Tele2 Second quarter 2012

SECOND QUARTER 2012

Tele2 AB
19 July 2012

Agenda

• About Q2 2012

• Financial review

• Concluding remarks

2

Tele2 Group Q2 Highlights

• Net customer intake of 1.5 million leading to a total customer base of
36.3 million

• Revenue growth of 10%, amounting to SEK 11,064 (10,078) million

• EBITDA amounted to SEK 2,715 million, equivalent to a margin of 25%

• CAPEX amounted to SEK 1,586 million

3

Market Area Russia: Overview

Population
Appr. 140 million
Tele2 Russia
 43 regions of Russian Federation
 21.6 million subscribers
 Mobile operator #4 in Russia in terms
of subscribers and revenue
Represents 30% of total net sales Q2 2012

Focus
 Continue to grow customer base and maximize the 2G opportunity
 Evaluate possibilities to expand carefully through new licenses as well as by
complementary acquisitions
 Make progress on technology neutrality

4

Q2 Highlights Russia

• Strong customer net intake of 693,000
• Increased EBITDA margin of 37% due to less
marketing spend
• Robust ARPU development, showing a growth
of 5%

CUSTOMER BASE and NET SALES and EBITDA and
CUSTOMER INTAKE YoY NET SALES GROWTH EBITDA MARGIN
Thousands of customers SEK Million SEK Million
22,000 800 4,000 20% 1,600 42%

3,000 15% 40%
21,000 600 1,200
38%
20,000 400 2,000 10% 800
36%
19,000 200 1,000 5% 400
34%

18,000 0 0 0% 0 32%
Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12

Customer base (left) Net sales (left) EBITDA (left)
5 Customer net YoY net sales EBITDA
intake (right) growth (right) margin (right)

The Russian mobile market overview
TELE2 SUBSCRIBERS AS PART OF TOTAL RUSSIAN
MOBILE MARKET NET ADDITIONS Tele2 MegaFon
Vimpelcom MTS
Tele2
Million subscribers Thousands of subscribers
250 8.6% 9.3% 8,000
5.6%
5.6% 7.3%
6,000
200
4,000
150 2,000
0
100
-2,000
50 -4,000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
09 09 09 09 10 10 10 10 11 11 11 11 12 09 09 10 10 10 10 11 11 11 11 12 12

ARPU DEVELOPMENT Tele2 MegaFon TELE2 RUSSIA EBITDA MARGIN
RUB Vimpelcom MTS
400

2010 2011 2012
44%
300 5% growth
229 40%
200
36%

100 32%

0
28%
2006 2007 2008 2009 2010 Q1 Q2 Q3 Q4 Q1 Q2 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
11 11 11 11 12 12

6 Source: Company data, AC&M Consulting

Revenue source development

VOICE and DATA REVENUE SPLIT DEVELOPMENT
RUB millions
16,000

8%
8% 8% 9%
12,000 8%

8,000
92% 92%
92% 92% 91%

4,000

0
Q2 11 Q3 11 Q4 11 Q1 12 Q2 12

Data access Voice revenue
revenue

Data and voice revenues demonstrate 8% and 15% YoY growth
respectively

7

Regulatory update: significant developments

LTE license tender Regional LTE allocations
Roscomnadzor held tender on LTE for 4 The Regulator officials have recently verbally
federal lots, each 2x7.5 MHz in 800 MHz and stated that they plan to distribute 10 regional
2x10 MHz in 2.5-2.7 GHz. Tele2 submitted two TDD LTE licenses in 2600 Mhz. According to
bids. However, Tele2 did not win due to tender the Ministry representative this decision may
conditions favoring federal operators. be taken at the forthcoming GKRCh** meeting.

Technology neutrality MNP Consultations
Report from NIIR* ready confirming LTE and The Prime Minister assigned the direction for
GSM can co-exist on the same band. discussions on the MNP introduction. Tele2
According to the Telecom Ministry delivered proposals on the draft bill and
representative LTE 1800 should be included in participated in the working group on the
the agenda for the next GKRCh** meeting technical solution. The expected deadline for
MNP introduction is Jan, 2014

* NIIR – Radio Research and Development Institute
8 ** GKRCh – State Commission on Radio Frequencies

Tele2 Russia forward looking statement

The following assumptions should
be taken into account when
estimating the operational
performance of the total operations
in Russia in 2012:

• Tele2 expects the subscriber base to
reach approx. 22 (earlier 21.5-22)
million.

