Telia Company AB (publ)

operational free cash flow year-to-date, of which 2.9 billion clearly above the 8.2 billion level needed for the minimum dividend. And looking at the structural part of OFCF, we've generated already 7 billion kroner year-to-date. With our Norwegian Finnish Tower transaction expected to close before year-end, we have a pro forma leverage at the very low end of our targeted range. and even including the second tranche of the 2020 dividend due to be paid out in November, we expect to end the year at a slightly higher level than the 1.99 times here, but still comfortably at the very low end of the 2 to 2.5 range. Our multi-year ambition to reinvent a better Telia is progressing to plan. Here we've picked out a few highlights from the quarter. We've just this past week won several Customer Satisfaction Awards, In Sweden, SKI awarded Telia the best operator in the enterprise segment for the 18th year in a row with an increased distance versus all our competitors. And Halobot was awarded the best in the consumer segment for the 12 out of 14 years. In Norway, Etsy awarded OneCall the best consumer brand, and within the enterprise segment, we not only won first place with Finero, but also second place with Telia. Both these surveys are a good recognition for our renewed effort to improve customer experience and are evidence of the quality position we have set for ourselves across our footprint. In the consumer segment, we're seeing solid momentum in our conversion strategy. Sweden added 8,000 convert households in the quarter, Norway 6,000, and Finland 15,000, and sales are ahead of expectations on the high-value Swedish 5G Plus mobile bundle, including Netflix and Seymour. Also in Sweden consumer, the launch of Champions League and the associated campaign starting in Zlatan has generated good engagement so far, with overall brand consideration increasing, and especially for our TV offerings. On Seymour, we've seen a 38% new sports subscription increase versus last year, and we've seen a 30% growth of sports subscriptions within our Telia Sweden IPTV customer base. We've also seen that viewing among our sports subscribers have been high for the rounds that have been played so far, and I hope you all stayed up to see Man United win and Ronaldo win. get that goal in the 81th minute last night. Moving to Finland, where we're further ahead in the content with active strategy, we've seen a 170% year-on-year growth in joint Telia and Seymour customers, now over 210,000, providing us with a much better consideration towards Telia, up 19 points, and a lower churn of 7 points and improved value for money perception. In the enterprise segment, We're reporting service revenue growth for the second consecutive quarter for the whole Octelia Group, with revenue growth in each of the enterprise segments in five of our seven markets. Our enterprise strategy aims to reverse the declines of the past few years through combining connectivity alongside ICT solutions and security solutions. We call it the Smart Orchestrator. In the quarter, our growth funnel was enhanced by deals that amplify our enterprise convergence and innovation strengths. And specifically, we saw deals that combined data analytics, private networks, and IoT solutions. And specifically, we signed our largest crowd analytics deal to date, where we'll provide the Finnish Road Authority with insights on traffic flows over its entire road network. On private networks, we signed the largest private 5G enterprise mobile network to date in our region with the mining company Agnico Eagle. and we've signed the deal to roll out our dedicated mobile network services for a major industrial project in Sweden. And on IoT solutions, we've extended the deal we have in utilities with Stockholm Exergy, and in real estate, we signed an eight-year contract with Academiska, who's one of Sweden's largest real estate companies. We're really building vertical strength in the real estate and the transportation areas. In the TV media segment, we continue to experience high commercial share of viewing levels in both Sweden and Finland. Early in the quarter, admittedly in the quiet period for advertisers, we were somewhat hampered by the Summer Olympics being broadcast by a competitor, but in September we recovered to previous high levels. Moving to our Connecting Everyone strategy pillar, 5G rollout continues in line with plan and we retain our leadership in Sweden, Norway, Estonia and Lithuania. We continue to expand pop coverage, now at 54% in Finland, 31% in Norway, and we've launched real 5G services to 25 Swedish cities so far. We remain the sole 5G supplier in Estonia, covering 17% of the population across 15 cities, and Oslo was measured as the fastest 5G capital in the world by Speed Intelligence during July, which we believe is due to the 5G leadership we took in Oslo early on. Also in Norway, the 5G spectrum option concluded successfully. We increased our holdings in the 2.6 GHz band to 2 times 30 MHz and maintained our holding of 100 MHz in the 3.6 GHz band. We also obtained our desired position in the spectrum band, further cementing our position as the only credible challenger in the Norwegian market. Turning to fibre, we've now surpassed the 1 million connected customer mark in Sweden, taking our full fibre subscriber base to above 1.8 million across our footprint and an 8% growth. Worth noting is that we now only have roughly 200,000 XDSL customers remaining in Sweden, which supports our view that the drag from declining legacy revenues will become less and less ahead. As we now modernise 4G and roll out 5G, we're accelerating the shutdown of legacy. Structural cost reduction