Earnings Release • Feb 8, 2008
Earnings Release
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Full year
Fourth quarter
"I am happy with the top-line growth and the bottom-line development in the fourth quarter. During the year we continued investing in future growth by expanding our presence in Eurasia to new growth markets, building our Yoigo brand in Spain and offering IP-based services with the ambition to migrate our fixed-voice customer base.
These investments, together with price erosion and regulatory intervention, unfavorably impacted our EBITDA during every quarter of 2007.
For 2008, it is critical that we continue to execute our plan in Spain. In addition, the planned efficiency measures are mandatory to allow us to continue investing in future growth at the same time as we defend leading positions in more mature markets and provide high-quality networks and services."
In this report, comparative figures are provided in parentheses following the operational and financial results and refer to the same item in the full year or in the fourth quarter of 2006, unless otherwise stated.
| SEK in millions, except per share data and | Oct-Dec | Oct-Dec | Jan-Dec | Jan-Dec |
|---|---|---|---|---|
| return | 2007 | 2006 | 2007 | 2006 |
| Net sales | 24,921 | 23,187 | 96,344 | 91,060 |
| EBITDA1) excl. non-recurring items2) | 7,208 | 7,766 | 31,021 | 32,266 |
| Operating income | 6,058 | 6,190 | 26,155 | 25,489 |
| Operating income excl. non-recurring items | 6,358 | 6,504 | 27,478 | 26,751 |
| Net income | 5,209 | 4,538 | 20,298 | 19,283 |
| of which attributable to shareholders of the | ||||
| parent company | 4,467 | 4,029 | 17,674 | 16,987 |
| Earnings per share (SEK) | 0.99 | 0.90 | 3.94 | 3.78 |
| Return on equity (%, rolling 12 months) | 18.6 | 17.2 | 18.6 | 17.2 |
| Free cash flow | 1,839 | 2,865 | 13,004 | 16,596 |
1) Please refer to page 18 for definitions.
2) Non-recurring items; see table on page 23.
Net sales are expected to show stable growth in the financial year 2008 compared to the previous year.
Despite continued aggressive investments in future growth and in the quality of our networks and services, TeliaSonera's ambition for 2008 is to maintain the EBITDA margin level of 2007, excluding non-recurring items.
Net income for 2008 is estimated to be somewhat higher than in 2007, excluding the positive one-off items of approximately SEK 2.0 billion in 2007 and potential positive oneoff items in 2008.
Capital expenditure will be driven by continued investments in broadband and mobile capacity and is expected to be around SEK 15 billion in 2008.
Intensified efficiency improvement is imperative for TeliaSonera to be able to continue shifting the product mix by investing in mobility and IP-based services.
Operating expenses for the Swedish and Finnish operations totaled about SEK 36 billion in 2007, of which approximately SEK 22 billion is the primary cost base to be addressed by the planned efficiency measures. Efficiency measures to be implemented primarily in the Swedish and Finnish operations during 2008 and 2009 are estimated to give an annual gross savings effect of approximately SEK 5 billion compared to the cost base of 2007.
TeliaSonera estimates that about two-thirds of these efficiency measures comprising savings of addressable costs and sustainable savings in volume-related costs will be implemented during 2008 and the remaining one-third in 2009. The efficiency measures are expected to result in a reduction of approximately 2,900 employees, of whom about two-thirds in Sweden and one-third in Finland. The related restructuring costs, to be reported as non-recurring items, are estimated to be around SEK 4 billion, of which approximately two-thirds in 2008.
Previous efficiency measures, implemented from April 1 to year-end 2007 in Sweden and Finland, are finalized and estimated to give an annual gross savings effect of approximately SEK 1.5 billion as of 2008. The savings effect for 2007 from these measures was approximately SEK 700 million and non-recurring expenses totaled SEK 790 million.
Net sales increased 5.8 percent to SEK 96,344 million (91,060). The net effect of acquisitions was positive 2.7 percent and the net effect from exchange rate changes was negative 0.5 percent. Organic growth was 3.6 percent. All business areas showed higher sales.
In Mobility Services, net sales rose 6.1 percent to SEK 44,519 million (41,949) with increased sales in all markets. In particular, the acquisition of debitel in Denmark in April, good underlying development in Sweden and Estonia and the Yoigo start-up in Spain drove sales higher.
In Broadband Services, net sales increased 1.0 percent to SEK 41,273 million (40,880) due to higher sales in all markets except Sweden. Particularly the good underlying development in Wholesale and in Estonia, and the acquisition of NextGenTel in Norway in June 2006 contributed to higher sales.
Integrated Enterprise Services net sales increased 6.1 percent to SEK 13,729 million (12,940). The improvement was attributable to the acquisitions of Cygate, Didata and Crescom in 2007.
In Eurasia, net sales rose 21.5 percent to SEK 10,338 million (8,508), lifted by continued strong growth, especially in Kazakhstan and Azerbaijan, and the acquisition of operations in Uzbekistan and Tajikistan.
The number of subscriptions rose by 18.7 million to 114.9 million. The number of subscriptions in the majority-owned operations rose to approximately 36.1 million and in the associated companies to about 78.8 million.
EBITDA, excluding non-recurring items, decreased to SEK 31,021 million (32,266) and the margin was 32.2 percent (35.4), despite higher net sales in all business areas and higher EBITDA in Eurasia. The profitability was impacted by the change in the product mix and related investments in growth, especially in mobility and IP-based services. In Spain, costs for building the Yoigo brand resulted in an EBITDA of SEK -1,443 million (-337). In addition, acquisitions during the year as well as price erosion and regulatory intervention had a negative effect on profitability.
Operating income, excluding non-recurring items, increased to SEK 27,478 million (26,751) due to higher income from associated companies in Russia and Turkey.
Non-recurring items affecting operating income totaled SEK -1,323 million (-1,262), negatively impacted by charges of about SEK 900 million related to cost efficiency programs, and about SEK 600 million related to a write-down of the access network in Finland and a provision for dismantling the network. Non-recurring items were positively impacted by the release of provisions of approximately SEK 200 million in the third quarter. In 2006, non-recurring items were positively affected by a SEK 500 million reversal of a provision related to the settlement of a dispute regarding a potential co-location site in London.
