Tele2 AB (publ)

Good day and thank you for standing by. Welcome to the Tele2 Second Quarter Interim Report 2025 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 again. Please be advised that today's conference is being recorded. And now, I'd like to hand the conference over to Jean-Marc Harion, President and Group Chief Executive Officer. Please go ahead, sir.

Thank you, and good morning, and welcome to Tele2's report call for the second quarter of 2025. With me today, I have Peter Landgren, our group CFO. For Sweden, Peter Tjermak, our chief B2C officer, and Stefan Trampus, our chief B2B officer. And for the Baltics, Petras Masiulis, our CEO of Baltics. Please turn to slide two for a brief recap of our transformation plans and progress so far. 2025 is a transformation year for Tele2. Our objective is to build a faster, simpler, and more agile company by coming back to Tele2's original challenger culture. I'm happy to present the progress we have made over the first half year of 2025 to simplify our organization, control our costs, and prioritize our investment. We have reduced our workforce by more than 500 positions by the end of June. We have implemented a new cost governance to scrutinize and challenge all our expenses. We have reopened and renegotiated half of our 350 largest contracts. We are investing in the development of our own channels and the reinforcement of our data analytics and AI expertise to depend less on third-party channels for the growth of our top line in Sweden. We have now a new leadership team in place, and even more importantly, our cultural shift, especially our cross-consciousness focus, is strongly supported internally. I'm taking this opportunity to thank all Tele2 employees who actively contribute to getting us back to the original Tele2. Please turn to slide three for some financial and commercial highlights. And user service revenue grew by 2% in Q2, consistent with our guidance target, despite the impact of the discontinuation of Boxer Terrestrial TV in Sweden at the beginning of the year. On the other hand, we have delivered an outstanding 15% growth of underlying EBITDA in the quarter, thanks to the fast execution for our transformation program, with significant contribution from workforce reductions and other cost savings across operations. Equity free cash flow amounted to 1.6 billion SEC, hence another strong quarter following the 2 billion SEC generated in Q1. Based on the strong performance, we raised our full year EBITDA guidance, to which I will come back at the end of our presentation. Key events during the second quarter include the launch of our new flexible TV and streaming portfolio, the opening of new stores, and the revamp of Tele2.se, and the relaunch of Tele2 Brands, where Tele2's most popular co-worker ever, the sheep Frank, returned after a few years of free time. All these initiatives have been very well received by our customers. In terms of sustainability, we are very proud of once again being named Europe's climate leader by Financial Times and Sweden's most sustainable company for the second year in a row and 23rd worldwide by Time Magazine. Please move to page four for more details on our results. As I said, end-user service revenue grew by 2% organically in Q2, driven by continued strong growth in the Baltics. And accelerating growth in Sweden business, excluding Boxer's impact, group and user service revenue grew by 3%. The 15% growth in underlying EBITDA was driven by the transformation in the Baltic revenue growth. Our strong equity free cash flow benefited from lower paid capex year on year, of which Peter will soon walk you through the details. When it comes to booked capex, capex or two sales increased from 11.5% in Q1 to 12.4% in Q2, leading to 12% for the first half year. All leverage remained unchanged at 2.2 times despite the dividend payment in May. In Sweden, consumer, as already commented, connectivity grows continue to be upset by the decommissioning of 23L Boxer TV at the beginning of the year. In Sweden, business and user service revenue growth accelerated to 4% alongside continued solid mobile RGU growth. The Baltic grew end user service revenue by 7%, and the underlying EBITDA grew by a massive 20% in the Baltics, with double-digit growth across markets. Let's move to slide 6 for more details on Swedish consumer. Mobile end-user service revenue grew by 2%, driven by 3% in prepaid, partly offset by continued decline in prepaid. Fixed broadband grew end-user service revenue by 3%, mainly due to ASPU growth. While Tele2 TV remains stable, end-user service revenue for DTV declined by 9%, entirely driven by Boxer TV migration. For full year 2025, we continue to anticipate Boxer revenue to be roughly 225 million below 2024, with minor year-on-year impact on EBITDA as our Boxer business would have become loss-making in 2025. Total consumer and user service revenue declined by 1% in the quarter, excluding Voxel Impact, consumer and user service grew by 1%. Let's look at consumer KPI on slide seven. Mobile was paid at 10,000 RGUs during Q2, following a seasonally slow Q1, in which we also executed price adjustments. Mobile ASPU declined by 1% year-on-year, again impacted by increasing IFRS 15 fair value adjustment in Tele2 customer base, which did not have a handset binding until 18 months ago. Excluding this adjustment, ASPU grew by 1%. Fixed broadband declined by 1,000 LGUs in Q2, mostly in open fiber networks areas where we have observed quite aggressive competition during the quarter. On the other hand, ASPU grew by 2% due to price adjustments. Our TV business stabilized its customer base as the RGU loss in Q2 was only one-third of the decline seen in the last couple of quarters. As in previous quarters, the entire RGU decline was due to Boxer, and I'm happy to see that our flexible TV and streaming portfolio has generated good customer intake of setting books for customers' loss. 60% of our non-group agreement customers are now on flex offers. Please move to slide eight for Sweden Business. In Q2, Sweden Business accelerated end-user service revenue growth to a strong 4%, with all main product lines growing. Growth across our IoT and large segments was partly offset by the micro segment, which is still struggling due to continued economic conditions. This change in segment mix is reflected in the mobile ASPU year-on-year evolution. Mobile grew by 4%, driven by our IoT business and continued solid LGU growth amongst large customers. Solutions grew by a strong 5%, while fixed turned into slight growth for the first time in years. Please move to slide nine for Sweden financials. To summarize, our Swedish end-user service review was flat in Q2 as growth in business was upset by the box show decommissioning and consumer size. Underlying EBITDA grew by a massive 13% thanks to workforce reduction, sharp cost control, and ongoing negotiations of large contracts. The cash conversion has improved to 63% over the last 12 months. And now let's move to Baltic financials on slide 11. Once again, our Baltic operations have performed excellently with continuous strong top and bottom line growth in Q2. Total end-user service revenue continued to grow at 7%, supported by previous and recent price adjustments. All markets continue to grow underlying EBITDA by double digits in Q2, leading to a 20% growth for the Baltics as a whole. In addition to top line increase, the drivers of this outstanding performance are, like in Sweden, strict cross-discipline workforce predictions and improving equipment margins. I'm particularly happy to see the turnaround in Estonia materialize so quickly. Cash conversion increased to a strong 77% during the last 12 months, affecting increasing EBITDA margin. It is important to add that we are strengthening the everyday collaboration between Baltics and Swedish organizations to ensure we are efficiently sharing operational best practice. Let's move to slide 12 for Baltic operational KPIs. All markets delivered positive postpaid net intake in the quarter, leading to a total increase of 19,000 RGUs prepaid declined by 21,000 RGUs, mainly impacted by the implementation in Q1 of prepaid registration in Lithuania. A look at our total Baltic mobile business shows that 78% are postpaid customers, accounting for 88% of mobile and user service revenue, in turn implying a postpaid ASPU roughly twice the level of prepaid. Blending organic ASPU increased by a strong 12% driven by price adjustment and continued prepaid to postpaid migration.

