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Good morning, everyone, and welcome to Elisa's First Quarter 2018 Analyst Meeting and Conference Call. My name is Vesa Sahivirta, Head of Investor Relations. And here is a very familiar team with me, CEO, Veli-Matti Mattila; and CFO, Jari Kinnunen; as well as some of my colleagues and audience, of course.We'll start this meeting with the presentation, and after presentation, we take Q&A. And first, we take questions from the audience here and then from the conference call lines. Veli-Matti will go through the interim report highlight, and Jari will go more in financials. I think we are ready to start, so Veli-Matti, please.
Thank you, Vesa, and welcome to Elisa's first quarter 2018 result review on my behalf as well. I'm glad to report that we had a record quarter again, very good revenue growth and the result revenue growing by 8%, of which organic growth was 2%. We saw very good growth in both customer segments. Comparable EBITDA was growing by 8% and earnings per share was growing 11%. Mobile service revenue was growing 4%, which also shows how the demand for higher speeds continues to be strong.Postpaid voice churn was coming slightly down from previous quarter to 19.2%. However, competition has remained keen in our market, characterized by continuous different kind of campaigning. Postpaid mobile subscriptions were increasing by 900, while prepaid was going down almost 25,000. In these quarters, the prepaid normally is taking a bit toll. But when we are closing to summer season, we expect prepaid also to pick up again. Fixed broadband was coming down by 4,100, and we have done also experimentations with 5G technology. We were first in the world to test 5G terminal devices in pre-standard 5G network also in a moving car in the city of Helsinki.Revenues were growing based on the mobile service revenues increase as well as the acquisitions. And also in the Estonian market, we saw organic growth. EBITDA was driven by, of course, the revenue growth but also our continuous productivity improvements in different parts of operations. Mobile service revenue growth was 3.9%, to be exact. We still -- we continue to have very good demand for higher speeds. Also, our premium subscriptions are very well received by customers and continuous increase in those subscriptions is happening. We did also some product changes. However, of course, the competitive situation in the market is taking a small toll on the mobile service revenue growth at the moment.EBITDA was increasing also due to this revenue growth and efficiency, as we said. In regards to ARPU, we had ARPU growth from first quarter last year, slightly down from previous quarter. Churn, we also already went through. We have a bit higher levels of churns comparing to maybe earlier years and remains to be seen how the competition is continuing.When we look at our business segments, consumer segment was growing by 7%, and EBITDA in the consumer segment by 9%. In the Corporate Customer segment, the growth for revenue was 10%, and EBITDA, 6%, respectively. In both segments, the mobile service revenue is -- revenues are generating growth as well as our acquisitions from last year. The digital service businesses, especially Elisa entertainment, IPTV, as well as the IP services, they are generating growth as well as the equipment sales in both segments. And the traditional fixed voice business continues its slow glide back, impacting negatively as in earlier quarters.We have generated already some results based on our focused -- 3 focused area strategy, and we continue to see great potential for executing that. We are, on one hand, improving our customer experience for our services, but also at the same time the quality and productivity, providing profitability improvements in different parts of the operations. We are accelerating our digital service businesses. We have also some very interesting opportunities to have international services that we are testing at the moment also with customers, Elisa Automate and our self-organized network products, for example. And we continue to push the growth for digital service businesses, which actually are growing with a faster growth rate versus the traditional telco business of ours. However, saying that, we also have the third area to focus on is, of course, to provide value to customers and shareholders with the expansion of data services, both in fixed network, but especially in the mobile side by selling higher speeds with higher prices.In the 4G business, we see the smartphone penetration continuously go up. It is driving, of course, a enlargement of the base of customers where we can sell data services and data services with higher speeds. 64% of our subscribers are already in the fixed monthly fee subscriptions. So the business model transformation is already very well underway and beyond the point of 50%. And in terms of the customers being in different speed categories, now we have 58% of our customers at least to the lowest level of 4G. So it means that on one hand, we have still a very good potential to bring customers to the lowest level of 4G speeds, but also we have, as said, seen customers move very well to the premium packages with higher speeds and unique roaming opportunities.And finally, about our outlook and guidance, we see that the macroeconomic environment in Finland has improved, but there are still some long-term structural challenges in the Finnish economy. Competition remains challenging. We reiterate the guidance we gave in the report of fourth quarter last year. For this year, revenue will be same level or slightly higher than 2017. Comparable EBITDA, also same level or slightly higher than 2017. And our capital expenditures will be maximum 12% of revenue.And then I give the word to Jari, please.
