Interim report January–June 2004
Anders Igel
President and CEO
July 28, 2004
Forward-looking statements
Statements made in this document relating to future
status or circumstances, including future performance
and other trend projections are forward-looking
statements. By their nature, forward-looking statements
involve risk and uncertainty because they relate to
events and depend on circumstances that will occur in
the future. There can be no assurance that actual results
will not differ materially from those expressed or implied
by these forward-looking statements due to many
factors, many of which are outside the control of
TeliaSonera.
July 28, 2004
2
TeliaSonera April-June 2004
• Net sales increased 2%
• Operating income increased to SEK
5,650 million
• Market positions maintained at the
expense of lower margins
• Take lead in transition period – have
started initiative to re-engineer our
operations
• Dividend policy specified and capital
structure addressed
• Orange Denmark deal announced
July 28, 2004
3
Customer growth year-on-year, June 30, 2004
• Consolidated +9%
53.2
• Associated +37%
(+23%)
Number of customers, million
43.2
32.4
(+18%)
27.5
22.8
(+9%)
21.0
Q2 2003
Q3 2003
Total consolidated
July 28, 2004
Q4 2003
Total proportional
Q1 2004
Q2 2004
Total all companies
4
Growth within mobile and Internet
Mobile
Sales growth
Q2 2003 - Q2 2004
• Strong sales growth in Eurasia
and Denmark and in the
associated companies in
Russia and Turkey
• Continued strong volume
growth in Sweden, Finland,
Norway and the Baltic
countries but sales affected
by lower price levels
Internet and data
• Increased sales across all
markets due to strong
broadband growth
29%
23%
7%
Fixed voice
Mobile
2%
Other
Internet and
Broadband
TeliaSonera Associated
group
companies
-3%
-7%
9.5
6.1
1.3
3.7
20.6
Sales, Apr-Jun 2004 (SEK billion)
July 28, 2004
5
9.8
Market positions in Nordic home markets maintained
at the expense of lower margins
• Price competition more
intense in Sweden, Finland
and Norway
• Usage increases but price
reductions limit growth in
home markets
– Group: Volumes +8%
– Group: Price -6%
Performance
Apr-Jun 2004
Sweden
Mobile, sales year-on-year -2%
Fixed, sales year-on-year -5%
EBITDA margin
39.6%
Finland
Mobile, sales year-on-year 3%
Fixed, sales year-on-year
9%
EBITDA margin
37.2%
Norway
Mobile, sales year-on-year 5%1
EBITDA margin
29%
Denmark
Mobile, sales year-on-year
Adjusted
Fixed, sales year-on-year
EBITDA margin
1) In local currency
July 28, 2004
6
40%
19%
26%
7.3%
Home market – Baltic countries
• Good development in both
mobile and fixed in Estonia
• Strong mobile growth in
Latvia
• Strong mobile and
broadband customer
growth in Lithuania
Sales growth
Q2 2003-Q2 2004
Estonia1
Mobile
Fixed
12%
5%
Latvia
Mobile
local currency
Fixed1
11%
13%
-6%2
Lithuania
Mobile
Fixed
5%
-12%
1) Associated companies 2) Estimate
July 28, 2004
7
Strong growth and earnings in international mobile
Russia – Strong operational
development in MegaFon
• +1.5 million customers, total 9 million
• Share of net income SEK 62 million (218)
• Loans revaluation affected SEK -110
million
Turkey – Strong development in Turkcell
• +700,000 customers, total 19.7 million
• Share of net income SEK 356 million (-39)
• Expands operations to Ukraine and Iran
Eurasia – Continued strong margins
• +322,000 customers, total 3 million
• EBITDA margin improves to 57.9% (57.0)
Sales MegaFon1 (USD, million)
400
300
195
+75%
200
100
0
Apr-Jun 2003
Apr-Jun 2004
1) TeliaSonera estimate
Sales Turkcell2 (USD, million)
800
600
491
+52%
745
400
200
0
Jan-Mar 2003
Jan-Mar 2004
2) Reported with a one quarter lag
Sales Eurasia
1,200
1,000
800
626
(SEK, million)
+58%
986
600
400
200
0
Apr-Jun 2003
July 28, 2004
341
8
Apr-Jun 2004
Strengthening our Nordic and Baltic leadership
• From a weak #4 to a
strong #3 position in
Denmark
• Possibility to become
Danish customers’
#1 choice
Denmark
