Telia Company AB (publ)

Good morning everyone and welcome to the third quarter presentation of Telia Company’s Results. We do it the usual way.

We have our President and CEO, Christian Luiga coming up first to talk about the quarter and then followed by Douglas Lubbe our CFO. For the Q&A session, I would really ask you to limit yourself to one question and one follow-up.

So that we can have everyone being having the time to ask a question. If there are time in the end, you are more than welcome to have more follow-ups.

And we will end 10 O’clock sharp, because I guess you will also like to listen into other conference calls today. With that, Christian, welcome.

Thank you, very much. Good morning everyone and welcome to Telia.

It’s the third quarter. It’s my first quarter to present with as a CEO and President acting for this company.

But as you know, I’ve been here for many years as a CFO. So I should know my stuff.

So, first quarter, it is as expected. We do what we have told you we were going to do.

We are improving our results. It is positive 1% in this quarter and the first half was going to be worse than the second half and we are improving and that comes primarily from the cost agenda where we are down 4% on the OpEx side.

And the quarter is then a picture of how the second half should look like, which should be an improvement compared to the first half. Cash flow already at 11.6.

We have guided on 12 to 12.5 for the year. Douglas will talk a little bit more about that.

We have a little bit good momentum in working capital that will probably spill in also to quarter four as a negative. But overall, we are on good track and the 12 to 12.5 is still what we guide on.

The share buyback program, I will start to talk about that before we go into the operational, because that is also a big thing of course today to understand why have we decided not to propose to the AGM to go for the last leg of the 15 billion program that we set in place 2018. We have today returned 10 billion or will have we have committed to return 10 billion or 6% to our shareholders for the buyback program and there is one part of that ambition, 5 billion left for 2020.

There is some different reasons for this. One is the overall leverage and then where we also have a strong credit rating ambition.

And then, the economic outlook is uncertain and then you can say well the economic outlook should that effect not raise that much – well not maybe so much on the business as it could do on the financial sector. And then, we are dependent on boring money and we want to keep flexibility in how we fund the company and how we fund the shareholders and also how we invest - have a flexibility to invest going forward.

And therefore we have decided it’s better to stop the program where we are right now after 6% already given back and that has nothing to do with the dividend policy or our dividend addition which is very important part of both the Board and the Company’s program and we have today over 5% direct return to our shareholders on the dividend. That’s the buyback program.

And then, if we look then at the EBITDA recovery, as I said, the EBITDA would be better in the second half than the first half. It is and we are delivering on that primarily based on the cost agenda, but it’s also is somewhat better momentum in the revenue side.

It’s difficult to see on this picture. It looks like flat between quarter two and quarter three.

But in quarter two, we already got some indications, but also proof points that the commercial agenda both in the B2B side and the B2C side is giving traction. It’s a little bit slower on the B2C side than we can see on the B2B side.

But it’s coming effectively into the company as we run our commercial agenda forward. The – on the B2B side, we can see primarily on the large and public segment that we do good.

In Norway, the last two quarters have been very good and in Sweden, we are also doing good in that area. Not least, driven by our ambitions around 5G and IoT.

If we look at the execution going forward, we have a strategy that we have put in place in this company that remains there no change to that. We have execution ongoing and where I will focus in this job now is to accelerate the focus and execution on the commercial agenda in the B2C area.

It is a very important area where we need to drive loyalty and stickiness and that we can do by better cross-sell, upsell and deep sell and other activities. We have those agendas ongoing.

But it will be part of my focus to review and see if we can do more and faster. On the B2B side, I think we have a good momentum and we just need to keep on having a good grip of how we do sell in a quite complicate market that is very different between the segments and has a lot of new elements that can be very good for us going forward.

The efficiency program is running well. We are getting out to 200 million from our new operating model this year and we will see that going into next year and that continues for many years.

But the big effect comes now with Sweden and Finland is on board and we then transfer the rest of the countries off the year end and that is primarily the IT and product management areas that go together. So we secure that.

We develop one thing once and we use the same IT competence and architecture in whatever we do across markets. Just to illustrate a little bit around the pricing and the changes and the offerings we have done in Sweden.

It is not that visible at this time. It’s effects have come through from the pricing and offering changes we have done in Sweden on the mobile side and this is to illustrate how it looks like in reality.

So you can see that we – if you look at the right-hand side of this picture, you see the base of customers we have in mobile, both mobile broadband and then mobile handset subscriptions and the blue part is what has been affected already from the price change that we have done and the offering change we have done. So it’s a quite small part of our total base that we have changed from and still that has given us a 3% increase on ARPU.

