TeliaSonera January-June 2006

Transcription

1 Interim Report January-June. TeliaSonera AB (publ), Corporate Reg. No , Registered office: Stockholm TeliaSonera January-June Six-month period Net sales increased to SEK 44,716 million (42,556). Net income increased to SEK 9,000 million (5,985) and earnings per share increased to SEK 1.76 (1.12). Free cash flow increased to SEK 8,861 million (8,315). Strong customer growth year on year: million new customers in the majority-owned Nordic, Baltic and Eurasian operations million new customers in the associated companies MegaFon and Turkcell. Second quarter Net sales increased 4.5 percent to SEK 22,737 million (21,752). Operating income, excluding non-recurring items, increased to SEK 6,316 million (4,385). EBITDA, excluding non-recurring items, improved to SEK 7,928 million (7,200) and the margin to 34.9 percent (33.1). Free cash flow of SEK 4,018 million (4,628). Net income increased to SEK 4,726 million (2,422) and earnings per share increased to SEK 0.94 (0.44). Increased ownership in the operator Xfera from percent to percent in order to launch mobile operations in Spain. Acquisition of NextGenTel, the second largest broadband provider in Norway. Financial Highlights SEK in millions, except per share data Net sales 22,737 21,752 44,716 42,556 EBITDA 1) excl. non-recurring items 2) 7,928 7,200 15,744 14,089 Operating income 6,179 3,214 11,620 7,885 Operating income excl. nonrecurring items 6,316 4,385 12,445 9,055 Net income 4,726 2,422 9,000 5,985 of which attributable to shareholders of the parent company 4,213 2,023 7,905 5,200 Earnings per share (SEK) ) Please refer to page 18 for definitions. 2) Non-recurring items; see table on page 23. 1

2 Interim Report January-June. TeliaSonera AB (publ), Corporate Reg. No , Registered office: Stockholm Comments from Anders Igel, President and CEO The strong performance continued in the second quarter with close to 5 percent growth and a higher margin by almost 2 percentage points. The result from our operations increased more than 40 percent to a new record of SEK 6.3 billion. The strong performance was driven by good development in most operations, successful implementation of synergies from acquisitions and effects from ongoing efficiency measures. We made two acquisitions where the strengths of our current operations can be profitably utilized. The acquisition of the second largest Norwegian supplier of broadband, NextGenTel, will strengthen our Nordic offering. The acquisition of the majority in the Spanish mobile operator Xfera is based on our strength and know-how from the highly competitive Nordic and Baltic markets with high penetration levels. Xfera is expected to be cash flow positive and earnings accretive within five years. The business case is robust and primarily based on a benchmark low cost level and sharp business focus. Outlook The outlook for the Group operations remains the same. Mobile and broadband volume growth is expected to continue. Group net sales and results before taxes are expected to grow. CAPEX is mainly driven by growth and CAPEX to sales ratio is expected to be somewhat higher than for. Free cash flow will remain strong. Review of the Group, Second Quarter Net sales increased 4.5 percent to SEK 22,737 million year on year. Acquisitions affected positively by 1.6 percent and exchange rate fluctuations by 1.2 percent. Continued strong mobile and broadband growth. Within mobile communications, sales increased sharply in Eurasia (40 percent) and Norway (30 percent). Denmark and the Baltics also reported sales growth year on year. In Finland, Saunalahti s withdrawal from Sonera s network and historic price decreases led to lower sales. Despite strong volume growth, sales also decreased somewhat in Sweden due to lower price levels. Within fixed communications, demand for broadband continued to be strong and sales increased in all markets. The increase compensated for the fall in fixed voice in all operations except Sweden where the migration to mobile and IP-based services and lower price levels continued to hold back fixed communications sales. The associated companies MegaFon and Turkcell increased sales sharply. 2

3 Interim Report January-June. TeliaSonera AB (publ), Corporate Reg. No , Registered office: Stockholm The customer base increased 26 percent year on year. At the end of the quarter, TeliaSonera had 29 million customers in the majority-owned operations and 59 million customers in associated companies. EBITDA, excluding non-recurring items, increased to SEK 7,928 million (7,200) due to: - Continued strong profitable growth in Eurasia; - The acquisition of Chess, including synergies, organic growth and efficiency measures in Norway; - Efficiency measures and one-time costs in the comparative quarter in Finland; - Synergies from the acquisition of Orange, lower sales and marketing costs and efficiency effects in Denmark; - Increased sales in the Baltics. In Sweden, EBITDA decreased due to the decline in fixed voice sales. EBITDA margin, excluding non-recurring items, improved to 34.9 percent (33.1). All operations except the Baltics and Sweden increased the margin year on year. Operating income, excluding non-recurring items, increased to SEK 6,316 million (4,385), mainly due to improved EBITDA and increased income from the associated companies MegaFon (including positive one-off currency and other revaluation effects of SEK 342 million) and Turkcell (including a negative one-off deferred tax effect of approximately SEK 100 million). Additionally, depreciation was lower, mainly due to adjusted depreciation schedules (SEK 220 million). Non-recurring items affecting operating income totaled SEK -137 million (-1,171) and were mainly restructuring costs in Sweden and Finland. Financial items totaled SEK -119 million (-167). Income taxes totaled SEK 1,334 million (625). Net income attributable to shareholders of the parent company increased to SEK 4,213 (2,023) and earnings per share increased to SEK 0.94 (0.44). CAPEX decreased to SEK 2,631 million (3,689) mainly due to differences in timing between the years. Despite improved EBITDA and lower CAPEX, free cash flow decreased to SEK 4,018 million (4,628) as a result of higher paid taxes and the positive effect on the comparative quarter from large changes in working capital. Net debt increased from SEK 3,472 million to SEK 23,621 million during the second quarter primarily due to the distribution of ordinary and extraordinary dividends to shareholders (SEK 15,717 million) and acquisitions, including assumed debt, (SEK 7,150 million). The equity/assets ratio increased from 60.5 to 61.0 percent during the quarter. 3

