Good morning, and welcome to this press conference for our full year results for 2012. There is quite a lot of interest in the room, if I could ask everybody to be seated before we start, because we also have a webcasted conference. I know that there are many questions, some of them may be related to our investment in Uzbekistan. As you know, the report on that will be made public tomorrow, we will devote the time here today to deal with our full year results. With that, I would like to hand over to Lars Nyberg to give some introductory words, Andreas Ekström, our Head of IR, will be moderating the Q&A session afterwards. Thank you.
Good morning. Welcome. I think we had a decent fourth quarter. The whole year turned out also to be pretty good, nearly SEK 105 billion in revenue. We actually grew the revenue 1.2% in local currencies. The EBITA margin pressure is a sign of the industry. We feel the same pressure as everybody else, therefore, the margin percentage went down at 1% roughly. Still, we have one of the highest EBITA margins in the industry for a comparable company. We had a fantastic cash flow, not only driven by the MegaFon deal. The EPS actually is the highest, second highest actually, since the merger between Telia and Sonera. It is driven very much by lower minority share.
From the increase in Kazakhstan, of course, we pay less to the other lesser owners, that helps our EPS and also, of course, the lower taxes help to drive this SEK 4.59. This is something we have managed pretty well, I believe, over the years. The relationship between what happens with the revenue, goes up, goes down, to manage the OPEX in a similar way. If the revenue growth comes down, the OPEX has to come down. I am pretty proud of this. Yes, there is a negative trend in the EBITDA margin. I think it is an industry trend, it is also driven by the fact that we sell more equipment. We sell more phones and particularly more expensive phones than before.
We also have, I will come back to it in a minute, we have lower billed revenues, which is really the core of our business. I will make some comments on the billed revenues later on. We announced already in October that we need to continue to work on our cost structure. Again, I think this is an industry trend, not only for TeliaSonera. Our ambition is to fundamentally change by simplifying and focusing the product portfolio, how we manage our networks, whether they are the fixed networks or the mobile networks. Our ambition is to save the SEK 2 billion we talked about in the last quarter. We talked about 2,000 people at that time. We still have a 2,000 people net number ambition.
We did manage to reduce our headcount during last year by 300 people, we have 1,800 people planned for the Nordic and the Baltics this year. The net savings will only be 1,500 because we also plan to hire 300 people because we have a competence shift. The whole industry has a competence shift from analog shift to digital technology, and we need to have more people with that knowledge. For Sweden, that means that the gross number we plan for this year is 900, and the net number is 700 because we intend to hire 200 people with a new competence in Sweden. There is significant costs involved. I call them investments to do these changes, SEK 1.7 billion, but it's absolutely necessary.
Yes, we did see in the fourth quarter a bit uptick on the billed revenue, which is encouraging, for the full year, the billed revenue has come down. On the right-hand side, you see the challenge of the telecom industry. On the right-hand side, you see the summary of the challenge of the industry. Our traditional business, the business we've had for 150 years, called voice, is coming down by 10% in revenue. You see the volume is actually up 1%, but the price erosion is such that the revenue comes down by 10%. That is by far the biggest business that we have. The same thing with messaging. Then you have data. Grows 21% in revenue, which is good, cannot totally compensate the downturn in voice and messaging, but look also at the traffic volume of 79%.
This is, of course, the whole issue about the business model. Can we capture more of the 79% than only 21%? The billed revenues, when you add it all up, is minus 2%. This is the issue for the telecom industry globally. I have said many times that the future of telecommunication is not only the mobile network. I believed, and I still believe, and now I think most people are convinced, that the fixed network will be so important in the future. It's the most efficient way to provide telecommunication services to fixed locations like our homes or our offices. Of course, not based on copper, but based on fiber. When we increase the number of fiber customers and TV customers, we talk about triple play, that's a very good sign for the future of TeliaSonera. Yes, Eurasia remains our growth engine.
We had a growth of 16% in the quarter, 14% for the full year. I'd like to point out that since 2007, we have nearly quadrupled the business in Eurasia. The three last markets we entered, Uzbekistan, Tajikistan in 2007, and Nepal in 2008, stands now for half of the business in Eurasia. Eurasia has a very healthy EBITDA margin of north of 50%. The year also included resolution, finally, of our Russian situation. I think we invested SEK 1.5 billion totally in MegaFon, and we realized the value of something north of SEK 55 billion. That's a fantastic investment. However, we have never seen any cash until last year. I was very happy with the deal we did in the beginning of 2012, where we sorted out the ownership. We have a minority stake in the end, and Mr. Usmanov has the majority stake.
The deal with MegaFon was really several steps. The first step was that we sold shares. We went down from 43.81%. We sold our shares in TCI, totally illiquid shares, couldn't be sold unless we sold them to Usmanov. We managed to do that, and then we did the IPO. IPO is very good for the governance of MegaFon. To be listed on the London Stock Exchange is good for the governance. We have still 25+% ownership in MegaFon. In Kcell, we went the other way. In Kcell, like all other entities, we would like to own more than we did. You remember, for years, we owned 51% via Fintur. In actual fact, TeliaSonera only owned 37.9%, but we had 100% of the work. We said earlier, we've done it in other markets, too, we would like to own more.
