Telia Company AB

STO:TELIA

Earnings Call Transcript 2019-Q4

[Andreas Joelsson, Head of Investor Relations]

Good morning, everyone. Happy to see so many of you here in this final episode of the 2019 Telia Company season. We will do the same as we always do, but I think we have a few items, saying that we leave this season with a bang. We will have our President and CEO, Christian Luiga presenting as well as our CFO, Douglas Lubbe. And before I run out of TV references, Christian, please take the stand -- or the call.

[Christian Luiga, Acting President & CEO]

Thank you, Andreas. Thank you, everyone, for coming here today, and thank you for being online watching this. This is our quarter 4 earnings call, and I'll try to walk you through briefly some slides on where we are, and then Douglas will take on some of the financials, and then we'll open up for Q&A. Overall, we had a commitment to the market and to ourselves, of course, to deliver a cash flow on SEK 12 billion to SEK 12.5 billion, and we reached SEK 12.6 billion this year in '19. We said in the beginning of the year that the profitability would start to grow and -- more and more during the year, and we will be in positive territory in the second half, and that is what we have delivered on. That is a journey that has been fueled by improved service revenue position, still negative. And the cost activities that we worked with in the group. And the cost journey is a journey that is not something for 2019. It's a never-ending story, I was going to say, but it is a thing we have said the next 3 years, '19, '20 and '21, we should be able to take down OpEx with net 2%. And that is something we did this year. And in the second half, we also saw Sweden coming through quite strong. And there, we had a target of 3% for this year, and it came in at 4%. There is some one-time pension effects in that. And without that, it was still around 3% according to their target. So that's how we end 2019, delivering on our commitment, showing the stability in that we know what we're doing. And we also then present a report that is in line with we said in the spring, how the trends would look like. And we'll come back on the service revenue and other elements. And the service revenue is extremely important for operators. And I can't talk enough about how the industry needs to figure out how we give better service and better offerings and better solutions to our customers and in that way, grow our revenue. And we can't have a price we're working off stealing each other's customer with a worse service because we earn less money and have less money to actually develop new things with. And as a market leader, we have that obligation. And in the Nordics and Baltics, we have worked on the converged offering, the pricing -- taking the pricing position and try to bring more convergence to our customers without discounts. And that has been a good journey this year, where we have then seen, if we look at the yellow line on this slide, the effect on service revenue, excluding carrier -- worldwide carrier business and except for the onetime charges on fiber, it is a slow pace upwards, but still negative. That, together with the cost journey then has led to that -- the EBITDA has increased in the third and fourth quarter, and the fourth quarter even without onetime effects that we all know we have, both last year and this year, is still around 2% and an increase from the quarter 3 development. So that's a work that has been done on OpEx and cost, and I will come back to that in a short while. But before we get there, on the acquisition of TV4, C More and MTV that we have done. We have strengthened our position in the Nordics, but primarily in Sweden and Finland. We have talked previously about a combination that should create SEK 600 million in synergies, primarily on revenue, a journey that we are starting now over the years to come after 2022. The first step of that is easily to bring C More and TV4 to more viewers, which is very important for us. And with the B2C experience and platform that we have in Telia, we can help C More and TV4 to reach more people. The other thing we have said and that we keep is a operational free cash flow of SEK 500 million for 2020, which is important for all of you to understand when you do the math of how we're going to take Telia further in the cash flow journey. We were tested as a company, Telia, how it is to own a media company already in December. We have been part of that before, but as a distributor, where we have had black screens, and we have been fighting with TV companies, but now we ended up on the other side, being an owner of TV4 and C More, where C More and where the Com Hem business actually decided to shut off the TV for its viewers for a while even though we offered the TV for free. And that is a journey that we are on in the past from a commercial discussion, but in the future, from a value chain discussion. So we have said and we all see that the value chain of TV media will change over the coming years. We don't know how fast. So traditional TV will be replaced by another way of viewing, new technologies and another way how content providers work with their IP rights. This is a fact. There's nothing that will change that. It's how we adapt to that and how we work with that. We are convinced, determined that we will make sure that TV4 and C More [Audio Gap] there, now coming back -- is actually, can be viewed by everyone. The more views we can get, the better it will be for consumer and for Telia shareholders. So there's no other view, from Telia's point of view, to make it available to as many as possible. But with the freedom of the viewer not locking in TV4 with anyone. No one wants Netflix to be locked in, no one wants SVT to be locked in and no one wants TV4 to be locked in on something you can't decide how you want to view it in the future. And that is what the value chain will work out over the next 4 to 5 years. And we decided early, do you want to participate in this journey on the inside? Or you will be on the outside? And we have a lot of TV customers today that see the combination of Internet and TV as something good and something simple, but you need to keep the freedom for the customer and create an easier way for the customer to view TV over time. And we decided to be on the inside of this journey, and we will, therefore, work hard to support TV4 to be available to as many as possible. So how did this business do last year? Well, it has been a peak year for TV4 and C More, MTV. So that combination had a good trend, a good performance. The EBITDA increased from SEK 1.2 billion to SEK 1.5 billion. The cash flow for this unit is just north of SEK 500 million, which we have guided for, for next year, and I'll come back to why we guide them a little bit down on that. The performance on advertising, the performance on C More has been strong. C More viewers have increased 30%, these are the direct viewers, and now we're going to take on that and increase that speed. Still, looking at now the trends, we see an increased pace of downturn in the viewers in the PUT, and we also have a hit from the war with Com Hem on our advertising and our income. So with those in place, we feel that it will be hard to get back to the numbers of 2019 in 2020. That, together with the integration costs, somewhat compensated by synergies, will put us on the SEK 500 million mark for the cash flow for next year. Mobile Sweden. Mobile, in general, and mobile in Sweden is very important for understanding the health of Telia. We have taken the market-leading position, as we should in Sweden, increased pricing, but also been very successful in an area where it's core for us. Our heart is to be strong in the family segment. And we have, during this year, increased pricing and strengthened our family proposition and that have supported the growth in the ARPU. We know we have a migration still ongoing of customers into the new price plan, and we are 60% through that. So we will