Third Quarter Report

Third Quarter Report January-September 2001 Telia ab (publ), SE-123 86 Farsta, Sweden, Corporate Reg. No. 556103- 4249, Registered office: Stockholm Q3 in Brief · Group net sales increased 7 percent to msek 14,431 (13,487) · Continued high growth in the core business: Telia Mobile +21 percent, Telia International Carrier +37 percent, Telia Internet Services +33 percent, Telia Networks +1 percent · Underlying ebitda increased 8 percent to msek 3,420 (3,180) · Earnings after financial items climbed to msek 2,491 (267) · Agreement in October regarding the divestiture of 91 percent of Orbiant to Flextronics Review of Group Earnings Jul- Jul- Jan-Sep Jan-Sep Full year msek Sep Sep 2001 2000 2000 2001 2000 Net sales 14,431 13,487 42,226 39,524 54,064 Change in net sales (%) 7.0 14.6 6.8 6.2 3.7 Underlying ebitda 3,420 3,180 9,782 9,297 13,087 Underlying ebitda margin (%) 23.7 23.6 23.2 23.5 24.2 Operating income 2,745 206 4,544 4,076 12,006 Income after financial items 2,491 267 3,902 4,059 11,717 Net income 1,900 172 2,441 2,870 10,278 Earnings per share (sek) 0.63 0.06 0.81 0.99 3.50 Return on equity (%) - - - - 23.9 Investments 5,965 16,745 15,578 37,431 47,742 of which capex 5,630 3,369 12,864 9,395 16,580 of which goodwill, shares & 335 13,376 2,714 28,036 31,162 participations Comments from President and CEO Marianne Nivert "Telia is in a positive phase. Our core business shows increasing strength and an upward trend with 13 percent growth in the third quarter. Particularly encouraging are the earnings growth and greatly improved margins in Telia Mobile and Telia Networks. Another positive trend is the continued strong demand for broadband. We have succeeded in shortening our delivery times and are now able to begin actively marketing our broadband services. "One disappointment is that we did not succeed in turning the earnings trend around in Telia International Carrier. The market continued to be turbulent and uncertain. Action has been taken in order to achieve rapid improvement in earnings. "The sale of Orbiant will largely bring the refine and focus efforts to a close, which means that we can direct our full concentration on developing our core businesses." Review of the Group Sales Telia's core business showed growing strength in its sales during the year. In Telia Mobile, Telia Internet Services and Telia International Carrier, the rate of growth gradually increased while the loss of revenue in the fixed network operations Telia Networks was turned around towards modest growth. Sales in the core business rose 13 percent during the third quarter. The positive trend in the core business led Group net sales to climb 7 percent to msek 14,431 during the third quarter compared with the prior year quarter. Growth was 10 percent for comparable units. The Group's net sales for the nine-month period rose 8 percent to msek 42,226 for comparable units. During the third quarter, sales in Telia Mobile surged 21 percent to msek 4,439. The markets in Sweden and Norway show a very positive trend with continued strong customer growth. The number of mobile customers during the quarter increased by 109,000 to 4,837,000, while the number of customers via service providers jumped by 23,000 to 204,000. Net Sales per Business Area 1) Jul-Sep Chg Jul-Sep Jan-Sep Chg Jan-Sep 2001 % 2000 2001 % 2000 MSEK MSEK MSEK MSEK Mobile 4,439 21.2 3,664 12,057 39.1 8,670 Internet Services 797 32.6 601 2,325 29.5 1,796 International Carrier 976 37.5 710 2,548 25.3 2,034 Networks 7,601 5.6 7,199 22,773 1.8 22,371 Retail market 6,407 -0.2 6,421 19,752 -2.2 20,203 Wholesale market 1,194 53.5 778 3,021 39.3 2,168 Equity 580 -54.0 1,260 2,392 -46.7 4,487 Group-wide 38 -28.3 53 131 -21.1 166 Total 14,431 7.0 13,487 42,226 6.8 39,524 of which core business 13,851 13.3 12,227 39,834 13.7 35,037 1) For further information: www.telia.com, Investor Relations, Financial information, External net sales per business area and product segment (detailed information). Continued strong demand for broadband led to a 33 percent jump in the sales of Telia Internet Services, to msek 797. The Group's total number of broadband connections increased by 60,000 during the quarter to 263,000. The number of ADSL connections increased by 50,000 to 172,000. The international carrier market is characterized by substantial