Telia Company AB (publ) (TLSNF) Q1 2023 Earnings Call Transcript

Telia Company AB (publ) (OTCPK:TLSNF) Q1 2023 Results Conference Call April 26, 2023 3:30 AM ET

Company Participants

Erik Strandin Pers - Head of Investor Relations

Allison Kirkby - President and Chief Executive Officer

Per Christian Morland - Chief Financial Officer

Conference Call Participants

Ondrej Cabejšek - UBS

Peter Nielsen - ABG

Maurice Patrick - Barclays

Andreas Joelsson - Danske Bank

Stefan Gauffin - DNB

Nick Lyall - SocGen

Steve Malcolm - Redburn

Andrew Lee - Goldman Sachs

Fredrik Lithell - Handelsbanken

Siyi He - Citi

Operator

Telia Company's Q1 2023 results presentation. And with that, I will hand over to Telia Company's Head of Investor Relations, Erik Strandin Pers. Please go ahead. The floor is yours.

Erik Strandin Pers

Thank you, Sam. Hi, everyone, and welcome to our Q1 call.

We'll do -- as usual, we'll do a presentation, followed by Q&A. And on the call today, we have Allison Kirkby, our President and CEO; and our CFO, Per Christian Mørland.

Allison, please go ahead.

Allison Kirkby

Good morning, everyone, and warm welcome.

Our year started with a full focus on building profitable growth momentum in our telco businesses and taking decisive action on capital allocation to improve both cash conversion and value creation over the medium term. And I'm happy to say that this focus is already evident in our results and in our actions this quarter.

Our telco business units have delivered a solid set of financial and operational results, with service revenue growth improving to 2.4%. Both mobile and fixed grew at similar rates; and all markets contributed positively, except for Denmark which was relatively flattish. We also saw growth in both consumer and enterprise segments, where the latter accelerated to a strong 3.4% growth as we see excellent demand for connectivity services bundled with security, cloud and our award-winning IoT services. EBITDA momentum for the telco operations also improved sequentially, growing to 1.6% year-on-year.

We did, however, experience a tougher time in our TV and Media business with a softer advertising market adding to the challenges of monetizing some of our pay TV content. This was expected, and it did result in a weak EBITDA and contributed to a relatively flat year-on-year EBITDA development for the group. Also in the quarter, the structural part of our cash flow decreased to around SEK 700 million, from year-on-year CapEx savings. And total operational free cash flow was negative, as we expected and communicated earlier, due to a temporarily lower vendor financing balance. We now expect this to be fully recovered over the remainder of the year, as PC will explain later.

On strategy execution, beyond the financials, it's been a quarter of meaningful progress on customer satisfaction, on network modernization and on our sustainability ambitions. Specifically, we continued to be the undisputed 5G leader in the region, reaching a population coverage of 77% by the end of the quarter and with Opensignal awarding Telia Finland for having the best-quality network in the world. We made significant progress in this year's Sustainable Brand Index, proof that our customers are viewing our ESG efforts positively. And we were super proud to be awarded the top spot in this year's ranking of Europe's climate leaders by the Financial Times, a globally recognized assessment of climate commitment and real performance, where we came out beating many global powerhouses and all of our telco peers.

Having started the year with solid financial, operational and strategic progress and with more visibility on both CapEx and working capital elements, our outlook for the full year is unchanged. And as you saw last night, we continue to actively manage our portfolio to improve capital allocation and our balance sheet, so before we move ahead and talk about the quarter, let me just touch on the Danish announcement.

As you've seen, we've successfully agreed a deal to sell our Danish business to Norlys, the leading provider of energy and fiber infrastructure in the country, subject to relevant and customary approvals. This has been a long time in the planning and is a great outcome for everyone, us, Norlys and the customers and businesses who rely on the services we provide. And with such a committed long-term owner, it's great for Telia's Danish team too, who in just over a year have done an outstanding job of turning-around the business and upgrading the mobile network, both of which have been recognized in the valuation struck with Norlys. The valuation of DKK 6.25 billion or almost SEK 10 billion corresponds to around 9x the 2022 Telia Denmark EBITDA and clearly a much bigger multiple of cash generation.

We now enter a period of confirmatory due diligence, followed by a final share purchase agreement that we expect to sign during the summer. Then we'll move into a regulatory approval process that is likely to conclude around the turn of the year, so closing should occur within the next 12 months. And at closing, we intend to use the proceeds for deleveraging purposes.

So let's move back to results and how our four-pronged approach to building a better Telia is progressing. Everything we do to create a better Telia is guided by our belief that we will play an increasingly vital role in enabling the digitalization and technological development of our highly innovative [regions]. By inspiring customers, connecting everyone, transforming to digital and delivering sustainably, we are continuing the hard work of returning the company to sustained profitable growth; maintaining our technology and sector leadership; driving modernization of our operations to make Telia a better company for all its stakeholders today, tomorrow and into the future.

So let's now look at the progress in each of the units, and we'll start with Sweden. In Sweden, we saw customer satisfaction improve. We were the sector leader in the Sustainable Brand Index for the 13th consecutive year. And Telia's 5G is now available to almost 2/3 of the Swedish population.

