Changes in other provisions were as follows.
|
|
December 31, 2008 | |||||
|---|---|---|---|---|---|---|
| SEK in millions | Restructuring provisions |
Contingent consideration, etc. |
Warranty provisions |
Asset retirement obligations |
Other provisions |
Total |
| Opening balance | 1,058 | 3,206 | 1,021 | 779 | 828 | 6,892 |
| of which financial liabilities at: |
|
|
|
|
|
|
| – fair value through profit and loss | – | 1,884 | – | – | – | 1,884 |
| – amortized cost | – | – | 85 | – | – | 85 |
| Provisions for the period | 1,473 | 4,986 | 82 | 477 | 482 | 7,500 |
| Utilized provisions | -398 | – | -52 | -53 | -155 | -658 |
| Reversals of provisions | -478 | – | -28 | – | -92 | -598 |
| Reclassifications | -543 | – | 71 | – | -63 | -535 |
| Timing and interest-rate effects | 28 | -107 | 19 | 17 | 11 | -32 |
| Exchange rate differences | 59 | 1,015 | 341 | 75 | 102 | 1,592 |
| Closing balance | 1,199 | 9,100 | 1,454 | 1,295 | 1,113 | 14,161 |
| of which non-current portion | 633 | 9,100 | 1,209 | 1,289 | 1,081 | 13,312 |
| of which current portion | 566 | – | 245 | 6 | 32 | 849 |
| of which financial liabilities at (see Categories – Note 27): |
|
|
|
|
|
|
| – fair value through profit and loss | – | 7,900 | – | – | – | 7,900 |
| – amortized cost | – | – | 12 | – | – | 12 |
For Warranty provisions, the carrying value equals fair value as provisions are discounted to present value. Refer to Note 27 “Financial Assets and Liabilities by Category” for more information on financial instruments classified by category. As of December 31, 2008, contractual undiscounted cash flows for the financial liabilities represented the following expected maturities.
|
Expected maturity SEK in millions |
2009 | 2010 | 2011 | 2012–2013 | Later years | Total | Carrying value |
|---|---|---|---|---|---|---|---|
| Financial liabilities | 4 | 5,765 | 2,438 | – | 7 | 8,214 | 7,912 |
Expected maturities in 2010 and 2011 mainly relate to certain minority put options. In this case, expected maturity refers to the earliest point in time, based on the agreement terms, at which TeliaSonera estimates that the minority shareholder might call for option exercise. Timing of the actual exercise, if any, is dependent on counterpart decisions. For additional information, see section “Contingent consideration, etc.” below.
Restructuring provisions
Changes in restructuring provisions were as follows.
|
|
December 31, 2008 or January–December 2008 | |||||
|---|---|---|---|---|---|---|
| SEK in millions | Danish operations | International carrier operations | OPEX savings programs | Other restructuring provisions | Total | |
| Strategic refocusing | Post-merger integration | |||||
| Carrying value, opening balance | 83 | 589 | 168 | 218 | – | 1,058 |
| Provisions for the period | 8 | 3 | – | 1,461 | 1 | 1,473 |
| Utilized provisions (cash outflow) | -38 | -22 | -21 | -316 | -1 | -398 |
| Reversals of provisions | -4 | -417 | -4 | -53 | – | -478 |
| Reclassification to pension liability | – | – | – | -543 | – | -543 |
| Timing and interest-rate effects | – | 21 | 7 | – | – | 28 |
| Exchange rate differences | 8 | 27 | 18 | 6 | – | 59 |
| Carrying value, closing balance | 57 | 201 | 168 | 773 | 0 | 1,199 |
| of which current portion | – | 19 | 49 | 498 | – | 566 |
| Cash outflow during the year | -38 | -22 | -21 | -316 | -1 | -398 |
| Cash outflow in prior years | -748 | -2,215 | -207 | -1,314 | -70 | -4,554 |
| Total cash outflow | -786 | -2,237 | -228 | -1,630 | -71 | -4,952 |
The restructuring provisions represent the present value of management's best estimate of the amounts required to settle the liabilities. The estimates may vary as a result of changes in the actual number of months an employee is staying in redeployment before leaving and in the actual outcome of negotiations with lessors, sub-contractors and other external counterparts as well as the timing of such changes.
Danish operations within business areas Mobility Services and Broadband Services
Several restructuring measures have been taken in relation to TeliaSonera's Danish operations: in 2002 in connection with focusing the Danish fixed network operations; in 2004 in connection with the acquisition of Orange Denmark to realize synergy gains from the acquisition; in 2005 in connection with integrating the mobile operations and the fixed network operations; and in 2006 in connection with further efficiency measures. The remaining provision as of December 31, 2008 mainly relates to the phase-out of long-term lease contracts and is expected to be fully used by 2020.
International carrier operations within business area Broadband Services
Strategic refocusing
In 2002, TeliaSonera decided to change the strategic focus of Telia International Carrier and significantly restructure its operations. As part of the restructuring program, management decided to close down Telia International Carrier's Asian operations as well as its domestic voice reseller business in the United Kingdom and Germany, discontinue offering domestic network services in the United States and terminate its co-location business. Telia International Carrier's sales, administration and customer care resources were also centralized and the original workforce of approximately 800 persons was reduced by more than 50 percent, mainly in 2002 and 2003. In 2008, SEK 360 million related to an onerous lease and maintenance contract for a fiber network in France was reversed due to better than expected success in negotiating the contract termination. The remaining provision as of December 31, 2008 mainly relates to the phase-out of long-term lease contracts and is expected to be fully used by 2019.
