Good morning, and welcome to the presentation of Telenor Group's Second Quarter Results. My name is Marianne Moe. I'm head of Investor Relations, and I have the pleasure of guiding you through this session here today. As usual, the results will be presented by CEO Sigve Brekke and CFO Jørgen Rostrup. I hope you all have the presentation material available. There will, as usual, be a Q&A session after the presentations, and we expect to finish the whole session in about one hour from now. After that, the media present here today will have the opportunity to ask questions to the CEO and the CFO in a separate media session, which we will start immediately after the presentations and the Q&A.
Without much further ado, I'll leave the floor to CEO Sigve Brekke, who will take you through the highlights of the quarter.
Thank you, Marianne, and good morning to a sunny summer day in Norway. And I hope that the results also will decide the sun will shine with us in taking the results. I am pleased to present a set of strong results for this quarter. We are demonstrating improved revenue growth, all-time high EBITDA, 4% margin, and we also see a margin expansion in all our business units, and we are having a solid cash flow. On the revenue side, we see solid revenue development across the board. The only exception is Digi in Malaysia. We see Norway with a robust revenue development. We see data monetization in our emerging Asia companies with Grameenphone with a special good performance.
We see dtac in Thailand for the first quarter in three years with a revenue growth. When we met at the Capital Markets Day in February, we talked about our strategic agenda. We talked about a cost efficiency ambitions, and these ambitions are now, now put into concrete targets and co- and confirmed activities across the group. And as you can see from the figures, we have already broken the trend of increasing OpEx. And that's why we are now raising our OpEx ambition and also why we are changing our EBITDA margin outlook. We have also, in the quarter, taken further steps towards simplification of our portfolio with what we did in rearranging our online classified positions. And, and on back on proceeds from disposals, we are announcing a 2% share buyback program.
Let me start with our biggest operation, Norway, and let me start on the revenue side in Norway. As I said, I'm happy to see a robust performance, both on revenue and also on costs in Norway. Revenue first, we see a 3% ARPU increase in the quarter, and that ARPU increase becoming despite the inclusion now of Roam Like Home in the EU area. And I want to give credit to the Norwegian team, that they, one year in advance, started to include a free roaming in the European area in the new packages. And they have been able to continue that upsell with our customers a nd that we also see now that our customers are very satisfied with our network, so we see a significant increase in the data usage.
There is actually a 776% increase in the median data usage per customers, and we are now up to 1.3 GB per month per customer. Still below Sweden, which are almost double as high, but it's a significant increase. We are, on the subscriber side, continuing to focus on the quality customer intake. We see still a decline in the prepaid segment with the standalone prepaid customers and the data subscriptions. However, the decline is lower than what we saw in the first quarter. And we see that in this quarter, the competition is fairly stable compared with what we have seen previously. The investments in the network, it's, and both in the network rollout and also in the capacity, it's starting to really pay off.
We now see that our mobile data network is ranked as the fastest network in Norway by independent sources. The speed of an average speed of 54 megabits per second is giving us one of the fastest networks in the world. Moving to the fixed side of the Norwegian business, we continue the fiber rollout, as we have explained before. Our high-speed broadband base is now 616,000 customers, and we believe that we continue to take market share in the fiber rollout. The revenue growth within internet and TV in the quarter was 7%, and that is more than offsetting the decline in the fixed telephony and the wholesale business. One more slide on Norway, and now on the cost side.
The OpEx is down 8% in the quarter. And then we combine then a stable gross profit. With this, we see then a quite impressive EBITDA growth of 8% and a margin expansion of 3 percentage points. Addressing the cost base in Norway, which the Norwegian management team has been focusing on now for several years, is basically in three areas. One is workforce reduction, and we see that we are able to take down the number of employees we have in customer care, utilizing then digital customer journeys instead. And we also see that we are able to continue to streamline the fixed legacy business. These two areas are the main reason why we have been able to continue to take down our number of employees. The second area is a more efficient sales and marketing.
One example of that is the very popular swap handset program, the installment program, where we basically are able to reduce both commissions when we do this in our own channels, but also the handset subsidies. During the quarter, we have also expanded that into external channels. This is also a program which is very popular with our customers. In the fixed value chain, which is the third area, we see that we are able to improve efficiencies, and with that, also lower the cost with a better fault handling and also with a better service delivery. All in all, I must say that the second quarter in our Norwegian business is showing very strong results, and it's coming from the consistent effort, both on the market side and also on the efficiency side.
Moving to our neighbors, Sweden and Denmark. Solid performance also in these two markets. Sweden first. Mobile revenues, we are able to continue our subscriber growth. We added 13,000 net subscribers in the second quarter, and that subscriber growth is then offsetting an ARPU pressure we see also from including Roam Like Home and the business segment. On the fixed side, we see an 8% revenue increase. We added 12,000 new fixed or fiber consumers in the quarter, and the base is now more than 550,000 subscribers. Out of the new adds, most of the growth comes from the open networks. We are continuing also to build our own fiber in the SDU segment.
However, we see that the lead time is quite long, and because of that, we are focusing on the areas which gives us the best payback time. Moving to Denmark, this is the first time since fourth quarter in 2010, we actually see a stable revenue development in our Danish operations, and of course, we are very pleased by that. We see a +3% growth in the subscriber base, and that's offsetting the ARPU pressure, which remains in a very competitive market. The cost efficiency focus is also continuing, and in this quarter, we see a 71% EBITDA growth. Most of that is coming from a ramp down of the IT project, which we implemented some quarters ago, but it's also results coming from an overall cost reduction across.
