Auditors’ Report

To the general meeting of the shareholders of Telia Company AB (publ) corporate identity number 556103-4249

Report on the annual accounts and consolidated accounts

Opinions

We have audited the annual accounts and consolidated accounts of Telia Company AB (publ) for the financial year 2017-01-01 – 2017-12-31 except for the corporate governance statement on pages 74 – 91 and the statutory sustainability report on pages 13– 14, 17– 18, 49– 65 and 203– 210. The annual accounts and consolidated accounts of the company are included on pages 25 – 202 and 211 in this document.

In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the parent company as of 31 December 2017 and its financial performance and cash flow for the year then ended in accordance with the Annual Accounts Act. The consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the group as of 31 December 2017 and their financial performance and cash flow for the year then ended in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU, and the Annual Accounts Act. Our opinions do not cover the corporate governance statement on pages 74 – 91 or the statutory sustainability report on pages 13– 14, 17– 18, 49– 65 and 203– 210. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts.

We therefore recommend that the general meeting of shareholders adopts the income statement and balance sheet for the parent company and the statements of comprehensive income and statements of financial position for the group.

Our opinions in this report on the the annual accounts and consolidated accounts are consistent with the content of the additional report that has been submitted to the parent company’s audit committee in accordance with the Audit Regulation (537/2014) Article 11.

Basis for Opinions

We conducted our audit in accordance with International Standards on Auditing (ISA) and generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor’s Responsibilities section. We are independent of the parent company and the group in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements. This includes that, based on the best of our knowledge and belief, no prohibited services referred to in the Audit Regulation (537/2014) Article 5.1 have been provided to the audited company or, where applicable, its parent company or its controlled companies within the EU.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.

Key Audit Matters

Key audit matters of the audit are those matters that, in our professional judgment, were of most significance in our audit of the annual accounts and consolidated accounts of the current period. These matters were addressed in the context of our audit of, and in forming our opinion thereon, the annual accounts and consolidated accounts as a whole, but we do not provide a separate opinion on these matters.

Revenue recognition

Risk description

Telia Company’s revenues comprise several different revenue streams such as traffic charges, subscription fees, installation fees, services and equipment sales. 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.

We focused on this area since the application of revenue recognition accounting standards is complex and involves a number of key judgements and estimates. In addition there is an inherent risk around the accuracy of revenue recorded given the complexity of revenue systems and data applications.

Audit procedures

Our audit procedures included, but were not limited to:

  • evaluating the design and testing operational effectiveness of key internal controls, including relevant IT systems, used for billing and monitoring of revenue recognition;
  • audit of revenue recognition policies with respect to significant services, products and tariff plans to determine appropriate revenue recognition;
  • analytical and detailed audit procedures for a selection of recognized revenue;
  • evaluating the adequacy of disclosures related to the various revenue streams; and
  • evaluating impacts from and adequacy of disclosures regarding new accounting standard IFRS 15 effective on January 1, 2018.

For further information, please refer to the Group´s accounting principles in note C3 on pages 104-113, the key management judgements made in note C2 on pages 100-103 and the disclosures for Net Sales in note C6 on page 117 and information of Net Sales in discontinued operations in note C34 on page 168. For information about the impact that the initial application of IFRS 15 will have on the consolidated financial statements in the period of initial application, refer to note C1 on page 97.

Carrying value of goodwill and other intangible assets

Risk description

Telia Company´s carrying values of goodwill and other intangible assets represent a significant part of Telia Company´s total assets. Telia Company is required to test such assets for impairment annually or whenever events or circumstances indicate that the carrying value of an asset may not be recoverable. The determination of recoverable amount, being the higher of fair value less costs of disposal and value in use, requires judgement on the part of management in both identifying and then valuing the relevant cash generating units. Recoverable amounts are based on management’s view of variables such as future average revenue per user, average customer numbers and customer churn, timing and approval of future capital, spectrum and operating expenditure and the most appropriate discount rate. The process for preparing impairment test also includes relevant management and board approvals of business plans and valuations.

We focused on the impairment test of goodwill and intangible assets as the carrying value of such assets is material and the tests are sensitive to changes in assumptions.

Audit procedures

Our audit procedures included, but were not limited to:

  • evaluating the appropriateness of management’s identification of the Group’s cash generating units and test the design of controls over the impairment assessment process, including indicators of impairment;
  • together with internal specialists independently calculate appropriate pre-tax discount rates by making reference to market data and to verify the long-term growth rate used by management to observable market data as well as challenge other key assumptions in management’s valuation models used to determine recoverable amount, including assumptions of projected EBITDA, capital expenditure, licenses and spectrum payments; and
  • evaluating the adequacy of disclosures related to those assumptions to which the outcome of the impairment test is most sensitive.

