Telenor ASA

OSE:TEL

Earnings Call Transcript 2018-Q4

[Marianne Moe, Head of Investor Relations]

Good morning, and welcome to the presentation of Telenor Group's Results for the Fourth Quarter 2018. My name is Marianne Moe. I'm heading the Investor Relations team, and I have the pleasure of guiding you through the session here today.The results today will be presented by Group CEO, Sigve Brekke; and Group CFO, Jørgen Rostrup, as usual. And I hope you all have the result -- the material available. And after the presentation here today, which will take approximately an hour including Q&A, there will be a separate media session with the -- here at Fornebu with the Group COO and the Acting Head of Telenor Norway.Without much further ado, I leave the floor to Sigve Brekke for the highlights of the quarter. Please, Sigve?

[Sigve Brekke, President & CEO]

Thank you, Marianne, and good morning to all of you present here and also those of you that are following us on the video streaming.Let me start with taking a look back on 2018. It was a year with significant achievements. It was a year where we did solid progress with our modernization of Telenor. It was also a year, which we delivered on the strategy laid out in the Capital Markets Day in '17. And are now starting 2019 as a leaner and more focused Telenor.Let me take some examples. It was a year where we had a record rollout of our network. We rolled out 18,000 new 4G sites. We have never done a number like that. And we also did a record rollout of fiber in Norway. It was a year where we continued to simplify our portfolio and our corporate structure. We concluded transition from concession to license in Thailand, and we are finally now ready to start growing again. It was a year where we delivered on our financial ambitions. Stable revenues, NOK 1.2 billion cost reductions, 3% EBITDA growth and the underlying 5% EBITDA growth and a free cash flow of NOK 32 billion. And we ended the year in the fourth quarter with a robust performance in Scandinavia and good growth in Pakistan and Bangladesh. However, we have growth challenges and they remains in Thailand and Myanmar.Let me take one step back to what we said in the Capital Markets Day in the beginning of 2017 to reflect a bit on what we said and what we have done. On the growth side, we said that we are going to deliver single-digit growth in '18, '19 and '20. In '17, we grew around 2%. In 2018, the growth has been softer. The first half of the year, we had a slow growth in Pakistan due to tax headwind. We had a relatively slow growth also in Bangladesh due to bad weather. Those 2 markets are now coming back strongly. And in the second half of the year, we have been hit by aggressive competition in Myanmar, and also the concession to license transition in Thailand.On the OpEx side, the target was to stabilize OpEx in '17 before we start to take it down, and the ambition was to reduce OpEx in the range of 1% to 3% year-over-year. Looking back, it's encouraging to see that we have overachieved that target, and we have actually delivered more than 3% OpEx reduction in '17 and in '18.On CapEx, we have delivered on what we communicated. In total, I'm pleased to see that we actually have done what we said to do. However, the program we started in 2017, it's -- we are just halfway, and there is more to be done. Then into the business. Let me continue with the -- let me start with Scandinavia and take an overview of Scandinavia first. I will say that we have a robust performance in all our 3 Scandinavian assets. Solid underlying EBITDA growth in all the 3 markets, and these are coming from the effects we now are seeing from our digitalization and transformation program. In Norway, the revenues are being masked by loss on wholesale revenues and special numbers, and with these 2 effects amounts to around NOK 600 million. And those will not be visible anymore in 2019. The underlying revenue growth in Norway in '18 was 3%. I will say that, that is very strong. In addition, we have a NOK 600 million to NOK 700 million drag on EBITDA from loss of fixed legacy revenues. Sweden. Strong underlying EBITDA growth of 6%, and we also have a good subscriber intake in both the B2B segment and also in consumer. And Denmark. The turnaround continues, resulting in a 10% reduction in OpEx and an impressive 27% growth in EBITDA. And I actually want to take the opportunity to send the message to our Danish team. This is very impressive, so please continue what you have started.Some more details on Norway. As I said, we had a strong fourth quarter on fiber rollout in Norway. As you remember, we had a slow start in the first half of the year, but we are now where we want to be. 15,000 new fiber connections added in the quarter, highest ever. We see a continuous growth in postpaid in the quarter. 2,000 new postpaid customers. And if we adjust for the reduction in the stand-alone data cards, which fewer and fewer people are using, there was an increase of the postpaid base of 6,000. This comes from a continuous strong sale of the Flexi product, and we now have more than 10% of our subscriber base on the high-value Flexi product. Robust ARPU, 1% increase in the quarter. And if we exclude for the special numbers and also changing from handset subsidy into the SWAP model, the underlying ARPU growth is actually 3%. And this is due to continuous success on the up-sell model.As I said, we are modernizing Telenor. And one of the key modernization initiatives in the coming years will be to replace the copper network with high-speed future-proof solutions. Access to Internet and digital services is becoming a must with the Norwegian customers. And we, therefore, need to modernize a 100-years-old copper network. And we have to do that, and the aim now is to do that faster than previously planned. The ambition is to finish that replacement in the coming 4 years. I am excited about this, because this is important to be a part of digitalizing Norway. And a thumbs up to the Norwegian team that has taken the challenge to speed up this process.Our plan is to replace the copper network with fiber and high-speed wireless solutions. And to do that, we need to step up even further the fiber rollout ambition. Norway has already been scored now for having the world's fastest mobile network. And we want to take that position and start introducing also fixed wireless solutions as a replacement to fixed -- the fixed copper network. They are already testing that out both on 4G and also pilot on 5G. The road map on how they're going to do that will be detailed later in the coming month, and we'll come back to you before the summer.Moving to emerging Asia: Pakistan, Bangladesh and Myanmar. Starting with Bangladesh, strong performance both in the third quarter and that's going also into the fourth quarter. The whole second half is now back to the growth that we expect in a market like Bangladesh. 11% growth in sales and traffic revenues driven by both voice and data. We added 1.3 million new subscribers in the quarter, and we now have more than 72 million subscribers in Grameenphone. We also see that we are able to continue to drive data usage with our customers. 