Service revenue turned positive again with broad-based growth in all our service lines, if you exclude legacy copper services. Consumer improved and returned to growth in March as effects from the Q4 black screen situation gradually subsided. Enterprise growth continued to be very strong, growing 2.3%, with Telia and Telia Cygate leveraging their unique market position combining connectivity services with [IT], cloud and security services. Telia Cygate actually won preferred partnerships with several key global security solution providers in the quarter, contributing to double-digit growth in our, what I call, beyond-connectivity enterprise services.

Excluding copper revenues and roaming, we can see the real underlying revenue growth rate improving in the quarter to 2.8%. And with pricing initiatives taken in March impacting around 1 million subscriptions, we saw the growth rate improve further as we progressed through the quarter. EBITDA growth improved sequentially, although still showing a minor decline due to inflation, mainly energy which was a SEK 40 million headwind in the quarter.

Moving on to the operational KPIs. In mobile, we had positive postpaid net adds for our brand portfolio as a whole, including for Fello, our most affordable brand which won mobile operator of the year in the quarter based on NPS. This recognition also helps in pricing, of course, which we announced for Fello just last week. Talking about pricing: Mobile ARPU continued to grow, slightly supported by pricing initiatives and, to a lesser extent this quarter, the roaming rebound.

The broadband subscriber base increased, as growth in fiber and FWA more than offset the decline in the remaining DSL base, which has halved in the last year, with only 65,000 customers remaining. ARPU was, as you can see, flat, as pricing late in the quarter was offset by DSL decline and some discounting linked to the black screen situation I mentioned earlier.

In TV, we again saw a strong subscriber base development with 22,000 new customers despite price increases, with more than 2/3 of this growth in the high-value SDU segment. Clearly, ARPUs are expected to improve going forward, from the pricing taken in March and a gradual removal of the Q4 discount and now the Fello pricing just announced last week.

Moving to Finland. Network modernization, 5G rollout, global recognition for our network quality, improving brand consideration and cost transformation were all evident in the quarter. Financially, we had our third consecutive quarter of service revenue growth. And despite continued heightened energy costs, we saw EBITDA growth. The Finnish team continued to successfully drive down our cost base through digital transformation, channel shifts and general productivity measures. Mobile growth was slightly slower, as we had a strong A2P quarter this time last year helped by elevated public sector messaging during COVID.

In consumer, mobile ARPU grew 6% as a result of 5G migrations and pricing. However, our postpaid subscriber base declined somewhat due to a slightly shrinking market and our value-focused strategy, especially when it comes to which offers we make and which channels we use. Specifically, we've taken many pricing initiatives. And we're selling less in third-party channels, so while we have a reduced customer base, this strategy is benefiting not just ARPU, in fact, but also churn where we've seen a meaningful reduction in the quarter. In enterprise, mobile was impacted by the lower A2P revenues that I mentioned, but we saw an excellent 8% growth in fixed services driven by business solutions. Like we have in Sweden, we have a real competitive edge when we go to market combined with Telia Cygate services.

Turning to Norway. And we saw another quarter of solid momentum both on network rollout, where we remain the 5G frontrunners, with 89% of Norwegians now having access to our network; and onboarding of our new wholesale customers from Fjordkraft, started in late March, in line with plan. Service revenues increased 3.8%, with a 5% increase in mobile driven by both consumer and enterprise. And in effect, both TV and broadband also grew in the 4% to 5% range on the back of pricing, which together more than offset declines in fixed telephony where we decommissioned an end-of-life service. EBITDA again grew around the 3% mark, and that's despite a tough comp from a positive one-off item [worth 40 million] this time last year.

Looking at our customer base. We saw a slight decline, as we expected, following our recent price increases, but ARPU increased 1% as the solid increase in consumer was partly offset by the mix effect coming from our fast-growing enterprise unit and specifically from growing business in the public sector.

Moving to the LED markets; and again an excellent development for both Lithuania and Estonia, where we sustained brand leadership and built further our 5G network leadership positions to 95% pop coverage in Lithuania, where I will start.

Lithuania. Telia was named the most sustainable operator in the country after rising 7 points compared to last year. And we are almost 100% pop coverage on 5G. Financially, we continued to see excellent and broad-based service revenue growth, with mobile growing 11.5%, and fixed 8.5%. And the flow-through to EBITDA was again excellent and resulted in 13% growth.

Estonia was ranked as #1 in telcos and #2 overall in a customer service quality service -- survey of large corporates. Financial performance was likewise excellent with service revenue growth of 5.8%, again broad-based, with mobile growing double digits and fixed growing 4% and translating into a highly positive 10% EBITDA growth.

Finally, in Denmark. 5G pop coverage increased to 85%. And it was also confirmed that Telia retained its #1 NPS position among the main brands. In terms of revenue, we saw more muted development partly driven by regulated reductions in interconnect, but it was another strong quarter on the cost transformation side, resulting in EBITDA growing 15%.

Finally, let's move to TV and Media; and starting with advertising, where we believe we're performing relatively well, but it is a softening market. Advertising revenues declined, minus 5.4%, driven by linear in Sweden and only partly offset by continued healthy growth in digital. In Finland, the development was more positive due to the recent general election. On pay, revenue development turned slightly positive after several quarters of decline, supported by good OTT subscriber base development and price increases.

