Telia Company AB

STO:TELIA

Earnings Call Transcript 2022-Q1

[Operator]

Thank you for standing by, and welcome to the Interim Report January to March 2022. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Erik Strandin Pers. Please go ahead.

[Erik Strandin Pers, executive]

Thank you. Good morning, everyone, and welcome to Telia's Q1 2022 call. I have with me here our President and CEO, Allison Kirkby; and our CFO, Per Christian Morland; and my IR colleague, Anders Nilsson, who you all know. We will do a presentation followed by Q&A. We will try to finish within the hour. And I leave the word to you, Allison.

[Allison Kirkby, executive]

Thanks, Erik, and good morning, everyone, and we are looking out to a sunny morning in Solna this morning. But first, I think we should reflect on where we are after 2 years of COVID. And back in January, when we last spoke to you, we were all looking forward to a return to normal. The war in Ukraine has clearly quickly dampened any hope of a new or positive normal. And like all of you, I'm deeply saddened by the human suffering in Ukraine and the worrying geopolitical situation we now have in Europe. So to be clear, Telia has no direct exposure to the conflict, but we are working in multiple ways to provide relief and support via both our products and services as well as via the donation to various humanitarian relief efforts. Connecting refugee centers, offering employment to Ukrainian victims and using our massive TV reach to host live fundraising events such as a few examples of what we are doing to play our part for Ukraine. And again, proving just how vital we are as a company and as an industry at keeping society connected, informed and aware in the good times and the bad times. But now let's move to the purpose of this morning's call, and I'm delighted that we've got the year off to such a strong start. Financial performance is strong. Operational performance is strong, and our transformation program is picking up in momentum. Service revenue growth of the group accelerated to 3.2% and importantly, it's a broad-based growth with all markets and key segments contributing and Finland reaching stability. Growth is driven by both mobile, up 4.5%, fixed up 1.3% and advertising up 9.7%. OpEx declined by 3%, as a result of our transformation agenda and helped offset inflationary headwinds such as roughly SEK 80 million of higher energy costs in the quarter. If you look at EBITDA, Core Telco grew 4.6% as we were able to flow the strong service revenue momentum and the OpEx benefits down to the bottom line. However, for the full group, including our TV and Media unit, EBITDA growth was, as expected, muted as we now carry the full cost of Champions League for example. Cash flow of SEK 2.2 billion was lower than last year's Q1 when we had a very high contribution from working capital, and our balance sheet remains very strong. I'm therefore very pleased that the Board has decided on a SEK 5.4 billion share buyback program to be confirmed after the completion of the Swedish tower transaction, which we now expect to close around the end of this quarter, so a quarter earlier than expected. Moving to strategy progress. Our multiyear ambition to reinvent [indiscernible] and is progressing according to plan. And let me provide a few highlights from the quarter that capture some of the progress that we have made towards inspiring, connecting and transforming to ultimately deliver sustainably. As the leading and most trusted telco and media company in the region, our priority has always been to inspire our customers by pursuing a value-focused strategy. And in a heightened inflationary environment as we now experience, this approach is of even more important. Pricing moves such as we've taken in Telia Sweden and in Halebop Sweden are supported by improved network experiences and improved content experiences. And across the board, whether it be via improved bundled services or improved more addressable reach in our media business, we are taking the necessary actions to deliver positive revenue and ARPU development, hence the good progress in the quarter. A great example of this is the best network combined with the best range of content, which has driven our Swedish TV customer base to over 1 million and the number of Swedish multiplay customers to 900,000. Access to [ Seymour ] content is also helping drive higher-value mobile customer growth in Finland and bundled Netflix in Norway and Denmark are contributing to the growth in those markets. Overall, we are very happy with how we are now building a stronger aggregator position across our footprint. On the Enterprise side, our strong and trusted brand, combined with a broad play of services resulted in continued good traction, especially in the public sector. In the quarter, we signed multiyear contracts with both the Norwegian Army and the Swedish Contingencies Agency MSB. And with the current geopolitical situation, our role will only become more important going forward as society connect and enhanced security of communication, and we are very well placed to take advantage of that. And we continue to sustain superior reach in our TV and Media unit with TV4 consistently reaching 2/3 of the Swedish audience, and this reach is being further enhanced by our AVOD platform and the addressable inventory that is enabling significant digital advertising growth. On Connecting everyone, our network position was again confirmed by several external measurements in the quarter, including [ Vimla ] in Sweden, Tutela in Finland and our 5G network in Norway was recognized as the best 5G network for gaming. And in Finland, we deployed as the first operator in the world, a 4G, 5G virtual private network based on network slicing and edge computing for customer use. RAN modernization is progressing well, and we're continuing to successfully mitigate for our types of supply chain situation. On 5G, we're progressing at pace with a population coverage of 36% for the group across the whole region, led by Finland at 70%, followed by Norway just above 50% and Denmark just below 50%. Also in Estonia, coverage is growing fast and approaching 40%. In the quarter, we also launched 5G in Lithuania on commercial frequencies after 3 years of testing. On Copper legacy retirement in Sweden, another 140 central offices were closed in the quarter. We've now closed 60% of our copper footprint and the shutdown of 3G by 2023 is progressing according to plan. On transforming to digital, our bold agenda to create the most purpose-driven digital telco in Europe is on track. We continue to digitalize with at this time, a particular emphasis on improving customer experience and service. We are now seeing a sustained reduction in incoming calls from Swedish and Finnish consumers with improved satisfaction scores as we remove full sources and pursue a channel shift towards digital. We're also continuing to remove legacy platforms and products, having removed another 20 IT platforms in the quarter to over 100 being now retired, and over 25% of legacy products have now been removed. This helped drive an SEK 18 million structural savings and IT costs in the quarter. Rapid digital transformation is also happening within our leading advertising businesses in both Sweden and Finland. With our superior reach and improving addressability advertising is no longer just a linear product, which is why we recorded a 26% growth in digital ad revenue in the quarter. On delivering sustainability, our financial metrics are healthy, especially within our Core Telco and advertising businesses and remain on track to meet our SEK 2 billion OpEx savings target by the end of '23. On sustainability, Telia in Sweden was recognized as Sweden's most sustainable telecom brand for the 12th year in a row. And finally, we issued our second green bond in the quarter worth EUR 500 million to finance energy-efficient networks and green digital solutions to help