Tele2 — Interim / Quarterly Report 2016

Oct 20, 2016

Interim Report Third Quarter 2016

Mobile data monetization continues

Q3 2016 HIGHLIGHTS

• Group mobile end-user service revenue up 6 percent
• Record mobile end-user service revenue in Sweden
• Netherlands mobile end-user service revenue up 15 percent
• Strong EBITDA contribution from Sweden, Baltics and Kazakhstan
• Net loss due to an impairment of goodwill in the Netherlands
• 2016 financial guidance is unchanged (see p.5)

EBITDA Q3 2016 1,562 SEK million

Key Financial Data

		Q3		YTD
SEK million	2016	2015	%	2016	2015	%
Net sales	6,961	6,791	3	20,075	19,913	1
Net sales, like for like 1)	6,963	6,909	1	20,218	20,015	1
Mobile end-user service revenue	3,641	3,422	6	10,159	9,930	2
Mobile end-user service revenue, like for like 1)	3,643	3,444	6	10,269	9,877	4
EBITDA	1,562	1,599	–2	3,875	4,420	–12
EBITDA, like for like 1)	1,562	1,580	–1	3,881	4,387	–12
EBIT	–1,811	788	–330	–1,465	2,083	–170
EBIT excluding one-off items (Note 3)	739	908	–19	1,545	2,288	–32
Net profit/loss	–2,266	397	–671	–1,987	1,223	–262
Earnings per share, after dilution (SEK)	–4.86	0.88	–652	–3.95	2.72	–245

SIGNIFICANT EVENTS AFTER THE QUARTER:

• Subject to approval by the Extraordinary general meeting, the Board of Directors of Tele2 has decided on an approximately SEK 3 billion rights issue supported by the main shareholder
• EU regulatory clearance of TDC acquisition

The figures presented in this report refer to Q2 2016 and continuing operations unless otherwise stated. The figures shown in parentheses refer to the comparable periods in 2015.

1) Like for like (LFL) is a non-IFRS measurement calculated at constant currency and pro forma for Altel, which means that numbers before the acquisition on February 29 are included in comparative periods.

CEO word, Q3 2016

The third quarter has shown a strong underlying financial performance. Profitability in the quarter has been positively impacted by strong mobile enduser service revenue as a result of our relentless focus on data monetization, seasonality and to a certain extent, lower than usual marketing spend, which will be caught up later in the year. As Value Champions we have been well positioned to capture the big appetite for data during the summer despite the new roaming regulation. Sweden has continued to leverage on the dual brand strategy and has delivered a record mobile end-user service revenue. The Baltics have continued to grow mobile end-user service revenue with sustained margins. In the Netherlands, our Fun Rebel positioning and continued focus on attracting high value customers have resulted in a double digit growth of mobile end-user service revenue, whilst our fixed business has continued to decline despite increased investments.

Group mobile end-user service revenue, on a like for like basis, increased by 6 percent year on year. Our business excluding Netherlands delivered strong EBITDA development, which has offset the Dutch mobile investments this quarter.

The Swedish business has seen an increasing demand for data, both home and abroad, which has stimulated net intake and sales of bigger buckets. Consumer

mobile postpaid grew 7 percent, driven by Comviq market share development and Tele2 residential ASPU progress with B2B Large Enterprise showing continued momentum. EBITDA in the quarter was seasonally strong and increased thanks to our relentless focus on data monetization, positive impact from a strong roaming summer and realized efficiencies from Challenger initiatives. During the quarter, we have made progress on a number of fronts to enhance our Value Champion position. Specifically, we have increased our geographical 2G and 4G coverage to 88 percent and are well on track to reach our 90 percent target by the end of this year, ensuring that our customers have an excellent network quality experience wherever they are. In October we launched our new Tele2 branding campaign with the slogan "Be content with more", with a more attractive offering on our largest bucket and additional data SIMs for carefree surfing on all of your devices.

The Baltic region has delivered a strong financial performance and mobile end-user service revenue growth of 7 percent. The increased smartphone penetration and our 4G coverage which is now at 99 percent continues to drive data consumption and steer customers towards higher value tariffs. During the quarter we expanded our partnership with MTG by launching the video streaming service Viaplay, thus increasing the demand for data further. EBITDA margin remained stable for the region at 32 percent, partly impacted by the new roaming regulation.

In the Netherlands, mobile momentum continues with solid net intake, and increasing sales of larger buckets fuelled by our excellent brand positioning and our competitive offerings resulting in double digit mobile end-user service revenue growth. EBITDA was as expected impacted by continued investments in our mobile business, however to some extent, offset by lower levels of marketing spend during the summer. We continued to build up our Fun Rebel brand platform with an innovative off- and online roaming campaign with considerable viral spread. During the quarter customer satisfaction and data usage on our own network significantly improved and we have now reached outdoor population coverage of above 98 percent and indoor coverage of around 83 percent. We continued to successfully roll out VoLTE on a larger scale and have now opened our 13th retail store, contributing to an increasing share of direct sales and valuable brand presence.

"I am pleased with the underlying momentum and progress made in the quarter with excellent mobile contribution in all our major markets"

Integration of the JV in Kazakhstan has progressed well in the quarter. Mobile end-user service revenue grew strongly by 20 percent, like for like, as a result of an increased customer base. Removal of unlimited plans and new pricing in the previous quarter has however resulted in some decline in customer net intake. EBITDA contribution was strong and increased by over 200 percent on a like for like basis, due to improved operating leverage and synergies from the JV integration. The Challenger program is delivering in line with expectations towards the target of SEK 1bn by 2018. To date, we have achieved a run rate of SEK 415 million in savings across the Group mainly coming from customer service, relocation of resources to India and our consolidation and transformation of Network & IT into Shared Operations. The savings are however offset by investments, mainly within Network and Marketing and Sales, in the Netherlands and in Kazakhstan, as well as declining revenues within our fixed business.

As part of our annual financial review cycle, we assess the future cash generation of our various business units. As a result of this analysis, we have recognized an impairment of SEK 2.5bn related to our business in the Netherlands, resulting in a net loss for the Group.

Looking forward into the fourth quarter, I am delighted that we have received clearance on our acquisition of TDC by the European Commission which will allow us to work towards closing by end of October. In conjunction with our announcement of the TDC acquisition we also communicated our intention to raise equity through a Rights Issue of approximately SEK 3bn, which will be subject to approval at an Extraordinary General Meeting to be held later this month.

To conclude, I am pleased with the underlying momentum and progress made in the quarter with excellent mobile contribution in all our major markets. Our Value Champion strategy, combined with a relentless focus on offering the best wireless technologies with a challenger cost structure, will lead us to sustainable value creation for our customers, employees and our shareholders.

Allison Kirkby, President and CEO

Financial Overview

Tele2's financial performance is driven by a consistent focus on developing mobile services on own infrastructure, complemented in certain countries by fixed broadband services and business to business offerings. In addition to investing in mobile, the Group will concentrate on maximizing the return from fixed-line services.

Net customer intake amounted to 168,000 (249,000) customers in Q3 2016. The customer net intake in mobile services amounted to 197,000 (333,000), mainly driven by Sweden, Netherlands, Croatia and Lithuania. The fixed broadband customer base decreased by –2,000 (–13,000) in Q3 2016, with a decline in Sweden, Austria and Germany. As expected, the number of fixed telephony customers fell in Q3 2016 by –27,000 (–71,000). On September 30, 2016, the total customer base amounted to 16,549,000 (14,590,000).

Net sales in Q3 2016 amounted to SEK 6,961 (6,791) million. The positive development was driven by strong growth in mobile enduser service revenue in Sweden, the Netherlands, Kazakhstan and the Baltics.

EBITDA in Q3 2016 amounted to SEK 1,562 (1,599) million, which is equivalent to an EBITDA margin of 22 (24) percent. EBITDA was primarily impacted negatively by costs associated with the commercial push in the Netherlands following the 4G LTE network launch, partly offset by a positive development in Sweden, the Baltics, Kazakhstan and Germany.

EBIT in Q3 2016 amounted to SEK 739 (908) million excluding one-off items and SEK –1,811 (788) million including one-off items. EBIT was negatively affected by one-off items totalling SEK –2,550 (–120) million, mainly attributable to an impairment of goodwill of SEK –2,456 million in the Netherlands (Note 3).

Profit/loss before tax in Q3 2016 amounted to SEK –1,901 (646) million.

Net profit/loss in Q3 2016 amounted to SEK –2,266 (397) million. Reported tax for Q3 2016 amounted to SEK –365 (–249) million. Tax payment affecting cash flow amounted to SEK –114 (–68) million during the quarter. Deferred tax assets amounted to SEK 1.8 billion at the end of the quarter. Net profit/loss in discontinued operations was negatively affected by SEK 93 million related to a provision for Russian tax disputes (Note 11).

Free cash flow in Q3 2016 amounted to SEK 838 (169) million, mainly affected by a positive change in working capital of SEK 451 (–255) million primarily related to Sweden and the external handset financing arrangement of SEK 361 million.

CAPEX in Q3 2016 amounted to SEK 779 (932) million, driven principally by investments in the Netherlands, Sweden and Kazakhstan.

Net debt amounted to SEK 11,013 (9,878) million and economic net debt amounted to SEK 10,985 (9,878) million on September 30, 2016 and December 31, 2015 respectively, or 2.13 times 12-month rolling EBITDA. During the quarter, Tele2 completed the issuance of two bonds; one bond of SEK 1 billion with a maturity of 5.5 years, and one bond of SEK 500 million with a maturity of 6 years (see note 4 for further details). Tele2's available liquidity amounted to SEK 10,196 (7,890) million.

Net sales

EBITDA/EBITDA margin

SEK million/Percent

FINANCIAL SUMMARY

SEK million	Q3 2016	Q3 2015	YTD 2016	YTD 2015	FY 2015
Mobile
Net customer intake (thousands)	197	333	436	1,214	1,126
Net sales	5,489	5,208	15,658	15,043	20,446
EBITDA	1,226	1,222	2,897	3,275	4,247
EBIT1)	632	728	1,231	1,787	2,241
CAPEX	582	722	1,886	2,160	3,024
Fixed broadband
Net customer intake (thousands)	–2	–13	–13	–46	–57
Net sales	933	979	2,801	2,996	3,956
EBITDA	178	201	518	613	788
EBIT1)	–11	37	–18	93	102
CAPEX	94	92	512	414	636
Fixed telephony
Net customer intake (thousands)	–27	–71	–99	–144	–199
Net sales	255	312	792	985	1,281
EBITDA	94	100	273	313	432
EBIT1)	86	87	236	268	374
CAPEX	7	7	22	26	35
Total
Net customer intake (thousands)	168	249	324	1,024	870
Net sales	6,961	6,791	20,075	19,913	26,856
EBITDA	1,562	1,599	3,875	4,420	5,757
EBIT1)	739	908	1,545	2,288	2,890
EBIT	–1,811	788	–1,465	2,083	2,447
CAPEX	779	932	2,753	3,004	4,227
EBT	–1,901	646	–1,281	1,784	2,012
Net profit/loss	–2,266	397	–1,987	1,223	1,268
Cash flow from operating activities	1,734	1,114	3,680	2,747	3,529
Free cash flow	838	169	823	–195	–486

1) Excluding one-off items (Note 3)

Sweden	45%	Austria	4%
Netherlands	21%	Latvia	4%
Kazhakstan	8%	Estonia	3%
Croatia	6%	Germany	2%
Lithuania	6%	Other	1%

Financial guidance

Tele2 AB gives the following guidance for 2016 for continuing operations (excluding the TDC acquisition) in constant currency which is unchanged from previous quarter:

• Mobile end-user service revenue growth of midsingle digits
• Net sales of between SEK 26 and 27 billion
• EBITDA of between SEK 4.6 and 5.0 billion
• CAPEX level of between SEK 3.7 and 4.1 billion

The Challenger Program

A group-wide program focused on increasing productivity was launched at the end of 2014. The program will build over 3 years and is expected to reap full benefits of SEK 1 billion per annum starting in 2018. The investment required will be SEK 1 billion, phased over 3 years. All program investments are, and will be, reported as one-off items, affecting EBIT. For more details, see Note 3.

Dividend Policy for Fiscal year 2016 to be paid in May 2017

The Company remains committed to its 3 year progressive dividend policy which, as usual, is subject to shareholder approval at its AGM.