And then, the next part, the pink part is coming through as customer now transfer within the same packaging, because they locked in for subscription reasons of others. They will slowly gradually also change in to the new – to new offering models that we have.

And then we have a big base still to work with going forward and that is something we will come back to. So, this just illustrates that this small part of the customer base, the changes in that has given a 3% uplift on the ARPU in this period.

Then we have some negatives from IDD and top-ups have been less. There is some singles also now I think of the bucket inflation in the environment and that is something we try to avoid to not have less top-ups and possibility to upgrade in the market on the offerings.

So this is something I think is positive and we have more opportunity to take out. And that is also supported of course that we are awarded the best in quality in Sweden on Halebop in the consumer segment and on the B2B side.

So, this is based on coverage speed and liability and makes me proud and also helps us in our journey going forward to deliver more value - for a good value for all of us going forward. The B2B trend has improved and I have been here since it was minus 10% on a yearly basis and now we are getting closer to minus 2% and we have said it’s going to be slow journey and it’s both the legacy coming out.

It’s been a price pressure in several markets and we are starting to find how to work with the glue of IoT growing 20% and the 20% per se is of course important. But the most important part is that, it becomes an important element in – when we discuss with companies like we have done now Boliden, ABB – so and Volvo Construction that has we have done co-operations with to use 5G IoT and other elements to be more relevant in our offering.

We had a acquisition of a company called Phonero in Norway, a B2B company. We have now gone through the transition and integration of that and turning the trend there as well with our own new customer base also very positive on the large and public segment.

And the same in Finland, meanwhile in Finland we have some good progress. We also have the toughest pressure from the legacy part on the B2B at this point.

As said, OpEx is coming down, 4%. It will continue to go down in the fourth quarter and for 2020 we look at taking out further synergy realization in Norway.

We have the new operating model that will end this year with a runrate of 200 million cost base coming down. We will have some easier comparisons and we have the other efficiencies that we drive.

So, this is something extremely important and we have guided on to be around 2% per year in net reduction on the OpEx side which means with an average inflation in our region around 4% gross savings, which is a tough target, but not unrealistic and actually it’s also important and necessary. So that’s how it’s built up.

5G, I already mentioned some of these companies and what we are doing. You can see here that we decided to upgrade our 5G or actually our network in Norway with rolling out 5G.

We have a position where we needed to upgrade our network within the next four years. We decided then to make that upgrade together with the 5G technology that is available today.

So it’s a four year program. It’s not something that we are pushing out in one year and trying to do that.

But in the same time, it is important part of our fixed wireless strategy and it is also important part of being having a good coverage and a good network in Norway with the market share we have. In Finland, we also have launched 5G services and an offering in devices.

It’s the first step going into that. In Sweden, we are mainly on the B2B side working with customer cases and here we are waiting for the spectrum auction coming in quarter one hopefully that we can close that and see what base we have for building going forward and we can take a decision on how we want to do it there.

Finally, our outlook for the year as I said is unchanged, 12 billion to 12.5 billion. We have a strong quarter three cash flow that gives us the basis also for this.

What we do declare is that we have some uncertainty going into 2020. We don’t guide.

We will come back and guide in quarter four. But it’s important to understand that the elements we have in play with a very fast working capital achievement and also some questionmarks on how we want to drive CapEx where we don’t guide on CapEx, but we say we want to have the flexibility to do good business cases where we find them.

Put some uncertainty to the cash flow and the guidance will come when we come with the quarter four results. Thank you.

I’ll hand over to Douglas Lubbe. Welcome.

Morning. Thank you.

Thank you, Christian. It’s a privilege for me to stand here and to present the third quarter’s results for our company.

As Christian mentioned, we have had a good quarter and we see a service revenue decline of around 1.3%. But if we exclude the low margin carrier voice, that is a decline of 0.9% which is similar to the previous quarter.

In Sweden, we continue to decline from the legacy. But we have managed to offset that with the price increases across both fixed and mobile throughout the year.

In respect of OTC, we continue to see a decline in Sweden. In Finland, we’ve got legacy pressure, as well as pressure from the copper dismantling which was affecting the voice revenues.

Norway is flattish, but is impacted by one-off of around SEK 20 million, which we’ll explain later. When we look at EBITDA, we are quite pleased with the 1% year-on-year development and that is partially from the development that we see in service revenue, but also from the cost reduction which Christian has mentioned.

In Sweden we’ve seen a good cost reduction. There is offset the legacy decline given as a flattish development.

