Telia Company AB (publ)

My program is about to begin.

Welcome everyone to Tellier Company's Q2 2023 results presentation. And with that, I will hand over to Tellier Company's Head of Investor Relations, Erik Stranden-Pears. Please go ahead. The floor is yours.

Thank you, Sam, and welcome everyone to our Q2 call with Alison Kirkby, our President and CEO, and Patricia Merland, our CFO, who will take us through the Q2 results and then we'll go for Q&A. Alison, please go ahead.

Thanks, Erik. So good morning, everyone, and a warm welcome to this second quarter results. So as you've seen, we started this year with a full focus on restoring profitable growth momentum in our telco businesses, whilst taking decisive action on capital allocation. And this focus continues and is clearly evident in the quarter. The solid telco trends we started the year with have persisted and in many cases strengthened further, resulting in a second consecutive quarter of improvement to service revenue and EBITDA. Telco service revenues improved to .2% growth, supported by growth in all markets, all segments, and with consistent growth of about 3% in both mobile and fixed services. On EBITDA, the strong telco service revenue growth was more than compensated for a higher cost level in the quarter and resulted in a growth rate just shy of 5%, with all markets back to growth. The solid telco performance was, however, offset by recessionary fears, triggering challenging times for advertising in our TV and media business unit, resulting in a neutral EBITDA for the full group. But as expected, our operational free cash flow for the quarter was muted. This is in line with our plan for the year, with cash flow turning positive in the second half and especially Q4, driven by higher EBITDA, lower capex and working capital phasing. Leverage increased to 2.66 times, primarily on the back of the cash flow phasing and a weakening of the Swedish and Norwegian currencies. And as cash flow turns positive in the second half, leverage will decline and will be further reduced by the Danish sale proceeds. Strategy execution, as I said, continues at pace with our network, technology and security leadership most evident this quarter. 5G rollout and network modernization is progressing well, reaching 84% 5G pop coverage by the end of the quarter and well ahead of key competition. We're seeing strong growth in enterprise digital services, including increasing momentum in areas such as security, enterprise mobile networks and IoT, contributing to a double digit growth in what we call beyond connectivity digital services in the quarter. And our strategy to always be the highest quality and the most trusted partner to the most demanding customers was confirmed as we were selected as the sole connectivity provider to the NATO summit in Vilnius just last week. Finally, the Danish transaction remains on track and expected to close in Q1 next year at the latest and our outlook metrics all remain unchanged. In the interest of time, I don't intend to run through our key priorities again, but here, as I said at the beginning of the year, is our four-pronged approach to building a better Telia and which guides us every day. So let's now look at the progress made against each of these priorities in the quarter in each of our business units, starting with Sweden. In Sweden, we sustain our 5G leadership with a pop coverage of 73% up from 63% last quarter and according to the most comprehensive tests in the market, we have clearly the best network and we believe that we've extended that leadership during this year. This helped drive further improvement in revenue, growing just shy of 2% as pricing activities and customer experience improvements are starting to yield visible results. Enterprise was especially strong in the back of an unparalleled level of trust and a superior breadth of digital services. Our ICT business, Telia Saige, in particular accelerated revenue growth further to 18% and IoT services in Sweden also grew to 14% in the quarter. Like last quarter, the growth was broad-based with all major product areas growing and Broadbrand in particular improving very positively on the back of fibre price increases. Excluding the impact from legacy and roaming, underlying service revenue growth was 4.1%, a clear improvement compared to the last few quarters and confirming that we are moving in the right direction. Sweden also moved back into growth territory on EBITDA as service revenue growth more than compensated for salary inflation and higher content costs. But with pricing fully established and good visibility on the cost base for the balance of the year, we are aiming for an improving EBITDA momentum in the second half. Moving on to the operational KPIs, despite the weaker retail environment, mobile subs grew in both consumer and enterprise, supported by the lowest churn we've seen since the pandemic. Our POO remained fairly unchanged owing to the popularity of our family tariffs on the Telia brand and the Fellow brand for price sensitive consumers. Our Broadband subscriber base remains stable in the quarter despite significant pricing as growth in fibre and fixed wireless access pretty much compensated for the ongoing decline in DSL subs, of which we now only have 70,000 remaining. New fibre pricing taken in Q1 resulted in good our POO growth and another quarter of double-digit fibre revenue growth. In TV, we're continuing to grow in both the SDU and MDU segments. Our POO however remained mostly unchanged due to a somewhat negative mix shift. But we expect this to improve in the second half as we've just announced price increases ranging from 16 to 25% on our basic TV packages. Moving to Finland, our 5G network reached 86% population coverage and our strengthening network credentials helped secure new enterprise mobile network contracts in the quarter. We're also proud that our Helsinki data centre became even more eco-friendly as its waste heat is now being transferred to the city's district heating and over time this will provide heating to 20,000 homes and businesses in the local area. As you know, we've been working hard at establishing Telia as the most trusted network and it continues to help our growth momentum with service revenue improving to 2% -on-year. Mobile growth picked up and reached 2% despite materially lower interconnect revenues driven by a 3% growth in consumer while enterprise did see a slight decline in mobile revenues but overall had a strong quarter with strong demand for ICT and professional services as we are also seeing in Sweden. EBITDA grew despite headwinds in the shape of savings from industrial action in Q2 last year versus a one-time wage settlement of the same amount in Q2 this year. And our subscriber base was relatively stable even though we've moved away from offering unprofitable cheap subscriptions. ARPU grew by 4% supported by a solid 9% growth in consumer ARPU. Moving to Norway, our 5G leadership continues and we now reach 92% of the Norwegian population underpinning improved customer satisfaction and growth momentum. This network strength is also enabling growth in wholesale with the migration of Fjordcraft's mobile customers now completed mid-quarter. Consumer, enterprise and wholesale all contributed materially to our 5% service revenue growth. EBITDA growth was very strong at 14% supported by the solid service revenue development, lower marketing expenses, some FX and one-off items of around 50 million also helped but even considering that Norway really did have an impressive quarter. The mobile subscriber base was stable as a slight growth in enterprise was offset by a slight reduction in consumer and as you can see ARPU increased nicely supported by the consumer segment where we saw an 8% ARPU increase on the back of pricing and a positive mix shift. And the good news continues as we move on to our LED markets which as you can see had another great quarter with double-digit EBITDA growth across all three markets enabled by the same network and technology strengths combined with customer experience focus that you're seeing throughout Telia. In Lithuania, we finalized the network swap to Ericsson and the 5G rollout after reaching 99% pop coverage, way ahead of competition. Service revenue grew .5% with both mobile and fixed contributing at a similar rate and despite inflation the flow through to EBITDA was again strong. Estonia was also strong with service revenue growing 8% and like in Lithuania, it was broad-based with mobile growing 10% and fixed growing 7% supported by all services except for a slight headwind from fixed telephony and EBITDA growth clearly outpaced service revenue growth despite inflationary headwinds. Finally in Denmark, we saw service revenue returning to positive territory helped by underlying mobile ARPU growth driven by pricing and growth from fixed wireless access and great work on structural cost reduction leading to another very strong EBITDA quarter. With the relaunch and rebranding of our fighter brand CallMe happening towards quarter end, we expect to see commercial momentum build further during the coming months. Finally moving to TV and media. As I said in my intro, we've seen the advertising market, especially in Sweden, deteriorate further in the quarter leading to advertising revenues falling by 14%. Pay however did have a better quarter with revenue improving by 4% fully supported by price increases. EBITDA deteriorated to a slight negative for the quarter driven by both lower service revenues and higher content costs and also IT and general admin did increase largely driven by the ongoing work to consolidate Seymour under TV4 and MTV. But with more visibility on the Seymour consolidation and an accelerating shift to digital, we did announce a further efficiency program that will impact the entire organization during this quarter. We expect the benefits to accrue from this as we move into next year. Looking at the subscriber base, we saw a decrease driven by a challenging streaming environment and normal seasonality as sports seasons are either coming to an end or taking a break for the summer. Additionally with more focus on restoring profitability, pricing is no doubt having an impact on our subscriber base and as you can see our Poo here increased by 14%. The actions we took this time last year to refocus the TV and media unit around the TV4 and MTV platforms with a much more focused premium sports offering, a leaner cost base and even better digital capabilities were exactly the right things to do, especially now considering the major shifts we are seeing in the sector. We're therefore looking forward to launching our new TV4 play service in August, which will be the first public milestone of our new more digitally focused future. And now I'll pass over to Peecy.

