Telia Company Year-end report January-December 2020
Strong cash flow generation
Fourth Quarter Summary
- Net sales grew 2.7 percent to SEK 23,464 million (22,838) and like for like4, net sales declined 1.9 percent. Service revenues grew 4.0 percent to SEK 19,765 million (19,007) and like for like4, service revenues declined 2.1 percent. Adjusted EBITDA declined 5.5 percent to SEK 7,477 million (7,914) and like for like4, adjusted EBITDA declined 6.6 percent.
- COVID-19 had an estimated negative impact of SEK 400 million and SEK 200 million on service revenues and adjusted EBITDA, respectively.
- Operating income decreased to SEK -23,001 million (2,600) impacted by a capital loss from the disposal of Turkcell Holding of SEK -17,955 million, mainly related to reclassified accumulated foreign exchange losses which have no effect on total equity. The quarter was also impacted by an impairment of SEK -7,800 million related to goodwill in Finland.
- Operational free cash flow increased to SEK 2,856 million (977) and cash flow from operating activities increased to SEK 7,955 million (5,566), both mainly driven by changes in working capital.
- An agreement was signed to divest the Telia Carrier business for a value of SEK 9,450 million on a cash and debt free basis.
- For 2020, the Board of Directors proposes to the Annual General Meeting an ordinary dividend of SEK 2.00 per share (2.45).
- Outlook 2021: Service revenues and adjusted EBITDA, in constant currency and excluding Telia Carrier, is expected to be flat or grow by low single digit, while cash CAPEX excluding Telia Carrier and fees for license, spectrum and right-of-use assets, is expected to be in the range of SEK 14.5-15.5 billion.
Full Year Summary
- Net sales grew 3.8 percent to SEK 89,191 million (85,965) and like for like4, net sales declined 3.4 percent.
- Operating income decreased to SEK -17,747 million (12,293) driven by the disposal of Turkcell Holding and the impairment related to goodwill in Finland.
- Total net income declined to SEK -22,756 million (7,261).
Comments by Allison Kirkby, President & CEO
“The final quarter of 2020 and the start of 2021 has continued to be challenging for societies and businesses, across the Telia footprint and indeed across the globe. I am however proud that through these unprecedented and volatile times, Telia has remained resilient, keeping its operations going, workplaces running and enabling people to stay in touch with loved ones. Beyond connectivity, Telia's services, such as Crowd Insights, have supported authorities and countries in gaining insights which have helped them fight the pandemic. A clear illustration of using our technology for the good of others.
Our fourth quarter results were again sound and, as you have seen from our pre-announcement on January 20, particularly strong from an operational free cash flow perspective. Service revenues declined by 2.1 percent to SEK 19.8 billion on account of lower roaming and advertising revenues. As anticipated, we also experienced an increase in our operational cost base in the quarter, leading to EBITDA of SEK 7.5 billion. Cash CAPEX in the quarter totaled SEK 4.2 billion and operational free cash flow was SEK 2.9 billion.
Throughout the business, we have continued to make progress on our immediate priorities. Our network leadership in Sweden was confirmed through the Umlaut/P3 survey which concluded that Telia's network is the best in Sweden - for the fourth year in a row. Securing the largest block of 5G spectrum in the most attractive part of the available Swedish frequency band last week gives us an opportunity to further enhance and leverage our market leading position. In Finland we now cover 40 percent of the population with 5G and, importantly, we are seeing a positive impact on ARPU (average revenue per user) levels from 5G based subscriptions there. We are also making progress in Norway, both on 5G coverage and in the upgrade of our cable network. We continue to increase the number of converged customers in Sweden, now total 309,000. In the Baltics, we have seen a similar trend. On costs the fourth quarter was, as expected, challenging, owing mainly to increased marketing spend in Sweden and Finland as well as to additions to customer service resources in Sweden.
In Sweden the consumer segment remained resilient, albeit enjoying less tailwind from price increases. After adjusting for COVID-19 effects, the enterprise segment turned to growth. The underlying strong performance was related to the public sector and our IT service operation.
In addition to an encouraging effect from the introduction of 5G in Finland, we have seen a positive impact from our content offerings, in turn inspiring customers to upgrade to 5G. We also see stability in our core offerings and strong growth in IT solutions, leading to service revenue growth in our enterprise segment for the fourth quarter, even including impacts from COVID-19. As we have announced separately, we have taken an impairment of SEK 7.8 billion related to the Finnish operation, mainly due to an increased investment need.
