Earnings Call: Q2 2020

Jul 15, 2020

Your information, the conference is being recorded. Now I would like to hand the conference over to your speaker today, Anders Nielsen. Please go ahead, sir. Thank you very much, Andrea, and good morning, everyone, and welcome to the Q2 2020 report call for Tele2. With me on this end, I have Michael Larsen, our CFO and Samuel Skop, who is the Chief Commercial Officer of Tele2. And today, we will talk about the results for the quarter and then address your questions at the end of the call. And now please turn to 2 for a brief summary of the results and highlights for the quarter. We saw a 3rd quarter of the COVID-nineteen impact. The impact was largely as expected with the main headwinds being lower international roaming, declining equipment and mobile prepaid sales and suspension of premium sports in TV. As a result, end user service revenue declined by 2% on a group level. We estimate that the pandemic had a negative effect of SEK 135,000,000 on underlying EBITDAAL on a group level in the quarter with SEK 95,000,000 in Sweden and SEK 40,000,000 in the Baltics. Thanks to our efforts to refocus the company to defend underlying EBITDA, Tele2 fared relatively well and managed to grow underlying EBITDA by 4%. This was done through short term mitigations such as lowering sales and marketing spend compared to the original plan, and we were also helped by the cost synergies from last year as only a portion of them were visible in the Q2 2019 P and L. CapEx excluding spectrum and leases amounted to DKK 700,000,000 for the quarter, tracking fairly low now so far this year ahead of the 5 gs rollout. We took a major step to assert our position as the leading telecommunications provider as we launched Sweden's 1st public 5 gs network in the quarter. And just like back in 2010, when Tele2 was the 1st to launch 4 gs in the Swedish market, we are now taking the leadership in 5 gs ahead of our competitors. In Sweden, we continue to execute our book price adjustments. The increases are sticking so far, and we are starting to see the effect on mobile postpaid and expect the full effect in Q3 and Q4, including TV. We continue to make progress on the FMC strategy now with 242,000 customers on FMC benefits. Our rollout of Com Hemplate Plus is progressing well and the take up is looking good as demand for streaming increases during the pandemic. In Sweden B2B, the market remains tough. While we are happy that bankruptcies have not materialized as of yet, we see lower order intake during the pandemic, and we see that it will be hard to get the kind of growth we expected within SME before the pandemic. The Baltics remained resilient despite being shut down for most of the quarter. We see the impact for roaming and lower equipment and prepaid sales, but mobile broadband is performing well, and we have gotten a good response to the TV service that we launched earlier this year. As we now have greater clarity on the impact of the pandemic and our ability to mitigate, the Board has decided to reinstate its proposal of an ordinary of an extraordinary dividend of DKK 3.5 per share. The Board will also call to an EGM in early September, and we expect to pay the extra dividend along with the second tranche of the ordinary dividend in October. We're also reinstating formal guidance for 2020, which you can see on the next slide. As we continue to focus on defending underlying EBITDAAL rather than revenue growth this year, we are not guiding on end user service revenue, but focus on underlying EBITDAAL, which we expect to be roughly flat compared to 2019. This guidance is based on the assumption that the pandemic will result in a quarterly negative impact of SEK 100,000,000 to SEK 120,000,000 on underlying EBITDA throughout the rest of the year. We are reinstating our CapEx guidance of SEK 2,500,000,000 to SEK 3,000,000,000 for 2020 as we will ramp up investments into 5 gs and Remote PHY in the second half of the year. Our midterm guidance remains the same since our strategy beyond 2020 remains intact. From 2021 and onwards, we expect low single digit growth in end user service revenue, mid single digit growth in underlying EBITDA and annual CapEx excluding spectrum and leases of SEK 2,800,000,000 to SEK 3,300,000,000. Now let's look at the performance of Sweden Consumer on Slide 5. Mobile postpaid remained resilient with solid net intake of 18,000 RGUs and a 1% decline in ASPU despite the 3 percentage point headwind from roaming supported by the initial effects from price adjustments. Fixed broadband also showed solid results in the quarter with net intake of 10,000 RGUs and slight ASPU growth supported by price adjustments. So far, we see roughly half of the total quarterly effect on of price adjustments, and we expect the full effect in Q3 and Q4, including on TV. The pandemic headwinds are more apparent when it comes to prepaid, where we see a significant decline in net intake and on TV, where ASPU declines accelerated due to the lack of revenue from premium sports. We expect TV trends to come back toward normal levels during the second half of the year as sports return and we see effects from price adjustments. Total end user service revenue went into decline this quarter as growth in postpaid and broadband was offset by declines in prepaid and TV. Now let's look at B2B on the next slide. Net intake turned negative in the quarter as we see lower contract activation during the pandemic. And while we do not see bankruptcies increasing materially, order intake is down compared to the previous periods. Still, the market remains tough with price pressure in addition to headwinds from roaming, which resulted in declining mobile hospitals. This, along with continued decline in legacy fixed services, led to decline in total end user service revenue. Please turn to Slide 7 for an overview of Sweden as a whole. End user service revenue decline accelerated to negative 3%, mainly due to COVID related headwinds in both B2C and B2B. Underlying EBITDAAL increased by 3% as the SEK 95,000,000 impact from the pandemic was offset by mitigations and benefits from last year's cost synergies. We continue to see strong cash conversion of 72% as CapEx spend is relatively low now in between investment cycles. Let's look at the Baltics on Slide 9. Similar to Sweden, net intake was negatively affected by the pandemic headwinds on prepaid volumes. While we saw an impact on roaming revenue, ASPU growth continue, and we see strong performance, especially in Estonia and Lithuania, where we have support from earlier price adjustments. Continued growth in ASPU in all three countries led to growth in end user service revenue, which you can see on Slide 10. End user service revenue increased by 6% organically, which drove an 8% increase in underlying EBITDAal despite the $40,000,000 impact from the pandemic. We are pleased to see that Estonia continues to perform strongly across the board, continuing the turnaround even during the pandemic. Continued EBITDA growth