Annual Report 2012 We want to help our customers to get connected We offer high-quality services such as mobile broadband via 4G, digital home and fiber ser- vices to ensure we can meet future demands. 71 million The number of subscription in TeliaSonera’s majority- owned operations amounted to more than 71 million at year-end 2012. TeliaSonera Annual Report 2012 > Contents Contents TeliaSonera in brief 3 The year in brief 4 Letter from the CEO 5 Markets and brands 8 Board of Directors’ Report 11 Corporate Governance Statement 30 Board of Directors 43 Group Management 45 Consolidated Statements of Comprehensive Income 47 Consolidated Statements of Financial Position 48 Consolidated Statements of Cash Flows 49 Consolidated Statements of Changes in Equity 50 Notes to Consolidated Financial Statements 51 Parent Company Income Statements 107 Parent Company Statements of Comprehensive Income 108 Parent Company Balance Sheets 109 Parent Company Cash Flow Statements 110 Parent Company Statements of Changes in Shareholders’ Equity 111 Notes to Parent Company Financial Statements 112 Proposed Appropriation of Earnings 128 Auditors’ Report 129 Ten-Year Summary Financial Data 131 Ten-Year Summary Operational Data 132 Definitions 133 Annual General Meeting 2013 135 Contact TeliaSonera 136 TeliaSonera AB (publ), SE-106 63 Stockholm, Sweden Corporate Reg. No. 556103-4249, Registered office: Stockholm, Telephone: +46 (0)8 504 550 00, www.teliasonera.com 2 TeliaSonera Annual Report 2012 > Introduction TeliaSonera in brief Communication the easy way TeliaSonera has its roots in the Nordic telecom market and holds strong positions in the Nordic and Baltic countries, Eurasia and Spain. Our core business is to create better communication opportunities for people and businesses through mobile and broadband communication services. TeliaSonera creates a We are organized into world with better opportunities three business areas We help people communicate with family, friends and Mobility Services, Broadband Services and Eurasia are business contacts in an easy, efficient and environ- our three business areas. In the Nordic and Baltic re- mentally friendly way. We do this by providing high gions we provide mobile and fixed line services includ- quality telecommunication services in the Nordic and ing TV. In Eurasia and Spain we offer mobile services. Baltic countries, the emerging markets of Eurasia, including Russia and Turkey, and in Spain. Our ambition is to be a leading operator in all our markets, by providing the best customer experience, high-quality •Mobility Services networks and cost-efficient operations. •Broadband Services •Eurasia We are an international group We have majority-owned operations from the Nordics to Nepal, with more than 71 million subscriptions at year-end 2012 as well as almost 112 million subscrip- tions in our associated companies, mainly in Russia and Turkey. We are also the leading European whole- sale provider with a wholly-owned international carrier network. We want to help our Our employees customers get connected We had 27,838 We offer high-quality services such as mobile employees broadband via 4G , digital home and fiber services at year-end. to ensure we can meet future demands. 2 7,838 3 TeliaSonera Annual Report 2012 > Introduction The year in brief 2012 – an eventful year l We continued the roll-out of both fiber as well as 4G Financial highlights and extended our TV offerings, by for example intro- SEK in millions, except key ratios, ducing HBO and Play+. Reduced dataroaming prices per share data and margins 2012 2 011 2010 were brought to new destinations and Spotify was Net sales 104,898 104,804 106,979 launched in several markets. EBITDA, excluding non-recurring items 36,059 37,222 36,897 margin (%) 34.4 35.5 34.5 l We initiated an efficiency program that will lead Operating income 28,288 29,720 32,003 to cost reductions of SEK 2 billion net over the Operating income, excluding non- coming two years, including personnel reductions recurring items 28,570 29,889 31,935 net of 2,000 employees in the Nordics and Baltics. Net income 21,168 21,119 23,562 At the same time, we see a need to recruit new of which attributable to owners of competence. the parent company 19,886 18,388 21,257 Earnings per share (SEK) 4.59 4.21 4.73 l We partnered with the Danish Institute for Human Return on equity (%, rolling 12 months) 19.8 17.1 17.8 Rights (DIHR) to define and support an internal CAPEX-to-sales (%) 15.0 16.6 14.0 assessment of risks that could potentially lead to Free cash flow 23,740 9,415 12,901 involvement in human rights violations. In particular, freedom of expression and privacy are growing in importance for companies across the ICT sector. nEt SalES and EBITDA Margin, Excluding l We successfully managed to settle a long standing non-rEcurring itEMS, 2010–2012 ownership dispute in Russian MegaFon and n Net sales n EBITDA margin completed an initial public offering of the company by the end of the year. It is amazing that our invest- ment of a mere SEK 1.2 billion since the company’s SEK billion % inception in 1994 has grown to around SEK 55 billion 110 36 including dividends, sale of shares and the value of 105 34 our remaining 25 percent ownership. 