2010-annual report tele2 ab publ

8/2/2019 2010-Annual Report Tele2 AB Publ

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Annal Report2010


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Tele2 Annual repor t 2010 1

Tele2 ABs shares are listed on the NASDAQ OMX Stockholm LargeCap list under the ticker smbols TEL2 A and TEL2 B. The teenlargest shareholders at December 31, 2010 hold shares corresponding to 57 percent o the capital and 67 percent o the voting r ights, o

which Investment AB Kinnevik owns 30 percent o the capital and47 percent o the voting rights. No other shareholder owns, directlor indirect l, more than 10 percent o the shares in Tele2.

The Board o Directors received authorization b the AnnualGeneral Meeting in Ma 2010 to purchase up to 10 percent o theshares in the compan.

For urther inormation on the number o shares and their conditions and important agreements which cease to appl i controlover the compan is changed, see Note 32 Number o shares andearnings per share.

FINANCIAL OVERVIEWWith 31 million customers in 11 countries, Tele2 is one o Europesleading telecom operators. Ever since Tele2 was ounded in 1993,it has been a tough challenger to incumbents and other established providers. Tele2 oers mobile communication services, xedbroadband and telephon, data network services, cable TV andcontent services. Mobile communication is our primar ocus areaand it is our most important growth segment. In some countries,Tele2 also oers xed communication services. Mobile telephoncurrentl accounts or more than 68 percent o Tele2s net sales.

The cornerstone o Tele2s concept is to alwas oer the BestDeal on the market. We do this b continuousl listening to ourcustomers needs while keeping costs under tight control. Tele2has steadil increased market shares, while maintaining a healthreturn on capital emploed. We will make ever eort to ensurethat this positive development continues and that more people cut

the cord and become trul mobile.In 2010, the compan generated net sales o SEK 40.2 billion and

reported an operating prot (EBITDA) o SEK 10.3 billion.Comments below relate to Tele2s continuing operations unless

otherwise stated.

Net ctoer intake

In 2010, the total customer base increased to 30,883,000(26,579,000). Net customer intake, excluding acquired anddivested companies, was 3,932,000 customers compared with2,327,000 customers the previous ear. The customer intake inmobile services increased b 42 percent to 4,443,000 (3,139,000),o which 128,000 (142,000) were mobile broadband users. Thegood intake in mobile services resulted rom a solid perormancemainl in Tele2 Russia, Tele2 Sweden and Tele2 Croatia. In 2010,

Tele2 Russia had a total customer intake o 3,987,000 (2,947,000)o which 2,489,000 (1,898,000) were derived rom new operations. Fixed broadband added 32,000 (11,000) customers in 2010,thanks to an improved demand or dual and triple pla oerings

throughout the Tele2 ootprint. Fixed telephon had an expectedoutfow o customers during the ear.

Net ale

Tele2s net sales amounted to SEK 40,164 (39,436) million. Thepositive revenue development was driven b good trends in coremobile services and xed broadband services.

EBITDA

EBITDA was SEK 10,284 (9,394) million, with an EBITDA margin o 26 (24) percent. EBITDA was positivel aected b strongoperational development in mobile services, particularl driven bTele2s operations in Russia.

EBIT

Operating prot, EBIT, was SEK 7,088 (5,736) million, whichincludes oneo items o SEK 384 (11) million. The EBIT marginamounted to 18 (15) percent.

Prot beore tax

Net interest expense and other nancial items totalled SEK 353(500) million. Exchange dierences o SEK 282 (77) million werereported under other nancial items. The average interest rate onoutstanding liabilities was 10.0 (6.9) percent. Prot ater nancialitems, EBT, amounted to SEK 6,735 (5,236) million.

Net prot

Prot ater tax was SEK 6,481 (4,755) million. Earnings per shareamounted to SEK 14.63 (10.70) ater di lution. Tax on prot or theear was SEK 254 (481) mill ion.

Cah fow

Cash fow rom operating activities, including discontinued operations, amounted to SEK 9,610 (9,118) mill ion and cash fow aterCAPEX amounted to SEK 6,007 (4,778) million.

CAPEX

During 2010, Tele2 made investments o SEK 3,651 (4,439) millionin tangible assets and intangible assets, mainl driven b expansion in Russia.

Adinitration report

The Board o Directors and CEO herewith present the annual reportand consolidated nancial statements or Tele2 AB (publ), corporatereg. no. 5564108917 or the nancial ear 2010.

The gures shown in parentheses correspond to the comparable period last ear.


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2 Tele2 Annual repor t 2010

Administration report

Net debt

Net debt amounted to SEK 1,691 (2,171) million at December 31,2010, or 0.16 times EBITDA in 2010. Including guarantees to joint

ventures, the net debt to EBITDA in 2010 amounted to 0.33 times.Tele2s available liquidit amounted to SEK 12,814 (12,410) mill ion.

FIVE-yEAR summARy

SEK million 2010 2009 2008 2007 2006

CONTINuING OPERATIONs

Net sales 40,164 39,436 38,330 39,082 38,596

Number o customers (b thousands) 30,883 26,579 24,018 22,768 23,618

EBITDA 10,284 9,394 8,227 6,721 6,179

EBIT 7,088 5,736 2,906 1,740 970

EBT 6,735 5,236 1,893 1,009 405

Net prot/loss 6,481 4,755 1,758 78 186

KEy RATIOsEBITDA margin, % 26.0 23.8 21.4 17.1 16.0

EBIT margin, % 17.6 14.5 7.6 4.5 2.5

VALuE PER sHARE (sEK)

Earnings 14.69 10.72 3.91 0.05 0.14

Earnings, ater dilution 14.63 10.70 3.91 0.05 0.14

TOTAL (INCLuDING DIsCONTINuED OPERATIONs)

Shareholders equit 28,875 28,823 28,405 27,010 29,172

Shareholders equit, ater dilution 28,894 28,823 28,415 27,054 29,186

Total assets 40,369 40,737 47,337 48,809 66,213

Cash fow rom operating activities 9,610 9,118 7,896 4,350 3,847

Cash fow ater CAPEX 6,007 4,778 3,288 819 1,673Available liquidit 12,814 12,410 17,248 25,901 5,963

Net debt 1,691 2,171 4,952 5,198 15,311

Investments in intangible and tangible assets, CAPEX 3,651 4,439 4,623 5,198 5,365

Investments in shares and other longterm receivables, net 1,742 3,357 2,255 11,444 1,616

Average number o emploees 7,381 6,647 5,859 5,285 3,909

KEy RATIOs

Equit/assets ratio, % 72 71 60 55 44

Debt/equit ratio, multiple 0.06 0.08 0.17 0.19 0.52

Return on shareholders equit, % 24.0 16.4 8.9 5.6 11.2

Return on shareholders equit ater dilution, % 24.0 16.4 8.9 5.6 11.2

Return on capital emploed, % 23.6 17.6 12.9 2.0 5.4

Average interest rate, % 10.0 6.9 6.2 5.2 4.2

VALuE PER sHARE (sEK)

Earnings 15.70 10.61 5.53 3.50 8.03

Earnings, ater dilution 15.64 10.59 5.53 3.50 8.03

Shareholders equit 65.44 65.31 63.93 60.67 64.96

Shareholders equit, ater dilution 65.23 65.18 63.90 60.70 64.95

Cash fow rom operating activities 21.78 20.71 17.80 9.78 8.66

Dividend, ordinar 6.001) 3.85 3.50 3.15 1.83

Extraordinar dividend and redemption 21.001) 2.00 1.50 4.70

Market price at closing da 139.60 110.20 69.00 129.50 100.00

1) Proposed dividend.


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OVERVIEW By REGIONTele2s markets have been divided into our distinct regions, inorder to make the best use o the compans resources: Nordic,

Russia, Central Europe & Eurasia and Western Europe. Theseregions include both emerging and mature markets, where cultural, economic and competitive dierences are signicant. However, the trend towards mobilit is universal, and is clearl evidentin all countries. While mobile communication services are airlstandardized across dierent regions, the level o maturit dierswidel. As a consequence, the ocus o Tele2s operations in eachregion is dierent. In the Western European region, Tele2 aims todevelop its operations with emphasis on the business segment.The Nordic region remains the cash fow generator o the Tele2group, as well as its test bed or new services. In Central Europe& Eurasia, Tele2 keeps growing and expanding businesses. Lastl,Russia is the growth engine o the group.

Tele2s position and priorities var within the regions. Local

market characteristics di er in man was, even in the samecountr. Our green eld operations, e.g. Kazakhstan, are ocusedon increasing market share, brand awareness and price leadership. As a challenger in Latvia and Estonia, Tele2 pas particularattention to price, market share, expected qualit, and networkcapabilities. As a deender in man parts o Russia, in Swedenand in Lithuania, Tele2 ocuses on retention, price stabilit, ValueAdded Services, and qualit.

While there are important local dierences, Tele2 has established a number o general priorities to address opportunities andchallenges or 2011. These objectives go beond the local contextand are common to all the regions and countries where Tele2operates.

Customers:Tele2willprovidetheBestDealineachcountryit

operates in Employees:Tele2willbeconsideredAGreatPlacetoWorkat

b its emploees Shareholders:Tele2willhavethebestTSR(TotalShareholders

Return) within its peer group

These undamental objectives will guide the compans regionalactivities through 2011 and beond.

