Notes to consolidated financial statements

CONTENTS

Note

  1. Basis of preparation
    General

    The annual report and consolidated financial statements have been approved for issue by the Board of Directors on March 18, 2018. The income statement and the balance sheet of the parent company and the statement of comprehensive income and the statement of financial position of the group are subject to adoption by the Annual General Meeting on April 10, 2018.

    Telia Company’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU). In addition, concerning purely Swedish circumstances, the Swedish Financial Reporting Board has issued standard RFR 1 “Supplementary Accounting Rules for Groups” and other statements. The standard is applicable to Swedish legal entities whose securities are listed on a Swedish stock exchange or authorized equity market place at the end of the reporting period and specifies supplementary rules and disclosures in addition to IFRS requirements, caused by provisions in the Swedish Annual Reports Act.

    Measurement bases and accounting policies

    The consolidated financial statements have been prepared mainly under the historical cost convention. Other measurement bases used and applied accounting policies are described below.

    Amounts and dates

    Unless otherwise specified, all amounts are in millions of Swedish kronor (SEK) or other currency specified and are based on the twelve-month period ended December 31 for items related to comprehensive income and cash flows, and as of December 31 for items related to financial position. Rounding differences may occur.

    Segments

    Telia Company has a revised organizational setup as of January 1, 2017. Based on the new operating model Telia Company has reported the following six operating segments separately from 2017: Sweden, Finland, Norway, Denmark, Lithuania and Estonia. Other operations include Latvia, the Telia Carrier operations, Telia Company’s shareholding in the associate Turkish Turkcell and the former associate Russian MegaFon as well as Group functions. Comparative figures have been restated to reflect the new operating segments. Spain (which was divested in 2016) has been included in Other operations. The former segment region Eurasia is classified as held for sale and discontinued operations since December 31, 2015, and is therefore not included in the segment information. See Note C5 “Segment information.” For information on discontinued operations, see Note C34 “Discontinued operations and assets classified as held for sale.”

    Recently issued accounting standards

    New and amended standards and interpretations effective in 2017

    As of January 1, 2017, the following new or amended standards became applicable:

    • Amendments to IAS 7 “Disclosure Initiative”
    • Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealised Losses”
    • Annual Improvements to IFRSs 2014-2016 cycle

    The objective of the amendments to IAS 7 “Disclosure Initiative” is to improve the information about financing activities in the cash flow statements. The amendments require disclosure of information enabling users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. Telia Company has extended cash flow disclosures relating to financing activities in the Note “C30 Cash flow information”.

    The amendments relevant to Telia Company are in certain cases in line with already applied interpretations and otherwise have had no or very limited impact on results or financial position.

    New or revised/amended standards and interpretations effective on or after January 1, 2018

    Telia Company has not pre-adopted any of the new or revised/amended standards effective on or after January 1, 2018.

    IFRS 15 “Revenue from Contracts with Customers” is effective for the annual reporting period beginning January 1, 2018. Telia Company will apply the new standard using the full retrospective method (subject to practical expedients in the standard), with adjustments to all periods presented.

    IFRS 15 specifies how and when revenue should be recognized as well as requires more detailed revenue disclosures. The standard provides a single, principle based five-step model to be applied to all contracts with customers and among others gives detailed guidance on the accounting for:

    Bundled offerings: Telia Company’s current accounting and recognition of revenue for bundled offerings and allocation of the consideration between equipment and service is in line with IFRS 15. A detailed analysis of the performance obligations and the revenue recognition for each type of customer contract has been performed and the model currently used has been slightly refined for some types of customer contracts, the effect is not material.

    Incremental costs for obtaining a contract: Sales commissions and equipment subsidies granted to dealers for obtaining a specific contract should be capitalized and deferred over the period over which Telia Company expects to provide services to the customer. Telia Company currently does not capitalize such costs. The main effect of implementing IFRS 15 for Telia Company is related to capitalization of costs.

    Financing: If the period between payment and transfer of goods and services is beyond one year, adjustments for the time value of money should be made at the prevailing interest rates in the relevant market. Telia Company currently apply discounting, using the group’s average borrowing rate and the model will therefore be adjusted, but the effect is not material.

    Contract modifications: Guidance is included on when to account for modifications retrospectively or progressively. The new guidance will not have any material revenue effect for Telia Company.

    Disclosures: IFRS 15 adds a number of disclosure requirements in annual reports, e.g. to disaggregate revenues into categories that depict how the nature, amount, timing and uncertainty of revenues and cash flows are affected by economic factors.

    The tables below present the impact that the initial application of IFRS 15 will have on the consolidated financial statements in the period of initial application.

     

    IFRS 15 effects on Condensed consolidated statements of financial position

    SEK in billions

    Reported Dec 31, 2016

    Change IFRS 15

    Ref

    Restated Jan 1, 2017

    Reported Dec 31, 2017

    Change IFRS 15

    Ref

    Restated Dec 31, 2017

    Assets

                   

    Costs to obtain a contract and other contract assets, Non-current

    1.3

    a

    1.3

    1.4

    a

    1.4

    Other non-current assets

    179.5

       

    179.5

    174.5

       

    174.5

    Total non-current assets

    179.5

    1.3

     

    180.7

    174.5

    1.4

     

    175.9

    Trade and other receivables and current tax receivables

    17.5

    0.0

     

    17.5

    16.5

    -0.1

     

    16.4

    Other current assets

    27.4

       

    27.4

    34.5

       

    34.5

    Assets classified as held for sale

    29.0

    0.1

    f

    29.1

    18.4

    0.1

    f

    18.5

    Total current assets

    74.0

    0.1

     

    74.1

    69.3

    0.1

     

    69.3

    Total assets

    253.4

    1.4

     

    254.8

    243.8

    1.4

     

    245.3

    Equity attributable to owners of the parent

    89.8

    1.2

     

    91.0

    100.0

    1.2

     

    101.2

    Equity attributable to non-controlling interests

    5.0

    0.0

     

    5.0

    5.3

    0.0

     

    5.3

    Total equity

    94.9

    1.2

    a

    96.1

    105.2

    1.2

    a

    106.4

    Deferred tax liabilities

    10.6

    0.2

    e

    10.7

    8.8

    0.2

    e

    9.0

    Provisions and other non-current liabilities

    91.2

       

    91.2

    98.0

       

    98.0

    Total non-current liabilities

    101.7

    0.2

     

    101.9

    106.7

    0.2

     

    106.9

    Short-term borrowings

    11.3

       

    11.3

    3.7

       

    3.7

    Trade payables and other current liabilities, current tax
    payables and short-term provisions

    31.9

    0.0

     

    31.9

    19.6

    0.0

     

    19.7

    Liabilities directly associated with assets classified as held for sale

    13.6

    0.0

    f

    13.6

    8.6

    0.0

    f

    8.6

    Total current liabilities

    56.8

    0.0

     

    56.8

    31.9

    0.0

     

    31.9

    Total equity and liabilities

    253.4

    1.4

     

    254.8

    243.8

    1.4

     

    245.3

    IFRS 15 effects on Condensed consolidated statements of comprehensive income

    SEK in billions

    Reported
    Jan-Dec 2017

    Change
    IFRS 15

    Ref

    Restated
    Jan-Dec 2017

    Net sales

    79.9

    -0.1

    b

    79.8

    Cost of sales

    -49.2

       

    -49.2

    Gross profit

    30.7

    -0.1

     

    30.6

    Selling, administration and R&D expenses

    -18.5

    0.2

    c

    -18.3

    Other operating income and expenses, net and income from
    associated companies and joint ventures

    1.5

       

    1.5

    Operating income

    13.7

    0.1

     

    13.8

    Financial items, net

    -4.2

    0.0

    d

    -4.2

    Income after financial items

    9.5

    0.1

     

    9.6

    Income taxes

    -1.0

    0.0

    e

    -1.1

    Net income from continuing operations

    8.4

    0.1

     

    8.5

    Net income from discontinued operations

    1.7

    0.0

    f

    1.7

    Total net income

    10.1

    0.1

     

    10.2

    Other comprehensive income

    9.7

    0.0

     

    9.7

    Total comprehensive income

    19.9

    0.1

     

    20.0

    a) The implementation of IFRS 15 will have a positive equity effect of SEK 1.2 billion per the transition date January 1, 2017 and per December 31, 2017. The increase is mainly related to capitalization of incremental costs for obtaining a new contract. The net income effect for 2017 will be limited.

    b) The limited effect on revenue is related to refining of Telia Company’s current revenue model for bundled offerings.

    c) Selling and administration expenses in 2017 will be reduced by SEK 1.3 billion due to capitalization of costs to obtain a contract. The 2017 amortization of the capitalized contract costs of SEK -1.2 billion is also included in Selling, administration and R&D expenses and will lead to a net effect of SEK 0.2 billion.

    d) The minor adjustment of the discount rate and calculation model used for the financing component in customer contracts will have an immaterial effect on net income 2017.

    e) The deferred tax relating to the IFRS 15 adjustments will increase deferred tax liabilities by SEK 0.2 billion at the date of transition January 1, 2017 and at December 31, 2017. The tax effect on net income 2017 will be immaterial.

    f) The implementation of IFRS 15 will have no material effect on discontinued operations and assets held for sale. The implementation effects mainly relates to capitalization of customer acquisition costs.

    IFRS 9 “Financial instruments” is effective as of January 1, 2018 and replaces IAS 39 “Financial instruments: Recognition and Measurement”. The standard’s three main projects have been classification and measurement, impairment and hedge accounting. During 2017 Telia Company has performed a review and an assessment of the potential effects on the financial assets and financial liabilities. The impact of IFRS 9 on the financial reporting for Telia Company is presented below for each respective area where IFRS 9 has brought changes compared with the requirements of IAS 39. As is permitted by IFRS 9, Telia Company has chosen not to restate comparative figures.

    Classification and measurement of financial assets and financial liabilities: IFRS 9 requires financial assets that are debt instruments to be classified based on the entity’s business model for managing the financial assets as well as the characteristics of the contractual cash flows of the financial assets. The classification in turn decides how the assets are to be measured. The financial assets are classified and measured at any of the following three categories: Amortized Cost (AC); Fair Value through Other Comprehensive Income (FVOCI); or Fair Value through Profit or Loss (FVPL). For Telia Company, there is no material change to the measurement of financial assets, since the measurement bases are already today amortized cost or fair value. Telia Company has chosen to continue to report gains and losses from equity instruments classified as “financial assets available-for sale” under IAS 39 in other comprehensive income also under IFRS 9. For equity instruments that are designated at “fair value through OCI” under IFRS 9 only dividend income is recognized in the income statement, all other gains and losses are recognized in OCI without reclassification on derecognition. This differs from the treatment of “available-for-sale” equity instruments under IAS 39 where gains and losses recognized in OCI are reclassified on derecognition or impairment. The changes in IFRS 9 that relates to classification and measurement of financial liabilities will not have an impact on Telia Company as the Group does not currently measure financial liabilities at fair value (other than derivatives liabilities).

    Impairment: IFRS 9 requires a loss allowance for the expected credit losses to be recognized on receivables and other types of debt instruments. In order be able to recognize the expected credit losses and not merely the “incurred” credit losses as is the current requirement under IAS 39, Telia Company has made an assessment of impairment of trade receivables and other receivables resulting in no significant change compared to the current method for each portfolio of such assets. For investments in interest bearing assets in the bond and deposit portfolios, the general impairment model in IFRS 9 will be applied, meaning that the loss allowance will be measured at an amount equal to the 12-month expected credit losses as long as there is no significant increase in credit risk. If a significant increase in credit risk should arise, the loss allowance will be measured at an amount equal to the lifetime expected credit losses for the asset.

    Hedge accounting: IFRS 9 applies to all hedge relationships, with the exception of “fair value macro hedges”. The IASB is working on a project to address macro hedging and in the meantime IFRS 9 provides an accounting policy choice for hedge accounting: either to continue to apply the requirements of IAS 39 until the macro hedging project is finalized, or apply IFRS 9. The hedge accounting requirements in IFRS 9 retain the three hedge accounting mechanisms but introduces greater flexibility in the types of transactions eligible for hedge accounting, the risks that can be hedged, and the instruments that can be used as hedging instruments. The new hedge accounting model enables a better reflection of risk management activities in the financial statements. The current 80-125 percent threshold effective-test is not carried over to IFRS 9. Instead, there should be an economic relationship between the hedged item and the hedging instrument, with no quantitative threshold. Telia Company will apply the hedge accounting provisions of IFRS 9 from the second quarter 2018. Telia Company expects no major effects based on current hedging activities. On the contrary, IFRS 9 is assumed to make it easier to achieve hedge accounting. However, the increased hedge accounting possibilities also require increased disclosures about the risk management strategy, cash flows from hedging activities and the impact of hedge accounting on the financial statements. In addition, consequential amendments have been made to IFRS 7 “Financial Instruments: Disclosures”.

    IFRS 16 “Leases” replaces the current IAS 17 ”Leases” and its associated interpretative guidance. The new standard is effective as of January 1, 2019. IFRS 16 applies a control model to the identification of leases, distinguishing between leases and service contracts on the basis of whether there is an identified asset controlled by the customer. The new standard removes the classification of leases as operating leases or finance leases as is required by IAS 17 and, instead introduces a single accounting model. According to the new model all leases result in the lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. The lessee is required to recognize: a) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and b) depreciation of lease assets separately from interest on lease liabilities in the income statement. The new standard does not include significant changes to the requirements for accounting by lessors. When the new standard is implemented, Telia Company’s long term operating leases will be recognized as non-current assets and financial liabilities in the consolidated statement of financial position. Instead of operating lease expenses, Telia Company will recognize depreciation and interest expenses in the consolidated income statement. Telia Company is assessing the effects of IFRS 16 and cannot provide an estimate of the effects of the new lease standard until the group has performed a more detailed review.

    IFRS 17 “Insurance contracts”, a new accounting standard covering recognition and measurement, presentation and disclosure, replaces IFRS 4 and is effective 1 January 2021. Early application is permitted as long as IFRS 9 and IFRS 15 also are applied. IFRS 17 applies to all types of insurance contracts, regardless of the type of entities that issue them. A few scope exceptions will apply. IFRS 17 provides a general model for valuation of insurance contracts, supplemented by a simplified approach and some specific adaptions. The value of the insurance contract is the sum of future cash flow, i.e. discounted probability-weighted cash flows plus an explicit risk adjustment for non-financial risks, and a contractual service margin (“CSM”) representing the unearned profit of the contract which is recognised as revenue over the coverage period. The cash flows will be remeasured each reporting period. Telia Company has currently only limited insurance operations and will assess the potential effects of IFRS 17.

    IFRIC 22 “Foreign currency transactions and advance considerations” is effective January 1, 2018. The new interpretation provides requirements about which exchange rate to use in reporting foreign currency transactions (such as revenue transactions) when payment is made or received in advance. The interpretation will not have a material impact on Telia Company’s consolidated financial statements.

    The following amendments, which will be applicable for Telia Company, are expected to have no or very limited impact on Telia Company’s financial statements when they are applied for the first time:

    • Amendments to IFRS 2 “Classification and measurement of share-based payment transactions”, effective January 1, 2018.
    • Annual Improvements to IFRSs 2014 – 2016 cycle, effective January 1, 2018.
    • Amendments to IFRS 4 “Applying IFRS 9 Financial Instruments with IFRS 4 Insurance contracts”, effective January 1, 2018.
    • Amendments to IAS 28 “Long-term interests in associates an joint ventures”, effective January 1, 2019.
    • Annual Improvements to IFRSs 2015 – 2017 cycle, effective January 2019.
    • Amendments to IFRS 9 “Prepayment features with negative compensation” is effective January 1, 2019.
    • IFRIC 23 “Uncertainty over income tax treatments” is effective January 1, 2019.

    Other issued amendments are deemed not applicable for Telia Company.

    EU endorsement status

    As of the beginning of March 2018, all standards, amendments to standards and interpretations mentioned above had been adopted by the EU, except for IFRS 17, amendments to IFRS 2, Annual improvements 2014-2016 cycle, IFRIC 22, IFRIC 23, amendments to IFRS 9, amendments to IAS 28, Annual Improvements to IFRSs 2015 – 2017 cycle.

  2. Judgments and key sources of estimation uncertainty

    The preparation of financial statements requires management and the Board of Directors to make estimates and judgments that affect reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These estimates are based on historical experience and various other assumptions that management and the Board believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, significantly impacting Telia Company’s earnings and financial position.

    Management believes that the following areas comprise the most difficult, subjective or complex judgments it has to make in the preparation of the financial statements. For information on accounting policies applied, see the respective sections of Note C3 “Significant accounting policies.”

    Revenue recognition

    For a telecom operator, if and when revenue should be recognized requires management judgment in a number of cases.

    Principal or agent – gross versus net presentation

    When the group acts as a principal, income and payments to suppliers are reported on a gross basis in revenue and operating costs. If the group sells goods or services as an agent (mainly content services) revenue and payments to suppliers are recorded in revenue on a net basis, representing the margin/commission earned. Whether the group is considered to be principal or agent in a transaction depends on analysis by management of both the legal form and substance of the agreement between the group and its business partners; such judgments impact the amount of reported revenue and operating expenses but do not impact net income or cash flows. Features indicating that the group is acting as a principal include: responsibility for providing the goods or services and the group has latitude in establishing prices or provides additional goods and services. Features indicating that the group is acting as an agent include: the group does not have exposure to significant risks and rewards associated with the sale of goods or services or the amount the group earns is predetermined, being either a fixed fee per transaction or a stated percentage of the amount billed to the customer.

    Bundling of products and services

    In bundling of products and services, determining fair values and if or when revenue should be recognized requires management judgment. Revenue is allocated between the goods and services using relative fair values. The fair values determined for goods or services may impact the timing of the recognition of revenue. Determining the fair value of each element can require complex estimates but is mainly based on expected cost plus a margin.

    Income taxes

    Significant management judgment is required in determining current tax liabilities and assets as well as provisions for deferred tax liabilities and assets, in particular as regards valuation of deferred tax assets. As part of this process, income taxes have to be estimated in each of the jurisdictions in which Telia Company operates. The process involves estimating the actual current tax exposure together with assessing temporary differences resulting from the different valuation of certain assets and liabilities in the financial statements and in the tax returns. Management must also assess the probability that the deferred tax assets will be recovered from future taxable income.

    Actual results may differ from these estimates due to, among other factors, future changes in business environment, currently unknown changes in income tax legislation, or results from the final review of tax returns by tax authorities or by courts of law. For additional information on deferred tax assets and liabilities and their carrying values as of the end of the reporting period, see Note C10 “Income taxes.”

    Currently, the following amortization and depreciation rates are applied.

    Trade names

    Individual evaluation, minimum 10 percent

    Telecom and frequency licenses, numbering rights

    Remaining license period, minimum 5 percent

    Interconnect and roaming agreements

    Agreement term, based on the remaining useful life of the related license

    Customer relationships

    Individual evaluation, based on historic and projected churn

    Capitalized development expenses

    20 percent or individual evaluation

    Other intangible assets

    20–33 percent or individual evaluation

    Buildings

    2–10 percent

    Land improvements

    2 percent

    Capitalized improvements on leased premises

    Remaining term of corresponding lease

    Mobile networks (base stations and other installations)

    14.5–20 percent

    Fixed networks

     

    – Switching systems and transmission systems

    10–20 percent

    – Transmission media (cable)

    5–10 percent

    – Equipment for special networks

    10 percent

    – Usufruct agreements of limited duration

    Agreement term or time corresponding to the underlying asset

    – Other installations

    2–33 percent

    Equipment, tools and installations

    10–33 percent

    Customer premises equipment under service arrangements

    33 percent, or agreement term if longer

     

    Valuation of intangible and other non-current assets

    Intangible assets, and property, plant and equipment represent a significant part of Telia Company’s total assets.

    Useful lives

    Determination of the useful lives of asset classes involves taking into account historical trends and making assumptions related to future socio-economic and technological development and expected changes in market behavior.

    In 2017 and 2016, amortization, depreciation and impairment losses totaled SEK 12,892 million and SEK 11,533 million, respetively. For additional information on intangible and tangible assets subject to amortization and depreciation and their carrying values as of the end of the reporting period, see Note C12 “Goodwill and other intangible assets” and Note C13 “Property, plant and equipment.”

    Impairment testing

    A number of significant assumptions and estimates are involved when measuring value in use and fair value less costs of disposal based on the expected future discounted cash flows attributable to an asset, for example with respect to factors such as market growth rates, revenue volumes, market prices for telecommunication services, costs to maintain and develop communication networks and working capital requirements. Forecasts of future cash flows are based on the best estimates of future revenues and operating expenses using historical trends, general market conditions, industry trends and forecasts and other available information. These assumptions are prepared by management and subject to review by the Audit Committee of the Board of Directors. The cash flow forecasts are discounted at the weighted average cost of capital for the relevant cash-generating unit. For Denmark the key assumptions on sales growth and EBITDA margin development in the forecasts are deviating from historical trends. For the forecast period Telia Company has clear and committed plans for sales initiatives, cost reductions and working capital improvements. Despite firm business plans, there is a risk that forecasted performance for Denmark could be impacted by operational factors as well as external factors like WACC increase or unexpected market development affecting forecasted revenue which could result in an impair­ment loss. For additional information on goodwill and its carrying value as of the end of the reporting period, see Note C12 “Goodwill and other intangible assets.”

    Provisions for pensions and employment contracts

    The most significant assumptions that management has to make in connection with the actuarial calculation of pension obligations and pension expenses affects the discount rate, the expected annual adjustments to pensions, and the longevity. Changes in any of these key assumptions may have a significant impact on the projected benefit obligations, funding requirements and periodic pension cost.

    For additional information on assumptions made, sensitivity analysis related to change in assumptions and pension obligations and their present values as of the end of the reporting period, see Note C21 “Provisions for pensions and employment contracts.”

    Provisions for restructuring activities, contingent liabilities and litigation

    Telia Company has engaged, and may in the future need to engage, in restructuring activities, which require management to make significant estimates related to expenses for severance and other employee termination costs, lease cancellation, site dismantling and other exit costs and to realizable values of assets made redundant or obsolete (see section “Valuation of intangible and other non-current assets” above). Should the actual amounts differ from these estimates, future results could be materially impacted.

    Determination of the treatment of contingent assets and liabilities in the financial statements is based on management’s view of the expected outcome of the applicable contingency. Management consults with legal counsel on matters related to litigation and other experts both within and outside the company with respect to matters in the ordinary course of business.

    For additional information on restructuring provisions, including their carrying values as of the end of the reporting period, and on contingencies and litigation, see Notes C22 “Other provisions” and C29 “Contingencies, other contractual obligations and litigation,” respectively.

    Classification as held for sale and discontinued operations

    Non-current assets and disposal groups are classified as held-for-sale if their carrying value will be recovered principally through a sale transaction rather than through continuing use. The determination if and when non-current assets and disposal groups should be classified as held-for-sale requires management judgment considering all facts and circumstances relating to the transaction, the parties and the market and entities can come to different conclusions under IFRS.

    One of the conditions that must be satisfied for classi­fication as held for sale is that the sale is highly probable within one year. One criteria for the sale to qualify as highly probable is that the appropriate level of management must be committed to a plan to sell the assets or disposal group in its present condition. In the telecom industry acquisitions often require regulatory approval. If the buyer is a telecom operator in the same market entities often have to agree to a number of remedies to get the approval. If the buyer is expected to be a telecom operator in the same market and significant remedies are expected, a sale is usually not regarded as highly probable and consequently the assets are not classified as held for sale by Telia Company, until the remedies are agreed upon and accepted by management.

    Former segment region Eurasia is classified as held for sale and discontinued operations since December 31, 2015. Telia Company is still committed to the plan to divest the remaining parts of Eurasia and the delays in the sales processes were caused by events and circumstances beyond Telia Company’s control. Telia Company has taken actions necessary to respond the change in circumstances, the units are available for immediate sale and are being actively marketed at reasonable prices given the changes in circumstances. The sales processes relating to all Eurasian units are in the final stages, bids have been received and term negotiations are ongoing. Disposals of the remaining Eurasian units are therefore deemed highly probable within 2018. See Note C34 “Discontinued operations and assets classified as held for sale” and “Risks and uncertainties” for more information on discontinued operations and risks that may affect the timing of divestment.

