Telenor ASA (OTCMKTS: TEL) Q3 2022 earnings call dated Oct. 26, 2022
Corporate Participants:
Sigve Brekke — President and Chief Executive Officer
Tone Hegland Bachke — Executive Vice President and Chief Financial Officer
Analysts:
Andrew Lee — Goldman Sachs — Analyst
Maurice Patrick — Barclays — Analyst
Andreas Joelsson — Danske Bank — Analyst
Peter Kurt Nielsen — ABG Sundal Collier — Analyst
Frank Maao — DNB Markets — Analyst
Luis Lecaroz — Credit Suisse — Analyst
Francesca Schild — Exane BNP Paribas — Analyst
Titus Krahn — Bank of America — Analyst
Usman Ghazi — Berenberg — Analyst
Adam Fox-Rumley — HSBC — Analyst
Ondrej Cabejsek — UBS — Analyst
Sarah Wong — J.P. Morgan — Analyst
Presentation:
Sigve Brekke — President and Chief Executive Officer
Good morning, and welcome, everyone, to our Third Quarter Presentation. And welcome to our Q3 Presentation.
I want to start this presentation with repeating the value creation strategy we presented a month ago at our Capital Markets Day. One was to become a leading Nordic telco. This means growing core connectivity and services, and focus on margin expansion through modernization. Two, a strong Asian entity operating more independently from the rest of the group; a cash flow-focused Asia, realizing synergies into merged entities and drive operational performance. Three, a leading Nordic infrastructure company. Our focus will be to develop and monetize our infrastructure. And four, a new and focused approach to develop our adjacent businesses. We want to develop some of the assets that we already have, and we want to unlock the value of assets through transactions and partnerships.
Let me then go through this quarter’s results. As you can see from these highlights, we have already started to execute on our receptor [Phonetic] Nord strategic agenda. In the quarter, Telenor continued to deliver service revenue growth, and I’m especially pleased with the Nordic mobile growth of more than 4%. I believe this is a strong support for our profitable growth ambition in the Nordics.
As we have said, we currently have a significant cost headwind from energy, especially in Norway, Denmark and in Pakistan. The impact this quarter — in the third quarter and will continue to constitute a headwind for us until we start receiving energy from the PPAs that we have entered into for Norway and Denmark. These two PPAs have a significant lower price than the current spot price that we currently see.
In Norway, these arrangements will start coming into effect in the fourth quarter next year and in Denmark, late the year after. In the quarter, we executed on the first step of crystallizing value in our infrastructure business. We’re signing an agreement to sell 30% of our fiber company in Norway. With this transaction, we can increase the fiber rollout in Norway. Shareholders will benefit through a share buyback program and in addition, we will strengthen our balance sheet.
Another key part of the value creation strategy is the two big mergers in Asia. In the quarter, we have received regulatory clearance in Malaysia. As expected, it took some time, and we will now move on with the final approval from the stock exchange and our shareholders. As we have said, I expect this transaction to close in the fourth quarter and we are well prepared to start realizing the synergies. In Thailand, we yesterday received a regulatory notification. As presented, some of the remedies need clarification, and we will now seek to engage in a dialogue with the regulator to seek further clarifications.
Let me then turn to the Nordic business. At the Capital Markets Day, we told you that we believe in growth in the Nordics. And I’m quite pleased to see that in the third quarter, it’s supporting this ambition with an overall growth across the portfolio. The growth is driven by two trends. First, a focus on core connectivity in all the segments, both mobile and fixed. Second, by growing services beyond connectivity, security is such a product for both the consumer segment and the business segment. In these services, in Norway, these services currently accounts for 18% of the mobile revenues, with a growth this quarter of 12%. A key element in our strategy is to develop these services together with partners, then to sell it to our customers using our brand and distribution strength. By providing more value to our customers, we have, during the quarter, done price increases in all our Nordic markets. We have done this selectively across our customer segments, and we see the effect of this starting to come true now. Some of these increases are lifting the price on existing price plans, some is for new sales and some are related to new offerings and new services.
Let me then deep dive into Norway. In Norway, and as you can see on this slide, we see growth in what we call the legacy free service revenues. In the quarter, this revenues grew with 3.1%. And as mentioned, we have a headwind related to the high energy prices. But adjusted for that and also adjusted for the copper decommission, we see the top line growth resulting in an underlying EBITDA growth of 2.3%.
Going forward, this is not enough. As we stated at the Capital Markets Day, our ambition is to deliver EBITDA growth of mid-single digit based on an opex reduction in the Nordic of 1% to 3%. For the years to come, this means that we in Norway and also in the other Nordic markets, expect EBITDA to grow faster than our revenues. To succeed with our ambition on profitable growth, I have a special attention to a continued modernization of our business in Norway.
With the copper shutdown now coming to an end, we see a potential for additional simplification and modernization in Norway. New modernization initiatives are being implemented to improve operational efficiencies and customer experiences with positive impact on the opex level in 2023 and the following years. Our plan is that this will be an important contributor to the EBITDA growth in Norway in 2023. Our new Nordic setup is also expected to contribute to modernization and operational efficiencies in both the support functions and as well in the area of technology and IT. We will come back with more information about the plans we have in this area in our Q4 presentation.
Moving to Asia. In Asia, we are progressing with the structural transactions in Malaysia and in Thailand. We have received regulatory clearance from the Malaysian regulator and also the Security Commission approval for the proposed merger. We will now soon reach out to our shareholders for an EGM [Phonetic] approval and aim for this transaction to close within this quarter, the fourth quarter.
