Telenor ASA. Initiation of coverage Share Price: NOK September 2013 Target Price: NOK Source(s): Telenor, Fondsfinans Research

Telenor ASA Buy Initiation of coverage 12 September 2013 Share Price: NOK 130.3 Target Price: NOK 146.0 12.09.2013 Share data Sector IT - Teleco...
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Telenor ASA

Buy

Initiation of coverage 12 September 2013

Share Price: NOK 130.3 Target Price: NOK 146.0

12.09.2013

Share data Sector

IT - Telecom

Reuters/Bloomberg

TEL.OL/NO

Risk rating

Low

Outstanding shares (NOK m)

1516.6

Market cap (NOK m)

197 613

Net interest bearing debt (NOK m)

28 597

Enterprise value (NOK m)

226 210

Free float

40 %

Average volume (k)

1 738 060

High/low 52w

134.4/99.61

Weight OSEBX

12.13 %

Rel. Perf 3 / 6 / 12m

1 / 2 / 11

Abs. Perf. 3 / 6 / 12m

9 / 7 / 26

Telenor vs. OBX y-o-y

We initiate coverage on Telenor with a BUY rating and a price target of NOK 146 based on a combination of DCF and SOTP metrics. Within the wider telecom universe we find Telenor comparatively attractive as its shares at multiples and yields trade in line with peers while the growth profile and future potential appears significantly brighter. In our opinion Telenor stands out as one of few developed market telecom operators offering investors a combination of growth and value proposals. Looking at Telenor’s position in its pres ent markets, the exciting combination of geographic exposure and also expansion po ssibilities, we find solid values in the name, not least vs. its closest peers. Concerning valuation we find Telenor attractive, both on a stand-alone and relative basis vs. its slower growing peers as Telenor offers solid earnings and good returns whilst retaining a solid financial position.

Telenor

OSEBX

13.08.2013

02.07.2013

21.05.2013

09.04.2013

26.02.2013

15.01.2013

04.12.2012

23.10.2012

In sum our blended valuation approach (Peer and implicit SOTPs, DCF) yields a price target of NOK 146 per share that given the 12% upside potential supports a BUY recommendation. Combini ng the valuation factor with the attractive returns, and not least the growth case, we find good arguments for why Telenor would fit most investors’ preferences. 11.09.2012

35% 30% 25% 20% 15% 10% 5% 0% -5% -10%

Best sector growth story at an attractive valuation

Examples of risks that we identify include heightened competition and further price pressure in the Nordic region in particular, as well as another boom in capex following recent expansion plans , e.g. in Myanmar. Non-company specific risks include e.g. adverse po litical events and currency movements, primarily in emerging markets, and a shift in technology. Key figures (NOKm) Revenues

Prepared by analyst: Daniel Johansson Fondsfinans ASA TEL: +47 23 11 30 61 [email protected]

2010

2011

2012

2013E

2014E

2015E

98 132

98 558

101 784

102 869

106 470

109 493 39 267

EBITDA

28 687

30 042

31 985

34 815

37 619

EBIT

12 340

10 393

9 738

21 429

24 814

26 702

PTP

19 963

13 355

10 822

22 879

25 927

27 699

EPS reported

8.65

4.90

5.60

9.31

11.05

12.36

EPS Adjusted

6.44

7.03

10.25

9.03

11.05

12.36

Revenue growth

1%

0%

3%

1%

4%

3%

EBITDA margin

29.2 %

30.5 %

31.4 %

33.8 %

35.3 %

35.9 %

EV/Sales

1.8

1.8

2.0

2.2

2.1

2.0

EV/EBITDA

6.2

5.9

6.2

6.4

5.8

5.5

EV/EBIT

14.3

16.9

20.5

10.4

8.9

8.1

P/E adj.

14.7

13.9

10.6

14.3

11.7

10.5

ROE

17 %

9%

11 %

19 %

22 %

24 %

Source(s): Telenor, Fondsfinans Research

FONDSFINANS ASA, HAAKON VII’S GATE 2, P.O.BOX 1782 VIKA, NO-0122 OSLO, TEL: +47 23 11 30 00, FAX: +47 23 11 30 03, [email protected] This report was prepared by an analyst engaged by Fondsfinans ASA, the Norwegian affiliate of Fondsfinans Inc., who is not registered as a research analyst with FINRA or subject to FINRA rules governing research. See page 20 of this report for Important Disclosure Information.

Telenor ASA - Initiation of coverage

Several exotic ingredients, all adding to a well-blended cocktail Revenues – Growth still the most attractive among Telenor’s peers Despite maturing markets and increasing competition in key regions Telenor still has significantly better growth prospects than its peers, most notably the Nordic names.

With a forecasted 2.0% top line CAGR in 2013E-2015E Telenor stands out as one of the best growth providers in a se ctor that largely lacks growth and there are few peers with the similar exposure. The Nordic, European and “global” carriers all seem hampered by weak growth which we believe will prevail despite increased data bandwidth demand. Telenor’s main peer; TeliaSonera, is expected (Bloomberg consensus) to deliver merely a 0.5% CAGR for 2013E2015E while global bellwether Vodafone is ex pected to report a flat top line and emerging market specialist Millicom is assumed to have a 7.7% CAGR over the corresponding period, all suggesting that it is in emerging markets telecom investors should be. Consensus suggests Telenor’s top line should grow by 2.2% CAGR over the corresponding peri od, so we are not alone betting on top line outperformance vs. the sector. Telenor guides for 2-4% growth in 2013E. Telenor’s solid emerging Asia position, i.e. in countries like Thailand and Pakistan, as well as the re-entry into India and should provide the company with an excellent platform for future growth. To that comes the license in Myanmar, a country with merely a 9% mobile penetration. We have chosen to not include any Myanmar estimates into our model at this stage. On the contrary the struggle will play out in the Nordics wher e competition is becoming fiercer; e.g. due to aggressive growth plans by peer Tele2 in Norway, more competitive pricing in Sweden with four incumbent players and not least persistent weak profitability in Denmark, a market much too fragmented. Much of the growth possibility now builds on increased data traffic which, importantly, may play in Telenor’s favor. CEE for its matter does not suffer from the same level of competition as the Nordics due to the st rong market position held by Telenor in all markets where the company is pr esent and a lower degree of fragmentation in total. Having said that voic e traffic saturation is a s hort term threat while customers in the CEE also appear less prone to pay for data than in the Nordics. Moreover, the long term structural c hallenges mean subscriber growth is expected to be modest in CEE While we expect to see robust growth over the coming two years we are unlikely to see any meaningful P&L impact from Myanmar in this time frame while Myanmar should provide Telenor with a rare growth opportunity beyond 2015E.

Revenue and growth 112

4.0 % 109.5

110 108

106.5

3.0 %

106 104

101.8

102 100 98

98.1

2.5 %

102.9

2.0 %

98.6

1.5 % 1.0 %

96

0.5 %

94 92

Page 2

3.5 %

2010

2011

2012

12 September 2013

2013E

2014E

2015E

0.0 %

Fondsfinans Research

Telenor ASA - Initiation of coverage

Source(s): Telenor, Fondsfinans Research

EBITDA and margins - Flattening at high levels with more Asia exposure Telenor’s EBITDA and margins have grown significantly over the years but are set to flatten on geographical exposure and ARPU. Margins are flattening at a high level.