    Fair value estimates – discontinued operations

    In accordance with IFRS 5, the discontinued operations are measured at the lower of carrying value and estimated fair value less costs to sell. The valuation is based on an overall assessment of the input from the sales process and the risks in the different countries. Fair value is the price that would be received to sell the discontinued operations in an orderly transaction between market participants at the measurement date under current market conditions. There are no directly observable prices for Telia Company’s discontinued operations and fair values have therefore been estimated using other valuation techniques which require the use of judgment. For the Eurasian operations the estimated fair values are based on agreed sales prices, indicative bids received, valuation discussions with potential buyers and for Uzbekistan the combined results of different valuation models. Apart from the normal business risks, there are a number of specific risks related to the valuation of the different Eurasian operations such as cash repatriation issues, foreign exchange risks, unstable regulatory environment, owner structure and finding the right buyer from a sustainability point of view. Given the lack of precedents and factual evidence, it is difficult to quantify the valuation impact of all such risks. Any potential discount, moreover, will be highly subject to the specific views of an interested buyer. The specific risks of each country have also been factored in to the fair value estimates. See Note C34 “Discontinued operations and assets classified as held for sale” and “Risks and uncertainties” for more information on discontinued operations and risks that may affect the estimated fair values.

    Unquoted equity instruments

    Unquoted equity instruments are measured at fair value with fair value changes recognized in other comprehensive income. Telia Company’s primary valuation technique for unquoted equity instruments is based on the most recent transaction for the specific company if such transaction has been recently done. Adjustments to the carrying value is made to reflect significant changes in circumstances since the transaction date if Telia Company assess that the change will have a material impact on the fair value. The estimated fair value for material unquoted equity instruments is verified by applying other valuation models in the form of valuation multiples from peers on relevant financial and operational metrics. Although Telia Company uses its best judgment, and cross references results of the primary valuation model against other models in estimating the fair value of unlisted equity instruments, there are inherent limitations in any estimation techniques. The fair value estimates presented herein are not necessarily indicative of an amount that Telia Company could realize in a current transaction. Future confirming events will also affect the estimates of fair value. The effect of such events on the estimates of fair value could be material. Unlisted equity instruments for which the fair value cannot be reliably measured are measured at cost less any impairment. For information on unquoted equity instruments, see section “Fair value measurement of Level 3 financial instruments” in C25 “Financial assets and liabilities by category and level.”

    Accounts payables under vendor financing arrangements

    Telia Company has an arrangement with a bank under which the bank offers Telia Company’s vendors the option to receive earlier payment of Telia Company’s accounts payables. Vendors utilizing the financing arrangement pay a credit fee to the bank. Telia Company does not pay any credit fees and does not provide any additional collateral or guarantee to the bank. Based on Telia Company’s assessment the liabilities under the vendor financing arrangement are closely related to operating purchase activities and the financing arrangement does not lead to any significant change in the nature or function of the liabilities. These liabilities are therefore classified as accounts payables with separate disclosures in the notes. The credit period does not exceed 12 months and the accounts payables are therefore not discounted. Account payables under vendor financing arrangements were SEK 1,678 million per December 31, 2017 (SEK 684 million). See note C24 “Trade payables and other current liabilities”.

  3. Significant accounting policies

    Consolidated financial statements

    General – Subsidiaries

    The consolidated financial statements comprise the parent company Telia Company AB and all entities over which Telia Company has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The existence and effect of potential voting rights that are currently exercisable or convertible, including potential voting rights held by another entity, are considered when assessing whether an entity is controlled or not. Telia Company is assumed to have control if the group owns the majority of shares and the shares have equal voting rights attached, and a proportionate entitlement to a share of the returns of the entity and decisions about relevant activities are determined by majority votes. Telia Company is also assumed to have control if Telia Company selects the majority of the board contractually even if not holding the majority of the shares, see Notes C4 “Changes in group composition and events after the reporting period” and C19 “Equity and earnings per share.”

    Acquisitions are accounted for using the acquisition method which measures goodwill at the acquisition date as: the fair value of the consideration transferred; plus the amount of any non-controlling interest in the acquiree recognized in the transaction; plus if the business combination is achieved in stages, the fair value of the previously held equity interest in the acquiree; less the net recognized amount of the identifiable assets acquired and liabilities assumed. When the difference is negative, a bargain purchase gain would be recognized in net income. Costs related to the acquisition are expensed as incurred.

    Any contingent consideration payable would be recognized at fair value at the acquisition date. If the contingent consideration would be classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognized in net income. Acquisition of additional shares in a subsidiary after obtaining control as well as a partial disposal of shares in a subsidiary while retaining control are accounted for as equity transactions with owners. See section “Non-controlling interests” below.

    Assets (including any goodwill and fair value adjustments) and liabilities for entities acquired or divested during the year are included in the consolidated financial statements from the date on which control is obtained and excluded from the date on which control is lost.

    Intra-group sales and other transactions have been eliminated in the consolidated financial statements. Profits and losses resulting from intra-group transactions are eliminated unless a loss indicates impairment.

    Non-controlling interests

    Prior to 2010, transactions involving non-controlling interests were treated as transactions with non-related parties. Disposals of non-controlling interests resulted in capital gains or losses which were recognized in net income. Purchases of non-controlling interests resulted in goodwill, being the difference between any consideration paid and the relevant share acquired of the group’s carrying value of net assets of the subsidiary. Prospectively as of 2010, transactions with non-controlling interests are treated as equity transactions, including any transaction-related costs. Gains or losses on disposals as well as any excess or deficit of consideration paid over the carrying amount of non-controlling interests when acquiring additional shares in a subsidiary are recognized in retained earnings. Consideration paid for a call option or other similar contract giving Telia Company the right to acquire a fixed non-controlling interest in exchange for a fixed amount of cash or another financial asset is deducted from retained earnings.

    Commitments to purchase non-controlling interests (NCI) made prior to 2010 and put options granted to holders of non-controlling interests (taking into account any subsequent capital contributions from or dividends to such shareholders) prior to 2010 are recognized as contingent consideration (provisions). Where the amount of the liability exceeds the amount of the non-controlling interest, the difference is recorded as goodwill. Subsequent changes in the value of put option liabilities are recognized as an adjustment to goodwill. Commitments entered into on or after 2010 are considered financial liabilities with subsequent changes in the value recognized as other operating income/expense. For each business combination the group elects to measure any non-controlling interest in a subsidiary either at fair value (goodwill recognized on non-controlling interest) or only at the proportionate share of the identifiable net assets (goodwill recognized only on acquired interest). If Telia Company has a commitment of a NCI option linked to a receivable from the same counter party and the shares are held as collateral for the receivable, then the receivable and liability is recognized and offset in the statement of financial position. The change in fair value of the option is assumed to equal the return on the shares held as collateral, see Note C26 “Financial risk management.”

    Joint arrangements

    Joint arrangements are entities over which the group has joint control by virtue of contractual arrangements. Joint arrangements are classified as either joint operations or joint ventures. Joint operations are arrangements whereby Telia Company has the right to the assets and obligation for the liabilities and accounts for its share of the assets, liabilities, revenue and expenses of the joint operation line by line in the consolidated financial statements. The joint operations are primarily designed for providing output to the share­holders.

    Joint ventures on the other hand are arrangements where Telia Company has right to the net assets of the arrangement and the investment is accounted for under the equity method (similar to associated companies - see section below). Joint arrangements acquired or divested during the year are included in the consolidated financial statements from the date on which joint control is obtained and excluded from the date on which joint control is lost.

    Associated companies

    Associated companies are entities over which the group has significant influence but not control. If the group holds, directly or indirectly (e.g. through subsidiaries), 20 percent or more of the voting power of the investee, it is presumed that the group has significant influence, unless it can be clearly demonstrated that this is not the case. Holdings in associated companies are accounted for using the equity method and are initially recognized at cost, including any transaction costs. The group’s share of net income in associated companies is included in operating income because the operations of these companies are related to telecommunications and it is the group’s strategy to capitalize on industry know-how by means of investing in partly owned operations. The share of net income is based on the entity’s most recent accounts, adjusted for any discrepancies in accounting policies, and with estimated adjustments for significant events and transactions up to Telia Company’s close of books.

    The line item Income from associated companies and joint ventures also includes amortization of fair value adjustments and other consolidation adjustments made upon the acquisition of associated companies as well as any subsequent impairment losses on goodwill and other intangible assets, and capital gains and losses on disposals of stakes in such companies. Telia­ Company’s share of any gains or losses resulting from transactions with associated companies is eliminated.

    Dividend received reduces the carrying amount of an investment. Negative equity participations in associated companies are recognized only to the extent contractual obligations to contribute additional capital exist and are then recorded as Other provisions.

    The group’s share of associated entities equity transactions such as the acquisition or sale of treasury shares from third parties are recognized directly in equity.

    Cash flow reporting

    Cash flows from operating activities are reported using the indirect method and include dividends received from associated companies and other equity instruments, interest paid or received (except for paid interest capitalized as part of the acquisition or construction of non-current assets and therefore included in cash flows from investing activities), provisions and taxes paid or refunded. Changes in non-interest bearing receivables and liabilities are reported in working capital, except for IRU-related prepayments (Indefeasible Rights of Use) made or received which are included in cash flows from investing activities. Terminal financing receivables are also included in working capital.

    Cash flows from investing activities include CAPEX, payments to acquire or receipts from the sale of joint ventures, associates, subsidiaries (obtaining or losing control) net of cash and cash equivalents acquired or disposed of and other equity instruments. Further, cash flows from investing activities include compensation from or contributions to the Swedish pension fund, payments related to leasing receivables, as well as other investments with maturities over 3 months.

    Cash flows from financing activities include dividends paid to owners of the parent and to holders of non-controlling interests, payments and receipts from changes in ownership of non-controlling interest and cash flows from settlement of foreign exchange derivative contracts used for economic hedges of cash-pool balances including any payments or receipts from CSA (Credit Support Annex).Proceeds from and repayment of borrowings include cash flows from derivatives hedging such borrowings.

    Cash and cash equivalents include cash at hand, bank deposits and highly-liquid short-term investments (including blocked amounts) with maturities up to and including 3 months.

    Cash flows of a foreign entity are translated at the average exchange rate for the reporting period, except for certain transactions like dividends from associates, dividends paid to holders of non-controlling interests, acquisitions or disposals of subsidiaries and associated companies, and other major non-recurring transactions which are translated at the rate prevailing on the transaction day.

    Segment reporting

    The group’s businesses are managed and reported by the six operating segments: Sweden, Finland, Norway, Denmark, Lithuania and Estonia. Operating segments that are not individually reportable: Latvia, the Telia Carrier operations, Telia Company’s shareholding in the associate Turkish Turkcell and the former associate Russian MegaFon as well as Group functions are combined into Other operations. Comparative figures have been restated to reflect the new operating segments. Spain (which was divested in 2016) has been included in Other operations. The former segment region Eurasia is classified as held for sale and discontinued operations since December 31, 2015, and is therefore not included in the segment information. For additional information, see Note C5 “Segment information.” Segments are consolidated based on the same accounting principles as for the group as a whole. When significant operations are transferred between segments, comparative period figures are restated.

    Foreign currency translation and inflation adjustments

    Currency translation is based on market rates with information from major market providers and are fixed daily.

    Separate financial statements of a group entity are presented in the entity’s functional currency, being the currency of the primary economic environment in which the entity operates, normally the local currency. In preparing the financial statements, foreign currency transactions are translated at the exchange rates prevailing at the date of each transaction. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are translated at the closing rates existing at that date. Exchange rate differences arising from operating receivables or liabilities are recognized in operating income, while differences attributable to financial assets or liabilities are recognized in finance items. Exchange rate differences on available-for-sale equity instruments and on cash flow hedges are recognized in other comprehensive income.

    The consolidated financial statements are presented in Swedish krona (SEK), which is the functional currency of the parent company. For consolidation purposes, income and expenses of foreign operations (subsidiaries, joint ventures and associated companies, and branch offices) are translated at the average exchange rates for the period. However, for items related to dividends, gains or losses on disposal of operations or other major transactions or if exchange rates fluctuated significantly during the period, the exchange rates at the date of the transactions are used. Assets and liabilities, including goodwill and fair value adjustments arising on acquisition of foreign operations, are translated at closing rates at the end of the reporting period except for equity components, which are translated at historical rates. Translation differences are recognized in other comprehensive income and accumulated in equity attributable to owners of the parent or to non-controlling interests, as appropriate.

    When a foreign operation is disposed, any related cumulative exchange rate difference is recycled to net income as part of the gain or loss on the disposal, except for accumulated exchange rate differences related to non-controlling interests which are derecognized but not recycled to net income. However, if Telia Company would dispose of a non-controlling interest in a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests.

    When the functional currency for a foreign operation is the currency of a hyperinflationary economy, prior to translating the financial statements, the reported non-monetary assets and liabilities, and equity are restated in terms of the measuring unit current at the end of the reporting period.

    Revenue recognition

    Net sales principally consist of traffic charges including interconnect and roaming, subscription fees, connection and installation fees, service charges and equipment sales. Sales revenues are recognized at fair value of the consideration received, normally being the sales value, adjusted for rebates and discounts granted and sales-related taxes.

    Revenue is recognized in the period in which the service is performed, based on actual traffic or over the contract term, as applicable. Revenue from rendering of services is recognized when it is probable that the economic benefits associated with a transaction will flow to Telia Company, and the amount of revenue, and the associated costs incurred, or to be incurred, can be measured reliably. Revenue from voice and data services is recognized when the services are used by the customer. Revenue from interconnect traffic with other telecom operators is recognized at the time of transit across Telia Company’s network. When invoicing end-customers for third-party content services, amounts collected on behalf of the principal are excluded from revenue.

    Subscription fees are recognized as revenue over the subscription period. Sales relating to pre-paid phone cards, primarily mobile, are deferred and recognized as revenue based on the actual usage of the cards. For open access fiber installed at customer’s premises, non-refundable customer fees and related installation costs, including planning, trenching, cabling, splicing, mounting, connection, cross connect equipment and media converter, are recognized when the installation is finalized. Connection fees are separately recognized at completion of connection, if the fees do not include any amount for subsequent servicing but only cover the connection costs. Amounts for subsequent servicing are deferred.
Revenue from equipment sales is recognized when delivery has occurred and the significant risks and rewards have been transferred to the customer, i.e. normally on delivery and when accepted by the customer.

    Under customer loyalty programs, customers are entitled to certain discounts (award credits) relating to services and goods provided by Telia Company. Based on relative fair values, proceeds are allocated between services and goods provided and the award credits for future services and goods. For the proportion of award credits expected to be redeemed, revenue is deferred and subsequently recognized when the award credits are redeemed and the obligations to supply the awards are fulfilled. For recognition of customer acquisition costs, see section “Operating expenses” below.

    Telia Company may bundle services and products into one customer offering. Offerings may involve the delivery or performance of multiple products, services, or rights to use assets (multiple deliverables). In some cases, the arrangements include initial installation, initiation, or activation services and involve consideration in the form of a fixed fee or a fixed fee coupled with a continuing payment stream. The revenue is allocated to equipment and services in proportion to the fair value of the individual items. Services invoiced based on usage are not included in the allocation. Customized equipment that can be used only in connection with services or products provided by Telia Company is not accounted for separately and revenue is deferred over the total service arrangement period.

    To corporate customers, Telia Company offers long-term functional service agreements for total telecom services, which may include switchboard services, fixed telephony, mobile telephony, data communication and other customized services. There are generally no options for the customer to acquire the equipment at the end of the service contract period. Revenue for such functionality agreements is recognized over the service period but part of the periodic fixed fee is deferred to meet the costs at the end of the contract period (maintenance and up-grades).

    Service and construction contract revenues are recognized using the percentage of completion method. The stage of completion is estimated using measures based on the nature and terms of the contracts. When it is probable that total contract costs will exceed total contract revenue, the expected loss is immediately expensed.

    Within the international carrier operations, sales of Indefeasible Rights of Use (IRU) regarding fiber and duct are recognized as revenue over the period of the agreement (see also section “Telia Company as operating lessor” below).

    Operating expenses

    Telia Company presents its analysis of expenses using a classification based on function. Cost of sales comprises all costs for services and products sold as well as for installation, maintenance, service, and support. Selling and marketing expenses comprise all costs for selling and marketing services and products and includes expenses for advertising, PR, pricelists, commission fees, credit information, debt collection, etc. Bad debt losses as well as doubtful debt allowances are also included. Recovery of receivables written-off in prior years is included in Other operating income. Research and development expenses (R&D) include expenses for developing new or substantially improving already existing services, products, processes or systems. Maintenance and minor adjustments to already existing services, products, processes or systems are not included in R&D. Expenses that are related to specific customer orders (customization) are included in Cost of sales. Amortization, depreciation and impairment losses are included in each function to the extent referring to intangible assets or property, plant and equipment used for that function.

    Costs for retailer commissions, other customer acquisition costs, advertising, and other marketing costs are expensed as incurred.

    All pension benefit costs except for the interest component are recognized as personnel expenses. For equity-settled share-based payments to employees, such as Telia Company’s Performance Share Programs, cost, being the fair value at the allotment date of the equity instruments allotted, is recognized as personnel expenses allocated over the vesting period and with a corresponding increase in equity. Cost is based on the best available estimate of the number of equity instruments to vest. If necessary, the estimate is revised during the vesting period and finally revised at the end of the vesting period.

    Other operating income and expenses

    Other operating income and other operating expenses include gains and losses, respectively, on disposal of shares or operations in subsidiaries (see section “Associated companies” above) and on disposal or retirement of intangible assets or property, plant and equipment.

    Also included in other operating income and expenses are impairment losses of goodwill, government grants, exchange rate differences on operating transactions, results from court-settled disputes with other operators regarding historical interconnect and roaming fees, restructuring costs and other similar items. Government grants are initially measured at fair value and recognized as income over the periods necessary to match them with the related costs. Exchange rate differences from operating transactions also include effects from economic hedges and value changes in derivatives hedging operational transaction exposure (see section “Derivatives and hedge accounting” below).

    Finance costs and other financial items

    Interest income and expenses are recognized as incurred, using the effective interest rate method, with the exception of borrowing costs directly attributable to the acquisition, construction or production of an asset, which are capitalized as part of the cost of that asset (see also section “Intangible assets, and property, plant and equipment” below). Increases in provisions due to passage of time are recognized as interest expenses.

    Interest income and expenses also include changes in fair value of the interest component of cross currency interest rate swaps as well as changes in fair value of interest rate swaps. The initial difference between nominal value and net present value of borrowings with an interest rate different to market rate (“day 1 gain”) is amortized until due date and recognized as Other interest income. The interest component of changes in the fair value of borrowings measured at fair value and of derivatives hedging loans and borrowings (see section “Derivatives and hedge accounting” below) are included in Other interest income (gains) or in Interest expenses (losses). Exchange rate differences on financial transactions also comprise changes in fair value of the currency component of cross currency interest rate swaps and of forward contracts hedging currency risks in external borrowings.

    Dividend income from equity investments is recognized when Telia Company’s rights to receive payment have been established. Income and expenses relating to guarantee commissions are included in Other interest income and Interest expenses, respectively. Interest expenses include funding-related bank fees and fees to rating institutions and market makers. Further the net interest on the net defined benefit liability (asset) is recognized as part of finance costs.

    Income taxes

    Incomes taxes comprise current and deferred tax. Current and deferred income taxes are recognized in net income or in other comprehensive income, to the extent relating to items recognized in other comprehensive income. Deferred income taxes are provided in full, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying values in the consolidated financial statements and on unutilized tax deductions or losses. Where a subsidiary has a history of tax losses, Telia Company recognizes a deferred tax asset only to the extent that the subsidiary has sufficient taxable temporary differences or there is convincing other evidence that sufficient taxable profit will be available.

    On initial recognition of assets and liabilities, deferred taxes are not recognized on temporary differences in transactions that are not business combinations. Deferred tax liabilities for undistributed earnings or temporary differences related to investments in subsidiaries, joint ventures and associated companies are not recognized because such retained earnings can be withdrawn as non-taxable dividends and the companies can be sold without tax consequences. However, some foreign jurisdictions impose withholding tax on dividends. In such cases, a deferred tax liability is recognized, calculated by applying the respective withholding tax rate on undistributed earnings. In certain countries, income tax is not levied on profits, but on dividends paid or declared. In those cases, since current and deferred taxes should be recognized at the rate of undistributed earnings, no deferred tax is recognized and current tax is recognized in the period when dividends are declared.

    Current and deferred income tax is determined using tax rates and tax legislation that have been enacted or substantively enacted at the end of the reporting period and in the case of deferred tax that are expected to apply when the related deferred income tax asset or liability is settled. Effects of changes in tax rates are recognized in the period when the change is substantively enacted. Deferred tax assets are recognized to the extent that the ability of utilizing the tax asset is probable. Deferred tax assets and liabilities are offset when a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

    Interest on current tax payable or refundable calculated by tax authorities is classified as Interest expenses and Other interest income, respectively.

    Intangible assets, and property, plant and equipment

    Measurement bases

    Goodwill is measured, after initial recognition, at cost, less any accumulated impairment losses. Goodwill is not amortized but tested for impairment at least annually. Impairment losses are not reversed. Based on management analysis, goodwill acquired in a business combination is for impairment testing purposes allocated to the groups of cash-generating units that are expected to benefit from the synergies of the combination. Each group represents the lowest level at which goodwill is monitored for internal management purposes and it is never larger than an operating segment.

    Other intangible assets are measured at cost, including directly attributable borrowing costs, less accumulated amortization and any impairment losses. Direct external and internal development expenses for new or substantially improved products and processes are capitalized, provided that future economic benefits are probable, costs can be measured reliably and the product and process is technically and commercially feasible. Activities in projects at the feasibility study stage as well as maintenance and training activities are expensed as incurred.

    Intangible assets acquired in a business combination are identified and recognized separately from goodwill where they satisfy the definition of an intangible asset and their fair values can be measured reliably. The cost of such intangible assets is their fair value at the acquisition date. Subsequent to initial recognition, intangible assets acquired in a business combination are measured on the same basis as intangible assets acquired separately. Fair values of intangible assets acquired in a business combination are determined as follows. Patents and trademarks are valued based on the discounted estimated royalty payments that have been avoided as a result of the patent or trademark being owned. Customer relationships are valued using the multi-period excess earnings method. For other intangible assets, income, market and cost approaches are considered in a comprehensive valuation analysis, by which the nature of the intangible asset, any legal and contractual circumstances and the availability of data will determine which approach(es) ultimately to be utilized to derive each asset’s fair value.

    Property, plant and equipment are measured at cost, including directly attributable borrowing costs, less accumulated depreciation and any impairment losses. Software used in the production process is considered to be an integral part of the related hardware and is capitalized as plant and machinery. Property and plant under construction are valued at the expense already incurred, including interest during the installation period. To the extent a legal or constructive obligation to a third party exists, the acquisition cost includes estimated costs of dismantling and removing the asset and restoring the site. The cost of replacing a part of an item of property, plant and equipment is recognized in the carrying value of the item if it is probable that the future economic benefits embodied within the item will flow to Telia Company and the cost of the item can be measured reliably. All other replacement costs are expensed as incurred. A change in estimated expenditures for dismantling, removal and restoration is added to and/or deducted from the carrying value of the related asset. To the extent that the change would result in a negative carrying value, this effect is recognized in net income. The change in depreciation charge is recognized prospectively.

    Fair values for property, plant and equipment acquired in a business combination are determined as follows. Commercial real estate is normally valued using an income or market approach, while technical buildings, plant and equipment are normally valued using a cost approach, in which the fair value is derived based on depreciated replacement cost for the asset.

    Capitalized interest is calculated, based on the group’s estimated average cost of borrowing. However, actual borrowing costs are capitalized if individually identifiable, such as interest paid on construction loans for buildings.

    Government grants received as compensation for the cost of an asset are initially measured at fair value, normally being the consideration received. A government grant reduces the carrying value of the related asset and the depreciation charge recognized over the asset’s useful life.

    Amortization and depreciation

    Amortization of intangible assets other than goodwill and depreciation on property, plant and equipment is based on cost, less residual values, and taking into account the estimated useful lives of various asset classes or individual assets. Land is not depreciated. For assets acquired during a year, amortization and depreciation is calculated from the date of acquisition. Amortization and depreciation is mainly recognized on a straight-line basis.

