Elisa Oyj
OMXH:ELISA
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Elisa Oyj
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Good morning, ladies and gentlemen, and welcome to Elisa's Fourth Quarter 2017 Conference Call. My name is Vesa Sahivirta, I'm Head of Investor Relations. And here together with me is CEO, Veli-Matti Mattila; and CFO, Jari Kinnunen; and some of my colleagues as well as some audience. We'll start this meeting with a presentation, followed by Q&A. And first, we take questions from the audience and then from the conference call lines.So Veli-Matti will go through these highlights of the report, and Jari will elaborate more on the financials. I think we are ready to start. So Veli-Matti, please.
Thank you, Vesa. And welcome to Elisa's financial results report of 2017 and the fourth quarter, on my behalf as well.Let us begin by -- with the highlights of the fourth quarter. We had another record quarter in terms of revenue growth and result. Revenue growing by 9%, of which organic growth was 4%. We had growth in both customer segments, and our EBITDA was also growing by 11%.Mobile service revenue continues its growth based on upselling higher speeds with higher prices, now being 5.6%. And we have -- continued to have extremely good demand for our premium subscriptions.Postpaid voice churn came slightly down to 19.5%. Competition is a bit different in these quarters now, what we have seen in the past couple of years, especially characterized by some campaignings and a bit higher customer acquisition investments.Postpaid mobile subscriptions altogether came down by 4,200, and the fixed broadband was -- number of customers was increasing a bit over 6,000.Our acquisitions and the integration of those Starman and Santa Monica Networks, they are progressing according to plan or slightly -- even slightly better. If you look at the numbers from the full year, our revenue grew almost to EUR 1.8 billion, which is a 9% revenue growth for the full year as well. Also, the EBITDA was growing very nicely, almost 9%, and the earnings per share was EUR 1.86, and comparable we, of course, had some other earnings from the sale of Comptel. Earnings per share altogether was growing more than 12% for the full year. Capital expenditures were EUR 241 million, which is 13% of revenues. As we guided, a bit higher CapEx for the year due to the integration efforts with the acquisitions we've done. And for the full year, mobile service revenue was growing with 5.7 percentages. Mobile subscription base was pretty much the same throughout the year on total. And in the mobile -- fixed broadband side, we saw clear growth, partly by the acquisitions created as well. And ARPU is growing for mobile customers. The churn for the full year, on average, was a bit higher as we have learned about this a bit new competitive dynamics in the marketplace. And the mobile data seems to be used very well by our customers in Finland and Estonia. Now the mobile data growth in the networks, they were totally 42.3%. From the quarterly basis, we can see that revenue has been growing very well throughout the different quarters of the last year. We have seen growth generated by mobile service revenue growth; but also, our digital service businesses are growing very well. Of course, we generated growth from the acquisitions. And also, the growth we have seen, especially based on the acquisitions in Estonia, has been improving our positions. Mobile service revenue growth continues. And of course, the main reason is because we are selling higher speeds very well to our customers. The premium subscriptions, which are unique in the marketplace, also have contributed very well. And we have had made some product changes, meaning, certain price increasing in certain service categories. Our EBITDA continues to grow according to what we have been guiding. And of course, the revenue growth has contributed to the EBITDA growth; but also, our continuous improvement based on quality, driving the productivity improvement in different parts of the organization, also with the utilization of technologies like the robotic process automation tools, as one example, they are creating efficiency, which contributes to the profitability improvement. And also, the ARPU, together with the mobile service revenue growth, is going up. Now the churn levels are a bit higher due to the, let's say, new kind of dynamics in the competitive landscape. If we look at our segments a bit more. Both segments have been contributing very well. The revenue growth in Consumer side, 8%, and EBITDA 11% for the quarter. And for the Corporate side, 10%, both revenue and EBITDA. So both business segments are performing very well, with -- based on many same drivers. Of course, the competitive dynamics and the market situations are a bit different, but the mobile service revenues based on higher speeds, better quality in the mobile service side is contributing in both segments. Also, the acquisitions, both segments have got -- Consumer side, of course, more the from Starman acquisition; and again, Corporate side from the Santa Monica Networks acquisition. The digital service businesses, we have both -- in the Consumer side, Elisa Viihde is contributing very well, growing very nicely, some other Consumer digital services businesses as well. But also, we have the IT videoconferencing and IoT services generating growth in the Corporate side in the digital service businesses. The equipment sales have been also growing. And even if it is quite a low margin business, we have also been able to create margin in that very low-margin business. And again, the traditional fixed voice businesses, they are going down in both segments. We continue to execute our strategy with the 3 focus areas. And even if we have been able to improve the quality of the network, driving a lot of network faults down during the past couple of years with the predictive fault detection and correction; and also with many process improvements we continuously do, utilizing also optimization tools. We have a lot of potential to improve our quality to our customers and also drive the productivity in our operations. We have seen a good start for that, but we are really excited to perform more of the productivity improvements. Also, to say about the digital service businesses, Elisa Viihde, our IT businesses, being overly relative big and nicely growing businesses. Also, the