Tele2 AB (publ) (TEL2B) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Tele2 Q2 Interim Report 2026 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Nicholas Hogberg, President and Group CEO. Please go ahead.

Thank you. So good morning, and welcome to Tele2's call for the second quarter of 2026. With me, I have Peter Landgren, our Group CFO; and Stefan Trampus, our Chief B2B. So please turn to Slide 2 for some highlights from the second quarter. So in Q2, group end user service revenue grew by 2%, whereas underlying EBITDAaL grew by 4% despite tougher comps than in Q1. In Q2, we also continued to generate healthy equity free cash flow of SEK 1.5 billion. We also announced a partnership with Scaleway, Europe's leading public cloud provider to launch sovereign and scalable cloud and AI offering in Sweden. The offering combined Scaleway's public cloud capabilities with Tele2's private cloud services, providing organizations with a powerful hybrid solution. We continue to expand our store network in Sweden in Sweden, adding 3 new stores during the quarter. And finally, we are proud to have been recognized by Time Magazine as one of the world's most sustainable companies. including being the most sustainable telco in the Nordics. So please move to Page 3 for more details on our results. So our 2% growth in end-user service revenue was driven by all our operations and our 4% growth in underlying EBITDAaL was driven by both revenue growth and continued sharp cost control. Our solid equity free cash flow, which reduced by 9% year-on-year was negatively impacted by timing of tax payments, whereas operating cash flow grew somewhat, and Peter will go through the details later. CapEx to sales, which increased seasonally versus Q1, remained well below last year's level, mainly due to lower 5G rollout pace. Our leverage ended at 1.7x following the first dividend tranche, which was paid in May. In Sweden Consumer, end-user service revenue remained stable with growth in mobile postpaid and DTV. And in Sweden business, end user service revenue grew by 4% and driven by mobile due to strong IoT growth. And our Baltic operations grew end-user service revenue by 6% and underlying EBITDAaL by a strong 10%. So let's move to Slide 5 for more details on Swedish consumer. So as discussed in the CEO letter, this quarter, we continue to enhance the customer experience through investment in our brands, expanding store footprint and increased use of AI and automation. Also, according to Ookla test, Tele2 has Sweden's best 5G network, demonstrating the quality and reliability we deliver to our customers. Mobile postpaid end-user service revenue grew by 2%. Total mobile revenue grew by 1%, partly offset by continued decline in prepaid. In fixed broadband, end-user service revenue declined by 2%, impacted by increasingly competitive pricing dynamics. In digital TV, end-user service revenue continued to grow by 4%, and once again driven by healthy high single-digit growth in Tele2 TV, more than offsetting the impact of Boxer TV switch off. So let's look at the consumer KPIs on Slide 6. Mobile postpaid added a solid 13,000 RGUs during Q2, whereas mobile ASPU remained unchanged year-on-year. Fixed broadband RGUs declined by 8,000 in Q2, reflecting our deliberate caution in open networks where price competition remains unhealthy. Meanwhile, we grew RGUs in our own network where profitability is high. TV RGUs increased by 5,000 in Q2 with continued good momentum in Tele2 TV. ASPU grew by 3% year-on-year, driven by pricing and cross-selling of sports content. So to sum up, we delivered a solid quarter overall in terms of customer intake despite continued competitive intensity in the market. So please move to Slide 7 for Sweden Business. So Sweden Business continued to deliver a solid end-user service revenue growth, reaching 4% in Q2. Mobile grew by 7%, driven by our fast-growing IoT business. Mobile RGUs increased by 15,000 in Q2, supported by steady growth across several segments. ASPU continued to be impacted by change in customer mix. Solutions grew by 2% in Q2 primarily due to strong network solution performance. Fixed declined by 2% due to lower IP VPN revenues as a result of migration to new solutions, partly offset by continued solid growth in fixed broadband. Please move to Slide 8 for Sweden Financials. In total, Sweden end-user service revenue grew by 1% in Q2, mainly driven by business Underlying EBITDAaL grew by 2%, driven by the end-user service revenue and continued sharp cost control. Cash conversion improved to 76% over the last 12 months. Let's move to Baltic financials on Slide 10. Baltics maintained strong top and bottom line growth in Q2. We Total end-user service revenue grew by 6%, partly supported by price adjustments. Underlying EBITDAaL grew by 10%, mainly driven by end-user service revenue growth and cost optimization. Cash conversion based on the last 12 months was 80%, slightly negatively impacted by the tower transaction in Q1. Let's move to Slide 11 for Baltic operating KPIs. The total postpaid base increased by 11,000 RGUs in Q2, driven by all markets, whereas prepaid declined by 9,000 RGUs. Blended organic ASPU grew by a solid 7% driven by price adjustments and continued prepaid to postpaid migration. So with that, I hand over to Peter, who will go through the financial overview.