And with that, I hand over to Peter, who will go through the financial overview. Hello?

So, hi. Now I think the sound is in the right place. Good morning, everyone, and thanks, Jean-Marc, for the handover. So please turn to page 14. A few comments first on the group P&L for the quarter. Total revenue grew by 1% organically, with end-user service revenue up by 2%, driven by the Baltics and Sweden B2B. Equipment revenue was down in a slow handset market. Underlying EBITDA grew by 14% organically and underlying EBITDA by 15%, driven by sharp cost control across the group and the end-user service revenue growth. Items affecting comparability of 83 million were related to restructuring costs as well as pension and inventory adjustments. Net financial items decreased year-on-year, mainly thanks to reduced interest rates. In Q2, our average interest rate was 2.9%, with a debt mix of 66% fixed rates and 34% floating rates. And income tax increased year on year, largely related to the higher taxable profits. So let's move to the cash flow on slide 15. CapEx paid decreased by around 190 million due to reduced investments from high levels in Q2 last year. Changes in working capital were quite neutral in the quarter. Redundancy provisions related to the workforce reduction have been partly consumed, as expected, balanced by decreased inventory levels. Net financial items, excluding leasing, decreased year-on-year due to the reduced interest rates, along with some payment timing. So net net equity free cash flow added up to 1.6 billion in the quarter, an improvement of 450 million year on year. And over the last 12 months, equity free cash flow has reached eight SEAC per share. So let's move to slide 16 for our capital structure. End of Q2, economic net debt amounted to 24.7 billion, reduced by some 1.5 billion compared to end of 2024. This has been enabled by the cash generated in the business exceeding the payout of the first dividend tranche in May. Our leverage of 2.2 times underlying EBITDA after lease remains below our target range, thanks to the strong EBITDA and cash generation. And with that, I hand over to Jean-Marc for some comments on our 2025 guidance.

Thank you, Peter.

Following workforce reduction in the Baltics and in Sweden, we have reduced more than 500 positions out of the 600 to 700 full-time equivalent that we have planned for the year. Following the strong first half year, we feel confident enough to raise our 2025 guidance on underlying EBITDA from mid to high single-digit organic growth to slightly above 10% organic growth. We remain confident in our ability to deliver on the other guidance parameters, namely low single-digit organic growth on end-user service revenue, including around one percentage point drag from Boxer. And CapEx 2 sales to be in the range of 13% during this final year of intense 5G network rollout. We continue to expect a mid-range, a mid-term range of 10, 12% from 2026 onwards. And now I hand back to Peter for some additional comments regarding 2025 before we open up for Q&A.

Thank you, Jean-Marc. A few additional comments first on the P&L. We continue to anticipate around 500 million in restructuring costs this year related to the ongoing transformation. And just repeating again that on savings from workforce reductions, please be aware that roughly 80% of our workforce costs impact OPEX while the remaining share impact CAPEX. Also, I repeat what Jean-Marc said about the boxer effect for the full year 2025. We continue to anticipate Boxer revenue roughly 225 million below 2024 and with a somewhat negative year-on-year impact on underlying EBITDA. Finally, I have understood that we often get questions about our amortization of surplus values from acquisitions. The current annual run rate of 1.4 to 1.5 billion a year is expected to continue until 2027. After that, it will gradually decline, and these expenses are not tax deductible. And then a few comments on the cash flow for 2025. In Q4, we'll pay the final roughly 370 million for the Swiss Spectrum licenses that were secured back in 2023. On change in working capital, we're, of course, pleased with the performance in the first half of the year, but continue to assume a quite neutral impact on a full year basis. On net financial items excluding leasing, we expect full-year payments of around 750 million. And finally, regarding taxes, we still expect around 1 billion on net payments in 2025, including the 280 million refund we received in Q1. And with that, I hand over to the operator for Q&A.

Thank you. We will now begin the question and answer session. As a reminder, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Please stand by while we compile the Q&A roster. We will now take our first question from the line of Andrew Lee from Goldman Sachs. Please ask your question, Andrew.

Yeah, good morning, everyone. I had a couple of questions, one on Swedish service revenue growth, and then I guess unsurprisingly on the cost-cutting side of things. On the Swedish service revenue growth, obviously people's understanding of what's going on beneath the bonnet is not held by the boxer temporary headwinds, which we know reduce into the second half, and also by this fair value approach, the IFRS approach. So can I just... check with you, if we strip those impacts out, is your underlying Swedish service revenue growth about 2.5% to 3% in 2Q? And therefore, as the effects of Boxer reduces and the fair value approach doesn't unwind but doesn't have any incremental impact in the second half, should we be expecting to see close to that two and a half to three percent underlying Swedish service revenue growth delivered in two weeks. It's just basically if you could give us a bit more color in what the underlying Swedish service revenue growth is and any commentary on the market environment to support that would be helpful. And then just on the cost cutting, much more straightforward question. Obviously, really impressive delivery so far. Could you just help us or help us understand how much of that is simply a pull forward of the plans you gave us six months ago and how much of this is just you're finding more scope for efficiencies? So reassure us this isn't just a pull forward on the cost savings would be helpful. Thank you.

