Earnings Call: Q3 2020

Oct 21, 2020

Good morning, everyone, and very welcome to the presentation of Company's Q3 results for 2020. With me, I have our CEO and President, Alison Kirkby and our CFO, Per Christian Merland. And we will do, as usual, Alison starts, then P. C. Takes over, and then we have a Q and A session in the end. So please, Alison. Good morning, everyone, and welcome to our latest results on this slightly hazy day in Stockholm. As you will have seen this morning, our Q3 was again better than we expected. COVID-nineteen impacts were somewhat lower, advertising income improved sequentially. Admittedly, there have been some sports related costs that will be phased into Q4 due to delays in scheduling, but we do continue to mitigate some of the COVID impact through proactive OpEx reduction. All in all, it was another good quarter. Reported service revenues grew by 2.2% in the quarter as we've not yet closed the Bonnier acquisition at this time last year, can you believe that? But on a like for like basis, we declined by 4.8%. COVID explains 2 thirds of the decline around SEK 600,000,000 legacy products in Sweden and lower distribution revenues in the TV segment explains the rest. Mobile subscriber revenues represent more than 40% of our total. And as you can see, they declined 6% on a reported basis. But if you exclude the impacts from foreign exchange movements, the decline was 2.8%. This is in line with the level we had in the last quarter and still clearly impacted by dramatically reduced roaming, which is down 85% year on year. Excluding roaming, again, we are flat year on year, which is broadly the same outcome for EBITDA, flat at around €8,200,000,000 On a like for like basis, we declined 0 point 6%, but excluding the COVID impact of €300,000,000 the underlying growth was roughly 2%, which is fairly similar to last quarter. And that underlying growth was basically driven by a 3% reduction in OpEx and some phasing of sports content into the 4th quarter. Cash generation continues to be strong. We have now generated DKK 9,200,000,000 year to date, putting us on track to deliver within the upper range of our previously communicated range for the year of DKK 9,500,000,000 to DKK 10,500,000,000. And that is all being generated by extra EBITDA contribution. If you compare it to last year, clearly, we have significantly lower contributions from working capital. This time last year we were already ahead by $2,200,000,000 So when you look at EBITDA by its CapEx, we generated $4,600,000,000 in the quarter and we're up $1,000,000,000 year to date. The main driver being lower CapEx due to lower execution pace, probably some of that due to corona delays, but especially fiber in Sweden. And working capital only gave us a minor contribution in the quarter. This is our last report, we have made good progress on some of the immediate strategic priorities that I identified on my arrival at Telia just over 5 months ago. Connectivity is our core business and network leadership is a core strength. It's therefore reassuring to see mobile subscriber revenues remaining stable ex roaming and broadband growing by around 1% despite us no longer having the full year on year benefits from last year's price increases in Sweden. Our customers should always expect Telia to deliver the highest quality, most reliable and most secure network, whether it's mobile or fixed infrastructure. And I'm therefore delighted to be able to announce that we have entered into 2 new strategic partnerships, one with Ericsson and one with Nokia to provide superior network experiences on both our 4 gs and 5 gs networks to tell you 10,000,000 mobile customers in Sweden, Finland and Estonia adding to the network swap we have already started in Norway. The agreements we signed just this morning have empowered us to lead the way in building the digital infrastructure for the future and accelerate the availability of new digital experiences and platforms for our customers to enjoy. This starts a multiyear investment in our network, ramping up in 20 21, but not dramatically so. These networks will not only support the development of the economies in the region, but they will also fully support our daring goals ambition as they will be 5 times more efficient than our previous network and will be powered by 100 percent renewable energy. Currently, we are live with 5 gs networks in Sweden, Finland and Norway with Denmark soon to follow. In Sweden, we will cover 20 cities by the end of the quarter. In Finland, we already cover 25% of the population. And in Norway, we started to roll out already last year and cover some 40% of the populations of Oslo and Trollhattan so far. On convergence, we've merged the Get brand into Telia and launched the new Telia Dealing Challenger Convert brand proposition in Norway in mid September. This is a major milestone for revenue and cost synergies to accrue from going forward. We have also launched an attractive premium sports package in Sweden and we are experiencing good progress in cross selling access on the back of this sports package and that remember that was the justification for us acquiring the TV Media business last year. Improved brand perception and improved customer experiences will be key to regaining commercial and top line momentum as we look forward across the group. Hence, the appointment of Per Kallio as our new Group Brand Director this morning is very exciting. Per has more than 25 years experience in brand building and was most recently Marketing Director of Volvo Sweden, another iconic and purpose driven Swedish brand and he was the man behind the Made by Sweden campaign. He will be part of our group executive management team and will start on January 1. For the quarter, it was also great to see the results from the latest Swedish quality index, the SKI Index, where Telia once again took the number one spot, both among B2C customers through Heilbark as well as amongst B2B customers through Telia. On cost takeout, we reduced external OpEx by another 3% in the quarter and we've now appointed a Head of Transformation joining us from the Hutchison Group and complementing Reiner, our COO. Both have a great track record of transforming and creating agile, cost efficient digital telcos. On capital allocation, just 2 weeks ago, we announced the divestment of Telia Carrier to Polyhedron Infra for an enterprise value