still have some positive momentum from that. And overall, the growth is 2% in the quarter, which is good, strong, but we will have to continue, of course, to be creative in finding ways to meet the customer next year to sustain this development. And I think we have a good path on this journey internally with creating new good things. The development is hampered a little bit by the IDD that will be there until the mid of quarter 2.On B2B. We have said for a long time that every year we want to be a little bit better than the year before. This is a area that is very impacted -- very much impacted by the legacy. Decline has been a price pressure in the mobile side. And it is a trick to figure out how to combine the new services that we have at hand and include that in our converged offering. We do that very well now. We have an increase of 20% in our IoT. SEK 1 billion business around now and it's increasing. In Finland, we are successfully handling the ICT journey into the offerings to our customers. And the trend this year then is that we are better than last year. It's going to be a tough year for 2020 in the sense that it's going to be hard to beat the 1.2% on average, I think, but I think we should have a better profile of the curve on a quarterly basis. So we are on the right track with still some challenges. And I look forward to show more good deals that we have also done in the last quarter. Cost, 2% down, should continue for the next 2 years to be around 2% down. What kind of activities are we doing? We have talked about the new operating model, very important. It's not the model, per se, but the activities that is part of that model change. We have now combined the IT and network units, but also a lot of the product areas from the countries into one common platform, where the IT people are now working together towards the countries and not just in a silo in each country. That means the simple case is, why have 6 teams working on the maintenance of an SMS product in 6 countries and not have one team helping all of them? And that, you can then excel into all the areas where we have IT support and IT development in our product development. And that means that we have moved 1,700 people from the countries into the common area, and we are now 3,300 together. We will get pooling effects. We don't need to be as many consultants or employees or suppliers into this to do what we're doing today. And we will be able to also find better ways to fast to get the products out to markets we haven't had -- we haven't afforded before. We have some good examples of that recently where we brought SD-WAN out to Norway, just actually last week and did the first customer offering, but on the Finnish platform. We also will continue to take out the synergies that we have planned for. In Norway, we are in the run rate of NOK 220 million at the end of the year, and we have said it should increase to NOK 350 million by 2022. And finally, we are also moving our resources to fit better to the cost that we need. So not taking out people from Telia, by using more the teams in Lithuania and then partly Estonia over time, to actually do the same thing at a lower cost with our own employees. We have, based on this cash flow, an increase in dividend of 3.8% as a proposal to our shareholders, and that is then SEK 2.45 per share. It will be paid out then in 2 slots, as we've done before. This is based on the 80% of free cash flow. As I said, we had SEK 12.6 billion. And on top of that, we have SEK 12.6 billion in free cash flow and then we have SEK 0.4 billion from associates dividend. That is a number of then -- that is higher than the SEK 12.5 billion that I show on the screen, but we also had a onetime effect from pension in quarter 4 that we don't think should be calculated into the norm of the cash flow. So based on SEK 12.5 billion, 80% we will pay out SEK 2.45, which is an increase of 3.8%. A little bit going back to where I started. We said in the beginning of the year at the CMD, we gave some messages. I will just stay on 3 of these. We said that we were going to continue to take down CapEx into 2020, maybe at a slower pace, based on the fiber rollout going down. Two things have happened. First of all, we actually do have a quite substantial fiber rollout for next year as well, not bigger or increased, but we are trying to take now all the remaining households we have and complete that in 2020. In addition to that, we have acquired, of course, GET/TDC over a year ago, and they also have requirements. And together, we -- that will be not decreasing as we expected. We have customer-driven demands coming in. A very typical example is maybe you have seen, we did the mining network for Lundin mining, and when we do that, we actually take the CapEx and then it's a service over 3 to 5 years, and then we earn money on that, and they get a better service, but that becomes CapEx. And the large -- in the B2B area, that increases also in our portfolio. And then we have a mobile network in Finland that we feel is the only network where we really need to step up and become better. And that is something ongoing right now at full speed. On top of that, the cost ambition has not changed. I want to just reemphasize that, and we said that we will have a 2% -- around 2% over the next 2 years as well, and that is something we continue to believe is both important and possible. And finally, the fight for growth where everything starts: the customer pays our dividend and they pay our salaries. So it's extremely important that we drive that forward. And here, we had a slow start. We have now come up to speed. And I think that we are going to further enhance our skills in the converged offering and making sure that we can do better. We can do better in all markets. And in some markets, we can be even faster than we are today. So that's the change of that. The world environment is important for all of us. I hope most -- all people in here realize that. It's a fact. We will have to change how we live and work and behave in the future, all of us, if we're going to survive or our kids are going to survive and our grandkids are going to survive. And for this purpose and for the purpose that our customer also would like to see us participate and our employees want to see us participate, we have set the targets for ourselves to push us to be part of a leader in this area. A very important cause, where we have said that in 2030, we should be neutral on CO2, and we should have zero waste in -- within our firm. And that means the whole value chain. And therefore, we have also told our suppliers that they need to be part of this journey. We have now declared also the 2022 targets. They will be available on the web. And they will be also available in our annual report, and we will talk a lot about this. But that includes, for example, a 100% neutral electricity use in 2022, where we, in 2018, was at 93%. I haven't gotten the number yet for 2019, but it is an improvement, and we'll take step by step. Another one is now not to just tell our suppliers that they need to participate in the journey, now they're also going to have to declare by 2022 and start to show us how their plans are. And if they don't do it in time, we need to, in time, take the chance to shift to another supplier because we want to be with suppliers that have the same intention, and we work together to find this path over time. And finally, we will include this in our incentives, both on individual level and on group level, and that's going to be important for showing to all of us that this is important. Finally, the outlook for 2020, Douglas will come back to it, the cash flow SEK 10.5 billion to SEK 11.5 billion below this year's, still above the dividend payout amount. The EBITDA is now back on the screen, we didn't guide on it last year, between 2.5% to 5% increase in 2020 compared to 2019. With that, I leave to you, Douglas. I know I see -- I was a little bit long this morning, but -- maybe less questions later on then.

