Good morning, ladies and gentlemen. Thank you for standing by, and welcome to today's interim report, Q2 2018. At this time, all participants are in listen only mode. There'll be a presentation followed by a question and answer session. At which time, if you wish to ask a question, you'll need to press star one on your telephone and wait for your name to be announced. I must advise you that this conference is being recorded today, Friday the 20th of July, 2018. In a moment, I will hand the conference over to a speaker today, Andreas Joelsson.
Good morning, everyone, a warm welcome to Solna and Stockholm. Warm as in very warm weather that we have had here for the last month or so. Today we are going to present our Q2 results. We're also going to present another M&A deal. We're going to have a slightly different structure. Johan will come up first with a few remarks on the Q2 report. Christian will go through the report in more detail. Then Johan will come back to discuss the Bonnier acquisition that we announced today. We will have this meeting at one hour and 15 minutes sharp. We hope we will leave enough time for questions for you all. Johan, you may come up.
Thank you, Andreas. Good morning to the ones in Solna, also all of you out there online. It is indeed a hot season. This week has been a remarkable week for Telia with two milestone deals and a Q2, which I'll also try to get your attention on, even if I think you're more interested maybe in the deals itself. Really, when announcing two such big deals, it's very comforting to deliver a strong Q2. Our cost program is on track of meeting the SEK 1.1 billion net savings. We are at about SEK 700 million for the first half year, full comfort on the cost initiatives that we have ongoing. That has resulted in all markets reporting EBITDA growth. We're at 7% reported, about 4% organic. Very strong performance across the board on delivering on our key priority.
This, of course, leads to an improved cash flow as well. Year to date, six months, we are at 12% cash flow growth, which is also, of course, extremely important given our ambitions to grow cash flow over time. This leaves us Q2 at a leverage of 1.14, which is, as you know, way too low, a liquidity about SEK 46 billion at hand. This is comforting when we look for value-creating deal, which we believe strongly we have found in two sweet spot strategic deals that we've been talking about for quite some time. This comes as no surprise, as we have talked about our ambitions to get our hands into the value chain, and produce better content. I'll come back to that.
The Get acquisition in Norway, 21 billion NOK, the Bonnier Broadcasting deal at SEK 9.2 billion with an additional amount of maximum SEK 1 billion, which we will come back to later. That is the highlights, and this is no small highlights. I think they all deserve time in itself. Let me start with, I think what is really key for us here. We see a much stronger emerging Telia Company after these acquisitions. Why do I say that? First of all, they are bringing cash flow and earnings straight away. More importantly, they are also bringing strong synergies, when the deals are executed and have the run rates up and running about two years after the closing of the deals.
About SEK 600 million each, on the deal, on the EBITDA side, SEK 1.2 billion EBITDA improvement per year from synergies only, and another SEK 100 million on the CapEx side, which is coming from the Get acquisition. The net debt to EBITDA effects, immediate effects, pro forma gives about 0.7 for the Get acquisition and about 0.2 for the Bonnier acquisition. With the run rate synergies, we also deduct or improve with 0.1 per year just from synergies. The combined pro forma, as you see, is a comforting SEK 3.5 billion improvement in EBITDA and 2.7 on EBITDA minus CapEx. Also we talk more about the net debt to EBITDA effects and the leverage effects further down in the presentation. Maybe the most important message on this slide is at the bottom.
Our balance sheet targets that we have announced through the spring, and through the years, and the shareholder remuneration that we have announced are fully intact. We aim to grow dividend over time. We will deliver on our bold buyback program, the three-year program with SEK 5 billion per year. We will do that. Our leverage target is important to keep an eye on in order to keep our rating. These are metrics that we fully stick to and are fully committed to. Just keeping or recapping on the Get acquisition that we announced on Tuesday, very much in the sweet spot, as I said, getting into broadband and TV in our third-largest market up to now, which will probably go into second place in size.
It is a very strong, best-in-class standalone operation with both when you look at the expertise, the technology, but also the cash conversion that we see in this company. I will come back to some growth potential on Get. It is financially accretive as we have discussed, and strong synergies coming through. I will not go through the details of the numbers here. You can have a look at them if you did not catch up on Tuesday. A few words on the fact that this is not just the Get side of the business, it is also the TDC business or enterprise side of things, where we have a perfect match to our existing TeliaSonera position in the B2B space on mobile.
We aim, as we also said before, to drive convergence in the enterprise space, and we believe we can add strongly to the TDC side in bringing that faster to a turnaround on the revenue side. That is seen on the next slide, where we break up Get and TDC for you. The TDC side has struggled with decline and the same reasons that we see in Sweden and in Finland, and we believe we can help stabilize the enterprise side by the combination of mobile portfolio. We also believe strongly in the growth to continue on Get. They have been in growth territory for the last years, and they have all the prerequisites needed to continue to grow.
They have just been through a large transformation, or been in the tail end of their own transformation, and they're just upgrading the speeds of the coax and the technology to be able to offer gigabit speeds in their footprints to the customers that demand that. So with the unmatched churn levels, industry-leading churn levels that we see in Get, we believe there is very good room for growth in the Get standalone. And we have the numbers on both growth and on previous to the right. And then, of course, adding the capabilities that we come with on mobile and brand and distribution, we have a perfect match and strongly synergetic with SEK 600 million EBITDA per year. Let's spend a bit of time on quarter two, the operations, and Christian will take you more through this.
I think I want to leave you with a couple of really important messages. We are in growth territory in EBITDA. We have been through a couple of quarters now where we have produced profitability, mainly, of course, driven by our cost ambitions and cost program. We do still struggle with service revenue across the markets where we have legacy portfolio. The fixed and the B2B side is still weighing heavily on the growth side on service revenue, and that's why we still remain in negative territory. This will not last forever. And we are working tirelessly to come through the transformation and make sure that we bring the customers into new solutions. We will ease the pressure on the legacy decline, and that will leave room for growth going forward. Cost program, I mentioned briefly.
