Telia Q3 net income hit sharply by Uzbek fine

Telia CEO
Johan Dennelind, president and CEO of Telia

Telia remained on track in terms of revenue and core earnings guidance in the third quarter of 2016, but net income was severely affected by a provision of SEK12.5 billion (€1.3 billion/$1.4 billion) relating to the settlement of a probe by U.S. and Dutch authorities into the group’s operations in Uzbekistan.

As a result of this provision, total net income attributable to the owners of the parent fell to a loss of SEK8.81 billion from a profit of SEK4.59 billion in the previous year. The group posted a total net loss of SEK8.64 billion for the quarter, compared to a net profit of SEK5.02 billion a year ago.

In September, U.S. and Dutch authorities proposed an amount of about $1.4 billion (€1.28 billion) to settle all allegations of corruption in connection with the Uzbek business. The authorities had been investigating Sweden-based Telia -- until recently called TeliaSonera -- since early 2014 over alleged bribery and money laundering, believed to be connected to the company’s acquisition of an operating licence in Uzbekistan. VimpelCom has also faced a similar investigation.

Telia’s initial reaction to the fine was that it was “very high”. Comments from president and CEO Johan Dennelind also indicate that the group is still in discussions over the settlement.

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“Our discussions with relevant authorities continue with the goal of achieving a resolution that will be in the best interest of our shareholders. It is at present not possible to make a certain assessment on the final outcome or time for resolution, but we believe we are approaching the end of these investigations,” Dennelind said.

The Sweden-based group operates throughout the Nordic and Baltic regions and is in the process of disposing of its businesses in Eurasia and Spain as part of an effort to focus on its core operations.

Telia has already divested its units in Nepal and Tajikistan, and recently completed a deal to sell Yoigo in Spain to Masmovil. Ucell in Uzbekistan is the last of Telia's three directly held assets in Eurasia.

In February, Turkcell also made a binding offer for TeliaSonera's 58.55 per cent stake in Fintur Holdings, which co-owns the stakes in Azerbaijan, Georgia, Kazakhstan and Moldova. Turkcell owns 41.45 per cent of Fintur.

However, Telia said it failed to reach a deal with Turkcell over its stake in Fintur, and is now co-operating with Turkcell to sell all of Fintur to a third party. This pushes the timeline of the divestment into 2017.

In terms of its operational business, Telia reported that EBITDA (excluding non-recurring items) fell by 1.5 per cent year-on-year in reported currency to SEK6.85 billion. The EBITDA margin, excluding non-recurring items, decreased slightly to 31.8 per cent from 32 per cent. Net sales decreased 0.9 per cent to SEK21.52 billion

Analysts from Jefferies International said Telia remained in line with revenue and EBITDA guidance in the third quarter, but pointed out that EBITDA in the Swedish unit was 3.7 per cent below consensus estimates. However, the analysts said they believed this was purely a timing issue relating to delays in the delivery of fibre connectivity that prevented Telia from collecting connection fees.

The group also maintained its guidance for the full financial year based on its performance in the first three quarters. The outlook for EBITDA is that it will be in line or slightly above the level in 2015.

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