Good day and thank you for standing by. Welcome to Tele2 Q4 2022 interim report conference call. At this time, all participants are in listen only mode. After the speaker's presentation, there will be the question-and-answer session. To ask a question during the session, you will need to press star one and one on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Kjell Johnsen, President and Group Chief Executive Officer. Please go ahead, sir.
Thank you very much, good morning, everyone. Welcome to Tele2's presentation of the results for the Q4 and the full year of 2022. With me here in Kista today, I have Charlotte Hansson, our Group CFO, Hendrik de Groot, our Chief Commercial Officer, and Stefan Trampus, our Head of B2B. Let's turn to slide two. When summarizing 2022, there are some points I want to highlight. First, our strong performance during a year that turned out to be very challenging. Despite a lot of unexpected events, we have delivered on our 2022 guidance set out a year ago with a steady growth in revenues and results. Excluding increased energy costs, underlying EBITDA grew by 4.9%. We have also made some important strategic achievements.
The turnaround of B2B, which proves our ability and strength to make necessary changes. We have taken important steps to strengthen our TV and B2C operation with a new entertainment offering. Our Baltic operations have shown a remarkable ability to adapt to new external conditions and continued to deliver strong and stable results. We have also secured important spectrum in the Baltics that will enable us to grow our business for many years to come. At the same time, we have managed to continue our internal efficiency measures in line with the business transformation program and realize savings of over SEK 800 million so far. We have also completed the sale of T-Mobile Netherlands and have made great progress within sustainability, among other things by having our Science-Based Targets approved as the first company in Sweden.
Our board of directors proposes an ordinary dividend of 6 kronor 80 öre per share, an increase from SEK 6.75 last year, to be paid in two tranches in May and October. Let's turn to page three, please. When looking at the development during the Q4, I'm very pleased to see that we are able to continue delivering profits of the growth despite the challenging environment. The strategy we have implemented is proving very helpful in navigating this new landscape that provides challenges to both businesses and society at large. During the Q4, end user service revenue grew by 3.2% on an organic basis, it's great to see that we continue to make good progress in all our markets.
Although we've seen a significant increase in energy prices and inflation during 2022, we have been able to convert the strong end user service revenue growth, coupled with the execution of the business transformation program, to an underlying EBITDA growth of 3% for the group. Adjusted again for the increase in energy costs, approximately SEK 35 million higher in the Q4, the growth in underlying EBITDA would have been around 4.3% in the quarter. Sweden B2C saw solid growth in net intake and end user service revenues in core services, offsetting the decline in legacy services. Viaplay is now implemented for all eligible customers and is positively contributing to our digital TV business. In Sweden B2B, we saw continued commercial momentum with solid end user service revenue growth and strong net intake of mobile postpaid across segments.
In the Baltics, we experienced yet another quarter of good performance, both in terms of top line and bottom line growth. We have also focused on rolling out 5G services as quickly as possible across our Baltic markets. Let's then move to the Swedish consumer segment. Mobile postpaid saw continued strong net intake in the quarter, driven by FMC bundling and Comviq, while ASPU declined slightly. However, the commercial activities in the market have been more competitive lately and showing signs of slowing customer demand. In fixed broadband, we see continued good growth driven by volume and a stable ASPU development. In the digital TV, cable, and fiber business, we are seeing positive impacts from the migration of TV customers to the new entertainment packages that include Viaplay.
Most important, the new package has been very well received among our customers and even contributed to an increased customer base during the quarter, breaking the downward trend from earlier quarters. We're also seeing a new TV proposition contributing to the overall performance, which shows a 5% increase in ASPU during the quarter. Mobile end user service revenue grew by 1% in the quarter, driven by the larger postpaid customer base. In fixed broadband, end user service revenues increased by 1%, thanks to the growing customer base. Total end user service revenue for digital TV was flat in the quarter as the 3% growth in digital TV was offset by a decline in the legacy DTT TV service.
Let's move on to B2B. Commercial momentum continued to be strong in the quarter, with both extended and new customer contracts, including the recently announced agreements with fuel company, OKQ8, and food retailer, Axfood. Mobile net intake amounted to 26,000 RGUs, driven by improvements across segments and notably in the large segments. Mobile ARPU remained stable. End-user service revenue increased by 6% in the quarter, including a positive one-off deal of SEK 70 million related to solutions business. Adjusted for this, end-user service revenue grew by 4%. Looking at the combined Swedish operations. End-user service revenue increased 1%, driven by solid performance within B2B. International roaming had a positive year-on-year effect of SEK 16 million.
Underlying EBITDA remained at the same level as last year, as higher end-user service revenues and positive effects from the business transformation program were consumed primarily by higher costs for energy, external handset financing, and content. Cash conversion remains strong at 66% in the quarter. I move to the Baltics. Across our Baltic markets, the number of mobile postpaid customers continued to increase, whereas the number of prepaid customers fell in line with a normal Q4 seasonality. We have continued to see organic ARPU growth across markets during the quarter. The focus has been on price adjustments combined with data monetizing through our more for more strategy. As for the financials, ARPU and volume growth in mobile postpaid led to organic end-user service revenue growth across markets in the quarter, resulting in 11% growth for the Baltics as a whole.
Despite soaring energy costs and inflation, we have so far managed to adapt to the new environment by adjusting prices and executing the more for more strategy. In the Q4, underlying EBITDA grew by 16%. We continue to see a high cash conversion for the Baltics due to the strong performance and relatively low CapEx levels so far for the ongoing 5G rollouts. With that, I would like to hand it over to Charlotte, who will go through the financial overview.