For further information, please refer to the Group´s accounting principles in note C3 on pages 104 – 113, the key management judgements made for valuation in note C2 on page 100 – 103 and the information on goodwill and other intangible assets in note C12.

Divestments in Eurasia

Risk description

Telia Company announced in September 2015 their intention to divest their operations and assets in Eurasia. The operations to be divested are classified as held for sale and discontinued operations as of 31 December, 2017. According to IFRS 5, non-current assets and disposal groups should be classified as held-for-sale if their carrying value will be recovered principally through a sales transaction rather than through continuing use. One of the conditions that must be satisfied for classification as held-for-sale is that the sale is highly probable within one year. In addition, assets held for sale should be measured at the lower of carrying value and estimated fair value less costs to sell. For operations already divested the capital gain or loss calculations can be complex and also include significant management judgements relating to provisions for indemnities.

We focused on this area since classification and measurement of assets held for sale require significant judgements and estimates by management and the amounts have a significant impact on the financial position of Telia Company.

Audit procedures

Our audit procedures included, but were not limited to:

  • review of Telia Company´s actions in order to divest the operations and assets in Eurasia;
  • challenging management on whether the requirements under IFRS 5 for the former segment region Eurasia to be classified as held for sale and discontinued operations were met;
  • review and evaluation of the Board of Directors’ and management´s process to determine fair value less costs of disposal; and
  • verifying the accuracy of management’s calculation of the impairment charge including adequacy of disclosures.

For further information, please refer to the Group’s accounting principles in note C3 on pages 104 – 113, the key management judgements made for classification and valuation of assets held for sale in note C2 on page 100 – 103 and the information on assets held for sale and discontinuing operations in note C34 on page 168 – 173.

Settlement with US and Dutch authorities

Risk description

As described on pages 72 – 73 in the annual accounts, the US and Dutch authorities have investigated historical transactions related to Telia Company’s entry into Uzbekistan in 2007. As announced on September 15, 2016, Telia Company received a proposal from the US and the Dutch authorities for financial sanctions amounting to a total of approximately USD 1.45 billion (SEK 12.5 billion at that point in time). Without certainty as to the timing and amount that would be paid at the time of a final resolution, Telia Company recorded a USD 1.45 billion provision (SEK 13.2 billion per December 31, 2016). As per March 31, 2017, a final resolution had not yet been reached, but in light of recent developments to that date in those discussions, the estimate of the most likely outcome was revised and the provision was adjusted to USD 1.0 billion (SEK 8.9 billion at that point in time). As per June 30, 2017, the provision remained unchanged at USD 1.0 billion corresponding to SEK 8.5 billion, where the change in the amount in SEK was related to changed foreign exchange rate. On September 21, 2017, Telia Company reached a global settlement with the US and Dutch authorities regarding the Uzbekistan investigations. As part of the settlement, Telia Company agreed to pay fines and disgorgements in an aggregate amount of USD 965 million, whereof USD 757 million (SEK 6,129 million) were paid during the third quarter. The remaining part, USD 208 million (SEK 1,698 million) is related to the SEC disgorgement amount potentially offset against any disgorgement obtained by the Swedish Prosecutor or Dutch authorities. This amount is discounted and classified as a long-term provision in the consolidated statements of financial position.

We focused on this area because assessing the recorded provision during 2017 required significant judgements and estimates to be made by management and the global settlement reached with authorities has a significant impact on the financial position of Telia Company.

Audit procedures

Our audit procedures included, but were not limited to:

  • review of signed agreements with the authorities obtaining an understanding of the settlement including any post settlement obligations;
  • inquiry of and discussions with Telia Company group general counsel and group ethics & compliance function as well as external legal counsel about circumstances and considerations to be made in order to assess the settlement; and
  • evaluating the classification and measurement of fines paid and recognized provision as well as the adequacy of disclosures.

For further information, please refer to the Risks and uncertainties section in the Board of Directors’ report on pages 72 – 73 and the information in note C34 on page 173.

IT-systems for financial reporting

Risk description

In addition to revenues large amounts of data are generated and processed in Telia Company´s IT environment as part of their daily operations. The IT environment is complex and includes multiple applications throughout the Group. In addition data warehouse solutions are being used to capture and aggregate information as needed. The complex IT infrastructure requires processes for maintaining key IT systems and controls that enhance efficiency, consistency and control within business processes.

