Investor Update

Sep 17, 2015

Good morning, all, and welcome to this call and today's strategy update. My name is Jesper Wilgott, Head of Investor Relations. Today with me, I have our CEO, Johan Dennerlin and our CFO, Christian Duigern. And by that, I would like to hand over to Johan for an introductory remark. But I would also like to say that there is a presentation on our IR web, if you want to look at that one during the call. So please, Johan. Thank you, Jesper, and good morning all. We will take you through a quick presentation. I'll refer to the slides, and then we'll have a Q and A as usual. We also have I'd just like to say that we will have a Swedish media event here at 10:00. So for those wanting to ask more questions from media, please join that live here at Sturepland. So let me then go to the first slide and summarize our key messages for today. As you know, we have, during the last two years, worked hard to take Eurasia to the next level, both from a business perspective as well as from a governance and compliance perspective. We've come a long way, and I will go through some of that in the presentation. But we also have some remaining challenges, which has led us to conclude that we will not be a long term owner in the region of Eurasia in order also to then focus our operations and agenda into the existing other two regions, Europe and Sweden. So those are the highlights of the news for today. And let me take you through a bit more in detail on the coming slides. First of all, I'd like to point out that coming in to the job and with a clear mandate to rebuild reputation for Telesoneira, we have worked exceptionally hard on building a governance and compliance agenda throughout our company, including the seven Eurasian countries. We have some examples here on what that have been what we have done. And this has been, I think, one of the more heavy lifting things that we have done together as a team. We have come a long way now today, and we are proud to say that I think we're in a good shape in many of our countries with this regard. But on the coming slide, I point out that we do have a couple of remaining challenges that we are, at this point, not able to solve, one which both we have talked about with you throughout the last two years regularly in our quarterly updates and road shows, also with media. One being that we have a couple partner relationships or situations in some countries, notably Uzbekistan and Azerbaijan, we've spoken about, where we still don't know the UBO or ultimate beneficial owner. We have done, in our view, everything we can to get the answers, which we still don't have. On top of that, you know that we also have an ongoing preliminary investigation from several prosecutors in Uzbekistan. This, of course, has taken a lot of and is taking a lot of management attention attention from the Board. We also have, which has been highlighted, some problems with cash repatriation from a couple of countries. You're aware about Uzbekistan and Nepal, where today, we are close to SEK 5,000,000,000 of trapped cash with no clear solution in sight. These are examples of problems that we are unable to solve in spite of the efforts that we have put in bringing the companies to a better shape than they were in before. That is one of the key reasons why we have come to the conclusion to gradually and eventually fully lead the region. The other reason is, if you continue to the next page, is that we need to focus now even more in building the new generation telco in the remaining two regions. It is a demanding agenda. It's a fun agenda, but it requires a lot of focus and attention to deliver on our various opportunities that we have in these regions. We are doing that market by market. You have seen some examples, successful at this point. The successful one being Norway, where we're proceeding well with the integration of Tele2. And then the recent news where we failed to combine two entities in Denmark. And as Christian has talked to you about, we're back to square one and are continuing to evaluate our options. These are examples of things that we need to do to move ourselves into a new company. That a lot in our core and our convergence space. So on Slide six, I'm just reminding you of our strategy that we announced in September, where Enhance the Core, both in Nordic Baltics as well as Eurasia, is a core pillar. The Eurasia part has been part of the strategy. We have done tremendous progress in investing and bringing these companies to a new level. I think they're well positioned, and I'll come into that, to be taken in with a different ownership into the future. And we also have the adjacencies where we're exploring opportunities close to the core, and we will be continuing to do so and keeping you updated on that. Let me say a few words on the portfolio, which we're now talking about. First of all, pointing out then that we're talking about the seven countries where we have management control, and the Kazakhstan, Azerbaijan, Uzbekistan, Tajikistan, Georgia, Moldova and Nepal. Clearly, they are an important part of the group today with almost onefour of the service revenue and almost onethree of the EBITDA. I don't need to remind you that the profit on paper does not mean