Mobile subs1
TDC
Sonofon
New Telia Dk2
Telia Dk
Orange
#1
• Critical mass in
Denmark
• Large and tangible
synergies
#2
#1
#1
#1
#3
#1
Controlling interest
Non-controlling interest
July 28, 2004
2,421,000
1,212,000
1,161,000
556,000
605,000
1) Including service provider subscribers
2) End of June 2004
9
Outlook 2004
• Strengthen and improve the operations and position in the
current footprint
• Maintain or increase market shares
• Transition period with strong migration from fixed to internet
and mobile expected
• Price pressure and migration will limit growth in home markets
short term
• Longer term we expect market growth to return to higher
levels
• Strong growth in Eurasia, Russia and Turkey
• Carrier will not reach positive EBITDA-CAPEX for 2004
• CAPEX for 2004 is expected to increase in comparison with
last year
July 28, 2004
10
Dividend policy specified and capital structure addressed
• TeliaSonera will distribute 30%-50% of net income in
dividend
• Additional SEK 30 billion to shareholders over the
period 2005-2007. Investment opportunities can
change the figure.
• Various means to return the money will be evaluated
• Proposal to a shareholders’ meeting
July 28, 2004
11
Transition period in the Nordic and Baltic markets
• Migration from fixed to mobile
and Internet based services is
expected to accelerate
• TeliaSonera will take the lead
in supporting the customerdriven migration
Broad
range of
services
Focused
range of
services
Emphasizing opportunities
within Internet and mobility
July 28, 2004
12
Focused range of services
Legacy
Mobile
Internet
Managed
services
Mobile voice
Content
distribution
Residential
broadband
Mobile data
Business IP
Combinations
July 28, 2004
13
Focus going forward
Main challenge 2004
• Continue to improve market position
while maintaining our strong profits and
cash flow
– Commercial actions to maintain or
increase market shares
– Continued synergy realization
– Execution of re-engineering program
– Profitable growth organically
and by acquisitions
– Realize the vision
July 28, 2004
14
Kim Ignatius
CFO
July 28, 2004
Net sales +2% in the quarter
• Acquisitions/divestitures positive effect of 1%
• Sales volume increased by 8% and prices decreased by 6%
• Acquisition of Auria
• Broadband growth
• Increased mobile wholesale
SEK million
20,275
-265
293
-476
249
74
70
360
20,589
-2
11
Strong customer
growth and increased
Mobile usage
Strong customer
growth
Price erosion, closed
down operations
• Decreased Fixed
traffic volumes
• Lower price levels
• Effect of Eniro Q2
2003 115 MSEK
Net sales
Q2 2003
July 28, 2004
Sweden
Finland
Norway
Denmark
Baltic
countries
Eurasia
Int. Carrier
Holding
Other
16
Net sales
Q2 2004
Decreased earnings due to price pressure
EBITDA excl. non-recurring items
SEK million
8,070
• Customer growth
• Cost efficiency
measures
-783
-25
26
-225
• Price pressure
• Release of reserve
in comparative
quarter
EBITDA
Q2 2003
Sweden
July 28, 2004
Finland
117
• Price erosion
• Increased
marketing costs
• Lower
interconnect
revenues
Norway
Denmark
-14
27
-80
7,327
Holding
Other
EBITDA
Q2 2004
214
• Customer growth
• Increased ARPU
in all operations
Baltic
Eurasia
countries
Int.
Carrier
17
Further initiatives keep synergies ahead of schedule
• Decided synergies yearly run rate by the end
of 2005
– OPEX 1,978 SEK million
– CAPEX 568 SEK million
• Achieved synergies yearly run-rate by the end
of Q2 2004
– OPEX SEK 1,432 million
– CAPEX SEK 539 million
Committed to merger target
• Total annual pre-tax cash flow synergies post 2005 estimated to
be approximately SEK 2.7 billion (EUR 300 million)
July 28, 2004
18
Increased Operating income excl. non-recurring items
•
•
•
•
SEK million
Goodwill amortization discontinued (Q2 2003 SEK 1,073 million)
Assets annually tested for impairment
Lower depreciation in Sweden, almost SEK 400 million
5,063
-77
Improving income from associates
-111
-24
287
Int.
