Telia Interim Report January-September 2002

Interim Report January-September 2002Telia ab (publ), SE-123 86 Farsta, Corp. Reg. No. 556103-4249, Registered office: Stockholm Q3 in Brief · Underlying ebitda improved 25 % to msek 4,281 (3,420). Substantially strengthened margin from 24 % to 30 % · Strong free cash flow of msek 2,059 · Restructuring of the Danish fixed network operations affected operating income by msek -3,072 · Costs totaling msek 12,089 for restructuring and streamlining efforts, primarily within International Carrier and the Danish fixed network operations, impacted operating income, falling to msek -10,815 (2,745) · Net sales increased to msek 14,496 (14,431). Sales for comparable units increased 5 % · The prospectus for the merger with Sonera was published on September 30, 2002 Review of Earnings Jul-Sep Jul-Sep Jan-Sep Jan-Sep Jan-Dec msek 2002 2001 2002 2001 2001 Net sales 14,496 14,431 42,727 42,226 57,196 Change in net sales (%) 0.5 7.0 1.2 6.8 5.8 Underlying ebitda 4,281 3,420 11,249 9,782 12,915 Underlying ebitda margin (%) 29.5 23.7 26.3 23.2 22.6 Depreciation, amortization and -11,057 -2,775 -16,768 -7,690 -13,975 write-downs Items not reflecting -3,997 -239 -4,801 62 384 underlying business operations Income from associated -42 2,339 333 2,390 6,136 companies Operating income -10,815 2,745 -9,987 4,544 5,460 Income after financial items -10,964 2,491 -10,507 3,902 4,808 Net income -10,118 1,900 -9,961 2,441 1,869 Basic and diluted -3.37 0.63 -3.32 0.81 0.62 loss/earnings per share (sek) Free cash flow 2,059 -1,527 2,674 -5,913 -6,506 Investments 1,956 5,965 6,646 15,578 20,735 of which capex 1,783 5,630 5,896 12,864 17,713 Number of employees 16,244 22,509 16,244 22,509 17,149 Comments from Anders Igel, President and CEO of Telia - The efficiency programs carried out during the year are beginning to yield positive results. It is gratifying to note that earnings, excluding restructuring costs and write-downs, showed substantial improvement during the quarter. The significant increase in the underlying ebitda margin combined with reduced investments resulted in a sharp increase in free cash flow. - During the third quarter, we have reviewed operations that did not show satisfactory earnings trends, specifically the international carrier operations, which we previously announced, and the fixed network operations in Denmark. We are now taking action to deal with operations that are a drain on Telia's earnings. These actions have resulted in substantial costs for restructuring and write-downs, which explains the negative operating income. - On September 30, we published the prospectus for the planned merger between Telia and Sonera and merger preparations are fully underway. Review of the Group Underlying ebitda margin reached 30 percent. Extensive streamlining costs impacted operating income Net sales for the Telia Group increased 0.5 percent to msek 14,496 during the third quarter. Sales were affected by the extensive divestitures in 2001 as part of the Group's refinement. Sales for comparable units increased 5 percent. Demand remained good in all growth areas. During the third quarter, Mobile's sales increased 12 percent; Internet Services' sales increased 30 percent; and International Carrier's sales increased 17 percent. Within Networks, sales fell 4 percent for comparable units due to the introduction of local carrier preselection in Sweden. Net Sales and Margins by Quarter (MSEK) [REMOVED GRAPHICS] Significantly improved underlying ebitda The program of ongoing efficiency-enhancing measures is starting to yield results. During the third quarter, underlying ebitda climbed a full 25 percent to msek 4,281 and the margin improved from 24 to 30 percent. Mobile's margin increased from 26 to 31 percent; Internet Services improved its earnings 60 percent; and the increase for International Carrier was 58 percent. Weak development in Denmark led to a decreased margin within Networks, dropping from 38 percent to 35 percent. Underlying ebitda in the Swedish fixed network operations improved and the margin was strengthened from 41 to 42 percent. Distribution of Net Sales in Q3 [REMOVED GRAPHICS] Extensive restructuring and efficiency measures The International Carrier business area and operations in Denmark have undergone an extensive review. Looking forward, the International Carrier operations will be concentrated to wholesale sales of capacity, ip and voice to large customers on the profitable