Com Hem Sweden AB (publ) ANNUAL REPORT 2017 COM HEM SWEDEN AB (PUBL) Board of Directors’ report 1 BOARD OF DIRECTORS’ REPORT The Board of Directors and the Chief Executive Officer of Com Hem Sweden AB (publ), corp. reg. no. 556859-4195, hereby submit the annual accounts for the Group and the Parent Company for 2017. Com Hem’s role is to unleash the power of Swedish homes Significant events during the year 1 and small businesses. Every home and every business is • At the end of 2017, the Group reached 2.8m addressable unique. Some homes are empowered by being able to households. Since the start of the footprint expansion one communicate with family and friends all over the world while and a half year ago the footprint has increased by 40% others need powerful broadband for gaming. Many homes from 2.0m to 2.8m addressable households. are empowered by the everyday luxury of having access to a wealth of cinematic experiences. • A year with record volume growth in the Com Hem Seg- Com Hem delivers high-speed internet access, TV & ment consumer business, the customer base rose by 4.0% Play and fixed telephony to Swedish homes and business- to 983,000 unique consumer subscribers. The number of es through the Com Hem, Boxer and Phonera brands. We broadband RGUs rose by 6.8% to 750,000 and the number are one of Sweden’s leading suppliers, selling our services of digital TV RGUs rose by 1.7% to 655,000. to about 1.5 million customers in both apartment buildings • During the first quarter of 2017 Boxer launched a fibre (multiple dwelling units) and houses (single dwelling units) marketing campaign and network expansion in order through our FibreCoax network, fibre networks, and the to respond to the market demand for fibre, both from digital terrestrial network. existing Boxer customers and from new customers. Boxer The business was established in 1983 and operations are added 17,000 broadband RGUs during the year to a total today conducted by the four subsidiaries Com Hem AB, of 28,000 RGUs at the end of the year. Boxer TV-Access AB, Phonera Företag AB and iTUX Commu- nication AB. • For the full year the Group’s underlying EBITDA increased Following the acquisition of Boxer as per September 30, by 14.8% to SEK 2,942m. In the Com Hem Segment under- 2016 the Group is divided into two operating segments; Com lying EBITDA rose by 5.5% to SEK 2,622m and in the Boxer Hem and Boxer. Segment underlying EBITDA amounted to SEK 319m. The operating segment Com Hem offers services to con- sumers (broadband, digital-TV and fixed telephony), B2B (broadband and telephony) and landlord (basic TV offering) via fibreCoax, fibre and LAN. The services to consumers and landlords are mainly delivered to multi-dwelling unit build- nings. The B2B services are mainly delivered to small and medium sized enterprises. The operating segment Boxer offers services (digital-TV and broadband) to consumers mainly in the SDU market through the Swedish digital terrestrial network provided by Teracom and through fibre networks. 1 The Company applies Alternative Performance Measures in the Board of Director’s report and in other parts of the annual report in order to describe the business of the Group. The company applies guidelines for Alternative Performance Measures issued by ESMA (European Securities and Markets Authority). See page 68 for definitions of financial key metrics and Alternative Performance Measures. Annual Report 2017 COM HEM SWEDEN AB (PUBL) Board of Directors’ report 2 Group financial overview Reconciliation between operating profit and underlying EBITDA, SEKm 2017 2016 Change Financial summary, SEKm 2017 2016 Change Operating profit (EBIT) 940 866 8.5% Revenue 7,136 5,665 26.0% Operating expenses -6,196 -4,798 29.1% Depreciation/amortisation per Operating profit (EBIT) 940 866 8.5% function Net financial income and - Cost of services sold 978 867 12.8% expenses -407 -615 -33.8% - Selling expenses 945 779 21.4% Income taxes -119 -59 100.7% - Administrative expenses 20 22 -8.1% Net result for the period 414 192 115.4% Total amortisation/depreciation 1,943 1,667 16.5% Total revenue EBITDA 2,882 2,533 13.8% Total revenue rose by 26.0% compared to previous year to EBITDA margin, % 40.4 44.7 -4.3 p.p. SEK 7,136m, mainly explained by Boxer being consolidated into the Group from the fourth quarter 2016. Disposals 16 4 n/m Com Hem segment revenue grew by 4.1%, explained by Operating currency gains/losses -7 7 n/m continued good growth in Com Hem’s consumer business Items affecting comparability 50 17 n/m which grew by 4.7% driven by volume and price. Underlying EBITDA 2,942 2,562 14.8% Underlying EBITDA margin, % 41.2 45.2 -4.0 p.p. Operating expenses