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Annual Report 2004

Table of Content
3 Dear shareholder

Managements Review
4 7 8 11 12 Financial highlights for the year Selected financial and operational data The TDC Group Outlook Managements Discussion and Analysis of Financial Statements 12 The TDC Group 17 TDC Solutions

23 TDC Mobile International 30 TDC Switzerland 35 TDC Cable TV 39 TDC Directories 42 Other activities 43 Financial management and market-risk disclosures 46 Legal proceedings 46 Critical accounting policies 47 Change to International Financial Reporting Standards (IFRS) 48 Recent developments 49 Risk factors related to TDCs business 54 Safe harbor statement

Financial Statements
57 65 66 68 69 109 110 Significant Accounting Policies Statements of Income Balance Sheets Statements of Cash Flow Notes Management Statement Auditors Report

Supplementary information
112 Information to shareholders and financial calendar 115 Corporate governance 116 Strategy 117 Employees 119 Vision and corporate social responsibility 120 Glossary 122 Management executives 123 Board of Directors 125 Executive Committee

Henning Dyremose President and Chief Executive Officer Thorleif Krarup Chairman of the Board

Dear shareholder
2004 was an exciting year for TDC. We acquired and divested a number of companies, SBC sold its shares in TDC, and all the markets we serve were characterized by continued competition and development. We gained strength and experience throughout the year and are now better positioned than ever before to realize our vision of being the best provider of communications solutions in Europe. Developments in the telecoms market have followed their familiar course of high growth in mobile telephony and broadband solutions, strong growth in IP-based products and declining demand for traditional landline services. We have adopted a proactive stance by focusing on cost control and adapting our operations and infrastructure to suit rapidly changing technological reality while creating value for our shareholders. In 2004, we continued a second phase of the redundancy programs and invested many resources in training and developing our employees. We maintained our clear focus on ensuring that our customers experience even better service, and continued taking the social responsibility that can justifiably be expected of a corporation such as TDC. In 2004, we achieved continued growth in our financial results and outperformed the Outlook for 2004. EBITDA1 grew 6.7% and our year-end net interest-bearing debt fell from DKK 28.7bn at year-end 2003 to DKK 20.0bn. In 2004, we divested Dan Net and our stake in Belgacom, and acquired Song Networks and NetDesign as well as
1

the remaining shares in Telmore. We now have a unique platform that meets the growing broadband, IP/VPN and voice service needs of business customers in all the Nordic countries. Similarly, acquiring Telmore has also helped TDC secure and consolidate its position in the Danish mobile market. SBC sold its shares in TDC in 2004 after six years as the main shareholder. Our present major shareholders are Danish, British and American institutional investors, most with long-term investment strategies that contribute toward continuity at TDC. The vacancy left by SBC was quickly filled by three highly qualified board members, and the new Board of Directors subsequently reviewed our strategy. This resulted in some adjustments, but no significant change of direction. We no longer attach great importance to owning networks in all our operations, as the experience gained from Talkline and Telmore shows that favorable results can be achieved by leasing network capacity from other operators. The easyMobile product is also based on this concept, which will be tried initially on the British market. 2004 was a prosperous year for TDC with major changes that have left us well-equipped for the future.

Earnings before interest, taxes, depreciation and amortization.

Financial highlights for the year

Financial highlights for the year


The TDC Groups (TDC) net revenues rose 5.2% to DKK 43,570m, with earnings before interest, taxes, depreciation and amortization (EBITDA) up 6.7% to DKK 12,432m. Including one-time items and fair value adjustments, net income rose DKK 6,997m to DKK 8,742m. Net income, excluding onetime items and fair value adjustments, was DKK 2,411m, unchanged compared with 2003. Adjusted for the divestment of Belgacom, net income, excluding one-time items and fair value adjustments, increased 27.4% to DKK 2,212m. TDCs EBITDA has increased since 2001 and in the same period the EBITDA margin increased from 22.9% to 28.5% and the CAGR (Compounded Annual Growth Rate) in EBITDA was 6.6%. The capex-to-net revenues ratio fell from 22.2% in 2001 to 12.1% in 2004. Capital expenditures, excluding share acquisitions, decreased DKK 251m or 4.6% to DKK 5,254m in 2004. This decrease was driven mainly by lower investments in TDC Switzerland due primarily to capitalization of asset retirement obligations mainly concerning mobile sites in 2003. This was partly offset by preparations to launch UMTS in the Danish and Swiss markets in 2005. Cash flow from operating activities amounted to DKK 11,134m, up DKK 412m or 3.8% compared with 2003, due primarily to the improved EBITDA from 2003 to 2004 and
Net revenues EBITDA DKKm

improved working capital. These improvements were partly offset by payments relating to the redundancy programs. Net interest-bearing debt fell DKK 8.7bn to DKK 20.0bn at year-end 2004, impacted1 by the improved EBITDA, the divestment of Belgacom, DKK 11.8bn, and Dan Net, DKK 1.2bn, and was offset partly by the acquisition of treasury shares for DKK 3.5bn net, TDC Song for DKK 4.3bn, NetDesign for DKK 0.3bn, and the remaining stake in Telmore for DKK 0.1bn. EBITDA less capex and plus working capital changes improved DKK 1,817m, or 27.2% compared with 2003. With these results, TDC has outperformed the Outlook 2 for 2004 described in its first-quarter report. Compared with the Outlook, net revenues were DKK 1.6bn higher, stemming primarily from higher activity levels than expected in TDC Mobil and Talkline, as well as the inclusion of TDC Song from November 2004. EBITDA was DKK 0.3bn better than expected due mainly to EBITDA in TDC Mobile International that exceeded the Outlook. Net income, excluding one-time items and fair value adjustments, was DKK 0.3bn higher than expected, reflecting the improved EBITDA and lower financial expenses than anticipated. Net revenues were DKK 1.2bn higher than stated in the latest Outlook for 2004 presented in the third-quarter report, due mainly to the development in TDC Mobile International and the inclusion of TDC Song from November 2004. Both EBITDA and net income, excluding one-time items and fair value adjustments, exceeded the Outlook by DKK 0.2bn. The above achievements were supported by stringent cost control in the domestic operations, including the effect of the redundancy programs, and by TDCs successful xDSL sales and strong growth in the domestic mobile business. TDC Cable TV increased its customer base and earnings, while TDC Switzerland continued its positive development in earnings, which stemmed from reduced costs and a higher activity level in mobile telephony. These results were achieved despite fierce competition, price decreases in the domestic mobile market and a general decline in traditional landline telephony. The above results are reviewed in detail on pages 12-42.

Capex-to-net revenues ratio EBITDA margin %


EBITDA Capex Capex-to-net revenues ratio

EBITDA margin

Note: Capex excludes share acquisitions and capitalization of asset retirement obligations.
1 2

The impact of net interest-bearing debt from acquisition and divestment of enterprises is calculated on the basis of cash amounts. This Outlook is an update of the Outlook provided in the Annual Report 2003 and reflects primarily the new accounting policies, cf. the description on major events in 2004, and the divestment of Belgacom.

Major events in 2004 The second phase of the redundancy programs


In January 2004, TDC decided to implement a second phase of the redundancy programs, which was initiated in May 2003. The one-time items related to the second phase totaled DKK 450m after tax, which was expensed in the first quarter 2004. In total, 1,558 employees have now left the Group in connection with the redundancy programs. The total one-time items were DKK 1,050m after tax, of which DKK 600m related to 2003.

in Belgacom through the ADSB consortium, which owned 50% less one share. The other consortium partners were SBC Communications and Singapore Telecommunications. All the shares in Belgacom owned by the consortium were divested, and TDCs share of the proceeds totaled DKK 11.8bn.

TDC changed its accounting policies


In April, TDC announced that the Group was to discontinue proportional consolidation of jointly controlled enterprises and implement the new Danish accounting standard regarding revenue recognition. These changes are reviewed in detail in the section on Significant Accounting Policies.

TDC Mobile International acquired the remaining shares in Telmore


In January, TDC agreed with Telmores shareholders to buy the remaining 80% stake in the company. TDC Mobile International now owns Telmore 100%. The price for the remaining shares was DKK 0.3bn.

SBC sold its shares in TDC


In June, SBC reduced its shareholding in TDC from 41.6% to 9.5%. TDC acquired 8.4% of these shares for DKK 3.4bn. TDCs portfolio of treasury shares equals 10% of the Companys total common shares. SBC sold its remaining 9.5% stake in TDC in November.

Belgacom listing
Belgacom, the leading telecommunications provider in Belgium, was listed on March 25. TDC had a 16.5% stake

Mobile customers End-of-period (1,000)

Domestic mobile traffic (million min.)

Broadband customers End-of-period (1,000)

900 750 600

450 300 150 0

Domestic mobile customers Domestic mobile traffic

International mobile customers

Domestic

International

Note: Broadband customers includes xDSL and cable modem with a capacity of at least 144 kbit/s.

Financial highlights for the year / Selected financial and operational data

GSM license in Oman


In March, TDC signed a collaboration agreement with Qatar Telecom. And in June, the two companies, together with a number of local investors, won a GSM mobile telephony license in Oman. A new mobile company, Nawras Telecom, was subsequently created with Qatar Telecom as main shareholder. TDC owns 16% of the shares, but due to concluded shareholder agreements, the investment involves no significant risk.

Share option program for employees in foreign companies


In November, TDC decided that options to buy shares in TDC should be issued to employees in the fully-owned foreign subsidiaries. The decision follows TDCs share option program for Danish employees announced in November 2003. The options can be exercised in five years. 3,095 employees participated in the program. A total of 278,711 options with an option value of approx. DKK 27m cover the share option program.

Divestment of Dan Net


In August, we sold Dan Net, which operates with data clearing for mobile and landline operators, electronic data interchange and e-commerce solutions. The selling price was DKK 1.2bn, and dividends from Dan Net amounted to DKK 159m.

TDC acquired NetDesign


In December, TDC acquired NetDesign A/S, a leading provider of IP/LAN infrastructure for business customers. The purchase price totaled DKK 0.3bn.

TDC signed an agreement with easyGroup


In August, TDC signed a brand license agreement with the British company easyGroup, which allows us to use the easy brand when offering mobile telephony in up to 12 European countries. In November, TDC announced the signing of a contract with the British company T-Mobile for the right to use the companys network on service provider terms. TDC intends to offer mobile telephony in Great Britain under the easyMobile name following the Telmore concept, which offers cheap-rate mobile telephony with web-based subscriptions based on leased network capacity.

Song Networks
In September, TDC announced its acquisition offer to the owners of shares and convertible bonds in Song Networks Holding AB, and at the beginning of November TDC announced that the offer had been accepted. By yearend 2004 TDC owned 99.4% and the purchase price totaled DKK 4.6bn. The name of the company has now been changed to TDC Song.

Selected financial and operational data


TDC Group
Statements of Income Net revenues Total revenues Total operating expenses DKKm 34,813 36,395 (25,843) 10,552 (4,400) 6,152 6,161 12,313 154 12,467 (3,239) 9,228 74 9,302 6,152 10 6,162 (2,590) 3,572 74 3,646 DKKbn 67.7 11.0 35.1 216.5 DKKm 7,396 (3,860) 931 4,467 DKKbn 5.9 12.1 DKK DKK DKK % % % (1,000) 3,691 3,522 923 801 8,937 19,946 3,913 4,575 1,403 828 10,719 22,485 3,598 4,939 1,285 885 10,707 22,263 3,631 6,199 1,696 924 12,450 21,125 3,483 7,126 1,814 982 13,405 20,573 5.4676 7.4381 43.0 16.8 10.5 30.3 16.9 17.6 9.3 21.6 (0.4) 6.3 11.0 22.9 22.2 9.5 6.3 7.4 20.6 9.6 11.5 25.5 15.1 11.7 5.5 13.6 8,1 11,1 12,0 28,1 13,3 12,6 5.3 10.1 42,7 11,8 12,5 28,5 12,1 11,1 4,062 (18,963) 10,863 (4,038) 9,950 (1,254) (6,759) 1,937 10,722 (11,585) 4,943 4,080 11,134 4,243 (12,562) 2,815 86.7 33.0 32.7 216.5 83.6 25.8 34.7 216.5 89.5 28.7 33.0 216.5 87.5 20.0 36.0 204.6 42,008 43,900 (34,268) 9,632 (6,719) 2,913 (2,548) 365 417 782 (1,397) (615) 534 (81) 2,913 (206) 2,707 (1,815) 892 482 1,374 42,011 43,794 (33,091) 10,703 (7,342) 3,361 (1,133) 2,228 3,562 5,790 (1,559) 4,231 227 4,458 3,361 305 3,666 (1,772) 1,894 191 2,085 41,413 42,939 (31,285) 11,654 (7,743) 3,911 (1,719) 2,192 1,190 3,382 (1,629) 1,753 (8) 1,745 3,911 618 4,529 (2,110) 2,419 (8) 2,411 43,570 45,038 (32,606) 12,432 (8,193) 4,239 5,825 10,064 27 10,091 (1,351) 8,740 2 8,742 4,239 (151) 4,088 (1,679) 2,409 2 2,411

2000

2001

2002

2003

2004

2004
USDm 7,969 8,237 (5,963) 2,274 (1,498) 775 1,065 1,841 5 1,846 (247) 1,599 0 1,599 775 (28) 748 (307) 441 0 441 USDbn 16.1 3.7 6.6 204.6 USDm 2,036 776 (2,298) 515 USDbn 0.9 1.8

2004
EURm 5,858 6,055 (4,384) 1,671 (1,101) 570 783 1,353 4 1,357 (182) 1,175 0 1,175 570 (20) 550 (226) 324 0 324 EURbn 11.8 2.7 4.8 204.6 EURm 1,497 570 (1,689) 378 EURbn 0.7 1.3

Earnings before interest, taxes, depreciation and amortization (EBITDA) Depreciation, amortization and write-downs Earnings before interest and taxes (EBIT), excluding one-time items One-time items EBIT including one-time items Net financials Income before income taxes Total income taxes Income before minority interests Minority interests Net income Net income excluding one-time items and fair value adjustments 1 EBIT, excluding one-time items Net financials Income before income taxes Total income taxes Net income before minority interests Minority interests Net income Balance Sheets Total assets Net interest-bearing debt Total shareholders equity Shares outstanding 2 (million) Statements of Cash Flow Operating activities Investing activities Financing activities Change in cash and cash equivalents Capital expenditures Excluding share acquisitions Including share acquisitions Key financial ratios Reported EPS 3 Adjusted EPS 4 Dividend per share EBITDA margin 5 Capex-to-net revenues ratio 6 Return on capital employed (ROCE) 7 Subscriber base (end of year) Landline 8 Mobile 8 Internet Cable TV Total subscribers Number of employees
9

DKK/USD exchange rate DKK/EUR exchange rate

3 4 5 6 7

Excluding consolidated one-time items and fair value adjustments, as well as excluding fair value adjustments in associated enterprises included in the captions Income before income taxes from associated enterprises and Income taxes related to income excl. one-time items and fair value adjustments. The number of shares in 2000 - 2003 has not been adjusted for treasury shares according to Danish practice as these amounted to less than 2% of the total number of shares outstanding. Net income, including one-time items and fair value adjustments, divided by the average number of outstanding shares. Net income, excluding one-time items and fair value adjustments, divided by the average number of outstanding shares. Earnings before interest, taxes, depreciation and amortization divided by net revenues. Capital expenditures excluding share acquisitions. ROCE is defined as EBIT excluding one-time items plus interest and other financial income excluding fair value adjustments divided by total shareholders equity plus interest-bearing debt. The definition of active and inactive customers in TDC Switzerland was changed in 2004. Comparative figures from 2000 to 2003 have been changed accordingly. The number denotes end-of-year full-time employee equivalents including permanent employees, trainees and temporary employees.

