FLAT +3.8% YEAR-END REPORT JANUARY DECEMBER 2017 STRONG Q4 PUTS 2017 CASH FLOW WELL ABOVE EXPECTATIONS JOHAN DENNELIND PRESIDENT & CEO 2.

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Transcription:

YEAR-END REPORT JANUARY DECEMBER 2017 JOHAN DENNELIND PRESIDENT & CEO Q4 STRONG Q4 PUTS 2017 CASH FLOW WELL ABOVE EXPECTATIONS We said: cash flow above SEK 7.5 billion WE DID 9.7bn +0.8bn Q4 (+0.8bn Q4) We said: EBITDA around 2016 level WE DID FLAT +3.8% Q4 (+3.8% Q4) We said: Cash flow should cover a dividend around SEK 2 We said: Sweden OPEX down H2 2017 by 5 percent vs 2016 WE PROPOSE 2.30 (+15%) WE DID 6% 2 1

GOOD UNDERLYING EBITDA DEVELOPMENT SERVICE REVENUE DEVELOPMENT Organic growth, external service revenues Service revenues Service revenues excl. fiber installation revenues EBITDA DEVELOPMENT Organic growth, excluding adjustment items EBITDA EBITDA excl. fiber installation revenues* 3.8% 7% -1.0% Q4 16 Q1 17 Q2 17 Q3 17 Q4 17-2.3% Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Service revenue growth in 5 of 7 markets Lower fiber installation and Telia Carrier revenues impacted growth negatively by almost 2 p.p. EBITDA growth in 5 of 7 markets Strong performance in Finland and the Baltics Growth excluding fiber was around 7 percent 3 * On average ~70% EBITDA margin on fiber installation revenues in Sweden COST MANAGEMENT SUPPORTS EBITDA IN SWEDEN SWEDEN OPEX DEVELOPMENT* SWEDEN UNDERLYING EBITDA** Reported currency, SEK billion & adjusted OPEX Reported currency, adjusted EBITDA OPEX R12 OPEX y-o-y growth 8.5 8.3 8.3 8.1 8.1 8.2 10% 5% EBITDA growth EBITDA growth excl. fiber installation revenues and pension one-off 3% 0% 0% -6%-5% -4% 6 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17-10% Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 The ambition announced Q2 2017 to take down OPEX by 5 percent H2 y-o-y* was more than realized Positive underlying EBITDA adjusted for fiber installation revenues and pension one-off Q4 2016 4 * Adjusted external OPEX, excluding a one-off item in Q4 2016 related to pensions ** Adjusted EBITDA excluding fiber installation revenues and for a positive one-off item in Q4 2016 related to pensions 2

CONVERGENCE IN SWEDEN VIA CUSTOMER EXPERIENCE DEMAND FOR SIMPLIFICATION TELIA LIFE >20GB 53 million LARGE LARGE MOBILE BROADBAND PERSONAL TECHNICIAN C MORE STANDARD CHROMECAST MOBILE 4G ROUTER 5...IN OUR CUSTOMERS DIGITAL LIFE Leading the way on convergence in Sweden through customer experience Large untapped potential ahead as we refine the portfolio step by step Simplification & customer experience to drive POSITIVE ON REVENUES & STRONG EBITDA GROWTH SERVICE REVENUES* & EBITDA** SEK million, reported currency & organic growth 2,934 +1.5% 3,087 +10.1% 1,000 1,137 MOBILE DEVELOPMENT Organic growth, ARPU growth in local currency Total mobile service revenues Mobile ARPU 6.3% 4.5% Q4 16 Q4 17 Q4 16 Q4 17 Service revenues EBITDA Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Solid development on mobile Double-digit EBITDA growth on the back of revenue growth and solid cost control Continued solid mobile service revenue trend ARPU uplift in both B2B and B2C due to price increases and portfolio management 6 = Organic growth * External service revenues ** Excluding adjustment items 3