and low capital intensity led to strong cash flow generation of 82% in the Baltics. And with that, I hand over to Mikael. Thank you, Anders, and good morning, everyone. Please turn to Slide 12. As in previous quarter, we have on this slide reported revenue from international roaming on a separate line to show the underlying trend in each revenue bucket without the effect the pandemic is having on roaming. As we stated in Q1, international roaming represents roughly SEK 400,000,000 in end user service revenue and SEK 300,000,000 in underlying EBITDA of the leads for the group on an annual basis. In Q2, roaming end user service revenue did not come down to 0, but was at very low levels. And there's also timing effect where roaming is usually slightly higher in Q3. On an underlying EBITDA level, we see roughly the full effect, that will say SEK 75,000,000 for this quarter and expect the full impact during the pandemic. At eelroaming, which is net negative for underlying EBITDA, is declining slower and likely recovering faster than non EU roaming, which is profitable. Sweden consumer revenue declined by 1.5% in the quarter as strong mobile postpaid growth of 6% and fixed broadband growth of 5% did not compensate for COVID-nineteen headwinds in mobile prepaid and digital TV and continued decline in fixed telephony and DSL as well as DTT TV. Within B2B, mobile end user service revenue, excluding roaming, was flat year on year, while fixed and solution services declined. Baltics continued to show strong growth at 9%, excluding roaming, while our small legacy business in Germany continued to decline 11% in this quarter. For the group, this led to a slight decline of SEK 27,000,000 in end user service revenue in the quarter, excluding roaming. Please turn to Slide 13. Underlying EBITDA increased 3% organically in the quarter as continued strong EBITDA development in Baltics, together with positive effects from 2019 synergies and further cost mitigating activities made in this quarter, outweighs both the negative impact from end user service revenue decline in Sweden as well as the SEK 135,000,000 of negative effects from the pandemic. Looking ahead into Q3 and Q4, we expect the effect from the pandemic to be approximately SEK 100,000,000 to SEK 120,000,000 per quarter throughout this year. Items affecting comparability relating to our business transformation program amounted to SEK 120,000,000 in the second quarter, including costs for store closures in June. Operating profit increased by close to SEK 750,000,000 compared to same quarter last year, of which SEK 452,000,000 was explained by impairment related to Estonia in 2019, with the remainder of approximately SEK 300,000,000 explained by higher underlying operating profit this year. Please turn to Slide 14, cash flow. CapEx paid increased in the quarter due to higher network investments and timing of customer equipment CapEx. Change in working capital of negative SEK 90,000,000 is mainly explained by elevated inventory levels as a precaution during the pandemic, partly offset by a positive effect from introduction of external handset financing in Lithuania. All in all, this led to stable equity free cash flow of close to SEK 1,000,000,000 for the 2nd quarter. Over the last 12 months, our continuing operations has generated SEK 5,300,000,000 in equity free cash flow or SEK 7.7 per share. Please move to Slide 15. We closed the 2nd quarter with leverage at 2.4 times, slightly below our target range of 2.5 to 3 as we postponed the decision on extra dividend of proceeds from Croatia. Adjusted for the extra dividend, which is now being proposed to be paid out in October, leverage would have been 2.7 end of June. With better visibility on the effects from the pandemic than we had a quarter ago, we are today confident that we can remain within our guided leverage range by the end of 2020, while paying out the proposed extraordinary dividend and the 2nd tranche of this year's ordinary dividend. And with that, I would like to hand back to you, Anders. Thank you, Michael. And now please turn to Slide 17 for our key priorities going forward. For the duration of the pandemic, the number one priority is to monitor the impact and calibrate our mitigating actions to defend underlying EBITDA and cash flow. We will look at opportunities to fast track part of our business transformation program. We will optimize our sales efforts to reduce cost and focus on sales channels where we can get a return in this environment. We will continue executing on the back book price adjustments in Sweden B2C and expect to see the full effect in coming quarters. While we focus on defending underlying EBITDA for 2020, we will continue to execute on the long term strategy so that we can pick up where we left off once the pandemic is over. We will continue driving FMC in Sweden and address the remaining overlapping mobile and fixed customer base while preparing to execute on the next phase in the FMC strategy to grow FMC organically. We will continue steering our B2B business towards more profitable segments such as the Private Large Enterprise Sector and SME. Our business transformation program is on track, and we will continue executing to deliver at least SEK 1,000,000,000 over 3 years. We will continue executing on our mobile centric convergence strategy in the Baltics, and we will maintain our 5 gs leadership in Sweden and upgrade both our mobile and fixed networks to the next generation technology. All this will lead to consistently growing cash flow, which we aim to distribute to shareholders. As you know, this is my last quarter as CEO of Tele2. It's been a true honor to lead this company. And I would like to thank all of my great colleagues who have worked hard to drive this company forward and will continue to do so. I would also like to thank everyone who is listening to this call and has followed us throughout this journey. I really appreciate your support for me and your continued support for Tele2 and Kjellmott and Jonsson when he steps in on September 15. With that, I hand over to Andrea for Q and A. Q and We have a question on the line coming from the line of Ulrich Rathe from Jefferies. Please ask your question. Yes, thanks very much. I have two questions, one clarification, please. You mentioned again B2B price competition. Could you highlight what you see as the main drivers there in terms of which competitors, but also what you think is structurally is going on there? The second one would be, when you talk about your cost mitigation activities, could you highlight the major buckets and also how sustainable the actions are that you're currently taking specifically to address the virus revenue shortfalls? And my third point is just a clarification. When you talk about CHF 100,000,000 to CHF 120,000,000 impact throughout this year. Throughout this year, does this mean this is a quarterly average including Q1? Or are you just talking about the second half at SEK 100,000,000 to SEK 120,000,000 per quarter? So