Thank you, Nicholas, and good morning, everyone. Please turn to Page 13 for the group income statement. Total revenue grew by 2%, driven by the service revenue growth of 2% on reported underlying EBITDAaL after lease, I'd like to remind you about the Baltic tower transaction. As previously stated, the transaction is expected to have a negative impact of around EUR 35 million on a 12-month basis starting from March. This translates to around SEK 95 million in the quarter. The organic growth in underlying EBITDAaL, which reflects the pro forma development was plus 4% compared to Q2 last year, thanks to the service revenue contribution and sharp cost control across the group. Items affecting comparability were mainly impacted by workforce-related costs. Net financial items decreased year-on-year, mainly thanks to higher interest income. In Q2, our average interest rate was 2.7%, with a debt mix of 74% fixed rates and 26% floating rates. Income tax increased year-on-year due to higher taxable profits. Let's move to the cash flow on Slide 14. CapEx paid, excluding spectrum decreased, primarily due to lower 5G rollout speed and delayed hardware supply, partly offset by payment timing. Spectrum CapEx refers to the Lithuanian spectrum acquired in Q2. Net financial items paid, excluding leasing, decreased due to both lower financing cost for outstanding debt and higher interest income. Taxes paid included around SEK 135 million of withholding tax payments in Latvia in Q2, while the corresponding payment last year occurred in Q3. In addition, this year included a supplementary tax payment of around SEK 60 million in Lithuania related to 2025. Altogether, equity free cash flow reached SEK 1.5 billion in Q2, and over the last 12 months, SEK 6.2 billion has been generated equivalent to almost SEK 9 per share. Please turn to Slide 15 for our capital structure. End of Q2, economic net debt was SEK 19.7 billion, a reduction of SEK 4.6 billion compared to end of 2025. This was driven by cash proceeds from the closing of the Baltic Tower transaction and the cash generated in the business, exceeding the payout of the first dividend tranche in May. Our leverage of 1.7x underlying EBITDAaL is comfortably within an investment-grade range. And with that, I hand over to Nicholas for some comments on our 2026 guidance.

Thank you, Peter. Please turn to Slide 16 for our 2026 guidance. So following our solid Q2 numbers, we are well on track to reach our full year guidance for 2026, comprising low single-digit organic growth of end-user service revenue low to mid-single-digit organic growth for underlying EBITDAaL and CapEx to sales in the range of 10% to 11%. As for underlying EBITDAaL, we are optimistic about avoiding the low part of the range. And regarding CapEx to sales, we believe we will land in the lower part of the range. So with that, I hand back to Peter for some additional comments regarding 2026 before we open up for Q&A.

Thanks, Nicholas. Yes, as always, a few additional remarks on the cash flow for the full year 2026. On spectrum, we estimate full year payments of around SEK 180 million related to auctions concluded in Sweden and Lithuania. On working capital, keep in mind that H1 was seasonally strong and H2 is expected to be seasonally weak. On financial items, excluding leasing, we now estimate full year net payments of around SEK 600 million with a similar quarterly phasing to last year. And finally, on taxes, we now estimate full year payments of around SEK 1.45 billion. And with that, I hand over to the operator for Q&A.

[Operator Instructions] We will now take the first question from the line of Andrew Lee from Goldman Sachs.

And welcome, Nicholas. I think we missed in the past when you were at 3 Sweden. I just wanted to ask 1 question, which is related -- which is kind of the key question investors were asking, given the management change we've seen at Tele2 in you joining. The concern that investors have is did Jean-Marc leave because there wasn't much more to be done in terms of cost efficiencies. So it would be great if you could talk to what you see as the opportunity in terms of cost efficiencies from here and ability to deliver mid or mid-single-digit EBITDAaL growth from here. In the context of you guys not raising your guidance of low single digit to mid-single-digit EBITDAaL growth this year despite having delivered 7.5% already year-to-date. People just -- investors just questioning what the kind of cost efficiency opportunity and outlook is from here, and it would be great to get your take on that.

Thank you, Andrew. So I think it's important to begin with stating that the next phase now is not about the new direction. So the focus continues to further improve customer loyalty and drive sustainable and profitable growth. And it's also important that we call ourselves a challenger and that is not a slogan for us. For Tele2, it means that we should act simpler and we should act faster and we should be more flexible. So being in and out in the telecom industry for almost 30 years, the beauty of the industry is that there is almost always more to do. So it is in the details where cost efficiency happens. And we will have a very strict cost control going forward. And we see several areas. And also we are working heavily with AI and automation where we see opportunities when it comes to creating even more operational efficiency in the company. So the strategy is there. We are, of course, we're very proud of this quarter, delivering on our expectations. -- but we will continue to have a very strict cost control going forward.