Thank you Alison. Let me quickly summarize the Q2 financials. As Alison has gone through, we have service revenue growth at .9% with telco growth of 3.2%. All our telco units are growing nicely. Telco service revenue growth is driven by growth both in a consumer segment of .4% and a solid enterprise segment growth of 3.1%. Total EBITDA is flat in a quarter with telco growth of 4.7%. All telco units report solid EBITDA growth with Sweden being flatish versus last year. Energy cost in a quarter is 49 million higher than Q2 last year. The continuous sequential improvement over the last couple of quarters is driven by improved telco growth and less negative impact from energy costs. OPEX increased by 2% in a quarter from higher resource and IT cost versus last year, driven by inflationary pressure and tough comp. Significant resource cost reductions from Q1 redundancies are in the quarter offset by high salary inflation combined with several negative one-off items. IT costs are increasing from low levels last year due to inflationary pressure not fully mitigated this quarter, combined with some movements from CAPEX to OPEX following the ongoing shift towards cloud-based solutions. Despite significant headwinds, we have two and a half years into a transformation journey, reduced our net OPEX by around 1 billion, driven by significant 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 billion net cost reduction by end of 2023. Total CAPEX in Q2 is 3.9 billion, slightly lower than Q2 last year, from lower investment in product development and IT. As communicated in Q1, CAPEX is to be lower in the second half, especially versus the high Q4 last year. As communicated in Q1, we are on track towards the full year outlook of 13 to 14 billion with the aim of being in the lower end of the range in stable currency. Let's move to cash flow. All cash flow items in Q2 landed more or less as we expected three months ago with the exception of higher accounts receivable balance following the very strong end to the quarter across our B2B business. The structural part of operating free cash flow ended at 0.7 billion Q2, down 0.8 billion versus Q2 last year, mainly due to two factors. First, cash CAPEX was 0.4 billion higher than last year, mainly due to the phasing of end of financing effect as we expected of 0.5 billion. Second, interest costs was 0.3 billion higher than last year due to higher interest rates now starting to kick in. Changing working capital was negative in the quarter due to the mentioned higher accounts receivables of 0.4 billion from the good performance in the B2B business, but also as we expected lower accounts payable from end of financing and phasing. This was partly offset in the quarter by improved inventory and other items of 0.5 billion. On the next slide, I'd like to give a quick reminder of the cash flow evolution during the year as we also discussed three months ago. The low cash flow generation in the first half 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 operating free cash flow will in addition be supported by positive working capital development, mainly from the phasing of end of financing impact with the biggest impact in Q4. Our end of financing balance is expected to end the year at a similar level to last year. So the negative impact in the first half is expected to be fully reversed in the coming two quarters. Our net debt increased by 5.4 billion in the quarter and leverage ratio to 2.66 times EBITDA. Above our targeted range of 2.0 to 2.5 times. This is mainly driven by the limited cash flow generation in the quarter combined with FX effect on our issued debt in euro. Proceeds from the sale of telemark is expected to reduce leverage by 0.2 times. The improved cash generation in the second half combined with proceeds from M&A transaction are expected to secure leverage well within the targeted range of 2.0 to 2.5 times. And with that I hand over to Alison to summarise the presentation.

