Telenor ASA Q1 2010 Earnings Call Transcript

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Telenor ASA (OTCPK:TELNY) 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

Scott Engebrigtsen

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.

Going forward here in our presentations, we will not be able to sort of compete on – comment on operating details for these two – for this major operation of ours. This will be done from VimpelCom Ltd.

On the operating side, there are quite solid margins and we maintain our market shares in the other operations in Central and Eastern Europe. However, the economic conditions in these countries have not approached the recovery phase. There are no improvements as we can see it on consumer demand and there are weak macros and taxation hampers also consumptions in our area. And this has led to both consumers and the businesses being very price-consciously in this phase.

There is quite good momentum on traditional postpaid, which we have been able to – which enables us to also to a certain extent, the lower ARPU. And we have been able to maintain our margins fairly well in this period. But we need also to address efficiency measures and our OpEx will be reduced according to income level going forward as you saw us doing the – executing the downsizing initiatives in Pannon in March. As for the market share, they remain fairly stable with a small plus attached to it. So the operating side of our companies seems to be quite good.

In Asia, we see economic conditions and macros moving positively. There is a good performance in all established Asian markets for the Telenor Group in this quarter and the operational cash flow for these four operations alone improved by NOK1.2 billion in – compared to Q1 2009. And this recovery seems now confirmed as all organic – as organic growth has picked up in all four operations.

In particular, on the encouraging side, the smartphone sales in Thailand and Malaysia might show and might be underpinning the Mobile Internet potential in this region. We just recently also started the iPhone in Thailand and the initial phase of that is promising. The question will be how big a segment will be there in the marketplace to sort of grab the – this new opportunity.

dtac and DiGi have already released their Q1 results and both companies remain their outlooks for 2010. There are external factors in Asia. We have the unrest in Thailand for the time being, there is the energy question in several countries. And these are external factors that of course play into our industry and how our operating companies will perform going forward. However, we seem to be used to that, there have been events before as well. So I do think that our companies are well prepared and able to cope with changes of that nature.

Let me then address some challenges in India. I started by saying we have reached significant achievements, in record time really, by establishing all the sites, now numbering 18,000 points of sale, extremely high number, network and IT to get this all on stream is – has been quite a performance from our people, which now rate 2,500 people in the Uninor organization.

However, there are also challenges. The price war that surfaced after the launch of TATA DOCOMO and Reliance has led to a very high degree of multiple SIMs and we estimate that rate to be around 25% to 30% of the overall SIM population. In this initial phase, we have not achieved to become the primary SIM with our customers at a satisfactory rate. We have invested as a newcomer in the marketplace and the churn rate is very high. We now need to tune our distribution and sales activities in such a way that commissions really pay for valued customers rather than number of SIMs alone.

In that sense, we are disappointed that despite the fact that our brand has been well received, we have not hit our targets in this phase when it comes to the revenue buildup. The good side is that in some circles this is picking up and is picking up well, while others need to tune their means when they go to market. Here, continuous efforts, endurance, and hands-on execution are keys that we need to focus at going forward.

The reach for the primary SIM position will also earn us incoming calls, which we up to this stage see far too little of. Our tools in that sense to build the primary SIM position is to utilize dynamic pricing principles, which we are able to do with the modern equipment that we have in the network. We will use on-net promotion campaigns and we need to go deeper into the engagement and the execution in cooperation with our distribution partners.

And this will be part of our second launch phase, which will come up later this quarter. This has implications for OpEx and CapEx this year and as you will see, we are revising guidelines to reflect this new status. And we will come back to that under Richard's presentation.

Closing then in on my message today, the operational focus in 2010 stands firmly. The rollout and the tuning of the Indian operation, as I just mentioned, is now, after we have successfully completed the VimpelCom transaction, our main focus. Having the VimpelCom Ltd. company, going forward here, we will of course support and be an active owner into VimpelCom's new management. And we have already had our first meeting on the VimpelCom Ltd's structures and it seems to have got a good start.

Then on the operating side, mobile data. This is a growth factor in the telecom industry for the time being. The development here in Scandinavia shows that clearly. And to further – and further to stimulate this usage through the smartphones and attractive price plans will be part of what we will do going forward here.

The mobile network swaps that will enhance the quality and ensure the future cost structure is also contributing to this on the longer-time perspective. In that sense, to maintain the capital discipline and to work at the cost structure is extremely important for us. So the cost efficiency in this initiative that we launched in all operations will be closely followed-up throughout the year.

And with those comments, I hand the floor to Richard, who for the first time will address the Telenor financials.

Richard Olav Aa

Okay. Thank you, Fredrik. It's quite good to present strong numbers in the first quarter as a new CFO. So I'll take you through in more detail what Fredrik has elaborated on with focus on the numbers.

If we then start with the headlines and it's almost a table of content for my presentation. The revenue growth is 3% and that is mainly driven by two main factors, which we regard as very positive, and that's an 8% revenue growth in our established Asian operations, the emerging markets in Asia, which is a clear target area for Telenor. Now, there is almost a same percentage growth, close to 8% growth, in mobile operations in the Nordics, driven by the Mobile Internet. So those two factors are contributing to the revenue growth. Of course on the negative side, we have the continuous decline in the fixed and the still challenging markets in Eastern Europe.

When it comes to the EBITDA margin, we are delivering an EBITDA margin of 30%. That is 2 percentage points higher than our guidance for the year, we guided 28%. And also bear in mind that India is delivering a negative EBITDA of close to NOK1 billion. Excluding for that, we are at 34% EBITDA margin, again, 2% higher than our guiding excluding India.

