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Telenor ASA Q1 2014 Results

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Company: TelenorASA

ConferenceTitle: Q12014Results

Moderator: MeeraBhatia

Date: Wednesday7thMay2014

MeeraBhatia: GoodmorningandwelcometotheTelenorGroup’sFirstQuarterResultsPresentation.

MynameisMeeraBhatiaandIhavethepleasureofguidingyouthroughtoday’spresentation.

WehaveourCEOJonFredrikBaksaasandCFORichardAawhowillpresentthefinancialresults

today.AsusualtherewillbeaQ&Asessiondirectlyafterthepresentationfirstlyherefromthe

audience and then from our phone and webcast participants.We aim to end the session at

10o’clockand formediapresent therewill be theopportunity to speak tobothourCEOand

CFOaftertheQ&Asession.

ButwithoutfurtheradoIwillleavethestagetoourCEOJonFredrikBaksaas.

JonFredrikBaksaas: ThankyouMeeraandalsowelcometoFornebuandalsothoseonthenettothis

firstquarter2014presentation. I’mgladtosaythatwehadanencouragingstart to2014.We

are growing in terms of revenues, EBITDA and subscribers and this happened both for voice

servicesanddataservices.Theorganic revenuegrowth improved thisquarter to1.5%,up0.5

percentagepointfromlastquarterandwesawa5%underlyingmobileservicegrowthwhichis

a stronger figure thatwehadaveragedon the fourthquarter lastyear.This isamongstother

things fuelled by an impressive subscriber intake in our Asian operations with 6million new

subscribersinQ1whichisthehighestintakeofnewcustomersintwoyears.

OntheprofitabilitywehadanEBITDAbeforeother itemsof9.3billionandthistranslates into

4.9%organic growthon theEBITDA innominal termsyearon year. Keydrivers for this is the

growth and efficiency initiative thatwe’re running inNorway and the regulatory cost savings

thatwenowseeinThailand;butasusualthereisalsoalotofworktobedoneintherestofthe

yearandwearestartingtheyearoptimisticonthescorethatweaimatdeliveringandcontinue

todeliverprofitablegrowthaimingalsothentogrowtheoperatingcashflowinto2015.AsIsaid

animportantelementtothisisourabilitytoexecuteonthemobiledataopportunitywherewe


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haveinitiativesinallmarketsaimingofcoursetomonetisethissignificantgrowthpotentialthat

weseeacrossallourmarkets.

Let’stakealooktoNorway.I’mverypleasedtoseethatNorwaynowinthisquarterreportstop

linegrowthagainwhichisthefirsttimesinceQ42012.The2%revenuegrowthisdrivenbyboth

mobile and fixed internet and TV services. Mobile service revenues excluding interconnect

increased by 2% which is significantly of course better than the 2% decline that we saw in

previous quarters. We still see an improved sales mix in the consumer segment versus the

beginning of 2013. Telenor Norway recently launched a new portfolio which we believe will

supportthesetrendsgoingforward.TelenorNorwayisalsofocusingonselecteddigitalservices

to drive its core business, already seeing a significant uptake of the online backup service,

MyCloudandbeinglaunchedasearlyinFebruarythisyearwecanlastweekseethatthegrowth

has comeup as high as close to 90,000 users already. This is then an added feature thatwe

bundledtogetherwithoursubscriptions.

While thesepositive trends continue in the consumer segmentwehave to say thatwe seea

continualpricepressure in theenterprisemarket. Fixed internetandTVservices increasedby

7%againdrivenbypriceincreasesoncableandagrowingnumberoffibrecustomers.Thetotal

customerbasenowiscloseto90,000.Thecompetitivepressureanddecliningrevenuesinthe

traditional firm business has required then unfortunately special focus on streamlining

operationsandcostefficiencies inthatpartofwhatwe’redoingandthiscomesontopofthe

heavy investments that we drive in both the mobile space as well as in the fibre space, so

through theseeffortswehave throughoutMarchconcluded the right sizingexercises thatwe

introduced at the beginning of the year.We continue the high investments in infrastructure

initiativestoincreaserevenuesandtore-usecostsfurtherandthiswillofcoursebehighonthe

agendainallaspectsofwhatwearedoinginNorwayin2014.

Moving then to theothercountries inScandinavia, there isa two-sidedstory forSwedenand

Denmark. In Telenor Sweden delivers another strong quarter with strong EBITDA margin

developmentinQ1againdrivenbymobilerevenuegrowthandlowersalesandmarketingcosts,

followingaquarterwithlowermarketactivitiesoverall.TheunderlyingEBITDAinSwedishkrona

increased by 12% in Q1 following improved gross profits from the mobile operations, lower


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subscriberacquisitioncostsaswellaseffectsfromseveraloperationalefficiencyinitiatives.The

acquisitionofTele2’sfibreandcablebusinesswascompletedonJanuary2ndandtheintegration

work is now going according to plan. We are significantly strengthening our position in this

segmentinbothfibreandTVmarketsinSweden.

Denmark is again a challengingmarket also in this quarter. Revenueswere down 10%out of

which 2% comes from Interconnect, 3% from fixed services and 5% from service revenues in

mobile.Onthepositivesidewehaveseenastabilisationinthepost-paidsubscriberbaseinthe

pastquarters.Thecustomerbaseisnow-3%yearonyearifwecomparequartertoquarterand

ournetworkhas recentlycomeontop inaseriesofmeasurements, so theoperatingposition

hasimprovedthroughout2013into’14.WeareinatransitioninDenmarkanditwilltaketime

torepositionthecompanyandwehopetoseeeffectsinlate2014into2015oftheseefforts.

We then move on to Asia. We have two very strong South Asian activities in Thailand and

Malaysia. InThailanddtac’smigrationtothe licensednetwork isontrack.Themovefromthe

concessiontothelicenceregimeisalreadycontributingsignificantlytoregulatorycostsavings.

The new 3G network now covers 70% of the population and almost 60% of dtac subscribers

havebeentransferredtothenewnetworkandthisalsoexplainsofcoursethehighercapexin

this period for dtac. Interconnect costs from 1st July 2013 continues toweigh heavily on the

reportedrevenues.Inadditionthecompetitionremainsintenseandtherecentweaknessofthe

Thaieconomyalsoputssomepressureonthetoplineinthisquarter.

