IN THE FIRST SIX MONTHS OF 2004 TELE2 INCREASED PROFIT AFTER TAX BY 38% WITH A RECORD CASH FLOW AFTER INVESTING ACTIVITI - Tele2

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Aug 2, 2004 6:05 AM CET

IN THE FIRST SIX MONTHS OF 2004 TELE2 INCREASED PROFIT AFTER TAX BY 38% WITH A RECORD CASH FLOW AFTER INVESTING ACTIVITI

IN THE FIRST SIX MONTHS OF 2004 TELE2 INCREASED PROFIT AFTER TAX BY 38% WITH A RECORD CASH FLOW AFTER INVESTING ACTIVITIES OF SEK 2.4 BILLION New York and Stockholm - Monday, August 2, 2004 - Tele2 AB ("Tele2", "the Group") (Nasdaq Stock Market: TLTOA and TLTOB and Stockholmsbörsen: TEL2A and TEL2B), the leading and profitable alternative pan-European telecom operator, today announced its consolidated results for the second quarter ended June 30, 2004. · Operating revenue for the first six months increased by 18% to MSEK 21,090 (MSEK 17,841) · Profit after tax for the first six months increased by 38% to MSEK 653 (MSEK 472) · Earnings per share after tax for the first six months increased to SEK 4.41 (SEK 3.19) · Net addition of over 1 million customers in the second quarter to a total of 24.9 (18.7) million · Cash flow after investing activities for the second quarter amounted to MSEK 1,167 (MSEK 965) The figures shown in parenthesis correspond to the comparable periods in 2003 and all negative amounts are distinguished with a minus sign. Lars-Johan Jarnheimer, President and CEO of Tele2 AB commented: "Tele2 continues to maintain its balance between customer growth, profitability and cash flow. In the first six months we had our best ever financial result while maintaining strong revenue growth of over 18%, probably unique in the industry. These results come on the back of a period of heavy investment in ADSL in France, the UK launch, Russian GSM expansion and other new service start-ups. These results fed through to generate a cash flow after investing activities of SEK 2.4 billion for the first six months. In the second quarter, we continued our expansion in Russia and Poland, where the market offers high revenue growth and low subscriber acquisition costs. That, in combination with increased investments in dial-up Internet, has nevertheless led to a certain ARPU dilution. Competition remains intense in both mobile and fixed telephony in Sweden. Despite this, we improved our EBITDA margins versus the first quarter within fixed telephony and maintained the level within mobile telephony. We launched our 3G services in Sweden this quarter, with the same tariffs as our GSM services and early indications are encouraging. We have continued to see the positive impact from the introduction of resale of the fixed line subscription fee in Norway, and anticipate the introduction of this service in Sweden towards the year-end. In the Baltic & Russia market area we had a strong customer intake and are now witnessing the benefits of our investments in Russian mobile. We maintained our momentum in Central Europe, with its operating revenue growing by 58% in the quarter, while continuing to improve its EBITDA. Also in Southern Europe the EBITDA margin rose versus the first quarter despite the heavy marketing investments in the UK and ADSL in France. We took on some 0.8 million ADSL and dial-up Internet customers in this market area over the past 12 months. Our focus, which has proven to be highly successful, continues to be on low customer acquisition cost, churn management and operational cost control." FINANCIAL HIGHLIGHTS FOR THE QUARTER ENDED JUNE 30, 2004 SEK millions Q2, 2004 Q2, 2003 Operating Revenue 10,711 9,225 Customer intake 1,082 1,063 EBITDA (i) 1,689 1,537 EBITA (ii) 1,194 1,085 EBIT (iii) 807 693 EBT (iv) 748 567 Operating cash flow 1,505 1,498 Cash flow after investing activities 1,167 965 (i) Operating profit before depreciation and amortization (ii) Operating profit after depreciation, before amortization (iii) Operating profit after depreciation and amortization (iv) Profit after financial items Group financial overview for the quarter ended June 30, 2004 Operating revenue Operating revenue amounted to MSEK 10,711 (MSEK 9,225), corresponding to a growth of 16.1% including, and 16.6% excluding currency effects. Comparison between Q2 and Q1 2004 should take into account that growth in Q2 2004 was organic, which was not the case in Q1 2004 as Alpha Telecom was included for only half of Q1 2003. The organic growth, adjusted for Alpha Telecom, in Q1 2004 was slightly less than 18%. Customer intake Net customer intake, somewhat higher in Q2 2004 than in Q2 2003, was 