[Douglas Gordon Lubbe, Acting Chief Financial Officer]

Good. Thank you, Christian, and good morning, everyone. It's my pleasure and privilege to present these Q4 results on behalf of the company and the great team that helped us to deliver these. If I go directly into the presentation. As we said, we do see a decline in service revenue. When one looks into some of the specific consequences of this, it is from Sweden, where we see a continued decline in PSTN of around SEK 65 million. It is somewhat softened by the price increases that we've executed on during the course of the year, but it is still a drag. On the OTC side, we lost about SEK 160 million and again, this is no different to preceding quarters, where we see a drag from OTC on our revenues and consequentially, the profitability. In Finland, we continue to see pressure from PSTN, where we've shut down the fixed voice services, and we expect that to continue into Q1 of this year. We also have the impact of declining interconnect as a consequence of the price regulation in that country. Finland, continued decline in the B2C mobile customer base and that has resulted in some of the service revenue decline. We then shift our focus into EBITDA. Strong quarter from EBITDA in terms of cost and the reduction of OpEx, albeit with some one-off effects that we'll talk a little bit more about. Norway is impacted by some one-off items. And we did flag in Q3 that there were some positive effects in Norway and that we did expect a reversal of the trend in Q4, and this is what materialized in Q4. And then in Finland, as a consequence of a change in the revenue mix and an unfortunate inability to execute on more efficiencies, and that's an area that we'd like them to focus on more, we haven't been able to compensate for the service revenue decline. But a reported 4% increase in EBITDA, which normalized for certain one-offs, is around 2%. If I then shift your focus to Sweden, and we spoke a little bit about the B2C and the mobile side. But if you strip out the OTC revenues, then B2C would be growing by 1.3%. We're exceptionally pleased about this because, as Christian mentioned, this is a consequence of the commercial activities that we've undertaken as well as the price increases across various product portfolios that have been done during the course of the year. In terms of B2B, a 2.1% decline. And here, I'd like to remind you that in Q2 and in Q3, we did mention that the decline was softened by certain one-off impacts and that those were anomalies and that we did expect them to not continue. And therefore, we see the 2.1% as more of a normal trend. And the continued deterioration is as a consequence of mobile revenues in that segment, where we have fierce price competition. Turning to EBITDA, and I think we are exceptionally proud of the performance that the Swedish business has delivered in Q4, with a reported 9% growth in EBITDA. We know that there are some softer comparables in terms of the bad debt that we had last year. And then we also benefit from the pension refund, which gives us SEK 100 million lower personnel costs. But despite that, the team still managed to reduce costs. And if you look at EBITDA, excluding those one-off items, we still grow at 3%, something that we're really pleased about. We shift our focus to Finland. As mentioned, PSTN and interconnect continued to drag on the service revenues where we see a 1.4% decline. On the fixed side, on the B2B side, we actually see pleasing development in terms of the ICT and IoT revenue streams under the Telia One portfolio. But these do come at a completely different contribution margin that does put pressure on the EBITDA. I'd also like to remind you that the decision to shut down the PSTN voice hasn’t come with a cost reduction and therefore, has quite a heavy drag on EBITDA. And therefore, given the fact that we haven't been able to compensate that with cost reductions, we see a year-on-year 3% decline in EBITDA. On the subscription side, we do continue to lose on the B2B and the B2C side. And we see a reported 3.4% growth in postpaid ARPU. What I'd like to point out there is that a portion of this ARPU growth does come from pricing and from new product, but we also have the impact of VAS, where we sell low-margin VAS, which also has a different mix in terms of profitability versus the traditional mobile services. In Norway, a 1.8% decline in service revenues. Again, this is mainly attributed to B2C, where we see a decline in the subscriber base. And as I mentioned, we do have some one-offs in the costs for this quarter. If we normalize for that, we would see around a 2% year-on-year growth. On the synergy side, Christian's already mentioned that we have a run rate of NOK 220 million. In the quarter, we realized NOK 55 million in terms of synergies. If we focus on GET, they do show some low stable digit growth. If you look at the service revenue composition, we did mention earlier