Thank you for your question. I just need to ask, you know, we are, due to the season, we are in different locations, so I don't understand where the fire alarm takes place.

Is it in Chista or is it somewhere else? It looks like...

We have a fire alarm in Shista.

Okay, okay. So, okay, so I was just trying to ask Peter to help me answering the first question you raised, just in order to be precise, because we already partly answered this question in our presentation, trying to state what the growth for end-user revenue in Sweden for consumer business was without the fair value restatement and without the boxer impact. But I prefer, Peter, to come with, I would say, a precise answer on that because you were expecting to, you were trying to understand what would be the impact in H2. So let's wait for Peter to be able to take the call probably from outside and then we'll start with the second part of the questions about the transformation pace. Can you just rephrase because we were partly distracted by this fire alarm? Yeah, sure. Yeah.

I was just asking, obviously, I'm just trying to... Any help you could give us on how much of the cost cutting that has boosted your guidance for this year, and it's obviously delivered a big beat in Q2, how much of that is just a pull forward of your explicit headcount reduction plan, and how much of it is you just finding more and more areas for efficiencies?

No, I believe that what we have done is just to accelerate the plan. So we don't come with, I would say, with a new ambition. We just, regarding at least the workforce reduction, we give ourselves an objective which was to reduce the workforce before the end of 2025 by around 15%, depending on the positions impacted. This would translate into a reduction of the workforce between 600 and 700 people, positions, both full-time employees and full-time consultants. we have been able to work for us by 500 people already at the end of June and now we are digging into a more detailed part of the organization where we've seen committees for efficiency improvement so but we don't expect this second wave to be I would say as big and as impacting as the first one, it's more about the specific improvement in some specific areas. And in the meantime, what we have done is to take the control of our costs much faster than expected. And this is clearly thanks to the involvement of the team. It was part of the DNA of the company to become cross-conscious and we just rejuvenated this spirit. We've been able, for instance, to reopen a lot of contracts. And this will have an impact as well on H2 because some of these contracts, of course, were renegotiated in Q1, but a lot of them as well in Q2 with a progressive impact over the next 12 or 18 months. So we are just stating here that we are sooner than expected in the transformation schedule. And that translates in this good performance for Q2 EBITDA. I don't know where Peter is currently.

Sorry, do you hear me now? Yeah, I'm here. Yeah, so sorry, everyone. I'm at the parking lot in Shista. And I haven't really followed what happened until now. So maybe if there was a question in the beginning from Andrew That should be repeated.

It's just the Swedish service revenue growth, what the underlying is when you strip out the Boxer and the fair value approach and therefore what we should be thinking about for the second half given that Boxer headwinds reduce and the fair value I think impact should drop out at some point.

Yeah, thanks for the question. If I start with Boxer, on the Swedish consumer and just the service revenue, Boxer has an impact of roughly two percentage points and that's of course the impact that will i mean we will have the impact also in q3 and some of them q4 and that's because the main impact was from the commissioning on the rest of this work in in india just a new year yeah so that that's on that on fair value and we i mean we will always have ipres 16 and value implications that's here to stay but the additional impact and from from the Tele2 customer base, as you say, will dilute, and so it will be somewhat less of an impact than from later in the year, but I don't think we should call out specific growth implications on that one.

Okay, and if we strip them out for this quarter, what's the underlying Swedish service revenue growth? Is it right that it's about 2.5% to 3%?

Yeah, for the total group, it's around 3%.

Thank you. That's very helpful. Thanks, guys. I guess it's a good thing that you guys are setting off fire alarms today.

Thanks. It's an important impact. But please, was there another question I was missing, John-Marc, or should we...

And I answered the second one, I believe. So we can thank you, and we can move to the next question.

Thank you. Our next question comes from the lineup. Andre Kabyshek from UBS. Please go ahead, Andre.

Hi, everyone. Thank you. Thanks for the presentation, and congratulations on these exceptional results. I've got two questions around the cost base, of course, as the main topic. So I guess the first one is, You mentioned after 1Q that kind of the next phase of the cost-cutting would be a breakaway from the third-party channels. It's kind of a 2026 project, kind of saving money on distribution, but already in this presentation you're saying that you're moving to kind of more in-house channels. Is that something that you've, again, accelerated? Is this something that's already impacting the numbers thus far? And then, you know, if And if you could maybe give us an indication of the potential there for the cost savings, regardless of whether that started or not. And then also, second question, please. You mentioned in one queue that you already did something like 20% of the 350 contracts that you're trying to renegotiate or open 20% of them. If you can update us on kind of where you are on that. And again, in the indication of how big of an impact these 350 contracts or the ones that have at least thus far been renegotiated can have on the cost base. Thank you very much.

Okay, so I will take two questions because I don't know where they are. Is the fire alarm?

I'm still here, at least. I think the rest is unfortunately not there yet, but might be.

