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Executives

Scott Engebrigtsen – IR

Jon Fredrik Baksaas – President and CEO

Richard Olav Aa – EVP and CFO

Analysts

Peter Kurt Nielsen – Cheuvreux

Ulrich Rathe – Jefferies International

Terence Tsui – Morgan Stanley

Andrew Lee – Goldman Sachs

James Britton – Nomura

Barry Zeitoune – Berenberg

Thomas Heath – Handelsbanken Capital Markets

Stefan Gauffin – Nordea Markets

Telenor Group (OTCPK:TELNY) Q4 2012 Earnings Call February 13, 2013 3:00 AM ET

Scott Engebrigtsen

Good morning, everyone and welcome to the presentation of Telenor’s results for the fourth quarter of 2012, whether you are present here at our headquarters at Fornebu, listening on the phone, or watching this via Internet. My name is Scott Engebrigtsen and I have the pleasure of taking you through the presentation this morning.

Before we start, I hope that everyone has the material that we have made available. That would be our press release, the quarterly report and a copy of the PowerPoint presentation to be used here in a minute. And you can also find this material on our website at telenor.com. At that website you can also find instructions on the different alternatives to following this presentation including how you can ask questions if you are outside our headquarters.

And that brings me to the Q&A session which will be held directly after the presentation here and we will then start with the audience present, continue with the ones participating on the phone. And as we will try to end this session around 10 o’clock this morning and to allow as many questions as possible from as many as possible, we kindly ask you to limit yourself to one question per person and with one follow-up question if clarification is needed.

We will have the opportunity to do individual interviews with the media directly after the presentation here. To present the figures today, we have our CEO, Mr. Jon Fredrik Baksaas; and our CFO, Mr. Richard Aa, and first I’ll leave the floor to Mr. Baksaas.

Jon Fredrik Baksaas

Yes, thank you Scott. 2012 became a really eventful year for us. That has to be said. We as many of you know there were events in almost every month in that year, but 2012 also concluded with a strong fourth quarter. So let’s recap a little bit of both the events and the quarter in particular.

Once again, we demonstrate that we are a growth company. We have delivered a 5% organic growth revenue figure, both for the quarter and for the fiscal year as such. And the somewhat lower year – the lower growth this year compared to last year is fully explained by the scale down in India where we have reduced the number of circles which you are perfectly aware, but this fact fully explains the difference of the growth factor between the two years.

Asia continues to be that growth factor for us, but also in Norway the growth has returned and Norway contributes considerably to the Group numbers in 2012. For the first time we have also reached a turnover above NOK100 billion and probably more importantly for the first time we are also above NOK20 billion in operating cash flow for the Group. The cash flow margin has improved 18% in fourth quarter 2012 whereas 15% the year before.

And with this strong cash flow position, we have – the Board yesterday have approved to propose a dividend, record high at NOK6.00 per share and this will be dealt within details later by Richard.

Investments in our systems saw the future of the systems. Telenor Norway has had such a strong quarter and a strong year. And the CapEx – and the investment side in Norway is as high as it ever has been. 2% revenue growth this quarter and this is then the third quarter in a row that we can note a growth factor in Norway, if we look up both fixed and mobile revenues, but the trends are as before. Data revenue growth and successful migration to bundled tariffs, these are the growth drivers. There is a 7% mobile growth on mobile revenue growth, whereas we have more or less the same percentage-wise reduction in fixed line revenues as before.

And this growth comes from the investments that we’ve taken in the marketplace and of course also the continuing build out of the network. We are investing strongly both in fixed and mobile networks. NOK4 billion plus for 2012 is a record high investment figure for the Norwegian market and these investments are long-term and they will enable us to continue to deliver their superior quality, network quality and the network capacity that we are having with the Telenor presence all around Norway.

The 4G launch in October comes on back of these investments of course. And going into 2013, we will continue to invest so that we will both increase capacity and coverage also in this year. It’s a clear ambition for us to monetize on these investments of course along with the incredible usage growth that we see on the mobile side.

But also on the fiber-to-the-home, we have seen increased momentum and we have now above 50,000 fiber-to-the-homes connected, including the acquisition in Southern Norway. So there is also a good momentum in that development. The revenues from the fixed-line telephony will continue to decline. In 2012, the decline was NOK340 million compared to 2011. And this development of course takes us to the needs of looking over the cost efficiency and how we operate in that part of our activities in Norway.

There are still 900,000 lines connected in this and of course as it gradually will decrease also in the years to come, we will align the cost structures accordingly, but new technologies are gradually facing in, there is no doubt about that.

Moving onto Sweden and Denmark. Both of these countries, there is also a solid demand for the new smartphones. Also in these two markets drive both the data demand and adoption on new service. The smartphone sales are now almost the only type of handsets that are being distributed, but of course this also brings about a need to even more closely monitor the handset profitability and the go-to-market models as the structural – as a competition structure is different in these two countries compared to Norway.

In Sweden, the revenue growth this quarter is impacted by the new consumer portfolio that we introduced fourth quarter 2011 which were the iPhone played a very significant role. And this boosted the handset revenue in that particular year. Adjusted for the impact of the handset discount, the underlying mobile service revenue growth in Sweden is close to 2% which means that in broad terms, we have maintained our market share – revenue market share in 2012 in Sweden.

We’ve also been able to improve the EBITDA margin by a one percentage point and we’ve strengthened the subscriber base by 8% year-on-year and this is in particular in the postpaid segment. Denmark is the most challenging country in all our operations. And as a consequence we’ve also taken a write-down of the remaining part of the goodwill as Richard will explain to you in details later.

