Good morning, everyone, and welcome to the presentation of Telenor's results for the Fourth Quarter of 2012, whether you are present here at our headquarters at Fornebu, listening on the phone, or watching us via internet. My name is Scott Engebretsen , and I have the pleasure of taking you through the presentation this morning. Before we start, I hope that everyone has the material that we've made available. That will be our press release, the quarterly report, and a copy of the PowerPoint presentation to be used here in a minute. You can also find this material on our website at Telenor.com. At that website, you can also find instructions on the different alternatives to following this presentation, including how you can ask questions if you are outside our headquarters.
That brings me to the Q&A session, which will be held directly after the presentation here, and we will then start with the audience present, continue with the ones participating on the phone. And as we will try to end this session around 10:00 A.M. this morning, and to allow as many questions as possible from as many as possible, we kindly ask you to limit yourself to one question per person, and with one follow-up question if clarification is needed. We will have the opportunity to do individual interviews with the media directly after the presentation here. To present the figures today, we have our CEO, Mr. Jon Fredrik Baksaas, and our CFO, Mr. Richard Aa, and first, I'll leave the floor to Mr. Baksaas.
Yeah. Thank you, Scott. 2012 became a really eventful year for us. That has to be said. We, as many of you know, there were events in almost every month in that year. But 2012 also concluded with a strong fourth quarter. So let's recap a little bit of both the events and the quarter in particular. Once again, we demonstrate that we're a growth company. We have delivered a 5% organic growth revenue figure, both for the quarter and for the fiscal year as such. And the somewhat lower year the lower growth this year compared to last year is fully explained by the scale down in India, where we have reduced the number of circles, which you are perfectly aware.
But this fact fully explains the difference of the growth factor between the two years. Asia continues to be that growth factor for us. But also in Norway, the growth has returned, and Norway contributes considerably to the group numbers in 2012. For the first time, we have also reached a turnover above NOK 100 billion. And probably more importantly, for the first time, we're also about NOK 20 billion in operating cash flow for the group. The cash flow margin has improved 18% in fourth quarter 2012, whereas 15% the year before.
With this strong cash flow position, we have the Board yesterday have approved to propose a dividend record high at 6.0 NOK per share. This will be dealt with in details later by Richard. Investments in our systems are the future of the systems. Telenor Norway has had such a strong quarter and a strong year. The CapEx and the investment side in Norway is as high as it ever has been. 2% revenue growth this quarter, and this is then the third quarter in a row that we can note a growth factor in Norway, if we look at both fixed and mobile revenues.
But the trends are as before, data revenue growth and successful migration to bundled tariffs. These are the growth drivers. There is 7% mobile growth on mobile revenue growth, whereas we have more or less the same percentage-wise reduction in fixed line revenues as before. This growth comes from the investments that we've taken in the marketplace, and of course, also the continuing build out of the network. We are investing strongly both in fixed and mobile networks. NOK 4 billion+ for 2012 is a record high investment figure for the Norwegian market. These investments are long-term, and they will enable us to continue to deliver the superior quality network quality and the network capacity that we are having with the Telenor presence all around Norway.
The 4G launch in October comes on back of these investments, of course. And going into 2013, we will continue to invest, so that we will both increase capacity and coverage also in this year. It's a clear ambition for us to monetize on these investments, of course, along with the incredible usage growth that we see on the mobile side. But also on the fiber to the home, we've seen increased momentum, and we have now about 50,000 fiber to the homes connected, including the acquisition in southern Norway. So there is also a good momentum in that development. The revenues from the fixed line telephony will continue to decline. In 2012, the decline was NOK 340 million compared to 2011.
This development, of course, takes us to the needs of looking over the cost efficiency and how we operate in that part of our activities in Norway. There are still 900,000 lines connected in this, and of course, as it gradually will decrease also in the years to come, we will align the cost structures accordingly. New technologies are gradually phasing in, there are no doubt about that. Moving into Sweden and Denmark, in both these countries, there is also a solid demand for the new smartphones, which also in these two markets drive both the data demand and adoption of new services. The smartphone sales are now almost the only type of handsets that are being distributed.
But of course, this also brings about the need to even more closely monitor the handset profitability and the go-to-market models, as the competition structure is different in these two countries compared to Norway. In Sweden, the revenue growth this quarter is impacted by the new consumer portfolio that we introduced fourth quarter 2011, which, where the iPhone played a very significant role. And this boosted the handset revenue in that particular year. Adjusted for the impact of the handset discount, the underlying mobile service revenue growth in Sweden is close to 2%, which means that in broad terms, we have maintained our market share, revenue market share in 2012 in Sweden.
We've also been able to improve the EBITDA margin by one percentage point, and we've strengthened the subscriber base by 8% year-on-year. And this is in particular in the postpay, post-paid segment. Denmark is the most challenging country of our 11 operations. And, as a consequence, we have also taken a write-down of the remaining part of the goodwill, as Richard will explain to you in details later. With the revenue under pressure and average revenue per user still dropping, it's quite clear that the intense price competition is affecting, affecting our figures as it does for all operators in that market. And this will call for new ways of doing business in Denmark.
Having said that, though, we do see some early signs of increased market rationality this quarter, and let's build on these to continue in 2013. As you know, we are also cooperating with Telia on the joint network to be deployed. We believe this will be very good for the long-term picture in Denmark, giving a CapEx savings which is significant. We plan to launch our 3G or 4G offering in Denmark in March this year. On the OpEx side, both countries have made progress on their cost structures, and I have to say that the Danish team has really been able to cut costs significantly, as we are 15% lower this year than we were in 2011.
