Solid MSR Growth to Continue 40

ELISA Telecommunication services/Finland, October 19, 2017 Spot comment

Rating HOLD

Solid MSR growth to continue 40

35 We draw limited conclusions from the short-term increase in 30 churn and competition and maintain a favorable mid-term view, supported by a reiterated MSR guidance of 3-5% for 25 the next 2-3 years as well as materializing synergies from the 20 2016-2017 acquisitions. We expect earnings and DPS to Price/EUR 15 improve but find valuation fair. We retain “Hold” rating. 10 5 3-5% MSR guidance reiterated despite tight competition 0 Elisa’s mobile service revenue (MSR) growth remained solid 10/12 10/13 10/14 10/15 10/16 10/17 (+6.3% y/y) in Q3 despite a clear increase in churn (23.4% vs. Elisa DJ STOXX 600 18.2% in Q2), which picked up notably due tightened competition particularly in third-party channels. Elisa’s strategy Share price, EUR (Last trading day’s 34.58 is defensive rather than aggressive; focus is on monetizing closing price) existing customers rather than aggressively gaining new ones. Target price, EUR 33.0 Management expressed confidence Elisa will be able to defend its Latest change in recommendation 20-Apr-17 market position and reiterated the MSR growth guidance of 3- 5% for the next 2-3 years (based on up-selling). Latest report on company 18-Oct-17 Research paid by issuer: No Synergies progressing, supporting earnings and DPS prospects No. of shares outstanding, ‘000’s 159,620 Synergies from the 2016-2017 acquisitions have progressed as No. of shares fully diluted, ‘000’s 159,620 planned. Elisa expects to reach run-rate synergies of EUR 4-6m Market cap, EURm 5,520 from Starman and EUR 4-5m from Santa Monica Networks by Free float, % 80.0 end-2019, as well as an additional EUR 5-8m from Anvia in Exchange rate EUR/EUR 1.000 2018E on top of the EUR 5-8m to be reached by end-2017E. We Reuters code ELI1V.HE expect synergies to support an upward earnings path in FY17- Bloomberg code ELI1V FH 19E, resulting in an increasing DPS of EUR 1.60 and EUR 1.70 for Average daily volume, EURm na. 2017E and 2018E, respectively. Next interim report -

Web site www.elisa.com “Hold” with TP of EUR 33 reiterated On our estimates Elisa is valued at ~25% EV/EBITDA premium to Analyst Joonas Häyhä Nordic peers and at ~70% premium to European peers in FY18- E-mail [email protected] 19E, respectively. However on EV/FCF Elisa’s valuation looks much Telephone +358 9 4766 9662 more moderate. Our DCF model indicates EUR 34 fair value. We see valuation as fair and retain “Hold” rating with TP EUR 33. BUY HOLD SELL

KEY FIGURES

Sales EBIT EBIT Ptx profit EPS P/E EV/Sales P/CF EV/EBIT DPS EURm EURm % EURm EUR (x) (x) (x) (x) EUR

2015 1,570 321 20.5% 300 1.58 22.0 4.1 11.7 20.3 1.40 2016 1,636 349 21.4% 330 1.68 18.5 3.7 14.8 17.3 1.50 2017E 1,781 380 21.3% 363 1.84 18.8 3.7 10.4 17.4 1.60 2018E 1,818 403 22.1% 386 1.93 17.9 3.6 10.1 16.2 1.70 2019E 1,846 419 22.7% 404 2.02 17.1 3.5 9.8 15.4 1.75 Market cap, EURm 5,520 BV per share 2017E, EUR 6.4 CAGR EPS 2016-19, % 6.5 Net debt 2017E, EURm 1,076 Price/book 2017E 5.4 CAGR sales 2016-19, % 4.1 Enterprise value, EURm 6,597 Dividend yield 2017E, % 4.6 ROE 2017E, % 29.5 Total assets 2017E, EURm 2,557 Tax rate 2017E, % 19.1 ROCE 2017E, % 17.7 Goodwill 2017E, EURm 880 Equity ratio 2017E, % 40.0 PEG, P/E 17/CAGR 4.8

All the important disclosures can be found on the last pages of this report.

Evli Bank Plc, Aleksanterinkatu 19 A, P.O. Box 1081, FIN-00101 Helsinki, Finland, Tel +358 9 476 690, Fax +358 9 634 382, www.evli.com 1(11)

EVLI EQUITY RESEARCH ELISA Telecommunication services/Finland, October 19, 2017 Spot comment

