Good morning everyone, and welcome to Elisa's First Quarter 2023 Conference Call. My name is Vesa S ahivirta, and I'm Head of the Industry Relations. Here again, we have very familiar team, Chief Executive Officer Veli-Matti Mattila and Chief Financial Officer Jari Kinnunen. Following the normal practice, we start this meeting with a presentation, followed by Q&A. In Q&A we take first questions from the audience, if we have, and then from the conference call lines. Now we are ready to start, so I give word to Veli-Matti, please.
Thank you, Vesa, welcome to Elisa's interim report Q1 2023 on my behalf as well. Let's get started by the highlights. Our revenue was growing by 5.5%, while the EBITDA growth was 3.5%. Mobile service revenue increased 4.9%, the post-paid churn was decreasing further to 14.9% this quarter. We had post-paid subscriptions growing by 19,400. Machine to machine and IoT subscription base especially was growing by 26,400. Also fixed broadband subscription base increased by 2,600, the good momentum in 5G continues. Now our network covers 88% of Finnish population in over 200 towns and cities.
Revenue growth is driven by the good development in all of our business domains: mobile, fixed services, and digital services. Also, equipment sales was strong. Of course, the good development in EBITDA is the result of revenue growth, but also our continuous productivity improvements, long-terminess of Elisa. In the mobile service revenue side, the growth is driven with our continuous success for providing faster speed and upselling the subscriptions not only to 5G but also within 4G. Also a contribution comes from some of the product and price changes we've done. The year-on-year ARPU growth was 4.3%. There still is a campaigning in, especially in the 4G continuing, and the competition in the market is keen.
However, we have seen some focus maybe more by operators and the churn has come down a bit this quarter. When looking at our business segments, consumer customer revenue was growing by 4% and EBITDA by 1 percentage point. In the corporate side, revenue growth was eight and the EBITDA nine. In both segments, all the business areas were contributing positively, mobile and fixed digital service and equipment sales. The regulatory driven price decreases in the interconnection meant that the interconnection revenue was coming down, but also the interconnection cost was coming down. From the profit point of view, it was quite neutral. The traditional fixed line business is continuing the slight decline further.
We continue to execute our strategy with three focus areas, and we foresee great potential and opportunities in each of the three focus areas in our strategy. In the mobile side, the more than 200 Mbps speed voice subscription base is approximately 45% at the moment of the total base. Continues continuously growing. Speed matters to the customers and in this more than 200 Mbps customer base, the share of 5G is growing, the share of 4G customers is slightly decreasing. Of all the devices at Elisa's and smart phones at Elisa's customer base, 42% are now 5G capable. We continue to build our coverages in Finland and Estonia. In Finland, 88% population coverage.
In Estonia, over 70% population coverage. We are able to monetize 5G with our business model so that the billing increase is over EUR 3 per month in 5G upgrades and continues to be intact. We have been also deploying Europe's first distributed and fully automated 5G edge commercial solutions, paving the way for a new type of edge solutions in 5G services. Also, a different kind of other applications. For example, a world-class concert experience in Finland that we provided virtually to the remote audience who took part together with the help of 5G and virtual reality solution.
o make actively investments in our fiber network, and our fast connections are already available to more than 1 million locations via fiber or cable model. The strong growth continues also in our international digital services in Elisa Polystar and Elisa Industriq. As we told in our capital markets day in a couple weeks ago, we have started to give out the revenue for the combined Polystar and Elisa Industriq businesses. Now, the revenue for this quarter was altogether EUR 25 million, which has provided 20% revenue growth. Even in the order intake, we had better year-over-year growth of 35%. Our aim is to continue strong double-digit organic growth and accelerate the growth with M&A.
In Elisa Polystar, we had a record high quarter in data management orders, and there was really high good interest of and good customer feedback at MWC trade show in Barcelona. For Elisa Industriq, we have also gained several new deals globally, including two new customers in Finland for production planning, environmental health, safety and quality solution, and the strong year-end order intake and increased demand for customer deliveries continues. Also our domestic and other digital services are moving forward well. In entertaining video services, in Finland and Estonia, especially our original series, higher quality original series are successful getting recognition and customer demand. In IT services solutions, Elisa is now one of the three companies entitled to be called a solution partner of Microsoft Cloud in Finland.