We managed to convince the authorities in Kazakhstan to sell their 49% stake in Kcell to us with a promise and agreement with them that we would do an IPO and have Kcell listed in London. Then, of course, we sold shares for that IPO, and we now have 62% ownership instead of less than 40%, plus that Kcell is now listed in London, which is also good for the governance of Kcell. I'm very pleased with this transaction. Obviously, they have heavily influenced the cash generation in the company during last year. The board agreed or decided to maintain the dividend of SEK 2.85. I know there were some expectations, maybe you wanted more. Not you, but the shareholders. I want to remind you that at 2.85, you have a yield of more than 6%. That's pretty high compared to most other companies.
I also like to point out that some operators during last year in continental Europe particularly, have reduced the dividends or even eliminated the dividend. I feel comfortable with this dividend. A couple of words about sustainability. We talked about the Danish Institute and the human rights impact assessment. We have now finished the collection of data, so now the analysis is being done, and out of the analysis comes the action plan. I think we are making progress on this one. The Industry Dialogue, the board approved actually to sign the Industry Dialogue recently. We expect that the other 10 companies will sign together with us very soon, hopefully. We have been pretty active in defining what these principles are, which I am pleased with.
We are also, since the fall of last year, strengthening our anti-corruption processes and particularly the supply chain and Transparency International as an organization we work with on this issue. The outlook, I agree, is a bit cautious. Flat sales, EBITDA margin will go up slightly because of the cost savings and the CapEx to sales of about 14%. I agree, it's a bit cautious. I think it's time to be a bit cautious, to have a strong balance sheet and a cautious outlook. I feel comfortable with this. Thank you.
Let's then look at the fourth quarter and also parts of our balance sheet that has changed slightly dramatically during the fourth quarter. When I look at the fourth quarter today, I feel very pleased with the outcome. I was a bit more worried at the beginning of the quarter when I looked at the numbers. But we actually ended up with an increase of our net sales with 1.8%. We have a decent margin on the EBITDA level, 33.2%. We are increasing our earnings per share with 35%, and the cash flow is up with close to SEK 3 billion. If you then look at the net sales growth that ended for the whole year at 1.2%, it has been very unevenly distributed during the year.
We started the year with a growth of close to 3%, and at that point in time, I think that the analysts thought we were a bit too pessimistic about our outlook. But I think we were right after the second and third quarter where we had flattish growth, and at the end of the year, we came up with the 1.8%. What has actually happened in the fourth quarter is that we have seen positive trends in Eurasia and also within mobility. Eurasia have growth in all seven entities. When it comes to mobility, we see a good growth in Spain and Sweden, and we remain more or less at the same negative trends within the broadband that we have seen during the last two, three quarters. If you then take Sweden, which has had, I would say, a tremendous development over the last, I would say, 24 quarters.
We had 22 consecutive quarters of growth. We then had a flattish quarter, and now we're back in the growth mode again. In this fourth quarter, they actually added on roughly 90,000 customers. They have had a growth in billed revenue with 4%. And behind that, you have a decline of voice 4%, messaging up with 5%, data up to 19%, and other services up with 72%. At the same time, our equipment sales went up with 100%, close to SEK 960 million in a quarter. And what is interesting today is that 15% of the phones sold are 4G compatible. So a lot of 4G phones are sold right now. We talked about broadband, and you could say that slightly disappointing when it comes to the top have seen improvement.
The margin has also declined both in Finland and Sweden, and it is connected to gross margin compression, but also that we have been a bit slow in taking out costs that we should have done during the year. We're now working with this and trying to increase the pace. We have also invested for the future. And as Lars mentioned here, we have close to 650,000 fiber customers in the whole area of broadband. We have close to 600,000 customers in IPTV. And this is the base, I would say, for the future growth that will come, hopefully during 2014. Eurasia mentioned that they were growing in all countries. We have three clusters. We have one cluster with Moldcell, Geocell, Kcell, and Tcell, where they are growing with 3% to 4%.
We have Azercell in Azerbaijan with 8%, Ncell and Ucell are growing with 41.4%, and Ucell close to 77%. If you then look at Kcell that actually was listed and have been under pressure when it comes to especially the price side, ARPU is going down with roughly 17% in the quarter. At the same time, they are adding on 777,000 subscribers. They have today more than 13 million subscribers in Kazakhstan. When we go to Uzbekistan, we added on quite a lot of subscribers in the third quarter, more or less flattish in the fourth quarter, and we can now see the volume that we increased from the subscriber base now yielding also on the turnover side.
We are more than 9 million subscribers also in Uzbekistan, which is also the case for Ncell, where we have 9 million subscribers and EBITDA margin of roughly 63%-64%. So far, I would say that the Nepal investment has been a fantastic investment. Lars mentioned that gross margin is still under pressure, and that's very true. We have talked about the product mix shift before, which is still evident when it comes to broadband. High connection cost in especially Eurasia, equipment sales, but also now that billed revenue is going down, which is our high-margin business actually impacting the gross margin. We are working with this now going forward to make sure that we could stabilize the gross margin also to improve the result.
