Telia Company AB (publ)

companies q1 2023 results presentation and with that i will hand over to tell your company's head of investor relations eric strand and pears please go ahead the floor is yours

Thank you, Sam. Hi, everyone. Welcome to our Q1 call. We'll do, as usual, we'll do a presentation followed by Q&A. And on the call today, we have Alison Kirkby, our president and CEO, and our CFO, Per-Christian Mörland. Alison, please go ahead.

Good morning everyone and warm welcome. Our year has started with a full focus on building profitable growth momentum in our telco businesses and taking decisive action on capital allocation to improve both cash conversion and value creation over the medium term. And I'm happy to say that this focus is already evident in our results and in our actions this quarter. Our telco business units have delivered a solid set of financial and operational results, with service revenue growth improving to 2.4%. Both mobile and fixed grew at similar rates, and all markets contributed positively, except for Denmark, which was relatively flattish. We also saw growth in both consumer and enterprise segments, where the latter accelerated to a strong 3.4% growth, as we see excellent demand for connectivity services bundled with security, cloud and our award-winning IoT services. EBITDA momentum for the telco operations also improved sequentially, growing to 1.6% year-on-year. We did, however, experience a tougher time in our TV and media business, with a softer advertising market adding to the challenges of monetising some of our pay TV content. This was expected, and it did result in a weak EBITDA and contributed to a relatively flat year-on-year EBITDA development for the group. Also in the quarter, the structural part of our cash flow decreased to around 700 million kroner from year-on-year capex phasing. And total operational free cash flow was negative, as we expected and communicated earlier, due to a temporarily lower vendor financing balance. We now expect this to be fully recovered over the remainder of the year, as PC will explain later. On strategy execution beyond the financials, it's been a quarter of meaningful progress on customer satisfaction, on network modernisation and on our sustainability ambitions. Specifically, we continue to be the undisputed 5G leader in the region, reaching a population coverage of 77% by the end of the quarter. and with Open Signal awarding Telia Finland for having the best quality network in the world. We made significant progress in this year's Sustainable Brand Index, proof that our customers are viewing our ESG efforts positively, and we were super proud to be awarded the top spot in this year's ranking of Europe's climate leaders by the Financial Times. a globally recognised assessment of climate commitments and real performance, where we came out beating many global powerhouses and all of our telco peers. Having started the year with solid financial, operational and strategic progress, and with more visibility on both capex and working capital elements, our outlook for the full year is unchanged. And, as you saw last night, we continue to actively manage our portfolio, to improve capital allocation and our balance sheet. So before we move ahead and talk about the quarter, let me just touch on the Danish announcement. As you've seen, we've successfully agreed a deal to sell our Danish business to Norlus, the leading provider of energy and fibre infrastructure in the country. subject to relevant and customary approvals. This has been a long time in the planning and is a great outcome for everyone, us, Norlis and the customers and businesses who rely on the services we provide. And with such a committed long-term owner, it's great for Telia's Danish team too, who in just over a year have done an outstanding job at turning around the business and upgrading the mobile network, both of which have been recognised in the valuation struck with Norlis. The valuation of 6.25 billion Danish kronor or almost 10 billion Swedish kronor corresponds to around nine times the 2022 Telia Denmark EBITDA and clearly a much bigger multiple of cash generation. We now enter a period of confirmatory due diligence followed by a final share purchase agreement that we expect to sign during the summer. Then we'll move into a regulatory approval process that is likely to conclude around the turn of the year. So closing should occur within the next 12 months. And at closing, we intend to use the proceeds for deleveraging purposes. So let's move back to results and how our four pronged approach to building a better Telia is progressing. Everything we do to create a better Telia is guided by our belief that we will play an increasingly vital role in enabling the digitalisation and technological development of our highly innovative region. By inspiring customers, connecting everyone, transforming to digital and delivering sustainably, we are continuing the hard work of returning the company to sustained profitable growth, maintaining our technology and sector leadership, driving modernisation of our operations, to make Telia a better company for all its stakeholders today, tomorrow and into the future. So let's now look at the progress in each of the units and we'll start with Sweden. In Sweden, we saw customer satisfaction improve. We were the sector leader in the Sustainable Brand Index for the 13th consecutive year and Telia's 5G is now available to almost two-thirds of the Swedish population. Service revenue turned positive again with broad-based growth in all our service lines if you exclude legacy copper services. Consumer improved and returned to growth in March as effects from the Q4 black screen situation gradually subsided. Enterprise growth continued to be very strong, growing 2.3%, with Telia and Telia Sygate leveraging their unique market position, combining connectivity services with IT, cloud and security services. Telia Sygate actually won preferred partnerships with several key global security solution providers in the quarter, contributing to double-digit growth in our, what I call, beyond connectivity enterprise services. Excluding copper revenues and roaming, you can see the real underlying revenue growth rate improving in the quarter to 2.8%. And with pricing initiatives taken in March impacting around 1 million subscriptions, we saw the growth rate improve further as we progressed through the quarter. EBITDA growth improved sequentially, although still showing