WITH FOCUS ON THE DIGITAL FUTURE ANNUAL AND SUSTAINABILITY REPORT 2017 The audited annual and consoli- The responsible business infor- dated accounts comprise pages mation (which also constitutes CONTENTS 25–202 and 211. The corporate the statutory sustainability governance statement examined report) reviewed by the auditors by the auditors comprises pages comprises pages 13–14, 17–18, 74–91. 49–65 and 203–210. OUR COMPANY FINANCIAL STATEMENTS Telia Company in one minute ................................................ 4 Consolidated statements of comprehensive income .......... 92 2017 in brief ........................................................................... 6 Consolidated statements of financial positions .................. 93 Created value ........................................................................ 7 Consolidated statements of cash flows .............................. 94 Responsible business achievements .................................... 8 Consolidated statements of changes in equity ................... 95 Where we operate ............................................................... 10 Notes to consolidated financial statements ........................ 96 Comments by the Chair ...................................................... 12 Parent company income statements ................................. 174 Comments by the CEO ....................................................... 13 Parent company statements of comprehensive income ... 175 Trends and stakeholders ..................................................... 15 Parent company balance sheets ....................................... 176 Strategy ............................................................................... 20 Parent company cash flow statements ............................. 177 Parent company statements of changes in DIRECTORS’ REPORT shareholders' equity .......................................................... 178 Notes to parent company financial statements................. 179 Group development ............................................................. 25 Country development .......................................................... 42 Responsible business ......................................................... 49 GRI INDEX Risks and uncertainties ....................................................... 66 GRI Index ........................................................................... 203 CORPORATE GOVERNANCE OTHER INFORMATION Corporate Governance Statement ...................................... 74 Board of Directors’ and President’s certification ............... 211 Board of Directors ............................................................... 88 Auditors’ Report ................................................................ 212 Group Executive Management ............................................ 90 Auditors’ Limited Assurance Report on the Responsible Business information .................................... 218 United Nations Global Compact principles ....................... 219 UK Modern Slavery Act Statement .................................... 220 Five-year summary ............................................................ 221 Alternative performance measurements ........................... 223 Definitions .......................................................................... 226 Annual General Meeting 2018 ........................................... 228 Contact Telia Company ..................................................... 229 Telia Company AB (publ) • SE-169 94 Solna • Sweden Corporate Reg. No. 556103-4249 • Registered office: Stockholm Telephone: +46 (0)8 504 550 00 • www.teliacompany.com 4 OUR COMPANY TELIA COMPANY IN ONE MINUTE Best mobile network in 5 of 7 countries SEK 8.7 billion paid in dividend to 7 shareholders CREATED VALUE Telia has the happiest TV customers CURIOUS ON HOW WE in Sweden CREATE VALUE? 13CEO THE JOURNEY CONTINUES. PLEASE JOIN US! 20 #1 OUR STRATEGY THIS IS HOW WE FULFILL OUR STRATEGY Our Company Telia Company in one minute TELIA COMPANY IN ONE MINUTE WHO WE ARE We are Telia Company, the new generation telco. We provide communication services helping millions of people to be connected and communicate, do business and be entertained. PURPOSE 20,700 79.9 Bringing the world closer Employees SEK billion in net sales VALUES Dare, Care, Simplify WHAT WE DO social-, economic and environmental of new start-ups and major service We connect businesses, individuals, development and pave the way for providers. Together we provide the families and communities via fixed an inclusive society. People can stay infrastructure for creativity, growth and mobile communication solutions. connected no matter how far apart and change. Our services have a positive