Tele2 AB (publ) (TEL2B) Earnings Call Transcript & Summary

Welcome to the Tele2 Q2 2022 Interim Report. [Operator Instructions] Today, I am pleased to present Kjell Johnsen, President and Group CEO; and Charlotte Hansson, CFO. I'll now hand the floor to Kjell.

Thank you very much, operator. Good morning, everyone. And welcome to Tele2's Report Call for the Second Quarter of '22. With me, like the operator said, here in Kista, I have Charlotte Hansson, our group CFO; and Hendrik De Groot, our Chief Commercial Officer. So let's just turn straight into Slide 2 for our quarterly highlights. I'm very pleased to see that our efforts are paying off as we present the results for our second quarter. End-user service revenue grew by 3% for the group. And it's great to see that all countries are contributing to that growth. Although we see some pressure on the cost side, we are able to convert the strong end-user service revenue growth coupled with the execution of the business transformation program to an underlying EBITDAaL growth of 3% for a group. I'm happy to see that mobile postpaid within Sweden B2C shows a strong net intake this quarter. And at the same time, we were able to maintain our mobile postpaid ASPU on a similar level. In fixed broadband, we see continued strong growth driven by volume. And within digital TV cable and fiber we show similar results as the previous quarter, ahead of the Viaplay deal which we expect to come into effect during the second half. We continue to see an improvement within Sweden B2B end-user service revenue driven by mobile. The improvements within mobile is across all of our different segments, and we are able to grow our business while stabilizing ASPU. We see some headwinds in a quarter from disruptions in our supply chain which impacts the activity within solutions. In the Baltics we experienced yet another quarter of fantastic performance, both in terms of top line and bottle line. Here we see higher costs from electricity than in Sweden but we are still able to mitigate this through strong top line growth. Spectrum auctions are ongoing in Estonia and Lithuania, and we have already concluded the spectrum auctions in Latvia with successful results. Well, let's then move over to the Swedish consumer segment on Slide 4. Mobile postpaid saw strong net intake in a quarter driven by FMC bundling and continued strong performance from Comviq. Despite the strong net intake in postpaid, we managed to keep the ASPU level stable. In fixed broadband we see continued strong performance with good volume growth. In digital TV, cable and fiber we see continued contribution from Tele2 Play+, which helps us to grow the ASPU in the quarter. However, the overall customer base continues to decline which reduces end user service revenue growth. Turning to Slide 5. Mobile postpaid end user service revenue grew by 2% in the quarter, driven by both prepaid and postpaid. We see continued end user service revenue growth in fixed broadband of 2%, primarily driven by a larger customer base. Total end user service revenue for digital TV declined by 3% in a quarter, primarily driven by continued decline in the legacy DTT TV, the terrestrial TV, due to a decline in customer base. Let's then continue with B2B on the next slide. Mobile net intake continue to be strong in the quarter, driven by new contracts within both the SME and large segments with 23,000 new mobile RGUs. The mobile ASPU in absolute numbers continue to be on similar levels as previous quarters, driven by the volume mix within SME and the profitability focus within large private and public. Continued mobile volume growth was able to fully offset the decline in the legacy fixed business resulting in Sweden, B2B growing end user service revenue by 3% in the quarter. And then let's turn to Slide 7 for an overview of Sweden. End user service revenue was plus 1% in Sweden, driven by Sweden B2B. Underlying EBITDAaL increased by 2% in the quarter compared to last year driven by slight end user service revenue growth and contribution from the business transformation program. We continue to see strong cash conversion of 66% as continued underlying EBITDA growth offsets higher CapEx levels. Now let's move to Baltics on Slide 9. We see similar trends to previous quarters in the Baltics with strong volume and ASPU growth across all markets. Roaming continues to come back in a meaningful way, and we are able to monetize data through our more-for-more strategy. Turning to Page 10. This ASPU and volume growth led to an end user service revenue growth for all markets. And we saw the Baltics grow by 12%. The end user service revenue growth in the quarter was able to offset the increased pressure from rising inflation rates, and underlying EBITDAaL grew by 10%. We continue to see a high cash conversion for the Baltics due to the strong performance and relatively low CapEx levels prior to the nationwide 5G rollouts. So with that, I'd like to hand it over to Charlotte who will go through the financial overview.

