Reuters: Hot Stocks: UPDATE 2-Tele2 warns of slower growth, sends shares to 3-yr low

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UPDATE 2-Tele2 warns of slower growth, sends shares to 3-yr low Feb 5th 2013, 12:23 Tue Feb 5, 2013 7:23am EST (Adds share price reaction, analyst comment) By Simon Johnson and Olof Swahnberg STOCKHOLM Feb 5 (Reuters) - Tele2 AB has warned of slower growth in Sweden and Russia this year after reporting lower-than-expected quarterly earnings, joining European telecom peers in the doldrums. Its shares slumped to a three-year low. Telecoms companies in Europe have been struggling with slower growth, tough competition and regulatory pressures, trends which Nordic firms had resisted. Yet both Tele2 and rival TeliaSonera AB have now been hit by a squeeze on margins and higher costs. Tele2 said on Tuesday its core profit had fallen 7 percent in the fourth quarter, hurt by lower margins, and by 2 percent for the full year. It said it expected a slowdown in Russia and Sweden in 2013 due to pressure from competition and, in Sweden, a shift from pre-paid customers to long-term contracts. "Revenues in Sweden and Russia in the fourth quarter and even the guidance for 2013 ... are below market expectations and our estimates," said Thomas Heath, analyst at Handelsbanken. Last week, TeliaSonera had reported a fall in core profit on flat sales, as growth in emerging markets failed to keep up with a decline in revenue in the Nordic region and rising costs. Tele2 said Sweden continued to grow during the fourth quarter, but the demand for smartphones had meant increased subsidy costs, hurting margins. "The demand for high-end smartphones is costly in the short term, but has a positive impact on the operations in the longer term," Tele2 said in a statement. SLOWER GROWTH Shares in Tele2 were down 10 percent at 102.90 crowns at 1104 GMT, having touched a low of 102 euros, their lowest since February 2010. The group also forecast slower revenue growth this year in its Swedish mobile operations, expecting a maximum increase of around 3 percent against growth of 5 percent in 2012. Core profit is expected to be roughly flat. Tele2 Chief Executive Mats Granryd, however, said that in forecasting continued revenue growth, the company stuck out among rivals such as TeliaSonera which has forecast flat revenue this year. "We are the salmon swimming against the current," Granryd said, though he added there would likely be continued pressure on margins, both in Sweden and in Russia, now Tele2's largest market. In Russia, Tele2 said it would continue to focus on expanding its customer base and would maintain a high level of spending on marketing. But as its operations in Russia mature, growth there is also slowing. Tele2 expects Russian revenue to reach between 13.7 and 13.8 billion crowns in 2013, against 13 billion in 2012, with core profit at 4.8 to 4.9 billion versus 4.7 billion. Tele2's fourth quarter earnings before interest, tax, depreciation and amortisation (EBITDA) reached 2.7 billion crowns compared with a forecast of 3.0 billion in a Reuters poll of analysts and with last year's 2.9 billion. ($1 = 6.3108 Swedish crowns) (Editing by Jane Merriman and David Holmes) Link this Share this Digg this Email Reprints

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