a minor decline due to inflation, mainly energy, which was a 40 million headwind in the quarter. Moving on to the operational KPIs. In mobile, we had positive postpaid net ads for our brand portfolio as a whole, including for Fellow, our most affordable brand, which won Mobile Operator of the Year in the quarter based on NPS. This recognition also helps in pricing, of course, which we announced on Fellow just last week. Talking about pricing, mobile ARPU continues to grow, slightly supported by pricing initiatives and, to a lesser extent this quarter, the roaming rebound. The broadband subscriber base increased as growth in fibre and FWA more than offset the decline in the remaining DSL base, which has halved in the last year, with only 65,000 customers remaining. ARPU was, as you can see, flat as pricing late in the quarter was offset by DSL decline, and some discounting linked to the black screen situation that I mentioned earlier. In TV, we again saw a strong subscriber-based development with 22,000 new customers despite price increases, with more than two-thirds of this growth in the high-value SDU segment. Clearly, ARPUs are expected to improve going forward, from the pricing taken in March, the gradual removal of the Q4 discounts, and now the fellow pricing just announced last week. Moving to Finland, network modernisation, 5G rollout, global recognition for our network quality, improving brand consideration and cost transformation were all evident in the quarter. Financially, we had our third consecutive quarter of service revenue growth and despite continued heightened energy costs, we saw EBITDA growth. The Finnish team continue to successfully drive down their cost base through digital transformation, channel shifts and general productivity measures. Mobile growth was slightly slower as we had a strong ATP quarter this time last year, helped by elevated public sector messaging during COVID. Looking at consumer, mobile ARPU grew 6% as a result of 5G migrations and pricing. However, our postpaid subscriber base declined somewhat due to a slightly shrinking market and our value-focused strategy, especially when it comes to which offers we make and which channels we use. Specifically, we've taken many pricing initiatives and we're selling less in third-party channels. So while we have a reduced customer base, this strategy is benefiting not just ARPU and SAC, but also churn, where we've seen a meaningful reduction in the quarter. In enterprise, mobile was impacted by the lower ATP revenues that I mentioned, but we saw an excellent 8% growth in fixed services driven by business solutions. Like we have in Sweden, we have a real competitive edge when we go to market combined with Telia Sygate services. Turning to Norway, and we saw another quarter of solid momentum, both on network rollout, where we remain the 5G frontrunners, with 89% of Norwegians now having access to our network. And onboarding of our new wholesale customers from Fjordkraft started in late March, in line with plan. Service revenues increased 3.8%, with a 5% increase in mobile driven by both consumer and enterprise. And in fixed, both TV and broadband also grew in the 4-5% range on the back of pricing, which together more than offset declines in fixed telephony, where we decommissioned an end-of-life service. EBITDA again grew around the 3% mark, and that's despite a tough comp from a positive one-off item worth £40 million this time last year. Looking at our customer base, we saw a slight decline as we expected following our recent price increases, but ARPU increased 1% as a solid increase in consumer was partly offset by the mix effect coming from our fast-growing enterprise unit and specifically from growing business in the public sector. Moving to the lead markets, and again, an excellent development for both Lithuania and Estonia, where we sustained brand leadership and built further our 5G network leadership positions to 95% pop coverage in Lithuania, where I will start. Lithuania, Telia was named the most sustainable operator in the country after rising seven points compared to last year. And, you know, we're almost 100% pop coverage on 5G. Financially, we continue to see excellent and broad-based service revenue growth with mobile growing 11.5% and fixed 8.5%. And the flow through to EBITDA was again excellent and resulted in 13% growth. Estonia was ranked as number one in telcos and number two overall in a customer service quality survey of large corporates. Financial performance was likewise excellent with service revenue growth of 5.8%, again broad-based with mobile growing double digits and fixed growing 4% and translating into a highly positive 10% EBITDA growth. Finally, in Denmark, 5G pop coverage increased to 85%, and it was also confirmed that Telia retained its number one NPS position among the main brands. In terms of revenue, we saw more muted development, partly driven by regulated reductions in interconnect, but it was another strong quarter on the cost transformation side, resulting in EBITDA growing 15%. Finally, let's move to TV and media, and starting with advertising, where we believe we're performing relatively well, but it is a softening market. Advertising revenues declined minus 5.4%, driven by linear in Sweden, and only partly offset by continued healthy growth in digital. In Finland, the development was more positive due to the recent general election. On pay, revenue development turned slightly positive after several quarters of decline, supported by good OTT subscriber base development and price increases. However, EBITDA losses increased, reflecting the lower service revenue, unsatisfactory monetisation of some premium sports rights, an expanded slate of international entertainment, combined with some inflationary and currency impacts affecting content costs. While Q1 was a low point, and it is always a loss-making quarter from a cyclical point of view, there are unfortunately few quick fixes, and so we will continue to carry high content costs for a number of quarters going forward. Our full focus is therefore now on the restructuring of the business. The consolidation of our brands is progressing well, and we've just announced that the new TV4 Play service, which will combine content currently offered under the Seymour brand, will be launched after the summer, allowing the gradual discontinuation of Seymour in the following months. So moving to the financials, I'll pass over to PC to take you through them.

