Swedish incumbent divests another of its Eurasian businesses and reports an earnings increase, fueled by efficiency moves, for the final three months of 2017.

Iain Morris, International Editor

January 26, 2018

4 Min Read
Telia Flogs Georgia Biz, Cuts More Jobs

Telia and Turkcell have raised $153 million from the sale of their Georgian joint venture Geocell to JSC Silknet, the country's fixed-line incumbent, with Telia also heralding recent growth in earnings because of job cuts and other cost savings.

At the time of publication, Telia's share price was trading up 3.7% in early-afternoon trading in Stockholm, at 38.49 Swedish kronor ($4.89), following today's news.

For Swedish incumbent Telia, the sale forms a part of its efforts to quit Eurasian markets blighted by an economic downturn and where the competitive and regulatory environments have been tough. (See TeliaSonera to Quit Eurasia, Focus on Europe.)

Telia Company has previously managed to sell stakes in Nepal's Ncell and Tajikistan's Tcell but has been lumbered with assets in central Asian markets including Azerbaijan, Kazakhstan, Uzbekistan and Moldova.

In its latest earnings report it drew attention to the difficulty of finding a buyer or buyers for those operations. "The nature of these markets, including potential government intervention … reputation issues regarding the assets and fewer potential buyers than in more mature markets, makes the complexity of these disposals processes high," said the operator.

In Georgia, the transaction fee represents about 4.5 times Geocell's 2017 earnings before interest, tax, depreciation and amortization (EBITDA) and will result in a capital loss of about SEK100 million ($12.7 million) for Telia. That comes on top of a SEK600 million ($76.3 million) write-down on the Georgian business that Telia recognized in December.

The divestment of Geocell was announced on the same day that Telia published its earnings report for the final three months of 2017, with net profits tumbling to just SEK754 million ($95.8 million), from SEK7.34 billion ($930 million) a year earlier, because of write-downs at discontinued operations in Eurasia and the sale of a stake in Russia's MegaFon last October.

While headline revenues over that period fell just 0.3%, to SEK21.2 billion ($2.7 billion), Telia also reported a 2.3% drop in service revenues.

Despite that, Telia was able to record a 3.3% increase in adjusted EBITDA, to about SEK6.6 billion ($840 million), thanks to cost-cutting efforts.

That included slashing more than 300 jobs across its continuing operations in Nordic and other European markets, compared with the year-earlier period. (Telia did not publish employee figures for its discontinued businesses in Eurasia.)

Around 154 jobs were cut at Telia's continuing operations during the final three months of 2017, leaving the company with around 20,700 employees in those markets.

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CEO Johan Dennelind said overall efficiency measures meant group adjusted EBITDA was likely to be the same this year as last, if not slightly higher. Telia made SEK25.4 billion ($3.2 billion) in adjusted EBITDA in 2017.

The operator's cash position also looks strong thanks to recent divestments, including the MegaFon stake sale, which brought in SEK11.8 billion ($1.5 billion) in cash in the fourth quarter, said Dennelind. Telia is forecasting SEK9.7 billion ($1.2 billion) in free cash flow this year -- about the same level as in 2017.

It did not provide specific guidance around capital expenditure but expects the figure to fall compared with 2017. "Our cash capex level was reduced in 2017 without compromising on our superior network ambition," said Dennelind in a statement. "We expect a further reduction in 2018 thanks to better coordination in our group and due to lower fiber deployments."

At its continuing operations, Telia spent about SEK14.5 billion ($1.8 billion) in capex in 2017, down from SEK15.4 billion ($2 billion) in 2016. Spending in 2017 equates to about 18% of annual revenues.

Despite the CEO's optimism, Telia struggled in its main Swedish market, which now accounts for about 46% of total sales.

Net sales were down 2.6%, to SEK9.7 billion ($1.2 billion), while EBITDA dropped 4.1%, to SEK3.6 billion ($460 million). Telia said it had faced continuing pressure on fixed telephony revenues and received lower revenues from fiber installations.

After an earnings setback last summer, Telia announced plans to cut about 650 jobs at its Swedish business and 850 in total. Headcount at the Swedish business fell by 94 in the last three months of 2017, to 6,619 employees. (See Telia's Sweden Cost Problem Threatens 2017 Targets and Telia to Slash 850 Jobs on Earnings Disappointment.)

However, the Swedish unit is only 144 employees smaller than in June last year, when staff cuts were announced. By contrast, a heavy axe has fallen on other continuing operations, claiming 522 jobs outside Sweden since June.

Conditions are likely to grow even tougher in Sweden should a merger between mobile operator Tele2 and cable giant Com Hem go ahead. The two companies unveiled plans for a tie-up on January 10, and the new-look player could provide a serious challenge to Telia in the market for bundles of fixed, mobile and TV services. (See Sweden's Tele2 to Swallow Com Hem in $3.3B Deal.)

— Iain Morris, News Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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