Financials

The report of the Board of Directors 2016

The Financial report has been prepared in accordance with the International Financial Reporting Standards (IFRS).

Market situation

The competitive environment has been intense and active during 2016, characterised by some campaigning and investments in customer acquisition. The smartphone market grew, and the usage of data services continued to evolve favourably. Approximately 93 per cent of the mobile handsets sold in 2016 were smartphones. Another factor contributing to mobile market growth has been the increased network coverage and capacity of new 4G speeds. The competition in the fixed broadband market has been intense in multi-dwelling units. The number and usage of traditional fixed network subscriptions is decreasing.

The markets for IT and IPTV entertainment services have continued to develop favourably. The demand for other digital consumer online services is also growing.

Revenue, earnings and financial position

Revenue and earnings
EUR million 2016 2015 2014
Revenue 1,636 1,569 1,535
EBITDA 563 532 520
Comparable EBITDA (1 564 536 520
EBITDA-% 34.4 33.9 33.8
Comparable EBITDA-% 34.5 34.1 33.8
EBIT 339 312 305
Comparable EBIT (2 349 322 305
EBIT-% 20.7 19.9 19.9
Comparable EBIT-% 21.4 20.5 19.9
Return on equity, % 27.1 27.0 25.6
1) 2016 EBITDA includes transfer tax of EUR 1.7m relating to the Anvia acquisition and a capital gain of EUR 0.6m from the sale of Tansec shares.
2) 2016 EBIT includes, in addition to the preceding, a EUR 9m goodwill impairment write-down relating to the Habbo service.

Revenue increased by 4 per cent. The Anvia consolidation, growth in the mobile service business and equipment sales in both Finland and Estonia, as well as digital services in both customer segments, affected revenue positively. Lower mobile interconnection and roaming revenue, as well as the decrease in usage and subscriptions of traditional fixed telecom services in both segments, affected revenue negatively.

Reported EBITDA includes a non-recurring item of EUR 1 million, which relates to transfer tax of EUR 1.7 million relating to the Anvia acquisition and a capital gain of EUR 0.6 million from the sale of Tansec shares. Comparable EBITDA increased by 5 per cent, mainly due to the Anvia consolidation, revenue growth and productivity improvement measures. Comparable EBIT increased by 9 per cent. Depreciation includes a non-recurring EUR 9 million goodwill impairment write-down relating to the Habbo service.

Net financial income and expenses decreased to EUR -18 million (-24), mainly due to a non-recurring EUR 3 million return relating to unclaimed shares in Elisa’s listing and lower interest rates. Income taxes in the income statement increased to EUR -63 million (-47), mainly due to improved profit before tax and tax asset booking in the previous year. Elisa’s net profit was EUR 257 million (244). Comparable net profit was EUR 265 million (246). The Group’s earnings per share amounted to EUR 1.61 (1.52) and comparable EPS to EUR 1.66 (1.54).

Financial position
EUR million End 2016 End 2015 End 2014
Net debt 1,124 962 1,001
Net debt / EBITDA (1 2.0 1.8 1.9
Gearing ratio, % 115.7 103.9 114.0
Equity ratio, % 38.5 41.4 39.4
 
EUR million 2016 2015 2014
Cash flow after investments 65 253 185
Cash flow after investments excluding investments in shares (2 281 266 224
1) (interest-bearing debt – financial assets) / (four previous quarters’ EBITDA exclusive of non-recurring items)
2) Includes a EUR 167m loan arrangement relating to the Starman acquisition

Cash flow after investments was EUR 65 million (253), and excluding investment in shares it was EUR 281 million (266). Cash flow excluding investments in shares grew, mainly due to increased EBITDA and improved net working capital change.

The financial and liquidity positions are good. Net debt increased to EUR 1,124 (962) million, mainly as a result of a loan arrangement relating to the Starman acquisition. Cash and undrawn committed loans and credit lines totalled EUR 214 (479) million at the end of the year.