Thank you.As said by Veli-Matti, there was strong growth both in terms of revenue and earnings. So it was continuation of good quarters already longer time. If you look at revenue, EUR 450 million, there was some growth of EUR 34 million or 8.1%. And of course, acquisitions had a positive impact. The impact of those was 5.8%, and organic growth was 2.3%.In EUR 34 million revenue change, interconnection and visitor roaming was flat. Equipment sales was contributing EUR 3 million. Then service revenues without the equipment sales and interconnection and roaming in both customer segments were growing EUR 15 million in consumer segment and EUR 16 million in corporate segment and positive contribution from mobile service revenue and digital services growing a negative impact in -- from traditional fixed line services. Comparable EBITDA growth was 8.3%, EUR 12 million, to EUR 156 million. There was difference to reported EBITDA of EUR 2 million, and that was a restructuring cost relating to personnel reductions.EBIT growth was 9.8%, comparable EBIT growth to EUR 97 million. And good growth continued in earnings per share, 11.2%.Estonia growth figures: revenue, 75%; EBITDA, 74%. Of course, positive contributions from Starman and Santa Monica acquisitions. Also, mobile service revenues are growing, and like in Finland, good demand for data and higher speeds. Competition also in Estonia is keen and postpaid voice churn increased somewhat to 14.1%. Subscription numbers in fixed broadband were at the same level as end of Q4. In mobile postpaid, there was 2,000 decrease in subs.And acquisitions -- or integration work of Starman and Santa Monica is progressing very much according to plan and original synergy estimates are very much valid: Starman, between EUR 4 million and EUR 6 million by the end of 2019; and Santa Monica, EUR 4 million to EUR 5 million, end 2019.There was also a positive change in EBITDA margin in Estonia to 33.1% from previous quarter.Then if we move to CapEx. CapEx to sales was back to 12% level from previous years, slightly higher levels, and CapEx was EUR 53 million. And between segments, consumer segment, EUR 35 million; corporate segment, EUR 17 million. And main CapEx areas relate for 4G capacity and coverage increases and other network and IT investments.Then if you take look to cash flow, which was EUR 52 million, positive impact coming from higher EBITDA and lower investments in shares. There was a negative impact through net working capital change and very much driven by lower payables. End of last year, we had high payables, accounts payable among the others, due to higher CapEx in Q4 '17. And now those payables were paid, and this had impact to net working capital change. Also, share-based incentive plan payments were somewhat higher.Cash conversion through operative -- operating cash flow was very strong, 66%, which is one of the highest in the SAC.Then if you take look to balance sheet and debt levels, net debt continue to reduce, was EUR 1,018,000,000. Net debt-to-EBITDA, 1.6, very much in the range of target levels, which is 1.5 to 2. Equity ratio was also in line with target with -- and was 42.9%.Positive development continued also in return on equity, 31%, and return on investment, 18%.Last week, AGM decided according board proposal relating to dividend, which is EUR 1.65 per share, 10% growth against last year. Total amount is EUR 263 million, and dividend payment date is 24th of this month. And this represents a payout ratio of 89% to EPS, excluding one-off items. There was also authorization for 5 million share buyback.Then a few changes in reporting. So we made smallest revision to mobile service revenue calculation, and this was mostly driven by IFRS 15 change, which started beginning of this year. And we have restated mobile service revenue in the operative data Excel workbook. So the history is calculated with the new method. And on average, mobile service revenue is 1% lower after this change.There was, this week, agreement between operators relating mobile termination rate changes, which will happen 1st of December this year. So the current mobile termination rate, EUR 1.25, will reduce by 26% to EUR 0.93. And we estimate annual impact to revenue approximately EUR 10 million negative and no effect to EBITDA after this change.And now I will give to Vesa, please.