pricing pressure and the shakeout of players with consequent heightened credit risks. Despite this decline, Telia International Carrier's sales surged 37 percent to msek 976. The growing demand on capacity is the primary driver behind these revenues. The more mature fixed network operations also contributed to the Group's sales growth. Increased wholesale sales and increased sales of value- added services on the retail market helped Telia Networks achieve 1 percent sales growth, to msek 7,601, for comparable units. The refine and focus efforts led to a decline in sales in Telia Equity by msek 680 to msek 580 year on year. Earnings Underlying ebitda For the Group as a whole, underlying ebitda climbed 8 percent to msek 3,420 compared with the prior year quarter. The margin totaled 23.7 percent, which is on the same level as last year. Earnings in the core business increased 15 percent. This improvement is primarily attributable to a strong earnings trend in the mobile operations and in the fixed network operations. In the mobile operations, earnings jumped 53 percent to msek 1,448 and the margin improved from 22.9 to 29.8 percent. In Telia Networks, underlying ebitda rose 15 percent to msek 3,052, along with an improved margin. Underlying ebitda and Operating Income Jul-Sep 2001 Jul-Sep Jan-Sep 2001 Jan-Sep MSEK 2000 2000 Mobile 1,448 944 3,708 2,260 Internet Services -229 -303 -747 -921 International Carrier -614 -87 -1,181 -178 Networks 3,052 2,655 8,629 8,101 Equity 24 226 188 1,046 Group-wide -261 -255 -815 -1,011 Total underlying ebitda 3,420 3,180 9,782 9,297 of which core business 3,396 2,954 9,594 8,251 Depreciation, amortization and write-downs -2,775 -2,099 -7,690 -5,795 Non-recurring items and -239 -116 62 1,401 pensions Share of earnings in 2,339 -759 2,390 -827 associates Operating income 2,745 206 4,544 4,076 Telia Internet Services contributed to the improvement in earnings by reducing its deficit by msek 74. Telia International Carrier burdened Group earnings. The deficit grew to msek -614 during the third quarter. Bad debt expenses burdened earnings in the amount of msek 233, of which msek 191 are increased reserve for doubtful receivables. For the nine-month period as a whole, underlying ebitda rose 5 percent to msek 9,782. Earnings from associated companies Earnings from associated companies increased to msek 2,339 compared with msek -759 in the third quarter 2000. The increase is chiefly attributable to a capital gain of msek 2,991 from the sale of shares in Eniro and to the fact that the mobile operator Tess and Eircom's mobile operations Eircell, which were previously a burden on Group earnings, were divested in the second quarter. Telia's holding in Eircom will be divested in the fourth quarter, which is expected to yield a capital gain of gsek 0.9. The Nordic portal operator Scandinavia Online burdened earnings due to a write-down of goodwill in the company. Telia and the other majority shareholders, Schibsted and Telenor, have agreed to divest the company. Earnings from Associated Companies Jul-Sep Jul-Sep Jan-Sep Jan-Sep MSEK 2001 2000 2001 2000 Baltic states (Mobile/Networks) 45 76 125 148 Comsource/Eircom (Networks) -87 -280 -1,053 -800 Unisource/aucs (Equity) 4 183 -106 1,246 Telia Overseas (Equity) 54 -444 2,655 -1,087 Eniro (Equity) 3,043 - 3,423 - Other associates (incl. Netia) -720 -294 -2,654 -334 Total 2,339 -759 2,390 -827 Earnings from associated companies for the nine-month period increased to msek 2,390 compared with msek -827 year on year. In addition to reported items in the third quarter, goodwill in Netia was written down msek -1,820 in the second quarter, and at the same time, Tess was divested with a capital gain of msek 2,623. Non-recurring items Non-recurring items in the third quarter totaled msek -239 compared with msek -116 year on year. Within the previously announced necessary reserves of approximately msek 800, the sale of Telia Internet, Inc. had a msek -270 impact on earnings and the phase-out of Telia's satellite operations affected earnings by msek -500. Non-recurring items also include capital gains from the sale of real estate properties and revaluation of pension commitments that had a positive impact on earnings of msek 510 and msek 156, respectively. A capital loss from the sale of Telia Iberia burdened earnings by msek - 