Okay, good morning and welcome everyone to a sunny Stockholm. We are here, of course, to present our second quarter report. My name is Andreas Ekström, Head of Investor Relations. We will follow the normal procedures. We will start with a presentation from our President and CEO, Mr. Lars Nyberg, followed by a review of the financials by our CFO, Mr. Per-Arne Blomquist. After that, we will take some questions, both here from the floor and also from the conference call. With that, I will leave the floor to Lars Nyberg. Welcome.
Thank you very much. Good morning, everyone. Welcome. I thought we had a decent quarter. I hope you agree with that. Looking at the big numbers, net sales, I think that's maybe the thing we are... There are two things we are very happy about. This is certainly one that we had growth of 3% in local currency. Clearly, the currency is headwind on all lines. We have now for several years talked about local currency, and that's sort of the underlying performance of the business. I'm pretty happy with the 3%. That's also to jump to the last slide is why we don't change the outlook that we presented a quarter ago. The EBITDA increased. The percentage increased again with 1.2 percentage points. I'll come back to this. Mainly because of the currency, the earnings per share is down from EUR 1.17-EUR 0.89.
It is mainly currency, but it's not only currency. It's also the performance of the associated company, Turkcell. Telia Company AB is the biggest owner in Turkcell. Turkcell being historically an icon in Turkish business. However, in the last four or five years, it has lost its way by what I would call mediocre performance. This picture shows the development of the EBITDA margins for the last couple of years. Ultimately, the responsibility for this performance is the responsibility of the Board of Directors in Turkcell. The Turkcell board has been in deadlock for more than a year now, as the only so-called independent director, the Chairman of the Board, Mr. Colin Williams, has chosen to side with Cukorova, who owns less than 13% of Turkcell. To me, it's amazing that Mr.
Williams, an English citizen brought up in the Anglo-Saxon governance model, refuses us, the biggest shareholder in Turkcell, to bring the issue of who sits on the board to the general shareholder meeting. For this, we have sued him. Over the past 10 years in Turkey, significant reforms have been introduced, which has made the country actually prosper. It's a great country and a great market to be in, I think, over time. All these reforms also encouraged foreign investors. We put, as TeliaSenora , we put the trust of the Turkish authorities, cease the mismanagement, and give us and other shareholders the possibility to bring back Turkcell to former glory and not allow people to continue playing games that belong in the past. Another year of the current situation will destroy Turkcell. Therefore, it's time for the authorities to step up.
That's the only thing I'm going to say about Turkcell. It's actually the same picture, but this time the curve goes the other way because it's TeliaSenora . I'm particularly proud of the rolling four quarters EBITDA margin development for the last four years. We are now at 35.2%. This is a result mainly of the cost cutting, having a decent growth rate, and working very hard on the gross margins. Those are the three drivers of this, I think, pretty impressive development. Having said that, I think we should be honest to say we also have the benefit of operating in nice markets. We are not an operator in Greece. We are not in Italy. We are not in Ireland. We are not in Portugal. We are in Spain, and we are doing very well in Spain.
As you can see, where we are, that's where you expect GDP growth in the upper quartile in Europe. That, of course, helps us. What drove the growth this quarter? Mobility. Sweden continues to grow. Kcell in Kazakhstan, nearly 20%. Ncell in Nepal, 100%. And 43% in Yoigo, Spain. These are the main drivers for our growth this quarter. This is amazing. We have had now 18 quarters of growth in mobility Sweden. I think I have told you before, I have predicted it will stop. I have said I've been wrong every quarter, and I continue to be wrong. I do think, however, you cannot assume that it's going to go on forever. It's really impressive. 18 quarters. Kcell. We are now the leader in Kcell or in Kazakhstan in 3G. We have launched now 1,000 3G sites, and we have 4 million data users.
This is a real opportunity in this part of the world. I'll come back to that in a minute. We entered Nepal a couple of years ago. We have now more than 5 million subscribers, 5.4 million subscribers. We are the number one. There are only two operators, the incumbent. We have now surpassed the incumbent when it comes to GSM. Very happy with the performance in Nepal. Of course, Yoigo, the ugly duck for many years, I think takes step by step proving its performance. You notice maybe that we did acquire a license for the 1800 MHz, which sort of indicates that we are serious about playing the second half, as I use the expression, about the plan for Spain. During the quarter, we did this. This turned out to be, I think, a very great thing internally. I think it also was very positive externally.
The purpose was mainly internally to unite 18 companies or something like that to try to start becoming one company with one set of values and the same way of working. I'm very happy with the execution of the branding activity and the result of it and the response from the 30,000 employees. I was actually personally in Farsta. I have never seen Farsta rock and roll that way. They were truly happy about it. One of the benefits of the branding campaign, we were very clear on there must be tangible benefits for our customers if we're going to do a branding campaign. Who cares what the color is? We care, and I think maybe you care, but you can't expect the customers to be that excited unless there are some tangible benefits. We decided to do something we maybe should have done a long time ago.
We decided to lower the data roaming prices in the Nordic and the Baltic by more than 90%. This is an interesting, really interesting discussion because a lot of people in our company were very nervous and said we shouldn't do it. It costs us too much money. I said, I'm not sure it's going to cost us anything in the end. I stand at the Arlanda Airport waiting for the plane to Helsinki or Copenhagen or wherever I'm going, and I hear everybody in front of me and everybody behind me say, turn off your roaming. It's too expensive. That's exactly what people do. We are telecom operators. We want people to turn on their phone, not turn them off. What happened, we lowered the prices to SEK 29 for one day and then one higher, SEK 49, I believe it is.