4 Interim Report January-June. TeliaSonera AB (publ), Corporate Reg. No , Registered office: Stockholm Acquisition of Xfera and NextGenTel In June, TeliaSonera increased its ownership in the Spanish mobile operator Xfera from to 80 percent through an agreement with other shareholders. A previous shareholder exercised its call option to buy 3.44 percent of the shares in Xfera from TeliaSonera, which reduced TeliaSonera s ownership to percent. TeliaSonera paid net SEK 617 million for the increase in shareholding. In addition, an earn-out model has been agreed with the selling shareholders and put/call options between the existing shareholders. In May, TeliaSonera acquired more than 90 percent of the shares in NextGenTel, the second largest supplier of broadband in Norway. In June, TeliaSonera announced a compulsory acquisition of the remaining shares and effectively controls 100 percent of the shares at June 30. The purchase price totaled SEK 2,338 million. The acquisition broadens Telia- Sonera s range of services in Norway where TeliaSonera is the second largest operator within mobile communications. The acquisition underlines TeliaSonera s strategy to focus on mobile and Internet-based services in its home markets. The investments in Xfera and NextGenTel do not affect the assessment that the additional shareholder distribution would be on the same level as the current one. Lower prices for international mobile roaming On June 1, TeliaSonera, together with a number of leading mobile operators in Europe, announced that they have agreed to cap the average wholesale prices for international roaming at EUR 0.45 per minute as of October and at EUR 0.36 per minute as of October 2007, which corresponds to a 50 percent decrease in current wholesale roaming prices. The operators commit to pass the benefits of these wholesale reductions on to end customers through market-driven reductions in retail prices as soon as possible. The advantage of this scheme compared to the one proposed by the European Commission is that it opens the possibility for competition on prices and services between mobile operators on both the wholesale and retail level. 4

5 Interim Report January-June. TeliaSonera AB (publ), Corporate Reg. No , Registered office: Stockholm Continued strong mobile and broadband volume growth in Sweden but earnings in fixed lower as restructuring did not compensate sales decline A large number of new offers were launched on the Swedish market during the second quarter and the focus continued to be on bundled and flat rate offers. Price pressure was strong in all product areas. SEK in millions, except margins, ARPU and number of customers Net sales 9,208 9,805 18,439 19,462 EBITDA excl. non-recurring items 3,365 3,652 7,226 7,460 Margin (%) Operating income 2,349 1,554 4,811 4,259 Operating income excl. nonrecurring items 2,392 2,558 5,393 5,263 Mobile communications Net sales 3,047 3,104 5,915 5,949 EBITDA excl. non-recurring items 1,235 1,231 2,472 2,410 Margin (%) CAPEX ARPU (SEK) Number of customers, end of period (thousands) 4,439 4,315 4,439 4,315 Fixed communications Net sales 6,161 6,701 12,524 13,513 EBITDA excl. non-recurring items 2,130 2,421 4,754 5,050 Margin (%) CAPEX ,196 1,650 Number of customers, end of period (thousands): Retail excl. broadband 5,494 6,187 5,494 6,187 Broadband Wholesale PSTN subscriptions Wholesale copper access, LLUB Mobile communications Strong volume growth. Outgoing traffic increased 15 percent year on year. Use of mobile data services increased sharply. The number of mobile customers increased by 124,000 to 4,439,000 year on year. During the second quarter, the number of postpaid customers increased by 36,000 while the number of prepaid customers decreased by 39,000, mainly due to the deregistration of Halebop customers in conjunction with the minimum charge giving effect in the fourth quarter of. The volume growth did not fully compensate for lower price levels and within mobile communications net sales decreased 2 percent year on year. 5

6 Interim Report January-June. TeliaSonera AB (publ), Corporate Reg. No , Registered office: Stockholm The EBITDA margin improved since the effects from the ongoing restructuring program more than offset the lower price levels. Costs for the purchase of capacity from the associated company Svenska UMTS-nät AB totaled SEK 135 million (102) during the quarter. CAPEX was lower than in the comparative quarter due to rescheduled investments in the GSM network during the year. Svenska UMTS-nät has invested SEK 3.7 billion in the 3G infrastructure in Sweden so far. Fixed communications Net sales decreased 8 percent year on year due to volume decline in fixed voice traffic and the number of subscriptions as well as price pressure, mainly in the business segment. During the second quarter, the number of fixed voice retail subscriptions decreased by 91,000 of which 42,000 subscriptions were transferred to wholesale. The strong growth in broadband compensated for decreased sales in dial-up Internet. The number of broadband customers increased by 220,000 to 819,000 year on year. During the second quarter, customer growth was 45,000. EBITDA margin weakened because positive effects from the ongoing restructuring did not compensate for the sales decline. This is in line with current plans as reflected in the outlook. CAPEX decreased year on year due to lower investments in the circuit-switched telephony network and in the transport network. Operating income Lower EBITDA decreased operating income, excluding non-recurring items, in TeliaSonera Sweden despite positive effects from lower depreciation partly due to adjusted depreciation schedules. Effects from the ongoing restructuring program The restructuring program is progressing on schedule. Thus far, 1,176 employees have accepted the offer for early retirement and 475 employees have been transferred to the redeployment unit. Of these, 1,342 have left the company. In addition, hired personnel have decreased by approximately 500. From the third quarter, the restructuring measures implemented to date are estimated to give an annual gross savings effect of SEK 2,400 million compared to the cost level of During the second quarter, the savings effect was approximately SEK 600 million (100), of which a large portion was related to fixed communications. 6