Like Fredrik said, we have a low CapEx this quarter, 10% CapEx to sales, which India is about 3 percentage points. So the cash expenditure, CapEx to the running operation is as low as 7% this quarter . So if you also correct this figure for India, we are at 27% operating cash flow in the line operations. This of course then has a big impact on our debt and we have a further debt reduction of NOK5 billion, from NOK26 billion to NOK21 billion. That is also driven by a strong improvement in the working capital. That is more timing effects but it's in addition to good results.

I should also underline the fact what Fredrik said that we also see results in the EBITDA margin in this quarter from the operational excellence initiatives started. We run in the first quarter with a lower OpEx. And with this background, we have revised the outlook, so I'll come back to that.

If you then look at the revenue trends and the EBITDA trends over the last six quarters, we see – we find the 3% revenue growth in the first quarter, but we see on the reported numbers, we are actually down from NOK24.6 billion in the first quarter last year to NOK23.9 billion and the big effect there is currency. On average, it's a 5% decline in the currencies.

We are operating in towards the Norwegian kroner. As you may recall, the kroner was quite weak in the first quarter last year and it has strengthened considerably. And for example, just towards the Danish currency, it's a 9% strengthening; towards the Asian currency, it's about 8% to 19% strengthening; towards Pakistan, it's 19%; and like with the Serbian currency, it's 14% strength. So this is important to bear in mind when you look at the figures.

Also to bear in mind that now Kyivstar is not included in these figures. All these figures are excluding VimpelCom Ltd., that is reported as associated entity. And I'll come back to that which effect that has on the first quarter.

When you look at the EBITDA figures, you get some of the same effects there. We are reporting an EBITDA of close to NOK7.3 billion, which is down from NOK7.9 billion in the first quarter last year. Again, bear in mind that India is about NOK1 billion and on that also currency is about NOK0.5 billion. So if you extract those two effects, you are down to NOK6.4 billion in the first quarter comparable.

So we have an underlying improvement of close to NOK800 million EBITDA from the operations in Telenor. The big contributors to those NOK800 million are dtac with close to NOK200 million; it's Sweden with a very low starting point, that has to be said in the first quarter last year, but more solid performance this quarter, close to NOK150 million; and it's Pakistan, Norway, and Broadcast also contributing to mid – more than NOK100 million each in the quarter. So those units have a strong improvement. We also see that improvement going from fourth quarter to first quarter, from the 7.05 to 7.2, driven by many of the same units. Also there we have effects on India, I'll not dwell more into that.

This shows some of the same effects broken down on each OpCo. And you can see then on the revenue side reported, they have a drop of 2.7%, but organic plus 2.7% and then the difference is of course currency. On the EBITDA, we see the same effects at the bottom, reported minus 9.2%, organic minus 3.7%.

And then if you correct back for India, we have an improvement on organic EBITDA of close to 10% and it's driven by Pakistan, Broadcast, dtac, Norway, and Sweden, strong performance – strong underlining performance. And of course we see also some of the challenges in Eastern Europe. But I'll come back to that because they are compensating a lot on the drop in the EBITDA with lower CapEx and therefore, maintaining the cash flow.

Then going over to the CapEx and the cash flow, like I said, we have a particularly low CapEx number in the first quarter, NOK2.5 billion and of that, India contributes with about NOK700 million. If you compare that to the first quarter last year, which was also a low number which was about NOK3 billion, and you add back – you compare apples with applies with India, you get to NOK3.7 billion, but here you have to take the currency the other way to get down to about NOK3.5 billion.

So in the ongoing operations, established operations, we are about NOK1 billion lower on CapEx this quarter, down similar quarter last year, and it's particularly Asian units that have reduced their CapEx this quarter to this quarter. But like Fredrik said, this is not a sustainable level for the rest of the year. We guided earlier at 13% to 15%, now we are guiding down – sorry, 14% to 15%. Now, we are guiding down to 13% to 14%. What that means to maintain our guiding we will spend 14% to 15% of CapEx per quarter for the rest of the year. So bear in mind, this is not representative for the year and it comes from the fact that we will have increased CapEx spending on the network swapping in the Nordics.

And of course then the cash flow becomes quite strong, 20%, due to this NOK4.7 billion, and we have expensed about NOK1.7 billion in India, so we are then at NOK6.4 billion, excluding India, which is a cash – operating cash flow of 27% from the established operations.

If you break that down on the various regions, we see the Nordics now are ahead, measured on the rolling four-quarter cash flow of NOK10.6 billion, but again, the cash flow this year is back heavy. But we expect to come around the NOK10 billion for the year. But like we said, this can – the quarterly cash flow can fluctuate up and down, but expect over the year the target around NOK10 billion.

Like Fredrik said and also I said earlier, that the CEE has been able – despite the macroeconomic environment and the decline in revenue and EBITDA, been able to compensate by lower OpEx and CapEx and we have taken out about 250 man years in Pannon, the largest operation, now reported under CEE now in the – in this first and the second quarter. So still we maintain a cash flow of close to NOK3 billion by low CapEx and tuning the OpEx.

Then on Asia, we see on the reported number a strong decline in the cash flow, but that is only due to India. The underlying cash flow in dtac, DiGi, Grameenphone, and Telenor Pakistan is quite strong, and rolling four-quarter is about NOK8 billion. But also there, there are some effects that we have very low CapEx now in the first quarter, but the underlying growth is quite strong.

Then I'll try to take you through the reconciliation of the P&L from first quarter '09 to the first quarter '10. The revenues, we have already been through, also the change in the EBITDA. Then we have on the other items, we report NOK85 million. That is basically costs related to the operational efficiency and reducing manpower in the operation, the bulk of the NOK85 million is related to that.

