Tele2 AB (publ)

Kristoffer Carleskär - Interim Head of Investor Relations Allison Kirkby - President and Chief Executive Officer Lars Nordmark - Chief Financial Officer

Nick Lyall - Soc Gen Sam Dillon - Exane Roman Arbuzov - UBS Maurice Patrick - Barclays Stefan Gauffin - Nordea Bank Henrik Herbst - Credit Suisse Victor Hoglund - SEB Thomas Heath - Danske Bank Ulrich Rathe - Jefferies Peter Nielsen - ABG

Thank you very much. Good morning, everyone, and a warm welcome to the presentation of Tele2's fourth quarter 2016 results.

Speaking is Kristoffer Carleskär, and with me today I have our President and CEO, Allison Kirkby, and our CFO, Lars Nordmark. Allison will start out by going through the highlights of the quarter and Lars will then follow and give you some more details on the financials.

After this we will have a Q&A session where you will have the possibility to ask questions. So with this, I will hand over to Allison.

Good morning, everybody, and welcome to our fourth quarter results. So if we kick off with the overall group financials, you will see now that we have completed the acquisition of TDC.

The reported numbers include TDC from November 1. So absolute sales were SEK8.2 billion in the quarter, mobile-end user service revenue was SEK3.7 billion in the quarter and EBITDA just shy of SEK1.5 billion.

Monetization of data is continuing to be our key priority and we didn't see just good growth on an absolute basis, we also saw good growth on a like-for-like basis with 6% mobile-end user service revenue growth in the quarter, which did clear includes Altel and TDC on a pro forma basis and also on a constant currency basis. Net sales, as I said, amounted to over SEK8 billion on a like-for-like basis.

That’s 2% up due to higher revenues in the Baltic and Kazakhstan offset by lower revenues in fixed telephony and fixed broadband. And EBITDA was back to growth again, up by around 4% primarily related to Kazakhstan and Germany.

So, let me take you into some of the key highlights that make us particularly proud in the quarter. Breaking down the 6% growth, in Sweden, we saw momentum from earlier quarters build further to 4% excluding TDC.

In the Baltic, we continued our very strong data monetization with mobile-end user service revenue up 12%. In the Netherlands, the positive customer growth trend continued into and throughout Q4, achieving a net intake of 55,000 and taking our customer base now above 1 million customers, which is resulting in an overall strong 9% growth, but I will explain that a bit later, because the underlying is much more than 9%.

In terms of technological developments, our 4G position have strengthened throughout the footprint in the quarter with Swedish and Baltic geographic coverage now about 99%. And we are also seeing continued build-out of our Dutch network, improving indoor coverage by 7 percentage points in the quarter to about 90%, which is now enabling good progress on data on-loading now at 82% of our customers now using Tele2’s fantastic network for data.

On productivity, data monetization and good operating leverage is fueling strong cash contribution in Sweden and the Baltic, our established markets and the integration of Altel in Kazakhstan is progressing well with cost and revenue synergies contributing to a strong EBITDA result in the quarter. And Challenger program is developing ahead of expectations, well on track for the SEK1 billion target in 2018 with an above SEK600 million run rate already achieved versus our 2014 base line.

On people, we welcomed 800 new TDC colleagues into our business and we have with great excitement kicked off the integration of the TDC business, a merger that will enhance our growth and value creation strategy in our most important market. Also in the quarter, we were recognized independently for elements of our responsible challenges strategy.

We came third in Sweden for the AllBright foundation quality award and we were also top rated in the Global Child Forum’s annual assessment of how well Nordic companies not share and protect children’s rights. And finally, in November, as many of saw, we moved into our new headquarters in Kista, a building that’s been custom-built for Tele2’s collaborative, challenger and open culture, aiming to liberate how our people work together to create the Tele2’s futures.

So, let’s get into the markets now. First of all, Sweden, we saw strong mobile-end user service revenue in the quarter, which increased year-on-year by 4% excluding TDC and 7% if you include TDC.

Both consumer postpaid and B2B large enterprise were up mid- to high-single digits, driven by strong customer growth in Comviq postpaid and also in large enterprise. Excluding TDC, total revenue was flat as we expected with mobile-end service revenue offset by lower fixed telephony and wholesale revenues.

EBITDA also, ex-TDC, was also flattish, as we expected due to the higher marketing spend that we put into the quarter and during the course of last year. But adding TDC, which also had a strong end of the year, we delivered another quarter above SEK1 billion.

Looking at the trend, they did continue to improve in the quarter. We are seeing further increased data monetization and strong customer growth, which has lead to 7% consumer postpaid end user service revenue increase.

Our value champion has continued to attract higher volume customers to the Tele2 larger data buckets and the average consumption now has grown from 3.5 gig per month in Q4 last year to 4.5 gig per month this quarter. This strategy in addition to our increased network coverage is driving our network experience and customer stratification on Tele2 to best-in-class levels and driving a positive ASPU development in the quarter.

