Earnings Transcript for TEL2-B.ST - Q2 Fiscal Year 2024

Operator: Good day and thank you for standing by. Welcome to the Tele2 Q2 Interim Report 2024 Webcast and Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there'll be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Kjell Johnsen, President and Group CEO. Please go ahead, sir.

Kjell Johnsen: Thank you very much, Sharon, and good morning, everyone. Welcome to this Tele2 report call for the second quarter of '24. With me here in Kista, I have the usual suspects, Charlotte Hansson, our Group CFO; Hendrik de Groot, our Chief Commercial Officer, and Stefan Trampus who runs B2B. So let's then turn to slide two for the highlights. I would say I'm pleased that our good performance in the beginning of the year has continued in the second quarter. We grew end user service revenue by 4% in the quarter, marking 13 consecutive quarters of organic top line growth. And underlying EBITDAaL grew by 3%, supported by earlier price adjustments in Sweden B2C. We also continued to deliver a solid cash flow that kept our financial leverage below our target range at 2.44 times. Our strategy execution reached an important milestone in the quarter, as we finally migrated Comviq into our modern mass market IT environment. By that, we have transformed our previously fragmented environment into only two IT stacks in Sweden and are moving full speed ahead on our digitalization journey towards superior customer experience. Last but not least, we were again recognized for our hard sustainability work, as TIME Magazine named Tele2 Sweden's most sustainable company and 37th globally, while Financial Times named Tele2 Sweden's Climate Leader and the second in Europe of all industries. So please move to page three. End user service revenue grew by 4% organically, driven by continued solid performance in Sweden B2C and by the Baltics. Organic underlying EBITDAaL grew by 3%, driven by end user service revenue growth as EBITDAaL growth improved sequentially in Sweden. Q2 was another solid quarter in terms of equity free cash flow, and during the first half year, we fully covered the first dividend tranche. In Sweden B2C, end user service revenue grew by a healthy 4% with continued strong growth in both fixed broadband and mobile postpaid. However, as we executed price adjustments earlier this year than the previous, we will meet some tougher comps in the second half. Sweden B2B grew end user service revenue by 2%, hence lower than previously, yet fine given the slow overall economy with record number of bankruptcies. However, we look forward to improving performance hopefully within a few quarters. The Baltics grew end user service revenue by 6% and underlying EBITDAaL by 4%. While the second quarter was largely driven by Lithuania, we estimate a more broad-based performance in the second half due to ongoing pricing activities. And then let's move to Swedish B2B on slide five. Mobile postpaid ASPU increased by 4%, mainly driven by pricing. We added 6,000 postpaid RGUs in the quarter with positive numbers from both Tele2 and Comviq. In fixed broadband, ASPU grew by a strong 9%, mostly due to price adjustments. The number of RGUs declined by 3,000 in the quarter, driven by single-play, while the FMC base continued to grow. Digital TV, cable and fiber saw some RGU net adds in the quarter. The ASPU growth came from a combination of pricing and a cleanup of RGUs that we did in Q1. Move to slide six. Mobile end user service revenue grew by 5%, driven by 7% in postpaid, partly offset by continued decline in prepaid, albeit less than previous quarters, as the SIM registration requirement has now fully annualized. Fixed broadband once again grew end user service revenue by an impressive 9%, thanks to the strong ASPU. End user service revenue for Digital TV declined by a marginal 1% due to continued decline in the legacy DTT business whereas cable and fiber grew slightly. And then let's move to B2B. Economic headwinds have continued to impact Swedish companies, which in turn also has affected us as customers scale down or delay some purchases. On this basis, we consider our performance with 2% end user service revenue growth to be good. Mobile continues to be the growth driver with 6% end user service growth, this time mainly driven by our fast-growing IoT business. Mobile postpaid saw solid RGU net adds partly due to a new public sector customer, alongside continued ASPU growth. Our solutions business was stable while fixed continues to stabilize as we have now finalized the closure of the copper business. Then let's move to the overview of Sweden. End user service revenue growth for the total Swedish operation remained at 5% driven by B2C. Underlying EBITDAaL growth increased to 3%, driven by the end user service revenue growth. The cash conversion of 57% is reflecting 15% CapEx to sales in Sweden during the last 12 months. And then let's move to Baltics. The number of Baltic mobile postpaid customers continued to increase in all markets during the quarter. Blended organic ASPU grew by 3%, driven by Lithuania 7% due to the more for more strategy, price adjustments, and prepaid to postpaid migration. And then let's look at Baltic's financials. ASPU growth continued with some volume growth in mobile postpaid led to 6% organic end user service revenue growth for the Baltics as whole, whereas underlying EBITDAaL growth grew by 4%, driven by Lithuania. As indicated in my CEO letter, we see Latvia getting back to growth, following introduction of price adjustments during second quarter after having been in-between pricing cycles in the first half of the year. Cash conversion remains strong at 74% during the last 12 months, reflecting a 10% CapEx to sales ratio due to ongoing 5G rollouts. With that, I hand over to Charlotte who will go through the financial overview.

