Telenor ASA

OSE:TEL

Earnings Call Transcript 2022-Q2

[Sigve Brekke, President and Group CEO]

Good morning, everyone, and welcome to the Second Quarter Presentation. In this quarter, Telenor is back with organic service revenue growth of 2%. The growth is driven by solid mobile performance actually across our portfolio. And I want to especially mention, Bangladesh, that grew 6% in the quarter.

In the Nordics, the mobile revenue is positively impacted by the increase we have done in prices and continued demand for the services we deliver on top of data connectivity. And our mobile network in Norway has once again been confirmed as the fastest network in the country, both the 4G and now also on 5G.

We have over the past years executed on our structural programs to drive modernization, but also to improve efficiency. In this inflationary environment we have today, we believe that this provides us with the protection from cost increases.

Towards the end of the quarter, we received a regulatory clearance from the merger in Malaysia. And as expected, it took some time. And we will now move on with the final approvals from the stock exchange and then the shareholders. The transaction in Malaysia will then be closed. And we are well prepared to start realizing synergies.

Let me take a look on our Nordic mobile operations. In the Nordics, we see a solid development with growth in the mobile service revenues across our markets. And overall, the mobile revenues in the Nordics grew by 3% in this quarter. This 3% is driven by increased demand for connectivity, and because of that, we continue to upsell on data speed.

But as also seen in this graph, the growth is also coming from services on top of data connectivity. In this quarter, we saw a 15% growth in this adjacent services. And these revenues from these services are now starting to be an important part of our overall growth and the contribution, as seen as this graph, from these services are now estimated to be around 13% of the total mobile service revenues in the Nordic operation.

Development in the quarter has further strengthened our belief in the next step of 5G monetization in the B2B segment. The 5G business models are now evolving and the demand from our advanced customers are shifting from piloting and testing into sales of services.

In particular, I want to mention the demand we see for private 5G networks as demand and managed security services, and I will talk a little bit more about that later. Going forward, our ambition is to continue to deliver revenue growth across our Nordic markets. And at our Capital Markets Day in September 20, we will further detail out our ambition on how we want to do that.

Let me then give some more details and comments on our operation in Norway. We are now closing in on the finish line of the copper decommissioning project. By the end of this quarter, we only had 18,000 retail DSL lines left and 23,000-plus customer, after having reduced this by 18,000 and 28,000 respectively in quarter two. So, as planned, by the end of this year, there will be very few customers left on our copper legacy network.

As expected, this still represent a tough headwind, but in the coming quarters, this legacy revenues will be washed out. We have a strong mobile service revenue growth in Norway. This is driven by increased demand for mobile connectivity, but also, as I mentioned, strong demand for services on top of the data packages. And as a result of that, the ARPU increased with 4% in the quarter.

We continue full speed on our 5G roll out. Our 5G network now covers approximately 50% of the Norwegian population. Our network position and our value-added services are appreciated by our customers and I'm happy to see that we added 3,000 new valuable postpaid customers in the quarter. We have seen high demand for our security services both in the consumer segment and in the business segment.

We have this quarter successfully launched two new products: we call it SafeZone and Active response. This is to our business customers and we already have 19,000 and 15,000 users on this services after only some few weeks. In addition, we deliver advanced managed security operation services to more than 100 public and private companies in Norway. In the consumer segment, almost 300,000 customers are using our SAFE product.

Let me then talk a bit about how we manage inflation. With the development we are seeing in the global macro picture, managing inflationary pressure has become even more important. And we believe that we have measures in place to reduce this uncertainty. We have during the quarter implemented price increases in most of our markets, which will gradually provide positive topline effects over the coming month.

To take some examples, in Sweden, we have launched a new tariff portfolio with an increased price point of new sales of roughly SEK10 to SEK15. And in the quarter, we added 30,000 new subscribers in Sweden.

We are satisfied with the momentum we now have. And going forward, sales and marketing investments in Sweden, but also in Bangladesh will ease off as we have revamped the go-to-market strategies in these markets and will now capitalize on the new models and the new price plans.

Another example is Denmark, where we have introduced an increase in price points of roughly -- approximately DKK10. And in Norway, we have also done price increases mainly on our fixed portfolio.

Our modernization and digital agenda has been ongoing, as you know, for several years. And I will claim we have a proven track record on how to do that. And this structure program is still running at high pace across the Group to secure continued cost efficiency and a lean operation.

During the first half of 2022, our strategic programs have yield gross savings of almost NOK1 billion, which illustrates just how important these initiatives are for our performance. We are also running a network capacity and energy efficiency program across the Group. And you'll see the result of that also on this graph. This is allowing us to produce more data without increasing costs, and at the same time, reduce energy consumption.

