CEO WORD Q1 2018


CEO Word, Q1 2018

The first quarter of 2018 marks the beginning of a year of major transformation for the Tele2 Group. Alongside the preparations for the merger with Com Hem, our business momentum, adjusted for the two non-cash one-offs we are reporting this quarter, continued with mobile enduser service revenue growth of 5 percent, and EBITDA growth of 9 percent, flowing through to a 26 percent growth in rolling 12 months operating cash flow (OCF). Looking forward to the merger with Com Hem, we are today announcing an updated shareholder remuneration and leverage policy, which we believe is highly attractive to all shareholders of the combined company.

In Sweden we are increasingly seeing the benefits of a converged full-range product offering, as our Large Enterprise business is now joined by customers that neither Tele2 nor TDC Sweden could have won on a stand-alone basis. Following a turnaround in customer momentum in 2017, we are seeing the first signs of gradually stabilizing B2B revenue. Behind the headwinds of Roam Like at Home (RLAH) and a SEK 46 million non-cash write-down of a receivable this quarter, the Swedish business as a whole was resilient with an underlying mobile end-user service revenue growth of 1 percent and EBITDA growth of around 3 percent. In the consumer segment, the underlying mobile end-user service revenue growth was 3 percent.

Our Baltic business produced another quarter of excellent momentum with mobile end-user service revenue growth of 8 percent, like-for-like, with great progress in both the consumer and B2B segments, as we have successfully responded to the rising demand for high-quality, postpaid mobile data products. Despite a competitive Estonian market, and RLAH, Baltic EBITDA grew by 8 percent, like-for-like.

On a rolling 12 month basis our Baltic Sea Challenger businesses grew operating cash flow by a solid 9 percent.

In the investment markets, our consolidated footprint performed excellently. Kazakhstan continues its relentless growth on the back of strong demand for mobile data and a well-executed monetization strategy. Mobile end-user service revenue grew 21 percent in local currency. This has enabled us to reach our EBITDA margin ambition of 30 percent one year earlier than planned, and as expected we received a second repayment of the shareholder loan in the quarter. Croatia has also accelerated its growth rate into the double digits, on the back of superior product value to both mobile broadband (MBB) and smartphone customers, with improved flow through to EBITDA as we are now benefitting from a reduction in spectrum fees.

In the Netherlands, we are preparing for the merger with T-Mobile to create a stronger competitive force in a market where we faced intensified competition in the quarter, both from MVNOs and, as expected, from FMC bundles. Our products remain competitive and we are continuing to grow our mobile customer base, although at a lower rate than in previous quarters.

Preparations for the two transformative transactions in Sweden and Netherlands are well underway. The regulatory approval processes are on track – we are in the pre-notification phase with

β€œThe first quarter of 2018 marks  the beginning of a year of major transformation for the Tele2 Group.”
 
constructive dialogues with the EC, and look forward to filing the formal merger notifications during the second quarter.

Looking forward to the merger ahead, we will be combining two highly cash generative businesses with clear synergies to create a leading connectivity provider in the Baltic Sea region. Since announcing a preliminary financial framework for the combined company in January, we have engaged with shareholders and spent more time analyzing the best financial framework for Enlarged Tele2. As a result, I am pleased to announce today an updated shareholder remuneration and leverage policy based on at least 80 percent payout of equity free cash flow as ordinary dividend, combined with extraordinary capital distribution to maintain a net debt to EBITDA target range of 2.5–3.0x. With this policy Enlarged Tele2 is expected to distribute in excess of 100 percent of equity free cash flow to shareholders, through a combination of dividends and share repurchases. The policy has the full support of the Boards of both Tele2 and Com Hem and I believe it will set the foundation for a leading shareholder remuneration and value creation for all shareholders of the combined company, and stronger than what could be expected for holders of Com Hem or Tele2 on a stand-alone basis.

To conclude, I am excited about the potential for Tele2 and what we can offer our customers and shareholders going forward. I am also proud that alongside the transformation agenda the Tele2 team has continued to deliver solid business momentum in this first quarter, as we pursue our mission to liberate people to live a more connected life. This mission, and the strategic choices that support it, will continue to deliver sustainable and long-term value creation for our shareholders, customers and employees.


Allison Kirkby
President and CEO