The TDC Group

The TDC Group


Today, TDC is the leading provider of communications solutions in Denmark, the second-largest telecoms provider in the Swiss market, and is represented by significant presence in selected markets in Northern and Central Europe. By the end of 2004, the TDC Group had more than 13.4m customers in Europe: 3.5m landline customers, 7.1m mobile customers, 1.8m Internet customers, and 1.0m cable-TV customers. In 2004, TDCs total net revenues were DKK 43.6bn, of which 47% stemmed from international activities compared with 45% in 2003 and 46% in 2002. By comparison, EBITDA from international activities contributed 25% in 2004 and 2003 compared with 16% in 2002. In recent years, it has been necessary to reduce our domestic workforce, primarily to adjust to the decline in traditional landline telephony and intensified competition in the domestic market. Increased customer interest in self-service and Internet-based solutions has also contributed to this trend. The adjustment was effected partly by natural attrition and the completion of redundancy programs in 2003 and 2004. At year-end 2004, TDC had 20,573 full-time employee equivalents compared with 21,125 in 2003. Our domestic operations account for the majority of the decrease, and at year-end 2004 TDC had 14,998 full-time employee equivalents compared with 16,014 in 2003.

History
Over the past ten years, TDC has developed from a traditional and mainly Danish provider of landline and mobile telephony services into the Danish-based European provider of communications solutions it is today. Deregulation of the Danish telecommunications market in 1996 created a highly competitive market. In 2004, the Danish telecoms market was fully liberalized and highly competitive. TDC was partly privatized in 1994 and fully privatized in 1998, and at year-end 2004 our shares were held mainly by institutions and retail investors in Denmark, Great Britain and the USA.

Customers End-of-period (1,000)


Number of employees End-of-period

0 2000 2001 2002 2003 2004 0

Landline

Mobile

Internet

Cable TV

Domestic

International

Note: The number denotes end-of-year full-time employee equivalents including permanent employees, trainees and temporary employees.

The telecommunications sector


In recent years, the fierce competition in the telecommunications sector has intensified. Competition in the domestic market is especially tough with many operators, and public regulation aimed particularly at TDC. The combination of price competition, regulatory requirements and a saturated market has resulted in moderate revenue growth. The Nordic network operators have addressed this situation in several ways, e.g. by market consolidation and international expansion. TDC has established easyMobile, which provides mobile telephony based on the Telmore concept, initially in the British market. And as part of our efforts to achieve operational efficiency, we have implemented redundancy programs in 2003 and 2004, which meant that a total of 1,558 employees left the Group. Finally, we have focused on integrated panNordic communications solutions, illustrated by TDCs acquisition of TDC Song and NetDesign. With regard to regulations in Denmark, the Danish National IT and Telecom Agency performs market analyses on a number of submarkets in the telecoms sector that are specifically defined in advance. The Agency will use these market analyses as its basis for deciding whether a particular market is subject to sufficient competition. If that is not the case, it will designate one or more operators as holding strong market positions and impose one or more obligations to eliminate the imperfect competition.

The technological advances have caused the following key trends in the telecoms market: migration from landline to mobile telephony, a shift from circuit-switched to package-switched traffic (VoIP, IP-VPN, GPRS, UMTS), a change to consumption independent flat-rate pricing, and increased self-services and web-based distribution channels. TDC continuously adapts to technological and market developments and in 2004 launched a range of new products. In the domestic market, TDC successfully launched TDC Samtale giving unlimited landline minutes in off-peak hours at a flat monthly rate. In 2004, TDC was the first Danish operator to launch a nationwide network of wireless hotspots in selected geographical areas, from where the Internet can be accessed. At year-end 2004, TDC had 435 wireless hotspots in Denmark. As a continuation of our successful webbased discount product, Mixit, TDC launched a similar product for business customers, MobilFlex Let, in 2004. TDC plans to launch Internet-based telephony (VoIP) for residential customers, 3G mobile telephony and Internet-based TV (TVoIP) in 2005.

Business lines
TDC is organized as six main business lines: TDC Solutions provides communications services primarily in Denmark and the Nordic countries. Its activities include landline telephony services, convergence products (combined landline and mobile telephony), broadband solutions, advanced security and hosting services, data communications services and Internet services, leased lines, sale of terminals and installation. TDC Solutions major subsidiaries include the following companies: TDC Song, a pan-Nordic network operator mainly for business customers, NetDesign, a leading provider of IP/LAN infrastructure primarily for business customers, Contactel, a provider of Internet and telephony services in the Czech Republic, TDC Internordia, a Swedish-based provider of telecoms equipment for business customers, and TDC Norge, which provides Internet, telephony and data services.

EBITDA per business line 2004

The TDC Group / Outlook

TDC Mobile International provides mobile telecommunications services in Denmark and a number of European countries. The domestic activities include the fully-owned companies TDC Mobil, a Danish-based mobile operator, and Telmore, a Danish service provider. The international activities include the fully-owned subsidiaries Talkline, a German service provider, and Bit, a Lithuanian mobile operator. TDC Mobile International also holds a 19.6% stake in Polkomtel, a Polish mobile operator, and a 15.0% stake in the Austrian mobile operator, One, and finally, an 80% stake in Telmore International, which takes care of cooperation with easyGroup. TDC Switzerland is the second-largest telecommunications provider in the Swiss market. Its activities include landline, mobile and Internet communications services. TDC Cable TV is a Danish provider of cable TV and broadband access. TDC Directories publishes printed, electronic and Internet-based directories in Denmark, Sweden and Finland. Others include primarily TDC Services, which provides mainly business services for the TDC Groups domestic business lines.

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Outlook
The Outlook for 2005 is based on thorough financial plans for each individual business line. However, information concerning the future is by nature associated with a certain level of risk and uncertainty. These risks are described in more detail in the Safe harbor statement and the section on risk factors. In general, all figures are excluding one-time items and fair value adjustments and are prepared in line with the accounting policies applied in 2004. An updated Outlook in accordance with International Financial Reporting Standards (IFRS) will be included in the first-quarter 2005 report. TDC expects net revenues of DKK 45.7bn for 2005, a 4.9% increase compared with 2004. EBITDA is expected to increase 3.8% to DKK 12.9bn in 2005, compared with an EBITDA growth of 4.1% in the second half of 2004. The positive development in EBITDA in 2005 will stem primarily from growth in Internet and data communications as well as mobile telephony. The impact of the redundancy programs and the full-year effect of the acquisition of TDC Song in November 2004 are also expected to contribute to the positive developments, but will be partly offset by the divestment of Talkline Infodienste, a provider of value-added services, with effect from 2005 and the roll-out of easyMobile. TDCs net income is expected to decrease to DKK 1.8bn in 2005, which includes goodwill amortization of DKK 1.7bn. An increase in EBITDA in all business lines is expected, but the results are impacted by finance costs and depreciation and amortization, including goodwill amortization, related to the inclusion of TDC Song. The general level of depreciation is also expected to increase, primarily due to the extension of TDC Switzerlands network. In addition, net income is adversely affected as Belgacom was included as an associated enterprise in the first three months of 2004. The outlook for the individual business lines are included in the following.
DKKbn

Outlook for 2005 (excluding one-time items and fair value adjustments) TDC Group
2004 2005

Growth in %

TDC Group Net revenues EBITDA Net income TDC Solutions Net revenues EBITDA TDC Mobile International Net revenues EBITDA TDC Switzerland Net revenues EBITDA TDC Cable TV Net revenues EBITDA TDC Directories Net revenues EBITDA Other 1 Net revenues EBITDA
1

43.570 12.432 2.411 18.590 5.894 15.105 2.682 9.692 2.455 1.766 0.355 1.436 0.472 (3.019) 0.574

45.7 12.9 1.8 20.9 6.4 14.5 2.7 10.0 2.6 2.1 0.5 1.5 0.5 (3.3) 0.2

4.9 3.8 (25.3) 12.4 8.6 (4.0) 0.7 3.2 5.9 18.9 41.0 4.4 5.9 (9.3) (65.2)

Includes TDC Services, TDC A/S and eliminations.

11

Managements Discussion and Analysis of Financial Statements

Managements Discussion and Analysis of Financial Statements


The TDC Group Net revenues
TDCs net revenues amounted to DKK 43,570m in 2004, up DKK 2,157m or 5.2% compared with 2003. This growth stemmed mainly from our mobile businesses in Denmark, Germany and Switzerland, our domestic broadband and cable-TV businesses, increased revenues in Talkline Infodienste and the inclusion of TDC Song from November 2004. This positive increase was partly offset by lower revenues from traditional landline telephony caused by the migration toward mobile telephony and private IP-based networks, as well as lower volumes of transit traffic. higher transmission costs in TDC Mobil and Talkline as a result of increased voice and SMS traffic. A modest increase resulted from higher transmission costs in TDC Solutions.

Other external charges


Other external charges, including marketing and customeracquisition costs as well as rent, leases and service agreements amounted to DKK 8,234m in 2004, up DKK 202m or 2.5% on 2003. The increase stemmed largely from higher marketing and customer-acquisition costs in TDC Mobil and Talkline and the inclusion of TDC Song from November 2004, partly offset by stringent cost control in the domestic operations.

Transmission costs, raw materials and supplies


Transmission costs, raw materials and supplies in TDC rose 8.8% or DKK 1,327m to DKK 16,376m in 2004 due primarily to

Wages, salaries and pension costs


In 2004, TDCs wages, salaries and pension costs dropped DKK 208m or 2.5% to DKK 7,996m. The decrease reflected primarily a 6.5% decline in the number of average full-

Key financial figures TDC Group


2003 2004

DKKm

Growth in %

Net revenues Total revenues Total operating expenses Earnings before interest, taxes, depreciation and amortization (EBITDA) Depreciation, amortization and write-downs Earnings before interest and taxes (EBIT), before one-time items One-time items Earnings before interest and taxes (EBIT) Net financials (incl. fair value adjustments) Total income taxes Net Income Net income excluding one-time items and fair value adjustments1 EBITDA margin (%) Capital expenditures excluding share acquisitions Capex-to-net revenues ratio Net debt Cash flow from operating activities

41,413 42,939 (31,285) 11,654 (7,743) 3,911 (1,719) 2,192 1,190 (1,629) 1,745

43,570 45,038 (32,606) 12,432 (8,193) 4,239 5,825 10,064 27 (1,351) 8,742

5.2 4.9 (4.2) 6.7 (5.8) 8.4 (97.7) 17.1 -

2,411 28.1 5,505 13.3 28,682 10,722

2,411 28.5 5,254 12.1 20,010 11,134

4.6 30.2 3.8

Excluding consolidated one-time items and fair value adjustments, as well as excluding fair value adjustments in associated enterprises included in the captions Income before income taxes from associated enterprises and income taxes related to income excl. one-time items and fair value adjustments.

12

Net revenues TDC Group


2003 2004

DKKm

Growth in %

TDC Solutions TDC Mobile International Domestic operations Talkline Bit TDC Switzerland TDC Cable TV TDC Directories Other 1 TDC Group
1

18,585 13,175 5,613 6,692 870 9,471 1,524 1,463 (2,805) 41,413

18,590 15,105 6,503 7,675 927 9,692 1,766 1,436 (3,019) 43,570

0.0 14.6 15.9 14.7 6.6 2.3 15.9 (1.8) (7.6) 5.2

Includes TDC Services and eliminations.

time employee equivalents to 1,395 stemming mainly from the redundancy programs and natural attrition mainly in TDC Solutions.

tion with the inclusion of Telmore from February 2004, and TDC Song from November 2004.

Earnings before interest and taxes (EBIT) Earnings before interest, taxes, depreciation and amortization (EBITDA)
TDCs EBITDA rose DKK 778m or 6.7% to DKK 12,432m. TDC Mobile Internationals EBITDA increased DKK 308m or 13.0%, resulting primarily from the domestic mobile business. TDC Switzerlands EBITDA rose DKK 250m or 11.3%, due mainly to increased mobile revenues. EBITDA in TDC Cable TV increased DKK 182m or 105.2% as a result of increased revenues following the growth in the customer base and increased revenues per customer. EBITDA in TDC Solutions grew DKK 180m or 3.2% and comprised primarily increased earnings from xDSL sales and stringent cost control in the domestic operations, partly offset by declining earnings from traditional landline telephony. Earnings before interest and taxes, excluding one-time items and fair value adjustments, increased DKK 328m or 8.4% to DKK 4,239m, and reflected primarily improved EBITDA, partly offset by increased depreciation, amortization and write-downs.

