Telenor ASA Q1 2010 Earnings Call Transcript

Telenor ASA Q1 2010 Earnings Call Transcript
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Telenor ASA (TELNY.PK)

Q1 2010 Earnings Call Transcript

May 5, 2010 8:00 am ET

Executives

Scott Engebrigtsen – Communication Manager

Jon Fredrik Baksaas – President and CEO

Richard Olav Aa – EVP and CFO

Analysts

Martin Hoff – Arctic Securities

Ole Jorgen Rod – First Securities

Frank Maao – DnB NOR Markets

Lawrence Sugarman – ING

Ulrich Rathe – Societe Generale

David Wright – Deutsche Bank

Nick Delfas – Morgan Stanley

Tim Boddy – Goldman Sachs

Soomit Datta – New Street Research

James Britton – Nomura

Jakob Bluestone – Merrill Lynch

Justine Dimovic – Exane BNP

Maurice Patrick – Barclays Capital

Presentation

Scott Engebrigtsen

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Good morning, ladies and gentlemen and welcome to the presentation of the first quarter results for 2010 for Telenor. My name is Scott Engebrigtsen and I have the pleasure of guiding through this morning's presentation.

First, as part of our security procedure, I would like to inform you briefly about the emergency exits from this room. In addition to the door you entered into this morning, you will also find emergency exits at the back of the room behind the curtain and at the end of the stairs to your right.

We hope that everyone has the material that we have made available this morning; that is our press release, the quarterly report, and a copy of the presentation to be used here in a minute. And you will also find this material on our website at telenor.com. You can watch this presentation live or in recording on either the Internet or on mobile phone live or in recording after the presentation. And during the presentation, you may also send in your written questions and you will find information on how to do that from our website.

As usual, there will be a Q&A session directly after the presentation here, first from the audience present, then from the ones participating on the phone, and finally, an opportunity to do individual interviews.

Enough said from me. To present the figures today, we have our CEO, Jon Fredrik Baksaas and our CFO, Richard Olav Aa. And first, I'll leave the floor to Mr. Baksaas.

Jon Fredrik Baksaas

Thank you, Scott. There is an automatic blinker, I think. Thank you. Good morning to all of you. A fine day outside, yesterday snowy, today much better. So you are all welcome. First of all, I want to take you through a bit of the highlights of this first quarter 2010, characteristics of Telenor, and then I will leave the floor to Richard Olav Aa, who for the first time will guide us through the financials. So let's start.

We have entered 2010 with quite a strong momentum, as we see it when we report our figures. And this momentum was of course also geared towards the fact that we completed the VimpelCom transaction successfully quite recently. But more importantly in that sense is that there is a rebound in the organic revenue growth in our Group for this quarter. And for quite some quarters, we've seen a negative trend in revenue buildup and now, we see a positive trend again, driven by both what goes on here in the Nordic areas, as well as what goes on in Asia.

We have achieved significant achievements in India in a record time on the network side. However, there are challenges in that market as well and we are not satisfied with the revenue buildout – buildup in this phase, in this initial phase. And this relates primarily to the need for tuning of distribution and tariff plans going forward.

But the positive trends in the other countries in Asia, as well as in the Nordics has given us an organic growth rate of, at the Group level, 3% in this quarter. This has been driven by number of customers as before and Asia in this quarter contributed 5 million new subscribers and it's spread in all five operations basically. But also here in the Nordics we see a significant pickup, in particular in data revenues, coming from the new way obviously that Mobile Internet offers us an attractive way of consuming digital content.

Let me then move over to the different geographies. In the Nordics, we have already mentioned the strong growth that we've seen and surprisingly enough, Mobile Norway leads basically on – in generating revenue growth. But this is not only a trend in Norway as such; it's also visible in Sweden and in Denmark. As for the fixed operation, it continues as on the trends that we've seen before, there is a revenue pressure, and it follows more or less that same as we've seen before.

There is a strong margin here in Norway, but most presently, there is a strong margin lift-up in Sweden. And having sort of described challenges in Sweden in previous quarters, we have seen over the last couple of quarters and this quarter included that our efforts last year now pays off with both revenue buildup in the mobile area in particular, as well as earning, the Swedish operation, quite a significant margin lift-up as you can see from the figures.

There are – there is a very strong cash flow in the Nordic area, this quarter in particular. But here, I need to remind you that we are in the buildup phase for the 4G generation and the CapEx associated with that to come later this year. So you have to recognize this figure in some way preparing for that period. So don't expect the same sort of level of cash flow for the remainder, all the three quarters this year. But on the other hand, it's a good start and we are targeting solidly as we can see the NOK10 billion cash flow target for the Nordic operation this year as we did last year.

And I want also to add that also in the Broadcast area, we do see a 4% organic growth figure and there is a 25% EBITDA margin in that operation this year. And since CapEx is at a low level and no satellites in this quarter, we are then more on the normal figures for that operation as well. And this driven by Canal Digital in particular here in Norway, who has a 30% – 13% revenue growth in this quarter.

Moving a bit further south and further east, the VimpelCom transaction was, as I said, completed quite recently. This gives VimpelCom Ltd. a significantly improved governance structure and combined with a strong market positions after both Kyivstar and VimpelCom in Russia has. This forms a solid basis for the development of this new group.

There is an Anti-Monopoly Committee statement from Ukraine, which is – which came in as a surprise in the sort of closing – at the closing moment. However, we do receive an unconditional approval from the Anti-Monopoly Committee in 9th of March, and the deal was completed 21st of March and started to trade the day thereafter. So any further development and work under this question will have to be handled by VimpelCom Ltd. as such.

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