However, EBITDA losses increased, reflecting the lower service revenue, unsatisfactory monetization of some premium sports rights and expanded slate of international entertainment, combined with some inflationary and currency impacts affecting content costs. While Q1 was a low point and it is always a loss-making quarter from a cyclical point of view, there are, unfortunately, a few quick fixes. And so we will continue to carry high content costs for a number of quarters going forward. Our full focus is therefore now on the restructuring of the business. Consolidation of our brands is progressing well. And we've just announced that the new TV4 Play service, which will combine content currently offered under the C More brand, will be launched after the summer, allowing the gradual discontinuation of C More in the following months.

So moving to the financials, I'll pass over to PC to take you through it.

Per Christian Morland

Thank you, Allison.

Let me quickly summarize Q1 financials. As Allison has gone through, we have service revenue growth at plus 1.9%, with telco growth of 2.4%, in the quarter. All telco units are growing nicely, except Denmark that is flattish in the quarter. Telco service revenue growth is driven by growth both in consumer segment of 0.9% and a solid enterprise segment growth of plus 3.4%.

Total EBITDA is negative in the quarter at minus 0.8%, with telco growth at plus 1.6%. All telco units report solid EBITDA growth, with Sweden being flattish, versus the quarter last year. Energy [prices] in Q1 have been significantly lower [than period] only a few months ago, but energy cost in Q1 is still SEK 130 million higher than what we recorded in Q1 last year. Sequential improvement versus the last couple of quarters is driven by the improved telco growth and less negative impact from the mentioned energy costs.

Let's move to OpEx. OpEx increased 1.3% in the quarter, with slightly lower resource and marketing costs offset by tough comps on other cost items like IT expenses and travel costs. During the quarter, we have, as planned, executed on a head count reduction process, resulting in a total reduction of 900 resources, whereof 500 of -- our own employees. This has limited impact in the quarter but will help our cost development in the coming quarters ahead.

Despite significant headwinds, we have, 2 years into our transformation journey, reduced our net OpEx by SEK 1.0 billion, driven by significant net reductions in our resource and IT costs. Our cost transformation agenda remain, but the higher and extended inflationary pressure make it more difficult to realize the full potential of SEK 2.0 billion net cost reduction by end of 2023.

On CapEx. Total CapEx in Q1 is SEK 3.7 billion, significantly lower than the SEK 5.0 billion recorded in Q4 last year. CapEx is SEK 0.4 billion higher than Q1 last year, driven by higher investments related to the ongoing mobile network modernization and higher fiber-related investments in Sweden. CapEx is to be gradually reduced in the coming quarters, with the biggest year-on-year impact to be seen in the second half. We are well on track towards the full year outlook of SEK 13 billion to SEK 14 billion, and our aim remains to be at the mid or low end of this targeted range.

Let's move to cash flow. The structural part of operating free cash flow ended at SEK 0.7 billion in Q1, down SEK 1.3 billion versus Q1 last year mainly due to 2 factors. First, cash CapEx was SEK 1.1 billion higher than last year, from SEK 0.4 billion higher [book] CapEx and a vendor financing effect of SEK 0.8 billion versus last year. Secondly, restructuring costs increased by SEK 0.3 billion due to the mentioned redundancy process in the quarter.

Total operating free cash flow was, as expected, negatively impacted by change in working capital. This is mainly driven by negative vendor financing impact of SEK 3.1 billion, in addition to phasing of accounts payables.

On the next slide, I'd like to comment on the cash flow evolution during the year. The low cash flow generation in Q1 was as we expected, and we are well on track to deliver on our cash flow outlook for the year. The structural part of cash flow is expected to improve significantly in the second half, mainly from lower CapEx levels and higher EBITDA. Total operational free cash flow will, in addition, be supported by the positive working capital development mainly from phasing of vendor financing impacts. Our vendor financing balance is expected at the end of the year to be on a similar level at the end of last year, so the negative impact we see in Q1 is expected to be fully reversed over the coming quarters.

Our net debt increased, as expected, by SEK 4.3 billion in the quarter. And leverage ratio are now at the high end of our targeted range of -- 2.49x. This is mainly driven by the mentioned negative cash flow generation in the quarter. And as mentioned, proceeds from the sale of Denmark is expected to be used for deleveraging and reduce leverage by around 0.2x. Improved cash generation ahead combined with proceeds from M&A transactions are expected to secure leverage well within the targeted range of 2.0 to 2.5x.

And with that, I hand back to you, Allison, to summarize the presentation.

Allison Kirkby

Thanks, PC.

So let's start with our full year outlook. It's unchanged. We expect to grow both our service revenue and EBITDA this year but more so in telco than in TV and Media. And that's what we always expected [when we said] on the year. On cash flow, as PC has described, we are well on track and increasingly confident, now also with strong visibility on the vendor financing trajectory during the remaining course of the year, so we therefore expect all key financial metrics to grow year-on-year: service revenue, EBITDA, structural cash flow and operational free cash flow.

