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.
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.
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.
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.
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.