CEO WORD Q3 2016

The third quarter has shown a strong underlying financial performance. Profitability in the quarter has been positively impacted by strong mobile enduser service revenue as a result of our relentless focus on data monetization, seasonality and to a certain extent, lower than usual marketing spend, which will be caught up later in the year. As Value Champions we have been well positioned to capture the big appetite for data during the summer despite the new roaming regulation. Sweden has continued to leverage on the dual brand strategy and has delivered a record mobile end-user service revenue. The Baltics have continued to grow mobile end-user service revenue with sustained margins. In the Netherlands, our Fun Rebel positioning and continued focus on attracting high value customers have resulted in a double digit growth of mobile end-user service revenue, whilst our fixed business has continued to decline despite increased investments.

Group mobile end-user service revenue, on a like for like basis, increased by 6 percent year on year. Our business excluding Netherlands delivered strong EBITDA development, which has offset the Dutch mobile investments this quarter.

The Swedish business has seen an increasing demand for data, both home and abroad, which has stimulated net intake and sales of bigger buckets. Consumer mobile postpaid grew 7 percent, driven by Comviq market share development and Tele2 residential ASPU progress with B2B Large Enterprise showing continued momentum. EBITDA in the quarter was seasonally strong and increased thanks to our relentless focus on data monetization, positive impact from a strong roaming summer and realized efficiencies from Challenger initiatives. During the quarter, we have made progress on a number of fronts to enhance our Value Champion position. Specifically, we have increased our geographical 2G and 4G coverage to 88 percent and are well on track to reach our 90 percent target by the end of this year, ensuring that our customers have an excellent network quality experience wherever they are. In October we launched our new Tele2 branding campaign with the slogan “Be content with more”, with a more attractive offering on our largest bucket and additional data SIMs for carefree surfing on all of your devices.

The Baltic region has delivered a strong financial performance and mobile end-user service revenue growth of 7 percent. The increased smartphone penetration and our 4G coverage which is now at 99 percent continues to drive data consumption and steer customers towards higher value tariffs. During the quarter we expanded our partnership with MTG by launching the video streaming service Viaplay, thus increasing the demand for data further. EBITDA margin remained stable for the region at 32 percent, partly impacted by the new roaming regulation.

In the Netherlands, mobile momentum continues with solid net intake, and increasing sales of larger buckets fuelled by our excellent brand positioning and our competitive offerings resulting in double digit mobile end-user service revenue growth. EBITDA was as expected impacted by continued investments in our mobile business, however to some extent, offset by lower levels of marketing spend during the summer. We continued to build up our Fun Rebel brand platform with an innovative off- and online roaming campaign with considerable viral spread. During the quarter customer satisfaction and data usage on our own network significantly improved and we have now reached outdoor population coverage of above 98 percent and indoor coverage of around 83 percent. We continued to successfully roll out VoLTE on a larger scale and have now opened our 13th retail store, contributing to an increasing share of direct sales and valuable brand presence.

Integration of the JV in Kazakhstan has progressed well in the quarter. Mobile end-user service revenue grew strongly by 20 percent, like for like, as a result of an increased customer base. Removal of unlimited plans and new pricing in the previous quarter has however resulted in some decline in customer net intake. EBITDA contribution was strong and increased by over 200 percent on a like for like basis, due to improved operating leverage and synergies from the JV integration. The Challenger program is delivering in line with expectations towards the target of SEK 1bn by 2018. To date, we have achieved a run rate of SEK 415 million in savings across the Group mainly coming from customer service, relocation of resources to India and our consolidation and transformation of Network & IT into Shared Operations. The savings are however offset by investments, mainly within Network and Marketing and Sales, in the Netherlands and in Kazakhstan, as well as declining revenues within our fixed business.

As part of our annual financial review cycle, we assess the future cash generation of our various business units. As a result of this analysis, we have recognized an impairment of SEK 2.5bn related to our business in the Netherlands, resulting in a net loss for the Group.

Looking forward into the fourth quarter, I am delighted that we have received clearance on our acquisition of TDC by the European Commission which will allow us to work towards closing by end of October. In conjunction with our announcement of the TDC acquisition we also communicated our intention to raise equity through a Rights Issue of approximately SEK 3bn, which will be subject to approval at an Extraordinary General Meeting to be held later this month.

To conclude, I am pleased with the underlying momentum and progress made in the quarter with excellent mobile contribution in all our major markets. Our Value Champion strategy, combined with a relentless focus on offering the best wireless technologies with a challenger cost structure, will lead us to sustainable value creation for our customers, employees and our shareholders.

Allison Kirkby
President and CEO