7 Interim Report January-June. TeliaSonera AB (publ), Corporate Reg. No , Registered office: Stockholm Since the introduction of the restructuring program in Sweden, SEK 3,092 million has been reported as non-recurring expenses, of which SEK 2,401 million were provisions for redundancy and SEK 691 million were impairment charges for the network and costs for surplus office space. In the second quarter, non-recurring expenses totaled SEK 43 million and were attributable to provisions for redundancy. Good margin development in Finland In the Finnish mobile market, the focus continued on customer loyalty, quality and services. Sales of bundled offers containing a 3G telephone and a subscription started and telephone subsidies were at reasonable levels. The fall in prices also leveled off on the fixed broadband market. SEK in millions, except margins, ARPU and number of customers Net sales 4,171 4,296 8,184 8,551 EBITDA excl. non-recurring items 1, ,952 1,755 Margin (%) Operating income Operating income excl. nonrecurring items Mobile communications Net sales 2,357 2,544 4,577 5,148 EBITDA excl. non-recurring items ,002 1,035 Margin (%) CAPEX ARPU (EUR) Number of customers, end of period (thousands) 2,485 2,416 2,485 2,416 Fixed communications Net sales 1,814 1,752 3,607 3,403 EBITDA excl. non-recurring items Margin (%) CAPEX Number of customers, end of period (thousands) 1,048 1,089 1,048 1,089 Mobile communications Net sales decreased 7 percent year on year due to Saunalahti s withdrawal from Sonera s network (SEK -200 million) and historic price changes (SEK -35 million). Declining traffic in the fixed network and the new pricing regime lowered sales of fixed to mobile calls by approximately SEK -40 million. The customer base increased by 69,000 to 2,485,000 year on year and churn decreased to 20 percent (29). Compared to the first quarter, the number of customers decreased by 43,000 mainly as a result of the cancellation of new sales of Tele Finland s low price subscriptions. 7

8 Interim Report January-June. TeliaSonera AB (publ), Corporate Reg. No , Registered office: Stockholm The number of traffic minutes per customer and month increased 3 percent, but ARPU weakened year on year due to historic price changes and declining fixed to mobile traffic. Compared to the first quarter, ARPU increased. EBITDA and the EBITDA margin improved since the comparative quarter was burdened by one-time costs of SEK 242 million. Efficiency effects and new price models had a positive impact on earnings, while Saunalahti s withdrawal had a negative effect. CAPEX decreased due to more cost efficient investment management and a lower need for capacity after Saunalahti's withdrawal. In July, TeliaSonera Finland acquired 50.4 percent of the distribution company Päämies-kauppiaat and the company is now a wholly owned subsidiary of TeliaSonera Finland. Fixed communications Net sales increased due to increased sales of broadband and equipment, including home electronics. Sales of traditional fixed voice and dial-up Internet declined further. The new fixed to mobile pricing regime affected net sales positively by approximately SEK 15 million. The number of broadband customers increased by 79,000 to 381,000. During the quarter, the increase was 7,000. EBITDA improved and the EBITDA margin increased to 27.8 percent (22.6) due to efficiency measures. Operating income Improved EBITDA and lower depreciation mainly due to positive effects of SEK 110 million from adjusted depreciation schedules caused operating income, excluding non-recurring items, to increase to SEK 418 million (54) in TeliaSonera Finland year on year. Effects from the ongoing cost efficiency programs The cost efficiency program introduced in with the goal of reducing annual costs by SEK 1 billion, compared to the cost level of 2004, affected earnings positively in the second quarter by SEK 250 million (50) on a gross basis, primarily in fixed communications. As a part of the ongoing turnaround program introduced late in to lower annual costs by an additional SEK 2 billion as of 2008, additional efficiency measures were taken. During the second quarter, the savings effect was marginal. A new interconnect agreement was reached with Elisa, which is estimated to have a positive annual effect of more than SEK 200 million on the result of mobile communications, assuming current traffic volumes and that all changes take effect simultaneously. 8