One-time items
In 2004, one-time items before tax amounted to DKK 5,825m with a net income impact of DKK 6,190m compared with one-time items before tax of DKK (1,719)m in 2003 with a net income impact of DKK (1,174)m. One-time items include profit on sales of major enterprises, impairment losses and restructuring costs, etc. Profit before tax on divestment of major enterprises in 2004 amounted to DKK 6,440m and includes DKK 5,472m profit from the divestment of Belgacom and profit of DKK 968m from the divestment of Dan Net. Restructuring costs in 2004 amounted to DKK (615)m before tax and related primarily to the second phase of the redundancy programs in the domestic operations.

Depreciation, amortization and write-downs


Depreciation, amortization and write-downs rose DKK 450m or 5.8% to DKK 8,193m in 2004. This increase related primarily to reassessment of the useful lives of non-current assets in TDC Solutions at year-end 2003, and increased depreciation and amortization in connec-

13

Managements Discussion and Analysis of Financial Statements

Restructuring costs after tax amounted to DKK (213)m, of which DKK 218m related to a change in the tax value of goodwill in Talkline. In 2003, TDC realized gains of DKK 171m before tax from profit on divestment of major enterprises resulting primarily from Belgacoms repurchase of treasury shares from TDC. Write-downs for impairment losses in 2004 totaled DKK (220)m before tax and related primarily to TDC Norge, and the closure of Storbyguiden by TDC Directories. Restructuring costs, etc. amounted to DKK (1,670)m before tax and related primarily to the transfer of Belgacoms pension obligations to the Belgian government and the redundancy program in the domestic operations.

In 2004, fair value adjustments amounted to income of DKK 178m. This comprised other fair value adjustments of DKK 166m, which related mainly to foreign currency adjustment of a cash receivable. In 2003, fair value adjustments amounted to income of DKK 579m of which fair value adjustments of minority passive investments were DKK 412m and related primarily to the Ukrainian mobile company UMC. Interest and other financial income amounted to DKK 2,539m in 2004, a decrease of DKK 172m compared with DKK 2,711m in 2003. Interest and other financial expenses totaled DKK (3,439)m in 2004, down DKK 430m compared with DKK (3,869)m in 2003. Interest and other financial expenses, net, amounted to DKK (900)m in 2004, a decrease of DKK 258m, compared with DKK (1,158)m in 2003. This development reflected mainly lower average net interest-bearing debt, due mainly to proceeds from the sale of our shares in Belgacom.

Net financials
Net financials, including fair value adjustments, amounted to DKK 27m in 2004, compared with DKK 1,190m in 2003. Income before income taxes from associated enterprises totaled DKK 749m in 2004 compared with DKK 1,769m in 2003, reflecting primarily the divestment of Belgacom.

One-time items TDC Group


2003 Pre-tax After tax 2004 Pre-tax

DKKm

After tax

Profit on sale of major enterprises Impairment losses Restructuring costs, etc. One-time items, total

171 (220) (1,670) (1,719)

170 (164) (1,180) (1,174)

6,440 0 (615) 5,825

6,403 0 (213) 6,190

14

Income taxes
Income taxes amounted to DKK 1,351m in 2004, down DKK 278m or 17.1% on 2003. Income taxes related to net income excluding one-time items and fair value adjustments totaled DKK 1,679m in 2004, down DKK 431m or 20.4% compared with 2003. Income taxes relating to one-time items amounted to tax income of DKK 365m in 2004 compared with tax income of DKK 545m in 2003. Income taxes relating to fair value adjustments totaled a tax expense of DKK 37m in 2004 compared with DKK 58m in 2003. The effective tax rate, excluding one-time items and fair value adjustments, was 41.1% in 2004 compared with 46.6% in 2003. The high tax rate for 2003 was impacted primarily by a limitation of the deductibility of goodwill amortization as a result of amendments to Danish tax law.

Balance Sheets
The Consolidated Balance Sheets totaled DKK 87,546m at year-end 2004, down DKK 1,969m compared with 2003. The decrease in total assets during 2004 was due mainly to a decrease in investments in associated enterprises resulting from the divestment of Belgacom. The impact of the divestment was partly offset by an increase in cash and cash equivalents and in intangible assets and property, plant and equipment stemming primarily from the acquisition of TDC Song in November 2004. Shareholders equity aggregated DKK 35,963m at yearend 2004. This increase of DKK 2,990m compared with year-end 2003 was generated primarily by net income in 2004 of DKK 8,742m stemming mainly from the gain in connection with the divestment of Belgacom. This was partly offset by dividend payments of DKK 2,555m and the acquisition of treasury shares of DKK 3,531m net. Total liabilities amounted to DKK 51,583m, down DKK 4,959m compared with year-end 2003, and stemmed mainly from repayment of bond debt. Net interest-bearing debt totaled DKK 20,010m at yearend 2004, a decrease of DKK 8,672m over the year due mainly to the divestment of Belgacom partly offset by the repurchase of treasury shares from SBC and the acquisition of TDC Song in November 2004.

Net income
Net income, including one-time items and fair value adjustments, rose DKK 6,997m to DKK 8,742m. Net income, excluding one-time items and fair value adjustments, was unchanged compared with 2003 and totaled DKK 2,411m. Adjusted for the divestment of Belgacom, net income, excluding one-time items and fair value adjustments, increased 27.4% to DKK 2,212m.

Fair value adjustments TDC Group


2003 Pre-tax After tax 2004 Pre-tax

DKKm

After tax

Fair value adjustments of minority passive investments Other fair value adjustments Fair value adjustments, total

412 167 579

412 109 521

12 166 178

12 129 141

15

Managements Discussion and Analysis of Financial Statements

Capital expenditures
In 2004, capital expenditures, including share acquisitions, fell DKK 3,492m to DKK 10,098m, compared with DKK 13,590m in 2003. This decrease related mainly to the acquisition of the remaining shares in TDC Switzerland in 2003, which amounted to DKK 7,871m, partly offset by the inclusion of TDC Song from November 2004. Capital expenditures, excluding share acquisitions, fell DKK 251m or 4.6% to DKK 5,254m in 2004. The capex-to-net revenues ratio was 12.1% compared with 13.3% in 2003.

Cash flow from investing activities totaled DKK 4,243m in 2004, compared with DKK (11,585)m in 2003 and stemmed mainly from dividends received in connection with the divestment of Belgacom. The amount achieved in 2004 also related to the proceeds from the sale of Dan Net, partly offset by the acquisitions of TDC Song in November 2004, and NetDesign as well as the remaining 80% stake in Telmore. The investing activities in 2003 related mainly to the acquisition of the remaining shares in TDC Switzerland. Cash flow from financing activities totaled DKK (12,562)m in 2004 compared with DKK 4,943m in 2003 and related mainly to reduced borrowing and repayment of longterm debt and the repurchase of treasury shares in 2004. TDCs cash and cash equivalents increased from DKK 7,458m in 2003 to DKK 10,250m in 2004.

Statements of Cash Flow


Cash flow from operating activities amounted to DKK 11,134m in 2004, up DKK 412m compared with 2003, due primarily to higher EBITDA in 2004 and improved working capital, partly offset by payments relating to the redundancy programs.

Capital expenditures TDC Group


2003 2004

DKKm

Growth in %

TDC Solutions TDC Mobile International Domestic operations Talkline Bit TDC Switzerland TDC Cable TV TDC Directories Other 1 TDC excluding share acquisitions Share acquisitions in other companies TDC including share acquisitions
1

2,419 934 669 61 204 1,675 276 35 166 5,505 8,085 13,590

2,457 1,023 747 112 164 1,196 225 54 299 5,254 4,844 10,098

(1.6) (9.5) (11.7) (83.6) 19.6 28.6 18.5 (54.3) (80.1) 4.6 40.1 25.7

Includes TDC A/S, TDC Services and eliminations.

16

TDC Solutions
TDC Solutions offers a wide range of communications services in Denmark and the Nordic countries as well as in the Czech Republic through our subsidiary, Contactel. Our activities include landline telephony, convergence products, broadband solutions, advanced security and hosting services, data communications services and Internet services, leased lines, sale of terminals and installation. At year-end 2004, TDC Solutions had 4.4m customers, with 4.2m in the domestic market and 237,000 in international subsidiaries and 11,432 full-time employee equivalents. Net revenues were DKK 18,590m in 2004 and EBITDA was DKK 5,894m.

TDC Solutions launched TDC Samtale in 2004 giving unlimited landline minutes in off-peak hours at a flat monthly rate. The number of customers using this product has rapidly increased since it was launched, and was 173,000 at year-end 2004. TDC Solutions plans to launch Internet-based telephony (VoIP) for residential customers and Internet-based TV (TVoIP) in 2005.

Data communications and Internet services


In 2004, net revenues from data communications and Internet services totaled DKK 3,840m, corresponding to 21% of total net revenues compared with 18% in 2003. The business area comprises mainly broadband, dial-up traffic, data communications services and private IP-based networks. The migration from dial-up toward broadband products continued in 2004. The xDSL penetration per Danish household continued to rise in 2004 to approximately 23% at year-end. This area has grown considerably, with 556,000 customers at year-end 2004 compared with 405,000 in 2003. In 2004, TDC was the first Danish operator to launch a nationwide network of wireless hotspots in selected geographical areas, from where the Internet can be accessed. At year-end 2004, TDC had 435 wireless hotspots in Denmark. We expect continued progress within wireless technology.

Business areas
TDC Solutions main business areas are described below:

Landline telephony
Landline telephony represents the major share of net revenues in TDC Solutions and totaled DKK 9,643m in 2004, corresponding to 52% of net revenues, down DKK 444m compared with 54% in 2003. The general market for traditional landline telephony is sagging because of the migration toward mobile telephony and IP-based technology. TDC Solutions market share has also declined. To counter this development,

TDC Solutions Net revenues per business area 2004

TDC Solutions Customers end of 2004

17

Managements Discussion and Analysis of Financial Statements

Terminal equipment, installation etc.


With net revenues of DKK 2,578m in 2004, terminal equipment etc. was the third-largest contributor to TDC Solutions net revenues, corresponding to a share of 14% compared with 13% in 2003. This business area includes sales and installation of hardware ranging from handsets to large switchboards and service agreements.

Subsidiaries
TDC Solutions has significant investments in a number of subsidiaries in addition to our domestic operations. TDC Song, our 99.4% owned pan-Nordic network operator mainly for business customers, had 858 fulltime employee equivalents at year-end 2004. Of our fully-owned subsidiaries, NetDesign, a leading provider of IP/LAN infrastructure, had 122 full-time employee equivalents at year-end 2004, and Contactel, our provider of Internet and landline telephony in the Czech Republic, had 268 full-time employee equivalents at year-end 2004. TDC Norge, our fully-owned Norwegian-based provider of Internet, telephony and data services, had 103 full-time employee equivalents at year-end 2004. And finally, TDC Internordia, our fully-owned Swedishbased provider of telecoms equipment for business customers, had 237 full-time employee equivalents at year-end 2004.

Leased lines
Net revenues from leased lines aggregated DKK 1,117m in 2004 and represented 6% of total net revenues compared with 7% in 2003. This business area includes both domestic and international leased-line services.

Other services
TDC Solutions remaining share of net revenues includes mainly operator services such as directory inquiries and mobile telephony, primarily Dut.

Selected financial and operational data TDC Solutions Group

Excluding one-time items

Growth in % 2002 DKKm 2003 2004 02-03 03-04

Net revenues Total revenues Total operating expenses Earnings before interest, taxes, depreciation and amortization (EBITDA) Depreciation, amortization and write-downs Earnings before interest and taxes (EBIT) Capital expenditures1 Key financial ratios EBITDA margin2 Capex-to-net revenues ratio1 Subscriber base (end-of-year) Landline customers Mobile customers Internet customers Subscriber base, total Number of employees3
1 2 3

19,393 20,942 (15,168) 5,774 (3,079) 2,695 3,510

18,585 19,930 (14,216) 5,714 (3,401) 2,313 2,419

18,590 19,874 (13,980) 5,894 (3,608) 2,286 2,457

(4.2) (4.8) 6.3 (1.0) (10.5) (14.2) 31.1

0.0 (0.3) 1.7 3.2 (6.1) (1.2) (1.6)

% % (1,000)

29.8 18.1

30.7 13.0

31.7 13.2

3,078 282 787 4,147 12,715

3,000 337 1,052 4,389 11,765

2,910 369 1,157 4,436 11,432

(2.5) 19.5 33.7 5.8 (7.5)

(3.0) 9.5 10.0 1.1 (2.8)

Capital expenditures excluding share acquisitions. Earnings before interest, taxes, depreciation and amortization divided by net revenues. The number denotes end-of-year full-time employee equivalents including permanent employees, trainees and temporary employees.

18

Financial highlights
In 2004, net revenues from TDC Solutions rose DKK 5m to DKK 18,590m, reflecting primarily continued broadband (xDSL) growth as the number of domestic customers in this area increased 37.3% to 556,000. In addition, the customer base for convergence products increased from 337,000 to 350,000 at year-end 2004, partly offset by continued migration from landline-to-mobile telephony and private IP-based networks resulting in declining revenues from traditional landline telephony. The number of landline customers totaled 2.9m down 3.0% or 90,000 at year-end 2004. As a result of continuous cost control, including the impact of our redundancy programs, TDC Solutions EBITDA increased 3.2% to DKK 5,894m, and the EBITDA margin was 31.7% compared with 30.7% in 2003 and 29.8% in 2002. However, EBITDA growth declined from 6.9% in the first half of 2004 to (0.3)% in the second. This development was due mainly to declining growth in Internet and data communications services as well as the divestment of Dan Net in August 2004. In 2004, EBIT decreased DKK 27m or 1.2% to DKK 2,286m reflecting mainly higher depreciation charges partly offset by improved EBITDA.

EBITDA Capital expenditures DKKm


Net revenues DKKm

EBITDA Net revenues Capital expenditures

TDC Solutions capital expenditures increased DKK 38m to DKK 2,457m in 2004. As a result of the development capital expenditures and almost unchanged net revenues, the capex-to-net revenues ratio increased from 13.0% in 2003 to 13.2% in 2004.