In Finland, we see pressure from the gross margin on equipment which is dragging the EBITDA down and we obviously are pleased with the developments and that is something that we see will continue for the next quarter that we will continue to work on. In terms of Norway, we see a good development where we see , sorry, where we see the time, the synergies have come through and we also see some one-offs that has helped us.

In terms of Sweden, the service revenue, as mentioned, B2C, we see a positive trend from the price adjustments that we’ve made. If we exclude OTC, the reduction would only be 1.1%.

In B2B, we see a reduction of 0.9%, which is a slight decrease from the previous quarter. But I’d like to remind you that in the previous quarter, we had some strong one-off revenues that assisted us.

In terms of EBITDA, the Q was flattish supported by the strong cost development that we had. A 4% - a 5% reduction, which was brought back by good cost efficiencies and a trend that we expect to continue.

In terms of Finland, as mentioned, the service revenue is pressured from the legacy decline and the interconnect loss. We see the pressure is specifically coming from fixed revenues.

On the EBITDA side, we see that we have the pressure from the equipment margin that is much low than expected. Sorry.

From a subscriber base side, we see that we have a flat quarter-on-quarter development despite a declining year-on-year. We have however seen a 2.4% increase in the ARPU, which has assisted the service revenue development.

In Norway, we see pressure from the TV and fixed telephony business. However, this is being offset by mobile and by broadband.

We will see some good development. EBITDA, as mentioned, has improved.

This is largely because of synergies where we see about a 50 NOK improvement or realization of synergies, but then also some one-offs in the cost from a cost perspective. When we look at the lead countries, Estonia has continued to deliver solid 5% year-on-year service revenue, good development.

And this they have managed to translate into a 2% EBITDA development. In Lithuania, we’ve seen a trend shift in the - after a successive – a three successive quarters of decline.

We now see positive growth largely coming from the fixed area. Unfortunately, in Lithuania, we see a drag on the EBITDA as a consequence of the resource costs that are developing negatively due to inflationary pressure.

We will continue to work on the efficiency in Lithuania. In Denmark, we continue to see the pressure in the mass market segment where we see a decline in the service revenues as a result of price pressure.

The team has done a fantastic job in terms of mitigating the costs. But longer term, this has to be questioned if it is sustainable.

When we look at free cash flow, we have had a strong quarter as Christian mentioned. The quarter showed that we delivered a lot stronger than what was expected partially because we had a positive impact from working capital due to a phasing issue between quarters.

We do see that CapEx is trending higher partially because of the GET consolidation effect and then also an accounting effect in Norway from Switch. As mentioned, we do see that we expect the next quarter to have a drag on working capital and therefore we reiterate our guidance which is between 12 and 12.5.

If you look at our net debt profile, it has come down in the quarter from about 2.65 at the end of last Q to around 2.5 at this Q – for this Q. That is driven largely from the beta operational cash flow that we generated and that has assisted us.

But I would like to remind you that we have two items that are ahead of us. First of all, the second tranche of the dividend which is payable next week which has a 0.16% impact on the pro forma and then the share buybacks which is 2.25 billion for the remainder of the year until the 2020 AGM and that has a 0.08 impact on leverage.

If I can ask Christian and Andreas to join me.

I’ll leave you alone up here, Douglas. Pass it to you.

Okay. Thank you both.

Time for questions. If we have any questions from the floor, otherwise, we go directly to the conference call and operator could we have the first question please?

Yes. Hey.

It’s Maurice here from Barclays. So a quick question on the ARPU trends in Sweden.

So you’ve called out the increase in ARPU from the price increase, also is it a drag from the international calling which you might see tracking around three percentage points in the quarter, just somewhat larger than I would have thought would been the case. So, I guess the question is, it’s already three percentage points, so international calling and is it different in B2B?

And is it different in the other markets? Thank you.

Well, I’ll ask you Douglas to answer that. But the first part is that, this is a effect that will continue up to May, I think around May next year that’s when the new regulation came in place.

And we do have differences between the markets, but as always, we want to leverage the SR or…

What you saw on the slide was only the impact on the B2C part of the segment and of course there is also an impact on the B2B side. I don’t have on the top of my head exactly how much that was.

But, as Christian said, it was implemented 15th of May. So we will have that drag until then and best guess is that it will be in the same magnitude.

What we also state is that 3% increase from the commercial activities that we have done will gradually have a additional positive impact that more subscribers that we migrate to the new portfolio.

Okay. Thank you.

Thank you, Maurice. Next question, please.

Hi, good morning. Thank you very much for taking my question.

