Telia Company Interim Report January-March 2022

A strong start to the year

First quarter summary

  • Net sales amounted to SEK 21,818 million (21,814) and like for like, net sales increased 2.1%.
  • Service revenues increased 0.1% to SEK 18,757 million (18,747) and like for like, service revenues increased 3.2%. For the Core Telco business, i.e. excluding TV and Media, service revenues increased 2.9% on a like for like basis.
  • Operational expenses declined 3.0% driven by further business transformation progress.
  • Adjusted EBITDA increased 0.3% to SEK 7,202 million (7,179) and like for like, adjusted EBITDA increased 0.1%. For the Core Telco business, i.e. excluding TV and Media, adjusted EBITDA increased 4.6% on a like for like basis.
  • Total net income amounted to SEK 1,086 million (953).
  • Operational free cash flow decreased to SEK 2,163 million (4,036) and cash flow from operating activities decreased to SEK 5,972 million (7,474).
  • A green hybrid bond of EUR 500 million was issued, to finance more energy efficient networks and green digital solutions.
  • The leverage ratio was 2.09x at the end of the quarter.
  • The outlook for 2022 remains unchanged: Service revenues and adjusted EBITDA, like for like, are estimated to grow by low single digit. Cash CAPEX, excluding fees for licenses and spectrum, is estimated to be in the range of SEK 14.0-15.0 billion.
  • It is expected that the Swedish tower transaction, announced on 27 January 2022, will close in the second quarter and the net proceeds are estimated at approximately SEK 5.4 billion.
  • The Board of Directors has previously announced its intention to return the net proceeds from the Swedish tower transaction to the shareholders, by means of an extraordinary dividend or a share buy-back program. The Board has now resolved that the method for such transfer shall be a share buy-back program.

CEO comment…

“We experienced a strong start to 2022. Our transformation towards a smarter, more digital, and more customer centric Telia delivering sustainable growth is becoming increasingly visible. Network investments combined with richer content and service orchestration is spurring growth across all business units, while improvements in how we serve our customers are reducing response times and enhancing their experience. The latter provides a solid fundament for positive long-term customer satisfaction and cost to serve metrics, enabled by our digital transformation. This, combined with continued workforce streamlining, sees operational expenses declining, defying the inflationary pressure around us. Overshadowing the quarter, the appalling Russian invasion of Ukraine – which we condemn in the strongest of terms - has, yet again, highlighted the importance of our purpose, our products and our services as we keep people connected and enterprises secure at a time when communication is more important than ever.

During the quarter we have seen solid momentum across our four strategic priorities.

Core to Inspiring our Customers is a constant improvement of our offerings, currently most visible in the form of new technologies and broader aggregated content, both of which are underpinning positive ARPU development, on average up 2-3%, in the quarter. Premium sports content helps both our leading broadband and TV business in Sweden, now surpassing 1 million TV customers, and contributing to 13% growth in fiber revenue across the group. Less visible, but of increasing importance, is enhanced security of communications. Across our markets governments are raising defense budgets and public enterprises requesting enhanced security of communications. Telia’s experience in being a trusted partner to authorities sees us well-positioned to provide for elevated communications needs of the armed forces and critical public organizations across the Nordics and Baltics.

We Connect Everyone by building 5G - on track for more than 90% population coverage in most markets by 2023 - modernizing our 4G networks, and by building out fiber. Specifically on 5G we now offer 5G to 36% of the Nordic/Baltic population, with close to 70% population coverage in Finland, and 50% in both Norway and Denmark. We pride ourselves on network innovation as exemplified by becoming the first telco in the world to deploy 4G/5G edge slicing to operate a private network when we connected Sandvik’s test mine in Finland in February, enabling the development of digital mining solutions based on Telia’s edge computing feature. We are also proud to have been awarded the RAN contract for the next generation’s emergency services network in Sweden by The Swedish Civil Contingencies Agency, MSB, illustrating again our trusted partner status for critical services.

Our strategic priority to Transform to Digital is advancing. IT infrastructure modernization and further dismantling of legacy – now with over 25% of legacy systems removed – resulted in SEK 80 million of structural cost savings in the quarter. Besides lower IT costs, the transformation is enabling operational benefits and we can now see a reduction in incoming calls from consumers in Sweden, as we remove fault sources and pursue a channel shift towards digital.