With the revenue and the pressure and average revenue per user still dropping, it’s quite clear that the intense price competitive is affecting our figures as it has for all operators in that market. And this will call for new ways of doing business in Denmark. Having said that though, we do see some early signs on increased market rationality this quarter and that’s a build on these to continue in 2013. And as you know we are also cooperating with Telia on the joint network to be deployed. And we believe this will be very good for the long-term picture in Denmark giving a CapEx savings which is significant. And we plan to launch our 3G – 4G offering in Denmark in March this year.

On the OpEx side both countries have made progress on their cost structures. And I have to say that the Danish team has really been able to cut costs significantly as we are 15% lower this year than we were in 2011. Moving a bit more south, Serbia and Hungary. Hungary, the double set of telecom taxes weighs heavily on our EBITDA margin in Hungary this quarter. And given these challenges [ph] I believe that the performance of Hungary is quite good. To some extent, the sales tax introduced in July has been passed onto consumers and this has led to a positive year-on-year revenue growth.

There is a solid subscriber growth and they maintained revenue market share of around 31%. In total the two telecom taxes reduces the EBITDA margin by 11.5 percentage points. And the first telecom tax that was introduced in 2010 was removed from now January, 2013 and will take the EBITDA margin up by approximately 5 to 6 percentage points in 2013 onwards.

EU continues to dispute the first telecom tax. We noticed that the EU is now also questioning the telecom tax that was introduced in July 2012, but I think time will have to show whether there will be adjustments to this. And I should also mention that these taxes are industry general, so in that sense there is a level playing field.

Serbia, so a few words on Serbia. The migration from prepaid to postpaid continues. We see subscribers switching to the higher tariff plans and the smartphone penetration is increasing. We anticipate – we estimate that to be around 20% for the time being. At the year-end of 2012, 43% of our customers in Serbia were on postpaid subscriptions. ARPU has increased 5% and this has then taken the organic revenue growth up to 9%. So during 2012, we had captured and maintained the number one market position in terms of revenue market share. And I think our management team in Serbia deserves a credit for that.

Then I think we are about to move to Asia, the growth corner of what we’re doing. DTAC, our most important event in DTAC and Thailand this year is of course the acquisition of the 3G spectrum 2,100 gigahertz license. This is an important step for the platform concession to a license regime. We expect of course a marginal lift up to be the longer term consequence of this but it’s too early to be too specific on the details.

Two things needs to be more clear before we can say anything on this so that is the clarity on access conditions with CAT and the speed of migration to the new network will depend heavily on availability of the new handsets in the marketplace. It’s also important to deliver on the vast and increasing demand that we see in Thailand, because Thailand is really hungry for us. And as we know, we have been waiting for this for quite a time – quite some time to happen and we are ready to go.

Operationally, DTAC delivered a very strong quarter with 1.5 million new subscribers and 8% revenue growth in this quarter. There is a strong handset sale but these are unsubsidized iPhone5 phones. And these dilutes the margin on the EBITDA level to a certain extent, 32% EBITDA margin would be more the level if it hadn’t been for this subsidy this margin dilution coming from the handset sales.

Then on DiGi, we had the some network problems with DiGi in previous quarters, this is better is fourth quarter. And we see also the improvement in the parameters set around the operations in DiGi. There is a continued price pressure on international long distance. But data revenue growth seems and remains healthy. And in combination with strong handset sales, these resulted in a subscriber growth of 190,000 and an organic revenue growth of around 5.4% which is then a slightly improved figure from what we had in third quarter.

A bit more north in Asia, Pakistan and Bangladesh, there are some diverging trends and these are also due to regulatory directives where the subscriber growth is lower in both countries this quarter. This might seen as a temporary thing, however it’s no doubt that the regulation when it started focus on the distribution side, it has some impact which I will also show for India.

In Bangladesh, the competition is very intense and Grameenphone’s challenges in Bangladesh continues. However, we saw some stabilization on the market share position of Grameenphone this quarter. The new regulatory directives on SIM sale has lowered acquisition and let to a market contraction in terms of registered SIMs and implementation of the 10 second pulse requirement, lowered also the revenue growth for the company and estimated minus 3% plus for the growth figure of – negative growth figure in Q4.

After several quarters of revenue market share declined though, as I said it’s a positive to see that the revenue market share stabilization has happened this quarter and GP really need to focus on that part of its activities in the quarters to come in 2013.

Pakistan has a very strong performance once again, with 17% revenue growth and improved margins. The revenue growth comes despite several government-enforced network suspensions. And in addition to these network closures, subscriber growth was impacted by some closures of retail channels in December. The financial services is really something which is picking up in Pakistan and 3.4 percentage points over the growth factor in Pakistan stems from financial services.

And as an additional element, the transaction amount in 2012 amounted totally to US$1.4 billion of domestic transfers which is more than double the amount the year before. And this comes from all in all 25,000 approximately agents that are able to entertain the service.

India, there is a new platform for us in India after quite a year – quite a roll across the like type of year when it comes to licenses. We have reached the important milestone this quarter in securing continuation of our operations. In October, we reached a settlement also with the previous partner and found them a new partner which is now the balance for the six frequencies in six circles that has been established.

We participated in the spectrum auction in November as you know, and were able to secure new spectrum in six of our best performing circles for the total amount of INR40 billion of which one third was paid up front. These six circles comprises roughly 600 million people, half of the population of India and we anticipate that there would be a penetration in that geography is around 40%.

The restructuring process is going as planned. We had downscaled four circles already and in December we gave notice to customers in Kolkata and West Bengal regarding service termination, because of lack of new frequencies. We are now preparing for the business transfer to happen from Unitech Wireless to Telewings. And this will take place once Telewings has received its unified license and can start to operate. And in this case, we are awaiting the last leg anticipated to happen of the additional spectrum auction which is going to take place in those areas that did not achieve to sell spectrum in November.