For clarification, Tele2 intends to deliver an absolute dividend pay-out which is 10 percent higher than the prior year dividend of SEK 2,389 million. This reflects the timing of the Rights Issue as occurring at the very end of 2016.

Financial year 2016 marks the final year of the current 3-year progressive dividend policy and we will update guidance on future dividend policy as customary at our Q4 results announcement in January 2017.

Authorization to pay extraordinary dividends will be sought when the company has excess capital.

Pursuant to the approval received at the 2016 AGM, Tele2 has the authorization to repurchase up to 10 percent of its share capital.

Balance sheet

Tele2 believes the financial leverage should reflect the status of its operations, future strategic opportunities and obligations. It should also be in line with both the industry and the markets in which it operates. This would imply a target economic net debt to EBITDA ratio of 1.5-2.0x over the medium term. As communicated, Tele2 will be above this range during the period of investments in the Netherlands.

Overview by country

Constant currency basis

Net sales

	2016	2015		2016	2015
SEK million	Q3		Q3 Growth	YTD		YTD Growth
Sweden	3,095	3,100	0%	9,166	9,331	–2%
Netherlands	1,478	1,453	2%	4,371	4,232	3%
Kazakhstan	573	305	88%	1,450	772	88%
Croatia	405	384	5%	1,090	1,022	7%
Lithuania	435	415	5%	1,203	1,117	8%
Latvia	268	250	7%	733	694	6%
Estonia	181	174	4%	505	507	0%
Austria	287	305	–6%	854	899	–5%
Germany	174	207	–16%	533	638	–16%
Other	65	38	71%	170	112	52%
Total, constant FX	6,961	6,631		5% 20,075 19,324		4%
FX effects		160	–2%		589	–3%
Total	6,961	6,791		3% 20,075 19,913		1%

Sweden

Total net sales in Q3 2016 was SEK 3,095 (3,100) million and EBITDA amounted to SEK 1,068 (1,014) million.

Mobile end-user service revenue grew 2 percent, driven by strong growth in the Consumer postpaid segment and B2B Large Enterprise.

In the quarter, Tele2 reached 88 percent 2G and 4G mobile network coverage in the pursuit to reach 90 percent coverage by the end of this year and by that securing our customers an excellent network quality experience wherever they are. Customer satisfaction in customer service continues to be a world class benchmark with a CSAT (Customer Satisfaction) at 85 percent.

Mobile In Q3 2016, customer net intake was 36,000 (84,000), mainly driven by Comviq postpaid. Net sales amounted to SEK 2,783 (2,764) million. Mobile end-user service revenue was slightly positive, up 2 percent as a result of continued growth in Consumer postpaid and B2B Large Enterprise. Tele2 continues to build momentum in the Tele2 brand with end-user service revenue growth driven by data monetization. EBITDA increased by 6 percent and amounted to SEK 992 (938) million as a result of higher revenues, in addition to slightly lower marketing spend and lower customer service costs, as Challenger initiatives start to be realised.

Fixed broadband Customer net intake amounted to –2,000 (–2,000) customers. Net sales decreased 2 percent and amounted to SEK 168 (172) million. EBITDA contribution amounted to SEK 34 (28) million.

Fixed telephony Tele2 saw a continued decrease in demand for fixed telephony as a consequence of the ongoing shift to mobile telephony. The EBITDA in the quarter amounted to SEK 24 (34) million.

Netherlands

Total net sales in Q3 2016 was SEK 1,478 (1,440) million and EBITDA amounted to SEK –2 (122) million. EBITDA was positively affected by SEK 19 million related to a resolved dispute.

Mobile end-user service revenue grew as a result of an increased number of customers in the base, both in Consumer and B2B.

By expanding the retail footprint to 13 own stores by the end of the quarter and building effective online campaigns, Tele2 was able to increase its share of direct sales.

EBITDA

	2016	2015		2016	2015
SEK million	Q3		Q3 Growth	YTD		YTD Growth
Sweden	1,068	1,014	5%	2,808	2,898	–3%
Netherlands	–2		124 –102%	–149		410 –136%
Kazakhstan	79	29	172%	129	33	291%
Croatia	49	54	–9%	80	110	–27%
Lithuania	152	144	6%	440	400	10%
Latvia	90	79	14%	230	217	6%
Estonia	45	41	10%	119	115	3%
Austria	45	62	–27%	133	154	–14%
Germany	80	48	67%	214	105	104%
Other	–44		–12 –267%	–129		–48 –169%
Total, constant FX	1,562	1,583	–1%	3,875	4,394	–12%
FX effects		16	–1%		26	0%
Total	1,562	1,599	–2%	3,875	4,420	–12%

During the summer, Tele2 launched an innovative and successful roaming campaign with significant viral spread thus further establishing a stronger brand awareness and building consideration.

Tele2 continued to expand its LTE Advanced 4G network, which has now reached 98 percent outdoor population coverage and indoor population coverage of 83 percent. Focus on implementing an effortless customer experience is generating results as we see a significant improvement in customer satisfaction since beginning of the year.

In the quarter, an impairment of goodwill of SEK 2,456 million was recognized as a result of a reassessment of future cash flow generation.

Mobile Customer net intake in the quarter amounted to 59,000 (0) customers. Net sales grew 15 percent as a result of higher handset sales and an increasing high value customer base, and amounted to SEK 738 (643) million. Mobile end-user service revenue grew 15 percent and amounted to SEK 419 (364) million. EBITDA, as expected, decreased as a result of the costs associated with mobile growth and further network rollout, and amounted to SEK –179 (–83) million.

Fixed broadband Customer net intake amounted to 4,000 (–7,000) customers. EBITDA amounted to SEK 98 (128) million.

Kazakhstan

Mobile: On a like for like basis: Customer net intake in the quarter was –18,000 (290,000) customers. Net sales declined by 1 percent and amounted to SEK 575 (583) million due to exceptionally strong campaign driven handset sales in the third quarter last year. Mobile end-user service revenue grew 20 percent as a result of increased number of customers, and amounted to SEK 428 (358) million. EBITDA amounted to SEK 79 (26) million, due to improved operating leverage and efficiency synergies from the integration of the JV.

Integration of the JV has progressed well during the quarter and more than 80 percent of the plan has been completed since closing. During the quarter, Tele2 made additional changes in pricing, applicable to existing customers.

Croatia

Mobile Customer net intake amounted to 70,000 (67,000) customers, with a continued shift from pre to postpaid customers driven by the recently launched new postpaid tariffs. Net sales increased by 7 percent and amounted to SEK 405 (377) million, mainly due to higher equipment sales. Mobile end-user service revenue increased by 3 percent to SEK 231 (225) million. EBITDA in the quarter was SEK 49 (54) million, negatively affected by higher spectrum fees.

Lithuania

Mobile Customer net intake in the quarter was 38,000 (16,000) customers, with strong intake in both postpaid and prepaid. Net sales amounted to SEK 435 (412) million. Mobile end-user service revenues grew 9 percent to SEK 251 (230) million due to the continued customer shift from pre to postpaid customers and sales of higher value buckets. EBITDA grew 6 percent and amounted to SEK 152 (143) million with a maintained EBITDA margin at 35 (35) percent. The financial performance has been slightly impacted by the new roaming regulation.

During the quarter, Tele2 expanded the partnership with MTG and launched the Viaplay video streaming service in the Baltics.

Latvia

Mobile Net customer intake in the quarter was 21,000 (11,000) customers, with strong intake in prepaid. Net sales grew 9 percent compared to the same period last year, and amounted to SEK 268 (247) million driven by strong demand for mobile data, shifting sales towards higher data plans, and handset sales. Mobile end-user service revenue grew 4 percent and amounted to SEK 158 (152) million, slightly impacted by the new roaming regulation. EBITDA grew 14 percent and amounted to SEK 90 (79) million, which corresponds to a margin of 34 (32) percent. The financial performance has been slightly impacted by the new roaming regulation.

Tele2 Latvia continued the LTE roll-out, with the aim to reach 98 percent geographical coverage by the end of the year.

Estonia

Mobile Net customer intake in the quarter was 3,000 (2,000) customers. Net sales amounted to SEK 170 (159) million. Mobile end-user service revenue increased by 6 percent and amounted to SEK 112 (106) million, driven by a change in the customer mix from pre to postpaid and a continued strong demand for data services. EBITDA amounted to SEK 41 (37) million. The financial performance has been slightly impacted by the new roaming regulation.

In August Tele2 hosted a 5G demo event for media in cooperation with Nokia. Tele2 and Nokia were the first in Estonia to showcase 5G equipment live.

Austria

Net customer intake in the quarter amounted to –3,000 (–5,000) customers, with a continued decline in residential fixed and a positive development within mobile B2B. Net sales amounted to SEK 287 (302) million. EBITDA amounted to SEK 45 (61) million, as a result of decline in revenues from the fixed business. Tele2 continued to increase the provision of mobile services in the B2B segment through new intake from both existing as well as new customers.

Germany

Net customer intake continued to decline in line with expectations, and net sales amounted to SEK 174 (205) million. With a continuous focus on profitability and cash contribution EBITDA increased compared to the same quarter last year and amounted to SEK 80 (47) million including a positive impact from an out-of-court settlement amounting to SEK 16 million. EBITDA margin was 46 (23) percent.

Other items

Risks and uncertainty factors

Tele2's operations are affected by a number of external factors. The risk factors considered to be most significant to Tele2's future development are the availability of frequencies and telecom licenses, new technology and integration of new business models, large scale cyber-attacks, data protection, operations in Kazakhstan, strategic change management, mobile network & service delivery interruptions, dependency on suppliers and business partners, Sweden dependency, geopolitical risks, and financial risks such as currency risk, interest risk, liquidity risk and credit risk. Please refer to Tele2's annual report for 2015 (Directors' report and Note 2) for a detailed description of Tele2's risk exposure and risk management.

Company disclosure

Tele2 AB (publ) Extraordinary General Meeting 2016

The Board of Directors of Tele2 AB has on October 3, 2016, resolved on the rights issue ("Rights Issue") of approximately SEK 3 billion with preferential rights for existing shareholders, subject to the approval by an Extraordinary General Meeting, previously communicated in conjunction with the announcement of the acquisition of TDC Sweden.

Shareholders who wish to attend the Extraordinary General Meeting shall

• be entered in the share register maintained by Euroclear Sweden AB on Friday October 21, 2016, and
• give notice of their attendance no later than Friday October 21, 2016. Notice to attend is to be made on the company's website at www.tele2.com, by telephone to +46 (0) 771 246 400 or by mail to Computershare AB "EGM Tele2", P.O. Box 610, SE-182 16 Danderyd, Sweden.

Nomination committee for the 2017 Annual General Meeting

In accordance with the resolution of the 2016 Annual General Meeting, Mike Parton, Chairman of the Board of Directors, has convened a Nomination Committee consisting of members appointed by the largest shareholders in terms of voting interest in Tele2 AB (publ) ("Tele2").

The Nomination Committee comprises Mike Parton as Chairman of the Board of Directors; Cristina Stenbeck appointed by Kinnevik AB; John Hernander appointed by Nordea Funds; Ossian Ekdahl appointed by Första AP-fonden; and Martin Wallin appointed by Lannebo Fonder.

The four shareholder representatives on the Nomination Committee have been appointed by shareholders that jointly represent approximately 56 percent of the total votes in Tele2. The members of the Nomination Committee will appoint a Committee Chairman at their first meeting.

Information about the work of the Nomination Committee can be found on Tele2's corporate website at www.tele2.com. Shareholders wishing to propose candidates for election to the Board of Directors of Tele2 should submit their proposal in writing to agm@tele2.com or to legal counsel Pontus Ericson, Tele2 AB (publ), P.O. Box 62, SE 164 94 Kista, Sweden.

Other

Tele2 will release its financial and operating results for the period ending December 31, 2016 on January 26, 2017.

The Board of Directors and CEO declare that the nine-month interim report provides a fair overview of the parent company's and Group's operations, their financial position and performance, and describes material risks and uncertainties facing the parent company and other companies in the Group.

Stockholm, October 20, 2016 Tele2 AB

Mike Parton, Chairman

Sofia Arhall Bergendorff

Lorenzo Grabau Irina Hemmers Carla Smits-Nusteling

Georgi Ganev Cynthia Gordon

Eamonn O'Hare

Allison Kirkby President and CEO

Auditors' review report

This interim report has not been subject to specific review by the company's auditors.

