TeliaSonera January-June 2012

MegaFon transaction improves free cash flow

Second quarter

  • Net sales in local currencies and excluding acquisitions were unchanged. In reported currency, net sales increased 1.1 percent to SEK 26,294 million (26,003).

  • The addressable cost base in local currencies and excluding acquisitions decreased 0.8 percent. In reported currency, the addressable cost base decreased 1.2 percent to SEK 7,679 million (7,771).

  • EBITDA, excluding non-recurring items, decreased 3.5 percent in local currencies and excluding acquisitions. In reported currency, EBITDA, excluding non-recurring items, fell 2.0 percent to SEK 9,006 million (9,186) and the margin decreased to 34.3 percent (35.3).

  • Operating income, excluding non-recurring items, decreased 6.1 percent to SEK 6,561 million (6,985).

  • Net income attributable to owners of the parent company increased 10.0 percent to SEK 4,247 million (3,860) and earnings per share to SEK 0.98 (0.89). Net income includes a net capital gain of SEK 3,013 million from MegaFon and impairment charges of SEK 3,070 million within Mobility Services.

  • Free cash flow increased to SEK 14,788 million (1,440) and was positively impacted by dividend from MegaFon of SEK 11,726 million net of taxes.

  • During the quarter the number of subscriptions increased by 1.4 million in the consolidated companies and by 0.8 million in the associated companies. The total number of subscriptions was 174.6 million.

  • Group outlook for 2012 is revised. Growth in net sales in local currencies and excluding acquisitions is expected to be within the range of 0-1 percent. EBITDA margin, excluding non-recurring items, is expected to be around 35 percent.

First half

  • Net sales in local currencies and excluding acquisitions increased 1.5 percent. In reported currency, net sales increased 2.3 percent to SEK 51,987 million (50,838).

  • Net income attributable to owners of the parent company decreased 4.1 percent to SEK 8,155 million (8,506) and earnings per share to SEK 1.88 (1.93).

  • Free cash flow increased to SEK 16,981 million (4,087).

Comments by Lars Nyberg, President and CEO
“Revenues in local currencies in the second quarter were largely unchanged compared to the same quarter a year ago. While trends within Broadband Services and Eurasia have been broadly stable, Mobility Services experienced a slower growth in service revenues and equipment sales. Mobility Sweden delivered growth for the 22ndconsecutive quarter albeit at a lower rate, while growth in Yoigo in Spain slowed down despite further market share gains.

In Broadband Services, we see a continued strong demand for our fiber offerings, as four out of ten households in Sweden being offered our services sign up for them. In the first half of 2012, we have improved our internal processes and hired additional resources and are now ready to expand our fiber offerings to new customers.

It is satisfying to see that our growth engine Eurasia continues to deliver double-digit growth and that all countries are contributing. Given the rapid growth in subscriptions in countries such as Nepal, we have reduced our dependency on one single market. Kcell in Kazakhstan today represents 30 percent of our subscription base in the region, down from 50 percent five years ago.

In April, an important milestone was met as TeliaSonera, AF Telecom and Altimo resolved the governance disputes in MegaFon. As a result, we received a one-time dividend of SEK 12.4 billion in the second quarter. With a total investment of a mere SEK 1.2 billion since the company’s inception in 1994, our engagement in MegaFon is a true success story. Unfortunately, the dead-lock situation in Turkcell remains. We regret the postponement of the Annual General Meeting and we have provided our full support to distributing dividends as well as adding more independent members to the Board of Directors.

Customer behavior is rapidly changing in our industry. This requires that operators change their business models from being voice to data centric, where new ways of packaging offers and charging customers based on data usage rather than voice minutes are being introduced. TeliaSonera will be a leader in creating offers based on data that are attractive to customers, while providing the revenues needed for future, mainly data driven, investments. Our initiative to drive down international data roaming prices, which recently expanded to the US and Croatia, and our premium partnership with service providers such as Spotify, now available throughout the Nordics, are good examples of the future direction.

As connectivity becomes an increasingly fundamental part of society and people’s everyday lives, questions relating to the use of technology, privacy and freedom of expression become increasingly important. During the quarter TeliaSonera launched a program to further strengthen our focus and actions in this important area. At the same time we are one of the initiators of a dialogue involving eleven industry leaders that are formulating common principles to address these issues.

In light of the industry transition described above, operators including TeliaSonera, need to change their business models, address their structural cost base and review their way of working to secure future profitability. Based on the results for the first six months, we revise our outlook for 2012 and expect revenues in local currencies to be more or less unchanged and the EBITDA margin to be slightly lower compared to last year.”

TeliaSonera AB discloses the information provided herein pursuant to the Swedish Securities Markets Act and/or the Swedish Financial Instruments Trading Act. The information was submitted for publication at 07:00 CET on July 18, 2012.

Questions regarding the reports:
TeliaSonera AB
Investor Relations
SE–106 63 Stockholm, Sweden
Tel. +46 8 504 550 00
Fax +46 8 611 46 42