Thank you PC. So let's now conclude starting with our full year outlook. As we said this morning, it's unchanged. We expect to grow both our service revenue and our EBITDA this year, but more so in telco than in TV and media. CapEx is still expected to be in the range of 13 to 14 billion and on cash flow as PC has described, we are well on track with increasing visibility, although with lower TV and media contribution and uncertainty around year end advertising market, we are likely to be in the lower half of the 7 to 9 billion range if nothing changes versus today. But still we're expecting all key financial metrics to grow or improve year on year despite this challenging environment. So summarising the quarter and the outlook, we are successfully executing on the strategy that we set out for this year and proactively managing our portfolio of assets to improve capital allocation for the future. Telco growth is clearly restored and improving, supported by pricing, improving consumer trends and continued strong enterprise services beyond connectivity. In fact, it's probably the best telco quarter ever that Telia has ever recorded. Network modernisation and 5G rollout is on track and well ahead of key competition, strengthening our leadership positions and underpinning our premium market positions, which combined with our leadership in sustainability, security, IoT and cloud-based solutions is enabling the enterprise momentum. Admittedly, we also have a TV media business that is having a more challenging time, but having acted early, restructuring and brand consolidation is well underway in the midst of these considerable market headwinds, putting us in a stronger position for next year and onwards. And the Denmark sale is progressing and on track to close in Q1 at the latest. We also now have increasing visibility on cash flow, albeit with a lower contribution expected from TV and media, but we're still fully on track for the second half rebound that we've explained since the beginning of this year. And so we're reaffirming our full year outlook and with that, ready to take all your questions.

Certainly at this time, if you would like to ask a question, please press star one on your touchtone phone. You may withdraw your question at any time by pressing the pound key. Once again, that is star and one. We will take our first question from Andrew Lee with Goldman Sachs. Please go ahead.

