Tele2 — Annual Report 2001

Transcript

A n n u a l R e p o r t 2 0 0 1 Contents 1 Significant events Tele2 AB, formed in 1993, is the 2 President’s message leading alternative pan-European 4–9 Tele2 in brief 4–5 Historical role 4–11 History telecommunications company offering fixed and mobile telephony, data network and Internet services under 8 Development of mobile communication 9 Continued investment in MVNO services the brands Tele2, Tango and Comviq 10 The Tele2 Group to 15 million people in 21 countries. 12 The Board of Directors Tele2 operates Datametrix, which 13 Senior Executives specializes in systems integration, 14 The Tele2 share 3C Communications, operating pub- 16 Nordic 30 Eastern Europe and Russia 35 Central Europe 38 Southern Europe 41 Luxembourg C3, offering co-branded pre-paid call- 43 Branded products & services ing cards and IntelliNet and Optimal 46 Financial review Telecom, the price-guaranteed resi- 47 Report of the directors dental router device. The Group 51 Income statement offers cable-TV services under the 52 Balance sheet 54 Cash flow statement 55 Notes 89 Audit report 90 Addresses 92 Definitions lic pay telephones and public Internet services; Transac, providing billing and transaction processing; Kabelvision brand name and together with MTG, owns the Internet portal Everyday.com. Annual General Meeting The Annual General Meeting will be held at 1:30 pm on Thursday, May 16, 2002, at Gamla Stans Bryggeri in Stockholm. Notification can be made by phone to +46 33 724 12 67, or in writing to: Shareholders who wish to attend the Annual General Meeting must Tele2 AB, Box 2094, SE-103 13 Stockholm, Sweden label the envelope “Annual General Meeting” or by emailing to : [email protected] be entered in the share register maintained by the Securities Register Center (Värdepapperscentralen VPC) for the Annual General Meeting (registration must be completed by Monday May 6, 2002). and notify the Company of their intention to attend no later than 1:00 PM on Friday, May 10, 2002. Financial information Quarterly report, January–March April 24 Annual General Meeting May 16 Quarterly report, January–June August 5 Quarterly report, January–September October 23 Significant events • Tele2’s operating revenue for 2001 totaled SEK 25,085 million (2000: 12,440), an increase of 54% from the pro forma figure of SEK 16,243 million for 2001. • The total number of customers rose by 29% to 15 million on December 31, 2001, corresponding to a net intake of 3.4 million customers for the full year 2001. • The operating profit before depreciation and amortization (EBITDA) was SEK 1,698 million (2000: 1,820, pro forma 2000: –371), with an EBITDA margin of 7% (2000: 15%, pro forma 2000: –2%). • Tele2 Sweden’s operating revenue for full-year 2001 totaled SEK 9,060 million, up 14% from the previous year. The EBITDA increased by 38% to SEK 3,773 million (2000: 2,728). The EBITDA margin was 42%, as opposed to 34% in 2000. Mobile telephony’s operating revenue rose by 20% to SEK 5,720 million, while the EBITDA was up by 41% to SEK 3,111 million. As a result, mobile telephony’s EBITDA margin was 54%. • Operating revenue in Central Europe and Southern Europe amounted to SEK 5,364 million (2000 pro forma: 3,108) and SEK 5,591 million (2000 pro forma: 2,574), respectively, corresponding to increases of 73% and 117%. EBITDA were improved to SEK –606 million (pro forma 2000: –1,640) and SEK –1,331 million (2000 pro forma: –1,276). Financial summary SEK M 2001 Operating revenue 25,085 16,243 12,440 1,698 –371 1,820 Operating profit/loss after depreciation, EBIT –1,356 –2,850 420 Operating profit/loss after financial items, EBT –1,944 –3,063 165 Profit/loss for the year 392 –3,618 –396 Profit/loss per share after dilution 2.70 –34.36 –3.47 Operating profit/loss before depreciation, EBITDA 2000 pro forma* 2000 * The pro forma accounts have not been subject to specific review by the Company’s auditors. Tele2 Annual Report 2001 1 Tele2 operates in 21 countries. • Tele2 is the only genuine pan-European telecom operator and therefore the most widely recognized brand. • The company had a customer base of 15 million at year-end. • With revenue growth of 56% and in increase in net profit before depreciation and amortization of SEK 2.1 billion during 2001, Tele2 is the most rapidly growing operator in Europe. The authorities in Europe that establish the terms by which telecom companies operate are anxious to see effective competition. As a result, they are assisting us in expanding our potential to operate profitably. As an excellent illustration of that trend, a growing number of countries are allowing us to compete in the market for local traffic. Without requiring any new marketing efforts, such developments boost the demand to which we have access by some 50%. The acquisition of a major Russian mobile telephony business was our biggest new venture for the year. The market offers major potential. We have every reason to believe that Russian operations will be just as successful as our Baltic businesses. The market area Eastern europe and Russia have now recruited over 1 million mobile customers. The task before us is to continue to make our fixed-line network even more profitable. Many of our competitors departed from that market in 2001. Their problem was that they had not accorded top priority to building up a customer base. They had set their sights on infrastructure investments instead. Tele2 was once criticized for choosing a customer-oriented strategy. Now we can see just how wise that decision was. I have never been one to put my faith in grandiose dreams about the immediate emergence of 3G. On the other hand, I am convinced that Tele2, just as when Comviq launched GSM ten years ago, will become the price leader with solutions based on simplicity and customer preferences. Many telecom operators in Europe have a very high debt ratio. Keep in mind that Tele2’s has one of the lowest debt ratios in relation to market market value in the industry. Varying assessments of 3G should not obscure the fact that Tele2 possesses other strengths that will evolve dynamically and fortify the entire company. Once again, I would like to underscore our hopes for MVNO arrange- “ ments, which provide us with the opportunity to convert some 10% of our fixed-line customers to mobile users within the first year alone. Tele2 can look back on 2001 with pride. We posted: • operating revenues for the full year of over SEK 25 billion, • Group operating profit before amortization and depreciation of SEK 1.7 billion, an increase of SEK 2.1 billion. From the beginning, Tele2 has cultivated a corporate culture that encourages change and welcomes challenges. We are always crossing new boundaries. The “nomadic” aspect of our corporate culture constantly propels us toward new opportunities for growth and earnings. A cautious, short-term observer may regard such an approach as reckless. That was how we were frequently perceived before Tele2 was listed in 1996, and even afterwards. But such skepticism is rare these days. Tele2 has demonstrated its capacity to successfully take on new challenges and utilize fresh commercial opportunities to forge profitable businesses. It normally takes two to three years before Tele2’s expansion strategy receives the credit it deserves. When we launched a broad-based effort to enter the European fixed telephony market, there were observers who labeled us as excessive risk-takers. Nowadays, the European fixed telephony business is a cornerstone of our operations. The key to success for a company that operates in Tele2’s sectors is to constantly reconsider what it is doing, remain sensitive to the wishes and expectations of consumers, and avoid rigidity and bureaucracy. Tele2’s business concept has unwaveringly been to reduce its rates. That is still at the heart of our mission. For a growing number of customers, we are the company that offers high-quality services in the markets where we operate at lower rates than the old monopolies (or even our infrastructure-oriented competitors). My first duty is to ensure that Tele2 is an efficient company. Such an approach will benefit our customers when it comes to price and quality, as well as safeguarding the interests of our shareholders. Tele2’s various brands – particularly Tele2, Tele2Mobil, Tango and Comviq – have garnered respect for their ability to combine high quality with low rates. Such recognition is the fruit of a corporate culture that has learned to manage its assets properly and to invest in a way that guarantees efficiency and quality at very low costs. For a growing number of customers, we are the company that offers high-quality services in the markets where we operate at lower rates than the old monopolies 2 Tele2 Annual Report 2001 President’s message MVNO – a strategic breakthrough As an MVNO Mobile Virtual Network Operator), Tele2 can be a full-fledged GSM operator without having its own infrastructure. There is a fundamental difference between MVNO status and the service provider agreements that were once so common in the industry. A service provider agreement turns a company into a distributor of another operator’s telephony with the ability to handle outgoing traffic only. An MVNO agreement gives Tele2 its own exchanges and thus the capacity to handle incoming traffic as well. The reason that GSM operators find an MVNO agreement with a company like Tele2 so attractive is the large number of customers to which it obtains access. Tele2’s broad customer base throughout Europe firmly positions it for similar MVNO agreements in one country after another. Given that both parties have something to gain from such collaboration, I believe that Tele2 will substantially augment its subscriber base by means of MVNO agreements over the next few years. We concluded MVNO agreements in Germany and the Netherlands during 2001. MVNO is one of the keys to the success of Tele2’s aggressive expansion strategy. The prospect of being able to grow without constructing all too many of our own networks is highly appealing. But Tele2’s own infrastructure – which will include 3G mobile telephony networks (UMTS) in Sweden, Norway and Finland within a few years – makes us a very attractive partner. Our own infrastructure? Having a strong core business in the Nordic countries is highly important for Tele2. We also have our own infrastructure in those markets – although its actual ownership, construction and operation are only peripheral to our business concept. But the infrastructure stems from the commercial realities of the Swedish telecom market at the time we started our business. Once mobile telephony has incorporated mobile Internet, demand will in all probability take a big leap forward. There is understandable skepticism in that regard today – that which is totally unknown is always hard to imagine. Still, the question is not whether it will happen, but when. I can still remember all the pundits in 1995 who said that Comviq’s business concept of mobile telephony for “ the common man was totally out of the question. For them, mobile telephony was destined to remain a permanent tool of exclusive business customers. And for many European countries, they were right in the short term. But Comviq got to work in Sweden. Today we can boast of Europe’s most profitable mobile operator business, including an operating margin before write-offs of better than 50%. 3G will revolutionize the availability of personalized information and entertainment. When the services are appealing enough, they will automatically create a vigorous, rapidly growing market. What might seem like nothing more than a wild fantasy is likely to be everyday fare in a few years for those who are GSM users today. We are currently working with GPRS technology, the stage preceding 3G. That is the stepping-stone to the services of tomorrow. Our most inquisitive customers will have a little taste of that which lies before us. Deregulation is halfway there The European telecom market is far from fully deregulated. Tele2’s various subsidiaries report mixed results in terms of how efficient that deregulation has been. It is of the utmost importance that both the European Commission and national deregulation agencies (including the PTS, Swedish Competition Authority and Swedish Consumer Agency) consistently pursue a proactive competition policy. A greater sense of urgency is needed. The change will not take place overnight. It will be many years before new companies are able to compete on equal terms with the old monopolies. Whether it is the politicians, deregulation bodies or antitrust authorities, the establishment of each country tends to protect the old monopolies to the bitter end. But the European telecom market is entering a whole new era. Each step in that direction means higher volumes and sales. Tele2 is hard at work to ensure that it makes a major contribution to revolutionizing the availability of personalized information and entertainment – not to the exclusive few, but to the broad European masses. That is the way of the future! Lars-Johan Jarnheimer ...Tele2’s debt is among the lowest of European telecom companies... Tele2 Annual Report 2001 3 Tele2 in brief Tele2, which was established in 1993, is the leading alternative pan-European telecom operator. The company offers GSM, public telecommunications and data communications, and Internet services. Tele2’s corporate culture rests on the fundamental principles of flexibility, informality and cost-consciousness. Tele2’s business concept is to have the most loyal and satisfied customers in the market by costeffectively selling and supplying voice, data and image communications solutions while providing high-quality service. The Group’s strong suits are low rates, a large customer base, industry-leading efficiency, access to well known brands and the ability to rapidly adapt to new customer requirements and market conditions. With its mobile telephony, fixed telephony, Internet, data communications, cable-TV and broadband capabilities, Tele2 is able to provide the total solutions that customers are increasingly looking for. The Group is continually working to spread know-how among various countries and product lines in order to broaden its offering and thereby boost profitability. Tele2’s quality assurance policy is based on guidelines that apply to the entire Group. The policy proceeds from the insight that one of the keys to achieving the company’s goals is to maintain high quality in everything that it does. The Group’s fundamental principles and collective skills are the backbone of that effort. The watchword is constant improvement. A customer’s experience of a product or service must meet his or her expectations. We always place the customer at center stage, and our chief gauge of quality is his or her satisfaction. Twice a year we conduct customer surveys, the purpose of which is to ensure steady improvement. Tele2’s commitments, actions and products must be perceived as quality-oriented. Our customers must always be able to trust Tele2 as a service provider. For those who wish to read more about Tele2 and Comviq’s history, the book “Det svenska teleundret”, released by Ekerlids Publishers in June 2000, is an excellent history of Tele2 and Comviq. The book chronicles events from the very beginnings in the late 19th century through the groundbreaking deregulation of the 1990s. Tele2 AB Lars Johan Jarnheimer, CEO Håkan Zadler, CFO Nordic Sweden Norway Denmark Finland Datametrix Eastern Europe and Russia Estonia Latvia Lithuania Poland Czech Republic Russia Central Europe Germany Netherlands Switzerland Austria Ireland Historical role “Det svenska teleundret” (The Swedish Telecom Miracle), written by Anders Johnson and published by Ekerlids Publishers in June 2000, illustrates the central role that Tele2 and the businesses that now comprise it have played in making Sweden a global telecommunications leader. Although much of the book focuses on the collaboration between Ericsson and the National Swedish Telecommunications Administration, that is not the end of the story. Two parts of the book focus on the innovations that Tele2 has made. 4 Tele2 Annual Report 2001 Southern Europe France Italy Spain Portugal Luxembourg Luxembourg Liechtenstein Belgium 3C Transac Luxemburg Branded products & Belgien services Liechtenstein Optimal Telecom T2 IntelliNet Tango C3 3C Tele2 Transac United Kingdom Everyday An Internet pioneer In 1986, Comvik Skyport AB put up a satellite link for transatlantic data communications. In 1989, Comvik signed agreements with the National Swedish Rail Administration on a joint fiber optic network. The company changed its name to Tele2 AB in 1990. According to Johnson, “That prepared the company for the deregulation of the telephony market in 1993 and allowed it to quickly become the second largest fixed-line operator. The infrastructure that Comvik had built also played a key role in the advances of the Internet in Sweden. In 1991, Tele2 became the first Swedish company to offer Internet access”. Sunet, the university data communications network, did not have the wherewithal to arrange Internet access for all businesses and individuals outside the academic world. Snus (Swedish Network Users Society) filled that gap: Tele2 in brief Operations at year-end 2001 At year-end Tele2’s operations consisted of fixed and mobile telephony with the brands Tele2, Tele2Mobil, Comviq and Tango. Tele2 supplied services to some 15 million customers in 21 countries. The Tele2 Group also includes a number of other companies with data and telecom services: • X-Source, active in IT-outsourcing, • Datametrix, specialized in system integration, • Optimal Telecom, with the products Linjeväljaren, Internet and Optimal wireless, • 3C Communications, which sells telephony and Internet services via pay phones and Internet terminals, • Transac, data processing of card transactions and invoices, • C3 offers phone cards for fixed telephony, • IntelliNet, fixed telephony service with lowest-price guarantee. The Group also offers cable-TV services under the brands Kabelvision and Tele2, as well as broadband services. The Everyday.com Internet portal is a company that is jointly owned by Tele2 and Modern Times Group (MTG). Tele2 is listed on exchanges in Sweden and the US. It is listed on Stockholmsbörsen’s Attract 40 list with the symbols TEL2A and TEL2B and on Nasdaq as TLTOA and TLTOB. Tele2 and Telia to build joint UMTS network At the beginning of the year, Tele2 and Telia announced that they had established the jointly owned company, Svenska UMTS-Nät AB, to build and operate a network for next-generation UMTS (Universal Mobile Telecommunications System) mobile telephony. This agreement means that Tele2 and Telia will have equal access to the license that Tele2 was awarded. It also means that the risks and costs will be shared equally, “Their goal was to start up a commercial Internet access service. When Snus approached the National Telecommunications Administration, it encountered total indifference. A group of English consultants engaged by the agency had determined that the Internet was a fleeting technology without a future. The agency suggested a mediocre service that it had developed on its own. Snus then turned to Comvik Skyport, which was more interested.” That led Comviq to establish Swipnet, a special company to provide Internet access. Despite internal resistance, the agency eventually started its own IP network. Nevertheless, Johnson writes that “as late as the autumn of 1995, the manager of Telia Infomedia Interactive (also responsible for the Internet) said that the Internet was merely a colorful garbage can.” Tele2 was in the vanguard of the Swedish Internet revolution. resulting in significant savings for Tele2. Similarly, the need to erect new infrastructures will be reduced, since both parties’ existing infrastructure can be utilize to handle traffic. Tele2 also has a UMTS license in Finland (through its part ownership in Suomen Kolegee Oy), Norway and Lichtenstein, which creates significant opportunities for coordination gains. With its large customer base, its technical expertise and four licenses, Tele2 is the most attractive partner for both suppliers and other operators. Acquisition of FORA Telecom An agreement was reached at the end of the year through which Tele2 will acquire Millicom International Cellular’s Russian mobile telephone company FORA Telecom B.V. this is a logical development in light of the success that Tele2 has achieved in the Baltic countries, particularly in the Estonia operations acquired from Millicom in 1998. Russia is a growth market with substantial potential, and with its eight GSM licenses, Tele2 has an excellent base for its operations. MVNO contracts in Germany and the Netherlands On August 30, 2000, Tele2 signed the world’s first MVNO (Mobile Virtual Network Operator) contract with the mobile operator Sonofon in Denmark. During 2001, Tele2 signed two additional MVNO contracts. In August, Tele2 announced that it had become the Netherland’s MVNO with the signing of a contract with Telfor, a GSM operator owned by British Telecom. In Germany, Tele2 signed a MVNO contract with VIAG Interkoms, which means that Tele2 can now also offer its customers mobile telephony. Tele2 is already one of Germany’s largest alternative telecom operators. Both the MVNO and Service Provider (SP) roles have arisen as a means of further opening the mobile market to competition. In both cases, the operator leases capacity in an existing network and thus does not have to build its own radio network. The difference between MVNO and SP is fundamental. In the first case, one GSM pioneer According to Johnson, Comviq “was the most innovative operator when it came to marketing and distribution… Under the leadership of CEO Lars-Johan Jarnheimer (currently CEO of Tele2), Comviq was to turn GSM into a mass market”. “The Swedish GSM networks started up in the autumn of 1992 at a time when the Swedish economic climate was beset by a highly unusual combination of sky-high interest rates and the collapse of the krona. The economy was at a standstill and it was very difficult to launch new products… To jump-start sales, Comviq introduced new features that its competitors subsequently imitated.” Tele2 breaks new ground – then and now. Tele2 Annual Report 2001 5 Tele2 in brief company in practice becomes a reseller of another company’s telephony services, since only outgoing traffic is handled. The MVNO role includes owning telephone switches, which are thus able to handle incoming traffic. An MVNO issues its own SIM cards, can invoice the customer directly and develop its own services, which is a clear advantage in competitive markets. For the customer, there is no difference between having a subscription with a conventional operator or an MVNO. This model opens significant growth opportunities for a company like Tele2, which has a large customer base in many countries but lack infrastructure for mobile telephony. Fixed telephony in UK Tele2 and the Royal Mail initiated a partnership during the year through which Tele2’s phone cards and fixed telephony services are sold at all post offices in UK. Advances in Eastern Europe The Tele2 brand was launched in Latvia and Estonia during 2001. Tele2 is now the largest alternative mobile telephone operator in the Baltic region. Tele2 is also the largest alternative operator for fixed telephony in Estonia. Continental Europe – an overview In Germany, Tele2 is the third largest alternative operator in fixed telephony. In the Netherlands, Tele2 is the country’s next largest alternative operator in fixed telephony and also established Tele2 as an MVNO during 2001. Tele2 is also the largest alternative operator in France and will probably be able to take additional market share, since France introduced number pre-selection for – Industriförvaltnings AB Kinnevik Future opportunities An important trend during 2001 was that interconnect charges were lowered or are scheduled to be lowered in the near future in several of the markets in which Tele2 is active. Interconnect charges are the fees that a telecom operator pays in order to switch traffic to other networks, thus enabling calls between customers of various operators. Since Tele2 in other respects has low costs for infrastructure, reduction of interconnect charges will have a very positive impact. Another positive trend during the past year was that several countries introduced, or will introduce in the near future, number portability, which means that a customer is able to retain a mobile telephone number when changing operators. Pre-selection for local calls is also gaining ground. This means that profitable local calls are now also available to Tele2, thus creating significant opportunities. Local pre-selection will be introduced in Sweden and France in the beginning of 2002. Toward the end of the year, the Netherlands, Switzerland, Austria and Germany will also introduce local pre-selection. Tele2 has a well established presence in all major markets and is closely monitoring the business opportunities being created as deregulation continues. – Kinnevik gets ready to provide decides to enter the telecommu- traditional voice and data nications market. telecommunications services. Late 1970s 1980s 6 local calls as of January 1, 2002. In Switzerland, as well as in Italy, Tele2 is the second largest alternative operator in fixed telephony, Tele2 is that largest alternative operator for fixed telephony in the Austrian market. During 2001, Tele2 began its offensive in the Spanish market. In Luxembourg and Lichtenstein, Tele2 is established as a mobile operator under the brand name Tango. Tele2 Annual Report 2001 – Comviq launches its own analog network for mobile telephony. 1981 Tele2 in brief Development of third-generation mobile telephony From Tele2’s perspective, there are many factors favoring UMTS: • It will be a common standard in the Western world and Japan. That AT&T in the US is moving towards GSM and UMTS means that the telecom world is moving toward a standard with very broad support. • The Nordic region will have a head start in the European market, since the beauty contests held here for awarding licenses prescribe rapid deployment. Experience and business concepts can be exploited in emerging markets. • All data traffic is moving towards higher bandwidth and mobility. • In Sweden Tele2 will share infrastructure with Telia, which will significantly reduce costs for network build-out. Environment and personnel Strict environmental requirements Tele2’s operations have only a limited impact on the environment. The company has drawn up an environmental policy for the entire group. The policy insists that environmentally approved products be used. In addition, waste materials generated throughout the office network, as well as scrapped materials, should be treated in an environmentally sound manner. Finally, purchasing decisions must take the environment into consideration. Tele2 is particularly conscious of environmental safety issues when it comes to mobile telephony. It is of the utmost importance that we not only comply with prevailing environmental standards, but that we keep abreast of research both in Sweden and abroad. The group is an active participant in public discussions about health, safety and the environment. Personnel and skills development Tele2 pursues an ongoing skills development effort to ensure that its employees possess the kind of know-how that will enable us to keep pace with the evolution of the market and the needs of customers. The group averaged 2,172 employees in 2001, as opposed to 1,747 in 2000. Tele2 does business in 21 European countries. Just over half of its employees are in the Nordic area. That is the region in which Tele2 originated and in which it still has the largest operations. All new employees complete a basic course that covers Tele2’s operations, goals, principles, and quality assurance objectives. A series of new graduates are chosen for a trainee program each year. The program is primarily devoted to on-the-job training in various countries and parts of the organization. We also have an 18-month, multi-phase leadership project for the group’s managers. Tele2 is one of the primary sponsors of Victory Challenge, the Swedish syndicate that is an official challenger in Americas’ Cup, the world’s oldest and most prestigious sailing trophy. The challenger race, the Louis Vuitton Cup, begins on October 1. With Tele2’s logotype on the spinnaker of one of the Americas’ Cup boats, the media impact in Tele2’s most important markets will be substantial. – Agreement with National Swedish Rail Administra- – A satellite link for 1988 – Tele2 AB is formed network. a GSM license. is established. 1986 tion on a joint fiber optic – Comviq obtains data communications 1989 (Currently Tele2 Sverige AB). 1990 Tele2 Annual Report 2001 7 Tele2 in brief Development of mobile communication Mobile telecommunication is continuously evolving. Today Tele2 is taking part in the build out of third-generation mobile telephony and the UMTS (Universal Mobile Telecommunications System) in Sweden, Norway and Finland. With UMTS, higher bandwidth of up to 2 Mbit/s will allow more information to be transferred, compared with today’s GSM with 9.6 kbit/s. This will allow users to surf the Internet, listen to music, play games and watch video clips. UMTS is an attempt to create a global standard for 3G. Tele2 has access to UMTS licenses in Sweden, Norway and Finland (through its part ownership of Suomen Kolmegee Oy), as well as in Lichtenstein. During 2001, Tele2 and the Swedish operator Telia established a joint network company, Svenska UMTS-nät AB. Together, Tele2 and Telia will build and operate a nationwide Swedish UMTS network. On January 1, 2002, Tele2 was able to present a functioning network with sufficient signal strength to fulfill its promise for the starting date for UMTS. By the end of 2003, the network will cover 99.98% of the Swedish population. 1981 – Comviq introduces analog mobile telephony 1991 – the first GSM call GSM (Global System for Mobile communication) is the second generation of mobile telephony. This digital system was introduced in 1991, the year in which the world’s first GSM call was placed in Finland. During 1992, the first portable digital mobile phones were launched, and in the same year, Comviq started its own GSM network. From the start, the GSM system was able to transfer data at speed of 9.6 kbit/s. GSM is currently a global standard. 2001 – GPRS taken into operation GPRS (General Packet Radio Service) was implemented to increase data speeds in GSM networks. GPRS also facilitates the transition from GSM to UMTS. Tele2 currently offers GPRS services in several application areas, thus enabling users to send email and surf the Internet, for example. Mobile phones are improving constantly and being used by more and more people. Tele2’s ambition is to be the price leader and to be able to offer customers more value and greater enjoyment for their money. GPRS allows significantly faster data transmission speeds in GSM networks than previous technologies and is expected to support speeds up to 115 kbit/s in the future. It will also be possible for mobile telephone users to be constantly connected to the GSM network, even when they are not making calls. Instead of paying for connection time, users will pay for the amount of information that is sent. There have been different variants of mobile communication by telephone starting as early as the 1930s. The first analog network was launched in Sweeden in 1981 by Comviq AB. But it is the NMT (Nordic Mobile Telephone) system that is commonly regarded as the first generation of mobile telephony. NMT is an analog technology that was developed in the Nordic countries. NMT was an attempt to create a system that worked not just in a single country, but also between countries. In Sweden, Telia operated NMT networks on two frequency bands: 450 MHz and 900 MHz. Telia closed the NMT 900 network on December 31, 2000. Transfer capacity GSM GPRS UMTS Maximum speed Initially 9,6 kbit/s 9,6 kbit/s 115 kbit/s ca 50 kbit/s 2 Mbit/s 384 kbit/s – The fixed telephony market is deregulated. – NetCom Systems is formed to hold and develop the Kinnevik Group’s telcommunication companies in the Nordic countries. – Kinnevik and Orkla set up NetCom ASA, Norway. – Comviq GSM starts its 1992 1993 8 – NetCom Systems launched the NetCom Systems owns 25% of the company. own GSM network. Tele2 Annual Report 2001 forerunner to Tele2 Norway. 1993 Tele2 in brief Continued investment in MVNO services During 2001, Tele2 entered MVNO contracts with mobile operators in the Netherlands and Germany. These contract allow Tele2 to offer mobile services as a complement to the fixed telephony that the company already provides. This approach is cost-efficient and flexible, while offering customers more services at lower cost. Tele2 was world’s first operator to offer MVNO services through its contract with the Danish operator Sonofon in August 2000. Tele2 is currently active as an MNVO is Denmark, the Netherlands and Germany. A Mobile Virtual Network Operator (MVNO) is an operator that offers mobile services but does not have its own frequency licenses and only limited infrastructure. Instead, the MVNO leases capacity from a mobile telephone operator with an existing networks and uses its own switches to handle both incoming and outgoing telephone traffic (unlike Service Providers, who only handle the outgoing traffic). An MVNO issues its own SIM cards, invoices customers directly and can develop its own services, which provides clear advantages in competitive markets. For the customer, there is no difference between having a subscription with a conventional operator or an MVNO. This model creates substantial growth opportunities for Tele2, which has a large customer base in many countries, but lacks infrastructure for mobile telephony. MVNO contracts provide more cost-efficient and flexible access to mobile telephony services, while customers are offered less expensive access to these services. In August 2001, Tele2 became the first MVNO in the Netherlands, when a contract was signed with Telfort, a GSM operator owned by British Telecom. This means that customers can now be offered mobile services in addition to the fixed telephony services already provided. Tele2 is constantly seeking opportunities to refine its products. With the contract in the Netherlands, will follow the launch of prepaid calling cards, subscriptions, and international roaming, meaning contracts with other operators that make it possible to use a mobile phone in other countries. Tele2 is one of Germany’s largest alternative telecom operator, with more than one million private and business customers in fixed telephony. With the MNVO contract with VIAG Interkom signed in December 2001, Tele2 can now offer mobile services to its German customers via VIAG Interkom’s network. Germany is Europe’s largest telecom market and thus an important market for Tele2. During 2001, the number of mobile phones exceeded the number of fixed subscriptions in Sweden. Having a mobile phone has become just as self-evident as having a fixed phone. Seven of ten Swedes now have a mobile phone. Sweden and the other Nordic countries have always been in the lead in the development of mobile telephony, and it is therefore natural that Tele2 is taking the lead in the growth of MVNO. Interest for MVNO is very great. Established operators are increasingly eager to load their existing networks with traffic. Although MVNO is primarily a European phenomenon, interest is spreading to the US and the rest of the world. MVNO is a clear example of how technology can be adapted to create greater value for the end customer. New services are now being created in pace and in harmony with market development. Tele2 will continue its investments to achieve MVNO status in the countries where this is possible. – NetCom Systems’ stock is spun off to Kinnevik shareholders. At the same time, these shares are listed on Stockholmsbörsen’s O list. – Through its Tele2 A/S subsidary, NetCom Systems becomes Tele2 Danmark’s very first rival on the Danish telecom market, shattering a century-old monopoly. – NetCom Systems is listed on Nasdaq. 1996 1997 – The Norwegian telecom Year-end market is deregulated. 1997/1998 Tele2 Annual Report 2001 9 Nordic Total number of subscribers: 6,274,000 . . .. . . .. . .. . . . . . . Central Europe Total number of subscribers: 3,191,000 Eastern Europe and Russia Total number of subscribers: 996,000 Luxembourg Total number of subscribers: 211,000 Southern Europe Total number of subscribers: 4,286,000 The Tele2 Group – NetCom AB increases its Ritabell stake to 94.8%. – Equal access pre-selection reform in Denmark, Norway and Sweden. – Acquisition of a 48% stake in Ritabell (mobile telephony operator), the initial penetration of the Baltic market. – NetCom AB divests its NetCom ASA stake to Société Européenne de Communication S.A. (SEC) in exchange for newly issued SEC stock. Following the deal, NetCom AB holds 17.8% of SEC’s capital. – NetCom Systems AB changes its name to NetCom AB. 1998 1999 10 Tele2 Annual Report 2001 The Tele2 Group The Tele2 Group consists of six market areas: Nordic, Eastern Europe and Russia, Central Europe, Southern Europe, Luxembourg, and Branded products and services. Nordic is the largest market area and includes Tele2 operations in Sweden, Norway, Denmark, Finland and Datametrix. Operations in Nordic differ from other market areas in that they have been running longer, particularly in Sweden, and a broad portfolio of products is offered. The market area Eastern Europe and Russia consists of operations in the Baltic countries Estonia, Latvia and Lithuania, as well as Poland, the Czech Republic, Russia and X-Source. The market area Central Europe includes Germany, the Netherlands, Switzerland, Austria and Ireland. The market area Southern Europe includes operations in France, Italy and Spain and a license in Portugal. Number of customers, thousands By market area Nordic ...................................................................................................... Eastern Europe and Russia ...................................................... Central Europe ................................................................................... Southern Europe .............................................................................. Luxembourg ........................................................................................ Total By business area Mobile telephony ........................................................................... of which prepaid ................................................................................ Fixed telephony and Internet ................................................ Total Number of customers by market area The market area Luxembourg includes Lichtenstein, Luxembourg, 3C and Transac and a license for fixed telephony in Belgium. Tele2 is represented in most countries outside the Nordic region. In most of Tele2’s markets, the company is by far the biggest challenger to the previous monopoly. Cross-selling – the marketing of additional products and services to existing customers – is a central strategy, the emphasis being on supplementing fixed with mobile telephony. There are major opportunities for the crossselling of new products and services to the existing customer base. Tele2 is continually working on spreading know-how among product lines and countries. Customer offerings and successful concepts create synergies, since they can also be copied in other markets. This increases profitability by creating economies of scale, thus improving resource utilization while facilitating market launches. Net intake 2001 12-31-2001 12-31-2000 Increase % 6,274 996 3,191 4,286 211 5,472 278 2,702 2,942 160 15 258 18 46 32 802 718 489 1,344 51 14,958 11,554 29 3,404 3,710 2,179 11,248 2,559 1,396 8,995 45 56 25 1,151 783 2,253 14,958 11,554 29 3,404 Number of customers by business area 15,000 15,000 10,000 10,000 Luxemburg Southern Europe Central Europe 5,000 Mobile telephony Eastern Europe and Russia Nordic Fixed telephony and Internet 0 Q4/01 0 Q4/00 Q4/01 – NetCom is awarded UMTS licenses in Norway and Sweden. – NetCom becomes the first mobile virtual network operator (MVNO) in Denmark. 