videoconferencing with Videra growing now internationally, with very nice order intakes especially in the fourth quarter, continues. But also, we have some lucrative futures to come from our IoT and also from the network efficiency businesses we sell other operators. But we will talk about those later, later during the coming quarters, of course, more.And then the third focus area, creating value for our customers with the mobile data and fixed broadband businesses. Clearly, both are in demand, with faster speeds, fiber-based solutions are being more and more asked by our customers. And of course, a different kind of quality parameters can be used later on for creating value for the customer, but also capturing value for our shareholders. So in all of the 3 focus areas in our strategy, we see a lot of potential for creating value for our customers, but also for the shareholders. In terms of the mobile side and the development there. The smartphone penetration is going up step-by-step, creating more addressable market for our upselling. And of course, the proportion of customers having the new data bundling instead of usage-based subscriptions that is also going up step-by-step. 40 -- 43 -- 44 -- 54% of our customer base of the voice subscriptions are now having at least the 50 megabit per second speed level. It means that there is a lot of below 4G speed customer base to be upsold to 4G speeds at least to the max 50, but we have seen that there is a very good demand for the customers already being in the first level of 50 because our Premium subscriptions. So we have another step which is unique, another upselling level, which seems to be also ticking really well. So there's another step for excellent upselling also going forward even if we have customers already very well in 4G. And of course, like maybe we have discussed earlier, we foresee that in the mobile data side, when we go more towards the 5G era, even before that, we have another ways to provide value, mobile data to our customers, which then reflects to opportunities to price -- for pricing and upselling in different ways. So a very good, let's say, outlook for the mobile data business, and mobile service revenue growth continues.Finally, about the outlook. We see that, of course, that the macroeconomic environment in Europe overall, but also including Finland, Estonia, has been improving. However, the long-term structural challenges in Finland still remain. We hope that there will be some, let's say, solutions for those. But however, the market is going very well forward in the Finnish macroeconomic at the moment. In our market, the competition remains keen and challenging. It's a bit different kind of competitive dynamics as we speak, but we are used to work in different kind of competitive dynamics. We guide our revenue to be same -- or same level or slightly higher than 2017. And for comparable EBITDA for 2018, we say that it will be same or slightly higher than last year. And our capital expenditures will be maximum 12% of revenues.And now I turn the word to Jari, please.
Thank you. Let's look at profit and loss trends first. The operating leverage that we've been talking earlier works well as is can be seen here, with 9% revenue growth. EBITDA was growing 11%, and that figure translating to a 13% earnings per share growth. And of course, earnings development was impacted by continuous productivity improvement measures. Also, acquisition contribution both to the revenue and the earnings lines, Starman and Santa Monica, of course. And at the lower lines in profit loss, financial expenses been improving through refinancing at lower levels. If you look at revenue growth, 9% total in Q4, organic 4% and acquisition contribution 5%. And between the segments: Consumer segment, service revenue growth at EUR 17 million; Corporate segment, service revenue growth at EUR 30 million. So both customer segments, good growth in service revenue, excluding equipment sales and interconnection which also were growing. Equipment sales, 9 -- EUR 8 million growth, and interconnection and visitor roaming, EUR 1 million growth. Estonia development was positive. And of course, a big growth percentage is as a result of Starman-Santa Monica acquisitions, 63% revenue. EBITDA, EUR 66 million (sic) [ 66% ]. Besides acquisition contribution, also mobile service revenue was growing and contributing both to revenue and earnings. Competition landscape also in Estonia keen, postpaid churn was increasing to 13.5% from 11.3% in Q3. Postpaid subscription base was at the same level. There was, however, decrease in prepaid subscriptions. And of course, at the moment, the integration work relating to Starman and Santa Monica is ongoing, and it is progressing according to plan and expectations. And synergies estimates are unchanged, so we estimate EUR 4 million to EUR 6 million by the end of 2019 from Starman-associated benefit; and Santa Monica, including both Estonia and Finnish business, EUR 4 million to EUR 5 million by the end of 2019. Then if you look CapEx development in Q4, EUR 71 million. That was higher compared to previous quarters, also higher than a year ago. And there are, of course, variations between quarters. The whole year CapEx EUR 241 million was precisely according guidance, 13%. And of course, now the new guidance is back to 12% CapEx to sales levels, as we indicated a year ago. Then if we look at to cash flow, EUR 48 million in Q4 against EUR 53 million a year ago. And a positive impact through higher EBITDA, EUR 12 million. CapEx was higher, a negative impact, EUR 10 million. And net working capital change was EUR 30 million. So net working capital change in Q4 was EUR 1 million, but comparing the change to a year ago, it was 13 -- EUR 30 million negative impact.And net working capital was, of course, impacted by growing sales and also equipment sales that we're increasing and impacting to -- somewhat to inventory, and also sales receivable. Full year cash flow, a solid EUR 300 million, and comparable cash flow, excluding share investments, EUR 246 million. And if we look at cash conversion at the -- with operative cash flow, EBITDA minus CapEx, 61% level. And of course, this is very much impacted by positive earnings development, and also disciplined capital allocation policies, both CapEx and acquisition policies.Capital structure and net debt development next. And net debt went down slightly against a year ago, and