Given that we have had a top line under pressure, compression on the gross margin, we have worked with the rest of the cost base in a pretty good way during the last year and years. Still, it's not enough given the trends we see, and that's why we have initiated the SEK 2 billion cost reduction program. The ambition is that if we then exclude Spain, which has another pattern than the other companies, we started off the third quarter with a cost base of SEK 27.3 billion. We have taken out SEK 200 million now in the fourth quarter, and we will go down until the end of 2014, down to SEK 25.3 billion. We do this because as Lars said, that we would like to protect our margin. I would say, just like to remind you, that this is not a walk in the park.
It's a lot of people that we should take out. We should make sure that we continue to improve our processes, but we need to do this just to protect our margin. We have said that we will probably slightly increase this, but it will be a tough call. It will take time and a lot of effort to just protect the margin as we have today. Turning into the associates, they have had a pretty solid quarter. Now MegaFon as a listed company has also one quarter delayed reporting. Underlying business in both Turkcell and MegaFon is improving. When you look at the MegaFon numbers, you see it's the downward trend, that is depending on lower economic ownership in MegaFon, but also that we have some cost for the transactions that we did during 2012, both when it comes to higher funding cost and also FX cost.
A number of different non-recurring items in Q4, but also during the year. We sent out a press release a week ago to remind you about what has happened. In the Q4, we had the gain from the sales of the MegaFon shares over SEK 5.4 billion. We have done two write-downs on goodwill, one in NextGenTel, given that we discontinued that asset, SEK 1.5 billion, and in NetCom, another SEK 2.9 billion after reviewing the goodwill. Overall, the net in the fourth quarter was SEK 189-plus. For the whole year, it ended up with a minus of SEK 289. The whole gain from the MegaFon deal that also lost its scalp was SEK 8.4 billion. We have, with all the write-downs in the goodwill, written down roughly 10% of the goodwill that we have in the balance sheet. It has been a very aggressive write-down session during 2012.
We also had some positive one-time effects. The new tax rate in Sweden going down from 26% to 22% meant a SEK 1.2 billion gain for us in the fourth quarter. That means that we ended up with a tax rate of 13.6%, and in the quarter actually plus of 2%. That will not continue, even though I would like to have it like that. We would expect roughly 20% in tax rate and roughly 85% in paid tax during the coming year and years. We talked about the improved earnings per share, and I talked about the tax here as it contributed to the improved EPS. You can see in the quarter, SEK 34 was connected to the taxes, and also the minority interest increase was roughly 10%. An increase of 34%, 35% Q4, and 9% on the whole year basis.
I would say also, given the industry environment that also lost its scalp, I think this is a very strong result, and I think it is very few operators that will actually increase their EPS during this year. CapEx to sales, 14.6%, a bit higher than we have anticipated. We look at 2013, we will go down to 14%, which means that especially Eurasia will have to sort of decrease the relation, what we call CapEx to sales. They are today above 20%, close to 23%. They are expected to go down below 20%. It also means pure mathematically that we will cut somewhat on the CapEx in 2013, given that we are flattish on our top line. Still, we are talking about investments around SEK 14.5 billion during the year, which is a big amount. Cash flow.
We have had extremely strong cash flow during the whole year, close to SEK 24 billion. In the last quarter, SEK 3 billion, which was connected to less cash CapEx in the quarter and also a positive change in the working capital. If you look at the whole quarter, we have, of course, gained by the SEK 12 billion in dividends that we got from MegaFon. We have not received any dividends from Turkcell, so this is also what I will say, a very strong underlying cash flow of SEK 12 billion that we are actually getting from our operations. I would say I am very satisfied, and I was fully satisfied with the cash flow generation during 2012, which has also meant that we have improved our net debt situation. It has gone down from SEK 65 billion to below SEK 60 billion. You could see all the details, what has happened during the year.
That also meant that our net debt to EBITDA has gone down from 175 to 165. The ones who are looking at our numbers during the year know that we have also peaked closer to during the year. Now we are, as I say, in the range, not below, not above, but we are well in the range of our target range, 1.5 to 2. That gives us a solid situation as well as if we look at our debt maturity schedule. This is the loans that we have, and the coming year, we need to refinance SEK 6 billion. The coming three years, SEK 23 billion, which is not a big amount given the size of our company. We have also tried to prolong the maturities to actually mirror the investment cycle that we have. We are investing in long-term assets, 15 to 20 years, possibly 30 years.
We actually made an issuance in September, 15-year EUR bond, and in December, a 30-year GBP. Summarizing the highlights from 2012, we have defended revenues, we have improved earnings per share, generating a very strong cash flow. We made IPOs, I would say, in a pretty difficult market in December within two weeks, both for MegaFon and Kcell. We also sold and divested our Norwegian broadband business, increased ownership in TEO. A lot of activities when it comes to M&A during 2012. We have launched efficiency programs, I feel that we have a strong and solid financial position to meet a very tough market for the coming year.
Thank you, Per-Arne. You heard the outlook from Lars before. I will invite Lars back to the podium. My name is Andreas Ekström. Happy to be here one last time as head of IR to guide you through the Q&A session. Quite a lot of people here today, both on the phone, on the web, and here, of course, in Stockholm. We will start with a few questions here in Stockholm, and maybe I see a hand from Stefan. Please introduce yourself and your company name, please.
