Earnings Transcript for TEL2-B.ST - Q4 Fiscal Year 2023

Operator: Good day, and thank you for standing by. Welcome to the Tele2 Fourth Quarter Interim Report 2023 Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be the 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. Please go ahead.

Kjell Johnsen: Thank you very much, operator. Good morning, everyone, and welcome to Tele2's report call for the fourth quarter of 2023. We are very happy that you are taking the time with us this morning. And with me here in Kista today, I have Charlotte Hansson, our Group CFO; Hendrik De Groot, our Chief Commercial Officer; and Stefan Trampus, our Head of B2B. So please turn to Slide 2 for the highlights. 2023 turned out to be eventful in many ways. And if I were to single out a few specific events beyond the financial ones, I would mention the Financial Times ranking of Tele2 as the number one among Europe's climate leaders, as well as the top spots our B2B team recently achieved in the Swedish quality survey, SKI, based on real customer experience. So while these achievements make us proud, we will of course continue our work on customer experience and sustainability going forward. I'm glad to report a strong end of 2023 as we grew organic underlying EBITDAaL by 4% in the fourth quarter, while maintaining solid end-user service revenue growth of 3%. For the full year, we grew end-user service revenue by 4% and underlying EBITDAaL by 2%, which combined with 13.5% CapEx to sales ratio was in line with our 2023 guidance in a challenging year largely characterized by inflation. Following strong equity-free cash flow during the year, our balance sheet remains strong with leverage at the bottom end of our target range. Consequently, our Board of Directors proposes an ordinary dividend of SEK6.90 per share, an increase from SEK6.80 last year to be paid in two tranches in May and October. We're also launching a new Strategy Execution Program, which covers the next three years. Through this program, we will simply put shift focus from fixing legacy IT towards our go-to-market efforts, developing outstanding digital tools and channels, and that radically improving customer experience and value. The program will also, as an effect, allow us to reduce SEK600 million of costs over the next three years. I will soon present this in more detail. Please move to Page 3. End-user service revenue grew by 3% organically with solid performance across operations, including continued growth acceleration in B2C Sweden. Underlying EBITDAaL grew by 4%, mostly as end-user service revenue growth more than offset inflationary pressures. We had a solid equity-free cash flow this quarter despite working capital impacts from seasonally [Technical Difficulty] levels of equipment funding. In Sweden B2C, we saw solid volume growth in Mobile postpaid. End-user service revenue growth in connectivity was also solid, driven by Fixed broadband at 8% and Mobile postpaid at 5%. Sweden B2B delivered continued solid and broad-based end-user service revenue growth supported by improving Mobile ASPU. Our term also stood out as mentioned in the recent survey from the Swedish Quality Index, with the most satisfied business customers in both Broadband and Mobile, which we're very proud of. Baltics had another good quarter with strong ASPU-driven end-user service revenue growth and good underlying EBITDAaL growth. Then, let's look at Swedish consumers. Q4 was yet another quarter with solid volume growth in Mobile postpaid, driven by lower churn and strong sales of Unlimited and Family products. Mobile ASPU increased slightly year-over-year but grew more than 2% when excluding dilution from free broadband RGUs. In fixed broadband, we saw stable RGU development in the quarter due to fewer campaigns and less discounts, whereas ASPU growth was strong, thanks to the price adjustments and uptake of higher average speeds. Our Digital TV Cable & Fiber business remains stable in terms of volume, whereas ASPU was slightly down due to decline of legacy add-on products. Moving to Slide 6. Mobile end-user service revenue grew by 3% driven by a continued acceleration in Mobile postpaid, which delivered a multi-year high end-user service revenue growth of 5%. In contrast, our prepaid business continued to contract in line with previous quarters following the registration requirements since February 2023. With an impressive 8% end-user service revenue growth, Fixed broadband also delivered a multi-year high, thanks to both ASPU and volume growth. End-user service revenue for Digital TV declined by 3%, mostly driven by continued decline in the legacy DTT business. And now moving to B2B. We continue to execute on our successful B2B strategy and all customer segments are contributing to the solid end-user service revenue growth of 2% or 4% underlying when adjusted for a one-off deal in Solutions in Q4 of '22. Our corporate decommissioning has now approached 90% completion rate. Mobile net intake amounted to 3,000 RGUs in Q4 alongside continued ASPU improvements. The macroeconomic situation continues to affect some of our customer groups more than others, however, with moderate impact on our overall business. And then let's move to an overview of Sweden. End use -- sorry, end-user service revenue growth for the total Swedish operations ended at 2%, driven by both B2C and B2B. Underlying EBITDAaL turned to 3% growth, mostly as higher end-user service revenue exceeded inflationary pressures and continued margin pressure from product mix changes as legacy services are declining. The cash conversion of 58% is reflecting full-year CapEx to sales of 15%. Let's continue with the Baltics on Slide 10. The total number of Baltic Mobile postpaid customers continued to increase in the quarter. Organic ASPU continued to grow at a healthy rate, largely driven by Lithuania, and our more-for-more strategy, price adjustments and prepaid to postpaid migration. And when looking at the Baltics financials, the ASPU growth combined with some volume growth in Mobile postpaid led to 8% organic end-user service revenue growth for the Baltics as a whole, driven by Lithuania and Latvia. Underlying EBITDAaL also grew at 8% organically as end-user service revenue and somewhat lower energy costs exceeded inflationary pressures. Cash conversion remains at excellent levels and reached 74% by year end, thanks to strong underlying EBITDAaL, despite full-year CapEx to sales of 10% due to ongoing 5G rollouts. With that, I hand it 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 Q4, total revenue grew by 2% organically whereas end-user service revenue grew slightly more than 3% organically. In Q4, we had a revenue increase of SEK13 million from international roaming year-on-year, hence roughly in line with the contributions in the previous couple of quarters. Underlying EBITDA grew by 6% in SEK terms and close to 5% organically. The underlying EBITDAaL grew slightly more than 4% organically, mostly as the end-user service revenue growth more than offset inflationary pressure and continued margin pressure from product mix changes as the legacy services declined. In Q4, we had SEK11 million tailwind from energy year-on-year. As you can see on the slide, our net financial items increased by SEK80 million year-on-year due to high financing costs for outstanding debt. And by year-end, we had a debt mix of 66% fixed rates and 34% floating rate. With that follows for every one percentage points rate change by our Central Bank, our annualized financial expenses on loans with floating rates moved by around [indiscernible]. And during 2024, we have some SEK4 billion maturing, of which the majority is fixed and matures during the first half of the year. Then finally, the income tax was decreased due to higher taxable profits and -- increased due to higher taxable profits and because last year was positively impacted by a tax reduction related to investments made during the pandemic. And let's move to the cash flow. CapEx paid increased in Q4 compared to last year due to continued high CapEx levels and the first tranche of the recently acquired spectrum in Sweden. Changes in working capital were negative in Q4 as expected, mainly driven by seasonally high levels of equipment funding, leading to modest positive working capital for full year 2023. With that said, one of our focus areas a year ago was to reduce our inventory levels, which we have achieved following a reduction of some SEK400 million. Another focus area was to improve the invoicing process towards Net4Mobility related to our network modernization. Here we have made tangible progress in 2023, although partly offset by new investments as we continue our 5G rollouts. Working capital remains a priority for us also going forward and our ambition is to keep working capital cash flow neutral in 2024. Net financial items paid increased due to higher interest rates both on loans and leases and coupon timing. Taxes paid declined predominantly due to tax refund related to the year 2022. All-in-all, our equity free cash flow for Q4 ended at SEK0.5 billion, slightly above last year's level. And over the last 12 months, we have generated SEK4.7 billion of equity free cash flow corresponding to SEK6.8 per share and consequently in line with the dividend payments during the year. So let's move to Slide 15, for our capital structure. By year-end, economic net debt amounted to SEK25.6 billion, hence unchanged compared to year-end 2022. Our leverage ended at 2.5 times, which is in the lower end of our target range of 2.5 times to 3 times. And with that, I hand over to Kjell to introduce the next phase of our strategy execution.