of DKK 9.4 5,000,000,000 crystallizing significant value for our shareholders from the customer relationship and digital infrastructure that have been built up in the Carrier business unit over many years. As a result of this transaction and the divestment of our holding in Turkcell, which we expect to receive the proceeds from in the coming days, we have reinstated our 2019 dividend back to DKK 2.4 5 per share and we're now truly focused on the Nordic and Baltic region going forward. And EGF for approving the additional dividend is now set for the 2nd December. As pleased as I am on the progress so far, there clearly are still gaps to fill. And as a team, we are working extremely hard at this time to create the plans that will deliver sustainable top and bottom line progress going forward. And as I said previously, we look forward to sharing those with you alongside meeting the new group effective management team with our Q4 results at the end of January. So let's now look at the progress in our business units during the last quarter and let's first go to Sweden. Sweden remained relatively stable in the quarter despite clear COVID impact. Service revenues declined by DKK 270,000,000, 2 thirds of which are from legacy products and a third from lower roaming due to COVID. If we break this down as there are many moving parts and let's start with mobile, we saw flattish mobile subscriber revenues excluding roaming with B2C growing closer to a percentage point despite lapsing price effects. B2B declined, but with a better trend than in the 2nd quarter. And it was basically 2.6% ex roaming. The main reason for the improved trend in B2B is that Q2 2019 was positively impacted by installation revenues related to IoT projects. On the fixed side, we saw similar trends in fixed telephony and broadband, while TV improved as prices came back to normal levels due to the return of live sports. Business Solutions were back to normal levels after Q2 that was impacted by exceptionally good CPE revenue. And we were also, as expected, impacted by a DKK43 1,000,000 decline in one time installation fees related to fiber connections and are now down 38% year to date in line with the guidance we have given for the year of a 30% to 40% decline. This quarter service revenues were also impacted by less activity and infrastructure related projects, which we believe is COVID related. So to simplify, mobile is okay, broadband and TV are stable and then there is a bit less revenue support from various low margin revenue streams in the quarter. Looking at costs, we reduced OpEx by 4%, which is very good, but there are less structural cost reduction drivers this quarter as they mainly come from lower marketing spend and a variety of smaller items, albeit we do have less one offs this quarter than we had in the second quarter. In Q4 and within our guidance, we will be more active in marketing and we expect some increased costs related to improving customer support in our call centers. Adding this to the fact that a good part of the accelerated service revenue decline versus the 2nd quarter was related to low margin revenues, we limited the EBITDA decline to 1.8% or minus 1% ex COVID, which is only around 32,000,000 euros From a subscriber and ARPU perspective, we've added mobile subscribers with 17,000 postpaid and we're flat on prepaid. Encouragingly, ARPU continued to grow. On broadband, total subscribers reduced due to legacy churn, but fiber subs increased by 17,000, slightly ahead of the pace we had in Q2. And we saw a good development on ARPU. The TV trends are distorted this quarter as we've corrected the subscriber base during a systems migration and therefore ARPUs are also affected by this correction. On convergence, we followed up a fairly strong Q2 by adding another 5,000 customers to our base of nearly 3,000. In addition to good fiber progress, commercially we've seen further success in the Open City Networks in the consumer segment and in the public segment of B2B where we have won or retained important long term contracts with Stockholmstat and the Transport Agency. Looking forward, you will see us focus very much on convergence to drive more for more and customer loyalty and in the commercialization of 5 gs to support our network quality leadership position. New advertising is already on air Saint Laurent or collect more, basically highlighting the benefits of having several or all services provided by us. 5 gs advertising will also ramp up now as we'll be live in 20 Swedish cities during the quarter. This investment into new campaigns and some increased staffing in our call centers to improve customer experience means that OpEx will increase for good reasons in the Q4. And of course, we are delighted that the 5 gs spectrum option is planned to finally start on November 10. Moving to Finland now, the only country that I've actually been able to visit in person besides Sweden during my first five months as CEO here. And I must say the Telia Finland team are extremely proud of their new homegrown leader and are reenergized with a new direction coming from Italia Group. But market activity increased once again in Finland as society opened up during the summer. Heavy campaigning, including high value vouchers and aggressive cold calling from the market leader were reintroduced, which increased churn. Within that though, we did manage to add mobile customers during this climate, but mainly in the M2M and prepaid segments. In the quarter, total service revenues declined by roughly SEK 140,000,000 mainly explained by COVID, but also legacy declines and lower fiber installation revenues, which were exceptionally high in Q3 last year. The impact from lower TV revenues was not severe in the Q2 driven by important sports events such as Formula 1 resuming in the quarter. That said, the start of the ice hockey season was pushed in the Q4 and we therefore did continue with discounts on our premium sports pay TV packages during the quarter. As of October, pricing is now back to normal levels. On mobile, we had a slightly weaker underlying performance excluding COVID compared to the Q2, mainly as a consequence of lower ARPUs in our competitive B2B segment, especially in public and large segments. Broadband revenues continued to decline in the quarter and ARPU is diluted from an increasing share of customers within low ARPU MDUs. As I mentioned, we were