In Thailand, as I said, we just received the notification letter from the regulator. Initially, and as presented, some of the revenues needs more clarifications. We will, therefore, now seek to engage with the regulator to discuss the remedies and seek further clarity.
Going to Bangladesh and Pakistan. Organically, we see a good development continue in Bangladesh, with a 7% revenue growth from increased data usage and demand. This is coming from existing customers because the SIM ban has not made it possible for us to take a fair share of the new customer growth in the previous month. However, we have now reached an agreement with the regulator, such that we can start using recycled numbers to get back also with our SIM sale.
In Pakistan, the flooding situation has impacted people’s life and economy, as well as continued increase in energy prices and high inflation. This is impacting our revenue growth and, of course, also significantly increasing the opex. As I mentioned in our Q2 presentation, we have started a strategic review in Pakistan and I expect more clarity on our structural alternatives in the coming months.
At our Capital Markets Day, we said that we want to focus on synergies and cash flow in Asia, with a target of an accumulated free cash flow of SEK12 billion in the period up to 2025. We will shortly start reporting our cash flow generation from our Asian businesses.
Turning to infrastructure. When it comes to infrastructure, we are executing on the strategy we presented a month ago. The fiber deal in Norway support continued high fiber rollout, while crystallizing some of the significant values we see in the infrastructure portfolio. Following several years of high investments in the Norwegian fiber market, the transaction demonstrates the value of Telenor fiber and the infrastructure assets that we have.
The deal allows us to strengthen Telenor’s competitive position in Norway, as the transaction enables Telenor to accelerate our FTTH rollout and also the HFC replacement. We are bringing in strong investors with a long-term horizon. We have been able to attract new capital on a very compelling term and wider benefits of partnership with an experienced infrastructure investor.
The cash proceeds will partly be used on fiber investments, partly distributed through a share buyback program and partly to strengthen our balance sheet and our financial position. And as you can see on this slide, the intention is to call for an EGM to initiate a share buyback program shortly after closing of this transaction. From October 1, Jannicke Hilland, is the new Head of our Infrastructure Business Area. She will have a special attention to develop the organic development of the tower companies across the Nordics. This also include the future structural tower opportunities that we see. In addition, she will continue the work on creating a data center strategy.
The last four business areas, it’s on the adjacent business. As a part of the Reset [Phonetic] Telenor, we presented at our Capital Markets Day, we launched this new business area headed by Dan, which will focus on our adjacent businesses. We have decided to name this area, Telenor Amp. This quarter, we delivered a double-digit revenue and double-digit EBITDA growth from the consolidated units, driven by strong development in Connection, Telenor Links and Telenor Maritime. We also got confirmation on our advanced position when it comes to IoT as Telenor is ranked among the top three IoT players in Europe. This makes us a clear IoT market leader here in the Nordics.
Going forward, our focus will be on two areas. One, a strategic review of the portfolio that we have, then we will look for partnerships, monetization and possible exit; and two, continue to develop ourselves into a leading Nordic position when it comes to IoT and security.
Let me end with this slide. This was a slide we also used a month ago at the Capital Markets Day. And this shows our financial priorities in the months and quarters and years to come. One, profitable growth, reducing capex intensity and continued modernization in the Nordics. Two, strengthen cash flow from Asia. Three, unlock value from our infrastructure. And four, a disciplined approach in our adjacent businesses.
And with that, let me welcome our CFO, Tone, on the stage.
Tone Hegland Bachke — Executive Vice President and Chief Financial Officer
Thank you, Sigve, and good morning, everyone.
The strategy we presented at the CMD in September sets out a new direction for Telenor, with profitable growth as one of the key elements. I’m therefore, particularly pleased to see that with this quarter are able to generate 4% growth in mobile service revenues in the Nordics. And this is a key driver for the overall 2.5% organic growth in service revenue.
Organic EBITDA also increased by 2.5%, although with many items impacting the results both negatively and positively. As outlined on the CMD, we have seen increasing energy prices, and as Sigve said, especially in Norway, Denmark and Pakistan. For the quarter, however, the energy increase was more than compensated by a reversal of an accrual in Pakistan related to SIM tax. This amounted to NOK600 million. Free cash flow came in at NOK5 billion or NOK4 billion, excluding M&A, in line with our expectations.
Let us start with taking a closer look at revenues. As you can see, we show growth across the Nordics, including mobile and fixed future in Norway. This is driven by increased usage and partly price increases implemented during the year. Norway delivers 3% growth on non-legacy and a mobile ARPU growth of also 3%. We also saw solid development in Bangladesh, delivering growth of 7% despite the SIM ban. The reported growth for Pakistan is supported as — as-reported is supported by the SIM tax reversal. Excluding this effect, the growth is negative 3%.
Looking at the other segment, we see double-digit growth in Telenor Connection, our IoT company. On the negative side, we still see copper headwinds, which will gradually taper off now as we enter 2023. Thailand and Malaysia shown also negative growth, and this is reflecting the prevailing macro and competitive sentiments in this markets.
Moving to opex. This quarter, we see a 6% increase or a NOK500 million, up from the third quarter 2021. This mainly reflects around NOK200 million higher energy costs. It is a little over NOK100 million in increased sales and marketing spend, as we’ve talked about throughout the year, particularly then in Bangladesh and Sweden. And we still have around NOK100 million related to strategic projects, which we then will expect gradually to be reduced going forward. Apart from these items, we see only modest cost increases. And this goes to that the structural initiatives we are running currently have the ability to mitigate the inflationary pressures we have seen so far.