    Mobile and fixed telecommunication licenses to operate a specific network are regarded as integral to the network and amortization does not commence until the related network is ready for use. Amortization of network-independent licenses to use specific radio frequencies (spectrum) commences when the related frequency block is available for use. License fees based on future services, i.e. relating to the on-going performance of the entity are not capitalized but expensed as incurred.

    Impairment testing

    Goodwill and other intangible assets (currently none existing) with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that the asset may be impaired. Intangible assets with a finite life and tangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Where it is not possible to estimate the recoverable amount of an individual asset, the recoverable amount of the cash-generating unit to which the asset belongs is tested for impairment. If an analysis indicates that the carrying value is higher than its recoverable amount, which is the higher of the fair value less costs to sell and value in use, an impairment loss is recognized for the amount by which the carrying amounts exceed the recoverable amount.

    Value in use is measured based on the expected future discounted cash flows (DCF model) attributable to the asset.

    Financial instruments

    Categories

    Financial instruments are for measurement purposes grouped into categories. The categorization depends on the purpose or by definition in IAS 39 and is determined at initial recognition. Category “Financial assets at fair value through profit and loss” comprises derivatives not designated as hedging instruments (held-for-trading) with a positive fair value and investments held-for-trading. Category “Held-to-maturity” comprises non-derivative financial assets with fixed or determinable payments and fixed maturity that Telia Company has the positive intention and ability to hold to maturity. This category includes commercial papers, certain government bonds and treasury bills. Category “Loans and receivables” comprises non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. This category includes trade receivables, accrued revenues for services and goods, loan receivables, bank deposits and cash at hand. Category “Available-for-sale financial assets” comprises non-derivative financial assets that are designated to this category or not to any of the other categories. This category currently includes equity instruments and convertible bonds. Assets included in the categories are reported under the statement of financial position items Other non-current assets (Note C15), Trade and other receivables (Note C17), Interest-bearing receivables, cash and cash equivalents (Note C18).

    Category “Financial liabilities at fair value through profit and loss” comprises derivatives not designated as hedging instruments (held-for-trading) with a negative fair value. Category “Financial liabilities measured at amortized cost” comprises all other financial liabilities, such as borrowings, trade payables, accrued expenses for services and goods, and certain provisions settled in cash. Liabilities included in the categories are reported under the statement of financial position items Long-term and short-term borrowings (Note C20), Other provisions (Note C22), Other long-term liabilities (Note C23) and Trade payables and other current liabilities (Note C24).

    Transaction costs, impairment and derecognition

    Financial assets and financial liabilities are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. However, transaction costs related to assets or liabilities held for trading are expensed as incurred. A financial asset is considered impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flow of that asset. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively. Evidence of impairment includes that debtors, individually or collectively, default in payments or other indications that they experience significant financial difficulty, including the probability of entering bankruptcy or other financial reorganization.

    A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when Telia Company has transferred its rights to receive cash flows from the asset and has transferred substantially all the risks and rewards of the asset, or has transferred control of the asset. A financial liability is derecognized when the obligation under the liability is discharged or canceled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference between the carrying amounts is recognized in net income.

    Fair value hierarchy levels

    The carrying values of classes of financial assets and liabilities measured at fair value were determined based on a three-level fair value hierarchy, as follows.

    Level

    Fair value determination

    Comprises

    1

    Quoted (unadjusted) prices in active markets for identical assets or liabilities

    Primarily quoted equity instruments classified as available-for-sale or held-for-trading

    2

    Inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (prices) or indirectly (derived from prices)

    Derivatives designated as hedging instruments or held-for-trading and borrowings in fair value hedge relationships

    3

    Inputs for the asset or liability that are not based on observable market data (unobservable inputs)

    Unquoted equity instruments classified as available-for-sale or held-for-trading

    Inputs for fair value measurements disclosed for assets and liabilities that are not carried at fair value are categorized to fair level hierarchy 2.

    Fair value estimation

    The fair values of financial instruments traded in active markets are based on quoted market prices at the end of the reporting period. For financial assets, the current bid price is used. The fair values of financial instruments that are not traded in active markets are determined by using valuation techniques. Management uses a variety of methods and makes assumptions that are based on market conditions existing at the end of the reporting period.

    Quoted market prices or dealer quotes for similar instruments are used for long-term debt. Other techniques, such as estimated discounted cash flows (DCF analyses), are used to determine fair value for the remaining financial instruments. DCF analyses are performed using the applicable yield curve for the duration of the instruments for non-optional derivatives, and option pricing models for optional derivatives. Forward exchange contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturities of the contracts. Interest rate swaps are measured at the present value of future cash flows, estimated and discounted based on the applicable yield curves derived from quoted interest rates.

    The carrying value less impairment provision of trade receivables and payables are assumed for disclosure purposes to approximate their fair values. The fair value of financial liabilities is for disclosure purposes estimated by discounting the future contractual cash flows at the current market interest rate that is available for similar financial instruments with adjustment for credit purposes based on known credit spreads from exchange traded Telia Company bonds. The fair value of loans and receivables is for disclosure purposes estimated by discounting the future contractual cash flows at the current market interest rate that is available for similar financial instruments with adjustment for credit purposes based on known credit spreads, where available and if not available, individual estimates.

    Current/non-current distinction, offsetting

    Financial assets and liabilities maturing more than one year from the end of the reporting period are considered to be non-current. Other financial assets and liabilities are recognized as current. Financial assets and liabilities are recognized and derecognized applying settlement date accounting.

    Financial assets and liabilities are offset only if there is an enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

    Financial assets – measurement

    Quoted equity instruments are measured at fair value, being the quoted market prices. Unrealized gains and losses arising from changes in fair value other than impairment losses up to the date of sale are recognized in other comprehensive income and accumulated in the fair value reserve. If the fair value of a quoted equity instrument classified as availabe for sale declines, management makes assumptions about the decline in value to determine whether it is an impairment that should be recognized in profit or loss. Evidence of impairment is a significant or prolonged decline in the fair value below the cost of the instrument. Unquoted equity instruments are measured at fair value with fair value changes recognized in other comprehensive income. Telia Company’s primary valuation technique for unquoted equity instruments is based on the most recent transaction for the specific company if such transaction has been recently done. Adjustments to the carrying value is made to reflect significant changes in circumstances since the transaction date if Telia Company assess that the change will have a material impact on the fair value. The estimated fair value for material unquoted equity instruments is verified by applying other valuation models in the form of valuation multiples from peers on relevant financial and operational metrics. Unquoted equity instruments whose fair value cannot be reliably determined are valued at cost less any impairment. An impairment loss on an unquoted equity instrument is calculated as the difference between the carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses on equity investments carried at cost are not subsequently reversed and impairment losses on equity instruments classified as available-for-sale are never reversed through net income. Holdings in venture capital entities are measured at fair value with changes in fair value recognized in net income.

    Government bonds and treasury bills held-to-maturity are initially recognized at fair value and subsequently measured at amortized cost, using the effective interest rate method, less impairment. Bonds available for sale are measured at fair value (quoted market prices) with unrealized changes in fair value recognized in other comprehensive income. Receivables arising from own lending, except for short-term receivables where the interest effect is immaterial, are measured at amortized cost, using the effective interest rate method, less impairment. An impairment loss on government bonds and treasury bills held-to-maturity and on receivables from own lending is calculated as the difference between the carrying amount and the present value of the estimated future cash flow discounted at the original effective interest rate.

    Short-term investments with maturities over 3 months comprise bank deposits, commercial papers issued by banks, bonds and investments held-for-trading. Cash and cash equivalents include cash at hand and bank deposits as well as highly-liquid short-term investments with maturities up to and including 3 months, such as commercial papers issued by banks. All instruments are initially measured at fair value and subsequently at fair value if categorized as held-for-trading, otherwise at amortized cost.

    Financial liabilities – measurement

    Financial liabilities (interest-bearing loans and borrowings), except for short-term liabilities where the interest effect is immaterial, are initially recognized at fair value and subsequently measured at amortized cost, using the effective interest rate method. Liabilities that are hedged against changes in fair value are, however, measured at hedged fair value. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognized over the term of the loan or borrowings. Borrowings with an interest rate different to market rate are initially measured at fair value, being the net present value applying the market interest rate. The difference between the nominal value and the net present value is amortized until due date.

    Financial guarantee liabilities are contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognized initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issue of the guarantee. Subsequently, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the end of the reporting period and the amount initially recognized.

    Trade receivables and trade payables – measurement

    Trade receivables are initially recognized at fair value, normally being the invoiced amount, and subsequently carried at invoiced amount less impairment (bad debt losses), which equals amortized cost since the terms are generally 30 days and the recognition of interest would be immaterial. An estimate of the amount of doubtful receivables is made when collection of the full amount is no longer probable. An impairment loss on trade receivables is calculated as the difference between the carrying amount and the present value of the estimated future cash flow. Bad debts are written-off when identified and charged to Selling and marketing expenses. Accrued trade payables are recognized at the amounts expected to be billable.

    Trade payables are initially recognized at fair value, normally being the invoiced amounts, and subsequently measured at invoiced amounts, which equals amortized cost, using the effective interest rate method, since generally the payments terms are such that the impact of discounting would be immaterial.

    Accounts payables under vendor financing arrangements are closely related to operating purchase activities and the financing arrangement does not lead to any significant change in the nature or function of the liabilities. These liabilities are therefore classified as accounts payables, but are specified in the disclosures. The credit period does not exceed 12 months and the accounts payables are therefore not discounted.

    Derivatives and hedge accounting – measurement and classification

    Telia Company uses derivative instruments, such as interest and cross currency interest rate swaps, forward contracts and options, primarily to control exposure to fluctuations in exchange rates and interest rates. For hedging of net investments in foreign operations, Telia Company also uses financial liabilities.

    Derivatives and embedded derivatives, when their economic characteristics and risks are not clearly and closely related to other characteristics of the host contract, are recognized at fair value. Derivatives with a positive fair value are recognized as non-current or current receivables and derivatives with a negative fair value as non-current or current liabilities. Currency swaps, forward exchange contracts and options are classified as non-interest-bearing and interest rate swaps and cross currency interest rate swaps as interest-bearing items. For classification in the statement of comprehensive income, see sections “Other operating income and expenses” and “Finance costs and other financial items” above.

    Hedging instruments are designated as hedges in economic hedges, see below or in either fair value hedges, cash flow hedges, or hedges of net investments in foreign operations. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges. Documentation on hedges includes: the relationship between the hedging instrument and the hedged item; risk management objectives and strategy for undertaking various hedge transactions; and whether the hedging instrument used is highly effective in offsetting changes in fair values or cash flows of the hedged item.

    For fair value hedges, the effective and ineffective portions of the change in fair value of the derivative, along with the gain or loss on the hedged item attributable to the risk being hedged, are recognized in net income.

    For cash flow hedges, the effective portion of the change in fair value of the derivative is recognized in other comprehensive income until the underlying transaction is reflected in net income, at which time any deferred hedging gains or losses are recycled to net income. The ineffective portion of the change in fair value of a derivative used as a cash flow hedge is recognized in net income. However, when the hedged forecast transaction results in the recognition of a non-financial asset or liability, the gains and losses are included in the initial measurement of the cost of the asset or liability.

    Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized in net income. Gains and losses deferred in the foreign currency translation reserve are recycled to net income on disposal of the foreign operation.
Changes in the fair value of derivative instruments that do not meet the criteria for hedge accounting are recognized in net income.

    Hedge accounting is not applied to derivative instruments that economically hedge monetary assets and liabilities denominated in foreign currencies (economic hedges) or that are initiated in order to manage e.g. the overall interest rate duration of the debt portfolio. Changes in the fair value of economic hedges are recognized in net income as exchange rate differences, offsetting the exchange rate differences on monetary assets and liabilities. Changes in the fair value of portfolio management derivatives are recognized in net income as Finance costs.

    Repurchase agreements

    Repurchase agreements, means that the parties have agreed on sale and repurchase of a certain security, at a predetermined price and point in time. Since the group remains exposed to the risk and rewards of the asset during the transaction period, securities remain accounted for in the balance sheet as financial assets. Received cash is accounted for as financial liabilities. Sold securities are also disclosed as pledged assets.

    Inventories

    Inventories are carried at the lower of cost and net realizable value. Costs, including an appropriate portion of fixed and variable overhead expenses, are assigned to inventories held by the method most appropriate to the particular class of inventory, with the majority being valued on a first-in-first-out basis. Net realizable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

    Obsolescence is assessed with reference to the age and rate of turnover of the items. The entire difference between the opening and closing balance of the obsolescence allowance is charged to cost of sales. The fair value of inventories acquired in a business combination is determined based on the estimated selling price less the estimated cost of sale and a reasonable profit margin.

    Assets held for sale

    Non-current assets and disposal groups are classified as held for sale if their carrying value will be recovered principally through a sale transaction rather than through continuing use. An asset held for sale is measured at the lower of its previous carrying value and fair value less costs to sell.

    One of the conditions that must be satisfied for an asset to be classified as held for sale is that the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. One criteria for the sale to qualify as highly probable is that the appropriate level of management must be committed to a plan to sell the assets or disposal group in its present condition. In the telecom industry acquisitions often require regulatory approval. If the buyer is a telecom operator in the same market parties often have to agree to a number of remedies to get the approval. If the buyer is expected to be a telecom operator in the same market and significant remedies are expected, a sale is usually not regarded as highly probable and consequently the assets are not classified as held for sale by Telia Company, until the remedies are agreed upon and accepted by management. The determination if and when non-current assets and disposal groups should be classified a as held for sale requires management judgment considering all facts and circumstances relating to the transaction, the parties and the market and entities can come to different conclusions under IFRS.

    Equity attributable to owners of the parent

    Equity attributable to owners of the parent is divided into share capital, other contributed capital, hedging reserve, fair value reserve, foreign currency translation reserve, revaluation reserve, inflation adjustment reserve, equity transaction in associates and retained earnings. Share capital is the legally issued share capital. Other contributed capital comprises contributions made by shareholders in the form of share premiums in connection with new share issues, specific share holder contributions, etc. This item is reduced by reimbursements to shareholders made in accordance with separately decided and communicated capital repayment programs (e.g. through purchasing own shares or extraordinary dividends). The hedging reserve as well as the fair value reserve and the foreign currency translation reserve are reclassified to net income. Cash flow hedges may also adjust the initial cost of a non-financial asset or liability. The revaluation reserve is used in connection with step acquisitions made before 2010 and the inflation adjustment reserve when accounting for operations in hyperinflationary economies. Equity transactions in associates are the effect on the group from equity transactions such as buyback of shares from third parties by an associated entity. All other equity is retained earnings.

    Dividend payments are proposed by the Board of Directors in accordance with the regulations of the Swedish Companies Act and decided by the General Meeting of shareholders. The proposed cash dividend will be recorded as a liability immediately following the final decision by the shareholders.

    Provisions for pensions and employment contracts

    Telia Company provides defined contribution or defined benefit pension plans to its employees. Contributions to defined contribution plans are normally set at a certain percentage of the employee’s salary and are expensed as incurred. Telia Company pays fixed contributions to separate legal entities and will have no legal or constructive obligation to pay further amounts if the fund does not hold sufficient assets to pay all employee benefits. Contributions to defined contribution plans are expensed when employees provide services entitling them to the contribution.

    Defined benefit pension plans, provided to part of Telia Company employees in Sweden, Finland and Norway, means that the individual is guaranteed a pension equal to a certain percentage of his or her salary. The pension plans mainly include retirement pension, disability pension and family pension. The present value of pension obligations and pension costs are calculated annually, using the projected unit credit method, which distributes the cost over the employee’s service period. The pension cost is recognized in three components, service cost, net interest and remeasurements. Service cost is recognized in operating income and net interest, based on discount rate, on defined benefit obligation and plan assets is reported as interest income or interest expenses in financial items. Changes in actuarial assumptions and experience adjustments of obligations and changes in fair value of plan assets, deviations from discount rate, results in remeasurements and are recognized in Other comprehensive income at the end of the reporting period.

    Actuarial assumptions are determined at the end of the reporting period. The assets of Telia Company’s pension funds constitute pension plan assets and are valued at fair value at the end of the reporting period.

    Net provisions or assets for post-employment benefits in the statement of financial position represent the present value of obligations at the end of the reporting period less the fair value of plan assets.

    Other provisions and contingencies

    A provision is recognized when Telia Company has a present obligation (legal or constructive) as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation. If the likelihood of an outflow of resources is less than probable but more than remote, or a reliable estimate is not determinable, the matter is disclosed as a contingency provided that the obligation or the legal claim is material.

    Provisions are measured at management’s best estimate, at the end of the reporting period, of the expenditure required to settle the obligation, and are discounted to present value where the effect is material. From time to time, parts of provisions may also be reversed due to better than expected outcome in the related activities in terms of cash outflow.

    Where there are a number of similar obligations, e.g. product warranty commitments, the probability that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class may be small but it is probable that some outflow of resources will be needed to settle the class of obligations as a whole.

    Other provisions comprise restructuring provisions which include termination benefits, onerous contracts and other expenses related to cost reduction programs, post-acquisition integration programs, closing-down of operations, etc. Restructuring provisions are mainly recognized as Other operating expenses, since they are not expenses for post-decision ordinary activities.

    Termination benefits are recognized at the earlier of when Telia Company no longer can withdraw the offering of those benefits or when Telia Company has made an appropriate public announcement, specifying the terms of redundancy and the number of employees affected, or after individual employees have been advised of the specific terms.

    Onerous contracts are recognized when the expected benefits to be derived by from a contract are lower than the unavoidable cost of meeting the obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, any impairment loss on the assets associated with that contract is provided for.

    Other provisions also include warranty commitments, environmental restoration, litigation, onerous contracts not related to restructuring activities, etc. These provisions are recognized as Cost of sales, Selling and marketing expenses, Administrative expenses or Research and development expenses as applicable.

    Leasing agreements

    Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

    Telia Company as lessee

    As a lessee, Telia Company has entered into finance and operating leases and rental contracts. For a finance lease agreement, the leased asset is recognized as a tangible non-current asset and the future obligation to the lessor as a liability, capitalized at the inception of the lease at the lower of the fair value of the leased property or the present value of the minimum lease payments. Initial direct costs are added to the capitalized amount. Minimum lease payments are apportioned between the finance charges and reduction of the lease liability to produce a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to net income. Other agreements are operating leases, with the leasing costs recognized evenly throughout the period of the agreement.

    Telia Company as finance lessor

    Telia Company owns assets that it leases to customers under finance lease agreements. Amounts due from lessees are recorded as receivables at the amount of the net investment in the leases, which equals the net present value. Initial direct costs are included in the initial measurement of the financial lease receivable and reduce the amount of income recognized over the lease term. Income is recognized over the lease term on an annuity basis.

    Telia Company as operating lessor

    Rental revenues from operating leases are recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying value of the leased asset and are recognized on the same basis as the lease revenues.

    Fiber and ducts are sold as part of the operations of Telia Company’s international carrier business. Telia Company has decided to view these as integral equipment to land. Under the agreements, title is not transferred to the lessee. The transactions are therefore recorded as operating lease agreements. The contracted sales price is mainly paid in advance and sales that are not recognized in income are recorded as long-term liabilities or short-term deferred revenues.

  4. Changes in group composition and events after the reporting period

    Group composition

    Subsidiaries

    Telia Company’s principal operating subsidiaries as of December 31, 2017, are disclosed in “Where we operate”. Ownership in addition to shares held directly or indirectly by TeliaCompany takes into account shares held by associated companies. Consolidated share also includes commitments to acquire shares from holders of non-controlling interests. Subsidiaries in continuing operations with material non-controlling interests are disclosed in Note C19 “Equity and earnings per share.” Subsidiaries in discontinued operations with material non-controlling interests are described in Note C34 “Discontinued operations and assets classified as held for sale.”

    Business combinations

    In 2017, Telia Company acquired the Swedish companies Fält Communication AB, C-Sam AB, Humany AB, SalaNet AB and TV-Net i Löddeköpinge AB, the Finnish companies Nebula Top Oy and Propentus Oy, and the Norwegian company Phonero AS. See Note C33 “Business combinations” for information on these acquisitions and on other minor business combinations in 2017.

    Disposals of subsidiaries

    In 2017 Telia Company disposed its holdings in Tcell i Tajikistan and its holdings in Sergel. For more information see Note C34 “Discontinued operations and assets classified as held for sale.”

    Associated companies

    Material associated companies are disclosed in Note C14 “Investments in associated companies and joint ventures.”

    In October 2017, the assiciated company MegaFon was divested. For more information see Note C14 “Investments in associated companies and joint ventures.” and Note C34 “Discontinued operations and assets classified as held for sale.”

    During the second and third quarter 2017, Telia Company divested two stakes of 7 percent each, in the associated company Turkcell. For more information see Note C14 “Investments in associated companies and joint ventures.”

    Joint arrangements

    Telia Company owns three joint arrangements that are classified as joint operations, Svenska UMTS-nät AB (SUNAB) in Sweden, TT-Netværket P/S (TT) in Denmark and Suomen Yhteisverkko Oy in Finland. The companies are network-sharing operations with Tele2 (SUNAB), Telenor (TT) and DNA (Suomen Yhteisverkko). Telia Company holds 50 percent of the shares in both SUNAB and TT. Telia Company owns 51 percent of the shares in Suomen Yhteisverkko, but based on the shareholders agreement the company is jointly controlled and equally governed by the consensus principle.

    Events after the reporting period

    On December 18, 2017, Telia Company announced that it had signed an agreement to acquire the Finnish ICT company Inmics Oy at an enterprise value of EUR 75 million on a cash and debt free basis. The acquisition of Inmics Oy was subject to approval from the Finnish Competition and Consumer Authority. Approval was received in January 2018 and the transaction was closed January 31, 2018. For more information, see Note C33 “Business combinations”.

    On Januari 26, 2018, Telia Company announced that Fintur Holdings B.V. (Fintur), jointly owned by Telia Company and Turkcell, had signed an agreement to dispose 100 percent of its holding in Geocell LLC, to the Georgian telecommunications company JSC Silknet, Georgia’s largest fixed network operator, for a transaction price of USD 153 million. The transaction is subject to regulatory approvals and is expected to be completed in the second quarter 2018.

    In February 2018, Telia Company signed an agreement to dispose its holding in the associated company TOO Rodnik in Kazakhstan which Telia consolidates to 50 percent. Rodnik owns the listed company AO KazTransCom.

    On March 5, 2018, Fintur Holdings B.V. (Fintur), jointly owned by Telia Company (58.55 percent) and Turkcell (41.45 percent), signed an agreement to sell its 51.3 percent holding in Azertel Telekommunikasyon Yatirim Diş Ticaret A.Ş (Azertel) to Azerbaijan International Telecom LLC (Azintelecom), wholly-owned company by the Republic of Azerbaijan. The transaction was not subject to any conditions, such as regulatory or competition approvals, and was completed on the same date. Azertel is sole shareholder of the leading Azeri mobile operator Azercell LLC (Azercell). The agreed price for Fintur’s 51.3 percent in Azertel is EUR 222 million, which implies an equity value of EUR 432 million for 100 percent of Azercell and an enterprise value of EUR 197 million on a cash and debt free basis. The price corresponds to an EV/EBITDA multiple of 2.1x based on 2017. In addition to the impairment of SEK 2.6 billion recognized in December 2017, accumulated foreign exchange losses of SEK 3.0 billion will be reclassified to net income from discontinued operations, but will have no material effect on group equity. The transaction is on a pro forma basis estimated to increase net debt to EBITDA by approximately 0.1x. The final amounts are subject to changes in carrying values and foreign exchange rates. Prior to signing the transaction, Telia Company completed strict compliance and purchaser due diligence and is satisfied that all relevant checks and controls have been carried out with satisfactory results. Azintelecom is a buyer in line with Telia Company’s requirements as it is a company wholly owned by the sovereign state of Azerbaijan.

