Telia Company AB Q4 2023 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Andrew J. Lee - Goldman Sachs Group, Inc. - Analyst : I just -- the question is really around cash flow headwinds. So obviously, your share price is telling the story today, and your 2023 didn't quite meet the ambitions of structural operating free cash flow as has been set out by management. And 2024 started with kind of disappointment on -- versus consensus expectations on CapEx and interest costs. So just one question on CapEx and one question on the interest costs. On the CapEx side, ultimately, your guidance is SEK 500 million more than consensus anticipated. Just want to get a sense of -- the market obviously needs a better sense as to the direction of travel for your CapEx. Clearly, I think you've laid out there's some success-based CapEx in there for this year in terms of customer connections. But how can you help investors understand the structural CapEx outlook to '24 but -- as we go into '25 as well in terms of sense of direction there? And then just secondly, on the interest costs, the last couple of years have been kind of littered with negative surprises around vendor financing risk and now around the interest costs. Just trying to understand, consensus was way below where interest costs turning out for 2024. But those interest costs -- that interest cost hike is driven by financing done at the start of 2023. So I wonder if you could just talk through how you can help investors better understand the puts and takes on interest costs and any coupon expansion because we're constantly getting surprised by some of these factors.

Question: Andreas Joelsson - Carnegie Investment Bank AB - Analyst : Yes. Surprisingly, a follow-up on cash flow. Just wondering about the proceeds that you expect coming from Denmark if you have made a decision how to use that, if that will go entirely to deleverage or, if you will, perhaps use it also to reduce the vendor financing program. And then secondly, on the working capital, which you say will be positive, can you give us some more clear visibility in that, how you can be so certain that, that will come up? And perhaps also finally, can you tell us a little bit about the Board's arguments? There have been a couple of years when the dividend has not been covered, and 2024 looks challenging. So if you can explain a little bit the floor of SEK 2, how the Board is sort of argumenting on that floor.

Question: Maurice Graham Patrick - Barclays Bank PLC - Analyst : Sorry to ask more modeling questions. But maybe if you could help us understand some of the OpEx drivers for 2024. You could -- put together through some of them in your prepared remarks, but I'm thinking what sort of wage increases should we be factoring in? Is it sort of a 3% or 4% number, I think, you've talked about before? What do you see the absolute energy tailwind being for the year or headwind even? Maybe some of that by location as well would be helpful.

Question: Maurice Graham Patrick - Barclays Bank PLC - Analyst : Any other sort of headwinds or tailwinds you want to call out maybe in inflationary pressures in the rest of the business? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JANUARY 26, 2024 / 8:30AM, TELIA.ST - Q4 2023 Telia Company AB Earnings Call

Question: Ondrej Cabejek - UBS Investment Bank - Analyst : I've got 2 questions, please. One is maybe on the working capital or more kind of precisely the vendor financing going forward. So the same way you've had a big negative drag in terms of this item because of interest rates increasing, what is your expectation going forward as interest rates supposedly or hopefully normalize? And how would you kind of manage what today is the SEK 11.5 billion pie? Because I guess you would have an option to either see that number decline on the back of interest rates coming down or you would have the option perhaps to expand the program to other areas. So what is your kind of thinking about managing this program going forward? That is one question. And then the second question, please, on the TV review, which is kind of currently -- you're doing the transformation of this fleet. There is, I guess, the trough of trends that we're seeing in terms of advertising, EBITDA, et cetera. You are about to potentially save a lot of money on the UEFA rights. You did a small impairment on the asset, but we've seen, I guess, speculation in the press that you're looking at selling this asset for much lower value than you bought it for. So I guess I know you probably won't to comment on that, but directionally, or generally speaking, why would you make a decision to sell the asset now versus waiting for another year when things clearly improve, both from like a restructuring and cost as well as a market perspective? Because, obviously, the media kind of assets are probably not trading where they could be today. So any comments on that would be helpful.