We have initiated a turnaround project in our Danish operation, and we hope that despite continuous market, tough market environment, that we will be able to continue our efficiency drives. In our Central and Eastern European portfolio, we see both market development and our own performance in line with what we have seen in previous quarters. Our focus in the region is to focus on the high-value customers and knowing that, the prepaid competition is tough. So we are focusing on then keeping our high or high-value customers, but also on an active pre to post migration. We are also focusing on, continuous expansion in the 4G network, and again, as we see in Norway, we also see here in this region that independent speed test shows us that we have the fastest mobile network in Hungary and in Bulgaria.
Cost efficiency is also important in this part of our portfolio, and of course, with relatively stable revenues, we need to put more focus on operating more efficiently. And I'm happy then to see that we have EBITDA growth in all the markets, and especially in Hungary, where we see an 18% EBITDA growth in this quarter. The CE operations are also continuing to have a very healthy cash flow development with margins, cash flow margins at about 30%, which is a positive contribution to the overall group cash flow. Then moving to Asia, starting with what we are grouping as the developed Asia, Thailand and Malaysia. Starting with Thailand, as I said, it's the first time in more than two years that we now have demonstrated growth in our Thailand operation. The growth comes from postpaid.
We have a 16% growth in both subscribers, new additions, and also revenues in the quarter, and have a stable ARPU on the postpaid side. Postpaid is now becoming almost 50% of the overall revenue base in dtac a nd what we are basically doing, or enabling us to take that postpaid growth is to do an active pre to post migration. We are changing our brands to be more a postpaid brand. We are changing our distribution, and we are also then including more customer-friendly data packages. The prepaid market continues to be very competitive. We are then focusing on value, and that's the reason why we are not participating in the most aggressive prepaid device discount.
EBITDA, a 21% growth in EBITDA in this quarter, that's the best margin we have had in over a decade. And this, most of this comes from regulatory savings, but also from sales and marketing, and, efficiency on across the board. And I will say that, we are able now to hopefully continue, this cost development in, in our Thai operations. I will not say that it comes on the expense of, of growth opportunities. We have also, in the quarter, continued to focus on our network program, and we have now moved 4G coverage from 55% to 82% of coverage. In addition to that, as also announced in May, we have been chosen as the preferred partner with TOT, Telecom Organization of Thailand, for utilizing their 2.3 GHz spectrum.
We hope that the final deal will be closed within the fourth quarter. And of course, this will significantly strengthen our network position in Thailand. Malaysia, market remains being very competitive. Same as in Thailand, we also here have a postpaid focus. We grew our postpaid revenues 10% in the quarter and added 100,000 new postpaid subscribers. On the prepaid side, we have introduced mitigating activities. We were not happy with losing 600,000 prepaid customers in the first quarter, and we now see that these new activities is helping us. We actually added 150,000 new prepaid subscribers in the second quarter. And we are continuing to strengthen our internet offers and hopefully being able then to stabilize the prepaid development going forward.
Although gross profit is under pressure in dtac from the prepaid weakness, we have been able to reduce the OpEx with 9% in the quarter, which gives us then a 44% EBITDA margin. Lastly, from July, we have got access to technology neutral 900 spectrum, which also significantly will help us with the 4G indoor coverage. We have a 4G population coverage now of 85% in Malaysia. To the other cluster we have in Asia, Emerging Asia. Overall, very, very solid performance across. And the solid performance in all the three markets comes from data monetization, which is then driving this impressive revenue growth. And the data demand continues, but there is still a long way to go. In Grameenphone and Telenor Pakistan, we see that still only 30% of the customers have a smartphone.
As you know, the trigger for starting to utilize data is moving from a feature phone to a smartphone. About 40% of our customers are data users. So we foresee in the coming quarters that the data demand will continue. In Myanmar, these percentages are higher. More than 60% of our customers have a smartphone, and also around 60% of our customers are utilizing data. A look at more specific in the three different operations. Grameenphone, revenue growth of 15%. It's a combination of adding new subscribers and the real penetration in this market is probably between 50% and 60% somewhere, so there are still customers that do not even have the basic communication. We see that we are growing on voice and, of course, with existing customers starting to use data.
We grew 24% on data users year-on-year, and in the second quarter alone, we added 1.8 million new data users in Grameenphone. Taking that, this down then to EBITDA, we have then a normalized margin of 58%, and we are continuing with OpEx initiatives across the operation, despite also a need to be focused on sales and marketing efficiencies to take the growth we see in the market. Telenor Pakistan, 8% revenue growth and 8% subscriber growth, which means that we are able to have a flat ARPU despite tough competition in this market as well. A 14% EBITDA growth and a margin then of 48%.
But here we have more work to do, and we see that when we now are increasing our network into more rural areas, that adds cost, and we then need to continue to make sure that we are doing that as efficient as possible, but also then take down OpEx on the other areas in the operation. Telenor in Myanmar, 10% subscriber and traffic growth driven by data. The voice segment remains very competitive with especially a very aggressive on-net promotions. And of course, this put a pressure on the ARPU. EBITDA-wise, 48% margin, and we are continuing here also to roll out distribution and network, which adds cost, and that's why it's so important that we that we also are doing this as efficient as possible to secure our margins.
We recently got access to 1800 spectrum in Myanmar, and this will then enable us to roll out 4G, not only in the few cities which we are currently covering, but across the nation. And with then more than 60% of our customers having a smartphone, we see this as a growth potential. Then, in our Capital Markets Day in February, I showed you these three focus areas, and we shared our strategic ambitions going forward. And we said that we want to focus on continuous revenue growth, and I think we are demonstrating that in this quarter with that 3.1% subscribers and traffic growth. We said that we want to improve efficiency, and we said that we want to simplify our portfolio and also make sure that we are prioritizing.