Stockholm, October 20, 2016 Tele2 AB Allison Kirkby President and CEO

Q3 2016 PRESENTATION

Tele2 will host a presentation with the possibility to join through a conference call, for the global financial community at 10:00 am CEST (09:00 am BST/04:00 am EDT) on Thursday, October 20, 2016. The presentation will be held in English and also made available as a webcast on Tele2's website: www.tele2.com.

Dial-in information

To ensure that you are connected to the conference call, please dial in a few minutes before the start of the conference call to register your attendance. Ask for Tele2 Q3 Interim Report 2016.

Dial-in numbers

SE: +46 (0)8 5065 3937 UK: +44 (0)20 3427 1902 US: +1 212 444 0412

Louise Tjeder Head of IR Telephone: + 46 (0) 70 426 46 52

Tele2 AB Company registration nr: 556410-8917 Skeppsbron 18 P.O. Box 2094 SE-103 13 Stockholm

Sweden Tel + 46 (0)8 5620 0060 www.tele2.com

VISIT OUR WEBSITE: www.tele2.com

CONTACTS APPENDICES

Income statement Comprehensive income Balance sheet Cash flow statement Change in equity Numbers of customers Net sales Mobile external net sales split EBITDA EBIT CAPEX Five-year summary Parent company Notes

TELE2 IS ONE OF EUROPE'S FASTEST GROWING TELECOM OPERATORS, ALWAYS PROVIDING CUSTOMERS WITH WHAT THEY NEED FOR LESS.

We have 17 million customers in 9 countries. Tele2 offers mobile services, fixed broadband and telephony, data network services, content services and global IoT solutions. Ever since Jan Stenbeck founded the company in 1993, it has been a tough challenger to the former government monopolies and other established providers. Tele2 has been listed on the NASDAQ OMX Stockholm since 1996. In 2015, we had net sales of SEK 27 billion and reported an operating profit (EBITDA) of SEK 5.8 billion. For definitions of measures, please see the last page of the Annual report 2015.

Income statement

SEK million	Note	2016 Jan 1–Sep 30	2015 Jan 1–Sep 30	2015 Full year	2016 Q3	2015 Q3
CONTINUING OPERATIONS
Net sales	2	20,075	19,913	26,856	6,961	6,791
Cost of services provided	3	–15,354	–12,098	–16,653	–6,745	–4,288
Gross profit		4,721	7,815	10,203	216	2,503
Selling expenses	3	–4,081	–3,786	–5,094	–1,305	–1,226
Administrative expenses	3	–2,161	–2,179	–2,917	–745	–640
Result from shares in joint ventures and associated companies		1	–5	–5	-	-
Other operating income		105	337	401	41	176
Other operating expenses	3	–50	–99	–141	–18	–25
Operating profit/loss, EBIT		–1,465	2,083	2,447	–1,811	788
Interest income/expenses	4	–227	–275	–376	–85	–89
Other financial items	5	411	–24	–59	–5	–53
Profit/loss after financial items, EBT		–1,281	1,784	2,012	–1,901	646
Income tax	6	–706	–561	–744	–365	–249
NET PROFIT/LOSS FROM CONTINUING OPERATIONS		–1,987	1,223	1,268	–2,266	397
DISCONTINUED OPERATIONS
Net profit/loss from discontinued operations	11	–93	1,718	1,718	–93	-
NET PROFIT/LOSS		–2,080	2,941	2,986	–2,359	397
ATTRIBUTABLE TO
Equity holders of the parent company		–1,857	2,941	2,986	–2,264	397
Non-controlling interests	11	–223	-	-	–95	-
NET PROFIT/LOSS		–2,080	2,941	2,986	–2,359	397
Earnings per share (SEK)	10	–4.16	6.59	6.69	–5.07	0.88
Earnings per share, after dilution (SEK)	10	–4.16	6.55	6.65	–5.07	0.88
FROM CONTINUING OPERATIONS ATTRIBUTABLE TO
Equity holders of the parent company		–1,764	1,223	1,268	–2,171	397
Non-controlling interests		–223	-	-	–95	-
NET PROFIT/LOSS		–1,987	1,223	1,268	–2,266	397
Earnings per share (SEK)	10	–3.95	2.74	2.84	–4.86	0.88
Earnings per share, after dilution (SEK)	10	–3.95	2.72	2.82	–4.86	0.88

Comprehensive income

SEK million Note	2016 Jan 1–Sep 30	2015 Jan 1–Sep 30	2015 Full year	2016 Q3	2015 Q3
NET PROFIT/LOSS	–2,080	2,941	2,986	–2,359	397
OTHER COMPREHENSIVE INCOME
COMPONENTS NOT TO BE RECLASSIFIED TO NET PROFIT/LOSS
Pensions, actuarial gains/losses	–103	7	38	–79	–33
Pensions, actuarial gains/losses, tax effect	22	–1	–9	16	8
Components not to be reclassified to net profit/loss	–81	6	29	–63	–25
COMPONENTS THAT MAY BE RECLASSIFIED TO NET PROFIT/LOSS
Exchange rate differences
Translation differences in foreign operations 5	1,028	–610	–1,420	416	–207
Tax effect on above	–86	48	305	–38	134
Reversed cumulative translation differences from divested companies 11	–	18	19	–	–
Translation differences	942	–544	–1,096	378	–73
Hedge of net investments in foreign operations	–171	–145	–49	–72	–67
Tax effect on above	38	32	11	16	15
Reversed cumulative hedge from divested companies 11	–	–107	–107	–	–
Hedge of net investments	–133	–220	–145	–56	–52
Exchange rate differences	809	–764	–1,241	322	–125
Cash flow hedges
Loss arising on changes in fair value of hedging instruments	–113	–40	–40	–19	–19
Reclassified cumulative loss to income statement	50	61	83	18	22
Tax effect on cash flow hedges	14	–5	–10	–	–1
Cash flow hedges	–49	16	33	–1	2
Components that may be reclassified to net profit/loss	760	–748	–1,208	321	–123
OTHER COMPREHENSIVE INCOME FOR THE PERIOD, NET OF TAX	679	–742	–1,179	258	–148
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD	–1,401	2,199	1,807	–2,101	249
ATTRIBUTABLE TO
Equity holders of the parent company	–1,178	2,199	1,807	–2,002	249
Non-controlling interests 11	–223	–	–	–99	–
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD	–1,401	2,199	1,807	–2,101	249

Balance sheet

EQUITY AND LIABILITIES	36,371	35,811	36,149
CURRENT LIABILITIES	12,562	11,623	11,932
Non-interest-bearing liabilities	6,813	5,985	6,560
Interest-bearing liabilities 4	5,749	5,638	5,372
CURRENT LIABILITIES
NON-CURRENT LIABILITIES	8,501	5,903	6,316
Non-interest-bearing liabilities 6	743	591	697
Interest-bearing liabilities 4	7,758	5,312	5,619
NON-CURRENT LIABILITIES
EQUITY 10	15,308	18,285	17,901
Non-controlling interests	–195	–	–
Attributable to equity holders of the parent company	15,503	18,285	17,901
EQUITY
EQUITY AND LIABILITIES
ASSETS	36,371	35,811	36,149
CURRENT ASSETS	9,152	7,166	8,032
Current investments Cash and cash equivalents 7	21 1,172	37 204	32 107
Current receivables	7,381	6,425	7,201
Inventories	578	500	692
CURRENT ASSETS
NON-CURRENT ASSETS	27,219	28,645	28,117
Deferred tax assets 6	1,842	1,976	1,964
Financial assets 4	1,068	1,524	1,463
Tangible assets	13,358	11,577	11,592
Intangible assets	10,951	13,568	13,098
Other intangible assets	4,734	4,570	4,437
Goodwill 3	6,217	8,998	8,661
NON-CURRENT ASSETS
ASSETS
SEK million Note	Sep 30, 2016	Sep 30, 2015	Dec 31, 2015

Cash flow statement

(Total operations)

SEK million	Note	2016 Jan 1–Sep 30	2015 Jan 1–Sep 30	2015 Full year	2016 Q3	2016 Q2	2016 Q1	2015 Q4	2015 Q3	2015 Q2
OPERATING ACTIVITIES
Operating profit/loss from continuing operations		–1,465	2,083	2,447	–1,811	191	155	364	788	593
Operating profit/loss from discontinued operations		–93	1,702	1,702	–93	–	–	–	–	1
Operating profit/loss		–1,558	3,785	4,149	–1,904	191	155	364	788	594
Adjustments for non-cash items in operating profit	3	5,228	535	1,271	3,381	814	1,033	736	778	734
Financial items paid/received	5	–185	–408	–470	–80	–59	–46	–62	–129	–76
Taxes paid		–317	–287	–349	–114	–136	–67	–62	–68	–104
Cash flow from operations before changes in working capital		3,168	3,625	4,601	1,283	810	1,075	976	1,369	1,148
Changes in working capital		512	–878	–1,072	451	183	–122	–194	–255	–404
CASH FLOW FROM OPERATING ACTIVITIES		3,680	2,747	3,529	1,734	993	953	782	1,114	744
INVESTING ACTIVITIES
CAPEX paid	8	–2,857	–2,942	–4,015	–896	–854	–1,107	–1,073	–945	–1,012
Free cash flow		823	–195	–486	838	139	–154	–291	169	–268
Acquisition and sale of shares and participations	11	34	4,893	4,893	–10	5	39	–	7	–5
Other financial assets		12	1	–28	11	1	–	–29	–	1
Cash flow from investing activities		–2,811	1,952	850	–895	–848	–1,068	–1,102	–938	–1,016
CASH FLOW AFTER INVESTING ACTIVITIES		869	4,699	4,379	839	145	–115	–320	176	–272
FINANCING ACTIVITIES
Change of loans, net	4	2,667	2,048	2,276	170	2,202	295	228	–257	4,303
Dividends	10	–2,389	–6,626	–6,626	–	–2,389	–	–	–	–6,626
Acquisition of non-controlling interests	10	–125	–	–	–	–	–125	–	–	–
Other financing activities		–	–2	–2	–	–	–	–	–	–2
Cash flow from financing activities		153	–4,580	–4,352	170	–187	170	228	–257	–2,325
NET CHANGE IN CASH AND CASH EQUIVALENTS		1,022	119	27	1,009	–42	55	–92	–81	–2,597
Cash and cash equivalents at beginning of period		107	151	151	149	184	107	204	309	2,886
Exchange rate differences in cash and cash equivalents		43	–66	–71	14	7	22	–5	–24	20
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD	7	1,172	204	107	1,172	149	184	107	204	309

Change in equity

			Sep 30, 2016			Sep 30, 2015		Dec 31, 2015
		Attributable to			Attributable to				Attributable to
SEK million	Note	equity holders of the parent company	non controlling interests	Total equity	equity holders of the parent company	non controlling interests	Total equity	equity holders of the parent company	non controlling interests	Total equity
Equity, January 1		17,901	–	17,901	22,680	2	22,682	22,680	2	22,682
Net profit/loss for the period		–1,857	–223	–2,080	2,941	–	2,941	2,986	–	2,986
Other comprehensive income for the period, net of tax		679	–	679	–742	–	–742	–1,179	–	–1,179
Total comprehensive income for the period		–1,178	–223	–1,401	2,199	–	2,199	1,807	–	1,807
OTHER CHANGES IN EQUITY
Share-based payments	10	17	–	17	33	–	33	40	–	40
Share-based payments, tax effect	10	–	–	–	–1	–	–1	–	–	–
New share issues	10	–	–	–	–	–	–	3	–	3
Repurchase of own shares	10	–	–	–	–	–	–	–3	–	–3
Dividends	10	–2,389	–	–2,389	–6,626	–	–6,626	–6,626	–	–6,626
Acquisition of non-controlling interests	10	465	484	949	–	–	–	–	–	–
Divestment to non-controlling interests	10	687	–456	231	–	–2	–2	–	–2	–2
EQUITY, END OF THE PERIOD		15,503	–195	15,308	18,285	–	18,285	17,901	–	17,901

