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Interim report January–June 2004

This document presents the TeliaSonera Interim Report for the period of January to June 2004, highlighting key financial data, customer growth, market positions, and future outlook. The report covers sales performance, market positions in Nordic home markets, and strong growth in international mobile operations, including Russia and Turkey.

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Interim report January–June 2004

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  1. Interim report January–June 2004 Anders Igel President and CEO

  2. Forward-looking statements Statements made in this document 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 TeliaSonera.

  3. TeliaSonera April-June 2004 • Net sales increased 2% • Operating income increased to SEK 5,650 million • Market positions maintained at the expense of lower margins • Take lead in transition period – have started initiative to re-engineer our operations • Dividend policy specified and capital structure addressed • Orange Denmark deal announced

  4. Customer growth year-on-year, June 30, 2004 • Consolidated +9% • Associated +37% (+23%) (+18%) (+9%) Number of customers, million

  5. Growth within mobile and Internet Mobile • Strong sales growth in Eurasia and Denmark and in the associated companies in Russia and Turkey • Continued strong volume growth in Sweden, Finland, Norway and the Baltic countries but sales affected by lower price levels Internet and data • Increased sales across all markets due to strong broadband growth Salesgrowth Q2 2003 - Q2 2004 Fixed voice Other Mobile Internet and Broadband TeliaSonera group Associated companies 9.5 6.1 1.3 3.7 20.6 9.8 Sales, Apr-Jun 2004 (SEK billion)

  6. Performance Apr-Jun 2004 Sweden Mobile, sales year-on-year -2% Fixed, sales year-on-year -5% EBITDA margin 39.6% Finland Mobile, sales year-on-year 3% Fixed, sales year-on-year 9% EBITDA margin 37.2% Norway Mobile, sales year-on-year 5%1 EBITDA margin 29% Denmark Mobile,sales year-on-year 40% Adjusted 19% Fixed,sales year-on-year 26% EBITDA margin 7.3% 1) In local currency Market positions in Nordic home markets maintained at the expense of lower margins • Price competition more intense in Sweden, Finland and Norway • Usage increases but price reductions limit growth in home markets • Group: Volumes +8% • Group: Price -6%

  7. Sales growth Q2 2003-Q2 2004 Estonia1 Mobile 12% Fixed 5% Latvia Mobile 11% local currency 13% Fixed1 -6%2 Lithuania Mobile 5% Fixed -12% 1) Associated companies 2) Estimate Home market – Baltic countries • Good development in both mobile and fixed in Estonia • Strong mobile growth in Latvia • Strong mobile and broadband customer growth in Lithuania

  8. Strong growth and earnings in international mobile Sales MegaFon1(USD, million) Russia – Strong operational development in MegaFon • +1.5 million customers, total 9 million • Share of net income SEK 62 million (218) • Loans revaluation affected SEK -110 million Turkey – Strong development in Turkcell • +700,000 customers, total 19.7 million • Share of net income SEK 356 million (-39) • Expands operations to Ukraine and Iran Eurasia – Continued strong margins • +322,000 customers, total 3 million • EBITDA margin improves to 57.9% (57.0) 341 +75% 195 1) TeliaSonera estimate Sales Turkcell2(USD, million) 745 +52% 491 2) Reported with a one quarter lag Sales Eurasia(SEK, million) 986 +58% 626

  9. Controlling interest Non-controlling interest Strengthening our Nordic and Baltic leadership • From a weak #4 to a strong #3 position in Denmark • Possibility to become Danish customers’ #1 choice • Critical mass in Denmark • Large and tangible synergies Denmark Mobile subs1 TDC 2,421,000 Sonofon 1,212,000 New Telia Dk2 1,161,000 Telia Dk 556,000 Orange 605,000 #1 #1 #2 #1 #1 #3 #1 • Including service provider subscribers • End of June 2004

  10. Outlook 2004 • Strengthen and improve the operations and position in the current footprint • Maintain or increase market shares • Transition period with strong migration from fixed to internet and mobile expected • Price pressure and migration will limit growth in home markets short term • Longer term we expect market growth to return to higher levels • Strong growth in Eurasia, Russia and Turkey • Carrier will not reach positive EBITDA-CAPEX for 2004 • CAPEX for 2004 is expected to increase in comparison with last year