net debt-to-EBITDA was 1.8. Also, equity ratio target 35% -- or equity ratio was about target, 35%. So capital structure well in line with targets. Interest expenses -- cash flow interest expenses against net debt continued to reduce as a result of improved interest in refinancing agreements that we did in the first half of the year. Return ratios also continue to improve, with a return on equity, 29.7%; and return on investments, 19.8%. And positive impact through -- of course, through improved earnings, efficient capital structure and, of course, acquisition policies and CapEx policies. Then a few changes that are coming to IFRS, standard changes, and impacting since beginning of this year. The IFRS 2 change, which is share-based payment accounting, is starting now, and there's no material effect on revenue or profitability on this change and, neither, no effect on cash flow. IFRS 9, which is financial instruments paragraph and is also starting beginning of this year. And there, we have a change for interest expenses this year and next year, approximately EUR 2 million in profit and loss. And this is coming from exchange accounting method changes relating to previous bond exchanges. And there's no change, however, to cash flow after this change. IFRS 15, which is regulating revenue recognition. And again, no material change in revenue and earnings, and no change in cash flows. And the fourth change is IFRS 16, which is regulating leases and coming beginning of 2019, which will change some of the operative leases to liabilities. So there will be some changes in liabilities, also some changes in EBITDA. So rental expenses will be booked as financing expenses and depreciations. We will come back later on about those changes. Then, about dividend. Board of Directors are proposing EUR 1.65 dividend to AGM. And this is a 10% growth against last year's dividend. Total amount, EUR 263 million. And it represents a payout ratio, 89%, against comparable earnings per share. And dividend yield 5%, against the share price end of last year. Additionally, there is a proposal to AGM for a 5 million share buybacks. And of course, this is, again, continuation of a strong track record and a strong commitment to very competitive shareholder remuneration.And now I give word to Vesa, please.
Thank you, Jari. And now we move on to Q&A part.
And we take first question from the audience. And Sami, please go ahead. Yes, Sami.
Sami Sarkamies, Nordea Markets. I have 2 questions. Firstly, on mobile competition. Can you elaborate on the competitive landscape? Intensity has remained high in Q4, but there'd been some changes from the third quarter. So what are these changes? And what are your observations more recently? And then a second question regarding the EBITDA guidance. What other reservations in your guidance that could sort of result in a flat EBITDA this year? You will still have quite multiple tailwinds from the acquisitions you have done last year.
All right. First, in regards to the competitive dynamics in the marketplace, we haven't seen many major difference between Q3 and Q4. The dynamics changed in the middle of the year comparing to what it was before. Of course, it was started already 2016 when one of our competition started to prepare for IPO. But nevertheless, we have a new competitive dynamics in the market. We are very competitive. Our competitiveness based on our cost efficiency, our higher quality in our networks, our wider portfolio of digital service businesses and our unique roaming pricing solutions to our customers makes us very competitive. But of course, we have the cost competitiveness, if needed, to invest more in customer acquisitions or some pricing campaigns that we have started to see. So we are very well equipped for that as well. And of course, the competitive landscape seems to be a bit different, with the dynamics, but we are used to change our mode of operations very quickly and respond. But of course, with our strategy, we have long-term development, continuous improvement in our productivity and other competitive factors going on continuously. So I'm very confident in terms of the competitiveness in many ways. In terms of the EBITDA guidance, you were asking if I was right about the risks for EBITDA guidance. Of course, the risks could happen always with the competitive situation, even getting more aggressive. That, of course, might have some impact. But we are very well equipped, and we are preparing ourselves to even harder competitive situations as well in terms of the campaigning and pricing, if needed. Like said, we are -- our, let's say, strategy is to build up long-term competitive capabilities, but we are also ready for even, let's say, more aggressive campaigning or customer acquisition situation. And then, of course, in our industry, regulation could impact on the profitabilities. But as we saw in the last year with the roaming change, which was dramatic change and big thing and quite unique in any industry for European Union to regulate pricing, we were able to cope with that as well. So very often, the regulatory changes, they come, however, with some lead time, and we can get prepared and we can also mitigate. It's, like always, as CEO, I think that the biggest thing is to -- for us to be sure that we are everyday very happy to execute our own task in Elisa, what our colleagues in Elisa have excellently done the last year. But for us, it is to make sure that they have all the capabilities and motivation to continue to do so.
Maybe a follow-up. You brought up these regulatory risks. I mean, are there any you see potentially impacting the short-term development this year? Or was this just a general comment?
That was a general comment. There is no particular regulatory risk that we see. There's, of course, everything going on and -- every time there is something going on in the regulation, but no major risks as we see it.
Artem Beletski from SEB. Two questions from my side. First up is going to be mobile service revenue growth. And once again, you have been beyond this 3% to 5% indicative guidance range. Is it still valid, what you are seeing mid-term? And maybe you could comment what comes to, sort of say, all 4G migration and value added? So is the trend still intact on that front? And the other one is relating to share buyback authorization. Is it still, sort of say, a tool to have but not likely to be utilized during this year?
