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Executives

Scott Engebrigtsen - Communication Manager

Jon Fredrik Baksaas - President, CEO

Richard Olav Aa - EVP and CFO

Analysts

Arild Nysaether - Fondsfinans

Espen Torgersen - Carnegie

Andy Parnis - UBS

Peter Nielsen - Cheuvreux

Ulrich Rathe - Jefferies

Barry Zeitoune - Berenberg

David Wright - Deutsche Bank

Nick Delfas - Morgan Stanley

James Britton - Nomura

Maurice Patrick - Barclays Capital

Kevin Yates - RBS

Justine Dimovic - Exane BNP Paribas

Stefan Gauffin - Nordea

Thomas Heath - Ohman Fondkommission

Telenor ASA (OTCPK:TELNY) Q1 2011 Earnings Call May 4, 2011 ET

Scott Engebrigtsen

Good morning, ladies and gentlemen and welcome to the presentation of Telenor’s Results for the First Quarter of 2011. Whether, you are present here at our headquarters, with me on the phone or watching this via webcast or on the mobile video. I’m Scott Engebrigtsen and I have the pleasure of taking you through the presentation this morning. And we hope that everyone has the material that we’ve made available for you, that is our press release, the quarterly report and a copy of the presentation to be used here any minute. And you can also find the material on our website at telenor.com.

You can watch this presentation live or in recording on either the internet or on the mobile phone. And during the live presentation, you can also send in your written questions via the internet and you can find instructions on these alternatives from our website.

As usual, we will have a Q&A session directly after the presentation here. And we will start off with the audience present here at phone then we will continue with the ones participating on the phone. And finally, you will have the opportunity to do individual interviews.

And to present the figures today, we have our CEO, Jon Fredrik Baksaas and our CFO, Richard O. And first, I’ll leave the floor to Mr. Baksaas.

Jon Fredrik Baksaas

Thank you, Scott and good morning to all of you. Snow has left this country. Spring is coming. Here are the figures for the first quarter of the Telenor Group. We have started this year by confirming a very good momentum that we had in the second half of last year. There is an organic growth factor of 7% for the group in this quarter and this stands inline with what we had both for third and fourth quarter last year. This growth is primarily driven by the Asian operations, but I will come back to this later.

The consolidated operations in the Telenor Group added as much as 9 million subscribers this quarter. And this is mostly sort of the figure of the standards way back. This has been driven of course by 5 million new subscribers in India alone. But also in Bangladesh, Thailand and Pakistan, we have been able to connect many new subscribers this quarter. Combined with this, we have generated a cash flow of solid NOK 5 billion and this happens in parallel with Greenfield Investments in India as well as the ongoing network modernizations and network shops that are ongoing in particular in Scandinavian countries, but also in Central and Eastern Europe. And to do this in combination, we consider this as a strong feature that we can generate the healthy cash flows despite the initiatives both in India as well as on the network side. This required a bit more than averagely, previous quarters. Based on the results that we bring forward for this quarter, we maintain our financial guidance for 2011 virtually and the retractable come back to that a bit later.

If we then move on to the different regions of the Telenor Group, I’ll start in Scandinavia, there is unstable mobile voice usage in the countries throughout this quarter. This question has been raised in the industry after the KPN released their figures. And at the same time, as the voice revenue, the voice usage is standing pretty stable, the data growth continues. We have the same momentum on growth for data in this quarter as it had before in the mobile networks. There is however, a very clear price pressure, in particular, in Norway and Denmark. In Norway, the competition is driven by asymmetrical and mobile termination rates. And as such, the third operator, third and fourth operator in this country have an advantage in their figures for the time being from this asymmetric, which is suggested by the regulator to reach symmetry in mid 2012.

The final discussion from an industry on this is expected in second quarter of this year. Both in Norway and Denmark, we have introduced new service offering as a consequence of this competitive situation. And there are new price plans which we expect will strengthen our market position in these markets, so that the Telenor operations can regain the momentum that we have had over the last years in these two areas. Simultaneously, we are removing the hands and subsidies in Denmark. And we do that because of the short period of contract that is allowed in Denmark six month which we now see has sort of lost its impact over the years the rate have been practiced. To mitigate the price pressure and the labor on the operational expense side, we need them to further work on the cost structures and take these into more efficiency levels in all the Norway countries going forward. This is an industry with great sensations and changes and also run mobile data losing and the converse are much more important service, the same is about to happen changes and relation both because of market condition and technology development. And there are many important areas in this manner that can be worked, network modernization program that’s we are in the need for example, will significantly reduce our further network operating costs and these are on track and will be finalized during the end of the year.

There are also other initiatives required both related to IT and the work processes in general. And we have done this for sort of many years and almost decade in the telecom industry before and this work has been continued. Then, if we move to Central and Eastern Europe, the picture is bit more buried, we started he year by confirming a very strong, we started the year in Serbia by confirming a very strong quarter from the Serbian operation. There is an 18% organic growth in Serbia this quarter, it’s probably one of the strongest figure we had. And this is coming from strong rate of 9% which is linked with the fact that was introduced last year was taken away again began with this year. And this has had a positive effect on consumption and this combined with 6% subscriber growth has driven the organic growth up to 18% all together. In addition to this our operation excellence initiatives are also driving cost and operating expenses down and this certainly resulted in a 4% modern increase to up the EBITDA figure. So, there are reasons to congratulate the Telenor management in Serbia on this achievement. In Hungary though the underlying trend is the not the same as it’s in Serbia, but it’s I guess, stable from what has been for previous quarters. We do expect those somewhat improved consumer spending in 2011.

