Interim report january - june 1999

INTERIM REPORT JANUARY - JUNE 1999 * 56% Annualized Increase in Group Operating Profit 32% Annualized Increase in Group Operating Revenue 84% Annualized Increase in Activated Prepaid Card Customers 90% Annualized Increase in Minutes of Usage New York and Stockholm - August 17, 1999 - NetCom AB ("NetCom", "the Group") (Nasdaq Stock Market: NECS), the leading alternative provider of telecommunication services in the Nordic countries, the Baltic region and Poland, today announced its consolidated results for the quarter ended June 30, 1999. Financial Summary for the Six Months ended June 30, 1999 (in MSEK) 1999 1998 % Change Operating Revenue 3,665 2,785 32 Operating Profit before depreciation and 860 590 46 amortization (i) after depreciation and 405 260 56 amortization (ii) Profit after financial items 288 122 136 Profit after taxes 118 38 211 Earnings per share (SEK) (iii) 1.13 0.37 205 (i) EBITDA i) EBIT Earnings per share figures are after tax and full conversion. *NetCom ASA had not published second quarter results at the time of NetCom's Interim Report. To derive a figure for accounting purposes for its 25% proportional interest in NetCom ASA, for the six months ended June 30, 1999, NetCom has accounted for the three months ended June 30, 1999 by assuming the same result as for three months ended March 31, 1999. NetCom will restate its interim figures when NetCom ASA publishes its second quarter of 1999 results on August 23, 1999. Lars-Johan Jarnheimer, President and CEO stated, "NetCom made a promising start to 1999 with a strong improvement in profitability due to the contribution of Comviq which continues to lead the mobile telephony market. Management anticipates that the introduction of preselect in Sweden in September will have a substantial future benefit to revenues and average minutes of usage based on our experiences in Norway where preselect was implemented in June. In the second half, management focus will be on increasing the margin structure of our Internet operations by encouraging Internet customers to also become fixed telephony customers and in Denmark, we remain committed to increasing profitability, despite ongoing negotiations to review the terms of our interconnect agreement. We will face the demands of an increasing competitive market place with a strong focus on competitive prices for our brands, the application of best practice across our business and the cost efficiency of our operations." FINANCIAL AND OPERATING HIGHLIGHTS Operating profit before and after depreciation and amortization, increased by 46% and 56% respectively; NetCom's operating revenue increased by 32% to MSEK 3,665 in the six months ended June 30, 1999 compared to the same period of 1998; Total minutes of usage for the Group for the six months ended June 1999 were 6,031 million, an increase of 90% over the same period of 1998; Comviq had a strong first half of 1999 with the addition of 441,000 gross new subscribers for a total of 1,504,000; Airtime usage increased, excluding prepaid, by 10% to 112 minutes in the first half of 1999 compared to the same period in 1998 and monthly revenue per customer, excluding prepaid increased by over 13% to SEK 391 over the same period; A significant 84% annualized growth in activated prepaid card customers in Sweden to 808,000; In May, Comviq announced the launch of a new flexible mobile telephony subscription with no minimum subscription period and had signed up approximately 7 thousand subscribers by June 30, 1999; Tele2 in Sweden reported a 55% annualized increase in fixed telephony customers to 826,000 as of June 30, 1999; The sum of fixed telephony and Internet subscribers for Tele2 Norway and Tele2 Denmark increased by 94% and 114% respectively to 275,000 and 600,000 subscribers respectively on an annualized basis; In July, NetCom announced a joint venture with Modern Times Group ("MTG") to invest in a joint portal to be called Everyday.com; NetCom increased its stake in Ritabell to 94.8% in January 1999; Acquisition of a 20% stake in Suomen Kolmegee OY, which has a license to operate a UMTS network in Finland in March, 1999; In June, NetCom announced a business reorganization initiative to cut costs to meet future increases in market competition and will create annualized cost savings of MSEK 80, effective January 2000. FINANCIAL RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1999 In the first half of 1999, NetCom reported operating revenues of MSEK 