2000 Q4/00 – Acquisition of FORA Telecom. – Joint UMTS company with Telia. – Netcom acquires Baltikom GSM, Latvia’s second largest mobile operator. – NetCom acquires Société Européenne de Communication S.A. 2000 5,000 – NetCom changes its name to Tele2. 2001 Tele2 Annual Report 2001 11 The Board of Directors Left to right: Lars-Johan Jarnheimer, Bruce Grant, Marc J. A. Beuls, Jan Hugo Stenbeck, Lars Wohlin, Vigo Carlund, Sven Hagströmer, Pelle Törnberg, Håkan Ledin Vigo Carlund (born 1946) has worked for Kinnevik companies since 1968, including as President of Svenska Motor AB and Korsnäs AB. In 1997, he became Vice President of Industriförvaltnings AB Kinnevik (Kinnevik), and in May 1999 he took over as President. He has been a member of the Board of Tele2 since 1995. Holding: 379 class B shares Marc J. A. Beuls (born 1956) has a B.S. in Economics. He has been with Millicom International Celluular S.A. since 1992 and has been President & CEO since January 1998. In 1997 he was appointed Managing Director of Banque Invik S.A. in Luxembourg. Marc Beuls previously held executive positions at Generale Bank in Belgium. He has been member of the Board of Tele2 since 1998. Bruce Grant (born 1959) is president of XSource Corporation Inc. Board assignments: Kinnevik, Korsnäs AB, Metro International S.A. and Transcom WorldWide S.A. Member of the Board in Tele2 since 2001. 12 Lars-Johan Jarnheimer CEO and Managing Director (not a member of the Board). (Born 1960) has an M.B.A. He has been CEO and Managing Director of Tele2 AB since March 1999. Jarnheimer has held various posts with IKEA, Hennes & Mauritz and SARA Hotels, and was President of ZTV for a short time before coming to Comviq as Vice President. He was President of Comviq in 1993–97. Jarnheimer was part of group management at Saab Automobiles with responsibility for the Nordic countries, Russia and the Baltic states, and was CEO of Saab Opel Sverige AB in 1997–98. Since year-end 1998, he has been Vice President of Industriförvaltnings AB Kinnevik and President of Investment AB Kinnevik. Board assignments: MTG, Arvid Nordquist HAB, Millicomn, Invik AB and Svenska UMTS-Nät AB. Holding: 2,000 class B shares and 48,000 options. Tele2 Annual Report 2001 Håkan Ledin Sven Hagströmer (born 1937) has an M.Eng. and an M.B.A. He worked for LM Ericsson for many years before becoming President (now deputy chairman) of Millicom in 1987. Between 1995 and 1996, he was President of NetCom Systems. He has been a member of the Board of Tele2 since 1994. (born 1943) was chairman of the board of Hagströmer & Qviberg from its inception in 1980 until 1995. He is chairman of the boards of Investment AB Öresund, AB Custos and also Acando since 2001. Other board assignments: ProtectData, Quartz Pro, LGP Telecom Holding AB, Perbio Science AB and HQ Fonder. Member of the Board of Tele2 since 1997. Holding: 30,000 class B shares. Pelle Törnberg (born 1956), is president of Metro International since 2000. In 1987, he started the TV production company Strix. Since 1993, he has been responsible for all media companies in MTG (formerly Kinnevik). Board assignments: MTG, Invik, SEC, Millicom and P4. Member of the Board of Tele2 since 2001. Holding: 4,100 class B shares. Jan Hugo Stenbeck Chairman of the Board Stenbeck (born 1942) is also chairman of the boards of Kinnevik, Millicom, Invik and MTG. Member of the Board of Tele2 since 1993. Holding: 811,332 class A shares. Holding: 30,000 class B shares. Lars Wohlin (born 1933) has a D.Econ. and was head of the Swedish Industrial Institute for Economic and Social Research in 1973–76. He served as Undersecretary of State in the non-Socialist Cabinet from 1976 to 1979 and as a Governor of the Swedish central bank from 1979 to 1982. From 1983 to 1996, he was chairman of the board of the Drott real estate company and President of the Urban Mortgage Bank of Sweden. He has been a member of the Board of Tele2 since 1996. Holding: 900 class B shares. Senior Executives Lars-Johan Jarnheimer Born 1960 President and CEO, Tele2 AB M.B.A. Employed since 1992 Håkan Zadler Born 1960 CFO M.B.A Employed since 2000 Holding: 3,000 class B shares Holding: 2,000 class B shares and 48,000 options Fredrik Berglund Born 1961 Market area director, Nordic B.S. in market economics Employed since 1995 Holding: 30,000 options Roman Schwarz Born 1947 Market area director, Central Europe President, Tele2 Germany and Switzerland M.B.A Employed since 1991 Jean-Claude Bintz Born 1956 Market area director, Luxembourg President of Tango Employed since 1989 Björn Lundström Born 1965 Director of network planning and implementation M. Eng. Employed since 1991 Johnny Svedberg Born 1962 Market area director, Eastern Europe and Russia B.S. in market economics Employed since 1990 Holding: 1 class A share, 240 class B shares and 8,000 options Jean-Louis Constanza Born 1961 Market area director, Southern Europe President, Tele2 France M.B.A Employed since 1998 Magnus Mandersson Born 1959 Market area director, Branded products & services M.B.A Employed since 1999 Ib Andersen Born 1955 Director of network operations M.B.A Employed since 2000 Holding: 1,500 options Roger Mobrin Born 1968 Director of billing operations and coordination Technical college engineer Employed since 1995 Jeanette Almberg Born 1965 Director of customer service M.B.A. Employed since 1995 Holding: 1,500 options Holding: 50 class B shares and 1,500 options Karl-Johan Nybell Born 1968 Director of product management M.Eng. Employed since 1995 Lars-Erik Svegander Born 1941 Personnel director Employed since 1991 Holding: 1,500 options Holding: 1,000 options Tele2 Annual Report 2001 13 The Tele2 share Number of shares Tele2’s A and B series shares were listed on the O-List of Stockholmsbörsen on May 14, 1996 in conjunction with the distribution of the Company to the shareholders of Industriförvaltnings AB Kinnevik. Following the distribution, Kinnevik owned no shares in Tele2 but held a convertible debenture corresponding to 25,555,555 shares. During 1996, Kinnevik sold portions of the debenture, after conversion to shares, to institutions and Invik & Co. AB. To promote interest in the Company’s share in the US and to increase its liquidity, the Tele2 share was listed on the Nasdaq exchange in the US on January 22, 1997. A few months later, a new issue of two million B shares was implemented. With this issue, Tele2 sought to broaden the Company’s international ownership interest and to support the Nasdaq listing. The proceeds for the share issue, which amounted to SEK 220 million, were primarily used for ongoing investment requirements, in particular for the development of Tele2’s Danish and Norwegian operations. In conjunction with the new issue, Industriförvaltnings AB Kinnevik sold the major portion of its remaining convertible debenture in Tele2 after conversion to 6,000,000 B shares. By the end of the first half of 1997, Invik & Co. AB had converted its debenture, corresponding to 6,700,000 B shares, thus increasing Tele2’s shareholders’ equity by SEK 335 M. During the second quarter of 1998, all outstanding debentures were converted into 755,555 B shares. At the Annual General Meeting in May 2000, the Board of directors was authorized to settle an option commitments through a new share issue. In October 2000, 200,000 new B series shares were issued, as well as three convertible debentures with detachable options with rights to new subscription of a total of 300,000 B shares. At an Extraordinary General Meeting of Tele2 AB on August 25, 2000, a proposal was approved to issue at most 40,901,585 series A and series B shares in Tele2 to shareholders and holders of depository receipts in Société Européenne de Communication S.A. (SEC) in exchange for shares and depository receipts in SEC. By the end of the issue period, a total of 40,784,480 shares had been issued. At the end of 2001, all shares in FOR A Telecom B.V. were acquired in exchange for 2,461,449 newly issued Tele2 B shares. As of December 31, 2001, a convertible debenture corresponding to 100,000 B shares was converted to shares. The new issue was submitted to PRV, the Swedish Patent and Registration Office, for registration. As of December 31, 2001 there were a total of 147,360,175 shares in Tele2 AB plus two convertible debentures with detachable options corresponding to 200,000 B shares. Series A shares carry 10 votes, while B shares carry one vote. Ownership structure At year-end 2001, Tele2 had about 64,000 shareholders, compared with about 68,000 one year previously. The proportion of institutional owners corresponded to about 88% (2000: 85%) of the share capital and about 81% (2000: 88%) of the voting rights on December 31, 2001. Analysts who followed Tele2 during 2001 Michael Andersson Johan Broström Fredrik Danielsson Mattias Gredmark Lena Hansson Viking Kjellström Johan Klevby Peter Kurt Nielsen Richard Rosenbacke Henrik Sandell Jeremy Taylor Tomas Tomasson Per Trygg Peter Warléus Henrik Wikström Stefan Wård Evli Securities Hagströmer & Qviberg Carnegie Aros Maizels Julius Baer HSBC Alfred Berg Deutsche Bank Den Danske Bank Swedbank UBS Warburg Schroder Salomon Smith Barney Enskilda Securities Handelsbanken ABG Securities CAI Cheuvreux Nordic Ownership structure, December 31, 2001 Current ownership structure A shares 8.7 24.0 81,456,478 15.6 19.5 14,715,660 63,174,504 10.0 15.1 48,400 2,258,397 22,148,370 1.5 5.3 — 898,076 8,980,760 0.6 2.2 1.9 9,724,108 3,090,696 12,814,804 6,498,880 16,467,678 22,966,558 .................. 5,384,316 9,331,344 ............................................................................................ 2,209,997 .................................... 898,076 ......................................................... ................................................................................ ...................................................................... Millicom Telecommunications S.A. Confidentia Forvaltnings AB 811,332 — 811,332 8,113,320 0.6 ...................................... 619,850 1,046,500 1,666,350 7,245,000 1.1 1.7 ..................................................................... — 4,039,993 4,039,993 4,039,993 2.7 1.0 ....................................... — 3,982,000 3,982,000 3,982,000 2.7 1.0 ................................................................... 245,750 189,666 435,416 2,647,166 0.3 0.6 26,392,309 38,196,277 64,588,586 302,119,367 43.9 72.4 Stenbeck, Jan-Hugo Nordea Allemansfond Beta Brotherton N.V. AMF Pensionforsakring AB Nordea Bank SA Total, ten largest owners Other shareholders 14 100,331,776 No. of votes Invik group Total Share of votes, % A+B shares Kinnevik group Emesco Share of capital, % B shares ..................................... ............................................................ 3,614,638 78,559,616 82,671,589 115,203,331 56.1 27.6 .................................................................................................. 30,006,947 117,353,228 147,260,175 417,322,698 100.0 100.0 Tele2 Annual Report 2001 The Tele2 share Share price trend on Stockholmsbörsen Tele2’s closing price each week AFGX Number of shares traded (000s), including after-market trading 900 800 700 600 500 400 300 30,000 25,000 200 20,000 15,000 100 10,000 5,000 50 96 97 98 99 00 01 02 Share price trend on Nasdaq Tele2’s closing price each month Nasdaq composite index Number of shares traded (000s), including after-market 100 90 80 70 60 50 40 900 800 30 700 600 500 20 400 300 200 100 10 97 98 99 00 01 Tele2 Annual Report 2001 02 15 The Nordic market area includes Sweden, Norway, Denmark, Finland and Datametrix. The number of customers was 6,274,000 at year-end. Nordic Licenses Fixed Mobile Internet Launch Market position among alternative operators Sweden • • • • 1981/1993* 1 Norway • • • • 1998 1 Denmark • • • • 1996 1 Finland • • • • 2000 New player * Mobile telephony was launched in 1981 and fixed telephony in 1993. 16 Tele2 Annual Report 2001 The Nordic market area Sweden With a complete offering in the areas of mobile telephony, fixed telephony, Internet, data communications, cable-TV and broadband, Tele2 Sverige AB is Sweden’s leading alternative provider of telecommunications services. Among Tele2 Sweden’s strengths are attractive rates, a large customer base, its own infrastructure and access to well-known brands, as well as the ability to quickly adapt to new customer requirements and market conditions. Tele2 offers a highly advanced range of services. With its mobile telephony, fixed telephony, Internet, data communications, and cable-TV capabilities, Tele2 is able to provide the total solutions that customers are increasingly looking for. Tele2 is widely known for its flexibility, customer focus and cost awareness and has shown impressive strength by not only protecting its customer base from competitors, but also by substantially increasing it. Mobile telephony – the Comviq and Tele2Mobil brands Tele2 markets its mobile services under the Comviq and Tele2Mobil brands. Comviq addresses the consumer market, while Tele2Mobil primarily courts the business market. The services are positioned for price leadership. Growth continues The number of mobile telephony customers, including prepaid customers, increased in 2001 by 21% to 2,532,000 (2,087,000). Prepaid calling cards accounted for 65% of all customers. Call minutes per month and user (MoU) rose in the fourth quarter of 2001 by 19% to 117, as opposed to 98 in the fourth quarter of 2000. Despite an accelerated rate of new customers in the third and fourth quarters, average monthly revenue per user (ARPU) including prepaid calling cards was SEK 206 for all of 2001 and SEK 204 for the fourth quarter. High brand recognition 96% of the Swedish population recognizes the Tele2 and Comviq brands. Tele2 is awarded a UMTS license In December 2000, the Swedish National Post and Telecom Agency (PTS) awarded Tele2 one of the country’s four UMTS licenses to construct and operate third generation (3G) mobile networks. In March 2001, Tele2 and Telia and Telia Mobile AB subsidiary signed an agreement to form a joint (50/50) company to build and run the network. The collaboration will considerably reduce the cost of construction. The joint venture was approved by the Swedish Competition Authority in March 2002. Comviq’s advertising spots generate considerable attention, particularly this one, which in a humoristic manner points out that Comviq’s customer receive a bonus when they receive calls. Tele2 Annual Report 2001 17 Marknadsområde Xxx Mobile telephony Tele2 Sverige AB markets its mobile services under the Comviq and Tele2Mobil brands. Comviq focuses on the consumer market, while Tele2Mobil primarily courts businesses. The services are positioned as the price leaders. 18 Tele2 Annual Report 2001 The Nordic market area High mobile penetration and stiff competition Service Providers Mobile telephony penetration in Sweden is near the top worldwide. Including prepaid calling card customers, Comviq and Tele2Mobil had 36% of the Swedish mobile telephony market at the end of the fourth quarter in 2001. Their biggest competitors are Telia Mobile (48% of the market) and Europolitan (16%). Comviq has a very strong position in prepaid calling cards, which are growing more rapidly than any other segment. Despite the emergence of many new service providers, better than one out of every two first-time mobile telephony subscribers during the year were with Comviq or Tele2. There are ten mobile telephony providers in Sweden. Tele2’s success reflects the strength of its brand and its unique position among mobile telephony users. Number portability, the ability to switch operator while keeping the same phone number, has spurred competition. That has accrued to Tele2’s advantage as well. Tele2 has contracts with two service providers, Dial n’ Smile and Optimal Telecom. Whereas Optimal Telecom offers mobile prepaid calling card services under the Tango trademark, Dial n’ Smile markets mobile subscription services in both the private and business segments. Comviq Comviq’s business concept is simple: to make mobile telephony available to as many people as possible at the lowest possible rates. In addition to prepaid calling cards, Comviq offers a number of different subscription plans. The success of prepaid calling cards has contributed to Tele2’s rapid growth. The company launched its extremely popular Selfnavigator service during the year. Subscribers can go directly to the website to order supplementary services, review their bills, get their account balance, and track interest charges. Moreover, prepaid calling card customers can access WAP services. Tele2 launched several widely acclaimed marketing ventures, including a prizewinning television advertising campaign for Comviq Kontant prepaid calling cards. Comviq’s new website included information on numerous SMS services. SMS and calling rates were lowered during the year for both peak and offpeak. Tele2Mobil – new contracts Tele2 continued to score triumphs in the business segment, including a contract with the Region of Scania, during the year. In addition to renewing its mobile contract, IBM signed one for fixed telephony as well. Furthermore, Tele2 concluded new mobile and fixed telephony contracts with the Swedish municipalities of Eskilstuna, Köping, Arboga, Kungsrör and Ekerö. The company also entered into mobile and fixed telephony contracts with NEA-gruppen and Scribona. SMS and calling rates were lowered during the year for both daytime and nighttime. During the year, Volvo, which has been a fixed telephony, Internet and to a certain extent data network customer, decided to integrate mobile telephony from Tele2 into its operations, thus replacing portions of fixed telephony with mobile telephony. SMS usage accelerates SMS usage continued to increase substantially during the year. Comviq launched a new SMS portal offering a wide range of services. The new SMS Content product paved the way for external content providers to sell directly to Tele2’s subscribers. Among the most popular offerings are images, ring tones, stock prices and horoscopes. Community services and the ability to send SMS messages to live television shows also enjoy major potential. The company introduced its popular Comviq Community SMS meeting place during the year. The new Tele2 directory service, with which employees can request an SMS message of any phone number at their place of business, is particular useful during non-office hours. Faster data transfer to mobile phones The GPRS service that Tele2 launched in 2001 allows its customers to be connected 24 hours a day at greater bandwidths. Provided free of charge through May 31, 2002, the service has been a media splash and served as clear evidence that Tele2 is working hard to offer the lowest rates. GPRS gives our customers faster connections not only to mobile Internet, but also to Tele2’s IQ Menu and T2 Menu WAP portals. The portals include everything from sports results and the latest news to games and entertainment. A popular entertainment service during the year was Bridget Jones Diary. New functionality was introduced on the portal during the year, including email services that provide users with access to their email from their mobile phones in the same manner as from a PC. UMTS and MMS During 2002, even more acronyms will come into use. The commercial launch of third-generation UMTS mobile telephony is approaching. The rate at which services are introduced will be determined by customer requirements and the availability of phones. In addition, the launch of MMS (Multimedia Messaging Service) is approaching. MMS is an extension of the successful SMS concept that will allow users to send not only text, but images and sound to each other. Tele2 Annual Report 2001 19 Fixed telephony Due to stiffer competition, customers can now call more cheaply – regardless of the destination or time of day. In a market where rates did not fall as sharply as during previous years, Tele2 Sweden retained its price leadership throughout 2001. 20 Tele2 Annual Report 2001 The Nordic market area Tele2 – the leading alternative operator In 1993, Tele2 became the first operator to compete with the former Telia monopoly. Tele2 has provided competitive telephony solutions ever since. The company is the leading alternative operator in the Swedish fixed telephony market. Free Saturdays Tele2 introduced free domestic calling to the Swedish market in 2001. The offer, which applied to fixed telephony calls from home every Saturday, was combined with direct debit bill payment. The purpose of the campaign was to highlight Tele2’s price leadership in the Swedish telephony market. Local pre-selection introduced As of February 2, 2002, local calls are also included in the pre-selection reform. This is a step in the right direction, but the pre-selection reform will not have a full impact until the monopoly is eliminated. Intelligent traffic solutions During the year, Tele2 maintained its focus on optimizing economies of scale among the various types of products in its networks. The integration of Tele2’s data, mobile and telecom applications has created an efficient new transport network. By incorporating the functionality required for new services, this network facilitates the development of intelligent traffic solutions. Tele2 is in the forefront when it comes to creating customer-oriented offerings. Finnveden is a new customer of Tele2’s fixed telephony and nationwide data communications network. Tele2 concluded a general contract with the Swedish Agency for Administrative Development (SAFAD). After stiff competition, the contract accorded Tele2 preferred supplier status. Tele2 received the highest possible recommendation in both mobile and fixed telephony. The contract sets the stage for Tele2 to promote itself among 250 municipalities, 20 county councils, and 30 local insurance offices, as well as 40 other big businesses and institutions. Alfred Berg, a Tele2 customer since 1995, renewed its contract for all existing services, plus Telefoni Direkt, Frisamtal (toll free numbers), Tele2Mobil, Internet, Lan2Lan, Talk2Lan, SNIX and NLL. IBM, which has been a Tele2 customer for a long time, demonstrated its continued confidence by signing a new fixed and mobile telephony contract. Quality and customer service Continual development and enhanced network functionality make it increasingly possible for Tele2 to provide intelligent traffic solutions – and thus products and services that render a customer’s business more profitable. The functionality that Tele2 offers represents a key competitive advantage at a time when quality, customer service and pricing are of growing importance. New contracts Scribona AB signed both mobile and fixed telephony contracts with Tele2 in 2001. Meanwhile, ICA Handlarnas AB (grocery chain) picked Tele2 as its new fixed telephony operator. As a result, Tele2 now provides all of the company’s Swedish units with fixed telephony. The contract also covers ICA Menyföretagen, ICA Förbundet & subsidiaries, and Interblom AB. Individual ICA and Rimi stores can also take advantage of the general contract’s terms. Tele2 Annual Report 2001 21 Internet & Data communications Tele2’s Internet and Data communications product area offers Internet and in-house data communications services, as well as fixed telephony connections. Such applications are increasingly vital for Tele2’s business customers. During 2001, Tele2 held onto its leadership in the market for Internet and Data communications services. 22 Tele2 Annual Report 2001 The Nordic market area Total solutions marked by quality and security Internet usage continues to grow Tele2’s customers are increasingly demanding total solutions. Given its product and service offering, along with leading-edge expertise, Tele2 is able to go beyond the requirements of its customers. In addition to stricter quality and security needs, customers were more and more insistent on greater bandwidth during 2001. According to a Stelacon survey, 56% of Swedish households, or 80% of those that own a computer, use the Internet. The amount of time spent on the Internet is increasing as well. The regular use of email, information searches and Internet banking accounts for most of the trend. Strengths Tele2 – a pioneer in the Internet market Tele2’s strong Scandinavian offering consists of flexible products and services. The company’s strategy is to develop and market total solutions, services and packages that provide value-added to all business segments. Tele2’s data communications focus is on quality, security and high capacity. Among the company’s strong suits are cost-effectiveness, its own infrastructure, access to wellknown brands and advanced expertise, along with the ability to adapt to changing customer requirements and market conditions. Tele2 offers three kinds of dial-up Internet: Everyday Free2Connect – plus Tele2Internet and Tele2Internet ISDN subscriptions. In 1991, Tele2 became the first company in Sweden to provide Internet access. The early launch got Tele2 off to a head start over its competitors in terms of know-how. Tele2 is the biggest alternative provider of Internet services in Scandinavia. The brand is a symbol of top-notch quality, high capacity and competitive rates. Premium services provide value-added Optimized product portfolio The product area had an exciting year in 2001. Tele2 optimized its offering for profitability, in conjunction with a strategy of providing high-quality products and services at attractive prices. The company launched Media High Speed, the market’s first high-speed network with the ability to transport 270 Mbps uncompressed video in real time. Offering unique access options for TV and media companies, this service not only increases cost efficiency, but also delivers significantly higher quality throughout the entire production chain. The company also launched its Tele2Storage service to meet demands for better data security. As a result, businesses can back up their internal data by Lan2Lan, or by Lan2Internet to another site. The security and financial advantages are numerous. As more and more of the population uses the Internet, the market’s emphasis has shifted from price to the delivery of value-added services. Tele2 offers a series of premium services for the purpose of greater security and geographic mobility. The offerings include anti-virus programs, personalized firewalls and the ability to use your Internet subscription wherever you are. Tele2 is a price leader among the foremost providers of Internet services. Many of the new additional services are independent of the means of access. Making email available on the Web More and more customers want access to email away from home. A growing number of users are turning to web mail, which allows the web browser to be used as an email client. All that is required is a computer that can access the Internet. Tele2 has launched a widely acclaimed web mail service. Sharpening the Nordic focus In 2001, Tele2 focused on developing and offering additional data communications services for the Nordic market. By using a single technological platform based on uniform monitoring, support and customer service standards, the company can treat the entire Nordic area as a single data communications market. In addition to higher quality, the solutions generate economies of scale that lead to lower rates. Tele2 Annual Report 2001 23 Cable-TV & broadband The mass media devoted a great deal of coverage to broadband services and digital TV in 2001. Increasing choices for customers and investments in broadband are receiving considerable attention. The total number of broadband customers in Sweden increased sharply during 2001 to 20% of all Internet users. 24 Tele2 Annual Report 2001 The Nordic market area Attractive basic package Not only Internet access Under the Kabelvision brand, Tele2 provides one of the best basic packages on the market at an attractive price. In addition, Kabelvision offers three highly competitive expanded packages (Plus, Silver and Guld), plus premium and movie channels. Kabelvision offers programs from channels such as TV3, ZTV, TV1000, E!, Discovery, Animal Planet, MTV, BBC, CNN and Eurosport. Moreover, the cable-TV network is continually upgrading to offer broadband services. Accessible throughout Sweden, Kabelvision has 310,000 subscribers – making it the country’s second largest cable-TV operator. Beyond rapid Internet access, broadband customers are looking for both information and entertainment services. Tele2 is collaborating with a number of content providers to generate value-added in the areas of games, music, news and sports. The company plans to be a leader in the explosive growth of content services. New television channels Kabelvision maintained its focus on providing an attractive range of TV channels in 2001. The launch of Animal Planet and E! during the year met with a favorable response. New broadband contracts During the year a number of new contracts regarding metropolitan area broadband networks were concluded, among others with municipal power companies Sollentuna Energi AB och Härnösand Energi & Miljö AB. These networks will be connected in 2002. Tele2 has identified major potential for marketing broadband services through metropolitan area networks in 2002. Early broadband effort Taking advantage of its cable-TV lines, Tele2 started offering broadband to consumers back in 1998. The company’s continued efforts in 2001 resulted in the conversion of a significant percentage of its network to handle broadband. Since 1999, Tele2 also offers broadband over local area networks (LANs). Tele2 utilizes wireless local loop (WLL) technology as well. The company has access to a highly developed backbone network in Swipnet, which was Sweden’s first commercial IP network. In addition, Tele2 has good connections with other providers in Sweden and abroad. The deployment of a UMTS network will set the stage for mobile broadband solutions. Tele2 Annual Report 2001 25 The Nordic market area Norway Competition and brand strength Mobile telephony and UMTS license Tele2 Norway offers a complete range of telecommunications services for both fixed and mobile telephony. Tele2’s strong suits are its full-service offering, its price leadership and its status as main challenger to the old Telenor monopoly. After starting 2001 with more than 17 mobile operators, Norway had only four remaining at year-end: Netcom, Telenor (network owners), Tele2 and Sense (service providers). Tele2 is in fourth place but capturing share from its competitors. Thanks to an increased share of the mature dial-up Internet market, the company has achieved growth there as well. With technologies like ADSL, Tele2 is now poised to assume a strong position on the expanding broadband market. The company’s strategy is to continue taking advantage of the most attractive offering in the sector: a broad range of quality services at the most attractive possible rates. Generally respected for its flexibility, focus on customers and cost consciousness, Tele2 has demonstrated a remarkable ability to both hold onto its customers and recruit new ones. Tele2 launched a highly successfully mobile telephony campaign early in the year, as the result of which revenue remained brisk for all of 2001. The company also benefited from the consolidation of the market from 17 to 4 competitors. In November 2000, Tele2 Norway was awarded one of the country’s four licenses to build a 3G UMTS network. The company decided that it would start up the network and associated services in December 2001. Given that UMTS phones are not yet available to customers and that there is a lack of standardized network equipment, Tele2 Norway elected to postpone the build out of its network in accordance with the license. Tele2 Norway is engaged in a continuous dialogue with the Norwegian telecom authorities regarding the build out of UMTS in Norway. Fixed telephony, acquisitions and free calling Tele2 Norway continued to grow in 2001, posting steady growth and improved profitability. In September, all private and some corporate fixed telephony and dial-up Internet customers of Enitel, Norway’s third largest operator, moved over to Tele2. By substantially boosting traffic volumes, the profitable acquisition raised Tele2’s revenue. In the fall of 2000, Tele2 Norway became the first Norwegian operator to offer domestic calling free of charge. During 2001, an offer to customers to pay a onetime charge for free calls on Saturdays was a major success. The goal of the widely acclaimed campaign was to cement Tele’s status as Norwegian price leader. Price leader Tele2 Norway is holding firmly to its position as price leader in the Norwegian market. Several independent studies have concluded that Tele2’s mobile telecom services give customers the most for their money. The company’s mobile telephony has repeatedly received the highest ratings. Tele2 will continue to focus on offering its customers a discount to Telenor’s standard rates. Although Telenor has beefed up its marketing effort to fend off competitors over the past year, Tele2 is still capturing new share of the market. Sharper focus on business customers Tele2 Norway’s emphasis on the business market bore fruit in 2001. In particular, the company signed key contracts with customers like IBM, the post office, Amersham, Orkla Finans, Total Fina, Elf and Statoil. With a complete range of services, Tele2 specializes in standardized package solutions for both big and small companies. By standardizing its product offering, Tele2’s profitability in the business market improves with each new contract that is signed. In February 2001, an Internet CD was distributed to all Norwegian households. 26 Tele2 Annual Report 2001 The Nordic market area Denmark Competition in fixed telephony market Major changes were under way in the Danish telecom market during 2001. Due to intense competition, many of the big companies that had emerged rather recently departed from the market and stopped selling fixed telephony or Internet to households. They are likely to focus on the mobile market in the wake of the awarding of four UMTS licenses during September 2001. Since Tele2 is the only appealing alternative to the old TDC monopoly, it has been a beneficiary of this retreat from the private fixed telephony and Internet market. Tele2 therefore worked hard during 2001 to reinforce its position in Denmark. Tele2 A/S was restructured in April to bolster its primary business of fixed telephony and the Internet. The reorganization concentrated on efficiency, product range evaluation and greater outsourcing of administrative and technical functions. Mobile telephony While retaining its share of the fixed telephony and Internet segments, Tele2 has entered the mobile market as well. The company launched its mobile subscription on October 21, the 5th anniversary of its startup in Denmark. Based on an MVNO agreement, the subscription supplements the prepaid Tele2Mobil Tank Op service introduced in the autumn of 2000. Mobile telephony, fixed telephony and the Internet add up to a complete product offering. As a result, Tele2 can cross-sell to existing customers and carve out new market share by packaging its services. Tele2 Menu – Europe’s largest SMS service SMS constitutes a growing market. Tele2 A/S has developed Europe’s most comprehensive and user-friendly SMS offering of more than 6,000 different services. Tele2’s overriding objective has been to design a system that is much easier to use than WAP and that gives customers more value for their money. Tele2 Menu meets these requirements and establishes a brand new standard for content services linked to mobile telephony. By integrating each mobile phone with the Internet, Tele2 allows a customer to choose among an enormous range of SMS services and put together a personalized menu. It will not be long before 10,000 different services are available. Tele2 Menu cultivates customer loyalty with Tele2Mobil while providing access to products and services from Tele2’s fellow subsidiaries such as MTG and Metro. UNI2 – focus on web hosting for businesses UNI2, which serves as Tele2’s brand for corporate Internet services and comprises a business area of its own, remains one of the leading Internet operators in the Danish business market. The business area markets technologically advanced services that zero in on reliability, quality, security and support. Fixed Internet, web hosting and data security solutions are all part of its operations. Since becoming its own Tele2 A/S business area UNI2 has focused its efforts on hosting services. UNI2 sharpened its image in the outsourcing, security and hosting segments during the year. The business area’s Global Dial Up service for frequent business travelers is well established. UNI2 signed additional contracts in 2001 with a number of large internationals. The business area has also continued to sell its know-how to a number of companies within the group. Several thousand websites in Sweden, Norway, Germany and the Netherlands are linked to the UNI2 web hosting service. UMTS in Denmark by means of MVNO Tele2 did not apply for a UMTS license in Denmark. Instead, Tele2 has entered into talks on an MVNO agreement with the operators that set up UMTS networks. The objective is to offer UMTS services through Tele2Mobil as soon as market conditions so permit. In October 2001, Tele2Mobil introduced subscriptions in Denmark. Tele2 has been offering the prepaid service Tele2Mobil Tank Op since the autumn of 2000. Tele2 Annual Report 2001 27 The Nordic market area Finland Tele2 continued to market its fixed telephony products in Finland during 2001. Prepaid calling cards and fixed telephony are the two basic services. Although Tele2 offers long-distance and international calling, the continued existence of the monopoly has prevented the company from entering the local calling market. Tele2Internet does business in the Helsinki area. In the autumn of 2001, Tele2 constructed a Wireless Local Loop for broadband access in Jyväskylä. The company launched the service for local businesses in December. Tele2 Bredband uses its own exclusive frequency. The company will offer broadband to Jyväskylä households early in 2002 and to other cities later on in the year. Tele2 has a UMTS license through its part ownership of Suomen Kolmegee Oy. Successful year for Datametrix in Nordic markets Strategic investments in system integration of customized business network, telephony and data solutions and investments in strengthening knowledge and expertise contributed to strengthening Datametrix’s market positions in the Nordic region. Recruitment of new customers was very favorable. Call center technology and integration were joint efforts, which were complemented by national expertise. System integration based on Cisco products dominates in Norway, while Denmark is the sole supplier of voice recording systems for the banking and finance sectors in its domestic market. In Sweden, Datametrix is not only the leading system integrator for contact centers, but also has leading-edge expertise in broadband technology and data security. In addition, the company is a leading supplier of trading systems for banking and finance. Important contracts were signed with the shipping company Wilh. Wilhelmsen, the transport and logistics company Nor-Cargo, Norges Bank and OSL (Oslo Gardemoen Airport). Expansion in Denmark During 2001, Europeiske Reiseforsikring and EuroAlarm opened one of the world’s most advanced call centers in Copenhagen, for which Datametrix was responsible for delivery and implementation. The same applies to new support centers opened by Dell and IBM. Upturn in Sweden In 2001, Datametrix signed a three-year service and support contract with ICA Ahold for service of ICA’s entire telephone system plus its new banking service. Systems were delivered to such customers as Preem, Sitel, Stockholmsmässan, Lärarhögskolan and Sydkraft. Within the banking and finance sector, contracts were signed with the brokerages Carnegie AB and Alfred Berg. In 2001, Datametrix was certified as a gold partner to Avaya. The product portfolio was expanded with the Oké Communicator fro the Dutch company ConnectIT Communications B.V. In 2002, the product portfolio will be further expanded with Cisco’s communication systems. In Finland, Tele2 offers attractive prices on international calls. 