Changes in corporate structure

On 29 June, an Extraordinary General Meeting of Anvia Oyj approved the sale of Anvia’s ICT businesses to Elisa. The transaction was executed on 1 July 2016, when the acquired companies, Anvia Telecom Oy, Anvia IT-palvelut Oy, Anvia Hosting Oy, Anvia TV Oy and Watson Nordic Oy, were consolidated into Elisa. The acquisition price was EUR 107 million, of which EUR 78 million was paid with Anvia shares, EUR 28 million with cash and EUR 1 million with shares in the subsidiary company Tansec Oy.

Arediv Oy merged into the parent company Elisa Oyj on 30 June 2016.

On 1 July 2016, Elisa sold its fully owned subsidiary Elisa Rahoitus Oy to Aktia Bank plc.

On 13 December 2016, Elisa signed an agreement in which Elisa acquired cable TV operator Starman's Estonian business. The transaction is subject to the approval of the Estonian competition authority as well as other usual terms and conditions related to acquisitions. The Estonian competition authority has opened phase II proceedings. Elisa estimates that the deal will be closed during the first quarter of 2017.

Consumer Customers business

EUR million 2016 2015
Revenue 1,029 983
EBITDA 369 348
Comparable EBITDA 370 349
EBITDA-% 35.9 35.4
Comparable EBITDA-% 35.9 35.5
EBIT 241 221
Comparable EBIT 250 229
CAPEX 126 111

Revenue increased by 5 per cent. Anvia consolidation, mobile services, equipment sales and growth in digital services contributed positively to revenue. The decrease in usage and subscriptions of traditional fixed telecom services affected revenue negatively, as did the lower mobile interconnection and roaming revenue.

Reported EBITDA includes a non-recurring item of EUR 1 million, which relates to Anvia transaction. Comparable EBITDA increased by 6 per cent, mainly due to the Anvia consolidation, revenue growth and productivity improvement measures. 

Corporate Customers business

EUR million 2016 2015
Revenue 606 586
EBITDA 194 185
Comparable EBITDA 194 187
EBITDA-% 31.9 31.5
Comparable EBITDA-% 32.0 31.9
EBIT 99 91
Comparable EBIT 99 93
CAPEX 100 85

Revenue increased by 3 per cent. The Anvia consolidation, growth in mobile services and digital services contributed positively to revenue. Lower mobile interconnection and roaming revenue, as well as a decrease in usage and subscriptions of traditional fixed telecom services, affected revenue negatively.

Comparable EBITDA increased by 4 per cent, mainly due to the Anvia consolidation, revenue growth and productivity improvement measures.

Personnel

In 2016, the average number of personnel at Elisa was 4,247 (4,146). Employee expenses increased to EUR 275 million (266), mainly due to the Anvia consolidation and changes in collective labour agreements. Personnel at the end of 2016 amounted to 4,301 (4,083). Personnel by segment at the end of the period:

  End 2016 End 2015
Consumer Customers 2,424 2,290
Corporate Customers 1,877 1,793
Total 4,301 4,083

Investments

EUR million 2016 2015
Capital expenditure, of which 226 196
Consumer Customers 126 111
Corporate Customers 100 85
Shares 108 18
Total 334 213

The main capital expenditures related to the capacity and coverage increase of the 4G networks, as well as to other network and IT investments.

Financing arrangements and ratings

Valid financing arrangements
EUR million Maximum
amount
In use on
31 Dec 2016
Committed credit lines     300 130
Commercial paper programme (1     150 199
EMTN programme (2     1,000 600
1) Domestic commercial paper programme, not committed
2) Euro Medium Term Note programme, not committed
Long-term credit ratings
Credit rating agency Rating Outlook
Moody’s Investor Services Baa2 Stable
Standard & Poor’s BBB+ Stable

The Group’s cash and undrawn committed loans and credit lines totalled EUR 214 million (479) on 31 December 2016.

Standard & Poor's affirmed Elisa’s rating as ‘BBB+’ and the outlook as stable on 8 March 2016. Moody's Investors Service affirmed Elisa's rating as Baa2 and the outlook as stable on 20 April 2016.

Shares

Share trading volumes are based on trades made on the Nasdaq Helsinki and alternative marketplaces. Closing prices are based on the Nasdaq Helsinki.