segments of Telia's wholly owned network in Europe and across the Atlantic. The expected result of these measures is for the carrier operations to report positive cash flow on a monthly basis in 2003, adjusted for restructuring costs. Telia's Danish mobile and fixed network operations have so far had a negative impact on Telia's earnings. The cable TV operations, including Internet Cable, have developed well with a positive contribution to ebitda. Customer growth in the Danish mobile operations was good and the number of customers now totals 449,000. This means that the focus of the cable TV and mobile operations will be sustained. The Danish fixed network operations and Internet services, including broadband over ADSL show unsatisfactory development, however, and Telia deems that the current focus will not lead to satisfactory profitability. For this reason, the operations are now being switched to focus on potentially profitable areas and the product range and operating costs will be cut by more than half. The objective is to attain positive underlying ebitda at the end of 2003. The possibility of reaching this objective however, is greatly dependent on the regulatory developments in Denmark, among other factors. To adapt the operations to the new focus and to streamline other operations in the Group, costs totaling msek 12,089 were incurred in the third quarter, of which msek 3,160 were for restructuring and msek 8,929 entailed write-downs. Depreciation, amortization, and write-downs in the third quarter totaled msek 11,057 (2,775). Write-downs totaled msek 8,112 (149) and mainly comprised write-downs of fixed assets in International Carrier and the fixed network operations in Denmark. Items not reflecting underlying business operations totaled msek -3,997 (msek -239) and mainly referred to restructuring costs within International Carrier and the fixed network operations in Denmark, as well as capital gains within Holding. The item also included msek 159 from certain pension-related costs. Income from associated companies totaled msek -42 (2,339). The comparative quarter was affected by capital gains of msek 3,034. Not including capital gains, income from associated companies improved by msek 645 in the third quarter 2002. As a result of extensive write-downs and restructuring costs, operating income decreased to msek -10,815 (2,745) in the third quarter. Financial items improved during the quarter to msek -149 (-254). Income after financial items totaled msek -10,964 (2,491). After minority stakes and a positive tax effect of msek 852 arising from a previously unutilized loss carry-forward, the net income reported for the third quarter was msek -10,118 (1,900). Nine-month period During the nine-month period, net sales advanced 1 percent compared with the same period in the preceding year. Sales for comparable units increased 6 percent. Underlying ebitda improved 15 percent to msek 11,249 (9,728). Depreciation, amortization and write-downs totaled msek 16,768 (7,690), of which write-downs totaled msek 8,208 (149). Items not reflecting underlying business operations totaled msek -4,801 (62) and consist of, in addition to restructuring costs and third quarter write-downs within International Carrier and the Danish fixed network operations, streamlining costs within other operations (msek 370), certain pension-related costs (msek 354), and a capital gain (msek 50). Income from associated companies totaled msek 333 (2,390). Not including capital gains and write-downs, earnings showed an improvement of msek 2,151 during the nine-month period. Operating income decreased to msek -9,987 (4,544). Financial items totaled msek -520 (-642), resulting in income after financial items totaling msek -10,507 (3,902). After minority stakes and a positive tax effect of msek 544 arising from a previously unutilized loss carry-forward, the net income reported was msek -9,961 (2,441). Strong cash flow, sustained low debt/equity ratio The substantial increase in underlying ebitda and low level of investment generated strong free cash flow (cash flows from operating activities less capex) of msek 2,059 in the quarter. This strong cash flow enabled the Group to reduce its net interest-bearing liabilities from msek 10,336 to msek 8,107 and the low debt/equity ratio was maintained despite significant restructuring provisions and write-downs. Sep 30, Dec 31, Dec 31, MSEK 2002 2001 2000 Interest coverage -6.4 3.0 7.3 ratio (multiple) Change in total -13.3 4.5 60.2 assets (%) Asset turnover 0.48 0.46 0.54 ratio (multiple) Equity/assets 45.0 46.2 44.4 ratio (%) Capital employed 74,076 90,971 92,374 Net interest- 8,107 10,661 20,235 bearing liability Debt/equity ratio 0.16 0.18 0.37 (multiple) Reduced investments Investments decreased 67 percent to msek 1,956 (5,965) in the third quarter due to lower investments in production facilities (capex) in the Swedish fixed network, International Carrier and in the mobile networks. Investments during the nine-month period totaled msek 6,646 (15,578), which represents a 57 percent decrease compared with the same period in the preceding year. Continued staff cuts During the nine-month period, the number of Group employees decreased by 905 to 16,244. Publication of the prospectus for the merger with Sonera On September 30, 2002, Telia published the prospectus for the merger with Sonera, along with instructions and terms and conditions for the exchange offer through which the merger will be effected. The exchange offer acceptance period commenced on October 7, 2002 and will end on November 8, 2002. The result of the offer is expected to be published on November 14, 2002. Extraordinary meeting of shareholders In connection with the planned merger with Sonera, an extraordinary meeting of Telia shareholders will be held on Monday, November 4, 2002 at 5:00 pm at Berwaldhallen in Stockholm, Sweden. Notice of the meeting was advertised in the newspapers on October 4. Changes in Telia's Management Within Telia's Group Management, Jörgen Latte was appointed as Acting CFO and Head of Corporate Financial Control on September 1, and Eva Lindqvist was appointed as head of the business area International Carrier on September 9. Marie Ehrling will be appointed as head of Telia's Swedish operations on January 1, 2003. After the planned merger with Sonera, Ehrling will be responsible for the profit center TeliaSonera Sverige. Review of Business Areas Mobile - Strong improvement in profitability and continued customer growth Mobile has developed positively during the quarter with a continued stream of customers, improved earnings and strengthened margins. Jul-Sep Jul-Sep JanSep JanSep MSEK 2002 2001 2002 2001 Net sales 5,743 5,247 16,214 14,692 of which 5,367 4,786 15,131 13,143 external Underlying 1,800 1,375 4,391 3,616 ebitda ebitda margin 31.3 26.2 27.1 24.6 (%) Depreciation, -1,036 -980 -2,875 -2,499 amortization etc. Items not reflecting -38 -33 -386 -47 underlying business operations Income from 81 105 212 224 associates Operating 807 467 1,342 1,294 income Investments 633 2,100 2,012 3,307 of which capex 633 1,835 1,761 3,027 Continued customer growth, increased use of sms and increased traffic per customer in all Nordic markets contributed to a 12 percent increase in external net sales, to msek 5,367 in the third quarter, compared to the corresponding quarter of 2001. The number of customers during the quarter increased by 130,000 to 5,258,000, while the number of customers via service providers fell by 6,000 to 173,000. Sales rose 15 percent to msek 15,131 for the nine-month period. Volume growth combined with streamlining efforts in all Nordic operations led to a 31 percent improvement in underlying ebitda, to msek 1,800, and the margin was strengthened to 31.3 (26.2) percent during the quarter. Depreciation increased to msek 1,036 (980). Items not reflecting underlying business operations totaled msek -38 (-33) and primarily refer to pension provisions in the Swedish operations. Income from associated companies, of which the greater part refers to operations in the Baltic states and Russia, fell to msek 81 (105). The poorer result is due to the fact that the operations in Russia, after the formation of MegaFon, consist to a large part of start-up operations. Operating income increased to msek 807 (467). Operating income for the nine-month period increased to msek 1,342 (1,294). Investments decreased to msek 633 (2,100) and were primarily for capacity expansion in the Norwegian, Danish and Swedish networks. The high level of investment in the comparative year is attributable to the acquisition of a 3G license in Denmark (msek 1,170). Continued customer growth and improved profitability in Sweden In Sweden, external net sales in mobile telephony rose 4 percent to msek 2,820. At the same time, the price level fell 4 percent due to reduced interconnect fees. The number of gsm customers during the quarter increased by 57,000 to 3,401,000 