Number of customers

Number of customers								Net intake
		2016	2015	2016	2015	2015	2016	2016	2016	2015	2015	2015
by thousands	Note	Sep 30	Sep 30	Jan 1–Sep 30	Jan 1–Sep 30	Full year	Q3	Q2	Q1	Q4	Q3	Q2
Sweden
Mobile		3,750	3,714	9	93	120	36	14	–41	27	84	52
Fixed broadband		62	73	–8	–12	–15	–2	–3	–3	–3	–2	–5
Fixed telephony		170	209	–26	–33	–46	–9	–8	–9	–13	–12	–11
		3,982	3,996	–25	48	59	25	3	–53	11	70	36
Netherlands
Mobile		991	841	147	28	31	59	57	31	3	–	7
Fixed broadband		351	348	7	–21	–25	4	2	1	–4	–7	–5
Fixed telephony		45	59	–10	–16	–20	–3	–3	–4	–4	–5	–5
		1,387	1,248	144	–9	–14	60	56	28	–5	–12	–3
Kazakhstan
Mobile		6,384	4,362	196	1,065	1,103	–18	104	110	38	166	471
		6,384	4,362	196	1,065	1,103	–18	104	110	38	166	471
Croatia
Mobile		871	885	86	62	–16	70	23	–7	–78	67	19
		871	885	86	62	–16	70	23	–7	–78	67	19
Lithuania
Mobile		1,789	1,779	20	–31	–68	38	–	–18	–37	16	–
		1,789	1,779	20	–31	–68	38	–	–18	–37	16	–
Latvia
Mobile		968	985	14	10	–17	21	6	–13	–27	11	10
		968	985	14	10	–17	21	6	–13	–27	11	10
Estonia
Mobile		483	486	–1	–2	–4	3	1	–5	–2	2	–
Fixed telephony		1	3	–2	–	–	–	–	–2	–	–	–
		484	489	–3	–2	–4	3	1	–7	–2	2	–
Austria
Mobile		6	–	6	–	–	1	5	–	–	–	–
Fixed broadband		96	104	–6	–4	–6	–2	–2	–2	–2	–2	–1
Fixed telephony		120	134	–11	–14	–17	–2	–4	–5	–3	–3	–4
		222	238	–11	–18	–23	–3	–1	–7	–5	–5	–5
Germany
Mobile		178	231	–41	–11	–23	–13	–14	–14	–12	–13	4
Fixed broadband		47	55	–6	–9	–11	–2	–2	–2	–2	–2	–2
Fixed telephony		237	322	–50	–81	–116	–13	–11	–26	–35	–51	10
		462	608	–97	–101	–150	–28	–27	–42	–49	–66	12
TOTAL
Mobile Fixed broadband		15,420 556	13,283 580	436 –13	1,214 –46	1,126 –57	197 –2	196 –5	43 –6	–88 –11	333 –13	563 –13
Fixed telephony		573	727	–99	–144	–199	–27	–26	–46	–55	–71	–10
TOTAL NUMBER OF
CUSTOMERS AND NET
INTAKE		16,549	14,590	324	1,024	870	168	165	–9	–154	249	540
Acquired companies	11			1,788	–	–	–	–	1,788	–	–	–
Changed method of calculation	2			23	–28	–50	–	–4	27	–22	–	–28
TOTAL NUMBER OF
CUSTOMERS AND NET
CHANGE		16,549	14,590	2,135	996	820	168	161	1,806	–176	249	512

Net sales

SEK million Note	2016 Jan 1–Sep 30	2015 Jan 1–Sep 30	2015 Full year	2016 Q3	2016 Q2	2016 Q1	2015 Q4	2015 Q3	2015 Q2
Sweden
Mobile	8,217	8,275	11,228	2,783	2,705	2,729	2,953	2,764	2,744
Fixed broadband	511	536	715	168	170	173	179	172	176
Fixed telephony	342	416	541	111	112	119	125	131	139
Other operations	96	105	147	33	31	32	42	33	42
	9,166	9,332	12,631	3,095	3,018	3,053	3,299	3,100	3,101
Netherlands
Mobile 2	2,150	1,788	2,535	738	721	691	747	643	592
Fixed broadband	1,630	1,769	2,326	545	539	546	557	576	578
Fixed telephony	199	258	333	64	64	71	75	82	84
Other operations	400	418	552	133	130	137	134	139	137
	4,379	4,233	5,746	1,480	1,454	1,445	1,513	1,440	1,391
Kazakhstan
Mobile	1,450	1,371	1,754	573	527	350	383	497	475
	1,450	1,371	1,754	573	527	350	383	497	475
Croatia
Mobile	1,090	1,013	1,429	405	369	316	416	377	333
	1,090	1,013	1,429	405	369	316	416	377	333
Lithuania
Mobile	1,216	1,134	1,539	440	390	386	405	417	381
	1,216	1,134	1,539	440	390	386	405	417	381
Latvia Mobile	748	700	948	277	238	233	248	250	232
	748	700	948	277	238	233	248	250	232
Estonia
Mobile	473	453	608	170	157	146	155	159	152
Fixed telephony	3	5	7	1	1	1	2	2	2
Other operations	29	51	62	10	9	10	11	12	11
	505	509	677	181	167	157	168	173	165
Austria
Mobile	4	–	–	3	1	–	–	–	–
Fixed broadband	568	583	775	189	186	193	192	196	192
Fixed telephony	95	111	146	30	32	33	35	36	36
Other operations	188	205	267	66	63	59	62	70	69
	855	899	1,188	288	282	285	289	302	297
Germany
Mobile	288	335	437	94	93	101	102	109	112
Fixed broadband	92	108	140	31	29	32	32	35	34
Fixed telephony	153	195	254	49	50	54	59	61	63
	533	638	831	174	172	187	193	205	209
Other
Mobile	51	–	–	21	17	13	–	–	–
Other operations	122	116	153	44	45	33	37	40	40
	173	116	153	65	62	46	37	40	40
TOTAL
Mobile	15,687	15,069	20,478	5,504	5,218	4,965	5,409	5,216	5,021
Fixed broadband	2,801	2,996	3,956	933	924	944	960	979	980
Fixed telephony	792	985	1,281	255	259	278	296	312	324
Other operations	835	895	1,181	286	278	271	286	294	299
	20,115	19,945	26,896	6,978	6,679	6,458	6,951	6,801	6,624
Internal sales, elimination	–40	–32	–40	–17	–11	–12	–8	–10	–13
Sweden, mobile	–	–1	–1	–	–	–	–	–	–
Lithuania, mobile	–13	–16	–20	–5	–3	–5	–4	–5	–8
Latvia, mobile	–15	–7	–9	–9	–5	–1	–2	–3	–2
Estonia, mobile	–	–2	–2	–	–	–	–	–	–1
Austria, mobile	–1	–	–	–1	–	–	–	–	–
Netherlands, other operations	–8	–1	–2	–2	–2	–4	–1	–	–1
Other, other operations	–3	–5	–6	–	–1	–2	–1	–2	–1
TOTAL	20,075	19,913	26,856	6,961	6,668	6,446	6,943	6,791	6,611

Mobile external net sales split

SEK million Note	2016 Jan 1–Sep 30	2015 Jan 1–Sep 30	2015 Full year	2016 Q3	2016 Q2	2016 Q1	2015 Q4	2015 Q3	2015 Q2
Sweden, mobile
End-user service revenue	5,546	5,527	7,368	1,928	1,821	1,797	1,841	1,889	1,829
Operator revenue	666	711	956	221	227	218	245	246	254
Service revenue	6,212	6,238	8,324	2,149	2,048	2,015	2,086	2,135	2,083
Equipment revenue	1,521	1,566	2,272	479	496	546	706	482	500
Other revenue	484	470	631	155	161	168	161	147	161
	8,217	8,274	11,227	2,783	2,705	2,729	2,953	2,764	2,744
Netherlands, mobile
End-user service revenue 2	1,077	1,001	1,404	419	336	322	403	364	332
Operator revenue	141	127	169	53	45	43	42	44	43
Service revenue	1,218	1,128	1,573	472	381	365	445	408	375
Equipment revenue	932	660	962	266	340	326	302	235	217
	2,150	1,788	2,535	738	721	691	747	643	592
Kazakhstan, mobile
End-user service revenue	1,085	1,034	1,287	426	394	265	253	348	371
Operator revenue	353	324	451	143	130	80	127	145	99
Service revenue	1,438	1,358	1,738	569	524	345	380	493	470
Equipment revenue	12	13	16	4	3	5	3	4	5
	1,450	1,371	1,754	573	527	350	383	497	475
Croatia, mobile
End-user service revenue	644	632	839	231	211	202	207	225	210
Operator revenue	177	172	208	79	52	46	36	74	55
Service revenue	821	804	1,047	310	263	248	243	299	265
Equipment revenue	269	209	382	95	106	68	173	78	68
	1,090	1,013	1,429	405	369	316	416	377	333
Lithuania, mobile
End-user service revenue	706	662	886	251	229	226	224	230	222
Operator revenue	163	148	198	54	54	55	50	51	51
Service revenue	869	810	1,084	305	283	281	274	281	273
Equipment revenue	334	308	435	130	104	100	127	131	100
	1,203	1,118	1,519	435	387	381	401	412	373
Latvia, mobile
End-user service revenue	441	434	580	158	143	140	146	152	145
Operator revenue	153	138	185	56	48	49	47	46	46
Service revenue	594	572	765	214	191	189	193	198	191
Equipment revenue	139	121	174	54	42	43	53	49	39
	733	693	939	268	233	232	246	247	230
Estonia, mobile
End-user service revenue	319	306	412	112	105	102	106	106	103
Operator revenue	58	53	70	22	20	16	17	18	18
Service revenue	377	359	482	134	125	118	123	124	121
Equipment revenue	96	92	124	36	32	28	32	35	30
	473	451	606	170	157	146	155	159	151
Austria, mobile
End-user service revenue	2	–	–	1	1	–	–	–	–
Equipment revenue	1	–	–	1	–	–	–	–	–
	3	–	–	2	1	–	–	–	–
Germany, mobile
End-user service revenue	288	334	436	94	93	101	102	108	112
Equipment revenue	–	1	1	–	–	–	–	1	–
	288	335	437	94	93	101	102	109	112
Other, mobile
End-user service revenue	51	–	–	21	17	13	–	–	–
	51	–	–	21	17	13	–	–	–
TOTAL, MOBILE
End-user service revenue	10,159	9,930	13,212	3,641	3,350	3,168	3,282	3,422	3,324
Operator revenue	1,711	1,673	2,237	628	576	507	564	624	566
Service revenue	11,870	11,603	15,449	4,269	3,926	3,675	3,846	4,046	3,890
Equipment revenue	3,304	2,970	4,366	1,065	1,123	1,116	1,396	1,015	959
Other revenue	484	470	631	155	161	168	161	147	161
TOTAL, MOBILE	15,658	15,043	20,446	5,489	5,210	4,959	5,403	5,208	5,010

EBITDA

SEK million	Note	2016 Jan 1–Sep 30	2015 Jan 1–Sep 30	2015 Full year	2016 Q3	2016 Q2	2016 Q1	2015 Q4	2015 Q3	2015 Q2
Sweden
Mobile		2,594	2,674	3,515	992	785	817	841	938	843
Fixed broadband		67	79	96	34	13	20	17	28	18
Fixed telephony		86	110	166	24	29	33	56	34	35
Other operations		61	35	67	18	19	24	32	14	12
		2,808	2,898	3,844	1,068	846	894	946	1,014	908
Netherlands
Mobile	2–3	–699	–260	–410	–179	–277	–243	–150	–83	–71
Fixed broadband	3	312	429	545	98	90	124	116	128	140
Fixed telephony	3	37	43	50	8	11	18	7	12	13
Other operations	3	201	198	260	71	60	70	62	65	65
		–149	410	445	–2	–116	–31	35	122	147
Kazakhstan
Mobile		129	59	54	79	44	6	–5	50	9
		129	59	54	79	44	6	–5	50	9
Croatia
Mobile		80	109	138	49	20	11	29	54	34
		80	109	138	49	20	11	29	54	34
Lithuania
Mobile		440	400	538	152	146	142	138	143	132
		440	400	538	152	146	142	138	143	132
Latvia
Mobile		230	217	295	90	71	69	78	79	70
		230	217	295	90	71	69	78	79	70
Estonia
Mobile		109	96	133	41	35	33	37	37	30
Fixed telephony		1	3	3	–	1	–	–	1	1
Other operations		9	16	20	4	3	2	4	3	5
		119	115	156	45	39	35	41	41	36
Austria
Mobile		–49	–16	–30	–14	–20	–15	–14	–6	–7
Fixed broadband		126	90	126	42	38	46	36	40	24
Fixed telephony		48	63	83	16	15	17	20	21	20
Other operations		8	17	24	1	5	2	7	6	6
		133	154	203	45	38	50	49	61	43
Germany
Mobile		100	–4	14	30	30	40	18	10	–9
Fixed broadband		13	15	21	4	3	6	6	5	5
Fixed telephony		101	94	130	46	27	28	36	32	30
		214	105	165	80	60	74	60	47	26
Other
Mobile		–37	–	–	–14	–13	–10	–	–	–
Other operations		–92	–47	–81	–30	–48	–14	–34	–12	–12
		–129	–47	–81	–44	–61	–24	–34	–12	–12
TOTAL
Mobile		2,897	3,275	4,247	1,226	821	850	972	1,222	1,031
Fixed broadband		518	613	788	178	144	196	175	201	187
Fixed telephony		273	313	432	94	83	96	119	100	99
Other operations		187	219	290	64	39	84	71	76	76
TOTAL		3,875	4,420	5,757	1,562	1,087	1,226	1,337	1,599	1,393

