Telekom Austria AG (TKA), the Vienna-based company with mobile operations in seven east European countries, added clients in Belarus this year even as the nation’s currency devaluation caused losses, and aims to expand even more.
“We are happy with the performance of our local operations,” Chief Financial Officer Hans Tschuden said by phone from Vienna on Aug. 17 after the company reported 9.3 million euros ($13.3 million) in lost revenue from the 36 percent devaluation of the Belarus ruble in May. The former Austrian phone monopoly has invested more than 7 million euros in the local network this year and “there is some more to come,” he said.
Telekom Austria’s client base in Belarus, the former Soviet republic led for the past 17 years by President Aleksandr Lukashenko, rose 7.7 percent to 4.46 million subscribers in the first half of the year from the same period in 2010, according to a company presentation. The phone company reported a 71 percent drop in second-quarter net income and cut its 2011 sales forecast this week, citing the ruble’s slump and declining revenue in the Balkans.
Companies from Telekom Austria to Turkcell Iletisim Hizmetleri AS and Finnish brewer Olvi Oyj are sticking with their business in Belarus as the International Monetary Fund predicts the economy will probably expand 6.8 percent this year, down from 7.6 percent in 2010. Fixed-line losses in its home market led Telekom Austria to expand its mobile operations in central and eastern Europe, where the IMF projects average 3.7 percent growth this year.
Telekom Austria has dropped 26 percent since May 20 on the Vienna stock exchange, compared with a 23 percent decline on the benchmark index as of yesterday. The company’s shares trade at 11.6 times estimated 2012 earnings compared with 10.5 times for its west European peers, according to data compiled by Bloomberg. The stock fell 0.4 percent to 7.2 euros at the end of trading in Vienna.
Telekom Austria, which bought Velcom, Belarus’s second- biggest mobile-phone network, in 2007, is seeking to shift more costs into the local currency to improve profitability, Tschuden said.
“We simply have to think, do we need handsets to be imported to the extent we had in the past to keep our business up and running, or do we change to cheaper handsets,” he said.
Belarus devalued its currency as a 26 percent increase in the trade deficit in the first six months over the previous year and a widening current-account deficit threatened an economic collapse.
Lukashenko’s government came under new sanctions from the European Union in June on allegations of prosecuting presidential candidates and activists. EU and Russian companies have invested more than $2 billion in the country, according to World Bank estimates.
Turkcell, Turkey’s biggest mobile operator, reported a foreign-exchange loss of 255 million liras ($143 million) in Belarus in the second quarter because of the devaluation. Olvi Oyj (OLVAS) said currency depreciation shaved 56.6 percent off its operating profit in the country in the same quarter.
Istanbul-based Turkcell plans to continue operations in Belarus as the economy has growth potential and a “favorable” geopolitical location with access to Russian and EU markets, Nihat Narin, the head of investor and international media relations at Turkcell, said by phone from Istanbul on Aug. 17.
‘Very Good’ Prospects
Olvi, based in Iisalmi, Finland, is prepared for a further devaluation this year in Belarus, where the company has invested 15 million euros this year, said Mikko Paananen, its director for business and legal affairs.
Prospects for growth are “very good” as Belarusians’ beer consumption is 45 liters a year per person, compared with about 90 liters in Finland and the Baltics, he said.
Olvi shares decreased 3.9 percent to 15.94 euros at the end of trading in Helsinki. Turkcell remained unchanged at 7.62 liras in Istanbul.
Belarus is “a perfect place for locating production,” Mart Meerits, member of the board at Silvano Fashion Group, said by phone from Tallinn. The second-largest listed Baltic clothing company’s profit more than quadrupled in the second quarter from a year earlier. Silvano makes 80 percent to 90 percent of its products in Belarus, where costs are linked to ruble, Meerits said. The clothing is sold in Belarus, Russia, the Baltics, Ukraine and other countries in ex-Soviet region, according to a company statement.
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