You can see what happened on this trough. 200% growth in the quarter international roaming in these countries. I am convinced that this will continue, and I'm convinced it will cost us nothing. You can take a parallel, which I've also been doing. If you look at what a voice minute in Sweden cost 10 years ago, it cost about 10x as much as it costs today. Do we make more money now, or did we make more money then when we had a 10x higher price? The answer is we make more money now because of the volume. This is a volume industry. I think the data roaming volumes will also grow, and therefore, we'll make more money, not less. However, we talked about this several times before. The whole industry will have to rebalance the pricing models within mobility.
Not only Telia, everyone has to do it because the financial reality, as we call it, is that 80% of the invoice is for voice, while the traffic for voice is only 20%, and 80% is for data, which means that we have to change the pricing model. Prices or costs for voice will go down. I would even predict, you know, I've been a strong opponent of flat fees for data. I think everybody has realized in the industry that flat fees for data is impossible. I will now make a prediction. We will have flat fees for voice. That will be flat fees for voice. It will take a couple of years. We have to distinguish the fee for data on volume, speed, and quality. I, together with several of my colleagues in the industry, visited Brussels and Neelie Kroes last week, and we argued exactly these things.
I think there is a degree of understanding. Very exciting. The data opportunity in Eurasia is the next growth engine in Eurasia. Voice will continue to grow in Eurasia, but data is the next one. If you take Russia as a proxy, on the bottom right-hand corner, we have shown you the value-added service as a percentage of total revenue, and the gray things there are for Beeline, MTS, and MegaFon, only Russia. The penetration of value-added service is much higher in Russia than in Eurasia. That's the opportunity. I am convinced that mobile data will be a huge thing in Eurasia, also because they lack a good- fixed network. They don't have that alternative to the same extent that we have here.
Finally, I believe I said it many times, the appetite for bandwidth is unlimited, and the best way to provide that unlimited demand to fixed locations like homes and offices is via the fixed network via fiber. We are convinced of that. We are committed to roll out fiber. We have got the regulation in Sweden that we can live with. We are rolling out something like SEK 5 billion of fiber this year in Sweden and an additional SEK 3 billion in the rest in this area. We will continue for a number of years. I also find that this is very exciting. As I said, we didn't change the outlook, so there's no news there. I think I hand over to Per-Arne, and then we'll take your questions. Thank you.
Thank you, Lars. I would even claim that it's not just a decent quarter. I think it's a very solid quarter. Of course, you can see this from different angles. The underlying business in our majority-owned companies are performing very well. We are, however, impacted by two items here. First of all, as Lars just mentioned, the associates and also the currencies. Today, if you look at the result, we have roughly -6% on the impact of the quarter on FX. This has been a problem for the last, I would say, four or five quarters. We have had a very high volatility also during these times.
I assume, and I'm not a specialist on FX right now, but I assume that if we keep at the level that we are today, especially when it comes to the euro, we will have less and less of impact from FX the coming two quarters. It will level out at the end of the year, given that this keeps sort of the same level as we have today. Underlying performance is strong. What I think is especially good this quarter is that we continue to have a broad growth. If you take mobility, it's not only Spain and Sweden. We could also see growth in the Baltics. We have also seen improvement in Norway. I would say that from a market perspective, I think that Norway and Denmark have improved. Finland is still a tough market.
As I said, we have seen a broader growth rate, which I think is good for us. If we take Eurasia, we continue to have very, very good growth, especially Nepal with more than 100% in growth in this quarter. In addition to this, I think the strength here is that we actually also increase our EBITDA margin. We do that also in the business area broadband, where they have a decline of close to 7%. That's what I mean with a solid result. This is built up from a couple of different things. First of all, if you recall the capital markets day, we talked about functional cost. We are looking at costs from different angles, and one angle is to make sure that the production cost is as low as possible.
That helps us to improve our gross margin, which we have continued now to do for a couple of quarters. Even though we are, which we will come back to, are a bit sort of not disappointed, we have taken actions to make sure that our cost side will improve even more. We have had a rather stable cost development over time. If you take what we call the addressable cost base, the OpEx, it's more or less in relation to sales the same this quarter as it was four quarters ago, even though the costs are increasing at 3.5%. We have been a bit concerned that the cost development has grown, and the OpEx development, I would rather say, has grown a bit quicker than we have had on the top line. That was the reason why we initiated certain efficiency measurements at the beginning of this year.
We also started with our multi-market operation and cross-border activities to make sure that we could mitigate sort of cost increases. We have now done sort of the efficiency measurements that we have talked about. That means roughly 550 people in Sweden and 170 in Finland. The effects of this will definitely be visible in the second part of this year. If you look at the outlook, and then you're good in calculating the numbers, you will see that we will have very minor cost increases during the second half of this year. We expect to grow more or less at the same rate as we have done at the first half year. Lars showed that, but I think it's worthwhile actually showing once again. It is a good development.