ELISA EUROPEAN Market EV/EBITDA EV/EBITDA EV/EBITDA EV/EBIT EV/EBIT EV/EBIT EV/FCF EV/FCF EV/FCF P/E P/E P/E PEER GROUP Cap171819171819171819171819 Nordic peers Telia Company AB 169826 8.7x 8.5x 8.3x 15.9x 14.3x 13.7x 18.2x 22.9x 20.3x 14.9x 12.9x 12.5x Tele2 AB Class B 42684 9.2x 8.3x 7.5x 23.1x 17.8x 14.1x 31.9x 26.1x 19.2x 26.9x 20.8x 17.0x Telenor ASA 247140 6.3x 6.2x 6.0x 11.0x 10.7x 9.8x 14.4x 23.7x 15.0x 15.2x 15.2x 14.5x TDC A/S 30754 6.5x 6.2x 6.0x 15.8x 14.5x 13.4x 21.5x 20.3x 18.3x 15.0x 13.9x 12.9x DNA Plc 1973 8.6x 8.2x 7.9x 18.7x 16.3x 15.4x 24.1x 20.8x 19.3x 21.5x 18.9x 17.9x Com Hem Holding AB 22971 11.4x 11.0x 10.6x 34.4x 30.2x 24.5x 23.3x 22.6x 22.9x 45.9x 35.2x 29.3x European peers Vodafone Group PLC 58427 6.9x 6.6x 6.3x 22.4x 19.3x 16.5x 18.8x 16.1x 14.6x 28.9x 24.1x 18.8x BT Group plc 26912 5.0x 5.0x 4.9x 9.5x 9.4x 9.1x 15.0x 13.3x 94.8x 9.9x 9.6x 9.4x TalkTalk Telecom Group PLC 1998 9.6x 8.8x 8.5x 17.8x 15.7x 14.7x 21.5x 18.5x 16.6x 20.6x 16.8x 15.9x Deutsche Telekom AG 71325 5.8x 5.5x 5.1x 13.5x 12.2x 11.0x 43.4x 20.7x 18.6x 18.1x 15.8x 14.1x Telekom Austria AG 5226 5.4x 5.2x 4.9x 14.5x 13.5x 12.2x 19.1x 18.6x 16.0x 15.5x 15.2x 13.9x Orange SA 36689 4.9x 4.8x 4.7x 10.8x 10.3x 9.9x 22.2x 20.8x 18.4x 13.7x 12.5x 11.6x Telefonica SA 45933 5.7x 5.5x 5.2x 13.5x 12.3x 11.4x 19.2x 19.5x 18.0x 12.2x 10.9x 10.0x Telecom Italia S.p.A. 14726 4.8x 4.6x 4.3x 9.8x 9.2x 8.6x 32.1x 17.7x 13.8x 10.1x 9.2x 8.7x Swisscom AG 25890 8.0x 8.1x 8.1x 15.9x 16.7x 17.0x 23.5x 23.8x 24.0x 16.9x 17.6x 17.9x Sunrise Communications Group Ltd. 3665 8.1x 8.1x 7.9x 31.8x 30.2x 26.9x 15.8x 17.0x 15.9x 55.9x 44.1x 37.7x Proximus SA de droit public 9198 6.5x 6.3x 6.2x 13.7x 13.0x 12.4x 25.4x 22.9x 21.5x 16.8x 16.1x 15.4x Orange Belgium SA 1168 4.8x 4.7x 4.5x 15.4x 15.0x 13.6x 17.1x 12.9x 16.0x 18.6x 18.4x 17.4x Royal KPN NV 12572 8.0x 7.9x 7.6x 20.4x 19.1x 17.3x 20.7x 20.9x 17.3x 25.3x 23.2x 20.1x Altice NV Class A 21272 8.3x 7.7x 7.1x 22.8x 17.1x 14.5x 33.8x 21.5x 17.9x 34.6x 17.1x 14.2x Nordic peers median 24430 8.6x 8.3x 7.7x 17.3x 15.4x 13.9x 22.4x 22.7x 19.3x 18.4x 17.0x 15.8x European peers median 42517 6.1x 5.9x 5.7x 14.9x 14.3x 13.0x 21.1x 19.0x 17.6x 17.5x 16.4x 14.8x Elisa (Evli est) 10.8x 10.3x 9.9x 17.4x 16.2x 15.4x 19.1x 19.6x 18.7x 18.8x 17.9x 17.1x Telia discount/premium to Nordic peer median 25% 24% 28% 1% 5% 11% -15% -14% -3% 2% 5% 8% Telia discount/premium to European peer median 77% 73% 73% 16% 14% 19% -10% 3% 7% 8% 9% 16%