Carrier
Holding
308
232
55
4,036
-369
Operating Sweden
income
Q2 2003
July 28, 2004
124
201
401
Finland
Norway Denmark
Eurasia
Baltic
countries
Russia
Turkey
19
Other
Operating
income
Q2 2004
Non core assets
• 10 additional holdings were divested in the second
quarter
– Peoples’ Telephone Company in Hong Kong, sold in
conjunction with IPO, capital gain SEK 110 million
– Mobile Telephone Company (MTC) in Namibia sold
to Namibian government. Capital gains SEK 57
million.
• Xfera Móviles (16.45%) preparing commercial launch
of 3G services. TeliaSonera counter guarantees will be
reduced to EUR 41 million. Negotiations underway to
reduce investment commitments of EUR 215 million.
July 28, 2004
20
Net income impacted by tax changes and pension cost
• Changed tax legislation in Finland – one off tax cost of SEK 920
million
• Deferred tax liability in Turkey – tax revenue of SEK 200 million
• Revised treatment of certain pension related items – impact on
net income SEK 407 million (pre-tax SEK 592 million)
SEK million
Income after financial items
Income taxes
Minority interests
Net income
Earnings/ per share (SEK)
July 28, 2004
April–June 2004
April-June 2003
5,489
3,121
-2,022
-1,313
-319
-264
3,148
1,544
0.67
0.33
21
Acquisition of Orange Denmark
Substantial synergies
• Total NPV of synergies before
implementation costs estimated
to around SEK 4,100 million
• Pre-tax cash flow synergies from
2006: SEK 490 million, whereof:
– EBITDA synergies: SEK 470
million
– CAPEX synergies: SEK 20
million
July 28, 2004
Implementation costs and
CAPEX
• Implementation costs 2004-05
estimated to approximately
SEK 540 million
• Capital expenditure for
integration estimated to about
SEK 250 million in 2004-05
• Significant write-downs
expected, mainly related to
closing down of one network
22
Swedish mobile interconnection rates
• Court decision granted Vodafone higher historic
interconnect fee than established by PTS, the
Swedish regulator
– TeliaSonera has appealed
– Necessary reserves have been recorded
• PTS declared changes regarding SMP status,
resulting in same future interconnect rates for
TeliaSonera, Tele2 and Vodafone
July 28, 2004
23
Cash flow statement
SEK billion
• Tax payment – SEK 2,450 million higher than in 2003
• Change in working capital – mainly a fluctuation in quarters
• CAPEX 10.8% of net sales – driven by mobile and broadband growth
14.5
-2.8
-1.0
-0.5
-4.4
6.3
-6.0
-4.7
0.2
13.9
Other
Cash and
short term
investments,
Jun 30, 2004
12.3
Free cash flow SEK 5.8 billion
Cash and
short term
investments,
Dec 31,
2003
EBITDA
July 28, 2004
Tax payment Change in
working
capital
Financial
items etc.
CAPEX
Sale of
assets
Repayment
of loans
Dividend
payment
24
Financial position further strengthened
Jun 30,
2004
Dec 31,
2003
62%
57%
Net debt-to-EBITDA ratio
0.4
0.6
Net debt-to-equity ratio
9%
17%
Free cash flow yield
8%
12%
11%
7%
SEK billion
18.2
-5.8
Equity-to-assets ratio
0.8
-6.0
4.7
-1.2
10.7
Book return on equity
Net debt Free
Acquisitions Sale of Dividend
Dec 31, cash flow
Telia
2003
Finans (Q1)
Other
Net debt
Jun 30,
2004
• Acquisition of Orange Denmark – no major impact on capital structure
• Dividend policy to distribute 30-50% of net income
• Additional SEK 30 billion will be distributed 2005-2007
July 28, 2004
25
The Nordic and Baltic
telecommunications leader
July 28, 2004