Moving to energy. At the CMD, we highlighted that the sharp increase in energy prices increased the uncertainty around our EBITDA guidance. As we all experienced, the situation remains very volatile. And even though we see spot prices have come somewhat down in the very, very near term, we base our estimates on forward prices and the other estimates we can have in the markets. And based on this, we still see the second half outlook in line with what we presented a year ago at the CMD of NOK2.5 billion of costs in the second half of the year. And based on the mid-October forward price that we see it, we estimate the EBITDA headwind for the full year coming from energy to be around 3 percentage points for the full year.
As shown on this graph, the main drivers for the increase are Norway, Pakistan and Denmark, as we have talked about this year. And then as Sigve also said, the 10-year PPA agreements that will come into effect late ’23 or early ’24 in Norway and late ’24 in Denmark, have prices which are much more in line with the historical averages we’ve seen for energy prices.
Moving to EBITDA. We reported 2.5% EBITDA growth for the quarter. And as I said, it includes both negative special items and the significant reversal of the SIM tax accrual in Pakistan. This reversal of the previous provisions are done line by line on the same accounting lines as when we did the accruals.
Looking at the performance in the Nordics, we see strong growth in EBITDA in Sweden. There is also a solid reported number for Finland, and this is, as you remember, based on the negative one-off in the same quarter last year. The decrease in Denmark is fully explained by increased energy costs. While in Norway, as Sigve also talked about, it is a combination of the copper headwind and energy costs, which is resulting in a material decrease of 9%.
I would also just make you aware and draw your attention to that, there is a change in periodization this quarter between Telenor Infra, which is in the other segment, and Telenor Norway, which is removing a time lag of booking of energy cost between the two entities of two months. And the result this quarter is an increasing revenue of Infra of around NOK100 million and a similar increase in Norway of COGS of around NOK100 million. There is no major impact on the group figures for this internal periodization.
In Asia, we see solid growth in revenues in Bangladesh, which follows through to EBITDA. In Pakistan, however, the underlying EBITDA decreased by 22%, which is driven by the energy cost, the FX headwinds, and we also see some negative impact from the flooding on the top line. During this year, we have talked about these three special items impacting us negatively throughout the year. And you see here in this figure to the right here, that the impact in total around 6 percentage points on EBITDA this quarter. Then on the other hand, the reversal of the accruals had a positive impact of 4.8% for the quarter.
The net income to equity holders of Telenor ended at NOK1.5 billion. The reduction from last year is primarily a result of FX effects, which comes from strengthening of the U.S. dollar and Singapore dollar versus the Norwegian kroner. These effects are, as you know, they are unrealized and non-cash items. In total, FX has a negative contribution of NOK2.4 billion. Lower profit before tax this year also results in a NOK400 million lower tax expense in the quarter.
Capex for the quarter is in line with plan and primarily driven by the 5G rollout in the Nordics, the fiber investments in Norway and the network investments in Thailand. Free cash flow improved in the third quarter and came in according to our expectations at NOK5.2 billion or NOK4 billion, excluding M&A. Year-to-date, the free cash flow stands at NOK9.7 billion. During the quarter, we have seen a positive development of 0.1% on our leverage, which is driven by the cash flow generation, which is then, on the other side, partly offset by the currency impact on net debt of around NOK3 billion.
Then I will move to the outlook for the year. The service revenue growth is progressing according to our plan, and we maintain the expectation of low single-digit organic growth. On our Capital Markets Day, we highlighted that the energy prices have increased significantly in the second half of the year and created an additional headwind on the full year EBITDA compared to what we saw of 1.5%.
However, as we talked about this quarter, we have a positive one-time effect in Pakistan, which compensate for the increasing energy costs. As a consequence, we maintain the outlook for 2022 organic EBITDA around last year’s level. The capex to sales is still expected to be in the range of 16% to 17%.
Then Sigve, I believe we’re ready for the Q&A.
Sigve Brekke — President and Chief Executive Officer
Yeah, we are.
Tone Hegland Bachke — Executive Vice President and Chief Financial Officer
Operator, may we have the first question, please?
Questions and Answers:
Operator
Sure. We will take the first question from line of Andrew Lee from Goldman Sachs. The line is open now. Please go ahead.
Andrew Lee — Goldman Sachs — Analyst
Yeah. Good morning. I had two questions. First one is just on your energy cost headwind visibility into 2023. Can you just talk a bit just about how much visibility you have on that headwind? And you talked about your confidence in mitigating the headwinds for 2022, but how confident are you to mitigate for 2023?
And then the second question was on a really interesting deal to sell 30% of your fiber asset, as you laid out on one of the slides. Just wondered, is that the extent of your plans to sell that asset? Could you sell 49%? Or do you ever give up your strategic control of that asset? Thank you.
Tone Hegland Bachke — Executive Vice President and Chief Financial Officer
Yes, I can start with energy. As you know, we have a long-term hedge in place for the Norwegian energy consumption, but that comes into effect towards the end of 2023. So for 2023, until that comes into effect, we don’t have a hedge in Norway. In Sweden, we have approximately 50% hedged for 2023 consumption. In Finland, the pricing mechanisms leave us to be around two-third of the consumption being hedged as it is a three-year rolling pricing mechanism there. And then Denmark is also waiting for the long hedge of energy prices. So, we have the volatile situation on the energy in general, and we will continue to be exposed in those Nordic markets. In Asia, as you know, it’s different dynamics and it’s difficult to hedge as it’s based on diesel and other components.