ELISA EUROPEAN Div yield Div yield Div yield EBITDA-% EBITDA-% EBITDA-% ROCE-% ROCE-% ROCE-% ROE-% ROE-% ROE-% PEER GROUP Ticker 17 18 19 17 18 19 17 18 19 17 18 19 Nordic peers Telia Company AB TELIA-SE 5.3% 5.3% 5.5% 32.0% 32.7% 32.9% 6.8% 7.4% 7.4% 12.1% 13.4% 13.3% Tele2 AB Class B TEL2.B-SE 4.2% 4.4% 4.8% 20.6% 22.4% 24.0% 9.0% 11.4% 14.0% 10.3% 13.2% 15.6% Telenor ASA TEL-NO 4.9% 5.1% 5.3% 38.5% 38.5% 39.3% 22.6% 22.5% 23.4% 31.8% 30.0% 29.5% TDC A/S TDC-DK 2.7% 3.0% 3.4% 40.6% 41.3% 41.7% 6.6% 7.0% 7.2% 10.5% 10.8% 11.1% DNA Plc DNA-FI 4.3% 4.7% 5.1% 30.2% 30.9% 31.3% 12.6% 14.3% 14.9% 14.9% 16.6% 17.1% Com Hem Holding AB COMH-SE 3.8% 4.4% 4.6% 40.6% 41.1% 41.4% 6.0% 7.2% 9.4% 10.9% 16.5% 23.3% European peers Vodafone Group PLC VOD-GB 6.1% 6.2% 6.4% 30.5% 31.1% 31.7% 3.8% 4.4% 5.3% 3.2% 4.0% 5.2% BT Group plc BT.A-GB 5.9% 6.1% 6.2% 31.4% 31.7% 32.0% 12.4% 12.3% 12.7% 31.5% 29.0% 26.8% TalkTalk Telecom Group PLC TALK-GB 3.9% 3.9% 3.7% 16.2% 17.0% 17.0% 15.6% 17.5% 17.1% 68.4% 73.2% 63.0% Deutsche Telekom AG DTE-DE 4.2% 4.6% 5.0% 29.6% 30.2% 30.8% 8.2% 8.6% 9.1% 12.4% 13.6% 14.3% Telekom Austria AG TKA-AT 2.5% 2.9% 3.5% 32.2% 32.4% 32.5% 8.8% 9.2% 9.7% 12.8% 12.2% 12.4% Orange SA ORA-FR 4.8% 5.1% 5.4% 30.7% 31.1% 31.6% 8.5% 8.9% 9.1% 8.3% 8.9% 9.2% Telefonica SA TEF-ES 4.5% 4.6% 4.7% 31.9% 32.5% 32.9% 8.1% 8.5% 9.0% 18.8% 19.0% 18.8% Telecom Italia S.p.A. TIT-IT 0.1% 0.5% 1.3% 43.6% 44.2% 44.5% 7.2% 7.3% 7.4% 6.7% 6.9% 6.9% Swisscom AG SCMN-CH 4.4% 4.4% 4.4% 36.8% 36.2% 36.3% 12.3% 11.5% 11.1% 21.7% 19.9% 18.6% Sunrise Communications Group Ltd. SRCG-CH 4.9% 5.5% 5.8% 32.2% 31.7% 31.9% 4.9% 5.3% 6.2% 5.2% 7.2% 9.3% Proximus SA de droit public PROX-BE 5.3% 5.3% 5.3% 30.8% 31.5% 32.2% 15.0% 15.6% 16.0% 19.3% 20.9% 21.2% Orange Belgium SA OBEL-BE 3.2% 3.4% 3.7% 24.6% 24.0% 23.6% 9.9% 9.7% 10.3% 11.0% 10.5% 10.6% Royal KPN NV KPN-NL 4.3% 4.8% 5.3% 36.6% 37.5% 38.6% 7.8% 7.9% 9.0% 14.2% 15.5% 16.8% Altice NV Class A ATC-NL 0.2% 0.4% 1.6% 39.7% 42.2% 43.1% 5.3% 6.9% 7.8% Nordic peers median 4.3% 4.6% 5.0% 35.3% 35.6% 36.1% 7.9 % 9.4 % 11.7 % 11.5% 14.9% 16.4% European peers median 4.4% 4.6% 4.9% 31.7% 31.7% 32.1% 8.4 % 8.8 % 9.1 % 12.8% 13.6% 14.3% Elisa (Evli est) 4.6% 4.9% 5.1% 34.2% 35.0% 35.5% 17.7 % 18.8 % 19.7 % 29.5% 29.5% 29.3% Source: Factset, Evli Research

ELISA EUROPEAN Cash conversion (FCF/EBITDA) CAPEX/Sales Net debt/EBITDA Equity ratio PEER GROUP 17 18 19 17 18 19 17 18 19 17 18 19 Nordic peers Telia Company AB 48% 37% 41% 19% 17% 17% 2.1x 2.0x 1.9x 38% 39% 40% Tele2 AB Class B 29% 32% 39% 12% 12% 11% 1.8x 1.6x 1.4x 42% 43% 44% Telenor ASA 44% 26% 40% 17% 20% 16% 1.1x 1.2x 1.1x 27% 27% 29% TDC A/S 30% 31% 33% 21% 20% 20% 2.7x 2.5x 2.3x 30% 32% 33% DNA Plc 37% 41% 43% 16% 15% 15% 1.1x 1.0x 0.9x 49% 50% 51% Com Hem Holding AB 34% 37% 5% 15% 15% 15% 3.6x 3.5x 3.4x 24% 20% 17% European peers Vodafone Group PLC 37% 41% 43% 16% 16% 16% 2.3x 2.1x 2.0x 46% 47% 47% BT Group plc 34% 37% 5% 14% 15% 14% 1.5x 1.4x 1.4x 20% 22% 22% TalkTalk Telecom Group PLC 45% 48% 51% 7% 7% 7% 2.7x 2.4x 2.2x 10% 13% 15% Deutsche Telekom AG 13% 26% 28% 16% 16% 15% 2.5x 2.3x 2.1x 26% 26% 27% Telekom Austria AG 29% 28% 31% 17% 17% 16% 1.7x 1.5x 1.3x 37% 40% 42% Orange SA 22% 23% 25% 17% 17% 17% 2.0x 2.0x 1.9x 35% 36% 36% Telefonica SA 30% 28% 29% 16% 16% 16% 2.9x 2.8x 2.6x 16% 18% 18% Telecom Italia S.p.A. 15% 26% 31% 28% 23% 21% 3.0x 2.8x 2.5x 34% 35% 37% Swisscom AG 34% 34% 34% 21% 21% 20% 1.9x 1.9x 1.9x 32% 33% 34% Sunrise Communications Group Ltd. 51% 48% 50% 15% 13% 13% 2.0x 1.9x 1.8x 37% 34% 33% Proximus SA de droit public 26% 28% 29% 17% 17% 17% 1.1x 1.1x 1.0x 36% 37% 37% Orange Belgium SA 28% 36% 28% 14% 14% 14% 0.9x 0.8x 0.6x 37% 39% 40% Royal KPN NV 39% 38% 44% 17% 17% 16% 2.8x 2.7x 2.5x 23% 22% 24% Altice NV Class A 25% 36% 40% 18% 17% 16% 5.4x 4.9x 4.5x -2% -1% 0% Nordic peers median 35% 35% 39% 17% 16% 16% 2.0x 1.8x 1.6x 34% 36% 37% European peers median 29% 35% 31% 17% 17% 16% 2.1x 2.0x 2.0x 33% 34% 33% Elisa (Evli est) 57% 52% 53% 13% 12% 12% 1.8x 1.6x 1.5x 40% 42% 44% Source: Factset, Evli Research