100 32 l We successfully completed an initial public offering of Kazakh Kcell during the fall and decided to divest 95 30 Norwegian NextGenTel. 2010 2 011 2012 l We were accused of bribery and money laundering in connection with our investments in Uzbekistan in 2007 and 2010. The Board appointed an external investigation that could neither prove nor completely EPS and dividEndS, 2010–2012 reject the accusations. The investigation complained n EPS n Ordinary dividend n Proposed dividend of deficiencies in the implementation of the deal and that the company violated its own ethical guidelines. In a statement, the Board agreed in the criticism, and SEK per share shared the same. 6 l Our financial position is solid and at year-end free cash flow was record high and we delivered the 4 second highest earnings per share, at SEK 4.59, since the merger between Telia and Sonera in 2002. 2 2010 2 011 2012 4 TeliaSonera Annual Report 2012 > Introduction Letter from the CEO Dear shareholders, The year of 2012 was a strong one, both financially and operationally. We delivered a good profit, despite a downturn in the global economy. We resolved the ownership conflict at MegaFon, which has dragged on for many years, and carried out stock- market flotations that helped to produce a strong cash flow. At the same time, some of our investments in Eurasia were criticized. Second best result in ten years In 2012, mobile data traffic on TeliaSonera’s network expanded by nearly 80 percent. That is a very substan- We have a lot to be proud of. Despite an uncertain and tial increase but income is not keeping pace, rising by troubling macroeconomic climate, last year we suc- only a little over 20 percent. Our income from mobile ceeded in achieving our second best result in the ten voice calls fell by 10 percent, while the volume re- years that have elapsed since Telia and Sonera merged. mained largely unchanged. Amidst the global economic downturn, we managed Dealing with pressure on prices and constantly rising to consolidate and strengthen our position. All opera- demand for capacity, while coping with falling income tions in Business area Eurasia reported higher sales, from voice calls, will be the major challenge for Telia- generating growth of 14 percent. This compensated for Sonera and the industry as a whole. We will meet this slightly lower sales in the Mobility Services and Broad- challenge in three ways: band Services business areas. We will continue to invest in our networks and Since the merger in 2002, TeliaSonera has delivered services in order to always have the market’s most dividends totaling SEK 117 billion. This corresponds attractive offerings. We will introduce a new pricing to SEK 26 per share, excluding share buy-backs. The structure that better reflects our customers’ patterns of number of subscriptions has risen from 19 million to consumption and we will reduce our costs. nearly 71 million in our majority-owned businesses In 2012, we invested nearly SEK 16 billion in infra- and to a total of 183 million if we include businesses in structure, licenses for mobile network and fiber. We which we hold a minority stake. have now launched 4G in all the Nordic and Baltic markets, as well as in several countries in Eurasia. In High pressure for change and strong 2013, we will continue to expand our 4G networks. No pressure on prices other company is investing more in infrastructure in Sweden than TeliaSonera. The customers’ appetite for bandwidth is more or less We will carry on developing new applications and unlimited. In practically every home and in just about services with the leading players in the market. Dur- every workplace, the need for mobile and fixed data ing the year, we were the first Nordic operator to sign communications is growing, as new services and com- an agreement with the USA TV channel HBO, which munication tools enter everyday use. offers new series the day after showing in the USA. We Ten years ago, telephones were used exclusively for partnered with Samsung in developing IPTV technology voice calls and texting. In the workplace, e-mail was enabling our customers to watch TV without a set-top the only form of electronic communication, and the box. computer was the only terminal connected to the inter- In 2012, we embarked on a program aimed at sav- net.