Telia Company AB (publ)

Good day and thank you for standing by. Welcome to the Q4 and year-end report January to December 2021 conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star and one on your telephone. I must advise you that this conference is being recorded today on Friday, the 28th of January 2022. I'll now like to turn the conference over to your speaker today, Alison Kirkby, President and CEO of Talia. Please go ahead.

Thank you, Operator, and good morning, everyone. Thanks for joining us today. I'm here in Stockholm. with PC, Reiner, and Anders from IR, and Eric has dialed in from home, and you can probably get why he's dialed in from home. So we have a longer session today, longer than normal. We'll first focus on the Q4 results, and then we'll dive into an update on the progress we've made throughout 2021 on our strategy to reinvent a better telia, and that's why we've also got Reiner here today So let's get started. As you'll have seen this morning, we reported another quarter of improved revenue growth. Service revenue accelerated to 2.9% in the quarter and again in seven out of our eight units. But this quarter, the growth was driven a large part by mobile subscription revenues now growing 2.6%. We also delivered on our cost ambition with OPEX down 3.6%. driven by reduction in labour costs, IT costs and a pension refund, which together more than offset some inflationary pressure that we saw in the quarter. This resulted in a flat EBITDA, despite absorbing significantly higher content costs. Our capex, as expected, ramped up in the quarter as we are now really rolling out 5G and accelerating the modernisation of our 4G networks. But despite these heightened investments, operating free cash flow amounted to $10.4 billion as the working capital contribution was again strong. And as you'll have seen in our announcement late last night, we are making excellent progress on our agenda to crystallise the value of our infrastructure assets and work with strategic partners with a similar long-term view as ourselves to the inherent value in these assets. Brookfield and Alexa will ultimately help Telia retain and build its leadership position in the provision of digital infrastructure to the Nordic and Baltic region in the years to come. We closed our first tower transaction during the quarter for the towers in Finland and Norway, and last night we announced the second transaction through the extension of this partnership to Sweden, which we expect to close in the third quarter of this coming year. But even before that transaction closes, I'm super pleased that we've strengthened our balance sheet significantly during the past year and are now operating towards the lower end of our target leverage range. So let's get into the countries and let's start with Sweden. Last quarter, we returned Sweden to a tiny revenue growth and we said we intended to keep it in positive growth territory going forward. And as you can see here, the service revenue growth has continued to improve to 1.5% like for like. More importantly, looking at an underlying level where we adjust mainly for the copper legacy revenues, there was also an acceleration to 4.6% growth versus 3.5% last quarter. Growth was again broad-based with both consumer and enterprise and all the non-legacy product segments contributing. And the start performer this quarter was TD with 16% service revenue growth. growing both its service revenues and its EBITDA. The 6.5% EBITDA growth was boosted by a contribution from the pension fund, but even excluding that, our EBITDA was up 2%. And so we now have the same message for EBITDA as for revenue. We intend to keep our Swedish business unit in positive territory on both metrics going forward, albeit with some fluctuations in the odd individual quarter. Looking at the leading indicator KPIs, you're seeing here a healthy ARPU list uplift in all of the main product segments. Starting with mobile, we're proud that we've maintained our network leadership position, winning the Umlaut field test again this year and even increasing our margin relative to competitor networks. This network leadership position is a key enabler to the perceived premium service quality that customers are willing to pay for. And as a result, we saw post-paid R2 growth improving to 3% in the quarter, which is an acceleration from prior quarters. Looking at the subscriber base, the decline this quarter of some 40,000 post-paid customers is mainly explained by one public sector contract that we're migrating out and some mobile broadband connections. Fixed broadband also had a healthy R2 development and an even better growth in fiber customers at 11% year-over-year. compensating fully for the loss of copper broadband customers, of which there are now less than 200,000 remaining. And, as I mentioned, TV has a great quarter, with growth driven equally by ARPU and subscriber growth. Our ITTV business has performed well throughout the year and is now further boosted by our investments in Champions League and the still range of premium sports and a mix of streaming products that you can, on aggregate, access via Telia. And while it's early days, we can see that 70% of new video service customers subscribe to packages containing Champions League. So it is clear that this sport right is helping to drive the business and more importantly, drive improved consideration towards telio. Moving over to Finland, our service revenue declined by 2.5%. and was actually stable in the quarter. In consumer mobile, we're continuing with our value-focused turnaround strategy with more focus on 4G to 5G and Seymour upgrades than growth apps. The mobile handset R2 decline stopped and turned to positive toward the end of the quarter, helped by the 5G base more than tripling during the year and growing 24% in the quarter. Additionally, the number of tele-customers of Seymour has now more than doubled to well and lower churn as we move into 2022. In enterprise mobile, on the other hand, we are still migrating 4G customers in a large public sector contract that dilutes ARPU initially, but boosts the subscriber numbers. As we gradually migrate these customers into our base and then upwards towards 5G, ARPUs will improve over time. In our B2B ICT business, where we have a disproportionately large market share, Supply chain effects delayed deliveries, and this, on the back of a very strong end to last year, resulted in a high single-digit decline within fixed business solutions in the quarter. Clearly, supply chain effects will subside during the coming quarter, and so we expect this trend to reverse during 2022 and to help the trends in the year. EBITDA was affected by the revenue decline and an increase in energy costs, which unfortunately fully offset the transformation benefits that are now being realized in our Finnish market. In Norway, service revenues grew by 2.6%, supported both by the consumer and enterprise segments, which more than offset declines in mobile wholesale from the ICE contract. We continue to have really solid growth in enterprise, with both brands, Telia and Fenera, winning again, new significant customer contracts in the quarter, including Tieto Every and Norwegian, and reporting a double-digit growth in the private enterprise segment. Mobile ARPU received a boost, as you may remember, from insurance services starting last quarter, but even excluding insurance, ARPUs are growing. And clearly wholesale revenues from ICE comes with a higher margin than the lower margin value-added services, so EBITDA was somewhat impacted by this, as well as increased market activity relative to levels during the middle of the pandemic this time last year. Moving to our led markets, Lithuania contained its solid momentum on service revenue, which was rather broad-based, with growth in post-paid mobile, broadband, and TV, with a manageable drag from fixed to left-handed, and we are leaders in 5G. EBITDA was here impacted by energy inflation this quarter and did not have quite the same momentum as we did in the prior quarter, which, as you recall, was an exceptionally strong quarter. excellent momentum on both fixed and mobile and customer satisfaction as measured through NPS and is a great example of where we're proactively pursuing our premium network quality position and driving NPS and ARPU as a result, with post-paid consumer ARPU growing 6% mainly on the back of price adjustments. On the network side, we're the only operator providing 5G in the country, covering around a quarter of the population so far. And on fixed, we now have more fiber customers than DSL customers, and we're managing that migration positively. As you can see here, Estonia were able to translate a significant chunk of that service revenue into EBITDA, barring some pockets of low margin sales. Finally, Denmark delivered stable revenue and would have also been stable at EBITDA level if it wasn't for a rise in energy costs and a tough comp last year. It's nice to see mobile is growing 4% in the quarter. Moving to our TV and media unit, the strong revenue growth continued from previous quarters, with both ad and pay growing equally positively. Starting with advertising, our Swedish digital revenues grew more than 20% and are now a meaningful part of the business. This is mainly through the TV4 Play service, which we are delivering increasing amounts of addressable inventory to our advertisers and offering an increasingly trusted alternative to Google and Facebook to those advertisers. And as we'll talk about more in the strategy review coming up, this is now offsetting the decline in traditional TV viewing so that the overall TV reach is actually flattening out now despite the development of the traditional linear broadcasting viewing. That being said, our linear advertising also had a strong quarter, contributing to overall ad revenues going by 11%. As you know, Pay TV is ramping up its premium sports-related content, and we're now carrying the full impact of Champions League in the quarter, which results in, as we expected, lower EBITDA at this early stage of the ramp-up. Seymour did see a growing subscriber base in both Sweden and Finland in the quarter, mostly driven by sports. And Finland is successfully clearly trending up as the number of sports subscriptions increase. So now let's move over to the financials and to PV.