Financial items totaled SEK -904 million (-263), of which SEK -1,174 million (-472) related to net interest expenses. The comparable period was positively impacted by a capital gain of SEK 183 million from a sale of shares.
Income taxes amounted to SEK -4,953 million (-5,943). The effective tax rate decreased to 19.6 percent (23.6). The decrease was mainly related to recognition of deferred tax assets of approximately SEK 850 million in the fourth quarter, mainly in Finland, after a positive ruling concerning certain old tax losses, and to higher income from associated companies in Russia and Turkey.
Minority interests in subsidiaries were SEK 2,624 million (2,296) of which SEK 1,895 million (1,654) related to Fintur and SEK 702 million (650) to Eesti Telekom, LMT and TEO.
Net income attributable to shareholders of the parent company increased to SEK 17,674 million (16,987) and earnings per share to SEK 3.94 (3.78).
CAPEX increased to SEK 13,531 million (11,101) and the CAPEX-to-sales ratio to 14.0 percent (12.2) driven mainly by increased investments in network capacity and coverage in all business areas, and new services especially within Mobility Services and Broadband Services.
Free cash flow decreased to SEK 13,004 million (16,596), mainly due to higher CAPEX, lower EBITDA and higher paid taxes. Free cash flow was positively affected by a dividend of about SEK 900 million from the associated company Telefos in the third quarter, mainly related to its sale of Eltel. In the comparable period cash flow was positively impacted by a tax refund of approximately SEK 1.5 billion.
Net debt increased to SEK 34,718 million from SEK 14,957 million mainly due to dividend payments of SEK 28.3 billion to shareholders in May 2007, only partly offset by free cash flow.
The equity/assets ratio increased to 50.3 percent from 49.9 percent.
On May 7, 2007, TeliaSonera raised its shareholding in Eesti Telekom to 58.3 percent through the acquisition of 4.61 percent of the outstanding shares in the company for a cash consideration of approximately SEK 485 million.
On July 16, 2007, TeliaSonera closed the acquisition of MCT Corp. for SEK 1.8 billion. To expand its presence in the growing markets in Eurasia, TeliaSonera acquired 100 percent of the shares in MCT with shareholdings in four Eurasian GSM operators, Coscom in Uzbekistan, Indigo Tadzhikistan and Somoncom in Tajikistan and Roshan in Afghanistan. Coscom, Indigo Tadzhikistan and Somoncom are consolidated as of July 1. TeliaSonera holds 12.25 percent in Roshan.
• The Government of Sweden decided on January 17, 2008, on a proposal for consideration by the Council on Legislation, "Functional separation for better broadband competition." More information is available at www.sweden.gov.se/sb/d/586/a/96173.
Net sales increased 7.5 percent to SEK 24,921 million (23,187). The effect of acquisitions on sales was positive 3.3 percent and the net effect from exchange rate changes was positive 0.6 percent. Organic growth was 3.6 percent.
In Mobility Services, net sales increased 10.1 percent to SEK 11,456 million (10,407), driven by growth in all markets except Finland. The acquisition of debitel in Denmark, strong volume growth in Sweden and continued development in Spain contributed the most to the rise.
In Broadband Services, net sales decreased 1.2 percent to SEK 10,366 million (10,496). Sales decreased mainly in Sweden, where the decline in net sales caused by lower fixed voice sales continued. However, increased broadband sales in all markets nearly offset the decline in traditional services.
Integrated Enterprise Services net sales increased 8.8 percent to SEK 3,589 million (3,298). The improvement was attributable to the acquisitions of Cygate, Didata and Crescom in 2007.
In Eurasia, net sales rose 27.2 percent to SEK 2,911 million (2,289), lifted by continued strong growth, especially in Kazakhstan and Azerbaijan, and the acquisition of operations in Uzbekistan and Tajikistan.
EBITDA, excluding non-recurring items, decreased to SEK 7,208 million (7,766) and the margin was 28.9 percent (33.5) despite higher net sales. In Spain, costs for building the Yoigo brand resulted in an EBITDA of SEK -464 million (-247). In addition, price erosion, the change in product mix from traditional fixed-voice to IP-based broadband services, both in the retail and corporate segments, increased promotional spending and regulatory intervention, especially in Norway, had a negative effect on profitability. The operations acquired in 2007 all had a dilutive impact on the margin.
Operating income, excluding non-recurring items, decreased to SEK 6,358 million (6,504), with lower EBITDA partly offset by higher income from associated companies in Russia and Turkey.
Non-recurring items affecting operating income totaled SEK -300 million (-314), negatively affected by charges of SEK 230 million related to cost efficiency programs. Nonrecurring items in the comparable quarter were positively impacted by a SEK 500 million reversal of a provision related to the settlement of a dispute regarding a potential colocation site in London.
Financial items totaled SEK -289 million (-90), of which SEK -307 million (-91) related to net interest expenses.
Income taxes amounted to SEK -560 million (-1,562). The effective tax rate was 9.7 percent (25.6). The decrease was mainly due to the recognition of deferred tax assets of approximately SEK 850 million, mainly in Finland, after a positive ruling concerning certain old tax losses, and to higher income from associated companies in Russia and Turkey.
Minority interests in subsidiaries were SEK 742 million (509), of which SEK 557 million (335) related to Fintur and SEK 172 million (180) to Eesti Telekom, LMT and TEO.
Net income attributable to shareholders of the parent company increased to SEK 4,467 million (4,029) and earnings per share to SEK 0.99 (0.90).
CAPEX was SEK 4,537 million (3,688) and the CAPEX-to-sales ratio 18.2 percent (15.9), driven mainly by continued increased investments in network capacity and coverage in all business areas, and new services especially within Mobility Services and Broadband Services.
Free cash flow decreased to SEK 1,839 million (2,865) mainly due to higher CAPEX, lower EBITDA, higher net financing costs and changes in working capital.
Net debt decreased slightly during the quarter to SEK 34,718 million from SEK 35,739 million on September 30, 2007, mainly as a result of free cash flow.