9 Interim Report January-June. TeliaSonera AB (publ), Corporate Reg. No , Registered office: Stockholm While looking for new jobs, employees in the turnaround program are placed in a competence pool. Thus far, 302 employees have been transferred to the competence pool, of which 85 remained in the pool at the end of the quarter. Since the introduction of the turnaround program, SEK 215 million has been reported as non-recurring expenses, of which SEK 113 million as impairment charges and SEK 102 million as expenses for the competence pool. In the second quarter, non-recurring expenses totaled SEK 87 million, of which SEK 77 million were expenses for the competence pool. Continued strong development in Norway Activity increased in the second quarter on the Norwegian market and a wide range of new services and offerings were launched, including Nordic services and services based on fixed and mobile integration aimed at the business segment. SEK in millions, except margins, ARPU and number of customers Net sales 2,389 1,785 4,518 3,394 EBITDA excl. non-recurring items ,745 1,253 Margin (%) Operating income , Operating income excl. nonrecurring items , Mobile communications Net sales 2,315 1,785 4,444 3,394 EBITDA excl. non-recurring items ,729 1,253 Margin (%) CAPEX ARPU (NOK) * Number of customers, end of period (thousands) 1,638 1,300 1,638 1,300 Fixed communications Net sales EBITDA excl. non-recurring items Margin (%) CAPEX 9 9 Number of customers, end of period (thousands) * Refers to NetCom Mobile communications Net sales increased 30 percent year on year due to strong traffic growth and the acquisition of Chess (consolidated as of November 7, ). In local currency, sales increased 25 percent. Full run rate of synergies from the acquisition of Chess (around SEK 200 million) and the efficiency measures (SEK 15 million), together with traffic growth, improved earnings and caused the margin to climb to 41 percent year on year. At the end of the second quarter, 93 percent of the Chess customers used NetCom s network. 9

10 Interim Report January-June. TeliaSonera AB (publ), Corporate Reg. No , Registered office: Stockholm The number of customers increased by 338,000 to 1,638,000 year on year. During the second quarter, the number of postpaid customers increased by 26,000, while the number of prepaid customers decreased by 14,000. Fixed communications The acquisition of NextGenTel (consolidated as of June 1, ) strengthens TeliaSonera s position and gives the opportunity to offer triple play (broadband, VoIP and IPTV) on the Norwegian market. NextGenTel is the second largest broadband supplier in Norway and had at the end of the quarter 164,000 customers, of which 24,000 were VoIP customers. Operating income Improved EBITDA caused operating income, excluding non-recurring items, to increase to SEK 732 million (446) in the Norwegian operation year on year. Improved profitability in Denmark The Danish market experienced relatively stable mobile prices and operators increased emphasis on customer retention. The possibility to bundle voice and broadband services further increased the interest for broadband, and the energy companies entrance into the market is expected to increase competition on the broadband market in Denmark. SEK in millions, except margins, ARPU and number of customers Net sales 1,938 1,723 3,812 3,394 EBITDA excl. non-recurring items Margin (%) Operating income Operating income excl. nonrecurring items Mobile communications Net sales 1,365 1,220 2,691 2,346 EBITDA excl. non-recurring items Margin (%) CAPEX ARPU (DKK) Number of customers, end of period (thousands) 1,127 1,119 1,127 1,119 Fixed communications Net sales ,121 1,048 EBITDA excl. non-recurring items Margin (%) CAPEX Number of customers, end of period (thousands)

11 Interim Report January-June. TeliaSonera AB (publ), Corporate Reg. No , Registered office: Stockholm Mobile communications Net sales increased 12 percent year on year due to traffic growth and increased terminal sales. EBITDA and the EBITDA margin improved due to the successful implementation of synergies from the acquisition of Orange, lower sales and marketing costs and efficiency effects from the integration of Telia Mobile and Telia Networks. In the second quarter, costs of SEK 14 million for the integration were reported as non-recurring items. Year on year the customer base increased by 8,000 customers. Telia is focusing on high value customers and during the quarter the number of customers decreased by 20,000, mainly in the prepaid segment. Fixed communications Net sales increased 14 percent year on year due to increased sales of broadband on the consumer market, increased sales of data communications solutions for businesses and increased program sales in the cable TV business. Increased sales improved EBITDA. The number of broadband customers increased by 16,000 year on year. During the second quarter, the increase was 2,000. Operating income Improved EBITDA caused operating income, excluding non-recurring items, to increase to SEK 115 million (-69) in the Danish operation year on year. Continued good development increased marketing activities in the Baltics The competitive market environment has increased price pressure and costs for sales and marketing. Mobile operators are focusing on developing attractive mobile Internet services mainly for laptop users. Telia- Sonera s mobile operators are leading the way in terms of upgrading their networks with HSDPA technology, which makes it possible to reach speeds of up to 14.4 Mbps. In the second quarter, both EMT in Estonia and Omnitel in Lithuania opened their HSDPA networks for commercial use in some larger cities. The fixed broadband market continues to develop positively and competition is intense. Mobile communications Net sales increased 12 percent due to customer growth in all markets year on year. The customer base increased by 549,000 year on year. During the second quarter, the customer increase totaled 72,000. Increased price pressure and increased costs for sales and marketing is reflected in the EBITDA margin in all markets. In Estonia a larger share of low margin sales also impacted negatively. 11

12 Interim Report January-June. TeliaSonera AB (publ), Corporate Reg. No , Registered office: Stockholm CAPEX increased slightly and referred primarily to investments in EDGE and UMTS. In April, the Latvian mobile operator LMT acquired 100 percent of Latvia s leading handset and subscription distribution company DT Mobile. Since most of DT Mobile s sales come from LMT, the total impact on net sales will be minor. SEK in millions, except margins and number of customers Net sales 2,507 2,286 4,844 4,424 EBITDA excl. non-recurring items 1,169 1,103 2,226 2,132 Margin (%) Income from associated companies Operating income ,374 1,179 Operating income excl. nonrecurring items ,374 1,179 Mobile communications Net sales 1,770 1,578 3,340 3,022 of which Lithuania ,193 1,088 of which Latvia ,172 1,077 of which Estonia EBITDA excl. non-recurring items ,455 1,408 Margin (%), Lithuania Margin (%), Latvia Margin (%), Estonia CAPEX Number of customers, end of period (thousands) 3,456 2,907 3,456 2,907 Fixed communications Net sales ,816 1,681 of which Lithuania of which Estonia EBITDA excl. non-recurring items Margin (%), Lithuania Margin (%), Estonia CAPEX Number of customers, end of period (thousands) in subsidiaries 1,444 1,404 1,444 1,404 in associated companies Fixed communications In Lithuania, net sales decreased somewhat due to the divestment of the subsidiary Comliet in the first quarter. In Estonia, net sales increased 16 percent primarily as a result of the acquisition of MicroLink but also the positive development in Elion. The number of broadband customers climbed by 96,000 year on year while the number of fixed voice customers decreased by 37,000. During the second quarter, broadband customer growth was 20,000 and the decrease in fixed voice customers was 9,

