Tele2 Reports Q4, Full YearTele2 Reports Q4, Full Year

Fourth quarter operating revenue was SEK 10B, up from SEK 8.5B in 4Q02; full year operating revenue was up 20% to SEK 37.2B

February 9, 2004

8 Min Read

NEW YORK -- Tele2 AB Tele2", "the Group") (Nasdaq:TLTOA) (Nasdaq:TLTOB) and Stockholmsborsen: TEL2A and TEL2B), the leading alternative pan-European telecommunications company, today announced its consolidated results for the fourth quarter and year ended December 31, 2003.

  • Operating revenue for the full year 2003 increased by 20% to MSEK 37,190(1) (MSEK 31,045(2))

  • Profit after tax for the full year 2003 increased to MSEK 2,396 (MSEK 223)

  • Earnings per share after tax and after dilution for full year 2003 increased to SEK 16.20 (SEK 1.51)

  • Record intake of 1.9 million net customers added during Q4

  • Cash flow up 85% to MSEK 3,418 for 2003 after investing activities
    (1) Excl. MSEK -279 regarding adjustments for prepaid card accounting (Note 1)
    (2) Excl. MSEK 237 Telia court settlement (Note 1)



The figures shown in parenthesis correspond to the comparable periods in 2002 and all negative amounts are distinguished with a minus sign. Lars-Johan Jarnheimer, President and CEO of Tele2 AB commented: "Tele2 showed throughout 2003 that it remains a growth company, profitable and highly cash generative. This focus of being long on customers and short on infrastructure continued to bear fruit. We added another 1.9 million customers in the fourth quarter, lifting our customer base to 22.3 million at the end of 2003. Revenue for the year increased by 20% to SEK 37.2 billion whilst at the same time we achieved cash flow of SEK 3.4 billion, up 85%, after investing activities. It remains our objective to maintain this balance between customer growth, profitability and cash flow generation.

During the quarter we added over one million customers in the fixed line and Internet business in Continental Europe, a fourfold increase on the same period in 2002, demonstrating the momentum we have achieved in marketing our low cost products and services to our customers. In Germany the impact of local carrier pre-select has resulted in lower churn and improved margins. In France our ADSL offering has proved highly attractive to customers and we also continue to promote dial-up Internet services in Europe, contrary to a lot of our competitors. The UK business is progressing well and the Eastern Europe and Russia region had its highest ever intake. In the Baltics our mobile operations continue to grow, whilst the fixed line businesses in Eastern Europe show great potential. Our overall successful growth commitments have, of course, had an effect on margins.

In Sweden, the mobile EBITDA margin finally fell below 50% in the fourth quarter. This did not surprise us, as we have been telling the market for over two years that we expected competition in Swedish mobile to increase. In fact, the only surprise to us was that it hadn't happened sooner. In the Nordic fixed business there is currently some pricing pressure while waiting for the impact of being able to resell the fixed line fee to benefit us, in the same way it has in Denmark.

The Board will, as earlier communicated, propose a dividend for the fiscal year 2003. Details will be disclosed Tuesday, 10 February 2004.

Our focus, which has proven to be highly successful, continues to be on low customer acquisition cost, churn management and operational cost control."

OPERATIONAL REVIEW BY MARKET AREA

Nordic

Operating revenue Q4 2003, MSEK 3,361* (3,468), -3% EBITDA Q4 2003, MSEK 1,034* (1,261), -18% EBIT Q4 2003, MSEK 709* (617), +15%

The Nordic market area encompasses mainly Tele2 operations in Sweden (including Optimal Telecom), Norway, Denmark and Finland and Datametrix operations. Sweden

The mobile operations in Sweden reported 3.3 million customers at the end of 2003, an annualized increase of 10%. Monthly average revenue per mobile user (ARPU), including both postpaid and prepaid customers, was SEK 164(1) (187) in the fourth quarter and mobile minutes of usage (MoU) was 84 (89(2)). Prepaid mobile customers accounted for 76% of the total mobile customer base. Tele2, has for some two years expressed the opinion that its mobile margins in Sweden will come under pressure and fall below 50%. Therefore, it is not surprising that this has now occurred. In Q4 the mobile business in Sweden faced increased price competition, higher subsidies and it also further lowered it's interconnect charges. In the Swedish fixed line and Internet business there was some pricing pressure during Q4. Tele2 is awaiting the introduction of the resale of the fixed line subscription fee, which should benefit this business in the same way as it has in Denmark. In Sweden, Svenska UMTS-Nat, a 3G license owner in which Tele2 holds a 50% stake, announced its intention to acquire the fourth Swedish 3G license from Orange, adding capacity at a low cost, hence enabling Tele2 to enhance its position as the price leader in mobile communications. (1) Excl. MSEK -374 regarding adjustments for prepaid card accounting (Note 1) (2) The system used to measure minutes of use has been further improved as from Q1 2003. Previously part of the traffic between two Comviq/Tele2 Mobile subscriptions was accounted for as both incoming and outgoing traffic. This is now measured in one direction only. The comparable figure for 2002 has been adjusted to take account of this change.

