Q4 2008 Interim report January–December 2008 Contents Highlights 1 Management interim report 2 Telenor’s Operations 2 Group overview 8 Outlook for 2009 9 Condensed interim fi nancial information 10 Notes to the consolidated interim fi nancial statements 14 Defi nitions 16 Delivering a solid quarter Highlights (including Kyivstar) Fourth quarter 2008 FULL YEAR 2008 • Organic revenue growth of 4% • Organic revenue growth of 6% • EBITDA margin of 33% • EBITDA margin of 35% Jon Fredrik Baksaas • Earnings per share of NOK 1.33 • Earnings per share of NOK 7.97 President & CEO “For the full year 2008, the Telenor Group delivered good organic revenue business environment going forward. As a result, the focus in 2009 will be growth and upheld the market positions, in spite of challenging macro on cost effi ciency and capex control. economic conditions. I am pleased to see that the recent ruling in a federal court in New York The overall trends seen in the third quarter continued into the fourth quarter has brought us several steps closer to obtaining predictable and healthy with stable organic revenue growth combined with strong margins in several corporate governance on a permanent basis in Kyivstar. We have received operations, particularly in Serbia and Bangladesh as well as a rebound in dividend payments for 2004 and 2005 and we are working towards further Pakistan. During the quarter, our operations added 5.5 million mobile dividend payments for the following years. subscriptions, reaching a total of 164 million. We have decided that the investment in Unitech Wireless in India will be The capex level in the quarter was high, mainly due to completion of major fi nanced through a combination of cash generated from operations and projects and network roll-out in Asia, as well as investments in the Nordic additional debt. Telenor has decided to propose no payment of dividend to region related to successful market uptake of mobile broadband. The shareholders for 2008. It is further the intention of the Board that no dividend telecom sector has so far been less affected by the global economic will be proposed for 2009. This underlines the need for strong focus on cash slowdown than other industries, however we expect a more challenging fl ow in operations.“ KEY FIGURES 1) 4th quarter Year 2008 2007 2008 2007 (NOK in millions except earnings per share) Proforma Group Proforma Group Proforma Group Proforma Group Revenues 29 925 26 914 111 015 105 021 EBITDA before other income and expenses 9 925 8 831 38 505 36 358 EBITDA before other income and expenses/Revenues (%) 33.2 32.8 34.7 34.6 Adjusted operating profi t 5 429 4 768 22 638 20 642 Adjusted operating profi t/Revenues (%) 18.1 17.7 20.4 19.7 Profi t after taxes and non-controlling interests 2 205 5 869 13 307 18 016 Earnings per share from total operations, basic, in NOK 1.33 3.49 7.97 10.72 Capex 7 223 7 084 22 699 22 079 Capex excl. new licences and spectrum 6 738 6 672 20 664 21 635 Investments in businesses 169 447 1 866 6 041 Net interest-bearing liabilities 39 289 36 464 EXTRACT FROM OUTLOOK FOR 2009 Based on the proforma group structure including Kyivstar and currency rates as of 31 December 2008, Telenor expects organic revenues 2) in line with 2008, with an EBITDA margin before other income and expenses around 34%. Capital expenditure as a proportion of revenues, excluding licences and spectrum, is expected to be in the range of 15–17%. Telenor expects that the investment in India will contribute with marginal increase in organic revenues, an EBITDA loss in the range of NOK 2–2.5 billion and capex in the range of NOK 5.5–6.5 billion for 2009. Please refer to page 9 for the full outlook for 2009, and page 16 for defi nitions. 1) Kyivstar was deconsolidated and accounted for as an associated company from 29 December 2006. From the fourth quarter of 2007 Kyivstar resumed its fi nancial reporting to Telenor. In the fourth quarter of 2007, the full year effect of Kyivstar’s fi gures is refl ected in the line “Net result from associated companies”. Proforma fi gures for 2007 and 2008, assuming Kyivstar was still consolidated, are included in the table. 