Thank you. Good morning, everyone. I just had a question or two questions related to your free cash flow improvement in the second half of the year. You've been clear on the unwind of the working capital headwinds and obviously the capex dropping in the second half. So I just want to ask around the EBITDA side of things and two questions there. The first was on TV and media, obviously, macro related pressures in the second quarter. Is the second quarter or are the second quarter trends that you're seeing in TV and media a good guide for what we expect for the second half or should we see improvement or further deterioration? Any direction or help there would be much appreciated. And then the second question was on your teleco operations where growth clearly accelerated in the quarter. Should we expect that to continue to improve into the second half given price rise benefits continue to evolve in the second half or are there any other headwinds that we should be aware of as to why telco growth trends can't kick on? Thank you.

Thanks, Andrew. Yes. So first of all TV media, we still expect the second half to be from a market point of view fairly challenging, but we don't expect the EBITDA drag to be as significant as what we saw in the first half because we already started to have some negative trends already towards the end of Q4 last year anyway. And we've made some decisions on certain content that we won't air this year too. So slightly less of a drag than it has been in the first half. On the telco operations, yeah, we expect the momentum to accelerate particularly in the bottom line in the second half built on the great trends we've seen in Q1 and Q2. So pricing momentum continuing, energy will move from a headwind to a tailwind in the second half. You will start to see some of the structural costs take out that you've not yet seen in the first half because we've carried some, you know, extra staffing in call centres in particular to improve NPS, which is now on track again. And all of that gives us confidence that you'll see overall continuing improvements in the second half. And remember we had quite a tough Q4 in Sweden last year, which we don't expect to have this year because we had the black screen. So overall, you know, really improving telco momentum really drives the EBITDA improvement and not quite as big a drag on TV media.

Great. Thank you.

And we will take our next question from Stefan Goffin with D&B. Please go ahead.

Yes, thanks for taking my question. I would like to continue with the problem child TV media just so that we can try to understand what to expect going forward. If we look at the cost base for TV media in Q2, how much is this elevated due to costs relating to the reorganisation which we can deduct immediately after we reorganise this. And then, yes, if you could give us some indication of how much of the cost base is being reduced into 2024. Thank you.

Okay. Yes, our problem child. I keep referring to it as non-core these days. We are, you know, this reorganisation and restructuring that we're doing won't really have any benefits until 2024 Stefan as you're rightly pointing out. So it will be a minimal impact in this year. So I think you should expect a similar cost base apart from, you know, different content phasing. But the OPEX base will be pretty solid maybe a little bit of less IT towards the end, but it's minimal. But you know, we are aiming for one of the biggest restructuring that TV4 has ever done. And I can't really say the number from a headcount point of view because we're in discussions with unions. But you know, you're talking in the 10 to 20% range of headcount will probably be impacted as a result of the restructuring that we're doing. Part of that driven by the discontinuation of Seymour and part of that moving, you know, to more digital options on content.

Okay, thank you.

And we'll take our next question from Peter Nelson with ABG. Please go ahead.

Thank you very much. Alison, you've spoken about the strong trends in in service revenues in the telco operations supported again by your high net wage investments. It seems as if you've got the consumer market going and trends in B2B also seem better. Last quarter, I think you spoke sort of enthusiastically about positive early signs in the enterprise market on demand for 5G private networks. Is that something which you're seeing coming through now? And are you more confident that you will be able to capitalize on this and on the network investments? And then just a short question follow up for PC, if I may, on the cashflow PC. Over the past year and a half, I guess, we have seen a sort of continued reduction in the outlook for the operation and the cashflow. Is it correct judging from your comments, you're now looking at the lower half of the 7 to 9 billion arranged for the structure part. It sounds a bit on your and Alison's comments that you feel confident that this will be achieved and we shouldn't see any further downgrades to the cashflow outlook in the second half. Is that correctly understood? Thank you.

Okay, I'll take the first question. Peter, thank you for the question. Yeah, you know, really happy with the telco revenue trends. And, you know, we are the leader in the enterprise mobile networks across the region. And as you saw, we struck a few more deals in Finland this quarter. You know, are they materially driving revenue today? No. But when they are combined with our IoT services, with other cloud-based services, and particularly with some of our premium security services, then we really see that as a clear opportunity for us to monetize 5G in the enterprise segment. And, you know, overall, there is great demand from the private and public sector, large and small, for help with their digitalization agenda. I've mentioned it before, you know, we're helping the Swedish energy companies make their grid smarter for the future. We're working with transportation companies, using some of our IoT analytics. We're working with property companies on heat optimization too. So overall, really happy with how that business is developing and should enable us to sustain the kind of revenue development we've seen so far this year. PC on Cashflow.

