Good morning, and welcome to Telenor Group's fourth quarter result presentation. I believe the sound level has woken up everybody in the audience, so we are sure we have the attention this morning. My name is Meera Bhatia , and I have the pleasure of guiding you through today's presentation. Our CEO, Jon Fredrik Baksaas, and CFO, Richard Aa , will give the financial update today. There will be, as usual, a Q&A session after the presentation, first here from the audience, then from the phone, and then from our webcast participants. We plan to end the session around 10:00 AM., and for media present, there will be the opportunity to speak to our executives afterwards. Fredrik, if I can ask you to come on stage, please.
Thank you, Mira, and good morning to all. 2014, another eventful, I'd say, but also a very—another strong year from the Telenor Group. We have stayed the course on our strategic ambitions, which are to stimulate data usage and availability through our Internet For All initiatives, and this really resonates in our markets for the time being. We have also tried to both build and strengthen the customer relationship deeper and wider in all our markets as well, and, as usual, tried to improve efficiency in all our operations. We have a 2014, where we deliver on our financial goals, both in terms of organic growth, EBITDA margin, improvement from 2013, as well as the investment level.
In Q4, we added 7 million new subscribers and 20 million for the year as a whole. Coming then to the total customer base of 186 million customers at year-end. This is a solid figure. It's positively impacted, of course, by the entry into Myanmar late last year. I'll come back to that. The organic revenue growth improved to 5.3% in the quarter, despite challenges in some markets, and it highlights the quality of the overall portfolio. The strong handset sales, but with an increased subsidy element, impacted the EBITDA margin negatively in Q4, in particular in Thailand. We sold as many as 1.7 million smartphones in this quarter alone, and we believe this will stimulate data consumption going forward.
However, we must make sure that the subsidies are reasonable and rational. Based on the performance during this year, Telenor plans to pay a total dividend of NOK 7.30 per share in 2014, of which NOK 3.80 shall be paid in June, and NOK 3.50 will be paid in November 2015. We now see growth ahead. We have some guidance for you in 2015, and we're stepping up the revenue growth target for the coming year, and Richard will take us through these details in some moments. Let me then move to the different operating entities, and I start with Norway, as usual.
Telenor Norway delivers a very, very strong quarter following the trends from earlier in 2014. The growth is, as for previous quarters, driven by strong underlying growth in data in particular, combined with also very targeted upselling activities. Around 70% of our mobile subscribers are now active data users, and the median data usage among our active users have more than doubled throughout the year. 43% of our customers now have a 4G-enabled phone, and the 4G network coverage is now at 84% of population. The number of 4G phones surpassed that of 3G handsets by the end of the year, and this shows that the appetite for data surely is there. Also, on fixed internet and TV, we see good upselling trends.
We increased the number of high-speed connections, coax, fiber, and VDSL, and customers migrate to products with higher speed. However, as usual, again, the traditional DSL lines, they continue to decline, and we need still to strengthen our efforts to stabilize the fixed broadband market share going forward. But I want to take this opportunity to both thank and congratulate the management in Telenor Norway for this performance, which is, as I would say, better than expected one year ago. Moving then to Europe and some words on the operations there. A common characteristic in the Q4 is that they all delivered organic revenue growth, but we also see temporary margin dilution in several of the operation, from both high device sales, in particular in Hungary and Sweden, and the launch of new services.
In Sweden, we had a 1% organic revenue growth. Within the mobile segment, we reported a stable ARPU and 2% service revenue growth. We had a very solid revenue performance in Sweden, both in 2012 and 2013, but in 2014, we've seen a gradual slowing down, and improving mobile growth is a priority for us in 2015. In Bulgaria, Globul was rebranded to Telenor in November, and the network renovation that we have initiated is now progressing according to plan, and is expected to be completed in first half 2015.
In December, as you know, we agreed with TeliaSonera to combine our respective Danish operations, and this is a deal that we believe will offer significant efficiency gains and bring benefits for customers by being a strong challenger to the incumbent. For this reason, we now don't disclose financials for Denmark, but I'm pleased to see Telenor Denmark performing reasonably well in a tough market and showing good subscriber growth within both consumer and business. I want to give praise to our colleagues in Denmark, after some periods of the opposite. Before we move to the Asian operations, I would like to mention that our broadcast division continues to deliver steady performance. Broadcast is now preparing for the launch of the new satellite, Thor 7, which is expected in second quarter 2015.
Moving into Asia, I will start with Thailand, which has come out as a more challenging year for us in 2014. After very solid results in Thailand in 2012 and 13, the competitive environment in Thailand and dtac's performance has been a key concern for us in 2014. The Q4 results show that we have stopped the subscriber losses that we saw in Q2 and Q3, and we are attracting new subscribers again, both within prepaid and postpaid. This has, however, come at a steep price, and we still see service revenues declining at -4% and EBITDA margin being under pressure, coming particularly from the high sales of smartphones. The EBITDA margin development deserves this explanation.
dtac had a very strong handset sales in this quarter, both from iPhone 6 and dtac-branded phones, as much as 625,000 in total. Negative margin on the handset revenues, -3 to -4 percentage points, gives an impact to this year-on-year. And combined with somewhat higher sales and marketing costs to secure the market position, also impacts the margin negatively and more than offsets the lower regulatory costs that we have in Thailand. The smartphone penetration is now close to 50%, and this will help stimulate data usage going forward. We must, however, make sure that we strike the right balance between stimulating data demand through handset subsidies and campaigns and a healthy pricing structure. And we're working on this on several levels.
We are not satisfied with the present results in Thailand, and the changes that we have taken on board for 2015 concentrates on the following. A key priority is to improve the network position. dtac is aiming to have the best data network in the key cities, both on 3G and 4G. We're delivering on the network improvement program, which includes adding 6,500 new sites in Q4 and Q1 this year, out of which roughly half has been done as we speak. The past few quarters, dtac has not been able to increase data revenues sufficiently to offset the decline in voice. An initiative aimed at improving this is the new data-centric offerings in postpaid, similar to those we know from Europe.
