Telia Company year-end report January-December 2021

DELIVERING ON GROWTH OBJECTIVES

Fourth quarter summary

• Net sales decreased 0.4% to SEK 23,380 million (23,464) and like for like, net sales increased 3.3%.
• Service revenues decreased 1.7% to SEK 19,420 million (19,765) and like for like, service revenues increased 2.9%.
• Adjusted EBITDA declined 1.6% to SEK 7,290 million (7,411) and like for like, adjusted EBITDA remained unchanged.
• Total net income amounted to SEK 1,185 million (-24,474).
• Operational free cash flow decreased to SEK 1,371 million (2,856) and cash flow from operating activities decreased to 7,137 million (7,929).
• The transaction regarding a sale of 49% of the tower businesses in Finland and Norway to Brookfield and Alecta was completed.
• After the end of the quarter, an agreement was signed with Brookfield and Alecta for the sale of 49% of the tower business in Sweden. The Board intends to propose to return the net transaction proceeds to shareholders, after the expected completion of the transaction during 2022.
• For 2021, the Board of Directors proposes to the Annual General Meeting an ordinary dividend of SEK 2.05 per share (2.00).
• The outlook for 2022: Service revenues and Adjusted EBITDA, like for like, are estimated to grow by low single digit. Cash CAPEX, excluding fees for licenses and spectrum, is estimated to be in the range of SEK 14.0-15.0 billion.

Full year summary

• Net sales declined 1.0% to SEK 88,343 million (89,191) and like for like, net sales increased 3.2%.
• Service revenues decreased 2.8% to SEK 75,180 million (77,342) and like for like, service revenues increased 1.5%.
• Adjusted EBITDA declined 2.0% to SEK 29,861 million (30,482) and like for like, adjusted EBITDA increased 0.4%.
• Total net income amounted to SEK 11,836 million (-22,837).
• Operational free cash flow decreased to SEK 10,401 million (12,095) and cash flow from operating activities decreased to SEK 27,376 million (28,604).
• The divestment of Telia Carrier to Polhem Infra was completed on June 1, 2021.

CEO COMMENT…

“One year after setting out our plan to reinvent Telia and make it better for our customers, our employees, our owners and the societies of the Nordic and Baltic region, we are boldly moving forward. We have returned to growth on both revenue and EBITDA, we have secured our network leadership, we have laid the foundations for a sustainable digital transformation of the whole of Telia, and we remain a sector leader in responsible business. We are also on track to create the region’s first meaningful tower company with an enterprise value of EUR 2.6 billion, in partnership with one of the world’s largest owners and operators of towers, and we have deleveraged our balance sheet. We are proud that whilst we are in the midst of a comprehensive upgrade of our networks, while simultaneously modernizing and digitizing our many customer experiences, we have delivered on our outlook, and generated operational free cash flow that fully covers both our heightened investments and our progressive dividend.

In the fourth quarter our service revenue grew by 3% driven by Sweden, the Baltics and TV and Media. Structural cost reduction continues, but as we absorb a full quarter of premium sports rights, our EBTIDA remained unchanged. Our core telco business, excluding the TV and Media unit, grew EBITDA by 3%.

Sweden and the Baltics, our market leaders, delivered solid service revenue growth driven by a stable customer base and rising ARPUs in all main segments. I am especially pleased that the core trends in our Swedish business look increasingly solid. Customer intake in both fiber broadband and IPTV have been consistently positive for seven consecutive quarters, and ARPUs are rising with post-paid mobile and broadband both growing 3%, and TV growing 8% in the quarter. Sweden’s service revenue growth rate was 1.5% but amounted to 4.2% when excluding the declining copper revenue. EBITDA grew by 6.5% helped by a pension refund of around SEK 160 million and by 2% excluding the refund. Our businesses in Estonia and Lithuania delivered high-single digit growth in service revenue, driven by both mobile and fixed services and in both the consumer and enterprise segments.

Results in our challenger markets were again mixed but with some positive signs. Norway delivered positively with service revenue accelerating to 2.6% growth, despite the drag from our wholesale business, with both the consumer and enterprise segments growing healthily at 3-5%. EBITDA declined by 3.6% but was stable excluding the wholesale business. Finland results are as expected still below last year with service revenue declining 2.8%, but positive trends are starting to materialise. We saw our new value-oriented strategy and 5G migrations enabling a small increase in consumer post-paid ARPU, and a positive shift towards lower cost and digital sales channels. However, rising energy costs offset the benefits from digital transformation initiatives this quarter, as did declining legacy businesses. We are prioritizing longer-term levers over quick fixes and expect the turnaround to take until the second half of 2022, as previously stated. In Denmark trends were similar to the previous quarter with stable service revenue but EBITDA declined mainly on the back of higher energy costs.

TV and Media continued to grow and the number of consumers with access to C More content is now 14% higher than one year ago. Service revenues grew 11% in both our Advertising funded and Pay TV businesses. Advertising revenues were strong on both linear and digital platforms, in both Sweden and Finland. We achieved our highest ever linear share of viewing in Sweden, and we are gaining share in Finland. As we pursue the digital transformation of the leading Nordic media house I am excited to see the 28% growth in digital advertising in Sweden for 2021, driven by TV4 Play. Within Pay TV, we now carry the full quarterly impact of premium sports rights and while the C More subscriber base grew, the higher content investment resulted in a neutral EBITDA contribution from TV and Media in the quarter.