While we forecast growth to remain higher than that of many peers and Telenor to gain market share in several core markets such as India and Pakistan the current pricing trend in developed mark ets, i.e. reduced roaming fees and bundled subscription, would in our view fl atten the Telenor EBITDA growth delta in 2013E-2015E while margins should stabilise around c. 34-36%. Telenor guides for 34% this year. Although margins are very high in certai n countries such Bangladesh, the ARPU trend overall is largely negative and marg ins are expected to flatten as a consequence we think. On the other hand lower OPEX levels will support profitability levels and returns in 2013E-2015E we argue. The margin boost from the strong position in the Nordics and CEE will start to moderate towards 2015E however given the new bundling pricing schemes in the Nordics and as the CEE margins having reached peak levels in the current setting, in all implying that the Asian business becomes critical more for profitability. Nonetheless, we see upside potential from SG&A cost cuts in e.g. the Balkans as Telenor now stands ready to integrate Globul (the newly acquired Bulgarian unit) with the activities in the bordering countries. With an increased Asia exposure from today’s 47% to c. 50% by 2015E, and Telenor should repor t record margins there beyond 2015E at just below 40% on average (the group is expected to achieve 2015E margins at 36.1% including India).The fact that India should deliver numbers in the black sometime in 2014E also supports the Asian earnings trend although risks attached to the Indian operations remain high.

EBITDA and growth 45

10 % 8% 39.3

40

37.6

4%

34.8

35

2%

32.0 30

28.7

6%

0%

30.0

-2 % -4 %

25

-6 % -8 %

20

Fondsfinans Research

2010

2011

2012

12 September 2013

2013E

2014E

2015E

-10 %

Page 3

Telenor ASA - Initiation of coverage

EBITDA margins, OPEX growth 6%

38%

36%

35.3 %

35.9 %

4% 3%

33.8 %

34%

2% 1%

31.4 %

32%

0%

30.5 % 30%

5%

-1 %

29.2 %

-2 % 28%

2010

2011 Incl. India

2012 Excl. India

2013E

2014E

2015E

-3 %

OPEX growth, y-o-y

Source(s): Telenor, Fondsfinans Research

FCF and cash conversion – Capex risk aside there are true qualities FCF has improved dramatically in Telenor and is likely to follow EBITDA developments with risks stemming from capex. Cash conversion is indeed very attractive.

Although group EBITDA and margins will grow up to 2015E and stay more or less stable at high levels despite regional variation we believe that cash flows will still be somewhat more at risk given e.g. spectrum auctions. Still the capexto-sales ratio should moderate from its 21% 2012 peak to c. 15% in 2013E2015E since the major programs, e.g. in Norway and Thailand, are now increasingly behind us. Our estimate is higher than Telenor’s 12-14% 2013E guidance though. In all we predict the Tel enor net FCF to grow 8.5% CAGR in the 2013E-2015E period but with downside risk since the Myanmar license could potentially have a pronounced impact alr eady in 2014E, and obviously also beyond that as well. Our base scenario is that Telenor’s cash conversion should stay solid in the 2013E-2015E period amounting to 120% on average between 2013E and 2015E, i.e. up from the 2010-2012 period le vel of 96% on average and still over time averaging around the 100% level. In all this helps us to conclude that Telenor is a quality name in the sector from a cash returns perspective, albeit with increased risk tied to the emerging Asia investments.

Page 4

12 September 2013

Fondsfinans Research

Telenor ASA - Initiation of coverage

Capex, capex-to-sales ratio 25

25% 21.0

20

20% 16.3

16.3

16.1

15

15% 11.8

11.4 10

10%

5

0

5%

2010

2011

2012

2013E

2014E

2015E

0%

Net FCF and growth

18.5

19 16.9

17

13

80 %

13.8

12.8

60 % 40 % 20 %

11

0%

9

-20 %

6.7

7 5

120 % 100 %

14.6

15

140 %

2010

2011

-40 %

2012

2013E

2014E

2015E

-60 %

Cash conversion and trend 200% 183%

180% 160% 140%

122%

120%

121%

100% 88%

80%

90%

60% 40%

Fondsfinans Research

44% 2010

2011

2012

12 September 2013

2013E

2014E

2015E

Page 5

Telenor ASA - Initiation of coverage

Source(s): Telenor, Fondsfinans Research

Balance sheet and returns – Robust and attractive in Telenor’s universe Telenor’s balance sheet remains (too) conservative in our opinion while on the other hand providing great returns opportunities and yield potential. In all this adds to the value case.

Compared to most Nordic and global peer s, and despite the high investment pace and buy-backs, Telenor has a very conservative balance sheet. The company guides for a NIBD/EBITDA ratio bel ow 2.0x while it currently operating at 0.9x on our 2013E estimates while it al so has a NIBD/Equity ratio of 40%. We think this is overly conservative whic h suggest there is upside to DPS (or buy backs) given our current model assumptions. We estimate 2013E DPS at NOK 7.00, up from NOK 6.00 in 2012. Obviously Telenor is making itself ready for additi onal capex we believe which hints that the pay-out ratio (DPS/EPS) may probably peak at our forecasted 77% in 2013E (note that Telenor guides for 50-80%). Still the current DPS forecast is far from unattractive from value investors’ point of view and translates into a 5.4% yield growing to 6.8% in 2015E. The yield should be compared to the average 4.2% for main peers combined and 5.4% for close peers in our synthetic peer group and combined with the growth profile of Telenor we think this adds to the attractiveness of stock.

NIDB and debt-equity ratio

55 %

40 36.2 35

33.2

33.1

45 %

29.8

30

50 %

40 % 35 %

25

20

30 % 19.3

20.7

25 % 20 %

15

Page 6

2010

2011

2012

12 September 2013

2013E

2014E

2015E

15 %

Fondsfinans Research

Telenor ASA - Initiation of coverage

EPS, DPS and pay-out ratio 14.4

90 % 12.4

12.4 10.2

10.4

4.4

9.0 8.0

7.0

6.4

60 % 50 %

7.0 6.0

40 %

5.0

30 %

3.8

20 %

2.4 0.4

80 % 70 %

9.0

8.4 6.4

11.0

10 % 2010

2011

2012

EPS adj.

2013E DPS

2014E

2015E

0%

Pay-out ratio

DPS, dividend- and FCF yield 10.4

14 % 9.0

9.4 8.0

8.4 6.0

6.4

8%

5.0

5.4 4.4

10 %

7.0

7.4

6%

3.8

3.4

4%

2.4

2%

1.4 0.4

12 %

2010

2011

2012 DPS

2013E Div. yield

2014E

2015E

0%

FCF yield

Source(s): Telenor, Fondsfinans Research

Emerging markets driving the growth case for years to come Telenor’s growth will be increasingly driven by emerging markets and Asia in particular which we argue is key to the case.