hi, Ulrich, thank you very much for your questions. So I'll do the third one. The answer is that the SEK 100,000,000 to SEK 120,000,000 per quarter is a per quarter figure and nothing else. That's not for the whole of the second half of the year. It's per quarter. Then when it comes to B2B, we'll go to Samuel. Yes. Thank you, and good morning, everyone. So on B2B, we continue to see price pressure in tenders for large enterprise, specifically in the public area that we've seen before. And also across the board, I would say, when it comes to connectivity. It is a tough environment and it's no major change, I would say, in regards to competitors. So it remains a tough environment and we continue with the strategy we have to become even stronger in SME, but also to become even stronger in the private sector where the margins and the price levels are slightly better. So no major change. And Michael here will then answer the second question about cost mitigating activities. Now we divide these into 2 different groups, the short term mitigation activities, which we have been executing on this quarter, and these are mainly related to sales, marketing activities, which we cut back on in these times. And these are short term, which we expect and hope to get back on the original plan whilst the pandemic is over. So these are short term. You see them in this quarter. You will see them continue during the pandemic, but then we'll go back to normal levels. Then you come to the 2nd bucket, and that is more long term sustainable cost savings. And as we stated in the report, these we are now up at the run rate of SEK 100,000,000 on an annual basis at the end of the second quarter. Very limited impact in this quarter's numbers, but going forward, the annual run rate will be SEK 100,000,000 is SEK 100,000,000. And this is related to the business transformation program, which we announced in Q4, the SEK 1 +1000000000 in OpEx savings to be realized over 3 years. And there, as one example, and the largest item in this quarter is that we have closed approximately onethree of the stores in Sweden. And then we have other long term savings in there as well. I hope that clarifies the situation. Yes. Thanks very much. Just again on the clarification, SEK 100,000,000 to SEK 120,000,000 throughout the year quarter, is it throughout? Does that mean it's a quarterly average for the full year? No. It means that it is SEK 100,000,000 to SEK 120,000,000 in Q3 and the same amount in Q4. So you should compare it to the SEK 135,000,000 we had in Q2. Got it. Thank you. Thank you. Thank you. We are taking our next question from the line of Terence Tsui from Morgan Stanley. Please ask your question. Yes, thank you. Good morning, everyone. And Anders wishing you all the best for your future endeavors as well. I had a question on TV, please. I just wondered if you can remind everyone about your view of owning premium content. I know in the past you've been very keen to emphasize that you're an aggregator of content, but I'm just interested in your thoughts around the changing dynamics now that Telia has the Champions League rights. And building on that, what would cause you to change your view around ownership of premium sports in the future? Thank you. Hi, Terence, and thank you very much for your kind words. When it comes to our TV strategy and owning content, that has not changed. It's not something we're deliberating. We don't think there is money to be made by owning premium content. And I can't really see what should happen in order for us to reevaluate that standpoint. Nothing, I mean, by our competitors owning Champions League, that is far from enough from coming to a different conclusion that I can tell you. We know that the part of the TV business where we historically have been strong and where we build our business is from basic and upwards. And if we look at our profitability, it comes basically from the basic services, which is underpinned now by the gross margin, for instance, in Com Hem, Even in Q2, where you see premium sports going revenues going down, we defend our gross profit and more. So you can clearly see where the profitability comes from in TD. So that's what I can tell you, Terence. There is no other tools at this point in time. Thanks, Anders. And just as a quick follow-up on that TV element. You mentioned that you're going to be increasing prices in TV as well. Can you talk about what you've been doing on the TV product to kind of justify these price increases for your customers? Yes. So I mean partly one big thing we are doing is the Com Hem Play Plus push where we're giving that to all our customer base for 12 months. I think that's one of the most loyalizing actions we've done ever, to be honest. And then on top of that, with the deal we concluded with NAND a couple of months ago, we also added some really good content to the basic TV packages. So those are a couple of examples of things that we're doing to support pricing. That's great. Thanks for that. Thank you, Terence. Thank you. We are taking our next question from the line of Stefan Gauffin from DNB. Please ask your question. Yes. Hello. Some clarifications. Last quarter, you had some costs relating to the pandemic. And this quarter, you're talking about impact on EBITA from the pandemic. But is this costs? Or is it only loss of service revenues like roaming, etcetera? And then in terms of cost savings, you have already executed some long term cost savings like the 18 stores in Sweden. Do you already have some plans to execute on in Q3? Any additional comments there would be helpful. And then finally, there are some new MVNOs entering in Sweden, and there's competition, the family offerings for the main brands. Can you just comment on what you're seeing on the consumer mobile side? Thank you. Thank you, Stefan. It's Mikael here. I will start answering the first two questions. The effects we talked about for the pandemic, the SEK 135,000,000 in Q2, that's it's the effect underlying EBITDA of the lease. And then it can be both that we lose out on revenue, like with roaming, for example, which is partially that effect, both operator revenue and end user service revenue. And it can also be that be on the cost side. So it's the EBITDA effect. And then talking about cost savings, I will not comment specifically on what we intend to do in Q3 and onwards. We will continue to push the Business Transformation program, of course. And as we stated in last quarter, we'll continue to see if we can do things earlier rather than later, given the situation. But we can't promise any where I will not guide specifically on what we intend to do in Q3 and Q4. Okay. Stefan, Samuel here. On the consumer mobile market, one thing I can say, the introduction on MVNOs, we haven't seen anything based on that. I think that's way too small to have a big impact. Overall, I think there is no major changes. We have the No Frills brands and they are competitive, but we lived with that for quite a while. And then we have the