Telia and our customers with both ours and their environmental ambitions. Moving to Sweden. Sweden had another solid quarter and managed despite the continued legacy headwinds to grow service revenues 1.8%, an acceleration versus the level we saw in Q4 of 1.5%. And the growth was broad-based. Mobile grew 3%, supported by a solid ARPU development and fixed grew 1.3%, including, again, a stellar performance by TV growing 15%. Our enterprise business remains in positive territory with 1.4% growth, confirming the trend shift initiated 3 quarters ago, which ended a 20-year period without growth for the B2B business. Excluding the impacts from legacy and the recovery of roaming, underlying service revenue growth was even more impressive, coming in at just shy of 5%, and also showing a slight sequential improvement. So as you can imagine, I am genuinely happy with Sweden's performance, delivering on its commitment and ambition to remain in positive growth territory when it comes to service revenues and also on EBITDA, which grew 4.4%, supported by the revenue growth, but in particular, due to great work on driving improved productivity and structural transformation, predominantly related to resource reduction with a decline of 7% versus last year they delivered. Moving on to the operational KPIs. In mobile, you can see that our subscriber base is stable, while we're delivering healthy ARPU development in both consumer and enterprise. Our broadband subscriber base was also stable as growth in future-proof fiber and fixed wireless access products, again offset the expected decline in xDSL subscriptions which amounted to 20,000 subscriber decline in the quarter. Importantly, most of the growth was in SDUs this quarter, contributing to a mid-single-digit ARPU uplift and enabled by improved upselling and cross-selling. In TV, we continue to see great subscriber development, as I mentioned earlier. Swedish consumers are highly appreciating our award-winning IPTV service and the ability to aggregate all the content they want in one place. Turning now to Finland. I'm particularly happy to see that all the hard work by our Finnish team is starting to pay off and yield results. In the quarter, service revenues were flat as a slight growth for mobile, despite interconnect headwinds was offset by lower fixed revenues predominantly driven by the loss of certain low-margin business solutions and fixed broadband legacy revenues. Transformation of the cost base is also building momentum, enabling lower OpEx despite elevated energy prices and helping drive into EBITDA growth of almost 2% and the first quarter of growth since 2020. That's probably the first structural growth of many quarters before that. However, looking at the progress of our peers in the market, it's clear that we still have work to do. Our subscriber base was down year-on-year due to the loss of a single enterprise contract loss last year, but which migrated only in this quarter. And ARPU also declined due to continued ARPU pressure in the enterprise segment and the [ regulated deduction ] interconnect. Consumer mobile ARPU development was however, positive and this, alongside continued network modernization and 5G progress, combined with other turnaround initiatives keep us on track for our second half turnaround. Moving to Norway, with the wholesale revenue headwinds experienced in 2021 annualize, we are seeing really positive top line momentum. Service revenues increased 6.6%, mainly driven by a 9% increase in mobile, roughly half of which relates to a change in VAS insurance services accounting. And so the underlying mobile growth is more like 4% year-on-year. Broadband continued to develop very strong growth of 8.2%, both from new customers and higher ARPU driven by price increases, both CPI-linked collective agreements and price increases on individual agreements. EBITDA, as you can see, was slightly positive, adjusting for one-off items, both in this quarter and the corresponding quarter of last year. The underlying EBITDA actually grew faster than revenue at around 6%. Our mobile subscriber base continued its positive trajectory with a stable consumer base and growth in enterprise where we grew our base in all subsegments, SME, large and public and the ARPU was again strong, but driven mainly by the [ Vasagatan change ] as well as from a partial recovery in roaming revenues. Moving to the LED market now and into this finally a beautiful page. Despite our incumbent status in Lithuania and Estonia, we are seeing always challenger like growth rates there, and it's great to see the turnaround that we're now experiencing in Denmark. In Lithuania, we continue to see mid-single-digit service revenue growth in mobile in both mobile, growing 8.7% and fixed growing 3.7%. The flow-through to EBITDA from higher service revenues was, as you can see, excellent this quarter despite significant headwinds from higher energy costs. In Estonia performance was again strong with service revenues growing 8% and also broad-based. Mobile was up 6.1% and fixed was up 7.8%. We had an immaterial impact from the Ukraine conflict due to the closure of our Russian channels in our TV business. But overall, the impact from the conflict has so far been very limited. Of course, we continue to monitor the effects that the war might have and especially how the situation evolves for individual B2B customers. But for now, there is no indication that it will have a material impact on our 2022 outlook. Finally, in Denmark, we saw continued good progress driven by mobile, which grew 6.5%. Especially in Consumer, we're seeing an increasing momentum due to the cleanup of historical discounts and the introduction of bundling benefits and pricing moves. We're looking forward to more product launches to improve our market position and pricing power going forward. And for example, in Enterprise, we have moved to CPI-linked contracts for new contracts, combined with good momentum on transformation initiatives, Denmark delivered 5% EBITDA growth despite a material headwind from energy pricing. And finally, moving to our TV and Media unit, you can see that service revenue increased by 5.8% with outperformance in advertising, good development in sports and Pay TV and weaker development in the movie and series side of Pay TV. Advertising in Sweden and Finland remains very strong, as I said, growing almost 10% year-on-year. As the market leader, we offer superior reach and we are at the forefront of the industry's digitalization. Advertisers increasingly come to us for the unmatched combination of traditional and online viewing, and we're increasingly able to provide precise audience targeting and far better quality impressions than players like Google and Facebook. As a result, digital advertising had another strong quarter with 26% revenue growth. Pay TV had a more flattish quarter, although sports in Sweden had good growth despite the Olympics on rival channels mainly due to Champions League. This was offset by declines in other subsegments, including nonsports in Sweden, which was affected by the proliferation of streaming competition and the phasing of content. Looking ahead, we have a set of high-quality releases in Q2, including Hamilton and being the unique partner to BritBox here in Sweden. EBITDA declined by SEK 300 million year-over-year, as we expected, reflecting the cost of a full quarter of Champions League, for example, which is still in its first season. Looking forward, the second and third quarters are not full Champions League quarters, and hence, we will see lower content costs and certainly a different year-on-year comparison in the second half. Looking at the trends of Seymour, we saw a slight decline in the overall base, driven mainly by the nonsports subscribers, but year-on-year growth in ARPU was driven by the increased share of sports subscriptions and price increases in Sweden. So with that, I hand over to PC for the financials.