Kjell Johnsen: Yeah, thank you very much, Charlotte. And I'd like to use the opportunity to take a little bit longer perspective. As you may remember, I have been here for a little bit more than three years, and over these last three years, we have spent a lot of time [Technical Difficulty] working on integrating different parts of the business. Historically, of course, we consist of Tele2, Comviq, Com Hem, Boxer, and those with a long memory will remember that we also many years ago bought the D2C operations in Sweden. All of these brands typically have their own stack and their own buildings. And over the last two to three years, we have made a huge effort to consolidate these assets, these legacy platforms into two, one for consumer and one for B2B. And internally we call that the legacy consolidation. The good thing now is that this spring, when we put these things together, we will start freeing up capacity to what we internally refer to as the development opportunity where we will be more focused on developing customer experience, new go-to-market, digital channels, and all of these things lead to improvements in the way we interact with customers into improvements in our cost base. And of course, the focus on value is also substantial change that we have been through over the last two years. Historically, quite a lot of focus on volume now more on value and you're starting to see it in the numbers. We're also starting to see it in the customer loyalty. So, I feel that we are now at -- we are turning the page on a new chapter for Tele2. And if we look into the Strategy Execution Program on the next page, I would like to highlight, this is all about creating customer value. This is about creating great digital channels. We already do a lot of the customer interaction in Comviq digitally. We want to be doing more of that in the Tele2 brand. And we of course want to help Stefan in running B2B with the best tools available and that is a primary target for us going forward. Self-service is of course an important part of the customer's interactions with us. We want to dedicate more time and effort to developing these solutions. And as we always say, we are well underway. We're building a great 5G network where we for regulatory reasons basically have to replace everything that we have in Net4Mobility and that will be done by the end of this year, and next year we will replace SUNAB with our own new network. And after that, we will be down to demand-driven investments, which will be lower costs and lower CapEx. And then when we talk about Strategy Execution Program, they typically are labeled cost programs. I would like to emphasize that at Tele2 now the SEP as we call it is a value-led program, which has cost saving as a consequence, but we're going to follow up these cost savings that we have identified meticulously over the next three years. And we're going to save those SEK600 million and they will be saved in a fairly equal way over the years, actually maybe a bit more than a third in the first year. So this is all about reshaping customer journeys. It's about optimizing our go-to-market. And of course, as an effect, we're going to realize these cost savings that we have identified, which leaves us over to the guiding section where we for 2024 uphold a similar growth level at 3% to 4%. We will be growing 1% to 3% on EBITDA, and we expect the CapEx to sales to remain unchanged at 13% to 14%. This is a reflection of the heavy network investments and also intensified customer-centric transformation, which comes with some upfront costs. For 2024, we can also say that we currently estimate an energy cost headwind around SEK90 million year-over-year, of which SEK35 million relates to the energy support received in 2023. So this is in the numbers. We expect a slower Q1 with roughly flattish organic underlying EBITDAaL year-over-year. This is due to factors as yearly indexations of OpEx items and the fact that we are between two cost savings programs. Some of the phasing of the expansion cost of course comes in due to good sales last year. However, we are executing front-end loaded price increases, which should contribute meaningfully from the latter part of Q1 and even more, of course throughout Q2. So expect a better Q2 than Q1. Our mid-term outlook is unchanged. For low to mid-single-digit organic end-user revenue growth, mid-single-digit organic underlying EBITDAaL growth as we will benefit from new levels of efficiency and value creation from the Strategy Execution Program. In 2025, we expect 13% to 14% CapEx to sales, driven by the final stage of the major 5G expansion in Sweden. As we have to shut down the SUNAB 3G joint venture by the end of the year, the spectrum that is allocated to SUNAB will, by that time, be moved to Net4Mobility. So we'd have to execute that change during '25 from a regulatory point of view. From '26, we expect and we are fully committed to CapEx of sales that comes down to historical levels of 10% to 12% as our network will return to being completely demand-driven. So with that, I'll hand it over to the operator for Q&A.

