Investor Update

Jun 18, 2020

Ladies and gentlemen, thank you for standing by, and welcome to the InfoMeeting Press and Analytics Meeting Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. I must advise you that this conference is being recorded today. And I would like to hand the conference over to your speaker today, Andreas Joelson. Please go ahead, sir. Good morning, everyone, and welcome to this conference call related to our divestment of our stake in Turkcell Holding. With me in the room, I have our President and CEO, Alison Kirkby our CFO, Douglas Leube and our Group General Counsel, Jonas Bengtsson. And Alison, please take it away. Also, you have a presentation material on our website, telecompany.com. Good morning, everyone. And I'm delighted to announce that late last night, we reached an agreement between the shareholders of Turkcell Holdings to end the dispute and the deadlock and the ownership of Turkcell. It means that we will now exit our stake in Turkcell Holdings, a stake that will be acquired by the Turkish Wealth Fund, which will then take control of the company at the closing of the transaction. As a result, Telia can now simplify and fully focus on executing on our Nordic and Baltic strategy. We've been owners in Turkcell both directly and indirectly since the acquisition of Sonera back in 02/2002. And Sonera was actually one of the founders of the company already in 1993. Since then, Turkcell has grown into the largest telecom operator in the country and the investment has generated a net cash flow of around 15,000,000,000 to Telia company shareholders, equal to a roughly 5% annual return. The transaction today converts the Turkcell holding position into cash for Telia company as we will receive $530,000,000 at closing. Note that the proceeds will be in dollars, so we no longer carry exposure to Turkish lira and there's also no cash tax on the sale of the shares. This also means that our leverage is in effect improved by 0.16 times from the level we reported with our last results on the March 31 to 2.55x or if you include the dividend paid in April, 2.67x. So in summary, as a result of this transaction, we simplify, we unwind a long lasting legal deadlock, we reduce risk, we improve leverage and increase liquidity, which will generate better shareholder returns in our core Nordic and Baltic markets, and so a new chapter of Telia can begin. Let me go take you through the transaction highlights here on Slide two, which are clear. The strategic rationale already articulated. Moving clearly, we also now end all disputes and litigation between Telia and the other owners of Turkcell Holding. The Turkish Wealth Fund is the buyer of our shares, as I already said. And the Turkish Wealth Fund will finance the deal via a state mandate and a loan from Letter One. From an accounting perspective, the transaction will, based on current FX rates, result in a noncash impairment of DKK3 billion for Telia before reclassification of accumulated FX losses. These FX losses, which are the aggregate losses since we bought Cinera, amount to DKK17 billion and will be booked over the P and L at closing, but note these have already impacted equity. This is just the IFRS way of accounting for historical FX gains and losses. This DKK17 billion will therefore have no impact on equity nor on cash. The impact on leverage, I've already mentioned. And finally, we expect the transaction to close in the 2020 and is subject to regulatory approval as well as an approval at the Turkcell AGM, which is expected to be held later in the year. Moving to Slide three. This is clearly a very natural step for us after having left the operations in Eurasia, having left the holding in Megaphone and removing the direct stake in Turkcell back in 2017. The co owned company Fintur starts to be dismantled, in fact, as soon as we divested Kcell, leaving even less touch points with Turkcell. Since March 2018, we've had one seat at the Board, out of seven in total. And despite that, we in theory were the largest owner of the company through the 47% we have in Turkcell Holding. However, there have been periods where we've had no seats at the Board. And in effect, we have had no control and minimal influence over the company operations for many years. Turkcell Holding is a private holding company jointly owned by us, Chukarova and LethrOne. And as the company is not traded, the holding is highly illiquid. The holding in Turkcell is the only holding in Turkcell Holding and it has no other businesses. As many of you aware, the ownership in Turkcell has clearly been a turbulent journey for Telia. For example, the governance of the holding company has been challenging characterized by disputes between the three owners, which has included agreeing on how to vote at Turkcell AGMs and various losses. There's been a shareholder agreement stipulating on how to decide on current investments and dividends in Turkcell Holdings. And there's also been a right of first refusal, meaning that one party could not sell shares in Turkcell Holdings without the approval of the other owners. Moving to Slide four, just to reiterate, this transaction once approved will result in an increase in our cash position by around DKK5 billion and will therefore improve our leverage. And again on this slide, you can see the accounting impact. Finally, moving to Slide five and with respect to human rights and compliance. Our assessment is that our exit will have limited impact on human rights, but we have included a human rights clause in the global settlement agreement. And it goes without