Shares in Telenor slumped by 7.5% on the Oslo Stock Exchange this morning after the Norwegian giant missed earnings expectations and said profit margins would shrink this year.
The share price fell even though Telenor Group (Nasdaq: TELN) reported a solid increase in sales and profits in 2014, including growth in its domestic market.
Serving more than 180 million customers in Europe and Asia, Telenor said that overall revenues rose by 6.5% on a year-on-year basis, to 106.5 billion Norwegian kroner ($14 billion), while profit after taxation was up 18.2%, to NOK10.3 billion ($1.4 billion).
The figures were boosted by the inclusion of results from Telenor Bulgaria for the whole of 2014.
Telenor acquired the Bulgarian operator -- the country's second-biggest -- from Greek incumbent OTE S.A. in April 2013 and started including its results only from August 2013 onwards. Revenues rose from NOK862 million ($113 million) in 2013 to NOK2.1 billion ($280 million) last year, while EBITDA soared by 279% over the same period, to more than NOK1 billion ($130 million).
The big disappointment came in Thailand -- Telenor's biggest market on the basis of sales -- where revenues remained relatively flat at NOK12.7 billion ($1.7 billion) and operating profit fell by 9.2%, to NOK3.1 billion ($410 million).
Jon Fredrik Baksaas, Telenor's president and CEO, described 2014 as a "challenging year for us in Thailand, with intense competition continuing during the fourth quarter."
Baksaas has assured investors that Telenor has already taken "corrective measures" and seen the first signs of an improvement. The operator hopes to fuel growth this year by expanding the coverage of its 3G and 4G networks into more urban areas.
Although Telenor expects overall Group revenues to grow at a "mid-single digit" rate in 2015, it is guiding for an EBITDA margin of 33-35%, down from 35.4% in 2014.
The operator also intends to continue spending heavily on network rollout. Excluding the cost of spectrum licenses, capital expenditure rose by 18.6% in 2014, to NOK16.9 billion ($2.2 billion), and Telenor says it will maintain the recent capex-to-revenues ratio of 15.8% in 2015.
That implies capex will rise this year -- albeit less dramatically than it did between 2013 and 2014 -- putting further pressure on operating cash flow, which slumped 19% in the October-to-December quarter, to NOK3.5 billion ($460 million).
Although full-year operating cash flow grew by 1.3%, to NOK20.8 billion ($2.7 billion), any slippage could have ramifications for dividend payments in future, and investors seemed unhappy at Telenor's decision to pay just NOK7.30 ($0.96) per share for 2014. According to a Reuters poll, markets had been expecting dividend payments of NOK7.77 ($1.02) for 2014.
— Iain Morris, , News Editor, Light Reading