that you get cash to Stockholm, and that's what I highlighted before about the repatriation problem. Coming Page eight, also here, I want to show that we are, in most markets, leading or number two with strong positions and strong earnings, which is a good fundament for the future and for some other owners to develop these assets further, which we think there are several. We have also talked to you about the challenges on the coming page that we see in the region. Notably, this year has been tough, and we know the reasons, both the Russia spillover, the oil price and other macro impacts. We've had difficulties on the currency side, and the recent additional devaluation in Kazakhstan doesn't make it better. So these are kind of normal part of the business in the region, which in our view, of course, is a short term thing and over time will stabilize and get better. Nevertheless, we have come to the conclusion then, as I said, to over time reduce our presence. This will be a difficult and complex task. And as long as we are still in the region in each market, we'll continue to be a responsible active owner, making sure that we live up to our expectations both on the sustainability side as well as creating value for our shareholders and bringing the best value for these assets to into a new owner. On the next page before Q and A, I just want to highlight then that it's at this point, since we're early in the process, difficult to say what values we're talking about. I mean we can just say that we have a book value, and that we know is around We are you know our net debt situation, where we have changed from setting a target on the actual net debt to EBITDA, but rather talk about our rating. And we are committed to our rating. And as you know, we have a dividend policy stretching for this year, where we have the ambition of delivering SEK 3 per share, which will be talked about leading up to the AGM. Beyond that, we haven't and we will not talk about the dividend policy until later this year, early next year. So with that, a couple of concluding remarks that we will the reason we're coming out with this today, I think, is worth pointing out. We have been in this process now for a little while. Next phase of this will require more people involved in order to get these processes going in the right direction with the right teams involved. And we will have to include more people, and therefore, we want to be proactive in this communication. Also pointing out direction where focus and attention in the Nordic European region will be even more important. So with that, I will leave it to the floor for questions here or later. Jesper and the team, the IR team, will be available throughout the day and the coming weeks to follow-up with one on one meetings, etcetera. So thank you. All right. Operator, could we open up for some questions? And your first question comes from the line of Nick Lial. Hello, morning. It's Nick at SocGen. Can I ask a couple, please? On the process itself, Johan, you described a bit about the process. But could you maybe tell us a little bit about where you are? Have you spoken to potential buyers yet? And also, have you spoken to the authorities in Uzbekistan and Nepal about any issues on proceeds, whether that cash will be trapped as well? Or do you have quite convoluted chance to go with them? And then secondly, on the on Megafon and Turkcell stakes, have they been involved in this process at all? Or is that something you would plan on extending to in the future, please? Thanks, Nick. So on the process, let's not jump ahead. We will keep you posted on what we are seeing and who we're talking to when we have some more information. We are as I said, we have been in this process for a while. Of course, we have prepared and we are well into it from our point of view, but we need now to accelerate it. And with regards to Nepal and Uzbekistan, we are keeping a good dialogue with all the authorities in the respective countries, and they are aware of about our intentions from today and onwards. So with regards to the specific questions on cash, we haven't been able to solve them up to now. We'll continue to work on solutions for this, which has to be part of the eventual sales and exit of these markets. For Turkcell and Megaphone, yes, those are not part of this discussion. They are separate. So nothing has changed with regards to our previous statements and ambitions for Turkcell and Megaphone. That's great. Thanks. And your next question is from the line of Peter Nielsen. Thank you. Yes, Johan, when the new Board came in, they obviously reconfirmed your commitment, Autelio's commitment to Eurasia, but clearly, has changed now. Could you elaborate a little bit on what has changed the Board's mind over the last 1.5 in addition to what you just said? And then if I can just ask, I mean, you talk about the new How will the new TeliaSonia look in your sort of way, I assume you can shape it that you'd like to? Thank you. Thanks, Peter. Yes, so I'll reiterate some of the messages that I've given on the question on what has changed. My mandate has been to rebuild reputation and take our various businesses to the next level. My mission has also been to resolve some of the issues that was problem when we