Thank you, Alison. Let me quickly take it to the Q4 and 21 financials. Starting with the surge revenue, as Alison has gone through, we have a solid revenue momentum across all segments. We tackle growth in the consumer segment of 1.7% and in the enterprise segment of 1.2%. on top of the mentioned growth on the TV and media unit of 11.3%. Full-year revenue growth, or 21, ended at 1.5%, well in line with our outlook for the year of flat-to-slice single-digit growth. Let's move to OPEX and EBITDA. Total OPEX reduced by 3.6% in Q4, or 244 million, driven by efficiencies in resource cost and IT, and a positive effect from pension refund of $200 million, offsetting higher energy costs of around $100 million due to the extreme energy prices in the quarter across our footprint. For the full year, total effect declined 1.2% or $0.3 billion, despite slightly higher pension costs and $200 million higher energy costs for the full year. More about this later in the presentation. On EBITDA, EBITDA was flat in the quarter at a 2.9% service revenue growth. Efficiencies and pension contribution was assessed by increased content cost of 0.5 billion and energy inflation of 0.1 billion. Total EBITDA growth for the year ended at 0.4%, well in line with our outlook of flat to slight growth. Moving to cash capex, As guided and expected, cash capex increased heavily in Q4 to $5.2 billion, driven by increased investments in mobile network modernization and 5G, combined with higher investments into product development and IT to support our ambitious transformation agenda. Total capex for a year ended at $14.4 billion or $14.7 billion if we adjust for the cloud accounting effect, within our guidance of $14.5 to $15.5 billion Moving to cash flow. Operational free cash flow ended at 1.4 billion in Q4, a 1.5 billion reduction compared to last year, mainly due to lower reported EBITDA from the carrier divestment and the mentioned decline in the TV and media unit. The higher cash flow, Cash flow was actually a bit stronger than expected due to somewhat higher contribution from working capital combined with a bit lower capex. Total cash flow for the year ended at 10.4 billion, well in line with our guidance that cash flow should cover our minimum dividend commitment. If we move on to net debt and leverage, total net debt reduced by 3.4 billion in the quarter, driven by good cash flow generation, and proceeds from the Finnish and Norwegian TAO transaction, partly offset by the planned and executed second tranche of dividend payments. Total net debt to EBITDA ended at 2.14 times, well within the targeted range of 2.0 to 2.5 times. Given the strong balance sheet and the strong outlook, the net proceeds of 5.5 billion from the Swedish TAO transaction are intended to be distributed be distributed to our shareholders after closing. And with that, I hand over to you, Alison, to start the strategy progress update.