Evli Bank Plc, Aleksanterinkatu 19 A, P.O. Box 1081, FIN-00101 Helsinki, Finland, Tel +358 9 476 690, Fax +358 9 634 382, www.evli.com 2(11)

EVLI EQUITY RESEARCH ELISA Telecommunication services/Finland, October 19, 2017 Spot comment

VALUATION RESULTS BASE CASE DETAILS VALUATION ASSUMPTIONS ASSUMPTIONS FOR WACC Current share price 34.58 PV of Free Cash Flow 2,490 Long-term growth, % 2.0 Risk-free interest rate, % 2.25 DCF share value 34.06 PV of Horizon value 4,311 WACC, % 6.2 Market risk premium, % 5.8 Share price potential, % -1.5 Unconsolidated equity -1 Spread, % 0.5 Debt risk premium, % 2.8 Maximum value 39.3 Marketable securities 45 Minimum WACC, % 5.7 Equity beta coefficient 0.80 Minimum value 29.9 Debt - dividend -1,408 Maximum WACC, % 6.7 Target debt ratio, % 20 Horizon value, % 63.4 Value of stock 5,436 Nr of shares, Mn 159.6 Effective tax rate, % 25

DCF valuation, EURm 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E Horizon Net sales 1,636 1,781 1,818 1,846 1,883 1,920 1,959 1,998 2,038 2,079 2,120 2,163 Sales growth, % 4.2 8.9 2.1 1.5 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Operating income (EBIT) 349 380 403 419 426 403 411 420 408 416 424 433 EBIT margin, % 21.4 21.3 22.1 22.7 22.6 21.0 21.0 21.0 20.0 20.0 20.0 20.0 + Depreciation+amort. 215 230 234 236 230 227 227 229 233 238 244 - Income taxes -61 -72 -81 -84 -85 -81 -82 -84 -82 -83 -85 - Change in NWC -169 -4 -8 -6 -8 -8 -8 -8 -8 -8 -8 NWC / Sales, % 24.3 22.5 22.5 22.5 22.4 22.4 22.4 22.3 22.3 22.2 22.2 + Change in other liabs 11 0 0 0 0 0 0 0 0 0 0 - Capital Expenditure -326 -228 -215 -220 -220 -227 -233 -240 -248 -255 -263 -268 Investments / Sales, % 19.9 12.8 11.8 11.9 11.7 11.8 11.9 12.0 12.2 12.3 12.4 12.4 - Other items -11 41 0000000 0 0 = Unlevered Free CF (FCF) 9 346 333 345 344 315 315 316 303 307 312 7,518 = Discounted FCF (DFCF) 341 310 302 283 244 230 217 196 187 179 4,311

= DFCF min WACC 342 312 305 287 249 235 224 203 194 187 5,106 = DFCF max WACC 341 308 299 279 240 224 211 190 180 171 3,692

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EVLI EQUITY RESEARCH ELISA Telecommunication services/Finland, October 19, 2017 Spot comment

INTERIM FIGURES EVLI ESTIMATES, EURm 2016Q1 2016Q2 2016Q3 2016Q4 2016 2017Q1 2017Q2 2017Q3 2017Q4E 2017E 2018E 2019E Net sales 390 393 419 434 1,636 416 445 454 466 1,781 1,818 1,846 EBITDA 137 134 155 139 564 144 151 165 150 609 637 655 EBITDA margin (%) 35.1 34.0 37.0 32.0 34.5 34.6 33.9 36.4 32.1 34.2 35.0 35.5 EBIT 84 81 99 85 349 89 92 109 91 380 403 419 EBIT margin (%) 21.6 20.6 23.7 19.6 21.4 21.3 20.6 23.9 19.5 21.3 22.1 22.7 Net financial items -7 -6 -5 -2 -19 -4 -4 -5 -4 -17 -16 -15 Pre-tax profit 78 75 94 84 330 84 88 104 87 363 386 404 Tax -14 -15 -18 -15 -63 -16 -17 -19 -18 -69 -77 -81 Tax rate (%) 18.3 19.9 19.0 18.3 18.9 18.6 18.9 18.4 20.5 19.1 20.0 20.0 Net profit 63 60 76 68 267 69 71 85 69 293 309 323 EPS 0.39 0.38 0.48 0.43 1.68 0.43 0.44 0.53 0.43 1.84 1.93 2.02 EPS adjusted (diluted no. of shares) 0.39 0.38 0.48 0.43 1.68 0.43 0.44 0.53 0.43 1.84 1.93 2.02 Dividend per share 0.00 0.00 0.00 0.00 1.50 0.00 0.00 0.00 0.00 1.60 1.70 1.75 SALES, EURm Consumer Customers 244 246 268 272 1,029 261 278 292 297 1,127 1,164 1,181 Corporate Customers 146 147 151 162 606 155 167 162 170 654 655 665 Total 390 393 419 434 1,636 416 445 454 466 1,781 1,818 1,846 SALES GROWTH, Y/Y % Consumer Customers 3.5 1.2 6.9 7.0 4.7 7.2 13.0 8.7 9.1 9.5 3.3 1.5 Corporate Customers 0.8 0.1 4.7 8.0 3.4 5.7 13.6 7.8 4.5 7.9 0.1 1.5 Total 2.5 0.8 6.1 7.3 4.2 6.6 13.3 8.4 7.4 8.9 2.1 1.5 EBIT, EURm Consumer Customers 60 59 71 60 250 58 64 68 61 251 274 289 Corporate Customers 24 22 29 25 99 31 28 41 30 129 129 130 Total 84 81 99 85 349 89 92 109 91 380 403 419 EBIT margin, % Consumer Customers 24.6 24.0 26.4 22.2 24.3 22.2 22.9 23.2 20.7 22.2 23.5 24.5 Corporate Customers 16.5 14.9 18.9 15.3 16.4 19.7 16.7 25.1 17.6 19.7 19.6 19.5 Total 21.6 20.6 23.7 19.6 21.4 21.3 20.6 23.9 19.5 21.3 22.1 22.7

