BRINGING THE WORLD CLOSER ANNUAL AND SUSTAINABILITY REPORT 2018 OUR COMPANY TELIA COMPANY 4 IN ONE MINUTE SUSTAINABILITY WE ARE COMMIT- TED TO ETHICAL, 8 RESPSONS IBLE BUSINESS CEO 2018 WAS AN 10 EVENTFUL YEAR TRENDS A CONSTANTLY GROWING CONNEC- 12 TIVITY NEED The audited annual and consoli- The sustainability informa- dated accounts comprise pages tion (which also constitutes CONTENTS 16–207 and 224. The corporate the statutory sustainability governance statement examined report) reviewed by the auditors by the auditors comprises pages comprises pages 40-62 and 71–86. 208–223. OUR COMPANY FINANCIAL STATEMENTS Telia Company in one minute ................................................ 4 Consolidated statements of comprehensive income .......... 87 2018 in brief ........................................................................... 6 Consolidated statements of financial position .................... 88 Created value ........................................................................ 7 Consolidated statements of cash flows .............................. 89 Sustainability highlights ......................................................... 8 Consolidated statements of changes in equity ................... 90 Comments from the Chair ..................................................... 9 Notes to consolidated financial statements ........................ 91 Comments from the CEO .................................................... 10 Parent company income statements ................................. 179 Trends .................................................................................. 12 Parent company statements of comprehensive income ... 180 Strategy ............................................................................... 14 Parent company balance sheets ....................................... 181 Parent company cash flow statements ............................. 182 Parent company statements of changes in DIRECTORS’ REPORT shareholders' equity .......................................................... 183 Group development ............................................................. 16 Notes to parent company financial statements................. 184 Country development .......................................................... 33 Sustainability ....................................................................... 40 SUSTAINABILITY NOTES Risks and uncertainties ....................................................... 63 Sustainability Notes ........................................................... 208 CORPORATE GOVERNANCE Corporate Governance Statement ...................................... 71 OTHER INFORMATION Board of Directors ............................................................... 83 Board of Directors’ and President’s certification ............... 224 Group Executive Management ............................................ 85 Auditors’ Report ................................................................ 225 Auditors’ Limited Assurance Report on the Sustainability Report ......................................................... 229 Five-year summary ............................................................ 230 Alternative performance measures ................................... 232 Definitions .......................................................................... 235 Annual General Meeting 2019 ........................................... 237 Telia Company AB (publ) Mailing address: SE-169 94 Solna • Sweden Visiting address: Stjärntorget 1, Solna Corporate Reg. No. 556103-4249 • Registered office: Stockholm Telephone: +46 (0)8 504 550 00 • www.teliacompany.com Production: Telia Company AB in cooperation with Narva Photo of the Board of Directors and Group Executive Management: Telia Company Our Company Telia Company in one minute TELIA COMPANY IN ONE MINUTE WHAT WE DO WHO WE ARE We connect businesses, individuals, We are Telia Company, the new generation telco. We provide communication families and communities via fixed services helping millions of people to be connected and communicate, do and mobile communication solutions. business and be entertained. Our services have a positive effect on social, economic and environmental development and pave the way for an inclusive society. People can stay in touch even when the geographical distance is far. We work with an eco- 20,400 83.6 system of new start-ups and major Employees SEK billion in net sales service providers. Together we pro- vide the infrastructure for creativity, growth and change. OUR VALUES: DARE | CARE | SIMPLIFY WE PROVIDE MOBILE VOICE FIXED VOICE ICT SERVICES AND DATA AND DATA OUR STAKEHOLDERS We create value for our customers as DEVICES FINANCING well as for other stakeholders: • Consumers • Business