Telia Company Interim report January - March 2023

Full focus on strategy execution and capital allocation

First quarter summary

• Revenue increased 5.7% to SEK 23,069 million (21,818) and like for like, revenue increased 3.7%.

• Service revenue increased 3.8% to SEK 19,444 million (18,737) and like for like, service revenue increased 1.9%. For the Telco operations, service revenue increased 2.4% on a like for like basis.

• Adjusted EBITDA increased 0.8% to SEK 7,258 million (7,202) and like for like, adjusted EBITDA decreased 0.8%. For the Telco operations, adjusted EBITDA increased 1.6% on a like for like basis.

• Operating income decreased to SEK 1,887 million (2,437) and net income decreased to SEK 738 million (1,086).

• The structural part of operational free cash flow decreased to SEK 685 million (1,941).

• Operational free cash flow decreased to SEK -3,626 million (2,163), driven mainly by a temporary decline in the vendor financing balance.

• Cash flow from operating activities decreased to SEK 1,350 million (5,972).

• The leverage ratio was 2.49x at the end of the quarter.

• The outlook for 2023 is unchanged.

• After the end of the quarter, Telia Company announced on April 25, 2023, the signing of a binding term sheet agreeing upon the key terms on which to sell its Danish operations and network assets to Norlys, at an expected enterprise value of DKK 6.25 billion (approximately SEK 9.5 billion).

CEO comment…

“From the start of the year, we have been fully focused on building profitable growth momentum in our Telco operations and on improving capital allocation, cash conversion and value creation. This focus will continue throughout 2023.

Service revenue increased 2.4% across our Telco operations in Q1 and was especially strong in the Enterprise segment. Network modernization continues and 5G population coverage is now over 75%, further strengthening our position as the leading digital infrastructure owner and operator in the Nordic & Baltic region.
 
Whilst EBITDA from Telco operations grew 1.6%, the expected softening in TV advertising and ongoing challenges in Pay TV mean that, overall, EBITDA declined 0.8%. As announced in October, we are restructuring our TV and Media business under the TV4 and MTV brands, consolidating our premium sports content portfolio to improve synergies and enhance our offer for both current subscribers and advertisers, and new customers.
 
Active capital allocation continues and, after the close of the quarter, we successfully structured a DKK 6.25 billion deal to sell our Danish business (subject to a final agreement and regulatory approval) to Norlys, the leading energy and telecoms group in the country. This divestment is in line with our strategy to focus on markets where there is a clear path to securing and defending a leading position. It also offers both immediate value creation and the opportunity for Telia’s Danish business, and team, to become part of a new national challenger, offering a broader range of services to Danish customers, large and small.
 
As we head into the second quarter, our approach to building a better Telia continues. 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. We are maintaining our technology leadership and driving modernization of our operations, to make Telia a better company for all its stakeholders today, tomorrow and into the future.
 
During the quarter, Sweden showed a healthy and improving momentum with service revenue growth in both mobile and fixed services. Customer reactions to price adjustments during the quarter were in line with expectations, with the Consumer segment returning to growth in March. Enterprise growth was again strong at 2.3%, driven both by new revenue streams from our award-winning IoT and security businesses, as well as from traditional connectivity services. EBITDA declined slightly, impacted by the remaining headwinds from energy. We continue to invest in our digital infrastructure leadership, reaching a 5G population coverage of 63% by the end of the quarter, and are leading the sector in the Sustainable Brand Index for the 13th consecutive year.
 
Executing on its broad-based turnaround, our business in Finland saw growth in both mobile and fixed services, with a return to EBITDA growth underpinned by digital transformation, lower customer churn and improved productivity.  In February, Telia Finland won independent research company Opensignal's top global award for user experience in a study of 250 operators, reflecting our commitment to customer experience and investment in our already excellent network. This contributes to further improvements in brand consideration, and it is particularly encouraging to see a significant improvement this year in the Sustainable Brand Index ranking in Finland.
 