family services that you could argue adds a little bit of volatility to the market, but it is the main brands driving it. And compared to 1 or 2 quarters ago, I would argue that the campaign, the price for those campaigns on family has actually gone up a bit. So competitive, but rational. Okay. Thank you very much. Thank you. Thank you. Thank you. We are now taking our next question from the line of Maurice Patrick from Barclays. Good morning, guys. It's Maurice here from Barclays and also Dan from my side. Good luck for the next part of the journey. Anders, it's been great working with you. So the question really is on bad debt. So the Q1, you took a provision on increased expectation of bad debt. And there's obviously lots of questions as to whether that was conservative or when you might write it back. What's your current thinking on bad debt? I mean, is it increasing? Is there any change? What's your thinking in terms of whether that should be written back and you would feel conservative? Thank you. Hi, Maurice. First off, thank you for your kind words. And I should probably not answer this question, and we have the expert of bad debt in the room, Michael. So please. Not the expert. We in Q2, we it's probably too early to say if we were too cautious or not. So far, we think the number of bankruptcies in Sweden go up somewhat, but it's not driving our bad debt provisions. So we are have not been that affected by this market data, I would say. But then also looking into the situation, it's probably if you go out of business or you lose out on revenue in March, April, it will take some time before you go out of business, and we see the bad debt effect in our books. So it's too early. We'll have to come back on it in Q3. And that goes for Sweden, and the situation is very much the same in the Baltics that it's too early. But we are, generally speaking, somewhat more positive today than we were 1 quarter ago, but still too early to release any part of the provisions. And if they are to be released, the approximately SEK 35,000,000 we provided in Q1, I don't think you should expect it to come in 1 big chunk in 1 quarter. Then it's something we will have to evaluate on a much more granular level and look at it customer group by customer group. That's super helpful. Thank you. And just as a quick follow-up, I mean, given what you said about pricing, I. E. You've seen half the impact this quarter, full impact next quarter, you did a strong EBITDA result this quarter. It feels like flat EBITDA for the year looks pretty conservative. Might be, but you should consider I think you should go more look back to the 2019 numbers and the comparables we have, where we have easier comparable for Q2, where we you had cost savings in that quarter out of the synergy program we were running, but those ones were we also spent a lot of money on, call it, future investments and growth in Q2 last year. When you come into Q3 and Q4 last year, you saw the full effect on the seniority program. And therefore, the year on year comparison in terms of percentage growth will be much more difficult for us in Q3 and Q4 this year, everything else equal. Super clear. Thank you. Thank you. Thank you. Thank you. We are now taking our next question from the line of Lina Osterberg from Carnegie. Yes, good morning. I have some questions on the TV side. First of all, the churn rates has been elevated for a couple of quarters now. And I was wondering if you could say how much of that is related to the premium sports packages and not having the sports content? And how much is related to, as you say, your more profitable basic services? And then on the revenue service revenue decline, could you also maybe give us some more detail on the fall in Aspil? How much is related to sports and the lower price on sports packages temporarily? And how much is related to not being able to implement price increases at the beginning of the year and having to postpone that? And then maybe also on restructuring charges, which were higher on the store closure this quarter. Should we expect similar levels quarterly in Q2 sorry, in Q3 and Q4? Thank you. Hi, Lena, it's Samuel here. I will answer the 2 first question. I mean, we know there is a structural change in the TV market, and we've been working for that quite a while and continue. One of the big things we're doing is, of course, to drive our Com Hem and Play Plus, which is growing very nicely, and that's particularly to the future. If we look at our traditional TV business, I wouldn't say that churn has actually been that impacted. We have some impact on net impact, but it's primarily to us putting down on sales as part of the descending EBITDA. And when it comes to the service revenue decline and asset decline, that's fully a pandemic impact and the vast majority of that is premium sports. And we expect to come back to more of a natural level in business in Q3 and then put in Q4 when sports are coming back now and when we are pricing. Pricing has come somewhat later on TV this year than on last year if you look at total TV. So fully pandemic impact planning to come back to the normal, if you will, in Q3 and Q3. Can I ask you then what do you view as normal? Because it's been fluctuating quite a lot. Is it last year's levels? Or is it the levels we saw before this drop? Where is the normal service revenue decline level for the TV business? That's exactly normal, but we know, of course, that there is a structural change happening in the market, and that's what we're working with. So from our perspective, we don't chase revenue and traditional pay to bill. We're chasing great cash flow. And we see in this quarter that we're actually able to defend gross margin. We actually even improved on content TV due to great cost control. But we will continue to work with good content and pricing, but also cost control. So cash flow is the most important thing, and there, we're actually holding on very good. Okay. But say 6% to 7% decline as you've seen during 2019, should that is that a more normal level compared to the 12% drop you saw now? You're not going to get a number out of me, Julian. Okay. Sorry. Lena, let's remind you of one thing. In 2019, we didn't do as much pricing as we did in 2018 or as we're going to do in 2020. That's one factor. Okay. So the price increase this fall will be bigger than the smaller one in 2019? Yes. And then the question is how much if there is more speed in the migration from regular TV over to on demand TV or stream TV. That remains to be seen. And as Samuel said, what we are trying to do here is that we both we run the current Pay TV business for profit, and we're trying to get the growth in terms of subscribers going forward coming into the future proof business, which is Comen Play Plus. And that's how we look at it. And at some point in time, we will have to stop looking at revenue as the guiding metric, but rather look at profitability and number of subscribers. Yes. Perfect. Thank you. Thank you. And your second question