[Per Morland, executive]

Thank you, Allison. Let me quickly take you through to Q1 financials, and let's start with sales revenue. As Allison has gone through, we have a solid growth at 3.2%, with Finland now stabilized and all our units with solid growth. The service revenue growth is broad-based with telco growth, both in the consumer segment of 2.5% and enterprise segment with a solid 3.2% growth on top of the management TV and Media growth of 5.8%. We have a good momentum with several quarters of low single-digit growth and are well on track to deliver on the outlook for 2022 and 2023. Let's move to OpEx. Total OpEx is reduced by 3% or SEK 190 million in the quarter. This reduction is driven by lower resource costs of SEK 124 million from the FTE and FTC reductions from 2021, combined with an additional reduction of SEK 100 million during Q1 this year. In addition, we have reduced marketing spend in the quarter by SEK 50 million, mainly from media spend consolidation combined with a more efficient channel mix. Other OpEx is quite stable, where we see IT simplification, consolidation and modernization reduce our IT costs by SEK 81 million. This is, however, in the quarter, offset by increased energy costs of SEK 80 million following the higher energy prices across our footprint. Despite inflationary pressure, we have 5 quarters into our transformation, reduce our OpEx with SEK 0.5 billion or SEK 0.7 billion if we exclude the energy cost on a rolling 12-month basis. Our transformation agenda are going really well. And despite some increased headwinds, we believe that we are still on track towards a SEK 2 billion net OpEx reduction by 2023. Let's move to EBITDA. Total EBITDA was flat in the quarter. With growth in all units, except TV and Media that as expected, is impacted by higher content costs mainly related to Champions League. While total EBITDA is flat, we have gained a significant growth momentum across all our units in the telco business with total EBITDA growth at a solid 4.6%. The strong growth momentum on the telco side, combined with easier year-over-year comparisons for the TV and Media business in the second half of 2022 onwards makes us well on track towards the outlook for 2022 and 2023. Moving to cash CapEx. As expected, CapEx has come down to more normal levels after a very high CapEx in Q4 last year. Total cash CapEx in Q1 is SEK 3.0 billion, slightly higher than Q1 last year. And despite the challenging global supply chain situation, we are able to stay on track with our investment program to modernize our mobile network, dismantle our legacy infrastructure and to transform Telia to a much more digital company. Cash CapEx on a rolling 12-month basis are at SEK 14.6 billion or 16.6% of net sales. We expect to be within our outlook of SEK 14 billion to SEK 15 billion for 2022 and 50% CapEx in net sales by 2023. Next on cash flow. Operational free cash flow ended at a solid SEK 2.2 billion in Q1, but SEK 1.9 billion lower than Q1 last year. EBITDA on a reported basis are slightly positive with impacts from the carrier divestment last year is offset by positive FX effects. Cash CapEx is, as mentioned, slightly higher compared to Q1 last year and change in working capital is positive by SEK 0.2 billion in the quarter, but significantly less than SEK 1.7 billion positive that we carried in the first quarter of 2021. Total cash flow on a rolling 12-month basis is as expected on a somewhat declining trend due to increased investments and lower contributions from working capital. The structural cash flow are expected to improve going forward, mainly driven by the EBITDA growth in the second half of 2022, following the continued growth momentum on the telco side and easier comps on TV and Media. We reiterate our ambition to generate sufficient structural cash flow to cover the minimum dividend commitment from this year onwards. Moving to net debt and leverage. Total net debt reduced by SEK 0.9 billion in the quarter, driven by good cash flow generation, partly offset by some effects on leases and exchange rates. Total net debt to EBITDA ended at 2.09x, down from 2.14x last quarter and are at the lower end of our targeted range of 2.0 to 2.5x. The first dividend tranche equal to SEK 4.1 billion was paid in April and are, of course, not included in the Q1 numbers. As we have all the approvals now secured, the Sweden tower transaction is expected to close during Q2. Pending closing, the Board has also decided to initiate a SEK 5.4 billion share buyback program with intention to start it up during Q2 and to complete it in due time before AGM next year. We will come back with more details on this program at closing. On the outlook, with a strong start of the year, we are on track to deliver on our outlook that we have communicated to you. For 2022, we are targeting low single-digit growth in service revenue as well as total EBITDA with a low to mid-single deal growth on the Core Telco business. CapEx excluding license and spectrum is also unchanged and expected to be between SEK 14 billion to SEK 15 billion, in line with last year. And with that, I hand over to you, Allison, to conclude the presentation before we go into Q&A.