The work we have done with the cost during the last, we'll say, 14, 15, 16 quarters has gained a result. We are improving our EBITDA margin quarter on quarter. We have done that now for 11 quarters in a row, which I think is very, very good. However, we are concerned by the result development in the associates. It's not only one issue that creates a weak result in Turkcell. We have three different issues. First of all, one-off items, which is connected to Belarus and the devaluation in Belarus. We have an underlying performance, which is weaker than expected. We also have an FX effect from the Turkish lira, which means that if you look at the associate results today, the contribution from Turkcell is more or less zero in this quarter. That, of course, also impacts our EPS.
As I said at the beginning, it's a solid result from the majority-owned companies. They are actually contributing SEK 9 to the EPS. Meanwhile, the associates are sort of declining with the SEK 18. That, in combination with the FX side, takes down the EPS with SEK 30 in this quarter. We have also the one-time charges non-recurring, which will not come back during the coming quarters. Meanwhile, FX will continue to impact us. As I said in the beginning, I hope to a minor or less extent than we have seen during the first half year. We continue to invest in our business, and you can see right now that we are close to 15% in CAPEX-to-sales, including licenses and spectrum fees, underlying 13.4%, which is then well in line with what we have said in our outlook.
I'm very happy that we have this year been able to start to invest from the first quarter, not waiting as we have done a couple of years before. We have been full speed already from Q1, which I think is good for the business. We are very focused on making the right investments, both when it comes to 4G and also the fiber rollout in the Nordics. However, the licenses that we have paid out and also the higher CapEx that we have, the cash CapEx that we have within the different business areas, had lowered our free cash flow down to SEK 1.4 billion. We also have a delay in Turkcell, which I think the dividend will come at some point in time. For me, this is more a political issue, and I'm not so worried about that.
Overall, I would expect the cash flow to be strong during the second half year. We have taken quite a lot of costs now during the first year, which had hit our cash flow. What I see today, I would say that the cash flow looks pretty solid also for the second half of this year. Given our payouts, both when it comes to dividends and also buybacks, we paid out more than SEK 22 billion in this quarter. That means that our net debt to EBITDA has increased up to 1.8x, close to 1.9x. It will also come down during the rest of this year. Still, we are in the range that we have talked about, 1.5x up to 2x in net debt to EBITDA. Very pleased with our debt maturity schedule. As you can see, it's rather evenly spread. We have also done more on long maturities.
It is a tough market right now if you are depending on the Eurobond market. We still have access to the market when we want, but we are opportunistic, and we take the opportunities when we have them. As you can see, in the short-term perspective, we do not have any larger refunding needs, which I'm very happy with. We could take the opportunity when it fits our needs and not be pressed into a very, very tough market. Concluding, improving trend when it comes to net sales growth. As Lars said, 18 quarters in a row in mobility Sweden of growth. We could see that Ncell now has become the market leader. Yoigo is actually reaching the 5% market share. We continue to improve our EBITDA margin 11 quarters in a row. We will see effects from our cost efficiency measurements in the second half of 2011.
We are exposed to markets with good and high GDP growth. If we take a look now at the Baltic in this discussion, it's good to see that they are growing. You could also now see, as I mentioned at the beginning, that our companies are now gaining a certain momentum that we haven't seen before. I hope that we could say that this is a trend shift going forward. With the nine change outlook, we're going for Q&As.
Thank you, Per-Arne. I will invite Lars. He's already here. Back to the podium. We will take a couple of questions here from the floor. We will start with Stefan. Please introduce yourself with your company name as well.
Yes, hello. Stefan Gauffin at Nordea. I have a couple of questions. I'm sorry to focus slightly on the negative side. I would like to start with Eurasia development, although still really strong organic growth, but it was slightly below at least my expectations. There are two markets I would like to focus on. First of all, Kazakhstan. You mentioned a price cap explaining the development. I would also like to hear if you have seen any impact from the launch of Tele2. Secondly, also the development in Uzbekistan, why the sales organic growth came down a little bit in that market. I would also like to talk a little bit around the wholesale division, which again reported weak performance. If you could talk about the development there.
If I start, maybe Per-Arne wants to add something. The good news is you were maybe a little bit surprised, but we were not. This was actually predicted by the management of Eurasia. I think they are very much in control over the business. There are different reasons. There are price caps, and the ARPU in Uzbekistan is low, et cetera. I'm not worried at all. I think this will continue to be our growth engine. We don't make predictions for what growth numbers we're going to have by business area. What we got this quarter was exactly what we expected to get. I think I feel pretty good about what we expect to get in the third and the fourth quarter. We haven't seen any impact of Tele2 yet in Kazakhstan. I'm sure we will one day.
The question is not only what kind of or what number of subscribers you have. It's also a question of who are they. You can ask people who operate in India. That's a big difference between certain customers and other customers. ARPU is sort of pretty important. We'll see.
If I take the wholesale business, then I think it contains two different parts. First, you have the international carrier, where we have deliberately taken down sort of the top line. That's still the case, but where we actually increase our profitability. I think we're up now to double or perhaps triple the result of what we have seen in the last year. We also have the domestic wholesale, and of course, they are affected by that. Our competitors are using the fixed network to a less extent. I mean, we have the drop in PSDN, and that's affecting the wholesale business.