We also see that the market, in general, is moving in that direction. We are in a period of very strong growth in data usage, and with high investments, the industry must understand the need also to monetize. The very best reference for this is actually standing in Telenor Norway within the Telenor Group in 2014. We have also implemented a cluster-based operating model in Thailand. This is an approach that we've had success with in several other Asian operations, and it would enable us to measure and evaluate performance at a more detailed level and allow for more dynamic approach to investment and go-to-market activities. We should expect to see improving trends in dtac's performance during 2015.
In the other established Asian operations, we see good performance this quarter, both in terms of revenue growth and profitability. Both Digi in Malaysia and Grameenphone in Bangladesh continue to show solid growth combined with high margins. Digi, once again, demonstrates its ability to monetize on data usage, especially in the prepaid segment, and Grameenphone crossed the 50 million subscriber mark this quarter. In Bangladesh, the current political situation with unrest, blockades, and frequent hartals is a concern. In Pakistan, we expanded our 3G network with 1,700 sites this quarter to support further data growth. And in January, this year, the Pakistani authorities ordered the mobile operators to implement biometric re-verification of all customers within 90 days.
This re-verification program is now ongoing in the whole industry, Telenor Pakistan included. In India, we added 2.3 million subscribers in the fourth quarter, and we are now at a market share of 11% in the six circles that we're present. During the quarter, we also completed the redeployment of the 5,000 sites, an initiative that has increased population coverage in our six circles from 42 to approximately 50% during 2014. Going forward, we have to make sure that our customers' increasing demand for data translates into ARPU growth. But we also see that on the 2G service offering that we have, we already see a fairly high data usage in our customer stock.
Myanmar came up as our new country throughout 2014, and in just 1 year, people in the cities of Myanmar have leapfrogged from the very limited connectivity to broadly available mobile services. We are contributing to the rapid development of the country by providing essential infrastructure that will drive connectivity and opportunities for Myanmar. After just 1 quarter of commercial services, and with the launch in 3 largest cities, we ended the year with an impressive 3.4 million subscribers, and this figure continued to grow into January this year. ARPU is standing higher than we have originally seen, so we do see a more rapid growth in mobile services in Myanmar than we originally envisaged.
Growth is coming, in fact, faster than expected, and there is a pent-up demand both for voice and data services. The biggest challenge remains network rollout and the speed of this. We expanded to six new clusters in January and are currently around 1,300 sites on the air. I want also to take this opportunity to mention a bit about our initiative within digital and adjacent services. We have, over the past years, strengthened our digital capabilities and expanded into new adjacent positions, and we are gaining momentum. Within the mobile Internet of Things, Connexion, a Swedish company of Telenor, have customers in particular in the car industry, has grown to become a NOK 500 million revenue company with good profitability.
Within financial services, we're expanding our footprint and building on existing operations. Easypaisa in Pakistan is already contributing to 9% of revenues in Pakistan, and we have recently launched an online banking services in Serbia called Telenor Banka, and other launches are in the pipeline. A year ago, we joined forces with Schibsted and Singapore Press Holdings in the online classified market. In fourth quarter, we strengthened this position by striking a very important deal with Naspers for development of online classified platforms in four key markets: Brazil, Indonesia, Thailand, and Bangladesh. Combining our expertise and sharing costs within these online classified operations will bring significant benefits and open up for synergies within our existing businesses.
Closing then in on my final remarks for 2014, I believe we have reported a quarter with solid organic growth, and that we also have delivered a full year on our financial goals. Entering 2015, the Telenor Group's strategic direction is focused on profitable growth and efficient operations. We expect the good upselling trends in on increasing data usage to continue, in particular in Norway and Malaysia, translating into a healthy growth. As we continue to invest in high-speed data networks, we also need to see similar trends in other markets. Myanmar will contribute significantly to our growth in 2015, and probably at a higher speed than originally envisaged, when we started.
We continue to expand our network and offer affordable voice and data services in a market with a pent-up demand. A key task for 2015 will be to turn the trends in Thailand and to get back to profitable growth. And finally, we must continue to work on improvement of our efficiency. The cluster-based operating model is a key initiative, both in terms of growth and efficiency. We see somewhat stronger top-line growth towards the end of 2014, and we believe this can continue into 2015. And now I will leave the floor to Rikard, who will take us through both financial status as well as guidance for 2015. Thank you.
Yeah. Thank you, Fredrik, and good morning to everybody from me as well. In addition to what Fredrik mentioned, I will also say a few more words about dividend. But let's start with a recap of 2014.
... From a financial perspective, it's been a record year, with record high sales and record high EBITDA for Telenor. We also delivered on all our guiding parameters. We actually strengthened our guiding throughout the year, and we came in as we guided in total. Also, from a financial perspective, to see that we can grow profitably in two key operations, two of the largest operations measured in value, Norway and Digi, both on postpaid and on prepaid, that really cracked the code how to monetize data in those two operations has been a key achievement on for the future of Telenor. While we have been struggling in Thailand, which Fredrik mentioned, and that also I will come back to from a financial perspective.
Cost program, NOK 5 billion gross cost saving in the period 2012- 2015. We delivered 14 according to plan, and we have clear plans also for 2015 to come in line, and maybe somewhat better than what we laid out in 2012. We are investing heavily in spectrum and networks in 2014. We have acquired important data spectrum in Pakistan, in Hungary, and also added more spectrum in India. On the networks, we see a big demand for data and investing now heavily in LTE networks and also 3G networks in Asia. Finally, also 2014 was a good year on the M&A front. We executed in total 10 M&A projects.
The most important ones, probably the online classifieds, the joint venture with Naspers, and the joint venture with Telia, which were both executed in the fourth quarter. Before I go into the details on the revenues and EBITDA, some remarks on the currency. The Norwegian krone weakened considerably to many of the Asian currencies, and as you know, approximately half of the revenues in Telenor comes from Asia, which you see on this slide. A sharp drop in the oil price appreciated the value of currencies in Pakistan, Bangladesh, India, which are all oil-importing countries, and the Norwegian krone came under pressure.