So then the EBITDA should be explained. Depreciation, we see somewhat increased depreciation. That's basically in the Nordics and also in Eastern Europe, to change how the networks are accelerating the depreciation on the network that is going to be phased out. So then we have explained the EBIT.

As an associated company, here it’s important to note that VimpelCom Ltd., they will report their figures after Telenor. So we don't have the first quarter figures for VimpelCom Ltd. Therefore, we have decided to lag one quarter for VimpelCom Ltd. and therefore we have not included any first quarter figures for VimpelCom Ltd. at all in this quarter.

What is reported here is that when we got the Annual Report for VimpelCom, we saw that there were some items that they had treated differently from an accounting perspective and charged against equity, while we have to take them over our P&L. And that is basically related to some write-down of options in VimpelCom related to a Kazakhstan asset. So that explains this.

Last year, it was a negative number and that is basically the first quarter underlying in the assets in VimpelCom, Kyivstar, and the VimpelCom Open Joint Stock Company had a very strong first quarter, but they took a FX loss of about NOK1.9 billion on that assets. So it made a negative contribution. So going forward, coming into the second quarter, we will report the first quarter P&L contribution from the VimpelCom Ltd. in associated companies.

Then we come to net financial, there we have a quite special effect in this quarter. When we made – Telenor made a commitment to inject the third and the fourth equity into Uninor, that was – should be done in rupee. That was hedged and since then the rupee fell and that gives a negative NOK375 million hedging effect. Previously, that would have been taken to equity, but new rules under IFRS makes us to take that over P&L due to that there is a transaction between majority and minority shareholder we have to take it through the P&L.

So that explains then down to profit before tax due to the fact that we are not including any profit from associated company, we get a quite high tax percentage in the first quarter. For the year, we will get a very low tax percentage due to the fact that in the second quarter we will book about NOK6 billion earnings related to the sale of – technically then, our sale of assets into VimpelCom Ltd. That will give an accounting gain of about NOK6 billion. That will come in and will lower effective tax rate.

So then we get down to the net income then, of about NOK1 billion and an EPS from continued operation of NOK0.6 [ph]. If you correct for this currency transaction and normalize the VimpelCom result and we use the average for last year, the EPS goes up to about – or the underlying EPS in the quarter is about NOK1.30.

Then reconciling the development in net debt, NOK5 billion drop and we are now down to 0.7 net debt-to-EBITDA. And as you may recall, we have a target or a – not a target, that was exactly what I should not say, but we have cap on the net debt-to-EBITDA of about 1.6, where we say that there is a risk that Telenor will go from investment grade to non-investment grade if we hit the cap of 1.6. We are reporting now at 0.7, so we have a significant headroom up to that cap.

Then coming back to how this is reconciled in the quarter, we have the EBITDA. Net interest paid is quite low this quarter due to low debt of course and also dropping interest rates. Income tax paid is also low, that will go up in the second quarter. CapEx paid is higher than CapEx accrued. That comes to the fact that Uninor and Pakistan had CapEx accruals at the end of the year that has been paid out now.

Dividend received is from Kyivstar. Dividend paid to minorities is DiGi in Malaysia. Currency is again, is currency accounts held in foreign currency that has dropped due to the drop in foreign currencies towards the Norwegian kroner. And then we have the accruals that are basically related to various working capital elements. It's particularly in Norway on the VAT, and Broadcast on receivables, and it's also related to the revenue-sharing in dtac, and some effect in treasury on hedging. So that brings the net change measured on the net debt to NOK5 billion.

I'll not dwell long with this, but – sorry – this is showing what we did earlier this year about refinancing some of our bonds. We tendered back EUR717 million bond notes maturing in 2011 and 2012 and issued approximately the same amount on a 10-year bond, at mid swap plus 97, below 100 basis points, the reason being was that we were not that nervous but we don't know how these markets will develop with the crisis in Greece and Spain and so on and we saw a window of opportunity to get a 10-year bond at a reasonable price.

There has been periods earlier where you could get this cheaper but definitely over the last two or three years it's been a lot more expensive. This has increased the life of our debt portfolio from 3.5 to 4.6 years. And in addition, we have committed an undrawn credit lines of about EUR2.5 billion. Those are maturing in the next two to three years.

So we have a strong balance sheet measured in net debt-to EBITDA and absolute debt and we also have a, I would say, reasonable maturity profile on the debt. So I would say that the balance sheet and debt is under well control.

Then, going into the outlook. The previous outlook on the top line, low-single digit growth; still the same. EBITDA margin, 27% to 28%, previous outlook; now, we are saying around 28%. First quarter was strong with 30%. CapEx to sales, 14% to 16%; now we are guiding it significantly down to 13% to 14%, both due to the fact that we will spend less in India, but also that we spent very little CapEx in the first quarter.

Then, if you look at India, our previous outlook was an EBITDA loss of about NOK4.5 billion to NOK5 billion. We are maintaining that, even if we see, like Fredrik said, a more challenging revenue buildup. But we are able to scale down some OpEx and also the launch in some circles has come later than planned and we will also adjust the rollout to distribution readiness to some extent, and that gives an OpEx effect that makes us comfortable guiding on the same EBITDA loss.

Then due to the fact that we lack spectrum in some circles – we have lacked governmental approvals, which is now about to be corrected and launched in some circles and that will also adjust the rollout speed somewhat. We are guiding down the CapEx on India from NOK2.5 billion to NOK3.5 billion to NOK2 billion to NOK2.5 billion. If you take the midpoint there, it's about NOK750 million guiding down. So those NOK750 million in addition to lower CapEx in the established operations result in a significantly downward guiding on the CapEx to sales.