My question is on free cash flow. And in the CEO letter, you have stated that, as we think about 2020, we should – the starting point is that, it’s a stable base excluding Bonnier.

But you also see increasing uncertainty around 2020 operational free cash flow. So the way I read that statement is that, the cash flow is expected to be flat with some downside risks.

Can you please explain and confirm whether I understood that correctly? And also, I just wanted to cross check it against your previous commentary that you were expecting your operational free cash flow to grow over the medium-term, right?

So is this no longer the case? Were you thinking flat as a base case for 2020 is ex Bonnier?

Thank you, for the question. We had – we said, we had an ambition to sustain or grow the cash flow over time.

So we haven’t given any guidance for 2020 other than that or for any other year as well. What we say now with the stable base is that we have a stable EBITDA base in this company.

It’s not something that is rocking in anyway and that we have a good fundamental journey now in the EBITDA in the second half going into next year. And so, that’s a good stable base with a CapEx view that we have – want to have certain flexibility and then we don’t know that answer yet.

And then we have said that the working capital we are doing really good on that and we have continuous possibilities for improvement. But definitely less than we have had in the past and therefore it could be a negative from that.

All this together gives us uncertainty. We will not guide at this point.

We will guide at quarter four and we will come back. But we have no reason to not say that there is some uncertainty on that current cash flow level at this point.

Okay. Thank you.

Thank you very much. And can I just ask a follow-up please on working capital specifically and I’ll ask it in very late terms but perhaps you can comment.

So if we look over the last three years including 2019, you’ve clearly had the three stunning years as far as working capital is concerned. And as we think about 2020, you have made it very clear that all good things need to come to an end and that it’s unlikely to be as amazing as the last three.

But then and it’s still going to be a chunky year, so to speak, or are we going to go back to kind of a much more normalized level if that makes sense?

Yes, if I can answer that, I think what we try to flag is a net Q4, we expect to see a consumption of working capital that will bring us down from the current year-to-date growth that we’ve shown. As for next year, we will continue to work on working capital.

But we are not in a position to guide at this point.

Okay. Thank you very much.

Thank you, Roman. Could we have the next question please?

Morning everyone. I had a question around shareholder remuneration.

I know you mentioned at the start that the decision to terminate the share buyback early. Had there implications for the dividends.

But I was just thinking going forward, given that you mentioned that the cash flow composition could be a bit more uncertain. Do you think it will be more appropriate to have a lower distribution of cash flows and dividends in the future just to reflect these on more uncertain times?

Thank you.

Thank you. Terence.

Two comments on this. One is that that we think that the dividend is a very important part of our capital model.

We have a policy which is a minimum of 80% and we feel that the dividend to our shareholders is important going forward as well. So that is the statement and guidance I want to give you going forward and nothing else.

Thank you.

Thank you, Terence. Could we have the next question please?

Hello. I would like to ask you on your OpEx reductions in Sweden and as I understand that OpEx in Sweden is now flat for the first nine months while you have guided for a 3% reduction for the full year.

So I was wondering how you expect to reach that is the target is still achievable?

Well, you can fill in Douglas. But we also said clearly, since quarter two is that, we see uncertainty in the 3% target for Sweden.

But we remain with our target for group and that means that there is no clear path to the 3% even though we haven’t given up on it. And we have seen before in Sweden and in other markets that we can have quite big swings in the percentage points.

It looks big in percentage, but it’s quite reasonable in number level. So, what it will come out in quarter four we’ll see.

We have a aim, but we have said there is uncertainty around that 3%. I don’t know Douglas if you want to add something.

So just to reiterate, we’ve always indicated that the second half of the year would be a lot stronger than the first half of the year in Sweden and we are executing on the plans which you can see as evident from Q1. But then in – from Q3, in Q4, we do have some easier comparables as well, which you should recall from last year.

But we do have plans in motion. But as indicated and as we’ve indicated before, we do see a risk in achieving the 3%.

But that doesn’t mean that we are less committed to reduce OpEx in the last quarter.

Could you maybe just detail from which line items or cost items do you expect to get the savings in the fourth quarter?

If you exclude the comparable, the main areas would continue to be in resource costs and then also in our marketing.

Okay. Thank you.

Thank you, Lena. And the next question please?

Yes, morning. It’s Nick at SoGen.

Could I just ask Christian, on the canceling of the remaining buyback, could you just explain a bit more on why you are surprised and why the Board is surprised about the guinea levels and why the buyback has been cancelled? Also why that doesn’t link into the cash flow guidance?

You are sort of suggesting the cash flow guidance for next year is more about CapEx flexibility and less working cap. But can you just suggest, why that cancelling of the buyback doesn’t have any relation to the cash flow target if that’s correct?