And this of course has a very positive effect on revenues and EBITDA for the group, since half of the group now is positioned in Asia. So Fredrik mentioned that we had an organic revenue growth of slightly more than 5%. The reported revenue growth was 11%, double the organic. So total revenue growth of NOK 2.8 billion this quarter, half of it came from currencies, NOK 1.4 billion. So that's important to note. And it also have a significant impact on the EBITDA growth, because many of the operations in Asia, like Pakistan, Bangladesh, also Thailand and Malaysia, has a solid EBITDA margin that translates into better EBITDA. Also worth noticing that this also increase our debt.
Our debt is in foreign currency, and I'll come back to the how this reconcile into the total debt. But the krone goes up, and the krone goes down. As we see this morning as well, the krone is strengthening again. So, to be consistent over time and to measure performance, in a consistent way, we focus on organic parameters. And organic revenue growth stand as high as 5.3 percentage points this quarter. And, as you see from the right-hand chart here, most of it comes from mobile subscription and traffic revenues, and that's where we make the money. So that's very important, and a strong contributor to that growth of 3.4 percentage points comes from Myanmar.
But you also see devices grew heavily in this quarter by 1.3 percentage points, putting pressure on the margin. I'll also come back to that. This slide we show every quarter, and it's a very important slide, both for external measures and internal measures, to track how the subscription and traffic revenues are growing over time per region in Telenor and for the group as a whole. This is what delivers profit to the Telenor group and its shareholders. And as you see, the blue line, that's the group consolidated. It fluctuates typically between 4%-6%. This quarter, we were as high as 5.6%. This is slightly different from the total revenue growth, because this is only the growth in mobile subscription and traffic revenues.
You see the big, big, impact from, Norway, which now two quarters in a row has been about 10% service revenue growth. And we also see strong trends in Norway into 2015. We also see an uptick in Asia, that's mainly driven by Myanmar, but also good growth trends in Pakistan and Bangladesh. dtac should have been better. If dtac had performed at a good level, we've probably seen Asia in the more 9%-10% range than we see here, and also the group, maybe a percentage point, maybe one and a half up from where we are today. So excluding dtac, it's really a good quarter growth-wise. Maybe a little bit on the weak side is Europe.
The growth in Sweden has come down from very strong growth in 2013 and 2014, and management in Sweden now is really on a growth agenda for 2015 to see if they can bring and action in Sweden closer to what we have been executing in Norway. It's a key task for the Swedish management into 2015. We also see some promising trends towards the end of the year in the European portfolio, and also the rest of the European portfolio have higher growth targets for 2015 as close to zero growth over time is not where we should be in Europe. So solid growth, but margin under pressure, and here we need to spend some time to explain why our margin is under pressure.
It can be easily explained by the graph to the right, where we have sold 1.7 million handsets this quarter. There is a clear correlation between these sales and the record high profits of the Apple group. We have sold a lot of iPhones, and that comes with a certain subsidy. We have good control over that subsidy, and we think these are profitable investments, but it clearly put a dilution effect on our margins. So if you see the gross margin in Q4, it's down to 70% on a total gross profit of around NOK 20 billion. That's two percentage points lower than the gross margin in the similar period last year.
You have to compare Q4 with Q4 due to the Christmas campaign and the launch of iPhones and so on. Two percentage points on the gross margin, that's close to NOK 400 million. So that's the key reason why the EBITDA is under pressure, is the drop in the margin. If you look at the gross margin excluding the handset, it stands stable at around 80%. So the pressure on gross margin comes purely from handsets and mainly from two areas, the iPhone and the strong device sales in dtac. I think we are fairly okay with what we're doing on handsets in Europe and most of Asia, but we are concerned about the heavy subsidies in the Thai market and the Thai industry now competing away a lot of the regulatory cost saving.
So we have to work on how to get out of that in 2015. Then on EBITDA, we see also strong growth in the EBITDA year-over-year. If we exclude the growth cost in Myanmar, approximately NOK 200 million, the EBITDA grows around NOK 600 million, but also there are pressure from handsets. So really the reason why the EBITDA margin is dropping from 33%-31% year-over-year is again, the pressure from the handsets and that we are now ramping up in Myanmar. Other than that, the other trends in the other units are more or less in line with what we have seen earlier in 2014. Then to the CapEx.
Fourth quarter, record high CapEx, NOK 5.6 billion were invested in the fourth quarter, up NOK 1 billion year-on-year. There, I think we are doing the right things. We are investing heavily still in Norway, in high-speed networks on the mobile and the fixed with good profitability. We are executing the 6,500 base stations in Thailand to capture back a good network position in Bangkok and the big cities. We're swapping the network in Bulgaria to a data-centric network. We're rolling out 3G services in Pakistan, and of course, we're launching in Myanmar. So those 6 initiatives is driving the CapEx up. So we are at 19% CapEx to sales in the fourth quarter. That is not the level that will continue into 2015.
It's really driven now in the fourth quarter with very high CapEx in Myanmar and Pakistan, in particular. But the six areas I mentioned are the key drivers on the CapEx right now. So, given the high CapEx, even though we have a solid improvement in EBITDA, the cash flow for the quarter is down to NOK 3.6 million. But I would like to point your attention to the chart to the right-hand side there, which is the reconciliation of the cash flow development from 2013 to 2014 for a year as a whole. And the green box is really important there. We are able, in Telenor, by the healthy growth in service revenues, subscription and traffic revenues, to grow our gross profit by NOK 3.8 billion year-on-year.
That's really the core of the value creation in Telenor. By also controlling OpEx, that translates into solid EBITDA growth. There are currency effects in these numbers. On the OpEx, it's around NOK 500 million on currency effects. Then we are investing more, which you see from the CapEx slide there, which we believe are profitable investments. Then you have the net of the two new units to the right, Bulgaria and Myanmar, and that's mainly that we have invested NOK 1.7 billion into Myanmar in OpEx and CapEx, net of the revenues we have so far in Myanmar. With solid growth investments, we're still able to grow the cash flow of Telenor, positioning the group for the future. To the income statement.