The TeliaSonera share is listed on the Stockholm Stock Exchange and the Helsinki Stock Exchange. The share's settlement price on the Stockholm Stock Exchange increased 8.0 percent in 2007, from SEK 56.25 to SEK 60.50. The highest share price was SEK 68.00 (58.25) and the lowest SEK 47.70 (37.90). The number of shareholders decreased from 691,106 to 655,247. Ownership by the Swedish state decreased to 37.3 percent from 45.3 percent and the Finnish state's holding was 13.7 percent. Holdings outside Sweden and Finland increased to 22.4 percent from 16.7 percent. At year-end, Swedish institutional investors owned 18.2 percent (15.9) of the share capital and Finnish institutional investors owned 3.0 percent (3.0). Swedish private investors owned 3.0 percent (3.2) and Finnish private investors 2.4 percent (2.2).
For 2007, the Board of Directors proposes to the Annual General Meeting (AGM) an ordinary dividend of SEK 1.80 (1.80) per share, totaling SEK 8.1 billion, or 46 percent of net income attributable to shareholders of the parent company. The proposal follows a review by the Board of Directors of TeliaSonera in October 2007 of the company's capital structure and dividend policy.
The Board of Directors decided that the company shall target a solid investment grade long-term credit rating (A- to BBB+) to secure the company's strategically important financial flexibility for investments in future growth, both organically and by acquisitions. The ordinary dividend shall be at least 40 percent of net income attributable to shareholders of the parent company. In addition, excess capital shall be returned to shareholders, after the Board of Directors has taken into consideration the company's cash at hand, cash flow projections and investment plans in a medium term perspective, as well as capital market conditions.
Accordingly, the Board of Directors proposes to the AGM an extraordinary dividend for 2007 of SEK 2.20 (4.50) per share, totaling SEK 9.9 billion.
The Board of Directors proposes that the final day for trading in shares entitling shareholders to ordinary and extraordinary dividends be set for March 31, 2008, and that the first day of trading in shares excluding rights to ordinary and extraordinary dividends be set for April 1, 2008. The recommended record date at VPC for the right to receive ordinary and extraordinary dividends will be April 3, 2008. If the AGM votes to approve the Board's proposals, the ordinary and extraordinary dividend are expected to be distributed by VPC on April 8, 2008.
The Annual General Meeting (AGM) will be held on March 31, 2008, at 3 p.m. CET at Stockholmsmässan in Älvsjö, Stockholm. Notice of the meeting will be posted on Telia-Sonera's website, www.teliasonera.com, and advertised in the newspapers at the end of February 2008. The record date entitling shareholders to attend the meeting will be March 25, 2008. Shareholders may file notice of intent to attend the AGM from February 26, 2008. TeliaSonera must receive notice of attendance no later than 4 p.m. CET on March 25, 2008.
A Finnish shareholders' information meeting will be arranged on April 1, 2008, at 3 p.m. Finnish time at Finlandia House, Helsinki. Finnish shareholders will have the possibility to meet representatives from management and the Board. Shareholders may file notice of intent to attend the Finnish shareholders' information meeting from February 26, 2008. TeliaSonera must receive notice of attendance no later than March 14, 2008. More information about how to file notice of intent to attend the meeting will be given in connection with similar information about the AGM.
The business area Mobility Services is responsible for personal mobility services for the consumer and enterprise mass markets. Products and services in focus include mobile voice & data, mobile content, WLAN Hotspots, mobile over broadband, mobile/PC convergence and Wireless Office. The operations comprise the mobile operations in Sweden, Finland, Norway, Denmark, Lithuania, Latvia, Estonia and Spain.
| SEK in millions, except margins and | Oct-Dec | Oct-Dec | Jan-Dec | Jan-Dec |
|---|---|---|---|---|
| operational data | 2007 | 2006 | 2007 | 2006 |
| Net sales | 11,456 | 10,407 | 44,519 | 41,949 |
| EBITDA excl. non-recurring items | 2,932 | 3,297 | 13,332 | 13,845 |
| Margin (%) | 25.6 | 31.7 | 29.9 | 33.0 |
| Operating income | 1,690 | 2,107 | 8,635 | 9,096 |
| Operating income excl. non-recurring items | 1,847 | 2,302 | 8,998 | 9,610 |
| CAPEX | 1,476 | 1,330 | 4,168 | 3,252 |
| MoU | 194 | 186 | 190 | 182 |
| ARPU, blended (SEK) | 225 | 227 | 230 | 233 |
| Churn, blended (%) | 28 | 25 | 28 | 26 |
| Subscriptions, period-end (thousands) | 14,501 | 13,434 | 14,501 | 13,434 |
Additional segment information available at www.teliasonera.com/ir
The number of subscriptions increased by 1,067,000 to 14,501,000, with 403,000 new subscriptions in Spain, the consolidation of debitel in Denmark adding 268,000 and the purchase of ZetCOM in Latvia adding 137,000. In Sweden, the number of subscriptions increased by 310,000 excluding the deactivation of 106,000 old NMT subscriptions in the fourth quarter. In Finland and Estonia, the number of subscriptions rose slightly, while Norway and Lithuania showed a decrease of 64,000 and 62,000, respectively. During the fourth quarter, the number of subscriptions increased by 221,000 for the business area as a whole. Spain showed the largest increase with 187,000 new subscriptions, followed by Sweden with 95,000, excluding the deactivation of NMT subscriptions, and Finland with 57,000. Lithuania reported a decrease of 29,000.
Blended churn was 28 percent (26).
| Oct-Dec | Oct-Dec | Jan-Dec | Jan-Dec | |
|---|---|---|---|---|
| SEK in millions, except margins | 2007 | 2006 | 2007 | 2006 |
| Net sales | 11,456 | 10,407 | 44,519 | 41,949 |
| of which Sweden | 3,163 | 3,032 | 12,528 | 12,029 |
| of which Finland | 2,407 | 2,413 | 9,602 | 9,517 |
| of which Norway | 2,254 | 2,142 | 8,985 | 8,910 |
| of which Denmark | 1,649 | 1,152 | 6,119 | 5,191 |
| of which Lithuania | 656 | 604 | 2,484 | 2,412 |
| of which Latvia | 669 | 660 | 2,654 | 2,495 |
| of which Estonia | 588 | 550 | 2,305 | 2,071 |
| of which Spain | 229 | 5 | 589 | 5 |
| EBITDA excl. non-recurring items | 2,932 | 3,297 | 13,332 | 13,844 |
| Margin (%), total | 25.6 | 31.7 | 29.9 | 33.0 |
| Margin (%), Sweden | 40.2 | 36.7 | 39.4 | 37.3 |
| Margin (%), Finland | 24.8 | 25.8 | 31.6 | 25.9 |
| Margin (%), Norway | 31.3 | 41.6 | 34.3 | 37.4 |
| Margin (%), Denmark | 9.3 | 20.3 | 13.2 | 18.6 |
| Margin (%), Lithuania | 33.5 | 38.9 | 36.8 | 40.2 |
| Margin (%), Latvia | 41.1 | 38.9 | 45.2 | 47.5 |
| Margin (%), Estonia | 29.3 | 35.1 | 34.9 | 37.7 |
| Margin (%), Spain | neg | neg | neg | neg |
Blended churn was 28 percent (25).