It's nothing really breaking on this slide except that we are splitting it up per country, and Sweden, of course, is a big chunk of the savings. They started their cost initiatives earlier, as you remember last year, and this year will continue doing that. In this whole mix of costs, which is all costs, not just the OpEx side, this is also including the COGS. The OpEx is strongly down. I think we're down 9% on OpEx in Sweden for the quarter. So it is a strong execution from the Swedish team in balancing off the cost while investing for growth in the business. What is pleasing, though, is if you look at the mobile side across our markets, we do have growth on ARPU.
I think it's really important in here that we focus the eye on bringing value to customers that they're prepared to pay for, and so far that is paying off. On the service revenue growth side, we are still at growth, but of course, this includes both consumer and enterprise. For Sweden, for instance, we are mobile growing 5%, but decline in legacy leads us with a total growth on service revenue mobile in Sweden on 2%. That's, looking across the competitors, pretty good. We're beating some of our key competitors on service revenue growth in the Swedish market. We're not dropping the ball on our strategy. We are integrating the sustainability into our business.
We had very exciting discussions over the summer how this is impacting our agenda going forward, and how we are integrating all the initiatives around UN SDGs 2030 into our business, and it's starting to get a lot of attention in investor community. We will be speaking more about this as we move through the year and into 2019. A lot of attention, which is good. Leaving you with my last slide. Outlook is unchanged. That's all I'm going to say. We reaffirm the improved cash flow from last quarter that we guided up, and we are going to be above SEK 9.7 billion for the free cash flow. Let me then sit down for a while and leave Christian a few minutes with you, and then I'll come back for the acquisition of Bonnier.
Thank you, Johan, and good morning, everyone, and welcome to my session. I like to start with saying that this is another solid quarter, and we are delivering on our ambitions. We have said clearly we want to grow our EBITDA, we want to grow our cash flow. We want to make acquisitions that are accretive, and they should add to that development and integrate them solidly into our business. I think we have done that, and we show that in our last four quarters results that we are achieving our targets. We have in the first quarter a net sales that goes up. That is driven by the equipment sales. This equipment sales that we see on this picture is primarily the B2B equipment that we sell to larger corporates. Low margin or no margin ICT-related equipment.
In addition to that, we have a decline in service revenue, and that decline is in most countries. Part of that service revenue decline is transit revenue, and that transit revenue is Lithuania and carriers, and that has pretty much no margin as well. If you take that away, the decline in service revenue is pretty much half of the 2.3%, so around 1.1% decline in service revenue. EBITDA is very positive and developing in the way we want. The organic growth is close to 4%, and we have 7% both on half year and on the second quarter. It was a little bit higher in quarter one and around 6.9% than in quarter two. We do have the cost effects that we are driving coming through, and we also of course have a good momentum in the revenue side, which have come into on each country.
The SEK 700 million cost reduction, as Johan talked about, is half coming from Sweden. It is primarily for the group in total, SEK 700 million coming from resource costs, consultants, and personnel. The other part is the COGS side that is related to network IT, et cetera. Those are the two prime reasons for the cost reduction in this first half. If you look at Sweden, I will start with the most normal question that we have had for the last year, is the fiber development. We have delivered in quarter two what we expected in the beginning of the year, so we have catched up a little bit in that sense, but it's still below last year.
The OTC revenue is around 70% of last year at SEK 239 million. We have guided, as you know, on a 60%-90% revenue for OTC this year compared to last year. We are within that range, and it's still as uncertain as before, depending both on the permit side, but also on the delivery and weather side. When we look at the other metrics of Sweden, the service revenue on B2C is positive. The service revenue growth is in mobile in total 2%, and for the B2C area 5%. I think that's a very positive development. We have good intake in Q2 on Halebop. Net on net on the total consumer side is more flattish. We have increased pricing, and we have done things compared to last year that make this growth happen.
We also value-added services that we talked about before, being pretty much half of this growth. The momentum in Sweden we think is good, and we will be able to capitalize that going forward, maybe at a somewhat smaller % though. The B2B side is a little bit weak this quarter. There is effect of the price side. We have added some customers in this quarter. They will give effect going forward. It is a competitive market, and we see that the price pressure is still there. The 3.3% is a result of that situation. EBITDA growing 1%. Then because of the decline in revenue, of course, it is the cost management that is now coming through, and it is an integrated part of the business in Sweden, how we drive our cost agenda.
On Finland, let me start with saying on Finland that we have a competitive market. We see overall that the growth levels in mobile is declining, even though we still have a growth in Finland. We are close to 1% in mobile growth. The thing we do is still we do price increases. We are losing out a little bit on the subscription side. That is something we have said. We're trying to actually use our capability to increase pricing because we believe there is an appetite for higher pricing. We are going to watch not what the consumers are saying, but what the competitors are saying about our price increases and how they react. We believe there is a possibility to grow over time in Finland if we do this right.
Two things that we have tried to add then to do this right is the Liiga coming in now in quarter 3, and the other thing is that we have acquired ourselves into gaming and e-sports with the acquisition of Assembly. That is exactly the perfect match when it comes to digitalization and connectivity, and we will see how we can capitalize that also during the second half and into next year. On the cost side, it is not as significant here, it looks like. You have to remember, we have acquired a lot of companies last year in the ICT area, and as we have a net cost reduction program, there is a natural cost takeout still in Finland, but they are growing on the ICT side, and that net is becoming a flattish cost development.
Rest assured, we are driving a cost agenda in Finland as well.
Okay.
On Norway, we have a solid growth on EBITDA, 6% organically and 12% reported. We have help of the currency impact. It is an enterprise segment that has a little bit lower customers year-on-year, but we actually added customers in the second quarter. It has been part of the transition of Sonera and others in, and we have worked with that and lost some customers in a year-on-year basis, but we are gaining more momentum now. It is a consumer market that is flat for us. The Altibox uplift is compensating for the expected loss of customers, and on top of that we have an improvement in the wholesale revenue, continue to have a growth even though at a lower level.
