Telenor tightens the purse strings

The team claim to have shaved 1 billion kroner (roughly €105 million) of fat across the business, but it doesn’t want to stop there.

For some it has been a bit touch and go, but Telenor has seemingly pulled a whopper out of the bag. Quarterly figures which demonstrate a profit and beat market expectations. The Norwegians are confident enough to stamp the foot down on full-year guidance; the telco version of a mic drop.

“So far this year, our team has achieved cost savings of 1 billion kroner, implying that our target for 2017 has already been met and further efficiency gains should be expected going forward,” said CEO Sigve Brekke.

“The solid results, together with the proceeds from the completion of the VEON sell-down, give us a free cash flow of 9.4 billion kroner for the quarter.”

Efficiency is the name and digital transformation is the game. 11 of the 13 business units are delivering lower year-on-year OPEX figures and the next focus is on digitalising the core. The team claim this will deliver a foundation for growth, but first and foremost it will save more money. Let’s hope the team are focusing too much on saving. If it comes at the detriment of searching for new ideas, this might not be the best ambition to harbour for the long-term.

Lean and mean is all well and good, but you have to look externally for new revenues to survive in this cut-throat world. You have to wonder when the penny-pinching exercise might start to hurt a bit too much. After all, you have to spend money to make money, and sometimes that means not getting something right. How would failure be viewed in this environment of efficiency and productivity?

What might be interesting is how much is cut away over the next three months. Brekke couldn’t be drawn into any targets for the next quarter, but the lead into the Christmas period is not exactly a perfect time to be trimming the budgets. Consumers will be looking to spend, and seeing as the team has already cut back on TV and radio advertising campaigns, there will have to be an interesting balance struck. Too much efficiency and all of a sudden the profile and visibility of the brand suffers. That would not be good news.

The team is confident of the current strategy however. The emerging Asia portfolio, both in the Bangladesh and in Pakistan, are operating on reduced costs, but offering good returns in terms of postpaid subscribers. The claim is there is also demand in the Nordic markets as well, where the team is capitalizing on the ever-growing appetite for data. Whether Telenor can continue to ride the rough waves on a stripped back ship remains to be seen, but CFO Jorgen Arentz Rostrup is confident.

“We see that there are revenue potentials in this markets if we done it right and 3% organic or 2% growth on the call revenues, it’s something we are happy with but this goes up and down dependent on the competitive environment in the various markets,” said Rostrup.

One ominous sign which might be worth paying attention to is the decline in revenues. For this quarter, Telenor managed to bring in 30.735 billion kroner (roughly €3.24 billion) compared to 31.249 billion kroner (€3.29 billion) during the same quarter of 2016. It’s not an earth shattering decline for the moment, but let’s see how big the gap is after a couple more quarters of cost cutting.

Profitability might be improving, but if revenues continue to head in the same direction, the business will only head in one direction.