Earnings Call: Q2 2012

Jul 18, 2012

Okay. Welcome, everyone, and a very warm welcome to Silas Neuer's Second Quarter Results Announcement. My name is Andreas Ekstrom, Head of Investor Relations. I have as usual with me today our President and CEO, Mr. Lars Neberg and our Financial Officer, Mr. Perane Blomqvist. We will do a short review of the result and then followed by a Q and A session. And we have ambition to finish this call within 1 hour. So to keep that deadline, I leave the word over to Lars. Thank you. Good morning, everyone. Welcome. I'll go through the numbers. I think we had a mixed quarter. Some things are, I think, pretty happy with, and we have some challenges. We came in on EBITDA level a little bit slower than last year, of course. And our growth rate was down to 0, and I'll comment on that a little bit because it's really a mixed bag. Of course, we had a lot of influence from the megaphone deal, as you understand. So as I said, for the first time in several quarters, we have no growth or very little growth. A third of that is actually referred to equipment sales and a third is about build revenues and a third is a mix of other things. The equipment sales, of course, I'm not concerned about. This is not a profitable business for us. And if we can reduce the subsidies in equipment, that will be good for our business. So I said it's a mixed bag. We have Eurasia, our growth engine continues to be the growth engine with 12% growth, high EBITA margin, as you know. I think broadband services seems to be stabilizing a bit. The decline that we have seen for several years seems to be stabilizing. I think the challenge is in mobility service. I was saying to one of you before we started that the mobility industry has seen growth every quarter for what is it now 20 years. And I think we are facing a challenge, which I will comment a little bit later on, which is a change of the business model in mobility, which I think will lead at least for a while to lower growth rates than we are used to. And that's not only for TeliaSonier. I think that's for the industry in total. This is a very important picture. It has to do with the changing of the business model. You've heard me talk about 80% of our revenues in mobility is voice, while the traffic, maybe even 95% of the traffic today is data. So what is very important for us is to see the relationship with the growth of traffic in relationship to the growth of revenues for that traffic. And I've shown this picture a couple of quarters. You can see that on mobile data, the volume is up 88% and the revenue is up 29%, so onethree. And that's totally okay. We can certainly live with onethree. A year ago, it was half, and it's now down to onethree. Onethree is okay from a business perspective. And you see the revenue declining in voice. I think we will have to assume that any growth in revenue will have to come from mobile data, will not come from voice as it has done for 20 years. And then on the right hand side, you can see how the equipment has gone down, which I think fundamentally is positive for us. Yes, the industry is in a big flux, in a big change coming from yesterday's voice business to tomorrow's or even maybe today's data business. And we were talking before with some of you. And I believe over time, the voice business will tend to have a flat fee, just like Verizon introduced 5, 6, 7 weeks ago in the U. S. And that underlines the importance of what I have been preaching for 4 years, You can't have flat fee for data. We have to have a relationship with price and the amount of traffic you generate in our networks on data, while voice generates relatively little traffic. And therefore, I think we will go towards a flat fee on voice and messaging. This is a good news, I think. We have been struggling in Sweden particularly with the rollout of fiber. We are convinced that fiber is the best technology to provide telecommunication services to fixed locations like homes and offices. The very encouraging thing is that in the last areas where we have rolled out fiber in Sweden, of the total population, 4 out of 10 chooses to order the service from us, which means that I think we can count on like 6 or maybe even 6.5 out of 10 after a year or 18 months. And I think that will make fiber a profitable investment for us. I believe that this is so important for our broadband business because broadband historically has been copper and voice, and the only future for fixed network is triple play and fiber in my opinion, and of course, TV. That's new ratio. I said I was happy with new ratio. You can see how we have reduced the dependency on 1 or 2 countries. Historically, Kazakhstan and Azerbaijan have been the drivers of Eurasia, and the other countries have been relatively small. The fact that we have been extremely successful in Nepal over the past 4 years has reduced our dependency on Kazakhstan. And it's a more balanced picture today than 4 years ago. We're obviously very happy with the performance of 12% growth in Eurasia in the quarter and healthy margins about 50%. We did decide to change the outlook, not with a lot, but we did decide to change the outlook to indicate that I think the growth rate of 1% to 2% is a bit optimistic. And an EBITDA margin of around 35% is still one of the highest in the industry if you compare with the portfolio that we have. And we have over the past 4 years improved it from something like 32%. But we said in the beginning of the year, it would be the same as last year, which went 35.4%. So we or 35.5%, maybe. So we took away 0.5%. Of course, we have realized earlier in the quarter, this is old news, but I had to show it anyway. We have realized a lot of value in megaphone. You can see it on the cash flow statements, of course, from the quarter. More concerning is that the deadlock situation in Churchill remains. We were very disappointed that we were not able together with CMB to have the Annual General Meeting where we would have supported both the distribution of dividends as well as, and more importantly, increasing the number of independent members. What that means is that if you would follow the decree because there's more of a lesser law, if you would follow that, that would prevent Zucco Rolla from having a de facto veto right. So of course, they're not supporting of it. But I think there's still a possibility that during the fall, with the help of CMB, we might be able to resolve this problem. Ultimately, if we don't, it will be resolved in the Privy Council decision that is these decisions impossible to take. And we expect that these decisions impossible to take, and we expect that to be resolved in the Privy Council decision end of this year, beginning of next year. I'd like to spend a couple of minutes or at least a few seconds on corporate governance. There have been a lot of discussions here in the spring that you're all aware of. The framework and we are trying to become more transparent and share how we work on this, and we'll do more work, but we haven't restarted. And the framework in which we work on corporate governance and CSR, of course, is based 1st and foremost on international standards and guidelines. Then we have our own core values and code of ethics and conduct. We have our corporate governance system, and we have risk management and internal