GEARING UP IN B2B & B2C CONVERGENCE IN FINLAND DATA CENTER BUILD M&A TO EXPAND PORTFOLIO ICE HOCKEY RIGHTS FOR B2C 7 Largest open data center to support customers digital agenda First customer contracts signed B2B convergence capabilities strengthened via M&A Around SEK 0.7 billion revenues annually in the acquired businesses Exclusive content to build superior B2C proposition Liiga starts autumn 2018 NEW FOOTPRINT TAKING SHAPE CONTINUING TO BUILD RECENT DIVESTMENTS FULL STAKE DIVESTED FULL STAKE DIVESTED AND STRENGTHENING THE NORDIC/BALTIC FOOTPRINT 8 4

TARGET TO TAKE DOWN COSTS BY SEK 1.1 BILLION 2018 2018 COST TARGET OVERVIEW Targeted saving by market 1.1bn Net savings of SEK 1.1 billion targeted in 2018 vs. 2017- initiative launched mid 2017 100% Limited net effect in Finland as gross savings are offset by M&A 80% 60% 40% 20% Other LED* Norway Finland Sweden Other mainly related to group functions Key programme streams Vendor consolidation & near-shoring Transfer of customers online (sales & support) Use of robotics 0% Optimized SAC spend 9 * Lithuania, Estonia, Denmark DIVIDEND PROPOSAL FOR 2017 SEK 2.30 Equal to 9.96bn in pay-out 2.85 2.85 3.00 3.00 3.00 +15% vs 2016 2.30 2.00 2011 2012 2013 2014 2015 2016 2017 Excluding Eurasia cash flow 10 5

SO WE ARE LOOKING FORWARD... THE 2018 FUNDAMENTALS 1 2 3 LEGACY REVENUE HEADWIND TAILWIND FROM COST PROGRAMS & SYNERGIES (M&A 2017) NWC & CAPEX SUPPORTING CASH FLOW LEADS TO MAINTAINED HIGH CASH FLOW 2018 FURTHER CASH FLOW GROWTH 2019/20 FROM CORE METRICS 11 OUTLOOK FOR 2018 OPERATIONAL FCF* Around SEK 9.7 billion Operational FCF together with dividends from associated companies should cover a dividend around the 2017 level (a SEK 2.30 dividend/share equals SEK 9.96 billion) EBITDA** In line or slightly above the 2017 level of SEK 25.4 billion 12 * Free cash flow from continuing operations, excluding licenses and dividends from associated companies ** Based on current structure, i.e. including M&A made so far, excluding adjustment items, in local currencies 6

YEAR-END REPORT JANUARY DECEMBER 2017 CHRISTIAN LUIGA EXECUTIVE VICE PRESIDENT & CFO Q4 EBITDA GROWTH DESPITE SERVICE REVENUE DECLINE SERVICE REVENUE DEVELOPMENT Q4 Organic growth, y-o-y, external service revenues EBITDA DEVELOPMENT Q4 Organic growth, y-o-y, excluding adjustment items -2.3% +3.8% Lower legacy and fiber installation revenues in Sweden Solid mobile supported revenues in Finland Positive development across the Baltics Overall solid execution on costs more than compensated for revenue pressure 14 7

STABLE UNDERLYING B2C BUT PRESSURE ON FIBER AND B2B SERVICE REVENUES BY SEGMENT B2C MOBILE TRENDS Organic growth, external revenues Organic growth, external revenues B2C B2C incl. fiber installation revenues B2C excl. fiber installation revenues B2C mobile service revenue growth B2C mobile ARPU 5% -0.3% 3% B2B -4.1% -5.6% Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Flat B2C development excluding fiber installation revenues Fiber installation revenues down SEK 224 million Challenging B2B comparison B2C mobile continues to develop positively ARPU uplift from positive subscription base mix development 15 FIBER ROLL-OUT IN SWEDEN CONTINUES TO BE A DRAG FIBER INSTALLATION REVENUE TREND Reported currency, y-o-y growth FIBER CAPEX TREND Reported currency, SEK million Fiber installation revenues 1,250 1,000 39% 750 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17-47% 500 250 0 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Slow fiber roll-out pace also in Q4 Permits still an issue and execution has become more challenging More rural locations and phasing effects in Q4 16 8