Question: Ondrej Cabejek - UBS Investment Bank - Analyst : One quick follow-up. Is there a payment related to this ending 3-year cycle of UEFA content to be made in '24? Or you kind of say half the year ahead, i.e., the final payments would have been made still in '23, therefore, any kind of cost savings on the rights would fully be annualized in '24 should you keep the rights?

Question: Ondrej Cabejek - UBS Investment Bank - Analyst : Yes, exactly, if there any residual payments, yes.

Question: Nick Lyall - Societe Generale Cross Asset Research - Analyst : It was a quick one first on Sweden. You mentioned the improvements in the network and the relative position of the network. Does -- are you feeling more aggressive about price rises into '24, please, Eric? And also, how does that sit versus the big premium that you sit on versus the other operator? Could you just mention sort of strategy into '24 on pricing, please? And just to come back, if I could, to Andreas' question as well on the divi policy of the Board, could you give us some parameters on that? Have the Board set parameters on when this becomes unsustainable and why it's sustainable, please, I mean, such as the number of years that the divi is going to be uncovered or the gearing levels that you would run to? Because obviously, the divi goes back to a cash divi of SEK 8 billion this year. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JANUARY 26, 2024 / 8:30AM, TELIA.ST - Q4 2023 Telia Company AB Earnings Call So it's going to be pretty apparent that the divi is uncovered if you are hitting, let's say, SEK 7.5 billion in the middle of the guidance. So what has the Board said about the sustainability of this dividend policy, please?

Question: Jakob Bluestone - BNP Paribas Exane - Analyst : I've got 2 quick ones, please. Firstly, just get back on the CapEx question from Andrew earlier, I mean it's very clear that you expect steady CapEx sales, and that's driving a small increase in CapEx this year. My question is more what happens beyond '24? I mean if I look at your strategy update on Page 25, you do reference peak absolute CapEx, if I understand the slide correctly. So beyond '24, do you think you can bring down either CapEx sales or CapEx in absolute terms? Any thoughts around that would be helpful. And then just secondly, around your labor cost, as you mentioned, I think you said a 5% average increase. Your personnel expenses went up by 10% this year. So if you can maybe just help us understand what were some of the other pressures. And specifically, where are the sort of productivity without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JANUARY 26, 2024 / 8:30AM, TELIA.ST - Q4 2023 Telia Company AB Earnings Call improvements showing up there? Because it's obviously a fairly sizable impact, I guess, partly because of some of these bonus payments. So just interested on your thoughts on sort of what kind of increase in personnel costs we could see as opposed to wages specifically.

Question: Siyi He - Citigroup Inc. - Analyst : I have 2, please. And the first question, I was just wondering if you can talk about your cost-saving program for '24 and '25. I remember when you laid out your strategy back in '21, you said that you're targeting net savings of SEK 2 billion between '21 to '23 and another SEK 2 billion between '24 and '25. And I was just wondering if you can walk us through what are the new cost-saving initiatives you have in mind to achieve that. And the second question is on net working capital. You have -- if I look at the net working capital contribution since 2016, you started the program, I think you have a SEK 10 billion positive contributions. And also you now expect meaningful contribution for 2024. I'm just wondering, compared to your telco peers, how do you view your working capital efficiency? And probably beyond '24, how should we think about net working capital development in the medium term? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JANUARY 26, 2024 / 8:30AM, TELIA.ST - Q4 2023 Telia Company AB Earnings Call

Question: Fredrik Lithell - Handelsbanken Capital Markets AB - Analyst : A lot of questions have been asked. I just wanted to come back a little bit on the pricing environment that you have had a few years with fairly decent price rises on numerous services. How do you think 2024 will play out? And sort of what are you sketching on in possibilities for price increases on services? So that's one part in there. And Rainer, your slides -- very good slides on what you have achieved digitalizing and picking out all the legacies and all that stuff during 2020 and 2023. I would be interested to hear your painting a picture on what more you can do if you take a 2-year or a 3-year horizon and how specifically that could impact the sort of the production cost in the networks and so on. So it would be interesting to hear that.

