Asia growth lifts Telenor’s Q2 earnings

Asia growth lifts Telenor’s Q2 earnings

Oslo: Norwegian telecoms group Telenor said fast-growing markets in Asia helped it produce second-quarter earnings above forecasts and announced plans to buy back about 3% of its shares.

“Our Asian operations once again confirmed the strong growth momentum in the region with 21% organic revenue growth, said chief executive Jon Fredrik Baksaas, adding Telenor had signed up 8 million new subscribers in the quarter, including 4 million in India.

Its share price was up 1.4% at 87.8 crowns by 3.06 pm, when the Oslo Stock Exchange benchmark index was down 0.5%.

Telenor repeated its full-year earnings outlook and said it now expected lower capital expenditure, mostly because of operational improvements in its Indian business.

“Based on the trends so far this year, we maintain our revenue guidance for the year and expect a somewhat stronger cashflow than indicated earlier," Baksaas said.

Expansion into emerging markets has also boosted growth for Nordic rivals such Teliasonera and Tele2, also facing declining margins on their crowded home region markets.

“Asia is strong, eastern Europe is very divided, with a strong Serbia and weak Hungary," said Tore Toenseth, an analyst at Argo Securities. “In the Nordics Norway was as we expected, relatively weak this quarter."

Carnegie analyst Espen Torgersen said that the Norwegian market, where competition has squeezed margins and the network has had technical problems, was “a disappointment".

Telenor’s adjusted earnings before interest, tax, depreciation and amortisation in the quarter rose to 7.46 billion crowns ($1.4billion) from 7.01 billion in the same period a year ago and ahead of the average forecast of 7.25 billion given by analysts in a Reuters poll.

While that appeared to please investors, the share buyback programme was sure to disappoint some investors, said Toenseth.

“It is a conservative share buyback," he said. “They could have done much more. We had hoped for 4% at least."

Baksaas told Reuters that Telenor’s balance sheet had been too “exposed" after the financial crisis and that a modest buyback was in order following a 3.8-crown-per share dividend paid by Telenor in June.

He said Telenor also wanted “to have the necessary flexibility if and when we know the outcome of the arbitration process in Vimpelcom".

Telenor is pursuing arbitraton to reverse the dilution of its stake in Russian mobile operator Vimpelcom after Vimpelcom bought controlling interests in Italy’s Wind Telecom and Egypt’s Orascom Telecom for $6 billion in cash and shares despite Telenor’s objections.

If Telenor succeeds it will be permitted to buy enough new Vimpelcom shares to return its voting power on the board to 36% from a post-dilution 25% - a purchase analysts have said would cost about $2.6 billion.

“The capacity is there," Baksaas said, with a nod to Telenor’s balance sheet.


Baksaas said that the outcome of the ongoing investigation into the award of 2G phone licences in India, a major political scandal for the government of Manmohan Singh, should not damage Telenor’s business, adding that Telenor’s entry into the market had complied with all the rules and regulations.

Although its Indian revenues rose almost sixfold in the quarter from a year ago, the country still represents a small fraction of Telenor’s income sources and the operations showed a 965 million loss.

Baksaas told Reuters Telenor seeks to achieve “a break-even position ... towards the end of 2012".

“When it comes to India it wasn’t as bad as one could have feared," Torgersen said, in reference to corruption charges faced by Telenor’s joint venture partner there.

Telenor stuck to its 2011 targets for organic revenue growth of above 5% and an adjusted EBITDA margin of around 31%.

Capital expenditure as a proportion of revenues, excluding licences and radio spectrum, is now seen in the range of 11-12%, down about 1 percentage point from the previous guidance.