Thank you.

Actually good question. First of all, cash flow has nothing to do with the buyback program.

But leverage and which is net debt-to-EBITDA has an impact on how we view our flexibility in having a good rating and therefore being able to borrow in the way we want long-term or at what price going forward. And that’s also where the market conditions has stated on this page that I showed that in a turbulent market and if you want to borrow money to do things or have flexibility, a good credit rating is important and there we have a target.

And then the cash flow per se, is actually delivering on what we have said. So there is no difference there.

So it doesn’t impact this decision. And so, the decision is based on that leverage as we said already at the Capital Markets Day is that, depending on how fast we get return on the revenue side, that will also impact not our end game, but how fast we get to that journey.

And that puts us in a somewhat lower level on EBITDA this year than we started this year out in our thinking. And meanwhile we are actually turning the trend.

In the same time, as I said, the industry is going to be impacted on its valuation from credit rating and others on the economics of the industry but also of the world and there we want to create flexibility. And that’s the conclusion we came up with now and then we decided to do it now and take to that decision already now when we had that deal going forward instead of waiting.

Okay. That’s clear.

Thank you.

Could we have the next question please?

Yes. Thanks a lot.

Christian, could you please comment a bit on Norway please? And you talked about the OpEx and the merger synergies in Norway.

Could you talk a bit about how you view sort of the Norwegian market at the moment on the mobile side? You’ve had some issues getting back to growth.

Talk about that B2C please and how you are seeing the B2B market in Norway? Have you increased that for then?

How that is playing out? That will be appreciated.

Thank you.

Thank you, Peter. On the OpEx side and the synergy execution, we stepped that up from 700 to 800 end game at the CMD.

And we are on track on our journey. We feel that that is where we have good control and doing fine or better than fine and so, I think that the cost opportunity in Norway is also good going forward.

But as we say, we have a commercial agenda as well and that’s what brings in the money. And on the B2B side, I am happy to see both in quarters two and quarter three that that we are turning the trend on that B2B segment and taking a lot of customers somewhat lower ARPU than the average.

But adding on top on the total and moving from a decline to now a flat situation going into growth. And that’s positive and that’s what we have said before we should be able to take market share in the B2B area.

And in the B2C area, we said we are going to lose some market share with ICE taking its role in the market as first player when we did the transaction of Tele2. And that is being a little bit – they have taken a little bit faster room in Telenor as well than we wanted to and I have said it before that I think we can do more in Norway on the B2C side and the commercial side.

And that’s what we are working with the team together with to do and it has been a lot of focus of integrating all these companies and maybe that has had an effect on our ability to do the commercial agenda in the right way on the B2C side. But that is something we are definitely working on right now.

And Christian, just sort of quickly on EDGE. Are you seeing a voice on TV trends in Norway?

You mentioned from GET that it is partly diluting your revenue trend.

It’s doing fine. We are stable on the GET revenue and then – and that is according to our business case and where we think we should be.

We had a decline now in TV compensated by broadband. But that TV was losing one partner and gaining another one and moving these customers.

So I am not worried on the GET side.

I think it’s worth noting that that partner, that we lost, we lost that partner even before we took over the company. And so, now you see the revenue impact and this impact on the subscribers.

Okay. Thank you.

Okay. Next question please?

Hello. Good morning.

Thanks for taking my questions. I just have one question please.

I was wondering if you can update us of your Towers judge case. I remember that you have legally separated a company that only own your towers.

Would you mind to give us some details of how many towers you are having there and whether there could be possibilities for you to monetize that asset? Thank you.

I am not sure I should tell you how many towers we have at this time. So, I’ll pass that.

But we have plenty of towers and what we have done and that is to drive efficiency, we have created tower companies internally and so now we’ve separated out the towers in individual tower companies and they are led by separate management and we are setting up the SLAs between the tower companies in the rest of the business. And that is to drive efficiency and I already said at the Capital Markets Day, I don’t know where we are going, but I think we can bring more efficiency to this area and it could be through more tower partnerships with peers or it could be other constellations.

But right now, what we are doing is, is just making sure we have a good efficient business within the towers and have that separated.

Thank you very much.

Thank you. And next question please?

Yes, thanks very much. You sort of referred to the service revenue trends not recovering as much as you expected when you explain the change to the shareholder remuneration.

Could you give a bit more color in which areas they are not recovering as fast as you might have expected? Thank you.

I think, it’s, Ulrich, thank you for the question. But when we started the year, I had a expectation of a somewhat better B2C development and also a somewhat better mix.

