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.