While we neither have included the Bulgaria (Globul) operation into our estimates, awaiting further clarity on exact implications on the Telenor P&L, and neither having adjusted our forecast for t he entry into Myanmar it is still clear that emerging markets will be the key driver for Telenor, especially beyond 2015E. In our view Telenor’s sound blend of emerging geographies and more importantly the differing levels of matu rity between individual countries create interesting opportunities and a more balanced earnings mix in the longer term. As can be seen from the table below the Nordics constitute a highly mature market with increasing competition. Growth there will ultimately depend on increased data traffic as voice ARPU dec lines sharply and potential structural deals which may increase Telenor’s reac h on since SIM penetration is already close to 100% and alternative servic es are emerging and gaining popularity

Fondsfinans Research

12 September 2013

Page 7

Telenor ASA - Initiation of coverage

among smartphone users. Within the emerging regions the CEE is increasingly mature from a voice perspective while data constitutes a growth opportunity. There is limited room for intra-country structural deals and the growth fundamentals are at risk while Telenor should be able to defend its market shares. In emerging Asia the trend is more diverse. In countries like Mala ysia voice growth is limited while data grows rapidly. In Bangladesh for instanc e voice is still key to revenue growth while Telenor (Grameenphone) has a very large market share already. Greenfield Myanmar would, at an estimated penetration of merely 9%, constitute a major growth opportunity within voice.

Geographies and fundamentals Geography

SIM Penetration

Population

Est. real penetration

Telenor Norway

5 051

116 %

95 %

Telenor Denmark

5 587

125 %

95 %

Telenor Sweden

9 556

139 %

95 %

Telenor Hungary

9 932

98 %

85 %

Telenor Serbia

7 243

127 %

85 %

DiGi - Malaysia

29 628

127 %

80 %

DTAC - Thailand

67 500

136 %

70 %

Grameen - Bangladesh

162 000

59 %

30 %

Telenor Pakistan

190 291

71 %

45 %

1 220 200

62 %

40 % 85 %

Uninor - India Globul - Bulgaria

6 981

150 %

56 000

11 %

9%

1 706 988

68 %

43 %

Myanmar Weighted average* Source(s): Telenor, Fondsfinans Research *Average excluding Globul – Bulgaria and Myanmar

Geographical EBITDA split 2013E (%)

Geographical sales split 2013E (%)

Broadcast 6%

Broadcast 7%

Nordic 42 %

Nordic 39 %

Asia 47 %

Asia 45 %

CEE 8%

CEE 7%

Source(s): Telenor, Bloomberg, Fondsfinans research

Page 8

12 September 2013

Fondsfinans Research

Telenor ASA - Initiation of coverage

The regions and segments – Earnings and cash flow upside throughout with Asia being the growth engine Norway, Sweden and Denmark – Growth, capex the main question marks The Nordics and Norway in particular is earnings and Op.CF backbone while growth is set to moderate. We see some capex risks ahead as data traffic increases.

As mentioned the Nordics remain the ba ckbone of the Telenor mobile business and we reckon this will continue although we argue there is downside in revenues growth in 2013E-2015E. Aside of voice making a lower contribution via higher competition, e.g. tied to the in creased efforts by Tele2 in Norway and Telenor’s no. 3 position in Sweden, and general maturity concerning subscriptions, we see the growth in data via the new bundling plans, offering cheaper rates, to contribute less to growth than up to recent. Obviously profitability will be impacted too by t he changed pricing strategies but we forecast Telenor’s margins to hold up well at high levels supported by lower OPEX, at least in the 2013E-2015E period, and Op.FCF to start improving following the recent network investment cycle. Along with the softer growth on both voice and data comes the increased co mpetition for 4G network reach and while Telenor holds a very strong posit ion in Norway but should competition increase further we see risks tied to capex also going forward.

Nordics combined, overview 25.0

20.0

15.0

40.0 %

20.2

19.2

12.8

12.9

18.9

12.7

18.9

19.7

19.3

35.0 % 30.0 % 25.0 %

11.4

12.1

11.4

10.0

20.0 % 15.0 % 10.0 %

5.0

5.0 % 0.0

2010

2011 EBITD A

2012 OpFC F

2013E

2014E

EBITD A (%)

2015E

0.0 %

OpFC F (%)

Source(s): Telenor, Fondsfinans Research

CEE – Telenor in pole position with record margins The CEE is becoming increasingly mature and may turn structurally challenging while Telenor’s position protects earnings and Op.CF.

Fondsfinans Research

While a similar trend to that of the Nordics, lower revenue growth – higher capex risk, has for some time been visible in the CEE region we find reasons for being more optimistic on the region with regar ds to earnings. Firstly Telenor has been able to secure a very strong position in all the individual countries where it is present with Hungary, Serbia, and going forward also Bulgaria, being the key markets in terms of position and network reach. Secondly, unless we are to witness a similarly aggressive pricing than in the Nordics, which we find unlikely, margins in the 35%+ level should be secure. We nonetheless find the CEE region to gradually becoming less critical to the Telenor case for several reasons. Firstly the countries are small rela tive to those in Asia where Telenor is present and Telenor’s market share grow th potential is limited. Secondly the

12 September 2013

Page 9

Telenor ASA - Initiation of coverage

structural challenges are becoming incr easingly visible as the markets become more mature while data traffic demand, and the willingness to pay for data is still lower than in the Nordics which hampers growth for the moment. An additional factor becoming increasingly important beyond 2015E is the declining population in the region. For Telenor an obvious strategy would firstly be to continue to convert pre-paid engagements to post-paid and also to engage in further integration between the national units which we think could lower OPEX. Notably there is also additional room for value accr etive M&A in the region we think. It is our belief that the CEE region capex risk remains limited and we see the potentially negative effects to Op.FCF as smaller than in the Nordics.

CEE (ex. Globul - Bulgaria) combined, overview

4.0

40.0 %

3.5

35.0 %

3.0 2.5

3.0 2.4

3.0 2.6

2.7 2.2

2.1

2.8

2.8

2.2

2.2

1.8

2.0

30.0 % 25.0 % 20.0 %

1.5

15.0 %

1.0

10.0 %

0.5

5.0 %

0.0

2010

2011 EBITD A

2012 OpFC F

2013E EBITD A (%)

2014E

2015E

0.0 %

OpFC F (%)

Source(s): Telenor, Fondsfinans Research

Emerging Asia – The backbone of the Telenor growth case Emerging Asia is becoming increasingly important and supports the long term growth case while newly entered markets imply higher capex risk.