audit. So we would like to use the internal audit just to audit this as we audit the numbers or other processes. So that's sort of the framework in which we are building this activity. Our current focus, 1st of all, we still need to comply with the legal and the license based requirements in every country, in this country and in Norway and in Uzbekistan, everywhere. So that's sort of the starting point. We have agreed with the Danish Institute For Human Rights to help us to do human rights impact assessment. So they will go they are professionals in this. They'll go to the different countries and do an assessment on the impact of what we are doing and what we could do so we get an objective third party kind of description. Systematic implementation of the group privacy policy. And I think personally that the best thing we can do and the most effect of what we can do is actively drive an industry dialogue. As an independent company, we can do relatively little, but we are together with 10 or 9 other telecom operators driving these discussions. And we were one of the founders of this group. And hopefully, hopefully, from that group, we will have a bigger impact on these issues and on the governments in several markets. So I'll stop there and give it to Peram. Thank you, Lars. Lars talked about the second quarter, and I will talk about the first half year to start with. As you can see, we reached close to SEK52 1,000,000,000 in net sales, which means an increase of 1.5% in local currencies. We were somewhat below the last year EBITDA, in absolute terms, SEK17.8 billion. Earnings per share is also somewhat lower than last year, but cash flow radically better. And even though we exclude the cash that we got from the Megaphone deal, we are better than last year. We actually achieved SEK5.2 billion compared to SEK4.1 billion. In this quarter, we have perhaps something more that we need to explain in more detail that we perhaps normally do. So I will take the opportunity to look a bit more into the net sales, the EBITDA margin and the effect of the gross margin on the EBITDA margin, the nonrecurring items that we have big swings in, in different direction this quarter and also talk a bit about our free cash flow and working capital, which is very rarely discussed in this industry. As you could see on the previous slides, yes, we have a downturn on the net sales growth, and it's very much coming from mobility. Before we get into the details there, you could also look at broadband that has sort of stabilized on still negatively about a bit better than before. And even if you take away the low margin business from international carrier, they are now below 3% in negative growth. And I think what we could see right now is that the IP based services is gaining a momentum. We are not there yet when it comes to an inclination point of that they could overtake the decline from the PSTN, but I think that we are moving in the right direction. The slowdown in mobility that actually went down from a growth of 2.6% to a decline of 2.1% between quarter 1 and quarter 2 is connected to a number of different issues. First of all, we have from a market perspective, could divide it into 3 different markets. We have the Baltic countries where we have a decline of 6% to 8%. We have not seen a regain in the economy in the Baltics that we had hoped for. We still have price competition in some of the markets, pretty severe. We are also losing in Norway and Finland between 5% to 6%. And Denmark is even in out loud with minus 14%. But we are gaining in Sweden and Spain. This time, we are losing more on the build revenue side than we have done before, and that, of course, put a certain pressure on the margin. It's very odd to say that we are selling less in equipment and that will help our margin post such a low margin business, but that's actually a fact. So when we look at these 2 or 3 growths I've described, you can say that on the build revenue side, yes, YOYO continues to increase. Even though overall, the growth was close to 4%, the build revenue increased with 18%. We also saw an increase in Sweden, 0 3%. Meanwhile, the other markets were minus 7%. I think Sweden has continued to deliver very, very good results. We are talking about the 22nd consecutive quarter of growth. And even though we had tough price competition in the second quarter, we added on 42 1,000 customers. And they are still operating at an EBITDA margin of 42%. So I think it's a very, very strong underlying business that we see in Sweden. Gross margin that we introduced a couple of quarters ago has been the major reason for the impact of the EBITDA side. However, the less growth that I have seen in equipment has actually helped the gross margin to improve somewhat if you look at the consecutive quarters from Q4 and onwards. But still, the higher decline of personnel billed revenues put pressure on our margins today. We have been able, to some extent, mitigate this decline on the gross margin with the cost base, addressable cost base, our OpEx, where we are if you compare the quarter in Q2 in 2012 with the quarter in Q2 in 2011, we're roughly SEK1 1,000,000,000 below on a rolling 12 months basis. So we have done, I think, a good job there. But as you can see, even though we have a positive gap between the sales and the cost ratio, we cannot offset the decline that we have on our gross margin. So overall, gross margin is EBITDA margin is down with close to 1% unit on a quarterly basis, and we are now operating around 35% on our rolling 4 quarter basis. This time, we have a shift when it comes to the associated companies. We have seen weaker results in Turkcell previously. This time, we saw an improvement from Turkcell. And if you remember, the Q2 in 2011, we had quite a lot of negative one offs. It was the devaluation in Belarus and also the right hand, the goodwill. This is now offset, and they are actually improving the result with more than SEK600 1,000,000. The SEK600 1,000,000 is not only the one off, they also have an operating improvement on the results with close to SEK64 1,000,000 on the EBIT level. Business is growing in Turkey, but if you look at the EBITDA margin, it's really gone down now. It's below 30%, so roughly 29%, 30% on EBITDA margin, which is different compared to MegaPharm where we are at roughly 41%, 42%. However, in this quarter, we had some hits, especially on the FX side in the megaphone. You should remember that when we did the deal with Megaphone, they had to borrow money in the market and they were borrowing roughly SEK 35,000,000,000 And what happened here was that we had some kind of currency movements 1% to 2%, and that created a loss of roughly SEK400 1,000,000 or SEK500 1,000,000 on the FX side and that's what's actually hitting the result today. The non recurring items in Q2, as I said, has been pretty large. First of all, the positive side with the divestment that we made in Megafone, we generated a net capital gain of SEK3 1,000,000,000. At the same time, we have also made an impairment of SEK3.1 billion in goodwill. We have looked at the long term perspective in the markets in Norway and the chain and compared to what we actually paid in Norway, which we did buy early 2000. And after that, we made a decision to write down these assets with roughly SEK3.1 billion. EBIT