DiGi in Malaysia once again demonstrates its robust performance both in terms of revenue

growthandprofitability.The7%organicgrowthinsubscriptionandtrafficrevenuesisdrivenby

solidmobiledatatrendsonthebackofthecompany’sveryfocusedinternetforallstrategy.

Abit furthernorthwehavealso two strongperformingactivities inBangladeshandPakistan.

Both countries see an improvement in thebusiness environment this quarterwherewehave

seen both regulatory changes and political unrest in previous quarters. In Bangladesh we’ve

seen less disruptions and a resumption of economic activities after the elections in January.

Grameenphoneadded1.6millionnewsubscribersandaveragedailyservicerevenueshoweda

positive development during the quarter. The 3G network now covers all 64 district


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headquarters and around 40% of our customers are now having access to the 3G network.

Several initiativesshoulddriveawarenessandrelevanceofmobile internetaretakingplace in

thisperiodinBangladesh.InPakistan,TelenorPakistanadded1.8millioncustomersandsawa

9%organic growth in subscription and traffic revenues this quarter. 2%of this growth comes

from financial services. In April we secured 3G spectrum in the 2.1 gigahertz band for the

reserve price of $147.5million.With a 3G ready network already in placewe are planning a

rapidrolloutacrossPakistan.Ourserviceofferingshavealreadybeendevelopedandintroduced

inpartnershipwithFacebookforexample.

For the last operation in India for our operational not forgetting thatMyanmarwill comeon

boardlaterthisyear,inIndiawehaveseenaverysolidcustomeruptakeperiodinthisquarter,

2.5millionnewsubscribersversus2millioninQ42013andthisquarterreportsa44%organic

revenuegrowthcomparedto36%inthepreviousquartersoweareonasolidgrowth line. In

parallel tothischurncontinuestodeclineand iscurrentlyaround4%amonthwhich is in line

withincumbents.Wearenowtakingtheleadingchallengerpositioninthecircleswhereweare

present. We are successfully positioning ourselves as a provider of affordable, basic data

services.OurinternetforallstrategywaslaunchedinMarchfocusedontimebasedofferingsof

both Facebook and WhatsApp usage by running fixed offers in rupees per day or per time

period.15%ofourcustomersinIndiaarenowactivedatausersandinFebruarywealsosecured

a supplementary spectrum in four of our circles and added a new circle as well. As

communicated inFebruaryweplan to redeploy5,000 sites this year, sites coming fromthose

circlesthatweclosedduringthedifficultperiodaroundthelicence.Thelaunchofnewsiteswill

impactoperatingcashflowsinIndiathisyearbyapproximatelyNOK600millionandinthefirst

quarterthisyearwehavebeenabletolauncharound1,000newsitesandwealreadyseequite

a promising revenue contribution from these new sites.We also have a record high average

revenueperuserinIndiathroughoutthisquarter.

So to conclude then mobile data represents the next growth curve for Telenor. Our total

consumerbase isnow172million,20%are currentlyactive internetusersandaswecan see

fromthegraphhere,seeingEuropemoreorless50-50onbeinginternetusers,thispercentage

is low in Asia and we see this as a very interesting growth potential going forward.We are

working hard to increase the number of active internet subscribers across all ourmarkets by


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enabling and stimulating usage. At the same time of course we have to make sure that we

monetise on the heavy network investments to realise this, also including the spectrum

processeswhicharebecomingmoreandmoresophisticatedaswemovealong.Allinallwelook

atthisfirstquarterin2014asasolidquarterandwebelievethatitleadstoanexcitingstartof

thisyear.

Thankyou.ThenIwillleavethefloortoRichard.

RichardOlavAa: Thank you Fredrik, yes, an encouraging start to the year. A lot of positive

one-timeeffects in thisquarterwhich Iwill comeback tobutmaybemost importantly is that

thebigTelenormachineistickingverywell inthisquarterandIwilltakeyouthroughsomeof

themetricsthatarekeytounderstandingwhyIcansaythatandthatgoesontherevenueandit

goesonthecostprogrammesanditgoesonthecapex,soIwillgothroughthatinmoredetailin

mypresentationandincludingtheguidance.

But let’sstartwiththerevenues.Wehave increasedrevenuesyearonyearbyNOK1.8billion

this quarter. That is one of the highest revenue growths in nominal terms to have had in

Telenor. Three factors contributing to that, we have some acquired entities, Globul and the

Tele2fibreandcablebusinesscontributingaboutthreepercentagepointstothegrowth;then

wehavecurrencyeffects,positivethisquarter,alsothreepercentagepointstothegrowth;and

thentheorganicrevenueshavegrownabout1.5%,so intotalmorethan7%reportedgrowth

thisquarter.Butthemainthingistheorganicservicerevenuegrowthandwewilltrytovisualise

thatintherighthandchartthereandasyouseeorganicrevenuegrowthisat1.5%butthenit’s

very important to remember the interconnect effects in Thailand, taking the revenue growth

down by 1.7% and remember this has no profit effect becausewe have an offsetting on the

costs.Sowhatmattersarethegreenbarsthere,particularlythetwototheleftwhichisrelated

for mobile business, underlying growth in the mobile business contributes three percentage

points to the growth of Telenor. That’s where we make the profit. 3% on the mobile

subscription traffic and then including the voice because it’s a part of it, that translates into

approximately 5% organic service revenue growth on the revenue base of mobile which is

around60%of the revenues.SowhenFredriksaid inhispresentationwehave5%underlying

servicerevenuegrowth,thatisonthemobilerevenuebaseandthat’swhatwemeasureonthis


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slidewhichiskeytounderstandingtheprofitdevelopmentoftheTelenorGroup.Theblueline

here is thesumfor thegroup inunderlyingmobileservicerevenuegrowthandthathasbeen

fairlystableoverthelasttwoyearsasisvisualisedherebetween4-6%.ThisquarterweseeAsia,

the red line is stable. dtac is down which I will come back to but that is compensated by

improvedgrowthinIndiaandPakistaninparticularinthisquarter.Europe,moreorlessstable

butthemostencouraginginthisquarteristhatwehavemanagedtoturntheblackline,Telenor

Norway, into positive organic service revenue growth andwedid big investments inNorway,

thatisabsolutelyvitalandthatisatrendlineweworktocontinuetoworkinthisdirection.So

it’sagoodstarttotheyear.Ourambitionsareactuallyhigheraswesaidin2013,thebluelineis

strongbutourambitionsalsoin2013arehigher.Sowearedependentonsolidmomentumon

theinvestmentswe’remakinginNorwayandalsorevenuepick-upinThailandwhichIwillcome

backto.Butallinallgoingintherightdirection.ThisrevenuegrowthofNOK1.8billionforthe

group,thattranslates intoagrossprofit improvementofNOK1.5billionandthatcomesfrom

threeeffectsagain:aboutonethirdcomesfromcurrency;onethirdfromacquiredcompanies–

youseeittherefromGlobulandalsothenTele2;butstrongunderlyingservicerevenuegrowth

translates into gross profit improvement across the group and in particular this quarter

Grameenphone, Sweden, DiGi and India are contributing very well to the gross profit

development.