Thank you, Kjell. Good morning, everyone. Please turn to page 13 in the presentation. During Q4, we saw a 3% organic growth in underlying EBITDA. This was mainly driven by high-end user service revenue in all countries and positive effects from our business transformation program in Sweden. At the same time, we have continued to see pressure on the margins due to the sharp increase in energy prices and rising inflation. Associated companies in JVs shows a decrease compared to Q4 2021, as this no longer includes results from the divested T-Mobile Netherlands. Net interest and other financial items increased to -SEK 181 million due to higher interest costs. Net profit discontinued operations includes release of a tax claim of SEK 363 million.
In December, the Administrative Court of Appeal ruled in favor of Tele2 and accepted our claim of a deduction of exchange losses related to our former operations in Kazakhstan. Let's continue with the cash flow on slide 14. CapEx paid was higher in Q4 2022 compared to last year, mainly due to higher network investments. Changes in working capital was negative in the Q4 as well as for the full year. To follow up on what Kjell said earlier, I would say this is mainly explained by three items impacting the full year. Firstly, we temporarily suspended part of our external handset financing arrangements as we have renegotiated agreements with our third-party providers. Secondly, we saw inventory increase related to network equipment, primarily linked to the 5G rollout.
Lastly, we also saw our handset inventory rise from unusually low levels because of the supply chain challenges we were facing end of 2021. Improving working capital is one of our top priorities in 2023. However, this is not going to be a quick fix, and we expect it to take a couple of quarters to come back to more normalized levels. Taxes paid increased in Q4. This is mainly explained by a large repayment of preliminary tax in Q4 2021. Equity free cash flow from continuing operations amounted to SEK 3.5 billion in 2022, corresponding to SEK 5 per share, which were lower than in the previous years. The main explanation for that is the negative development in working capital. However, this is, as I mentioned, something we expect to gradually improve during the coming quarters.
Please move to slide 15, to go through the capital structure. At the end of December 2022, economic net debt amounted to SEK 25.6 billion. During Q4, the second tranche of the ordinary dividend of SEK 2.3 billion was paid. In total, we have distributed some SEK 13.6 billion in cash dividends to our shareholders during 2022. Leverage was at 2.5 times at the end of December, which is in the low end of our target range of 2.5-3 times. In December, we issued a SEK 1 billion three-year bond. We also signed a EUR 700 million sustainability-linked revolving credit facility with a tenure of five years. Both arrangements were signed at attractive conditions.
Please turn to slide 16, where we'll update you on the progress of the business transformation program. During the quarter, we continued to execute on the business transformation program and made improvements primarily within our combined IT and tech organization, both in terms of network optimization and savings in external spend. This led to an annual run rate savings of SEK 825 million by the end of 2022. The P&L effect of this was SEK 195 million in the quarter, with a net effect of SEK 80 million compared to Q4 2021. With that, I hand over to Kjell to go through our guidance and key priorities going forward.
Thank you, Charlotte. Let's move to the page 17 with our guidance. Our guidance for 2023 is to continue to grow end user service revenue by a low single-digit number, alongside a similar growth rate for underlying EBITDA, as inflation will weigh temporarily on results. Energy is part of inflation, while it had a significant impact in 2022, the current benign price levels would show a more limited headwind in 2023. We all know that energy prices could change significantly. In 2023, CapEx is expected to remain in the upper end of our midterm target range of SEK 2.8 billion-SEK 3.3 billion, as the rollout of 5G is accelerating alongside the upgrade of the fixed network in Sweden with Remote PHY.
We also reiterate our midterm guidance with low single-digit end user service revenue growth, mid single-digit underlying EBITDA growth, and CapEx in the range of SEK 2.8 billion-SEK 3.3 billion. Please turn to page 18 for a summary. To summarize last year, I'm happy to conclude that we delivered on our 2022 guidance. With the dividends paid last year, in total SEK 13.6 billion, we were able to significantly remunerate our shareholders in accordance with our financial policy. For 2023, our board proposes that another SEK 4.7 billion shall be paid out to our shareholders.
On the back of this, I want to reiterate what I said at the time for the Q3 report, that we are prudent in the way we look at our balance sheet, as we've done historically, and make sure that we keep our financial strength going forward while keeping our current leverage and dividend policy in the long term. In Sweden, we continue to roll out 5G at a high pace and are committed to our goal of covering 90% of the population by the end of 2023. In the Baltic States, we are now rolling out 5G in all three countries after securing important spectrum last year. On the fixed side, we continue to roll out Remote PHY devices in Sweden in order to gain the benefits from the investments as soon as possible.
Both projects are key to us in order to increase customer satisfaction and being able to provide new services, which will support our more for more strategy for years to come. In 2023, we have an important spectrum auction coming up in Sweden. With regards to that, I want to highlight Tele2's built-in network efficiency that will be further capitalized as Net4Mobility will become the only sharing vehicle in the market when the current 3G network is closed down. We will also continue executing on the business transformation program to deliver the SEK 1 billion of savings by mid-2023. However, the ending of the program doesn't mean an ending of our cost focus. That for sure will continue.
When we integrate the full Comviq business to our new common IT platform by the end of 2023, we will have a simplified IT structure, allowing us to devote more of our resources to giving our customers a digitalized service experience with even more focus on the market as we spend less time fixing legacy issues. In Sweden Consumer, we will continue to balance value and volume in order to build sustainable growth while gearing up our capabilities to address the 1.3 million non-FMC households. We will also continue to build our premium brand in order to increase customer satisfaction that we can monetize through reduced churn or price adjustments on the back of product improvements. The improved entertainment offering, including Viaplay, is a key part of the strategy to regain our position in strengthening our customer offering.
In Sweden Business, we have seen an uplift in numbers since the new strategy was launched in 2021. The steady development during 2022 is encouraging. We see further potential to develop and grow our business. We have recently secured a number of new and renewed customer contracts, further meriting our strong offer within networks and security. It all comes down to a focused work that aims to support our customers long term. Fluctuations should always be expected, we are now witnessing a very important and sustainable shift within B2B. In the Baltics, we experience more pressure on the cost side than in Sweden due to the exceptional high electricity prices as well as general inflation rates that have actually been well over 20% in recent months.