Thank you, Kjell, and good morning, everyone. Please turn to Page 12 in the presentation. Strong end-user service revenue growth in the Baltics and Sweden B2B coupled with continued execution of the business transformation program resulted in underlying EBITDA growth of 3%. We continue to see pressure on margins, stemming from rising inflation rates, primarily from higher electricity costs in the Baltics. Results from associated companies and JVs do no longer include results from the now divested T-Mobile Netherlands, which is why we see a decrease compared to Q2 2021. Income tax significantly decreased compared to Q2 2021 as income tax last year included the release of a provision yielding a positive non-cash effect of SEK 350 million. Net profit from discontinued operations included a settled dispute from previously divested operations of SEK 226 million, which is why we see a significant step down compared to last year in Q2. Let's continue with the cash flow on Slide 13. CapEx paid was higher in Q2 2022 compared to last year as we had 2 spectrum payments in this quarter, one related to our network joint venture Net4Mobility, and one related to the second payment from the 700 megahertz spectrum in auction in Latvia. At the same time, we have seen an increase in network CapEx driven by the rollout of 5G. Changes in working capital was negative in the quarter, driven by higher inventory levels, primarily stemming from network equipment and handsets. While at the same time, we temporarily see less impact from external handset financing in the quarter. Taxes paid increased in Q2 2022 compared to last year, driven by improved operational performance in 2021 compared to 2020. And we continue to see strong equity free cash flow generation with SEK 750 million in the quarter, yielding an equity free cash flow from continuing operations of SEK 5.3 billion in the last 12 months. Please move to slide 14 to go through the capital structure. At the end of the quarter, we saw economic net debt increase to SEK 24.9 billion as cash generation from our operations and proceeds from T-Mobile Netherlands did not fully offset the 2 dividend payments in May. Leverage remains in the lower part of the target range of 2.5 to 3, ahead of the second tranche of the ordinary dividend in October. Please turn to Slide 15 where we will update you on the progress of the business transformation program. During the quarter we continued to execute on the business transformation program and made improvements primarily within our combined IT and tech organization. This led to an annual run rate of SEK 650 million by the end of the quarter. The P&L effect of this was SEK 155 million in the quarter with the net effect of SEK 75 million compared to Q2 2021. We have now also finalized the migration of the Tele2 brand to the new IT stack. And we are now preparing for the next phase of the program, which is to migrate the remaining brands. With that, I hand over to Kjell to go through our key priorities going forward.

Thank you, Charlotte. And then please turn to Slide 16 for a summary. With the first half of the year concluded, I'm happy to see that we are on a steady course to deliver on our 2022 guidance. With the dividend for this year, we are able to significantly remunerate our shareholders in 2022 in accordance with our midterm ambition even during the more turbulent macroeconomic times. On the back of this, we feel like we want to be prudent in the way we look at our balance sheet as we've done historically. This means that even if we have room to relever our balance sheet, we want to be cautious and make sure that we keep our financial strength going forward while keeping our current leverage and dividend policy in the long term. So there is no change. In Sweden, we continue to roll out 5G with some bumps on the way, driven by supply chain challenges and semiconductor shortage. However, we are still committed to our goal of covering 90% of the population in Sweden by the end of 2023, and to have a CapEx range of SEK 2.8 billion to SEK 3.3 billion during 2022 and in the midterm. Similarly on the fixed side, we continue to roll out Remote-PHY devices in order to gain the benefits from the investment as soon as possible, both of these projects are key for us in order to increase customer satisfaction, which will support our more-for-more strategy for years to come. We will continue executing on the business transformation program to deliver at least SEK 1 billion of savings by the end of the second quarter of '23. In Sweden Consumer, we'll continue to balance value and volume in order to build sustainable growth while gearing up our capabilities to address the SEK 1.3 million non-FMC households. We will also continue to build our premium brand in order to increase customer satisfaction that we can monetize through reduced churn or price adjustments on the back of product improvements. The agreement with Viaplay is a key part in this strategy. And we now have a more competitive offer out in the market. We have started migrating linear customers onto our new TV propositions during Q2, and we expect to start to see financial impacts during the second half of this year. In Sweden B2B, we'll continue to build on the great results from the first half of the year in order to grow the business for the full year. However, as in any business, it usually does not develop in a straight line and fluctuation should always be expected. But we are witnessing a very important and sustainable shift within B2B. In the Baltics, we experienced more pressure on the cost side than in Sweden, but we are able to mitigate this from the incredible top line growth which filters down to underlying EBITDAaL. Going forward, we'll build on this momentum while we are prepared to start the nationwide rollouts of 5G once the auctions are concluded in Lithuania and Estonia. During the quarter, we also signed a wholesale agreement in Latvia for fixed infrastructure, which means that we now have FMC capabilities in all countries. With the first half of the year behind us, we look to the second half of the year and beyond. I have expressed many times before that Tele2 is a growth company at heart, and we continue to show this quarter after quarter as we execute in our strategy to reach our guidance for 2022 and in the midterm. With that, I would like to hand it over to the operator for Q&A. Please.