Operator: [Operator Instructions] And now we're going to take our first question, and it comes from the line of Andrew Lee from Goldman Sachs. Your line is open. Please ask your question.

Andrew Lee: Hi, good morning, everyone. I had a question just around the EBITDAaL growth compared to the end-user service revenue growth. So I guess investors this morning were positively surprised by the end-user service revenue growth you're aiming for or guiding in 2024, but were negatively surprised, certainly relative to that with the underlying EBITDAaL growth, Kjell, you went through a couple of the headwinds to EBITDAaL just a couple of minutes ago. You mentioned the energy cost headwinds of SEK90 million amongst other things and some yearly indexations of cost savings. But I wondered if you could break down the cost headwinds a bit more clearly in 2024 because it's obviously quite anomalous for a fixed cost telco to have such poor operational gearing. And then maybe if I could just ask a follow-up, just -- we're just trying to understand how your mid-term outlook of mid-single-digit EBITDAaL growth compare or balances with that low EBITDAaL growth in 2024? Is your mid-single-digit mid-term outlook what you hope to get to in the mid-term or do you still think you can average mid-single-digit growth in the medium term? Thank you.

Kjell Johnsen: Thank you, Andrew. Yeah, so we're clearly planning for moving to mid-single-digit later in the period as we are guiding for. And obviously, we see mid-single-digit coming in, in Q4 2023. Now the task is of course to make sure that we do that throughout full year, and without having these quarterly variations that we see. I think it's partly down to the model of -- that we have and many other telcos with more-for-more where you have some roll-off and then you start doing it again next year, that gives you a slower start to the year. We want to even out that thing. And of course, we do still have the cost increases from inflation and the OpEx base coming in, in the earlier part of this year, we see that, that should abate over time. So it's just a transition into making sure that we can do pricing at the time that corresponds to other cost increases in the business. And of course we will be benefiting from the improvements we do in the program. The program is not only about saving costs in terms of internal costs, it's also about spending less money on external retail and commissions. And we have moved more over to a subsidized model where we see more customer loyalty [Technical Difficulty] customers in binding, which gives us a chance to have longer customer relationships. So it's a quite fundamental re-take on the model. Tele2 -- the brand Tele2 did not use for example handset binding before. And it's something that we've actually had spent some time to reintroduce. From an IT perspective, we see very positive effects of it. We see the majority of our sales are in some sort of binding, and of course, the base is increasingly becoming bound to us. And we see churn coming down. On the cost side, beyond that, we do have a program here that will lead to some reduced internal cost. That is something I'd like to maybe also speak a bit more about at a later point in time. There are internal processes that we should go through in a proper way before we communicate too much around it, but the plans are very clear and robust in terms of what we're going to achieve.