Far, we've been able to mitigate this from the incredible top-line growth, which filters down to underlying EBITDA. Going forward, we'll build on this momentum while we're conducting nationwide rollouts of the 5G network. Our leading role in sustainability is something we can capitalize on, as it is increasingly important to our customers. As such, we see potential to further develop circular economy solutions to meet customer demands. We are now looking at the year to come and beyond. I have expressed many times before that Tele2 is a growth company at heart, and we continue to show this quarter after quarter as we execute on our strategy to reach our guidance for 2023 and in the midterm. With that, let's move it over to a Q&A session and take some questions, please.
Thank you. Dear participants, as a reminder, to ask a question, you will need to slowly press star one and one on your telephone and wait for a name to be announced. To withdraw your question, please press star one and one again. Please stand by while we compile the Q&A roster. This will take a few moments. Now we're going to take our first question. The question comes to line of Andrew Lee from Goldman Sachs. Your line is open. Please ask your question.
Yeah. Good morning, everyone. I have two questions. One on the Swedish consumer outlook, and then secondly on just to dig a bit more into your working capital outflow or working capital expectations for 2023. On Sweden, you mentioned, Kjell, the slowdown in customer demand and increasing competitive intensity through the Q4. That's at odds with Telia management commentary that suggests there hasn't been a major change. I just wondered if you could give us a bit more color on your thoughts and what scope you see for higher price rises in 2023 than in 2022 to offset the inflation headwinds that you laid out. That's on Swedish consumer.
Secondly, on the working capital outflows we saw in 2022 in the Q4, thanks for laying out the drivers of that. I just wanted to get a bit more color on what exactly should we be expecting in 2023, when you said, recover to normalized levels. Does that mean stable working capital for 2023, and no headwinds or a reversal of some of the effects and therefore some tailwinds? Just a bit more of an understanding about direction of travel for working capital would be great. Thank you.
Thank you, Andrew. I'll kick off on the working capital. Probably I will let Hendrik answer on consumer Sweden. Working capital is the result of very deliberate choices almost one year ago to make sure that we could roll out 5G. To make sure that Stefan would have enough routers and other equipment so that he could pursue the growth that he has been delivering in B2B. Of course, that we make sure we have handsets for our business. We came into 2020 with, I wouldn't use the word completely empty shelves. We had very low inventories. We needed to make sure with the supply chain disruptions that we actually could support our business. That has played out very well.
We have had a good development on 5G rollout, and we've been able to sustain strong deliveries in the B2B. What can you expect going forward? Well, as interest rates started going up, we had to renegotiate our relationship with the factoring that we typically do on selling handsets. We took, for a limited amount of time, some of these handsets on our own balance sheets. We are not going to take more of this on our balance sheet going forward, and all the decisions were made actually back in November. How are we going to deal with this? We have a good relationship with our factoring partner, so that's going to work well.
What you have seen in terms of handsets will then gradually be paid back as the customers pay back the financing over the next, say, two and a half years or so. That's happening by itself, and that's almost a third of the increase in working capital. When it comes to the build-out of the 5G network. As you know, we have probably the most efficient network structure in Europe, where we are building the network together with Telenor. Those who had partners in 3G, Telia with us and Tre with Telenor in the past, will no longer have those benefits when 3G gets shut down. The vehicle we have with Net4Mobility is unique and a great thing to have. We need to accelerate the invoicing procedures through there.
We have already come to a level of working capital that now with more predictability on supplies, we can start optimizing working capital within Net4Mobility. We have big volume, now is the time for that optimizing. The third thing is that Stefan sitting next to me here, he's going to be selling a lot of the goods that he took into storage last year because of its good growth. Gradually, we will wind down some of what has come in in the bulk orders that we placed last year. Just as an information point, some orders that were made in March, we were even told in September, October, that they wouldn't be delivered until 2023, and then all of a sudden they start coming in October, November.
It is basically repercussions of a 2022 that was hard for everyone to predict. You should expect to see that we will unwind gradually the increase that we had in working capital through 2023 for an improved end of year showing.
Thanks, Kjell. That was really helpful. Can I just follow up just before we move on to the Swedish consumer? It sounds like, and unwind. On a net basis, we should expect a kind of positive working capital move in 2023.
That is clearly the ambition and the target that we set in front of ourselves. I can say to you, like I said in an interview this morning, I would have done exactly the same thing again if I had the same choice, knowing what I know today, because it was really the right thing to do to secure
We can grow our business and build 5G and support Stefan's efforts to drive growth. I'm actually quite happy with the decision, but I understand that and it's fair that we should defend it to you why does it play out like this for that specific year.
Yeah, it makes sense. Thank you.
Shall we move to, Swedish consumer?
Yeah.
Andrew, on your question, when we sort of look at the market, we of course look at a number of factors, right? We take into account the consumer sentiment from, you know, the external reporting, which we've seen, you know, quite a slowdown in the consumer confidence index. We look at the market factors, and of course we look at our customer touch points and sort of the feedback we're getting in the sales channels, but also through our customer operations and our interactions and any sort of customer service we're doing.
I think if you sort of take all that together, we are seeing, of course, that, you know, the inflationary pressures, energy prices, and general inflationary pressures on consumer pricing, you know, is affecting the consumer sentiment. The way we're seeing it in our business is that, you know, markedly on device sales and handsets, we've seen a more careful customer and also a slowdown in the Q4. As you can see in our numbers, we were 6% of lower on equipment revenues. Now, that is of course also versus a very strong quarter we had last year, but we still see an overall slowdown.