28 Tele2 Annual Report 2001 The Nordic market area iHear Dect III Tele2’s iHear Dect III is a cordless digital telephone with a prefix function. Tele2 iType Tele2 iType is a terminal that is designed for sending and receiving SMS messages via the fixed telephone network. If the caller ID service is available, Tele2 iType also functions as a caller ID display. SMS can be sent from the iType terminal both to mobile phones and to other iType terminals. Tele2 Annual Report 2001 29 The Eastern Europe and Russia market area consists of Estonia, Latvia, Lithuania, Poland, the Czech Republic and Russia, along with X-Source. Eastern Europe and Russia Licenses Fixed Mobile Internet Launch Market position among alternative operators Estonia • • • • 1998 1 Latvia • • 1999 1 Lithuania • • 1999 2 Russia • • Poland • Czech Republic • 30 • Tele2 Annual Report 2001 6 • 2000 • 2000 The Eastern Europe and Russia market area Joint network in the Baltic countries Tele2 set up a joint network in the three Baltic countries during 2001. The idea is to enable considerable longterm cost savings. In addition, the resulting flexibility and economies of scale when developing new services will bolster Tele2’s competitiveness in the region. Lithuania Tele2 strengthened its market position in Lithuania during 2001. Mobile penetration grew from 14% to 29% in 2001. In a highly competitive market, Tele2 closed much of the gap with its two competitors, both of which have been operating for five years longer. Tele2 consolidated its position as price leader and attained stable, satisfactory margins. Latvia With its GSM900 and GSM1800 licenses, Tele2 is the leading alternative mobile operator in Latvia. Since its acquisition in October 2000, the company has grown considerably. Thanks to such well-known products as the Zelta Zivitna (Goldfish) prepaid calling card, Tele2 is spurring the growth of the market. The company’s position stems from its price leadership, innovative voice and SMS services, and superior distribution capability. Seventy percent of Latvians are familiar with the Tele2 brand. Since the company changed its name to Tele2 in March 2001, it has become the seventh most widely recognized brand in the country. Tele2 has a brand recognition of 70%. The company also spent the year getting its network ready for new customers. The company replaced its Latvian transmission equipment and switches. The new network entails advantages in the areas of planning, purchasing and support. Furthermore, Tele2 has expanded its capacity in order to provide services such as GPRS in the future. Substantially higher revenue Thanks to a considerable increase in call minutes per user and a larger number of subscriptions, Tele2 Lithuania’s revenue per subscriber doubled in 2001. The company designed product offerings with lower fixed monthly rates and a simpler price schedule than its competitors. A key incentive for new customers to subscribe and for existing subscribers to use the network more was the fact that Tele2 lowered its nighttime and weekend rates. Tele2’s customers in Lithuania are among the most active SMS users in Europe. Outlook Latvian and Lithuanian legislation that will take effect at the beginning of 2003 allows for a competitive fixed telephony market. Tele2 already has a license for Internet services, as well as broadband and radio network authorization. Successful investment in GSM900 After receiving its license in December 2000, Tele2 has steadily upgraded its network for GSM900. Thanks to the existing network and its two bands, the transition to the new frequency was highly cost-effective. Tele2 expanded the GSM900 network in 2001 to cover some 80% of the population. Now Tele2 is paying, not you! A Christmas campaign for Tele2Mobile in Lithuania features a well known artist as Santa. Tele2 Annual Report 2001 31 The Eastern Europe and Russia market area Estonia Tele2 Estonia provides a wide range of telecommunications services under the Tele2 brand: mobile telephony (subscriptions and prepaid calling cards), fixed telephony, Internet, content The company launched international and long-distance calling in January, as well as calls to mobile phones. Local calling began in March. Tele2 is currently the clearly leading alternative fixed network operator after Eesti Telecom. services and cable-TV. Internet services A single brand for all services Following its merger with Levicom Broadband OÜ in June, Tele2 is a full-service telecom provider. The expanded marketing opportunities represent a major competitive advantage. In October 2001, Tele2 launched its brand for the full range of telecommunications, including mobile services previously marketed under the Q-GSM brand. As a result, brand recognition has risen to 78% and allowed the company to package its mobile and fixed telephony services. Tele2 is now the second largest supplier of dial-up Internet services after Eesti Telecom and also offers broadband services over its cable-TV network. Tele2 Estonia offers cable-TV in 12 cities to more than 102,000 households. Although new deregulation led to stiffer competition in 2001, Tele2 increased its penetration and recruited new customers. Everyday.com turned into Estonia’s leading Internet company during the year. According to surveys, it is the country’s most popular website among the 15–35 age group. Efficient administration Strong market position Tele2 has taken significant market share and is currently Estonia’s fastest growing operator. The company launched new mobile telephony services for small and mediumsized companies during the year. The brand switch for Smart prepaid calling cards yielded excellent results. Tele2 is the second largest mobile operator in the country. Tele2 launched a web service for electronic invoicing and archiving. The company outsourced customer management to Transcom. The five new Tele2 stores and three new dealers represent better than a one-third enlargement of the company’s distribution network. The successful launch of fixed calls has been supported by stylish iHear phones. 32 Tele2 Annual Report 2001 The Eastern Europe and Russia market area Russia Tele2 acquired FORA Telekom from Millicom SMS and Internet International SA (MIC) in the end of November Tele2 launched SMS and SMS-based services for most of the companies early in 2001, as well as a nationwide web portal (www.tele2portal.nu). The portal allows anyone with Internet access to send text messages to a FORA customer. Messages, news, weather reports and so on can arrive directly to a mobile phone from almost anyplace in the world. 2001. Reaching a total population of 48 million people, FORA consists of MIC’s 12 businesses in Russia: Belgorod, Chelyabinsk, Irkutsk, Kemerovo, Kursk, Moscow, Nizhny Novgorod, Omsk, Rostov, Smolensk, St. Petersburg (including Oblcom, which covers the surrounding region) – and the Republic of Udmurtiya. Position in the mobile market Excluding Moscow, FORA’s subscriber growth was 49% in 2001 (24% including Moscow). Taking the lead were Irkutsk (+146%), Oblcom (+147%), Kemerovo (+101%) and Chelyabinsk (+70%). Prepaid calling cards were the main catalyst of growth. The proportion of calling card customers rose from 44% to 53% during the year. By such measures as regional rate cuts and various loyalty programs, Tele2 worked up a marketing strategy during the year to reduce initial costs for customers and thereby sustain its competitiveness in a increasingly fierce market. The objective is to forge long-term relationships and reduce the churn rate. For example, the Rostov business introduced calling cards that offer 25 extra minutes for every six months that a customer has been with Tele2. Other FORA companies also successfully adopted the strategy in order to safeguard monthly revenue and minimize the churn rate among calling card customers. Licenses Eight of FORA businesses received GSM1800 licenses in 2001. In early 2002, GSM licenses were also received in Nizhny Novgorod and Chelyabinsk. In St. Petersburg, where Tele2 has not yet been awarded a license, a decision is likely in 2002. Construction of the GSM networks is planned for this year. Data communications services The launch of wireless data communications services in Rostov and Kemerovo during 2001 was highly successful. The Irkutsk business opened an Internet café in April. Outlook for 2002 Expecting growth to remain robust in Russia, Tele2 is focusing on ensuring continued subscriber growth and on constructing new GSM networks to take advantage of mobile telephony’s potential throughout the various regions. In order to strengthen its position in the market, the company is concentrating its efforts on offering costeffective telecom services. Tele2 Annual Report 2001 33 The Eastern Europe and Russia market area Poland Czech Republic Tele2 has a nationwide data communications fran- Tele2 introduced wireless broadband in two Czech chise and a license for wireless broadband access cities during October 2000. By the end of 2001, over radio networks (wireless local loop – WLL) in six cities totaling more than three million inhab- eight cities. The company offers wireless broad- itants had access to the service. band in Warsaw, Krakow, Gdansk, Poznan and Wroclaw, thereby covering more than five million Wireless broadband market inhabitants and 500,000 businesses. Tele2 plans to Although Internet penetration in the Czech Republic increased in 2001 from 7–8% to around 20%, the market remains underdeveloped. While the vast majority of users still have modems, demand for broadband has mounted in the past year. Furthermore, Tele2 will upgrade its network in 2002 and expand to new cities. All in all, 2002 looks to be a successful year. expand to two new cities in 2002. Tele2 began operations in Poland during 1999 by offering prepaid calling cards for international fixed-line calls. The company launched several new services via Voice over IP in 2000. With an explicit focus on price leadership, Tele2 offers services for both businesses and households. Air2Net (wireless broadband) is intended for small and medium-sized businesses. Since only 15% of Poland’s 40 million inhabitants and 40% of its 1.5 million businesses currently have Internet access, Tele2 foresees major potential in the country. Deregulation of fixed telephony in 2002 Fixed telephony was still regulated in 2001. Domestic calling was deregulated in January 2002 and international calls are slated for January 2003. Tele2 plans to take advantage of these developments to achieve rapid growth. Telephony Tele2 was awarded a fixed telephony license in June 2001. Although the market will be deregulated as of July 1, 2002, customers will initially have to dial a prefix to use alternative operators. At present there are operators that offer their services to businesses only. Tele2 is ready to be among the first alternative operators that provide the Czech Republic’s 10 million inhabitants with fixed telephony. X-Source X-Source, which works with outsourcing, is a company started by Tele2 to support IT operations throughout the Group. The company currently employs some 65 persons at its offices in Stockholm. X-Source has also started operations in London and plans to open offices in Denmark and Luxembourg during the spring of 2002. Competitive services X-Source offers services in the areas of operation of PC workplaces, operating and maintenance of servers, data communication and data security. X-Source helps customer companies to create a secure and controlled IT infrastructure, while reducing IT costs. X-Source’s services are competitive even for external customers. Customers include Datscha.com, Metro, MTG Sweden, Viasat in London, ZoomOn, Eim, M2Invest, Nack Energi and 4T solutions. External customers account for about 60% of the company’s sales. Poland deregulated domestic calling in January 2002. 34 Tele2 Annual Report 2001 The Central Europe market area includes Germany, the Netherlands, Switzerland, Austria and Ireland. Central Europe Internet Launch Market position among alternative operators • • 1998 3 • • • 1997 2 Switzerland • • • 1998 2 Austria • • • 1999 1 Ireland • Licenses Fixed Germany • Netherlands Mobile • Tele2 Annual Report 2001 35 The Central Europe market area Germany The Netherlands Having joined the German fixed telephony market Tele2, which began offering services in the in March 1998, Tele2 is now the third largest Netherlands during October 1997, is now the alternative operator. country’s second largest alternative fixed telephony operator. At the end of 2001, 83% of the popula- The German market for fixed telephony began consolidating in 2001 and a number of big competitors have either been integrated into larger groups or disappeared from the market. With a focus on reinforcing its market position, Tele2 continued to offer attractive rates with an even more simplified, easy-to-understand price schedule. More and more Germans know about Tele2 In 2001 Tele2 passed a number of its competitors in terms of brand recognition. The figure rose to 50%. Mobile services – MVNO agreement with VIAG Interkom In December 2001, Tele2 concluded an MVNO agreement with mobile operator VIAG Interkom, a British Telecom subsidiary. The company plans to launch mobile services in Germany during the second quarter of 2002. In order to establish a mobile telephony business in Europe’s biggest potential market at low marginal costs, Tele2 will direct its primary marketing at its existing customers. The new mobile service enables the company to package mobile telephony, fixed telephony and the Internet. Traffic growth tion was familiar with the Tele2 brand. Fixed telephony Tele2’s pre-selection customers, with either iHear phones or other selectors, accounted for 50% of the total in December 2001. The result was greater loyalty and revenue per customer. Tele2 has aimed its marketing efforts at households, as well as small and medium-sized businesses. The company’s share of the private market rose from 11% to 15% during the year. Since the former KPN monopoly still has a clearly dominant market share, there is latitude for additional growth. Tele2Mobile – MVNO The launch of Tele2Mobile in 2001 represented a milestone for Tele2 in the Netherlands. Tele2 operates as an Mobile Virtual Network Operator, MVNO. The startup of the MVNO arrangement made Tele2 the sixth largest mobile operator in the country. The foundation for Tele2Mobile’s future success is its ability to provide existing fixed telephony customers with the new services in accordance with the tried-and-true formula of more attractive rates along with straightforward, easy-to-understand pricing. The services involve low marginal costs. The increase in the number of pre-selection customers, along with the sale of 300,000 iHear phones in 2001, boosted traffic by 30%. In Germany, Tele2 points out that the company is more efficient than the incumbent monopoly. 36 Tele2 Annual Report 2001 The Central Europe market area Switzerland Austria Tele2 launched fixed telephony in Switzerland as Tele2 is the largest alternative fixed telephony soon as the market was deregulated in October operator in Austria. 1998. Tele2 is the second largest alternative operator in the country. Tele2Mobile, which is now Robust growth challenging the other three mobile operators, The aggressive implementation of Tele2’s growth strategy in 2001 generated substantially higher revenue. The business is now large enough to enjoy economies of scale in its various markets. Thanks to pre-selection and the success of Tele2’s ISP Internet services, call minutes per customer increased during the year. More than 65% avail themselves of pre-selection. started up in May 2000. Tele2’s positioning and recognition According to a recent independent survey, 75% of the Swiss population recognizes the Tele2 brand. The company is known for its competitive rates, easy-to-understand pricing and excellent customer service. Price leader Pre-selection and iHear phones At the end of 2001, more than 70% of all customers used pre-selection. Tele2 was the first Swiss operator to implement Third Part Verification (TPV), by which customers can orally sign up for pre-selection without signing a written contract. Tele2 sold a significant number of iHear phones in 2001. In addition to their colorful and fashionable design, they come with built-in selectors that lead to higher traffic volumes. Awareness of iHear is increasing. The number of Swiss recognizing the brand rose to 30% during the year. The market perceives Tele2 as price leader. According to a January 2001 survey, 67% of the population now knows about the brand. More deregulation Despite major attempts by the former monopoly to delay deregulation, Tele2 anticipates additional reductions of interconnect charges and greater access to its network. The various initiatives that Tele2 has taken in the area are set to bear fruit in 2002. Outlook for the future Tele2’s strength in the market and rapidly expanding customer base make it one of Austria’s most attractive MVNO partners. Economies of scale are essential to obtaining a solid return on an investment in the Austrian market. Tele2 Austria will continue to emphasize the recruitment of new customers among its target groups of households, small businesses and medium-sized business. The company’s margins remain high. Ireland Tele2 has a fixed telephony license in Ireland. With Tele2 you call cheaper everywhere, or almost everywhere. Tele2 Annual Report 2001 37 The Southern Europe market area includes France, Italy, Spain and Portugal. Southern Europe Internet Launch Market position among alternative operators • • 1999 1 • • • 1999 2 Spain • • 2001 4 Portugal • Licenses Fixed France • Italy 38 Tele2 Annual Report 2001 Mobile The Southern Europe market area France After starting up in the French market during Prepaid fixed telephony growing in popularity March 1999, Tele2 grew to be the largest alterna- Over 300,000 of Tele2’s customers chose a system for prepayment copied from Tele2 Spain and now available in every country. Prepayment has helped reduce the churn rate, improve cash flow, avoid bad debt and minimize total billing expense. tive fixed telephony operator in 2000. The company shored up its position as leading alternative fixed telephony operator in 2001. At present, Tele2 is taking more than 50% of customers that leave the incumbent PTT. Pre-selection Competition and brand positioning In 2001, Tele2 France began reaping the benefits of market consolidation. The former monopoly, Tele2 and Cegetel, in that order, are currently the three main operators. Thus, Tele2 can utilize the strength of its brand to reinforce its position as price leader. In addition, the company is thereby able to continue recruiting customers at affordable costs. ART, the French regulatory agency, published its first official survey of the fixed telephony market in February. With a market share of 50%, Tele2 came in as the best newcomer. Tele2 placed ahead of France Telecom as the company most able to take care of its customers and project a favorable image. Price leader Due to its simple, straightforward pricing and a roundthe-clock rate for long-distance calls, Tele2 will retain its position as price leader in the French market. The decline for companies like OneTel makes Tele2 the undisputed price leader in its chosen segments of households and small businesses. Since Tele2 has 10% of those segments, while France Telecom is still holding onto 75%, there is major growth potential. As many as half of Tele2 customers have automatic access to the company’s network, either with iHear phones or pre-selection. ARPU is also rising steadily. Focus on revenues and profitability Thanks to a strong brand and price leadership, Tele2 France will continue to steadily recruit new customers. The company is focusing on profitability, as well as ongoing improvements in the quality of customer care and billing. Opportunities in the mobile market Tele2’s large customer base provides a strong position in negotiating MVNO agreements with French mobile operators which see an opportunity to increase traffic in their networks while making major investments in the build-out of 3G. Long-term negotiations are now being supported by intense activity on the part of regulatory agencies. Local calls Local calling will be opened to competition in France between February and April 2002. Call minutes per customer are expected to double, while revenues will increase without additional operating or marketing costs. Tele2 is the leading alternative provider, which is re-enforced by advertising. At least choosing an operator is simple. Tele2 Annual Report 2001 39 The Southern Europe market area Italy Spain Tele2 Italy’s customer base grew by more than Tele2 entered the Spanish market in February 50% in 2001, making it the second largest alter- 2001 with an offer of the new VOIP (Voice Over native fixed telephony operator in the country. the Internet Protocol) technology. Tele2 Spain has prepaid fixed telephony only. Customer recruitment has been excellent since Tele2 started in Italy during April 1999. At the end of 2001, the company had a very strong customer base. Public recognition of the Tele2 brand has risen sharply. In January 2001, 72% of the population was familiar with it. In the wake of Tele2’s emergence as price leader during 2001, customer loyalty steadily improved and the churn rate declined. Generating high average revenue A large percentage of calls in Italy are from fixed-line to mobile phones. Total call minutes nearly doubled in 2001, so that Tele2 Italy continued to enjoy high average revenue per subscriber. The company successfully launched a prepaid product in December based on the same concept that has been implemented in Spain and France. The number of customers who chose that option in the first few months was encouraging. Tele2 Spain offers fixed telephony services for longdistance and international calling, as well as calls from fixed-line to mobile networks. Customers can decide to use Tele2 for individual calls, either by means of preselection or with iHear phones and their built-in selectors. Following a positive reception, the company attracted a large number of customers within the first year, thanks to an aggressive marketing and pricing effort. Tele2 is already ranked among the four best operators. Prepaid fixed telephony Prepaid services are a highly effective means of minimizing billing expense, bad credit and the churn rate. These services create a potential for subscriber growth and have a positive effect on cash flow. Tele2 has positioned itself as the price leader, and the largest consumer group recommends the company as the most attractively priced among eleven competitors in the Spanish market. VOIP Greater functionality Tele2 successfully introduced local calling in 2001 – by December every customer in the country had access to it. During the year, iHear phones were increasingly popular, and a significant number were sold to customers. One key factor was the telemarketing effort that began in July. Focus on higher revenues Tele2 Italy will continue focusing on expanding its subscriber base and cultivating loyalty by means of a greater percentage of pre-selection and iHear customers. As the Tele2 brand becomes more established, the company’s image as price leader sharpens. In order to improve its product offering and spur revenue, Tele2 will offer additional services such as Internet access to its existing customers. With a view toward cultivating customer loyalty, the company will zero in on enhancing processes that can boost efficiency and provide greater satisfaction. 40 Tele2 Årsredovisning 2001 IP technology, which uses Cisco equipment, has been successful with respect to both quality and flexibility. Thanks to the enhanced capacity that VOIP permits, it has begun to generate lower traffic costs. Focus on growth Tele2 will continue to expand its customer base and promote its brand. The launch of local calling (66% of all traffic in the country) and the increased popularity of iHear phones will lead to higher ARPU. Tele2 is reviewing its options for concluding an MVNO agreement in Spain. Portugal Tele2 Portugal obtained a fixed telephony license in February 2001. The Luxembourg market area includes Lichtenstein, Luxembourg, 3C and Transac, as well as a fixed telephony license in Belgium. Luxembourg Licenses Fixed Mobile Internet Launch Market position among alternative operators Luxembourg • • • • 1998 1 Lichtenstein • • • • 2000 1 Belgium • Tele2 Annual Report 2001 41 The Luxembourg market area Luxembourg Liechtenstein Tele2 Luxembourg provides all types of fixed-line Tele2 has provided mobile telephony services in telecommunications services. The company has Liechtenstein since March 2000 under the Tango offered fixed telephony since October 1999. Tele2 brand and fixed telephony since June 2000 under launched Internet services in June 2000. its own brand. The company holds a license for GSM and for all types of fixed-line communica- At the end of 2001, the company had a considerable share of the market for Internet services. Traffic volumes have increased substantially since December 2000. Tele2’s Internet rates are the lowest on the market, with traffic volumes which are always increasing. The company is now the leading alternative to the former monopoly. Tango With a GSM 900 and GSM 1800 license in Luxembourg, Tango is the biggest provider of mobile services. This position was strengthened during 2001 through significant subscriber growth. One reason for the rapid customer recruitment is that prepaid calling card users have had roaming privileges to call over the networks of other operators since March 2001. Following substantial volume growth during the year, Tango now has close to half of the market. The company’s customers sent almost twice as many SMS message as the year before. The new services introduced during the year boosted the number of subscribers and the volume of traffic. Such services include GPRS (launched in early March), SMS games and voice-controlled services. Everyday Media The youth-oriented Tango Sunshine pop music radio station that started up in February can be heard on FM, cable or the Internet. Tele2 markets its products and services on the station. Tele2 established an Everyday Media subsidiary called Tango TV. The channel is licensed to broadcast 24 hours a day over the Luxembourg cable network and via the Astra satellite. Transac Based in Luxembourg, Transac provides back-office processing services to businesses that handle large quantities of data. MACH, 3C, Banque Invik and Inlux are among Transac’s customers. Belgium Tele2 has a license for fixed telephony in Belgium. 42 Tele2 Annual Report 2001 tions services, including the Internet. The Liechtenstein government awarded Tele2 a UMTS license for 2002. Tele2 is the largest alternative operator in Liechtenstein. 3C 3C has been active in public telecommunications for more than 15 years. Currently the company specializes in transaction services, interactive advertising and pay phones. In collaboration with leading international banks, 3C provides a pan-European credit card transaction processing service. Transaction services are one of 3C’s top-priority areas. In 2001, the company established closer relations with financial institutions and customers, hotels and restaurants, and parking operators. 3C anticipates substantially higher sales for its Parking service and for Transac’s products. The Parking service is a total concept for parking lot operators. The concept was developed in Britain, where 3C has 95% of the market for parking spaces at airports and in metropolitan areas. A large number of public Everday.com Internet terminals allow 3C to provide international brands with a network for interactive advertising. The free terminals are located where large numbers of people gather, including airport concourses, airline lounges, hotels and restaurants throughout Europe. The second generation of Internet terminals that 3C introduced in 2001 permits not only interactive advertising, but prominent on-site promotion. The combination of contemporary design, convenient locations, advertising options and free access is unique. 3C has credit card phones in a large number of locations throughout Europe under the Tele2 brand. But since the increased usage of mobile phones has made public phones less popular, 3C is now focusing on maintaining existing installations and adding new services. In 2001, the company placed phones in the concourses of the Oslo and Vienna airports, as well as British Airways, Lufthansa and One World Alliance lounges. The Branded products & services market area includes Optimal Telecom, IntelliNet, Calling Card Company (C3) and Tele2 UK. Branded products & services Tele2 Annual Report 2001 43 The Branded products & services market area Optimal Telecom Optimal Telecom provides consumers with fixed telephony and Internet access. The company was established in the autumn of 1998. During 2001, the mobile prepaid calling card Tango was launched in Sweden. Launches and expansion in the consumer market Optimal Telecom continued to expand rapidly in the Swedish consumer market during 2001. Successful marketing efforts and attractive services generated new growth in both fixed and mobile telephony. Tango was launched in the Swedish market during June. To make the sales effort more successful, it was coordinated with IntelliNet, as well as operations in France, the Netherlands and Germany. This collaboration was intensified during 2001. Rates held steady during the year and rose for certain kinds of calls. Rates for Internet access did not change significantly. In January 2001, Optimal Telecom and Everyday.com launched a prepaid calling card for Internet use. Optimal Internet The Optimal Internet subscription carries no monthly fee. Customers in Sweden can connect through Optimal Telecom’s modem pool at the lowest standard rate among Telia, Tele2 and Telenordia. The subscription always reflects the latest rates. The company offers value-added services such as email and free SMS in collaboration with Everyday.com. Tango The Tango mobile prepaid calling card offers highly appealing terms for longer use. The card always chooses the lowest standard rate within Sweden among Telia Refill, Europolitan Easy and Comviq Kontant. Customers receive interest, refunds and a complete overview of their mobile phone fees. They do not have to take out subscriptions or decide ahead of time how much calling they are going to do. Infrastructure Optimal Selector By connecting the Optimal Selector device to a telephone jack, a customer can be assured of automatically obtaining the lowest ordinary rates from among Telia, Tele2 or Telenordia, the three operators that dominate the Swedish market. The selector also has the ability to keep up with changes in the various rates. As of January 2002, the operators Rix Telecom, Glocalnet and Utfors are also included. Optimal Wireless, iHear The Optimal Cordless phone has a built-in selector. Via Optimal Telecom, it automatically identifies the lowest standard rate. The product appeals to customers who do not want to install their own Optimal Selector. An added benefit is the reduced churn rate that results. Optimal Telecom is a service provider, i.e. a company that does not have its own infrastructure in Sweden. New services and ongoing expansion The focus in 2002 will be on generating growth for Tango and boosting sales of iHear products like iType cordless phones. In addition, the company will be actively engaged in convincing more customers to choose the prepaid option. Cross-selling and product development are key to creating increased sales, long-term customer relationships and improved profitability. Once again, the focus is on Tele2 as the price leader. Why continue making expensive calls? 44 Tele2 Annual Report 2001 The Branded products & services market area IntelliNet IntelliNet is Optimal Telecom’s counterpart in continental Europe. The company offers its customers in France, the Netherlands, and Germany the lowest rates from among a large number of major fixed telephony operators. The company has also designed a card with a magnetic strip for its public phones. European expansion C3 plans to expand further in Central Europe, Scandinavia and the Baltic states. IntelliNet Box Like Optimal Telecom, IntelliNet guarantees the lowest long-distance and international rates, as well as the lowest rates to mobile networks, by means of a device attached to the telephone jack. Depending on the particular market, the device chooses among 5–10 operators. The selector also has the ability to keep up with changes in the various rates to ensure the lowest rate at any given time. Calling Card Company (C3) C3 (Calling Card Company) sells prepaid fixed telephony cards in seven European countries: Austria, Britain, France, Germany, Italy, the Netherlands and Spain. In 2001 the company launched a refillable calling card under the Tele2 brand. The card may be used in more than 40 countries. The company has attained profitability in every market, and growth remains solid. Close cooperation with Tele2 C3 works closely with Tele2, the provider of its network capacity. The key to C3’s success is a stable distribution network and a flexible pricing strategy. With over 140 European brands at the moment, the company sold more than 20 million prepaid calling cards during the past year. The prepaid calling card market in the countries where C3 does business is worth a total of some SEK 10 billion. Post Office – Tele2 UK Communications Tele2 UK, a leading alternative fixed telephony provider, started in November 2001. In collaboration with the Post Office, the company offers fixed telephony services on a par with those in other countries where it does business. Tele2 markets its services – which may be purchased only at post offices, joint call centers or at the Post Office’s website – under the Post Office brand. The brand is one of the strongest in UK and all of Europe. The Post Office employs 40,000 tellers at 17,500 sales outlets. Products To supplement its fixed telephony business, Tele2 markets a number of prepaid calling cards through the Post Office’s sales outlets. The cards carry the Post Office brand and are highly competitive in the British market. Focus Tele2 UK will focus in 2002 on building up its customer base by taking advantage of the Post Office’s existing distribution network and by evolving further as the leading alternative telephony provider. Taking the next step with prepaid calling cards Although prepaid calling cards are sold mostly in stores and newsstands, C3 is now launching a card for the business market – where it is encountering little competition. The company has reached agreement with a French retail chain that offers the potential of 300,000 card sales per month through airlines, travel agencies and Europe’s biggest post offices. C3 is marketing the card in collaboration with Nestlé in Italy. Among its customers are Deutsche Bank and Dresdner Bank. In the UK, Tele2 offers prepaid calling cards under the brand of its partner, the Post Office. Tele2 Annual Report 2001 45 Financial review Five-year overview 2001 2000 1999 1998 1997 25,085 12,440 8,171 5,918 4,030 1,699 1,820 2,060 1,165 1,026 EBIT** – 1,356 420 1,152 506 507 Profit/loss after financial items – 1,944 165 4,184 219 78 392 – 396 3,768 53 130 Shareholders’ equity 29,517 26,539 6,659 2,926 2,903 Shareholders’ equity after dilution 29,547 26,584 6,659 2,926 2,940 Total assets 49,156 42,345 14,401 9,995 8,435 Income statement and balance sheet items, SEK million Operating revenues EBITDA* Profit/loss for the year Cash flow from operating activities 413 883 1,753 971 441 Liquidity 1,378 1,304 1,123 821 1,499 Net borrowing 9,286 7,095 4,605 4,600 3,579 Net borrowing after dilution 9,256 7,050 4,605 4,600 3,542 Investments, including financial leases 1,485 774 1,475 1,941 1,147 Solidity 60% 63% 46% 29% 34% Solidity after dilution 60% 63% 46% 29% 35% Debt/equity ratio 0.31 0.27 0.69 1.57 1.23 6.8% 14.6% 25.2% 19.7% 25.5% Key figures EBITDA margin EBIT margin – 5.4% 3.4% 14.1% 8.6% 12.6% Return on shareholders’ equity 1.4% – 2.4% 78.6% 1.8% 6.9% Return on shareholders’ equity after dilution 1.4% – 2.4% 78.6% 1.8% 6.4% – 3.3% 1.9% 45.2% 6.8% 6.8% Average interest rate 6.3% 4.8% 4.8% 6.6% 7.1% Average interest rate after dilution 6.3% 4.8% 4.8% 6.6% 7.1% Profit/loss after tax 2.70 – 3.47 36.28 0.51 1.32 Profit/loss after tax, after dilution 2.70 – 3.47 36.28 0.51 1.36 Shareholders’ equity 203.56 232.62 64.12 28.24 29.60 Shareholders’ equity after dilution Return on capital employed Value per share (SEK) 203.46 232.74 64.12 28.17 28.42 Cash flow 2.85 7.74 16.88 9.38 4.50 Cash flow after dilution 2.85 7.73 16.88 9.35 4.26 — — — — — 378.00 392.00 598.00 330.00 170.50 Dividends Share price on closing date P/E ratio 139.81 – 112.89 16.48 642.68 128.82 P/E ratio after dilution 140.02 – 113.02 16.48 644.24 125.61 * EBITDA: Operating profit/loss before depreciation/amortization. ** EBIT: Operating profit/loss after depreciation/amortization. 46 Tele2 Annual Report 2001 The Board of Directors and President present the Annual Report for Tele2 AB (publ) company registration number 556410-8917, for fiscal 2001. Report of the directors Tele2 AB’s share is listed on the Stockholmsbörsen (Stockholm Exchange) under the abbreviation TEL2A and TEL2B and on Nasdaq under the abbreviation TLTOA and TLTOB. The ten largest shareholders hold shares at December 31, 2001 corresponding to 44% (2000: 42%) of the capital and 72% (2000: 72%) of the voting rights, of which the Invik Group, Kinnevik Group and Millicom Telecommunications S.A owns 9%, 16% and 10%, respectively, of the capital, and 24%, 20% and 15%, respectively, of the voting rights. Operations Formed in 1993, Tele2 AB is the leading alternative panEuropean telecommunications company, offering fixed and mobile telephony and data network and Internet services under the Tele2, Tango and Comviq brands to 15 million customers in 21 countries. Tele2 operates Datametrix, which specializes in system integration; 3C Communications, which is active in public pay phones and public Internet terminals; Transac, which is engaged in data processing of card transactions and invoices, for example; C3, which provides cash cards for fixed telephony, as well as IntellNet and Optimal Telecom, with “lowest-price guarantee” for households. The Group also offers cable-TV under the Kabelvision brand and, together with MTG, owns the Everyday.com Internet portal. During 2001, the Tele2 Group invested SEK 2,129 million (2000: SEK 1,285 million) in tangible fixed assets. Investments in companies amounted to SEK 1,376 million and sales of participations amounted to SEK 236 million. At the end of 2000, Société Européenne de Communication SA was acquired, which means that SEC is included in the preceding year’s earnings for only one quarter. To facilitate comparison SEK millions 2001 2000 1999 1998 1997 25,085 12,440 8,171 5,918 4,030 ........................................................................................... 