arrived, and both me and the Chairman has been speaking about this openly. We think we have exhausted our options to resolve the two major issues about partners and repatriation of cash. So that is one important factor in this new focus on direction. But also, we see the need of focus on the two remaining regions where there are great opportunities moving into the next phase, where we need to be even more active, pay even more attention to the shaping of the new industry, which you know I'm speaking to you a lot about how that is widening. So on your question then, what is the new Telia Sonera? It is a company where we are taking connectivity to the next level, where we are always best on speed and security and stability on our network, both fixed and mobile. And that's what's in the both connectivity and convergence box. And then we you know that we're talking about convergence both for consumer and enterprise, and that is being done organically. We also said that we're prepared to look at nonorganic activities to strengthen the convergence for consumer and enterprise. And that is with center of gravity in the Nordic Baltics and where we have our regional split of Sweden and Europe. So hopefully, we can succeed with more of the activities that you're seeing already. So this is nothing new. We just want to accelerate our and keep focused more on the activities in these two regions. Okay. Thank you. And your next question comes from Hassan Dillon. Hey guys. Just one question from me. When you talk about refocusing on to European operations, can I just confirm that they are your existing European operations only and you won't have any desire to expand further into Europe? Thank you. Yes. So we are where we are today, Nordic, Baltic plus Spain in Europe. That's where our focus is. Spain is a separate discussion that you know we are not looking to invest more in Spain and take it to a different level. We're looking for strategic options in Spain. So the existing markets in the Nordic Baltics are our key focus over the short time, short period. And when we feel very successful there, then maybe we can talk about something else. But the focus now is Nordic Baltics. Okay. Cheers, guys. Thanks. Thanks. And your next question comes from Georgios Iroquois. Yes. I've got two questions, please. The first one is a follow-up on Terxel. Given that you are willing to exit from assets you fully control, I was under the impression your stake in Turkcell is more due to the JV that you have together in Eurasia. Is there a scope for you to exit? And how difficult would that process be? And the second question is, there was a comment you made on the dividend policy beyond this year. I just wanted to understand whether you believe it strengthens or weakens your position with regards to paying dividends because on one hand, this could delever the balance sheet. On the other hand, it greatly potentially reduces free cash flow generation. Thank you. On the Turkcell question, so as I said, we are not changing our view on Turkcell. That is an ongoing discussion we have with our partners there with a clear ambition to get back on the board, solve the outstanding issues between the shareholders. And then when we have done that, we can talk about what that means into the future. So and when regards to Fintur, I'm not going to comment on any of the various processes that we're in with regards to gradually reducing our presence in Eurasia. That we will come back to. On the dividend policy, clearly, we believe this is value creative for Telia Soniara shareholders, this refocus. And as we now succeed with this ambition of reducing the presence, we will speak about what impact that has on the financials and on our capacity going forward. But we are reiterating our rating ambition and our dividend policy for the year, of course, where the ambition is SEK 3 per share. So anything beyond that, we are and we were going to come back to anyway. And your next question comes from the line of Mandeep Singh. Thank you. Thank you for taking the question. So really just a quick one. In the context of scale, given that you're exiting Eurasia, I know we've touched upon this already. But do you think strategically you would benefit from greater scale in the Nordic region, which I know you said Nordic and Baltics, but ultimately Nordic is your key home region. Do you think you would benefit from greater scale in Nordic Region, please? Well, scale is important, Mandeep, and it depends how you leverage the scale in what markets you're in and what agenda you have. And for us, scale is important in some areas. We're talking about that, for instance, in our Nordic Baltic regions. We are using that for synergy takeouts in the operations field, where we have common operations for seven markets. We're using it for procurement, etcetera. So I think that will still be important. And it's important today. It's going be important tomorrow. There are not as many synergies across the regions as you may think between Eurasia and the Europe Sweden regions, even if there are some, they are not significant. Okay. Could I just maybe follow-up briefly, please? Sure. How long would you have a commitment in the context of the news of a few days ago to run a business in