Annual Report 2007 - Financial StatementsFinancial Position, Liquidity and Capital Resources
Balance sheet
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| SEK in millions | 2007 | 2006 |
|---|---|---|
| Assets | ||
| Goodwill and other intangible assets | 83,909 | 74,172 |
| Property, plant and equipment | 52,602 | 48,195 |
| Investments in associated companies and joint ventures, deferred tax assets and other financial assets | 48,633 | 41,826 |
| Total non-current assets | 185,144 | 164,193 |
| Current assets (except cash and cash equivalents) | 23,750 | 23,586 |
| Cash and cash equivalents | 7,802 | 11,603 |
| Total current assets | 31,552 | 35,189 |
| Non-current assets held-for-sale | 6 | 10 |
| Total assets | 216,702 | 199,392 |
| Equity and liabilities | ||
| Shareholders' equity | 117,274 | 119,217 |
| Minority interests | 9,783 | 8,500 |
| Total equity | 127,057 | 127,717 |
| Long-term borrowings | 41,030 | 24,311 |
| Other long-term liabilities | 19,114 | 17,017 |
| Total non-current liabilities | 60,144 | 41,328 |
| Short-term borrowings | 2,549 | 3,418 |
| Other current liabilities | 26,952 | 26,929 |
| Total current liabilities | 29,501 | 30,347 |
| Total equity and liabilities | 216,702 | 199,392 |
Goodwill and other intangible assets increased in 2007 due to the acquisitions of debitel in Denmark and the MCT operations in Uzbekistan and Tajikistan, and due to positive exchange rate differences.
Property, plant and equipment increased through capital expenditures (CAPEX) and the acquisitions, and due to positive exchange rate differences, partly offset by depreciation.
CAPEX increased to SEK 13.5 billion (SEK 11.1 billion in 2006) and the CAPEX-to-sales ratio to 14.0 percent (12.2), driven mainly by increased investments in network capacity and coverage in all business areas, and new services especially within Mobility Services and Broadband Services.
The carrying value of associated companies and joint ventures increased due to income from these companies, and due to positive exchange rate differences, and was partly offset by dividends received from Turkcell and Telefos.
Net deferred tax asset increased to SEK 2.4 billion (1.9), due to recognition of deferred tax assets of approximately SEK 850 million, mainly in Finland, after a positive ruling concerning certain old tax losses, and due to positive exchange rate differences, the increase being partly offset by the utilization of deferred tax assets.
Net working capital (inventories and non-interest-bearing receivables, less non-interest-bearing liabilities) remained negative at SEK -4.8 billion (SEK -4.5 billion in 2006). Increases due to sales growth and acquisitions were offset by decreases due to growth in operating expenses and by timing effects.
Although dividends paid during the year exceeded the amount of net income, total equity remained approximately at the previous year's level, due to positive exchange rate differences totaling SEK 8.9 billion (negative SEK 9.6 billion in 2006). See the Consolidated Statements of Changes in Equity for further details.
The equity/assets ratio, adjusted for proposed dividends, also remained stable at 50.3 percent (49.9).
Net debt increased to SEK 34.7 billion from SEK 15.0 billion mainly due to dividend payments of SEK 28.3 billion to shareholders in May 2007, only partly offset by free cash flow. The net debt/equity ratio, adjusted for proposed dividends, increased to 31.8 percent (15.0).
See the Consolidated Balance Sheets and related notes to the consolidated financial statements for further details.
Cash flows
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| SEK in millions | 2007 | 2006 |
|---|---|---|
| Cash from operating activities | 26,529 | 27,501 |
| Cash used in capital expenditure | -13,525 | -10,905 |
| Free cash flow | 13,004 | 16,596 |
| Cash used in other investing activities | -2,180 | -2,179 |
| Cash flow before financing activities | 10,824 | 14,417 |
| Cash used in financing activities | -14,726 | -19,382 |
| Cash and cash equivalents, opening balance | 11,603 | 16,834 |
| Net cash flow for the period | -3,902 | -4,965 |
| Exchange rate differences | 101 | -266 |
| Cash and cash equivalents, closing balance | 7,802 | 11,603 |
Cash flow from operating activities decreased in 2007, mainly due to lower EBITDA and higher cash payments for taxes. The decrease was partly offset by higher dividends from associated companies. In 2006, cash flow from operations was improved by a tax refund of approximately SEK 1.5 billion.