What I would also want to mark there is that we're seeing basically also a more sensitive customer to promotions. Customers are easier switching. I think there's been on a comparable basis a higher number of porting in the market. And of course, that also drives a little bit of pressure on ASPU as customers, of course, hunting for deals. In our numbers, we still feel and see that that mainly pertains to the mobile side. On the fixed side, it's actually been quite stable, both on broadband and TV, both on sales and on churn. We have very low churn numbers. On the mobile side, we've seen a bit more, you know, market movement.
Now, how does that relate to our overall, outlook for, you know, going into 2023? We believe, so far, you know, the market will still be very sensitive to, and the consumer to pricing. At the same time, we will move to offset some of the cost increases we've been running into our business into the market. In Q4 and in 2022 full year, you'll recall that we've mainly focused our portfolio innovations on entertainment, and that also came with, quite a bit of price adjustment on the entertainment side. We've been lower in doing price adjustments on the, on the core connectivity side in mobile and broadband. We will of course take that into 2022, 2023 as we move forward now.
Thanks. That was really helpful.
Thank you, Andrew. Now we're going to take our next question. The next question comes to line of Maurice Patrick from Barclays. Your line is open. Please ask your question.
Yeah. Thanks so much indeed for taking the question. Just from my side on the guidance, you've guided, of course, you reiterated the midterm guidance of medium, mid-single digit EBITDA growth, but this was low. Could you just spell out what you're assuming in terms of energy hedging, energy pricing, just so we can get a sense of the headwind that you're assuming for that? I'm sure in your guidance you've assumed some sort of conservative element given what we saw in 2022. You sort of hinted as much. Then just on the spectrum side, it's probably hard for you to comment too much ahead of a spectrum auction. You would don't seem to be signaling. Given it's mostly renewal, maybe you can just give some views in terms of if you're happy with your current spectrum portfolio.
You don't have a burning need to acquire a lot more or get rid of a lot less. Any thoughts in terms of your high level thinking about spectrum, given the Net4Mobility structure would be helpful. Thank you.
On the guidance, the way we have chosen to go about this, is not to talk so much about energy numbers as such, because quite frankly, we don't have any better crystal ball or understanding of energy prices than anyone else. We do have some elements of hedging, but I'm very glad that we didn't do too much hedging in September, October last year to lock in the high prices that were then. The way we see it now, if trends continue like they have done in the beginning of the year, and it's very early days, then we don't see energy as a massive impact on our business. Of course, if we went back with the September, October prices again, it will play out.
As you of course remember, for 2022 it amounted to an extra bill of 1.5 percentage point at EBITDA level. We have made sensitivity scenarios for modeling our business for the next year or two with energy, and that is of course part of the prudent approach to dividends and other things.
What I can say to you is that we expect to deliver low single-digit EBITDA growth irrespective of what happens to energy prices. Of course, if they are benign like we see in January, it will be a nicer low single digit number than the case would be if they are at September level, where it'd be a lower low single digit number. It's not only about energy. There are multiple other things that are coming into. I made an interview this morning, we talked about the wage discussions for this year, where will they land? We see the equipment cost for example, Stefan selling his routers to our customers because of the Swedish krona going down and general inflation. These things have gone up.
We are basically absorbing all of these things, including energy in 2023, but we are absorbing them to a level that would doesn't take us quite to the mid-single digit. Our ambition is to get back there again in the medium term, and we're going to work very hard to make that happen. I'm afraid during this year, we have to live with that. We are not able to say in more detail where we will end up because we don't know the energy component, and it's been very, very volatile. On spectrum, I think you're right. It's not so easy for me to speak about the spectrum.
I'm very happy that we bought good spectrum in the Baltics at what I would call low prices, and that has secured our business for many years ahead. In Sweden, we have a very good spectrum portfolio, and we will just have to go into that auction with our partner, with a view to secure the spectrum that we think is the right for developing our business forward. I think whatever I say beyond that will probably not be smart to say.
That's very clear. Thank you, Kjell. Thank you. Now we're going to take our next question. The next question comes line of Ondrej Basak from UBS. Your line is open. Please ask your question.
Hi. Thanks for the presentation. I've got just a follow-up in terms of the B2C outlook in Sweden. Just in terms of the unlimited intake, is it still the case that you're seeing more than 50% of gross adds coming in on the, you know, free SEK 99 tariff that you were highlighting last quarter? Also in terms of price increases, specifically, have you seen 2022 you didn't do anything on the fixed side because of the fixed broadband side to be specific because of the TV repricing. Is this something that will be a focus perhaps in early 2023? A follow-up in terms of or just a question rather in terms of free cash flow going into 2023.
CapEx, I think you previously said would be somewhere around the midpoint of the guidance, perhaps even at the low end of the guidance. It's actually at the very high end for this year. In cash terms, it is, it's quite above the high end of the guidance. I was wondering in terms of cash impact of CapEx and just guidance in general for 2023 and 2024, do you expect some kind of easing relative to 2022? Then specifically also in terms of the factoring. I think the other two components that you mentioned around inventory, those should see some almost mechanical unwind.
In terms of the factoring, can you just explain a bit better what you're doing there and the impact that you see specifically from this, from this account, and if it's free cash flow, therefore, you know, benefits from both CapEx and working capital. Is it rational to expect an extraordinary dividend sometime around maybe 2Q results? Thank you very much.
I think I'll start with the things around free cash flow and factoring, then Hendrik will take B2C. CapEx 2022. We said throughout the year that we were kind of hoping to come in the upper end because we really want to build 5G and Remote PHY. I'm glad to see that we managed to keep up the pace towards the end so that we came somewhere between the mid and the higher end of the CapEx guidance. That is actually a good thing. That's something that we are happy with. In 2023, we expect to be in the upper end of it because this is going to be the year that we're building 5G to most Swedish consumers and businesses.