If I allow to elaborate a little bit on the Eurasian business. If we start with Kazakhstan, there are two things from a regulatory side impacting. You mentioned yourself the price cap on retail tariffs that were introduced in mid-May. There's also a second one, and that is the move to per second billing that came, I think it was mid-March, that also had an impact. In total, I'm allowed to say by the management that that took away some 5%, 6% of the revenue growth versus the previous quarter. That had an impact. In Uzbekistan, it was a thing during the quarter where local or private entrepreneurs were forbidden to sell a subscription for a period of time. You can see that our subscription intake was lower this quarter than in the previous quarter. That is now removed or revoked.
Things are back to normal in Uzbekistan, which we see the benefit of coming quarters.
How long a period of time was that?
I think that was the full quarter.
Thank you.
Thank you.
We take the next question from Andreas.
Hello, Andreas Joelsson , SEB Enksilda. You said you wouldn't comment Turkcell anymore, but I try my luck.
OK.
On operations, what would you like to do that you cannot do today to improve the margins?
I have no influence on operations at all. I mean, we have two board seats. This is an associated company. Therefore, we have to accept that the responsibility lies with the board of directors. That's why I'm focusing on what kind of board of directors should we have, what should they be focused on. I should not stand here or anywhere, by the way, and start telling people in Turkcell what they should do. That's not my role. That's not my responsibility either. I'm just not happy with the performance.
If you give the microphone to Lars.
Thanks, [Lars. Rutherfield, Olaf's Bank]. I stay on the subject of associated companies. MegaFon, there were some one-offs. There were some currency impact. Could you give any comments about the underlying trends that you see in the Russian market for MegaFon in particular? Perhaps also share with us if there's any progress whatsoever in the discussions about the ownership situation there.
First of all, the ownership situation that we said all along, we'll focus on Turkey first. I think that's the most important. I think, in a way, both the most complex but also the easiest, so to say. We'll focus on Turkey. I don't have anything to report on MegaFon. I think, contrary to Turkcell, I think if you go back four years, the performance of MegaFon is spectacular. I think they've done a really good job. The fact that, supported by the board of directors, they decided to take a leadership position in mobile data was a very smart move. You could see on my picture, I don't know if you observed it, but they had the highest share of mobile data in Russia. They were the number three players up to, what is it now, a year ago? They became the number two player.
You know, the Russian economy is helping the business, of course. It didn't do that a couple of years ago. I'm very pleased with the performance of MegaFon.
I guess what I'm aiming at is basically you don't see a risk right now that you can see the same type of deterioration in margins as we have seen in Turkey. I mean, the underlying trends are still positive.
I think they are positive. I think if you want to be fair, and maybe I should add that, if you look at the EBITDA margin deterioration in Turkey, it's not wholly done by the company. It's also the regulator has been very tough. Part of it belongs to internal reasons. I don't foresee that kind of activity in Russia. We have three strong competitors, plus a fourth or a fifth. I think the competition is pretty fierce in Russia. I don't foresee the regulator to do anything like they did in Turkey. Don't forget, Turkcell had something like 60%+ market share. That normally, you know, indicates that the regulator will come through.
You asked about the Russian business. They still have double-digit top-line growth. They had some hit on the margins when they integrated the retail chains, but I think it's more stabilized right now. I think they're doing a good job there.
Which brings me on to the second question. How about Eurasian margins? I mean, we saw some actions from regulators putting some tariff caps and so on into place. Going forward and looking at the margin levels are pretty good right now. I have to say 52% almost. What do you think is the risk that margins will start to drop in the years, quarters to come down to, say, levels similar to what we see in Europe for, say, prepaid business?
Tera said on the Capital Markets Day that over time, the margins will come down. They probably will come down below 40%, maybe not down to 30%. I think we'll make it up in volume. Again, I think we'll make it up in volume. How fast will they come down? I don't know. I don't think it's going to happen next quarter. If you take five years from now, the margin will be lower. That's for sure.
Nothing that you see right now coming up.
No. Yeah, actually, they protected the margin very, very good. They did not involve in subsidizing handsets and all this stuff. That's a big difference compared to the Nordic markets.
Thank you, Lars. We have tons of questions from the conference call. Please, operator, can I have the first question?
Thank you. Your first question comes from the line of Peter Nielsen from Cheuvreux. Please ask your question.
Thank you. Peter N ielsen from Cheuvreux . A couple of questions, please. Firstly, as announced at the Investor Day last, you're moving, or at least have the ambition to move from all your six network operation centers in the Nordic and Baltic countries on the mobile side into one by the end of this year. Is this on track? Is this still your target to have this completed by the end of 2011? My second question, when would you be prepared to give us a bit more information operationally, technically, and financially on the network sharing agreement with Telenor in Denmark? Thirdly, just a question for Per-Arne. Again, in this quarter, we are seeing a large negative adjustment on the working capital side in the free cash flow of more than SEK 1 billion, which seems to be a recurring item now.
Could you elaborate a bit on why that is, Per-Arne? Thank you.
We haven't changed our ambitions. It was only three weeks ago, I believe, or four weeks ago. We had that meeting, so we don't change goals that easy. On the Danish, I think it's important that you understand we didn't do the networking cooperation with Telenor in Denmark to immediately save a lot of OpEx or immediately save a lot of CapEx. I think it's more over the longer term to ensure we have a better quality in the network at the same or lower CapEx. It's actually future CapEx to improve quality that we are saving.