Andrew Lee: Can I just -- or just a quick follow up. So you're talking about energy cost headwinds and then cost indexation for inflation, given you're saying that you're going to get a third of your SEK600 million savings in Q4 -- in 2024, sorry, or a bit more, that cost inflation sounds like it's quite high. What exactly is going on there with your cost inflate -- your OpEx inflation and how big is the OpEx inflation or what kind of is the absolute headwind you're anticipating? It sounds like it's going to be high.

Kjell Johnsen: Andrew, I think it's an important qualification here. When I say we're going to realize a third or more, then I talked about the exit run rate. So, of course, it will come gradually throughout the year in different parts of the business. So, the full-year effect of course will be less. But we will carry it with us into next year.

Andrew Lee: Thank you. Just on that inflation. So what exactly inflation -- these inflation headwinds you're assuming? It sounds like it's quite a high degree of inflation to get to that 1% to 3% EBITDAaL growth?

Kjell Johnsen: Well, if you look at a couple of practical things, for example, when you adjust salaries, you have a carryover into next year. This year, the agreement with the unions in Sweden is for an increase of around 3.3%. So that comes on top when it have pure labor cost. And then, of course, yes, it's clear that some parts of the equipment that we have been buying, I'm not talking about network equipment, but other things that -- I'm not talking about 5G equipment, but other things that have come into our network has had price increases due to the currency that had significantly weakened and the general inflation. So that's what we are compensating for in the business. And we are well underway with that. We see that we are going to be able to do that as well. It just comes in some steps.

Andrew Lee: Okay. Thank you, Kjell.

Operator: Thank you. Now we're going to take our next question. Just give us a moment. And the next question comes from line of Oscar Ronnkvist from ABG Sundal Collier. Your line is open. Please ask your question.

Oscar Ronnkvist: Thank you. Good morning, everyone, and thanks for taking my questions. So, just on the 2025 CapEx outlook, I think you mentioned the 3G network closing. I assume that was already somewhat expected when you put out your previous CapEx guidance this summer. So just wanted to check if you could elaborate on what has changed between then and now, which have caused a different outlook for 2025? And also if you could expand on a mix, please, if the higher 2025 CapEx is purely on Mobile network investments? Thank you.

Kjell Johnsen: I think we just probably need to do -- we should have done an even better job at communicating it, because I think we have been clear that in '24 we are swapping everything in Net4Mobility. In '25, we need to replace SUNAB, because basically, SUNAB as a company will have no spectrum from the 1st of January 2026. But I do see and understand that people had put in an expectation of CapEx coming down towards the end of '25, and then we need to communicate better. But if you look at it in the grand scheme of things, it means that this job is done a little bit faster. It means that we can be more careful in our demand-driven CapEx in '26. And coming down to 10% to 12% is a quite very low number that you will not find almost anywhere else in Europe. So I think we're getting our CapEx story completely and firmly into place within the guidance that we have delivered now. Even at the peak CapEx, we are probably three percentage points -- two to three percentage points lower than many of our competitors. But point taken. If people had the impression that there would be a lower CapEx than what we've said now, then our communication should be better.

Oscar Ronnkvist: Got it. Thank you very much, Kjell.

Operator: Thank you. Now we're going to take our next question. And the question comes from the line of Andreas Joelsson from Carnegie. Your line is open. Please ask your question.

Andreas Joelsson: Yes, good morning. Just a question on prices. A general question, basically, because 2023 was a year when the sector as such probably had to look into prices more than usual. What's the key learnings from 2023 and into the future when it comes to pricing? And also just a clarification on the cost program, is that a net target or is it a gross target? Thanks.

Hendrik De Groot: Right, I'll take that one Andreas, it's Hendrik here. Around pricing, and I'll hand over to Charlotte on your second part of the question. On pricing, we have implemented in '23 very much in line with what we've been saying earlier in the last year around cost development and some of the offsets of that. And I think what, you asked for the key learnings, I think the key learnings are that in terms if you want to successfully implement pricing, which I guess last year we've done quite well, and you see the full effect in our Q4 numbers, that the customer base is quite resilient in terms of accepting pricing as long as the perception of the service is good and is fair. And in that sense, we have been spreading the pricing quite a bit more than we have done in the previous years where we had a very much a specific more-for-more pricing strategy, where we took certain cohorts of customers. So we've been spreading out the pricing more fairly. And I think in that way it turned out to be also more sticky. And the key thing from that is it has sort of been an intermediate step to basically what we're implementing in 2024 and going forward, which I think we also talked about last year, is that we're basically moving a little bit away from more-for-more towards more like an annual pricing cycle. And in the annual pricing cycle, we will address all of our customer base instead of certain cohorts. And the way we do the pricing, we take an orientation towards inflation development. So we're not hard coding it to inflation, but we're taking orientation to inflation development. And that's basically what we are implementing from 2024 going forward. This is what -- this is the main avenue we will also look at -- and with that, we're also changing our front book. So you can see, for example, our front book has -- the prices have been changed. Our unlimited entry offer SUNAB has gone from [SEK3.99 to SEK4.29] (ph) and our Family offer from [SEK1.99 to SEK2.19] (ph). And in line with that, basically, we're pricing all of the -- all the customer base for those customers that are not in binding. And that's basically on pricing. Yes, and I hand over to you, Charlotte to follow-up.