We have. I've already been through the revenues and the EBITDA, and quickly go through some of the other special items in this quarter. On other items, we have some redundancy costs in Norway. We have written off an IT system in Sweden, and we have provided for some legal claims in India, not paid, NOK 100 million. On the associated companies, still weak results from VimpelCom, only contributing NOK 160 million. This is the Q3 results of VimpelCom, as they report later in February. Evry strong share performance, on the back of the bid from Apax, has made us reverse goodwill provision in Evry, and we're investing heavily in market activities in the online classified.
Our contribution to that was NOK 173 million in the fourth quarter, both in South America and Asia. On the net financials, we have a currency loss of NOK 221 million in the quarter. That is on internal transactions, non-cash, pure accounting issue. On taxes and non-controlling interest, nothing abnormal there, and the net income stands at NOK 1.8 billion for the quarter. Then to the debt. Like I said, currency is the main impact to our debt level. I will not go through the reconciliation of the net debt, which you see on the right-hand side there, other than comment on the currency effect.
The net debt increased NOK 6.7 billion in total for this quarter, which our currency effects were NOK 5.6 billion, which were the weakening of the krona towards the currencies we have our debt in. Still, our net debt to EBITDA ratio only increased from 1: 1.2 in the quarter, and we're still comfortably below our self-imposed ceilings of net debt to EBITDA of 2x. So even through extreme currency movements and weakening in Norwegian krona, this parameter is well under control and not a concern for the group. Then to the dividend. Telenor plans to pay out a dividend of 7.30 NOK per share, and that is a dividend ambition to deliver, as we have said in our policy, a growth in the dividend year-over-year.
That will represent a payout of NOK 11 billion. The plan is to pay out the dividend in two tranches, one of NOK 3.80 in June and one NOK 3.50 in November. And why are we doing this? Well, a total payout of NOK 11 billion at one particular point in the year is not aligning the underlying cash flow of Telenor with the dividend payout. So when dividends has come as high as NOK 11 billion, we found it prudent to align the cash flow profile of the group better with the dividend payout and split the dividend in two tranches. It also puts pressure on the financial markets and our lending institution to pay out NOK 11 billion in one go.
So also from that perspective, to ease the pressure on the funding, it's smarter to pay it out in two tranches, and it should benefit all Telenor shareholders. So the mechanisms around the new system of paying out in two tranches will be pending AGM approval, which then will give the board an authorization to handle the dividend in this way, if approved at the AGM on twentieth of May. Then to the guiding. As Fredrik mentioned, and also I mentioned, we see solid growth now in the Telenor group, and not least coming in from Myanmar, which is growing faster than we expected originally. So last year we ended the year of 3.4% revenue growth, and we now guide mid-single digit.
I must say that we're early in the year, so you should take that range as a quite wide range at this stage, and there are really two factors that makes us say that it's a wide range. It's Myanmar; it's very early. We see solid growth. If that continues, we can come very high in that range, but it's still early, and the other ones are handsets. We see enormous demand for smartphones in Asia, but also in our European operations, and we see smartphone prices dropping considerably, making smartphones available for the big masses. And how much handsets we sell will also, of course, impact the top line growth considerably.
Those are the two jokers on the top line growth, but we're still confident that we will grow at a higher ratio in 2015 than we did in 2014. These factors on Myanmar and handsets are, of course, directly related to our margin. We're guiding also a quite wide range on the margin, 33%-35%, which is somewhat down from 2014. Be aware that we will lose the wholesale contract with Tele2 in Norway, which has a direct impact on our EBITDA margin, so that's a factor that will take everything else equal, 1.5% lower than 2014. But the two main drivers why the EBITDA margin has such a wide range are the same why we are guiding quite wide on the top line, and that is Myanmar, the growth there.
That will come in with strong revenue growth, but Myanmar is still in a loss-making mode on EBITDA margin. So the more we grow in Myanmar, the more pressure we will have on the EBITDA margin. But that is for the good. And then it's on the handset the more we're able to sell handsets and grow the data availability and consumption, in particular in Asia, the more pressure we will put on the EBITDA margin. And I think this is well under control in all our markets, with exception of Thailand, right now. So you can rest assured that we follow this closely on the profitability side, and the worry is Thailand. But those factors makes us, so early in the year, be quite wide on both the top line and the margin.
So you can say, in a way, if you sum up 15, and we have been extremely successful in Myanmar and put pressure on the margin, I think it's still been a very good year. If we've been extremely successful on handsets with very high subsidies, you can maybe argue and really scrutinize what is the profitability on that, and particularly in Thailand. On the CapEx side, we see strong demand for data, and we need to secure our positions, especially in Asia. So we're guiding a CapEx in line with last year, excluding the satellite, which I think is prudent, given the strong data growth. The satellite will come in with approximately NOK 1.4 billion in CapEx.
So to follow the profitability now of these heavy investments we take in data networks, in particular in Asia, with the same scrutiny as we followed the heavy investments in the data networks in Norway in 2012 and 2013, is a key for the group, that we really are able to monetize profitably on the high investments in spectrum and data networks in Asia. And that brings me to the last slide before the Q&A. Sum up, yes, we delivered a record high 2014, in line with our guidance. Service revenues are growing nicely, but to secure profitable growth from the shift to voice and data and to continue our efficiency programs in 2015 are the key focus areas that both Fredrik and I mentioned this morning. Thank you.
Thank you, Rikard. Could I ask Fredrik back on stage, please? We'll take questions from the audience first. Any questions from the audience? No. Then we'll take one question from our online participants before I will open the phone lines. There's a question on our Indian operations. What is Telenor's outlook on the Indian operations in 2015 and in the long term? If you could comment on that, please. Fredrik or Rikard?
Sorry, I didn't follow your question.
Sorry. No, that's fine. A question on the-
I was concentrating.
Question on the Indian operations: What is our outlook on India in 2015 and in the long term?
