Telenor ASA

OSE:TEL

Earnings Call Analysis

Telenor Reports Strong Q3 with Synergy Focus

Telenor had an upbeat third quarter solidifying its strategic plans with a 4% service revenue growth and a robust 7% rise in adjusted underlying EBITDA. The company's commitment to efficiency led to a considerable free cash flow of NOK 4.3 billion. Execution efforts in the Nordics bore fruit with 4% EBITDA expansion, alongside aiming for a 'future fit' organizational structure. Significant progress was made in the Asia market consolidations, leading to a healthy #1 position in three of four markets and forecasting synergies valued between NOK 20 billion to NOK 25 billion. Rejuvenated leadership with the welcoming of a new Group CTO from Google Cloud promises a focus on AI and technological leadership. Finally, international ambit rests on substantial projected synergies amounting to NOK 28.5 billion and a resolve to generate a positive free cash flow before M&A in the subsequent quarter.

Solid Service Revenue and EBITDA Growth Mark Telenor's Financial Highlights

Telenor Group reported promising financial figures with service revenue growth of 3.6% and an EBITDA increase of 1.5%. Upon adjusting for a one-time effect in Pakistan from the previous year, the service revenue and EBITDA actually grew by 4.4% and 7.3%, respectively. This demonstrates underlying strength beyond non-recurring factors. The CapEx to sales ratio was 13%, signifying more front-loaded capital expenditures as per the company's strategic capital allocation. Moreover, a robust cash flow of NOK 4.3 billion was generated, aligning well with expectations.

Geographic Segments Show Varied Growth, Asia and Nordics Leading

The Nordics contributed significantly to organic growth, posting a 3.6% increase, while Asia showed a 3% rise. Adjusting for the SIM tax, Asia's growth was an impressive 5.6%, fueled mainly by ARPU growth in Bangladesh. Service revenues in segments of Amp maintained robust growth at approximately 20%, spearheaded by Connexion's momentum. Yet, some other Amp segments didn't perform as favorably. OpEx saw a 5.9% surge due to higher costs in Asia for energy and network expansion, and in the Nordics, the increase was principally due to wage inflation and subscriber acquisition costs in Sweden.

Operational Efficiency and Prudent Capital Management

Telenor's focus on operational efficiency is evident through their OpEx discipline, which remains critical amidst a climate of high inflation. Infrastructure saw an atypical rise in OpEx due to special projects, although their contribution to the total OpEx was slight. With the Nordic region experiencing an impressive 7.6% organic EBITDA growth and Denmark benefitting from lower energy costs, the company is acting on opportunities to improve subscriber numbers and ARPU in the fixed broadband category.

Cautious Optimism: A Look at Leverage and Future Cash Flows

Telenor reduced its net debt by over NOK 7 billion in Q3, achieving a net leverage that returned within its target range. The company remains vigilant about managing regulatory and tax risks in its operations, especially in volatile markets like Pakistan and Bangladesh. Expected cash inflows include proceeds from the sale of Working Group Two and anticipated spectrum payments, while the potential impact of merger integration costs and pursuit of synergies in associated companies like True Corporation may influence the investment prospects and the dividend landscape.

Narrowing Financial Outlook for Telenor Nordics

Entering the year with a wide range due to volatility, Telenor Nordics has now honed in on its financial outlook, with updated projections of over 3% service revenue growth and EBITDA growth of 3% to 4% for the full year. Capital expenditure to sales guidance remains unchanged. Energy costs, though, remain an uncertain factor for Q4, reflecting prudence amidst the fluctuating energy market.

Strategic Movements and Cost Management Initiatives

Telenor continues to streamline its international portfolio with active management of its Asian business and anticipation of EU competition decisions that could green-light mergers without heavy remedies. Efforts towards operational efficiency in the Nordics are underway, with aims to reduce cost while improving modernization and extracting dividends from ongoing businesses. Cost reductions are expected to be more significant in 2024, influenced by modernization projects, decommissioning of legacy infrastructure, and the phasing out of the copper network in Norway.

Earnings Call Transcript 2023-Q3

[Frank Maao, executive]

Hi, and good morning, everyone, and welcome to Telenor's third quarter results call. I am Frank Maao, Head of Investor Relations here, and with me here today is Sigve Brekke, our CEO; along with Tone Hegland Bachke, our CFO.As for today's agenda, Sigve will give an overview of our strategic and operational progress for the quarter, and Tone will take us through the key factors driving our financial performance and also give us an update on our outlook. After that, we will open up the line for analyst questions.For the sake of good order, I would like to note that within today's presentation, references to growth rates will be on organic like-for-like currency basis, unless otherwise stated. And please note that both the report and the presentation that accompanies this call have been published on our website.With that, I'll now turn it over to Sigve.