So summarizing the quarter and the outlook. Growth momentum continues, especially in enterprise, with price increases to contribute going forward. Network modernization and 5G rollout is delivering to plan, strengthening our leadership position and underpinning our premium market position. The current inflationary environment, as you expect, is challenging our cost agenda, but we have executed on close to 1,000 resource reductions at the end of the quarter, which will support our cost trajectory ahead. TV and Media, yes, [it's experiencing] headwind. However, brand consolidation of C More into TV4 and the subsequent restructuring is well underway.

We're making excellent progress on our sustainability agenda, where we are the clear leader in our sector in Europe and our regions. Investment levels have peaked. Vendor financing balance is secure, and so we're on track on our financial growth ambitions for the year. And we've stuck a highly accretive deal in Denmark that, once approved, will allow us to focus even further on markets where we can win with improved potential for capital allocation and value creation.

So I guess you're all now ready for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we will take our first question from Ondrej Cabejšek with UBS.

Ondrej Cabejšek

I have two questions, please. One is just a question on free cash flow. So you're still saying that the full balance for the year to be roughly neutral in terms of the vendor financing. Can you just give us an update, I guess, following on from the full year results where you said you had about 70% of the contracts secure on the way to make that balance neutral year-over-year? So where are you today? And is there any color in terms of the phasing as we go through the year [indiscernible]? So that would be helpful color. And then the second question, just on the spectrum that you flagged should be potentially a material cost in the second half of the year, but I'm just wondering because, historically, spectrum in Sweden has been relatively cheap compared to other markets. So what makes you think that, this time around, it's going to be a material outlay? And are there any kind of strategic thoughts behind that as well?

Allison Kirkby

So PC, take the first question. And then I got a bit distracted by the flashing screen there, so you'll need to ask me the second question. So if you take the vendor financing question...

Per Christian Morland

Yes. It was Swedish spectrum...

Allison Kirkby

Swedish spectrum, yes.

Per Christian Morland

So on the vendor financing, yes. So as we have talked about over the last few quarters, right, the sudden increase in interest rates gave us a challenge that we had to mitigate. We have progressed very well. And as you said, in Q1, in January -- or in January, we updated you that we have secured 3/4 of the balance for the year. And given our update now, we can confirm that we have secured 100% of that. And what we have done, just to give some color on that, is that we have renegotiated with some of our key contracts, around 10 of our key contracts, as we renegotiated, to secure the vendor financing balance. And then we have entered into a couple of new arrangements. So all in all, that secures the vendor financing balance, on level with 2022.

Allison Kirkby

And the Swedish spectrum auction. We've all -- we've gone through the consultation phase. We've all given back our feedback; and we should be hearing from the regulator, PTS, in the coming days or weeks. So we're still expecting the auction to proceed as planned in September.

Ondrej Cabejšek

Allison, the question was more like why would you expect the spectrum kind of auction to be a material cash outlay. Because, I guess, historically, spectrum in Sweden wasn't very expensive relative to what we saw in other markets. And so what should be different this time?

Allison Kirkby

So this is a 25-year auction for 900 megahertz, 2,100 megahertz and 2,600, so it’s one of the most important auctions and the last big auction outstanding for us as a group. So a very important one for all operators in the market.

Operator

And we will take our next question from Peter Nielsen with ABG.

Peter Nielsen

A question related to the TV and Media business, Allison, please. You said that trends are more or less as anticipated, but it does appear at least from the outside, Allison, that the losses in the TV and Media business exceed even your own expectations basically each quarter and that the content costs keep surprising negatively. Why is that? And why do you not have better visibility on the content side? I appreciate perhaps a weaker service revenue impact, but it does appear that the costs are higher. What is driving this and the seemingly [miniature] visibility? And if I can just ask a follow-up Allison: the exit from Denmark. Do you see any way, road back into the Danish business? Or is this sort of a final goodbye to the Danish market for Telia?

Allison Kirkby

Okay. This is the final goodbye for Telia in the Danish market at this time. We have tried for many years to build a position from a mobile-only player. We've done a fab job, in the last 18 months, to turn it around. Unless the market was to change dramatically and there was a great deal to be done, I think you can assume that it is a fond farewell, but we're passing over the business to a great, new owner. And we'll create a new national challenger in the market, so super proud of the deal that was struck and happy to pass it over to Niels and the Norlys crew once we get all of the approvals. On TV/Media, when I said it was in line with -- we had built into our guidance for the year that TV/Media would be challenged by a softening ad market this year. And that's exactly what we've seen, less so in Finland, so far, but more so in Sweden. And so in our overall market guidance, it's in line with expectations, but it is a little bit softer than we wanted to start the year with. And then in terms of the visibility on content costs, one of the big changes this quarter is you are seeing currency impacts on some of those contracts starting to flow through as well. And there were some new contracts struck later in the year in defense in case the Viaplay dispute was extended for a further period. So we went into our [defense skin] and that was absolutely right for our total business. And we expanded some of our international entertainment with BritBox just to strengthen the entertainment slate in C More. So we had very clear visibility on that content cost. Maybe we just didn't manage to guide that to the market, but what we now -- what we're really focused now on is the restructuring. Q1 is always a loss-making quarter for TV/Media, but I think it will be a soft year for TV/Media, considering the broader economic environment. And we're creating a business, a better business, for the future. And we never expected TV/Media to contribute positively this year, anyway.

Peter Nielsen

It will be a little bit more [indiscernible]. Is that correct?

