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Telia Company

Quarterly Report Jul 20, 2017

2982_ir_2017-07-20_d3ae5615-555b-43bf-922c-b01ced6ace6d.pdf

Quarterly Report

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TELIA COMPANY INTERIM REPORT JANUARY-JUNE 2017

CASH FLOW EXECUTION AND COST SIDE ADDRESSED

Second quarter summary

  • As earlier announced former segment region Eurasia is reported as held for sale and discontinued operations.
  • Net sales in local currencies, excluding acquisitions and disposals, fell 0.4 percent. In reported currency, net sales fell 6.3 percent to SEK 19,801 million (21,130). Service revenues in local currencies, excluding acquisitions and disposals, fell 0.6 percent.
  • Adjusted EBITDA declined 3.3 percent in local currencies, excluding acquisitions and disposals. In reported currency, adjusted EBITDA, fell 4.6 percent to SEK 6,095 million (6,389). The adjusted EBITDA margin improved to 30.8 percent (30.2).
  • Adjusted operating income declined 16.7 percent to SEK 3,702 million (4,446).
  • Total net income attributable to the owners of the parent fell to SEK -397 million (1,439) and earnings per share to SEK -0.09 (0.33). Total net income fell to SEK -308 million (3,902).
  • Free cash flow, in continuing and discontinued operations, improved to SEK 2,772 million (1,698).
  • The operational free cash flow outlook for 2017 is improved from above SEK 7.0 billion to above SEK 7.5 billion.

First half summary

  • Net sales in local currencies, excluding acquisitions and disposals, increased 1.2 percent. In reported currency, net sales fell 6.0 percent to SEK 39,053 million (41,524). Service revenues in local currencies, excluding acquisitions and disposals, increased 0.4 percent.
  • Adjusted operating income declined 13.1 percent to SEK 7,507 million (8,644).
  • Total net income attributable to owners of the parent improved 26.6 percent to SEK 6,587 million (5,205) and earnings per share to SEK 1.52 (1.20). Total net income fell 12.5 percent to SEK 6,834 million (7,812).

Highlights

SEK in millions, except key ratios,
per share data and changes
Apr-Jun
2017
Apr-Jun
2016
Chg
%
Jan-Jun
2017
Jan-Jun
2016
Chg
%
Net sales 19,801 21,130 -6.3 39,053 41,524 -6.0
Change (%) local organic1 -0.4 1.2
of which service revenues (external) 17,077 18,075 -5.5 33,584 35,509 -5.4
change (%) local organic -0.6 0.4
Adjusted² EBITDA1 6,095 6,389 -4.6 12,244 12,606 -2.9
Change (%) local organic -3.3 -2.1
Margin (%) 30.8 30.2 31.4 30.4
Adjusted² operating income1 3,702 4,446 -16.7 7,507 8,644 -13.1
Operating income 2,268 4,100 -44.7 5,909 8,184 -27.8
Income after financial items 1,359 3,699 -63.3 4,473 7,219 -38.0
Net income from continuing operations 1,193 2,849 -58.1 3,739 5,754 -35.0
Net income from discontinued operations3 -1,501 1,052 3,095 2,058 50.4
Total net income -308 3,902 6,834 7,812 -12.5
of which attributable to owners of the parent -397 1,439 6,587 5,205 26.6
EPS total (SEK) -0.09 0.33 1.52 1.20 26.6
EPS from continuing operations (SEK) 0.27 0.65 -58.8 0.85 1.31 -35.4
Free cash flow1 2,772 1,698 63.2 6,859 3,991 71.9
of which from continuing operations 2,483 1,785 39.1 6,344 3,856 64.5
CAPEX1 excluding license and spectrum fees 4,718 3,773 25.0 7,706 6,837 12.7

1) See Note 15 for information on financial key ratios and/or page 46 for definitions. 2) Adjustment items; see Note 3. 3) Discontinued operations see Note 4.

COMMENTS BY JOHAN DENNELIND, PRESIDENT & CEO

"Dear shareholders and Telia followers, we are now half way through 2017 and have a better visibility on the full year results and our cash flow generation. Even if, frankly speaking, EBITDA in the quarter disappoints for Sweden, we reiterate our EBITDA outlook for the full year based on strong performance elsewhere, notably Norway, and the initiated cost activities that are coming through in second half of 2017. With our other operational free cash flow activities yielding well, we are now able to say that we will be above SEK 7.5 billion for the full year (previously above SEK 7.0 billion). Furthermore, I am very pleased that we managed to secure a dividend decision in Turkcell. Combined with MegaFon associated companies will contribute by around SEK 2.8 billion to our 2017 cash flow. All in all, this means that our free cash flow will be comfortably above SEK 10 billion 2017.

Let us talk more about costs. During the second quarter 2017 we have launched initiatives to reduce our cost base, just as we indicated in the first quarter. The main impact will be in Sweden where the operational expenses are still too high. We plan to reduce our total external and internal resources by roughly 850, around 3 percent of total resources. Of the resources reduced 650 are related to Sweden, equal to 8 percent of the Swedish resources. The initiatives are expected to impact costs already in the second half of 2017 by a reduction of approximately 5 percent in Sweden year on year. We have also initiated medium term structural initiatives that will drive further cost reductions supporting EBITDA in 2018 and 2019. This is expected to result in a reduction of the targeted cost base of at least 3 percent 2018. This is vital for a competitive Telia Company as we still see pressure on our legacy revenues and as anticipated falling one-off revenues from fiber. Our ambition is clear, we aim to grow our operational free cash flow every year in order to support a growing dividend over time.

It is becoming more difficult to deliver on the fiber demand still prevailing, even if our 1.9 million household target is intact for end 2018. We are still the leading and driving force in Sweden for this but we now start to reach the tail of the fiber roll out potential. We struggle with permit and intermediary related issues in connecting households to our fiber network. Some of the roll out challenge is also related to shifts in the market dynamics, which have led to longer delivery processes. Given that the second quarter is traditionally a quarter where many households are connected, these issues had a clear negative impact on revenues and profitability. This, combined with increased operational expenses, are the two main reasons why our EBITDA is declining 3 percent in the second quarter. The main risk on our EBITDA

guidance is related to the timing of connecting households to fiber and the related revenues in the fourth quarter.

Norway, yet another proof of our commitment to bring the best quality to our customer by being rewarded the best mobile network for the second consecutive year. We are pleased with the performance in Norway for the second quarter, delivering a continuous strong EBITDA growth, won one of two 900 MHz spectrums, closed the Phonero acquisition adding 246,000 subscriptions and will bear fruit with at least SEK 400 million in synergies in 2018.

In Finland we feel good about the momentum building after the rebranding to Telia, acquisition of Nebula and through the opportunities in creating a great consumer offering with the acquired rights to the Finnish hockey league. We expect Telia Finland to step up to its potential the coming years.

The second quarter of 2017 we increased our execution of the Nordic & Baltic strategy, mainly through M&A. On top of Nebula in Finland we acquired a small but leading Artificial Intelligence company, Humany in Sweden. Further on M&A we have received the needed approvals and finalized the divestment of Sergel. We have reduced

our direct ownership in Turkcell, as it has no impact on the overall solution for Turkcell Holding.

Regarding the divestment of the remaining operations in Eurasia there are progress being made in the process. We reiterate that our best estimate is that the assets will be disposed during 2017. We continue our discussions with the DoJ, SEC and the Dutch authorities about our resolution of their investigations and we are hopeful that we will be able to achieve it soon. We remain comfortable that our adjusted provision communicated in our first quarter report is our best estimate of the financial sanction we will be required to pay.

The strong cash flow and the divestments of and dividends from associated companies have strengthened the balance sheet. Our net debt to adjusted EBITDA is now at 1.36x. This is below our target of 2x (+/- 0.5x). If we add upcoming second tranche dividend of SEK 1 per share to be paid and associates' dividends to be received, known acquisitions as well as the provision for the fine related to Uzbekistan the pro forma number would be 1.8x.

We keep on shaping the new Telia in the Nordics and Baltics, while we work relentlessly to ensure a balanced exit from Eurasia in order to fully focus on the next phase of Telia Company."

Johan Dennelind President and CEO

OUTLOOK FOR 2017 (CHANGED)

Free cash flow from continuing operations, excluding licenses and dividends from associated companies, is expected to be above SEK 7.5 billion. This operational free cash flow together with decided dividends from associated companies of SEK 2.8 billion should be above SEK 10 billion and should cover a dividend around the 2016 level.

(Changed from previously: Free cash flow from continuing operations, excluding licenses and dividends from

DIVIDEND POLICY

Telia Company intends to distribute a minimum of 80 percent of free cash flow from continuing operations, excluding licenses. The dividend should be split and distributed in two equal tranches.

The company targets a leverage corresponding to

Net debt/adjusted EBITDA of 2x plus/minus 0.5x.

associated companies, is expected to be above SEK 7.0 billion. This operational free cash flow together with dividends from associates should cover a dividend around

Adjusted EBITDA in continuing operations in local currencies, excluding acquisitions and disposals, is expected to be around the 2016 level. (Unchanged)

the 2016 level.)

The company shall continue to target a solid investment grade long-term credit rating (A- to BBB+).

REVIEW OF THE GROUP, SECOND QUARTER 2017

Sales and earnings

Net sales in local currencies, excluding acquisitions and disposals, fell 0.4 percent. In reported currency, net sales fell 6.3 percent to SEK 19,801 million (21,130). The effect of exchange rate fluctuations was positive by 2.0 percent and the effect of acquisitions and disposals was negative by 7.9 percent. Service revenues in local currencies, excluding acquisitions and disposals, fell 0.6 percent.

The number of subscriptions decreased from 26.7 million from the end of the second quarter of 2016 to 23.4 million. During the quarter, the total number of subscriptions increased by 0.2 million to 23.4 million.

Adjusted EBITDA declined 3.3 percent in local currencies, excluding acquisitions and disposals. In reported currency, adjusted EBITDA fell 4.6 percent to SEK 6,095 million (6,389). The adjusted EBITDA margin improved to 30.8 percent (30.2).

Income from associated companies and joint ventures dropped to SEK -1,258 million (896), due to a capital loss related to the disposal of shares in Turkcell.

Adjusted operating income decreased 16.7 percent to SEK 3,702 million (4,446).

Adjustment items affecting operating income totaled SEK -1,434 million (-345) and was mainly related to a capital loss from divestment of shares in Turkcell and a write-down of plant and machinery and capitalized development expenses partly offset by a capital gain from the Sergel divestment. See Note 3 for further information.

Financial items totaled SEK -909 million (-402) of which SEK -880 million (-426) related to net interest expenses. The increase was related to bond buy-back transactions affecting net interest expenses of SEK -360 million.

Income taxes decreased to SEK -166 million (-849). The effective tax rate was 12.2 percent (23.0). The decrease is related to revaluation of the withholding tax provision as a consequence of the disposal of shares in Turkcell and non-taxable capital gain related to the disposal of Sergel. This decrease is partly offset by non-deductible losses from associated companies.

Net income from discontinued operations decreased to SEK -1,501 million (1,052) mainly due to an impairment loss related to Ucell, a write-down related to Rodnik and a capital loss of the divestment of Tcell. See Note 4 for further information.

Total net income fell to SEK -308 million (3,902), of which SEK 1,193 million (2,849) in continuing operations and SEK -1,501 million (1,052) in discontinued operations. Total earnings per share was SEK -0.09 (0.33).

Total net income attributable to non-controlling interests dropped to SEK 89 million (2,463) mainly affected by the divestment of Ncell in Nepal.

Other comprehensive income declined to SEK 2,432 million (2,729) mainly due to negative exchange rate effects partly offset by negative remeasurements on pension obligations in 2016.

Cash flow

Free cash flow, in continuing and discontinued operations increased to SEK 2,772 million (1,698) mainly due to received dividends from associated companies and lower paid taxes.

Operational free cash flow, in continuing operations increased to SEK 2,138 million (1,647) due to lower paid taxes and lower cash CAPEX.

Cash flow from investing activities, in continuing and discontinued operations decreased to SEK -2,826 million (4,726) mainly due to the acquisition of Phonero offset by the reduced ownership in Turkcell and divestment of Sergel. The comparative period was affected by the divestment of Ncell in Nepal.

Cash flow from financing activities, in continuing and discontinued operations increased to SEK 5,449 million (-9,298) mainly due to the issued hybrid capital, offset by buy-backs of outstanding Telia Company bonds.

Total cash flow, in continuing and discontinued operations increased to SEK 10,213 million (1,791).

Financial position

CAPEX increased to SEK 5,180 million (3,773) and the CAPEX-to-service revenue ratio to 30.3 percent (20.9). CAPEX excluding license and spectrum fees increased to SEK 4,718 million (3,773) and the CAPEX-to-service revenue ratio, excluding license and spectrum fees increased to 27.6 percent (20.9). CAPEX includes the acquired rights for the ice hockey league in Finland of SEK 1.1 billion, but the cash flow effect will not start until the second half of 2018. The agreement stretches over six years.

Net debt, in continuing and discontinued operations, was SEK 40,833 million at the end of the second quarter (47,890 at the end of the first quarter of 2017). The decrease is mainly related to the issue of hybrid capital. The net debt/adjusted EBITDA ratio was 1.36x (1.58x at the end of the first quarter of 2017).

REVIEW OF THE GROUP, FIRST HALF 2017

Sales and earnings

Net sales in local currencies, excluding acquisitions and disposals, increased 1.2 percent. In reported currency, net sales fell 6.0 percent to SEK 39,053 million (41,524). The effect of exchange rate fluctuations was positive by 1.8 percent and the effect of acquisitions and disposals was negative by 9.0 percent. Service revenues in local currencies, excluding acquisitions and disposals, increased 0.4 percent.

Adjusted EBITDA decreased 2.1 percent in local currencies, excluding acquisitions and disposals. In reported currency, adjusted EBITDA decreased 2.9 percent to SEK 12,244 million (12,606). The adjusted EBITDA margin improved to 31.4 percent (30.4).

Income from associated companies and joint ventures fell to SEK -697 million (1,642), mainly due to a capital loss related to the disposal of shares in Turkcell.

Adjusted operating income declined 13.1 percent to SEK 7,507 million (8,644).

Adjustment items affecting operating income totaled SEK -1,598 million (-459) and was mainly related to a capital loss from divestment of shares in Turkcell and a write-down of plant and machinery and capitalized development expenses partly offset by a capital gain from the Sergel divestment. See Note 3 for further information.

Financial items totaled SEK -1,436 million (-966) of which SEK -1,385 million (-999) related to net interest expenses. The increase is related to bond buy-back transactions affecting net interest expenses of SEK -360 million.

