TeliaSonera Annual ReportAnnual2006TeliaSonera Annual Report 2006 TeliaSonera AB (publ), SE-106 63 Stockholm, Sweden Corporate Reg. No. 556103-4249, Registered offi ce: Stockholm, Telephone: +46 (0)8 504 550 00, www.teliasonera.com Content How to reach TeliaSonera The Year in Brief 1 Comments from the CEO 2 TeliaSonera AB Group Communications Mailing address: TeliaSonera AB, Ewa Lagerqvist The Market for Telecom Services 4 SE-106 63 Stockholm, Sweden Mailing address: TeliaSonera AB, Visiting address: Sturegatan 1, Stockholm SE-106 63 Stockholm, Sweden Business Concept, Vision and Strategy 8 Telephone: +46 (0)8 504 550 00 Telephone: +46 (0)8 504 550 00 Fax: +46 (0)8 504 550 01 Fax: +46 (0)8 611 46 42 Initiatives for Growth and Efficiency 10 E-mail: [email protected] Personnel and Organization 18 President and Chief Executive Officer Investor Relations TeliaSonera in Society 22 Anders Igel Martti Yrjö-Koskinen Mailing address: TeliaSonera AB, Mailing address: TeliaSonera AB, The TeliaSonera Share 24 SE-106 63 Stockholm, Sweden SE-106 63 Stockholm, Sweden Telephone: +46 (0)8 504 550 00 Telephone: +46 (0)8 504 550 00 Corporate Governance Report 26 Fax: +46 (0)8 504 550 14 Fax: +46 (0)8 611 46 42 E-mail: [email protected] Board of Directors 32 Executive Management 34 This is TeliaSonera 36 Report of the Directors 38 Risk Factors 46 Consolidated Financial Statements 49 Parent Company Financial Statements 81 Proposed Appropriation of Earnings 94 Auditors’ Report 95 Ten-Year Summary 96 Annual General Meeting 2007 100 This Annual Report is also available at www.teliasonera.com/investorrelations under the Reports section. Hardcopies can be printed from the web or ordered via the web or by phone +46 (0) 372 851 42. TeliaSonera AB is a public limited liability company incorporated under the laws of Sweden. TeliaSonera was created as a result of the merger of Telia AB Production TeliaSonera AB, Investor Relations and Intellecta Communication AB. and Sonera Corporation in December 2002. In this annual report, references to Photo Matton/George Doyle: cover. Vibeke Aronsson: page 3, 10, 11, 13, 18, 19, 32, 34. Carl Hjelte: page 4, 5. Lucky Look/Kevin Foy: page 12. Ernst Tobisch: page 14. Getty Images: page 16, 23. Matton/Klaus Tiedge: page 24. “Group,” “Company,” “we,” “our,” “TeliaSonera” and “us” refer to TeliaSonera AB Paper Cover: Arctic silk 250 g. Insert: Galerie one silk 115 g. or TeliaSonera AB together with its subsidiaries, depending upon the context. Printing Intellecta Tryckindustri AB. Printed on environmentally approved paper. The Year in Brief Net sales increased 3.9 percent to SEK 91,060 million (87,661) driven by strong mobile and broadband growth in all TeliaSonera’s markets and acquisitions in the home markets. Strong subscription growth year on year: – 1.5 million new subscriptions in the majority-owned Nordic, Baltic and Eurasian operations. – 14.4 million new subscriptions in the associated companies. Operating income, excluding non-recurring items, increased to SEK 26,751 million (20,107) million. All operations contributed to the rise. International Mobile operations generated more than 30 percent of group operating income. EBITDA margin excluding non-recurring items rose to 35.4 percent (33.6). The improvement was especially due to higher margins in Sweden, Finland and Denmark. Free cash fl ow increased to SEK 16,596 million (15,594). Net income attributable to shareholders of the parent company increased to SEK 16,987 million (11,697) and earnings per share to SEK 3.78 (2.56). Total proposed dividend of SEK 6.30 per share (SEK 28,291 million) comprising: – Proposed ordinary dividend of SEK 1.80 per share (SEK 8,083 million). – In addition to the ordinary dividend, a distribution of SEK 10,104 million to the shareholders through an extraordinary dividend of SEK 2.25 per share is proposed. – Furthermore, an additional distribution of SEK 10,104 million to the shareholders through an additional extraordinary dividend of SEK 2.25 per share is proposed. Financial Highlights SEK in millions, except per share data 2006 2005 Net sales 91,060 87,661 EBITDA, excl. non-recurring items 32,266 29,411 Operating income 25,489 17,549 Operating income excl. non-recurring items 26,751 20,107 Net income 19,283 13,694 of which attributable to shareholders of the parent company 16,987 11,697 Earnings per share (SEK) 3.78 2.56 Comments from the CEO Dear Shareholders, 2006 was a record year for TeliaSonera with sales, profits and proposed dividends reaching their highest levels to date. Net income to parent com- pany shareholders increased by close to 50 percent, reaching SEK 17 billion. Our market positions developed strongly amid keen competition. A new business structure together with our financial strength and years of strong performance make a solid platform for profitable growth ahead. Again TeliaSonera demonstrated its strength and tries. We have closed the acquisition of