UPDATE 2-Telenor sees lower margins in 2010, shares slip

Wed Feb 10, 2010 6:08am EST

* Forecasts EBITDA margin of 27-28 pct vs 34.5 pct in 2009

* Q4 EBITDA falls 15 pct to $1.12 bln, beats consensus

* Proposes unexpectedly big 2009 dividend of NOK 2.5/share

* Sees Russian settlement finalised mid-2010

* Shares shed initial gains, falling 2.5 pct

(Adds analysts, focus on India results)

By Wojciech Moskwa and Camilla Bergsli

OSLO, Feb 10 (Reuters) - Norway's Telenor ASA (TEL.OL) said margins would fall in 2010 even as mobile telephony spending picks up from crisis levels, eclipsing better-than-expected fourth quarter results and sending its shares lower.

Telenor, which has 174 million mobile clients, was hit by lower disposable spending during the global downturn and had to cut costs to maintain profitability last year.

Shares in the firm initially rose but reversed gains to trade down 2.6 percent at 76 crowns at 1001 GMT, while the DJ Stoxx Telecom index .SXKP was up 0.9 percent.

Telenor set its 2010 EBITDA margin goal at 27-28 percent from 34.5 percent in 2009 and targeted "low single digit" organic revenue growth compared with a 1 percent fall in 2009.

"The market is choosing to focus on (the) .... margin guidance," said Tore Toenseth, an analyst at Argo Securities, calling the share price drop an overreaction.

Analysts say Telenor must keep a tight lid on capital expenditure as the global economy recovers from a crisis that hobbled Central and Eastern European mobile markets both in terms of lower volumes and the effects of weaker currencies.

Telenor set its 2010 capital expenditure plan at 14-16 percent of net revenues from a 2009 guidance of 13 percent.

"We expect market recovery in Asia, while Central and Eastern Europe remain challenging," Chief Executive Jon Fredrik Baksaas told a quarterly meeting with analysts and reporters.

DIVIDEND SURPRISE

The second biggest foreign mobile group in Asia after Vodafone (VOD.L) said October-December earnings before interest, tax, depreciation and amortisation stood at 6.69 billion crowns ($1.12 billion) against 7.89 billion a year earlier.

The result beat an average forecast for 6.57 billion from a Reuters poll of 20 analysts.

In 2009 Telenor received around 5 billion crowns in dividends from its Russian and Ukrainian mobile companies, Vimpelcom (VIP.O) and Kyivstar, helping set a record-high annual cashflow of 20 billion crowns and allowing it to set an unexpectedly large dividend of 2.5 crowns per share.

According to the Reuters poll, analysts on average expected a 1.23 crowns per share payout. Telenor said it aimed to return to a divided of 40-60 percent of normalised income from 2010.

Telenor said that its nascent operations in India, one of the world's biggest mobile market operations, have so far proven less costly than expected. The India unit had an EBITDA loss of 677 million crowns in the fourth quarter, against a 1.1 billion loss forecast by analysts.

Telenor forecast an EBITDA loss of 4.5-5.0 billion crowns for India this year. Analysts have long been sceptical about the move into India, where margins are wafer thin and competition for hundreds of millions of potential clients immense.

In November, Telenor agreed to end years of corporate and legal battles with Alfa Group, its partner in Russia and Ukraine, and to merge its operations in the two countries.

Earlier this month the Russian government cleared the Telenor-Alfa deal and the Norwegian company said it expects the agreement to be finalised by mid 2010.

Asked if a weak Ukrainian market could force Telenor to renegotiate the terms of the Alfa deal to give the Russians a bigger say in the combined company, Baksaas said it was "far too early to speculate on that".

(Editing by John Stonestreet)

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