Income taxes decreased to SEK -734 million (-1,464). The effective tax rate was 16.4 percent (20.3). The decrease is related to revaluation of the withholding tax provision as a consequence of the disposal of shares in Turkcell and non-taxable capital gain related to the disposal of Sergel. This decrease is partly offset by non-deductible losses from associated companies.

Net income from discontinued operations increased to SEK 3,095 million (2,058) mainly impacted by the adjustment of the provision for the settlement amount proposed by the US and Dutch authorities in the first quarter offset by an impairment loss related to Ucell, a writedown related to Rodnik and a capital loss of the divestment of Tcell in the second quarter. See Note 4 for further information.

Total net income decreased to SEK 6,834 million (7,812), of which SEK 3,739 million (5,754) in continuing operations and SEK 3,095 million (2,058) in discontinued operations. Total earnings per share was SEK 1.52 (1.20).

Total net income attributable to non-controlling interests dropped to SEK 248 million (2,607). The comparison period was mainly affected by the divestment of Ncell in Nepal.

Other comprehensive income increased to SEK 1,008 million (668) mainly due to lower negative remeasurements on pension obligations in 2017 partly offset by negative exchange effects in 2017.

Cash flow

Free cash flow, in continuing and discontinued operations, increased to SEK 6,859 million (3,991) mainly due to received dividends from associated companies, positive change from working capital and lower paid taxes.

Operational free cash flow, in continuing operations increased to SEK 6,075 million (3,737) due to lower paid taxes, lower cash CAPEX as well as positive change in working capital.

Cash flow from investing activities, in continuing and discontinued operations decreased to SEK -6,239 million (1,568) mainly due to the acquisition of Phonero offset by the reduced ownership in Turkcell and divestment of Sergel. 2016 was affected by the divestment of Ncell in Nepal.

Cash flow from financing activities, in continuing and discontinued operations increased to SEK -4,306 million (-12,666) mainly due to the issued hybrid capital and lower dividend paid in 2017, offset by buy-back of outstanding Telia Company bonds.

Total cash flow, in continuing and discontinued operations increased to SEK 4,555 million (1,742).

Financial position

Investments in associates were mainly affected by the reduced ownership of Turkcell with positive impact on Cash and cash equivalents, which was offset, among other things, by the acquisition of Phonero also affecting Goodwill and intangible assets.

Long-term borrowings increased mainly due to the issue of hybrid capital. In connection with the issue buy-

backs of outstanding Telia Company bonds had an adverse effect giving a net increase in long-term borrowings.

Short-term borrowings were reduced by maturing short-term debt.

Short-term provisions decreased during the first quarter mainly due to the adjustment of the provision for the settlement amount proposed by the US and Dutch authorities. In the second quarter, the decrease was offset by increase in Other current liabilities due to dividend liability pay-out being split and distributed in two equal tranches.

CAPEX rose to SEK 8,168 million (6,970) and the CAPEX-to-service revenue ratio to 24.3 percent (22.3). CAPEX excluding license and spectrum fees rose to SEK 7,706 million (6,837) and the CAPEX-to-service revenue ratio, excluding license and spectrum fees was flat at 19.6 percent (19.6). CAPEX includes the acquired rights for the ice hockey league in Finland of SEK 1.1 billion, but the cash flow effect will not start until the second half of 2018. The agreement stretches over six years.

Significant events in the first quarter

  • On March 29, 2017, Telia Company announced that it had issued hybrid bonds in three separate tranches in EUR and SEK with a total amount of around SEK 15 billion. The hybrid was recognized at the beginning of April 2017.
  • Resolution of the various investigations relating to Telia Company's entry into Uzbekistan 2007 is complex, but constructive discussions with the government agencies involved in the investigations have continued with good progress during 2017. A final resolution has not yet been reached, but in light of recent developments to date in those discussions, the estimate of the most likely outcome has been revised and the provision for settlement amount proposed by the US and Dutch authorities was adjusted to USD 1.0 billion (SEK 8.9 billion) per March 31, 2017. See Note 4.

Significant events in the second quarter

  • On April 3, 2017, Telia Company announced that the Norwegian competition authority had approved Telia Company's acquisition of Phonero and the transaction closed on April 10, 2017. See Note 14.
  • On April 3, 2017, Telia Company announced that the agreement for sale of Tcell in Tajikistan was no longer valid since the Anti-Monopoly Service in Tajikistan did not reply by the stipulated deadline. The carrying value of the operations in Tajikistan was adjusted to zero resulting in an impairment loss of SEK 222 million in the first quarter of 2017. In April 2017, Telia Company signed a new agreement with AKFED and finalized the divestment of the Tajik operations. The capital loss before reclassification of accumulated negative foreign exchange differences to net income was SEK 0.0 billion. The transaction had no material cash flow effect. See Note 4.
  • On April 5, 2017, Telia Company held its Annual General Meeting and announced that the ordinary members of the Board Susanna Campbell, Marie Ehrling, Olli-Pekka Kallasvuo, Mikko Kosonen, Nina Linander, Martin Lorentzon, Anna Settman and Olaf Swantee were re-elected members to the Board. Marie Ehrling was elected Chair of the Board and Olli-Pekka Kallasvuo was elected Vice-Chair of the Board. The Annual General Meeting also decided upon a dividend to shareholders of SEK 2.00 per share and that the payment should be distributed in two equal tranches of SEK 1.00 each to be paid in April and October, respectively.
  • On May 4, 2017, Telia Company announced the result of placing of shares sale in Turkcell Iletism Hizmetleri A.S. (Turkcell) to institutional investors by way of an accelerated book building process. Telia Company sold an aggregate of 155 million ordinary shares in Turkcell at a price of TRY 11.45 per ordinary share,

raising gross proceeds of TRY 1,775 million (equivalent to SEK 4,426 million).

  • In June 2016, Telia Company announced the divestment of Sergel Group to Marginalen and has since then been reviewed by relevant regulatory authorities, with the final approval granted on June 14, 2017, and the transaction was closed on June 30, 2017. See Note 4.
  • On May 22, 2017, Telia Company announced that it had signed an agreement to acquire the Finnish ICT service company Nebula. On June 8, 2017, it was approved by the authorities and the transaction was closed on July 3, 2017. See Note 14.

Significant events after the end of the second quarter

• On July 14, 2017, Telia Company announced that the Interim Report January-June will include significant items that in total will have a negative impact of SEK 1.3 billion on Operating income in continuing operations and a negative impact of SEK 2.0 billion on Net income in discontinued operations in the second quarter of 2017. The cash flow effect is SEK 6.3 billion for continuing operations while there is no cash flow effect within discontinued operation.

PRESSURE ON EBITDA IN SWEDEN

  • The demand for fiber remained strong in the quarter but permit and other intermediary related issues continued to hamper the roll-out pace. In total 45,000 new fiber households were connected in the quarter of which 12,000 single home campaigns (22,000). The lower number of single home campaigns resulted in declining installation revenues of SEK 164 million compared to the corresponding quarter last year.
  • Telia continued to work actively with strengthening the presence in the city networks and approximately 25,000 additional households got access to Telia's services via the city network of Jönköping in the quarter.

Highlights

SEK in millions, except margins,
operational data and changes
Apr-Jun
2017
Apr-Jun
2016
Chg
(%)
Jan-Jun
2017
Jan-Jun
2016
Chg
(%)
Net sales 9,079 9,260 -2.0 18,153 18,095 0.3
Change (%) local organic -2.1 0.2
of which service revenues (external) 7,826 8,028 -2.5 15,559 15,772 -1.4
change (%) local organic -2.7 -1.5
Adjusted EBITDA 3,268 3,509 -6.9 6,628 7,098 -6.6
Margin (%) 36.0 37.9 36.5 39.2
change (%) local organic -7.0 -6.7
Adjusted operating income 1,992 2,326 -14.4 4,086 4,752 -14.0
Operating income 1,990 2,143 -7.1 4,051 4,656 -13.0
CAPEX excluding license and spectrum fees 1,636 1,728 -5.4 3,022 3,055 -1.1
% of service revenues 20.9 21.5 19.4 19.4
Adjusted EBITDA - CAPEX 1,632 1,781 -8.3 3,606 4,043 -10.8
Subscriptions, (thousands)
Mobile 6,133 5,992 2.4 6,133 5,992 2.4
of which machine to machine (postpaid) 893 787 13.5 893 787 13.5
Fixed telephony 1,551 1,804 -14.0 1,551 1,804 -14.0
Broadband 1,293 1,303 -0.8 1,293 1,303 -0.8
TV 779 747 4.3 779 747 4.3
Employees 6,763 6,758 0.1 6,763 6,758 0.1

Net sales declined 2.0 percent to SEK 9,079 million (9,260) and excluding acquisitions and disposals net sales declined 2.1 percent due to lower fixed service revenues.

Service revenues declined 2.5 percent and excluding acquisitions and disposals, service revenues declined 2.7 percent as growth in broadband and TV revenues was more than offset by lower revenues from traditional fixed telephony and fiber installation revenues. The latter due to permit and other intermediary related issues. Mobile service revenue growth was fairly flat, as growth of 1.9 percent in the consumer segment was almost fully offset by mainly a drop in wholesale revenues.

Adjusted EBITDA fell 6.9 percent to SEK 3,268 million (3,509). The adjusted EBITDA margin deteriorated to 36.0 percent (37.9), from erosion of high margin legacy revenues, lower fiber installation revenues and increased operating expenses.

CAPEX decreased to SEK 1,636 million (1,728) and CAPEX, excluding licenses and spectrum fees decreased to SEK 1,636 million (1,728).

The number of mobile subscriptions grew by 77,000 of which 31,000 to be used for machine-to-machine services and fixed broadband subscriptions fell by 1,000 in the quarter. The number of TV subscriptions increased by 10,000 in the quarter, largely driven by the acquisition of C-Sam.

REVENUES GREW IN FINLAND

  • Telia acquired the rights for the ice hockey league in Finland. The agreement stretches over a period of six years, starting at the 2018-2019 season.
  • An agreement was signed to acquire the cloud service provider Nebula at an enterprise value of EUR 165 million on a cash and debt free basis. The transaction will strengthen Telia's proposition, ensure a competitive position in the SME and SoHo segments as well as generate synergies over time. The transaction closed in July 2017.

Highlights

SEK in millions, except margins,
operational data and changes
Apr-Jun
2017
Apr-Jun
2016
Chg
(%)
Jan-Jun
2017
Jan-Jun
2016
Chg
(%)
Net sales 3,339 3,149 6.0 6,611 6,312 4.7
Change (%) local organic 1.5 1.5
of which service revenues (external) 2,913 2,739 6.4 5,750 5,479 4.9
change (%) local organic 1.8 1.7
Adjusted EBITDA 1,038 987 5.1 2,012 2,003 0.4
Margin (%) 31.1 31.4 30.4 31.7
change (%) local organic 0.8 -2.6
Adjusted operating income 512 512 0.0 980 1,045 -6.2
Operating income 501 517 -3.1 917 1,014 -9.6
CAPEX excluding license and spectrum fees 1,708 506 2,071 868 138.6
% of service revenues 58.6 18.5 36.0 15.8
Adjusted EBITDA - CAPEX -670 481 -59 1,135
Subscriptions, (thousands)
Mobile 3,233 3,297 -1.9 3,233 3,297 -1.9
of which machine to machine (postpaid) 188 196 -3.9 188 196 -3.9
Fixed telephony 57 72 -20.8 57 72 -20.8
Broadband 479 509 -5.9 479 509 -5.9
TV 483 485 -0.4 483 485 -0.4
Employees 3,152 3,195 -1.3 3,152 3,195 -1.3

Net sales in reported currency grew 6.0 percent to SEK 3,339 million (3,149) and in local currency excluding acquisitions and disposals net sales grew 1.5 percent. The effect of exchange rate fluctuations was 4.5 percent.

Service revenues in local currency, excluding acquisitions and disposals rose 1.8 percent as a 4.9 percent growth in mobile service revenues more than compensated for lower fixed service revenues from a continued pressure on traditional fixed telephony and fixed broadband service revenues.

Adjusted EBITDA in reported currency rose 5.1 percent to SEK 1,038 million (987). The adjusted EBITDA margin declined to 31.1 percent (31.4).

CAPEX increased to SEK 1,708 million (506) driven by the acquisition of ice hockey rights of SEK 1.1 billion and CAPEX excluding licenses and spectrum fees increased to SEK 1,708 million (506).

The number of mobile subscriptions declined by 23,000 and the number of TV and fixed broadband subscriptions declined by 3,000 and 8,000, respectively, in the quarter.

HIGHER PROFITABILITY IN NORWAY

  • For the second consecutive year, an independent test of mobile coverage in Norway concluded that Telia still has the best mobile network which currently provides 4G coverage to almost 98 percent of the population.
  • Telia won one of the two 900 MHz spectrums at the auction in the quarter at a price of SEK 0.4 billion. The spectrum will secure a continued high network quality as well as being an important part in the future build-out of 5G.

Highlights

SEK in millions, except margins,
operational data and changes
Apr-Jun
2017
Apr-Jun
2016
Chg
(%)
Jan-Jun
2017
Jan-Jun
2016
Chg
(%)
Net sales 2,577 2,162 19.2 4,865 4,196 16.0
Change (%) local organic 3.2 3.6
of which service revenues (external) 2,186 1,807 21.0 4,151 3,530 17.6
change (%) local organic 3.1 4.2
Adjusted EBITDA 879 705 24.8 1,747 1,370 27.6
Margin (%) 34.1 32.6 35.9 32.6
change (%) local organic 12.9 16.7
Adjusted operating income 488 361 35.1 983 715 37.4
Operating income 416 352 18.2 894 687 30.1
CAPEX excluding license and spectrum fees 220 347 -36.5 464 651 -28.7
% of service revenues 10.1 19.2 11.2 18.4
Adjusted EBITDA - CAPEX 247 358 -31.0 871 719 21.2
Subscriptions, (thousands)
Mobile 2,441 2,272 7.4 2,441 2,272 7.4
of which machine to machine (postpaid) 78 47 67.3 78 47 67.3
Employees 1,179 1,071 10.1 1,179 1,071 10.1

Net sales in reported currency increased 19.2 percent to SEK 2,577 million (2,162) largely driven by consolidation of the acquired Phonero business. In local currency excluding acquisitions and disposals net sales increased 3.2 percent. The effect of exchange rate fluctuations was positive by 4.5 percent and the impact from acquisitions and disposals was positive by 11.5 percent.