Yes. Stefan Gauffin, Nordea. A couple of questions. First, you already stated your guidance was a bit conservative. Just looking at the trends at the moment, Eurasia improving growth from 12% to 16% this quarter, and much driven by Uzbekistan, and we should see that trend continue. We also see Kazakhstan improving the growth trend. My view is that Eurasia should continue at these growth levels. We also have quite easy comparable quarters in mobility, Q2, Q3 this year. You also stated that you have seen increased intake in fiber. My view is that this is a truly conservative guidance. Where am I wrong?
I don't know. You sound like some of my colleagues. I feel a bit uncertain about the telecom industry. This whole shift of voice going down 10%. You have to realize, voice is our biggest business by far. If that 10 becomes 15, it will have a huge impact on us. How quickly can we change the business model and capture more of the data? That's sort of the uncertainty. If we would be able now this year, which I hope we will, to establish a new business model that actually flies, I will be a whole lot less concerned and maybe be more brave. This is the best judgment that P.A. and I have, and our colleagues have done. It is a bit conservative, but it has good reasons to be conservative.
If I may add, I think that we will see 2013 as a transitional year. There is a lot of things that happens here with investment in fiber, new business models, et cetera, and that is why I think we are a bit cautious. Remember, the first quarter last year, we were accused of being too pessimistic, and we were right at the end of the year as well. We have to be a bit cautious in this environment.
A question on Turkcell. There was a ruling yesterday, maybe a bit unclear ruling, but you have earlier blocked dividends from Turkcell. Has your position around dividends in Turkcell changed in any way?
I do not think the issue of dividend is the biggest issue. We have a conflict between the owners of Turkcell, and that needs to be resolved. We have a deadlock. In this case that you talk about, it is between the Russians and Sokolov. The decision yesterday, I view as one step at least forward in the resolution. Unfortunately, it is not a clear-cut decision, as you say, but at least it is a step forward. I assume that we will restore dividend as soon as possible, and certainly, no later than when the deadlock is resolved.
Thank you, Stefan. We have one question from Sven here.
Good morning. Sven Sköld from Swedbank. A question on mobility. You mentioned that voice revenue is down roughly 10%. If you split out Denmark, which is obviously a very weak market, how does it look then? Second, it's the second quarter in a row where you actually gained some subscribers in Finland, and that has not been the history if you look in a 12 or 24-month perspective. Has anything changed in your offers in Finland?
Yeah, we can take that with Finland. We have introduced a new offering that couldn't be competed with from the other competitors. It is a sort of free roaming in the whole Nordic-Baltic area, and that has sort of turned out to be very good. I think that's one of the things that we have changed in Finland.
I can take the first one. I'm a little bit slow on math. Denmark was down 16% and the average was 10%, I guess that leaves about 8% excluding Denmark.
Okay. We have a question here from the gentleman, if we can get the mic there.
Olof Österbay, TT News Agency. Lars Nyberg, could you please clarify what you meant this morning when you said you were not employed, you were not there when the decision was made to invest in Uzbekistan. The deal with Takilant.
Okay.
The partnership deal was closed in December 2007. New deals were made in 2008 and 2010. Sounds like you were employed.
What I tried to say was that I'm very happy that tomorrow we will get an external report. It's a very complicated transaction in a very complicated legal environment, and a big portion of the transaction was done in a timeframe where I don't know the details because I wasn't there physically. What I was trying to say was, I'm happy that we tomorrow get an external report from a renowned legal firm who understands the legal aspects of this, who have gone through all the details, and we will talk about that report tomorrow.
Just asking you to clarify.
I just did.
No, you didn't. You were employed.
I think that we leave that discussion there.
in December 2007, in 2008, and 2010.
There will be plenty of opportunities to discuss that topic tomorrow. I think that.
Sure. It sounds like some preemptive blaming of your predecessor or other people in the organization.
No, I just said.
I realize that interpretation of your comment.
Are you talking now or am I talking?
Go ahead, please.
I repeated again what I said to you.
No, please don't. Please answer the question.
I did. You won't get another answer. A big portion of this deal was done before I was employed, and therefore, I don't know the details.
But also-
Now I have answered your question.
With that, I think that we leave that discussion for tomorrow, and we can hand over the microphone to Do I see a hand from Thomas there? Thank you. Thomas Heath with Handelsbanken. Two questions, if I may. Firstly, keen to hear a little bit about the Swedish fiber rollout, particularly take-up rates. When you started the project, there was some uncertainty about the return on this investment. Maybe if you could comment a bit on the earlier projects. Secondly, on working capital. You discussed earlier this year that you were starting to look into this. It would appear to me that there is some structural headwind there with increasing handset sales and TVs and so forth. What can you do from a company point of view, and what expectations do you have to deal with working capital? Thanks.
Let's start with the working capital, or-
You take them both.
Yeah, I can take both. Let's start with the working capital then. We have been working with dissecting what actually is included in this, and what has driven the consumption of high working capital over the last few years, higher prices on phones, and also that we have shifted from prepaid to postpaid. What we're doing right now is to look into this, how this could be mitigated within the offerings, and also just the knowledge that these other effects have helped us to have a much better control. Of course, over time, if prices on handsets will go up, that will affect the operating capital to the negative from our perspective. I think we have increased awareness of how we deal with these issues.