Moving a bit more south, Serbia and Hungary. Hungary, the double set of telecom taxes weighs heavily on our EBITDA margin in Hungary this quarter. Given these challenging circumstances, I believe that the performance of Hungary is quite good. To some extent, the sales tax introduced in July has been passed on to consumers, and this has led to a positive year-on-year revenue growth. There is a solid subscriber growth and maintained revenue market share of around 31%. In total, the two telecom taxes reduces the EBITDA margin by 11.5 percentage points.
The first telecom tax that was introduced in 2010 was removed from now, January 2013, and will take the EBITDA margin up by approximately 5-6 percentage points in 2013 onwards. EU continues to dispute the first telecom tax. We noticed that EU is now also questioning the telecom tax that was introduced in July 2012. But I think time will have to show whether there will be adjustments to this. And I should also mention that these taxes are industry general. So in that sense there is a level playing field. Serbia, some few words on Serbia. The migration from prepaid to postpaid continues. We see subscribers switching to higher tariff plans, and the smartphone penetration is increasing.
We anticipate, we estimate that to be around 20% for the time being. At the year end of 2012, 43% of our customers in Serbia were on postpaid subscriptions. ARPU has increased 5%, and this has then taken the organic revenue growth up to 9%. So during 2012, we have captured and maintained the number one market position in terms of revenue market share. And I think our management team in Serbia deserves the credit for that. Then, yeah. Then, I think we are about to move to Asia, the growth corner of what we're doing.
dtac, our most important event in dtac and Thailand this year is, of course, the acquisition of the 3G spectrum to 2.1 GHz license. This is an important step for the path from concession to a licensed regime. We expect, of course, a margin lift up to be the longer-term consequence of this, but it's too early to be too specific on the details. Two things needs to be more clear before we can say anything on this, and that is the clarity on access conditions with CAT. And the speed of migration to the new network will depend heavily on availability of new handsets in the marketplace.
It's also important to deliver on the vast and increasing demand that we see in Thailand, because Thailand is really hungry for this. And as we know, we've been waiting for this for quite a time, quite some time to happen, and we're ready to go. Operationally, dtac delivered a very strong quarter with 1.5 million new subscribers and 8% revenue growth in this quarter. There is a strong handset sale, but these are unsubsidized iPhone 5 phones. And this dilutes the margin on EBITDA level to a certain extent. 32% EBITDA margin would be more the level if it hadn't been for this subsidy, no, this margin dilution coming from the handset sales. Then on DiGi, we had some network problems with DiGi in previous quarters.
This is better in fourth quarter. And we see also then an improvement in the parameters around the operations in DiGi. There is a continued price pressure on international long distance. But data revenue growth seems and remains healthy, and in combination with strong handset sales, this resulted in a subscriber growth of 190,000, and an organic revenue growth of above 5, around 5.4%, which is then a slightly improved figure from what we had in third quarter. A bit more north in Asia, Pakistan and Bangladesh, there are some diverging trends, and these are also due to regulatory directives, and where the subscriber growth is lower in both countries this quarter. This might seem as a temporary thing.
However, it's no doubt that, the regulation, when it start to focus on the distribution side, it has an impact, which I will also show for India. In Bangladesh, the competition is very intense, and Grameenphone's challenges in Bangladesh continues. However, we saw some stabilization on the market share position of Grameenphone this quarter. The new regulatory directives on SIM sale has lowered acquisition and led to a market contraction in terms of registered SIMs. The implementation of the 10-second pulse requirement lowered also the revenue growth for the company, an estimated minus 3% plus for the growth figure of negative growth figure in Q4.
After several quarters of revenue market share decline, though, as I said, it's a positive to see that the revenue market share stabilization has happened this quarter. GP really need to focus on that part of its activities in the quarters to come in 2013. Pakistan has a very strong performance once again, with 17% revenue growth and improved margins. The revenue growth comes despite several government-enforced network suspensions. In addition to these network closures, the subscriber growth was impacted by some closures of retail channels in December. The financial services is really something which is picking up in Pakistan, and 3.4 percentage points of the growth factor in Pakistan stems from financial services.
As an additional element, the transaction amount in 2012 amounted totally to $1.4 billion of domestic transfers, which is more than double the amount the year before. And this comes from our now approximately 25,000 agents that are able to entertain the service. In India, there is a new platform for us in India after quite a year, quite a rollercoaster-like type of year when it comes to licenses. We have reached an important milestone this quarter in securing continuation of our operations. In October, we reached a settlement also with the previous partner and found then a new partner, which is now the balance for the six frequencies in six circles, in six circles that has been established.
We participate in the Spectrum Auction in November, as you know, and we're able to secure new spectrum in 6 of our best performing circles. For the total amount of INR 40 billion, of which one third was paid up front. These six circles comprise roughly 600 million people, half the population of India, and we anticipate that the real penetration in that geography is around 40%. The restructuring process is going as planned. We have downscaled 4 circles already, and in December, we gave notice to customers in Kolkata and West Bengal regarding service termination because of lack of new frequencies. We are now preparing for the business transfer to happen from Unitech Wireless to Telewings, and this will take place once Telewings has received its unified license and can start to operate.