Furthermore, we have entered into two power purchase agreements in 2022, which contributes to the green shift, that also contributes to protect our operations in Norway and Denmark towards fluctuation in the energy prices. The most recent PPA for Denmark covers around 75% of the power consumption and will be operational within the coming two to three years. And as you remember, in Q1, we announced a similar PPA agreement for our operation in Norway.

Over the last years, our organizational modernization efforts have been more than compensating for inflation on personnel cost. This is coming as a result of our organizational modernization programs, new ways of working and the way we digitalize our operations. And as you can see on this graph, the FTEs have come down roughly 13% over the last two years. And we have seen this effect over now several years and I expect this development to continue across the Group.

And as already mentioned, the last few years we have focused on the copper decommissioning in Norway. As this program now is coming to its end, we will now initiate additional focus on reducing legacy also in other parts of the Norwegian operation to bring down cost further and create a leaner Norwegian operation.

Let me then turn to Asia. In Asia, we are continuing our structural agenda. These structured processes takes time. They're complicated. And regulatory processes are time-consuming. But, as we are waiting for approvals, we are using the time wisely to prepare integration activities and to prepare sizable synergy outtake. Telenor is with these transactions creating future-proof companies that can better support ambitious natural digital aspirations and bring new advanced services to consumers across the region.

As already mentioned, the regulator in Malaysia has now given their clearance for the transaction between Digi and Celcom. We are excited to now move towards realizing the full potential of bringing these two companies together, and establishing a commercially stronger and more resilient telecom operator.

We will now move ahead to get the remaining necessary approvals. And in parallel, we have done extensive integration planning such that when we then get the remaining approvals, we will be able to hit the ground running and start operating as one company. We estimate that the merger will be completed within the second half of 2022, as we have previously announced.

In Thailand, we are awaiting their regulator's feedback. We notified the regulator end of January and we are now in dialog with the regulator in their approval process. After the regulatory approval, the next steps in Thailand will be to launch a voluntary tender offer. We expect the transaction in Thailand also to be closed towards the end of this year.

As we have said before, we are also looking at strategic alternatives in Pakistan. The deteriorating macro-economic situation is concerning. That's also why we are taking a write-down in Pakistan this quarter. And based on this, we will do a strategic review of alternatives when it comes to our future operation in Pakistan.

And with that, let me hand over to Tone.

[Tone Bachke, EVP and CFO]

Thank you, Sigve, and good morning.

In 2022, we continue to execute on a forceful agenda focusing on modernization of our networks, value-accretive M&A projects in Asia and future-proofing the Norwegian operation by decommissioning the copper network.

In addition to this, we see revenue opportunities and continued demand for our services on top of connectivity. As part of the overall agenda, we continue our focused approach on the structural programs within areas such as network and IT, energy and organization. However, we also experience that we live in turbulent times.

The topline growth improves this quarter on the back of price increases implemented in most markets. We now see growth in all operations except Thailand and Malaysia and the legacy business in Norway.

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The EBITDA in the quarter was impacted by several elements and I will cover them more in detail soon. Looking through these elements, the underlying EBITDA was fairly stable this quarter. Free cash flow excluding M&A came in at NOK1 billion, as a result of high CapEx payments and negative working capital development.

Moving to revenues. We report a 2% revenue growth for the quarter. And excluding the units in scope for the mergers in Asia and the copper decommissioning effects in Norway, the revenue growth is, as you see on this graph, 3%.

Norway is delivering 4% growth on non-legacy revenue and 4% ARPU increase and is by this almost compensating for the copper decline this quarter. I am particularly pleased to see strong development back in Bangladesh and we also grow across the Nordics also in Sweden, Finland and Denmark. Finally, in the Other segment, we see Telenor Maritime's revenue improving following the pandemic recovery and we also see Telenor Connexion, our company for providing IoT services, coming with a strong growth. On the negative side, we see a continued fierce competitive environment in Thailand.

This quarter we report a stable EBITDA. Starting with Norway, to the left on this graph, we see that growth in EBITDA in the mobile and fixed future segments is offsetting the significant EBITDA decline from the legacy copper business. In addition, in Norway, we have a positive element related to changes in the swap program, which supports in mitigating the negative impact from the copper decommissioning and higher energy prices, and is by this giving the stable EBITDA for the quarter.

We also see that the topline development in Bangladesh is resulting in a 4% EBITDA growth. For Finland, Sweden and Denmark, we see a fairly stable EBITDA. For the quarter, we see a particular negative development in Pakistan, where we experienced a 15% decline in EBITDA due to a significant OpEx increase of 30%. Of the OpEx increase, 50% is coming from energy and another 25% is coming from currency impact. Thailand delivers a 3% EBITDA growth based on the positive impact related to the network filter cost compensation.

