Telia Q3 profit increases
October 19, 2023
Telia Company, the Swedish multinational telco, has reported Q3 that revenue increased 4.3 per cent to SEK 21,997 million (€1,894.25m) and like for like, revenue increased 1.1 per cent.
Service revenue increased 5.6 per cent to SEK 18,986 million and like for like, service revenue increased 2.6%. For the Telco operations, service revenue increased 3.9 per cent on a like for like basis.
Allison Kirkby, President & CEO, commented “In the third quarter, Telia’s growth accelerated to levels not seen in many years, with momentum in our Telco operations more than compensating for the weak advertising market. With all Telco markets now showing solid top and bottom-line development, we are clearly progressing against our plans to build the Better Telia we envisaged for all our stakeholders, when we laid out our growth strategy almost three years ago.
Service revenue growth accelerated to 3.9% in our Telco operations, with growth in all markets and equally driven by mobile and fixed services and has consistently been in the 2-4% range in six of the last seven quarters.
Telco EBITDA growth of 9.3%, the highest ever, was driven by improved underlying trends in both revenue and costs, as well as benefiting from some temporary tailwinds, including lower energy prices. Excluding effects of energy prices, Telco EBITDA has grown consistently in the past eight quarters. Meanwhile, the challenges for TV and Media in advertising and streaming markets are now partly mitigated by the broad set of actions taken, although much work remains. This led to an overall EBITDA growth for the group of 7.6% for the quarter.
Delivery against our key strategic priorities continued with the following key achievements during the quarter: 1) Revenue growth accelerated, as did relationship NPS, despite price increases; 2) Our network leadership position was strengthened further with Telia’s 5G now reaching 87% of the Nordic/Baltic population and in us securing the leading spectrum portfolio in the recent Swedish spectrum auction; 3) Structural cost transformation continued, resulting in 2.1% reduction in operational expenses, in spite of inflation; , 4) Our net zero target for 2040 was approved by the SBTi, a significant moment for us and one that confirms our unwavering commitment to ensuring every part of Telia is equipped to deliver responsibly and sustainably; and, 5) The final binding agreement for the divestment of Telia Denmark to Norlys was completed in the quarter and the transaction remains on track to close in Q1 2024, as previously announced. As a result, Denmark is now reported as discontinued operations.
Sweden’s service revenue grew 2.2%, driven in particular by 5.4% growth in Enterprise, where our security and cloud services are increasingly relevant and in-demand for both private and public enterprises. Wholesale grew 4.2%, driven by pricing. And Consumer broadband and TV grew in terms of both customer numbers and revenue, while mobile was stable. EBITDA growth improved, from both temporary tailwinds and an improved channel mix. Infrastructure modernisation continued at pace with 5G coverage now at 77%, fiber revenue grew 10% and a successful outcome of the important multi-band spectrum auction increased and secured leading spectrum positions for the coming 25 years.
Finland delivered another quarter of service revenue growth of around 2%. Continued strong growth in Consumer mobile ARPU, driven by a reduced exposure to the low-end segment, was the main driver in the quarter, but the Enterprise and Wholesale segments also showed positive growth. Network modernization and a relentless focus on customer value resulted in improved network perception and higher relationship NPS. The lowest mobile churn in six years and an efficient channel strategy drove a reduction in sales and marketing cost. This, together with further resource cost reductions and significant energy tailwind resulted in double digit EBITDA growth.
Norway’s service revenue growth was again strong at 5.8%, driven by positive development across Consumer, Enterprise and Wholesale. Growth in mobile wholesale was in particular driven by Fjordkraft mobile, which for the first time contributed a full quarter. Key initiatives in the quarter such as the launch of ICT services from Telia Cygate and an enhanced TV proposition, are fueling our “daring challenger” brand position and consideration. Double digit EBITDA growth was driven by the revenue momentum, an improved channel mix towards own channels and an energy tailwind.
Lithuania service revenue growth accelerated to 9.9%, driven by active pricing across both mobile and fixed services, as well as from the successful delivery of connectivity to the NATO summit in Vilnius in July. Our 5G leadership is strengthening brand consideration, increasing further our postpaid subscriber base. EBITDA growth of 19.4% was driven mainly by the higher service revenue and a considerable energy tailwind. Estonia also continued to counteract inflation with progressive pricing, and a premium brand positioning focused on the vital role Telia plays in both technology innovation and connectivity, resulting in service revenue growth of 7.2%. Reduced energy prices also contributed to an EBITDA growth of 15.4%.
TV and Media continues to experience a tough advertising market whilst in the midst of a major business transition. The new TV4 Play service was launched in the quarter and is so far progressing according to plan, confirming the relative strength of the TV4 brand in relation to C More, which is being gradually discontinued. Advertising sales fell 16%, in line with our expectations, while direct OTT revenue grew 9%. Restructuring continues, and although EBITDA declined, it fell less than in the previous quarter.
Our agenda for returning TV and Media to profitability remains. First, we are executing on the 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 and MTV cost base. In taking these steps, our TV and Media business will accelerate its digitalization, become even more relevant for both viewers and advertisers, and be in a stronger position to restore profitability and cash generation when the advertising market returns.
All of our other key financial metrics were in line with our expectations, with Operational Free Cash flow at SEK 3.4 billion, and the structural part at SEK 3.7 billion. Leverage fell to 2.53x due mainly to growth in EBITDA.Looking ahead, and based in part on this quarter’s results, we can now upgrade our EBITDA outlook to low-single digits this year, vs. our earlier outlook of flat to low-single digit growth. The structural part of Operating Free Cash Flow is expected to be around SEK 7.5 billion, despite the discontinuation of Denmark. Further, the ongoing recovery in working capital, in the midst of the remaining macro uncertainties, will remain a key focus area during Q4 and into next year. On leverage, our view remains unchanged that it is expected to be well within our 2.0-2.5x target range after the closing of the transaction in Denmark.
To close, I could not be prouder of the progress we have made towards creating a “Better Telia” in these past 3+ years despite the many macro headwinds we have faced. With our network leadership secured, a return to consistent growth in all our Telco markets, progress against our structural cost agenda, sustainability embedded in our operations, and a much-improved capital allocation, I believe that it is a stronger Telia that I will transition to the next CEO at the beginning of next year. I would like to take this opportunity to thank the whole Telia team for their enormous efforts to make Telia a much better company for all its stakeholders, today, tomorrow and well into the future.”