I just want to add on Norway as well, on the number, the regulatory change, we have a special number, so this impacts this quarter as well and will impact us up to the October frame, where it is thought to push down the pricing on our offerings. Baltics and Denmark. Baltics is like a steam train right now, and I think we see that in many aspects. In Estonia, we definitely have taken market share in all segments. This is very positive to see. In Lithuania, we are also doing a great job in taking customers and market, and it is a very positive place to be right now, and the development is good. There is more to come in this area. We can see double-digit growth almost in both countries and good momentum in all areas.
The Danish side, it's been tougher of course, but they have done a good job on the cost side, and that has compensated for the revenue side. You can see here Lithuania having a negative revenue development, but it's all transit revenue. Without that transit revenue drop there would have been a growth in Lithuania. Getting to the cash flow, we ended last year at SEK 9.7 in operational free cash flow. In addition to that, we could add the dividend from associates, as we have an expectation on SEK 1 billion right now for this year. We are at the run rate right now, SEK 10.4. We clearly said in the beginning of the year, we gave a guidance that the EBITDA plus the working capital and the CapEx will make the improvements, and there will be a decline on the other item. We are on that path.
Working capital will not be as successful in the growth rate in this second half, but it is a positive trend, and I'd say firm on my SEK 5 billion that I believe we can take out in working capital over time. We have good initiatives ongoing. As I've said before, we stay firm on the commitment over time, but the working capital can sometimes between the quarters shift a little bit. Good momentum and it's exactly as we have told you where it can come from, and we foresee that it will be the same in the second half. We started this year with the best balance sheet we have had in 10 years' time in Telia.
We started this year with a net debt to EBITDA at 1. That is also a good base for how to use the balance sheet to do accretive acquisitions and still feel comfortable. I'll try to illustrate, first on this picture, the pre-pro forma, net debt to EBITDA, with the 1.14 we start here now. Sorry, I'll illustrate the quarter 2, 1.14, but also the breakdown of the net debt position. We have SEK 46 billion in liquidity. It's cash at hand. It's short-term within 3 days bonds that we can sell, that we will use to finance the acquisitions that we have made. The yield on that is very low. We have negative yield on some of the assets, and we have positive on some of them, and on average, we have around 2.2% right now.
Then we have a gross debt, which is SEK 83.6 billion. That we pay an interest on of course, on average around 2.8%. Then we have funds which is not included there, both in some borrowing and some funds in Eurasia of a net SEK 5 billion. We will get that liquidity back as soon as we have finalized the sales of Kazakhstan and Uzbekistan and then can reshuffle that money back to Central. We have also low refinance levels this year and the coming years, which gives support to how to handle the debt side of the company. Here is where I then try to illustrate a pro forma of what we have done. I want to start to say that they're rounded numbers. If you look at some of these you say it's the same number for two different amounts that you know.
We have decided to show this picture with rounded numbers because in the end, nothing will be exact anyway because it depends on the timing, and it depends on the EBITDA at the time, and therefore this is to illustrate, but with rounded numbers how we look like at this. We believe solidly that we will be within our 2.5 range during these acquisitions, keeping the buyback program and our dividend policy. If you take the 2.2 what we have here including debt, we have illustrated in the cash flow from the operations we are not giving guidance, so here we have put in the last year's performance on cash flow, the SEK 9.7. If you would reach the SEK 9.7, what will be the pro forma for this year?
We have said of course that we will be above that, but that is up to you to make a judgment what you think.
On top of that, we do an acquisition of Bonnier Broadcasting, that we then have also said that we will say later on, you will not go into that will come in not this year, but probably in the second half of next year. We have cash flow generation from these two units, Get and Bonnier. In addition to that, you of course, have the buyback program, and it shows that we are still within the 2.5. We solidly believe that we can do all this within the 2.5, and then you add what you think is the operational cash flow less dividend for the group. We also feel comfortable about this because we get a more diversified group. We get a strong cash flow generation from the acquisitions on top of that, we already are a strong cash flow generating organization.
That has supported also our view on handling the situation.
Yes.
That is everything from me.
Okay.
I'll leave to you, want to talk a little bit about Bonnier.
Yes.
Excellent.
We come off restriction.
Before I head into the acquisition of Bonnier Broadcasting, can I please ask all of you online to mute your phones? Apparently it's very noisy online. Thank you very much. Pioneers in bringing true convergence into the North.
Is it up by that now?
Once the first of its kind, we hope it will go through, and we'll come back to
Looking at valuation on multiple, just to get the numbers.
The strategic rationale should be clear. We have talked about content being very important part of our offerings for consumers. I will explain why.
Will pay, I think, is a better share.
In this case, it makes sense to also own content, not just buy it.
Own because it's cheaper, and it's exposed to the same trade.
The value of the deal, as I've said, SEK 9.2 billion, and then there is additional amount tied to the performance between signing and into mid-next year. Making sure that we have a performing asset when we close the deal. If you look at the multiples that are more relevant for this type of business that has no CapEx, the EV-EBIT multiple is around seven when you include the synergies.
That's coming in now.
The financial effects, I'll show you soon. Cash flow accretive as it comes in because it generates cash flow. More importantly, it also will bring the opportunity for synergies, which I'll also take you through in more detail. As we pointed out in the previous presentations, the balance sheet impact is 0.2 on the net debt, and we're using cash in hand to fund this and pay for this. There is condition for this to be closed. It is going to be a process that will take some time. It is the first vertical integration to be viewed, and I'm sure there will be a lot of discussions and opinions on this.
The ones that have actually done well
actively participate in to try to explain the rationale behind this deal, why it's good for consumers and the markets that we're in. That will probably take into second half of next year.
Since we can't buy what we cover.
At the moment. We think this is redefining the industry, and it is with the customers in focus. We have, as you know.
You won't be able to buy it until the concentration, that should be it.
We have a strong position today. We are fixed mobile and TV provider.
Sorry, I'm going to jump back onto this call. Yeah. Good luck.
We have about 7.5 million consumers in Finland and Sweden, a strong base that we can offer more with the services that we now will be acquiring. Content is a scale game. Largely, content is fixed. With a larger base, you can amortize it on or sell to, the higher, of course, the yield on leverage will be. There, I'll also come back and show you the scale effects that we see coming. Again, it is earnings and cash flow positive day one, and the run rate synergies will take you through. The one question that I think has been hanging out there and I've been getting a lot from you while talking about this, is why do we have to own content? We don't have to, but in this case, it makes sense, financial sense.