I'm pleased now to see that we are making several steps into this direction during the first six months of the year. However, there is much more to do. I will spend a little bit time in the end to go through where we are on the efficiency and the simplification, and then Jørgen will dig more into detail on what we see on the cost side, OpEx side. We are trying to create a leaner Telenor through a more efficient Telenor. When customer changes from to digital behavior and digital demand, of course, we see that as a challenge, as all other telecoms operators do. But at the same time, it gives us big opportunities. Opportunity to discipline the customer journeys, and especially in the customer care area. That's where we see some of the reduction in manpower coming through.
We also see that more digital communication with our customers gives us more data and enable us to utilize analytical tools to drive the operation more efficiently, but also provide more segmented solutions for the customers. We see that digital technical solutions, like software, scalable software, cloud-based platforms, makes us able to have more efficient network deployment. We started the year with an addition of breaking the OpEx trend. I think what we communicated in the Capital Markets Day was that the OpEx should flatten out this year. However, we are doing better than that, and we see now that we will be able to demonstrate a real decline of OpEx this year, rather than just flattening it out. So we are ahead of the plan.
Because of that, we are raising the bar, targeting NOK 1 billion OpEx reduction this year, and at the same time, continuing with the guiding we have had of 1%-3% OpEx reduction in the year to come. This is a good start, and we are quite confident then, that we now have concrete plans and targets, on how to deliver on this revised guiding. We also said in the Capital Markets Day that we want to create a leaner Telenor through a more prioritized and simplified Telenor. In the first six months, we have taken several steps in that direction. We have introduced the cluster model, the four clusters, and we have just started to see potential synergy effects coming out, from looking at how can the four clusters work more closely together.
We have announced an Indian exit. We are still waiting for the remaining approvals. But so far, things goes as planned, and we hope to close this in during Q1 2018. We have rearranged our online classified portfolio, exited Latin America, and then focused on increasing our ownership in the Asian markets. We have sold off some not strategic assets, like Startsiden, the portal, and we have further sold down in our shareholding in VEON. These transactions have resulted in a net cash proceeds of NOK 4.7 billion in the second quarter. And if I take the full 12 months, we have received about eighteen billion Norwegian crowns from this disposal. And this is why we today also are launching a shares buyback program.
We will continue to focus on the efforts, on the core areas where we can create value, and we are going to be pragmatic when we review our portfolio, pragmatic to look at assets with less strategic importance and assets that may have a better home with others than with Telenor. And when and if we make moves on that, you will be the first one to know. So with that, again, I'm very satisfied with our overall performance in the second quarter. And, I will now leave it to Jørgen to explain some more of the financial details and also go more into depth on the cost program. Thank you.
Thank you, Sigve. As Sigve highlighted, we are reporting a set of results for second quarter, which are quite solid, we believe. Improved revenue growth and such a traffic growth, all-time high EBITDA and EBITDA margin, and a very strong cash flow. We are also, as Sigve is alluding to, making progress on our cost agenda, and we are stepping up our ambitions. I will revert to that later in my presentation. On the back of the proceeds of recent disposals and a very healthy balance sheet, we are then also announcing a 2% share buyback program today. I will also revert to that. But let me first take you briefly through the financials for second quarter. Reported revenues for the quarter were NOK 31.5 billion, growing around 2%, both on an operating, but also on a reported basis.
This is an improvement from what we have seen in recent quarters. In our view, the growth is also, in a way, solid. It's quality in the growth, since it is driven by a 3% growth in mobile subscription and traffic revenues on one side, and also fiber revenues increase in Norway and Sweden. Looking in more detail at the revenue development, the main positive contribution to reported revenues, once again, coming from emerging Asia, with Grameenphone leading the pack. In Thailand and Malaysia, total reporting revenues down NOK 200 million, that is fully explained by the revenue pressure in Digi. As dtac was able this quarter to give us positive service revenue growth. Finally, both the Scandinavian and Central and Eastern Europe operations also had small positive contribution to reported revenues this quarter.
Then, cost efficiency is high on our agenda, and I can promise you it will continue to be so. We are quite pleased to see that our efforts now are starting to yield results. In the quarter, we had OpEx down 5% or NOK 0.6 billion. And then is, that number is helped by approximately NOK 0.2 billion in more one-time effects. Still, the underlying development is supported by improvement in several areas. If you look at development per cost area, we see lower cost in all main categories, but then especially in sales and marketing, which was down around NOK 0.3 billion in the quarter. Also, personnel costs decreased in the quarter, supported by a FTE reduction of approximately 1,100 in the first half of the year.
In addition, cost reductions were seen in almost all business units this quarter. That is, of course, also quite comforting for us with this program. The biggest savings is coming out of Norway, Denmark, Thailand, but also Digi in Malaysia contributed significantly. And then later on in the presentation, we will come back to our ambition for cost savings going further. So if we then look at the EBITDA, it came in at NOK 12.7 billion this quarter, which is 13% higher than Q2 last year. The EBITDA margin was 40%, which is four percentage points higher than Q2 last year. Both numbers are what we regard all-time high. Interesting enough, the strong EBITDA was driven by a combination of growth in service revenues, which translate into gross profit uplift of NOK 0.8 billion and OpEx reduction of the said NOK 0.6 billion.