Operating expenses increased by 29.1% compared to Underlying EBITDA 2016 and amounted to SEK 6,196m. The increase is mainly Underlying EBITDA increased by 14.8% to SEK 2,942m, explained by Boxer being consolidated into the Group from explained by Boxer being consolidated into the Group from the fourth quarter 2016. September 30, 2016 combined with revenue growth within the Com Hem Segment. Operating profit (EBIT) Operating profit increased by 8.5% resulting in an operating EBITDA profit of SEK 940m. EBITDA rose by 13.8% reaching SEK 2,882m. Items affect- ing comparability includes a SEK 22m positive effect from Net financial income and expenses revaluation of pension debt following closure of the plan for Net financial income and expenses were improved by 33.8% new entrance in the first quarter, offset by negative SEK 29m compared to last year. The positive change is mainly a relating to integration of B2B and other items of negative consequence of no refinancing activities in 2017 compared SEK 43m for the full year. to last year as well as reduced blended interest rate on the Group’s external debt portfolio. Average blended interest Amortisation and depreciation rate on the Group’s external debt portfolio was 2.5% for the Amortisation and depreciation increased by SEK 276m, full year 2017 compared to 2.9% in 2016. explained by Boxer being included in the Group from September 30, 2016 as well as higher amortisation and Income taxes depreciation on customer relations for the legacy OffNet B2B The Group recognised a deferred tax expense of SEK 119m for business and sales commissions (selling expenses), product- the full year. and IT-development (cost of services sold) as well as CPEs The taxable profit will be offset against previously rec- (cost of services sold) within the Com Hem Segment. ognised tax losses carry forwards, which had a remaining balance of approximately SEK 0.2bn at the end of the year. Operating free cash flow, SEKm 2017 2016 Change Underlying EBITDA 2,942 2,562 14.8% Net result for the period Net result totalled SEK414m, up 115.4% as a result of higher Capital expenditure (capex) operating profit together with lower net financial income Network related -398 -273 45.5% and expenses compared to 2016. CPEs and capitalised sales commissions -454 -388 17.1% Product- and IT-development -211 -208 1.5% Integration of Boxer -58 - n/m Other capex -18 -24 -25.3% Total capital expenditure -1,138 -893 27.5% Operating free cash flow 1,803 1,669 8.1% Annual Report 2017 COM HEM SWEDEN AB (PUBL) Board of Directors’ report 3 Capital expenditure (capex) Mergers Capital expenditure amounted to SEK 1,138m, of which SEK In January 2017 the Boards resolved to merge the Parent 1,047m in regular capex, corresponding to 14.7% of revenue. The Company NorCell Sweden Holding 2 AB (publ) and the increase compared to 2016 is due to Boxer being included in the subsidiary Com Hem Communications AB into the Parent Group, a low investment level during 2016 as well as increased Company Com Hem Sweden AB (publ), where Com Hem focus on network investments and higher sales volumes in 2017. Sweden (publ) was the surviving entity. The mergers were executed in April 2017. Operating free cash flow Operating free cash flow increased by 8.1%, explained by Boxer Capital structure and financial governance being consolidated into the Group, as well as organic growth in The company defines capital as interest-bearing liabilities underlying EBITDA, partly offset by higher capex in 2017. and equity. The company’s objective is to have an effective capital structure that takes account of its operational and Consolidated financial position and liquidity financial risks, helps maintain the confidence of investors, Consolidated total assets amounted to SEK 23,330m creditors and the market, and provides a stable basis for the (22,297) at the end of the year. Intangible assets amounted sustainable development of the company’s operations, while to SEK 16,014m (16,765), of which goodwill accounted for also ensuring shareholders receive satisfactory returns. The SEK 11,321 (11,321). The change in working capital was key ratio which the management and external stakeholders negative SEK 26m (positive 53). judge capital structure by is net debt in relation to underlying Total available cash and cash equivalents, including EBITDA (EBITDA before disposals excluding items affecting unutilised credit facilities, amounted to SEK 1,677m (1,854), comparability and operating currency gains/losses). At the of which cash and bank balances comprised of SEK 577m end of the year, the Group’s net debt totalled SEK 10,501m (454) and unutilised credit facilities SEK 1,100m (1,400).