Sigve Brekke — President and Chief Executive Officer
And the PPAs will start kicking in then in the fourth quarter next year for Norway with a significant lower price. Now on the second question, what we have said all along is that we want to sell — bring in a minority partner in our fiber structure in Norway, and that’s exactly what we have done. We’re very happy with the valuation we got out of that. And as I also talked about in the presentation, we will now use some of the proceeds to continue to grab market share on fiber in Norway and also some more we tend to pay back to our shareholders. So we are happy with the 30% minority position that we have. There is no plans about that.
Andrew Lee — Goldman Sachs — Analyst
Thank you. Can I just — that’s really helpful. Can I just follow up on the energy side. Obviously, your ARPU trends are pretty decent this quarter. How confident are you in your ability to mitigate or at least partially mitigate the energy headwinds in 2023, accepting that it’s clearly a volatile situation?
Sigve Brekke — President and Chief Executive Officer
Yeah. So your question is about the pricing power that we have? Was that the question?
Andrew Lee — Goldman Sachs — Analyst
Exactly. Yeah, your ability to mitigate the cost headwinds or pass through the cost headwinds on to your customers?
Sigve Brekke — President and Chief Executive Officer
Yeah. We are not going to give any views on what we plan to do on that going forward. But what we have done in the last few months is to do price increases in all our Nordic markets. And we do that in various ways. And we see that most of this is actually related to giving customers more, so more services. So it’s appreciated by our customers. That is what we have done. And that is now starting to come through. Most of these increases, we have done quite lately. So first in the coming months, you will see this coming through. I don’t want to give any more views than that.
Andrew Lee — Goldman Sachs — Analyst
Okay, thank you.
Operator
Thank you. We will take the next question from the line of Maurice Patrick from Barclays. The line is open now. Please go ahead.
Maurice Patrick — Barclays — Analyst
Good morning, guys. Thanks for taking the question. Just a question on the timing and phasing of the Norway EBITDA turnaround. So I mean you delivered minus 8.8%, I think, this quarter, and you talked about the 4 percentage points from energy in the wholesale drag. In the past, you’ve communicated the sort of the idea that the drag from the wholesale gradually decreases as we get into 2023, I think it kind of lapsed in the second half, and you’ve got the PPA coming in, as you say, in the fourth quarter. I think you said, Sigve, in the prepared remarks, you expect to grow Norway EBITDA in 2023. But if you could give us some sort of sense of the phasing of that, that would be very helpful. Like, is it for the full year? Would it just be in the fourth quarter? Will the first half likely be similar to what we’ve seen this quarter? That’d be helpful. Thank you.
Sigve Brekke — President and Chief Executive Officer
You want to start?
Tone Hegland Bachke — Executive Vice President and Chief Financial Officer
No, you can start.
Sigve Brekke — President and Chief Executive Officer
Okay. No, I think it is pretty much as you said. The headwind from the legacy decline will continue into the first two quarters of next year. Second half of next year, this will then on a year-by-year — year-on-year basis, be more or less washed out. And then as I also said, we are now initiating new initiatives, efficiency initiatives and modern initiatives to bring down the cost of the rest of the business, and that is going to impact our EBITDA for next year. But I don’t want to give you any more guiding than what I did in my presentation and what I just said now.
Maurice Patrick — Barclays — Analyst
That’s great. Thanks for the opportunity.
Operator
Thank you. We will take the next question from the line of Andreas Joelsson from Danske Bank. The line is open now. Please go ahead.
Andreas Joelsson — Danske Bank — Analyst
Hey, good morning everyone. Just a follow up to Andrew’s question. As you said, you have done some price increases as of late. Just curious about your learnings from those increases. And also, if you can see any changes in consumer behavior, given where we are in terms of macro. And then maybe also on Thailand, if you could say anything about these proposed remedies, if they are as you expected, although, I understand you need clarity on some of them, but is it fairly as you expected? Thanks.
Sigve Brekke — President and Chief Executive Officer
Yeah, I’ll start with the price question. I think the customers are appreciating more for more. And many of these increased — price increases, yeah, actually related to giving more for more. And we don’t see any major effect with our customers on that. In the price sensitive segment, which is around 30%, I think, of our Norwegian customer base, of course, there we are more careful. But for the more high-end customers, we see that the price increases has been accepted, if I can use that word. The same we see across the other Nordic markets. However, we don’t know how this is going to develop, how competition is going to react to this. So that’s yet to be seen. But so far so good, I will say, on that question.
On Thailand, well, some of the elements that we have seen in the notification we got is as expected. Some of them are unclear for us what it really means. And that’s why we need to seek further clarifications what it really means in practice. So it’s — the letter we got on several elements are actually quite unclear when it comes to how this will be operationalized. So that’s why we need to go back to the regulator. But as we have said all along, the regulator is not — do not have the authority to say yes or no. They only have the mandate to look at remedies. So the notification shows that we were right on that. The regulator do not say yes or no, but they look at remedies. So at least that is — and there’s been a lot of discussion around that, can the regulator actually say no. So this confirms — the notification letter confirms that our understanding has been right. So I don’t — I’m not able to answer more in detail than that. Now we will sit down and discuss this and seek that clarification.
Andreas Joelsson — Danske Bank — Analyst
Very good, thanks.