That's going to be a big push, so it will be in the upper range. Without guiding on this, I would say that in 2024, at some point, we will come to the point on the curve where the 5G momentum will gradually be taken down. I don't want to say at what point of time in 2024. I think it's too early to say that, but it will be in 2024. How much Remote PHY we build is actually something we can, to some extent, throttle. We are very happy that we've been able to triple the speed of it because now it works so much better than it did 18 months ago. It's in our hands to choose the speed that we want to have.
2023, we're going to continue building our business and then, of course, we start optimizing this. In terms of the free cash flow, of course, it's a component of multiple things. First of all, is the residual of revenues going through EBITDA minus CapEx or operating cash flow, which is growing year-over-year also in 2022, and that's the ambition to do going forward. The operating cash flow is growing. That's what we're going to live from in the long term. Our working capital increased in 2022, as you correctly pointed out. That's going to be worked on in 2023. Gradually to take it down. That brings us to the factoring that you bring up. We stopped doing factoring for a short period of time while we renegotiated, took it on our balance sheet.
Clearly, those customers, let's say they bought a handset for with a 3-year financing from us in November last year. Throughout 2023, 2024, and some, at some point in 2025, they will have repaid that. It comes back naturally as they pay month over month back to us. This, all these decisions have been made. It's just a matter of the time and the repayment for that money to come back. We're talking almost a third of the working capital increase relating to that specific component. That is, of course, going to be helpful. I hope I answered all the parts with you because you had many things in there. If not, let me know after Hendrik speaks on B2C.
Thanks, Kjell. Let me just address your question around the 5G portfolio in context of the mobile performance that we're seeing in the Q4. On revenues, you see a growth of 1%, and you've also noted in the commentary that we had a one-off SEK 10 million correction. This is an underlying netting off of premium voice revenues that typically occur in December period that last year we only netted off in January. In that sense, the December '21 or Q4 '21 numbers are SEK 10 million higher than they normally should be. Against that, the mobile revenues grew by 1.7% versus 1%.
If you translate that to ASPU, we've seen, you know, -2% in the presentation, which, you know, if you go into the detail of the numbers, is -1.5%. If you take the netting off out of that, then our ASPU has declined by 0.7%, or 1.5 SEK. If you then sort of go into that is mainly due to, you know, movements on the variable side, not on the core subscription side.
There have been, you know, a better roaming and better add-on data, but we've had to have also some offsets on variable revenues on voice and content, some lower MBB, and also some allocations to our hardware bottom line that sort of bring in the net at -0.7% on the ASPU. In that context, you know, if you look at the 5G portfolio, that we've introduced in August, and as we said, we've only introduced it to the market. We have not done any back book pricing yet.
The state of play at the moment is, as I've been also speaking in earlier quarterly results calls, is that the portfolio is doing very well, that we, that I said that 50%+ of the intake is onto the higher end of the portfolio, so into the unlimited part of the portfolio, and that is still the case as we speak today throughout the Q4. What we are seeing, of course, at the same time, is a little bit of an orientation also towards the lower prices and the limited tier. It is still 50%+, but there is a couple of percentage points lower than, for example, it was in the Q3. Our, the new portfolio is now sub 20% of our total base.
That's just for you as an orientation as we move into 2023. As part of our price adjustments, we will of course start to look at the back book pricing and moving customers onto fully onto the new 5G portfolio. We are also looking at areas around our fixed broadband that we basically have been not pricing up that much in 2022. A part of that also is that we have seen a lot of the access pricing in the Swedish market to go up quite substantially. If nothing else, we just need to onward price some of this into the market. Then Kjell was addressing the factoring side.
As we move into 2023, we will also offset or at least ask customers to contribute to some of the financing costs. As we move into the next month, we will introduce a handset financing charge on all of our device sales for both of our brands into the market.
I was alerted to the fact that I did lose you. Sorry. Please go ahead.
No, Kjell, when you put, yeah, exactly, I guess follow up on the free cash flow then essentially translating if it improves this year, then potentially translating into an extraordinary or something you're targeting this year. Then maybe a follow-up in terms of the commercial aspect. Just, I think I guess that's many questions, but the bottom line would be that do you expect consumer service revenues in mobile in Sweden to therefore, kind of improve in terms of the trends from here on out? Thank you.
I would say, of course, we are looking at, you know, doing the necessary pricing adjustments into the market and introducing the handset finance fee, as I just said. At the same time, we have a very sensitive market. We have still a, you know, subdued consumer sentiment, and we do hope and believe that also, you know, in terms of the, that competitively, we will get into a more benign sort of promotional market again. Yeah, given that context, we do believe that we can, of course, put some of the growth back into the market on the mobile side.
I want to answer about the potential for a one-off dividend. I think there are a couple of ways to look at this. If you take pure math and a spreadsheet, and they communicated dividend policy, and set a midpoint in it, clearly there is the capacity in the balance sheet to do an extraordinary dividend if that was the only determining factor. What we have said consistently over the last quarter is that we want to be a little bit extra prudent going through this period of massive turmoil, keeping our powder a little bit dry. There is also a spectrum auction coming up in Sweden that is going to cost some money. We would rather get a couple of things sorted out before we entertain that discussion.
The balance sheet is quite strong, as you can see from our leverage, and we just are being a little bit cautious going through a period of historical turmoil in Europe.
Thank you very much. Thank you. Now we're going to take our next question. The next question is coming over from Stefan Gauffin from DNB. Your line is open. Please ask your question.
Yes, a couple of more follow-up questions. First of all, despite cost savings, Sweden delivers flat EBITDA growth, and we're coming towards the end of the SEK 1 billion cost saving program. Can you talk a little bit on how you're going to get Sweden back to EBITDA growth, if it's more pricing and more cost savings, et cetera. Just on pricing, Telia just announced back book price increases on both mobile and fixed broadband. Now you talked about also doing back book price increases. Are those plans for already H1 in order to get growth back up? Thank you.