Domestic xDSL customers End-of-period (1,000)


Market share * %

Domestic Traffic min. Landline (million)


Market share * %

xDSL customers Broadband market share

xDSL market share

Traffic min. Market share

* Note: The market for domestic xDSL- and broadband customers as well as landline traffic volume (minutes) are published by the Danish National IT and Telecom agency in half-year reports. The data for 2004 has not yet been published. The above broadband market share is TDC Solutions share of the total broadband market, which is defined as the sum of xDSL and cable modem. In data from the Danish National IT and Telecom Agency, broadband subscriptions are defined as subscriptions with a capacity of at least 144 kbit/s as of the second half of 2002. Optical fiber, wireless and housing association networks are not included in the market share stated above.

19

Managements Discussion and Analysis of Financial Statements

TDC Solutions net revenues were DKK 0.4bn higher than stated in the Outlook for 2004 presented in the firstquarter report, due mainly to the inclusion of TDC Song from November 2004, whereas EBITDA was in line with the Outlook. Net revenues were DKK 0.6bn higher than stated in the latest Outlook for 2004 presented in the third-quarter report, due mainly to the inclusion of TDC Song from November 2004, whereas EBITDA was in line with the Outlook.

Outlook
TDC Solutions net revenues are expected to increase 12.4% to DKK 20.9bn in 2005, reflecting the full-year impact of the acquisition of TDC Song in November 2004 and a continuation of the development in data communications and Internet services, although with declining growth rates. Decreasing revenues from traditional landline telephony such as voice traffic, subscriptions and leased lines, partly offset this growth. EBITDA is expected to increase 8.6% to DKK 6.4bn in 2005, reflecting the above-mentioned revenue growth, the continued focus on cost saving and the full-year impact of the redundancy programs.

Net revenues from landline telephony, retail decreased DKK 151m or 2.0% to DKK 7,453m in 2004. This net revenue category consists primarily of retail voice traffic and subscription fees. Net revenues from subscriptions decreased DKK 169m or 4.4% to DK 3,659m in 2004. The decline was driven mainly by a fall in the number of domestic customers of approximately 140,000 to 2.4m at year-end 2004 reflecting the migration from traditional landline telephony to mobile telephony and private IP-based networks as well as increased competition between landline operators. Net revenues from landline traffic amounted to DKK 3,794m in 2004, up DKK 18m or 0.5% and reflected primarily the inclusion of TDC Song from November 2004. To this should be added increased revenues from convergence products and the full consolidation of Contactel in the second half of 2003 following an increased ownership share. This increase was partly offset by reduced net revenues from traditional landline traffic in the domestic operations. Net revenues from landline telephony, wholesale fell DKK 293m or 11.8% to DKK 2,190m. This revenue category consists primarily of domestic and international wholesale traffic as well as domestic service provider revenues. Net revenues from transit traffic decreased DKK 307m or 30.4%, driven primarily by lower international transit traffic revenues due to lower prices and a fall in traffic minutes of approximately 22.6%. Net revenues from data communications and Internet services rose DKK 583m or 17.9% to DKK 3,840m in 2004. This revenue category includes primarily xDSL, dial-up and IP services as well as Internet activities. The growth was generated primarily by increased xDSL sales, driven by migration from dial-up to xDSL. The domestic xDSL customer base grew 37.3% to 556,000 customers at year-end 2004. The growth was also impacted by the inclusion of TDC Song from November 2004, and by the

Net revenues
In 2004, TDC Solutions net revenues totaled DKK 18,590m, which is in line with 2003. Net revenues from data communications and Internet services increased, impacted by the inclusion of TDC Song from November 2004. This increase was partly offset by the decline in traditional landline telephony stemming from migration from traditional landline telephony to mobile telephony and private IP-based networks. In addition, net revenues were negatively impacted by lower international transit traffic and declining revenues from leased lines, due to migration toward private IP-based networks.

Outlook for 2005 TDC Solutions Group


2004 2005

DKKbn

Growth in %

Net revenues EBITDA

18.590 5.894

20.9 6.4

12.4 8.6

20

full consolidation of Contactel in the second half of 2003 following an increased ownership share, partly offset by declining net revenues from dial-up customers and the impact of the divestment of Dan Net in August 2004. Net revenues from terminal equipment etc. amounted to DKK 2,578m, up DKK 153m or 6.3% compared with 2003. This revenue category includes primarily sales and installation of hardware ranging from handsets to large switchboards, and service agreements with domestic and international business customers. The increase stemmed primarily from higher terminal sales in the domestic operations and the impact of the inclusion of NetDesign from December 2004, partly offset by lower terminal sales in the Nordic subsidiaries, TDC Norge and TDC Internordia. Net revenues from leased lines, including domestic and international leased-line services, aggregated DKK 1,117m in 2004, a fall of DKK 117m or 9.5% compared with 2003, which stemmed primarily from a decrease in national leased lines that was impacted by migration toward

private IP-based networks as well as fewer subscription fees following a 7% price reduction. The decline was further impacted by lower revenues from servicing of companies with private data lines. Net revenues from other services amounted to DKK 1,412m, down DKK 170m compared with 2003, and related largely to the divestment of Dan Net as at August 1, 2004.

Transmission costs, raw materials and supplies


Transmission costs, raw materials and supplies amounted to DKK 5,576m in 2004, up DKK 122m or 2.2% compared with 2003. The increase stemmed mainly from the inclusion of TDC Song from November 2004 and the full consolidation of Contactel in the second half of 2003 following an increased ownership share. Transmission costs were also impacted by increased traffic from convergence products. These increases were partly offset by declining transmission costs caused by lower international transit traffic and falling landline traffic, balancing declining net revenues from these areas.

Total revenues TDC Solutions Group


2003 2004

DKKm

Growth in %

Net Revenues Landline telephony Retail Subscriptions Traffic Wholesale Transit traffic Other1 Data communications and internet services Terminal equipments etc. Leased lines Other2 Work performed for own purposes and capitalized Other operating income Total revenues
1 2

18,585 10,087 7,604 3,828 3,776 2,483 1,011 1,472 3,257 2,425 1,234 1,582 1,166 179 19,930

18,590 9,643 7,453 3,659 3,794 2,190 704 1,486 3,840 2,578 1,117 1,412 1,115 169 19,874

(0.0) (4.4) (2.0) (4.4) 0.5 (11.8) (30.4) 1.0 17.9 6.3 (9.5) (10.7) (4.4) (5.6) (0.3)

Includes incoming traffic, pre-fix traffic and service provision. Includes mobile telephony, operator services etc.

21

Managements Discussion and Analysis of Financial Statements

Other external charges


Other external charges fell DKK 50m or 1.2% to DKK 4,101m in 2004. The decrease resulted primarily from stringent cost control in domestic operations and the divestment of Dan Net at August 1, 2004. The decline was partly offset by the inclusion of TDC Song from November 2004.

Depreciation, amortization and write-downs


TDC Solutions depreciation, amortization and writedowns rose DKK 207m or 6.1% to DKK 3,608m in 2004, reflecting primarily reassessment of the useful lives of assets in domestic operations at year-end 2003. The increase also reflects the impact of the inclusion of TDC Song from November 2004, and higher depreciation and amortization in Contactel as a result of the full consolidation of Contactel in the second half of 2003 following an increased ownership share.

Wages, salaries and pension costs


Wages, salaries and pension costs fell DKK 308m or 6.7% to DKK 4,303m. The decrease reflected primarily a 10.5% decline in the number of average full-time employee equivalents in domestic operations stemming mainly from the redundancy programs and natural attrition. Wages, salaries and pension costs in TDC Norge fell due to fewer full-time employees. The average number of full-time employee equivalents fell 1,138 to 11,014 resulting mainly from the redundancy programs.

Earnings before interest and taxes (EBIT)


In 2004, EBIT, excluding one-time items, decreased DKK 27m or 1.2% to DKK 2,286m and mainly reflected higher depreciation partly offset by higher EBITDA.

Capital expenditures
TDC Solutions capital expenditures increased DKK 38m to DKK 2,457m in 2004.

Earnings before interest, taxes, depreciation and amortization (EBITDA)


EBITDA amounted to DKK 5,894m in 2004, up DKK 180m or 3.2%. The result reflects increased earnings from xDSL sales, savings from stringent cost control in the domestic operations and the impact of the redundancy programs. The increase was partly offset by a decline in traditional landline telephony.

Operating expenses TDC Solutions Group


2003 2004

DKKm

Growth in %

Transmission costs, raw materials and supplies Other external charges Wages, salaries and pension costs Total operating expenses

(5,454) (4,151) (4,611) (14,216)

(5,576) (4,101) (4,303) (13,980)

(2.2) 1.2 6.7 1.7

22

TDC Mobile International


TDC Mobile International is the leading provider of mobile telecommunications services in Denmark and also provides telecommunications services in a number of European countries. Its activities include primarily mobile telephony, sale of terminals, data services and sale of traffic to Danish service providers. Over the past few years, the domestic mobile sector has experienced fierce price competition that has resulted in a market consolidation in 2004, where the two largest service providers Telmore and CBB were acquired by TDC and Sonofon, respectively, and Orange Danmark was taken over by TeliaSonera. Earnings from operations were impacted by price competition, with many customers choosing to switch to cheaper Internet-based solutions, and the continued use of handset subsidies. At year-end 2004, TDC Mobile International had 2,464 full-time employee equivalents and 5.6m customers, with 2.1m in domestic operations, 2.6m in Talkline and 929,000 in Bit. Net revenues were DKK 15,105m in 2004, and EBITDA was DKK 2,682m.

Subsidiaries
TDC Mobile International has three main business areas: the domestic operations, Talkline and Bit. TDC Mobile International also has ownership shares in the mobile companies One, Polkomtel and Telmore International. The domestic operations include primarily TDC Mobil, a Danish-based mobile operator and Telmore, a Danish provider of mobile services.

TDC Mobil
TDC Mobils business areas include: retail activities, including mobile telephony and sale of terminals, and wholesale activities. In 2004, net revenues from these areas were as follows: 51% from retail, of which 81% came from mobile telephony and 19% from terminals, 46% from wholesale, and revenues from other activities totaled 3%. The domestic mobile market is characterized by high penetration. Further growth must therefore be achieved by developing new services and products. However, we expect increased minute usage due to customer migration from landline to mobile telephony.

TDC Mobile International Net revenues per business area 2004

TDC Mobile International Customers end of 2004

23

Managements Discussion and Analysis of Financial Statements

The number of SMS text messages sent continues to rise. MMS and GPRS data traffic is also strongly increasing, supported by recently launched services such as FLY, which is a mobile phone portal offering information, services, entertainment and games.

Talkline (Germany)
TDC Mobile International owns 100% of Talkline, a German service provider. At year-end 2004, the company had 2.6m mobile customers, up 23.9%. Talkline operates in three business areas: mobile telephony, content services and Call by Call pre-fix telephony. An agreement for the divestment of Talkline Infodienste, which offers content services and Call by Call pre-fix telephony, was signed in December 2004. The divestment is expected to be fully effected in the first quarter of 2005. Net revenues in these two business areas totaled DKK 1,249m in 2004. Talkline operates as a service provider mainly through Internet-based customer service. At year-end, Talkline had more than 500,000 customers receiving electronic bills. In 2004, mobile business represented 84% of Talklines total net revenues.

Telmore
Telmore offers primarily mobile telephony, mainly as web-based self-services, in which increasing customer interest was shown in 2004. At the beginning of 2004, TDC Mobile International acquired the remaining 80% of the shares in Telmore.

Telmore International
In August, TDC signed a brand license agreement with easyGroup, which allows us to use the easy brand when offering mobile telephony in up to 12 European countries. In November TDC announced that an agreement had been signed with a British mobile network operator. Telmore International was subsequently established and assumed ownership of a newly founded mobile company called easyMobile, which will offer mobile telephony in Great Britain following the Telmore concept.

Bit (Lithuania)
Bit is a Lithuanian mobile operator that is 100% owned by TDC Mobile International. Bits revenues are generated primarily by mobile telephony. The company also offers a wide range of mobile content and data services for business customers. In addition, Bit is the first mobile operator in Lithuania to offer wholesale to service providers. Throughout 2004, the Lithuanian market experienced significant growth, and penetration has been estimated at 98.8% at year-end 2004 compared with 61.6% in 2003. This increase stemmed mainly from fierce competition between the countrys three mobile operators, resulting in falling retail prices. In 2004, Bits customer base increased 75.0% to 929,000 customers.

Talkline mobile customers End-of-period (1,000)

Polkomtel (Poland)

TDC Mobile International holds a 19.6% stake in Polkomtel, a Polish mobile operator that topped seven million customers in 2004 and maintained its one-third share of the mobile market. Polkomtel has successfully maintained its leading position in the business customer segment.

24

One (Austria)
TDC Mobile International owns 15% of One, the thirdlargest mobile operator in Austria. Mobile phone penetration is 89.4% and the Austrians are also among the highest spenders in Europe in terms of mobile telecommunications. In 2004, Ones customer base increased

6.0% to 1.9m customers. In October 2004, One began offering UMTS services, which cover downloading of music files, video telephony etc. Polkomtel and One are recognized in TDCs Financial Statements using the equity method.

Selected financial and operational data TDC Mobile International Group

Excluding one-time items

Growth in % 2002 DKKm 2003 2004 02-03 03-04

Net revenues Domestic operations Talkline Bit Total revenues Total operating expenses Earnings before interest, taxes, depreciation and amortization (EBITDA) Domestic operations Talkline Bit Depreciation, amortization and write-downs Earnings before interest and taxes (EBIT) Capital expenditures1 Key financial ratios EBITDA margin2 Capex-to-net revenues ratio1 Subscriber base (end of year) Domestic operations Talkline Bit Subscriber base, total Number of employees3
1 2 3

13,688 5,304 7,633 751 13,839 (11,590) 2,249 1,624 493 132 (1,064) 1,185 998

13,175 5,613 6,692 870 13,230 (10,856) 2,374 1,672 513 189 (1,093) 1,281 934

15,105 6,503 7,675 927 15,172 (12,490) 2,682 2,041 450 191 (1,278) 1,404 1,023

(3.7) 5.8 (12.3) 15.8 (4.4) 6.3 5.6 3.0 4.1 43.2 (2.7) 8.1 6.4

14.6 15.9 14.7 6.6 14.7 (15.1) 13.0 22.1 (12.3) 1.1 (16.9) 9.6 (9.5)

% % (1,000)

16.4 7.3

18.0 7.1

17.8 6.8

1,699 1,713 488 3,900 2,668

2,134 2,091 531 4,757 2,636

2,050 2,590 929 5,569 2,464

25.6 22.1 8.8 22.0 (1.2)

(3.9) 23.9 75.0 17.1 (6.5)

Capital expenditures excluding share acquisitions. Earnings before interest, taxes, depreciation and amortization divided by net revenues. The number denotes end-of-year full-time employee equivalents including permanent employees, trainees and temporary employees.