Thank you, Jari, and now we move on to Q&A.
And first question comes from the audience and Sami, please.
Sami Sarkamies, Nordea Markets. I have 2 questions. Can you help us to understand the competitive landscape a bit more? You seem to continue to lose customers on the consumer side of the business, even though you've been very aggressive with your measures against more lately. On the other hand, you're able to offset this on the corporate side where you seem to be competitive. So what are the dynamics there and any color would be helpful?
Well, the competitive situation, as we all have seen, is a bit more fierce these quarters now. And our competitiveness, however, is very strong. For example, based on the best network quality and many other factors, we actually haven't lost customers to competition. We have mainly lost in the prepaid where the seasonality is clearly this quarter's dropping the number of prepaids. And then the measures we have done in the product changes have dropped our passive subscriptions. So in terms of losing to customers, it's really, really not happening. And we will make sure that we will keep our share of customers at any customer segment at the moment. This competition, of course, time to time is a bit more fierce. This is not the first time we see a situation where there's a player in the market who thinks that, by campaigning, they can win market share. It's not going to happen, at least, on our cost. Our competitiveness is strong, and we continue to develop that further on.
Okay. And then second question on mobile service revenue growth. There was slowdown from 6% in Q4 to 4% now in Q1. Do you think there is a risk of further slowdown in the coming quarters? And can you open up the reasons a bit? Because you should be still benefiting from this premium subscriptions, thinking of the up-sell.
The mobile service revenue growth is exactly in the range that we have told. And we believe that -- and there is a strong demand for higher speeds and better bundles at the market. However, it is quite evident that the campaigning has its impact for mobile -- optimal mobile service revenue growth. We will see how it plays out with other players, but of course, it has some impact. However, like said, we see positive development for the mobile service revenue growth going forward. And it's not about the demand. It's more about the competitive situation at the moment.
Okay. Then third question regarding 5G. There are plans to issue license in Finland by the end of this year. Can you share any more data on this that, I guess, there's going to be some kind of auction in the second half this year?
Well, the best response you will get from the ministry, they will decide on the rules and the timing. But yes, it's expected that we will have an auction for 3.5 gigahertz frequency area for 5G during this year. We have continuous discussions with the ministry in terms of the needs of ours. And of course, we are bringing urgency. We are very keen to have those frequencies as early as possible, even if we still see that we are in an experimentation phase, still 1, 2, 3 years for the 5G implementations. There will be some pre-commercial pilot tests and experimentation, maybe not so much about the technology, but rather about the business cases and use cases where we can really bring value based on the better performance levels that we can get from the 5G comparing to the 4G, which we, at the same time, we are developing. And we have the fastest network in Tampere, and we are building in Turku as well to get 1 gigabit per second speed levels, but lower latencies with the usage of the latest 4G evolution. So there's a lot of things we can do with 4G. But of course, with the 5G and with the frequency, we will get -- we can do even more and we are keen to get to the experimentation with customers, with application developers of that.
Next question comes from Artem.
Yes, Artem Beletski from SEB. A couple of questions also from my side. So first of all, starting with churn levels in Q1. Has there been any sort of clear trend, what you've seen basically happen within the quarter? Or has situation become more normal looking at, for example, April development?