[Allison Kirkby, executive]

Thanks, PC. So to summarize, it's been a strong start to the year, and we're continuing to deliver on our plan. Growth momentum has accelerated, especially in our Core Telco business and especially in Sweden and Finland has started to stabilize it by year at last from some of you on the call. TV and Media is also delivering to plan, albeit with heightened investments, but with a particularly vibrant advertising business. Modernization and transformation are structural and are on track for a sustainably better digital Telia. Our balance sheet remains strong, and our Board has chosen buybacks to distribute the proceeds from the Swedish tower transaction a program worth SEK 5.4 billion or around 3.5% of our outstanding shares to commence on closing of the transaction in the next couple of months. So as we move into year 2 of our strategy, I remain absolutely confident in our ambitions and plans for this year and beyond and ultimately to return Telia to consistent, sustainable growth that will benefit all of our stakeholders in the months and years to come. So let's take questions.

[Erik Strandin Pers, executive]

Operator, we are ready for the questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Peter Nielsen.

[Peter Nielsen, analyst]

Congrats Allison on a strong set of numbers. I have a couple of questions. Allison, first and foremost, you have been looking for the past 1.5 years to improve commercial momentum and you're having it now. We seem to be strong growth across all the Nordic-Baltic operation, as you highlighted, particularly in Sweden. The common denominator seems to be stronger ARPU. And when you use the pricing power in Denmark, we know that something is happening in the industry. Could you elaborate a bit on why, what is driving the improved pricing power in the telecom sector for now Elisa and for Telia in particular? And perhaps specifically also, you seem to be taking a step ahead of competition at the moment in Sweden. What is driving that outperformance and your ability to get a pricing power, please? And if you would just say so, but perhaps giving of the small indication of when do you think we will start to -- though you will start to talk speak more positively about 5G impact?

[Allison Kirkby, executive]

Peter, I think it's a combination of many things. As we, first of all, COVID and now the geopolitical situation we have in our region is making it much clearer that high-quality, trusted and secure communication services is more important than ever. So under that backdrop and then with us -- all with us -- as the incumbent, we've always have been value focused more for more strategy. And by investing in our networks, both modernizing 4G, upgrading to 5G by investing in the range of services, so [ rate share ] content services provided over better platforms, particularly in Sweden and strengthening the orchestration of all the services and particularly the digitalization of services in the enterprise segment. All of that backdrop is allowing us to move pricing up, in a way the customers still feel as though they're getting great value for money in a safe and secure way. And as the incumbent, it's our responsibility to ensure that we, during inflation many times we are and times when we're investing that we're able also to nudge pricing up as well. And that's what we are doing wherever we can at the moment, but it's very much driven by an improved quality of products and services and an improved customer experience, which is also being enabled and delivered by our transformation. And what was the final question you had there. I think that's giving you the 5G. So on 5G, clearly, we -- it has been an enabler to the change in the brand perception to the positive in both Finland and Norway so far. And we doubled our 5G base in Finland in the quarter. Some of that's through migration of 4G customers, but some of it by new traction, particularly in the consumer space. And that 5G leadership that we've had in Norway since the beginning and continues even through external network performance test is allowing us to sustain the growth rate as well. What we're really happy to see in Sweden, is, if you recall, late last summer, we introduced an extra tariff for 5G plus offering unlimited data and unlimited speed to really reinforce the added value of the 5G service. And it's been great to see in this week that one of our competitors has now introduced a similar tariff recognizing the higher value premium of 5G. So I think that's only positive for the future and can only bring upside because we've only got 18% pulp coverage in 5G in Sweden so far. And then on the enterprise side, Peter, we are taking the lead on the industrial use cases that will come with 5G. We are leaders in the mining industry and the forestry industry. And as I said in the report, we launched the world's first consumer -- sorry, customer use case of 4G, 5G license. So that helps us, again, establish that quality premium trusted partner to the enterprise segment that's bringing the new use cases that bring added value for our customers and both for Telia. And that's a great combination to sell around some of the core connectivity services. And it is really an enabler to the growth we're seeing in the enterprise segment, what 3% growth is pretty amazing for an incumbent telco.

[Operator]

Your next question comes from the line of Andrew Lee.

[Andrew Lee, analyst]

Just had extra questions on service revenue growth outlook. I mean the 2 key investor questions today are one on your free cash flow drop through the revenues, but also on the outlook for the revenue growth. So I was just going to ask one on Sweden and one on Finland. On Sweden, it's about how much you can accelerate growth from here, obviously, good acceleration and strong results in the first quarter. As you mentioned, Allison, there's been some roaming coming back and COVID provides some odd comps. So I just wondered if you -- how you -- if you view your service revenue growth as structural and whether we should expect it to kick on from here? And just on that point, you told about you're nudging up for prices. I wondered if you could help us understand that your competitors' efforts on that front. And then on Finland, stabilized revenues, which is a key milestone, but there's still some share loss versus peers. And so I just wondered how we should expect performance to trend from here? And what your current expectation is on the time line for return to service revenue growth in Finland?

