high. What exactly is going on there with your OPEX inflation? How big is the OPEX inflation or what kind of is the absolute headwind you're anticipating? It sounds like it's going to be high.

Andrew, I think it's an important qualification here. When I say we're going to realize a third or more, then I talk about the exit run rate. Of course, it would come gradually throughout the year in different parts of the business. The full year effect, of course, will be less, but we will carry it with us into next year.

Thank you. Just on that inflation, so what exactly are these inflation headwinds you're assuming? It sounds like it's quite a high degree of inflation to get to that 1-3%.

Well, if you look at a couple of practical things, for example, when you adjust salaries, you have a carryover into next year. This year, the agreement with the unions in Sweden is for an increase of around 3.3%. So that comes on top when it's pure labor costs. And then, of course, yes, it's clear that some parts of the equipment that we have been buying, I'm not talking about network equipment, but other things that I'm not talking about 5G equipment. But other things that come into our network have had price increases due to the currency that had significantly weakened and the general inflation. So that's what we are compensating for in the business. And we are well underway with that. We see that we are going to be able to do that as well. It just comes in some steps.

Okay. Thank you, Jo.

Thank you. Now we're going to take our next question. Just give us a moment. And the next question comes in the line of Oscar Ronquist from ABG Sundal Collier. Your line is open. Please ask your question.

Thank you. Good morning, everyone, and thanks for taking my questions. So just on the 2025 CAPEX outlook, I think you mentioned 3G network closing. I assume that was already somewhat expected when you put out your previous CapEx guidance this summer. So just wanted to check if you could elaborate on what has changed between then and now, which have caused a different outlook for 2025. And also, if you could expand on a mix, please, if the higher 2025 CapEx is purely on mobile network investments. Thank you.

I think we just probably need to do, we should have done an even better job at communicating it, because I think we have been clear that in 24, we are swapping everything in network mobility. In 25, we need to replace Sunav, because basically Sunav as a company will have no spectrum from the 1st of January, 2026. But I do see and understand that people had put in an expectation of CapEx coming down towards the end of 25. and then we need to communicate better. But if you look at it in the grand scheme of things, it means that this job is done a little bit faster. It means that we can be more careful in our demand driven capex in 26 and coming down to 10 to 12% is a very low number that you will not find almost anywhere else in Europe. So I think we're getting our capex story completely and firmly into place. within the guidance that we have delivered now. Even at the peak CapEx, we are probably two to three percentage points lower than many of our competitors. But point taken, if people had the impression that there would be a lower CapEx than what we've said now, then our communication should be better.

All right. Thank you very much, Hel.

Thank you. Now we're going to take our next question. And the question comes from Andreas Jelsen from Carnegie. Your line is open. Please ask your question.

Yes, good morning. Just a question on prices.

A general question, basically, because 2023 was a year when the sector as such probably had to look into prices more than usual. What's the key learnings from 2023 and into the future when it comes to pricing? And also just a clarification on the cost program. Is that a net target or is it a gross target? Thanks.

Right. I'll take that one, Andreas. It's Hendrik here. Around the pricing, I'll hand over to Charlotte on your second part of the question. On pricing, we have implemented in 23 very much in line with what we've been saying earlier in the last year around cost development and some of the offsets of that. And I think what you asked for the key learnings, I think the key learnings are that in terms of if you want to successfully implement pricing, which I guess last year we've done quite well and you see the full effect in our Q4 numbers that the customer base is quite resilient in terms of accepting pricing as long as the perception of the service is good and it's fair. And in that sense, we have been spreading the pricing quite a bit more than we have done in the previous years, where we had a very much a specific more for more pricing strategy, where we took certain cohorts of customers. So we've been spreading out the pricing more fairly. And I think in that way, it turned out to be also more sticky. And the key thing from that is it has sort of been an intermediate step. to basically what we're implementing in 2024 and going forward, which I think we also talked about last year, is that we're basically moving a little bit away from more for more towards more like an annual pricing cycle. And in the annual pricing cycle, we will address all of our customer base instead of certain cohorts. And in the way we do the pricing, we take an orientation towards inflation development. So we're not hard coding it to inflation, but we're taking orientation to inflation development. And that's basically what we are implementing from 2024 going forward. This is the main avenue we will also look at. And with that, we're also changing our front book. So you can see, for example, Our front book, the prices have been changed. Our unlimited entry offer, SNAP, has gone from $399 to $429. And our family offer from $199 to $219. And in line with that, basically, we're pricing all of the customer base for those customers that are not in binding. And that's basically, you know, on pricing. Yes. And over to Michelle. Yes. To fill up.

