Fri, Jul 17, 2020 07:00 CET

Resilient despite covid-19 impacts

Second quarter summery

• Net sales rose 2.7 percent to SEK 21,770 million (21,190) and like for like , net sales fell 5.9 percent.
• Service revenues grew 4.7 percent to SEK 19,129 million (18,274) and like for like, service revenues declined 5.6 percent.
• Adjusted EBITDA increased 3.6 percent to SEK 7,737 million (7,465) and the adjusted EBITDA margin increased to 35.5 percent (35.2). Like for like, adjusted EBITDA remained unchanged.
• Operational free cash flow fell to SEK 2,202 million (2,443) and cash flow from operating activities fell to SEK 6,267 million (7,162).
• COVID-19 had an estimated SEK 1.0 billion impact on service revenues, driven by lower roaming, pay-TV and advertising revenues. The estimated impact on adjusted EBITDA amounts to SEK 0.5 billion.
• Excluding the TV and Media unit, the traditional telco operation grew adjusted EBITDA by 1.8 percent like for like and excluding the COVID-19 impact by 5 percent like for like.
• The outlook for operational free cash flow 2020 is reiterated. Adjusted EBITDA generation in constant currency for the second half of 2020 is expected to be similar to the first half of 2020 (new outlook).
• An agreement was signed to divest the ownership in Turkcell Holding. This impacted operating income and net income negatively by SEK -3,488 million.

First half summary

• Net sales rose 5.2 percent to SEK 44,197 million (42,026) and like for like , net sales fell 4.0 percent.
• Adjusted operating income fell 15.4 percent to SEK 5,608 million (6,625). Total net income fell to SEK -883 million (3,463) mainly due to an impairment of SEK -3,488 million regarding the ownership in Turkcell Holding.

Comments by Allison Kirkby, President & CEO

“When I accepted the role of CEO last October I saw the enormous opportunities for a market leading operator such as Telia Company, taking advantage of the rapid technological change associated with 5G, fibre and digitalization and important customer trends such as the increasing demand for more convergent and cloud-based solutions. But there was no clue that the world itself was about to be massively disrupted by a global pandemic. And having watched the pandemic escalate around the world, it became clear to me that never before has society needed Telia Company more, to fulfill our purpose of ‘bringing the world closer’. I am immensely proud of how the whole Telia team have stepped up to the challenge, keeping the people and enterprises of the Nordics and the Baltics, connected, informed and entertained. And I am excited about the new opportunities that Telia will enable, as a result of the rapid acceleration in digitalization that we are now seeing.

Our second quarter results were better than our expectations, as a result of proactively addressing our cost base, but still clearly impacted by the COVID-19 pandemic. Service revenues declined on a like for like basis by 5.6 percent, with our traditional telecom revenues stable, if you exclude the impact from COVID-19. Despite the service revenue challenges adjusted EBITDA was flat, as we worked hard to mitigate the negative COVID-19 impacts (around SEK 0.5 billion in total in the second quarter). Having made the first payment for the acquired Champions League rights for the 2021-2024 period combined with additional weaker working capital our operational free cash flow fell to SEK 2.2 billion (from SEK 2.4 billion in the second quarter of 2019).

In the quarter, our market leading Swedish and Baltic operations remained stable and strong. In Sweden we are benefitting from the effects of the price adjustments implemented during 2019. However, as they will gradually fade during the year, commercial execution increases in importance. It is therefore encouraging that we increased the number of Telia Life customers to 288,000 and that our premium sports TV package has gained good traction and delivered better than plan since the launch at the end of May. Lithuania and Estonia have been strong for some time now, and have continued so during the second quarter, with service revenues and EBITDA growing 4.8 percent and 4.4 percent respectively (like for like), on the back of continued high levels of customer satisfaction, especially within our converged offers in both the consumer and enterprise segments.