Charlotte Hansson: Thank you, Kjell, and good morning, everyone. Please turn to page 13. So first, a few comments on the group P&L. In Q2, total revenue grew by 1% organically, whereas end user service revenue grew by 4% organically. The deviation is mainly explained by lower equipment revenue. Underlying EBITDA grew by 3% both in SEK terms and organically, and underlying EBITDAaL grew by 3% organically, driven mainly by the solid end user service revenue growth, exceeding significant cost inflation and continued margin pressure from product mix changes. In Q2, we had an SEK8 million headwind from energy year-on-year, mainly explained by the SEK10 million of electricity support received last year, and as a reminder, we also received SEK25 million of electricity support in Q3 last year. As you can see on the slide, D&A declined by around SEK85 million year-on-year, most of which because the surplus value of the TDC acquisition has been fully amortized. Then, our net financial items increased by around SEK115 million year-on-year, mainly due to a financial gain related to bond repurchase last year, and partly due to high financing costs for outstanding debt. By Q2, we had a debt mix of 59% fixed rates and 41% floating rates. And with that follows that for every one percentage point rate change in underlying market rates, our annualized financial expenses on loans with floating rates moved by around SEK110 million. Following successful refinancing through bonds and the loan from the European Investment Bank during the first half of the year, our next maturity is in June 2025. And now let's move to the cash flows on slide 14. CapEx remained high also in Q2 due to continued intense network investments, and changes in working capital were positive in Q2, mainly impacted by a temporary increase in liabilities. However, despite the positive development in Q2, our ambition to keep working capital cash flow neutral in 2024 remains unchanged. Taxes paid declined year-on-year, as last year included some SEK125 million of withholding tax payments in Latvia, while the corresponding payment this year is expected in Q3. All-in-all, our equity free cash flow for Q2 ended at SEK1.2 billion and in line with last year's level. Over the last 12 months, we have generated SEK4.9 billion of equity free cash flow, corresponding to SEK7.1 per share and consequently slightly above our current dividend level. So let's move to slide 15 for our capital structure. By Q2, economic net debt amounted to SEK25.7 billion, largely in line with year-end, as the first tranche of our dividend was fully covered by our strong cash flow. Our leverage ended at 2.4 times, which is below our target range of 2.5 to 3 times, and reflects our strong balance sheet. And with that I hand over to Kjell for an update on our strategy execution.

Kjell Johnsen: Thank you very much, Charlotte. Strong numbers, and then we can move to slide 16, which, of course, you will recognize, you've seen it before. It's a reminder of where we are in our journey from '20 to '26, the Strategy Execution Program, which is going to take us to a new level in terms of our go-to-market. And we are now basically at the intersection that we see on this graph. We have done the consolidation of the B2C stacks and as everyone who does this, there are always some early issues with it, but we're basically finished with putting them together into one platform, and we're going to shut down the legacy this year. And that frees up gradually resources for a more dynamic go-to-market, a better customer experience, and of course, an ability to focus even more on value and not just only on volume. That is a fundamental building block of the strategy execution plan, which is going to save us SEK600 million over the next three years, but of course also help us to be more precise in our go-to-market so that we can build revenues that filter through to our cash flow. We are quite happy that we have reached this milestone and we look forward to the next stage of that work. On the next slide, you see, in real life, how this works, the stacks that we talked about. So consumer stacks merged. We did the cutover end of April, and now we've done the hypercare period throughout the summer to make sure that everything is working the way they should. And then of course, we're going to help Stefan with his issues and his stacks in B2B throughout this year and next so that he can also have an up-to-speed, modern and efficient go-to-market model for the B2B area. It takes quite a bit of work, but I think we are pretty much at the forefront of the telecom industry in terms of putting everything together the way we're doing now. Also eliminating a lot of risk, cybersecurity risks, and of course, everything is documented by 2024 standards. So that's kind of the reminder that I wanted to go through. And then we can, of course, head to slide 18 on the SEP. And this would be the second update on the progress of the Strategy Execution Program, which aims to deliver radical improvements in customer experience and value and operational efficiency. On the B2C side, we have launched the Tele2 Chatbot, which seems to perform very well relative to benchmarks, although it's of course early days. We have also introduced a new 360 customer service agent toolbox, which is designed to minimize the time it takes to retrieve information from our systems. On the B2B side, we have finalized the Copper Decommission Project as well as a multiyear business intelligence transformation program, the latter of which has delivered upgraded analytical capabilities across operations. On the network side, we have significantly improved call setup times through the completion of our mobile core swap project. And finally, our brand-new 5G network continues to grow rapidly. It's currently covering close to 80% of the Swedish population, despite no low band spectrum in use. And then let's move to the financials. As you know, we're targeting SEK600 million of run rate cost savings by the end of '26. By the end of Q2, we have executed on organizational changes and network optimizations worth SEK200 million in annual run rate savings, of which SEK40 million contributed to our underlying EBITDAaL in Q2 year-over-year. Although we're only halfway through this year, we do not expect the run rate to increase much more by the end of the year as we have now completed the planned resource reductions. And then let's turn to slide 20 for the guidance and outlook, and we reiterate both our '24 guidance and the midterm outlook. As said in Q4, our EBITDAaL guidance for '24 includes an estimated energy cost headwind of around SEK90 million year-over-year, of which SEK35 million relates to the energy support received in '23. Given the outcome in the first half year and the current benign price levels, we now estimate the headwind at around SEK50 million instead of SEK90 million. As a reminder of our CapEx profile, in 2025, we expect 13% to 14% CapEx to sales, driven by the final stage of the major 5G expansion in Sweden, ahead of the 3G network closure at the end of the year. From '26, CapEx to sales is expected to come down to historical levels at 10% to 12% as our network expansion will return to being demand-driven. So with that, I'll hand it over to the operator for Q&A.

Operator: Thank you. [Operator Instructions] We will now take your first question. One moment please. And your first question comes from the line of Andrew Lee from Goldman Sachs. Please go ahead.