Yes, so when it comes to the savings of the 600 million, as you remember, we had a cost saving program that we ended end of June of 1 billion. And this will be a similar program that will be managing in the same way. So we will follow up in the same way. So it will also, as the previous program, be a gross saving program. And I think it's also worth repeating that it also comes on the back of different initiatives that we see that we can do in the business. So it's not a pure cost-having program, but also very much value-led, as Kjell mentioned earlier.

Thanks a lot.

Thank you. Now we're going to take our next question. And the question comes from Stefan Gaufin from D&B. Your line is open. Please ask your question.

Yes. I have a couple of follow-up questions. First on pricing again, but more relating to the Baltics. The Baltics have been the driver of growth over the last couple of years. A lot of that has been due to pricing. Do you still see room to drive growth through pricing in these markets, or do you see a tougher environment due to macro? Secondly, could you repeat that?

To begin with, Stefan, so the answer to that is that we're very happy, of course, with the growth we've seen in the Baltics. I started off saying here that now the growth picture and the profitability picture of Tele2 is more balanced. We now see Sweden coming back with a stronger performance, which I think is great, because it's better balanced. The Baltics came out of some years ago from a relatively low R2 level. Prices have been increased. We have seen throughout 2023 that some of them have been almost in recession. Still, we've seen a good development, and I've been saying on this call for many quarters We're very happy with the performance in the Baltics, but of course we cannot expect them to run double-digit growth forever in terms of top-line and EBITDA. But I do see growth for continuous, decent, good growth. A little bit different from market to market, but overall, yes.

Yes, okay. And then just a question on the energy. situation. Can you repeat on what you said for 2024? I guess that in 2022 you had some 150 million in energy headwind, and then in 2023 you had energy tailwind of 55 million. So what should we expect for 2024?

So I can actually take that and as you said that we did have a tailwind in 2023 of the 55 that you mentioned and so our expectations for next year is a headwind of approximately 90 and then 35 of that was then related to the government support that we had in 2023.

We should expect a headwind in 24.

Yeah, that's what we said.

Yeah, but can you explain why, given the prices that we see in the market? Why should it be a headwind?

It's a combination of both volume and prices. And this is what we put in our budget. And I think it's It's divided equally between Sweden and the Baltics. That's what we see and what the calculations that were made from the Baltics.

Okay, thank you.

Thank you. Now we're going to take our next question. Just give us a moment. And the question comes from Nick Lyle from Societe Generale. Your line is open. Please ask your question.

Thank you. Morning, everybody. It was a quick one, please. Firstly, Shell, you've mentioned the IT migration as of spring. Could you just remind us what that enables you to do? Is it just cost-cutting and digitalization, or do you think you'll be able to do a lot more in terms of bundling on certain brands as well? Will that change the way you can actually launch brands in the market? And then secondly, in the statement you mentioned specifically in your Spiel in Sweden statement, that activity was higher in the fourth quarter. Could you just describe what you meant by that? And has that continued into the first quarter as well, please? Thank you.

Yeah, so like I tried to explain previously, we basically consist of a number of different legacy brands. Tele2, Comvict, Comhem, Boxer, TDC, all of them with systems that Some of them were old and some of them were reasonably good. But whenever we wanted to do product launches or we want to upgrade or change things, we would have to work in multiple systems at the same time. And of course, it's very, very inefficient. And then, of course, we have the world around us, the cybersecurity threats and all these things. So basically, what we have done is a quite massive consolidation of IT systems And what that gives us is the opportunity to be faster in terms of our development plans, because we don't have to replicate in two or three systems before we can launch, for example, an FMC product. So it gives us higher reliability. It's easier to operate and frees up some capacity for development for our go-to-market, something that Henrik and Stefan definitely want. so that they can be at the top of their game also going forward. And we've spent a lot of time on that the last two, three years to get that job done. And many telcos are not there at all and may not be there for many years. So I think it's a very significant event and that's why I devoted some attention to it. The comment I made on the overflow from last year is basically that we have very good post-paid sales. And of course, when you work with external retail, you carry with you some of that, the commissions and these things in your books for some time for the duration of the contract and these things. But we are happy to take that with us because it brings customers in and decent ARPUs in the Tele2 brand. It's a positive. Okay, thank you.