[Operator Instructions] Our first question comes from the line of Andrew Lee at Goldman Sachs.

I had a question just around your conference show in communicating your ability to deliver midterm guidance despite the macro backdrop, particularly interested on the top line side of things and your ability to pass through high costs to the customer and higher prices. What are you seeing there? Do you see scope to introduce inflation in pricing in Sweden? And do you think like what we've seen in the U.K. and the Netherlands, for example. And do you think the price move in Sweden so far this year suggests more inflationary pricing than in previous years? So that's my key question. And then just if possible, I think the shares have been weighed on a little bit by your free cash flow weakness in the quarter. You've been pretty clear in terms of tax and working capital phasing that obviously the investors are still a little bit concerned about that. So could you reassure us that it is phasing and that your free cash flow delivery for the full year should still be robust?

Yes, we are quite confident when it comes to our ability to deliver what we have guided for this year. We think that we're going to see a quite decent second half of the year. The year will probably be, as we have said before, a little bit U-shaped. But we're already well underway to deliver on those targets. And the ability, of course, to do inflationary pricing, I would probably not use the term, I know it's very popular to talk about inflationary pricing and it's not about concept. But we will be doing pricing at different times in different parts of the business. And as you can see in the Baltics, they're really able to keep it moving at a very good pace despite the highest inflation in Europe and the energy challenges they have, not to speak of the human challenges they have working with the uncertainty they have. Here in Sweden, we're also developing quite well. You see the growth in B2B. So I think that the competitive pressure is now, if anything, slightly better than it was half a year ago. It's still a bit high on commissions here and there. I don't think that's very rational. And I think that probably will adjust itself a little bit over time. And Charlotte will take us more through some of the equity free cash flow reasoning. What I would just like to say on that is that we do see as part of our network rollout, the documentation around it, that there is a little bit of a lag in some of the accounting around this, but that will, by and large adjust itself over time. Should we take this on the working capital now? And maybe -- I'll leave for Charlotte to take that part of the question, please, Andrew.

Yes. So when it comes to the working capital, I think it's important to remember that last year it would have been exceptionally strong working capital with some extraordinary items when it comes to both accounts payable and the tax situation in that point of time. So -- and of course this year we see some higher inventory levels as mentioned before. And I also think that this is -- the situation of the overall supply chain environment market that we have right now that we need to make sure that we can also deliver what we should to our customers. So we want to be prepared for that. But also, we know that this varies very much quarter by quarter. And we also mentioned that since we talked about 5G rollout, that's also something that we have and increased some assets for that. But that's also, I would say, planned. I think those are the main highlights. And then we also mentioned the handset financing. And that's also fluctuating between the quarters.

I think there's nothing that impacts when you talk about the medium-term outlook around the dividend story, so just to make that very clear.

And our next question comes from the line of Ondrej Cabejšek of UBS.

I had one clarification and one question, please, if I may. So the question would be around the TV migration. So you mentioned, and we see this in the numbers, that you're expecting the biggest wave of the migration basically in the second half, probably most of it in the third quarter. Can you just talk to us a bit, however, about some of the early response that you're getting from some of the groups that you have already migrated in the third quarter, how that is going, and what the phasing is in terms of how -- or rather when you expect the full subscriber base to be migrated, please? And then just in terms of the clarification, Kjell, you mentioned in terms of the leverage that you would potentially be taking a bit of a more cautious approach. In the past, you've said that in terms of releveraging you're happy to be somewhere in the middle of the target range of 2.3 to 3x -- to about 5 to 3x, sorry. Is this a signal to us that maybe in the short term you would target to be closer to the 2.5?

