Saturday, July 26, 2008

TeliaSonera - looking towards Asia

TeliaSonera looks for Asian opportunities

TeliaSonera can remain independent and will pursue Asian acquisitions to generate growth, according to Lars Nyberg, chief executive of the Nordic telecoms company.

Mr Nyberg, in an interview with the Financial Times, gave a bullish outlook for TeliaSonera following its rejection last month of a $41bn takeover bid by France Telecom.

TeliaSonera released second-quarter results yesterday that were in line with the market's expectations. It reported sales of SKr25.3bn ($4.2bn), up 5.7 per cent, and net income of SKr4.1bn, up 7.8 per cent. Shares in TeliaSonera closed up 1.4 per cent at SKr43.3.

The results underlined how the company is increasingly dependent on growth from its Asian investments to offset sluggish performance at its fixed-line phone operations in the Nordic region.

In the second quarter, and for the first time, more than half TeliaSonera's operating income came from its mobile businesses in Kazakhstan, Azerbaijan, Uzbekistan, Tajikistan, Georgia and Moldova, plus its Turkish and Russian investments.

Mr Nyberg, who became chief executive almost a year ago, said TeliaSonera should seek further Asian expansion if possible. "I have been very clear from day one that I like emerging markets," he said, adding he was looking for markets of 10m-20m people where less than 20 per cent of the population owned a mobile phone.

However, TeliaSonera has found it difficult to find deals at the right price. Mr Nyberg cancelled the company's extraordinary dividend programme at the start of 2008 to make room for acquisitions, but has yet to make any.

The company is relatively unleveraged, and some industry analysts are calling on it to improve shareholder returns. The company currently has a dividend pay-out ratio of 40 per cent of net income, which is low by comparison with many other European telecoms companies.

"If we don't need the money in the short term then it should be released one way or the other for shareholders," said Mr Nyberg, adding it was too early to review dividend policy.

Mr Nyberg has been trying to forge a new strategy for the company's investments at Turkcell, Turkey's largest mobile operator, and Megafon, Russia's third-largest wireless company.

TeliaSonera has minority stakes in both mobile businesses, but they have suffered from shareholder disputes involving Alfa group, the Russian conglomerate.

Mr Nyberg admitted it was probably not realistic for TeliaSonera to secure control of Turkcell and Megafon, but expressed hope it might become the majority shareholder in one.

Mr Nyberg is focused on boosting the profitability of TeliaSonera's Nordic fixed- line operations through cost-cutting.

In the second quarter, the operations had a declining profit margin at the level of earnings before interest, tax, depreciation and amortisation.

TeliaSonera expects to make SKr1.5bn of savings this year and SKr3.5bn next year, partly by making 2,900 workers redundant in Sweden and Finland.

Mr Nyberg admitted the toughest negotiations were still ahead after management last month threw down the gauntlet by cancelling an existing agreement with the company's powerful Swedish unions.

"The fundamental question is who runs the company?" said Mr Nyberg. "There is a discussion in this company about who runs the company."

If the Nordic cost base is cut and TeliaSonera builds on its Asian investments, Mr Nyberg said the company's future would be assured, whether it remains independent or not.

"If this industry really started to consolidate I'm sure we will be part of this discussion as I think we are a very attractive asset."

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