[Sigve Brekke, executive]

Thank you, Frank, and good morning to everyone. I'm pleased to report that in the -- Q3 quarter, that was another strong quarter for us, and that we continue to execute in line with our plans.Let me take you through the highlights. In the quarter we saw a 4% service revenue growth with solid earning progress. We grew underlying EBITDA by a healthy 7% year-on-year adjusted for a SIM tax reversal that had a positive impact in the third quarter last year.In Asia, we continued the active management of our portfolio with a strong focus on cash flow. Both CelcomDigi Malaysia and True in Thailand are moving forward with the integration of the 2 large mergers.In Thailand, True represented -- recently presented a significant higher synergy potential than what we had previously communicated, which will support the cash flow generation in the years to come.We are also moving forward with the portfolio optimization in other parts of the group. And in the quarter, Telenor Amp announced the sale of Working Group Two to Cisco in a deal which actually closed late yesterday. Congratulation to Dan and the Amp team.In the Nordics, we have been executing on our transformation agenda, including networks, IT, shared services, and we are setting ourself up for a future fit Nordic organization. In Norway, as we talked about in the last quarter, we are on track to reduce the headcount this year by approximately 10%, including temporary employees and consultants.Today, we are also announcing further efficiency measures in Sweden. We have over the last 2 years made significant improvements in our go-to-market strategies and product portfolios in the market in Sweden. Now we take the next step to stay ahead of the competition with focus on customer experience, building internal channels and move forward with network renewal and 5G rollout. As a result of this, we target a net headcount reduction of more than 100 FTEs and in addition 50 consultants since August of this year.Transformation is also about innovation to drive growth and improved customer experience. And in this quarter, I was happy to welcome Mr. Amol Phadke as our new Group CTO. Amol has joined us from Google Cloud, where he headed up the Global Telecom vertical. Amol brings with him unique combination of hyperscaler knowledge, telecom and IT and AI experiences.We have already implemented more than 250 AI use cases in Telenor over the years, and we aim to take leadership in this new technology field. I see a large potential both for new products and services and for significant higher productivity across the business over the medium to long-term.And as stated on this slide, I'm also pleased to report that we generated a free cash flow of NOK 4.3 billion in this third quarter.Moving to Nordics. At the Capital Markets Day last year, we outlined a Telenor Nordic value creation strategy, which we called Focus on Profitable Growth. Not everyone was convinced that this will be possible, but this is exactly what we have delivered in the last quarters.Service revenue growth in the Nordics was 4% in the third quarter, despite a small legacy drag in Norway. And on the mobile side, we posted the fourth straight quarter of 5% service revenue growth. This is growth coming from both price adjustments, upselling and value-added services.Further, Nordic delivers a solid 8% EBITDA growth in this quarter. This was partly supported by the energy tailwind, but even when we adjust for the energy tailwind, we delivered a solid EBITDA growth of 4% in the Nordics in the quarter.To sustain growth on the mobile side, we need to continue and refine our more-for-more approach as increasing the value in our offerings. I expect this to support the positive price trends we currently see across the Nordic markets. We will also improve the way we manage to increase competition on the fixed side in Norway, where many players, both small and large, contribute to a crowded field [ on ] competitors across the country.Based on the recent data we have seen from the regulator, we estimate that the overall fiber overbuild is around 1/3 in our footprint. We welcome the proposed new broadband regulations in Norway, and we believe that this new regulation may level the playing field and reduce the incentives to build unnecessary parallel infrastructure.Given that we are the only player being regulated today in the fixed business, new regulation for us will also open up wholesale access to approximately 400,000 new households where we can sell our products in a capital-efficient way, and focused capital allocation and a good return will continue to be of essence to us.Finally, we will continue to mitigate inflation by taking out costs. For example, in Norway, OpEx was actually down 1.5% in the quarter despite a 5% to 6% salary inflation. We expect salary inflation in the Nordics to come down going into 2024 based on the completed Central salary reviews in both Sweden, Finland and in Denmark.Zooming in a little bit more on Norway. This slide is an illustration we have used now for several quarters to explain the relationship between reported and underlying