Tele2 dragged into the red in Q3 by Netherlands impairment

Allison Kirkby, president and CEO of Tele2
Tele2 CEO Allison Kirkby was pleased by third quarter mobile service revenue trends

Tele2 blamed a goodwill payment in the Netherlands for a heavy drop in third-quarter net income, but stood by its full-year earnings forecasts after growing revenues during the period.

The SEK2.5 billion (€257 million/$280 million) impairment in the Netherlands dragged Tele2 to a net loss of SEK2.2 billion in the third quarter of 2016, compared to a profit of SEK397 million in the same period of 2015. EBITDA in the recent quarter fell 2 per cent year-on-year to SEK1.5 billion. Net sales increased 3 per cent to SEK6.9 billion, of which mobile end-user revenues accounted for SEK3.6 billion -- a 6 per cent increase year-on-year.

Tele2 president and CEO Allison Kirkby expressed satisfaction with the “excellent mobile contribution in all our major markets.” Moving forward, Tele2 will continue to focus “on offering the best wireless technologies with a challenger cost structure,” Kirkby said.

Jefferies analysts described Tele2’s third-quarter revenue as “solid”, noting in an emailed statement that the operator delivered “underlying EBITDA 15 per cent ahead of consensus,” excluding unpredicted positive one-offs in the Netherlands and Germany.

A breakdown of EBITDA reveals that Kazakhstan generated the greatest gains -- up 172 per cent year-on-year at SEK79 million -- while the Netherlands was the biggest loser, with the figure falling 102 per cent to a loss of SEK2 million. EBITDA also fell in Croatia and Austria during the third quarter.

Net sales grew in all markets except Austria and Germany during the quarter, with Kazakhstan again leading the way. Sales in the market grew 88 per cent year-on-year to SEK573 million. Sweden remained Tele2’s largest market in terms of net sales, despite the figure of SEK3 million remaining flat compared to the same quarter of 2015.

Kirkby said Tele2 made good progress in terms of integrating its Kazakh business with Kazakhtelecom (which operates as Altel) during the quarter. “Mobile end-user service revenue grew strongly by 20 per cent, like for like, as a result of an increased customer base,” she explained.

Tele2 reiterated its full-year financial forecasts, namely: mid-single digit growth in mobile end-user service revenue; net sales of between SEK26 billion and SEK27 billion; EBITDA between SEK4.6 billion and SEK5 billion; and CAPEX between SEK3.7 billion and SEK4.1 billion.

Jefferies noted that consensus figures for full year mobile end-user service revenues point to a 2.4 per cent annual increase, total revenues of SEK27.2 billion, EBITDA of SEK4.79, and CAPEX of SEK4.02 billion. The investment bank pointed out that its estimates include the positive impact of Tele2’s acquisition of TDC Sweden, but that the operator’s management excludes that from its internal forecasts.