Charlotte Hansson: Yes. So when it comes to the savings of the SEK600 million, as you remember, we had cost-saving program that we ended end of June of SEK1 billion. And this will be a similar program that we will be managing in the same way. So we will follow up in the same way. And so it will also, as the previous program, be a gross saving program. And I think it's also worth repeating that it also comes on the back of different initiatives that we see that we can do there in the business. So it's not a pure cost saving program, but also very much value-led, as Kjell mentioned earlier.

Andreas Joelsson: Thanks a lot.

Operator: Thank you. Now we're going to take our next question. And the question comes from the line of Stefan Gauffin from DNB. Your line is open. Please ask your question.

Stefan Gauffin: Yes, I have a couple of follow-up questions. First on pricing again, but more relating to the Baltics. So the Baltics has been the driver of growth over the last couple of years. A lot of that has been due to pricing. Do you still see room to drive growth through pricing in these markets, or do you see a tougher environment due to macro? Secondly, could you…

Kjell Johnsen: We’ll just take one to begin with, Stefan. So the answer to that is that we're very happy, of course, with the growth we've seen in the Baltics. I started off saying here that now the growth picture and the profitability picture of Tele2 is more balanced. We now see Sweden coming back with a stronger performance, which I think is great because it's better balance. The Baltics came out of some years ago from a relatively low ARPU level. Prices have been increased. We have seen throughout 2023 that some of them have been almost in recession. Still, we've seen a good development, and I've been saying on these calls for many quarters that we're very happy with the performance in the Baltics. But of course, we cannot expect them to run double-digit growth forever in terms of top-line and EBITDA. But I do see hope for continued decently good growth in the Baltics. A little bit different from market to market. But overall, yes.

Stefan Gauffin: Okay. And then just a question on the energy situation. Can you repeat on what you said for 2024? I guess that in 2022 you had some SEK150 million in energy headwind. And then in '23 you had energy tailwind of SEK55 million. So what should we expect for 2024?

Charlotte Hansson: So I can actually take that. And as you said that we did have a tailwind in 2023. Of the SEK55 million that you mentioned, and -- so our expectations for next year is a headwind of approximately SEK90 million. And then SEK35 million of that was then related to the government support that we had in 2023.

Stefan Gauffin: We should expect a headwind in '24?

Charlotte Hansson: Yeah, that's what we said.

Stefan Gauffin: Yeah. But can you explain why, given the prices that we see in the market, why should it be a headwind?

Charlotte Hansson: It's a combination of both volume and prices. And this is what we put in our budget. And I think it's divided equally between Sweden and the Baltics. That's what we see and what the calculations that we made when we did the budget.

Stefan Gauffin: Okay, thank you.

Operator: Thank you. Now we're going to take our next question. Just give us a moment. And the question comes from the line of Nick Lyall from Societe Generale. Your line is open. Please ask your question.

Nick Lyall: Thank you. Good morning, everybody. It was -- a quick one, please. Firstly, Kjell, could you -- you've mentioned the IT migration as of spring. Could you just remind us what that enables you to do? Is it just cost-cutting and digitalization or do you think you'll be able to do a lot more in terms of bundling on certain brands as well? Will that change the way you can actually launch brands in the market? And then secondly, in the statement you mentioned specifically in your spiel on Sweden, that activity was higher in the fourth quarter. Could you just describe what you meant by that? And has that continued into the first quarter as well, please? Thank you.

Kjell Johnsen: Yeah, so, like I tried to explain previously, we basically consist of a number of different legacy brands. Tele2, Comviq, Com Hem, Boxer, TDC, with -- all of them with systems that some of them were old and some of them were reasonably good, but whenever we wanted to do product launches or we want to upgrade or change things, we would have to work in multiple systems at the same time. And of course, it's very, very inefficient. And then, of course, we have the world around the cybersecurity threats and all these things. So basically what we have done is a quite massive consolidation of IT systems and what that gives us is the opportunity to be faster in terms of our development plans, because we don't have to replicate in two or three systems before we can launch, for example, an FMC product. So it gives us higher reliability, it's easier to operate and frees up some capacity for development for our go-to-market, something that Hendrik and Stefan definitely want so that they can be at the top of their game also going forward. And we've spent a lot of time on that the last two, three years to get that job done. And many telcos are not there at all and may not be there for many years. So I think it's a very significant event and that's why I devoted some attention to it. The comment I made on the overflow from last year is basically that we had very good postpaid sales. And of course, when you work with external retail, you carry with you some of that the commissions and these things in your books for some time, for the duration of the contracts and these things. But we are happy to take that with us because it brings customers in and decent ARPUs in the Tele2 brand. So it's a positive.

Nick Lyall: Okay. Thank you.

Operator: Thank you. Now we're going to take our next question. And the next question comes from the line of Ajay Soni from JP Morgan. Your line is open. Please ask your question.