also impacted by less fiber connection installation fees, which were significantly higher in the 3rd quarter. And I think we should expect that as the second wave of COVID continues, fiber installation will likely remain weak in the 4th quarter too. EBITDA remained flat on a like for like basis. COGS were reduced mainly as we did not have any cost per LIGA and excluding COVID impact EBITDA grew by just under 5%, which is very similar to the Q2. As I said, we now have 25% population coverage within our 5 gs network and we will strengthen this position further through our new agreement with Nokia for the rollout of 5 gs and a modernized network will increase speed, capacity and performance. Improved network quality is critical to improve customer experience and the turnaround of our finished mobile business as we look forward. In Norway, the underlying trends remain fairly unchanged, but that doesn't mean that it hasn't been an uneventful quarter. First of all, as I mentioned on a previous slide, we've merged jet into Telia, the first step to launch Telia as a daring challenger in Norway and to better commercialize convergence. Secondly, we have renegotiated the NRA with ICE, something we had to do as a result of a change in regulation. We're pleased with the new contract given the circumstances and also pleased to have signed a rolling contract with Next Gen Tel for fixed wireless access. The latter starts immediately and the former will, as we previously announced, be effective as of the 1st January. On the revenue side, there are no real trend shifts in consumer mobile. One Call continues to perform well, while the Telia brand is still in decline. That said, within our Telia X proposition, we are seeing a high number of upgrades, lower churn and positive ARPU development. Our reported ARPU still shows a decline, but excluding COVID related roaming, ARPU is actually up by 2 0.4%. On broadband, we're continuing to grow the base, but there has during the last year been a mix shift within the base with more MDUs and less SDUs and a higher share of customers coming to us through partners, which has resulted in an ARPU dilution. The same can be applied to the TV ARPU, which has been impacted by partners with lower ARPUs and less premium sports packages. On the B2B side, our mobile business continues to be strong and stable ex COVID in the quarter. EBITDA overall was flat for the quarter, but adjusted for COVID-nineteen, it did grow around 2.4%. And as we mentioned in Q3 last year, we were impacted positively by some special items in that quarter. Moving then to the lead market and the Baltic region continues to show great resilience and even strength in its operations. This is the region where we have been most successful in our convergence strategy and where we can clearly see the benefit from the accrued loyalty that comes from convergence. Mobile ARPU growth in Lithuania, excluding the COVID roaming impacts, was close to 10% and in Estonia close to 7%. Both countries grew their broadband ARPUs by around 1.5 percentage points. The highlight of the quarter was clearly Lithuania. Admittedly, service revenues had a drag from a deliberate reduction of low margin transit revenues and we had the impact of COVID. So they were therefore flat in the quarter. However, adjusting for these two factors, core revenues grew by 4% and although headline service revenues were flat, EBITDA in Lithuania was the highest since the merger between TEO and Omnicell back in 2017. Estonia was pretty stable at both the service revenue and EBITDA level including the COVID impact. In Denmark, we continue to see a good development of mobile subscriber intake, especially in the Call Me brand. Service revenues are down more than 8 percent, but heavily impacted by COVID. And excluding these lower roaming revenues, we're down 2.3%, a slight improvement from Q2, as we refocus our business towards mobile and restructure our cost base. EBITDA is also down 2.3%, but actually up 11.8% if you exclude the roaming impact, supported partly by lower IT costs and partly related to a reversal of a higher than required bad debt provision. Looking forward, we need to radically simplify our product and service portfolio and rebase our cost structure in order to be a stronger challenger in this market that as far as I'm concerned now have far too many operators and brands considering the size of the population. Then moving on to TV and Media, which has clearly been the unit mostly impacted by the coronavirus pandemic, but we are seeing gradually improving trends. On free to air, we continue to increase our commercial share of viewing, up 1.5 percentage points year on year despite some tough comparisons in Q3 last year. If you recall, the FIFA Women's World Cup had Sweden making it all the way to the bronze medal game and that went all the way into July. In Finland, we maintained our commercial share of viewing just above 40%. All in all, advertising revenues improved sequentially and were down 12% in the quarter versus 31% in the prior quarter. Interest from advertisers is gradually improving and we've had a strong reception to some of the new formats such as the Swedish drama Top Dog. However, we should be cautious about our optimism considering the ongoing uncertainty of the economic outlook for so parts of society as COVID infection rates rise again. Looking at the pay TV operations, which for this unit only relates C More direct customers and fees from other operators that resell C More DTT, we turned the trend in OTT subscriber intake in both Sweden and Finland during the quarter and in both sports and non sports subscription. So TV revenues are down 12% due to lower wholesale revenues as one of our partners decided to offer its customers less channels. And we also see some negative impact on the loss of Alpenscan, albeit less than we had feared. Yes, we still experienced negative COVID impacts. As a result, total service revenue is down 13%, clearly better than the 32% we saw in Q2. The trend is better than expected and also results in a better than expected EBITDA at around $250,000,000 in the quarter. It's worth noting that some of our content costs that we expected in Q3 have been phased into the 4th quarter. As some sports events such as Formula 1 races, UEFA Nations League have been pushed into Q4. Besides this, content costs are always substantially higher