customers TV AND MEDIA IP CAPACITY • Employees • Investors • Suppliers and partners • Society 4 Annual and Sustainability Report 2018 Our Company Directors’ Report Corporate Governance Financial Statements Sustainability Notes Other WHERE WE OPERATE AND USED TO OPERATE We stand firmly in the Nordics and Baltics and our fiber backbone stretches around the globe. All our mobile operations in Eurasia are divested, except for Moldcell in Moldova. Sweden Finland Norway Denmark Estonia Latvia #1 35% #2 32% #2 36% #3 19% #1 47% #1 46% #1 53% #2 17% #2 13% #3 7% #1 82% #1 33% #3 26% #2 17% #5 5% #1 53% #2 18% #3 20% #2 23% #4 1% #2 37% Lithuania Azerbaijan Georgia Kazakhstan Moldova Uzbekistan #2 30% - - - - - - #2 29% - - #1 86% #1 52% #1 33% Divested in March Divested in March Divested in Discontinued opera- Divested in 2018 2018 December 2018 tion and held for sale December 2018 Telia Company’s market share estimate is based on the number of subscriptions Mobile Fixed voice Broadband TV # Market position % Market share Ownership – Subsidiaries Ownership,1 Consolidated Country Main trademarks % share,2 % Sweden Telia, Halebop 100 100 Finland Telia 100 100 Norway Telia, OneCall, MyCall, Phonero, Get, TDC 100 100 Denmark Telia, Call me, DLG Tele 100 100 Estonia Telia, Diil 100 100 Latvia Telia, Lmt, Amigo 60.33 60.33 Lithuania Telia, Ezys 88.2 88.2 Azerbaijan Azercell (Divested in March 2018) 35.2 64.1 THE WORLD’S Georgia Geocell (Divested in March 2018) 68.5 68.5 #1 BACKBONE Kazakhstan Kcell (Divested in December 2018) 59.0 59.0 Telia Carrier's fiber backbone Moldova Moldcell 68.5 68.5 runs around the globe and is Uzbekistan Ucell (Divested in December 2018) 94.0 94.0 the largest in the world with operations in 35 countries. Ownership – Associated companies Ownership,1 Consolidated Country Trademark % share, % Latvia Lattelecom 49.0 49.0 Turkey Turkcell 24.0 24.2 1) Ownership is defined as direct and indirect ownership, i.e. effective ownership. 2) Consolidated share includes commitments to acquire shares from holders of non-controlling interests. 3) Telia Company directly owns 49 percent of LMT and controls the company through shareholder agreements. In addition, Telia Company indirectly holds an 11.3 percent share of the company. 5 Annual and Sustainability Report 2018 Our Company 2018 in brief 2018 IN BRIEF FINANCIAL AND MARKET HIGHLIGHTS 2018 OPERATIONAL FREE CASH FLOW ADJUSTED EBITDA DIVIDEND Outlook: Free cash flow from Outlook: Adjusted EBITDA from Outlook: A minimum of 80 percent continuing operations, excluding continuing operations, based on of free cash flow from continuing licenses and spectrum fees and current structure, in local curren- operations, excluding licenses and dividends from associated compa- cies, excluding future acquisitions spectrum fees (81%). nies, is expected to be above last and disposals, is expected to year’s level (SEK 9.7 billion). be slightly above the 2017 level (SEK 25.2 billion). Outcome (billion): Outcome (billion): Outcome: SEK 10.8 SEK 26.6 85% CONTINUING AND DISCONTINUED OPERATIONS DIVIDEND NET INCOME LEVERAGE 2.36 (2.30) 3,090 (10,243) 2.07 (1.15) Net debt/EBITDA excluding adjustment Proposed dividend per share (SEK) Total net income (SEK million) items (multiple, rolling 12 months) NET SALES ADJUSTED EBITDA Per country Per service Per segment Per country n Sweden, 43% n Mobile, 45% n B2B, 51% n Sweden, 49% n Finland, 18% n Fixed telephony, 4% n B2C, 34% n Finland, 18% n Norway, 14% n Fixed broadband, 8% n Wholesale and Other, 15% n Norway, 17% n Denmark, 7% n TV, 4% n Denmark, 3% n Estonia, 4% n Business solutions, 7% n Estonia, 4% n Lithuania, 5% n Other, 9% n Lithuania, 5% n Latvia, 3% n Telia Carrier, 6% n Latvia, 3% n Telia Carrier, 7% n Equipment, 17% n Telia Carrier, 2% 6 Annual and Sustainability Report 2018 Our Company Directors’ Report Corporate Governance Financial Statements Sustainability Notes Other CREATED VALUE WHAT WE CREATE 69,552 2.9 215,000 Service revenues, SEK million Fixed broadband Tons CO2e emissions subscriptions, million 10.8 >99% Operational free cash flow, 2.4 4G population coverage SEK billion TV subscriptions, in the Nordics million 16.8 >230 Mobile subscriptions, 2.1 Number of Telia Carrier's point of million IoT subscriptions, presence worldwide million 1.9 Fixed voice subscriptions, million CREATED STAKEHOLDER VALUE CONSUMERS BUSINESS CUSTOMERS EMPLOYEES Halebop has the happiest Number 1 in Sustainable 12.7 mobile customers in Sweden1 Brand Index B2B in tele- SEK billion salaries com in Sweden 78 Telia has the happiest TV Launch of Helsinki Purple Voice score (79) customers in Sweden1 Data Center INVESTORS SUPPLIERS AND PARTNERS SOCIETY 21% Total shareholder return 45.6 18.3 SEK billion external SEK billion total 10 operating expenses tax