25

Managements Discussion and Analysis of Financial Statements

Financial highlights
In 2004, TDC Mobile Internationals net revenues increased 14.6% to DKK 15,105m despite fierce competition in the domestic mobile market and lower average prices compared with 2003. TDC Mobile Internationals customer base rose 17.1% to 5.6m customers driven primarily by more mobile customers in Telmore, Talkline and Bit. Net revenues from domestic operations rose 15.9% to DKK 6,503m driven primarily by a significant growth in traffic volumes of 15.3%. In 2004, the number of mobile customers in domestic operations fell 3.9% or 84,000 to 2,1m, reflecting mainly a reduction in the number of prepaid customers in TDC Mobil as inactive pre-paid SIM cards were deactivated. This was offset partly by a growing number of post-paid subscriptions in TDC Mobil and a higher customer base in Telmore. Net revenues from Talkline were DKK 7,675m, up 14.7% in 2004 stemming primarily from a DKK 686m increase in mobile operations due to rising traffic volumes and more customers. The growth was also impacted by favorable developments in content services, partly offset by declining revenues from pre-fix telephony. In 2004, Talklines mobile customer base totaled 2.6m, up 499,000.

Net revenues from Bit amounted to DKK 927m, up 6.6% in 2004, and the number of customers increased 398,000 to 929,000 in 2004. Voice traffic increased 39.0% partly offset by price reductions and lower average consumption per customer. Primarily as a result of increased traffic, partly offset by rising customer-acquisition costs, TDC Mobile Internationals EBITDA increased 13.0% to DKK 2,682m. The EBITDA margin was 17.8%, almost unchanged compared with 18.0% in 2003, whereas the margin was 16.4% in 2002. However, EBITDA growth declined in 2004 with a growth rate of 17.8% in the first half and 9.2% in the second half 2004, due mainly to higher customer-acquisition costs. EBITDA in the domestic operations totaled DKK 2,041m, up 22.1% or DKK 369m in 2004, reflecting primarily increased traffic, partly offset by higher customer-acquisition costs. Talklines EBITDA declined DKK 63m to DKK 450m in 2004, resulting mainly from a lower result from pre-fix telephony and increased customer-acquisition costs in connection with the higher customer intake in 2004. TDC Mobile Internationals EBIT increased 9.6% from DKK 1,281m in 2003 to DKK 1,404m in 2004.

Domestic mobile customers End-of-period (1,000)

Market share* %

Domestic traffic min. Mobile (million)

Market share* %

Retail Wholesale Market share (retail and wholesale)

Traffic min. (retail and wholesale) Market share (retail and wholesale)

* Note: Retail market shares for domestic mobile customers and domestic traffic volume (minutes) are published by the Danish National IT and Telecom Agency in half-year reports. The market shares for 2004 have not yet been published.

26

TDC Mobile Internationals capital expenditures increased DKK 89m from DKK 934m in 2003 to DKK 1.023m in 2004 stemming primarily from higher investments in the UMTS network. In 2004, the capex-to-net revenues ratio was 6.8% compared with 7.1% in 2003. TDC Mobile Internationals net revenues were 1.2bn higher than stated in the Outlook for 2004 presented in the first-quarter report, due mainly to increased traffic in TDC Mobil and higher revenues in Talkline. EBITDA was DKK 0.2bn higher, resulting primarily from increased traffic in the domestic operations. Net revenues were DKK 0.6bn higher than stated in the latest Outlook for 2004 presented in the third-quarter report. EBITDA was DKK 0.1bn higher than expected, resulting primarily from increased traffic in the domestic operations and Talkline.

Net revenues
In 2004, TDC Mobile Internationals net revenues totaled DKK 15,105m, up DKK 1,930m or 14.6%, stemming from increased traffic volumes in the domestic and German markets, partly offset by lower prices, due to fierce competition in the domestic mobile market. Net revenues from domestic operations rose DKK 890m or 15.9% to DKK 6,503m in 2004. This category includes mobile traffic as well as subscriptions and terminal sales. Growth was driven in particular by increased revenues from TDC Mobil and the inclusion of Telmore from February 2004. Growth in retail revenues from TDC Mobil stemmed primarily from 11.1% more voice traffic and 34.8% more SMS traffic. Net revenues from wholesale in TDC Mobil rose 19.1% in 2004, due mainly to increasing incoming traffic. The growth in net revenues from domestic operations was partly offset by declining average retail prices as well as reduced subscription revenues. This reflects customer migration toward cheaper mobile solutions with self-services via the Internet and lower subscription fees, and a reduced customer base compared with 2003, reflecting primarily the deactivation of inactive pre-paid SIM cards. Net revenues from Talkline rose DKK 983m or 14.7% to DKK 7,675m in 2004, resulting mainly from mobile operations that increased its customer base 23.9% to 2.6m in 2004, and significant revenue growth in content services. The growth was partly offset by an EBITDA neutral

Outlook
TDC Mobile Internationals net revenues are expected to decline 4.0% to DKK 14.5bn in 2005. This reflects the divestment of Talkline Infodienste, with effect from 2005. This development is partly offset by growth in the domestic market, reflecting traffic growth and more customers partly offset by lower average prices. Further, growth is also expected in both Talklines mobile operations and Bit. EBITDA is expected to increase 0.7%. The relatively low growth reflects the divestment of Talkline Infodienste, a provider of value-added services, and the expansion of easyMobile, almost offsetting growth in the remaining part of the business line.

Outlook for 2005 TDC Mobile International Group


2004 2005

DKKbn

Growth in %

Net revenues EBITDA

15.105 2.682

14.5 2.7

(4.0) 0.7

27

Managements Discussion and Analysis of Financial Statements

change from gross to net accounting of content services in Talkline Infodienste in the second quarter of 2003 as a consequence of transferring the debtor risk to the content providers. Net revenues in Bit totaled DKK 927m, up 6.6% or DKK 57m, driven primarily by 75.0% growth in the customer base to 929,000 customers in 2004 and an increase in voice traffic of 39.0% partly offset by price reductions and lower average consumption per customer.

for resale, partly offset by the change from gross to net accounting in Talkline Infodienste. Transmission costs, raw materials and supplies in Bit totaled DKK 350m, up 10.5% or DKK 33m.

Other external charges


Other external charges amounted to DKK 3,628m in 2004, up DKK 395m or 12.2%. Other external charges in domestic operations totaled DKK 1,603m, up 9.6% or DKK 140m in 2004, stemming primarily from increased marketing and customer-acquisition costs. In Talkline, other external charges rose DKK 233m to DKK 1,709m due mainly to increased customer-acquisition costs in 2004. Bits other external charges totaled DKK 316m, up DKK 22m in 2004.

Transmission costs, raw materials and supplies


Transmission costs, raw materials and supplies rose 18.4% or DKK 1,227m to DKK 7,879m in 2004. Transmission costs, raw materials and supplies in domestic operations increased 19.5% or DKK 387m reflecting primarily increased voice and SMS text traffic. Talklines transmission costs, raw materials and supplies rose 18.6% or DKK 807m and related primarily to rising traffic and higher costs stemming from the purchase of handsets

Wages, salaries and pension costs


Wages, salaries and pension costs amounted to DKK 983m, up DKK 12m or 1.2%, DKK 529m of which was generated by domestic operations. Talklines wages,

Operating expenses TDC Mobile International Group


2003 2004

DKKm

Growth in %

Transmission costs, raw materials and supplies Other external charges Wages, salaries and pension costs Total operating expenses

(6,652) (3,233) (971) (10,856)

(7,879) (3,628) (983) (12,490)

(18.4) (12.2) (1.2) (15.1)

Total revenues TDC Mobile International Group


2003 2004

DKKm

Growth in %

Net revenues Domestic operations Talkline Bit Work performed for own purposes and capitalized Other operating income Total revenues

13,175 5,613 6,692 870 17 38 13,230

15,105 6,503 7,675 927 11 56 15,172

14.6 15.9 14.7 6.6 (35.3) 47.4 14.7

28

salaries and pension costs totaled DKK 380m compared with DKK 378m in 2003. Wages, salaries and pension costs in Bit totaled DKK 74m compared with DKK 70m in 2003.

DKK 1,278m, driven primarily by domestic operations as a result of increased amortization in connection with the inclusion of Telmore from February 2004.

Earnings before interest, taxes, depreciation and amortization (EBITDA)


TDC Mobile Internationals EBITDA rose DKK 308m or 13.0% to DKK 2,682m and stemmed primarily from domestic operations with an increase of DKK 369m or 22.1%. This growth reflects mainly increased traffic in TDC Mobil, partly offset by higher customer-acquisition costs. The growth was partly offset by lower EBITDA in Talkline of DKK 63m or 12.3% resulting primarily from increased customer-acquisition costs in connection with a higher intake of customers. Bits EBITDA growth amounted to DKK 2m or 1.1% in 2004.

Earnings before interest and taxes (EBIT)


EBIT rose DKK 123m or 9.6% to DKK 1,404m due to EBITDA growth partly offset by increased depreciation and amortization.

Capital expenditures
TDC Mobile Internationals capital expenditures increased DKK 89m to DKK 1,023m in 2004. Capital expenditures relating to domestic operations totaled DKK 747m, up DKK 78m compared with 2003. The increase stemmed mainly from higher investments in the UMTS network, partly offset by reduced capitalization of asset retirement obligations.

Depreciation, amortization and write-downs


Depreciation, amortization and write-downs in TDC Mobile International increased DKK 185m or 16.9% to

EBITDA Capital expenditures DKKm


Net revenues DKKm

EBITDA

Capital expenditures

Net revenues

29

Managements Discussion and Analysis of Financial Statements

TDC Switzerland
TDC Switzerlands activities cover mobile and landline telephony and Internet services. TDC Switzerland has maintained its position as the second-largest telecommunications provider in the Swiss market, which is characterized by fierce competition and a falling penetration growth rate. At year-end 2004, TDC Switzerland had 2,307 full-time employee equivalents and 2.2m customers. Net revenues were DKK 9,692m in 2004, and EBITDA was DKK 2,455m.

UMTS network roll-out is progressing as planned, and TDC Switzerland had fulfilled all UMTS license requirements by year-end 2004.

Landline telephony
Net revenues from landline telephony totaled DKK 3,138m in 2004, down 5.0% compared with 2003. Landline telephony comprised 32% of total net revenues compared with 35% in 2003. The fall in landline telephony in 2004 related primarily to migration from landline to mobile telephony combined with fierce competition in the Swiss market. In 2004, TDC Switzerland added a new sunrise family product to its range the first of its kind on the Swiss market. The product combines the total consumption of landline and mobile telephony in one bill with attractive discounts.

Business areas
TDC Switzerland operates in the following business areas:

Mobile telephony
Mobile telephony represents the major share of net revenues in TDC Switzerland and totaled DKK 5,795m in 2004, up DKK 326m or 6.0% compard with 2003. The number of mobile subscriptions at year-end 2004 was 1.2m, an increase of 7.4%, impacted negatively by mandatory registration of pre-paid customers required by Swiss legislation. As a consequence non-registered customers have been eliminated from the customer base. Mobile telephony comprised 60% of total net revenues compared with 58% in 2003.

Internet services
In 2004, the Internet services business area contributed 8% of net revenues in TDC Switzerland compared with 7% in 2003. The majority of the increase was driven by increasing xDSL activities partly offset by fewer dial-up customers.

TDC Switzerland Net revenues per business area 2004

TDC Switzerland Customers end of 2004

30

Selected financial and operational data TDC Switzerland Group

Excluding one-time items

Growth in % 2002 DKKm 2003 2004 02-03 03-04

Net revenues Total revenues Total operating expenses Earnings before interest, taxes, depreciation and amortization (EBITDA) Depreciation, amortization and write-downs Earnings before interest and taxes (EBIT) Capital expenditures1 Key financial ratios EBITDA margin2 Capex-to-net revenues ratio1 Subscriber base (end of year)3 Landline customers Mobile customers Internet customers Subscriber base, total Number of employees4
1

8,932 9,033 (7,764) 1,269 (2,493) (1,224) 1,557

9,471 9,577 (7,372) 2,205 (2,573) (368) 1,675

9,692 9,791 (7,336) 2,455 (2,700) (245) 1,196

6.0 6.0 5.0 73.8 (3.2) 69.9 (7.6)

2.3 2.2 0.5 11.3 (4.9) 33.4 28.6

% % (1,000)

14.2 17.4

23.3 17.7

25.3 12.3

660 975 549 2,184 2,319

630 1,108 526 2,264 2,380

573 1,190 469 2,232 2,307

(4.5) 13.6 (4.2) 3.7 2.6

(9.0) 7.4 (10.8) (1.4) (3.1)

Capital expenditures excluding share acquisitions. Earnings before interest, taxes, depreciation and amortization divided by net revenues. 3 The definition of active and inactive customers was changed in 2004. Comparative figures for 2002 and 2003 have been changed accordingly. 3 The number denotes end-of-year full-time employee equivalents including permanent employees, trainees and temporary employees.
2

31

Managements Discussion and Analysis of Financial Statements

Financial highlights
In 2004, TDC Switzerland maintained its position as the second-largest telecommunications provider in the Swiss market and continued its positive financial development from 2003. The number of mobile customers grew 7.4% to 1.2m, and the number of xDSL customers increased from 92,000 to 148,000 at year-end 2004. Net revenues increased DKK 221m or 2.3% to DKK 9,692m in 2004. Compared with revenue growth of 6.0% in 2003, the growth rate decreased due especially to lower growth in mobile telephony, impacted by lower handset sales, combined with a modest decline in the landline business. EBITDA increased DKK 250m or 11.3% to DK 2,455m in 2004, and the EBITDA margin was 25.3% compared with 23.3% in 2003 and 14.2% in 2002. This development reflects the combination of continued significant cost reductions stemming from synergies achieved after the creation of TDC Switzerland, and revenue increases over the period, as well as lower marketing costs compared with 2003.