Well, the first quarter still was a quarter with higher intensity in the competition. And that competition -- competitive situation is not driven by Elisa. We are rather focusing mostly our efforts to create value to customers and not to compete with price. But we can compete with price, and we will defend our market position. And like discussed earlier, we have seen these developments of sometimes having a bit higher competitive situation with the prices. And we have always been defending our position as we will do going forward. How long this bit higher churn levels will be sustaining remains to be seen. But a good proportion of the churn, like it has been pretty much in the earlier quarter, is coming from the passive subscriptions not going to competition but going out when we have made some product changes for the usage-based subscriptions, for example. So there is 1 to 2 percentage points that the churn is higher due to these product changes, which are net positive in terms of the revenues and profit.
Yes. And then maybe second question regarding what comes to FICORA's proposed fiber wholesale price regulation a couple of months back, if I remember correctly. What kind of implications do you expect out of it? Does it really reduce the investment case, what comes to your fiber investments going forward? Or do you expect any impact out of this development?
For the first, it's, of course, very difficult to regulate the wholesale pricing. But as you know, we have -- we have -- we will complain about that to the court. We don't think it's -- this -- the calculations for the wholesale prices for different operators are done based on real costs and that it would be wise to have one average pricing in Finland where the cost levels for building fixed infrastructure are very different in different parts of the country. And especially when this calculation is not based on costs that have happened, it's based on some speculation of future costs, and that is creating some differentiation for these prices between the operators, which is, we think, wrong. And that's why we believe that there's a case to the court. We will see. These prices will take place. We have to take a look how the market is developing with these prices while the court is looking at whether the prices are right. And of course, when we have so big differences for the wholesale prices for the operators having really closed market shares and everything, it is not really the best, let's say, attraction for us, and it is not increasing the attraction for building fiber. We, of course, are building, but it is something we have to consider going forward, how the regulator really wants to motivate different operators.
And then maybe last one from my side. What comes to Q1 growth in terms of revenues, it was 70/30 EBITDA and organic growth. What comes to EBITDA growth of 8%? How big portion of it was still relating to Starman and Santa Monica acquisitions?
Well, the -- like we said, 2 million -- 2 percentage was coming from the revenue growth, from organic growth, and we are not really disclosing how the different parts are bringing. But of course, they are pretty much same contribution from both sides.
Thank you. Any other questions from audience at the moment? No, we don't have. So let's take the first question from the conference call lines, please.
[Operator Instructions] And our first question comes from the line of Terence Tsui of Morgan Stanley.
I've got 2 questions, please. Firstly, on roaming, can you give us an idea about your expectations for roaming usage over the summer and whether there's -- you expected to have any incremental impact on your financials? And then secondly, can you talk a little bit about the M&A landscape perhaps in Finland? The competition has been a bit busy doing some deals. It's been a while since you've done anything. I just wondered what opportunities there are for bolt-on acquisitions.
Thank you very much for your questions. If I start from the latter one, we have been the most active player for acquisitions in the Finnish market. We have made some EUR 500 million acquisitions in the past couple of years, to say the first. And of course, there are interesting acquisition targets in Finland, also in Estonia, our other home market. But of course, there needs to be a common view of the price and conditions by seller and buyer to get into agreement of the deals. So we will see in the future. But of course, there are many interesting things. Saying that, with our digital service businesses that we are developing also international markets in mind and actually having business already outside our home markets with these digital service businesses, there are also areas where we are actively looking at acquisition opportunities to further accelerate the growth. So we have really opportunity space for acquisitions wider than just the telco, IT-related opportunities. In terms of the roaming, it remains to be seen. Last summer, we -- based on the decline of the roaming prices, we saw really strong pickup of the usage, especially, of course, in Europe. Having very competitive and unique roaming packages, for example, the premium bundles that are not offered by all the players in the market, they seem to have -- they seem to continue to have very good uptake also. So we expect that we will have some increase in the roaming usage, of course, in the summer. But it's a bit too early to say that -- how much this summer. Last summer was a bit exceptional because there was so high decline in price.
Our next question comes from the line of Irina Idrissova of RBC Capital Markets.