Allison Kirkby

Sorry. Could you repeat that, Peter? I couldn't really hear...

Peter Nielsen

Yes. You are saying the same thing for the call, Allison. I mean it looks as if we are...

Allison Kirkby

Thank you, Peter -- well, we made a profit last year. What I’m saying is we won’t have any growth this year. And it will be a back-weighted positive EBITDA, which it kind of always is in TV/Media.

Operator

We'll take our next question from Maurice Patrick with Barclays.

Maurice Patrick

Question on Denmark sale, please, because I've got a couple of related questions. First one in Denmark is you talked about it, that being a long time coming, but I guess, why sell the asset now? Why is the timing now? Why did it take such a long time to come given what -- you said that. Related to that, you said you're going to delever with proceeds. I think, with some of the tower sales, you did a share buyback, so why this decision process with deleveraging over share buyback this time around? And I guess, what other potential disposals could be there to surprise the market? I mean you've talked in the past about rooftops in other markets, wondering if that's still in the agenda.

Allison Kirkby

Thanks, Maurice. When I say it's been a long time coming, I think it's been quite public that we have looked at a number of options for our Danish business over many, many years. And so that's what I mean it's been a long time coming. In terms of the timing now: When I came in to Telia and when I appointed Petr as the new CEO there, his whole focus was on turning-around the business to make a better business for Telia, so a better business when the right consolidation opportunities came along -- are you typing away on your keyboard, Maurice?

Maurice Patrick

I'm always typing, certainly.

Allison Kirkby

All right, okay. So -- and so what -- why is it the right time now? We have turned-around that business, but the Danish market continues to be a tough market. And we are #4. And Norlys came with a good offer for the business. 9x EBITDA for a business that has struggled to generate cash is a good option for us and certainly better than staying the #4 player forever in a very competitive market. And it only happened in the last weeks, couple of months because they’ve only recently received the proceeds from their fiber transaction. So that’s why it’s they’ve got the cash. It was a good offer. And we have never planned to stay in a market over the long term as the number four [indiscernible] player. Why delever and not share buyback: I think the world has changed since we did the share buyback a year ago. And certainly we want to be in the 2x to 2.5x range in terms of leverage. And at this time, we’re at the top end of that, so it’s absolutely the right and prudent thing to do, to use it as a deleveraging opportunity whilst interest rates remain at heightened levels. So that’s why. And what about other potential disposals? Rooftops, we still intend to do when the price is right and we’re truly ready. And we are always looking at our portfolio to see if there’s other opportunities to crystallize value and allow better capital allocation and more focus on the core connectivity business.

Operator

And we'll take our next question from Andreas Joelsson with Danske Bank.

Andreas Joelsson

I have two questions, one for Allison and one for PC. If we start with PC: If we take a more longer-term look at the vendor financing program, is this sort of the seasonality that we should expect, that you have a softer start of the year and then a buildup for the rest? And for Allison, on Finland, you have been looking at Finland now for a while and tried to turn it around. And we see that ARPU levels are quite flattish. And given that you have a very broad 5G offering and also the best-quality network in the world, when do you see that ARPU levels on a reported basis are coming up? I understand that they are B2B dilutive, but when do you see that quality also moving into the ARPU level?

Per Christian Morland

Yes, maybe I can start, Andreas. No, absolutely not: This seasonality that we see now, it's entirely linked back to the sudden increases we saw in interest rates during the course of last year, which is in a historic perspective almost unheard of. So as long as the interest rates stayed quite stable, you won't see any significant seasonality related to vendor financing.

Allison Kirkby

And thanks for the question on Finland, Andreas. And great to have you asking a question and not being sitting around the board table with us here. And you’re absolutely right. The ARPUs are flattish. Although consumer mobile ARPU is actually up 6%, it’s particularly diluted this quarter because of the -- some of the A2P revenues that were flowing through in the B2B ARPUs last year and we’ve got that mix impact. I think, as long as -- and there’s also an interconnect impact as well that the guys can explain to you when you meet them later. When will they start to improve? I think what we need to see is a little bit -- what we’ve seen in the consumer market is everybody wants to build great networks and everybody wants to price appropriately for those services. And you’re therefore seeing that ARPUs are growing on the back of 5G and all of us wanting to create value for our shareholders as well as value for our customers, yet to see that fully in the B2B market. There is still quite competitive pressure, particularly from the challenger in that market. And we’ve got, as you know, a very heavily weighted -- about 55% to 60% of our Finnish business is B2B, so what we need to do a better job of now is monetizing 5G and monetizing some of the other services around 5G to stop the deflationary pressure that’s been in the B2B market but has seemed to have been removed from the B2C market. And that’s what the teams are working on. And having the best network and having the strength of position we have in security services, and we do have the most trusted, most secure netwo’k, particularly things of the choice of vendor that we have, I do believe that it will build over time, Andreas.

Operator

And we will take our next question from Stefan Gauffin with DNB.

Stefan Gauffin

Yes. I have a couple of questions around the cash flow. And so repayment of lease liabilities took a step-up of SEK 200 million quarter-on-quarter. Is this the level to be seen going forward, or was this exceptional for Q1? I noticed Q1 last year was also high. Secondly, also on cash flow: So restructuring charges was high, which should have been expected given that you said in Q4 that 1,000 employees would be laid off in Q1. And if we look at number of employees, not much has happened quarter-on-quarter, but I understand there is a time lag. When will this feel this small in employee numbers? And should we return to sort of more normal restructuring charges over the coming quarters?