I can take the leverage question first. So you're right. We think that over time we would like to be around the middle of that range. And we decided to take one cautionary move here now by staying a little bit towards the lower end of the range, but still we'll be paying out in October. But we expect to return to a normal situation. We just feel that there's a lot of uncertainty in the world around us now. And then it's better to be a little bit extra prudent. But we do have today the capacity to do some relevering if the Board should wish to do so. We just decided to be a little bit extra careful due to the uncertainty in the world around us. Hendrik will then take the TV side of it.

Sure. On your question around TV migrations, where we are at the moment is that, as we said earlier, during the summer we will migrate the total linear but also our streaming base to the new packages. 50% of the migrations have technically happened and the rest will happen now in July and August, of which about 1/3 is in the Q2 number. So 2/3 still need to flow in, and early on in the second half of the year. The customer reaction so far have been, I would say, quite positive if you certainly look at the level of price adjustment we have done in a value approach, right? We've given quite a lot of value but also quite a price adjustment of SEK 40 to SEK 50 typically per customer. We see -- and you can see that a little bit in the numbers on Boxer that we've had an initial peak of some additional churn, which you see in the second -- in the Q2 numbers. But typically afterwards we've seen a very low churn so far that we're quite happy with, and we're still seeing good regular sales momentum. And basically, as it rolls out into the -- towards the end of the year into the full numbers, as we said before, we have a variable nature of the partnership. So ultimately, it will be EBITDA accretive between cost and revenues flowing into the numbers.

Can I just clarify, so we've seen some impact, you said about 50% technically in terms of ARPU, for example, and -- towards the end of the second quarter already or -- because the price increases are very high, right? 1/3 -- sorry, 1/3 of the base has been migrated and sits in the Q2 numbers, 2/3 still have to flow in, in the second half of the year. So was there a little down spend then because we don't see, I guess, much in terms of the service revenue trend in TV with the scale of the pricing uplift that I think at least I would have expected. So can you maybe elaborate on that a bit, please?

Now, if you look at the overall numbers, you see that we're balancing out on the escrow and on the revenues quite nicely in terms of the DTV revenues being pretty much stable on a year-on-year basis. And also on the DTT side, you see that the revenues are stabilizing on a quarter-on-quarter basis. So I think we're seeing what we are expecting. Of course, as also we've been saying, we still are balancing out value versus volume, right, in the total numbers. And again, later on in the year, the rest of the -- 2/3 of the base will flow into the numbers and will -- in our outlook fully stabilize the TV business line.

Our next question comes from the line of Andreas Joelsson of Danske Bank.

It relates to the B2B side in Sweden, clearly a significant improvement over the past couple of quarters. And Kjell, you mentioned that you see this as sustainable. Can you just explain what makes you confident that this improvement is sustainable?

Yes. And that goes beyond the numbers. When I look at how we run our B2B business now and look a bit back in time, I see a strong team that has a clear strategy and also building a clear delivery culture. So if this would have been one part of B2B delivering a lot and pulling the train up, then I would be less optimistic. But what I see is a strong group of people who clearly have gotten their act together and that platform is a strong platform. And I've said it before, I don't think the B2B business ever has been as strong in Tele2 as it is today. So this market can of course have their ups and downs as overall markets, but the strength that we have within the organization now means that we can weather quite a lot of headwinds also if that were to come. So I'm quite positive.

Our next question comes from the line of Terence Tsui of Morgan Stanley.

I've got one question, please, on the Swedish consumer mobile market. I was just wondering whether you can just say a few points around what you're seeing around the competitive dynamics. I noticed in Q2 quite a bit of a step-up in promotional activity. You guys were running some promotions on the high end with discounts of say up to 30%. Telenor took down their price for unlimited 5G. So are you seeing signs of promotion activity picking up? Or is it still pretty seasonal in your view?

Hendrik?