• Tele2 expects ARPU to grow by 3-5
(earlier in low single digits) percent in
local currency.

• Tele2 expects an EBITDA margin of
between 37-39 percent.

• Tele2 expects capex of between SEK
1,300 - 1,500 million.

9

Market Area Nordic: Overview

Population
14.4 million

Tele2 Sweden and Tele2 Norway
Home market and test bed for new services
Sweden 29%; Norway 11%

Focus
 Sweden: Build on mobile growth and 4G roll-out coupled with household / corporate
fiber strategy
 Norway: Roll out own network and focus on bucket-price subscriptions

10

Q2 Highlights Tele2 Sweden
• Net sales amounted to SEK 3,209 million and
EBITDA amounted to SEK 766 million
• Mobile revenue grew by 6% and service revenue
grew by 2.3%
• Net intake in Q2 boosted by temporary campaign
on postpaid subscriptions
• Affecting EBITDA negatively during the
quarter
• New, more diversified pricing plans and
innovative products

4,900 80 4,000 4% 1,000 40%

4,800 40 3,000 2% 750 30%

4,700 0 2,000 0% 500 20%

4,600 -40 1,000 -2% 250 10%

4,500 -80 0 -4% 0 0%

Customer base (left) Mobile Fixed broadband Fixed telephony Other

New tariff models

Volym Låg Volym Mellan Volym Hög
• 300 min
minutes • 1000 minutes • 3000 minutes
• 300 SMS & • 1000 SMS & • 3000 SMS &
MMS MMS MMS
• 1 GB data • 3 GB data • 5 GB data

12

Innovative packages and products

Prepaid
Roaming
WyWallet +46 app smartphone
buckets
campaigns

13

Smartphone market development

SMARTPHONE INSTALLED BASE*
100%
Sales of top ten mobile phones 90%
Tele2 Sweden (Q2 2012) 80%
70%
60%
1. iPhone 4S 16GB 50%
2. Samsung Galaxy Gio 40%

3. HTC One X 30%
20%
4. Sony Xperia S 10%
5. Samsung Galaxy S2 0%
1106 1107 1108 1109 1110 1111 1112 1201 1202 1203 1204 1205 1206
6. Samsung Galaxy S3
Regular handset Smartphone
7. Samsung Galaxy S2 LTE
8. Samsung Galaxy Ace
9. Samsung E1080
10. iPhone 4S 32GB

* Postpaid residential, quantity of handsets
14

Mobile EBITDA development

300 35% 34% 40%
33% 29%

30%
200
17%
16% 20%

100
10%

0 0%
Jan AC Feb AC Mar AC Apr AC Maj AC Jun AC

EBITDA EBITDA margin adjusted (secondary axis)

15

Tele2 Sweden forward looking statement

performance of the Swedish mobile
operations in 2012:

• Tele2 expects service revenue to grow
by approximately 3-4 (earlier 3-5)
percent.

between 30-32 percent assuming a
stable market environment.

16

Q2 Highlights Tele2 Norway
• Integration of Tele2 Norway completed
• Good net intake of 23,000 mobile customers
• Tele2 Norway reported net sales of
SEK 1,208 million, of which SEK 1,137 million was mobile
revenue
• Mobile EBITDA contribution was SEK 81 (15) million
• Interconnect was lowered by July 1 to NOK 0.25 (0.40) and
NOK 0.60 (0.70) for Tele2 Norway and Network Norway
respectively

1,600 20 1,600 80% 100 10%

1,200 10 1,200 50% 50 5%

800 0 800 20% 0 0%

400 -10 400 -10% -50 -5%

0 -20 0 -40% -100 -10%


Tele2 Norway forward looking statement

performance of the total operations
in Norway in 2012:

• Tele2 expects a total revenue of
between SEK 4,800-5,000 (earlier
5,000-5,200) million.

between 2-3 percent.

• Tele2 expects capex of between SEK
850-950 million.