3,665, an increase of 32% over the MSEK 2,785 reported in the comparative period of 1998. The Mobile Telephony operation in Sweden contributed MSEK 1,749 to group operating revenue, an increase of 29% over the MSEK 1,353 reported in the comparative period of 1998. The Fixed Telephony and Internet Operations increased operating revenue by 13% to MSEK 1,251 from MSEK 1,105 reported in the comparable period of 1998. There has been strong revenue growth in NetCom's operations in Denmark and Norway in the period reported. Tele2 Denmark reported a 91% increase in operating revenues from MSEK 233 to MSEK 445 and Tele2 Norway reported a 160% increase in operating revenues from MSEK 60 to MSEK 156 on an annualized basis. The Cable Television operation contributed revenues of MSEK 60 for the six month period, compared to MSEK 81 in the comparative period of 1998. Operating profit before depreciation and amortization (EBITDA) in the six month period increased by 46% to MSEK 860 from MSEK 590 reported in the comparable period of 1998. The EBITDA margin, increased during the first six months of 1999 to 23.5% from 21.2% reported in the comparative period of 1998. This was a result of a significant increase in the profitability of Mobile Telephony operations and a reduction in EBITDA losses contributed by Tele2 Norge AS. The cost of the Employee Share Option Program is calculated relative to the market value of NetCom's shares. The recent decrease in share price has decreased the provisions due under the terms of the Program by MSEK 22 for the first half of 1999 compared to an increased provision of MSEK 58 for the comparable 1998 period. In the first half of 1999, operating profit after depreciation and amortization (EBIT) increased by 56% to MSEK 405 from MSEK 260 reported in the comparative period of 1998. The EBIT margin increased from 9.3% in 1998 to 11.1% in 1999. In the period ended June 30, 1999, Mobile Telephony operations contributed MSEK 595 to Group EBIT, an increase of 25% compared to MSEK 477 in the corresponding period of 1998. The Fixed Telephony and Internet operations of Tele2 AB in Sweden, reported EBIT of MSEK 16, compared to MSEK 75 reported in the comparable period of 1998. The results for the Fixed Telephony operation over the six-month period ended June 30, 1999, benefited from the introduction of a new interconnect agreement with Telia on December 1, 1998 which resulted in a substantial improvement in margin pressure in this operation during the first half of 1998 compared to the last six months of 1998. NetCom's Norwegian listed associated company, NetCom ASA, had not published second quarter results at the time of NetCom's Interim Report and as a result NetCom will restate its Interim figures when NetCom ASA publishes its second quarter of 1999 results on August 23, 1999. Net interest expense and other financial items for the first six months of 1999 totaled MSEK 125, compared to MSEK 136 for the comparative period of 1998. The decrease in net interest reflects lower interest rates despite an increase in debt outstanding during the period. The average interest rate applied to debt outstanding declined from an average of 5.5% in the first quarter of 1999 to 5.2% for the first half of 1999. The profit after financial items for the first half of 1999 was MSEK 288 compared to MSEK 122 in the corresponding period of 1998. The net profit reported for the period ended June 30, 1999 was MSEK 118, or a profit of SEK 1.13 per share, compared with a net profit of MSEK 38 or SEK 0.37 per share in the comparable period of 1998. The net profit reported for the first half reflects the improving profitability of NetCom's operations. NetCom's total assets at June 30, 1999 increased by 8% to MSEK 10,956 compared to MSEK 10,189 reported at December 31, 1998, reflecting increased investment in the core operations and the purchases of operations. FINANCIAL RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1999 Total revenues for the three months ended June 30, 1999 were MSEK 1,927 an increase of 33% compared to MSEK 1,448 for the same period of 1998. Revenues across NetCom's core operations increased. The Mobile Telephony operation contributed revenues of MSEK 936 in the second quarter an increase of 25% compared to MSEK 749 reported in the second quarter of 1998. The Fixed Telephony and Internet operations reported revenues of MSEK 627 in the second quarter of 1999, an 18% increase over the MSEK 530 reported in the same period of 1998. Strong