I'll start from your latter question because it's shorter. Yes, it is a tool to toolbox and the dividend is the kind of contribution to shareholders from this year. It is tool to the toolbox what we are asking from the AGM. In terms of the mobile service revenue growth, as I tried to explain that we see a strong potential to move below 4G customers to 4G. There's clear path, and there is -- continues to be demand for that. We, of course, see a bit some other types of offerings in the marketplace than unlimited, but the unlimited is really the mainstream. Teens are utilizing a lot of data, they love it and they continue to do. There are drivers for additional usage based on the application development and video consumption increasing and so forth. So we foresee that there's a very strong potential to move customers below 4G speeds to 4G. But like I said, there's another level at the moment for the Premium subscriptions where we have already customers moved substantially, and we see the movement continuing. So we have at least 2 steps forward in this path, which is not something that everybody can offer in this marketplace, but we can. And again, to the future, I'm quite optimistic that there are other ways to differentiate in terms of the service offering and the pricing for customers. So we continue to tell about the mobile service revenue growth prospect, that it is 3% to 5% another 2 or 3 years to come and maybe even more, but the visibility is approximately 2 to 3 years to come there.
Maybe just a quick follow-up on this migration topic. You have been introducing this new high-end offering first half, the roaming regulation and also later on. Have you seen increased adoption on that front and big attraction, so to say, recently?
We have seen, yes. It is clear that the unlimited usage in Nordic and Baltic attracts customers. When you have the same bundle, you get even faster speeds. But clearly, it's a combination that has been attracting customers to our Premium bundles and continues to do so.
The next question comes from Matti.
It's Matti Riikonen, Carnegie. If we go back to the competitive situation, you've said that there's no major differences between Q3 and Q4. But are there any kind of new competitive measures compared to Q3 in the market, so that in the overall competitive space, there would be new measures taken? And secondly, has your response to the competitive challenges being changed in any way? So are you more -- perhaps more selective on some issues? I'm just thinking that your customer base in Finland declined by 26,000-something in the quarter, and still, your numbers were fairly decent. So I'm just thinking that, is it just that you are not after every customer but maybe focusing more on quality issues? Just your views on that.
Yes. I repeat that, let's say, in the -- the view is that the market and the competitive dynamics has been very similar to -- in fourth quarter versus third quarter. Of course, there has been, let's say, individual campaigns that might have been different or new kinds of campaigns in fourth quarter. But in the overall scheme, for us, it looks a bit the same kind of thing. Because in terms of competing, there are so many other ways than just pricing or campaigning. So campaigning competition, it's the same third quarter, and we are very well equipped on that. Surely, we are interested and happy for every customer. But of course, we are more, of course, interested about customers who are valuing our higher quality level and our other competitive parameters, and maybe even paying more. So -- but coming back to your notion about losing customers, the majority of the customers we lost, of course, for the first was in the prepaid, where there's seasonality. Secondly, in the postpaid side, it was very much about the passive subscriptions that we have lost. And then we have seen a bit of the phenomena of customers moving from mobile broadband to use their handset as the base station for their usage. But overall, our revenue we're growing even though these -- the amount of customers has been almost the same.
All right. And maybe another one related to Corporate market. Now that your Corporate customer base actually grew, can we draw a conclusion that the kind of better economic environment in Finland is contributing? Or it's just -- is it just kind of fluctuation between quarters? Do you see any signs that you would get some benefit from slightly improving kind of macro?
Yes, a bit of that. But I mean, I say that the majority of our progress in Corporate segment is about the uniqueness of Elisa in the B2B market as an operator in the European level or even in a Finnish level. We have the widest set of digital service businesses. We have the highest quality that the corporates are appreciating, that the systems and the connectivities are working without problems. So we are ahead in that. What this economic environment and positive development has impacted is, of course, that the Finnish organizations, both, let's say, businesses as well as public organizations, they are a bit less focused on cost-cutting only. So they are also looking towards the future to develop their capabilities in digital services and digital capabilities, where we have very much to offer, which we have had at least 5 -- past 5 years, but now we have seen in the past 2 years, really, more momentum for that. And it's, of course, creating growth for us, unlike in many other operators, B2B segments. And it's also, of course, creating competitiveness.
It's Kimmo Stenvall from OP Corporate Bank. A question on CapEx levels. You came back now to 12% of sales. Is there any possibility to hear some more color on the -- where the CapEx is going? We -- I guess that the 4G CapEx is coming a little bit down this year as the network is quite ready. But do you have any comments on the fiber? Is this something that you are pushing this year? Or how the CapEx will be split this year?
Well, we are not disclosing so much about the content, unfortunately. When we put it there, it will be then visible for our customers. But clearly, in the mobile network, there's of course capacity, and also in some areas, coverage investments still. Fiber is, of course, a big part of our investment. As it has been, for example, last year, where we increased the amount of customers next to our fixed fiber-based offerings very much. We continue to do that. Then there is also investments to the digital service offering and development of those. With the investments, for example, last year, EUR 241 million, it means that we are building competitiveness based on investments at the largest investor, to the telco infrastructure in Finland. And it, of course, continuously improves our position.