But, despite this challenging topline growth situation in Hungary we are delivering on the margin, although there is a 6% drag coming from the countries specific tax on TELCOs and this tax mechanism has done also, will be challenged by within the US system. We have now introduced the mobile internet service, Click also in Hungary and we did so in Serbia in the fourth quarter and it’s been a great success to see how small phones and the quick mechanism based on the Opera Mini can be so (inaudible) and the usage on mobile internet access.

We are, we consider ourselves to be ahead on the metric mobilization program both in Hungary and Serbia and these will go on in 2011.

So, let’s move to intercom, the reported result for 2004, the fourth quarter, sorry the fourth quarter in 2010, shows that there is a still a need for operational focus and look up the operation performance in particularly in Russia.

Including the final dividend that was recently declared, the Telenor Group will all together receive NOK 2.3 billion or $400,000 US in dividends from the Intercom Limited for the operating year 2010. And this payout is inline with the dividend policy which cleared 50% plus of the payout of free cash both from Russia and Ukraine. The recession of telecom was completed by 15th of April and after the approval of the special shareholders meeting addressing the issue, which took place 17th of March. As you know Telenor voted against transaction, so, did the also the set of minority investors, however the preference shares of optimal took these to the general assembly. Going forward, Telenor Group will of course support and push forward for improved performance in Intercom Group and in parallel with this we will continue the arbitration process that we have initiated. Where, it is our aim to protect the shareholder rights that we have under the shareholder agreement and as such maintain the position as we have before the deal was announced.

We then move to another part of the world and let me start with India. Most of the questions related to this quarter reporting will probably be certainly around the regulatory situation in India, but there is also a operating development that we should focus up. Uninor in India continued the good trend from second half of 2010, we have consistently paid significant shareholder subscriber growth in the Indian market in this period. In Q1 alone, we reached the subscriber growth figure of 5.2 million reaching Southern point 4 million customers according to the Telenor way of helping customers you know there is a different layer on what is going and what is being report through the Telecom Regulatory in India. I mean on that counting we have 22.8 towards the end of this quarter.

Uninor is constantly working on improving operational efficiency and it institution throughout the value chain and the most important part of this is this saves an acquisition cost and we cannot say that we have reached an ultimate and sustainable overtime cost level on all these processes. So, our aim to establish what is called ultra low cost operator, these work will continue. The investigations of the 2G license award process, that took place early 2008 prior to the Telenor entry to Uninor was actually ongoing and speculations were on high on several aspects of that process and the consequences of it. We are in the need for this we are describing and advocating the Telenor profession and make our view points visible in the Indian environment.

And of course, we are welcoming an early clearance of this regulatory field which is so vital important both for us, for the rest of the operators in India as well as for invertors in the Telenor Group.

Lastly let me say some words on the strong performance while we establish Asian operation. There is a very strong and great momentum in all the four countries. The operations have combined an organic growth factor of 13% which is inline, I think, with the two previous quarters in the Telenor Group. And it’s very interesting to see that these growth maintains itself also into 2011. Both DiGi and DTAC reported their Q1 results last week and Remington earlier this week. So, these facts are in the market already. But it has to said that there is a very strong performance by all the four operations and have given visible results very strong, efficiency initiatives as well as good effect on how we go to the market for the time being.

In Bangladesh, that impact, the subsidies are deflating the model. But that has of course, then led to 2 million subscriber growth before the quarter alone which is one of the stronger customer growth figures that we’ve had from Bangladesh most recently.

And Grameenphone maintained its market position as a consequence. Also the operations in Pakistan is continuing, it’s excellent progress from earlier quarters, withstanding the margin and has generated cash flows in this period. And, we expect the improvements to come also from China and Pakistan going forward. And of course, this is also necessary in order to also withstand the investment that has been done in the country. Altogether, we have now 106 million customers in our five Asian operations.

Let me then conclude by looking a bit ahead to some result it’s been a good start of the year for the Telenor Group and especially with regards to the topline growth. And there are, as before a lot of things that we should focus that on from an operating perspective, both short term and long term. And to mention a few of them, to mention there’s a efficient from voice to data, where capacities and capabilities of the mobile networks are building data access capacities quite expensively in all the markets.

And more specifically, to become an alternate cost operator in India, that’s what we take in order to work over our ambitions of a breakeven figures towards the end of 2012. And the operating focus in VimpelCom is very much needed both because we’ve seen VimpelCom slide their market position in Russia, but also because of the fact that the new group is now much more leveraged than what it has been before.

And then sort of as a general comment, as we maintain and speed off the cost efficiency impact over the year across the border other all our operation is what we are focused on. Altogether, we are maintaining our guidance for 2011, and we believe that we’ve had a good start when we look at the growth figures that we reported for this quarter in particular.

And with those words, I will leave the floor to Richard who will take us through the financials in a deeper fashion as well as give his comments to the guidance. Thank you.

Richard Olav Aa

Thank you, Fredrick. I would just take you somewhat into more detail into the numbers, but let me just take the quarter into perspective seeing from our financial point of view. It’s a solid result this quarter. It has more special effects on our financial side and we will maintain our guidance for 2011. So, that’s the context you should listen to this presentation.