1,698 1,820 2,060 1,165 1,026 .................................................................................................. –1,356 420 1,152 506 507 –1,944 165 4,184 219 78 Operating revenue EBITDA EBIT among the years, certain income statement items are reported pro form as if Tele2 AB had owned Société Européenne de Communication SA during all of 2000 (see notes 1–2). Pro forma accounts have not been subject to specific review by the auditors. Tele2 had a total of 15.0 million customers at December 31, 2001, an increase of 29%, and a customer net intake of 3.4 million for full-year 2001. Tele2’s operating revenue in 2001 amounted to SEK 25,085 million (2000: SEK 12,440 million), up 54% compared with SEK 16,243 million, pro forma for all of 2000. Operating profit/loss before depreciation and amortization (EBITDA) amounted to SEK 1,698 million (2000: SEK 1,820 million, pro forma 2000: SEK –371 million), with an EBITDA margin of 7% (2000: 15%, pro forma 2000: –2%). The operating profit/loss after depreciation and amortization (EBIT) was SEK –1,356 million (2000: SEK 420 million, pro forma 2000: SEK –2,850 million), with a EBIT margin of –5% (2000: 3%, pro forma 2000: –18%). Net interest expense and other financial items totaled SEK –621 million (2000: SEK –211 million). The average interest rate on outstanding liabilities was 6.3% in 2001. The profit/loss after financial items amounted to SEK –1,944 million (2000: SEK 165 million). Tax on net profit/loss for the year amounted to SEK 2,335 million (2000: SEK –561 million), which reflects the tax effects of Swedish operations and a tax effect of SEK 3,082 million in connection with the restructuring of SEC. Profit/loss after tax was SEK 392 million (2000: SEK –396 million). Earnings/loss per share were SEK 2.70 (2000: SEK –3.47) after full dilution. Growth and profitability trend in recent years: .................................................................. Profit/loss after financial items ........................................ Profit in 2000 was affected by the acquisition of the SEC Group on October 2, 2000. Profit after financial items for 1999 includes a nonrecurring item of SEK 3,228 million attributable to a capital gain from the sale of the associated company NetCom ASA. Number of customers totaled (Thousands) Dec. 31, 2001 Number of customers Dec. 31, 2000 Change Net intake 2001 802 By market area Nordic 6,274 5,472 15% ................................................................. 996 278 258% 718 ........................................................................................... 3,191 2,702 18% 489 1,344 ............................................................................................................. Eastern Europe and Russia Central Europe Southern Europe ...................................................................................... 4,286 2,942 46% ................................................................................................ 211 160 32% 51 ................................................................................................................ 14,958 11,554 29% 3,404 3,710 2,559 45% 1,151 2,179 1,396 56% 783 ........................................................... 11,248 8,995 25% 2,253 ................................................................................................................ 14,958 11,554 29% 3,404 Luxembourg Total By business area Mobile telephony .................................................................................... of which, prepaid ................................................................................. Fixed telephony and Internet Total As a result of corporate acquisitions in 2001, 166,000 and 130,000 customers, respectively, are attributable to the Fora Group and Levicom Broadband Group, respectively, of which 66,000 are cable-TV customers. Tele2 Annual Report 2001 47 Report of the directors Nordic Operating revenue: SEK 12,366 million (2000: SEK 10,481 million), +18%. EBITDA: SEK 3,768 million (2000: SEK 2,943 million) +28%. The Nordic market area comprises Tele2 operations in Sweden, Norway, Denmark and Finland, as well as Datametrix. Sweden Tele2 Sweden is the largest operation in the Nordic market area. Tele2 Sweden’s operating revenue amounted to SEK 9,060 million in 2001, an increase of 14% compared with the preceding year. EBITDA totaled SEK 3,773 million (2000: SEK 2,728 million), corresponding to an increase of 38%. EBITDA margin was 42% in 2001, compared with 34% in 2000. Operating revenue in mobile telephony rose 20% to SEK 5,720 million and EBITDA rose 41% to SEK 3,111 million, yielding a EBITDA margin of 54% in mobile telephony. During 2001, growth in the number of mobile telephony customers continued, primarily as a result of Tele2’s position as the price-leading operator. Comviq reported 2,532,000 customers, an increase of 21% compared with the preceding year. The average monthly revenue per customer (ARPU), including prepaid customer, was SEK 206 throughout 2001 and SEK 204 during the fourth quarter, despite an increase in the net intake of customers during the last two quarters. Minutes per user and month (MoU) rose during the fourth quarter by 19% to 117 minutes, compared with 98 minutes in the fourth quarter of 2000. Prepaid customers accounted for 65% of the total customer base. In March 2001, Tele2 Sweden signed an agreement to form a joint UMTS network company with Telia. The cooperation is going well and the extension of the network complys to the plan in the licens application. In October, Tele2 GPRS was launched in Sweden. Customer net intake in fixed telephony and Internet was strong, with the customer base increasing 17% on an annual basis to SEK 2.1 million, at the same time as EBITDA margin reached 21% for all of 2001, compared with 17% in the preceding year. In September, Tele2 Sweden presented a plan for costsavings programs involving the streamlining of the product range and a reduction in the Swedish workforce of some 7%. The plan offers estimated savings of SEK 80 million annually. Denmark, Finland and Norway Combined, Denmark, Finland and Norway have 1.7 million customers. All business areas reported growth and market conditions improved during the year. In September, Tele2 Norway took over Entitel AS’ customers in fixed (pre-selection) and dial-up Internet at a low cost per customer. The mobile market in Norway underwent consolidation in 2001. At the beginning of the year, there were 17 mobile telephony providers, but by the end of the year only four remained. Consolidation considerably strengthened Tele2’s position in Norway. Tele2 has a UMTS license in Norway and is currently negotiating conditions for the extension of the network with the Norwegian telecommunication authority, at the same time as Tele2 is reviewing various courses of action. In Denmark, during the course of 2001, Tele2 was the sole alternative in fixed telephony and Internet to compete with the former monopoly TDC (former name Tele Danmark). Several competitors ceased to sell fixed telephony and Internet services to households, thus marking the end of an intensively competitive period. 48 Tele2 Annual Report 2001 Eastern Europe and Russia Operating revenue: SEK 1,181 million (2000: SEK 261 million), +352%. EBITDA: SEK 272 million (2000: SEK –29 million). Eastern Europe and Russia comprise operations in Estonia, Latvia, Lithuania, Poland, the Czech Republic and Russia. Revenue derives primarily from mobile telephony operations, which expanded sharply in 2001. In December 2001, Tele2 acquired the Fora Group in Russia. Fora operates twelve mobile telephony units and reaches a population of 48 million. Prepaid cards were the major growth generator during 2001. Prepaid cards now account for 53% of the customer base. In December, Tele2 also acquired the OU Levicom Broadband Group, with cable-TV and fixed telephony in the Baltic States. Tele2 is the leading alternative mobile telephony operator in the Baltic States. Central Europe Operating revenue: SEK 5,364 million (pro forma 2000: SEK 3,108 million), +73%. EBITDA: SEK –606 million (2000 pro forma: SEK –1,640 million). Central Europe comprises operations in Germany, the Netherlands, Switzerland and Austria. EBITDA improved considerably during the past five quarters. This is due to the fact that operations have now matured and are moving towards a positive EBITDA within three years from the start of operations. ARPU was strong during the year and amounted to SEK 158 during the fourth quarter, compared with SEK 130 for the corresponding period in 2000. Tele2 is the largest alternative operator in the Netherlands. In August Tele2 became the first MVNO (Mobile Virtual Network Operator) in the Netherlands. Fixed telephony operations in Germany benefited from consolidation in the market, as a result of which a number of competitors were either integrated into larger units or faded from the market. Call traffic increased substantially. Tele2 has a distinct position in the market and the brand is known to more that 50% of all Germans. In December Tele2 signed an MVNO agreement in Germany, which permits the sale of mobile telephony services to more than a million of the company’s private and corporate customers in fixed telephony. As a result, Tele2 can build a mobile telephony operations at low marginal cost in the largest market in Europe. Tele2 is the second largest alternative operator in Switzerland. In Austria, Tele2 is the largest alternative operator in fixed telephony. As a result of the large percentage of preselection customers, traffic volume per customer rose sharply in both countries during 2001. Southern Europe Operating revenue: SEK 5,591 million (pro forma 2000: SEK 2,574 million), +117%. EBITDA: SEK –1,331 million (pro forma 2000: SEK –1,276 million). Southern Europe comprises operations in France, Italy and Spain as well as a license in Portugal. Southern Europe reported a very good year in 2001, as increased marketing contributed to attracting many new customers to Tele2, notably during the two final quarters of the year. ARPU in Southern Europe was strong and amounted to SEK 125 for the year as a whole, and to SEK 127 for the fourth quarter, compared with SEK 113 for the corresponding period in 2000. Report of the directors Tele2 in France is the largest alternative fixed telephony operator nationwide. Consolidation in the French market in 2001 entailed that France Telecom, Tele2 and Cegetel are the only major operators remaining in the market. Local calls will be opened to competition in all regions in France between February and April 2002. This means that revenue per customer will increase without any cost increases for Tele2. On January 1, 2002, interconnection charges were reduced, which will also contribute to improving gross margins. Tele2 is Italy’s second largest alternative operator in fixed telephony. A sharp increase in the customer base contributed to raising brand recognition to more than 70%. During 2001, Tele2 established a position as the price-leading operator. In February 2001, Tele2 launched fixed telephony in Spain. The network in Spain is IP-based with CISCO switches. The services consist exclusively of pre-paid fixed telephony. Tele2’s first year was successful and the company is already one of the four largest operators. Luxembourg Operating revenue: SEK 786 million (pro forma 2000: SEK 573 million), +37%. EBITDA: SEK 5 million (pro forma 2000: SEK –110 million). The Luxembourg market area comprises operations in Liechtenstein, Luxembourg and Belgium, as well as all of 3C’s operations in the various countries. Tango is the largest mobile supplier in Luxembourg. During 2001, traffic rose sharply. SMS traffic almost doubled. In February 2001, Everyday Media launched the Tango Sunshine radio station in Luxembourg. This focuses on a young target group and offer the possibility for cross-selling by Tango Sunshine assisting in marketing Tele2’s products and services, especially SMS services. Tango TV was launched in December. Radio and TV operations are primarily designed to strengthen the brand and act as a supplier of content services for the UMTS network. Branded products & services Operating revenue: SEK 1,576 million (pro forma 2000: SEK 789 million), +100%. EBITDA: SEK –410 million (pro forma 2000: SEK –259 million). Branded products &services comprise Optimal Telecom, Tele2 UK and C3, Everyday.com and IntelliNet in all countries in which these companies pursue operations. Optimal Telecom and C3 account for most of the revenue. In November, Tele2 commenced cooperation with the Post Office in the UK, which means that Tele2’s telephone card and fixed telephony services will be sold in the UK. Acquisitions and sales On December 2001, Tele2 acquired all the shares in Fora Telecom BV in exchange for newly issued shares in Tele2 AB, corresponding to a value of SEK 849 million. The acquisition resulted in goodwill of SEK 86 million. Fora Telecom BV has twelve mobile telephony operations in Russia and reaches a population of 48 million. On December 31, 2001, a subsidiary in the Tele2 Group acquired the remaining 81% of OU Levicom Broadband for SEK 153 million, resulting in goodwill of SEK 167 million. OU Levicom Broadband is a cable-TV and broadband company, as well as a fixed telephony operator in the Baltic States. In January 2001, Tele2 AB sold its 37.5% shareholding in Transcom Worldwide S.A., an associated company in Société Européene Communication S.A. Group, which was acquired during 2000, to Industriförvaltnings AB Kinnevik at a value of SEK 235 million and with a capital gain of SEK 91 million. The purchase price was based on the share price 60 trading days after Transcom was listed on the Stockholmsbörsen (Stockholm Exchange). New bank financing During the second half of 2001, Tele2 signed a five-year new amortizing senior debt facility of EUR 1.2 billion, guaranteed by ABN Amro, CIBC World Markets, ING Bank, Nordea, The Royal Bank of Scotland and West LB. The five-year bankfinancing program with amortization replaces two previous credit facilities in Tele2 Sweden and SEC. Future prospects A significant development in 2001 was that interconnection charges were reduced or are planned to be reduced in the immediate future in several of the markets in which Tele2 is active. Interconnection charges are the fees paid by a telecom operator for gaining access to copper wire connecting the exchanges with households. Since Tele2 has otherwise low infrastructure costs, reductions in interconnection charges will have highly positive effects. Another positive trend during the past year was that several countries introduced number portability – or plan to do so in the near future. Number portability means that customers can retain their mobile telephone number although they switch operator, which simplifies the change of operator. Number portability has already been introduced in Sweden and is due to be introduced in Switzerland, Germany and the Netherlands. Pre-selection for local calls is also spreading. This means that Tele2 can now also reach the attractive local call market, marking the opening up of major potential. At the beginning of 2002, local pre-selection was introduced in Sweden and towards the close of the year, the Netherlands, Switzerland, Austria and Germany will introduce local pre-selection. Significant events after the end of the financial year No events occurred after the end of the financial year that have a significant impact on the company’s earnings or financial position or lead executive management to expect anything other than continuing favorable growth in market areas. Work of the Board of Directors The work of the Board of Directors follows an annual plan, designed to secure the Board’s need for information and in other respects is affected by the specific work procedure that has been adopted for the Board’s work. Matters placed before the Board are dealt with by the entire Board. In 2001, Tele2’s Board of Directors held nine meetings at which minutes were taken. Specific instructions governing the President’s responsibilities and authority were adopted. Each year, the company’s auditors report to the Board the result of their examination and provide their assessment of internal control. Tele2 Annual Report 2001 49 Report of the directors Parent Company The Parent Company performs functions and conducts certain development projects common to the Group. Earnings in the preceding year included liquidation of an option provision of SEK 201 million. A liquidation loss arose in Tele2 AB during the fourth quarter amounting to SEK –13,964 million in conjunction with the restructuring of SEC SA, which resulted in a positive tax effect of SEK 3,082 million. During the fourth quarter, Tele2 AB acquired the Fora Group through a new issue of 2,461,449 B shares, which affected shareholders’ equity by SEK 849 million. Tele2 AB also newly issued 100,000 B shares at December 31, 2001, pertaining to a convertible debenture. The effect on shareholders’ equity was SEK 15 million. The latter issue is being registered with the Swedish Patent and Registration Board (PRV). 50 Tele2 Annual Report 2001 Proposed appropriation of loss The Group’s non-restricted reserves amount to a deficit of SEK –6,961 million. No allocation to restricted reserves is proposed for companies within the Group. The Board of Directors and President propose that the ackumulated loss of SEK –7,386,856,726, be covered by a withdrawal of the same amount from the share premium reserve. Income statement R Group SEK M Note Operating revenue ..................................................................................... 1 Cost of services sold ............................................................................ 2001 Parent Company 2000 2001 2000 25,085 12,440 12 8 – 17,715 7,370 – 8,078 4,362 — 12 — 8 – 6,652 – 2,188 – 3,499 – 797 — – 73 — – 54 — 189 – 75 229 212 – 87 — 4 — 201 — — 2 – 1,356 420 – 57 155 Profit/loss on associated companies: Result from participations in associated companies ........................................................... 5 Sale of associated companies ...................................................... 6 – 58 91 – 44 — — — 2 — – 13,964 103 Gross profit .............................................................................................. Selling expenses ..................................................................................... Administrative expenses ................................................................... Executive options ................................................................................... Other operating revenue ................................................................. 3 Other operating expenses .............................................................. 4 Operating profit/loss ...................................................................... Profit/loss on financial investments: Result from participations in Group companies .......... 7 Result from other securities and receivables classed as fixed assets .......................... 8 Other interest revenue and similar income ..................... 9 Interest expenses and similar costs ......................................... 10 4 65 – 690 6 57 – 274 64 14 – 15 62 — –2 – 1,944 165 – 13,958 320 2,335 – 561 3,076 – 69 1 — 392 – 396 – 10,882 251 Earnings/loss per share ..................................................................... 25 Earnings/loss per share after full dilution ......................... 25 SEK 2.70 SEK 2.70 SEK – 3.47 SEK – 3.47 Number of shares ................................................................................. 25 Average number of shares ............................................................. 25 Number of shares after dilution ............................................... 25 Average number of shares after dilution ........................... 25 147,360,175 145,003,847 147,560,175 145,223,466 144,798,726 114,087,366 145,098,726 114,224,866 Profit/loss after financial items .......................................... Tax on profit for the year ................................................................ 11 Minority interest ..................................................................................... Profit/loss for the year .............................................................. Tele2 Annual Report 2001 51 Balance sheet B Group SEK M Note ASSETS Fixed assets Intangible assets Licenses and right of use ................................................................ 12 Goodwill ........................................................................................................ 12 Total intangible assets ............................................................................ Tangible assets Buildings and land ............................................................................... 13 Machinery and other technical plant ................................... 13 Equipment, tools and installations .......................................... 13 Fixed plant under construction .................................................. 13 Total tangible assets ................................................................................ Long-term financial assets Participations in Group companies ......................................... 14 Receivables from Group companies ....................................... 15 Shares and participations in associated companies ........................................................... 16 Receivables from associated companies ............................. 17 Other long-term holdings of securities ............................... 18 Other long-term receivables ....................................................... 19 Deferred tax receivable .................................................................... 11 Total long-term financial assets ....................................................... Dec. 31, 01 Dec. 31, 00 736 27,033 27,769 607 26,745 27,352 — — — — — — 124 99 — — 8,270 687 350 9,431 7,226 564 142 8,031 — — — — — — 1 1 1,987 12,526 24,488 1,028 88 105 146 106 — 445 — 115 5 — 2,656 17,289 — 67 23 46 168 25,820 39,590 35,828 17,289 25,821 362 246 — — 362 246 — — 3,624 6 2,454 5 — — — — 530 2,769 6,929 298 2,003 4,760 2 2 1 5 1 — 1 2 2,275 1,511 8 7 .......................................................................... 9,566 6,517 13 9 ............................................................................................... 49,156 42,345 17,302 25,830 ............................................................................... Current assets Materials and supplies Finished goods and merchandise ............................................ Total materials and supplies .............................................................. Current receivables Accounts receivable ............................................................................. 20 Current tax receivables ...................................................................... Receivables from Group companies ....................................... Other receivables ................................................................................... 21 Prepaid expenses and accrued revenues ........................... 22 Total current receivables ................................................................... Cash and cash equivalents Total current assets 52 Dec. 31, 00 224 115 202 85 1,764 2,390 Total fixed assets Total assets Parent Company Dec. 31, 01 .................................................................. Tele2 Annual Report 2001 23 Balance sheet B Group SEK M Note Parent Company Dec. 31, 01 Dec. 31, 00 Dec. 31, 01 Dec. 31, 00 737 35,741 36,478 724 25,098 25,822 737 23,935 24,672 724 23,083 23,807 Non-restricted reserves/accumulated losses Non-restricted reserves/accumulated losses ..................... Profit/loss of the year ......................................................................... Total non-restricted reserves/accumulated losses ................. – 7,353 392 – 6,961 1,113 – 396 717 3,495 – 10,882 – 7,387 1,732 251 1,983 Total shareholders’ equity 29,517 26,539 17,285 25,790 — — 1 1 EQUITY AND LIABILITIES Shareholders’ equity 24 Restricted equity Share capital .............................................................................................. 25 Restricted reserves ................................................................................ Total restricted equity ............................................................................ ........................................................ Untaxed reserves Foreign exchange reserve ............................................................... Total untaxed reserves ................................................................. 28 8 — — 571 571 — — — — 10,843 5,490 14 115 10,972 14 86 5,590 — — — — — — — — — — 8 8 25 25 — — — — 10,980 5,615 — — Current liabilities Interest-bearing Liabilities to financial institutions ............................................ 26 Other liabilities ........................................................................................ 27 Total interest-bearing liabilities ........................................................ 731 151 882 2,682 546 3,228 — — — 21 3 24 Non-interest-bearing Accounts payable ................................................................................... Current tax liabilities ........................................................................... Liabilities to associated companies ......................................... Other liabilities ........................................................................................ 28 Accrued expenses and prepaid revenues ........................... 29 Total non-interest bearing liabilities .............................................. 3,344 16 — 375 4,014 7,749 2,546 27 60 322 3,429 6,384 10 — — — 7 17 6 — — 1 8 15 Total current liabilities 8,631 9,612 17 39 49,156 42,345 17,302 25,830 24,139 None 1,195 None None 15,133 None 334 Minority interest ................................................................................ Provisions Deferred tax liability ........................................................................... 11 Total provisions .................................................................................... Long-term liabilities Interest-bearing Liabilities to financial institutions ............................................ 26 Liabilities to Group companies ................................................... Bank overdraft facility ........................................................................ 23 Other liabilities ........................................................................................ 27 Total interest-bearing liabilities ........................................................ Non-interest-bearing Other liabilities ........................................................................................ Total non-interest-bearing liabilities .............................................. Total long-term liabilities .......................................................... .................................................................. Total shareholders’ equity and liabilities .................. PLEDGED ASSETS AND CONTINGENT LIABILITIES Pledged assets ...................................................................................... 30 Contingent liabilities ...................................................................... 31 Tele2 Annual Report 2001 53 Cash flow statement B Group SEK M Note Operating activities Operating profit/loss ........................................................................... Adjustments of income/expense items that do not generate cash flow from operating activities: Depreciation and amortization ............................................ Capital losses/gains on sale of machinery, other technical plant ................................. Financial leases ................................................................................. Exchange rate differences ............................................................... Interest received ..................................................................................... Interest paid ............................................................................................... Financial expenses paid ................................................................... Tax refund .................................................................................................... Change in working capital Materials and supplies ...................................................................... Accounts receivable ............................................................................. Other current receivables ................................................................ Prepaid expenses and accrued revenues ........................... Intra-Group transactions, current .............................................. Accounts payable ................................................................................... Other current liabilities ..................................................................... Accrued expenses and prepaid revenues ........................... Provisions ..................................................................................................... Cash flow provided by operating activities Investing activities Acquisition of intangible fixed assets .................................... Sale of intangible fixed assets ..................................................... Acquisition of tangible fixed assets ........................................ Sale of tangible fixed assets ......................................................... Acquisition of shares in Group companies, exc. cash ... 14 Acquisition of other long-term securities ............................. Sale of other long-term securities ......................................... Lending to Group companies ...................................................... Payment received from Group companies ....................... Other long-term lending ................................................................. Payment received from other long-term lending ....... Cash flow from investing activities ................................. 32 Financing activities Raising of loans from credit institutions ............................ Amortization of loans from credit institutions ............... Raising of other interest-bearing liabilities ...................... Amortization of other interest-bearing liabilities ........ Amortization of loans from Group companies .............. New share issue ...................................................................................... Cash flow from financing activities ................................ Net change in cash ......................................................................... Liquid funds at beginning of year .......................................... 23 Adjustment for exchange rate differences in liquid funds ...................................................... 23 Liquid funds at end of year* ............................................... 23 * Of which, blocked funds ............................................................ 23 For additional cash flow information, refer to Note 32. 54 Tele2 Annual Report 2001 Parent Company 2001 2000 2001 2000 – 1,356 420 – 57 155 3,054 1,400 — 1 40 – 14 — 54 – 569 – 55 7 1,161 16 – 13 –5 61 – 280 – 16 –9 1,574 — — — 4 – 14 –1 — – 68 — — 2 — –2 3 — 159 – 66 – 837 – 69 – 851 – 25 – 79 – 51 – 448 566 112 397 — – 748 105 100 – 57 – 236 – 691 — — –2 — –2 3 — –1 — –2 — 1 — — 3 5 — – 17 – 236 – 244 413 883 – 70 – 85 – 17 — – 2,167 38 831 – 334 236 – 228 3 – 1,386 101 843 –1 — – 103 49 – 1,467 – 103 1 – 770 — — — 1 – 36 – 75 — – 52 313 – 71 — 80 — — –1 — – 61 — — – 137 461 – 94 1 169 12,139 – 9,861 342 – 842 2,446 – 787 — – 575 15 1,793 37 1,121 1,285 – 1,306 203 – 206 — 15 –9 — – 116 — –3 –2 37 – 84 739 1,234 1 — 1,511 421 7 7 25 2,275 – 144 1,511 — 8 — 7 897 434 — — Notes (SEK M) General accounting principles and changes in 2001 The annual report has been prepared in accordance with the Annual Accounts Act and recommendations of the Swedish Financial Accounting Standards Council. In 2001, Tele2 modified its accounting principles to conform to recommendation RR18 “Earnings per share” and RR20 “Interim reports”. The new recommendations have no significant impact on Tele2’s financial reporting. This means that Tele2 conforms to recommendations RR1:00–RR21. During 2001, Tele2 changed its accounting principles for call “pots” in mobile telephony (IQ Spar). IQ Spar has been reclassified from having been regarded as revenue for subscription charges, which are accrued over the subscription period, to being viewed as traffic revenue and thus accrued in pace with customer calls. Figures for prior years have been recalculated in accordance with the new accounting principle (see also note 24). Overall, the change has not had a significant effect for the Group. Assets and liabilities in subsidiaries are valued based on the accounting principles applied by the Parent Company. Consolidated accounts The consolidated financial statements include the accounts of the Parent Company and all companies in which the Parent Company, directly or indirectly, controls more than 50% of the votes, or in some other respect has a determining influence. The consolidated accounts were prepared based on the purchase method, which means that the Parent Company’s purchase cost of shares in each subsidiary is charged against that subsidiary’s acquisition value, that is, the subsidiary’s shareholders’ equity (including the equity component of untaxed reserves) at the time of acquisition based on a market appraisal of the subsidiary’s net assets. Consequently, the Group’s shareholders’ equity includes only that part of each subsidiary’s equity that has been earned after the acquisition. The difference between the purchase cost of shares in a subsidiary and the market value of that subsidiary’s net assets at the time of acquisition is allocated to the subsidiary’s identifiable assets if the book values were less than the market values. Any amounts in book value exceeding market value are reported as goodwill. The current method is used to translate the accounts of foreign subsidiaries. Consequently, the exchange rate on the closing date (year-end rate) is used to translate items in the balance sheet, while items in the income statement are translated using the average exchange rate for the year (average rate). All non-Swedish companies in the Tele2 Group are regarded as independent foreign operations since they conduct independent operations and operations that are pursued with transactions in local currency, so that exchange rate differences arising from translation are charged directly to shareholders’ equity. When an independent foreign operation is divested, the accumulated exchange rate differences attributable to the divested operation are reported in “Net assets in Group companies divested” in the income statement. Accounting for associated companies Companies in which the shareholding is regarded as longterm and in which the Group’s voting rights amount to a minimum of 20% and a maximum of 50%, or in which the management believes that the shareholders have equal control, are treated as associated companies. Associated companies are reported in accordance with the equity method. This means that the book value of the shares in the associated company that is reported in the consolidated financial statements corresponds to the Group’s share in the equity of the associated company and any residual value of consolidated surplus values after adjustment to the consolidated accounting principles. Participation in earnings after net financial items of the associated company are reported in the income statement in the item “Result from participations in associated companies” along with amortization of acquired surplus values. The share of associated companies’ tax expense and deferred tax expense/income is reported in the income statement in the item “Tax on profit for the year” and in the balance sheet as “Participations in associated companies”. Earnings accrued in associated companies arising after the acquisition date, and which have not yet materialized through dividends, are allocated to the equity method reserve, which comprises part of restricted shareholders’ equity in the Group. The equity share reduces unrestricted shareholders’ equity in the event of losses. In the event of an increase or decrease in the Group’s equity share in associated companies through share issues, the loss or gain is reported in the consolidated income statement in the item “Profit/loss from participations in associated companies”. If the non-recurring effect is significant, the amount is reported in the item “Items affecting comparability”. Group surplus values relating to foreign associated companies are reported as assets in foreign currencies. These values are translated in accordance with the same principles as the income statements and balance sheets for associated companies. Minority interests The minorities’ share in net earnings and shareholders’ equity is reported as minority interest. Receivables and liabilities of Swedish and non-Swedish subsidiaries denominated in foreign currencies The receivables and liabilities of Group companies denominated in foreign currencies have been translated into Swedish kronor applying the year-end rate. Gains or losses on foreign exchange in international transactions related to regular operations are included in the income statement under “Other operating revenues” and “Other operating expenses”, respectively, while differences in financial receivables and liabilities are reported among financial items. Note 24 summarizes the exchange rate differences charged directly to shareholders’ equity and the differences that affected profit/loss for the year. Long-term lending to/borrowing from Tele2’s foreign operations is regarded as a permanent part of the Parent Company’s financing of/borrowing from foreign operations, and thus as an expansion/reduction of the Parent Company’s investment in the independent foreign operation, the lending/borrowing is translated at the historical rate of exchange if the borrowing is denominated in the foreign company’s currency. Valuation principles Assets and liabilities have been valued at their purchase cost unless otherwise specified. Fixed assets Intangible and tangible fixed assets are reported net after deductions for accumulated amortization and depreciation Tele2 Annual Report 2001 55 Notes according to plan. Depreciation and amortization according to plan are based on the acquisition value of the assets and the estimated utilization period. Note 2 presents depreciation and amortization schedules for fixed assets and reasons for amortizing certain intangible fixed assets over utilization period longer than five years. Materials and supplies Inventories of materials and supplies are valued at the lower of purchase cost and market value. Intangible assets Capitalized license fees and right of use The Company holds a number of licenses issued by the Swedish National Post and Telecom Agency and the equivalent licensing authority in other countries. Capitalized expenses for these rights are amortized over the duration of the contract. Liquid funds Liquid funds consists of cash and bank balances as well as current investments with a maturity of a maximum three months. Liquid funds according to the cash flow statement and balance sheet include blocked bank accounts. Goodwill Goodwill is defined as the difference between the purchase cost of shares or assets acquired and the market value of net assets. Goodwill is amortized on a straight-line basis over 5–20 years. Tangible assets Machinery and technical plant Machinery and technical plant includes equipment and machines intended for use in operations, such as network installations. The asset is written off on a straight-line basis over the utilization period. The acquisition value includes direct expenses attributable to the construction and installation of networks. Interest directly relating to acquisition, construction or production of an asset that necessarily requires considerable time to complete for the intended application is included in the acquisition value of the asset. Additional expenses for extensions and improvements that increase value are capitalized, while additional expenses for repairs and maintenance are charged continually to income during the period in which they arise. Equipment, tools and installations Equipment comprises assets used in administration, sales and operations. Proprietary software for internal use Tele2 capitalizes certain direct development costs attributable to software for internal use. These are written off over the period of use, which commences when the asset is ready for application. Costs attributable to the project phase in planning stage as well as costs for maintenance and training are expensed as they arise. Leasing Leases are classified as either financial or operating leases. A lease is considered financial if all economic risks and benefits associated with ownership of the asset have been transferred, to a material degree, to the lessee; otherwise, the lease is an operating lease. In the case of financial leases as reported in the consolidated financial statements, each asset is entered as a tangible fixed asset, and a corresponding amount is entered as a loan on the liability side of the balance sheet. In the income statement, the cost of the lease is divided into a depreciation portion and an item in interest expense. The asset is written off on a straight-line basis over the utilization period. 