in Q4 than in Q3. And also you should expect that Lear costs from Finland going to the TV and media unit this year. To conclude, given the stronger than expected performance in Q3, we are now raising the outlook for TV and Media for the year and now expect EBITDA to be above $500,000,000 with a slightly positive EBITDA in the Q1. To note, by the end of the quarter, we also came to an agreement with Telenor, enabling Telenor to stream the TV4 linear channels also on its streaming service. With that, I'd now like to hand over to P. C. To take you through the group financials. Thanks, Alison. It's great to be here and present the group results for the Q3 of 2020. I hope to meet you all soon. On the financials for the group, let me start with service revenue. Alison has already explained the country specifics, so let me break down service revenues by product. The service revenues for the group declined by 4.8% in the quarter, which is an improvement from last quarter, mainly as we saw less impact from COVID. Excluding the CAD 600,000,000 COVID impact, the decline was 2.2%. The $600,000,000 COVID effect is mainly driven by declining roaming revenues from less traveling of around $400,000,000 as well as lower advertising revenues and other TV related revenues. Our mobile service revenue declined by roughly €50,000,000 excluding COVID, which is entirely related to lower interconnect fees. Our mobile subscriber revenues, I. E. Revenues we generate directly from our own end users were flat in the quarter. And this is despite that we have lasting effects from the price adjustments that we did in the Swedish market as of Q3 2019. If we take out the COVID related roaming impact, all countries except Denmark showing ARPU growth year over year. Broadband revenues are growing but slightly less than the previous quarter. Sweden is still in growth territory supported by the CSL price increase implemented in the Q4 of 2019. We see growth in all countries except for Finland and Norway. And in Norway, we plan to implement broadband price increase during the Q4. TV revenues are down from lower carrier fees from a loss of an important sports rights in Sweden and lower TV revenues in Norway. Other is mainly legacy revenues basically fixed telephony and lower one time charges from private connections in Sweden and Berlin. Turning to EBITDA. We see a COVID impact of $300,000,000 in the quarter, driven by lower advertising revenues and lower contribution from roaming. We expect a similar impact from COVID in Q3 as in Q3 Q4 as in Q3. Naturally, this could change should the situation worsen again and planned sports events be postponed or canceled. The roaming impact is expected to remain as long as traveling is limited as today. Please note that Q1 next year also will be tough year over year as most of the roaming impact only starts from Q2 this year. The underlying EBITDA improvement of 2% is from lower total costs that more than offset the underlying pressure on service revenue. In Q3, we did lower COGS, mainly from lower content costs and also lower cost to operate our networks. In addition, we reduced our external OpEx by another 2.9% in the quarter or CAD180 1,000,000, partly from COVID related measures and impact, partly from structural improvements and partly from pacing. The decline on group level is mainly driven by reductions in Sweden, TV Media and Group Functions. Total repos costs are down by roughly €50,000,000 related to reduced FTEs offsetting annual salary inflation. Marketing, sales and acquisition costs are down around $30,000,000 from lower activity levels partly due to COVID. Other cost reductions includes lower travel expenses, lower IT costs and also lower bad debt. We reiterate the message from the previous quarter that roughly a third of the total cost reduction should be seen as a structural. In Q4, as Alisa mentioned, we will have a relatively high cost as we will spend more marketing also on customer support. Cash CapEx reached SEK3 1,000,000,000 in the quarter resulting in a rolling 12 month level just north of SEK13 1,000,000,000. As you can see from the slide, we have reduced cash CapEx during the year, which is best explained by some delay in activities due to the pandemic as well as lower fiber rollout. The main region contributing to the decline is Sweden, while we see an increase in Finland related to mobile network investments both in coverage and capacity. As Alison mentioned before, this has resulted in a 25% 5 gs population conversion trend. As usual, due to seasonality, we expect CapEx levels to come up from the Q3 levels in the Q4. Our operational cash flow over the last 12 months amounts to $10,200,000,000 We have come down from the peak of roughly $13,000,000,000 mainly driven by lower contribution from working capital, but also some impact from higher interest costs and paid taxes. For the 4th quarter, we generated $3,700,000,000 in cash flow, roughly $1,000,000,000 below the level in Q3 2019 and with slight growth on reported EBITDA, the main reason for the decline is lower contribution from working capital of €800,000,000 We also pay more in interest costs this quarter as we benefited from a one time effect in Q3 2019. We stick to the same outlook as we have provided before regarding working capital. It will contribute less in 2020 versus 2019 and you should not expect the same contribution coming years as we have enjoyed during the most recent years. I would like to take the opportunity to remind you that in Q4 last year had a second repayment related to pension of around SEK 400,000,000 and this had also CHF 100,000,000 positive effect on the Swedish EBITDA. We have come down in leverage during the quarter mainly as a result of the solid EBITDA generation, but also from the relatively low level of CapEx, which we have discussed before. Worth noting is that we have a drag on the leverage from FX changes on our debt portfolio and lease liabilities, mainly from the euro. We ended the quarter at a net debt to EBITDA of 2.55, which is down from the reported level of 2.64 at the end of Q2. However, as this is a view exactly at the end of Q3, it's important to see the leverage impact from the transactions we have done, which are not yet reflected in this number. As you know, we have made 2 larger transactions over the summer and autumn. First, we sold a stake in Terstad Holdings for USD 530,000,000 and just