It's quite extensive, six Microsoft designated competencies that we have achieved. We have them locally available, the capabilities to our customers, which makes us a very strong IT vendor. Also, we have seen increasing interest among customers in speech as a source of data for AI applications. We have AI deployment expanded from natural language processing capabilities to integration of ChatGPT to our customers. We are providing capabilities to our customers to experiment and test these new foundation technologies that are very hot topic at the moment. In visual communications, Elisa Videra is moving forward well. The demand for visual communication solutions remains strong. During first quarter, Elisa Videra delivered to the over 30 unique countries across over 40 customers.
A year ago, we started the report of our KPIs for sustainable future development in four areas of our sustainable future objectives in the digital, social, environmental and financial. Our performance for change in energy consumption has got to the level of 9%, so the energy efficiency is increasing. We have increased the population coverage to the fast connections to provide availability to digital access to all Finns. Also the proportion of female supervisors is increasing at Elisa, so that we can get the full potential of leadership talent at Elisa more. The patent portfolio is also growing up with new patents altogether, eight new first applications.
Elisa has been the first among the first Finnish companies to receive approval for the Net- Zero 2040 from Science Based Targets initiative. Credibility for our target and objective to be Net- Zero 2040, even with the Scope 3 perspective. Also Elisa has been included in 2023 Bloomberg Gender-Equality Index. We got CDP Supplier Engagement Leader recognition among the top 8% of the companies, 15,000 companies, reported here. Elisa has also been perceived as the most sustainable brand in the industry according to the Finnish consumers for fourth year in a row. Finally, about our outlook and guidance for 2023. The development of general economy includes many uncertainties going forward. Growth in the Finnish economy is expected to stall.
In particular, uncertainty relating to Russia's war in Ukraine, such as inflation, energy prices, and global supply chains will continue. Competition remains keen. We estimate that our revenue will be at the same level or slightly higher in 2020 than in 2022, and comparable EBIT at the same level or slightly higher than in 2022. EBITA growth potential is still a bit more challenging for the first half of the year, and our capital expenditures will be maximum 12% of revenue. Now I'll ask Jari to continue. Please.
All right, thank you. year started good. Q1 was continuing revenue, both revenue and earnings growth. Revenue 5.5%, EUR 28 million increase. Inside that EUR 28 million, interconnection and visitor roaming decrease EUR 2 million. Interconnection price decreased from EUR 0.0055-EUR 0.004 per minute and is in decreasing also interconnection expenses, so EBITDA neutral. Equipment sales growth was EUR 8 million. Service revenue growth in corporate customer segment, EUR 13 million. All services, mobile, fixed, and digital services growing. In consumer customer segment, service revenue growth was EUR 9 million. Also all service revenues, mobile, fixed, and digital services growing and in both segments, traditional fixed voice decreasing.
Below revenue in other operating income, included in this quarter, real estate sale approximately EUR 3 million, which is a bit higher than often often is. Several times a year there are some real estate sales and they are booked in other operating income, but this quarter it was slightly higher than normally. Materials and services expenses increased EUR 15.5 million, mainly due to equipment purchase costs as a result of higher equipment sales. Also, electricity, high electricity prices impacted. Employee expenses increase was EUR 8 million. Number of employees as a result of acquisitions and some insourcings impacted also. Expenses included restructuring charts in consumer customer segment.
Somewhat higher long-term incentive plans, reserves and accruals was also included in employee expenses. EBITDA increase by EUR 6 million, 3.5% to EUR 183 million. EBIT growth was 4.9% to EUR 170 million, and EPS growth 3.9% to EUR 0.57. In Estonia, revenue growth continued 8.6%, driven by equipment sales as well as mobile and fixed services. In EBITDA, inflation and especially energy prices and personal expenses, wage increases impacted and EBITDA decrease was 0.4%. In mobile subscriptions, post-paid base decreased 1,000, prepaid base 5,700. Churn continued at low level, 10.1%.