Our dual-brand strategy continues to drive positive postpaid mobile-end user service revenue and in the Christmas period, we aired again our successful Comviq Christmas campaign delivering the highest intake and therefore the highest sales ever for the Comviq brand. We also saw particularly strong revenue and EBITDA growth within the large enterprise segment and in fact seeing record profit levels at TDC in the quarter.

And proof that the early indication of the integration are going well, we also managed to retain as a combined new sales force some large enterprise customers such as Scania, Skatteverket, and Volvo. So moving into the Baltics, and you saw another very strong quarter in the Baltics with the focus on commercialization and monetization of our 4G investments really driving excellent top and bottom line growth.

Net sales growth of 15% was very strong, thanks to the ever increasing demand for data, move to more premium handset, but also positively affected by currency move. Mobile-end user service revenue was similarly very strong at 12%.

Again, currency movements helped, but it was very much driven by data consumption, per to postpaid migration and growth in mobile broadband, a segment which is a key target area for us to grow in because our market share there is actually lower than our average market share. EBITDA growth was up 3% with Latvia up 7% and Estonia up a very strong 12%.

The excellent top line growth and our best-in-class challenger cost structure is enabling data monetization to successfully flow through to the bottom line whilst at the same time enabling us to invest in the mobile broadband segment in Lithuania to set change our growth in that segment, which will really help us drive higher ARPUs over the long-term. Looking a little bit further into the Baltics, as I said, we saw strong data monetization, very much driven from prepaid to postpaid transitions, smartphone penetration building further and a great job on data analytics driving excellent customer base management down to best-in-class levels in terms of churn in Lithuania.

This and our mobile broadband where end user service revenue more than doubled year-on-year in Lithuania is growing consumer postpaid and all the contributors delivered a 7% ASPU growth. 4G coverage is now at 99% in the region and continuous improvements in speed with maximum download speed far above our competitors and we have speeds in some of our markets that are up to 350 megabits per second.

It’s really driving a great customer experience and therefore great data usage including the possibility for increased top up data buckets. So then moving into our investment markets, first of all, the Netherlands, this quarter marks our one year anniversary since the launch last November of our world first 4G only network.

Mobile-end user service revenue was up 9%, but if you exclude the VAT benefit that we had this time last year of SEK90 million, underlying growth in Netherlands mobile was 40% up year-on-year as we saw an increased mobile customer base, up 24% and solid ASPU development throughout the year. Net sales were up 5% with the same impact – with the increase in mobile offset by last year’s VAT benefit and the decline that we will continue to see in fixed broadband and telephony, which obviously continue to be a challenge for us in that market.

EBTIDA was impacted by our continued investments in the market during Q4, however, if you adjust for last year’s VAT benefit, we actually saw underlying improvement year-on-year and we expect that to continue into 2017. During the fourth quarter, our main focus has been to continue the positive growth trend that we build up since March as well as to focus on increasing ASPU, rolling out a high-quality Baltic service and improving the overall customer experience.

We continue to build and invest behind our Fun Rebel brand platform, which is supporting awareness and consideration levels to remain at high levels. On the network side, as I said, we continue to expand our LTE Advanced 4G network, which has now reached above 99% outdoor and above 90% indoor and we expect our rollout to now be completed by mid-2018.

4G on-loading has now reached 82% by the end of the quarter, a metric that will continue to improve as we now have more than doubled our 4G customer base in the last year with now 800,000 4G subscribers, 650,000 of those have been provisioned on VoLTE and 170,000 already active on VoLTE. So as we continue to build on these components for growth, you can expect that we will see some headwinds from competition putting some pressure on us.

We’ve already seen that this December. However, we fundamentally and continue to believe that we are the only mobile focus brand with the right to take a challenger customer champion position in the Dutch market.

In summary, we have confidence that our disciplined investment strategy will deliver as we further establish ourselves as the preeminent challenger in the market. And then in Kazakhstan, our next investment market, we saw strong underlying mobile-end user service revenue growth of 16% from an increased customer base and higher ASPU.

Net sales admittedly were flat year-on-year, but that was due to a heavy Altel equipment sales campaign in Q4 last year. EBITDA was significantly higher year-on-year and it’s now a material contributor to the group as we continue to meet the benefits of improved operating leverage and from JV integration synergies as well as mobile revenue growth.

So, as you can see, our disciplined approach in our investment markets are really enabling a much stronger and more sustainable platform for growth in the future. Just looking at that growth in a little bit more detail, it’s very much being driven by continued customer base growth despite a competitive market environment with our competitors now starting to rollout 4G.

But still despite that and despite unlimited promotional offerings during the fourth quarter, we saw ASPU increase by 8% year-on-year. The unlimited promotion have now ended in early January and we are now actually close to pricing developments back in the market again during the course of this month.

In terms of the integration, the JV is progressing according to plan. About a third of our sites have now been merged.

And we’ve also fully migrated customers onto one single billing platform and a new outdoor campaign has been launched to promote our fantastic network speed and our 4G coverage relative to others to really drive data usage and increase Altel brand consideration. So then moving on to the Challenger program, Challenger program is ahead of plan in 2016 and therefore well on track for our 2018 target of SEK1 billion per annum benefit, which is enabling us very much to invest back in some areas to secure sustainable top and bottom line growth across the business.