Just a couple from me. So on churn and the competitive situation, could you talk about what competition looks like right now in third-party channels? Seems Telia has kind of regained one of the channels, is there to stay. And on related note, can you talk about your cost of subscriber acquisitions in the quarter? Is it trending meaningfully higher now with this intensified competition? And my second question is on the prepaid net losses in Finland. Can you just indicate how much longer do you expect for this drag from passive since to continue to be meaningful?
Okay, thank you very much. In regards to the competitive situation in the third-party channels, of course, we have very active channels of various kinds, operator channels, and then third party and, of course, the online as well. For us, the third-party channel has -- had less meaning because we have very competitive, stronger own channel continuously. And we have been developing our own channel, which has also led to a lower SAC per customer. But of course, with these churn levels, the SAC as a total, in absolute amounts, is slightly higher than it has used to be. In terms of the passive subscriptions, it's not related actually to the prepaid. Of course, there are also customers getting passive and then dropping their usage, and that is very much seasonal. So we are expecting to see a pickup of prepaid again moving towards the summer time. But the passive we have been talking about has also related to the certain postpaid subscriptions where there has not been a fixed fee for customers or very low fee where we have made some price increases based on the cost increases we have seen, in general, in salaries and so forth. So those kind of customers who have had second or third SIM cards for -- as postpaid SIM cards, some of them have dropped their second or third SIM card because there has been some price changes. We continue to see those kind of drops still for a few quarters.
Our next question comes from the line of Peter-Kurt Nielsen of ABG.
If I can just, firstly, return to a previous question on the slightly declining revenue growth service revenues. As you're saying, Veli-Matti, that partly the campaigns has had an impact. So even though these campaigns have had a relatively short-lived -- were relatively short-lived, are you saying they still managed to have a negative impact on the reported service revenue growth and organic growth, which is still at a good level, but still it is down by 100 basis points or so. And then just secondly, if I can just turn to Estonia, could you talk a bit about what have you done, if anything, in Estonia to sort of, at this point, have there anything facing customers in terms of benefiting from the fact that you're now a full-scale operator? And has there been any competitive reaction in Estonia to your acquisition of Starman and Santa Monica networks? And if Jari could just elaborate perhaps, you're reiterating the synergies' on target. How should we view these synergies? Will they mainly become visible in the second half of this year or will it be pushed to next year? A bit on the timing side, that will be useful. And if I could just add, you're stressing again this quarter strong growth in IPTV and your TV subscribers are going up. Is there still no signs of any weakness in the Finnish -- in the traditional Finnish TV market?
All right. Thank you very much for elaborative questions, Peter-Kurt. For the first, the service revenue growth, we'll have impact based on the campaigns. There has been quite drastic reductions in price for certain campaigns, even if they have been short-lived campaigns. But something like 50% to 70% reductions on price for the first year, so they are pretty big things. And so those -- that campaigning has partly hit its impact to the mobile service revenue growth. In Estonia, yes, we have continued the integration of Starman and also Santa Monica Estonia to operations. And of course, it has made us much more a full-service operator to consumers as well as more competitive to B2B side. We have made, of course, different kind of proposals to customers, new proposals, and we have been positively surprised how, especially the Starman thing has got moving, some positive surprises there. I leave Jari to respond to the synergy part. Then in regards to the IPTV, the growth continues. And in Finnish market, we do see reduction of pay-TV services. But unlike some other operators, we have not bet on pay-TV services. We have not made acquisitions around pay-TV providers and so forth. So we are not negatively impacted with that. It's kind of move towards the Elisa Viihde entertaining services. And of course, we are having a positive development of the demand to our original series we have coproduced with other players. So we see very positive overall interest on IPTV and the increasing content we have for that. But of course, also, in our cable TV side, the small business of pay-TV services, channel-based pay-TV services, that is decreasing, but it has less impact to us than maybe some other players in the market.