revenue growth was reported in NetCom's operations in Norway and Denmark. EBITDA increased by 48% to MSEK 420 in the second quarter of 1999, compared to MSEK 284 in the comparable period of 1998. In the second quarter the Group EBITDA margin increased to 21.8% from 19.6% in the comparable period of 1998. In the second quarter of 1999, operating profit after depreciation and amortization (EBIT) increased by 63% to MSEK 188 from MSEK 115 reported in the comparative period of 1998. The EBIT margin increased from 7.9% in 1998 to 9.8% in 1999. In the three months ended June 30, 1999, Mobile Telephony operations contributed MSEK 310 to Group EBIT, an increase of 18% compared to MSEK 263 in the corresponding period of 1998. The Fixed Telephony and Internet operations of Tele2 AB in Sweden, reported EBIT of MSEK (5), compared to MSEK 13 reported in the comparable period of 1998. The results for the Fixed Telephony operation over the three month period ended June 30, 1999, benefited from the introduction of a new interconnect agreement which alleviated margin pressure but margin pressure existed in the Internet operations and as a consequence Internet only customers were encouraged to also take fixed telephony services. RESTRUCTURING INITIATIVE In June, NetCom announced an extensive reorganization of its operations to meet increased demand in its markets. As a consequence, the headcount was reduced by 150 mostly full time staff resulting in a cost saving of MSEK 80 per annum. Management also clarified and decentralized responsibility for revenue and expenditure into six different business areas to increase accountability and promote value growth. The Company has applied best practices across all operations to ensure high quality customer service and future profitability. BOARD APPOINTMENT At the NetCom AGM in May, Anders Björkman was elected as Deputy Chairman to the NetCom Board. In March 1999, the NetCom Board announced the appointment of Lars-Johan Jarnheimer as President and CEO of NetCom AB as a successor to Anders Björkman who has been appointed Chairman and CEO of Société Européenne de Communication S.A. JOINT VENTURE Everyday.com In July 1999, NetCom announced a joint venture with MTG to develop build a portal on the Internet. The new company is called Everyday.com and will offer unique opportunities for generating revenue through advertising on the World Wide Web ("WWW") and through e-commerce or Internet shopping. This joint venture allows NetCom and MTG to exploit their respective areas of expertise. NetCom is the leading Internet service provider or ISP in the Nordic region and its 783,000 Internet subscribers will be offered Everyday.com as their starting page. As of July 1, 1999 NetCom offers free Internet access with no subscription fee. MTG publishes content on the WWW and has significant experience in the mass media and marketing through TV channels, radio stations and newspapers. MTG also has Webad, a specialized company which sells banner advertising on the Internet. Everyday.com will give customers the access to the entire value chain for transactions over the Internet and will generate revenue through the provision of free Internet access, portals, advertising sales, content, e-commerce, payment services and logistics on a pan European basis. ACQUISITIONS Estonia In January 1999, a purchase agreement was signed with Levicom International Holdings BV, which wholly owns the companies, AS Levicom Cellular ("CellCo") and OÜ Levicom Broadband ("BroadCo"). At completion, NetCom acquired 90% of the share capital of CellCo, which holds the 52% interest in the share capital of Ritabell, and 100% of a DCS 1800 license in Lithuania. In addition, NetCom acquired 19% of the capital of BroadCo, which encompasses Internet activities in Estonia, and a number of cable television operations in Estonia and Lithuania. NetCom's percentage interest in Ritabell was increased from 48% to 94.8%, with the additional 46.8% interest in Ritabell being held through NetCom's interest in CellCo. The aggregate consideration of $58.6 million is payable in tranches on an annual basis, the first payment of $28.6 million was reflected in the first quarter of 1999 financial results. The operation in Estonia covers a population under license of approximately 1.5 million people and the DCS 1800 license in Lithuania covers a population under license of approximately 3.7 million. At June 30, 1999, Ritabell reported 43,000 gross cellular subscribers, inclusive