CONTINUED PROGRESS TOWARDS A BETTER TELIA
Third quarter summary
- Net sales decreased 1.2% to SEK 21,271 million (21,530) and like for like, net sales increased 3.8%.
- Service revenues decreased 3.2% to SEK 18,130 million (18,733) and like for like, service revenues increased 2.3%.
- Adjusted EBITDA declined 4.9% to SEK 7,806 million (8,211) and like for like, adjusted EBITDA declined 1.9%.
- Total net income amounted to SEK 1,643 million (2,572).
- Operational free cash flow decreased to SEK 2,937 million (3,732) and cash flow from operating activities decreased to 6,665 million (7,392).
- The European Commission approved the divestment of 49% of the tower businesses in Finland and Norway to Brookfield and Alecta. The transaction is pending final regulatory approval and is expected to be finalized in the fourth quarter of 2021. The leverage ratio based on Q3 and including the tower proceeds is estimated at 2.0x.
- The outlook for 2021 is unchanged.
Nine months summary
- Net sales declined 1.2% to SEK 64,962 million (65,726) and like for like, net sales increased 2.8%.
- Service revenues decreased 3.2% to SEK 55,759 million (57,577) and like for like, service revenues increased 1.0%.
- Adjusted EBITDA declined 1.9% to SEK 22,782 million (23,225) and like for like, adjusted EBITDA increased 0.8%.
- Total net income amounted to SEK 10,722 million (1,689).
- Operational free cash flow decreased to SEK 9,031 million (9,240) and cash flow from operating activities decreased to SEK 20,450 million (20,829).
"Our third quarter results show continued progress towards the company's long-term ambitions. We are executing on our strategic priorities by expanding next generation connectivity services, improving commercial momentum through convergence, and accelerating structural cost take-out. While there are still some headwinds, the foundations required to Reinvent a Better Telia are now firmly in place, illustrated by another quarter of service revenue growth for the group and also growth in all except one business unit.
In the quarter we delivered service revenue growth of 2.3%, to SEK 18.1 billion. Structural cost reductions continue according to plan. Content investments, however, are impacting overall cost levels as well as pension phasing. This resulted in an EBITDA decline of 1.9%. Operational free cash flow remains strong, with SEK 9.0 billion generated so far in 2021. This puts us well above the level needed for the minimum SEK 2 per share dividend.
During the quarter we delivered solid commercial KPIs in the areas where we are the undisputed market leader. In Sweden customer additions across all key products, coupled with ARPU growth, resulted in service revenue growth for the first time since Q4 2016. Adjusting for legacy products and one-off items from Q3 2020, service revenues grew by 3.5%. This included growth in both consumer and enterprise segments. Operational expenses were impacted by continued investments in customer support and pension phasing. Adjusting for the latter and a one-off from Q3 2020 EBITDA showed a small growth. In the Baltics the previous quarter's strong development continued, operationally and financially, with EBITDA growth of 9% and 5% in Lithuania and Estonia, respectively.
In our challenger markets results were mixed. Positive trends experienced in Norway during recent quarters continued. Our subscriber base in the enterprise segment expanded further and the consumer segment base remained stable, resulting in an overall return to service revenue growth. Underlying improvement is, however, still distorted by the negative impact from a large wholesale contract, the reason also for an EBITDA reduction of 1%. Denmark returned to service revenue growth and management changes were made in the quarter to drive further improvements. Excluding a non-cash related item, EBITDA remained roughly unchanged. In Finland service revenue declined by 1%, nevertheless an improvement from previous quarters. The lower revenue and higher pension costs led to an EBITDA decline of 4.5%. Our turn-around efforts continue at pace focusing on a value loading approach - using our improved network quality, 5G upselling and media assets - to drive higher ARPU. Progress proof points are visible in network, brand and value for money perception increases. In the enterprise segment we are also seeing our datacom business turning to growth after having been in decline since 2019. Moreover, a move towards online sales and customer support channels are driving efficiencies as well as improved customer experience. That said, a return to positive financial development will likely materialize only during 2022.
TV & Media saw continued top line recovery with service revenue growth of 15% to which Ad and Pay/OTT revenue streams contributed equally. Within C More OTT we have seen a 40% growth in sport related subscriptions. Our already strong and broad offering was made even stronger in the quarter through the launch of UEFA Champions League (UCL). UCL investment cost, and other sport-related content costs that were postponed during the height of the pandemic, resulted in an expected EBITDA decline for the quarter. Consumption on our digital ad funded platforms grew by 58% and 22% in Sweden and Finland, respectively. Linear CSOV remained strong in both Sweden and Finland.
Our strategic focus on "Inspiring our Customers" was illustrated not only by strong customer base development in key product areas but evidenced also by leading customer satisfaction rankings. In Sweden, Halebop ranked number one in the consumer segment of the yearly SKI (Svenskt Kvalitetsindex) customer satisfaction survey, while Telia held the number one spot in the enterprise segment for the 18th year in a row. In Norway OneCall ranked number one in the consumer segment in the EPSI (Extended Performance Satisfaction Index). Phonero and Telia secured the number one and two spots respectively in the enterprise segment of the same. Customer satisfaction increasingly includes expectations on our environmental work. We have reduced our own CO2 emissions by 78% since 2018 and are now focused on engaging with suppliers to make them set science-based climate targets. Seven out of the ten suppliers that emit the most carbon dioxide in our supply chain have now set, or committed to set, science-based targets helping us make progress towards a climate-neutral value chain by 2030.
A prerequisite to deliver on our "Connect Everyone" priority is the right spectrum. During the quarter we strengthened our spectrum, and greatest challenger, position in Norway through the acquisition of both 3.6GHz and 2.6GHz spectrum. We are maintaining momentum in our 4G network modernization and 5G roll-out. In Sweden we have expanded our 5G coverage to 25 cities while in Finland and Norway we have 54% and 31% 5G population coverage, respectively. We remain the sole 5G provider in Estonia and are ready to commercialize 5G services through rapid modernization of sites in Lithuania. We also strengthened our fiber broadband base, surpassing 1 million subscribers in Sweden and taking our total fiber connections to 1.8 million, equaling 8% growth.
Our effort to "Transform to Digital" has resulted in more than SEK 65 million reduction of IT costs in the quarter, an increase from the SEK 45 million level seen in Q2. These are structural and sustainable reductions generated through the decommissioning of legacy systems and products, as well as through the consolidation of IT vendors.
In line with our commitment to "Deliver Sustainably" we demonstrate clear positive impacts, combining our strong assets into attractive converged offerings while being disciplined on pricing through our "more for more" strategy. And we continue to take further steps towards monetizing 5G while maintaining our cost reduction focus. Regulatory approvals for the tower transaction announced in Q2 are on track for closing in Q4, crystalizing infrastructure value and further strengthening our balance sheet. Finally, we were awarded Gold level recognition by Ecovadis, the world's largest provider of business sustainability ratings, for our sustainability achievements and combined work across environment, labor rights, ethics and sustainable procurement. Gold status is awarded to the top 5% out of 75k companies globally.
We reiterate our full year outlook of service revenues and EBITDA, excluding Telia Carrier and FX, at flat to low single digit growth, with EBITDA anticipated in the lower end of the range. The cash CAPEX outlook is expected to be in the range of SEK 14.5 to 15.5 billion, most likely in the mid part of the range.
Lastly, as I recognize how we successfully provided connectivity, at work and at home, throughout the pandemic, I am tremendously excited to imagine the even greater services and experiences we will be able to provide our customers, employees, shareholders, and societies now when we can finally meet again and Reinvent Better together."
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 7 a m CET on October 21, 2021.
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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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