related to restructuring charges. They were, as we said, SEK 120,000,000 in Q2. I will say this is on the higher side if you look over time, but I will not give you any specific guidance for Q3 or Q4 because that depends on the exact activities we'll do in that quarter. What drove the number up in this quarter was the store closure. On top of that, we also do the IT migration, which adds cost to restructuring. And that will continue in Q3 and Q4, of course. So this was on the higher side, if you look at quarterly average over time over these 3 years. Perfect. Thank you. Thank you. Thank you. We are now taking our next question from the line of Johanna Alquist from SEB. Yes. Thank you very much. I thought we should switch to the Baltics. And just a question there. I mean, it's been pandemic impact. So I'm just wondering how you look upon the Baltics going forward. Do you expect sort of this growth rate to continue? And I realized Lithuania showed a fantastic performance on EBITDA if it was any sort of one offs there. And then maybe if you can comment on the Baltics. You talked before about the potential to sort of fill the fixed gap and how you look upon that. Is there any progress in that thinking? And then my third question relates to the Dutch joint venture. When I mean, how things are running there and when you expect to get any dividend from the Netherlands? Can you repeat your second question because I you disappeared there for a second? Yes. My second question basically related to the fact that you've stated before that you're looking to potentially fill the fixed footprint gap, if you say so, in the Baltics. And I'm just wondering how you're thinking is as of now on that. Okay. Thanks, Jan. I'll try the two first one and then Mike will do the last one on the Netherlands. So the Baltics, I mean, performed really well. I mean, those markets are good. As we all know from take it from the top down, there are 3 player markets. We have very good position in Lithuania and we're number 1. In Latvia, we're number 2. And in Estonia, we have turned the business around in a or not we, the local team have turned the business around in a fantastic way, I have to say. So we have great momentum in these markets. And that's what you see, great companies performing well with great momentum, and that, I think, will continue. They do it very well. Despite that they had a proper shutdown in these markets, which we did not have in Sweden for a large part of the quarter. Hopefully, they will not be shut down again. And then I think we'll see a good run rate going forward there as well. So that's what I can tell you on the Baltics. When it comes to becoming a fixed player, we're running our mobile centric convergence strategy, as you know, and that's performing well. We do believe that over time, we will have to fill the fixed gap, and it's something we are looking at, but it's not something we have to go and fix immediately. And we will basically take our time and do whatever we think is the right thing to do when opportunities are right there, which I hope they will do over time. So that's nothing changed in that strategy either. But I mean, yes, to summarize, the Baltics are performing really well across the board, and we believe that, that will continue. And for the Netherlands, the company, starting with how they are performing, they are and this is the performance up until Q1. We have a time lag here since they have not published the numbers and Deutsche Telekom has not published their report yet, who is the majority shareholder in the Netherlands. For Q1, they were growing positive net adds in all three brands, both T Mobile, Tele2 and the discount brand, Ben. I would say great commercial momentum, both top line and they're also realizing synergies as planned with from the merger with Tele2 last year. So now operationally performing very well. Coming to dividend, it's too early to tell if there will be a dividend for next year or not. And one important factor is the ongoing spectrum auction in the Netherlands, which is ongoing right now, which we cannot, of course, not comment upon. So we'll have to come back to that later. But as you know, there is a mechanism for this in the shareholders agreement. So when leverage is down below a certain metric, then we will we are entitled to dividend, which we'll come back to. Thank you. Thank you. Thank you, Johanna. Thank you. We are now taking our next question from the line of Paul Sidney from Credit Suisse. Yes, thank you very much. Good morning, everyone. Just a couple of questions, please. Firstly, just on the price increases that you put through so far in the quarter. What has been the reaction from your customers? Have these price back book price increases landed well? Just be interested to hear your thoughts on that. And then just secondly, just sort of big picture as we increasingly look through the short term impacts of the pandemic. Just be interesting to hear your thoughts on how you think long term behavior will change both in the consumer and B2B segments and maybe mobile wireline. Just very big picture thoughts on how you think longer term behavior will change as a result of what we've seen over the past few months? Andy? Hi, Paul. It's Samuel here. So I can start on pricing. I think the reaction we've had so far is exactly the reaction we anticipated. We see some churn. We see some just reactions that we're able to talk about and handle in a very good way, and we see some minor down spin effects. But this is all according to the plan. So, so far, everything are according to plan and according to our internal forecast of pricing. Yes. And then when it comes to future behavior or long term behavior, I mean, that's an open question. But what we have seen so far is that Tele2 has never ever been more important to society and our customers than during the pandemic. And that goes for all our services. And I think that going forward, this will strengthen our ability to and our relationship with our customers basically. And I think if we are able to continue to do what we have done, namely to invest into the very best connectivity services and do the same thing on video. I think we have a very, very good future where we can not only find new customers, but also improve our products and services, so they're willing to pay more. And that's my take. And I don't know, Samuel, if you have any additional thoughts on this one? No, I think that's definitely true. We see customers the connectivity, the connection has just become way more important. And I think it's become more important through all the hours of the day. But this is just great for us because that's on our strategy to build fantastic network and services and then add a more for more strategy on top. So, fully agree. Thank you. And just a quick follow-up. Do you think it's too much to ask to see a sort of a better environment from governments and Europe as a whole regarding sort of spectrum, etcetera, and ability to consolidate? That's a