Okay. Ending slide, financial priorities. This, many of you have seen many times before. I'll try to elaborate how this has developed. These are the three foundations we have laid out on our financial priorities. Maintain a solid balance sheet, I'll not repeat myself too much, but I think we can tick that off. We have a solid balance sheet, but, again it's not a target to get to 1.6 net to EBITDA, we are at 0.7 now, that's a comfortable level. We have a clear goal of having an attractive shareholder remuneration. We have said that we will resume to normal dividend policy from 2010, 40% to 60% on net income. And as some of you may have noticed, we will then ask the AGM, now in May, for a share buyback mandate.

Then on the M&A side, I would say that this is not our key focus these days. Our key focus these days is, like on Fredrik said, it's operational excellence and delivering on India. But of course, a company with Telenor's presence and assets has to participate in structural discussions in its industry. So that goes almost without saying in my language. And – but at the end, I would say again, operational excellence and India are the main priorities, but – to sum up just where we are on the financial priorities.

Question-and-Answer Session

Scott Engebrigtsen

Okay. Thank you, Richard. We are now ready to take your questions and we will start with the ones present here at Fornebu. And I'll ask Mr. Baksaas to reenter the podium. Please also wait for a microphone to be sent over, and also state your name and company, please. And we have first question here from Martin Hoff, Arctic Securities.

Martin Hoff – Arctic Securities

Yes, good morning. I have a few questions on India, if I may. The 2.2 million subscribers, could you give us some detail on how your net add development was, month-to-month, during the quarter? And then, do you still maintain your long-term 8% market share ambition? And just give us an update on when – when do you now expect that to happen? And then, finally, the ARPU of 130 Indian rupee per customer per month in Q1, is that at all representative for your ARPU level going forward in that market? Thank you.

Jon Fredrik Baksaas

Yes. Many questions there. The way we started in India has, as I said, given us a disappointment sort of on the success and the achievements on the network side. We had hoped that we would have been able to participate also in revenue generation. As to the SIM cards sold and activated and reported to try, when we see the activity level on those SIMs, the churn rates, we have been very cautious by sort of applying only a 30-day active period when counting active subscribers.

In a way, from a number point of view, we can be satisfied on the distribution of the sheer numbers of SIMs counted in the TRAI [ph] way. But, when it comes to revenues left behind those active of that population, we need to tune our market message and so get a better understanding on how our service offering competes with others in the same market.

And as I said, some circles are under good development in that sense, improving month by month, whereas other circles needs to learn from those circles doing well. And when we now launch in the second phase, we will of course apply as much of the good learnings as we possibly can when we address a new geography.

Then, for the market share question, the longer-term ambition of an 8% market share in the business case as such, that is something that is still there. When we now launch in a wider geography, the organization can fully concentrate the market and distribution sales activities, rather than having sort of such a high attention also on the network buildout in those regions that we not yet launched will improve also the – sort of the working of the management as such.

So in that sense, we are looking at these as a delay. We have full confidence in the fact that we've done before. We know it takes time to get a hold in the new marketplace and we've only been there for a couple of quarters really, after the first launch in December. So we will work very consistently on our formula and get that better tuned to the actual context, the situation in India.

Martin Hoff – Arctic Securities

And my final question was, the ARPU in Q1, is that at all representative for your ARPU level going forward in that market?

Jon Fredrik Baksaas

Well, the ARPU needs to lift positively from where we are today and we see that development coming through in those circles doing well. But we haven't brought to you those details in this presentation. I think that will more – something that we will address when we get – come closer to the Capital Markets Day, after the summer.

Scott Engebrigtsen

Okay. And we have a question over here, please?

Ole Jorgen Rod – First Securities

Ole Jorgen Rod of First Securities. One further question on India. As you touched upon, there are challenges in importing Chinese infrastructure equipment, currently. Can you elaborate a bit on how big a challenge that is for Uninor at the current? Question number two. You continue to surprise positively on the CapEx side for the Group, and you maintain that the CapEx will increase going forward, at least for the next few quarters. But can you, in light of this, provide some perspective on the longer-term CapEx outlook beyond 2010?

Jon Fredrik Baksaas

On the operating side, on vendors in China, or coming from China, in India, we have – we were a bit surprised that the Indian government basically installed a new mechanism right after – in the beginning of this year when they required an approval for all technical equipment to be deployed in the Indian telecom networks and that was not – that was sort of a general statement and a general ruling for all operators in India. We have now got those approvals for the second phase and we are 100% covered through the price structures of existing vendors in sort of in this year's needs basically, when we now approach, also, the second phase.

The longer-term picture here – this is of course also something that Chinese vendors are working at continuously. So for the time being, we are well covered with the relationship that we have with existing vendors in India. The longer-term picture has that underlying question attached to it as to which volumes can be anticipated from the different vendors going forward. But as for now, we are well covered under the existing agreements and we have the necessary approvals for the next phase, except for the same approval that needs to be in place. There is a security check before you put on the final switch when you activate. And that was the same way it was on the first launch phase.

As for the CapEx, going forward, you said nice performance and ahead of previous figures, yes? But we have to realize that this industry have been – has been through a phase where growth has not been there. The industry generally has – probably had an investment activity that you can, to a certain extent, benefit from in an area – in a phase where growth doesn't move that fast anymore and that gives us the opportunity to scale down CapEx quite significantly.

But on the other hand, when traffic starts to build again, then the industry needs to cater for those capacities, going forward. And in the Nordics, we – our response to that feature is that we have decided to go for a network swap in all three Scandinavian countries and to meet those new volume requirements. So it will give us some higher CapEx towards the end of this year and into 2011 and hopefully, a better CapEx profile after that.

