Tele2 reports drop in 3Q EBITDA, but strong mobile and broadband growth helps it beat market forecasts

1 Nov 2006

Swedish pan-European alternative operator Tele2 has reported EBITDA of SEK1.784 billion (USD246.4 million) in the three months to 30 September 2006, down from SEK1.873 billion a year ago, but outperformed analyst forecasts on the back of strong gains from its mobile and broadband operations. The market had predicted an EBITDA figure of SEK1.496 billion for the company, which included a one-off gain of SEK43 million. Tele2 posted a net loss of SEK3.656 billion, from a SEK928 million profit a year ago, although the result was affected by a SEK3.4 billion goodwill write-down and capital loss relating to the acquisition of SEC in 2000. Group revenues in the three-month period under review climbed 11% to SEK126.8 billion, driven by a 32% rise in sales at its mobile business.

Company chief executive officer, Lars-Johan Jarnheimer, said Tele2 plans to focus on new investments in its core geographical markets and services. It is looking to mobile and high speed internet access services to stimulate its earnings and has expanded into markets including Russia to offset stagnating growth in western Europe. Last month Tele2 agreed to sell its French fixed line and broadband business to the French mobile operator SFR for SEK3.3 billion to focus on mobile services in France. It has now reiterated that it may exit more broadband markets, but predicts earnings will increase next year. Tele2 forecasts ‘significantly higher’ earnings before interest, taxes, depreciation and amortisation in 2007, according to its press release statement, and expects 2006 EBITDA to be at the ‘upper end of the range or slightly above’ forecast, while revenue is projected to be at the ‘lower end or slightly below.’

Tele2’s net customer additions in the period (excluding disposals) totalled 574,000, compared with 838,000 in Q3 2005. The number of mobile customers on its books rose by 976,000, compared with 885,000 in Q3 2005. EBITDA at its mobile business increased to SEK1.148 billion, up from SEK1.116 billion, with Comviq in Sweden reporting a stable EBITDA margin of 43%, in combination with a positive customer intake, Tele2 said. In Russia and the Baltics, Tele2 added 876,000 new mobile customers in the quarter, as well as 51,000 new users in the Nordic countries, but saw a net loss of customers at central European operations and in the UK and Benelux. Fixed telephony customers fell by 554,000 compared with a decrease of 104,000 in Q3 2005. Tele2 gained 157,000 broadband customers and said it expects that the broadband customer intake will continue to accelerate in the coming quarters, in particular in the UK and Benelux markets.

Sweden, Tele2