Andrew Lee: Yeah. Good morning, everyone. I had two questions, one on Swedish growth and then just on your EBITDA growth guidance for the full year. On the Swedish growth, I guess there is a little bit of surprise that you didn't see an acceleration in the second quarter versus the first, given you had the price rises in March. I wonder if you could just talk us through why that might have been. So if you look through the consumer numbers, it looks like there's a slight improvement in growth in the second quarter versus the first, but maybe not as much as might have been expected. And then if we look at corporate, that looked like it was a bit weaker. So why do you think the price rise that you delivered hasn't really contributed to an improvement in Swedish service revenue growth? And how should we think about the trajectory of that in the second half of the year? And then the second question is just on EBITDA growth guidance of 1% to 3%. Two factors that may come into your thinking, that one is obviously you've delivered 2.5% EBITDA growth in the first half of the year. So your guidance range looks quite wide now. And especially given you're now saying that you're seeing SEK50 million of energy headwinds rather than SEK90 million. Why have you left your EBITDA growth guidance so wide still? Thank you.

Kjell Johnsen: Yeah. I can start and maybe we will -- people will chip in around table, Andrew, okay. On the service revenue trends, we do see that pricing has kicked in B2C, and then of course, we have a slightly lower growth rate in B2B, given the state of the Swedish economy now. We see customers who are optimizing their relationships to us and others in B2B, as indeed we are doing ourselves also looking through our costs. But I don't think that's a long-term trend. I think the B2B market is -- has a pent-up demand, especially in terms of handsets, and I think that we will see that picking up again. I would be careful not to be exact on the timing of it, but I do think there is a level of pent-up demand. Service revenue growth trends in B2C are pretty good. And when it comes to the EBITDA, we had a good start to the year. Absolutely. And I think that if I look at where we were in December last year compared to now, I think we are slightly better now than we thought at that time or I know that we are. So we are very comfortable about the guidance that we have on the EBITDA level, but I think I'd leave it out there. We haven't lifted the guidance, but we have good trends that we are quite comfortable with. You want to say something on the service revenues?

Hendrik de Groot: Sure, Kjell. Just on the consumer side, Andrew, I think just two things to highlight. We do see in the second quarter the pricing coming through in a very nice way, in particular on the core connectivity, as you can see in the ASPU, and then of course that is an improvement first to first quarter. There is also another element, of course, of the growth number, which is the volume, particularly on postpaid that we've taken versus last year in the first and the second quarter. So I think you need to look at the price rises and the volume on the comparison in the quarters versus last year. And then maybe the other element just to, as a balancing factor to highlight, is that our prepaid business, if you compare Q1 and Q2, you have a different comp versus last year. It's now stabilizing, but in a comparison way, you'll -- that sort of is a balancing factor out on the top line numbers.

Stefan Trampus: Yeah. Stefan here, Andrew. On the B2B side, I would say, I mean, Kjell alluded to this. We had a tough economic sentiment in the market and had so since Q3 last year, and we've seen that our customers have been really focused on cost cutting. We also see that they are doing reductions in employees, in consultancy that they're buying et cetera. And of course, all of this is impacting our business. We see that customers are pushing purchases into the future. So this is affecting, and I think it's visible in our numbers, we've had a couple of quarters with lower RGU growth due to these facts. This quarter was, again, a little bit better than the previous four quarters. We also see that this affects both the solutions part and the fixed part. And in the fixed, of course, we have the copper decommissioning that has affected us, but that will turn in regards to the trends going forward when we're now done with the copper decommission.

Kjell Johnsen: I'd like to add, Andrew, that when I'm thinking back to where we were a couple of years ago, now we've had a bit of a downturn in the Swedish economy and still we're delivering 2% top -- growth at B2B. That was not the case three, four years ago for sure. So I'm quite confident that B2B will have good trends as soon as we start getting just a little bit more optimism here. And now the balance of the group is much better. Sweden is carrying much more of the burden. We saw Lithuania doing well, we won't -- we see Latvia coming back in the second half, but the group is more balanced now, which is a good thing.

Andrew Lee: Thank you very much. That's very helpful.

Operator: Thank you. We will now go to our next question. One moment please. And your next question comes from Andreas Joelsson from Carnegie. Please go ahead.

Andreas Joelsson: Good morning, everyone. Two questions from my side. Looking ahead, can you explain a little bit what you have learned from the inflationary environment that we have been through when it comes to how you can increase ASPU further and how you can use those learnings ahead in basically any environment. And has there been any learnings or input from the new main owners, new board members with regards to this? And secondly, you mentioned after Q1 that there was less need for being prudent on the balance sheet, and now you have another quarter under your belt and you're still below your leverage target. Do you see a need to take any action on this short term or would you rather wait to see the full year and be more comfortable on the 2025 outlook? Thanks.

Kjell Johnsen: Well, I think one of the most important learnings from the inflationary environment for the entire telecom industry is that it is actually possible to increase prices, and like everyone else does. The share of wallet is not prohibitive in any kind of way in this market. In some markets, maybe the picture may not be exactly the same. So I think that's an important learning to take, even though we now of course expect a significantly lower inflation. So and then of course, being able to move people to extract the value from moving to a 5G price plan, where you now go into our unlimited price plans at SEK429. That is a price point that wouldn't have been tenable three years ago, so and we see that there is popularity around it. Half of the Swedish population have a 5G-enabled phone. That means that many of those who don't have it today, they will have it over the next couple of years, and we want to bring them over to these price plans, which represent good value. So I think those are important learnings that we take with us. When it comes to the new shareholders, a little bit early after one Board meeting basically to take too much of that. But like I said in an interview this morning, I had a team that participated in a hackathon in France last week. And I think these opportunities to solve problems together, to address issues together, are very good because that -- it happens quicker when you do it at Level 3 in the organization, and then if you do it through lots of PowerPoints. We do see that a new shareholder is totally dedicated to telecoms, which means that they have a keen interest and they can ask good questions and share experiences. Of course, that in itself is a positive for the business and for us. And on the balance sheet, yeah, it's clear that we have a very strong balance sheet and we are starting to see in a not-too-distant future, of course, the end of the main 5G push, which will be finished by the end of '25 and we will have lower CapEx to sales levels in '26. So we will have the opportunity to either make bolt-on acquisitions or to have a discussion with the Board. It's of course the Board that decides, it's not me or the management, what we do if the balance sheet enters a level over time that is different from what we have said in our capital allocation policy. So it clearly opens possibilities for us.