51% of our customers are now using data. However, most of them on a very low volume. So still a long way to go here. And impressive cost control. And despite the 11% growth, we are also able to reduce our OpEx, resulting in a 62% EBITDA margin. And this is really driven by cost innovation. Pakistan also continued the strong growth we saw in the third quarter. 12% sales and traffic growth. I think these 2 countries are now -- or these 2 business units are now competing, 11% and 12% growth. 15% EBITDA growth. We have also taken learnings from the benchmarking we do in emerging Asia to see on how can we focus on customer surviving rates. In a market, which is very growth-driven, acquisition game is important for us to make sure we are bringing in quality customers, and with that, reducing churn.Myanmar, we still, unfortunately, see effects of the aggressive pricing from the fourth operator that came in midyear. However, we see some positive indication now that the customer loss is flattening out. And we see a stabilization in December, also going into January. ARPU is stable in Q4, and the 11% reduction in sales and traffic revenues is explained by the 12% reduction in numbers of subscribers year-on-year.Going forward, we are continuing to focus on the strength we have in our network, the strength we have in our distribution and the brand. And as in Pakistan, we also here focus now more on quality of new subscribers, and with that, reducing the churn.Then to Thailand. The third quarter in Thailand was a very special quarter for us. This was a quarter where we -- which marked the end of more than 20 years concession regime and also a quarter which was the end of lot of uncertainties. We are now rolling up our sleeves and starting to focus on growth again in the Thai market. We are focused on a massive network rollout utilizing the new spectrum that we acquired last year. On the 2.3 GHz frequency, we have added 6,800 sites in the fourth quarter. And in the year, we have added 12,700 sites. For those of you that are in the technology field, you will understand how big of a scale that is in a very short period of time. In addition to that, on the 2.1 GHz frequency network, we continue to densify the network and added 7,900 base stations. It's a massive effort over a short period of time. And when you do that, it has affected the customers' experience. But we now see that the experience -- the network experience is improving day by day. The 4G speed we now see on the 2.3 GHz frequency is significantly better than before. And finally, we started to fully compete with other operators.On the revenues, we see now that subscriber loss that we have seen is flattening out. Actually, it's the lowest now in the last 3 years. We see a stable ARPU, and loss of prepaid customers are now being compensated with growth in postpaid. The sales and traffic revenues decreased 5% in the quarter and is explained by 6% lower sub base compared with last year.On costs -- both COGS and OpEx. We increased year-on-year with THB 1.7 billion. That's explained by the fee that we paid to TOT on leasing the 2,300 mega frequency. It's explained by increased network cost with that massive rollout that I explained. And in the quarter, we also had costs related to transition from concession into license. And those costs you will not see in the coming quarters.Moving to Malaysia. We started a repositioning of our company in Malaysia in 2017, repositioning it from being a prepaid company into now focused more on postpaid customers and on prepaid Internet to get away from the prepaid legacy businesses, voice and SMS. The effects of this transformation is now step by step coming through. The growth in Internet revenues -- prepaid Internet revenues in Q4 was 14%. The subs and traffic revenues decreased by 2% as loss in the prepaid legacy, SMS and voice, declined somewhat more than the postpaid growth. EBITDA, however, increased by 2% in the quarter as a high proportion of the postpaid, and the base is improving over gross profit.In addition, this is also a company which continued to focus on efficiency, and the OpEx was decreasing 1% from those improvements.Digi, it's one of our most forward-leaning companies when it comes to digital transformation. To give you a couple of examples: On their customer journeys, the growth in MyDigi users increased 20% year-on-year, and we have now more than 3 million of our customers using that application frequently.On digitalizing the distribution, on your Android phone now in Malaysia, you can do data management and top-up. This is the first operator that Google launched their services with, and we see bigger traction on this service.Modernization. I think I have been using that word now several times already. And this is -- this word actually covers more or less everything we do in Telenor these days. With our infrastructure, we've phased out old technologies. We automate, we virtualize, we digitalize and we partner up with vendors to create scale and efficiency. We are also considering strategic options on what to do with our towers. We are testing out fixed wireless access solutions, and we are getting ready for 5G. We are simplifying our corporate structure, including reducing the legal structures. We create a more efficient headquarter, and also have better balance between what we do on the group level and what we do on the business unit level. We digitalized our distribution and customer journeys, which enable us not only to be more efficient, but also to use customer data to personalize services and products. And with this, we also simplify our price plans on our products to take away customers' pay point.We are building new competencies for the future. For instance, within AI, robotics and security. And this will require hiring new competencies, but first of all, it will also require a systematic upskilling of our current employees.Let me close off with the main priorities we have going into 2019. Our transformation and modernization strategy that we laid out 2 years ago has 3 main components: it's growth, it's efficiency and it's simplification. And this is what we have been focusing on and also what we are going to focus on in '19 and '20. When it comes to the growth and the revenue renewals, we continue to see potentials in our markets. We are still adding new customers in Bangladesh, in Pakistan. And we see an increasing data usage with these customers. We believe that we can increase ARPU from existing customers, driven by strong network positions, up-selling and use of analytics to personalize offers. In Norway, we have a very strong B2B position, and we also now see attractions on the IoT. We want to take the experience we have from Norway and roll it into other Telenor markets. And it's a key priority for us to return to growth in Myanmar and in Thailand.We have just started the modernization of Telenor, and this is going to continue. We're going to continue to modernize the infrastructure, including copper replacements and 5G readiness. We are going to accelerate, and Jørgen is going to talk more about that, our structural efficiencies, and continue the digitalization of the core business.And with that, I welcome Jørgen on the stage.