Page 10

Having seen a dramatic shift of its c apital employed over the past few years Telenor is now increasingly dependent on Asia, which we think is also critical to the growth case that we argue investors should be willing to pay a premium for. While the Nordics have become increas ingly competitive and the long term structural growth case in the CEE has abated we see Asia, and in particular Pakistan and Thailand, with India and My anmar as potentials, as the most promising growth areas. In Pakistan we believe the growth fundamentals in voice are still the best among the indivi dual countries e.g. due to continuous growth in voice traffic and services like mobil banking, increased penetration in rural areas and not least the population growth. Increased scale provides margin upside too although we reckon there is substantial OPEX risk from infrastructure shortcomings etc. In Thailand the new network rollout following the move from concession to a full license provides better earnings and margins throughout while the 3G launch should start to drive data demand already in 2013E-2015E. In our view the new set-up should be hi ghly margin supportive. Malaysia, on the other hand, appears increasingly mature while we put our hopes in the growth of data given DiGi’s strong position. In Bangladesh, for comparison, Grameenphone’s dominating position should secure margins while market share gains are unlikely. Growth will thus depend on higher ARPU’s, which we find unlikely, and more importantly the under lying population growth. As mentioned India is a potential growth-booster but we still find the new Telenor set-up to be in a start-up phase with downside risk form delays in regulatory approval and

12 September 2013

Fondsfinans Research

Telenor ASA - Initiation of coverage

capex risk to be substantially higher than in the other Asian markets. The Indian market fragmentation and competition si tuation combined with the unclear situation with regards to national M&A are the key uncertainty for Telenor although Uninor shoudl break even bef ore end-2013E. Myanmar, in our belief, will most likely not provide any revenues before 2H15E at the earliest and we have chosen to await company information before including it in our model. Having said that we see substantial capex needs over the coming years. To sum up both top line and EBITDA growth should be material in Asia up to 2015E. Margins should expand accordingly, but flatten at high levels in 2015E We forecast a similar trend in Op.CF.

Emerging Asia (incl. India, ex. Myanmar) combined, overview

25.0

40.0 %

20.0

19.2

18.2

30.0 %

16.2 15.0

10.0

5.0

0.0

12.0

25.0 %

13.9

9.6

7.7

7.4

10.5

9.6

20.0 % 15.0 % 10.0 %

4.5

5.0 %

0.2 2010

35.0 %

2011 EBITD A

2012 OpFC F

2013E EBITD A (%)

2014E

2015E

0.0 %

OpFC F (%)

Source(s): Telenor, Fondsfinans Research

Other businesses and associated companies Broadcast is the largest non-mobile segment providing stable earnings but suffering from low growth

In Broadcast we continue to see good development in margins and OP.FCF as cost efficiency is increasing while we also acknowledge that the structural growth is fading due to the emergence of network TV solutions and other broadband services (e.g. HBO and Netflix ) potentially replacing traditional broadcasting. We still believe Broadcast is a core business for Telenor but there is possibility that a structural deal could happen, not least since scale is the essence in this business.

Associates is dominated by VimpelCom which is a solid earnings generator yet with high risk attached we argue.

Among the associated companies we see structural risks in VimpelCom although he company is a stable earnings generator at present. Along with the growth in the Russian market moderati ng, margins possibly peaking and amidst the political risks, including governance risk tied to the holding structure in VimpelCom shares, may impact both the D PS attributive to Telenor and implicit valuation we argue. Still VimpelCom rema ins a substantial, c. 17% of the Telenor EV, which means the unit is very critical to the Telenor case. The risks surrounding VimpelCom may also lower the likelihood for Telenor to find a suitable buyer should management consider a divestment of the 33% holding at some stage. For 2013E we forecast the contribution from VimpelCom to be NOK 2,971m, up by 38.5% y-o-y excluding items.

Fondsfinans Research

12 September 2013

Page 11

Telenor ASA - Initiation of coverage

Other businesses, table Broadcast, Other 2013E EBITDA Broadcast 2 029 Other -745

EBITDA (%) 29.7 % -15.1 %

OpFCF 1 461 -865

OpFCF (%) 20.8 % -17.5 %

Source(s): Telenor, Fondsfinans Research

Our estimates appear neutral vs. that of the market Whilst being positive on the Telenor case our estimates are more or less aligned with consensus on the major P&L lines.

We are almost in-line with consensus (Bloomberg) on the major P&L lines for 2013E and 2014E although we reckon there is more uncertainty to 2015E estimates at this early stage. For the most important lines; sales and EBITDA. our forecasts are 1.0% and 2.1% bel ow consensus for 2013E while the corresponding figures for 2014E are 0.7% and 0.8% respectively below street estimates. We note, however, that our estimates are on the cautious side on India given the potential dev elopments there while we also have chosen not to include Bulgaria and Myanmar before there is further clarity on the exact impact on the P&L. The Globul impact will be effective on 2013E and 2014E numbers and take the top line higher whilst impacting margins slightly on the negative side most likely, albeit not affecting t he case. With regards to Myanmar the implications for the accounts will be limited before 2015E except for capex and thus cash flows and the balance sheet.

Fondsfinans estimates vs. consensus Deviation vs. consensus NOK m Sales

Deviation Deviation 2013E 2014E FF BB % FF BB % 102 869 103 376 -0.5 % 106 470 106 933 -0.4 %

EBITDA EBITDA mgn. (%)

34 815 33.8 %

35 540 34.4 %

-2.0 %

37 619 35.3 %

38 095 35.6 %

-1.2 %

EBIT EBIT mgn. (%)

21 429 20.8 %

21 645 20.9 %

-1.0 %

24 814 23.3 %

23 946 22.4 %

3.6 %

PTP EPS adj.

22 879 9.03

23 861 10.16

-4.1 % -11.1 %

25 927 11.05

26 917 11.40

-3.7 % -3.1 %

Source(s): Bloomberg, Telenor, Fondsfinans Research

Page 12

12 September 2013

Fondsfinans Research

Telenor ASA - Initiation of coverage

Mobile customers still adding up while pricing has hit a wall Telenor will continue to report a robust increase in new customers while ARPU for voice declines sharply, and data is supposed to come under pressure.

Because of the maturity of the traditi onal voice call model and declining ARPU’s throughout, much of the Telenor case builds on adding customers, especially in emerging Asia, and also to convert pre-paid engagements to post-paid subscriptions. The latter implies closer customer ties and a more predictable revenue base but may lower margins in ce rtain markets. Note that the less developed countries in emerging Asia deriv e its revenues almost entirely from pre-paid. In all we forecast Telenor to add c. 37 m new customers in the period 2013E-2015E, a CAGR of 7.2%. Still, and as mentioned above, the maturity in a numbers markets will hamper Telenor’s relative growth vs. that of recent years, particularly with regards to voice obvi ously while data is expected the primary growth engine outside emerging Asia but also in Malaysia up to 2015E. Since competition is increasing, not least in t he Nordic region, we assume data growth will also flatten post 2015E despite high c apex spent on the network. In our view this is a potential threat to gross profitability although we argue non-Nordic growth in voice, and more so in data, will make up for those, adverse, developments. We also believe that the worst is behind us from a lower “volume” growth perspective. The other side of the top line equation; pricing, is more of a concern as can be seen from that the ARPU has been in a prolonged decline and is expected to continue be negative up to 2015E, and beyond t hat point too we estimate. On a group level pricing is expected to decline by 23% CAGR between 2013E and 2015E, a matter that is primarily driven by the decline in voice and the more intense competition in Nordic region that via new bundling packages also implies lower data revenues. It is our belief that a similar trend is beginning to hurt telecom carriers also in the CEE and emerging Asia although the migration to post-paid subscription from pre-paid could reduce that effect. In all the top line sensitivity to pricing within voice and data is a potential headache for Telenor suggesting ether is more need for cost e fficiency. Still, and while ARPU growth should remain in the red, increased data traffic and the emerging Asia exposure and expansion should provide Telenor with good cushioning we reckon.