of 23,000 prepaid customers. NetCom's proportional interest in Ritabell at December 31, 1998 was 48% and Ritabell was reflected as an associate company in the fourth quarter of 1998 financial statements, however, from February 1, 1999 NetCom's 94.8% interest in Ritabell has been reflected as a subsidiary. Finland In March, 1999, NetCom announced the acquisition of 20% of the stock and 15% of the voting rights in Suomen Kolmegee OY, to become the largest shareholder. Suomen Kolmegee OY, which has been granted one of only four nationwide licenses for a third generation mobile telephony WCDMA/UMTS network in Finland. The Company is currently owned by 41 local and regional Finnet companies. The purchase price was FIM 3 million for a Company with no liabilities and a share capital of FIM 10 million. NetCom's joint shareholders in Suomen Kolmegee OY are Finnet companies and as such have access to an infrastructure and therefore the build out investment is expected to be significantly reduced. The Company plans to have an operational mobile network within approximately three years. YEAR 2000 Within NetCom, there are several systems dependent operations. The Board and management are currently giving high priority to the issue of the Year 2000 and the potential effect that this may have on the Company, its products, services and employees. An Activity Plan has been produced and resources dedicated to the planning, upgrading and testing of systems. The management are committed to a regular review of the process and will give regular quarterly updates to its shareholders. In February 1999, systems integration testing commenced, prior to this systems in telephone exchanges, billing programs and PC's had all been tested for compliance. All systems were tested for compliance in the first half of 1999 and this process of testing will continue in the second half. NetCom also required its subcontractors to test for compliance. The Company upgraded its accounting and finance systems during the first half of 1999 and has prepared back up routines and contingency measures in the event that problems do arise. OPERATIONAL REVIEW Tele2 AB in Sweden Tele2 AB encompasses 3 operational divisions: Mobile Telephony, Fixed Telephony and Internet and Cable Television which are marketed under the respective brand names of Comviq, Tele2 and Kabelvision. Mobile Telephony In the first six months of 1999, Tele2 AB's mobile telephony operations continued to make strong progress. Comviq and Tele2Mobil reported 1,504,000 subscribers, inclusive of prepaid card subscribers, representing an increase of 41% on the 1,063,000 subscribers reported in the same period of 1998. The annual churn rate excluding prepaid subscribers was approximately 23%. The number of activated prepaid card customers increased by a substantial 84% from 438,000 in the first half of 1998 to 808,000 in the first half of 1999. Prepaid customers accounted for 54% of the total mobile subscriber base and 86% of net new subscriber additions in the first half of 1999. The total number of cards sold to retailers but not yet activated in the six months ended June 30, 1999 totaled 178,000 compared to 67,000 in the first quarter of 1999. Strong subscriber growth continues to be fueled by the introduction of new marketing and pricing initiatives. In May 1999, under the Comviq brand, a new flexible and price leading mobile telephony subscription form was launched which no longer sets a minimum subscription period. Subscription forms are based on customers' calling patterns, customers will have the flexibility to change subscription forms when calling patterns change. The new service is priced at levels competitive with conventional fixed line services. NetCom has benefited from substantially reduced dealer commission levels as result of the introduction of this new subscription form. The total number of customers subscribing to this service totaled approximately 7,000 as of June 30, 1999. Airtime usage per month increased, excluding prepaid, by 10% to 112 minutes in the first half of 1999 compared to the same period in 1998 and monthly revenue per customer, excluding prepaid increased by over 13% to SEK 391 over the same period Fixed Telephony and Internet In the period June 30, 1998 to June 30, 1999, Tele2 in Sweden increased the number of its fixed telephony customers by 55% from 533,000 to 826,000. Tele2 reported 456,000 dial up Internet customers at June 30, 1999, corresponding to a 44% increase on the 317,000 