Denmark that doesn't make you any money? Is that a sort of long term ad infinitum commitment to carry on running a business that generates no cash for you? The simple answer is not that's not sustainable. And I think Christian was clear on that on the call as well. I mean, we're back to square one, and we're not happy with the situation of a very low return on capital in Denmark. So let us come back to Denmark when we have more to talk about. Okay. Thank you. And your next question is from the line of Connor Heath. Hi. Thomas Heath here with Handelsbanken. A few questions, if I may. Firstly, several of your Eurasian assets are co owned with Turkcell. If you could just update us on to what extent there are clauses that they have the right to acquire any asset you sell within the Fintur sort of legal structure, so any further steps that on those assets and also if there's any further ships that on the non Fintur assets. Then secondly, if you do sell these assets to Turkcell, would that be sort of considered sustainable given that you still own Turkcell? Thank you. Hi, Thomas. Thanks. We're not going to go into any specific on the relationships we have today around Fintur. I can just say that we are now exploring the options we have market by market, and every country has its unique solution. We believe there are several options how to structure a reduction of presence. And of course, you're pointing to one, but let's not go speculate in advance. And then not even speculating further on what it means if Turkcell would end up as a buyer, I don't want to speculate on that either. We can just comment on our stakes in Turkcell, which I have done. And I've said again, it does not change. We are continuing to seek solutions for our ownership, and it starts with discussions on the governance, getting back on the board. And the whole purpose of that is to get to a point where we have options. And when we have options, we can talk about the options and make decisions. Right now, there are very few options in the Turkcell situation, as you know. Thank you. That's helpful. Thank you. And your next question is from Sunil Patel. Good morning. I just have a quick question. Do you think it's sustainable long term to have a minority exposure to the Finturk business through Biturk? So I mean, I know you've been asked this in different ways, but I think longer term, that's a position you're still willing to be in once you sell the majority control either to BiturXion or even someone else. You. I mean it's on the same topic. We are now focusing on reducing our presence in the Eurasian region, the seven countries. In parallel, we have a discussion which we're continuing with the solutions on Turkcell. Once we have options there, we will talk about them and what that means for us going forward and whatever it means for indirect or direct regional questions. So it's premature to make that connection. We will come back to the various solutions that develop and materialize during the coming periods. Okay. Next question, please. And your next question comes from the line of Jacques Riedling. Thank you. One question regarding your decision on the disposal of this group of assets. Did you take into account the level of margin these assets are not delivering to make decision, I. E, they have peaked? Thank This is a holistic assessment made for several reasons for our decision to reduce the presence over time. We think we have developed these assets well, both from a business perspective and from a sustainability perspective. And we believe that they are good for to take further from a different owner. So those are the arguments we're using and has been part of the decision making. So no single item has made that decision come through. So the direct answer is no on the margin question. But yes, it's part of a holistic assessment. Thank you. All right. We move on to the next one. And your next question is from the line of Johanna Aufquist. Yes. Two questions, if I may. First of all, just a detailed one. How would you disclose Eurasia going forward? Will it be discontinued operations or not? And then secondly, why you take this decision to announce this to the market now rather than wait until you have sort of a proper proposal on how to do this? Thank you. Thanks, Johanna. I'll just go back to my statement that we're moving into the next phase now where we will have to involve more people. And it we want to make sure that we are proactive in this communication. Also, the focus and the refocus into Nordic or within Europe and Sweden is good to point out at this point of time. So it's more an assessment after board deliberation to come out with this information at this point. When it comes to the discontinued operation, Christian, you want to say a few words on that? I can just say for quarter three, we will report as usual. And depending on this is could be a long process, but depending on how it goes in the future, we'll follow the IFRS rules and see what they say. Okay. Thank you. Thank you. All right. And your next question is from Steven Beasian. Yes, thanks. Sorry, just a quick one on Spain. Is your position there unchanged I. E. You're still open to possible options such as being open to buyers? Or actually on the back of this