I will probably invite both, Charlotte and Hendrik here. I think it's clear that the whole world around us now experiences price increases, in some areas dramatic. We're talking about what people pay for, well, interest is a kind of a cost for their loans. We are seeing pricing for food and these kinds of goods going up, energy prices we've all seen. I think it's completely natural that there will be some price increases in this industry, just like in the rest of society. You can expect that in this business, we will be making some price increases in a way that fits to the market realities. It shouldn't be a surprise to anyone. It's completely natural at this stage that will happen.
Would you like to talk a little bit about Sweden, maybe, Charlotte, on the EBITDA development?
Yes, I can do that. Like you mentioned, we are still working on our SEK 1 billion in savings, so we are still fully committed to that. Also, as we mentioned here before that, it doesn't mean that we're not going to look at costs going forward. Of course, we will always make sure that we have an efficiency in our business. Also when we roll out the or come further in our digital transformation, that will also give us new possibilities without necessarily setting a cost-cutting program.
Mm-hmm.
What we say here is that it's part of our DNA to actually be very cost aware and working on efficiencies all the time. I'm not going to really point out any things in particular, but there are, we see there are many possibilities, of course.
Yeah.
Making more things more digitalized as well.
Can add a little bit to it. You saw, you saw last... two years ago, we put together Tele2 and Com Hem to one brand. Last year, we put them together as one IT infrastructure. This year, Tele2, Com Hem, and Comviq will be one IT infrastructure. We'll still keep the Tele2 brand. We'll still keep the Comviq brand, but they will all be on the same platform by the end of this year, which simplifies our life, makes it easier for us to work with the market and less with fixing the legacy. That is very, very important for us cause the industry spends way much money on physical distribution, on third-party retail, and relatively non-targeted advertising. That's where the buckets are for savings. We can, of course, also work on our churn. We still have the potential to improve there.
When we are finished with the business transformation program, we're not going to come with a program that is, has a specific, so and so many kroner target in it. We're going to have a value creation program. As a consequence of these improvements, savings will come. You will not hear me saying that X amount of people are going to leave Tele2. That is not what we're going to say. We're going to say, we're going to improve this and this area. We're going to go more digital, and we're going to set KPIs and targets for it, and that's going to deliver the EBITDA going forward. That's sustainable revenues over time.
Mm-hmm.
Just on pricing, Stefan, the price adjustments for us are front-loaded.
In the year, actually they are already in execution. Of course, they don't go all in one, but they will go, as I said, front-loaded in that sense, both for mobile and our fixed broadband. Just to remind you from the first of February, so that's tomorrow, we'll be introducing the handset fee into the market as well.
Okay. Thank you. Very clear.
Thank you. Now we're going to take our next question. The next question comes line of Andreas Joelsson from Danske Bank. Your line is open. Please ask your question.
Yes. Hello, everyone. A question in line with many of the others on the growth drivers for next year. You talked about pricing, you talked about the sentiment in the market. Just curious how you manage your customers so that to prevent them from, as you stated, orient themselves down to the lower end of the portfolio. What tools do you have to make sure that they enter and stay also in the mid to upper end of the portfolio? Also, if you can talk a little bit about what you see in terms of market behavior. As you said, Kjell, everyone is interested in increasing prices, but is everyone walking the talk, so to say? Thanks.
Yeah. I think there are many facets to that.
Yeah
Y our question is a little bit tilted toward B2C, and Hendrik can of course answer that very, very well. It's not only a B2C question. There is also the B2B element, you can see that the progress we do in B2B is based on close more intimacy to customers. We understand customers more. One of our key values is to be insight driven, and that means taking our customers seriously, listening to them, and help them conducting their business in an efficient way. That actually means a lot because our business, our delivery to our customers in B2B is usually a fraction of the cost component of their value chain. It's an area that is incredibly important for them to get right.
When you come there with a solution, rather than just trying to push a volume onto them, that becomes a very strong relationship that you can build on and build more business, sell more products. That's super important in that area. I will speak a little bit to the Baltics, where we have a very strong mobile-centric offering and where the business is thriving, and we are able to execute on a regular basis on compensating for inflationary tendencies. Hats off for a great performance there.
Of course, the, in the, Swedish B2C, which you are alluding to, I will just briefly say that, you know, we do see some of those things that you would expect to see in 2010 happening from time to time, and that's the nature of a market with quite a lot of competition. We don't think it is the right solution to to deliver a 5G product with the same kind of go-to-market as we did in the 3G and 4G world. We have gone to the market with a pricing structure that reflects the fact that 5G is a broadband product. It's not a product that stems out of the voice world with a bundle. It is something where you don't count the gigabytes.
You look at the speed and the quality of service, and that's the way it should be. I think the market will gravitate towards that over time. By my taste, there was a little bit too much opportunistic behavior in the Q4. Okay, I'm biased of course. Hendrik, would you like to add something? No, the Q4 and in particular also this year, you know, we've seen quite extensive promotional periods, and I think that is part and parcel of course, of the Q4 in the Swedish market for sure. You know, we're all trying to offset things in the market and create value in the market. At the same time, of course, there's also this value and volume trade-off constantly happening.
I do believe we all have a shared interest in the market to move into this year, and really drive the market and, you know, confidently up across, in particular across our campaigns and promotionally, the promotional side. To your question, Andreas Joelsson, you know, for us, the core of what we're doing in our portfolio is basically, I would say is value loading. Value loading sits at the core of course, as Kjell was saying, you know, our new 5G mobile portfolio.
Because to provide the unlimited proposition, right, to a wider part of the market as we have been doing and introducing them, you know, introducing the speed tiering, we still very strongly believe that that is the way the market will go, and I think I'm very happy to see that all of our competition has also moved in that way, although I think there's still a lot of, you know, potential for them to explore the speed tiering to its fullest extent. We see that the market wants to move there. We've seen that our portfolio and the tier mix has substantially changed, even though, as I said just before, there's of course a balancing versus, you know, affordability at the same time happening.