Allison Kirkby

Okay, I'll answer the employee numbers question and then pass to PC on the lease liabilities and restructuring charges, Stefan. Yes, you're absolutely right. Those employees that exited us were still employees on the 31st of March. Most of them exited on the 31st of March and some exit actually during the month of April. In the end, we are seeing about 900 resources exit over the -- during kind of the 4 to 6 weeks following the end of the quarter. Half of those are employees which the restructuring charges are linked to, and the other half are consultants that are either working in IT or in our call centers. So it's just a timing and a lag effect, but PC, maybe you can answer the more financial questions there.

Per Christian Morland

Yes. So just to connect them to the restructuring charges, right? We took out -- so the 1,000 resources is 500 that -- so we ended up at 900 in the quarter; 500 our own employees, which is correlating to the restructuring charges, as we said. As part of our transformation, we will continue to reduce our number of resources. And they can come restructuring charges also going forward but not at the level that we saw in Q1, so that is very much, at scale, is an issue for Q1. Overall, as we said and going back more than 2 years, we are looking at a total restructuring charge and adjustment item around SEK 1 billion per year; and that’s what we also expect for this year. Then on the lease payment, you -- as you rightfully say, Q1 is a bit higher from a seasonality point of view. That will continue. In terms of a year-on-year increase, we see some increases linked to the indexation linkages that we have in many of our contracts, so we expect the total lease payments for the year to increase a few hundred million, linked to the higher inflationary levels.

Operator

And we will take our next question from Nick Lyall with SocGen.

Nick Lyall

There was a couple of questions -- sort of a couple of questions Peter asked, one on the TV/Media. Just back to the question on the numbers themselves; obviously a weak Q1, as you see. Why would it -- why wouldn't it struggle to make 0 this year in terms of EBITDA? If you look at the quarter last year, we have -- it's roughly flat. And for the next 3 quarters, you're looking at around 0 for the EBITDA number. Is there something coming in, in terms of the benefits, maybe from the C More merger, that's going to help just push you up above 0 for the second half, for example? So could you please help us on how that's broken down for the full year on EBITDA number.

And then second, on the -- just a clarification on the turnaround in working cap. I think you said, PC, that there's 3 billion vendor turns around for the full year to get to 0. Is that the same as well for the working cap negative for the first quarter? Does that get back to 0 in the full year, on your expectations?

Allison Kirkby

Okay, thanks for the question, Nick. On -- some of it is content phasing. Like we're going all in on Love Island and a...

[Technical Difficulty]

Sorry. Can you -- are we back again, Sam, operator?

Operator

Yes, ma'am. We are connected.

Allison Kirkby

Okay. So Nick, did PC answer the questions? Or do you want...

Nick Lyall

No. I think it was really strange, but -- I don't know if you can hear me, but I think you cut out on the points on Love Island, would you believe, Allison? So I think that was about as far as we got, yes...

Allison Kirkby

Right, okay. Maybe it was me mentioning Love Island...

Nick Lyall

Unless I'm really the one -- apologies, but that's what happened. That's where we got to, I think.

Allison Kirkby

All right. Sorry. Okay. So Nick, what I was saying is there is some content phasing. So there were some big entertainment hits this quarter that weren't in the same quarter last year. There is also some content phasing later in the year as well. And yes, we are expecting some revenue momentum to come as we start to sell the new TV4 Play product in the second half of the year as well. So that's why, but if the market remains soft, there's absolutely risk on that TV/Media total unit. And that's why we came into the year not expecting it to grow and we're monitoring the situation very closely. And PC...

Per Christian Morland

Yes. Just quickly on the working capital: So we recorded SEK 4.3 billion negative in Q1. We expect the SEK 3.1 billion part of that to revert back from vendor financing. And in addition, we expect that -- and inventory gradually to come down throughout the year, in addition to some positive effects on accounts payable phasing. So we expect, as we see it now, sort of the entire working capital will be quite neutral on the year.

Operator

And we will take our next question from [Steve Malton] with Redburn.

Steve Malcolm

Yes. It's Steve Malcolm with Redburn. A couple of questions, please. Just coming back to the vendor financing point that PK raised -- sorry, PC raised, not PK. You said you've renegotiated some of the contracts. I mean, what do we read into that? Are you now prepared to share some of the costs? Because previously they -- this has effectively been prefinancing for you with low interest rates. It seems a bit counterintuitive, for your suppliers will wear a much bigger discount to be paid early, so maybe just sort of give us some insight into what that means, renegotiation. And I'd also like to know, what sort of suppliers are still happy to use vendor financing in this higher interest rate environment? Because again it seems a little bit sort of counterintuitive to me.

And then just coming back to Denmark. Allison, I think you said it was accretive, the deal. In my math, it's sort of free cash flow neutral and EPS accretive. Maybe just help us understand the overall sort of accretion impact of that deal on a free cash and earnings basis. I know it's early days, but that would be very helpful.