Okay, okay. So regarding the distribution, it's an important point that you raised. And I confirm what I already stated in our previous results presentation. It's critical for us to become less dependent on third-party channels, but not only for cost reasons. It's because, as well, a lot of churn in the Swedish market generated by this third-party channel, which artificially moves the customers from one operator to another one. So this is something that, in all view, is not beneficial for the customers because they are driven from one operator to another one just for the benefit of these third-party distributors. And we want to limit our dependency to these distributors. So that's why we are reinforcing our interactions with the customers. That's why we are opening new shops. That's why we are revamping our websites and we are taking a number of initiatives. I don't know if we will leave one specific channel at a certain point in time, but that's for sure that the contribution of these third-party channels will want to be reduced in one year from now. And we are working on it. And once again, and I will not give you any numbers related to that, it's not about to reduce the annual cost of acquisition of new customers. It's about increasing the investment in the customer acquisition, meaning that we want to acquire the customer in a transparent way. in direct relation with the clarity on what they are buying and what we provide them for the price they pay and of course improve their lifetime and value and so on. So it's not only a question of cost, it's a question of revenue and loyalty. Regarding the other topic related to the contracts, we are in a kind of systematic approach. So it's a kind of day-to-day exercise. The good thing is that now we have turned it into a collective exercise across the company. It was not, I would say, not very difficult for the Teletubbies employees to get back to these roots, which used to be one of the original values of Teletubbies and is now again one of our values because we have changed our values and cost consciousness is one of the new values that we have implemented in the company. And we have reopened, I would say, almost half of the biggest 350 contracts, meaning that, to be honest, I believe that, unfortunately, we have picked the lowest hanging fruits. There are still contracts that we will reopen because they have a condition that we couldn't reopen it before the termination. But over time, of course, we will have to climb higher in the tree to pick the fruits. But we will see in the meantime the continuing benefits of the renegotiation of the contract. in the coming quarters. So that's my answer to your two questions.

Thank you very much.

Thank you. We will now take our next question from the line of Eric Lindkamp from SEB. Please go ahead, Eric.

Yes, good morning. Congratulations on strong results here. A couple of questions from me, if I may. So very strong delivery on YBITDA growth in Q2-3. But you have guided for slightly above 10% YBITDA growth for the year. You have already delivered almost 11% for H1 with a higher pace in Q2. Is there any reason for you expecting a lower price in H2? Any growth investments coming in or something else you are seeing? I will start there and come back with a follow-up.

Thanks. I will take advantage of Peter returning back in his room after the fire alarm to transfer the question to him.

Yes. Thanks, Jean-Marc. Thanks, Eric, for for the question. So what to say on our EBITDA? I would see it in this way, that so far, of course, we're satisfied with the development in the first half of the year and the 10.6% organic growth, which has been enabled by our transformation activities and also the Baltic top line growth. And those benefits is something that they're here to stay. So we're confident that we'll have benefits from them also in the second half of the year. And that's why we're confident to today raise our guidance. Then I think we still should keep in mind that we experience a macro headwind and a weak consumer confidence that we need to be aware of in the remainder of the year. And we have had a great discipline on the cost side so far, and some of that might need to be reinvested to secure the growth going forward as well to give you some flavor and two examples we have an ongoing 5G rollout which is great for our quality but brings not only CapEx but some extra OpEx as well along the way and we have been very disciplined for good reasons with our commercial investments like marketing in the first half of the year and now the more intense season is starting and we might need to reinvest a bit there as you know. So that's how we look at the guidance.

Yeah, just to elaborate on that, you know, what we see on the market, of course, that the consumers are not surprisingly a little bit cautious about their spending due to the economic environment. Two proofs of that, we see that there is a drop in handset sales compared to last year, not in Tele2 specifically, but on all the markets, all the channels. We see as well the level of bankruptcies, SMEs bankruptcies remaining relatively high. So that makes us a little bit careful. But this is the reason why we decided to transform urgently Teletubbies because we want to be able to react. We are the value for money reference in this market, so we need to help customers in this period of time. But that explains as well that we remain careful for the second half of the year.

All right. Thank you for the flavor there.

I mean, just coming back on that, I mean, if it's fair to say then that Q2 is maybe the peak of EBITDA growth for the year, and it's a slightly lower pace for H2 or is that the right way to characterize it?

Peter? Yeah I don't think we should elaborate too far on exactly how each quarter will develop but we're absolutely satisfied with the development in Q2 with very strong performance both in Sweden with 13% and extraordinary growth of 20% in in the Baltics, but otherwise I would refer back to the comments from Ian and Jean-Marc on how we think the full year will land.

Perfect. And just a final question. So leverage down to 2.2 times will come down, I guess, clearly with the inflow growth you're seeing in H2. This gives, of course, a lot of room for different capital allocation options, but is there any pockets that you will look at doing M&A in, or is returning capital to shareholders top of the list here with this balance sheet? Thanks.

So if I start again on the leverage side, as you see, we have a very strong balance sheet. And I think that's something that is very positive to start with. And as you know, we To start with, we have the second tranche of the ordinary dividend that will be paid out in October. It's 2.2 billion SEK. And besides that, I think we repeat what we've already said, that the focus right now is on execution this year, on the transformation. And after that, let's see what the board might suggest in relation to capital structure. And M&A, I think, is a little bit speculative on if anything would happen there.

Thank you. Thank you. We will now take our next question from the line of Andreas Julsson from DNB Carnegie. Please go ahead, Andreas.

Thank you. It's Andreas here. I hope everyone is okay after the fire alarm. I have a question on the top line going forward. Clearly, you have rejuvenated Tele2 on the cost side. But can you give some more flavor on what you do and prepare for rejuvenating the top line as well? I guess you are collecting and analyzing a lot of data as you have done in other countries where you have operated before. So can you explain a little bit what you do with all this data and how you plan to sort of structure in general terms, the offerings when we leave 2025. Thanks.

I assume that your question is more about the consumer business in Sweden. You know, we are going nicely in B2B in Sweden, and the growth is spectacular in the Baltics. So, of course, we can comment on that, but I assume that your question is more focused on the Swedish consumer business. So, Peter, do you want to comment on that?

Yes, I can come on. Thank you. Can you hear me, by the way?

Yeah.

Yeah, brilliant. So thank you for the question. In Q2, we have seen more intense competition on the offers, both on the ATL and BTL, and in external retail. We have relaunched Frank, the new brand, which will give us a boost in brand recognition and so on. And yeah, we are preparing a series of new portfolios and new problems on both mobile and broadband. We have launched TV, which is now a future-proof flex model, which we believe in. So we are preparing how to restore the revenue growth post this quarter, yes.