Andreas Joelsson: Okay. Thanks.

Operator: Thank you. We'll now take the next question, and your question comes from the line of Oscar Ronnkvist from ABG Sundal Collier. Please go ahead.

Oscar Ronnkvist: Thank you. Good morning all and thanks for taking my questions. So just first, while ASPU very strong, obviously, in broadband, the customer growth in broadband is decelerating for, I think, the third quarter in a row now. So just wanted to hear your thoughts, you're sort of losing momentum due to the price increases or what you can say about the net intake. And then just, I just had a follow-up from the previous speaker, just on the potential bolt-on acquisitions due to the strong balance sheet. Is there any sort of main targets that you are looking for in sort of what segment are you looking for? Thank you.

Kjell Johnsen: Hendrik, do you want to do the first one?

Hendrik de Groot: Yes, sure, Kjell. Oscar, on the ASPU and the broadband and net intake relationship, so we -- as you can see, we of course have an overall very strong performance on our broadband business for a number of quarters and we've been building that. One of the elements of course is also a further inclusion into an FMC sort of setup, as we highlighted in the presentation. When it comes to net intake, there are a couple of factors here. One, as you know, in Q1, we had a cleanup that I think has all been noted. Underlying, as we've gone through the pricing cycle, obviously there are customers that are looking elsewhere. So of course, this level of pricing, although we've seen a very good takeup of the pricing levels, has also led to some customers leaving. So that has an effect on the net intake certainly in the first quarter and to an extent also in the second quarter. And then secondly, we have also looked at what customers at what levels, we want to save from a margin point of view. We see in particular in OLAN that the transmission costs have gone up quite substantially in the market, and we are managing this business also for value and for marginality. So there's a bit of a trade-off on the net intake that we want to take in and want to save honestly. So it's a combination of those two factors. And if I look forward, we see of course that we're out of the pricing cycle now. So there should be an improved trending going forward.

Kjell Johnsen: And with respect to your second question, now, of course, I've been saying this for very many quarters that we would be open for looking at assets that would help us to build convergence, whether it be in Sweden or Baltics. And without going into any more detail, of course, we have looked at a couple of assets over time, a few assets. And we're quite prudent about the pricing we are willing to pay in the markets, but I've kept repeating it because I don't want to be totally surprised if one day we decide that we want to buy a good asset for a price that we can -- that we think makes sense. But of course, if you -- on the flip side of that, if that continues to be the pattern, then of course the Board will at some point have the opportunity to choose differently and then look at how much shareholder remuneration we should be paying in whatever mix of ordinary, extraordinary at some future point of time, given that the balance sheet is strong and the cash flow is strong.

Oscar Ronnkvist: Perfect. Thank you very much.

Operator: Thank you. Your next question comes from the line of Erik Lindholm-Rojestal from SEB. Please go ahead.

Erik Lindholm-Rojestal: Yes. Thank you and good morning, everyone. Yes, so one question from me really. You had quite encouraging service revenue growth here, around 4% in the quarter, and you also made some solid progress on the cost program. But I guess despite that, underlying EBITDA only grew 3%. Can you sort of break down what is driving cost here in the quarter and how should we think about operating leverage in the second half as well, please? Thank you.

Kjell Johnsen: Yeah, I think we have pretty much said this, given that we are still with our guidance. I gave you a little bit more information by saying that we -- the outlook now is better than it was when we looked at this at the end of last year. We still remain within the span that we have talked about. And some of these effects, of course, of the SEP program are coming in gradually, and we have pointed it out in the presentation how much that is. And then Stefan of course mentioned things like shutting down of business lines like copper and we have the prepaid annualization that have played out. So there are a couple of things that also we have to compensate for as we grow our revenues. Pretty much there we are, Charlotte.

Charlotte Hansson: Yes. I think that we can also add maybe that we also wrote in the report that we had some provisioning for bad debt this half because we've been saying in a few quarters now that we haven't really seen an impact of the more challenging economic situation. But I think it's now been catching up on us, and so we do have some impact on that, and that's also some that we highlighted. So we have an extra provision there of SEK19 million.

Erik Lindholm-Rojestal: All right. Perfect. That's very clear. Thank you.

Operator: Thank you. Your next question comes from the line of Ajay Soni from JPMorgan. Please go ahead.

Ajay Soni: Hi, there. Thank you for taking my question. Firstly on the Swedish KPIs, I mean, the ARPUs came in pretty strong. I just wanted to know what the kind of general customer reaction has been since you put these through and did you guys have to do many retention offers to kind of hold on to your customer base? And then kind of as you're looking forward, you've always had a good acceleration in your ARPUs. Assuming tougher comps coming through, these should kind of tail off towards the end of the year or is there something which is going to keep them elevated at these levels? And then on the balance sheet side you mentioned around sort of acquiring assets, I just wanted to know would you be comfortable with your leverage going above your target range in order to acquire some of these assets? And, yeah, that would be it. Thank you.