Okay. Then another question on Jari about the tax rate this year. Is there any guidance that you give -- what is the tax rate this year to be?
No, in 2017, effective tax rate was a low 16.5%. And one element of that was Comptel shares gain, which is tax-free, so that is not repeating. Another element that is contributing to that is Estonian profits, which are tax-free. And of course, Starman acquisition is increasing Estonia business' share of the total, so that has some positive impact. But it will be higher -- effective tax rate will be higher this year than it was in 2017, but somewhat below 20% still, which is the Corporate tax rate, of course.
Okay. Any further question from audience? At the moment, we don't have, so we take first question from conference call lines, please.
Our first question comes from Peter-Kurt Nielsen of ABG Sundal Collier.
You obviously discussed the competitive environment in -- at length. So a couple of more specific questions. Strong growth in revenues and EBITDA. Would you be willing to give us the organic EBITDA growth this year just to compare with revenues, or at least an indication of how much of the 10% growth in EBITDA is coming from acquisitions? And just second question, please. You're having quite strong -- shown strong KPIs on the fixed line business in Finland in this quarter. TV broadband is growing to a high extent than in previous quarters. Could you -- what is behind this, please?
All right. Thank you, Peter-Kurt. In regards to the growth of EBITDA, we are not disclosing exactly the organic, inorganic. But we can say that the organic EBITDA growth was a bit more than half of the EBITDA growth this year or 2017. In terms of the fixed business in Finland, yes, we have strong fixed broadband business with the improved infrastructure. And also, the competitiveness based on the -- and the offering based on Elisa with IPTV that is continuing its growth very well with the, let's say, overall competitiveness with the content and other functionalities really attracted by the customers.
Veli-Matti, the more than half EBITDA growth, was that referring to Q4 or for the full year, or both?
It would be for both.
And our next question comes from Roman Arbuzov of JPMorgan.
So my first question is on the relationship between top line growth and CapEx. I was wondering if -- when you are thinking of how fast you want to drive the upsell of your customers towards 4G and the Premium plans that you were talking about, when you think about that, do you at all think about CapEx in parallel as well? And also, do you perhaps once -- or given that your networks are ready to handle large amounts of traffic that that's not so much a consideration currently, but do you perhaps, over the medium term, see that debate be more acute at some point? And some of your competitors are signaling that perhaps the industry needs to think about more aggressive monetization of your data, given how much customers are consuming and given the continued growth of that data. And also, I mean, if you think there is a debate, what would you prioritize, growth over CapEx? Is it more important for you to maintain this excellent track record of CapEx discipline? Or would you prioritize a certain amount of growth, for example? And then just secondly, just a quick question to Jari, please. Perhaps at a high level, could you just summarize for us perhaps the inorganic boost to EBITDA in 2018 from the various deals that you've done over the last couple of years?
Thank you for your questions. I'm not sure if I was able to understand very clearly to the point, but then please reask if I missed your -- the focus of your question. But in regards to the upselling and CapEx, what we've seen, that we've been able to keep our CapEx very well and OpEx also in terms of the mobile operations very well, I would almost say it's stable, even if we are performing more in terms of the deliverables, in terms of the data amounts and speeds and quality. And it is based, of course, on very, very strong focus on productivity, on optimization and many other things, optimization of the -- the utilization of our CapEx. So I would say that we are very, very strong on optimizing the CapEx and OpEx, also what we do to network in order to perform and deliver more to our customers than, for example, our European peers. We even have a certain services that we are selling as we speak to other operators in Europe. And we have the best-leading laboratory in Finland because we have almost 10x the traffic per customer, what the Europeans normally have in their networks. So we are 2, 3 years ahead of the usage. So we know the phenomena, we know what happens, what needs to be done. And like I said, we have done a lot of -- for automating our network operations, also the intelligence for radio network optimization. So saying that, we are not concerned at all for the increase of CapEx or OpEx when the mobile traffic usage is growing. We have a very good visibility going forward. Last year, the amount of traffic was increasing a bit over 40%, we are very well coping with that. Then your -- one of the questions was the debate between selection of growth or CapEx. It's a bit new for us, we don't quite recognize that. If, in theory, there would be a challenge for the CapEx for us to keep up with the growth, of course, we have kind of tools to somewhat change the pricing, and then, maybe then touch the unlimited. That it's, for example, the pricing would change to be not totally unlimited, but let's say, unlimited for everything than, for example, live TV, which would then be priced separately, if we would need to have that kind of backup plan. But we really don't foresee that. We have very happy customers using a lot of the network. We have, very much, the CapEx and OpEx in control. And with the forecast that we see going forward, it seems to be like that. If there's some part of your question there that I didn't [indiscernible]...