As you know, we have revenue from lower margin ICT. We have the core and then we have our new business with IoT coming in.

And we experience somewhat better mix and then we expected a somewhat better faster journey in the B2C area.

It’s helpful. Can I follow-up with another question please?

There was a very big EBITDA contribution in the line item of elimination within our operations and have seen sort of some of the writing about this as this being low quality. My understanding this sort of refers to cost efficiencies in the central cost.

I was wondering, could you elaborate on that a bit? And also, is this part of the cost cut that you are showing for Sweden.

When you talk about Sweden, is that strictly speaking the business unit in Sweden and these central cost efficiencies pop up only in the discussion of the Group, as a Group? Thank you.

Thank you, Ulrich. There is three parts of that other portfolio and cost.

One is the efficiency we drive in the central CPS unit as we call common products and services, one is the head office and the other businesses that we have in our Group. And the third one is actually that we had quiet good comparisons from last year.

So, there is a triple effect here. Those parts that come from the central products and services, they are not part of the cost target for Sweden.

And so you could say that they should have some value from that. It is part of the EBITDA, the cost to get internal OpEx or COGS from that.

So they get it on their profitability line, but they don’t get it on their OpEx saving targets. So we – in our different parts of the organization focus on our own stuff.

Douglas, do you want to add something to that?

No, I think as well, summarize, I think the 5% that we report for the quarter is on external OpEx for Sweden only. And that also goes for the 2% target we have on Group OpEx.

Of course that is externally and there common products and services is a part. And so, there it is included, but it’s on the external cost.

So it’s not included in the target for Sweden or other countries.

Thank you. Thanks very much.

Thanks.

Next question please?

Yes. Thanks.

Good morning everyone. I just had another question on free cash flow.

Even if we take out working capital coming in new working capital for now, today, it looks like the free cash flow warning and I think you are suggesting that CapEx con acts as a lever to support that free cash flow to improve the free cash flow trajectory into 2020. So I wondered if you could talk about any other levers you do have to improve free cash flow incrementally.

So the first question was, can you extend and we saw the stumble in delivery in start of 2019. And so can you catch-up on that into the start of 2020 and pre-2020?

And then secondly, should we expect a greater price rises as a support in 2020 given the position you are in? Thank you.

I’ll leave the cash flow to Douglas and I answer the price. So, you should expect more commercial activities in all our countries.

That should drive higher ARPU or higher customer base and that’s what we are working on. Some of those will be price increases some of those will be portfolio changes and some of them will be cross-sell and upsell and deep sell.

So, yes, you should expect more on the commercial side from Telia in the next 12 months.

Okay. And then from a cash flow perspective we will continue to work on the levers that we have explained to before.

But obviously the biggest driver for us is EBITDA and ensuring that we get a growth from our EBITDA and that is one of the most important drivers from a cash flow perspective. We will continue to work on working capital.

So, there is nothing that could change in terms of what we work on. When you talk about cost and ask about cost, we will continue to work on cost as well.

It’s a journey that we’ll continue into perpetuity. But again, we don’t guide for next year.

We are not ready to do that yet.

Thank you.

And in addition, Andrew, you will hopefully and we will consume the Bonnier deal, we will add that on top of this.

Thank you. Thanks very much.

Thank you, Andrew. Next question please?

Thank you. I’ve got a question on OpEx.

You reiterated the target for full year OpEx to decline but you said but obviously for 2019, you do have some quite easy comps from some higher cost items from 2018 things like bad debt, storm damage, and the higher marketing which I think in Q3 and Q4 if you got them marked they roughly turn to SEK 60 million. When we look at 2020 how constant are you being able to deliver that 3% OpEx reduction?

And can you give some more color on how Sweden should fit within that bring in mind to guess you don’t have the same easy comps in this high cost items in 2018. Thank you.

Do you want to answer Douglas or?

Yes, I think first of all, the bad debt is there and we’ve mentioned that that is one of the easier comparables that we have in Q4. In terms of storm that is COGS that is not included in the definition that we went up – when we guided on with the reduction.

And what I can reiterate is that, for Sweden, we do see a challenge to get to the 3%. But we believe that we will deliver around the 2% for the full year for the full Group.

And that is what we also have as a target going forward and we have no reason with the activities we have ongoing to change that target.

Thank you.

Thank you, Keval. Next question please?

Yes, good morning. I’ve got a couple.

Just, first of all on the balance sheet, maybe you can help us understand what you think the right level of leverage just for the company and the glide path and the timeframe to getting there. I think it’s supporting with the other 3%, you will be pretty much three times leveraged in a give or take plus two whether you what the usual IFRS 16.