And again, it's very comforting to see, as also Sigve were pointing to, that all business units, some although marginal, but all business units were able to increase their EBITDA margin in the quarter. In Norwegian kroner reported terms, the biggest EBITDA contributions came from our operations in Bangladesh, Thailand, Norway, and Pakistan. CapEx in the quarter was NOK 4.4 billion, continuing to decrease somewhat from the very high level seen over the last couple of years. The key reason for lower capital intensity year-on-year versus same quarter last year is lower network investments in Myanmar, with approximately NOK 600 million. As those, as we saw last quarter, investments in Norway and Thailand constitutes approximately 50% of total investments also this quarter. In Norway, fiber and 4G rollout are the most important CapEx area.
In Thailand, investments are still mainly going into the network densification program on 2.1 GHz, as we have talked about previously, and then also dtac's large 4G network expansion. This gives a CapEx to sales ratio for the group of 14% in the quarter, compared to 17% for the full year 2016. And then, as Sigve were alluding to, in addition to this, we successfully secured spectrum in Norway of 900 MHz band, and in Myanmar, 1,800 MHz band. This quarter, including these investments, we had a ratio of 18%. Before I'm moving over to the profit and loss statement, I just want to quickly remind about two transactions that happened in Q2 as part of our simplification journey. The continued sell-down of the VEON shares and our VEON position, and our online classified transactions.
Combined, these two transactions gave Telenor a net cash of around NOK 4.7 billion. We have earlier flagged the expected P&L impact of these two transactions. They are still as we have communicated, but let us still recap it briefly. In the P&L, there are reclassification effects coming out of currency translation effects following the sell-down of VEON, since we no longer will treat this as an associated company. The net loss from this change was around NOK 7.5 billion, and then the cash proceeds was NOK 2.2 billion, as previously announced. In the quarter, we also completed the online classified transaction, which Schibsted and Singapore Press Holdings, whereby we exited the Latin America markets and increased our ownership in Asia to 100% in Malaysia, Myanmar, and Vietnam.
This gives us a net gain of approximately NOK 3 billion on the income statement, cash proceeds of around NOK 2.5 billion. P&L. We have talked about the revenues and the EBITDA before other items. I think the only thing we need to discuss on reported EBITDA then, is the positive effect under other items for a lease contract in the broadcast division of NOK 0.4 billion. We disclosed this item in the Q1 report, but the accounting effects are now in second quarter. Below the operating profit line, we have done some larger effects that we have discussed before, primarily from VEON in this quarter. The associated company line of minus NOK 5.7 billion includes the effect of negative NOK 9.1 billion, following the reclassification of VEON from associated company to financial investment.
Then on the other hand, the positive sales gain from online classified of NOK 3.4 billion. This, again, is all in line with what we have communicated earlier. Going forward, VEON will not impact the associated companies line. It is now a financial investment. We have a positive net financials of NOK 0.8 billion in this quarter, primarily explained by dividends of NOK 0.7 billion from VEON. Then on the tax line, the VEON reclassification gives a positive effect of NOK 1.1 billion related to hedging instruments, partly then offset by a provision of negative NOK 0.5 billion on a disputed sales gain tax. The report of net income, hence, to Telenor equity holders, is then at minus NOK 2.2 billion Norwegian kroner.
If you remove the effects of VEON and online classified, this gives an underlying net income of NOK 3.9 billion, as stated in the headline of the slide. And then this is equaling an earning per share of around NOK 2.60. We see strong free cash flow to equity this quarter of NOK 10 billion. The main reason for this strong cash flow are then obviously operational performance, relatively low CapEx, and obviously the close to NOK 5 billion in proceeds from disposals, which then are VEON shares, online classified, the cash effect from start season sale in first quarter, and some other minor elements added to that. As we have stressed several times lately, cash flow is very important to us.
We will obviously continue to strive for improved cash flow from our operations. Then, a solid balance sheet and attractive shareholder remuneration are very important elements for us in our approach to capital allocation. We talked about this at Capital Markets Day, we addressed it first quarter, we are addressing it again. During the second quarter, the net debt decreased by close to 2 billion NOK. This is despite the payout of the first tranche of the 2016 dividend, which amounted to 6.5 billion NOK. This gives a net debt to EBITDA ratio of 1.1, which is solid and well below our ceiling of 2. So we continue to have a strong, solid balance sheet.
Then, as we communicated at the Capital Markets Day, the year-on-year growth in ordinary dividend is our commitment to the shareholder, and it's also by far the key source of direct cash return. However, we also added that buybacks or special dividends should be considered on a case-by-case basis, pending a solid balance sheet. So on the back of proceeds from recent disposals that also Sigve mentioned, and the group's solid balance sheet, the board has decided to launch a 2% share buyback program. In total, we aim to buy back approximately 30 million shares. At the current share price, this implies a cash return to shareholders of approximately NOK 4.3 billion.
As for previous, buyback programs, the repurchase under the current program will be done partly in the market and partly from the Norwegian state, in such a way that the Norwegian state's ownership stake remains, unchanged at approximately 54%. We aim to complete the buybacks in the market by the end of the year, but obviously, this will, depend on the market conditions going forward. For efficient execution, we intend to place the buyback mandate by a broker, which means that purchases are made on an arm's length distance, and hence can continue also, during silent periods for the group. As usual, the buyback of the proportionate amount from the Norwegian state, and then the subsequent cancellation of all the repurchased, shares, will happen after AGM, the general meeting annual next year.