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

Thank you, Sigve. Good morning, everybody. As Sigve said, 2018 for us marks another solid year for Telenor, and we believe it is due to consistent strategy, a strategy that we set out 2 years ago, so we are halfway into that program which we embarked on. And then having said it upfront, in a large group like Telenor, there will from time to time, be issues in some of our markets. And right now, we are facing difficulties and challenges in Thailand and Myanmar. At the same time, I'm very pleased to see how we deliver according to our plans in the group in total also in fourth quarter.Total revenue decreased NOK 0.5 billion in the quarter compared to last year simply due to unfavorable currency movements. If we see subscription and traffic revenues, it turned negative in the quarter to minus 0.7%. For the full year, it's marginally positive at 0.2%. During the quarter, we have seen the continued strong subscription and traffic revenue development and momentum in Bangladesh and Pakistan, as Sigve was alluding to. However, the group growth rate has been under pressure from Thailand and Myanmar. On top of a 6% year-on-year reduction in customer base in Thailand, we have also had the 2,300 MHz rollout and the transition from concession to license regime. We see a somewhat weaker network perception during the quarter with our customers, but we also see, as Sigve was saying, better quality, improving speed in our network. And we think we will come through this during 2019 first half. The negative development in Myanmar after the fourth operator entered continued to drag our revenues. It's primarily due to a lower customer base of 12%, as ARPU remains fairly stable. And then we see in December signs of lower customer losses, and we see that also continuing into January.Maybe I should also comment on fixed legacy. It continues to be in line with previous trends, pulling down the group's growth with almost 1 percentage point.Okay. We can go to next. Efficiency and improvements continues to be a top priority, and we managed to reduce our cost base with NOK 1.2 billion or 3% in 2018. This quarter, we see OpEx remaining stable despite having temporarily increased costs related to transition from concession to license. If you are isolating the OpEx increase in Thailand, we see an OpEx reduction in the quarter of 1.5%.Looking at the full year's reduction, we see a balanced set of numbers across all categories, reflecting again our efforts to work both on simplification and also targeting the more structural OpEx reductions. We communicated in February '17 that we expected OpEx reduction in the range of 1% to 3% from 2018 onwards. In both 2017 and '18, we have been successful in executing on the program. We still believe there is significant potential left.In the first 2 years of our efficiency program, we have managed to reduce OpEx with some NOK 2.6 billion or more than 3% per year. I believe we can say we are ahead of our plan. Nevertheless, we maintain our ambition. It remains firm. We aim to continue to deliver 1% to 3% OpEx reduction per year also for 2019 and for 2020. And we have also started a plan for efficiency improvement also beyond 2020. We believe there is a potential for continuous improvements as we have done it to remove inefficiencies and through simplification and better prioritization. This goes for simplifying products, simplifying systems, our own processes and smaller adjustments in organization. We also think we can modernize and progress our modernization journey the way Sigve alluded to. Addressing structural improvements will become increasingly important for us in Telenor, and this is where we see the larger effects coming forward. Let me take you through a couple of examples. To firm up structural modernization towards 2023, we have during the fall established a strategic cost program. In each business unit, local management has identified their respective key initiatives. In total for the group, we have some 40 multiyear initiatives owned by local business units addressing very specific underlying structural challenges to realize cost opportunities and also modernize systems, customer-facing processes and even larger organizations. These 40 initiatives encompass around 50% of the group's OpEx base. So it is concerning activities which is adding up in total to 50% of our cost base, i.e., NOK 20 billion out of the NOK 38 billion, NOK 39 billion cost base. We have strengthened how we work with the strategic initiatives. We will put in place dedicated resources reporting directly to CEOs in these units. The main priority now is to systematically follow up in a strong performance management, should I say, regime. Tracking activities, milestones, KPIs regularly, where also Sigve and I will be spending some of our time going forward.In addition to these structural modernization initiatives, we are also in the process of reviewing our tower infrastructure assets. This is a project we started mid-2018. We are in an exploratory phase, and we will give you an update as we go. We have around 50,000 owned towers in the group, which of 2/3 are situated in Asia.If we take a quick look at the EBITDA development, we have only a slight underlying growth this quarter. There are some significant items negatively impacting EBITDA. We have the payment to TOT in Thailand for lease of spectrum. We should regard this as a CapEx substitute. It will be annualized by April 2019. Then we have the temporary costs in Thailand in Q4 related to the transition. And then we have Phonero and special numbers regulation in Norway, which will be annualized as of now. So beginning '19, it is annualized. Adjusted for these items, we have a slight growth despite the negative top line impact in general from Thailand and Myanmar. Looking at the full year of 2018, we have a 5% underlying growth in EBITDA. The underlying EBITDA improvement is to a large extent due to the cost improvements of NOK 1.2 billion, and also improved gross profit from handset sales, interconnect and that slight growth in subs and traffic revenues that we talked about. CapEx excluding spectrum and license was NOK 6.1 billion in Q4, around 22% of sales. So as we said in third quarter, it would be high intensity in the