1,082,000 (1,063,000) adjusted for the effect of disposed customers in Estonia (see Note 3). The lower customer intake in Benelux was largely related to Fixed telephony and Internet in the Netherlands, and the lower intake in Nordic was mainly related to Fixed telephony and Internet and Mobile telephony in Sweden. The customer intake in Baltic & Russia increased in Q2 2004 especially within Mobile telephony in Russia. With all networks now upgraded to GSM, around half of the market area's mobile customer intake is in Russia. Customer growth was lower compared to Q1 2004. A significant explanation for this is the absence of an expected continued downturn trend in churn. As a percentage, churn remained unchanged, but increased in absolute numbers as a result of the larger customer base. Prepaid customers account for 72% (70%) of the total Mobile telephony customer base. Of the total Fixed telephony and Internet customer base, some 2.1 million are dial-up Internet or ADSL customers, compared to some 1.2 million a year ago. Of the increase in, and of the total dial-up Internet and ADSL customer base, roughly 0.8 million is in Southern Europe. ARPU Group ARPU was SEK 146 in Q2 2004, versus SEK 169 in Q2 2003. The decline is mainly a dilution effect, as Tele2 experiences its highest growth in countries with lower ARPU. In addition, last year's push in dial-up Internet in Southern Europe, which has a significantly lower ARPU than fixed telephony, further contributed to the dilution. Results EBITDA amounted to MSEK 1,689 (MSEK 1,537). Despite being Tele2's best-ever financial result, it is affected by a number of items that are noteworthy when analyzing the result: 1) The launch of fixed telephony in the UK is estimated to require investments of around MSEK 500 during the first year of launch. Both Q1 and Q2 2004 were aligned with this estimate. 2) The magnitude of Tele2's ADSL push in Southern Europe exceeded the UK investments both in Q1 and Q2 2004. 3) The results in Sweden were impacted by MSEK -42 related to personnel layoffs. EBT amounted to MSEK 748 (MSEK 567). Net interest improved as a result of lower debt. Cash flow and CAPEX Cash flow from operations amounted to MSEK 1,505 (MSEK 1,498). CAPEX amounted to MSEK 369 (MSEK 550), or 3.4% (6.0%) of operating revenue. CAPEX for the full year 2004 will fall short of the previous guidance of 5-6% of operating revenue. Cash flow in terms of EBITDA less CAPEX was MSEK 1,320 (MSEK 987), an increase of 34%. Excess cash flow has been used for continued amortizations and dividend payments for the fiscal year 2003. Significant events in the quarter Tele2 launched three GSM networks in Russia in the quarter; in Kursk, Chelyabinsk and Belgorod. With these launches, Tele2 can provide GSM services in all Russian regions where it has mobile operations. In April 2004, Tele2 launched fixed telephony services in Hungary. Customer intake so far points to a successful launch. In May 2004, Tele2 sold its cable-TV operations in Estonia for MSEK 38. This resulted in a capital gain of MSEK 26, which is reported under other operating revenues. In June 2004, Tele2 successfully launched 3G services in Sweden. The build out of the 3G network in Sweden is carried out by the 50% associated company Svenska UMTS-nät AB. OPERATIONAL REVIEW BY MARKET AREA Nordic Operating revenue Q2 2004, MSEK 3,472 (3,366), +3% EBITDA Q2 2004, MSEK 990 (1,029), -4% EBIT Q2 2004, MSEK 770 (803), -4% The market area Nordic encompasses operations in Sweden (including Optimal Telecom), Norway, Denmark and Finland and Datametrix operations. Competition in Sweden remained challenging in the second quarter, within both mobile and fixed telephony. Within mobile telephony in Sweden, the operating revenue and margin decline we have witnessed has leveled out. A significant explanation for the decline during the previous year was lower interconnect revenue. According to a statement by the Swedish regulator (PTS), interconnect rates for all big operators should be on the same level going forward. Tele2 will appeal this, but has nevertheless accounting-wise prepared for this for some time. Our margin against TeliaSonera was only SEK 0.08 in the second quarter versus SEK 0.27 a year ago. Tele2 successfully launched 3G services in Sweden in June. Any purchase of capacity from Svenska UMTS-nät AB, the jointly owned associated 3G company, has not had any impact as yet, as the 3G company has not yet reached the minimum volume required to trigger depreciation. Fees to Svenska UMTS-nät AB were MSEK 28 in Q2 