As we went through in the last quarter, we also, this quarter, see significant elements impacting the EBITDA, as you can see on the right-hand side of this slide. Let's start with the elements we discussed the last quarter, namely, the legacy Norway, energy cost and project cost. These three elements negatively impact the EBITDA growth in the magnitude of more than 4 percentage points in the quarter. And you see here that the copper decommissioning impact is 1.9 percentage point alone.

And we also, Sigve talked about energy, we have discussed energy cost for several quarters now and we continue to see a significant impact of this. We are actively managing energy consumption and cost also in the same way we are addressing other structural efficiency programs. The cost increases are coming now in several markets, but the largest impacts remain as we've seen before, currently in Norway and Pakistan, which is around 1.7 percentage point of the total.

In addition, this quarter, we also have some positive one-time effects. I already mentioned the compensation for the filter installation in Thailand. We also have a contract settlement in the other business which contributed positively with 1.3 percentage point and we have also done, as I mentioned on the Norway, a lifetime adjustment for the handset installation program in Norway. All-in-all, these elements equal almost out the other negative elements and overall reported EBITDA is around last year's level.

Moving to net income. The second quarter net income to equity holders of Telenor ended at a negative NOK1.1 billion. And I will now talk more about Pakistan. Telenor Pakistan has for some time been subject to impairment testing.

And in the Annual Report we highlighted this sensitivity. Since then, we have seen a deteriorating macroeconomic environment with increasing interest rate, a weakening of the Pakistani rupee and an increased country risk premium. Compared with the assessment we did at year-end, these factors alone impact the valuation negatively by approximately NOK2 billion.

In addition, we have received information about an adverse ruling in the spectrum renewal case. Based on the updated assessment at the end of June, we arrive at an impairment of NOK2.5 billion. Following this impairment, the recoverable amount of the assets in Pakistan is estimated to be around NOK6 billion. We have to acknowledge that this business continues to remain sensitive for the business and macroeconomic environment. And finally, as Sigve said, we will do a strategic review of alternatives when it comes to our operation in Pakistan.

Further, our net financial items, we are this quarter negatively impacted by currency effects. The largest item here coming over the P&L relates to the strengthening of the U.S. dollar compared to NOK, which was around 13% this quarter. As seen in previous quarter, this effect is coming over our P&L as we do not have any U.S.-denominated assets to offset this development.

Over the last years and in line with the development of our portfolio, we have significantly reduced the U.S. dollar-denominated debt from a level above $4 billion to a current level of around $1.3 billion. The impairment of Pakistan and the negative impact on net financial items this quarter leads to a reduction in income tax year-on-year of approximately NOK1.8 billion. This is partly offset by an increased provision related to our exit from India.

Moving to free cash flow. CapEx for the quarter is in line with our plan for the year and is primarily driven by the 5G rollout in the Nordics, the fiber investment in Norway and network investments in Thailand.

Free cash flow ended at NOK900 million. This was a result of high CapEx payments in the quarter, combined with a negative working capital development. Given the supply situation, we see related to certain equipment, we also have to some extent built up stock related to some key equipment and components. I expect the cash flow to improve in the second-half based on phasing of spectrum, CapEx payments and working capital.

During the quarter, we have paid the first tranche of the ordinary dividend amounting to NOK7 billion. This combined with an equally large impact from currency impacts on our net debt lifts the leverage for the quarter to 2.2 times EBITDA. We have also in June repaid with cash a bond of EUR500 million, taking down the gross debt and the U.S.-denominated exposure. This debt was then swapped to dollars.

Moving to the outlook. Financial performance for the first half of the year was negatively affected by copper decommissioning in Norway, high energy prices and tough competition in Thailand, as well as the cost related to the strategic projects.

As previously communicated, due to the headwind from copper decommissioning, energy prices and high project activities, we do expect EBITDA to lag the revenue growth with a few quarters. In the second quarter, we have implemented initiatives both on revenue and EBITDA, which are expected to contribute to performance in the second half of the year.

However, we acknowledge the increased global uncertainty, including high inflation and a continuation of high energy prices. For the full year 2022 and excluding Digi in Malaysia, we expect low-single digit growth in organic service revenues, organic EBITDA around 2021 level and a CapEx-to-sales ratio of 16% to 17%.

Finally, we are pleased to welcome you to the Capital Markets Day on September 20th here at Fornebu, where we will go through the business more in detail. Amongst other things, we will provide information about our ambitions in the Nordics, our plans for value creation in Asia and detail out our strategy for the passive infrastructure operation.