India is a growth market for the future. It's a huge population. The new government has created good expectations for new economic growth momentum in the economy. Of course, expectations are one thing, real growth is another thing. We do see the very right indicators for this. Investments in the country are growing. We believe India is a long-term very interesting market in telecoms. The country is going to modernize into becoming an advanced consumer of mobile services, in particular, because that's the main infrastructure. The Telenor position through Uninor is that of servicing customers which are early users of mobile services, voice and SMS.
Despite we also see this part of the population being eager, also being initial users of data services. My point here is that the future in India depends on access to spectrum long term, and in that sense, the upcoming spectrum auction will be considered by us to participate from the areas and from the circles in which we already are. It's upcoming, it's right around the corner, and we will take a very close look on how to participate in that one.
We're positive to India longer term, but it's all about spectrum and access to that natural resource, which enables us also to serve the future needs of the big customer base that we consider that we already have and that we have to build from where we are.
Thank you, Fredrik. Could I now open the phone line, please, and open up for the first question?
We will now take our first question from Peter Nielsen from Kepler Cheuvreux.
Please go ahead and ask your question.
Hello?
Go ahead.
Go ahead.
You're on screen.
Hi, there. Thank you,
... Peter ... Just two, two, questions for you, Fredrik. We've obviously very recently had the approval, regulatory approval of the consolidation in the Norwegian mobile market. Just a question for you: Is there anything in the terms of the remedies, et cetera, of that transaction which makes you concerned about the market? And maybe you just gave us some very positive comments and indicators for the Norwegian market also in 2015. Is there anything here in what you've seen today that concerns you on?
On that side? And secondly, if I can just return to the Danish market, Fredrik, your comments were, for the first time, I guess, in a long time, fairly positive about the Danish market. You talked about positive subscriber trends, et cetera. Can you give us any hints on how things are looking on the revenue side for Telenor in Denmark, given you have recently won some major sort of public contracts and seem to have been fairly active in the market, and also how that has impacted the profitability? Thank you.
Let me then begin with the first part. I think that the consolidation that has been done, obviously, TeliaSonera sees that as okay, given the remedies that they have thrown into the deal in order to get it done. There will be a lot of work on their side to put these things together, of course, but that is sort of business as usual when you do these things, and we will have the same kind of work, hopefully to be executed in Denmark, after an acceptance have been taken there.
So the aspects of seeing that the authorities in Norway then have stimulated from their perspective sufficiently enough parameters in order to maintain the third operator is quite obvious. How this will evolve and how this will develop into actions in the marketplace is too early to say. So it's difficult to envisage how this new three operator structure from being three also last year but then becoming a new kind of three structured market, a three-player structured market, will play out towards and into 2015 is difficult.
But we do believe that throughout 2014 that we've shown that the need for monetization of the tremendous increase in data volume being consumed over the mobile phone is a very good feature to note also in this market as well in other markets. Because with these strong investments that we do feed into our in the systems, not only in Telenor the increased takeout from the system will also require increased monetization. And we have showed that in Norway throughout 2014, and we hope that to continue that trend in 2015. In Denmark, yes, we have been able to take in more customers.
We have stopped the leakage that we had in a period of time, end 2013, beginning 2014. So we're doing better. But the ARPU levels in Denmark has still been under pressure this year. But all in all, we're quite okay and satisfied, given the situation we were in, say, a year ago in Denmark. So I limit myself with that kind of comment, Peter.
Okay. Thank you.
Next question, please.
Thank you. The next question is from Georgios Ierodiaconou from Exane. Go ahead.
Yes. Hello, I've got two questions, please. The first one around the CapEx guidance. Yesterday, in the dtac call, there was some explanation around the CapEx guidance being a floor, with a potential for more investments if there's no agreement on network sharing with other partners in the market. I was wondering whether, as part of your guidance, you've carved out perhaps a bit more investment that has to go in around the NOK 14 billion in local currency, and if that is something we'll see in 2015 or maybe it's gonna be something for 2016. My second question is on Myanmar. Very positive commentary and very strong KPIs so far.
So what I would ask is, if you think there is significantly more potential than we initially envisaged, is there a point where the peak funding could be adjusted in order to reach the full, potential? Thank you.
Yes. Hi, good, hi, good morning. On the dtac side, we are in a very important moment of time in Thailand, both timing, we're coming up towards the end of a concession in a few years, and we also have the very strong data growth in Thailand. And we need to position ourselves from that. We have made it clear that we would like we have done in European markets, like to exploit sharing opportunities, which have been very successfully done in Denmark and Sweden, and also to some extent here in Norway.
And to me, and to us, it makes more sense to take a longer-term view in the Asian markets and try to utilize sharing opportunities. So far, that has been with limited success in Thailand, and we are a little bit in a crossroad. So, if not, we are able to find good sharing opportunities, we, of course, have to invest to protect our market position. But of course, then you have the risk that the Thai market becomes over-invested. So preference would obviously to do sharing activities, but make no mistake about it, we are not giving up the market position in Thailand if the sharing opportunities will not come, and then we probably have to revise the CapEx guiding up if that is not happening.
On the Myanmar, it's very important for the peak funding, like it was in India, it's a very important parameter to guide towards. But Myanmar is very developing much faster than expected, but our aim is to turn that into profitable growth. So we have no reason to believe that we should change the peak funding target at this stage, and that is a target that we put a lot of emphasis on, and we definitely not like to move.
Thank you.
Okay, thank you.
Next question, please, and could we try to limit ourselves to one question, please?
The next question is from San Dhillon , from RBC Capital Markets. Please go ahead.
Hi, guys. Just one question to follow up on the earlier India one. I'd like to get your views on Telenor's ability to compete in India in the mid to long term, I guess, versus other larger operators who all have nationwide coverage and already 3G coverage approaching 90%. I mean, do you believe Telenor will have to increase coverage, presence, and scale in the future to compete? Thanks.
The Indian market is not necessarily a national market, so we're quite okay with the circles in which we operate right now. So from that perspective, I think we're okay. And per circle, we are now seeing that the Uninor operation is climbing the statistics on the three incumbents. So the performance that we've had and the ability to go to market and to capture customers, 2.3 million in the fourth quarter alone, is a kind of proof on that.