Thank you, Alison. Let me quickly summarise the Q1 financials. As Alison has gone through, we have service revenue growth at plus 1.9%, with telco growth of 2.4% in the quarter. All telco units are growing nicely, except Denmark that is flattest in the quarter. Telco service revenue growth is driven by growth both in consumer segment of 0.9% and a solid enterprise segment growth of plus 3.4%. Total EBITDA is negative in the quarter at minus 0.8%, with telco growth at plus 1.6%. All telco units report solid EBITDA growth, with Sweden being flattish versus the quarter last year. Energy prices in Q1 has been significantly lower than feared only a few months ago. But energy costs in Q1 is still 130 million higher than what we recorded in Q1 last year. Sequential improvement versus the last couple of quarters is driven by the improved technical growth and less negative impact from the mentioned energy cost. Let's move to OPEX. OPEX increased 1.3% in a quarter, with slightly lower resource and marketing costs, offset by tough comp on other cost items like IT expenses and travel costs. During the quarter, we have as planned executed on a headcount reduction process, resulting in a total reduction of 900 resources, where of 500 of our own employees. This has limited impact in the quarter, but would help our cost development in the coming quarters ahead. Despite significant headwinds, we have two years into our transformation journey, reduced our net OPEX by 1.0 billion, driven by significant net reductions in our resource and IT costs. Our cost transformation agenda remains, but the higher and extended inflationary pressure makes it more difficult to realize the full potential of 2.0 billion net cost reduction by end of 2023. On CapEx, total CapEx in Q1 is 3.7 billion, significantly lower than the 5.0 billion recorded in Q4 last year. CAPEX is 0.4 billion higher than Q1 last year, driven by higher investments related to the ongoing mobile network modernization and higher fiber-related investments in Sweden. CAPEX is to be gradually reduced the coming quarters with the biggest year-on-year impact to be seen in the second half. We are well on track towards a full-year outlook of 13 to 14 billion, and our aim remains to be at the mid or low end of this targeted range. Let's move to cash flow. The structural part of operating free cash flow ended at 0.7 billion in Q1, down 1.3 billion versus Q1 last year, mainly due to two factors. First, cash capex was 1.1 billion higher than last year, from 0.4 billion higher book capex and a vendor financing effect of 0.8 billion versus last year. Secondly, restructuring costs increased by 0.3 billion due to the mentioned redundancy process in the quarter. Total operating free cash flow was, as expected, negatively impacted by changing working capital. This is mainly driven by negative vendor financing impact of 3.1 billion in addition to phasing of accounts payables. On the next slide, I'd like to comment on the cash flow evolution during the year. The low cash flow generation Q1 was as we expected, and we are well on track to deliver on our cash flow outlook for the year. The structural part of cash flow is expected to improve significantly in the second half, mainly from lower capex levels and higher EBITDA. Total operational free cash flow will in addition be supported by the positive working capital development, mainly from phasing or vendor financing impact. Our render financing balance is expected at the end of the year to be on a similar level as the end of last year. So the negative impact we see in Q1 is expected to be fully reversed over the coming quarters. Our net debt increased as expected by 4.3 billion in the quarter and leverage ratio are now at the high end of our targeted range of 2.49 times. This is mainly driven by the mentioned negative cash flow generation in the quarter. And as mentioned, proceeds from the sale of Denmark is expected to be used for deleveraging and reduced leverage by around 0.2 times. Improved cash generation ahead, combined with proceeds from M&A transactions, are expected to secure leverage well within the targeted range of 2.0 to 2.5 times. And with that, I hand back to you, Alison, to summarize the presentation.

Thanks, PC. So let's start with our full year outlook. It's unchanged. We expect to grow both our service revenue and EBITDA this year, but more so in telco than in TV and media. And that's what we always expected when we set out on the year. On cash flow, as PC has described, we're well on track and increasingly confident. Now also with strong visibility on the vendor financing trajectory during the remaining course of the year. So we therefore expect all key financial metrics to grow year on year, service revenue, EBITDA, structural cash flow and operational free cash flow. So summarising the quarter and the outlook. Growth momentum continues, especially in enterprise, with price increases to contribute going forward. Network modernisation and 5G rollout is delivering to plan, strengthening our leadership position and underpinning our premium market positions. The current inflationary environment, as you expect, is challenging our cost agenda, but we have executed on close to 1,000 resource reductions at the end of the quarter, which will support our cost trajectory ahead. TV and media, yes, it's experiencing headwinds. However, brand consolidation of Seymour into TV4 and the subsequent restructuring is well underway. We're making excellent progress on our sustainability agenda, where we are the clear leader in our sector, in Europe and our region. Investment levels have peaked. Vendor financing balance is secure. And so we're on track on our financial growth ambitions for the year. And we've struck a highly accretive deal in Denmark that, once approved, will allow us to focus even further on markets where we can win with improved potential for capital allocation and value creation. So I guess you're all now ready for questions.