STABLE UNDERLYING PERFORMANCE IN NORWAY SERVICE REVENUES* & EBITDA** SEK million, reported currency & organic growth +0.1% 2,036 2,149 Phonero -4.3% 865 851 ORGANIC EBITDA** DEVELOPMENT SEK million, organic EBITDA and margin 1,000 750 500 250 Special items Q4 2017 Organic EBITDA Organic EBITDA margin 50% 40% 30% 20% 10% Q4 16 Q4 17 Q4 16 Q4 17 Service revenues EBITDA 0 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 0% Flat revenue growth supported by increase in Wholesale Limited Phonero synergies in the quarter Almost 40,000 B2C subscriptions acquired Absolute organic EBITDA continues to be fairly stable Q4 impacted by seasonality and a few special cost items 17 = Organic growth * External service revenues ** Excluding adjustment items STRATEGY EXECUTION AND EBITDA GROWTH DELIVERING ON THE STRATEGY IN LED Telia One launched in Lithuania & Estonia Increase loyalty Drive cross-sell Improved experience My Telia in Denmark improved Simplifies subscription management online Less need for support Improved experience FINANCIAL DEVELOPMENT 2017 Organic growth, y-o-y 3.2% Estonia FY2017 5.7% 5.6% 5.8% Lithuania FY 2017 Service revenues* EBITDA** -0.3% -2.0% Denmark FY 2017 Increased efficiency across including continued synergy realization in Estonia and Lithuania Estonia and Lithuania also supported by strong revenue development 18 * External service revenues ** EBITDA excluding adjustment items 9

EURASIA STILL IN GROWTH TERRITORY FINANCIAL TRENDS IN EURASIA Organic growth FINANCIAL TRENDS IN KAZAKHSTAN Organic growth Service revenues* EBITDA** 10% 5% Service revenues* EBITDA** 11% 0% 19 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Revenues continue to grow from positive development in 4 of 5 markets EBITDA growth in Eurasia despite devaluation in Uzbekistan Impairment in Eurasia made to reflect updated view on value * External service revenues **Excluding adjustment items Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Continued flat revenue development and EBITDA recovery in Kazakhstan CAPITAL ALLOCATION REDUCED NET DEBT IN Q4 NET DEBT DEVELOPMENT Continuing and discontinued operations, SEK billion Net debt down by SEK 8.8 billion in the quarter mainly driven by the divestment of MegaFon 1.43x 42.6-6.5 +4.9 +4.3 +0.3 1.14x 33.8 +1.6 1.20x 35.4 The second dividend tranche of SEK 4.3 billion paid in Q4 Turkcell dividend of SEK 0.5 billion received in Q4 Around SEK 1.6 billion relates to the Uzbek global settlement to be paid in due time (amount subject to changes in FX) -11.8 Q3 17 Operations Cash CAPEX 2nd dividend MegaFon proceeds FX & Other Q4 17 Remaining Q4 17 part of pro global forma settlement 20 = Leverage ratio 10