2) Organic revenue is defi ned as revenue adjusted for the effects of acquisitions and disposal of operations and currency effects. FOURTH QUARTER 2008 PAGE 1 Management interim report Telenor’s operations Unless otherwise stated, the statements below are related to Telenor’s NORDIC development in the fourth quarter of 2008 compared to the fourth quarter Mobile – Norway of 2007. All comments on EBITDA are made on development in EBITDA 4th quarter Year before other income and expenses. Please refer to page 8 for comments (NOK in millions) 2008 2007 2008 2007 on other income and expenses. Additional information is available at: Revenues www.telenor.com/ir Subscription and traffi c 2 340 2 239 9 307 8 721 Interconnect revenues 458 454 1 841 1 838 As a consequence of Alfa Group’s previous collusive litigation in Ukraine Other mobile revenues 358 371 1 237 2 029 and boycott of Kyivstar’s board and shareholder meetings in defi ance of Non-mobile revenues 144 153 492 554 an international arbitration award and two court orders, Telenor has been Total revenues 3 300 3 217 12 877 13 142 unable to consolidate Kyivstar’s fi nancial results since 29 December 2006. EBITDA before other items 1 135 1 009 4 610 4 716 Kyivstar was deconsolidated, due to injunctions in Ukraine prohibiting Operating profi t 914 807 3 774 3 977 Kyivstar’s management from providing fi nancial information to Kyivstar’s external auditors and its shareholders, including Telenor. In response to EBITDA before other items/Total revenues (%) 34.4 31.4 35.8 35.9 the termination of the last of the three injunctions by a Ukrainian court Capex 345 402 994 1 102 on 23 November 2007 Kyivstar was no longer presented on a separate Investments in businesses 29 181 29 181 line, but included in the line associated companies. After the termination of the injunctions, Kyivstar has provided Telenor with unaudited fi nancial No. of subscriptions (in thousands): information. – Change in quarter/Total 40 48 3 020 2 856 ARPU – monthly (NOK) 311 316 317 317 To restore corporate governance in Kyivstar, Telenor fi led on 23 January 2008 a contempt motion with the federal court in New York against Storm LLC, its • The number of subscriptions increased by 40,000 during the quarter, two direct shareholders Alpren Ltd. and Hardlake Ltd., and Altimo Holdings & of which 25,000 were mobile broadband subscriptions. The estimated Investments Ltd. The court ruled on 19 November 2008, fi nding for Telenor subscription market share remained stable at 54%. on all accounts and ordering Storm to take all steps necessary to restore • ARPU decreased by 2% driven by lower average prices not fully corporate governance in Kyivstar, threatened with heavy coercive fi nes compensated for by increased average usage (AMPU). unless they complied. • Total revenues increased by 3%, mainly due to an increase in the number of subscriptions. During the fourth quarter decrease in wholesale revenues On 16 December 2008 the shareholders met at two Extraordinary General from migration of Tele2 customers was partly offset by revenues from Meetings of Shareholders to bring the charter in compliance with Ukrainian Network Norway. law. Furthermore the EGMSs elected a new company Board, appointed the • Network Norway entered into a national roaming agreement with Telenor Auditing Commission and declared dividends for the years 2004 and 2005. during the fi rst quarter of 2008. Customers have been transferred to The company board met and elected Ernst & Young as the company’s Telenor’s network during the third quarter, with full effect from the fourth external auditor. There is a possibility that when external auditors have quarter. The migration of Tele2 was completed by the fi rst quarter of 2008. completed the audit of Kyivstar’s fi nancial statements, discrepancies may • The EBITDA margin increased by 3 percentage points due to increased emerge between the unaudited fi nancial information for 2006, 2007 and revenues and reduced operating expenses primarily related to personnel, 2008 that has been provided by Kyivstar and the fi nal audited fi nancial sales and marketing. statements. Fixed – Norway 4th quarter Year (NOK in millions) 2008 2007 2008 2007 Revenues Telephony 1 132 1 274 4 678 5 344 xDSL/Internet 673 659 2 674 2 566 Data services 175 198 712 802 Other 463 334 1 379 1 248 Total retail 2 443 2 465 9 443 9 960 Wholesale 1 357 1 326 5 264 5 228 Total revenues 3 800 3 791 14 707 15 188 EBITDA before other items 1 301 1 317 5 279 5 550 Operating profi t 752 780 3 009 3 459 EBITDA before other items/Total revenues (%) 34.2 34.7 35.9 36.5 Capex 538 548 2 071 1 906 Investments in businesses - - 212 - No. of subscriptions – Change in quarter/Total (in thousands): Telephony (22) (24) 1 301 1 385 – of which PSTN (14) (15) 841 894 – of which ISDN (11) (14) 317 360 – of which VoIP 3 5 143 131 xDSL (3) 14 647 633 PAGE 2 FOURTH QUARTER 2008 • Telenor’s estimated market share for telephony, measured in traffi c quarter decreased by 1 percentage point, mainly due to increased sales minutes, was maintained at 61% and the estimated market share for and marketing expenses.