Thank you. Now we're going to take our next question. And the next question comes, Lan, of AJ Sonny from JP Morgan. Your line is open. Please ask your question.

Hi there. Thanks for taking my question. So just I wanted to ask about the 2024 CAPEX guidance. So you obviously got a couple of buckets, such as the mobile equipment replacement, your 5G rollout. So do you think 2024 ends up being towards the high end of your range? And I just want to understand what risks do you see that it might end up higher than the 14% guidance, for example, inflationary pressures or FX headwinds? It'd be good to just understand that a bit more. Thank you.

You mean the higher end of the 13% to the 14% range?

Yes, that's what I meant, yeah.

Well, I think variations between one percentage point, that is, you know, if you have a special winter or a special summer or something like that, that's kind of the 5G rollout in these things. So we will end up within that range. But I cannot give you a decimal point where we would be within the range.

What do you see the pressures are being up towards higher-end in that range? For example, inflationary costs or FX, are those pressures you're seeing? Is there anything else that we should be aware of?

There are a couple of things here that is volume-driven. Of course, how many base stations we swap. We need to swap all the base stations, so we have planned to do that. And then we will do limited, very limited rollout. So those are the volume parameters on the 5G network. In terms of remote PHY upgrades, that is something that we largely can steer and throttle. This year, we will do more remote PHY than we ever did before 2023, but we will not be maxing the potential there. And that is a way of steering this. In other areas, if we have costs increases coming up, that will be more of an OPEX issue, and we have have planned for that. The CAPEX guidance 13 to 14 is something that we will come within there. The worst thing that could happen would be that we'll be too slow and come below 13 because we really want to get it done now with the regulatory rollouts.

Yeah, that makes sense.

Thanks very much.

Thank you. Now we're going to take our next question. and it comes from Lan of Szehe from Citi. Your line is open, please ask your question.

Hello, thank you very much for taking my question. My question is really on the free cash flow. I think your opening remark, you suggest that the net working capital is going to be stable year on year, but I think in the past you're talking about positive contributions. Just wondering why the change, and if possible, can you walk through How should we think about equity pre-cash flow development for 2024? And maybe just linking to that is that now you seem to focus on paying 100% of your pre-cash flow into shareholder remunerations. But now we've leveraged that 2.5 times and just want to understand your recent thinking about dividends going forward. Thank you.

I have to admit that I didn't quite, as you said, but something changed. I don't know what has changed.

Oh, sorry. The net working capital. I think in the past, the net working capital is supposed to be positive for 23, 24, and 25. Just wondering why you're now expecting a flat development.

Yeah, I can start on that. I mean, clearly, if you look at our postpaid business in Sweden, we increased our number of postpaid subscribers by 80,000. And that, of course, is linked to our binding and handset. So that's a very, very positive development. But it does bind some working capital. With respect to the balance sheet, my view on that is clear. Even with the capex that we planned for this year, All other things equal, excluding any other events, M&A or things like that. But operationally, we expect to be at the lower end of that range also end of this year. So we are in a solid position, but we think it's prudent what we have done now to propose that the board has proposed an increase in the dividends within the framework that we have. Did you want to add something maybe on working capital, Charlotte?

I think that we, of course, we are continuing working on the working capital. That's one of the priorities, as I mentioned. But I think that we are, what we're saying is that we are seeing it, to expect to see it be more neutral for the year. And as you know, this is small variations and it's quite difficult to foresee but we are confident anyway that we are keeping it neutral for the next year or for this year. Thank you very much.

Thank you. Now we're going to take our next question. Maurice Patrick from Barclays. Your line is open. Please ask your question.

Yeah, good morning. Thank you, guys, for the presentation, hosting the Q&A. From my side, it's a fairly basic question. Sorry for it. But in terms of the number of sites you have in Sweden or radio sites you have in Sweden, you obviously have sites with Telenor on a JV, also inside Sunab with its own sites. But I'm curious to understand a bit around as Sunab is turned off, you seem to make reference to migrating frequencies to the Telenor joint venture. Do you think you'll need to roll out more physical sites to replace the SUNAB ones, or is it more a question of just migrating more from one network to the other one? Just curious to understand that need for more sites, whether it's coverage, whether it's capacity, densification, whether it's more around migrating frequencies would be very helpful. Thank you very much.