[Allison Kirkby, executive]

Andrew, I'll leave the free cash flow drop through to PC, but let me take the service revenue question. I see the Swedish growth as structural. Yes, there is a bit of rolling benefits. But for the group, it's not a -- it's developing positively, but it's around SEK 100 million for the whole group in the quarter with about 3/4 of that flowing through to EBITDA. But we're still only around 2/3 of the roaming revenues that we had in 2019, and we're seeing really solid development there. So the rolling piece is structural. There were no other COVID outlines in Sweden in Q1 last year. And I think based on the underlying movements that we're making on pricing, on bundling on a broader range of services in the enterprise segment, we remain confident in the low single-digit revenue development for our core telco business. And of course, we did play a big role in that going forward. In terms of what we've seen on pricing moves by competition, as I just mentioned to Peter, it's great to see that one of our competitors has also recognized the value of what we call 5G plus that we launched in the summer with only 18% pulp coverage that -- there's not a lot of subscribers on that tariff yet. But clearly, that's going to be an opportunity for us to continue to market going forward. So we promised that Sweden has returned to positive top line and bottom line momentum going forward. It pivoted there in Q4, and it's going to stay there going forward. In terms of Finland, yes, you're right, we're stabilized, but clearly relative to Elisa, we're still losing share. And it's our ambition that we grow in line with the market in Finland going forward. And what are we doing? Certainly, if you look at what has driven the positive momentum in the quarter, yes, it was nowhere near competition, but let's remember where we're starting from. We're now at 70% network coverage. We're winning network awards to tell everyone in the quarter. So that's re-establishing Telia the quality provider of 4G and 5G services and we are relaunching the brand on the back of that combined with driving content with access. We're also doing a lot of work on customer value management. We really upweighted cross-selling of Seymour of fixed wireless access. And as I said there with Peter we have more than doubled our 5G subscriber base that still comes with over EUR3 ARPU uplift versus 4G during the quarter and we're starting to see churn reduce as well. We have also kind of a bit some more value-related focused. We're seeing our mobile handset ARPU on average increased 2% year-on-year and we're doing a lot of work on channel optimization, shift to digital across transformation. So still very much on track for the second half turnaround that we're promised after. And ultimately, we will -- Finland to grow in line with the market going forward. And then in terms of strong free cash flow...

[Per Morland, executive]

Can you repeat your question on the cash flow?

[Andrew Lee, analyst]

I don't want to take too short, I was just mentioning that there's an investor focus on that, but given I had 2 questions on revenues I don't want to be crazy just get drop through to free cash flow and obviously working cash flow is a big moving part that confuses a lot of investors yes, that was just the point.

[Allison Kirkby, executive]

No, I can give a quick comment on it, right? So we're coming from a phase where we have gradually increased our investments as I showed on sort of cash CapEx development. And then we have been carrying both in 2020 and 2021 a significant contribution from working capital, around SEK 3 billion for each of the years. And that is something that we have enjoyed, but we have been very clear that, that will come down and that's also what we see. Keep in mind that working capital is still positive, it is less than before. And so from a structural cash flow that we are mostly focused on, we are very much where we expected and wanted to be. And now with increased momentum on the EBITDA generation once we have annualized the year-over-year, let's say, content costs on Champions League and with the momentum we have on the telco side on EBITDA, you will start to see the floater into improved structural cash generation going forward. And then, of course, also when we have some of the investment base behind us, that will also help us in the longer run on the cash flow generation.

[Operator]

Your next question from Maurice Patrick.

[Maurice Patrick, analyst]

I just got one question, please. On the TV media side, I mean you made a point around the OpEx being elevated due to the Champions League cost, will that likely to moderate over the year? Can you talk a bit about the revenue phasing, I mean, is that likely to follow a similar trajectory? Or should we expect sort of the strong revenues you've seen in this period continue throughout the rest of the year as well?

[Allison Kirkby, executive]

Good morning, Maurice or Morris. Yes, so if you look at how Champions League in particular gets charged through the P&L, you have the majority of matches in the Q4 and Q1 quarter with slightly less matches in the Q2 and the Q3 quarters. So the absolute amount that will go through our P&L in Q2 and Q3 for Champions League will be lower than what you saw in Q1 and we annualize in Q3. So it is in our base by Q3 and that's why we remain super confident on real second half flow-through to EBITDA development across the whole group. In terms of revenue and we're not committing to any new major sports rights at the moment that would distort that in any way. In terms of revenue phasing, I think we are as I said seeing really great development in our advertising business, with just shy of double-digit growth there. And I think by Q2, we've kind of annualize the COVID impact, so it might come down a bit, but based on the growth we're seeing in digital advertising, I continue to be very upbeat about that overall advertising business. On Pay TV, I think looking forward, certainly, as Champions League falls off a bit over the summer that's why we're putting in some new content and entertainment investment over the summer to offset perhaps some of the revenue trends that we might see in -- when we don't have Champions during the summer months. But overall, revenue phasing positive on advertising, pay TV might stabilize over the summer, but overall on track for the guidance that we gave for the year.

[Operator]

Your next question from Andre [ Kebasik ].

[Unknown Analyst]

Congratulations on the strong live. Two questions from me, please. One on the OpEx delivery. So you gave the guidance of SEK 2 billion before this macro situation, you're highlighting in the presentation that of the 0.7% growth that you delivered so far about 2.2% has been already done by higher energy costs. I'm just curious in terms of that SEK 2 billion that you're going to deliver by the end of 2023. You clearly need to draw a point on the other areas. So how confident you are that you can still deliver this SEK 2 billion evenness inflationary environment? That's one question, please. And then the second one, in terms of TV, so your competitor, I guess, signed this deal with [indiscernible]. And so I was curious if you have any comments or initial assessment in terms of how that may impact your own TV outlook there negatively I guess of those reasons or perhaps even positively with pricing, though, I guess increasing quite substantially across the large part of the market.