The enterprise segment was growing also in Norway during the quarter. Telia renewed its contract with the Norwegian police, a proof point for Telia being a credible alternative supplier to a customer with high security demands. We have seen a strong demand for our premium Telia X converged proposition, now being taken up by more than 10 percent of the consumer customer base.
The Baltics continue to deliver good results, albeit with mixed development in the various segments: the consumer side in both Estonia and Lithuania showed accelerating growth driven by convergence, while the enterprise segment was hurt by the declining roaming revenues due to COVID-19. Denmark struggled with a challenging service revenue development.
Within TV & Media we are continuing to strengthen our market position in a tough COVID 19-impacted environment. The TV4 Group has never had a higher share of viewing in Sweden, and in Finland MTV is also increasing its share of viewing. Viewing on digital platforms is growing fast. Streaming time on TV4 Play increased by 32 percent, and customer intake on C More was a record high.
Our ambition, however, is to be more than resilient in a fast-moving and disruptive environment. Connectivity has become part of the very fibre of life. This is clear in the fact that the traffic on our networks is doubling every two years. We’ve started investing to scale up our 5G networks, to unleash the next wave of innovation across the Nordics and Baltics. And we’ve moved into media, entertainment and ICT in order to move beyond connectivity and provide a more complete, converged range of digital services for our customers.
Hence, we are today launching our updated strategy to create a Better Telia, to cater for the evolving needs that are emerging from living in an ever-more connected world. We will be led by our new purpose to “Reinvent better connected living”. We will pivot from being a somewhat passive facilitator of connectivity, to being an active orchestrator of connected living, reinventing ourselves in order to reinvent better for our customers, and our owners. Our renewed strategy will return the company to growth and deliver sustainable value creation to our shareholders. Underpinning our growth strategy are four key pillars where we will excel relative to our peers: Inspiring our Customers; Connecting Everyone; Transforming to Digital; and Delivering Sustainably.
Taking our strategy to execution we will be enabled by a bold customer experience-led transformation program which is expected to yield an improved EBITDA less CAPEX of SEK 3 billion and SEK 5 billion by 2023 and 2025 respectively. As part of this program, we will reduce operational expenses by SEK 2 billion until 2023 and SEK 4 billion until 2025. I look forward to sharing the details of our strategy and transformation in our Investor Brief.
As part of our ambition to crystallize and grow the value of our infrastructure assets we are today creating a new business unit, Telia Asset Management, that will own and manage selected assets opening up the opportunity to bring in external investors and accelerate infrastructure development. We have for some time been working to identify such assets within our portfolio where a special focus has been on our towers, in particular in markets where we act as a challenger, and we will now proactively identify relevant partners that could join us on this journey.
For the period up to 2023 we expect annual low single digit service revenue growth, low to mid-single digit EBITDA growth and a return to cash CAPEX of around 15 percent of net sales by 2023. For 2021 specifically, which will be a year of transition, we expect service revenue and EBITDA, excluding Telia Carrier, to show flat to low single digit percentage growth while cash CAPEX is expected to be in the range of SEK 14.5-15.5 billion as we roll out 5G and modernize our systems and existing networks.
All of this will create a strong base from which to sustainably grow our operational free cash flow going forward. This in turn will enable us to pay attractive returns to our shareholders whilst maintaining a robust capital structure. Our Board has therefore proposed an updated dividend policy under which Telia will distribute at least SEK 2.00 per share, with a firm ambition to grow dividends by a low to mid-single digit percentage.
Before concluding, I want to express my sincere gratitude to the whole Telia team for the hard work and commitment they have shown in a very tough year, with a lot of work being done from home. The engagement they show gives me immense energy and confidence in the future.
In summary, Telia now has a well-defined roadmap to enable growth, develop our assets, and reset our cost base, allowing us to reinvent better for our customers, employees, shareholders, and the societies of the Nordics and the Baltics. I do hope you all feel as excited about the future as I do!”
President & CEO
In Comments by the President & CEO, 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 and Securities Markets Act. The information was submitted for publication, through the agency of the contact person set out above, at 07.00 CET on January 29, 2021.
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 21,000 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