When it comes to working capital, for me, it's very much a question all facing. I mean, the working capital contains basically all the accounts receivable and accounts payable. Given the huge volumes that we are working with, you could have one or two days could mean quite a lot in this. It's more or less the same negative amount this year as we had last year at the same time. For me, it's more a question of timing than anything else.
OK. Thank you.
Thank you, Peter.
Operator, can we have the next question, please?
Your next question comes from Maurice Patrick from Barclays Capital. Please ask your question.
Hi there. At the Capital Markets Day, you made the point about E.U. regulation. You made the point for the E.U. perhaps needing to ease the regulatory burden and perhaps see higher termination rates. It appears they've listened with the announcements this all last week. Just curious to get your reaction, Lars, in terms of what was announced, especially regarding the potentially more hands-off approach taken by the E.U. towards the free-riding over-the-top players. Thank you.
I don't think I have an answer that is sort of two sentences, and it makes everything crystal clear. I think there is an openness in Brussels and understanding that if we are going to be able to deliver on the objectives set by the Commissioner, Neelie Kroes, that everybody in the EU should have either 30 Mbps or 100 Mbps broadband connection by 2020. If that's going to happen, somebody has to put up something like EUR 200 billion. If somebody is going to put up EUR 200 billion, that somebody would like to have a return on that money. That's been our argument. Of course, over-the-top players cannot have a free ride. Somebody has to pay. I argue that in Brussels that the consumer will have to pay for volume, for speed, for quality.
I also think there is a possibility that we could have what we call a two-sided business model whereby some suppliers of apps could also pay. I'll try to explain what I mean by that. Take for a second the thought that you are a supplier of a gaming app. Latency times are very important in gaming. If you are supplying this gaming thing online, maybe you would like to ensure that your customers, the consumer who plays, has the best quality to ensure you can really enjoy this game. I could envision some gaming company saying, I will pay for latency at the best quality, like the one to 800 number. I want a number. Anybody can call me, free shot for them. I'll pay for it.
There's no doubt in my mind that the absolute majority of the revenues who is paying for this is going to be the end user. There's no discussion about it. I think there is an understanding in Brussels that at one, there's a lot of money to be invested. Two, there must be a convincing business case. Three, somebody has to pay, and it is most likely the majority is paid by the end user. That's where we are with Brussels, I think. I hope I gave you some hint or answer or some information that was useful to you.
That's great. One quick follow-up. On Turkcell, sorry to come back to it, but if you don't get the agenda item added in terms of increasing the number of independents, what options are open to you? How strongly will you put them? You made the point that you expect the dividend to come. That's obviously something which is in your gift.
I will not speculate what I will do when something that will happen won't happen. I just assume it will happen. It has to happen. This is the icon of Turkey. It's not us, actually. It's the Capital Markets Board, the SEC of Turkey, who has been asking for years to increase the number of independent directors at Turkcell. We have been saying, yes, absolutely. Cukurova said, absolutely not. I think it's time for the authorities to show who decides these things. 35% is float in Turkcell. That's their argument. They think there should be more than one independent director, especially as the so-called independent isn't independent anymore. I just assume it will happen. I certainly will try to help it happen.
Thank you.
Thank you.
Thank you, Maurice. We take another question from the conference call.
Your next question comes from Ulrich Rathe from Jefferies. Please ask your question.
Thanks very much. Two short questions, please. First one, following up to Stefan's initial question on the wholesale fixed business. Just to clarify, have you changed cost allocations between the wholesale and the retail business, or transfer pricing between the wholesale and the domestic retail business in any way? The second question regards Norway. You had a very good EBITDA result there with a good margin. You're commenting in the report that you're seeing signs of the competitive situation stabilizing. My question is, is the result we are seeing in the quarter already a manifestation of a stabilizing competitive situation, or is that something you observed only towards the end of the quarter and you would expect trends to improve in the second half beyond what we've seen in the second quarter? Thank you.
May I ask for that?
Absolutely.
About Norway, what I said was that I think we're seeing a better situation in both Denmark and Norway than we have seen before. How long that will last, you never know. It depends on what happens with our competitors. For the time being, it's good to see sort of the development in Denmark and Norway. Then when it comes to cost allocation.
We haven't done any changes in cost allocation.
Thank you.
Thank you, Ulrich. I'm looking for questions here from the floor, but there appears to be none. We continue with the questions from the conference call.
Thank you. Your next question comes from [Andy Parness] from UBS. Please ask your question.
Yeah, hi guys. It's [Andy Parness] at UBS. I have two questions, one of which is a follow-up. The first one was on Swedish Mobile. It looks like the strong performance of Swedish Mobile was primarily due to actually growing voice revenue. I think on one of the slides, slide seven, it's up 2%. How long do you think you can continue to grow voice revenues in Sweden? It looks like that's really the main driver of the strong growth rather than sort of higher data growth than some of the other European markets. The second question, just sort of a follow-up on Maurice's question. In terms of looking at sort of a two-sided pricing model, have you had any conversations yet with any of the suppliers of apps? Were you them actually paying for quality over your network? Thanks.