In 2004, EBIT grew DKK 123m or 33.4% to DKK (245)m as a result of the improved EBITDA. TDC Switzerlands capital expenditures fell DKK 479m to DKK 1,196m in 2004. Compared with the growth in revenues, the capex-to-net revenues ratio fell from 17.7% in 2003 to 12.3% in 2004. With these results, TDC Switzerland performed in accordance with the Outlook for 2004 presented in the first-quarter report 2004 and subsequently confirmed by the third-quarter report.

Outlook
TDC Switzerlands net revenues are expected to increase 3.2% to DKK 10.0bn in 2005, reflecting primarily higher activity within mobile telephony, due mainly to more customers and higher average consumption per customer. EBITDA of DKK 2.6bn is expected, which is 5.9% higher than in 2004.

Outlook for 2005 TDC Switzerland Group


2004 2005

DKKbn

Growth in %

Net revenues EBITDA

9.692 2.455

10.0 2.6

3.2 5.9

Total revenues TDC Switzerland Group


2003 2004

DKKm

Growth in %

Net revenues Mobile Landline Internet Work performed for own purposes and capitalized Total revenues

9,471 5,469 3,302 700 106 9,577

9,692 5,795 3,138 759 99 9,791

2.3 6.0 (5.0) 8.4 (6.6) 2.2

32

Net revenues
Net revenues from mobile telephony, containing subscription fees, traffic revenues and handsets, amounted to DKK 5,795m in 2004, up DKK 326m or 6.0%. Our mobile customer base expanded 82,000 or 7.4% to 1.2m, which was the main driver for our revenue growth, partly offset by a decrease in revenues from the resale of handsets compared with 2003. Net revenues from landline telephony, containing retail, pre-fix, and pre-select products as well as wholesale activities, decreased DKK 164m or 5.0% to DKK 3,138m. This development was driven mainly by a decrease in the retail customer base from 630,000 in 2003 to 573,000 in 2004. This decline stemmed from both migration from landline to mobile telephony and intense competition in the Swiss retail market, partly offset by higher revenues from wholesale activities.

In 2004, net revenues from Internet services, containing dial-up traffic and xDSL, rose DKK 59m or 8.4% to DKK 759m. This revenue growth related mainly to the additional 56,000 xDSL customers, whereas the number of dial-up customers fell 113,000.

Transmission costs, raw materials and supplies


Transmission costs, raw materials and supplies amounted to DKK 3,895m in 2004, an increase of DKK 43m or 1.1% compared with 2003. This growth related mainly to higher transmission costs regarding mobile and Internet services, partly offset by lower terminal sales.

Other external charges


Other external charges totaled DKK 2,116m in 2004, a decrease of 3.8% compared with DKK 2,199m in 2003 related mainly to lower marketing costs.

Mobile customers End-of-period (1,000)


Mobile traffic min.

EBITDA Capital expenditures DKKm


Net revenues DKKm

Mobile customers

Traffic min.

EBITDA

Capital expenditures

Net revenues

33

Managements Discussion and Analysis of Financial Statements

Wages, salaries and pension costs


Wages, salaries and pension costs amounted to DKK 1,325m in 2004, up DKK 4m or 0.3%.

Earnings before interest, tax, depreciation and amortization (EBITDA)


EBITDA increased DKK 250m or 11.3% to DKK 2,455m due mainly to increased mobile revenues and lower marketing costs.

Depreciation, amortization and write-downs


Depreciation, amortization and write-downs increased DKK 127m or 4.9% to DKK 2,700m in 2004 reflecting increased investments in continued network expansion, write-downs in 2004 and increased goodwill amortization due to the increased ownership share.

Earnings before interests and tax (EBIT)


EBIT rose DKK 123m or 33.4% to DKK (245)m as a result of the improved EBITDA, partly offset by higher depreciation and amortization.

Capital expenditures
TDC Switzerlands capital expenditures totaled DKK 1,196m in 2004, down DKK 479m compared with 2003. This fall was due primarily to capitalization of asset retirement obligations concerning mainly mobile sites in 2003 and was partly offset by higher investments in the UMTS network in 2004.

Operating expenses TDC Switzerland Group


2003 2004

DKKm

Growth in %

Transmission costs, raw materials and supplies Other external charges Wages, salaries and pension costs Total operating expenses

(3,852) (2,199) (1,321) (7,372)

(3,895) (2,116) (1,325) (7,336)

(1.1) 3.8 (0.3) 0.5

34

TDC Cable TV
TDC Cable TV installs and operates cable-TV network lines, which provide TV signals for approximately 38% of Danish households. Most of the cable-TV network has broadband Internet access. Approximately 7% of Danish households had Internet access as cable-modem customer at year-end 2004. TDC Cable TV continued its high growth in revenues and earnings of recent years. At year-end 2004, the number of cable-TV customers totaled 982,000, up 6.3%, and the number of customers with Internet access rose 59.0% to 186,000. In 2004, net revenues totaled DKK 1,766m, and EBITDA was DKK 355m, representing growth of 15.9% and 105.2%, respectively.

The share of cable-modem customers will be more important in future business, which will target both individual customers and associations. In 2005, TDC Cable TV plans to launch a new IP telephony product, voice over IP (VoIP), which allows telephony over the cable-TV network. With the introduction of IP telephony in 2005, TDC Cable TV will be able to offer its customers Triple Play solutions containing TV, Internet and telephony from just one provider. In addition to TDC Cable TV, Installations includes two fully-owned subsidiaries, Dansk Kabel TV and Connect Partner. Dansk Kabel TV is a leading provider of communal aerial and cable-TV installations. In May 2004, TDC Cable TV acquired Connect Partner, a company specializing in complete solutions within data and telecoms networks.

Business areas
TDC Cable TVs core business area is analog TV, which we offer in three standard packages (basic, medium and full-range) both to individual customers and antenna and housing associations. In 2005, we will begin migrating the analog TV packages toward digital packages. TDC Cable TV already offers digital TV via Selector.

Financial highlights
TDC Cable TVs net revenues amounted to DKK 1,766m, up DKK 242m or 15.9% compared with 14.2% in 2003. Revenues are still generated primarily by cable-TV subscriptions, with an increasing share from cable-modem customers, with a customer growth of 59.0% in 2004.

EBITDA Capital expenditures DKKm


Net revenues DKKm


TDC Cable TV Net revenues per business area 2004

EBITDA

Capital expenditures

Net revenues

35

Managements Discussion and Analysis of Financial Statements

TDC Cable TVs EBITDA continued to improve, mainly as a result of the growing customer base and increased revenues per customer. EBITDA was DKK 355m, up 105.2%, resulting in an increased EBITDA margin of 20.1% compared with 11.4% in 2003 and 1.3% in 2002. EBIT amounted to DKK 126m in 2004, up DKK 224m compared with 2003. In 2004, TDC Cable TVs capital expenditures aggregated DKK 225m, a reduction of DKK 51m or 18.5%. The capex-tonet revenues ratio was 12.7% in 2004 compared with 18.1% in 2003.

Net revenues and EBITDA were 0.1bn higher than stated in the Outlook for 2004 presented in the first-quarter report and confirmed by the third-quarter report, due mainly to higher growth in the number of customers than expected.

Outlook
TDC Cable T V is expected to continue its positive developments in 2005 driven by a higher net intake of customers and sales of more TV programs and Internet services. Therefore, net revenues of DKK 2.1bn and EBITDA of DKK 0.5bn are expected in 2005, representing growth of 18.9% and 41.0%, respectively.

Selected financial and operational data TDC Cable TV Group

Excluding one-time items

Growth in % 2002 DKKm 2003 2004 02-03 03-04

Net revenues Total revenues Total operating expenses Earnings before interest, taxes, depreciation and amortization (EBITDA) Depreciation, amortization and write-downs Earnings before interest and taxes (EBIT) Capital expenditures1 Key financial ratios EBITDA margin2 Capex-to-net revenues ratio1 Subscriber base (end of year) Cable-tv-customers of which cable-modem customers Number of employees3
1 2 3

1,335 1,339 (1,322) 17 (214) (197) 248

1,524 1,527 (1,354) 173 (271) (98) 276

1,766 1,773 (1,418) 355 (229) 126 225

14.2 14.0 (2.4) (26.6) 50.3 (11.3)

15.9 16.1 (4.7) 105.2 15.5 18.5

% %

1.3 18.6

11.4 18.1

20.1 12.7

(1,000) 885 62 693 924 117 733 982 186 862 4.4 88.7 5.8 6.3 59.0 17.6

Capital expenditures excluding share acquisitions. Earnings before interest, taxes, depreciation and amortization divided by net revenues. The number denotes end-of-year full-time employee equivalents including permanent employees, trainees and temporary employees.

36

Net revenues
TDC Cable TVs net revenues increased DKK 242m or 15.9% to DKK 1,766m in 2004. Net revenues include primarily cable-TV subscription and connection fees as well as revenues from cable modems. The increase related largely to a 58,000 or 6.3% rise in TDC Cable TVs customer base, up to 982,000 TV customers in 2004, as well as higher average revenues per customer. Revenues from cable-modem customers also contributed to the growth.

Other external charges


Other external charges amounted to DKK 301m in 2004, up DKK 31m or 11.5%, driven mainly by increased activities.

Wages, salaries and pension costs


Wages, salaries and pension costs rose DKK 35m or 14.3% to DKK 279m, due largely to the acquisition of Connect Partner in May 2004, and an increase in the average number of full-time employee equivalents, particularly among customer service employees and technicians.

Transmission costs, raw materials and supplies


Transmission costs, raw materials and supplies totaled DKK 838m in 2004, largely unchanged compared with 2003.

Outlook for 2005 TDC Cable TV Group


2004 2005

DKKbn

Growth in %

Net revenues EBITDA

1.766 0.355

2.1 0.5

18.9 41.0

Cable-modem cutomers End-of-period (1,000)

Market share* %

Cable-TV customers End-of-period (1,000)

Cable-modem customers

Market share

* Note: The market is published by the Danish National IT and Telecom agency in half-year reports. The data for 2004 has not yet been published. The above market share is TDC Cable TVs share of the total broadband market, which is defined as the sum of xDSL and cable modem. In data from the Danish National IT and Telecom Agency, broadband subscriptions are defined as subscriptions with a capacity of at least 144 kbit/s as of the second half of 2002. Optical fiber, wireless and housing association networks are not included in the market share stated above.

37

Managements Discussion and Analysis of Financial Statements

Earnings before interest, taxes, depreciation and amortization (EBITDA)


TDC Cable TVs EBITDA totaled DKK 355m in 2004, up DKK 182m or 105.2%, mainly as a result of increased revenues following the growth in the customer base and increased revenues per customer.

Capital expenditures
TDC Cable TVs capital expenditures decreased DKK 51m compared with 2003 to DKK 225m in 2004 and reflected mainly higher expenses for return-path upgrades in 2003 that are required for broadband Internet access.

Depreciation, amortization and write-downs


TDC Cable TVs depreciation, amortization and writedowns amounted to DKK 229m in 2004, down DKK 42m or 15.5% stemming mainly from write-downs of equipment for the cable-TV network in 2003.

Earnings before interest and taxes (EBIT)


EBIT rose DKK 224m to DKK 126m in 2004, due mainly to the higher EBITDA.

Total revenues TDC Cable TV Group


2003 2004

DKKm

Growth in %

Net revenues Other operating income Work performed for own purposes and capitalized Total revenues

1,524 3 0 1,527

1,766 6 1 1,773

15.9 100.0 16.1

Operating expenses TDC Cable TV Group


2003 2004

DKKm

Growth in %

Transmission costs, raw materials and supplies Other external charges Wages, salaries and pension costs Total operating expenses

(840) (270) (244) (1,354)

(838) (301) (279) (1,418)

0.2 (11.5) (14.3) (4.7)

38

TDC Directories
TDC Directories publishes printed, electronic and Internet-based products that are sold in Denmark, Sweden and Finland, with 105 printed directories in Denmark and 412 in Sweden. Its main Internet sites are www.dgs. dk, www.lokaldelen.se and www.fretagsfakta.se. At year-end 2004, TDC Directories had 1,074 full-time employee equivalents, net revenues of DKK 1,436m and EBITDA of DKK 472m.

within electronic media by continuously developing its websites. Besides printed and Internet products, TDC Directories will focus on telephony and mobile-based information services. Subsidiaries In addition to its domestic operations, TDC Directories has two fully-owned international subsidiaries, TDC Frlag AB in Sweden and TDC Hakemistot OY in Finland. In 2004, TDC Frlag AB, which owns www.lokaldelen.se, entered into an agreement with www.spray.se, which is one of the leading Swedish Internet search engines.

Business areas
Printed media The majority of TDC Directories revenues are still generated by printed directories. TDC Directories is the market leader in Denmark and maintained its position in 2004. Revenues from printed directories in Denmark declined slightly in step with continued competition and the shift from printed directories to Internet-based products. Internet media Our primary Internet site is www.dgs.dk, which has maintained its large share of Internet advertising. The online market will be our prime growth area in 2005, and TDC Directories will strive for a strong position

Financial highlights
TDC Directories net revenues fell DKK 27m or 1.8% to DKK 1,436m in 2004, resulting mainly from lower activity in domestic operations. This reflected primarily fewer sold advertisements, partly offset by higher revenues in TDC Frlag AB. In 2004, EBITDA rose DKK 59m or 14.3% to DKK 472m, reflecting primarily TDC Frlag ABs closure of Gulan (a Swedish directory service), and lower costs in domestic operations. The EBITDA margin was 32.9% compared with 28.2% in 2003 and 25.8% in 2002. EBIT increased DKK 88m or 32.2% to DKK 361m in 2004, and reflected the improved EBITDA and lower depreciation.