Sothenwe’redowntogrossprofitandwhat’snext?Yes,that’stheopexandwehavelaidouta

costprogrammeback in2012whereweshouldsavegrossopexof5billion intheyears2013,

2014 and 2015 andwe arewell underway to achieve that.We have visualised here the two

biggest mobile units and their progress towards the cost target, Norway, aim to contribute

2billionof the5billion inthecost targetandasyouseeNorwaydeliveredonthecostsaving

ambition in ’13andwiththeactionsnowtaken in ’14wearewellunderwaytodeliveronthe

savingstargetfor’14;andthenthepipelinefor’15withconcreteinitiativesarealsostartingto

fillup.AlsoalotofthecapexreducinginNorwayisintendedtotakeoutcosts.Sowellunderway

and good progress so far this year. Then the regulatory cost savings in Thailand which is

together with the cost saving programme in Norway the biggest cost saving initiative in the

groupwherewespendsignificantcapex,closetoNOK3billionboth in ’13and ’14tomigrate

thenetworkfromconcessiontolicence.dtachaslaidouttheambitiontohalvetheregulatory

costsasapercentageofservicerevenuestowards2016from31%toaround15%andtheyare


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progressingwell.Nowinthefirstquarterthisyearisthefirstquarterwhereyouseesignificant

improvementonthecostsideandEBITDAmarginindtacisimprovingfrom31%to37%yearon

year largely due to the regulatory cost savings coming through, so the two big units are

contributingverywellnowtothecostagendaandingeneralacrossthegroupwearedelivering

onthecostsavingagenda.

SothattranslatesintosolidimprovementinEBITDA.EBITDAmarginstandsat35%,that’supone

percentagepointfromlastyearandtheEBITDAimprovesclosetoNOK900million.Somecomes

fromacquiredcompanies,Globul,238millionbutyouseethestrongperformanceonboththe

revenue and the cost side translating into solid EBITDA improvement in Grameenphone,

Sweden,DiGiandingeneralacrossthegroupwithafewexceptions.

Thentothecapex.Becausewedon’tseeasimilar improvement inthecashflow,becausewe

are increasing capex year on yearwithmore thanNOK800million.As you seehere capex is

3.7billioninthequartercomparedto2.9billioninthesimilarquarterlastyearandthatis14%

capextosales.We’reguidingforthefullyear16%capextosales,so2014willbeaveryheavy

capexyearforTelenor.Weexpectthattocomedownin2015whichIwillcomebackto.

The righthandcharthere isvery important tounderstandwhereweare in thecyclenow for

Telenor and as you see we visualised here Sweden, DiGi, Denmark and Hungary as a

representativeforourmobileoperations.Wehavebeenableduringthelastfouryearsthrough

heavynetworkswapsandheavydatagrowthtorunthoseoperationsataround10%capexto

sales likewe saidon the capitalmarketsdayback in2010.Howhavewedone that? Yes,we

have deployed network sharing.Wework with partners to becomemore efficient.We have

utilised our global sourcing strength and new vendors in particular from China; andwe have

executedanetworkswapaswellanddeployedthecapexcarefully.Sotheunderlyingcapexfor

ourmobileoperationsarearound10%,sowhyarewethenguidingat16%isaquestionweare

asked all the time and we were asked a lot after the Q4 presentation. First of all we are

launchinganewsatellitethisyear,that’sabouttwopercentagepointssoitcantakefrom16%

downto14%whichisthelevelweareatnow;andthenIwanttoexplaindtac.dtacisthepurple

lineanddtacbeforewestartedmovingthenetworkfromconcessiontolicencehadacapexto

salesonaveragearound10%.Wehadsomeverylowyearsbeforeweswappedthenetworkand


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alsobuiltout3Gon850underconcessionbutnowwe’respendingnowclosetoNOK3billion

bothin’13and’14tomovethenetworkfromconcessiontolicence.Wewouldhaveneverdone

that unlesswe saw the regulatory cost saving, not at least in that speed, but that has a very

strong return on its own and should normalise back to the levels where you see the other

companies.Wewillseealowerspendingonthatindtacnextyear,sothatincludingthesatellite

isthesecondexplanation;andthenthethirdexplanationistheincreasedcapexinNorway.We

haveincreasedcapexspendtofibrebecauseweseewecannowdeployfibreprofitablytothe

home and increased fibre spending through the base stations which we also share with our

competitors where we get revenues and we were later than our competition with 4G

deploymentbutwhenthehandsetswerereadyandwehadaspectrumwehaveincreasedthe

capexspendon4GandthatisalotoncoverageaswellandcoverageinNorwayisexpensive.So

thecapextrendinNorwayisgoingupfrom12percentagepointsofrevenueto18percentage

pointsofrevenuewhichisthenthekeyunderlyingreasonwhywedeviatefrom10%,butifyou

takeoffthesatelliteanddtacyouarebacktoalevelofaround12%plus,sothenthebigtrend

shift is in Norway and that’swhywe’re so concernedwhenNorway shows negative revenue

figures because we need to see profitability on these increased investments and that is the

variable going forward, howmuch capexwill be deployed in Norway going forward and that

dependsonhowwellwe’reable tomonetise,andagainaveryencouragingstart for2014on

thesemetrics.

Then on the cash flow, yes, a strong EBITDA improvement of close to 900 million but then

800millionmoreincapexsocashflowisonlymarginallyupforthegroup,butstillverystrongat

5.6billiondespiteveryheavyinvestments.Sowe’reabletoimprovecashflowinarecordhigh

investmentenvironment.