CapEx program in the quarter. The rollout speed we were talking about was lifting the CapEx in developed Asia. In Scandinavia, it is predominantly a solid fiber rollout that is adding up the investment numbers.During the quarter, we have also acquired 900 megahertz and 1800 megahertz spectrum in Thailand, 700 megahertz spectrum in Sweden and 900 megahertz spectrum in Myanmar. So all this is amounting to NOK 12.6 billion on the spectrum side.Let's touch on the P&L. Net income to equity holders of Telenor ended at NOK 1.2 billion this quarter, equivalent to NOK 0.81 per share. There is a decrease of NOK 1 billion from last year. Other items this quarter was negative NOK 2.4 billion, primarily related to the settlement that we informed the market about with CAT in Thailand of total NOK 2.5 billion. We had made a provision of NOK 0.4 billion on this, so the net charge in the fourth quarter was NOK 2.1 billion. And we have net financials of NOK 3.1 billion, an increase of NOK 1.8 billion. This was a result of unfavorable currency movements. We are hedging net present values, not the equity in our subsidiaries. Hedge accounting is limited to the equity value, and the book value is usually lower than our net present value for these business units. Hence, the remaining currency effect must be taken over the P&L, and that will give fluctuations in situations with significant currency movements, as we have seen in the fourth quarter.These effects were partly offset by lower depreciation, as we have talked about for Thailand related to the end of concession, and also higher profit from discontinued operations as a result of a gain from the partial disposal of Telenor Microfinance Bank in Pakistan to Ant Financial.For the full year, net income was NOK 14.6 billion or close to NOK 10 per share. And as you can see from the right-hand side of the slide, the effects of the net accounting -- new accounting standard IFRS 15 had marginal P&L impact for Telenor.Free cash flow for the fourth quarter, negative NOK 0.1 billion, decrease of NOK 3.5 billion from same quarter last year due to high -- very high, should I say, investment level and also the spectrum payments for the quarter. For the year, free cash flow amounted to NOK 32 billion, an increase of NOK 7.1 billion to last year, positively impacted by the proceeds from the sale of assets in Central and Eastern Europe. Free cash flow before these proceeds and other M&A activities amounts to NOK 11.7 billion, more or less the same level as the ordinary dividend proposal of NOK 12.2 billion.When it comes to outlook for 2019, we continue to focus on the same parameters as in previous years. Then as DTAC has communicated, they will give an updated outlook on revenues and EBITDA in second quarter. Hence, we have as of now decided to provide group outlook excluding Thailand when it comes to revenue and EBITDA.For subs and traffic revenues, excluding Thailand, then, we expect to deliver an organic growth in the range of 0 to 2%. The drivers here should be looked at continued growth in Bangladesh and Pakistan, somewhat easier comps in Norway as the impact of special number regulation are now annualized. However, keep in mind that we have high positive one-offs of NOK 700 million in Pakistan in global wholesale in 2018.When it comes to EBITDA, we expect 1% to 3% organic growth for the year, reflecting that we anticipate positive contribution from both revenue growth and further continued cost reductions. CapEx for the year, this including Thailand, is expected to be in the range of NOK 16 billion to NOK 17 billion, i.e., at the same level as this last year and also in the range of approximately 15% to the revenue.The outlook reflects, we feel, that we continue to execute on the combined strategy and financial ambition that was set at Capital Markets Day in 2017.During the last couple of years, we have demonstrated solid progress on the cost efficiency, on the CapEx efficiency. We have also derisked the group portfolio through the exit of India, through the yet-to-be-completed exit of VEON and also through the transition from concession to license in Thailand. We now find the time right to revisit our capital structure and balance sheet efficiency. The group has a ceiling historically been set at 2x net EBITDA -- net debt to EBITDA. The actual leverage has, however, been around 1x. we believe that the target -- leverage target closer to the existing ceiling of 2x would improve capital structure and strike a fair balance between return on equity, cost of capital, access to funding and financial flexibility. We have therefore decided to introduce a leverage target of 1.5 to 2x net debt to EBITDA. As a first step to move towards this target, we are planning for a 3% share buyback program in 2019. And then if deemed appropriate in order to reach the targeted level, a special distribution to shareholders will also be considered in the coming years.And then, as you know, IFRS 16 will be implemented in 2019 and will impact how we account for financial leases. We expect this will lead to a somewhat higher target range on our side. However, we still feel there are uncertainty how IFRS 16 will impact the sector. This is something we will have to get back to during '19 or '20 when we get more experience and when the sector gets more experience with it.For 2018, the board proposed a dividend of NOK 8.40 which represents 4% growth and a yield of 5% and which is consistent with the year-on-year growth in recent years. The dividend will be paid as usual in 2 tranches, one in May and one in October. It constitutes a payout of NOK 12 billion and implies that we pay out 100% of underlying free cash flow for the year.Further, in order, as I said, to support the path towards the new leverage target, we also plan to ask at the annual meeting in May for a buyback mandate of around 3% of shares equal to distribution of around NOK 7 billion, and similar tools then could be used also for coming years in order to support the same ambition.All in all, a proposed dividend, planned share buyback program in the magnitude of NOK 19 billion, which is comparable to an 8% yield.I think this is the presentation on our side. We are continuing along the path that we have set out for 2 years. Maybe we should see if there's a Q&A.