In this case, we are awaiting the last leg, anticipated to happen of, the additional spectrum auction, which is going to take place in those areas that did not achieve to sell spectrum in November. Operationally, in India, our subscriber and revenue development in India is, of course, impacted by the scale down from 13 to now 7 circles, potentially also Mumbai leaving, depending on what is happening on the auction terms. The customer base, end of 2012, was 27 million based on a 30 days definition. This is down 2 million from Q3. However, that stems fully from the rescaling of the business.
This has taken ARPU slightly up from 88 in the six circles to 90 in this quarter. This will also take, this, along with the new procedure for how to accept and distribute new SIM cards, will both reduce the gross add numbers in the market in general, and it will reduce churn gradually. We see that the revenues are picking up again in our six circles also now in January. From as you can see from the cash flow graph, we are making pretty steady progress towards the targeted cash flow break-even figure by the end of 2013. The first circle that reached EBITDA break-even was UP East in November. I can assure you, it was a big celebration in that circle for that moment.
Gujarat turned EBITDA break-even in January, and we expect that Maharashtra will follow soon. We are staying well within the 15.5 peak funding as we have previously declared. Then I give some few words on the VimpelCom agenda. After a series of moves during 2012, the ownership structure in VimpelCom is now more clarified than it has been before. For practical purposes, the majority shareholder, Altimo, now controls the governance structure of the VimpelCom group. After having invested close to $5.5 billion in shares and pref shares to be converted in April. Going forward, we will support the value agenda that the VimpelCom management presented in their investor day in January.
We do believe that the group has very good chances to move in that direction, and that dividends are maintained to the level that you, as you can see, NOK 2.6 billion was received in January as the final dividend for 2011, and the interim dividend for 2012. Finally, I want to give two small comments on the strategy going forward. We see immense development in our industry for the time being. The world goes DiGital, basically, and the data growth is phenomenal. This requires heavy investments to keep that, to entertain that capacity growth.
But on the other side, we, as operators in this huge ecosystem, also need to shelter these investments in our business models going forward. And there's only one way of doing that, and that is to follow the customer demand and customer preferences and customer behavior. So telcos needs to focus on the service side or the IP generation, so to speak, and this is happening fast. And it's happening at a pace which we haven't seen before. I anticipate that we will see a lot more to this when we go to Barcelona in the end of February to look about the general trends in the industry in general.
As a consequence, we are putting all our efforts in understanding customer behavior and to align our offerings accordingly, and to bring balance between how we invest in order to reflect that also in the business models. We have achieved that very, very well in Norway. That doesn't necessarily mean that we will be successful in all other markets, but the underlying investment structures need to have revenue streams in order to to develop in a robust way going forward. At the same time, internally, we need to focus on cost efficiency measures. We need to utilize the scale of the group, and the partnership with other suppliers and with other operators, in general terms, will take new formats in the years to come.
And we need to be open to these ways of working in order to maintain both growth profile and profitability going forward. We have a phenomenal base in Telenor to do that. We have a strong balance sheet. We have raised our dividends. We should be well prepared. Thank you. Then I'll leave the word to Richard, who will take us through more detail on the financials. Richard?
Thank you, Fredrik. Yes, I'll do that. I'll also cover the shareholder remuneration for 2012, and finally the outlook for 2013. But just let me start with how we came in compared to the guiding. As you know, we guide on three parameters: revenue growth, EBITDA margin, and CapEx to sales. We had good control in the fourth quarter, so on all three parameters, we came in basically as we guided. Then I'm also taking that over to the operational efficiency that Fredrik ended his presentation with. I think we made good progress on the OE side in 2012. Also there, more or less as expected.
As you see from the chart behind me, the two main targets on OE for 2013, on OpEx to sales and CapEx to sales. I'll dwell a little bit more about these slides, because I think it's important to report how we're faring on these. On OpEx to sales, you see we ended at 36.3 OpEx to sales, and we had a strong improvement toward the end of the year. Important to note is what's in the bullet point here, that regulatory costs in Bangladesh, Thailand, and Malaysia have increased OpEx to sales ratio about 0.9.
So if it hadn't been for these regulatory costs, we would actually been at 35.4 now, which actually means that it would be the easier to reach the 35% target in 2013. So these regulatory cost impacts makes it even more challenging to get to the 35%. But the underlying cost programs in Telenor are going as planned. A few examples on that, we can look at operation and maintenance costs in the period now, the last three years since the start of the program, has basically been flat, despite that number of sites are up 20%. Also, the salary cost in the group is basically flat, despite a salary inflation of about 4%, 20% more sites, and significantly more customers to serve.
So the underlying productivity in the group is definitely moving in the right, right direction and according to plans, but the regulatory costs are a concern, and especially in Asia. Then on the CapEx to sales, the year ended at 12.4%. When we dissect the 12.4%, we see that the underlying CapEx to sales in the mobile operation is around 10%. We have the swaps in Asia, dtac, DiGi, and Pakistan, contributing a little more than one percentage points on the CapEx to sales, and then the fiber investments in, Norway, about the same. So excluding that, we are already at the level of 10%, driven very much by the swaps and the effects of, the sourcing activities, in the group, a more centralized sourcing approach.
Then, also very important for our network quality, operational efficiency, but also what Fredrik said, the ability to serve the customers, is the spectrum. 2012 has been a very eventful year when it comes to spectrum. We have six significant acquisitions in the year. The total cost of the spectrum bought is close to NOK 9 billion. I'll not go through all of them, but the top three here, Thailand, India, and Bangladesh, are very important going forward. Thailand, also to curb the regulatory cost from moving from the concession regime to the license regime, and how hard we will roll out of that, I will come a little bit back to. I will... India, we've already been through, but also very importantly, the renewal of the 2G license in Bangladesh.
