-- Growth continues despite headwinds

-- Third quarter summary

• Net sales increased 5.6% to SEK 22,456 million (21,271) and like for like, net sales increased 2.7%.
• Service revenues increased 5.0% to SEK 19,028 million (18,130) and like for like, service revenues increased 2.3%. For the Core Telco business, i.e. excluding TV and Media, service revenues increased 2.6% on a like for like basis.
• Adjusted EBITDA increased 4.3% to SEK 8,070 million (7,738) and like for like, adjusted EBITDA increased 1.0%, despite around SEK 300 million in negative impact from increased energy expenses. For the Core Telco business, i.e. excluding TV and Media, adjusted EBITDA increased 0.5% on a like for like basis.
• Operating income increased to SEK 3,188 million (2,634).
• Total net income amounted to SEK 1,883 million (1,622).
• Operational free cash flow decreased to SEK 2,052 million (2,937) and cash flow from operating activities decreased to SEK 6,151 million (6,598).
• The leverage ratio was 2.07x at the end of the quarter.
• The outlook statements have been updated to reflect changed macro-economic conditions.

-- Nine months summary

• Net sales increased 2.5% to SEK 66,566 million (64,962) and like for like, net sales increased 2.3%.

• Service revenues increased 2.1% to SEK 56,952 million (55,759) and like for like, service revenues increased 2.6%. For the Core Telco business, i.e. excluding TV and Media, service revenues increased 2.6% on a like for like basis.

• Adjusted EBITDA increased 1.7% to SEK 22,954 million (22,571) and like for like, adjusted EBITDA increased 0.7%, despite around SEK 500 million in negative impact from increased energy expenses. For the Core Telco business, i.e. excluding TV and Media, adjusted EBITDA increased 3.0% on a like for like basis.
• Operating income decreased to SEK 8,457 million (13,460).

-- CEO comment…

“Telia’s third quarter results show continued commercial momentum with service revenue growing 2.3% and all our units delivering positive service revenue growth for the first time in several years. Macroeconomic headwinds, however, strengthened from a breeze to a mild storm during the summer, with sharply higher energy prices and interest rates. In the quarter we were able to mitigate some of these headwinds and our resulting financial performance was positive, with cost efficiencies continuing and EBITDA growth of 1.0%. Had energy costs not increased, EBITDA would have grown by 4.9%, in line with our original plan for the second half of this year. However, while we see underlying progress towards our short and mid-term goals, near-term energy prices and interest rates are having implications for our outlook, as I will explain later.

Growth momentum continues to be driven by a relentless focus on the execution of the strategy we set out upon early last year to create a Better Telia. Within Inspiring customers, our most trusted network leadership position enables us to sustain a premium position and is fundamental in supporting the many pricing activities we are taking to offset inflationary pressure. The role of our services at enabling sustainable innovation and digitalization is also increasingly evident, and we are particularly proud to enter into a long-term partnership with the Swedish electricity distribution company, Ellevio, to deliver and manage the data network infrastructure for around 8,000 power sub-stations, enabling a better, smarter, more environmental and more cost-efficient grid for Sweden.

In Connecting everyone, roll-out of 5G accelerated, and we now reach 63% of the Nordic and Baltic population, up from 49% in June. In Lithuania, multi-year preparations enabled Telia to switch on 700MHz and 3.6GHz bands immediately after acquiring them, making Telia’s 5G services uniquely accessible to 80% of the Lithuanian population overnight. And in the Nordics, Telia Norway and Telia Sweden remain market leaders with 78% and 40% population coverage, respectively.

We continue Transforming to digital towards a simpler, faster, more data driven organization better at serving our customers, while operating with a structurally lower cost base. Excluding the energy impacts, operational expenses declined by around SEK 100 million, or 2%, in the quarter keeping us on track towards our SEK 2 billion savings ambition by end 2023, despite non-energy inflationary pressure. In the quarter, it was mainly headcount reductions in Sweden, Finland and Norway that contributed. At the same time, legacy decommissioning and the transition to common, scalable products continued. We decommissioned another 10 IT systems, almost half of new products were launched on common platforms, 35% of legacy products have now been decommissioned, and a reduction in manual interactions in our contact centres continued, with 30% fewer customer calls in Sweden than in the same period last year.