Within simplification, we’ve produced the complexity in our product portfolio by removing 950 products across the group. In discipline, we’ve significantly increased the share of spend strategically sourced and procured allowing us to achieve scale benefits across the group and working capital improvements especially enhance that in equipment.

On consolidated, during Q4, we onboarded the Baltics and the Croatian network and IT organizations into shared operation and together with the previously onboarded Swedish and Dutch network and IT organization, we are really just starting to leverage scale and skill there. This has allowed us to reduced resources throughout the group as well as shifting resources from high cost to low cost location.

In transformation, we continue to transform our back office and our general and administrational resources significantly. We now have roughly 350 FTEs within our Indian BPO and when I visited them early in December, I’m seeing how they are already starting to use robotics to drive even further efficiencies moving forward.

In addition, during Q4, we’ve made significant FTE reductions within both the Swedish organization as well as the Dutch organization. As you are aware in late October, we announced a reduction of 225 FTEs in Sweden and in the last 10 days, we announced a further reduction in the Netherlands commercial organization of 75 FTEs.

So just to be clear, the Challenger program and our Challenger cost position continues to be a top priority for us as we move into 2017 and into the future. So in that note, I’d like pass over to Lars to give you a little bit more detail on the financials.

Thank you, Allison. Let’s turn to the next page for an overview of the mobile-end user service revenue development.

Reported year-on-year increase came in at 14% and at 6% from a constant currency and pro forma perspective. On the right hand side, looking at the individual operations, we have seen positive trends across all our markets.

Sweden experienced growth of SEK127 million versus Q4 last year, out of which SEK56 million came from the acquisition of TDC Sweden. On an underlying basis, the business also grew driven primarily by an increase in Comviq, consumer postpaid, strong data monetization from sale of large data buckets in Tele2 residential as well as growth in our large enterprise segments.

In the Baltics, successful data monetization led to SEK57 million increase, resulting in an underlying growth of 7% at constant FX rates. Baltics mobile momentum continues despite headwind from the new EU roaming regulation.

Excluding the roaming effect, Q4 mobile-end user service revenue growth was at 10%. In the Netherlands, we saw healthy increase of SEK35 increase as we continue to grow our mobile customer base and benefit from growth and data consumption.

Adjusting for the SEK90 million positive impact of the VAT settlement that Allison referred to in Q4 2015, growth was at SEK125 million driven by solid growth of 200,000 new customers as well as 8% mobile ASPU improvement. The biggest movement year-on-year came from the operation in Kazakhstan, which improved by SEK217 million as a result of continued growth in our customer base and data monetization driving ASPU levels up.

Moving on to EBITDA, overall we can see strong growth in mobile-end user service revenue flowing through EBITDA. Looking at the individual markets in particular in Sweden, we saw a growth of SEK82 million, which is mainly attributed to the consolidated of TDC, excluding the impact of TDC of SEK87 million, EBITDA was flat due to intensified marketing spend compared to seasonally low investment in Q4 last year.

Looking at the Baltics, Estonia and Latvia both experienced strong underlying growth. In Lithuania, EBITDA was somewhat negatively impacted by higher expansion cost as we look to increase our mobile broadband customer base.

As a result, Baltics EBITDA was flat year-on-year. The Dutch operations have reported decline year-on-year of SEK58 million, however, adjusting for the SEK90 million impact of the VAT benefit, the underlying growth was at SEK32 million.

We also had strong performance in Kazakhstan with EBITDA growth of SEK97 million driven by good progress in improving our operating leverage as synergies continue to be materialized. Turning to CapEx, we saw a decline of 12% versus the same period last year primarily due to the Netherlands and Croatia where we saw high spend levels for rollout activities last year.

Please also note that excluding TDC Sweden CapEx amounted to SEK1.03 billion. Turning to free cash flow, we saw another quarter of solid increase driven primarily by a positive development in working capital due to sales of handset receivables which we implemented in Sweden during Q1 2016.

From a cash generation perspective, we see a high inconsistent level of cash contribution in our established markets, which we define as Sweden and Baltics. This reflects our strategy of disciplined investments and focused technology choices where network sharing plays an integral part.

Moving on to debt and leverage. Our economic debt to EBITDA decreased slightly compared to last quarter to 1.09.

The leverage is based on full-year EBITDA excluding the 51% of share of Kazakhtelecom as well as including TDC performance. The next page shows our debt maturity profile where we have refinanced SEK16 billion during 2016 extending maturities further out in time.

This is consistent with our funding strategy to diversify our funding source, maintain a well managed maturity profile and a strong liquidity position. Now moving on to our guidance for 2017, mobile-end user service revenue is expected to remain at the mid-single-digit percent growth level.

Guidance for net sales is in the range of SEK31 billion to SEK32 billion. Our CapEx guidance range is from SEK3.8 billion to SEK4.1 billion.

When it comes to EBITDA, the guidance is at SEK5.9 billion to SEk6.2 billion and this reflects the contribution of TDC Sweden, continuous momentum across our footprint and growth investments in the Netherlands, as well as headwind from roaming and declines in our fixed business. As confirmed in our Q3 2016 results announcements, our declared annual dividend for the fiscal year 2016 will be at SEK5.23 per share.

