Good morning, and welcome to Telenor's first quarter results presentation, whether you're present here at Fornebu, listening on the phone or watching this by webcast. My name is Meera Bhatia, and I have the pleasure of guiding you through the presentation this morning. I hope you all have a copy of our press release and the presentation. The material is also available on our website on Telenor.com, and you can also find there further instructions how to follow this and watch the presentation over webcast. There will be, as usual, a Q and A session directly after the presentation, first here from the audience, then from our phone participants. We aim to end the session at around 10:00 A.M., and we ask you kindly to limit yourself to one question. I know it's tough, but try, and you have one follow-up clarification question.
After the Q and A, there will also be the opportunity to speak to our CEO and CFO one-to-one interviews. To present the update today, we have our CEO, Jon Fredrik Baksaas, and CFO, Richard Olav Aa. First, I leave the floor to Mr. Baksaas.
Yeah, thank you, Meera, and good morning to all of you that has taken the trip here to Fornebu this morning, as well as the one that are following us on the, on the net. Today, we are reporting our first quarter for 2013. We again, we are reporting a very financially strong quarter. There are solid margining around in the, around in the group, and there is a strong cash flow this quarter. We do recognize, however, that the reported organic growth this quarter is somewhat below what we are being used to over the last couple of years from the Telenor Group. We've had a slow start this year, which is largely explained by low growth contribution from handsets in some of the operations.
More technically, we do not have the growth factor in our Indian operation this quarter because of the comparisons to first quarter 2012, which included a bigger footprint than what we presently run in India after the license process. In addition to this, there are regulatory factors in Pakistan and Bangladesh explaining a little bit of this, and we're going to get back to these issues. Just this fall, the issues like the IT challenges in Thailand, fewer working days with the leap y ear and the Easter thing, and multiple locations with strikes and unrest in Pakistan and Bangladesh. The underlying organic growth revenue this quarter is around 2%.
With this positive development, with this development, we also see some specials improving signs towards the end of March into April. So we believe that the growth in the coming quarters will improve again. But due to this, we are giving a slight downward and cautious revision to the revenue forecast for the year, and Richard will get back to those details. And after considerable work, as you know, invested in clarification on regulatory conditions in India, we have now full focus in positioning our service offering in the remaining six circles . And we feel that we're doing well, and the customer acquisition machinery seems to have worked well under also the new regulatory mechanisms on new customer acquisition and registrations.
This is done at the same time as we're progressing towards the cash flow break-even target that we have for 2013. I will then move to Norway, and here we see the healthy underlying growth in mobile subscription and traffic revenues continuing. We continue to benefit from the bundle subscriptions that was introduced two years ago, and we now have 65% of our postpaid consumer retail base is now on these price plans. Excluding one-offs and the effect of the leap year and Easter this year, Q1 versus Q2, compared to last year, the mobile subscription and traffic revenues, in fact, increased by 6%, which is almost at par with the what was the growth factor on previous quarters. During this quarter, we have continued to strengthen our network leadership position.
We are doing significant investments in both fixed and mobile networks. The 3G coverage and capacity is improving. The 4G rollout has continued when we launched the 4G on 1800, which also enables the iPhone 5 users to enjoy the benefits of the 4G. And this has taken the user group of 4G handsets in Norway in the Telenor networks, up to anticipated 300,000 users. Finally, we are also now seeing clarity on the 800 MHz frequencies coming out with the auction expected to take place in the second half of this year.
This is a very important move because it will enable us to even more efficiently roll out 4G on a nationwide wide basis. The increase to mobile data consumption continues, and adjustments to service offerings needs to follow. And here we are focusing on the key differentiators in the data world. The data volumes included in the bundles have been increased somewhat recently. We have been added music services. We have also introduced subscriptions for more advanced data users, higher volumes, including the 4G speed. And with this new renewed service offerings, we believe that we will strengthen our business proposition towards our customers, and at the same time, monetize on the investments made in order to realize this tremendous growth to happen. Moving on to Sweden and Denmark.
In both Sweden and Denmark, we see some EBITDA margin improvements this quarter. About time, many of you would say, and we're happy this happens. On the other hand, there are also questions around the growth factor in these countries. In Sweden, the underlying EBITDA improvement is a 1.5 percentage point. The rest is more or less explained by one-offs. In a quarter with relatively low market activities, mobile service revenues, excluding the handsets-related discounts, increased by 1.4%, which is slightly less than in Q4, when it was at 2%. The acquisitions of OpenNet and Ownit last year contributes to growth and then strengthen the broadband position of Telenor in Sweden. Denmark continues really to be a very challenging market.