Scott Engebrigtsen

And we have a question over there from Frank Maao.

Frank Maao – DnB NOR Markets

Yes, hi. Frank Maao, DnB NOR Markets. I have a question relating to dividends. You are saying that you are looking to resume normal dividends and remuneration – attractive remuneration to shareholders. Could you please give us some more color on what you view as attractive, how you think about that? I mean, do you think about that more as a range of a – payout ratio range or how do you think about normalizing the net income level and, when it comes to the contribution of India and seeing through that?

And do you – how do you view, or think about, the relation towards the market cap when you think about this, I mean, dividend yield perspectives, do you have a competitive dividend yield? That was my question.

Jon Fredrik Baksaas

Yes. Thank you, Frank. I think we just came out of a dividend discussion with the Board of Directors, which they cannot set the dividend now until the next AGM. But of course we see that strong balance sheet and cash flow development of Telenor, also taking into account in India. We are – right now, in the first quarter, have the same cash flow yield this quarter as we have in the first quarter last year without India. That gives us some comfort and that's why we have proposed to the AGM a share buyback program.

When it comes to the policy in itself, I seek to that we will have an attractive shareholder remuneration and that our dividend policy is 40% to 60% of the net income. That's what we can say for the time being, Frank. Thank you.

Scott Engebrigtsen

Any further questions from the audience here? If not, I think we switch over to the ones participating on the phone. And I call upon the call conference host to introduce the first question, please?

Operator

First question, Lawrence Sugarman, ING. Go ahead, please.

Lawrence Sugarman – ING

Good morning, everybody. A couple of questions from me. Firstly, in the Broadcast division, there has been an overall good revenue progression, but I noticed that the cable customers have actually gone down. My understanding is that that is mainly performance in Sweden and Denmark. Is there anything that you are thinking about strategically with those divisions?

And secondly, in the mobile division, obviously broadband revenues are growing very strongly. And are you noticing anything, particularly in the last quarter, that has been different in terms of the profile of customer activity?

Jon Fredrik Baksaas

To you first question around Broadcast, yes, we are also satisfied with how the overall reporting figures from Broadcast turns out this quarter. The growth there comes also from the obvious fact that (inaudible) service offering on broadband, here in Norway particularly has proved to be a popular service up against those households that are connected and it's a high quality, fiber quality type of service offering that's been – that comes of the coaxial cable, as well.

As for strategic moves, I can only generally say that we are following and discussing and thinking and we are not sort of, at this occasion, pointing in any direction or any solution. But generally speaking and as Richard said in – during his presentation that we will be following the different possibilities that one might think that also might benefit sort of our position in that field.

As for the growth profile of Mobile Internet access, through both handhelds and modems, I don't think we can say that there is sort of any major change here. The iPhone stands out as being the most popular new device, still do. One might think that Apple, later this year, might come with a new version, which may sort of delay some decision-makers to wait for a new version to come out and I think that Scandinavian countries has basically proved that this new interface has such a high level of attractiveness that is – that it has done something with the willingness to consume from those type of terminals.

So – and in this ecosystem, good networks and good handhelds is something that both are needed in order to spur further revenue generation from the Internet access. I think the iPhone firmly displays that.

Lawrence Sugarman – ING

Thank you very much.

Operator

Next, Ulrich Rathe, Societe Generale. Go ahead, please.

Ulrich Rathe – Societe Generale

Thank you. Three short questions, please. The first one is on the Swedish margin. You highlighted your success in cost-cutting there. Would you consider current margin levels in Sweden sustainable or is this a particularly good quarter for some reason?

Second question is on India. You highlighted very much in your presentation the difference between sort of the good circles and the bad circles or the ones where it's all working better than in others. What's the main difference between them? Is it more the external market conditions that are different or is it really, simply the way the Uninor operation works? Is that the main difference between the ones where it's going well and it's going not so well?

And my last question is a factual question. When is the lockup in India that is, I think, part of the agreement with Uninor and part of the license conditions, actually – when is that expiring exactly?

Jon Fredrik Baksaas

Richard, you address this?

Richard Olav Aa

Yes, we can try. I think what you see is an improvement in the margins in Sweden, but still – I’ll not guide exactly for Sweden for the remaining of this year. That's not a part of this session, but I would say that still the EBITDA margins we have now is below the other Nordic operations and there is more to do in Sweden. That's the fact.

Jon Fredrik Baksaas

And also there, Ulrich, one could add that both first and second quarter in 2009 were particularly weak quarters, so the improvement seen is that significant. I would say that we are more satisfied with this kind of margin level going forward than what we had last year. So we have to take the good development track that they are and build on that.

Richard Olav Aa

When it comes to the question regarding India, I think it's fair to say now that we have circles that are performing okay, we have circles that are not performing okay, and I find the key challenge now is to get learning across the circles. And of course we also have operation in other Asian countries that have been through this before and also to increase the learning from those circles.

You have to bear in mind that 180,000 points of sales and I would guess on average, there are three to four people employed in each of these point of sales on average, something there maybe two people, others there may be 10 people. That tells us something about challenge. It's more than 0.5 million people in the points of sales that have received training and learning in a quite new distribution concept in India. And that speed of learning and tuning is somewhat different from circle to circle and it has to do with what Fredrik said, it's about execution and learning from the best.

When it comes to your last question, the lockup period, right now it's expected – you'll have to help me, Fredrik on the exact date, but it's about three years from award of the license, if I'm not mistaken?

Jon Fredrik Baksaas

The M&A structures is locked in for three years after first quarter 2008. So I don't know the exact date for that, but in 2011, the – that opportunity opens up. There might be changes to that when – and after the 3G auction is carried through, which is ongoing as you know.