  5. Segment information
    Telia Company’s operating model is based on geographical areas and the organizational setup was revised as of January 1, 2017. The group’s operations are managed and reported by the six operating segments: Sweden, Finland, Norway, Denmark, Lithuania and Estonia. The organizations are country-based and the head of Sweden, Finland and Norway reports directly to the CEO while the head of Denmark, Lithuania and Estonia reports to the Head of Cluster (LED - Lithuania, Estonia, Denmark) who reports to the CEO. Other operations are collectively reported. The former segment region Eurasia is classified as held for sale and discontinued operations since December 31, 2015, and is therefore not included in the segment information. See Note C34 “Discontinued operations and assets classified as held for sale” for more information.
    • Sweden comprises Telia Company’s mobile, broadband, TV and fixed-line operations in Sweden.
    • Finland comprises Telia Company’s mobile, broadband, TV and fixed-line operations in Finland.
    • Norway comprises Telia Company’s mobile operations in Norway.
    • Denmark comprises Telia Company’s mobile, broadband, TV and fixed-line operations in Denmark.
    • Lithuania comprises Telia Company’s mobile, broadband, TV and fixed-line operations in Lithuania.
    • Estonia comprises Telia Company’s mobile, broadband, TV and fixed-line operations in Estonia.
    • Other operations include the operations in Latvia, the international carrier operations, customer financing operations, Telia Company’s shareholdings in the Turkish associate Turkcell and the former associate MegaFon in Russia (which was disposed during 2017) as well as Group functions. The Sergel companies (Sergel) were part of other operations up until the deal was closed on June 30, 2017. Spain (which was disposed in 2016) has been included in Other operations.

    Segment information is based on the same accounting principles as for the group as a whole. Inter-segment transactions are based on commercial terms. Besides Net sales and Operating income, principal segment control and reporting concepts are EBITDA excluding adjustment items, Investments in associated companies and joint ventures, Other operating segment assets and Operating segment liabilities, respectively (see Definitions).

    Operating segment assets comprise total assets less non-operating interest-bearing receivables, long term and short term investments, pension obligation assets, foreign currency derivatives, accrued interest, tax assets and cash and cash equivalents. Operating segment liabilities contain total liabilities less non-operating interest-bearing liabilities, provisions for pensions and employment contracts, foreign currency derivatives, accrued interest and tax liabilities. For information on distribution of goodwill by reportable segments, see Note C12 “Goodwill and other intangible assets.”

    SEK in millions

    January-December 2017 or December 31, 2017

    Sweden

    Finland

    Norway

    Denmark

    Lithuania

    Estonia

    Other
    Operations

    Discontinued
    operations
    and assets
    held for sale

    Eliminations & other

    Group

    Net sales

    36,825

    13,742

    10,128

    5,945

    3,557

    2,824

    9,047

    -2,201

    79,867

    External net sales

    36,578

    13,575

    10,104

    5,845

    3,506

    2,737

    7,522

    79,867

    Adjusted EBITDA

    13,749

    4,232

    3,520

    691

    1,227

    871

    1,149

    25,438

    Adjustment items

    -268

    -84

    -143

    -52

    -29

    -34

    977

    368

    Amortization, depreciation and impairment losses

    -5,282

    -2,258

    -1,577

    -812

    -563

    -515

    -1,887

    -12,893

    of which impairment losses

    -232

    -116

    -39

    -58

    -21

    -588

    -1,054

    Income from associated companies and joint ventures

    -1

    -1

    8

    0

    0

    4

    769

    778

    Operating income

    8,198

    1,889

    1,807

    -174

    635

    326

    1,008

    13,690

    Financial items, net

                     

    -4,234

    Income taxes

                     

    -1,041

    Net income from
    continuing operations

                     

    8,416

    Investments in associated companies and joint ventures

    4

    -1

    26

    4

    8

    20

    9,388

    9,449

    Other operating segment assets

    46,226

    48,989

    28,505

    8,125

    7,146

    5,148

    17,137

    -1,939

    159,336

    Current and deferred tax assets

                     

    3,411

    Other unallocated assets

                     

    53,241

    Assets classified as held for sale

    18,408

    18,408

    Total assets

                     

    243,845

    Operating segment liabilities

    11,522

    4,970

    2,531

    1,412

    767

    588

    8,730

    -1,943

    28,576

    Current and deferred tax liabilities

                     

    9,127

    Other unallocated liabilities

                     

    92,359

    Liabilities directly associated with assets classified as held for sale

    8,552

    8,552

    Total non-current and current liabilities

                     

    138,615

    Investments, continuing operations

    6,571

    4,039

    3,963

    391

    598

    502

    4,581

    20,645

    of which CAPEX, continuing operations

    6,392

    3,116

    1,481

    428

    552

    502

    3,202

    -1

    15,672

    Number of employees

    6,619

    3,107

    1,201

    1,026

    2,891

    1,871

    4,012

    4,745

    25,472

     

    SEK in millions

    January-December 2016 or December 31, 2016

    Sweden

    Finland

    Norway

    Denmark

    Lithuania

    Estonia

    Other
    Operations

    Discontinued
    operations
    and assets
    held for sale

    Eliminations
    & other

    Group

    Net sales

    37,251

    13,042

    9,057

    5,880

    3,268

    2,733

    15,299

    -2,352

    84,178

    External net sales

    36,938

    12,869

    9,037

    5,755

    3,203

    2,655

    13,723

    84,178

    Adjusted EBITDA

    14,455

    4,059

    3,125

    692

    1,139

    811

    1,555

    25,836

    Adjustment items

    -209

    -46

    -42

    -29

    -52

    -20

    4,376

    3,977

    Amortization, depreciation and impairment losses

    -4,887

    -1,972

    -1,518

    -751

    -556

    -502

    -1,348

    -11,534

    of which impairment losses

    -5

    -24

    -2

    -31

    Income from associated companies and joint ventures

    1

    -2

    -3

    -2

    0

    2,815

    2,810

    Operating income

    9,360

    2,039

    1,562

    -89

    531

    288

    7,398

    21,090

    Financial items, net

                     

    -1,841

    Income taxes

                     

    -2,816

    Net income from continuing operations

                     

    16,433

    Investments in associated
    companies and joint ventures

    6

    0

    19

    4

    0

    16

    23,026

    23,072

    Other operating segment assets

    46,151

    44,798

    27,564

    8,685

    6,893

    5,073

    14,724

    -1,849

    152,039

    Current and deferred tax assets

                     

    4,994

    Other unallocated assets

                     

    44,281

    Assets classified as held for sale

    29,042

    29,042

    Total assets

                     

    253,429

    Operating segment liabilities

    11,304

    3,462

    2,207

    1,564

    701

    442

    21,590

    -1,855

    39,048

    Current and deferred tax liabilities

                     

    10,586

    Other unallocated liabilities

                     

    95,300

    Liabilities directly associated with assets classified as held for sale

    13,627

    13,627

    Total non-current and current
    liabilities

                     

    158,560

    Investments, continuing operations

    7,224

    2,081

    1,551

    697

    635

    358

    3,560

    16,108

    of which CAPEX, continuing operations

    7,119

    2,035

    1,344

    697

    631

    358

    3,442

    -1

    15,625

    Number of employees

    6,720

    3,066

    1,033

    1,070

    3,081

    1,916

    4,144

    4,987

    26,017

  6. Net sales

    Fixed services mainly include telephony, broadband, TV and other fixed services. Prior period has been restated to reflect a reclassification of SEK 133 million in revenues between Fixed Services and Other Services in Sweden.

    SEK in millions

    Jan–Dec 2017

    Jan–Dec 2016

    Mobile services

    36,187

    39,049

    Fixed services

    30,595

    31,393

    Other services

    1,013

    1,074

    Equipment

    12,073

    12,663

    Total

    79,867

    84,178

    Net sales by external customer location and intangible fixed assets and property, plant and equipment, respectively, were distributed among individually material countries as follows.

     

    Jan–Dec 2017

    Jan–Dec 2016

    Dec 31, 2017

    Dec 31, 2016

    Net sales

    Intangible assets and
    property, plant and equipment

    SEK in
    millions

    Percent

    SEK in
    millions

    Percent

    SEK in
    millions

    Percent

    SEK in
    millions

    Percent

    Sweden

    35,857

    44.9

    36,696

    43.6

    40,465

    29.6

    38,705

    30.0

    Finland

    13,458

    16.8

    12,816

    15.2

    45,504

    33.3

    43,169

    33.4

    Norway

    10,063

    12.6

    9,196

    10.9

    24,688

    18.1

    25,977

    20.1

    Denmark

    5,945

    7.4

    5,835

    6.9

    6,080

    4.4

    6,269

    4.9

    Spain

    87

    0.1

    6,133

    7.3

    0

    0.0

    0

    0.0

    All other countries

    14,457

    18.1

    13,502

    16.0

    19,939

    14.6

    14,934

    11.6

    Total

    79,867

    100.0

    84,178

    100.0

    136,675

    100.0

    129,054

    100.0

    Net sales by external customer location were distributed among economic regions as follows.

     

    Jan–Dec 2017

    Jan–Dec 2016

    SEK in
    millions

    Percent

    SEK in
    millions

    Percent

    European Economic Area (EEA)

    76,730

    96.1

    81,141

    96.4

    of which European Union (EU) member states

    66,593

    83.4

    71,851

    85.4

    Rest of Europe

    765

    1.0

    738

    0.9

    North-American Free Trade Agreement (NAFTA)

    890

    1.1

    791

    0.9

    Rest of world

    1,482

    1.9

    1,508

    1.8

    Total

    79,867

    100.0

    84,178

    100.0

    The Telia Company group offers a diversified portfolio of mass-market services and products in highly competitive markets. Hence, the group’s exposure to individual customers is limited.

  7. Expenses by nature

    Operating expenses are presented on the face of the statement of comprehensive income using a classification based on the functions “Cost of sales,” “Selling and marketing expenses,” “Administrative expenses” and “Research and development expenses.” Total expenses by function were distributed by nature as follows.

    SEK in millions

    Jan–Dec 2017

    Jan–Dec 2016

    Goods and sub-contracting services purchased

    -16,553

    -17,441

    Interconnect and roaming expenses

    -6,978

    -7,971

    Other network expenses

    -3,792

    -4,695

    Change in inventories

    -3,730

    -3,470

    Personnel expenses (see also Note C31)

    -12,526

    -12,105

    Marketing expenses

    -3,073

    -4,319

    Other expenses

    -8,111

    -8,456

    Amortization, depreciation and impairment losses

    -12,892

    -11,533

    Total

    -67,655

    -69,991

    The main components of Other expenses are rent expenses, consultant expenses, IT expenses and energy expenses.

    Amortization, depreciation and impairment losses by function were as follows.

    SEK in millions

    Jan–Dec 2017

    Jan–Dec 2016

    Cost of sales

    -11,053

    -9,959

    Selling and marketing expenses

    -1,343

    -1,019

    Administrative expenses

    -388

    -509

    Research and development expenses

    -108

    -47

    Total

    -12,892

    -11,533

    Total amortization, depreciation and impairment losses for 2017 amounted to SEK 12,892 million, all allocated to the functions above. For more information on amortization, depreciation and impairment losses see Notes C12 “Goodwill and other intangible assets” and C13 “Property, plant and equipment.” Amortization, depreciation and impairment losses are broken down by reportable segment in Note C5 “Segment information.”

  8. Other operating income and expenses

    Other operating income and expenses were distributed as follows.

    SEK in millions

    Jan–Dec 2017

    Jan–Dec 2016

    Other operating income

       

    Capital gains

    1,258

    4,686

    Exchange rate gains

    498

    522

    Commissions, license and patent fees, etc.

    64

    70

    Grants

    27

    25

    Recovered accounts receivable

    51

    91

    Court-settled fees with other operators

    1

    17

    Damages received

    86

    79

    Total other operating income

    1,984

    5,490

    Other operating expenses

       

    Capital losses

    -95

    -84

    Transaction costs in business combinations

    -111

    -2

    Provisions for onerous contracts

    0

    0

    Exchange rate losses

    -479

    -561

    Restructuring costs

    -444

    -594

    Impairment losses

    -2

    Court-settled fees with other operators

    -112

    -128

    Damages paid

    -42

    -28

    Total other operating expenses

    -1,284

    -1,397

    Net effect on income

    700

    4,092

    of which net exchange rate losses on derivative instruments held-for-trading

    -3

    10

    In the second quarter 2017, a capital gain related to the disposal of Sergel was recognized amounting to SEK 1,213 million.

    Capital gains 2016 were affected by a divestment of real estate amounting to SEK 152 million and also by the disposal of Xfera Móviles S.A, (Yoigo) amounting to SEK 4,504 million. For more information on impairment losses, see Notes C12 “Goodwill and other intangible assets” and C13 “Property, plant and equipment.” Restructuring costs mainly comprised staff redundancy costs.

  9. Finance income and finance costs

    Finance income and finance costs were distributed as follows.

    SEK in millions

    Jan–Dec 2017

    Jan–Dec 2016

    Finance income

       

    Interest income

    274

    329

    Interest income on finance leases

    99

    98

    Net exchange rate gains

    184

    Net interest on the net defined benefit liability (asset)

    64

    97

    Other finance income

    15

    Unwinding of discounts, receivables

    58

    80

    Total finance income

    496

    803

         

    Finance costs

       

    Interest expenses

    -3,523

    -2,669

    Interest expenses on finance leases

    -4

    -3

    Unwinding of provision discounts

    -48

    -30

    Capitalized interest

    139

    91

    Changes in fair value of held-for-trading-investments

    -5

    -8

    Credit losses on finance leases

    -1

    -25

    Net exchange rate losses

    -13

    Capital losses on financial investments

    -1,275

    Total finance costs

    -4,730

    -2,644

    Net effect on income

    -4,234

    -1,841

    Interest expenses were negatively affected by bond buy-back transaction expenses. Capital losses on financial investments were negatively affected by the disposal of the 19.0 percent holding in MegaFon, classified as a financial asset prior the disposal.

    Details on interest expenses, net exchange rate gains and losses and interest income related to hedging activities, loan receivables and borrowings were as follows.

    SEK in millions

    Jan–Dec 2017

    Jan–Dec 2016

    Jan–Dec 2017

    Jan–Dec 2016

    Jan–Dec 2017

    Jan–Dec 2016

    Interest expenses

    Net exchange rate
    gains and losses

    Interest income

    Fair value hedge derivatives

    75

    387

    -51

    130

    Cash flow hedge derivatives

    94

    10

    -130

    -457

    Derivatives held-for-trading

    145

    695

    -186

    125

    Held-to-maturity investments

    13

    Loans and receivables

    -1,582

    1,364

    4

    128

    Borrowings in fair value hedge relationships

    -1,905

    -1,415

    -832

    -3,190

    96

    Borrowings and other financial liabilities at amortized cost

    -1,895

    -2,308

    2,768

    2,212

    Other

    -37

    -39

    174

    187

    Total

    -3,523

    -2,669

    -13

    184

    274

    329

    Borrowings at amortized cost include items in cash flow hedge relationships as well as unhedged items.

  10. Income taxes

    Tax items recognized in comprehensive income and directly in equity

    Tax items recognized in comprehensive income and directly in equity were distributed as follows.

    SEK in millions

    Jan–Dec 2017

    Jan–Dec 2016

    Tax items recognized in net income

       

    Current tax

    -1,454

    -2,160

    Adjustment of current tax related to prior years

    -25

    6

    Deferred tax

    342

    -577

    Adjustment of deferred tax related to prior years

    -8

    -68

    Effect on deferred tax from changes in tax rates

    104

    -17

    Total tax expense recognized in net income

    -1,041

    -2,816

    Tax items recognized in other comprehensive income

       

    Current tax

    235

    640

    Deferred tax

    125

    304

    Total tax recognized in other comprehensive income

    359

    944

    Tax items recognized directly in equity

       

    Deferred tax

    40

    -4

    Total tax recognized directly in equity

    40

    -4

    Income before taxes was SEK 9,457 million in 2017 and SEK 19,249 million in 2016. The difference between the nominal Swedish income tax rate and the effective tax rate comprises the following components.

    Percent

    Jan–Dec 2017

    Jan–Dec 2016

    Swedish income tax rate

    22.0

    22.0

    Effect of higher or lower tax rates in subsidiaries

    -1.1

    -0.4

    Withholding tax on earnings in subsidiaries and associated companies1

    -7.5

    1.1

    Prior year adjustment of current tax expense

    0.3

    0.0

    Prior year adjustment of deferred taxes

    0.1

    0.4

    Effect on deferred tax expense from changes in tax rates

    -1.1

    0.1

    Income from associated companies

    -4.0

    -3.2

    Current year losses for which no deferred tax asset was recognized

    0.3

    0.4

    Non-deductible expenses2

    10.3

    0.5

    Tax-exempt income3

    -8.2

    -6.3

    Effective tax rate in net income

    11.0

    14.6

    Effective tax rate excluding effects from associated companies

    18.1

    17.6

    1) Withholding tax on earnings in subsidiaries and associated companies is impacted by revaluation of withholding tax provision as a consequence of the disposal of shares in Turkcell and Megafon in 2017.
    2) Non-deductible expenses are impacted by non-tax deductible capital loss related to the divestment of Turkcell shares in 2017.
    3) Tax-exempt income is influenced by non taxable capital gain related to the divestment of Megafon and Sergel group in 2017.

     

     

    Deferred tax assets and liabilities

    Movement in deferred tax assets and liabilities were as follows.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Deferred tax assets

       

    Opening balance

    4,366

    5,054

    Change recognized in comprehensive income

    -613

    -359

    Operations acquired

    11

    Operations divested

    -510

    Reversals of offset tax liabilities/assets, other reclassifications

    -732

    -50

    Change in tax rate1

    -67

    -17

    Exchange rate differences

    37

    266

    Reclassification to assets classified as held for sale

    -18

    Deferred tax assets, closing balance

    3,003

    4,366

    Deferred tax liabilities

       

    Opening balance

    10,567

    10,627

    Change recognized in comprehensive income

    -1,071

    -19

    Change recognized directly in equity

    -40

    4

    Operations acquired

    333

    Operations divested

    -33

    Reversals of offset tax assets/liabilities, other reclassifications

    -732

    -32

    Change in tax rate1

    -171

    0

    Exchange rate differences

    -120

    20

    Reclassification to liabilities directly associated with assets classified as held for sale

    0

    Deferred tax liabilities, closing balance

    8,766

    10,567

    1) The effect of change in tax rate relates to reduced corporate income tax rate in Norway and the Latvian tax reform, both effective from 1 January 2018. The reduced corporate income tax rate in Norway triggered a recalculation of deferred tax assets and liabilities in Telia Company’s Norwegian operations, resulting in a net deferred tax income of SEK 8 million in 2017. The Latvian tax reform triggered a full reversal of deferred taxes resulting in a deferred tax income of SEK 96 million in 2017.

     

    Deferred tax asset and liabilities are allocated to the following temporary differences and tax loss carry-forward.

    SEK in millions

    2017

    Opening

    balance

    Recognized in Income

    Statement

    Recognized in Other Comprehensive Income

    Recognized in Equity

    Acquisitions/

    Disposals

    Assets held

    for sale

    Exchange rate differences

    Other reclassi­fication

    Closing

    balance

    Gross deferred tax assets

                     

    Non-current assets

    3,408

    -629

    5

    60

    2,845

    Provisions

    1,016

    -22

    16

    37

    0

    1,047

    Accounts receivables and
    other current assets

    13

    12

    0

    25

    Interest expense carry-forward

    199

    -43

    3

    158

    Tax loss carry-forward

    1,843

    300

    6

    20

    2,169

    Subtotal

    6,479

    -382

    16

    37

    11

    83

    6,244

                       

    Valuation Allowance

                     

    Non-current assets

    -4

    -35

    1

    -39

    Accounts receivables and
    other current assets

    -3

    1

    -2

    Tax loss carry-forward

    -1,569

    -430

    -46

    -2,045

    Subtotal

    -1,576

    -464

    -45

    -2,086

    Offset deferred tax assets/liabilities

    -537

    114

    -732

    -1,155

    Total deferred tax assets

    4,366

    -732

    16

    37

    11

    37

    -732

    3,003

                       

    Deferred tax liabilities

                     

    Withholding taxes subsidiaries and associates

    1,210

    -901

    -3

    -107

    199

    Non-current assets

    6,619

    -378

    333

    -7

    6,567

    Provisions

    1,062

    183

    -76

    0

    1,169

    Accounts receivables and
    other current assets

    272

    -20

    -33

    -5

    214

    Profit equalization reserves

    1,941

    -168

    -1

    1,772

    Sub total

    11,104

    -1,284

    -109

    -3

    333

    -120

    9,921

    Offset deferred tax assets/liabilities

    -537

    114

     

    -732

    -1,155

    Total deferred tax liabilities

    10,567

    -1,170

    -109

    -3

    333

    -120

    -732

    8,766

    Net deferred tax assets (+)/
    liabilities (-)

    -6,200

    438

    125

    40

    -322

    157

    0

    -5,763

    SEK in millions

    2016

    Opening

    balance

    Recognized in Income

    Statement

    Recognized in Other Comprehensive Income

    Recognized in Equity

    Acquisitions/

    Disposals

    Assets held

    for sale

    Exchange rate differences

    Other reclassi­fication

    Closing

    balance

    Gross deferred tax assets

                     

    Non-current assets

    3,276

    -26

    158

    3,408

    Provisions

    1,029

    -16

    -18

    21

    1,016

    Accounts receivables and
    other current assets

    19

    -121

    112

    3

    13

    Interest expense carry-forward

    92

    98

    9

    199

    Tax loss carry-forward

    4,340

    67

    -2,745

    181

    1,843

    Subtotal

    8,756

    2

    112

    -2,745

    -18

    372

    6,479

                       

    Valuation Allowance

                     

    Non-current assets

    -4

    0

    -4

    Accounts receivables and
    other current assets

    -17

    14

    -3

    Tax loss carry-forward

    -3,192

    -505

    2,234

    -106

    -1,569

    Subtotal

    -3,213

    -491

    2,234

    -106

    -1,576

    Offset deferred tax assets/liabilities

    -489

    0

    -48

    -537

    Total deferred tax assets

    5,054

    -489

    112

    -511

    -18

    266

    -48

    4,366

                       

    Deferred tax liabilities

                     

    Withholding taxes subsidiaries and associates

    1,149

    128

    4

    -71

    1,210

    Non-current assets

    5,928

    638

    -33

    86

    6,619

    Provisions

    1,230

    -4

    -164

    0

    1,062

    Accounts receivables and
    other current assets

    13

    254

    5

    272

    Profit equalization reserves

    2,796

    -855

    1,941

    Sub total

    11,116

    161

    -164

    4

    -33

    20

    11,104

    Offset deferred tax assets/liabilities

    -489

    -16

    -32

    -537

    Total deferred tax liabilities

    10,627

    145

    -164

    4

    -33

    20

    -32

    10,567

    Net deferred tax assets (+)/
    liabilities (-)

    -5,573

    -634

    276

    -4

    -478

    -18

    246

    -16

    -6,200

    Unrecognized deferred tax

    Unrecognized deferred tax assets, as reflected by the valuation allowance at December 31, 2017, were expected to expire as follows.

    Expected expiry, SEK in millions

    2018

    2019

    2020

    2021

    2022

    2023-2026

    Unlimited

    Total

    Unrecognized deferred tax assets

    0

    0

    0

    0

    0

    952

    1,094

    2,046

    As of December 31, 2017 and 2016, unrecognized deferred tax liabilities for undistributed earnings in subsidiaries, including estimated such income tax that is levied on dividends paid, totaled SEK 123 million and SEK 52 million respectively.

    Tax loss carry-forward

    Deferred tax assets originating from tax loss carry-forward mainly relate to international carrier operations. Tax loss carry-forward in the international carrier operations refers mainly to impairment losses on plant and machinery incurred in 2002. Telia Company’s accumulated tax loss carry-forward was SEK 7,924 million in 2017 and SEK 6,711 million in 2016.

    Tax loss carry-forward as of December 31, 2017 is expected to expire as follows.

    Expected expiry, SEK in millions

    2018

    2019

    2020

    2021

    2022

    2023-2037

    Unlimited

    Total

    Tax loss carry-forward

    0

    0

    2

    79

    12

    4,101

    3,730

    7,924

  11. Other comprehensive income

    Other comprehensive income was distributed as follows.