Cygate, a the fine performance clearly shows our ability to leading supplier of secure and managed IP-net- make strong achievements under continued work solutions and system integration in the Nordic demanding market conditions. I want to thank all market. Cygate will strengthen our position in the employees for their excellent contributions to our managed services markets in Sweden and Finland. best year ever financially. We have agreed to buy Danish service provider Since the merger between Telia and Sonera four debitel Danmark A/S. The takeover will increase our years ago, we have generated a free cash flow of foothold in Denmark, a highly competitive market SEK 64 billion in markets characterized by strong where our operations swung to a healthy profit in price pressure, keen competition and constantly 2006. developing customer needs. We have at the same Among our majority-owned operations, Finland time returned SEK 38 billion to our shareholders. showed a particularly impressive improvement in During the past four years our share price has 2006 and posted the largest earnings increase in almost doubled and, in 2006, the TeliaSonera our home markets. Sales and income reached share by far outperformed the Stockholm Stock record levels in Norway and the fast growing mar- Exchange’s All-Share Index. kets in Eurasia. Including the operations of our A key factor behind the solid earnings develop- majority-owned company Fintur in Kazakhstan, ment is our vision of making simplicity our stron- Azerbaijan, Georgia and Moldova, and our associ- gest competitive edge. Improved service and ated companies in Russia and Turkey, the Eurasian simplicity have been at the core of our vision ever operations generated more than 30 percent of since the creation of TeliaSonera. At an early stage group income. The Baltic countries continued their we identified one of the strongest trends in the earnings improvement. In Sweden, the migration market – the migration from fixed to mobile and from traditional fixed voice communication was Internet based services. Leading and managing particularly strong and we maintained our mar- that changeover is of paramount importance to gins despite strong price pressure. Restructuring our earnings growth. measures and also a gain deriving from a court In 2006, all our businesses contributed to the ruling on interconnect prices helped lift earnings record results. Income growth was driven by strong in Sweden. demand for mobile and broadband services, lower We accessed a new market, Spain, by acquiring operating costs and synergy gains. the majority of Xfera. After a record short period of Acquired companies contributed to the strong time following the closing of the acquisition in June performance. We paid a total of SEK 3.3 billion net we launched our Spanish mobile operation during cash in strategic acquisitions that are strengthen- the brand Yoigo on December 1. Offering easy to ing our positions in the home markets and extend- use services with transparent and attractive pric- ing our reach to new growth areas. We expanded ing, Yoigo has been very well received in Spain. into the Norwegian broadband market by acquiring Customer intake is exceeding all expectations. In NextGenTel. The acquisition underlines our strate- Yoigo, we combine our knowledge and experience gic direction to focus on mobile and Internet based with a new flexible and cost efficient organization. services. Our intention is to exploit the competence Throughout TeliaSonera the level of business of NextGenTel when driving growth in other coun- activity was high in 2006. We continued to suc- 2 TeliaSonera Annual Report 2006 “A new business structure and our strong financial performance create a solid platform for future profitable growth. Our focus is on developing the operations in our home markets and our investment in Spain and creating shareholder value related to the eastern positions.” cessfully execute our strategy at a high pace. Our was concluded between TeliaSonera and Cukurova work to cut costs and improve profitability contin- in 2005 calling for Cukurova to sell all the remaining ued. Still, this is not enough. We need to deliver shares in Turkcell Holding to TeliaSonera. The ruling stronger sales growth to maintain a good profit- is a step in the right direction but TeliaSonera does ability. On January 1, 2007, we introduced a new not yet know if Cukurova is willing, or able, to pro- organization comprising four business areas – ceed with a transfer of the shares. In the long term, Mobility Services, Broadband Services, Inte- if we cannot take control of Turkcell or MegaFon, grated Enterprise Services and Eurasia. The for- there is no reason to keep our stakes for ever. Share- mat will capture the strong growth within mobility holder value projections will determine what actions and broadband services as well as managed ser- to take related to our Eurasian positions.