Evli Bank Plc, Aleksanterinkatu 19 A, P.O. Box 1081, FIN-00101 Helsinki, Finland, Tel +358 9 476 690, Fax +358 9 634 382, www.evli.com 4(11)

EVLI EQUITY RESEARCH ELISA Telecommunication services/Finland, October 19, 2017 Spot comment

INCOME STATEMENT, EURm 2012 2013 2014 2015 2016 2017E 2018E 2019E Sales 1,554 1,547 1,535 1,570 1,636 1,781 1,818 1,846 Sales growth (%) 1.5 -0.4 -0.8 2.2 4.2 8.9 2.1 1.5 Costs -1,052 -1,039 -1,016 -1,035 -1,072 -1,172 -1,182 -1,191 Reported EBITDA 501 508 520 535 564 609 637 655 Extraordinary items in EBITDA 0 00000 00 EBITDA margin (%) 32.3 32.8 33.8 34.1 34.5 34.2 35.0 35.5 Depreciation -202 -210 -215 -213 -214 -230 -234 -236 EBITA 299 298 305 321 349 380 403 419 Goodwill amortization / writedown 0 0 0 0 0 0 0 0 Reported EBIT 299 298 305 321 349 380 403 419 EBIT margin (%) 19.2 19.2 19.9 20.5 21.4 21.3 22.1 22.7 Net financials -27 -26 -27 -21 -19 -17 -16 -15 Pre-tax profit 272 272 278 300 330 363 386 404 Extraordinary items -3 -17 0 3 -11 -3 0 0 Taxes -60 -62 -55 -47 -63 -69 -77 -81 Minority shares 1 02000 00 Net profit 209 197 225 255 257 290 309 323 BALANCE SHEET, EURm Assets Fixed assets 724 859 878 872 876 875 856 840 % of sales 47 56 57 56 54 49 47 45 Goodwill 797 832 832 830 880 880 880 880 % of sales 51 54 54 53 54 49 48 48 Inventory 59 56 53 55 55 61 62 63 % of sales 4 43333 33 Receivables 376 426 426 438 653 673 687 696 % of sales 24 28 28 28 40 38 38 38 Liquid funds 40 138 41 29 45 45 45 46 % of sales 3 93233 33 Total assets 2,009 2,324 2,244 2,247 2,533 2,557 2,554 2,549 Liabilities Equity 845 862879 926 971 1,022 1,076 1,127 % of sales 54 56 57 59 59 57 59 61 Deferred taxes 17 21 21 23 29 29 29 29 % of sales 1 11122 22 Interest bearing debt 886 1,123 1,043 991 1,169 1,120 1,056 995 % of sales 57 73 68 63 71 63 58 54 Non-interest bearing current liabilities 243 267 246 256 308 329 336 341 % of sales 16 17 16 16 19 19 19 19 Other interest free debt 15 49 52 48 54 54 54 54 % of sales 1 33333 33 Total liabilities 2,009 2,324 2,244 2,247 2,533 2,557 2,554 2,549 CASH FLOW, EURm + EBITDA 501 508 520 535 564 609 637 655 - Net financial items -27 -26 -27 -21 -19 -17 -16 -15 - Taxes -60 -62 -55 -47 -63 -69 -77 -81 - Increase in Net Working Capital -59 -10 -27 -1 -169 -4 -8 -6 +/- Other -3 -12 0 3 -11 41 0 0 = Cash flow from operations 352 398 411 469 303 560 535 553 - Capex -193 -385 -186 -195 -326 -228 -215 -220 - Acquisitions 0 00000 00 + Divestments 0 00000 00 = Net cash flow 159 13 225 273 -23 332 320 333 +/- Change in interest-bearing debt 38 237 -80 -52 177 -48 -64 -61 +/- New issues/buybacks 0 0 -182 0 0 0 0 0 - Paid dividend -203 -204 -204 -210 -223 -239 -255 -271 +/- Change in loan receivables -3 21 12 -7 11 0 0 0 Change in cash -11 91 -52 7 -46 44 1 1

Evli Bank Plc, Aleksanterinkatu 19 A, P.O. Box 1081, FIN-00101 Helsinki, Finland, Tel +358 9 476 690, Fax +358 9 634 382, www.evli.com 5(11)

EVLI EQUITY RESEARCH ELISA Telecommunication services/Finland, October 19, 2017 Spot comment