And then we have secured spectrum for data capacity in Malaysia, Norway, and Denmark also through the year. So spectrum, we don't talk that much about it in this audience, but I thought it was fruitful to give an overview of what happened in 2012. So what do we expect on this in 2013? We expect a big spectrum auction in Norway on 800 frequencies, and there are speculations and indication that the 3G auctions may come in Pakistan and Bangladesh in the year. Those will be the big ones. But the 3G auctions in Pakistan and Bangladesh, that I must say, is a moving target. Then going into the revenues, we have a revenue growth of 4.6% organically. However, the strong Norwegian kroner takes it down, reported about 2.2%.
So the currency impact is around NOK 300 million. And as you see, we have the two, what we call a little bit the problem children right now, Grameenphone, losing revenue market share so far in 2012, but then stabilizing more in the fourth quarter, and Denmark, still very weak trends on the top line. Those two contributes negatively by about NOK 350 million to the revenue, or about 1.5 percentage point to the revenue growth. So then, but very fortunately, the three biggest operations, Norway, dtac, and DiGi, is contributing close to NOK 1 billion on the revenue growth this quarter. So the most important operations are delivering the growth in a way. So revenue stands then close to NOK 26 billion for the quarter.
So how does this then translate into EBITDA? We see a solid EBITDA growth in the quarter, close to NOK 8.2 billion, up from NOK 7.4 billion, NOK 800 million improvement on EBITDA. The biggest contributor is, of course, Norway, with good top line development, but also significantly lower sales and marketing costs in Q4. That is both to do with the fact that we had significantly market cost in Q4 in 2011 due to the high campaign , but also that Berit and company has been able to divert more of the sales over to web and away from third-party channels with high commissions. Then on India, reduced losses contributes to about NOK 250 million.
Most of the growth, like Fredrik said, in Thailand, came on handsets with low margins, but we also see good pickup from the service revenue. So, Sweden is more of one-off effect that was negative in Q4 2011, but also underlying margin improvement in Sweden. So, we can see that here on the EBITDA, it's India, Norway, and dtac, that is the—that are the main contributors on the EBITDA development. CapEx stands at NOK 3.6 billion in the quarter, same level as fourth quarter last year.
To the right there, you see the same point as we have been through before, that the underlying CapEx is around 10%, but the network swaps then in DiGi, Pakistan, and dtac, in particular, in 2012, combined with more heavy fiber and TV investments in Norway, takes up the reported CapEx to around 12%. So that then translates into the cash flow development, EBITDA less CapEx. And as you see, we had a cash flow in the fourth quarter of NOK 4.6 billion, which was about NOK 900 million up from fourth quarter last year. And that is mainly due to the EBITDA improvement we went through from Norway, India, and dtac.
As you see now, for the first time, we have passed NOK 20 billion in operating cash flow on a fourth quarter rolling basis. That is, up NOK 1.8 billion from the last six quarter, and it's this trajectory that should take us to the NOK 28 billion in 2015. Then we have a few quite large non-recurring items that's important to understand in the Q4 accounts. We have the goodwill impairment in Denmark. The trends on the top line in Denmark, of course, translate into a very much reduced cash flow, despite a very good effort from the Danish management team to cut costs. But basically, the cash flow in Denmark has been halved over the last couple of years, and we don't think then this cash flow can support the goodwill in Denmark anymore.
So we have decided to impair the remaining goodwill in Denmark. That's close to NOK 4 billion. Then, on the more positive side, we have now been in a tax position in Pakistan two years, 2011. We also see that, 2012, Pakistan will have a taxable income, where we now can utilize earlier losses in Pakistan, towards that tax position. Therefore, we have decided then to recognize a deferred tax asset of close to NOK 1 billion, which is the tax effect of earlier losses in Pakistan. Then Sweden, we have a positive tax effect of about NOK 400 million. That comes from the fact that, we had a Norwegian branch that had a tax loss carry forward related to, a Swedish operation.
That's been now merged with Telenor Sweden, and Telenor Sweden can then utilize these NOK 400 million going forward. So that's also recognized. Then finally, the biggest one is, Telenor ASA will not be able to collect all the receivable it has toward Uninor. As you recall, we refinanced the debt in Uninor last summer, where Telenor ASA stepped in as the creditor when the debt was defaulted. When the assets now are transferred from Uninor to Telewings at the fair market value, we see that there will be a loss in Uninor. All assets are already written off during 2012, but we see that this loss on the receivable will create a tax loss in Norway that will reduce taxes.
The effect of this is quite big. It's about estimated to be NOK 2.5 billion. So the net effects of all these non-recurring items in Q4 is basically close to zero. But important to understand each one of them. Net income, I'll not go through all the details there, as we've been through most of it. But this is comparing Q4 last year with Q4 2011. We see on other items, the two big ones there are workforce reductions in Norway and accrual for closure in West Bengal and Kolkata in India. Also a small write-off of fixed assets in Serbia. The EBITDA improves about NOK 800 million plus for the year.