Denmark, Norway and Finland

The operations in Denmark, Norway and Finland are predominantly fixed telephony and Internet. Tele2 is the leading alternative operator in Denmark and Norway. In Norway, Tele2 successfully launched the resale of fixed telephony subscription fee during the quarter. While this will strengthen this business in Norway there are costs associated with launching this service. In addition a Mobile Virtual Network Operation (MVNO) was also launched in Norway during the quarter. The positive trend in Denmark continues and Tele2 plans to launch mobile operations in Finland during the first quarter 2004 under its existing MVNO agreement.

Eastern Europe & Russia

Operating revenue Q4 2003, MSEK 850 (626), +36% EBITDA Q4 2003, MSEK 94 (104), -10% EBIT Q4 2003, MSEK -18 (-9)

The Eastern Europe & Russia market area encompasses Tele2 operations in the Baltics (Lithuania, Latvia and Estonia), Poland, the Czech Republic and Russia, and X-Source operations. Tele2 Lithuania has signed a fixed network interconnect agreement with the local incumbent and plans to launch services in February 2004. Tele2 launched mobile Internet and MMS (Multi-Media Messaging) services in Estonia in November. Carrier pre-select (CPS) for fixed telephony was launched in Estonia in December. In the Czech Republic dial-up Internet services were launched during the quarter. In Russia, the business is developing very well. Tele2's GSM networks now reach 10 million people in seven regions, with a small scale GSM launch having taken place in Smolensk during Q4.

Central Europe

Operating revenue Q4 2003, MSEK 2,121 (1,546), +37% EBITDA Q4 2003, MSEK 172 (20), of which MSEK 174 (65), +168%, for fixed telephony & Internet. EBIT Q4 2003, MSEK 120 (-19), of which MSEK 129 (30), +330%, for fixed telephony & Internet.

The Central European market area encompasses Tele2 operations in Germany, the Netherlands, Switzerland and Austria. Tele2's operations in Central Europe grew strongly during the quarter while generating an 8% EBITDA margin. ARPU for fixed telephony and Internet for the Central Europe market area was SEK 158 (164) for the fourth quarter. Since the introduction of local pre-select in Germany the fixed telephony business has picked up, both with regard to churn and margin development. In the Netherlands, market share and margin development continued to improve and the MVNO operations are developing satisfactorily. In December, the Swiss Federal Communications Commission announced that it had awarded Tele2 a GSM license in Switzerland.

Southern Europe

Operating revenue Q4 2003, MSEK 2,839 (2,358), +20% EBITDA Q4 2003, MSEK 248 (156), +59% EBIT Q4 2003, MSEK 224 (123), +82%

The Southern Europe market area includes Tele2 operations in France, Italy, Spain and Portugal. Southern Europe again showed strong customer growth with a record net addition of 736,000 customers in the quarter. ADSL customers accounted for a substantial portion of the customer intake in Q4. ARPU for Southern Europe for fixed telephony and Internet was SEK 148 (162). ADSL services in France continued to grow satisfactorily in Q4. Tele2 France confirmed its position as the leading alternative operator and managed to maintain its steady growth despite increased activity from the incumbent.

Luxembourg

Operating revenue 2003, MSEK 273 (216), +26% EBITDA 2003, MSEK -11 (31) EBIT 2003, MSEK -114 (7)

The Luxembourg market area includes mainly Tele2 operations in Luxembourg (including Tango), Liechtenstein and Belgium, 3C operations and Transac. The successful launch of fixed line services in Brussels during the first quarter and throughout the rest of Belgium in the third quarter has continued to drive stable growth. This investment in customers has impacted the EBITDA margin. Luxembourg, including Tango, maintained the healthy growth seen in previous quarters.

Branded Products & Services Operating revenue 2003, MSEK 586 (277), +112% EBITDA 2003, MSEK -106 (-23) EBIT 2003, MSEK -121 (-26)

Branded Products & Services include Tele2 operation in the UK, Alpha Telecom in the UK, C3 operations, Everyday operations and IntelliNet operations. During the quarter, Tele2 increased its commitments by successfully launching a full-scale entry into the UK market, offering residential fixed line services. Our experience from entering markets of similar size as the UK shows that a successful launch requires initial marketing investments of roughly MSEK 500, during the first year of launch.

Tele2 AB

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