and the number of customers via service providers increased by 2,000 to 89,000. The average traffic volume per customer and month rose to 135 minutes (131). sms climbed 24 percent and 134 million messages were sent during the quarter. Reduced interconnect fees and an increased share of prepaid customers led to a drop in the average revenue per user (arpu), to sek 293 (303). Churn was 13 percent compared with 11 percent during the second quarter 2002. Increased traffic per customer and cost-cutting measures resulted in a 6 percent improvement in underlying ebitda, to msek 1,518, and the margin increased to 48.4 (46.3) percent. Telia's and Tele2's jointly owned network company, Svenska umts-nät ab, signed a loan agreement with a group of banks for sek 11 billion in loans and credit on current account for the 3G buildout in Sweden. The buildout and financing of the umts network in Sweden is proceeding according to plan. A gprs service, Telia gprs lan-access, was introduced during the quarter. The service targets businesses with employees who need to access information in the company's internal systems when they are away from the office. Two new subscription types for businesses were also launched: Work for voice services and Executive for voice and data services. On October 1, 2002, Telia further reduced its interconnect fee in the gsm network from sek 0.92 to sek 0.88 per minute. The price for the HomeRun broadband service was also reduced. Continued growth and improved earnings in Norway In Norway, external net sales in mobile telephony rose 25 percent to msek 1,484. The number of customers during the quarter increased by 26,000 to 1,022,000, while the number of customers via service providers fell by 8,000 to 84,000. sms growth remained strong. During the third quarter, 197 million messages were sent, up 47 percent from the same quarter of the preceding year. Simple and attractive customer offers and an increased share of postpaid customers contributed to an increase in the traffic volume per customer per month to 169 (147) minutes and arpu climbed to nok 377 (341). Underlying ebitda climbed 48 percent to msek 629 and the margin improved to 41.6 percent (35.4). This improvement in earnings is attributable to customer growth, increased traffic volume and streamlining efforts. Strong sales growth in Denmark In Denmark, external sales in mobile telephony rose 62 percent to msek 250. The increase was mainly attributable to customer growth. Sales of mobile subscriptions have continued to be successful and the number of customers increased during the quarter by 36,000 to 449,000. During the third quarter, a total of 58 million sms messages were sent, a jump of nearly 300 percent. There was also a slight improvement in traffic volume per user and arpu. Underlying ebitda improved to msek -119 (-128). Most of the investments made during the quarter referred to the expansion of the gsm 900 network, which is expected to be completed during the year. Sales growth and reduced deficit in Finland In the Finnish market, external sales for mobile telephony jumped 34 percent to msek 235 compared with the same quarter of 2001. The number of customers rose by 12,000 to 247,000. Prepaid customers represented the greater part of this growth. sms increased 29 percent. Underlying ebitda improved to msek -34 (-95), partly due to the fact that a greater part of the traffic is now carried in Telia's own network as a result of the roaming agreement with Suomen 2G. Telia has committed to selling its mobile operations in Finland as stipulated by the eu in its approval of the merger with Sonera. Growth in the Baltic states and Russia The associated companies in Russia and the Baltic states continued to show positive development and the total number of customers surged 635,500 to 3,814,000 during the quarter. The customer growth was primarily attributable to the Russian operations. Business solutions, telephony External net sales for telephony in Business Solutions totaled msek 408 and underlying ebitda improved to msek -21 (-73). Reduced losses in other business For other operations, which mainly include mobile portals, shops and radio contracting, external net sales fell 17 percent to msek 170. The decline is chiefly attributable to retail operations. Reduced costs for the portal business resulted in an improvement in underlying ebitda to msek -158 (-184). Internet Services - Stronger market position in broadband Within Internet Services, external net