Apart from what’s already been covered on the growth side. We see that EBITDA margin is up 31% which is inline with our guidance and we have a stable operating cash flow despite that we still continue to have significant negative cash flow in India and that’s our basically normal then I think all the networks in Telenor Group. So, based on that they were also able to reduce the net debt about for NOK 1 billion and I will come back to hold that reconcile. Let me just then start with the revenues. And we see that we have improved our revenues with about NOK 1.8 billion first quarter of this year compared to first quarter last year.

We have one different unit that has slight decline in revenue and that is in Norway. And I think, I would like to take you a little bit more into detail on those numbers. There are really two drivers to hand it on the mobile side, it’s interconnect rates have gone down due to regulation and also roaming prices have gone down. That is the main drivers explaining the drop in the mobile revenue. It’s important to note, like also for Asia that the underlying mobile revenues on the traffic side, they are stable. They’re being able to compensate price reductions with other networks not at least growth in the based on the mobile side.

On the fixed side, the decline in the subscriber base continues with a negotiation from fixed line to mobile, with also in this quarter, we have the price effect on the fixed side especially towards the business segment where we have reduced prices to meet increase competition and not at least from the IT.

Then Sweden has a strong year performance, Sweden is, the country in Western Europe, now that’s the highest growth also we have a currency effects there and strong start of the year in Sweden. Then in Thailand, we have the strongest revenue growth in the group this quarter and to us other than 2 million customers year-on-year and also been able to have a rather stable R2 development at the same time. And also the positive currency effect behind those numbers.

We also see that DiGi is contributing very good this quarter also did in 2010. I think more than a million customers from last year to this year and also shared a stable. Then Uninor now starts to show significance on the top negative numbers in Telenor, we have increased number of subscribers by 15 million year-on-year, although it’s also on the 2 million in first quarter last year and it now contributes to with an improved revenue of almost half a billion.

Then in Bangladesh, we have added in this period 8 million customers, although now we are reaching out to more rural area. So, in overall ARPU customers that also have a high subsidies, so the overall revenue impact is not impacted, but they are adding subscribers for future valuation.

And on the rest of the group, we have the strong performance in many countries, but not stacking up to the big numbers, but so our best should be a special (inaudible). So, that explains NOK 1.8 billion revenue growth. Then on the EBITDA, we have improved the EBITDA by approximately NOK 200 million mark year-on-year. There we have a three units or three explanations going in the negative direction that’s now about 200 million.

On the mobile side, you should look at, like I said, overall underlying traffic revenues on subscribers are fairly stable. So, the big effects on this top is really coming on the fixed side that we continue to have subscribers going from fixed to mobile and also some price pressure and some adjustments on prices by that.

In Hungary two big effects on this numbers, is Telco touch that contributes a little bit more 50%, although there are 421. And then, it’s also the drop in the Hungarian currency.

Then, we sold those in EBD from accounting perspective by the merger, we did last year then we don’t consolidate EBD anymore. So that has a negative EBITDA effect.

And then we see that especially with Thailand and Malaysia is contributing to an overall EBITDA growth coming from the stronger revenue growth and also that we are able to keep cost on a control in this growth environment which is good. And in Pakistan like Fredrick mentioned has a very strong quarter able to increase the ARPU and the keep the costs quite well on check. So, almost 100 million coming in from Pakistan, that’s the main explanations on EBITDA. Then it comes to the CapEx we have also a very low CapEx in this quarter 10%, 2.4 billion which is inline with first quarter last year, but as a percent of revenue it’s 10% compared to 11% last year because we have a higher revenue base.

And this is quite low given the fact that we are stopping basically all the networks, we are guiding at 12% to 13%, but we’re expecting this increase the rest of the year, but we have stopped at the year, maybe some of lower and also expect those up.

And we really seen all the prices are coming further and further down and it will be interesting to see how CapEx efficient Telenor can get in the years ahead.

Then I said this yet, CapEx also basically stable at 2.4 billion, we see that more which is now middle of the network, they have increased CapEx by 272 million and then all 53% as we see over the network in Norway. And the project is going on schedule and is expected to be finalized by the end of the year.

Then on India, we see a lower CapEx of close to 400 million, we’re basically only doing now in field CapEx in India in the areas, that we are already operating therefore for the growth in the voice, we’re not expanding internet new circles, and wee are also keeping the CapEx to the areas we already established in the circles.

And then we have a slight increase on all the CapEx and that also comes from the network mobilization. That takes us to the cash flow which stands up close to 5 billion, which is slightly higher than same period last year. And the explanation for this change in CapEx can really be seen here on the right side and that’s really just to some of the previous explanation on EBITDA and CapEx side, I don’t think I need to take you into details there because it’s really the same trends that the facts always taking a toll on the CapEx, while that is being recovered by strong unit performance in the Asian units. And we really see now that, therefore established station operation, they’re contributing a lot more to the cash flow inside Uninor than the Norwich in this quarter. Low CapEx and hard revenue growth and give you the table.

