Release Date: July 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Tele2 AB (TLTZF, Financial) reported a 4% growth in end-user service revenue for Q2 2024, marking 13 consecutive quarters of organic top-line growth.
- Underlying EBITDAaL grew by 3%, supported by earlier price adjustments in Sweden B2C.
- The company maintained a solid cash flow, keeping financial leverage below the target range at 2.44 times.
- Tele2 AB (TLTZF) achieved a significant milestone by migrating Comviq into a modern IT environment, enhancing digitalization and customer experience.
- Tele2 AB (TLTZF) received recognition for sustainability efforts, being named Sweden's most sustainable company by Time Magazine and a Climate Leader by Financial Times.
Negative Points
- Sweden B2B end-user service revenue grew by only 2%, slower than previous quarters due to the challenging economic environment.
- The company faces tougher comparisons in the second half of the year due to earlier price adjustments.
- Economic headwinds have impacted Swedish companies, leading to scaled-down or delayed purchases, affecting Tele2 AB (TLTZF)'s performance.
- The number of fixed broadband RGUs declined by 3,000 in the quarter, driven by single-play customers.
- Tele2 AB (TLTZF) had a SEK8 million headwind from energy costs year-on-year, impacting financial performance.
Q & A Highlights
Q: On Swedish growth, why didn't you see an acceleration in the second quarter despite price rises in March?
A: (Kjell-Morten Johnsen, CEO) Pricing has kicked in B2C, but B2B growth was slower due to the Swedish economy. We expect B2B to pick up as the economy improves. (Hendrik de Groot, CCO) Consumer pricing has shown improvement, but prepaid business comparisons affected overall growth. (Stefan Trampus, EVP B2B) Economic headwinds have impacted B2B, but we expect improvement as the economy stabilizes.
Q: Can you explain what you've learned from the inflationary environment regarding ASPU increases and how you can use those learnings in the future?
A: (Kjell-Morten Johnsen, CEO) The key learning is that it is possible to increase prices in the telecom industry. We will continue to move customers to higher-value 5G plans. The new shareholders are dedicated to telecoms, which is beneficial for us. Regarding the balance sheet, we have a strong position and will consider bolt-on acquisitions or increased shareholder remuneration in the future.
Q: What are your thoughts on the decelerating customer growth in broadband despite strong ASPU?
A: (Hendrik de Groot, CCO) The pricing cycle has led to some customer churn, but we are managing the business for value and margin. We expect an improved trend going forward as we are out of the pricing cycle.
Q: Can you break down what is driving costs in the quarter and how should we think about operating leverage in the second half?
A: (Kjell-Morten Johnsen, CEO) We are comfortable with our guidance. The SEP program effects are coming in gradually. (Charlotte Hansson, CFO) We had some provisioning for bad debt due to the challenging economic situation, impacting our costs.
Q: What has been the customer reaction to the recent ARPU increases, and do you expect retention rates to hold?
A: (Hendrik de Groot, CCO) The reaction has been solid, with some higher churn due to corrective pricing on low campaign pricing. The market is recovering, and we expect improved net intake post-summer.
Q: How do you see the competitive dynamics in the Swedish market affecting future price increases?
A: (Kjell-Morten Johnsen, CEO) We will execute price adjustments next year, focusing on a consistent methodology rather than directly linking to inflation. (Hendrik de Groot, CCO) The market's willingness to pay for good connectivity products remains strong, and we will set our plans accordingly.
Q: Can you provide more details on the impact of the copper shutdown on revenues and profitability?
A: (Stefan Trampus, EVP B2B) We have moved customers to more modern solutions, improving profitability. The copper decommissioning is complete, and we expect improved revenue trends in the fixed domain in the second half of the year.
Q: How do you plan to manage third-party sales commissions and their impact on cost savings targets?
A: (Kjell-Morten Johnsen, CEO) Reducing commissions is a key element of our strategy execution program. We will deliver on this gradually, despite short-term volume operations by competitors. (Hendrik de Groot, CCO) The transition to in-house channels and digitalization will help reduce CPO costs.
Q: Can you provide guidance on cash taxes for this and next year?
A: (Charlotte Hansson, CFO) We don't provide specific guidance on taxes, but we had a timing issue with SEK105 million in Latvian taxes, which will be paid in Q3 instead of Q2.
Q: Have you maintained market share in B2B despite macro impacts, and what are your plans for B2B price rises?
A: (Stefan Trampus, EVP B2B) Market share has been stable. We have done back book pricing in the micro segment and have inflation-linked clauses in contracts. The impact on overall revenues is limited due to bespoke agreements with larger customers.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
