TeliaSonera AB (TLSNF.PK) announced full year and fourth quarter 2011 results (pdf) on February 2. The results were fairly good, especially so when the overall economic backdrop in the European Union is considered. Here are some of the highlights from the fourth quarter:
- Net sales in local currencies and excluding acquisitions increased by 2.1%. In reported currency (the Swedish krona), net sales increased by 1.0%.
- The addressable cost base in local currencies and excluding acquisitions decreased by 4.6%. The addressable cost base decreased by 5.8% in reported currency.
- EBITDA increased by 3.2% in local currencies and excluding acquisitions. In reported currency, EBITDA increased by 2.1% and the EBITDA margin increased to 33.9%.
- Operating income fell by 5.6%.
- Net income and EPS fell by 6.3%.
- Free cash flow fell by 70%. This decrease is due to an increase in CapEx and the fact that TeliaSonera received no dividends from Turkcell (TKC) during the quarter.
- The company grew its subscriber base, adding 2.4 million subscribers during the fourth quarter. This brings the total subscriber count to 170.0 million.
The full year results were acceptable, but nothing spectacular. Here are the highlights:
- Net sales in local currencies and excluding acquisitions increased by 2.6%. However, net sales fell in the reported currency by 2.5%. This difference is caused by currency fluctuations.
- Net income and earnings per share decreased by 13.7%.
- Free cash flow fell by 25.4%. This decrease in free cash flow was primarily caused by a large increase in CapEx combined with lower dividends from Turkcell.
- TeliaSonera increased its dividend to SEK 2.85 per share. This represents a 3.6% increase over the previous level of SEK 2.75 per share. This gives the company a dividend payout ratio of 68%.
Overall, the company's results were worse than last year's. With the exception of fourth quarter EBITDA, every measure of profitability was down despite rising sales. There are some promising signs here though that should not be ignored.
Steven Dotsch published an article on Seeking Alpha last week discussing how European Union lawmakers are proposing to limit mobile roaming fees for customers that are travelling to European Union countries that are not their own. TeliaSonera actually made this change back in May 2011 as a part of the launch of their new brand identity. This change was not implemented due to any regulatory pressure, but it was intended to give the company a competitive advantage.
This does have the effect of lowering the company's revenue from roaming fees, particularly in the short term. Management's expectation is that increased usage due to the customers' greater ability to control their costs will make up for the short-term decrease in roaming fees. This conviction is backed up by evidence as volumes have doubled since this change was implemented. This could also attract customers that are likely to need the lower costs for roaming away from competitors. This will increase TeliaSonera's paying subscriber base.
In a previous article, I discussed the growth opportunities that TeliaSonera has in Kazakhstan. This is still the case as TeliaSonera maintains its agreement to increase its position in Kcell. Kcell is one of the three licensed mobile telecommunications operators in the emerging Asian market of Kazakhstan. By increasing its ownership stake, TeliaSonera will increase its exposure to both the risks and the growth of this market. This remains an excellent opportunity for the company.
TeliaSonera's Spanish subsidiary, Yoigo, saw revenue growth during the fourth quarter and the Spanish market proved to be a growth center for the company during 2011. Contrast this with Telefonica (TEF) which has been adversely affected by the poor economic conditions in that country. TeliaSonera bucked the trend and managed to grow their business in Spain.
There were also a few other positive signs. TeliaSonera's Nepalese subsidiary, Ncell, grew to become the largest mobile operator in that Asian market. Additionally, TeliaSonera began offering 3G services in the Asian nation of Azerbaijan in November. This could lead to greater profits from that country as Azercell, TeliaSonera's Azerbaijani subsidiary, can begin selling high margin mobile data connections and phone plans. This rollout completed TeliaSonera's goal to offer 3G or faster mobile data connections in all of their Eurasian markets. This should further TeliaSonera's ability to grow their profits by selling services to increasingly data-hungry customers who are buying increasingly popular smartphones.
Disclosure: I am long TEF.