ThenontheP&L,Isaidwehadverymanypositiveeventsthisquarter.Someofthemarehitting

theP&L.SomeofthemarenotshowingupintheP&Lbutlet’smaybestartwithsomethatare

notshowingup.WehadtheoldfinallicenceawardinMyanmar.Wehadtwosuccessfullicence

auctions in Pakistan and India in this quarter. Then we have sold Conax, that will give an

accounting gain of 1.2 billion. The cash came inApril 4 and itwill give a cash gain of around

1.5billiontotheTelenorGroup.WefinallygotthelicenceoffsetinIndia.Thatwillhaveacash

effectoverthenexttenyearsasitwillbespreadoutoverthedeferredpaymentswehavetoday


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but in total we could book an income of 1.8 billion distributed between EBITDA and net

financials. Then we have one negative, that’s from VimpelCom. VimpelCom resolved the

situation in Algeria – that resulted in a settlement of tax disputes in Algeria of a total of

$2billion. VimpelCom owns about 50% of the asset in Algeria and we own about 33% of

VimpelCom so we take one sixth of what VimpelCom books so when VimpelCom books

$2billionasacost,onesixthofthatisNOK2billion,so$2billionbecomesNOK2billionforus.

SointotalfromtheseeventswehaveanetimpactofNOK1billiontoourP&Lthisquarter.

Then the full P&L, we have been down to EBITDA,we have seen other items there, positive

0.6billion.ThemaineffectstherearethesaleofConaxandthelicencerefundinIndia,soavery

strong EBITDA due to those one-time effects and strong underlying EBITDA. D&A up,we are

writing off the network in Globul in addition to increased depreciation following the higher

capex inNorway.Thecompaniesarenegative largelyduetothesettlement inAlgeriathatwe

wentthrough.Lownetfinancialsthisquarter, lowerinterestcostsandcurrencyeffectsandso

on. Iwould say normal taxes but it’s important to note an increased leakage tominorities in

non-controllinginterestsbecauseweseestrongprofitdevelopmentinGP,dtacandDiGiwhere

wedon’thave100%sothat leaksoutaminority.Sothenet incometoTelenorthisquarter is

3.7billionor2.43pershare.

Thentothebalancesheet,netdebt.Wearealsoimprovingourfinancialpositionthisquarter.

Netdebt toEBITDA isdown from1.1 to1.0,EBITDA isupanddebt isdown.EBITDAwehave

beenthrough.Thedebtisdownapproximately2billion.StrongEBITDAbuttwooftheone-off

items, like Isaidboth licencerefundsandthesaleofConaxwillnothaveaneffect inthefirst

quarters.Wehad thecorrectdata, that’s the2.9billionyousee thereon the righthandside.

Thensignificantcapexthisquarter,5.9billion,that’salsolicencepaymentsinMyanmarandall

the licence payments in addition to the operational capex of 3.7 I went through earlier, so

despite a record high capex level and licence paymentswewere able to reduce debt. Lower

taxesthisquarterbutalsowehavesomepositiveeffectsonworkingcapitalandrevenueshare

and currency effects and I would like maybe a small comment on working capital. If you

followedthisoverthelasttwoorthreeyearsyoucanseealotofmoneycomingininworking

capitalbysystematicworkonimprovingworkingcapitalinthegroup.It’simportanttocontinue

toworkonthattocontrolthedebtlevel.


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Thentotheguiding.Wearemaintainingtheguidingfor2014.Ontherevenuegrowthwehavea

goodstarttotheyearof1.5%.LikeIsaidweaimhigher.Weseeaneedforstrongprofitability

ontheinvestmentsinNorwayandweexpectarevenuepickupinThailandandtheinterconnect

in Thailandwill disappear from the second half, so I think the guiding there should be fairly

robust. Then the EBITDA margin, we maintain the guiding in line with 2013. We are one

percentagepointaheadsofarthisyearsoyoumaysaythiswouldbeontheconservativeside,

but it’s stillearly in theyearand there’sa lotofwork tobedone inallourunitsbothon the

revenuesideandthecostside,sowedecidedtomaintaintheEBITDAmargindespitethatwe

arewellaheadinthefirstquarter.CapextosalesI’vebeenthrough,16%withanexplanationon

satellite Norway and dtac, there’s nothing mysterious there and that should come down

significantlyin2015.

Iwillmakesomewordsthenonthe2015ambition.Wehaveanaimofanoperatingcashflowin

2015 of 28-30 billion. The main drivers behind reaching that ambition is a continued strong

mobileservicerevenuegrowthcombinedwithgoodcostcontrol.In2013ourtrendswerenotas

strongasweexpectedandmadetheambitionhardertoreach.Wehadanencouragingstartto

2014, that takes us in the right direction but we are now fully dependent upon strong

profitabilityfromtheheavy investments inNorway, improvedrevenuegrowthinThailandand

goodexecutiononourplansfortherestofthegroup.

Summingupthen,agood,solidstarttotheyear.Alotofpositiveone-timeeventsaroundthe

auctioninPakistan,auctioninIndia,licenceawardinMyanmar,licencerefundinIndiaandthe

sales of Conax butmaybemore importantly is than the big Telenormachine is now back on

growthandweareexecutingwellonthecostprogrammes.

Then finally Iwant toendwith an invitation like Fredrik endedhispresentation showing that

about80%ofourcustomersarestillnotconnectedtothe internetwithabigpotential inour

Asianoperations.Wehavearrangedaninvestorseminar inLondonon6thJunewhereyouwill

gettheopportunitytomeetpeoplefromourbusinessunitsthatareexecutingontheinternet

forallstrategyinAsiaonadailybasis.IthinkthatwillbehighlyinterestingandIhopeweseeas

manyaspossibleofyouthere,soMeera,wecantakeQ&A.


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MeeraBhatia: ThankyouRichard.CouldIaskFredrikbackonstageplease.Wewillnowopenuptothe

Q&Asession.Wewillstartherewiththeaudiencepresent.Anyquestions?Themicrophonewill

be reachedtoyou?Noquestionsatall?All crystalclear it seems,ok.Wewill takeoneofour

online questions before we open up to the phone lines. It’s actually a question on Globul

Bulgaria:whatisyourevaluationofGlobul’sperformance?Areyousatisfiedasofyet?