Then reconciling the, also the net income, which stands at 2.8 billion this quarter compared to last year, we already explained the revenues and the EBITDA, like I said, initially we had very few special items this quarter and (inaudible) 44 million then on the associated companies, we have a profit of 1.1 billion and that compares to 93 minus million last year and the recent being that we did not (inaudible) first quarter last, but this quarter we get the normal effect by taking in four quarters also over VimpelCom. Then on the next financials, we have hedging office in our investments in India first quarter last year. We don’t have any special effects adopt this quarter although we have some more technical financial cost due to IFRS. But, I would say overall the net financials are on the normal. We have higher taxes due to higher profits but also the underlined, all the tax rate this quarter is very close 2009 tax rate, is it maybe a little bit higher. So that we end up net income 2.8 billion in the quarter in our earnings per share of although 1.71.

Then on the debt side that we started the year with the net debt of 19.3 billion, and the first quarter by net debt of 15.1 a reduction of little bit on 4 billion. That comes from the EBITDA of 7.4, like I said normal interest 300 million, normal taxes will slightly higher than tax is 1.5, also paid CapEx a little higher than accretive CapEx 2.9, payroll dividends (inaudible) in Malaysia. We receive by further excess about 500 million dividends from VimpelCom this quarter and then we have the special effect that the revenue share, which is the significant cost base in Thailand, it was good during the first three quarters and paid in the fourth quarter so that contributes possibility to the cash flow and then reduces that by about 700 million. And then, we have some currency effect and some improvement in working capital, that takes the next change the 4.2 billion.

And like you see we have now net debt EBITDA of ratio 0.5, which is very low, we will have about NOK 9 billion going out of Telenor in the second quarter both as dividend payments, as a one time dividend and also the payment or just addition of the shares that will be done within the region government.

I would also like to say that we have an intention, like we said on the fourth quarter we have an intention this year, total competitive shareholder in relation and that’s why we have also the HM of Telenor to approve share buyback authorization to the board for us to 5% for the shares. So that will be decided later in the second quarter.

I will now go - not go in detail to this slide but just, its just a visualization of what’s really going on in Telenor space this is probably about the main strategic programs - is over the main strategic programs in Telenor that we are really sorting out the networks in all our operations, Pakistan is more fair but that is slightly to be good on a - and we see the effects from the network it require the new base station, it is quite a less space, less than (inaudible) and it costs a lot less than before and it’s over more than an ready for the future that requires on service offering. And what - like I said what this will do to our CapEx level going forward, I think we’ll go more into detail on the capital market stake later this year.

Then also very important item for the top management and the entire Telenor organization is really to make sure that the need for operations experience so far - like I said about last year on the capital market space, we should reach a 35% operative sale in 2013. We started measuring this 2009, where we were 39%, the revolving 12 months now are 37% so we are on the right, but this is a challenge to reach to 35%, below 35% and we have working hard on both like I said that I’m on networks but also looking at downsizing and outsourcing. And then on the retail side we have quite significant (inaudible) customer service and distribution which we need to just (inaudible) on optimizing and like Fredrik said also a county news first on the improvement business processes. On the CapEx to say as we’re already down to the 10% and like I said on the pricing side, and will see happening in that market, I think that one is already well within reach.

Then just ending on the guidance, and let me start with India, we had the first quarter EBITDA loss in India about 1 billion and regarding around 4 billion for the year. The underlying loss in first quarter is somewhat higher than one million that’s because we have our record for energy expenses last year that we could release now when we have the reconsolidate, so that number is underlying somewhat higher, which point in there should be some improvement in the EBITDA per quarter going forward underlying. But like Fredrick said, it cost a lot of money in India to acquire customers and release to get the customer acquisition cost and other cost in our Uninor operation to be common - for a local operator it’s the main priority on the operational side in India now.

Our CapEx stands at about 300 million in the first quarter, like I said in sale CapEx the (inaudible) and that’s basically the 1 to 1.5 billion regarding as well is really (inaudible) is for.

Then going up to the total numbers and like I started the presentation, also Fredrick alluded, we are pointing to a very solid strong year for Telenor in 2011 as well, revenue growth above 5% first quarter was at 6.7 and EBITDA margin of about 31% and CapEx to stay in a range of 12% to 13%. Thank you.

Scott Engebrigtsen

Thank you (Richard). We are now ready to take your questions. And we will start with the audience present and please switch for a microphone and also please introduce yourself. I have one question and kind of (inaudible) especially participating on the phone to limit your number of questions to one and if necessary one follow up question. Okay, thank you and we’ll start to run with the audience present here, if there are any questions.

We have one here please.

Unidentified Analyst

Hi, (inaudible) you said you have to do a comprehensive cost reduction in the Nordic regions, what does that mean when it comes to the number of employees in Norway, for example?

Scott Engebrigtsen

I’ve known you for 10 years and then you know more than that and that means you know that in the development of Telenor as well. Technology is moving, the tension is strengthening, technology is driving in the industry from a personal intensive activity back 10 years loss to more and more this up and then new technologies taking care of capacities in the network, differently from what (inaudible) for. So the number fulltime employees in this valuation has been regularly reduced from year-to-year and that development will probably continue, to raise numbers on that is not for my doing today.

Unidentified Company Representative

And we have a question here, Arild Nysaether please.

Arild Nysaether - Fondsfinans

Hi, Arild Nysaether, Fondsfinans. Could you comment a little bit more on the operational trends in India? You see the ARPU seems to be a little down from Q4, I haven’t seen it in local currency so there could be some currency but it seems at least a little bit down. But at the same time minutes of use is sharply up, about 20% or so, so that should imply that price per minute is down something like 20% or 25% since Q4. So can you comment on what’s happening on your pricing strategy in the market in India?