ARPU and subscriber growth 50%

43%

40% 30%

40%

32%

31%

26%

15%

20%

7%

10%

1%

0% -10%

-2%

-40%

-17%

-11% -14% -12%

11%

14% 10%

-9%

-8% -6%

-17%

-28% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E2014E2015E Subscriber growth

Fondsfinans Research

-6%

-8%

-20% -30%

6%

12 September 2013

ARPU Growth

Page 13

Telenor ASA - Initiation of coverage

Number of mobile subscribers (in 1000’s) 30 %

250 000

25 %

200 000

20 % 150 000 15 % 100 000 10 % 50 000

Mobile Nordic

Mobile CEE

Mobile Asia

2015E

2014E

2012

2011

2010

0

2013E

5% 0%

Growth, total (%)

Source(s): Telenor, Fondsfinans Research

Investments (capex) being the main source of uncertainty While Telenor has reported strong FCF we see a risk mounting on the horizon as capex is likely on the rise. We remain conservative for now and argue the value case is solid.

Although we acknowledge that Telenor’s cash flow is strong and will continue to develop favorably in the 2013E-2015E period we also see the risk for an increased investment pace beyond 2015E, not only relating to India and Myanmar but rather an expansion/maintenance capex rise much similar to that over the past few year’s in the No rdics following the booming data demand. Over the 2013E-2015E period we have c hosen to be conservative regarding capex needs given the absence of regulatory clarity in India and Myanmar is obviously a black-box. In our view this is the key concern fo r cash flows and long term valuation (see details below) whereas most other factor s; top line growth and earnings, point in the positive direction also beyond 2015E. We note that acquisition capex may be boosted too going forward, although s hould Telenor find additional bolt-on assets to buy in to, e.g. in the CEE region where we identify several potential take-over target. Still that line should remain modest as a percentage of total capex in our view.

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12 September 2013

Fondsfinans Research

Telenor ASA - Initiation of coverage

Capex and trend 25 21.0 20 16.3

16.3

16.1

15 11.4

11.8

10

5

0

2010

2011

2012

Capex (ex. Myanmar)

2013E

2014E

2015E

Acquisition capex (ex. Globul)

Source(s): Telenor, Fondsfinans Research

Valuation still highly supportive after the 15% y-t-d price gain We chose to value Telenor based on three metrics; an implicit SOTP, a peer-based SOTP and a group DCF

When valuing Telenor we use three different approaches to capture the underlying values; namely an implicit SOTP where we use the aggregate segmental valuations (one for each s egment - primarily DCF-based), a peer multiples (EV/EBITDA) SOTP per geographical region (Nordics, CEE and emerging Asia) and finally a standard, group, DCF (WACC: 10.2%, terminal period EBITDA margin at 33.7%, long term growth fading down to 1.5%). When identifying the relevant peers we use a combination of Nordic telecom plays such as TeliaSonera, international actors such as Vodafone and not least emerging market players with particular focus on the CEE and emerging Asia. We reckon however that emerging market peers are difficult to directly compare with Telenor, especially those in frontier ma rkets like Pakistan, and those that are large conglomerates. While our implicit SOTP model brings the value per Telenor share to NOK 139 the peer multiples-based SOTP yields a per share value of NOK 147. In the former SOTP approach we have chosen to adjust WACC on a country by country basis while we with regards to the latter use the most suitable peers for the specific geographies. As argued for above Telenor may deserve a premium with regards to multiples vs. peers, but given the uncertainty e.g. in India and the fact that we have seen multiple expans ion over the past few months, e.g. following the increased M&A activity in the sector, now suggesting peer multiples are fairer and thus directly applicable. Concerning the proper DCF we arrive at a value of NOK 146, which is explained by the growth case, improving margins on the group level and the solid cash flow s generation expected over the longer term.

Fondsfinans Research

12 September 2013

Page 15

Telenor ASA - Initiation of coverage

Peer group Peer group Telenor

Price (last), LCY 129.6

1 yr. chg., % 20.4

Y-t-d-, chg. % 15.5

1 m, chg., % EV/S, % EV/EBITDA, % EV/EBIT, % -3.3 2.3 6.7 11.1

P/E, % 12.8

D/Y, % 5.4

FCF yield, % n/a

European Telecom TeliaSonera TDC Tele 2 Vodafone BT Group Deutsche Telekom Swisscom Average

48.0 47.6 84.0 209.8 346.5 9.8 432.0

0.6 16.0 -4.8 18.8 53.0 -0.4 12.3 13.6

9.0 18.8 -3.2 35.8 49.9 13.8 9.7 19.1

0.8 0.2 -1.9 6.7 4.8 0.9 1.1 1.8

2.8 2.5 1.6 3.0 2.0 1.6 2.7 2.3

8.1 6.2 7.6 9.9 5.9 5.4 7.3 7.2

12.1 12.4 16.3 24.0 11.2 13.1 13.7 14.7

11.6 12.0 19.7 13.5 13.7 15.4 13.8 14.3

6.4 7.8 5.5 4.8 3.2 5.4 5.1 5.4

5.0 11.9 n/a 9.4 7.2 15.6 6.1 9.2

Emerging Mobile DIGI Telekom Malaysia Singapore Telecom DTAC Average

4.7 5.4 3.6 117.0

-0.9 -10.9 8.7 33.7 7.7

-11.2 -10.8 9.7 32.6 5.1

1.3 1.7 -5.7 -3.3 -1.5

5.5 2.2 3.5 3.0 3.5

12.0 7.0 12.5 9.7 10.3

17.0 19.0 19.9 17.3 18.3

22.3 22.4 16.1 22.3 20.8

4.9 4.2 4.8 4.4 4.5

-1.2 0.9 6.3 7.1 3.3

Broadcast Verizon Communications Comcast British Sky Broadcasting DirecTV Average

46.4 43.2 847.0 61.2

5.0 25.9 11.7 15.8 14.6

7.3 15.5 10.4 22.0 13.8

-5.8 -3.3 -0.4 -1.7 -2.8

1.9 2.4 2.1 1.6 2.0

5.6 7.3 8.9 6.5 7.1

9.3 11.7 11.3 10.3 10.6

16.6 17.6 14.7 12.6 15.4

4.5 1.8 3.7 0.0 2.5

12.8 6.4 9.7 5.8 8.7

SOTP model, peer multiples SOTP - Synthetic peer multiples Nordic telecom Telenor - Norway Telenor - Denmark Telenor - Sweden Sum Nordic Emerging mobile Telenor Hungary Telenor Serbia DiGi.Com - Malaysia DTAC - Thailand Grameen - Bangladesh Telenor Pakistan Telenor Montenegro Sum Emerging mobile Broadcast Telenor India Group cost / other Total Core Business

Associates Vimpelcom Ltd. APR Media Holding EDB Business partner Others Sum Listed associates