a few weeks ago, we divested pellet carrier to Bodham for SEK 9,450,000,000. We have not yet received the proceeds from this transaction, but should we add them the 2nd tranche of dividend due later in October, plus the proposed additional dividend of ZAR65, we are at a pro form a leverage of ZAR2.30 compared to the reported ZAR2.55. So, after a period of increasing leverage following share buyback, the acquisition of GET and BONEA Broadcasting and an impact from implementing IFRS 16, we are now deleveraging or strengthening our balance sheet to a more comfortable level. And with that, I give the word back to you, Allison. Thanks, P. C, and it's really great to have you on board. So having had another good quarter with more visibility into the balance of the year and COVID, we have updated our outlook this morning for 2020. The impact from COVID on our EBITDA this quarter amounted to around $300,000,000 in Q3 and we expect a similar impact in the Q4. If you recall, we previously anticipated a quarterly 500 $1,000,000 burden. As a consequence, we now see that our EBITDA in the second half will be stronger than in the first half and expect to reach an adjusted EBITDA of around €30,500,000,000 for the full year 2020. This EBITDA improvement will also impact our operational free cash flow And so we believe we will end the year in the upper end of the previously stated range of $9,500,000,000 to 10,500,000,000 dollars As you also know, we aim to have a leverage that supports an A- to BBB plus credit rating. This likely means a leverage of 2.25 to 2.5. So therefore, the current level and the anticipated proceeds from Turkcell Holding and Telia Carrier gave the Board comfort to propose to reinstall the original 2019 dividend by adding OAR65 OARA per share. The second dividend payment will take place now at the end of October and the final €65,000,000 is likely to be paid in December after the EGM that is planned for the 2nd December. So to summarize, it was another good and busy quarter, delivering ahead of our financial expectations while we deliver on our strategic priorities. I'm particularly pleased at the continued resilience of our telco businesses and the sequential improvement in TV media. While mitigating the impact in our business, I'm also hugely proud of how we continue to support society throughout the pandemic, keeping them connected, informed, educated and entertained. Our support to the elderly and the smaller less digital end of the SME segment are great examples of Telia helping reduce the inequalities that are arising from this horrible pandemic. And I'm delighted with the new partnerships that we're now striking with Ericsson in Sweden and Nokia in Finland to accelerate the digitalization of the Nordics and the Baltics on the back of 5 gs and we are ready to move quickly on that. That being said, I'm acutely aware that commercial and therefore top line momentum is simply not good enough relative to our cost base. Hence, we need to get on and simplify and transform so that we can consistently and reliably improve customer experience and shareholder value going forward too. So our short term priorities are pretty much in line with what I said last quarter. We need to improve customer experience. Connectivity will be upgraded leveraging 5 gs and gigabit speed broadband strength, giving us the platform for future monetization opportunities. Convergence is key both within our media assets in B2C and in ICT and security assets in B2B. On our cost base, we are ruthlessly scrutinizing what we do and how we operate to identify how to close the gaps versus best in class peers. And on capital allocation, as I showed with you on the carrier decision, we are establishing a more rigorous approach to capital allocation going forward. My aim remains to restore Telia to a thought leader that outperforms the industry by delivering superior customer experiences, superior business results and superior shareholder returns. And I'm very much looking forward to sharing the plans that will deliver those to you in January alongside some of the new members of the Ghent team. And on that note, I think it's now time for Q and A. So operator, could we please have the first question? Thank you. Your first question comes from the line of Maurice Patrick at Barclays. Please go ahead. Your line is open. Yes. Good morning, guys. Maurice here. So I guess a question on growth and pricing. I mean, you hinted around or hinted, you said you put price up in Norway broadband in Q4. There's been not a lot of commentary around 5 gs as a price premium potential in markets like Finland. Just your sort of wider thoughts around the ability to drive revenue growth through price outside those two examples. I mean, is 5 gs going to be the driver of ARPU growth and price increases? Further thoughts on broadband in Sweden more generally. Clearly, we are Clearly, we are investing in our networks, both mobile and fixed at the moment. And we have an ambition that once those networks are more broadly out in the population with the appropriate handset to support the new experiences, that as the market leader, we will be trying to find the monetization opportunities to lead pricing in the market, Morris. But it's tricky on 5 gs at the moment to lead pricing when the network coverage is so limited. So that's why we're delighted that there's now no longer any delays to the 5 gs spectrum in Sweden. We're delighted we've already got plans to be in 20 Swedish cities by the end of the quarter. And we already have the plans in place with Ericsson as our strategic partner in Sweden to start modernizing and upgrading the network to give great network experiences that we can monetize fairly quickly. So that's the mobile side. On the fixed side, clearly, there has been some delays in broadband pricing this year. Norway, you mentioned that was a combination of COVID and also a combination of we had some TB disputes in Norway, but we're ready to take broadband pricing in Norway now. Sweden, we're already taking some pricing on fiber, but we will clearly be looking as we drive more for more, higher speeds, better coverage, better data and better entertainment packages to look for more pricing opportunities during the course of 2021. Very clear. Thank you. Thank you, Maurice. May we have the next question? The next question comes from the line of Ronen Arasad. Please go ahead. Your