related to these migrations amounted to 120 million kronor year-to-date, which is helping offset cost increases related to, for instance, an increased share of customers in open city networks. In addition, we're utilising 3G to a lesser extent, having reduced traffic further in the quarter, now having only 25% of total voice traffic left in the network and only 3% of data traffic. Finally, we're on track to close the announced tower transaction in Q4, which is only pending final local in one market regulatory approvals. We've already received clearance from the EU, and as we've stated before, the experience from this transaction has left us with an appetite to do more elsewhere in our footprint, and we're actively preparing the next chance for a transaction in early 2022. Moving to digital transformation, we're also on track. Our IT transformation is about optimising the IT platforms we use and optimising the strategic partners we select. This quarter, we've selected VMware as our strategic partner within cloud solutions, aiming to scale the native cloud infrastructure further, thereby gaining efficiencies. We've also selected Pluralsight as our strategic partner to support our technology skill transformation. This quarter, we reduced IT costs by 68 million kroner, largely driven by the decommissioning of IT platforms, further utilization of nearshoring, and our ongoing selection of strategic partners, which results in vendor consolidations. So far this year, we've reduced IT costs by 173 million kroner. From a KPI perspective, we continue to see positive momentum in our digital transformation of products and processes, and year-to-date, we've shut down more than 100 legacy systems and 50 product lines, leaving us well on track to remove up to 80% of our existing products by 2025. Amongst our people and our workforce planning, we're on track to deliver the 1,000 FTE FTC reduction commitments, and 550 FTEs have already exited the company so far this year, and we've reduced the number of consultants by around 200, despite increasing consultants for a short-term basis in our Swedish market. And in our free-to-air channels, we are transitioning towards offering our advertisers a higher-value, more addressable set of customer targets via our digital platforms and building our inventory and ad tech platform accordingly. In the quarter, we saw an all-time high in digital consumption, which led to digital ad revenue growing 24%. On delivering sustainably, the transformation of Telia towards consistent and sustainable growth is progressing as planned. We are on track to deliver on the financial ambitions we've set out, both for this year as well as for the mid-term and long-term, and we're building the foundations that will enable that. This is despite some headwinds that we've faced this year, such as clearly the development in Finland. Cash generation to enable attractive shareholder remuneration remains strong, and our balance sheet is very strong looking into the end of the year and into 2022. As you know, we know sustainability is thoroughly integrated into our business strategy to both inform and strengthen execution. And looking at the progress we've made in the quarter, I'd like to highlight a few things. First, we've been awarded the Gold Level Recognition, top 5% among 75,000 companies globally for our sustainability achievements by Ecovados, the world's largest provider of business sustainability ratings. And that's for our combined work across environment, labour rights, ethics and sustainable procurement. Secondly, having already hit zero carbon in our own footprint, we're making good progress on emission tracking of our total supply chains. Looking at the total emission levels in our entire value chain, the supply chain represents 85%. And as such, we're very happy to see that our efforts to make our suppliers set science-based targets have yielded results, as 7 out of 10 of our largest CO2 emitters have either set or committed to set such targets. Thirdly, our monitoring suggests that consumers rank as number one or number two in all our markets when asked about Telia's association with strong privacy measures. And finally, I'd also like to refer back to the data insights and IoT deals I talked about earlier. These are perfect examples of how we can innovate around our core, keep creating products that are good for our customers and good for society. On the back of crowd insights, which clearly was a big enabler to governments during the pandemic, we've just launched travel emission insights, where we enable municipalities to instantly get a view over the emissions generated from travel within a certain area. geographic area and will in time provide solutions on how to reduce emissions and the tracking of them. Our strength in IoT will clearly benefit us as 5G industrial use cases develop, providing us with further opportunities to monetize our 5G investments smarter than anyone else can in the region. Now to the markets and starting with Sweden. where it's great to see a return to growth. Despite the continued legacy headwinds, you can see here service revenue actually reversed to growth for the first time in almost six years. Yes, the increase is small, but it's broad-based and it's driven by both mobile effects and by both consumer and enterprise. All sub-segments grew this quarter, except interconnect and pure legacy segments. More importantly, you can see our underlying service revenue, excluding legacy enrolment, grew by 3.5%, the strongest rate since we started calculating underlying revenue in this way. The enterprise segment grew by 1%, with positive growth in mobile, and all but one customer segment grew in the single