sales rose 30 percent to msek 1,034 during the third quarter compared with the same quarter of 2001. The increase is attributable to continued demand for broadband access, greater demand for TV services and higher prices. The average price level climbed 7 percent during the quarter. Jul-Sep Jul-Sep Jan Sep Jan-Sep MSEK 2002 2001 2002 2001 Net sales 1,046 765 3,057 2,337 of which 1,034 797 3,027 2,325 external Underlying -92 -229 -406 -747 ebitda ebitda margin -8.8 -29.9 -13.3 -32.0 (%) Depreciation, -124 -108 -493 -281 amortization etc. Items not reflecting -19 -15 -116 -24 underlying business operations Income from -33 -9 -51 -36 associates Operating -268 -361 -1,066 -1,088 income Investments 67 129 303 672 of which capex 68 129 274 605 Sales for the nine-month period increased 30 percent. Telia's Internet services continued to report weak development. Third quarter sales fell to msek 30 (31). This was attributable to weak demand, primarily for content services (portal services) and payment services. The operations also reported weak profitability. The range of services is being restructured in order to create a service portfolio with solid long-term growth and sustainable profitability. Telia is also concentrating greater efforts on developing accesses and related value-added services such as voip and other types of communications-related services, an area where Telia has high expertise and a strong market position with over 1.2 million Internet access customers. The changed focus means that payment services and certain content services are being phased out in Sweden. The hosting services Telia Instant Web and Telia Webbhotell were closed during the quarter. Certain Internet services will also be phased out in Denmark. Systems and platforms related to Internet services were written down by msek 12 in the third quarter. The sustained strong stream of customers within broadband access, price changes and streamlining efforts improved underlying ebitda to msek -92 (-229) compared with the same quarter of 2001. During the nine-month period underlying ebitda improved to msek -406 (-747). Depreciation, amortization and write-downs rose to msek 124 (108) and include, write-downs on Internet services systems and platforms totaling msek 12. Under items not reflecting underlying business operations, msek 12 was reported in restructuring costs, including provisions for redundant personnel. Income from associated companies totaling msek -33 (-9) refer to Marakanda and include a third quarter write-down totaling msek 24. Operating income improved to msek -268 (-361). Operating income for the nine-month period totaled msek -1,066 (-1,088). Investments decreased to msek 67 (129). This decline was attributable to reduced investment needs in the cable TV business, as property owners are now taking over a large part of the network investments. Internet accesses Sales of Internet accesses jumped 45 percent to msek 665. During the quarter, the number of ADSL customers increased by 15,000 to 279,000 and the number of customers with Internet Cable increased by 9,000 to 134,000. Demand for broadband access was strongest in the business segment where primarily smaller companies choose Internet-based solutions over traditional data communications. During the quarter, Telia strengthened its market position in broadband within the Swedish business segment in which Telia now has 50 percent of the market. At the same time, Telia maintained its 55 percent market share in broadband in the consumer segment. During the third quarter, demand for dial-up Internet services also grew after having stagnated somewhat earlier in the year. The number of customers grew by 14,000 during the quarter and is currently on a par with the third quarter of 2001. The sales increase is largely attributable to the launch of Telia Internet för Alla, an access service that was well received, particularly among young customers. Several other new product launches were successful during the quarter. For small and medium-size businesses, Telia has developed an ipx that enables companies to integrate ip telephones, analog telephones, fax machines and modems in a single network solution. A new type of fixed Internet access, ProLane Light, was also developed for small and medium- size companies. Several major deals were finalized during the quarter. An agreement was signed with seb for the delivery of a virtual private network. Fixed access solutions (ProLane) were sold to several