I'll take the last one. I showed a slide here that we really have to change the pricing model. It's still a conceptual discussion. I think everybody understands the direction we're going. We're not ready to implement all these things and certainly not the two-sided model. I think the most important thing that we need to get an agreement on and understanding from everybody is mobile prices will be not flat. They will be differentiated by volume, by speed, and by quality. I think we are slowly getting that kind of acceptance in the total industry. That's more important than whether it's two-sided or one-sided. Even if it's two-sided, I said before, and I want to underline that, it is the end user who's going to pay the majority of the cost.
Yeah, when it comes to the voice business in mobility, yes, you're right, 2% growth. Of course, that helps the growth for the whole Swedish operations, given that it's more than 50% of voice. It's difficult to predict how long that could go on. As long as we have a transition from fixed into mobility, I think that would be a help. It's just a question of how we could keep up the price levels.
OK, thank you.
Absolutely. We continue with questions from the conference call.
Your next question comes from Barry Zeitoune from Berenberg. Please ask your question.
Hi, good morning. It's Barry Zeitoune from Berenberg here. Just two questions, please. The first is Spain. We've seen increased competition over the quarter, yet at the same time, your churn has come down. Your net additions have continued along a good path. Do you feel that there isn't any need to respond in pricing to your competitors? Is your current price differential enough to keep growing at the current pace? The second question is looking at your broadband. I was just wondering what the initial uptake is from SDUs to your fiber-to-the-home proposition. Also, extrapolating that, given that a big chunk of the SEK 5 billion fiber spend that we expect in Sweden over the coming years is to do with SDUs, do you think that current revenue and margin estimates are taking the upfront payments from those SDUs properly into account? Thank you.
In Spain, when we were confronted with the moves by the competitors, we and the local management there took a decision that we thought we could handle that without moving our prices. You just confirmed that that is exactly what happened in the second quarter. We will continue to monitor this. I believe that Yoigo has an extremely strong brand name in this segment of the market, and we will be cautious. If need be, of course we can, because we have a very light cost structure in Spain, so we are very flexible. As I said, if need be, we'll see.
When it comes to the fiber, the uptake that I think is necessary, and that we see right now, is roughly 20%- 25% that you need as an initial phase. What's in the estimates for if people take the upfront payment into account, I don't really know. It's a pretty big range. We said that we asked for roughly between EUR 1,500 up to EUR 2,500 for an upfront payment. Of course, if you could get that, then I think the pressure on the cash flow is, of course, much less than if you go for MDUs.
Can I just ask a follow-up? If you don't get that, then I assume your CapEx forecast will be significantly lower.
CapEx for?
CapEx for fiber.
If we don't get the take-up that we assume, we would still.
Yeah, for the take-up. Yeah, of course. I mean, if you don't have, because, I mean, we need to, as we showed on the Capital Markets Day, we need to get up to more than 50% over time.
OK, thank you.
Thank you. Thank you, Barry. We take a question here from a follow-up from Stefan.
Yes, Stefan Gauffin, Nordea. Just a follow-up on that question regarding the upfront payment. How will that be booked in the profit and loss statement? Will that be in the wholesale division? Will you take the total upfront fee?
I think, first of all, yes, it will be taken. I suppose it will be taken in the wholesale division. I don't know, [Kristen], if we are spreading it out over time, over the contract period. Otherwise, you will have an enormous impact on the results.
Yes, that was the reason for the question.
Yeah, yeah.
Thank you.
Operator, can we have another question?
Your next question comes from the line of [Laurie Fitzjaune]. Please ask your question.
Morning. Thank you. Firstly, one question on Sweden. I see that sort of the handset sales have picked up this quarter after a slightly weak quarter last in Q1. I just want to check if it's mainly from Tele2 being less aggressive, or have you also increased handset promotions in the quarter? Secondly, on Denmark, I noticed that service revenue has worsened somewhat to -12% offset by very strong handset revenues. I was just wondering if you could explain a bit more detail on the dynamic going on in this market with this shift in the service revenue impact. Also, I mean, you mentioned stabilizing prices, yet TDC did cut prices quite aggressively only two weeks ago. I just sort of clarify that you didn't see that as a big impact or a risk to your pricing. Thank you.
I can take both of those questions. Starting with the handset in Sweden, I think that we were quite clear on that on the investigation three weeks ago that the equipment sales would pick up this quarter. It was more due to availability of handsets that dragged us down a bit in the first quarter. Now we got the availability that we wanted in the second quarter, and that's where you can see the improvement. On Denmark, we are aware of the price cut that we have seen from both Telenor and recently also TDC. We feel on the margin that things are a bit more positive. You have a number of events in the second quarter in the Danish market, the acquisition of Onfone, for example, our network JV that we announced with Telenor. We have also scaled back subsidies in our own channels.
On the margin, we feel that the Danish market is improving a bit, although it's probably the worst of our markets when it comes to price competition. The question is if prices can come down very much further from the low levels that we are already.
Great. Thank you.
OK. We take another question from the conference call.
The next question comes from Lena Österberg from Carnegie. Please ask your question.
Yes, good morning. I was wondering a little bit on, first of all, revenue growth. I think you're at 2.8% local currency for the first half of the year. You reiterate your guidance for 3%. You're very close to that. At the same time, you have tougher year-over-year comps in the second half of the year. I was just wondering, when you said that you are more confident on the Baltics, what other areas do you see sort of better growth in for the second half of the year to be able to reach your 3%? I was also wondering, on Swedish Mobile, if you could say something about the equipment sales growth. You say that it's higher this quarter, and I can see that also in the chart that you've provided. I was wondering sort of how much of the 6% is equipment sales.