13 Interim Report January-June. TeliaSonera AB (publ), Corporate Reg. No , Registered office: Stockholm The EBITDA margin increased in Lithuania, but fell slightly in Estonia due to changes in the business mixture and increased sales of low margin products, including computers. TeliaSonera s income from the associated company Lattelecom was SEK 63 million (63). CAPEX increased because of the roll-out of digital TV, including high speed Internet connection, based on fiber optics in Estonia. On May 5, Lietuvos Telekomas changed its corporate brand name to TEO LT. Operating income Improved EBITDA and lower depreciation, partly due to adjusted depreciation schedules of SEK 10 million, increased operating income, excluding non-recurring items. Spanish mobile robust business case based on benchmark low cost level and sharp business focus TeliaSonera has evaluated the market conditions on the Spanish mobile market and now decided to increase its ownership in the Spanish mobile operator Xfera from percent to percent. The increase of ownership in Xfera is in line with TeliaSonera s strategy to exploit opportunities where the strengths of the current operations can be profitably utilized. In addition to the prevailing market conditions, the elements improving the business case include that vendor prices have come down considerably during the last years and high quality 3G handsets now are available at reasonable prices and volumes. Xfera was awarded a nation-wide UMTS license for Spain in March 2000, and TeliaSonera is one of its founding members. During the past few years TeliaSonera, together with the other owners, has significantly curtailed Xfera s capital and operating expenditures while waiting for the necessary UMTS technology to become commercially available in order to launch commercial services. In June 2004, the original license conditions were amended by the Spanish Ministry of Industry, Tourism and Commerce, which provided greater flexibility. The Spanish regulator has expressed its support of Xfera launching mobile operations in Spain. Xfera will launch mobile operations based on national GSM roaming and the roll-out of a UMTS network in Spain in accordance with 3G license conditions. Management is confident that the prevailing market conditions in Spain will support a fourth operator. Total financing needs in the business plan for Xfera, including investments in network, IP service platforms, start-up costs and spectrum fees (including accrued spectrum fees from 2002), are estimated to be less than SEK 9 billion for the first five years. In the same time frame, the operation is expected to be cash flow positive and earnings accretive. 13

14 Interim Report January-June. TeliaSonera AB (publ), Corporate Reg. No , Registered office: Stockholm Since the June announcement of the plans, TeliaSonera s project team, comprising competencies within start-up operations, products and services, mobile networks, marketing and communications, has commenced its work. Negotiations and procurement of the turn-key network roll-out started, including Node-B equipment for 1,550 sites as well as core and service network. The first order for 450 Node-B sites has been signed with Ericsson. Through Xfera s own sites and through site-sharing, more than 1,000 sites are already in place and ready for installation. Marketing and services plans have been fine-tuned in order to be able to launch commercially at the end of based on a UMTS network, including the seven largest Spanish cities, combined with national GSM roaming. Since the acquisition on June 14,, Xfera reported an operating loss of SEK 14 million and CAPEX of SEK 6 million. Continued strong growth and profitability in International Mobile SEK in millions, except margins and number of customers Net sales 2,047 1,464 3,917 2,600 of which Kazakhstan 1, ,234 1,433 of which Azerbaijan , of which Georgia of which Moldova EBITDA excl. non-recurring items 1, ,204 1,422 Margin (%), total Margin (%), Kazakhstan Margin (%), Azerbaijan Margin (%), Georgia Margin (%), Moldova Income from associated companies 1, ,141 1,030 of which Russia , of which Turkey Operating income 2, ,843 2,121 Operating income excl. nonrecurring items 2, ,843 2,121 CAPEX ,313 1,257 Number of customers, end of period (thousands) Eurasia 6,573 4,642 6,573 4,642 Russia 26,017 18,250 26,017 18,250 Turkey 28,740 24,300 28,740 24,300 Eurasia The Eurasian markets were characterized by continued strong customer and traffic growth, with the exception of Kazakhstan, where increased competition and the requirement to register prepaid customers affect the growth. Price competition continued to increase in Eurasia during the quarter and the Fintur companies concentrated on developing attractive, segmented price offers and stimulating the use of value added services. 14