municipalities. Cable TV Increased sales of cable TV connections, higher payments from property owners in the Swedish market and a price increase for cable TV in Denmark resulted in a 14 percent increase in external net sales in the cable TV business, to msek 336. During the quarter, the number of cable TV customers increased 21,000 to 1,591,000. The number of digital TV customers remained largely unchanged, which is in line with the market trend. In Sweden, the total number of cable TV customers was 1,403,000 at the end of the period. In Denmark, 188,000 customers were connected directly via cable and approximately 440,000 indirectly via parabolic antenna connections. The cable TV operations in Sweden, Com Hem, will be divested as stipulated by the eu for its approval of the planned merger with Sonera. International Carrier - New strategic focus will yield positive cash flow 2003 Weaker growth in broadband, delayed 3G buildout and insolvency among several carriers resulted in dramatic and turbulent developments in the carrier market with slowed growth, increased risk and lower asset value in the industry. Considering these developments, Telia has decided to change the strategic direction for International Carrier and to restructure the operations. A restructuring provision of msek 2,825 was made in the third quarter. Jul-Sep Jul-Sep Jan-Sep Jan-Sep MSEK 2002 2001 2002 2001 Net sales 1,378 1,283 3,868 3,361 of which 1,176 1,003 3,264 2,630 external Underlying -255 -614 -873 -1,181 ebitda ebitda margin -18.5 -47.9 -22.6 -35.1 (%) Depreciation, -5,457 -135 -5,868 -305 amortization etc. Items not reflecting -3,649 1 -3,650 0 underlying business operations Income from 0 0 0 0 associates Operating -9,361 -748 -10,391 -1,486 income Investments 222 1,620 660 3,880 of which capex 222 1,643 660 3,880 The changed market conditions also led Telia to write down the book value of the fixed assets by msek 6,131 in the third quarter. The measures now being taken are expected to result in a positive cash flow for the carrier operations on a monthly basis during 2003, adjusted for restructuring costs, while Telia retains the possibility to take part of future market growth within ip and broadband. Concentration on the profitable segments of the network Looking forward, the operations will be concentrated to wholesale sales of capacity, ip and voice to large customers on the profitable segments of Telia's wholly owned network in Europe and across the Atlantic. Telia will also offer secure transport of Internet traffic at competitive prices by continuing to operate its ip network and maintain peering points (connection points to other operators´ networks) in Europe and the United States. Phase-out of unprofitable operations The new focus entails a restructuring of the operations. The restructuring will be completed at the end of 2003 and includes the following steps, among others: · Phase-out of operations in Asia · Phase-out of sales of domestic voice through resellers in the United Kingdom · Phase-out of the co-location business · Freezing domestic network services in the United States · Centralizing sales, administration and customer services functions to Sweden. The restructuring will greatly reduce the number of offices and technical facilities as well as lead to reduced operation and maintenance costs and leased lines. The purpose is to reduce the current staffing of 800 employees by more than half. The total cost of the restructuring is estimated at approximately sek 3.5 billion, for which provisions of msek 2,825 were made in the third quarter. Increased sales in all product areas Third-quarter external net sales rose 17 percent, compared with the corresponding period in the preceding year. Sales were good in all three main product areas. Capacity and ip sales increased 11 percent and voice sales increased 27 percent. The sales growth is attributable to good order intake, primarily during the second quarter, due to the fact that several competing carriers were forced to exit the market. Order intake tapered off somewhat towards the end of the quarter. Sales for the nine-month period increased 24 percent compared with the same period in the preceding year. Improved underlying ebitda Increased net sales led to further improvement in underlying ebitda to msek -255, compared with msek -614 in the third quarter 2001. Compared with the second quarter 2002, the improvement in earnings was msek 32. Depreciation, amortization and