So if you look at the overall market and also our results, we all benefit, I think, from good market recovery post COVID that we pointed out were still around in the first quarter. And for us, in particular, we're quite okay with our commercial execution in the quarter. If you look at the overall competitiveness and activity in the market, has been quite a busy quarter. We've seen quite a number of operators coming out with their new mobile front books. We've seen price adjustments across Q2 but also across H1, across the mobile and fixed portfolios and new top line ATL marketing messages from Telenor and Telia. So it has been very busy. And in that context, and I would say the positive note in all of that is that the price adjustments but also the activity that is really focusing on a higher campaign pricing approach, more driving the value into the market is very -- is supported to ASPU development. So this is also what we've been saying and we've been executing on as of the first quarter of this year to really move to the mid-tier in terms of our campaign pricing. And I think we see that replicated across the market. On the sub-brand side, there is still some targeted pressure around. But of course, I think that would be a normal characteristic of the market. And typically, what you see is we've been, for example, campaigning very much on 50 gig for 299 and also on -- for 1 month unlimited for 399, and you see these are the sort of pricing levels that we're seeing in the market.

Our next question comes from the line of Ulrich Rathe of Jefferies.

My first question is on the supply chain mentioned. Could you elaborate a little bit where you're seeing pressures? Is it on the network equipment side, which is sort of I think in the CEO comment and the report, focuses on the network equipment side or does it extend to devices? And on the network side, is it really mostly the RAN or other parts of it? A bit more color on that would be great. And then also coming back to an earlier answer on the confidence on B2B. That answer, the way you framed it was very much that the tools on team and strategy has been sort of put together in a very powerful way. But you did not comment at all about the market. How would you view the market side of that confidence in the B2B sustainability -- trend sustainability from you?

Yes. So on the supply chain, there has been some delays in parts of the RAN supplies. And I will keep it at that because I don't want to single out one of the vendors in any special way. This is -- at this stage where we've been in the first half of this year, it doesn't really make a huge difference because we are in the ramp-up phase. So we expect, if things go the way we have been promised, quite substantial deliveries in the second half. So we should be able to make up for quite a bit of this. We have had some disruptions related to our solutions business, and that can be -- since you are delivering a more complex package, if you miss a router, you miss a router or things like that. So I wouldn't say it's been a big issue for us. We've been able to successfully mitigate a lot of disruptions there. So I wouldn't call it out as a major issue, but it has had some impact on the business. Going to the B2B side, I felt it was important to really focus a bit on our own capabilities because I think without it we wouldn't be where we are for sure. The market is relatively okay. I don't want to call out any wild activities there. We do see the odd contract here and there where we think people are a little bit too volume-focused, but it's not a major issue for us. We see a relatively healthy competition. And we think overall the market is probably as good as you can expect from a B2B market where you are happy to get a little bit of sustainable growth.

Our next question comes from the line of Titus Krahn of Bank of America.

Just one question maybe on the Baltics and maybe even on a read-across from that segment. Just given that inflation is running a bit ahead of the rest of Europe and Sweden, first do you see an impact on demand yet? And also do you see an impact on how competitors act given they have higher costs to face? Are they potentially more rational? And related to this. Is there any read across for your Swedish business as well?

Very interesting question. And I think we're watching the Baltics, both with excitement but also as a way of seeing what could be ahead of us, just like you are saying in your question, I think the teams have done a great job of being able to mitigate the very high inflation that we've seen. And when I speak to our people in the Baltics, I don't get the impression that there is still a major share of wallet issue. Remember, they came out from low after levels. But if inflation were to continue anywhere close to these numbers for over a long period of time, then of course there will be a legitimate concern. If inflation stabilizes within the next 12 months to a lower level, then I think we will ride it out relatively okay. And I -- clearly, I'm not economist to make this kind of projections. But I wouldn't expect to see the same inflation levels in Sweden. I think also the wage development in Sweden works differently than it does in the Baltics. So the impact will be different. The read across would be that I think the industry and you guys and everyone are very alert to the need to compensate for higher inflation. It's in our minds. And other industries do the same. So people in the streets in a way see that this is happening. And I think that if we see a stabilization of inflation over the next 12 months, we should be able to come through this in a good shape.

Okay. And maybe just as a follow-up, in the Baltics, do you see kind of those competitors already factoring that in? Or have the change -- has not much changed compared to, let's say, last year as the year before. Well, I think people are trying to compensate for -- it's a little bit different from market to market there. And I don't want to comment on individual competitors in a 3-player market. I think that's going a bit too far. We see that players are trying to follow the same trajectory of compensating for inflation. And I think we have done really well also compared to competition in these markets, which I'm very happy to see. So the trend is for trying to ride it out by compensating and taking cost-cutting measures.