Yes. Hi, Peter. Yes, it's been a rocky ride on the Cashflow the last year or so. We are very confident on the outlook that we are now giving. And the reason for that is, you know, the main discussion we've had over the last year was, you know, following the big changes in the second half on both interest and energy costs. It takes time to mitigate the bottom pricing. And we see now that coming through, energy is sort of stabilizing and actually going down a little bit, which is good. And then we had our, you know, the impact of the second half on the vendor financing being heavily impacted by the high interest rates. So when we discussed in the second half last year, we were still kind of looking in how we're going to mitigate this. And we're very happy now, you know, as we also did in Q1 to confirm that we are able to mitigate this on a yearly level in 2023. But there is this facing effect that we have talked about now in the presentation, both this time and also last time. But this is now secured. These are agreements in motions and there are, you know, very limited risks on the outlook in the second half.

It's just the TV media piece that takes us down to the lower half. And then

in addition, you know, when this sort of macro effects hitting us, we were at peak capex levels. So we got really burned from that, from a cash generation. And as planned, we are staring down the capex, you know, spend quarter by quarter now. And then of course, what is in a way a bit new is the TV media uncertainty hitting us. But we are able to set with a strong telco momentum.

Yeah, fully understood. Very good. Thank you.

Thank you. I'll take our next question from Francesca Shield with BNPB Iqdayam. Please go ahead. Great. Thanks very much for taking questions. I have two, please. That's all right. My first question is from Led Shipping. And this is an issue based on reports from the US. So the question is, is there a similar issue in any of your Nordic markets that you operate in with led cabling needs in Tellier's network and has this been replaced over time? And then second question, if I may, is just on dividend coverage and your thoughts on that. Thanks very much.

Thank you Francesca. So yes, Tellier Sweden, like all utilities, did use led sheeted cables from the 1800s and up until 1968. And we're well aware of now this current interest in the topic. But you know, we've been conducting responsible dismantling of our copper network for many years already, following all the rules and regulations and always in dialogue with authorities. And honestly lead leakage from cables is limited and not known to be a health issue. But let me just give you some facts for Sweden. 70% of the cables that are in the air and underwater have already been removed and we follow a structured process for this, which is expected to be finalized in the next five to six years. Cables in the ground are generally best to leave in the ground to limit any environmental impact. We know where they are and we remove them when needed. For example, when there's new construction projects and of the in-ground cables, only around 10% of them are lead sheeted and the other 90% coated in plastic or other materials. And of that 10%, some of those are actually in ducts or tunnels. So all in all, aware of the issue. We don't see it as an issue really today, but we're following developments because we've been approaching responsible dismantling for many, many years and it's a small amount of cables that are left with lead sheeting in Sweden and our other markets have some, but to a much smaller extent than Sweden. And on dividend coverage, we are still within our outlook range for the year that was discussed with the board when they set the dividend for the year. We always knew there was a risk we would be outside of that dividend coverage this year and the board decided that we didn't want to punish the shareholders for short-term macro pressures on the cash flow of the business considering they were still very fully supportive of the strategy. So that still stands. We are willing to go outside of dividend cover this year and carry a little bit of higher leverage for a couple of quarters, but we'll be back within both our leverage range and hopefully we'll have dividend covered in the coming years.

Great. Thanks very much. We'll take our next question from Terence Su with Morgan Stanley. Please go ahead.

I'm just picking up on some of the earlier topics. Just wondering whether you're seeing any inflationary pressure on capex and then separately what did you make of the Tele2 announcement to raise their capex guidance? Does that have any implications for you in terms of you looking at accelerating investments in order to maintain your network advantage that you enjoy today? And then secondly, just on TV and media, once you've completed the restructuring process, you mentioned it's non-core. What do you see as the longer term owners of TV and media and what sort of partner do they need in order for this business to thrive in the longer term? Thank you.

Thanks for the questions, Terence. We've seen a bit of inflationary pressure on capex, but that was all built into our forecast and guidance for the year. Maybe seeing a little bit more foreign currency impacts because we've had a weaker Swedish and Norwegian kroner recently, but overall we're still very comfortable with the 13 to 14 that we set out with at the beginning of this year, Terence. In terms of what our key competitor mentioned the other day, it has no implications for us. We had already accelerated 5G rollout. We're at 99%. We've actually swapped and built out a full 5G network and modernized our 4G network in Lithuania already. We're at 92% in Norway. We're at 86% in Finland. We are at 73% in Sweden. So we are way ahead of Teletoo clearly. We're seeing that in brand consideration in network performance. And so their announcement has no impact on us at all. And then in terms of TV media, listen, you know, there's going to be a lot of change in that business in the sector in the region in the coming years based on, you know, some of the announcements coming out this morning from Viya Play. So I expect there will be lots of changes happening, lots of consolidation opportunities. And for now, we're just focused on the restructuring to get it back to profitable growth and cash generation. So we're in the strongest possible position to either, you know, spin off into a separate vehicle or to combine it with somebody else's assets at some other time. But at the moment, it's right to just focus on the restructuring for us and get it, you know, get it in good shape for the advertising rebound that will happen. That's great. Thank you. Thanks,

Terence. Thank you. We'll take our next question from Kaval Karoya with Deutsche Bank. Please go ahead.