As Sigve talked about, we believe that revenue growth, improved cost efficiency, simplifications, are key value drivers for Telenor going forward. As part of this framework, we presented our financial ambitions for improved cost efficiency at Capital Markets Day in February. We have then now spent the last couple of months firming up the targets, the initiatives across the group, and we feel the time is right to address this a little bit closer. In recent years, Telenor OpEx base has increased by around 3% per year. At Capital Markets Day, we said that the ambition for 2017 was to break the trend and to stabilize the OpEx base, and for 2018 to 2020, reduce the OpEx by 1%-3% yearly.
Our cost initiatives are starting to pay off, and we are ahead of the plan for the first phase of our cost cutting. As a consequence of this, we are stepping up the ambition for 2017 and are now targeting OpEx reduction of NOK 1 billion on a currency-adjusted basis. In the first half, Telenor reduced reported OpEx with close to NOK 1 billion kroner, but this was helped with what we regard as positive currency effects of approximately NOK 0.4 billion. So then, in order to deliver on our new ambition for 2017, the underlying cost reduction have to continue into the second half of the year. As it looks right now, the majority of the second half savings will come in the fourth quarter.
So fourth quarter is where we think we will see the next significant step, and to a much lesser degree, in third quarter, the way we see it now. And then, as Sigve was saying, our midterm ambition to reduce net OpEx from 1%-3% per year in 2018-2020 is maintained. Overall, we don't believe there is a silver bullet to reduce cost and deliver on our cost targets. We need to see savings with all within all functional areas. This is about scrutinizing all cost areas, and it's about securing a cultural mindset and common focus, both in the organization at large, but obviously most important in core management teams, in order to make sure that our ambitions are backed with advanced activities and execution.
It's about solid cost control and strict prioritization in terms of everyday spend, in combination with long-term activities to gain sustainable, efficient improvements. However, personnel cost and sales and marketing are the largest cost area, representing 50% of total OpEx base. It goes without saying that these are areas where we expect to see largest cost reductions. It is predominantly because the customer are shifting its preferences, and not because it is important in itself to take down number of employees or reduce spend. New technology, customer preferences are opening for these opportunities, and we need to stay competitive and relevant. We will also reduce cost at our headquarters. We are targeting to reduce support function costs with more than 25% in 2018, with full effect in 2019. Support functions will also be addressed group-wide in the years to come.
Simplification, right sizing, and move towards digital interactions have already resulted in workforce reduction of around 1,100 full-time employees in the last six months. This is a run rate that we expect to continue in the coming years. Within sales and marketing, we see significant opportunity to increase efficiency. Benchmarking of marcom spend across our business units has revealed interesting potentials to reduce cost without putting the top line and market positions at risk. We feel we now have reasonably good visibility on the savings for 2017 and 2018, with activities being initiated this year, continuing with increased momentum into next year. For 2017, the majority of the savings will come from sales and marketing and lower regulatory costs in Thailand. Personnel costs might actually increase slightly this year, but should start to come down from next year.
For 2018, net reductions are expected within all cost areas. We will continue to advance the way that we do our business, focusing more on what is most important, and perhaps, perhaps we already see those effects in the Q2 performance, 2017. Then a couple of words about the outlook for the year. On the back of the performance in the first half of the year, including the encouraging progress on the cost agenda, we are lifting the EBITDA margin outlook to, for the year to 38%-39%. The rest of the outlook is kept unchanged, which means that we continue to expect 1%-2% organic revenue growth and 15%-16% CapEx to sales ratio, excluding spectrum licenses.
To summarize, we're pleased to report strong set of numbers, improved revenue, all-time high EBITDA and EBITDA margin, as well as very solid free cash flow. We continue to execute on the strategic direction that we set out at the Capital Markets Day, with revenue growth, cost efficiency, and simplification as key value drivers. We are in a still early phase, but we believe that these activities in total will contribute to taking us in the right direction and shape the future of Telenor. Perhaps we should do a Q&A.
Thank you, Jørgen. We definitely should do a Q&A now, yes. As usual, we will start the Q&A with taking questions from the participants presently at Fornebu, before we open up for questions from the participants on the conference call. Any questions from the guys here in the audience? I can see at least one hand waving.
Hi, Horan from Carnegie . First of all, congratulations on great, great results, obviously underpinned by impressive OpEx reductions as well. Could you help us give some more color to how this is done, how you are able to make the marketing more effective? And also, perhaps some comments on how confident you are that this will not impact your data position.
Yeah, I can give some few comments on that. I think, if you look at the second quarter, about half of the OpEx saving is within sales and marketing, another half is in other areas. And we do not see that the half that is in sales and marketing in any way, it's hampering the growth initiative that we have. The way it's done is that we basically break down what Jørgen showed here, of the various OpEx items. We break it down BU by BU. We compare across the BUs, and we see how can we make operations basically more efficient within each one of the areas. And then this is powered by the digitization work, as I explained.
So we are pushing, quite hard on digitizing customer journeys, being on the distribution side or being on the customer care side. And we are also doing the same on trying to take IT infrastructure and legacy business into more scalable software platforms. So we are doing it partly BU by BU, but also in what we call the transformational programs. We have six transformational programs that goes across. So what you have seen now, I think it's the start of what we're trying to do. There are also several areas where we have not taken out any synergies, cost synergies so far, because we have to invest before we can do that. And that is what you are going to see coming out in 2018 and 2019.
That's why we also are quite confident when we say that we want to continue this with a 1%-3% reduction in the years to come.
Thank you, Sigve. I see we have at least one more question here from the audience at Fornebu.
Excellent, thank you. Yes, Carlos from DNB. First one, one question of housekeeping. In the report, you say that you expect to close the India transaction within 12 months, which is the same wording as you had in the past, or in the last quarterly report. I guess it's just a copy-paste, more than that it's been pushed out another 3 months?
