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Telia Steps Up Savings Effort on Swedish Gloom

Scandinavian telco is on track to realize cost-saving targets this year despite disappointment at its main Swedish operation.

Iain Morris

October 19, 2018

4 Min Read
Telia Steps Up Savings Effort on Swedish Gloom

Telia is to shift about 500 employees at its Swedish business into a new central services division after bemoaning the slow pace of a turnaround at the operator's domestic unit, where it is trying to slash costs as sales continue to fall.

CEO Johan Dennelind said he was "still not happy with the pace of the turnaround" in Telia's Swedish operations as the operator closes in on a short-term objective of cutting about 1.1 billion Swedish kronor ($120 million) in operating expenses across the entire group. "We know there is clear large potential for improvements over the years to come."

Accordingly, Telia is setting up a new division called Common Products and Services that will centralize IT and product platforms and absorb workers from across various parts of the business. That process will begin in January when 500 employees in Sweden will move to the central division.

Telia's share price was trading down 3% in Stockholm at the time of publication following the strategy update this morning.

Despite slow progress in Sweden, Telia remains confident of realizing its immediate cost-savings target thanks to good momentum in other units. Reporting third-quarter results today, the operator already claims to have realized about SEK1 billion ($110 million) in cost savings over the first nine months of the year, leaving it with only SEK100 million ($11 million) to cut in the final quarter.

Telia promised the new structure and establishment of the central services division would lead to "significant structural cost savings from transformation" starting in 2020.

The update came as Telia reported a 5.5% rise in third-quarter sales, to SEK20.7 billion ($2.3 billion), thanks largely to favorable currency movements and takeover activity. The organic increase was just 0.1%, compared with the year-earlier period.

Telia's net income rose 17%, to about SEK3 billion ($250 million), while its adjusted earnings (before interest, tax, depreciation and amortization) were up 1.8%, on a purely organic basis, to nearly SEK7 billion ($780 million).

The performance led Telia to make a slight adjustment to its full-year guidance. It now expects earnings to be slightly above the 2017 level of SEK25.2 billion ($2.8 billion), having previously guided for an "in line with or slight above" outlook.

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Once an operator with a global presence and ambitions, Telia has pulled back from its easterly territories like Napoleon's army fleeing a Russian advance. It put the entirety of its central Asian business up for sale after running into economic problems and a bribery scandal in Uzbekistan that eventually cost it $1 billion ($110 billion) in fines. (See Telia Flogs Georgia Biz, Cuts More Jobs, TeliaSonera to Quit Eurasia, Focus on Europe and Eurobites: Telia Coughs Up $965M to Exit Uzbek Nightmare.)

That makes Sweden and the Nordic territories a priority for the company. But with little prospect of organic sales growth in these highly developed markets, Telia has looked to merger activity and savings programs to deliver bigger profits. (See Eurobites: Telia Bags TDC Norway for $2.59B.)

In Sweden, "comparisons will continue to be tough in the fourth quarter," said Dennelind, as Telia reported a 5.5% drop in earnings, to SEK3.3 billion ($370 million), despite a sales decline of just 0.5%, to SEK8.9 billion ($990 million).

The company's earnings update shows that employee numbers at the Swedish operation have fallen by 487, to 6,226, in the past 12 months. Those cuts were partly offset by the addition of 219 workers in Finland, where Telia now employs 3,341 people. But another 185 jobs went in Denmark, leaving the Danish operation with 909 members of staff at the end of September, and 174 positions have gone in Lithuania, where Telia now has 2,299 employees.

Telia is one of several Tier 1 operators internationally that are shedding staff as automation and new digital technologies disrupt the workplace. (See Big Telcos Have Slashed 107K Jobs Since 2015.)

Despite widespread industry excitement about the imminent arrival of the next-generation 5G standard, Dennelind said any investments in 5G would be "limited" before 2020 and "gradually replace" 4G-related investments thereafter. (See Eurobites: Telia Fires Up 5G in Helsinki.)

— Iain Morris, International Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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