EBIT

SEK million Note	2016 Jan 1–Sep 30	2015 Jan 1–Sep 30	2015 Full year	2016 Q3	2016 Q2	2016 Q1	2015 Q4	2015 Q3	2015 Q2
Sweden
Mobile	1,851	1,955	2,544	743	534	574	589	711	597
Fixed broadband	–6	20	15	9	–11	–4	–5	16	–7
Fixed telephony	74	97	148	19	26	29	51	31	31
Other operations	32	20	40	8	9	15	20	12	4
	1,951	2,092	2,747	779	558	614	655	770	625
Netherlands
Mobile 2–3	–967	–446	–669	–273	–366	–328	–223	–154	–137
Fixed broadband 3	–81	43	42	–42	–39	–	–1	1	12
Fixed telephony 3	24	27	29	4	6	14	2	7	7
Other operations 3	153	147	193	54	45	54	46	47	48
	–871	–229	–405	–257	–354	–260	–176	–99	–70
Kazakhstan
Mobile	–212	–166	–225	–63	–92	–57	–59	–16	–61
Croatia	–212	–166	–225	–63	–92	–57	–59	–16	–61
Mobile	25	–7	–20	28	3	–6	–13	10	–10
	25	–7	–20	28	3	–6	–13	10	–10
Lithuania
Mobile	361	335	445	124	121	116	110	119	110
	361	335	445	124	121	116	110	119	110
Latvia
Mobile	134	130	173	59	40	35	43	50	37
	134	130	173	59	40	35	43	50	37
Estonia
Mobile	40	22	30	16	11	13	8	13	8
Fixed telephony	1	3	3	5	–3	–1	–	1	1
Other operations	1	4	9	2	1	–2	5	–1	1
	42	29	42	23	9	10	13	13	10
Austria
Mobile	–57	–17	–34	–16	–23	–18	–17	–7	–7
Fixed broadband	59	18	29	19	16	24	11	16	–2
Fixed telephony	38	50	66	13	11	14	16	17	17
Other operations	–4 36	5 56	6 67	–3 13	1 5	–2 18	1 11	2 28	1 9
Germany
Mobile	93	–19	–3	28	27	38	16	2	–11
Fixed broadband	10	12	16	3	3	4	4	4	4
Fixed telephony	99	91	128	45	26	28	37	31	28
	202	84	141	76	56	70	57	37	21
Other
Mobile	–37	–	–	–14	–13	–10	–	–	–
Other operations	–86	–36	–75	–29	–47	–10	–39	–4	–7
	–123	–36	–75	–43	–60	–20	–39	–4	–7
TOTAL
Mobile	1,231	1,787	2,241	632	242	357	454	728	526
Fixed broadband	–18	93	102	–11	–31	24	9	37	7
Fixed telephony	236	268	374	86	66	84	106	87	84
Other operations	96	140	173	32	9	55	33	56	47
	1,545	2,288	2,890	739	286	520	602	908	664
One-off items 3	–3,010	–205	–443	–2,550	–95	–365	–238	–120	–71
TOTAL	–1,465	2,083	2,447	–1,811	191	155	364	788	593

CAPEX

SEK million Note	2016 Jan 1–Sep 30	2015 Jan 1–Sep 30	2015 Full year	2016 Q3	2016 Q2	2016 Q1	2015 Q4	2015 Q3	2015 Q2
Sweden
Mobile	494	479	664	198	117	179	185	135	215
Fixed broadband	41	45	95	17	6	18	50	16	20
Fixed telephony	9	9	12	4	4	1	3	4	3
Other operations	3	10	13	–9	9	3	3	4	4
	547	543	784	210	136	201	241	159	242
Netherlands
Mobile	656	878	1,210	182	260	214	332	315	327
Fixed broadband	437	331	471	65	94	278	140	68	124
Fixed telephony	10	11	15	2	3	5	4	3	4
Other operations	49	56	77	10	17	22	21	12	22
	1,152	1,276	1,773	259	374	519	497	398	477
Kazakhstan
Mobile	319	378	532	134	106	79	154	123	136
	319	378	532	134	106	79	154	123	136
Croatia
Mobile	100	179	272	16	31	53	93	74	81
	100	179	272	16	31	53	93	74	81
Lithuania
Mobile 8	203	92	114	23	30	150	22	28	26
	203	92	114	23	30	150	22	28	26
Latvia
Mobile	51	62	113	9	17	25	51	20	19
	51	62	113	9	17	25	51	20	19
Estonia
Mobile	57	59	77	20	16	21	18	18	15
Other operations	–	6	7	–	–	–	1	1	3
	57	65	84	20	16	21	19	19	18
Austria
Mobile	6	31	38	1	2	3	7	9	11
Fixed broadband	32	37	68	11	13	8	31	8	12
Fixed telephony	3	6	8	1	1	1	2	–	–
Other operations	4	6	10	–	3	1	4	1	–
	45	80	124	13	19	13	44	18	23
Germany
Mobile	–	2	4	–1	1	–	2	–	–
Fixed broadband	2	1	2	1	1	–	1	–	–
	2	3	6	–	2	–	3	–	–
Other
Other operations	277	326	425	95	89	93	99	93	112
	277	326	425	95	89	93	99	93	112
TOTAL
Mobile	1,886	2,160	3,024	582	580	724	864	722	830
Fixed broadband	512	414	636	94	114	304	222	92	156
Fixed telephony	22	26	35	7	8	7	9	7	7
Other operations	333	404	532	96	118	119	128	111	141
TOTAL 8	2,753	3,004	4,227	779	820	1,154	1,223	932	1,134

Five-year summary

SEK million Note	2016 Jan 1–Sep 30	2015 Jan 1–Sep 30	2015	2014	2013	2012
CONTINUING OPERATIONS
Net sales	20,075	19,913	26,856	25,955	25,757	25,993
Numbers of customers (by thousands)	16,549	14,590	14,414	13,594	13,582	14,229
EBITDA	3,875	4,420	5,757	5,926	5,891	6,040
EBIT	–1,465	2,083	2,447	3,490	2,548	2,190
EBT	–1,281	1,784	2,012	3,500	1,997	1,668
Net profit/loss	–1,987	1,223	1,268	2,626	968	1,158
Key ratios
EBITDA margin, %	19.3	22.2	21.4	22.8	22.9	23.2
EBIT margin, %	–7.3	10.5	9.1	13.4	9.9	8.4
Value per share (SEK)
Net profit/loss	–3.95	2.74	2.84	5.89	2.17	2.61
Net profit/loss after dilution	–3.95	2.72	2.82	5.86	2.15	2.59
TOTAL
Equity	15,308	18,285	17,901	22,682	21,591	20,429
Total assets	36,371	35,811	36,149	39,848	39,855	49,189
Cash flow from operating activities	3,680	2,747	3,529	4,578	5,813	8,679
Free cash flow	823	–195	–486	432	572	4,070
Available liquidity	10,196	8,598	7,890	8,224	9,306	12,933
Net debt	4 11,013	9,805	9,878	8,135	7,328	15,187
Economic net debt 1, 4	10,985	9,805	9,878	8,135	7,328	15,187
Net investments in intangible and tangible assets, CAPEX	2,753	3,017	4,240	3,976	5,534	5,294
Investments/divestments in shares and other financial assets	–46	–4,894	–4,865	–439	–17,235	215
Key ratios
Equity/assets ratio, %	42	51	50	57	54	42
Debt/equity ratio, multiple	0.72	0.54	0.55	0.36	0.34	0.74
Return on equity, %	–9.3	16.3	14.7	10.0	69.5	15.6
ROCE, return on capital employed, % 10	–4.0	15.0	14.0	10.1	48.0	15.4
Average interest rate, %	2.7	4.3	4.1	4.7	5.2	6.6
Value per share (SEK)
Net profit/loss	–4.16	6.59	6.69	4.96	32.77	7.34
Net profit/loss after dilution	–4.16	6.55	6.65	4.93	32.55	7.30
Equity	34.73	41.00	40.13	50.90	48.49	45.95
Cash flow from operating activities	8.24	6.16	7.91	10.27	13.06	19.53
Dividend, ordinary	–	–	5.35	4.85	4.40	7.10
Extraordinary dividend	–	–	–	10.00	–	–
Redemption	–	–	–	–	28.00	–
Market price at closing day	74.05	81.45	84.75	94.95	72.85	117.10

Parent company

Income statement

Tax on loss	85	48	56
Loss after financial items, EBT	–387	–195	–231
Net interest expenses and other financial items	–198	–203	–269
Exchange rate difference on financial items	–139	49	106
Operating loss, EBIT	–50	–41	–68
Administrative expenses	–77	–81	–121
Net sales	27	40	53
SEK million	Jan 1–Sep 30	Jan 1–Sep 30	Full year
	2016	2015	2015

Balance sheet

SEK million Note	Sep 30, 2016	Dec 31, 2015
ASSETS
NON-CURRENT ASSETS
Tangible assets	1	1
Financial assets	13,680	13,666
NON-CURRENT ASSETS	13,681	13,667
CURRENT ASSETS
Current receivables	6,602	5,987
Cash and cash equivalents	4	3
CURRENT ASSETS	6,606	5,990
ASSETS	20,287	19,657
EQUITY AND LIABILITIES
EQUITY
Restricted equity 10	5,549	5,549
Unrestricted equity 10	2,623	5,346
EQUITY	8,172	10,895
NON-CURRENT LIABILITIES
Interest-bearing liabilities 4	6,488	4,204
NON-CURRENT LIABILITIES	6,488	4,204
CURRENT LIABILITIES
Interest-bearing liabilities 4	5,545	4,479
Non-interest-bearing liabilities	82	79
CURRENT LIABILITIES	5,627	4,558
EQUITY AND LIABILITIES	20,287	19,657

Notes

NOTE 1 ACCOUNTING PRINCIPLES AND DEFINITIONS

The interim report for the Group has been prepared in accordance with IAS 34 and the Swedish Annual Accounts Act, and for the parent company in accordance with the Swedish Annual Accounts Act and RFR 2 Reporting for legal entities and other statements issued by the Swedish Financial Reporting Board.

The amended IFRS standards (IAS 1, IAS 16, IAS 27, IAS 28, IAS 38, IFRS 10, IFRS 11 and IFRS 12), which became effective January 1, 2016, have had no material effect on the consolidated financial statements.

Certain financial measures are presented in this interim report that are not defined by IFRS. It is the view of Tele2 that these measures give valuable additional information to investors and other readers of this report since they are used by management to manage and control the operating businesses. Definitions of these measures are mainly stated on the last page of the annual report 2015, with some clarification in Note 12 below.

In all other respects, Tele2 has presented this interim report in accordance with the accounting principles and calculation methods used in the 2015 Annual Report. The description of these principles and definitions is found in the 2015 Annual Report.

Disclosures in accordance with IAS 34 Interim Financial Reporting are presented either in the Notes or elsewhere in the interim report.

NOTE 2 NET SALES AND CUSTOMERS

In Q4 2015, net sales in Netherlands was positively affected by a net of SEK 90 million mainly due to benefit from a tax settlement with regards to VAT on postpaid subscriptions.

Customers

Due to implementation of new IT systems, leading to more improved reporting of number of customers, the customer stock has changed without effecting the net intake in Q2 2016 in Latvia with –4,000 customers, in Q1 2016 in Lithuania with 27,000 customers, in Q4 2015 in Croatia with –22,000 customers, and in Q2 2015 in Sweden with –28,000 customers (the later also due to changed principle for twin cards).