growth in our Norwegian business. This quarter, we reported an EBITDA growth of 7.5% and a healthy growth also, if we exclude the positive effects on lower energy prices and the drag we have had from decommissioning of our copper business.Underlying growth is at a solid level. Despite that we, in the quarter, lost our largest wholesale customer in Norway, impacted our EBITDA growth by approximately 3% points compared to the previous quarters. This progress, as you see here, reflects both solid revenue growth, but also cost reductions such as the headcount reduction I talked about in Norway.Going forward, the legacy drag from Norway will disappear and energy cost will become less volatile as we will begin to take power deliveries under the long-term Power Purchase Agreement we signed last year.Then turning south, to Asia. The ambition we stated in the Capital Markets Day last year was that we aim to establish market-leading positions in Asia and focus on cash flow. Since then, as you know, we have closed mergers in Malaysia and Thailand, and we have now reached a strong #1 position in 3 out of the 4 markets where we are present.We have a total customer base of approximately 200 million people in these 4 markets. Many mobile users in these markets are still not connected to the internet, partly due to the lack of digital skills. To address this, we are actively driving social empowerment and digital inclusion in the region by several projects, which I also confirm by the pledge we made at the UN General Assembly in September.In Malaysia, we own 1/3 of CelcomDigi. They have a customer base of more than 20 million customers. Despite the ongoing merger integration process, I'm pleased to see that CelcomDigi is now already dividend neutral after the first 3 quarters in this year.In Thailand, we own 30% of the True Corporation. They recently hosted their first Capital Markets Day. It was good to see updated and more precise estimate for merger synergies, which I will come back to in a minute.In Asia, going forward, my focus will be: first, to conclude the ongoing strategic review in Pakistan. The goal is still to do that within the end of this year. Two, to continue to drive growth in Grameenphone, while managing the political and regulatory risk of the operation.Since the SIM band restriction was lifted at the beginning of this year, we have seen customer net addition grow every quarter, and in addition, we have managed to drive ARPU to 9% in this quarter. And three, to work actively as owners to take home dividends from both CelcomDigi and True over the next couple of years as the integration phase peaks and synergies start kicking in. Both companies are now running full speed and I have great confidence in their capabilities and ability to succeed in delivering on the ambition plans going forward.On that note, let me give you an update on where we are in the merger integration process in these 2 company. First, I'm pleased to see that the integration progress in both Thailand and Malaysia is on track. We have established good partnership cooperation between ourself and our partners in both markets. We have established good corporate governance structures, and we have a strong management team in place.Second, we indicated at the Capital Markets Day that the net present value of the combined OpEx and CapEx synergies from the mergers in Thailand, Malaysia would be in the range of NOK 20 billion to NOK 25 billion.But during 2023, the merger benefits have been confirmed and developed further. In January, CelcomDigi announced that the net present value of synergies would be MYR 8 billion, equal to NOK 6 billion for our equity stake. This is in line with what we announced at the Capital Markets Day, [ some ] month before that.And in September, True had its first-ever CMD, where they announced a synergy target of THB 250 billion. This illustrates the huge potential we have from the merger in Thailand. And this THB 250 billion translate into NOK 22.5 billion for Telenor share of the company.And as you can see on this slide, the synergies from True alone is equal to the midpoint of the entire original estimate for both mergers that we outlined at the CMD last year. Following this, and based on the updated numbers for True, Telenor's share of the synergies in these 2 companies now adds up to NOK 28.5 billion in total. We will work through the Board to extract both synergies and dividends as early as possible.I will [ rode ] off with a few words on our Amp business. As you will know, in Amp, and you see that on this slide, we have a wide range of businesses and investments in various life cycle stages from start-ups to very mature businesses.And as I already mentioned, we have now sold off 45% stake in a software startup called Working Group Two. We sold that to Cisco, and the total enterprise value of that was USD 150 million. I think this is a proof point of the value in the growth assets of the Amp portfolio, and we will continue to develop this portfolio with focus on value creation.And on that note, can I invite Tone here to take us through the financials. Good luck, Tone.