Norway’s financial performance remains solid, with growth in both mobile and fixed services, including a healthy growth in broadband and TV. EBITDA grew 2.7%, a slightly higher rate than in the previous quarter, as the impact of increased energy costs starts to subside. Our 5G roll-out continued into new communities such as Tromsø and Bodø this quarter, driving regional business momentum and taking us to a population coverage of 89%, sustaining our 5G frontrunner position.
 
Lithuania and Estonia further expanded their leading infrastructure positions, with Telia Lithuania confirmed as having the fastest mobile internet service in the country, while Telia Estonia won several categories in Opensignal’s Global Mobile Network Experience Awards. Customer sentiment is improving in both markets, and so both units delivered excellent mid-to-high single digit service revenue growth which, despite the cost inflation environment, converted into double digit EBITDA growth.
 
In Denmark we continue to restructure and rebuild the business. While service revenues were flat, successful cost transformation resulted in EBITDA growing by double digits. 5G roll-out continues, with 85% population coverage at the end of the quarter and customer intake on the new 5G internet proposition is strong.
 
Our TV and Media unit is in the midst of its restructuring. After the end of the quarter, the new TV4 Play with a hybrid offering was announced, with a planned launch after the summer. This will enable a gradual redesign of the content portfolio and content rights overall to offer a broader and richer set of viewing and advertising options. The unit saw a 2.4% decline in service revenue driven by a softening advertising market, while Pay TV revenue grew slightly, but with higher year-on-year content costs, EBITDA declined.
 
Transformation of our systems, processes and ways of working continue across the Group. Another 10 IT legacy systems were decommissioned in the quarter, and close to 50% of the systems targeted for removal before 2025 are now out. Legacy dismantling, important both for the sustainability of energy consumption and for cost and customer experience development, is on track with 3G now entering its final year across most of our footprint. Despite all our hard work, heightened and continued inflationary pressure is masking the underlying cost take-out, and this is likely to impact our 2021-2023 cost ambition.
 
On sustainability, the work we do across our supply chain is having meaningful impact, with 45% of our total supply chain emissions now covered by Science Based targets, up from 26% one year ago and on track towards our 2025 target of 72%. In a recognition of our efforts, Telia was recently ranked first among Europe’s Climate Leaders by the Financial Times, in a study comprising 500 large companies.  Within Digital inclusion, we have seen stronger than expected progress and have doubled the target for the number of individuals to be reached by such initiatives by 2025, from one to two million. Within Security, another key sustainability priority, we were awarded preferred partnerships with several key global security solution providers during the quarter and supporting the mid-single digit growth we are seeing in security services.
 
Cash flow was, as expected, negative in the quarter due to phasing in our vendor financing program. This will be fully reversed in the remainder of the year. Net debt to EBITDA is at the higher end of our leverage target range but is expected to decline in the next 12 months on the back of a stronger operational free cash flow, and the proceeds from the divestment of Telia Denmark, which will be used for deleveraging.
 
Looking ahead, our full-year outlook is unchanged.  With energy headwinds starting to subside, pricing initiatives in place, and peak network investment now behind us, 2023 is a year for us to restore confidence in our strategy and improve cash generation, despite current challenges in TV and Media. That being said, we remain vigilant to continued macro-economic uncertainty and responsive to rapid changes in customer behaviors and expectations and will take necessary actions to respond to the changing environment.
 
To close, I would like to again thank all my Telia colleagues and partners for their hard work, and our shareholders for their continued support, as we build a much Better Telia for everyone.”
 

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.
 

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 contact person set out below, at 07.00 CET on April 26, 2023.

For more information, contact Iréne Krohn, Head of media relations, +46 771 77 58 30, visit our Newsroom or follow us on Twitter @Teliacompany.

Forward-Looking Statements
Statements made in the press release relating to future status or circumstances, including future performance and other trend projections are forward-looking statements. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There can be no assurance that actual results will not differ materially from those expressed or implied by these forward-looking statements due to many factors, many of which are outside the control of Telia Company. 

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