very interesting question. That would be great if that happens, but I don't think that will happen anytime soon. Everything is regulated locally today. And I think it would be a pretty good big undertaking to issue spectrum across the EU, for instance. But it's a great idea, and maybe they will take it up on you. Great. Thank you very much for your comments. Thank you. Thank you. We are now taking our next question from the line of Andrew Lee from Goldman Sachs. Yes. Good morning, everyone. And Anders, just to echo the other sentiments earlier on in this call, just wanted to wish you the best for the future, and it's been great working with you over the years. Two questions from me. The first or two buckets of questions. First, a couple of questions on Swedish underlying end user revenue growth. I know it's hard to strip out the COVID impact, but in an alternate universe or if you could strip it out, we were kind of anticipating potential for revenues to inflect positively this year. If COVID hadn't happened, do you think end user revenues would have inflected in Q3 'twenty? And then given COVID has happened, do the current trends make you confident of an inflection in H1 next year? Or is there something in the competitive environment making you more concerned about that outlook? And then just second question on the cost reductions. I know that there's been a few questions on this, but just if we ask around the €100,000,000 run rate on an annual basis that you're seeing from the longer term sustainable cost efforts you've made, what do you expect that run rate to be at the end of Q3 or by year end? Presumably, it goes up. But if there's any kind of how you can give us as to how much, that would be very helpful. Thank you. Thank you, Andrew, and thank you and likewise. Thanks for your kind words. When it comes to inflection in revenue in Sweden, I mean, we had it set up in a very good way, I have to say, very disappointed. We all are obviously that the pandemic happens for many reasons. This is one not the most important one, but for the company, it's pretty important. I mean, we had the price rises. I mean, we had the volume growth already throughout last year, as you know, in Sweden. We have the price rises coming, and that was the last piece of the puzzle that was needed in order for us to tip over and start growing. And I wouldn't have been surprised if we already start growing in Q2 this quarter if the pandemic had not happened. So looking forward, we do not have to change strategy. We have our ambition and our midterm guidance. We the more for more strategy works. We and on the side note, we see that competitors are increasing prices. It happened earlier this week for some products. So it seems like the market is moving on in this more for more strategy, which is very helpful for us on our strategy. We are improving our products and services. That will give us pricing power going forward. And you see that we take volume, not to the extent we have done historically, but in Q2, I mean, you see still very good volume on postpaid and you see good volume on fixed broadband. The issues we have on the revenue side now are COVID related and that will come back. So once we're on the other side of the pandemic and we come into a new normal, I think we have a very good chance to go back and get the growth we are looking for and aiming at and guiding to. So that's my take. Maybe I'm the positive outgoing CEO. Let's hear from Mikael, who if you have a different view. I agree with that view. I want to comment on the second question, the cost reductions. What we said when we launched the Business Transformation Program was that the SEK 1 +1000000000 of annual cost savings over 3 years will be back end loaded, and that has not changed. Now we moved some activities to make them already this year instead of 2021 and 2022, but it will still be back end loaded. And with that said, we will then the year end target would be somewhere between the €100,000,000 we have done now and the onethree, but it will not be onethree of the social program. I'm sorry, but I can't be more specific than that. Thank you. That's helpful. Thank you. Thank you. We're now Yes. Good morning. Thanks for taking my question and congrats on your decision, Anders. Two questions, if I may. First one relates to kind of prepaid after COVID-nineteen, what you foresee there and how we're tracking on a monthly basis here in the month of June. Are you seeing higher prepaid to postpaid booking rates? Are you seeing better online top up rates? Should we expect structurally lower costs related to prepaid going forward? And the second question relates to the radio vendors. As we've seen in the U. K, there's been shift in policy decisions barring Huawei, and you have a large share of Huawei here in Sweden. How do you see that going forward? Do you see any uncertainty around policy decision? Or is it fairly are you fairly confident that you can continue business as usual? Thank you. So, Jurgen, Samuel here. And I'll start with prepaid. So, prepaid was definitely impacted by the pandemic. We can see that with lower traffic in fiscal sales and things like that. We are, however, starting to see this coming back now. So that's positive. What the kind of end game will be? I think it's too early to tell. Encouraging that we're seeing positive signs. And yes, online refills has gone up, but a big portion of the prepaid market is still dependent on physical channels and traffic to physical channels. And I think that will definitely remain for quite a while. So no structural changes than more structural changes than before to prepaid. It's been impacted. Now it's slowly coming back, and that's positive. But let's see how long it will take to come back fully. Good. And first, thank you, Jurgen. And then on the radio question, yes, indeed, we have seen the development in the U. K, obviously. But the situation here is pretty different. We have a network security framework or legislation in place since sometime back. And what that basically entails is that the security agencies in this country, they are to sign off on the setup of running the network. And when that is done, we are eligible to buy spectrum. And we have obviously been in close contact with these for quite some time. And we're right now undergoing the kind of process where they scrutinize our setup and we agree on that. And once that is done, we can go and execute and buy spectrum and then build our network. One thing that is different from the U. K. Is that they are not singling out vendors, so looking specifically on vendors. They're looking at the setup of how we operate the network rather than who is supplying the individual kit. Because there are security issues with every vendor, but they look very differently, and they want to cater for all of them. And that's why they have not singled out one specific vendor, in this case, Huawei as in the U. K. So that's the situation we have here. We have not heard anything else from them on this