Ulrich Rathe – Societe Generale

Thank you.

Operator

Next, David Wright, Deutsche Bank. Go ahead, please.

David Wright – Deutsche Bank

Yes, hello. It's David here. Hopefully you can hear me. A couple of quick questions, please. First of all, on Thailand, I wondered whether you could give us some kind of indication of how the recent unrest has impacted the business at all? I would expect, obviously, the number of sales to be slowing. Just any indication we can get on that, especially given the performance so strong in Q1?

And then, secondly, on India, I do feel most of the questions have been fairly well-answered. But I guess – you haven't changed your EBITDA loss guidance. Now, it seems that your tariffs haven't been competitive. Those – for them to be competitive, we must assume that the average yield on a minute is going to have to come down. We must assume that the subsidies to distribution in some form or other are going to have to go up. So is it – it suggests to me that there could be some pressure on this EBITDA guidance, given that it's only phase one of the first operational year and you've already missed your own internal expectations. Any update on that? Thanks.

Jon Fredrik Baksaas

Yes. Thailand, turbulence – we've seen turbulence in Thailand before, and obviously the turbulence that we are seeing for the time being has not hampered the telecom market. I hate to say, on the contrary, I don't know if there is a link there, but it has not. So – and dtac has done well.

We also hope the – tend to believe that dtac has been able to also capture some market share in this period. But the longer-term effect of a turbulence like the one we see might of course be that the tourism, once again, will halt, as we've seen for previous periods and previous unrests. Same thing has happened, tourism has taken some time to recover. And from that aspect, roaming revenues might be under pressure.

But, on the other hand, we had periods of that before, last year and the year before there again. So in a way, it seems to be part of the regulatory – the regular pattern in such a market. But obviously, the new type of smartphones enabling Internet access is attractive for this domestic as in other markets and that is sort of the promising sign that we've see in this quarter.

In India, I think you are right, your observation that the revenue per minute might be under pressure. And it's only natural it will be, because a greenfield operator will start with quite much capacity available in the network and you would normally utilize that capacity to start sort of a usage patterns with your new customers. And so I think you are right in that sense, but on the other side, you need to generate and to promote usage in order to create longer-term usage patterns. And that has been done in every market that at least I have been participating in for the last 15 years on building the network effect between new user groups.

And here, on the tariffs is part of those tools that you will utilize in such environments. So this doesn't, the way we see it now, impact the present guiding on the EBITDA, because we have been able to scale this reasonably well upon what we've seen this far and anticipate that we can be able to do that the rest of the year as well.

David Wright – Deutsche Bank

Okay, that's great. Thank you.

Operator

Next, Nick Delfas, Morgan Stanley. Go ahead, please.

Nick Delfas – Morgan Stanley

Yes, thanks very much. It's another question on India, I'm afraid. I mean, given the problems you are having there, which may well be long-lasting, given the degree of competition and the fact that you probably won't be able to compete on 3G and smartphone services in the future, at what point are you going to reconsider your investment in India or think about monetizing the spectrum value that you have there, given the very high prices in the current spectrum auction?

Jon Fredrik Baksaas

You don't need to excuse yourself of addressing sort of India. We have a very good on all operating – on many aspects in the rest of the Group, but we are fully aware that there are challenges in India and we need to address them. But bear also in mind that a greenfield like this will not perform positive figures after quite sometime. And we have addressed that in other markets and we've said it quite openly that there is a spending time before you can see the curves turn here. That has been the case in all other markets and it will be the case in India as well.

And India has an economic growth rate this year at – anticipated at levels of 8%. We now see, in what comes through in reported figures from incumbents there that they are starting to report revenue growth again compared to the two previous quarters where they had taken the heat out of the price reductions and the transition to taxation per second. And it may be – it may come to surprise – come as a surprise to someone that while moving to the per-second taxation, that revenues are being cut. But that also has happened in all other mobile markets where when you have changed from per-minute to per-second, so it was not a surprise to us.

So this is hard and tough work and of course, deeper down into this project, we will sort of bring out the stages and do our evaluations, as we have already done, by reducing the CapEx figures in the overall project by NOK4 billion, which we did – around 30 billion rupee, which we did in – after fourth quarter. And we have further revised the balance between OpEx and CapEx in the updated guidance for 2010. But I do think that we are sort of taking in experiences, need to bring about improvements, and push for this project to deliver at par with competitors in that market.

Nick Delfas – Morgan Stanley

Thanks very much.

Operator

Next, Tim Boddy, Goldman Sachs. Go ahead, please.

Tim Boddy – Goldman Sachs

Yes, it's Tim Boddy here. I just – one last question from me, at least on India. Just do you think – given the changes in the way you see this unfolding, do you think 2010 will be the peak loss year, your peak year of cash burn, particularly at the EBITDA level or could we now expect 2011 to be worse?

And then secondly, switching gear, looking at the Nordic markets and particularly the strength of mobile growth, can you talk about the sustainability of that growth and whether you are seeing yet any signs of a recovery, particularly in the corporate market? Many thanks.

Jon Fredrik Baksaas

Could you just repeat the last question? It was a somewhat bad line.

Tim Boddy – Goldman Sachs

Just in the Nordic markets, particularly in Norway, could you just give us an indication of the sustainability of revenue growth, and to what extent you are seeing signs of a recovery in corporate demands? Thank you.

Jon Fredrik Baksaas

Let me start with the profile of the business case in India. We are still at – having the view that 2010 will be sort of the strongest year of cash flow burn in a combination of CapEx and EBITDA loss.