[Tone Bachke, executive]

Thank you, Sigve. Good morning, everyone. The third quarter results confirms that we are executing in line with the plan we laid out at the CMD last year. We delivered a solid set of financials both for the groups and the Nordics, supporting our plans and ambitions going forward.Starting with the financial highlights for the Group. We report service revenue growth of 3.6% and EBITDA growth of 1.5%. When adjusting for the one-time effect in Pakistan last year, the underlying service revenue growth were 4.4% and the EBITDA was up 7.3%.CapEx to sales came in at 13%, which was lower than in previous quarters. This is in line with what we have communicated on CapEx being more front-loaded this year, and it's also a testament to our stringent focus on efficient capital allocation.On cash flow, we generate a solid NOK 4.3 billion, reflecting a strong quarter, in line with our expectations. With these highlights, let me get more into the details of the performance.Starting with the top line. Nordic was the largest contributor to organic growth with 3.6%. Asia reported 3% growth, but when adjusting for the SIM tax, the growth was actually 5.6%. This growth is driven by solid ARPU growth, particularly in Bangladesh.The parts of Amp where we have service revenues, continued to show strong growth in the third quarter at still around 20%, and it's driven mainly by the sustained momentum in Connexion. Although we see that other parts of Amp had less of a [ debt ] level of favorable development.OpEx for the group increased by 5.9% in the quarter, and this is mainly coming from a 10% increase in Asia, which is related to higher energy cost and network expansion. OpEx in the Nordics increased by 2.8%, with wage inflation across the region and increased subscriber acquisition costs in Sweden as main drivers. And as we have already mentioned, we are today announcing a rightsizing of the organization in Sweden to support our targets and ambitions going forward.Infrastructure had an unusually high OpEx increase this quarter, mainly due to some special projects, although the contribution, as you see to the overall total OpEx is limited. OpEx discipline remains an important contributor to our performance and targets as communicated at the CMD. Hence, we will continue to be ambitious on OpEx, despite being in a high inflationary environment.This brings us to the Group EBITDA which increased by 1.5% on an organic basis and 7.3% adjusted. Nordic was an important contributor to the growth with 7.6% organic growth. Asia showed an EBITDA decline on a reported basis, but 4% on an adjusted basis.Amp's EBITDA decreased by 9% compared to the third quarter last year due to tougher comparable numbers. This was especially due to a significant and particularly favorable messaging contract in Linx last year, and I expect this negative year-over-year trend to sustain also in the quarter we are in now.Zooming in on the Nordics. Also this quarter, we see 5% mobile service revenue growth, with DNA in Finland standing out with the highest growth and Denmark being the more challenging market in terms of revenue growth. Fixed service revenue growth was 1% in Norway and 3% when adjusted for the remaining copper legacy headwinds.We are working actively to address ARPU growth in fixed and drive subscriber growth with commercial activities and campaigns. We see an improvement in our broadband subscriber base, including around 5,000 new fiber customers this quarter.An important milestone in the third quarter was the spectrum auction in Sweden. Here, we succeeded in renewing important parts of our low-band and mid-band spectrum portfolio at what we see as very attractive terms and an overall outcome.The top line growth drove EBITDA for the Nordics to 7.8%, supported by lower energy cost and less drag from copper in Norway. All business units had solid organic growth rates ranging from 5% in Sweden to 14% in Denmark.As for Norway, Denmark is currently benefiting from the lower energy cost compared to last year. Norway was the main contributor, once again, thanks to solid mobile ARPU growth from value-added services and pricing initiatives.Please note that around 107,000 wholesale subscribers left us in Norway during second quarter, which gives full effect this quarter.Moving to Pakistan, and let me start with Grameenphone and Telenor Pakistan, our 2 consolidated business units. Organic service revenues grew 5.6% on an underlying basis, while underlying growth in EBITDA was 4.1%. Grameenphone's ability to sustain the catch-up of lost customer subscribers after last year's SIM card ban has been the key to this, together with accelerating ARPU growth as data usage almost grow 25%.We continue to see growth opportunities in Grameenphone. However, we are also mindful of the risk rewards considerations in Bangladesh. Pakistan continues to be a challenging market with high inflation continuing at a very high level.Moving to our associated companies. A key event this quarter was True's CMD. I believe the magnitude of the synergy here bodes well for future dividend capacity from True Corporation. I'm also pleased to see that CelcomDigi is already dividend neutral compared to Digi last year.Clearly, while we are pursuing large scale synergies in these businesses, there will also be merger integration costs, which we talked about before, that will impact the dividend in the shorter term. For True Corporation specifically, we will work actively to extract meaningful dividends over the next couple of years.Moving to the cash flow. Q3 is the seasonally strongest free cash flow quarter for us, and we generated NOK 4.3 billion this quarter. As opposed to the second quarter, this quarter, we saw the underlying operational improvements coming through to the cash flow.Sequential drivers of free cash flow were higher EBITDA and improvement in net working capital compared to the second quarter. In addition, we saw seasonally lower interest payments, lower license payments and also tax payments. The latter category included, of course, several special items in Bangladesh in the previous quarter, as we talked about [ that ].We aim to generate a positive free cash flow before M&A also in the fourth quarter. However, some of the outstanding cash flow items we pointed to for the second half of the year at our Q2 call could have effect in Q4 or later. Among these are -- is the M&A-related cash flow from the sale of Working Group Two that we closed yesterday. This will then expect to come now in the fourth quarter.In addition, there will be spectrum payments in Sweden and Bangladesh, where we estimate it to be around NOK 600 million, and this includes the payment of the recent spectrum award in Sweden with SEK 370 million.Another element is the potential late payment on the principal amount paid in Q2 in Bangladesh. We remain exposed to regulatory and tax risk in this operation, and we are, of course, focused on diligently managing this risk.Finally, we are currently awaiting the Supreme Court's conclusion relating to the Indian tax case with the potential positive cash flow of around NOK 2.5 billion in the event that the case would not be admitted to the Supreme Court.Moving to leverage. At our CMD last year, I described how increasingly volatile external conditions and macro factors could have impact on many of our financial metrics compared to what has been the norms in previous year. And at that time, energy was the most prominent example.This year, some of these factors have lost relevance, while others have persisted. For example, we expect energy prices to be less of a swing factor from us from 2024 going forward due to the Power Purchase Agreements. However, the dynamics related to FX, volatility, inflation and interest rates have increased, and these dynamics are likely to affect both our customers and our own financial metrics going forward.In Q3, net debt declined by more than NOK 7 billion from NOK 88 billion to NOK 80 billion, positively impacted by the stronger cash flow and also the stronger NOK at the quarter end. On net leverage, we also returned within our target range this quarter. But as we talked about, FX will continue to remain a swing factor.This quarter, we decided to take advantage of a good window in the bond market to secure funding for parts of our 2024 maturities. This was the first time we went in the Eurobond market since February 2020. The transaction attracted strong interest and we secured EUR 1 billion at some of the lower spreads in many years in a transaction with a total order book of NOK 3.5 billion.Moving to our financial outlook, which is relating to Telenor Nordics. We entered this year with a relatively wide range, given the volatility we saw at the start of the year. With 3 quarters of the year now behind us, we have narrowed in the outlook.We see also we have a solid Q3 behind us, and we continue to see stable revenue trends in the Nordics. But we also note that energy costs remain a potential factor in the fourth quarter.Based on this, our updated outlook for organic service revenue growth for the full year is to be above 3%, and we expect EBITDA growth in the range of 3% to 4%. Our CapEx to sales guidance is confirmed.All in all, we are pleased with the Group's performance this quarter. We are well on track to deliver on our medium-term targets and continue to invest in our business in a disciplined way with a firm eye on return on capital and distribution to shareholders.So Sigve, with that, I will welcome you back on stage, and I believe we are ready for Q&A.