KEY FIGURES 2013 2014 2015 2016 2017E 2018E 2019E M-cap 2,889 3,603 5,548 4,937 5,520 5,520 5,520 Net debt 985 1,002 962 1,124 1,076 1,011 949 Enterprise value 3,879 4,606 6,512 6,062 6,597 6,532 6,470 Sales 1,547 1,535 1,570 1,636 1,781 1,818 1,846 EBITDA 508 520 535 564 609 637655 EBIT 298 305 321 349 380 403419 Pre-tax 272 278 300 330 363 386404 Earnings 210 225 252 267 293 309323 Book value 860 878 925 971 1,022 1,075 1,126 Valuation multiples EV/sales 2.5 3.0 4.1 3.7 3.7 3.6 3.5 EV/EBITDA 7.6 8.9 12.2 10.7 10.8 10.3 9.9 EV/EBITA 13.0 15.1 20.3 17.3 17.4 16.2 15.4 EV/EBIT 13.0 15.1 20.3 17.3 17.4 16.2 15.4 EV/operating cash flow 9.0 10.6 13.7 18.2 12.4 11.9 11.4 EV/cash earnings 9.2 10.5 14.2 12.5 12.6 12.0 11.6 P/E 13.8 16.0 22.0 18.5 18.8 17.9 17.1 P/E excl. goodwill 13.8 16.0 22.0 18.5 18.8 17.9 17.1 P/B 3.4 4.1 6.0 5.1 5.4 5.1 4.9 P/sales 1.9 2.3 3.5 3.0 3.1 3.0 3.0 P/CF 6.7 8.3 11.7 14.8 10.4 10.1 9.8 Target EV/EBIT 0.0 0.0 0.0 0.0 16.7 15.6 14.8 Target P/E 0.0 0.0 0.0 0.0 18.0 17.1 16.3 Target P/B 0.0 0.0 0.0 0.0 5.2 4.9 4.7 Per share measures Number of shares 157,005 159,349 159,484 159,620 159,620 159,620 159,620 Number of shares (diluted) 157,005 159,349 159,484 159,620 159,620 159,620 159,620 EPS 1.33 1.41 1.58 1.68 1.84 1.93 2.02 EPS excl. goodwill 1.33 1.41 1.58 1.68 1.84 1.93 2.02 Cash EPS 2.69 2.75 2.87 3.05 3.28 3.40 3.50 Operating cash flow per share 2.76 2.72 2.98 2.09 3.34 3.44 3.54 Capital employed per share 11.75 11.49 11.47 13.11 13.13 13.06 12.99 Book value per share 5.48 5.51 5.80 6.08 6.40 6.74 7.06 Book value excl. goodwill 0.18 0.29 0.60 0.57 0.89 1.22 1.55 Dividend per share 1.30 1.32 1.40 1.50 1.60 1.70 1.75 Dividend payout ratio, % 97.4 93.6 88.5 89.5 87.0 87.9 86.6 Dividend yield, % 7.1 5.8 4.0 4.8 4.6 4.9 5.1 Efficiency measures ROE 24.6 25.9 28.0 28.2 29.5 29.5 29.3 ROCE 16.9 16.9 17.4 17.2 17.7 18.8 19.7 Financial ratios Capex/sales, % 24.9 12.1 12.4 19.9 12.8 11.8 11.9 Capex/depreciation excl. goodwill,% 166.4 87.0 92.1 128.8 99.3 91.9 93.3 Net debt/EBITDA, book-weighted 1.9 1.9 1.8 2.0 1.8 1.6 1.5 Debt/equity, market-weighted 0.4 0.3 0.2 0.2 0.2 0.2 0.2 Equity ratio, book-weighted 37.1 39.2 41.2 38.3 40.0 42.1 44.2 Gearing 1.14 1.14 1.04 1.16 1.05 0.94 0.84 Number of employees, average 3,757 3,757 3,757 3,757 3,757 3,757 3,757 Sales per employee, EUR 411,871 408,624 417,754 435,374 474,048 484,014 491,274 EBIT per employee, EUR 79,265 81,155 85,547 93,024 101,067 107,135 111,519

Evli Bank Plc, Aleksanterinkatu 19 A, P.O. Box 1081, FIN-00101 Helsinki, Finland, Tel +358 9 476 690, Fax +358 9 634 382, www.evli.com 6(11)

EVLI EQUITY RESEARCH ELISA Telecommunication services/Finland, October 19, 2017 Spot comment

COMPANY DESCRIPTION: Elisa is a Finnish telecom operator with fixed operations in Finland and mobile operations in Finland and Estonia.

INVESTMENT CASE:

OWNERSHIP STRUCTURE SHARES EURm % Solidium Oy 16,801,000 580.979 10.5% Varma Mutual Pension Insurance Company 5,181,976 179.193 3.2% Ilmarinen Mutual Pension Insurance Company 2,366,218 81.824 1.5% Schweizerische Nationalbank 1,372,503 47.461 0.9% The State Pension Fund 1,230,000 42.533 0.8% City of Helsinki 1,124,690 38.892 0.7% Keskinäinen Työeläkevakuutusyhtiö Elo 493,000 17.048 0.3% Stiftelsen För Åbo Akademi 467,900 16.180 0.3% Sigrid Juselius Stiftelse 352,000 12.172 0.2% Svenska Litteratursällskapet i 350,300 12.113 0.2% Ten largest 29,739,587 1,028.395 19% Residual 129,880,357 4,491.263 81% Total 159,619,944 5,519.658 100%

EARNINGS CALENDAR

OTHER EVENTS

COMPANY MISCELLANEOUS CEO: Veli-Matti Mattila Ratavartijankatu 5, Helsinki CFO: Jari Kinnunen Tel: +358 10 260 00 IR: Vesa Sahivirta