Thank you for saying the questions and I have two, please. So firstly, you've talked about the restructuring you're doing and in cash flow terms, you saw a 900 million outflow in restructuring for the first half. I think you talked about a 1 billion charge roughly for the full year previously. What are your latest thoughts on restructuring for the full year? And then secondly, despite the price increase, you only saw a 30 base point increase in the Swedish mobile end-use service revenue growth. Can you talk a bit more about the dynamics here and your views on the degree to which the mobile prices, price rises in Sweden? Thank you.

Yeah, so maybe I can start on the first question, Kaval. On the restructuring charges, you're right. We are, you know, 900 million in the first half. We will be significantly less than that in the second half because a big part of that 900 million was the big resource redundancy initiative that we did in Q1. We don't give specific in our outlook. We are slightly above our 1 billion sort of run rate that we've been running at for this year, but we are not planning or expecting to sort of see a similar cost in the second half as we have seen in the first half.

And then on Swedish mobile ARPUs, we're seeing the pricing, you know, is sticking and there has been some additional movements just recently. We've just taken our family tariffs up by 20 kronor. Clearly, you know, Halon and us with fellow have all moved in the low tier more recently. So that the prices are sticking, but you are seeing mixed shifts. And so we are seeing a mixed shift into family tariffs. That's why we've taken 30 kronor, sorry, 20 kronor on that. And we are seeing a mixed shift into the No Frills fellow brand, which we've taken pricing up by between 10 and 30. So overall, you know, we'd like to see more net impact on our ARPU development, but I think we need to recognise that, you know, holding it stable when we've not got any extra uplift from roaming or extra uplift from VAS services because people aren't buying as many handsets at the moment is pretty good. And it's just important now that the pricing that has gone through stays in the market and we expect therefore ARPU developments to develop over time.

That's great. Thank you.

We will take our next question from Andreas Jolsen with DASKAPINK. Please go ahead.

Good morning, everyone. Perhaps sort of an elephant in the room question, but the Champions League rights is approaching an end now with one season left and given what you've learned so far and also from what you alluded to the ViaPlay announcement, is there any level on that right where you see it having actually a positive business case either standalone or combined with the Telco business?

It would have to be a lot cheaper than it was last time, Andreas, for us to discover that. It would have to be a baby elephant. But at this point in time, it's going to be very interesting to see how that auction plays out considering how all of us are recognizing that everybody overpaid four years ago.

Very good. Thank you, Alison.

And we will take our next question from Andres Kovacevic with GBS. Please go ahead.

Hi, thank you for the presentation and taking my questions. I've got a couple, please. So one on energy. So you mentioned again that energy and 2H will be a tailwind. I'm just wondering how the rolling policy of fixing contracts or hedging over the past couple of months or quarters has been kind of executed on given that the forward curve basically indicated a steep decline in prices. So is there a situation where maybe you've paused this for a bit to look in contracts only at lower rates and how should we think about energy developing as a tailwind potentially even into the next year? That's one question. Second question. Just two quick follow-ups. One on question to Andres, just after the timeline in terms of the auction because usually you would have had it in one queue already in terms of the UASA content. And then the second follow-up on capex going forward. So related to the inflation part of it because you said recently or have been saying that in terms of the 13 to 14 billion as an absolute number, you're happy with that as basically a level into the out tiers as well. So is this something that may now change with inflation and if the potential goes by a bit of a stronger top line, but it's 13, 14 billion still the level despite some of the inflationary and effect specialist that you've mentioned that you will be comfortable with in the next couple of years. Thank you.