[Allison Kirkby, executive]

Okay, I think you want to start with the OpEx question and then I'll take the next question.

[Per Morland, executive]

Yes, I can do that. So of course, as I said also in my presentation, we have experienced some additional headwinds that we didn't expect when we announce the transformation agenda and the SEK 2 billion target. Of course, what we're also working on is this is sort of a stronger portfolio of cost initiative and transformation initiatives to make sure that we actually can deliver on the SEK 2 billion. So one of the things that we are doing now and we have been doing for some time is to sort of further strengthening our portfolio of initiatives. And I think we as I said, we are actually very happy with the progress that we see so far that we are able from a structural perspective already now to take a quite significant amount of cost that is actually offsetting very well the inflationary pressure that we see. Having said that, of course, this is a very volatile situation right now. So we don't know exactly how some of these elements will play out over the next few quarters. But in general, we are pretty confident on our development in 2022 where we see kind of a limited exposure from inflation across the board with one exception being the energy cost development. But as we said in Q4 is that we expect energy cost to be SEK 100 million to SEK 200 million higher this year. With recent development, I would say that we are probably more on the higher end of that. So that means that we need to offset an additional SEK 200 million this year. And then it depends on how it develops going forward into 2023. The -- but keep in mind here that over the SEK 1.2 billion we have energy costs, it's only SEK 300 million this year and slightly higher next year, actually directly exposed to the spot rate. The rest is either already hedged or is energy costs related to grid and taxes. And then on the salary inflation, what we see for this year, we expect around SEK 400 million on salary inflation. That is pretty much in line with where we are. As of now, we don't see a big exposure for that for 2022, but of course, we have to monitor how the whole inflationary environment continue into '23 and there might be some effects of that. Just to give you some flavors on it. And so I mean in the totality, we are still well on track towards the 2, but we are working hard to make sure that we can assess the inflationary pressure that we are seeing and we are now preparing to operate in a more predictable environment with higher sort of inflationary rate, with higher interest and higher salary inflation.

[Allison Kirkby, executive]

So connected to the SEK 2 billion, yes and then on the question on [ Nan ], I think it's positive our main competitor now is pursuing an aggregated strategy like the one we've already been pursuing. And I think it's also positive that bio play are increasingly striking partnerships with distributors and not going direct. So I think the overall aggregated strategy that we've chosen is going to be a positive in this environment, as consumers start to look at what are all the additional subscription that they have chosen to buy outside of our core telco and TV bundle subscription. And I think we are in a strong position therefore to be able to offer our customers everything they might want to choose, to view and offer in a great value for money way, thanks to the bundles that we can provide them that they can get the same value for money if they go and buy all the subscriptions individually. Does that answer your question, Andrew?

[Unknown Analyst]

That's plenty about.

[Operator]

Your next question from Nick Lyall.

[Nick Lyall, analyst]

Couple of questions, Allison, please. One on Finland and one on Norway, if that's okay. Just coming back to Andrew's point on Finland, you're a long way short of leases performance at the moment. And just could you -- I think you mentioned a B2B contract again that you mentioned a couple of quarters ago was hitting this quarter. Could you talk about what the trends look like ex that? And just how sustainable are they? Because even with that B2B removed, it looks as if you have flat ARPU, which is a bit concerning given the 5G mix coming through and everything else will still put you way short. So could you maybe describe what the underlying trends will be like? And secondly, on Norway, just a quick one. Do you have any idea of what the overlap with Mobile in Norway and the Altibox regions and broadband customers are, please?

[Allison Kirkby, executive]

Okay. I'll give the Norwegian question, although I'm quite sure we know the impact overlap, but let's see if we can answer the Norway question separately. On Finland, yes, you're right, we are still a long way of the lease performance. I look at that just an opportunity. The big enterprise drag on ARPU is when we secure a contract with the government procurement agency, which came in with very low 4G mobile ARPU. And that will be a headwind during the course of this year. If you put that aside, underlying revenues, ARPU development is positive with what I said, the mobile ARPU development in consumer actually up 2% year-on-year and that's very much driven by the removal of some of our discounts. And as I said, the improved number of 5G subscribers that we now have in our base. So a long way to go that we are heading in the right direction, but the enterprise piece will still be a bit of a headwind this year. And on Norway, your question was about overlap of ICE and Altibox in our base, was that the question?

[Nick Lyall, analyst]

Well, more so you can see what I'm thinking, I'm thinking if lease and license getting together then, what's the risk to your Telia mobile base who maybe your Altibox customers at the moment and all of a sudden and off a dice product? So what percentage of the Telia mobile base do you think are Altibox broadband customers at the moment?

[Per Morland, executive]

Yes, so I don't think we will disclose the kind of the exact percentage. But of course, given our total size in the Norwegian market, you can look at the sort of the total population and looking at our mobile base versus the fixed base that they have. So of course, there is an overlap. I think it's important to remember that the way we see this development in Norwegian market is actually also positive from the sense that it takes out quite a lot of potential risk of having, let's say, new players entering, creating a more disrupted Norwegian market. What we see now is that we have 3 very kind of solid, long-term industrial owners, all we kind of converse position and all interested in maintaining and developing the Norwegian market in a good way. So I think that is one starting point. Then, of course, also we will then have a competitor with sort of -- which is long term and which has a strong financial position that we need to compete head-to-head with. But I think what we see is that with the development that we have had in Norway after we integrate the guest and the TUC business into Telia is that we are in a very good situation to compete against any competitors against Telenor and I guess combined result. So -- but then, of course, our team -- commercial teams are now looking at concretely what do we do on ground to make sure that we continue to develop how it has been over the last sort of 2 years.