D&A, slightly less, due to reduced depreciations, that the swaps are coming to an end. Impairments, we've been through, that's the Denmark write down, where we had the write down of India one year ago. Associated companies, now VimpelCom is more on a normal level, a contribution of NOK 1.1 billion from their third quarter results. They're lagging one quarter. Net financials, nothing abnormal there. And then on the tax side, we have a huge positive tax effect this quarter due to the effects I just went through on India, Sweden, and Pakistan. And that then translates into a net income to Telenor shareholders, so NOK 3.2 billion for the quarter, and earnings per share of 2.6, 2.06.
All the kind of impairments and taxes and other, non-recurring items is more or less netting each other this quarter, so the normalized net income from the quarter is very close to the reported, around NOK 3.2 billion . On the debt, we increased the debt with the NOK 4.5 billion this quarter. That is also fully in line with what we expected. You can see the reconciliation here at the right side. EBITDA, been through. Interest, taxes, and CapEx, nothing abnormal there. We continued the share buyback in the fourth quarter, NOK 1.1 billion spent on that. Also paid out dividends to minorities in Asia of about NOK 1.1 billion. What we have paid out for licenses in India and Thailand, NOK 2.4 billion altogether.
Then the revenue share in dtac, which is always impacting the fourth quarter heavily, as we are accruing this, Q1, Q2, Q3, and then we pay it in the Q4, so a positive effect, the three first quarters, and then a negative effect in Q4. NOK 2.4 billion, and small positive effects on currency and working capital. So total, NOK 33.1 billion, which is then more or less similar to our EBITDA, so the EBITDA to debt stands at 1.0. And as you recall, our cap on debt to EBITDA is 2, so we're comfortably below the cap. Then, on the shareholder remuneration, we are investing heavily in Telenor, in Norway, and 3G in Thailand, and so on, but we are also paying out heavily to the shareholders.
So I think we're proud to say that we managed to do both, invest heavily for the future and also give a solid remuneration to the shareholders. The Board has proposed a dividend of 6 NOK. That is NOK 9.4 billion payout. That's the highest ever for Telenor, and it's a 20% growth in the dividend from last year. Our dividend policy is to pay out between 50%-80% of the normalized net income. 6 NOK per share, we are estimated to be approximately 70% payout ratio. So it's a little above the midpoint in our interval. And the payout is expected to happen on thirtieth of May.
On the right-hand side, you see the total payout to shareholders, and the growth we have seen there, and expectation for 2012. The dividend around NOK 9.4 billion, if the General Meeting approves the 6 NOK, and then the share buyback of about NOK 5.3 billion. The share buyback program has been more or less the same all three years, but there's a fluctuation in the share price that drives up the share buyback program to NOK 5.3 billion. So in total, shareholders of Telenor will then receive about NOK 14.7 billion, which is actually higher than our total CapEx spend in 2012. And this gives a direct yield to the shareholders of around 8%, based on current stock price.
On the buyback program, we are now 82% complete, and expect to be able to complete that in due time before the General Meeting this year. But all in all, I'd say we are very proud to be able to deliver this good return to the shareholders, and still keep a strong balance sheet and invest heavily for the future. Then, on the outlook for 2013. 2012, it was more difficult to guide with India, so there we excluded India from the guiding. Here we have included six circles in our guiding. Organic revenue growth, we estimate about 3%-5%. Last year it was 5%.
It's early in the year, and the effects on handsets and so on are difficult to estimate, but we expect to continue the growth momentum of the group, both from Asia and what we have seen now in Norway. EBITDA margin, we're guiding up from last year, from 32% to 34%. We still haven't full visibility on all effects of our operational efficiency initiatives in 2013. So hopefully this will be on the conservative side, but we have decided to where we are today to guide around 34%. Then, the most difficult one to guide, as I see it, is the CapEx to sales, because we have so large potential outcomes, both in Norway and in Thailand.
If we get a good access regime in Thailand, and we see the handset migration picks up, it makes a lot of sense to accelerate investments in the 3G in Thailand, to reduce regulatory cost and monetize on the data, exploding data demand in Thailand. And dtac, as we've seen, they've been able to grow their ARPU on the backdrop of the data. And then in Norway, we see now 22,000 new fiber customers in the fourth quarter. We see a growing willingness to pay for high-speed access and TV. And this we will have to monitor very, very closely. But as we see it right now, it makes sense to increase the activity towards fiber, both to the home and to the business.
So, how much we will use the throttle on, especially, I would say, Thailand and Norway, will depend a lot where we end up in the range 12%-14%. But here we see, this is, this I would take totally positive. Here is potential to make solid market positions and growth for the future. Then, finally, the financial priorities in 2013. No doubt about it, we have the operational excellence agenda. We need to deliver on 2013 to build a foundation for the goals for 2015.
Then India, I think with all the effects now we see around the peak funding of NOK 15.5, I think the 15.5 is not as exposed as it was before, because we also see a lot of positive effects. Of course, we are very dependent on getting the license refund, as promised by Indian authorities. So the main target now is to get to the cash flow breakeven. We see that that's within reach, but that doesn't come by itself. But with the mindset and attitude we have in India, it should be possible. And then finally, when we are now investing so heavily into the data traffic to really be on top of this and ensure that this is driving revenues and ARPU to get strong profitability on these investments.
So that's it. Then question.
Thank you, Richard. We are now ready to take your questions, so I invite Mr. Baksaas back on the podium. We will continue a bit after ten o'clock, as I announced, to allow for somewhat more questions. We will start with the audience present. Please wait for your microphone and introduce yourself before asking. Anyone? Everything is clear here today, it seems.
Where is-
Okay.
Where is Mr. Torgersen?