We continue to execute on the strategic roadmap we presented one year ago. Our strategic priority to “Inspire our Customers” is well illustrated by Telia Norway which has taken 5G leadership, created a daring challenger position to the market incumbent, and increased customer loyalty through a combination of appealing family subscriptions, convergent solutions and device offerings, all of which has resulted in a significant 30% reduction in churn, over the past two years. Telia Sweden won the Swedish quality index survey (SKI) customer satisfaction survey in several categories. Furthermore, in a broad international survey of mobile customer experience performed by Tutela, Finnish networks were named the best in the world, and among those, Telia Finland came out as no.1.

Our priority to “Connect Everyone” is manifested by our strong commitment to maintain and build our network leadership position. I am pleased to see that we won the umlaut test for best network again in Sweden, and even increased the margin to other networks. In Finland we launched the first commercially available 5G standalone (SA) core network in the Nordic and Baltic region, creating the opportunity for advanced 5G use cases and a strengthened position in the Enterprise segment. We are also proud that the World Benchmarking Alliance has ranked Telia Company number 11 out of 150 when it comes to digital inclusion and fourth among all the European-headquartered companies, based on our progress on improving access to technology, enhancing digital skills, fostering trustworthy use, and innovating openly and ethically. During the year, we also joined forces with Brookfield and Alecta to create a pan-Nordic tower platform, following the closing of the first tower transaction in Q4 and the expected closing during 2022 of the recently announced transaction comprising our Swedish towers.

As we “Transform to Digital” we have laid further foundations to transform Telia into a more agile, efficient company that serves its customers in a simpler, better way. During the year, we have retired over 20% of our legacy products and tripled the share of products that use a common, more scalable, technology platform to more than 45%, which will ultimately reduce cost, decrease time to market and modernize our product offering. We have saved more than SEK 75 million of IT costs in the quarter, and more than SEK 250 million over the year. These are structural and sustainable reductions generated through the decommissioning of legacy systems and products, as well as through the consolidation of IT vendors.

Finally, we have made progress on our commitment to “Deliver Sustainably” on several fronts. In the quarter we launched Travel Emissions Insights, a product that enables municipalities and regions to determine CO2 emissions from road passenger transport. I am also proud that we have decided to explore the opportunity to improve society’s energy security and resilience, while also saving costs, by piloting smart battery storage at selected network sites in 2022. More broadly we are ending the year with more than 1,000 fewer resources and SEK 0.3 billion lower operational expenses, despite higher energy costs. We are also reducing complexity across Telia, having divested small, non-core businesses for more than SEK 0.5 billion in total, in the past 12 months, without any impact on Group EBITDA.

Financially, we end the year with a strong balance sheet and the Board is proposing a 2.5% increase in the dividend, in line with the ambitions of our dividend policy which is one of the sector’s most committed and shareholder friendly. Additionally, with the current strong balance sheet position foreseen to be sustained, the Board intends to propose the distribution of the net proceeds from the Swedish tower transaction, which is expected to close during 2022, to the shareholders. Further details on the return mechanism will be provided in due course.

In the year ahead I expect the demands on the communications sector to increase further as customers seek more and more connected services and experiences that rely on safe, reliable and high-speed networks. As the costs to deliver these services face inflationary pressure, it is no longer sustainable for our services to deflate in value. At the end of 2021 consumer prices in our home market of Sweden were climbing at the fastest pace for almost three decades, with similar trends in the rest of our footprint.

Entering 2022 we will execute on two fronts to meet this new environment. Firstly, by offering connectivity, communication and entertainment services that are superior to anything we have offered in the past, and by ensuring the price of these services reflect the value they bring to our customers. Secondly by transforming our operations to be simpler, and more modern, we will have fewer products, processes, platforms, and partners that enable a much better customer experience at a much lower cost base.

Our 2021-23 ambitions are unchanged, including EBITDA growth of low to mid-single digit and a return of cash CAPEX to 15% of net sales.

For 2022 we target low single digit growth of both service revenue and EBITDA, on a like for like basis. Our telco business is expected to grow its EBITDA contribution by low to mid-single digits, while TV and Media will continue its heightened content investments as it shifts towards digital and OTT platforms and absorbs the full year impact of premium sports rights. The TV and Media unit is therefore expected to contribute a lower EBITDA in 2022 than in 2021.

Cash CAPEX for 2022, excluding licenses and spectrum, is expected to be in the range of SEK 14.0-15.0 billion, similar to 2021.

As we move into the second year of our multiyear journey to reinvent a better Telia, I could not be more proud of everything my Telia colleagues do to keep people and businesses connected, and society open, while still predominately working from their home offices. At the same time, we are executing successfully on a bold digital transformation that will enable sustainable growth, modernize and develop our asset base, reset our cost base, and ultimately reinvent better for our customers, our employees, our owners and the societies we serve in the years to come. With one year under our belt, I remain confident in our ambitions and excited about the role Telia can uniquely play as societies and economies reconnect and rebound, post the pandemic years.”

Allison Kirkby

President & CEO

In CEO comment, all growth rates disclosed are based on the like for like definition and EBITDA refers to adjusted EBITDA, unless otherwise stated. See definitions for more information.

This information is information that Telia Company AB is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Market Act. The information was submitted for publication, through the contact person set out below, at 7 am CET on January 28, 2022 .