I think you largely answered the questions. But just to clarify my thoughts, I was thinking that perhaps you may be tempted to increase pricing to basically slow down the migration of the customer base from usage-based to unlimited, and from 3G to 4G and 4G plus. Maybe so -- yes, so that was my thesis. Perhaps you're more tempted to sort of more aggressively monetize the usage, the rapid growth in usage, so as to somewhat reduce the strain on your networks. But from what I've heard from you, that's not your consideration at all now or in the medium term. Is that right?
That is correct. Our ideology totally for value creation for the customers is not based on the gigabytes, it's based on the speed with unlimited. And with that unlimited, we release to customer to be happy to spend and utilize and get to know what the applications, which means that they will get hungry for more speed, which then they will pay more for us. And this equation is working really well as long as we are very good at optimizing the CapEx and OpEx as well. So we are sticking with that, and the visibility we see for that kind of business model to work is clearly very good.
And perhaps, Jari could comment just on the M&A tailwinds, if possible, in 2018.
Sure. Yes, there are many things that will contribute positively also 2018, besides acquisitions, to EBITDA stated in 2017. So mobile service revenue growth is contributing positively. We have many opportunities to improve our productivity very much through improving quality in different parts of the organization and processes. New digital services are still -- even though they are now growing nicely, they are still in development phase in that sense. But there's a negative contribution to group margins from there, but it is improving as we go on. Acquisitions, of course, we have 3 months more consolidation compares to 2017 of Starman and Santa Monica. So that will be there, and some synergies will start to materialize next -- this year and also 2019. We have, of course, Anvia acquisition also contributing in form of synergies that we did 2016 and 2017 and '18, our synergy benefits coming from that acquisition. They are all included in the guidance that we gave. Of course, there's also this competition situation that has increased the churn and that has a negative impact in form of a sales cost, for example, 2017, and we estimate that to continue somewhat in 2018 as well.
And our next question comes from Simon Coles of Barclays.
On synergies, I was just wondering if you could indicate whether it was at the lower or the higher end on your Anvia synergies in 2017. And then on the fixed market, you alluded to it earlier that fiber and IPTV is helping with growth. Could you just give an indication of how momentum is going on the Finnish fixed line side? I think if you try and back out Estonia, it looks like maybe there's still modest declines on the revenues.
All right. I'll let Jari to respond to your question regarding Anvia synergies. And then regards to the fiber, we continue to see our, let's say, customer base in the fiber-based solutions to go up. And in part of that business, there is, let's say, reasonable pricing with the SDU market. MDU market is heavily priced competitive, there is no change from what it was, but we are taking part of that market as well. Of course, preferring to have a bit higher value what we are delivering. But nevertheless, we are increasing the amount of fiber-based solutions continuously. We have already quite wide coverage with that. In terms of the IPTV, the number of paying customers is going up. And the revenues from our IPTV solution is really, really good and continues to move like that. The fixed voice business, it is between 15% to 20% of the number of customers decline. It has been for that for many, many years, so that is, of course, creating negative impact. Overall, the fixed revenues, where we also include the revenues from the IPTV and some other digital service businesses, is, of course, in -- somewhat in the growth. So unfortunately, it's somewhat a bit difficult to compare the fixed of our -- fixed segment or fixed business revenues to some other operators. But let's say, we are talking about nonmobile business, so we have clearly growth in the nonmobile business as well.
And the Anvia synergy estimate, beginning of the acquisition, we gave 5 -- between EUR 5 million and EUR 8 million for 2017, and the same amount for 2018. And last year, we were close to high end of that.
And our next question comes from Sunil Patel of Bank of America.
I just had one outstanding question. And you alluded to this earlier I think, Veli-Matti, that on the cost side, some of your peers aggressively looked to sort of stop the OpEx growth and even bring down OpEx progress, and we are now in the Corporate segment through your digitalization offer, you're helping them to do that. But on your own cost side, the margins, I appreciate, were impacted by acquisitions in '17, but actually slipped year-on-year. Going forward, do you think that will be a focus? And do you see a significant opportunity to reduce the OpEx base within Elisa in 2018?
Of course, we see a lot of potential to improve our productivity, meaning that then the OpEx side would be developing, let's say, positively in terms of the profitability. Our way we are working in terms of the productivity and profitability improvement is really very much based on continuous improvement with the usage of technologies like the LPA coming, also artificial intelligence solutions, but also a lot of optimization. And we continue to do so. We have a quite unique capabilities. For example, in the network optimization, when we benchmark ourselves to other operators, we are clearly ahead. Try to be modest and to understand that we have still a lot to do. But we have certain capabilities in certain parts of our operations for optimization, but we have a lot to do. As an example, how we drive OpEx down. But also, the way we are doing our task in customer service and in other areas of Elisa's business, we have continuous improvement, the way to bring OpEx down. So I cannot give you any estimate for the OpEx kind of development. But I'm sure that in terms of helping productivity improvement based on OpEx, let's say, development, there is a lot of potential going forward.
Can I just follow-up on that? I mean, together with your revenue guidance, does that imply we'll see margin expansion in 2018?