Operationally, in India our subscriber and revenue development in India is of course impacted by the scale down from 13 to now seven circles, so potentially also Mumbai leaving, depending on what is happening on the auction terms. The customer base at end of 2012 was 27 million based on our 30 days definition. This is down 2 million from Q3, however that stems fully from the rescaling of the business. This has taken ARPU slightly up from 88 in the six circles to 90 in this quarter. This will also take – this along with the new procedure for how to accept and distribute new SIM cards will both reduce the growth of numbers in the market in general and it will reduce churn gradually.

And we see that the revenues are picking up again in our six circles also now in January. As you can see from the cash flow growth, we are making pretty steady progress towards the targeted cash flow breakeven figure by the end of 2013. And the first circle that reached EBITDA breakeven was UP East in November. And I can assure you, it was a big celebration in that circle for that moment. Gujarat turned EBITDA breakeven in January and we expect that Maharashtra will follow soon. We are staying well within the INR155 billion peak funding as we have previously declared.

Now I’ll give some few words on the VimpelCom agenda. For series of moves during 2012, the ownership structure in VimpelCom is now more clarified than it has been before. For practical purposes, the majority shareholder Altimo now controls the governance structure of the VimpelCom Group, after having invested close to US$5.5 billion in the shares and shares to be converted in April.

Going forward, we will support the value agenda that the VimpelCom management presented in January and we do believe that the Group has very good chances to move in that direction and that dividends are maintained to the level as you can see NOK2.6 billion was received in January as the final dividend for 2011 and the interim dividend for 2012.

Finally, then I want to give two small comments on the strategy going forward. We see immense development in our industry for the time being. The world goes digital basically and the data growth is phenomenal. This requires heavy investments to keep that – to entertain that capacity growth, but on the other side we as operators in this huge ecosystem also need to shelter these investments in our business models going forward.

And there is only one way of doing that and that is to follow the customer demand and customer preferences and customer behavior. So telcos needs to focus on the service side of or the IP generation so to speak and this is happening fast. And it’s happening at a pace which we haven’t seen before. I anticipate that we will see a lot more to this when we go to Barcelona in the end of February to look about the general trends in the industry in general.

As a consequence, we are putting all our efforts in understanding customer behavior and to align our offerings accordingly, and to bring balance between how invest in order to reflect that also in the business models. And we have achieved that very, very well in Norway, that doesn’t necessarily mean that we will be successful in all other markets, but the underlying investment structures needs to have revenue streams in order to develop in a robust way going forward.

At the same time, internally we need to focus on cost efficiency measures. We need to utilize the scale of the group and the partnership with other suppliers and with other operators in general terms will take new formats in the years to come. And we need to be open to these ways of working in order to maintain both growth profile and profitability going forward.

We have a phenomenal base in Telenor to do that. We have a strong balance sheet. We have raised our dividends. We should be well prepared.

Thank you. Then I will leave the word to Richard, who will take us through more detail on the financials. Richard.

Richard Olav Aa

Thank you, Fredrik. Yes, I will do that. I’ll also cover the shareholder remuneration for 2012 and finally the outlook for 2013. But just let me start with how we came in compared to the guiding. And as you know we guide on three parameters, revenue growth, EBITDA margin, and CapEx to sales. And we had good control in the fourth quarter, so on all three parameters we came in basically as we guided.

Then I am also taking that over to the operational efficiency that Fredrik under his presentation with. I think we made good progress on the OE side in 2012, also there more or less as expected. And as you see from the shot behind me, the two main targets on OE for 2013 on OpEx to sales and CapEx to sales. I’ll dwell a little bit more about this slides because I think it’s important to report how we’re hearing on these.

On OpEx to sales, you see we ended at 36.3% OpEx to sales and we have a strong improvement toward the end of the year. Important to note is what’s in the bullet point there that the regulatory cost in Bangladesh, Thailand and Malaysia have increased OpEx to sales structure about 0.9 percentage points. So if you haven’t been for these regulatory costs, we’ve actually been at 35.4% now which actually means that’s little bit easy to reach the 35% target in 2013.

So these regulatory cost impacts makes it even more challenging to get to the 35%. But the underlying cost programs in Telenor are going as planned. A few examples on that, if we can look at operational maintenance cost in the period now the last three years since we started the program has basically been flat despite that number of sites are up 20%. Also the salary cost in the Group is basically flat despite a salary inflation of about 4%, 20% more sites and significantly more customers to serve. So the underlying productivity in the Group is definitely moving in the right direction and according to plans, but the regulatory costs are a concern and especially in Asia.

Then on the CapEx to sales, the year ended at 12.4%. When we bisect the 12.4% we see that the underlying CapEx to sales in the mobile operation is around 10%. We have the swaps in Asia, DTAC, DiGi and Pakistan contributing little more than one percentage points on the CapEx to sales and then the fiber investments in Norway about the same. So excluding that we are already at the level of 10% driven very much by the swaps and effects of the sourcing activities in the Group are more centralized sourcing approach.

Then also very important for our network quality operational efficiency but also what Fredrik said ability to serve the customers is the spectrum. And 2012 has been a very eventful year when it comes to spectrum. We have six significant acquisitions in the year. The total cost of the spectrum bought is close to NOK9 billion. I’ll not go through all of them but the top three here, Thailand, India and Bangladesh are very important going forward. Thailand also to curb the regulatory costs from moving from the concession regime to the license regime and how hard we will roll out of that, I’ll come a little bit back to.