in the year that we lost one of our distributors that was focused on TV. But we did gain some other distributors that brought in more of a broadband mix and therefore, you can see the change in the mix of the service revenue. On the B2B side, we see that traditional telco services continue to decline, whilst B2B mobile is growing off the back of good execution from Phonero. Now if we shift focus to the Baltics, I think, some really pleasing results from Lithuania, where we see a 9% growth in service revenue, half of which is from low-margin transit, but the other half does come from mobile and fixed services in the B2B -- B2C segment, which we are really pleased about. I think what's more pleasing is that they have managed to convert the service revenue growth into EBITDA development, where we see a 6% year-on-year increase in EBITDA. And this was not just from service revenue, this was also from strong cost control and efficiency measures that were undertaken by the Lithuanian business during the course of the year. Estonia continues their solid trajectory with a 6% year-on-year growth in service revenue. And again, this is across both mobile and fixed service revenues, and we're really pleased with the development. And they have managed to turn this into a stellar 9% growth in EBITDA, despite some inflationary pressures, especially on salaries and the IT sector. Denmark, we continue to struggle. And despite the strong and committed performance from the team to take out costs, they have not been able to mitigate the service revenue decline, and we continue to see trends like we have in the preceding quarters. If I take a moment and just pause on cash flow. Christian did mention that we delivered the SEK 12.6 billion that was bolstered by a SEK 400 million pension fund contribution in Q4. But what I'd also like to remind you is when we reported on Q3, we did indicate that we had some significant positive effects from working capital in Q3 that we did expect to swing the other way in Q4, and this is exactly what materialized. If I look at the components for the full year for 2019, it is quite clear that we have benefited from EBITDA as a consequence of our M&A and as a consequence of a little bit of FX help. Working capital was neutral year-on-year, which means that we've managed to deliver another SEK 2 billion in terms of working capital for the year. And then we were supported by the additional pension fund, resulting in a 16% year-on-year growth in operational free cash flow, ending at SEK 12.6 billion, something that we are exceptionally proud of because this is exactly within the guidance that we provided. Looking at net debt. We did start the quarter at about SEK 75.5 billion in terms of debt. We had 2 significant events during the quarter. The second tranche of the dividend was paid in October and then we also had the payment for Bonnier Broadcasting that was made in December. With the other components that resulted in a net debt of SEK 88.1 billion and a leverage of 2.71. If I give you a pro forma for what we know at this point in time, we know that we have the share buybacks, the final earn-out for Bonnier as well as the final tranche of the Turkcell dividend that would give us a pro forma leverage of 2.76, which is lower than the 2.9 that we had previously indicated. All right. Final slide, just to give you a little bit of flavor on operational free cash flow and my outlook for 2020. So that you just understand how we see the components shifting. So we have indicated that EBITDA would grow between 2% and 5%. We have also indicated in Q3 that we see a need for more CapEx investment in certain areas. And then we see that the components of EBITDA, CapEx and working capital will be neutral in 2020 when you look at them year-on-year. We are then, however, faced with some headwind from some of the other line items. So we do see an increase in paid taxes and an interest of a sum total of around SEK 1 billion. I'd like to highlight on the interest side that we obviously have increased borrowings as a consequence of our acquisitions, which is one explanation, but what we also did in 2019 as we executed on a swap, which gave us a SEK 400 million positive cash flow impact something that we do not see as being able to do in 2020. And then finally, we see less support from the pension fund during 2020. With that, I'd like to thank you and invite Andreas and Christian up to the stage so that we can take your Q&A.

[Andreas Joelsson, Head of Investor Relations]

Thank you, Douglas. Thank you, Christian. Just let me remind you all that limit yourself to 1 question. I think we will do -- if you ask more than 1 question, we will simply save the other questions to later and get back to you. And we don't do this to not answer questions, we do it so as many as possible can be allowed to answer -- or ask questions. So with that, maybe we have some questions on the floor first. Frederik, 1 question.

