Telenor's domestic Q1 earnings cause for concern at Jefferies

Telenor's domestic earnings in the first quarter of 2016 proved a point of concern to analysts at Jefferies, after mobile end-user service revenue grew 1.4 per cent year-on-year and total fixed-line revenue fell 6.7 per cent.

While the analysts noted that Telenor Norway generated "solid profitability" during the period, they expressed concern in a research note emailed to FierceWireless:Europe that the operator's domestic revenues point to "soft top-line momentum".

At the heart of the analysts' disquiet is that mobile end-user revenue growth "slowed further" during the opening three months, while declines in fixed-line revenue "accelerated further".

Indeed, on the mobile side, end-user service revenue -- which Telenor reports as subscription and traffic -- was the only point of growth in sales during the quarter. Annual declines in interconnection, other, and non-mobile revenues resulted in total mobile revenues falling from NOK3.6 billion (€390 million/$441 million) in the first quarter of 2015 to NOK3.5 billion in the recent quarter.

Jefferies analysts' also highlighted that Telenor Norway's fixed-line revenues continued to fall in the first quarter of 2016, declining from NOK2.9 billion in the same quarter in 2015 to NOK2.7 billion in the recent period.

However, the analysts conceded that the comparison of Telenor's recent domestic earnings is somewhat skewed by the operator's "strong momentum in late 2014 and early 2015".

Telenor's mobile business in Sweden showed a similar trend, with mobile end-user service revenue up year-on-year, but the rate of growth slowing, the analysts stated. Total mobile revenues grew from NOK2.21 billion in the first quarter of 2015 to NOK2.29 billion in the recent period, and fixed revenues from NOK770 million to NOK828 million.

Jefferies analysts explained that the Swedish market represents a "difficult competitive position" and noted that Telenor still managed to add 11,000 post-pay mobile users during the quarter despite that competition.

Telenor's total revenues in Denmark remained flat year-on-year at NOK1.2 billion, and grew in Hungary from NOK1 billion in the first quarter of 2015 to NOK1.1 billion in the recent quarter. Revenue in Montenegro and Serbia increased from NOK853 million in the first quarter of 2015 to NOK952 million, and Bulgarian revenues grew from NOK685 million to NOK758 million.

The company's full earnings report showed first-quarter earnings rose across the board at group level. Revenue increased from NOK31.4 billion in the first quarter of 2015 to NOK33 billion in the recent quarter; EBITDA from NOK10.7 billion to NOK10.9 billion; and net income from NOK4.8 billion to NOK5 billion,

Sigve Brekke, president and CEO of Telenor Group, said key priorities for the company moving forward are to drive "profitable growth" and to keep "a close eye on costs" in the group's operations in Europe and Asian markets.

For more:
- see Telenor Group's earnings report (PDF)
- view this related company statement

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