Jon Fredrik Baksaas

I can begin here, we can recognize, I think it’s under the second - it’s been done on remarkable global on how to make the service offering vision visible and reach a level where it stands out in a pretty fairly competitive field the way we have percentage outsource in the markets, and the response in this case where we see 5 million users - subscribers coming in is a result of this. The other side of this point that yes, really it has been used in all that to achieve that kind of growth together with the cruise factor that we have in the distribution I suppose Richard and I have mentioned the cost and the price tag, the sales and decision side of on customer, we need to go through a relation in such a way that we reach higher degree efficiency in that. But in this phase we were building present and customer base, we have seen this necessary to build this position where we are and in Indian Rupee, the rich (inaudible) is fairly stable from fourth quarter to first quarter, despite the fact that it has the significant to great factor in number of customers coming in. And you may fill in some (inaudible).

Richard Olav Aa

Yeah, more from the market side in India we see that this so called STV the special tariff motors are really have in use on the street level in India, where the actual price level in the market which is - really they pay separate section that the Docomo introduce on the (inaudible), but we give away a lot of free minutes in the special tariff vouchers that touch customers and if we and in the Indian market, it’s lot about the price when you want to require customer and we just have to be competitive.

Arild Nysaether

A follow-up, is this something you can hope to be able to raise the effective price again at some point? Is this more a campaign or do you think that your new price point is set effectively per minute?

Jon Fredrik Baksaas

Generally thinking, the price level in India has to the introduction of Tata Telecom introduced at the time and after we launched is that they more stable point environment than what’s the case briefly for reaching that day. And in the meantime they’ve had the 3G option process, so we don’t see sort of a ongoing sound with price pressures, but do we see the opposite, I think it has to say.

Scott Engebrigtsen

And we have a question from Espen Torgersen.

Espen Torgersen - Carnegie

Hi, it’s Espen Torgersen, Carnegie. Just a follow-up on India. If what you’re seeing now continues and the way I read you you’re going to be very aggressive in the following quarters in India, will this have any implications on your CapEx given the minutes of use growth correlated with the subscriber growth?

Jon Fredrik Baksaas

For India specifically, there is no. Because the key question here is whether we will get access to 6.2 million varying from 4.4 which was the initial delivery from the authorities under license, we are the opinion that the Uninor qualifies for 6.2 to the original set up for the license so that was more in 2008 and we advocate that, but as you know, there is a process going on, on how to set the framework for the telecom industry in India going forward and that was expected back in 2008 to happen in March 2011, so we are with overdue in that respect. And this clarity is highly needed and very far from our point of view the rest of the industry as well as from the industrial side.

Scott Engebrigtsen

Any further questions from the audience? No, it doesn’t look like that. We have time for one question. We think question from outside if I may from (inaudible) if someone makes the significant acquisition with that change your ambition to resume buyback later in the year.

Jon Fredrik Baksaas

That’s an excellent question. Our ambition is to give competitive shareholder remuneration. And we see that the Teleco industry in which we stand the benchmark being competitive as a higher and higher yield industry in the top market. Telenor has the higher growth profile than most of our European peers. So, we’re not aiming at being among the best shareholder remuneration. I think here ambition to be competitive. And NA acquisition has to be seen in that context. We have to be competitive on the shareholder remuneration part.

Scott Engebrigtsen

Thank you. We will then turn our attention to the question via the telephone. And I call on the conference house to open up for the first question please. Anyone on the phone.

Operator

Andy Parnis, go ahead please.

Andy Parnis - UBS

Hi there, Andy Parnis from UBS. Just one question on Norwegian fixed. It was obviously quite a bit weaker in Q1 than it was in Q4 and you said that was primarily due to price cuts in business. Shall we expect those to continue to come through the numbers now for the rest of 2011 or have you put in place steps to try and correct the weakness in fixed voice in Norway?

Richard Olav Aa

I think, we, like we said we’re remunerating the role guiding for the Telenor Group at 31%. We have done what we believe is very necessary price adjustments in the fixed business. But, we will continuously monitor how we position ourselves both in the fixed and mobile business as they are dynamic environment these days.

Jon Fredrik Baksaas

Generally speaking, we could say that they were probably now at 70:30, when it comes to voice minutes over the mobile networks compared to the fixed network. And I think it’s only five years ago, we were the other way around. So, I think it’s been quite a strong transition from fixed to mobile. And the way we use our mobile time on the convenience of it, obviously proves that that is the most handy voice instrument for our lower customers. And that we needed the fixed line to roll in this more and more as an active type of network, delivering goal bank capacity and be stronger on that part and on the backlog and on the voice retail. And the consequences of that has also to be taken into the year, the price structures in such a way that we can maintain the revenue streams from the usage pattern that is there in the same as we’ve done before when other, so this is our over the top, so to speak so, for us to use the pricing mechanism in a smart way to slowdown the reduction from the fixed line utilization.

Andy Parnis - UBS

Great, thank you.

Operator

Next, Peter Nielsen from Cheuvreux.

Peter Nielsen - Cheuvreux

Thank you, good morning. Just a question related to VimpelCom, Fredrik, and your comments on your intention of maintaining your position there. Are we to take that as at this stage you’re intention is still to exercise your pre-emptive rights in case they are granted to you by the arbitration court? And do you have any comments on your position, how you will view that in VimpelCom should the shareholder agreement cease to, or expire as Altimo has indicated recently? Thank you.