In Norway, sustainable? Yes, we could all wish that 9% top line growth is sustainable going forward. But as we know, things are changing. There are segments out there who – which still will be seeking for more efficient Internet connectivity. One could think that the iPhone users and the Blackberry users, and those type of users – and that segment has now sort of been more or less 100% addressed. But we all know that the new segments will develop sort of the top segments' usage pattern going forward.

So I'm not promising sort of a 9% growth profile of mobile in Norway going forward, but I think that given that the economic macro figures for Norway being quite good also for 2010, that there should be a growth rate for the rest of the year as well. But we are not standing here promising sort of the 9% every quarter.

Tim Boddy – Goldman Sachs

Okay. Thanks for that.

Operator

Next, Soomit Datta, New Street Research. Go ahead, please.

Soomit Datta – New Street Research

Hi there. Yes, it's Soomit Datta at New Street. A couple of questions, please. First of all, on the fixed business, the revenue declines on the way – on the old way you reported anyway, are down – I think the last couple of quarters down sort of 5.5%, 6%. I think it was slightly higher, actually, last quarter. I just wondered is this the new run rate you'd expect. I think, historically, you've guided to a level of nearer 4% declines. And I wondered whether the early phase of the IPTV launch has helped reduce line loss or how that has gone? That's the first question.

And then secondly on Bangladesh, could you give any color around the infrastructure-sharing agreement and what implications that might have for CapEx and OpEx and profitability, et cetera? Thank you very much.

Jon Fredrik Baksaas

IPTV is still very early. So whether the potential for IPTV really can offset the existing downward pressure of around 4% to 5%, that's a too early question to address. But the attractiveness of IPTV, for at least the family segment, should be quite good really. So – and the VDSL capacity can be implemented in the network at a wider footprint than we have today. There should be a good potential to sort of start a revenue generation also on that technology.

Bangladesh, infrastructure-sharing, for Grameenphone, as such, being sort of the market leader with the most – the highest degree of developed network, we are more talking about the revenues on the rental side rather than sort of a strong effect on CapEx savings. There is a case there as well of course, but the major contribution should come from lease rental income.

Soomit Datta – New Street Research

And just a couple of follow-ups. Is it possible to try and quantify what the margin uplift might be in Grameenphone? And then secondly on the fixed business, so the 5.5% declines of Q1 year-over-year, is that the sort of a run rate we should think about for the full year? Thanks.

Jon Fredrik Baksaas

I think we will have to anticipate a rate of revenue pressure of around 5%. It's been fairly stable, I would say, remarkably stable. And at the same time, the Norwegian – the management in Norway has been able to work with the organization and its efficiency measure in such a way that we have been able to maintain margin, which is something that been done regularly for close to 10 years now in a row. So the performance is very, very strong, utilizing new technologies and bringing new efficiencies into the different processes.

But if you look at how communication develops in Norway, I think it's quite easy to understand that the fixed network and the mobile network will develop into sort of one network structure where the access side depends really on where the customer is at any point of time. And the customer will probably not ask for what kind of connectivity he works at, but he'd rather use the most optimal connectivity when available. So the longer-term picture here is that the market decides and in that sense, the split between fixed and mobile more and more blurred as we move forward.

And let me add just one more comment. Fourth quarter 2009 was the first quarter where mobile revenues exceeded fixed-line revenues in Norway. So at the beginning of this year, both technologies platforms were standing equally. Now, we see a stronger growth item – growth factor attached to mobile and the pressure factor on fixed is more or less the same.

Scott Engebrigtsen

Next question, please?

Operator

Next, James Britton, Nomura. Go ahead, please.

James Britton – Nomura

Thank you. I've got two questions, please. First of all, last year at the strategy presentation you specifically mentioned selective disposal of non-core assets as part of your M&A thinking. Is this still part of your thinking and we'll see evidence of Telenor actually selling any assets in the next few years?

And secondly, just a follow-up on the dividend question. When you talk about the range on the net income payout, are you going to strip out the large exceptional items from net income to avoid dividend volatility? So should we expect you to exclude the NOK6 billion gain from the VimpelCom transaction this year? Thank you.

Jon Fredrik Baksaas

On the divestment side, yes, you will see us – you might see us working on divestment cases. When, how and involving what, can, of course not be described. And on the dividend, Richard?

Richard Olav Aa

I think you have to look at our guiding on dividend, the 40% to 60%. Of course you have to evaluate the extraordinary P&L effects in that and you get it from a more normalized leverage.

James Britton – Nomura

Okay. Thank you.

Operator

Next, Jakob Bluestone, Merrill Lynch. Go ahead, please.

Jakob Bluestone – Merrill Lynch

Hi, there. Three questions please. Firstly, you mentioned in the presentation that the 1.6 times net debt-to-EBITDA was not a target, but obviously your leverage is quite low. So, I was wondering, could you maybe give us a sense of where do you currently think an appropriate level of leverage would be in the medium term?

Secondly, you've obviously talked quite a bit today about rethinking the distribution in India. I was wondering, are you looking at perhaps even working closer with one of the other operators in the market? And then finally, just a point of clarification, the reduction of CapEx in India, is this really just a matter of moving CapEx from 2010 to 2011, so basically, a delay rather than a cut? Thanks.

Richard Olav Aa

Yes, we can maybe start on your question about net debt-to-EBITDA. And like I said, it's not a target, it's a cap and we – as some of you may remember, we got a negative credit watch from S&P when we released our dividend proposal after the Board meeting approving the fourth quarter results. We have since then had meetings with S&P and explained them the strength in our balance sheet. They took us off the credit watch, but still maintained a negative outlook. And that means that there are different views from the credit agencies on some of our assets.