The revenue development is heavily impacted by a 65% cut in mobile termination rates from the beginning of this year. In actual figures, the termination rates moved from 23 øre to 8 øre at that point in time. And of course, this explains more or less 50% of the top line decline in this quarter. Mobile subscription and traffic revenues declined by 4%, which represents some easing compared to previous quarters, when the decline was more around 10%. In March, we announced a new strategy. We have reorganized the Danish operation. We will focus more on existing customers. We will simplify our service offerings, and we will do this throughout the whole value chain.
This reorganization need to adapt to the tough environment in Denmark, which also, unfortunately and inevitably, will result in workforce reductions. The network joint venture with Telia is up and running, and we have launched 4G in March. The next step towards network improvement starts in May, when the joint venture will provide full 3G improved coverage also to Telenor. And it will definitely strengthen the cost position going forward. Before leaving Scandinavia, I'll throw in a comment on Broadcast, which have a quarter in the first quarter, 2013, with very stable revenues and stable margining, following a very strong close in 2012. In the other parts of Europe, the macroeconomic picture haven't improved that much really over this quarter.
We see, though, that our Central and Eastern European operation are delivering pretty strong operational performance, despite this challenging macroeconomic environment. In Hungary, organic revenues, excluding interconnect, increased by 1.5%, and the underlying EBITDA margin increased by four percentage points. The first telecom tax, though, that was introduced in 2010, was removed from January 1, 2013, and has contributed to a margin lift of 6%. However, the second telecom tax, that was introduced in July 2012, has effectively increased from January 2013, as the temporary caps that was in place in the second half of 2012 has been removed.
This takes the effect from the second tax to a burden that increased from 6-8 percentage points on the EBITDA margin. The longer-term effect of this is probably that this tax will be more included in the price structures moving forward. In Serbia, the migration from prepaid to postpaid continues. The Serbian operation has another very strong quarter, and all parameters are moving in the right direction, really. Customers are growing, the customer base is growing. Their prepaid to postpaid continues, ARPU increases, and margin follows. So what more can we ask? At the end of this quarter, 44% of our customers in Serbia are now on postpaid subscriptions, and ARPU was up 4.5%, coupled with 3% year-on-year growth in the subscriber base.
This resulted to an organic revenue growth of 8%. More on the structural side, the operation in Central and Eastern Europe are continuing to explore a joint operational excellence initiatives. And trying to utilize the regional scale and best practices in the region. Moving then to Asia and first the two most mature and advanced Asian markets, Thailand and Malaysia. Both operations see a strong increase in data usage, which again is translating into revenue growth. Although the revenues, the voice revenues are under pressure, we reiterate that the full-year revenue growth outlook for the companies for 2013 is standing strong. Digi, 5%-7% growth, and dtac, high single-digit.
In Thailand, dtac reported a healthy service revenue growth of 8%, which is in line with previous quarters. Total revenues were +6% on the back of lower handset sales. The subscription and handset sales performance this quarter was impacted by an unstable performance of the order management system that we launched in January. Unfortunately, these more or less shut down sales for a period in the first two months. These issues were resolved during the quarter, and dtac is now more active in the market again. dtac finished also its network swap in Q1, and is now preparing for the launch of 3G services on the new 2.1 GHz license. A launch is expected in second quarter.
This is a very important step for dtac going forward, which takes the market from the concession regime and more on over to a normal license regime. The 3G license gives dtac a significant opportunity, and we have decided to increase the CapEx profile in 2013 in order to meet this growing demand in the country. This stay within our CapEx guiding for the group. The improved EBITDA margin in dtac is caused both by an underlying OpEx to sales improvement and lower sales with lower margin on handsets. Moving on to Digi in Malaysia, the Q1 results were in line with expectations. We saw 5% revenue growth on the back of growth on mobile internet revenue, and higher sales on smart devices.
We expect to see a larger share of the growth coming from service revenues in Q2. The revenue growth is partly offset by continued price pressure on both domestic and international voice traffic. We saw, however, a high demand for bundle offerings, including handsets, and this gave some margin dilution year on year, but will drive data revenues going forward. The smartphone penetration in Malaysia is anticipated to be 28%. The network swap is progressing according to plan. Now, close to 70% of the sites have been swapped, and we're aiming to complete by the end of Q3. And this, of course, we're pleased to see that an improved network quality comes with it. We're back to growth in Bangladesh, but see a temporary slowdown in Pakistan.