NOTE 3 OPERATING EXPENSES EBITDA

In Q1 2016, the EBITDA in Netherlands was positively affected by SEK 73 million as a result of a resolved lease incentive in connection with termination of old property contracts of which mobile was impacted by SEK 47 million, fixed broadband SEK 19 million, fixed telephony SEK 3 million and other operations SEK 4 million.

Bridge from EBITDA to EBIT

EBIT	–1,465	2,083	2,447	–1,811	788
Result from shares in joint ventures and associated companies	1	–5	–5	–	–
Depreciation/amortization and other impairment	–2,331	–2,127	–2,862	–823	–691
Total one-off items	–3,010	–205		–443 –2,550	–120
Other one-off items	–	106	106	–	106
Challenger program	–168	–114	–247	–63	–29
Integration costs	–27	–	–	–21	–
Acquisition costs	–23	–	–118	–5	–
Sale of operations	–1	–	12	–1	–
Impairment of goodwill	–2,791	–197	–196	–2,460	–197
EBITDA	3,875	4,420	5,757	1,562	1,599
SEK million	Jan 1– Sep 30	Jan 1– Sep 30	2015 Full year	2016 Q3	2015 Q3
	2016	2015

One-off items in segment reporting

One-off items comprise impairment losses and transactions from strategic decisions, such as capital gains and losses from sales of operations, acquisition costs, integration costs due to acquisition or merger, restructuring programs from reorganizations (i.e. Challenger program, costs for phasing out operations and personnel redundancy costs), as well as other items with the character of not being part of normal daily operations and that affects comparability.

Impairment of goodwill

In Q3 2016, an impairment loss on goodwill of SEK 2,456 million was recognized in cost of service provided referring to the cash generating unit Netherlands. The impairment loss was based on the estimated value in use of SEK 9.0 billion. The impairment was recognized as a result of a reassessment of future cash flow generation in the Netherlands.

In Q1 2016, an impairment loss on goodwill of SEK 326 million was recognized referring to the cash generating unit Kazakhstan. The impairment was due to the macro environment, including the Tenge devaluation which implied weaker consumer purchase power and higher expenses. In addition, intense competitive pressure during Q1 eroded pricing power for all market participants. This also resulted during Q1 2016, in a decrease in the value of the put option obligation to the former non-controlling interest in Tele2 Kazakhstan, which represents an 18 percent economic interest in the new jointly owned company (see Note 11), with a positive effect in the income statement of SEK 413 million reported under financial items (Note 5).

In Q3 2015, an impairment loss on goodwill of SEK 197 million was recognized referring to the cash generating unit Estonia. The impairment loss was based on the estimated value in use of SEK 1.2 billion by using a pre-tax discount rate (WACC) of 9 percent. The impairment was recognized as a result of the underlying performance of the Estonian economy and Tele2's operation.

Acquisition costs

In Q2 and Q3 2016, EBIT (administrative expenses) was negatively impacted by SEK 6 and 3 million respectively concerning expenses related to the ongoing acquisition of TDC Sweden for which closing is expected in Q4 2016. For additional information please refer to Note 11.

In Q1 and Q2 2016 as well as Q4 2015, EBIT (administrative expenses) was negatively impacted by SEK 3, 9 and 118 million respectively concerning expenses related to the combination of the Tele2 and Kazakhtelecom mobile operations in Kazakhstan. For further information please refer to Note 11.

Integration costs

As a result of the acquisition of Altel and the ongoing merger with Tele2's present operations in Kazakhstan, integration costs are reported as one-off items and in the income statement on the following line items.

SEK million	2016 Jan 1– Sep 30	2015 Jan 1– Sep 30	2015 Full year	2016 Q3	2015 Q3
Costs of service provided	–4	–	–	–3	–
Selling expenses	–3	–	–	–3	–
Administrative expenses	–19	–	–	–14	–
Total Integration costs	–26	–	–	–20	–
of which:
-redundancy costs	–7	–	–	–2	–
-other employee and consultancy costs	–16	–	–	–16	–
-exit of contracts and other costs	–3	–	–	–2	–

Challenger program: restructuring costs

At the end of 2014, Tele2 announced its Challenger program, which is a program to step change productivity in the Tele2 Group. The program will strengthen the organization further and enable it to continue to challenge the industry. The costs associated with the program are reported as one-off items and in the income statement on the following line items.

2016	2015
Jan 1–	Jan 1–	2015	2016	2015
Sep 30	Sep 30	Full year	Q3	Q3
–15	–18	–58	–2	–10
–6	–17	–34	–1	–2
–147	–79	–155	–60	–17
–168	–114	–247	–63	–29
–76	–28	–105	–34	2
–89	–79	–119	–29	–25
–3	–7	–23	–	–6

Other one-off items

In Q3 2015, other operating revenues in Sweden were positively affected by SEK 112 million, concerning transactions related to sales of 2G sites to Net4Mobility, an infrastructure joint operation between Tele2 Sweden and Telenor Sweden, and the result of dismantling 2G sites. The mission for Net4Mobility is to build and operate a combined 2G and 4G network. From its establishment Tele2 and Telenor have transferred sites to the joint operation. These site transfers have now been completed resulting in a positive impact on Tele2's financial statement. Tele2 and Telenor are technically MVNO's with Net4Mobility and hence act as capacity purchasers.

In Q3 2015, other operating expenses were negatively affected by SEK 6 million, related to the devaluation in Kazakhstan. The total foreign exchange rate effect of assets and liabilities in Kazakhstan was reported in other comprehensive income and amounted at the time for the devaluation to SEK –416 million. Please refer to Note 5 regarding effects on change in fair value of put option Kazakhstan.

NOTE 4 FINANCIAL ASSETS AND LIABILITIES Net debt and economic net debt

	9,805	9,878	8,135	7,328	15,187
–6	–	–	–	–	–
–22	–	–	–	–	–
11,013	9,805	9,878	8,135	7,328	15,187
–	–	–	–12	–	–
–18	–11	–48	–47	–10	–21
–1,195	–241	–139	–189	–1,413	–1,745
–76	–	–	–	–	–
–1,205	–893	–926	–807	–679	–559
13,507	10,950	10,991	9,190	9,430	17,512
Sep 30	Sep 30	Full year	Full year	Full year	Full year
2016	2015				2012
	Jan 1– 10,985	Jan 1–	2015	2014	2013

As a result of the agreement with Kazakhtelecom, Tele2 introduced in Q1 2016 a new measure; economic net debt. Economic net debt is defined as net debt excluding liabilities from Kazakhtelecom and liabilities guaranteed by Kazakhtelecom.

Financing

	Interest-bearing liabilities
		Sep 30, 2016		Dec 31, 2015
SEK million		Current Non-current		Current Non-current
Bonds NOK, Sweden1)	570	–	–	955
Bonds SEK, Sweden	2,193	5,238	500	2,548
Commercial papers, Sweden	2,525	–	3,784	–
Financial institutions	14	1,210	543	655
	5,302	6,448	4,827	4,158
Put option, Kazakhstan (Note 5)	–	–	125	416
Provisions	92	1,113	52	874
Other liabilities	355	197	368	171
	5,749	7,758	5,372	5,619
Total interest-bearing liabilities		13,507		10,991

1) The bonds in NOK are hedged for currency exposure via currency swaps

On September 16, 2016 Tele2 completed the issuance of a SEK 1 billion bond in the Swedish bond market. The issue has a final maturity of 5.5 years with a floating rate coupon of STIBOR 3m +1.55 percent. The bond is issued under the Tele2 EMTN program and is listed on the Luxembourg exchange.

On July 7, 2016 Tele2 issued a 6-year SEK 500 million bond under the EMTN program. The bond is a private placement and is not listed.

On June 3, 2016 Tele2 announced the signing of a EUR 130 million loan agreement with the Nordic Investment Bank (NIB). This included a cancellation of the existing loan from NIB of EUR 74 million. Thus the debt increased in total by EUR 56 million. The loan has a fixed interest rate and matures in 5 to 8 years.

On May 11, 2016 Tele2 completed the issuance of a 5-year SEK 3 billion bond in the Swedish bond market. The amount is split in one tranche of SEK 1 billion with a fixed rate coupon of 1.875 percent and one tranche of SEK 2 billion with a floating rate coupon of STIBOR 3m +1.65 percent. The bond is issued under the Tele2 EMTN program and is listed on the Luxembourg stock exchange.

At the time of the acquisition of Tele2 Kazakhstan the company had an existing interest free liability to the former owner Kazakhtelecom. In connection with the completion of the agreement with Kazakhtelecom during Q1 2016, the liability maturity period was extended to 2031 and as a consequence the loan was revalued to fair value at the remeasurement date. On September 30, 2016 the reported debt amounted to SEK 22 (247) million and the nominal value to SEK 300 (287) million. The change in book value was reported in equity, please refer to Note 10.

On February 3, 2016 Tele2 completed the issuance of a SEK 500 million bond in the Swedish bond market. The issue has a final maturity of 3 years with a floating rate coupon. The bond is issued under the Tele2 EMTN program and is not listed.

On January 13, 2016 Tele2 entered into a syndicated multicurrency revolving credit facility agreement amounting to EUR 800 million with 11 relationship banks. The facility has a tenor of five years with two one-year extension options and it replaced the previous revolving credit facility dated May 2012. The new facility further strengthens Tele2's financial position and secures a structure of diversified funding sources. The new facility was unutilized as of September 30, 2016.

Transfer of right of payment of receivables

In Q1 2016 and onwards, Tele2 has started to transfer the right for payment of certain operating receivables to financial institutions. The obligation that occur when receiving payment from financial institutions connected to the transfer of right of payment of receivables for sold equipment has been netted against the receivables in the balance sheet and resulted in a positive effect on cash flow. During 2016 the right of payment of SEK 1,105 million has been transferred, of which SEK 361 million in Q3 2016.

Classification and fair values

Tele2's financial assets consist mainly of receivables from end customers, other operators and resellers as well as cash and cash equivalents. Tele2's financial liabilities consist mainly of loans, bonds and accounts payables. Classification of financial assets and liabilities including their fair value is presented below. During 2016, no transfers were made between the different levels in the fair value hierarchy and no significant changes were made to valuation techniques, inputs used or assumptions except for the valuation of the put option related to Tele2 Kazakhstan according to below.

				Sep 30, 2016
	Assets and liabilities at fair value		Derivative instruments	Financial
	through		designated	liabilities	Total
	profit/loss	Loans and	for hedge	at amor	reported	Fair
SEK million	(level 3)	receivables	accounting	tized cost	value	value
Other financial assets	1	979	–	–	980	980
Accounts receivables	–	2,178	–	–	2,178	2,178
Other current receivables	–	3,453	18	–	3,471	3,471
Current investments	–	21	–	–	21	21
Cash and cash equivalents	–	1,172	–	–	1,172	1,172
Total financial assets	1	7,803	18	–	7,822	7,822
Liabilities to financial institutions and similar liabilities	–	–	–	11,750	11,750	12,112
Other interest bearing liabilities	26	–	275	251	552	563
Accounts payable	–	–	–	2,383	2,383	2,383
Other current liabilities	–	–	–	873	873	873
Total financial liabilities	26	–	275	15,257	15,558	15,931

	Dec 31, 2015
	Assets and
	liabilities		Derivative
	at fair value		instruments	Financial
	through		designated	liabilities	Total
	profit/loss	Loans and	for hedge	at amor	reported	Fair
SEK million	(level 3)	receivables	accounting	tized cost	value	value
Other financial assets	9	1,349	–	–	1,358	1,358
Accounts receivables	–	2,163	–	–	2,163	2,163
Other current
receivables	–	3,296	48	–	3,344	3,344
Current investments	–	32	–	–	32	32
Cash and cash
equivalents	–	107	–	–	107	107
Total financial assets	9	6,947	48	–	7,004	7,004
Liabilities to financial
institutions and
similar liabilities	–	–	–	8,985	8,985	9,240
Other interest
bearing liabilities	541	–	231	308	1,080	1,049
Accounts payable	–	–	–	2,746	2,746	2,746
Other current
liabilities	–	–	–	502	502	502
Total financial
liabilities	541	–	231	12,541	13,313	13,537

Changes in financial assets and liabilities valued at fair value through profit/loss in level 3 is presented below.