Service revenues in local currency, excluding acquisitions and disposals rose 3.1 percent due to strong growth in wholesale revenues. Billed service revenues declined 0.8 percent following subscription base erosion that was not fully compensated for by higher ARPU.

Adjusted EBITDA in reported currency grew 24.8 percent to SEK 879 million (705) as organic EBITDA growth of 12.9 percent was amplified by the consolidation of the acquired Phonero business. The organic EBITDA growth was driven by revenue growth and good cost control. The adjusted EBITDA margin rose to 34.1 percent (32.6). In local currency, excluding acquisitions and disposals adjusted EBITDA rose 12.9 percent.

CAPEX increased to SEK 632 million (347) and CAPEX excluding licenses and spectrum fees, declined to SEK 220 million (347).

The number of mobile subscriptions increased by 263,000 in the quarter of which 246,000 subscriptions came from the Phonero acquisition.

LOWER EBITDA IN DENMARK

  • The marketing functions of Telia enterprise, Telia consumer and Call Me were merged, forming a stronger unit that also will work with communication, digital as well as in social media.
  • The smart car application Telia Sense was launched making Telia a proper part of the growing ecosystem of connected vehicles.

Highlights

SEK in millions, except margins,
operational data and changes
Apr-Jun
2017
Apr-Jun
2016
Chg
(%)
Jan-Jun
2017
Jan-Jun
2016
Chg
(%)
Net sales 1,443 1,419 1.7 2,923 2,816 3.8
Change (%) local organic -2.7 0.4
of which service revenues (external) 1,079 1,049 2.8 2,141 2,074 3.2
change (%) local organic -1.5 -0.1
Adjusted EBITDA 153 159 -3.7 293 296 -0.7
Margin (%) 10.6 11.2 10.0 10.5
change (%) local organic -7.7 -4.0
Adjusted operating income -35 -23 -79 -62
Operating income -46 -27 -92 -91
CAPEX excluding license and spectrum fees 84 91 -7.0 199 191 3.8
% of service revenues 7.8 8.6 9.3 9.2
Adjusted EBITDA - CAPEX 69 68 0.7 95 104 -9.1
Subscriptions, (thousands)
Mobile 1,482 1,640 -9.6 1,482 1,640 -9.6
of which machine to machine (postpaid) 46 37 24.0 46 37 24.0
Fixed telephony 96 109 -11.9 96 109 -11.9
Broadband 123 131 -6.1 123 131 -6.1
TV 33 28 3.6 33 28 3.6
Employees 1,074 1,069 0.5 1,074 1,069 0.5

Net sales in reported currency increased 1.7 percent to SEK 1,443 million (1,419). In local currency excluding acquisitions and disposals net sales fell 2.7 percent. The effect of exchange rate fluctuations was positive by 4.3 percent.

Service revenues in local currency, excluding acquisitions and disposals declined 1.5 percent due to a flat development in mobile revenues and a continued pressure on traditional fixed telephony revenues. Mobile billed service revenues decreased 1.2 percent mainly attributable to loss of subscriptions.

Adjusted EBITDA in reported currency fell 3.7 percent to SEK 153 million (159). The adjusted EBITDA margin, declined to 10.6 percent (11.2). In local currency, adjusted EBITDA declined 7.7 percent mainly driven by higher operating expenses.

CAPEX declined to SEK 84 million (91) and CAPEX excluding licenses and spectrum fees declined to SEK 84 million (91).

The number of mobile subscriptions declined by 96,000 in the quarter mainly due to the removal of all existing prepaid subscriptions following cancellation of the prepaid subscription service. The number of fixed broadband subscriptions declined by 3,000 and TV subscriptions grew by 5,000 in the quarter.

STRONG REVENUE GROWTH IN LITHUANIA

• Telia (formerly Omnitel) was the first company in the Baltics and one of the first companies in the world to implement 4.5G. Since the launch in the capital Vilnius in early 2016 4.5G has continued to be rolled-out and is now available in the five largest cities in Lithuania.

Highlights

SEK in millions, except margins,
operational data and changes
Apr-Jun
2017
Apr-Jun
2016
Chg
(%)
Jan-Jun
2017
Jan-Jun
2016
Chg
(%)
Net sales 910 774 17.6 1,718 1,544 11.3
Change (%) local organic 12.7 7.9
of which service revenues (external) 765 646 18.4 1,435 1,299 10.5
change (%) local organic 13.5 7.0
Adjusted EBITDA 292 281 4.2 576 558 3.3
Margin (%) 32.1 36.3 33.5 36.1
change (%) local organic -0.2 0.1
Adjusted operating income 171 149 15.1 298 294 1.2
Operating income 160 138 15.7 278 269 3.2
CAPEX excluding license and spectrum fees 119 106 12.2 235 181 29.3
% of service revenues 15.6 16.4 16.4 14.0
Adjusted EBITDA - CAPEX 173 175 -0.9 341 243 40.2
Subscriptions, (thousands)
Mobile 1,328 1,318 0.7 1,328 1,318 0.7
of which machine to machine (postpaid) 129 82 57.9 129 82 57.9
Fixed telephony 395 434 -9.0 395 434 -9.0
Broadband 405 396 2.3 405 396 2.3
TV 234 222 5.4 234 222 5.4
Employees 3,034 3,024 0.3 3,034 3,024 0.3

Net sales in reported currency rose 17.6 percent to SEK 910 million (774) and in local currency excluding acquisitions and disposals net sales grew 12.7 percent. The effect of exchange rate fluctuations was 4.9 percent.

Service revenues in local currency, excluding acquisitions and disposals grew 13.5 percent from significant increase in low-margin transit service revenues. Mobile service revenues grew by 4.8 percent following a positive subscription-base mix development and upsell generating a higher ARPU.

Adjusted EBITDA in reported currency increased 4.2 percent to SEK 292 million (281). The adjusted EBITDA margin fell to 32.1 percent (36.3) as a result of significant increased low margin transit revenues. In local currency, excluding acquisitions and disposals, adjusted EBITDA declined 0.2 percent.

CAPEX increased to SEK 119 million (106) and CAPEX excluding licenses and spectrum fees increased to SEK 119 million (106).

The number of mobile subscriptions declined by 19,000 whilst the number of fixed broadband and TV subscriptions grew by 2,000 and 3,000, respectively, in the quarter.

STABLE DEVELOPMENT IN ESTONIA

• A project of installing mobile connectivity in Estonia Mine, the largest underground oil shale mine in the world, was finalized in the quarter. Mobile coverage is now available in almost 40 km of the tunnels and connection will be available and remain active even when the mine will be expanded.

Highlights

SEK in millions, except margins,
operational data and changes
Apr-Jun
2017
Apr-Jun
2016
Chg
(%)
Jan-Jun
2017
Jan-Jun
2016
Chg
(%)
Net sales 683 669 2.2 1,344 1,313 2.3
Change (%) local organic -2.1 -0.8
of which service revenues (external) 539 514 4.8 1,072 1,026 4.5
change (%) local organic 0.4 1.3
Adjusted EBITDA 216 205 5.4 422 386 9.2
Margin (%) 31.6 30.6 31.4 29.4
change (%) local organic 1.0 5.9
Adjusted operating income 86 83 4.1 166 144 15.6
Operating income 85 75 13.2 163 131 24.4
CAPEX excluding license and spectrum fees 119 87 37.4 217 153 41.7
% of service revenues 22.0 16.8 20.2 14.9
Adjusted EBITDA - CAPEX 47 118 -60.2 155 233 -33.6
Subscriptions, (thousands)
Mobile 918 888 3.4 918 888 3.4
of which machine to machine (postpaid) 212 177 19.9 212 177 19.9
Fixed telephony 290 299 -3.0 290 299 -3.0
Broadband 233 231 0.9 233 231 0.9
TV 177 175 1.1 177 175 1.1
Employees 1,920 2,037 -5.7 1,920 2,037 -5.7

Net sales in reported currency increased 2.2 percent to SEK 683 million (669) and in local currency excluding acquisitions and disposals net sales declined 2.1 percent. The effect of exchange rate fluctuations was positive by 4.3 percent.

Service revenues in local currency, excluding acquisitions and disposals rose 0.4 percent as growth in mobile billed service revenues compensated for lower revenues from traditional fixed telephony as well as from the sales of travel products.

Adjusted EBITDA in reported currency increased 5.4 percent to SEK 216 million (205). The adjusted EBITDA margin grew to 31.6 percent (30.6) supported by higher mobile service revenues. In local currency, excluding acquisitions and disposals, adjusted EBITDA increased 1.0 percent.

CAPEX increased to SEK 169 million (87) and CAPEX excluding licenses and spectrum fees increased to SEK 119 million (87).

The number of mobile subscription increased by 17,000 and the number of fixed broadband subscriptions increased by 1,000 in the quarter. TV subscriptions remained unchanged in the quarter.

OTHER OPERATIONS

Highlights

SEK in millions, except margins,
operational data and changes
Apr-Jun
2017
Apr-Jun
2016
Chg
(%)
Jan-Jun
2017
Jan-Jun
2016
Chg
(%)
Net sales 2,334 4,230 -44.8 4,569 8,365 -45.4
Change (%) local organic -1.6 1.1
of which Telia Carrier 1,487 1,572 -5.4 2,921 2,988 -2.2
of which Latvia 480 418 15.0 928 830 11.8
of which Spain 0 1,951 0 3,986
Adjusted EBITDA 248 543 -54.2 566 896 -36.8
of which Telia Carrier 120 125 -4.2 250 235 6.4
of which Latvia 151 135 11.7 294 270 8.7
of which Spain 0 262 0 381
Margin (%) 10.6 12.8 12.4 10.7
Income from associated companies -1,263 896 -699 1,639
of which Russia 152 269 -43.5 267 453 -41.1
of which Turkey -1,451 603 -1,027 1,137
of which Latvia 29 29 1.5 56 55 2.5
Adjusted operating income 487 1,038 -53.1 1,073 1,755 -38.9
Operating income -837 903 -301 1,518
CAPEX 831 909 -8.6 1,499 1,737 -13.7
Subscriptions, (thousands)
Mobile Latvia 1,224 1,123 9.1 1,224 1,123 9.1
of which machine to machine (postpaid) 277 158 75.4 277 158 75.4
Mobile Spain 3,261 3,261
Employees 4,271 4,305 -0.8 4,271 4,305 -0.8

Net sales in reported currency fell 44.8 percent to SEK 2,334 million (4,230) mainly due to the divestment of Yoigo in Spain in the fourth quarter of 2016. In local currency excluding acquisitions and disposals net sales declined 1.6 percent. The effect of exchange rate fluctuations was positive by 1.7 percent and the effect from acquisitions and disposals was negative by 44.9 percent.

Adjusted EBITDA fell 54.2 percent to SEK 248 million (543) due to the divestment of Yoigo in Spain in the fourth quarter of 2016. The adjusted EBITDA margin declined to 10.6 percent (12.8).

In Telia Carrier, net sales in reported currency declined 5.4 percent to SEK 1,487 million (1,572) and adjusted EBITDA in reported currency, fell to SEK 120 million (125).

In Latvia, net sales in reported currency grew 15.0 percent to SEK 480 million (418) driven by both increased sales of mobile equipment and growth in mobile billed service revenues. The effect of exchange rate fluctuations was positive by 4.8 percent. Adjusted EBITDA in reported currency, increased to SEK 151 million (135) mainly as a result of growth in service revenues.

Income from associated companies was negative by SEK 1,263 million (896) driven by a capital loss of SEK 1.8 billion from the sales of shares in Turkcell in the quarter.

The decrease in adjusted operating income is related to lower EBITDA and lower contribution from associated companies. In addition to this operating income includes capital gain from Sergel divestment, capital loss from divestment of shares in Turkcell and write-down of plant and machinery and capitalized development expenses.

The number of mobile subscriptions in Latvia grew by 24,000 in the quarter mainly due to a 23,000 net addition of postpaid subscriptions used for machine-to-machine services.

DISCONTINUED OPERATIONS

  • The operation in Tajikistan was divested in the quarter to the minority shareholder Aga Khan Fund for Economic Development.
  • The improved operational trend in the former segment region Eurasia continued and adjusted EBITDA grew by 6.2 percent in local currencies.

Highlights

SEK in millions, except margins, operational
data and changes
Apr-Jun
2017
Apr-Jun
2016
Chg
(%)
Jan-Jun
2017
Jan-Jun
2016
Chg
(%)
Net sales (external) 3,052 3,336 -8.5 6,138 7,133 -13.9
Adjusted EBITDA 1,133 1,393 -18.7 2,318 3,168 -26.8
Margin (%) 37.1 41.8 37.8 44.4
CAPEX 725 820 -11.6 1,029 1,695 -39.3
CAPEX excluding license and spectrum fees 725 809 -10.5 1,029 1,067 -3.6

Former segment region Eurasia is classified as held for sale and discontinued operations since December 31, 2015. Consequently, highlights for region Eurasia are presented in a condensed format. For more information on discontinued operations, see Note 4.

Net sales declined 8.5 percent in reported currency to SEK 3,052 million (3,336), to some extent due to FX headwind, although mainly from the divestment of Ncell in Nepal in the second quarter of 2016 and the divestment of Tcell in Tajikistan from the second quarter of 2017.

Adjusted EBITDA fell to SEK 1,133 million (1,393). The adjusted EBITDA margin dropped to 37.1 percent (41.8), mainly due to the divestment of Ncell in Nepal in the second quarter of 2016.

CAPEX decreased to SEK 725 million (820). CAPEX, excluding license and spectrum fees decreased to SEK 725 million (809).