customers reported in the comparative period of 1998. Strong customer growth has been fuelled by a number of new service initiatives such as Call2Web, the IP based telephony service, which recently launched "Double Line", which allows customers to make and receive telephone calls on a single line while surfing the Net. A new interconnect agreement with Telia was introduced on December 1, 1998 and this has lead to higher margins for Tele2's fixed telephony operations in the first half of 1999. It has conversely created margin pressure for NetCom's Internet operations. In the first quarter of 1999, Tele2 began offering lower Internet surfing rates to existing Internet customers who also become telephony customers and this has proved successful with approximately 91,000 customers subscribing to both Internet and fixed telephony services as of June 30, 1999. This corresponds to approximately 22% of NetCom's Internet customers are also fixed telephony customers. A wide range of initiatives designed to increase the rate of conversion from Internet only to combined Internet and fixed telephony customers are being considered currently and this is an area of management focus. Through NetCom's joint venture with MTG, in future, Tele2's Internet customers will be offered Everyday.com as their starting page. On July 1, 1999, NetCom also commenced offering Internet access with no subscription fee. Cable Television The number of subscribers declined in the first six months of 1999 compared to the same period in 1998. The brand has been repositioned and a new program offer launched during the first half of 1999. Tele2 A/S, Denmark In the first half of 1999, Tele2 A/S, Denmark, continued to grow substantially reporting 384,000 fixed telephony customers as of June 30, 1999, an increase of 101% on the comparative period of 1998. Tele2 A/S has both private and corporate customers. Tele2 A/S reported 216,000 Internet customers, an increase of 141% for the six months ended June 31, 1999 compared to 89,500 Internet customers reported in the same period of 1998. The Company has previously indicated its expectation that Tele2 A/S, Denmark would be EBITDA positive for the 1999 financial year based on the premise that existing interconnect terms would be renegotiated in Denmark. This process of renegotiation is ongoing and whilst there can be no assurance, it remains the goal of management that the operation reaches EBITDA breakeven by the current year-end. Tele2 Norge AS, Norway As of June 30, 1999, Tele2 Norge reported 164,000 fixed telephony subscribers, an increase of 119% on the 75,000 subscribers reported at June 30, 1998. In the first half of 1999, Tele2 Norge had a total of 111,000 activated Internet subscribers, compared to 67,000 activated subscribers reported in the same period of 1998. As of June 1, 1999, preselect became available in Norway and it is anticipated that this will have a favourable impact on revenues and average minutes of usage. NetCom ASA NetCom ASA had not published second quarter results at the time of NetCom's Interim Report. To derive a figure for accounting purposes for its 25% proportional interest in NetCom ASA, for the six months ended June 30, 1999, NetCom has accounted for the three months ended June 30, 1999 by assuming the same result as for three months ended March 31, 1999. NetCom will restate its Interim figures when NetCom ASA publishes its second quarter of 1999 results on August 23, 1999. NetCom ASA made significant progress in the first quarter of 1999 in both subscriber growth and operating results. FINANCIAL SUMMARY Depreciation and Amortization The group's depreciation and amortization charge for the six months ended June 30, 1999 was MSEK 455 compared to MSEK 331 for the comparable period in 1998 This reflects increased investment in and the expansion of the Company's asset base during the period. In the first half of 1999, Tele2 AB's charge for depreciation and amortization was MSEK 325 (MSEK 264). Mobile Telephony accounted for MSEK 150 (MSEK 133), Fixed Telephony and Internet MSEK 143 (MSEK 100) and Cable Television MSEK 32 (MSEK 31). Depreciation and amortization for the Tele2 operations in Norway and Denmark totaled MSEK 11 (MSEK 9) and MSEK 31 (MSEK 17) respectively. The figures shown in parenthesis correspond to the comparable periods in 1998. Share Structure The weighted average number of A and B shares outstanding at June 30, 1999 was 103,850,246. Parent Company At the parent company level, the profit