It is getting increasingly difficult to give the customers what they want on their terms. The customers today want to see premium content, local, but also international, anywhere, anytime, anyhow, on any device. There are restrictions to that today from the content owners. We can't give our customers what they want, where they want, when they want, at a reasonable price. When you now get content, and that's where we're into the second box, we are part of the media value chain. This means we are at the table of the content negotiations with content ourselves that we control and that we can deliver to the customers on their terms, not just to our customers, to all customers in Sweden. This also gives us the opportunity to barter content, which is a common thing in the industry.
There's a ticket to play, we are acquiring what we think is the most skilled TV crew out there. Of course, we believe this deal will enhance the customer experience with all the data analytics and insights that we have of our customers and that the Bonnier Broadcasting team has on their customer. The combination on the customer's terms when opting in, we will be able to deliver a lot more tailor-made offerings and unique offerings that will enhance the TV experience. This we can do when we own the content. It's not necessarily the case when you buy content. That's why we like, in this case, to buy not just the content, but the competence also going into this value chain. Let's take a look at what we're acquiring. Bonnier mainly consists, if you want to simplify it, of three things.
It's the TV4, it's the C More, and it's the MTV in Finland. TV4 is the number 1 commercial broadcaster in Sweden. It has the commercial share of viewing of about 38%-40%. It's a wide range of formats and very popular program. I'll show you soon. It's bringing entertainment to millions of Swedish homes every day. C More is the fastest-growing SVOD service in the region. It is very much in a turnaround situation after merging C More and TV4 Play have started to pick up momentum in the very interesting local content, domestic content, series, dramas space. We believe strongly that C More has a potential to grow into the future, and I'll show you that briefly too. Then MTV, number 1 commercial broadcaster in Finland.
Also a strong commercial share of viewing, and is a strong brand in the Finnish market with also a C More-like SVOD, which is also well-positioned for growth in a local content context. A very strong portfolio of not just technology and skills, but also formats and content. Little bit more on us. We shouldn't forget that we're a leading TV distributor. We have been awarded the best TV platform and most happy TV customer for the last few years. We have the best network. We're the P3 leader in Sweden, and we're seen as world-class network on our 4G side. We're investing heavily to bring even better connectivity to all our users. Of course, perfect to bring also more of TV into the users. We're growing our TV base across the region. We're coming closer to 2 million homes of our TV stock.
TV4 in a bit more detail. I think this is a really important slide, even if it's a bit busy, but let me try to walk you through it. First of all, very attractive content. Out of the 10 most-watched shows in the commercial TV space, they all come from TV4. You cannot ignore TV4 if you want to have broad reach in the TV space. No, linear TV is not dead. On the contrary, it's growing. TV4 is very well-placed in a growing market where they have taken share. As you can see at the bottom of the slide, they're also growing market share. On top of that, it's also seen that this position brings growth. There's only one year where TV4 has not been able to grow the TV ad revenues, and that's the crisis year in 2008.
After that, it's been growing or flat, and now back to growing. That is a very credible, strong position. At the bottom, you can see the fact that the domestic AVOD is growing faster than the international AVOD. That's important because here, TV4 is very well-positioned. 60% larger than the second-largest player in AVOD is TV4 Play. Again, very well-positioned in the transition from old to new and can control the pace to some extent from old to new. This gives, of course, cost control and leverage, as you can see on the right, growing revenues and actually getting costs under control, which is the key formula for the results that TV4 has produced over the years. C More, not going to disclose the details of the numbers here because we don't own this business yet, but I can show you some trends.
C More, after the reshaping and the new strategy and the new leadership with one person leading both, have really kicked off the growth pace on SVOD. There are 700,000 of customers on C More, and they're growing with several hundred users today. SVOD outpace the pay TV market in Sweden right now. It's growing at 16% versus the pay TV market at 1%. Again, the pay TV market is much bigger, of course, but the growth is faster in SVOD, and TV4 is very well-placed with the brands TV4 Play, and C More in the Swedish market to capture this transition and the growth. Moving to Finland, a slightly more challenging market, but same trends underlying, where you see AVOD market growing at 12% while linear is declining slightly.
On the SVOD side, gaining momentum, strong growth from lower levels, admittedly, but still the trend is there. The company, MTV, with its platforms, are very well-placed to take part of this growth with the portfolio that they have and recently acquired as well, strong portfolio of content. Adding that we have some content as well in Finland since recently, I think will be a brilliant combination for consumers across Finland to watch hockey and Formula One, for instance. Briefly on the numbers. We understood from rumors and speculations that this was a bleeding company. It's not. It is actually turning around. It's generating SEK 600 million on a rolling 12 on EBIT. You see the breakdown per company.
TV4 is clearly the profit generator and cash flow generator, but C More is in a turnaround and has turned and starting to build momentum on that growth, while MTV is still to come to the point where we can say it has hit the turnaround corner. I'm sure that we will see that through the year as this between signing and closing, but also with the fact that we come in, we'll be able to bring more oil to the engine, so to say. Cash flow is around SEK 300 million rolling 12, and it's a working capital difference there on the negative side that makes the profit that goes up not following through all the way to cash flow. I'm not sure we will be able to take a closer look at that as we take over this business. Synergy side.
I know synergies is difficult to bank. I know that this is a discussion we will have in detail, how we aim and how we will commit to produce these synergies. We have done tons of work. We know this business, we know our customers, and we are very committed to these synergies in the teams that we have. Our mission is to convince you that these synergies are real and will come through. Whether you put them in the spreadsheet or not at this point, it's up to you. If you want to trust us and the fact that we have delivered on all the synergies that we have had in all our deals so far, then you should put it in. It comes from maybe three buckets. One is enhancing our core.