Operator
Thank you. We will take the next question from the line of Peter Nielsen from ABG. The line is open now. Please go ahead.
Peter Kurt Nielsen — ABG Sundal Collier — Analyst
Thank you very much. I guess, Sigve, you’ve commented as much as you want to on the opex impact in the coming quarters in Norway. So I’ll just stick to Nordic mobile revenues, obviously, quite strong. And as you mentioned, Sigve, you’ve raised prices. Would you say you have — could you discuss a bit how — what kind of support you’re seeing from the launch of 5G? Is that a factor here in enabling you to increase prices upselling, etc.? Or is it still too early? And are you seeing any more sort of concrete discussions and perhaps contract with enterprises on 5G in, I guess, across the Nordic markets? Thank you.
Sigve Brekke — President and Chief Executive Officer
Yeah. Some of this is related to upsell from 4G to 5G. We do that in Norway, and we do that in Finland, and there is still a room to grow on that. So yes. Then we see that fixed wireless is not picking up based on our 5G network. And we see now that, that has actually increased quite a lot over the last two months. Then on our business segment, we see now that we have more and more dialogues with the customers on building 5G networks that we see both here, but also in Finland and also coming in Sweden. But that’s still a little bit too early to say how big that effect will be, but there is more demand now than what we have seen in the past on those 5G-related private networks.
Peter Kurt Nielsen — ABG Sundal Collier — Analyst
Yeah, thank you. You commented earlier on sort of what you’re seeing on the consumer market. Are you seeing any pullback of any kind on the enterprise side in relation to sort of the weakening macro outlook?
Sigve Brekke — President and Chief Executive Officer
No.
Peter Kurt Nielsen — ABG Sundal Collier — Analyst
That’s probably also still too early?
Sigve Brekke — President and Chief Executive Officer
No, we haven’t seen that in the Nordics. No, not at all, I will say.
Peter Kurt Nielsen — ABG Sundal Collier — Analyst
Okay, thank you.
Operator
Thank you. [Operator Instructions] We will take the next question from the line of Frank from DNB. The line is open now. Please go ahead.
Frank Maao — DNB Markets — Analyst
Yes, hello, and thank you for taking the question. My question is more on the cost development in Norway. So it was a bit on weak side of consensus expectations. And it’s — you have talked about the energy impact and so on. But is there any short-term cost measures you are pursuing in Norway, more in the short-term to mitigate the cost headwinds from energy and also more in general, really? That’s my question really.
Sigve Brekke — President and Chief Executive Officer
Well, Frank, that depends what you mean by short-term. As I said, we are investing now in taking this service position. And as I said, 18% of the mobile revenues in Norway now are coming from those services on top of the data connectivity. So we are hiring people on that area, and we are investing into that. So that’s part of the answer. When it comes to then going forward, we have now embarked on a new program to look at — and this is coming out from now the copper decommissioning program ending, then we have resources enough to look at what else can we modernize and make more efficient in Norway. And those initiatives, we plan then to take now with us into 2023. And as I said in my presentation, that will be a main driver to have the EBITDA development in Norway next year. So yes, if you mean short-term is the next two, three quarters, yes, we have initiatives to address the rest of the cost base.
Frank Maao — DNB Markets — Analyst
Thank you. And a follow-up on the price learnings, the price responses that you’ve basically seen or not seen in the Nordics based on your recent price increases. We’ve seen Telia, for instance, increasing some fixed line prices in Norway. But on the mobile side, have you seen anything here or in other markets that competitors have followed up?
Sigve Brekke — President and Chief Executive Officer
Yeah. I just want to stay very careful on the pricing discussion when it comes to our competitors. I can say what we have done, and I can say what — how we have seen the development or the way our customers have taken this, but I don’t want to go into what the competitors are doing or thinking or will do.
Frank Maao — DNB Markets — Analyst
Thank you.
Operator
Thank you. We will take the next question from the line of Luis from Credit Suisse. The line is open now. Please go ahead.
Luis Lecaroz — Credit Suisse — Analyst
Hi, good morning. I have three questions, please. The first one is on Sweden and Finland. We have seen a pretty strong acceleration in terms of service revenues and also on EBITDA. Can you give us some color on the drivers on both countries, please? And how sustainable do you think this can be going forward? The second one would be around the Thailand remedies. You are saying that there are some remedies that need further clarification. It would be helpful if you can give us some color on which of the remedies are the ones that are causing a major concern on your end? And the third one on wages renegotiations in 2023. We have heard some comments from your competitors on wages expectations into 2023. It would be helpful to understand how these negotiations are going and any bits you can give us by country would be helpful. Thanks.
Sigve Brekke — President and Chief Executive Officer
You can pick which one you want to take?
Tone Hegland Bachke — Executive Vice President and Chief Financial Officer
Yeah, yeah. No, I’ll start with Sweden and Finland. We are very pleased with the performance we see in Sweden now. We have for several quarters, going back, we have talked about the turnaround we were working on. We were talking about how we were preparing ourselves through our systems and way of work. And we are very pleased now to see that we compete much better in the Swedish market, and this is really what you see in the results going forward. So we have a solid top line growth in Sweden, and that is then, as you see, following through to the EBITDA.
In Finland, we continue to do the 5G upselling. And we believe still that the Finnish market is a very healthy market when it comes to how the customers are embarking on higher price plans, building up on the improved data usage and the upgrade from 4G to 5G. So we will continue to work on this. At the same time, as we, of course, continue to focus on taking out these cross-Nordic synergies that we will now have a focus on following the establishment of the Nordic unit, and we are looking across. And that is both coming to support the top line over time, but also work on the efficiency in the cost base.