Question: Fredrik Lithell - Handelsbanken Capital Markets AB - Analyst : Yes, absolutely. Very clear. Very good.

Question: Keval Khiroya - Deutsche Bank AG - Analyst : I've got 2 questions, please. So firstly, are you able to share with us what currency assumptions you're using for the 2024 free cash flow guidance, given the SEK tends to be quite volatile and your operational cash flow is unhedged? And maybe put another way, if there's 10% depreciation in the SEK, what does that mean for your free cash flow? And then secondly, you've already talked about wanting to be at the top end of the free cash flow guidance range. So kind of I'm wondering why the low end of the guidance range is even there. Are there any scenarios where free cash flow could end up in the lower half of the range? Or should we really focus on the upper half?

Question: Viktor H÷gberg - Danske Bank A/S - Analyst : So just a quick follow-up on the Denmark proceeds. If the net interest effect of that, so the interest received on a cash balance and then the lower interest rate -- lower interest cost once delevered, is that baked into the 2024 guidance of the increase of SEK 1 billion in added interest costs? Or is that an effect that will come in 2025 from the Danish proceeds?

Question: Titus Krahn - BofA Securities - Analyst : Just maybe 2 quick ones. First, a little bit of a follow-up. It's difficult to ask at first, but you've mentioned the -- maybe why the range of EBITDA in the TV and Media business in 2024, and you mentioned your confidence into 2025. But in 2024, is it safe to assume that kind of the absolute EBITDA number should or could be positive for the segment kind of depending, of course, on the [channel price] as well? But is that kind of your base case maybe? And then the second question would be just on the impairment that you booked in Q4, not just in the TV and Media segment but also Finland. And I think Finland is maybe a bit more a curious case given that you do very well in that market. So I just wondered what changes have there been compared to a year ago, which drove this impairment? And is that mainly related to the changes in regulation for the business numbers in Finland?

Question: Stefan Gauffin - DNB Markets - Analyst : Yes. A couple of more questions on the TV and Media, although we got some flavor here in the last question. First of all, just on your EBITDA guidance, have you baked in a lower cost for the Champions League rights in this guidance? Or have you assumed the current cost for Champions League? And then just [technically], just to understand the current trajectory, the TV and Media business had an OpEx reduction of 12% year-over-year in Q4. Does this reflect the full impact from cost savings? And also given the lumpiness of your content cost, are there some onetime things either in Q4 2022 or Q4 2023 that disturbs the picture? Or can we dare to extrapolate the OpEx reductions into 2024?

Question: Usman Ghazi - Joh. Berenberg, Gossler & Co. KG - Analyst : I've just got one question, please. The guidance for low to mid-single-digit EBITDA growth, would you expect that to be kind of -- is the similar trend across Sweden as well as the rest of the market? Or would the guidance be achieved with kind of an overcontribution from the other markets since Sweden is continuing to be in this kind of flat to up 1% kind of trend?

Question: Usman Ghazi - Joh. Berenberg, Gossler & Co. KG - Analyst : Great. Can I ask just a follow-up? I mean when we look at the Swedish performance, I mean on the EBITDA side, I mean, should we be looking at -- from a sustainable perspective, should we be looking at it excluding these FX kind of gains that you had in Q3? Because obviously that makes a big difference. Without that Swedish drag, would that (inaudible)?

Question: Unidentified Participant - - Analyst : Just a quick one on Sweden. You've seen a good step-up in ARPUs there. I just wanted to ask more specifically about the discount and family segment because I think potentially, these were negative impacts last year. And you mentioned also that you're a bit more cautious on pricing maybe this year. So why is that? Are you seeing pressure on the Swedish consumer, which maybe means that you can't raise prices as much? And then the second one is just around CapEx. I know you can't really guide to, say, 2025. But if I look at some of your CapEx buckets like your 5G rollout, your legacy network, it feels like you are going to drop off in the next couple of years. So could you give any color on these CapEx buckets or any other ones where you expect a material change in the next few years?