This represents an absolute dividend payout, which is 10% higher than the prior year dividend and marks the final year of the current three-year dividend policy. Going forward, we will look to align our dividend policy in a manner which rewards our shareholders both in the short and the long term, but also maintains balance sheet strength and provide flexibility for continued discipline investments reflecting the evolving nature of the group.

For the fiscal year 2017, we expect to propose a dividend of SEK4 per share. By financial year 2019, our expectation is for the equity free cash flow generated by the group to progress and fully cover our 2020 dividend payout with an intention to deliver dividend per share growth thereafter.

In the interim, owing to continued investments in our Dutch business and the TDC integration, our dividend will exceed equity free cash flow. Reflecting on our current capital structure and the dividend policy outline, we have also refined our leverage target to a net debt to EBITDA range of 2 to 2.5, which is in line with the industry and is consistent with our intention to remain investment grade and to maintain balance sheet flexibility.

And with that, I will hand back to Allison.

Thank you, Lars. So in summary, we believe it was a very strong quarter driven by a very focused and disciplined choices that remain very much place our priority and focus going forward.

Growth from continued data monetization is being fueled by Tele2 being single-mindedly on providing our customers with excellent connectivity at a great price. We continue to maximize our dual-brand strategies in both the Sweden and Baltics to sustain the momentum and the cash generation in our established markets.

We are obviously now heavily focusing on integrating TDC into Sweden to create a strong modern challenger in the B2B space in our most important markets. We will continue to further leverage our challenger strategy in our investment markets of Netherlands and Kazakhstan to take significant market share in a disciplined and sensible manner.

And we will continue to execute on our challenger program and on our synergy programs to ensure we continue to improve our operating leverage, our EBITDA and our cash generation going forward. So basically, our guidance and our revised dividend policy reflects all of this, but most importantly it reflects the confidence that we have and our focus on data monetization and the belief that we have that that will deliver long-term value for our shareholders, our customers, and our employees.

So that brings us to the end of the presentation and we will now be very happy to take questions.

Morning, Allison, morning, Lars. It's Nick at Sock Gen.

Can I just ask on the Challenger program first in Sweden, is it possible to give us some details on the contribution of Challenger in the fourth quarter and in the second half? And also, any comments on the outlook for gross savings for 2017 would be interesting as well, if you could, just in Sweden please.

And the second thing was on the Netherlands. Any comment on the impact of T-Mobile yet and its new pricing packs?

I mean the adds seem a little bit weak in the fourth quarter, maybe that's a bit unfair, but was it a weaker market or was a T-Mobile impact or was it maybe 3G churn that hit your ads? Could you maybe give us a little bit of a breakdown of the ads for the quarter please?

Thanks.

Hi, Nick, Lars here. Thanks for those questions.

On the Challenger, we don’t break it down externally per market. When it comes to outlook for next year, as we mentioned, we are about SEK600 million, which is ahead of our plan.

As you know, we targeted 40% achievement of the $1 billion this year and we are still on plan to achieve 75% by next year and that’s what we are shooting for. As far as Dutch questions, Allison…

The Dutch question, so, yeah, December became more competitive again Nick because of T-Mobile’s mad month, which they had in September and then they kicked in in December. December is always a fairly slow month in the Netherlands anyway.

And January has so far been slow, but I’d say less because of the T-Mobile move, but some of the regulatory changes that have happened in the market, those new legislation around financial credit and it means all of us as mobile operators that are selling handsets are having to change the procedures so that you are not seen to be pushing credit in a poorly transparent way. So, yeah, T-Mobile had a little bit of an impact possibly in December, but it’s a slow month anyway and we’ve got – what’s quite exciting about what T-Mobile are doing is they are trying to drive ARPUs up from their level.

So they average ARPUs of around 22 and have launched some interesting buckets in this – the EUR20, all the way up to EUR35 range. That’s a great opportunity for us because our ARPUs are closer to EUR15 and EUR20.

So if the market starts to move into larger data buckets, which is what we’ve been very much encouraging so far then that gives us a lot of ARPU development. Also, as we move closer to having our network fully rolled out and we now have more 80% of our customer base on 4G handsets and we’ve got VoLTE coming along.

It’s going to allow us to be braver on what we do with SIM-only propositions looking forward as well. So, it’s not a bad think, but, yes, it’s a competitive market.

I mean presumably that means that your churn pool is more difficult now then? I mean do you have to bring forward those changes to your SIM-only plans faster do you think if it’s – if the T-Mobile's been more aggressive?

Sure. T-Mobile are pushing mobile only, which is great for us.

So the churn pool gets bigger when mobile only stimulates the market. So that is – that could be good news.

Okay, great.

And we always – we had a plan, as you know we’ve been quite cautious on SIM-only because we’ve been nervous about it, the leakage into 3G handset. We have now made it very clear that our SIM-only is for 4G now because we want our customers to get the most modern experience whether it’d be data or voice.