Growth rates in Q1 in both operations were lower than what we used to see, including the effect of the Leap Day, et cetera. This is mainly related to regulatory changes. We see the growth prospects for both markets as still being positive for the rest of the year, and we will comment more deeply on our view on this. Grameenphone has stabilized its revenue market share and has a better momentum in the marketplace in this quarter. We have a solid subscriber growth in the quarter, reporting 1.8 million new subscribers in first quarter 2013. And this, of course, improves the SIM card penetration and the SIM card market share. However, it will also put pressure on ARPU and other elements.
The revenue growth continues to be impacted by the implementation of the 10-second billing, which came around last year. And roughly, the effect of this is for Grameenphone, roughly minus 2 percentage points. For the time being, we are registering quite unstable conditions in Bangladesh. There are several nationwide strikes, where we see politics positioning towards the upcoming election, early 2014. And we will have, we will consider that some of these kind of challenges will continue to be there for the rest of the year. GP has increased the market activities over the past quarters. We're focusing now on bundled offers and churn reducing campaigns. We've increased marketing spend, and we have improved the customer acquisition results.
But it also puts some pressure on the margin, which is now at the level of 48%. In Pakistan, the revenue growth was impacted by regulations on restrictions in the sales channels. And it hit us and the industry very, very severely in the first two months of the quarter. And there are also, this comes in parallel with several governmental enforced network closures, which took place both in January and March. In addition, we see a drop in incoming international traffic after the establishment of an International Clearing House . And this, in a way, puts new challenges on hand, how traffic is being routed in the country.
In December 2012, a new and stricter regulation on SIM sales through retail channels were introduced, and it effectively took the number of outlets qualified under the new regulations down from 75,000 to zero. Which means that we had to build up a complete new procedure for customer acquisition. The team has done an impressive job on adapting to the new situation and has significantly strengthened the footprint on the alternative sales channels during the quarter. And we're now back at a level of 28,000 outlets qualified for customer acquisition. The customer adds have been picking up again and in the second half of Q1, and preliminarily, April numbers point in the very right direction. So we believe that growth will improve again in the coming quarters.
In this quarter, it's been a fairly quiet news flow from India compared to what we're used to. We are on track towards the operational cash flow breakeven target that we have set for the year. Whereas the reported revenue numbers this quarter is affected from scale, namely the fact that the footprint has been reduced from 13 circles to six circles. Our six circles added 1.4 million subscribers during Q1, and I'm very pleased that the churn is also coming significantly down. It's now at the level of 5% per month versus 12 in Q4 2012. We saw a 7% organic revenue growth year-on-year, and the underlying ARPU is increased to INR 94 rupee for this quarter.
And it was for last quarter in 2012, it was INR 90. The improvement was driven by increased loyalty and growth in usage. The government has taken an in-principle decision to grant Uninor an offset and refund of the 2008 license fee. We are awaiting, though, the official confirmation to that and also details regarding that implementation. Meanwhile, we are fully committed to our targets on reaching operational cash flow breakeven by the end of 2013, as well as achieving this within the peak funding requirement that we have established for the project. Closing that in on some few remarks on the basic strategies of the group. The way forward is all about doing the right things to ensure both continued growth and improved efficiency.
The strategy is in place. It's dynamic in the sense that we hopefully also manage to grab new activities coming around and new trends coming around in the industry, but it's execution that counts. The sustainable growth comes from being preferred by the customers over time, and this means that we have to stay relevant to the customers, including being able to adjust the service offerings according to changes in customers' behaviors, market needs, as well as competitive moves. Improved efficiency is partly about continuous improvement along the road, but also about utilizing group scale and also daring to adapt, to adopt new operating models. Technologies are evolving, suppliers are evolving, new ways of operating comes with it. There are many initiatives in place in all our OpCos in this sense.
These are in play both locally and includes, of course, group initiatives originating from group industrial development as well as from the group unit, trying to plow into the service side of the new ecosystem, which is coming out, namely that of digital services. And of course, the focus is on executing in this direction with close follow-up at all levels. I will then hand over to Richard, who will, as usual, take us through the financials.