NORDICsweden

SEK million 2010 2009 Change

Number o customers (in thousand) 4,744 4,553 4%Net sales, external 11,881 11,377 4%

EBITDA 3,272 3,184 3%

EBIT 2,201 2,134 3%

Key priorities in 2010

In 2010, Tele2 Sweden continued to ocus on three areas: growthin the postpaid and mobile broadband segments, improved qualit,and market share expansion in the business segment.

Tele2 Sweden pushed hard in the postpaid segment and thecontinued uptake o smartphones (mobile phones with text anddata capacit that handle voice and data, and are able to downloaddierent applications) urther boosted mobile data revenues and

equipment sales. The uptake took o in the second hal o 2010with the introduction o iPhone in Tele2 Swedens handset port

olio. As a result, seven out o ten postpaid customers in Swedenbought a smartphone, the majorit o them opting also or a datasubscription at the end o 2010. This development is not expected

to stop as Tele2 Sweden expects to be able to oer a greater selection o attractivel priced handsets, making it possible or thecompan to also address the prepaid market with smartphones.

To capitalize on the mobilit trend among customers in Sweden, Tele2 continued the rollout o the 4G network. In the ourthquarter, Tele2 Sweden commerciall launched 4G oers to theconsumer and business customers in ve major cities in Sweden.The rollout progresses according to plan. Tele2 expects to covermore than 100 cities b the end o 2011 and to have 99 percentpopulation coverage b 2012. Faster mobile connections allow thecustomers to do everthing the are used to doing via the xedADSL connection, but through the 4G network.

Despite tough market conditions, Tele2 Sweden managedto show strong results through qualitenhancing activities,

combined with cost containment eorts. The ongoing upgradeo Tele2s sstem has star ted to show results. Cost ecienc wasimproved b Tele2s cost eective networks.

As to the business segment, Tele2 Sweden completed theacquisition o Spring Mobil. The onephone solution will urtherstrengthen Tele2s product portolio and position within the SMEsegment. The continued ocus on integrated services led to theacquisition o a number o customers to whom the product communication as a service is particularl important. The customersegmentation within the business segment generated a higherARPU (average revenue per user) development and the customerbase continued to grow, as the domestic econom strengthened.

The total mobile broadband customer base amounted to 361,000

(274,000) in 2010. Tele2 Sweden secured the number one position in the prepaid mobile broadband market. The total mobilenet intake amounted to 212,000 (205,000) in 2010. Net sales ormobile services grew b 8 percent to SEK 8,474 (7,877) million.EBITDA contr ibution or mobile was SEK 2,803 (2,661) million in2010, aected b an increased amount o subscr iptions sold withmonthl instalments. Tele2 Sweden showed continued protabilit within the prepaid voice segment with an EBITDA margino 48 (49) percent. The mobile operations in Sweden reported anARPU o SEK 186 (187). ARPU or mobile broadband increased during the ear to SEK 130 (112). MoU per customer, excluding mobilebroadband, increased to 242 (230) in 2010.

EBITDA o Tele2 Sweden includes invoiced costs rom the jointventures SUNAB and Net4Mobili o SEK 491 (417) million in

2010.Tele2s broadband services a lso showed protabilit in 2010.

During the coming ear, Tele2 expects demand or highspeedaccess to increase. Tele2 will meet the increased demand or datacapacit b urther developing its LAN business, and b complementing its xed broadband services with a highspeed mobilebroadband network (4G).

Again, xed telephon reached protabilit and positive cashfow during 2010, and Tele2 managed to deend its market position in that segment. Mobile and xed services are converging,a trend that Tele2 capitalizes on b oering the latest productHome telephon via the mobile network. This product enables thecustomer to keep the home phone, but over the mobile network,making it a simple and cost ecient solution or all parties.


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Challenges to address in 2011

The postpaid strateg o investing in high ARPU customers willcontinue into 2011. A stagnating market with erce price competi

tion and decreasing termination rates will put pressure on margins. Tele2 expects to deliver revenue growth through postpaidsales that generate higher ARPU. Tele2 will attract customers bresponding to the increasingl priceconscious market as theundisputable price leader. Growth in new areas will also contribute to increasing sales, e.g. mobile broadband, mobile advertisingand mobile paments. Tele2 expects an increased growth in dataas customers go mobile. Voice over IP is still on ver low levels, butTele2 will monitor the development going orward. In addition,protabilit will be enhanced through cost savings rom operating

jointventure networks, the ecient use o distr ibution channels,stronger ocus on online activities, and increased levels o selservice. Furthermore, Tele2 continues to rollout the combined 2Gand 4Gnetwork through the joint venture Net4Mobilit as cost

ecienc is a necessit to be a price leader.

Norwa


Number o customers (in thousands) 600 586 2%

Net sales, external 3,016 3,260 7%

EBITDA 196 246 20%

EBIT 157 127 24%


In 2010, Tele2 Norwa continued its eorts to keep costs downand target high ARPU customers. In the second hal o 2010, Tele2Norwa had a positive customer net intake despite strong competi

tion in the marketplace. However, exchange rate and terminationrates had a negative impact on the overall revenue.The business segment remained a prioritized area in 2010 and

the segment continued to develop positivel. Tele2 Norwa delivered on the Best Deal concept ocusing on strengthening its priceposition and increasing qualit perception.

As an MVNO (operator without its own license and/or inrastructure that uses another operators network when selling servicesunder own brand), the competitive landscape or mobile broadband has been challenging or Tele2 Norwa, and the companonl generated modest growth.

EBITDA o Tele2 Norwa includes invoiced costs rom the jointventures Mobile Norwa o SEK 52 () million in 2010.

In the xed telephon segment, Tele2 Norwa concentrated its

eorts on deending market share and maintaining protabilit.


In 2011, Tele2 Norwa will ocus on providing the Best Deal or itscustomers b delivering expected qualit and maintaining priceleadership. In order to secure long term protabilit, Tele2 Norwawill continue to build a 3G mobile network during 2011 through itsownership in Mobile Norwa, a joint venture with Network Norwa.EBITDA is expected to be negativel aected b lower interconnecttari s and start up costs related to joint venture Mobile Norwa.Growth will be secured through improved customer retentionand enhanced multichannel distribution toward residential andcorporate customers. Tele2 continues its eorts with governments,

legal institut ions and mobile operators to secure viable operationalconditions.

RussIASEK million 2010 2009 Change

Number o customers (in thousands) 18,438 14,451 28%

Net sales, external 10,142 7,540 35%EBITDA 3,573 2,473 44%

EBIT 2,770 1,822 52%


The Russian operation is Tele2s most important growth engine.Tele2 has GSM licenses in 37 regions in Russia covering 61 millioninhabitants. The Russian operations consist o 17 old regions and20 new regions, the main di erentiator being the maturit level oeach operation. The licenses or the 20 new regions were receivedin 2007 and all regions have been launched commercial l.

Tele2 Russia can be split into three categories, during a transitional period, depending on maturit level: Newcomers, Challengersand Deenders.

In 20 out o 37 regions, Tele2 acts as a Newcomer. In theseregions, the main goal is to acquire customers and expand marketshare. Through clear price leadership, wide distribution and innovative marketing, Tele2 can quickl expand its market position.

In 6 out o 37 regions, Tele2 acts as a Challenger. When movingrom a Newcomer to a Challenger position, Tele2 Russia wi llincrease its ocus on ARPU development and retention activitiesbeond the strong ocus on subscriber acquisition.

Tele2 Russia is market leader/Deender in 11 out o 37 regions.As a market leader, Tele2 ocuses on retaining its existing customerbase and maximizing its contribution. Through simple and eastounderstand pricing plans, combined with attract ive addonservices such as data access, the compan is able to improve aver

age revenue per user in mature regions.Tele2 Russias total customer base amounted to 18,438,000(14,451,000) on December 31, 2010. The competitive environmentin Russia is, and will be, ver tough. Tele2s main dierentiator, asin all countr ies, is a clear price leadership position. However, as themarket evolves it will become increasingl important to nd othermeans o dierentiation against competition, be it marketing concepts, distribution channels or customer care. Customer perceptionis even more critical when the total customer base uses prepaidservices.

In 2010, Tele2 Russia successull pursued its strateg oimproving the operational contribution o its more mature regionsto support the rollout o commercial networks in new regions.Tele2 gained totall 3,987,000 (2,947,000) new customers during

the ear. The turnover o the total customer base was improvedduring 2010, despite increased competition. Tele2 Russia maintained its eort to sta best in class when it comes to customerretention and continued to work with commission structure tothe retail channels in order to urther enhance the qualit o thecustomer intake. During the ear, Tele2 Russia expanded thegeographic scope with several preerred distribution partners toinclude numerous new cities.

Despite an impact rom customer base growth in new regions,MoU or the total operations increased b 7 percent compared to2009, amounting to 231 (215). ARPU amounted to SEK 51 (50) orRUB 216 (207). The general pricing environment remained highlcompetitive throughout the Tele2 Russia ootprint.


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Tele2 Russia continued to deliver solid nancial perormancethroughout the ear. Net sales grew b 35 percent in 2010, compared to last ear. The EBITDA margin development was driven

b strong operational perormance in the more mature regions,ocusing on customer retention measures and stimulating usage.EBITDA in the 17 mature regions amounted to SEK 3,892 (2,950)million, equivalent to a margin o 46 (41) percent. EBITDA in thenew regions amounted to SEK 319 (477) million.