So maybe just sort of an updated thought on what you think the leverage should land on a two three year view which may help us frame our thoughts on the dividend. And then, just coming back to the OpEx, I mean, you said that there is no reason to change on your OpEx, but you've also said that there is service revenue trends on what you’d like them to be.

I mean, part of the OpEx story in Q2 with lower marketing cost. So you can keep spending less on marketing and drive an improvement in the service revenue line at the same time?

Thanks.

So, thank you, Steve. I’ll start with the leverage.

We said last year and going into this year that our leverage target was 2.0 plus minus 0.5, i.e. 2.5.

And we also said that IFRS will have to be topped on top of that and we currently have an effect of around 0.3 from the IFRS effect. So, indirectly, we don’t have a target on leverage any longer.

But if you would remain in the same thinking it would be then 2.3 plus minus 0.5 which would be a target at upper range would be 2.8. But more importantly, for us is to keep the credit rating that we are in and that’s what we focus on and of course, that could change over time.

But it means an exact leverage. And that what we think that’s a more important target.

In the same time, we said that that we will come back on the leverage how we see it, when we see how the effects of IFRS are both handled by the rating institution by ourselves. On the marketing, you have a point that of course it sounds strange when I say that the commercial activities can be stronger but marketing and that’s also including commissions and subsidies to an extent that they are lower.

But it doesn’t come automatically that you just throw out money and then you get your customer base you want. So that’s where we need to just accelerate a little bit how we – what we want to do and how we want to do it.

I don’t know if you want to comment more on that Douglas, also?

I think it’s a fine balance that we carefully watch and we ensure that we are as active as we need to be in the market. But that we also ensure that we become as efficient as possible in our marketing spend so that we invest at the right levels commensurate to the customer intake and the ARPUs that we generate from them.

A quick follow-up on CapEx. I mean, with the extra CapEx that you are currently thinking about for next year, can you just maybe add a bit more color on where that’s going?

Is it you get mostly on 5G and then accelerate your network advantage? Is it more fiber?

Is it balancing two?

Well, maybe it’s not more fiber. But it may be the same fiber and we have said that fiber should be able to come down and now we feel that we have a strong agenda on fiber in different countries.

And we are evaluating that and we want to see what kind of decision we want to take. What kind of business case we have in this Estonia, Lithuania, in Finland, in Norway, in Sweden and Denmark.

So that is one part. And then, we know that the GET acquisition that we did is a very important part of our future and we need to just take that into account and see if there is something more we want to do around that.

And part of that is coming out also with the fixed wireless thing now with our new transaction with Ericsson in Norway. And then finally, 5G is something we are not going to push out broadly.

But we will need to relate to and see how we can make a difference. And we are the leading network and we want to continue to be the leading network and we just want to have the flexibility in that area to do what we think is necessary.

Very helpful. Thank you.

Thank you. Remember to limit yourself to one question please.

Next question?

Yes. Hello.

I thought I had canceled the question. But I can still – I was looking at the cash flow and the different components and you have already answered a part of that.

But you have also utilized some tax loss carry-forwards. And I just wonder how much you can still utilize this going forward?

Well, and that’s true and I was quite clear that from 2020, it will be less. I don’t know that yet.

It depends on how we come out and that is not an EBITDA line which I have good control of. It’s how we get the net result in the end in the different countries which also is impacted by currency effects and everything.

So, it will gradually be more paid tax in 2020 and 2021. And when we get to quarter four, we can give more exact answer on how we see that.

But it’s actually too early to say, say how much more at this point. So, you have to stay in uncertainty with the answer of it’s going to more, Stefan, until we know more, all of us.

Okay. Thank you.

Thank you, Stefan. Good to know you had more than one question in you.

Next question please.

Yes, good morning and thanks for taking the question. Can I just clarify, please, what you are saying about your plans on Swedish B2C?

So you talked about driving a higher customer loyalty, but then you are also talking about pursuing price increases and then some lower marketing. So I guess my question is, both today.

Do we interpret this as Telia becoming more aggressive in Swedish B2C or do we still see you as a sort of rational market leader in Sweden.

I think it’s important that we are rational in an industry like ours. And I would say that wherever I worked in this industry it is an industry that works long-term with its customers.

It can’t be reactive and it needs to build value and make sure it gets paid for that value over time. So, the answer is, yes.

We will stay rational. And in that, we want to find a better stickiness and loyalty from our customers which is part of actually also making sure they understand and can benefit from the value we create in a better way.