I am also pleased to see Finland and Norway returning to growth, with adjusted EBITDA growing like for like, by 4.3 percent and 8.4 percent, respectively, from improved cost control. Establishing Telia as a credible alternative to the market leader is critical for us to return to sustainable top and bottom-line growth, so it was good to launch our 5G network in Oslo in the quarter and exciting to win a multi-year contract with Oslo Metro, to control their trains over our mobile network - a world’s first! The Danish market continues to be competitive, but we managed to keep EBITDA stable year-on-year.

TV & Media had a challenging quarter, mainly explained by COVID-19 impacts, with revenue and adjusted EBITDA declining like for like by roughly 30 percent each. However, viewership on both TV4, in Sweden, and MTV in Finland, continues to be strong, both on linear as well as digital platforms. TV4’s digital commercial share of viewing increased by close to 12 percentage points from the second quarter of 2019. Yet again, our vital role in society was evident during the most intense period of COVID-19, when TV4 News became the largest news show in Sweden, with the audience growing 30 percent on linear and 200 percent on digital platforms versus the second quarter 2019. Responding to our viewers, and their changing habits and interests, will be key to returning our TV and Media unit to sustainable profitable growth.

From a daring goals perspective, the second quarter was focused on helping our communities cope with the consequences of COVID-19. Our proudest achievement has been supporting the public health authorities in all our markets with Telia’s crowd insights service which helps decision makers fight the spread of the coronavirus. In just one month, 40 municipalities across our footprint have signed up for the services, which is an unprecedented take-up, and reinforces Telia Company’s unique role in enabling an increasingly digitalized society.

Despite a better than expected second quarter, we face tougher comps in the second half of the year, and the impacts from COVID-19 still remain. We therefore expect the adjusted EBITDA generation in the second half of the year to be similar to the level reported in the first half. Importantly, we maintain our prior guidance of an operational free cash flow for the full year in the range of SEK 9.5 to 10.5 billion. At this time, the Board of Directors have also concluded that it is too early to decide on any potential additional dividend during the autumn which is why we maintain the previously communicated dividend of SEK 1.80 per share.

On 17 June we announced our intention to divest our stake in Turkcell Holding, finally solving the last piece of the Turkey exit puzzle. On closing, later this year, we will be a more focused Nordic & Baltic business, with reduced risk, improved liquidity and a stronger balance sheet. The perfect starting point for a new era of Telia Company to build from.

During my first two and a half months as President and CEO I have been listening to, and getting to know, the businesses and the people of Telia. Despite the vast majority of these interactions being virtual in nature, I am overwhelmed by the engagement and the commitment, but also the desire to work with me, to restore Telia to sustainable growth that will create value for our customers, and our shareholders.

I will update you on my strategic priorities in more detail ahead of the full year report. But I want to highlight here some of the areas I will be focusing on immediately. Firstly, our core strengths are the quality leadership we have in our networks, our connectivity and entertainment offerings, and the scale and value of our customer base, both in consumer and enterprise. I want to build on these strengths to reinvigorate customer experience and top-line growth. Secondly, the team and I have identified inefficiencies versus our peers, so we will go through the cost base forensically to seek further efficiencies. We will apply a rigorous approach to capital allocation and invest further where it enhances our customer proposition and reach, and where we can generate appropriate returns. 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.

Alongside improving performance, I am building the team that will help me define the longer-term roadmap for Telia beyond 2020. I am therefore delighted to have recruited or promoted new leaders as Group CFO (Per-Christian Mørland), Group COO (Rainer Deutschmann), Strategy & Innovation (Markus Messerer), External Relations & Sustainability (Rachel Samrén) and the LED Markets (Dan Strömberg). All possess outstanding leadership skills and broad experiences from our sector, from both large-scale incumbents and high growth, agile, digital challengers. They, like myself and the whole Telia team, are determined to reimagine and restore Telia to a thought leader that outperforms the industry, by delivering superior customer experiences and superior business results.

To conclude, I am thrilled and excited to be leading Telia Company at this catalytic time. Our purpose and our values of Dare, Care and Simplify, could not be more relevant.”

Allison Kirkby President & CEO