Telia's Strategic Resilience Fuels Q1 Profit Beat Amid Regional Challenges

Telia Company’s first-quarter 2025 results demonstrated a company in control of its destiny. Core profitability, measured by adjusted EBITDA, rose 6.7% year-on-year to SEK 7.80 billion, narrowly exceeding consensus expectations of SEK 7.70 billion. This beat underscores Telia’s progress in executing its cost discipline and strategic realignment, even as headwinds in key markets persist.

The Drivers of Growth
Telia’s Q1 success was rooted in operational efficiency and strategic pivots. Operating expenses (OPEX) as a percentage of service revenue dropped to 32.0%, down from 33.6% in Q1 2024, reflecting the impact of its “change program”—a multiyear initiative to reduce costs and streamline operations. Lower energy prices and improved working capital management added further tailwinds. Capital expenditures (CAPEX) also declined, with 12-month rolling CAPEX at SEK 13.1 billion, a sign of disciplined capital allocation.

The company’s free cash flow surged to SEK 1.72 billion, a stark improvement from a negative SEK 0.28 billion in the year-ago period. This turnaround was bolstered by higher EBITDA, reduced interest payments, and a SEK 0.6 billion working capital inflow. Meanwhile, Telia’s leverage ratio improved to 2.18x, down from 2.28x in Q4 2024, signaling stronger balance sheet health.

Regional Divide: Strength in the North, Struggles in the West
While Telia’s Nordic operations delivered uneven results, Sweden and the Baltic states (Lithuania and Estonia) stood out. Sweden’s consumer revenue grew 1.7%, driven by fiber broadband and TV service adoption. Estonia’s public sector IT contracts fueled mid-single-digit EBITDA growth, illustrating the potential of enterprise services.

Norway, however, remains a drag. The CEO, Patrik Hofbauer, admitted that service revenue and EBITDA in Norway are “expected to decline further in 2025” due to the expiration of a major mobile wholesale contract and weakening broadband/TV services. Telia is responding with network investments, cost cuts, and a renewed commercial strategy, but the Norwegian market’s challenges could test the company’s near-term resilience.

Strategic Moves to Unlock Value
Telia’s decision to sell its TV and Media business to Schibsted Media for SEK 6.55 billion—despite a SEK 1.9 billion non-cash impairment charge—highlights its focus on core telecom operations. The proceeds will reduce net debt, easing financial pressures. Separately, Telia Towers, the infrastructure arm, reported an 8% adjusted EBITDA rise, with a tenancy ratio of 2.28x, underscoring the success of spinning off non-core assets into profit centers.

The company also reaffirmed its 2025 outlook: adjusted EBITDA growth of at least 5%, service revenue growth of ~2%, and free cash flow of SEK 7.5 billion. Looking further ahead, Telia aims for a 2% CAGR in service revenue and 4% CAGR in adjusted EBITDA through 2027, with free cash flow exceeding SEK 10 billion by then.

Sustainability and the Long Game
Telia’s net-zero by 2040 pledge is no afterthought. With 100% renewable electricity in its operations since 2022 and supplier sustainability targets advancing, the company is embedding environmental goals into its strategy. This alignment with ESG trends could bolster investor confidence, particularly as regulators and consumers increasingly prioritize corporate responsibility.

Conclusion: A Company on Track, but Not Without Risks
Telia’s Q1 results reflect disciplined execution of its restructuring and cost-cutting plans. The 6.7% EBITDA growth and improved leverage ratio suggest the company is on course to meet its 2025 targets. Strategic moves like the media sale and Telia Towers’ success are creating value, while sustainability initiatives position Telia as a responsible operator in a shifting regulatory landscape.

However, Norway’s struggles and macroeconomic uncertainties—including potential U.S. tariffs on tech imports—remain risks. The CEO’s admission that EBITDA growth will be “weighted toward the fourth quarter” hints at near-term volatility.

Investors should weigh these factors against Telia’s fundamentals: a strengthened balance sheet, a focus on high-growth fiber and enterprise services, and a clear path to free cash flow growth. With a 5.2% dividend yield and a stock price that has risen 12% year-to-date, Telia appears poised to capitalize on its strategic repositioning—if it can navigate its Norwegian challenges and sustain momentum.