When it comes to the fiber rollout, we have been working with that pretty intensely now during 2012 to improve the rollout processes, and I've been very deeply involved in this. What we could see is that we had a very low ambition when it comes to the uptake from the very beginning. We talked about 25%, 30%, and perhaps going up to 50%. In certain areas where we had done a good job, we've come up to 60%, 70%, 80% of take-up. That's why we are a bit optimistic. If we do this in the right way, the demand for fiber is, I wouldn't say unlimited, but it's very easy to sell with the right pricing and with the right distribution and selling process.
Thank you, Thomas. We have a number of questions on the conference call. We will come back to the floor in just a minute. Operator, could we please have the first question from the conference call?
Yes. The first question comes from the line of Dominique Barman. Please go ahead.
Oh, yeah. Thank you, gentlemen. First question on your growth profile, just looking at it without Eurasia, it would look significantly weaker, and I'm wondering how you would address that. Would you become more acquisitive? If so, would you look for acquisitions outside your footprint consolidation or a rather small bolt-on, stuff like the recent acquisition in Sweden? Any change in direction there, any new thinking? Then maybe on roaming elasticity, where you, in the last couple of quarters, explained that you're quite encouraged by the trend seeing. How is that evolving, and is that actually maybe a driver of the better trends in mobility also this quarter?
This is Lars. I think actually running our own business, our current business, is the answer to compensate for growth that was generated by Eurasia. I think the real opportunity is both in the broadband, the fixed network, the fiber IP, and of course the mobile data, which is related to the change of the business model. I think that's a bigger answer to the question than acquisitions. Yes, of course, we are always looking at acquisitions, and nothing has really fundamentally changed. We haven't done that many acquisitions. We've also done some divestitures. I really think that the answer for growth lies in our own current business.
Okay. Thank you. Maybe just to follow up there, and did I get that right, that you are actually hoping to see broadband or fixed line in Sweden at least returning to revenue growth next year? Is that the-
Yeah, I wouldn't say next year, but I am convinced we will see revenue growth in broadband. The question is, it's an equation where the traditional voice goes down and the triple play goes up. At a certain point in time, I am convinced that the growth in triple play fiber will be bigger than the decline in the copper base. Yes, there will be growth. Whether it's going to be next year or the year after or the year after, I'm not totally sure. I'm very encouraged, like P.A. says, I'm very encouraged about the uptake and our more professional rollout of the fiber investments that we have done, and particularly in Sweden.
Thomas had a question about roaming initiatives that we took, was it last year? How that has been developing.
Continues to be a very good decision. This is a volume business.
Operator, could we please have the next question?
Yes, the next question comes from the line of Laurie Fitzjohn-Sykes. Please go ahead.
Thank you. Three questions, if I may. On Sweden Mobile, we saw quite an encouraging improvement. Is there anything particular area driving this, consumer or business? Secondly, are you able to quantify the benefit to EBITDA in Spain from the switch to handset installment plans, perhaps the year-on-year benefit to EBITDA? Then thirdly, if you could just remind us how easily do you repatriate cash across your Eurasian market? Thanks.
I think the mobile business in Sweden, the positive signs are driven both by consumer, but also on business to business. As P.A. said, when we entered the fourth quarter, particularly the business to business, that was something we were a little bit concerned about. It seemed that the big customers were delaying their decisions, it turned out that they didn't. The activity level was pretty high, actually, in the end of the fourth quarter. I would write the reasons on both consumer side and the business to business in mobile Sweden.
Question on Spain on handset. You know that figure, Frans, I can't quantify that.
No, I can't quantify either.
Let's get back on that one, Laurie. The last one was on repatriating cash from Eurasia.
Yeah. We could repatriate cash in all countries, I would say, except Uzbek, where we have limited total possibilities to convert into SEK. Otherwise, it's not a problem at all.
Great. Thank you.
Problem as before.
Yeah.
Operator, could we have one more question, please?
Next question comes from the line of Barry Zeitoune. Please go ahead.
Hi. Good morning. I've got a few questions. The first one is looking at data volume and data revenue growth. It seems that the conversion rate is still about 25%-30% in terms of revenue growth to data volume growth. My question is, do you think that you can improve that from where we are today? Also, taking into account spectrum costs, does that mean that data is an NPV positive opportunity for you? My second question is, if I look at the growth in smartphone penetration and the growth in post-paid data package uptake, it seems pretty consistent in terms of around about 70% of new smartphone customers, roughly, are taking a data package within mobility services. Is this consistency being driven by falling smartphone prices, or is it being driven by falling data prices?
My third question is on Turkcell, and really whether the political backdrop in Turkey seems to support Turkish ownership. Does this limit your long-term strategic capability in terms of where you can go with your ownership in Turkcell? I'll leave it at that for now, I think.
I think that's it.
Thank you.
Thank you, Barry. We can spend our half an hour. Do you want to start with Turkcell?