write-downs climbed to msek 5,457 (135). The write-down of fixed assets in the third quarter totaled msek 6,131, of which msek 5,307 burdened the item depreciation, amortization and write-downs and refer to unutilized network sections and technical facilities. Items not reflecting underlying business operations totaled msek -3,649 (1) and include the provision of msek 2,825 for close-downs or partial phase-outs of technical facilities, offices and regeneration and amplifier sites as well as redundant personnel, and also includes the msek 824 write-down of infrastructure and network capacity acquired from other operators. The write-down of fixed assets and the restructuring provision led to decreased operating income totaling msek -9,361 (-748). Operating income for the nine-month period totaled msek - 10,391 (-1,486). Customer-driven investments Investments decreased during the quarter to msek 222 (1,620) and primarily referred to equipment for expanding capacity in the wholly owned network due to increased customer demand. Networks - Continued improvement in earnings in Sweden. Focus-shift in Denmark External net sales in Networks fell 8 percent to msek 6,615 in the third quarter compared with the third quarter 2001. Sales for comparable units fell 4 percent. This decrease was mainly due to declining revenues in the Swedish retail market. Jul-Sep Jul-Sep Jan-Sep Jan-Sep MSEK 2002 2001 2002 2001 Net sales 8,093 8,229 24,732 24,742 of which 6,615 7,183 20,403 21,472 external Underlying 2,832 3,129 8,440 8,759 ebitda ebitda margin 35.0 38.0 34.1 35.4 (%) Depreciation, -4,307 -1,345 -7,128 -3,877 amortization etc. Items not reflecting -378 -99 -641 -58 underlying business operations Income from -32 -624 74 -3,530 associates Operating -1,885 1,061 745 1,294 income Investments 649 1,869 2,709 5,155 of which capex 649 1,830 2,706 4,692 Sales for the nine-month period decreased 5 percent. Price levels remained largely unchanged during the period. Underlying ebitda fell to msek 2,832 (3,129) during the quarter. The weaker earnings are attributable to losses in the Danish operations. The Danish fixed network operations were reviewed during the quarter in order to value their assets and determine a new focus. Looking forward, the operations will be concentrated to the transport capacity offer and voice services for both consumers and business customers. This means that the product range and operating costs will be cut by more than half. In conjunction with the review and the new focus, the value of current assets was written down by msek 353, the value of fixed assets was written down by msek 2,786, and a provision of msek 286 was made for restructuring costs. The action program is expected to entail additional restructuring costs of approximately msek 185-250 in the fourth quarter 2002. The objective is to attain positive underlying ebitda at the end of 2003. The possibility of reaching this objective is greatly dependent on the regulatory developments in Denmark, among other factors. In Sweden, underlying ebitda improved to msek 3,245 (3,137) despite lower net sales. The improvement in earnings is attributable to reduced costs for sales and product development in the retail business and lower maintenance and installation costs in the wholesale business. Within Networks, depreciation and write-downs increased to msek 4,307 (1,345) in the third quarter. The increase is primarily attributable to the msek 2,786 write-down of fixed assets in Denmark. Items not reflecting underlying business operations totaled msek -378 (- 99). Costs for ongoing streamlining measures in the Swedish operations, including provisions for redundant personnel, totaled msek 21 and costs for restructuring the Danish operations totaled msek 286. Income from associated companies improved to msek -32 (-624) as Netia and Eircom/Comsource no longer burden earnings. Losses in Denmark caused operating income to drop to msek -1,885 (1,061) in the third quarter. Operating income for the nine-month period totaled msek 744 (1,294) as losses in Denmark were largely offset by the fact that Eircom/Comsource did not burden income from associated companies. Investments dropped off to msek 649 (1,869) during the third quarter, contributing to significantly improved cash flow. Retail market Sales in the retail market declined 8 percent to msek 5,543 due to decreased market shares in Swedish fixed telephony. The greatest drop was in local calls due to the carrier preselect reform