2014 Annual + Sustainability Report Directors’ Corporate Sustainability Financial Other Introduction Report Governance Work Statements GRI Index Information Contents Annual and Sustainability Report 2014 Contents Block Chapter Page Introduction TeliaSonera in brief 3 The year in brief 4 Comments by the CEO 5 Our organization 7 Purpose and values 8 Markets and brands 9 Role in society 12 Directors’ Report Board of Directors’ Report 14 Risks and uncertainties 37 Corporate Governance Corporate Governance Statement 43 Board of Directors 60 Group Executive Management 62 Sustainability Work Sustainability focus area summary 64 United Nations Global Compact principles 65 Sustainability in TeliaSonera 66 Stakeholder engagement 70 Anti-corruption 73 Freedom of expression 76 Customer privacy 79 Occupational health and safety 81 Sustainability in the supply chain 83 Environmental responsibility 86 Other issues 88 Financial Statements Consolidated statements of comprehensive income 89 Consolidated statements of financial position 90 Consolidated statements of cash flows 91 Consolidated statements of changes in equity 92 Notes to consolidated financial statements 93 Parent company income statements 155 Parent company statements of comprehensive income 156 Parent company balance sheets 157 Parent company cash flow statements 158 Parent company statements of changes in shareholders’ equity 159 Notes to parent company financial statements 160 GRI Index GRI Index 181 Other Information Board of Directors' and President's certification 193 Auditors’ Report 194 Auditors’ Limited Assurance Report on the Sustainability Report 196 Ten-year summary – financial data 197 Ten-year summary – operational data 198 Definitions 199 Annual General Meeting 2015 201 Contact TeliaSonera 202 The audited annual and consolidated accounts comprise pages 14–63, 89–180 and 193. The corporate governance statement examined by the auditors comprises pages 43–63. The sustainability information reviewed by the auditors comprises pages 5–6, 12–13, 64–88 and 181–192. 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 Directors’ Corporate Sustainability Financial Other Introduction Report Governance Work Statements GRI Index Information TeliaSonera in brief Annual and Sustainability Report 2014 Bringing the world closer – on the customer’s terms TeliaSonera provides network access and telecommunication services that help people and companies communicate in an easy, efficient and environmentally friendly way, all the way from the Nordic countries to Nepal. We are also a lead- ing wholesale provider who owns and operates one of the world’s most exten- sive fiber backbones. With superior network connectivity, seamless services and At year-end 2014, we had 72.8 million subscriptions with competitive and flexible operations we will strengthen of which: our positions in our markets, leading the way in a respon- • 65.6 million mobile subscriptions sible manner and create value to society, shareholders and • 3.0 million fixed telephony subscriptions to our customers. • 2.7 million broadband subscriptions • 1.5 million TV subscriptions The TeliaSonera share is listed at Nasdaq Stockholm and Helsinki stock exchanges. Market cap was SEK 218 billion at year-end 2014 distributed on 510,566 shareholders. 2 6 ,16 6 WE ARE 26,166 EMPLOYEES WORLDWIDE 3 Directors’ Corporate Sustainability Financial Other Introduction Report Governance Work Statements GRI Index Information The year in brief Annual and Sustainability Report 2014 2014 – a strategically important year Q1 Q3 The Board’s review of the last years’ transactions in Eura- We agreed to acquire Tele2’s operations in Norway and sia was finalized in the quarter. Several of these transac- committed ourselves to 98 percent population coverage tions have been inconsistent with sound business practice for 4G by 2016, two years ahead of the obligations. We and our ethical requirements. We have taken, and will also agreed with the local Finnish operator DNA on mobile continue to take, a number of measures to transform our network sharing in the sparsely populated Northern and internal control systems to make sure we have adequate Eastern Finland. processes to identify and manage risk going forward. Q2 Q4 We launched a new country-based and customer-centric TeliaSonera entered into an agreement with Telenor to organization. In line with our strategy to enhance the core merge the two companies’ Danish operations into a new we acquired the Danish IT and system integrator Siminn joint venture in which the parties will own 50 percent each. and some Swedish open fiber network companies, such The transaction requires approval from the EU Commission as the communication operator Zitius Service Delivery, and a decision on the transaction is expected during 2015. Quadracom Networks, and the service provider Riksnet. NET SALES SPLIT SEK 101,060 MILLION FINANCIAL HIGHLIGHTS SEK in millions except for per share data and margin 2014 Net sales 