15 Interim Report January-June. TeliaSonera AB (publ), Corporate Reg. No , Registered office: Stockholm Net sales increased 40 percent year on year. The number of customers climbed by 1.9 million to 6.6 million year on year. During the second quarter, the increase totaled 166,000. Strong profitability growth, partly due to the postponement of some sales and marketing activities. Continued high CAPEX in order to maintain the quality and coverage leadership in the region. All four Fintur companies are dividend payers and during the first six months of the companies declared a total of SEK 1,238 million in dividends to their shareholders. Russia On the Russian market, SIM card penetration now exceeds 95 percent and customer growth slowed in the second quarter. The total customer increase on the Russian mobile market was 8 million, which is about one third less than in the comparative quarter. Price levels stabilized after the past year s sharp decrease and no major price reductions were made during the quarter. MegaFon (associated company, 43.8 percent holding) showed continued strong sales and earnings growth and TeliaSonera s income from Russia was estimated at SEK 796 million (273). The result includes positive items of SEK 342 million, mainly from exchange gains due to the depreciation of the US dollar against the ruble. MegaFon s customer base increased by 7.8 million to 26.0 million year on year. During the second quarter, the customer increase totaled 1.8 million and MegaFon further strengthened its market position in terms of revenue. In Moscow, MegaFon also improved its position in terms of number of customers. A new regulatory pricing regime was introduced on July 1, where customers will only be charged for outgoing mobile calls. Mobile operators in Russia have previously also charged a fee for incoming calls. Turkey Turkcell (associated company, 37.3 percent holding reported with a one-quarter lag) more than doubled its earnings year on year despite increased customer acquisition costs in Turkey and losses from the start up operations in Ukraine. TeliaSonera s income from Turkcell increased to SEK 339 million (118) year on year. Revaluation of tax assets and tax liabilities due to a decrease in the Turkish corporate income tax rate from 30 to 20 percent as of January 1,, affected TeliaSonera's income from Turkcell negatively by approximately SEK 100 million. The Turkish economy is no longer considered to be hyperinflationary and as a result TeliaSonera s share of income from Turkcell does not include any inflation adjustment for the second quarter. 15

16 Interim Report January-June. TeliaSonera AB (publ), Corporate Reg. No , Registered office: Stockholm In Turkey, Turkcell s customer base increased by 4.4 million to 28.7 million year on year. During the quarter the increase was 0.8 million. In Ukraine, the number of customers increased by 0.8 million to 3.3 million during the quarter. During the second quarter, the Turkish lira depreciated against the US dollar by approximately 17 percent. Vodafone s recently approved acquisition of the second player Telsim is expected to further increase competition on the Turkish market. At the Turkcell General Assembly in May, a new Board was elected. TeliaSonera is represented by Anders Igel, President and CEO of TeliaSonera, and by Erdal Durukan, CEO of Fintur Holdings, who is also deputy chairman of Turkcell Board. Alfa Group is represented by two members and Cukurova Group is still represented by two members. The seventh member of the Board was elected by Cukurova Group and Alfa Group. Other operations *) SEK in millions Net sales 1,159 1,175 2,304 2,188 EBITDA excl. non-recurring items Income from associated companies Operating income Operating income excl. nonrecurring items CAPEX *) Include TeliaSonera Holding and TeliaSonera International Carrier Lower EBITDA due to lower prices in the carrier operations and the positive effects in the comparative quarter from capital gains in Telia- Sonera Holding and the termination of a long term contract in the carrier operations. Improved operating income since the book value of holdings in the associated company Telefos was adjusted downward in the comparative quarter. The associated company Overseas Telecom divested its holding in the mobile operator MTN Uganda in the beginning of July. The divestiture is expected to affect TeliaSonera s operating income excluding nonrecurring items positively by approximately SEK 600 million in the third quarter. Stockholm, July 28, Anders Igel President and CEO 16

17 Interim Report January-June. TeliaSonera AB (publ), Corporate Reg. No , Registered office: Stockholm Auditors Review Report We have reviewed the interim report of TeliaSonera AB for the period January 1, to June 30,. Management is responsible for the preparation and fair presentation of this interim report in accordance with IAS 34 and the Annual Accounts Act. Our responsibility is to express a conclusion on this interim report based on our review. We conducted our review in accordance with the Standard on Review Engagements SÖG 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by FAR. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Standards on Auditing in Sweden RS and other generally accepted auditing practices. The procedures performed in a review do not enable us to obtain a level of assurance that would make us aware of all significant matters that might be identified in an audit. Therefore, the conclusion expressed based on a review does not give the same level of assurance as a conclusion expressed based on an audit. Based on our review, nothing has come to our attention that causes us to believe that the interim report is not, in all material respects, in accordance with IAS 34 and the Annual Accounts Act. Stockholm, July 28, PricewaterhouseCoopers AB Göran Tidström Authorized Public Accountant Auditor in charge Håkan Malmström Authorized Public Accountant 17

18 Interim Report January-June. TeliaSonera AB (publ), Corporate Reg. No , Registered office: Stockholm Financial Information Interim Report January September October 31, Year-end Report January December February 13, 2007 Questions regarding content in the reports: TeliaSonera AB Investor Relations SE Stockholm, Sweden Tel Fax Ordering of individual hard copies of the reports: Tel Fax Definitions EBITDA: An abbreviation of Earnings Before Interest, Tax, Depreciation and Amortization. Equals operating income before depreciation, amortization and impairment losses and before income from associated companies. ARPU: Average monthly revenue per user. Churn: The number of post-paid customers that have left the company expressed as a percentage of the average number of post-paid customers. PSTN: Public Switched Telephone Network. LLUB: Local Loop Unbundling. HSDPA: High Speed Downlink Packet Access. 18