Yeah. Thank you, Fredrik. I will do that. I will do that in three sections. First, I will talk about P&L, then about the debt and the balance sheet, and then finally, our guidance for the rest of the year. Let's start with the top line. As Fredrik said, we have a flat top line this quarter, year-on-year. I think there are a few explanations that are very helpful to go through when we analyze the top-line development. First and foremost, we can start with 2012, which you see on the right-hand side, see here, where we had a run pace around 5% organic growth.
But bear in mind, approximately 1% came from India, where you compare a much lower revenue base in 2011 to 2012 than 2012 to 2013. And as you build up growth in India, the growth percentage will naturally decline, and you also have effects of a smaller footprint. That's one effect, and the other effect is the handset sales. We increased handset sales tremendously in our Asian operations in 2012. In first quarter, these sales have been more flat, and those are sales that come with basically very low margin. So the underlying service revenues were really strong. The margin in Telenor is around 2% last year.
So, comparing those 2% to what we have achieved in the first quarter, or about 0.3%, we see also a weaker growth when we compare the 2% to 0.3%. But we have a few special things in the first quarter that is worth noticing. India and handsets already commented upon, but we have fewer working days in the first quarter due to Easter and leap year. Then we have the commissioning of the IT system in dtac that severely hampered the sales in dtac in January and February, and the regulatory issues that Fredrik explains in Bangladesh and Pakistan. So all in all, we estimate that the underlying service revenues in the first quarter is on par with last year.
So, and that's also why, and I come back to that, why we don't reduce the guidance more than the effect of the first quarter. So if you remember, before, we had a guidance of 3%-5%, now we're guiding 2%-4%. That basically means with a zero growth in the first quarter, that you have to grow with 3%-5% for the three remaining quarters. So the guidance for the rest of the year is basically unchanged, going back to that. Moving on to the margin, strong development because gross, some of the revenues, we don't then get this quarter on handsets and the growth in India, that comes with a low margin. So actually, the margin increased from 31% to 34%, and an improvement in the EBITDA of NOK 660 million.
There are really four big explanations to the EBITDA development, and that you see on the right side here. First and foremost, it's India, where we have reduced losses significantly compared to first quarter last year. That's due to a lower footprint. We have closed unprofitable circles, and the new registration procedures that came in place in the fourth quarter in India is really helping us. As you know, we have a distribution model that differs from our competitors, where we align ourselves directly with the point of sales. With new procedures now, with much more strict enforcement on the operators' responsibility out on the point of sales, we have a competitive advantage in our distribution system.
We see now that churn is coming significantly down from a really crazy level of more than 12% per month, now down to the 5% range with these new registration procedures. The quality of the subscribers are becoming better, RPU is going up, and most importantly, our customer acquisition costs are dropping dramatically, which will help us achieving the cash flow break-even target. So now in India, for the rest of the year, it's really about using our distribution force to get more net adds in this new regime. We have to increase net adds to get significantly to get to the break even and also lift the gross margin. Those are the two big marching orders to the Indian organization, and we believe they can do it. On Norway, really a strong quarter on efficiency.
Reduced OpEx in Norway, coming really, I would say, from two main sources. One is more of the distribution goes online, on web, at significantly lower cost than in physical retail. Secondly, a good OpEx control in operations. I think Berit and the crew, they have done some very important changes in how we you work more preventive on the maintenance and repair side to avoid call-outs and so on, entrepreneurs. We see now that the volume we use on entrepreneurs, on fault handling, is dropping significantly, and more of the volume is shifted towards new build and CapEx on fiber and and coverage, which is a very good trend.
dtac, despite all the issues with the order management system, strong growth in the margin, just explains how powerful the data growth in Thailand is now, also in Malaysia, coming back to that. And March was really a strong month in Thailand. Then, GP, you see a negative development. And, my friend, Vivek, previously the CFO in Uninor, started as the CEO in GP, and trying to merge the very good strengths of GP with the ultra-low cost mindset of Uninor and the winning everyday concept of Uninor into Grameenphone, and started really well. Very good gross add development, but we're spending money now to fight back in the market.
We could not accept sitting and see our market share slide anymore, and they're doing the team there is doing a very good job of re-energizing GP to fight back, and a good start, I would say. Other, we have front-loaded some costs in Malaysia, on the market side, on handsets and so on. And, of course, the development in Denmark continues to take its toll on our EBITDA with the top line development. But good margin development in Eastern Europe and Sweden this quarter. So in total, strong quarter on EBITDA, NOK 8.4 billion. Then on the CapEx side, around 12% CapEx to sales this quarter, NOK 2.9 billion. About one third of that is spent in Norway.