line is open. It's Ramanu Abhudov from JPMorgan. Thank you very much for the opportunity. My question is on 5 gs rollout, Huawei and CapEx spending. Given the announcement from the regulator yesterday about the Huawei ban and given that TD is less exposed to Huawei than your competitors, How might this influence your thinking and 5 gs rollout plans? And I guess the context within which I'm asking this question is that I think the Swedish telco industry has been somewhat reluctant to really go full speed in 5 gs historically because of the necessary investments and also the improvement business model. So might this kind of considerably influence your thinking and force you to go much, much faster? And what would that mean for your CapEx outlook as well, please? Thank you. The decision by PTS has no implications for our plans Yesterday, Roman, it's great that we're going to have a spectrum. The auction kicks off on November 10, and that is planned in our forecasting for this year. As you said, we are less exposed to Huawei because our strategic partners for our mobile networks here in Sweden have been Ericsson and Nokia for many years. And now we're announcing yes, this decision has no impact on our plans. Yes, this decision has no impact on our plans. Clearly, and as I said, as we modernize our networks and upgrade to 5 gs, that will mean that CapEx will increase next year, but not dramatically so. CapEx actually declined this year. And as I also said on the last week, 5 gs brings a more efficient, higher speed network that will over time bring commercial benefits for both consumers and enterprises. And as the market leader, we aim to be at the forefront of the innovations that we take to the market and the monetization of those innovations as well. Thank you very much, Alison. Thank you. Thank you, Roman. May we have the next question? Next question comes from the line of Stefan Gauffin at DNB Bank. Please go ahead. Your line is open. Yes. Hello. To just continue on the CapEx side. You state that there will be a multiyear investment in the networks ramping up in 2021. And you also talk about network modernization in Sweden, where you've had Ericsson before. Are you still looking at swapping out the old network when you roll out 5 gs? And can you give some more details in relation to how we should consider CapEx in the coming years on the group levels? Thank you. Yes. Hi, Stefan. It was always in our plans to start to modernize our 4 gs networks and build a 5 gs standalone network. So yes, there will be some swapping out of both Nokia and old Ericsson equipment over the coming years. We will do that in a phased way and in a sensible way. And whilst CapEx was down this year, it will go up next year, but not dramatically so. And I'll give you I can't say much more than that, Sebank, because I want to be able to give the full growth story alongside our 4th quarter results and then we'll give guidance on both EBITDA development over the coming year and CapEx investments. And now we have a very solid balance sheet with pro form a leverage of 2.3. I think we're in a strong position to bring a growth story to you at the end of January, which also incorporates CapEx investment. Yes. Regarding balance sheet, if I could just ask, yesterday, Tele2 stated that they were pragmatic relating to owning infrastructure and looking for opportunities to realize financial value. You recently divested the Carrier business. Are you looking for more deals where you can realize value from your infrastructure ownership? I would never comment on any further M and A, Stefan. But clearly, we have shown through the carrier transaction that we sit on highly valuable digital infrastructure. And I am, of course, monitoring some of the developments that are going on in the industry at the moment regarding ownership of passive infrastructure. So it's certainly something that we're looking into, but I would never disclose any of that directly. Okay. Thank you. Keep you in suspense, Stefan, as always. Next question, please. Next question is from the line of Terence Tsui at Morgan Stanley. Please go ahead. Yes, good morning. I had a question on the dividend, please. It's great that you've been able to restore the original dividend proposed in 2019 of 2.45%. I'm just thinking going forward, should we be thinking of this as like the base level in which you discussed as you consider the dividend outlook for the future, which we'll be looking at excluding the additional $0.65 Thank you. Well, clearly, the existing policy is to return 80% of operational free cash flow to shareholders in the form of a dividend. And that was a policy for 2019 that was pulled back a bit at the beginning of the COVID crisis. And with all of the new visibility on the business, the underlying business improving better than expectations and the recent transactions, it's given the Board the confidence to restore back 80% of last year's operational free cash flow. At this time, the Board has not restated that policy. We will come out in January alongside our 3rd quarter results with whatever decision the Board take at that point in time. All I want to say is looking forward, I would like to exclude the working capital piece from the definition going forward and look much more so at true equity free cash flow generation excluding working capital. And that's one of the key revisions that I'll probably want to talk about going forward. But I need to take that to my Board alongside my final year results. But the policy still stands at the moment, 80% of operational free cash flow being returned to shareholders. Great. Thank you. And just a quick clarification, you highlighted the working capital being a bit slower in future years. Can you just give a bit more color on that, please? Yes. Hello. I can comment on that. We have, over the last couple of years, released quite big savings from working capital, and 2019 was a very strong year. We have still positive contribution from working capital in 2020, but it is contributing less than last year. And if you look forward, we don't expect the same positive contribution. There are still opportunities that we will work on, both on payment terms on when we get money from our customers, inventory and so on. But they will be less effects than what we have seen in the past. Thank you. Thank you, Terence. Next question, please. Next question is from