I would certainly say that crystallization of the VimpelCom value of NOK50 billion to NOK60 billion should help in our credit rating going forward. But again, I think the overall guideline is that we always must have the flexibility to refinance ourselves at attractive rates. And also as I said, in order to do that, we need to be below 1.6. If we start to get up to 1.6, we start approaching the investment-grade criteria and that's not the position a company like Telenor should at all aspire to be in. So I think we are quite comfortable with where we are now. But also – that's also why we are proposing to explore the opportunities in a share buyback program.

You want to take – ?

Jon Fredrik Baksaas

Yes, on structural issues for India, I think rumors will be plentiful. All players will talk to each other, everyone will probably try to smell and taste what others might have of priorities. So I think it's far too early to sort of address that. As for now when the bulk of the market is active in the 3G process, I don't think that much will happen really.

On the CapEx side in India, I think it's – both elements really, it's portion of delay, but it's also one portion of efficiencies achieved. And so there are a combination of delay here and improved conditions and improved ways of rolling out the network that has – that leads to these reductions in CapEx. And the profile of this going forward will then be tuned in with how the performance of the – and the readiness within each circles will move ahead.

Jakob Bluestone – Merrill Lynch

Very helpful. Thank you.

Operator

Next, Justine Dimovic, Exane BNP. Go ahead, please.

Justine Dimovic – Exane BNP

Thank you. Thank you very much. Very few questions on my side. First one is on Pakistan. I'm wondering if you can give us an update on your mobile banking services that have been launched in Q4 last year. I'm wondering have you started to see an impact on data ARPU yet or is it too early days? That's my first question.

The second one is about M&A, you are mentioning a disciplined and selective M&A strategy. If you can enlighten us as to what kind of return on capital employed you would be looking for? And whether we're talking about new markets or existing or local market consolidation? That would be my second question.

And then to finish, very briefly on Serbia, if you can explain whether the increase in subscriber acquisition cost is part of your own strategy to move upward the subscriber value moving to postpaid, sorry, or is it part as well of the competitive pressure increasing in the market? Thank you very much.

Jon Fredrik Baksaas

A number of questions there. easypaisa, mobile phone and mobile platform as a distribution channel for financial services. I have been a strong believer in that for many years really and in Pakistan, we are able to sort of address that value chain from a percept [ph] since we also are having an ownership into a small bank. So it's a promising startup.

Last evening at Al Jazeera, the television channel, we were really portrayed as a very promising new service with a high level of convenience for our customers doing national remittances. It's too early to sort of state the potential of this into the Group revenue streams or the profitability. But we maintain the idea of that being a promising extension on what the mobile distribution systems and the mobile phone can constitute.

As for structural – as for M&As in general, we are, for the time being, not considering sort of any new footprint. As such, we are concentrating the priorities that both me and Richard had on our panels this morning and these are basically a repetition from what we said on previous quarters. Serbia –

Richard Olav Aa

Just maybe add on the question on what kind of returns we are looking at, of course, that will vary from industry to industry and geography to geography that we are represented in. I mean, that has to be calibrated on the risk on the asset and the risk on the geography. It's not a universal answer to the activity in Telenor.

Jon Fredrik Baksaas

And then on Serbia, we felt that to be – to raise activity level a couple of notches in Serbia was okay in order to firmly develop our position. What hampers the development in Serbia is the exclusive additional tax on telecom services in general and we had the ability to address that to the President of Serbia when he visited Norway on his visit previous this week. And of course, it's a negative element in the macros of Serbia that such a one-sided tax is then deployed on telecom services as such. But we also understood that the government was working on alternative measures in that respect in such a way that the market could normalize to other markets.

Scott Engebrigtsen

Time allows us to have – hello? Time allows us to have only one more question, I'm afraid. Any unanswered questions maybe addressed to our Investor Relations department. And last question, please then?

Operator

Next, Maurice Patrick, Barclays Capital. Go ahead, please.

Maurice Patrick – Barclays Capital

Yes, Maurice from Barclays Capital. A couple of quick ones. On mobile data in the Nordic region, clearly that's been stimulating your revenue growth. Could you talk a bit about the impact on your network you are seeing from that? And perhaps, let us understand a bit of whether you are seeing any signs of data cannibalizing voice or SMS?

And the second point on share buybacks, you talk about an attractive shareholder remuneration policy. You have disappointed in the past perhaps in terms of the level of buybacks given you've had the mandate before. How should we interpret the message from you? Is it that you will use the buyback mandate to keep yourselves up to and just below the 1.6 times net debt-to-EBITDA on top of dividend? Is that how we should be thinking about it or are you thinking about attractive is maintaining a yield? Thanks.

Richard Olav Aa

The mobile usage of data applications does grow data volumes at high speed also in the domestic Norwegian network as in any network. Those capacities are more or less in place in the domestic Norway – domestic network in Norway as we gradually develop that capacity through the CapEx structures that we have entertained. And if this can be done in an evolutionary way, I think we can handle and work at that practice going forward as well.

Does it cannibalize SMS? We haven't necessarily seen that. SMS is popular, SMS is expanding basically into new applications and if I may draw a small ad here, the SMS platform will be extensively used during the European Song Contest in the Telenor Arena, which we are going to arrange here in Norway in late May. So I really hope that the SMS platform will play out well and handle that traffic volume. So, we are not seeing sort of the cannibalization element on that.

And as to the share buyback, I think I can – I think I have to say that we will not execute share buybacks with the ambition of reaching 1.6 on the debt-to-EBITDA ratio. But more seriously, you will see us do some buybacks when time and performance proves that relevant.

Maurice Patrick – Barclays Capital

Thank you.

Scott Engebrigtsen

Okay. And that concludes the session here this morning. Thank you all for participating.

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