Trading of shares 2016 2015
Nasdaq Helsinki, millions 105.7 113.3
Other marketplaces, millions (1 190.6 172.9
Total volume, millions 296.2 286.2
Value, EUR million 9,577.1 8,121.2
% of shares 177.0 171.0
Shares and market values End 2016 End 2015
Total number of shares 167,335,073 167,335,073
Treasury shares 7,715,129 7,851,006
Outstanding shares 159,619,944 159,484,067
Closing price, EUR 30.93 34.79
Market capitalisation, EUR million 5,176 5,822
Treasury shares, % 4.61 4.69
1) Other marketplaces based on the Fidessa Fragmentation Index
Number of shares Total number of shares Treasury shares Outstanding shares
Shares at 31 Dec 2015 167,335,073 7,851,006 159,484,067
Performance Share Plan 29.1.2016 (1   -134,037 134,037
Restricted Share Plan 7.11.2016 (2   -1,840 1,840
Shares at 31 Dec 2016 167,335,073 7,715,129 159,619,944
1) Stock exchange bulletin, 29 January 2016
2) Stock exchange bulletin, 7 November 2016

Research and development

The majority of the service development occurs during the ordinary course of business and is accounted for as a normal operating expense. Elisa invested EUR 11 million (EUR 15 million in 2015 and EUR 13 million in 2013) in research and development, corresponding to 0.7 per cent of revenue (0.9 per cent in 2015 and 0.8 per cent in 2014). EUR 10 million of the expenses was capitalised in 2016 (EUR 13 million in 2015 and EUR 11 million in 2014).

Annual General Meeting and Board of Directors' organising meeting

On 31 March 2016, Elisa’s Annual General Meeting decided to pay a dividend of EUR 1.40 per share based on the 2015 financial statements. The dividend was paid to shareholders on
12 April 2016. 

The Annual General Meeting adopted the financial statements for 2015. The members of the Board of Directors and the CEO were discharged from liability for 2015.

The number of the members of the Board of Directors was confirmed at seven. Mr Raimo Lind, Mr Petteri Koponen, Ms Leena Niemistö, Ms Seija Turunen, Mr Jaakko Uotila and Mr Mika Vehviläinen were re-elected as members of the Board of Directors and Ms Clarisse Berggårdh as a new member of the Board of Directors.

KPMG Oy Ab, authorised public accountants, was appointed the company’s auditor. Mr Esa Kailiala, APA, is the responsible auditor.

Mr Raimo Lind was elected as the Chairman of the Board and Mr Mika Vehviläinen as the Deputy Chairman. Mr Raimo Lind (Chair), Mr Petteri Koponen, Ms Leena Niemistö and Mr Mika Vehviläinen were appointed to the Compensation & Nomination Committee. Ms Seija Turunen (Chair), Ms Clarisse Berggårdh and Mr Jaakko Uotila were appointed to the Audit Committee.

Board of Directors’ authorisations

The Annual General Meeting decided to authorise the Board of Directors to resolve to repurchase or accept as pledge the company’s own shares. The repurchase may be directed. The amount of shares under this authorisation is 5 million shares at maximum. The authorisation is effective until 30 June 2017.

The Annual General Meeting decided to authorise the Board of Directors to pass a resolution concerning the share issue, the right of assignment of treasury shares and/or the granting of special rights entitling to shares. A maximum aggregate of 15 million of the company’s shares can be issued under the authorisation. The authorisation is effective until 30 June 2018.

Elisa Shareholders' Nomination Board

As of 2 September 2016, the composition of Elisa's Shareholders' Nomination Board is as follows:

  • Mr Kari Järvinen, CEO, nominated by Solidium Oy
  • Mr Reima Rytsölä, Executive Vice-President, nominated by Varma Mutual Pension Insurance Company
  • Mr Timo Ritakallio, President and CEO, nominated by Ilmarinen Mutual Pension Insurance Company
  • Ms Hanna Hiidenpalo, Director, Chief Investment Officer, nominated by Elo Mutual Pension Insurance Company
  • Mr Raimo Lind, Chairman of the Board of Elisa
  • The Nomination Board elected Mr Kari Järvinen as the chair.