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

SEK in millions, except per share data and number of
shares
Note Apr-Jun
2017
Apr-Jun
2016
Jan-Jun
2017
Jan-Jun
2016
Continuing operations
Net sales 5 19,801 21,130 39,053 41,524
Cost of sales -12,516 -12,666 -24,070 -24,813
Gross profit 7,285 8,465 14,982 16,711
Selling, administration and R&D expenses -4,883 -5,012 -9,417 -9,876
Other operating income and expenses, net 1,124 -248 1,040 -292
Income from associated companies and joint ventures -1,258 896 -697 1,642
Operating income 5 2,268 4,100 5,909 8,184
Financial items, net -909 -402 -1,436 -966
Income after financial items 1,359 3,699 4,473 7,219
Income taxes -166 -849 -734 -1,464
Net income from continuing operations 1,193 2,849 3,739 5,754
Discontinued operations
Net income from discontinued operations 4 -1,501 1,052 3,095 2,058
Total net income -308 3,902 6,834 7,812
Items that may be reclassified to net income:
Foreign currency translation differences from continuing opera
tions
3,308 1,756 2,487 1,738
Foreign currency translation differences from discontinued oper
ations
-1,010 1,097 -1,334 281
Other comprehensive income from associated companies and
joint ventures
-25 -73 173 -307
Cash flow hedges -127 -228 -219 -174
Available-for-sale financial instruments 120 60 13 143
Income taxes relating to items that may be reclassified 136 280 59 492
Items that will not be reclassified to net income:
Remeasurements of defined benefit pension plans 28 -217 -198 -1,907
Income taxes relating to items that will not be reclassified 0 54 52 420
Associates remeasurements of defined benefit pension plans 2 -1 -26 -19
Other comprehensive income 2,432 2,729 1,008 668
Total comprehensive income 2,124 6,630 7,842 8,480
Total net income attributable to:
Owners of the parent -397 1,439 6,587 5,205
Non-controlling interests
Total comprehensive income attributable to:
89 2,463 248 2,607
Owners of the parent 2,680 3,666 7,928 5,472
Non-controlling interests -556 2,965 -86 3,008
Earnings per share (SEK), basic and diluted -0.09 0.33 1.52 1.20
of which continuing operations, basic and diluted 0.27 0.65 0.85 1.31
Number of shares (thousands)
Outstanding at period-end
4,330,085 4,330,085 4,330,085 4,330,085
Weighted average, basic and diluted 4,330,085 4,330,083 4,330,085 4,330,082
EBITDA in continuing operations 7,134 6,043 13,119 12,148
Adjusted EBITDA in continuing operations 6,095 6,389 12,244 12,606
Depreciation, amortization and impairment losses from continu
ing operations
-3,608 -2,839 -6,513 -5,605
Adjusted operating income in continuing operations 3,702 4,446 7,507 8,644

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

SEK in millions Note Jun 30,
2017
Dec 31,
2016
Assets
Goodwill and other intangible assets 6, 14 74,321 70,947
Property, plant and equipment 6 58,369 58,107
Investments in associates and joint ventures, pension obligation assets and
other non-current assets
22,409 27,934
Deferred tax assets 3,970 4,366
Long-term interest-bearing receivables 10 16,204 18,120
Total non-current assets 175,273 179,475
Inventories 1,733 1,792
Trade and other receivables and current tax receivables 17,826 17,468
Short-term interest-bearing receivables 10 10,307 11,143
Cash and cash equivalents 10 19,266 14,510
Assets classified as held for sale 4, 10 24,226 29,042
Total current assets 73,358 73,955
Total assets 248,631 253,430
Equity and liabilities
Equity attributable to owners of the parent 88,683 89,833
Equity attributable to non-controlling interests 4,501 5,036
Total equity 93,184 94,869
Long-term borrowings 7, 10 90,920 83,161
Deferred tax liabilities 10,314 10,567
Provisions for pensions and other long-term provisions 6,115 7,282
Other long-term liabilities 1,934 725
Total non-current liabilities 109,282 101,734
Short-term borrowings 7, 10 3,180 11,307
Trade payables and other current liabilities, current tax payables and short
term provisions
4 30,732 31,892
Liabilities directly associated with assets classified as held for sale 4, 10 12,254 13,627
Total current liabilities 46,166 56,826

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

SEK in millions Apr-Jun
2017
Apr-Jun
2016
Jan-Jun
2017
Jan-Jun
2016
Cash flow before change in working capital 7,276 6,252 14,273 12,474
Change in working capital 315 111 826 366
Cash flow from operating activities 7,590 6,363 15,099 12,839
of which from discontinued operations 1,143 827 1,750 1,899
Cash CAPEX -4,818 -4,664 -8,240 -8,848
Free cash flow 2,772 1,698 6,859 3,991
of which from discontinued operations 289 -86 515 136
Cash flow from other investing activities 1,992 9,390 2,001 10,416
Total cash flow from investing activities -2,826 4,726 -6,239 1,568
of which from discontinued operations -1,309 1,178 -1,637 171
Cash flow before financing activities 4,765 11,089 8,860 14,407
Cash flow from financing activities 5,449 -9,298 -4,306 -12,666
of which from discontinued operations 280 145 -359 145
Cash flow for the period 10,213 1,791 4,555 1,742
of which from discontinued operations 114 2,150 -246 2,215
Cash and cash equivalents, opening balance 16,902 25,045 22,907 25,334
Cash flow for the period 10,213 1,791 4,555 1,742
Exchange rate differences in cash and cash equivalents -756 806 -1,101 566
Cash and cash equivalents, closing balance 26,360 27,642 26,360 27,642
of which from continuing operations (incl. Sergel and Yoigo) 19,266 17,228 19,266 17,228
of which from discontinued operations (Eurasia) 7,094 10,413 7,094 10,413

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

SEK in millions Owners of
the parent
Non-controlling
interests
Total equity
Opening balance, January 1, 2016 97,884 4,318 102,202
Dividends -12,990 -215 -13,205
Share-based payments 14 14
Repurchased treasury shares -5 -5
Change in non-controlling interests -41 41
Total transactions with owners -13,022 -174 -13,196
Total comprehensive income 5,472 3,008 8,480
Closing balance, June 30, 2016 90,334 7,151 97,485
Dividends -2,150 -2,150
Share-based payments 14 14
Change in non-controlling interests 83 -84 -1
Total transactions with owners 97 -2,234 -2,137
Total comprehensive income -639 117 -522
Effect of equity transactions in associates 39 39
Closing balance, December 31, 2016 89,833 5,036 94,869
Opening balance, January 1, 2017 89,833 5,036 94,869
Dividends -8,660 -835 -9,495
Share-based payments 15 15
Repurchased treasury shares -4 -4
Change in non-controlling interests -385 385
Total transactions with owners -9,034 -449 -9,483
Total comprehensive income 7,928 -86 7,842
Effect of equity transactions in associates -43 -43
Closing balance, June 30, 2017 88,683 4,501 93,184

NOTE 1. BASIS OF PREPARATION

General

As in the annual accounts for 2016, Telia Company's consolidated financial statements as of and for the sixmonth period ended June 30, 2017, have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The parent company's financial statements have been prepared in accordance with the Swedish Annual Reports Act as well as standard RFR 2 Accounting for Legal Entities and other statements issued by the Swedish Financial Reporting Board. For the group this Interim report has been prepared in accordance with IAS 34 Interim Financial Reporting and for the Parent Company in accordance with the Swedish Annual Reports Act. The accounting policies adopted and computation methods used are consistent with those followed in the Annual and Sustainability Report 2016, except as described below. All amounts in this report are presented in SEK millions, unless otherwise stated. Rounding differences may occur.

New accounting standards

Telia Company's projects for the new accounting standards IFRS 15 "Revenue from contracts with customers", IFRS 9 "Financial instruments" and IFRS 16 "Leases" continued during the second quarter 2017 and are proceeding according to plan. Telia Company continues to assess the impact of the new standards on the consolidated financial statements. For more information, see the Annual and Sustainability Report 2016.

Restatement of operational data

As a result of a review in the first quarter of 2017 of certain types of mobile subscriptions in Sweden the operational data for number of subscriptions 2016 has been restated for comparability.

NOTE 2. REFERENCES

For more information regarding;

  • Sales and earnings, Cash flow and Financial position see pages 6-8.
  • Significant events in the first and second quarter, see page 9.
  • Significant events after the end of the second quarter, see page 9.
  • Risks and uncertainties, see pages 37-42.

Assets held for sale and discontinued operations

Former segment region Eurasia is classified as held for sale and discontinued operations since December 31, 2015. The Sergel companies (Sergel), divested as per June 30, 2017, are included in continuing operations but classified as assets held for sale since June 30, 2016. For information on assets held for sale and discontinued operations, see Note 4.

Segments

Telia Company has a revised organizational setup as of January 1, 2017. Based on the new operating model Telia Company has reported the following six operating segments separately from 2017: Sweden, Finland, Norway, Denmark, Lithuania and Estonia. Other operations include Latvia, the international carrier operations, Telia Company's shareholding in the associates Russian MegaFon and Turkish Turkcell as well as Group functions. Comparative figures have been restated to reflect the new operating segments. Spain (which was divested in 2016) has been included in Other operations.

Former segment region Eurasia is classified as held for sale and discontinued operations since December 31, 2015, and is therefore not included in the segment information.

Correction of prior period classification errors

There were no corrections in the group financial statements. For restatements of prior periods for the parent company, see section Parent company.

NOTE 3. ADJUSTMENT ITEMS

Adjustment items within operating income, continuing operations

SEK in millions Apr-Jun
2017
Apr-Jun
2016
Jan-Jun
2017
Jan-Jun
2016
Within EBITDA 1,039 -345 875 -459
Restructuring charges, synergy implementation costs, costs related to
historical legal disputes, regulatory charges and taxes etc.:
Sweden -2 -181 -35 -251
Finland -11 5 -63 -31
Norway -72 -10 -89 -28
Denmark -11 -4 -14 -28
Lithuania -11 -11 -20 -25
Estonia -2 -8 -3 -12
Other operations -65 -135 -114 -237
Capital gains/losses1 1,213 -2 1,213 155
Within Depreciation, amortization and impairment losses2 -646 0 -646 0
Within Income from associated companies and joint ventures -1,827 0 -1,827 -1
Capital gains/losses3 -1,827 0 -1,827 -1
Total adjustment items within operating income, continuing opera
tions
-1,434 -345 -1,598 -459

Adjustment items within EBITDA, discontinued operations (region Eurasia)

SEK in millions Apr-Jun
2017
Apr-Jun
2016
Jan-Jun
2017
Jan-Jun
2016
Within EBITDA -431 1,138 3,658 1,110
Restructuring charges, synergy implementation costs, costs related to
historical legal disputes, regulatory charges and taxes etc.: 4
-238 -121 3,852 -149
Impairment loss on remeasurement to fair value less costs to sell
Capital gains/losses -193 1,258 -193 1,258
Total adjustment items within EBITDA, discontinued operations -431 1,138 3,658 1,110

1) Second quarter 2017 relates to capital gain of the disposal of Sergel.

2) As a result of an assessment performed on IT and network assets a write-down of SEK 646 million, mainly related to plant and machinery and capitalized development expenses was recognized in the second quarter 2017.

3) Following the divestment of 7 percent of Turkcell shares a capital loss of SEK 1,828 million has been recognized in the second quarter.

4) First half 2017 include the total net income effect of the change in the provision for settlement amount proposed by the US and Dutch authorities.

NOTE 4. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

Classification Eurasia

Former segment region Eurasia (including holding companies) is classified as held for sale and discontinued operations since December 31, 2015. The holding companies will be divested or liquidated in connection with the transactions. Ncell in Nepal was sold during 2016. Telia Company is still committed to the plan to divest the remaining parts of Eurasia and the delay during 2016 in the sales process was caused by events and circumstances beyond Telia Company's control. Telia Company has taken actions necessary to respond the change in circumstances and the units are being actively marketed at reasonable prices given the change in circumstances. Tcell in Tajikistan was divested in April 2017. The remaining Eurasian parts are available for immediate sale and divestments of these units are deemed highly probable within 2017.

Presentation

Former segment region Eurasia (including holding companies), which is classified as discontinued operations, is presented as a single amount in the consolidated statements of comprehensive income. The consolidated cash flow statement is presented including region Eurasia, but with additional information on cash flows from operating, investing and financing activities and free cash flow for region Eurasia. Eurasia (and Sergel for comparative figures) are classified as held for sale and the related assets and liabilities are therefore presented separately in two line items in the consolidated statement of financial position. The amounts for discontinued operations and assets and liabilities held for sale in the consolidated financial statements are presented after elimination of intra-group transactions and intra-group balances.

Measurement

In accordance with IFRS 5 discontinued operations and assets held for sale are measured at the lower of carrying value and estimated fair value less costs to sell. The valuation is based on an assessment of the input from the sales process and the risks in the different countries. Non-current assets included in discontinued operations or disposal groups held for sale are not depreciated or amortized. Depreciation and amortization in discontinued operations (Eurasia) of SEK 2.0 billion have been reversed in 2016. The remeasurement of the net assets in region Eurasia per December 31, 2015, resulted in an impairment charge in the fourth quarter of 2015 of SEK 5.3 billion related to goodwill and other fixed assets in Uzbekistan. In 2016 Ucell was impaired by SEK 1,950 million due to increased carrying values. Due to increased regulatory and currency risks in Uzbekistan as well as an updated view of the valuation ranges for Ucell, management's best estimate of the risk adjusted

debt free value of Ucell has been reduced from SEK 3.3 billion to SEK 1.3 billion as of June 30, 2017. An impairment loss relating to Ucell of SEK 1,500 million (after changes in carrying values and foreign exchange rates) has been recognized in the second quarter 2017. Changes in any of the estimated risk adjustments made for Ucell would have a material impact on the estimated fair value. The most significant impact on fair value will be the buyer's ability to operate in the country and convert local currency. For more information on valuation of Ucell, see the Annual and Sustainability Report 2016.

Telia Company made a write-down of SEK 330 million in the second quarter 2017 of its holding in the associated company TOO Rodnik in Kazakhstan which Telia consolidates to 50 percent. Rodnik owns the listed company AO KazTransCom. Based on the development in ongoing negotiations, the associate is no longer deemed having a recoverable value.

Disposals

Ncell in Nepal

On April 11, 2016, Telia Company completed the divestment of its holdings in Ncell in Nepal to Axiata, one of Asia's largest telecommunication groups. The divestment, all transactions included, resulted in a total capital gain of SEK 1,035 million for the group in 2016, whereof a loss of SEK -927 million was attributable to owners of the parent and a gain of SEK 1,962 million was attributable to non-controlling interests. The sale resulted in a loss for the parent shareholders mainly due to the carrying value of goodwill in Ncell (not attributable to minority) and provisions for parent shareholder's transaction warranties.

In the first quarter of 2017 the net cash flow effect for the group was SEK 0.9 billion (relating to both parent shareholders and non-controlling-interests), which mainly referred to release of escrow accounts, reclassification of receivables and payment of transaction warranties. The net cash flow effect for the group in 2016 was SEK 9.3 billion.

The total price for all transactions was SEK 14.0 billion and as of March 31, 2017, all had been received in cash. The minority owner Visor's sales price was distributed to Visor during 2016 and the first quarter 2017. Provisions for transaction warranties are included in the statement of financial position for continuing operations. The final amounts relating to the Ncell divestment are still subject to deviations in transaction warranties and related foreign exchange rates. Ncell in Nepal was part of the former segment region Eurasia which is classified as discontinued operations.