101,060 n Sweden, 36% EBITDA excluding non-recurring items 35,223 n Europe, 39% EBITDA Margin (%) 34.9 n Eurasia, 20% Operating income excluding non-recurring items 26,656 n Other, 5% Net income 15,599 of which attributable to owners of the parent company 14,502 Earnings per share (SEK) 3.35 Free cash flow 13,046 PROPOSED DIVIDEND SEK 3.00 PER SHARE FINANCIAL KEY RATIOS December 31, 2014 Return on equity (%, rolling 12 months) 15.0 Return on capital employed (%, rolling 12 months) 12.2 Net debt/EBITDA rate excluding non-recurring items 3.00 (multiple, rolling 12 months) 1.68 4 Directors’ Corporate Sustainability Financial Other Introduction Report Governance Work Statements GRI Index Information Comments by the CEO Annual and Sustainability Report 2014 Important steps taken on our new exciting journey Dear Shareholders and TeliaSonera followers. Our ambition is high, the targets are clear, and we are off to a good start. In the past year, we launched a new organization, updated our strategy and committed to an investment plan to im- prove our customer offerings and strengthen our market positions. We are now determined to show the way for the industry, with the ambition to become a new generation telecommunications company. customers want to have, and will have, hassle-free con- Financial performance nections meeting their current and future needs at home, Our financial performance 2014 was broadly in line with at work and on the move. our predictions, reinforcing that we are a financially stable Living up to these high expectations requires invest- company. Our margin is stable, our cash flow is strong, ments. We need to build out, maintain and upgrade our and we can pay our shareholders competitive dividends. internet infrastructure on a continuous basis. In the next Including dividend paid in 2014 of SEK 3 per share, our to- two years, we will invest additionally SEK 4 to 5 billion, of tal shareholder return for the year was close to zero, which which the majority goes to improved internet experience was below STOXX 600 Telecommunications Index and for our customers. OMX Stockholm 30, respectively. I am confident that we This major investment includes, for example, a signifi- can do better over time thanks to the new way of operating cant increase in fiber connections to homes in Sweden. In and the new strategy we have put in place. the past year, we connected four homes an hour, around The ongoing industry challenge is to achieve growth – a the clock, every day of the week. Our ambition is to step concern we share with many others in the telecom sector. up the pace so that around two million Swedish homes This may seem a paradox in a communications society would have access to our fiber services in 2018. advancing at a rate rarely before witnessed. The challenge to all telecom operators has long been how to convert demand for data and connected services into growth and increased sales. More than half of our The connected society mobile customers in Sweden have signed up on the new Never before have people communicated with one another pricing plan where you pay for data rather than for calls as much as they do today. TeliaSonera is in the middle of at a per-minute rate. Half of the customers who reach the this information flow, and we see from day to day how our data limit set for their subscriptions choose to top up. This customers change their behavior. Demand for data capac- is one way for us to convert data growth into increased ity continues to grow dramatically, especially as online life- earnings, simultaneously as the customers gain better style, movies and TV shows continue to gain in popularity. control of their costs. Today one-fourth of the data traffic in Europe comprises video, and the proportion is estimated to continue grow- ing rapidly. Through our Carrier business, which is a top 2 Improved connectivity global IP-carrier, we can see this locally and globally in our extensive IP-backbone. everywhere We are now on the verge of the next big step, where on- The fact that people live their lives more online sets high line healthcare services, vehicles and machines communi- requirements for us as a telecom operator. People expect – cating with one another become more and more common. and rightly so – that our services are available everywhere This will pose further challenges to the network. As a tel- and all the time. More than 99 percent of the Swedish ecom operator, we must be able to guarantee the quality population is now within the coverage area of our highest- and security needed to satisfy the varying needs brought speed mobile technology. When we started providing 4G about by all these connected machines and services. services in Sweden and Norway five years ago, we were We have taken this exciting technology development into the first in the world to do so, and we continue to improve account in our new business strategy, which you can read the network coverage and speed on all our markets.