Telenor AS • Annual Report 1999 Contents Key Figures 2 Important events in 1999 3 This is Telenor 4 Report of the board of directors 10 Profit and loss account Telenor Group 24 Balance sheet Telenor Group 25 Cash flow statement Telenor Group 26 Consolidated statements of shareholder´s equity 27 Accounting principles 28 Notes to the consolidated accounts Telenor Group 31 Profit and loss account Telenor AS 54 Balance sheet Telenor AS 55 Cash flow statement Telenor AS 56 Notes to the consolidated account Telenor AS 57 Auditor´s report 68 Value added accounts 69 Analytical information 70 Regulatory matters 78 Report from the President 80 Telenor Mobile Communications 86 Telenor Internet 90 Telenor Broadband Services 92 Telenor Telecom Solutions 94 Bravida 98 Telenor Media 100 EDB Business Partner 102 Research and development 108 Telenor International Centre 110 Telenor on Fornebu 111 Telenor Other Units 112 Elected officers and management 118 Glossary and definition of terms 119 Addresses image image Key Figures Amounts in NOK million (if not otherwise stated) 1999 1998 1997 1996 1995 Amounts in accordance with Norwegian GAAP Profit and loss account Turnover 33,468 28,910 25,869 22,382 19,983 Operating expenses excl. depreciation and write-downs 24,419 20,652 19,164 15,882 13,847 Depreciation and write-downs 5,047 4,461 4,048 3,903 3,569 Operating profit 4,002 3,797 2,657 2,597 2,567 Associated companies (1,239) (1,097) (534) (175) (57) Profit before taxes and minority interests 3,314 2,908 2,054 2,247 2,130 Taxes (1,323) (1,242) (729) (460) (627) Profit for the year 2,035 1,710 1,389 1,784 1,484 Balance sheet data Fixed assets 37,617 31,783 26,631 23,017 21,586 Current assets 10,409 8,967 7,533 6,537 5,973 Shareholders equity 20,033 18,515 15,478 14,647 11,824 Minority interests 1,232 239 242 95 69 Interest bearing liabilities 15,069 11,453 9,224 5,860 6,906 Non-interest bearing liabilities 11,692 10,543 9,219 8,952 8,760 Other financial data Net cash flow from operating activities 7,370 7,205 5,496 4,827 6,284 Investments 1) 13,170 9,428 8,970 5,612 4,646 Profit margin in % 2) 9.9 10.1 7.9 10.0 10.7 Return on capital employed in % 3) 12.1 12.2 10.7 12.9 14.8 Return on equity in % 4) 9.6 9.7 8.7 13.4 13.1 No. of employees 23,470 21,452 20,848 19,221 18,480 No. of man years 21,968 20,226 19,598 18,113 17,406 Dividend 500 700 570 950 550 Earnings per share (in NOK. Basic and diluted) 5) 2,423 2,155 1,929 2,703 2,473 Weighted average shares outstanding 5) 840,000 793,300 720,000 660,000 600,000 Amounts in accordance with US GAAP Profit and loss account Turnover 32,685 28,662 - - - Operating expenses excl. depreciation and write downs 24,135 20,895 - - - Deprecations and write downs 5,047 4,461 - - - Operating profit 3,503 3,306 - - - Associated companies (1,283) (1,085) - - - Profit before taxes and minority interests 3,559 2,725 - - - Taxes (1,389) (1,191) - - - Profit for the year 2,206 1,578 - - - Earning per share (In NOK. Basic and diluted) 5) 2,626 1,989 Balance sheet data Fixed assets 42,245 33,587 - - - Current assets 10,409 8,967 - - - Shareholder’s equity 21,053 19,512 - - - Interest bearing liabilities 19,666 13,086 - - - Non-interest bearing liabilities 10,563 9,001 - - - Definitions: 1) Investments in fixed assets, long-term investments in shares, and capital contributions to satellite organisations. 2) Profit before taxes/Total turnover. 3) (Profit before taxes + interest expenses)/Average (total assets – non-interest bearing debt). 4) (Profit after taxes + minority interests)/Average (shareholders equity + minority interests). 5) Adjusted for increase in equity in 1998 and 1996. 2 Important events in 1999 • Agreement to merge with Telia AB and the voluntary dissolution of the merged company The merger agreement was signed on 19 October 1999. On 16 December 1999 the two owners agreed, on the basis of an overall evaluation, to dissolve the merged company voluntarily. • Record high turnover, operating profit and profit before taxes The total growth in turnover was 15.8%. Telenor’s profit before tax was NOK 3,314 million, the best result in the group’s history to date. The figures confirm the fact that Telenor maintained high pressure on the market throughout the year. The figure for net profits on disposals of over NOK 1 billion is the highest ever. • Investments increased to just over NOK 13 billion Telenor’s investments continued to grow, not least abroad where total investments increased from NOK 3.6 billion in 1998 to NOK 6.2 billion in 1999. In Norway investments rose from NOK 5.7 billion in 1998 to NOK 7.0 billion in 1999. • Strategically important agreement with BT concerning Esat Telecom in Ireland The agreement with BT concerning Esat Telecom gives Telenor a stronger position for further