are more or less at the same level as last year. You could see that from EBITDA, we are somewhat down, but it's compensated by other non recurring items. We had a lot overdone as a payments in Q2 last year, which is not repeated in this year. So therefore, we are close to the result that we had last year. We also have a weaker result when it comes to net interest income. It's connected to, 1st of all, the higher gross debt that we have, creating more interest costs. We also had, I would say, FX effect. And what's going on right now is a gradual devaluation, especially in Uzbekistan, that is hitting the FX result and will continue to hit the FX result during this year. I think it's a sound thing that they are doing there, but that will have a negative effect on our results. Extremely low tax rates. I will try to convince my colleagues internally that we should keep the 50%, and no one sort of agrees. I don't think that over time, we will probably be at around 22%, 23% as a normalized rate. But given the things we have done during the Q2, we went down to 15%. So that has, of course, impacted our result in a very positive way. So when you look at the earnings per share, you can see that the taxes are actually giving us another SEK 12 to our EPS, which ends up at SEK 98. And if we should take away the one offs when it comes to mega for one offs, the goodwill, we should have had an EPS of SEK1.03, which I think is a good development. We continue to invest. We are roughly at more than 14% right now, and we will continue to invest during the year. I think it's important to take the opportunity to invest when you have the opportunity. However, I think we are starting to be much more also cautious to do investment where we do not see that we have returns. So we're working very much with the return on investment in turn to make sure that we get the right profitability out of the investment that we are doing. Cash flow continued to be, I will say, decently strong, SEK3.1 billion underlying in this quarter. You could see that the change in working capital is positive affecting us right now. But even if you take that away, you will have an improvement on the cash flow. I think when we look at the change in working capital here, this is more or less postponement of payments, and that will hit back in the next quarter. I'll come back to the working capital issues that we are facing in this industry right now. You can see that on this picture. We have, during the last couple of years, actually decreased our working capital. To start with, we have been very fortunate that more or less our customers have funded our business. So we started with a positive the sense, working capital on SEK5 1,000,000,000 4 years ago, which gradually has decreased over time. And this is actually connected to, 1st of all, that we are moving people from prepaid into postpaid. We have more expensive phones today, 50% higher price per our safe phone given ago implementing the smartphones. We are helping the customers to fund this over, let's say, 22, 23 months, and we are paying our suppliers in 30 days. That requires more operating capital or working capital. And we are working with that very intensely right now to make sure that the new offerings that we start up also looking at the payment conditions and also how it affects our cash flow. But I think this is an issue that we will see in the whole industry, and all operators would have the same pattern as we are having here. I'm very happy to say that we have started to work with the balance sheet because I think it's necessary going forward to control this kind of movements. We will also look over our payment terms with suppliers in order to improve it. We will also look at the invoicing terms that we have to our customers to mitigate the negative outcome of operating capital. Finally then, net debt to EBITDA continues to be pretty stable compared to the Q1. The dividend that we paid and the megaphone dividend that we received was more or less washed between the channels. So we still are at 2.0. And the level will be depending on our planned IPOs that we're working with, how much that will go down during the year. So summarizing the Q2, that says unchanged. We have seen a slowdown with the mobility, but this partly compensated by Eurasia and broadband. We have an EBITDA margin that is negative depending on the lower gross margin, and we have an underlying increase in our free cash flow. Horace? Thank you, Piranha, for that more detailed and usual presentation. I think it was worthwhile given the moving parts in the P and L this time. And Laurence is also welcome back. And we will And we will start with the Q and A session. And we have a few questions here from the floor, and then we will open up for the conference call as well. We start with Soren here on the first row. Please introduce yourself with your name and company name as well. Thank you. Yes. Svein Schall from Swedbank. First a question on Swedish mobile. I'm a bit surprised first on the positive subscriber intake. On the other hand, I'm also surprised by a very weak margin in the Q2. Can you discuss the quarter and also the outlook for Q3? And my second question is about M and A. There have been some rumors in Swedish newspapers about Teleasana being interested in selling the Spanish business. Can you comment on that? And also on potential M and A in the Danish market? The Danish market? Danish market, yes. Well, I think we saw a decline in the EBITDA margin in Sweden. We shouldn't forget the absolute number. I mean, it's 42%. I wish it had 42 the absolute number. I mean, it's 42%. I wish it had 42% in some other countries. We are the number one player in the Swedish market, and I think we have, therefore, responsibility in how we act in we have therefore responsibility in how we act in this marketplace. That's why we did not participate in the price war or whatever you want to call it that occurred during the quarter. I think if we can stay north of 40% in our home market, I think that's an acceptable result. And then not losing market share, that's the other point. I think I said already 5 years ago when I came in here that if you have like 40% market share, it's not theoretically sound to think you would like to have more as the number one player. So I must tell you, I'm pretty happy with the position and what happened in the Swedish market in the Q2. I haven't seen the numbers of the competitors, obviously, except 3 maybe, but Telenor and Telenor, etcetera. So I have to wait a little bit till I see those numbers before I'm really certain how good or how I should see the but the performance in the Swedish market, I mean, Pierre was saying we have been growing for 22 consecutive quarters. It's pretty good, I would argue. So with regard to the rumors about Joy Convent, first of all, we don't comment on those kind of rumors. But I mean, it's no secret that I have said one day, we will see if we can sell Joico. That's no secret. I want them to play the second half. So that's what I have said. And now there are rumors, and tomorrow there'll be other rumors. And we learned a long time ago not to comment on the rumors. And Denmark, there must be rumors, and I don't comment on the rumors, so I don't know. Let me just put some more flavor on the Swedish market, if I may. Remember