CEO WORD Q4 2017
The fourth quarter concludes an extraordinary year for the Tele2 Group. The transformation of the Group to reach our strategic ambition is running at full speed alongside strong organic business momentum, driven by insatiable demand for mobile data, and cost control.
We are also concluding the end of the investment cycle in our Investment Markets through the business combination with T-Mobile in the Netherlands, which we announced in December. This gives us the opportunity to be part of a future customer champion with sustainable strength to fight the Dutch market duopoly. Meanwhile fearless commercial propositions produced growth and rising profitability in the Swedish consumer segment and in the Baltics, despite the headwinds of Roam Like at Home (RLAH). Tele2 Sweden, already a one-stop shop for business customers following the integration of TDC Sweden, is now ready for the next big step in 2018 as we plan to merge with Com Hem to create a truly integrated connectivity provider.
Mobile end-user service revenue grew by 5 percent in the quarter, like-for-like, or 8 percent when including the Netherlands which is now reported as a discontinued operation. We thus met our full-year objective of high-single digit growth, by having a relentless focus on offering more value to customers who are hungry for mobile data. Data consumption by consumers on our Tele2 brand in Sweden increased by over 60 percent in Q4, more than doubled in the Baltics and quadrupled in the Netherlands.
In Sweden, our consumer mobile end-user service revenue grew by 2 percent, and by 3 percent excluding RLAH, driven again by very strong performance of the Comviq brand. In B2B, the expected continuation of recent headwinds were accentuated by a decline in low-margin equipment revenue against a tough comp. We expect this pressure to reduce somewhat in Q1, but more importantly I am pleased with great customer wins including an extended engagement with PostNord and a new contract with the Swedish Migration Agency. Sweden’s EBITDA grew by 3 percent in the quarter, despite an impact from RLAH of SEK 70 million, as benefits from the Challenger Program and TDC synergies flowed through.
Our Baltic businesses ended the year with another quarter of strong growth, 9 percent on mobile end-user service revenue and 21 percent on EBITDA. This was driven by successful take-up of our commercial propositions, designed to deliver increasing value to customers, and of costs, which have been well contained despite strong growth.
This momentum generated OCF in Sweden and the Baltics, our Baltic Sea Challenger business, of SEK 4.6 billion for the full year, corresponding to growth of 26 percent.
Our Investment Markets are now gradually moving into positive OCF, and during 2017 they consumed 77 percent less negative OCF than in 2016 including the Netherlands.
Kazakhstan had another strong quarter, with 18 percent growth in mobile end-user service revenue and an EBITDA margin of 28 percent, well on track towards our mid-term ambition of 30 percent. 4G population coverage reached 73 percent at the end of the year, and leading network quality keeps being an important foundation for our strategy.
Netherlands momentum also continued, with growth of 30 percent in mobile end-user service revenue. Looking forward, the business combination with T-Mobile announced on December 15 significantly improves the ability of the business to take on the Dutch market duopoly, while also significantly bringing forward cash returns for the Tele2 Group and improving our risk profile. Upon closing, the agreement entitles Tele2 to a 25 percent stake in the combined Dutch business and EUR 190 million in cash.
Amid all these new developments it is also time to draw conclusions from an older but equally important one. The Challenger Program, which I launched in 2014, exceeded its goal run-rate of SEK 1 billion in the fourth quarter, and delivered on its purpose of driving productivity and competitiveness for the Group. The program’s investments were lower than expected at SEK 728 million over the three years. As it draws to a close, the mission for improved productivity and operational excellence will continue. As a challenger, cost consciousness is in our DNA. New initiatives that will improve our productivity and the cost to serve our customers have therefore already been initiated.
The integration of TDC is progressing well and we are approaching our target run-rate benefits of around SEK 300 million, originally our four-year target, only one year after the acquisition. In 2018 we will therefore look for further opportunities beyond our earlier target level, and we believe this is achievable with a lower integration cost than the SEK 750 million previously communicated.
For 2018 we are guiding for mid-single digit mobile end-user service revenue growth, EBITDA of SEK 6.5 to 6.8 billion and CAPEX of SEK 2.1 to 2.4 billion for the full year, excluding the Netherlands. However, this does not include our greatest opportunity, as we are now looking forward to one of the most complementary mergers of assets that could possibly be found in our industry, with Com Hem, today a high-quality customer oriented leader in its segment. Besides a stronger customer offer and better growth prospects, we will also broaden our cash flow base and long-term dividend capacity. The Board is therefore introducing a policy of a dividend to rise over time, from today’s levels, and a continued principle of returns of any excess cash.
This planned merger with Com Hem takes Tele2 into a new chapter and a new world of possibilities that will fearlessly liberate a more connected life for Swedish households, individuals and businesses of all sizes. As a result, we will deliver sustainable value creation for years to come, for our customers, employees and shareholders alike. I am immensely proud of the whole Tele2 team, who have contributed to this quite extraordinary year, and look forward to exciting times ahead as we further execute on our strategic ambitions.
President and CEO