after financial items for the period ended June 30, 1999 was MSEK 39 compared to a loss of MSEK 38 in the corresponding period of 1998. Included within the reported profit figure is a reduction in provisions due under the terms of the Employee Share Option Program for senior management of MSEK 22 due to a reduction in the market value of the Group's equity. This compares with an increased provision of MSEK 58 for the six month period ended June 30, 1999. ACCOUNTING PRINCIPLES NetCom has reported its quarterly financial statements in accordance with the new accounting principle RR8 introduced in 1999 by the Swedish Financial Accounting Standards Council. This has resulted in a change in the accounting treatment of goodwill arising from the purchase in foreign currencies of associate and subsidiary companies. As a consequence, the exchange rate difference arising for NetCom has been restated to increase "goodwill" and "exchange rate differences in unrestricted equity" of MSEK 16 for the second half of 1998. There has also been a decrease in "shares of associated companies" and "exchange rate difference in restricted equity" of MSEK 5 in the six months ended June 30, 1998 and MSEK 10 in the period to December 31, 1998. In 1999, Ritabell became a subsidiary. The goodwill arising from the purchase of Ritabell during 1998 of MSEK 390 is reclassified from financial assets (shares in associated companies) to intangible assets (goodwill). In all other respects, NetCom reported its quarterly financial statement in accordance with the accounting principles and methods used in the Annual Report and Accounts for the 1998 financial year. COMPANY DISCLOSURE Third Quarter of 1999 Results NetCom's financial and operating results for the period ended September 30, 1999 is planned to be released on November 22, 1999. Stockholm, August 17, 1999 The Board of Directors of NetCom AB NetCom AB, formed in 1993 is a leading telecommunications company in the Nordic countries, the Baltic region and Poland. It is engaged in the GSM cellular business operating using the brand names of Comviq and Tele2Mobil in Sweden, NetCom ASA in Norway and through subsidiary Ritabell in Estonia. In the areas of public telecommunications, data communication services and Internet, NetCom operates Tele2 in Sweden, Tele2 A/S in Denmark and Tele2 Norge AS in Norway. NetCom also operates NätTeknik and Datametrix, specializing in systems integration, 4T Solutions and Optimal Telecom in addition to Kabelvision, a Swedish cable TV services company. NetCom is listed both on the Stockholm Stock Exchange under the symbols NCOMA and NCOMB and on the Nasdaq Stock Market under the symbol NECS. REPORT REVIEW We have reviewed this interim report in accordance with the recommendations issued by the Swedish Institute of Authorized Public Accountants. A review is significantly limited compared to an audit. Nothing has come to our attention that causes us to believe that the interim report does not fulfill the requirements of the Swedish Annual Accounts Act. Pål Wingren Hans Karlsson Authorized Public Accountant Authorized Public Accountant Contacts: Lars-Johan Jarnheimer Telephone: + 46 8 562 640 00 President and CEO, NetCom AB, Sweden Jörgen Latte Telephone: + 46 8 562 640 00 CFO, NetCom AB, Sweden Visit us at our homepage: http://www.netcom.se APPENDICES Consolidated Income Statement Consolidated Balance Sheet Consolidated Cashflow Statement Parent Company's Cashflow Statement Changes in Shareholders Equity Review of the Group Quarterly Historic Financial Review Five Year Summary CONSOLIDATED INCOME STATEMENT (MSEK) 1999 1998 1998 Jan 1 - Jan 1 - Full Year June 30 June 30 Operating revenue 3,665 2,785 5,969 Operating expenses (3,377) (2,555) (5,564) Option to Management 22 (58) (67) Other revenues 96 94 190 Other expenses (1) (6) (10) Operating Profit 405 260 518 Share of profit (loss) from 8 (2) (10) associated companies Net interest and other financial (125) (136) (276) expenses Profit after financial items 288 122 232 Taxes (170) (84) (165) Profit after taxes 118 38 67 Earnings per share after tax and after full conversion Tele2 Norway (0.57) kr (0.85) kr (1.24) kr Tele2 Denmark (0.97) kr (0.78) kr (1.69) kr Associated companies * (0.09) kr (0.03) kr (0.14) kr Tele2 Sweden and other operations 2.76 kr 2.03 kr 3.71 kr Total 1.13 kr 0.37 kr 0.64 kr * Earnings per share figures for the period January 1, 1999 to June 30, 1999 include a reduction in deferred tax revenues relating to the 1998 