India we have already been true but also very importantly the renewal of 2G license in Bangladesh. And then we have secured spectrum for data capacity in Malaysia, Norway and Denmark also through the year. So spectrum we don’t talk that much that about it this audience but thought it was fruitful to give an overview what happened in 2012. So what do we expect on this in 2013? We expect a big spectrum auction in Norway on 800 frequencies and there are speculations and indications that 3G auctions may come in Pakistan and Bangladesh in there. Those will be the big ones but the 3G auctions in Pakistan and Bangladesh, that I must say is a moving target.

Then going into the revenues. We have a revenue growth of 4.6% organically. However the strong Norwegian kroner takes it down reported to about 2.2%. So the currency impact is around NOK300 million. And as you see we have the two – what we call a little bit the problem child right now, Grameenphone losing revenue market share so far in 2012, but then stabilizing more in the fourth quarter, and then market, still very weak trends on the top line. Those two contributes negatively by about NOK350 million to the revenue or about 1.5 percentage point to the revenue growth.

So then but very unfortunately the three biggest operations, Norway, DTAC and DiGi is contributing close to NOK1 billion on the revenue growth this quarter. So the most important preparations is delivering the growth in Norway. So revenue stands then close to NOK26 billion for the quarter.

So all of those things then translate into EBITDA. We see a solid EBTIDA growth in the quarter, close to NOK8.2 billion, up from NOK7.4800 [ph] million improvement on EBITDA. The biggest contributor is of course Norway with good top line development but also significantly lower sales and marketing cost in Q4. That is both due with the fact that we have significantly market cost in Q4 in 2011 due to the (inaudible) campaign but also that the written [ph] company has been able to divert more of the sales over to web and away from third-party channels with high commissions.

Then on India, reduced losses contributes to about quarter over billion, and then most of the growth like Fredrik said, in Thailand, came on handsets with low margins but also see good pickup from the service revenue. So Sweden is more of one-off effect that was negative in Q4 2011, but also the underlying margin improvement in Sweden. So we can see that here on the EBITDA, its India, Norway and DTAC that is the lot of the main contributors on the EBITDA development.

CapEx stands at NOK3.6 billion in the quarter, same level as fourth quarter last year. And to the right there you see the same point as we have been through before that the underlying CapEx is around 10% but the network swaps then in DiGi, Pakistan and DTAC in particular in 2012 combined with more heavier fiber and TV investments in Norway takes up the reported CapEx to around 12%.

So that then translates into the cash flow development, EBITDA less CapEx. And as you see, we have a cash flow in the fourth quarter of NOK4.6 billion which was about NOK850 million, NOK900 million up from fourth quarter last year and that is mainly due to the EBITDA improvement we went through from Norway, India and DTAC. As you see now for the first time, we have past NOK20 billion in operating cash flow on a four quarter rolling basis. That is up NOK1.8 billion from the last six quarter and this trajectory that should take us to the NOK28 billion in 2015.

Then we have a few quite large non-recurring items that’s important to understand in the Q4 accounts. We have the goodwill impairment in Denmark. The trends on the top line in Denmark of course translates into a very much reduced cash flow, despite a very good effort from the Danish management team to cut costs. But basically the cash flow in Denmark has been halved over the last couple of years and we don’t think this cash flow can support the goodwill in Denmark anymore. So we have decided to impair the remaining goodwill in Denmark and that’s close to NOK4 billion.

Then on the more positive side, we have now been in a tax position in Pakistan two years, 2011, you also see that 2012 Pakistan will have a taxable income where we now can utilize earlier losses in Pakistan towards that tax position. Therefore we have decided then to recognize deferred tax assets of close to NOK1 billion which is the tax affect of earlier losses in Pakistan.

Then Sweden we have a positive tax effect of about NOK400 million, that comes from the fact that we have the Norwegian branch that had a tax loss carry-forward related to Swedish operation, that’s been now merged with Telenor Sweden. And Telenor Sweden can utilize these NOK400 million going forward, so that’s also recognized. And then finally, the biggest one is Telenor ASA will not be able to collect all the receivable it has towards Uninor.

As you recall, we refinanced the debt in Uninor last summer where Telenor ASA stepped in as the creditor when the debt was defaulted. When the assets now are transferred from Uninor to Telewings at the fair market value, we see that there will be a loss in Uninor. All assets are already written-off during 2012, but we see that this loss on the receivable will create a tax loss in Norway that will reduce taxes and the effect of this is quite big. It’s about – estimated to about be NOK2.5 billion. So the net effects of all these non-recurring items in Q4, is basically close to zero, not important to understand each one of them.

Then net income, I will not go through all the details there as we’ve been through most of it, but this is comparing then Q4 last year with – Q4 of 2011 with Q4 of last year. We see other items, the two big ones there are workforce reductions in Norway and accrual for closure in West Bengal and Kolkata on India and also a small write-off of fixed assets in Serbia. So then the EBITDA improves about NOK800 million plus for the year. D&A slightly less due to reduced depreciation that the swaps are coming to an end. Impairments we’ve been through, that’s the Denmark write-down where we had the write-down on India one year ago.

Associated companies, now VimpelCom is more on the normal level a contribution of NOK1.1 billion from their third quarter results. They are lagging one quarter. Net financials nothing un-normal there. And then on the tax side, we have a huge positive tax effect this quarter due to the effects I just went through on India, Sweden and Pakistan. And that then translates into a net income to Telenor shareholders to NOK3.2 billion for the quarter and the earning per share of NOK2.06 billion.

And all the kind of impairments and taxes and other non-recurring items is more or less netting each other this quarter so the normalized net income from the quarter is very close to the reported around 2.10 [ph].