CapEx, reported CapEx was EUR 66 million, and guided CapEx excluding licenses, lease agreements, and acquisitions, EUR 57 million. Main CapEx continue to be in 5G coverage increase as well as fiber and other network and IT investments. Cash flow also continued with growth and comparable cash flow, EUR 71 million, 7.5% growth, positive impact from higher EBITDA and net working capital change. Last year, net working capital change was EUR 21 million, now EUR 14 million. Both changes negative, so a year ago, EUR -21, and now EUR -14. Main change coming from lower inventory compared to what the development was a year ago. Negative impact in cash flow change from higher CapEx taxes and interest payments.
Operating EBITDA operating cash flow conversion continued at a high level at 69%. Balance sheet and capital structure in line with the targets net debt to EBITDA 1.6x, equity ratio 42.6%. Return ratios continue at good level. Return on equity increased to 31.4%. Return on investment 18.2%. Average interest expense for interest-bearing debt at 1.5%. About two weeks ago, 5th of April, AGM was held and decided on dividend EUR 2.15, which is 4.9% growth to previous year dividend and ninth consecutive growth year. There was authorization for maximum EUR 5 million share buyback.
The dividend payout ratio is 92%, in or according distribution policy between 80% and 100%. Now I give word to Vesa, please.
Thank you, Jari. Now we move on to Q&A part. First we ask if there is any question from audience. No, we don't have currently questions here. We ask first question from the conference call lines, please.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Anonymous from Goldman Sachs. Please go ahead.
Hi, everyone. It's Andrew Lee from Goldman. I had two questions just on phasing of positives. One was on pricing and one was on churn. This is all related to Finnish mobile. You've raised Finnish mobile pricing, and your competitive has followed in October, January, and I also think to a lesser extent in the last couple of weeks. Could you just talk through when that those, you know, relatively meaningful price rises impacts your revenue trends? 'Cause I understand there's a lag, given some of the tariff setups you have. That would be really helpful. Secondly, churn reduced pretty meaningfully this quarter versus last year.
Do we...a re we seeing the full benefits of that churn reduction on Q1 EBITDA, or is there a kind of rolling lag between, the actual churn and the, and the way the costs are accounted for? Thank you.
Thank you, Andrew. Regarding the price increases you were referring to, those were in the consumer side front book, price increases to the 4G customer base. We actually have done additional EUR 1 increase in the pricing just recently. Because it's a front book, price increase in 4G, I would say that the impact comes gradually. We maybe have seen already some impact of that because, of course, while 4G price level has gone up, it has, of course, encouraged also customers maybe slightly more to move to 5G, but also the customers taking 4G have for this mainstream product, have paid a bit more.
I would say that we have seen some impact of those price increases, and we will still continue to see going forward. In regards to the churn, we have of course seen some benefit for this quarter for the churn coming down. Just have to remind that the churn level still is quite high and we see gift card-based competition in the market, so there is still quite some cost for customer acquisition ongoing. Of course, some positives we have seen and hopefully going to see further in the future.
Thank you.
The next question comes from Ondrej Cabejsek from UBS. Please go ahead.
Presentation. I had two questions also. One on just the expected inflation from wages. I understand you've managed to strike agreements with the unions at about 3.5%, but there is likely also to be some kind of one-off payment in the second quarter, which then translates into your kind of more cautious 1H outlook. Could you maybe talk a bit about what the scale of that impact could be in the second quarter, please? Second question would be just on digital services and their potential acceleration. You've talked about a strong order intake thus far year to date.
If you could talk about, you know, you got for a strong double digit, but obviously if you look at the past, you know, two years, the average was close to 40% on the international side. The past couple of quarters have been a bit below that. Do you expect the rate that or the growth, sorry, that we're seeing today to accelerate in the coming quarters or years? That's one angle. The second angle would be just if there's anything you can note in terms of just seasonality around, you know, costs related to international digital services, be it regarding, you know, sales expenses or just some kind of development costs that help you scale these. That would be very helpful. Thank you.
