Telia Company Interim report January-June 2019

POSITIVE IMPACT FROM ACQUISITIONS AND CURRENCY TAILWIND

Second quarter summary

• The new lease accounting principles, IFRS 16, have had significant effects on the financial statements for 2019. Comparative information for 2018 has not been restated. See Note 1.
• Net sales rose 2.2 percent in reported currency to SEK 21,272 million (20,814). Net sales like for like regarding exchange rates, acquisitions and disposals, declined 4.2 percent. Service revenues like for like regarding exchange rates, acquisitions and disposals, declined 1.4 percent.
• Adjusted EBITDA rose 16.7 percent in reported currency to SEK 7,520 million (6,443). Like for like regarding exchange rates, acquisitions and disposals, adjusted EBITDA rose 8.1 percent. Excluding the positive impact from IFRS 16, adjusted EBITDA, like for like regarding exchange rates, acquisitions and disposals, fell 2 percent. The adjusted EBITDA margin rose to 35.4 percent (31.0).
• Adjusted operating income fell 12.7 percent to SEK 3,146 million (3,601). 
• Total net income decreased to SEK 1,651 million (2,244). Total net income attributable to owners of the parent fell to SEK 1,601 million (2,160).
• Free cash flow from continuing and discontinued operations increased to SEK 3,322 million (3,114). Operational free cash flow from continuing operations fell to SEK 2,443 million (2,574). Total cash flow amounted to SEK -12,956 million (-6,832).
• Outlook 2019 is unchanged.

First half summary

• Net sales rose 3.6 percent in reported currency to SEK 42,118 million (40,666). Net sales like for like regarding exchange rates, acquisitions and disposals, fell 3.7 percent.
• Adjusted operating income fell 7.8 percent to SEK 6,632 million (7,189).
• Total net income rose to SEK 3,451 million (1,644). Total net income attributable to the owners of the parent rose to SEK 3,393 million (1,450).

Comments by Johan Dennelind, President & CEO 
 
“Dear shareholders and Telia followers, as expected, the second quarter was an improvement compared to the first quarter, and we see continuous improvement during the rest of the year. The revenue initiatives, both already implemented and the ones coming in the autumn, combined with cost reductions, primarily on resource cost, are the main reasons for why we can reiterate a stronger second half of 2019 than the first half. The trend is right even if the recovery curve is slow primarily due to a soft mobile B2C in Norway and a negative service revenue mix in Finland. The service revenues for the group declined like for like by 1 percent in the second quarter, an improvement from the decline of 3 percent in the first quarter. The adjusted EBITDA like for like and excluding impact from IFRS 16 declined 2 percent, also an improved level from the decline of 4 percent in the first quarter.
 
Our operational free cash flow outlook for 2019 remains at SEK 12-12.5 billion, an increase of between 11-16 percent compared to 2018. For the first half the operational free cash flow was SEK 6.9 billion, in line with the corresponding period 2018. The main drivers relate to the acquisition of Get/TDC and we also have a good start on our working capital initiatives. The somewhat slower start in adjusted EBITDA like for like and excluding impact from IFRS 16 will be compensated in the second half of the year by other cash flow drivers, which means that the cash flow composition will be slightly different from what we originally expected.
 
During the second quarter we have continued to execute on our commercial plans for the year to improve the service revenues. In Sweden we have reshuffled and simplified our mobile product portfolio, making it easier for families to consume and allocate data among each other in the best mobile network in Sweden. So far, the response from customers have been positive. Combined with the recent price adjustments we made in the fixed service portfolio this should contribute to the improved service revenue trends for the second half of 2019. I am very pleased by the enterprise segment showing growth in the second quarter supported by implementation driven revenues on IoT and datacom, where we have secured several large customer contracts, both new and extensions. We are proud to be chosen as the trusted partner and will continue to show leadership in the digital era, where I especially want to highlight the opportunities connected to IoT, where we are clearly very competitive. This quarter we signed yet another big contract in the energy sector, enabling one million E.ON customers to connect to smart electricity meters and we help transportation company Nobina with smart heating of buses. We have also entered several partnerships to explore how 5G can improve our customers’ competitiveness. Overall, we see a slightly better underlying run-rate in B2B for the second half of the year versus the level seen in 2018. The operational expenses in Sweden are still too high. However, given actions already taken as well as additional measures to be implemented in the second half we reiterate our ambition to reach a reduction in operational expenses by 3 percent for 2019. This will primarily be driven by resource costs. For the second quarter trends improved and adjusted EBITDA like for like and excluding impact from IFRS 16 declined by 3 percent versus 6 percent in the first quarter in Sweden.
 
In Finland the mobile service revenues have returned to growth, a trend that should improve further once we have seen the financial impact from the strong order intake in the first half of 2019 in the enterprise segment. After the season ending of Liiga we have managed to maintain a very high share of customers which should indicate a shorter start-up phase in the autumn. We have also accelerated the dismantling of the copper network leading to a sharp decline in our legacy business. There were higher costs due to the growth in our ICT business. This led to a declining adjusted EBITDA like for like and excluding impact from IFRS 16 for the second quarter by 4 percent.
 
In Norway mobile service revenues are still hampered by the subscriber losses we experienced in 2018. We are seeing better trends in mobile customer intake, mainly driven by the enterprise segment. For the consumer segment we need to improve our trends during the rest of the year. In the quarter, we have taken the first convergence initiatives which, albeit early days, look encouraging. The Get performance continues to be stable, with both broadband and TV revenues being flat versus the second quarter of 2018. The pace of synergy realization is increasing as planned and is now at a NOK 200 million full year run-rate and will accelerate further coming quarters. The adjusted EBITDA like for like and excluding impact from IFRS 16 returned to a 1 percent growth in the second quarter.
  
I have mentioned before that Sweden since the beginning of the year has been enrolled into our new operating model. We are encouraged by the effects and are accelerating the enrollment of the other countries which will all be added within the next 12 months where we will realize OPEX and CAPEX synergy potential of SEK 600-900 million and SEK 500 million, respectively, in the coming years.
 
As anticipated the EU commission pushed the Bonnier Broadcasting approval process into a deeper investigation, a so-called phase two. We have a constructive dialogue with EU commission and continue to believe in an approval in the fourth quarter of 2019.
 
The outlook of a full year operational free cash flow in between SEK 12-12.5 billion is reiterated.
 
After an intense first half year I would like to take the opportunity to thank team Telia for the hard work and relentless push to bring the world closer to our customers, with the best connectivity out there. Have a great summer all of you!”

Johan Dennelind, President & 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 18, 2019.
 
For more information, please contact our press office +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.  
 
 
We’re Telia Company, the New Generation Telco. Our approximately 20,000 talented colleagues serve millions of customers every day in one of the world’s most connected regions. With a strong connectivity base, we’re the hub in the digital ecosystem, empowering people, companies and societies to stay in touch with everything that matters 24/7/365 - on their terms. Headquartered in Stockholm, the heart of innovation and technology, we’re set to change the industry and bring the world even closer for our customers. Read more at www.teliacompany.com

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