Then on the debt, we increased the debt with NOK4.5 billion this quarter, that is also fully in line with what we expected. You can see the reconciliation here at the right side. EBITDA we went through, interest taxes and CapEx nothing un-normal there. We continued the share buyback in the fourth quarter, NOK1.1 billion spent on that. Also paid out dividends to minorities in Asia of about NOK1.1 billion and then what we have paid out for licenses in India and Thailand, NOK2.4 billion altogether. And then the revenue share in DTAC which is always impacting the fourth quarter heavily as we are accruing this Q1, Q2, Q3 and then the paid in the Q4 so a positive effect three first quarter and then a negative effect in Q4, NOK2.4 billion and small positive effects on currency and working capital.

So total NOK33.1 billion which is then more or less similar to our EBITDA, so the EBITDA to debt stands at 1.0. As you recall our Cap on debt to EBTIDA is 2, so we are comfortably below the cap. Then on the shareholder remuneration, we are investing heavily in Telenor in Norway and 3G in Thailand and so on, but we’re also paying out heavily to the shareholders. So I think we’re proud to say that we’ve managed to do both, invest heavily for the future and also giving solid remuneration to the shareholders.

The Board has proposed a dividend of NOK6 that is NOK9.4 billion payout. That’s the highest ever for Telenor and it’s a 20% growth in the dividend from last year. Our dividend policy is to payout between 50% and 80% of the normalized net income. NOK6 per share, we are estimated to be approximately 70% payout ratio, so it’s a little above the midpoint in our – in ‘12 [ph]. And the payout is expected to happen on 30th of May.

On the right hand side you see the total payout to shareholders and the growth we have seen there and expectation for 2012. The dividend of around NOK9.4 billion if the general meeting approves the NOK6 and then the share buyback of about NOK5.3 billion. The share buyback program has been more or less the same all three years but there is a fluctuation in the share price that drives up the share buyback program to NOK5.3 billion. So in total, shareholders of Telenor will then receive about NOK14.7 billion which is actually higher than our total CapEx spend in 2012. And this gives a direct yield to the shareholders of around 8% based on current stock price.

On the buyback program we are now 82% complete and expect to be able to complete that in due time before the general meeting this year. But all in all, I’d say we are very proud to be able to deliver this good return to the shareholders and still keep a strong balance sheet and invest heavily for the future.

Then on the outlook for 2013. 2012, it was more difficult to guide with India, so there we excluded India from the guiding. Here we have including six circles in our guiding. Organic revenue growth, we estimate to about 3% to 5%. Last time it was 5%. It’s early in the year and the effects on handsets and so on are difficult to estimate but we expect to continue the growth momentum of the Group, both from Asia and what we have seen now in Norway. EBITDA margin, we’re guiding up from last year from 32% to 34%. We still haven’t fully what should I say, visibility on all effects on our operational efficiency initiatives in 2013. So hopefully this will be on the conservative side, but we have decided where we are today to guide around 34%.

Then the most difficult one to guide as I see it is the CapEx to sales, because we have so large potential outcomes both in Norway and in Thailand. If we get a good access regime in Thailand and we see the handset migration picks up, it makes a lot of sense to accelerate investments in the 3G in Thailand to reduce the regulatory costs and monetize on the data, exploding data demand in Thailand. And in DTAC, as we’ve seen they’ve been able to grow their ARPU on the backdrop of the data.

And then in Norway we see now 22,000 new fiber customers in the fourth quarter, we see a growing willingness to pay for high speed access and TV and this we will have to monitor very, very closely but as we see it right now, it makes sense to increase the activity towards fiber both to-the-home and to the business. So how much we will use the total on especially I would say Thailand and Norway will depend a lot where we end up in the range 12% to 14%. But here we see this I would take totally positive. Here is potential to make solid market positions and growth for future.

Then finally, the financial priorities in 2013, no doubt about it, we have the operational excellence agenda. We need to deliver on 2013 to build a foundation for the goals for 2015. Then India, I think with all the effects now we see around the peak funding of INR155 billion, I think that INR155 billion is not as exposed as it was before because we also see a lot of positive effects, of course we are very dependent on getting the license refund as promised by Indian authorities. So the main target now is to get to the cash flow breakeven. We see that that’s within reach, but that doesn’t come by itself, but with a mindset and attitude we have in India, it should be possible.

And then finally, when we are now investing such heavily into the data traffic, to really be on top of this, I am sure that this is driving revenues and ARPU to get strong profitability on these investments. So that’s it. Then questions.

Question-and-Answer Session

Scott Engebrigtsen

Thank you, Richard. We are now ready to take your questions. So I invite Mr. Baksaas back on the podium. We will continue a bit after 10 o’clock as I announced to allow for some more questions. And we will start with the audience presence. And please wait for your microphone and introduce yourself before asking. Anyone?

Jon Fredrik Baksaas

Everything is clear here today, it seems. Where is Mr. Torgersen? There he is.

Scott Engebrigtsen

Okay. I think we will then go onto the ones participating on the phone. So I call up on the call conference host to introduce the first question there.

Scott Engebrigtsen

First question.

Operator

Peter Kurt Nielsen, Cheuvreux.

Scott Engebrigtsen

Go ahead please.

Peter Kurt Nielsen – Cheuvreux

Thank you and good morning to everyone. I actually had several questions but I’ll restrict myself of course to one. Is it possible to be a bit more specific on the fiber rollout in Norway, as you’re saying if a good success you’re saying you may accelerate the rollout. Is it possible to elaborate a bit more, be a bit more specific, you gave us some flavor, the taste initially at the Capital Markets Day but perhaps be a bit more specific on your targets for rollout in terms of what you see? Thank you.