Yeah, that's correct. We said when we announced it, that it will happen within Q1 of Q1 2018. That is still the target. And so far, we have got a couple of approval processes already, as expected. So there is nothing in what we see now which makes us believe that it will go beyond the first quarter 2018.
Thank you. Organic growth this quarter was more positive in quite some time. You didn't do anything with respect to the growth guidance, but are you becoming underlying more positive with respect to growth trajectory?
No, we keep the growth guideline a nd in our markets, all our markets are fairly competitive. And I'm very happy to see that we now are starting to get some result of the investments we have done in Thailand t hat has been a real turnaround process. We are much clearer on what we want to be in that market when it comes to a more post-paid type of bundled packages, rather than the typical prepaid, very intense competition. I'm also happy to see that we really are demonstrating the data monetization of the investments we have done in the other Asian markets.
And then, looking at Berit, I'm also very happy to see that Norway actually are able to compensate for the effect of Roam Like Home, which is having a quite significant effect on our revenues, the rollover effect that we saw in the first quarter, but also the ARPU effect of the popular handset program. I talked about that as a good OpEx reduction, but it's also a an actually reduction on on the ARPU. Despite all that, we are growing 3%. So I think we have found a good balance between investing in the networks, giving the customers more data, and at the same time, monetizing it. But however, this goes ups and downs. So the main headache we have now is Malaysia.
Hopefully, we will be able also to turn around the Malaysian operation into a more stable revenue development, but that's yet to come.
Any further questions here from Fornebu? One guy has left us.
Marius Lorentzen from E24. I was wondering if you could clarify the OpEx reduction, because you write that there's a contribution of one-time effects of NOK 200 million and currency effect of NOK 400 million to make up those NOK 600 million.
No, no, sorry, I was a little bit unclear. The 400 is if you start at NOK 1 billion. If you look at the bars, there is an indication that we are coming down from the run rate in 2016 to the run rate now of NOK 1 billion. And then we are taking out NOK 400 in that kind of discussion, because that is a currency effect more than anything else.
Right.
So it's NOK 600 million, and out of that, you might say that up to NOK 200 million are one-time effects, but it's still, it's still fixed costs, so I take it regardless.
Could you expand on what those one-time effects are?
There are various. There, it's a sum of a lot of effects. I think that is what we say about it. We will see that. From one quarter, you will see some hitting, going up and some going down. That's the way it is in running this kind of portfolio.
The one-time effects of close to NOK 200 million this quarter is related to Grameenphone and Digi, approximately half of that each, and that it was disclosed during their local presentations last week. The currency effects we talked about was all related to second to first quarter this year, when all savings more or less came from currency. This quarter, the NOK 600 million is more or less equal, both on organic and revenue, or on a reported basis. Any further questions here? If not, then I will ask the operator to open up for questions from the conference call participants.
Thank you. We take first question from Oli Clapp from Jefferies London. Please go ahead, your line is open.
Well, thank you. I have two questions, please. The first one is on Roam Like Home. You sort of mentioned it already. You have a high percentage already on new tariffs in Norway. So I think this means that in the second half, you won't see much of a revenue incremental revenue impact. But could you comment on customer usage elasticity of demand, in particular, the cost implications? Could you just make this, I mean, I suppose it's all in your guidance, but could you sort of just comment on that separately as a cost item? And if I may, a second question on the OpEx reduction. I mean, these are obviously amazing figures here.
The one thing sort of I'm wondering, I mean, how does this fit together with the Telenor that we have known over the last 15 years? Is there something that went fundamentally wrong in the last couple of years, and you're correcting now, and you're sort of getting within 2 quarters, 8% OpEx declines in Norway and Malaysia and these sorts of things? Or is there something extraordinary happening this quarter, and the rate at which these costs go down sort of will fundamentally change again? Is this a bit of a good quarter, or can you comment, you know, on the historical sort of context for this? Thank you.
Yeah, I can take the first one. I think we had the roaming, the Roam Like Home revenue effect for Norway in the first quarter was around NOK 30 million, so significantly down from what we saw in the previous quarters. And despite that, we grew the ARPU 3%. So you are right when it comes to less and less effect on the top line from including roaming in our packages. On the cost side, we see that the roamers are increasing their usage to approximately 300%. Fortunately, we have very good termination agreements with the European operators, so we haven't seen the cost increasing despite the 300% increase in usage. So I'm not worried about the gross margin effect on the cost there when people start roaming outside Norway.
Second question is basically that you can answer because you are not a part of the history.
Exactly.
So I was thinking, should I answer a question asking about the history of Telenor? But let me try to address it. I don't think we should look at this as something hasn't been done historically. I think a lot of things were done historically, but the focus were a little bit different. There were a very successful journey on rolling out new business units and participating in a tremendous growth in telecom. And then, as we have addressed, things are changing a little bit.
So, we are a collective management and are very concerned about this task, and we also think there is a vast potential, not because it hasn't been done before, but after such a development in the company, there are many pockets, big and small, that you can gain, taking out efficiency and concentrating the effort more clearly. Yes, it came in high in second quarter. We've got a little bit of the feedback, perhaps in first quarter, that it didn't come in enough at that time. These times are changing from quarter to quarter. It's complex businesses, and it's a big task we have set out to do. But we are the most important thing is that we have a stretch target.