56 Tele2 Annual Report 2001 Receivables Receivables are reported in the amount expected to be paid. Revenue recognition Revenue from telephony, cable-TV and other services and products is recognized at the time the service/product is supplied to the customer. Marketing expenses Expenditure for advertising and other marketing activities is charged on an ongoing basis. Estimates and approximations Some items in the consolidated accounts are based on estimates and approximations. Actual results could differ from those estimates. Corporate income tax Consolidated profit or loss for the year is charged with the tax on taxable income for the year (“Current tax”) and with estimated tax charges or credits for temporary differences (“Deferred tax”). A temporary difference is a provision to appropriations made by an individual company or any other item that merely alters the time when an item is considered taxable or entitling the company to a deduction. The calculation of deferred tax receivables (assets) in the Group has taken into account the Group’s loss carry-forwards to the extent that it is expected they can be used in the foreseeable future. Deferred tax receivables and deferred tax liabilities are netted only among units with the same domicile for tax purposes. The tax effects of Group contributions paid and received are reported in the individual companies as a tax expense or tax revenue in the income statement (“Current tax”) and charged to retained losses or earnings. Earnings/loss per share Earnings/loss per share after dilution is calculated according to a method in which the present value of the exercise price of the convertibles is assumed to be used to acquire shares at the average market value during the accounting period. If the result for the year is negative, the calculation is not affected by this, since the dilution may not affect the loss per share. Notes Number of employees 2001 2000 Average number of employees Group: Nordic .................................................................................................................................................. of whom men total of whom men 1,126 70% 1,192 72% ...................................................................................................... 602 49% 460 43% ................................................................................................................................ 122 61% 29 59% ........................................................................................................................... 81 65% 16 63% .................................................................................................................................... 189 83% 40 50% Eastern Europe and Russia Central Europe Southern Europe Luxembourg total ................................................................................................. 52 73% 10 80% ........................................................................................................................ 2,172 65% 1,747 64% Branded products & services Total per market The average number of employees in the Parent Company is two persons (2000: 2). Both are men. The average number of employees in companies acquired during the year is reported in relation to how long the subsidiary was included in the Group. Société Européene de Communication S.A. Group was acquired on October 2, 2000. Personnel costs 2001 Salaries and remuneration Social security expenses 2000 of which pension expenses Salaries and remuneration Social security expenses of which pension expenses Group: Board and President .................... 52 13 3 18 9 2 ............................. 870 254 50 563 215 36 ....................................... 922 267 53 581 224 38 .................... 11 4 2 7 3 1 ............................. 2 1 — 2 1 — 13 5 2 9 4 1 Other employees Total Group Parent Company: Board and President Other employees Total Parent Company ............. Salaries and remuneration in companies acquired during the year are reported in relation to how long the subsidiary was included in the Group. Société Européene de Communication S.A. Group was acquired on October 2, 2000. Defined-contribution pension commitments in which the company does not assume risk on the pay-out date for the pension apply in Sweden, Norway, Austria, Italy, Luxembourg and UK. Pension costs for this amounted to SEK 50 million in 2001 (2000: SEK 37 million). Defined-benefit pensions in which the company assumes the risk and liability for the pension commitment on the pension pay-out-date apply in Denmark, Finland and Switzerland. The pension cost in this respect amounted to SEK 5 million in 2001 (2000: SEK 1 million). Tele2 Annual Report 2001 57 Notes Board and President Group: Nordic 2001 2000 Salaries and remuneration Salaries and remuneration of which, bonuses other employees Board and President of which, bonuses other employees 22 2 539 14 1 472 .................................. 5 — 78 1 — 45 Central Europe ............................................................. 6 — 63 1 — 14 Southern Europe ........................................................ 3 1 50 1 1 8 ................................................................. 9 — 104 — — 18 .............................................................................. Eastern Europe and Russia Luxembourg .............................. 7 1 36 1 — 6 ..................................................... 52 4 870 18 2 563 Branded products & services Total per market During the year, and in addition to the above remuneration, provision of SEK 15 million (2000: SEK 12 million) was made for bonuses to senior executives in the Group as well as social security expenses of SEK 5 million (2000: SEK 4 million). The distribution of the amount will be set in 2002. The Chairman of the Board of Tele2 AB, Jan Hugo Stenbeck, received remuneration in 2001 from the Group in the form of Board fees of SEK 0.3 million (2000: SEK 0.3 million). Remuneration for other Board members was paid in the amount of SEK 1.8 million (2000: SEK 1.5 million). The President of Tele2 AB, Lars-Johan Jarnheimer, received salary and remuneration from Tele2 AB amounting to SEK 7.6 million (2000: SEK 5.1 million), as well as a bonus of SEK 1.6 million. Pension premiums were paid for the President in Tele2 AB in an amount corresponding to 20% of the total salary and remuneration received. In the case of other senior executives, pension is based on the public pension plan. In the event of dismissal by the Group, the period of notice is a minimum six months and a maximum 18 months in the case of the President of Tele2 AB and a minimum of six months and a maximum of 18 months for other senior executives. No other redundancy payments are paid on the termination of employment to Group executives other than salary compensation as above. In 1997, it was decided to conduct an incentive program for senior executives at Tele2 Group. Of the original option of 500,000 Series B shares in Tele2 AB, convertible debentures pertain to 48,000 Series B shares for the President, Lars-Johan Jarnheimer. Auditors Group Parent Company 2001 2000 2001 2000 PricewaterhouseCoopers: Audit assignments ............................................................................... 18 3 1 — Other assignments ............................................................................... 13 6 8 6 31 9 9 6 Other auditors: Audit assignments ............................................................................... 1 — — — Other assignments ............................................................................... 3 1 2 — 4 1 2 — 35 10 11 6 Total fees and reimbursement ............................................... Audit assignments refer to the evaluation of the annual report and bookkeeping records as well as the administration by the President and Board of Directors. All other work is other assignments. U.S. generally accepted accounting principles (US GAAP) The consolidated balance sheet and income statements have been updated in accordance with Swedish accounting principles. These differ in certain respects from U.S. accounting principles (US GAAP). Note 33 shows the adjustments required for compliance with US GAAP. 58 Tele2 Annual Report 2001 Notes Note 1 Operating revenue Market area split by business areas: Operating revenue Group: 2001 Pro forma 2000 2000 Nordic: Mobile telephony 6,029 4,800 4,800 ............................................................................................................. 5,886 5,294 5,294 ....................................................................................................................................................... 171 190 190 Data processing .......................................................................................................................................... 280 197 197 12,366 10,481 10,481 222 .................................................................................................................................... Fixed telephony and Internet Cable-TV Total, Nordic ............................................................................................................................................ Eastern Europe and Russia: 1,094 222 ............................................................................................................. 34 5 5 ........................................................................................................................................ 53 34 34 1,181 261 261 Mobile telephony .................................................................................................................................... Fixed telephony and Internet Data processing Total, Eastern Europe and Russia .............................................................................................. Central Europe: 25 8 4 ............................................................................................................. 5,339 3,100 1,014 Total Central Europe ............................................................................................................................. 5,364 3,108 1,018 Mobile telephony...................................................................................................................................... Fixed telephony and Internet Southern Europe: ............................................................................................................. 5,591 2,574 882 ..................................................................................................................... 5,591 2,574 882 .................................................................................................................................... 74 Fixed telephony and Internet Total, Southern Europe Luxembourg: 471 315 ............................................................................................................. 211 181 50 ........................................................................................................................................ 104 77 37 786 573 161 Mobile telephony Fixed telephony and Internet Data processing Total, Luxembourg .............................................................................................................................. Branded products & services: 17 — — 1,559 789 496 .......................................................................................... 1,576 789 496 Intra-Group sales ...................................................................................................................................... – 1,779 – 1,543 – 859 Total by market ..................................................................................................................................... 25,085 16,243 12,440 Mobile telephony .................................................................................................................................... Fixed telephony and Internet ............................................................................................................. Total, Branded products & services Operating revenue Group: 2001 Mobile telephony 2000 7,636 5,345 5,100 ............................................................................................................. 18,620 11,943 7,741 ....................................................................................................................................................... 171 190 190 .................................................................................................................................... Fixed telephony and Internet Cabel-TV Pro forma 2000 Data processing ........................................................................................................................................ 437 308 268 Intra-Group sales ...................................................................................................................................... – 1,779 – 1,543 – 859 25,085 16,243 12,440 Total by business area ....................................................................................................................... During 2001, the change in accounting principles for “IQ Spar” – a prepaid call-time program – resulted in a back-dated reduction of operating revenue of SEK 30 million, and a decline of SEK 21 million in EBIT for the 2000 financial year, which is attributable to mobile telephony in the Nordic market area. Operating revenue in the Parent Company relates entirely to sales to other Group companies. Tele2 Annual Report 2001 59 Notes Note 2 Depreciation/amortization for the year and operating profit Market area split by business areas: EBITDA* Depreciation/Amortization 2001 2000 Pro forma 2000 Group: 2001 EBIT** 2000 2001 2000 1,950 Nordic: Mobile telephony 2,917 2,237 2,237 – 354 – 287 2,563 ................. 847 667 667 – 484 – 501 363 166 ........................................................... – 11 26 26 – 72 – 63 – 83 – 37 ........................................ Fixed telephony and Internet Cabel-TV ............................................ 15 13 13 –3 – 14 12 –1 ................................................ 3,768 2,943 2,943 – 913 – 865 2,855 2,078 Data processing Total, Nordic Eastern Europe and Russia: Mobile telephony ........................................ Fixed telephony and Internet Data processing ................. ............................................ Total, Eastern Europe and Russia .. 320 – 14 – 14 – 244 – 47 76 – 61 – 56 – 24 – 24 – 23 –6 – 79 – 30 8 9 9 – 11 –6 –3 3 272 – 29 – 29 – 278 – 59 –6 – 88 Central Europe: Mobile telephony – 21 1 1 –3 –1 – 24 — ................. – 585 –,1 641 – 501 – 98 – 10 – 683 – 511 ............................... – 606 – 1,640 – 500 – 101 – 11 – 707 – 511 ........................................ Fixed telephony and Internet Total Central Europe Southern Europe: ................. – 1,331 – 1,276 – 331 – 96 –5 – 1,427 – 336 ......................... – 1,331 – 1,276 – 331 – 96 –5 – 1,427 – 336 Fixed telephony and Internet Total, Southern Europe Luxembourg: Mobile telephony 101 88 6 – 65 – 14 36 –8 ................. – 61 – 192 – 98 – 48 –5 – 109 – 103 ............................................ – 35 –6 1 –5 — – 40 1 5 – 110 – 91 – 118 – 19 – 113 – 110 ........................................ Fixed telephony and Internet Data processing Total, Luxembourg .................................. Branded products & services: Mobile telephony ................. Total, Branded products & services Group depreciation Total by market – 22 — — — –2 – 22 –2 – 388 – 259 – 172 – 36 – 16 – 424 – 188 – 410 – 259 – 172 – 36 – 18 – 446 – 190 – 1,512 – 423 – 1,512 – 423 1,698 – 371 1,820 – 3,054 – 1,400 – 1,356 420 ........................................ Fixed telephony and Internet ..................................... ......................................... EBITDA* 2001 Group: 2001 2000 EBIT** 2001 2000 3,295 2,312 2,230 – 666 – 351 2,629 1,879 – 1,574 – 2,725 – 459 – 785 – 543 – 2,359 – 1,002 ........................................................... – 11 26 26 – 72 – 63 – 83 – 37 – 12 16 23 – 19 – 20 – 31 3 – 1,512 – 423 – 1,512 – 423 – 3,054 – 1,400 – 1,356 420 Data processing ........................................ ............................................ Group depreciation ..................................... Total by business area ........................... 1,698 – 371 * EBITDA: Operating profit/loss before depreciation and amortization. ** EBIT: Operating profit/loss after depreciation and amortization. 60 Depreciation/Amortization 2000 ................. Mobile telephony Fixed telephony and Internet Cabel-TV 2000 Pro forma Tele2 Annual Report 2001 1,820 Notes By function: Depreciation/Amortization Group 2000 2001 2000 ........................................................................................................... – 2,782 – 1,275 — — .................................................................................................................. – 75 – 35 — — – 197 – 90 — –1 – 3,054 – 1,400 — –1 Cost of services sold Selling expenses Parent Company 2001 Administrative expenses ................................................................................................... Total depreciation/amortization for the year by function ..................... By type of asset: Depreciation/Amortization Group Parent Company 2001 2000 2001 ................................................................................................. – 46 – 16 — — Goodwill .................................................................................................................................. – 1,506 – 426 — — Buildings ................................................................................................................................. – 19 –3 — — Machinery and other technical plant ......................................................................... – 1,276 – 875 — — – 207 – 80 — –1 – 3,054 – 1,400 — –1 Licenses and right of use Equipment, tools and installations .............................................................................. Total depreciation/amortization for the year by type of asset .......... 2000 Estimated utilization period: Group Parent Company ............................................................................................... 1–25 year 5 year ................................................................................................................................. 5–20 year — — Intangible fixed assets: Licenses and right of use Goodwill Tangible fixed assets: .......................................................................................................... 3–25 year Machinery and other technical plant ......................................................................... 2–25 year — Equipment, tools and installations 2–10 year 3–5 year Land improvements .............................................................................. Depreciation/amortization according to plan is based on the acquisition value of each fixed asset and its estimated utilization period. All depreciation/amortization is applied on a straight-line basis over the utilization period. Goodwill arising from the original acquisition of Comviq GSM AB and Tele2 Sverige AB and other acquisitions before 1996 are amortized over ten years. The goodwill arising in 1996 in conjunction with the acquisition of outstanding minority shareholding in Tele2 Sverige AB and outstanding options in Comviq GSM AB, is amortized over 20 years. Goodwill arising from the acquisition of Datametrix, Ritabell, SIA Tele2, SEC, Fora and Levicom Broadband is amortized over a period of 20 years. The amortization periods are set on the basis of the estimated long-term and strategic significance of each acquisition on the acquisition date. In the case of corporate acquisitions in new markets, an amortization period of 20 years is applied. Goodwill arising from the acquisition of customers in mobile telephony and the acquisition of the UNI-C Internet operations is amortized over 10 years, which is based on the estimated strategic value of the customer base and operations, respectively. Other goodwill is amortized over five years. Note 3 Other operating revenue Group Parent Company 2001 2000 2001 2000 .......................................................... 64 105 — — ..................................................................... 33 — — — ............................................................................................... 2 4 — — ...................................................................... 5 17 — — Administrative services ...................................................................................................... 40 56 — — Other revenue 45 30 4 — 189 212 4 — Rental of capacity and antenna installations Exchange gains in business operations Divestment of fixed assets Sales of mobile telephone equipment ....................................................................................................................... Total other operating revenue ................................................................................ Tele2 Annual Report 2001 61 Notes Note 4 Other operating expenses Group Parent Company 2001 2000 2001 2000 – 20 – 57 — — ............................................................................ – 46 –5 — — ................................................................................ — – 17 — — –9 –8 — — – 75 – 87 — — 2001 2000 2001 Participation in profit/loss of associated companies ............................................ – 58 – 44 — 2 Total profit/loss in associated companies – 58 – 44 — 2 Exchange loss from operations ..................................................................................... Sale/scrapping of other fixed assets Sale of shares in 4T Solutions AB Other costs ............................................................................................................................. Total other operating expenses Note 5 ............................................................................. Profit/loss on shares in associated companies Group ......................................................... Shareholding Svenska UMTS nät AB Parent Company Dec. 31, 2000 2001 2000 2001 50% — –1 — — — 50% 50% – 57 – 48 — — ..................................................... Gamla Stans Millennium Group 2000 Dec. 31, 2001 ........................................................ Everyday Webguide AB Parent Company 2000 ................................................... 25% 25% — 2 — 2 Transcom Worldwide S.A. ................................................. — 37,5% — 2 — — – 58 – 44 — 2 Total profit/loss on shares in associated companies Net profit/loss for the year in associated companies: 2001 Sv UMTS nät (9 months) Everyday ............................................................................................................... –2 – 113 — ............................................................................................................................................. 50% 50% 20% Profit/loss in each company Shareholding Share of profit/loss .................................................................................................................................. Total net profit/loss from associated companies ............................................................. Moscow Cell. (1 month) –1 – 57 — –1 – 57 — Everyday Gamla Stans Millennium 2000 Profit/loss in each associated company Shareholding Transcom (3 months) ......................................................................................... – 14 — 5 ............................................................................................................................................. 50% 25% 38% Share of profit/loss –7 — 2 ........................................................................ – 41 — — ............................................................................................................... — – 18 — — 20 — – 48 2 2 .................................................................................................................................. Change in accounting principles, start-up costs Reversal to selling expenses Transfer of revenue from 1999 ........................................................................................................ Total net profit/loss from associated companies ............................................................. Additional shares in associated companies during the year were OJSC Moscow Cellular Communications, which is part of Fora Telecom BV Group, which was acquired during the year, and a newly established company, Svenska UMTS Nät AB, which is owned together with Telia. During the year, shares in Transcom Worldwide S.A., an associated company in Société Européene de Communication S.A. Group, acquired in 2000, was divested to Industriförvaltnings AB Kinnevik. 62 Tele2 Annual Report 2001 Notes Extracts from the balance sheets and income statements of each associated company: 2001 Sv UMTS nät (9 months) Everyday Moscow Cell. (1 month) Income statement: Revenue — 13 — ................................................................................................. – 11 – 103 — ........................................................................................................... 2 – 113 — .......................................................................................................................................... 432 ....................................................................................................................................................... Operating profit after depreciation Net profit/loss for the year Balance sheet: 12 — .......................................................................................................... — 40 67 ............................................................................................................................................. 492 17 124 ............................................................................................................................................... 504 57 623 Tangible assets Intangible and financial assets Current assets Total assets Shareholders’ equity .............................................................................................................................. 498 – 204 334 Long-term liabilities ............................................................................................................................... — 229 120 ...................................................................................................................................... 6 32 169 504 57 623 Everyday Gamla Stans Millennium Transcom (3 months) Current liabilities Total shareholders’ equity and liabilities .............................................................................. 2000 Income statement: Revenue 29 2 393 ................................................................................................. – 39 — 9 ........................................................................................................... – 14 — 5 183 ....................................................................................................................................................... Operating profit after depreciation Net profit/loss for the year Balance sheet: Tangible assets — — .......................................................................................................... 137 — 4 ............................................................................................................................................. 47 1 446 ............................................................................................................................................... 184 1 633 248 .......................................................................................................................................... Intangible and financial assets Current assets Total assets Shareholders’ equity .............................................................................................................................. – 14 — Long-term liabilities ............................................................................................................................... 133 — 95 ...................................................................................................................................... 65 1 290 184 1 633 Current liabilities Total shareholders’ equity and liabilities .............................................................................. Translation of shares in OJSC Moscow Cellular Communications was done in USD at exchange rate shown in Note 24. Note 6 Sales of associated companies Group Sale of Transcom Worldwide S.A. .................................................................................................... Total sales of associated companies ........................................................................................ Parent Company 2001 2000 2001 2000 91 — — — 91 — — — In January 2001, Tele2 AB sold its 37.5% shareholding in Transcom Worldwide S.A., an associated company in Société Européene de Communication S.A. Group, acquired in 2000, to Industriförvaltnings AB Kinnevik. The purchase price was based on the share price 60 trading days after Transcom was listed on the Stockholmsbörsen (Stockholm Exchange). Tele2 Annual Report 2001 63 Notes Note 7 Profit/loss on shares in Group companies Parent Company: 2001 Liquidation loss in Société Européene de Communication S.A. Capital gain on sale of Belmus BV 2000 ........................................................................................... – 13,964 — ..................................................................................................................................................... — 103 – 13,964 103 Total profit/loss on shares in Group companies .............................................................................................................. In November 2001, the subsidiary Société Européene de Communication S.A., was liquidated, resulting in a liquidation loss of SEK –13,964. Note 8 Profit/loss on other securities and receivables constituting fixed assets Group 2001 Interest, Group Parent Company 2000 ........................................................................................................................................ 2000 61 57 ............................................................................................................ 5 3 3 3 ................................................................................................................... –1 3 — 2 4 6 64 62 2000 2001 2000 14 — Interest, external receivables Exchange rate difference 2001 Total profit/loss on other securities and receivables classified as fixed assets Note 9 ..................................................................... Other interest income Group 2001 Interest, Group Parent Company ........................................................................................................................................ 66 58 — — ................................................................. –1 –1 — — ......................................................................................................... 65 57 14 — 2001 2000 2001 2000 – 557 – 205 – 14 –2 ................................................................................................................... – 11 – 11 — — Interest, penalty interest rate and other liabilities .................................................................. – 53 – 34 — — Interest, bank balances, etc. ............................................................................................................. Exchange rate difference on financial fixed assets Total other interest income Note 10 Interest expense and similar profit/loss items Group Interest, loans .......................................................................................................................................... Interest, financial leasing ...................................................................... 2 –6 — — ...................................................................................................................... – 71 – 18 –1 — – 690 – 274 – 15 –2 Exchange rate difference on financial liabilities Other financial expense Total interest expense and similar profit/loss items 64 Parent Company Tele2 Annual Report 2001 .................................................... Notes Note 11 Tax on profit/loss for the year and deferred tax liability/receivable Tax on profit/loss for the year, geographic breakdown Group Parent Company 2001 2000 2001 2000 Current tax expense: ................................................................................................................................... 4 –9 — — France ................................................................................................................................................. –1 — — — Russia ................................................................................................................................................. –2 — — — — –3 — — 1 – 12 — — Luxembourg Netherlands .................................................................................................................................... Deferred tax expense, as a result of temporary differences: Sweden .............................................................................................................................................. Total tax expense (–)/tax income (+) on profit for the year ................. 2,334 – 549 3,076 – 69 2,334 – 549 3,076 – 69 2,335 – 561 3,076 – 69 In the case of the Group, the change in the accounting principles “IQ Spar” (pre-paid call time) resulted in a back-dated decrease in the deferred tax expense in 2000 of SEK 6 million and a reduction in the deferred tax liability of SEK 44 million. Profit before tax and minority share, geographic breakdown Group: Sweden ..................................................................................................................................................................................................................... Other countries ..................................................................................................................................................................................................... Total profit/loss and minority share .................................................................................................................................................. 2001 2000 2,072 1,904 – 4,016 – 1,739 – 1,944 165 The difference between the booked tax expense for the Group and the tax expense based on prevailing tax rates in each country consists of the following components: Calculation of effective tax rate Group: 2001 Profit/loss before tax and minority share ........................................................................... 2000 – 1,944 165 Tax according to prevailing tax rate in: Tax effect according to tax rates in Sweden ...................................................................... Difference between tax rate in Sweden for foreign subsidiaries ............................. 544 28.0% – 46 326 49 870 3 28.0% Tax effect of: .................................................................. – 382 – 19.7% 119 Liquidation of SEC and taxation of postponement ........................................................ 3,082 158.5% — – 35 – 1.8% 22 – 13.3% 429.1% Non-tax affecting items (Group adjustments) Permanent differences ................................................................................................................ – 72.1% — Loss carry-forwards: Non-utilization of loss for the year – 1,200 – 61.7% – 708 .............................. — — 3 – 1.8% ............................................................. 2,335 120.1% – 561 340.0% ........................................................................................ From profit of preceding year, not included in profit for 2001 Tax expense/income and effective tax rate The consolidated profit in 2001 includes tax effects in a net amount of SEK 3,082 million from the liquidation of Société Européene de Communication S.A., after having previously received a tax postponement of SEK 828 million, in conjunction with the divestment in 1999 of NetCom ASA, was reversed to taxation. The item for the non-utilization of losses for the year pertains primarily to foreign operations. Tele2 Annual Report 2001 65 Notes Deferred tax receivable attributable to Group: Dec. 31, 2001 Long-term receivables ............................................................................................................................................................................... Machinery and technical plant .............................................................................................................................................................. Value of unutilized loss carry-forwards ............................................................................................................................................. Total deferred tax receivable (+)/tax liability (–) ............................................................................................................. Dec. 31, 2000 –5 –8 – 928 – 806 2,697 243 1,764 – 571 Deferred tax receivable, geographic distribution Group: Dec. 31, 2001 Dec. 31, 2000 2,697 243 Deferred tax receivable: Sweden ........................................................................................................................................................................................................... Deferred tax liability: Sweden ........................................................................................................................................................................................................... Total deferred tax receivable (+)/tax liability (–) ............................................................................................................. – 933 – 814 1,764 – 571 Loss carry-forwards: At December 31, 2001, the Tele2 Group has loss carry-forwards totaling SEK 19,871 million (2000: SEK 7.229 million), of which SEK 3,300 million (2000: SEK 2,757 million) expire within five years and the remaining amount, SEK 16,571 million (2000: SEK 4,472 million), expire in 2006 or later, or they continue to apply in perpetuity. A deferred tax receivable for in the case of loss carry-forwards is reported only to the extent that it is estimated that they can be utilized in the near future. A prudent valuation has been made of the deferred tax receivables in which only the Swedish operations have been valued at their full value (28%), while foreign operations at December 31, 2001 have not been reported in any value. Overall, loss carryforwards in foreign operations amount to SEK 10,243 million (2000: SEK 6,570 million) and in Swedish operations to SEK 9,628 million (SEK 659 million). The Swedish tax authorities have queried a loss carry-forward in Tele2 AB corresponding to a tax effect of SEK 176 million (2000; SEK 176 million). The loss carry-forward in this case has been valued at its full value. Note 12 Intangible assets Group Parent Company Dec. 31, 2001 Licenses & right of use Goodwill Total Dec. 31, 2001 Licenses & right of use Acquisition value: Acquisition value at Jan. 1 736 27,889 28,625 1 ....................................................... 