Steve Malcolm. Please go ahead. Your line is open. Yes. Good morning. And I've got a couple of questions just on the cost base, if that's okay. I just want to try and dig into the some of your programming costs a little bit and understand when you updated the guidance back in April, you clearly had a view on what your sports programming costs would be at that stage. Sitting here today, are those sports programming costs a bit less than you thought they'd be? Have you had rebates that have helped EBITDA? Just if you sort of understand where you're coming out of the year against what your original expectations were and how much of the TV and media sort of upgrade is due to that phasing of costs? And then just looking at the sort of adjusted EBITDA with COVID, as you try and put that back into next year, is it really fair to say that the hit is 300 or are there sort of offsetting cost measures that you've been able to take sort of temporary will come back? I'm thinking about travel in particular, maybe sort of particularly subdued marketing costs, just as we try and figure out the numbers next year. And just finally, your story on costs. I think you said that onethree of the cost reduction is structural, which implies that twothree is not. So can you just sort of give us some color on what the twothree is not structural of the 2.9% reduction comes from in Q3? Thanks. Hi, Steve. A lot of questions in there for one question, but we'll try and get through them. I'll take the EBITDA and roaming questions and then pass over to P. C. On some of the cost questions. The impacts of COVID now are roughly roaming and the depressed advertising revenues in the TV Media segment. We're trying to isolate it to that only. Of course, there seems to be some delays in B2B project spending by some of our customers. But we're just we're not including that in the COVID impact because it's difficult to define whether it's COVID or whether it's just a re phasing into next year. But the way we look at it at the moment, until travel gets back and advertisers are confident on their outlook again, I think that $300,000,000 per quarter is safe to assume for Q4 and probably Q1. I don't know what will happen beyond the spring, but I think that is a fair assumption to make at this point in time. And then clearly, if the economies change as a result of prolonged COVID, then we might see other impacts. But we don't see that today. And I think what you probably look at many international telcos. What you're seeing is the Nordics and the Baltics economies are much less affected by COVID than countries like the UK and Southern Europe. So once we're out of COVID, I do think the Nordics and Baltic economies will turn around much more rapidly, and that should be very positive for our businesses. And you also won't see the same economic implications on consumer spending that you might see in other markets as well. On the cost, yes, a third are structural, a third are kind of COVID related and a third are marketing. I don't expect travel to go back to the way it was. And P. C, maybe you want to build a little bit more on that and just programming questions. Yes. Just quickly on the cost first. We are of course helped in the quarter by some cost, as I mentioned, is like traveling and also lower activity levels in some areas of our business. 1 of the areas where you get some positive COVID that cost goes away, we are also impacted by some delays on our cost initiatives and that is also going into the total equation. And then as I mentioned in the quarter, there are also some phasing issues. So what we are working on now is to build an even stronger plan going forward, make sure that we can execute on that to increase the portion of the structural cost takeout. So we will come back to that more when we meet in January. On the programming cost, I would say, of course, that is impacted by the COVID situation. Some delays, some movements between quarters this year, some shift into next year and also some cancellations that happened. So but in general, there are no major changes on the total cost structure. Okay. Thanks very much. Thanks a lot, Steve. May we have the next question, please? Absolutely. Next question comes from the line of Paul Sidney at Credit Suisse. That's great. Thank you very much. Good morning, everyone. I just had a question on Swedish costs into Q4. Just to maybe get some more detail on the thinking behind the increased marketing spend you're expecting in Q4. And why do you feel the need to spend that? And in which particular areas of the Swedish market segments will you be allocating those costs to? That would be great. Thank you. Yes. There's how we're thinking about marketing, we have been under spending relative to competition and relative to our market share probably for the last two quarters. But we've got a lot to show about now and we want to market that both 5 gs being more broadly available across Sweden, our new TV packages as well and really establishing that collect more from Telia as a campaign. Also the suites are one of the biggest per capita iPhone lovers in the world. And clearly, we want to take advantage of the new iPhone 12 that is being launched now. And certainly, presales are very high. So there's good commercial and product reasons for us to be increasing our marketing in the Q4. And just as a follow-up, is the intention to actually take a bit of share in the Q4? I know it's probably quite a short term question. Or is it just that there's no It's very much focused on pushing convergence and having more converged customers that, as you know, are more loyal and tend to be more premium in nature as well. And it's also to commercialize 5 gs and prepare for improved customer perception on that product so we can look at pricing into the future behind that. That's great. Thank you very much. It's very much at the premium end of the market that we're investing in our marketing because others have been investing more than us in recent quarters. Very helpful. Thank you. Thank you, Paul. Next question, please. Next is from the line of Ann Duley. Yes. Good morning, everyone. I had a question on growth actually. Alison, you mentioned it in relation to some of your network investment. So the question was on the scope to Swedish growth over the next year or 2. You summarized it as earlier on in the presentation as mobile okay, broadband