Finally, on cost cutting, my understanding is that a vast majority of the people were laid off already at the end of April. How much of a full run rate could we expect already in the third quarter on the cost cutting?
If I start with the last one, no, they weren't laid off in April. I mean, the effect will come from July and onwards. We have not had any effect on that in the second quarter.
I think you announced them. I mean, they were announced or whatever in the end of April. You should have the effects, most of it, in Q3, right?
Yeah, that's right.
Will you have a full effect in Q3, or how much of a full effect?
Yeah, you will have the effect because we have taken the charge now in Q2. You will have the full effect from Q3 and onwards.
Perfect.
There was a question on handset sales in Sweden. I think that was about 1% on the growth rate in the quarter. You asked about the comps. It will be tougher comps for the second half of the year, right? I also hope that, as I said, a broader growth in mobility could help. I would also expect that international carrier, which started to take down their top line, I think it was in Q4 last year, will also help a bit, because that's what's actually affecting very much of the broadband business.
I think Eurasia will have to contribute.
Yeah, yeah.
OK. Thank you.
Thank you. Thank you, Lena.
Thank you, Lena. Another question from the conference call.
Your next question comes from Jacob Bluestone from Credit Suisse. Please ask your question.
Hi there. I've got two questions. Firstly, just returning to the wholesale division. Given the deterioration in the business and the sort of sharply negative revenues in EBITDA, do you think this makes the disposal more likely or less likely, given the comments that you made at the Investor Day, that you were potentially reviewing a sale of the asset? Secondly, there have been some press reports about MegaFon making further large fixed-line acquisitions in Russia. I was just wondering, what's your thinking about that as a shareholder? Is that something you support?
If I start with the wholesale business, as I said at the beginning here, it contains two different parts. You have the domestic business and the international carrier. The international carrier has actually, even though they have taken down their top line, they are earning more money today, which I think is the right way to do this. We will see what is happening with this business during the coming half year. Of course, we will look at that as we are looking at all other businesses as well from a strategic perspective.
I just want to paint with some numbers there, because the carrier, the business is down 20% on revenues. At the same time, the EBITDA margin is up from 2%- 6%. The management is doing exactly what we have requested for them to scale down revenues and focus on higher margin business.
On the MegaFon issue, more general, I think the fixed network is a crucial asset for a telecom operator for the reasons I have stated even in this meeting. Whether we support that in MegaFon or not, that's something for my two colleagues who sit on the board to discuss with the board, because it's a board decision. It's not our decision. I don't want to make our positions or opinions public on that level.
Got it. Thank you very much.
Thank you.
We do have another Swedish operator with a press conference later today. We have about 10 minutes maximum to finish this. We will continue with some questions on the conference call. Operator, please.
Your next question comes from Dominik Klarmann, HSBC. Please ask your question.
Yeah, thank you. Two questions left. Firstly, on Swedish fixed, just to check if there is any news from the Swedish regulator on fiber regulation. More specifically, do we know by now if PTS is going for ex ante cost plus or ex post retail minus regulation? Secondly, just to update on your M&A policy and shareholder return, any news there now as you went away from the Polkomtel deal?
Yes, we have information or decisions from PTS. I don't know exactly which methodology they used. For me, the most important is that we can live with the regulation. We think that it will give us a chance to have a return on our investments in fiber when we allow colleagues or customers, competitors, pick your word, to use our network. They will have to pay an amount of money that allows us to return an interesting return to our shareholders. That concern is pushed aside a little bit. We'll watch it, continue to watch it. Now we go full speed ahead with the rollout.
When it comes to the shareholder returns, I mean, our policy remains. We have said that we should return at least 50% of our net profit. If we have excess cash, we will return that, which we actually did just two months ago, SEK 10 billion extra. Now we have a net debt to EBITDA of 1.9, and the range should be somewhere between 1.5 up to 2. We do not start to talk about returns yet. I mean, we will see what happens with the development, both in the market, the debt market, and also in our industry.
You also talk about Merger and Acquisitions. The policy, the prime target continues to be that we would like to increase our ownership in core holdings. That's the first priority we have. We will look at neighboring market and in-market consolidation. Those candidates we are always interested to look at. We are pretty prudent and careful. We'll let a few things pass. Maybe someday we'll buy something.
Thank you, Dominic. There is a slide actually on the Investor Day presentation where you can see the regulation from PTS and where we highlight the positives and the negatives in our view from that decision. I think it's slide number 25 if you go back to that material. OK, we take another question from the conference call.
Your next question comes from Akhil Dattani, JP Morgan. Please ask your question.
Yeah, hi. Good morning. Just a couple of points of clarification. Firstly, just returning to the wholesale division. Given your comments on how you're hoping for a recovery in the international wholesale unit in H2, can you just clarify and remind us when that business really entered the double-digit decline phase, just so we know when that annualizes and how we can think about that division into H2? Secondly, on MegaFon, you've mentioned in the press release the inventory write-down that you suffered in this period. Can you just tell us how much that is and what it relates to, just so we can see what the underlying contribution is? Thirdly, on the Sweden mobile margin, clearly very strong performance in this quarter.