Delivering sustainably and building the execution muscle to do so, was a strategic choice we made when we embarked on our journey to create a Better Telia, and in this challenging economic climate it could not be a more important strategic imperative. Structural cost take out is ongoing and we are creating a more systematic approach to pricing, for example we are step-by-step introducing CPI-linked pricing for enterprise customers throughout our footprint and adopting a more comprehensive approach to customer value management by systematically moving consumers to services that are richer in quality, content, and price. In any one quarter these structural measures will not fully offset the sudden doubling of energy costs that we saw this quarter, despite having hedged a large part (100% from sustainable resources), but over time their impact will create a stronger foundation that will enable improved operating leverage, and continued scope for both investment and a growing dividend capacity. Our balance sheet remains solid and is well within its target range, enabling our buy-back program which has so far reduced the number of outstanding shares by around 2.4% by the end of the quarter. Further on Delivering sustainably, we are proud to have been awarded the Platinum EcoVadis medal for strong sustainability management through our policies, actions, and results, putting Telia among the top 1% of 75,000 companies assessed worldwide.

Moving to our business units, Telia Sweden again reported growth in both revenue and EBITDA, despite continued legacy headwinds. Service revenue growth was sustained at around 2% in postpaid mobile, 4% in fixed broadband and 15% in TV. The TV offering was strengthened with the addition of streaming rights for the Swedish football league Allsvenskan, helping us prepare for the expiration of the Viaplay agreement at the end of September, which was admittedly unfortunate for our customers. Telia’s TV offering remains strong and includes premium sports rights such as Swedish ice hockey and Swedish football, Italian and Spanish football and UEFA Champions League.

Telia Finland **** reported a solid improvement in the mobile segment with revenue growth accelerating to 3.5% in the quarter with good momentum in both the Consumer and Enterprise segments. The Fixed segment was more challenging due to an accelerating migration away from copper and high margin datacom services, but overall service revenue growth was positive at 0.7% for the quarter. Transformation cost efficiencies continued to materialize; however Finland was particularly hard hit by energy prices that were 3x higher than the same period last year, leading to a 7.3% EBITDA decline in the quarter.

Telia Norway’s **** momentum continued with 5.9% service revenue growth driven equally by the consumer and enterprise segments, supported by active pricing initiatives within broadband and TV. EBITDA growth accelerated to 4.5%, despite energy headwinds, as a result of broad-based market share gains and the aforementioned pricing initiatives.

In Lithuania, Telia took a clear lead on 5G and is already seeing strong initial demand, with a notable 5G price premium similar to that seen in Finland. Telia was also recognized as Lithuania’s 4th most loved brand in the Baltic Brands Ranking, strengthening our quality position and an important enabler to further pricing initiatives. Service revenue growth of 5.6% did not convert into EBITDA growth this quarter due to energy costs. The energy hedging market is much less developed in the Baltics than the Nordics hence the disproportionate impact for our Lithuanian business this quarter. Telia Estonia is also maintaining its network quality and 5G leadership position, and grew both service revenue and EBITDA, by 5.0% and 4.4%, respectively in the quarter. For Telia Denmark, service revenue growth was modest, but transformation of the business continues and the move towards a leaner more agile Danish mobile player enabled EBITDA to grow by 8.1%, despite extreme energy headwinds.

TV and Media reported another quarter of record advertising revenues, up 5.9%. EBITDA increased by 24% driven by higher advertising revenues and lower content costs. After the end of the quarter, we announced that we will consolidate all linear and streaming content together under TV4 and MTV to simplify our organization set-up and offer our customers complete viewing flexibility across one common platform – TV4 in Sweden and MTV in Finland. As a result, C More premium content will ultimately be transferred into TV4 and MTV, enabling a more focused slate of Nordic content on fewer platforms in the future.

As I said last quarter, it has been decades since the world last saw the macro-economic conditions of today. Having seen energy and interest rates increase sharply in the quarter, we are being challenged more than we predicted only three months ago. **** As we look into the balance of this year and next, our original revenue, cost transformation and CAPEX efficiency plans are delivering, and the additional measures we are now taking in both pricing and cost take-out will build further resilience. However, even with hedging, the current energy prices cause significant short-term cost increases and we are now adjusting down our EBITDA growth outlook for 2022 and 2023. The energy cost increase for the full year 2022 is estimated to be around SEK 900 million, which is SEK 600 million higher than we expected only 3 months ago.

This, and the higher interest rates, is now reflected in our expectations for operational free cash flow for 2022, which is estimated to be below the minimum dividend level. With the current macro-outlook uncertainty we will wait until we report our full-year results in January before we comment on 2023 cash flow.

While macro factors are outside the company’s control, the business is showing its resilience , as is evident in our third quarter results, and we will not stop at taking additional measures when the environment demands this. However, thanks to the choices we have made these past two years on capital allocation, on a more focused Nordic/Baltic portfolio, in the strengthening of our balance sheet and in building the foundations for a return to sustainable growth, I am confident that if we remain focused on the execution of our strategy, at a more accelerated pace, we will be an even better Telia when the macro-economic headwinds subside. In these times, I could not be more grateful to the highly engaged Telia team who remain focused on reinventing a Better Telia for the benefit of all our stakeholders, today, tomorrow, and far into the future.”

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.)