  11. Dividend policy specified and capital structure addressed • TeliaSonera will distribute 30%-50% of net income in dividend • Additional SEK 30 billion to shareholders over the period 2005-2007. Investment opportunities can change the figure. • Various means to return the money will be evaluated • Proposal to a shareholders’ meeting

  12. Transition period in the Nordic and Baltic markets • Migration from fixed to mobile and Internet based services is expected to accelerate • TeliaSonera will take the lead in supporting the customer-driven migration Broad range of services Focused range of services Emphasizing opportunities within Internet and mobility

  13. Focused range of services Legacy Managed services Mobile Internet Mobile voice Mobile data Content distribution Residential broadband Business IP Combinations

  14. Focus going forward Main challenge 2004 • Continue to improve market position while maintaining our strong profits and cash flow • Commercial actions to maintain or increase market shares • Continued synergy realization • Execution of re-engineering program • Profitable growth organically and by acquisitions • Realize the vision

  15. Kim Ignatius CFO

  16. Net sales +2% in the quarter • Acquisitions/divestitures positive effect of 1% • Sales volume increased by 8% and prices decreased by 6% • Acquisition of Auria • Broadband growth • Increased mobile wholesale SEK million Strong customer growth and increased Mobile usage Strong customer growth Price erosion, closed down operations • Decreased Fixed traffic volumes • Lower price levels • Effect of Eniro Q2 2003 115 MSEK

  17. Decreased earnings due to price pressure EBITDA excl. non-recurring items SEK million • Customer growth • Cost efficiency measures • Price pressure • Release of reserve in comparative quarter • Price erosion • Increased marketing costs • Lower interconnect revenues • Customer growth • Increased ARPU in all operations

  18. Further initiatives keep synergies ahead of schedule • Decided synergies yearly run rate by the end of 2005 • OPEX 1,978 SEK million • CAPEX 568 SEK million • Achieved synergies yearly run-rate by the end of Q2 2004 • OPEX SEK 1,432 million • CAPEX SEK 539 million • Committed to merger target • Total annual pre-tax cash flow synergies post 2005 estimated to be approximately SEK 2.7 billion (EUR 300 million)

  19. Increased Operating income excl. non-recurring items SEK million • Goodwill amortization discontinued (Q2 2003 SEK 1,073 million) • Assets annually tested for impairment • Lower depreciation in Sweden, almost SEK 400 million • Improving income from associates

  20. Non core assets • 10 additional holdings were divested in the second quarter • Peoples’ Telephone Company in Hong Kong, sold in conjunction with IPO, capital gain SEK 110 million • Mobile Telephone Company (MTC) in Namibia sold to Namibian government. Capital gains SEK 57 million. • Xfera Móviles (16.45%) preparing commercial launch of 3G services. TeliaSonera counter guarantees will be reduced to EUR 41 million. Negotiations underway to reduce investment commitments of EUR 215 million.

  21. Net income impacted by tax changes and pension cost • Changed tax legislation in Finland – one off tax cost of SEK 920 million • Deferred tax liability in Turkey – tax revenue of SEK 200 million • Revised treatment of certain pension related items – impact on net income SEK 407 million (pre-tax SEK 592 million)

  22. Substantial synergies Total NPV of synergies before implementation costs estimated to around SEK 4,100 million Pre-tax cash flow synergies from 2006: SEK 490 million, whereof: EBITDA synergies: SEK 470 million CAPEX synergies: SEK 20 million Implementation costs and CAPEX Implementation costs 2004-05 estimated to approximately SEK 540 million Capital expenditure for integration estimated to about SEK 250 million in 2004-05 Significant write-downs expected, mainly related to closing down of one network Acquisition of Orange Denmark

  23. Swedish mobile interconnection rates • Court decision granted Vodafone higher historic interconnect fee than established by PTS, the Swedish regulator • TeliaSonera has appealed • Necessary reserves have been recorded • PTS declared changes regarding SMP status, resulting in same future interconnect rates for TeliaSonera, Tele2 and Vodafone

  24. Cash flow statement • Tax payment – SEK 2,450 million higher than in 2003 • Change in working capital – mainly a fluctuation in quarters • CAPEX 10.8% of net sales – driven by mobile and broadband growth SEK billion Free cash flow SEK 5.8 billion

  25. Financial position further strengthened • Acquisition of Orange Denmark – no major impact on capital structure • Dividend policy to distribute 30-50% of net income • Additional SEK 30 billion will be distributed 2005-2007 SEK billion

  26. The Nordic and Baltic telecommunications leader

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