[Sigve Brekke, executive]

Yes, we are. Okay, please start.

[Operator]

[Operator Instructions].

[Tone Bachke, executive]

Okay. Do we have anyone on the line?

[Operator]

Yes. We'll now take our first question from Ondrej Cabejsek at UBS.

[Sigve Brekke, executive]

We cannot hear anything.

[Tone Bachke, executive]

Maybe we can move to the next.

[Sigve Brekke, executive]

Operator, can you hear us?

[Ondrej Cabejšek, analyst]

Hello? Can you hear me?

[Sigve Brekke, executive]

Yes. Now we can hear you.

[Ondrej Cabejšek, analyst]

Thanks for the presentation. So I wanted to ask about the Asia dividends where we have updated guidance on the synergies from Thailand. So I was wondering, you have a NOK 5 billion target for the upstream of free cash flow from 2025 onwards, that's supposed to help you cover the dividend. So basically putting the upgraded Thailand synergies against a potential Pakistan sale, do you think that the higher cash coming from Thailand would be, in effect, compensating for any [ loss ] on Pakistan, i.e., with the NOK 5 billion target still the impact, even in the case of a Pakistan sale?And then just following up on the regulatory update that you gave around the fiber regulation. So you mentioned that 400,000 homes as a potential addressable market. When can we expect an acceleration in the fixed business in Norway now that's obviously legacy is out of the system and you are opening kind of new revenue streams? Do you think that the fixed revenues can kind of achieve a similar growth rate of about 3%, 4% as mobile is seeing in Norway?

[Sigve Brekke, executive]

You take the first one?

[Tone Bachke, executive]

Yes. So we -- as you said, we communicated NOK 5 billion as the target from Asia in 2025, and that is the target. And then we'll, of course, have to see with -- what happens in the portfolio. But as we said also last year at the CMD, that Pakistan was not the main driver for that NOK 5 billion. And then now we are very pleased to see the dividends we are receiving on a quarterly basis from CelcomDigi, and then we will be ambitious on behalf of dividend also from True going forward based on their updated plans and synergy estimates.

[Sigve Brekke, executive]

On the fixed regulation in Norway, let me just explain what it is, because in the past, we were the only fixed operator that was regulated. There was a national regulation. What the regulator now has said is that I want to break that national regulations into a regional regulation. So they are breaking it into 22 regional places. Out of the 22, we will be then regulated only in 4 of them. The rest -- the other players will be regulated. So we think that this is the access we will get the 400,000 households that I talked about.We hope that the new regulations will come in place in the end of next year. It could drag into the beginning of '25 also, but we really hope that it will happen sooner. In addition to that, we also hear other players saying that they want to open up their networks for wholesales even before the regulation comes into force. So as soon as we can start now selling our products on others network, of course, we will do that. And I cannot guide on what the revenues will come out of that, but this is a big opportunity for us.

[Tone Bachke, executive]

And maybe just to add on your growth numbers, because in the third quarter, and actually also in the second quarter, if we take out the legacy revenue from the copper business, we are at a growth rate of around 3% in the fiber business. So we are -- that is a solid contribution to growth.

[Sigve Brekke, executive]

And the third quarter was better than the second quarter in this respect.

[Tone Bachke, executive]

Yes.

[Sigve Brekke, executive]

Please, next caller.

[Operator]

We'll take our next from [ Jacob ] at Exane BNP Paribas.

[Unknown Analyst]

I'll keep it to one question, please. I just wanted to pick up on the outlook for '23, which you updated to 3%, 4% EBITDA growth, which is still a fairly wide range given you've only got 1 quarter to go. I think on my math it implies something between 2% and 6% EBITDA growth. So I was hoping if you could maybe just clarify why such a wide implied range? And also it implies a bit of a slowdown versus the very strong growth you saw this quarter. So if you can maybe just help us understand that a little better? Is it just the energy point that you mentioned? Or is there anything else behind that guidance range?

[Tone Bachke, executive]

Yes. So based on where we stand now, and that it is 1 quarter left to go, we thought we wanted to give a bit more flavor to what we see for the full year, because as you correctly point to, it is a fairly wide range. So I think 3% to 4%, there are some points in there, but it is still a fairly narrow range, and I will not guide within that. But we believe that we have a good pace out of the third quarter. And then as I said, it is mainly the energy which could be a factor in the final year. So there is nothing specific to this. Other than that is -- we believe that this was a better estimate for where we believe we will end for the full year.