matter, and we do not expect that to change. But should it change, then we obviously have to follow suits, but that's nothing we see today. I hope that answers your question, Jurgen. Absolutely. Thank you very much. Thank you. Thank you. We are now taking our next question from the line of Peter Nielsen from ABG. Yes, thank you very much. You've taken most of the questions. Just one returning to Michael, please, relating to the OpEx savings. Sorry, Michael. But coming into this year, you did say that the part of the SEK 1,000,000,000 savings that will come this year would be invested reinvested in PlayPlus, plus $0.01 And now it turns out that there will be some or it looks like there will be some negative base savings. If I understood your comments correctly here, Mike, is that mainly because you have moved some of them forward, perhaps specifically the shop closures? Or is it that you are indeed holding back on the Play Plus or Payoneer? Is it mainly moving forward since you can now say we have a positive run rate rather than a neutral one coming into the year? And then just before I finish this up, thank you, Anders, and good luck and all the best. So thank you very much, Peter. I mean, what we are doing basically this year is that we are taking a part of the synergies as of last year, the cost synergies from the merger with Com Hem and using them and investing into Com Hem Play Plus and Penny. Then on top of that, we are now getting new savings coming from this transformational portfolio. That's basically what's happening. Does that answer your question? Yes. Thank you. Good. Thank you, Peter. Thank you. We are now taking our next question from the line of Roman Arbuzov from JPMorgan. Thank you very much for the opportunity and wishing Antoine as well for the next part of the journey as well from my side. I'll take just one question, please. The $100,000,000 to $100,000,000 sorry, dollars 100,000,000 to $120,000,000 impact related to COVID, am I right in thinking that this is basically roaming impact or is there something else? If I take your roaming guidance of €400,000,000,000 for the full year, it kind of neatly squares up with the with your €100,000,000 to 120 per quarter? And do you basically assume no improvement in the travel situation for Q3 and Q4 compared to Q2, therefore? This is Mikael here. This number, the SEK 100,000,000 to SEK 120,000,000 per quarter for Q3 and Q4, it includes the roaming impact. It includes impact from equipment on losing out on equipment sales, mainly in the Baltics, where we are more profitable on equipment sales. It's still for Q3 at least us losing out on premium sports, and it's also the effect on prepaid and variable fees within mobile. So all those factors altogether, they add up to the approximate number of 1 to 120. That is our best estimate as of today. And then they will vary between months and quarters, but I will not go into more details. Okay. Thank you very much. Thank you. Thank you. I will now ask the participant to just ask one question only. We're now taking our next question from the line of Siyi He from Citigroup. Hello, good morning. Thank you for taking my questions. And before I ask my questions, congratulations, Anders, and I hope you'll best of luck in the next phase of your life. And my question is really about the shareholder returns and your thinking around leverage. I think your decision today to reinstate the special dividend will take your leverage by the end of the year to around about 2.7 times. So I'm just thinking about the leverage going forward. Should we integrate your decision today for just that you would rather stay in the midpoint out your leverage target range? Thank you very much. Good morning. I will try to answer it's Michael. I will try to answer it. You should see a fluctuate within the target range in depending on where we are in the payment cycle of dividends. So we can go down to close to SEK 2,500,000,000 and we can also be in the middle or slightly above the SEK 2,700,000,000 as well. And then we monitor the situation based on that and based on any future and, of course, spectrum needs. But SEK 2,700,000,000, that's the we are very comfortable with to be at. You. We are now taking our next question from the line of Nick Lyall from Societe Generale. Yeah, good morning everybody and all the best Anders again. Just a couple of questions, if that's okay. The first one was on marketing and sales. How much was marketing and sales down for this quarter, please? Because you have the Tele2 rebranding last year in 2Q 2019 and now you've got obviously COVID and less gross adds. And what do you expect for Q3 and Q4 please in terms of a bounce back up? Presumably you've got to push the Penny brand and the Play brand and others. So should we expect marketing and sales to rise quite sharply in Q3, please? Thank you. It's Mikael here. I will start to answer and then Samuel and Anders can fill in. If you look at the numbers in the P and L, marketing and sales are essentially on the same level for the group as last year, and you have to include several factors here. One is that you have a time lag between when you incur the sales cost and when it's booked to P and L under IFRS. So cash and cost is not the same here in each quarter. And as you say, we have extra marketing cost in Q2 last year as well for the Tele2 brand. But there are no big variations on group level between the years. When we say that we have cut back on sales cost and so on, it's more that it's versus earlier plan. And for Q3 and Q4, we don't comment specifically on what we intend to do in terms of marketing and sales ahead of each quarter, and that is for competitive reasons. Dan, do you want to fill in? No, I agree. Okay. Thanks very much. Thank you. Thank you. We are now taking our next question from the line of Steve Malcolm from Redburn. Yes. Good morning, guys. And like everyone else, wishing you all the best, Anders, for the next stage of your life and the sailing and spending more time in the family. Good luck. I hope you have a great time. I'll go for a quick couple if I can. One is just on your CPU and hardware costs to get into marketing. I mean, if I look at Q2 this year against Q2 last year, your hardware CapEx has gone from SEK 16,000,000 in Sweden to SEK 133,000,000, so it's gone up a lot, which seems counterintuitive in a relatively slow consumer quarter in terms of activity. How do we think about that spend against your overall marketing spend? I mean, did you pull back on marketing and spend more on installation and set top boxes? It would be great to just think about those numbers in the right end. And then just on equipment revenues, I mean, you've talked about those being weak, but in reality, your Swedish equipment revenues were up 6% year on year, which is kind of against the grain of everything else we're hearing in the sector. Clearly, you had a right lockdown and in fact the Baltic revenues were also quite healthy. Just some color on why those were up this quarter, what you