Jon Fredrik Baksaas

Specific when you ask a question like that, we probably won’t have figures. But I will give you some – we don’t give you figures on it but I will give you the rationale behind it. Norway is a country where the households are placed in a very rural pattern. That means that a new cable structure needs to address a certain type of density. And the twisted pair technology as we know now from history is gradually losing its potential.

Then we have the coaxial structures which reach out to roughly one million households, out of 2.2 million altogether. So in a way the country is having high capacity cable on coax structure to the amount of one million out of 2.2 million. And then gradually the fiber connectivity will stretch out to the remaining part and also to a certain extent substituting at least the access side of the coax structures. And this is what is happening really in these types. We need then in order to be really efficient long-term and access also to 800 spectrum so that we can use LTE in the real rural areas for higher capacity internet access.

And as we know that 800 spectrum is still pending from the government. So this is a pretty complicated package if you look at it holistically. And as we speak, we are then rolling out fiber in those areas where the density is sufficient to give us a certain payback structure on how we build it out. So we are not rolling out uncritically fiber to too rural structured areas.

Peter Kurt Nielsen – Cheuvreux

Okay, thank you Fredrik.

Scott Engebrigtsen

Next.

Operator

Ulrich Rathe, Jefferies.

Scott Engebrigtsen

Go ahead please.

Ulrich Rathe – Jefferies International

Thank you very much. I was just wondering on Sweden and the revenue downturn that we see now in the fourth quarter compared to the third quarter. Second quarter trends, is this now sort of what’s going to happen over the four quarters at this rate until the like-for-like results normalize, or how do we look at this 2.5% source [ph] revenue decline that you reported in the quarter and also in the similar sort of vein, is the impact on the margin that we’re now seeing in the quarter, is this sort of the normal level, is the fourth quarter sort of the first normal given the shifted tariff structure? Thank you.

Richard Olav Aa

I think the shift in how we do the handsets going from a handset subsidy to a discount on the service revenue I should say they create some confusion in the numbers. But we have seen a good trend in the underlying service revenue growth in Sweden in 2012 and we’ve kept revenue market share and we estimate the service revenue growth to be about 2%.

So I think most importantly now given that this – you are comparing a little bit apples to bananas when you look at the numbers historically, I think you have to look at the development in the gross margin. So more importantly is to see that we have been able to grow the gross profit and also follow the OpEx in Sweden until this washes itself out. As you recall, this was done in fourth quarter of 2011, the first time and Swedish customers did particular have a two year contract, so it will take about 24 months before this kind of normalize itself in Thailand. But this is how their accounting standards kind of forces us to do this and we do what we think is right for the market and then the accounting will follow its optimal [ph] way around but this is how we feel is most prudent to our contract.

But we can also take this offline with our IR to go in detail on this but main message focus on the underlying gross margin and the development in Sweden for this period and the next period.

Ulrich Rathe – Jefferies International

Can I just clarify, is it happened in the fourth quarter of 2011, obviously year-on-year impact should have been bad some material way right in the second and third quarter, but we are now seeing that the reported – I understand it’s apples to oranges but the reported sales revenue decline has sort of dropped by 3 percentage point which is a sort of stock drop in trend despite the fact in prior quarters, the sector principal was there. So what is this – is it a big step change in the fourth quarter in the mix or how to interpret this? Thank you.

Jon Fredrik Baksaas

Yes, you are right that the fourth quarter is a little weaker on the underlying service revenue growth than the previous three quarters. There are effects among other things roaming in this quarter and also the volume or messaging. But I think is way too early to preclude any trends on this as you recall we had a very strong third quarter in Sweden. So I think – don’t think you should bake in any trends one or the other way, it’s quarterly variations and what have you.

Richard Olav Aa

And the fourth quarter.

Ulrich Rathe – Jefferies International

Thank you.

Richard Olav Aa

And for the fourth quarter of 2011, they are very high handset portion.

Jon Fredrik Baksaas

Absolutely but we have – yes, fine.

Operator

Terence Tsui, Morgan Stanley.

Scott Engebrigtsen

Go ahead please.

Terence Tsui – Morgan Stanley

Thank you, good morning everyone. Can I ask about the upcoming auctions in India and in Mumbai in particular, you’ve said in the past that you wanted a 50% reduction in the reserve price, as I understand you got a 30% reduction in Mumbai? Is that enough and on the other side, was interest to you and to further up on that is just whether you think potential consolidation once the auction is more likely and what form could this take? Thank you.

Jon Fredrik Baksaas

We’ve been very clear with what’s required in for the new auction in Mumbai. We have voiced a 50% reduction in the same alignment with what is anticipated to happen around the CDMA licenses. So we believe there is a rational for why it should be 50%. There are two prerequisites that needs to be in place and that is the reserve price comes down to a level where the business case can fly. And number two, that the problem is to refund, so the license fee from 2008 is actually also coming through. And this is from our point of view, to needed requirements both from a profitability level in Mumbai as such but also from a cash flow approach looking at the INR155 billion peak funding.

As for the consolidation, I have nothing more to bring. One can speculate in many directions, many players are much more clarified regulatory regime where people or players and the different companies will sort of know their position. So one can only guess what can happen and I don’t want to sort of add few to that speculation, but that things will happen, we’re pretty sure about that.

Terence Tsui – Morgan Stanley

Thanks.

Operator

Andrew Lee, Goldman Sachs.

Scott Engebrigtsen

Go ahead please.

Andrew Lee – Goldman Sachs

Yes, good morning everyone. A question around CapEx, given your analysis of the underlying CapEx to sales in 2013 in earlier presentation and the acceleration you are doing in Norway and Asian network swaps. Should we expect reported CapEx to sales to snap down in 2014, and how quickly now do you think we can get your medium term target of around 10%?