Tele2 Russia will keep looking or possibi lities to careull expandits operations through new licenses as well as b complementaracquisitions. Tele2 Russia will continue to look or the possibilitto receive 2G licenses in regions where it does not et operate, andsecure next generation mobile licenses in its existing ootprint.

Distribution will remain an important dierentiator in theRussian mobile market. Tele2 Russia will continue to pursue its

multipronged approach with local distr ibutors, together withederal dealers and mono brand stores. In 2011, it will be importantto develop long term relationships with all parties and secure awell perorming distribution network.

In 2011, it will stil l be a major ocus point to balance improvedprotabilit in Tele2 Russias more mature regions, while gainingscale in the new regions and b doing so, reaching EBITDAbreakeven.

Tele2 Russia will continue to look or possibilit ies to careullexpand its operations in Russia through new licenses, as well as bcomplementar acquisitions that t with its corporate culture.

CENTRAL EuROPE & EuRAsIA

EtoniaSEK million 2010 2009 Change


Net sales, external 880 1,009 13%

EBITDA 219 292 25%

EBIT 152 219 31%


Throughout 2010, the Estonian econom started to show clearsigns o recover. However, the situation remained challenging asconsumer condence continued to be relativel weak and pricepressure persisted in all segments.

Tele2s eorts during the ear were ocused on enhancedecienc and cost reduction measures in order to maintain a solid

price position and stable market share. Tele2s revenues provedmore resilient than the overall market.

Tele2 Estonia kept investing signicantl in its mobile networkin order to improve qualit perception on the market. Tele2s network qualit and coverage area are now on a par with, or even better than, the competitors. As a result, mobile broadband has beenthe astest growing segment throughout the ear. The expansiono its 3G network will enable Tele2 to oer the best priced mobilebroadband services or larger customer segments.

Another important objective during the ear was to strengthenTele2 Estonias market position in terms o revenue. These eortswere successul, and Tele2 gained market share in the consumer

segment. Targeted campaigns, combined with improved networkqualit and clear price leadership have helped Tele2 achieve theseresults.

Increasing the market share in the BusinesstoBusiness segment was another important objective or 2010. As a result o theeconomic uncertaint during the ear, corporate customers andmunicipalities became more pricesensitive. This act greatl contributed to Tele2s success. Customers qualit perception o Tele2also improved, driving increased sales.

In the end o 2010, Tele2 was awarded a 4G (2.6 MHz) license.


The macroeconomic situation is slowl recovering, and telecomspending are expected to grow urther in 2011. Customers remain

ing quite pricesensitive, Tele2 will need to keep showing fexibilit regarding packaging and product oers.

Tele2 Estonia will continue to concentrate its eorts on attracting residential customers b means o a distinct price leadershipposition, coupled with improved qualit, while developing itsmarket share in the large corporate segment. Tele2 Estonia willhave to deend its perceived price leadership position and improvereal and perceived qualit EMT.

Tele2 will carr on rollingout its 3G network in the rural areas,in parallel with intensive marketing activities to drive sales.

Lithania


Number o customers (in thousands) 1,731 1,655 5%Net sales, external 1,319 1,688 22%

EBITDA 455 598 24%

EBIT 358 493 27%

Key priorit ies in 2010

The Lithuanian economic situation stabilized throughout 2010.The main priorit or Tele2 Lithuania during the ear was to keepcapitalizing on a strong price leadership perception, supported becient sales and marketing campaigns, and to continue gaining market shares in both the postpaid consumer and corporatesegments. Satisactor results were obtained, as Tele2 Lithuaniagained 76,000 (63,000) net customers in 2010.

Continuing to improve protabilit was another ke ocus area

during 2010. Tele2 managed to reach this goal b increasing itsrevenue market share, while managing to decrease acquisitioncosts. Tele2 Lithuania was able to grow its prot between 2009and 2010 in local currenc, despite a persistent and tough pr icecompetition.

During the ear, special stress was laid on maintaining thehighest level o customer satisaction in the industr, not leastthrough low prices and eective customer relationship practices.The number o customers that recommended Tele2 Lithuania asthe preerred operator increased.


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Tele2 will have to deend both actual and perceived pr ice leadership as this is the most important actor in the Lithuanian mobile

telecom market.Tele2 Lithuania will continue to grow customer base in all thesegments and keep ocusing on increasing its market share in thecorporate segment in particular, beneting rom general price sensitivit among private companies and stateowned organizations.To that end, network qualit will have to be urther enhanced.

Tele2 will also capitalize on the mobile broadband sales growthmomentum in 2011.

Lastl, Tele2 Lithuania will continue to work on improvingcustomer satisact ion b increasing network coverage and perormance, and b providing a higher level o customer service.

Latvia


Number o customers (in thousands) 1,027 1,059 3%Net sales, external 1,261 1,619 22%

EBITDA 398 527 24%

EBIT 313 427 27%


Strong signs indicated that the economic climate improved duringthe ear. Nevertheless, erce price pressure and harsh competitionpersisted across all customer segments. In 2010, the main objective o Tele2 Latvia was to gain market share and to maintain anacceptable level o protabilit.

To that end, Tele2 continued to ocus on customer satisactionand service qualit, while working steadil on strengthening its

inrastructure in terms o coverage, capacit, perormance anddevelopment o 3G capabilities. This resulted in a strong uptake omobile broadband services, which exceeded volume orecasts.

Furthermore, Tele2 carried on developing activities and introduced innovative customer services, such as new web selcarechannels, to maintain its Best Deal position on the market.


Tele2 Latvia will deend its perceived price leadership position andconcentrate its eorts on increasing market share in the postpaidand business customer segments, while deending its position inprepaid.

Tele2 Latvia is currentl the market leader in terms o number ocustomers, and aims to also hold a leading market share position in

terms o revenue.Improving customer perception o qualit at each major point o

customer contact remains a ocus area.Lastl, Tele2 will continue to strengthen its sales b means o

targeted campaigns and oers to pursue growth, most part icularlin the corporate segment. Likewise, Tele2 Latvia wil l work onurther improving customer loalt and providing good retentionoers to deend its customer base.

Croatia



Net sales, external 1,346 1,296 4%EBITDA 21 244 91%

EBIT 134 353 62%


Tele2 Croatia reached positive EBITDA in the second quarter o2010, driven b strong customer growth and improved cost management programs in areas such as national roaming and customeracquisition costs.

Tele2 Croatia consistentl kept its ocus on urther strengthening its Best Deal position through eective marketing campaignsacross all segments. Tele2 Croatia steadil grew its market shareduring the ear b consolidating its price leadership position,oering guaranteed savings opportunities to customers. Tele2 also

improved qualit perception, b means o enhanced network perormance, better customer service, and an attractive store concept.

With the launch o its 21Mbps 3G network, Tele2 Croatia hasall the elements to become one o the leading mobile data serviceproviders in the countr, thereb increasing overall customersatisact ion. The continued rollout o own network inrastructurecontributes to reducing Tele2 Croatias dependenc on nationalroaming and improving the compans gross margins.


In order to continue the positive trend and get cash fow break evenin 2011, it is essential or Tele2 Croatia to keep scaling up operationsand grow market share. Tele2 Croatia will ocus on maintaining

price leadership, while providing products that are tailored to customer needs. At the same time, Tele2 will keep enhancing qualitperception and customer experience across all touch points.

Lastl, Tele2 Croatia will intensi its ocus on customer retention in order to generate higher revenue and increase customerlietime value.

Kazakhtan

SEK million 2010

Number o customers (in thousands) 332

Net sales, external 119

EBITDA 173

EBIT 376


Tele2 completed the acquisition o a majorit share in operatorNEO in Kazakhstan in March 2010. Tele2 Kazakhstan has mainlbeen ocusing on integrating processes and implementing a neworganizational structure that better refects the Tele2 Wa o doingbusiness. In parallel, the compan prepared or the launch o theTele2 brand.


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The main activities consisted in swapping out the old equipmentand rolling out the new 2G and 3G enabled networks. Tele2Kazakhstan also worked intensel on establishing good relation

ships with the regional distributors and widening its distributornetwork throughout the countr in order to support growth aterthe launch.

Lastl, Tele2 managed to negotiate interconnect rate cuts withthe two largest competitors on the market.


The relaunch is planned or the rst hal o 2011. The main challenge or Tele2 Kazakhstan wil l be to start building price leadershipand provide customers with an initial qualit brand experience.

Later on during the ear, Tele2 Kazakhstan will work eectivelto move closer to the customers through the Tele2 brand. Beingaggressive on price leadership, creating innovative oers andstrengthening public relations on the market will be other ocus

points or Tele2 Kazakhstan.

WEsTERN EuROPEThe Netherland




EBITDA 1,735 1,612 8%

EBIT 978 581 68%


Tele2 Netherlands successull delivered on its strateg o connecting customers directl to its network, thereb improving margins.

Tele2 Netherlands also demonstrated the viabilit o providingmultiple services over a single connection. This strateg makes itpossible to provide additional or enhanced services with limitedincremental capital expenditures, which improves protabilitand customer value.

Tele2 Netherlands managed once again to materialize on theincreased demand or multipla oerings in the consumer segment. Especiall the demand or Tele2s triplepla oerings,including TV, is increasing over dual pla oerings, therebimproving the ARPU o the broadband base. Furthermore, Tele2Netherlands continued to ocus on postpaid oerings. Althoughthe total mobile base declined, the ocus on postpaid subscr iptionsenabled Tele2 Netherlands to improve its overall margin levels.