But the longer-term picture is that, also, the Uninor operation needs access to data spectrum, because the market is obviously moving in that direction, and it will even increase later in medium term, when we expect the handsets of 4G phones to come down to affordable levels of a bigger part of the population. So, this combination needs to be addressed. I think we in the short term is quite okay, but in medium to long term, these kind of questions needs to be addressed and get and find new solutions.
Thank you. Next question, please.
Okay, thank you very much.
Sorry.
Next question is from Nick Lyall, from Société Générale. Please go ahead.
Yeah, morning, it's Nick from Soc Gen. Can I just ask one then, please? On the dividend policy, and not so much the splitting the dividend, but just the absolute level of dividend. Why is the dividend increase quite small this year at 7.3? It's quite a bit below consensus. I mean, does that signal as—or should that signal, too, as your expectations of cash flow growth are weak or possibly more M&A or concerns about licenses? Could you just expand on why the small increase in dividend, please? Thank you.
Yeah, thank you for the question. We have a dividend policy in Telenor where we aim to grow the dividend year-on-year, but we also have another part of the policy, where the dividend should be within 50%-80% of normalized net income. The recommended dividend level of NOK 7.3 is close to 100% of normalized net income. So we can say it's actually higher than the ceiling on the policy. Why we recommend the Board of Telenor recommend also to go higher than the policy is that we are embarking on significant growth investments in India, online classifieds, and not at least Myanmar, that put pressure on the normalized net earnings.
But we found it not prudent to go higher than 100% of normalized net income. That meaning that we're actually paying out the full normalized net income for 2014. That's the reason.
And I know you're talking about net income, Rikard, as opposed to cash flows, but I mean, should presumably this is gonna stay the same in terms of your prudence with all the license auctions and margin investment you're having to make coming up. I mean, as I say, it's more a cash flow investment rather than P&L at the moment. But does that have a sort of heavy weight on dividend policy in future as well? Because it doesn't look a great outlook.
Well, that of course depends how good we are able to grow the normalized net income over time, how good we're transferring in our investments in classifieds, Myanmar and so on, into monetization of data. So, I cannot give any particular guidance on that as of now.
But given the growth profile of the company, our aim is, of course, also to grow the underlying cash flow figure overall. And so the prospects to keep the dividend policy, I evaluate as being very strong.
Yeah, absolutely. I hope I was not being clear on that. The part of the dividend policy that aims for a growth in dividend year-on-year, that stands very firm.
Thank you. Next question, please.
Thank you. The next question is from Thomas Heath, from Handelsbanken Capital Markets. Please go ahead. Please go ahead, caller, your line is open.
Hi there. Sorry about the delay. Thomas Heath here with Handelsbanken. Two questions, if I may. Firstly, on online classifieds, since Rikard, you mentioned it in the previous question, should we expect the same amount of cash and P&L burden going ahead as we've seen before, even despite the consolidation in those markets which you participated in? And then secondly, a technical question on your margin guidance. Is it fair to assume that you're using today's spot currencies, or do you take any extra room for currencies rebounding in your group margin assumptions? Thank you.
Well, on the online classified, we are in partnership with the other publicly listed companies, so we should limit or be very careful with what we comment on, on the future, on the online classified, without full alignment with our partners. I'm not prepared to do that this morning. On the margin guidance, it's of course it could be some mix effects on the margin, depending on the currencies. But typically, typically, the margin stays fairly neutral, on currencies, because the top line and the EBITDA is more or less the same, depending on currency, how currencies are moving. So that should not have a significant effect, on the margin.
Thank you. Next question, please.
All right. Thank you very much.
Mm.
Thank you. The next question is from Eric Pearce, from Danske Bank. Please go ahead.
Thank you. I was just curious about the margin evolution in a couple of the Asian units. India, to start with, you had an EBITDA without too much improvement from, say, Q1, before you started the relocation of the 5,000 base stations. Could you help us out there? What is happening with the cost side, and how much did the remaining 5,000 base station relocation cost in Q4? And then on Myanmar, where is... You say you keep the peak funding, which is great news, but what will the trajectory look like here? When will the cash flow losses peak, please?
Let's start on the second question. I think it's difficult to say what kind of peak we will see in the speed of building up revenues and customers in Myanmar. And the reason for that is that we started in three cities, Naypyidaw, Mandalay, and Yangon, and now we are starting to escalate from those three cities and into more rural other cities and more rural like areas. And whether the pent-up demand is as strong on, let's say, countryside compared to cities, that remains to be seen. So it's too early to say what kind of growth factor we can see there. But the overall comment is that we have been received very well.
The services have been adopted very rapidly with the existing customers that has come on board. So the speed in the market and the availability of financial resources with our customers seems to be higher than we expected. So, so far, so good, but it remains to be seen how we're going to see the trends to the question. As to your first... Give me a hint on the first question again.
India.
India. The performance throughout 2014 is very good, though we had expected to be able to deploy the 5,000 base stations a bit earlier than we did, because of the monsoon season. So, we still carried out commissioning on the last part of the 5,000 base stations in fourth quarter, and that put some pressure on OpEx in that period.
So you could say that where we are now, we should be break even in on the volumes when we have got sort of up to speed in the new footprint that these 5,000 base station has given us, in the same way as we were more or less at the beginning of the year, before we started to launch these services. These new base stations, sorry.
Thank you. Next question, please.
The next question is from Ulrich Rathe from Jefferies. Please go ahead.
Thanks very much. I have a question. You are, of course, making the very valid point that your margin outlook depends quite significantly on the handset sales out in 2015. So I was just wondering-
... what we can expect there, obviously, you're not gonna give us the specific guidance, but, is it fair to say that we had quite major product cycles in the form of the iPhone 6 in 2015, which may not repeat in 2016, and therefore, one could even argue that at least in the more developed markets, volumes could actually go down? Or is this totally the wrong way of thinking about it, when we try to model out the handsets and the margin impact? Thank you.