Telia Company has, subsequent of the divestment, received requests from the Nepalese tax authorities to

submit a tax return on the disposal. Telia Company's assessment is that there is no obligation to file a tax return, or pay any capital gain tax, in Nepal since the sales transaction is not taxable in Nepal.

Tcell in Tajikistan

In September 2016, Telia Company signed an agreement to sell its 60 percent holding in Central Asian Telecommunications Development B.V., which controls CJSC "Indigo Tajikistan" (Tcell), to the Aga Khan Fund for Economic Development (AKFED). AKFED was the minority owner in Central Asian Telecommunications Development B.V. with a 40 percent holding. The transaction was subject to regulatory approvals in Tajikistan and Telia Company had taken all relevant actions trying to close the deal. The agreement expired on March 31, 2017, since the Anti-Monopoly Service in Tajikistan did not reply by the stipulated deadline between Telia Company and AKFED. The agreed transaction price for Tcell was based on an enterprise value of USD 66 million, of which Telia Company's 60 percent share corresponded to USD 39 million (approximately USD 13 million in equity value). The carrying value of the operations in Tajikistan was adjusted to zero resulting in an impairment loss of SEK 222 million in the first quarter of 2017.

In April 2017, Telia Company signed a new agreement with AKFED and finalized the divestment of the Tajik operations. The capital loss was SEK 193 million, which related to reclassification of accumulated negative foreign exchange differences to net income. The transaction had no material cash flow effect. After the divestment Telia Company has no risks, such as claims or any obligations, left in Tajikistan.

Sergel

In June 2016, Telia Company signed an agreement to divest its 100 percent holding in Sergel (credit management services and debt purchase business) to Marginalen at an enterprise value of SEK 2.1 billion. The transaction was approved by the Swedish Financial Supervisory Authority as well as Competition Authorities, and Sergel was divested on June 30, 2017. The divestment resulted in a capital gain of SEK 1,213 million. The sale had a positive net cash flow effect of SEK 1,908 million and reduced net debt by SEK 1,942 million.

Sergel was classified as held for sale from June 30, 2016 and in the segment reporting Sergel was part of Other operations. It was not considered to represent a separate major line of business or geographical area of operations and was therefore not presented as discontinued operations.

Provision for settlement amount proposed by the US and Dutch authorities

The US and Dutch authorities have investigated historical transactions related to Telia Company's entry into Uzbekistan in 2007. As announced on September 15, 2016, Telia Company received a proposal from the authorities for resolution of the pending investigations. The authorities proposed a global resolution that included a total financial sanction of USD 1.45 billion. Without certainty as to the timing and amount that would be paid at the time of a final resolution, Telia Company recorded a USD 1.45 billion provision (SEK 13.2 billion per December 31, 2016). Resolution of the various investigations is complex, but constructive discussions with the government agencies involved in the investigations have continued with good progress during 2017. As per March 31, 2017, a final resolution had not yet been reached, but in light of recent developments to that date in those discussions, the estimate of the most likely outcome was revised and the provision was adjusted to USD 1.0 billion (SEK 8.9 billion at that point in time). As per June 30, 2017, the provision remains unchanged at USD 1.0 billion corresponding to SEK 8.5 billion, the change is related to changed foreign exchange rate. However, as no final resolution has yet been reached, there can be no assurance that the final amount will not differ from the provision. Since the discussions with the authorities are still ongoing, disclosure of further details regarding the assumptions and uncertainties of the provision is expected to prejudice seriously the position of Telia Company. Telia Company has therefore, in accordance with IAS 37.92, not presented any further information on the provision in this Interim report. From end of December 2016 until the end of the first quarter 2017, the provision was partly hedged for changes in foreign currencies. From the second quarter 2017 the provision is fully hedged. The total net income effect in the first quarter 2017 of the change in the provision, foreign exchange differences and the hedge was SEK 4.1 billion. There was no effect on net income in the second quarter 2017.

The provision is recognized as a short-term provision and is included in the line item "Trade payables and other current liabilities, current tax payables and shortterm provisions" in the condensed consolidated statements of financial position. The provision is classified as part of liabilities relating to continuing operations as the provision will not be part of the sale of the Eurasian net assets. The effect on net income is included in the line item "Net income from discontinued operations" in the condensed consolidated statements of comprehensive income and disclosed as "Expenses and other operating income, net" in the table "Net income from discontinued operations (Eurasia)" below. The net income effect is classified as part of discontinued operations based on that the expenses are related to the operations in Uzbekistan. The settlement amount excluding foreign currency effects and hedge effects is assumed to be non-tax deductible.

Net income from discontinued operations (region Eurasia)

SEK in millions, except per share data Apr-Jun
2017
Apr-Jun
2016
Jan-Jun
2017
Jan-Jun
2016
Net sales 3,052 3,336 6,138 7,133
Expenses and other operating income, net 1 -2,155 -2,054 35 -4,094
Operating income 897 1,281 6,172 3,038
Financial items, net -89 -4 -141 -64
Income after financial items 808 1,278 6,031 2,975
Income taxes -285 -484 -664 -975
Net income before remeasurement and gain/loss on disposal 522 793 5,368 1,999
Impairment loss on remeasurement to fair value less costs to sell 2 -1,830 -1,000 -2,079 -1,200
Gain on disposal of Ncell in Nepal (including cumulative Ncell exchange
loss in equity reclassified to net income of SEK -1,065 million) 3
1,258 1,258
of which loss attributable to parent shareholders -888 -888
of which gain attributable to non-controlling interests 2,146 2,146
Loss on disposal of Tcell in Tajikistan (including cumulative Tcell ex
change loss in equity reclassified to net income of SEK -193 million) 3
-193 -193
Net income from discontinued operations -1,501 1,052 3,095 2,058
EPS from discontinued operations (SEK) -0.36 -0.32 0.67 -0.11
Adjusted EBITDA 1,133 1,393 2,318 3,168

1) The first half 2017 includes the adjustment of the provision for the settlement amount proposed by the US and Dutch authorities.

2) Non-tax deductible.

3) Non-taxable gain/loss.

Assets classified as held for sale

(region Eurasia and Sergel for comparative figures)

SEK in millions Eurasia
Jun 30,
20171
Eurasia
Dec 31,
20161
Sergel,
Dec 31,
2016
Total,
Dec 31,
20161
Goodwill and other intangible assets 5,925 7,562 38 7,601
Property, plant and equipment 7,379 7,551 6 7,557
Other non-current assets 8 448 251 699
Short-term interest-bearing receivables 2,009 1,889 1 1,890
Other current assets1 1,811 2,329 568 2,898
Cash and cash equivalents1 7,094 8,302 95 8,397
Assets classified as held for sale 24,226 28,082 960 29,042
Long-term borrowings 1,473 355 355
Long-term provisions 2,364 2,652 149 2,801
Other long-term liabilities 3,254 3,711 5 3,716
Short-term borrowings 579 1,612 1,612
Other current liabilities 4,584 4,932 211 5,144
Liabilities associated with assets classified as held for sale 12,254 13,262 365 13,627
Net assets classified as held for sale2 11,972 14,819 596 15,415

1) The minority owner Visor's share of the sales price for Ncell and Visor's share of the holding company Reynolds Holding has been distributed to Visor during 2016 and the first quarter 2017. As of December 31, 2016, SEK 0.3 billion remained within cash and cash equivalents. The provisions for transaction warranties and the sales price for Telia Company's 60.4 percent ownership in Ncell and Telia Company's share in the holding company Reynolds Holding, as well as sales price for Telia Company's economic interest in the 20 percent local shares in Ncell are included in continuing operations.

2) Represents 100 percent of external assets and liabilities, i.e. non-controlling interests' share of net assets are included.

NOTE 5. SEGMENT INFORMATION

SEK in millions Apr-Jun
2017
Apr-Jun
2016
Jan-Jun
2017
Jan-Jun
2016
Net sales
Sweden 9,079 9,260 18,153 18,095
of which external 9,019 9,207 18,032 17,961
Finland 3,339 3,149 6,611 6,312
of which external 3,302 3,115 6,529 6,238
Norway 2,577 2,162 4,865 4,196
of which external 2,570 2,158 4,854 4,187
Denmark 1,443 1,419 2,923 2,816
of which external 1,419 1,389 2,873 2,757
Lithuania 910 774 1,718 1,544
of which external 903 758 1,694 1,510
Estonia 683 669 1,344 1,313
of which external 660 648 1,300 1,275
Other operations 2,334 4,230 4,569 8,365
Total segments 20,366 21,663 40,182 42,641
Eliminations -565 -533 -1,130 -1,116
Group 19,801 21,130 39,053 41,524
Adjusted EBITDA
Sweden 3,268 3,509 6,628 7,098
Finland 1,038 987 2,012 2,003
Norway 879 705 1,747 1,370
Denmark 153 159 293 296
Lithuania 292 281 576 558
Estonia 216 205 422 386
Other operations 248 543 566 896
Total segments 6,095 6,389 12,244 12,606
Eliminations 0 0 0 0
Group 6,095 6,389 12,244 12,606
Operating income
Sweden 1,990 2,143 4,051 4,656
Finland 501 517 917 1,014
Norway 416 352 894 687
Denmark -46 -27 -92 -91
Lithuania 160 138 278 269
Estonia 85 75 163 131
Other operations -837 903 -301 1,518
Total segments 2,268 4,100 5,909 8,184
Eliminations 0 0 0 0
Group 2,268 4,100 5,909 8,184
Financial items, net -909 -402 -1,436 -966
Income after financial items 1,359 3,699 4,473 7,219
SEK in millions Jun 30, 2017 Jun 30, 2017 Dec 31, 2016 Dec 31, 2016
Segment
assets
Segment
liabilities
Segment
assets
Segment
liabilities
Sweden 44,718 10,821 46,157 11,304
Finland 45,845 4,264 44,798 3,462
Norway 28,840 2,085 27,583 2,207
Denmark 8,314 1,323 8,689 1,564
Lithuania 6,792 481 6,893 701
Estonia 5,038 356 5,090 442
Other operations 33,638 15,210 37,752 21,217
Total segments 173,185 34,541 176,962 40,896
Unallocated 51,220 108,653 47,425 104,037
Assets and liabilities held for sale 24,226 12,254 29,042 13,627
Total assets/liabilities, group 248,631 155,448 253,430 158,561

NOTE 6. INVESTMENTS

SEK in millions Apr-Jun
2017
Apr-Jun
2016
Jan-Jun
2017
Jan-Jun
2016
CAPEX 5,180 3,773 8,168 6,970
Intangible assets 2,242 561 2,768 1,174
Property, plant and equipment 2,938 3,212 5,400 5,796
Acquisitions and other investments 2,443 100 2,662 219
Asset retirement obligations -41 32 -15 115
Goodwill, intangible and tangible non-current assets ac
quired in business combinations
2,484 2 2,678 28
Equity holdings 0 65 0 76
Total continuing operations 7,622 3,872 10,830 7,189
Total discontinued operations 725 820 1,029 1,706
of which CAPEX 725 820 1,029 1,695
Total investments 8,347 4,692 11,859 8,895
of which CAPEX 5,904 4,592 9,197 8,665

NOTE 7. FINANCIAL INSTRUMENTS – FAIR VALUES

Jun 30, 2017 Dec 31, 2016
Long-term and short-term borrowings1
SEK in millions
Carrying
value
Fair value Carrying
value
Fair value
Long-term borrowings
Open-market financing program borrowings in fair value hedge
relationships
42,701 53,353 37,189 46,135
Interest rate swaps 315 315 37 37
Cross currency interest rate swaps 2,017 2,017 2,648 2,648
Subtotal 45,032 55,685 39,873 48,819
Open-market financing program borrowings 43,562 49,098 41,334 45,209
Other borrowings at amortized cost 2,118 2,118 1,733 1,733
Subtotal 90,712 106,901 82,940 95,761
Finance lease agreements 208 208 221 221
Total long-term borrowings 90,920 107,109 83,161 95,982
Short term borrowings
Open-market financing program borrowings in fair value hedge
relationships
7,486 7,551
Interest rate swaps 11 11 3 3
Cross currency interest rate swaps 176 176 191 191
Subtotal 187 187 7,679 7,744
Utilized bank overdraft and short-term credit facilities at amortized
cost
1 1 0 0
Open-market financing program borrowings 2,081 2,088 2,258 2,265
Other borrowings at amortized cost 904 930 1,360 1,360
Subtotal 3,174 3,206 11,297 11,368
Finance lease agreements 6 6 10 10
Total short-term borrowings 3,180 3,212 11,307 11,378

1) For financial assets, fair values equal carrying values. For information on fair value estimation, see the Annual and Sustainability Report 2016, Note C3 to the consolidated financial statements.

Jun 30, 2017 Dec 31, 2016
Financial assets and liabilities by Carry of which Carry of which
fair value hierarchy level1
SEK in millions
ing
value
Level
1
Level
2
Level
3
ing
value
Level
1
Level
2
Level
3
Financial assets at fair value
Equity instruments available-for-sale 1,162 1,162 1,162 1,162
Equity instruments held-for-trading 26 26 26 26
Long- and short-term bonds available-for-sale 17,673 17,673 19,186 19,186
Derivatives designated as hedging instruments 1,571 1,571 2,637 2,637
Derivatives held-for-trading 1,279 1,279 3,058 3,058 0
Total financial assets at fair value by level 21,711 17,673 2,850 1,188 26,069 19,186 5,695 1,188
Financial liabilities at fair value
Derivatives designated as hedging instruments 2,266 2,266 2,346 2,346
Derivatives held-for-trading 727 727 1,226 1,226
Total financial liabilities at fair value by level 2,993 2,993 3,572 3,572

1) For information on fair value hierarchy levels and fair value estimation, see the Annual and Sustainability Report 2016, Note C3 to the consolidated financial statements and the section below.

Fair value measurement of level 3 financial instruments

Investments classified within Level 3 make use of significant unobservable inputs in deriving fair value, as they trade infrequently. As observable prices are not available for these equity instruments, Telia Company has a market approach to derive the fair value.

Telia Company's primary valuation technique used for estimating the fair value of unlisted equity instruments in level 3 is based on the most recent transaction for the specific company if such transaction has been recently done. If there has been significant changes in circumstances between the transaction date and the balance sheet date that, in the assessment of Telia Company, would have a material impact on the fair value, the carrying value is adjusted to reflect the changes.