In the corporate segment, Tele2 Netherlands was successul in

attracting major customers and in prolonging existing accounts,thereb extending the binding period o several large customers.However, the renewals also led to price reductions, resulting inan overall decline in revenue in the business segment. Moreover,Tele2 Netherlands launched a new campaign and corporateidentit (and related website) on the business market in order toimprove the brand awareness and sales activities in the SME/SOHOsegment. Tele2 Netherlands stands as an example o good practicewithin businesstobusiness services in the Tele2 group.

The acquisition o the Dutch xed operator BBned in October 2010was a great opportunit or Tele2 Netherlands to strengthen theDutch business and benet rom increased scale in its operations.

During 2010, Tele2 Netherlands also acquired a 2.6 GHz license,which is an important rst step to explore possibil ities in mobile.Mobile access is all the more important, since mobile and xedservices are increasingl converging.


Tele2 Netherlands will continue to deliver its Best Deal strateg bortiing its price leadership position and b oering high qualitservices in all markets. Enhancing customer loalt will be a majorarea o ocus in 2011. In the business market, Tele2 Netherlandswill keep ocusing on attract ing major corporate customers as wellas small and medium enterprises. Furthermore, Tele2 Netherlandswill pursue its strateg o improving margins b connecting customers directl to its network, providing multiple services over a

single connection.

Geran




EBITDA 357 496 28%

EBIT 300 404 26%

Key priorit ies in 2010

Tele2 Germans ke strategic priorit in 2010 was to ocus oncustomer loalt and protabilit.

The net broadband customer growth remained on low levels in

2010, continuing to show signs o market saturation. The incumbents and cable operators applied promotional pricing activitiesduring the ear, whereas Tele2 German maintained its ocuson protabilit rather than market share, and customer retentionrather than customer acquisition. With its retention strateg, thecompan once more succeeded in stabi lizing the customer baseduring the ear.

Towards the end o 2010, Tele2 German sold its shares inPlusnet and got an earl termination o the joint venture. Tele2German will carr on selling its broadband services based ona wholesale agreement, which gives Tele2 more fexibil it andavourable commercial conditions.

Tele2 German remained the largest CPS (Carr ier PreSelect)provider in the market. The emphasis on customer retention activi

ties led to betterthanplanned customer base development. TheEBITDA margin or xed line was 40 (38) percent in 2010. Pricecompetition in this segment was relativel low as most operatorsconcentrated their marketing initiatives on xed broadband services.


Tele2 German will continue to ocus on extending exist ing subscriptions and increasing crossselling, while pursuing eectivecost management.



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Atria



Net sales, external 1,580 1,967 20%EBITDA 328 344 5%

EBIT 155 127 22%


Tele2 Austria continued to show good operational progress in2010, leading to an improved ull ear EBITDA margin, rom 17 percent in 2009 to 21 percent in 2010. Tele2 Austria is still acing verstrong competition. For the top line development, Tele2 Austriakept emphasizing its ocus on growth within the business segmentb providing the business communit with a superior customerexperience to low prices. With a more concentrated product portolio, Tele2 Austria became more competitive and will as a resultmanage to improve perormance over time. Data network services

in particular showed health revenue development. In 2010, Tele2Austria thereore ocused across all business areas on increasing sales ecienc and on improving customer retention. Thecustomer satisaction in the business segment improved.

In the residential segment, Tele2 Austria concentrated its eortson retaining its customer base b emphasising value basedsegmentation through retention campaigns, and b ollowing a churnprediction model.


In 2011, Tele2 Austrias management will work on generatingsustainable, protable growth b urther optimizing the compansstructure and sales processes, and b pursuing eorts to oer

the Best Deal to its customers. These objectives wil l be supportedb the implementation o a clear dierentiation strateg and theimprovement o commercial qualit at all levels.

ACQuIsITIONs AND DIVEsTmENTsIn 2010, Tele2 acquired al l shares in BBned, a Dutch provider oxed telephon and broadband services in the retail, businessand wholesale segment, 51 percent in the mobile operator NEOin Kazakhstan, with a 900 MHz GSM license, the remaining 50percent in the Swedish compan Spring Mobil and the remainingshares in Rostov in Russia, ater which Tele2 owns 100 percento its Russian operations. During 2010, Tele2 has also contributedcapital to its joint ventures.

In 2010, Tele2 divested its 32.5 percent ownership in the joint

venture Plusnet in German and at the same time Tele2 made anearl termination o the joint venture agreement.

Further inormation can be ound in Note 17.

CORPORATE REsPONsIBILITyIn 2010, Tele2 launched an extensive Corporate Responsibilit (CR)program. The objective is to ecientl incorporate sustainabilit

issues in the whole organisation, making it part o our everdabusiness.Tele2s denition o Corporate Responsibilit is to take respon

sibilit or the impact Tele2 has on its surroundings. The responsibilit comprises the ollowing our areas: Human rights, Labourrights, Environment and AntiCorruption.

New Code o Condct

Existing governance documents have been scrutinised to ensureproper governing o the Corporate Responsibilit work. This hasso ar resulted in the development o a new overarching Code oConduct and a new environmental polic. Tele2 will continue toevaluate and make the necessar adjustments to other relevantpolicies.

The Code o Conduct, which is based on the our pillars o theUnited Nations Global Compact (Human rights, Labour rights,Environment and AntiCorruption) applies to all Tele2 emploees,the Board o Directors as well as suppliers and aliates including persons representing Tele2. In conjunction with renewalsor new contracts, suppliers and partners are obliged to sign theCode o Conduct. The Management and the Board o Directors haveadopted the new Code o Conduct, which is available on Tele2swebsite www.tele2.com.

Identiing rik and opportnitie

To ensure the right ocus o the sustainabilit work, a risk andopportunit analsis o Tele2, including the suppl chain and end

usage, was perormed at the beginning o the ear. During the earTele2 has also perormed a materialit analsis with the purposeo identiing which areas are the most critical to Tele2 within thecompans sphere o infuence. The outcome o the two analsestogether with Tele2s level o ambition have laid the oundation orTele2s prioritized ocus areas and a new set o long, medium andshort term goals.

Veriing prioritie

To learn more about how our stakeholders perceive our CorporateResponsibi lit work and where the think our priorities shouldlie, Tele2 has initiated an ongoing programme or stakeholder dialogues. So ar, dialogues have been held with emploees, management, analsts, customers and shareholders. A multistakeholder

dialogue was held with NGOs in Januar 2011.During the dialogues, one o the requests brought orward b

the stakeholders was increased communication. Thereore severalactivit ies to improve communications have been launched. Two othese eorts are Tele2s publication o the rst Corporate Responsibilit report in accordance to GRI guidelines and the new Corporate Responsibilit web.


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Action or Corporate Reponibilit

Tele2s most signicant impact on the climate are the greenhousegas emissions we produce when operating our networks, heating,

cooling and powering our buildings, using our vehicle feet, andtravelling or business.Tele2 continuousl strives to reduce the green house gas emis

sions. During the ear, Tele2 has introduced a series o measurements. In the Nordic countries, Tele2 has switched to energ romrenewable sources. Tele2 continues its eorts to minimize businesstravel b increasing the use o video and telephone conerencing.The transition to environmentall r iendl compan cars hascontinued during the ear. Almost 80 percent o the vehicles inthe feet are now environmentall riendl.

Another environmental issue that has been identied as a riskarea is electronic waste. Tele2 has thereore introduced a newprogram named Flip swap in the Swedish shops during the ear.Flip swap enables the return o old mobile phones to a Tele2 store

in exchange or a voucher, which can be used in the store.During the past ear, we initiated our rst suppl chain controls.

For Tele2 it is a undamental prerequisite that its suppliers andagents show respect or human rights, labour rights, environmental impact and conduct active anticorruption work. To ensurethe ullment and correct knowledge o the compans Code oConduct, Tele2s Head o CR and its shareholder Swedbank visitedsuppliers, partners and sites in Russia. Tele2 will continue thevisits, dialogues, and training in the ull value chain to ensureull commitment to Human rights, Labour rights, Environment andAntiCorruption.

Understanding and acting in line with our values means prioritising CR. To uphold the same level o understanding internallas well as externall we have completed training or managementand ke unctions. As the next step we have initiated inclusion oHuman rights, Labour rights, Environment and AntiCorruption inourkeyinternallearningTheTele2wayforallmanagersfrom

2011 and onwards.

EmPLOyEEsTele2 had 7,337 (6,995) numbers o emploees at the end othe ear. The increase is largel due to acquired operations inKazakhstan and BBned in Netherlands. See also Note 33 Numbero emploees and Note 34 Personnel costs.

Ever emploee creates an individual development plan togetherwith his or her manager on a earl basis. The development planincludes continuous evaluations and earl result evaluations

including how the goals are met and the plan or the uture (newgoals, development and initiative). Tele2 emploees have a greatresponsibi lit to contribute both to their own as well as to Tele2sdevelopment b coming up with their own initiatives and ideaswhich can improve the business.