We focused on this area since there are risks that all transactions and data used for financial reporting are not captured timely and/or not complete.

Audit procedures

In collaboration with our IT-audit specialists our audit procedures included, but were not limited to:

  • evaluation of Telia Company´s governance model regarding IT and IT controls;
  • identification, evaluation and testing of general computer controls for systems of significance to financial reporting;
  • identification, evaluation and testing of automated controls within IT applications as well as data analytic procedures in order to review completeness and cut-off of information for systems of significance to financial reporting; and
  • identification, evaluation and testing of controls over critical data for financial reporting.

Capital expenditure

Risk description

Telia Company is investing significant amounts in their operations and there are a number of areas where management judgement impacts the carrying value of property, plant and equipment, software intangible assets and their respective depreciation profiles. These include among other the decision to capitalize or expense costs; and review of useful life of the assets including the impact of changes in the Group’s strategy.

We focused on this area since the amounts have a significant impact on the financial position of Telia Company and there is significant management judgment required that has significant impact of the reporting of the financial position for Telia Company.

Audit procedures

Our audit procedures included, but were not limited to:

  • testing operating effectiveness of controls in place over the property, plant and equipment cycle including the controls over whether engineering (labor) activity is capital or operating in nature;
  • evaluating the appropriateness of capitalization policies and amortization and depreciation rates;
  • performing tests of details on costs capitalized; and
  • verifying the accuracy of management’s calculation of the impairment charge on IT and network assets.

For further information, please refer to the Group´s accounting principles in note C3 on pages 104 – 113, the principles for useful lives of assets in note C2 on page 101 and the information on Capital Expenditure during 2017 in note C13 on page 129.

Other information than the annual accounts and consolidated accounts

This document also contains other information than the annual accounts and consolidated accounts and is found on pages 4 – 24 and 217 – 229. The Board of Directors and the Managing Director are responsible for this other information.

Our opinion on the annual accounts and consolidated accounts does not cover this other information and we do not express any form of assurance conclusion regarding this other information.

In connection with our audit of the annual accounts and consolidated accounts, our responsibility is to read the information identified above and consider whether the information is materially inconsistent with the annual accounts and consolidated accounts. In this procedure we also take into account our knowledge otherwise obtained in the audit and assess whether the information otherwise appears to be materially misstated.

If we, based on the work performed concerning this information, conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Board of Directors and the Managing Director

The Board of Directors and the Managing Director are responsible for the preparation of the annual accounts and consolidated accounts and that they give a fair presentation in accordance with the Annual Accounts Act and, concerning the consolidated accounts, in accordance with IFRS as adopted by the EU. The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error.

In preparing the annual accounts and consolidated accounts, The Board of Directors and the Managing Director are responsible for the assessment of the company’s and the group’s ability to continue as a going concern. They disclose, as applicable, matters related to going concern and using the going concern basis of accounting. The going concern basis of accounting is however not applied if the Board of Directors and the Managing Director intends to liquidate the company, to cease operations, or has no realistic alternative but to do so.

The Audit Committee shall, without prejudice to the Board of Director’s responsibilities and tasks in general, among other things oversee the company’s financial reporting process.

Auditor’s responsibility

Our objectives are to obtain reasonable assurance about whether the annual accounts and consolidated accounts as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and generally accepted auditing standards in Sweden will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these annual accounts and consolidated accounts.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

  • Identify and assess the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
  • Obtain an understanding of the company’s internal control relevant to our audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control.
  • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors and the Managing Director.
  • Conclude on the appropriateness of the Board of Directors’ and the Managing Director’s use of the going concern basis of accounting in preparing the annual accounts and consolidated accounts. We also draw a conclusion, based on the audit evidence obtained, as to whether any material uncertainty exists related to events or conditions that may cast significant doubt on the company’s and the group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the annual accounts and consolidated accounts or, if such disclosures are inadequate, to modify our opinion about the annual accounts and consolidated accounts. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause a company and a group to cease to continue as a going concern.
  • Evaluate the overall presentation, structure and content of the annual accounts and consolidated accounts, including the disclosures, and whether the annual accounts and consolidated accounts represent the underlying transactions and events in a manner that achieves fair presentation.
  • Obtain sufficient and appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated accounts. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our opinions.

We must inform the Board of Directors of, among other matters, the planned scope and timing of the audit. We must also inform of significant audit findings during our audit, including any significant deficiencies in internal control that we identified.

