TeliaSonera January-December 2012

MegaFon contributed to record-high free cash flow in 2012

Fourth quarter

• Net sales in local currencies and excluding acquisitions increased 1.8 percent. In reported currency, net sales decreased 0.7 percent to SEK 27,069 million (27,259).
• The addressable cost base in local currencies and excluding acquisitions decreased 0.8 percent. In reported currency, the addressable cost base decreased 3.2 percent to SEK 7,399 million (7,646).
• EBITDA, excluding non-recurring items, decreased 0.6 percent in local currencies and excluding acquisitions. In reported currency, EBITDA, excluding non-recurring items, decreased 3.2 percent to SEK 8,974 million (9,269). The EBITDA margin, excluding non-recurring items, decreased to 33.2 percent (34.0).
• Operating income, excluding non-recurring items, decreased 0.8 percent to SEK 7,608 million (7,671).
• Net income attributable to the owners of the parent company increased 34.9 percent to SEK 6,880 million (5,100) and earnings per share to SEK 1.59 (1.18).
• Free cash flow increased to SEK 2,934 million (552), mainly due to lower cash CAPEX and changes in working capital.
• During the quarter the number of subscriptions grew by 1.7 million in the consolidated operations and by 2.3 million in the associated companies. The total number of subscriptions was 183.0 million.

Full year

• Net sales in local currencies and excluding acquisitions increased 1.2 percent. In reported currency, net sales were unchanged at SEK 104,898 million (104,804).
• Net income attributable to owners of the parent company increased 8.1 percent to SEK 19,886 million (18,388) and earnings per share to SEK 4.59 (4.21).
• Free cash flow increased to SEK 23,740 million (9,415), including a dividend from MegaFon of SEK 11,726 million net of taxes.
• The Board of Directors proposes an ordinary dividend of SEK 2.85 per share (2.85), totaling SEK 12.3 billion (12.3), or 62 percent (68) of net income attributable to owners of the parent company.

Comments by Lars Nyberg, President and CEO

“Trends improved in the fourth quarter which resulted in a revenue growth of 1.2 percent in local currencies for the full year, slightly ahead of our guidance. All countries in Eurasia are again delivering positive revenue growth in the fourth quarter, resulting in a total growth of more than 16 percent. Mobility Services saw higher equipment sales but also better trends in service revenues in several markets. Within Broadband Services, the growth of our fiber customer base accelerated towards the end of the year and we saw an encouraging improvement in our customer operations with a significant reduction of unwanted calls.

During 2012, we delivered the second highest net earnings since the merger between Telia and Sonera in 2002. Albeit some was attributable to positive one-off items, we kept a healthy balance between growth in net sales and costs. In order to maintain our profitability we are determined to fundamentally change our business and simplify our way of working. We have already started implementing measures that will lead to a cost reduction of SEK 2 billion net over the coming two years, including personnel reductions net of 2,000 employees as announced in October. In the fourth quarter, 300 jobs in Sweden and Finland were effected by these measures. During 2013, 1,800 employees in the Nordics and Baltics will be effected and the total cost for these reductions is estimated to SEK 1.7 billion. At the same time, we see a need to recruit new competence.

In the fourth quarter, and in a relatively tough stock market, we were able to successfully complete the initial public offerings of both MegaFon and Kcell as well as divesting NextGenTel in Norway. After several years of ownership disputes in MegaFon, we settled the differences between the shareholders and reached our goal of having a transparent, liquid and direct ownership in Russia’s second largest mobile operator. It is amazing that our investment of a mere SEK 1.2 billion since the company’s inception in 1994 has grown to around SEK 55 billion including dividends, sale of shares and the value of our remaining 25 percent ownership.

The result of the IPO’s of MegaFon and Kcell led to that we are now comfortably within our debt target. While several of our peers in the sector have cut or even removed their dividends due to macroeconomic and industrial challenges, the Board of Directors has proposed to keep the ordinary dividend unchanged at SEK 2.85 per share based on our solid financial position.

In the autumn of 2012, we faced severe media allegations of corruption and money laundering, related to our investments in Uzbekistan, dating back to 2007. Although we are confident that the allegations are legally unfounded, we took these allegations seriously and the Board initiated an external review by one of Sweden’s most well-renowned law firms. The Swedish Prosecuting Authorities initiated a separate investigation of the matter, which may take one to two years to complete.

Sustainability is becoming more and more important to all industries and companies. In 2012, TeliaSonera partnered with the Danish Institute for Human Rights (DIHR) to define and support an internal assessment of risks that could potentially lead to involvement in human rights violations. DIHR will provide an independent expert review of the analysis and also assess the first stages of implementation of TeliaSonera’s consequent mitigation plan. In particular, freedom of expression and privacy are growing in importance for companies across the ICT sector. TeliaSonera, as a founding member of the “Industry Dialogue”, counting ten leading telecom companies, has actively participated in the definition of common principles for the telecommunication sector. These principles will shortly be signed off by the participants and pave the way for other companies to join the initiative.

Looking ahead, we believe our revenues in local currencies in 2013 will be at the same level as last year and the EBITDA margin, excluding non-recurring items, to increase somewhat.”

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
www.teliasonera.com

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 January 31, 2013.

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