Telenor reports solid first quarter financial performance despite early indications of COVID-19 cons
The first quarter of 2020 demonstrates solid financial performance, with 2 per cent growth in subscription and traffic revenues, organic EBITDA growth of 3 per cent and solid free cash flow of almost NOK 4 billion. We steadily progress on our modernisation journey, and this quarter we saw increased subscriber uptake on copper replacement products in Norway and solid opex reductions across the group of 2 per cent. Our operation in Myanmar delivered a growth of 25 per cent driven by impressive subscriber intake. Sweden and Pakistan continued to face challenging markets in the quarter.
From the latter part of March, we have started to see impact from the global spread of COVID-19 on our performance, as we are experiencing lock-down situations in many of our markets. This is in particular affecting roaming revenues and Asian prepaid markets. These effects are continuing into the second quarter.
Telenor’s purpose is to connect societies to what matters most, and this has never been more important. Telenor delivers critical services and solutions, which help societies deal with the effects of COVID-19. Telenor monitors the pandemic outbreak closely and will continue taking measures to minimise the impact on health and safety of our employees as well as ensuring business continuity. Our social responsibility goes hand in hand with securing network connectivity in times like these. Our services will also play an important role in digitising societies in the aftermath of the pandemic.
In this extraordinary situation, we will continue to monitor the business closely and take measures ensuring operational performance and flexibility. We will maintain the strategic direction and cash flow focus communicated at our capital markets day in the beginning of March. Sigve Brekke, President and CEO, Telenor Group.
First quarter 2020 summary
In the first quarter, subscription and traffic revenues increased by 2 per cent on an organic basis. Total reported revenues were NOK 31.0 billion, an increase of NOK 4.4 billion or 16 per cent, of which NOK 2.4 billion were related to the consolidation of DNA in Finland and NOK 1.7 billion to currency development.
Currency adjusted opex excluding DNA decreased by NOK 0.2 billion or 2 per cent in the first quarter. Reported opex increased by NOK 1.3 billion, of which NOK 0.5 billion were related to currency development.
EBITDA grew by 3 per cent or NOK 0.3 billion on an organic basis in the quarter, as a result of subscription and traffic revenue growth and opex reductions. Reported EBITDA before other items was NOK 14.1 billion and the EBITDA margin was 46 per cent.
Capex excluding licences, spectrum and leases was NOK 3.1 billion in the quarter, yielding a capex to sales ratio of 10 per cent.
Free cash flow before M&A was NOK 2.7 billion. Total free cash flow was NOK 3.8 billion.
Leverage increased to just below 2.3x at the end of the first quarter, primarily as a result of the deprecation of the Norwegian Krone (NOK) leading to increased debt in NOK.
Outlook for 2020
While the first quarter results are in line with the external guidance for 2020 provided last quarter, the COVID-19 pandemic has led to increased uncertainty for the remains of the year, especially related to the duration of the lock-downs across Telenor’s markets. This will in particular influence roaming revenues and prepaid markets in Asia.
For 2020, Telenor expects lower subscription and traffic revenues and EBITDA growth than previously indicated. The capex to sales ratio, excluding licences and spectrum, is expected to be around 13 per cent. To ensure cash flow resilience, Telenor will strengthen the focus on capex and cost management. The mid-term ambitions, communicated at the Capital Markets Day in March, are maintained.