Okay. Thank you for your questions. In regards to the wages, yes, we made the deal a collective labor agreement, which we didn't know the outcome during the first quarter or let's say early first quarter when we reported our fourth quarter result and gave the outlook. The outcome was, as you said, average 3.5% increase in salaries, but also a additional one of salary bonus of couple of millions altogether, which will take place in the second quarter. That was some extra that we didn't know in the beginning of the year, and that we will incur that.
That is, of course, impacting on our view of the H1 being somewhat kind of more challenging for the EBITDA development than the second half. Also, of course, the development in the general economy with all the uncertainties is also taken into account. For your question about the revenue growth in digital services, the international digital services, we're happy with the 20% revenue growth and also very happy for the 35% order intake. We are aiming, as I said, at a strong double-digit organic growth. Now, the organic growth was somewhere 11%, 12% of that 20. Aim is to have really strong organic growth rate.
Our businesses are still, I would say, quite in early days, so there is somewhat seasonality in general in these business domains. There is also some variability between the quarters because we still are not with high volumes where the different one deals would not kind of create changing over the quarters. So there will be some variation, but we see strong demand for our new type of AI machine learning enabled enhanced solutions to these customer bases and target markets and believe on strong revenue growth going forward.
Also adding to that, certainly, as we have said earlier, we continue to look at the opportunities to have inorganic growth acceleration for both of these businesses.
Thank you. One very quick follow-up. If I made the wage agreement, is that a one-year wage agreement, or is that extended through for future periods as well?
It's one year.
One year. Okay. Thank you very much.
You're welcome.
The next question comes from Nick Lyall from Société Générale. Please go ahead.
Hello, guys. Thanks for taking the question. Just a couple as well, please. Just on back to Andrew's point about the low churn, please, and the low gross adds. That said, your postpaid adds are still a little bit weak and have been for the last couple of quarters. Is that just because of pushing through the price rises, or do you think you need to put in a little bit more effort into marketing or have something to, you know, you need to push the position a little bit there? Should we expect more sort of effort maybe into second and third quarters, or is this what to expect in terms of weaker adds for the time being?
For Jari, just on the on the staff costs and the other operating costs. You mentioned the EUR 3 million for this quarter, Jari, from the property gain, which I think you said last year at this time was about EUR 1 million. Are there any other decent one-offs in there in terms of staff costs or other costs, you know, such as restructuring the cost of Russia exit or reserves for credit losses? Could you just remind us what the year-on-year effect for both of those lines was, please, in terms of one-offs? Thank you.
Okay. Thank you for the questions. In terms of the low churn, and regarding the postpaid development, being a bit less up than earlier, we have had some, let's say, data subscriptions that have been with low or no use. Discontinued by customers, for example, many iPad users, they do not take any more the SIM card. They use the possibility with their smartphone to connect their iPads, or they use just Wi-Fi. We've seen those, let's say, not so high-value iPad subscriptions, for example, and some other data subscriptions to fade away. That has been quite a big portion of the negative impact to the subscription base.
Otherwise, we are keeping our very good share, market share intact, and also, having the kind of good development on getting the value out of the market with upselling. For your other question, I'll ask Jari to elaborate, please.
Yeah. The, yes, as said, the property gain was approximately EUR 3 million in this quarter, somewhat higher than it often is. We every now and then, there are sales of properties that are not anymore used, sort of technical premises. We had restructuring charges in personal expenses this quarter, approximately EUR 1 million. Last year, as you said, regarding stopping the business, small business that we had in Russia, we had approximately EUR 1 million expenses.
That's great. Thanks very much.
The next question comes from Fredrik Lithell from Handelsbanken. Please go ahead.