Allison Kirkby

Okay, I'll pass to -- then the financing, PC, but then on -- when I say accretive, I was really meaning we're getting almost SEK 10 billion for an asset that doesn't throw off any free cash flow, but I -- we haven't done the numbers. Or I don't have them in front of me, and all the EPS. And...

Steve Malcolm

Denmark is 0 free cash flow, is it? Is Denmark 0 free cash flow?

Allison Kirkby

Yes. It's pretty much -- doesn't -- it pretty much not generated any cash for us for years and certainly in the last 6 years.

Steve Malcolm

Would one expect it will generate cash this year based on EBITDA and the CapEx improvements you've made? Or it is still cash flow neutral...

Allison Kirkby

Not a lot. It would be marginal because we're still investing in the 5G network this year, Steve.

Steve Malcolm

Okay, so we should just assume that the proceeds will get used to pay down debt and save your interest costs, essentially. And that's based on the free cash flow [indiscernible] bigger -- okay.

Allison Kirkby

Correct, yes, yes, correct. On the vendor financing?

Per Christian Morland

Yes. So on the question relating to our partner suppliers on this. No one has indicated -- or has left the vendor financing program, so far. And we have good dialogues with all the partners that we have on the program as of now. And as I said also, we have onboarded a couple of new ones. And then when we talk about renegotiation, it's basically, in a higher inflationary environment and -- the suppliers are willing to give a higher discount to get paid in 7 days versus the original 60 to 90 days. So that is the biggest effect.

Steve Malcolm

So you're not actually paying any money on that, still. It's still a free source of financing for you essentially.

Per Christian Morland

We don't pay directly to supplier, no.

Steve Malcolm

Okay. And I mean just to follow up on that: I mean, in this higher interest rate environment, you're still going to have 11.4 billion outstanding in vendor financing in the year. Is that the right number? I mean, 5 years ago, that was nothing when rates were very, very low. Is that the right number to think about on a long-term basis, do you think?

Per Christian Morland

I think it's a good number for now. I think, if interest rates start to come down, we have the opportunity to scale it down a little bit and -- over the next few years, but as of now, we will keep it on that level. Our ambition is not to expand it further, so we don't see it as a driver for cash flow. We will try to mitigate so it doesn't become an issue on our cash flow generation.

Allison Kirkby

And we've got a broad range of vendors making use of it that are relevant in all elements of our supply chain.

Steve Malcolm

Okay. Is it still the case that it's sort of over 50% on the OpEx side? I think you said that previously. Is that still the case?

Allison Kirkby

No. It's a good mix of COGS, CapEx...

Per Christian Morland

It's actually around -- on the total balance, around 25% goes within sort of the investment bucket. And the rest goes as part of the EBITDA side and then working...

Steve Malcolm

Okay, super.

Operator

And we will take our next question from Andrew Lee with Goldman Sachs.

Andrew Lee

I had two questions, one on price rises; and then secondly, on CapEx. On the price rises side of things, a pushback that some investors make is that, even though we've seen headline price rises in Sweden, those don't filter down into ARPU because of customer spin-down and also promotional activity, so I wonder if you can just talk about your confidence that the bigger price rises you're putting through this year do impact your ARPU and service revenue growth in Sweden. Maybe there's a change in mechanics. I mean I note that Telenor has raised its brand pricing, but if you could talk about the drop-through from the price efforts you're making and your competitors are making to ARPU, that would be really helpful.

And then just second question is just coming back to CapEx. You mentioned that CapEx is phasing downwards through the year. Nonetheless, obviously, CapEx was higher this quarter than was expected. And we also saw your competitor Tele2 deliver CapEx at higher-than-expected levels and also potentially talk about risk to the upside on that -- on its CapEx for the full year, so I just wondered if there's any sort of inflationary pressure or other factors that might drive a higher CapEx than might have been expected in Sweden at the start of the year.

Allison Kirkby

Thanks, Andrew. On price rises, yes. It's the same in every market. The headline price rises at a gross level don't end up the same at a net level because of competitive pressure, spin-down and discounting. And so we don't plan for 100% of those headline prices to come through. What we see more positively now in Sweden and that has become more positive in the last 6 to 8 weeks is that the market leader at the low end of the market have taken their first price increase ever of SEK 10. And we have a brand also in that segment, called Fello. And we have also taken -- we just announced pricing last week in the SEK 10 to SEK 30 range. So as a result of that movement, we are expecting a little bit less spin-down going forward. And clearly we will have less discounting that we carried forward from Q4 from the Viaplay dispute into the quarter as well. That will dissipate over time as well, so we're expecting a little bit better net impact in the months to come than perhaps we saw towards the end of last year. And there have been a lot of various pricing moves in the market and certainly in the last couple of quarters. In terms of CapEx, I'll pass to PC, but just for context: We are now at basically 90% 5G coverage in all our markets, except Sweden now. And Sweden, we're at 63%. So we have still got slightly heightened mobile network investment in this quarter as we had in Q4, but that is going to reduce now because, once you're above 90%, there's not a lot more to roll out. So we're in -- we have good visibility as to how that CapEx will phase, but PC, if you want to build on that...