All emploees are oered to participate in the earl emploeesurveyMyVoice.Thegoalofthesurveyistodevelopthecompany

as an emploer and as a workplace within a number o areas, suchas communication and leadership. The results o the emploeesurve are analzed on group level within Tele2 and lead to actionplans with concrete measures and improvements linked to theresults. Usuall, ver good results are achieved in the emploeesurve, which shows among other things that there is a high levelo pride to be working or Tele2; likewise, the working environment is pervaded b respect, fexibil it, proessionalism andmultitude.

EVENTs AFTER THE END OF THE FINANCIAL yEAROn Januar 21, 2011 the Administrative Court o Appeal hasapproved Tele2s claim or a deduction o a capital loss o SEK 13.3

billion (tax eect o SEK 4,354 million including interest), whichwas associated with the liquidation o S.E.C. SA in 2001. The decision b the Administrative Court o Appeal will not lead to reducedtax paments since the capital loss has been deducted againstearlier ears prots.

Tele2 Sweden announced on March 4, 2011 that Tele2 Swedenhas been awarded a mobile license o 2x10 MHz in the 800 MHzrequenc band through the network compan Net4Mobilit orSEK 769 million. The requencies will be used in the roll out oSwedens most comprehensive 4G network. The ambition is tocover 99 percent o the Swedish households b the end o 2012.

On December 15, 2010 Tele2 sold its cable TV operation inLithuania or SEK 42 million. The sale was approved b the regulator authorities on Februar 3, 2011 and generates a capital gain o

SEK 4 million.On Februar 7, 2011, Tele2 entered into a 2ear revolving credit

acilit agreement o SEK 2.5 billion with a sndicate o ve banksand with the same perormance conditions as the larger creditacilit.

RIsK AND uNCERTAINTy FACTORsTele2s operations are aected b a number o external actors.The most important risks are described below.

Operating rik

The risk actors considered to be most signicant to Tele2s uturedevelopment are described below.

Availability o requencies and telecom licences

The compan is dependent on licences and requencies to be ableto operate its business. Tele2 needs to secure the extension oexisting licenses and obtain new licenses that will be distributed.Tele2s abilit to retain customers b providing improved servicesor maintain its low cost structure ma be hampered b not obtaining required licences or requencies at all or at a reasonable price.Tele2 works in close contact with regulators and other industrassociations to become aware o upcoming licence distributionsor redistributions. Tele2 continuousl monitors activities withinthis area.

Operations in Russia and Kazakhstan

Tele2s operations have a signicant infuence on the groupsoperational result and nancial position, especiall in Russia. Thepolitical, economic, regulator and legal environment as well asthe tax sstem in Russia and Kazakhstan are still developing andare less predictable than in countries with more mature institutional structures. This also applies to prevailing corporate governance codes, business practices and the reporting and disclosurestandards. The market and the operations in Russia and Kazakhstan thereore represent a dierent risk rom those associated withinvestments in other countries and can aect Tele2s abilities tooperate and develop its operations in these countries. Tele2 monitors current the development on these markets and has contactwith relevant authorities.



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Network sharing with other parties

In Sweden and Norwa, Tele2 has reached agreements with othertelecom operators to build and operate common network inra

structure. Such agreements enable Tele2 to provide the Best Dealto its customers b sharing the risks o investing in new technologies and adjusting quicker to technological developments. At thesame time, these agreements also impose new risks in the orm odelas in roll out, limitations or customised development andlimitations on operating protabilit. Finall, such agreementsinherentl present the risk that Tele2 s partners are unable orunwill ing to ull their commitments under these agreements.Tele2 currentl evaluates these orms o cooperations and has adialogue with its partners in these cooperations.

Integration o new business models etc

Tele2s business environment is experiencing continuous internaland external changes, which ma aect our uture operational

result and nancial position. Change ma be in the orm o newbusiness models such as mobile VOIP, geographical expansion ornew revenue models introduced b handset companies. Thereis also internal change in the orm o inormation technologinrastructure makeovers, which i successul will improve ourcapabilit to provide enhanced service to our customers. Tele2sexecutive management closel reviews the progress o internaland external change, to adjust its strategies and maximise returnsor our shareholders.

Changes in regulatory legislation

Changes in legislation, regulations and decisions rom authoritiesor telecommunications services can have a considerable eecton Tele2s business operations and the competitive situation inits operating markets. Large scale deregulation has historicallbeen advantageous or Tele2s development, while a limited orslow deregulation process has restricted the compans opportunities or development. These decisions also infuence the priceswhich appl to interconnection agreements with the local ormermonopolist in the various markets. Also, certain decisions such asthe regulation o next generation xed broadband technolog mainclude conditions that exclude Tele2 rom oering similar products to its customers. Tele2 works activel with telecom regulatorsand industr associations, in order to create air competition in itsoperating markets.

Legal proceedings

Tele2 is a part to legal proceedings as a result o its normal business operations. As these proceedings can be complex, it is dicultto predict their outcome. An unavourable result can have a signicant negative eect on our business operations, operating prot ornancial position. Tele2 uses both internal and external expertiseto advice on strategies related to legal proceedings.

Financial Rik manageent

Through its operations, the group is exposed to various nancialrisks such as currenc risk, interest risk, liquidit risk and credit

risk. Financial risk management is mainl centralized to Tele2corporate. The aim is to minimize the groups capital costs throughappropriate nancing and eective management and control othe groups nancial risks. Further inormation on nancial riskmanagement can be ound in Note 2.

WORK OF THE BOARD OF DIRECTORsThe Board o Directors is appointed b the Annual General Meetingor terms extending until the next Annual General Meeting. At theAnnual General Meeting in Ma 2010, Lars Berg and Erik Mittereggerwere appointed as new Board members, Vigo Carlund and PelleTrnberg let the Board, while remaining Board members were reelected. In addition, Mike Parton was appointed as new Chairmano the Board o Directors.

The Board is responsible or the compans organization andmanagement, and is composed in such a wa as to enable it toeectivel support and manage the responsibilit o the companssenior executives. The Board makes decisions on overall strategies,organizational matters, acquisitions, corporate transactions, majorinvestments, and establishes the ramework o Tele2s operationsb dening the compans nancial goals and guidelines. In 2010,the Board convened ve times on dierent locations in Europe. Inaddition, six per capsulam meetings and ve telephone conerencemeetings were held.

Within the Board, a Remuneration Committee and an Audit Committee have been appointed. These committees should be seenas preparing bodies or the Board and as such do not reduce theBoards general or joint responsibilit ies or the compans interestsand the decisions made. All Board members have access to thesame inormation. The Chairman o the Board closel monitors thecompans development and is responsible or ensuring that othermembers receive the inormation the need to perorm their Boardduties ecientl and appropriatel.

The work o the Remuneration Committee includes salar matters, pension conditions, bonus sstems and other terms o emploment or the CEO and other senior executives. The Audit Committees role is to maintain and improve the ecienc o contact withthe groups auditors and to supervise the procedures or accountingand nancial reporting and auditing within the group. Remuneration to the Board is stated in Note 34.

Corporate Governance ReportThe Corporate Governance Report is available on Tele2s websitewww.tele2.com.



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Reneration gideline or enior exective

The Board proposes the ollowing guidelines or determiningremuneration or senior executives or 2011, to be approved b the

Annual General Meeting in Ma 2011.The objectives o Tele2s remuneration guidelines are to oercompetitive remuneration packages to attract, motivate, and retainke emploees within the context o an international peer group.The aim is to create incentives or management to execute strategicplans and deliver excellent operating results and to align managements incentives with the interests o the shareholders. Seniorexecutives covered b the proposed guidelines include the CEOandmembersoftheLeadershipTeam(seniorexecutives). At present, Tele2 has twelve senior executives.

Remuneration to the senior executives should comprise annualbase salar and variable shortterm incentive (STI) and longtermincentive (LTI) programs. The STI shall be based on the perormance in relation to established objectives. The objectives shall be

related to the compans overall result and the senior executivesindividual perormance. The STI can amount to a maximum o 100percent o the annual base salar.

Over time, it is the intention o the Board to increase the proportion o variable perormance based compensation as a componento the senior executives total compensation.

The Board shall continuall consider the need o imposingrestrictions in the variable shortterm incentive programs that arepaid in cash, and make paments under such incentive programsor proportions o such paments, conditional on whether theperormance on which it was based has proved to be sustainableover time, and/or allowing the compan to reclaim components osuch variable compensation that have been paid on the basis oinormation which later proves to be maniest l misstated.

Other benets ma include e.g. compan cars and or expatriatedsenior executives e.g. housing benets or a limited period o time.The senior executives ma also be oered health care insurances.

The senior executives are oered premium based pension plans.Pension premiums or the CEO can amount to a maximum o 25percent o the annual base salar. For the other senior executivespension premiums can amount to a maximum o 20 percent o theannual base salar.

The maximum period o notice o termination o emplomentshall be 12 months in the event o termination b the CEO and sixmonths in the event o termination b an o the other senior executives. In the event o termination b the compan, the maximumnotice period during which compensation is paable is 18 months

or the CEO and 12 months or an o the other senior executives.

In special circumstances, the Board ma deviate rom the aboveguidelines. In such a case, the Board is obligated to give accounto the reason or the deviation on the ollowing Annual General

Meeting.There are no deviations during 2010 compared with the remuneration guideline or senior executives approved b the AnnualGeneral Meeting in Ma 2010.

The guidelines or 2010 as proposed b the Board and approvedb the Annual General Meeting in Ma 2010 are stated in Note 34Personnel costs.