financial year. CONSOLIDATED BALANCE SHEET (MSEK) 1999 1998 1998 June 30 June 30 December 31 ASSETS Fixed assets Intangible assets* 2,422 1,647 1,687 Tangible assets 6,114 5,062 5,604 Long-term financial assets* 276 498 786 8,812 7,207 8,077 Current assets Materials and supplies 18 18 31 Current receivables 2,085 1,229 1,648 Cash and cash equivalents 41 164 433 2,144 1,411 2,112 Total assets 10,956 8,618 10,189 EQUITY AND LIABILITIES Shareholders' Equity Restricted equity 4,072 4,310 4,221 Non-restricted equity (704) (1,092) (952) 3,368 3,218 3,269 Minority interest 1 2 2 Provisions 80 93 102 Long-term liabilities Interest-bearing liabilities 5,506 3,842 4,801 Non interest-bearing 1 - 1 liabilities 5,507 3,842 4,802 Short-term liabilities Interest-bearing liabilities 107 - 239 Non interest-bearing 1,893 1,463 1,775 liabilities 2,000 1,463 2,014 Total equity and liabilities 10,956 8,618 10,189 The figures for long-term financial assets include deferred tax *relating to subsidiaries for the periods ended June 30, 1999, June 30, 1998 and December 31, 1998 of MSEK 94, MSEK 322 and MSEK 232 respectively and deferred tax relating to associated companies of MSEK 146, MSEK 169 and MSEK 165 respectively. From February 1, 1999, Ritabell was accounted for as a subsidiary and the goodwill of MSEK 390 arising from its purchase in 1998 is reclassified from financial fixed assets (shares in associated companies) to intangible assets (goodwill). CONSOLIDATED CASHFLOW STATEMENT (MSEK) 1999 1998 1998 Jan 1 - Jan 1 - Full Year June 30 June 30 Cash flow from 715 460 955 operations Changes in working (361) 186 35 capital Cash flows provided by operating 354 646 990 activities Investing (1,148) (660) (1,841) activities Financing 405 (401) 703 activities Net change in cash (389) (415) (148) Cash at beginning 433 579 579 of year Exchange difference (3) - 2 in cash Cash at end of 41 164 433 period PARENT COMPANY'S CASHFLOW STATEMENT (MSEK) 1999 1998 1998 Jan 1 - Jan 1 - Full Year June 30 June 30 Cash flow from 43 (39) (25) operations Changes in working (21) 71 46 capital Cash flows provided by operating 22 32 21 activities Investing (35) (40) (260) activities Financing (121) - 351 activities Net change in cash (134) (8) 112 Cash at beginning 148 36 36 of year Cash at end of 14 28 148 period CHANGES IN SHAREHOLDERS EQUITY (MSEK) Restricted Equity Non-restricted Equity Share Other Share in Other Capital Restr. Associated Retained Equity Co's. Losses Equity, Jan. 1, 1999 519 3,712 (318) (650) Changed accounting (10) 16 principle Equity, Jan. 1, 519 3,702 (318) (634) 1999, adjusted Transfers: - Shares in 11 (11) associated co.'s - Deferred Tax (150) (21) 171 - Other - 10 (10) Translation 1 (20) differences Profit for the 118 period Equity, Jun 30, 1999 519 3,553 (318) (386) Total Restricted & 4,072 (704) Retained Losses REVIEW OF THE GROUP (MSEK) 1999 1998 1998 Jan 1 - JunJan 1 - Jun Full Year 30 30 Operating revenue by business area Tele2 AB: -Mobile telephony 1,749 1,353 2,958 -Fixed telephony included 1,251 1,105 2,223 Internet -Cable Television 60 81 137 3,060 2,539 5,318 Tele2 Norway 156 60 169 Tele2 Denmark 445 233 546 Other operations 291 53 197 Parent Company 5 2 6 Adjustments for sales internal (292) (102) (267) Total 3,665 2,785 5,969 Operating profit by business area Tele2 AB: -Mobile telephony 595 477 1,004 -Fixed telephony included 16 75 46 Internet -Cable Television (37) (22) (60) 574 530 990 Tele2 Norway (44) (83) (110) Tele2 Denmark (85) (74) (156) Other operations 10 (6) (37) Parent company 8 (69) (90) Group adjustments, depreciation (58) (38) (79) Total 405 260 518 Profit/loss after financial items by business area Tele2 464 350 651 Tele2 Norway (59) (89) (128) Tele2 Denmark (100) (81) (176) Other operations (6) 20 3 Parent company 39 (38) (29) Share of profit (loss) from 8 (2) (10) associated companies Group adjustments, depreciation (58) (38) (79) Total 288 122 232 REVIEW OF THE GROUP (MSEK), continued 1999 1998 1998 Jan 1 - JunJan 1 - Jun Full Year 30 30 Investments by business area Tele2 AB: -Mobile telephony 269 304 612 -Fixed telephony included 269 216 572 Internet -Cable Television 6 4 17 -Purchase of companies (net) 435 11 95 979 535 1,296 Tele2 Norway 23 49 69 Tele2 Denmark 44 53 130 Other operations 67 25 60 Parent company, tangible assets - (2) (4) Parent company, purchase of 35 - 319 companies (net) Long-term receivables, change - - (29) 1,148 660 1,841 Finance lease 42 96 118 Total investments including 1,190 756 1,959 finance lease