I can start with Turkcell, yeah. We own something like 37% of Turkcell. We're pretty happy with that ownership. I think we are good owners. I think Turkcell is an interesting company and an interesting market. We need to get a resolution on the deadlock between the owners. If and when that happens, I think we can go different ways. I clearly would like to stay in Turkcell. I think that's a good investment. Exactly how and under what conditions, I'm not sure. It depends very much on the other owners and the regulators and the authorities. Our focus has been to try, just like we did in Russia. In Russia, we did actually resolve the long deadlock, and we hope that we can, during this year, also resolve the deadlock in Turkcell. That is at least my ambition.
When it comes to the question of how they are picking a data package, I don't think it's the question of either a price on the services or the handset. I think it's a question of we are used to use the handset today. Everyone has a phone, and we need to be connected to internet all the time, and I think that's what's actually driving this increase. Not so much the prices.
I'd like to comment on the ratio of revenue growth versus traffic growth. It's about 25, 30%, which is not too bad. Can we improve it, was the question. Yes, I think we can improve it. Also very important is when we move to new technology, to 4G technology, the cost of producing a megabyte is significantly lower than producing the same megabyte in 3G. It's not an issue only of how much can we catch of the traffic growth in terms of revenue growth. It's also in what system are we generating the services, in 3G or 4G.
Which means that it's extremely important to have a good control of the production cost in the different systems going forward. That will help the margin development.
Can I just ask a quick follow-up? In terms of 4G, are you seeing a better volume to revenue trade-off with 4G than you are with traditional data?
That's not what I said. I said the cost of producing-
Yeah
A megabyte is lower, therefore, if you have a lower cost, you can of course accept a lower ratio.
Yeah.
That's my whole logic.
So would you be willing to accept a lower ratio than where you are today? Would that still be profitable for 4G?
No. I would like to have a higher ratio. That is all about this business model. I just wanted to add the information.
Yeah.
I'm not sure you all understand.
Yeah, no. That's fair.
That producing a megabyte is much lower in one technology compared to the other one, that's not unimportant for the profitability of our company.
Sure. Absolutely. Thank you very much.
Thank you.
You said, Barry, that 70% takes a data package. I think that's quite conservative, actually. I think in Sweden, at least, it's 90%. As Per-Arne indicated in his presentation, 15% of the phones that we sell today are 4G enabled. Obviously, if you buy a 4G phone, you take a data package. With that, I think that we go back to the floor for a few questions. Before Erik, we have the lady here on the second row.
Ali Mauno from the Finnish Business Daily.
Oops.
Kauppalehti. Two questions here. You mentioned that you have gained more customers in Finland because of this free roaming in the Nordic countries. How about in Telia, in Sweden, the same possibility? The other question: You write here that, "Our ambition is to fundamentally change our business," and so on and so forth. You haven't been doing this all along, so what is new?
Yes, that's very correct. We have been doing a lot of cultural changes in the last 5 and a half years. We haven't spent that much time on the product portfolio and how we generate our services. Our technical networks, the fixed and the mobile. We've been focusing on other areas. With the technology shift now from analog to digital, it's time to really look into those areas. That's what I'm referring to, because Telia Company should have a product portfolio second to none in the marketplace. We don't have that, in my opinion. We also don't have the tradition of pruning the product portfolio. That means putting end of life to certain products. That's not in our DNA. We tend to keep products till the last customer abandon the product, and then somebody even orders, we should still keep it. Maybe somebody comes back.
We can't afford that. We have to prune the products. We release product money to develop new products. That is fundamentally change the way we operate our product portfolio management as well as our network management.
The first question probably was, I think, if we have one market share on the roaming initiatives in Sweden.
No, it was whether you are-
Doing the same thing.
Yeah, you're doing the same thing as Finland.
Yes. We have not perhaps exactly the same offering, but we did, as Lars mentioned before here, introduce limited roaming costs. You could cap roaming costs in different countries where you're roaming in our own networks, but also other ones. I think we have a wider offering for Sweden, but slightly different to what they have in Finland.
As you and I know, it's much more expensive.
Okay.
You can leave the floor to Erik sitting just behind you. To Erik.
Thank you, Erik Paasch, Danske Markets. Question regarding the relation between, again, data revenues and data and voice traffic growth. It seems to me that in at least the three out of the four Nordic markets, the standard data packages includes far more data than people actually use.
Yes.
Once everybody has the data package then, which is soon the case, it becomes very hard to grow your revenues in data, it seems. Do you agree this is a strategic question, and how do you see that can be resolved?
Absolutely, we agree that's a strategic question, and that is part of the discussion, how to change the business model. That is part of how we change the business model. What price plans should we have? It's very interesting. In the U.S., Verizon and AT&T, they have flat fee for voice. I think the industry's going that way, at least for domestic voice. Then, of course, they have another model for data with smaller buckets. You feel that you do have to pay a little bit more if you use twice as much capacity as you did the year before. That's the business model that they are using, and we're going that way, or we are all going in that direction, I think, in the industry.
Do you think it's possible to cap the amount of data included in the standard package?
No, I don't think that's the solution, but I won't tell you what I think the solution. We are working on it.
Did I see a hand there? Yeah.
Thomas Nilsson, Pareto. Could you just remind us or update us on the situation in Uzbekistan in terms of the situation with MTS, whether it's you and VimpelCom or MTS or anyone else will relaunch, and how we should think about Telia's market share and the penetration in the country going forward? Thank you.