Stake

Sales

EBITDA

OpFCF

100.0 % 100.0 % 100.0 %

24 642 5 125 10 749 40 515

10 748 936 3 061 14 745

6 091 482 1 706 8 279

4 065 2 826 12 042 18 366 7 130 5 351 502 50 281

1 342 1 143 5 305 5 674 3 622 2 163 229 19 478

1 080 924 3 782 3 777 654 613 183 11 013

6 829 2 938 2 223

2 029 -545 -894

1 461 -1 090 -1 016

100.0 % 100.0 % 49.0 % 65.4 % 55.8 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Multiples

EV

Per share

Equity, %

10 748 936 3 061 14 745

7.21

106 295

71

47 %

1 342 1 143 2 599 3 711 2 021 2 163 229 13 208

10.29

135 860

91

60 %

7.07

14 337 0 -6 444 250 048

10 0 -4 168

6% 0% -3 %

38 663 1 220 776 3 40 662

26 1 1 0 27

17 % 1% 0% 0% 18 %

-28 597 -36 803 225 310

-19 -25 151

-13 % -16 % 100 %

35.7 % 48.8 % 30.2 %

Debt Minorities Net Value

Page 16

12 September 2013

7.21

Fondsfinans Research

Telenor ASA - Initiation of coverage

SOTP model, implied multiples SOTP - Implied Stake

2013 Forecasts Sales EBITDA OpFCF

Implied EV ratios Sales EBITDA OpFCF

Methodology

WACC/ ratio

EV

Pro Rated

Per Share

% Equity

Nordic telecom Telenor - Norway Telenor - Denmark Telenor - Sweden Sum Nordic telecom

100 % 100 % 100 %

24 642 5 125 10 749 40 515

10 748 936 3 061 14 745

6 091 482 1 706 8 279

3.1 1.0 2.1 2.6

7.2 5.7 7.3 7.1

12.7 11.0 13.2 12.7

DCF DCF DCF

8.5 % 10.0 % 9.0 % 8.7 %

77 249 5 293 22 481 105 022

77 249 5 293 22 481 105 022

52 4 15 71

37 % 3% 11 % 50 %

Emerging mobile Telenor Hungary Mobi63 - Serbia DiGi.Com - Malaysia DTAC - Thailand Grameen - Bangladesh Telenor Pakistan Telenor Montenegro Sum Emerging mobile

100 % 100 % 49 % 65 % 56 % 100 % 100 %

4 065 2 826 12 042 18 366 7 130 5 351 502 50 281

1 342 1 143 5 305 5 674 3 622 2 163 229 19 478

1 080 924 3 782 3 777 654 613 183 11 013

1.9 2.9 2.9 1.7 2.9 2.3 2.7 2.3

5.7 7.1 6.5 5.4 5.7 5.7 6.0 5.9

7.1 8.7 9.1 8.2 31.3 20.1 7.5 10.5

DCF DCF DCF DCF DCF DCF DCF

10.0 % 10.0 % 11.0 % 11.0 % 12.0 % 15.0 % 12.0 % 11.5 %

7 696 8 081 34 438 30 866 20 490 12 333 1 376 115 280

7 696 8 081 16 875 20 186 11 433 12 333 1 376 77 980

5 5 11 14 8 8.3 0.9 52

4% 4% 8% 10 % 5% 0.1 0.0 37 %

Telenor India Broadcast Group cost / other Consolidated Enterprise value

100 % 100 % 100 %

2 938 6 829 2 223 102 787

-545 2 029 -894 34 814

-1 090 1 461 -1 016 18 647

1.1 2.1 -2.0 2.3

n.m 7.2 5.0 6.7

n.m. 10.0 4.4 12.5

DCF 12.0 % DCF 10.0 % EBITDA 7x norm.

3 195 14 603 -4 480 233 620

3 195 14 603 -4 480 196 320

2 10 -3.0 131.9

2% 7% -2 % 94 %

Vimpelcom Ltd. Other associates

35.7 %

38 663 1 999

38 663 1 999

26 1

19 % 1%

-28 597 208 882

-28 100 208 882

-19 140

-13 % 100 %

Listed

Net interest bearing debt Equity Value

11.2

DCF model DCF Net present value CF 13-14 Net present value CF 15-22 NPV Terminal value Estimated EV Core and Other Per share

29 594 103 877 110 457 243 928 164

Net interest bearing debt Tax shield Minorities Associates Market value equity Per share

-28 597 0 -36 906 38 720 217 145 146

WACC ratio Beta Premium Risk-free Equity ret. Debt prem. Debt ret. Value Eq. (m) Value Debt (m) Share Eq Share Deb WACC Post tax

0.8 7.5 % 5.0 % 11.0 % 1.0 % 6.0 % 199.9 28.6 87.5 % 12.5 % 10.4 % 10.2 %

Revenue CAGR Year 0-3 2.5 % Year 3-5 4.2 % Year 5-7 3.3 % Long term 1.5 %

Source(s): Bloomberg, Telenor, Fondsfinans Research

Fondsfinans Research

12 September 2013

Page 17

Telenor ASA - Initiation of coverage

Our blended NOK 146 target price justifies a BUY recommendation To sum up we have weighted the three metrics equally (1/3) resulting in a NOK 146 price target for Telenor translating into a 13% upside for the stock. The price target and theoretical upside supports a BUY recommendation.

Valuation, weighting and target price

Broadcast 6%

Valuation (NOK) SOTP, peers SOTP, implied DCF, group Average

151 140 146 146

Price target

146

Upside/(downside) (%):

EV (implicit) split by geography 2013E (%)

Asia 27 %

Nordic 45 %

12.0 %

CEE 24 %

Source(s): Telenor, Bloomberg, Fondsfinans research

Page 18

12 September 2013

Fondsfinans Research

Telenor ASA - Initiation of coverage

Risk Assessment External Technological risk

Telenor’s business, both mobile and broadcast, involves the reliance on technological standards that may devel op both favourably and unfavourably for operators over time. New mobile phone standards and network technologies may hence impact both Telenor’s customer offering and therefore earnings and potentially also the financial position via higher capex.

Political risk in emerging markets

Telenor’s business is heavily tilted to wards emerging markets on the revenues and earnings lines and a significant part of t he capital invested in in these regions too meaning the political risk is higher than for the average developed market telecom operator. Notable political events have impacted several of Telenor’s key markets such as Bangladesh, India and Ru ssia (via VimpelCom) with increasing costs as a result and similar events in the future may have negative impact on Telenor’s business.

Currency exposure

Telenor has significant foreign currency ex posure, for instance vs. the BDT, MYR, SEK and USD (indirectly via VimpelCom) although currency fluctuations mainly impact the company account via the transla tion effect. In sum this constitutes a risk much hard to predict for Telenor and the currency exposure is forecasted to have an even more pronounced effect bey ond 2015E as the company enters new markets.

Government ownership

Telenor’s largest shareholder is t he Norwegian state and whilst we see no immediate risk that the government may divest a large part Telenor stake a new centre-right government (after the S eptember 2013 election) could be more positive on lowering the state ownership to c. 51%, implying a sale of c. 45 m shares should that occur.

Company specific Capex risk and cash flow uncertainties in the years ahead

Telenor’s re-entry in India and the inve stment in Myanmar are the key risks to capex. The potential for additional invest ments in India and Myanmar, the latter country a complete green-field market with very limited overall infrastructure, may consequently put pressure on cash flows and may hence lower cash returns to shareholders.