		Sep 30, 2016	Dec 31, 2015
SEK million	Assets	Liabilities	Assets	Liabilities
As of January 1	9	541	9	887
Changes in fair value	–	–413	–	51
Divestment of shares	–8	–	–	–
Payment of liability	–	–125	–	–
Contingent consideration	–	26	–	–
Exchange rate differences*	–	–3	–	–397
As of the end of the period	1	26	9	541

* Recognised in other comprehensive income

In Q3 2016, a liability was reported for contingent deferred consideration to the former owners of Kombridge, Sweden, please refer to Note 11. The estimated fair value of the deferred consideration amounted on September 30, 2016 to SEK 26 (-) million. The fair value was calculated based on expected future cash flows at which a maximum turnout has been assumed.

In Q1 2016, an initial purchase price of SEK 125 million was paid to the former non-controlling shareholder Asianet in Tele2 Kazakhstan for its 49 percent stake. According to the agreement between the parties Asianet has right to 18 percent of the economic interest in the new jointly owned company, please refer to Note 11. The estimated fair value of the deferred consideration amounted on September 30, 2016 to SEK – (541) million. The fair value was calculated based on expected future cash flows of the jointly owned company, please refer to Note 5.

NOTE 5 OTHER FINANCIAL ITEMS

Other financial items in the income statement consist of the following items.

	2016	2015
	Jan 1–	Jan 1–	2015	2016	2015
SEK million	Sep 30	Sep 30	Full year	Q3	Q3
Change in fair value, put option Kazakhstan	413	–	–51	–	–30
Exchange rate differences	13	–17	1	–	–20
EUR net investment hedge, interest component	–4	–1	–3	–1	–1
NOK net investment hedge, interest component	–	–1	–1	–	–
Sale of Modern Holding Inc	–2	–	–	–	–
Other financial expenses	–9	–5	–5	–4	–2
Total other financial items	411	–24	–59	–5	–53

In Q1 2016, part of the put option obligation to the former non-controlling interest in Tele2 Kazakhstan was settled and SEK 125 million was paid to the previous non-controlling interest. The remaining part of the fair value of the put option obligation was in Q1 2016 changed to zero, affecting financial items in the income statement positively by SEK 413 million. The fair value is calculated based on expected future cash flows of the jointly owned company. The reason for the change in fair value in Q1 2016 was due to the macro environment, including the Tenge devaluation which implied weaker consumer purchase power and higher expenses. In addition, intense competitive pressure during Q1 eroded pricing power for all market participants. The fair value estimate is sensitive to changes in key assumptions supporting the expected future cash flows for the jointly owned company in Kazakhstan. A positive deviation from the current assumptions would increase the earnout liability.

In Q3 2015, the fair value of the put option of the business in Kazakhstan decreased by SEK 245 million affecting financial items in the income statement negatively by SEK 30 million and other comprehensive income positively by SEK 275 million mainly due to the devaluation of the Kazakhstan currency during the quarter. For further information please refer to Note 4.

In Q1 and Q3 2015, the cash flow was negatively affected by SEK 130 and 76 million respectively related to currency derivatives designated for hedge accounting.

NOTE 6 TAXES

During the first nine months 2016, the underlying effective tax rate temporarily increased to 32 (21) percent. The reason for the increase is mainly driven by the non-deductible impairment of goodwill in the Netherlands.

SEK million		2016 Jan 1–Sep 30		2015 Jan 1–Sep 30		2015 Full year
Profit/loss before tax	–1,281	–	1,784		2,012
Income tax	–706	55.1%	–561	31.4%	–744	37.0%
Tax effect of:
Impairment of goodwill, non-deductible	681	53.1%	–	–	39	–1.9%
Not valued tax loss-carry forwards	371	29.0%	120	–6.7%	144	–7.2%
Valuation tax loss-carry forwards	–40	–3.1%	–	–	–	–
Result from JV and associated companies	–	–	–1	0.1%	–	–
Change in fair value, put option Kazakhstan, non-taxable	–91	–7.1%	–	–	10	–0.5%
Non-deductible expenses/ non-taxable revenue	40	3.1%	91	–5.1%	181	–9.0%
Adjustment due to changed tax rate	140	10.9%	–	–	–	–
Adjustment of taxes from previous years	15	1.2%	–27	1.5%	–58	2.9%
Adjusted tax expense and effective tax rate	410	32.0%	–378	21.2%	–428	21.3%

Other non-deductible expenses/non-taxable revenues of SEK –40 (–181) million mainly relate to interest costs in Sweden. Tele2 claims these interest costs are deductible, but due to the uncertainty in how the tax legislation should be interpreted the interest costs have in the accounting been reported as non-deductible expenses until the tax rules have been further clarified by the courts, which may take several years.

In Q3 2016, net taxes were negatively impacted by SEK –140 million due to revaluation of deferred tax assets in Luxembourg as a consequence of reduced tax rates.

In Q1 2016, net taxes were positively affected by a valuation of deferred tax assets in Germany of SEK 40 million.

NOTE 7 RELATED PARTIES

Tele2's share of cash and cash equivalents in joint operations, for which Tele2 has limited disposal rights was included in the Group's cash and cash equivalents and amounted at each closing date to the sums stated below.

SEK million	2016	2016	2016	2015	2015	2015
	Sep 30	Jun 30	Mar 31	Dec 31	Sep 30	Jun 30
Cash and cash equivalents in joint operations	12	7	42	34	1	11

As part of the business combination in Q1 2016, of Tele2's and Kazakhtelecom's operations in Kazakhstan, Kazakhtelecom have 49 percent of the voting rights in the combined company. Tele2 and Kazakhtelecom sell and purchases telecommunication services from each other. Business relations and pricing between the parties are based on commercial terms and conditions. Apart from transactions with joint operations, and previously described transactions, no other significant related party transactions were carried out during 2016. Other related parties are presented in Note 37 of the Annual Report 2015.

NOTE 8 CAPEX Bridge from CAPEX to paid CAPEX

	2016	2015
	Jan 1–	Jan 1–	2015	2016	2015
SEK million	Sep 30	Sep 30	Full year	Q3	Q3
CAPEX, continued operations	–2,753	–3,004	–4,227	–779	–932
CAPEX, discontinued operations	–	–13	–13	–	–
CAPEX, total operation	–2,753	–3,017 –4,240		–779	–932
This year's unpaid CAPEX and paid CAPEX
from previous year	–126	59	205	–122	–22
Received payment of sold non-current assets	22	16	20	5	9
Paid CAPEX	–2,857 –2,942		–4,015	–896	–945

In Q1 2016, CAPEX for Lithuania was affected by SEK 123 million related to licenses in the 900 and 1800 MHz bands. The new licenses will ensure continued operations after 2017 when the current licenses expire. They will also contribute to higher quality and lower costs, due to the quality and price ratio that Tele2 has opted for. SEK 26 million was paid during Q1 2016 and the remaining part will be paid over 15 years of the license lifespan.

NOTE 9 CONTINGENT LIABILITIES AND ASSETS

SEK million	Sep 30, 2016	Dec 31, 2015
Asset dismantling obligation	147	137
KPN dispute, Netherlands	223	212
Tax dispute, Russia	–	154
Total contingent liabilities	370	503

Contingent assets

In May 2016, the Stockholm District Court ordered Telia to pay damages to Tele2 concerning Telia's abuse of its dominant position on wholesale ADSL-services. The judgement has been appealed by both parties. Due to the uncertainty in the final outcome Tele2 has not recognized any benefits from the judgement.

Contingent liabilities

Tele2 has obligations to dismantle assets and restore premises within fixed telephony and fixed broadband in the Netherlands as well as in Austria. Tele2 assesses such dismantling as unlikely and consequently only reported this obligation as contingent liabilities.

Tele2 Netherlands is, in the ordinary course of its business, involved in several regulatory complaints and disputes pending with the appropriate governmental authorities. In a specific case regarding the rental fees of copper lines, which Tele2 Netherlands uses as part of its fixed operations, the regulator (ACM) has determined that the rental fees are to be adjusted with retroactive effect from 2009. On July 21, 2015 the Supreme Administrative Court (CBb) ruled that ACM had no powers to impose any deduction on the WPC IIA price caps from 2009 till now. This resulted in an additional claim from KPN of EUR 14.5 million for the first 3 years (2009–2011), which were previously deducted by ACM in their ruling. Together with the claim for the period 2012-July 2014 this has resulted in a total claim from KPN for the time period 2009-July 2014 amounting to EUR 23.2 million (SEK 223 million) which is subject to pending appeals and court cases expected to go on for several years. Our assessment is that it is unlikely that Tele2 will have to pay these fees and consequently no provision has been made.

The tax authorities in Russia are currently performing tax audits on several of Tele2's former subsidiaries in Russia. Per the sales agreement with the VTB-Group Tele2 is liable for any additional taxes payable relating to periods under Tele2's ownership as result of the tax audits. On September 30, 2016 (and December 31, 2015 respectively) Tele2 has won tax disputes equivalent to SEK 143 (187) million, of which the Russian tax authorities has appealed SEK 1 (154) million. In addition, Tele2 has lost tax disputes of SEK –114 (–16) million, of which Tele2 has appealed SEK 94 (-) million. Due to a change in the assessments of certain tax disputes in Q3

2016 an additional provision of SEK 93 million was recognized in discontinued operations. Total provisions as of September 30, 2016 (and December 31, 2015 respectively) amounted to SEK 114 (16) million. Even though it cannot be ruled out that Tele2 may be liable to certain costs and that new cases can be identified, Tele2 assesses that it is not likely that any additional taxes need to be paid and consequently no additional provisions have been made.

Additional information about contractual commitments is provided in Note 29 in the Annual Report 2015.

NOTE 10 EQUITY AND NUMBER OF SHARES Number of shares

	Sep 30, 2016	Dec 31, 2015
Number of shares
Outstanding	446,533,392	446,188,367
In own custody	4,549,947	4,894,972
Weighted average	446,368,547	446,032,991
After dilution	449,352,321	449,020,673
Weighted average, after dilution	449,105,027	448,904,102

As a result of share rights in the LTI 2013 being exercised during Q2 2016, Tele2 delivered 345,025 B-shares in own custody to the participants in the program.

Changes of number of shares during previous year are stated in Note 24 in the Annual Report 2015.

Number of outstanding share rights

	Sep 30, 2016	Dec 31, 2015
Number of outstanding share rights
LTI 2016–2019	1,208,268
LTI 2015–2018	902,102	1,093,535
LTI 2014–2017	718,391	897,508
of which will be settled in cash	9,832	9,147
LTI 2013–2016	–	841,263
of which will be settled in cash	–	42,261
Total outstanding share rights	2,828,761	2,832,306

All outstanding long-term incentive programs (LTI 2014, LTI 2015 and LTI 2016) are based on the same structure and additional information regarding the objective, conditions and requirements related to the LTI programs 2013, 2014 and 2015 is stated in Note 33 of the Annual Report 2015. During the first nine months 2016, the total cost before tax for the long-term incentive programs (LTI) amounted to SEK 17 (42) million.

LTI 2016

During the Annual General Meeting held on May 24, 2016, the shareholders approved a retention and performance-based incentive program (LTI 2016) for senior executives and other key employees in the Tele2 Group. The measurement period for certain retention and performance-based conditions for LTIP 2016 is April 1, 2016 - March 31, 2019. The program has the same structure as last year's incentive program.

Total costs before tax for outstanding rights in the incentive program are expensed over the three-year vesting period, and these costs were initially expected to amount to SEK 60 million, of which social security costs amount to SEK 18 million.

To ensure the delivery of Class B shares under the program, the Annual General Meeting decided to authorise the Board of Directors to resolve on a directed issue of a maximum of 1,820,000 Class C shares and subsequently to repurchase the Class C shares. The Board of Directors has not yet used its mandate.

LTI 2013

The exercise of the share rights in LTI 2013 was conditional upon the fulfilment of certain retention and performance based conditions, measured from April 1, 2013 until March 31, 2016. The outcome of these performance conditions was in accordance with below and the outstanding share rights of 345,025 have been exchanged for shares in Tele2 and 19,380 share rights for cash during Q2 2016. Weighted average share price for share rights in LTI 2013 at date of exercise amounted to SEK 75.74 during 2016.