And at this time, if you would like to ask a question, please press star 1 on your text on the phone. You may withdraw your question at any time by pressing the pound key. Once again, that is star and one. And we will take our first question from Andres Cavanez with UBS. Please go ahead.

Hi, everyone. Good morning, and thank you for the presentation. I have two questions, please. One is just a question on free cash flow. So you were still saying that, you know, the expense of free bonds for the UBS would be about $3 million. to where are you today? And is there any color in terms of the phasing as we go through the year? That would be helpful. And then the second question, just on the spectrum that you flagged should be essentially a material cost in the second half of the year. I'm just wondering if historically Thank you.

So PC, take the first question, and then I got a bit distracted by the flashing screen there, so you'll need to ask me the second question. So you take the vendor financing question.

Yeah, it was Swedish spectrum. Swedish spectrum, yeah. So on the vendor financing, yeah, so as we have talked about over the last few quarters, right, the sudden increase in interest rates gave us a challenge that we had to mitigate. We had progressed very well, and as you said, you know, in Q1 in January, or in January, we updated you that we have secured, you know, three quarters of the balance for the year. And given our update now, we can confirm that we have secured 100% of that. And what we have done, just to give some color on that, is that we have renegotiated with some of our key contracts. Around 10 of our key contracts have been renegotiated to secure the vendor financing balance. And then we have entered into a couple of new arrangements. So all in all, that secures the vendor financing balance on level with 2022.

And the Swedish Spectrum auction, we've all, we've gone through the consultation phase, we've all given back our feedback, and we should be hearing from the regulator, PTS, in the coming days or weeks. So we're still expecting the auction to proceed as planned in September.

Thank you, Alison. The question was more like, why would you expect this particular auction to be an appeal, you know, cash outlook, because I guess historically, Spectrum

But this is a 25-year auction for 900 MHz, 2100 MHz and 2600. So it's one of the most important auctions and the last big auction outstanding for us as a group. So a very important one for all operators in the market.

Thank you very much.

And we will take our next question from Peter Nielsen with ABG. Please go ahead. Hi, Peter.

Thank you very much, and thank you. Hi there. Hi, Alison. Hi, PC. Thanks for the presentation. A question related to the TV and media business, Alison, please. You said that trends are more or less as anticipated, but it does appear, at least from the outside, Alison, that the losses in the TV and media business exceed even your own expectations, basically, each quarter, and that the content costs keep surprising negatively. Why is that? Why do you not have better visibility on the content side? I appreciate that perhaps legal service revenue impact, but it does appear that the costs are higher. And what is driving this and the seemingly limited visibility? And if I can just ask a follow-up, Alison, the exit from Denmark, do you see any road back into the Danish business, or is this sort of a final goodbye to the Danish market? Thank you.

Okay, this is the final goodbye for Telia in the Danish market at this time. We have tried for many years to build a position from a mobile-only player. We've done a fab job in the last 18 months to turn it around. unless the market was to change dramatically and there was a great deal to be done. I think you can assume that it is a fond farewell, but we're passing over the business to a great new owner and we'll create a new national challenger in the market. So super proud of the deal that was struck and happy to pass it over to Niels and the Norlis crew once we've had all the approvals. On TV media, when I said it was in line with expectations, we had built into our guidance for the year that TV media would be challenged by a softening ad market this year. And that's exactly what we've seen. Less so in Finland so far, but more so in Sweden. And so in our overall market guidance, it's in line with expectations, but it is a little bit softer than we wanted to start the year with. And then in terms of the visibility on content costs, one of the big changes this quarter is you are seeing currency impacts on some of those contracts starting to flow through as well. And, you know, there were some new contracts struck. later in the year in defence in case the Viaplay dispute was extended for a further period. So we went into Alsvenskan and that was absolutely right for our total business. And we expanded some of our international entertainment with BritBox just to strengthen the entertainment slate in Seymour. So we had very clear visibility on that content. maybe we just didn't manage to guide that to the market. But what we're really focused now on is the restructuring. Q1 is always a loss-making quarter for TV media, but I think it will be a soft year for TV media considering the broader economic environment and we're creating a better business for the future and we never expected TV media to contribute positively this year anyway.

We are looking more at a loss solution, is that correct?

Sorry, could you repeat that, Peter? I couldn't really hear you.

Yeah, thank you for the call, Alison.

Oh, thank you, Peter. Well, we made a profit last year. What I'm saying is we won't have any growth this year and it will be a back-weighted positive EBITDA, which it kind of always is in TV media.

Thank you, Alison.

Thank you. We'll take our next question from Maurice Patrick with Barclays. Please go ahead.

Good morning, guys.

Morning.