digits, with only SME declining low single digits, but relatively stable to prior quarters, despite us continuing to carry a premium because of our quality position versus competition. In consumer, TV revenues grew at a healthy 10%, helped by strong sports content. Fibre grew 12% and mobile grew around 1%. Our cost base increased slightly as it was impacted by 60 million of pension saving, mostly non-cash, so underlying EBITDA delivered a small growth in the quarter, if you also exclude last year's one-offs. Moving to KPIs, the performance is solid. with increases in mobile, broadband and TV customer bases, as well as in R2. In mobile, we have positive net ads in both consumer and business, with a slightly improved R2 versus last year, mainly as a consequence of increased value-added service usage, similar to the second quarter. We did see a slight increase in churn within the consumer segment due to the price increase that's taken on shared plans, but this was compensated by a lower B2B churn returning to the lower levels after the loss of a large public contract, which had a negative term impact in Q1 and Q2. Broadband netbags returned to growth this quarter as the growth in fibre more than offset the copper decline, even after adjusting for a small one-time adjustment to the base. And the fibre growth was generated both within our own network as well as within open city networks. Likewise, the TD customer base continues to grow by 6% year-on-year, and our food for both broadband and TV grew as well by 3% and 4% respectively. Encouragingly, these strong trends are supported by attractive sports content as we increasingly become the aggregator and home of entertainment, with a wide range of entertainment both from Seymour, from Viaplay, and now, as of September, having Champions League. Married to Finland continues to be a tough market for us, but the revenue did improve sequentially, and it's nearing stability around the 3 billion kroner level per quarter. Both the consumer and business segments were largely stable on revenues on a light-for-light basis, supported by 5G and the start of the sports season on TV. TV revenue grew by a healthy 6.5%, and mobile revenue was stable, and our B2B datacom business turned to growth for the first time in over two years. We did, however, see declines in our legacy fixed broadband, and to lessening products. In an overall tough environment, though, there are some bright spots. We're seeing TV growing positively, as is access to content products. 5G continues to come with an uplift, an ARPU of more than €3 in consumer, and the premium is even larger for enterprise. And with a 5G customer base just shy of 150,000 subs by the end of the quarter, we're continuing to roll out an upgrade to 5G at pace. Beyond the revenue challenges, we did have some increased pension costs impacting EBITDA, resulting in a 4.5% decline. From a KPI perspective, the mobile subscriber base is growing, but it is driven by enterprise where we add customers in the public sector, although at a lower ARPU, which dilutes the overall ARPU. Positively, churn has continued to reduce, and it is looking like 5G could help us sustain this positive trend on churn. Now, just to give you an update on our turnaround efforts, they're very much focused on a value versus volume commercial strategy alongside structural cost takeout. Specifically, we're restoring our brand and network perception to improve value for money perception and the early signs of positive. Secondly, we're expanding 5G pop coverage, increasing our potential to migrate more customers to 5G. And when we combine 5G with content from Seymour, we see much improved consideration and reduced churn. Third, we're shifting to our own channels by exiting expensive third-party channels that encourage churn. And fourth, we're shifting sales incentives to a value versus volume-focused incentive scheme and have stopped our historical practice of pursuing subs at any cost. And finally, we're in a process to restructure our workforce be finalised during quarter four. In summary, we now have a plan and we're executing on it. Yes, it will take a few more quarters, but we're very confident that the turnaround will come and it will have a material impact going forward. Moving to Norway, service revenues are reversed into positive clarity again, despite that we're still at burden by the ICE National Aerobics Agreement, although as you can see, it's sequentially lower this quarter at £55 million. Underlying momentum has continued to improve, with the enterprise segment growing at a very healthy 3.4% pace, driven by mobile, and the consumer segment now going 2.3%, driven by both mobile and broadband. With stability in our consumer customer base, we're aiming for this growth to continue, as we've now implemented speed-based pricing in our premium unlimited offerings under Telia X. And at the same time, we continue to see great strength in the enterprise segment, both through Finero and Telia. New customers, such as the Norwegian Postal Service, will start to migrate over to us during the next few quarters. Churn in both segments have been broadly stable in the quarter, and ARPA is growing due to value-added services, more specifically insurance. BAS represented just over half of the year-on-year ARPA redevelopment that you're seeing here. fully mitigate the lower revenue from the wholesale contract, leading to a small EBITDA decline. Moving to what we call our lead markets, the trends remain very strong in our Baltic operations. In Lithuania, service revenue growth accelerated to 8.1%, with EBITDA following and growing 9.3%. This quarter, our mobile trends particularly stand out, growing