Okay, let me take the auction in capex and then PC can take the energy question, Andres. So the auction timing, I imagine it's going to be fairly soon because it has already been delayed. I'm sure they're following market developments and wondering when and when on earth to do the auction. So, but I would imagine it has to be in the next one or two quarters. And I'm not saying any more than that. And then on capex going forward, you know, we are still comfortable with this level that we've now got to at the 13 to 14 level for this year. However, you know, as we look into next year and beyond, we will need to look at where our currencies, where our inflation rates and we always had an ambition to get to below 15% capex to sales ratio, which is where we ended with the 13 to 14. So as we move into next year, we'll clearly be looking at the revenue development, the inflationary development and the FX development. And if inflation and FX didn't change much that 13 to 14 is probably fine, but we need to monitor those those elements and see how we're getting on from a revenue point of view as well. But for now, it's good to assume that and then PC on energy. And if you want to build anything on the capex PC.

Yeah, just on the energy piece, you know, through this sort of last few quarters, we have stick to our hedging policy where we hedge, you know, on a rolling basis. Total hedged for 23 is 50%. That includes the energy that we get through other parties and for 24, we are ahead 30%. So that is following sort of similar development as we have seen in the past quarter. So we are not speculating or making any active choices depending on how the spot and forward rates are changing. We are happy to see that the, you know, forward rates gradually are coming down and actually now more towards sort of the usual levels that we have seen in the past. But then of course, you know, one of the reasons why we see a higher energy cost in the second half, even if actually, you know, spot prices are down is that we are now hedging on on a higher level than what we historically did. If you look into the second half of this year, you know, we as it looks now with our hedging and the forward rates, it doesn't, you know, look like it's going to be as high as it was last year. So you can very quickly get a hundred, 200 million positive versus last year both in Q3 and Q4.

Thank you, Peter. Just to clarify, you said higher in QH that would have been higher in Q rather, just to clarify.

Yes, so the energy cost is higher in Q2 this year versus last year by 50 million and in the second half is going to be 100, 200 million lower by quarter.

And thank you. And then just in terms of the AltaQrar 24, I think, as they are in the forward curve, you've done some hedging in the meantime, obviously, the -30% for next year. Is that kind of balanced out? Would you say that 24 as it stands should be roughly neutral? Is there another kind of taro link potentially?

I'm going to be very careful of not sort of predicting how energy pricing is going to be developing. But, you know, if we're using our current hedge position and with the current forward rates, it looks to be quite sort of neutral or quite in line with this year.

Thank you very much.

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

Morning, everybody. I hope you're well. Just a quick one, Alison, on the TV and media as well, if you could. So you mentioned, I think, in the presentation, previously you talked about, sorry, previous profitability being reached. Now you mentioned cash generation today. Could you sort of quantify the target now for that business? What are you expected to do in terms of either dollar or cash in future once you've gone through the restructuring plan? And how long does it get to do that before you do this stuff that you thinking about GVs or other things? Thanks very much.

Yeah, no, I've always been clear. EBITDA and cash generation is pretty similar, give or take the odd kind of timing of auctions or content. And it is to get it back north of a billion again. That won't happen next year because we'll still have Champions League. But certainly 25 onwards is our ambition. You know, the target range is one to one and a half and getting to north of a billion by 2025 is still our ambition. Both of them EBITDA and a cash point of view, Nick.

OK, and obviously that includes the sort of hit you just seen in the second quarter and your expectations for third and fourth. So that's net of everything, is it?

Yes, yes. Now that is absolute. I'm talking about absolute EBITDA and cash generation by 2025 being north of a billion. Did I interpret your question properly, Nick?

No, no, that was a spot on. Good.

OK,

thanks.

Thank you.

Thank you. We'll take our next question from the CEH with City Group. Please go ahead.

Hi, thank you for taking my questions. I just have two please. The first question is on the cash flow generation chart, you provided in your presentation. Just looking at this and I compare the chart you provided in Q1 for instance, it seems that the working capital recovery has pushed back a bit into Q4. I'm just wondering what if you can explain what's the reason behind that and how should we think about the facing of working capital for the second half? And secondly, just wondering if you can update us on the MLA side and if there has been any discussion ongoing with your infrastructure sales. And also it's interesting that you comment that there could be a lot of consolidation opportunities in TV and media in Nordics in coming years. And you in the past said that TV is not your core business, but in the development in the media markets now, do you think that it could be an opportunity for you to actually become a consolidator of the TV business? Thank you.

Why don't I take the M&A and then you can go back to cash flow PC. So we continue the dialogue on rooftops, getting them ready, providing the valuation is right for a transaction in the first half of next year. And clearly our priority at the moment from an M&A point of view is getting the Danish deal concluded and closed by the end of the year. So that's the big active ones. In terms of TV media consolidation, don't worry. TV media is non-core. We will not be doubling down in TV media. If consolidation opportunities arise, it will be much more a route to us so that we can really focus on being the best aggregator of choice, but no longer owning the content ourselves. And PC, if you want to pick up on the working capital phasing.