Then I believe we are ready for the Q&A.

[Operator]

[Operator Instructions] We'll take our first question, Ondrej Cabejsek from UBS. Your line is open. Please go ahead.

[Ondrej Cabejsek, UBS]

Hi, and thank you for the presentation. And my first question would be on the EBITDA outlook. So you've downgraded to slightly to roughly flat compared to last year. And you've had some I think meaningful positive one-offs in this quarter. So can you please remind us in terms of what changed in terms of your assessment of the second-half despite incurring these positive one-offs? Is there anything beyond, for example, the energy situation in the two markets, specifically that you mentioned that should weigh down on EBITDA more than you expected?

And then second question if I may just a small clarification on the copper decommissioning. So, clearly you are now down to very small numbers in terms of subscribers. But the run rate in terms of the drag on the topline is still roughly about NOK450 million for the rest of the year and then NOK0.5 billion for 2023 and beyond. So can you maybe help us reconcile those two things, the very small number of subscribers, but then the higher value attached to these? Thank you very much.

[Tone Bachke, EVP and CFO]

Yes. Let's start with the guiding. Yes, we have fine-tuned the guiding based on where we are year-to-date and the outlook as we see it. And I would just like to remind you that the guiding at any given point reflects our outlook for the year. The outlook, of course, includes both potential upside, but also risks. What we didn't cater for previously in the guiding is the elevated price levels we now continue to see on energy going forward.

So on the copper decommissioning decline, yes, we are now at a significant run rate of decline and we will continue, as you rightly point to, to have these year-over-year effects, because there is revenue -- still although there is a steep reduction, there is still a revenue from this business.

So although we expect to end the -- or to take out the remaining 18,000 customers towards the end of the year, we will still have, as you rightly point to, year-over-year effects for the first -- probably the mainly effect by the first three quarters also for next year. And we also provided more information on this in the first quarter when Petter-Borre was with us.

[Operator]

We will take our next question, Terence Tsui from Morgan Stanley. Your line is open. Please go ahead.

[Terence Tsui, Morgan Stanley]

Thank you. Good morning, everyone, and thank you for taking my question. My question was just looking for a bit more precision on the slide around cash flow and more particularly -- and in more detail. Are you just confident that this year's cash flow will match last year's level? I'm just trying to get comfortable about the dividend policy of growing the DPS versus the cash flow tracking below last year's level in the first six months of the year. Thank you.

[Tone Bachke, EVP and CFO]

Yes. We do expect the cash flow to pick up in the second half of the year. And you see, as you saw in the graph and as you've seen in several quarter, it is quite a big fluctuation quarter-over-quarter on the cash flow. In the second half of the year, we expect that the paid CapEx will be slightly lower. We also expect somewhat lower license and spectrum fees and we expect the working capital to improve. There is no change to the dividend policy, as we have talked about before. So, that's -- there are no changes there.

[Operator]

We'll take our next question from Andrew Lee from Goldman Sachs. Your line is open. Please go ahead.

[Andrew Lee, Goldman Sachs]

Yes. Good morning. I have two questions just on the macro headwinds you're facing at the moment. So first question just on the energy prices. Could you just tell us what you're now -- what energy prices you are now factoring into your 2022 guidance? You're assuming the current prices you're paying for energy continue through 2022?

And then the second question is just on the macro outlook in Asia more broadly. And I appreciate there will be a ton of nuance across your assets. But could you just talk about whether you're seeing any spin-down, cancellations or other signs of more permanent drop-offs in revenue given the macro pressures seen across the region? Thank you.

[Tone Bachke, EVP and CFO]

Should I take the first and you the second?

[Sigve Brekke, President and Group CEO]

Yes.

[Tone Bachke, EVP and CFO]

Yes, that's a good split. What we see across our portfolio is that energy prices vary significantly. We even see it in the Nordics, we talked about this in the third quarter last year, how the price dynamics is. However, and as I said, we see Norway and Pakistan is now the main drivers for the increased cost.

But we also see that in other markets that price increases are coming through. We see a slight impact in Denmark this quarter, we see some impact in D&A. So it is of course very difficult to say it on an overall -- on a market-by-market basis, but overall, we do expect a headwind also into the second half of the year for energy costs.

[Sigve Brekke, President and Group CEO]

Yes. On the macro effects in Asia, I guess, your question is, do we see any impact on the affordability with our customers. Short answer to that is no. We are very happy to see the revenue growth in Pakistan; not only revenue growth, also subscriber growth, not only in Bangladesh and we also saw good growth levels in Pakistan.