PARENT COmPANyThe parent compan perorms unctions and conducts certaingroup wide development projects. In 2010, the parent companpaid an ordinar dividend or 2009 o SEK 3.85 per share and anextraordinar dividend o SEK 2.00 per share corresponding to atotal o SEK 2,580 million to shareholders.

PROPOsED APPROPRIATION OF PROFITThe Board and CEO propose that, rom the SEK 19,978,601,680 atthe disposal o the Annual General Meeting, an ordinar dividendo SEK 6.00 per share and an extraordinar dividend o SEK 21.00per share be paid to shareholders, corresponding at December 31,2010 to SEK 2,659,574,034 and SEK 9,308, 509,119 respectivel,resulting in a total dividend o SEK 11,968,083,153, and that theremaining amount, SEK 8,010,518,527, be carried orward.

Based on this annual report, the consolidated nancial statements and other inormation which has become known, the Boardhas considered all aspects o the parent compans and groupsnancial position. This evaluation has led the Board to the conclu

sion that the dividend is justiable in view o the requirements thatthe nature and scope o, and risks involved in, Tele2s operationshave on the size o the compans and groups equit, as well as itsconsolidation needs, liquidit and nancial position in general.



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Financial tateent Grop

Consolidated income statement Page 13

Consolidated comprehensive income Page 14

Consolidated balance sheet Page 15

Consolidated cash fow statement Page 17

Change in consolidated shareholders equit Page 18

Financial tateent Parent copan

The parent compans income statement Page 52

The parent compans comprehensive income Page 52

The parent compans balance sheet Page 52

The parent compans cash fow statement Page 53

Change in the parent compans shareholders equit Page 53

Note Grop

Note 1 Accounting principles and other inormation Page 19

Note 2 Financial risk management Page 26

Note 3 Exchange rate eects Page 28

Note 4 Segments Page 28

Note 5 Net sales and number o customers Page 29

Note 6 EBITDA, EBIT and depreciation/amortization andimpairment Page 31

Note 7 Sale o operations Page 32

Note 8 Result rom shares in associated companies andjoint ventures Page 32

Note 9 Other operating income Page 32

Note 10 Other operating expenses Page 33

Note 11 Interest income Page 33Note 12 Interest costs Page 33

Note 13 Other nancial items Page 33

Note 14 Taxes Page 33

Note 15 Intangible assets Page 34

Note 16 Tangible assets Page 36

Note 17 Acquisitions and divestments Page 37

Note 18 Shares in associated companies and joint ventures Page 39

Note 19 Other nancial assets Page 40

Note 20 Materials and supplies Page 41

Note 21 Accounts receivable Page 41

Note 22 Other current receivables Page 41

Note 23 Prepaid expenses and accrued income Page 41

Note 24 Shortterm investments Page 41

Note 25 Cash and cash equivalents and overdrat acilities Page 41

Note 26 Financial liabilities Page 41

Note 27 Provisions Page 42

Note 28 Accrued expenses and deerred income Page 43

Note 29 Pledge assets Page 43

Note 30 Contingent liabilities and other commitments Page 43

Note 31 Supplementar cash fow inormation Page 44

Note 32 Number o shares and earnings per share Page 44

Note 33 Number o emploees Page 45

Note 34 Personnel costs Page 46

Note 35 Fees to the appointed auditor Page 49

Note 36 Changed accounting principle and other reclassications Page 49

Note 37 Discontinued operations Page 50

Note 38 Transactions with related parties Page 50

Note Parent copan

Note 1 Accounting principles and other inormation Page 54

Note 2 Net sales Page 54

Note 3 Result o shares in group companies Page 54

Note 4 Result rom other securities and receivablesclassied as xed assets Page 54

Note 5 Interest expense and similar costs Page 54

Note 6 Taxes Page 54

Note 7 Shares in group companies Page 55

Note 8 Receivables rom group companies Page 55

Note 9 Cash and cash equivalents and overdrat acilities Page 55

Note 10 Financial liabilities Page 55

Note 11 Accrued expenses and deerred income Page 56

Note 12 Contingent liabilities and other commitments Page 56

Note 13 Supplementar cash fow inormation Page 56

Note 14 Number o emploees Page 56

Note 15 Personnel costs Page 56

Note 16 Fees to the appointed auditor Page 56

Note 17 Legal structure Page 57

Content


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Financial statements

Conolidated incoe tateent

SEK million Note 2010 2009

CONTINuING OPERATIONs

Net sales 5 40,164 39,436

Cost o services sold 6 22,409 22,491

Gro prot 17,755 16,945

Selling expenses 6 7,339 8,033

Administrative expenses 6 3,305 3,203

Sale o operations 7 2 7

Result rom shares in associated companies and joint ventures 8 74 98Other operating income 9 207 460

Other operating expenses 10 154 342

Operating prot 6 7,088 5,736

PROFIT FROM FINANCIAL INVESTMENTS

Interest income 11 14 212

Interest costs 12 511 570

Other nancial items 13 144 142

Prot ater nancial ite 6,735 5,236

Tax on prot or the ear 14 254 481

NET PROFIT FROm CONTINuING OPERATIONs 6,481 4,755

DIsCONTINuED OPERATIONs

Net prot/loss rom discontinued operations 37 447 46

NET PROFIT 4 6,928 4,709

ATTRIBUTABLE TO

Equit holders o the parent compan 6,926 4,673

Minorit interest 2 36

NET PROFIT 6,928 4,709

Earnings per share, SEK 32 15.70 10.61

Earnings per share ater dilution, SEK 32 15.64 10.59

FROM CONTINUING OPERATIONS

Earnings per share, SEK 14.69 10.72

Earnings per share ater dilution, SEK 14.63 10.70


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Conolidated coprehenive incoe


Net prot 6,928 4,709

OTHER COmPREHENsIVE INCOmE

Exchange rate dierences 2,780 1,370

Exchange rate dierences, tax eect 1,504 565

Reversed cumulative exchange rate dierences rom divested companies 37 50 138

Withholding tax dividends 12 19

Cash fow hedges 26 46 6

Cash fow hedges, tax eect 12 Other coprehenive incoe or the ear, net o tax 4,312 2,098

TOTAL COmPREHENsIVE INCOmE FOR THE yEAR 2,616 2,611

ATTRIBUTABLE TO

Equit holders o the parent compan 2,614 2,579

Minorit interest 2 32

TOTAL COmPREHENsIVE INCOmE FOR THE yEAR 2,616 2,611


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SEK million NoteDec 31, 2010 Dec 31, 2009 Dec 31, 2008

(Note 36)

AssETs

FIXED AssETs

Intangible aet

Goodwill 15 10,010 10,179 11,473

Other intangible assets 15 3,191 2,234 2,121

Total intangible aet 13,201 12,413 13,594

Tangible aet

Machiner and technical plant 16 12,780 13,336 13,023

Other tangible assets 16 2,350 2,008 2,543

Total tangible aet 15,130 15,344 15,566

Financial aet

Shares in associated companies and joint ventures 18 788 551 277

Other nancial assets 19 353 45 150

Total nancial aet 1,141 596 427

Deerred tax aet 14 3,200 4,502 4,682

TOTAL FIXED AssETs 32,672 32,855 34,269

CuRRENT AssETs

material and pplie 20 273 201 368

Crrent receivable

Accounts receivable 21 3,280 3,144 4,234

Current tax receivables 115 184 403

Other current receivables 22 484 459 538

Prepaid expenses and accrued income 23 2,599 2,468 2,916

Total crrent receivable 6,478 6,255 8,091

shortter invetent 24 112 114 3,359

Cah and cah eqivalent 25 834 1,312 1,250

TOTAL CuRRENT AssETs 7,697 7,882 13,068

TOTAL AssETs 4 40,369 40,737 47,337

Conolidated balance heet


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16 Tele2 Annual report 2010


SEK million NoteDec 31, 2010 Dec 31, 2009 Dec 31, 2008

(Note 36)

sHAREHOLDERs EQuITy AND LIABILITIEs

sHAREHOLDERs EQuITy

Attribtable to eqit holder o the parent copan

Share capital 32 559 558 562

Other paidin capital 16,967 16,898 16,896

Reserves 2,733 1,567 3,642

Retained earnings 14,079 9,737 7,255Total attribtable to eqit holder o the parent copan 28,872 28,760 28,355

minorit interet 3 63 50

TOTAL sHAREHOLDERs EQuITy 28,875 28,823 28,405

LONG-TERm LIABILITIEs

Interetbearing

Liabilities to nancial institutions and similar liabilities 26 1,038 2,782 1,706

Provisions 27 183 218 193

Other interestbearing liabilities 26 471 188 262

Total interetbearing liabilitie 1,692 3,188 2,161

Noninteretbearing

Deerred tax liabilit 14 851 731 758

Total noninteretbearing liabilitie 851 731 758

TOTAL LONG-TERm LIABILITIEs 2,543 3,919 2,919

sHORT-TERm LIABILIT IEs

Interetbearing

Liabilities to nancial institutions and similar liabilities 26 160 109 7,085

Provisions 27 139 164 118

Other interestbearing liabilities 26 957 170 432

Total interetbearing liabilitie 1,256 443 7,635

Noninteretbearing

Accounts paable 26 2,602 2,106 2,217

Current tax liabilities 77 221 227

Other shortterm liabilities 26 561 640 679

Accrued expenses and deerred income 28 4,455 4,585 5,255

Total noninteretbearing liabilitie 7,695 7,552 8,378

TOTAL sHORT-TERm LIABILITIEs 8,951 7,995 16,013

TOTAL sHAREHOLDERs EQuITy AND LIABILITIEs 4 40,369 40,737 47,337

Continued Consolidated balance sheet


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OPERATING ACTIVITIEs

Cah fow ro operation beore change in working capital

Operating prot rom continuing operations 7,088 5,736Operating prot/loss rom discontinued operations 37 453 17