The new flex model is now used by 60% already for non-group customers, meaning customers we interact directly with. We have very good feedback from that. And of course, we continue investing massively in 5G because we believe that there is a lot of potential for 5G in Sweden. So that's it. We are using this data in order to maximize the impact of of the service we launch and as well to improve the quality of the direct interaction with the customers.

Thanks a lot. Just a follow-up on that. I guess you have renegotiated some content-related contracts and I guess it's too early to see the impact of that, but do you see that costs will be reduced in absolute terms from those renegotiations?

No, it's the renegotiation of some of our content contracts, the one that we could renegotiate, were triggered first by this new flex offer that we introduced. And we introduced this flex offer because we see that this is now a prerequisite from the new generation of TV watchers and viewers. You know, people want to be in control of what they watch and they want to pay for what they use and watch and not for a bundle. At least this is how the new generation of viewers behave. And that's why our flex offer has been received in a very positive way by the customers. uh that of course uh was the opportunity for us as well to renegotiate a number of uh uh contracts using the competition between all the platforms and the and the content players and uh yes this has impact positively or cost base as well uh but i would say uh it has a double uh benefit for us meaning that uh in terms of uh whole new usage uh customer uh and in cost of cost-saving, where we pay more and more for the content actually used by our customers. And that's one of the areas, one of the many areas of improvement for Kinect.

Very good. Thanks a lot.

Thank you. We will now take our next question from the line of Fredrik Lithow from Handelsbanken. Please go ahead, Fredrik.

Thank you, and good morning to you both or all. I have maybe two questions. B2B have seen an improved trend. RGU is up, and even though ASPR is down, you have a good progress in growth despite the fact that we see sluggish developments on the corporate side. Could you sort of maybe pick that apart a little bit in what is it that drives the B2B for you? Is it public or the private sector or is it large or small enterprises? That's the first question there. The second one I have is right of use assets has been on a much higher level the last three quarters now compared to historical levels. So Could you explain what that means? Is that taking CapEx down? Is it helping your cost transformation by taking it into the balance sheet or what? It would be interesting to hear. Thank you.

Okay, so I will ask Stefan to answer your first question about B2B, and Peter will take over about the balance sheet.

Thanks, John-Marc, and thank you, Fredrik, for the question. And in regards to the B2B development, you're quite right about the sluggish development. We went through an inter-recession in 2023 in the autumn and that has of course affected us and we've seen that during the past couple of quarters last year. But I'm really happy that despite this, I think it's very, I think it's important to note that this is the 16th quarter of consecutive growth that we have for B2B, despite this development. And looking at the last quarter, I think it's a healthy mix from a product perspective. We see growth on both mobile, IoT revenues, cloud PBX, networking solutions, where it comes from managed services and service agreements. So it's quite broad. If you look at it from a segment perspective, I would single out SME and the public sector on the mobile side. The micro segment that Jean-Marc was alluding to has had difficulties, more so than other companies or larger companies. So that is something that is still a concern of us. We've seen bankruptcies. being high also going into this year. So I would say we're not out of the woods yet. And of course, going forward, it will be important for us to see that the macro returns. But I would say that the results that we see is on the back that we are supporting our customers with their needs and it's paying off in terms of both the customer base and revenues. So I'm really happy about how all my teams are performing in regards to both the ongoing transformation, but also handling and focusing on supporting our customers. And that is really paying off. Thank you. Hope that gives a color.

Yeah, absolutely. Just to follow up on that. I mean, we see that the ASPO is down and has the sort of it has continued to decline at a bit bigger clip. Is that an effect of the mix that you point out, public sector, for example, you have sort of other price parameters that is influencing your ASPO in a negative way because public sector is driving on faster. Is that fair?

Well, we talked about it during the last quarterly call, and I think the explanation that I have then is the same for this quarter. uh and and you're you're you're correct in regards to segment mix there's a change in the segment mix uh the smallest micro segment comes with a with a higher uh aspo and of course when we have a higher increase of our use in the public segment as we've had that affects the the aspo but it's not only the sort of the segment mix we also see that During this recession, that's both SME and large segments. They have done adjustments on the engagement that we have, and they have reduced number of employees. They have cleaned out the subscriptions. They have been downgrading to cheaper subscriptions, et cetera. So, of course, it's a mix, I would say, both by a segment mix and a product change thing. But one thing I think is important important to highlight is that now looking at the quarter-and-quarter development, meaning Q2 versus Q1, we see a stabilization on the Aspen. But year-on-year, we have a clear decline.

Thank you. Okay, and on the balance sheet question on the right-of-use assets, I think I can answer in two ways on that one. The growth we have seen the past year is primarily due to a growing network and with that more leases and also some other contracts. That's one way to look at it. I think the other thing is that these assets and the related liabilities are quite sensitive to contract assessments and also the length of those contracts. And that's why when we look at our numbers, and since IFRS 16 is a quite sensitive topic, we have chosen to look at our financials in a way, excluding IFRS 16 in the sense that we're looking at underlying EBITDA after lease and also our cash flow after the amortization. They're making those judgments a little bit less sensitive and looking more on the true development, no matter how we judge IFRS 16. So that's what I would say there. Okay, thank you.

Thank you. Our next question comes from the line of Ulrich Reth from Bernstein. Please ask your question, Ulrich.

Thanks so much. A lot of my questions have been answered in the meantime, but one is there was a debate a little bit earlier into the quarter whether this period of renegotiations of your supplier contracts also involves you cutting back on purchasing simply from a tactical point of view, because obviously it strengthens your negotiation position if you sort of show that you have flexibility to reduce volumes. So in as much as there is a debate here about what happens in the second half and that 2Q could be peak growth, could you comment on this effect, whether there are elements here in the second quarter of one-offish cost benefits simply from the renegotiation? And my second question is, With regards to the revenue outlook, Jean-Marc, in particular, based on your current assessment, would you be willing to give some sort of trend growth or growth potential outlook for longer-term growth potential in the Swedish business from an end-user service revenue point of view, obviously? Thank you very much.