It's a nightmare for an operator to lose its license, MTS did lose its license. I understand they've also filed for bankruptcy with the local company in Uzbekistan. I think we should assume that this will not stay a market with two players. I cannot believe that in the medium term, at least. Whether it's MTS who comes back or somebody else, I don't know. I don't know more than you do. Our assumptions are that there will be a market in Uzbekistan with three players.
Thank you, Thomas. One question here, gentleman.
Daniel Mannikka from Finnish News Agency. You mentioned Sweden's share of this 1,800 employees. How about Finland's share? You also mentioned you need to recruit new competence. Any numbers on that one?
We cannot comment for legal reasons and union negotiations reasons to numbers in Finland. We can do that in Sweden, we did it in Sweden. The trend is the same in Finland. We have to reduce, we have to add. Exact number, I can't comment on. Sorry.
We take one more question from the floor before leaving back to the conference call. Johan, if we can get the mic to her.
Thank you. Johanna Ahlqvist from SEB Enskilda. Two questions. First of all, the broadband business we saw, you mentioned also that there was quite one-off effects in the quarter related to the poor margins. How should we view, in general, broadband margins going forward in 2013, given the cost-cutting program? How much was one-off effects, and how much can be done? Secondly, in Norway, you divested the broadband business and also took
I think it's two goodwill writedowns this autumn related to the mobility side. What is your strategic view on Norway going forward?
Well, I can start with Norway. I think Norway is a very important market for us. We are number two, obviously behind the incumbent, Telenor. I think it was a right analysis and the right decision to divest the broadband business because, I believe in broadband, but only if you have your own network, and we didn't have our own network. If you want to be a fixed network provider of triple play, you better have your own infrastructure, especially if your name is TeliaSonera. I think that was a natural divestiture. In mobility, NetCom is doing a good job. I think we absolutely have a place in Norway. I don't think we're ever going to be number one, but a healthy number two is okay for me.
When it comes to margin, I think that the ambition is in the first phase actually to stabilize it. We have lost close to 2% units during 2012, thousand broadband. If you look at the phasing of the cost cuts, I will say that for normal, they are a bit more back-end loaded, during 2013. I don't think that you would expect to see this improvement in the first quarter. It will take a bit more time than, for example, for mobility.
Thank you, Johanna. We go back to the conference call operator.
Thank you. The next question comes from the line of Andy Harnett. Please go ahead.
Yeah. Hi, guys. Thanks for taking the questions. Two questions. The first one was on the gross margin stabilization. Given a lot of the pressure is sort of outside of your control regarding higher interconnect and equipment costs, I was wondering what measures do you think you can actually take to stabilize the gross margin? The second question was on your leverage. Excuse me. It's going to come down towards the very low end of your net debt to EBITDA range, so by the middle of the year. Would you consider a sort of special dividend or buyback, I guess, in the second half of the year, once the Uzbekistan investigation has concluded? Thanks.
Well, if I start with the gross margin stabilization. Quite a bit of the SEK 2 billion savings program is actually not on OpEx, but on COGS, cost of goods sold, which will help stabilizing the margin.
I think that what you have there is sort of the effects from interconnect, that's of course, if that stabilizes, we automatically have a stabilization. We're also looking at how to look at the hardware pricing itself. It's a lot of different issues that we are working with right now, I don't think that we should expect the stabilization to come next quarter. This is a work that they will take time. That's why we are a bit, as I said before, that it's not a walk in the park. It's a pretty tough year in front of us right now when it comes to the cost side.
Do you want to comment on the leverage question as well?
What was the question about that?
That we will do an extraordinary dividend in the fall when it comes down to SEK 1.5.
No.
I think that was a clear answer to you, Andy. We take the next question from the operator, please.
Thank you. The next question comes from Peter Nielsen. Please go ahead.
Thank you. Two questions, please. First one, Lars, your comments a few minutes ago about Norway NextGenTel and the lack of a sufficient infrastructure situation. May I ask you, how do you view your current fixed line infrastructure in Denmark? Secondly, if I may, and I'm sorry, I don't mean to ignore Per-Arne, but I guess for you as well, Lars. The 2009 agreement with Altimo, related to MegaFon and Turkcell. Is that still valid, at least as regards to Turkcell? If not, has it been replaced by another agreement sort of between yourself and Altimo? Any update on the status on this would be appreciated. Thank you.
Let me start with the last one. The agreement we made with Altimo has actually expired.
Okay.
The whole structure that we agreed upon has been turned out to be very different than reality because we were going to resolve MegaFon and Turkcell and put them into a holding company. Now we decided at the beginning of last year that Altimo sold its shares, its ownership in MegaFon. They're out of MegaFon. We are now partnering with Usmanov in MegaFon. I feel we still have a partnership with Altimo when it comes to Turkcell, we don't have a written formal agreement. I don't think any side feels a necessity of making that. We are jointly on the board, we do communicate, we do talk to each other. We will see how the resolution comes out. I think we have a good relationship with them.
On the first question, after we sold Stofa, we have very little left on the fixed line side. I think it's 1% of our business. Per-Arne, do you want to comment on fixed line strategy in Denmark?