expect for the rest of the year? And I guess maybe tying that into decision to close shops, have you sort of pivoted very quickly to digital and has that helped the revenue, the equipment revenue? Thank you very much. Good morning. It's Michael here. I thought and then Samuel Andrews will fill in. On the hardware CapEx, you should more look we had a one off timing effect last year in last year Q2, so that was lower than usual. You should look at Q2 this year and the H1 this year is a good approximate for the usual run rate in terms of hardware CapEx. And then on equipment, here we are back to what we compare with year on year or if it's versus earlier plan. And one factor we have to include here is that the handset, the cost per unit is going up and the revenue per unit, unfortunately, not the profit per unit. And that's driving inflating the numbers both on hardware revenue and hardware cost or equipment revenue and equipment cost in P and L. Okay. So you were selling fewer units at a higher ASP? I mean was it just We were selling fewer units than expected and planned for in H, I think, to do this year. The margins didn't turn back. Mark, you commented on exactly how many units we sell and so on. Okay. But you were expecting sales to be up more than 6% in Sweden? And it still seems like pretty good number. I know the margin is not great, but it's kind of part of the revenue beat against consensus? Yes. Okay. And you can also look at the average price per unit for 4 handsets with yes. So customers were at home buying iPhone 11s basically, were they? Yes. Okay. Yes. We are selling more and more expensive iPhones and less of the cheaper models. Okay. Can I ask just one quick follow-up just on your broadband growth? Should we assume that that's all coming off net and that the cable base is broadly stable? We don't comment specifically quarter by quarter on this. But over time, you should, of course, see us growing faster much faster in the offline, yes. There is one right to understand. There is one thing you should take into consideration as well when it comes to the on and offness when it comes to broadband. We are now introducing the Penny brand. Penny will sell broadband at the price point which is competitive to the price fighters who we have been competing with in on net without actually being able to take those types of customers. So there should be a structural and big opportunity over a long time to gain customers in the lower end of the market segment in our all net footprint. That's something we're looking forward to. And the reason one of the reasons we launched Penni. Okay. So you'd hope Penni would sort of if the on net that isn't stable, it might bring some growth to on net going forward? Yes. I mean, there are, I think, 8000, 9000 low end customers on that to brands like Bahnhof and A3 and what have you. They are taking cheap broadband services and they have not chosen the premium service of Com Hem. We have never had an offer which competes with these type of brands and now we deal with Penny. Okay, great. Thank you. Thank you. We are now taking our next question from the line of Frederic Boulan from Bank of America. Hi, good morning, everyone. And sorry for repeating myself, but Anders wish you the very best for the next chapter. You're definitely leaving Tele2 in a great place. Two follow ups, if I may. One is on the right way. So to answer the question to ask the question differently, did you see them as a completely viable provider for 5 gs considering U. S. Sanctioned companies? And if not, can you discuss a little bit what would be the cost of switching to provide for 5 gs? And then maybe a follow-up on the physical distribution comment you made. I mean, you've done a pretty bold decision on closing Balasota shops. Is it something being followed by Cielo and that you think you're putting yourself in a competitive disadvantage? Or on the contrary, you think we're heading there and it's something you have to do? Hi, Frederic. Thank you very much for your kind words and thank all of you for your kind words. Much appreciated. And let me start with the Huawei question. So I mean, we have multiple vendors throughout tattoo, and we think all of them are viable until we don't think so any longer. That's how we should look upon it. And right now, we think Huawei is a viable vendor. That may change in the future, but it hasn't changed as of today. And what's going to guide us is obviously several things. It's whether we know or think that they can supply us with kits that we're happy with and what kind of rules and regulations are applied by the authorities in the countries we operate. It's as simple as that. It has nothing to do with emotion. It's pure fact based. And so that's how we run Tele2. When it comes to the shops, Samuel? Yes. So hi, Patrick, Samuel here. I mean, at Tele2, we always aim to be bold. And when we see a clear trend and know where things are going, we want to act on it. We did it when we saw the pandemic coming, and we've done the same for the stores. We see a digital transformation, more sales going digital, and that was only accelerated by the pandemic. So what we did was that we front loaded our own transformation and did it earlier. And so far, all the sales that we have in those stores are being picked up in other channels. So it's only positive, to be honest. And what the others will do, I think they have to answer. We will just continue to try to stay ahead of the game. Okay. Thank you very much. Thank you. We are now taking our next question from the line of Adam Fox from HSBC. Hi. Thanks very much. In the release, you mentioned a digital sales channel in the business segment. And I wondered if you could clarify whether your plans to improve that route to market to add on services or whether it's a new channel from your business Yes. So in B2B, hi, Samuel here. I mean, we are working with digital channels, and this is something we've done for a long time, both in B2C and B2B. We really see it picking up in B2B as well. And not only in terms of kind of pure e commerce, but also the way you can work with the marketing funnel. So assisted digital sales to improve your relationship also with and then assist, of course, with human interaction as well. Okay. So and assist, of course, with human interaction as well. Okay. Thank you very much, and best of luck, Anders. Thank you very much. Thank you. There are no more questions on the line at the moment. Mr. Anders, please continue. Thank you very much, Andrea. And a couple of things. First of all, thank you very much for spending time with us here on the call and for your interest and efforts understanding everything we're doing here and scrutinizing it. It's very helpful and it's great. So thank you very much for that. And then secondly, thank you very much for all your kind words to me personally. And with that, I would like to say that it's been great working with all of you, and I will miss it dearly. And I wish you all a great summer. Thank you. Bye.