[Marianne Moe, Head of Investor Relations]

Thank you. Jørgen and Sigve, please join us on stage. As usual, we'll start with questions from the audience present here at Fornebu before we open up for the conference call participants. Any questions here? I think we have one up there.

[Henriette Trondsen, Research Analyst]

Henriette Trondsen in Arctic. It's positive that you have decided to increase your leverage with leverage target today. Can you give some more thoughts on the time horizon for reaching this target and maybe the split between how you will use this dividends, special contributions or M&A going forward?

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

Yes. First of all, I think the slide pointed to an indicative time frame, so it won't happen all in one go in '19. That would be atypical Telenor. At the same time, there is no reason to expect that we should do this over a very lengthy period. So we have indicated, I guess, 2, 3 years or whatever, and that is probably what you should see. Maybe it was 4 years, I don't remember on the slide. And we haven't changed our M&A thinking. If we are going to do M&A, that will have to be accretive. It will have to be within the core of our business. It will have to be in regions where we are, et cetera, et cetera. And it is still not the top priority for Telenor, but we -- as we have said before, we pay attention to what's going on around us. So this is more -- we have started now on a target, which we aim to get within. 1 year we can be above and 1 year we can be below, but we should be within a range. And it shouldn't take us too long time to get there.

[Henriette Trondsen, Research Analyst]

And any thoughts on Thailand going forward? As the perception of the DTAC brand has actually become weaker during this quarter. And I also suppose that your EBITDA growth guidance for 2019 would have been dragged down if you had included Thailand in your guidance today. So any thoughts on Thailand going forward?

[Sigve Brekke, President & CEO]

Yes. The thoughts are that we are well positioned now to get back to growth, and we are through the most hectic rollout period, as I talked about in my intro. I think we also are now seeing a flattening out of the customer loss and the stabilization of the ARPU. So we expect to return to growth in Thailand. However, I also admit that the network rollout and also all the changes in frequencies, we have taken a hit with the customers. And one thing is the facts, and the fact shows us that we are now actually coming back to a network quality which is comparable, but there's also the perception we need to deal with. And that's why we need some more months to be more precise on how we are guiding the full year. But the -- going into this year, it's with a growth mindset. And that's what we are discussing and following up with the management as well.

[Henriette Trondsen, Research Analyst]

One more question, if I may. On the reviewing of your tower infrastructure, will this likely be in Norway, Bangladesh and Thailand? Or as you have a JV, some infrastructure agreement in many of your markets, any thoughts around this?

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

Exactly. So we are working within total almost 90,000 towers. 50,000 of those we own ourselves, and as I said, 2/3 in Asia. This is work we started in third quarter, and we are reviewing the total base. And it is not only a structural review, it's a complete review. How do we operate it today? Can we learn more from each other? Are there different ways we should do it in order to operate it more efficiently? As you know, tower-sharing is again number one in how we will run the towers, it's not to sell them. Day one, it is to share them and to build capacity on 1 tower. And as you are alluding to, we are quite advanced there in some markets. We are less advanced in some other markets. So this is a full walk-through. And hopefully, during maybe the first half of this year, we can come back and talk a little bit more about our thoughts on it.

[Marianne Moe, Head of Investor Relations]

Next question, please. Yes, please.

[Hans Rettedal Christiansen, Junior Analyst]

Hans Rettedal in Carnegie. Just 2 questions. The first one is, are you worried about your strong sort of subscriber growth in Norway is going to lead to increased competition here and more aggressive sort of offers and prices from your competitors? And the second one is regarding just IFRS 16, and you say it's going to increase the target range. Do you mean it's going to increase your net debt-to-EBITDA? Or is it going to increase your 1.5 to 2x range?

[Sigve Brekke, President & CEO]

Yes. I can start with Norway. The Norwegian market is competitive, has been, is and will be. And that's why it's so important for us to build out the network and actually have a very, very solid platform for customer experience. And I'm very, very pleased now with the status of our 4G network. That's also why we are piloting as the first in the Nordics the 5G -- actually, 2 pilots of 5G. And then what we also see from the Norwegian customers is that it's more than price. It's now also that they want to have additional services. So for example, what we do on the family offers, where we include family bonuses; what we do on the SWAP program, where you can go for an installment with the customers; what we do on the insurance, ID insurance; a lot of these popular services are now included in the packages. And that's where we see that we are able to be very competitive with the high-end market. However, in the lower-end market, the more price-sensitive market, we are also losing some of the prepaid customers, but we have chosen then to focus on the most value-creative customers. So I think we are -- we have demonstrated that we are able to compete in this tough market. And I think that, that's also where we are going forward also, focusing much more on innovation and on new services, and not only the price part of it.

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

And IFRS 16?

[Sigve Brekke, President & CEO]

Yes. I need some water. You can take it.

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

Okay. So I believe, and I will look for nods in -- among some people in the audience now. But I believe we in last annual report said that we will increase debt in the range of NOK 20 billion to NOK 25 billion by this transfer to IFRS 16, and then we will increase EBITDA with some NOK 4 billion or NOK 5 billion. And then we will have an opposite effect because we will increase depreciation to NOK 3 billion and financial costs with NOK 1 billion to NOK 2 billion. So the net result will be almost 0. Is that -- now I got a nod. Very good. So then we also said, I believe, that it will have an impact of 0.6 on the ratio. My intention with my comment was twofold. First of all, I did not say that we not going to not move the target from 1.5 to 2 away from there. So we are not going to use that 0.6 to get to that target range. On the other hand, I didn't either say that we will add the 0.6 on top of the 1.5 and start by 2.1, et cetera. I said that the situation, I would prefer to have a look and understand more of the responses, of the discussion in the market, et cetera, have the discussions with the banks, with the rating firms and everything. You might say that the rating companies have, in many ways, included this in their thinking, but we don't fully know. Have they included everything? What is Telenor's data compared to the general sector? What is the perspective on the debt ratio in the sector? When you get the focus on the lease -- the impact of the lease arrangements in the sector? So it is to create some leeway and some flexibility, give you guys a direction which we are embarking on, and we will come back and have that discussion with you when we are ready. And in the meantime, we will work towards that range.

[Marianne Moe, Head of Investor Relations]

Next question, please.

[Frank Maaø, Analyst]

Frank Maaø from DNB markets. And most of my questions have been answered. And also congrats for the new debt and leverage target for the group. Well done. So my question is more related to Scandinavia and the vendor situation given all the political and security focus around your vendors -- some of your vendors in Scandinavia. And how does the potential issues around that and that potential need for perhaps a swap of part of that network in Scandinavia factor into your CapEx guidance? Would it make sense now to perhaps put a little bit of brake on all the 5G preparations with your current vendors and so on? How does that factor in? That's my question.