Ajay Soni: Hi there. Thanks for taking my question. And so just I wanted to ask about the 2024 CapEx guidance. So you obviously got a couple of buckets, such as the mobile equipment replacement, your 5G roll out. So do you think 2024 ends up being towards the high end of your range? And just want to understand, what risk do you see there might end up higher than the 14% guidance, for example, inflationary pressures or FX headwinds? Eager to just understand that a bit more. Thank you.

Kjell Johnsen: You mean the higher end of the 13% to the 14% range?

Ajay Soni: Yes, that's what I meant. Yeah.

Kjell Johnsen: Well, I think variations between one percentage point, that is -- if you have a special winter or a special summer or something like that, that's kind of the 5G roll out in these things. So we will end up within that range, and I -- but I cannot give you a decimal point where we will be within the range.

Ajay Soni: Excellent. But do you see any -- do you see -- what do you see the pressures are being up towards the higher end of that range, for example, inflationary costs, or FX. Are those pressures you're seeing? Is there anything else that we should be aware of?

Kjell Johnsen: There are a couple of things here that is volume driven. Of course, how many base stations we swap. We need to swap all the base stations. So we have planned to do that. And then we will do limited, very limited roll out. So those are the volume parameters on the 5G. In terms of Remote PHY upgrades, that is something that we largely can steer and throttle. This year, we'll do more Remote PHY than we ever did before 2023, but we will not be maxing the potential there. And that is a way of steering this. In other areas, if we have costs increases coming up, that will be more of an OpEx issue, and we have planned for that. The CapEx guidance, 13% to 14% is something that we will be coming -- we will come within there. The worst thing that could happen would be that we will be too slow and come below 13% because we really want to get it done now with a regulatory roll out.

Ajay Soni: Yeah, that makes sense. Thanks very much.

Operator: Thank you. Now we're going to take our next question. And it comes from the line of Siyi He from Citi. Your line is open, please ask your question.

Siyi He: Hello. Thank you very much for taking my questions. My question is really on the free cash flow. I think in your opening remark, you suggest that the net working capital is going to be stable year-on-year. But I think in the past you're talking about positive contributions. Just wondering why the change? And if possible, can you walk through, how should we think about equity-free cash flow development for 2024? And maybe just leaning into that, is that, now it seems to focus on paying 100% of your free cash flow into shareholder reviews -- shareholder remunerations. But now with the leverage at 2.5 times and just want to understand your reason of thinking about dividends going forward. Thank you.

Kjell Johnsen: I have to admit that I didn't quite -- and as you said was something changed, I don't know what has changed.

Siyi He: Sorry, the net working capital. I think in the past the net working capital is supposed to be positive for '23, '24, and '25. Just wondering why you're now expecting a flat development.

Kjell Johnsen: Yeah, I can start on that. I mean, clearly we -- if you look at our postpaid business in Sweden, we increased our number of postpaid subscribers by 80,000. And that of course, is linked to our binding and handset. So that's a very, very positive development. But it does bind some working capital. With respect to the balance sheet, my view on that is clear, we -- even with the CapEx that we planned for this year, all other things equal, excluding any other events that we have, M&A or things like that. But operationally we expect to be at the lower end of that range also end of this year. So we are in a solid position. But we think it's prudent what we have done now on to propose or that the Board has proposed an increase in the dividend within the framework that we have. Did you want to add something maybe on working capital, Charlotte?

Charlotte Hansson: No, I think that, of course we are continuing working on the working capital. That's one of the priorities, as I mentioned. But I think that we are -- what we're saying is that we are seeing -- to expect to see it be more neutral for the year. And as you know, this is the small variations and it's quite difficult to foresee. But we are confident that in any way that we are keeping it neutral for the next year or for this year. Sorry.

Siyi He: Thank you very much.

Operator: Thank you. Now we're going to take our next question. Maurice Patrick from Barclays. Your line is open, please ask your question.

Maurice Patrick: Yeah. Good morning and thank you guys for the presentation and hosting the Q&A. From my side, it's a fairly basic question. Sorry for it. But in terms of the number of sites you have in Sweden or radio sites you have in Sweden, you obviously have sites with Telenor on a JV, also inside SUNAB with its own sites. But I'm curious to understand a bit around as SUNAB is turned off, you seem to make reference to migrating frequencies to the Telenor joint venture. Do you think you'll need to roll out more physical sites to replace the SUNAB ones? Or is it more a question of just migrating more from one network to the other one? Just curious to understand that sort of need for more sites, whether it's coverage, whether it's capacity, densification, but it's more around migrating frequencies would be very helpful. Thank you very much.