So we are brave enough now to be very much targeting 4G only SIMs and that will allow us to be braver going forward on what we can do with the campaigns that we have planned for February and then again in April.

That's great, thank you.

Hi guys, just a question on the forward-looking free cash flow guidance. It appears, based on the new dividend policy, that the cash outlay for dividends will be around SEK2 billion and, therefore, for you to achieve that level of free cash by 2019 with a pretty predictable CapEx tax, working capital and interest balance, it would seem to me you're being quite bearish on the outlook for your EBITDA growth for the next two years; especially when you have SEK1 billion of mobile losses in the Netherlands, synergies to be derived from the TDC acquisition and the Challenger program.

What are the puts and takes that make you think that you can't cover free cash flow any earlier? Thanks.

So, we obviously want to set expectations out there that we don’t disappoint against. And so we set guidance that very much allows you to have a more predictable set of expectations going forward.

If you look over the course of the next few years, our guidance basically reflects for 2017 we’re going to move total Netherlands closer towards EBITDA breakeven, so, that’s total Netherlands will get to EBITDA breakeven. We will be getting operating leverage from Challenger.

We will start to see synergies materializing in Sweden and Kazakhstan. And we expect continued strong mobile momentum in Sweden and Baltics as you’ve seen recently.

We also need to factor in that we still get some investments and some headwinds over the next two years as well. We still got to complete our network roll out in the Netherlands.

As I said, that will be completed by mid-2018. We have SEK750 million of integration costs related to TDC are very much from – almost half of that is in 2017 and the majority of the balance is 2018.

And we’ve got a couple of headwinds to think about as well from rollout at home and from declines in our legacy fixed business. So, all of that says that we will be making very good momentum on our EBITDA over the period.

We’ve got some investments into TDC integration; we’ve now got the CapEx to take onboard from TDC as well over that period. But definitely by 2019, our equity free cash flow will have grown and our dividend will be fully covered.

Okay, thanks. And just a quick follow-up on the Netherlands, I know for the 2016 year you provided mobile EBITDA loss guidance, is that something you can do for 2017?

No, we’ve decided based on our track record, it was a bit all over the place last year by quarter, so we’ve – we run our business over a longer period and I think our guidance for the Netherlands this year and it’s very much of the local team is to get to breakeven for the total business. The mobile losses will be down year-on-year, but they will be offset fixed.

Fair enough. Thank you very much guys.

Thank you.

Thank you very much for taking the question. Just following up on the previous one on the dividends, at your Capital Markets Day in December you were talking about potentially tying your dividend to equity free cash flow.

So, thinking about 2019 when your dividend is meant to be covered by equity free cash flow, is there a particular percentage that you had in mind that you could be potentially paying out? So, that's question one.

And then secondly, just on CapEx, just trying to better understand your CapEx dynamics and perhaps why isn't it declining a bit more than what you're guiding for. So, has anything changed on your CapEx thinking just recently?

For example, Netherlands mobile or would you expect to invest perhaps a bit more in Netherlands fixed? Yeah, so some additional color on the CapEx guidance that would be very helpful, thank you.

Yeah, in terms of – let me take the dividend question Roman and then I will hand over to Lars on CapEx. Absolutely our dividend policy is to be able to fully cover our dividend from a growing equity free cash flow in the business and it will be covered by 2019.

In terms of percentage payout, we are not setting a percentage at this point in time, but we will aiming to payout the majority of our equity free cash flow in line with the industry.

And as far as the CapEx, Roman, I think what we need to remember is that the TDC integration coming in, so we have about $150 million to $200 million of integration CapEx in the guidance that we have given you. As far as the other countries are concerned, we don’t see any major movements in the established markets.

When it comes to Holland, think you should look Holland that the mobile kind of rollout will be at the lower level compared to 2016 in 2017. And on the fixed piece, we talked about this in the previous calls that we are looking at the fixed investments from return investment perspective and we are reviewing them in detail and it’s very important to us that the cash contribution in the fixed piece in Holland is improving.

And don’t forget, you’ve also got a full year TDC CapEx and full year of Altel CapEx in the numbers this year as well.

Right, right.

Like-for-like, it’s down year-on-year, Roman.

I see, okay, thank you. Can I just quickly follow-up on the dividend?

Can I just check, I've been assuming, but can I just check that you expect your dividend in absolute terms to be going up, right, over the 2017 to 2019 period?

The policy is for it to be fully covered by equity free cash flow in 2019 and we will communicate an annual dividend each year between now and then.

Right, got you, thank you very much.

Yes, Maurice from Barclays. A couple of quick questions.

First of all, on the CapEx side, just checking – I mean you've been very helpful there sort of fleshing out where your CapEx is being spent, but is there any need to increase investment in enterprise CapEx in Sweden as part of the TDC acquisition looking to bulk up in addition of functionality there? And just second question, did I hear correctly it was 4.5 gigabytes was your average usage in Netherlands, because I think KPN is running at 1.5, I think?

Is that a big differentiator for you, this idea of much bigger buckets and therefore you're attracting those kinds of customers? Thank you.

The 4.5 gig was in Sweden, Maurice, sorry.

Okay, my bad.