EBITDA, excluding non-recurring items, decreased to SEK 2,932 million and the margin was 25.6 percent. Higher net sales, together with the net increase of SEK 106 million from a reversal of provisions for historical interconnect fees in Sweden, partly offset the decline. In Spain, costs for building the Yoigo brand resulted in an EBITDA of SEK -464 million (-247). In addition, price erosion and increased promotional spending across all markets as well as interconnect price reductions, especially in Norway, affected profitability. Certain negative items in Denmark totaling approximately SEK 135 million related to balance sheet corrections burdened EBITDA. A provision of SEK 37 million for a retroactive charge for changed interconnect pricing in Estonia was made. In Denmark, the consolidation of debitel also diluted the margin.
The business area Broadband Services is responsible for mass-market services for connecting homes and offices and for home communications. Products and services in focus include broadband over copper, fiber and cable, IPTV, voice over Internet, home communications services, IP-VPN/Business Internet, leased lines and traditional telephony. The business area operates the group common core network, including the data network of the international carrier business. The business area comprises operations in Sweden, Finland, Norway, Denmark, Lithuania, Latvia (49 percent), Estonia and international carrier operations.
| SEK in millions, except margins and | Oct-Dec | Oct-Dec | Jan-Dec | Jan-Dec |
|---|---|---|---|---|
| operational data | 2007 | 2006 | 2007 | 2006 |
| Net sales | 10,366 | 10,496 | 41,273 | 40,880 |
| EBITDA excl. non-recurring items | 3,291 | 3,308 | 12,926 | 13,629 |
| Margin (%) | 31.7 | 31.5 | 31.3 | 33.3 |
| Operating income | 2,002 | 1,532 | 6,939 | 7,435 |
| Operating income excl. non-recurring items | 2,080 | 1,937 | 7,906 | 8,295 |
| CAPEX | 1,864 | 1,703 | 5,369 | 4,605 |
| Broadband ARPU (SEK) | 265 | 286 | 270 | 289 |
| Subscriptions, period-end (thousands) | ||||
| Broadband | 2,326 | 1,990 | 2,326 | 1,990 |
| Fixed voice | 6,218 | 6,497 | 6,218 | 6,497 |
| Associated company, total | 757 | 720 | 757 | 720 |
Additional segment information available at www.teliasonera.com/ir
| Oct-Dec | Oct-Dec | Jan-Dec | Jan-Dec | |
|---|---|---|---|---|
| SEK in millions, except margins | 2007 | 2006 | 2007 | 2006 |
| Net sales | 10,366 | 10,496 | 41,273 | 40,880 |
| of which Sweden | 4,602 | 4,897 | 18,679 | 19,516 |
| of which Finland | 1,586 | 1,603 | 6,215 | 6,207 |
| of which Norway | 231 | 220 | 891 | 506 |
| of which Denmark | 538 | 477 | 1,959 | 1,847 |
| of which Lithuania | 561 | 495 | 2,104 | 1,960 |
| of which Estonia | 458 | 415 | 1,780 | 1,576 |
| of which Wholesale | 2,639 | 2,589 | 10,542 | 10,011 |
| EBITDA excl. non-recurring items | 3,291 | 3,308 | 12,926 | 13,629 |
| Margin (%), total | 31.7 | 31.5 | 31.3 | 33.3 |
| Margin (%), Sweden | 39.8 | 38.2 | 35.7 | 39.3 |
| Margin (%), Finland | 22.4 | 25.6 | 23.6 | 26.5 |
| Margin (%), Norway | 23.4 | 17.3 | 22.1 | 19.6 |
| Margin (%), Denmark | 11.9 | 13.8 | 13.7 | 17.8 |
| Margin (%), Lithuania | 39.0 | 41.0 | 43.6 | 47.2 |
| Margin (%), Estonia | 26.4 | 28.4 | 26.8 | 32.8 |
| Margin (%), Wholesale | 24.6 | 23.3 | 27.8 | 24.4 |
The business area Integrated Enterprise Services is responsible for the Nordic and Baltic business where TeliaSonera is engaged in managing the internal IT and telecom infrastructure of the enterprises. The business area is responsible for the enterprises' total telecommunications needs. Customer offerings include networked IT services, voice & data solutions, systems integration and converging services as well as highly standardized solutions for the SME segment. Example of services are management of LAN, servers, work stations, IP PABXs and call centers, mobility and security solutions and horizontal standard applications, e.g. e-mail services. The business area offers end-to-end management solutions with service guarantees.
• On January 1, 2008, TeliaSonera combined all its business-to-business sales resources into one sales organization in order to improve service for customers and increase sales efficiency. The change means that Integrated Enterprise Services was turned into a common sales division, called Business Services, for basic telecom services and managed-services solutions to business customers. The division will maintain full responsibility for TeliaSonera's managed services offering. It will not have profit-and-loss responsibility but be measured by growth, market share and sales efficiency. As of the Interim Report January-March 2008, the activities of Business Services will be reported as a part of the business areas Mobility Services, Broadband Services and of Other operations.