It's a tough target for the next few years, but we are collectively very convinced we can do it if we do the right things. And we also see that it has an added benefit. So the cost is one side, but the advantage of being much clearer on what we want to prioritize and what we should prioritize less, is that we get down the activity level a little bit and concentrate more on being very good at what we are giving priority. And I, as we were alluding to in the presentation, I think that is also what we see this quarter. We have a lot of quality elements in the earnings, and to me, and I, and also Sigve, this is as rewarding as the cost reduction number in itself.
We are having higher concentration on doing the things right, the things that we need to. And if we can keep that balance, still stimulate, growth, and we think we can, and taking out some of the activities which are not absolutely necessary to do and be more efficient and follow the customer preferences on where they want to meet us and how they want to interact with us, this can be quite good.
Let me just add one comment, in addition to what Jørgen is saying, and that is that, the reason why we now are taking up the, the EBITDA guiding, it's actually that we now have ambitions in activities. And I think we are fairly, fairly, happy with the, the level where we are, where targets are not concrete, are committed, and, and we know the, what the, what the necessary activities are, both in the, the rest of this year, but also going into 2018.
Thank you.
We have many things to talk about today, and we have many callers waiting to ask a question, so I guess we will have to continue another 10-15 minutes with the Q&A. May I have the next caller, please?
Next question comes from Peter Nielsen from ABG. Please go ahead, caller. Your line is open.
Thank you. I'll take two quick ones, please. Firstly, thank you for your elaborate comments on the OpEx reductions. I found that very helpful. Can I just ask you, when you say that most of the reduction in the second half will appear in the fourth quarter, is that for the very simple and obvious reason that this is where most of the handset equipment sales are? Is that the main reason? And just my second comment, perhaps mostly to Sigve. You're less scathing about the Danish market in your comments this time, Sigve. Are you turning slightly more positive on the Danish market and your presence, given revenue stability, and given the significant improvements in your profitability? Thank you.
Yeah, that is part of the reason, but the reason is, of course, several elements, and, and it is the bottom-up analysis that indicates this for us. We have some new initiatives, some new things we want to do in the third quarter, so that is lifting costs a little bit.
Okay.
But it's the sum of everything and when we see, when we believe we will get the effects out of the next batch of implementation of things. But again, it's also implicit, a little bit of a warning or ask not to be followed up in millimeter terms on every quarter on this. We hope that we can be able to kind of communicate around the program, create a confidence around that program in the market, and then make sure we are delivering on that. So that's how we see it today, and we'll see how it turns out when we are in October.
When it comes to the Danish market, no, I'm not more optimistic about the Danish market. That remains being very, very competitive. However, we cannot sit here and just complain. We need to do something with it, and that's what we are trying to do. And knowing now that consolidation is probably very difficult to see a case for, then we'd rather spend our efforts focusing on our operations. And that's why, as I said, we have triggered a turnaround program, and we see, can we operate differently in this very competitive market? Can we be more focused in what we bring to our customers, but can we also do that much more efficient? And I'm happy to see that that's not paying off, and that's what you see in the second quarter. So what we're trying to do is basically to create value through operating differently in a very competitive market. And then we will...
What the future will give us, then, the future will know.
Thanks.
Okay, thank you.
Next question comes from Maurice Patrick, from Barclays. Please go ahead, your line is open.
Yeah, morning, guys. Just a follow-up on the cost reduction you saw in the quarter. You talked at the Capital Markets Day a lot about sort of digitizing customer journey, and how technology would drive a lot of that and link that into the Tapad acquisition. Just curious to know how much of the cost cutting really came from this new sort of paradigm, if you like, of costs around how Tapad can help reduce structural costs, and to which extent you are really kind of moving towards digitizing it? Thank you.
We don't have any number on that, but just give you one example. I think, for the Norwegian customer care, year-over-year, there are around 15% reduction in call volumes to the customer care in Norway. That 15% reduction is because people are then finding their needs through talking to us digitally, rather than making a call. That's why we are pushing what we call the Telenor app, which is the digital communication tool we have with our customers. Of course, for that, of course, we can reduce the manpower in our call center to 15%. So that's just one example of that, and there will be several other examples of that.
And on the technology side, we are having, trying to build platforms across. We have an IT shared service platform we are building in the Nordics, and again, trying to then cloud-based, software-based platforms, rather than having quite extensive, IT legacy system in our operations. But that's just two examples of it. We don't have any numbers.
Thank you, guys.
We take next question from Stefan Gauffin from Nordea Bank. Please go ahead, your line is open.
Yes, hello. Can you hear me? Hello.
Yes, we can.
Yes.
We can hear you loud and clear.
That's perfect. I have a couple of questions. First of all, you mentioned this reduction in sales and marketing and that it should not have an impact. I'm just looking at Thailand. There's quite a big reduction in sales and marketing costs this quarter, and there's also a big reduction in net adds, especially on the prepaid side. So just comment on if you believe that this level of sales and marketing is sustainable in this market. Secondly, there's some exceptional growth in Bangladesh in subscription and traffic. Just to make clear that it's not any one-offs included in this.
Just to answer your first, your last question, Stefan, there are no exceptional, no one-offs in the top line of Grameenphone.
That's perfect.
And also in Thailand, well, things go up and down, of course. We want to stay competitive. But some examples of why we have got an OpEx reduction in Thailand. We are benefiting out of less regulatory payment. We are focusing then on postpaid and are not spending a lot of money on subsidizing prepaid handsets. We are reducing the traditional TV commercial type of marketing, because we see that digital marketing is more efficient. So these are the type of examples where we are reducing sales and marketing generally, but still staying very competitive in what we see is the future market, and that's the postpaid market in Thailand.
Okay, thank you. Very clear.