Kjell Johnsen: I can hit the last one and maybe Hendrik, take the first one. So what we have said around that is that we have the leverage band 2.5 to 3, and after we sold the Netherlands, we will not have a dividend flow from the Netherlands obviously. So we would be reluctant to go much beyond 2.8. We could do it, if it's an asset that generates its own EBITDA, so that it plays into the multiples, but we would have to have a very clear path to getting back to the -- a leverage area that we are comfortable with in the longer term. So that would be my approach on that.

Hendrik de Groot: Yeah. And on the Swedish KPIs, Ajay, the -- I think as Kjell already highlighted, the reaction to the levels of pricing in general terms have been -- has been pretty solid actually. And of course, it's also always a relationship between the overall price levels and inflationary levels in the market as well as the -- where the value in the proposition sits. As Kjell highlighted, we've really moved unlimited to a point that is way more attractive to a large part of the market. That said, when we did the pricing and in particular on broadband, we -- this year, we also did some corrective pricing on part of the base that has been on very low campaign pricing for a very long time. So there has been a level of cost passing included in the pricing and that has also led to a bit higher churn as a result of that. And that's what you sort of can see filtering through the numbers. But all-in-all, we're through that and the market is sort of in a recovering state, right? We see inflation declining. We see customer confidence index increasing. We see that the handset market is still a little bit lower. So it's -- in May, it was minus 2%, but it is recovering from the minus 6% in the year-to-date. So I would say the outlook for the market on the consumer side is, it is strengthening again, certainly post summer, we believe. And also that will be reflected in our net intake position, which you can already see coming through on the postpaid side.

Ajay Soni: Okay. And if I could just have one quick follow-up on that. Obviously, given the pricing you've done and where we are with them doing -- what you're doing in Q1 and do you kind of see this ARPU growth as the peak of your year-on-year comparisons and do you expect it to tail off?

Hendrik de Groot: Well, I think what we said was and what we've been guiding on is that the comp, of course, will be -- it will be sort of changing given that we last year had a tail-ended pricing. So the totality of the pricing value came in the second half of the year where now we've netted off the total value of the pricing in the first half of the year. So the comp of course will be reflective of that.

Ajay Soni: Okay. Thank you. That's helpful.

Operator: Thank you. Your next question comes from the line of Siyi He from Citi. Please go ahead.

Siyi He: Hello. Hi. Good morning. Thank you for taking my questions. I have two please. The first question is really on one of the comments that you made in your report. You're saying that you have seen increased competition in the Swedish market through steeper discounted offers. And on top of that, I think you just mentioned that inflation has come down. I'm just -- my question is, if you're looking towards the opportunities of price increases for next year, do you think that the market is still have the benign dynamics that allowed you to repeat the similar price increases next year and going forward? And my second question is really on your Strategy Execution Program. I think at Q1, you suggested that for the full year, you expect the run rate to be a little bit above SEK200 million, but you have already achieved SEK200 million by end of Q2. I guess my question is, do you actually see a acceleration in your cost cutting program and how should we think about the savings for the second half of this year? Thank you.

Kjell Johnsen: I guess we can spread it around a little bit here. So, yeah, the discounted offers, and Hendrik can speak more to this, that's -- for me that's a big issue in the bottom part of the market, so to speak, in the transactional market where you've seen quite a lot of that. We had one of the operators that for a while discounted the unlimited position in premium also ATL. That has since stopped. So I think there is a reasonable level of pricing discipline in the premium part of the market. And of course, with inflation coming down, it becomes important to not directly link like I think operators some places have done, the price adjustments to inflation, but rather have a methodology that is consistent over time. So we will be executing price adjustments also next year and then it will be for Hendrik and the team to exactly to lay out how much that should be. You should maybe expand a little bit on that and get to SEP afterwards.

Hendrik de Groot: Yeah. That's fine, Kjell. Just to add a couple of more sort of sound bites to how we look at this going forward, clearly, there is a relationship between the consumer confidence, the overall state of the economy, the overall state of inflation and how you relate that to price levels. And we will constantly look at that. In light also with the value proposition that we're providing, there's definitely a willingness to pay in the market. We've seen that. But it's a combination of those factors and it's a balancing act, as Kjell was highlighting. And we'll take it forward in that sense. And so -- and of course there's a -- then there's a dimension of competition and there's always a level of competition in the market. And it's -- and I think we have a healthy market here in Sweden. There is of course periods that there is a stronger push in some areas and we've of course seen that also in particular in the low -- so the low end of the market as a hunt for volume in a way, but we -- I think we tackle that in our -- in a good way. We can of course see and track that on -- in particular on Comviq where we still see good volume growth coming in, even though we're sort of battling with these sort of situations. So all-in-all, I think the market -- the most important thing in the market is how the macro is developing and the continuous willingness to pay off consumers of very good connectivity products and propositions that we offer in general. And against that backdrop, we will set our plans for next year.

Kjell Johnsen: And on your second question, I will choose to take a little bit broader view on that instead of limiting to the SEP as such because the Strategy Execution Program has specific deliverables over the years that we are monitoring and reporting to you on a quarterly basis. And we have executed on those things that were planned in this early part of the year. One of them was an organizational change that was relatively big, but that doesn't mean that we don't have other initiatives outside of that that we are working on to optimize the cost base. Some of that can be related to how we work with certain vendors, and Stefan is working on interesting things there, and of course how we optimize the commissions that we pay in pursuit of growth and volume. That is an area that we can also optimize outside of the SEP. So the SEP may not necessarily deliver so much more in the year, but we can have cost optimization effects that help us in the second half of the year. And that never ends -- that work never ends.

Siyi He: Okay. That's very clear. Thank you.

Operator: Thank you. We'll now take the next question. And your next question comes from the line of Nick Lyall from Bernstein. Please go ahead.