Okay, thank you for your question. I'm not sure that I... I understood clearly the first one about the contractual negotiation and the one-off. Peter, can you help me on that?

Yes, I can answer if you like. So I think I understand the question. I think the short answer is that there is no material such impact. The benefits that we have from contract negotiations are more. more sustainable than that and no massive one-off effect from those discussions that will bounce back in a way. That's not what we see.

Yeah.

So that was the reason why I was not understanding clearly the question. There is no one-off impact. Regarding the revenue outlook, you know, it's quite difficult to give you, to share a forecast on our revenue development for the next year. the next quarters. I believe that the reason for that is of course related to the uncertainties of the environment that we commented already, that we see materializing in what we commented on the micro-segment on B2B in Sweden with a lot of A lot of bankruptcies, at least the number of bankruptcies remaining high in this segment, the drop in handset sales on the market in general. We see a lot of uncertainties as well in a certain remit in the Baltics due to the geopolitical environment. What we have done in order to, I would say, prevent us from these uncertainties is to make the company more agile. Basically, when you are not certain about the environment, you need to make sure that you can react fast and make a quick decision and adapt to the customer's constraints and behavior. We have a kind of commitment to the customer. We are the value for money brand, meaning that we are there to stand with the customers if they face some issues to get access to their services. Saying that, we are taking a number of actions in order to accelerate our growth on the B2B side. That's something that was underlying Stefan's comment in his answer before. We are reprioritizing our portfolio, revising our portfolio of services in order to make sure that we will be able to to grow in all the segments and sometimes offset the slowdown in one segment with additional growth in another one with, I would say, equivalent or comparable profitability level. That is an exercise that was part of the transformation that we completed this year. this year already, meaning the reprioritization and the revisiting of the services of B2B, the portfolio of B2B services. On the consumer side, I believe that Peter partly commented on what we are doing in order to interact more directly with the customers, but as well to adapt to some specific situation. I commented briefly that we see some competition in the open fiber areas, I wouldn't say that the regulatory situation in this area is satisfactory, but we need to cope with that. And then, of course, we don't want to trigger another price war. But in the meantime, when we see the need to respond, now we are in the position to respond. And that's one of the reasons why we want to keep our margin of manoeuvre in H2, to reinvest in the market in order to... to fight back or to respond. But in some very specific areas, once again, we don't believe that anybody in the market wants to trigger a new price war. And if I have to do, I would say, to share with you a long-term outlook, I believe that our objective is to continue growing at the pace we are growing today or over the next few years, with a special focus on the consumer market segment in Sweden. And, of course, to sustain the growth that we see in the Baltics as well, because, you know, usually we have Petras with us today in this call. We don't comment a lot on the Baltics' performance, but they are doing a great job. And, of course, they are an inspiration for us in terms of revenue growth.

Thank you very much.

Thank you. Our next question goes to Victor Obey from Danske Bank. Please ask your question, Victor.

Yes, good morning. You touched upon it briefly. It's a Swedish broadband regulation. Just your take on the latest analysis from PTS thinking about access cost. I think it's moving in the right direction. Just want to pick your brain on that topic a bit more, and specifically for Teletubbies.

Yeah, I would say my answer will be very short and straightforward. The regulation is evolving in the right direction but not fast enough. There is half of the Swedish households which are single dwelling units, villas, homes, We need to have an open access to these households at a fair wholesale price. And of course, the access has to be negotiated together with the wholesale price. This will happen. The regulator is working on it. But we need it faster. And then there is another problem that I would say transforms into a kind of ticking bomb in the market, which is the increase of the excess fees by the landlord association. This is something that we have stated already clearly in a previous presentation. quarterly presentation we stand on the side of our customers because of course we need we need to make sure that in this very critical value chain for getting access to Nobody is taking a kind of undue fee from the hand of the customers. These are the two battles that we are ready to fight in order to make sure that everybody gets access to broadband internet at a share price in the internet.

Thank you. Do you have any follow-up, Victor?

No, thank you very much.

Great, thank you. Our conference call and webcast will be extended due to the fire alarm disruption. We will now take our next question from the line of Felix Heritzen from Nordea. Please go ahead, Felix.

Hi, thanks for taking my question. It's in two parts. First is regarding the personal reductions. Can you comment on the timing of your incremental headcount reductions for the second half of the year, whether or not it's more tilted towards Q3 or Q4? And secondly, I think you've previously hinted that you will potentially revisit your financial targets and capital allocation policy once the transformation process has been, you know, is further ahead, so should we expect you to provide some more information on this matter already in the second half of 2025, or rather after the fiscal year? Thank you.

I will take the first question, and I will let Peter answer the second one. Regarding the reduction, the first part of the workforce reduction was I would say the consequence of the overall simplification of organization, reduction of layers, concentration of management role, prioritization, revision of a number of processes, and so on. The next time, and that was, of course, organized across the company and across the group, both in Sweden and in the Baltics. And, of course, it was exhibited at the end of H1 to the extent of more than 500 positions canceled in the organization. The next step will translate more over time because it's about the improvement of some specific areas of the organization when we see that we have opportunities to improve the efficiency and the profitability. And we will communicate on that in due time because we are in the process of investigating the topics specifically with the employees, with the management, with the unions and so on. So it will be over time. It will not be the kind of big move that we made in the end.

Okay, I can continue on the second question from Felix.

The policy we have is still valid and unchanged, but as discussed, what we focus on right now is the transformation during this year. So it's up to the board to judge when or if that should be revisited, but I don't think you should expect that to happen in the near term or during this transformation year.

Thank you.

Thank you. We will now take our next question from the line of Ajay Soni from JP Morgan. Please ask your question, Ajay.