decision, could you use some of the proceeds to sort of strengthen your operation in Spain and try again to build scale in this country? Thank you. We still maintain our position on Spain as we've had before. So it's unchanged. Thank you. Any final question? And you do have a question from the line of Joel Dahlberg. Hello. Thank you for having me on this conference. I have a question concerning the countries you mentioned where you have problems identifying your partners. What do you think about the possibilities of even selling these companies where these problems exist? Joel, thanks for the question. We of course, we'll talk about this as we go along. We would not have come out and made this announcement if we thought this was impossible. And we are certainly going to keep you updated on the progress country by country or as a region as that develops. Unfortunately, I don't have any further information there, Joel, other than that we believe that this can work well for some other owners that are prepared to take the good operations that we have into the future. Okay. So you have indications that there are interested buyers? We our assessment clearly is that there will be interested parties. That's now for the process to explore and find out. It is just, as we said, started. And let's wait and see what happens, and we certainly will you updated along the way. Thanks. Any further questions? And you do have a question from the line of Stephane Goffin. Yes. Hello. Actually, just one small clarification. The dividend or the earlier guidance has been that you will deliver at least SEK3 per share in dividend for 2015. And today, have at several occasions stated that you have the ambition to deliver SEK 3 per share this spring. Is there a clear reason for this rephrasing? Yes, if you can clarify that. Thank you. Yes. Thanks, Stefan. Thank you also for asking for clarification. As I said, nothing has changed, and it is still at least DKK 3 per share. And it is, as I've said before, it's an ambition because it's still a decision to be made, of course. So dividend policy unchanged, at least DKK 3 per share for this year to be leading going into the AGM. Okay. Thank you. And your next question is from Usman Ghazi. Hello, gentlemen. It's Usman Ghazi from Berenberg. Just two questions, please. The first question I had was just on, again, the way and the timing of the announcement. In in I mean, just wanted to get your views on whether it affects any price that you may might be able to get for the asset because it all it's almost like, you know, you're saying that you wanna exit at any price over whatever time frame. And I just think would it not have been better to make this announcement once you had a buyer for the asset rather than make the announcement, you know, without buyers lined up, which makes you look maybe weakens your negotiating position going into a disposal? The second question is actually that's it. So that was one last one, right? Yes, that's it. Okay. You. Clearly, have done this assessment about timing. It is our clear view that this does not hamper our process or makes it in a disadvantaged position. It is a good timing to come out and talk about this proactively rather than having to react on rumors or other things coming out as the process develops and matures. It's also a good time for us to talk about the refocus we need to do into the Sweden and Europe region. So it's an overall assessment about timing, which of course we don't think is negative. Otherwise, we wouldn't do it. Okay. Thank you very much. Thanks, Usman. And your next question comes from the line of Ajak Grieling. Even though you are reluctant to disclose the whole process you are entering, Could you give us an idea of even rough of the period you expect this process to take over the time? Is it a six month delay or perhaps a three, four years delay? Thank you. Thanks, Joachim. We're not going to comment on the timing. I do want to emphasize, though, that it is not an easy task, and it will take time. So let's talk about it as we move forward, either country by country or region as a whole. And we clearly say that this is reducing the presence over time, indicating that it could take time. Okay. Thank you. And your next question is from Connor Heath. Hi there. Connor Heath here again. Just a follow-up question. Given that you said your assessment is that there would be interesting buyers interested buyers and Fintur controls four of these assets. You mentioned before that you've informed the authorities in Uzbekistan and Nepal as of today. Is that the same situation for the other owners of Fintur? Or have you already started the discussions with those owners? Thank you. Thanks, Thomas. Maybe I have to rename you after this conference call. Maybe. We clearly haven't disclosed in advance. But so this morning, we're talking to the main stakeholders that we believe we need a closer relationship going forward, including some of the people you mentioned. So that's for our discussion now into the next phases. Thank you. Thanks, Thomas. Good. Any final question or? There are no further questions at this time. Great. Thank you. Thank you very much, and we'll speak to you soon. Bye now. This does conclude today's conference. You may now