| Oct-Dec | Oct-Dec | Jan-Dec | Jan-Dec | |
|---|---|---|---|---|
| SEK in millions, except margins | 2007 | 2006 | 2007 | 2006 |
| Net sales | 3,589 | 3,298 | 13,729 | 12,940 |
| EBITDA excl. non-recurring items | -226 | 55 | -162 | 360 |
| Margin (%) | neg | 1.7 | neg | 2.8 |
| Operating income | -397 | -163 | -725 | -234 |
| Operating income excl. non-recurring items | -338 | -27 | -590 | 44 |
| CAPEX | 212 | 122 | 532 | 324 |
Additional segment information available at www.teliasonera.com/ir
The business area Eurasia comprises mobile operations managed by Fintur in Kazakhstan, Azerbaijan, Uzbekistan, Tajikistan, Georgia and Moldova and a shareholding of 12 percent in Afghanistan's largest operator Roshan. The business area is also responsible for developing TeliaSonera's shareholding in Russian MegaFon (44 percent) and Turkish Turkcell (37 percent). The main responsibility is to create shareholder value and to exploit penetration growth in the respective countries.
| SEK in millions, except margins and | Oct-Dec | Oct-Dec | Jan-Dec | Jan-Dec |
|---|---|---|---|---|
| operational data | 2007 | 2006 | 2007 | 2006 |
| Net sales | 2,911 | 2,289 | 10,338 | 8,508 |
| EBITDA excl. non-recurring items | 1,327 | 1,207 | 5,255 | 4,757 |
| Margin (%) | 45.6 | 52.7 | 50.8 | 55.9 |
| Income from associated companies | ||||
| Russia | 1,057 | 786 | 4,181 | 2,780 |
| Turkey | 891 | 692 | 2,725 | 2,020 |
| Operating income | 2,926 | 2,409 | 10,883 | 8,527 |
| Operating income excl. non-recurring items | 2,926 | 2,409 | 10,883 | 8,527 |
| CAPEX | 848 | 472 | 3,114 | 2,699 |
| Subscriptions, period-end (thousands) | ||||
| Subsidiaries | 12,147 | 7,352 | 12,147 | 7,352 |
| Associated companies | 78,083 | 65,169 | 78,083 | 65,169 |
Additional segment information available at www.teliasonera.com/ir
MegaFon (associated company, 43.8 percent holding) in Russia continued to demonstrate strong performance and increased its subscription base by 5.9 million to 35.7 million. MegaFon increased its market share in terms of subscriptions from 19 to over 20 percent, and also strengthened its position in terms of revenue. The Russian mobile market continued showing strong volume and revenue growth. The total market grew by 20 million subscriptions to 172 million. Mobile SIM-card penetration rose from 105 to 119 percent.
TeliaSonera's income from Russia rose to SEK 4,181 million (2,780), fueled by continued strong sales and earnings growth at MegaFon. The result was also positively impacted by SEK 240 million in the form of a gain from the sale of Petersburg Transit Telecom by Telecominvest and a partial reversal of write-downs on old equipment in MegaFon. The Russian ruble depreciated against the Swedish krona which had a negative impact of SEK 110 million. The comparable period was positively affected by a net of SEK 272 million from exchange rate fluctuations relating to MegaFon's borrowings and divestments.
| Oct-Dec | Oct-Dec | Jan-Dec | Jan-Dec | |
|---|---|---|---|---|
| SEK in millions | 2007 | 2006 | 2007 | 2006 |
| Net sales | 2,911 | 2,289 | 10,338 | 8,508 |
| of which Kazakhstan | 1,545 | 1,251 | 5,582 | 4,803 |
| of which Azerbaijan | 804 | 688 | 2,958 | 2,453 |
| of which Uzbekistan | 81 | – | 139 | – |
| of which Tajikistan | 99 | – | 184 | – |
| of which Georgia | 292 | 268 | 1,123 | 945 |
| of which Moldova | 95 | 85 | 365 | 317 |
Stockholm, February 8, 2008
Lars Nyberg President and CEO
This report has not been subject to review by TeliaSonera's auditors.
TeliaSonera AB discloses the information provided herein pursuant to the Swedish Securities Markets Act and/or the Swedish Financial Instruments Trading Act. The information was submitted for publication at 07.30 CET on February 8, 2008.
As of the Interim Report January-March 2008, TeliaSonera will start reporting the operations of former business area Integrated Enterprise Services as a part of the business areas Mobility Services, Broadband Services and of Other operations. More details on the new reporting structure and restated comparable figures following the new organization introduced on January 1, 2008, will be published well in advance of the Interim Report January-March 2008.
Annual General Meeting 2008 in Stockholm March 31, 2008 Shareholders' information meeting in Helsinki April 1, 2008 Interim Report January–March 2008 April 25, 2008 Interim Report January–June 2008 July 24, 2008 Interim Report January–September 2008 October 28, 2008
Questions regarding the reports: TeliaSonera AB Investor Relations SE–106 63 Stockholm, Sweden Tel. +46 8 504 550 00 Fax +46 8 611 46 42 www.teliasonera.com/ir
EBITDA: Earnings Before Interest, Tax, Depreciation and Amortization. Equals operating income before depreciation, amortization and impairment losses and before income from associated companies.
ARPU, blended: Average monthly revenue per subscription.
Churn, blended: The number of lost subscriptions (postpaid and prepaid) expressed as a percentage of the average number of subscriptions (postpaid and prepaid).
MoU: Minutes of usage per subscription and month.
HSPA: High-Speed Packet Access.
LLUB: Local Loop Unbundling.