One is selling more of C More and TV4 Play to our base. One is from cost. Smallest, yes, from cost, about SEK 100 million, that you should easily be able to see and count on. The fact that we will use C More and TV4 Play and sell that in our, this is an example from Sweden, in our marketing machinery in Sweden and our big investments that we have in online and retail, we think we can sell more of C More and TV4 Play to our 6 million customers in Sweden. We have an invoice relationship or a paying relationship, billing relationship with 6 million customers in Sweden. We feel very comfortable that the SEK 150 million of revenue synergies only per year is coming from this, and we feel extremely comfortable about that.
It's about enhancing our core, which is, yes, a bit harder to be tangible on. This is probably where we need to prove you before you put it in, but we feel also very strongly about this. It's about making the offerings more unique, making the offerings for the TV experience better through the content that we now can package the way we want and sell it to our customers when they want it, where they want it, and how they want it on any screen. That we can't do today. We believe we will enhance the TV experience for our customers. We know for sure that when a customer in Telia put it in Sweden, they have broadband and TV, the churn is about five percentage points lower.
The TV business is very important for our broadband business, which is very important for our overall business. By having a TV service that's even better, and undoubtedly this will be a better TV experience, we will be able to keep this distance of churn or even improve this churn. That is something you should trust us on. All in all, SEK 600 million will come through full run rate after two years of closing. We will keep you posted on this as we go along, of course, if we see more and more of this comfort coming through. To summarize synergies, it's going to be stepping up the synergies. We also have an integration cost that you should put in. It's about SEK 200 million per year, the first and the second year after closing.
It's for integration of platforms, also to be able to take out some of the cost synergies, but also creating the common IT and infrastructure to produce these services. Just repeating then again, if we add Bonnier Broadcasting's total revenue of SEK 7.4 billion to the business, then if we add the EBIT of SEK 400 million to the cash flow that we have, we're ending up with a combined pro forma. This is a simplified picture. Yes, it is. But it's just to give you a feel that you get the full effect of the run rate into the EBIT of SEK 14.8 then in the first full year of synergy run rate.
Also on the EPS and operational free cash flow, we're moving from a Telia standalone around 1.92 to 2.08, and the cash flow from SEK 9.7, as we pointed out before, at least SEK 9.7, to SEK 10.4 then, adding the full synergies of SEK 500 million. This in all aspects, when we look at this, is very synergetic. The synergies are clear to us and very lined up for our management team and ownership fully in the organization to deliver on. We look forward to prove you on this one. Process ahead is a bit lengthy, we think. It will take one year approximately or maybe more, we say second half of next year. It will go through the first phase, obviously, and be reviewed, then if a second phase is needed, will take another period of time.
We should expect this to be studied in detail, and I think that's good because what's happening now out in our space is not just a local competition. We all know about the global competition moving into the domestic space, and we cannot ignore that anymore, that Facebook, Google, Amazon are also part, and Netflix are part of the local context. This is our position that we will put forward clearly into this process going ahead. We'll keep you posted on the regulatory process as we proceed. Summarizing this deal, we think it's a great combination. We think it's value creative. This is because we are convergence believers, and this is true convergence going deep, where we deliver what the customers want. And we are part of shaping a new industry, which is changing very fast.
This gives us the chance to really be part of influencing this going forward. I showed you that it is a strong, solid, standalone business that is turning around. C More is improving, MTV we think will be improving, and TV4 stands strong in a very solid position, in a cash-generating position. It comes with sizable synergies. This is our proposition, and we're very happy that we could bring this to a closing today, or signing at least, to deal. Then with the other deals we have talked about this week, it has been a great week for Telia. As a finishing comment, I would say we remain fully committed to our early communicated capital allocation plan with the buyback dividends, as Christian was pointing to. Thank you very much for your attention. We took somewhat longer, but we still have time for questions.
I welcome Andreas and Christian back up. We also have later here our Swedish CEO, Anders Nilsson, available for question as well.
Very good. Thank you, Johan. Now everyone that should be muted are unmuted, we do apologize for that. Very annoying, now it's better. We start with some questions from the floor. Robert, please.
Thank you very much, Robert Slorach from Handelsbanken here. Just curious on the Bonnier Broadcasting deal, what's the initial indication from your main owner on their view on this purchase? I guess we've seen some negative comments in the last couple of months from the Swedish government on this. Also, on the same, on the Bonnier Broadcasting deal, the need to spend more money on content in the coming few years to kind of beef up the premium content offering in the TV business. Thank you very much.
Thanks, Robert. I will not go into commenting on the main owner. Obviously, we have done a thorough review of the prospects of getting a deal through the competition clearance process, we launched this deal because we think we will get it through, even if it's going to take time. We believe this is going to value creative for all our 500,000 shareholders, that's up to us to deliver that. When it comes to the investment in the local content, as I said, local content is very important today for the sports side of things and the TV business in the countries. It's not going to be less important going forward. Already today, Bonnier Broadcasting investing heavily in the domestic local content, we will continue to do that.
How much and how that goes, we'll of course come back to when we take over this company. Everything we do is about investing in good business cases. Every investment we do, for instance, in content in Finland, is value creative and we're prepared to do it. We'll take it case by case.
Stefan?
Yes. Following on where Robert ended, on content and sports rights, how do you view the Bonnier Broadcasting sports rights portfolio, especially considering that they will lose Allsvenskan sports rights? Have you considered how that will impact the C More business in this turnaround phase? Secondly, both C More and MTV Oy have struggled for a number of years. What makes you better positioned to turn around these operations than what Bonnier has accomplished? Thank you.
Thanks, Stefan. On the sports rights for C More and TV4, yes, we know what the existing portfolio is. We know the length of these contracts, obviously the Allsvenskan, the Swedish Football League, will lead the portfolio in a couple of years. The strong rise of SHL, Swedish hockey, is still there. Of course, when you have sports content as part of your portfolio, you have to have sports content in some shape or form. It's very important that SHL is part of C More going forward. As I said, local content, domestic content for series, dramas, and other type of formats is going to be even more important for C More to continue its turnaround that it's on. We feel very comfortable about both the content knowledge and competence and the portfolio and the opportunity of investing in other assets to keep going on this turnaround.
Everyone's in this game.