[Operator]

We will now take our next question from Andrew Lee at Goldman Sachs.

[Andrew Lee, analyst]

I just had a question on inorganic efforts. So 1 month ago you were mentioning, Sigve, efforts to -- concurrently with your synergy efforts in Asia to look at a secondary listing for your Asian assets. I wonder if you've got any updates in terms of how you're thinking about a secondary listing, the possibilities of that, and any timing updates on that?And then just a kind of a follow-up to that question on -- staying on the inorganic theme, just around in-market mobile consolidation. Is that still in the Nordics? And I guess, Sweden and Denmark are the most open to that. Is that still something you're looking at? Or is it something that's towards the back of the agenda until you hear from the EU on the Spanish consolidation attempts?

[Sigve Brekke, executive]

Yes. Thanks for the question, Andrew. We are still exploring more structural deals on top of what we do in the various markets in Asia, and this we have talked about all along. First, we focus on the markets, and we have done that in both Thailand and Malaysia, and we are yet then to come out to a solution in Pakistan. And at the same time, we are thinking about what do we want to do on top.So as we have talked about before, we have strengthened the team we have now in Singapore to manage the Asian business. We have put up a holding company in Asia owning these businesses, and then we are exploring various alternatives going forward, where listing is one of them. But I don't have any time update on -- and where we are on this.In the Nordics, of course, everyone is waiting now for the EU's competition decision on the proposed merger in Spain, and so are we, to see if there are somewhat positivity into allowing merger to happen without the same remedies. And when we are waiting for that, of course, we are exploring value-accretive deals, but I cannot give you any more details on where we are on that either.

[Operator]

We will take our next question from Nick Lyall at Societe Generale.

[Nick Lyall, analyst]

Tone, just a quick question on slide -- I think it's Slide 18, some of your cash flow comments. You mentioned spectrum of NOK 600 million for the fourth quarter, also the potential for the Indian tax case possibly in Q1. But could you give us a bit more detail on the Working Group Two proceeds, please? And also, could you tell us what might be the sort of numbers involved for the late payment in Bangladesh, and when that might hit as well, please?And then just to check as well, going back to the Thai dividend. I think you talked about a sort of medium-sized dividend in 2024. It seems like True is talking about a 2025 dividend payment from the P&L, which could imply [ NOK 26 million ]. So could you just give us an update on when you think that dividend comes through from True, please, and what that might be subject to?

[Tone Bachke, executive]

Thank you very much for the questions, Nick. Working Group Two, as Sigve said, we closed it yesterday. Very good deal, good for the companies to get a new owner to develop further. We expect these proceeds to come this quarter for our equity share. So that should impact the cash flow positively.The late payments, it is difficult to quantify, and we are not doing it. And we didn't do it the last quarter. But as I said, it is a potential that it could be of a significance that you will notice it well in the P&L, and that is why we bring it up. But I don't -- unfortunately, it is not possible to give a proper estimate as we see it now.Then finally on the True dividend. True communicated dividend policy, which said minimum 50% of net profit for the company. Then there is a fact that this company also have other measures of equity. So we will, of course, as owner, take a prudent look at the totality in True when we give our input into the financial plans of the company as we move along into the synergy realization.And then I just want to remind you that in many of these businesses, as we now do in CelcomDigi, there is the opportunity to pay interim dividends. So hence, you don't need to complete the year with retained earnings in order to pay out the dividends. So there are some dynamics in this as we see it.

[Operator]

We'll take our next question from Maurice Patrick at Barclays.

[Maurice Patrick, analyst]

A question on the cost side, please. I mean the OpEx was up, I think it was almost 6% this quarter. In your prepared remarks, Tone and Sigve, you did talk about some of the cost measures you put in place. You also talked about some of the energy volatility. But I guess, all things being equal, should we assume that the 1% to 3% annual cost reduction target sort of kicks in for all of 2024? I guess be the first sort of cost question.And the second one just in terms of energy costs. You do have the PPA deals kicking in, I think -- in Q1 in Denmark, I think it is and Norway. I'd love to get your estimate of what you think the energy tailwind for '24 and '23 should be, given the information we have now? I understand, of course, energy prices move around, et cetera, et cetera. But given that -- those PPA deals, what we should think about in terms of a cost move, would be helpful.

[Tone Bachke, executive]

Thank you, Maurice, and good to hear from you. As I said, we continue to be ambitious on our cost agenda, and we are also particularly talking about the Nordics. So we have -- this year on the back of the copper decommissioning, we have done efficiency measures and modernization efforts in Norway, which is taking the EBITDA down, as we said now, and it's down 1.5% this quarter. Denmark is down this quarter. And then we have Sweden and Finland, where we still see OpEx increases. This quarter we announced that we addressed this in Sweden with a total number of around 150 employees for the second half of this year.So I will not guide you for -- or give a guidance on 2024. But as you hear, this is a particular focus area for us, and we continue to have a focus on how we drive modernization, both in each of the businesses, but also how we create the synergies on the totality in the Nordics.