The shareholders' Nomination Board was established in 2012 by Annual General Meeting. Its duty is to prepare proposals for the election and remuneration of the members of the Board of Directors of Elisa for the Annual General Meeting.

Significant legal and regulatory issues

The new EU “Roam like at Home” regulation is coming into force on 15 June 2017. The EU Commission has adopted a proposal to lower the current maximum wholesale roaming charges. The Commission proposed on 15 June 2016 that the maximum wholesale roaming charges in the EU would be EUR 0.0085 per MB, EUR 0.04 per minute and EUR 0.01 per SMS. The proposed maximum wholesale charges may still change during the legislative procedure in the EU. On 15 December 2016, the EU Commission decided on the detailed rules of fair usage policy and the sustainability mechanism. These mechanisms are designed to ensure the sustainability of domestic charging models.

The EU has adopted the General Data Protection Regulation (GDPR), which concerns all processing of personal data. The GDPR comes into force on 25 May 2018.

Anvia Oyj’s Extraordinary General Meeting in June 2016 approved the sale of Anvia’s ICT businesses to Elisa. One private shareholder has brought an action in a district court against Anvia in order to annul the General Meeting’s decision. 

The auction for the Finnish 700 MHz 4G spectrum ended on 24 November 2016. Elisa won 2×10 MHz of spectrum according to its target. The fee for Elisa’s spectrum is EUR 22.0 million and it will be paid in five annual instalments in 2017–2021. The license is valid from 1 February 2017 to 31 December 2033. The 700 MHz frequencies will be in mobile broadband use in 2017.

Substantial risks and uncertainties associated with Elisa’s operations

Risk management is part of Elisa’s internal control system. It aims to ensure that risks affecting the company’s business are identified, influenced and monitored. The company classifies risks into strategic, operational, hazard and financial risks.

Strategic and operational risks

The telecommunications industry is under intense competition in Elisa’s main market areas, which may have an impact on Elisa’s business. The telecommunications industry is subject to heavy regulation. Elisa and its businesses are monitored and regulated by several public authorities. This regulation also affects the price level of some products and services offered by Elisa. Regulation may also require investments that have long payback times.

The final effects of the new EU regulations regarding roaming and net neutrality are still open, and therefore they may have a financial impact on Elisa’s mobile business.

The rapid developments in telecommunications technology may have a significant impact on Elisa’s business.

Elisa’s main market is Finland, where the number of mobile phones per inhabitant is among the highest in the world, and growth in subscriptions is thus limited. Furthermore, the volume of phone traffic on fixed network has decreased during the last few years. These factors may limit opportunities for growth.

Hazard risks

The company’s core operations are covered by insurance against damage and interruptions caused by accidents and disasters. Accident risks also include litigation and claims.

Financial risks

In order to manage the interest rate risk, the Group’s loans and investments are diversified into fixed- and variable-rate instruments. Interest rate swaps can be used to manage the interest rate risk.

As most of Elisa's operations and cash flow are denominated in euros, the exchange rate risk is minor.

The objective of liquidity risk management is to ensure the Group’s financing in all circumstances. Elisa has cash reserves, committed credit facilities and a sustainable cash flow to cover its foreseeable financing needs.

Liquid assets are invested within confirmed limits in financially solid banks, domestic companies and institutions. Credit risk concentrations in accounts receivable are minor as the customer base is broad. 

A detailed description of financial risk management can be found in Note 34 to the consolidated financial statements.

Corporate responsibility

Elisa has an important role in society in promoting sustainable digitalisation by continuously improving the reliability, safety, availability and environmental impacts of its services.  Elisa is committed to the UN Global Compact and supports the UN Sustainable Development Goals.

Customer demand for environmentally friendly ICT and online services continued to increase in 2016, resulting in a further reduction of our customers' carbon footprint. The total reduction was 37,527 tCO2 (32,313), being 14 per cent better than 2015.