    SEK in millions

    Equity component

    Jan–Dec 2017

    Jan–Dec 2016

    Other comprehensive income that may be reclassified to net income

         

    Foreign currency translation differences

         

    Translation of foreign operations, continuing operations

    Foreign currency translation reserve

    -613

    4,293

    Translation of foreign operations, discontinued operations

    Foreign currency translation reserve

    -1,352

    555

    Translation of foreign non-controlling interests, continuing operations

    Non-controlling interests

    20

    48

    Translation of foreign non-controlling interests, discontinued operations

    Non-controlling interests

    -402

    313

    Divested operations

    Foreign currency translation reserve

    12,483

    Hedging of foreign operations

    Foreign currency translation reserve

    -1,059

    -3,039

    Income tax effect

    Foreign currency translation reserve

    233

    669

    Total foreign currency translation differences

     

    9,310

    2,839

    of which attributable to non-controlling interests

     

    -382

    361

    Income from associated companies

         

    Net changes in fair value of cash flow hedges

    Hedging reserve

    0

    0

    Translation of foreign operations

    Foreign currency translation reserve

    138

    -340

    Total income from associated companies

     

    138

    -340

    Cash flow hedges

         

    Net changes in fair value

    Hedging reserve

    -180

    214

    Transferred to finance costs in net income

    Hedging reserve

    33

    -343

    Income tax effect

    Hedging reserve

    32

    28

    Total cash flow hedges

     

    -115

    -101

    Available-for-sale financial instruments

         

    Net changes in fair value

    Fair value reserve

    563

    134

    Disposals transferred to other financial items in net income

    Fair value reserve

    166

    Income tax effect

    Fair value reserve

    2

    -29

    Total available-for-sale financial instruments

     

    731

    105

    Total other comprehensive income that may be reclassified to net income

     

    10,064

    2,504

    of which total income tax effects (see also Note C10)

     

    267

    668

    of which attributable to non-controlling interests

     

    -382

    362

           

    Other comprehensive income that will not be reclassified to net income

         

    Remeasurements of defined benefit pension plans

    Retained earnings

    -406

    -1,297

    Income tax relating to items that will not be reclassified

    Retained earnings

    92

    276

    Associates’ remeasurements of defined benefit pension plans

    Retained earnings

    -25

    -20

    Total other comprehensive income that will not be
    reclassified to net income

     

    -340

    -1,042

    of which total income tax effects (see also Note C10)

     

    92

    276

           

    Total other comprehensive income

     

    9,725

    1,463

    of which attributable to non-controlling interest, continuing operations

     

    20

    48

    of which attributable to non-controlling interest, discontinued operations

     

    -402

    313

    The hedging reserve comprises gains and losses on derivatives hedging interest rate and foreign currency exposure, with a net effect in equity of SEK -115 million as of December 31, 2017, and SEK -100 million as of December 31, 2016. Future gains or losses will affect net income in 2018, 2019, 2020 and later, when the hedged items mature. See also section “Financial instruments” in Note C3 “Signi­ficant accounting policies.” See Note C21 “Provisions for pensions and employment contracts” for details of “Remeasure­ments of defined benefit pension plans.”

  12. Goodwill and other intangible assets

    The total carrying value was distributed and changed as follows.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Dec 31, 2017

    Dec 31, 2016

    Goodwill

    Other intangible assets

    Accumulated cost

    69,851

    66,974

    45,283

    39,842

    Accumulated amortization

    -27,852

    -25,347

    Accumulated impairment losses

    -8,867

    -9,051

    -1,763

    -1,471

    Advances

    Carrying value

    60,984

    57,923

    15,668

    13,024

    of which work in progress

    2,334

    1,296

    Carrying value, opening balance

    57,923

    54,938

    13,024

    12,995

    Investments

    4,147

    2,786

    of which capitalized interest

    35

    21

    Sales and disposals

    -552

    0

    Operations acquired

    3,120

    34

    1,596

    8

    Operations divested

    -13

    0

    -819

    Reclassifications

    33

    121

    Amortization for the year

    -2,760

    -2,620

    Impairment losses for the year

    -1

    -306

    -3

    Advances

    Exchange rate differences

    -45

    3,527

    -66

    570

    Reclassification to assets classified as held for sale

    -24

    -15

    Carrying value, closing balance

    60,984

    57,923

    15,668

    13,024

    In 2017 and 2016, investments in telecom licenses and frequency permits amounted to SEK 457 million and SEK 609 million, respectively. Operations acquired in 2017 were primarly related to the acqusition of Phonero in Norway and Nebula in Finland. For information on discontinued operations, see Note C34.

    Apart from goodwill, there are currently no intangible assets with indefinite useful lives. No general changes of useful lives were made in 2017. For amortization rates applied, see section “Useful lives” in Note C2 “Judgments and key sources of estimation uncertainty.” In the statement of comprehensive income, amortization and impairment losses are included in all expense line items by function as well as in line item Other operating expenses.

    During 2017 impairments of SEK 306 million have been recognized. For more information see Note C34 “Property, plant and equipment”.

    The total carrying value of goodwill was distributed by reportable segments and cash generating units with significant goodwill amounts as follows.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Sweden

    1,137

    950

    Finland

    32,266

    30,493

    Norway

    18,896

    18,110

    Denmark

    2,176

    2,126

    Estonia

    2,515

    2,698

    Lithuania

    2,768

    2,465

    Other operations

    1,226

    1,081

    of which Latvia

    1,004

    979

    of which Other

    222

    102

    Total goodwill

    60,984

    57,923

    The total carrying value of other intangible assets was distributed by asset type as follows.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Trade names

    158

    57

    Telecom licenses and frequency permits

    4,583

    5,049

    Customer and vendor relationships, interconnect and roaming agreements

    4,534

    3,135

    Capitalized development expenses

    3,567

    2,899

    Patents, etc.

    29

    35

    Leaseholds, etc.

    463

    552

    Work in progress, advances

    2,334

    1,297

    Total other intangible assets

    15,668

    13,024

    Capitalized development expenses and Work in progress, advances mainly refer to IT systems, supporting the selling and marketing, and administrative functions.

    Impairment testing, continuing operations

    The impairment testing for continuing operations is described below. For information regarding measurement of discontinued operations, see Note C34 “Discontinued operations and assets classified as held for sale.”

    Goodwill is, for impairment testing purposes, allocated to cash generating units in accordance with Telia Company’s business organization. Each country and Telia Carrier constitutes a separate cash-generating unit (CGU). Carrying values (for impairment testing purposes defined as segment operating capital and allocated common assets from Group Technology less deferred tax on fair value adjustments and notionally adjusted for non-controlling interests in goodwill) of all cash-generating units are annually tested for impairment. For definition of segment operating capital, see Note C5 “Segment information” and Definitions. The recoverable amounts (that is, the higher of value in use and fair value less cost to sell) are normally determined on the basis of value in use, applying discounted cash flow calculations.

    In the recoverable amount calculations, management used assumptions that it believes are reasonable based on the best information available. The key assumptions in the value in use calculations were sales growth, EBITDA margin development, the weighted average cost of capital (WACC), CAPEX-to-sales ratio, and the terminal growth rate of free cash flow. The value in use calculations were based on forecasts approved by management, which management believes reflect past experience, forecasts in industry reports, and other externally available information. For Denmark, the sales growth and EBITDA margin development in the forecasts are deviating from historical trends. This is due to that Telia Company for the forecast period has clear and committed plans for sales initiatives, cost reductions and working capital improvements in Denmark, some of which have been partially evidenced in 2017. Management believes that value in use based on own business plan better reflects the value for Telia Company and of the long-term valuation, compared to the current equity market values that in some cases can be below the recoverable amount derived from Telia Company’s own long-term business plans.

    The forecasted cash flows were discounted at the weighted average cost of capital (WACC) for the relevant cash-generating unit. The WACC is derived from the risk free interest rate in local currency, the country risk premium, the business risk represented by the estimated beta, the local equity market risk premium and an estimated reasonable cost of borrowing above the risk free rate. The pre-tax discount rate typically cannot be directly observed or measured. It is calculated by iteration – by first running DCF calculation using post-tax cash flows and a post-tax discount rate, and then determining what the pre-tax discount rate would need to be to cause value in use determined using pre-tax cash flows to equal the value in use determined by the post-tax DCF calculation.

    The forecast periods, WACC rates and the terminal growth rates of free cash flow used to extrapolate cash flows beyond the forecast period varied by cash generating unit as presented below. In all cases management believes the terminal growth rates do not exceed the average growth rates for markets in which Telia Company operates.

    Years/Percent

    2017

    Sweden

    Finland

    Norway

    Denmark

    Lithuania

    Latvia

    Estonia

    Telia Carrier

    Forecast period, years

    5

    5

    5

    5

    5

    5

    5

    5

    Post-tax WACC rate, %

    4.9

    4.7

    5.5

    4.5

    5.2

    4.9

    5.3

    5.3

    Pre-tax WACC rate, %

    5.9

    5.8

    7.2

    5.6

    6.2

    5.7

    6.6

    7.0

    Terminal growth rate of free cash flow, %

    2.0

    2.0

    2.5

    2.0

    2.5

    2.3

    2.5

    2.0

    Years/Percent

    2016

    Sweden

    Finland

    Norway

    Denmark

    Lithuania

    Latvia

    Estonia

    Telia Carrier

    Forecast period, years

    5

    5

    5

    5

    5

    5

    5

    5

    Post-tax WACC rate, %

    4.6

    4.5

    5.5

    4.4

    5.1

    4.9

    5.0

    5.0

    Pre-tax WACC rate, %

    5.4

    5.4

    7.1

    5.5

    5.7

    5.7

    6.1

    5.9

    Terminal growth rate of free cash flow, %

    2.1

    2.0

    2.5

    2.0

    2.2

    2.0

    2.2

    2.1

    Sensitivity analysis

    The estimated recoverable amounts for Denmark and Latvia were in proximity of the carrying values as of December 31, 2017. As of December 31, 2016, the estimated recoverable amounts for Finland, Norway, and Denmark were in proximity of the carrying values.

    The impairment tests assumed, in addition to the post-tax WACC rates and the terminal growth rates stated above, the following sales growth, EBITDA margin and CAPEX-to-sales ranges during the next 5 years for the cash generating units (CGUs) that are sensitive to reasonable changes in assumptions.

    5-year period/Percent

    2017

    Denmark

    Latvia

    Sales growth, lowest in period (%)

    -3.8

    -0.2

    Sales growth, highest in period (%)

    0.7

    3.0

    EBITDA margin, lowest in period (%)

    12.6

    29.7

    EBITDA margin, highest in period (%)

    15.2

    31.3

    CAPEX-to-sales, lowest in period (%)

    7.5

    18.8

    CAPEX-to-sales, highest in period (%)

    14.7

    24.4

    5-year period/Percent

    2016

    Denmark

    Latvia

    Sales growth, lowest in period (%)

    1.1

    0.7

    Sales growth, highest in period (%)

    2.3

    2.0

    EBITDA margin, lowest in period (%)

    11.5

    31.7

    EBITDA margin, highest in period (%)

    14.4

    34.0

    CAPEX-to-sales, lowest in period (%)

    7.2

    16.8

    CAPEX-to-sales, highest in period (%)

    17.7

    24.5

    The upper part of the following table sets out how many percentage points each key assumption approximately must change, all else being equal, in order for the recoverable value to equal carrying value for the respective cash generating unit. The lower part of the table first shows the SEK billion effect on the recoverable values of the cash generating units, should there be a one percentage-point upward shift in WACC. Finally, it sets out the absolute SEK billion change of the recoverable value that would equal carring value for the respective cash generating unit. The decrease in headroom between the recoverable amount and carrying value in Latvia to SEK 0.0 billion (1.5) is primarily driven by a higher capex level which is expected to be needed in order to drive top line growth and EBITDA generation going forward.

    Percentage points, SEK in billions

    2017

    Denmark

    Latvia

    Sales growth each year in the 5-year period (%)

    -0.3

    0.0

    EBITDA margin each year in the 5-year period and beyond (%)

    -0.1

    0.0

    CAPEX-to-sales ratio each year in the 5-year period and beyond (%)

    0.1

    0.0

    Terminal growth rate (%)

    -0.1

    0.0

    Post-tax WACC rate (%)

    0.1

    0.0

         

    Effect of a one percentage-point upward shift in WACC (SEK in billions)

    -1.8

    -0.9

    Change in the recoverable value to equal the carrying value (SEK in billions)

    -0.2

    0.0

    Percentage points, SEK in billions

    2016

    Denmark

    Latvia

    Sales growth each year in the 5-year period (%)

    0.0

    -2.3

    EBITDA margin each year in the 5-year period and beyond (%)

    0.0

    -2.8

    CAPEX-to-sales ratio each year in the 5-year period and beyond (%)

    0.1

    2.8

    Terminal growth rate (%)

    0.0

    -1.6

    Post-tax WACC rate (%)

    0.0

    1.4

         

    Effect of a one percentage-point upward shift in WACC (SEK in billions)

    -1.3

    -1.2

    Change in the recoverable value to equal the carrying value (SEK in billions)

    0.0

    -1.5

  13. Property, plant and equipment

    The carrying value was distributed and changed as follows.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Dec 31,
    2017

    Dec 31,
    2016

    Dec 31,
    2017

    Dec 31,
    2016

    Dec 31, 2017

    Dec 31, 2016

    Property

    Plant and machinery

    Equipment, tools and installations

    Total

    Accumulated cost

    8,329

    8,049

    191,101

    183,301

    8,263

    7,659

    207,693

    199,009

    Accumulated depreciation

    -4,571

    -4,411

    -125,559

    -119,999

    -5,372

    -4,990

    -135,502

    -129,401

    Accumulated impairment losses

    -513

    -515

    -11,400

    -10,885

    -255

    -104

    -12,168

    -11,504

    Advances

    1

    3

    1

    3

    Carrying value

    3,245

    3,124

    54,143

    52,419

    2,636

    2,565

    60,024

    58,107

    of which assets under construction

    6,779

    6,759

    6,779

    6,759

    Carrying value, opening balance

    3,124

    2,794

    52,419

    49,922

    2,565

    2,378

    58,107

    55,093

    Investments

    170

    365

    10,493

    11,581

    862

    893

    11,525

    12,838

    of which capitalized interest

    104

    70

    104

    70

    Sales and disposals

    -25

    -1

    -33

    -215

    -10

    -7

    -68

    -223

    Dismantling and restoration

    -9

    -4

    -40

    218

    36

    -3

    -13

    211

    Operations acquired

    2

    62

    21

    97

    0

    159

    23

    Operations divested

    -2

    -2,231

    0

    -50

    0

    -2,283

    Grants received

    2

    -4

    2

    -4

    Reclassifications

    221

    78

    -551

    -491

    277

    297

    -53

    -117

    Depreciation for the year

    -242

    -224

    -7,781

    -7,660

    -1,054

    -998

    -9,077

    -8,882

    Impairment losses for the year

    -14

    -1

    -571

    -24

    -164

    -4

    -748

    -28

    Advances

    -1

    1

    0

    Exchange rate differences

    20

    118

    144

    1,301

    27

    66

    191

    1,485

    Reclassification to assets classified as held for sale

    -6

    -6

    Carrying value, closing balance

    3,245

    3,124

    54,143

    52,419

    2,636

    2,565

    60,024

    58,107

    No general changes of useful lives were made in 2017. For depreciation rates applied, see section “Useful lives” in Note C2 “Judgments and key sources of estimation uncertainty.” In the statement of comprehensive income, depreciation and impairment losses are included in all expense line items by function as well as in line item Other operating expenses, see Notes C7 “Expenses by nature” and C8 “Other operating income and expenses.”

    During 2017 impairments of SEK 306 million have been recognized within Goodwill and other intangible assets and SEK 748 million within Property, plant and equipment, impairments in total amounted to SEK 1,054 million. Of these, impairments amounting to SEK 803 million have been recognized as a result of an assessment performed on IT and network assets. The impairments are mainly related to plant and machinery and capitalized development expenses and refer to the following segments: Sweden SEK 232 million, Finland SEK 116 million, Denmark SEK 58 million, Norway SEK 39 million and Other operations (Group functions) SEK 357 million. In addition impairments of SEK 251 million have been recognized in 2017, mainly due to replacement or discontinuing of old technical platforms and network equipment as well as changes in market values. These impairments refer to the following segments: Lithuania SEK 21 million and Other operations (Latvia and Group functions) SEK 230 million.

    For information on contractual obligations regarding future acquisitions of property, plant and equipment, see Note C29 “Contingencies, other contractual obligations and litigation.”

    Property

    Telia Company’s real estate holdings include approximately 4,500 properties, mainly in Sweden and Finland. The substantial majority is used solely for technical facilities, like network installations, computer installations, research centers and service outlets.

    The total carrying value of property was distributed by depreciable/non-depreciable assets as follows.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Depreciable property (buildings, etc.)

    2,790

    2,755

    Non-depreciable property (land)

    455

    369

    Total property

    3,245

    3,124

  14. Investments in associated companies and joint ventures

    The total carrying value was distributed as follows.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Interests in associated companies

    9,416

    22,673

    Interests in joint ventures

    33

    26

    Total carrying value

    9,449

    22,698

    Items recognized in net income and in total comprehensive income were as follows.

    SEK in millions

    January–December

    2017

    2016

    Share of income from associated companies

    1,713

    2,809

    Gains/losses net from disposals of shares in associates

    -943

    -5

    Income from joint ventures

    8

    6

    Recognized in net income

    778

    2,810

    Other comprehensive income from associated companies

    113

    -361

    Recognized in total comprehensive income

    891

    2,450

    Details of material associated companies

    Telia Company has one material associated company, Turkcell Iletisim Hizmetleri A.S., in which TeliaCompany’s ownership and voting power as well as consolidated share is 24 percent (38 percent). Turkcell operates in Turkey, Ukraine and Belarus as a mobile operator. Turkcell, reported in Telia Company’s financial statements using the equity method, is a publicly listed company and therefore included with a one-quarter lag with adjustments made for the effects of significant transactions or events that occur between Telia Company’s closing date and the date of the respective company’s financial statements. On May 8, 2017, Telia Company disposed a portion of its direct holding in the associated company Turkcell to institutional investors by way of an accelerated book building process. An aggregate of 155 million ordinary shares in Turkcell were disposed at a price of TRY 11.45 per ordinary share, raising gross proceeds of TRY 1,775 million (equivalent to SEK 4,426 million). The disposal represented 7.0 percent of TurkcellÅLs issued share capital and resulted in a capital loss of SEK 1,828 million (due to reclassification of accumulated foreign exchange losses in equity of SEK 3,098 million to net income). On September 19, 2017, Telia Company disposed the remaining portion of its direct holding to institutional investors, for approximately SEK 4,127 million. The disposal represented 153.5 million ordinary shares, equivalent to 7.0 percent of TurkcellÅLs issued share capital. The disposal resulted in a capital loss of SEK 1,911 million (due to reclassification of accumulated foreign exchange losses of SEK 3,275 million in equity to net income ). The sale to institutional investors means that Telia Company no longer has a direct holding in Turkcell. Telia Company’s indirect holding (24 percent) in Turkcell through Turkcell Holding remains unchanged. PAO MegaFon that have its operations mainly in Russia was divested in fourth quarter 2017. For more information, see Note C34 and Risks and uncertainties, section “Associated companies and joint operations.” Market values of Telia Company’s holdings at year-end were:

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    PAO MegaFon, Russia

    13,387

    Turkcell Iletisim Hizmetleri A.S., Turkey

    17,622

    21,088

    The following table summarizes the financial information of MegaFon and Turkcell as included in the companies’ own financial statements adjusted for fair value adjustments at acquisition and differences in accounting policies. The table also reconciles the summarized financial information to the carrying amount of the group’s interests in the companies. Information on other, non-material, associated companies and joint ventures are not disclosed separately. Telia Company has three joint arrangements classified as joint operations. For additional information on those, see Note C4 “Changes in group composition and events after the reporting period.”

    Statements of financial position

    SEK in millions

    December 31

    MegaFon

    Turkcell

    Total

    2017

    2016

    2017

    2016

    2017

    2016

    Non-current assets

    51,283

    40,057

    63,279

    40,057

    114,562

    Current assets

    12,418

    29,160

    14,592

    29,160

    27,010

    Non-current liabilities

    35,447

    19,706

    16,710

    19,706

    52,157

    Current liabilities

    12,866

    18,089

    21,553

    18,089

    34,419

    Net assets (100 percent)

    15,388

    31,421

    39,608

    31,421

    54,996

    Non-controlling interests

    -5

    411

    388

    411

    383

    Net assets excluding non-controlling interests

    15,383

    31,832

    39,996

    31,832

    55,379

    Adjustment for differences in accounting principles

    5

    -409

    -377

    -409

    -372

    Net assets after adjustments

    15,388

    31,423

    39,619

    31,423

    55,007

    Group’s share

    4,032

    7,570

    15,119

    7,570

    19,150

    Adjustment, Turkcell part of Fintur equity

    -829

    -1,370

    -829

    -1,370

    Adjustment, fair values

    702

    1,764

    3,334

    1,764

    4,036

    Carrying value of interests in MegaFon and Turkcell

    4,733

    8,505

    17,082

    8,505

    21,816

    Carrying value of other associated companies not
    individually material (group’s share)

           

    912

    857

    Carrying value of joint ventures (group’s share)

           

    33

    26

    Total carrying value of interests in associated
    companies and joint ventures

           

    9,449

    22,698

    Statements of comprehensive income

    SEK in millions

    January–December

    2017

    (9 months)

    2016

    2017

    2016

    2017

    2016

    MegaFon

    Turkcell

    Total

    Net sales

    28,261

    39,318

    42,478

    39,121

    70,739

    78,439

    Net income

    -364

    3,432

    5,279

    5,021

    4,915

    8,453

    Other comprehensive income

    -160

    -142

    642

    -847

    482

    -989

    Total comprehensive income (100 percent)

    -523

    3,290

    5,921

    4,173

    5,398

    7,464

    Total comprehensive income (group’s share)

    -137

    862

    1,426

    1,597

    1,289

    2,459

    Adjustment Turkcell part of Fintur total comprehensive income

    42

    -115

    42

    -115

    Adjustment net income due to changed ownership during the year

    353

    353

    Net capital gains/losses

    2,795

    -3,738

    -943

    Total comprehensive income after adjustments, group’s share

    2,658

    862

    -1,916

    1,481

    1,638

    2,343

    Other associated companies not individually material

               

    Net sales (100 percent)

           

    2,199

    2,107

    Net income (group’s share)

           

    141

    105

    Total comprehensive income from other associated companies

           

    141

    105

    Gains/losses from sale of shares in other associates

           

    -5

    Joint ventures not individually material

               

    Net income (group’s share)

           

    8

    6

    Total comprehensive income joint ventures (group’s share)

           

    8

    6

    Group’s share of total comprehensive income for associated companies and joint ventures

           

    891

    2,450

                 

    Dividends received from MegaFon and Turkcell

    681

    1,700

    2,006

    77

    2,687

    1,777

    Dividends received from other associated companies

           

    164

    341

    Total dividends received from associated companies
    and joint ventures

           

    2,851

    2,117

    The carrying value was distributed and changed as follows.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Goodwill and fair value adjustments

    1,804

    3,822

    Share of equity

    7,645

    18,876

    Carrying value

    9,449

    22,698

    Carrying value, opening balance

    22,698

    23,341

    Share of net income for the year

    1,727

    2,821

    Share of other comprehensive income for the year, pensions

    -25

    -20

    Share of other comprehensive income for the year, exchange rate differences

    138

    -340

    Amortization and write-downs of fair value adjustments

    -6

    -6

    Dividends received

    -3,175

    -2,117

    Acquisitions and operations acquired

    27

    Divestments and operations divested

    -6,580

    -9

    Transactions in equity

    -43

    39

    Reclassifications

    -2,989

    23

    Exchange rate differences

    -2,322

    -1,032

    Carrying value, closing balance

    9,449

    22,698

    The carrying value is broken down by reportable segment in Note C5 “Segment Information” and by company as follows.