that there was a one off item in Q2 last year. So the margin in Q2 last year was a little bit artificially high. So the drop year on year is more 1% than the 3% reported. And I think the feeling is that the competitive environment is a little bit more stable now than it was in the beginning of the Q2. And sure, there are aggressive offers out there in the market, but not by a mile as aggressive as were in the beginning of March or April. So a little bit more rational competitive environment now at the end of the second quarter. We can leave the microphone to Stefan. Stefan Glofein, Nordea. First of all, I would like to come back to the margin in Swedish mobile. And just if you can quantify the extra cost for retention caused by the campaigns by Tele2 and 3, just sort of the extra cost for that. Secondly, I was a bit surprised by the strong subscriber intake in Spain given that we have seen the regulators' numbers for April May. And you also say that you have launched new offers in June. So could you say something about the development during the quarter on subscriber intake? Is there massive subscriber intake in June? Or and then also, I was a little bit surprised by the ARPA development in Spain. I know there was interconnect cuts, but what kind of impact did the offer have on the ARPU development? Those, I think, was a record in the level of detail question that we had in a long time. Where should we start? Apparently, my margin explanation was not enough on Swedish mobile. Peran, I'll leave that to you. Yes. But I think that, first of all, we did not really quantify the extra costs we have if we have had extra costs for the marketing. Then if you look at the retention, I mean, we have had a very low churn rate still in Sweden, more or less at the same rate. It has not really decreased or increased. So it's still at 15%, 16%. So I think you have to remember that the 42% is a very, very good margin. I think that's probably where you should stay. If you then take Spain, you have to remember that during the Q2, we have had a severe financial crisis that more or less exploded at the beginning of June. And of course, that affects the market conditions as such. And it will be interesting to see, as Lars said, to see what has happened with the other operators when they come out. And that's why I highlighted that the build revenue is actually increasing with 18%. We have a good net intake of customers, which means that we're doing something right in the market. I don't want to go into the details how it looks during the quarters, but also I mean, we are talking about the quarter as a whole. But the operating model works pretty well right now with the market conditions we have in Spain. But of course, it's a very, very tough market given the financial environment. Yes. And as I said, we have to wait until we see the competitors' numbers. But I mean, Telefonica reported for the Q1 a decline of 18%. 2018, and we have an increase in the Q2. We'll see what they say about the Q2. We take one more question from the floor, Andreas. Andreas Julsanne, Enerch Hilda. A question on Turkcell. Do you think it's a possibility to have another AGM before the Privy Council has said their ruling? Yes. I think it's a possibility, and I hope it would happen. I think it's in everybody's nearly everybody's interest. And I realize that Zukorova is not in their interest because the de facto, as I said before, they have a veto right as long as we don't have more independent directors. But now the Turkish authorities have decided that the biggest companies in Turkey should have a certain number of independent directors. We are very supportive of this. This has been discussed for years. It's now a decree, a law, which Churchill has to comply with. Common sense, going to start ruling soon. And but I think CMB has a responsibility to help to create that AGM. So I'm really trying or we are focused on working on trying to help to get there. Now if we don't get there in the fall, the issue, as I said, will be resolved, I think, with the Privy Council decision end of this year, beginning of next year. The company is doing somewhat better now, but I still believe that this is a big distraction from management, has been for 2 years now and has affected the performance of the company. So it should be in most people's interest to resolve this issue. May I also ask on Finland and the performance there and how you should turn the Finnish operation around? Yes. I think we have to be honest. I think we've been beaten the last 4 to 8 quarters. And I felt that we felt this already a year ago and that's why we made some changes. We did change the organization structure in Finland by appointing a head of Sonera in Finland, Robert Andersson, who joined us in May, I believe. I think that will make a big difference because Sunira is a big company and they need a face, public face who is responsible for Sunira, who is Mr. Sunira, who is there every day. So I think that plus what I call this multi market operation, it is all about the product portfolio also. It's not only about performance of individual people. It's also about having an attractive product portfolio. And particularly in B2C, I think we have been losing more than B2B. So I think we know the challenge, and I have some confidence that we will at least gain something back. I think we leave the word on the questions to the conference call. Operator, can we have the first question, please? First question from the line of Andy Parnes. Please ask your question. Yes. Hi, guys. It's Andy Parnes at UBS. I have two questions. The first one was sort of a bigger picture question. So organic growth fell to 0% or flat in the quarter. How do you think it's now possible to get this sort of back positive, back up by 1%, 2%, 3% in sort of the medium term or is it now should we now expect it to be flat or even turning negative going forward? And the second question, I guess, partly related, is on Danish service revenues. It seems to come in around minus 20% in the quarter. Are you worried that this is also going to turn a bit more negative now 3 seems to have lowered its pricing on its main brands and reintroduced subsidies into the market? Well, if I look this is Lars. If I look longer term, not like next quarter or this year, the answer on growth in mobility is going to be data. I don't think you're going to see growth on voice. Actually, I think we will see further declines on voice. So changing the business model to data pricing, which is very strongly related to how much you consume, I think is going to be the answer. Now the fundamental what's good is that the service of surfing on the mobile is something people like. You look at the roaming prices. We reduced the roaming prices at 1 of the first operators in the world a year ago quite dramatically for Nordic and the Baltic, and then we went more or less to the rest of the world in the last 12 months. We can see how the traffic is growing very rapidly in mobile data outside of Sweden. When Swedes go to the other countries and they know it's SEK 49 per day and they feel safe with it and they think it's a reasonable price, they start surfing. And so there is an underlying need for our services. So that's a good thing. The question is can we monetize it? That's why I showed you the picture where we have