Oh, there he is. Okay, I think we will then go on to the ones participating on the phone. So I call upon the call conference host to introduce the first question there.
First question. Peter Kurt Nielsen, Cheuvreux. Go ahead, please.
Thank you, and good morning to everyone. I actually have several questions, but I'll restrict myself, of course, to one. Is it possible to be a bit more specific on the fiber rollout in Norway? As you're saying, you've had good success. You're saying you may accelerate the rollout. Is it possible to elaborate a bit more, be a bit more specific? You gave us some flavor or taste initially at the Capital Markets Day, but perhaps be a bit more specific on your targets for rollout, et c, what you see. Thank you.
When you ask a question like that, you probably want figures.
Oh-
But we don't give you figures on it, but I will give you the rationale behind it. Norway is a country where the households are placed in a very rural pattern. That means that a new cable structure needs to address a certain type of density. And the twisted pair technology, as we know it from history, is gradually losing its potential. Then we have the coax structures, which reach out to roughly 1 million households, out of 2.2 million altogether. So in a way, the country is having high capacity cable on coax structures to the amount of 1 million out of 2.2.
And then, gradually, the fiber connectivity will stretch out to the remaining part, and also to a certain extent, substituting at least the access side of the coax structures. And this is what is happening, really in these, in-
... in these times. We need then, in order to be really efficient long term, an access also to 800 spectrum, so that we can use LTE in the real rural areas for higher capacity internet access. And as we know, that 800 spectrum is still pending from the government. So this is a pretty complicated package, if you look at it holistically. And as we speak, we are then rolling out the fiber in those areas where the density is sufficient to give us a certain payback structure on how we build it out. So we're not rolling out uncritically fiber to rural structured areas.
Okay, thank you for that.
Next, Ulrich Rathe, Jefferies. Go ahead, please.
Thank you very much. I was just wondering on Sweden, the revenue downturn that we've seen now in the fourth quarter compared to the third quarter and second quarter trends. Is this now sort of what's going to happen over the next 4 quarters at this rate until the like-for-like results normalize? Or how do we look at this 2.5% service revenue decline that you reported in the quarter? And also, in a similar sort of vein, is the impact on the margin that we're now seeing in the quarter sort of the normal level? Is the fourth quarter sort of the first normal given the shifted tariff structure? Thank you.
Yeah, I think this the shift in how we do the handsets, going from a handset subsidy to a discount on the on the service revenue, as you say, they create some confusion in the numbers. But we have seen a good trend in the underlying service revenue growth in Sweden in 2012, and we've kept revenue market share. And we estimate the service revenue growth to be about 2%. So I think most importantly now, given that this you're comparing a little bit apples to bananas when you look at the numbers historically, I think you have to look at the development in the gross margin.
More importantly, is to see that we have been able to grow the gross profit and also follow the OpEx in Sweden until this washes itself out. As you recall, this was done then in fourth quarter, 2011, the first time, and the Swedish customers typically have a two-year contract. It will take about 24 months before this kind of normalize itself entirely. But this is how the accounting standards kind of forces us to do this. We do what we think is right for the market, and then the accounting will follow. It's not the other way around, but this is how we feel is most prudent to account for it.
But we can also take this offline with our IR to go in detail on this. But main message, focus on the underlying gross margin and development in Sweden for this period and, and the next period.
Can I just clarify? If this happened in the fourth quarter of 2011, obviously, year-on-year impact should have been there in some material way already in the second and third quarter. But we're now seeing that the reported, I understand it's apples to oranges, but still, the reported service revenue decline has sort of dropped by 3 percentage points, which is a sort of a stark drop in trend, despite the fact in prior quarters, you know, the effect in principle was there. So what is this? Is it a big step change in the fourth quarter in the mix, or how to interpret this? Thank you.
Yeah, you're right that the fourth quarter is a little weaker on the underlying service revenue growth than the previous three quarters. There are effects on, among other things, roaming in this quarter and also the volume of messaging. But I think it's way too early to preclude any trends on this. As you recall, we had a very strong third quarter in Sweden. So I don't think you should bake in any trends one or the other way. It's quarterly variations and what have you.
Fourth quarter.
Thank you.
Fourth quarter 2011 had a very high handset portion.
Absolutely. But we had... Yeah, fine.
Next.
Terje Svendsen, Morgan Stanley.
Go ahead, please.
Thank you. Good morning, everyone. Can I ask about the upcoming auctions in India and in Mumbai in particular? You've said in the past that you wanted a 50% reduction in the reserve price, and so far, as I understand, you got a 30% reduction in Mumbai. Is that enough? And do the other circles interest you? And the follow-up on that is just whether you think potential consolidation post the auction is more likely, and what form could this take? Thank you.
We've been very clear with what's required in for the new auction in Mumbai. We have voiced a 50% reduction in the same alignment with what is anticipated to happen around the CDMA licenses. So, we believe there is a rationale for why it should be 50%. There are 2 prerequisites that needs to be in place, and that is that the reserve price comes down to a level where the business case can fly. And number 2, that the promised refunds of the license fee from 2008 is actually also coming through. And this is from our point of view 2 needed requirements.
... both from a profitability level in Mumbai as such, but also from a cash flow approach, looking at the INR 15.5 billion peak funding. As for the consolidation, I have nothing more to bring. One can speculate in many directions. Many players, a much more clarified regulatory regime, where people or players and the different companies will sort of know their position. So one can only guess what can happen, and I don't want to sort of add fuel to that speculation. But that things will happen, we're pretty sure about that.