    Company, corp. reg. no., registered office

    Participation (%)

    Number of shares

     

    Equity participation in consolidated accounts

    Carrying value in the parent company

    2017

    2016

    2017

    2016

    SEK in millions

    Parent company holdings

                 

    Swedish companies

                 

    Overseas Telecom AB, 556528-9138, Stockholm

    65

    1,180,575

     

    19

    25

    15

    21

    Springworks AB, 556915-3983, Stockholm

    30

    21,429

     

    26

    28

    36

    32

    SNPAC Swedish Number Portability Administrative Centre AB, 556595-2925, Stockholm

    20

    400

     

    4

    6

    1

    1

    Solidtango AB, 556671-5586, Stockholm

    25

    13,333

     

    20

    20

    Non-Swedish companies

                 

    Yoga AS, 11486721, Tallinn

    25

    1,013,333

     

    7

    7

    0

    0

    ZeroGroup Holding OÜ, 11536594, Tartu

    25

    1

     

    8

    8

    0

    0

    Other operating, dormant and divested companies

           

    0

    0

    0

    Total parent company

             

    72

    54

    Subsidiaries’ holdings

                 

    Swedish companies

                 

    Other operating, dormant and divested companies

         

       

    Non-Swedish companies

                 

    AS Sertifitseerimiskeskus, 10747013, Tallinn

    50

    32

     

    20

    16

       

    SIA Lattelecom, 00030527, Riga

    49

    71,581,000

     

    800

    766

       

    Turkcell Holding A.S., 430991, Istanbul

    47

    214,871,670

     

    8,503

    10,796

       

    OCH A/S, 18936909, Copenhagen

    25

    250

     

    0

    0

       

    4T af 1. oktober 2012 ApS, 32348882, Copenhagen

    25

     

    8

    7

       

    Suomen Numerot NUMPAC Oy, 1829232-0, Helsinki

    25

    3,000

     

    1

    1

       

    SCF Huolto Oy, 1892276-7, Loimaa

    20

    20

     

    0

    0

       

    Strex AS, 985867569, Oslo

    49

    49,001

     

    25

    19

       

    UAB Mobilieji mokéjimai, 304431143, Vilnius

    29

    233,334

     

    8

       

    Other operating, dormant and divested companies

         

    0

    11,019

       

    of which Turkcell Iletisim Hizmeleri A.S., 304877, Istanbul

         

    6,286

       

    of which PAO Megafon, 1027809169585, Moscow

         

    4,733

       

    Total group

         

    9,449

    22,698

       

    The share of voting power in Overseas Telecom AB is 42 percent. Turkcell Holding A.S. owns 51 percent of the shares in Turkcell Iletisim Hizmetleri A.S. and the 14 percent direct shares was divested in fourth quarter 2017.

    For additional information related to associated companies, see Note C28 “Related Party Transactions,” and Note C29 “Contingencies, other contractual obligations and litigation.”

  15. Other non-current assets

    For other non-current assets, fair values equal carrying values. The total carrying values of other non-current assets were distributed as follows.

    SEK in millions

    Carrying value

    Dec 31, 2017

    Dec 31, 2016

    Equity instruments available-for-sale

    1,899

    1,162

    Equity instruments held-for-trading

    19

    26

    Other derivatives held-for-trading

    Bonds available-for-sale

    12,677

    10,185

    Interest rate and cross currency interest rate swaps at fair value

    2,978

    4,453

    of which designated as fair value hedges

    719

    1,039

    of which held-for-trading

    1,268

    2,116

    of which designated as cash flow hedges

    990

    1,298

    Subtotal (see Fair value hierarchy levels – Note C25)

    17,573

    15,825

    Government bonds and treasury bills held-to-maturity

    0

    9

    Loans and receivables at amortized cost

    2,691

    2,997

    Subtotal (see Categories – Note C25)

    20,264

    18,830

    Finance lease receivables

    585

    712

    Subtotal (see Credit risk – Note C26)

    20,848

    19,542

    Equity instruments at cost

    47

    48

    Deferred expenses

    370

    387

    Total other non-current assets

    21,265

    19,976

    of which interest-bearing

    18,674

    18,120

    of which non interest-bearing

    2,591

    1,856

    For more information regarding Equity instruments available-for-sale see Note C25 “Financial assets and liabilities by category and level”.

    For loans and receivables fair value is estimated at the present value of future cash flows discounted by applying market interest rates as of the end of the reporting period (fair value hierarchy level 2). As of December 31, 2017, contractual cash flows for Government bonds and treasury bills and Loans and receivables represented the following expected maturities.

    Expected maturity, SEK in millions

    2019

    2020

    2021

    2022

    Later years

    Total

    Government bonds and treasury bills

    Loans and receivables

    1,269

    858

    263

    221

    80

    2,691

    For more information on financial instruments by category/fair value hierarchy level and exposed to credit risk, see Note C25 “Financial assets and liabilities by category and level” and section “Credit risk management” in Note C26 “Financial risk management,” respectively. For information on leases, see Note C27 “Leasing agreements.”

  16. Inventories

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Goods for resale

    1,399

    1,637

    Other inventories and expense incurred on construction contracts

    122

    155

    Total

    1,521

    1,792

    Other inventories include purchased supplies that are mainly intended for use in constructing Telia Company’s own installations and for repair and maintenance. Inventories carried at net realizable value totaled SEK 12 million in 2017 and SEK 195 million in 2016.

  17. Trade and other receivables

    The total carrying value of trade and other receivables was distributed as follows.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Currency swaps, forward exchange contracts and currency options held-for-trading

    214

    259

    Subtotal (see Fair value hierarchy levels – Note C25)

    214

    259

    Accounts receivable at amortized cost

    9,414

    9,676

    Loans and receivables at amortized cost

    3,582

    3,735

    Subtotal (see Categories – Note C25 and Credit risk – Note C26)

    13,210

    13,670

    Other current receivables

    815

    1,021

    Deferred expenses

    2,029

    2,147

    Total trade and other receivables

    16,054

    16,839

    For accounts receivable and loans and receivables, including claims on associated companies, the carrying values equal fair value as the impact of discounting is insignificant. Loans and receivables mainly comprise accrued call, interconnect and roaming charges. Telia Company offers a diversified portfolio of mass-market services and products in a number of highly competitive markets, resulting in a limited credit risk concentration to individual markets and customers.

    For accounts receivable and loans and receivables, as of the end of the reporting period, concentration of credit risk by geographical area and by customer segment was as follows.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Geographical area

       

    Nordic countries

    9,995

    10,726

    Baltic countries

    1,859

    1,765

    Other countries

    1,142

    920

    Total carrying value

    12,996

    13,411

    Customer segment

       

    Consumers

    4,807

    3,737

    Business customers

    6,339

    7,532

    Other operators

    1,755

    1,947

    Distributors

    95

    195

    Total carrying value

    12,996

    13,411

    The geographic concentration to the Nordic operations reflects a relatively higher share of post-paid customer contracts. In most cases, customers are billed in local currency. Receivables from and payables to other operators for international fixed-line traffic and roaming are normally settled net through clearing-houses. Refer to Note C25 “Financial assets and liabilities by category and level” and section “Credit risk management” in Note C26 “Financial risk management” for more information on financial instruments classified by category/fair value hierarchy level and exposed to credit risk, respectively.

    As of the end of the reporting period, allowance for doubtful and ageing of accounts receivable, respectively, were as follows.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Accounts receivable invoiced

    10,210

    10,517

    Allowance for doubtful accounts receivable

    -796

    -841

    Total accounts receivable

    9,414

    9,676

    Accounts receivable not due

    6,281

    7,062

    Accounts receivable past due but not impaired

    3,133

    2,614

    of which less than 30 days

    2,247

    1,798

    of which 30–180 days

    722

    640

    of which more than 180 days

    164

    176

    Total accounts receivable

    9,414

    9,676

    As of the end of the reporting period, ageing of loans and receivables were as follows.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Loans and receivables not due

    3,330

    3,518

    Loans and receivables past due but not impaired

    252

    217

    of which less than 30 days

    213

    123

    of which 30–180 days

    28

    67

    of which more than 180 days

    11

    27

    Total loans and receivables

    3,582

    3,735

    Receivables past due as of the end of the reporting period were not provided for as there had been no significant change in credit quality and the amounts were still considered recoverable. See also section “Credit risk management” in Note C26 “Financial risk management” for information on mitigation of risks related to accounts receivable.

    Total bad debt expenses were SEK 585 million in 2017, excluding assets classified as held for sale, and SEK 455 million in 2016. Recovered accounts receivable were SEK 28 million in 2017, excluding assets classified as held for sale, and SEK 21 million in 2016. Refer to note C8 “Other operating income and expenses” for more information on recovered accounts receivables.

    The allowance for doubtful accounts receivable changed as follows.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Opening balance

    841

    1,161

    Net of charges for doubtful receivables in the period and receivables written off

    -48

    -47

    Operations acquired and divested

    -7

    -303

    Unused allowances reversed

    -2

    -18

    Exchange rate differences

    12

    48

    Closing balance

    796

    841

  18. Interest-bearing receivables, cash and cash equivalents

    Interest-bearing receivables

    The total carrying value of interest-bearing receivables was distributed as follows.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Interest rate swaps and cross currency interest rate swaps at fair value

    26

    984

    of which designated as fair value hedges

    0

    301

    of which held-for-trading

    26

    683

    Subtotal (see Fair value hierarchy levels – Note C25)

    26

    984

    Short-term investments with maturities over 3 months

    13,563

    5,660

    of which bonds available for sale

    8,651

    5,181

    of which bank deposits at amortized cost

    4,912

    479

    Loans and receivables at amortized cost

    3,335

    4,334

    Subtotal (see Categories – Note C25)

    16,924

    10,978

    Finance lease receivables

    410

    165

    Total (see Credit risk – Note C26)

    17,335

    11,143

    Carrying values for items measured at amortized cost and finance lease receivables are assumed to approximate fair values as the risk of changes in value is insignificant. Refer to Note C25 “Financial assets and liabilities by category and level” and section “Credit risk management” in Note C26 “Financial risk management” for more information on financial instruments classified by category/fair value hierarchy level and exposed to credit risk, respectively. For information on leases, see Note C27 “Leasing ­agreements.”

    Cash and cash equivalents

    Cash and cash equivalents were distributed as follows.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Short-term investments with maturities up to and including 3 months

    2,395

    8,656

    of which bonds available for sale

    1,411

    3,810

    of which bank deposits at amortized cost

    983

    4,846

    Cash and bank

    13,222

    5,854

    Total (see Categories – Note C25 and Credit risk – Note C26)

    15,616

    14,510

    The carrying values are assumed to approximate fair values as the risk of changes in value is insignificant. Refer to Note C25 “Financial assets and liabilities by category and level” and section “Credit risk management” in Note C26 “Financial risk management” for more information on financial instruments classified by category and exposed to credit risk, respectively, and to Note C29 “Contingencies, other contractual obligations and litigation” for information on blocked funds in bank accounts.

  19. Equity and earnings per share

    Share capital

    According to the articles of association of Telia Company AB, the authorized share capital shall amount to no less than SEK 8 billion and no more than SEK 32 billion. All issued shares have been paid in full and carry equal rights to vote and participate in the assets of the company. Since December 31, 2005, the issued share capital changed as follows.

     

    Issued share
    capital (SEK)

    Number of
    issued shares

    Quotient value
    (SEK/share)

    Issued share capital, December 31, 2005

    14,960,742,621

    4,675,232,069

    3.20

    Cancellation of shares repurchased in 2005, September 6, 2006

    -591,279,539

    -184,774,856

    3.20

    Issued share capital, December 31, 2006, 2007, 2008, 2009 and 2010

    14,369,463,082

    4,490,457,213

    3.20

    Cancellation of shares repurchased in 2011, July 19, 2011

    -513,191,783

    -160,372,432

    3.20

    Issued share capital, December 31, 2011, 2012, 2013, 2014, 2015 and 2016

    13,856,271,299

    4,330,084,781

    3.20

    Issued share capital, December 31, 2017

    13,856,271,299

    4,330,084,781

    3.20

    Treasury shares

    On April 29, 2016, Telia Company AB acquired additional 118,398 own shares at an average price of SEK 38.6519 to cover commitments under the “Long term Incentive Program 2013/2016”. During the second quarter of 2016, Telia Company distributed 122,986 shares to the incentive program participants. As of December 31, 2016, no Telia Company shares were held by the company itself or by its subsidiaries. The total numbers of issued and outstanding shares were 4,330,084,781. On May 2, 2017 Telia Company AB acquired 108,171 own shares at an average price of SEK 36.1906 to cover commitments under the “Long term Incentive Program 2014/2017”. During the second quarter of 2017, Telia Company distributed the shares to the incentive program participants. As of December 31, 2017, no Telia Company shares were held by the company itself or by its subsidiaries. The total numbers of issued and outstanding shares were 4,330,084,781.

    Subsidiaries in continuing operations with material non-controlling interests

    Summarized financial information on subsidiaries in continuing operations with material non-controlling interests (NCI) is presented below. The amounts disclosed for each subsidiary are based on those included in the consolidated financial statements before inter-company eliminations and only the net asset in which the NCI has a share. Other comprehensive income (OCI) only comprises exchange rate differences arising on translation to SEK.

    The NCI in Telia Lietuva, AB (former TEO LT, AB) is 11.8 percent. The group holds 49 percent of the shares in Latvijas Mobilais Telefons SIA (LMT). However, according to shareholders’ agreements Telia Company has the board majority in LMT and the company is therefore regarded as a subsidiary. In addition, LMT is held partly by the associated company Lattelecom SIA which decreases NCI to 39.7 percent.

    Former segment region Eurasia is classified as held for sale and discontinued operations since December 31, 2015. For information regarding subsidiaries in discontinued operations with material non-controlling interests, see Note C34 “Discontinued operations and assets classified as held for sale.”

    Dividends paid to NCIs are disclosed in Note C30 “Cash flow information.”

    Dec 31, 2017
    SEK in millions, except percentages

    Telia Lietuva, AB (former TEO LT, AB), Lithuania

    Latvijas Mobilais Telefons SIA, Latvia

    Other subsidiaries, continuing operations

    Discontinued operations

    Total

    Assets

             

    Non-current assets

    4,207

    1,703

         

    Current assets

    1,362

    810

         

    Liabilities

             

    Non-current liabilities

    -1,574

    -616

         

    Current liabilities

    -896

    -795

         

    Net assets

    3,100

    1,102

         

     NCI percentage

    11.8

    39.7

         

    Carrying amount of NCI

    367

    438

    227

    4,227

    5,260

    Net sales

    3,557

    1,290

         

    Net income

    577

    239

         

    Net income allocated to NCI

    68

    95

    34

    341

    537

               

    Cash flows from operating activities

    1,122

    520

         

     Free cash flow

    473

    282

         

    Dec 31, 2016
    SEK in millions, except percentages

    TEO LT, AB,
    Lithuania

    Latvijas Mobilais Telefons SIA, Latvia

    Other subsidiaries, continuing operations

    Discontinued operations

    Total

    Assets

             

    Non-current assets

    3,626

    1,679

         

    Current assets

    702

    639

         

    Liabilities

             

    Non-current liabilities

    -1,040

    -678

         

    Current liabilities

    -817

    -566

         

    Net assets

    2,471

    1,074

         

     NCI percentage

    11.8

    39.7

         

    Carrying amount of NCI

    293

    427

    213

    4,104

    5,036

    Net sales

    1,965

    1,196

         

    Net income

    296

    97

         

    Net income allocated to NCI

    35

    39

    64

    2,626

    2,764

               

    Cash flows from operating activities

    693

    501

         

     Free cash flow

    339

    237

         

    Earnings per share and dividends

     

    Jan–Dec 2017

    Jan–Dec 2016

    Net income attributable to owners of the parent (SEK million)

    9,608

    3,732

    Average number of outstanding shares, basic and diluted (thousands)

    4,330,085

    4,330,083

    Earnings per outstanding share, basic and diluted (SEK)

    2.22

    0.86

    Ordinary cash dividend (for 2017 as proposed by the Board of Directors)

       

    – Per share (SEK)

    2.30

    2.00

    – Total (SEK million)

    9,959

    8,660

  20. Long-term and short-term borrowings

    Open-market financing programs

    Telia Company has the following open-market financing programs.

    Program

     

    Characteristics

    Limit

    currency

    Dec 31, 2017

    Dec 31, 2016

    Limit

    Utilized

    Interest rate type

    Average

    maturity

    Limit

    Utilized

    Floating

    Fixed

    (in millions)

    (years)

    (in millions)

    Telia Company AB

    Euro Medium
    Term Note (EMTN)

    Uncommitted, International, Long-term

    EUR

    12,000

    6,728

    448

    6,280

    7.94

    12,000

    8,611

    Telia Company AB

    Euro Commercial Paper (ECP)

    Uncommitted, International, Short-term

    EUR

    1,000

    1,000

    Telia Company AB

    Flexible Term
    Note (FTN)

    Uncommitted, Swedish domestic, Short-term and long-term

    SEK

    8,000

    8,000

    Borrowings

    Long-term and short-term borrowings were distributed as follows.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Carrying value

    Fair value

    Carrying value

    Fair value

    Long-term borrowings

           

    Open-market financing borrowings in fair value hedge relationships

    44,918

    54,965

    37,189

    46,135

    Interest rate swaps at fair value

    276

    276

    37

    37

    of which designated as hedging instruments

    276

    276

    18

    18

    of which held-for-trading

    18

    18

    Cross currency interest rate swaps at fair value

    1,990

    1,990

    2,648

    2,648

    of which hedging net investments

    1,417

    1,417

    1,778

    1,778

    of which designated as hedging instruments

    381

    381

    549

    549

    of which held-for-trading

    192

    192

    320

    320

    Subtotal (see Fair value hierarchy levels – Note C25)

    47,184

    57,231

    39,873

    48,819

    Open-market financing borrowings at amortized cost

    38,255

    43,269

    41,334

    45,209

    of which hedging net investments

    27,875

    30,491

    32,444

    35,182

    Other borrowings at amortized cost

    2,204

    2,204

    1,733

    1,733

    Subtotal (see Categories – Note C25)

    87,642

    102,704

    82,940

    95,761

    Finance lease agreements

    171

    171

    221

    221

    Total long-term borrowings

    87,813

    102,875

    83,161

    95,982

    Short-term borrowings

           

    Open-market financing borrowings in fair value hedge relationships

    729

    735

    7,486

    7,551

    Interest rate swaps held for trading

    4

    4

    3

    3

    Cross currency interest rate swaps designated as hedging instruments

    106

    106

    Cross currency interest rate swaps held-for trading

    93

    93

    191

    191

    Subtotal (see Fair value hierarchy levels – Note C25)

    932

    937

    7,679

    7,744

    Utilized bank overdraft and short-term credit facilities at amortized cost

    0

    0

    0

    0

    Open-market financing borrowings

    1,459

    1,461

    2,258

    2,265

    of which hedging net investments

    983

    984

    of which at amortized cost

    477

    477

    2,258

    2,265

    Repurchase agreement liabilities

    664

    664

    559

    559

    Other borrowings at amortized cost

    613

    672

    801

    801

    Subtotal (see Categories – Note C25)

    3,668

    3,734

    11,297

    11,368

    Finance lease agreements

    6

    6

    10

    10

    Total short-term borrowings

    3,674

    3,740

    11,307

    11,378

    The fair values of borrowings above relate to hierarchy level 2. For a description of valuation techniques, see Note C3 “Significant accounting principles,” section “Fair value estimation.”

    Normally, borrowings by Telia Company denominated in foreign currencies are swapped into SEK. The exceptions typically include funds borrowed to finance the group’s international operations or selective hedging of net investments abroad.

    Refer to Note C25 “Financial assets and liabilities by category and level” for more information on financial instruments ­classified by category/fair value hierarchy level and to Note C26 “Financial risk management” for information on maturities and management of liquidity risk, currency risk, interest rate risk and financing risk, respectively.

  21. Provisions for pensions and employment contracts

    Post-employment benefits

    Telia Company provides defined benefit pension plans to most of its employees in Sweden, Finland and Norway. The pension plans mainly include retirement pension, disability pension and family pension.

    Employees in Telia Company AB and most of its Swedish subsidiaries are eligible for retirement benefits under the ITP-Tele (ITP 2 plan) defined benefit plan. However, all employees born in 1979 and later are covered by a defined contribution pension plan (the ITP 1 plan). The part of the swedish ITP 2 multi-employer pension plan that is secured by paying pension premiums to Alecta is accounted for as a defined contribution plan as the plan administrator does not provide sufficient information necessary to account for the plan as a defined benefit plan. Telia Company’s portion of total premiums in the Alecta ITP 2 plan is 0.14 percent and the share of total number of active insured in ITP 2 is 0.82 percent. Expected contribution to the ITP 2 plan for 2018 is SEK 34 million.

    Telia Company’s employees in Finland are entitled to statutory pension benefits pursuant to the Finnish Employees Pensions Act, a defined benefit pension arrangement with retirement, disability, unemployment and death benefits (TyEL pension). In addition, certain employees have additional pension coverage through a supplemental pension plan. In Finland, a part of the pension is funded in advance and the remaining part financed as a pay-as-you-go pension i.e. contributions are set at a level that is expected to be sufficient to pay the required benefits falling due in the same period.

    Telia Norway operates a defined benefit pension, which was closed for new entrants in 2011.

    The pension obligations are secured mostly by pension funds, but also by provisions in the statements of financial position combined with pension credit insurance.

    Telia Company’s defined benefit plan members are approximately divided between the following groups; 21 percent active members, 42 percent vested deferreds and 36 percent retirees.

    Telia Company’s employees in many other countries are usually covered by defined contribution pension plans. Contributions to the latter are normally set at a certain percentage of the employee’s salary and are expensed as incurred.

    Pension obligations and pension expenses

    Total amounts recognized in the statements of financial position for pension obligations were as follows.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Sweden

    Finland

    Norway

    Total

    Sweden

    Finland

    Norway

    Total

    Present value of funded pension obligations

    18,737

    5,429

    255

    25,413

    18,230

    4,906

    278

    23,413

    Fair value of plan assets

    -23,016

    -4,542

    -160

    -27,718

    -21,859

    -4,129

    -158

    -26,146

    Surplus of funded plans

    -4,279

    886

    96

    -3,297

    -3,629

    777

    120

    -2,733

    Present value of unfunded pension obligations

    1,564

       

    1,564

    1,462

       

    1,462

    Net assets (-)/provisions (+) for pension obligations

    -2,715

    886

    96

    -1,733

    -2,168

    777

    120

    -1,271

    of which recognized as provisions

    1,395

    886

    96

    2,377

    1,213

    777

    120

    2,109

    of which recognized as assets

    -4,110

       

    -4,110

    -3,380

       

    -3,380

    Total pension expenses were distributed as follows.

    SEK in millions

    Jan–Dec 2017

    Jan–Dec 2016

    Sweden

    Finland

    Norway

    Total

    Sweden

    Finland

    Norway

    Total

    Current service cost

    105

    146

    17

    268

    97

    181

    20

    297

    Past service cost

    -9

    -8

    -2

    -19

    -36

    -12

    -48

    Gain/loss on settlements

    1

    1

    6

    6

    Total pension expenses in operating income from
    defined benefit obligations

    97

    138

    15

    250

    67

    168

    20

    255

    Interest expense

    617

    108

    6

    731

    689

    115

    7

    811

    Interest income

    -700

    -92

    -3

    -795

    -796

    -108

    -4

    -908

    Total net interest in financial items

    -83

    16

    2

    -64

    -106

    7

    3

    -97

    Total pension expenses from defined benefit obligations

    14

    154

    18

    186

    -39

    175

    22

    158

    Pension expenses in operating income from
    defined contribution plans

         

    1,127

         

    901

    Remeasurement gains (-)/losses (+)

                   

    Gain/loss from change in financial assumptions

    1,082

    124

    -9

    1,197

    1,617

    701

    15

    2,333

    Experience gains/losses

    -184

    53

    -12

    -142

    -385

    -29

    -37

    -451

    Gain/loss from change in demographic assumptions

    -18

    -18

    -62

    -62

    Return on plan assets (excluding interest income)

    -458

    -174

    1

    -630

    -373

    -176

    26

    -523

    Total gains/losses recorded in OCI,
    defined benefit pension plans

    441

    -15

    -19

    406

    859

    434

    4

    1,297

    Specifications to defined benefit obligations and fair value of plan assets

    Movements in the present value of defined benefit obligations were as follows.

    SEK in millions

    2017

    2016

    Sweden

    Finland

    Norway

    Total

    Sweden

    Finland

    Norway

    Total

    Opening balance, present value of pension obligations

    19,691

    4,906

    278

    24,875

    18,899

    4,012

    251

    23,162

    Opening balance, assets classified as held for sale

    164

    41

    205

    Total opening balance

    19,855

    4,946

    278

    25,080

    18,899

    4,012

    251

    23,162

    Current service cost

    105

    146

    17

    268

    97

    181

    20

    297

    Interest expenses

    617

    108

    6

    731

    689

    115

    7

    811

    Benefits paid

    -998

    -16

    -2

    -1,016

    -1,028

    -113

    -3

    -1,143

    Benefits paid, early retirement

    -1

    -1

    -4

    -4

    Settlement payments

    -8

    -8

    Termination benefits

    1

    1

    6

    6

    Curtailment of pension obligations

    -9

    -8

    -2

    -19

    -36

    -12

    -48

    Operations acquired

    2

    2

    Operations divested

    -169

    -40

    -209

    Remeasurement gains (-)/losses (+)

                   

    Gain/loss from change in financial assumptions

    1,082

    124

    -9

    1,197

    1,617

    701

    15

    2,333

    Experience gains/losses

    -184

    53

    -12

    -142

    -385

    -29

    -37

    -451

    Gain/loss from change in demographic assumptions

    -18

    -18

    -62

    -62

    Exchange rate differences

    134

    -15

    120

    152

    26

    178

    Reclassification to liabilities directy associated with
    assets classified as held for sale

    -164

    -41

    -205

    Closing balance, present value of pension obligations

    20,300

    5,429

    255

    25,984

    19,691

    4,906

    278

    24,875

    Movements in the fair value of plan assets were as follows.