[Sigve Brekke, President & CEO]

Yes. Well, as you know, we have had and will have a multi-vendor strategy in our networks. That has been very important for us, to be balanced, to always keep some competition, and also be well prepared for uncertainties. Then of course, we are following the situation with the Chinese vendors very closely. At the same time, we are also in dialogue with the security authorities in Norway and in other Scandinavian countries. And where we are right now, it's to test out different technologies. We are testing with Huawei [indiscernible] 5G. We announced yesterday that we are also now testing with Ericsson a pilot here. We are also cooperating with Nokia in a European project. So it's too early to say which vendor strategy we are going to choose for 5G. It's too early to say what complication that will, also consequence that will have for 4G. And it's first after we have done the tests and after we have seen the picture being somewhat clearer that we will choose a strategy and make some decisions on this.

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

May I just add that when it comes to the CapEx level for the period which we have given some kind of indication of, which is the next couple of years, we don't see this changing anything. First of all, 5G will happen very step by step. It will not happen in all of our markets at the same time, et cetera, et cetera. And we feel we have that flexibility and catered for that within our total numbers. And then we will have to talk later about what is happening after 2020. Not saying that, that will be changed, but we'll just -- we'll have to come back to that.

[Sigve Brekke, President & CEO]

And maybe just add, we are using about NOK 4.5 billion in CapEx in Norway. That, that was more or less that number in '17, and it's also in '18. And that has mostly so far gone to rolling out the 4G network with the fantastic position we have in 4G. It also gone to then scaling up the fiber network. And now when 4G is not finished, but it kind of flattening a little bit out, we will increase the fiber step-up as a part of replacing the copper. And I think we -- in that, we have room to do necessary investments going forward.

[Marianne Moe, Head of Investor Relations]

Are there any more questions from the audience present here at Fornebu? I believe there is one over there.

[Henriette Trondsen, Research Analyst]

Henriette Trondsen, Arctic. In Norway, fixed revenue was quite soft this quarter as well. Can you give any more color on this, if you expect an improvement going forward in this segment in Norway?

[Sigve Brekke, President & CEO]

Yes, I think the fixed revenues, we do see a continuous decline, of course, in the copper subscriptions. We see a continuous increase in the fiber. The ARPU in fiber, I think, is quite flat, but we had some extraordinary revenues on this in the fourth quarter last year. So on the comparable, it's making the fees revenues looking weak in the fourth quarter. But going forward, we see a continuous uptick on fiber. And when are done increasing the fiber rollout even more, we hope that we will be able to compensate for the replacement on copper.

[Marianne Moe, Head of Investor Relations]

I can also add that we had -- on the fixed Internet revenues in Norway, we had tough comparables this quarter because we had 7% growth in Q4 '17. We also see that the broadband ARPU is down NOK 4 this quarter, driven by lower hardware revenue.Next question please?If there are no more questions from the audience here at Fornebu, we now open up for questions from the conference call participants.

[Operator]

We will now take our first conference question from Maurice Patrick from Barclays.

[Maurice Graham Patrick, Managing Director]

It's Maurice here from Barclays. Couple of quick questions for me. On Myanmar, you've made the hint around improving customer losses in December and January. Can you explain a little bit more around why it's improving in December, January? Is it less competitive activity? Is it more promotional activity from yourselves? So walk us through that, please. And second question really on Sweden. There's many comments around convergence coming to Sweden with the merger of Tele2, Com Hem. There's talk about that with the synergy there. Your thoughts in terms of how convergence is going in Sweden and how much you think that will happen in 2019, please.

[Sigve Brekke, President & CEO]

Yes. On Myanmar, I think I said 2 things. One was that the subscriber loss is flattening out, and the other thing I said was the ARPU is also now stable. And I think the reason for that, it's the most aggressive offers that we saw the fourth entrant came with when he launched in June. It's now out of the market. They were allowed to price themselves significantly below the price floor for 90 days. Those 90 days expired in September, October. So they also now need to comply with the price regulations. So that's one explanation. The other explanation is that our machinery starts to work. The machinery that we have built in distribution since we launched the brand, we have -- the competitive offers that we have. We are not going to fuel this market with sales and marketing or commission costs that are not yielding annual revenues. So we're going to stay on quality customers, going to go for that survival rate customers that I've talked about, trying to avoid rotating customers that are churning after some few months. So these are the top activities. However, it's too early to say how the competition is going to react, but some early positive signs that some of the things that we have put in place is starting to work. When it comes to Sweden, yes, there are some bundle offers, and we do that as well. And I think the way that happens in Sweden, it's good for consumers, but we have not seen any discounting offers. And it doesn't seem that the other operators in Sweden are starting that game. And I think we are very well positioned, because we also have the fixed position that we have and the strong mobile position. So we have also done some of the customer bundlings going forward. And I think that's hopefully what the industry is going to focus on. And that happens in Norway, by the way, also. We are giving our customers extra bonus if they have is it 4? 3? 3 subscriptions with Telenor. That could be a mobile subscription, that could be a software, also handset device subscription or it could be a fixed subscription. Then we bundle them and give some extra bonus. Again, not discounting offers, but trying to take advantage of the position that we have.

[Operator]

We will now have our next question, Roman Arbuzov from JP Morgan.

[Roman Arbuzov, Analyst]

The first one is for Jørgen. So I just wanted to dive deeper into the balance sheet debate. And Jørgen, you've mentioned that it's not really the Telenor way to suddenly hand over lots of cash all of a sudden to shareholders. So I was just wondering how will you behave in a hypothetical scenario a couple of years from now if you do find yourself in a situation where you're still some way below target leverage, which I think is quite realistic, right, given the run rate of your free cash flow generation as you presented on your slides, which has also been hampered, by the way, by, you can say, somewhat higher spectrum expenditure in 2018. So if you do have this level of free cash flow generation and even if you continue to reward shareholders with NOK 19 billion a year for buybacks and for dividends, the deleveraging trajectory is not quite aggressive enough. So I was just wondering how will you solve this conundrum of not handing lots of cash at once, which is not the Telenor way, and actually hitting your leverage targets. And specifically, within that question, you've sort of hinted that M&A is not really -- that there isn't anything concrete on the agenda near term. But I was just wondering if you're baking in anything for that target -- within that target for kind of hypothetical M&A and also maybe FX, if that is an issue at all.

