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Financial Review
INTRODUCTION
The following discussion should be read in conjunction with
our consolidated financial statements, which have been prepared in accordance
with Norwegian GAAP, which differ in certain respects from US GAAP. For a reconciliation
of the material differences between Norwegian and US GAAP, you should read note
32 to our consolidated financial statements.
Due to the growth of our international mobile operations, we
have determined that, commencing with the fiscal year ended 31 December 2004,
Telenor Mobile can no longer be presented as one segment and has identified
those mobile operations that due to their increased significance for Telenor
should be reported as separate segments. The new segments are: Telenor Mobil
(Norway); Sonofon (Denmark); Pannon GSM (Hungary); DiGi.Com (Malaysia); Kyivstar
(Ukraine); GrameenPhone (Bangladesh); and Other mobile operations/eliminations,
which comprises Telenor Mobile Sweden, Promonte GSM (Montenegro),Telenor Pakistan
as well as eliminations of Group Internal trade between our mobile operations.
We are exposed to risks and uncertainties which could have
a material adverse effect on our business, financial condition, liquidity, results
of operations or prospects. Such risks and uncertainties relate to, among other
things:
- increased competition;
- the political, economic and legal environment in the foreign countries in
which we operate;
- our exposure to currency exchange rate fluctuations, when reporting in Norwegian
Krone;
- regulatory developments both in and outside Norway.
GROUP OVERVIEW
In 2004, our group results improved. Profit before taxes was NOK 8,8 billion
in 2004 compared to NOK 7.4 billion in 2003. Profit before taxes in 2004 included
net epxenses for gains and losses, workforce reductions, loss contracts and
write-downs of approximately NOK 0.4 billion compared to an income in 2003 of
approximately NOK 1.1 billion. The underlying improvement, taking into account
these gains and losses, expenses for workforce reductions and loss contracts
and write-downs, was primarily due to increased revenues from our international
mobile operations.
Our international mobile operations, especially those in emerging
markets, experienced a significant growth in 2004 and are increasingly important
for our business and results of operations. In 2004, we consolidated Sonofon
and ProMonte GSM as a result of the acquisition of the ownership interest in
each of these two companies which we did not already own. In our Norwegian fixed-line
operations, a mature market with increased competition, we experienced a slight
decrease in our revenues. However, our operating profit margin in Fixed Norway
increased due to reduced depreciation and amortization charges. In Broadcast,
we increased our number of subscribers, revenues and EBITDA.
We increased our capital expenditure in 2004 compared to 2003
primarily due to the expansion of the network capacity of our international
mobile operations as a consequence of strong growth in the number of subscriptions.
Capital expenditure in 2004 included NOK 2.4 billion for the purchase of a licence
for mobile telephony in Pakistan and a UMTS licence in Hungary and NOK 0.6 billion
for the acquisition of an ownership interest in a new satellite. High capital
expenditure is expected for 2005, where capital expenditure in proportion of
revenues is expected to be in line with or exceed the 2004 level. Capital expenditure
is expected to be driven by considerable network investments in Kyivstar, Telenor
Pakistan, GrameenPhone and DiGi.Com. In addition, we expect further UMTS investments.
The actual amounts and the timing of our capital expenditure
may vary substantially from our estimates.
Concurrent with the increase in our capital expenditure, we
generated significant and increased cash flows from our operations in 2004 and
received payments for the sale of shareholdings. However, our net debt increased
slightly during 2004 due to the consolidation of Sonofon. Our current strategic
focus is on preserving our market shares and continuing to streamline and realize
synergies across our operations.
For an overview of the results of our mobile operations , Fixed
and Broadcast, you should read "Results of Operations – Mobile operations
– Overview", "Results of Operations – Telenor Fixed –
Overview" and "Results of Operations – Telenor Broadcast –
Overview".
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