Telenor Q3 2006 Results

Telenor is in the process of transforming itself into one of the giants of the mobile industry. It's third quarter results show another strong operating performance and this has led to an even stronger rise in profitability. Specifically, revenues rose 5.7% quarter on quarter and by a massive 35% year on year. When combined with improved margins at both the EBITDA and Operating Profit levels, the result is a 4% rise in operating cash flow, quarter on quarter, and a 23% increase in operating profit.

This is impressive by any standard, but there is more to come. At the earnings level, the increase is a massive 66%, thanks in part to a much increased contribution from associates (mainly Vimpelcom) and also a move from net finance costs to net interest receivable. The basic financials for the period are shown in the table below.

Telenor: Financial Highlights, Q3 2006

Turning to the operating results we find that the company has produced another outstanding set of results. The overall customer base has risen by 9.5% quarter on quarter and by over 100% year on year, to 57.8m. This figure excludes its Vimpelcom associate; were we to include this, the number would comfortably exceed 100m, as the company itself recently confirmed.

Proportionately, the fastest growth has come from Pakistan, which saw a 43% increase in its base, equivalent to 1.4 million new customers in the quarter. This takes its total to 4.6 million, only seven quarters after its launch.

The second fastest growing business was Promonte in Montenegro, which saw a 32% rise in customers, to 479,000. We would advise caution here though, as there is one of the most marked "holiday season" effects in this market. Next quarter's number will be down, as the tourists depart, throwing their temporary SIMs away even more rapidly than the addresses of those they have met on their short vacations.

In absolute terms, the greatest contribution to the increase came from Ukraine, where Telenor's Kyivstar subsidiary added 1.7m new subscribers, for a quarterly growth rate of 10.6%. Notable advances were also made in Bangladesh, with 945,000 additions and also Thailand, where DTAC acquired 615,000 new connections. When compared to these performances, the results in Europe were distinctly unexciting. Norway added two thousand customers, while both Sweden and Denmark added 32,000, for quarter on quarter growth rates of 0.1%, 1.9% and 2.4% respectively. Hungary added 34,000, or 1.2%.

These are all comparatively mature markets and the growth rates are no surprise; what is impressive is Telenor's response to this increasing maturity. At the start of 2004, nearly one fifth of Telenor's mobile customers were in Norway and over one quarter in Scandinavia as a whole. The company's two other businesses in Europe - Kyivstar and Pannon GSM - increased this weighting to over 70% of the base, with the balance coming from businesses in Malaysia and Bangladesh.

Today, the picture is very different. Asia now accounts for over half of the total bae, while Scandinavia is just 10%. Norway is now a mere 4.7% of the consolidated total. Some part of this is due to acquisitions, most notably DTAC in Thailand, but the bulk of the growth has been organicThis transformation is shown in the chart below.

Turning to the key performance indicators, we see an equally positive picture. In the mature markets of Scandinavia, ARPU has been maintained or even increased thanks to rising levels of usage. In part, this is due to the continuous improvement in the customer mix, which is now 63% contract, against 57% one year ago. The rise in Sweden that we see in the chart below appears to be anomalous but is, of course, largely due to the inclusion of the very high quality customer base that Telenor acquired from Vodafone last year.

Elsewhere, the trends are flat to down, but this is what one would expect to see in high growth markets, such as those that now constitute the largest part of the Telenor portfolio.

This article was extracted from The Mobile World Briefing. To download a full version of the Briefing in PDF format, please click here."

Posted to the site on 31st October 2006