[Operator]

Next question from Stefan Gauffin.

[Stefan Gauffin, analyst]

Yes. Most of my questions have been answered, but perhaps dig in a little bit on the pay TV side, where, I mean, you have invested massively in the Champions League rights and despite that, you show a negative subscriber intake this quarter and flat pay TV revenues. Have you had a wrong focus on this business and perhaps thought that Champions League rights would automatically give you other subscribers? Or how should we look upon that? Secondly, you mentioned something around that is a positive that meant move in the direction of also distributing the content to Tele2, do you see an opportunity to also enter that kind of agreement with [ NENT ].

[Allison Kirkby, executive]

Thank you. On that second question, we already have an existing agreement with NENT and but it's a key, it's a part of our overall aggregator strategy. So that's why I view it positive that basically our key competitor is following what we already have with NENT. So that is only positive in the future, but everybody sees the future of aggregation. And it seems to be that the Tele2 move is just about improving the content offer that they have to their existing customers. So rather than it being a real push into our customer base. On the Pay TV side, yes, we invested massively behind Champions League. But I think you've got to look at all the different aspects of what's going on in the TV media arena at the moment. Very strong advertising, development, an increasingly strong abled business. It's a third of our advertising growth this quarter. So that's developing more positively than we expected. What is also developing very positively is our aggregator position, 15% TV growth in Sweden, part of that is Champions League. And that is fueling improved convergence, content with access propositions in Sweden and Finland. And then yes, pay TV, if you just look at it as a stand-alone entity looks though it has negative subs quarter-on-quarter. There is some seasonality going on there. We also lost the Formula 1 rights in Finland. January is always a slow month for Champions League. And we -- a particular muted development and actually negative development in the movies and series side of the Pay TV business. For the sports side in Sweden is fine and the Finland side, it's because of the Formula 1 rise moving to another distributor during the quarter. But overall, I prefer to look at total TV media and doing better than expected, sports doing kind of in line with expected movies and series a little bit muted and let's see how things develop over the coming months.

[Operator]

Next question from Ulrich Rathe.

[Ulrich Rathe, analyst]

Okay. Thanks very much and maybe 2 questions. One on the cost measures where you talked about accelerating and efforts to make sure the EUR 2 billion target can be delivered. And how should we think about this? Is this essential that you're seeing energy cost prices going up, so you're addressing the energy cost, the energy consumption more heavily? And similar with headcount, with wage inflation increases, you're addressing resourcing? Or is it simply that you're widening the pool overall and just pushing a little bit harder across the piece, if you see what I mean. And in particular, could you give any color where you're finding incremental opportunities to cost covering that you hadn't seen before? The second question is Allison, we had in prior calls really over the years not now, comments from you about potential deal-making opportunities. Now you have these 2 great tower deal, but how high up is this on your priority right now, further deal making on the control about Denmark and Sweden, consolidation, the infrastructure was under debate at some point. I'm not asking for specific comments on this, but in terms of the overall picture, how much time you spend on potential deal making at this point.

[Allison Kirkby, executive]

Okay. I'll take the deal making and then Per you can do the OpEx one then. I'm of course not going to disclose what percentage of my time I spend on deal making. But clearly, there are parts of our business where there is structural inorganic opportunity to go after. We've been quite vocal that we are keen to expand our tower business to route and beyond the Nordic footprint. They are not as ready to go as we were with Sweden asset announcing Norway and Finland. But that remains a priority for us because we are absolutely delighted by the partnership that we've now struck with Brookfield, Alecta. And we know that they are keen to expand our tower footprint, so that we continue to be the leading tower company in the region and there's definitely more opportunity to go after there. Also I do believe that they've been quite vocal about that there will be consolidation opportunities in Denmark in the years to come. Our priority at the moment is to prepare to take advantage of that in the best possible way, a turnaround of the business is the most important thing that we can do first and foremost and that's we're focused on. And then we'll just see for whatever movements happen in the market going forward for us to take advantage. And then finally I think there will be consolidation opportunities in TV media going forward there as well, particularly as a result of what you're seeing and the streaming side of the business. And I believe in scale and I believe in finding consolidation opportunities that create value for our shareholders. So it's still there as a priority, but first and foremost, I'm focused on the structural, sustainable turnaround of our global business only and on that, why don't you talk about OpEx?

[Per Morland, executive]