Retention and performance based conditions	Minimum hurdle (20%)	Stretch target (100%)	Performance outcome	Allotment
Series A Total Shareholder Return Tele2 (TSR)		≥ 0%	24.2%	100%
Series B Average normalised Return on Capital Employed (ROCE)	8%	12.5%	10.0%	55.6%
Series C Total Shareholder Return Tele2 (TSR) compared to a peer group	> 0%	≥ 10%	–5.4%	0%

Dividend

In Q2 2016, Tele2 paid to its shareholders a dividend for 2015 of SEK 5.35 (4.85) per share. In 2015, Tele2 also paid an extraordinary dividend of SEK 10.00 per share. This corresponded to a total of SEK 2,389 (6,626) million.

Transactions with non-controlling interests

The transaction with Kazakhtelecom, which is described in Note 11, resulted in Q1 2016, in a positive effect in equity attributable to the equity holders of the parent company of SEK 1,143 million. The positive effect mainly refers to Kazakhtelecom's contribution of Altel to Tele2 in exchange for Kazakhtelecom becoming partly owner of Tele2 Kazakhstan. As part of setting up the new structure in Kazakhstan, an initial purchase price of SEK 125 million was paid during Q1 2016 to the former non-controlling shareholder Asianet in Tele2 Kazakhstan for its 49 percent stake.

ROCE, return on capital employed

	2016	2015
	Jan 1–	Jan 1–	2015	2014	2013	2012
SEK million	Sep 30	Sep 30	Full year	Full year	Full year	Full year
EBIT, total operation	–1,558	3,785	4,149	3,102	16,339	5,653
Financial income, total
operation	13	8	9	26	55	24
Return1)	–1,545	3,793
Annualised return	–1,130	4,488	4,158	3,128	16,394	5,677
in relation to
Total assets	36,371	35,811	36,149	36,015	39,407	49,189
Non-interest bearing
liabilities	–7,556	–6,576	–7,257	–7,227	–8,781	–11,248
Provisions for asset
dismantling	–974	–730	–771	–634	–488	–211
Capital employed for assets classified as held for sale	–	–	–	3,098	395	–
Capital employed, closing balance	27,841	28,505	28,121	31,252	30,533	37,730
Capital employed, average	27,981	29,879	29,687	30,893	34,132	36,859
ROCE, %	–4.0	15.0	14.0	10.1	48.0	15.4

1) Including impairment of goodwill of SEK –2,791 (2015: capital gain for Norway of SEK 1,709) million

NOTE 11 BUSINESS ACQUISITIONS AND DIVESTMENTS

Acquisitions and divestments of shares and participations affecting cash flow were as follows:

SEK million	2016 Jan 1–Sep 30	2015 Full year
Acquisitions
Altel, Kazakhstan	41	–
Kombridge, Sweden	–9	–
Capital contribution to joint ventures	–	–4
Total acquisition of shares and participations	32	–4
Divestments
Norway	–	4,904
Residential cable and fiber operations, Sweden	–	–6
Transaction costs, Russia	–2	–6
Other divestments	4	5
Total sale of shares and participations	2	4,897
TOTAL CASH FLOW EFFECT	34	4,893

ACQUISITIONS

Kombridge, Sweden

On August 22, 2016 Tele2 acquired 100 percent in the Sweden based company Kombridge AB. Since 2010, Kombridge has offered security services, connected device management and application management for Internet of Things (IoT) applications and services.

Kombridge brings a number of valuable assets and Tele2 IoT will immediately strengthen its security portfolio through the Kombridge Connect security product. The combined sales and technology teams will build upon Kombridge's technology and knowledge to establish even stronger value added services for B2B applicationand connectivity management.

The goodwill of SEK 26 million consists of value Tele2 gets by adding the expertise, the product and the platform from Kombridge and integrate in Tele2's business.

TDC, Sweden

On June 21, 2016 Tele2 announced that Tele2 has signed a contract to acquire 100 percent of TDC Sweden for SEK 2.9 billion on a debt free basis. The transaction was approved by regulatory authorities on October 7, 2016 and the transaction is expected to be closed in Q4 2016.

TDC Sweden is a provider of B2B services in Sweden, serving both the public sector and many Swedish blue chip customers with their entire end-to-end connectivity and communication needs. TDC Sweden has a strong position in attractive product segments, and a solid track record of profitable growth, delivering net sales in 2015 of SEK 3.4 billion and an EBITDA of SEK 0.4 billion. The operations had 809 full time employees at the end of 2015.

Tele2 estimates annualized run rate OPEX and CAPEX synergies to amount to approximately SEK 300 million, with additional one-off CAPEX synergies estimated to amount to SEK 200 million. Positive effects of cross-selling are also expected. Preliminary estimates for the integration costs and other one-off costs required to achieve synergies amount to approximately SEK 750 million. Total acquisition costs of SEK –9 million have been reported as operating costs in the income statement.

In conjunction with the announcement of the acquisition, Tele2 proposed to undertake an equity issue with preferential rights to existing shareholders to a total amount of approximately SEK 3 billion. The issue is subject to the approval of an Extraordinary General Meeting. The completion of the acquisition is not conditional on equity financing, as Tele2 has available funds and existing credit facilities in place to finance the acquisition. The issue is proposed in order to maintain Tele2's financial strength, is fully underwritten

and has the support of Tele2's largest shareholder Kinnevik. The issue is expected to be completed in Q4 2016.

Combination of operations, Kazakhstan

On November 4, 2015 Tele2 announced the agreement with Kazakhtelecom to combine the two businesses' mobile operations in Kazakhstan, Tele2 Kazakhstan and Altel, in a jointly owned company. Necessary regulatory approvals for the transactions were received end of January 2016 and the transaction was completed on February 29, 2016.

Kazakhtelecom has subscribed for newly issued shares in the Dutch holding company Khan Tengri Holding B.V. (previously 100 percent owned by Tele2 after the buyout of Asianet), being the owner of Tele2 Kazakhstan, in exchange for 100 percent of the shares in Altel. The estimated fair value of identifiable net assets in Altel was SEK 840 million.

The business combination will strengthen the position of both companies in the Kazakhstan market by combining Tele2's existing operations in Kazakhstan with Kazakhtelecom's mobile business, Altel. The new business has more than 6 million customers and a market share of around 23 percent. The business combination with Kazakhtelecoms mobile operation will create a more sustainable and significant player in the market. The process of integrating the businesses is well underway and the expected synergies will be beneficial for both our customers and shareholders.

Tele2 has a 49 percent economic ownership in the jointly owned company and 51 percent of the voting rights. Tele2 has the right to appoint the CEO and all other management roles except for the CFO. Tele2 has concluded that Tele2 has the control over the jointly owned company as defined by IFRS and consequently the company is consolidated by Tele2. After three years Tele2 will under a put option be able to sell its 49 percent stake at fair value to Kazakhtelecom, which holds a symmetrical call option.

As part of the transaction Tele2 acquired Asianet's 49 percent stake in Tele2 Kazakhstan. The purchase price amounted to an initial payment of SEK 125 million and a deferred consideration equivalent to an 18 percent economic interest in the jointly owned company during a three year period. After three years Asianet has a put option on its 18 percent earn out interest and Tele2 has a symmetrical call option. The exercise price of the put and call options will be the fair market value of the 18 percent interest in the jointly owned company, where Asianet will receive, as deferred payment, the first KZT 8.4 billion (SEK 216 million) of any equity value attributable to a 49 percent stake. Therefore, the purchase agreement with Asianet means that Tele2's effective economic interest in the jointly owned company during the first three years will be 31 percent.

The financing of the jointly owned company has been provided with existing shareholder loans from Tele2 of KZT 97 billion (SEK 2.5 billion) and a pre-existing interest free subordinated loan of KZT 11.7 billion (SEK 300 million) from Kazakhtelecom with extended maturity to 2031. Future funding needs for the jointly owned company will be provided via bank debt guaranteed by Kazakhtelecom.

The current earn-out liability to the previous non-controlling shareholder Asianet on its pre-existing 49 percent stake in Tele2 Kazakhstan was on September 30, 2016 valued at fair value determined to be nil. For further information please refer to Note 4.

Altel is providing telecommunication services, including mobile services and internet services under the trademark ALTEL 4G in Kazakhstan. The business areas consist of prepaid mobile regular and mobile broadband. Total acquisition costs of SEK –130 million have been reported as operating costs in the income statement in 2016 by SEK –12 (–118) million.

Net assets at the time of acquisition

Assets, liabilities and contingent liabilities included in the acquired operations are stated below. The valuation of acquired assets and assumed liabilities is still preliminary.

SEK million	Altel Feb 29, 2016	Kombridge Aug 22, 2016
Patents and software	7	8
Licenses	148	–
Customer agreements	81	2
Trademarks	66	–
Tangible assets	658	–
Financial assets	14	–
Deferred tax assets	31	1
Inventories	37	–
Current receivables	153	2
Cash and cash equivalents	41	1
Non-current interest bearing liabilities	–55	–
Deferred tax liabilities	–29	–2
Current liabilities	–312	–2
Acquired net assets	840	10
Goodwill		26
Purchase price shares	840	36
Fair value of equity interest 51 percent in Khan Tengri Holding at acquisition	–840	–
Less: cash in acquired companies	–41	–1
Debt for additional purchase price	–	–26
NET CASH OUTFLOW (+)	–41	9

DIVESTMENTS

Procure IT Right, Sweden

On August 31, 2016 Tele2 sold its Swedish procurement consulting operation for a sales price of SEK 1 million. The sale resulted in a capital loss of SEK 4 million. The operation affected Tele2's net sales in 2016 by SEK 28 (36) million and EBITDA by 1 (1) million.

Net assets at the time of divestment

Assets, liabilities and contingent liabilities included in the divested operation at the time of divestment is stated below:

SEK million	Procure IT Right
Current receivables	12
Current non-interest-bearing liabilities	–7
Divested net assets	5
Capital loss	–4
TOTAL CASH FLOW EFFECT	1

EFFECTS FROM ACQUISITIONS AND DIVESTMENTS

The table below shows how the acquired and divested companies would have affected Tele2's net sales and result if they had been acquired and divested on January 1, 2016.

	Jan 1 – Sep 30, 2016
		Acquired operations		Divested operations	Tele2
SEK million	Tele2 Group	Altel, Kazakhstan	Kombridge, Sweden	Procure IT Right, Sweden	Group pro forma
Net sales	20,075	137	7	–28	20,191
EBITDA	3,875	6	–	–1	3,880
Net profit/loss	–1,987	–22	–	–	–2,009

DISCONTINUED OPERATIONS

Discontinued operations refer to provisions for Russian tax disputes related to the previously sold operations in Russia, with a negative effect on net profit of SEK 93 million. For further information regarding the Russian tax disputes please refer to Note 9.

NOTE 12 DEFINITIONS OF NON-IFRS MEASURES

Certain financial measures are presented in this interim report that are not defined by IFRS. It is the view of Tele2 that these measures give valuable additional information to investors and other readers of this report since they are used by management to manage and control the operating businesses. Definitions of these measures are mainly stated on the last page of the annual report 2015, with some clarification below.

• EBITDA margin EBITDA in relation to net sales excluding oneoff items
• One-off items definition is stated in Note 3
• Economic net debt definition and calculation are stated in Note 4
• Economic net debt to EBITDA (Leverage) EBITDA rolling 12 months including only Tele2's share (49 percent) of EBITDA in Kazakhstan
• Return on equity –Profit/loss after tax attributable to holders of the parent company annualized to 12 months calculated as year-to-date amount adjusted pro rata, but adjusted so material capital gain/losses from disposal of discontinued operations and material one-off items are only included once
• ROCE, return on capital employed EBIT and financial revenues annualized to 12 months calculated as year-to-date amount adjusted pro rata, but adjusted so material one-off items are only included once. Calculation is stated in Note 10
• Average interest rate Interest expense on loans (i.e. not including penalty interest etc) annualized to 12 months calculated as year-to-date amount adjusted pro rata, but adjusted so material one-off items are only included once. Average interest-bearing liabilities exclude provisions and debt related to equipment financing, balanced bank fees and adjusted for borrowings and amortizations during the period, and are calculated as an average of all the quarters' average
• Cash flow from operating activities per share Cash flow from operating activities in relation to the weighted average number of shares outstanding

As a result of the agreement with Kazakhtelecom, Tele2 introduced in Q1 2016 a new measure; economic net debt. Please refer to Note 4 for additional information.