I think we should. We are a very small player, I don't think that we could expand very much in that. I think that's the part of the annual review that we do on different markets. For us, it's important to be able to combine perhaps fixed with mobility, especially when it comes to the corporate clients.
He was referring to the cost savings in the technology side.
The cost savings in the technology side is mainly in Sweden-
Yeah.
Finland, and then the Baltics.
Yeah.
Denmark is very, very small compared to these markets.
Yeah.
Thank you.
Thanks, Peter. Next question, operator.
Thank you. The next question comes from the line of Maurice Patrick. Please go ahead.
Morning, guys. Couple of quick ones. On the SEK 2 billion cost saving plan, Per-Arne referred to it as not a walk in the park. Just clear to see the extent to which it's ambition or if you actually have a clear plan with 10, 15 items lined up to which you're going to get towards that SEK 2 billion number. The second question, it looks like the marketing expenses actually went down in the fourth quarter despite it being a big handset quarter. Just curious as to what's going on there. Thanks.
Yeah. When it comes to the plan, of course, we have plans. You can't announce SEK 2 billion just by coincidence. Of course, we're working with that. Still, taking down SEK 2 billion cost net, given that you have underlying inflation, is not a walk in the park for any company. Of course, we have detailed plans on how to reach there.
From the question of marketing, that went down despite being a strong handset quarter.
Well, it's good that they have been careful with their money. We advertise all the time everywhere. I think we should be more careful.
Yeah, thanks.
We have about five minutes left. We have a number of questions still on the conference call. Please, operator, let's take the next one.
Thank you. The next question comes from the line of Andrew Lee. Please go ahead.
Yes, thanks very much. Morning, everyone. A couple of questions, just pushing for a little bit more color on questions that have already been asked. Firstly, a question maybe for you, Andreas, given your new role. There was a question on M&A policy earlier. I wonder if you could give us a bit more of an update on what your M&A policy specifically is at the moment. Is there anything on the horizon, or will you now just be putting your feet up? Then on Turkcell, it seems like the visibility on the outcome and the timing of any resolutions here is almost more uncertain than it's ever been. I wonder if you'd agree on that and on how things go from here. Would you ever consider merging that asset with other assets owned by your co-owners? Thank you.
I'm not going to answer the first one. You can do that.
I think actually, the decision in the Privy Council was maybe a bit less clear than I had hoped. That's obvious, but I think it was a step in a direction of coming to a resolution. I've experienced now five and a half years of discussing Turkcell and different kinds of aspects of it. So I'm pretty used to that we take two steps forward and then we take a step backward. I think this was a small step forward. I don't know why you mentioned merging. I don't even think about merging anything in Turkcell. Turkcell is a great company, and we need to resolve the deadlock in the board among the owners, because I think it's hurting Turkcell that we have a deadlock now for years in the board.
If I made any comment on the M&A side, it's the same strategy as we had before, that we are to remain within our footprint that we may have today, and we have tried to increase ownership in the entities where we have the majority holdings there. So that has not changed. We do not look at India.
Thank you. Can I just have one just quick follow-up question. Lars, apologies if this is an impersonal question, but could you just clarify your expected tenure in the firm? Will you definitely not be extending your contract past this year?
Well, a lot of people are thinking about that. I have a contract. I'm already overdue. Best date has passed. By the end of this year, I'm supposed to retire. I think whether I retire 31st of December or another date will be dependent on the board's ability to find my successor.
Okay. Thank you very much.
Thank you. We have more questions than we have time for. Let's take the final question, and then you can call me or my team at Investor Relations afterwards. Please, operator, can we have the last question, please?
Thank you. The last question comes from the line of Jakob Bluestone. Please go ahead.
Hi, just actually following on from an earlier question from Andy. Just, could you maybe just, given you have the dividend flat this year, could you just talk a little bit about your priorities for use of cash flow going forward? Is it still mostly de-leveraging ?
Well, I can start. We decided that when we had the peak at 2.0 or 2.1 or whatever it was, and we knew that we had the ability and the big possibility to de-leverage, we clearly agreed with the board that we should de-leverage. We are now at 165, and we can also calculate, and at one time we will be by 1.5 and even below 1.5. At that point in time, the board will have to have a discussion, and we have a track record, a very strong track record, of surplus cash being returned to the shareholders, either as an extraordinary dividend, raising the dividend, or even buying stock back. It's too early to talk about it now. Let's get to the 1.5 or the 1.4, whatever the number should be, when that discussion will have to take place, and it will have to take place then.
I think it's also some other factors. I think you are too stuck with the range as such. We have to look at other things like how much underlying free cash flow do we have. It's SEK 12 billion, so it won't even cover the SEK 12.3 that we will pay out. That's one issue that we have to work with. I personally think also that the yield of 6% is very high, and in this sort of environment as we are today, also where we are taking out 2,000 people, I think it's a political sort of provocative actually to increase dividend and also actually go for extraordinary dividends.
With that, I thank you for coming here. A lot of media. Obviously, I will ask you to take contact with either Solomon here or Cecilia for individual interviews. Ian as well. Thank you all for coming. Thank you.