Services migration, intensified competition and new product offerings

Telenor’s core businesses; i.e. mobile telecommunications and broadcasting services, are highly exposed to competit ion both from incumbent competitors and from new market players that often enter the market when a technological shift, as the above examples, occur. There is incr eased risk for services migration from traditional voice calls to alternative VoIP se rvices (e.g. Skype, Viber) in the more developed mobile markets while broadcasting services in Norway are increasingly at risk competing new product offerings (e.g. HBO and Netflix).

M&A, including execution and legal risk, integration and other aspects constitutes a key risk

Telenor has recently acquired Globul in Bulgaria and won a licence for a vast network development in Myanmar, two em erging markets where execution risk can be assumed to be greater than that of the average sector investment. We forecast Telenor to engage in further M&A deals ahead and as the company will mainly invest in emerging markets, suggesting risks tied to such manoeuvres may be significant and even increase going forward.

Fondsfinans Research

12 September 2013

Page 19

Telenor ASA - Initiation of coverage

Definitions of ratings

Neutral

Low risk: with a potential of min 5%. Medium risk: with a potential of min 10%. High risk: with a potential of min 20%. Low risk: -5% to +5%. Medium risk: -10% to +10%. High risk: -20% to +20%.

Sell

Low risk: min 5%. Medium risk: min 10%. High risk: min 20%.

Buy

Risk ratings are based on price volatility, fundamental criteria and perceived risk. Ratings are: Low (L), Medium (M) and High (H). Target: Our valuation as of today. Time frame of target: Target is what we value the share as of today.

Recommendation distribution as of 02.09.13:

Companies in each recommendation category that have been investment banking clients over the past 12 months:

Recommendation Buy Neutral Sell Total

Recommendation Buy Neutral Sell Total

No 33 17 1 51

Percent 65 % 33 % 2% 100 %

No 3 1 0 4

Percent 9% 6% 0%

Our intention is to issue preview and update research on a quarterly basis. Our investment recommendation is elaborated in accordance with “The Norwegian Securities Dealers Associations” standards. This report has not been sent to the company for correction of any factual errors. Fondsfinans is organized with Chinese walls between the Corporate Department and the Research/Broking Department. In addition, Fondsfinans has internal instructions and guidelines for handling sensitive information. The analyst receives compensation that is impacted by overall firm profitability, including investment banking activities. Fondsfinans is under supervision of The Financial Supervisory Authority of Norway. The recommendation has been changed. This report is an initiation of coverage.

Ownership per 12.09.13 in Telenor: Analyst (including his/her closely related persons or companies): 0, corresponding to 0% of the company share capital Employees (including their respective closely related persons or companies): 682, corresponding to 0% of the company share capital Group Fondsfinans (including the holdings of its Chairman, his spouse and their closely related companies, Erik Must AS and its 100% controlled subsidiaries): 0, corresponding to 0% of the company share capital Fondsfinans may hold shares in Telenor as a result of daily trading/market making. Information on such holdings is not given when of non-significant value. This report was issued and distributed 12.09.13. DISCLAIMER This report is provided for information purposes only. It should not be used or considered as an offer to sell or a solicitation of an offer to buy any securities. Any opinions expressed are subject to change without prior notice. This report is based on information from various sources believed to be reliable. Although all reasonable care has been taken to ensur e that the information herein is not misleading, Fondsfinans ASA makes no representation or warranty expressed or implied as to its accuracy or completeness. Neither Fondsfinans ASA, its partners and em ployees, nor any other person c onnected with it, accepts any liability whatsoever for any direct or con sequential loss of any kind arising out of the use or reliance on the information in this report. This report is prepared for general circulation and general information. It does not take into account the specific investment objectives and financial situation of any recipient. Investors seeking to buy or sell any securities discussed or recommended in this report, should seek i ndependent financial advice relating thereto. This report may not be distributed, quoted from or reproduced for any purpose without written approval by Fondsfinans ASA. DISCLOSURE OF INTERESTS Fondsfinans ASA i s constantly seeking investment-banking mandates, and may at any time perform investment banking or other services or solicit investment banking or other mandates from the company or companies covered in this report. Fondsfinans ASA may from time to time as part of its investment services hold positions in securities covered in this report. Under our internal regulations, our analysts are not permitted to purchase new securities in the companies they cover. Holdings are specified as part of shareholder information in each report. DISTRIBUTION IN THE US Research reports are prepared by Fondsfinans ASA f or information purposes only. Fondsf inans ASA and i ts employees are not subj ect to the R ules of the Financial Industry Regulatory Authority (FINRA) governing research analyst conflicts. The research reports are intended for distribution in the United States solely to “major U.S. institutional investors” as defined in Rule 15a-6 under the United States Securities Exchange Act of 1934, as amended and may not be f urnished to any other person in the United States. Each maj or U.S. institutional investor that receives a copy of a Fondsfinans ASA research report by its acceptance thereof represents and agrees that it shall not distribute or provide copies to any other person. Reports are prepared by Fondsfinans ASA and distributed to major U.S. institutional investors under Rule 15a-6(a)(2). These research reports are prepared by Fondsfinans ASA and distributed in the United States by Fondsfinans Inc. under Rule 15a-6(a)(2). Any U.S. Person receiving these reports that desires to effect transactions in any securities discussed within the report should call or write Fondsfinans Inc., a member of FINRA.

Page 20

12 September 2013

Fondsfinans Research

Telenor Sector: Date: Next result: Target (NOK): Recommendation: Numbers in mNOK

Telecom 12.9.13 31.10.13 146 BUY

Shares outs.: Market cap (NOKm): Net int.-bearing debt (NOKm): Enterprise value(NOKm):

Price (NOK): 130.3 Book equity per share: 51.0 Price/Book: 2.6 Equity ratio: 46 % 12 month high/low: 134.4/99.61

1 516.6 197 613 28 597 226 210

2010

2011

2012

2013E

2014E

2015E

3Q12

4Q12

1Q13

2Q13

3Q13E

Operating revenues Revenue growth Y/Y Operating expenses EBITDA Depreciation Operating profit (EBIT) Associated companies Net financial items Pre tax reported Minority interests Tax Profit/loss reported

98 132 1% -69 444 28 687 -16 347 12 340 9 694 -2 071 19 963 -476 -4 974 14 335

98 558 0% -68 516 30 042 -19 649 10 393 4 555 -1 593 13 355 -52 -5 365 7 938

101 784 3% -69 799 31 985 -22 247 9 738 2 785 -1 701 10 822 -219 -1 743 8 792

102 869 1% -68 054 34 815 -13 386 21 429 2 842 -1 392 22 879 -2 643 -6 007 14 112

106 470 4% -68 850 37 619 -12 805 24 814 3 094 -1 982 25 926 -3 042 -6 680 16 205

109 493 3% -70 226 39 267 -12 565 26 702 3 094 -2 099 27 697 -3 092 -7 068 17 537