Kjell Johnsen: Yes. So currently, the spectrum that SUNAB operates on is available until the end of 2025. There was an auction in September last year, I think it was, where that spectrum was re-auctioned, and that will then come into place 1st of January 2026. Net4Mobility bought back that spectrum, or part of that spectrum in that auction, and will have to operate those frequency bands as of the 1st of January 2026. SUNAB as an entity will, of course then not be delivering services in Sweden. And the coverage that SUNAB has today will have to be replaced by Net4Mobility. In itself, this actually gives an opportunity to optimize the network because there will be one end-to-end network planning. And if you go back to our Capital Market Day in 2021, Yogesh outlined how the initial 4G, 5G network, or the initial network that we build after SUNAB is closed down, will actually have a few -- fewer base stations than the combined Net4Mobility and SUNAB because we can put this all together. But yes, in '25, the roll out we're going to do is to make sure that we cover those coverage holes that otherwise would have been when SUNAB is shut off end of '25.

Maurice Patrick: Okay. So there should be an expectation you will actually roll out brand new sites on new towers and locations in '25.

Kjell Johnsen: Yeah. In '25 we will do that because, of course, SUNAB is a 3G network, and that's not going to be very future proof. So clearly we need to upgrade also the coverage -- the technology for the coverage that SUNAB has given us. So that is going to be then with new networks.

Maurice Patrick: Okay. Thanks so much indeed.

Kjell Johnsen: Some of it overlaps, but not everywhere.

Maurice Patrick: Okay.

Operator: Thank you. Now we're going to take our next question. And the next question comes from the line of Fredrik Lithell from Handelsbanken. Your line is open, please ask your question.

Fredrik Lithell: Thank you. Good morning. Thank you for taking my question as well, a detailed one. I was curious to learn more about the legislation on registering prepaid numbers in '23. How far into that are you? How much of your base of prepaids have actually registered? And is there sort of an deadline for when this has to be completed or something like that would be interesting to hear. Thank you.

Kjell Johnsen: Hendrik?

Hendrik De Groot: I can take that one. Yeah. So, Fredrik, on prepaid, the legislation basically went into effect very much early in '23. And from, if I remember, either February or March, all new customers and existing customers that wanted to top-up had to be registered. So basically, the full base of prepaid customers is registered as we speak today. And on that process, we have done a lot around digitalization. So a lot of [Technical Difficulty] how we deal with customers all fully digitalized, and it's a very sort of easy customer journey. And of course, what you're seeing basically in the numbers is on a year-on-year comparison, a bit of a more difficult comparison, but as we go into this year, it will sort of be compared to a registered base. So more apples to apples.

Fredrik Lithell: Okay, perfect. Thank you.

Operator: Thank you. Now we're going to take our next question. Just give us a moment. And the next question comes from the line of Keval Khiroya from Deutsche Bank. Your line is open, please ask your question.

Keval Khiroya: Thank you for taking the question. So, Q4 obviously saw meaningful improvement in Swedish EBITDA growth to 3%. Do you see this EBITDA growth as sustainable for full year 2024 for Sweden? And can you provide some comment on how we should think about B2B in 2024? Obviously, it's been very strong in 2023. Thank you.

Kjell Johnsen: Starting with B2B?

Stefan Trampus: All right, Keval. Stefan here. Thanks for the question on B2B. I would say that looking at '22 and '23, we had as you said the strong performance overall coming from a couple of years of decline. Going into '24, I would say that we expect similar development that we've seen for the full year. Then it can vary among the quarters, dependent on some one-offs that we had in Q1. Last year we had a one-off on fixed revenues. So that the comps versus Q1 will be a little soft or harder. But overall, you can expect on a similar development that you've seen in '23. Then the unknown is a little bit where the macroeconomics are going and the cost pressure on customers, et cetera, and how much they can invest. And I would say that it's sort of the unknown for us. Let's see how that plays out. And I think the beginning of the year will be really significant for the full year. Hope that answers your question.

Kjell Johnsen: Yeah. And on the timing, I mean, we already touched upon that I think to quite some extent in terms of the timing of the annual price adjustments, in terms of when OpEx things are coming in, I think we actually touched on how that plays out throughout the quarters.

Hendrik De Groot: Maybe just to add on, Kjell. So as I was pointing out that we do move to another, evolving our pricing strategy where with more-for-more pricing, Keval, you would typically see a more back-ended come into the full materiality like we see in Q4. You will probably see this coming a little bit more front-loaded that Kjell, as you were alluding to, all right, for the full effect.

Kjell Johnsen: Yes.

Operator: Thank you, Keval.

Keval Khiroya: Yeah, sorry. Yeah. But just on that. I was trying to work out whether for Q4, we saw Sweden EBITDA growing 3%, is that kind of for the full year 2024 would we also see this as sustainable, I guess the timing effects around the price rises.

Kjell Johnsen: I don't think we are going into detailed guidance on the individual countries. We have never done that before. So, our guidance is for the whole group. And I think we will stay there.

Keval Khiroya: Okay, that's clear. Thank you.

Operator: Thank you. Now we're going to take our next question. And the question comes from the line of Zahir Ramcharan from Redburn Atlantic. Your line is open, please ask your question.