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

Well, maybe it will be the next Telenor way if you're right in your estimate. But I think we shared 23 -- or we distributed NOK 23 billion last year, we do -- if we get it through '20 -- or '19, this year. And then let's see what's happen the next 2 years. So I think it is at least the Telenor way to first give good shareholder remuneration. And it's also the Telenor way to be predictable, say what we plan to do and do what we have said we wanted to do. That also goes in this area. So my point was just that the idea for us was get there gradually. And we did not have a fairly tight time frame and not do it in a surprising move overnight. The plan is to distribute good shareholder return for the next few years. The plan is also, as I said, to keep financial flexibility. And it encompass all the elements you talked about. We have reduced the group's risk, we believe, by the measures we talked about, but there is still significant risk in the group. There is a large currency-volatile portfolio in Asia, et cetera, et cetera. We want to have a muscle to do a good value-accretive M&A transaction if that occurs. At the same time, we do not want to have an inefficient balance sheet. And since we have been fortunate enough to be ahead of our program both in the restructuring of our business and also in the reduction of our portfolio and the sales. Remember all this has happened in 2 years' time, so we are little bit ahead of the program. We are not surprised that we end up in a situation where we are going to increase our distribution. What took us a little bit by surprise over the summer was that we were there somewhat faster than we anticipated in the original plans.

[Roman Arbuzov, Analyst]

Can I ask just one more on the guidance please, specifically, on the cost side? You're still targeting the 1% to 3% OpEx reductions for 2019. And yet, in your presentation, you've mentioned some of the one-off factors that were boosting your 2018 performance, like Pakistan and global wholesale, those will be reversing. You also have the CAT cost in Thailand annualizing and perhaps your other units will not be as beneficial to your OpEx reduction in 2019 as it was in 2018. So if you add it all up, the 1% to 3% feels a little bit ambitious. So I was just wondering if you can comment on whether the 1% to 3% is, so to speak, kind of just an automatic target that is the result of your full year plan of the 1% to 3% reductions. Or do you think it's actually quite a realistic bottom-up target based on your 2019 projections? Or this is just kind of a top-down project in line with your broad ambitions, please?

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

Thanks for that. I assume you did now talk about the OpEx indication that we have given and not the EBITDA guidance. So is that correct?

[Roman Arbuzov, Analyst]

That's right. The OpEx, please.

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

Yes. Very good. So -- no, there is not much automation behind this. At the same time -- so we have a calculation which is telling us how we are going to achieve this. At the same time, there is a range here. And we have been, as I said, from 2 different angles over-delivering the first 2 years. One was that the first year should be a flat year, but we took out 3.5%. And the second year, we are all the way up to the top part of the range. So maybe we will be a little bit lower than the top part of the range in '19, but we have ambitious plans, and we are continuing with the work. So there is no schematic way we are presenting this.

[Sigve Brekke, President & CEO]

Maybe just add that Jørgen also had this slide on. We are now into much more structural cost efficiencies than we were in the first 2 years, and Jørgen used some examples on that. And I will say that the investments we have done in some of the structural initiatives in '17 and '18 is now starting to come true. And maybe also from the management point of view, we have now been able to get an alignment with our business leaders out in the business units that we want to be -- we want to modernize Telenor, we want to be a more lean Telenor. And with that also comes a continuous efficiency. And in a way, it has helped us that we have overachieved our target the first 2 years, because it has given us a little bit confidence that we are able to do this difficult stuff.

[Operator]

We'll now take the next question from Ulrich Rathe from Jefferies.

[Ulrich Rathe, Senior European Telecommunications Analyst]

My question is on Thailand. Obviously, part of -- at least part of the problem there seems to be sort of an adversarial regulatory behavior in recent times. I'm talking about sort of this concession-extension issue, the remediation and also the -- sort of the very expensive license auctions and everything surrounding this. So my question is, with regards to your plan to turnaround Thailand and back into growth, what further significant points of dependency of the regulator do you have? Or is it now a situation where you'd say this is the bit that we actually need from the regulator, they're all in place and really it's now on us to turn this around, obviously, depending on industry behavior, but it's more sort of our -- the industry issue and the regulatory behavior? Are there any particular things you still need from the regulator or that you see coming on the horizon where a sort of similar risk could rise again in Thailand?

[Sigve Brekke, President & CEO]

No. I think you have almost concluded yourself. I think we are through the difficulties and the dependency we had on both the regulator and the transition from concession to license. We now have solid license on 2.1. We have a solid license on 900, solid license on 1800, solid lease agreement with TOT on 2.1. So the license and the spectrum situation, it's now in our control. So now it's very much up to us to make sure that we are able to return to growth. Of course, we are also dependent on the competitive situation, but at least that is what we think we can best and what we would utilize our experience on. And that's the reason why I will say that the base is now kind of set and a base for returning to growth. However, we don't know how long time this will take, because we still are in the midst of that network transition. It has nothing to do with the regulatory, but has to do with the transition on building the 2.3, densifying the network on 2.1 and living with lesser spectrum on 1800, and that takes a little bit time. So also that's why we want to keep DTAC out of the guiding, but I'm not really positive that we will be able to return to growth during the year. And this is what even me and Jørgen are spending a lot of time on, both Thailand and Myanmar to try to help as best as we can.

[Operator]

We will now take our next question from Peter Nielsen from ABG.