18

Market Area Western Europe:
Overview

Population
106 million

Leading the group in business to business services
and consumer fixed broadband
Netherlands 12%; Germany 2%; Austria 3%

Focus
 Netherlands Grow in mobile and B2B
 Austria B2B & Integration of Silver Server
 Germany Grow Fixed Via Mobile product

19

Q2 Highlights Tele2 Netherlands

• Stable financial performance despite tough market
conditions
• Back to growth in total customer base
• Net intake of 32,000 customers in mobile
− Significant portion in high-value mobile post-
paid segment
• Strong intake in the B2B segment

1200 20 1,600 10% 800 40%

900 5 1,200 5% 600 30%

400 20%
600 -10 800 0%
200 10%
300 -25 400 -5%
0 0%
Q2 11 Q3 11 Q4 11 Q1 12 Q2 12
0 -40 0 -10% -200 -10%
Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12


Q2 Highlights Tele2 Germany
and Tele2 Austria
• Both Austria and Germany show stable profitabilty
• Tele2 Germany: High-value Fixed via Mobile
product still showing steady growth
• Tele2 Austria: Integration of Silver Server on
track. Solid performance in the B2B segment

TELE2 GERMANY TELE2 AUSTRIA
EBITDA and EBITDA MARGIN EBITDA and EBITDA MARGIN
SEK Million SEK Million
120 40% 120 40%

90 30% 90 30%

60 20% 60 20%

30 10% 30 10%

0 0% 0 0%
Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12

EBITDA (left) EBITDA (left)
21 EBITDA EBITDA
margin (right) margin (right)

Market Area Central Europe and
Eurasia: Overview

Population
28 million
Estonia 2%; Latvia 2%; Lithuania 3%;
Croatia 3%; Kazakhstan 2%

Focus
 Continue to grow rapidly in Kazakhstan
 Efficiency improvements in Baltics
 Drive improvement in revenue, profits and market share in Croatia

22

Q2 Highlights Tele2 Estonia

• Stable financial performance and profitability in a
competitive market
• Tele2 Estonia maintains a positive net intake of mobile
customers
• Successful integration of Televörgu completed
• Modernization and 4G roll-out currently ongoing

MOBILE CUSTOMER BASE NET SALES and EBITDA and
and CUSTOMER INTAKE YoY NET SALES GROWTH EBITDA MARGIN
600 30 300 20% 80 40%

450 20 225 10% 60 30%

300 10 150 0% 40 20%

150 0 75 -10% 20 10%

0 -10 0 -20% 0 0%

Mobile customer base (left) Net sales (left) EBITDA (left)

Q2 Highlights Tele2 Latvia

• Tele2 Latvia maintains a high efficiency in a competitive market
• EBITDA margin amounted to 36%
• Customer intake of 11,000
• Rolling out 4G when commercially attractive

1,200 40 400 -5% 120 40%

900 20 300 -10% 90 38%

600 0 200 -15% 60 36%

300 -20 100 -20% 30 34%

0 -40 0 -25% 0 32%


Q2 Highlights Tele2 Lithuania

• Significant intake of 20,000 mobile customers
• EBITDA margin amounted to 38%
• Strong performance since inception in 2000

MOBILE CUSTOMER BASE NET SALES and EBITDA and
and CUSTOMER INTAKE YoY NET SALES GROWTH EBITDA MARGIN
2,000 35 400 5% 160 50%

1,500 25 300 0% 120 40%

1,000 15 200 -5% 80 30%

500 5 100 -10% 40 20%

0 -5 0 -15% 0 10%

Mobile customer base (left) Net sales (left) EBITDA (left)

Tele2 Lithuania – a success story
MARKET SHARE DEVELOPMENT MARKET SHARE DEVELOPMENT
(revenue; 100% of the market) (EBITDA; 100% of the market)

60% 60%

50% 50%

40% 40%

30% 30%

20% 20%

10% 10%

0% 0%
Q12007 Q22008 Q3-2009 Q4-2010 Q1-2012 Q12007 Q22008 Q3-2009 Q4-2010 Q1-2012

Tele2 Company A Company B Tele2 Company A Company B

Tele2 Lithuania has caught up with its competitors in terms of Revenue market
share, and surpasses them in terms of EBITDA market share