Yes. So currently... The spectrum that Sunand operates on is available until the end of 2025. There was an auction in September last year, I think it was, where that spectrum was re-auctioned and that will then come into place 1st of January 2026. Netformability bought back that spectrum, or part of that spectrum, in that auction. and will have to operate those frequency bands as of the 1st of January, 2026. SUNAB as an entity will, of course, then not be delivering services in Sweden. And the coverage that SUNAB has today will have to be replaced by network mobility. In itself, this actually gives an opportunity to optimize the network because there will be one end-to-end network planning. And if you go back to our capital market, say in 2021, Yogesh outlined how the initial 4G, 5G network or the initial network that we build after Sunab is closed down will actually have a few fewer base stations than the combined network mobility and Sunab because we can put this all together. But yes, in 2025, the rollout we're going to do is to make sure that we cover those coverage holes that otherwise would have been when Sunab is shut off end of 25.

Okay, so there should be an expectation you will actually roll out brand new sites on new towers and locations in 25.

Yeah, and 25 will do that because, of course, Sunab is a 3G network and that's not going to be very future-proof. So clearly we need to upgrade also the coverage, technology for the coverage that SUNAB has given us. So that is going to be done with new networks. Okay, thanks so much indeed. Some of it overlaps, but not everywhere.

Okay. Thank you. Now we're going to take our next question.

the next question comes line of Frederick Liesel from Handelsbanken your line is open please ask your question thank you good morning thank you for taking my question as well a detailed one i was curious to learn more about the legislation on registering uh prepaid numbers in 23 how how far into that are you how much of your base of prepaids have actually registered and is there sort of an a deadline for when this has to be completed or something like that would be interesting to hear. Thank you.

I can take that one. So, Frederik, on prepaid, the legislation basically went into effect very much early in 2023. And from, I remember, either February or March, all new customers and existing customers that wanted to top up had to be registered so basically the full base of prepaid customers is registered as we get today and You know on that process we've done a lot around the digitalization so a lot of the how we deal with customers all only fully digitalized and it's a very sort of easy customer journey and And, of course, what you're seeing basically in the numbers is, you know, on a year-on-year comparison, a bit of a more difficult comparison. But as we go into this year, it will sort of be compared to a registered base.

Okay, perfect. Thank you.

Thank you. Now we're going to take our next question. Just give us a moment. And the next question comes from Kevil Kiroya from Deutsche Bank. Your line is open. Please ask your question.

Thank you for taking the question. It's a key for obviously so meaningful improvement in Swedish EBITDA growth to 3%. Do you see this EBITDA growth as sustainable for full year 2024 for Sweden? And can you provide some comment on how we should think about B2B in 2024? Obviously, it's been very strong in 2023. Thank you.

Starting with B2B?

All right, Keval, Stefan here. Thanks for your question on D2D. I would say that looking at 2022 and 2023, we had, as you said, strong performance overall, coming from a couple of years of decline. Going into 2024, I would say that we expect similar development that we've seen for the full year, then it can vary among the quarters, dependent on some one-offs that we had in Q1 last year, we had a one-off on fixed revenues. So the comps versus Q1 will be a little soft or harder, but overall you can expect a similar development that you've seen in 2023. The unknown is a little bit where the macroeconomics are going and the cost pressure on customers, et cetera, and how much they can invest. And I would say that is sort of the unknown for us. Let's see how that plays out. And I think the beginning of the year will be really significant for the full year. Hope that answers your question.

Yeah, and on the timing, I mean, we already touched upon that, I think, to some extent in terms of the timing of the annual price adjustments in terms of when OPEX things are coming in. I think we actually touched on how that plays out throughout the quarters.

Maybe just to add on, Joe. So as I was pointing out, we do move to another, you know, we're evolving our pricing strategy. Where with more for more pricing, Keval, you would typically see a more back-ended coming into the full materiality like we see in Q4. You will probably see this coming a little bit more front load of the shell, as you were alluding to, for the full effect. Yes?

Thank you, Keval. Sorry, but just on that, I was just trying to work out whether for Q4 we saw Sweden EBITDA growing 3%. Is that kind of for the full year 2024? Would we also see this as sustainable? I get the timing effects around the price rises.

I don't think we're going into detailed guidance on the individual countries. We have never done that before. So our guidance is for the whole group, and I think we will stay there. Okay, that's clear. Thank you.

Thank you. Now we're going to take our next question. And the question comes from the land of Zaheer Ramcharan from Redburn Atlantic. Your line is open. Please ask your question.