In addition, the assessment of the fair value of material unlisted equity instruments is verified by applying other valuation models in the form of valuation multiples from listed comparable companies (peers) on relevant financial and operational metrics, such as revenue, gross profit and other relevant KPIs for the specific company. Comparable listed companies are determined based on industry, size, development stage, geographic area and strategy. The multiple is calculated by dividing the enterprise value of the comparable company by the relevant metric. The multiple is then adjusted for discounts/premiums with regards to differences, advantages and disadvantages between Telia Company's investment and the comparable public companies based on company specific facts and circumstances.

Although Telia Company uses its best judgement, and cross-references results of the primary valuation model against other models in estimating the fair value of unlisted equity instruments, there are inherent limitations in any estimation techniques. The fair value estimates presented herein are not necessarily indicative of an amount that Telia Company could realize in a current transaction. Future confirming events will also affect the estimates of fair value. The effect of such events on the estimates of fair value could be material.

Unlisted equity instruments for which the fair value cannot be reliably measured are measured at cost less any impairment.

The table below presents the movement in level 3 instruments for the six-month period ended June 30, 2017.

Jan-Jun 2017
SEK in millions Equity instru
ments available
for-sale
Equity instru
ments
held-for-trading
Long- and short
term bonds avail
able-for-sale
Deriva
tives held
for-trading
Total
Level 3, opening balance 1,162 26 0 1,188
Changes in fair value
of which recognized in net income
of which recognized in other comprehen
sive income
Purchases/capital contributions
Exercise of warrants
Transfer into/out of level 3
Exchange rate differences
Level 3, closing balance 1,162 26 0 1,188
Jan-Dec 2016
SEK in millions Equity instru
ments available
for-sale
Equity instru
ments
held-for-trading
Long- and short
term bonds avail
able-for-sale
Deriva
tives held
for-trading
Total
Level 3, opening balance 1,053 35 65 1,153
Changes in fair value -4 -4
of which recognized in net income
of which recognized in other comprehen
sive income
-4 -4
Purchases/capital contributions 48 48
Transfer into/out of level 3 65 -65 0
Exchange rate differences -10 -10
Reclassified to assets classified as
held for sale
Level 3, closing balance 1,162 26 0 1,188

NOTE 8. TREASURY SHARES

No Telia Company shares were held by the company or by its subsidiaries as of June 30, 2017, or as of December 31, 2016. The total numbers of issued and outstanding shares were 4,330,084,781.

NOTE 9. RELATED PARTY TRANSACTIONS

In the six-month period ended June 30, 2017, Telia Company purchased goods and services for SEK 29 million (28), and sold goods and services for SEK 6 million (31). Related parties in these transactions were mainly the associated companies MegaFon, Turkcell and Lattelecom. Related party transactions are based on commercial terms.

NOTE 10. NET DEBT, CONTINUING AND DISCONTINUED OPERATIONS

Net debt presented below is based on the total Telia Company group for both continuing and discontinued operations.

SEK in millions Jun 30, 2017 Dec 31, 2016
Long-term borrowings 92,393 83,516
Less 50 percent of hybrid capital1 -7,590
Short-term borrowings 3,759 12,919
Less derivatives recognized as financial assets and hedging long-term and short-term
borrowings and related credit support annex (CSA)
-2,474 -5,455
Less long-term bonds available for sale -10,201 -10,185
Less short-term investments -8,694 -7,132
Less cash and cash equivalents -26,360 -22,907
Net debt, continuing and discontinued operations 40,833 50,756

1) 50 percent of hybrid capital is treated as equity, consistent with market practice for the type of instrument, and reduces net debt.

Derivatives recognized as financial assets and hedging long-term and short-term borrowings and related credit support annex (CSA) are part of the balance sheet line items Long-term interest-bearing receivables and Shortterm interest-bearing receivables. Hybrid capital is part of the balance sheet line item Long-term borrowings. Long-term bonds available for sale are part of the balance sheet line item Long-term interest-bearing receivables. Short-term investments are part of the balance sheet line item Short-term interest-bearing receivables.

NOTE 11. LOAN FINANCING AND CREDIT RATING

On April 4, 2017, the successfully issued hybrid capital in EUR and SEK of a total amount corresponding to approximately SEK 15 billion was settled. The main rationale for introducing an additional permanent capital layer in the balance sheet is to enable increased financial flexibility and to reinforce the commitment to a solid investment grade rating of A- to BBB+.

On April 5, 2017, Telia Company settled the tender of nominal EUR 545 million of outstanding EUR bonds announced in conjunction with the hybrid issuance. The hybrid proceeds were mainly used to refinance buy back of senior debt and replacing a redemption of EUR 750 million maturing on March 7, 2017. Both the hybrid and the settlement of the repurchased bonds were recognized in

the beginning of April 2017. The Standard & Poor longterm rating is A- and short-term rating is A-2. On April 3, 2017, following the Telia Company hybrid capital transactions, Standard & Poor affirmed Telia Company's A- /A-2 rating and removed the CreditWatch with negative implications but added a negative outlook. Moody's rating for long-term borrowings is Baa1 and P-2 for shortterm borrowings, both with a stable outlook.

NOTE 12. CONTINGENT LIA-BILITIES, COLLATERAL PLEDGED AND LITIGATIONS

As of June 30, 2017, the maximum potential future payments that Telia Company (continuing operations) could be required to make under issued financial guarantees totaled SEK 464 million (398 at the end of 2016), of which SEK 351 million (287 at the end of 2016) referred to guarantees for pension obligations. Collateral pledged (continuing and discontinued operations) totaled SEK 57 million (752 at the end of 2016), the decrease is mainly due to no pledged investment bonds in repurchase agreements in 2017. For ongoing legal proceedings see Note 29 in the Annual and Sustainability Report 2016. For updated info regarding the settlement amount proposed by the US and Dutch authorities see Note 4 and Section Risk and uncertainties in this report.

NOTE 13. CONTRACTUAL OBLIGATIONS AND COMMITMENTS

As of June 30, 2017, contractual obligations (continuing operations) totaled SEK 3,700 million (2,897 at the end of 2016), of which SEK 1,367 million (1,215 at the end of 2016) referred to contracted build-out of Telia Company's fixed networks in Sweden. Total contractual obligations includes a lease agreement relating to future data center in Finland.

NOTE 14. BUSINESS COMBINATIONS

Business combinations

On February 1, 2017, Telia Company acquired all shares in Fält Communications AB (Fältcom), a company in the

Nordic connected public transportation market. The acquisition will position Telia Company to become the leading provider of Smart Public Transport services whilst laying a foundation for further expansion in the Smart Transport & Logistics and Smart City space.

On March 1, 2017, Telia Company acquired all shares in the Swedish company C-Sam AB, a company that develops and maintains fiber and cable networks.

On April 10, 2017, Telia Company acquired all shares in Phonero in Norway a company that offers telecommunication services to small and medium sized corporate customers as well as public companies. The acquisition will strengthen Telia Company's position in the Norwegian enterprise segment.

The preliminary costs of the combinations, preliminary fair values of net assets acquired and goodwill for the three combinations are presented in the table below.

SEK in millions Fältcom
and C-Sam
Phonero Total
Cost of combination 244 2,316 2,560
of which cash consideration 236
Fair value of net assets acquired
Property, plant and equipment, intangible assets and other non-current assets 40 814 854
Current assets 36 201 237
Total assets acquired 76 1,015 1,091
Non-current liabilities -4 -177 -181
Current liabilities -22 -355 -377
Total liabilities assumed -26 -531 -577
Total fair value of net assets acquired 50 484 534
Goodwill 193 1,832 2,025

Fältcom and C-Sam

The net cash flow effect of the business combinations was SEK 230 million (cash consideration SEK 236 million less cash and cash equivalents in Fältcom and C-Sam SEK 6 million). Transaction costs amounted to SEK 4 million and have been recognized as other operating expenses. Goodwill consists of the knowledge of transferred personnel and expected synergies from the assets merged to the network and operations of Telia Company. No part of goodwill is expected to be deductible for tax purposes. The total cost of combinations and fair values has been determined provisionally, as they are based on preliminary appraisals and subject to confirmation of certain facts. Thus, the purchase price accounting is subject to adjustment.

Phonero

The net cash flow effect from the acquisition of Phonero was SEK 2,251 million in the second quarter 2017. Goodwill consists of the knowledge of transferred personnel and expected synergies of the merged operations. No part of goodwill is expected to be deductible for tax purposes. Acquisition-related costs of SEK 30 million have been recognized as other operating expenses. The total cost of the combination and fair values has been determined provisionally, as they are based on preliminary appraisals and subject to confirmation of certain facts. Thus, the purchase price accounting is subject to adjustments. Compared to the preliminary fair values presented in the interim report for the first quarter of 2017, goodwill has been increased by SEK 61 million, mainly as a result of reduced values for intangible assets by SEK 104 million and related decrease of deferred tax liability of SEK 23 million and a purchase price adjustment of SEK -25 million. Other changes relate mainly to reclassifications. From the acquisition date, revenue of SEK 266 million and net income of SEK -22 million are included in the condensed consolidated statements of comprehensive income. If Phonero had been acquired at the beginning of 2017, revenues and net income for Telia Company for the first half year had been SEK 39,331 million and SEK 3,775 million, respectively.

Minor business combination

On April 5, 2017, Telia Company acquired all shares in the Swedish company SalaNet AB, a company that develops fiber network. The cost of the acquisition was approximately SEK 40 million.

Business combinations after the reporting period

On July 3, 2017, Telia Company acquired all shares in the Finnish company Nebula Top Oy, a company which provides cloud services. The acquisition will strengthen Telia Company's position in the Finnish SME and SoHo segments. The preliminary cost of the combination, preliminary fair values of net assets acquired and goodwill for the combination is presented in the table below.

SEK in millions Nebula Top Oy
Cost of combination 1,111
Fair value of net assets acquired
Goodwill, intangible, tangible and other non-current assets 1,600
Current assets 72
Total assets acquired including goodwill 1,672
Non-current liabilities -448
Current liabilities -113
Total liabilities assumed -561
Total fair value of net assets acquired including goodwill 1,111

Minor business combinations after the

reporting period

On July 3, 2017, Telia Company acquired 93.35 percent of the total shares in the Swedish company Humany AB, a company within self-learning knowledgebase systems. The cost of the acquisition was approximately SEK 64 million.

The total cost of the combinations and fair values for Nebula and Humany have been determined provisionally, as they are based on preliminary appraisals and subject to confirmation of certain facts. Thus, the purchase price accounting is subject to adjustment.

NOTE 15. FINANCIAL KEY RATIOS

The key ratios presented in the table below are based on the total Telia Company group including both continuing and discontinued operations.

Jun 30, 2017 Dec 31, 2016
Return on equity (%, rolling 12 months)1, 2, 3 6.4 4.5
Return on capital employed (%, rolling 12 months)1, 2, 3 6.8 7.7
Equity/assets ratio (%) 2, 3 34.0 34.0
Net debt/adjusted EBITDA rate (multiple, rolling 12 months) 1 1.36 1.69
Owners' equity per share (SEK) 2, 3 20.48 20.75

1) Includes continuing and discontinued operations.

2) Key ratio effected by provision for the settlement proposed by the US and Dutch authorities. See Note 4 for further information.

3) Equity is adjusted with weighted dividend in line with previous year for comparability, see the Annual and Sustainability Report 2016 section Definitions for key ratio definitions.

Alternative performance measurements

In addition to financial performance measures prepared in accordance with IFRS, Telia Company presents non-IFRS financial performance measures, for example EBITDA, Adjusted EBITDA, Adjusted operating income, continuing operations, CAPEX, Cash CAPEX, Free cash flow, Operational free cash flow and Net debt. (Adjustment items were previously named non-recurring items.) These alternative measures are considered to be important performance indicators for investors and other users of the Interim report. The alternative performance measures should be considered as a complement to, but not a substitute for, the information prepared in accordance with IFRS. Telia Company's definitions of these non-IFRS measures are described in this Note and in the Annual and Sustainability Report 2016. These terms

may be defined differently by other companies and are therefore not always comparable to similar measures used by other companies.

EBITDA and adjusted EBITDA

Telia Company considers EBITDA as a relevant measure for investors to be able to understand profit generation before investments in fixed assets. To assist the understanding of Telia Company's underlying financial performance we believe it is also useful to analyze adjusted EBITDA. Adjustment items within EBITDA are specified in Note 3.

Continuing operations

SEK in millions Apr-Jun
2017
Apr-Jun
2016
Jan-Jun
2017
Jan-Jun
2016
Operating income 2,268 4,100 5,909 8,184
Income from associated companies and joint ventures 1,258 -896 697 -1,642
Total depreciation/amortization/write-down 3,608 2,839 6,513 5,605
EBITDA 7,134 6,043 13,119 12,148
Adjustment items within EBITDA (Note 3) -1,039 345 -875 459
Adjusted EBITDA 6,095 6,389 12,244 12,606

Discontinued operations

SEK in millions Apr-Jun
2017
Apr-Jun
2016
Jan-Jun
2017
Jan-Jun
2016
Operating income 897 1,281 6,172 3,038
Income from associated companies and joint ventures -2 -9 -3 -19
Total depreciation/amortization/write-down
Gain/loss on disposals -193 1,258 -193 1,258
EBITDA 702 2,531 5,976 4,277
Adjustment items within EBITDA (Note 3) 431 -1,138 -3,658 -1,110
Adjusted EBITDA 1,133 1,393 2,318 3,168

Adjusted operating income, continuing operations

Telia Company considers Adjusted operating income, continuing operations as a relevant measurement for investors to be able to understand the underlying financial performance of Telia Company. Adjustment items within operating income, continuing operations are specified in Note 3.

SEK in millions Apr-Jun
2017
Apr-Jun
2016
Jan-Jun
2017
Jan-Jun
2016
Operating income 2,268 4,100 5,909 8,184
Adjustment items within Operating income (Note 3) 1,434 345 1,598 459
Adjusted operating income, continuing operations 3,702 4,446 7,507 8,644

CAPEX and Cash CAPEX

Telia Company considers CAPEX and Cash CAPEX as relevant measures for investors to understand the

group's investments in intangible and tangible non-current assets (excluding goodwill, assets acquired in business combinations and asset retirement obligations).

SEK in millions Apr-Jun
2017
Apr-Jun
2016
Jan-Jun
2017
Jan-Jun
2016
Continuing operations
Intangible assets 2,242 561 2,768 1,174
Property, plant and equipment 2,938 3,212 5,400 5,796
CAPEX 5,180 3,773 8,168 6,970
Discontinued operations
Intangible assets 39 48 57 698
Property, plant and equipment 685 772 972 997
CAPEX 725 820 1,029 1,695
Net of not paid investments and additional payments from
previous periods
-1,086 72 -957 183
Cash CAPEX 4,818 4,664 8,240 8,848

Free cash flow

Telia Company considers free cash flow less CAPEX as a relevant measure for investors to understand

the group's cash flow from operating activities.