As we talked about before. That's to the second question, why we would be a better owner or can turn this around. First of all, they are in themselves in a turnaround situation. Let's see how they continue to do that. They're on a good trend. C More is on a good trend. MTV is still fighting to get to the positive momentum. We think when Bonnier hands over Bonnier Broadcasting in a year or so, I think we will be in a better space than we are today, then we come in with our very strong distribution, with our broader portfolio, that thing we, as I showed you in the synergy slide, will add to these businesses, making them even more profitable. We feel comfortable about the fundamentals to turn around as is, and the synergy is coming.
Good. Can we have a question from the conference call?
Certainly. Your first question comes from the line of PK Nielson. Please ask your question.
Thank you very much. Thank you. Johan, it seems it's quite clear also from your presentation that the Bonnier Broadcasting content is focused on Sweden and Finland. You've obviously just beefed up materially your TV exposure in Norway. How do you view that? How can you capitalize on synergies related to content in Norway as well? Should we expect, as you're indicating, that there's more to come in terms of acquiring content? Then just secondly, please, there are some signs in Europe and the U.S. that the TV advertising market is in decline and has peaked. Are you concerned that you are perhaps acquiring this asset at a time when the advertising market is peaking? Thank you.
We have just announced the deal in Norway that's going to pass through competition clearance, hopefully we'll be the owner there towards the fall. We have just announced this deal today with Bonnier Broadcasting. It takes some time to get that through. That's our focus now. We don't have anything else on the radar on the bigger scale of acquisition. We're going to make this work first, and then we'll see what we need to take us further from there. As Christian pointed out, we're now on the upper side of our range for next year. It does not leave room for big acquisitions anymore. We're very clear to that. We are now also delivering on our buyback program and our dividend. Therefore, these are the two big acquisitions that we'll talk about for the next few years.
We don't have anything else on the radar. Can we then compete in a Norwegian market? Yes, we believe so. Get is very strong. Strong distribution, strong presence, strong brand, and still the market there does not, in our view right now, require us to own content. There we can continue to work like we have done in Sweden for the last 10 years and Finland for the last 10 years without owning content.
We have the TV ad market.
Right. The TV ad market is, as I pointed out, I don't think we should expect the commercial TV market to grow fast. It is in a different shape now, people that say that that's a dead market are wrong. This is a market that is very healthy, and actually, as I show you in a slide, growing, where TV4 is very strongly positioned with 40% market share. Just the fact that the market is flat or slightly increasing gives the opportunity for further growth actually as we speak now. We don't expect that to continue. Our business case for TV4 does not include a significant growth. Rather on the contrary, over time, we of course understand that TV4 standalone will start to come into decline on the old side of the business.
It's compensated with the new OTT brands and platforms that we have, and the transition capabilities is in-house, going from old TV to new TV, if I may say so, but we see it as total TV.
Okay. Thank you.
Good. Thank you, PK. Next question, please.
Thank you. Next question comes to line with Maurice Patrick, please ask your question.
Hi, it's Maurice here from Barclays. Thanks for taking the question. If I could ask a question about your results rather than Bonnier. In Norway, you cited increasing B2B churn, I think on the Phonero side. Can you just talk a bit about what's actually happening competition-wise on B2B? Is that just a natural phase of buying an asset and then some customers leaving, or is there something more structural going on there? As a maybe a couple of comments, some of you are seeing increasing competition from ice. Just the last thing on Norway, on EBITDA, I think in the first quarter, your organic EBITDA didn't include the Phonero synergy, but I think in 2Q it does. Is that correct? Have you changed the definition of organic in terms of EBITDA in Norway? Thank you.
I'll start, Maurice. Hi. Thanks. We have now integrated Phonero into the business. That has been a big project where we have, of course, transferred our customers from other networks into our network. Some of those customers, we have made sure that if we don't have coverage in that specific area, we will not claim we have it, and therefore, some of the customers have decided to leave us. Now we have also invested in the network even further, so we are more capable of dealing with this going forward. The churn in the B2B base is relating to some of the migration effects. That's done now, and we're all set for growth again into the next phase of Telia Norway. ice is nothing new.
We saw some price activity on another player that rocked the market potentially, everybody has kept, I think, their propositions out there without responding in a surprising way. We feel fairly confident that we have a rational market also going forward. On the EBITDA side, Christian around the
Yes.
Yes, on the organic definition, there is no change to the definition. We consolidated Phonero in Q2 2017. It was not included in the comparison in last quarter, and this quarter it is included in the comparison.
Great. Thank you.
Next question, please.
The next question comes line of Lina Östberg. Please ask your question.
Yes, good morning. Going back to Bonnier Broadcasting. I saw your synergies and what you expect to get out of the transaction, I'm still not 100% certain what the acquisition brings to you that you didn't have access to earlier without owning the company.
Other than maybe that you can bundle things, package things, and be more flexible. If you do that exclusively to your customers, will you not risk then revenues from some of the other players in the market, which contribute quite significantly into Bonnier Broadcasting, such as Com Hem, who pays also for that content and those services? Maybe as a second question, we've seen in other markets that when telcos go in and start to own and pitch for sports rights as well, that content costs significantly increase. As was previously asked, a lot of the sports rights have expired, and you will have to buy more content ahead. How do you ensure that a lot of the synergies that you expect will go away in higher content costs?
Thank you. I think I picked up both questions. It was a bit hard to hear you there. Let me start on the synergy side and on the access to content. Yes, we can buy content today. We cannot, increasingly so, decide how that content is distributed, on what platform, when and how, and especially when you go from the linear into the OTT side. There are a lot of restrictions from the content players there into the distributors. That will not be the case when we have the content on our own. That's a very important feature, and you're also then at the table of content negotiations in a completely different way.
Another one is that when you have the content and competence of Bonnier and the competence and insights of Telia, there's a lot of things that you can do to make the bundles and offerings unique, not exclusive. This will be offered to all customers. If you are a Telia customer, there will be unique features that we can offer, and we can make that experience better, that we think will attract our customers to stay on longer or even join us quicker. On the content cost question, that is not a synergy. That is excluded from synergies or dis-synergies. It's a standalone valuation. What does it take to keep TV4 and C More going? What is the content cost profile going into the years ahead? That's, of course, taken into account in the standalone valuation, which is not very demanding, by the way.