Next caller, please. We take next question from Irina Idrissova, from RBC Capital Markets. Please go ahead, your line is open.
Hi, thank you. Just to follow up on OpEx, are you able to quantify for us how much of the sales and marketing expense reduction was specifically to the, due to the handset swap program in Norway? Can we assume that the program was the vast majority of the sales and marketing OpEx reduction? And then another question is on Thailand. Could you talk about the progress of the potential JV agreement with CAT for the continued use of the infrastructure there? And if this agreement transpires, how should we think about the costs associated with that, and how would that impact potentially your 1%-3% per year OpEx savings targets? Thank you.
The first one, I don't have any figures on that, but you are basically saving commission when we do this handset program in our own channels. But of course, when we know how to roll it out in external channels, we pay commission. Then you are also reducing the upfront and device discount. But I don't have any numbers on that.
I believe it was around NOK 40 million.
Okay.
Year-on-year.
Okay. On your second question was Thailand. We have agreed with CAT on how to potentially work together, both on the fiber and on the tower structure. However, this agreement is still subject to government approval. And how, when that will happen or if that will happen, that we don't know.
Next question, please.
We take next question now from Terrence Tsui, from Morgan Stanley. Please go ahead. Your line is open.
Yeah. Good morning, everyone. I have a question about the portfolio rationalization of the Telenor Group. Can you share with us your latest thinking around the VEON disposal? And then secondly, maybe can you clarify some of the comments you made to the press regarding the outlook and the future of the Central and Eastern European operations? Thank you.
Yeah.
Please repeat. I'm not sure if we... The line was a bit poor when you asked your question. It was about portfolio simplification, and I also heard Central and Eastern Europe. Is that correct?
Yep. Yep. So it's just an update on VEON and Central and Eastern Europe, and the comments in the press, I think a couple of weeks ago, talking about the future, and whether those businesses in Central and Eastern Europe will be potentially sold off. Thank you.
Yeah, I can comment on the last one. We are not commenting on speculations or rumors, and obviously, we are not going to disclose either what we are planning to do. So we are satisfied with our positions throughout the operation. But as I said, also in my introduction, we are reviewing our assets in a way where we are putting a focus on the assets that add most value to us. I don't want to comment more on that.
On VEON, we reclassified our assets this quarter as a short financial investment. We have a clear statement and strategy on divesting our position, and that remains. And then when we do it, we'll let you know. But we do it when we find time right. We are in no rush, but we do it when we find it, the time is proper.
Great, thank you.
I thought we have, we have three callers still waiting to ask the questions. I ask you to be a bit quick, and in that case, we will be able to manage all three callers. May I have the next question, please?
Next question comes from Robert Slorach, from Handelsbanken. Please go ahead. Your line is open.
Thank you very much. And quickly, high-speed internet net sales in Norway was only 7,000 this quarter, in what I assume would be pretty strong seasonal quarter for fiber rollout, is lower than in the previous quarters. Could you comment on that, perhaps? And also, Myanmar losing 41,000 subscribers, was that organic, or was it any cleanup in that number? Thank you.
Yeah. On fiber, I don't want to give you any numbers on that. We are continuing full force on rolling out fiber, and we see that that's still a very good business case. And we have really ramped up our rollout capabilities there, and we believe that we are continuing to take market share. But I don't want to say anything more on that. On Myanmar, yeah, that was you can call it a cleanup. What's happening in the market is that people are reducing a bit the number of SIM cards that they have, staying more to primary SIM.
On top of that, you also had the implementation of a SIM registration program, which in all the markets we have done that, in Pakistan and in Bangladesh as well, often result in people registering their primary SIMs and don't bother to register the additional SIMs that they have. So that's the main reason why you see an adjustment of this customer base.
All right. Thank you very much.
We take next question from Sunil Patel, from Bank of America. Please go ahead. Your line is open.
Yes, thank you. So one of my questions was answered on Myanmar, but the second question I had is just on the revenue growth. I mean, you're guiding still towards 1%-2% revenue growth, but when I look at, you know, the trend you showed in Bangladesh, the turnaround in Thailand, stability in Norway, are you confident that you'll be at the upper end of that range? And do you think, you know, subject to that sort of momentum, can you continue in the second half, you can even exceed the 2%? Thank you.
No, as I think we all have said, we are confident with that range t hat's why we have the range. However, we are restless in the way we work in all our markets trying to capture growth. So... You have something, Jørgen?
No?
Thank you.
Okay, and then to the final caller of the day.
The last question comes from Usman Ghazi, from Berenberg. Please go ahead. Your line is open.
Hello, gentlemen. I had a quick question on the TOT agreement. I think in the local press, you know, we know roughly what the costs are gonna be for this. I mean, is there any visibility on whether it will be booked in OpEx, and how does that... I mean, are your cost saving targets excluding the cost for this agreement or including? Thank you.
Right now, we are only concerned about, or we are 95% concerned about, getting the agreement concluded, signed, and through the various approvals, and that is what we are concentrating on. And then we'll obviously get back to you with all the details on how we plan to book it when we are ready to do so. But right now, it's first things first.
Okay, thank you.
That was the final caller, and that ends the session here today. Thank you, Sigve and Jørgen, and thank you all for participating on the conference call. For those of you having additional questions, please don't hesitate to contact the investor relations team. As I indicated at the beginning of the session, for media presently at Fornebu, there will now be an opportunity to ask questions to Sigve and Jørgen in a separate media session that will take place in a room next to the auditorium, and Severine will lead you to that session. Thank you all, and have a great summer vacation.