Yeah, yeah. A question on Denmark sale, please. In fact, a couple of related questions. First one in Denmark is... You talked about it being a long time coming, but I guess why sell the asset now? Why is the timing now? Why did it take such a long time to come, given what you said? Related to that, you said you're going to deliver with proceeds. I think with some of the tower sales, you did a share buyback. So why the decision process with the leveraging over the share buyback this time around? And I guess... what other potential disposals could we dare to supply to the market? I mean, you've talked in the past about rooftops in other markets, wondering if that's going to make you end up. Thank you.

Hey, thanks, Morris. When I say it's been a long time coming, I think it's been quite public that we have looked a number of options for our Danish business over many, many years. And so that's what I mean. It's been a long time coming. In terms of the timing now, When I came in to Tellia and when I appointed Petter as the new CEO there, his whole focus was on turning around the business. to make it a better business for Telia, but a better business when the right consolidation opportunities came along. Are you typing away on your keyboard, Morris?

I'm always typing.

All right, okay. And so why is it the right time now? We have turned around that business, but the Danish market continues to be a tough market, and we're number four. And Norlis came with a good offer for the business. Nine times EBITDA for a business that has struggled to generate cash is a good option for us. And certainly better than staying the number four player forever in a very competitive market. And, you know, it only happened in the last quarter. weeks, couple of months, because they've only recently received the proceeds from their fiber transaction. So that's why they've got the cash. It was a good offer. And we have never planned to stay in a market over the long term as the number four mobile only player. Why deal ever and not share buyback? I think the world has changed since we did the share buyback a year ago. And certainly, you know, we want to be in the two to two and a half range in terms of leverage. And at this time, we're at the top end of that. So it's absolutely the right and prudent thing to do to use it as a deleveraging opportunity whilst interest rates remain at heightened levels. So that's why. And what about other potential disposals? Rooftops we still intend to do when the price is right and we're fully ready. And we are always looking at our portfolio to see if there's other opportunities to crystallise value and allow better capital allocation and more focus on the core connectivity business.

Thank you.

Thank you, Maurice.

And we'll take our next question from Andreas Jolson with Danske Bank. Please go ahead.

Good morning, everyone. I have two questions, one for Alison and one for PC. If we start with PC, if we take a more longer-term look at the vendor financing program, is this sort of the seasonality that we should expect, that you have a softer start of the year and then a build-up for the rest? And for Alison, on Finland, you have been looking at Finland now for a while and try to turn it around and we see that RP levels are quite flattish. And given that you have a very broad 5G offering and also the best quality network in the world, when do you see that RP levels on a reported basis are coming up? I understand. that there are B2B dilutes, but when do you see that quality also moving into the ARPA level? Thanks.

Yeah, maybe I can start, Andreas. No, absolutely not. This seasonality that we see now, it's entirely linked back to the sudden increases we saw in interest rates during the course of last year, which is, in a historic perspective, almost unheard of. So as long as the interest rates stay quite stable, you won't see any significant seasonality related to vendor financing.

Thanks for the question on Finland, Andreas, and great to have you asking a question and not being sitting around the board table with us here. You're absolutely right, the ARPUs are flattish, although consumer mobile ARPUs are actually up 6%. It's particularly diluted this quarter because of the some of the A2P revenues that were flowing through in the B2B ARPUs last year. And we've got that mixed impact. I think as long as and there's also an interconnect impact as well that the guys can explain to you when you meet them later. You know what? When will they start to improve? I think what we need to see is a little bit, what we've seen in the consumer market is, you know, everybody wants to build great networks and everybody wants to price appropriately for those services. And you've therefore seen that ARPUs are growing on the back of 5G and all of us wanting to create, you know, value for our shareholders as well as value for for our customers. Yet to see that fully in the B2B market. There is still quite competitive pressure, particularly from the challenger in that market. And we've got, as you know, a very heavily weighted, you know, about 55 to 60% of our finished business is B2B. So what we need to do a better job of now is is monetizing 5G and monetizing some of the other services around 5G to stop the deflationary pressure that's been in the B2B market, but has seems to have been removed from the B2C market. And that's what the team are working on and having the best network and having the strength of position we have in security services. And we do have the most trusted, most secure network. particularly since the choice of vendor that we have, I do believe that it will build over time, Andreas.

Perfect. Thank you.

Thank you.

And we'll take our next question from Stéphane Gouffon with DMV. Please go ahead.

Yes. Hello. I have a couple of questions around the cash flow. And so repayment of lease liabilities took a step up of 200 million quarter-to-quarter. Is this the level to be seen going forward, or was this exceptional for Q1? I noticed Q1 last year was also high. Secondly, also on cash flow, so the structure in charges was high, which should have been expected, given that you said in Q4 that 1,000 employees would be laid off in Q1. And if you look at number of employees, not much has happened quarter on quarter, but I understand there is a time lag. When will this be visible in employee numbers? And should we return to more normal restructuring charges over the coming quarters?