Operating prot 7,541 5,719

Adjustments or noncash items in operating protDepreciation and amortization 3,597 3,555Impairment 29 526Result rom shares in associated companies and joint ventures 74 98Gain/loss on sale o xed assets 442 339

Exchange rate dierence 120Interest received 11 520Interest paid 357 540Finance costs paid 4 341Dividend received 1 1Taxes paid 740 883

Cah fow ro operation beore change in working capital 31 9,710 8,196

Change in working capital

Materials and supplies 64 106Operating assets 443 1,002Operating liabilities 407 186

Change in working capital 31 100 922

CAsH FLOW FROm OPERATING ACTIVITIEs 9,610 9,118

INVEsTING ACTIVITIEs

Acquisition o intangible assets 31 283 358Sale o intangible assets 31 20 86Acquisition o tangible assets 31 3,356 4,089Sale o tangible assets 31 16 21Acquisition o shares in group companies (excluding cash) 17 1,371 529Sale o shares in group companies 17 324 848Capital contribution to joint ventures 17 139 316Sale o joint ventures 17 271 Other nancial assets, lending 202 18Other nancial assets, received paments 2 3,401

Cah fow ro inveting activitie 5,260 954

CAsH FLOW AFTER INVEsTING ACTIVIT IEs 4,350 8,164

FINANCING ACTIVITIEs

Proceeds rom credit institutions and similar liabilities 1,300Repament o loans rom credit institutions and similar liabilities 2,587 7,226Proceeds rom other interestbearing liabilities 111Repament o other interestbearing lending 219 57Dividends 2,580 2,202New share issues 74 4Repurchase o own shares 1Sale o own shares 256 Shareholders contribution rom minorit 241 Dividends to minorit 4

Cah fow ro nancing activitie 4,815 8,075

NET CHANGE IN CAsH AND CAsH EQuIVALENTs 465 89

Cash and cash equivalents at beginning o the ear 25 1,312 1,250

Exchange rate dierences in cash 25 13 27CAsH AND CAsH EQuIVALENTs AT END OF THE yEAR 25 834 1,312

Cash fow or discontinued operations, please reer to Note 37.For additional cash fow inormation, please reer to Note 31.

Conolidated cah fow tateent


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Change in conolidated

hareholder eqitAttributable to equit holders o the parent compan

SEK million NoteShare

capital

Otherpaidincapital

Hedgereserve

Translationreserve

Retainedearnings Total

Minoritinterest

Totalshareholders

equit

shareholder eqit at Janar 1, 2009 562 16,896 240 3,882 7,051 28,151 50 28,201

Changed accounting principle 36 204 204 204

Adjted hareholder eqit at Janar 1, 2009 562 16,896 240 3,882 7,255 28,355 50 28,405

Costs or stock options 34 25 25 25

New share issues 32 1 3 4 4

Repurchase o own shares 32 1 1 1

Reduction o share capital 32 5 5

Dividends 32 2,202 2,202 4 2,206

Purchase o minorit 17 15 15

Comprehensive income or the ear 166 1,909 4,654 2,579 32 2,611

sHAREHOLDERs EQuITy AT DECEmBER 31, 2009 558 16,898 406 1,973 9,737 28,760 63 28,823

shareholder eqit at Janar 1, 2010 36 558 16,898 406 1,973 9,737 28,760 63 28,823

Costs or stock options 34 4 58 54 54

New share issues 32 1 73 74 74

Sale o own shares 32 256 256 256

Dividends 32 2,580 2,580 2,580Purchase o minorit 17 306 306 62 368

Comprehensive income or the ear 34 4,334 6,914 2,614 2 2,616

sHAREHOLDERs EQuITy AT DECEmBER 31, 2010 559 16,967 372 2,361 14,079 28,872 3 28,875


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Tele2 Annual report 2010 19

Note to the conolidated

nancial tateentNOTE 1 ACCOUNTING PRINCIPLES AND OTHER

INFORMATION

The consolidated nancial statements are prepared in accordancewith the International Financial Reporting Standards (IFRS) and theinterpretations o the International Financial Reporting Interpretations Committee (IFRIC) at the date o publication o this annual report,as adopted b the EU. The group also applies the Swedish FinancialReporting Board recommendation RFR 1 Supplementar AccountingRules or groups (December 2010) which species additional disclosures

required under the Swedish Annual Accounts Act.The nancial reports have been prepared on the basis o historical

cost, apart rom nancial instruments which are normall based on theamortized cost method, with the exception o other longterm securities and derivatives which are measured at air value.

From Q4 2010, with prospective eect, revenues rom customeragreements including the deliver o mobile phones or other equipment without the debit o an specic enhanced subscription ees areallocated to the individual components in the agreement. Beore, thewere recognized when the total service was provided. The changedprinciple means that revenues that can be allocated to the equipmentare recognized at the deliver o the equipment to the customer andrevenues rom other subscription charges are recognized in the periodcovered b the charge. Prior periods have not been restated since it isimpracticable to determine the eect on these.

During 2010, with retroactive eect, Datametrix Integration AB hasbeen transerred to segment Sweden. In addition adjustment has beenmade retroactivel in segment Other rom net sales to other operatingincome.

From 2010, with retroactive eect, the international carr ier businessis reported in the segment Other.

With retroactive eect, the internal sale between mobile and xedbroadband/telephon is reported in segment Sweden.

In segment Sweden rom 2010 sales with enhanced subscriptions eesare regarded as instalment paments and the accounting o revenueshas been adjusted accordingl. Previous periods have been recalculated.

For additional inormation to the changes described above pleasereer to Note 36.

CHANGE IN ACCOuNTING PRINCIPLEs

From 2010 the ollowing new standards, amendments and interpretations are applied.

Revied IFRs 3 and IAs 27 concerning bine acqiitionThe revised IFRS 3 and IAS 27 are applied prospectivel rom Januar1, 2010 without recalculation o prior periods.

In the revised IFRS 3, all acquisition related costs (transaction costs)are to be recognized as expenses in the period in which the arise, andshall no longer be capitalized as a part o the acquisition value or theacquired business. Acquisition related costs during 2010 amounts toSEK 16 million. Also the denition o a business combination has beenclaried.

The revised IFRS 3 also allows the use o the so called ull goodwillmethod. This means that the minorit interest and goodwill are report

ed at air value at the time o acquisition. The ull goodwill method hasbeen applied at the acquisition o the mobile operator NEO in Kazakhstan, which means a higher value o goodwill and minorit interestcompared to previous principles o SEK 452 million.

According to the revised IFRS 3 a conditional purchase price shall bereported, both init iall as well as in the ollowing periods, at air valuewith an subsequent revaluation to be reported in the income statement. Previousl a provision or conditional purchase price was initiall reported at a value that corresponded to the compans best estimateo the likel outcome. Subsequent changes in the provision, except orthe discount eect, were reported against goodwill. The change hasnot had an eect or Tele2.

The revised IFRS 3 standard eects acquisitions o a controllinginterest in a compan where Tele2 alread holds an equit interest.

The revised accounting standard requires Tele2 to adjust the carringvalue o the previousl held equit interest to air value at acquisition.An gain or loss shall be recorded in the income statement. Hence apositive eect was reported in 2010 o SEK 31 million in connectionwith the acquisition o the remaining 50 percent o the shares in SpringMobil.

The revised IAS 27 claries that changes in a parent compans sharein the subsidiar, where the parent compan retains the control, shallbe reported as a transaction within equit. This means that these tpeso changes shall not result in recognition o prot or loss in the incomestatement. Nor shall the transaction cause an changes o the subsidiars net assets (including goodwill). The previous standard gave noguidance on how changes in the parent compans participating interest should be accounted or. Compared to Tele2s previous principlesthe revised standard has entailed a reduction o shareholders equit

b SEK 306 million in connection with the acquisition o the remaining 12.5 percent o the shares in Tele2 Rostov instead o an increase ogoodwil l b the same amount.

Other new and aended IFRs tandard and IFRIC interpretationThe other new or amended IFRS standards and IFRIC interpretations,which became eective Januar 1, 2010, have had no material eecton the consolidated nancial statements. The revised IFRSstandardsare the ollowing; IFRS 2 Shared-based payments, IAS 39Financial

Instruments: Recognition and Measurementand Improvements to IFRSs2009. The new IFRIC interpretations are the ollowing: IFRIC 17 Distri-butions o non-cash assets to owners.

NEW REGuLATIONs

The ollowing revised standards have been issued b the InternationalAccounting Standards Board (IASB) and adopted b the EU; IAS 24Related party disclosures (eective or annual periods beginning onor ater Januar 1, 2011) and amendments to IAS 32Financial Inst ru-ments: Presentation (eective or annual periods beginning on or aterFebruar 1, 2010).