above 10%. But fixed is also stronger than in prior quarters, growing just shy of 7%. The consumer segment remains the main revenue driver, but we're also seeing the enterprise segment grow too. In Estonia, both service revenue and EBITDA grew by 6%, and just as in Lithuania, the consumer segment was the main driver, but the enterprise segment is not far behind, and both segments showing growth in both mobile and fixed services. As we said in Q2, the Danish service revenue is stabilising and even turned to a growth of 2.2% in the quarter. However, this was driven by interconnect enrolling, which came with limited or no growth margin. To drive further improvement and sustainable Danish revenue in EBITDA growth, we have changed management during the quarter, where Petter Schermack, a telco inspector, who has been advising us on our strategy since the turn of the year, and someone I have known for many years, is stepping in as acting CEO until we have a permanent solution in place. The costs are impacted by a non-cash balance sheet clean-out, and excluding this, EBITDA is broadly unchanged year-on-year. And finally, to TV and media, service revenue grew 15.4% from both growth in advertising and pay. Advertising continued to recover, albeit at a slower pace than previous quarters, as the recovery did already start in Q3 last year at 12%, but driven in no small part by a 24% increase in digital ad revenue. Pay grew by over 20%, helped by stronger sports content, and looking back over 24 months, revenue in TV and media is almost back to pre-pandemic levels. As you know, unexpected content costs are increasing, with both the Euros and Champions League affecting the quarter, which clearly affects our EBITDA, and content costs will ramp up further in the fourth quarter as we take a full quarter of Champions League and incur the usual fourth-quarter fiscal jump in content. Our Seymour subscriber base grew 20% in both Sweden and Finland, and in addition there was a transfer of 60,000 customers from Finland to the TV and media units, so that we ended at 560,000 and 275,000 customers respectively. I'm sure you're all curious about Champions League. It's early days, but we have indeed precisely already mentioned positive impact on Swedish TV subscribers, a positive subscriber uptake on the back of it, recovering the outflow of sports subscribers after the Euros, which ended at the beginning of the quarter. All in all, sports-related subscriptions have increased by 40% year-on-year. These movements are, however, masked by the fluctuations of the lower RQ non-sports subscriber base, but despite this, revenue is growing positively. We've now embarked into a multi-year period of a stronger content offering and will be monitoring the different aspects in which Champions League impacts our business, both on IPTV, on streaming, but more importantly, on the attachment to our access products that ultimately drive convergence and customer lifetime value. So now, PC, I'm going to hand over to you in the financials.

Thank you, Alison. Let me quickly summarize the financials, starting with service revenue. At Arise, we see the growth of 2.3%, broken down by unit and market. And as mentioned, we have growth in all the markets but Finland, driven by growth in all key product categories. On the left-hand side, you see the same growth split by segment. And as you can see, also covered by Allison, we have a solid growth momentum both in our consumer segment and also in our enterprise segment in the third quarter. Yesterday, after nine months behind us, we have recorded a surge revenue growth of 1.0% and are well on track to deliver our outlook for the year of flat to slight growth. If we move to offbacks starting from the left, versus last year, total offbacks increased by 1.1% or 61 million. In Q3 this year, we have more than 200 million of structural cost efficiencies, mainly driven by the 750 fewer resources combined with significant IT-related savings. However, in the quarter, this is more than offset by pension-facing effects combined with inflationary pressure mainly from salary inflation. Moving to the right and take a look at the cost development by category, resource costs increased by 134 million versus last year. The reduction of 750 resources has given us more than 100 million of savings in the quarter with resource reductions more or less in all units and functions. This is, however, impacting the quarter more than 100 million, with a significant part of this being the effect relating to last year. Second, salary inflation effects are around 100 million, slightly higher than the regular quarterly average. And thirdly, also from the temporary investments we have done in Sweden customer service to protect and develop our customer experience. Marketing costs are flat in the quarter, in many of our markets. Going forward, we expect to see more efficiencies from our transformation program on marketing costs, but of course, the reported costs will vary depending on the quarterly activity level. Within other aspects, we have solid reduction driven by the mentioned 68 million lower IT costs from the transformation initiatives related to nearshoring, vendor consolidation, system decommissioning, and increased use of common products and platforms. Year-to-date, we are down 0.7% or 135 million in line with our plan. With a reduction of 750 resources after nine months, we are well on track to reduce total resources by 1,000 during this year. This will both secure a good result for this year, but more importantly, secure a strong run rate going into 2022. And to summarize, We are well on track versus our plan and have good visibility how to reduce OPEX of 2 billion