a 90% growth in volume and a 30% growth in revenues. Still relatively small number compared to the voice business, but that's going to be the challenge. If you look 3 years from now, we got to have another balance between the source of revenue being voice and being data. Data are going to be the big portion of the revenue compared to voice. And if you have a flat fee on voice like the Verizon introduced, like I expect the industry to go towards, the key is going to be data. And underlying demand for it, I think, is unlimited. The appetite for bandwidth is unlimited. So I don't think the fundamentals are wrong. I think we have a transition period as an industry. Denmark, yes, I mean, they have had a very another very tough quarter, and I don't know how much that will be sort of impact by the new offerings from 3. But what I know from our side is that we also try to gain some kind of momentum with our 4 gs launch that we have made. And I hope that, that will help us somewhat to improve the numbers over time. But Denmark is a tough market, and you should remember that we have a pretty large number of MVNOs that are also pushing enterprises. It's not just only 3. Well, I think back to this business model a little bit. In a market with 3 or 4 players, the number one player has a special responsibility, I think, on how to act. I think we take that responsibility in the Swedish market. I believe Telenor at least sometimes take that responsibility in Norwegian market. And TDC does not take that responsibility in Danish market. TDC has more than 3, I think, fighting brands that are pushing down the prices in the whole marketplace. They don't disclose, for good reasons, I suppose, their EBITDA margin any longer on mobility. Last time they did it a couple of years ago, it was 30, and it's not higher today, I can guarantee you. So if the number one player has 30, then the market is going to be very difficult for 3 or 4 players. And the consequence of that is that if you want us to invest more money, we're going to be hesitant. So this is an issue, I think, because it's a balance for the regulators to ensure that we have investments in the marketplace to have a modern infrastructure. At the same time, we need to have a return on the investment. And with current profitability in Denmark, I'm not interested to invest much more in Denmark. Okay. Thank you very much. Your next question is from the line of Dominik Kleiman. Please ask your question. Thank you. Dominik Kleiman, HSBC. Question on the fixed line side of the business. I would be interested in your take on the EC proposal on fiber regulation from last week. And connected to that, in Sweden, broadband ARPU is already growing nicely, thanks to fiber. And apparently, demand is picking up. So I'm wondering how confident you are that we see revenue inflect from the minus 3.6% currently and how far you think that is away? Well, first of all, on the EU statement the other day, I have spent quite some time together with the colleagues in the industry. We have an association called DSMA, and I'm on the board there. And we have spent quite some time in the last 2 years trying to understand Elie Cruz and the EU. Their ambition, their prime ambition is to ensure that it is invested in the telecom infrastructure in Europe because they believe, and I think they're absolutely right, it's going to be a prerequisite for growth of the economy in Europe is that we have a more than competitive telecom environment. We have argued that if you want that to happen, then you're going to give us some stability on the outlook for the investment. We've got to have some sort of return on that investment and the rules around the business got to be fairly stable. I think some of our investors actually had a conversation with Nelly Cruz before the vacation, and they argued the same thing. And I think what we saw is a result of that discussion, that Brussels has understood that if they are going to have these very huge investments we are talking maybe €100,000,000,000 kind of investment over a number of years, of course. If we're going to see that kind of investment, we've got to have some stability in the environment. And I think what they did, they gave us some hope for stability, which I think is very positive. The second question was on Swedish fiber more in detail, the inflection point. Well, I think fiber has been very attractive for the market. I think our problem a year ago was actually to practically roll out and deliver the fiber to our customers. We struggle quite a bit doing that unfortunately, which meant that we a year ago said we've got to stop marketing this too much. We've got to get our processes in order and make sure that if we say we're going to deliver in 3 weeks, we can deliver in 3 weeks. Even Peron himself has been involved in that project to ensure that we improve. I think we have improved. And it's very interesting. It's very encouraging. When you talk to people who finally got their fiber maybe 3 months too late, once they got it, they're very happy with it. And so I think this is a great opportunity. Of course, we won't roll fiber to every household in Sweden, but both multi dwelling units and single dwelling units are, I think, both interesting segments. And I'm all in favor of rolling fiber and rolling it faster. Is that okay, Dominic? Yes. Thanks a lot. I mean would you stick out your nose and give a medium term outlook in terms of what that means for Swedish fixed line revenue trends, say, on a 3 to 5 year horizon? Yes. It's too early to do that because I tell you honestly, I felt only a month ago that we could start thinking about pushing the button to increase the rollout. And I want to see some results. I shared with you that in the last rollouts, we have about 40% take up. I want to see the 2nd wave because Ford is not enough. And we will see that during the fall. We rolled in the north part of Stockholm, for instance, a year ago, and we are now getting into the 2nd wave. And I think a lot of people who said no, thank you, then will say yes, please, now. If we could get like to 60% penetration, we have a I think we have a business model that's going to work very nicely for us. But I will maybe be able to speculate on those numbers towards the end of this year. Okay, great. Thanks, Tom. Next question, please. Your next question from the line of Andrew Lee. Please ask your question. Good morning, everyone. Thanks for taking my call. Just first question on Swedish Mobile. Sorry to come back to that again. I understand margins are high, but following the end of the 3 Intellitwo promotions in March April, we seem to have seen increased marketing and retention spend from you and further promotions from 3. So I wonder if you could comment a bit more specifically on whether you think the marketplace is now more aggressive or unsettled than it was before March. And then second question, hypothetically, if you did have any asset sales over the next few months, would your preferred use of cash be further paying down of debt Or would you consider distributing via dividends or share buybacks? I can start with the second question first. It's the leverage that we are working on right now. Yes. No, I don't think the Swedish market is different now than it was in January, not much anyway. It was an interesting period