CAPEX DOWNWARD TREND TO CONTINUE IN 2018 CAPEX EXCLUDING LICENSES* Reported currency, SEK million, R12 CASH CAPEX TREND - ILLUSTRATIVE 2018 Reported currency, SEK billion, excluding licenses 16,000 15,000 CAPEX excluding licenses (R12) CAPEX excl. licenses & fiber (R12) 16 12 15.0 3.4 13.9 3.1 Lower fiber CAPEX to be main driver SEK million 14,000 13,000 12,000 11,000 8 4 11.6 10.8 10,000 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 0 2016 2017 2018 illustrative Non fiber cash CAPEX Fiber cash CAPEX 21 Flat CAPEX development in Q4 but the ambition to take down CAPEX further in 2018 remains * Excluding hockey rights in Finland acquired Q2 2017 Cash CAPEX expected to decline 2018 driven mainly by lower fiber in Sweden Finnish ice hockey rights acquired 2017 to be paid over 6 years starting 2018 STRONG CASH FLOW TREND OPERATIONAL FREE CASH FLOW TREND Continuing operations, SEK billion OPERATIONAL FREE CASH FLOW Continuing operations, SEK billion 10 8 6 Operational free cash flow (R12) 9.7 5.5 +1.4 +1.2 +1.0 +0.5 9.7 4 2 0 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 2016 Tax NWC Cash CAPEX Other 2017 Continued strong cash flow generation from better performance for the majority of cash flow components Tax impacted by SEK 0.7 billion refund Lower cash CAPEX and improved Net Working Capital levels 22 11

AMBITION TO MAINTAIN 2017 CASH FLOW LEVEL IN 2018 SEK billion EBITDA + NWC + CAPEX* OPERATIONAL FREE CASH FLOW AMBITION 2018 FINANCE + TAX + + = OTHER OPERATIONAL FREE CASH FLOW* 11.2 13.0-5.7-3.3 5.5 9.7 2016 2017 2018 2016 2017 2018 2016 2017 2018 23 * Excluding licenses OUTLOOK FOR 2018 OPERATIONAL FCF* Around SEK 9.7 billion Operational FCF together with dividends from associated companies should cover a dividend around the 2017 level (a SEK 2.30 dividend/share equals SEK 9.96 billion) EBITDA** In line or slightly above the 2017 level of SEK 25.4 billion 24 * Free cash flow from continuing operations, excluding licenses and dividends from associated companies ** Based on current structure, i.e. including M&A made so far, excluding adjustment items, in local currencies 12

Q&A CAPITAL MANAGEMENT TARGETS LEVERAGE UNCHANGED CREDIT RATING UNCHANGED DIVIDEND POLICY UNCHANGED Net debt/ebitda of 2x plus/minus 0.5x Solid investment grade long-term credit rating (A- to BBB+) At least 80 percent of free cash flow from continuing operations and excluding licenses 26 13

FREE CASH FLOW DEFINITIONS 2018 (UNCHANGED) SEK BILLION 2016 2017 FREE CASH FLOW 2017 FREE CASH FLOW FROM CONTINUING OPERATIONS 7.2 11.8 FREE CASH FLOW EXCLUDING LICENSES Free cash flow from continuing operations excluding licenses 7.5 12.4 11.8 0.6 12.4-2.7 9.7 OPERATIONAL FREE CASH FLOW Free cash flow from continuing operations excluding licenses and dividends from associates (net of tax) 5.5 9.7 Free cash flow continuing operations Licenses Free cash flow excl. licenses Dividends from associates (net of tax) Operational free cash flow DIVIDEND POLICY DEFINITION OUTLOOK DEFINITION 27 EPS DOWN FROM M&A AND IMPAIRMENTS IN EURASIA SEK, continuing and discontinued operations TOTAL EPS DEVELOPMENT 1.69 0.03-1.52 In addition to a capital gain of SEK 2.8 billion the MegaFon disposal also impacted finance net Capital gain from Yoigo divestment in Q4 16-1.09 0.35-0.13 0.12-0.02 Mainly impairment of the operations in Azerbaijan -0.75-0.03 0.17 Q4 16 Operating income* Adjustment items MegaFon capital gain Finance net Tax Other Impairments Eurasia other Q4 17 CONTINUING OPERATIONS DISCONTINUED OPERATIONS 28 * Excluding income from associates and adjustment items 14

FORWARD-LOOKING STATEMENTS Statements made in this document relating to future status or circumstances, including future performance and other trend projections are forward-looking statements. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There can be no assurance that actual results will not differ materially from those expressed or implied by these forward-looking statements due to many factors, many of which are outside the control of Telia Company. 29 15