QUARTERLY HISTORIC FINANCIAL REVIEW (MSEK) 1999 1999 1998 1998 1998 1998 Q2 Q1 Q4 Q3 Q2 Q1 Operating revenue by business area Tele2 AB: -Mobile telephony 936 813 809 796 749 604 -Fixed telephony included 627 624 592 526 530 575 Internet -Cable Television 28 32 30 26 36 45 1,469 1,591 1,431 1,348 1,315 1,224 Tele2 Norway 84 72 70 39 33 27 Tele2 Denmark 242 203 172 141 124 109 Other operations 157 134 91 53 35 18 Parent company 3 2 2 2 1 1 Adjustments for sales (142) (63) (60) (42) internal (150) (102) Total 1,738 1,927 1,664 1,520 1,448 1,337 Operating profit by business area Tele2 AB: -Mobile telephony 310 285 205 322 263 214 -Fixed telephony included (5) 21 (11) (18) 13 62 Internet -Cable Television (20) (17) (16) (22) (18) (4) 285 289 178 282 258 272 Tele2 Norway (21) (23) (7) (20) (41) (42) Tele2 Denmark (34) (51) (56) (26) (47) (27) Other operations (2) 12 (29) (2) (1) (5) Parent company (11) 19 (39) 18 (37) (32) Group adjustments, (29) (29) (20) (21) (17) (21) depreciation Total 188 217 27 231 115 145 Profit/loss after financial items by business area Tele2 239 225 103 198 159 191 Tele2 Norway (29) (30) (15) (24) (45) (44) Tele2 Denmark (42) (58) (63) (32) (51) (30) Other operations (10) 4 (26) 9 26 (6) Parent company 3 36 (25) 34 (19) (19) Shares of profit (loss) 2 6 (11) 3 5 (7) from associated companies Group adjustments, (29) (29) (20) (21) (17) (21) depreciation Total 134 154 (57) 167 58 64 QUARTERLY HISTORIC FINANCIAL REVIEW (MSEK) continued 1999 1999 1998 1998 1998 1998 Q2 Q1 Q4 Q3 Q2 Q1 Investments by business area Tele2 AB: -Mobile telephony 142 127 186 122 172 132 -Fixed telephony included 114 155 165 191 123 93 Internet -Cable Television 3 3 12 1 4 - -Purchase of companies 10 425 - 84 - 11 (net) 269 710 363 398 299 236 Tele2 Norway 10 13 20 - 25 24 Tele2 Denmark 15 29 52 25 24 29 Other operations 25 42 21 14 12 13 Parent company, tangible - - (2) - (1) (1) assets Parent company, purchase 2 33 319 - - - of companies (net) Long-term receivables, - - (29) - - - change 321 827 744 437 359 301 Finance leases 1 41 3 19 2 94 Total investments 322 868 747 456 361 395 including finance leases FIVE YEAR SUMMARY 1999 1998 1998 1997 1996 1995* 6 6 months months Income Statement and Balance Sheet (MSEK) Operating revenue 3,665 2,785 5 969 4 036 2 872 1 953 Operating profit before 860 590 1 223 1 000 651 (431) depreciation Operating profit after 405 260 518 392 254 (728) depreciation Profit/loss after 288 122 232 (37) 29 (1 456) financial items Shareholders' equity 3,368 3,218 3 269 3 156 2 276 (910) Shareholders' equity, 3,368 3,218 3 269 3 193 2 923 (910) after full conversion Total assets 8,618 10 8 684 7 527 4 831 10,956 189 Cash flow provided by 354 646 990 411 610 (759) operating activities Liquidity 326 1,198 821 1 499 819 189 Net borrowing 5,559 3,677 4 600 3 579 3 894 4 555 Net borrowing, after full 5,559 3,677 4 600 3 542 3 247 4 555 conversion Investments including 1,190 756 1 959 1 117 1 016 1 006 financial lease** Key ratio (%) Solidity 31% 37% 32% 36% 30%Negative Solidity, after full 31% 37% 32% 37% 39%Negative conversion Return on shareholders' 3.5% 1.2% 2.1% 3.2%Negati Negative equity ve Return on shareholders' 3.5% 1.2% 2.1% 3.2%Negati Negative equity, after full ve conversion Return on capital employed 5.0% 3.7% 6.7% 4.8% 1.3% Negative Average interest rate 5.2% 6.7% 6.6% 7.1% 8.9% 11.5% Average interest rate, 5.2% 6.7% 6.6% 7.1% 8.6% 11.5% after full conversion Value per share (SEK) Profit/loss 1.13 0.37 0.64 0.50 2.80Negative Profit/loss, after full 1.13 0.37 0.64 0.57 2.78Negative conversion -of which Tele2 Norway (0.57) (0.86) (1.24) (0.46) (0.12) -of which Tele2 Denmark (0.97) (0.78) (1.69) (0.79) (0.16) -of which associated 2.52 companies (0.09) (0.05) (0.14) (0.85) -of which Tele2 Sweden 2.76 2.06 3.71 2.67 0.54 and other ops Shareholders' equity 32.43 31.15 31.55 32.18 25.78Negative Shareholders' equity, 32.43 31.00 31.48 30.86 28.70Negative after full conversion Market value at closing - day 286.00 305.50 330.00 170.50 110.50 P/E-ratio 39.40 - 126.16 412.42 512.92 344.43 P/E-ratio, after full 39.81 - conversion 126.16 408.03 514.17 298.12 * The NetCom group was, until market flotation in 1996, a wholly owned subsidiary of Industriförvaltnings AB Kinnevik. **Finance leases are included from January 1, 1997. For definitions please see the 1998 Annual Report. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/08/17/19990816BIT00530/bit0001.doc http://www.bit.se/bitonline/1999/08/17/19990816BIT00530/bit0002.pdf