Our next question comes from the line of Francesca Schild of BNP Paribas Exane.

So I just got one, please, on handset financing. So the report discusses the lower levels of handset financing this quarter. And just on that, are you able to expand on this? And if possible, what contribution did handset financing have to cash flow this year versus last year.

So I think that when it comes to the handset financing, it varies between the quarters as well. And it's just that we don't see the same -- we don't have the same tailwind from it any longer. And also that is also depending on the Baltic situation, that we have almost finalized that part, I would say that. And I think that we don't give the details in numbers regarding this.

And our next question comes from the line of Nick Lyall at SocGen.

It was a couple of questions, please. Firstly, on Remote-PHY, Kjell, is there -- could you give us a little bit of an update on the Remote-PHY rollout? And also is it just too small to see in margins yet? Could you maybe tell us what sort of prices you're encountering for fiber? And is it material in the P&L at all? And then secondly, I think the answer to this one would be very short. So apologies for a second question, but is there anything you can help us with on the Kinnevik situation? You know, what your discussion is like with them? And any sort of visibility on what their feeling is now about the holding in Tele2?

So on Remote-PHY, basically my orders to the team is just move as fast as you can on it to improve the user experience for our customers. It doesn't move the needle for the group on the CapEx side where we are now. So I'm happy to say that it looks like we are able to go faster in terms of rolling out Remote-PHY. It's primarily a customer satisfaction thing to build higher NPS. 1.5 years ago we had issues with our NPS, and that's clearly moving in the right direction. And I'd like to do that as fast as we can. I think it will be clearly beneficial to the business in order to keep customers on and to be able to price them over time. Do you want to add something to this, Hendrik?

Well, yes, just maybe couple of snippets, Nick. I think the Remote-PHY is a central part of our program. If you look at our numbers, we had a good beat on broadband this quarter. To an extent, this also flows in from improving, as Kjell was saying, improving satisfaction levels and improving quality which we're focusing on through an extensive program that includes Remote-PHY. So we've had already -- we've seen churn notably reducing with the improving satisfaction. So that's clearly -- that's the part of the strategy that we're focusing on. And we have, with the acceleration, we're pretty much on track for the year. We have a good beat rate now, and we're still looking at how we can further accelerate at the time. So it's clearly a key element of a program for our broadband connectivity business.

And on your generic question, I mean, we as a management and I as the CEO, we don't know any more than you about what Kinnevik's thoughts are around Tele2, if you think about the share sale. So that's basically I think a question you have to ask them. We shouldn't know anything about it either.

Our next question comes from the line of Pontus Wachtmeister of SEB.

Two questions, if you can. I mean I'm looking at your balance sheet, you have the current receivables, are up about SEK 500 million from the first quarter. And then there's a new line in there called current investments, which is SEK 82 million. Can you just mention something on your receivable status, and if that's just seasonal or if it's anything structural in there? And then on just the balance sheet and interest cost, you mentioned 1.35% average interest cost and 4-year maturity on average. You also say somewhere else that you have 40% of it floating around 66. Can you just give us kind of -- how does the kind of phasing look there in the coming year given that we now see interest rate increases on the base rates?

Okay, you want to do receivables?

Yes. Should I say something about that? Yes, we have some of the buildup of the CapEx for Net4Mobility as well. So the network that we share with Telenor. So that was part of that. And then I think that's actually what I can say at this point.

I think it's fair to say that it is a bit of a documentation grind that you have to go through to get these things and run through the system. So it's just a matter of time and documentation and go through and then they fall back into the accounts where it should be.

Yes, we could say that.

So it's not an external -- it's not a risk factor towards any external party. So if that's what you're concerned, yes.

No, I'm just curious that we see kind of sharp rise in the quarter. And that's my question exactly, if it's just anything else rather than pure outstanding consumer payments or business…

Just related to -- to a large extent related to accounting and the work that we do through Net4Mobility. So we have lots of benefits from working with Net4Mobility. It's great. Sometimes it causes us a little bit of extra work here and there.

Okay, awesome. And the interest rate question just quickly, if you have time.