Hello. Thank you for taking my questions as well. I sort of had two. Maybe if you could elaborate a little bit on Finland and if you have, during the quarter, seen any specific sort of marketing campaigns from your competitors or if you see something picking up pace going into spring. Or if you feel that the community of players are holding prices in a better way than earlier, some better pricing disciplines if that is a sign you see in the market. That's the first question. Maybe then the 28 GHz spectrum auction is coming up in Q2. If you could elaborate a little bit how that fit in to your strategy and so on.
Also on the licenses or the spectrums, correct me if I'm wrong, you still have the 700 MHz in Estonia that you haven't really deployed yet with the equipment. Is that correct, or is it something you are doing right now? Thank you for that.
All right. Thank you, Fredrik, your questions, to your questions. Well, certainly there are different kind of marketing activities by competitors all the time. Nothing very specific that I could recall and report to you about that. In terms of pricing discipline, I'm a bit shy to comment on our competitors' pricing. I think it's clear that everybody is hit by increasing energy cost, and that has some impact to the behavior of telecom operators, not only in Finland, but also, I guess, in other markets. In regards to the question about the frequencies in Estonia, well, we have fit for all the frequency domains, what is available, with decent pricing.
We like to take all and utilize them in various ways. There's a good fit in our strategy as well. Even if this 28 GHz is of course a very high re-frequency, meaning that it's maybe more geared towards some B2B applications where you have short distances with the high demand for low delay, low latency. Those cases are not so prevailing yet. In the future, I believe that there's a good market for those as well. 700 MHz frequency, we are on our way to take it more into use.
Okay. Very clear. Thank you very much.
Welcome.
The next question comes from Siyi He from Citi. Please go ahead.
Hello. Hi, good morning, thank you for taking the question. I have two, please. The first one is on the B2B ARPU. It seems that the B2B ARPU has showed a slower growth compared to the B2C in Finland. I guess some of them is impacted by the machine-to-machine growth. So I was wondering if you can make some comments on what you see of the 5G upselling in the B2B area. The second question is on cost. It seems that you're seeing that energy costs are less feared, less than feared this quarter. The next, from Q2 onwards, you would have an implementation of the PPA of the wind energy. So I was wondering if you can comment how should we think about energy costs for the rest of the year.
Should we think that it will be stable year-over-year going forward? To just a quick follow-up on the wage. I recall that there was industrial action in Q2 last year, which could potentially result some savings on salaries. Would you mind to remind us how much is that last year? Thank you very much.
Okay. Thank you for your questions. In regards to the upselling of 5G in B2B side, that has developed very well, especially when we think about entrepreneurs and SME market really well. Also we have got more and more traction in the larger corporate customer segment for 5G upselling. Maybe we can say that the B2B side is a bit behind the development for penetration increase for 5G of consumer segment, but there is a very good development also in the B2B side going forward. I ask Jari to respond to the energy cost and development. May I ask you about the wage question? I was not quite clear that I understood your question, so could you please repeat that?
If I look at last year, I think there was some strikes that's taken place in Finland and, which I guess potentially have led to some salary savings because, of people absent from work. I was wondering if you can comment on how much that impact was last year to have that change for next quarter now? Thank you.
Okay. Very clear. Thank you. Yes, we had a quite unusual situation a year ago. You remember right that we had a strike, which took place two weeks, which we haven't seen for many years. It created, of course, situation that we had some savings in the salaries. Not very big, but of course, had some impact to the Q2 positively last year, but nothing very serious, but some help that time for the salary and wage cost a year ago. In regards to the energy cost, Jari, please go ahead.
Yes. On average, energy prices are higher this year compared to 2022. We hedged, let's say, more than 90% from the direct usage, hedging prices is higher than last year. PPA agreement started now in April, that is agreed already in the summer 2021. The price in the contract, it's 10-year fixed price contract. Compared to today's prices it's at good level, that will lower partly the average price in the second half of the year.
Very clear. Thank you very much.
You're welcome.
The next question comes from Anonymous from number ending in 2775. Please go ahead.
