Telenor's Q4 Earnings Drop 15%, Hit by Eastern Europe Slump

Telenor has announced its fourth-quarter earnings (EBITDA) have fallen 15.2% year-on-year (y/y) to 6.69 billion Norwegian kroner (US$1.13 billion), as fair growth at some of its Asian affiliates was offset by the ongoing decline in Eastern Europe. The Norwegian operator also announced its fourth-quarter revenues fell 6.5% y/y to 24.19 billion kroner, but net profits jumped 13.6% y/y to 2.77 billion kroner, as its new operations in emerging markets began to bear fruit.

Telenor also announced its full-year 2009 results, which showed that earnings (EBITDA) had risen slightly by 3.7% y/y to 30.92 billion kroner, while revenues also saw meagre growth of 1.5% y/y to 97.65 billion kroner. However, net profits fell 29.6% to 10.43 billion kroner during the year compared to 2008, as ambitious expansion plans saw high outgoings for the operator.

Telenor also gave an upbeat assessment of its prospects for the current year, saying it expects to achieve "low single-digit" growth in revenue and an EBITDA margin of 27% to 28%. Telenor employs more than 40,000 people in 14 countries, and saw subscriptions grow by two million in the fourth quarter, claiming 174 million subscribers worldwide.

Outlook and Implications

• Solid Home Performance: Despite significant slumps in Sweden and Denmark, and in Norway's fixed-line sector, Telenor's some-10% y/y growth in its Norwegian mobile market was enough to claim a fairly flat performance in the Nordics—something not to be sniffed at, as the economic downturn and increases in competition and regulation hit operators across the region. Earlier this week, key mobile rival Tele2 saw its Swedish earnings drop nearly 10% y/y as operators in the country were forced into a price war to lure higher-end post-paid and broadband customers (see Sweden: 9 February 2010: Tele2 Q4 Earnings Flat, Boosted by Russian Growth). Nevertheless, Telenor has announced significant investment in next-generation mobile broadband, as it targets the explosion in demand for high-speed broadband in the Nordics (see Sweden: 21 December 2009: Competition Heats Up in Vendor 4G LTE Market as Huawei Grabs Tele2/Telenor Swedish Order), and has said it expects to see its Nordic margins begin to rise during the current year.

• Warning of Cost-Cutting on the Horizon: Although Telenor's fourth-quarter results and 2010 outlook were stronger than expected, CEO Jon Fredrik Baksaas warned of potential cost cutting measures in 2010 to cope with hits to the group's finances in the wake of the global economic downturn. He added that Telenor will strive to secure its market positions, while continuing to target organic growth opportunities and continuing to provide innovative and viable solutions to its customers.

• Asian Growth Barely Offsets Eastern European Downturn: Telenor's results were helped by a stronger contribution from affiliates, particularly its operations in Thailand and Pakistan. Following a slump in Malaysia, Thai operator DTAC has become Telenor's biggest earner outside Europe, and the Norwegian giant saw profits from its associated companies increase to 801 million kroner in the last quarter, up from 199 million kroner a year earlier. Meanwhile, Telenor's Indian unit Uninor, co-owned with local real-estate company Unitech, successfully launched operations in several regions in the last quarter, and by the end of the year had around one million subscribers. New subscriptions in Asian markets have largely offset slumping revenues from Telenor's Eastern European operations, where the global financial crunch has depressed the telecoms market. Hungarian unit Pannon saw earnings plunge over 20% y/y in the fourth quarter, while Telenor has finally agreed with Russian partner Alfa Group to merge its troubled Ukrainian operator Kyivstar with Russia’s VimpelCom, ending a long-running legal battle between the two main owners (see Russia: 4 February 2010: Russian Government Approves Alfa-Telenor Deal). Telenor's ambitious expansion into risky emerging markets is beginning to bear fruit, and is the only thing that has saved the operator from a poor quarterly result.