The issue there is on the cost side. We see still some COVID effects in Thailand and Malaysia, the tourists are slowly coming back, but not even close to what it used to be in the same with the migrant workers. So, it will still take some time before we are back to the pre-COVID time. But as of now, we don't see any effects on the affordability.

[Andrew Lee, Goldman Sachs]

Thank you very much. Can I just have a clarification on -- so your expectations on the energy prices, so you say you expect the headwind also into H2. So in your guidance now, you're factoring in the energy prices will stay at the current elevated level you're seeing today through H2?

[Tone Bachke, EVP and CFO]

Our outlook today represents our best view for each of the markets where we operate in, and I cannot give any further details within that guiding.

[Andrew Lee, Goldman Sachs]

Okay. Thank you.

[Operator]

We will take our next question from Peter Nielsen from ABG. Your line is open. Please go ahead.

[Peter Nielsen, ABG]

Yes. Thank you very much. If I can just return to Norway, please, you've discussed the EBITDA outlook, Tone. And at the last quarterly presentation, Petter Furberg obviously gave us a presentation issue referred to earlier, including a positive outlook for future growth in fiber and FWA to pick up speed. We are seeing positive net adds in the quarter. Are you happy with the net adds you've seen in fiber and FWA uptake in Norway and would you expect to see an acceleration in the coming quarters? And can I just ask you now covering your 5G network in Norway is covering 50% of the population. When do you think you will start to see sort of a meaningful impact from 5G upselling? Thank you.

[Sigve Brekke, President and Group CEO]

Yes. I guess I can take that. We are now really focusing on rolling out our 5G network. We do see effects on the upselling already, and of course, we will see more of that in the coming quarters. The both the fixed wireless access and the fiber addition this quarter, it's low and that's why also Tone said in her presentation that we expect that to pick up now over the summer as it usually do and then in terms of the fourth quarter.

[Operator]

Our next question from Titus Krahn from Bank of America. Your line is open. Please go ahead.

[Titus Krahn, Bank of America]

Good morning, everyone, and thanks a lot for taking my question and the presentation. I have just two topics on the Asian markets, if I may. The first one, maybe on Thailand, you just already mentioned that tourism is to some extent coming back, and I think we see even more inflows from European and North American travelers compared to, for example, China. Do you have different exposure to those two different groups in terms of European travelers versus the Asian ones and how should we think about trends for the next quarters?

And maybe then on the Thailand M&A progress, could you give us maybe an update and remind us why you are so confident to close as you assume whereas there are different opinions on the responsibilities and the process? And then maybe very quick [technical difficulty] quite good service revenues and EBITDA trends, but we recently heard about the ban on SIM card sales. Could you elaborate how you're dealing with the ban and the regulator and how it could impact your trends for the remainder of the year?

[Sigve Brekke, President and Group CEO]

Yes. Let me take Bangladesh first. We are in active dialog with the regulator on the SIM card ban, and we are hopeful that we will find a good solution on this. So we do not expect that that will have any major impact on our ability to add new subscribers. And we are very pleased with the subscriber additions in the second quarter and that was expect also in the rest of the year.

In Thailand, there are two effects, as I mentioned. One is the tourist and other one is the migrant workers. We have a relatively high market share in both the two segments. And the migrants are now slowly coming back. And this is an important segment for us, because, as I said, we have a good brand among those -- both on their domestic uses, but also on their international calls.

On the tourists, there are, as you said, there are two different types of tourist. The more Western-based tourists, they come with their SIM card and we have roaming -- some roaming effects out of that when they are roaming on our network. And then you have the Chinese and most of the Asian, which actually buy a new SIM card when they land. And in that segment, again, we have a relatively very high market share. And that segment, it's coming back very slowly.

So going forward, we see effects from both Asian tourists returning to Thailand, but also the migrant workers. And we expect -- we see that this is now gradually coming back, but it takes time. So over the next two quarters and then going into next year, we hope to get back to the pre-COVID situation.

[Titus Krahn, Bank of America]

Okay. Very clear. And maybe just a comment again on the M&A progress in Thailand.

[Sigve Brekke, President and Group CEO]

Yes. It's going as we expected. The regulator is looking at the application that handed them in back in January, and they have started to also look at potential remedies. So we have good dialog with the regulator now as we expected to have. So it will take some time, as we also expected. Of course, we had hoped that we already should have some clearance there, but again, this is as expected. So it's a normal process.

Of course, we are positive that we will get the regulatory support. There is no guarantee, of course, but this dialog that we are seeing now is productive and is positive, and it is as expected, very similar to what we saw in Malaysia also leading up to their regulatory approval we just got there.

[Operator]

We will take our next question from Francesca Schild from Exane BNP Paribas. Your line is open. Please go ahead.