We'll answer the employee numbers question and then pass to PC on the lease liabilities and restructuring charges, Stefan. Yeah, you're absolutely right. Those employees that exited us were still employees on the 31st of March. Most of them exited on the 31st of March. and some exit actually during the month of April. In the end, we're seeing about 900 resources exit during the four to six weeks following the end of the quarter. Half of those are employees, which the restructuring charges are linked to, and the other half are consultants that are either working in IT or in our call centres. So it's just a timing and a lag effect. But PC, maybe you can answer the more financial questions there.

Yeah, so just connect them to the restructuring charges, right? We took out, so the 1,000 resources is 500 of that. So we ended up at 900 in the quarter, 500 on employees, which is correlating to the restructuring charges, as you said. As part of our transformation, we will continue to reduce our number of resources and they can come restructuring charges also going forward, but not at the level that we saw in Q1. So that is very much at scale is an issue for Q1. Overall, as we said, going back more than two years, we are looking at a total restructuring charge and adjustment item around a billion per year. And that's what we also expect for this year. Then on the lease payments, as you rightfully say, Q1 is a bit higher from a seasonality point of view. That will continue. In terms of a year-on-year increase, we see some increases linked to the indexation linkages that we have in many of our contracts. So we expect the total lease payments for the year to increase a few hundred million linked to the higher inflationary levels.

Very clear. Thank you.

And we will take our next question from Nick Lyle with Section. Please go ahead.

Hello, guys. Morning. It was a couple of questions. Hi, Alison. A couple of questions, please, Alison. One on the TV media. Just back to the question on the numbers themselves. Obviously, a week to one, as you say. Why wouldn't it struggle to make zero this year in terms of EBITDA? If you look at the quarter last year, if it was roughly flat, For the next three quarters, you're looking at around zero for the EBITDA number. Is there something coming in in terms of the benefits? Maybe you can see more merger that's going to help just push it up above zero for the second half, for example. So could you please help us on how that's going to be broken down for the full year on the EBITDA number? And then second, just the clarification on the turnaround in working capital. I think you said you see the $3 billion vendor turns round. the full year to get to zero. Is that the same as well for the working cap negative for the first quarter? Does that get back to zero for the full year on your expectations? Thank you.

Okay, thanks for the question there. Some of it is content phasing, like, you know, we're going all in on Love Island and a couple of big new content pieces this quarter. and the second half is always when this business generates more. And some of it is our expectation of some positive revenue development on the back of the restructuring of the business. But that will be very much Q4 related as well. So we expect things to improve during the course of the year. And on the second question, P.C.? ?

Yeah, then on working capital, you know, so the rebound, we recorded on working capital minus 4.3 billion in the quarter. Over 3 billion of that is related to vendor financing. The vendor financing will, you know, rebound as we have talked about earlier. In addition, we also expect inventory to gradually go down throughout the year and also some positive effects from account payable phasing. So we... As we see it now, of course, there's a bit of, you know, always a bit of fluctuation on working capital, but we expect that most of this $4.3 billion... Can you hear us?

Can you hear us, Sam?

Hello? Are we back?

So if anyone can hear us, we can't hear anyone else.

Sorry, can you? Are we back again, Sam? Operator? We are back. Okay. So, Nick, did PC answer that question?

You're still on. We're back on. I think it's a really strange question. I don't know if you can hear me, but I think you cut out the words Love Island, would you believe that? So I think that was about as far as we got.

Oh, right. OK. Maybe it was me mentioning Love Island on a call.

OK, so what I was... Unless I'm the only one, apologies, but that's what happened.

Oh, right. Sorry. OK, so, Nick, what I was saying is there is some content phasing... So there is some big entertainment hits this quarter that weren't in the same quarter last year. There is also some content phasing later in the year as well. And yes, we are expecting some revenue momentum to come as we start to sell the new TV for play product in the second half of the year as well. So that's why. But, you know, if the market remains soft, there's absolutely, you know, risk on that TV media total unit. And that's why we came into the year not expecting it to grow. And we're monitoring the situation very closely. And PC.

Yeah, just quickly on the working capital. So we recorded 4.3 billion negative in Q1. We expect the 3.1 billion part of that to revert back from vendor financing. And in addition, we expect inventory gradually to come down throughout the year, in addition to some positive effects on accounts payable facing. So we expect, as we see it now, so the entire working capital will be quite neutral on the year.

That's great.

Thank you.

And we'll take our next question from Steve Moulton with Redburn. Please go ahead.

Yeah, morning. It's Steve Moulton. Hi, Steve. Hi there. A couple of questions, please. Just coming back to the vendor financing point that PK raised, sorry, PC raised, not PK. You said you've renegotiated some of the contracts. I mean, what do we read into that? Are you now prepared to share some of the costs? Because previously this has effectively been pre-financing for you with low interest rates. it seems a bit counterintuitive that, you know, your supplier will wear a much bigger discount to be paid early. So maybe just sort of give us an insight into what that means for negotiation. I'd also love to know, you know, what sort of suppliers are still happy to use vendor financing in this higher interest rate environment? Because, again, it seems a little bit sort of counterintuitive to me. And then just coming back to Denmark, Alex, I think you said it was accretive, the deal. On my map, it's sort of free tax, so neutral and EPS accretive. Maybe just help us understand the overall sort of accretion impact of that deal on the free cash and earnings basis. I know it's early days, but that'd be very helpful. Thanks a lot.

