Norwegian telecom group Telenor reported a 6 percent fall in second-quarter core earnings on Tuesday, roughly in line with expectations following an ongoing dispute over its Kyivstar unit in Ukraine.
Telenor's shares tumbled 3.4 percent by 0900 GMT after the results, though the company affirmed its 2007 financial targets. Earnings from the Ukrainian operator were deconsolidated from the start of 2007 due to a battle for control with Russian co-owners Alfa Group.
Earnings before interest, tax, depreciation and amortisation (EBITDA) at the Nordic region's No 2 phone group fell to 7.32 billion crowns ($1.28 billion) in the three months to the end of June from 7.81 billion in the same quarter a year earlier.
The result was a fraction below the average forecast of 7.37 billion crowns in a Reuters poll of 14 analysts whose estimates ranged from 7.0 billion to 7.63 billion crowns. Analyst Espen Torgersen at Carnegie said the overall impression was somewhat disappointing. "There are several questions the market was expecting an answer to, which remain unanswered," he said, mentioning uncertainties about the competitive development and average revenues per subscriber.
"The trends from the first quarter have continued, with high underlying revenue growth and stable EBITDA margin," Chief Executive Jon Fredrik Baksaas said in a statement.
Consolidated mobile operations added more than five million subscribers during the second quarter, Telenor said. Mobile telephony is the main growth driver for Telenor, which has mobile operations in 13 countries in Europe and Asia. "In Asia, the impressive development in (Malaysian operator) DiGi and Telenor Pakistan continues," Baksaas said.
Malaysia's DiGi added 241,000 subscribers to move above 6.0 million, Telenor Pakistan had net additions of 1.6 million subscribers and Thailand's DTAC added more than 1 million subscribes in the second quarter, the company said. But Telenor said a new regulatory framework was changing the Thailand market, reducing average prices and partly offsetting revenue growth from subscriber growth and interconnection fees.
In Bangladesh, subscribers increased by 1.9 million in the second quarter. But Telenor said political instability in Bangladesh was hurting the business climate. "We expect this to continue in the near-term," Chief Financial Officer Trond Westlie told a news conference.
He said he expected the Bangladeshi mobile sector - which now has six players and where Telenor's GrameenPhone has roughly a 60 percent market share - to consolidate. Telenor repeated its main 2007 financial targets for revenue growth of 3-5 percent, an EBITDA margin of around 32 percent and capital expenditure equal to about 20 percent of revenues.
An ongoing conflict over Kyivstar with Alfa Group led Telenor in March to reconsolidate its results and cut its 2007 earnings and revenue forecasts. "The situation in Kyivstar, as described in Telenor's annual report, has continued in the second quarter," the company said, adding that a court injunction still prevented Kyivstar's management from providing financial information.
But Telenor said proforma revenue growth, including Kyivstar estimates, was estimated to be 19 percent in the second quarter, in line with the first quarter and against 5 percent growth for Telenor excluding Kyivstar.
Telenor executives said they did not expect reconsolidation of the Kyivstar figures any time soon. "Gradually, Kyivstar might come in as an associated company," Westli said.
By 0901 GMT, Telenor shared traded down 4 crowns at 113.75 crowns, valuing the company - 54 percent owned by the Norwegian government - at around $33.4 billion. Telenor trades at 15.4 times forecast 2008 earnings, more than the 13.6 times of Swedish rival TeliaSonera and 13.4 times of Britain's BT Group.