[Peter-Kurt Nielsen]

A question on the outlook for this year, please, particularly on the return to revenue growth. I think you partly alluded to it. Some of the factors have held you back this year, which would disappear automatically considering the headwinds in Thailand and Malaysia. I appreciate Thailand is outside of your guidance, but still, would you say it's fair to say that the growth profile for this year, certainly for revenues and probably also to some degree for EBITDA will be skewed towards the second half of the year? Would you concur with that? And just a quick follow-up on the copper decommissioning in Norway, which obviously, as Sigve said, sounds quite exciting. I won't preempt because you told us you would come back with more info. But with such an undertaking, specifically the copper decommissioning in Norway, which you alluded to would take around 4 years, would that come with associated significantly additional OpEx in Norway, just as an indication?

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

I understand where you're coming from. I don't think we should start guiding you within a guiding. It becomes a little bit complex. You could, of course, do the thinking that you're doing based on Thailand and Myanmar alone and say that they are struggling still in fourth quarter, and hence, they would spend time speeding up. On the other hand, remember that we had fairly -- we have better comparables or easier comparables on Pakistan and Bangladesh in first half. So it becomes a little bit skewed. And I starting on guiding that Marianne will give me hard time for afterwards. So I shouldn't do that.

[Sigve Brekke, President & CEO]

And that goes with Norway as well on the copper replacement. We'll come back with more details on this before the summer.

[Operator]

We'll now have a question from Terence Tsui from Morgan Stanley.

[Terence Mun-Sion Tsui]

I just had another follow-up question around the shareholder remuneration. I'm just wondering why are you reluctant to commit to the new leverage target. Even I -- and some of your Scandinavian peers have done it and returned excess cash flow to shareholders very quickly. So you wouldn't necessarily be the first. And then related to that, what is your thinking around the ordinary dividend? Because you're buying back shares, the ordinary dividend is increasing by low single-digit, but the total ordinary dividend paid has been broadly stable for the last 4 years, which doesn't seem to correspond with the increased visibility you have around your business.

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

Yes. I don't think we have much more comments on this now. We started 2017 committing to increasing year-on-year dividend. At that point in time, the question was more would we be able to maintain the level that we had at that time. And we have persistently done that. And we have then 3 times -- or this will the third time we are buying back shares in this period, over 3 years. And it will be -- and we have had 1 extraordinary dividend on top of that. So that's where we are now. We hope that is appreciated. We have given some directions on the balance sheet, which should also cater for an even better transparency on the somewhat medium-term perspectives on the extra parts. And then we'll get back to this at next milestone, but this is where we are now.

[Operator]

We will now take our next question from Siyi He from Citigroup.

[Siyi He, Vice President]

And I have 2 please. And the first one is you mentioned about the NOK 2.5 billion to NOK 3.5 billion OpEx savings. Would you might just clarify whether that is a part of your '19 to '20 costs -- OpEx savings? Or I should expect this to be on top of what has already been guided? And also, on your comments on modernization of Telenor, how should I think this would impact the CapEx envelope? And the second question is on your EBITDA assumptions of 1% to 3%. Would you mind to just to let us know what are the key drivers that you have building to this expectation? For example, do you expect the potential reintroduction of the telecom tax in Pakistan?

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

Well, okay, we might have to repeat part of the question, but the first one was -- what was the first one?

[Sigve Brekke, President & CEO]

If what you talked about on the...

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

On the cost, the NOK 2.5 billion to NOK 3.5 billion. Well, you cannot just add it on top of anything else we have said about cost program. On the other hand, you should also expect that this is continuing past 2020 and that a major part of this will come in the latter half of the time period, because it is of deep structural nature, and the copper is obviously 1 example of that. So therefore, there will be a mix, and the indication is that we are continuing with our modernization program and that we are strengthening -- based on learning experience, we are strengthening the way we do it and giving it a even more formal and rigid setup. And then Marianne?

[Marianne Moe, Head of Investor Relations]

Siyi, could you please repeat your second question?

[Siyi He, Vice President]

Yes. I was just wondering what are the key drivers that you've baked into your 1% to 3% EBITDA assumption, especially in Pakistan.

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

Yes. Well, we -- again, we are coming down from a higher EBITDA growth in '18, but we are basing it on the same 2 elements as we have always done. And that is, of course, how much can we assume from the cost program and what can we believe from the top line revenue. Remember also that in '18, we had a significant effect from other units. The consequence of both restructuring other units, group functions, global services and global expert environments, plus what we have talked about before, the fact that we are charging out more of the group cost than before, because we have a well-documented story on the services and the value for the business units. All that gave the result that other units has been one of the high performers in '18 in the cost program. That will not continue to the same level. We have come down significantly in cost in group functions. We have -- we are charging out a lot. So that is perhaps the biggest changer on the EBITDA level.

[Operator]

Our final question will be from Adam Fox-Rumley from HSBC.

[Adam M. Fox-Rumley]

I'm mindful you might push this question out to later in the year, but a quick one on the Norwegian copper network and whether or not there were any regulatory obligations or challenges that you need to consider and you might be able to share with us?

[Sigve Brekke, President & CEO]

Yes, we will come back to the details on that. There is already regulations on the fiber access in Norway, wholesale access. So of course, we will not speculate in further regulations, but this is just based on the need we see now of modernizing our network. It's an old copper network, and we see that it is time for us to be a little bit more ambitious on how fast to replace that with other type of products.

[Marianne Moe, Head of Investor Relations]

Okay. And that was the final caller, the final question here today. If there are any follow-up questions, Investor Relations is happy to take your questions later on. And now for those of you present -- media present here at Fornebu, there will be a separate session with Group CEO, Sigve Brekke, and Acting Head of Telenor Norway, Bjørn Ivar Moen, in the -- is it upstairs in the cafe area? Yes. Meera and Hatlevik will take you up. Fourth floor, Meera and Hatlevik will take you there. For those attending the presentation and the conference call here today, thank you so much for attending, and see you next quarter.

[Sigve Brekke, President & CEO]

Thanks.