effect on they are. We work with an ecosystem WE PROVIDE MOBILE VOICE AND DATA FIXED VOICE AND DATA IP CAPACITY TV AND MEDIA INTERNET CLOUD SECURITY ICT SERVICES DEVICES FINANCING OF THINGS SERVICES 4 Annual and Sustainability Report 2017 Our Company Directors’ Report Corporate Governance Financial Statements GRI Index Other WHERE WE OPERATE We stand firmly in the Nordics and Baltics and our fiber backbone stretches around the globe. Our mobile operations in Eurasia are held for sale. Sweden Norway Finland Denmark Estonia Latvia Lithuania We also have mobile operations in Georgia, Kazakhstan, Moldova and Uzbekistan. The operation in Azerbaijan was disposed on March 5, 2018. Telia Carrier's fiber backbone runs around the world and is the second largest in the world. OUR STAKEHOLDERS ADJUSTED EBITDA We create value for our customers as well as PER COUNTRY for other stakeholders: • Consumers n Sweden, 54% • Business customers n Finland, 17% n Norway, 14% • Employees n Denmark, 3% • Investors n Estonia, 3% • Suppliers n Lithuania, 5% • Society n Latvia, 2% n Telia Carrier, 2% 5 Annual and Sustainability Report 2017 Our Company 2017 in brief 2017 IN BRIEF FINANCIAL AND MARKET HIGHLIGHTS 2017 Operational free cash flow Adjusted EBITDA Dividend Outlook: Operational free cash flow from Outlook: Adjusted EBITDA in con- Outlook: A minimum of 80 percent of continuing operations, excluding licenses tinuing operations in local currencies, free cash flow from continuing opera- and dividends from associated companies, is excluding acquisitions and disposals, is tions, excluding licenses. expected to be above SEK 7.5 billion. expected to be around the 2016 level. Outcome: 81% Outcome: SEK 9.7 billion Outcome: -0.2% CONTINUING OPERATIONS 79,867 25,438 31.9 (84,178) (25,836) (30.7) Net sales Adjusted EBITDA Adjusted EBITDA margin (SEK million) (SEK million) (%) CONTINUING AND DISCONTINUED OPERATIONS 2.22 2.30 10,146 1.14 (0.86) (2.00) (6,496) (1.69) Net debt/EBITDA Proposed dividend Total net income excluding adjustment items Earnings per share (SEK) per share (SEK) (SEK million) (multiple, rolling 12 months) NET SALES SPLIT per country per service per segment n Sweden, 46% n Mobile, 45% n B2C, 50% n Finland, 17% n Fixed telephony, 5% n B2B, 35% n Norway, 13% n Fixed broadband, 8% n Wholesale and Other, 15% n Denmark, 7% n TV, 4% n Estonia, 4% n Business solutions, 7% n Lithuania, 4% n Other, 9% n Latvia, 2% n Telia Carrier, 7% n Telia Carrier, 7% n Equipment, 15% 6 Annual and Sustainability Report 2017 Our Company Directors’ Report Corporate Governance Financial Statements GRI Index Other CREATED VALUE WHAT WE CREATE CREATED STAKEHOLDER VALUE CONSUMERS Halebop has the Telia has the happiest happiest mobile TV customers in 67,794 customers in Sweden1 Sweden1 Service revenues, SEK million #1 #1 9.7 Operational free cash flow, BUSINESS CUSTOMERS SEK billion Telia Carrier won the Best Customer Care award in the 2017 World Communications Award 16.7 Mobile subscriptions, million #1 2.2 EMPLOYEES Fixed voice subscriptions, SEK billion salaries Purple Voice score (77) million 2.5 12.5 79 Broadband subscriptions, million INVESTORS 1.7 Total shareholder SEK billion dividend TV subscriptions, million return paid 5.0% 8.7 CO2 269,000 Tons CO2e emissions SUPPLIERS AND PARTNERS SEK billion CAPEX >97% excluding licenses 4G population coverage in the Nordics 15.2 1.7 SOCIETY Million households in Sweden reached with fiber SEK billion total tax Best mobile network contribution2 in 5 of 7 countries >110 #1 Countries in which Telia Carrier 18 connects their customers 1) According to Svenskt Kvalitetsindex, SKI. 2) See GRI Index, G4-EC1. 7 Annual and Sustainability Report 2017 Our Company Responible business achievements RESPONSIBLE BUSINESS ACHIEVEMENTS FOCUS AREA ACHIEVEMENTS IN 2017 Anti-bribery and corruption • Third-party anti-bribery and corruption (ABC) due care guidelines issued • Case-based ABC training on third-party due care guidelines conducted for ethics and compliance professionals in region Eurasia • Seven group and six country ethics and compliance officers and two third-party due diligence specialists certified • Approximately 2,500 employees completed ABC e-learning Freedom of expression and • Eighth Law Enforcement Disclosure Report covering eight surveillance privacy countries published • Four countries covered regarding information on local surveillance local legislation • Information on local legislation on direct access covering all main markets • More than half of closed unconventional requests challenged in some way, often by transparency • Contributed to the Industry Dialogue and the Global Network Initiative joining forces in March Customer privacy • Established group-wide Data Protection Regulation (GDPR) comp liance program