[Unknown Analyst]

One question. Can we take the last slide and back to the FCF guidance for 2020 then, and maybe elaborate a little bit on the components that are not EBITDA, where you say EBITDA is going to be up in the year and then the taxes is increasing and interest cost is increasing. Could you elaborate a little bit on CapEx and the pension support that you had so far and how you see that developing?

[Christian Luiga, Acting President & CEO]

I take the CapEx, you take the pension?

[Douglas Gordon Lubbe, Acting Chief Financial Officer]

Yes.

[Christian Luiga, Acting President & CEO]

Thank you, Douglas. The CapEx, we've said previously, as I said before, it's going to decrease, it's been decreasing since 2016. Fiber has been part of that. We don't have a CapEx budget internally. We have a CapEx target, and we have a frame. We work with that, but we are not -- we said this already last year. We're not going to guide exactly on CapEx because we get customer-driven CapEx. We get good opportunity to do something that helps us support our journey. But within the frame of making sure that EBITDA, CapEx, working capital holds together, and we can meet our cash flow target, we take that judgment. So what we did say was that CapEx cannot continue to go down, in our view, based on certain drivers upwards. One has been the Finland network that we are underway right now already started at year-end to increase the capacity in. Secondly, customer-driven CapEx is increasing. Fiber is not going down as it did before to compensate for this. And then we have a Norwegian situation, where we -- it's not the 5G, it's more the GET/TDC part where it's also driven by the fiber and the TV boxes, et cetera. So those are the drivers upwards. How it's going to end, we'll see, but it's not going to be a driver downwards that it's been in the past.

[Douglas Gordon Lubbe, Acting Chief Financial Officer]

Yes. And on the pension side, we could expect to continue to be able to cover the cost of the pension during the course of the year, whether we can cover more than that is what we're guiding that we don't see that being likely.

[Andreas Joelsson, Head of Investor Relations]

Thank you, Fredrik. Anyone else on the floor? Yes.

[Jörgen Wetterberg, Senior Analyst of Telecom and IT]

Jörgen Wetterberg from Nordea. So I have a question on the EBITDA growth guidance for 2020. So you're going to grow 2% to 5%. Does that -- is that based on a pro forma baseline, including the Bonnier Broadcasting? Or is that excluding? Because I think you're adding some 4% with the Bonnier Broadcasting if where you do the math right.

[Christian Luiga, Acting President & CEO]

Well, first, the math right on Bonnier is that you need to take down the SEK 1.5 billion. As I said, it's not going to be as high next year as it is this year. We don't guide on individual countries or units. Secondly, it is a quite big range, but it will be positive, and it includes Bonnier acquisition, i.e., it includes TV 4, C More and MTV. So yes, we have growth from that to start with.

[Unknown Executive]

So the base is SEK 31 billion that we reported for 2019, to be clear. Do we have any questions from the conference call?

[Operator]

[Operator Instructions] The first question as from the line of Abhilash Mohapatra.

[Abhilash Mohapatra, Analyst]

It's Abhilash from Berenberg. I just have one on cost cutting, please. So you've obviously seen some good momentum in recent quarters. And you sound very positive about 2020 and '21. Just wondering about phasing though because in the past, it's been pretty lumpy with development of the quarters, do you still expect that to continue over the next 2 years? Or do you think it will be more uniform moving forward?

[Christian Luiga, Acting President & CEO]

Do you want to answer, Douglas? Or you want me to answer?

[Douglas Gordon Lubbe, Acting Chief Financial Officer]

I could answer and then you can fill in if you want to.

[Christian Luiga, Acting President & CEO]

Thank you.

[Douglas Gordon Lubbe, Acting Chief Financial Officer]

I think as with any cost program, it's very difficult to get on a linear basis. We do have phasing effects, and we will execute on certain areas that will result in a rather lumpy profile. But our intention is to stick to the 2% decline for the total group for '20 and '21. So it will have a varying profile. And that's just the nature of cost programs as and when we see and realize that we can execute on the areas that we want to without jeopardizing our customer experience and our commercial agenda.

[Andreas Joelsson, Head of Investor Relations]

Thank you, Abhilash.

[Operator]

Next question is from the line of Andrew Lee.

[Andrew J. Lee, Equity Analyst]

Thanks for the data on the free cash flow component. I just have a question on the underlying competitive environment in Sweden, does this remain broadly rational as we saw in mid-2019? Or have you seen an impact as a result of the Bonnier channel negotiations or freeze promotions? I guess, really the question is, do you see more inflationary trends in 2020? And I -- you mentioned yourselves in the third quarter, you thought you could've taken more price in 2019. Is this still the case? And how you think about 2020?

[Christian Luiga, Acting President & CEO]

I mean we're taking the responsible role as a leader. And unfortunately, not yet. We can't see really in mobile, for example, that the other players are participating in that journey in the way I would like to see. But it's up to them, of course, how they want to come out. But we have increased pricing. We see that the churn from our price increases are in no way, in no products actually, going outside our business case. So we feel that there is a opportunity to improve services and at the same time, increase pricing on something that is so vital as food, water, electricity and others, i.e., Internet in the market.