[Sigve Brekke, executive]

Yes. Maybe just add to what Tone said, we are yet to see the cost effects out of the Nordic operation. We have spent 1 year to build the team, spent 1 year to identify in which areas do we think we can run more efficient across the 4 markets, and this is what we're going to execute on next year. And -- however, the different business units are now doing what we plan to do. And Norway was first out, minus 1.5% OpEx in this quarter. So we are on trend here.

[Maurice Patrick, analyst]

And on the energy side?

[Tone Bachke, executive]

Yes. Energy side, sorry. We have not given and we cannot give you the energy -- the prices we have in these energy PPAs. But we announced the Norwegian deal, I believe it was in March last year. We said we had negotiated it for quite some time. And we still believe, although the energy prices have come down, as we've seen particularly in the third quarter, that this will be a favorable contract for us. And then, of course, at the time when they kicks in, it depends on how they are compared to the market at that time.The Norwegian deal is coming on stream first early next year, and then we see Finland and Denmark coming later in 2024. And the year-over-year effects will, of course, depend on -- based on what we compare to. And then the favorability of the contracts will depend on where the market is at the time. But we are very pleased with these contracts and the levels they are secured at based on where we stand today.

[Maurice Patrick, analyst]

I think you said on the PPA deal in Norway, it was kind of comparable to 2021 prices, if I recall. Is that the case?

[Tone Bachke, executive]

We said that the pricing was more in line with historic averages, was what we have said before. So we have not given the 1 year, but we know that before the energy spike last year, we had seen quite reasonable prices in Norway, and that is really the comparison that we are using when we say this.

[Sigve Brekke, executive]

May be just add one [ more ]…

[Operator]

We'll take our next question from -- go ahead.

[Sigve Brekke, executive]

Well, maybe just to add one point to what Tone said. Also, bear in mind that when we now are exiting the copper network in Norway, that in itself is price [ and ] energy reducing, because it was quite consuming energy to run that network. So we are also working on not only the prices, but also reducing the demand then for energy.

[Tone Bachke, executive]

Yes. Good point, Sigve.

[Operator]

We will now move on to our next question from Andreas Joelsson from Danske Bank.

[Andreas Joelsson, analyst]

A question on the pricing strategy for Sigve. You mentioned that you have a more-for-more strategy right now. Just wondering how you see this evolve going forward with 5G and other opportunities, and perhaps subscribers choosing unlimited offering more and more? So I just wonder how you see this the coming 2 to 3 years, if the more-to-more is still sort of the focus area?

[Sigve Brekke, executive]

I cannot give you any guiding on the coming 2 to 3 years, but what I can say is that I'm very pleased now to see the structural approach we have to this. And we are now building capability in all our 4 Nordic units to look at this segment by segment under the umbrella of more-for-more. And we see now that when we do that, this is appreciated with our customers. So I have not seen any downselling in any of the Nordic markets after we increased the prices, and I have not seen an increased churn either. It's actually a little bit reduced churn rather than increased churn.So what we are going to do also going forward is using the same systematic strategy. And when we do that, of course, this is not only about including faster speed on 5G, upselling on that or more data in the packages, but it's also the product or services we are putting on top of the data connectivity, like, for example, insurance services, security services, and we have a variety of these type of services that we are now launching, not only in Norway but also in the Nordic portfolio. So that's how we're going to look at that also going forward.

[Operator]

We'll take our next question from Siyi He at Citi.

[Siyi He, analyst]

I have one question and one follow-up, please. The first question is that, we've seen that Jorgen has now returned from Asia and now heading the Nordic clusters. I wonder if you can just let us know what his priority is now heading the Nordic region? And whether you see that his experience in particular M&A in Asia could potentially contribute to any of the organic transactions, perhaps the market consolidation or the sale of the towers?And then my follow-up is actually on Andrew's question earlier around the new fiber regulation. I understand that part of your CapEx for over '23 to '25 was allocated to fiber investment. So I'm wondering if the new regulation could give you different prospects in terms of how much you intend to spend on fiber rollout. Do you expect actually the CapEx really -- the fiber-related CapEx to come down for '24 and '25?

[Sigve Brekke, executive]