Nick Lyall: Good morning, everybody. Could ask a couple please, Kjell, on the business side first. You've mentioned this a lot in the last couple of quarters. Could you expand a little bit on where you are in terms of outlook into the second half? Have you weathered most of the storm or is there more to come? And is it just major corporates so far or maybe higher margin SME business to come? Could you expand a bit on what you see as the outlook into second half? And then secondly on the new IT stacks in consumer, please. I mean, what is the consumer going to see over the next year? Are they going to see more of a focus on customer service or is it about new products like convergence or is it a change in timing and frequency of pricing issues? Could you just say what that means in sort of practical terms for the consumer, please? Thank you.

Kjell Johnsen: Well, I think I'll probably hand that over to you.

Stefan Trampus: I can take the first question.

Kjell Johnsen: Yeah. Start on the first.

Stefan Trampus: On the business side, right? Hello, Nick. Thanks for your question on the business perspective. I think I alluded to it a little bit earlier. When we went into recession in Sweden in Q3 last year basically, we didn't see that coming that hard. We thought it was something that was just a quarterly effect in Q3 and hope that it will turn around quite quickly. But what we've seen during the last past four quarters is that it has prevailed throughout these quarters, and it has affected, I would say, all segments. So in the micro segment, the mass market segment, I mean, we see that they have a big cost focus, reviewing the subscriptions to avoid the cost possible, if they can. In the larger segments, we haven't seen the natural growth that we've seen with our customers employing more personnel et cetera. So you have that natural growth. We also see that they have reduced and having cost programs looking at all kind of costs. And of course, they also look through what they're buying, do they need everything they have acquired in their -- in what they're buying from a services perspective. So in the larger segments, we also see this, and that has affected the RGU development, which you have seen. And also in the public segment, I mean, they have also been quite affected by the inflationary pressure. So they had to look at the cost base that they're dealing with. We see several public domains and organizations that have been cut back on the funding from the government et cetera. That has also made an impact on us. How fast we will get out of this? I mean, it's hard to tell. I would say, there's not a common view on how fast this will be, but I mean, we see the positive signs on the consumer side. I think that is something that goes before we will see the turnaround on the B2B side. We had really high bankruptcies in the first half of the year. There was a slight improvement in June. If that is just a one-month effect, that's something that is turning or pointing on the direction that will turn around, let's see, but of course, the improved business climate will help us support our revenue growth going forward. So it's hard to tell. We think we will prevail a couple of more quarters before we see the turnaround. Hope that gives some color on the situation, Nick.

Hendrik de Groot: Okay. And Nick, then on the new IT stack, what it does for us and for our consumers, basically three things. So first of all, it allows us to increasingly focus on our own channels, and in particular, of course, digital and online, but also our own channels, customer operations and our stores, which supporting SEP will of course help us to drive down our overall CPO costs, and in particular, in combination with the introduction of devices and handsets to Tele2, I think this will be a very strong sort of focus and area and benefit basically for consumers going forward. The second area is that the new IT stack really allows us to refocus IT development resources to drive our digital customer journeys at a much higher speed. So we still have a lot to gain there and we look forward that we're sort of really getting an accelerated traction on the digitalization of these customer journeys. And then the third point of the new IT stack is basically that it will allow customer operations to be way more efficient. We already talked about the first step on the chatbot and the new 360 toolbox. So those are all things related to the IT stack and they will help us to drive down the call volumes and improve the average handling time. So also that translates into cost savings and will support the SEP program.

Kjell Johnsen: And I think the timing is good. You talked about introducing a chatbot and there's nothing unique about that. People did it years ago, but I think the technology and this has matured to a point where the user experience becomes much better. We all know that three years ago, some of these products were nice to have, but they didn't really deliver that much. They have matured. I think it's a good time to start implementing customer-facing technology.

Hendrik de Groot: And as you say, Kjell, in particular, now we -- now that we can connect it up with the rest of the IT environment, you really get to personalization.

Kjell Johnsen: Yeah.

Hendrik de Groot: And that's the key thing that drives customer experience.

Nick Lyall: That's great. Thanks very much.

Operator: Thank you. We will now take the next question. And your next question comes from the line of Stefan Gauffin from DNB. Please go ahead.

Stefan Gauffin: Yes. So I'll focus a little bit on the Baltics. So first of all, you mentioned you are positive to a better second half in Estonia where you see a turnaround. What makes you confident on this except the solid customer intake this quarter? And then you also talked about price increase in Latvia. Could you just give some indication on the magnitude of the price increase there?

Kjell Johnsen: Okay. Let me take it and to -- in Latvia, yeah, we talked about before, they did two price increases in '22, and they had a phenomenal growth in '23. They were at some point up at 20%, which is quite unique. And then they did not do price increases at the beginning of this year. So they started executing on this in June. And then we are starting to see that. We'll see that effect coming in, in the third quarter. So I'm very confident about the positive delivery from Latvia. And in Estonia, as you said, we've been through a -- quite a bit of change there in terms of people and the approach. There's also been an impact from one specific contract that has dried it down. Well, I'm a bit positive to Estonia. It is also -- for a couple of reasons. The team is coming into place, becoming more clear, and it's good to see that, in particular, Latvia is supporting the team there quite a lot. And we also do see some signs that the market is a bit more rational. There is -- there are price adjustments happening in the Estonian market that we didn't necessarily see one or two years ago. So that's kind of the basis for my optimism. Now, of course, Latvia is a quite small business. So it's very important that Lithuania continues its good development and that we get Latvia back up to where it used to be with a good top line and EBITDAaL growth. And I see that happen.