Jon Fredrik Baksaas

Here, you are racing in a way I had to take hypothetical questions of the quality what will we do. And first of all, I’ll tell you that we are now concentrating on feeding in our new forms and how that asset combination is going to be operated. And the third piece on operating factors as well as getting the culture to be set between the two arms that come together is priority number one. Priority number two from the Telenor perspective is to prepare a case under the arbitration. And when the result is ready, we will address the questions that you raised to in the sense Peter.

Peter Nielsen - Cheuvreux

Okay, thank you.

Scott Engebrigtsen

Next question please. Do we have another question from the phone?

Operator

Ulrich Rathe from Jefferies.

Ulrich Rathe - Jefferies

Thank you. Given you have organic revenue growth around 7% and you’re guiding for above 5%, the sort of hurdle is obviously lower than what you do at the moment. Is this more a safety margin or is there reason to expect a slowdown in revenue growth in the rest of the year in terms of the operational trends or the market trends that you expect? Thank you.

Jon Fredrik Baksaas

I think you still sort of expression of the fact that we had pretty strong growth factors in the second half of 2010. And when we reached the second half of 2011, the growth factor is obviously to be measured from a higher level. So, I think it’s more an expression of that than to say, that this is moving to a flattening phase. So, the way we have begun there, it solemnly builds in the case that we believed the Asian economies to road and the market profession of the companies are fairly stable, even some small pluses on the market share here and there. So from that perspective, we are able to take our fair share with a small plus behind in Asia. And that’s exactly what we want to do, also in the year, the rest of the year.

Richard Olav Aa

Just like all sorts of points, we’re not pointing just specific number, we’re saying above 5% not around 5%. And I don’t thin you will see a guiding an exact revenue figures or about.

Ulrich Rathe - Jefferies

Thank you.

Operator

Next, Barry Zeitoune from Berenberg. Go ahead please.

Barry Zeitoune - Berenberg

Hi, good morning, it’s Barry Zeitoune, Berenberg here. I’m going to labor the point on VimpelCom if that’s okay. One could argue that even with the shareholder agreement with Altimo the market did not give you any credit for influence over the asset. With the shareholder agreement not in place, why should the market assign any value for influence? And if you don’t have influence over VimpelCom, even if you’re able to exercise your pre-emptive rights would you be open to the possibility of divesting your stake? Thank you.

Jon Fredrik Baksaas

Can you repeat the last dimension of your comment?

Barry Zeitoune - Berenberg

Sure, the last dimension was simply that in the scenario why even should you expose your rights where you lack influence or lack the kind of influence that you would consider significant inside an asset? Would you open to the possibility of divesting your VimpelCom stake?

Jon Fredrik Baksaas

Fair enough. This is also in a right pointing to your scenario. So, what is and was then. As I said, I think we will concentrate on the two priorities that we have set one from an operating perspective of the new group and one from the Telenor perspective which has to deal with the arbitration process. Whether there is a development on the shareholder industry that we may see, if it comes with the sequent income?

Barry Zeitoune - Berenberg

But your partner has already stated that they intend to terminate the shareholder agreement so you can expect it to come reasonably, or at some point over the course of the next year. So in light of that I’m just wondering what your response would be?

Jon Fredrik Baksaas

Well, I think we have to see whether there are realities behind at the intention. So I answer diving to that question more than that.

Barry Zeitoune - Berenberg

Okay, thank you.

Operator

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

David Wright - Deutsche Bank

Yes, its David here, a couple of questions please. Are you still seeing some quite wide divergence on the performance in different circles in India? Are there any circles that are in particular outperforming, for instance, that blended ARPU you’re showing, or any circles that continue to under perform? And just beyond that, some very interesting comments from you on CapEx and in particular, equipment pricing, does it continue to surprise you the rate of decline of equipment pricing or is it inline with your expectations now? Thank you.

Jon Fredrik Baksaas

Well, having Ericsson in the room here, as I can see, probably some others as well I doubt whether I should sort of compare through the bottom of that question. But yes, the competitive situation between the vendors in that area, have even in the operators diverged to the extent that network swaps the way we have executed them has, new price levels. And I’ll say, also that part of the technology continue faces where it becomes lighter and more efficient from both an energy point of view as well as from an handling point of view. So, that I guess is an expression on how the technology develops both within Ericsson and the light of other operators. Has it surprised us? Well, our entry to India gave us a new leverage that has been neutralized across the group and we’ve gained new price levels from vendors in all our operations coming from actual our step in India, because that gave us new leverage such. Being in India also has told the Telenor Group and the inter group that asset sharing principles can bring forward new cost efficiencies that basically has to do with future improvements which were not considered part of the operative formula from here.

David Wright - Deutsche Bank

Interesting, and maybe a quick comment on the circle performance?

Richard Olav

Maybe you can, yes, there are variations. I think there are, as soon are not so big on the art side, where we really see the big variation is the ability to maintain a good subscriber goal, to high subscriber cost. That’s really our main focus now between and through the benchmark and transfer knowledge people on best practices is really helped to prevent the higher rush around and get the recognition cost down.

David Wright - Deutsche Bank

Okay, very interesting, thank you.

Operator

Next Nick Delfas, Morgan Stanley. Go ahead please.