We must also provide the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of the annual accounts and consolidated accounts, including the most important assessed risks for material misstatement, and are therefore the key audit matters. We describe these matters in the auditor’s report unless law or regulation precludes disclosure about the matter.

Report on other legal and regulatory requirements

Opinions

In addition to our audit of the annual accounts and consolidated accounts, we have also audited the administration of the Board of Directors and the Managing Director of Telia Company AB (publ) for the financial year 2017-01-01 – 2017-12-31 and the proposed appropriations of the company’s profit or loss.

We recommend to the general meeting of shareholders that the profit to be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year.

Basis for Opinions

We conducted the audit in accordance with generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor’s Responsibilities section. We are independent of the parent company and the group in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.

Responsibilities of the Board of Directors and the Managing Director

The Board of Directors is responsible for the proposal for appropriations of the company’s profit or loss. At the proposal of a dividend, this includes an assessment of whether the dividend is justifiable considering the requirements which the company’s and the group’s type of operations, size and risks place on the size of the parent company’s and the group’s equity, consolidation requirements, liquidity and position in general.

The Board of Directors is responsible for the company’s organization and the administration of the company’s affairs. This includes among other things continuous assessment of the company’s and the group’s financial situation and ensuring that the company’s organization is designed so that the Cissi accounting, management of assets and the company’s financial affairs otherwise are controlled in a reassuring manner. The Managing Director shall manage the ongoing administration according to the Board of Directors’ guidelines and instructions and among other matters take measures that are necessary to fulfill the company’s accounting in accordance with law and handle the management of assets in a reassuring manner.

Auditor’s responsibility

Our objective concerning the audit of the administration, and thereby our opinion about discharge from liability, is to obtain audit evidence to assess with a reasonable degree of assurance whether any member of the Board of Directors or the Managing Director in any material respect:

  • has undertaken any action or been guilty of any omission which can give rise to liability to the company, or
  • in any other way has acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association.

Our objective concerning the audit of the proposed appropriations of the company’s profit or loss, and thereby our opinion about this, is to assess with reasonable degree of assurance whether the proposal is in accordance with the Companies Act.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with generally accepted auditing standards in Sweden will always detect actions or omissions that can give rise to liability to the company, or that the proposed appropriations of the company’s profit or loss are not in accordance with the Companies Act.

As part of an audit in accordance with generally accepted auditing standards in Sweden, we exercise professional judgment and maintain professional scepticism throughout the audit. The examination of the administration and the proposed appropriations of the company’s profit or loss is based primarily on the audit of the accounts. Additional audit procedures performed are based on our professional judgment with starting point in risk and materiality. This means that we focus the examination on such actions, areas and relationships that are material for the operations and where deviations and violations would have particular importance for the company’s situation. We examine and test decisions undertaken, support for decisions, actions taken and other circumstances that are relevant to our opinion concerning discharge from liability. As a basis for our opinion on the Board of Directors’ proposed appropriations of the company’s profit or loss we examined the Board of Directors’ reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Companies Act.

Auditor´s examination of the corporate governance report

The Board of Directors is responsible for that the corporate governance statement on pages 74 – 91 has been prepared in accordance with the Annual Accounts Act.

Our examination of the corporate governance statement is conducted in accordance with FAR´s auditing standard RevU 16 The auditor´s examination of the corporate governance statement. This means that our examination of the corporate governance statement is different and substantially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. We believe that the examination has provided us with sufficient basis for our opinions.

A corporate governance statement has been prepared. Disclosures in accordance with chapter 6 section 6 the second paragraph points 2 – 6 of the Annual Accounts Act and chapter 7 section 31 the second paragraph the same law are consistent with the other parts of the annual accounts and consolidated accounts and are in accordance with the Annual Accounts Act.

The auditor´s opinion regarding the statutory sustainability report

The Board of Directors is responsible for the statutory sustainability report on pages 13–14, 17–18, 49–65 and 203 – 210 and that it is prepared in accordance with the Annual Accounts Act. Our examination has been conducted in accordance with FAR:s auditing standard RevR 12 The auditor´s opinion regarding the statutory sustainability report. This means that our examination of the statutory sustainability report is different and substantially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. We believe that the examination has provided us with sufficient basis for our opinion.

A statutory sustainability report has been prepared.

Deloitte AB, was appointed auditor of Telia Company AB by the general meeting of the shareholders on April 5, 2017 and has been the company’s auditor since April 2, 2014.

 

Stockholm, March 7, 2018

Deloitte AB

Signature on Swedish original

Jan Nilsson

Authorized Public Accountant