2004, which primarily has had a cash flow effect, as they are met by share of profits of associated companies. The fees are expected to increase during the coming quarters, amounting to no more than MSEK 80 in Q4 2004, while the effect on the income statement will be less (accounting principles for UMTS are explained in Note 7). Despite the tough competition, we managed to grow operating revenue for fixed telephony in Sweden by 2% in combination with significantly improved profitability. The historic telecom operator has, nevertheless, been very active in ensuring it benefits from the competitive advantage it has, prior to the introduction of wholesale line rental, which has resulted in an increased level of churn. Our experience tells us that churn will come down sharply once our customers can avoid paying our competitor as well. We expect this possibility towards the end of 2004. The mobile operations in Sweden reported 3.4 million customers at June 30, 2004, an increase of 4% since June 30, 2003. Monthly average revenue per mobile user (ARPU), including both postpaid and prepaid customers, was SEK 161 (178) in Q2 2004 and mobile minutes of usage (MOU) were 92 (89). Prepaid mobile customers accounted for 75% of the total mobile customer base. The results for Q2 2004 were impacted by one-off costs of MSEK 42 related to a reduction of some 60 employees in Sweden. Of this, MSEK 15 is related to Fixed telephony and Internet and MSEK 27 to Mobile telephony. The personnel reduction is expected to result in annualized cost savings of some MSEK 50. Norway and Denmark continued to show good growth in Q2 2004. Growth in Norway was helped by the MVNO agreement with particularly strong online sales, but also by resale of the fixed line subscription fee, which has lowered churn. Baltic & Russia Operating revenue Q2 2004, MSEK 802 (657), +22% EBITDA Q2 2004, MSEK 294 (208), +41% EBIT Q2 2004, MSEK 151 (99), +53% The market area Baltic & Russia encompasses operations in the Baltic (Estonia, Latvia and Lithuania) and Russia. Mobile ARPU for Baltic & Russia, including both postpaid and prepaid customers, was SEK 102 (137) in Q2 2004, mainly diluted by the growth in Russia. The improved customer intake is largely related to the Russian mobile operation. In the second quarter, Tele2 launched GSM networks in Kursk, Chelyabinsk and Belgorod and can now offer GSM services in all of the eleven Russian regions where it has mobile operations. Russia represented around half of the market area's Mobile telephony customer intake in Q2 2004. Tele2 launched fixed international calls in Latvia in the quarter. In May 2004, Tele2 sold its cable-TV operations in Estonia, enabling increased focus on its core businesses of mobile and fixed telephony and Internet. The divestment resulted in a capital gain of MSEK 26, which positively affects EBITDA, and a one-off decrease in the customer base of 46,000. Central Europe Operating revenue Q2 2004, MSEK 1,197 (759), +58% EBITDA Q2 2004, MSEK 41 (-98) EBIT Q2 2004, MSEK-6 (-141) The market area Central Europe encompasses operations in Germany, Austria, Poland, the Czech Republic and Hungary. Central Europe continued its rapid growth combined with improved profitability during the second quarter. The market area's ARPU for Fixed telephony and Internet was SEK 102 (131) for Q2 2004. Fixed telephony was launched in Hungary in April and customer intake numbers so far point to a successful launch. Tele2 launched dial-up Internet in Germany in May, followed by Poland in the beginning of July. Southern Europe Operating revenue Q2 2004, MSEK 4,120 (3,512), +17% EBITDA Q2 2004, MSEK 247 (353), -30% EBIT Q2 2004, MSEK 196 (312), -37% The market area Southern Europe encompasses operations in France, Italy, Spain, Switzerland, Portugal and the UK and C³ operations. Comparison between Q2 and Q1 2004 should take into account that growth in Q2 2004 was organic, which was not the case in Q1 2004 as Alpha Telecom was included for only half of Q1 2003. The organic growth for Southern Europe, adjusted for Alpha Telecom, in Q1 2004 was slightly less than 17%. Fixed telephony and Internet ARPU for Southern Europe was SEK 177 (206) for Q2 2004. The launch of fixed telephony in the UK in Q4 2003 is estimated to require investments of some MSEK 500 during the first year of launch. Both Q1 and Q2 2004 were aligned with this estimate. The magnitude of Tele2's ADSL push in Southern Europe exceeded the UK investments both in Q1 and Q2 2004. Benelux Operating revenue Q2 2004, MSEK 1,062 (892), +19% EBITDA