Elisa is a pioneer in changing working culture and engaging teleworking. In 2016, employees teleworked on average 77 (75) days and participated in 227,556 (211,014) virtual meetings. Modern ways of working and investments in daily management showed as high scores in the Great Place to Work Trust Index and in Elisa’s personnel satisfaction survey, which improved once again for the thirteenth year in a row.

As a result of Elisa's energy efficiency initiatives and usage of renewable electricity we achieved savings of 118,560 tCO2 (41,633). All electricity consumed by Elisa in Finland and Estonia was renewable in 2016. Optimisation, modernisation and virtualisation of mobile networks and data centres resulted in savings of 7,953 tCO2 (6,919). Elisa saved 937 tCO2 (914) through e-billing.

Elisa reports its carbon footprint annually in the CDP Climate Change Report. Elisa's climate report for investors and global markets has been annually rated among the best of Nordic telecom companies.

In 2016, Elisa was included in the globally recognised FTSE4Good Index. The index is designed to measure the performance of companies that meet globally acknowledged corporate standards of responsibility in terms of environmental, social and governance (ESG) practices.

Elisa will publish its fourth online responsibility report as part of the Annual Report 2016. The responsibility report is prepared according the GRI G4 Core requirements.

Corporate Governance Statement

Elisa has published a Corporate Governance Statement on 27 January 2017.

Events after the financial period

On 24 January 2017, the Shareholders’ Nomination Board announced its proposal to Elisa’s board for the notice of the Annual General Meeting. The nomination board proposes that the number of members of the Board of Directors be seven. The Nomination Board also proposes that Mr Raimo Lind, Ms Clarisse Berggårdh, Mr Petteri Koponen, Ms Leena Niemistö,
Ms Seija Turunen and Mr Mika Vehviläinen be re-elected as members of the Board. The Nomination Board proposes further that Mr Antti Vasara is elected as a new member of the Board. Mr Jaakko Uotila has announced that he is not available for re-election at the 2017 Annual General Meeting.

On 19 January 2017, Anvia’s Extraordinary General Meeting approved the interim financial statements. Hence, Elisa can carry out the Anvia transaction at the final purchase price with the remaining share transfers.

Outlook and guidance for 2017

The macroeconomic environment in Finland is still expected to be weak in 2017, regardless of some positive developments. Competition in the Finnish telecommunications market also remains challenging.

Full-year guidance does not include the Starman acquisition. Revenue is estimated to be at the same level or slightly higher than in 2016. Mobile data and digital services are expected to increase revenue. Comparable EBITDA is anticipated to be at the same level or slightly higher than in 2016. Capital expenditure is expected to be a maximum of 13 per cent of revenue. The mid-term target of a maximum of 12 per cent is still valid. Elisa’s financial position and liquidity are good.

Elisa is continuing its productivity improvement development, for example by increasing automation in different processes, like network operations and delivery. Additionally, Elisa’s continuous quality improvement measures will increase customer satisfaction and efficiency, and reduce costs.

Elisa's transformation into a provider of exciting, new and relevant services for its customers is continuing. Long-term growth and profitability improvement will derive from mobile data market growth, as well as digital online and ICT services.

Profit distribution

According to Elisa’s distribution policy, profit distribution is 80–100 per cent of the previous fiscal year’s net profit. In addition, any excess capital can be distributed to shareholders. When making the distribution proposal or decision, the Board of Directors will take into consideration the company's financial position, future financial needs and financial targets. Profit distribution includes dividend payment, capital repayment and purchase of treasury shares.

The Board of Directors proposes to the Annual General Meeting a dividend of EUR 1.50 per share. The dividend payment corresponds to 93 per cent of the financial period’s net profit.

Shareholders who are listed in the company’s register of shareholders maintained by Euroclear Finland Ltd on 10 April 2017 are entitled to funds distributed by the General Meeting. The Board of Directors proposes that the payment date be 19 April 2017. The profit for the period will be added to retained earnings.

The Board of Directors also decided to propose to the General Meeting that the Board of Directors be authorised to acquire a maximum of 5 million treasury shares, which corresponds to 3 per cent of the total shares.

Tell a friend

Your name
Your email
 
Email title
Message
 
Friends emails

 Add friend