Our medium-term target is to improve our margin over 37%, and that is still the target we have by the end of 2019. It is, of course, ambitious target, but we see that, based on the mobile service revenue growth, based on the cost efficiency improvement, based on productivity improvements, as well as the synergies we are getting from acquired businesses, they are helping us to improve the margin as well.
And our next question comes from Terence Tsui of Morgan Stanley.
I've just got a couple of questions, please. Firstly, on CapEx. Can you just share with us again your thoughts around 5G and CapEx? And when you expect this to -- when you expect 5G investments to materially impact CapEx, and whether you can still achieve CapEx to sales below 12% in the medium term? And then secondly, just on the dividend, like a really broad question. The dividend is up 10% year-on-year, that's higher growth -- year-on-year growth in the dividend for many, many years. Just wondering if this is a sign that you're fairly more optimistic about the business, let's say, back in the early 2013, 2014 time.
All right. In terms of the CapEx, we have been quite boring having the 12% CapEx almost every year, sometimes a bit higher, especially in regards to the acquisitions. We see that the 12% going forward is a very good guidance for us for the coming years whatever investments we need to do. Specifically, in terms of the 5G, the standards are still being hammered till the end of this year. And the standards-based equipments are coming late this year or early sometime next year, 2020 also, which means that it will be a bit unwise to do a lot of deployments of 5G with that, let's say, proprietary technologies that are available at the moment. But of course, there will be 5G investments in our investment portfolio later on. Main question for 5G is that, for which business case we need 5G, because with the 4G upgrades, we can bring -- actually, this year, we will bring 1 gigabit per second speed for our customers in the Tampere area, Tampere City, where we have the smart city solution and with lower latencies. So we are getting the performance improvements to halfway or so with the upgraded 4G technology, where we can also have our customers to utilize that. And then we start to see that which kind of applications really are making customers to pay for the higher performance, that we can deliver also with their 5G later on. So that's a big question mark. There is, of course, autonomous driving and things like that or applications like that in the pipeline. But we are quite pragmatic. We are building the network for the, let's say, near future demands of our customers. And of course, testing a bit longer-term future needs as well, where this 4G upgrades still are very good to do towards the 5G. So overall, a long answer to your question in terms of 5G investment, I foresee still that we are more in the 2020, 2021 when we start to see larger-scale needs or opportunities to make good business with 5G. Before that, it's more testing, pilot networks and 4G investments. In terms of the dividend, we have seen the business to grow. We have seen our acquisitions to contribute the way we have thought with the synergies and everything. And we have visibility now for a good development, at least for the time being, for the connectivity business growing, our IT business growing, entertainment, IPTV business growing. And also, there are some lucrative things in the IoT and operator efficiency digital service areas. So we see positive momentums there. And of course, since our results has been improving, and we have the distribution policy that we, of course, very much respect, which says 80% to 100%. So with the improving profits, we, of course, are then delivering higher dividends. So this is the kind of response that I can give to you about the -- our outlook for the dividend going forward.
And our next question comes through Panu Laitinmäki from Danske Bank.
Yes, I have only one quick question left. I'm still wondering a bit why Q4 was so much better than Q3 in terms of year-on-year EBITDA growth and margin improvement? I mean, you had similar sales growth as in Q3 and you said that the competitive dynamics there not -- are unchanged from Q3. Why was kind of the earnings growth accelerating? Was it due to more synergies coming visible or what was the main change?
Yes. Thank you, Panu, for your question. Of course, there are several things. And let's say, the differences in the quarters, like we have discussed sometimes earlier in these conference calls, that if there are multiple small changes between the quarters, it may look like the quarters are very different quarter-on-quarter or year-on-year basis. So I repeat that there was nothing so dramatic differently -- different in fourth quarter versus third quarter. I touched already the competitive situation, but overall, it was the same. Of course, there's a bit different kind of activities happening there. But overall, it is about the -- the main thing is that the long-term development of the competitiveness is bearing results continuously. For some quarters, the numbers are coming a bit better than the others. But overall, the long-term development competitiveness, which we can still improve a lot, is bearing results.
And our next question comes from Jakob Bluestone of Crédit Suisse.
I've just got a couple of fairly brief questions. Firstly, just in terms of the 11% EBITDA growth again. How much of that was driven by synergy realization? If you can either quantify in percentage terms or sort of in millions of euros. And then just secondly, you talked about some of the accounting changes. And I think you mentioned, for IFRS 16, that it pushes up net debt and also increases your EBITDA. Can you maybe just comment, is this a meaningful change to our net debt-to-EBITDA just in terms of sort of thinking about your leverage ceilings?
All right. In terms of these questions of yours, I'll leave Jari to respond. Please, Jari.
As I said, the Anvia guidance that we gave at the time of the acquisition opportunities was between EUR 5 million and EUR 8 million, and we were high side of that range. In terms of IFRS 16 change relating to leases, we have, at the moment, approximately EUR 80 million leases, and a big part of that will be transferred to debt. So it's, let's say, between EUR 50 million and EUR 80 million at the moment. At the same time, EBITDA is then improving as rental expenses are booked in depreciation and financial expenses. So it will not be a major change in the balance sheet or not a major change in, let's say, net debt-to-EBITDA or other balance sheet KPIs.