Richard Olav Aa

Yes, I mean I think the underlying mobile business is already at 10%. So this will depend a lot on how we migrate in Thailand from the concession network to the licensed network and the pickup of fiber in Norway. And both those two programs are not done in one year, but obviously we have further ambitions to reduce also the CapEx on the underlying mobile operation. But I think we’re not going into any guiding here for 2014 on this because we need to see more clarity both in Thailand and Norway on the market demand and migration and regulatory in Thailand before we kind of firm up these plans 100%.

Andrew Lee – Goldman Sachs

Okay, thank you. It seems like there is a large kind of timing effect there, can I just ask a follow-up question that is totally unrelated unfortunately, just on your buyback, should we expect to buyback reload in 2013 given you’ve more certainty around India and potentially around (inaudible) said is just that one times EBITDA. Should we expect to see the 4%, 5% buyback around 2013 if you get there? Thank you.

Jon Fredrik Baksaas

Yes, first of all the buyback has not been discussed with the Board, that comes later before the General Meeting and is also to be approved by the General Meeting, so we cannot have – no news on that. But I would say given now that India losses are coming to an end, we see a very strong pickup in the normalized earnings per share due to that. As you know, we have not normalized for India losses earlier so that’s the case for very solid growth in the dividend going forward.

So that could give you maybe some indication on how we’re looking at this slightly more on the longer term basis that I think most of the growth should come on the dividend side.

Andrew Lee – Goldman Sachs

Thank you.

Richard Olav Aa

And I would also note one more think that this is a concern to us is that you see now that we are 82% complete on the buyback program and we are now in February. So the liquidity also in the world stock markets are drying up, so it makes it more complicated to buy back shares and it’s also with this program we have both back around 9% of the shares. I think we also should be a little careful how much of the shares we buyback of Telenor just due to not disturb the liquidity even further in the share.

Andrew Lee – Goldman Sachs

Thanks.

Operator

James Britton, Nomura.

Scott Engebrigtsen

Go ahead please.

James Britton – Nomura

James Britton, Nomura. Thanks very much. I’ve got a question on your margin target please. The 34% target seems to apply about a 50 basis points contraction for the Group if you strip out India. So I just wondered how this was consistent with the 2013 OpEx target which you’ve restated and it would seem to imply a most expansion of more than 100 basis points in 2013. And then secondly, I just wanted to ask whether the strategic decision to accelerate investment to market share was broad based across all markets or quite specifically targeted out on few markets and whether is the 2013 strategy very much a medium term strategy? Thanks.

Richard Olav Aa

Yes. As I said on the margin, we are still early in the year and we don’t have full visibility on all the OE initiatives for the year. So that may outturn to be on the conservative side, that will – the year will show, but of course our ambition is to deliver on the operational excellence again. Secondly we see handsets being a big part of revenues coming in with lower margins, so that’s also an effect, as you see very visibly in the DTAC figures this year.

When it comes to the CapEx to sales, we see as be lower all the swaps in Malaysia and Pakistan into 2013 that should – you should adjust for when you say that. So I think again now I am repeating myself a little bit, it’s a lot about Norway and it’s a lot about Thailand. Very discretionary investments targeting a reduction in regulatory costs in Thailand and monetizing on the data demand, and in Norway strong investment also in the mobile side, but then specifically attacking the very diverse household structure in Norway with modern fixed technologies.

James Britton – Nomura

So just to be clear, the higher investment strategy, and the market share strategy is pretty much related to those markets, you’re not going off to an ambitious market share push in other markets?

Richard Olav Aa

No, I mean we have a strategy that we want to at least maintain our market share, that goes true as KPI [ph] throughout entire Group, but we have not in a big aggressive market share angle. And in any market around the world, in Thailand it’s basically to capture the data demand and reduce regulatory costs. The one exception I would say on that when you asked a questioned that why it is, is on the fiber in Norway. Fiber in Norway we’ve been very careful so far because we haven’t seen the profitability, so we have a market share on consumer today about 16% on fiber.

We said in the Capital Markets Day that we want to grow that to 32% and maybe we want to grow that even further as we see profitability coming in there and we really need to take our positions. So I would say all in all maintain maybe slightly grow market position is the kind of key message to all the business units with exceptional fiber where we probably want to grow more aggressively.

James Britton – Nomura

Thank you.

Scott Engebrigtsen

Next.

Operator

Barry Zeitoune, Berenberg.

Scott Engebrigtsen

Go ahead please.

Barry Zeitoune – Berenberg

Hi good morning. I’d like to ask question about Thailand specifically and about handset or the lack of handset subsidies. Why do you think it is that there are no handset subsidies in Thailand versus other markets? And do you think there is a risk that handset subsidies are introduced because you push for 3G in Thailand?

Jon Fredrik Baksaas

Well the main reason for not – that subsidies is not a means that are being used in countries in Asia, is at the prepaid level of every market. In prepaid markets, handsets are usually sold separately from the connectivity part. So that’s a reason for that.

Barry Zeitoune – Berenberg

Do you a see a risk that you push more postpaid with 3G in Thailand?

Jon Fredrik Baksaas

That’s a longer transaction because it involves or in Thailand that wouldn’t be that kind of a problem, but the general fact is that the cash portion of the economy is so strong that the turnover of revenues for monthly income for people is based on cash more than based on bank accounts as we know it in the west.

Richard Olav Aa

I would say also to add on that, I think in Thailand what we more – our focusing on there is the bundling with services on the prepaid side. We are bundling our music services and we’re bundling Facebook and we have other types of arrangement with big global partners to bundle prepaid services where you can buy the smaller structures of connectivity bundled with services. That is very successful and probably a better recipe to monetizing data than bundling with handsets.