TDC Directories Net revenues per business area 2004

EBITDA DKKm

Net revenues DKKm


EBITDA

Net revenues

39

Managements Discussion and Analysis of Financial Statements

With these results, TDC Directories performed in accordance with the Outlook for 2004 presented in the first-quarter report 2004 and subsequently confirmed by the third-quarter report.

in TDC Frlag AB, stemming mainly from increased revenues from printed media.

Raw materials and supplies


Raw materials and supplies fell DKK 38m or 11.6% to DKK 290m in 2004. This decrease related mainly to lower printing expenses and lower commission expenses for external sales agencies due to insourcing of telemarketing activities.

Outlook
TDC Directories net revenues are expected to grow 4.4% to DKK 1.5bn, while EBITDA is expected to grow 5.9% to DKK 0.5bn in 2005, reflecting primarily increased activities within electronic media both in the Danish and Swedish markets.

Other external charges


Other external charges decreased DKK 17m or 5.4% to DKK 296m due mainly to lower losses on bad debts.

Net revenues
TDC Directories net revenues, including printed directories, catalogs and online services, amounted to DKK 1,436m in 2004, a decrease of DKK 27m or 1.8% compared with 2003. This reflected primarily fewer sold advertisements and was partly offset by increased net revenues

Wages, salaries and pension costs


TDC Directories wages, salaries and pension costs totaled DKK 401m, and were DKK 19m or 4.5% lower than in 2003, stemming mainly from the closure of Gulan in Sweden in 2003.

Selected financial and operational data TDC Directories Group

Excluding one-time items

Growth in % 2002 DKKm 2003 2004 02-03 03-04

Net revenues Total revenues Total operating expenses Earnings before interest, taxes, depreciation and amortization (EBITDA) Depreciation, amortization and write-downs Earnings before interest and taxes (EBIT) Capital expenditures1 Key financial ratios EBITDA margin2 Number of employees3
1 2 3

1,465 1,477 (1,099)

1,463 1,474 (1,061)

1,436 1,459 (987)

(0.1) (0.2) 3.5

(1.8) (1.0) 7.0

378 (107) 271 29

413 (140) 273 35

472 (111) 361 54

9.3 (30.8) 0.7 (20.7)

14.3 20.7 32.2 (54.3)

25.8 1,254

28.2 1,091

32.9 1,074

(13.0)

(1.6)

Capital expenditures excluding share acquisitions. Earnings before interest, taxes, depreciation and amortization divided by net revenues. The number denotes end-of-year full-time employee equivalents including permanent employees, trainees and temporary employees.

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Earnings before interest, taxes, depreciation and amortization (EBITDA)


TDC Directories EBITDA rose DKK 59m or 14.3% to DKK 472m in 2004 and related primarily to TDC Frlag AB due to increased net revenues and the favorable impact of the closure of Gulan in 2003, and lower costs in domestic operations.

Capital expenditures
TDC Directories capital expenditures increased DKK 19m to DKK 54m in 2004.

Depreciation, amortization and write-downs


TDC Directories depreciation, amortization and writedowns decreased DKK 29m or 20.7% to DKK 111m in 2004 due largely to write-down of goodwill in the Finnish publisher TDC Hakemistot in 2003.

Earnings before interest and taxes (EBIT)


EBIT rose DKK 88m or 32.2% to DKK 361m in 2004, primarily as result of the increase in EBITDA and write-down of goodwill in TDC Hakemistot in 2003.

Outlook for 2005 TDC Directories Group


2004 2005

DKKbn

Growth in %

Net revenues EBITDA

1.436 0.472

1.5 0.5

4.4 5.9

Operating expenses TDC Directories Group Raw materials and supplies Other external charges Wages, salaries and pension costs Total operating expenses
2003 2004

DKKm Growth in %

(328) (313) (420) (1,061)

(290) (296) (401) (987)

11.6 5.4 4.5 7.0

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Managements Discussion and Analysis of Financial Statements / Financial management and market-risk disclosures

Other activities
Other activities cover TDC Services, TDC A/S and eliminations between TDCs business lines. TDC Services supplies a number of business services for the TDC Groups domestic business lines, which gain economies of scale and cost-effective solutions in billing, procurement, logistics, facility management, IT, accounting, payroll administration, risk management and security. TDC A/S is the parent company of the business lines and undertakes Group functions including treasury, legal affairs, human resources and communications.

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Financial management and market-risk disclosures


TDC is exposed to certain market and credit risks related to its financial portfolios, investments in foreign companies, and purchases and sales of goods and services denominated in foreign currencies. TDC identifies, monitors and controls each of these risks through risk management policies and procedures approved by Management. The market values of financial assets and liabilities and interest-rate, exchange-rate, credit and share price exposures are computed on a daily basis. The Board of Directors defines the highest acceptable levels of exposure. Currency swaps and forward-exchange contracts are used to minimize exposures from financial activities in foreign currencies. However, TDC does not consider positions in euro (EUR) to constitute a major risk because of the fixed-exchange-rate policy of the Danish government vis--vis the euro. TDC does not hedge investments in foreign enterprises, but has decided to hedge the investment in TDC Switzerland. Currency gains/losses resulting from this activity are reflected in currency translation adjustments under shareholders equity.

Refinancing
In order to reduce its refinancing risk, TDC aims to even out the maturity profile of the loan portfolio. To further reduce its refinancing risk, TDC had committed credit lines of DKK 10.2bn at year-end 2004.

Value at risk
Market risk is the risk of fluctuations in the market value of a financial instrument as a result of changes in market factors. Statistical models based on fluctuations in historical prices can estimate potential losses that could arise from changes in market conditions. The estimates are calculated using a probability-based approach for measuring TDCs exposure to market risks. TDC performs daily value-at-risk analyses (VaR) of all its significant financial instruments based on volatilities of and correlations between exchange rates and interestrates respectively. The VaR calculations are based on the portfolios held and express how adverse changes in market prices affect the market value of TDCs financial instruments. The daily estimates represent the maximum potential financial loss to TDC, at a 95% confidence level, from adverse changes in either interest rates or foreign exchange rates over a one-year period. The interest rate VaR for net interest-bearing debt amounted to DKK 1,165m at year-end 2004 compared with DKK 1,352m at year-end 2003. The average interest VaR for 2004 totaled DKK 1,184m and moved within an interval between DKK 953m and DKK 1,359m. TDCs approved maximum of DKK 2,000m for interest VaR was therefore not exceeded at any time in 2004. The highest interest VaR observed was 68% of the maximum approved amount.

Interest rate
TDC has raised floating and fixed interest-rate loans with maturities of up to 9 years. Interest-rate risk management involves surveillance of TDCs interest-bearing assets, liabilities and financial instruments. The interest-rate risk is calculated according to the value-at-risk method and is managed using interest-rate swaps.

Exchange rate
The net exchange-rate exposure in domestic companies from trade accounts payable and receivable is hedged on the date on which it is known. The exchange-rate exposure from TDCs business activities relates materially to the net income in foreign subsidiaries, as their income and expenses are denominated mainly in local currencies.

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Financial management and market-risk disclosures

Foreign exchange VaR for net interest-bearing debt, the investment in TDC Switzerland as well as trade accounts payable and receivable amounted to DKK 4m at year-end 2004 compared with DKK 15m at year-end 2003. The average foreign-exchange VaR for 2004 amounted to DKK 11m and moved within an interval between DKK 1m and DKK 92m. TDCs approved maximum of DKK 300m for foreign-exchange VaR was therefore not exceeded at any time in 2004. The highest foreign-exchange VaR observed was 31% of the approved maximum. In TDCs opinion, its approved maximum amounts for interest-rate and currency exposures are acceptable compared with its expected future earnings, equity and market capitalization.

Credit rating
TDC is rated by Standard & Poors and Moodys Investor Services (Moodys). Throughout 2004, TDC had a longterm credit rating of BBB+/Baa1 and a short-term credit rating of A2/P-2 from Standard & Poors and Moodys, respectively. TDC has decided to maintain its present credit ratings.

Shares
TDC has no significant shareholdings other than shares held in subsidiaries and associated enterprises. TDC held 21,582,145 shares or almost 10% of the common shares at year-end 2004. Most of the shares were acquired in 2004 when the former main shareholder, SBC, sold its shares. In addition, TDC holds shares to cover the commitments under TDCs share option program.

Credit risk
TDC is exposed to credit risks in a variety of areas: as a supplier of services to Danish and international customers and business partners, as counterparty to financial contracts, and as a holder of securities. Credit risks associated with TDCs financial contracts are managed by a set of policies and procedures stating approved maximum credit limits based on e.g. credit ratings of counterparties.

TDCs pension funds


TDCs pension funds invest in a variety of marketable securities, including equities. The rate of return on these investments has implications for TDCs financial results and pension plan funding requirements. TDC is obliged to cover any shortfall in these pension funds ability to comply with the premium reserve requirements under the Danish Act on Company Pension Funds.

Value at risk amounts from adverse changes in interest rates and foreign exchange rates1
1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04

DKKm 4Q04

Interest rate value-at-risk on net interest-bearing debt Foreign exchange rate value-at-risk on net interest-bearing debt, the investment in TDC Switzerland and net trade accounts

1,171 1,172 1,380 1,352 1,291 1,218 1,089 1,165

32

33

23

15

End-of-period figures for TDC A/S, TDC Solutions A/S, TDC Mobile International A/S, TDC Mobil A/S, TDC Directories A/S, TDC Services A/S and TDC Cable TV A/S.

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Financial position
Overall, TDCs financial position reflects the cash flows generated by its operating activities and investments in companies and assets, net of dividends paid out. At year-end 2004, cash, marketable securities and interest-bearing receivables aggregated DKK 10,333m compared with DKK 7,606m at year-end 2003, while shortterm interest-bearing debt totaled DKK 1,326m compared with DKK 3,314m at year-end 2003. This resulted in a DKK 4,715m increase in net liquid assets from DKK 4,292m at year-end 2003 to DKK 9,007m at year-end 2004. Long-term debt amounted to DKK 29,017m at year-end 2004 compared with DKK 32,974m at year-end 2003. Net interest-bearing debt fell DKK 8,672m over the year to DKK 20,010m at year-end 2004. The decrease was due mainly to the divestment of Belgacom and improved cash generation from operations.

At year-end 2004, TDCs total cash, marketable securities, interest-bearing receivables and undrawn committed credit lines totaled DKK 20,518m compared with DKK 18,772m at year-end 2003, equaling a DKK 1,746m increase. It is TDCs opinion that the available cash, marketable securities, interest-bearing receivables and undrawn committed credit lines are sufficient to maintain current operations, complete projects underway, finance stated objectives and plans, and meet short-term and longterm cash requirements.

Year-end net interest-bearing debt and total cash, marketable securities, interest-bearing receivables and undrawn credit lines

DKKm

TDC Group
2003 2004

Cash, marketable securities and interest-bearing receivables Short-term debt and interest-bearing payables Net liquid assets Long-term debt Net interest-bearing debt Cash, marketable securities and interest-bearing receivables Undrawn committed short-term and long-term credit lines Total cash, marketable securities, net interest-bearing receivables and undrawn credit lines

7,606 (3,314) 4,292 (32,974) (28,682) 7,606 11,166 18,772

10,333 (1,326) 9,007 (29,017) (20,010) 10,333 10,185 20,518

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Legal proceedings / Critical accounting policies / Change to International Financial Reporting Standards (IFRS)

Legal proceedings
The TDC Group is awaiting the outcome of certain cases brought against other telecommunications companies. A potential favorable outcome for TDC of one or more of these cases could result in substantial income. The TDC Group is a party to certain pending lawsuits and cases pending with public authorities and complaint boards. Based on a legal assessment of the possible outcome of each of these lawsuits and cases, Management is of the opinion that these will have no significant adverse effect on the TDC Groups financial position.

Critical accounting policies


The preparation of TDCs Annual Report requires Management to make assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amount of income and expenses during the period under review. Estimates and judgments used in the determination of reported results are continuously evaluated. Estimates and judgments are based on historical experience and on various other factors that are believed to be reasonable in the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Full details of our significant accounting policies are set out in a separate section. The following estimates and judgments are considered important when portraying our financial condition: Useful lives for long-lived assets are assigned based on periodic studies of actual asset lives and the intended use for those assets. Such studies are completed or updated when new events occur that have the potential to impact the determination of the useful life of the asset, such as when events or circumstances have occurred which indicate that the carrying value of the asset may not be recoverable and should therefore be tested for impairment. Any change in the estimated useful lives of these assets would be reported in the financial statements as soon as any such change is determined. Intangible assets, including goodwill and other rights, comprise a significant portion of our total assets. Impairment tests on these intangible assets are performed at least annually and, if necessary, when events or changes in circumstances indicate that their carrying value may not be recoverable. The measurement of intangibles is a complex process that requires significant management judgment in determining various assumptions, such as cash-flow projections, discount rates and terminal growth rates. The sensitivity of the estimated measurement to these assumptions, combined or individually, can be significant. Furthermore, the use of different estimates or assumptions when determining the fair value of such assets may result in different values and could result in impairment charges in future periods.

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Net periodic pension cost for defined benefit plans is estimated based on certain actuarial assumptions, the most significant of which relate to returns on plan assets, discount rates and salary inflation. As shown in note 25 to the Consolidated Financial Statements, both the assumed rate of return on plan assets and the assumed discount rate have been reduced to reflect changes in market conditions and in the mix of assets held by our pension funds. Our assumptions for 2005 reflect a further reduction in the discount rate from 4.80% to 4.50%, and in the assumed return on plan assets from 6.10% to 5.80%. We believe these assumptions illustrate current market conditions and expectations for market returns in the long term. With these changed assumptions TDCs pension costs are expected to increase approximately DKK 70m in 2005 compared with 2004, assuming all other factors remain unchanged. Estimates of deferred income taxes and significant items giving rise to the deferred assets and liabilities are shown in note 8 to the Consolidated Financial Statements. These reflect the assessment of actual future taxes to be paid on items reflected in the financial statements, giving consideration to both the timing and probability of these estimates. In addition, such estimates reflect expectations about the amount of future taxable income and, where applicable, tax planning strategies. Actual income taxes could vary from these estimates, and results of operations in future periods could be affected by changes in expectations about future taxable income, future changes in income tax law or results from the final review of our tax returns by tax authorities. The determination of the treatment of contingent liabilities in the financial statements is based on the expected outcome of the applicable contingency. Legal counsel and other experts are consulted both within and outside the Company. A liability is recognized if the likelihood of an adverse outcome is probable of occurring and the amount is estimable. The matter is disclosed if the likelihood of an adverse outcome is only reasonably possible or an estimate is not determinable. Resolution of such contingencies in future periods may result in actual losses in excess of the amounts recognized.