And just to follow up on the -- on both of them. I mean, your synergy targets for 2019, so the question was really how much have you realized so far from the acquired assets? And then secondly, just on the leases. What's the EBITDA impact, please, from the -- for the rental out of OpEx?
Well, the second question, we don't have that yet. So we will come back with that as the year goes on and the project that relates to these change is progressing. But as I said, the cash flow impact is 0, and so there's no cash flow impact. And relating to synergies from acquisitions of Starman and Santa Monica, if that was the question, there wasn't any synergy realization 2017. So it was still early integration work that we did. And we had some, of course, integration expenses, which were almost equal as the first benefits that we brought. So it is something that starts impacting now this year and 2019.
[indiscernible] add to that, the -- you were asking about future synergies. So they are -- what we have announced, that we are going according to the plan to achieve those, both in terms of Santa Monica Networks, as well as Starman.
And our next question comes from Irina Idrissova of RBC Capital Markets.
Just a question on your acquisition strategy. Could you please share your updated thoughts on what are the focus areas? And specifically, any thoughts on increasing your presence in the Baltics further, would you consider opportunities in the adjacent Baltic markets like Lithuania? And why or why not?
All right. In terms of our acquisition strategy, it remains the same as it has been in the past, meaning that we are very disciplined with our acquisitions. In terms of the operator acquisition opportunities, we see it unlikely for us to make operator acquisitions outside our home markets, Finland and Estonia, due to the lack of synergies, and very often, due to the lack of -- due to the too high prices for us to be interested in shareholder value creation with the cross-border acquisitions is limited. We, of course, are always interested in the opportunities, let's say, in Europe for such cases. But as the history and our track record or our learnings have shown that such a lucrative cross-border acquisitions and operators space are very rare, if any, due to these mentioned reasons. Overall, the acquisition strategy then, of course, focuses on even some telecom and IT-related businesses in Finland and Estonia. But also, we have, in our digital service businesses, in videoconferencing, in IoT and in some other areas, also view that we can accelerate our growth with acquisitions, small or medium-sized acquisitions. But of course, the same discipline applies to those acquisitions. But just -- [indiscernible], we have visibility for acquisition, let's say, opportunities more than the IT and telco in our own market exists. So we have also now opportunities we see to accelerate in other areas. But like said, disciplined approach is valid.
And our next question comes from Robert Slorach of Handelsbanken.
I was just wondering, from what you've seen so far, the first month of the first quarter, what were the expectations for churn? Do you see taking a step down sequentially from Q4 to Q1? And then secondly, could you perhaps discuss what kind of growth rates you're seeing at Santa Monica Networks and Starman and Anvia? If you could give us some indication of the growth rates there will be great.
All right. Unfortunately, after 1 month for the year, it's very early to say anything about the competitive landscape. Our assumption is that we see same kind of competitive dynamics as we saw second half last year. It remains to be seen then going forward, but that's our assumption at the moment. We are prepared for any kind of change, however. In terms of the growth of our acquired businesses, we foresee good development in the year. Starman, for example, there is a potential with the Starman and Elisa's, let's say, assets in Estonia together now combined to improve. Santa Monica, of course, has brought a very good addition to our Finnish and Estonia B2B offering. We clearly see cross-selling working very nicely. And the Santa Monica Networks, high quality and capabilities are highly appreciated by some of -- for example, some of the larger customers to whom they haven't got really good access earlier. So there's a very good prospects there as well. And in terms of Anvia, of course, the area -- the region where Anvia has its assets and fixed network, which we now have integrated to the whole Elisa business, there is a very good demand. And of course, that region is one of the most entrepreneurial regions in Finland. So from a B2B side, there's also good dynamics going forward.
And our last question comes from Adam Fox-Rumley of HSBC.
I was wondering if you could talk about the remaining size of the passive subscriber base that you've spoken about in the few previous quarters? If I look at Consumer postpaid subscribers, they fell 70,000 during 2017 and no real change to the trends. So I was wondering if you could say -- if you've got any thoughts about when that might begin to improve. And then my second question is your new 3-year incentive scheme includes a new element, business must-win battles. And I'd love you to be a little bit more specific, if possible, on what's included in that bucket of targets, please.
All right. Thanks for your questions. In terms of the passive subscribers, we cannot exactly could disclose the view. But I would assume that we will see pretty much, even this year, same kind of development we saw last year in terms of our passive subscriptions. But of course, as they are passive, they are very low-revenue generators. So like last year, I don't see too much impact on our revenues from that. In terms of the -- our long-term incentive plan and some elements there called must-win battles, they really relate to our new digital service business developments. I can't disclose exactly what they are, but they are somewhat operational targets to achieve growth drivers and have the growth drivers to work in different parts of our digital service businesses, if you will.
Okay. You can't be any more specific than that?
Unfortunately not.
There are no further questions at this time, so I'll hand back to our speakers.
All right, thank you. And I think we have used our time. So we thank you for all participating this meeting and conference call. Thank you.
Thank you very much.