saying that prior to signing the agreement, we have completed compliance and purchaser due diligence, including gathering external expertise and including the screening of key individuals and counterparties. We've also investigated the flow of funds to us, including anti money laundering control and we've found everything to be in order. It's also important to stress that we have a fairness opinion of the valuation of our stake in Turkcell holding from UBS. I'd therefore now like to take this opportunity to thank the Telia team who have worked tirelessly and diligently for quite some time to get to this stage, especially Andreas Ekstrom in M and A and Jonas Bengtsson, our General Counsel, but also Christian Louiega, who's committed almost all of his time to this transaction since my arrival at Telia so that I could focus on the Nordic and Baltic businesses. So now I'd like to open up for questions. I know it will be very tempting for many of you to ask questions that may not be related to this particular transaction, but let's please focus on the announcement of today and wait for questions on other matters when we get together for our Q2 report. Thank you, Alison. Then operator, we can take the first questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session. The first question comes from the line of Lina Osterberg. Please go ahead. Good morning. My first question, and I promise I'll stay to Turkcell then, is on the dividends for 2019 from Turkcell. Are you still entitled to get those? And could you please remind me, has there been a decision on how much would that dividend be and when will it be paid? And my second question is what will happen to Turkcell Holding after your exit? Yes, good morning. This is Jonas Sveinck from ODi. No, we will not receive any dividend from Turks and Holding after this. So the we have sold the financial interest as of now with that. Whether or dividends will be paid out during the year is subject to several items, not least COVID-nineteen restrictions in Turkey, so we cannot really comment on that. And then sorry, I missed you had a second part of your question also. They can have maybe done yes, just the $20.18 dividend and that's what I think there's one tranche remaining. Will you get that? No. This is sold as per the date of the agreement. So we will not get any other cash flow out of the end that is sold. Okay. And the second question was what will happen to Turkcell Holding after you exit? Well, after we leave, it is obviously up to these new owners. But we will we assume that the structure will be collapsed in some way and that Turkset Holding will be dissolved. There does not seem to be any point in keeping that structure after this transaction are closed. Okay. Thank you. Thank you, Lena. May we have the next question please? Sure. Next question comes from the line of Maurice Patrick. Please go ahead. Good morning, guys. Obviously, tempting to ask a question about 2Q trading, but as you said, not to. I'll keep it to the deal. I guess the question is like why now and how much of the decision to sell is governance led rather than financial? Because you could argue you could just keep the stake there and keep the dividend for the next ten years. I mean, Turkey is quite a good market potentially in the next growth in penetration, etcetera. So why now and how much of the decision was governance rather than financial as such? It's been hi, Morris. Good morning. It's been Telia's intention quite publicly for many years now to exit its position in Turkey so that it could focus on the core markets of The Nordics and The Baltics. These negotiations have been known for quite some time to arrange that exit and the team feels that now is the right time to take advantage of the offering to table and we can move on and realize liquidity, reduce our leverage and really now simplify and focus on The Nordics and The Baltics. And that's been publicly an intention of my predecessors for quite some time, Morris, and I truly support that decision. Great. Thank you. Okay. Next question, please. It comes from the line of Andrew Lee. Please go ahead. Yes. Good morning. Hi, Alison. And congrats on getting the deal done. We've been waiting for years for this. I have a question really from a few investors when the valuation was first put in press speculation and then confirmed overnight. So I think some investors thought by doing the math on the various, ownerships, that maybe you'd be due more cash in from the deal. I wonder if you could just talk through the discount to the theoretical value. I know liquidity had something to do with it, but I wonder if you could talk through the valuation that you accepted. Yes, as I said, we do believe it's overall a fair value. We've had a fairness opinion on it. And if you consider the last fifteen years that have been characterized by disputes among the shareholders, then this is a good value. What you've got to remember is we're not actually selling shares in Turkcell. We're selling a highly illiquid position in a holding company, which would we always believe would come at a discount, Andrew. You know, holding companies always trade at discounts. And given this very illiquid position, it's not surprising and we've seen higher discounts in similar transactions in the sector. So we believe it is a fair value and it's been backed up by UBS. Thank you. Thank you, Andrew. Next question please. Next question comes from the line of Johanna. Please go ahead. Yes. One question related to the €5,000,000,000 proceeds that you get. Would you consider it seems like on