IASB has also issuedImprovements to IFRSs 2010(eective or annual periods beginning on or ater Jul 1 2010), Amendments to IFRS7Financial Instruments: Disclosures(eective or annual periods beginning on or a ter Jul 1, 2011), Amendments to IAS 12 Deerred tax:Recovery o underlying Assets(eective or annual periods beginningon or ater Januar 1, 2012) and IFRS 9Financial Instruments(eectiveor annual periods beginning on or ater Januar 1, 2013) which havenot et been adopted b the EU. The improvements are not estimated tohave an material eect to Tele2s nancial reports.

The revised IAS 24 wil l most likel reduce the number o related parttransactions to be disclosed in the nancial reports.The amendments to IAS 32 are estimated to have no material eect

or Tele2.


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Notes

IFRIC has issued IFRIC 19Extinguishing Financial Liabilites with EquityInstruments(eective or annual periods beginning on or ater Jul 1,2010) and amendments to interpretation IFRIC 14 Prepayments o aMinimum Funding Requirement (eective or annual periods begin

ning on or ater Januar 1, 2011) are expected to have no material e ecton Tele2s nancial statements.

CONsOLIDATION

The consolidated accounts include the parent compan and companiesin which the parent compan directl or indirectl holds more than50 percent o the voting r ights or in an other wa has control.

The consolidated accounts are prepared in accordance with the acquisition method. This means that consolidated shareholders equitonl includes the subsidiars equit that have arosen ater the acquisition and the consolidated income statements onl include earningsrom the date o acquisition until the date o divestment, i the subsidiar is sold. The groups acquisition value o the shares in subsidiariesconsists o the total o the air value at the time o the acquisition owhat is paid in cash, through transer o liabilities or emitted shares.Contingent consideration is included in the acquisition value and is reported to its air value at the time o the acquisition. Subsequent eectsrom the revaluation o contingent consideration are reported in theincome statement. Acquired identiable assets and transerred liabilities are reported initiall to their air value at the time o the acquisition. Exemptions rom this principle are made or acquired tax assets/liabilit ies, compensation to emploees, sharebased paments and assets held or sale which is valued according to the principles describedbelow or each item. Exemptions are also done or indemnit assetsand repurchased rights. Indemnit rights are valued according to thesame principle as the indemnied item. Repurchased rights are valuedbased on the remaining contractual period despite i other market participants would consider the possibilities or contract renewal whendoing the valuation. Reported goodwill is measured as the dierencebetween on one side the total purchase price or the shares in the subsidiar, the value o the minorit in the acquired subsidiar and the airvalue o the previous owned share and on the other side the groupsreported value o acquired assets and transerred liabilities. Acquisition related costs (transaction costs) are recognized as expenses in theperiod in which the arise.

Minorit interest is reported at the time o the acquisition either toits air value or to its proportional share o the groups reported value othe acquired subsidiars identied assets and liabilities. The choice ovaluation method is done or each business combination. Subsequentprot or loss and other comprehensive income that are related to theminorit is allocated to the minorit interest even i it leads to a negative value or the minorit.

The accounts o all oreign group companies are prepared in the currenc used in the primar economic environment o each compan,

which is normall the local currenc.The assets and liabilities o oreign group companies are translatedto Tele2s reporting currenc (SEK) at the closing exchange rates, whileincome and expense are translated at the ears average exchangerates. Exchange rate dierences arising rom translation are reportedin other comprehensive income. When oreign group companies aredivested, the accumulated exchange rate dierence attributable to thesold group compan is recognized in the income statement.

Goodwill and adjustments to air value which arise rom the acquisition o a oreign entit are treated as assets and liabilities o the acquired entit and are translated at the closing rates.

The group treats transactions with minorit owners as transactionswith equit owners o the group. At acquisitions rom minorit owners,the dierence between an consideration paid and the relevant shareacquired o the carring value o net assets o the subsidiar is record

ed in equit. Gains or losses on disposals to minorit owners are alsorecorded in equit i the group retains the control.At acquisition o a controlling interest in a compan where Tele2

alread holds an interest the carring value o the previousl heldinterest is adjusted to its air value. An gain or loss is recorded in theincome statement.

When the control o the subsidiar cease to exist but the group re

tains shares in the compan the remaining shares are initiall reportedto its air value. An gain or loss is reported in the income statement.

AssOCIATED COmPANIEs AND JOINT VENTuREs

Associated companies are companies in which Tele2 has voting powero between 20 percent and 50 percent or in some other wa has signicant infuence. Joint ventures are companies over which the ownershave a joint control.

Associated companies and joint ventures are accounted or in accordance with the equit method. This means that the groups carringamount o the shares in the compan corresponds to the groups shareo shareholders equit as well as an residual value o consolidatedsurplus values ater application o the groups accounting principles.The share o the compans prot or loss ater tax is reported underOperatingprotasResultfromsharesinassociatedcompaniesand

jointventures,alongwithdepreciationoftheacquiredsurplusvalue.

In the event o an increase or decrease in the groups equit sharein associated companies and joint ventures through share issues, thegain or loss is reported in the consolidated income statement as resultrom shares in associated companies and joint ventures. In the event onegative equit in an associated compan and joint venture, where thegroup is committed to contribute additional capital, the negative portion is reported as a liabil it.

Group surplus values relating to oreign associated companies andjoint ventures are reported as assets in oreign currencies. These valuesare translated in accordance with the same principles as the incomestatements and balance sheets or subsidiar ies.

When the signicant infuence o the associated compan or jointventure cease to exist but the group retains shares in the compan theremaining shares are initiall reported to its air value. An gain or lossis reported in the income statement.

REVENuE RECOGNITION

Net sales includes revenue rom services within mobile and xedtelephon, broadband and cable TV, such as connection charges, subscription charges, call charges, data and inormation services andother services. Net sales also include interconnect revenue rom otheroperators and income rom the sale o products such as mobile phonesand modems. Revenues are reported at air value which usuall is theselling value, less discounts and VAT.

Connection charges are recognized at the time o the sale to the extent that the cover the connection costs. An excess is deerred andamortized over the estimated period o contract. Subscription chargesor mobile and xed telephon services, cable TV, ADSL, dialup inter

net, leased capacit and internet connection or direct access customers are recognized in the period covered b the charge. Call chargesand interconnect revenue are recognized in the period during whichthe service is provided. Revenue rom the sale o products is recognizedat the time the product is supplied to the customer. Revenue rom thesale o cash cards is recognized based on actual use o the card or whenthe expir date has passed.

Revenue rom data and inormation services such as text messagesand ring tones is recognized when the service is provided. When Tele2acts as agent or another supplier, the revenue is reported net, i.e. onlthat part o the revenue that is allocated to Tele2 is reported as revenue.

OPERATING EXPENsEs

Operating expenses are classied according to unction, as describedbelow. Depreciation and amortization and personnel costs are stated

b unction. Total costs or depreciation and amortization are presentedin Note 6 and the total personnel costs are presented in Note 34.

Continued Note 1


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Tele2 Annual report 2010 21

Notes

Cot o ervice oldCost o services sold consists o costs or renting networks and capacitas well as interconnect charges. The cost o services sold also includesthe part o the cost or personnel, premises, purchased services and

depreciation and amortization o xed assets attributable to productiono sold services.

selling expeneSelling expenses include costs or the internal sales organization, purchased services, personnel costs, rental costs, bad debt losses as wellas depreciation and amortization o xed assets attributable to salesactivities. Advertising and other marketing activities are also includedand are expensed as incurred.

Adinitrative expeneAdministrative expenses consist o the part o the personnel costs,rental costs, purchased services as well as depreciation and amortization o xed assets attributable to the other joint unctions. Costs associated with Board, business management and sta unctions are included in administrative expenses.

Other operating incoe and other operating expeneOther operating income and other operating expenses include secondar activities, exchange rate dierences in operating activities andprot/loss on the sale o tangible assets.

NumBER OF EmPLOyEEs, sALARy AND REmuNERATION

The average number o emploees (Note 33) as well as salar ies and remuneration (Note 34) or companies acquired during each ear is reported in relation to how long the compan has been a part o the Tele2group.

The number o emploees as well as salaries and remuneration arereported b countr which complies with other parts o the annualreport.

sHARE-BAsED PAymENTs

Tele2 grants options and other sharebased instruments to certain emploees.

Sharebased paments which are settled with the compans ownshares or other equit instruments are reported at their air value calculated b an independent part at the date o grant. These pamentsare reported as emploee costs during the vesting period. To the extentthe earningconditions in the program are linked to marketrelatedactors (such as the market value o the compans shares) and nonvesting conditions (requirement to keep), these are taken into consideration when determining the air value o the program. Other conditions than marketrelated (as or example return on capital emploed)are aecting the emploee cost during the vesting period b changing

the number o shares or other equit based instruments that are expected to vest. Paments received, ater deductions or an costs directl related to transactions, are credited to shareholders equit.

Tele2 records a liabilit or social secur it expenses, at each reportingperiod, or all outstanding incentive programs. The liabilit or socialsecurit expenses are calculated according to UFR 7, IFRS 2 and socialsecurit contributions or listed enterprises. The valuation methodapplied when the incentive programs were issued is also used or thevaluation o the social securit liabilit. The liabilit is revalued at theend o each reporting period and refects the best estimate o the socialsecurit expense expected to be paid when the incentive program isexercised.

PENsIONs

The group has a number o pension schemes, with the main part o

Tele2s pension plans consisting o denedcontribution plans (Note34) or which the group makes paments to public and private pension

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2010-annual report tele2 ab publ

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