Yeah, on the phasing, it's more or less intact as we've shown in Q1. You're right. There is a shift between Q3 and Q4 that is mainly attributed to some phasing on the vendor financing rebound in the second half. So we expect a slightly more in Q4 and slightly less in Q3 versus what we updated you on in the first quarter report.

And we will take our next question from Fredrik Lassell with Handelsbanken. Please go ahead.

Thank you very much for taking my question as well. Many questions have been answered. I just wanted to then pick your brain a little bit on the 12 to 18 months behind us. You have been very active in changing prices on numerous of your services, both on consumer mobile and consumer fixed. Do you have any pockets still where you feed? You have upside room. Will you be as active in shifting prices upwards in the coming 12 months or are there any other details you would like to sort of discuss here for us? Thank you.

No, clearly with heightened inflation, we have, you know, kicked off a whole new approach to pricing discipline in our commercial strategies. And so the ambition would be, you know, we'd be starting to do more pricing again, starting in Q4 and into Q1 and we're planning for that already. You know, the new pricing that's gone into the market recently, I said the family SIM cards, there's a bit of mobile broadband pricing. There's some additional TV pricing and some fellow pricing. But basically now we're just looking at preparing for what kind of inflationary pressure do we expect to see next year and therefore what level of pricing do we need to be taking in Q4 and Q1 end of this year and into next year to offset that. And then we've got the CPI linkage, you know, most of our new B2B contracts now that will start to kick in and with some aspects of that and some of our wholesale contracts as well. So more of the same rather than anything majorly new, Frederick, but I think we will, we're learning all the time how to be even more disciplined in our pricing. And one of the areas we're looking at, particularly here in Sweden, is alongside pricing, what do we need to do on reducing the amount of campaigning or the scale of the discounting? So we're really looking at all of the ARPU leavers because we've learned quite substantially from our Finnish experience how to, you know, drive up ARPU even when you're not taking headline pricing by just being more disciplined from a promotional point of view.

Can I have a follow-up on that? A very good answer. Thank you. But a follow-up. I mean, consumers have been quite calm in their actions. So they haven't really bought new smartphones in the same fashion they used to do. Is that the low activity in buying new smartphones? Is that something that have benefited you in terms of churn, you think?

Well, certainly it has reduced switching in the market and definitely it's why we're seeing low churn, not just in Sweden though, but also in Finland where we're not the incumbent. So I think everybody is benefiting from a little bit of lower churn at the moment and, you know, we are using it as an opportunity to really lock in some of our most loyal Tellia customers with family tariffs and other convergence benefits. So yeah, it's, you know, it's good that churn has reduced. It just means we get lower handset sales and a little bit lower, like, you know, insurance and value-added services that, you know, we hope to get a little bit of uplift once we move into the Christmas period. But churn is good.

Okay, thank you very good. Mike.

And we will go next to Adam Fox-Renley with HSBC. Please go ahead.

Thank you very much. I'm just going to follow up to that question and it's to do with the customer service resourcing that you discussed in the release. I hear your comments that NPS is now back on track and improving. But I do feel like this is something that's come to Epson's loads over the years. Costs are important, obviously, that you refer to future price changes too. So to what extent are you comfortable with the current levels of your customer service staffing? Or should we think about this as being a resource that's essentially very short-term scalable and so quite adaptable to kind of your commercial activities?

Thank you. In Sweden, it's very adaptable to our commercial activities. We work with a range of partners that allows us to dial up and dial down when needed and there is still significant transformation for us to do on both, you know, the way our calls are handled, the number of calls that come in and the tools that we give our agents to be able to manage our customer service. So what happened in the first kind of couple of quarters of this year is we still had quite a backlog from all of the Viya Play dispute and then straight on the back of the Viya Play dispute, we had a lot of pricing all happening at the end of March, which meant that we had to sustain higher levels for a little bit longer than we were expecting. But as we look into the balance of the year and we look at the availability required to handle future pricing changes and we're looking at some of the transformation enablers that we're putting into our call centres, then we expect, you know, call centre staffing to come down in the second half. So we're quite comfortable with the levers we can pull and that we have better visibility now that we've reduced all of that backlog from Viya Play and pricing. And it is one of the drivers of the Sweden EBITDA improving in the second half, that and lower energy costs and pricing momentum.

And there are no further questions at this time. I will turn the call back over to CEO Alison Kirkby for closing remarks.

So thank you all. I wish you all a glorious summer and I hope you have a great and look forward to chatting to you again with our third quarter results in October. If I don't see you before, have a great one.