of a couple of weeks, and I think it has stabilized. It can change again. I mean, this is business, but that's how we feel about the market right now. Thank you very much. I would answer that. You will answer that deleverage. De leverage. It's very short. It's clear. Clear. Good. Next one, please. Your next question from the line of Peter Nielsen. Please ask your question. Thank you. Lars, you've already discussed extensively sort of the bigger issues in mobile and broadband. So a couple of smaller items, if you will. Firstly, is it still your intention in Sweden to start charging for mobile apps around this summertime? And if so, have you had any discussions or indications from the regulator whether they might have any objections to this? And secondly, are there any at the present time, any updates on the megaphone or Kazakhstan IPOs, timing, etcetera? Thank you. Well, what we did was we introduced a separate charge for mobile VoIP in Spain as a test case. That's what we did. And then we said somehow we got to manage this transition between voice and data. And I think the most likely outcome, I think, is that we are probably going to include IP in the bigger packages. Maybe in the smallest entrance packages, they might not be included. But I really think the solution to this issue is the industry is going to go towards flat fee for voice and messages, and then it doesn't matter anymore because if you can call as many minutes you like domestically in Sweden, why would you use anything else than that service? But this is a discussion that the industry is having and we haven't made any final decisions on how we're going to do it and when we're going to do things. But I repeat again, the whole industry is challenged with a business model change. For 100 years, this industry has got all its revenue from the voice service. That will change dramatically in the coming 5 years. The majority of the revenues will come from data, not from voice. And that's very exciting. It's a little bit uncomfortable because it's big numbers we talk about. But I think it's a very natural progression seeing what has happened with technology. It's all about data. It's going to be all about data, not voice. Are you any more concerned or reassured now than a year ago that the industry will succeed and get paid from its customers, Lars? Well, I think what the issue is, is that as an industry, we need to maintain the ARPUs that we have today. Of course, if the industry would lose half of its revenue, then we have a real problem. I don't think that's going to happen. I think we are going to maybe have some bumps on the road, but I think we will basically see the same kind of ARPUs, but it defined differently, much smaller portion called voice and a bigger portion called data. And I think that's exactly what is happening in the United States right now. On a constant question about IPOs, I mean, we are working with the preparations for this but we haven't disclosed in the time plans. I think we need to have a sort of solid IPO market to do this kind of old transactions. But we are doing the preparations. We are doing the preparations. So we are We are ready somewhere in the fall. Whether the market is ready, we will see. Nothing. Your next question is from the line of Jacob Blostein. Hi, there. Thank you. I've got 2 pretty quick questions. Firstly, just to follow-up on Andrew's question on use of cash flow in the event of further asset disposals. Could you just remind us what sort of net debt to EBITDA you're targeting? And then secondly, just kind of referring back to the slides you had on working capital in your presentation. I mean, what is your expectation of how working capital continues to develop from here? Do you think it will continue to become more negative? Or do you think you can reverse that trend? Thanks. If we start with the working capital, I don't think that we could reverse that trend in a short term perspective. I think that will continue as long as we are now sort of phasing out sort of the old pricing model into the new one. And we really have to mitigate this with our other kind of activities and looking over the payment conditions we have to other suppliers and also how we found this. So I think this will be an ongoing thing for the next, I don't know, 1, 2, 3 years. And then coming back to the net debt to EBITDA ratio, we also said that we should be between 1.5% and 2%. That's the target range we have right now, and that remains so. And now we are operating at 2%. So of course, I mean, that's why we're talking about that we would like to deleverage with the proceeds that we get there. But it's also clear, I mean, if you do the predictions, if you assume the IPO is happening, etcetera, we will get to 1 point 5 relatively quickly. And actually, provided we just continue to generate these cash flows, we'll go below 1.5. Percent. And at that point in time, I'm sure the board will take the appropriate decision. Let's discuss that at that point. Yes, sir. Great. Thank you. Here's the CFO. Can't blame DI. Next question, please. Next question from the line of Lauri Fischer. Please ask your Cidjan. Firstly, on guidance, it implies a margin improvement in the second half. Can you give some color on which divisions you expect this improvement from? Is lower promotions in Sweden a significant factor? And then secondly, looking at the bigger picture, you're talking about the need to disrupt a tariff. But can you just give us an update on Sweden? How much of service revenue at the moment is still from variable charging for voice and text? And how is the progress currently in Sweden on restructuring tariffs there? Thank you. Well, the last question I can't answer out of my head. But on the first one, I think the main driver of the second half is always the Q3. 3rd quarter is always the strongest, the best margin in all four quarters. So I think that's the major contributor to the improvement. And if you look at 12 month or 4 quarter rolling as per Onas show, we are at 34.9 now in the Q2. So it's purely math that we'll get to the 35 due to a stronger Q3. The first one May I also remind us about yourself because if you started to talk about 10ths, if it should be 35% or 34.9% or 35.1%. I mean, from a bottom line perspective, it's a very, very small amount. So we're trying to indicate that this is the range that we think we will operate on. So to give you sort of the bigger picture. The first question, I think, was the split of revenues in Swedish mobile, if I understood you correct, Laurie. Yes. We've shown you that in the past. We didn't show you this quarter. But voice and messaging is around 50% of mobile revenues in Sweden. Okay. Thank you. Thomas, I've been waving here from the floor for a time. We take one question here from the floor before going back to the number of questions on the conference call. But Thomas, in the meantime. Thomas Ithere from Handelsbanken. Two questions, if I may. You talked about the shift in price model for mobile data and how this is going to pressure mobile for some time. Where do you sort of foresee that the pressure? If voice becomes flat priced, do you lose on the high end customers trading down? Or is it the low end customers getting voice for free? That's the problem. I mean, if we look now, we can see a fast transition of tariffs