Cash used in capital expenditure (cash CAPEX) increased significantly in 2007. As a result, free cash flow (cash flow from operating activities less capital expenditure) decreased in 2007 due to lower cash flow from operating activities and higher capital expenditures.
Net cash used in other investing activities was at the same level as in 2006.
Despite higher cash return paid to shareholders than in 2006, net cash used in financing activities decreased in 2007, due to net borrowing.
See the Consolidated Cash Flow Statements and related notes to the consolidated financial statements for further details.
Acquisitions, investments and divestitures
During 2006 and 2007, TeliaSonera has made a number of significant acquisitions and divestitures.
- In June 2006, TeliaSonera entered the Spanish mobile market by acquiring the majority of Xfera for a net payment of SEK 617 million. TeliaSonera increased its ownership from 16.6 percent to 76.6 percent. TeliaSonera also assumed additional debt of SEK 3.8 billion through the consolidation of Xfera.
- In June 2006, TeliaSonera expanded into the Norwegian broadband market by acquiring NextGenTel for a purchase price of SEK 2.3 billion. NextGenTel is a strategic acquisition, strengthening TeliaSonera's position in the home markets. TeliaSonera's intention is to exploit the competence and operations of NextGenTel when driving growth in other countries.
- In January 2007, TeliaSonera finalized the acquisition of Cygate and consolidated the company as of February 2007. Cygate further acquired Didata Dimension Data Sverige AB (now Didata Sverige AB), a Swedish subsidiary of the global systems integrator Dimension Data Holdings plc, on April 12, 2007. Didata has been consolidated as of June 1. The Finnish managed-hosting specialist company Crescom Oy was consolidated as of July 1, 2007. These acquisitions underline TeliaSonera's strategy to strengthen its position within managed services. The total purchase price paid in cash was SEK 0.7 billion.
- On April 11, 2007, the acquisition of debitel Danmark A/S was closed. The transaction also included debitel's joint venture DLG-debitel I/S operating under the brand DLG Tele. The acquisition strengthens TeliaSonera's position in the Danish mobile market. debitel has been consolidated as of April 1 and, following a new shareholders' agreement, DLG Tele as of July 1. The total purchase price paid in cash was SEK 1.3 billion.
- On May 7, 2007, TeliaSonera raised its shareholding in Eesti Telekom to 58.3 percent through the acquisition of 4.61 percent of the outstanding shares in the company for a cash consideration of approximately SEK 485 million.
- On July 16, 2007, TeliaSonera closed the acquisition of MCT Corp. for SEK 1.8 billion. To expand its presence in the growing markets in Eurasia, TeliaSonera acquired 100 percent of the shares in MCT with shareholdings in four Eurasian GSM operators, Coscom in Uzbekistan, Indigo Tadzhikistan and Somoncom in Tajikistan and Roshan in Afghanistan. Coscom, Indigo Tadzhikistan and Somoncom are consolidated as of July 1. TeliaSonera holds 12.25 percent in Roshan.
- On August 9, 2007, Telefos AB, 25.6 percent owned by TeliaSonera, closed the sale of its entire shareholding in Eltel Networks. The transaction had a positive effect of SEK 631 million on earnings in the third quarter 2007.
- In December 2007, TeliaSonera finalized the negotiations to introduce a local partner to its Uzbek mobile operator Coscom. In the transaction, TeliaSonera received certain assets in exchange for 26 percent of TeliaSonera's 100 percent ownership in Coscom and a net cash consideration of approximately SEK 200 million (USD 30 million). The Uzbek partner was also granted a put option, giving the partner the right to sell the 26 percent stake back to TeliaSonera after December 31, 2009, when certain pre-agreed criteria are fulfilled.
Credit facilities
TeliaSonera believes that its bank credit facilities and open-market financing programs are sufficient for the present liquidity requirements. TeliaSonera's cash and short-term investments totaled SEK 8.9 billion at the end of the year (SEK 12.8 billion at the end of 2006). In addition, the aggregate principal unutilized amount available under the committed credit facilities amounted to SEK 12.6 billion at year-end (10.1).
Moody's Investors Service lowered TeliaSonera's credit rating in October 2007 to A3 for long-term borrowing and Prime-2 for short-term borrowing, with a "Stable outlook" reference. TeliaSonera's rating from Standard & Poor's Ratings Services remained unchanged during the year, at A- for long-term borrowing and A2 for short-term borrowing.
TeliaSonera generally seeks to arrange its financing through the parent company TeliaSonera AB. The primary means of external borrowing are described in Note 22 to the consolidated financial statements.