[Francesca Schild, Exane BNP Paribas]

Good morning and thanks very much for taking the question. I just had one on B2B please. And are you feeling any incremental pressure from Telia?

[Sigve Brekke, President and Group CEO]

What was the question again?

[Tone Bachke, EVP and CFO]

If we are feeling any incremental pressure from Telia on B2B? I would assume the question relates to Norway.

[Sigve Brekke, President and Group CEO]

We are feeling pressure from all our competitors in Norway, Telia being one of them. And Norway has been, is and will be a very competitive market. So that's both on the B2C segment, but also on B2B segment. So what we are doing right now on the B2B segment is really focusing on value-added services. And I mentioned that in my introduction that we see now pickup demand on both private 5G network, we definitely see it on security, and we also see it on some other products. So we are staying competitive and we are happy with the position we have in that segment in Norway as of now.

[Operator]

We will take our next question from Ulrich Rathe from Jefferies. Your line is open. Please go ahead.

[Ulrich Rathe, Jefferies]

Yes. Thanks. Two questions, if I may. The first one is regarding Pakistan, this impairment. Is it possible to attribute the impact of this spectrum ruling of the Supreme Court versus the deteriorating macro situation; my first question is.

The second one is in Thailand, just coming back to what you said, Sigve, the local news flow seems to say that there is personnel being appointed at the regulator who is voicing opposition. And then in your comments you said where we hope to get the approval earlier.

So there seems to be a story building here that there's sort of the delays to the process, creating situation that might be more difficult, because the regulator is changing. Is that something that you recognize and how do you view the time aspect in view of the sort of appointments that are happening? Thank you.

[Sigve Brekke, President and Group CEO]

There is a lot of speculations in the Thai market on this issue and the other issues as well. So, as I said, this is going as we expected. It is a dialog we have now with the regulator. There are different views inside the regulator, as we expected. So there are no surprises here. And this is a dialog very similar, as I said, to Malaysia, where the regulator is asking questions for clarification. We are answering.

And then we will also get into our remedy discussion that will be very important for both ourselves and the regulator. So no surprises here, I will say, at all. And I'm disregarding all the rumors in the media more looking at the actual process that we now have. So these are time-consuming processes, but we also have to remember that these are major mergers that we are merging two large companies into one, and it is very natural that the regulator in such cases have questions. So that's why I'm saying that not surprising to us. This was as expected and we will continue to have that constructive dialog with the regulator.

On Pakistan, it's not a spectrum issue, it's a license renewal. So this is a process that has been going on for several years both with us and some of our competitors. It's a renewal of the license we got back in 2005. We disputed not the terms of the renewable, but the payment of the renewable, and that is what the Supreme Court now has made a ruling on. However, we have got a notice, but we haven't got the final ruling from the Supreme Court. So I don't want to speculate what's going to be said in the final ruling, nor if that has been affected by the macro or the political situation.

[Tone Bachke, EVP and CFO]

But I think in respect of the impairment, of course, given the situation, as I said both on the macro side and the license renewal case, we do a full revisit of the business case and the financial projections that we can do from an accounting perspective. So that includes the totality. And the license renewal case, as Sigve said, the government claimed $449 million and we claim $291 million. So that's kind of the magnitude of the difference in amounts. And then that is of course discounted over the payment period with the equivalent high WACC that we see in Pakistan.

[Operator]

[Operator Instructions] We'll take our next question, Frank Maao from DNB. Your line is open. Please go ahead.

[Frank Maao, DNB]

Yes. Good morning and thank you for taking the question. So my question is basically on OpEx development. You didn't have a separate slide on that this time. But I think if you adjust for the positive one-offs or accruals in the quarter, I think OpEx is somewhere in the territory of 5% to 6% up year-on-year and you've guided for next year that you hope to get OpEx down to minus 1% to minus 3%. So could you please walk us through how -- what you're doing and kind of what the main effects will be to get OpEx to kind of bridge that gap and then get OpEx back into a lower pace in the second half of this year, please? Thank you.

[Tone Bachke, EVP and CFO]

Yes. Thank you, Frank. Firstly, I believe our guiding ends this year and we will come with the new guiding now at the CMD in September. When it comes to OpEx development, we have, and as we also said on the first quarter, we have now for two years seen a significant decline and we expected some increase.

The categories with increasing OpEx are the same as we have talked about before. We see very -- compared to other elements, we see slow increase in salaries and personnel. We remember this development was negative in the Q1, it's more flattish in Q2, a slight increase.