When it comes to wages for 2023, these are market-by-market agreements, as you know. We have been, in the past, able to mitigate the price increases, salary increases by efficiencies, as you see. You see it this quarter as well that we have a very slight increase in the salaries and wages, and we will continue to focus on this going forward. Then, of course, it remains how the overall macro and these agreements will play out in 2023. But we have had good learnings, and we will continue to focus on this. And then you can…
Sigve Brekke — President and Chief Executive Officer
Yeah. I’ll just — if you look back the last few years, I think we had taken down the number of employees in the range of 8% — 7%, 8% to — I’m not saying that that’s what we’re going to do going forward, but that’s the way we have been balancing the personnel costs. Now on Thailand, well, take two of the areas that we need to understand better. One, it’s what I say about price adjustments or tariff adjustments. We need to understand that. Another one, it’s what I say about creating capacity in network to facilitate MVNOs. Those are two examples of things we need more clarity on. But there are more in the document that we have received.
Luis Lecaroz — Credit Suisse — Analyst
That’s helpful. Thanks.
Operator
Thank you. We will take the next question from the line of Francesca from BNP Paribas. The line is open now. Pease go ahead.
Francesca Schild — Exane BNP Paribas — Analyst
Great, Thanks very much for taking the questions. I’ve just got two, please. On Bangladesh, you’ve obviously said that there’s a partial resolution to review SIM cards. Do you have any update on any — how that’s progressing and any expectation that you’ll actually be able to reissue numbers? And then secondly, please, just on Norway Fiber. It looks like your fiber net add is slowing slightly. So earlier in the year, you explained that net adds were expected to pick up in the second half of the year. Can you just please explain the trends that you’re seeing, if this is still the case? Thank you.
Sigve Brekke — President and Chief Executive Officer
Yeah, I can answer Bangladesh and then you take the fiber. Was your question on Bangladesh on the SIM ban? Was that the question?
Francesca Schild — Exane BNP Paribas — Analyst
Yeah, exactly, and any update on that.
Sigve Brekke — President and Chief Executive Officer
Yeah. For several months now, we have not been able to sell new SIMs in the market. And I must say, it’s a quite impressive, then, 7% growth not coming from new sales, but actually coming from growing the relation or ARPU with existing customers. So I’m pleased to see that. But now we are allowed to use all the recircled numbers, meaning that customers that churn out, we can take those numbers and we can start selling in the market again. So now we are back in — also in the sales channels. We also have a very good dialogue with the regulator in Bargladesh now ongoing, taking completely away the SIM ban, and I’m quite positive that, that will happen relatively soon. But with the — also with the allowance of using recircled SIM cards, I don’t see that we are really hindered now from participating in the new sales. So going forward, I’m not so worried about this.
Tone Hegland Bachke — Executive Vice President and Chief Financial Officer
Yes. And then on the fiber, we do see now that we are able to reposition ourselves following a more mature dynamic in the Norwegian market. There is changes in maybe the dynamics when it comes to churn. But these customers very often remain on our network as wholesale customers. So the net adds we report are the net adds to Telenor, but in our network, as such, we remain a large portion of these customers. So it is an area with constant focus, of course. It’s a more dynamic game now, and we believe we are constantly improving in how we position and play in that dynamic game. And then we also foresee, as we said, from the new fiber agreement, that we will also invest going forward into this to capture new growth and also the opportunities as we see them.
Sigve Brekke — President and Chief Executive Officer
Next caller, please?
Operator
Thank you. We’ll take the next question from the line of Titus from Bank of America. The line is open now. Please go ahead.
Titus Krahn — Bank of America — Analyst
Hi team. Good morning and thanks a lot for taking my question. Just one wider one on your free cash flow and then a quick follow-up. Just on the free cash flow, could you maybe give us a little bit of color on the working capital trends and, given that there has been a bit of attention on this in the current environment on supply chains and how you would expect them to kind of work out over the next couple of quarters? And related to that, maybe on capex, given that there are a couple of headwinds on free cash flow for you at the moment, one option could be, of course, a more selective approach to capital investments going forward to preserve cash flows and your recent priority already went into that direction and you guide for lower capex intensity in the medium term. But how would it look like for you in the short term? And do you think you could be more cautious on spending and where would you prioritize? And then maybe a very, very quick follow-up just on the fiber deals. Could you give us any number, any quantification on what cash flow leakage we could expect from the minority stake hold?
Tone Hegland Bachke — Executive Vice President and Chief Financial Officer
When it comes to free cash flow and working capital, we saw that we had a somewhat of a headwind on the working capital in the first half of the year. We said we expected it to improve in the second half. We are neutral now, and we do expect a slight improvement in the working capital in the fourth quarter. We don’t see any kind of structural trends, but we do see periodization between quarters relating to when the capex is paid and we see that as a particular element to — with the third quarter last year versus the third quarter this year. And then as you might recall that based on the accounting rules, third quarter last year, we also had the cash generated in Myanmar included in our cash flow. So we don’t see any large structural changes in it, but it’s more a shifting between the quarters.
When it comes to capex, we are continuously maneuvering in where to most efficiently apply the capex funds. We are in a situation now, as you also alluded, that we are investing in fiber and will continue to invest in fiber. And then we also have, as we talked about on the CMD, we have 5G rollout in four markets in the Nordics, and it is, of course, important for us to be able to compete in those markets. But in the midst of this, we are constantly looking at how to best deploy the funds we have. And then what was the question on fiber again?