Spent wisely, in my opinion, on 3G and 4G coverage and fiber to the home. We see both those investments as very profitable going forward, and we're proud to say now that we have more than 200,000 mobile customers on 4G. We're really the only operator that have mobile customers on 4G. The other ones have basically PCs and, and pads, and so on, but, but we have on, on dongles, but we are the only one with on mobile subscription, and it's picking up really fast. Then we see a lot of CapEx going into Digi and Pakistan. That is explained, but those are the two last companies that are now swapping the networks to all IP based networks. Digi is in the final stage, while Pakistan is in the midst of it.
Mentioning dtac here, not so big CapEx this quarter. Remember, dtac is now our biggest mobile operation, but expect to spend significantly more CapEx during the year as we plan to launch 3G on 2.1 in the second quarter. The rest of the operations are really on a more normal CapEx level. And that translates into cash flow, EBITDA, less CapEx. We have a cash flow of NOK 5.5 billion this quarter, 22.5% cash flow margin. Quite strong. And the 12 month rolling cash flow is now close to NOK 21 billion, as you see on the right side right here, helped by the trends that we saw on the earlier slides. Then summing up the P&L, we have been through the revenues and EBITDA.
On other items, we have expensed NOK 270 million this quarter. 106 of those are related to write down on this order system in dtac. That shouldn't have happened. The rest is basically on workforce reductions in the Nordics, the main contributors. On our OpEx agenda, I would say we are progressing, but regulatory costs, as I mentioned on the fourth quarter results, are making it more challenging to reach our targets. Also, when regulatory costs also take regulatory issues taking such a big toll on the top line as we measure OpEx to sales as an efficiency, it makes the goal moving, so that we have to find even more mitigating actions to be able to reach our targets on efficiency.
So, D&A on a lower level as we have approached final stages of accelerated depreciations with the network swaps, with the exception of Digi and Pakistan. And then we don't have any impairment this quarter, and we had big impairments the first quarter last year due to the write down of licenses in India. So the EBIT is more or less on a normal level of NOK 4.7 billion. Also, the contribution from VimpelCom, I would say, is more on a normal level, and that's the fourth quarter results of VimpelCom coming in with approximately NOK 1.1 billion. Net financials, we had a one-off positively first quarter last year. I would say this quarter it's reduced underlying due that we refinanced expensive loans in India during the summer last year. So finance cost underlying is reduced.
So profit before taxes, NOK 5.6 billion, normal tax charges this quarter, and also normal effect on minorities. So net income to the Telenor shareholders, NOK 3.6 billion this quarter, which translates into earnings per share of NOK 2.34, which is pretty close to normalized level as we have very few special effects these quarters. Then, moving on to the balance sheet and the debt. Remembering back to the fourth quarter, we passed a leverage ratio of 1x debt to EBITDA, and our debt at year-end stood at NOK 33 billion. That's being reduced by NOK 4.2 billion during the quarter, and it's the ratio is now back to 0.9, which is very solid in the telecom industry.
The average of European Telcos is around two, actually a little higher than two now, and we see a lot of Telcos going out for capital increases and so on, reducing dividends. That's not our plan. And reconciling the net debt, you have the EBITDA. We've been through interest and taxes on a normal level. CapEx paid slightly less than CapEx accrued NOK 300 million. Share buyback this quarter was finalized. Then we received NOK 2.6 billion of dividends from VimpelCom. These were the dividends withheld due to the issues we had in the Russian court system last year, and also the final dividend coming out of 2012, NOK 2.6 billion.
Then dividend to minorities in Asia, and then various effects on working capital and currency that turned slightly negative this quarter. So net debt stands at 28.9. So what to expect going forward? Bear in mind that we'll pay out NOK 9.4 billion in dividends to Telenor shareholders in the second quarter, so that will have a leverage effect on the group. But we will also get NOK 3.8 billion in dividends from VimpelCom in the second quarter. That goes the opposite way. So both those things you should bear in mind when you look at your leverage forecast going forward. We also have the buyback of shares from the Norwegian state that will come also now in the next quarters, around NOK 2.6 billion going out.