Evli Bank Plc, Aleksanterinkatu 19 A, P.O. Box 1081, FIN-00101 Helsinki, Finland, Tel +358 9 476 690, Fax +358 9 634 382, www.evli.com 7(11)

EVLI EQUITY RESEARCH ELISA Telecommunication services/Finland, October 19, 2017 Spot comment

DEFINITIONS

P/E EPS Price per share Profit before extraordinary items and taxes Earnings per share  income taxes  minority interest Number of shares

P/Sales DPS Market cap Dividend for the financial period per share Sales

P/BV CEPS Price per share Gross cash flow from operations Shareholders' equity  taxed provisions per share Number of shares

P/CF EV/Share Price per share Enterprise value Operating cash flow per share Number of shares

EV (Enterprise value) Sales/Share Market cap  net debt  minority interest at market value Sales  share of associated companies at market value Number of shares

Net debt EBITDA/Share Interest bearing debt  financial assets Earnings before interest, tax, depreciation and amortisation Number of shares

EV/Sales EBIT/Share Enterprise value Operating profit Sales Number of shares

EV/EBITDA EAFI/Share Enterprise value Pretax profit Earnings before interest, tax, depreciation and amortisation Number of shares

EV/EBIT Capital employed/Share Enterprise value Total assets  non interest bearing debt Operating profit Number of shares

Div yield, % Total assets Dividend per share Balance sheet total

Price per share

Payout ratio, % Interest coverage (x) Total dividends Operating profit Earnings before extraordinary items and taxes  income taxes  minority interest Financial items

Net cash/Share Asset turnover (x) Financial assets  interest bearing debt Turnover Number of shares Balance sheet total (average)

ROA, % Debt/Equity, % Operating profit  financial income  extraordinary items Interest bearing debt Balance sheet total  interest free short term debt Shareholders' equity  minority interest  taxed provisions  long term advances received and accounts payable (average)

ROCE, % Equity ratio, % Profit before extraordinary items  interest expenses  other financial costs Shareholders' equity  minority interest  taxed provisions Balance sheet total  non interest bearing debt (average) Totalassets  interest free loans

ROE, % CAGR, % Profit before extraordinary items and taxes  income taxes Cumulative annual growth rate  Average growth per year Shareholders' equity  minority interest  taxed provisions (average)

Evli Bank Plc, Aleksanterinkatu 19 A, P.O. Box 1081, FIN-00101 Helsinki, Finland, Tel +358 9 476 690, Fax +358 9 634 382, www.evli.com 8(11)

EVLI EQUITY RESEARCH ELISA Telecommunication services/Finland, October 19, 2017 Spot comment

Important Disclosures

Evli Research Partners Plc (“ERP”) uses 12-month target prices. Target prices are defined by utilizing analytical techniques based on financial theory including (but not limited to) discounted cash flow analysis and comparative valuation. The selection of valuation methods depends on different circumstances. Target prices may be altered on the basis of new information coming to light in the underlying company or changes in interest rates, changes in foreign exchange rates, other securities prices or market indices or outlook for the aforementioned factors or other factors that may change the conditions of financial markets. Recommendations and changes by analysts are available at https://research.evli.com/JasperAllModels.action?authParam=key;461&authParam=x;G3rNagWrtf7K&authType=3 Detailed information about the valuation or methodology and the underlying assumptions is accessible via ERP: http://research.evli.com Investment recommendations are defined as follows:

Target price compared to share price Recommendation < -10 % SELL -10 – (+10) % HOLD > 10 % BUY ERP’s investment recommendation of the analyzed company is in general updated 2 – 4 per year.

The graph above shows the distribution of ERP’s recommendations of companies under coverage in 22nd of February 2017. If recommendation is not given, it is not mentioned here.

Name(s) of the analyst(s): Häyhä

This research report has been prepared by Evli Research Partners Plc (“ERP” or “Evli Research”). ERP is a subsidiary of Evli Bank Plc. Production of the investment recommendation has been concluded on [19.10.2017, 8:00]. This report has been published on [19.10.2017, 8:00].

None of the analysts contributing to this report, persons under their guardianship or corporations under their control have a position in the shares of the company or related securities.

The date and time for any price of financial instruments mentioned in the recommendation refer to the previous trading day’s closing price(s) unless otherwise stated in the report.

Each analyst responsible for the content of this report assures that the expressed views accurately reflect the personal views of each analyst on the covered companies and securities. Each analyst assures that (s)he has not been, nor are or will be, receiving direct or indirect compensation related to the specific recommendations or views contained in this report.

Companies in the Evli Group, affiliates or staff of companies in the Evli Group, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives) of any company mentioned in the publication or report.

Neither ERP nor any company within the Evli Group have managed or co-managed a public offering of the company’s securities during the last 12 months prior to, received compensation for investment banking services from the company during the last 12 months prior to the publication of the research report.

ERP may pursue an assignment from the issuer(s) of the financial instruments mentioned in the recommendation or this report. These assignments may have a limited economic or financial impact on ERP and/or Evli. Under such assignments ERP may perform services including, but not limited to, arranging investor meetings or –events, investor relations communication advisory and production of research material.

ERP or another company within the Evli Group does not have an agreement with the company to perform market making services.