Okay, I'll pass to vendor financing, PC. But then when I say accretive, I was really meaning we're getting almost 10 billion kroner for an asset that doesn't throw off any free cash flow. but we haven't done the numbers, or I don't have them in front of me on all the EPS and more technical elements. It's pretty much not generated any cash for us for years, and certainly in the last six years.

Would one expect to generate cash this year based on EBITDA and the capex improvements?

Not a lot. It would be marginal because we're still investing in the 5G network this year. Steve?

Okay, so we should just assume that the credit sheets get used to pay down debt and save you interest costs, essentially.

Correct. And PC on the vendor financing. Thank you.

Yeah, so on the question relating to our partners, suppliers on this, no one has indicated or has left the vendor financing program so far. And we have good dialogues with all the partners that we have on the program as of now. And as I said, also, we have onboarded a couple of new ones. And then when you talk about renegotiation, it's basically in a higher inflationary environment. You know, the suppliers are willing to give a higher discount to get paid in seven days versus the original 60 to 90 days. So that is the biggest effect.

You're not actually paying any money on that still. It's still a free source of financing for you, essentially.

We don't pay directly for it, no.

Okay. I mean, just to follow up on that, I mean, in this higher interest rate environment, you know, you're still going to have $11.4 billion outstanding as end of financing. Is that the right number? I mean, five years ago, that was nothing when rates were very, very low. Is that the right number to think about on a long-term basis, do you think?

I think it's a good number for now. I think if interest rates start to come down, we have the opportunity to scale it down a little bit over the next few years. But as of now, we will keep it on that level. Our ambition is not to expand it further, so we don't see it as a driver for cash flow. We try to mitigate so it doesn't become an issue on our cash flow generation.

broad range of vendors making use of it that, you know, are relevant in all elements of our supply chain.

Okay. Is it still the case that sort of over 50% on the OpEx side, I think you said that previously, is that still the case?

No, it's a good mix of COGS, CapEx, equipment.

It's actually around, on the total balance, around 25%. It goes within sort of the investment bucket, and the rest goes as part of the EBITDA side. And then working capital.

Okay.

Thanks, Steve.

Thanks very much. Thank you.

And we will take our next question from Andrew Lee with Goldman Sachs. Please go ahead.

Yeah, good morning, everyone. I had two questions, one on price rises and then secondly on capex. On the price rises side of things, a pushback that some investors make is that even though we see headline price rises in Sweden, those don't filter down into ARPU because of customer spin down and also promotional activity. So I wonder if you could just talk about your confidence that the bigger price rises you're putting through this year, do you impact your ARPU and service revenue growth in Sweden? Maybe there's a change in mechanics. I mean, you have a note that Eleanor's raised it's like a brand pricing, but if you could talk about the drop through from the price efforts you're making and your competitors are making to ARPU, that would be really helpful. And then just second question, just coming back to CAPEX, You mentioned that CapEx is phasing downward through the year. Nonetheless, obviously, CapEx was higher this quarter than it was expected. And we also saw your... your competitors, Pella 2, deliver capex at higher than expected levels and also potentially talk about risk to the upside on its capex for the full year. So I just wondered if there's any inflationary pressure or other factors that might drive higher capex than might have been expected in Sweden at the start of the year. Thank you.

Thanks, Andrew. On price rises, yeah, absolutely. It's the same in every market. You know, the headline, price rises. at a gross level don't end up the same at a net level because of competitive pressure, spin down and discounting. And so we don't plan for 100% of those headline prices to come through. What we see more positively now in Sweden is and that has become more positive in the last six to eight weeks, is that the market leader at the low end of the market has taken their first price increase ever of 10 kroner. And, you know, we have a brand also in that segment called Fellow. And we have also taken we've just announced pricing last week in the 10 to 30 kroner range. So so as a result of that movement, we are expecting a little bit less spin down going forward. And. Clearly, we will have less discounting that we carried forward from Q4 from the Viaplay dispute into the quarter as well. That will dissipate over time as well. So we're expecting a little bit better net impact in the months to come than perhaps we saw towards the end of last year. And, you know, there's been a lot of various pricing moves in the market in Sweden the last couple of quarters. In terms of CapEx, I'll pass to PC. But just for context, you know, we are now at basically 90% 5G coverage in all our markets, except Sweden now. And Sweden, we're at 63%. So we have still got slightly heightened mobile network investment in this quarter, as we had in Q4. But that is going to reduce now because once you're above 90%, there's not a lot more to roll out. So we have good visibility as to how that capex will phase. But PC, if you want to build on that.