26

Q2 Highlights Tele2 Croatia

• Significant intake of 43,000 mobile customers
• New CEO started in June

EBITDA-CAPEX
Thousands of customers SEK Million SEK Million SEK Million

1,000 90 500 5% 60 12% 50

750 30 375 0% 45 9% 25

500 -30 250 -5% 30 6% 0

250 -90 125 -10% 15 3% -25

0 -150 0 -15% 0 0% -50
Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2
11 11 11 12 12 11 11 11 12 12 11 11 11 12 12 11 11 11 12 12

EBITDA
27
CAPEX
Customer net YoY net sales EBITDA
intake (right) growth (right) margin (right) EBITDA-CAPEX

Tele2 Croatia forward looking
statement

The following assumption should
performance of the Croatian mobile
operations in 2012:

• Tele2 expects Croatia to reach an
EBITDA margin of between 4-6 (earlier
20 percent by Q3 2013) percent in
2012.

28

Q2 Highlights Tele2 Kazakhstan

• Commercial launch of Tele2 brand completed in all regions of
Kazakhstan
• Strong net intake of 759,000 customers
• Total number of customers amounted to 2.5 million

160 0%
2,500 1,000 300 550%

2,000 800 80 -100%
225 400%
1,500 600
0 -200%
150 250%
1,000 400
-80 -300%
75 100%
500 200
-160 -400%
0 0 0 -50%
Q2 11 Q3 11 Q4 11 Q1 12 Q2 12
Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12


The Kazakhstan mobile market overview

MOBILE SUBSCRIBERS – MARKET SHARE NET ADDITIONS
Thousands of subscribers
1.8% 7.7%
100% 2,000

80% 1,500

60% 1,000

40% 500

20% 0

0% -500
Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2-
2010 2010 2011 2011 2011 2011 2012 2012

Tele2 Kcell/Activ Tele2 Kcell/Activ
Dalacom/Pathword Beeline Dalacom/Pathword Beeline

30

Tele2 Kazakhstan forward-looking statement

The following assumptions should be
taken into account when estimating the
operational performance of the total
operations in Kazakhstan in 2012:

• Tele2 expects the subscriber base to reach
up to 3.0 million (earlier 2.5-2.7)

• Tele2 expects an EBITDA contribution of
between SEK -350 to -400

• Tele2 expects capex of between
SEK 550-600 million.

• Tele2 expects to reach EBITDA break-even
by 2H 2013.

• Tele2 expects to reach a long-term mobile
customer market share of 30 percent.

31

Agenda

• About Q2 2012



32

Group results
SEK million Q2 2012 Q2 2011 % YTD 2012 YTD 2011 FY 2011 %

Net sales 11,064 10,078 9.8% 21,545 19,720 41,001 9.3%

EBITDA 2,715 2,809 -3.3% 5,286 5,353 11,212 -1.3%

EBITDA margin (%) 24.5% 27.9% -3.3% 24.5% 27.1% 27.3% -2.6%

Depreciation & associated companies -1,268 -1,015 24.9% -2,457 -1,985 -4,158 23.8%

Depreciation of net sales (%) -11.5% -10.1% -1.4% -11.4% -10.1% -10.1% -1.3%

One-off items -20 -57 -19 42 -4

EBIT 1,427 1,737 -17.8% 2,810 3,410 7,050 -17.6%

Normalized EBIT 1,447 1,794 -19.3% 2,829 3,368 7,054 -16.0%

Normalized EBIT margin (%) 13.1% 17.8% -4.7% 13.1% 17.1% 17.2% -3.9%

Financial items -321 -230 39.6% -499 -304 -674 64.1%

Taxes -257 -399 -35.6% -593 -772 -1,472 -23.2%

Net profit 849 1,108 -23.4% 1,718 2,334 4,904 -26.4%

Discontinued operations 1 5 -80.0% 1 -8 -7 -112.5%

Net profit 850 1,113 -23.6% 1,719 2,326 4,897 -26.1%

33

Currency movements Q2 2012

3%

2%

1%

0%

-1%

-2%

-3%
EUR RUB NOK

Average YTD Q2 2012 vs. YTD Q2 2011 Fixing rate Jun 2012 vs. Dec 2011

EUR/EUR pegged and RUB currencies represent 54%
of external sales and 74% of EBITDA

34

Depreciation

DEPRECIATION and
DEPRECIATION % OF NET SALES
Change Y-on-Y for Q2
SEK Million
• Acquisition of Network
1,500 12.5% Norway (SEK 85 million)
12.0% of which surplus depreciation and
1,200 amortization of SEK 63 million
11.5%