    SEK in millions

    2017

    2016

    Sweden

    Finland

    Norway

    Total

    Sweden

    Finland

    Norway

    Total

    Opening balance, fair value of plan assets

    21,859

    4,129

    158

    26,146

    21,222

    3,739

    149

    25,110

    Opening balance, assets classified as held for sale

    32

    25

    57

    Total opening balance

    21,891

    4,154

    158

    26,203

    21,222

    3,739

    149

    25,110

    Interest income

    700

    92

    3

    795

    796

    108

    4

    908

    Contribution to pension funds

    54

    19

    72

    60

    19

    79

    Payment from pension funds

    -16

    -2

    -18

    -500

    -113

    -3

    -616

    Settlement payments

    -8

    -8

           

    Operations acquired

    Operations divested

    -33

    -26

    -59

    Remeasurement gains (-)/losses (+)

                   

    Return on plan assets (excluding interest income)

    458

    174

    -1

    630

    373

    176

    -26

    523

    Exchange rate differences

    111

    -9

    102

    184

    15

    199

    Reclassification to liabilities directy associated with
    assets classified as held for sale

    -32

    -25

    -57

    Closing balance, fair value of plan assets

    23,016

    4,542

    160

    27,718

    21,859

    4,129

    158

    26,146

    Principal actuarial assumptions

    The actuarial calculation of pension obligations and pension expenses is based on the following principal assumptions, each presented as a weighted average for the different pension plans. These assumptions are the most significant ones in terms of the risk for changes in Telia Company’s pension obligations. The discount rate reflects the interest rate level at which the pension liabilities could be effectively settled and affects the value of the defined benefit obligations.

    As in previous years the discount rate for Sweden is determined by the covered bond market. Since the commitment has a longer duration than most covered bonds, an extrapolation of the yield curve is performed and used with the corresponding duration of Telia Company’s pension obligations. The management of Telia Company then adjust the difference between the long-term inflation target of the central bank and the actual market inflation at the end of the period. The discount rate for Finland is based on high-quality corporate bonds with long duration. Norway sets the discount rate on the same basis as Sweden.

    The expected annual adjustments and increased longevity have an impact on future pension payments and therefore the pension obligation. For Sweden and Norway, management has chosen to use the annual inflation target rates set by the national and European central banks. For Finland, the inflation assumption is derived from long-term inflation swaps. See below for a sensitivity analysis related to a change in the significant assumptions used in calculating the pension provision.

    Percentages, except longevity

    Dec 31, 2017

    Dec 31, 2016

    Sweden

    Finland

    Norway

    weighted average

    Sweden

    Finland

    Norway

    weighted average

    Discount rate

    2.9

    2.0

    2.4

    2.7

    3.2

    2.2

    2.1

    3.0

    Annual adjustments to pensions

    2.0

    1.0

    0.3

    1.8

    2.0

    1.1

    0.1

    1.8

    Longevity

                   

    life expectancy 65 year old male (year)

    20

    21

    24

    20

    20

    21

    24

    20

    life expectancy 65 year old female (year)

    23

    25

    26

    23

    23

    25

    26

    23

    Sensitivity of the defined benefit obligations to changes in the assumptions was as follows.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Impact on defined benefit obligation

    Impact on defined benefit obligation

    Sweden

    Finland

    Norway

    Total

    Sweden

    Finland

    Norway

    Total

    Discount rate +0.5 p.p.

    -1,800

    -551

    -30

    -2,381

    -1,743

    -511

    -31

    -2,285

    Discount rate -0.5 p.p.

    2,218

    645

    30

    2,894

    1,963

    599

    35

    2,598

    Annual adjustments to pensions +0.5 p.p.

    2,218

    620

    -14

    2,824

    1,963

    571

    -58

    2,477

    Annual adjustments to pensions -0.5 p.p.

    -1,800

    -556

    11

    -2,345

    -1,743

    -512

    76

    -2,179

    Longevity +1 year

    1,056

    178

    5

    1,239

    861

    161

    5

    1,0261

    1) Longevity for 2016 has been restated from SEK 744 million to SEK 1,026 million, but with no effect on pension obligations.

    The sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may by correlated.

    Investment strategy

    The assets of Telia Company pension funds constitute pension plan assets and are valued at fair value. These assets are used as prime funding source for the pension obligations, and exist primarily in Sweden and Finland. The pension funds invest the assets in such a manner that the liquidity of the pension funds is ensured. The investment horizons are long-term, and aimed to cover the growth of pension liability. The weighted average duration for the pension obligation plans is approximately 20 years. Investment plans are approved by the boards of the pension funds. The investment activities comply with the rules and regulations issued by the authorities governing pension foundations.

    For the Swedish pension fund (Swedish Fund) which represents approximately 83 percent of the total group plan assets, Telia Company apply a minimum funding requirement. The allocation was successful and the portfolio’s performance was positive throughout the year. As of December 31, 2017, the strategic asset allocation decided by the Board of the Swedish Fund, was 50 percent fixed income, 34 percent equities and 16 percent alternative investments. The Alternative investments include Hedge Funds and Private Equity. The actual allocation may deviate from the strategic allocation in a range up to a specified risk limit. The work to improve balance between risk and return in the Swedish Pension Fund continues. Reduced allocation to fixed income in favor of equity and real estate enhanced the risk and return during 2017. Implications of changes during 2017 are enhanced diversification, lower cost and increased performance.

    Total plan-asset allocation

    As of the end of the reporting period, plan assets were allocated as follows.

    SEK in millions

    Asset category

    Dec 31, 2017

    Dec 31, 2016

    Quoted

    Unquoted

    Total

    Percent

    Quoted

    Unquoted

    Total

    Percent

    Equity instruments

    9,936

    327

    10,263

    37

    8,500

    216

    8,716

    33

    Debt instruments

    11,247

    337

    11,584

    42

    12,062

    371

    12,433

    48

    Real estate

    1,412

    1,412

    5

    1,014

    1,014

    4

    Cash and cash equivalents

    279

    141

    420

    2

    274

    111

    385

    1

    Alternative investments

    162

    3,716

    3,878

    14

    185

    3,255

    3,440

    13

    Other

    160

    160

    1

    158

    158

    1

    Total

    21,625

    6,093

    27,718

    100

    21,021

    5,125

    26,146

    100

    of which shares in Telia Company AB

    13

     

    13

    0.05

    14

     

    14

    0.06

    Future contributions

    For companies in Sweden, pension liabilities are secured also by pension credit insurance. This means that, should the net provision for pension obligation increase, each company can choose if and when to contribute to the pension fund or otherwise to recognize a provision. To pension funds outside Sweden, Telia Company expects to contribute SEK 104 million in 2018.

  22. Other provisions

    Changes in other provisions were as follows.

    SEK in millions

    December 31, 2017

    Restructuring provisions

    Asset
    retirement
    obligations

    Other
    provisions

    Total

    Opening balance

    387

    3,023

    15,436

    18,846

    of which financial liabilities at amortized cost

    Provisions for the period

    447

    69

    208

    724

    Operations divested

    Utilized provisions

    -538

    -107

    -4,408

    -5,053

    of which related to the global settlement with the authorities regarding the Uzbekistan investigations

    -3,608

    -3,608

    Reversals of provisions

    -3

    -136

    -6,812

    -6,951

    of which adjustments of provision for the global settlement with the authorities regarding Uzbekistan

    -4,293

    -4,293

    Reclassifications

    -1

    38

    37

    Timing and interest-rate effects

    16

    -56

    -40

    Exchange rate differences

    -3

    -1,259

    -1,262

    Closing balance

    292

    2,901

    3,111

    6,303

    of which non-current portion

    117

    2,894

    2,822

    5,833

    of which current portion

    175

    6

    289

    470

    of which financial liabilities at amortized cost (see Note Categories – C25 and Credit risk – C26)

    The provision for the settlement with the US and Dutch authorities is included in Other provisions. See Note C34 for more information.

    For financial liabilities, the carrying value equals fair value as provisions are discounted to present value. Refer to Note C25 “Financial assets and liabilities by category and level” for more information on financial instruments classified by category.

    Restructuring provisions

    The restructuring provisions represent the present value of management’s best estimate of the amounts required to settle the liabilities. The estimates may vary as a result of changes in the length of notice period before leaving and in the actual outcome of negotiations with lessors, sub-contractors and other external counterparts as well as the timing of such changes. The restructuring provisions are mainly related to workforce reduction as a result of ongoing optimization of the business in the Nordics and Group functions.

    Asset retirement obligations and other provisions

    Asset retirement obligations mainly refer to handling hazardous waste such as worn-out telephone poles impregnated with creosote or arsenic and to dismantling and restoration of mobile and fixed network sites. Remaining provisions as of December 31, 2017, are expected to be fully utilized in the period 2018–2068), depending on factors such as any contractual renewal options for site leases and dismantling plans decided by management.

    Other provisions include provisions for damages and court cases, including the provision for the settlement amount proposed by the US and Dutch authorities. Other provisions also include provisions for future onerous and other loss-making contracts, insurance provisions, payroll taxes on future pension payments, estimated expenses related to fulfilling representations made and warranties, i e transaction warranties, and for potential litigation etc. in connection with disposals and winding-up of group entities, associated companies and other equity holdings as well as provision for buy back commitments for sold equipment in certain markets. Full utilization of these provisions is expected in the period 2018–2025.

    The provisions represent the present value of management’s best estimate of the amounts required to settle the liabilities.

  23. Other long-term liabilities

    Other long-term non-interest-bearing liabilities were distributed as follows.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Danish license fee liabilities at amortized cost

    42

    Finnish license fee liabilities at amortized cost

    162

    Rights for the Finnish ice hockey league

    1,143

    Other liabilities at amortized cost

    50

    51

    Liabilities at amortized cost (see Categories – Note C25)

    1,193

    255

    Prepaid operating lease agreements

    357

    297

    Other liabilities

    400

    172

    Total other long-term liabilities

    1,950

    725

    For liabilities at amortized cost, the carrying value approximates fair value as the impact of discounting using market interest rates at the end of the reporting period was insignificant. Refer to Note C25 “Financial assets and liabilities by category and level” for more information on financial instruments classified by category and to Note C26 “Financial risk management” on management of liquidity risk.

    As of December 31, 2017, contractual undiscounted cash flows for liabilities at amortized cost represented the following expected maturities.

    Expected maturity
    SEK in millions

    2019

    2020

    2021

    2022

    Later years

    Total

    Carrying value

    Liabilities at amortized cost

    241

    206

    205

    205

    343

    1,200

    1,193

    For information on leases, see Note C27 “Leasing agreements.” Further included was deferred “day 1 gains” in 2016, which changed as follows.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Opening balance

    46

    Operations divested

    -36

    Recognized in net income

    -14

    Exchange rate differences

    4

    Closing balance

    of which current portion

  24. Trade payables and other current liabilities

    Trade payables and other current liabilities were distributed as follows.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Currency swaps, forward exchange contracts and currency options held-for-trading

    225

    694

    Subtotal (see Fair value hierarchy levels – Note C25)

    225

    694

    Accounts payable at amortized cost

    7,982

    6,610

    of which accounts payable under vendor financing arrangements

    1,678

    684

    Current liabilities at amortized cost1

    2,237

    2,170

    Subtotal (see Categories – Note C25)

    10,444

    9,474

    Other current liabilities

    4,800

    4,815

    Deferred income

    3,574

    3,911

    Total trade payables and other current liabilities

    18,818

    18,200

    1) Includes short term liability regarding rights for the Finnish ice hockey league amounting to SEK 84 million.

    For accounts payable and current liabilities, the carrying value equals fair value as the impact of discounting is insignificant. Refer to Note C25“Financial assets and liabilities by category and level” for more information on financial instruments classified by category/fair value hierarchy level and to Note C26 “Financial risk management” on management of liquidity risk. Telia Company has an arrangement with a bank under which the bank offers Telia Company’s vendors the option to receive earlier payment of Telia Company’s accounts payables. Vendors utilizing the financing arrangement pay a credit fee to the bank. Telia Company does not pay any credit fees and does not provide any additional collateral or guarantee to the bank.

    As of December 31, 2017, contractual cash flows for liabilities at amortized cost represented the following expected ­maturities.

    Expected maturity
    SEK in millions

    Jan–Mar 2018

    Apr–Jun 2018

    Jul–Sep 2018

    Oct–Dec 2018

    Total

    Liabilities at amortized cost

    9,641

    120

    113

    345

    10,219

    Corresponding information for currency derivatives held-for-trading are presented in section “Liquidity risk management” to Note C26 “Financial risk management.”

    The main components of current liabilities are accrued payables to suppliers and accrued interconnect and roaming charges, while other current liabilities mainly entail value-added tax, advances from customers and accruals of payroll expenses and social security contributions.

    Deferred income mainly relate to subscription and other telecom charges.

  25. Financial assets and liabilities by category and level

    Categories

    Carrying values of classes of financial assets and liabilities were distributed by category as follows. Excluded are financial instruments which are discussed in Note C27 “Leasing agreements.”

    SEK in millions

    Note

     

    Dec 31, 2017

    Dec 31, 2016

    Financial assets

           

    Derivatives designated as hedging instruments

    C15, C18

     

    1,708

    2,637

    Financial assets at fair value through profit and loss

       

    1,527

    3,084

    of which derivatives not designated as hedging instruments (held-for-trading)

    C15, C17C18

     

    1,508

    3,058

    of which other held-for-trading investments

    C15

     

    19

    26

    Held-to-maturity investments

    C15C18

     

    9

    Loans and receivables

    C15, C17C18

     

    38,139

    31,920

    Available-for-sale financial assets

    C15C18

     

    24,638

    20,348

    Total financial assets by category

       

    66,012

    57,999

    Financial liabilities

           

    Derivatives designated as hedging instruments

    C20, C24

     

    2,180

    2,346

    Derivatives not designated as hedging instruments

    C20C24

     

    515

    1,226

    Financial liabilities measured at amortized cost

    C20, C22, C23C24

     

    100,255

    100,394

    Total financial liabilities by category

       

    102,950

    103,966

    Fair value hierarchy levels

    The carrying values of classes of financial assets and liabilities measured at fair value were distributed by fair value hierarchy level as follows.

    SEK in millions

    Note

    December 31, 2017

    December 31, 2016

    Carrying

    value

    of which

    Carrying

    value

    of which

    Level 1

    Level 2

    Level 3

    Level 1

    Level 2

    Level 3

    Financial assets at fair value

                     

    Equity instruments available-for-sale

    C15

    1,899

    1,899

    1,162

    1,162

    Equity instruments held-for-trading

    C15

    19

    19

    26

    26

    Long- and short-term bonds available-for-sale

    C15C18

    22,738

    18,029

    4,709

    19,186

    12,533

    6,653

    Derivatives designated as hedging instruments

    C15C18

    1,709

    1,709

    2,637

    2,637

    Derivatives held-for-trading

    C15C17C18

    1,508

    1,508

    3,058

    3,058

    Total financial assets at fair value by level

     

    27,874

    18,029

    7,926

    1,919

    26,069

    12,533

    12,348

    1,188

    Financial liabilities at fair value

                     

    Derivatives designated as hedging instruments

    C20C24

    2,180

    2,180

    2,346

    2,346

    Derivatives held-for-trading

    C20C24

    514

    514

    1,226

    1,226

    Total financial liabilities at fair value by level

     

    2,693

    2,693

    3,572

    3,572

                       

    Comparative figures for Long- and short-term bonds available-for-sale have been adjusted with SEK 6,653 million from Level 1 to Level 2.

    There were no transfers between Level 1 and 2 in 2017 and 2016.

    Fair value measurement of Level 3 financial instruments

    Investments classified within Level 3 make use of significant unobservable inputs in deriving fair value, as they trade infrequently. As observable prices are not available for these equity instruments, Telia Company has a market approach to derive the fair value.

    Telia Company’s primary valuation technique used for estimating the fair value of unlisted equity instruments in Level 3 is based on the most recent transaction for the specific company if such transaction has been recently done. If there has been significant changes in circumstances between the transaction date and the balance sheet date that, in the assessment of Telia Company, would be a material impact on the fair value, the carrying value is adjusted to reflect the changes.

    In addition, the assessment of the fair value of material unlisted equity instruments is verified by applying other valuation models in the form of valuation multiples from listed comparable companies (peers) on relevant financial and operational metrics, such as revenue, gross profit and other relevant KPIs for the specific company. Comparable listed companies are determined based on industry, size, development stage, geographic area and strategy. The multiple is calculated by dividing the enterprise value of the comparable company by the relevant metric. The multiple is then adjusted for discounts/premiums with regards to differences, advantages and disadvantages between Telia Company’s investment and the comparable public companies based on company specific facts and circumstances.

    Although Telia Company uses its best judgment, and cross-references results of the primary valuation model against other models in estimating the fair value of unlisted equity instruments, there are inherent limitations in any estimation technique. The fair value estimates presented herein are not necessarily indicative of an amount that Telia Company could realize in a current transaction. Future confirming events will also affect the estimates of fair value. The effect of such events on the estimates of fair value could be material.

    Unlisted equity instruments for which the fair value cannot be reliably measured are measured at cost less any impairment.

    The table below presents the movement in Level 3 instruments for the twelve-month period ended December 31, 2017.

    SEK in millions

    December 31, 2017

    December 31, 2016

    Equity in-struments available-for-sale

    Equity in-struments held-for-trading

    Long- and short-term bonds available for sale

    Deriva­tives held-for-trading

    Total

    Equity in-struments available-for-sale

    Equity in-struments held-for-trading

    Long- and short-term bonds available for sale

    Deriva­tives held-for-trading

    Total

    Level 3, opening balance

    1,162

    26

    1,188

    1,053

    35

    65

    1,153

    Changes in fair value

    738

    -7

    731

    -4

    -4

    of which recognized in
    net income

    -7

    -7

    of which recognized in
    other comprehensive income

    738

    738

    -4

    -4

    Purchases/capital contributions

    48

    48

    Exercise of warrants

    65

    -65

    Disposals

    -10

    -10

    Exchange rate differences

    0

    0

    Level 3, closing balance

    1,899

    19

    1,919

    1,162

    26

    1,188

    The change in fair value of SEK 738 million in 2017 for equity instruments available-for-sale relates to a revaluation of Telia Company’s holding in Spotify. The investment in Spotify was remeasured in the third and fourth quarter of 2017 based on the share price in the most recent transactions made for Spotify during September and December 2017, respectively.

  26. Financial risk management

    Principles of financing and financial risk management

    Telia Company’s financing and financial risks are managed under the control and supervision of the Board of Directors of Telia Company AB. Financial management is centralized within the Group Treasury unit of Telia Company, which operates as Telia Company’s internal bank and is responsible for the management of financing, management of capital requirements and cash. Group Treasury is also responsible for Telia Company’s financial risk management, related to implementation of group policies and instructions, identification and monitoring of financial risks as well as implementation of hedging strategies thereof. The most noticeable risks under Group Treasury’s responsibility are credit risk, liquidity risk, currency risk, interest rate risk and (re-)financing risk. Group Treasury also seeks to manage the cost of financial risk management.

    Telia Company finances its operations mainly by borrowing under its uncommitted open-market financing programs directly in Swedish and international money markets and capital markets. The communicated funding strategy themes have been to increase duration, to diversify funding sources and to keep a prudent liquidity position. Capital market funding is the primary source and bank funding is considered mainly as backup. This increases flexibility and ensures access to markets with attractive pricing. The open-market financing programs typically provide a cost-effective and flexible alternative to bank financing.

    Former segment region Eurasia is since 2015 classified as held for sale and discontinued operations since December 31, 2015, and therefore not included in the figures for 2017. For further information, see Note C34 “Discontinued operations and assets classified as held for sale.”

    Capital management

    Telia Company’s capital structure and dividend policy is decided by the Board of Directors. The ambition is to distribute at least 80 percent of free cash flow from continuing operations excluding licenses.

    Telia Company shall target a solid investment grade long-term credit rating of A- to BBB+ and a leverage corresponding to Net debt/EBITDA of 2x plus/minus 0.5x to secure the company’s strategically important financial flexibility for investments in future growth, both organically and by acquisitions.

    In March 2017 Telia Company issued hybrid bonds with a total amount of 15 billion. The hybrid bonds are nominated in a EUR tranche (EUR 900 million) and two SEK tranches (SEK 6,5 billion). The rationale for issuing an additional permanent capital layer is to enable financial flexibility and reinforce the commitment to a solid Investment Grade rating of A- to BBB+. In connection to the issuance of hybrid bonds Telia Company bought back outstanding senior bonds to a value of SEK 5 billion and additional buy-backs were executed during the year to another SEK 5 billion.

    After the issuance of hybrid bonds Standard&Poors removed the CreditWatch with negative implications and confirmed its long-term A- rating with negative outlook and the short-term rating A-2. The rating from Moody’s remains at Baa1 with stable outlook. These ratings represent a solid investment grade level and are thus expected to allow Telia Company continued good access to the financial markets.

    Telia Company is not subject to any externally imposed capital requirements.

    In respect of capital management, Telia Company defines capital as equity and 50 percent of hybrid bonds, which is consistent with the market practice for this type of instrument. As per December 31, 2017, Telia Company’s capital amounted to SEK 114,410 million (101,734), whereof equity SEK 106,740 million (101,734) and 50 percent of hybrid bonds SEK 7,670 million (-).

    Credit risk management

    Credit risk is the risk of delay or loss of value or income as well as incurred costs due to counterparty default or failure to meet its financial obligations. The carrying amount of Telia Company’s instruments with credit risk exposure is as follows.

    SEK in millions

    Note

    Dec 31, 2017

    Dec 31, 2016

    Other non-current assets excluding Equity instruments at cost and Deferred expenses

    C15

    20,848

    19,542

    Trade and other receivables excluding Other current receivables and Deferred expenses

    C17

    13,210

    13,670

    Interest-bearing receivables

    C18

    17,335

    11,143

    Cash and cash equivalents

    C18

    15,616

    14,510

    Total

     

    67,009

    58,865

    When entering into financial transactions such as interest rate swaps, cross currency swaps and other derivative transactions, Telia Company accepts only creditworthy counterparties with a solid investment grade rating. Telia Company requires each counterparty to have an International Swaps and Derivatives Association, Inc. (ISDA) agreement. The permitted exposure of each counterparty when entering into a financial transaction depends on the rating of that counterparty.

    The net aggregated exposure in derivatives as of December 2017, is distributed by the counterparty long-term rating with Moody’s in the table below. Received collateral, regulated by the Credit Support Annex of the ISDA agreements, is deducted from the exposure. 

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Counterparty rating Aa3

    253

    727

    Counterparty rating Aa2

    4

    121

    Counterparty rating A1

    23

    769

    Counterparty rating A2

    63

    Counterparty rating A3

    2

    226

    Counterparty rating Baa1

    Counterparty rating Baa2

    48

    Counterparty rating Baa3

    Total exposure of counterparties in derivatives

    393

    1,842

    Telia Company can invest surplus cash in bank deposits and securities issued by banks with a rating of at least A- (Standard & Poor’s) or A3 (Moody’s). In addition investments can be made in corporate securities with rating of at least BBB+ or Baa1. Cash can also be invested in government bonds and treasury bills issued by the Swedish, German, Finnish, Norwegian or Danish government, Swedish municipals, investment funds and securitized assets with AAA/Aaa rating.

    The credit risk with respect to Telia Company’s trade receivables is diversified geographically and among a large number of customers, private individuals as well as companies in various industries. Solvency information is required for credit sales to minimize the risk of bad debt losses and is based on group-internal information on payment behavior, if necessary supplemented by credit and business information from external sources. Bad debt expense in relation to consolidated net sales was approximately 0.6 percent in 2017 and 0.5 percent in 2016.