[Andreas Joelsson, Head of Investor Relations]

Thank you, Andrew.

[Operator]

The next question is from the line Stefan Gauffin.

[Stefan Gauffin, Analyst]

I have a question on Finland, where I think you report a little bit different compared to both the lease and DNA, and you report higher mobile churn and quite substantial net loss of subscribers in the quarter. How would you describe the market and what can we expect going forward from your side to mitigate the subscriber losses?

[Christian Luiga, Acting President & CEO]

I -- thank you. I haven't seen the numbers yet in detail from the others, but I can say that we did see compared to Sweden where we had a quite successful Christmas campaign and Black Friday campaign, we could see in Finland, quite aggressive campaigns from competitors with steep discounts on the offerings for a certain period. And that, of course, have had an effect on our numbers. But I don't know if there's anything else on the...

[Andreas Joelsson, Head of Investor Relations]

I think that is true. And then on the B2B side, we have lost some customers already in Q2, and those are now feeding through into the numbers on the subscriber side.

[Christian Luiga, Acting President & CEO]

That's correct.

[Andreas Joelsson, Head of Investor Relations]

Thank you, Stefan.

[Operator]

All right. The next one, it's from Lena Osterberg.

[Lena Osterberg]

Yes. I have a question on what the actual impact was on Bonnier during December from the dispute. How much did you lose in revenue and EBITDA from advertising? So as I understand it, this is supposed to be a rather strong quarter. So to understand seasonality into 2020, it would be very helpful to know if it hadn't had that impact, where do you think you would would've been?

[Christian Luiga, Acting President & CEO]

So thank you, Lena, for the question. I won't give you a clear answer, unfortunately, and that's for different reasons. But it does have an impact on our income from Com Hem and how much, that's a question between us and them. It also has an impact on the advertising, and that is something that is not 100% clear yet how much. So you do a lot of sales in the beginning of the year, and that has been somewhat weaker, probably also based then on the TV war. And how much we can recover of that and how much of that will remain, we'll see. But as I said before, it did have a negative impact on the business. And we'll come back on how much later on, but we don't declare that specifically now.

[Douglas Gordon Lubbe, Acting Chief Financial Officer]

And remember also that TV and Media is only included for slightly less than a month in the -- in our books. So if you multiply that by 3, you would have roughly a quarter and then also take into account the -- some impact from what happened in December.

[Andreas Joelsson, Head of Investor Relations]

Thank you, Lena.

[Operator]

All right, the next one is from the line of Roman Arbuzov.

[Roman Arbuzov, Analyst]

It's Roman from JPMorgan. It's just a simple one on the cash flow contribution of Bonnier in 2020. Given the results in Q4 and also what we've seen from Bonnier in 2019, it looks like Bonnier will end 2020 comfortably with over SEK 1 billion in EBITDA. And my question is, why is the free cash flow contribution so low at SEK 500 million? Shouldn't it be much, much higher? Any color, much appreciated.

[Christian Luiga, Acting President & CEO]

That we can help you with.

[Douglas Gordon Lubbe, Acting Chief Financial Officer]

Yes. We can help you. Obviously, there's a tax consequence, it's around SEK 200 million. And then we also have CapEx that needs to be deducted from that. And then the working capital. And working capital is one of the areas that we want to focus on with the TV Media unit, as it does have a different profile to our traditional telco business, and that is something that we'll work on. But that basically gets you down to the free cash flow. And it's not that different to what Bonnier will deliver in 2019. But then also in saying, we do have a cash flow impact from the integration.

[Andreas Joelsson, Head of Investor Relations]

Thank you, Roman.

[Operator]

The next one, it's from Keval Khiroya.

[Keval Khiroya, Research Analyst]

This is a question on Norway. Obviously, Norwegian revenues have still been a bit weak, with a 2% decline in Q4. I know some of the postpaid numbers have improved, at least in December. Do you think you've already done what you need to achieve to get the service revenues to go the right way? Should we expect improvements in the first half? Or will this turnaround still take a bit more time?

[Christian Luiga, Acting President & CEO]

Thank you. It's a concern I have -- I share. We have been not strong enough on the B2C in Norway. I think I've said it before. In this context, we are stepping up on the activities in Norway on the -- primarily on the B2B. We can see some results of that. The numbers for December was better than the rest of the quarter, and we'll see if we can hold on to that. I think it can take a little bit longer time than the first half, to be honest. It's a journey that will be a mix of things we can do immediately, but also with some things that we need to do more structurally to secure that it also is sustainable over time. So it's one thing to just go out and try to easily steal some customers, but we need to have a fundamental good portfolio of brands that we work with in the right way between each other. And we do have to have good sustainable converged offerings that is not just for the moment, but it can be held onto to the customers. And we have good work on this right now, but nothing happens overnight, unfortunately.

[Andreas Joelsson, Head of Investor Relations]

Thank you, Keval.

[Operator]

All right. The next one is from the line of Terence Tsui.