JonFredrikBaksaas: Iwould say that Globul coming in is as expected, even a little bit ahead. The

companyhascomeintotheTelenorGroupandshowedeagernesstoshareinwhatTelenorasa

biggerindustrialsystemhastoofferandofcoursesomeofthedecisionsthathavebeentaken

leadingtoacompletenetworkswap,embarkingonanewphaseforthecompanyisalsoabig

motivating factor. So as per now no negative surprises of significance, a positive drive in the

wholeoftheorganisationandalittlebitaheadofplanonintegrationtotheTelenorGroup.

MeeraBhatia: Thankyou.Anyquestions from theaudience? Ifnotwewillopenup thephone lines.

Operator,pleasetakethefirstquestion.

Operator: OurfirstquestioncomesfromAndrewLeeofGoldmanSachs.Pleasegoahead.

AndrewLee: Goodmorningeveryone. I justhadaquestiononNorwayand thenoneonDenmark.

Norwegianmobile,youdeliveredweakergrowththanmighthavebeenexpectedinwhatshould

beastrongmarket lastyearbutthishasrecoveredwell. I justwonderedhowsustainableyou

thinkthecurrentgrowthrateisandinrelationtoRichard’sclosingcomments,whatgrowthrate

doyouneedat aminimum toget fromyourNorwegianmobilebusiness toget towards your

group 2015 OCF guidance? Then just secondly on Denmark, clearly conditions are still very

difficult there.Weasked lastquarter if youneed tohaveaconsumerbusiness inDenmark to

fulfilyourpan-Nordicserviceofferingtocorporatecustomers,soIjustwonderedifyouhadany

updateonyourthoughtsthere?Thankyou.

JonFredrikBaksaas: The sustainabilityofwhatwe’redoing inNorway I believe isquite strongand

thewaywehaverepackagedthepricingstructuretowardstheendof2013andinto2014also

trying to concludewith new service offerings to all those specific segments just recently this


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monthwebelievewill give long term visibility on better aligning the underlying consumption

and the growth in the data consumption and data activities in general with the pricing

mechanisms,butofcoursethisalsodependsfullyonhowcompetitorsviewthislandscapeand

wehavealwaysbeentalkingabouttheneedtolinkrevenuedriverswithgrowthdriversandwe

believethatwehaveabetteralignmentonthisaswemove into2014thanwhatwehad ina

coupleofquarterslastyear.Tomoveintometricsonhowmuchdoweneedspecifically,Ithink

thatbecomesa littlebit toodetailedso Idon’twant togo into thatone.As forDenmark the

questionthatyouraisedisalsoonourmindandweaddressedthequestionaswellandit isa

fact that the market leader TDC has the overall momentum and a very strong position in

particular in fixed line services and the three competitors struggle to find their way on

sustainableeconomicsintheirinvestments,soonecouldanticipatethesheerfactsonhowthis

market is structured should lead to this kind of discussion not only on our table but also on

othertables.

AndrewLee: Thankyou.

MeeraBhatia: Nextquestionplease.Dowehaveanyquestionsfromtheaudienceinthemeanwhile?

Anyonecurious?Wehaveajournalist.

MariusLorentzen: Marius Lorentzen from E24. I have a question about Myanmar. You started

reportingitasaseparatesegmentthisquarterandyounotedthatyouspentabout3.2billionin

capex of which 2.9 is the licence but the pace of investments is about 300 million which I

assumeisnetworkandoperations.Isthatapacethatwillcontinueoverthecomingquartersor

areyouexpectingittobemorefrontheavythisyear?

JonFredrikBaksaas: Thisisfrontheavy,thefirstyearofcoursehoweverthecoveragethatwillbein

placebytheendoftheyearisnotatallthefullcoverageneeded,soitwillbeasalwaysthe2-3

firstyearsofanoveralloperationhavesignificant investmentscarriedwiththem,butherewe

arealsothendoingtowerrentalssowedon’tcarryalltowerstructuresonourowninvestments.

ThatisanopexstructurewhichismoreusualinIndia,inAsiathaninEurope.Ithinkwecansay

that progress is very good in Myanmar. We have all aspects of preparing for launch under

reasonablecontrol.Themostchallengingparthasbeenthatofgettingthetowercompaniesup


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tospeedwhenitcomestogettingthetowersphysicallyintothegeography.Ihavetoremindall

of us the fact that there are no administrative procedures in that society for such an

industrialisationprocesswhichnow is starting in thecountry, so this isquitegroundworks. If

greenfieldshad inaway it’stherightexpression itmusthavebeenborn inMyanmarbecause

thisisreallyagreenfield.Thankyou.

MeeraBhatia: Ok,thankyouverymuch.Ithinktheoperatorshouldnowbeonline.Canwetryagain?

Nextquestionplease.

Operator: OurnextquestioncomesfromPeterNielsenofKeplerCheuvreux.Pleasegoahead.

PeterKurtNielsen: Thank you. Two questions please, one on Sweden and one on Denmark. You

already discussed the Norwegian revenue trend. Sweden, you have for the past year I guess

reported extremely strong underlyingmobile serve revenue trends. Did you see those trends

continuing for the remainderof this year?Do you see any reasonwhy it shouldn’t? Secondly

whenwillthestrongunderlyingservicerevenuegrowthi.e.adjustedforthehandsetdiscounts

comethroughinreportedservicerevenuesaswell?SecondlyifImayreturntoDenmark,you’ve

obviouslyseenimprovedmomentuminsubscriberintakebutclearlyitcomesatahighcostboth

toyourselvesandtothemarket.Youcontributedtothere-introductionofhandsetsubsidiesin

combinationwithvery lowprices.Youareexpectingtosee improvedtrendsattheendofthe

year.Didyouthinkthesecurrentnegativetrendscanbereversedlatertothebenefitofyourself

andthewholemarket?Thankyou.