Total, it's NOK 12 billion going out in dividends and share buyback to the Telenor shareholders, and then NOK 3.8 billion coming in from VimpelCom, in addition to the NOK 2.6 billion. In total, VimpelCom will contribute to our cash flow with NOK 5.4 billion in 2013. Capital allocation, just to remind the audience on that and the priorities, first and foremost, maintain a solid balance sheet and keep the net debt EBITDA below 2. We're at 0.9 now. We're doing well on that. Continue to give a competitive shareholder remuneration, as you will now receive the dividend in May of NOK 6 which is a significant increase from last year. We have done pretty well on this the last three years.
And then to aim for a growth in dividend going forward, which should be possible as we see the Indian losses now coming to an end. And then finally, on the M&A agenda, within, if we do something, within our core assets and region and adjacent, to that, and most importantly, value driven. Then finally, on the guidance, we're making a slight adjustment, on the revenue guidance. And as I said, we're really only adjusting for the first quarter. As you see here, we previously guided 3-5 percentage points revenue growth for the year, and first quarter was basically flat. So again, repeating myself, if we were to now reach our guiding of 2-4, we need to maintain the guiding of 3%-5% for the rest of the year.
There are a lot of effects supporting that. We see the trends now in March and April. Handset sales should come back, and we have other things that we can go on explaining, but I think we can do that more on one-on-one on investor relations. I think the key effects was on the first slide. The EBITDA margin, despite a very strong quarter in the first quarter, we're not guiding the EBITDA margin up because we expect handset sales to come back that has a low margin. We would really have hoped to be able to guide the EBITDA margin up to 35%, but that requires that we get more progress on our operational excellence agenda.
And like I said, that is being challenged by all the regulatory issues, both on the cost side and the pressure on the top line. We have not at all given up on that and working diligently to try to close that gap. But the 34% margin does not include a closure of that gap. Then on the CapEx to sales, we don't change the guiding even though we increase the CapEx spending in dtac considerably, we estimate that that should be able to maintain within that guiding. And also, I would say, ending my presentation here as a CFO, I always try to focus on being very efficient on CapEx, but I think what we're doing on the CapEx now, especially in Thailand and Norway, is very good.
If we can do the fiber investment and the 4G, 3G investments in Norway in an efficient way, and the 3G rollout in Thailand, it's very good for the group long term if we actually end in the higher end of this bracket of 14%. With that, thank you.
Thank you, Richard. We are now ready for the Q and A session, so I would like to invite Mr. Baksaas back to the podium. We will start with the audience present here, then from the ones participating on the phone. Just a kind reminder, please limit yourself to one question, and a microphone will be passed around, and please introduce yourself.
Hi, it's Espen Torgersen at Carnegie. You've mentioned the importance of mobile data growth and obviously handset sales. So is that, in essence, the real reason why you've changed full year guidance after two months, based on what happened in, in Thailand?
Well, it's been, it's good to get you back on the questions. You promised last time to come back with questions. Here we are. So, no, not really Thailand in itself. As Richard said, the speed on the startup in Pakistan and Bangladesh, due to regulatory issues and the consequences of the not working order management system in Thailand in that period. We have to say that we lost this momentum in Thailand, in particular, on sales in that period. And when we took the rollback decision, it was a sort of challenge to do that. But when we did that, we got back into volumes. So we believe that the underlying drivers here for growth possibilities and potentials in these three markets will, i t is basically there, but we need to handle them better.
Any further questions from the audience? No questions at all from the audience? Don't be shy.
Well, we had one question from Espen, at least.
Okay. Since there are no further questions, then I will open up to the co-host to introduce the questions from the phone callers, please.
Question from Andrew Lee, Goldman Sachs. Please go ahead.
Yeah. Good morning, everyone. I just had one question with a follow-up. Could you just give us an update on your efficiency program to get towards the 35% OpEx to sales targets? Do you have the plans in place now to at least attempt to get to this? And, Richard, were you saying earlier that the regulatory and top line pressures have delayed this process? Just, just any updates around that will be great. Thank you.
I can start, you can do my fill in. The OpEx to sales target for 35% in 2013 is under pressure. We have to recognize that, and there are several reasons for that. One can say that some of the initiatives takes some more time to get rolling and to show progress across the group. However, the fact that the growth dimension is a little bit different also puts some pressure on it. So, Richard?