187 2 189 — — ........................................................................................................ Acquisition value at Jan. 1 in acquired companies ............................................................................................................ 17 108 125 .............................................................................................................................. 8 — 8 — Translation difference for the year ......................................................................................... 48 1,756 1,804 — 996 29,755 30,751 1 –1 Investments for the year Reclassifications Acquisition value .............................................................................................................................. Accumulated depreciation/amortization: – 129 – 1,144 – 1,273 ............................ – 75 — – 75 — ............................................................................... – 46 – 1,506 – 1,552 — .............................................................................................................................. –2 — –2 — Translation difference for the year ......................................................................................... –8 – 72 – 80 — .................................................................................. – 260 – 2,722 – 2,982 –1 ............................................................................................................ 736 27,033 27,769 — Accumulated depreciation/amortization at Jan. 1 .......................................................... Accumulated depreciation/amortization in acquired companies Depreciation/amortization for the year Reclassifications Accumulated depreciation/amortization Total intangible assets The acquisition value and accumulated depreciation/amortization in acquired companies is attributable to the OU Levicom Broadband Group and Fora Telecom BV Group, which were acquired during the year. Of the investment in goodwill during the year, SEK 167 million and SEK 86 million, respectively, pertain to these two acquisitions and an adjustment of goodwill for SEC in the amount of SEK 154 million. 66 Tele2 Annual Report 2001 Notes Note 13 Tangible assets Group: Buildings & land Machinery, technical plant Dec. 31, 2001 Fixed plant under Equipment construction Total Acquisition value: Acquisition value at Jan. 1 127 11,408 921 142 .................................. 29 860 151 50 1,090 ..................................................................... 22 1,604 323 260 2,209 .............................................................................. – 20 – 206 – 13 – 21 – 260 ..................................................................................... 10 202 – 124 – 96 –8 ................................................ 9 201 62 15 287 ..................................................................................... 177 14,069 1,320 350 15,916 – 28 – 4,182 – 357 — – 4,567 ............................................................... Acquisition value in acquired companies Investment for the year Sale and scrapping Reclassifications Translation difference for the year Acquisition value 12,598 Accumulated depreciation/amortization: Accumulated depreciation/amortization at Jan. 1 ................. Accumulated depreciation/amortization –9 – 349 – 105 — – 463 ...................................... – 19 – 1,276 – 207 — –1,502 .............................................................................. 2 130 8 — 140 ..................................................................................... 4 – 47 45 — 2 –3 – 75 – 17 — – 95 .......................................... – 53 – 5,799 – 633 — – 6,485 ........................................................................ 124 8,270 687 350 9,431 in acquired companies ................................................................. Depreciation/amortization for the year Sale and scrapping Reclassifications Translation difference for the year ................................................ Accumulated depreciation/amortization Total tangible assets Acquisition value and accumulated depreciation/amortization in acquired companies is attributable to the to OU Levicom Broadband Group and Fora Telecom BV Group, which were acquired during the year. Parent Company: Equipment Dec. 31,2001 Fixed plant under construction Total Acquisition value: Acquisition value at Jan. 1 ......................................................................................................................... 1 1 2 Reclassifications ............................................................................................................................................... — –1 –1 Acquisition value ............................................................................................................................................... 1 — 1 Depreciation for the year: ...................................................................................................... –1 — –1 ............................................................................................................................... –1 — –1 .................................................................................................................................. — — — Accumulated depreciation at Jan. 1 Depreciation for the year Total tangible assets Group Total capitalized interest expenses in fixed assets ....................................... Parent Company Dec. 31, 01 Dec. 31, 00 Dec. 31, 01 Dec. 31, 00 193 193 — — Financial leases: All fixed assets utilized through financial leasing have been included in the consolidated accounts as fixed assets and loan liabilities, with the exception, however, of contracts signed before 1997. The effects of these being included in the consolidated balance sheet are shown below and in Note 26. Book value assets Group: Dec. 31, 01 Assets not booked Dec. 31, 00 Dec. 31, 01 Dec. 31, 00 Machinery and other technical plant: 300 278 155 155 ......................................................... – 87 – 62 – 42 – 36 ................................................................................................................. 213 216 113 119 Acquisition value ....................................................................................................... Accumulated depreciation/amortization Book value Financial leasing pertains primarily to the extension for transmission capacity in Sweden through Svenska Kraftnät, Vattenfall and agreements signed in Denmark and the Baltic States. Tax-assessed value: The tax-assessed value of the Group’s land in Sweden is SEK 1 million (2000: SEK 1 million). Tele2 Annual Report 2001 67 Notes Note 14 Shares in Group companies Parent Company: Dec. 31, 2001 Dec. 31, 2000 Acquisition value: Acquisition value at Jan 1 Investments Sales .................................................................................................................................................................... 24,488 1,481 .................................................................................................................................................................................................. 885 23,352 — – 345 ................................................................................................................................................................................................................. Liquidation of Société Européene de Communication S.A. Acquisition value ............................................................................................... – 23,386 — ......................................................................................................................................................................................... 1,987 24,488 ....................................................................................................................................................... — — .............................................................................................................................................................................. — — 1,987 24,488 Accumulated write-ups: Accumulated write-ups at Jan 1 Accumulated write-ups Total shares in Group companies ............................................................................................................................................... In December 2001, the Parent Company acquired all shares in Fora Telecom BV in exchange for 2,461,449 newly issued shares in Tele2 AB, corresponding to a value of SEK 849 million. On December 31, 2001 a subsidiary in the Tele2 Group acquired the remaining 81% in OU Levicom Broadband. OU Levicom Broadband is a cable-TV and broadband company as well as a fixed telephony operator in the Baltic States. In addition to the above investments, the subsidiary Société Européene de Communication S.A. was liquidated at year-end 2001 and the Parent Company, via an intra-Group sale, divested In2Loop Polska Sp zo, Web Communication BV Group and NetCom Luxembourg Holding AB to the wholly owned Group company, Tele2 Sverige AB at their book value. Effect on cash of corporate acquisitions and divestments during the year: The Group’s book value of acquired assets and liabilities in acquired companies and assets and liabilities in divested companies amounted to: Acquired Group: Divested 2001 2000 2001 ................................................................................................................. – 394 – 24,764 — — Tangible fixed assets .................................................................................................................... – 614 – 1,540 — — Financial fixed assets .................................................................................................................... – 469 – 135 — — ........................................................................................................................................ – 21 – 131 — — – 238 – 1,876 — — Intangible fixed assets Inventories Current receivables ....................................................................................................................... .................................................................................. – 890 – 3,050 — — ..................................................................................................................... 1,166 2,458 — — ............................................................................................................................ 428 3,686 — — ........................................................................................................... – 11 – 145 — — .................................................................................................................................. – 1,043 – 25,497 — — — Current investments and liquid funds Long-term liabilities Current liabilities Exchange rate difference Purchase sum 2000 849 23,290 — ....................................................................................... 135 — — — ................................................................................................... – 59 – 2,207 — — Cash in acquired/divested companies .................................................................................. 890 3,050 — — Affect on Group cash 831 843 — — Paid with own shares ................................................................................................................... Paid through loans from the seller Paid/received purchase sums 68 .............................................................................................................. Tele2 Annual Report 2001 Notes Shares in Group companies: Parent Company: Number of shares Book value Total par value Holding Dec. 31, 01 Dec. 31, 00 Société Européenne de Communication S.A., (“SEC”), RCB46698, Luxembourg Fora Telecom BV, 33287334, Rotterdam, Netherlands 400 pcs NLG 40,000 Millicom EKA Holding GmbH, FN 131600 f, Vienna, Austria Fora Telecom M, no P-12721.17, Moscow, Russia Millicom VOL Holding GmbH, FN 131602 h, Vienna, Austria Corporation Severnaya Korona, no P-6117.16, Irkutsk, Russia Kemerovo Mobile Communications, no P-13742.17, Kemerovo, Russia Kursk Cellular Communications, no P-16792.17, Kursk, Russia Rostov Cellular Communications, no P-1790.16, Rostov, Russia St Petersburg Telecom, no AO-3177, St Petersburg, Russia Smolensk Cellular Communications, no P-2581.16, Smolensk, Russia Udmurtiya Cellular Communications, no P-5818.16, Izhevsk, Russia Belgorod Cellular Communications, no P-2586.16, Belgorod, Russia Siberian Cellular Communications, no P-4458.16, Omsk, Russia Oblcom, no P-7180.16, St Petersburg, Russia Chelyabinsk Cellular Network, no P-3656.15, Chelyabinsk, Russia Millicom MAC Holding GmbH, FN 132666 y, Vienna, Austria CISC Cellarer, no P-8068.17, Moscow, Russia Millicom New Tech. in Communications, no P-9894.17, Moscow, Russia Millicom International Holding BV, Nr 33221654, Amsterdam, Netherlands Moscow Cellular Communications, no P-7696.16, Moscow, Russia Fora Telecom Services BV, 33.287.334, Amsterdam, Netherlands Millicom International Cellular BV, Nr 33227655, Amsterdam, Netherlands NetCom Luxembourg SA, RC B73.796, Luxembourg 1,000 pcs tEURO 35 Tele2 Holding AB, 556579-7700, Stockholm, Sweden Tele2 Sverige AB, 556267-5164, Stockholm, Sweden Datametrix Norway AS, 975993108, Oslo, Norway Datametrix Danmark A/S, 39419, Copenhagen, Denmark Datametrix OY AS, 378548, Helsinki, Finland OY Finland Tele2 AB, 1482343-8, Helsinki, Finland Interloop AB, 556284-7565, Stockholm, Sweden NetCom GSM Sverige AB, 556304-7025, Stockholm, Sweden Åkersberga KV AB, 556326-3192, Österåker, Sweden Halmstads KV AB, 556380-6115, Halmstad, Sweden Skaraborgs Kabel-TV AB, 556483-6467, Mariestad, Sweden Hallstahammar KV KB, 916580-7912, Västerås, Sweden Kopparstaden KV KB, 916583-0564, Västerås, Sweden Nelab KV KB, 916597-8983, Västerås, Sweden Kabelvision KB, 916836-8828, dormant KB Haninge Kabelvision, 916633-3485, dormant Härnösand Kabelvision KB, 916589-2481, dormant KB June Kabelvision, 916702-4836, dormant KB Lidingö Kabelvision, 916631-3289, dormant Älmhults Kabelvison KB, 916525-1043, dormant Trade2 (Sweden) AB, 556469-7836, Stockholm, Sweden Comviq Broadband AB, 556405-6678, dormant company SCD AB, 556353-6829, dormant company Call2Web AB, 556403-7983, dormant company NIU Nätteknik, Installation och Underhåll AB, 556041-1307, dormant company Kalmar Kabelvision AB, 556244-2466, dormant company Comviq GSM AB, 556450-2606, dormant company Swipnet AB, 556411-9401, dormant company NetCom Luxembourg Holding AB, 556580-7905, Stockholm, Sweden In2loop Polska Sp. So.o, 54380, Warsaw, Poland Web Communication BV, 34112460, Amsterdam, Netherlands Tele2 Polska Sp, 57496, Warsaw, Poland Belmus BV,33261289, Amsterdam, Netherlands Tele2 Eesti AS, 10069046, Tallinn, Estonia Tele2 Holding AS, 10262238, Tallinn, Estonia Tele2 Eesti AS, 10069046, Tallinn, Estonia UAB Tele2, 1147164, Vilnius, Lithuania UAB Levi & Kuto Kaunas, 1149679, Kaunas, Lithuania UAB Levi & Kuto Klaipeda, 1150061, Klaipeda, Lithuania Tele2 Holding SIA, 000351206, Latvia SIA Tele2, 000327285, Latvia — 100% 100% 100% 100% 97.78% 100% 100% 75% 60.6% 60% 55% 65% 60% 60.6% 51% 100% 100% 100% 100% 20% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 60% 90% 80% 80% 100% 80% 80% 65% 80% 80% 100% 100% 100% 100% 100% 100% 100% 100% 100% 49% 100% 100% 100% 48% 90% 52% 100% 100% 100% 100% 100% — 851 23,352 — 1,136 1,136 1,987 24,488 (Company, reg. No, reg’d. Office) Tele2 Annual Report 2001 69 Notes Shares in Group companies (contd.): (Company, reg. No, reg’d. Office) Number of shares Total par value Book value Holding trsp OU Levicom BroadBand, 10309744, Tallinn, Estonia UAB KRT, 2304688, Vilnius, Lithuania UAB C-Gates, 2424016, Vilnius, Lithuania UAB Trigeris, 2123967, Vilnius, Lithuania AS Levi Kaabel, 10417072, Tallinn, Estonia AS Telset Telecommunications Group, 10673906,Tallinn, Estonia Tallinna Kaabeltelevisiooni AS, 10375439,Tallinn, Estonia OU Trigger Software, 10687966, Tallinn, Estonia AS Eesti Telag AS, 10310799, Tallinn, Estonia SIA Levicom Broadband, 40003535973, Riga, Latvia Montalto Investments BV, 33135957, Amsterdam, Netherlands Tele2 Sweden SA, RC B73.802, Luxembourg 4 T Solutions Holding AB, 556580-2690, Stockholm, Sweden XSource Corporation, USA X-Source Holding AB, 556580-2682, Stockholm, Sweden X-Source AB, 556290-2238, Stockholm, Sweden Optimal Telecom Holding AB, 556580-7855, Stockholm, Sweden Optimal Telecom Sverige AB, 556440-1924, Stockholm, Sweden Datametrix Sverige Holding AB, 556580-7871, Stockholm, Sweden Datametrix AB, 556539-4870, Stockholm, Sweden Everyday Holding AB, 556579-7718, Stockholm, Sweden Stenblocket i Fruängen AB, 556058-8500, Stockholm, Sweden Everyday Webguide AB, 556182-6016, Stockholm, Sweden Svenska UMTS-nät Holding AB, 556606-7988, Stockholm, Sweden Svenska UMTS-nät AB, 556606-7996, Stockholm, Sweden Svenska UMTS-licens Holding AB, 556606-7764, Stockholm, Sweden Svenska UMTS-licens AB, 556606-7772, Stockholm, Sweden Tele2 Norge Holding AB, 556580-8143, Stockholm, Sweden Tele2 AS Norge, 974534703, Oslo, Norway Tele2 Norge UMTS AS, 982795761, Oslo, Norway Tele3 Norge AS, 932100975, dormant company Tele2 Danmark Holding AB, 556580-8028, Stockholm, Sweden Tele2 A/S, 221234, Copenhagen, Denmark Optimal Telecom A/S, 25 52 96 34, Copenhagen, Denmark In2Loop A/S, 25 48 43 47, Copenhagen, Denmark Tele1 A/S, 955780132, Oslo, Norway S.E.C. Luxembourg S.A., R.C. B-84.649, Luxembourg Societe Europeenne de Communication (Irland) Ltd, 316848, Dublin, Ireland Tele2 s.r.o., 25650009, Prague, Czech Republic Tele2 /Slovakia/ s.r.o., 35806486, Slovakia Tele2 Magyarorszag Kft., 0109695967, Hungary SEC Services Luxembourg SA, RC B 70203, Luxembourg 3C Communications (Irland) Ltd, 164025, Ireland, dormant SEC Holding BV, 33141829, Rotterdam, Netherlands Tele2 Marketing Dynamics AS, 932100975, Norway, dormant Tele2 BLR, 429569486, Velizy, France, dormant TANGO SA, RC 59560, Luxembourg Transac SA, B49487, Luxembourg Everyday Media SA, R.C. B 78.227, Luxembourg Everyday Prod. SA, 69802, Luxembourg Fagersta AB, 556238-4171, Stockholm, Sweden Transcom Holding AB, 556468-0857, Sweden, dormant company 3C Holding AB, 556491-9503, Sweden, dormant company Kinnevik Telecommunications In SA, RC B 52976, Luxembourg Tele2 Europe SA, B 56944, Luxembourg Télé2 France SA, FR48-409914058, Velizy, France Tele2 Telecommunication Services GmbH, FN 178222t, Vienna, Austria Tele2 Belgium SA, 609 392, Zellik, Belgium Tele2 Telecommunication Services GmbH, 36232, Düsseldorf, Germany Tele2 Italia Spa, Ml-1998-247322, Segrate, Italy Tele2 AG, H.1045/80, Liechstenstein Tele2 Luxembourg SA, B 65774, Luxembourg Tele2 (Netherlands) BV, BV 291906, Amsterdam, Netherlands Tele2 Telecommunication Services S.L, B82051913, Madrid, Spain Tele2 Telecommunication Services AG, CH-020390 55 969, Zürich, Switzerland 70 Tele2 Annual Report 2001 Dec. 31, 01 Dec. 31, 00 1,987 24,488 1,987 24,488 100% 100% 100% 100% 100% 100% 65% 100% 100% 100% 100% 100% 100% 11.88% 100% 100% 100% 100% 100% 100% 100% 100% 50% 100% 50% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Notes Shares in Group companies (contd.): (Company, reg. No, reg’d. Office) Number of shares Total par value Book value Holding trsp Tele2 Communications Serv. Ltd, 3565220, Reading-Berkshire, UK Telemilenio, Telecomunicacoes, Sociedade Unipessoal, 10468, Lissabon, Portugal Tele2 Telecommunications Services Ltd, 292887, Dublin, Ireland, dormant 3C Communications International SA, RC B 29697, Luxembourg 3C Communications Equipment SA, B 25465, Luxembourg 3C Communications Ltd, 2343138, UK 3C Communications BVBA, 514 274, Brussels, Belgium 3C Communications SPA Italy, 28894/7359/14, Segrate, Italy 3C Communications SA, 345 343 396 00023 Orleans, France 3C Communications GmbH, HRB 24104, Germany 3C Kommunikacios Szolgaltato Kft, Budapest, Hungary 3C Communications BV, Amsterdam, 14630454, Netherlands 3Communicacoes Ltda, Domingos de Rana, Portugal 3C Communications Espana SA, Madrid, Spain 3C Communications AB, 556332-6346, Stockholm, Sweden 3C Communications Ltd, 2343138, UK 3C Communications BVBA, 514 274, Brussels, Belgium 3C Communications SPA Italy, 28894/7359/14, Segrate, Italy 3C Communications SA, 345 343 396 00023 Orleans, France 3C Communications GmbH, HRB 24104, Germany 3C Kommunikacios Szolgaltato Kft, Budapest, Hungary 3C Communications BV, Amsterdam, 14630454, Netherlands 3Communicacoes Ltda, Domingos de Rana, Portugal 3C Communications Espana SA, Madrid, Spain 3C Communications AB, 556332-6346, Stockholm, Sweden 3C Communications GmbH, FN695021, Vienna, Austria 3C Communications Czech s-r-s, Czech Republic 3C Communications A/S,184462, Ballerup, Denmark 3C Communications OY, 585632, Finland 3C Communications Luxembourg SA, B39690, Luxembourg 3C Communications A/S, Oslo, Norway 3C Transac A/S, Norway 3C Transac AB Sweden,556057-2116, Stockhom, Sweden 3C Transac Ltd, Kingston-upon-Thames, UK Comviq Holding BV, 14630454, Amsterdam, Netherlands 3C Communications (Ireland) Ltd, 164029, Survey, UK CCC Holding BV, 33 269 398, Amsterdam, Netherlands Calling Card Company Limited, 3794813, UK CCC Calling Card Company Germany GmbH, HRB 40498, Germany C3 Calling Card Company (Ireland) Limited, 309745, Ireland Calling Card Company SA, B 424 906 618, Paris, France Calling Card Company Italy SpA, 233372, Milan, Italy Tele2 International Card Company S.A., RC 64 902, Luxembourg Calling Card Company Netherlands BV, BV 82334, Amsterdam, Netherlands Calling Card Company Spain, S.A. A-62426457, Spain Calling Card Company Telecommunication Services GmbH, FN 215362i, Austria IntelliNet Holding BV, 34126307, Amsterdam, Netherlands Intellinet Telecommunications GmbH, FN 190268 g, Vienna, Austria Intellinet SAS, B429 508 583, Velizy, France Intellinet Telecommunication GmbH, HRB 48344, Frankfurt, Germany IntelliNet S.p.A, R.C. 1615155, Segrate, Italy IntelliNet BV, 34120156, Amsterdam, Netherlands IntelliNet Telecommunication Services AG, CH-020.3.021.518-8, Zürich, Switzerland SEC Everyday Europe BV, 341124357, Amsterdam, Netherlands Everyday.com Internet Services GmbH, Austria Everyday.com Switzerland AG, CHF-0203023164-4, Zürich, Switzerland Everyday.com Germany GmbH, HR B 36232, Germany Everyday.com France SAS, B-430291898, Velizy, France Everyday.com Italia S.R.L, R.C. 1605497, Italia Srl, Italy Everyday Luxembourg SA, B 64 902, Luxembourg Everyday.com Netherlands BV, 34125168, Amsterdam, Netherlands Total shares in Group companies Dec. 31, 01 Dec. 31, 00 1,987 24,488 1,987 24,488 100% 100% 100% 100% 100% 4% 1% 9% 1% 1% 10% 1% 5% 1% 3% 96% 99% 91% 99% 99% 90% 99% 95% 99% 97% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 95% 100% 100% 100% 100% 100% 100% 100% 100% 100% 99% 100% 100% 100% 100% 97% 100% 100% 100% 100% 100% Tele2 Annual Report 2001 71 Notes Note 15 Receivables from Group companies Parent Company: Dec. 31, 01 Dec. 31, 00 .......................................................................................................................................................................................... 1,028 847 .................................................................................................................................................................................................................................. 11,904 639 Amortization and additions granted ...................................................................................................................................................................... Total receivables form Group companies ....................................................................................................................................................... – 406 12,526 – 458 1,028 Acquisition value at Jan. 1 Lending In connection with the liquidation of Société Européene de Communication S.A., Tele2 AB took over a promissory note receivable on Tele2 Holding AB amounting to SEK 9,421 million. Note 16 Shares in associated companies Number of shares (Company, reg. No, reg’d. Office) Book value Total par value Holding Dec. 31, 01 Dec. 31, 00 25% — — Parent Company: Gamla Stans Millennium Evenemang KB, 969653-5997, Stockholm Group (additional): Svenska UMTS nät AB, 556606-7996, Stockholm .................................. Everyday Webguide AB, 556182-6016, Stockholm .............................. 502,000 pcs tSEK 50,200 50% 249 — 1,750 pcs tSEK 175 50% – 102 – 52 ................... 1,250,000 pcs tRUBEL 1,250 20% 75 — ........................ — — — — 139 ........................................................... 200 pcs tSEK 20 20% OJSC Moscow Cellular Com., P7696.16, Moscow, Russia Transcom Worldwide S.A., RC B 59 528, Luxembourg SNPAC Swedish Number Portability Administrative Centre AB, 556595-2925, Stockholm Total shares in associated companies, Group .................................... 2 1 224 88 During 2001, a subsidiary of Tele2 AB acquired 20% of the shares in OJSC Moscow Cellular Communications, which is part of Fora Telecom BV Group, which was acquired during the year, and also established a new company, Svenska UMTS Nät AB, which is owned with Telia. During the year, shares in Transcom Worldwide S.A., an associated company in Société Européene de Communication S.A. Group, acquired in 2000, were divested to Industriförvaltnings AB Kinnevik. Contribution of each associated company to Group profit/loss: 2001 Sv UMTS nät (9 months) Everyday Moscow Cell. (1 month) Transcom (1 month) SNPAC — — — — — — – 52 — 139 1 — — 75 — — Goodwill: Goodwill, book value, Dec. 31 .............................................................................. Equity share: Equity share, Jan, 1 .............................................................................................. Acquired companies, opening balance ..................................................... Share of capital contributions and new share issues Share of profit/loss .......................... 250 7 — — 1 ................................................................................................ –1 – 57 — — — — Divestments during the year ............................................................................. — — — – 139 Equity share, Dec. 31................................................................................................ 249 – 102 75 — 2 Total shares in associated companies 249 – 102 75 — 2 ..................................................... 2000 Everyday Gamla Stans Millennium Transcom. (1 month) SNPAC ............................................................................. — — — — .............................................................................................. –4 –2 — — — — 137 — Goodwill: Goodwill, book value, Dec. 31 Equity share: Equity share, Jan, 1 Acquired companies, opening balance ..................................................... Share of capital contributions and new share issues Share of profit/loss Reclassifications .......................... — — — 1 ................................................................................................ – 48 20 2 — ........................................................................................................ Equity share, Dec. 31 .............................................................................................. Total shares in associated companies 72 ..................................................... Tele2 Annual Report 2001 — – 18 — — – 52 — 139 1 – 52 — 139 1 Notes Note 17 Receivables from associated companies Group Dec. 31, 00 Dec. 31, 01 105 6 67 6 ......................................................................... — 21 — — ............................................................................................................ –7 — –7 — ............................................................................................................................................... 17 78 55 61 115 105 115 67 Acquisition value at Jan 1 .......................................................................................................... Acquired companies, opening receivables Shareholder contribution Lending Parent Company Dec. 31, 01 Total receivables from associated companies Note 18 .............................................................. Dec. 31, 00 Other long-term holdings of securities Number of shares Company, reg. No, reg’d. Office Total par value % Holding Capital Votes Book value Dec. 31, 01 Dec. 31, 00 18 Parent Company: AS Levicom Broadband, Estonia .................................................... Suomen Kolmegee, Helsinki, Finland ......................................... 1 pcs tEEK 8 19.0% 19.0% — 1,924 pcs tFIM 1,924 20.1% 15.0% 5 5 5 23 Group (additional): XSource Corporation, U.S. 1,806,575 pcs tUSD 18 11.88% 11.88% 122 122 ............... 15,000 pcs tSEK 1,500 15.00% 15.00% 75 — ............................................................... — — — — — 1 202 146 ................................................................ Travellink AB, 556596-2650, Stockholm, Sweden Brf Sundsvallshus, Sweden Total long-term holdings of securities ................................. Group Parent Company Dec. 31, 01 Dec. 31, 00 Dec. 31, 01 Dec. 31, 00 3,884 Acquisition value: ............................................................................................................. 489 3,885 366 ............................................................................................................................. 74 122 — — ............................................................................................................................... — — – 18 .................................................................................................................................... – 18 – 3,518 — — – 3,518 545 489 348 366 Acquisition value at Jan 1 Invest for the year Sales for the year Reclassification Acquisition value .................................................................................................................................. Write-downs: ........................................................................................ – 343 – 343 – 343 – 343 ............................................................................................................... – 343 – 343 – 343 – 343 202 146 5 23 Accumulated write-downs at Jan 1 Accumulated write-downs Total other long-term holdings of securities ................................................................ During 2001, additional shares were acquired in OU Levicom Broadband, which meant that book value of SEK 18 million was transferred to shares in Group companies. During 2000, a similar transfer of shares in Société Européene de Communication S.A. Group was conducted. By means of an intra-Group sale during the year, the Parent Company sold its 19% shareholding in OU Levicom Broadband to its wholly owned Group company Tele2 Sverige AB. Note 19 Other long-term receivables Group Dec. 31, 00 Dec. 31, 01 Dec. 31, 00 ............................................................................................................ 106 58 46 14 .................................................................................................................................................. 23 43 12 30 –5 — — — – 41 3 – 58 — 2 2 — 2 85 106 — 46 Acquisition value at Jan. 1 Lending Parent Company Dec. 31, 01 Amortization ........................................................................................................................................ Reclassification .................................................................................................................................... Translation difference ...................................................................................................................... Total other long-term receivables ....................................................................................... During the year, the receivable from Levicom Broadband was reclassified as a receivable from the subsidiary in the amount of SEK 58 million and the receivable from XSource Corporation was reclassified from having been a current receivable. Tele2 Annual Report 2001 73 Notes Note 20 Accounts receivable Receivables Group: Dec. 31, 01 3,012 ............................................................................................................................................................................ – 918 – 558 ...................................................................................................................................................................................................................... 3,624 2,454 ....................................................................................................................................................................................................... Reserve for doubtful receivables Book value Dec. 31, 00 4,542 Accounts receivable Reserve for doubtful receivables Group: Reserve for doubtful receivables at Jan 1 .......................................................................................................................................................... Dec. 31, 00 558 172 ............................................................................................................................................ 15 111 ........................................................................................................................................................................................................................... 349 273 – 36 — Reserve in companies acquired during the year Recording Dec. 31, 01 Recovery of previous write-downs ......................................................................................................................................................................... ......................................................................................................................................................... 32 2 ........................................................................................................................................................... 918 558 Translation difference in opening balance Total reserve for doubtful receivables Credit risk entails that book losses that should be reported as of the closing date if the counterparties have completely neglected to fulfill their payment liability in accordance with agreements. The Group has limited its credit risk in respect of receivables by continually conducting credit assessments of the customer stock. Since the Group has a highly varied customer stock that covers individuals as well as companies, this entails that the credit risk is limited. The Group makes provisions for any credit losses, and these have remained within management’s expectations. Note 21 Other current receivables Group VAT receivables Dec. 31, 00 Dec. 31, 01 Dec. 31, 00 262 230 2 — 78 — — — .......................................................................... 113 — — — ..................................................................................... — 15 — — — ................................................................................................................................... Receivable from Kinnevik .............................................................................................................. Receivable from Millicom International BV Receivable from XSource Corporation ............................................................................................................. — 15 ...................................................................................................................................... 77 38 530 298 2 Dec. 31, 01 Dec. 31, 00 Dec. 31, 01 ..................................................... 544 218 — — ................................................................................... 1,511 1,510 — — Receivable from suppliers Miscellaneous Parent Company Dec. 31, 01 Total other current receivables Note 22 .............................................................................................. Accrued telephony revenue, other telecom operators Accrued telephony revenue, customers Parent Company Dec. 31, 00 ................................................................................................. 12 43 — — ............................................................................................................. 209 — — — ...................................................................................................................................... 493 232 1 1 2,769 2,003 1 1 Prepaid leasing and rental costs Prepaid financing charges Total prepaid expenses and accrued revenues 74 — Prepaid expenses and accrued revenues Group Miscellaneous — — ........................................................... Tele2 Annual Report 2001 Notes Note 23 Liquid funds and overdraft facilities Cash Group Dec. 31, 00 Dec. 31, 01 ................................................................................................................ 2,275 1,511 8 7 .......................................................................................................................... — — — — ............................................................................................................................................ 2,275 1,511 8 7 Cash and bank balances Current investments Total cash Parent Company Dec. 31, 01 Dec. 31, 00 Of the Group’s total cash, SEK 897 million was submitted as collateral for loans in Fora Telecom BV Group and is thus blocked. Overdraft facilities Group Parent Company Dec. 31, 01 Dec. 31, 00 Dec. 31, 01 Dec. 31, 00 Overdraft facilities granted ........................................................................................................... 26 267 — — Overdraft facilities utilized ............................................................................................................. – 14 – 14 — — 12 253 — — Total unutilized overdraft facilities ...................................................................................... In addition the Group has EUR 25 million in unutilized credit lines at December 31, 2001 (2000: SEK 200 million). Collateral pledged for overdraft facilities Group Parent Company Dec. 31, 01 Dec. 31, 00 Dec. 31, 01 Dec. 31, 00 .................................................................................................................... 18 11 — — Receivables ........................................................................................................................................... 18 11 — — Other assets .......................................................................................................................................... 9 11 — — 45 33 — — Materials and supplies Total collateral pledged for overdraft facilities ........................................................... Exchange-rate difference in liquid funds Group: Dec. 31, 01 Dec. 31, 00 Liquid funds at Jan. 1 ............................................................................................................................................................................ 83 – 36 Cash flow for the year ............................................................................................................................................................................ – 58 – 108 25 – 144 Unrestricted reserves Total shareholders’ equity 26,651 Total exchange-rate difference in cash Note 24 ................................................................................................................................... Shareholders’ equity Group: ...................................................................... 724 25,098 829 — — – 112 – 112 .............................................................................. 