Zahir Ramcharan: Hi, good morning, everyone. Thank you very much for taking the questions. I just had a question on the phasing of the restructuring costs. I appreciate the color on the exit rate for this year on the savings, but is there any detail on how those SEK600 million of restructuring costs are sort of phased between now and 2026? And then secondly, just quickly, on the lease payments this quarter, just unusually, I noticed they fell about 8%. They've been growing 5% to 6% the previous two quarters. Is that just phasing and timing, or is something more structural change there? Thanks.

Charlotte Hansson: Well, when it comes to the phasing of this restructuring cost, it's nothing that we have guided on. And -- but I think that we expect it to be quite evenly spread for the time being anyway. And then you said something about leasing payments, phasing on the payments?

Zahir Ramcharan: Yeah.

Charlotte Hansson: Not sure about that. Let's see.

Kjell Johnsen: So while we're looking into that, I mean, yeah, you should expect that it will…

Charlotte Hansson: Yeah, it's probably just phasing, I would say nothing else.

Zahir Ramcharan: Okay, great. Thank you very much.

Operator: Thank you. Now we're going to take our next question. And the question comes from the line of Usman Ghazi from Berenberg. Your line is open. Please ask your question.

Usman Ghazi: Hi, thank you very much for the opportunity. Just had a question on the working capital commentary around being neutral. I just wanted to understand if this is conservatism or something else because obviously the -- I can understand that growing postpaid volume on handset financing absorbs working capital, but you can offset that with factoring receivables as well, right? So in this assumption of flat, are you assuming that you do any factoring or could this be upside if you go about and pursue factoring of receivables? Thank you.

Kjell Johnsen: Yeah, we do factoring. So -- but there is a delay in terms they come in, you have to send them the first invoice for the first month and then after -- only after that can you go into the factory. So clearly we are using factoring for our handsets. You want to add something?

Charlotte Hansson: No.

Usman Ghazi: Right. So is it that in 2024, there's a bit of a lag factoring both pick up, and therefore we should expect something positive in '25? Or is it that factoring is actually allowing you to achieve the neutral positive -- neutral working capital?

Charlotte Hansson: I mean the factoring is -- it's according to the sales and we had a little bit of a high sales in Q4. So, that's why we might see some of that increasing in the first quarter, as these customers are then switching on their subscription. But I think that's -- that will be phased out by other customers. So, we don't see any major impacts of that. And as also mentioned previously, we are always working on our working capital, so on all different or cash flow and all the different parameters, so we are still guiding on financials.

Operator: Thank you, Usman. Now we're going to take our next question. And the question comes from the line of Viktor Hogberg from Danske Bank. Your line is open. Please ask your question.

Viktor Hogberg: Yeah, good morning. So just a follow-up on the pricing and your ambitions for the Baltics for the year. Sweden, we've already seen some hikes. What should we call it? The index linking strategy, will that roll out over every market or any details you could give us on that would be appreciated. Thank you.

Kjell Johnsen: Actually, the Baltics in general, they do a little bit different from country-to-country, but in general, they have a very well-functioning system around this. They -- especially when they have customers in contracts, they have a methodology for approaching them at certain intervals of the customer relationship and then offering them renewal handsets and different ways of re-establishing. So that happens more throughout the year. It's not a one-time event only that happens in that space. And I think ultimately we'll probably do more of that also in the Swedish market, a little bit down the road.

Operator: Thank you. Now we're going to take our last question for today. Just give us a moment. And the question comes from the line of Adam Fox-Rumley from HSBC. Your line is open, please ask the question.

Adam Fox-Rumley: Thank you very much. I had a quick one on the balance sheet, please. You've been at low end of your guidance range for a while. Have you got any thoughts on does that guidance range need to be adjusted? Is there any way that it could be adjusted? Does the Board need to think about anything there or would you recommend the Board change it at all or are you still happy with it? Thanks.

Kjell Johnsen: I think it has served us well to have a strong balance sheet, during the turmoil we've seen the last couple of years. I think the Board, of course, has every right and opportunity to think through what they think is the right approach for the future. But I don't want to signal any kind of change at this point of time. I think it's a fair question, but I think it would have been a bit risky if we had been laying much higher up in the range two years ago than we did. Now, we've been able to navigate through the turmoil with the ability to make the right decisions for the future, not having to optimize to make sure that we can do -- we can come through the next couple of quarters without getting into issues with our leverage.

Adam Fox-Rumley: Thank you.

Operator: Thank you.

Kjell Johnsen: Well, at that point, operator, I think we say thank you to everyone for taking the time to have this discussion with us this morning. We're coming out of '23 with a strong Tele2 that has done a lot of the preparations we need to do on strengthening our platforms. We are well underway on the 5G. We have visibility and clarity on when we will return to a historically normal CapEx level again with our plans in place. We see a balanced Tele2 with a stronger performance overall in Sweden. We see a strong postpaid momentum and broadband momentum in B2C in Sweden. So -- and our balance sheet is of course at the lower end. We are increasing our dividend again. So overall, we still have lots of work to do. We're in position to make the right decisions for the future. So with that, I'd like to just thank you for your attention, thank you for your questions, and hope you will have a nice day.

Operator: That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.