Annual Report 2007 - Introduction Dear Shareholders,
Our net income attributable to parent company shareholders was SEK 17,674 million in 2007. That is a record for TeliaSonera. Group earnings were driven by strong sales growth and substantial profit contributions from our minority owned operations in Eurasia. The underlying market trends in 2007 were mostly unchanged from the year before.
I want to thank all our customers and all employees for their contributions to another good year.
TeliaSonera is a company with lots of resources, competence and many skilled and motivated people. However, we operate in one of the world's most rapidly changing and demanding industries. Customer needs, technology, regulations, competition and lines of business definition are changing. The shift from fixed to mobile and Internet-based communication demands a shift also in our behavior.
We need to have all our discussions starting from the customers' needs and our value proposition in relation to our competitors. We also need to have a much higher sense of urgency when launching new services, delivering our services or resolving our customers' problems. I am therefore introducing a more stringent performance and consequence management attitude. I think there is quite some support for this kind of change among many of our employees.
Five focus areas
When I joined the company, I together with the Leadership Team identified five priorities, or focus areas, for the short and medium term.
The first priority deals with our ambition to migrate our fixed telephony customers in primarily Sweden to new services. Our fixed business in Sweden generates approximately one third of our cash flow. This business has been declining for several years already and will ultimately disappear unless we can offer more. I believe we have a real opportunity to offer the market triple play including IPTV. Since our launch at the beginning of 2007 we have more than 300,000 IPTV subscriptions in Sweden. We have a total of 770,000 TV subscriptions in the Nordic and Baltic region.
Our ambitions require future investments in our networks and our ability to make those investments will be influenced by the outcome of ongoing discussions about regulation. Our standpoint is that in markets where more than one player can, or ought to be able to, invest, regulation is not needed.
The second priority is on our assets in Eurasia, including Turkey and Russia, where we participate in attractive, fast-growing and very profitable markets. We entered new growth markets in 2007 with the acquisition of operators in Uzbekistan and Tajikistan and a financial holding in Afghanistan's largest operator. We will continue to look for opportunities in this part of the world. On investing in this region, we have the ambition to control and thereby consolidate. However, sometimes it is not possible to have a majority position. In case we are willing to take a minority position, we will focus on liquidity, real influence and control aspects.
The third priority is to change our business-to-business sales approach in order to improve service for customers and increase sales growth and efficiency, mainly in Finland and Sweden. We have, as of January 1, 2008, combined all our sales resources into one sales organization that will sell all our products and services to the business customers. This dedicated sales organization will be measured on growth, market share and sales efficiency.
The fourth priority is our ambition to create a world class service company. Progress has been made, as was demonstrated in the autumn when TeliaSonera improved scores across the board in last year's customer satisfaction survey. Still our customers have higher expectations to which we must respond. This is maybe the most challenging priority as it is both complex and requires a major change of processes, attitude and focus in many parts of the company. Quality of networks and services is fundamental for our success going forward.
The importance of the fifth priority is evident. We cannot have structurally higher costs than best-in-class. Intensified efficiency improvement is imperative for TeliaSonera to be able to continue shifting the product mix by investing in mobility and IP-based services. Efficiency measures to be implemented primarily in the Swedish and Finnish operations during 2008 and 2009 are estimated to give an annual gross savings effect of approximately SEK 5 billion compared to the cost base of 2007.
Outlook 2008
Net sales are expected to show stable growth in the financial year 2008 compared to the previous year.
"Quality of networks and services is fundamental for our success going forward."
Lars Nyberg, President and CEO, TeliaSonera
Despite continued aggressive investments in future growth and in the quality of our networks and services, TeliaSonera's ambition for 2008 is to maintain the EBITDA margin level of 2007, excluding non-recurring items.
Net income for 2008 is estimated to be somewhat higher than in 2007, excluding the positive one-off items of approximately SEK 2.0 billion in 2007 and potential positive one-off items in 2008.
Capital expenditure will be driven by continued investments in broadband and mobile capacity and is expected to be around SEK 15 billion in 2008.
A new type of annual report to help save the environment
Our core business is to offer services that help people and companies communicate in an easy, efficient and, not least, environmentally friendly way. As a good corporate citizen we are also taking steps to reduce our own impact on the environment. One step is this new annual report. Published on our website, it offers a faster way to essential information, features interactivity that facilitates financial analysis and eliminates the environmental impact from print and distribution.
Stockholm, March 11, 2008
Lars Nyberg
President and CEO