I think you are pointing to a very important factor. We've used the word pent-up demand, and that demand was surely pent-up in the case of the iPhone 6 coming, because it came later than previously thought, and suddenly the market was waiting for it, and the reception to it was also extraordinarily strong. And then it's again no wonder that Apple comes out with their very best quarter ever in fourth quarter 2014. So I think you have a point there. Whether the market will be as responsive to that specific equipment in the coming months at the same level, that is something you are as good at to evaluate as we are.
My thoughts would at least be that we should not expect the same speed on Apple alone. Then again, what kind of new handsets we might see from other vendors and how these are thinking? Let's have a look at that question after the Mobile World Congress and see whether there are some news there coming out that potentially can compete in this space.
Thank you. Next question, please.
Thank you.
Thank you. The next question is from Jakob Bluestone from Credit Suisse. Please go ahead.
Hi, Jacob here from Credit Suisse. I just had a question on fixed line in Norway. It seems like sort of both KPIs and financial trends were a little bit softer this quarter. Retail revenue growth went from about +2% to -1%, and your broadband subscriber base shrinking. Could you maybe just provide a little bit of sort of extra color on what's happening there? Is that competition picking up? And if so, you know, the gap, is it the fiber companies? Is it all of the above? Thank you.
The DSL lines are still in reduction, and we now have a population of roughly 700,000 lines, I believe. The fall in number of subscriptions is slower now than it was previously. But remember, we're coming from the peak number, which was 2.4 million, so it's quite considerable. Our task here is to reduce the cost base associated with the fact that the number of lines have come down that much. The problem with this customer base is that these are long access lines, and other alternatives for a broadband connection through cable is actually quite limited. So, the need for this is quite strong.
Now, the mobile side comes up with better connectivity through the deployment of 800-based 4G services. So, there is a bit of complementary technologies coming around. But still, we expect that a part of this DSL lines subscriber base will survive longer term. So then our target is to reduce and establish a cost level that can go with a lower set of lines. On the other side, in more rural areas, both cable and fiber is coming up, driven both by us and by the electrical sector. So, the country being of the geography nature that we have, we will still have combinations of these technologies in order to cover homes with the needs for access to internet.
Thank you. Next question.
Just, uh-
Sorry.
Sorry.
Sorry, Ricky.
Just, just may add, Jacob, that the underlying trends on the high speeds are very solid also this quarter, that we are upselling to 50 megabyte and 100 megabyte on the cable and the, and the fiber, and also we're upselling DSL lines to VDSL. So the ARPU growth on high-speed fixed network is very solid. The problem is what Fredrik is pointing to, is that we have been losing subscription market share consistently now for a few years, and that trend needs to be turned in 2015 and going forward, but combined with a, with a growing, growing ARPU, as we have on the, on the mobile.
That's very helpful. Thank you.
Next question, please.
Thank you. The next question is from James Britton , from Nomura. Please go ahead.
Morning. I've got a few related questions on spectrum, please. Theoretically, are you, do you feel you need to have a proportionate share of spectrum in line with target market share in your, in your markets? And then, could you just update us on where you, where you would, expect to invest in spectrum in 2015? But also just give us a sense of when you expect the 700 MHz spectrum to be released in, in the Nordic markets, which are, of course, you know, very advanced data markets and probably need the more-
... more capacity, sooner. Thank you.
The spectrum position long term is important. Whether there are exact correlation with market share and spectrum balance, that's kind of another question. But if there is 2 big differences between the two, then, of course, there is a long-term challenge there. On 700, I think that it will take a little bit longer time before than 2015 before at least Norway will be able to release 700. We should have liked to get 700, but also I think there are others that have their fingers into that spectrum, and it will take a longer time to free it. The overall ITU decision will probably come this year.
That 700 will be allocated to commercial purposes within the mobile sector. So there will be a clear pointer from ITU in that respect, that this is all going to happen. Traditionally, the Nordic countries has been early out when it comes to release spectrum for commercial usage. But when and how speedy, it cannot be said here today.
Also, also, James, on your question on what happens this year. I think there could be several very important spectrum situations coming up in 2015, and probably the very most important one is in Thailand, in the transition from concession to license. Now the industry is building out a data network largely based on 2.1 GHz, which is not very economic in a way in the long term. So there needs to be liberalized more spectrum in Thailand under license regime. So we really hope that that auction will happen in 2015. And then we've been to India numerous times on this call.
More data spectrum is needed for all the operators in India, and we urge the Indian government to, to auction enough spectrum at reasonable prices, for growing connectivity for, for the Indian, population. Those two, probably the most important ones. We also hear rumors about, spectrum in, in Bangladesh, and there is a small spectrum allocation coming up in, in Serbia. But clearly Thailand and India being the most, important ones.
Thank you. We are running-
Is there anything available in Malaysia this year?
Yeah, Malaysia is a different system for spectrum allocation, but we certainly also hope in Malaysia that there will be an auction on a low frequency spectrum bands. Any more comments from you?
There is an imbalance between the three operators on 900, which have been a long-term headache. Since this 900 comes, hopefully.
Thank you. Next question, please.
Thank you.
Thank you. The next question is from Stefan Gauffin , from Nordea. Please go ahead.
Yes, a couple of questions. First of all, you commented that Sweden has showed fairly low growth and you are underperforming on service revenue growth versus the peers. You stated that it will be main priority to turn this around, and I wonder if you can give some indication on your plans here. Secondly, just a clarification on India. You stated something about EBITDA break even given your investments there. But can you say anything on when you should reach EBITDA break even and operating cash flow break even after these tower investments? Thank you.
Well, on Sweden. Yes, we have been growing less than our peers in the second half, like we see it now. But the key focus for the Swedish organization is really to lift the ARPU levels going forward in the same way as we've been able to do in Norway. It's not a matter of a gross add growth. This is a matter of delivering better quality, better services, more data volumes to our customers, and embark on the same journey as we have done in Norway on focusing on upsell on existing customers and growing the ARPU from giving better value to the customers.
On the India side, we will not guide quarter by quarter for India for 2015, but it's clearly an ambition for 2015 as a whole to be, be EBITDA break even. That's the target for the Indian organization.
