Transformation and Covid give Telia Company a rocky Q1

Transformation and Covid give Telia Company a rocky Q1

Allison Kirkby.jpg

Telia Company has published its first financial results after the launch of its transformation strategy.

A clear case of speculate to accumulate, the Q1 results saw flat growth and declines across many metrics and markets as the major telco started to reposition its business.

In line with the outlook for flat growth in 2021 – and compared to Q1 of last year – the company posted a 2.7% decline in net sales and a 4.9% decrease in service revenue, which finished on SEK 18.7 billion for the quarter.

EBITDA grew 2.2% to SEK 7.2 billion, while CEO Allison Kirkby (pictured) said operational free cash flow was "very strong" at SEK 4.0 billion – "a similar level to last year, excluding the positive contribution from working capital during the quarter", she added.

In Norway, the consumer mobile and SME segments performed well with EBITDA growing 16%. Denmark was heavily impacted by Covid-19 restrictions and product portfolio rationalisation, although Kirkby said "transformation towards a simpler digital operator enabled EBITDA to be relatively stable".

Of all markets, Finland experience significant roaming impacts, with weaker results in ICT and professional services. On the positive side, Kirkby said that "customer perception is improving on the back of 5G and new TV packages, and continued headcount reduction minimised the EBITDA decline to 2%".

The outlook for 2021 remains unchanged: service revenues and adjusted EBITDA, in constant currency and excluding Telia Carrier, are expected to be flat or grow by low single digit. Cash CAPEX, excluding Telia Carrier and fees for licenses and spectrum, is expected to be in the range of SEK 14.5 billion to SEK 15.5 billion.

To 2023, Telia Company has forecast low single digit growth in sales, low to mid-single digit growth in adjusted EBITDA and 15% cash capex to net sales.

One key element of the transformation strategy is the sale of Telia Carrier to Polhem Infra, an infrastructure investor owned by Swedish pension funds, for 9.45 billion Swedish kronor (€900 million).

On this point, it was confirmed that all approvals have now been received and the transaction will close on June 1, 2021. 

Kirkby said: "Having launched our updated strategy to create a better Telia, we are now firmly in execution mode and our transformation program is fully under way. Achieving the guidance given for 2021-23 should provide investors with a clear route to value creation. Our efforts are focused fully on delivering on the roadmap that will enable growth, develop our asset base, allowing us to reinvent better, for our customers, employees, and shareholders, while contributing our part to enabling the development and digitalisation of the societies of the Nordics and the Baltics.”

Modern-day challenges

Covid-19 restrictions impacted almost all markets with roaming taking another hit in the most recent quarter. In fact, lower roaming revenues due to the pandemic are estimated to have negatively impacted service revenues by around SEK 250 million. Baltic markets, however, were able to offset all the headwinds, with Lithuania and Estonia EBITDA up 4% and 6% respectively.

Kirkby said: "In our market leading operations of Sweden and the Baltics, Sweden suffered from lower roaming and an acceleration of legacy declines. Underlying growth in Consumer Mobile, Broadband and TV, and a 3% operational expenses reduction, were not enough to offset the roaming and legacy headwinds, and so EBITDA declined 5%. Looking ahead, we expect positive trends in the second part of 2021, driven by both commercial activities and increased efficiency."

On 5G Telia Carrier said it was "well positioned" for roll outs in Sweden and Denmark while network modernisation has seen the company "strengthening our leading 5G positions in Sweden, Norway and Estonia while catching up in Finland".

In Sweden, 5G handsets now represent up to 55% of all new handset sales, a development Kirkby noted was "providing momentum" ahead of wider service launches across the footprint. In Norway, in Q1 Telia Company became the first operator in the country to launch an Enterprise Mobile Network (EMN), enabling it to dedicate mobile networks for new industrial services.

Kirkby said: "With continued network roll-out as well as handset migration underway, 5G monetization opportunities across segments will accrue in the second half of the year. Our strong network provider position more generally was emphasised by our global network service capabilities yet again being included in Gartner’s Magic Quadrant and the Ministries of Foreign Affairs in both Sweden and Norway choosing us as the provider to connect their embassies around the world."

Telia Asset Management, unveiled in February and tasked with looking after towers and tower investments, is now "fully operational and actively reviewing our tower assets, in Norway and Finland".

Creating a better Telia

While 5G, tower monetisation and Covid remain hot topics, the results were all about creating a better Telia.

Launched at the start of the quarter, the strategy covers four pillars: Inspiring our Customers; Connecting Everyone; Transforming to Digital; and Delivering Sustainably. When announced in January by CEO Allison Kirkby it was expected to yield an improved EBITDA less capex of SEK 3 billion and SEK 5 billion by 2023 and 2025 respectively. "As part of this program, we will reduce operational expenses by SEK 2 billion until 2023 and SEK 4 billion until 2025," Kirkby said.

In the Q1 results, she elaborated: "We have only just started, and I am happy to see the initial effects coming through."

Content – which has also paid off for AT&T – is playing a major part in this.

Kirkby added: "TV is a clear growth lever, and we are seeing an excellent increase in share of viewing on both linear and digital platforms in Sweden as well as Finland. Commercial share of viewing increased to 49.8% in Sweden, and time spent on our TV4 Play AVOD platform grew by 36%, providing confidence in our ability to sustain and grow our linear TV business in digital channels."

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