Telia Company Interim report January-March 2020
- 2020-04-22 05:00 UTC
SERVICE REVENUE TREND IMPROVED SEQUENTIALLY
First quarter summary
- Net sales rose 7.6 percent to SEK 22,427 million (20,836) and like for like regarding exchange rates, acquisitions and disposals, net sales fell 2.2 percent.
- Service revenues grew 10.5 percent to SEK 19,716 (17,836) and like for like regarding exchange rates, acquisitions and disposals, service revenues declined 1.0 percent.
- Adjusted EBITDA fell 1.8 percent to SEK 7,277 million (7,413) and the adjusted EBITDA margin fell to 32.4 percent (35.6). Like for like regarding exchange rates, acquisitions and disposals, adjusted EBITDA fell 5.1 percent.
- Adjusted operating income fell 23.4 percent to SEK 2,668 million (3,485).
- Total net income amounted to SEK 1,146 million (1,810). Total net income attributable to owners of the parent amounted to SEK 1,109 million (1,803).
- Operational free cash flow from continuing operations fell to SEK 3,307 million (4,409). Cash flow from operating activities, from continuing and discontinued operations, increased to SEK 7,170 million (6,394).
- Outlook 2020 (updated): Operational free cash flow is expected to be between SEK 9.5-10.5 billion.
- Moldcell in Moldova was divested in the quarter, implying that all operations in the former segment region Eurasia now have been divested.
- For COVID-19 impact, see section Review of the group, page 7.
Comments by Christian Luiga, acting President & CEO
“The beginning of 2020 cannot be characterized as business as usual for Telia Company and society as a whole. All of us across the globe are currently experiencing major disruptions to our daily lives due to the Coronavirus pandemic. With many communities in isolation, our communications and broadcasting services play an even more important role in keeping people connected, entertained and with access to information and business services. As Telia Company we have a key role to play in the countries where we operate but also on a global scale through our unit Telia Carrier. Our mission in this crisis is to keep our customers connected, informed and support businesses to adapt to new ways of working. The resulting behaviour shift has meant that data traffic has increased by more than 30 percent on our fixed networks and by 15-20 percent on the mobile networks, which has also seen an increase in voice traffic by as much as 70 percent in some countries. This illustrates that customers have recognized and appreciated our services. Despite these significant increases in demand and capacity our networks have been resilient, a clear proof point of our superior networks, in fixed and mobile. In addition, we have launched initiatives across our markets to further support our customers and the broader society, such as tools and advice regarding working remotely, increasing data buckets for the elderly and supporting health care services with remote services. Our Crowd Insights is helping authorities to better understand the effect of social distancing measures, by showing movement patterns of crowds through data analytics. The well-being of our employees is, as always, one of our highest priorities and the pandemic has affected how we work. More than 75 percent of our 21,000 employees are working from home. I am exceptionally proud of how our staff has risen to the occasion.
Our financial performance is stable within our traditional telco business, with flat service revenues and an underlying growing adjusted EBITDA, whilst COVID-19 has had a negative impact on the TV & Media unit. Our service revenues are on a like for like basis down by only 1 percent, despite having been burdened by TV & Media and legacy services. Looking at our core services mobile revenues are growing by 1 percent, driven by ARPU development and broadband is growing by 3 percent. Costs are negatively impacted by a lower pension refund, sport content write down and service operations. Our cost agenda continues to be executed upon. In the second quarter we plan to address and reduce resource costs in several markets amongst other measures that will assist with the cost management. We also expect additional impact from our Common Products and Services unit during the second half of 2020. Adjusted EBITDA shows a 5 percent decline like for like as TV & Media has a severe negative impact. Operational free cash flow reached SEK 3.3 billion, a reduction of SEK 1 billion compared to the first quarter of 2019. This is mainly related to higher tax payment and less pension refund. Notably adjusted EBITDA less cash CAPEX shows a 3 percent growth. The financial leverage at the end of the first quarter 2020 was 2.6x adjusted EBITDA.
The Swedish business continues to be impacted by declining legacy revenues. Service revenues, however, were flat as price adjustments continues to compensate for the legacy decline. Mobile subscription revenue returned to growth for the first time since the fourth quarter 2018, growing by 1 percent. Broadband revenues grew by 5 percent supported by price adjustments and a 40 percent increase in OCN (open city networks) penetration. Adjusted EBITDA was reduced by 0.7 percent negatively impacted by a lower pension refund. Adjusted for this Sweden now has two consecutive quarters with EBITDA growth.
Our newly established business unit TV & Media is experiencing significant negative financial consequences from COVID-19 and from other market changes. The economic downturn in our markets has resulted in lower advertising revenue and we are also impacted from the temporary lack of live sport broadcastings. As such, revenues have reduced by 8 percent which has a direct impact on profitability. Despite this, TV4 and MTV have launched several series and shows, such as “Bäckström” with 1.8 million total viewers, setting a new viewership record on our digital platform. These shows’ popularity have also resulted in an increased share of viewing, especially on digital platforms, with Sweden increasing by 4 percentage points from the first quarter of 2019 and also a growing share in Finland. This puts us in an even stronger market position, despite that the largest TV distributor in Sweden has decided not to include part of our content in the offering to their customers. We believe we will benefit from this improved position when more normal conditions return.
As previously reported (March 26), the TV & Media unit’s adjusted EBITDA is expected to be in between SEK 0 to 0.5 billion in 2020 and we have had limited impact on our traditional telco business from the COVID-19 crisis to date. Looking ahead the main risk areas are related to roaming, TV distribution revenues, delayed commercial activities, potential supply chain disruptions, the wellbeing of employees and key contractors as well as the financial stability of our customers.
We have identified several mitigating activities that will partially compensate for the decline within our TV & Media unit, but that will also support the traditional telco operation should they also be impacted. We continue to focus on the execution of our commercial agenda with loyalty and convergence as main tools to increase ARPU and protect our customer base. All in all, we expect that we can deliver an operational free cash flow in the range of SEK 9.5-10.5 billion for 2020.
Despite the current turbulent times we remain fully committed to our climate goals for 2030 where we have set midterm target for 2022, including being climate neutral in our own operations and to engage all suppliers to have a plan in place by 2022 to reach zero CO2 by 2030, including their suppliers. In addition, we have issued a green hybrid bond of EUR 500 million, one of the first European telecom operators to do so. We believe that we will have an important role ahead as digitalization will likely play a vital part in a rebuilding our economies in a more sustainable way once societies open up again.
Moldcell, our former operation in Moldova, was divested during the quarter and the transaction was approved in late March. With this, all operations in the former region Eurasia have now been divested.
In a couple of weeks, I will end my term as acting President and CEO and return to my previous role as CFO. No doubt this has been eventful period for our company. I welcome our incoming President and CEO Allison Kirkby and look forward to the next chapter in the history of Telia Company. To all of the employees at Telia Company I want to express my sincere gratitude for their support during my period as President and CEO.”
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 April 22, 2020.
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.