UPDATE 1-Sweden's Telia expects larger drop in core profit this quarter

(Adds CEO comment, analyst comment, shares)

STOCKHOLM, March 26 (Reuters) - Telia Company warned investors that its core profit would fall more in the first three months of the year than in the last quarter of 2018 because of a slowdown in its main Nordic markets.

The company, which competes with Sweden’s Tele2 and Norway’s Telenor, is seeking new ways to grow in its main markets, having invested heavily in media content.

Last year it announced a $2.6 billion deal to buy TDC’s Norwegian business as well as the $1 billion purchase of Sweden’s Bonnier Broadcasting.

Telia is now focused on supplying a full range of mobile, fixed line and TV operations in its seven Nordic and Baltic markets after retreating from central Asia, a previous source of growth.

“We are investing heavily for growth and fighting to get back to service revenue growth across our markets,” Chief Executive Johan Dennelind told investors and journalists at a capital markets day in Stockholm, adding the acquisitions were on track and that he was “very happy” with the Norwegian deal.

Telia said in a statement on Tuesday it now expects cash flow synergies from that acquisition of 800 million Norwegian crowns ($93.95 million) by the end of 2021, up from a previous forecast of 700 million.

Telia’s net sales in local currencies, excluding acquisitions, were roughly unchanged at 83.6 billion ($9.1 billion) in 2018 compared to 2017.

“For the first quarter of 2019, the underlying organic EBITDA decline is expected to be slightly more than the corresponding decline in the fourth quarter of 2018,” Telia said, noting it had now seen its January and February trading performance.

It added that the slowdown was driven by its three main markets of Sweden, Norway and Finland but that it was not having an impact on the operational free cash flow outlook for 2019.

The company reiterated that it expected its EBITDA performance to improve in the second half of 2019.

Telia said in January that profits in Sweden, its biggest market, would remain under pressure this year and that it would cut operating costs in the country by around 3 percent to offset falling fixed-line income.

The operator said on Tuesday it expected to cut group operational expenses by around 2 percent annually in 2019-2021.

“Telia’s CMD headline cost targets look modest,” Jefferies, which has a buy recommendation on the share, said in a note.

The company repeated that it expects free cash flow from continuing operations, excluding licenses and spectrum fees and dividends from associated companies, to grow to 12.0-12.5 billion crowns this year from 10.8 billion in 2018.

Telia shares fell 0.7 percent to trade at 41.67 crowns at 1033 GMT. ($1 = 9.2458 Swedish crowns) ($1 = 8.5151 Norwegian crowns) (Reporting by Helena Soderpalm Editing by Keith Weir)