on the high end to bucket plans, but all the low end plans are still based on call setup charges and per minute. So if we're going to feel pressure over a few years, where do you expect to see it? Well, first of all, what is why is somebody going to choose us? It's not only about price. I think we are too focused sometimes on price. And are we going to lose in the low level or the high ARPU? I genuinely believe that our customers choose Telia because we have better network quality or they perceive that we have better network quality. And the most important is the customer service. We are so dependent on these services, these phones, that if there is a problem, you want it to be resolved simple and quickly. And I've been arguing for 5 years that these two points are the 2 out of 3 priorities for TeliaSonera. Yes, I do agree price is not unimportant. And yes, we can analyze whether we're going to lose there or there or there. But fundamentally, we're going to win this battle if we have the best quality in the network and if we have world class customer Finland. That is what the priorities are. And I think we will win if we are successful. And we are working extremely hard on it. That's why I was happy we got the question on customer service in broadband, which was a real problem a year ago, year and a half ago, and it has improved quite dramatically. It's not where it needs to be, but it has improved. And I am convinced that, that has a bigger impact or whether we are 10% cheaper or more expensive than a competitor at a certain point in time. And the second question on like you mentioned on Swedish broadband. It sounds like you're more optimistic. I mean and if we could what's the potential that we speed up a rollout significantly? Previously, you've targeted single dwelling units and almost left the MDUs alone. I mean, for example, a Stockholm Com Hem property where there is already coax, is that sort of something you could go after with fiber if you sort of roll out more aggressively? You're always ahead of us, guys. We need to think a little bit before we decide. And I just said to you that I think we have a higher level of confidence that we can roll out and deliver the way we said. I want to see that happen now in the fall. If it happens, then I'll put the pressure up a little bit. But I'm not prepared to say, oh, now we go fall out because I don't think we are ready for it. But I am convinced that fiber is a very important part of TeliaSonera 5 or 10 years from now. I'm absolutely convinced. Thank you. We go back to the conference call. Operator, please. Your next question is from the line of Ulrik Ratte. Please ask your question. Thanks very much. Two questions please. The first one is on the downgrade, sort of the lowering expectations for the full year. If you take a step back and try to sort of tell us where ultimately you had to lower expectations, is it because of competition, because of the macro environment or because of Telia's Nano specific execution sort of in those three buckets, I would be interested to see where you see the sort of the main reason. And the second question is very specific on Turkcell. Is there any process or legal possibility to have Turkcell pay a dividend without simultaneously settling the Board of Directors issue? Is there any way sort of to essentially agree on the side on the dividend and leave that other issue for some other process? Well, on the last question theoretically, yes. But you have to have an AGM. You have to have a decision on an AGM on both the independent directors as well as on the dividend. So there's nothing we can do outside of an AGM. On the issue of growth, I mean, I think if you look back when we started the year, I think the growth rate or actually the decline in mobility is the main reason why we were pretty hesitant when we went into the year because we actually said 1% to 2% and several of you guys said that was conservative. And it turned out it was a little bit too optimistic actually. And the main reason is mobility. And again, what is it then in mobility? Well, it's a combination of a number of things. Spain is not the engine of growth. It has been it has nothing to do with Joico. It has to do with the macroeconomics in Spain. Sweden has been growing. And I've been saying many times, you heard me say, I'm surprised we can continue to grow that kind of growth rate in Sweden. Now we come down to 3.5% or 6%, which is maybe a more normal growth rate. The economies the macroeconomies in the Baltic States have not improved for at least not for the telecom operators yet. So that's not helping us. And then we have the Danish situation and the Finnish situation. So it's all mobile. It's macroeconomics in several countries. It is some execution of ourselves, and particularly in Finland. And there is a business situation in Denmark that is different from other markets. So there are several explanations to it. Thank you. Thank you, Rich. Next question please. Your next question from the line of Derek Coton. Please ask your question. It's Barry Loctini from Berenberg. I've got three questions. Just going back to Finland. I'd like to I know that you've hired somebody else now that's going to be running that business, and that will make a difference. But if I look over the longer term, we've seen declines in the of market share in the region of 5, 6 percentage points over the last 3 years. Do you feel like you need to do something more radical in Finland to really win back market share and win back the brand? And have you decided which brand you're focused on yet, whether it's the Sonera brand or the TeleFinland brand? And then my second question is really on how you allocate capital. You talked about paying down net debt, And it's very clear that once the IPO proceeds are in, you're going to be in a more favorable scenario. But as we're seeing growth slow and potentially, I know you won't talk about it, but if you were to sell Spain, that would also be kind of one key growth component lost. You've been very good at acquiring growth in the last couple of years, specifically with Nepal. So are there opportunities out there that you're looking at? And do you think acquiring good growth would be a strategy that you would like to use some of your capital for? And my final question is really just looking at Megaphone and the recent deal with Yotta. So I saw that Mr. Usmanov has consolidated his holding of Megaphon with Yotta. And I was just interested why that didn't happen at the megaphone level and why you wouldn't have wanted it to happen at the megaphone level. Well, the last question is more for Mr. Usmanov to answer. I mean, we did the deal. We did, and we were happy with that deal. Mr. Usmanov has many assets and wider ambitions, I think, than TeliaSonier as a telecom operator. So I have no further comment on what he did or didn't do. M and A? Yes. M and A, we have I think we have executed the M and A strategy for the last 3, 4 years that we said we would. We would like to increase our ownership in particularly in Eurasia. We had relatively small ownership like 51%. And in practice, actually, in Kaysil, we had much less than that. And we have increased in nearly every country, which clearly helps us with the EPS with the KsL particularly. There aren't many opportunities to increase ownership