the presentation that you aim to deleverage, but I was just wondering, would you ever consider paying those €5,000,000,000 out to shareholders? And so that's the first question. And the second question very much related to this, has this increased the likelihood of Telia paying the initial full dividend announced for 2019, the SEK 2.36 per share? So far, it's been the SEK 1.8, which has been distributed. So any comments on potential dividend or extra dividend? Thank you. Johanna. Good morning. At this point in time, it's reducing our leverage, as I mentioned in the presentation. And clearly, it's a Board decision as to any decision on what we might want to do with dividend going forward. But for now, it's a reduction in our leverage. Okay. Thank you. Thank you, Johanna. And we have the next question, please. It comes from the line of Peter Nielsen. Please go ahead. Yes. Thank you very much. Congratulations to yourself and to Telia company for finalizing this part of your chapter in Telia's history. Can I just thank you? Yes. Can I add something as you said that over the past fifteen, twenty years, this has been challenging and turbulent for Telia and has required much management resources? I guess I was just asking on a broader note, are there any takeaways from this or anything you can use going forward apart from the obvious lesson perhaps not to get involved in Eurasia, but do you feel there's anything for yourself or Fertilia as a company that you could take away from this rather than just saying, we are now completing or exit from Eurasia? Are there any positive takeaways or lessons learned which you can use going forward? Thank you. I like to say stick to your knitting. And I mean by that, just focus on your core. I think that's the key lesson here, Peter. Focus on your core markets where you have a right to win over the long term. And that's why this transaction makes a lot of sense for Kelly at this point in time as we move into a new chapter to really strengthen our positions in the markets where we do have a right to win. This has been a distraction for many years for many in the company. And the team here have done a fabulous job in allowing me to focus as a new CEO. And we'll the 5,000,000,000 reduces our leverage and allows us to really focus our capital going forward on the exciting markets of The Nordics and The Baltics. But stick to your knitting and you get a better chance of success. Great. Thank you. Thank you, PK. May we have the next question, please? It comes from the line of Steve Malcolm. Please go ahead. Good morning. Just a quick question on the use of proceeds and free cash flow accretion. I haven't looked at your maturity profile. Are there any bonds that you can pay down quite quickly with these proceeds? And in terms of the free cash flow impact, should we assume just take the self dividend off as uncertain as that is? And are there any interest savings that you can make by paying down debt in the short term? Thank you. Hi. So from our perspective, as we said, we'd look at reducing our leverage. How we use those liquidity is obviously something that we'll look into and try and structure something as best as possible. But there's nothing more than we can comment on that at this point in time. And just to add on the free cash flow side, yes, as Mr. Bengtsson clearly said, there will be no more dividends from the exposure we have to Turkey. So if you have any dividend in your forecast, you can take that out. Okay. Thanks a lot. Thank you, Steve. May we have the next question, please? Next question comes from the line of Abelash. Please go ahead. Yes. Hi, thank you. This is Abelash Mopat from Berenberg. Thanks for taking the question. I just had a question on taxes, please. You mentioned the holding needs to sit within the deals of FONROR structure. Was just wondering post the sale, does this have any impact on the sort of cash tax rate for TDI Group? Thank you. Hi, good morning. No, as we said, this has no cash tax consequences, this transaction. Okay, thanks. Thank you, Abhilash. Good with a short and punchy answer though. Can we have the next question please? Sure. It comes from the line of Nick Nye. Please go ahead. Good morning everybody. Just a quick one, Allison, if possible. It's a little bit like Steve's actually. Mean, your your balance sheet is relatively inefficient with quite a lot of cash on it. And if you it sounds like even more cash now. So any change in the way you may be running the balance sheet at all and maybe tweaking it? And then secondly, the cash flows are still quite a bit to answer in terms of cash flows and sort of future direction. So any idea when you might be able to give us more guidance on the cash flow numbers, please? Thanks very much. Thanks, Nick. Listen, it's I think it's week six at the moment. And delighted that we've now filled this transaction also that I can focus and we can derisk our business and also reduce our leverage. Regarding the rest of the balance sheet questions and strategy going forward, that's for a later day and not today. Okay, thanks. But it's great to be here and I look forward to mapping out what I intend to do in the coming months. There are no more questions at this time. Please continue. Okay. If there are no more questions, then we leave it at that. But as you know, both me and Anders will be available throughout the day for any follow-up questions. And by that, we conclude this conference call and wish you a happy day and a very good midsummer for you who celebrate midsummer. Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.