Per Christian Morland

Yes. So on the CapEx phasing, right, it -- we expect it to come slightly down, from the levels that we saw in Q1, over the next few quarters. Remember Q3 always is a low-CapEx quarter because of the vacation season. And the reduction is mainly related to, Allison talked about on the mobile network, investments that we gradually increased during last year, peaked in Q4 and now are gradually coming down towards the end of this year. And related to your questions on inflationary pressure or other things that can come as a surprise: I think we have built a very solid investment plan now. We have built in most of the inflationary pressure into that plan. And also as I said before, most of the higher part of the spend is locked into existing contracts. And it's not immediately exposed to the inflation that we've seen. I think it's worth mentioning that we see a continued heightened inflationary pressure. And it drags out a little bit, so over time, that will put some pressure also on our investment levels. We're talking a couple of hundred millions on a SEK 13 billion, SEK 14 billion investment program, so I don't see any major risk for that in a 2023 perspective.

Allison Kirkby

No, we see no risk to the SEK 13 billion to SEK 14 billion range, Andrew, not at all. And okay, we will try and squeeze in 2 more questions. We're getting to the end of time. So another question?

Operator

Yes, certainly. And we'll go to Fredrik Lithell with Handelsbanken.

Fredrik Lithell

I'm going to be very quick here. If -- maybe, PC, if you could summarize up what you see in front of you in terms of cost reduction program, if you can sort -- or if you see pockets of new savings to be made going forward if you take more of a 1, 2 years time span on that subject. And secondly, labor costs: We -- in Sweden, here we have central negotiations just finalized with a 4% hike on service. How much of your workforce will be sort of influenced by this? And is this a Q2 thing to think about in calculations?

Per Christian Morland

Yes, thanks for the questions. I can start on the labor costs. So as we have talked about before, we have -- in a normal kind of environment, inflation environment, we’ve had around 400 million of salary inflation on a yearly basis. When we saw inflation started to rise last year, we increased that to 600 million, and actually that has been a good estimate until recently. Over the last few weeks, we have landed agreements in our main markets Sweden, Finland and Norway. And as you said, they have ended slightly higher than what we expected, so actually there is a yearly impact in ‘23 of around 100 million on our salary costs. And that will start to kick in then from Q2 onwards. A good thing is that they also in Finland and Sweden have landed on the salary inflation for ‘24 which is on a very, I will say, reasonable level given where we are, on slightly above 3%, and below 3% in Finland.

On the cost reductions. The reduction we have done now during Q1, which is not really visible in the numbers, that will give us a tailwind of around 200 million per quarter over the coming quarters, so that is good, but of course, that -- we don’t stop there. We continue to implement new cost reduction and efficiency measures both this year and also going forward, so I think there’s -- we have done quite okay to reduce our cost base, so far. We still have a lot of complexity, a lot of money work, a lot of incoming calls through our customer service, so the journey continues. We do not expect any kind of significant changes. We will just continue working on a broad set of initiatives for the coming years as well.

Operator

And we will go next to Siyi He with Citi.

Siyi He

I just have two follow-ups, please. And the first question is on the price increases. I think the post-Q1 call of some of your peers is talking about the potential to implement pricing indexation also into the B2C market. I mean, just wondering, based on your experience of price increase this year, do you think this -- the Swedish and Finnish markets, the customers would have appetite to accept indexation into the contracts? And second question is on the costs. I mean, on your press release, you sound a bit cautious about the inflationary pressure, I mean, impact your 2 billion cost-saving target which you have reiterated to -- I mean, at the Q4 conference call. I'm just wondering. What do you see over the last 3 months that, that inflation could potentially impact your targets?

Allison Kirkby

Thanks, Siyi. So very quick. Price increases: As you know, we put price indexation into all -- pretty much all new enterprise contracts across our footprint. And we started doing that during the course of last year, and it was already in existence in our Norwegian enterprise business. A tricky bit of putting price indexation into contracts in Sweden and Finland is that it gives the customer the right to break from a binding contract. And so that is, if we're able to get away from that, of course, we will consider it, but at the moment, I think we are finding just a very rigorous, regular approach to price increases is probably the way we're going to continue in the consumer market unless we can change legally some of the terms of the binding contracts. And then on costs, what has changed in the last 3 months is these recent wage negotiations that PC just touched on. Sweden ended up above 4% this year. Norway could be close to 5%. It's not even finalized. And Finland was also close to 4%, but the good -- so that is putting 100 million. And we think how that might trickle through into other things. That could be a 150 million headwind that we only realize in the last 3 weeks, so that's why we're being a bit more cautious on the 2 billion. We're still putting through all of the initiatives. We're still aiming for it, but with those heightened levels, we now need to find new initiatives to offset that new 150 million. And that's why we're being a bit cautious on the 2 billion, but our cost agenda still remains. But what PC also said, though, is unlike other European markets, in Sweden and Finland we struck 2-year deals with the unions. And so in Sweden, it will be just the 3.3% next year. And in Finland, it will be below 3%. So that gives us much more visibility for next year, so it really is a '23 issue that we will take away. And we'll look at what we can do to offset.

Erik Strandin Pers

Thanks, Allison. I think that will have to be the last question of the call. Thanks, everyone, for many good questions. Please don’t hesitate to reach out if you’ve got more questions that we didn’t have time for. So goodbye, everyone.