Stefan Gauffin: Okay. Great. Thank you.

Operator: Thank you. We will now take the next question. And your next question comes from the line of Usman Ghazi from Berenberg. Please go ahead.

Usman Ghazi: Hello. Thank you for the opportunity. I just had three questions, please. The first one was just following up on the comment of this catch-up in bad debt provisioning that's happening in Sweden. And you said you'd made a SEK19 million provision in Q2. Was there any provision made in Q1? And I mean, how much lower are bad debt as a percentage of sales now than what you would consider as a normal kind of a normal level? That was the first question. The second question was just on -- hope -- wondering if you could give any color on how net promoter scores have been trending through Q2. Obviously, Q1 would have been impacted because you communicated the price increase, then you put through the price increase in March, and I guess you've got a double whammy, but just interested to see how things have trended since. And then finally just on the Baltics, one of the peers, I mean, there's been a report about one of your peers potentially exploring an IPO of one of the -- of one of their Baltic segments. I was wondering if Tele2 would be open to considering any kind of value unlock in that direction. Thank you.

Charlotte Hansson: Okay. So if I start then on the bad debt. I think this was more on -- as a comment that we previously said that we haven't seen any impact at all from the more challenging economic environment, but now that we see that, we just want to make sure that we're more prudent about that. So we haven't had any extra provisions anything in Q2 or it's just as a normal business, I would say. It's just in Q2 that we had made an adjustment on that. So it's really related to the macroeconomic environment that we're just facing now, and also on the back of more bankruptcies and so on that we're seeing. But as Stefan was saying that we see a trend of that easing also in Q1. So let's hope that that is actually a trend -- starting of a trend that we see there.

Kjell Johnsen: And NPS, Hendrik?

Hendrik de Groot: NPS, yeah, the customer experience and how we see that happening of course, pricing is one of the key drivers of customer experience. And we see after each price adjustment we do, whether it's a small or a large one actually, that's quite, in that sense, immaterial that customers react to a price move. It's always a temporary sort of dip that we see, but of course, we see a little bit of a dip. But we've already seen the recovery as well in the second quarter, and we measure that by -- through Tele2 and through Comviq. At the same time, we also see, for example, the IT stack move where it of course also addresses the customer that there's also like a temporary reaction to which we're also fully recovering again. So there are sort of these reactions from customers, but if you look at the overall trending, our customer experience is at the levels where it sort of actually is on a -- if you take it over a longer period. So we have a strong customer experience in particular on Comviq. It's a loved brand in the market and we see that on Tele2, where we in particular have these combination customers, these FMC customers, we have very strong loyalty going forward.

Usman Ghazi: Sorry. Just on that, I mean, has the NPS now recovered back to levels before the price increase or are you still in that process of recovery?

Hendrik de Groot: No, yes. Has returned.

Usman Ghazi: Okay. Thank you.

Kjell Johnsen: And on the Baltics and potential IPO from a peer, of course, not for me to comment on that except from saying that, we have had great performance overall from the Baltics over the last years, all the time since I came here. We think they're doing a very good job, and in general, we're very happy to hold those assets. So we don't have any specific new thoughts around that.

Usman Ghazi: Okay. Thank you.

Operator: Thank you. We will now take the next question. And the question comes from the line of Ondrej Cabejsek from UBS. Please go ahead.

Ondrej Cabejsek: Hi and thank you for the presentation. I've got three questions as well, please, and I'll take them one by one just for clarity. So the first question I had, you mentioned the copper shutdown being complete. So can you maybe describe to us the effect? Because obviously I guess this, on the one hand, has a positive cost effect as we see with peers, but at the same time, you've seen over the past couple of quarters a pretty accelerated negative trend in terms of some of the legacy revenues. So maybe can you tell us or describe to us the effects on earnings because you still have some, I guess, fixed plus and DSL in the system. So what are the trends there going forward?

Kjell Johnsen: Ondrej, you are breaking up a little bit. I think we heard your question as asking what is the impact on revenues and profitability of the copper shutdown and the general -- and then you asked more generally about impacts from legacy businesses that are impacting us. That's what I heard.

Ondrej Cabejsek: Yes, yes, exactly. The copper shutdown, but on both the cost side as well as the revenue side because that would be fair.

Kjell Johnsen: Yeah. Maybe we take that one first.

Stefan Trampus: Yeah. So, Ondrej, here is Stefan answering this on the copper decommissioning. When we have done the copper decommissioning through these years, I mean, the starting point was a lot higher than it was to the end of the program. But from a margin perspective, what we have done is that we've moved the customers to more modern solutions, some fixed solutions like going from DSL to our Allnet broadband, and of course that comes with a better profitability, of course. But we also moved some customers to mobile solutions, IP, new IP solutions in regards to our PBXs et cetera. So there are several different kind of copper solutions that we moved and we move them to better marginality products, I would say. Of course there's some churn relating to this of course when we're doing it, but from a margin perspective, it has improved. And now and when we come to the end of this quarter, Q2, we have decommissioned all these copper services, and of course, you will see an improved trend year-on-year or quarter-on-quarter versus last year starting more significantly, I would say, in the second half of this year, if we look at the revenue development in the fixed domain. Also to add some color on, I mean, we have some fixed voice revenues still, but that we don't regard as legacy as such, but of course, there's a natural move from fixed voice to mobile voice and that's still around. But it's really low digit number of the total revenues of the B2B and user service revenues. Hope that gives some color on the copper decommissioning, Ondrej.

Hendrik de Groot: Is that okay, Ondrej?