activities in Ireland, or a profit to Telenor of approximately NOK 9 billion. • Strong growth in value of associated companies Based on the valuations by external bankers, the associated companies showed significant growth in value in 1999. • Strong growth in mobile subscriptions in Norway and overseas During the course of the year, the mobile penetration in Norway increased from 47% to 61%. Telenor had in total 2 million subscriptions in Norway at the end of 1999, of which 216,000 were NMT. This represented a market share of 70% for GSM. The total number of mobile subscriptions in companies owned by Telenor out- side Norway was 4.3 million at the end of 1999, a growth of 3 million on the previous year. • Internet activity in eight European countries By the end of 1999 the internet company Nextra had established companies in Sweden, Italy, Hungary, Germany, the Czech Republic, Slovakia and Austria, in addition to Norway. • World’s highest ISDN density Telenor had at year end 1999 over 528,000 private and business subscribers connected to ISDN, a growth of 70% on the previous year. • Transition to single rate zone in Norway from 1 July (Norgespris) Telenor introduced a single price zone for telephony - Norgespris - for the whole country. The previous long distance rate was removed and all calls in Norway are now priced at the local rate. 3 Tormod Hermansen President and C.E.O. About Telenor Telenor’s core business is voice services, information, Telenor’s future operations in Norway will be centred knowledge and entertainment to end users through a around the supply of advanced telephony services broad spectrum of modern communication services. nationwide. The company will actively adapt to the These services employ a combination of wireless operating conditions as they unfold, for instance by communication platforms, such as mobile telephony, opening up its internal value chains and distinguish- satellite and broadcasting networks, and fixed plat- ing between service-related activities and network- forms, such as conventional telephony, IP and cable related activities. The consequences of this will be networks. The group’s business portfolio combines increased competition, leading to sharper focus on established areas of business with new initiatives. The rationalisation and competitiveness in all parts of the main portfolio comprises: business, but also helping create a well-functioning market with balanced players. • Fixed line communication • Mobile communication Telenor is particularly well placed for international • Standardised IP services for the private and busi- expansion in the areas of mobile telephony (primarily ness markets for the mass markets) and internet services (for small • System integration and integrated packages for the and medium-sized businesses – the SMB market). business market Telenor currently owns shareholdings in 13 mobile • Services based on distribution to end users’ homes operations abroad, mostly minority shareholdings in via TV European countries. With this as its basis, the compa- ny’s strategy will be to establish a position as a lead- Of the above, mobile and IP-based services are target- ing supplier of mobile services in the Nordic region, ed at an international market, while TV distribution is and to strengthen its positions in Eastern and Central aimed at households first and foremost in Norway and Europe, and in Southeast Asia, either independently the rest of the Nordic region. The remainder of the or in partnership with others. portfolio is primarily aimed at the domestic market in Norway. Telenor AS Group management and staff functions Mgmt Norwegian Support functions: operation Telenor R&D, Telenor Real Estate and other International Centre Telenor Telenor Mobile Telenor Telenor Telenor Bravida EDB Business Telecom Communications Internet Broadband Services Media Partner ASA Solutions 4 Torstein Moland Arve Johansen SVP EVP (Chief Financial Officer) (Mobile Communications) Jon Fredrik Baksaas Terje Thon EVP EVP (Operations in Norway) (International Operations) Ole Petter Håkonsen Jan Edvard Thygesen EVP SVP (Chief technical officer) (Telecom Solutions) Stig Eide Sivertsen Jan Kåre Pedersen SVP SVP (Telenor Broadband Services) (Bravida) Gun Bente Johansen Peter Darpö SVP SVP (Communication, HR and framework) (Telenor Media) Morten Lundal SVP (Internet) 5 image image Leading, full of potential and Telenor is the leading telecom player in Norway. The challenge will be to maintain the group’s strong position in a fiercely competitive market. At the same time as Telenor has gained leading However, an increasing proportion of turnover is positions in the domestic market, its level of derived from new areas of business which have activity abroad has increased substantially.