[Terence Mun-Sion Tsui]

Can you say a couple of words around your leverage, please, which is probably closer towards 3x if we're including the remaining hybrid bonds. I'm just wondering whether your leverage profile gives you enough flexibility in the next year or 2, given that there's not much cash flow after dividends. What could you do? Or what tools are available if you wanted to de-lever faster?

[Christian Luiga, Acting President & CEO]

You want to answer, Douglas?

[Douglas Gordon Lubbe, Acting Chief Financial Officer]

Yes. So I think we've been clear that we focus on our leverage, and that is something that is important for us. We do consider multiple options that we can look at. What they are, we're not going to disclose at this point in time, but we are comfortable that we do have the ability to bring the leverage down, and that is what we are -- we'll continue to work on.

[Christian Luiga, Acting President & CEO]

And I mean, you included the hybrid, of course, but we are 2 76, and that's what we measure to the rating institutes. And we have a clear dialogue with them, and it's very important for us to be A-, BBB+ company, and we continue to have that target.

[Andreas Joelsson, Head of Investor Relations]

Thank you, Terence. Very good discipline on the questions, I must say that. So let's take the next one, we have around 10 more questions to go.

[Operator]

The next question is from the line of Nick Lyall.

[Nick Lyall, Equity Analyst]

Very similar to Terence's, actually. I mean on the -- on your payout, I think on the guidance, you're now looking at about 90%, 92% payout based on the operating free cash flow guidance. You're gearing is about the top or above the top end of the range. And it also looks like there's quite a lot of tax losses contributing to 2020 cash flow as well, which presumably will fall away. So why shouldn't we be getting a bit more concerned about the dividend here, given the payout is quite large? Or have I missed something in terms of, say, tax loss use that maybe that free cash flow number is a bit more certain and isn't going to fall away after 2020?

[Christian Luiga, Acting President & CEO]

We're not going -- Nick, we're not going to guide you on the dividend for 2021 payout now. But we guide you on that. We're paying out SEK 10 billion now, and we have a target for next year of 10.5% to 11.5%. We'll see where we end up in that range. And dividend has been and will be important for this company. And that's what I say. But we don't maybe share really that we are really on the burning heat stretch on the leverage. It is an important part of our journey, as I said. But we actually came out somewhat better now in quarter 4 than we said before. So things has not gotten worse. It's gotten slightly better in our world.

[Andreas Joelsson, Head of Investor Relations]

And also when you do your math, please add also the dividend from associates to the cash flow that we give an outlook on. So you get your payout ratios correct.

[Nick Lyall, Equity Analyst]

Understood, guys. At the risk of breaking this one question taboo point here. I mean the tax loss point, is that a large contributor, a large benefit for 2020 cash flow numbers as well, still?

[Christian Luiga, Acting President & CEO]

As Douglas said, the tax and interest together is going to be negative around SEK 1 billion on the operational free cash flow, and that's what we guide on, which is a better guidance than last year.

[Andreas Joelsson, Head of Investor Relations]

Thank you, Nick. 2 questions there. I have to do something about that.

[Operator]

All right. The next one is from Henrik Herbst.

[Henrik Herbst, Research Analyst]

Yes. I was wondering if you could give a little bit more color on the launch of fixed broadband on Halebop in Sweden, sort of how big the footprint is and how big you plan for the footprint to be. And I guess because it's in MDUs, so other networks, it's a little bit difficult for the pricing. So if you can give a little bit of sort of color on how cheap it is versus your Telia brand and how you think about using sort of using Halebop going forward?

[Christian Luiga, Acting President & CEO]

Thank you, Henrik. Very important question actually, and I'll leave to you, Andreas, on the pricing difference a little bit. But Halebop is a strong brand, a very good brand and the same with OneCall in Norway, a strong brand that we work with. And what we're doing now is to secure that. One, it's not too close to Telia, of course, but that will drive the customer base in that. And it's been very actually positive in the last quarter taking customers. In the same time, we have just opened up for fiber on the Halebop brand. So those customers that feel that they want to go with such brand on their broadband instead of being on Telia, there is an opportunity for them, which makes it interesting also to see how that customer base will be attractive to something that is really strong from the beginning. So you seeing your strength and momentum is something we like and Halebop is really strong in the Swedish context, and we will use that. The pricing difference?

[Andreas Joelsson, Head of Investor Relations]

I will not go into details, but you're correct. It's mainly towards the MDUs and within the universe of open city networks. And regarding prices towards MDUs, prices are lower, but contracts are a lot longer. And we feel that we have lacked a brand who'll be really competitive in that area. So that's why we launched this and strengthened our position in that segment.

[Christian Luiga, Acting President & CEO]

It's not going to be something we go out with in an aggressive way. And we've never done that, and we'll not do that sort of. We are not there to price ourselves down to get customers. We want to bring customers because they think we have the best network, which we have and good service and a good relationship with our customers, and that's how we're going to continue to work with that. So it will be an interesting journey with Halebop this year. And on the OCMs, we have good tractions, and we're using more and more data analytics to figure out what OCMs are most best for us to go to where we don't have to come with price discounts to make them interested.

