The Norwegian telco had an improved financial performance in the most recent quarter. As per latest financial results released by Telenor Group for third quarter ended September 30, 2022, its Pakistan subsidiary grew (in rupee terms) its topline by 11 percent year-on-year to Rs29.5 billion and its operating profits by 227 percent year-on-year to Rs18.6 billion. That should cheer up the management, after a rather dispiriting first half this year, mainly due to a large impairment loss booked by Telenor Group in 2Q.
(Note: while the reporting currency of Telenor Group is the Norwegian Krone (NOK), the financial results analyzed here are in rupee (PKR) terms, after necessary conversions using the relevant period’s average exchange rate).
Quarterly topline growing in double-digits is a good omen for Telenor Pakistan in a challenging operating environment for the telecoms industry. However, the main reason for topline growth is apparently more legal than operational, as Telenor Group disclosed in its latest report that the ‘Sim tax’ case had been decided by the court in Telenor Pakistan’s favor, thus positively impacting service revenues and operating profit.Barring the impact of this event, the ‘underlying’ growth in topline would be less pronounced.
“On 14 October 2022, Islamabad High Court decided the case of applicability of Sim tax in favor of Telenor Pakistan for the period from 1 July 2014 to 30 June 2020. The tax was abolished with effect from 1 July 2020. The court decision was an adjusting event, and the related provision was reversed in the third quarter 2022. The reversal of the provision was recognized in the income statement as increased service revenues of NOK 0.1 billion and decreased costs of NOK 0.5 billion with an overall positive impact on operating profit of NOK 0.6 billion,” as per the Telenor Group in its latest quarterly report.
The reversal of ‘Sim tax’ provision also helped the firm to improve its profitability, at a time of rising fuel and power costs coupled with impact of floods and associated network outages. EBITDA jumped 74 percent year-on-year to Rs24.5 billion in 3QCY22, with EBITDA margin gaining 30 percentage points to reach 83 percent. Thanks to an even larger surge in operating profitability in the quarter, operating margin shot up to reach 63 percent, as compared to 21 percent during 3QCY21.
Without the impact of ‘Sim tax’ provision’s reversal, ‘underlying’ growth in EBITDA and operating profits would have been negative. If the fourth quarter is without large accounting adjustments, it would present a better picture of financial health. Just as other operators, Telenor Pakistan needs to raise its average revenue per user (ARPU). (Telenor Pakistan’s mobile ARPU stood at Rs172 per month in 3QCY22, lower than Rs175 per month in the same period last year). With purchasing power diminishing, raising ARPU has become an even bigger challenge. Let’s see what the last quarter of the year holds for the MNO.