Hi there. Thanks for taking my question. I've got a couple. First is on the customer reaction to your price rises in March, April. Obviously, your Q2 net ads were broadly solid. Maybe RP is slightly softer on the fixed side. So was there much in retention offers here to hold on to your customers with these price rises? And the second one is just around the interest payments. You mentioned Q2 timing was as a timing benefit for your interest costs. So are Q3 and Q4 more similar, or is Q4 still expected to be seasonally higher? Thank you.

Okay. Once again, I will take the first one. Maybe with the help of Peter, if he has something to add, and Peter will answer the second one. The point is that the Swedish market has now entered a phase where annual price increases have been accepted by the customer. It's not surprising when you live in Sweden because these prices, of course, are material but not really significant in terms of budget. At the end of the day, we are discussing about an essential service. whose cost is still equivalent to a few cappuccinos per month. And in the meantime, in an economy where all the prices are increasing due to inflation and a number of reasons, it has been accepted. something very important for the market. It has been accepted by the consumer that the price would increase. Of course, there are always some segment of deal seekers who are ultra price sensitive, but for the largest part of the customers, they have accepted this price increase. So we have seen some moves, but not significant moves in terms of churn and so on. and we see a continuous in acceptation of this move. Do you want to add something better or?

Yeah, I think it's, you know, it's exactly as you say. On top, we have seen in quarter two, a higher promo activity on the market. So, you know, competitors launching promos to acquire customers. We have to understand, we will not allow customer losses and we are not losing customers. But in quarter two, the market has been more tougher. There has been more activity, and that is also a little bit the result in some of the obstacles that we see for the acquired customers.

Yeah, that's important to mention because, you know, from outside, the price increases are, of course, mixed with some promos, and that's the usual way to deal with the price perception in the market. Peter, do you want to take the question about debt?

Absolutely. On the interest payments, our payments are quite volatile between the quarters, since we're funded by quite a large extent to bonds. And just like last year, the majority will be paid in Q4. And as I said previously, on a full year basis, our our present expectations are at 750 deck of interest payments excluding leasing. Okay, thank you.

Thank you. Our next question comes from the line of Joshua Mules from BNP Paribas Exxon. Please go ahead, Joshua.

Hi, guys. Thanks for taking the question. I actually want to ask about the capex numbers. So your capex sales today, or first half of the year, is running about 12%. That's down nearly 20% in absolute terms versus 2024. So how much of that is due to phasing, or are you actually delivering on some of the underlying efficiencies in this area as well? And if so, is it possible that we could end 2025 within the 10% to 12% capex sales range you've targeted in the medium term, a bit earlier than expected, it'd be great to know if there's any specific phasing effects or investments you expect to make in the second half to get us back towards that 13%. And then maybe just one quick follow-up on the cost side. I know we've talked about it a lot during the call, but if we were to use the 650 million headcount target as a proxy for cost savings, i.e. another 150 versus the 500 you've done year-to-date, Should we expect the cost reduction on headcount to come down again in Q3 and Q4 relative to Q2? Or is there a mismatch between when the employees leave the business and then when you account for ATN Europex and EBITDA? Thank you.

Yeah, well, I will take the two questions and let Peter complete on them. I have something to add. On the CapEx side, in a nutshell, We already commented in Q1 that we had made a number of prioritization decisions in order to focus our CapEx where we had to really invest. So we made a number of decisions, for instance, on remote PHY upgrade of our HFC network because We had engaged into a kind of systematic upgrade of the fixed network of Tele2. We realized that it was only impactful for the customers in areas where we had the capacity issue. So we made the logical decision to move from a kind of proactive upgrade to a reactive upgrade. And we focused these upgrades only in areas where we need to improve the capacity. We have as well seen the impact of – we have stopped a number of projects that we are not considering as top priorities. And we see as well on the CAPEX side the impact of the renegotiation of the contracts with a number of vendors, saying that when we look forward, we have a major source for investment which is the rollout for 5G network within Netformability. And as you can observe, we have been increasing the capex to sales ratio from 11.5% in Q1 to 12.4% in Q2, and we will continue. We have a kind of hard deadline at the end of the year to complete this 5G network, and that's why we believe that we will deliver the CAPEX guidance. Regarding the headcount impact, this is as well something that we already commented or at least we anticipated in Q1. we started implementing, executing on the workforce reduction at the beginning of the year with, of course, an impact that was faster in the Baltics. In Sweden, we had to wait for the conclusion of the negotiation with the unions The workforce reduction has been implemented in the kind of long tail in June, so we will see something like seven to eight months impact in 2025. For the other workforce reduction, as I commented, they will be delivered over time, and some of them will not materialize in 2025. These will have no significant impact on the 2025 PNF, because some of them will happen probably at the very end of the year. Peter?

I think you covered it right well. So just on the people cost side, to conclude, the absolute majority of the impact is still already in the Q2 numbers, but obviously not all of it, but most of it. And on the CAPEX side, I think you covered it.

Great. Thank you.

Thank you. Our next question comes from the line of Nick Lyon from Barenburg. Please ask your question, Nick.

Yeah, morning, guys. It was a couple of questions, please. Firstly, on the Swedish consumer business, you've done the rebrand this quarter and brought back Frank and things like this. Have you looked at all about, is this just about price rises? each year, or are you actually looking in this latest review at the scope to change packet structures? Are you happy with the price positioning of the brands? I'd just be interested in what you've sort of concluded there. And then secondly, back to SME and business, is it possible for you to quantify the SME revenue, please, and give us a couple of trends over the last few quarters? I'd just be interested to see if that revenue has started to slip because of insolvencies or not and what you're actually soaking up. Thanks very much.