Yes, happy to. So first of all, when we announced the SEK 2 billion target by '23, our internal, let's say, plan and initiatives was, of course, greater than that. So we have some headroom built into the plan. So that's one dimension. The levers that we talk about and what we're pushing out are the same. So it's not like we're now going into new areas. So looking at resource cost, we're looking at process improvement, process automation, legacy dismantling, product and system modernization. We're looking at a big one and how do we digitalize our customer interactions. And what we see is that we are able to have a very good traction on this. And then we are actually as of now ahead of our plan in terms of taking our costs and that gives us some more comfort. So what we're also doing then is, of course, challenging our self on how can we strong close on these savings even earlier. The same thing as we're doing on pricing and we see inflationary pressure on the commercial side, we step it up a bit and that's also what we're doing on the resource cost side. Then on the sales and marketing, it is the same lever that we have talked about before. It is reducing dependency on expensive third-party channels. It is to increase the share digital interaction and it is to consolidate the media spend and move towards more targeted customer communication. So it's nothing new, but we are scrutinizing and putting harder and then moving initiatives earlier than what we had originally. And then on the IT side, it's probably where we continue on our agenda. We have been very successful year-to-date taking out IT costs on the back of system and vendor consolidation. So there, if we are more or less following the plan now going forward because some of the more fundamental structural savings will take time before the year and we really need to fix the underlying root causes. Then specifically on energy, right? So we're also mitigating the energy cost where we cannot limit on how much we can do. But what is -- and also I have talked about before, what we're doing. One is, of course, on pricing, making sure that we have a good hedging policy and we are considering PPAs when it makes sense. We are now moving earlier some of the software upgrades on our run to reduce the consumption and we see some good development that in Finland and also coming to other parts of our footprint, which is sort of dampening the total energy cost increase. And then we are also now pushing and moving little bit forward, the upgrade on the factory side, the shutdown on our legacy, a lot driven by copper in Sweden, which is very good, let's say, effects on energy consumption. So both the software and the hardware upgrade. And that is also -- even it doesn't really solve the challenge short-term, we are also now moving into more advanced and more kind of reinventing energy discussions. And I think we announced last quarter the pilot that we're doing with Polarion, where we're looking at how we can utilize when there is low consumption of energy, there is and to store the energy on our batteries and then utilize it from the batteries when the load is higher on the grid and the cost is high. And then the next and we actually have now our first live site and we are looking at how we can scale that. And then the next step is actually also to see how we can then contribute energy back to the grid when that makes sense. So of course, it's early days, but it's very interesting both from a cost perspective, but it also very much important on sustainability agenda. So that lead some flavors on where we are on our SEK 2 billion cover story.

[Erik Strandin Pers, executive]

Thanks, Per. I think we are getting close to the full time, but we have 3 or 4 more callers, so let's try to do 2 more before we round up, please. Operator?

[Operator]

Yes, next question from [ Baidu ].

[Unknown Analyst]

Two very quick ones in that case. First one, maybe a little bit of a follow-up on the competitive adjacent fleet given that one of your competitors like higher intensity in Q1. But on the other side, I think we have well discussed that you managed quite well on adding postpaid subscribers, growing ARPU. So just maybe what your impression has been over the first quarter and also importantly for the first month in Q2? And then a second question quickly on the Swedish Tower deal that has now been cleared by the EC. Is there any particular reason that drove your decision to do drive and do a share buyback compared to special dividends and to return the tower proceeds? And for the previous year in Norway and Finland, now 4 months after closing, can you share any additional feedback from the partnership with investors?

[Allison Kirkby, executive]

Okay. I'll try to be quick. So competitive situation in Sweden, as I said, our recent investor conference is like Whac-a-mole. It's a different role every quarter you've got to whack. And there has been one competitor that has heightened its third-party commissions during the quarter. It was a different competitor in Q4, but it was a different competitor in Q1, which is quite normal. And we've just got to rise above that being the most highest quality, most structured secure communication provider and investing back for our customers, so that they feel is what they are getting good value for money. And I don't think anything has really changed in April versus Q1 in terms of that. But that being said, we are continuing to grow despite that environment both stable customer base and positive ARPU development. Swedish tower deal, why via share buyback as well as a shareholder, I'm delighted the Board have chosen a share buyback. Clearly, both buybacks and dividends can create value for shareholders. But we believe buybacks on top of our strongly committed ordinary dividend just build -- shows the confidence that the Board has in our plans and the long-term value creation available in our business. And therefore we view as a very confident -- positive confidence both in our plans. And it's also a very smart way for us to remove the dilution effect from the minority stake that we sold in our towers. So from a shareholder value point of view, we believe, very positive. And then so far on the partnership with Brookfield and Alecta very early days. but they are actually bringing -- we have talked a lot about energy at the moment. They bring a lot of real practical experience as how to conserve energy in towers companies going forward. So that's a one real practical example. I'm really delighted so far at how the partnership is developing so far.

[Operator]

Another question from Keval Khiroya.

[Keval Khiroya, analyst]

I've got 2, please. So firstly, you talked about some of the multiple benefits in content that -- can you talk a bit more about just how you measure those benefits versus the cost that's gone into I guess what I'm really trying to work out is whether you think you're covering the cost of Champions League when you take into account the benefit across some of the different parts of the business? And the second question is really about leverage. Obviously, you will be returning the proceeds from the latest tower transaction. But your leverage is still arguably quite low if the business is now improving. What would it take for you to take a more optimistic view on the leverage that could be sustained?

[Allison Kirkby, executive]

Okay. On the content, we invested in content to drive our core business to drive conversion. So the way we look at the investment is, are we getting a return on investment in the combined standalone Pay TV business and in how it is driving convergence of our access business in the core Telia telco business as well. So we both look at both aspects. And then we also look at a third aspect as to what leverage does that give us in our overall free-to-air advertising business as well when we are doing other content deals and when we are trying to shift customers onto digital platforms as well. But we look at it in multiple ways, but so far, I'd say very positive development on our IPTV business, in our content with access business and not yet washing face on the Pay TV business, which we will continue to monitor over the coming months. And as I've always said, full year of Champions League behind this kettle idea of what we want to do going forward.

[Per Morland, executive]

Yes and then on the leverage side, I think we are very happy with our current leverage ratio of 2.0x, 2.5x and we want to stay well within that range. And I think that's -- we don't have any plans to do any changes on that.

[Erik Strandin Pers, executive]

Okay, do you have a follow-up? No, okay, then, thank you very much. Some great questions. I know there are a couple of more questions online, but we have to round off the call. So very happy to accommodate those off-line. Please give us a call. Thanks for listening in everyone and looking forward to speak to you again in 3 months.

[Operator]

That does conclude our conference for today. Thank you for participating. You may all disconnect.