Next? Andrew Lee, Goldman Sachs. Go ahead, please.
Yeah. Good morning, everyone. Just a question around CapEx. Given your analysis of the underlying CapEx to sales in 2013 earlier in the presentation, and the acceleration you're doing on in Norway and Asian network swaps, should we expect reported CapEx to sales to snap down in 2014? And how quickly now do you think we can get to your medium-term target of around 10%?
Yeah, I mean, I think the underlying mobile business is already at 10%. So this will depend a lot on how we migrate in Thailand from the concession network to the license network and the pickup of fiber in Norway. And both, both those two programs are not done in one year. But obviously, we have further ambitions to reduce also the CapEx on the underlying mobile operation. But I think it, we're not going into any guiding here for 2014 on this because we need to see more clarity, both in Thailand and Norway, on the market demand and migration and regulatory in Thailand, before we kind of firm up these plans 100%.
Okay, thank you. It seems like there's a large kind of timing effect here. Can I just ask a follow-up question that is totally unrelated, unfortunately? Just on your buyback, should we expect a buyback reload in 2013, given you've got more certainty around India and potentially around Russia, and your net debt, as you said, is, you know, just at 1x EBITDA. Should we expect you to use the full 5% buyback allowance in 2013 if you get it? Thank you.
Yes. First of all, the buyback has not been discussed with the Board. That comes later before the General Meeting, and it's also to be approved by the General Meeting, so we kind of have no news on that. But I would say, given all that India losses are coming to an end, we see a very strong pickup in the normalized earnings per share due to that. As you know, we have not normalized for India losses earlier, so that should cater for a very solid growth in the dividend going forward. So that could give you maybe some indication on how we're looking at this slightly more on a longer-term basis, that I think most of the growth should come on the dividend side.
Thank you.
And I would also note one more thing, that this is a concern to us, is that you see now that we are 82% complete on the buyback program, and we are now in February. So the liquidity also in the world stock markets are drying up, so it makes it more complicated to buy back shares. And it's also, with this program, we have bought back around 9% of the shares. So I think we also should be a little careful how much of the shares we buy back of Telenor, just due to not disturb the liquidity even further in the share.
Next?
James Britton, Nomura.
Go ahead, please.
James Britton of Nomura. Thanks very much. I've got a question on your margin target, please. The 34% target seems to imply about a 50 basis points contraction for the group if you strip out India. So I just wondered how this was consistent with the 2013 OpEx target, which you've restated, and would seem to imply a margin expansion of more than 100 basis points in 2013. And then secondly, I just wanted to ask whether the strategic decision to accelerate investment for market share was broad-based across all markets, or quite specifically targeted at a few markets, and whether it was a 2013 strategy or, or very much a medium-term strategy? Thanks.
Yeah. As I said, on the margin, we are still early in the year, and we don't have full visibility on all the OE initiatives for the year. So that may outturn to be on the conservative side, that the year will show. But of course, our ambition is to deliver on the operational excellence agenda. Secondly, we see handsets being a big part of revenues coming in with lower margins, so that's also an effect, as you see very visibly in the dtac figures this year. When it comes to the CapEx to sales, we see a spillover of the swaps in Malaysia and Pakistan into 2013. That should - you should adjust for when you say that.
So I think, again, and now I'm repeating myself a little bit, it's a lot about Norway, and it's a lot about Thailand, very discretionary investments, targeting a reduction in regulatory cost in Thailand and, monetizing on the data demand. And in Norway, strong investment also on the mobile side, but then specifically attacking, the very diverse, household structure in Norway with, modern fixed technologies.
So just to be clear, the higher investment strategy and the market share strategy is pretty much limited to those markets. You're not going after an ambitious market share push in other markets?
No, I mean, we have a strategy that we want to at least maintain our market share. That goes through as a KPI throughout the entire group, but we have not any big aggressive market share angles in any market around the world. That in Thailand, it's basically to capture the data demand and reduce regulatory costs. The only exception I would say on that when you ask the question that way, James, is on the fiber in Norway. Fiber in Norway, we're very careful so far because we haven't seen the profitability. So we have a market share on consumer today, about 16% on fiber.
We said in the Capital Markets Day that we want to grow that to 32%, and maybe we want to grow that even further as we see profitability coming in there, and we really need to take a position. So I would say, all in all, maintain, maybe slightly grow market position is the kind of key message to all the business units, with exception on fiber , where we probably want to go more aggressive.
Thank you.
Next?
Barry Sheridan, Berenberg.
Go ahead, please.
Hi, good morning. I'd like to ask a question about Thailand specifically and about handset or the lack of handset subsidies. Why do you think it is that there are no handset subsidies in Thailand versus other markets? And do you think there's a risk that handset subsidies are introduced as you push for 3G in Thailand?
Well, the main reason that subsidies is not a means that are being used in countries in Asia is the prepaid level of every market. In prepaid markets, handsets are usually sold separately from the connectivity part. So that's the reason for that.
Do you see a risk that you push more for postpaid with 3G in Thailand?
Yeah, but that's a longer transition because it involves well, in Thailand, that wouldn't be that kind of a problem. But the general fact is that like, the cash portion of the economy is such so strong that the turnover of monthly revenues for monthly income for people is based on cash more than than based on bank accounts, as we know it in the West.