SEK in millions Apr-Jun
2017
Apr-Jun
2016
Jan-Jun
2017
Jan-Dec
2016
Cash flow from operating activities 7 590 6,363 15 099 12,839
Cash CAPEX (paid Intangible and tangible assets) -4 818 -4,664 -8 240 -8,848
Free cash flow from continuing and discontinued operations 2 772 1,698 6 859 3,991

Operational free cash flow

Telia Company considers Operational free cash flow as a relevant measure for investors to be able to understand the cash flows that Telia Company is in control of. From the reported free cash flow from continuing operations dividends from associated companies are deducted as these are dependent on the approval of boards and the annual general meetings of the associated companies. Licenses and spectrum payments are excluded as they generally refer to a longer period than just one year.

SEK in millions Apr-Jun
2017
Apr-Jun
2016
Jan-Jun
2017
Jan-Jun
2016
Cash flow from operating activities from continuing operations 6,447 5,536 13 349 10,940
Deduct: Cash CAPEX from continuing operations -3,964 -3,751 -7 005 -7,084
Free cash flow continuing operations 2,483 1,785 6 344 3,856
Add back: Cash CAPEX for licenses from continuing operations 475 0 554 27
Deduct: Dividends from associates from continuing operations -933 -139 -937 -147
Add back: Taxes paid on dividends from associates from continu
ing operations
113 1 113 1
Operational free cash flow 2,138 1,647 6,075 3,737

Net debt

Telia Company considers Net debt to be an important measure for investors and rating agencies to be able to understand the group's indebtedness. Net debt is specified in Note 10.

PARENT COMPANY

Condensed income statements

SEK in millions Apr-Jun
2017
Apr-Jun
20161
Jan-Jun
2017
Jan-Jun
20161
Net sales 93 131 186 263
Gross income 93 131 186 263
Operating expenses and other operating income, net -497 -388 3,378 -743
Operating income -404 -257 3,565 -480
Financial income and expenses 8,309 10,111 6,778 8,640
Income after financial items 7,905 9,854 10,343 8,160
Appropriations 1,610 2,331 2,995 5,221
Income before taxes 9,515 12,185 13,337 13,381
Income taxes -23 -164 -329 -403
Net income 9,491 12,021 13,009 12,978

1) Prior periods have been restated to reflect the discovery of certain classification errors between net sales and operating expenses. The corrections affected net sales 2016 positively for the quarters and full year as follows; first quarter SEK 133 million, second quarter SEK 130 million, third quarter SEK 134 million, fourth quarter SEK 69 million and full year SEK 465 million. The correction has increased operating expenses with the same amounts.

The first half of 2017 includes the adjustment of the provision for the settlement amount proposed by the US and Dutch authorities, the total net income effect of the change in the provision, foreign exchange differences and the hedge was SEK 4.1 billion. See Note 4 for further information.

Financial income and expenses in the second quarter and half year decreased mainly due to reduced earnings from subsidiaries offset by increased foreign exchange net.

Condensed balance sheets

SEK in millions Jun 30,
2017
Dec 31,
2016
Assets
Non-current assets 157,500 162,286
Current assets 60,539 52,898
Total assets 218,038 215,184
Equity and liabilities
Restricted shareholders' equity 15,713 15,713
Non-restricted shareholders' equity 68,760 64,573
Total shareholders' equity 84,474 80,286
Untaxed reserves 8,500 8,786
Provisions 502 519
Long-term liabilities 88,627 81,216
Short-term liabilities and short-term provisions 35,935 44,377
Total equity and liabilities 218,038 215,184

Non-current assets decreased mainly due to settlement of intra-group receivables and changes in market value of interest rate and foreign exchange rate swaps.

Long-term liabilities increased mainly due to the issue of hybrid capital. In connection with the issue buy-backs of outstanding Telia Company bonds had an adverse effect giving a net increase in long-term liabilities also affecting current assets.

The provision for settlement amount proposed by the US and Dutch authorities is included within "Short-term liabilities and short-term provisions". The decrease is mainly related to the adjustment of the provision for the settlement amount proposed by the US and Dutch authorities. See Note 4 for further information.

Financial investments first half 2017 were SEK 2,731 million (1,498 at the end of 2016).

RISKS AND UNCERTAINTIES

Telia Company operates in a broad range of geographical product and service markets in the highly competitive and regulated telecommunications industry. As a result, Telia Company is subject to a variety of risks and uncertainties. Telia Company has defined risk as anything that could have a material adverse effect on the achievement of Telia Company's goals. Risks can be threats, uncertainties or lost opportunities relating to Telia Company's current or future operations or activities. Telia Company has an established risk management framework in place to regularly identify, analyze, assess and report business, financial as well as ethics and sustainability risks and uncertainties, and to mitigate such risks when appropriate. Risk management is an integrated part of Telia Company's business planning process and monitoring of business performance.

See Note C26 in the consolidated financial statements in the Annual and Sustainability Report 2016 for a detailed description of some of the factors that may affect Telia Company's business, brand perception, financial position, results of operations or the share price from time to time. Risks and uncertainties that could specifically impact the quarterly results of operations during 2017 include, but may not be limited to:

Customer privacy

Vast amounts of data are generated in and through Telia Company's services and networks. New ways of connecting and data-driven business models increase the complexity of understanding and retaining control over how data is collected and used. It is challenging to establish and maintain unassailable privacy protection in increasingly sophisticated data environments and in ever-changing legal, technical and threat landscapes.

Potential impact

Actual or perceived issues related to data network integrity, data security and customer privacy may lead to an unfavourable perception of how Telia Company handles these matters, which in turn may adversely impact business. Not meeting national and EU legislation may cause significant financial penalties.

Mitigating activities

  • Implementation of the EU General Data Protection Regulation (GDPR)
  • Mitigation activities based on roadmaps driven by countries and group
  • Privacy officers appointed throughout the organization
  • Efforts ongoing to strengthen information asset and vendor management landscapes

Freedom of expression and privacy

The telecommunications industry faces high risks related to the freedom of expression and privacy of users. Risks relate to how national laws and regulations on surveillance of communications or shutdown of networks can

be overly broad in ways that violate human rights, and complicity by ICT companies in violations linked to major and problematic government requests. Telia Company may be legally required to comply and, like other operators, only have limited possibility to investigate, challenge or reject such (often strictly confidential) requests.

Potential impact

Actual failure in respecting freedom of expression and privacy may first and foremost damage rights holders by limiting their freedom of expression and privacy. Actual or perceived failure may also damage the perception of Telia Company, leading to exclusion from procurement or institutional investment processes. Network shutdowns and blocking also limits core business which may negatively affect revenues.

Mitigating activities

  • Building leverage to influence national laws and regulations with peer companies (Telecommunications Industry Dialogue) and joining efforts with multi stakeholder Global Network Initiative (GNI)
  • Transparent reporting on statistics of day-to-day conventional authority requests (Law Enforcement Disclosure Reports) and of unconventional requests ("major events")
  • Human Rights Impact Assessments carried out supported by external expertise, building knowledge and defining actions for improvement and risk mitigation

Children online

Children and young people are active users of Telia Company's services. However, children are particularly vulnerable to online threats such as cyber bullying and inappropriate content. Telia Company's services may also be used for distributing or accessing child sexual abuse material.

Potential impact

Telia Company may indirectly be complicit in violating children's rights if products and services as well as network filters are not properly assessed. Actual or perceived failure to create a safe online experience for children and young people may negatively affect brand perception, incurring loss of business.

Mitigating activities

  • Blocking child sexual abuse material (CSAM) in customer networks and detecting and reporting CSAM in internal IT-system
  • Regular follow up our performance against a number of industry self-regulatory initiatives in the area of protection of children online
  • Understanding children's perspectives on online life through a Children's Advisory Panel (CAP)
  • Assessing impact on children's rights in all relevant business activities

Occupational health and safety (OHS)

The most significant accident risks related to occupational health and safety (OHS) are linked to construction and maintenance work carried out primarily by contractors. Telia Company employees work mainly in office or retail environments where the main risks relate to psychosocial well-being and ergonomics.

Potential impact

Failure to maintain a healthy and safe working environment may lead to increasing sick leave, low employee engagement and a higher number of accidents and injuries, incurring increased costs and potential loss of critical competence.

Mitigating activities

  • Implementation of OHSAS 18001 occupational health and safety management system in all major operations
  • OHSAS 18001 implementation activities include risk assessments, training, investments and support to employees' wellbeing
  • OHS KPI s to follow fatalities, rate of lost time, injuries and sickness absence followed up quarterly locally and on group level

Ability to recruit and retain skilled employees

People is at the core of everything that we do and it is the people with all their talents that will enable us to execute on our strategy. There is an increased demand for talents in the area of ICT and the competition is getting tougher. In order to win the battle of talent Telia Company needs be great at attract, recruit, and retain highly skilled employee to ensure the demand and supply.

Potential impact

Failure to recruit and retain necessary skilled employees may impact the ability to develop new or high growth business areas and thereby deliver on the strategy.

Mitigating activities

  • Efforts to build a strong employer brand to ensure talent attraction
  • Establish a modern and efficient global recruitment process
  • Providing internal growth opportunities
  • Continuous improvements and follow up of the results from yearly employee survey

Environment

Climate change is increasingly driving regulation and taxation related to reduction of greenhouse gas emissions and the use of fossil fuels.

Potential impact

Increasing scarcity of natural resources, particularly rare minerals used in network and consumer technology hardware, may lead to increased hardware costs. Increasing energy costs, greenhouse gas emissions taxation and price increases caused by natural resource scarcity may incur additional costs. As a consequence of climate change, extreme weather conditions might be

more common which may negatively impact network performance and customer satisfaction.

Mitigating activities

  • Work to increase energy efficiency and improve waste management
  • Purchasing "green electricity" in Europe
  • Buy-back and recycling programs for mobile devices
  • Implementation of ISO 14001 environmental management system in Europe

Customer service and network quality

Telia Company focuses on offering high-quality services and networks, which is fundamental to customer perception now and in the future. The ambition to create a service company on the customers' terms requires a major internal change of processes, attitude and focus in many parts of the company. Additionally, Telia Company currently outsources many of its key support services, including network construction and maintenance in most of its operations.

Potential impact

Extreme weather conditions and natural disasters may cause serious problems to network quality and availability. The limited number of outsourced service suppliers, and the terms of Telia Company's arrangements with current and future suppliers, may restrict its operational flexibility and incur unnecessary costs. Failure to meet customers' quality requirements or expectations may have an adverse impact on customer retention and acquisition.

Mitigating activities

  • Ensuring network resilience through a combination of sound risk management, business continuity planning and incident management
  • A group wide crisis management organization handles unexpected and critical incidents negatively affecting our operations
  • Continuous work to improve internal as well as outsourced operational processes to fulfil customer expectations
  • Customer satisfaction is continuously measured both to improve our understanding of, and fulfil, customers' expectations

Corruption and unethical business practices

Some of the countries in which Telia Company operates are ranked as having high levels of corruption. The telecommunications industry is particularly susceptible to a range of corrupt practices as it requires government approvals and necessitates large investments. Key areas where the threat of corruption is significant include the licensing process, market regulation and price setting, the supply chain, and third-party management and customer services.

Potential impact

Actual or perceived corruption or unethical business practices may damage the perception of Telia Company and result in financial penalties and debarment from procurement and institutional investment processes. Related fraud may significantly impact financial results. Ongoing divestment processes may in themselves pose risks of corruption, fraud and unethical business practices.

Mitigating activities

  • Anti-bribery and corruption (ABC) program, based on Telia Company's compliance framework, implemented in all parts of the organization
  • "Responsible exit" plan for region Eurasia containing actions to ensure continued third party due care activities to prevent, detect and remedy ABC risks
  • Education and communication efforts on ABC to targeted audiences, specifically high-risk roles

Responsible procurement

Telia Company relies on a vast number of suppliers and sub-suppliers, many of which are located in countries or industries with challenges in upholding ethical business practices, human and labour rights, health and safety and environmental protection. Despite efforts to conduct due diligence and onsite audits, suppliers and sub-suppliers may be in violation of Telia Company's supplier requirements and/or national and international laws, regulations and conventions.

Potential impact

Failure or perception of failure of Telia Company's suppliers to adhere to these rules and regulations may damage customers' or other stakeholders' perception of Telia Company. Violations of laws and regulations puts suppliers and sub-suppliers at risk of needing to limit or terminate their operations, which may negatively affect how Telia Company is able to deliver its services. Severe violations may lead to Telia Company needing to seek new suppliers, which may negatively impact procurement costs and delivery times.

Mitigating activities

  • A standardized risk-based supplier due diligence process implemented and performed prior to signing new or renewed contract
  • Supplier code of conduct, which stipulates our expectations on sustainable business practices, is included in new supplier contracts
  • Security directives are included in contracts where supplier handle customer data

Global financial markets unrest

Changes in the global financial markets are difficult to predict but are affected by macroeconomics as well as political and geopolitical developments. Telia Company operates in a relatively non-cyclical or late cyclical industry and strongly favor having a strong balance sheet, which is very important through difficult times.

Potential impact

A severe or long-term financial crisis may have an impact on customers' purchasing power and spending on ICT investments and services, which may negatively affect growth and results of operations. Unfavorable changes in the global financial markets could limit the access to capital market funding and may increase Telia Company's cost of funding. Unusually high volatility in the foreign exchange market with fluctuations of the currency rates have effects on the balance sheet and the income statement.

Mitigating activities

  • Maintaining a strong Investment grade rating is key to ensure a good access to diversified debt investor's and bank funding
  • Important to forecast and manage liquidity carefully to avoid any liquidity shortage. By ensuring a smooth and reasonably sized maturity profile of the debt portfolio the refinancing risk is limited
  • The main sources of funding is the free cash flow from operations and issuance in the capital markets. By constantly monitoring the capital markets and take the opportunity to fund in advance when market conditions are favourable, the cost of funding can be managed in an efficient and risk adverse way
  • Telia Company has a committed revolving credit facility supported by 13 core banks as a back-up for any unexpected liquidity needs

Competition and price pressure

Telia Company is subject to substantial and historically increasing competition and price pressure. Competition has from time to time led to increasing customer churn, decreasing customer bases and to declines in the prices, Telia Company charges for its products and services, and may have similar effects in the future. Transition to new business models in the ICT industry may lead to structural changes and different competitive dynamics.

