First Quarter Report January - March 2002

First Quarter Report January-March 2002 Telia ab (publ), SE-123 86 Farsta, Corp. Reg. No. 556103-4249, Registered office: Stockholm Q1 in Brief · Group net sales increased 2 percent to msek 13,885 (13,592) - Core business +9 percent · Underlying ebitda increased to msek 3,381 (3,348) - Core business +5 percent · Earnings after financial items climbed to msek 535 (502) · Capital expenditure (capex) decreased to msek 2,022 (3,568) · The number of employees totaled 16,804 (29,936) · Telia and Sonera announced plans to merge Review of Group Earnings Jan.- Jan.- Jan.- msek March March Dec. 2002 2001 2001 Net sales 13,885 13,592 57,196 Change in net sales (%) 2.2 5.7 5.8 Underlying ebitda 3,381 3,348 12,915 Underlying ebitda margin (%) 24.4 24.6 22.6 Operating income 709 811 5,460 Income after financial items 535 502 4,808 Net income 127 291 1,869 Basic and diluted ernings per share (sek) 0.04 0.10 0.62 Investments 2,053 3,659 20,735 of which capex 2,022 3,568 17,713 of which acquisitions 31 91 3,022 Comments from Marianne Nivert, President and CEO "We have seen a positive trend in our core businesses and we can already see the effects of the streamlining measures in Telia Internet Services and Telia International Carrier. "As already announced, we are stepping down our investments now, which will have a positive impact on cash flow. "In the planned merger, Telia and Sonera will together form a strong and successful telecommunications company in northern Europe," says Marianne Nivert. Review of the Group Sales and Earnings The Telia Group's net sales increased 2 percent to msek 13,885 during the first quarter compared to the corresponding quarter 2001. Sales for comparable operations increased 9 percent. Underlying ebitda increased 1 percent to msek 3,381. Telia's sales and earnings were affected by the divestiture of non-core operations carried out in 2001 as part of the Group's refine and focus efforts. In the core businesses, which showed a stronger development than the Group as a whole, sales rose 9 percent and underlying ebitda increased 5 percent. Net Sales per Buiness Area 1) Jan-Mar Jan-Mar Jan-Dec 2002 Chg. 2001 2001 MSEK % MSEK MSEK Mobile 4,654 16.8 3,985 17,857 Internet Services 975 36.4 715 3,288 International Carrier 1,014 35.2 750 3,652 Networks 6,909 -1.7 7,027 29,159 Retail market 5,827 -6.5 6,230 24,802 Wholesale market 1,082 35.8 797 4,357 Group-wide 333 -70.1 1,115 3,240 Staff, support, programs & other 73 43.1 51 168 Holding 260 -75.6 1,064 3,072 Total 13,885 2.2 13,592 57,196 of which core business 13,625 8.8 12,528 54,124 1) For further information: www.telia.com, Investor Relations, Financial Information, External Net Sales per Business Area and Product Segment (specification). Sales in Telia Mobile surged 17 percent to msek 4,654. Growth was particularly strong on the Norwegian market. The number of new mobile customers increased by 75,000 to 5,011,000 in the first quarter. Underlying ebitda climbed 6 percent to msek 1,234. The margin fell from 26 to 24 percent, though this was an improvement compared to the fourth quarter of 2001. Demand for broadband remained strong and led to a 36 percent jump in the sales of Telia Internet Services, to msek 975. Earnings improved by msek 180 as a result of the streamlining. Compared with the fourth quarter 2001, the improvement in earnings was msek 53. Telia is the leading broadband provider in Sweden and is the second leading provider in Denmark. The carrier market continues to be characterized by weak growth and sustained price pressure. Telia International Carrier strengthened its market position and sales rose 35 percent to msek 1,014. Sales remained at approximately the same level compared with the fourth quarter 2001. Earnings improved during the period. Compared with the fourth quarter 2001, underlying ebitda improved by msek 50. Telia Networks increased its fixed network wholesale sales 24 percent for comparable operations. The increase largely compensated for reduced revenues on the Swedish retail market, where local carrier preselection was implemented on February 2, 2002. Underlying ebitda and Operating Income Jan-Mar Jan-Mar Jan-Dec MSEK 2002 2001 2001 Mobile 1,234 1,167 4,705 Internet Services -170 -350 -970 International Carrier -331 -265 -1,569 Networks 2,814 2,837 11,710 Group-wide -166 -41 -961 Staff, support, programs & other -238 -238 -1,226 Holding 72 197 265 Total underlying ebitda 3,381 3,348 12,915 of which core business 3,309 3,151 12,650 Depreciation, amortization & write-downs -2,707 -2,410 -13,975 Non-recurring items & pensions 23 30 384 Income from associated companies 12 -157 6,136 Operating income 709 811 5,460 Sales for Telia Networks as a whole fell 2 percent to msek 6,909. Sales for comparable operations fell 1 percent. Underlying ebitda totaled msek 2,814, which is on the same level as the