Sigve Brekke — President and Chief Executive Officer
Leakage.
Tone Hegland Bachke — Executive Vice President and Chief Financial Officer
The leakage. Yeah, we have not been clear on that nominal amount. We will come back to that when we have the share buyback, and we believe that would be the mechanism for how to neutralize the leakage. And then we have said that approximately 30% of the proceeds that we get will be used for share buybacks.
Titus Krahn — Bank of America — Analyst
Thank you. Very helpful.
Operator
Thank you. We will take the next question from the line of Usman from Berenberg. The line is open now. Please go ahead.
Usman Ghazi — Berenberg — Analyst
Hello, thank you. Just two questions, please. The first question was on the FiberCo [Phonetic]. Can you indicate what kind of leverage you anticipate will be put on the FiberCo, please? And also what is the kind of EBITDA growth rate that you’re seeing at the FiberCo at the moment? That was the first question. The second question was for Sigve. Sigve, amongst the remedies that you’ve highlighted you needed more clarification on, I’m surprised that you didn’t mention — I mean, in the notification, it says that the number of cell sites that the merged entity has cannot be reduced going forward. And I was just wondering, I mean, does that have any impact on your ability to consolidate the network or decommission sites, which obviously will be a big portion of the synergy extraction? Thank you.
Sigve Brekke — President and Chief Executive Officer
Yeah, I can start with the second and then you can think about the first.
Tone Hegland Bachke — Executive Vice President and Chief Financial Officer
Yes.
Sigve Brekke — President and Chief Executive Officer
Yeah, I mentioned two examples, but there are more issues here that we need clarification and you are mentioning one of those. And in the notification, it also says that we have no obligation when it comes to population coverage. And of course, that is natural that the regulator have a view on that. And that is what we are going to focus on. And I think we are almost there when we are merging these two entities with the 5G presence that our future partner, True, has in Thailand already. And that is the main objective, I guess, that the regulator want to make sure that we are giving the people of Thailand a good 5G coverage. And then the area you mentioned, in my view, that’s something we need to clarify because it doesn’t really make sense that you have parallel network. So it’s just an example of unclarity in the notification.
Tone Hegland Bachke — Executive Vice President and Chief Financial Officer
Yes. And then on the FiberCo, it’s — as we said, they are valuing the company on an EV basis of NOK36 billion. And they will — the minority investor will pay NOK10.8 billion for that. The company, as such, will be a consolidated part of Telenor. So that will be part of our normal leverage, so to speak. It will — we will get the funds in, and then we will continue to invest. So it’s not a traditional structure or it’s not a separate structure as such, it’s part of us. We get paid for the EV. And then there is, of course, a leverage on the Topco level for the investor, but that is not — that will not impact the FiberCo as it is included in Telenor.
Usman Ghazi — Berenberg — Analyst
And, sorry, just on the EBITDA growth that you’re seeing at the FiberCo at the moment?
Tone Hegland Bachke — Executive Vice President and Chief Financial Officer
Yeah, we have not communicated on that. We are in a growth phase where we are rolling out more and where we are fighting in the market. So — but we have not given any growth rates or indication on that.
Usman Ghazi — Berenberg — Analyst
Thank you.
Operator
Thank you. We will take the next question from the line of Adam from HSBC. The line is open now. Please go ahead.
Adam Fox-Rumley — HSBC — Analyst
Thank you very much. And I have two, please. So firstly, on Pakistan and the impact of the flood, I think maybe it’s somewhat out of our minds because it’s out of the press. But if you could give us an update on exactly the impact that you’ve seen in Q3, kind of, how much that’s ongoing into Q4 and an impact that you’re anticipating further out in terms of both opex and maybe capex to sort the network out [Indecipherable]. And then secondly, there’s a couple of mentions within the release of your operating activity stepping up. I think in your prepared comments, you mentioned Sweden and Bangladesh you see had a fall. I guess I wonder how you feel about the kind of run rate of those businesses at the minute and whether or not you think there’s kind of a further uptick to go, whether it’s just very dependent on how you compete in those markets going forward or whether you’re, all else equal, operating kind of as you would like to in those — on that opex line? Thank you.
Tone Hegland Bachke — Executive Vice President and Chief Financial Officer
Yes. So when it comes to the flooding in Pakistan, that is, of course, detrimental to the people of Pakistan. It is also impacting us when a high number of sites are down. It is — we believe that this is partly or it is partly reflected in the numbers we see this quarter. It’s a bit too early to give any kind of clear indication for the longer-term impacts on this. But in the quarter, as such, the main reason for the opex increases continue to be energy and FX. So we don’t see a material impact this quarter. And it’s, of course, something where we are constantly maneuvering our local team in Pakistan and alongside a very demanding energy environment in general. So it’s a maneuvering that is going on, but it’s not, to the same extent, impacting our numbers this quarter.
When it comes to investments in the markets in Bangladesh and Sweden, in Bangladesh, we show, as you see, a 7% growth. It is with this growth level, you continue to invest, and it’s profitable. We have the 5% EBITDA. And in Sweden, we are continuing to evaluate our approach in the market. And we also are working on how to best compete in the market, and that is evaluated going forward. So far, as you see and as we have said, we see the growth is coming through to the EBITDA, and that will be the ambition when we deploy and allocate sales and marketing funds also going forward. But these have been the two markets where we have said we have special attention, and we see in the financial that is coming through to EBITDA.