in existing businesses anymore. And yes, of course, there are some opportunities in that region that we are looking at. I think we have a track record of being conservative. We don't want to overpay. So sometimes, we can't do the deal because we think it's too expensive. But yes, if I could buy at a decent price growth in Eurasia, I'd be very interested in that, obviously. The first question was Finland, the radical changes. No. I think first of all, you asked about the brand Sonera and Telefinland will keep both. I actually think it's more blocking and tackling or lack of good blocking and tackling than radical change in Finland. Okay. Okay. Thank you very much. Thank you. Thanks, Marion. Next question, please. Your next question from the line of Terence Tsui. Please ask your question. Yeah, good morning. It's Terence from Morgan Stanley. I just have two quick questions, please. Firstly, on Spain. Do you think we could see the imminent return of handset subsidies into the market now, especially given that the monthly data, which was referred to earlier, was weak for the major operators, but also for some of the smaller ones as well? And secondly, maybe you can just give us a quick update on how is it going with the sales of your LTE Smart Fans? What's the data usage like there? Thank you. You start with the smartphones or Yes. I think it's a little bit too early actually. We don't have enough volumes to see actually a good pattern on the data usage level. We have to get back to that on the next quarter or so. When it comes to subsidies on hardware, it's obviously not in the operator's interest. And if we could reduce, eliminate or reduce subsidies on terminals, we certainly will be supportive of that. I must though say to you, I'm not sure it will happen. I'd be happy if we could reduce the subsidies or at least have them on a manageable level. But totally eliminate subsidies, I think, is difficult because fundamentally, our customers goes into a Telia shop or whatever and says, I want to buy Phone X. They don't come into the shop and say, I want price plan A. They come in and say, I want to buy a Galaxy 2. And what sort of price plan are you going to combine that with? So if the customers are really buying a phone more than buying a price plan, then subsidies are probably going to be there for the foreseeable future. Thank you. Thank you. Thanks, Terence. We have 2 more. Should we take them before closing this conference call? Next question please, operator. Your next question is from the line of Lena Osterberg. Please ask your question. Yes. Good morning, guys. Just wondering a little bit on you've been very good historically at cutting costs to offset the margin decline. But current quarters, that has not really materialized. I still have taken some restructuring charges in early quarters for cost cutting. So I was wondering if you are a bit delayed or it's more difficult to cut costs now with what we should expect for margins going into next year? And then also if you maybe could give some guidance on the restructuring charge for the full year. Kristal, with the cost cutting, I think that we have so far managed to cost cutting quite well. I mean, we are, on a half year basis, down with 2% on the cost. But we have also said that we are somewhat delayed in certain areas, and we need to speed up the present plans. So that's correct. We don't give any guidance on sort of the restructuring charges for this year. So if it occurs, we will tell you. I think I could add something to it. I mean, we spent as you said, and we've been pretty good at managing the OpEx, and we spent very much focus on the OpEx. I think the focus will now move away a little bit from the OpEx, continue to manage that, to the cost of goods sold because that's how we have the pressure. It's on the gross margin we have the pressure. And we have probably more cost in kroners calculated as cost of goods sold internal cost compared to OpEx or the similar amount of numbers. Much more complicated, but it's something we will have to be focusing on going forward, I think. And that's what I actually talked about at Capital Markets Day where we said that we will focus on this because we will increase the cost base from roughly SEK 30,000,000,000 perhaps up to SEK 60,000,000,000, SEK 70,000,000,000 that we could work with. How much of the COGS is actually addressable for you to work with? Enough. Enough, yes, exactly. But as a percentage of the total COGS? No, I don't want to give you that. It's a lot of money, Leila. It's a lot of money. But I mean, if you really want to do the analysis, you need to sit down and really understand what is addressable, as you say, because that's the key word. What of that amount is addressable? It also differs from mobile to broadband. It's 2 different business areas. Okay. Thank you. Thanks, Lena. Let's take the final question please, operator. And your final question is from the line of James Burton. Please ask your question. Thanks very much, guys. First question on Finland. Can you give us an idea of the incentive measures you put in place for the new President of Finland? And then secondly, when you talk about the business model transition, I struggle a little bit to understand why this is really taking effect now because your Nordic markets have the most advanced smartphone penetration in Europe, not that far behind the States. So why is the cannibalization really taking effect now as opposed to what we saw with KPN last year? Well, I'm not saying that cannibalization starts now. I think we have been managing this thing pretty well as an industry. What I am saying is that over the coming 2, 3, 4 years, the whole industry will change, not just Nordic. And actually, as I said, I think in the U. S, they are sort of leading the change with Verizon's offer. And that's going to be a very exciting journey, a bit scary as well. So I'm not trying to explain anything that happened in the quarter. I'm just saying I can see a trend whereby voice will be a much smaller part of our revenues and data has to become a much bigger part of our revenues. And I think there might be a chance that voice will be charged on a flat fee basis. Data can never be charged on a flat fee basis. I've been arguing that for 4 or 5 years, and I think most operators agree with that now. So it's not trying to explain something that happened in the quarter. It's really trying to explain how does the environment look like for a telecom operator going forward, let's say, 2, 3, 4 years? And if I may add this, if you look at Sweden today, I mean, they are growing the build revenues with 3% and messaging is still increasing with 2%, increasing the data with 16% and voice is down with 4%. So it's still pretty stable in Sverdrup. Okay. So just to be clear on that point, you talked about lower growth for a few quarters from now, but that's not linked to the business model transition that you've been talking about today? Well, I don't think it's unaffected by it, but that's not the major reason. That's not the major reason. On the last question or the first question you had, Robert Anderson is also a member of the group management of this company. And as you're all aware, since 3, 4 years back, the 10 people in the group management has no variable pay. So he has a fixed salary and a pension.