Okay, on the B2C side, I believe that, no, it's not only about the price increases. We are introducing a number of new tariff plans. We are, I would say, adjusting our portfolio of services segment by segment in order to respond to the customer needs. The price increases are not special to Teletubbies. It's a market trend now. We are following the trend. But in the meantime, we are very eager to remain the value for money reference in the market, which we are. We are not, I would say, the cheapest brand, but we provide as well excellent offers for handsets and and other services, and good quality of networks. We believe that the value for money positioning of Tele2 remains valid, but needs to be reinvented in different ways, depending on the segment that we consider. On the B2B SME side, Peter, I'm not sure that we communicate about the

No, we're not too explicit on that one. In terms of size, our large business is larger than our micro business. That's the fact that we're not too explicit on exactly the number.

I'm afraid that we need to trust us when we refer to the evolution of the meat. and how we balance it, what I believe is the most important output of this transformation that we have, this first wave of transformation that we have completed is what I was commenting earlier, is that we used to have some profitability issues in some company segments. And so it was difficult to compensate what we, some slowdown in the micro segment by increasing in higher segment. No, it's much more, it makes much more sense to do that for us. because of the revisiting of our portfolio and the increase of profitability on the higher segment, not only because of the prioritization of the portfolio, but as well because of efficiency and automation that was implemented by Stefan in his organization. We are now in the process of the accelerated implementation of a number of tools in order to automate the delivery and the support of our services, which improve the profitability.

And what we can add is, as we have also stated, the growth that we see. in Q2 is thanks to the development within the large segment and IoT.

Just to clarify there, I think when we talk about the larger segment, that is a combination of the SMEs, public and the private customers. And the micro segment is employees roughly, I would say, between zero and 10 employees. And that's where we have difficulties, as Jean-Marc was alluding to. And it has been visible in our numbers. Let's keep it at that comment. Yeah.

Okay, that's useful. Thank you.

Thank you. Our next question comes from Steve Malcolm from Redburn Atlantic. Please go ahead, Steve.

Yeah, thanks. Thanks for taking the questions. And, you know, I don't normally say this. Congratulations. I can't remember seeing a European telco grade of 13% in a sort of northern market for a long time. So well done on that. Just a couple of questions. One on B2B, coming back to B2B on revenues and other on costs. It looks, when I look at B2B mobile, that the swing factor is, and you do call it, is IoT, which grew, I think, 11% in Q2, but only 3% in Q1. Can you sort of give us just a bit of a flavor of, you know, what you think the sort of mid to long-term growth rate for the IoT business is and why it sort of stepped down in Q1 and why it recovered in Q2? That would be great. Thank you. And then just coming back to costs, you know, it's a remarkable performance. And I think you've sort of been asked, I did drop off the call briefly, but when I analyze it, it looks like your OPEX fell by about 2% or 3% in Q1 in Sweden. It fell by about 8% or 9% in Q2. I mean, that is a huge step up. Can you just confirm that there was no major renegotiation that landed in Q2? There wasn't a huge pullback in marketing spend. There was nothing in terms of deferral because we were kind of getting the message that there was some cost deferral in Q1. It might drop into Q2. That clearly hasn't happened. And can you sustain that high single-digit percentage decrease in OPEX for the second half of the year? which if you can, obviously suggests that the guidance you've given is a bit conservative. Just try to dig into that massive step up in cost production in Q1 and Q2 would be really helpful. Thanks a lot.

OK, thank you for the question. Stefan, can you answer the question about IoT? Peter and myself will take the second one.

Yeah, sure. And just to clarify, on the mobile connectivity, It's evenly divided between the growth on the mobile side, it's evenly divided between regular mobile growth and IoT. So it's not just driven by IoT, it's the 50-50 basically. more or less split.

No, I can see that, but if I look at Q1, I think your mobile growth rate was 1%, in Q2 it was 4%, and the difference appears to be, because IoT was quite, well, not weak, but it only grew 3% in Q1, it grew double digits in Q2, so clearly both are growing, but that was a swing factor, right?

Yeah, no, no, no. That is correct. And From the IoT perspective, we had a little bit lower base development in the beginning of the year. So that was one explanation. Another explanation is that we have an FX effect because lots of the IoT revenues are built in euros. And thirdly, we have this network outage that hits our revenues in Q1. So those are the three main reasons and that we saw coming back then in Q2. Going forward, I mean, we have a really good position on IoT. We believe that we will be able to continue to grow, not maybe on the same Incentives wise because we're growing the base all the time. So growing the percentages on the same base It will be harder But we see ourselves well positioned Some of you may be noticed that we were recognition by Gartner in the major quarter for connectivity in their latest report on IoT connectivity and which states and proves that we are in a good position in the market to continue to grow. And the whole IoT market is growing due to more things getting connected all the time. So we have good hopes for growth on IoT going forward as well.

If I start with the second question, and please, Jean-Marc, first on specific one. We called out last year that we had an impact from bad debt of some 15, 20 million or something. That's, of course, slightly helped in the year-on-year development this year, even though not massively. Then I would split into two pieces. We have... We have some structured savings. We have done the workforce reductions that we have talked about with the most impactful effect from mid-April, but also some phasing, as we have been talking about, and also the ongoing renegotiation on contracts, which is helping in general the cost discipline. So that is sustainable and will continue going forward as well. Then on top of that, as I mentioned earlier, there is some timing in certain costs, and marketing is one such example where we have kept it disciplined in the first half of the year, and we'll save the spending for the more intense sales season in the fall, and also some development of our growing network, adding network as well. So it's mixed in that sense. but no big one in the results.

Okay, so if we look at the sort of minus two or three percent in Q1 and the sort of minus seven or eight percent in Q2, is it fair to say that, you know, some of the minus eight comes back in the second half because you're, you know, re-phasing the marketing, I guess, around the relaunch of Frank and things like that and some of the network objects you're thinking about?

Yeah, some of it, and then I'll not call out the specific number there, but... But the cost savings are real, but also, of course, some timing and sequencing in when costs are arriving.

Yes. Okay, super. Thank you very much.

Right. I'm showing no further questions. We thank you all very much for your questions. And with that, we conclude today's program. Thank you for your participation. You may now disconnect your lines.