Nick Delfas - Morgan Stanley

Yes, thanks very much. It’s also about India. I just wanted to challenge you on the INR155b, it seems clear that towards the end of this year you’re going to need to decide whether to increase that cash funding figure, given the fact that you’re paying away maybe 50% of revenues currently to tower companies and maybe another 30% to other operators because of a low level of on-net calling. So really I just wanted to get your perspective on your attitude to changing that figure, whether it’s cast in stone or whether you’d be open to increasing the investment? And also whether you’d be willing to give some more figures on the activity rates of your customers, how many of those are actually live on any one 24-hour period? What percentage of calls are actually on-net versus off-net and therefore what your gross margin looks like. Thank very much.

Jon Fredrik Baksaas

Well, I think we approaching a bit of settled details here that might not be fully met by Richard is going to answer this question.

Richard Olav

No, I think it will stop on the big picture the 155 billion, like you said that’s multi rate and witness. That’s the writing we have understand, where it looked down guided us in cash flow this is more or less in line with 155 figure, but we also see that we need to take on the costs further especially at further general level of the costs in India in order to reach $155 billion, and that’s what we are really working and what is behind the statement on credits line this is the alternate cost project, so that is key goal is to create the momentum going into 2000 sell that points to all EBITDA, base event or band of there all 2012, that’s in line is rewarding so they also can maintain the $155 billion.

Nick Delfas - Morgan Stanley

That’s very clear, I just wanted to double check then, so if for any reason the INR155b couldn’t be reached you’d have to look at a divestment or some other solution to the problem I suppose, because otherwise one needs a lot more detail to be able to assess the chances of actually reaching cash flow breakeven.

Richard Olav Aa

When it comes to your question, on activity levels and so on I think it’s not the right from to go in detail on that. But, I would just like to say that on-net is, of course, a vital feature in our service offering in India due to the higher termination rates, it’s in India.

Nick Delfas - Morgan Stanley

Okay, Thanks very much.

Operator

Next James Britton, Nomura, go ahead please.

James Britton - Nomura

Thanks very much. The first question on the margin, the Group margin is down 1.5% year on year and obviously you’re guiding for slight improvement for the full year. So can you just comment on where you expect the margin improvements will flow through in the rest of the year or would you be willing to accept a slightly lower margin this year in order to drive the strong or better top line growth? That’s the first question. The second question, can you perhaps talk a bit about your appetite for M&A at the moment? Has management got enough on its plate with the challenges you’ve highlighted of the Indian rollout, the VimpelCom situation, the efficiency initiatives and monetizing data, or do you have that capacity now to manage another big acquisition? And then finally, quickly on Denmark, will the move to remove handset subsidies make you less competitive in this market or do you expect the other operators to follow?

Jon Fredrik Baksaas

Yeah, that was whole difficult question I’ll say. As to the margin part of your question, I’ll think we have a good sense of how the different operations are moving ahead in this year, of course to improve margins, if you take a look at Grameenphone, for example you have a sort of one of the outflows having a lower margin this quarter, because there is a significant customer acquisition activity going on with two million new subscribers, and if you compare that margin with what was there one year ago, where we only had, if I recall rightly between 600,000 and 700,000 new subscribers, there you have the areas, that lies directly with margin figures. And they are other examples as well across our operation so to be specific on that is not what we gone to be today, but knowing the size and the variations among the operations, questions on how the competitive situation will play into this throughout the year. Appetite for MNA well what one could wish and one could execute, there are probably possibilities coming out would we look at them, we would look at them if they are sort of in the vicinity of where we are from before and whether we can get financials to tie together, but we don’t have an acquisition type of a look in our eyes, when we’re looking into the telecom markets as such. The last one in Denmark will it makes us less competitive. Well, we surely don’t hope so, on the contrary we hope that it will make us more competitive, and we feel that the benefits of a six month lock-in period has reached a level where one could say goodbye to that kind of business model. And of course, it will have a consequence going forward, distribution will mean - we’ll still mean, will be very important to the competitive situation going forward, and I think we can handle that in Denmark with the strength that we have that we have in the Danish operation, knowing that Denmark is a very competitive market in Europe.

James Britton - Nomura

Thanks.

Operator

Next Maurice Patrick - Barclays Capital. Go ahead please.

Maurice Patrick - Barclays Capital

Yes, hi, it’s Maurice from Barclays. In the Nordic areas you seem to be going from a phase of high-end data growth towards increased low-end competition, especially in Norway and Denmark, MVNOs and the similarly and different drivers for these. You’ve re-priced your plans in both markets. Do you see this trend accelerating throughout the year and do you think is a temporary in the market dynamics or more of a fundamental shift in terms of the overall behavior of market, the markets? Thank you.

Jon Fredrik Baksaas

Yes, that was an interesting aspect of looking at it. Yes, of course, the high-end growth that we have experienced in the in the Scandinavian markets driven by the introduction of the iPhone a couple of years back, is shifting to and spreading into other customer segments. And we hope with the price revisions that we have done in Norway in particular that we can offer to you and high-end customers sustainable freight rates that are competitive in the marketplace as well as inviting of the customer segments to grow the usage along with the advantages of the mobile communication system can offer to them. So, yes, if we can establish a pricing structure where people on other segments are moving into the data field becoming users more regularly in the same way as the high-end has become then we have a sort of achieved to do the same of the data side as we did on voice telephony some years ago.