I guess just looking for a bit of granularity on what cost efficiencies have contributed to that and whether you feel there's any sort of read across that we could apply to what you might be doing in some of your other Nordic markets. Thanks.
If we start with the margin in mobility, which was close to 45%, if I recall this correctly, a bit on the high side. I don't think that you should expect that to be at that level. They have been around 43%. It's sort of different factors now in the second quarter that made this a bit higher. I think 43% is what we have seen. When it comes to the international carrier, I recall I think it was later in Q4 that we were in the middle of Q4 last year where we started to take down the top line in the international carrier business. The write-down in MegaFon, I can't recall exactly what kind of inventory that wrote down, but the effect was SEK 72 million in the quarter, Akhil.
OK, thanks.
OK. I think that we have a couple of more questions. We try to finish them all before we close it here. Operator, please.
Your next question comes from James Britton from Nomura. Please ask your question.
Thanks very much. Just one question, please. Lars, you mentioned in the presentation that you're surprised that mobile keeps growing in your home market. I mean, I guess could you just clarify in your expectations for how ARPU develops as we move into flat-rate pricing on voice? Also, are we to expect mobile growth to now slow in the second half? Is that what you're expecting? Thanks.
No, I'm sort of making a bit of a joke about it because I don't like to be wrong. I've been wrong sort of 15 quarters or something like that on Swedish mobile growth. If I'm wrong, I prefer to be wrong this way than the other way. It actually started with me pushing the management to look at cost because you know when you have growth, if you have a growth of 5%, 6%, it covers up a lot of mistakes or potential mistakes. I was saying to the management at that time, assume you don't get any growth because it will happen soon. What are you going to do about the cost structure? That's how we had the dialogue. It never happened because the growth continued. I continue to use my argument. I'm not expecting the growth to slow down in the second half.
We should make clear that it is the voice business growing 2% that is the big difference between other markets because typically a typical market is growth in mobile data but declining in voice. Therefore, the growth is maybe 2% or 1%. We have 2% in voice and data on top of that. Therefore, we get the 5%, 6%, 6.5%, or whatever it was. I don't see any signs yet. As Per-Arne said, the transition from fixed voice to mobile voice supports, of course, the voice business in mobile. It hurts us, of course, in the broadband side. I don't see any signs of change. I will continue to argue we need to look at the cost in mobile.
OK, thank you.
Thank you.
Operator, please.
Your next question comes from Jacques de Greling from Natixis. Please ask your question.
Going back on the pricing on voice in Sweden, when you look at the KPI on minute view, you see 2% growth, and you are registering according to an increase of revenue of 2%. Voice pricing is flat in Sweden. Is that correct?
Thinking about mobile.
If they are flat, it's positive. I think prices are always down in voice, but it's made up by volume.
Last year, if I remember, in Sweden, prices were down only 3% versus - 10% or 15% on average.
That is true. That is absolutely true that the price situation in the Swedish mobile market has been good. I think we can claim a bit of fame for that because we are the market leader. As the market leader, you have to act responsibly and put up an umbrella, which we have done. Sometimes you take a hit for it, but over the longer term, I think it's good for us.
ARPU has been very stable in Sweden. If you even look at sequentially quarter on quarter in Sweden, they actually improved slightly in the second quarter.
If I simplify a bit, if you take the ARPU divided by minutes of use and look at that compared to last year, you will see that there is a price erosion of about 3%, which is better than in the previous quarters. There is always an underlying price pressure in the markets.
Thank you.
Thank you.
Thank you, Jacques. We have two more questions. We take both of them before concluding here. Operator, please.
Your next question comes from David Wright from Deutsche Bank. Please ask your question.
Yeah, just quickly, I noted, Lars, you made some comments about not really influencing Turkcell and the operations of Turkcell. Do you feel like your boardroom presence has a valid influence over the operation of that business at this particular juncture?
Yeah, we are the biggest owner with 38% of the company. Of course, we should have a couple of board seats. We have very competent people on them, but we have a deadlock between the different owners. That's the problem.
Do you think that you have operational influence today through the board?
Not really. I don't think anybody has.
Is there a case for sort of deconsolidating the asset down to investment level?
No, no. Now we're going to do exactly what I said before. We're going to strive for what the CMB has asked for. We need more independent directors on this board. We certainly need an independent chairman. If you get there, we resolve the deadlock. If the deadlock is resolved, we'll get a functioning board, and we can start talking about the real issues, which is the performance of the company.
OK. Thanks.
Thank you.
OK, operator. Let's see who the lucky one is for the last question of the day.
Thank you. Your final question comes from [Michonne Parn] from Crédit Agricole. Please ask your question.
Very quick question on the wholesale division. You spoke about what happened at the international carrier division. Anything specific on the domestic side?
On the domestic side?
Domestic side. I think, as I said at the beginning, I think it's more that PS10 is going down, and our competitors are buying less of this. They are less sort of focused on the fixed-line.
OK. Buying less, is it meaning by renting lines, or?
Yeah, exactly.
They lose customers. They lose the Swedish PSTN customers, and they don't replace it with the triple play yet, at least.
OK. Thank you.
Thank you. OK, we conclude it here. I wish you all back here in a couple of months' time. Have a nice summer. Thank you.
Thank you.