comparative quarter. For Group-wide functions and projects (staff, support, programs & other), underlying ebitda amounted to msek -238, which is on the same level as the corresponding quarter 2001. Depreciation, amortization and write-downs increased to msek 2,707 (2,410). This is attributable to major investments made in 2001 in the buildout of broadband in Sweden, in capacity reinforcements in the Swedish fixed network and in the expansion of the international carrier network. Non-recurring items totaled msek 23 (30). Income from Associated Companies Jan-Mar Jan-Mar Jan-Dec MSEK 2002 2001 2001 Core business 23 -403 -2,103 Baltic states (Mobile/Networks) 35 23 195 Netia (Networks) 0 -143 -2,464 Comsource/Eircom (Networks) 0 -204 126 Other -12 -79 40 Holding -11 246 8,239 Unisource/aucs 0 -49 -372 Telia Overseas 17 -2 2,794 Eniro - 292 6,052 Other -28 5 -235 Total 12 -157 6,136 Earnings from associated companies improved to msek 12 (-157), despite non-recurring items in the comparative period in the form of capital gains and issue proceeds of msek 607. The improved performance is attributable to the divestiture in 2001 of associated companies that previously reported losses, such as Tess, Eircom and Scandinavia Online. The improvement is also because the earnings in Netia had no effect as the book value of Telia's holdings in the company was zero at the beginning of the year. Operating income totaled msek 709 (811). Financial items declined to msek 174 (309). Earnings after financial items climbed to msek 535 (502). Net income totaled msek 127 (291). Financial Position and Cash Flow The Group's financial position remains good. Total assets decreased during the first quarter, chiefly attributable to the use of capital gains from the sale of businesses at the end of 2001 to amortize loans. The asset turnover rate and equity/assets ratio improved. March 31 Dec. 31 Dec. 31 MSEK 2002 2001 2000 Interest coverage ratio (multiple) 2.0 3.0 7.3 Change in total assets (%) -7.1 4.5 60.2 Asset turnover ratio (multiple) 0.47 0.46 0.54 Equity/assets ratio (%) 49.2 46.2 44.4 Capital employed 84,634 90,971 92,374 Operating capital 70,715 70,150 75,042 Net interest-bearing liability 11,908 10,661 20,235 Debt/equity ratio (multiple) 0.20 0.18 0.37 Operating cash flow was negative during the period (msek -865), but was greatly strengthened compared with the first quarter of the preceding year (msek -3,026). The improvement is a result of the planned decrease in the level of investment and a reduction in the seasonal increase in working capital. Net indebtedness increased somewhat compared with year-end, the debt/equity ratio continues to be low compared to other operators with similar business. Financial Risk Management Foreign Exchange Risk The Telia Group has a relatively limited operational need to net purchase foreign currency, primarily due to the settlement deficit in telephony traffic and import of materials. Telia's general policy is normally to hedge the majority of known operational conversion exposure up to 12 months into the future. Given an operational net transaction exposure equal to that of 2001, and provided that no hedging measures were taken, there would be a negative impact on Group earnings of approximately msek 30 on an annual basis if the Swedish krona weakened one percent against the transaction currencies. The Group is growing relatively robustly in other countries, which implies rising conversion exposure. Telia manages this in various ways, depending on the following factors: investment horizon, size of commitment, the country in which we are doing business, and the currency. With consideration given to fiscal effects, Telia normally hedges translation exposure that is relatively short-term, involves substantial amounts, and which is located in a country with a stable financial market or is denominated in a readily available currency. Telia does not hedge to the same extent exposure that is long-term or of lesser amounts in countries or currencies that are difficult to manage from a financial perspective. As of March 31, the Group had hedged conversion exposure equal to approximately msek 480. Interest Rate Risk Telia's financial policy provides guidelines for fixing interest rates on loan debt relative to the average life of the loan. The Group's policy is that the duration of loan debt should be from six months to four years. The Group arrived at this duration range by balancing the estimated ongoing cost of borrowing and the risk of significant negative impact on earnings should there be a sudden, major change in interest rates. The general principle is to optimize interest rate risk from an overall Group perspective. Approximately gsek 5 was used during the first quarter of 2002 to repay loans. As of March 31, the Group had interest-bearing liabilities of approximately gsek 24 with duration of approximately two