Maurice Patrick - Barclays Capital

Thank you.

Operator

Next Kevin Yates - RBS. Go ahead please.

Kevin Yates - RBS

Okay good morning, yes, Kevin Yates from RBS. I’ve just got a question on the wholesale businesses in Norway. There appears to be gross margin pressure, whether that’s through better prices to MVNOs or whether that’s through a mix effect on the wholesale revenues in the fixed-line business. I wonder if you could talk us through the dynamics of play there and how structural this is versus temporary. Thanks.

Richard Olav Aa

I think, yes, one of the effects you see on the wholesale is really the roaming, I don’t think that’s much changed on the pricing to them, in this quarter.

Kevin Yates - RBS

In terms of the fixed-line business and perhaps the mix going away from domestic to international traffic?

Richard Olav Aa

Yes, you have some effect on that, our Telenor Global Services, the international traffic side has a good growth and that obviously have a somewhat lower margin.

Kevin Yates - RBS

And this that aiming, are you thinking that’s going to be structural or just a temporary effect?

Richard Olav Aa

Like I said and also Fredrick said that the whole positioning on the fixed operation is continues work and also something we just have to doing a dynamic way going forward.

Kevin Yates - RBS

Okay, okay. Thanks.

Operator

Next Justin Dimovic, go ahead please.

Justine Dimovic - Exane BNP Paribas

Thank you very much. Justine Dimovic, Exane BNP Paribas. One quick follow-up. Last year you had one slide in your Q1 results presentation that stated your financial priorities. You touched upon attractive shareholder remuneration which was the number two. The other priorities were maintain a solid balance sheet with a net debt to EBITDA below 1.6 times and a disciplined and selective approach to M&A. Could you update us on these two other financial priorities and what we shall understand by a disciplined and selective M&A, if that still stands. Thank you very much.

Richard Olav

I think the priorities should also be stacked up, that really to maintain a solid balance sheet is the first priority. I think we are really fulfilling that, maybe somewhat over-fulfilling it by being down by 0.5, like I said, we will also aim this year of paying competitive shareholder remuneration. So, you should really look out for what we may do on the share buyback side. The dividend is up for approval on the AGM later this quarter. So, I think those saw the balance sheet it’s maybe somewhat on the strong side and then on remuneration like I said regarding for a competitive shareholder relation also this year. And then on the selective and discipline M&A, I think what we have said really would look out M&A in a careful way, that’s not total priority these days, like we answered earlier today, that we have many other things on our plate, but we have to look at opportunities that arises around the assets that we have and see what can be taken out of industrial synergies and bring the Telenor Group forward if anything comes up.

Justine Dimovic - Exane BNP Paribas

Right, thank you very much.

Operator

Next Stefan Gauffin - Nordea, go ahead please.

Stefan Gauffin - Nordea

Yes, hello, just a couple of questions. First of all there is a small dispute in India with your partner, Unitech regarding the financing situation. Can you give us some update on that? And secondly, can you just comment something, first of all you have made some price adjustments in Denmark, I know it’s quite recently but could you give any initial reactions on this change? Secondly, the removal of handset subsidies, what kind of effect does that have on the EBITDA margin in Denmark? Thank you.

Richard Olav Aa

Yeah, now on the Unitech side, Uninor has a need for a long term funding and with the regulatory controversies that are in India raising long term invest in India is impossible these days. Its also the fact of raising debt without recourse back to the Telenor is also challenging despite any operating environment and given that situation we have a shareholder agreement that’s really going south that the financing of the company should be balanced between the shareholders and we are now down on to the level where equity is needed as a no order, instrumental loan will take Uninor where it needs to be on the long term funding. Then there is what we say disagreement between the shareholders that Telenor really wants to follow the shareholder agreement and to obtain more equity while Unitech tries by various methods to stop, that fact we have under the shareholder agreement.

Scott Engebrigtsen

We have time for one more question, so, last question please.

Operator

Next, from Thomas Heath, Ohman, go ahead please.

Thomas Heath - Ohman Fondkommission

Thank you, Thomas Heath here. Two questions if I may, firstly just to follow up what you said about India and debt guarantees from Telenor, if you could just give us an update on what the current status is there in terms of how much is guaranteed, and I’m thinking specifically in a scenario where you might have to pay fines. And secondly, a question, again on India about CapEx, to what extent is this selective rollout and CapEx spending circle by circle linked to ongoing regulatory disputes, if you could elaborate on that? Thanks.

Richard Olav Aa

Yeah, I know, I think on debt side this you can just for look in our announce we disclosed what this is guaranteed via Telenor each quarter, so we don’t have to go into detail on that now when it comes to the CapEx we would really like to also have spectrum in some of the circles we have not got spectrum in like in Delhi, but until we wait for that spectrum and also spectrum actually it’s 0.2 megahertz we are operating on 4.4 where we bring out very significantly, but I also say that as a general note that when you don’t have spectrum and you don’t get money it’s kind of interesting to see exactly within an organization how much more capacity they can tweak out of the network. So, that’s gives some ground for optimism even in terms of reaching a very low cost proposition in India.

Thomas Heath - Ohman Fondkommission

Okay, thank you very much.

Scott Engebrigtsen

Okay, I think that concludes the Q&A session and I would like to thank you all for participating this morning. Thank you.

Richard Olav Aa

Thank you.

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