| SEK in millions, except per share data and | Oct-Dec | Oct-Dec | Jan-Dec | Jan-Dec |
|---|---|---|---|---|
| number of shares | 2007 | 2006 | 2007 | 2006 |
| Net sales | 24,921 | 23,187 | 96,344 | 91,060 |
| Cost of sales | -14,608 | -13,269 | -54,196 | -48,640 |
| Gross profit | 10,313 | 9,918 | 42,148 | 42,420 |
| Selling, admin., and R&D expenses | -6,790 | -5,634 | -24,311 | -22,367 |
| Other operating income and expenses, net | 571 | 351 | 621 | -143 |
| Income from associated companies and | ||||
| joint ventures | 1,964 | 1,555 | 7,697 | 5,579 |
| Operating income | 6,058 | 6,190 | 26,155 | 25,489 |
| Finance costs and other financial items, net | -289 | -90 | -904 | -263 |
| Income after financial items | 5,769 | 6,100 | 25,251 | 25,226 |
| Income taxes | -560 | -1,562 | -4,953 | -5,943 |
| Net income | 5,209 | 4,538 | 20,298 | 19,283 |
| Attributable to: | ||||
| Shareholders of the parent company | 4,467 | 4,029 | 17,674 | 16,987 |
| Minority interests in subsidiaries | 742 | 509 | 2,624 | 2,296 |
| Shareholders' basic and diluted earnings | ||||
| per share (SEK) | 0.99 | 0.90 | 3.94 | 3.78 |
| 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 | 4,490,457 | 4,490,457 | 4,490,457 |
| Number of treasury shares (thousands) | ||||
| At period-end | – | – | – | – |
| Weighted average | – | – | – | 125,546 |
| EBITDA | 6,932 | 7,455 | 30,333 | 31,113 |
| EBITDA excl. non-recurring items | 7,208 | 7,766 | 31,021 | 32,266 |
| Depreciation, amortization and impairment | ||||
| losses | -2,837 | -2,820 | -11,875 | -11,203 |
| Operating income excl. non-recurring items | 6,358 | 6,504 | 27,478 | 26,751 |
| Dec 31, | Dec 31, | |
|---|---|---|
| SEK in millions | 2007 | 2006 |
| Assets | ||
| Goodwill and other intangible assets | 83,909 | 74,172 |
| Property, plant and equipment | 52,602 | 48,195 |
| Investments in associates and joint ventures, deferred tax assets | ||
| and other non-current assets | 48,633 | 41,826 |
| Total non-current assets | 185,144 | 164,193 |
| Inventories | 1,168 | 997 |
| Trade receivables, current tax assets and other receivables | 20,881 | 20,631 |
| Interest-bearing receivables | 1,701 | 1,958 |
| Cash and cash equivalents | 7,802 | 11,603 |
| Total current assets | 31,552 | 35,189 |
| Non-current assets held-for-sale | 6 | 10 |
| Total assets | 216,702 | 199,392 |
| Equity and liabilities | ||
| Shareholders' equity | 117,274 | 119,217 |
| Minority interests | 9,783 | 8,500 |
| Total equity | 127,057 | 127,717 |
| Long-term borrowings | 41,030 | 24,311 |
| Deferred tax liabilities, other long-term provisions | 16,748 | 14,635 |
| Other long-term liabilities | 2,366 | 2,382 |
| Total non-current liabilities | 60,144 | 41,328 |
| Short-term borrowings | 2,549 | 3,418 |
| Trade payables, current tax liabilities, short-term provisions | ||
| and other current liabilities | 26,952 | 26,929 |
| Total current liabilities | 29,501 | 30,347 |
| Total equity and liabilities | 216,702 | 199,392 |
| Oct-Dec | Oct-Dec | Jan-Dec | Jan-Dec | |
|---|---|---|---|---|
| SEK in millions | 2007 | 2006 | 2007 | 2006 |
| Cash flow before change in working capital | 5,706 | 4,575 | 27,541 | 28,034 |
| Change in working capital | 626 | 1,881 | -1,012 | -533 |
| Cash flow from operating activities | 6,332 | 6,456 | 26,529 | 27,501 |
| Intangible and tangible fixed assets acquired | ||||
| (cash CAPEX) | -4,493 | -3,591 | -13,525 | -10,905 |
| Free cash flow | 1,839 | 2,865 | 13,004 | 16,596 |
| Cash flow from other investing activities | -242 | 599 | -2,180 | -2,179 |
| Total cash flow from investing activities | -4,735 | -2,992 | -15,705 | -13,084 |
| Cash flow before financing activities | 1,597 | 3,464 | 10,824 | 14,417 |
| Cash flow from financing activities | 491 | 524 | -14,726 | -19,382 |
| Cash flow for the period | 2,088 | 3,988 | -3,902 | -4,965 |
| Cash and cash equivalents, opening balance | 5,641 | 7,834 | 11,603 | 16,834 |
| Cash flow for the period | 2,088 | 3,988 | -3,902 | -4,965 |
| Exchange rate differences | 73 | -219 | 101 | -266 |
| Cash and cash equivalents, closing balance | 7,802 | 11,603 | 7,802 | 11,603 |
| Jan-Dec 2007 | Jan-Dec 2006 | |||||
|---|---|---|---|---|---|---|
| Share | Share | |||||
| holders' | Minority | Total | holders' | Minority | Total | |
| SEK in millions | equity | interests | equity | equity | interests | equity |
| Opening balance | 119,217 | 8,500 | 127,717 | 127,049 | 8,645 | 135,694 |
| Business combinations | – | – | – | 25 | – | 25 |
| Reporting financial instru | ||||||
| ments at fair value | 39 | – | 39 | -25 | – | -25 |
| Hedging of foreign opera | ||||||
| tions, net of tax | -114 | – | -114 | – | – | – |
| Currency translation differ | ||||||
| ences | 8,748 | 160 | 8,908 | -8,955 | -608 | -9,563 |
| Inflation adjustments | – | – | – | -147 | – | -147 |
| Net income recognized | ||||||
| directly in equity | 8,673 | 160 | 8,833 | -9,102 | -608 | -9,710 |
| Net income | 17,674 | 2,624 | 20,298 | 16,987 | 2,296 | 19,283 |
| Comprehensive income | 26,347 | 2,784 | 29,131 | 7,885 | 1,688 | 9,573 |
| Transactions with minority | ||||||
| shareholders in subsidiaries | – | -42 | -42 | – | -215 | -215 |
| Dividends | -28,290 | -1,459 | -29,749 | -15,717 | -1,618 | -17,335 |
| Closing balance | 117,274 | 9,783 | 127,057 | 119,217 | 8,500 | 127,717 |
General. As in the annual accounts for 2006, TeliaSonera's consolidated financial statements as of and for the year ended December 31, 2007, 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 as well as standard RFR 2.1 "Accounting for Legal Entities" and other statements issued by the Swedish Financial Reporting Board. This report has been prepared in accordance with IAS 34 "Interim Financial Reporting."
New accounting standards (not yet adopted by the EU). An amended IFRS 2 "Sharebased Payment" (effective for annual periods beginning on or after January 1, 2009; earlier application permitted) was published on January 17, 2008. The amendment clarifies that vesting conditions are service conditions and performance conditions only and further specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. IFRS 2 is currently not relevant to TeliaSonera.