That also includes that you have to buy content and rebuy content, and at some point it will be expensive, next time it will be less expensive. That's all factored in a balance of content that you have, not just sports rights. You cannot just be dependent on sports rights in the local SVOD market. Okay.
Okay. I didn't mean that it was included in the synergies. I was just wondering that if we see the same trend that we've seen in other markets, and the cost of content has increased significantly, and that will then eat up maybe a big portion of your synergies. You're not concerned about that?
No.
Okay. Thank you.
Thank you, Lina. May we have the next question, please?
The next question comes line of Ulrich Rathe. Please ask your question.
Yeah. Thanks very much. I have a couple on the business. First one is, as you mentioned, you made this comment about the legacy revenue drag, which is obviously relatively high last year and this year, I suppose. You talked about that this would not last forever. Could you give us some sense, I realize you wouldn't want to say a date, but could you give some sense on what timescale this could stabilize or drop out effectively off the mix? Second question is on this fiber, OTT. There is a lot of activity, I understand, by the government, by the authorities, trying to remove the hurdles to construction permits and all that. Do you anticipate fiber build activity to actually re-accelerate in the second half of this year, or is the old guidance that's still relevant there? Those would be my two questions. Thank you.
Thank you, Ulrich. A few input to the first question on legacy. It's hard to put a deadline, obviously, or a timeframe to the decline. As long as we have a copper base and the old Datacom solutions in place, we have to go through the transition, and we are in that transition. It's taking, in some areas, somewhat longer. In some other areas, it's pretty much on track. If you couple this with the transformation that we are in as well, then investing in the new system to get the old legacy out, that is the complicated formula that we have for Sweden. That's why we say Sweden will not grow EBITDA for this year. We have said that hopefully we're back to growth prospects for Telia Sweden for EBITDA next year, but we have to guide you on that coming closer to next year.
We are, I can say also, in the transformation, somewhat delayed on some areas, and that is not unexpected when you're in these big programs, that you have some delays. Some of the delays will also then probably delay some of the benefits that we will hope for and invest for into 2019. On the fiber side, there has been progress on the authority side, and finally, I think it's good that all stakeholders take this seriously. Unfortunately, we haven't seen the big effect in the output side yet, that we are getting the permits in a better pace. Therefore, we have changed nothing in our guidance expectations for the year on the rollout, but the demand is still there.
It's a pent-up demand, and it's a pity we cannot deliver what the customers are asking all of us to do and are actually paying us to do. We're working hard to make that work.
Thank you.
Thanks, Ulrich.
Thank you. Next question please.
Next question comes to the line of Andrew Lee. Please ask your question.
Good morning, everyone. I just had a question on sorting out Denmark and then a question on Swedish fixed line. In sorting out Denmark, I think you made a couple of comments in the press overnight or this morning, where you talk about sorting it out after the summer. Can you talk about what your plans are? In a scenario where you stay in the market, does that necessarily involve an acquisition, do you think? I think you mentioned earlier in this call that you probably can't do this now given the two acquisitions you just made. Can you just confirm that this does mean the end of major acquisitions for you? Just secondly, on the Swedish fixed line market, I just wonder if you could comment on the scope for price rises this year. You did it last year. You saw no change in churn.
We've had Com Hem price rises earlier in 2018. When could we expect the same from you? Thank you.
Thanks, Andrew. I think the Denmark comment that I made this morning was, when will you sort out Denmark? I said, "Let's start working on that more intensively after summer." I was referring to my couple of weeks coming up on holiday. Joke aside, we have been working on Denmark a lot, and we obviously don't see any need for big acquisitions, or we don't see the opportunity there anymore for big acquisitions. As I said, if we cannot make money in Denmark, we have to find the partnership way, or accept the organic route. The organic route is very hard to get return on investments on. We're looking at our options here, how to maneuver Denmark into the future. It is not solved, we will get on it, get back to you as soon as we know more.
I think for that to me in Sweden, you know we did a significant increase in pricing last autumn, the beginning of the autumn. We have said clearly that we believe in that philosophy of doing it seldom, do it more significant, handle the customer base over time in that way. When we will do it next time, we will come back to you when it's time for that.
Okay. Thank you. Happy holidays.
Thank you, likewise, Andrew. Next question please.
Next question comes to the line of Terence Tsui. Please ask your question.
Thank you. Morning, everyone. Just a couple of questions back on the Bonnier acquisition, please. Can you talk a bit more about the regulatory process? What do you think will be the key things being discussed? I'm just interested whether you think it could be a concern that the government could be the dominant shareholder in TV4 when it already indirectly controls SVT. Whether you think there's any risk potentially that the government can look to sell down part of its stake in Telia. Thank you.
Morning, Terence. Thanks. Yeah, you've been reading Swedish press, I hear. Yes, that's a debate going on. Let me say my focus has been to come to a conclusion on the deal that makes sense for us and our shareholders, that has a manageable deal certainty, and we think we have that. Having said that, I think the process of getting approval is going to be scrutinized, and it's going to be important to go through all arguments from all sides. It's going to be from a competition point of view, and that's the focus we have. Any other focus should not be influencing this process. Telia is a listed company with 500,000 shareholders or more, and we're working for all our shareholders and creating shareholder value for everyone. We believe this is a good deal for all of Europe.
Okay. Thank you.
Next question, please.
The next question comes to the line with Nick Lyall. Please ask your question.
Morning. It is Nick from SocGen. Can I just ask a couple on Bonnier, please, then one on Sweden. Is it possible to give us the current cost of sports rights at Bonnier, please? To get an idea of the starting point. On exclusivity, please, Johan, what is your thoughts on exclusivity of some of this content? Were you in to keep as much as exclusive as possible, or is it going to be aiming at full wholesale deal this as quickly as you can? Secondly, on the Swedish business, B2B seemed to tip off a little bit this quarter. Should we be concerned about that, or is it just something of a one-off and there are contracts that have maybe hit us in the quarter and will rebound in Q3?
