TeliaSonera (TLSNF.PK)

Q2 2010 Earnings Call Transcript

July 20, 2010 3:30 am ET


Andreas Ekstrom – VP, IR

Lars Nyberg – President and CEO

Per-Arne Blomquist – EVP and CFO

Håkan Dahlström – President, Mobility Services


Andreas Joelsson – SEB Enskilda

Michael Andersson – Evli Bank

Lena Östberg – Carnegie

Thomas Heath – Ohman Equities

Tim Boddy – Goldman Sachs

Peter Nielsen – Cheuvreux

Maurice Patrick – Barclays Capital

Jan Dworsky – Handelsbanken

Sven Sköld – Swedbank

Jakob Bluestone – Merrill Lynch

Jacques de Greling – Natixis Securities

David Wright – Deutsche Bank

Ulrich Rathe – Société Général

Soomit Datta – New Street Research


Andreas Ekstrom

Okay. Good morning, everyone. I think that we are ready. And welcome, everyone, to yet another very sunny day here in Stockholm. We will today present our Q2 report to you, of course. However, we will do in a slightly different way compared to the previous quarters. Our President and CEO, Lars Nyberg, will start to get you through some important highlights of the quarter. After that, we will have a Q&A session together with our CFO, Per-Arne Blomquist.

After that, Lars will make a brief introduction to the next section on mobile data. We know that this is a topic and great interest to many of you, and we will share some thoughts on this topic. Håkan Dahlström, our President of Mobility Services, will get you through that part of the presentation. After that, we will have yet another Q&A session on mobile data. With those initial remarks, I leave the floor to our President and CEO, Mr. Lars Nyberg.

Lars Nyberg

Thank you, Andreas. Good morning, everyone. I think we had yet another solid quarter, which means we can all go on vacation this afternoon with good conscious. It looks like some of you have already gone to vacation, but maybe those people who are on the line listening.

What was most encouraging with this solid quarter, of course, was the growth. We had growth, as you remember, in the first quarter we calculated growth in local currency. We had 2.5% in the first quarter, and we even managed to increase that to 3.3% in the second quarter. We continue – as we have done for many quarters already, continue to improve our EBITDA margin with 1.2 percentage points, which I think is pretty impressive. Free cash flow increased by 27%.

Historically, I think TeliaSonera has benefited very much from the – what we call, the associated companies, MegaFon and Turkcell. They have always provided better results or increased results. That has not been the case for the last two years, unfortunately. But of course, I’m proud of the performance of our company, excluding the associated companies, which actually is better than as we report.

On the left hand side, you see here, for instance, that net sale as reported is minus 2% and the EBITDA is plus 2%. If you exclude currency and the associated companies, the growth would have been 3%, and EBITDA 7%, and operating income plus-5% instead of minus 3%. And I think that is attributable to how this organization actually is performing for the last couple of years.

Growth was maybe the most positive in the quarter. Three major drivers; Eurasia, Spain and mobile data, particularly mobile data in Sweden. If you look at Eurasia and you look at all those markets, you can see that they – basically with one exception, they all grew. And we have now seen Eurasia increasing the growth rates since Q3 of last year. If you remember, we had 3.6% growth in Q3, we had 7% in Q4, we had 12% and change in first quarter, and now we have nearly 15%. So the economies, the countries, and our organization are clearly doing better.

Very pleased with – you might think Uzbekistan and Nepal, and of course, I’m pleased with Uzbekistan and Nepal. They are new markets. Very important that we have growth rates in the neighborhood of 50%. But I’m most happy with Kazakhstan because Kazakhstan is such a big market for us. We have 7 million subscribers in Kazakhstan. And when Kazakhstan grows, then Eurasia grows.

So that was one of the drivers of growth. And I said the other one is mobile data. If you look at the bottom here, we have an increase similar to the first quarter of data and messaging. First quarter, we had 38% growth. And now we have 40% growth. This is a good business, and we will talk about that somewhat later, Håkan and I. I really believe this is going to be a growth engine for the industry and certainly for our company.

Continued margin improvements, the 1.2, I think we have said in the forecast for the year that we will increase the EBITDA margin, and it’s driven mainly by of course the big cost reductions we have done in the last 24 months. Here is the explanation why we have lower income from associated companies. It’s not MegaFon. It’s about the same as last year.

The whole market in Turkey has gone down quite dramatically. I believe that Turkcell probably takes, if not all, most of the profits in the market. So if the market goes down, of course, Turkcell will go down too. Hopefully, the market will rebound like it does in so many countries right now.

We did get a high CapEx in the second quarter. I think we were all a little bit surprised over the CapEx in the first quarter. We started this year saying we want to invest, we want to invest in 4G, we want to upgrade our networks in Finland and in Denmark, we want to roll out fiber, etc. And I think you can see that that has now started really in the second quarter. Having said that, we are saying the CapEx for the total year will be somewhat lower than we thought when we started the year, but I’ll come back to that in a minute.

So if I summarize for the first half, we have a growth of 2.9% and that’s the reason why I show this slide, because when we now go to the outlook for the year, which we have revised, we talk about the net sales growth is going to be in line with the first half. So, around 3% instead of between zero and 1%. And we continue to believe that the addressable cost base will be the same as in 2009.

I want to remind you, we are increasing the costs fairly dramatically in Eurasia, for instance, and we are increasing costs in some other places too. That means that we have to reduce cost elsewhere. And that’s exactly what we are doing. And on top of that, we have had an increase – salary increase of about 3%. So, to have the same cost base in ’10 as we had in ’09 doesn’t happen by itself.

The mathematics tells you that EBITDA margin will have to be somewhat higher compared to 2009. And as I said, we are slightly tuning the CapEx-to-sales to 14% to 15% of sales. I think I’ll stop there. I think these are all the highlights. It’s maybe not in essence a quarter with a lot of news as it’s a very solid, stable quarter, predictable very much in line with the expectation. But I’m very pleased with it. And I’m certainly pleased that this is now a quarter number seven or so in a row that we deliver solid results.

Question-and-Answer Session

Andreas Ekstrom

Thank you, Lars. And I will also invite Per-Arne to come up the stage. And we will start the Q&A. We will take a couple of questions from the floor and then leave over to the conference call. And we will start with a question from Andreas. Please introduce yourself with the name and the company.

Andreas Joelsson – SEB Enskilda

Good morning. Andreas Joelsson from SEB Enskilda. Two questions, please. Subscriber intake in Eurasia was extremely strong in this quarter. Is that sustainable trend you see or what is the driver behind that intake? And the second question relates to minutes of use in Sweden that is increasing at a very good pace. What do you see in trends in terms of that going forward?

Lars Nyberg

Let’s start with Eurasia. We have two markets that are relatively new for us, Uzbekistan and Nepal. And of course, the intake of subs in those markets got to be very high. Otherwise, we’re not going to succeed. Now, I showed you growth rate in terms of revenue about 50%. We have become the number one – sorry, the number two in Uzbekistan in every measurement you can do, and we are absolutely having the ambition to be number one in Uzbekistan. It’s a big country. Nepal is also a big country, 28 million people and there are two operators. And we started seriously half a year ago. So yes, I believe that we will continue to see big intake of subscribers. Now on Swedish, you want to answer that – you're going to answer that?

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