Telia Company Interim Report January-June 2018

ANOTHER STRONG QUARTER

Second quarter summary

• Net sales in local currencies, excluding acquisitions and disposals increased 1.3 percent. In reported currency, net sales rose 5.2 percent to SEK 20,814 million (19,785). Service revenues in local currencies, excluding acquisitions and disposals, fell 2.3 percent.
• Adjusted EBITDA rose 3.9 percent in local currencies, excluding acquisitions and disposals. In reported currency, adjusted EBITDA rose 6.9 percent to SEK 6,443 million (6,027). The adjusted EBITDA margin increased to 31.0 percent (30.5).
• Adjusted operating income declined 0.9 percent to SEK 3,601 million (3,633).
• Total net income rose to SEK 2,244 million (-201). Total net income attributable to the owners of the parent rose to SEK 2,160 million (-291).
• Free cash flow in continuing and discontinued operations increased to SEK 3,114 million (2,772). Operational free cash flow in continuing operations rose to SEK 2,574 million (2,138).
• Outlook for 2018 is unchanged.

First half summary

• Net sales in local currencies, excluding acquisitions and disposals increased 0.7 percent. In reported currency, net sales rose 4.2 percent to SEK 40,666 million (39,012).
• Adjusted operating income declined 2.0 percent to SEK 7,189 million (7,339).
• Total net income dropped to SEK 1,644 million (6,852). Total net income attributable to the owners of the parent dropped to SEK 1,450 million (6,603).

COMMENTS BY JOHAN DENNELIND, PRESIDENT & CEO

“Dear shareholders and Telia followers, I am generally pleased with our focus and performance in the second quarter. We continue to execute on our strategic priorities through the acquisitions of Get/TDC Norway and Bonnier Broadcasting. Both transactions are highly aligned with our strategy. The first makes us the obvious challenger on the Norwegian market with a truly converged mobile, TV and broadband customer offering as well as an enhanced B2B operation. We allocate capital to an attractive market where we acquire a best in class asset. The second combines the Bonnier Broadcasting’s competence and portfolio within local content and our superior digital TV service and first-class networks, creating a unique converged offering to consumers. Both are financially accretive transactions to EPS by 6 percent and cash flow by 13 percent, even excluding expected future cash flow synergies of in total SEK 1.3 billion. We are financially sound and see no reason whatsoever to change our earlier communication regarding dividend policy and share buy-back program.

The results are good on costs, EBITDA and cash flow. We are on track on the 2018 cost program of SEK 1.1 billion, with SEK 0.7 billion net reduction delivered year to date, equal to 3.3 percent of the total cost base. Sweden has contributed its share and notably we see an OPEX reduction of 9 percent in the second quarter. This left us to report EBITDA growth in all our seven countries. In 2018 we have grown our adjusted EBITDA by 4 percent organically in stable currency. Combining this with further increased working capital efficiency and good CAPEX management we have increased the operational free cash flow by 12 percent. Over the past 12 months we have generated SEK 10.4 billion in operational free cash flow. In addition, we have secured SEK 1 billion in dividends from associated companies. This gives comfort in our ability to invest in our business as well as provide attractive returns to our shareholders, especially combined with our buy-back program.

The second quarter showed similar market trends as we saw in the first quarter. Mobile service revenues continue to show growth, primarily driven by ARPU growth in all our markets. Legacy revenues continued to decline. The increased activity that we saw in the Swedish mobile market in the first quarter has continued with additional value loading. Despite increased competitive intensity we take market shares and deliver a total mobile services revenue growth of 1.9 percent and a consumer mobile growth above 5 percent for the second consecutive quarter. In Finland we saw a positive mobile subscriber intake as well as a reduced mobile churn. We have increased pricing with limited effect in the quarter. In Norway we have completed the migration of the Phonero and NextGenTel customers as well as the closing of the Chess brand. The synergies from the Phonero acquisition continue to be on track driving EBITDA growth, even if the integration had some impact on our customer churn. The Baltics continue to show strong mobile growth. Finally, Denmark has seen some positive impact from the reshaped mobile portfolio, adding mobile customers and growing mobile ARPU.

This quarter has seen both the political and industry’s attention on 5G continues. The Prime Ministers of the Nordic region committed in a letter of intent, to remove some of the barriers to 5G roll-out and aim for better cross border coordination. As an industry, we joined the leading operators and equipment vendors in releasing a statement both showing support, but also asking for concrete and measurable actions to put this vision into reality.

In Eurasia our efforts to dispose our assets continue and progress is being made albeit slow and complex. However, we remain hopeful that we can take further steps during the remaining part of the year.

I am pleased with the cost execution that we have done in the past year. We will relentlessly work to increase efficiency and reduce costs, but note that comparison will become tougher as of the third quarter this year. We reiterate our outlook that the adjusted EBITDA 2018, in local currency, is expected to be in line or slightly above the 2017 level. The outlook for operational free cash flow being above SEK 9.7 billion is also left unchanged.

On a final note to my entire team, thanks for your passion to deliver! And to all of you I want to wish you a great summer! See you soon again.”

Johan Dennelind
President and CEO
  

This information is information that Telia Company AB is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out above, at 07:00 CET on July 20, 2018.

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