Thanks, Nick. I am sorry, I cannot disclose any content cost. That has been the most secret part of this whole deal, and that is apparently very common in the content side, to keep that very close, of course, to your chest. We will do that as well, especially since we do not own this business yet. We are at least 12 months away from owning this, and then we can decide whether we want to share that or not, and we will come back to it. On the exclusivity side, this is not driven by exclusivity. I think first of all, TV4, it is a broadcast. It reaches everyone, and will continue to reach everyone. What I am talking about is unique packaging and offering on the OTT side mainly, and inclusion in our various bundles, where we can enhance that customer experience in ways that we cannot do today.
That we will be coming out with, of course, much clearer as we move along. It is not exclusivity driven here, Nick. On the TV side, Sweden is 3.3% down this quarter. It was around 2.5 the previous quarters. As I said, it is on the price side. We do continue to bring in the new customers on the large side in Q2. It is not worrying from a point of view becoming worse, but it is a signal that the path back to, or the path towards a flat development on B2C is long. It is not going to be this year. Again, we have said that before. It will take a couple of years to reshape this side.
Okay. Thank you.
Thank you, Nick. Next question, please.
Thank you. Next question comes the line of Keval Khiroya. Please ask your question.
Thank you. I've got two questions, please. Firstly, just in terms of content, can you give us maybe a little bit more detail on the overall level of content inflation you've seen in your Swedish business over the past year? Or if you can't give that level of detail, whether you've seen much of an acceleration in the rate of inflation. Secondly, when we look at the widest trends in Sweden, Finland, and also Norway, we did see a slowdown in all three markets. I think Sweden, you have explained why. When it comes to second half, do you have enough confidence to say that those revenue trends should start to improve again? Thank you.
Yeah, thank you. I'll take the first one. Yes, there is content inflation here and there, not across the board. In some places we do have that, and that's where we have a strategic challenge today, not having a seat at the table of the content discussions in the same way we would do once we own content. We have seen a content inflation, which we normally talk about, like we had in Finland, for instance, a year or so ago. We had a big increase in content cost on the Finnish TV side that actually was very visible on our costs. We've been managing that fairly well on the CD side so far. It's not just about price, obviously, when we negotiate content. It's about what I've said before, how that is packaged and are allowed to be consumed by our consumers.
That is the big benefit also here, except the fact that you get the ticket to the content table.
Christian?
On the market side, yeah, we discussed Sweden. In Norway, we have increased the ARPU to compensate for the customer loss that we expected. We also see, as you may have also noted, the unlimited packaging coming into the market. We will see how the reaction comes from that, but I don't think it's a sustainable model for that company to drive that they have today. We will see also how the rest of the market reacts. On top of that, what I've said, we had regulatory impact on the revenue growth from the special number, and that will come out in October. In Finland, it is slower growth, but it is still growth, and we believe we should be able to manage to have a growth in Finland over time.
We have done selective price increases, and we will continue to do that, and we will see how the market reacts to that.
Thank you.
Thank you, Keval. Next question, please.
Next question comes the line of Henrik Herbst. Please ask your question.
Yeah, thanks very much. I had a couple of questions. Firstly, on the Bonnier acquisition and your assumption that on a standalone basis, free cash flow is doubling over the next couple of years. I was just wondering if you could sort of explain a little bit where that, I guess is it coming from top-line growth or cost savings, ex synergies? And then also how the loss of the rights to Allsvenskan ties in with that. Presumably there would be a bit of revenue loss, but I guess you lose some OpEx as well. Have you sort of assumed that to be a free cash flow neutral impact? And then also in terms of your free cash flow calculation, if I can just ask what sort of assumptions you've made on interest costs.
I know you've got cash on your balance sheet, have you sort of assumed that there is a cost of debt or not really? Thanks very much.
All right. Thank you very much. I'll take the first two, Christian will take the cash flow one. The cash flow that comes in from Bonnier Broadcasting standalone as we move one year through after closing is already done SEK 500 million. The improvement from today's level will come from a couple of things. One is that we see, as I mentioned, C More continuing their improving trend, and that will be a part of that improvement. You see TV4 with its extremely strong position right now and momentum in the market. It will also continue in the short term to increase its cash flow. We have not counted short term on the turnaround standalone for MTV, that will not be part of the improvement.
All in all, you see an improvement up to SEK 500 million then, that will have a direct cash flow effect as we bring this into our group. You're absolutely right when you say that we have assumed a neutral effect on losing Allsvenskan, this is something we'll speak more about. In our case, of course, you need to invest to grow, and that's part of our case. We've not revealed any details of that, but of course, you got to have a portfolio of attractive content rights to continue to grow. We are not just taking that out and say that we'll save some money. We continue to invest, and that's part of the growth story.
On the interest calculation, just let me make it very clear. When we do our business case and when we calculate the business case and what we can pay for a company and also place that business case in the hands of the owners internally how to drive the business, we use a WACC that is substantially higher than we pay as an interest for our bonds. That is on the upper level of the single digits. That's how we do our business cases. When we calculate what it actually will look like in the numbers that we show you when we report, we do the actual calculation of how much less liquidity we will have, how much more bonds we may have to add for different things, and that is the mixed interest additional cost that we add for this transaction.
That is substantially lower, and that's why I showed also the numbers today on what we have in yield on the liquidity and what we pay in our bonds. That's how we do it, and therefore it will be a much lower interest cost on that actual number. Then, of course, when you put in your number, you will put your VAT on our statement in the future, and you will get to your number of the discontinued cash flow or the value of our company. Very good.
Thank you. Can I just follow up on that question?
Very short one, Henrik. Very short.
Yeah. On the SEK 600 million, have you assumed basically just interest you pay on your current bonds, or have you assumed?
It's somewhere between.
Is it based on the cash you have on the bank?
Yeah, it is somewhere between the two numbers in the presentation you had, the yield and the cost.
Okay. Thank you.
Thank you, Henrik. That concludes this presentation. I hope you all enjoy your summer vacation, and we look forward to hear and see you back in the autumn. Thank you.
Thank you very much.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.