RichardOlavAa: InSweden,whatwehaveseen inSwedenand I think that’s ingeneral for the

market is the slowdown in handset sales. I think the Swedishmarket is nowwaiting for new

innovationsfromAppleandthenyouwillseeapickupintheoverallreportedgrowth,butthe

reportedservicerevenuegrowthnowinthefirstquarteralsostandsat2%andwewillseethe

effectofthehandsetdiscountgraduallybeingwashedoutasthiswasanewwayofpackaging

our offering in Sweden that was introduced now two years ago and it takes a while before

everythingismovedovertothesamestructure.Butthemainfactorwillbethehandsets.When

it comes to Denmark, yes, we see like Fredrik said the EBITDA pool in the Danishmarket is

largelytakenbyTDCandunfortunatelythemarketalsothatismovingwiththesubsidies,evenif


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youonlyhaveasixmonthcommitmenttothecustomers,butwehadmassivesubscriberlosses

lastyearwhenwetriedtobemorerational inthemarketthatthatcouldnotcontinue,sowe

hadtousethemeasuresavailabletostabilisethecustomerbaseandunfortunatelythatresults

also then ina lowerEBITDA forus in theDanishmarket.Whetherornot thiswillpickup, it’s

veryhardtosay.Itdependsonthemarketsituation.Ithinkunfortunatelyweseeoffersinthe

DanishmarketswherethepricestaysverylowfromourcompetitorssotheDanishmarketisin

averydifficultconditionandit’sveryhardtopointtoanimprovementinthatmarket.

PeterKurtNielsen: Ok,thankyou.

MeeraBhatia: Nextquestionplease.

Operator: As a reminder to ask a questionpleasepress *1on your telephone keypad.Ournext

questioncomesfromDominikKlarmannfromHSBC.Pleasegoahead.

DominikKlarmann: Yes, thank you. Firstly just to clarify the2015operating cash flow target, that

still includestheMyanmarstart-up lossesandmaybeyoucanshareabitmorecolouronhow

weshouldthinkaboutyougettingthere?IfIassumeasharpfallofcapexsalestojust10%next

yearIwouldstillneedasignificantaccelerationofEBITDAgrowth.Whereisthatcomingfrom?

Thensecondlyon India,maybe justabigpicturequestion.Does India lookmoreattractive to

you today than say two or three years ago when you balanced the improving pricing

environment,theimprovingregulationsagainsttheoperationalchallengesandthechallengeto

get break-even and actually generate returns? I’m curious about your thoughts there? Then

maybe justa thirdquestionon the ideabehind thenewmobile tariffs that you introduced in

Norwayandwhyyouarelaunchingthosenow?Thankyou.

JonFredrikBaksaas: Thiswasawhole seriesofquestions so letmestarton theaim for2015cash

flow targets. Yes, it includesMyanmar but it also includes Globul, so in the first three years

those two operationsmore or less compensate each other. In 2015what then is the EBITDA

contribution,cashflowcontributionfromGlobulshould inawaymoreor lesscompensatefor

the programmes that are executed inMyanmar. Yes, you’re right to the effect thatwe need

thosekindsofimprovementsbutasalsoRichardtriedtoalludetothroughhispresentationon


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capextherearepretty importantcapexelements inthis.Numberone,thesatellitewillnotbe

therein2015.Mostoftheprogrammefordtacwhenitcomestoheavyinvestmentstodothe

3Ggenerationdeploymentmovingfromconcessiontolicencewillmoreorlessbedoneandon

top of that the growth aspects of the entire economy should also be there. It’s lower in this

quarterandprobablyalsosointhefirsthalfofthisyearbutwehopethatthesecondhalfyear

canshowmoredynamicsintheThaieconomy.Thenofcoursewhatisneededhereistoseethat

thetrendlinethatwenowseeinNorwaycontinuesandthatalludesstronglytothethirdpartof

yourquestion,namelythatofasuccessfulredesignoftheserviceofferingsinNorwayinsucha

waythatwestimulateourcustomerstoupgradetoahigherserviceofferingandweseethatis

workingquitewellrightnow,butthattrendneedstocontinue.MoresoIndiawillnotbeonthe

minusside in2015. Indiawillbeonthepositiveside,sothereareanumberofelementshere

whichclearlycanshowthatthereisarealisticpossibilitytoaimforthetargetsin2015thatwe

have spelledout tobebetweenNOK28-30billionoperating cash flows. Then for India,more

attractive,yesof coursebutbyallmeanswhenwehad,whenyou referred to2-3yearsback

that was at the bottom of the curve, but does the lines in India go to sky high from here?

Absolutelynot.Wearedifferentlypositioned.Weareonthemove.Wehaveverygoodtraction

whereweofferservices.WhenyousawtheMarchstatisticsofcustomeracquisitioninrelative

terms towherewe are having distribution in India,we are clearly on top of the statistics on

getting new customers on board, so thatmeans that our affordable service offering really is

broadeningintosegmentsthatgetthetasteofmobilecommunicationsforthefirsttimeintheir

life, and at the same timewe see the average revenue per user growing and of course one

importanteffectisthatalsochurniscomingdown.Whenweaddallthesekindsofelementswe

are on the positive trend line in India, but we have also come to learn that India is full of

surprises,sowearepreparingourselvesalsoforsomeelementsofsurpriseandwhatitwillbe

thistime–thatisdifficulttosay,butinthemeantimewearepositioningandmakingtheUninor

operation as strong aswe possibly can do and then it is very, very good to see thatMorten

KarlsenSørbywhomovedfromgroupmanagementtoIndiaasaCEOreallyhasgotagriponthis

inhisfirstquarterbaseduponwhatwassosolidlyexecutedin2013.

DominikKlarmann: Great,thankyou.


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MeeraBhatia: Please could I ask you kindly to limit yourself to one question.We have quite a few

callersontheline.Thankyou.

Operator OurnextquestioncomesfromBarryZeitounefromBerenberg.Pleasegoahead.

BarryZeitoune:Hi, it’sBarryZeitoune fromBerenberg. Iwill keepmyquestion toDenmark.A lotof

thefocushasbeenonwhetheryoucouldbeaseller.Iamalsointerestedinwhetheryoucould

potentiallybeanacquirerand I’mnotreally talkingaboutmobileassetsbutmore in termsof

thefixedlineassetsinDenmark.We’veseenyoubuildingoutfibreinNorway.You’veacquired

fibreinSwedenandthefixedlinemarketinDenmarkisobviouslyaverygoodmarketandthere

couldpotentiallybeanumberoffibreassetsavailable inthatmarket,so Iwas justwondering

whetheryou’vegotanyinterestininvestingfurtherinfixedlineinDenmarkorwhetheryou’ve

justcomfortablewhereyouareandwanttoseewherethatbusinessgoes?Thankyou.