105. Non-recurring items during the nine-month period totaled msek 62 compared with msek 1,401 year on year. The higher figure from 2000 was due to the divestiture of the Norwegian fixed network operations. Operating income/Net income Improvement in underlying ebitda and increased earnings from associated companies more than compensated for increased depreciation and negative effects from non-recurring items, which led to an improvement in operating income in the third quarter, from msek 206 to msek 2,745. During the nine-month period, operating income increased from msek 4,076 to msek 4,544, year on year. Net income totaled msek 1,900 for the third quarter and msek 2,441 for the nine-month period. Financial Position and Cash Flow The Group's financial position remains good. The balance sheet total increased during the nine-month period along with the positive sales growth. The interest coverage ratio was weaker compared to last year, which is attributable to interest on loans raised during the last six months of 2000 for financing the acquisition of NetCom. The interest coverage ratio improved from the second quarter and the debt/equity ratio, which was already low, compared to other operators with similar operations, decreased over the last six months from 0.42 to 0.26. 30 Sep 31 Dec 31 Dec MSEK 2001 2000 1999 Interest coverage ratio (multiple) 3.3 7.3 8.5 Growth in total assets (%) 6.9 60.2 13.9 Asset turnover rate (multiple) 0.46 0.54 0.72 Equity/assets ratio (%) 46.3 44.4 41.0 Capital employed 96,596 92,374 50,936 Operating capital 78,026 75,042 39,160 Net interest-bearing liability 15,769 20,235 7,527 Debt/equity ratio (multiple) 0.26 0.37 0.24 The streamlining of the Group's operations through divestitures brought in a cash inflow totaling msek 4,331 in the third quarter. Combined with increased cash flow from operating activities, this further improved operating cash flow compared with the preceding quarter. The year 2000 dividend of sek 0.50 per share, or a total of msek 1,501, was paid out on 18 May. Investments Investments increased 11 percent compared with the prior year quarter, adjusted for the acquisition of NetCom. Investment by Class of Asset Jul-Sep Jul-Sep Jan-Sep Jan-Sep MSEK 2001 2000 2001 2000 Goodwill 82 11,457 535 22,852 Other intangible assets 1,265 -154 1,379 183 Real estate 96 33 193 386 Machinery and equipment 4,269 3,490 11,292 8,826 Fixed telephony installations 1,801 958 3,436 1,724 Mobile telephony installations 422 355 1,113 786 Other machinery and equipment 2,046 2,177 6,743 6,316 Shares and participations 253 1,919 2,179 5,184 Total 5,965 16,745 15,578 37,431 Capital expenditure increased almost 70 percent to msek 5,630 in the third quarter. The majority of these investments were focused on the expansion of the international carrier network, broadband expansion in Sweden and greater capacity in the Nordic mobile networks. Furthermore, the fee for the umts license in Denmark obtained during the quarter totaled msek 1,170, of which msek 246 was paid in cash. The majority of investments in shares and participations in the third quarter concerned the associated company Svenska umts-nät. Continued refine and focus efforts Telia is continuing to drive its refine and focus strategy and additional operations were divested in the third quarter. Divestitures are reported in the business area Telia Equity. In October an agreement was signed for the sale of 91 percent of Orbiant to Flextronics. Employees The Group's refine and focus strategy, primarily the partial divestitures of Eniro and Telefos, entailed a 15 percent reduction in the average number of employees to 25,664 during the nine-month period compared with 30,307 for the full year 2000. Financial Information Please direct Reports can be Year-End Report 8 February questions regarding ordered via: Annual General Meeting 23 content to: Tel. +46 (0)8-713 April Telia ab, Investor 71 43 First Quarter Report Jan- Relations Fax +46 (0)8-604 54 Mar 6 May SE-123 86 Farsta, 72 Semiannual Report Jan-Jun Sweden or online at 6 August Tel. +46 (0)8-713 10 www.telia.com, 00 Investor Relations. Fax +46 (0)8-713 69 47 or online at 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/2001/11/07/20011107BIT00040/bit0002.doc The full report http://www.waymaker.net/bitonline/2001/11/07/20011107BIT00040/bit0002.pdf The full report