We continue -- we have continued to be very active in the market when it comes to Bangladesh and Sweden. And in Sweden, we have also launched a full new mobile portfolio as Sigve said in the second quarter, which has cost additional funds, but it is sales and marketing, particularly, these two countries. And then the final element is the energy, as we talked about, and that is the main part. And then we have, of course, on the non-such operational cost, it's just cost related to the strategic project. So, the development is quite along the same lines as we saw in the first quarter.

[Sigve Brekke, President and Group CEO]

And just as you also said in your presentation, Tone, over the last two years, we have to took down the OpEx with 9%.

[Tone Bachke, EVP and CFO]

Yes.

[Sigve Brekke, President and Group CEO]

So some of this market and sales related OpEx cost is, as expected, coming back.

[Frank Maao, DNB]

Okay. Thank you. If I may, a follow-up on your previous statement on the prior presentations on the potential for a more Pan Asian consolidation. How -- can you give us an update on how the current inflationary and geopolitical environment has affected the prospects of such development, if at all? Thank you.

[Sigve Brekke, President and Group CEO]

No. As said in previous calls, Frank, we are still looking at that in addition then to finding or reviewing structural alternatives in Pakistan. We are also looking at is there something more we can do on the regional level. So I don't have any updates on that. That's something we have evaluated now for quite some time and still are. So I wouldn't say that that is really affected by the macro, the political development in Asia.

[Operator]

We will take our next question, Usman Ghazi from Berenberg. Your line is open. Please go ahead.

[Usman Ghazi, Berenberg]

Hello. Thank you for the opportunity. I just wanted to ask just on the mobile segments, the shift in trend that we're seeing. In the report -- so, not in the presentation, but in the report you highlight that you're seeing return of roaming volumes across the Nordic region and that in part has helped the mobile trend. Is it possible to indicate how much of the improvement in trends that you've seen is a result of return of stronger roaming this quarter?

And then just on the price increases that you have put through, can you perhaps give some color? I mean, are these CPI-linked pricing kind of regimes that you have introduced now in your markets? And what kind of reaction are you seeing from competitors? Are they following your price increases or not? Thank you.

[Tone Bachke, EVP and CFO]

When it comes to roaming, yes, we see roaming is back. We estimated to be at around two-third of the level it was in 2019. Of course, roaming related to Europe is not providing the same revenue as you typically would see tourist segment and these things in Thailand. But we definitely see roaming coming back. And then we, of course, know that the third quarter is probably the main roaming quarter now as people are going on holidays.

And then the second question, Sigve, what was that?

[Sigve Brekke, President and Group CEO]

Yes. No, the price adjustments we have made, they are not inflation-adjusted. There are some of the B2B contracts we have, they have the index adjustments, so we do that. But on the consumer side, it's not. So those are initiatives that we have taken on our own so to speak. I don't want to comment on what our competitors are doing. We see alternatives for adjusting our prices when we have to give more value to our customers. That's what we do in Norway, and we give more speed, for example, or more value-added services on top of the data access. And that's also the basis for the new portfolio that we have launched in Sweden.

[Operator]

[Operator Instructions] We'll take our next question from Nick Lyall from Societe Generale. Your line is open. Please go ahead.

[Nick Lyall, Societe Generale]

Yes. Good morning, everybody. I hope you're well. Just a quick question really on the one-offs, please. I just wondered why the Thai filter costs in the other cost weren't classified as one-offs and removed from the other items, please. And just to clarify, I think it's the case, but they are included in the guidance obviously as well given they are included in the quarterly EBITDA numbers a little positive boost to reduce EBITDA number.

And the second thing was, on Norway you make a mention of this reclassification of energy costs. Could you just talk us through that as well, and whether it's large and what actually to move is, please? Thank you.

[Tone Bachke, EVP and CFO]

Yes. On the reclassification of energy cost, it's moving between the OpEx and the COGS element in Norway. And this is related to the relationship also between Telenor Infra and Telenor Norway. So I think the walk through of that I will leave to Investor Relation.

The filter cost is an item which is on a regular basis, but we have decided to take it all now, because we paid this to the regulator now. So we don't consider this as a one-off in the traditional context, where it is excluded. It is part of the ordinary operation, but we have been somewhat conservative in how we have booked it earlier in the year.

[Nick Lyall, Societe Generale]

And compared to previous moves, presumably, it's a much, much larger move. Is that the point? So a little bit classification just seem the size is much greater than previous quarters. So, I mean, in that sense, just what's the trend?

[Tone Bachke, EVP and CFO]

Yes. So we actually book it when we do the payments to the regulator and when we have the cash effects related to this element. We had one payment not in the same magnitude or correct in the third quarter last year in Thailand, but this is a significantly larger element based on that it's relating to three quarters.