JonFredrikBaksaas: Wearenotcomfortablewithwhereweare.Onthecontraryweareputtingalot

ofeffortintoimprovingtheexistingoperation.Rightnowweareconcentratingonthatandthat

meansthatwearenotextendingtheoperationinanydirectioninDenmarkinoureffortsright

now.Thatdoesn’ttakeawayhowthemobilespaceisgoingtoaddressthefixedissueovertime

becausefixedlineoperationsalsowillplayaroleinparticularwhenitcomestoWi-Fioffloading

andwhenitcomestohowthelastmileactuallyeventuallyevolvesintothefuture,solet’smake

thatabiggerandmorestrategicindustryquestionatalaterstage.Thankyou.

BarryZeitoune:Ok,thankyou.


Operator: OurnextquestioncomesfromStefanGauffinfromNordeaBank.Pleasegoahead.

StefanGauffin: Yes, hello. We have already talked about the cost initiatives in Norway, the entire

regulatory improvements. Iwould like to focuson someother issues relating toPakistan and

Hungary.Despitearecordhighoravery,veryhighsubscriberintakeinPakistanyouhadafairly

goodmargin and I believe that comes from impact from the network swap. I wonder if you


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couldgivesomeinformationregardingtheenergysavingsthatthisnetworkswaphascreated?

SecondlylastquarterIsensedaconcernhowthetelecompacksinHungarywouldplayoutgiven

unlimitedvoiceandSMSplansandIwonderifthedevelopmentinQ1haseasedyourconcerns

relatedtothis?

JonFredrikBaksaas: Let’s start with Pakistan. We have concluded a network swap and we see

significantenergysavingsfromthat.Wealsochangedthebatterysystemsonseveralofthebase

stations which are also contributing well but we have also seen a somewhat better energy

situationingeneralinPakistaninthefirstquarter,butyourquestionisappreciated.It’sonthe

topfivelistofopexinitiativesinthegrouptoimprovetheenergysituationinPakistanandsofar

wehavedeliveredwell.WhenitcomestoHungarythesameconcernisthere.It’saverystrange

situationwhenyou includethefreeSMSandminutes inyourpackagesandthetelecomtax is

basedontheconsumptionsoyou’rereallypayingtaxonsomethingyoucannotprice,so it’sa

veryunfortunatedevelopmentintheHungarianmarket.

StefanGauffin: Ok,thankyou.

Operator: OurnextquestioncomesfromJakobBluestonefromCreditSuisse.

JakobBluestone: Hi,goodmorning.I’vegotonequestiononVimpelCom.Couldyouperhapsjust

updateusonwhatyourcurrentthinkingontheownershipoftheassetis,howcoreyouseeit

particularlyinlightofthepoliticalsituationwiththesanctionsonRussia?Doesthataffectyour

desiretohavethematerialexposuretotheRussianmarket?Thankyou.

JonFredrikBaksaas: I think thatwhole situationbetweenUkraineandRussia is a veryunfortunate

onenotonly fromaneconomicand investmentpointofviewbutalso fromahumanpointof

view,soIreallyhopethatpartisthere,cangettotermsandgettothetable.Fromabusiness

perspectiveweareinVimpelComandwearewhereweareandrightnowwehavetoposition

the companyonoperatingaspects ineachandeverymarket thatVimpelComhas. I think the

VimpelCommanagement is exactly doing that. It’s far too early to speculate onwhat kind of

developmentpotentialsanctionscanhaveonthisoperationallinall.Generallyspeakingthough

telecoms as an industry also is a needed infrastructure and needed service under all


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circumstancessofromthatperspectivetheoperationassuchwillmoveon,butofcoursehow

deeppotentialsanctionswillgo,thatremainstobeseenand I reallyhopethatthosekindsof

escalationscanbeavoided.

JakobBluestone: Thankyouverymuch.

MeeraBhatia: Thankyou.Nextquestionplease.

Operator: OurnextquestioncomesfromJamesBrittonofNomura.Pleasegoahead.

JamesBritton: Goodmorning. IhadsomequestionsaroundthenewMobilplans.Canyou justdetail

how these plans are likely to drive forward your revenue growth in the Norwegian mobile

market? How quickly do you expect the customers to actually move over toMobil and U21

plans?Isthisgoingtobeamatterofyearsorcanyouactuallyacceleratethetransition?Thanks.

JonFredrikBaksaas: ThankyouJames.Ithinkifyoulookatourreportingforthefourthquarterand

thefirstquarterwehadalotoffocusonupsellingtohigherpriceplansandthathasbeenquite

successful, so now we have changed the portfolios a lot for new subscribers and we have

increasedtheentryfeestoget intovariousexcellentnetworks,sothelowestpackageyouget

forNOK199yougetafairly limiteddatavolumeandthenyoupaymorelogicallyforhowyou

increasethedatavolume.Maybemostimportantlyisthenewpricepointwhichweintroduced

at349becausewefelt thestepfrom299to399wasmaybetoobig forsomeconsumersand

nowwehaveagoodpackagetoupsellfrom299to349andat349youget4gigabytesincluded,

so with these adjustments and also simplifying our overall portfolio structure we have a

structurethatnowstartstolookmorelikewehaveseenintheSwedishmarket.Wehavealso

takenawayalotofthekindofmovevoice-centricplansandintroducedasimplevoicepackage

which also has some additional benefits around at NOK 119. It will take some time tomove

customersoverbecausethis isfornewcustomersonly,butwehaveafairlygoodtrackrecord

onthisnowandIwouldespeciallyinawaysaluteourcustomerserviceactivitiesthathavebeen

verystrongonupsellingandgivingcustomersgoodadviceonwhatkindofpackagetheyshould

usewhichisawin-winbothforthecustomerandTelenor.


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MeeraBhatia: We’lltakeafewmorequestionsduetothetechnicalmishapearlieron,sonextquestion

please.

Operator: OurnextquestioncomesfromUlrichRathefromJefferies.Pleasegoahead.

UlrichRathe: Thankyouverymuch.Inthebigpicturewherewouldyoucurrentlyputtheemphasis,if

you had the freedom as the year unfolds tomaybe stimulate growth a bitmore or to try to

reportbettermargins,wherewouldtheemphasisbeandinparticularinthiscontexthowwold

thisbalance look foryou inNorwaygiventhat theheadcountcutswillcontribute in termsof

cost savings only from the secondquarter? You have very strong growth already.Would you

then re-invest the potential upside to really sort of keep themomentum up or is this really

somethingmoreonthemargin,ifthere’sasimpleanswertothat?Thankyou.