No, I think, we told you on the fourth quarter that basically, we are on track. When we look at what we have done on the manning side, what we have done with partners, what we have done on network efficiency, energy efficiency, and so on, all those programs are basically on track. But we have seen a massive increase in regulatory costs, both in Grameenphone, in Malaysia, and in Thailand. So we have to compensate for that, as well, which makes it more challenging than we expected when we set out this program in 2010. And also what we now see in the first quarter, in addition to that, the costs are hitting us badly on the regulatory side.
We see also that these regulatory effects, especially in Pakistan and Bangladesh, in the fourth quarter, is also now hitting the top line. So you get the pressure on both parameters, both the top and the bottom line. Our ambition is still to reach 35%, but the message is that it's more challenging due to the regulatory side. That means that we have to find more profit mitigating actions in all the business units, and this will be a focus for the rest of the year, obviously.
Thanks. Can I just follow up? Is your ambition still for, to reach, well, to at least try to reach that, target for 2013? Do you think that's in any way realistic? And then just secondly, given the, increased regulatory cost pressures, is that basically offsetting your, the, the benefits of lower handset sales to margins, and that's why you haven't, driven your margin guidance higher? Thanks.
Yeah, the funny thing is actually that handset sales, if it doesn't, it doesn't give you any margin, really. It really helps you reaching the OpEx to sales. So, but it's really the quality of earnings that should matter in the long run. But ambition is clearly to reach 35%, but it will require that we don't, that we achieve the revenue targets we have put up here, and also that we increase the execution on the OpEx side for the rest of the year. But yes, the ambition is still to reach the 35%.
Thank you.
Next?
Ulrich Rathe Jefferies.
Please go ahead.
Yeah, thanks so much. I'm wondering about Norwegian Mobile in particular. I understand that the churn of the customer base you took in last year on this heavy marketing sort of was higher, and that you took some measures by increasing commercial spend and also increasing the data allowance and some tariffs. I'm just wondering, you know, I mean, is this how severe an issue in terms of looking forward is this really?
Is there really a bit of a shift in the way you have to approach the Norwegian market, or would you consider this more as sort of a glitch in the way you expected the customer base to behave, in particular, vis-à-vis Telenor's efforts in the market, which of course, weren't very strong in the first quarter, but there's a chance here that they are getting more aggressive, I think, in some areas. I was just wondering how you look at that. Thank you.
I think we have to say that, we were not as, present in the, mass marketing channels as we, should have wished. So in the first two months, our competitors, Tele2, in particular with Network Norway, had a particularly strong, performance in that period. Whereas towards the end of the, quarter, when we, realigned the price, price structures, to a certain extent, then we see, that, that effect, that gives us a positive effect immediately. So we don't necessarily believe this is a, a shift, but of course, the competitive, situation and the dynamics between players needs to be overlooked and needs to be, handled, and needs to be responded to, as well taking initiatives in, in a more or less dynamic situation.
The underlying trend, though, is that the Norwegian market is eager to move to the data phase, so to speak. It happens as we speak, and the intensity here is quite strong, as is the purchasing power of the market itself.
Thank you.
Just to add, we have not really adjusted our prices, but what we have done is that we have included some more data in the packages, as we see that data growth is tremendous in Norway now. And we also saw the competitors ahead of us adjusted their data offerings, and we couldn't really be that off. But remember, the Norwegian market is still compared to very many other markets, quite, I would say, normal, on the data volumes, especially if you compare it to a market like Denmark, where the data volumes are exceptionally high, from all operators.
Next?
Jacob Bluestone, Credit Suisse.
Go ahead, please.
Hi there. I was hoping to get a little bit more clarity, just in terms of some of the things you're doing to get around the regulatory issues in Pakistan. I think you said that you, that the number of qualified outlets was reduced from 75,000 to zero, basically overnight, and you're working on growing alternative distribution channels. Could you maybe give a little bit more clarity on what does that mean? What are these alternative distribution channels? What does it actually, in practical terms, involve, getting distribution going again? Thank you.
What happened here was that towards the end of the year, the regulator introduced a new procedure to have all customer acquisition forms to be signed by a company representative. And with that mechanism in hand, basically, the distribution system is then slowed down immediately, because we don't have company representatives being able to sign customer acquisition forms at that high number of points of sales. So that means that you have to rebuild your logistics in order to to get that done. We had that experience in India, because the, more or less, the same procedure was introduced there some periods before. And in Uninor, we managed to come around that in a very speedy way. So we managed to keep the sales momentum towards the end of fourth quarter.