and TV stable. So just wondered about your legacy headwinds. What are you seeing there? Do these continue as usual? And what's the outlook for those to maybe allow you to grow in Sweden for the first time in a while? Thank you. Yes. Well, if I recall, I think they were we were aiming to get back to growth in Sweden this year, but COVID killed us. So that is certainly our ambition once we're out of COVID, Andrew, to get back to growth. We've now lost all of the big price increases we took in 2019. So it's time for us to be looking at the next round of pricing as well. Hence, why we're investing in our networks. We're investing in content and we're investing in good customer experiences so that we'll get a good basis to price from going forward. But the Swedish team are desperate to get back to top line growth. And let's discuss that further when we're together in January. Thank you. Thank you, Andrew. And next question please. Next question is from Nick Lyall at Societe Generale. Hello, good morning everybody. Just a quick one on content differentiation please, Alison. What exactly do you mean like that for Sweden, please? I mean, we've seen some C More discounts creeping into Finland for mobile subs. So is it something rather than thinking of big price increases on broadband, would you actually be starting to think about discounting content heavily to try and get the Swedish share up because you've got a problem there as broadband matures and pushes over to fiber? So mention what this differentiation and how you might push content? And then secondly, if you are discounting the content, where would that come in the Swedish business, for example, or back in TV Media EBITDA? Thanks. We have a more for more strategy. So content differentiation is not going to be about just giving away content for a bit cheaper. It's about being able to aggregate all of the best content and being giving unique experiences that perhaps other operators or other TV platforms would be able to offer. And then looking at how we combine that with our great network. So I think I'd rather look at some of the clever things that EE are doing around second screen experiences, deep 5 gs immersive experiences that they're able to do for their customers that nobody else will be able to get. And that's what we are aiming to do with some of the sports propositions that we'll be bringing to the market later in 2021. So it's not about discounting. Discounting might buy as a bit of customer base over the short term. Over the long term, it will be much more about unique content and unique experiences that build on both of our network technologies and our unique entertainment assets. Great. Thank you. Thank you, Nick. Next question please. Next question is from Peter Newson at ABG. Thank you very much. Good morning, Allison. Two quick questions. Firstly, Allison, must talk about the network modernization, etcetera. Can I just ask, is this purely related to the mobile networks in the Nordic area? Or are you also seeing modernization and improvements in other areas of the network? I think can I just ask, Alison, you're doing well on the OPEC side, also in Sweden? The whole transformation program, I believe this year was supposed to be quite crucial, the transformation, the move to new IT systems. We haven't heard that much about it. Has that progressed in line with plans? Or are you wanting perhaps slightly behind schedule here? An update here would be useful. Thank you. Thank you, Peter. Thanks for the question. In terms of network modernization, we're focused on mobile only at the moment. Yes, we're still with the Dock 3.1 upgrade going on in Norway, but that was already in those plans. So it's very much a mobile 4 gs modernization that we're talking about and 5 gs upgrades. In terms of OpEx, yes, the short term benefits that we expected from the IT consolidation work is still delivering and delivering to plan. So I think since the launch of that program, it's been something like $260,000,000 benefits have generated cumulatively. The transformation program is going to look way below beyond IT though, And it's going to be looking throughout our organization, particularly looking at group costs, some of the archaic systems and processes that support our operations and really building up towards creating a much more digital telco of the future, much more agile, much more nimble. And that's why I brought in Rainer Deutschmann from his Reliance Jio experiences. And he's now been complemented by a Head of Transformation that comes from Hutchison, which as you know is very good at running low cost agile operations with a customer experience focus. Super. Thank you, Alice. Thank you, Peter. Thank you, P. K. We have time for one more question. So operator, please. The final question comes from the line of Karel Corry at Deutsche Bank. Thank you. I just want to go back to your commentary about Q4 costs being higher in Sweden. I know, obviously, you talked more about 20 21 in January. But obviously, I guess, repositioning back towards more convergence and growth takes a bit of time. Should we, therefore, view these higher marketing costs and customer care costs as recurring a bit more beyond Q4 as well as anything you'd be able to say on that? Thank you. I think let's just focus on Q4 at the moment, Carol. As I said, there are specific reasons why we're increasing the marketing in the quarter because we've got new 5 gs coverage to show about. We've got new TV packages to show about. And we have we really want to drive them more for more. So we do expect it to be revenue generating marketing. And we'll only invest further into the 4th into next year in that if it proves to be turning around the top line momentum of the business. So that's all I'd like to say at the moment. As I also said in one of the earlier questions, we need to get Sweden back to growth again. And some of that growth will be driven by changing the brand perception and reestablishing ourselves as the network leader, so that we can drive a premium experience and drive pricing in the marketplace. That's great. That's fair. Thank you. Thank you, Keval, and thank you, everyone, for participating. I know that there are more questions in line, but please reach out to either me or Anders during the day, and we will take care of those. And by that, we conclude the Q3 2020 Telia Company presentation. Thanks a lot.