These efforts all contribute to our Deliver Sustainably priority, the essence of which is to execute consistently and sustainably over time, creating value for all our stakeholders. I am pleased that our financial metrics are healthy with our return to service revenue and EBITDA growth increasingly robust as exemplified by our Core Telco businesses growing service revenue by 2.9% and EBITDA by 4.6%, respectively. Mobile service revenue grew in all business units, and we are working to introduce CPI-linked pricing in our Enterprise contracts wherever possible to create sustainable inflationary pricing mechanisms. We are on track to meet our SEK 2 billion operational expense reduction target by 2023, as operational expenses declined by 3% in Q1, despite inflation. This helped all our Core Telco units, including Finland, to grow EBITDA in the quarter. Our balance sheet is resilient with leverage at 2.09x at the end of the quarter, in the lower part of the target range, and in March we were able to issue our second green hybrid bond, of EUR 500 million, at satisfactory terms despite market volatility, to finance more energy efficient networks and green digital solutions.

Looking at our markets, Sweden delivered on its stated ambition to stay in positive growth territory, with service revenue growing 1.8% and EBITDA 4.4%. Both mobile and fixed service revenue grew, and customer bases were stable in both postpaid mobile and broadband. Fiber growth once again was higher than the decline in copper broadband connections, and Telia Sweden’s leading IPTV product continues to be a star performer with 15% revenue growth.

A turnaround in Finland during 2022 remains of absolute priority, and we are seeing positive signs in the quarter with a stabilization of both service revenue and EBITDA. This comes on the back of a comprehensive, long-term oriented turn-around plan encapsulating network quality, brand perception, commercial execution, cost transformation and more, aiming to enable performance in line with the market over time. While improvements are starting to show, we have more work to do and remain on track for a confirmed and sustainable turnaround in the second half of the year.

As Norway’s largest challenger, Telia Norway is delivering a broad-based acceleration of its performance with service revenue up 6.6%. This was led by the Enterprise segment continuing to win significant contracts, this quarter including an extension of a central framework agreement comprising 120 government agencies. Both mobile and fixed services grew, at 9.0% and 2.5% respectively. A solid base for further acceleration is provided by our market leading 5G network, the most awarded 5G network in an Opensignal survey of actual user experiences, including exclusive top ranking in the 5G gaming category.

Our market leaders in Lithuania and Estonia continued previous quarters excellent track record of consistent delivery, with mid-to high single digit growth in both service revenue and EBITDA – 5.6% and 5.4% in Lithuania and 8.0% and 7.8% in Estonia respectively. And, improvements in Denmark are gathering pace with mobile-led service revenue growth of 3.0% in the quarter, up from flat in Q4, driving EBITDA growth of 5.4%. We aim to continue the growth trajectory by ensuring pricing reflective of our improved network quality, increased data traffic and inflation.

Our TV and Media unit saw several moving parts during the quarter. Advertising again performed strongly with 11% revenue growth. The transition to digital continues at full speed with digital advertising growing 26% and delivering one third of the overall growth, despite good momentum in linear. Pay TV revenue was flat in the quarter as strong growth in sports in Sweden, spurred by Champions League, was offset by declines in other segments, in particular driven by fierce global OTT competition within movies and series. Stronger content and fine-tuned commercial propositions are planned for the coming quarters to counter the latter. As stated in January, higher premium sports content costs are resulting in a lower EBITDA contribution this year for TV and Media, with a decline of SEK 311 million in Q1. The significant increase in content costs compared to the corresponding period of last year, will, however, gradually fade during the year, and our 2022 guidance for the group of low single digit growth in both service revenue and EBITDA is unchanged.

The sale of 49% of our Swedish towers announced in January is proceeding as planned and is expected to close in Q2, earlier than previously estimated. Pending closing of the transaction, the Board of Directors has decided to execute a share buy-back program of SEK 5.4 billion, which, combined with our strong, committed ordinary dividend, will further strengthen an attractive and sustainable shareholder remuneration profile.

While to date our markets have proven resilient to the impact from the Russian invasion of Ukraine, we are deeply concerned about the human suffering caused by the conflict and are focused on enabling our products and services to provide relief and support wherever possible. This has included temporarily providing free or reduced-price connections to and from Ukraine; access to news channels and information on the conflict; device, connectivity and job campaign support for Ukrainian refugees and for Ukrainian businesses; as well as donations to humanitarian relief efforts in Ukraine, among other. Saddened by the situation, I am inspired by the resilience of our colleagues in the Baltics and in Finland, in particular, in the face of uncertainty, and immensely proud that Telia keeps people and society connected in times like these.

Notwithstanding the lack of clarity on the longevity and outcome of the conflict, which we continue to monitor closely, I am emboldened by the visible signs of progress we are making in creating a better Telia for the benefits of customers, employees and stakeholders alike.”

Allison Kirkby

President & CEO

In CEO comment, all growth rates disclosed are based on the “like for like” definition and EBITDA refers to adjusted EBITDA, unless otherwise stated. See definitions for more information.

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