For the prevention and avoidance of conflicts of interests with respect to this report, there is an information barrier (Chinese wall) between Investment Research and Corporate Finance units concerning unpublished investment banking services to the company. The remuneration of the analyst(s) is not tied directly or indirectly to investment banking transactions performed by Evli Bank Plc or any company within Evli Group.

This report has not been disclosed to the company prior to its dissemination.

This report is provided and intended for informational purposes only and may not be used or considered under any circumstances as an offer to sell or buy any securities or as advice to trade any securities.

This report is based on sources ERP considers to be correct and reliable. The sources include information providers Reuters and Bloomberg, stock-exchange

Evli Bank Plc, Aleksanterinkatu 19 A, P.O. Box 1081, FIN-00101 Helsinki, Finland, Tel +358 9 476 690, Fax +358 9 634 382, www.evli.com 9(11)

EVLI EQUITY RESEARCH ELISA Telecommunication services/Finland, October 19, 2017 Spot comment releases from the companies and other company news, Statistics Finland and articles in newspapers and magazines. However, ERP does not guarantee the materialization, correctness, accuracy or completeness of the information, opinions, estimates or forecasts expressed or implied in the report. In addition, circumstantial changes may have an influence on opinions and estimates presented in this report. The opinions and estimates presented are valid at the moment of their publication and they can be changed without a separate announcement. Neither ERP nor any company within the Evli Group are responsible for amending, correcting or updating any information, opinions or estimates contained in this report. Neither ERP nor any company within the Evli Group will compensate any direct or consequential loss caused by or derived from the use of the information represented in this publication.

All information published in this report is for the original recipient’s private and internal use only. ERP reserves all rights to the report. No part of this publication may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in any retrieval system of any nature, without the written permission of ERP.

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Evli Bank Plc is not registered as a broker-dealer with the U. S. Securities and Exchange Commission (“SEC”), and it and its analysts are not subject to SEC rules on securities analysts’ certification as to the currency of their views reflected in the research report. Evli Bank is not a member of the Financial Industry Regulatory Authority (“FINRA”). It and its securities analysts are not subject to FINRA’s rules on Communications with the Public and Research Analysts and Research Reports and the attendant requirements for fairness, balance and disclosure of potential conflicts of interest. This research report is only being offered in U.S. by Auerbach Grayson & Company, LLC (Auerbach Grayson) to Major U.S. Institutional Investors and is not available to, and should not be used by, any U.S. person or entity that is not a Major U.S. Institutional Investor. Auerbach Grayson is a broker-dealer registered with the U.S. Securities and Exchange Commission and is a member of the FINRA. U.S. entities seeking more information about any of the issuers or securities discussed in this report should contact Auerbach Grayson. The securities of non-U.S. issuers may not be registered with or subject to SEC reporting and other requirements.

ERP is not a supervised entity but its parent company Evli Bank Plc is supervised by the Finnish Financial Supervision Authority.

Evli Bank Plc, Aleksanterinkatu 19 A, P.O. Box 1081, FIN-00101 Helsinki, Finland, Tel +358 9 476 690, Fax +358 9 634 382, www.evli.com 10(11)

EVLI EQUITY RESEARCH ELISA Telecommunication services/Finland, October 19, 2017 Spot comment

Contact information SALES AND TRADING HELSINKI

Equity Sales Trading ETFs and Derivatives

Ari Laine +358 9 4766 9115 Lauri Vehkaluoto (Head) +358 9 4766 9130 Tobias Björk (Head) +358 9 4766 9130 Lauri Ahokanto +358 9 4766 9117 Pasi Väisänen +358 9 4766 9120 Joachim Dannberg +358 9 4766 9123 Niclas Henelius +358 9 4766 9116 Antti Kässi +358 9 4766 9120 Kimmo Lilja +358 9 4766 9130

Structured Investments Corporate Bonds sales and trading Derivatives Trading

Heikki Savijoki +358 9 4766 9726 Jukka Hyvönen +46 8 407 8138 Sami Järvinen +358 9 4766 9110 Aki Lakkisto +358 9 4766 9123

Evli Investment Solutions

Johannes Asuja +358 9 4766 9205 Markku Reinikainen +358 9 4766 9669

SALES AND TRADING STOCKHOLM

Urban Lawesson (Head) +46 8 407 8021 Thomas Kåhrström +46 8 407 8018

EQUITY RESEARCH

Forestry, Pulp&Paper, Chemicals, Utilities, Packaging Retail, Consumer Goods, Telecommunications, Construction, Real Estate Healthcare Markku Järvinen (Head of +358 9 4766 9635 Joonas Häyhä +358 9 4766 9662 Tomi Lindell +358 9 4766 9204 Research, Finland)

Technology, Software Strategist Research Analysts

Jonas Forslund +358 9 4766 9314 Valtteri Ahti +358 9 4766 9773 Olli Pöyhönen +358 9 4766 9643 Jerker Salokivi +358 9 4766 9149

EVLI BANK PLC

Aleksanterinkatu 19 A P.O. Box 1081 FIN-00101 Helsinki, FINLAND Phone +358 9 476 690 Fax +358 9 634 382 Internet www.evli.com E-mail [email protected]

EVLI BANK PLC, STOCKHOLMSFILIAL Kungsgatan 27, P.O. Box 16354 SE-111 56 Stockholm Sverige [email protected] Tel +46 (0)8 407 8000 Fax +46 (0)8 407 8001

Evli Bank Plc, Aleksanterinkatu 19 A, P.O. Box 1081, FIN-00101 Helsinki, Finland, Tel +358 9 476 690, Fax +358 9 634 382, www.evli.com 11(11)