Ondrej Cabejsek: Yes. Thank you very much and I hope my line is clear now. Apologies. Second question that I had just related to some of the commercial trends in terms of cost cutting and third-party sales, which I mean you and your peers have commented on, especially kind of towards the end of last year, that there is a big pullback from -- away from third-party sales channels, the kind of in-house migration is a big part of your cost cutting, and we've seen over the past couple of years, until recently, churn levels coming down, portability numbers coming down, but that seems to be picking up again this year. So just your comment in terms of what's going on there and how that potentially impacts your cost savings target.

Kjell Johnsen: You want to go in there?

Hendrik de Groot: I didn't fully get the last part of your question, Ondrej. Did you mention porting or something?

Kjell Johnsen: Yeah, no, I think mostly it was about commissions and that others have also spoken to the need for reducing commissions. If I should start, and then Hendrik can formulate his answer, if we are brutally honest about this, of course, it's a key element of the Strategy Execution Program to reduce the commissions we pay to third-party companies that are a part of our distribution. And we will deliver on that gradually over time. Having said that, to some extent, in part of the cycle, we see players who are increasing commissions for a short-term volume operation, so to speak, and that's sometimes something that we have to follow. And then -- and that of course is something we need to compensate for when we are building our profitability. It has worked okay for us now, but the trajectory is of course to reduce commissions. That's going to be an important part of '25 and '26 as we improve our systems.

Hendrik de Groot: Yeah. And just to add on to that, Ondrej, this is a, in a way, also a natural transition, if you look at how we're evolving the business going forward. So in particular for Tele2, where we've added now the handsets back to the portfolio, the fact that we are increasingly putting the development onto our online channels and digitalization, and the fact that we move increasingly into multiplay service provision means that also for the customer, it's way easier to get served through our own channels. And so that's sort of a helping background to one that we are aiming to make this transition to help CPO overall, but also that it is a natural transition where we are taking the customer in our portfolio.

Kjell Johnsen: We are on overtime, but of course, we would like everyone to have the chance to finish their questions. Ondrej, were we okay now or we have Keval waiting.

Ondrej Cabejsek: No, that's fine. Maybe if I had just one very quick question, a third one just on taxes because we've had some volatility both intra-year and intra-quarter in terms of cash tax especially. So just any and I know you don't usually do this, but in terms of guidance for cash taxes for this and maybe next year, is there a number that you are targeting or have in mind, please? That will be the last one.

Charlotte Hansson: No. Like I said, we don't really guide on the taxes. So --

Kjell Johnsen: I guess it's the Latvia thing maybe that is --

Charlotte Hansson: Yeah, oh, yeah, it could be the one that we talked about earlier maybe that -- the Latvian one that -- but that's a timing issue of SEK125 million that will be paid in Q3 instead of Q2, as we did last year.

Ondrej Cabejsek: Understood. Thank you very much and apologies for my line. Thank you.

Operator: Thank you. We will now take our final question for today. And your final question comes from the line of Keval Khiroya from Deutsche Bank. Please go ahead.

Keval Khiroya: Thank you for taking the questions, and I've got two, both related to B2B. So you mentioned the macro impacts in B2B, but do you think you maintained the market shares during the quarter? Just trying to work out if the issues are pretty macro, whether you feel there have been increased competitive issues at all. And secondly, you've also been quite clear on the consumer price rise timing, but can you remind us of the size and phasing of the B2B price rises you may have done last year and also this? Thank you.

Stefan Trampus: Thank you, Keval. And on the market share development, I would say I think it has been a stable situation. We hadn't -- we haven't lost any big customers during Q2. I think the big thing is not really the, I mean, there's always market competition, and Hendrik was alluding to that from a consumer perspective. The competition is always challenging. I think nothing has changed from a competitive perspective, but market share wise, I would say, it has been stable. On the pricing, we've done -- we're doing continuously lots of different price changes to our portfolio, but as you know, the larger part of our revenues is related to segments which have bespoke agreements and a lot of different agreements with overlapping contract periods for different kind of services, which we need to oblige to. So the micro segments which we have more of a mass market perspective, there we do back book pricing. We've done that in the beginning of the year on both broadband and on mobile, but in the large scheme of things, I mean, this has a limited effect on the overall revenues, as we have so much bespoke agreements with customers. But we have inflation-linked clauses in the contracts and when contracts expire, we can do price-ups. We can do it yearly as well for certain products. So it's a bit of a mixed picture in regards to how we drive the pricing on the B2B side.

Keval Khiroya: Okay. That's clear. Thank you very much.

Operator: Thank you. I will now hand the call back to Kjell for closing remarks. Please go ahead, sir.

Kjell Johnsen: Thank you very much. And thank you to all of you for taking the time to share this morning with us and for your questions. I think what you see is a first half of -- from Tele2 that has delivered strong results. We have a very strong balance sheet. We have visibility towards the end now of the 5G swap. So clearly, the Board will have significant maneuvering space in making decisions as we move -- as we progress, what's the closure of the main 5G rollout. We have a good commercial momentum, very happy to see that, the good momentum in Sweden, especially in B2C now. And of course, we are bringing that momentum with us to the second half of the year. In the second half of the year, we will have a one-off with the energy benefit we had last year of around SEK25 million that translates to almost half a percentage point at the EBITDA level, so but that's a one-off that we will not carry with us for the next years. We're also meeting the some of the price increases from last year, but definitely the momentum we've built with the price increases earlier this year will be with us. And I consider I expect to see a continued strong business and I expect improvements in -- especially in Latvia compared to the first half, which will be helpful. So I think we're in a good spot. There's always a lot of work to do, but in general, we feel good about the direction we're on. So again thank you for taking the time and wish you guys a very nice summer.

Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers please stand by.