724 25,098 717 26,539 849 Effect of changes in accounting principles ..................................................................................... 12 837 — ................................................................................................... 1 14 — 15 ....................................................................................................................... — — – 12 – 12 1,734 New share issue, acquisition of Fora New share issue, convertibles Gradual acquisitions Restricted reserves ........................................................................ Opening shareholders’ equity, Jan 1, 2001 Opening adjusted shareholders’ equity Share capital Exchange-rate difference — 1,844 – 110 .................................................................................. — 7,948 – 7,948 — ......................................................................................................... — — 392 392 737 35,741 – 6,961 29,517 ............................................................................................................. Transfers among shareholders’ equity Net profit/loss for the year Closing adjusted shareholders’ equity ............................................................................. As a result of the gradual acquisition of shares in OU Levicom Broadband as of December 31, 2001, a back-dated adjustment has been made of the original investments of 19% in January 1999 so that shareholders’ equity has been recalculated as if it had been a subsidiary on this date. This means that an adjustment arises in shareholders’ equity corresponding to Tele2’s equity in OU Levicom Broadband during the period January 1999–December 2001. Tele2 Annual Report 2001 75 Notes Exchange-rate differences in shareholders’ equity Other restricted reserves Unrestricted reserves ................................................................................................. 1,049 – 320 729 .......................................................................................................................... 1,844 – 110 1,734 .................................................................................................................................. 2,893 – 430 2,463 Group: Opening shareholders’ equity, Jan 1, 2001 Other changes during the year Year-end, Dec. 31, 2001 Restricted shareholders’ equity Share capital (SEK million) A shares B shares Parent Company: Share Profit loss/ Total sharepremium brought forward holders’ equity ............................ 150 574 724 23,083 1,983 25,790 — 12 12 837 — 849 ....................................................... — 1 1 14 — 15 .......................................................... — — — — 2,100 2,100 ...................................................... — — — — – 588 – 588 ........................................................................ — — — — – 10,882 – 10,882 New shares issue, convertibles Group contribution, received Group contribution, tax effects Round-off Unrestricted shareholders’ equity ............................................ Opening shareholders’ equity, Jan 1, 2001 New share issue, acquisition of Fora Profit/loss for the year Share capital Total ................................................................................................. Closing shareholders’ equity, 31 Dec. 2001 .................... — — — 1 — 1 150 587 737 23,935 – 7,387 17,285 Effect of changes in accounting principles: During 20001, Tele2 changed its accounting principles governing “IQ Spar” – pre-paid call time in mobile telephony. IQ Spar has been reclassified from having been regarded as revenue from subscription charges which is accrued throughout the subscription period to being regarded as traffic revenue and thus accrues in pace with customer calls. The following back-dated changes have been made of the income statements and balance sheets for previous periods. Group: 2000 1999 1998 .................................................................................................................... – 30 –4 – 39 .................................................................................................................. 9 2 12 ............................................................................................................................. – 21 –2 – 27 Income statement: Operating revenues Cost per service sold Gross profit/loss Deferred tax expense .................................................................................................................. Profit/loss for the year ........................................................................................................... Group: 6 1 7 – 15 –1 – 20 Dec. 31, 00 Dec. 31, 99 Dec. 31, 98 Balance sheet: Profit loss/brought forward ..................................................................................................... – 97 – 96 – 76 Net profit/loss for the year ..................................................................................................... – 15 –1 – 20 Total shareholders’ equity ....................................................................................................... – 112 – 97 – 96 ............................................................................................................ – 44 – 38 –37 .......................................................................................................................... – 67 – 58 – 56 ............................................................................................................................ 223 193 189 — — — Provisions, deferred tax Accrued expenses Prepaid revenue Total shareholders’ equity and liabilities .................................................................... Exchange-rate differences in the consolidated income statement: Exchange-rate differences that arise in operations are reported across the income statements and amount to: Group Parent Company 2001 2000 2001 2000 Other operating revenue ............................................................................................................... 33 — — — Other operating expenses ............................................................................................................. – 20 – 57 — — –1 3 — 2 –1 –1 — — 2 –6 — — 13 – 61 — 2 Result from other securities and receivables that are fixed assets .................................................................................. Other interest income and similar profit/loss items Interest expense and similar profit/loss items ........................................................... ...................................................................... Exchange-rate difference in the income statement 76 Tele2 Annual Report 2001 ................................................... Notes The consolidated balance sheets and income statements are affected by exchange-rate fluctuations in subsidiaries’ currencies. The Group’s net sales and profit/loss before depreciation at December 31, 2001 consisted primarily of the following currencies. A one-percent change currency fluctuation affects the Group on an annual basis as follows: Net sales Profit/loss before depreciation Sensitivity SEK M % analysis ±1% Sensitivity analysis ±1% SEK M % 9,236 37% — 3,690 217% — .......................................................................... 9,848 39% 98 – 2,165 – 127% – 22 NOK ................................................................................................................................. 1,770 7% 18 29 2% 0 DDK ................................................................................................................................. 1,351 5% 14 62 4% 1 LVL .................................................................................................................................... 618 3% 6 272 16% 3 EEK ................................................................................................................................... 325 1% 3 109 6% 1 LTL .................................................................................................................................... 112 1% 1 – 67 – 4% –1 SEK ................................................................................................................................... EUR and EUR-linked currencies Other currencies ......................................................................................................... Total, Dec. 31, 2001 ............................................................................................ 1,825 7% 18 – 232 – 14% –2 25,085 100% 158 1,698 100% – 20 During the first two months of 2002, the EUR exchange rate and LVL rate declined 0.5%. NOK rose by 2% and DDK declined 0.2%, which would correspond to an exchange-rate effect on operating revenues in 2001 and EBITDA of a net SEK –17 million and SEK 10 million, respectively. The exchange rates used in the Group for translating the income statements and balance sheets to SEK are presented below: Income statement Balance sheet 2001 2000 Dec. 31, 01 Dec. 31, 00 EURO ....................................................................................................................................................... 9.2519 8.4463 9.4190 8.8570 DEM ........................................................................................................................................................ 4.7304 4.3185 4.8159 4.5285 FRF ........................................................................................................................................................... 1.4104 1.2876 1.4359 1.3502 GBP .......................................................................................................................................................... 14.8725 13.8579 15.4750 14.2200 LUF ........................................................................................................................................................... 0.2293 0.2094 0.2335 0.2196 CHF .......................................................................................................................................................... 6.1280 5.4250 6.3600 5.8135 NLG .......................................................................................................................................................... 4.1983 3.8328 4.2742 4.0191 DKK .......................................................................................................................................................... 1.2415 1.1332 1.2665 1.1870 NOK ......................................................................................................................................................... 1.1499 1.0411 1.1835 1.0715 FIM ........................................................................................................................................................... 1.5561 1.4206 1.5842 1.4896 ITL ............................................................................................................................................................ 0.0048 0.0044 0.0049 0.0046 ATS ............................................................................................................................................................ 0.6724 0.6138 0.6845 0.6437 ESP ........................................................................................................................................................... 0.0561 0.0508 0.0566 0.0532 EEK ........................................................................................................................................................... 0.5913 0.5398 0.6020 0.5660 LVL ............................................................................................................................................................ 16.5171 15.1085 16.9000 15.3900 LTL ............................................................................................................................................................ 2.5819 2.2869 2.6700 2.3800 PTE ........................................................................................................................................................... 0.0461 0.0421 0.0470 0.0442 PLN .......................................................................................................................................................... 2.5239 2.1073 2.6900 2.3000 CZK ........................................................................................................................................................... 0.2718 0.2371 0.2936 0.2550 HUF ......................................................................................................................................................... 0.0361 0.0325 0.0382 0.0339 USD .......................................................................................................................................................... 10.33080 9.16080 10.6675 9.535 Other currency risks: In fixed telephony operations and in mobile telephony operations, a currency risk arises in connection with international call traffic, which means that a liability or a receivable arises between Tele2 companies and foreign operators. In mobile telephony, these transactions are calculated in SDRs (Special Drawing Rights) but are invoiced and paid in USD. The five-year loan facility is denominated partly in EUR. The exchange-rate difference that continually arises in translating the loan liability is offset against the exchange-rate differences that arise on the corresponding receivables from the subsidiaries, which are booked directly against shareholders’ equity and which arise through Tele2 Sverige AB forwarding the loan liability to subsidiaries in EUR-linked currencies. Tele2 Annual Report 2001 77 Notes Note 25 Number of shares The share capital in Tele2 AB is divided into two share classes, namely, Series A and B shares. Both types of shares have a par value of SEK 5 per share and offer equal participation in the company’s net assets and earnings. Series A shares, however, entitle the holder to 10 voting rights and Series B shares to one voting right. A shares Change Jan 1. 1999 B shares Total Change Total number Total Par value per share (SEK) Par value per share (SEK M) ........................... 18,095,632 85,754,614 103,850,246 5 519 Dec. 31, 1999 .................... 18,095,632 85,754,614 103,850,246 5 519 723 New share issue, acquisition of SEC 30,006,947 28,837,165 114,591,779 144,598,726 5 .. Dec. 31, 2000 11,911,315 30,006,947 200,000 114,791,779 144,798,726 5 724 ................... 30,006,947 114,791,779 144,798,726 5 724 117,253,228 147,260,175 5 736 ......... New share issue, options New share issues, acquisition of Fora ............. 30,006,947 2,461,449 30,006,947 100,000 New share issue, convertibles ........................... December 31, 2001 30,006,947 ...... 117,353,228 147,360,175 5 737 117,353,228 147,360,175 5 737 At Dec. 31, 2001, the shares converted in 2001 100,000 B shares were being registered by the Swedish Patent and Registration Office. Convertibles: In October 2000, three convertible debenture loans were issued at a par value of SEK 1, each with preference rights to subscribe for 100,000 B shares in Tele2 AB at a subscription price of SEK 150 per share, and maturing in 2001, 2002 and 2003. The outstanding convertibles at Dec. 31, 2001 correspond to 200,000 B shares and the total number of shares after full dilution will amount to 147,560,175. Earnings/loss per share: Earnings/loss per share Group: Net profit/loss for the year ........................................................................................................... Reversal: interest for the year after tax on outstanding convertibles Adjusted profit/loss for the year after full dilution Weighted average number of shares Note 26 2001 2000 2001 2000 392 – 396 392 – 396 ...................... — — ........................................................... 392 – 396 145,223,466 114,224,866 SEK 2.70 SEK – 3.47 ...................................................................................... Weighted average number of outstanding shares after full dilution Earnings/loss per share Earnings/loss per share after full dilution 145,003,847 114,087,366 SEK 2.70 SEK – 3.47 ...................... ............................................................................................................. Liabilities to financial institutions Short-term liabilities to financial institutions Group Dec. 31, 00 Dec. 31, 01 Dec. 31, 00 — 21 — 21 ............................................................................................................................. 707 — — — ............................................................................................................................................................... — 2,266 — — Nordbanken ............................................................................................................................................... Five-year loan facility CIBC Parent Company Dec. 31, 01 — 125 — — ...................................................................................... — 114 — — Dexia ............................................................................................................................................................. — 98 — — BCEE .............................................................................................................................................................. — 7 — — 24 51 — — 731 2,682 — 21 Nordiska Investeringsbanken ............................................................................................................. ABN Amro Swedish Bankers Association Financial leases ......................................................................................................................................... Total short-term interest-bearing loans 78 ................................................................................. Tele2 Annual Report 2001 Notes Long-term liabilities to financial institutions Interest-rate terms Maturity Dec. 31, 01 Dec. 31, 00 — — 9,834 — Parent Company: .......................................................................................................... Other group companies: Five-year loan facility .............................................................................................. EURIBOR/LIBOR +0.75–2.25% 2003–2006 (Collateral: shares in Tele2 Sverige and SEC SA and certain shares in Group companies, which they in turn own, guarantees from Tele2 AB and cross-guarantees between certain Group companies, collateral provided in the form of receivables from certain Group companies and limitation in repayment potential of internal loans from Tele2 AB) — 3,847 Fixed interest rate: 13.75% 2004 881 — Floating rate 2003 3 8 ............................................................. — 1,134 ................................................................................................................ — 270 .............................................................. — 54 Dexia ............................................................................................................................... — 1 BCEE ................................................................................................................................ — 23 CIBC ................................................................................................................................. Banque Invik ............................................................................................................... (Collateral: Blocked bank funds in Fora Telecom BV) Merita-Nordbanken ................................................................................................. (Collateral: guarantees from Tele2) CIBC World Markets and ING Barings Nordbanken Banque International à Luxembourg — 22 Financial leases for machinery and technical plant .................................. 125 131 Total long-term interest-bearing loans, Group ................................... 10,843 5,490 Svenska Handelsbanken ........................................................................................ Collateral pledged for liabilities to financial institutions Group Dec. 31, 01 Shares in subsidiaries Parent Company Dec. 31, 00 ....................................................................................................................... Dec. 31, 01 Dec. 31, 00 — — ............................................................................................................... 23,197 Buildings ................................................................................................................................................ — 14 — — Machinery and technical plant ................................................................................................... — 112 — — ............................................................................................................................................... 897 — — — 24,094 163 — — Net assets in subsidiaries Bank bills Total collateral pledged for own loan liabilities to financial institutions ..... 37 During the second half of 2001, Tele2 Sverige AB and SEC S.A. jointly signed a new five-year bank finance facility for EURO 1.2 billion, guaranteed by ABN Amro, CIBC World Markets, ING Bank, Nordea, The Royal Bank of Scotland and West LB. The five-year bank financing facility with amortization replaces two previous credit facilities in Tele2 Sweden and Société Européene de Communication S.A. The five-year loan facility is based on requirements involving the fulfillment of certain financial key ratios. Tele2 Sverige AB Group and SEC SA Group expect to fulfill the requirements. The loan liability carries a rate of interest corresponding to Euribor and Libor, respectively, plus an interest margin. The interest margin, which is based on indebtedness in relation to operating profit before depreciation, starts at 2.25% and is reduced in line with the improvement in operating profit before depreciation. At December 31, 2001, the interest margin was 2%. In the Group, pledged assets are reported in an amount corresponding to the book value of the net assets that each subsidiary represents in the consolidated balance sheet. The average rate of interest on loan liabilities was 6.3% (2000: 4.8%). Tele2 Annual Report 2001 79 Notes Loan maturity schedule Group Parent Company Dec. 31, 01 Dec. 31, 00 Dec. 31, 01 Dec. 31, 00 ...................................................................................................................................... 731 2,682 — 21 1–2 years .............................................................................................................................................. 2,375 2,166 — — 2–3 years .............................................................................................................................................. 3,254 963 — — 3–4 years .............................................................................................................................................. 2,601 2,262 — — 4–5 years .............................................................................................................................................. 2,553 18 — — 60 81 — — 11,574 8,172 — 21 Within 1 year 5–10 years ............................................................................................................................................ Total loans to financial institutions .................................................................................... Interest rate risk: The Group’s interest-rate on borrowing is currently variable with fixed-interest periods of up to 12 months. However, Tele2 is monitoring trends on interest-rate markets and decisions regarding the interest-rate fixing strategy are assessed continually. Financial leases: All fixed assets utilized through financial leasing have been included in the consolidated accounts as fixed assets and loan liabilities, with the exception, however, of contracts signed before 1997. The effects of these being included in the consolidated balance sheet are shown below and in Note 13. Financial leasing Booked loan liability Group: Booked loan liability Dec. 31, 01 Dec. 31, 00 Dec. 31, 01 Dec. 31, 00 Short-term component ................................................................................................................... 24 51 9 9 Long-term component .................................................................................................................... 125 131 91 99 149 182 100 108 Total loans for financial leases .............................................................................................. Loan liability matures Group: Booked Not booked Dec. 31, 01 Dec. 31, 01 ......................................................................................................................................................................................................... 35 13 1–2 years ................................................................................................................................................................................................................. 41 13 2–3 years ................................................................................................................................................................................................................. 36 13 3–4 years ................................................................................................................................................................................................................. 19 13 4–5 years ................................................................................................................................................................................................................. 13 48 Within 1 year 5–10 years 40 18 ....................................................................................................................................................................... 184 118 ........................................................................................................................................................................................... – 35 – 18 149 100 ............................................................................................................................................................................................................... Total loan liability and interest Less: interest portion Total loans for financial leasing objects ............................................................................................................................................. Financial leasing pertains primarily to the extension of transmission capacity in Sweden through Svenska Kraftnät Vattenfall and agreements signed in Denmark and the Baltic States. 80 Tele2 Annual Report 2001 Notes Note 27 Other interest-bearing liabilities Current interest-bearing liabilities Group Dec. 31, 00 Dec. 31, 01 ...................................................................................................................... 134 77 — 3 .................................................................................................................................................. 17 469 — — 151 546 — 3 Levicom International Ericsson Parent Company Dec. 31, 01 Total other current interest-bearing liabilities ............................................................. Dec. 31, 00 Long-term interest-bearing liabilities Group Ericsson .................................................................................................................................................. Parent Company Dec. 31, 01 Dec. 31, 00 Dec. 31, 01 Dec. 31, 00 2 — — — 55 — — — 14 49 — — (50% guaranteed by MIC) Motorola ................................................................................................................................................ Kinnevik S.A. ....................................................................................................................................... Millicom International BV .............................................................................................................. 44 37 — — Total other long-term interest-bearing liabilities ........................................................ 115 86 — — Collateral pledged for liabilities to financial institutions Group Dec. 31, 00 Dec. 31, 01 Dec. 31, 00 ................................................................................................... — 374 — — .................................................................................................................... — 6 — — ........................................................................................................................................... — 115 — — ............................................................................................................................................... — 13 — — — 57 — — — 565 — — Machinery and technical plant Materials and supplies Receivables Bank bills Parent Company Dec. 31, 01 Other assets .......................................................................................................................................... Total collateral pledged for other interest-bearing liabilities ............................ Loan maturity schedule Group Dec. 31, 00 Dec. 31, 01 ...................................................................................................................................... 151 546 — 3 .............................................................................................................................................. 115 86 — — 266 632 — 3 Dec. 31, 01 Dec. 31, 00 Dec. 31, 01 218 154 — 1 ................................................................................................................. 37 24 — — ........................................................................................................................................... Within 1 year 1–2 years Parent Company Dec. 31, 01 Total other interest-bearing liabilities Note 28 ............................................................................... Other current liabilities Group Total other interest-bearing liabilities: VAT liability Dec. 31, 00 ........................................................................................................................................... Tax-at-source, personnel Parent Company Dec. 31, 00 34 — — — ............................................................................................................. 30 20 — — ........................................................................................................................ 26 — — — ............................................................................................................................. 17 15 — — Program expenses and subscription revenue, cable-TV ................................................... — 18 — — Other 13 91 — — 375 322 — 1 Other taxes Liability to SCD Finans AB Liability to Motorola Customer deposits ....................................................................................................................................................... Total other current liabilities ................................................................................................... Tele2 Annual Report 2001 81 Notes Note 29 Accrued expenses and prepaid revenues Group Dec. 31, 00 Dec. 31, 01 Dec. 31, 00 ................................................................................................. 734 891 3 1 ............................................................................................................. 150 13 — 1 ............................................... 1,476 1,316 — — ..................................................................................................... Accrued personnel-related costs Accrued interest expenses Accrued telephony expenses to other telecom operators Accrued expenses for vendors 12 45 — — ....................................................................................... 29 2 — — ................................................................................................................... 33 — — — ...................................................................................... 790 586 4 6 .................................................................................................................................. 541 456 — — 249 120 — — 4,014 3,429 7 8 Accrued leasing and rental expenses Accrued program costs Accrued expenses – external services Prepaid income Other Parent Company Dec. 31, 01 ....................................................................................................................................................... Total accrued expenses and prepaid revenues ........................................................... The change in the consolidated accounting principles for “IQ Spar” – a prepaid call-time program in mobile telephony – resulted in a backdated increase in the preceding year’s reserve for accrued expenses in the amount of SEK 223 million and a reduction in prepaid revenue of SEK 67 million. Note 30 Pledged assets Group Parent Company Dec. 31, 01 Dec. 31, 00 .................................................................................................. 23,197 37 Buildings ................................................................................................................................................ — Machinery and technical plant ................................................................................................... — .................................................................................................................... 18 17 Net assets in Group companies Materials and supplies Dec. 31, 00 14 — — 486 — — — — ........................................................................................................................................... 18 126 — — ............................................................................................................................................... 897 447 — — 9 68 — — 24,139 1,195 — — Receivables Bank bills Dec. 31, 01 Other assets .......................................................................................................................................... Total assets pledged for own liabilities ........................................................................... The above information shows the book value of assets pledged as collateral for external loans (as into Note 26), overdraft facilities and blocked bank funds (as in to Note 23) and other liabilities (as in to Note 27). In the Group, pledged shares are reported in an amount corresponding to the book value of the net assets that each subsidiary represents in the consolidated balance sheet. 82 Tele2 Annual Report 2001 Notes Note 31 Contingent liabilities and other commitments Group Dec. 31, 00 Dec. 31, 01 ......................................................................... — — 15,133 334 ........................................................................................................ — — 15,133 334 Surety bonds benefiting Group companies Total contingent liabilities Parent Company Dec. 31, 01 Dec. 31, 00 SEK 10,541 million of the contingent liabilities in the Parent Company relates to a guarantee for the five-year loan facility (Note 25). Operational leases: Future fees due for payment Group Parent Company Dec. 31, 01 Dec. 31, 01 2002 ....................................................................................................................................................... 471 — 2003 ....................................................................................................................................................... 238 — 2004 ....................................................................................................................................................... 189 — 2005 ....................................................................................................................................................... 123 — 2006 ....................................................................................................................................................... 112 — 727 — 1,860 — Group 2001 Leasing fees for the year Parent Company 2001 782 — 2007 or later ....................................................................................................................................... Total future fees for operating leases due for payment ..................................... Fees for operating leases for the year Note 32 Supplementary cash-flow information Transactions not affecting cash are as follows: In addition to the reported investing and financing operations, as shown in the cash flow analyses, the following transactions occurred that did not affect cash. In the Parent Company, the acquisition of shares in Fora Telecom BV was conducted through a limited share issue of SEK 849 million and is not included in cash flow as investing or financing. On the acquisition date, Fora Telecom BV had cash of SEK 884 million, which is reported in the cash flow as a reduced investment. The acquisition of shares in OU Levicom Broadband was undertaken through loan financing from the seller in the amount of SEK 134 million and is not included in cash flow as investing or financing. On the acquisition date, OU Levicom Broadband had cash of SEK 5 million, which is reported in the cash flow as a reduced investment. During 2000, the Parent Company acquired shares in Société Européene de Communications S.A. for SEK 19,772 million through a limited share issue and is not included in cash flow as investing or financing. Only the cash on the acquisition date, amounting to SEK 3,008 million is reported in the cash flow as a reduced investment. In addition to the reported investing and loan liability in the cash flow, investing and the raising of loans trough financial leasing in the Group amounted to SEK 17 million (2000: SEK 0) and amortization of loans through financial leasing to SEK –22 million (2000: SEK –13 million). During 2001, the Parent Company received a Group contribution from Tele2 Sverige AB of SEK 2,100 million, which has not been reported as financial activities. In addition to the reported sales of shares in subsidiaries in the cash flow during 2001, the Parent Company divested shares in OU Levicom Broadband and Travellink AB for SEK 93 million to the subsidiary Tele2 Sverige AB. In addition to the reported sales of shares in the subsidiaries, Tele2 AB’s subsidiary Société Européene de Communications S.A. was liquidated. The net reduction in investments was SEK 9,421 million since the shares were booked at SEK 23,385 million and the liquidation loss amounted to SEK 13,964 million. Tele2 Annual Report 2001 83 Notes Cash flow statement based on net profit/loss: Group: 2001 2000 392 – 396 .......................................................................................................................................................................... 3,054 1,400 ............................................................................................................................................................................................. Current operations Net profit/loss for the year .............................................................................................................................................................................. Adjustment of items in profit/loss for the year that do not generate cash flow from current operations: Depreciation/amortization –1 — ............................................................................................................................. 