Value loading is key. For us also, what's also, you know, key to retain customers is that all the work we've been doing on the quality side and innovation side. What I said, you know, what we've done on the entertainment side with Viaplay, on broadband with the quality programs we've been running, we've been hitting all time lows on churn, both on both our fixed side of the portfolios. We are still working quite a bit, but a little bit under the radar on all of the, you know, convergence. Convergence to us, that's I think, you know, the landing spot for us ultimately that we can build value load in terms of a multi-play, portfolio for consumers that they really want to, you know, hold on to.
We've done a lot of the cross-selling introduction, but as Kjell was saying, we still need to complete our IT transformation to really be introducing full multi-play as part of our proposition set later on this year into the market. That will sort of give us some good protection to go along with the price adjustments we're moving forward with.
Perfect. Thanks a lot.
Thank you. Now we're going to take our next question. The next question comes to line of Nick Lyall from Societe Generale. Your line is open. Please ask your question.
Morning, everybody. Hope you're well. It was a couple please. One on Remote PHY first, please, Kjell. Could you give us an update, please, on the number of homes that you've upgraded on Remote PHY so far and how many are to go? I think also you mentioned in your comments you were seeing increased access charges. Is it possible to give us an idea of the cost, the incremental cost as you move from the HFC to the fiber access network, please? The second one was on was more sort of Hendrik's consumer stuff, but it sounds like Telia is in the right mess in terms of its UEFA coverage and just TV overall. Do you see any opportunities there?
I mean, I think you said in the past you didn't really see much of an impact from Telia bringing in UEFA coverage in the first place. Is there anything there you think you can exploit or you're watching out for? Thank you very much.
So-
Sorry. That, Nick, that last bit on T-TV, I didn't fully understand that. Sorry. Can you just repeat that?
It was just really to say, I think you'd said in the past, Hendrik, that you hadn't really been impacted a great deal from Telia taking on the UEFA rights in the first place.
Right. Yeah, yeah.
Just to check that or if you'd seen any, or any other opportunities really, because it seemed like they're in a little bit of flux in terms of what to do with their TV products.
Yeah. Shall I just start with that? So, on that last bit, as you said before, that we have not seen a huge impact in terms of, you know, customer losses or whatever. I do believe that, you know, with the rights coming up this year for, you know, it to the market, let's see where they end up going. Ultimately, what we see is that, as part of the core portfolio, customers are choosing, you know, a bouquet of entertainment services that they really just want to, you know, want to keep holding on to. Typically, that's a combination of linear channels and streaming. That's clearly, you know, at the core of our proposition.
Of course there is a big segment growing up that is only streaming oriented. I think for us, still a big part of the market is what I call this hybrid segment, where people do like linear, they like their linear on any device in combination with streaming, you know, movies and series and live sports. That's of course one of the key reasons for us to, you know, choose Viaplay, right? Because we have a very good combination with live sports that is absolutely a customer attraction factor. Now, whether you then have, you know, Champions League as an element of that, I think we've that is, you know, not good enough to really draw the crowds, at least not as we've seen it so far.
I guess that will be somehow also Telia's own experience, I would guess. You also had some questions on Remote PHY. All right. We've been rolling out Remote PHY now to over 150,000 households. We still have a bit to go. This is clearly a part of a program that is, as Kjell said, you know, part of our core rollout and acceleration also for this year. What it basically gives us as we've been saying, it gives us a direct fiber connection, you know, to the basement of the house. And ultimately, you know, it is, it helps us in cost savings, right?
From, you know, the, on the operational side, as we don't have all the active equipment in the network that we typically have on the, on the coax side.
A fewer node splits and all these things.
Exactly.
Yeah.
Of course, it allows us also to move to the, you know, the higher speeds on a symmetrical level, not to forget. That's clearly also part of us more to more strategy as we move with our broadband portfolio from 100 megabits more to one gig. We've seen also this year already with the propositions we have in the market that our tier mix is shifting to the higher end of the speed range.
There was also a component of increased access charges, which I don't have from the top of my head. I think we'll have to take that back via IR so that we can answer correctly.
Yeah.
That's great. Okay. Thanks very much, guys.
Thank you. Now we're going to take our next question. The next question comes to line of Peter Nielsen from ABG. Your line is open. Please ask your question.
Thanks very much. Thank you for elaborating on the on the free cash flow and the working capital movements. Obviously, for, for the reasons you've discussed, the free cash flow falls way short, well short of covering the ordinary dividend for 2022. The outlook for 2023, Kjell, if I understand you correctly, whether you will cover the dividend by the from, through the free cash flow will depend to a high degree on your success on the reverting the working capital trends and also where we come out on the, on the spectrum. Is that correctly understood? Then, Charlotte, just a quick question. Could you give us any indication, Charlotte, on what we should assume for interest costs on a full year basis for this year? Thank you very much.
We basically expect to cover the dividend from our operating cash flow. Of course, 'cause you see our operating cash flow is increasing year-over-year as our EBITDA grows, and we stay within the range, and maybe potentially in the medium term can adjust the CapEx maybe downwards a bit, which I'm not guiding at this stage. As our EBITDA grows, our operating cash flow grows, it covers our dividend. Of course we can optimize the working capital. You correctly point out, of course, that how much the spectrum will cost will of course impact the 2023 equity free cash flow number. That's something we'll know much later this year what that number will be.
Yes. Talking about the interest cost, and I think we actually alluded to this before, that a 1% increase of the interest rates would be approximately SEK 100 -SEK 110 million or so. Of course, we don't know exactly what it's going to be at the end of the year, but we have the majority of our part is at fixed rates. Somewhere between 60% and 70% we have a fixed rate on that interest.