The Netherlands, it’s still around 1 gig, just above the 1 gig.

Good.

And in terms of CapEx, the investment in Swedish enterprise both our organic business and our new TDC business is very much built into the CapEx guidance.

Okay, thank you.

It’s a combination of either integration CapEx or CapEx that we were already planning to spend in our Swedish business.

Okay, thank you.

Yes, hello. I'm dwelling a little bit on the EBITDA guidance for this year, just try to clarify some things.

You said on the Challenger program that you're now running the run rate is around SEK600 million in cost savings. I believe that was up from SEK400 million in Q3.

So just in terms of net savings, 2017 versus 2016, where are you aiming? Secondly, on TDC contribution, if I calculate on the Q4 contribution, I come up with that 2017 there will be a net contribution of around SEK450 million and then there should be lower losses in the Netherlands and Kazakhstan is also on quite good momentum.

So, it seems like your EBITDA guidance is on the cautious side, so where am I wrong?

Okay. So, Stefan, let me take the first one on the Challenger program, so we are at SEK600 million, we aim to be according to plan at 75%, so it’s another SEK150 million coming through net-net year-on-year positive development.

And when it comes to the TDC contribution, I mean we have about in that EBITDA run rate around SEK400 million and then we have synergies coming through, but we don’t have – we haven’t given that specific exactly what will come through. What we have said is SEK300 million over four years, that’s been what we are shooting are.

And then don’t forget the headwinds that we’ve got going into the year, Stefan, we’ve got rollout at home, which we are assuming will be about SEK200 million year-on-year impact. We have had some big one-offs in Germany year of around SEK150 million.

The Germany will revert back to probably 2015 levels in 2017 and we’ve still got some fixed decline in Netherlands and in some of the legacy Swedish business as well. So, we’ve give you a range that accounts for those headwinds, but also accounts for progressing Netherlands towards breakeven, operating leverage from Challenger program and synergies and good momentum in Sweden.

We’re aiming for around 2% on the top line in Sweden next year and continued mid-single digits on Baltics.

Can I just follow-up on the cost savings. I mean the run rate of SEK600 million right now and then – I mean that would be SEK150 million in cost saving Q4 2017 versus Q4 2016, so it's much more cost savings if you look at 2017 versus 2016, right?

Okay. So, Stefan, the SEK600 million is versus the baseline 2014, which we have communicated before, and the SEK150 million is for the full year, 2017 versus 2016.

Okay.

Yeah.

Yes, thank you.

Yes, thanks very much, I have a couple of questions. The first one is on the Netherlands and your comments, Allison, that the competition is getting a little bit worse.

But if we look at T-Mobile's new price plans, they don't seem that aggressive and, if they do, it's on sort of the EUR30, EUR35 per month plans, which is quite expensive. I mean is there anything else going on?

Are they pushing more on SAC or is there any more to it than just those sort of price plans?

In December, they did push more on SAC, like they did in September because they did their mad month.

Okay.

Basically it's 50% discount certain handsets and subscriptions. So that was in December.

So far in January, it’s been much more of a PR campaign around the unlimited EUR35 and more in the bundle for the 5 gig and 10 gig buckets. But as I said earlier to Nick, they are trying to test the 22 ARPU levels, we are coming from 15.

So, if they are promoting more data consumption in the market in higher buckets, not only helps us, but we can start to trade our customers up. And now that, as I said, we’ve got a stronger 4G network rollout position and we will be hopefully VoLTE across all of our handsets in the first half of the year.

That’s puts us in a strong position to start to really benefit from our network and reduce the reliance on the T-Mobile NRA during the course of 2017.

All right, so essentially, I mean, it sounds like it could be good for you instead of sort of pushing a 5-gig plan at EUR10, you can now push an unlimited data bundle at EUR20, EUR25, you're still cheaper and you drive your ARPU higher. Is that how I should think about it?

That’s something that we are certainly looking at for the future. Just as we were very brave in big buckets and driving consumption up in Sweden, know that we’ve got more than 80% data on-load in network and we are getting close to being able to have VoLTE or voice-over-WiFi then we will find it easier to be confident to push them SIM-only at propositions that will be competitive to T-Mobile and we make economic sense for us.

Okay. And then just following up on the Netherlands.

Can you just remind me how you sell the handsets in the Netherlands, if it's just on the installment plans? Because I guess your OpEx base or your EBITDA loss was a bit lower than I think – or we thought at least, in Q4.

I'm just wondering a little bit if you compare it to the EBITDA loss run-rate in the earlier part of the year, what has improved, really? I guess your revenue base has grown a bit, but is there anything on the OpEx base that improved as well?

Yeah, we will – the way we sell handsets in the Netherlands is same as the way we sell everywhere else, it’s monthly installment plans and there we take the hit of the – the cost of the handset right up front when the customer takes out the contract. Recall year-on-year, we already started our campaign, the end of November, early December last year, so we still – we had some quite equipment cost and acquisition costs going through in December last year.

So we had that already in our base. But as I said December was a little bit slower because of the T-Mobile campaign and December being a month where consumer don’t generally in the Netherlands from what I understand don’t go and buy handsets because they are focused on other things in the lead up to Christmas.