19 Interim Report January-June. TeliaSonera AB (publ), Corporate Reg. No , Registered office: Stockholm Condensed Consolidated Income Statements SEK in millions, except per share data and number of shares Net sales 22,737 21,752 44,716 42,556 Costs of production -12,120-11,653-23,749-22,735 Gross income 10,617 10,099 20,967 19,821 Selling, admin., and R&D expenses -5,800-5,776-11,173-11,714 Other operating revenues and expenses, net 120-1, ,337 Income from associated companies 1, ,194 1,115 Operating income 6,179 3,214 11,620 7,885 Net financial revenues and expenses Income after financial items 6,060 3,047 11,602 7,618 Income taxes -1, ,602-1,633 Net income 4,726 2,422 9,000 5,985 Attributable to: Shareholders of the parent co. 4,213 2,023 7,905 5,200 Minority interests in subsidiaries , Shareholders basic and diluted earnings per share (SEK) Number of shares (thousands) Outstanding at period-end 4,490,457 4,490,457 4,490,457 4,490,457 Weighted average, basic and diluted 4,490,457 4,642,744 4,490,457 4,658,898 Number of treasury shares (thousands) At period-end 184, , , ,775 Weighted average 184,775 32, ,775 16,334 EBITDA 7,801 6,040 15,032 12,978 EBITDA excl. non-recurring items 7,928 7,200 15,744 14,089 Depreciation, amortization and impairment losses -2,864-3,139-5,606-6,208 Operating income excl. nonrecurring items 6,316 4,385 12,445 9,055 19

20 Interim Report January-June. TeliaSonera AB (publ), Corporate Reg. No , Registered office: Stockholm Condensed Consolidated Balance Sheets SEK in millions Jun 30, Dec 31, Assets Goodwill and other intangible assets 77,137 74,367 Property, plant and equipment 48,064 48,201 Investments in associates, deferred tax assets and other financial assets 39,344 40,526 Total non-current assets 164, ,094 Non-current assets held-for-sale Inventories Trade receivables, current tax assets and other receivables 21,370 20,489 Interest-bearing receivables 1,301 2,407 Cash and cash equivalents 5,447 16,834 Total current assets 29,065 40,495 Total assets 193, ,775 Equity and liabilities Shareholders equity 112, ,049 Minority interests 8,012 8,645 Total equity 120, ,694 Long-term loans 23,433 20,520 Deferred tax liabilities, other long-term provisions 15,590 14,948 Other long-term liabilities 2,377 2,343 Total non-current liabilities 41,400 37,811 Short-term loans 6,276 6,215 Trade payables, current tax liabilities, short-term provisions and other current liabilities 24,990 24,055 Total current liabilities 31,266 30,270 Total equity and liabilities 193, ,775 20

21 Interim Report January-June. TeliaSonera AB (publ), Corporate Reg. No , Registered office: Stockholm Condensed Consolidated Cash Flow Statements SEK in millions Cash flow before change in working capital 6,182 7,593 13,632 13,717 Change in working capital Cash flow from operating activities 6,413 8,395 13,227 14,421 Intangible and tangible fixed assets acquired (cash CAPEX) -2,395-3,767-4,366-6,106 Free cash flow 4,018 4,628 8,861 8,315 Cash flow from other investing activities -2, ,308 1,747 Total cash flow from investing activities -4,932-3,599-6,674-4,359 Cash flow before financing activities 1,481 4,796 6,553 10,062 Cash flow from financing activities -13,550 5,679-17,843-1,988 Cash flow for the period -12,069 10,475-11,290 8,074 Cash and cash equivalents, opening balance 17,667 14,950 16,834 17,245 Cash flow for the period -12,069 10,475-11,290 8,074 Exchange rate differences Cash and cash equivalents, closing balance 5,447 25,640 5,447 25,640 21

22 Interim Report January-June. TeliaSonera AB (publ), Corporate Reg. No , Registered office: Stockholm Condensed Consolidated Statements of Changes in Equity Jun 30, Dec 31, Minority interests Total equity Shareholders SEK in millions equity Shareholders equity Minority interests Total equity Opening balance 127,049 8, , ,133 6, ,067 Business combinations Reporting financial instruments at fair value Exchange rate differences -6, ,242 8, ,541 Inflation adjustments ,177 1,177 Transactions with minority shareholders in subsidiaries Net income recognized directly in equity -6, ,674 10, ,752 Net income 7,905 1,095 9,000 11,697 1,997 13,694 Total recognized net income 1, ,326 21,729 2,717 24,446 Dividend -15,717-1,343-17,060-5,610-1,006-6,616 Treasury shares -10,203-10,203 Closing balance 112,948 8, , ,049 8, ,694 Basis for Preparation General. As in the annual accounts for, TeliaSonera s consolidated financial statements as of and for the six-month period ended June 30,, have been prepared in accordance with International Financial Reporting Standards (IFRS) and, given the nature of TeliaSonera s transactions, with IFRSs as adopted by the European Union. The parent company TeliaSonera AB s financial statements have been prepared in accordance with the Swedish Annual Accounts Act and the Swedish Financial Accounting Standards Council s standard RR 32 Accounting for Legal Entities and statements issued by its Emerging Issues Task Force. This report has been prepared in accordance with IAS 34 Interim Financial Reporting. New accounting standards (not adopted by the EU). IFRIC 10 Interim Financial Reporting and Impairment (effective July 20, ) addresses the apparent conflict between the requirements of IAS 34 Interim Financial Reporting and those in other standards on the recognition and reversal of impairment losses on goodwill and certain financial assets. IFRIC 10 states that any such impairment losses recognized in an interim financial statement must not be reversed in subsequent interim or annual financial statements. TeliaSonera already applies the principle stated by IFRIC