To your question regarding synergies and timing, yes, we reiterated the original synergy plan in 2019. So there is no one thing or big bang and one big step-change synergies are coming from various sources and they are coming partly this year already. And then there are also some part of the total synergies coming 2019 and, for example, some IT system changes will take some time. And therefore, the synergies relating to those changes are due to 2019. Of course, we also have synergies in cross-selling side and that is working already. So we are selling services, mobile services to Starman customers and vice versa. And we have integrated the brands. The -- we have done integration of the shops and sales channels. All in all, we are quite very confident that those synergy estimates will be reached.
Our next question comes from the line of Robert Slorach of Handelsbanken.
Another question on the cost side on the margins. Margin was now flat year-over-year in Q1. You've got some pretty punchy targets for -- through the end of '19. I was just wondering if you could address from where you are today to those targets and whether you would consider cost savings. I'm noting that your numbers in place are going up in Q1 again. If you could address, that will be very helpful.
Thank you very much. Yes, the margin target is challenging, but it is still reachable. We believe 35 at the end of 2019. The contributors to increase the margin, one is the mobile service revenue growth, which is a high-margin business. That is helping also the continuous productivity improvements that we do everywhere in our operations. If we, for example, take the order handling in Elisa, we have increased the automization of order handling by 25% in the past 3 years. If we take operations -- operating cost per base station, we have decreased 30% the operating expenses per base station in the past 3 years. We have a full range of areas where we can say basically all parts of the operations how we improved the productivity, step-by-step increasing. So that's another driver for improved profitability. Also, the synergies, for example, the ones that Jari was just detailing, those will bring improvement in the profitability. And also, the digital service business portfolio has had clearly higher burn rate overall with various parts of the portfolio, having different maturities of the business. We have clearly seen how the, let's say, more successful businesses continue to increase their margin. But also in terms of the question mark businesses, we have learned to run them with the lower burn rate and still do the experimentation and business development with lower burn rates, another driver for improving the margin.
5, 6 different levers are going to change -- I mean, we have obviously seen the growth. I mean, productivity improvements have been ongoing for some time. Synergies have been coming through. I was just wondering what's going to change, do you think, in the coming 3, 4 quarters if you were to point out one of these levers?
Well, we continue to drive the -- all the mentioned levers to bring results going forward. And we believe, for example, like said, the synergies from the acquisitions, they have not yet arrived and they are coming. So there are different kind of dynamics that will happen in the future.
Our next question comes from the line of Sunil Patel of Bank of America.
Several answered already but still have outstanding questions. One is, can you just quantify how much would the Starman synergies at the EBITDA level, Starman and Santa Monica today at -- for this quarter? And how much do you expect to be it for this whole year '18 and '19 as you were outlining earlier? And then secondly is that you made price hikes on the legacy base. I think you said earlier some of the older subscriptions. When I look at the total base of 3.995 million customers in Finland on the mobile side, how many of those still sit on legacy discounted tariffs, and therefore, could be paying more in the future if you chose to increase the subscription price?
All right. Thank you, Sunil. I'll let Jari to respond to the synergy question. In terms of the customers in different kind of subscriptions, unfortunately, as good question as it is, we are not disclosing. But you are right that there are legacy subscriptions having campaign discounts that are elapsing. So we do have that kind of customer base, and it is of meaningful size. But unfortunately, I cannot be more detailed on that. But Jari, please, the synergy?
Biggest portion of the synergy benefit is still to come. So the synergies until now are fairly minor. And unfortunately, we are not reporting exact details of every quarter of the synergies. But as I said, so the major part is still to come.
[Operator Instructions] And there are no further questions at this time. Please go ahead, speakers.
Thank you very much to the conference call lines and all questions. Any further question from audience? No, not at the moment. So we thank you all participating this meeting. Thank you. Bye.
Thank you. Bye.
This now concludes our call. Thank you for attending. Participants, you may disconnect your lines.