We should come out on a full year basis around where?
No, I don't have that exact number for you. you know-
Okay. All right.
Full year basis on?
On the interest cost.
Yeah. Okay. Yeah. Well.
Okay. Okay, thank you.
Thank you. Now we're going to take our next question. The next question comes line of Titus Krahn from Bank of America. Your line is open. Please ask your question.
Hi. Good morning, everyone, and thanks a lot for taking my question. I have just one quick follow-up on the medium term outlook on CapEx. I understand that beyond 2023 and potentially 2024 as well with high investments, it's difficult to guide for you. The question is mainly coming from Telia last week, for example, kind of giving a bit more color on what to expect in the medium term after the high investments are over. Is there any way to split up maybe 5G CapEx or Remote PHY CapEx from the current envelope for the next year, just to give us a little bit of an impression of how much you spend on those upgrades compared to the underlying run rate?
Well, yeah, I don't think we want to detail it completely out, but what I can tell you, since we all love to play around with single-digit, lo-low, mid, high, and all these things, this when I do guidance, that the Remote PHY is definitely a single-digit % of our CapEx, whereas the 5G is significantly higher. Once we get beyond the peak and our 5G, that will start all other things being equal to be helpful towards having less pressure on CapEx. Remote PHY is something that we, as Hendrik correctly pointed out, we do it both for the customer experience, but also there are cost savings in this. If we get away from all of these node splits and the actual equipment there.
There are two sides, two positive sides to that point in a way. We kind of like to do that. There are other CapEx components in here. Some of it is related to the work we do on fixing our legacy. We already have started optimizing that a bit in terms of external consultants. For the two points that you brought up, Remote PHY is a much smaller component than the 5G.
Okay. Thank you.
Thank you. Now we're going to take our last question. The last question comes to line of Luis Lecaros from Credit Suisse. Your line is open. Please ask your question.
Hi. Good morning. I have two questions, please. The first one is a follow-up on Maurice's question on the guidance. Can you please clarify what is the hedging you have as a % into 2023 and into 2024 as well, please? Can you let us know what is the assumption that you are building into the guidance for wage increases into 2023? Specifically, to Swedish EBITDA, you were mentioning that there was some content increases, probably related to the Viaplay deal. Can you let us know, as a % of the EBITDA, what was the drag in Q4, and what are your expectations into 2023 from content drag? Thank you.
I don't think we should give you a number on the wage increase because that would be a little bit tricky since we are also going to have the internal negotiations. That would be. But I think you can follow the discussion that happens in Sweden. There has been an offer from employers at 2%, and there has been a demand or request from employees for around 4.4. They're going to meet somewhere there within those, that framework for sure. I think they're going to sort it out, but it's going to take a bit of time. In terms of hedging, we have hedged quite a lot in Estonia up until the end of Q1 this year. We have limited hedging in the other countries.
In, in Latvia, we have a couple of hedges that we've done, but they are for just a part of the energy cost. In Sweden, we've had a policy of roll-rolling hedges. Quite a bit is under hedging now. Charlotte, exactly where we are now. We're around.
We'll say.
50%.
Approximately 50% of the cost in Sweden is hedged.
Yeah.
Yes.
Uh.
That's on a rolling basis.
Yeah.
Um.
We are exposed, but I think also there is a risk of trying to hedge everything, especially on high prices. Right now, we're okay with not being fully, going fully into the market last year for sure.
Okay, thanks. May I follow up on the hedges? Is it a one-year rolling basis, or is it more multiyear?
It's a three-year rolling basis in Sweden.
Yeah.
It's 50% for 2024 as well?
No, it gradually increases, as we go along. It's the majority in the Q1 and then gradually increases.
Okay.
Oh, sorry.
Decreases.
Sorry.
Decreases.
Yeah.
If you look at our profile now, then actually all other things equal based on where we are now, we would have energy costs start coming down for Sweden a bit in the second half of the year. You know, lots of caveats. I mean, the world can change. All things can change. We've seen that in short time. Where we are now, given the combination of hedging and spots, we will see that this starts easing off a bit in the second half. Either way, it doesn't have a dramatic impact on the business where we are, from where we are now.
No.
Okay. Thank you.
Then just briefly on your question about the content. The content costs came in Q3 last year. You can expect us to be on Q3, Q4 level, also beginning of this year. It's going to be stabilizing on the level that we are in Q4.
Yeah. I guess we can say so that we had a little bit denying content position in the first and Q2 last year while we renegotiated with Viaplay, and that was added back in. We had a good faith negotiation going with them. Exactly like Charlotte says, what you saw in the third and the Q4 will be more of the natural run rate.
Yes, because it's been fully implemented-
Yeah
into the base.
Good.
Thank you.
Thank you. There are no further questions. I would now like to hand the conference over to our speaker, Kjell Johnsen, for closing remarks.
Yes. I would like to thank you all for spending this time with us today to go through where we are in our business. I would summarize 2022 saying that I'm very satisfied that we have been able to deliver on our guidance in a tough year that started in one way and ended in a completely different way for reasons that we all see with the war in Ukraine. We are a stable company that is able to grow. I think 3% growth is pretty good in the telecom industry. We're growing consistently our EBITDA. Adjusted for energy, we were at close to 5%. We will absorb the costs that are coming our way in 2023, not fully back to the mid-single digits.
Our ambition is clearly to move back to that in the medium term. I think we are in a quite strong position. 2023 will take us through the last stage of the big IT transformation. We have visibility on the end dates, and we're going to deliver on that, so we can be even more focused on the go-to-market in 2024 and on our customer base. I think we're in a quite good spot. 2023 will probably throw curveballs just like 2022 did, but we are ready to take them on. I am ending 2022 on a positive note, and we're going to keep on pushing in 2023. Thank you for coming. Thank you for joining.
That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a great day.