We will now take the next question from the line of Erik Lindholm-Rojestal from SEB.

Sure. Thank you. Good morning, everyone, and welcome, Nicholas. So I just wanted to ask about pricing in Sweden to start with. Sweden postpaid at was flat year-over-year. How should we think about pricing into the second half? And would you say that sort of promotional activity in general competition has increased in the CCC mobile market? And then just a second question on fixed broadband. Service revenues down 2% year-over-year here. How do you think sort of about volume loss versus price decline? And do you think the current pressure that you're seeing is sort of structural or is it mostly campaign-driven?

Thank you, Erik. So when it comes to the market and the competition, it's clearly a very competitive market, and it has also within the no-frill segment increased since Telia shut down the Halebop brand. So we can see increased competition in the no-frills market. We have chosen not to be part of that. We strongly believe that we can continue to build our challenger position and value for money. We are doing that by strengthening our brand assets with Comviq launching [ yesterday ], the very good campaign, and it actually performs very good. So we're happy about that, but we can see that it is a fierce market. From our perspective, we have created the flexibility in the company, thanks to our strong financial situation to choose whether we would like to take part of that competition or not. Right now and at this moment, we are not doing that. We are focusing internally on becoming even more efficient and strengthening our customer loyalty and our brands. So when it comes to fixed broadband, that is sort of a complex situation because we have players in the market, in the [ Solan ] market that is actually selling services below their cost price. We are not participating in that, and that is reflected in the numbers. But what I can say is that we are growing at the same time in our own network, which is positive. So we're also looking forward to the legislation from EU, which I think will create a more healthy situation in the market. So I hope that was your 2 questions.

We will now take our next question from the line of Andreas Joelsson from DNB Carnegie.

Good morning, everyone, and also welcome Nicholas from my side, a follow-up to Erik's question, but maybe more. In general, I read your focus areas in the CEO letter and you highlight accelerating growth and profitable and sustainable growth. But it is a sector, as you know, having been in the sector for many years that it is a challenge to grow the service revenue. I just would like to hear your more broad thoughts on that long term, how you see Tele2 being able to sustainably grow. We have seen that 3 has managed it over many years recently, but how do you see Tele2 being able to grow? And do you see in terms of both market share and pricing?

Thank you, Andreas. Well, this could be a very long answer, as you said, being in the industry for a while, but I'll try to keep it short. There's a couple of components in this. Of course, to start with, I think the strict cost control gives us flexibility on how to act as a company. So that is very important going forward. Our our 5G network being now promoted as the best 5G network in Sweden by Ookla helps us because then we have the very best product in the market, which is super important. Then, of course, I think it's important to highlight that we want to have the most loyal customers in the industry. And that comes down to offering very strong service in whatever channel is relevant for the customer. It is very much about distribution and make sure that we can offer good distribution from the customers' wish and also it is very much about the brands and the brand assets that we have. And maybe I'm -- of course, I'm talking out of Tele2's position, but I think being in the market for a long time that Tele2 has the strongest brands in the market, both with Tele2 and Frank and also with Comviq and [ Karin ] where we now have revamped the positioning of both brands and we can see some results. So going back to the growth, it's very much about operational efficiency and details and giving the customers what they really want and create a loyal customer base that feels that they get value for money. So for me, being a challenger is not lowest price. It's most value for money. But it's hard work, and we will make sure to do that work.

We will now take the next question from the line of Viktor Hogberg from Danske Bank.

So on the fixed broadband on Sweden, you see increased price competition with the upcoming regulation, which have been kind of update on previously, the aim from the regulator, of course, you see lower consumer prices. So what's your strategy? And how will you capitalize on the new market resume, given what we're seeing on the pricing side already as the first and potentially only question, we'll see.

Well, thank you, Viktor. I think It's fair to say that we will wait for the regulators to come with the new legislation. And after that, we are more prepared to discuss how and what we will do going forward. I think it's a bit -- would be a bit premature for me to go into details regarding that. But with that said, we see opportunities, and it is necessary to make sure that the new regulations come in place, which we think will happen in 2027.

Okay. And also a follow-up on this one, but on component prices and general inflation, I talked about this in Q1 -- in the Q1 report as well, but how will you mitigate this ties into previous questions. Are you willing to do anything on pricing already before the annual January hike to mitigate this? Or is it something that would affect the profit margins? Just thinking about inflation theme, which you clearly highlighted as well in the [indiscernible]?