25 264 3% -16 715 8 549 -3 431 5 118 1 100 -604 5 614 -401 -1 564 3 650

26 009 2% -18 079 7 930 -7 656 274 367 -367 274 -435 2 657 2 497

24 741 -2 % -16 585 8 156 -3 444 4 712 1 066 -207 5 571 -607 -1 363 3 601

25 782 2% -17 017 8 765 -3 401 5 364 229 -321 5 272 -574 -1 458 3 240

25 632 1% -16 451 9 181 -3 286 5 895 773 -484 6 185 -740 -1 684 3 761

Adjustments Tax effect of adjustments Adjusted profit/loss

-3 068 -597 10 671

2 856 605 11 398

7 298 0 16 090

-428 0 13 684

0 0 16 205

0 0 17 537

-20 0 3 629

3 823 0 6 320

-212 0 3 389

-216 0 3 024

0 0 3 761

EBITDA margin Operating margin

29.2 % 12.6 %

30.5 % 10.5 %

31.4 % 9.6 %

33.8 % 20.8 %

35.3 % 23.3 %

35.9 % 24.4 %

33.8 % 20.3 %

30.5 % 1.1 %

33.0 % 19.0 %

34.0 % 20.8 %

35.8 % 23.0 %

REVENUES Norway Sweden Denmark Hungary Serbia Malaysia Thailand Bangladesh Pakistan India Total

28 047 7 274 9 497 4 806 2 638 10 167 13 848 6 492 4 653 773 98 132

26 719 6 992 10 055 4 488 2 911 10 929 14 585 6 730 5 017 3 019 98 558

25 504 5 729 10 607 4 090 2 735 11 986 16 776 6 541 5 654 3 716 101 784

24 992 5 202 10 978 4 080 2 965 12 046 18 437 7 137 5 351 2 938 102 869

25 164 5 294 11 352 4 095 3 072 11 775 18 940 7 679 5 576 4 398 106 470

25 522 5 353 11 721 4 130 3 160 11 812 19 089 7 890 6 093 5 555 109 493

439 330 716 060 720 2 997 3 998 1 660 1 373 863 25 264

517 468 748 100 686 3 031 4 490 1 584 1 421 810 26 009

6 164 1 192 2 539 930 669 3 005 4 519 1 672 1 286 708 24 741

6 152 1 231 2 672 980 717 3 136 4 792 1 788 1 433 728 25 782

253 290 823 067 823 2 943 4 393 1 843 1 272 662 25 632

EBITDA Norway Sweden Denmark Hungary Serbia Malaysia Thailand Bangladesh Pakistan India Total

10 905 1 647 2 222 1 636 1 043 4 501 4 872 3 213 1 295 (4 257) 28 687

9 720 1 718 2 454 1 471 1 214 5 053 5 003 3 602 1 797 (3 425) 30 042

10 637 1 109 2 571 1 303 1 038 5 507 4 999 3 473 2 157 (2 220) 31 985

10 748 936 3 061 1 342 1 143 5 305 5 674 3 622 2 163 (545) 34 814

10 949 951 3 336 1 345 1 184 5 184 6 020 3 993 2 424 574 37 619

11 168 962 3 620 1 355 1 218 5 201 6 067 4 103 2 819 1 051 39 267

2 926 294 768 326 284 1 348 1 253 856 467 (531) 8 549

2 654 258 643 301 232 1 347 1 241 856 610 (444) 7 930

2 672 185 704 344 268 1 303 1 317 795 497 (192) 8 156

2 555 203 774 368 295 1 421 1 490 916 577 (106) 8 765

2 873 278 847 328 324 1 294 1 465 959 521 (199) 9 181

1 658 94.8 3.8

1 621 98.1 5.0

1 570 108.4 6.0

1 515 130.3 7.0

1 467 130.3 8.0

1 419 130.3 9.0

1 569 111.7

1 545 108.4

1 536 122.0

1 524 121.3

1 506 130.3

8.65 6.44 18.5

4.90 7.03 17.0

5.60 10.25 19.8

9.31 9.03 18.1

11.04 11.04 19.8

12.36 12.36 21.2

2.33 2.31 4.51

1.62 4.09 6.57

2.34 2.21 4.59

2.13 1.98 4.36

2.50 2.50 4.68

11.0 14.7 1.8 6.2 14.3 10.5 17.5 % 13.7 %

20.0 13.9 1.8 5.9 16.9 9.7 9.3 % 9.1 %

19.4 10.6 2.0 6.2 20.5 44.4 11.2 % 7.5 %

14.0 14.4 2.2 6.4 10.4 12.2 19.0 % 13.9 %

11.8 11.8 2.1 5.9 8.9 10.2 21.8 % 15.1 %

10.5 10.5 2.0 5.5 8.2 9.3 24.1 % 16.0 %

2010E

2011E

7.92 0.45 0.14

6.44 0.45 0.13

Balance Sheet Data Cash Other current assets Intangible assets Fixed assets Total assets

2010 14 552 17 657 24 472 116 050 172 731

2011 12 986 21 331 22 145 110 096 166 558

2012 8 805 21 136 17 682 120 246 167 868

2013E 18 754 22 432 18 607 124 542 184 335

2014E 15 315 23 167 18 607 129 624 186 712

2015E 12 263 23 746 18 607 134 745 189 360

Interest bearing debt Non-interest bearing debt Minorities Shareholders' equity Liabilities and equity

34 452 42 061 8 351 87 867 172 731

33 924 41 793 2 910 83 069 161 696

50 100 36 383 3 057 73 355 162 895

56 158 44 288 5 018 74 939 180 404

56 158 45 091 8 060 73 472 182 781

56 158 45 885 11 152 72 233 185 429

Book equity/share Equity ratio Net interest bearing debt

53.0 51 % 19 276

52.4 50 % 20 738

47.8 44 % 33 082

50.4 41 % 29 851

51.0 39 % 33 290

51.9 38 % 36 342

Cashflow statement Cashflow from operations Net investments/acq. Free cashflow

26 465 -15 590 10 875

27 093 -14 451 12 642

24 002 -23 008 994

43 555 -17 946 25 609

30 263 -16 031 14 233

31 553 -15 830 15 724

KEY FIGURES Average no. of shares, m Price Dividend EPS reported EPS adjusted CEPS adjusted P/E rep. P/E adjusted EV/SALES EV/EBITDA EV/EBIT EV/Op. FCF Return on equity (adj.) Return on capital employed

6 1 2 1

6 1 2 1

SENSITIVITY Base EPS estimates + / - 1% EBITDA Margin + / - 1% Sales growth

10 largest holders

Name Nærings- Og Handelsdeparteme Folketrygdfondet State Street Bank And Trust Co. Clearstream Banking S.A. State Street Bank & Trust Co. J.P. Morgan Chase Bank N.A. Lo J.P. Morgan Chase Bank N.A. Lo The Bank Of New York Mellon Euroclear Bank S.A./N.V. ('Ba') State Street Bank And Trust Co. Total 10 largest Others Total

6 1 2 1

12.sep.13

818.4 77.3 48.4 29.9 19.9 16.9 16.5 15.8 12.9 11.1 1 067 450 1 517

% 54.0 % 5.1 % 3.2 % 2.0 % 1.3 % 1.1 % 1.1 % 1.0 % 0.8 % 0.7 % 70.4 % 29.6 % 100.0 %

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