Yes. On your last question, I don't want to give any guiding within the guiding. We have said that the CapEx is coming down. We have even said that in 2025, it will be down NOK 2 billion based on where we were in '22. So you see now that the kind of the peak we have seen is gradually coming down. And we also said in the last call that there's a balance here between what we do on the fiber side and how fast we rollout 5G.I also said that -- in the last call that we are regulated -- from a regulatory reason, we need to replace all the Chinese equipment we have in Sweden within next year. And then we are now looking at where can we actually utilize the 4G network a little bit longer than rushing out with 5G, so spreading that out a little bit. So I think that's the way we look at that.On the fiber side, of course, we are taking all these parameters into consideration. We are looking at the possibility to increase ARPU with our existing customers. We look at how can we reduce churn. We look at where there still is a very valuable -- or giving us a good return to rollout new fiber and we are looking at also where can we use fixed wireless instead of fiber, for example, in the vacation home areas or in very remote areas. So that's how we are balancing the CapEx.On the first question, I'm very pleased with what Jorgen did in his 3.5 years in Asia, where he was instrumental in creating these 2 merged entities. But I was also very pleased with Petter-Boerre, what he did in the Nordics for also 3 -- 4 years' time running in Norway, but also setting up the Nordic operation.So rotating the top leaders around, that's something that Telenor is doing and have been doing for several years. And I see this as a way for us to trying to put the right capabilities into the -- into what we want to achieve.So what I have asked Jorgen to do in the Nordics, it's: one, continue the revenue growth, the speed we have on that now with being relevant for our customers, developing products and services, customer experience and so on: two, see how we can deliver on profitable growth, not only the top line growth, and that's where the transformation comes in. The plans are there. Now we will execute. And then three, generate the cash flow needed to meet our ambition in '25, but also the plans we have for '24. So that's what we will be doing.You also asked about M&A, and I don't have any more to say on that. Of course, we'll always look for opportunity when we see them potentially be value-accretive. But I don't have any more comments on that.

[Operator]

We'll take our next question from [ Christopher ] at DNB.

[Christer Roth, analyst]

Congrats on the great quarter. Yes, I was wondering if you could talk about CapEx a bit? You've seen some upward pressure on CapEx with the increased guidance from some of your Nordic peers including the company, your sharing networks with -- in Sweden. So I was just wondering, you're also guiding CapEx down [ '25 ], and you're guiding for '24 at this point. But if you could maybe give us some more color on how you're thinking about the shape of that path to '24 towards '25 given the upward pressure for instance in Sweden? Just to get some more details, that would be very much appreciated.

[Sigve Brekke, executive]

I don't think we have more details on that, [ Christopher ], than the CapEx guiding we have this year and the CapEx guiding we have in '25. So of course, then going into '25, you will see that the CapEx will then level out. And the way we are going to do that is to deliver on the regulatory requirement in Sweden, spread out a bit, the remaining 5G rollout that we need to do and then balance the fiber. So I think that is what we can see on that, isn't it, Tone?

[Tone Bachke, executive]

Yes, it is. We don't guide within that range, but we are coming from 10%, which we have, and we have 17% guiding for this year. And then we expect to be around an NOK 8 billion level in 2025.

[Christer Roth, analyst]

And a quick follow-up on working capital. So it was a strong quarter this quarter. Anything special in there? It was better than last year. How should we think about that into Q4 and the next couple of quarters?

[Tone Bachke, executive]

No, not any special items, other than that this continues to be, and have been for some time, a focus area for us. And definitely, it will be that going forward. So it is an area, of course, where we need to be extra mindful of how we invest and how much capital we have there. So it is a constant focus area, and it is a good development also in the Nordics as we see it now on this.

[Operator]

We'll move on to our next question from Nielson at ABG.

[Peter Nielsen, analyst]

Just wanted to have a question on the potential Tower transaction. Do you still target this for some time in 2024? And could you -- do you have any comments regarding the increase in long-term interest rates we've seen late, and how that might potentially impact timing or -- around such transactions?

[Tone Bachke, executive]

So what we said last year is that in the period from 12 to 24 months from that time -- 12 to 36 months, we would consider a deal. So what we are doing now is to make sure that we are set up to give us the structural optionality that we aim for. And then we will evaluate going forward whether there is a merit to do such a deal or not. So there is no major update, other than that we are working on the operational agenda and making sure we grow external revenues and run efficient Tower operations.

[Sigve Brekke, executive]

Any more callers? I think we are approaching…

[Operator]

Neilsen, are you done? One moment, please. And now we'll take our last question from Usman Ghazi at Berenberg.

[Usman Ghazi, analyst]

Just one, please. I mean this is -- this just -- might be over the last 2 quarters just sensed from commentary, a bit more caution around Bangladesh, specifically with respect to the political regulatory risk/exposure. I mean, is Telenor's commitment to kind of GP still as high as it was? And if so, I mean, what -- can you help us understand what actions you might be taking to reduce this kind of -- my sense of kind of heightened risk around the Bangladesh operation?

[Sigve Brekke, executive]

Yes, 2 answers to your questions. First, we will continue to focus on the profitable growth in Bangladesh. And now we are back to almost where we were 1 year ago in terms of number of customers. So we lost a lot of customers last half -- the second half of last year due to the SIM ban, but now we are back. And we see now that customers are taking up data connectivity and also having ability to pay for it. So we will continue with that.We also have efficiency program in Bangladesh. I'm very pleased to see how they modernize their organization and way of working.At the same time, I will say that we are improving our dialogue with the regulator and with the government. And this is one of the benefits of putting people in Asia to handle that as well. So the settlement that you saw in the second quarter was both a settlement and a decision, but the settlement was a long outstanding dispute that we had. That's an example of that, that we are now into a more positive territory to trying to reduce the risk and trying to manage the macroeconomic environment.

[Sigve Brekke, executive]

It looks like that was the last one. Thank you so much for calling in. Thanks for listening to our presentation, and have a good day.

[Tone Bachke, executive]

Thank you.