23 Interim Report January-June. TeliaSonera AB (publ), Corporate Reg. No , Registered office: Stockholm For further information, see corresponding section in TeliaSonera s Annual Report. Non-Recurring Items SEK in millions Within EBITDA , ,111 Restructuring charges, synergy implementation costs, etc.: Sweden -43-1, ,004 Finland Denmark International Carrier Other Capital gains: Telia Finans 1 54 Within Depreciation, amortization and impairment losses Impairment losses, accelerated depreciation: Norway Within Income from associates Impairment losses, capital gains/losses, provisions and other: Finland Infonet Services -19 Within Financial net 183 Capital gains: Elisa 183 Total , ,170 Deferred Taxes SEK in millions Jun 30, Dec 31, Deferred tax assets 13,167 12,305 Deferred tax liabilities -9,986-9,578 Net deferred tax assets (+)/liabilities (-) 3,181 2,727 Related Party Transactions MegaFon. As of June 30,, TeliaSonera had interest-bearing claims on its associated company OAO MegaFon of SEK 339 million. Telefos. As of June 30,, TeliaSonera had interest-bearing claims of SEK 93 million on its associated company Telefos AB. In the three-month and six-month period ended June 30,, TeliaSonera purchased services and products from Telefos worth SEK 436 million and SEK 935 million, respectively, mostly referring to network construction. 23

24 Interim Report January-June. TeliaSonera AB (publ), Corporate Reg. No , Registered office: Stockholm Business Combinations Xfera In June, TeliaSonera increased its percent holding in Spanish Xfera Móviles S.A. to percent. By virtue of a shareholder s agreement, TeliaSonera controls 80 percent of the voting rights. The results of the Xfera operations have been included in the consolidated financial statements as of June 14,. In addition to the cash purchase price of SEK 617 million, there is a 20 year earn-out model giving rise to contingent additional payments to the selling shareholders. The minority shareholders have a put option giving them the right to, after 5 years and on certain other conditions, sell their shares to TeliaSonera. The fair value of the put option has been recorded as a liability, offsetting minority interest and increasing goodwill. NextGenTel On May 16,, TeliaSonera announced an agreement to acquire 82.3% of the Norwegian listed company NextGenTel Holding ASA. After a combined public offer and compulsory acquisition of the remaining shares, TeliaSonera effectively controls 100 percent of the shares. The results of the NextGenTel operations have been included in the consolidated financial statements as of June 1,. Purchase price allocations (SEK in millions) Xfera NextGenTel Cash purchase consideration 1) 807 2,156 Estimated additional contingent purchase consideration / Estimated consideration for shares subject to compulsory redemption Estimated fair value of minority put option 510 Reversal of existing provisions related to counter guarantees for Xfera liabilities -454 Transaction related direct expenses 4 68 Total cost of the combination 1,407 2,338 UMTS license / Customer relationships 1, Property, plant and equipment Financial non-current assets 2) 1,727 Net deferred income tax assets Receivables and other current assets Cash and cash equivalents Interest-bearing liabilities 3) -3, Non-interest-bearing liabilities Other net assets Total fair value of net assets acquired Revaluation and other effects in equity 25 Goodwill written-down 111 Total effects relating to existing percent Xfera holding 136 Goodwill 1,093 1,846 1) Xfera: Including consideration paid for existing percent holding. 2) Xfera: Receivables from former shareholders for their guarantees to pay certain of Xfera s disputed interest-bearing license fee liabilities to the Spanish state. 3) Xfera: Mainly accrued disputed annual license fees to the Spanish state from 2001 onwards, and vendor financing. 24

25 Interim Report January-June. TeliaSonera AB (publ), Corporate Reg. No , Registered office: Stockholm Cash flow effects (SEK in millions) Xfera NextGenTel Total cost of the combination paid in cash less acquired cash and cash equivalents 803 1,959 Less consideration paid for existing percent Xfera holding -190 Net cash outflow from the combination 613 1,959 Pro forma effects to the date of combination, as if it had taken place at January 1, (SEK in millions) Xfera NextGenTel Net sales 347 Operating income The total acquisition cost and fair values have been determined provisionally as they are based on preliminary appraisals and subject to confirmation of certain facts. Thus, the purchase price accounting is subject to refinement. Other business combinations For other business combinations during the quarter, the combined cost of acquisition was SEK 212 million. Fair value adjustments related to brand names amounted to SEK 120 million. Goodwill totaled SEK 93 million. Investments SEK in millions CAPEX 2,631 3,689 4,670 5,962 Intangible assets Property, plant and equipment 2,266 3,400 4,110 5,421 Acquisitions and other investments 3, , Asset retirement obligations 3 Goodwill and fair value adjustments 3, , Shares and participations Total 6,289 3,714 8,495 6,059 Net Debt SEK in millions Jun 30, Dec 31, Long-term and short-term loans 29,709 26,735 Less short-term investments, cash and bank -6,088-18,362 Net debt 23,621 8,373 Loan Financing The underlying cash-flow generation was positive during the second quarter of. During the quarter, distribution of ordinary and extra dividends was made which led to an increase in net debt. The bulk of the dividend payments was supplied from existing surplus cash, but some debt financing was initiated. The acquisition of Xfera in Spain and NextGenTel in Norway added to the need for debt financing. 25