Yeah, so on the CapEx facing, right, we expected to come slightly down from the levels that we saw in Q1 over the next few quarters. Remember, Q3 always is a low CapEx quarter because of the vacation season. And the reduction is mainly related to what Alison talked about on the mobile network investments that we gradually increased during last year, peaked in Q4, and now gradually coming down towards the end of this year. And related to your questions on inflationary pressure or other things that can come as a surprise, I think we have built a very solid investment plan now. We have built in most of the inflationary pressure into that plan. And also, as we said before, most of the higher part of the spend is locked into existing contracts and is not immediately exposed to the inflation that we're seeing. I think it's worth mentioning that we see a continued heightened inflationary pressure and it drags out a little bit. So over time, that will put some pressure also on our investment levels. But we're talking, you know, a couple of hundred millions on a, you know, 13, 14 billion investment program. So I don't see any major risk for that in a 2023 perspective.

No risk to the 13 to 14 range, Andrew.

Not at all. Thanks very much.

Thanks. Okay, we'll try and squeeze in two more questions, although we're getting to the end of time. So, another question?

Yes, certainly we'll go to Frederick Lachelle with Handel Spocken. Please go ahead.

Thank you, and thank you for squeezing me in as well. I'm going to be very quick here. If you could summarize up what you see in front of you in terms of cost reduction program, if you can. or if you see pockets of new savings to be made going forward, if you take more of a one, two years time span on that subject. And secondly, labor costs. In Sweden, we have central negotiations just finalized with a 4% hike on salaries. How much of your workforce will be sort of influenced by this? And is this a cue to to think about in calculations. Thank you.

Yeah, thanks for the questions. I'll start on the labour costs. So as we've talked about before, in a normal kind of environment, inflation environment, we've had around 400 million of salary inflation on a yearly basis. When we saw inflation starting to rise last year, we increased that to 600 million. And actually, that has been a good estimate until recently. Over the last few weeks, we have landed agreements in our main markets, Sweden, Finland and Norway, And as you said, you know, they have ended slightly higher than what we expected. So actually there's a yearly impact in 23 over 100 million on our salary cost. And that will start to kick in then from Q2 onwards. The good thing is that they also in Finland and Sweden have landed on the salary inflation for 24, which is on a very, I would say, reasonable level, given where we are on, you know, slightly above 3% and below 3% in Finland. On the cost reductions, the reduction we have done now during Q1, which is not really visible in the numbers, that will give us a tailwind of around 200 million per quarter over the coming quarters. So that is good. But of course, we don't stop there. We continue to implement new cost reduction and efficiency measures both this year and also going forward. So I think we have done quite okay to reduce our cost base so far, but we still have a lot of complexity, a lot of manual work, a lot of incoming calls for customer service. So the journey continues, but you do not expect any kind of significant changes. We will just continue working on a broad set of initiatives for the coming years as well.

Okay, that's very clear. Thank you.

And we'll go next to Sayahi with Citi. Please go ahead.

Thank you very much for taking my questions. I just have two follow-up questions. And the first question is on the pricing crisis. I think the post-Kuran call, some of your peers, is talking about the potential to implement the pricing indexation also into the B2C markets. I'm just wondering, based on your experience of price increases this year, do you think that this future and finished market, the customers would have appetite to accept indexation into a contract? And second question is on the cost. I mean, your pressure leaves your son a bit cautious about the inflationary pressure and impact your $2 billion cost-saving targets, which you have reiterated at the Q4 conference call. I'm just wondering, what do you see of the last three months that the inflation could potentially impact your target? Thank you.

Thanks, Ai. So very quick, price increases. As you know, we've put price indexation into pretty much all new enterprise contracts across our footprint. And we started doing that during the course of last year. And it was already in existence in our Norwegian enterprise business. The tricky bit of putting price indexation into contracts in Sweden and Finland is that, you know, it gives the customer the right to break from a binding contract. And so that is, you know, if we're able to get away from that, of course, we will consider it. But at the moment, I think we are finding just a very rigorous, regular approach to price increases is probably the way we're going to continue in the consumer market unless we can change legally some of the terms of the binding contracts. And then on costs, what has changed in the last three months is these recent wage negotiations that PC just touched on. Sweden ended up above 4% this year. Norway could be close to 5%. It's not even finalised. And Finland was also close to 4%. So that is putting 100 million. And we think how that might trickle through into other things. That could be 150 million headwind that we only realised in the last three weeks. So that's why we're being a bit more cautious on the 2 billion. We're still putting through all the initiatives. We're still aiming for it. But with those heightened levels, we now need to find new initiatives to offset that new 150 million. And that's why we're being a bit cautious on the two billion. But our cost agenda still remains. But what PC also said, though. is unlike other European markets, in Sweden and Finland, we struck two-year deals with the unions. And so in Sweden, it will reduce to 3.3% next year. And in Finland, it will be below 3%. So that gives us much more visibility for next year. So it really is a 23 issue that we'll take away and we'll look at what we can do to offset. And thank you for the questions.

I think that will have to be the last question of the course. Thanks, everyone, for many good questions. Please don't hesitate to reach out if you've got more questions that we didn't have time for. So.