Telia reports “resilient” Q2
July 20, 2023
Telia Company, the Swedish multinational telco, has reported that Q2 revenue increased 4.5 per cent to SEK 23,297 million (€2,031.9m) and like for like, revenue increased 2.2 per cent.
Service revenue increased 4 per cent to SEK 19,914 million and like for like, service revenue increased 1.9 per cent. For the Telco operations, service revenue increased 3.2 per cent.
In a press statement, Allison Kirkby President & CEO, said: “Our efforts to restore sustainable, profitable growth in our Telco operations gained further traction in the quarter, resulting in accelerating growth. Contrasting the solid development in Telco, TV and Media had another challenging quarter.
Telia’s Telco operations are proving to be resilient with service revenue and EBITDA growth accelerating to 3.2 per cent and 4.7 per cent respectively, achieving the highest growth rates on both metrics for many years, despite the more cautious consumer environment. This resilience proves the importance of our services to our customers, and Telia’s clear technology leadership is allowing both price adjustments as well as driving continued strong demand within the Enterprise segment. Mobile network modernization continued and across our footprint 84 per cent of the population now has access to Telia’s 5G networks, with clear leadership positions in Sweden, Norway and Lithuania.
TV and Media is however negatively impacting the Group’s financial performance as the current downturn in the advertising market is compounding the existing challenges in premium sports at a time of added cost from the ongoing business transformation. The previously announced restructuring of the business is well underway, and we have in the quarter taken further steps to reduce our cost base going forward.
Our approach to building a better Telia continues, as we deliver against the key strategic priorities we have laid out. Specifically, we said we would: 1) Restore growth by improving both our customer experience and our products to enable our customers to live better connected lives; 2) Be the leader in the build out of the most trusted, next generation digital infrastructure; 3) Transform our own operations so we can provide the digital experiences our customers need, but with a more agile, lower cost base; and, 4) Build the capabilities to deliver sustainably and responsibly for all our stakeholders. Progress against these priorities are evident across all our business units during the quarter.
In Sweden, handset sales were soft but the consumer subscription market was relatively stable, resulting in the lowest mobile churn since the pandemic, a contributing factor to the positive customer and service revenue growth we saw across mobile, fiber and TV. Growth in the Enterprise segment accelerated, driven by our technology strength both in the large enterprise segment, with Enterprise Mobile Networks and Telia Cygate developing well, and in the SME segment which will now benefit from the new cloud-based communication solution Telia Smart Connect that was launched during the quarter. While the overall service revenue growth in Sweden is still modest given legacy headwinds, it has improved around 3 per cent-points over the past six months as we have stepped up pricing initiatives. EBITDA remained largely flat, in line with our expectations, due to higher content expenses and a slightly higher availability in our call centres to help return NPS to growth post recent pricing initiatives. With pricing established and NPS back to growth again, we also expect EBITDA to return to growth in the second half of the year.
In Finland, the turnaround continues, with our improving brand consideration underpinning the momentum. Like in Sweden, the consumer market saw lower activity, and mobile churn was at its lowest since the pandemic. Service revenue growth of 2.3 per cent was driven by consumer mobile and solid growth in business solutions in the Enterprise segment, despite the impact from legacy declines and interconnect cuts. EBITDA grew 2.2 per cent despite unfavorable comparisons on personnel expenses due to industrial action in the same period last year and one-off expenses related to new union agreements this quarter. A significant sustainable energy initiative was launched in the quarter as Telia started to transfer waste heat from our data centre in Helsinki to the local district heating grid. The solution aims to provide heating to 20k local households and premises.
Norway delivered another quarter of solid, mid-single digit driven by both the Consumer and Enterprise segments. Our market position continues to strengthen on the back of our 5G network leadership, surpassing 90 per cent 5G coverage in the quarter, and is being leveraged not only through growth in end-user revenue but also through wholesale, an area we continue to build with the successful migration of Fjordkraft’s mobile customers on to our network in the quarter. Strong service revenue growth across both Consumer, Enterprise and Wholesale segments resulted in double digit EBITDA growth.
Lithuania and Estonia continued to convert mid-to-high single digit service revenue growth to double-digit EBITDA growth, despite the cost pressure from elevated inflation. Lithuania expanded its leading network position further and now leads both its local market and the Telia group with 99 per cent 5G population coverage and has now fully swapped out all Huawei network equipment to Ericsson in record time. Our most trusted and leading security position was evident as we were chosen as the sole connectivity and ICT provider to the NATO summit in Vilnius earlier this month.
Denmark also expanded its 5G network, now covering over 90 per cent of the population and supporting positive mobile growth across both Consumer and Enterprise, as well as fueling growth in broadband through the successful 5G Internet service delivered via Fixed Wireless Access. Continued focus on sustainable efficiency improvements resulted in a 24 per cent EBITDA growth. The sale of Telia Denmark to Norlys is on track and final agreements are expected to be signed during the third quarter.
In TV and Media, the work to refocus the business progressed and the launch of the new TV4 Play service is now just weeks away. The economic outlook and softening retail environment resulted in the advertising market weakening further in the quarter with our advertising revenue declining 14 per cent. Meanwhile pay-TV revenue grew 4 per cent, driven by price increases. EBITDA therefore declined to a SEK 7 million loss in the quarter, from the lower advertising revenues, content commitments made in earlier years, and costs related to the upcoming launch of the new hybrid TV4 Play service. Full focus is now on returning the business to profitable, sustainable growth. First, we are executing on the previously announced merger of the C More services into TV4 and MTV, the launch of the new hybrid service from TV4, and the closing of the C More brand. Second, we are making a fundamental change to our premium sports business by only pursuing rights with certain clear profiles that support the TV4 and MTV local positions going forward, and with a significantly improved cost/revenue ratio. And third, we are addressing the TV4 cost base. In taking these steps, our TV and Media business will accelerate its digitalisation, become even more relevant for both viewers and advertisers, and be in a strong position to restore profitability and cash generation when the advertising market returns.
Looking at our key financial metrics, Q2 was largely in line with our expectations, with strength in Telco operations partly offsetting weakness in TV and Media. As EBITDA growth in Telco has accelerated, supported by higher pricing activity, operational expenses have also increased somewhat due to inflationary pressure and investments in customer care to protect customer satisfaction. Net debt increased, impacted by cash flow phasing and a stronger EUR vs. SEK. However, the leverage target range of 2.0-2.5x remains, and with stronger forecasted cash flow in the second half of the year, and the sale of Telia Denmark, we expect to be back well within the range. Our outlook for the full year remains, although with lower contribution from TV and Media we are more likely to be in the lower half of our SEK 7-9 billion cash flow range.
Entering the second half of the year, we remain laser focused on our aforementioned strategic priorities that are clearly driving profitable growth momentum in our Telco operations. The work to refocus TV and Media, and to improve capital allocation and cash conversion also continues at speed. While inflation and higher interest rates remain strong headwinds for us, they are gradually stabilizing, and the resilience of our Telco operations will support our continued momentum in the second half of the year. That being said, we remain vigilant to continued macro-economic uncertainty and to changes in customer behaviors and will take the necessary actions, if they develop negatively, to protect our business.
To close, I would like to thank all my Telia colleagues and partners for their continued hard work, and our shareholders for their continued support, as we build a Better Telia for everyone. And I wish everyone a well-deserved summer break.”