Hi, good morning, everyone. Thank you very much for taking the questions. I just had a question on the phasing of the restructuring costs. I appreciate the colour on the exit rate for this year on the savings. But is there any detail on how those 600 million of restructuring costs are sort of phased between now and 2026? And then secondly, just quickly, on the lease payments this quarter, just unusually, I noticed they fell about 8%. They've been growing 5%, 6% the previous two quarters. Is that just phasing and timing or is something more structural change there? Thanks.

Well, when it comes to the phasing of this restructuring costs, it's nothing that we have done. guided on, but I think that we expect it to be quite evenly spread for the time being anyway. And then you said something about leasing payments, basing on the payments? Yeah. Not sure about that. Let's see.

So while we're looking into that, I mean, yeah, you should expect that.

Yeah, it's probably just facing, I would say. Nothing else.

Okay, great. Thank you very much.

Thank you. Now we're going to take our next question. And the question comes from Usman Qazi from Berenbeck. Your line is open. Please ask your question.

Hi, thank you very much for the opportunity. I just had a question on... on the working capital commentary around being neutral. I just wanted to understand if this is or something else, because obviously I can understand that growing post-paid volume on handset financing absorbs working capital, but you can offset that with factoring receivables as well, right? So in this assumption of flat, are you assuming that you do any factoring or could they be upset if you go about and put through factoring of receivables? Thank you.

We do factoring, but there is a delay in terms they come in. You have to send them the first invoice for the first month and then only after that can you go into the factoring. So clearly we are using factoring for our assets. Do you want to add something?

Right, so is it that in 2024 there's a bit of a lag at factoring water pickup and therefore we should expect something positive in 2025 or is it that factoring is actually allowing you to achieve a neutral working capital?

I mean, the factoring is according to the sales, and we had a little bit of a high sales in Q4, so that's why we might see some of that increasing in the first quarter as these customers are then switching on their subscription. But I think that will be phased out by other customers, so we don't see any major impacts of that. And as I also mentioned previously, we are always working on our working capital, so on all different, or cash flow and all the different parameters. We are still guiding .

Thank you, Ismail. Now we're going to take our next question. And the question comes from the line of Victor Högberg from Ganska Bank. Your line is open. Please ask your question.

Yeah, good morning. So just a follow-up on the pricing and your ambitions for the Baltics for the year. Sweden, we've already seen some hikes. What should we call it? The index linking strategy. Will that roll out over every market or any details you could give us on that would be appreciated. Thank you.

Actually, the Baltics in general, they do a little bit different from country to country, but in general, they have a very well-functioning system around this, especially when they have customers in contracts. They have a methodology for approaching them at certain intervals of the customer relationship and then offering them renewal handsets and different ways of re-establishing So that happens more throughout the year. It's not a one-time event only that happens in that space. And I think ultimately we'll probably do more of that also in the Swedish market a little bit down the road.

Thank you. Now we're going to take our last question for today. Just give us a moment. And the question comes in the line of Adam from HSBC. Your line is open. Please ask a question.

Thank you very much. I had a quick one on the balance sheet, please. You've been at the low end of your guidance range for a while. Have you got any thoughts on does that that guidance range need to be adjusted is there any way that it could be adjusted does the board need to think about anything there or would you recommend the board change it at all are you still happy with it thanks i think it has served us well to uh to have a strong balance sheet um to during the turmoil we've seen the last couple of years um i think the board of course has

every right and opportunity to think through what they think is the right approach for the future. But I don't want to signal any kind of change at this point of time. I think it's a fair question. But I think it would have been a bit risky if we had been laying much higher up in the range two years ago than we did. Now we've been able to navigate through the turmoil with the ability to make the right decisions for the future, not having to optimize to make sure that we can come through the next couple of quarters without getting into issues with our leverage.

Thank you.

Well, at that point, operator, I think we say thank you to everyone for taking the time to have this discussion with us this morning. We're coming out of 2023 with a strong 2022 that has done a lot of the preparations we need to do on strengthening our platforms. We are well on the way on the 5G. We have visibility and clarity on when we will return to a historically normal capex level again with our plans in place. We see a balance tiller two with a stronger performance overall in Sweden. We see a strong postpaid momentum and broadband momentum in B2C in Sweden. And our balance sheet is, of course, at the lower end. We are increasing our dividend again. So overall, we still have lots of work to do because we are in a position to make the right decisions for the future. So with that, I'd like to just thank you for your attention. Thank you for your questions. And I hope you will have a nice day.

That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.