years. Financing and Liquidity Risk Telia is considered one of the most creditworthy telecommunications companies in Europe, which gives the Group good opportunities to finance operations using the financial markets. In April, the credit rating agency Standard & Poor's downgraded its credit rating for Telia AB to A+ for long-term borrowing and to A-1 for short-term borrowing. Standard & Poor's also put Telia's rating on its watch list for possible downgrading in light of the bid on Sonera Oyj. Telia's rating from the credit rating agency Moody's is the highest possible, P-1, for short-term borrowing. Telias's rating from Moody's for long-term borrowing is A1. Moody's has also posted Telia's rating on its watch list for possible downgrading. Telia AB has a Revolving Credit Facility, i.e., confirmed loan commitments from a consortium of leading international banks, which constitutes a liquidity tool for the Group. At present, the loan commitment amounts to musd 1,000 or the equivalent value in certain other currencies. It was not utilized as of March 31. Investments In line with Telia's previously published focus, investments decreased 44 percent compared to the same quarter of 2001. Investments by Class of Asset Jan-Mar Jan-Mar Jan-Dec MSEK 2002 2001 2001 Goodwill 4 29 448 Other intangible assets 59 52 1,316 Real estate 48 57 269 Machinery and equipment 1,915 3,459 16,128 Fixed networks 354 422 7,022 Mobile networks 402 349 2,124 Other machinery and equipment 1,159 2,688 6,982 Shares and participations 27 62 2,574 Total 2,053 3,659 20,735 The decrease is primarily attributable to the international carrier operations, where the buildout of the Viking Network is in its final stages. Telia's network investments are now focused on demand-driven capacity expansion. Employees The Group's refine and focus strategy, primarily the partial divestiture of Telefos and the sale of Orbiant, entailed a 33 percent reduction in the average number of full-time employees, to 16,671 during the first quarter compared with 24,979 for the full year 2001. Telia and Sonera Announced Plans to Merge On March 26, 2002, Telia and Sonera announced their plan to merge. The merger will create the leading telecommunications group in the Nordic and Baltic regions with combined preliminary pro-forma 2001 revenues of gsek 83, underlying ebitda of gsek 20.8 and operating income of gsek 11.4 and approximately 34,000 employees. The home market for the combined group comprises 31 million people in the Nordic and Baltic countries. The combined entity is expected to have 8.1 million mobile customers and 7.6 million fixed line customers across the Nordic and Baltic regions. The associated companies of the combined group are expected to have 14.6 million mobile customers and 1.2 million fixed line customers. Telia and Sonera expect significant cost and capital expenditure synergies as a result of the merger. Full cost synergies are expected to be derived in 2005 and are estimated at gsek 2.7. Approximately 50 percent of the full amount is expected to be realized in 2003, and 75 percent in 2004. The capital expenditure synergies are expected to peak during 2004 at approximately msek 900. After 2005, continued capital expenditure synergies are expected to amount to msek 450 per year. One-off costs (excluding transaction costs) resulting from the merger are expected to be limited in 2002 and total gsek 2.3 in 2003. Telia and Sonera conservatively estimate pre-tax cash flow synergies to be approximately gsek 2.7 per year after 2005. The merger will be effected through an exchange offer to all shareholders of Sonera by Telia. Sonera shareholders will receive 1.51440 Telia shares in exchange for each Sonera share. Pro-forma ownership of the new group will be 64 percent for current Telia shareholders and 36 percent for current Sonera shareholders, assuming 100 percent acceptance of the offer. The merged company will have a primary listing on Stockholmsbörsen (Stockholm Exchange) and will seek secondary listings on the Helsinki Stock Exchange and in the United States. Anders Igel New CEO on July 1 Anders Igel, who was presented as Telia's new President and CEO on April 8, will take up his new position on July 1, 2002. On that date, Marianne Nivert will end her present role as President and CEO to retire on August 31, 2002. Financial Information Semiannual Report Jan.-June Aug 6 Third Quarter Report Jan.-Sept. Nov 4 Questions regarding content: Telia ab, Investor Relations SE-123 86 Farsta, Sweden Tel. +46 (0)8 713 10 00 Fax +46 (0)8 713 69 47 www.telia.com, Investor Relations Printed reports may be ordered via: Tel. +46 (0)8 713 71 43 Fax +46 (0)8 604 54 72 www.telia.com, Investor Relations ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/05/06/20020506BIT00750/wkr0001.doc The Full Report http://www.waymaker.net/bitonline/2002/05/06/20020506BIT00750/wkr0002.pdf The Full Report