JonFredrikBaksaas: Thereisasimpleanswer:inTelenorwealwaysthinklongtermandthatmeans

that ifashorttermexerciseordecision looksstupidthenwewouldn’tdo it.Thatdependson

themarketsituationandwewillprepareforthefutureatanypointofthedecision-making.


Operator: OurnextquestioncomesfromThomasHeathfromHandelsbanken.Pleasegoahead.

ThomasHeath: Thank you.Aquestion first on India. Could youupdateusperhaps a littlebit on the

roomforconsolidationtheregiventhattheregulatoryclimatehaschangedalittlebitfromtime

to time and if you see any opportunities to grow size non-organically? Secondly there are

reportsofquitea significant loss in your jointonlineventures today. Is thereany cap tohow

muchmoneyyou’rewillingtoinjectintothoseventures?Thankyou.

JonFredrikBaksaas: Consolidation in India,of courseweareaplayer in India.Thatmeans thatwe

followwhat goes on in India and as usual Indiawill be full of speculations and rumours and

headlines,sowhatcanbesaidonthatscore?Weare followingandweare inawaytryingto

havearadarscreenandseewhatwindowstheremightbe,sothatisageneralkindofanswer.

Anylossmakingonbusinessinitiativeslikeclassifiedswillhaveastart-upperiodandthisoneis


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noexemption. Yes, there is amaximumkindof investment limit thathasbeendiscussedand

agreedbetweenthepartners,sothewayweseethisdevelopforthetimebeingisthatmostof

themarketsareinreallyspeedydevelopmentintoclassifiedsandwebelievethatthistrendwill

followinAsiancountriesaswe’veseenitinEurope,aswecanseeitinBrazilthesedaysandwe

alsoreckonthattherelationshipbetweenthemobilebusinessmodelandtheclassifiedmodelis

aninterestingmodeltotrytofindoutnewdynamicsanddeploytheminthemarketplace.

MeeraBhatia: NextquestionpleaseandcouldIkindlyaskyouonceagainjusttolimityourselftoone

question.Thankyou.

Operator: OurnextquestioncomesfromMauricePatrickofBarclays.Pleasegoahead.

MauricePatrick: Higuys,it’sMauricehere.SoyoutalkedaboutdatagrowthinIndia.Youhaven’t

gotthatmuchspectruminyourcirclesandIguessI’dlovetogetyourthoughtsintermsofhow

longyouthinkthecurrentspectrumallocationyouhavewillsuffice?Thanks.

JonFredrikBaksaas: Yes,goodmorningPatrick.Weacquiredsomemorespectruminthelastauction

thatwillcarryusfurther,butIthinkmaybemoreimportantlyishowtodothegotomarketand

thetotalendtoendplanningofthisbecausewearedoingthisdifferentlythanwehavedonein

any other market where we introduce this on light usage services, for example Facebook

withoutvideoandhighresolutionpicturesconsumesverylittledata;andweusethelateston

compressiontechnologyandUninorisworldclassanditisalsoutilisingthenetworkassets.So

thecombinationofall thesethreethingsmakesusthink it’sviabletocontinueonan internet

strategyatleastforthenext2,3,4yearsandUninorhasbrokenbarrierscontinuouslyonthisto

packagethisthisway.ThiswillalsohaveanopportunitytogothroughindetailwithUninoron

6thJuneonourinternetseminar.Justaremark,thisisthewaytosell internetinverylowcost

spectrumsmarket–thenyouhavetodoitcompletelydifferentlythanwe’vedoneitinEurope

and that’s where we see Telenor now in the front and where we see a big value creation

opportunityforTelenorgoingforward,soreallyforyoutounderstandthis Iencourageyouto

cometoourseminarinLondon.

MauricePatrick: Great,thankyou.


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MeeraBhatia: Timefortwomorequestionsplease.

Operator: OurnextquestioncomesfromAllanNicholsofMorningstar.Pleasegoahead.

AllanNichols: Hi.Malaysia, your subscribernumbersdeclined in thequarter. Is thatpurely just that

you have a lot of churn in the first quarter and you expect things to continue to grow going

forwardorwhatexactlyareyourexpectationsforMalaysiagoingforward?Thankyou.

RichardOlavAa: Firstquarterit’spurelyseasonal.ThetrendsinDiGiareverysteady,nochange.

AllanNichols: Thankyou.


Operator: ThenextquestioncomesfromSasuRistimakifromMerrillLynch.Pleasegoahead.

SasuRistimaki: Yes,thanks.IwantedtoraiseorfocusontheNorwegianfixedlinesituationthatyouare

seeing quite a lot of increased competition from basically fibre providers and I was just

wondering how do you see that affecting the broadband pricing and do you have a specific

objectiveintermsofwhatshouldyourkindoffibreretailsharebein2015withyourinvestment

programme? Then tied into that at the moment you’re still seeing pretty strong ARPU

development on the TV product and again do you see any pressures on the pricing situation

there?Thanks.

JonFredrikBaksaas: You’re right that the main competitor comes out of the utility side, the

electricity sector and as the market stands there now we can roughly say all in all 340,000

roughlyhomesconnectedintheelectricitysectorandroughly90,000connectedonfibreinthe

Telenorspace,plusofcoursethatwehavearound600,000onConaxalready,sowearealready

veryvisible inbroadbandtothehomeandbroadbandtothebusinessandofcoursewearea

playerthatwillconsiderthisasanaturalinvestmentareaforus.Ifyouthencombinethethree

platformshere,theDSLwhichwillbegraduallyreducingbutstillnotdisappearingcompletely;


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andthenweaddonwithlowfrequency,thelowfrequencybrandinmobile,theConaxandthe

fibre deploymentwewill be a significantmarket player in broadband to everyone inNorway

longterm.Fromapriceperspectiveon fibrespecifically it’snotapricecompetitionreally, it’s

moreageographicalbuild-outcompetition.Whoiswherewhenageographyisreadytoreceive

this and as you know the geography in this country is fairly distributed, so some of this

geographyisverychallengingfromacostpointofviewtodowithbothfibreorConaxandthat’s

whytheoldDSLwillsurviveforaperiodoftimebutgraduallyalsobeingcompensatedbylower

frequencymobileserviceofferings.

MeeraBhatia: Thank you Fredrik. This was actually our final question so this concludes our session

today.Thankyouforyourparticipationandapologiesforthelittletechnicalmishapearlieron.

Thankyou.

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