by 2023 and 4 billion by 2025. If we move to EBITDA, at the right-hand side, you can see the total EBITDA decline of 1.9%, broken down by market and units, where the main reason for the decline is, as mentioned, Sweden impacted by pension phasing, Finland hurt by low revenues and pensions, and TV media impacted by increased content costs offsetting the service revenue growth. After nine months behind us, we have recorded an EBITDA growth of 0.8%. If we look at the full year, we expect to end 2021 at the lower end of the flat-to-slide growth outlook range. The main reasons for this are mainly due to the low-than-expected performance in Finland, combined with effects from a slower rebound of the non-EU roaming. As Alison mentioned, we see positive signs in Finland already, and the global roaming is hopefully starting to return a bit during the first half of next year. On CapEx, starting from the right, as expected, we see an increase in mobile network activities related to the ongoing mobile network modernization and 5G rollout in all our markets. Fixed investments are a bit down due to less fiber-related investments in Sweden, while we see a slight increase in the quarter within product development and IT due to some key transformation-related investments in Q3. As we can see on the left side, total cash capex on a rolling 12-month basis has increased to 13.6 billion, or 15.4% on the sale. Cash capex will increase further in Q4, both from higher planned activity levels, but also from the delayed effect of completed activities due to our long payment terms. It's worth to note that the ongoing global supply chain situation is starting to impact our business and therefore could have some delay effects on the CapEx levels going forward. However, so far, we have been able to mitigate this relatively well. All in all, we are on track with our investment suggestions in Q4, we expect to land around 15 billion in cash aspects in the middle over the targeted range. Moving to cash flow, starting from the right, we have reported a total cash flow of 2.9 billion in the quarter down from last year. This is a combined effect of lower EBITDA, slightly higher cashback, and a slight negative contribution of working capital in the quarter. On a rolling 12-month basis, we see solid cash flow at $11.9 billion, somewhat reduced from last quarter. And excluding contribution working capital, we are on a rolling 12-month basis at $7.5 billion, in line with our expectations. After nine months, we now have generated a solid $9 billion of cash flow, well above the needed $8.2 billion to cover the minimum dividend commitments. And we are on track from 2022 onwards to cover the minimum dividend commitment with cash flow excluding working capital contributions. On net debt and leverage, as mentioned, we have reduced our leverage by almost $3 billion during our operations. If we take the Q3 results and add the expected proceeds from the TAR transaction, performer leverage is at 1.99%. but keep in mind that we have 4.1 billion to be paid out in dividend during Q4. We expect by end of 21 that this will put us at the lower end of the targeted range. On outlook for 21, after nine months of the year behind us, and with our financials well within the targeted range, we retrace the outlook for the year. As mentioned, we expect EBITDA for the year to be at the lower end of the outlook range, with cash cashback expected to be in the middle of the range around 15 billion. On the mid-term ambition, given the solid top-line momentum we see, the ramp-up of the structural cost agenda, and the clear plans on how to turn around our low-performing units, we are well on track on our mid-term ambition. And with that, I hand back to you, Alison, to summarize the presentation before we go into Q&A.

Thanks, PC. So to basically summarize the quarter, actually, we are delivering on our plan. We're proud that our commercial position took a step forward in the quarter with the expanded next generation network for 5G and new enhanced content and digital services being added. The momentum in almost all markets and all key product segments are strong, including in our largest market, Sweden, where, as I've said, we've seen service revenue acceleration for several quarters now, and getting closer to that sustainable and consistent EBITDA growth too. Our transformation is building the foundations for sustained structural customer experience and cost advantage, which is helping to mitigate some, but not all, of the recent headwinds. Furthermore, our ambitions to crystallise value from our assets are on track, but the tariff transaction expects to close next quarter, as previously communicated, and more will follow. but the tariff transaction already announced is putting us already at the lower end of the leverage range as we move into next year. Our outlook reflects a little single-digit growth in both revenue and EBITDA remains, and as Peter just said, we'll be at the lower end of that range on EBITDA this year, and cap-outs will be in the mid part of that range. So we're finally on our way out of the pandemic and moving forward with even more confidence on our transformation journey to reinvent a better Telia. We do believe that the pandemic has strengthened our role in society and cemented the need for ubiquitous connectivity, seamlessly combined with the best digital services provided by the most trusted provider. And as a result, we're really looking forward to playing an ever more important role in our customers' lives in the post-pandemic world. and for an improved market and structural position to generate consistently attractive shareholder returns for our owners. Let's go to questions.