I would say also to add on that, I think in Thailand, what we more are focusing on there is the bundling with services. On the prepaid side, we are bundling our music services, and we're bundling Facebook, and we have other types of arrangement with big global partners to bundle prepaid services, where you can buy smaller sachets of connectivity bundled with services. That is very successful and probably a better recipe to monetizing data than bundling with handsets.
Okay, great. Thank you very much.
Next.
Thomas Heath, Handelsbanken.
Go ahead, please.
Thank you. Two questions, if I may. Firstly, on Norway, when 4G is sort of becoming a reality, do you see sort of further potential to differentiate the 4G offering and to earn more on 4G? In neighboring countries, there's been no premium at all, so in Sweden and Denmark. That would be interesting and also if that has any margin impact. Then secondly, if you could have some thoughts on financial services in Pakistan, you seem to be doing very well. If you could share maybe some penetration figure or a penetration target there. Thank you.
Well, 4G will certainly give the potential for differentiation. However, if it's something that the industry really struggles for in order to define that differentiation, that is, in a way, the big challenge here, how to find the formula that also is easily understood in the marketplace for that differentiation. I think we have seen some good signs and good practices in Telenor Norway on how differentiation can be utilized in the way that we have formed the bundles that we have distributed in Norway. And in many ways, I almost see that as one of the best examples on how we have been able to crystallize revenues coming out of the big transition to data.
However, the competitive structure in each market needs to move in that direction and use that trend in order to, for this to build on each other. And this is sort of the main challenge in many markets. And what is then the differentiating factors? Will it be capacities? Will it be specific services? Will it be on qualities? And here, the net neutrality factor needs to be anchored solidly at the bottom on how we think. Because on the net neutrality debate, we will not be able to be editors, so to speak, from a core service consumption perspective if you're a customer. Then on financial services, we believe that financial services have a great potential.
However, the regulatory side in each market decides how this can be implemented. And in Pakistan, where regulation is fairly open, we are then also the majority owner of a small bank, which basically enables us to run the whole value chain. We don't, we don't... We have not yet moved into loans and deposits in this, but this is in preparation. And of course, that also then requires quite another set of competencies in order to entertain a fuller package of financial services as such. But we have a very good start in Pakistan. We see, we have now 4 million of our 30 million regular users using the service.
And, as you all, as you also can imagine, the trust factor is so enormously important, when you start to handle, and, and, transfer or, holding deposits or establish loans, the trust factor is such enormously important. So we want to go, carefully into this marketplace, but we believe there is a significant potential there.
Just a clarification there. So the revenue growth you're seeing in this quarter is based on just reaching 10% penetration on only transfer services? Sounds like it could grow quite a lot.
This is so far, it's bill pay and money transfers that we're talking about in Pakistan. And of course, when there is no credit history in Pakistan, how do we dare to start making small loans? And in a way, this is the big question here. Deposits, deposits is more easy. However, how can you redistribute that into the loans as well, and avoiding the loss trap is has to be a part of this equation. This happens in many markets, but in Pakistan, where regulation is fairly open, then we have probably a better hand on the whole value chain and can push it more in one go.
Whereas in other markets, it's more of a challenge to find the business model between the banking side, who holds the bank account, and the telecom operators, who does the distribution. But there are concepts in many markets in Asia that tries to realize a bit of the same. So, I anticipate that the whole industry will be concerned about this going forward.
We will have time for 2, 2 more questions now.
Next.
Stefan Gauffin, Nordea. Yes, hello. I would like to hear a little bit about your view on the margin guidance from dtac in Thailand. They are gonna start the migration from 2G concession to 3G license end of Q1, I believe. And we had expected that this would lead to a margin uplift already in 2013. Are there any costs associated with this that leads to putting pressure on the margins? Or why don't we see a margin uplift already in 2013?
I think, dtac is, of course, careful in their guiding now because there are two main uncertainties there. First, we have to establish the access regime. Yes, we have got the license, but then we also need to have a regime for how we can, in the new company that runs the 3G under the license, can access the concessionary assets of dtac. These are organized in two companies. That is not yet clarified. So that means that we cannot really start doing this transition before that is clarified. And what kinds of terms and conditions that whole regime will come with is still in the making. So that makes it very difficult to give any precise guiding, both on the effects and when the timing happens.
Then secondly, you need to have handsets that are enabled for 2100 MHz. And how fast that migration will go now, when the operators have 3G on 2100, that is depending on the consumer demands, how hard people are pushing the handsets and so on. So I think right where we are now, I think it's very prudent to not give any kind of promises or expectations on a big market margin uplift for this into market 2013. It may happen if things go fast, and it may not happen if things go slower. This is a long-term, extremely important event to get out of the concession regime and over to a more modernized license regime.
Thank you.
Next.
Erik Persson, Danske Markets.
Go ahead, please.
Thank you. I just had a simple question about the taxes. You booked quite significant tax assets in the quarter, and to what extent can you utilize these in the near term? Can you help us out a little bit on the reported tax rate and the paid taxes for this year and the next, please?
Yeah. I don't think I should go into detail exactly in which tax year the various tax assets will be utilized, but, but as the business transfer will happen in India, most likely in 2013, then there is a debate about 2012 and 2013, as I see it. In Sweden, should be quite also straightforward, as we have a huge taxable profit in Sweden, and Pakistan will be more over time.
Thank you.
That was what we-
Just to add on, the estimated effective underlying tax rate in 2013 is around 26%.
Thank you. That's what we had time for this morning. And I would like to thank you all for participating.
Thank you.