[Andreas Joelsson, Head of Investor Relations]

Thank you, Henrik.

[Operator]

All right. And the next one is from the line of Ulrich Rathe.

[Ulrich Rathe, Senior European Telecommunications Analyst]

I just wanted to come back the cost-cutting across the Nordics for, in particular in Sweden. Christian, it sounded a bit in Q3, when you sort of talked about the lower free cash momentum in 2020. It's sounded a little bit as if also into the fourth quarter, you were lacking, at that point, confidence in the ability to reach these cost targets, you called them ambitions and sort of hedged your momentum a bit. Now that apparently we sort of achieved these goals for 2019 with a big push in the fourth quarter, what exactly has gone well there? And what does that mean for the cost momentum into 2020?

[Christian Luiga, Acting President & CEO]

Do you want to take that one on, Douglas?

[Douglas Gordon Lubbe, Acting Chief Financial Officer]

Yes, sure. I think we -- you're right, we did flag in Q3 that we saw some risk. And we also flagged that in Q2. I think the -- to turn that into a positive is the fact that it's very clear that we don't give up on our ambitions, and we've managed to execute on it. We have had some benefits where we've managed to do certain things in different ways. And so we are consequently happy with the ability of the Swedish organization to achieve their target and actually exceed their target. Going into 2020, as said, we are guiding for the total group at a 2% decline, and we will continue to push on that agenda and drive as much efficiency as we possibly can.

[Christian Luiga, Acting President & CEO]

But as you understood, we have, as I said before, moved now larger groups into a common unit, and that will then be invoiced back probably then at a lower level with the synergies we take out from that common unit on IT networks and product development.

[Ulrich Rathe, Senior European Telecommunications Analyst]

Okay. If I can just follow up with one follow-up there. It's very vague to say there are benefits in some areas, and we are happy with what we achieved. Could you just specifically talk about what particularly went wrong -- went right compared to the concerns you had in the third quarter? That would be great.

[Christian Luiga, Acting President & CEO]

Well I -- let's not say that we had a concern that we would fail. We just gave a risk level and the risk level is depending on timing of takeout of the vendor, timing of having the ability to move the 200 people that we moved from Swedish operation, Norwegian operation, Finnish operation to Lithuanian operation. Were they supposed to come in September or in November, et cetera? So there is -- it is vague, but it's actually many things that count together. And we've never been afraid of the journey, per se, it's just the timing between quarters. So -- and you don't decide in the beginning of the year, just that everything is going to happen this month. If you still also have to think about the other things you have on your plate, like the network rollouts, the customer activities and making sure that things works in the proper way.

[Operator]

All right. The next one is from the line of Peter Nielsen.

[Peter-Kurt Nielsen]

Yes. I think I'll take one on Sweden and 5G, please. Telia made a point of being one of the first operators in Europe to launch 3G and 4G in Sweden. That obviously won't be the case with 5G and for obvious reasons. But you have spoken very little about this. Christian, is there anything you can tell us -- clearly, you cannot be satisfied with this situation. Anything you can tell us about your thinking on 5G in Sweden time line, that is under the restrictions that you have given, we are where we are. But is there anything you can tell us?

[Christian Luiga, Acting President & CEO]

Well, we can mentally and practically prepare us a little bit. But Andreas Joelsson cannot plan for his 5G rollout until he understands when we get our frequencies available. And then that is a journey that is at the authorities to work out the security aspects around that. I've been a little bit vocal on that in the press saying that I think it's important to separate those 2 things. There should be strict security aspects around how you build networks, but you can't sort of try to construct them in advance on a 25-year journey. I'm quite sure that the security and the development of the world when it comes to cybersecurity and other kind of securities will change over the next 25 years. So it's better to separate them and update them over time and give us the frequencies fast, so we can get going in getting Sweden into a more competitive situation when it comes to driving efficiency, primarily with our B2B customers, but also on fiber to our households.

[Peter-Kurt Nielsen]

And what's the latest time frame you have on the frequency?

[Christian Luiga, Acting President & CEO]

Well, I know that these authorities really do a good job in trying to do their best, but I don't expect anything until the second half, and in worst case, late second half, but we'll see. We will work with them and try to help each other to do the best out of this. But the situation is what it is right now.

[Andreas Joelsson, Head of Investor Relations]

Thank you, PK. Time is flying. And unfortunately, it is a very busy reporting day. So we have our dear competitors also starting their conference calls. So we have to end here. We know that there are more questions, please reach out to us, and we will help you provide with answers to those questions. And by that, we end this season. There will be a sequel. So we will be back in April. And with that, I wish you all a pleasant day, pleasant weekend. And when that comes, it's Wednesday today?

[Christian Luiga, Acting President & CEO]

Yes, what are you doing? We will be back. Yes.

[Andreas Joelsson, Head of Investor Relations]

Thank you very much for listening.

[Christian Luiga, Acting President & CEO]

Thank you.

[Douglas Gordon Lubbe, Acting Chief Financial Officer]

Thank you.