58 44 ................................................................................................................................................................................... – 2,335 561 Financial leases ................................................................................................................................................................................................ –5 –6 Unpaid interest ................................................................................................................................................................................................ –2 – 31 .................................................................................................................................................................................................................... — 2 1,161 1,574 – 748 – 691 413 883 Minority interest Profit/loss from shares in associated companies Deferred tax expense Other Change in working capital .............................................................................................................................................................................. Cash flow from current operations ....................................................................................................................................................... Investments according to the cash flow statement by market and business area: Investments Group: Nordic 2000 1,029 1,266 .............................................................................................................................................................................. 328 174 ....................................................................................................................................................................................................... 149 19 .................................................................................................................................................................................................. 454 11 ........................................................................................................................................................................................................... 122 8 63 40 2,145 1,518 ........................................................................................................................................................................................................................ Eastern Europe and Russia Central Europe Southern Europe Luxembourg 2001 Branded products & services .......................................................................................................................................................................... Change in long-term receivable ................................................................................................................................................................... 87 95 ....................................................................................................................................................................... – 765 – 843 ................................................................................................................................................................................................. 1,467 770 Acquisition/sale of companies Total by market Investments Group: Mobile telephony 789 773 1,272 658 ................................................................................................................................................................................................................... 52 40 Data-processing 32 47 2,145 1,518 ................................................................................................................................................................... 87 95 ....................................................................................................................................................................... –765 –843 ................................................................................................................................................................................... 1,467 770 ..................................................................................................................................................................................................... Change in long-term receivable Acquisition/sale of companies Total by business area 84 2000 ......................................................................................................................................................................... ................................................................................................................................................................................................ Fixed telephony and Internet Cable-TV 2001 Tele2 Annual Report 2001 Notes Note 33 U.S. accounting principles (US GAAP) The consolidated balance sheets and income statements have been prepared in accordance with Swedish accounting principles. These differ in certain respects from U.S. accounting principles (US GAAP). The presentation below shows the adjustments required for compliance with US GAAP. Profit/loss for the year: Group Profit/loss for the year according to Swedish accounting principles: ........................................ 2001 2000 1999 392 – 396 3 768 Adjustments required for compliance with US GAAP. ........................................................................... 21 24 20 b) Accounting for associated companies ................................................................................................. — — 134 c) Lease agreements .......................................................................................................................................... 2 3 3 d) Tangible fixed assets.................................................................................................................................. 9 31 29 e) Options ............................................................................................................................................................... 5 – 196 9 f) Proprietary software ..................................................................................................................................... — 80 – 81 g) Accounting for gradual acquisitions .................................................................................................. –8 – 317 – 61 h) Accounting for acquisitions ...................................................................................................................... – 367 – 104 — i) Deferred tax liability .................................................................................................................................... 828 — – 828 — a) Transactions between jointly owned companies j) SPP insurance refund................................................................................................................................... — –8 k) Changes in accounting principles.......................................................................................................... – 156 21 2 l) Accounting for contingencies .................................................................................................................. –2 — — Net adjustment .................................................................................................................................................... 332 – 466 – 773 Tax effect on above US GAAP adjustments ............................................................................................ 39 – 38 8 Profit/loss for the year according to US GAAP ........................................................................... 763 – 900 3 003 Adjusted earnings/loss per share ................................................................................................................ SEK 5.26 SEK – 7.89 SEK 28.99 Weighted average number of outstanding shares ............................................................................. 145,003,847 114,087,366 103,598,394 Adjusted earnings/loss per share after full dilution ........................................................................... Weighted average number of outstanding shares after full dilution ....................................... SEK 5.25 SEK – 7.89 SEK 28.92 145,215,999 114,087,366 103,850,246 Dec. 31, 01 Dec. 31, 00 Dec. 31, 99 29,517 26,539 6,660 – 72 Shareholders’ equity: Group Shareholders equity according to Swedish accounting principles ............................................. Adjustments required for compliance with US GAAP: ........................................................................... – 27 – 47 c) Lease agreements .......................................................................................................................................... 13 11 9 d) Tangible fixed assets.................................................................................................................................. 60 51 20 e) Options ............................................................................................................................................................... – 25 – 30 9 f) Proprietary software ..................................................................................................................................... — — – 80 g) Accounting for gradual acquisitions .................................................................................................. – 102 – 94 – 61 h) Accounting for acquisitions ...................................................................................................................... 6,630 6,592 — .................................................................................................................................. — – 828 – 828 j) SPP insurance refund................................................................................................................................... –7 –7 — k) Changes in accounting principles.......................................................................................................... — 156 135 a) Transactions between jointly owned companies i) Deferred tax liability l) Accounting for contingencies .................................................................................................................. –2 — — Net adjustment .................................................................................................................................................... 6,540 5,804 – 868 Tax effect on above US GAAP adjustments ............................................................................................ – 16 – 54 – 20 Shareholders’ equity according to US GAAP .............................................................................. 36,041 32,289 5,772 Tele2 Annual Report 2001 85 Notes Extract from the consolidated balance sheet: Official Dec. 31, 01 US GAAP Dec. 31, 00 Dec. 31, 01 Dec. 31, 00 Balance sheet: ...................................................................................................................................... 9,566 6,517 9,566 6,517 Fixed assets ........................................................................................................................................... 39,590 35,828 46,304 42,462 Total assets ............................................................................................................................................ 49,156 42,345 55,870 48,979 Current assets Current liabilities ................................................................................................................................ Long-term liabilities 8,631 9,612 8,639 9,476 10,980 6,186 11,162 7,206 ................................................................................................................................ 28 8 28 8 ..................................................................................................................................... 19,639 15,806 19,829 16,690 29,517 26,539 36,041 32,289 Minority interest Total liabilities ......................................................................................................................... Shareholders’ equity ........................................................................................................................ Back-dated adjustments in conjunction with gradual acquisitions: As a result of a gradual acquisition of the shares in OU Levicom Broadband in December 2001, a back-dated adjustment has been made of the original investment of 19% as if accounting had been undertaken in accordance with the equity method for associated companies instead of historical acquisition value. This means that an adjustment arises in shareholders’ equity corresponding to Tele2’s share in the profit/loss of OU Levicom Broadband during the period February 1999–December 2001 and amortization of the resulting goodwill. The back-dated adjustment for profit/loss in 1999 and 2000 according to US GAAP amounts to SEK –5 million and SEK –7 million, respectively, with an effect on earnings per share before and after full dilution of SEK –0.05 and SEK –0.06. The backdated adjustment of shareholders’ equity as of December 31, 1999 and 2000, respectively thus amounts to SEK –5 million and SEK –12 million, respectively. In October 2000, there was a gradual acquisition of the shares in Société Européene de Communication S.A. A back-dated adjustment was made as in the case of Levicom, in which the back-dated adjustment of the 1999 profit/loss according to US GAAP amounted to SEK –79 million, with an effect on earnings per share before and after full dilution of SEK 0.77. The back-dated adjustment of shareholders’ equity at December 31, 1999 amounted to a reduction in shareholders’ equity of SEK 1,856 million, which derives manly from a reversal of unrealized profit in respect of a market evaluation of the SEC shares at December 31, 1999. Explanation of the current differences between Swedish accounting principles and US GAAP: The account below presents a description of the adjustments that must be made to report Tele2 Group’s profit/loss for 1999, 2000 and 2001 and shareholders’ equity as of December 31 1999, 2000 and 2001 in accordance with US GAAP. a) Transactions between jointly owned companies In 1993 and 1994, the company acquired Tele2 and Comviq from the Industriförvaltnings AB Kinnevik Group. The acquisition method was used to report the transactions. Accordingly, the difference between the acquisition value and market value of net assets was reported as goodwill. According to US GAAP, acquisitions of operations from “jointly owned companies” should be conducted at historical values. Thus, as a US GAAP adjustment, all re-evaluations of plants, materials and supplies, goodwill, etc. that arise on the transaction date are eliminated and the resulting depreciation/amortization is reversed. b) Accounting for associated companies In 1993, the company acquired shares in the Norwegian associated company NetCom ASA from a company in the Industriförvaltnings AB Kinnevik Group. The investment was reported in accordance with the equity method. A surplus value was reported in connection with the investment. According to US GAAP, this surplus value and the resulting amortization have been reversed since it arose as a result of a transaction between “jointly owned companies”. During 1999, the company divested the shares, and thus there was no longer any difference compared with US GAAP. c) Leasing agreements The Group has certain leasing transactions which, according to generally accepted accounting principles in Sweden, have been treated as operational leases, bit which according to US GAAP are viewed as financial leasing. d) Tangible fixed assets Certain costs have been capitalized in accordance with Swedish accounting principles should be expensed according to US GAAP. According to US GAAP, certain costs attributable to installations of networks are capitalized and not expensed. e) Options According to US GAAP, as a result of the terms and conditions of options programs, a liability is calculated based on the market value of the underlying shares. The valuation of the options was conducted in accordance with the Black-Scholes model. As a result of the fact that the Annual General Meeting in May 2000 authorized the Board to settle the option commitments through a new share issue, the previously book provision for liability was dissolved via the income statement. According to US GAAP, the commitments to employees should not be dissolved. Commitments to others should be valued at the value of the option on the date on which the decision was made to settle it through a new share issue and report it directly against shareholders’ equity. 86 Tele2 Annual Report 2001 Notes f) Proprietary software Through 1999, Tele2 has capitalized development costs for software for external sales. According to US GAAP, this should be expensed and depreciation attributable to capitalization be reversed until the product is technically finalized. As a result of the sale of 4T Solutions AB in 2000, there is currently no difference vis-a-vis US GAAP. g) Accounting for gradual acquisitions The gradual acquisitions of OU Levicom and Société Européene de Communications S.A. during 1999–2001 has, according to Swedish accounting principles, resulted in a back-dated adjustment of shareholders’ equity corresponding to shares in profit of the holdings from the original acquisition date based on the equity method rather than historical acquisition values. According to US GAAP, not only should shareholders’ equity be adjusted against the share in profit/loss but also goodwill and depreciation be taken into account from the original acquisition date. h) Accounting for acquisitions The acquisition of Société Européene de Communications S.A. in 2000 was conducted via a non-cash share issue, in which newly issued shares in Tele2 were offered in exchange for the outstanding shares in Société Européene de Communications S.A. According to Swedish accounting principles, the acquisition price is calculated at a value corresponding to the share price of Tele2 on the transaction date. According to US GAAP, the acquisition price should be set at the share price on the date at which the offer was announced. There are also certain differences between acquired net assets according to US GAAP and Swedish accounting principles. As a result of these differences, the goodwill value reported, including depreciation according to US GAAP has been adjusted. i) Deferred tax liability According to US GAAP, deferred taxes should be reported for all temporary differences apart from certain exceptions. The reversal of deferred tax liabilities as a result of changes in circumstances is done restrictively. According to Swedish accounting principles, changes in circumstances can be taken into account in the assessment. In conjunction with the liquidation of Société Européene de Communications S.A. in 2001, there was no longer any differences vis-a-vis US GAAP. j) SPP insurance refund According to Swedish accounting principles, the value of the refund received by Tele2 from SPP should be reported via the income statement in 2000. According to US GAAP, only the cash portion received should be reported as income. k) Changes in accounting principles According to Swedish accounting principles, changes in accounting principles are reported through a recalculation of the opening shareholders’ equity as if the new principles had been applied already when the transaction arose. According to US GAAP, the change is reported across the income statement when changes in principles are made. l) Accounting for contingencies The application of accounting for contingencies according to US GAAP requires that the company have very stringent requirements that apply in terms of the documentation of contingency planning and proof of its effectiveness. Swedish accounting principles do not apply similarly restrictive requirements for accounting for contingencies. Options: Parent Company: At the Annual General Meeting of the Parent Company in May 1997, it was decided to undertake an incentive program for key personnel in the Tele2 Group. The incentive program meant that a number of managers in the Group, through a limited liability company – NetCom Intressenter AB, were given the opportunity to acquire 100,000 B shares, in a maximum total amount of 500,000 shares during the period 1999–2003. In October 2000, the Board decided to issue 200,000 new shares and issue three convertible debenture notes, corresponding to 300,000 shares, as stated in Note 25. The premium for the option amounted to SEK 7 million in 1997. The valuation was conducted in accordance with the Black-Scholles options model, based on the share’s market price and the exercise price of SEK 150. The share price of the shares at the date of signing of the agreement in May 1997 was SEK 107.50 and was SEK 378 on December 31, 2001. The Board was of the opinion that the above conditions were market based. On December 31 2001 and December 31 2000, Invik & CO AB owned respectively 42% and 47% of the shares in NetCom Intressenter AB. Invik & Co AB is not entitled to sell or transfer the shares without the permission of Tele2 AB. The company plans to transfer these shares to employees in the future. In accordance with Swedish accounting principles, the option liability as a result of the above was dissolved in its entirety in 2000. According to US GAAP, depending on the conditions of the option program, a liability should be calculated based on the difference between the market value of the underlying shares and the exercise price. Pro forma: A valuation in accordance with the Black-Scholes options model would give the following effect on earnings according to US GAAP: Profit/loss for the year, reported as above ............................................................................................... Adjusted earnings per share after full dilution ...................................................................................... Profit/loss for the year, pro forma ................................................................................................................. Adjusted earnings per share after full dilution ...................................................................................... 2001 2000 1999 763 – 900 3,003 SEK 5.25 SEK – 7.89 SEK 28.92 760 – 904 2,996 SEK 5.23 SEK – 7.92 SEK 28.85 The calculation is based on a risk-free rate of interest of 5.0% (2000: 5.3%), no dividend, volatility of 45.5% (2000: 40%) and that the option matures on April 20, 2003. Tele2 Annual Report 2001 87 Notes Subsidiaries: In the acquisition of Société Européene de Communications S.A, there were a number of options programs for senior executives in SEC S.A. The programs were not covered by Tele2’s offer to acquire SEC. The terms and conditions of the options are shown below: Options program Earning period Number of options Exercise price Expiry date 17 May, 1998 3 years to Aug. 1, 2000 8,424,000 1) 2002-07-31 17 May, 1998 3 years to May 19, 2003 4,500,000 DEM 3.50 2004-05-19 17 May, 1999 3 years to May 19, 2004 3,386,000 SEK 30.50 2005-05-19 14 september 1999 3 years to Sept. 14, 2004 100,000 SEK 26.80 2005-09-14 31 May, 2000 3 years to May 31, 2005 3,768,000 SEK 44.90 2006-05-31 1) The exercise price for 2,411,000 options is USD 0.99. the exercise price for 2,410,000 options is USD 1.57 and the exercise price for 3,603,000 options is USD 1.09. Cash flow statement: According to US GAAP, cash flow from current operations should be reported on the basis of the net profit/loss for the year. Swedish accounting principles permit a cash flow to be drawn up on the basis of other results. See Note 32. According to US GAAP, blocked funds are reported separately from cash and bank balances in both the balance sheet and in the cash flow statement. See Note 23. Earnings/loss per share: As opposed to Swedish accounting principles, earnings/loss per share are calculated after dilution, in accordance with US GAAP, and not at the present value of the exercise price for convertibles. Profit/loss for the year ............................................................................................................................................ 2001 2000 1999 763 – 900 3,003 ....................................................................................................... 145,003,847 114,087,366 103,598,394 ................................................................................................................................ SEK 5.26 SEK – 7.89 SEK 28.99 Profit/loss for the year ........................................................................................................................................ 3,003 Number of shares, weighted average Earnings/loss per share 763 – 900 ........................................ — — — ............................................................................. 763 – 900 3,003 ........................................... 145,223,466 114,224,866 103,850,246 ...................................................................................... SEK 5.25 SEK – 7.88 SEK 28.92 Reversal, interest for the year after tax on outstanding convertibles Adjusted profit/loss for the year after full dilution Number of outstanding shares after full dilution, weighted average Earnings/loss per share after full dilution Deferred tax: The estimated tax effect in respect of temporary differences reported as deferred tax receivables in reconciliation against accounting according to US GAAP is shown below. Deferred tax liability (–)/-receivable (+) according to Swedish accounting principles ........ Adjustment item .................................................................................................................................................. Total deferred tax liability (–)/-receivable (+) according to US GAAP ......................... 2001 2000 1,764 – 571 – 16 – 882 1,748 – 1,453 Real value of financial items: Financial items for the Group such as cash and bank balances, current investments, receivables and liabilities, prepaid revenue and current liabilities to financial institutions are regarded as corresponding to the real value since they are of a short-term nature. The book value of long-term liabilities to financial institutions and options issued are also regarded as corresponding to the real value. Comprehensive Income: Comprehensive Income encompasses the profit/loss for the year and changes in translation differences. 2001 2000 1999 3,003 Comprehensive Income: Profit/loss according to US GAAP 763 – 900 ............................................................. 2,149 – 73 21 ........................................................................... 2,912 – 973 3,024 31 ................................................................................................................ Changes in translation differences according to US GAAP Comprehensive income according to US GAAP Accumulated comprehensive income ........................................ – 21 52 ............................................................. 2,149 – 73 21 2,128 – 21 52 Accumulated comprehensive income according to US GAAP, Jan. 1 Changes in translation differences according to US GAAP Accumulated comprehensive income according to US GAAP. Dec. 31 ....................... Advertising expenses: Total advertising costs for the year amounted to SEK 1,031 million (2000: SEK 630 million; 1999: SEK 168 million). 88 Tele2 Annual Report 2001 Stockholm March 20, 2002 Jan Hugo Stenbeck Chairman Lars-Johan Jarnheimer President Marc Beuls Vigo Carlund Bruce Grant Sven Hagströmer Håkan Ledin Per Törnberg Lars Wohlin Our auditors’ report was submitted on March 26, 2002 Pål Wingren Authorized Public Accountant Hans Karlsson Authorized Public Accountant Audit report To the General Meeting of the shareholders of Tele2 AB (publ) Corporate identity number 556410-8917 We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the board of directors and the managing director of Tele2 AB ( publ) for the year 2001. These accounts and the administration of the company are the responsibility of the board of directors and the managing director. Our responsibility is to express an opinion on the annual accounts, the consolidated accounts and the administration based on our audit. We conducted our audit in accordance with generally accepted auditing standards in Sweden. Those standards require that we plan and perform the audit to obtain reasonable assurance that the annual accounts and the consolidated accounts are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and their application by the board of directors and the managing director, as well as evaluating the overall presentation of information in the annual accounts and the consolidated accounts. As a basis for our opinion concerning discharge from liability, we examined significant decisions, actions taken and circumstances of the company in order to be able to determine the liability, if any, to the company of any board member or the managing director. We also examined whether any board member or the managing director has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. We believe that our audit provides a reasonable basis for our opinion set out below. The annual accounts and the consolidated accounts have been prepared in accordance with the Annual Accounts Act and, thereby, give a true and fair view of the company’s and the group’s financial position and results of operations in accordance with generally accepted accounting principles in Sweden. We recommend to the general meeting of shareholders that the income statements and balance sheets of the parent company and the group be adopted, that the loss in the parent company be dealt with in accordance with the proposal in the administration report and that the members of the board of directors and the managing director be discharged from liability for the financial year. Stockholm, March 26, 2002 Pål Wingren Authorized Public Accountant Hans Karlsson Authorized Public Accountant Tele2 Annual Report 2001 89 Addresses Tele2 AB Skeppsbron 18 P.O. Box 2094 103 13 Stockholm, Sweden Phone: +46 8 5620 0060 Fax: +46 8 5620 0040 Norway Investor Relations 30 St James’ Square GB-SW1Y 4JH, London, UK Phone: +44 20 7321 5010 Fax: +44 20 7321 5020 Datametrix AS Grenseveien 95 NO-0663 Oslo, Norway Phone: +47 23 03 59 00 Fax: +47 23 03 59 01 Nordic Denmark Sweden Tele2 Sverige AB Borgarfjordsgatan 16 P.O. Box 62 SE-164 94 Kista, Sweden Phone: +46 8 5626 4000 Fax: +46 8 5626 4200 Customer services: (only for customers in Sweden) 0200-25 25 25 (Internet) 0200-25 25 25 (fixed telephony) 0200-22 20 40 (mobile telephony) Comviq P.O. Box 62 164 94 Kista, Sweden Phone: +46 8 5626 4000 Fax: +46 8 5865 3444 Customer services: (only for customers in Sweden) 0200-22 20 40 (households) 0200-22 40 50 (businesses) Kabelvision P.O. Box 62 SE-164 94 Kista, Sweden Phone: +46 8 5626 4352 Fax: +46 8 5865 4840 Datametrix AB P.O. Box 20078 SE-161 02 Bromma, Sweden Phone: +46 8 5220 0200 Fax: +46 8 5220 0290 90 Tele2 Annual Report 2001 Tele2 Norge AS Ulvenveien 75A NO-0581 Oslo, Norway Phone: +47 21 31 90 00 Fax: +47 21 31 91 00 Tele2 A/S Gammel Køge Landevej 55 DK-2500 Valby, Denmark Phone: +45 77 30 10 01 Fax: +45 77 30 10 00 Datametrix A/S Gammel Køge Landevej 55–57 DK-2500 Valby, Denmark Phone: +45 77 30 10 60 Fax: +45 77 30 10 61 Finland Tele2 Finland Sentnerikuja 3 FIN-00440 Helsinki, Finland Phone: +358 9 74 22 12 45 Fax: +358 9 74 22 12 46 Datametrix Oy P.O. Box 5 FIN-01301 Vanda, Finland Phone: +358 9 47 64 82 00 Fax: +358 9 47 64 82 10 Eastern Europe and Russia Estonia OÜ Levicom BroadBand Ahtri 12, EE-10151 Tallinn, Estonia Phone: +372 6105 780 Fax: +372 6105 781 Latvia SIA Tele2 Kurzemes Prospectus 13 Riga LV-1067, Latvia Phone: +371 960 99 99 Fax: +371 709 01 76 Lithuania UAB Tele2 Sporto g. 7a LT-20 51 Vilnius, Lithuania Phone: +370 2 366 300 Fax: +370 2 366 301 Poland Tele2 Polska ul. Poste-pu 15 PL-02-676 Warsaw, Poland Phone: +48 (22) 549 50 60 Fax: +48 (22) 549 50 61 Czech Republic Tele2 s. r. o. Vinohradská 184, Praha 3, CZ-130 00, Czech Republic Phone: +420 267 13 22 38 Fax: +420 274 77 82 40 Russia FORA Telecom B.V. (Tele2) B. Gnezdnikovsky Per., 1str.2, 7 floor RU-103 009, Moscow, Russia Phone: +7 095 797 21 61 Fax: +7 095 797 21 62 Sweden X-Source AB P.O. Box 416 129 44, 129 04 Hägersten, Sweden Phone: +46 8 5222 3500 Fax: +46 8 5222 3552 Adresser Central Europe Southern Europe Germany France Branded products & services Tele2 Telecom Services GmbH In der Steele 39a, DE-40599 Düsseldorf, Germany Phone: +49 211 7600 4600 Fax: +49 211 7400 448 Tele2 (France) S.A. 14 Rue des Frères Caudron FR-78143 Vélizy cedex, France Phone: +33 1 39 45 44 44 Fax: +33 1 39 45 44 00 Optimal Telecom AB P.O. Box 62 SE-164 94 Kista, Sweden Phone: +46 8 5626 2500 Fax: +46 8 5626 2525 Netherlands Italy Tele2 Nederland B.V. Ellermanstraat 19 NL-1099BX Amsterdam, Netherlands Phone: +31 207 020 202 Fax: +31 207 020 222 Tele2 Italia SpA Via Cassanese 210 IT-20090 Segrate Milan, Italy Phone: +39 02 269 571 Fax: +39 02 269 204 37 Optimal Telecom A/S Karl Jacobsen vej 20 DK-2500 Valby, Denmark Phone: +45 77 30 12 90 Fax: +45 77 30 00 56 Spain Schweiz TELE2 Telecommunication Services AG Postfach 49 CH-8037 Zürich, Schweiz Phone: +41 1 524 24 24 Fax: +41 1 524 47 78 Tele2 Telecommunication Services S.L. Francisco de Ricci,3, ES-28015 Madrid, Spain Phone: +34 91 540 28 00 Fax: +34 91 540 28 01 IntelliNet France S.A. 75, route de Longwy LU-8080 Bertrange, Luxembourg Phone: +352 459 54 51 Fax: +352 459 551 IntelliNet Telecom.Serv.GmbH Schmidtstrasse, 51 D-60326 Frankfurt, Germany Phone: +49 697 500 140 Fax: +49 697 500 14 29 Austria Luxembourg Tele2 Telecommunication Services GmbH Schönbrunnerstr. 213–215, 4 floor AT-1120 Vienna, Austria Phone: +43 181 101 300 Fax: +43 181 101 100 Luxembourg Tango S.A. 177, rue de Luxembourg, LU-8077 Bertrange, Luxembourg Phone: +352 27 777 101 Fax: +352 27 777 888 Everyday.com P.O. Box 17041 SE-104 62 Stockholm, Sweden Phone: +46 8 5889 8400 Fax: +46 8 5889 8401 Ireland 3C Communications S.A. 75 route de Longwy LU-8080 Bertrange, Luxembourg Phone: +352 27 750 101 Fax: +352 27 750 250 C3 Calling Card Company 1 Mill Street GB-London SE1 2DE, UK Phone: +44 207 232 4949 Transac S.A. 3, rue de l’Abattoir LU-3409 Dudelange, Luxembourg Phone: +352 27 754 101 Fax: +352 27 754 300 Tele2 UK Communications Ltd Kingstons House 15, Coombe Road GB-London RG2 OSY, UK Phone: +44 208 957 1900 Fax: +44 208 957 1901 Tele2 Telecommunication Services Ltd Office 4, O’Duffy Centre, Main Street, Carrickmacross, Co Monaghan, Ireland Phone: +353 42 969 2946 Fax: +353 42 969 2947 Liechtenstein Tele2 AG 75 route de Longwy, LU-8080 Bertrange, Luxembourg Phone: +352 27 750 101 Fax: +352 27 750 250 Belgium Tele2 Belgium N.V. 75 route de Longwy, LU-8080 Bertrange, Luxembourg Phone: +352 27 750 101 Fax: +352 27 750 250 Tele2 Annual Report 2001 91 Definitions DEFINITIONS GLOSSARY Text in parentheses refers to financial ratios after full conversion. CRM – Customer Relationship Management – often uses computer-based systems. Liquidity Cash and cash equivalents, including unutilized credit facilities granted. Net borrowing Interest-bearing liabilities (less convertible debentures) less interest-bearing assets. Investments Acquisition and divestment of fixed assets, including investments through financial leases, and investments not qualifying as cash equivalents. DSL – Digital Subscriber Line. Generic name covering several different technologies for data transmission over fixed phone lines. GPRS – General Packet Radio Service. A technology that permits high-capacity data transmission using mobile phones. GSM – Global System of Mobile Communications or Groupe Spécial Mobile. 2nd-generation mobile telephony system. Digital, as opposed to analog NMT. Solidity Shareholders’ equity (including convertible debentures) divided by total assets. HSCSD – High Speed Circuit Switched Data.A technology for data transmission over mobile networks. Uses the GSM system as a base. Debt-equity ratio Interest-bearing net debt divided by shareholders’ equity at the end of the period. IP – Internet Protocol. A series of rules for communication among computers over the Internet. Return on shareholders’ equity Profit/loss after tax less items affecting comparability, minority interests after tax deductions (and interest expense for convertible debentures after tax deductions) divided by average equity (including convertible debentures). LAN – Local Area Network. Local network of computers, often in the same room or building. Capital employed Total assets less provisions, minority interests and non-interestbearing liabilities. Return on capital employed Profit/loss after financial items less items affecting comparability and financial costs (less interest expense for convertible debentures) divided by average capital employed. Average interest rate Interest expense (less interest expense for convertible debentures) divided by average interest-bearing liabilities (less convertible debentures). Profit/loss per share Profit/loss for the period (less interest expense on convertible debentures, and less tax deductions) divided by the weighted average number of shares outstanding during the fiscal year (that would result from full conversion of convertible debentures). Shareholders’ equity per share Shareholders’ equity (including convertible debentures) less minority interests, divided by the weighted average number of shares outstanding during the fiscal year (that would result from full conversion of convertible debentures). Cash flow per share Based on cash flow from operating activities before investment and financing activities. Dividend per share Based on the dividend distributed or proposed each year. P/E ratio Share price divided by profit/loss per share. MVNO – Mobile Virtual Network Operator. MVNO’s have greater network resources than Service Providers with which to offer their own telecom services to subscribers. But they do not have radio access network capacity, which must be purchased from a network operator. NMT – Nordic Mobile Telephone. Ordinarily identified as the 1st-generation mobile telephony.An analog technology developed in the Nordic region. SMS – Short Message Service. Enables the transmission of short text messages between mobile phones or between a computer that is connected to the Internet and a mobile phone. SP – Service Provider. A company that purchases capacity from network operators with which it can sell telecom services to its subscribers. UMTS – Universal Mobile Telecommunications System. A technology for 3rd-generation mobile telephony intended to handle, text, images, and video. UMTS is based on GSM technology but has much greater capacity. VOIP – Voice Over Internet Protocol. Telephony that uses Internet Protocol. VPN – Virtual Private Network. A service that links a company’s local and telecom networks with the computers and phones of employees who work remotely, forming a telecom or data communications network that looks to users like a single business network. WAN – Wide Area Network. A network of computers on different locations. Often consists of several LANs linked together. ARPU Average monthly revenue per customer. WAP – Wireless Application Protocol. An industrial standard for Internet-based data communications over mobile networks. Developed by the WAP Forum, consisting of big corporations like Ericsson, IBM, Motorola and Nokia. MoU Minutes of monthly usage per customer. WLL – Wireless Local Loop. Wireless broadband access via radio networks. Sources: Computer Sweden, Mobiltelebranschen, Svenska Datatermgruppen, and Tele2. 92 Tele2 Annual Report 2001 Tele2 Annual Report 2001 ” ” ” A company that knows where it is going Viking Kjellström, HSBC Lean, Mean Growth Machine Lena Hansson, Julius Bär The IKEA of Telecoms TELE2 AB Skeppsbron 18 P.O. Box 2094 SE-103 13 Stockholm Phone +46 8 5620 0060 Fax +46 8 5620 0040 E-mail [email protected] www.tele2.com Corporate identification No.: 556410-8917 Solberg. Print: On Paper. Tómas Tómasson, Schroder Salomon Smith Barney