Telia Company year-end report January-December 2017

STRONG CASH FLOW AND COST CONTROL

Fourth quarter summary

• Net sales in local currencies, excluding acquisitions and disposals, declined 0.3 percent. In reported currency, net sales rose 0.3 percent to SEK 21,187 million (21,130). Service revenues in local currencies, excluding acquisitions and disposals, declined 2.3 percent.
• Adjusted EBITDA rose 3.8 percent in local currencies, excluding acquisitions and disposals. In reported currency, adjusted EBITDA, rose 3.3 percent to SEK 6,590 million (6,380). The adjusted EBITDA margin rose to 31.1 percent (30.2).
• Income from associated companies and joint ventures improved to SEK 3,174 million (424) mainly due to the disposal of 6.2 percent in MegaFon.
• Adjusted operating income rose 0.3 percent to SEK 3,750 million (3,737).
• Financial items totaled SEK -2,191 million (-351). The negative effect was related to bond buy-back transactions affecting net interest expenses by SEK 445 million. Financial items were also negatively affected by the disposal of the remaining 19.0 percent holding in MegaFon, classified as a financial asset prior the disposal.
• Based on the most recent developments in the ongoing sales processes for Fintur, management’s best estimates of the fair values less costs to sell for the Fintur units per December 31, 2017, have resulted in a total impairment of SEK 3,550 million in the fourth quarter affecting net income from discontinued operations, whereof SEK 2,550 million relates to Azercell, SEK 450 million to Moldcell and SEK 550 million to Geocell, respectively. In addition, an impairment charge of SEK 300 million was recognized related to Ucell.
• Total net income attributable to the owners of the parent fell to SEK 754 million (7,338) due to the combined net effect of the disposals of MegaFon and the impairments in discontinued operations whilst 2016 was positively affected by a capital gain from the disposal of Yoigo. Total net income fell to SEK 768 million (7,325).
• CAPEX, excluding licenses and spectrum fees amounted to SEK 4,549 million (4,532). Cash CAPEX in continuing operations was SEK 4,603 million (4,659).
• Free cash flow in continuing and discontinued operations increased to SEK 1,586 million (-381) mainly due to lower cash CAPEX in discontinued operations and improved working capital. The improved working capital also affected Operational free cash flow in continuing operations that increased to SEK 803 million (-328).

Full year summary

• Net sales in local currencies, excluding acquisitions and disposals, rose 0.4 percent. In reported currency, net sales fell 5.1 percent to SEK 79,867 million (84,178). Service revenues in local currencies, excluding acquisitions and disposals fell 0.6 percent.
• Adjusted EBITDA fell 0.2 percent in local currencies, excluding acquisitions and disposals. In reported currency, adjusted EBITDA, fell 1.5 percent to SEK 25,438 million (25,836). The adjusted EBITDA margin rose to 31.9 percent (30.7).
• Income from associated companies and joint ventures fell to SEK 778 million (2,810) mainly driven by capital losses (due to a cumulative exchange losses in equity reclassified to net income) of SEK 3,739 million from the two disposals of 7.0 percent holding each in Turkcell in the second and third quarter and lower contribution from MegaFon up until the disposal. These effects were offset by disposal of 6.2 percent in MegaFon during the fourth quarter.
• Adjusted operating income declined 12.0 percent to SEK 15,069 million (17,123).
• Financial items totaled SEK -4,234 million (-1,841). The negative effect was related to bond buy-back transactions affecting net interest expenses by SEK 805 million. Financial items were also negatively affected by the disposal of the remaining 19.0 percent holding in MegaFon, classified as a financial asset prior the disposal.
• Total net income rose to SEK 10,146 million (6,496).
• CAPEX excluding license and spectrum fees totaled SEK 15,215 million (15,016). Cash CAPEX in continuing operations was SEK 14,509 million (15,358).
• Net debt, in continuing and discontinued operations, decreased to SEK 33,823 million (50,756). The decrease is mainly related to the disposals of MegaFon and shares in Turkcell, the strong cash flow generation and the issue of hybrid capital. The net debt/adjusted EBITDA ratio was 1.14x (1.69x).
• Free cash flow in continuing and discontinued operations amounted to SEK 7,164 million (7,267) and was underlying affected by a negative change in working capital driven mainly by the payment of the settlement regarding the Uzbekistan investigation offset by decreased cash CAPEX in both continuing and discontinued operations.
• The board proposes an ordinary dividend of SEK 2.30 per share, equal to a 15 percent growth, to be distributed to our shareholders.