All right and in terms of distribution channels I see more sort of coming through your own channels now than you saw previously or more online, was it due to an improving mix?

Yeah, we continue to push more – more than 50% of our sales are through our own channels and that is good progress through our stores, but also very good progress on our own online channel as well. And obviously when we sell directly, we have higher ARPUs and we then don’t have the commission costs that we have in third-party retail.

All right, thank you very much.

Thank you, Henrik.

Yes, good morning, thank you. So just going back here to Holland again and sorry for repeating here, but I was just wondering, previously you said when indoor coverage goes above 90% then you will have – well, supposedly you can have a good kick on the gross margin.

I understand that's of course very theoretic, but can you comment maybe on if it's 5, 10 or how many percentage points gross margin improvement you've seen over 2016? Is it significant change from the beginning of the year to the latter parts or is it more or less unchanged?

That's the first question. And then on Baltics, as you say, you have very strong service revenue growth.

Can you comment on if you think that those trends and the monetization that you now do, can that counterbalance the roaming on the full-year EBITDA 2017 versus 2016 or if the roaming effect's too tough? And the last question, on the Swedish customer intake, can you sort of just comment on Tele2 brand development and Comviq postpaid versus Comviq prepaid and if it's very much on prepaid a negative effect this time due to sort of summer subscriptions that now show as a churn as they've been inactive, or what's the definition?

Thank you.

Okay. I will take the last two questions and I will hand back to Lars on the Netherlands margin.

Sweden customer intake, the negative was very much driven by prepaid, which is kind of very – in fact slightly lower than what we were predicting because we are continuing to see very strong postpaid to prepaid transition in the Comviq brand in particular. We did lose some Tele2 residential customers in the quarter, but they were at the low end ARPU levels and so we are really starting to see our dual-brand strategy work in that Tele2 is increasing the higher bucket and the higher ARPU customers, which is enabling Tele2 residential to have grown year-on-year albeit with a lower customer base and then Comviq just goes from strength to strength in the prepaid to post paid transition.

In terms of Baltics end user service revenue, we are seeing – that 12% did include about 45% of currency tailwind, but exceptionally all of the action that we are taking is with the ambition to ensure that we are not as impacted by roaming as we would want to be, but we are being cautious on what the impact of roaming will be and are assuming SEK200 million at this point in time, but obviously my team are doing everything they can to try and offset that. That’s one of the reasons for the mobile broadband campaign.

That business segment will not be hit by roaming. And it’s a segment where we have a lower market share than our average market share, so that’s why we chose to invest heavily in that segment in the fourth quarter, so that that will try and offset some of the headwinds from roaming as we go through next quarter.

And then, Lars, the question on Netherlands margin, I will hand over to you on that.

Yeah, so I think in absolute terms we see a healthy increase on the margin. What we also see is obviously we get customers that are using more data, so there is a little bit of an offset as well even though we have kept our NRA costs very much in check.

So, we’re still – actually we are slihglty below the EUR15 million for this quarter. So – but overall from an absolute perspective, it’s about 79% year-on-year improvement in Q4 on the margin.

And we will, obviously, as we really rollout VoLTE now, we will see a big impact on the NRA next year.

Yeah.

Can you – just on that last comment, I mean, to make it very rough typically an MVNO can maybe have 30% to 40% gross margins, whereas if you own your network you can have 70% to 85% in a broad range. Are you in the middle now or in the low end or in the high end or do you disagree with the very rough ranges I just said for Netherlands, that is, on mobile?

Yeah, I think, we will probably – I mean, at the moment, I think long-term that will be the ambition to get to those levels, but I mean we will still have a way to go on the mobile rollout. And we obviously increase the data consumption so that we shall offset that a little bit.

Those are the targets you get to once the network are fully – it’s fully rolled out. And 2017, there is still a dependency on T-Mobile that dilutes those gross margins.

It will be the second part of 2018 when the network is fully rolled out, we’ve got VoLTE fully rolled out and we are just using an NRA for a bit of voice that that gross margins will get to the levels you would expect an MNO.

Perfect, thank you very much.

Thank you, Thomas Heath here with Danske Bank. Two questions if I may.

Firstly, did I hear you correctly, Allison, when you said that the SEK4 base is for 2017 and then you expect growth from that level after 2019? So, is it reasonable to see a flat dividend for a few years as you invest heavily and then growth from the SEK4 level, is that a correct interpretation?

And then, secondly, on the quarter, just curious to hear there's some strong EBITDA both in other operations and in Netherlands fixed, curious to hear what's going on there and whether that's sustainable going into 2017? Thanks.

Okay. So, on the dividend, so as I said, we are aiming for our equity free cash flow in our business to grow between now and 2019 and 2019 onwards.

And therefore 2019 dividend will be fully covered. Between now and then, the board are only proposing an annual dividend at this point in time, which is SEK4 per share and we will review what the dividend should be for 2018 this time next year.

But underlying we want our equity free cash flow to be progressing throughout the period.