Hello, it's Adam Fox-Rumley from HSBC. I had two quick questions, please. One was on fiber CapEx. You mentioned in your or fiber trends, you mentioned in your prepared remarks that some of your CapEx budget was being spent on fiber at the moment. I just wondered if you could talk about the level of competition that you're seeing in the fixed line fiber market at the moment. Then secondly, I wondered if I could just ask you a little to explain how you see the economics behind machine to machine. Because obviously it's quite a big component of the net adds that you're putting through, but I suspect it is very low, very low ARPU SIM, very low ARPU.
Yeah, anything you can say just to help us understand that kind of line of the, of the P&L will be helpful. Thanks.
Thank you. In terms of the fiber market, like I said, we continue our investments that we have done many, many years to the fiber infrastructure, not only to the core network, but also to the access network. We continue to do so within the limits of our 12% CapEx. We see that our customers or the customers in the market, we have a high preference of the customers to choose Elisa as the fiber provider. We of course lean on that in addition to the fact that we have a solution to the broadband demand of the customer.
In any situation, based on the preference of the customer, whether it's a fiber or whether it's a then mobile solution, depending on the fiber or customer preference on the solution. There is, there are quite a few players in the market, testing the market. I see, we have a quite different situation in the Finnish market, while we have the unlimited mobile data, and the customers, many customers solve their needs very cost efficiently with the 5G solutions. Then the fiber is not an option. It makes the market quite different from the other markets.
However, of course, there is a place for fiber solutions to the customers and we are very strongly with our strengths taking our share of the market. In terms of the other question about the economics of machine-to-machine business, of course, it is a volume business that when we can say that it creates a kind of meaningful absolute profit to us. It is increasing in a very good pace the number of subscriptions. Of course for us from the cost point of view, it's not a kind of additional cost for machine-to-machine. Subscription is not that high, neither is of course the price. They are very low cost subscriptions.
Clearly different kind of kinds of applications are now coming to the market where we start to see volumes to be ramped up and and of course there is also some equipment sales that is going on. In some domains we even have a kind of lack of delivery of the equipment in the whole global world for certain applications. It's maybe not something that will jump up and and that business increase very quickly, but over the time it is going to be a meaningful profit generator. The economics if you think about the price and the cost, they are they are positive.
That's interesting. Thank you. Could I just ask about if, what those different applications are, what those new applications are that are driving additional take-up?
We have of course different things in the consumer side like SIM cards to cameras in different places, hunters for example, and summer cottage owners and so forth. Pet owners want to have different kind of things. In the corporate side there are various industrial applications also. There are applications for having meters like electricity or water meters to be connected to the network.
Thank you very much.
You're welcome.
The next question comes from Sami Sarkamies from Danske Bank. Please go ahead.
Hi. I have two questions. Firstly, could you be able to open up the reasons for strong EBITDA growth at the corporate segment? It was clearly sort of sticking out in Q1. Secondly, you did initially guide for slower EBITDA growth during the first half of the year. In Q1 it turned out to be 3% after 4% last year. What surprised you positively, and do you still expect accelerating EBITDA growth during the remainder of the year?
Okay. The corporate side was getting help from the fact, for example, that it was not hit that much by the energy cost, because the proportion of our energy cost is a bit more geared towards the consumer side because of the consumption figures. Also, in the corporate side we have seen some price increases to help. Also, of course, the help from the improvement in our digital service businesses is helping the corporate side to improve their EBITDA. The first half and the first quarter positive surprise mainly came from the fact that we assumed higher energy prices for the first quarter than then realized.
That was the main kind of, positive surprise.
Do you expect EBITDA growth rate to ramp up from Q1 level during the remainder of the year?
We reiterated our guidance that we will be on the same level or slightly higher than last year for the full year, and H1 is still a bit more challenging. As we said that we have this couple of million EUR for the collective labor agreement taking toll for the second quarter.
Okay, thanks.
You're welcome.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Okay, thank you for all the questions, and answers of course. Let's check if we have any question from the audience here. No, we don't, so it means that we are now ending up this and we wish you all a very nice springtime. Thank you and bye-bye.
Thank you.
Thank you.