Duration of our loan portfolio that we have, we have said at our interest -- average interest rate is 1.35%, and we have a duration of 4 years.

Yes. Well, the average is 4 years.

And we can just assume a kind of linear effect then of any base rate increases from that level? Or -- because you're up SEK 30 million year-over-year in your interest costs, and that's like a run rate that is up a bit for the first half as well. So kind of what we can -- how we model that, basically is it linearly or is it one time or?

I think that you have of course also the increase of SEK 1 billion in net interest-bearing debt, so SEK 24.9 billion to SEK 25.9 billion, was it?

Yes. So I just think that the underlying interest is actually quite flat, sorry.

Okay. So it's still flat. So all the effects of the interest rate increases we're seeing is coming kind of next year than gradually or towards the end of this year.

I would say it would be gradual, yes.

And we have one further question in the queue so far. That's from the line of Adam Fox-Rumley at HSBC.

I had 2 very brief follow-ups, please. Obviously you gave some helpful commentary around the Baltics and the EBITDA performance. I just wondered if we think -- is there anything in the cost base today which is effectively benefiting from historic rates? I'm just trying to work out if there is any degree of catch-up or whether -- that might come in the future from rising costs or if we are seeing effectively the spot business in the numbers today, that would be helpful. And then secondly, are you seeing any change on the demand side of things in Sweden, in particular, for convergent tariffs? Or is it more a function of how the industry's marketing is evolving?

So on the Baltics cost, I think the key thing to -- for us to really be on top of is of course the wage inflation there because that's going to be with us over time. So -- and wages are going up there. So that puts -- that's something that we are very much aware of and that we are discussing and how we are dealing with in terms of the efficiency of the business. And that's more of an issue in the Baltics than it is in Sweden where the collective bargaining results that we have in place here. So if you wanted to single out one thing that we really have to work on there and make sure that we're on top of, that would be the wage inflation. I think the way you formulated yourself you were thinking, is there any kind of -- is there anything that we are benefiting from now in terms of legacy cost bases that there'll be an issue in the future. From the top of my mind, I can't think of anything. I'm looking carefully -- I get a head shake. And then the other part of your question related to the demand for convergent services versus the industry's desire to market these services. I think in a way, it's a market that is partly for us to build because I think the way to really succeed with the convergent offerings is through simplified offerings that are easy to relate to for our customer base. So I think the demand is latent, but it has to be sort of spurred by us making it easy for people. I don't know if Hendrik wants to add something to that thinking.

Sure, Kjell. Yes. So I think it is a combination of 2, right? Kjell was saying the consumer, the market, they of course like -- what attracts them is simplicity and value, right, at least a perceived value. And of course, what's for us in the game is to pull share of wallet and to -- at lower operating costs in the end. And then it's a balance on how you get there because we have a, I think, a good market out here in Sweden where we really drive -- and we see that holistically more happening now also in the second quarter across the market more towards a value game. And of course, you all know -- you will also know, Adam, there are some other markets where if you do it the wrong way, FMC can lead to quite a destructive characteristic. And certainly that's what we're not aiming for here. So as long as we do value loading and the right combination of providing simplicity as well as value for the consumer, that translates also to us. And I think we're doing the right thing. And as we've been highlighting in our results, we do -- we just completed our customer migration to the IT stack. We still have a lot of capability, IT capability to build. At the same time we've also started to do some bundled propositions more BTL but also some ATL around our broadband that we're seeing already some benefits coming in. So it will be a balanced approach. But surely we will proceed on it.

And as there are no further questions in the queue at this time, I'll hand the call back to Kjell for the closing comments.

Yes, okay. I'd like to thank you all for taking the time to talk to us and listen to us today, whether you're sitting in a super-hot London or if you're sitting in Stockholm hoping to get out to your country home. I think we had a good 2 quarters beginning of this year, and we are well underway to deliver both on our guidance and also on the shareholder remuneration policy that we have in place. We intend to continue following these -- both the guidance and the remuneration policy. And I think we are clearly seeing strength in all 3 major parts of our business: Baltics, B2C Sweden and B2B Sweden. And that's always good rather than having one part of the business pulling the whole train. So with that remark, I just once again thank you for joining. I hope you will have a great summer break and look forward to talking to you in the fall.