Barry Zeitoune – Berenberg

Okay, great. Thank you very much.

Scott Engebrigtsen

Next.

Operator

Thomas Heath, Handelsbanken.

Scott Engebrigtsen

Go ahead please.

Thomas Heath – Handelsbanken Capital Markets

Thank you. Two questions if I may, firstly, on Norway. When 4G sort of becoming a reality, do you see sort of further potential to differentiate the 4G offering and toward more on 4G, in the neighboring countries there has been no premium at all, so in Sweden and Denmark. That would be interesting and also if that has any margin impacts? Then secondly if you could have some thoughts on financial services in Pakistan, you seem to be doing very well, if you could share maybe some penetration figure or penetration target there? Thank you.

Jon Fredrik Baksaas

On 4G, we’ll certainly give the potential for differentiation. However, if it’s something that the industry really struggles for to define that differentiation that is in a way the big challenge here. How to find the formula that also is easily understood in the marketplace for that differentiation.

I think we have seen some good signs and good practices Telenor Norway on how differentiation can be utilized in the way that we have formed the bundles that we have distributed in Norway. And in many ways I almost see that as one of the best examples on how we have been able to crystallize revenues coming out of the differentiation to data. However the competitive structure in each market needs to move in that – look in that direction and use that trend in order for this to build on each other.

And this is sort of a main challenge in many markets. And what is then the differentiating factors? Will it be capacities, will it be specific services, will it be on qualities. And here the net neutrality factor needs to be anchored so that at the bottom on how we think because on the net neutrality debate we will not be able to be editors so to speak from a service consumption perspective if you are a customer.

Then on the financial services, we believe that financial services have a great potential. However the regulatory side, in each market decides how this can be implemented, and in Pakistan where regulation is fairly open we are then also the majority owner of a small bank, which basically enables us to run the whole value chain. We don’t – we haven’t not yet moved into loans and deposits in this, but this is in preparation, and of course that also then requires quite another set of competences in order to obtain a fuller package of financial services as such, but we have a very good start in Pakistan. We see – we have now 4 million of our 30 million regular users using the service and as you also can imagine, the trust factor is so enormously important when you start to handle and transfer or hold in deposits or establish loans, the trust factor is such enormously important.

So we want to go carefully into this marketplace but we believe there is a significant potential there.

Thomas Heath – Handelsbanken Capital Markets

But just the application there, so the revenue growth you are seeing in this quarter is based on just reaching 10% penetration on only transfer services, sounds like it could grow quite a lot?

Jon Fredrik Baksaas

This is – so far, its bill pay and money transfer stuff we’re talking about in Pakistan. And of course when there is no credit history in Pakistan, how do we dare to start making small loans. And in a way this is the big question here. Deposits is more easy, however how can you redistribute that into the loans as well when avoiding the loss trap has to be part of this equation. This happens in many markets but in Pakistan where regulation is fairly open, then we have probably a better hand on the whole value chain and can push it more in one go, whereas in other markets its more of a challenge to find the business model between the banking side who holds the bank account and the telecom operators who does the distribution.

But there are concepts in many markets in Asia that tries to realize a bit of the same. So I anticipate that the whole industry will be concerned about this going forward.

Scott Engebrigtsen

We will have time for two more questions now. Next.

Operator

Stefan Gauffin, Nordea. Yes, hello. I would like to hear a little bit about your view on the margin guidance from DTAC in Thailand. They are going to start the migration from 2G concession to 3G license end of Q1 I believe. And we had expected that this would lead to a margin uplift already in 2013, are there any costs associated with this that leads to putting pressure on the margins or why don’t we see a margin uplift already in 2013?

Richard Olav Aa

I think DTAC is of course careful in their guiding now because there are two main uncertainties there. First, we have to establish the access regime. Yes, we have got a license but then we also need to have a regime for how we can in the new company that runs the 3G under a license, can access the concessionary assets of DTAC. These are organized in two companies, that is not yet clarified.

So that means that we cannot really start doing this transition before that is clarified. And what kinds of terms and condition that whole regime will convert is still in the baking. So that makes it very difficult to give any precise guiding both on the effects and when the timing happens. And then secondly, you need to have handsets that are enabled for 2,100 megahertz and how fast that migration will go now when the operators have 3G on 2,100 that is depending on the consumer demands, how hard people are pushing the handsets and so on.

So I think now I think it’s very prudent to not give any kind of promises or any expectations on a big margin uplift for this in 2013. It may happen if thing goes fast and it may not happen if thing goes slower but this is a long-term extremely important event to get out of the concession regime and over to a more modernized licensed regime.

Stefan Gauffin – Nordea Markets

Okay, thank you.

Scott Engebrigtsen

Next.

Operator

(inaudible) Markets.

Scott Engebrigtsen

Go ahead please.

Unidentified Analyst

Thank you. I just had a simple question about the taxes. You booked quite significant tax assets in the quarter and to what extent can you utilize these in the near term, can you help us out with on their quarter tax rates and the paid taxes for this year and next please?

Richard Olav Aa

Yes, I don’t think I should go into detail exactly in which tax year the various tax assets will be utilized but as the business transfer will happen in India most likely in 2013, then there is a debate about 2012 or 2013 as I see it. In Sweden, it should be quite also straight forward as we have a huge taxable profit in Sweden. And Pakistan will be more overtime.

Unidentified Analyst

And that was…

Richard Olav Aa

But to just to add on, the estimated effective underlying tax rate in 2013 is around 26%.

Scott Engebrigtsen

Thank you. That’s what we had time for this morning and I would like to thank you all for participating.

Jon Fredrik Baksaas

Thank you.

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