Potential impact

Failure to anticipate and respond to industry dynamics, and to drive a change agenda to meet mature and developing demands in the marketplace, may affect Telia Company's customer relationships, service offerings and position in the value chain. Competition from a variety of sources, including current market participants, new entrants and new products and services, may also adversely affect Telia Company's results of operations.

Mitigating activities

  • Actively monitor changes in customer and market behavior to create and execute mitigation plans
  • Business transformation programs and new business initiatives in line with our business strategy
  • Continuously exploring opportunities close to our core services to create new revenues

Emerging markets

Telia Company has made significant investments in telecom operators in Eurasia (Kazakhstan, Azerbaijan, Uzbekistan, Tajikistan, Georgia, Moldova, Nepal), Russia, Turkey and Afghanistan. In September 2015, Telia Company announced its decision to reduce the presence in, and over time leave, region Eurasia. Historically, the political, economic, legal and regulatory systems in these countries have been less predictable than in developed markets. The nature of these markets, including potential government intervention, combined with the fact that the assets are not fully-owned and there are undertakings and obligations in various shareholder agreements, reputational issues regarding the assets and fewer potential buyers than in more mature markets, makes the complexity of these divestments processes high.

Potential impact

The political situation in these emerging markets may remain or become increasingly unpredictable, even to the extent that Telia Company will be forced to exit a country or a specific operation within a country. There may be unexpected or unpredictable litigation cases under civil or tax legislation. Foreign exchange restrictions or administrative issues may effectively prevent Telia Company from repatriating cash, e.g. by receiving dividends and repayment of loans, or from selling its investments. Another risk is the potential establishment of foreign ownership restrictions or other formal or informal possible actions against entities with foreign ownership. Such negative developments or weakening of the local economies or currencies may have a significantly negative effect on Telia Company's results of operations. The nature of these markets with significant uncertainties and complexity may affect the sales process regarding both expected outcome and timing. The sanctions against the Russian Federation may negatively affect the Russian ruble and the Russian economy, which in turn may impact countries whose economies are closely linked to the Russian economy, such as a number of region Eurasia countries.

Mitigating activities

  • A decision has been made to divest our operations in Eurasia. The divestment process is ongoing
  • The divestment of Ncell in Nepal was completed in April 2016
  • The divestment of Tcell in Tajikistan was closed in April 2017
  • Focus on management of foreign exchange and counterparty risk exposure, combined with continued development financial policies and risk management processes
  • Efforts to ensure tax, legal and regulatory compliance at local level, with compliance oversight at regional and group level

Investments in business transformation and future growth

Telia Company is currently investing in business transformation and future growth through, for example, initiatives to increase competitiveness and reduce cost as

Q2

Potential impact

Success in business transformation and growth will depend on a variety of factors beyond Telia Company's control, including the cost of acquiring, renewing or maintaining telecom licenses and spectrum permits, the cost of new technology, availability of new and attractive services, the costs associated with providing these services, the timing of their introduction, the market demand and prices for such services, and competition. Failing to reach the targets set for business transformation, customer attraction and future growth may negatively impact the results of operations.

Mitigating activities

  • Savings and business transformation programs ensuring competitive cost levels as well as ensuring capabilities for future growth
  • Focused execution on Telia Company's business strategy with the aim of becoming a New Generation Telco

Associated companies and joint operations

Telia Company conducts some of its activities through associated companies, the major ones being MegaFon in Russia and Turkcell in Turkey, in which Telia Company does not have full ownership or controlling interest and are due to that not in full control but still have significant influence over the conduct of these businesses. In turn, these associated companies own stakes in numerous other companies. Under the governing documents for certain of these associated companies, Telia Company's partners have control over or share control of key matters such as the approval of business plans and budgets, and decisions as to the timing and amount of cash, as well as protective rights in matters such as approval of dividends, changes in the ownership structure and other shareholder related matters. The risk of actions outside Telia Company's or its associated companies' control and adverse to their interests is inherent in associated companies and jointly controlled entities.

Potential impact

The financial performance of these associated companies may have a significant impact on Telia Company's short- and long-term results. As part of its strategy, Telia Company may want to increase or decrease its shareholdings in some of its associated companies. This may be complicated due to a variety of factors, including factors beyond Telia Company's control, such as willingness on the part of other existing shareholders to dispose or accept dilution of their shareholdings and, in the event Telia Company gains greater control, its ability to successfully manage the relevant businesses. As they

are jointly controlled, there is a risk that the partners may disagree on important matters, including funding of the operations, which may affect Telia Company's position to act as planned. A disagreement or deadlock or a breach by one of the parties of the material provisions of the co-operation arrangements may have a negative effect on Telia Company.

Mitigating activities

  • Monitoring of the associates' performance and development
  • Active board work in our associated companies (e.g. MegaFon), driving issues of key importance to Telia Company
  • Continuous work to solve the deadlock between the main shareholders of Turkcell

Impairment losses and restructuring charges

Factors generally affecting the telecom markets as well as changes in the economic, regulatory, business or political environment may negatively change management's expectation of future cash flows attributable to certain assets. Telia Company may then be required to recognize asset impairment losses, including but not limited to goodwill and fair value adjustments recorded in connection with historical or future acquisitions. Telia Company also has significant deferred tax assets resulting from earlier recorded impairment losses and restructuring charges.

Potential impact

Significant adverse changes in the economic, regulatory, business or political environment, as well as in Telia Company's business plans, may affect Telia Company's financial position, and results of operations, impairment losses, restructuring charges which may adversely affect Telia Company's ability to pay dividends. In addition, these effects may limit us to use tax assets in full to reduce its future tax obligations, consequently leading to an additional tax charge when such tax asset is derecognized.

Mitigating activities

  • Management constantly reviews and refines the business plans, and may make exit decisions or take other actions in order to effectively execute on business strategy
  • Restructuring and streamlining initiatives, which have resulted in substantial restructuring and streamlining charges. Similar initiatives may be undertaken in the future

Regulation and licenses

Telia Company operates in a highly regulated industry, and regulations impose significant limits on Telia Company's flexibility to manage its business. In a number of countries, Telia Company entities are designated as a party with significant market power in one or several telecom submarkets. As a result, Telia Company is required to provide certain services on regulated terms and prices, which may differ from the terms on which it would otherwise have provided those services.

Effects from regulatory intervention may be both retroactive and prospective.

Potential impact

Changes in regulation or government policy affecting Telia Company's business activities, as well as decisions by regulatory authorities or courts, including granting, amending or revoking of telecom licenses and spectrum permits, may adversely affect Telia Company's possibility of carrying out business and subsequently results of operations.

Mitigating activities

  • Proactive work in shaping the new EU Telecom Framework, by sharing detailed solutions with relevant stakeholders within the EU
  • Continuously exploring options to rebalance increased costs and loss of revenues due to regulatory changes

Review of Eurasian transactions

In late 2012, the then Board of Directors appointed Swedish law firm Mannheimer Swartling (MSA) to investigate allegations of corruption related to Telia Company's investments in Uzbekistan. MSA's report was made public on February 1, 2013. In April 2013, the Board of Directors assigned the international law firm Norton Rose Fulbright (NRF) to review transactions and agreements made in Eurasia by Telia Company in the past years with the intention to give the Board a clear picture of the transactions and a risk assessment from a business ethics perspective. For advice on implications under Swedish legislation, the Board assigned two Swedish law firms. In consultation with the law firms, Telia Company has promptly taken steps, and will continue to take steps, in its business operations as well as in its governance structure and with its personnel which reflect concerns arising from the review. The Swedish Prosecution Authority's investigation with respect to Uzbekistan is still ongoing and Telia Company continues to cooperate with and provide assistance to the Prosecutor. If continued assessments and investigations would lead to new observations and findings, it cannot be excluded that the consequences of such findings would be that the results of operations and financial position in Telia Company's operations in the Eurasian jurisdictions are adversely impacted.

Another risk is presented by the Swedish Prosecution Authority's notification in the beginning of 2013 within the investigation of Telia Company's transactions in Uzbekistan, that the Authority is separately investigating the possibility of seeking a corporate fine against Telia Company, which under the Swedish Criminal Act can be levied up to a maximum amount of SEK 10 million per instance, and forfeiture of any proceeds to Telia Company resulting from the alleged crimes.

The Swedish Prosecution Authority may take similar actions with respect to transactions made or agreements entered into by Telia Company relating to operations in its other Eurasian markets, but it could be noted that the Swedish prosecutor made a public statement in May

2016, that it had decided not to investigate any other of Telia Company's operations in Eurasia. Further, actions taken, or to be taken, by the police, prosecution or regulatory authorities in other jurisdictions against Telia Company's operations or transactions, or against third parties, whether they be Swedish or non-Swedish individuals or legal entities, might directly or indirectly harm Telia Company's business, results of operations, financial position, cash flows or brand reputation. As examples, investigations concerning bribery and money laundering in connection with the transactions in Uzbekistan are conducted by the Dutch prosecutor and police authorities, and by the US Department of Justice and the US Securities and Exchange Commission.

As requested by the Dutch authorities, Telia Company has provided a bank guarantee of EUR 10 million as collateral for any financial claims which may be decided against one of its Dutch subsidiaries. Telia Company is cooperating fully with the Dutch and US authorities and has done so since it was informed of the investigations in March 2014 and has engaged leading US and Dutch law firms as legal counsel for advice and support. On September 14, 2016, Telia Company received a proposal from the US and the Dutch authorities for financial sanctions amounting to a total of approximately USD

1.45 billion or approximately SEK 12.5 billion at that point in time. As per March 31, 2017 a final resolution had not yet been reached, but in light of recent developments to that date in those discussions, the estimate of the most likely outcome was revised and the provision was adjusted to USD 1.0 billion (SEK 8.9 billion at that point in time). As per June 30, 2017 the provision remains unchanged at USD 1.0 billion corresponding to SEK 8.5 billion. The change is related to changed foreign exchange rate. See note 4 for further information. Telia Company has received requests to make public the reviews made by NRF and other law firms. However, despite risking criticism, it is not possible to publish the reviews with respect to people, companies, business agreements, privacy and thus the risk of Telia Company incurring lawsuits as the law firms' views are not necessarily shared by those implicated.

Mitigating activities

  • Telia Company will continue its negotiations with the authorities
  • Telia Company cooperate with and continuously hand over information to law enforcement agencies, who are better equipped to assess whether any criminal acts have occurred

BOARD OF DIRECTORS' AND PRESIDENT'S CERTIFICATION

The Board of Directors and the President and CEO certify that the Interim Report gives a true and fair overview of the Parent Company's and Group's operations, their financial position and results of operations, and describes significant risks and uncertainties facing the Parent Company and other companies in the Group.

Stockholm, July 20, 2017

Marie Ehrling Chair of the Board

Olli-Pekka Kallasvuo Vice-Chair of the Board

Agneta Ahlström Board member, employee representative

Susanna Campbell Board member

Stefan Carlsson Board member, employee representative Mikko Kosonen Board member

Nina Linander Board member Martin Lorentzon Board member

Anna Settman Board member

Olaf Swantee Board member

Peter Wiklund Board member, employee representative

Johan Dennelind President and CEO

REVIEW REPORT

Introduction

We have reviewed the interim report for Telia Company AB (publ) for the period January 1 - June 30, 2017. The Board of Directors and the President are responsible for the preparation and presentation of this interim report in accordance with IAS 34 and the Annual Accounts Act. Our responsibility is to express a conclusion on this interim report based on our review.

Scope of Review

We conducted our review in accordance with the International Standard on Review Engagements ISRE 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review has a different focus and is substantially less in scope than an audit conducted in accordance with ISA and other generally accepted auditing practices. The procedures performed in a review do not enable us to obtain a level of assurance that would make us aware of all significant matters that might be identified in an audit. Therefore, the conclusion expressed based on a review does not give the same level of assurance as a conclusion expressed based on an audit.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the interim report is not, in all material respects, prepared for the Group in accordance with IAS 34 and the Annual Accounts Act, and for the Parent Company in accordance with the Annual Accounts Act.

Stockholm, July 20, 2017

Deloitte AB

Jan Nilsson Authorized Public Accountant

FORWARD-LOOKING STATEMENTS

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

TELIA COMPANY IN BRIEF

Telia Company provides communication services helping millions of people to be connected and communicate, do business and be entertained. By doing that we fulfill our purpose to bring the world closer - on the customer´s terms.

For more information about Telia Company, see www.teliacompany.com

DEFINITIONS

Adjustment items comprise capital gains and losses, impairment losses, restructuring programs (costs for phasing out operations and personnel redundancy costs) or other costs with the character of not being part of normal daily operations.

Billed revenues: Voice, messaging, data and content.

CAPEX: An abbreviation of "Capital Expenditure". Investments in intangible and tangible non-current assets but excluding goodwill, intangible and tangible non-current assets acquired in business combinations and asset retirement obligations.

Change local organic (%): The change in Net sales/External service revenues/Adjusted EBITDA, excluding effects from changes in currency rates compared to the group's reporting currency (SEK) and acquisitions/divestitures, compared to the same period previous year.

EBITDA: An abbreviation of "Earnings before Interest, Tax, Depreciation and Amortization." Equals operating income before depreciation, amortization and impairment losses and before income from associated companies and joint ventures.

Net debt: Interest-bearing liabilities less derivatives recognized as financial assets (and hedging long-term and short-term borrowings) and related credit support annex (CSA), less 50 percent of hybrid capital (which, consistent with market practice for the type of instrument, is treated as equity), less short-term investments, longterm bonds available for sale and cash/cash equivalents.

Net debt/adjusted EBITDA ratio (multiple): Net debt divided by adjusted EBITDA rolling 12 months and excluding divested operations.

Operational free cash flow: Free cash flow from continuing operations excluding cash CAPEX for licenses and dividends from associates net of taxes.

Return on capital employed: Operating income, including impairments and gains/losses on disposals, plus financial revenues excluding FX gains expressed as a percentage of average capital employed.

For definitions of other alternative performance measures, see the Annual and Sustainability Report 2016.

In this report, comparative figures are provided in parentheses following the operational and financial results and refer to the same item in the corresponding period last year, unless otherwise stated.

FINANCIAL CALENDAR

Interim Report January-October 2017 October 19, 2017

Year-end Report January-December 2017 January 26, 2018

QUESTIONS REGARDING THE REPORTS

Telia Company AB www.teliacompany.com Tel. +46 8 504 550 00

This information is information that Telia Company AB is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out above, at 07:00 CET on July 20,

Telia Company AB (publ) Corporate Reg. No. 556103-4249, Registered office: Stockholm Tel. +46 8 504 550 00. www.teliacompany.com

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