But it took some while to get that going in in Telenor Pakistan, and I don't think we can say that we were lagging the other players in the market on that score. On the contrary, I think we were as clever as we could be in order to get that back into operation. So as you hear from my comments, we're now more or less back to a process which can handle customer acquisition in the same way as we did before. What will this mean longer term?
I think that the market basically will adjust to these kind of mechanics and achieve to organize the logistics in the customer acquisition in such a way that we properly register all customers in the way that is described by the regulator. And we feel that these are quite important step to take, because what the government really wants to achieve here is to know who is who on the network at any point in time. It was also introduced a max SIM per individual regulation, which enabled only five SIMs to be registered on one person. That may seem strange if you make a sort of Western measurements on it.
But on the other hand, usually, and the SIMs in Pakistan for a whole family is registered on the family head. And then we obviously understand that the number of SIMs can grow quite high.
If I can ask a follow-up, please, on Pakistan. The logistical measures that you're introducing to deal with this regulatory issue, will that leave you with structurally higher costs? And maybe also just in terms of their impact so far, you know, you obviously had a significant slowdown in revenue growth in Pakistan during the quarter compared to previous quarters, growth rate.
Did you exit the quarter with better growth than, you know, so higher growth in March, say, than in, in January?
We exited the quarter with a better performance than the initial part of the quarter, yes. And we don't see that this cost basically is a long-term structural one. However, it's a kind of a struggle to get from the one to the other.
That's very clear. Thank you.
Next?
Laurie Fitzjohn, Citig roup.
Please go ahead.
Thanks. Just on Norway Mobile, with the upcoming spectrum refarming, do you see much risk to your network advantage? Do you see a need to invest more in base stations to compensate for the likely more evenly balanced spectrum holdings we're gonna have towards the end of the year? Thanks.
No, we're looking forward to these auctions. I think to get more low frequency is extremely important to build a high quality network at an acceptable cost. And of course, the network also is a lot more than coverage. It's the total quality of the network that we give to the customers, including the services we build around it, which we also invest heavily in from Telenor. And as an example, like I mentioned to you, we're the only one now that's really offering 4G on the mobile phone. Because we have built the handover systems that can take the mobile phone up and down from the various technologies.
I think moving on now into full IP-based network, yes, spectrum is important, but it's really in how you deploy the network and build services around it, and give a total quality offering that is most important. But yes, we're looking forward to the auction and to get more low frequency, because that will enable us to build it out in a more efficient way than if we have to build it only with the high frequencies.
And may I add there that, with 800 coming in as a platform for better regional coverage in Norway, which this will also enable us to increase the capacities delivered on the access compared also to the fixed network. There are a number of households in this country which are dependent on DSL lines, which are having limitations on capacities as it stands because of its length and its quality. And to deliver that access over 800 is a much more efficient, both from a build-out perspective as well as from a customer perspective, because it gives better capacities in the customer end.
We have time for one more question.
Next.
Akhil Dattani, JP Morgan. Yeah, hi, good morning. Just a question on India, please. As you mentioned in the presentation, you're still expecting an update on the 2008 license refund. And you suggested the government has, in principle, agreed that that should be forthcoming. But I guess it's been quite a while since we've had any sort of update, and initially, we were expecting a conclusion to this either late last year or early this year. So could you just help us understand what the latest developments are around that? Or whether there's any change or any sort of change in view, really, from you in terms of how likely that refund is? And with that, does that have any sort of impact in terms of your ability to achieve your cumulative loss guidance in India, please? Thanks.
The license refund is by principle decided by the Empowered Group of Ministers and being delivered from that ministry to telecom industry for implementation. There was one sort of kind of problematic issue that came out in the last end of March, because the head of the department, which was responsible for the whole process, he moved into pension. And new guys on the block, that means new explanations and a new process. And what he did on his last day of employment was to send it over to the Justice Department for comments. And it has now been returned from the Justice Department with no comments.
So in a way, seen from our perspective, this is an implementation process that needs to be done, and we need to put the pressure on the whole system in order to do that. So in principle, we feel that decision has been taken, and it's to put pressure on the process in order to get it done, which really has to be done also from our part. What do we learn from this? You don't get anything for free. You have to be there, and you have to collect your rights at any point in time or whatever kind of question that is hanging over the industry or yourself as a player in that industry.
Thank you very much. That concludes the session here today. Thank you for all joining. For media present, I'm collecting a list, so please just