Just a general comment, and then I will leave it to Peter to answer a bit more. But we have, as you can see in the numbers, created a strong balance sheet and good operations. So we have -- we are prepared and we can mitigate and we stand by our guidance for this year. Then of course, everyone knows the geopolitical situation. And going forward, we will see how that develops. But we think that we stand strong in this situation right now. With that said, I can leave over to Peter to give maybe a bit more flavor.

Absolutely. Maybe first on how to deal with this inflation. There is indeed inflation in certain pockets here and I think the work is, of course, to work specifically on those matters and see how we can act differently, challenge the suppliers and see if we can find other solutions. But in the end, sometimes we face inflation -- so specific work towards those counterparties is, of course, key, but also the general work that we have talked about also last year about our procurement activities and review our contracts which we keep doing. And last year, we saw a lot of it filtering through to better profitability. This year, we see that as well, but part of it is also to mitigate this inflationary pressure that we see in some places. And maybe that's also worth reflecting on our CapEx so far this year. It's quite low, partly as expected, but partly also because of because of the delays in deliveries due to this complex situation, and that's something that we cope in different ways. And one -- we try to plan differently and refurbish things where possible. And -- but in some cases, we need to buy. But so far, it has impacted our CapEx to sales in a way that it's so far quite low, as you can see.

Sorry, just a follow-up on that. Of course, you haven't guided for 2027 yet, but do you see a catch-up on these investments next year in a material way? Or is it a manageable quantity of CapEx that is delayed.

Yes. What can even though to quantify it a bit, even though it's a matter of definition, but we think that what has been in a way pushed forward, it's about SEK 100 million in the first half of the year. And that's something that might come back to some extent in the second half of the year or we try to mitigate it in other ways, or it's built over to be invested going forward. It's in the scheme of things. It's not a massive amount, and we feel confident that we can continue to run a business with low CapEx intensity.

Then also, I think it's fair to say that it's very difficult to speculate on component prices, memory prices, et cetera, for 2027. Things are moving fast, and we don't know actually what will happen during next year. So that is also an uncertainty in the situation.

We will now take the next question from the line of Felix Henriksson from Nordea.

You announced the strategic partnership with Scale away recently on sovereign cloud and AI offering in Sweden. So can you elaborate a bit more on this? How should we think about the financial impacts of the partnership in terms of revenue margin potential as well as investment needs? And if you could also touch on the sort of competitive landscape in that area in Sweden, that would be great.

Thank you for your question, Felix. I will hand over to Stefan Trampus, who is heading the B2B division. .

Felix, thanks for your question. Before I come into sort of financial impacts, I think it's worth describing why we're in this area. First of all, leading cloud and data center services it is a natural extension of Telco's core business and already invested assets that we have. And also we, as a provider, we are good at critical societal infrastructure. security, operation stability and also resilience or resilience are reflected in everything that we do and deliver. What we see is that customers are looking for an not all, but there are segments that are looking for not fragmented infrastructure. They want to buy both cloud network security services, so more of a chose solution. And we deliver that. And I would say there's a few players in Sweden that can do that. the whole end-to-end that I was talking about. And the strategy and the position we want to take is to be a leading telco in cloud and AI infrastructure and then offering both private, public and hybrid cloud solutions, the mix of it. And what's interesting to see, and I think we've touched about it on previous calls is that we see an increasing demand for European sovereign cloud and AI solutions. And Swedish organizations in our dialogues, we see that they want alternatives to global giants. And it's more than just a physical location for data stores. They also want to clear clarity regarding ownership, regulatory compliance, long-term control over their infrastructure. So the customers we are meeting and the need that we see is really matching with our own private cloud, which we delivered to our own data centers, but we saw it as a need also to complement with something else from the hyperscale place perspective. And therefore, we -- it was easy, I mean, Scaleway being closed part of the Lear Group. have these capabilities. So we're combining their public cloud with our private cloud into a powerful hybrid solutions. And as many or maybe have seen some of you that we have already secured our first customer, a major player in the energy segment. So I think that shows that we have the right offerings and skills in place to serve the future already today, not in the future. Then from a financial perspective, I mean, how this will affect our revenues. I mean, we don't report on the business line specifically. But we see good growth potential going forward, both from the customer needs, but also from legislation policies that we see both from Swedish authorities but also from an EU perspective. So this is something that we see as a good growth. Then it's attractive for selected segments, but you shouldn't see this as something that will replace our core revenue streams. We see this as an addition to the portfolio. So that's a little bit about the partnership and why we're doing it. I hope that answers your question, Felix.

We will now take the next question from the line of Fredrik Lithell from Handelsbanken.