Q2 2004, MSEK 104 (45), +131% EBIT Q2 2004, MSEK 70 (12), +483% The market area Benelux includes operations in the Netherlands, Luxembourg (including Tango), Liechtenstein and Belgium and Transac. Fixed telephony and Internet ARPU for Benelux was SEK 139 (158) for Q2 2004. The market area's lower customer intake is largely related to fixed telephony and Internet in the Netherlands. Services Operating revenue Q2 2004, MSEK 58 (39), +49% EBITDA Q2 2004, MSEK 13 (0) EBIT Q2 2004, MSEK 4 (-4) The market area Services includes 3C operations, ProcureITright, Radio Components and X-Source operations. OTHER ITEMS Investments In Q1 2004, Tele2 increased its ownership in its mobile telephony operations in St Petersburg, Russia. Divestments Tele2 is considering the divestment of its Swedish Cable TV operations and is negotiating with a number of potential buyers. If divested it will lead to a loss of MSEK 150-300, based on the current price negotiations. On May 12, 2004 Tele2 sold its Cable-TV operation in Estonia for MSEK 38. This resulted in a capital gain of MSEK 26, reported under other operating revenues. The operation had 46,000 customers at the time of the divestment. Parent company At the Parent company level, Tele2 reported at June 30, 2004 operating revenue of MSEK 11 (9), EBIT of MSEK -26 (-46) and liquidity MSEK 24 compared to MSEK 1 at December 31, 2003. At July 1, 2004, 6,173,141 class A shares have been reclassified into class B shares (see Note 6). Events post June 30, 2004 On July 9, 2004 Tele2 acquired the outstanding 10% of the shares in the holding company that conducts mobile operations in the Baltic, through its 100% ownership in Tele2 Lithuania and 52% ownership in Tele2 Estonia. After the acquisition, Tele2 has a 100% share in and full control over Tele2 Lithuania and Tele2 Estonia, in which the Tele2 Group already held the remaining 48%. Company disclosure Tele2 will release the financial and operating result for the period ended September 30, 2004 on October 20, 2004. Stockholm, August 2, 2004 Lars-Johan Jarnheimer President and CEO, Tele2 AB REPORT REVIEW We have made a review of this interim report in accordance with the recommendation issued by the Swedish Institute of Authorized Public Accountants FAR. A review is substantially limited in scope in comparison to an audit. Nothing has come to our attention that indicates that this interim report fails to comply with the requirements of the Swedish Annual Accounts Act. Stockholm, August 2, 2004 Deloitte & Touche AB Tommy Mårtensson Authorized Public Accountant Tele2 is Europe's leading and profitable alternative telecom operator. Tele2 always strives to offer the market's best prices. With our unique values, we provide cheap and simple telecom for all Europeans every day. We have close to 25 million customers in 24 countries. We offer products and services in fixed and mobile telephony, Internet access, data networks, cable TV and content services. Our main competitors are the former government monopolies. Tele2 was founded in 1993 by Jan Stenbeck and has been listed on Stockholmsbörsen since 1996. The share has also been listed on Nasdaq since 1997. CONTACTS Lars-Johan Jarnheimer Telephone: + 46 8 562 640 00 President and CEO, Tele2 AB Håkan Zadler Telephone: + 46 8 562 640 00 CFO, Tele2 AB Dwayne Taylor / Lena Glader Telephone: + 44 20 7321 5038 Investor enquiries Tele2 AB - company registration number: 556410-8917 Skeppsbron 18 P.O. Box 2094 SE-103 13 Stockholm Sweden Tel+ 46 8 562 000 60 Visit us at our homepage: http://www.Tele2.com CONFERENCE CALL DETAILS A conference call to discuss the results will be held at 16.00 (CET) / 10.00 (New York time), on August 2, 2004. The dial-in number is: +44 (0)20 7019 9504 or US Toll Free: 1 866 850 2201. Please dial in 10 minutes prior to the start of the conference call to allow time for registration. A recording of the conference call will be available for 10 days after the call on: +44 (0)20 7984 7578 or US Toll Free: 1 866 883 4489 with access code 593410#. The conference call will be web-cast on Tele2's website www.Tele2.com. APPENDICES Consolidated Income Statement Consolidated Balance Sheet Consolidated Cash flow Statement Change of Consolidated Shareholders' Equity Number of Customers Market Areas split by Business Areas Investments Tele2 Operations in Sweden Five-Year Summary Notes to the Accounts For full tables please see pdf ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2004/08/02/20040802BIT20010/wkr0001.pdf

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