Okay, thank you.
Next question, please.
Thank you. The next, the next question is from Barry Zeitoune from Berenberg. Please go ahead.
Hi, sure. Just I'll leave it to maybe two questions, if that's okay. The first is just on your margin guidance. Do you feel that you're being conservative with the guidance? And also then in terms of your old op free cash flow target, which you were previously forecasting at NOK 28 billion-NOK 30 billion. Is that completely ripped up, or do you feel that it's simply delayed a couple of years, given the requirements for investment? I'll leave it there for now. Thanks. Guidance is what it is at this stage, whether it's conservative or something else. I don't think we will give a sort of new dimensions to that.
The guidance stays, but of course, we have issues around DTAC, which we have then filtered into the guidance. And if we can get around the challenges that we have in DTAC, clearly the prospects of and the consequences to the margin should be positive. As to the 28 target, given the growth profile of the Telenor Group, and if we had had DTAC on stream in 2014, we would have not been very far away, actually, if the CapEx levels had normalized at, say, 10%-12%.
But we are running at a higher CapEx level, driven by what we see in all markets, that internet and data usage is coming, coming at us at a higher speed than we envisioned at that point in time. So, in the longer term, we should be able to grow top line out of these trends, and as a consequence, we should be able to, to, drive also the cash flow in the group.
Thank you. We are running a bit over time. I'll just take a few more questions, and next question, please.
Thank you. The next question is from Terence Tsui , from Morgan Stanley. Please go ahead.
Thank you. Good morning, everyone. I'll just stick to one question, please. Can you talk a bit more about Norwegian Mobile? Obviously, the service revenue trend growth is really strong there at 10%. Just wondered how sustainable that is, and maybe you can also remind us about the quantity of the wholesale revenues that you're gonna be losing from Tele2 in the coming quarters. Thank you.
I think that the underlying trend in Norway is very strong. We believe it will continue, but it will not continue with the high growth factor that we have in the last two quarters in Norway, as such. So it's our ambition to grow from where we are, and to take it further. On the wholesale side, the fact that there is a consolidation going on, and the fact that Tele2 is then moving their traffic from our network to the incoming network of theirs, that will be completed by the end of this quarter, and it has started. That constitute roughly NOK 500 million, almost with a direct effect also to the EBITDA.
But with an underlying growth factor in mobile service revenues as such, we believe we could, we shall be able to compensate this throughout the growth factor that we see in the market in general.
Thank you. We'll take two more questions and then end the session today. Next question, please.
The next question is from Russell Waller, from New Street, New Street Research. Please go ahead.
Yeah. Hello, thank you. Just on the CapEx for sales guidance, just a quick clarification, please. Is, is that off the organic revenue growth or the, or NOK revenues? Because NOK revenues could be up, you know, 10%+ year-over-year, and so are you saying CapEx is gonna be up 10%? And then just very quickly, on the, just thinking about how much you might spend in, in India, I mean, previously, you've talked about INR 155 billion rupee, sort of, cumulative spending cap. And is, is, is that still valid? Because my understanding was that that did, did include Spectrum, and you're, you're pretty close to that. Thank you.
Yeah. Starting off with India, yeah, the INR 155 billion cap is very important to us. But if you look at the net of everything we've been through in India, we still have some headroom up to the INR 155. And as you know, also, spectrum in India, you pay in installments. So, but we have not made up our mind yet if we want to participate in upcoming spectrum auctions or not. We are in the planning phase and evaluation phase for that right now. On the CapEx guiding, there are no big effect on the currency. It's really the same comment as I had on the EBITDA earlier. It's a margin guiding.
Thank you. We'll take the last caller now, please, if we could limit ourselves to one question.
The last question is from Andrew Lee, from Goldman Sachs. Please go ahead.
Yeah, good morning, everyone, and thanks for taking my call. The question is just on M&A, and I know you've kind of made a few comments around it on the call, and that you've said your criteria is within core assets and regions. But I was wondering if you could add us, give us some more color on which regions you think are more likely to see M&A from you guys, either because you think they're greater opportunities or because there's actually something for sale. And are there any greenfield opportunities you can see that perhaps we're not aware of? Thank you.
Well, I'm not aware of that many greenfields left, but if you have some, please, please show them to us. No, on the greenfield side, I think opportunities have taken. And Myanmar was the one in where we operate, the last greenfield of significance. And we like what we see so far, having said that. M&A in general, I don't think it's right of us to point in other directions than what we've said before. We are a player in the regions where we are. We have good positions.
If there are consolidation possibilities in these markets that could benefit the future, we will, of course, address and have a look at them, and I think that is what we will concentrate on core and develop ourselves in digital and adjacent services. So I think that limits, in a way, our comment to that question.
Maybe also add to that-
Is there a need?
Sorry. Maybe you should also add to that on the dividends, up against M&A, yeah?
Yeah, but I'll come back to that later.
Okay.
Was there a follow-up question? Otherwise, this was the last question.
Yeah. It's just to be clear, so it doesn't appear like there's any major opportunity for M&A in your Nordic regions anymore for you. Is that how you see things?
Yeah. The structures as they stand in the three Nordic countries in which we operate is probably more or less at the end of what we can expect as a regional consolidation. Does that mean that nothing will happen in Sweden? Well, who knows? But where we are right now, I think the structure in Norway has been set, the structure in Denmark has been set, as long as we can get it through in Brussels. And then we are where we are, and that's in a way my comment to that.
Thank you very much. That was the final question.
Then I want to thank everyone for having followed Telenor throughout 2014, and I hope to see you and follow you also in 2015. We have a very strong year behind us in 2014. We have developed the group in the right direction, and let there be no doubt about the underlying ambitions of the group. We are a growth company. We want to see competitive yields to our stock. We believe we've done that through the existing dividend policy, also for 2014. And despite the fact that the growth factor of dividends in that year is not as strong as it was in 2013. And the dividend policy, there is no changes to that. It stands firm.
We want to grow it nominally, year by year, and we want to have a competitive yield on the Telenor stock. Thank you.