Comments by Johan Dennelind, President & CEO
    
“Dear shareholders and Telia followers, I am pleased to deliver a 2017 result where our operational free cash flow from continuing operations clearly exceeds our expectations and where EBITDA is in line with our outlook. The strong cash flow generation comes from two key factors. Firstly our enhanced initiatives around working capital, where the benefits have come earlier than we had anticipated and where we see positive momentum which will also continue into 2018. Secondly we are reducing cash CAPEX, mainly coming from our newly implemented in-vestment model as well as cross company efficiency and sourcing synergies. This is all in line with our competitive operations pillar in our strategy. The SEK 9.7 billion cash flow level is seen to be maintained in 2018 and growing further the years after. The EBITDA growth in the fourth quarter reached 4 percent. Excluding the onetime fiber installation fees the growth was 7 percent, supported by a reduction of operational expenses in Sweden by 6 per-cent, a strong achievement. This leaves us with a solid platform entering 2018 where we expect group EBITDA to be in line or slightly above 2017. Our dividend policy of distributing at least 80 percent of the combined operational free cash flow and dividends from associated companies, results in a proposal from the board for an ordinary dividend of SEK 2.30 equal to a 15 percent growth.
  
Reflecting on 2017 we have made progress in line with our strategy to create the New Generation Telco. We aim to have superior network connectivity and I am pleased to see that we have the best mobile networks in 5 out of 7 countries. In the convergence part of our strategy Finland leads the way, within enterprise with acquisition of Nebula and within consumer the acquisition of ice hockey rights. We have more to come in 2018 throughout our footprint notably in Sweden with the Telia Life concept. Further on our competitive operations we have reduced operational expenses in Sweden in the second half of 2017 as we set out to do. We are on track to reach our ambition for the group of reducing overall costs by SEK 1.1 billion on net basis for 2018. Our cash CAPEX level was reduced in 2017 with-out compromising on our superior network ambition. We expect a further reduction in 2018 thanks to better coordination in our group and due to lower fiber deployments. Our market shares in the Nordic and Baltic footprint are largely maintained. We also see good signs in increasing revenues close to the core as the organic IoT revenue growth doubled in 2017, which is projected to take another step up in 2018.
   
The divestment of our entire ownership in MegaFon brought SEK 11.8 billion in cash in the fourth quarter. This contributes to a stronger focus on the Nordics and Baltics.
  
A part of the foundation upon which we build our strategy is to lead sustainable business with strong governance with best-in class ethics and compliance. The fact that the Church of Sweden after four and a half years has decided to con-sider investing in Telia Company again is likely among the strongest proof point of the improvements we have made in this area.
  
The revenue decline in legacy products and the pressure within some enterprise segments remain. However, there are many things to look forward to with excitement in 2018. We bring award winning networks, value from some really good acquisitions and a clear cost program into the year. Our outlook for 2018 implies an operational free cash flow, from continuing operations, to be around the 2017 level (SEK 9.7 billion). The Adjusted EBITDA from continuing operations based on current structure, is expected to be in line or slightly above the 2017 level (SEK 25.4 billion). The operational free cash flow together with dividends from associated companies, should cover a dividend around the 2017 level.”
  
Johan Dennelind, President & 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 26 January, 2018.
  
For more information, please contact our press office +46 771 77 58 30, visit our Newsroom or follow us on Twitter @Teliacompany .
   
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.
    
We’re Telia Company, the New Generation Telco. Our 21,000 talented colleagues serve millions of customers every day in one of the world’s most connected regions. With a strong connectivity base, we’re the hub in the digital ecosystem, empowering people, companies and societies to stay in touch with everything that matters 24/7/365 - on their terms. Headquartered in Stockholm, the heart of innovation and technology, we’re set to change the industry and bring the world even closer for our customers. Read more at www.teliacompany.com.

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