A revised IFRS 3 "Business Combinations" and an amended IAS 27 "Consolidated and Separate Financial Statements" (effective for annual periods beginning on or after July 1, 2009; early adoption permitted) was published on January 10, 2008. Among other things, the changes to the standards include: transaction costs expensed as incurred; contingent consideration is always recognized at fair value and for non-equity-consideration postcombination changes in fair value affects the income statement; option added to on a transaction-by-transaction basis permit recognition of 100 percent of the goodwill of the acquired entity with the increased goodwill amount also increasing the non-controlling interest; in a step acquisition, on the date that control is obtained, the fair values of the acquired entity's assets and liabilities, including goodwill, are measured and any resulting adjustments to previously recognized assets and liabilities are recognized in profit or loss; acquiring additional shares in a subsidiary after obtaining control as well as a partial disposal of shares in a subsidiary while retaining control is accounted for as an equity transaction with owners; a partial disposal of shares in a subsidiary that results in loss of control triggers remeasurement of the residual holding to fair value and any difference between fair value and carrying amount is a gain or loss, recognized in profit or loss. Telia-Sonera expects that applying the revised IFRS 3 and the amended IAS 27 might lead to increased volatility in the income statement.
For further information, see corresponding sections in the Q1, Q2 and Q3 2007 Interim Reports, and the 2006 Annual Report.
| Oct-Dec | Oct-Dec | Jan-Dec | Jan-Dec | |
|---|---|---|---|---|
| SEK in millions | 2007 | 2006 | 2007 | 2006 |
| Within EBITDA | -276 | -311 | -688 | -1,153 |
| Restructuring charges, synergy implementa | ||||
| tion costs, etc.: | ||||
| Mobility Services | -157 | -205 | -363 | -418 |
| Broadband Services | -186 | -392 | -464 | -847 |
| Integrated Enterprise Services | -59 | -136 | -135 | -278 |
| Other operations | -6 | 415 | 142 | 383 |
| of which TeliaSonera Holding | 3 | 478 | 161 | 478 |
| Capital gains: | ||||
| Broadband Services | 132 | – | 132 | – |
| Telia Finans | – | 7 | – | 7 |
| Within Depreciation, amortization and | ||||
| impairment losses | -24 | -13 | -635 | -13 |
| Impairment losses, accelerated depreciation: | ||||
| Broadband Services | -24 | -13 | -635 | -13 |
| Within Income from associated companies | ||||
| and joint ventures | – | 10 | – | -96 |
| Impairment losses, capital gains/losses, | ||||
| provisions and other: | ||||
| Mobility Services | – | 10 | – | -96 |
| Within Financial net | – | – | – | 183 |
| Capital gains: | ||||
| Elisa | – | – | – | 183 |
| Total | -300 | -314 | -1,323 | -1,079 |
| Dec 31, | Dec 31, | |
|---|---|---|
| SEK in millions | 2007 | 2006 |
| Deferred tax assets | 12,017 | 12,054 |
| Deferred tax liabilities | -9,577 | -10,121 |
| Net deferred tax assets | 2,440 | 1,933 |
| Oct-Dec | Oct-Dec | Jan-Dec | Jan-Dec | |
|---|---|---|---|---|
| SEK in millions | 2007 | 2006 | 2007 | 2006 |
| Mobility Services | 1,690 | 2,107 | 8,635 | 9,096 |
| Broadband Services | 2,002 | 1,532 | 6,939 | 7,435 |
| Integrated Enterprise Services | -397 | -163 | -725 | -234 |
| Eurasia | 2,926 | 2,409 | 10,883 | 8,527 |
| Other operations | -201 | 301 | 361 | 633 |
| Total segments | 6,020 | 6,186 | 26,093 | 25,457 |
| Elimination of inter-segment profits | 38 | 4 | 62 | 32 |
| Group | 6,058 | 6,190 | 26,155 | 25,489 |
MegaFon. As of December 31, 2007, TeliaSonera had interest-bearing claims of SEK 301 million on its associated company OAO MegaFon.
Telefos. From the beginning of the year up until August 9, 2007, TeliaSonera purchased services and products from subsidiaries (companies within the Eltel Group) to its associated company Telefos AB worth SEK 1,079 million, mostly referring to network construction.
Svenska UMTS-nät. In the three-month period and the year ended December 31, 2007, TeliaSonera purchased services from its 50 percent owned joint venture Svenska UMTSnät AB worth SEK 127 million and SEK 551 million, respectively, and sold services worth SEK 49 million and SEK 212 million, respectively.
| Oct-Dec | Oct-Dec | Jan-Dec | Jan-Dec | |
|---|---|---|---|---|
| SEK in millions | 2007 | 2006 | 2007 | 2006 |
| CAPEX | 4,537 | 3,688 | 13,531 | 11,101 |
| Intangible assets | 444 | 357 | 1,308 | 1,152 |
| Property, plant and equipment | 4,093 | 3,331 | 12,223 | 9,949 |
| Acquisitions and other investments | 2,298 | 111 | 7,171 | 3,951 |
| Asset retirement obligations | 82 | 64 | 82 | 67 |
| Goodwill and fair value adjustments | 2,211 | 46 | 6,483 | 3,778 |
| Equity holdings | 5 | 1 | 606 | 106 |
| Total | 6,835 | 3,799 | 20,702 | 15,052 |
In an agreement in late December 2007, TeliaSonera granted its Uzbek partner a put option giving the partner the right to sell its 26 percent interest in TeliaSonera's Uzbek operations to TeliaSonera after December 31, 2009, when certain pre-agreed criteria are fulfilled. TeliaSonera has accounted for the present value of the estimated redemption amount of the option as a provision, which increased goodwill by SEK 1,701 million. Any future changes in the estimated redemption amount will be recognized in the income statement, while no minority interest will be recognized for the Uzbek operations.
| Dec 31, | Dec 31, | |
|---|---|---|
| SEK in millions | 2007 | 2006 |
| Long-term and short-term borrowings | 43,579 | 27,729 |
| Less short-term investments, cash and bank | -8,861 | -12,772 |
| Net debt | 34,718 | 14,957 |
The underlying cash-flow generation was positive also in the fourth quarter of 2007. As a result of the problems in the "US Sub-prime market," funding conditions in general continued to deteriorate during the quarter. The effects on the domestic Swedish debt capital markets have been more limited although still negative. During the fourth quarter, Telia-Sonera substituted most of its outstanding commercial paper borrowings with longerdated funding. Funding conditions in the second half of 2007 were weaker than in the first half, and deteriorated even further in the beginning of 2008.