    Liquidity risk management

    Liquidity risk is the risk that Telia Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset.

    Telia Company has internal control processes and contingency plans for managing liquidity risk. The short-term and mid-term liquidity management takes into account the maturities of financial assets and financial liabilities and estimates of cash flows from operations.

    A centralized daily cash pooling process enables Telia Company to manage liquidity surpluses and deficits according to the actual needs on group and subsidiary level.

    Telia Company’s policy is to have a prudent liquidity position in terms of available cash and/or unutilized committed credit facilities. Telia Company’s short term liquidity risk (payment obligations due in 2018, see table “Expected maturity” on page 149) is managed with the liquidity reserve described below.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Surplus liquidity

       

    Cash and bank

    13,222

    5,854

    Cash equivalents1

    2,395

    8,656

    Cash and cash equivalents (see also Note C18)

    15,616

    14,510

    Short-term investments2 (see also Note C18)

    13,563

    5,043

    Total

    29,180

    19,553

    Long-term investments3 (see also Note C15)

    12,677

    10,185

    Total surplus liquidity

    41,856

    29,738

    Committed credit facilities

       

    Revolving credit facilities (limit amount)

    14,735

    14,365

    Bank overdraft and short-term credit facilities (limit amount)

    1,403

    3,817

    Utilized credit facilities

    -2,196

    Total unutilized committed credit facilities

    16,138

    15,986

    Liquidity position

    57,994

    45,724

    1) Bank deposits and securities which mature within 3 months of the date of acquisition.

    2) Securities with maturities between 3 and 12 months. Convertible to cash within 2 days, i.e. excluding securities that for regulatory reasons are not convertible to cash within 2 days.

    3) Securities with maturities exceeding 12 months. Convertible to cash within 2 days.

    Telia Company’s committed bank credit facilities and overdraft facilities, intended for short-term financing and back-up purposes, were as follows.

    SEK in millions

    Group entity

    Type

    Characteristics

    Final maturity

    Currency

    Dec 31, 2017

    Dec 31, 2016

    Limit

    Limit

    Telia Company AB

    Revolving credit facility

    Committed, syndicated

    September 2021

    EUR

    14,735

    14,365

    Telia Company AB
    and subsidiaries

    Bank overdraft facility

    Committed, bilateral

    Extended yearly

    (various)

    1,403

    3,817

    As of December 31, 2017, contractual undiscounted cash flows for the group represented the following expected maturites. The amounts regarding the group’s interest-bearing borrowings and derivatives include installments and estimated interest payments. The maturity date for the hybrid bonds in SEK is 2077 and 2078 for the EUR bond. However, at specific dates Telia Company has the option to exercise early redemption. The first of these dates, also known as call dates, occur in 2022 for the SEK bonds and in 2023 for the EUR bond. Amounts in foreign currency have been converted into SEK using the exchange rate prevailing as of the end of the reporting period. Future interest payments, related to instruments with floating interest rates, have been estimated using forward rates. Where gross settlements are performed (cross-currency interest rate swaps, currency swaps and forward exchange contracts), all amounts are reported on a gross basis.

    Expected maturity
    SEK in millions

    Note

    Jan–Mar 2018

    Apr–Jun 2018

    Jul–Sep 2018

    Oct–Dec 2018

    2019

    2020

    2021

    2022

    Later years

    Total

    Utilized bank overdraft and short-term credit facilities

     

    Open-market financing program
    borrowings

     

    -2,816

    -349

    -1,115

    -909

    -7,744

    -9,472

    -9,078

    -14,864

    -59,703

    -106,050

    Other borrowings

     

    -80

    -373

    -76

    -78

    -307

    -601

    -84

    -890

    -2,488

    Finance lease agreements

     

    -5

    -5

    -5

    -4

    -17

    -16

    -16

    -13

    -157

    -237

    Cross-currency interest rate swaps and interest rate swaps

                         

    Payables

     

    -2,713

    -211

    -1,022

    -3,271

    -11,845

    -9,438

    -8,339

    -3,328

    -23,954

    -64,121

    Receivables

     

    2,864

    248

    838

    3,317

    12,232

    9,966

    8,300

    3,283

    23,463

    64,511

    Currency swaps and forward exchange contracts

                         

    Payables

     

    -23,829

    -3,039

    -1,995

    -430

    -29,293

    Receivables

     

    23,658

    3,154

    2,002

    426

    29,240

    Goverment bonds and treasury bills

    C15

    Loans and receivables

    C15

    1,269

    858

    263

    221

    80

    2,691

    Financial guarantees

    C22

    Other long term liabilities

    C23

    -241

    -206

    -205

    -205

    -343

    -1,200

    Trade payables and Other current liabilities

    C24

    -9,641

    -121

    -113

    -345

    -10,219

    Credit and performance guarantees

    C29

    -16

    -16

    Total

     

    -12,562

    -696

    -1,486

    -1,294

    -6,653

    -8,925

    -9,159

    -15,796

    -60,614

    -117,182

    Currency risk management

    Currency risk is the risk that fluctuations in foreign exchange rates will adversely affect the group’s results, financial position and/or cash flows. Currency risk can be divided into operational transaction exposure and conversion exposure.

    Transaction exposure relates to net inflows or outflows of foreign currencies required by operations and financing. Telia Company’s general policy is to hedge the majority of known operational transaction exposure up to 12 months into the future. Financial flows are usually hedged until maturity, even if that is longer than 12 months.

    Regarding foreign currency transaction exposure, CFO has a clearly defined deviation mandate which is capped at the equivalent of SEK 10 million calculated as one day Value at Risk (VaR), expressed as the long/short SEK counter-value amount that may be exposed to currency fluctuations. Since SEK is the functional currency of Telia Company, borrowings are normally denominated in, or swapped into SEK unless linked to international operations or allocated as hedging of net investments abroad.

    Financial transaction exposure risk

    As of December 31, 2017, contractual undiscounted financial cash flows split by currency, for the group’s interest-bearing borrowings, assets and derivatives represented the following expected maturities, including installments and estimated interest payments. Amounts in foreign currency have been converted to SEK using the exchange rate prevailing as of the end of the reporting period. Future interest payments, related to instruments with floating interest rates, have been estimated using forward rates.

    SEK in millions

    Jan–Mar 2018

    Apr–Jun 2018

    Jul–Sep 2018

    Oct–Dec 2018

    2019

    2020

    2021

    2022

    Later years

    Total

    DKK

    lnterest bearing asset

     

    lnterest bearing debt

    -40

    -40

     

    Derivatives

    -4,432

    -4,432

     

    Net

    -4,472

    -4,472

    EUR

    lnterest bearing asset

    6,148

    6,148

     

    lnterest bearing debt

    -1,951

    -660

    -422

    -650

    -4,505

    -8,833

    -8,613

    -6,877

    -49,123

    -81,633

     

    Derivatives

    16,623

    166

    46

    73

    2,700

    6,653

    5,887

    -1,471

    -5,561

    25,116

     

    Net

    20,820

    -494

    -376

    -577

    -1,805

    -2,180

    -2,726

    -8,348

    -54,684

    -50,369

    GBP

    lnterest bearing asset

     

    lnterest bearing debt

    -119

    -119

    -119

    -119

    -119

    -5,103

    -5,698

     

    Derivatives

    -97

    119

    119

    119

    119

    119

    5,103

    5,601

     

    Net

    -97

    -

    -97

    JPY

    lnterest bearing asset

     

    lnterest bearing debt

    -7

    -733

    -7

    -7

    -7

    -1,314

    1

    -2,074

     

    Derivatives

    7

    733

    7

    7

    7

    1,314

    -1

    2,074

     

    Net

    NOK

    lnterest bearing asset

     

    lnterest bearing debt

    -85

    -17

    -46

    -81

    -81

    -81

    -580

    -2,272

    -3,243

     

    Derivatives

    -2,291

    -3,059

    -2,007

    -2,514

    -3,012

    15

    11

    7

    -22

    -12,872

     

    Net

    -2,376

    -3,076

    -2,007

    -2,560

    -3,093

    -66

    -70

    -573

    -2,294

    -16,115

    USD

    lnterest bearing asset

    82

    20

    102

     

    lnterest bearing debt

     

    Derivatives

    775

    -427

    348

     

    Net

    857

    20

    -427

    450

    SEK

    lnterest bearing asset

    5,831

    1,333

    374

    2,591

    4,153

    4,093

    1,855

    1,504

    306

    22,040

     

    lnterest bearing debt

    -812

    -45

    -35

    -173

    -3,339

    -1,033

    -342

    -6,864

    -3,207

    -15,850

     

    Derivatives

    -10,415

    3,059

    1,050

    2,794

    572

    -6,266

    -6,063

    -12

    -7

    -15,288

     

    Net

    -5,396

    4,347

    1,389

    5,212

    1,386

    -3,206

    -4,550

    -5,372

    -2,908

    -9,098

    Total, net

    9,336

    797

    -994

    1,648

    -3,512

    -5,452

    -7,346

    -14,293

    -59,886

    -79,701

    The cash flow pertains to foreign exchange rate hedging of receivables, payables and cash balances in foreign currencies. Foreign exchange rate risks are also mitigated through the group’s net investment in EUR and NOK, see section “Conversion exposure risk.”

    Operational transaction exposure sensitivity

    In most cases, Telia Company customers are billed in their respective local currency. Receivables from and payables to other operators for international fixed-line traffic and roaming are normally settled net through clearing-houses. Hence, the operational need to net purchase foreign currency is primarily due to a deficit from such settlements and the limited import of equipment and supplies. Main sources of transaction exposures are derived from the Nordic operations involving SEK, EUR, NOK and DKK.

    Currency
    SEK in millions

    Impact on Net income
    if currency rate
    depreciates by 10 percent

    2017

    Impact on Net income
    if currency rate
    depreciates by 10 percent

    2016

    SEK

    -483

    -510

    EUR

    417

    450

    NOK

    -4

    -13

    DKK

    65

    14

    Other

    5

    9

    The sensitivity analysis is based on the assumption that the operational transaction exposure is equivalent to that in 2017, and provided that no hedging measures were taken.

    Conversion exposure risk

    Conversion exposure relates to net investments in foreign operations. CEO has a mandate to implement hedging up to a specific ratio limit. Telia Company’s net investments in foreign operations were distributed by currency as follows.

    SEK in millions

    2017

    2016

    Net
    investments

    Hedged through borrowings or derivatives

    Net

    Net
    investments

    Hedged through borrowings or derivatives

    Net

    DKK

    2,940

    2,940

    3,240

    3,240

    EUR

    91,095

    -43,732

    47,363

    72,461

    -43,991

    28,470

    GBP

    96

    96

    98

    98

    NOK

    14,027

    -1,828

    12,199

    16,255

    -1,438

    14,817

    RUB

    105

    105

    4,957

    4,957

    TRY

    8,276

    8,276

    16,099

    16,099

    USD

    256

    256

    1,746

    1,746

    Other currencies

    398

    398

    431

    431

    Total

    117,194

    -45,560

    71,634

    115,287

    -45,429

    69,858

    Conversion exposure sensitivity

    The positive impact on group equity would be approximately SEK 7.2 billion if the Swedish krona weakened by 10 percentage points against all conversion exposure currencies. The calculation is based on the exposure as of December 31, 2017, including hedges but excluding any potential equity impact due to Telia Company’s operational need to net purchase foreign currency, or to currency translation of other net income related items.

    Interest rate risk management

    Telia Company’s sources of funds are primarily equity attributable to owners of the parent, cash flows from operating activities, and borrowings. The interest-bearing borrowing and financial investments expose the group to interest rate risk. Interest rate risk is the risk that a change in interest rates will negatively affect the group’s net interest expense and/or cash flows.

    Average interest rates, including relevant hedges, on Telia Company AB’s outstanding long-term and short-term borrowings as of the end of the reporting period was as follows.

    Percent

    Dec 31, 2017

    Dec 31, 2016

    Long-term borrowings

    2.76

    2.07

    Short-term borrowings

    1.46

    1.88

    Debt key figures on debt portfolio as of the end of the reporting period was as follows. Amounts indicated represent
    carrying values.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Duration (years)

    4.1

    5.1

    Average maturity (years)

    7.7

    7.8

    Short-term borrowings

    3,674

    11,307

    Long-term borrowings

    87,813

    83,161

    Interest rate adjustment <1year

    55,733

    67,170

    Interest rate adjustment >1year

    35,754

    31,737

    Telia Company’s financial policy provides the framework for management of interest rates and the average maturity of borrowings and investments. The group aims at balancing the estimated running cost of borrowing and the risk of significant negative impact on earnings, should there be a sudden, major change in interest rates. The group’s policy is that the duration of the debt portfolio should be between 3 to 7 years.

    If the loan portfolio structure deviates from the desired one, various forms of derivative instruments are used to adapt the structure in terms of duration and/or currency, including interest rate swaps and cross currency interest rate swaps.

    As of December 31, 2017, Telia Company’s rate reset periods of interest bearing assets, liabilities and derivatives represented the following interest types and expected maturities. Amounts indicated represent nominal values.

    SEK in millions

    Jan–Mar 2018

    Apr–Jun 2018

    Jul–Sep 2018

    Oct–Dec 2018

    2019

    2020

    2021

    2022

    Later years

    Total

    Fixed

                       

    lnterest bearing asset

    10,399

    369

    300

    2,150

    3,650

    3,049

    1,540

    1,346

    200

    23,003

    lnterest bearing debt

    -664

    295

    -726

    -3,303

    -6,074

    -7,686

    -7,517

    -49,057

    -74,732

    Derivatives

    -340

    726

    -49

    3,303

    12,338

    5,745

    7,812

    19,757

    49,293

    Net

    9,395

    663

    300

    2,101

    3,650

    9,313

    -400

    1,641

    -29,100

    -2,437

    Float

                       

    lnterest bearing asset

    4,377

    4,377

    lnterest bearing debt

    -9,401

    -589

    -9,991

    Derivatives

    -47,177

    -2,040

    -49,217

    Net

    -52,201

    -2,630

    -54,831

    Total, net

    -42,806

    -1,966

    300

    2,101

    3,650

    9,313

    -400

    1,641

    -29,100

    -57,268

    Telia Company has designated certain interest rate swaps as cash flow hedges to hedge against changes in the amount of future cash flows related to interest payments on existing liabilities also including certain long-term borrowings hedging net investments, see Note C20 “Long-term and short-term borrowings”. Hedge ineffectiveness related to outstanding cash flow hedges was immaterial and recognized in net income. Net changes in fair value recognized in other comprehensive income are offset in a hedging reserve as a component of equity, see Note C11 “Other comprehensive income.” In 2017, no cash flow hedges were discontinued due to the original forecasted transactions not having occurred in the originally specified time period.

    Interest rate risk sensitivity

    As of December 31, 2017, Telia Company had interest-bearing debt of SEK 88.5 billion, carrying value, with duration of interest of approximately 4.1 years, including derivatives. The volume of loans exposed to changes in interest rates over the next 12-month period was at the same date approximately SEK 55.7 billion, carrying value, assuming that existing loans maturing during the year are refinanced and after accounting for derivatives.

    The exact effect of a change in interest rates on the financial net stemming from this debt portfolio depends on the timing of maturity of the debt as well as reset dates for floating rate debt, and that the volume of loans may vary over time, thereby affecting the estimate.

    However, assuming that those loans were reset by January 1, 2018, at a one percentage point higher interest rate than the prevailing rate as per December 31, 2017, and remained at that new level during 12 months, the post-tax interest expense would increase by approximately SEK 435 million. At the same time the effect on equity would be a decrease of SEK 132 million due to cash flow hedges.

    Fair value of the loan portfolio would change by approximately SEK 4.1 billion, should the level in market interest rates make a parallel shift of one percentage point, and assuming the same volume of loans and a similar duration on those loans as per year-end 2017.

    Refinancing risk management

    In order to reduce refinancing risk, the group aims to distribute loan maturity dates over a longer period. The group’s policy is that the average maturity of borrowings should exceed 4 years and that a maximum of 25 percent of the funding is allowed to mature within 2 years. As of December 31, 2017, the average maturity of Telia Company’s borrowings was 7.7 years and 8 percent of the borrowings due within 2 years.

    Pension obligation risk and sensitivity

    See Note C21 “Provisions for pensions and employment contracts” for details on the pension obligation risks and a sensitivity analysis.

    Management of insurable risks

    The insurance cover is governed by corporate guidelines and includes a common package of different property and liability insurance programs. The business units and other units being responsible for assessing the risks decide the extent of actual cover. Corporate Insurance at Telia Company AB manages the common group insurance programs and uses a captive, Telia Försäkring AB, as a strategic tool in managing the insurance programs. The risks in the captive are in part reinsured in the international reinsurance market.

    Master netting arrangements and similar
    agreements

    Telia Company has entered into ISDA Master Agreements for its OTC derivative business, i.e. interest rate and currency derivatives, with all of its core banks. These ISDA Master Agreements allow the parties to do close-out nettings. For derivatives in the financial operations, CSAs (credit support annex) may be entered into as an annex to the respective master agreement, and are recognized as other current receivables/liabilities. Under the CSA, the parties agree to provide each other with eligible support, which is calculated based on a weekly exposure under the specific agreement. Funds transferred and interest accrued under a CSA agreement is not considered collateral.

    For information on discontinued operations, see Note C34 “Discontinued operations and assets classified as held for sale.”

    SEK in millions

    Note

    December 31, 2017

    Gross  amounts, financial 
    assets

    Gross amounts, financial
    liabilites

    Net amounts of financial assets in the statement of financial position

    Related financial 
    liabilities that are not set off

    CSA

    Net
    amount

    Interest and cross-currency
    interest rate swaps

    C15, C18

    3,004

    3,004

    -2,130

    -848

    26

    Currency swaps and forward exchange contracts

    C15, C17

    214

    214

    -139

    76

    Other assets

     

    96

    -41

    55

       

    55

    Total

     

    3,314

    -41

    3,273

    -2,269

    -848

    156

                   
                   

    SEK in millions

    Note

    December 31, 2017

    Gross amounts, financial liabilities

    Gross amounts, financial assets

    Net amounts of financial liabilities in the statement of financial position

    Related
    financial
    assets that
    are not set off

    CSA

    Net
    amount

    Interest and cross-currency
    interest rate swaps

    C20

    2,469

    2,469

    -2,130

    -370

    -32

    Currency swaps and forward exchange contracts

    C23, C24

    225

    225

    -139

    86

    Other liabilites

     

    156

    -41

    114

       

    114

    Total

     

    2,849

    -41

    2,808

    -2,269

    -370

    169

                   

    SEK in millions

    Note

    December 31, 2016

    Gross amounts, financial 
    assets

    Gross amounts, financial
    liabilites

    Net amounts of financial assets in the statement of 
    financial position

    Related
    financial 
    liabilities that are not set off

    CSA

    Net
    amount

    Interest and cross-currency
    interest rate swaps

    C15, C18

    5,437

    5,437

    -2,517

    -1,407

    1,513

    Currency swaps and forward exchange contracts

    C15, C17

    259

    259

    -255

    4

    Other assets

     

    34

    -19

    15

    15

    Total

     

    5,729

    -19

    5,711

    -2,772

    -1,407

    1,532

                   
                   

    SEK in millions

    Note

    December 31, 2016

    Gross amounts, financial liabilities

    Gross amounts, financial assets

    Net amounts of financial liabilities in the statement of
    financial position

    Related
    financial
    assets that
    are not set off

    CSA

    Net
    amount

    Interest and cross-currency
    interest rate swaps

    C20

    2,877

    2,877

    -2,517

    360

    Currency swaps and forward exchange contracts

    C23, C24

    694

    694

    -255

    440

    Other liabilites

     

    36

    -19

    17

    17

    Total

     

    3,608

    -19

    3,589

    -2,772

    817

                   
  27. Leasing agreements

    Telia Company as lessee, continuing operations

    Finance leases

    The group’s finance leases concern computers and other it equipment, production vehicles, company cars to employees, and other vehicles. There is no subleasing.

    The carrying value of the leased assets as of the end of the reporting period was as follows.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Cost

    354

    329

    Less accumulated depreciation and impairment losses

    -80

    -85

    Net carrying value of finance lease agreements

    274

    244

    In 2017 and 2016, depreciation and impairment losses totaled SEK 25 million and SEK 2 million, respectively. Leasing fees paid in these years totaled SEK 16 million and SEK 10 million, respectively.

    As of the end of the reporting period, the present value of future minimum leasing fees under non-cancelable finance lease agreements were as follows.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Total future minimum leasing fees

    237

    259

    Less interest charges

    -21

    -32

    Present value of future minimum leasing fees

    216

    227

    As of December 31, 2017, future minimum leasing fees and their present values as per finance lease agreements that could not be canceled in advance and were in excess of one year were as follows.

    Expected maturity
    SEK in millions

    Jan–Mar 2018

    Apr–Jun 2018

    Jul–Sep 2018

    Oct–Dec 2018

    2019

    2020

    2021

    2022

    Later years

    Total

    Future minimum leasing fees

    5

    5

    4

    4

    17

    16

    16

    13

    157

    237

    Present value of future minimum
    leasing fees

    4

    4

    4

    4

    15

    14

    15

    12

    144

    216

    Operating leases

    Telia Company’s operating lease agreements primarily concern office space, technical sites, land, computers and other equipment. Certain contracts include renewal options for various periods of time. Subleasing consists mainly of office premises.

    Future minimum leasing fees under operating lease agreements in effect as of December 31, 2017 that could not be canceled in advance and were in excess of one year were as follows.

    Expected maturity
    SEK in millions

    Jan–Mar 2018

    Apr–Jun 2018

    Jul–Sep 2018

    Oct–Dec 2018

    2019

    2020

    2021

    2022

    Later years

    Total

    Future minimum leasing fees

    411

    410

    409

    369

    810

    657

    495

    430

    1,467

    5,458

    Minimum sublease payments

    2

    1

    1

    1

    1

    2

    8

     

    In 2017 and 2016, total rent and leasing fees paid were SEK 1,631 million and SEK 1,771 million, respectively.

    In these years, revenues for subleased items totaled SEK 5 million and SEK 24 million, respectively.

    Apart from certain short-term leases, leasing terms range between 3 months and 30 years with an average term of approximately 5 years. All leases have been entered into on conventional commercial terms. Certain contracts include renewal options for various periods of time.

    Telia Company as lessor, continuing operations

    Finance leases

    The leasing portfolio of Telia Company’s customer financing operations in Sweden, Finland, Denmark and Norway, comprise financing related to Telia Company’s product offerings. The term of the contract stock is approximately 14 quarters. The term of new contracts signed in 2017 was 14 quarters. Of all contracts, 60 percent carry a fixed interest rate and 40 percent a floating interest rate. Most contracts include renewal options. In Finland, Telia Company provides, under a finance lease agreement, electricity meters with SIM cards for automated reading to a power company as part of Telia Company’s service package. The term of the agreement was 15 years and it carries a fixed interest rate and agreement will end at year 2023.

    As of the end of the reporting period, the present value of future minimum lease payment receivables under non-cancelable finance lease agreements were as follows.

    SEK in millions

    Dec 31, 2017

    Dec 31, 2016

    Minimum lease payments receivables

    1,089

    1,007

    Unguaranteed residual values accruing to the benefit of the lessor

    Gross investment in finance lease contracts

    1,089

    1,007

    Unearned finance income

    -94

    -130

    Present value of future minimum lease payments receivables (net investment in finance lease contracts)

    995

    877

    As of December 31, 2017, the gross investment and present value of receivables relating to future minimum lease payments under non-cancelable finance lease agreements were distributed as follows.

    Expected maturity
    SEK in millions

    Jan–Mar 2018

    Apr–Jun 2018

    Jul–Sep 2018

    Oct–Dec 2018

    2019

    2020

    2021

    2022

    Later years

    Total

    Gross investment

    88

    90

    89

    88

    210

    288

    133

    68

    35

    1,089

    Present value of future minimum lease payments receivables

    102

    104

    103

    102

    182

    187

    122

    62

    31

    995

    As of December 31, 2017 and 2016, the accumulated allowance for uncollectible minimum lease payments receivables totaled SEK 0 million and SEK 0 million, respectively. Credit losses on leasing receivables are reduced by gains from the sale of equipment returned.

    Operating leases

    The leasing portfolio refers mainly to the international