Then on the Holland fixed, I think it’s a reflection of two things. There’s a little bit of an FX in there, but it’s also very good progression on addressing the cost base in the Dutch business.

And on other, what you see there is, we talked about at the Capital Markets Days, the IoT business; we are progressing further on growing that business and that had some impact in the other mobile segments.

That's very helpful, thank you.

Thanks.

Thank you. I think most – I have three questions and all of them hark back to stuff we have discussed before, I'd just like to get a bit more clarity.

First of all, to Lars on the CapEx budget, I mean, 2016 is slightly over SEK3.8 billion, the guide is for SEK3.8 billion to SEK4.1 billion. And, Lars, when you were asked sort of whether that leaves a bit of room, you said, well, don't forget integration CapEx, which then, however, you said is only SEK150 million to SEK200 million and the Dutch CapEx comes down.

So still sort of I think the question still stands why the CapEx budget really has the last year's level as the lower bound, why the midpoint of that guidance isn't sort of lower, I'm still not quite clear where that increment would come from? Second question is on the sort of level of the investments you're putting into the Dutch business.

And obviously, there's always a trade-off between trying to milk the asset, trying to get it towards a return on investment and sort of trying to build scale. I'm wondering, have you changed your priorities on that?

We saw in the second half of 2016 the investments going down, which I think was observed by some other people asking questions on that. Is this simply that you're so happy with the progress and you're sort of seeing yourself on track towards the 20% share target and everything's fine and costs are coming down, therefore it is okay to have lower EBITDA losses or does it reflect sort of an effort to constrain the profit leakage in the operation and maybe also a degree of maybe scaling back ambition?

My last question is, in Sweden, you have restated the mix, the product mix, ever so slightly, but said it was restated and you sort of mentioned sort of the trigger of that. I still don't fully understand why the consolidation of TDC would sort of make it reasonable to restate historical sort of product mix for this future business.

Thank you.

Okay. Let me start with the Netherlands, Ulrich, and then Lars will take you through CapEx and Sweden restatement.

Netherlands, we have always said that we will invest in a disciplined and as look at the Netherlands we want to ensure that as we look forward, any additional investment we put into the market, we will see a return on that from gathering scale and making impact in the market. So, it’s a balancing act, but still aiming to get above moving towards the 20% market share adamantly in a market that shrunk because of the large amount of consolidation that’s happened around us.

So it’s all about balance. What we are doing though, is we are really reassessing the investment into fixed, because whereas in mobile we do believe we have a right to win because we’ve got a different brand proposition from the rest.

We’ve got a uniquely modern network that can offer the best in data and voice quality once everybody’s got VoLTE handsets and that will give us a very unique low cost operating leverage that nobody else will have in the market. Fixed, we need to really access the amount of investment in there because we’ve got less of a right to win in that segment over the long term because we are up against some very large fixed players and we are increasingly just becoming a reseller of the KPN VULA product.

So it’s all about striking the balance, keep fueling where we’ve right to win, but in a way that we believe will get a return back. And then dialing back on investment particularly CapEx investment in fixed to ensure that that business will also get a return on, but recognizing that we don’t have we are becoming increasingly a reseller.

And on the other two questions, Ulrich, on the CapEx please remember that we do have the 10-month of the run rate, the TDC CapEx investments and they were running at approximately SEK300 million, so you need to add that as well. And then, in Kazakhstan, we are doing the merger of the two network, which start at around mid this year, so there is a little bit of an elevated level in CapEx done also during 2017.

When it come to restatement, as you know, TDC are having quite a different portfolio in the large enterprise services portfolio that we offer the customers, so communication as a service and other IPVPN services. We have shown them in the mobile and the fixed segment and in order to be very transparent, we wanted to reflect that also retroactively.

So that’s why we did the restatement.

Okay, thank you.

Operator, can we please have the final question on the phone please. Thank you.

Thank you. Just one follow-up, so a short one please.

Allison, did you say earlier that you expected 2% top line growth in Sweden in 2017 and is that for mobile only please? Thank you.

Yeah, that’s mobile only.

Service revenues?

Yeah, mobile-end user service revenue in that 2% to 3% range is what we are aiming for Sweden and then mid-single digits on the bottom line.

Okay, thank you.

Thank you. We will take question from the web out as well.

I will read it out to you too, Allison. It's from Sunil at Bank of America.

He asks, do you think there is scope for the Dutch mobile market to consolidate down to three players or when do you think Netherlands will be cash flow breakeven?

As you know, we are big believers in market consolidation. So we would be fans of that happening.

And obviously, our license restrictions end at the end of 2017, so then it would very much be would there be regulatory support to that happening, but we are big fans of consolidation because it can create great value for shareholders as we are seeing with our Kazak JV. When do you think Netherlands will be cash flow breakeven?

Part of the journey towards 2019 is to get Netherlands through to cash flow breakeven. And that’s why we have the confidence in a growing dividend policy going forward really covered by equity free cash flow.

Thank you, Allison, and thank you, Lars. And this concludes our fourth quarter 2016 results presentation.

We will release results for the first quarter of 2017 on April 24. Thank you everyone for participating and for the good questions.

Have a nice day.