[Nick Lyall, Societe Generale]

Okay. That's great. And the other two you mentioned on the slide, the other one-off payments as well, I mean, obviously they are -- I mean, I think most companies might consider them one-offs as well. So, you are still happy to have them in as one-offs in the OpEx. I'm slightly surprised that you've got contract settlements and handset adjustments in the sort of an underlying EBITDA number.

[Tone Bachke, EVP and CFO]

Yes. Well, this particular contract you're referring to, it's a contract with a minimum volume. So we could have, of course, have accrued for it as we go along, but here we follow very strict accounting rules. So when the contract comes to an end, and there is a calculation of the actual volume versus a minimum volume, that is when the full effect comes. But it is accrued throughout the contract period. So, again, it's accounting element, but it's part of the ordinary operation of the business.

In Norway, we do, of course, the swap is an integrated part of the business. But this time, we have done some adjustment, we regular of course revisit the terms and the actuals versus what we include in the accounting for these elements and now we also have an improved resell agreement related to phones, and we have also increased visibility on the remaining value of the swapped phones. So this is what's causing us to do that again, an adjustment now and then that will be part of the running assessments going forward.

[Operator]

[Operator Instructions] We will take our next question, Adam Fox-Rumley from HSBC. Your line is open. Please go ahead.

[Adam Fox-Rumley, HSBC]

Thank you very much. I may have two please. On the Pakistan strategic review that you've mentioned today, the country is obviously facing huge challenges at the moment. Can you talk a little bit more about the plans for that review? Is it just M&A or is it something kind of more structural within the business and how do you ensure the best outcome for the shareholders in that deteriorating environment, I think you described, it as challenging in the release?

And then secondly, just a clarification on an earlier comment. Did you say that you expect customer run rate -- customer growth in Bangladesh in the second-half to roughly be equal to the first-half despite that SIM ban? Thanks.

[Sigve Brekke, President and Group CEO]

No, I didn't use those words. I said that the customer growth in the second half of the year should not be impacted by the SIM ban, but I didn't refer to the growth we had in the first half of the year.

On your other question, we will definitely look at what is creating shareholder value when we do the review, but I don't want to comment on what the content of that review. Of course, it is looking at operation, can we run that more efficiently than we already do, but we're also looking at any other types of alternatives for us to secure our value in Pakistan.

[Operator]

[Operator Instructions] We will take our next question, Keval Khiroya from Deutsche Bank. Your line is open. Please go ahead.

[Keval Khiroya, Deutsche Bank]

Thank you much. You talked about the currency exposure on debt, but can you remind us of your currency exposure on OpEx and CapEx in EM markets? How much is local FX and how much is dollar-linked? I guess I'm thinking about Pakistan in particular the currency has been weak, but instead more importantly in EM too? And then secondly, can you just remind us of how much cash you actually extract from Pakistan annually as well? Thank you.

[Tone Bachke, EVP and CFO]

Yes. We have, as you rightly point to, we have some dollar exposure and that is what's coming through in Pakistan this quarter. The split varies and I will -- we have not given that details, but I would advise you on both those topics to have a call with the Investor Relation and see what they can give you of further information.

[Operator]

We will take our next question, Usman Ghazi from Berenberg. Your line is open. Please go ahead.

[Usman Ghazi, Berenberg]

Hi. Thank you for allowing me a follow-up. Just on this Bangladesh situation, Sigve, you've said that you do not expect the SIM card ban to have an adverse effect on the guidance, you've also said you do not expect the ban to impact customer growth in the second-half. I mean, I guess, your comments imply you expect a resolution on this fairly soon, if those two comments are true. I mean, is that a fair reading of the situation or am I misunderstanding what you said? Thank you.

[Sigve Brekke, President and Group CEO]

No, I think that's a pretty fair reading of the situation. I do expect a resolution on this, and we have active dialog and a productive dialog with the authorities, but I don't want to tie that to Q2 numbers, but I don't, as I said just repeat that, I don't expect that ban to impact our business in the second-half.

[Usman Ghazi, Berenberg]

Thank you. And just a follow-up. I mean, is it fair to say that this -- I mean, any resolution should not be expected to be linked to the tax dispute that has been ongoing between yourselves and the government there? Or --

[Sigve Brekke, President and Group CEO]

Those are two very different issues. Don't tie them together. Just one more time, we expect a good solution on this such that is not hampering our business, that what I can say about this.

[Usman Ghazi, Berenberg]

Thank you very much.

[Sigve Brekke, President and Group CEO]

Okay. Sounds like that ends the Q&A.

[Tone Bachke, EVP and CFO]

Yes. Thank you, everyone, for listening in, and thank you for asking questions. Have a nice day.

[Sigve Brekke, President and Group CEO]

And have a nice day, everyone.