Post-merger integration
To realize post-merger synergy gains, management in 2003 decided to integrate the international carrier operations previously run separately by Telia and Sonera. Overlapping operations were phased out and the traffic was moved over from leased capacity to the wholly owned network. Parts of Sonera's operations in the United Kingdom, the United States, Sweden and Germany were closed down. The remaining provision as of December 31, 2008 mainly relates to the phase-out of long-term lease contracts and is expected to be fully used by 2016.
OPEX savings programs within business areas Mobility Services and Broadband Services
In the Swedish and Finnish operations, management in 2005 and in 2008 launched transition programs to keep the profitability by achieving competitive cost levels and focusing of the service offerings. The 2008 program includes efficiency measures implemented in 2008 and 2009 which, among other things, are expected to result in a reduction of approximately 2,900 employees, of whom about two-thirds in Sweden and one-third in Finland. The remaining provision as of December 31, 2008 is expected to be fully used by 2012.
Contingent consideration, etc.
Contingent consideration, etc. relates to Xfera Móviles S.A. (Xfera), TeliaSonera Uzbek Telecom Holding B.V. (Uzbek Holding) and Azertel Telekomünikasyon Yatirim ve Dis Ticaret A.S. (Azertel).
For Xfera, which was acquired in 2006, the closing balance comprises in total SEK 1,200 million referring to contingent additional consideration to the selling shareholders based on an up to 20 year earn-out model and to a put option giving existing minority shareholders the right to sell their shares to TeliaSonera after 5 years, of which at least 2 consecutive years of net profit. The provisions represent the present value of management's best estimate of the amounts required to settle the liabilities. The estimate for the earn-out model has been made based on the Xfera 10-year business plan, using a post-tax discount rate (WACC) of 11.1 percent and a terminal growth rate of free cash flow of 2.0 percent. The amounts and timing may vary as a result of changes in Xfera's operations and profitability compared to the business plan. The estimate for the put option liability has been made based on assumptions about the timing of the option exercise and about the fair value of Xfera at that date and the provision may vary as a result of changes in Xfera's estimated fair value and the timing of the option exercise.
For Uzbek Holding, the parent company of the mobile operator OOO Coscom in Uzbekistan, the closing balance comprises SEK 2,139 million for a put option granted in 2007 in conjunction with the acquisition of a 3G license, frequencies and number blocks in Uzbekistan in exchange for cash and a 26 percent interest in Uzbek Holding. The put option gives the existing minority shareholder the right to sell the 26 percent interest in Uzbek Holding to TeliaSonera after December 31, 2009. The exercise price is dependent on the number of active subscribers in Coscom and on whether the option is exercised in 2010 or after December 31, 2010. In the latter case, the exercise price is equal to the fair value at the time of exercise and is to be determined by independent appraisal. The provision represents the present value of management's best estimate of the amount required to settle the liability. The estimate has been made based on assumptions about the timing of the option exercise and about the fair value of Uzbek Holding at that date, using the Coscom 10-year business plan with a post-tax discount rate (WACC) of 17.0 percent and a terminal growth rate of free cash flow of 2.0 percent. The provision may vary as a result of changes in Uzbek Holding's estimated fair value and the timing of the option exercise.
For Azertel, the parent company of the mobile operator Azercell Telekom B.M. (Azercell) in Azerbaijan, the closing balance comprises SEK 5,761 million for a put option granted in 2008 in conjunction with the privatization of Azercell, now wholly-owned by Azertel. Should a deadlock regarding material decisions at the general assembly arise, the resolution supported by TeliaSonera will apply. In such circumstances, the put option gives the largest minority shareholder the right to sell its 42 percent holding in Azertel to TeliaSonera. The exercise price is equal to the fair value at the time of exercise and is to be determined by independent appraisal. The provision represents the present value of management's best estimate of the amount required to settle the liability. The estimate of Azertel's fair value has been made based on the Azercell 5-year business plan with a post-tax discount rate (WACC) of 12.6 percent and a terminal growth rate of free cash flow of 1.0 percent. The provision may vary as a result of changes in Azertel's estimated fair value and the timing of the option exercise.
Fair value estimates for the contingent consideration and the minority put option liabilities are based on TeliaSonera's long-term business plans for such business units. In 2008, during the financial market turmoil, the global equity market values have decreased significantly and, if applied to TeliaSonera's business units through a peer group multiple valuation, would in many cases be below the fair values derived from TeliaSonera's own long-term business plans. Management believes that fair value based on its own business plans gives a better picture of the value for TeliaSonera and of the long-term valuation, compared to the equity market values in the current financial turmoil.
Warranty provisions
Warranty provisions include SEK 997 million related to a guarantee commitment on behalf of the minority held Ipse 2000 S.p.A. The provision represents TeliaSonera's share of the present value of Ipse's remaining UMTS license fees payable to the Italian government in 2006-2010. In early 2006, the Italian government revoked the license as Ipse had not met the license requirements. Ipse's position was that no further license fees should be payable, but TeliaSonera continued to carry a full provision since the outcome of Ipse's claim against the government was considered uncertain. TeliaSonera also gave cash collateral for the remaining license payments (see Note 30 “Contingencies, Other Contractual Obligations and Litigation”). Following a recent unfavorable court decision and new legislation in Italy, Ipse has decided to pay installments due for 2006-2008. The payment was made in the beginning of January 2009.
Asset retirement obligations and Other provisions
Asset retirement obligations mainly refer to dismantling and restoration of mobile and fixed network sites and to handling hazardous waste such as worn-out telephone poles impregnated with arsenic. Other provisions comprise provisions for damages and court cases, for loyalty programs, for payroll taxes on future pension payments and for onerous and other loss-making contracts, and insurance provisions. The provisions represent the present value of management's best estimate of the amounts required to settle the liabilities. The estimates may vary mostly as a result of changes in tax and other legislation, in the actual outcome of negotiations with counterparts and in actual customer behavior as well as the timing of such changes.