Funding conditions in 2008 are uncertain, but they will most likely remain less favorable than in the first half of 2007. Refinancing needs in 2008 are expected to be limited but the extra dividend payout in April will need new financing and thus TeliaSonera is exposed to the near-term development of the funding conditions in the debt capital markets.
On October 30, 2007, Moody's Investors Service lowered its credit rating of TeliaSonera AB to A3/P-2 after having had its A2/P-1 rating on Outlook Negative since 2006. Outlook for the revised credit rating is Stable. Standard & Poor's credit rating of TeliaSonera AB remained at A-/A-2 with Outlook Stable.
| Dec 31, | Dec 31, | |
|---|---|---|
| 2007 | 2006 | |
| Return on equity (%, rolling 12 months) | 18.6 | 17.2 |
| Return on capital employed (%, rolling 12 months) | 19.4 | 19.5 |
| Equity/assets ratio (%) | 50.3 | 49.9 |
| Net debt/equity ratio (%) | 31.8 | 15.0 |
| Shareholders' equity per share (SEK) | 26.12 | 26.55 |
For minor business combinations in the fourth quarter, the combined cost of acquisition was SEK 44 million and the net cash outflow SEK 27 million. Goodwill totaled SEK 36 million, of which SEK 24 million was allocated to business area Mobility Services and SEK 12 million to reportable segment Other operations. For further information on business combinations during the year, see corresponding sections in the Q1, Q2 and Q3 2007 Interim Reports.
Collateral pledged at December 31, 2007, totaled SEK 1,352 million, mainly referring to blocked funds in bank accounts for Ipse 2000 S.p.A.'s future license payments and pledges of shares in Svenska UMTS-nät AB. Guarantees totaled SEK 2,146 million, of which SEK 1,838 million referred to credit guarantees on behalf of Svenska UMTS-nät. Under certain third-party agreements, the credit guarantees on behalf of Svenska UMTSnät are capped at SEK 2,400 million.
Contractual obligations at December 31, 2007, totaled SEK 2,299 million, of which SEK 1,842 million referred to contracted build-out of TeliaSonera's mobile networks in Spain and fixed networks in Sweden and Lithuania.
| Condensed Income Statements | Oct-Dec | Oct-Dec | Jan-Dec | Jan-Dec |
|---|---|---|---|---|
| (SEK in millions) | 2007 | 2006 | 2007 | 2006 |
| Net sales | 4,405 | 4,952 | 17,809 | 19,705 |
| Gross profit | 1,737 | 1,681 | 7,084 | 6,788 |
| Operating income | 1,851 | 2,159 | 6,303 | 6,656 |
| Income after financial items | 2,777 | 2,028 | 23,845 | 7,631 |
| Income before taxes | 1,668 | 1,372 | 21,259 | 4,127 |
| Net income | 1,172 | 1,048 | 20,001 | 3,228 |
Net sales primarily related to fixed network services in Sweden declined due to migration to mobile services and lower priced IP-based services. Out of the total net sales for the year, SEK 12,811 million (14,424) was billed to subsidiaries. Income after financial items increased strongly as a result of dividend payments from subsidiaries.
| Condensed Balance Sheets | Dec 31, | Dec 31, |
|---|---|---|
| (SEK in millions) | 2007 | 2006 |
| Non-current assets | 142,469 | 131,332 |
| Current assets | 39,967 | 40,340 |
| Total assets | 182,436 | 171,672 |
| Shareholders' equity | 63,013 | 71,262 |
| Untaxed reserves | 20,061 | 17,476 |
| Provisions | 944 | 2,046 |
| Liabilities | 98,418 | 80,888 |
| Total equity and liabilities | 182,436 | 171,672 |
Following a review, management decided in December 2007 to report certain items related to cash-pool balances gross instead of net. The comparative year was recalculated accordingly, increasing the balance sheet total by SEK 22,917 million.
Total investments for the year amounted to SEK 13,269 million (17,332), including SEK 2,705 million (2,382) in property, plant and equipment, primarily for the fixed network. Other investments totaled SEK 10,564 million (14,950), of which SEK 2,024 million attributable to the acquisitions of Cygate and debitel Danmark, and SEK 8,015 million to transfers of shareholdings within the Group.
TeliaSonera operates in a broad range of geographic product and service markets in the highly competitive and regulated telecommunications industry. As a result, TeliaSonera is subject to a variety of risks and uncertainties. TeliaSonera has defined risk as anything that could have a material adverse effect on the achievement of TeliaSonera's goals.
Risks can be threats, uncertainties or lost opportunities relating to TeliaSonera's current or future operations or activities. Additionally, these risks may affect TeliaSonera's share price from time to time.
TeliaSonera has an established risk management process in place to regularly identify, analyze and assess, and report business and financial risks and uncertainties, and to mitigate such risks when appropriate. Risk management is an integrated part of Telia-Sonera's business planning process.
See "Risk Factors" in TeliaSonera's Annual Report 2006 (pages 46-48) for a detailed description of some of the factors that may affect TeliaSonera's business, financial condition and results of operations. TeliaSonera believes that the risk environment has not materially changed from the one described in the Annual Report 2006.
Risks and uncertainties that could specifically impact the quarterly results of operations during 2008 include, but may not be limited to:
This report contains statements concerning, among other things, TeliaSonera's financial condition and results of operations that are forward-looking in nature. Such statements are not historical facts but, rather, represent TeliaSonera's future expectations. TeliaSonera believes that the expectations reflected in these forward-looking statements are based on reasonable assumptions; however, forward-looking statements involve inherent risks and uncertainties, and a number of important factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statement. Such important factors include, but may not be limited to: TeliaSonera's market position; growth in the telecommunications industry; and the effects of competition and other economic, business, competitive and/or regulatory factors affecting the business of Telia-Sonera, its associated companies and joint ventures, and the telecommunications industry in general. Forward-looking statements speak only as of the date they were made, and, other than as required by applicable law, TeliaSonera undertakes no obligation to update any of them in light of new information or future events.
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