Thank you. So, just to clarify - pushing customer loyalty through your previously stated plans of upselling and then cross-selling, et cetera, as opposed to a better decline, prices lower?

If you ask me if I am going to down prices dramatically to get customers on a bundle of fixed mobile, the answer is no.

Okay. Thank you

Next question please? We have three more left and I think we have time for that.

Oh, thank you very much. I wondered if you could talk a little bit more about the outlook for Finland please, because you obviously spent quite a bit of money on acquisitions in recent years.

So an update on how some of those are performing and integrated into the business would be, be useful. And then as a kind of related point, would the gross margin pressure you referenced in the presentation earlier, was that expected or unexpected?

Thank you.

Well, I think the gross margin situation we have is not as good as we expected. But you could say we maybe not surprised because we know it’s a difficult journey.

But it’s a journey we have taken on and we need to handle and one of the challenges in Finland is not now to track to the large B2B customers with this portfolio because we are getting traction on that. It is to figure out then how to build this delivery and this production of the services in an efficient way going forward.

That’s not a one quarter thing. You did that over time.

And we are in progress of that. So we are starting to integrate now this year these units and we haven’t done that before.

So, we bought them. They were standalone and now we are starting to integrate to get the efficiency out.

And that is then pushing us a little bit on the cost and then the sales mix has been a little bit different than we expected as I said in the beginning. And that is also then the reaction on the COGS side rather than it’s – you can see it on the revenue side in net.

I don’t know if you want to add anything Douglas on this?

We also had some challenges on the equipment margin and some of which was a one-off in nature for the quarter and then it is a different sales mix in our equipment which has also resulted in a drag on the margin and we will continue to work on that. But as Christian says, that is understanding how we leverage this in the best possible way.

Thank you. That’s helpful.

Thank you, Adam. Next question please?

Hi, good morning. I am Fred, that’s Bank of America.

Just a quick clarification on CapEx. So if you could clarify your thinking in the CEO letter you mentioned this operating with this CapEx next year is limited I think of the CMD you got it to a reduction next year on lower fiber CapEx.

So, can you explain this what’s change it is facing with the drop expected after that? Or should you see on that the ambition has changed for 5G or other reasons?

Thank you.

We haven’t changed our ambition yet. We are hoping up for a flexibility on CapEx that we are working on.

So, one example could be how fast you want to drive fixed wireless meanwhile, how fast will you like to close down copper. That will have an impact on our CapEx profile.

And other one is the business case as we get in on fiber as a complement in this getting everyone to be able to have an internet from Telia, how fast and how much should we participate in the tail in Sweden. But on the other hand in the other countries, on the rollout that is actually more starting now.

And finally, going into as we talked about to get the CM acquisition we did, a very stable good base that we want to do something more. So, we are opening up for having this discussion and I want to be clear as soon as possible rather than we have decided anything at this point.

Okay. Thank you very much.

Thank you, Fred. Could we have the last question please?

Yes, thanks. Thanks very much.

I guess, most of my questions been asked, but just want to follow on the Swedish broadband trends I guess, on back of your price increases was, you are back to leasing about around 10,000 fixed broadband service per quarter. Is that on the back of the price increases?

Or is that sort of continued impact from fiber overbuilds? And what are you seeing in the open networks you are expanding your footprint there a bit.

And I want to follow-up on the comment around fixed wireless section. Are you talking about Sweden as well, or is that in other markets mainly?

Thank you very much.

I’ll start with your last question and then I hand over to you Douglas. On the fixed wireless, it goes through all markets.

The problem in Sweden is we don’t know what kind of spectrum base we will have until we have passed the auction in quarter one and then we can more in detail nail down how we want to do that. But it also is related as I said to the copper shutdown and how fast and how we want to drive that.

So, but no, it’s not only Norway, it is actually in all markets.

Yes, and if I take the Swedish broadband, yes, you are correct. We do lose DSL customers.

But that is a continuation of the trend that we’ve seen in the past and we are not able to catch them with the fiber. But we do have a good traction on our open city networks where we are adding customers.

And that trend is expected to continue. We recently adjusted the price increases.

So, it’s too early for us to give a view on what the impact of that would be.

Also connects to Christian’s comments before on our commercial activity and the accelerated execution on that.

Great. Thanks so much.

Thank you.

Thank you, Henrik, and thank you all very much for the attention and we look forward to talk to you again on the road and then if not sooner at the Q4 presentation on 25th of January, 2020. Thanks a lot and have a good day.

Thank you, good bye.

Bye bye.