Telia Company Interim report January-September 2019

Third quarter summary

  • Net sales like for like regarding exchange rates, acquisitions and disposals, fell 3.7 percent. Net sales rose 2.4 percent in reported currency to SEK 21,180 million (20,685). Service revenues like for like regarding exchange rates, acquisitions and disposals, fell 1.3 percent.

  • Adjusted EBITDA excluding the positive impact from IFRS 16, like for like regarding exchange rates, acquisitions and disposals, rose 1 percent. Like for like regarding exchange rates, acquisitions and disposals, adjusted EBITDA increased 11.0 percent. Adjusted EBITDA increased 18.5 percent in reported currency to SEK 8,268 million (6,977). The adjusted EBITDA margin rose to 39.0 percent (33.7).

  • Adjusted operating income fell 2.8 percent to SEK 3,852 million (3,964).

  • Total net income declined to SEK 2,428 million (3,026). Total net income attributable to owners of the parent declined to SEK 2,375 million (2,825).

  • Free cash flow from continuing and discontinued operations rose to SEK 5,310 million (2,963). Operational free cash flow from continuing operations rose to SEK 4,743 million (2,569). Cash flow from operating activities increased to SEK 8,559 million (6,299).

  • Outlook 2019 is unchanged.

  • The new lease accounting principles, IFRS 16, have had significant effects on the financial statements for 2019. Comparative information for 2018 has not been restated. See Note 1.

Nine months summary

  • Net sales like for like regarding exchange rates, acquisitions and disposals, fell 3.7 percent. Net sales rose 3.2 percent in reported currency to SEK 63,298 million (61,351).

  • Adjusted operating income fell 6.0 percent to SEK 10,483 million (11,153).

  • Total net income rose 25.9 percent to SEK 5,879 million (4,670). Total net income attributable to the owners of the parent rose to SEK 5,769 million (4,275).

Comments by Christian Luiga, Acting President & CEO

“We have previously stated that the second half of 2019 would be an improvement versus the first half of the year and the third quarter of 2019 confirms this. In the first half of the year our operational expenses increased by 1 percent and in the third quarter they have been reduced by 4 percent. The adjusted EBITDA excluding IFRS 16 impacts grew by 1 percent on a like-for-like basis in the third quarter compared to the decline of 3 percent in the first half of 2019. Operational free cash flow is positive and amounts to SEK 11.6 billion year-to-date, compared to SEK 9.4 billion in the corresponding period 2018. The improvement is mainly driven by acquisitions and working capital, some of which should be seen as phasing between quarters. We reiterate our outlook for 2019 at SEK 12-12.5 billion. The service revenue trend has improved with a decline of 1.3 percent in the third quarter versus a 2 percent decline during the first half of the year. Overall service revenues have been supported by commercial activities in the consumer side, which are expected to have additional positive impacts in the coming quarters but burdened by legacy and a slightly weaker enterprise segment versus the second quarter.
I have now spent one month as acting CEO of this great company. After five years as CFO, I know the strategy well and I am committed to deliver on it. It is now time to further increase our focus on execution. In Sweden we have the ambition to bring high speed, high quality broadband services to all households, both on our award-winning mobile network and on our own and others’ fiber networks. We have taken steps forward in this area and we will enhance our service revenues further. We also see that we gradually increase our market share in the enterprise segment, especially through ICT services. In Norway we will have a similar position enabled by Get and the upgrade to 5G we announced last week. In Finland we increase our capabilities, most recently through the roll-out of 5G in the largest cities and the launch of 5G subscriptions with up to 1,000 Mbit/s speeds. The strong positions across our markets create an even better opportunity to enhance customer experience, through convergence, where we have not yet lived up to our full potential. We are also excited and eager to utilize the strengths of Bonnier Broadcasting once the EU Commission has made its final decision, expected on November 19, at the latest. In the enterprise segment we have proven our skills in ICT, especially in IoT where we are currently growing revenues by more than 20 percent. This provides further proof points of our strategy to be the digital partner of choice.
Apart from strengthened customer experience and loyalty, convergence will also improve return on investments, both now and in the future, and as such create shareholder value.
The focus on reducing our cost base continues, where our new operating model creates a good platform to become a more efficient company. By restructuring our delivery model and technology platform we expect improvement in speed to market whilst also generating material IT and network spend efficiencies. By the end of the year we will have reached a run rate of around SEK 200 million in annual costs savings from the new operating model. As of October 1, 2019, we have onboarded Finland, moving some 250 employees to our unit Common Products and Services. Norway, Estonia and Denmark will follow on January 1, 2020. Finally, we will continue to focus on our sustainability agenda including our daring goals.
We repeat our second quarter statement, that the operational free cash flow composition in 2019 differs from our initial plans. We have delivered faster than planned on changes in working capital and it has boosted current cash flow meanwhile lowering the upside going forward. We also see that the opportunity to reduce CAPEX in 2020 is limited, as we foresee more need from customer driven demand, our ambition in fiber broadband, as well as remaining the leader in mobile through 5G. We have a stable base, on top of which Bonnier Broadcasting will contribute once the transaction is approved. However, considering all the factors there is currently a higher uncertainty on the operational free cash flow level for 2020.
Despite turning the trend, we have a slower than expected recovery of the service revenues, impacting our financial leverage expectations negatively. Adding a potentially weaker economic outlook, we have decided not to execute on the remaining SEK 5 billion of the three-year share buy-back program. Since the start we have committed to use SEK 10 billion, or around 6 percent additional return to our shareholders. Both management and the Board of Directors continue to see the ordinary dividend as a strong fundament for creating shareholder value.
As mentioned above our outlook for the full year operational free cash flow of between SEK 12-12.5 billion is reiterated. We will provide an outlook for 2020 in connection to the fourth quarter results.
I would like to send a sincere thank you to our employees for the strong efforts so far in 2019. The commitment you have shown makes me even more convinced that we will be able to execute on the potential we have going forward.”
Christian Luiga, Acting 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 07:00 CET on October 17, 2019. 
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Forward-Looking Statements
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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