Telia Company Year-end Report January–December 2018

Delivering on our ambitions

Fourth quarter summary

• Net sales in local currencies, excluding acquisitions and disposals declined 2.9 percent. In reported currency, net sales rose 4.9 percent to SEK 22,209 million (21,164). Service revenues in local currencies, excluding acquisitions and disposals, declined 2.5 percent.
• Adjusted EBITDA declined 5.5 percent in local currencies, excluding acquisitions and disposals. In reported currency, adjusted EBITDA rose 3.3 percent to SEK 6,735 million (6,520). The adjusted EBITDA margin fell to 30.3 percent (30.8).
• Adjusted operating income fell 18.7 percent to SEK 2,993 million (3,680).
• Total net income amounted to SEK -1,580 million (805) impacted by the divestments of Ucell and Kcell. Total net income attributable to the owners of the parent amounted to SEK -1,095 million (792).
• Free cash flow from continuing and discontinued operations was SEK 1,442 million (1,586). Operational free cash flow from continuing operations was SEK 1,417 million (803).
• The acquisition of Get and TDC Norway was completed on October 15, 2018.
• Through the divestments of Ucell and Kcell, respectively, the exit from Eurasia is completed in all material aspects.
• As of December 31, 2018, Telia Company had bought back 99,277,963 shares for SEK 4.1 billion including transaction costs, according to the share buy-back program.
• The Board of Directors proposes a dividend of SEK 2.36 per share to be split and distributed into two equal tranches of SEK 1.18 each.
• Outlook 2019: Free cash flow from continuing operations, excluding licenses and spectrum fees and dividends from associated companies, is expected to grow to between SEK 12.0

Full year summary

• Net sales in local currencies, excluding acquisitions and disposals fell 0.4 percent. In reported currency, net sales rose 4.7 percent to SEK 83,559 million (79,790).
• Adjusted operating income fell 4.3 percent to SEK 14,146 million (14,781).
• Total net income amounted to SEK 3,090 million (10,243). Total net income attributable to the owners of the parent amounted to SEK 3,179 million (9,705).
• Operational free cash flow from continuing operations amounted to SEK 10,816 million (9,687).

Comments by Johan Dennelind, President & CEO

“Dear shareholders and Telia followers, another eventful quarter ended a transformative year. We have now completed the divestment of the operations in Eurasia in all material aspects through the divestments of Ucell and Kcell. Our prime focus the past few years has increasingly been our Nordic and Baltic operations and the Eurasian divestments in the fourth quarter now means full strategical and operational focus on our core markets.

In 2018 we, once again, delivered results according to our guidance. The operational free cash flow reached SEK 10.8 billion, comfortably above the SEK 9.7 billion outlook. We have executed on the net cost reduction program, reaching SEK 1.3 billion versus the target of SEK 1.1 billion, leaving the adjusted EBITDA to grow by 1.7 percent, i.e. slightly above the adjusted EBITDA for 2017, which we guided for. The free cash flow that forms the basis for the dividend reached SEK 11.8 billion. The board proposes a dividend per share of SEK 2.36, implying an unchanged absolute amount distributed to our shareholders and equals a pay-out ratio of 84 percent (taking the share buy-back program into account), close to the dividend policy minimum level of 80 percent.

In the fourth quarter we saw solid support from all parts of our operations, with Sweden as the exception. As we highlighted in the third quarter there are delays in the impacts from part of the transformation project and with a fourth quarter that included some softer parameters than we expected, the end of 2018 was challenging for Sweden. That challenging environment will continue, but this has not changed my view on 2019 and 2020 for improving trends in Sweden. We will aim to accelerate the core service revenues, focusing on increasing the average price per user, and further strengthen our cost focus. We implemented a new operating model as of January 1, 2019, to increase focus on commercial ambition execution, improved scale benefits and cost reductions. We target the Swedish operating expenses to be reduced by around 3 percent in 2019. We will further describe our view on the various markets and how we will manage our cost base at our upcoming capital markets day in Stockholm, March 21, 2019.

Since the decision was taken to leave Eurasia in September 2015, Telia Company has changed materially. The divestments of the Eurasian assets (including MegaFon and part of Turkcell) and Yoigo made us truly Nordic/Baltic. The acquisitions we have made, predominantly in Norway and Finland have strengthened our converged proposition in the consumer and enterprise market. We have transformed from a company being seriously questioned on our sustainability agenda to a highly ranked company that has built our strategy in alignment with the UN’s SDGs, with an ambitious agenda to tackle climate change as well as other societal challenges. Finally, we have increased our focus on cash flow resulting in a growing operational free cash flow in the past two years with clear ambitions to increase cash flow further. The divestments and the strong cash flow growth have supported an increase in the dividend to shareholders as well as a three-year buy-back program.

In October we warmly welcomed the staff in Get and TDC Norway to the Telia Company family. So far, the integration has been promising and we are delivering according to expectations. We look forward to and reiterate that we will execute on the NOK 700 million in revenues, cost and CAPEX synergies by the end of 2021, that we have set out. We continue to make progress in the Bonnier Broadcasting approval process. The view that the deal will be closed in the second half of 2019 remains unchanged.

As of 2019, all entities that report under IFRS will apply the new leasing standard IFRS 16. The new standard will have significant effect on numerous financial parameters and their comparatives. As a consequence of this we will only provide an outlook on operational free cash flow. From 2019 we will change our operational free cash flow definition and include payments of lease liabilities, ensuring that IFRS 16 will not have any material impact on this cash flow measure. We expect the operational free cash flow to grow to between SEK 12 and 12.5 billion in 2019 from the SEK 10.8 billion 2018 level.

As usual, I also want to express my sincere appreciation to my team for the effort put into 2018. Especially to the Eurasia team and the colleagues that fought into the very end. For that we are forever grateful.

2019 is here. We are excited and determined to continue to create value for our shareholders.”

Johan Dennelind
President and CEO

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 January 25, 2019.

Questions regarding the report

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

Forward-looking statements
This report contains statements concerning, among other things, Telia Company’s financial condition and results of operations that are forward-looking in nature. Such statements are not historical facts but, rather, represent Telia Company’s future expectations. Telia Company believes that the expectations reflected in these forward-looking statements are based on reasonable assumptions; however, forward-looking statements involve inherent risks and uncertainties, and a number of important factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statement. Such important factors include, but may not be limited to: Telia Company’s market position; growth in the telecommunications industry; and the effects of competition and other economic, business, competitive and/or regulatory factors affecting the business of Telia Company, its associated companies and joint ventures, and the telecommunications industry in general. Forward-looking statements speak only as of the date they were made, and, other than as required by applicable law, Telia Company undertakes no obligation to update any of them in light of new information or future events.

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