introduced in February 2002. Reduced market shares led call revenues for fixed telephony in Sweden to drop 12 percent to msek 1,989 during the quarter. Sales dropped in network capacity, data communications and IT services compared with the same quarter 2001. Sales increased, however, for premium services including Caller id and Telesvar voicemail for consumers and Advance services for business customers. The number of telephone subscriptions in Sweden dropped by 11,000 to 5,594,000. The number of isdn channels also fell as more and more customers switch from isdn to adsl/lan. The Danish retail market also reported somewhat lower sales. Wholesale market Sales in the wholesale operations climbed 23 percent comparatively. The increase was mainly attributable to increased sales of interconnect traffic and network capacity in Sweden. Demand for broadband connections remained strong. Third quarter deliveries of adsl/lan connections totaled 28,000, of which 13,000 were to service providers outside Telia. As the period drew to a close, there were 379,000 customers connected to Telia's broadband network through adsl/lan solutions. In Denmark, sales fell 28 percent due to weaker demand for network capacity from other operators and service providers. Reported sales for the wholesale operations fell 9 percent to msek 1,072 due to the fact that the installation material purchased by the subcontractor Swedia Networks are no longer reported as sales in Skanova. Holding Telia Holding is responsible for the Group's investments outside of Telia's core businesses. Telia Holding comprises a number of consolidated businesses, including Finans/Credit, Sergel Kredittjänster, Division Satellit, Division Offentlig Telecom, Promotor, Overseas, including Suntel, as well as several associated companies, including Slottsbacken, ingroup, Drutt Corp, Telefos, aucs, Infonet Services and coop Bank. Extensive divestitures in 2001 along with the closing down of Vimera (customer training) and Time (accounting services) during the second quarter 2002 as well as ongoing phase-outs of operations within Division Satellit resulted in reduced net sales, while underlying ebitda and the margin improved. Jul-Sep Jul-Sep Jan-Sep Jan-Sep MSEK 2002 2001 2002 2001 Net sales 458 1,649 1,378 8,889 of which 243 624 704 2,525 external Underlying 142 20 345 150 ebitda ebitda margin 31.0 1.2 25.0 1.7 (%) Depreciation, -115 -185 -355 -661 amortization etc. Items not reflecting 137 -902 36 -861 underlying business operations Income from -53 2,872 123 5,758 associates Operating 111 1,805 149 4,386 income Investments 239 240 710 2,610 of which capex 67 186 244 706 For the remaining operations, external net sales fell during the third quarter to msek 243 (277) while underlying ebitda increased to msek 142 (130). The drop in sales is attributable to the consulting company Promotor and Suntel, while underlying ebitda mainly improved within Promotor and Sergel Kredittjänster. Depreciation fell to msek 115 (185) due to divestitures/phase-outs of operations. Items not reflecting underlying business operations totaled msek 137 (- 902) and consisted mainly of a capital gain of msek 145 from the sale of Telia's remaining 9 percent holding in the Orbiant Group to Flextronics. Divestiture decisions made during the third quarter led to additional redundancies, and provisions for restructuring costs of msek 12 were made. Income from associated companies totaled msek -53 (2,872). Capital gains affected earnings by msek 9 compared with msek 3,047 in the comparative quarter. Operating income totaled msek 111 (1,805). Investments totaled msek 239 (240). msek 129 referred to loan conversion to shareholder contributions in aucs, msek 55 to Finans/Credit's leasing operations, msek 22 to network investments in Suntel and msek 33 to shareholder contributions in coop Bank. Outlook 2002 Telia's efforts aimed at developing and streamlining its core businesses began to yield results in the third quarter. In the coming quarter, we expect the costs of planned marketing activities to have a slowing effect on earnings. Our focus on reducing investments has been successful, though we are planning to raise our level of investment somewhat in the fourth quarter. Stockholm, October 25, 2002 Anders Igel President and CEO ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/10/25/20021024BIT01710/wkr0001.doc The full report http://www.waymaker.net/bitonline/2002/10/25/20021024BIT01710/wkr0002.pdf The full report