11.0%
900 • Upgrade/replacement of
10.5%
networks in the Baltics during
600 10.0% 2012 - 2013 (SEK 72 million)
9.5%
300
9.0%
• Russia SEK 57 million
0 8.5%
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 • Kazakhstan SEK 22 million
Depreciation Depreciation of net sales (%)

35

Financial items
Financial items Q2 2012 Q2 2011 YTD 2012 YTD 2011 FY 2011

Interest income/costs -268 -87 -446 -128 -483

Exchange rate differences, external 6 -33 -7 -42 -24

Exchange rate differences, intragroup -11 -56 42 -39 13

Other financial items -48 -54 -88 -95 -180

Total -321 -230 -499 -304 -674

36

Taxes
Taxes in income statement Q2 2012 Q2 2011 YTD 2012 YTD 2011 FY 2011

Normal -257 -399 -593 -772 -1,580

One off - - - - 108

Total -257 -399 -593 -772 -1,472

Taxes in cash flow statement Q2 2012 Q2 2011 YTD 2012 YTD 2011 FY 2011

Normal -112 -325 -314 -550 -948

One off - - - - -

Total -112 -325 -314 -550 -948

• Deferred tax assets at year to date amounted to SEK 2.5 (Dec 2011: 3) billion
• The 2012 tax payment will affect the cash flow with SEK 1,000 (earlier 1,200)
million

37

Cash flow
SEK million Q2 2012 Q2 2011 YTD 2012 YTD 2011 FY 2011

OPERATING ACTIVITIES

Before paid tax 2,548 2,686 5,065 5,350 10,895

Paid taxes -112 -325 -314 -550 -948

Change in working capital -246 -7 -665 -264 -257

CF from operating activities 2,190 2,354 4,086 4,536 9,690

INVESTING ACTIVITIES

CAPEX -1,417 -1,661 -2,247 -2,677 -5,572

CF after CAPEX 773 693 1,839 1,859 4,118

Shares and other financial assets -5 -57 -203 -54 -1,563

CF after investing activities 768 636 1,636 1,805 2,555

38

Proforma financial debt profile
SOURCES OF FUNDING
SEK Billion
20.0
16.9
17.5

15.0
12.8
12.1
12.5

10.0

7.5

5.0

2.5

0.0

-2.5 Q4 11 Q1 12 Q2 12
Revolving credit facility Russia bond Other financing
Commercial paper Norwegian bond Swedish Bond
Off BS items Cash Proforma net debt

39

Debt position and ratio
PROFORMA NET DEBT / EBITDA 12'M ROLLING
SEK Billion / Ratio
20.0 2.00

17.5 1.75 Upper limit
2.9

2.9
15.0 1.50
2.9
2.9
12.5 1.25 Lower limit

16.9
10.0 1.00

12.8 12.1
7.5 0.75

5.0 0.50

2.5 0.25

0.0 0.0 0.0 0.00
Q4 11 Q1 12 Q2 12
Proforma Net Debt Ordinary dividend (paid May 2012)

Extraordinary dividend (paid May 2012) Leverage Net

40

Mobile Fixed broadband Fixed telephony Other

Group financials
GROUP EBITDA and GROUP NET SALES
Group EBITDA
GROUP EBITDA MARGIN margin
SEK Million SEK Million
4,000 30% 12,000

28%
3,000 9,000
26%
2,000 6,000
24%
1,000 3,000
22%

0 20% 0
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12

GROUP CAPEX (BS) and CAPEX/SALES ROCE (NORMALISED)
SEK Million CAPEX/Sales Percent
2,000 30% 25%
19%
20% 21% 22%
1,500 23% 19% 16% 16%
15%
1,000 15%
10%
500 8% 5%

0 0% 0%
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q1 Q2 Q3 Q4 Q1 Q2

41

Agenda

• About Q2 2012



42

Concluding remarks

Manage the shift from voice to data
• Package services to increase attractiveness of
data
• Exploit 4G services to make it a commercial
success

Exploit new services and opportunities by
offering our customers what they need
for less
• WyWallet
• +46 app
• Roaming buckets

Growth
• Through emerging markets such as Russia and
Kazakhstan
• Through evolution of multiple devices

43

Tele2 Second quarter 2012

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