Adam Fox-Rumley — HSBC — Analyst
Okay. Thank you very much.
Operator
Thank you. We will take the next question from line of Ondrej from UBS. The line is open now. Please go ahead.
Ondrej Cabejsek — UBS — Analyst
Hi. Thanks for the presentation. I had two questions, maybe both follow-ups. One on Thailand. So the question is, to what extent is the 2025 free cash flow dividend cover target relying on synergies from Thailand, i.e., if you had three years of restrictions in terms of, for example, network merger between the two companies, stuff that actually hinder that target? Or is that a small part of the overall growth from here in 2025? Because I believe if I look at the slides in the Capital Markets Day, the majority is still coming from the Nordics. So what kind of problems [Indecipherable] cover would that be in 2025?
And then going back to energy. If you take everything that you know today, all the kind of moving pieces, you’ve got some positive ones. It’s just the corporate shutdown. Some negative ones, of course, going into 2023. Then if we look at the NOK2.5 billion amount that you’re expecting in the second half of 2022, is that you think that the kind of run rate roughly? Is that the peak on a semiannual basis before some of the PPAs kick in, as you say, towards the end of 2023? Thank you.
Tone Hegland Bachke — Executive Vice President and Chief Financial Officer
Yes. So what we said when it comes to Thailand and the synergies, we are reporting a significant NPV number of the synergies but it is, of course, a long-term value creation plan. And also, as we said, we believe that the first years will also be years where you invest and adjust. So there will not be a material impact on the cash flow from the Thailand merger in the early part of the next three-year period. So it will not — over time, over the 3 years, we don’t see a material impact if there is a delay or adjustment to this. So it will not materially impact the overall plan.
When it comes to energy for 2023, what we see is — and particularly, of course, looking at the Norwegian market where the main exposure is, as you know, we see still a forecast of increasing energy prices into 2023. So really, what will be the effect in 2023 will depend on the prices in the market as we enter 2023. And as we see now in Norway, there is a small dip in the pricing, but the forecast still remain fairly high. So it is difficult to say, and I don’t want to guide into 2023 until I have to and until we will make that overall assessment, but there is still a view that the winter will require higher energy, that the energy prices will be higher during the winter in Europe in general as we see it.
Ondrej Cabejsek — UBS — Analyst
Thank you very much.
Operator
Thank you. We will take the next question from the line of Sarah Wong [Phonetic] from J.P. Morgan. The line is open now
Sarah Wong — J.P. Morgan — Analyst
Hi, thank you. I had two questions, please. So you said before that you are a bit more careful on the lower end of the market with price increases. So I’m just curious to know what is your approach there? Or what is the thinking around there? Are you maybe giving more discounts because you’re more cautious of the cost of living crisis? Or is it just not putting in price increases as much? And the second question is, is there any scope for governmental intervention in the energy markets for corporates in any of your countries? Is there any potential upside to the energy cost expectations? Thank you.
Sigve Brekke — President and Chief Executive Officer
No, I think on the first question, I just said that, of course, the 30% of the mobile market in Norway, it’s what we define as a more price-sensitive segment. In that segment, we are addressing differently than we do with the 70% of the more — for the rest of the mobile market. So I don’t think I want to go — and we are doing a price adjustment also in that segment. So I don’t think I want to go more into details on what we do. But yeah, that’s the way we look at it.
Tone Hegland Bachke — Executive Vice President and Chief Financial Officer
Yes. And on your question on energy, as we talked about before, in Asia, several of the markets we are in Asia have regulated prices. So there is some kind of intervention already in those markets. And that is why, of course, you only see the large increase in Pakistan because there are other pricing dynamics in the other countries in Asia. And then in the Nordics, of course, we follow the general debate and we are acting as we cover a consumption based on the mechanism as we have. We say in Sweden, we are hedging. Finland, we have the rolling — kind of the yearly rolling and then we have the exposure to the market, as you allude to, in Norway and Denmark until the PPAs come into place.
Sigve Brekke — President and Chief Executive Officer
I think we had one caller left, Tone.
Tone Hegland Bachke — Executive Vice President and Chief Financial Officer
It appears so.
Sigve Brekke — President and Chief Executive Officer
Yeah.
Tone Hegland Bachke — Executive Vice President and Chief Financial Officer
Or maybe not.
Operator
Thank you. We will take the next question — so, we’ll take one final question from the line of Frank from DNB. The line is open now. Please go ahead.
Frank Maao — DNB Markets — Analyst
Yes, hi. Just a follow-up question, if I may, on then the Thailand process going forward with regards to the discussions with the regulator there on these clarification items you have. What — can you give us some idea or, if you have one, on what the formal — at least the formal process is, if not the informal one, that is the formal process on how these discussions are likely to go, the time span you expect and so on? That would be great. Thank you.
Sigve Brekke — President and Chief Executive Officer
Yeah. Thanks for your question, Frank. I actually don’t know the answer to that question. So we received this notification letter just a couple of days ago, and we are going through it now and to understand it and the next steps and how this is going to seek out for clarifications. I don’t know how long time and exactly how that process is going to play out.
Frank Maao — DNB Markets — Analyst
Okay, thanks.
Operator
Okay. Thank you. There’s no further questions.
Tone Hegland Bachke — Executive Vice President and Chief Financial Officer
Thank you, everyone, for listening in and asking questions, and have a nice day.
Sigve Brekke — President and Chief Executive Officer
Thank you.