Estimates of the fair value of financial instruments (including derivative financial instruments) for which quoted market prices are not available are based on the best information available in the circumstances. Methods of estimation used for such purposes include discounting estimated expected future cash flows, and fundamental analysis. Such methods incorporate assumptions about interest rate, risk premium, default, prepayment, volatility and other factors. Revenue is recognized when realized or realizable and earned. Revenue from non-refundable up-front connection fees as well as the related incremental direct costs are deferred and amortized over the expected term of the related customer relationship. The estimation of the term is based on historical customer churn rates. Change of Managements estimates may have a significant impact on the amount and timing of our revenue for any period.

Change to International Financial Reporting Standards (IFRS)


As of January 2005, TDC is to present its Financial Statements in accordance with IFRS. TDC has analyzed the differences between TDCs Significant Accounting Policies and IFRS and will be able to announce the effect of IFRS on our results of operations, financial position, cash flows, etc. when presenting our first-quarter report at the latest.

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Recent developments / Risk factors related to TDCs business

Recent developments
On February 3, 2005, TDC decided to submit a proposal to be considered at the Annual General Meeting on March 17, 2005 that TDC A/S common shares be reduced by canceling part of the Companys portfolio of treasury shares, or a total of nominal DKK 90m, equivalent to 8.4% of the common shares. On February 10, 2005, TDCs Board of Directors decided to submit a proposal to be considered at the Annual General Meeting, which will be held on March 17, 2005, for the abolition of the rules in TDCs Articles of Association stipulating that no shareholder may own more than 9.5% of the common shares without the consent of the Board of Directors, cf. e.g. Article 5(3) of the Articles of Association. On February 23, 2005, TDC decided to reduce the domestic workforce by approximately 630 employees. The cost will be approximately DKK 320m after tax, which will be expensed as a one-time time in first quarter 2005.

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Risk factors related to TDCs business


This section describes risks related to our markets, technology and regulation. anticipated synergies and economies of scale. The knowledge of the announcement and completion of the integration of TDC Song with TDC could cause customers to seek alternative providers or delay or change orders due to uncertainty over the integration of the companies or their strategic positions. TDC Song may therefore experience some customer attrition following the acquisition, which could harm the companies operating results. Also, difficulties in integrating TDC Song and TDC, including the uncertainties related to organizational and cultural changes, could affect employee morale and result in loss of key employees, which may negatively affect TDCs revenues and profit margins.

Markets and technology General


The Danish telecommunications sector is highly competitive, and to remain successful in this market TDC must continue to reduce the prices for its services. In the mobile market, prices have been declining due to fierce competition, particularly from online products. Broadband customers are being offered increasing bandwidth at unchanged or even falling prices. Although traditionally TDCs prices for landline and mobile telephony as well as leased lines have been among the lowest in the European Union, market pressures continue to intensify. Future competition for landline telephony will further intensify as Internet-based telephony (VoIP) develops into a realistic alternative to landline telephony. Therefore, TDC expects intense competition in the Danish telecommunications market to continue, which may result in future price reductions and loss of market share. Such reductions could adversely affect TDCs revenues and profit margins. TDCs foreign subsidiaries are also facing increasing competition. This development could adversely affect the revenues and profit margins of our foreign subsidiaries. The success of TDCs landline, mobile, Internet, cableTV and directory operations will also depend on TDCs ability to keep pace with continuing changes in technology. TDC expects technological innovation to continue rapidly across all product lines. If TDC is too slow in applying new technologies, its services may become non-competitive. Conversely, such technologies may not prove commercially viable in the long run, and consequently TDC may risk being unable to earn an adequate return on, or recover the costs of, its investments in developing and marketing products that rely on these technologies. TDC acquired TDC Song in November 2004. The acquisition and expansion of operations in the Nordic region involve certain risks including the potential inability to successfully integrate the acquired operations or to realize

Landline
With respect to landline telephony, increased competition is expected from VoIP. There is a considerable risk that TDCs switch to VoIP could negatively affect landline operations future earnings potential. This is due to the uncertainty regarding TDCs maintenance of a price level for VoIP similar to the level for PSTN. Furthermore, price decreases in the Danish mobile market might accelerate the current trend of migration from landline to mobile telephony. As TDC has a smaller share of the mobile market than the landline market in Denmark, such a migration could negatively affect TDCs earnings. Increased competition is also expected in landline telephony from IP-based internal networks (such as IP-VPN for business customers), antenna and housing association networks and power suppliers using their infrastructure to provide telephony and broadband. Similarly, in the market for leased lines, increased competition is likely from new IP-based transmission products such as MPLS and Ethernet solutions, where prices are below those of leased lines, and product quality is sufficiently strong to compete with leased lines. With regard to international operations, TDC Switzerland has experienced price decreases in the landline market due to competition from established competitors, such as Cablecom that offers telephony through their cable network at flat-rate prices. Such competition may result in loss of customers, reduced revenues and a lower profit margin.

49

Risk factors related to TDCs business

In general, the future success of the landline business will depend on TDCs ability to shift its technological base toward VoIP and other IP-based products, and adapt to lower prices for its services and generally more competitive market conditions. If TDC is unsuccessful in dealing with these risks, its revenues and profit margins may be negatively affected.

is also a significant risk of possible future price pressure on the relatively high German retail prices. TDC has a UMTS license in Denmark and in Switzerland. Polkomtel has a license in Poland and One has a license in Austria. The ability to provide UMTS services in Denmark, Switzerland and Poland will depend on the successful rollout of UMTS networks in these countries. The use of UMTS technology will require the utilization of existing GSM sites as well as the deployment of a number of new base stations to serve these operations. Both TDC and its strategic partners may experience difficulties in procuring sufficient base stations due to the limited availability of new sites and public concern over possible adverse health effects related to the electromagnetic transmissions emitted from mobile base stations, as well as aesthetic and other considerations. In addition, the strict rules on radiation regulations that apply in Switzerland could increase the costs related to GSM and UMTS networks. TDCs UMTS operations are also dependent on the timely availability of commercially viable handsets from suppliers. Insufficient amounts of UMTS equipment and handsets could adversely affect TDCs strategy for offering UMTS services, as availability is the required driver of demand for these services. Moreover, Wireless Local Area Networks (WLAN) penetration may adversely affect the use of UMTS, especially data services. In the fall of 2003, the first Danish UMTS operator 3 launched its network publicly. Although projected to be in 2005, TDC has not yet finalized the date for its commercial launch of its Danish UMTS network.

Mobile telephony
TDCs ability to further increase revenues and earnings within the mobile telephony sector, both in Denmark and in TDCs international operations, will depend on a number of factors, including its ability to develop and market attractive services at competitive prices. As market price levels for such services continue to fall, further growth in earnings will require improved profitability and continued cost control. Special attention must be given to the pressure on earnings in Denmark that regulation of termination prices and roaming charges can have on mobile operations. TDCs international mobile operations may be challenged by shifts in business paradigms, as seen in the Danish market where online-based service providers have demonstrated new and low-cost ways of serving customers. With respect to TDC Switzerland, future growth in revenues and earnings within the mobile telephony sector will depend on its ability to establish a presence in the business market. In the past year, the Swiss mobile market has experienced intense competition, which may result in declining margins and diluted earnings. The still increasing Swiss mobile penetration may result in fierce competition for remaining customers, which could in turn lead to a rise in customer-acquisition costs, and further pressure on earnings. The future growth of Bit in Lithuania will depend primarily on Bits ability to win market share as well as, more generally, on country-wide factors such as the economic growth of Lithuania. Talklines future success will depend largely on its ability to achieve a sufficiently large gross margin on traffic resales when negotiating with network suppliers. There

Cable TV
TDC Cable TV is expected to face increased competition from a number of sources, including power suppliers, large antenna and housing associations and satellite television providers. Both competition and the range of programs in the generally accessible network are expected to increase if DigiTV realizes its plans to develop a digital terrestrial network. And in the long-term, increased competition may also arise from new technology, most notably from future Internet-based content providers.

Directories
Currently, printed catalogues are the principal drivers of

50

revenue for TDC Directories. However, as printed media may in some respects be in transition toward online media, TDC Directories may face increased competition from established and new competitors in the electronic market, where entrance costs are relatively low. The future success of TDC Directories operations will therefore depend on its ability to maintain its current market share for printed catalogues and to maintain, develop and transfer market brand and its services to the online market. As online media are likely to generate an increasing share of TDC Directories future revenues, a delayed or weak development of its online services could negatively affect its future revenues.

in these regions are currently very uncertain due to the significant fall of the dollar and the rise of oil prices throughout 2004. TDCs customers may delay or cancel investments in telecommunications systems and services if their business outlook is cautious or negative, which may adversely affect TDCs revenues and the development of new products and services. A significant deterioration of current economic conditions could have a material adverse effect on TDCs operating results and financial position. The performance of the international operators in which TDC has minority interests may depend on the financial or strategic support of other shareholders. TDC has minority interests in international mobile operators that may rely on TDC and/or other shareholders for strategic and financial support. Such other shareholders may fail to supply the required operational, strategic and financial resources relating to e.g. the build-out of infrastructure, the cost of meeting regulatory requirements, or effective marketing, which could adversely affect both the ability of these operations to compete and the return on TDCs investment. The telecommunications sector is undergoing advances in content services as, in the long term, technological developments will enable customers to receive content whenever they wish (such as time-shifted viewing), and wherever they wish (on televisions and mobile phones or on various other terminals). Growth in content services is expected to be driven by an increase in the quantitative and qualitative capabilities of content providers. However, the specific extent and characteristics of such quantitative and qualitative progress are difficult to predict at present. TDCs future success in content services will depend on overall market trends and on TDCs ability to adapt and lead the technological developments and conditions in the content services market. A less than optimal adaptation might adversely affect TDCs revenues and profit margins. The telecommunications sector has become increasingly digitalized, automated and online, which means that TDC is exposed to increasing risks of hacking, piracy and general failure of IT systems. Unanticipated IT problems, system failures, computer viruses or hacker attacks could affect the quality of TDCs services and cause

Other matters
TDC has been expanding its business internationally, and the continued successful integration of the various subsidiaries within the Group depends on TDC recognizing and addressing any management and communications challenges that may arise from cross-border acquisitions. If our successful integration does not continue, TDCs financial results could be adversely affected. There is uncertainty concerning the future success of online services, e-commerce and other types of selfservice products. If the development in these markets is less advantageous than expected, future profit margins could be affected due to higher customer-service costs than currently expected. Moreover, it is uncertain how fast the efficiency synergies resulting from such movement to online services may be realized. Approximately 29% of TDCs 2004 net revenues is generated outside Denmark and the euro area. These revenues originate primarily from Switzerland, Lithuania, Sweden and Norway where TDC conducts its business operations and prepares its financial statements in currencies other than the Danish krone and the euro. Any loss in the value of these currencies against the Danish krone will have a negative impact on the value of TDCs investments in the relevant business activities and the amount of income TDC derives from them. TDCs revenues also depend on general economic conditions, primarily in Denmark, Germany, Switzerland, Lithuania and the Nordic region. The financial prospects

51

Risk factors related to TDCs business

service interruptions. Risks of network failure can never be completely eliminated and the occurrence of such failures may reduce revenues and harm TDCs reputation. TDCs credit rating may be subject to changes in the future. A negative development in the rating agencies view of TDCs credit quality may lead to poorer terms offered to TDC in the financial markets, resulting in increased interest expenses on TDCs debt or the possibility of reduced access to the capital markets.

LRAIC model is expected to be thoroughly updated by January 1, 2006. It is uncertain how updating the model will impact TDCs interconnection prices. In March 2002, the EU passed a number of directives on the regulation of the telecommunications market that were subsequently implemented into Danish law in 2003. In accordance with this legislation, the Danish National IT and Telecom Agency has performed market analyses on a number of specifically defined submarkets with respect to landline telephony, mobile telephony, leased lines, unbundled access, broadband and television and radio transmission. The agency will use these market analyses as the basis for deciding whether a particular submarket is subject to competition imperfections. If imperfections are identified, the agency will designate one or more operators as having significant market power in the relevant submarket, and will then decide which regulative measures are appropriate to eliminate the imperfections. Such measures include the acceptance of a reasonable request for interconnection, non-discrimination, reference offers, transparency, accounting separation, price controls and cost accounting obligations. TDC has been deemed to have a strong market position in almost all the specifically defined submarkets where market analyses are being or have been carried out and where the Danish National IT and Telecom Agency has concluded that there is no real competition. However, regarding the markets for domestic traffic for business customers and for mobile access, the agency has concluded that real competition does exist and the existing regulation of TDC Mobil in this market will be repealed, including TDC Mobils obligations concerning resale and national roaming. TDC expects this development to be revenue neutral. TDC is already subject to regulation, including price regulation, in the landline markets and it is unclear whether the regulation, including price regulation, will be changed as a result of the market analyses. The mobile markets, on the other hand, are not currently covered by price regulation. If the market for termination of mobile calls in individual networks and the domestic market for international roaming become subject to price regulation in the future, such regulation may have a negative impact on TDC Mobils revenues and earnings.

Regulatory issues
Denmark's comprehensive regulatory regime governing its telecommunications sector requires TDC to deliver a broad range of products to the retail and wholesale markets, and subjects TDC to price regulation. With respect to landline telephony, TDC is subject mainly to specific regulation of retail and wholesale pricing, as well as specific requirements for accounting separation and reporting. In mobile telephony, TDC is also subject to specific financial reporting requirements regarding accounting separation and reporting. The Danish National IT and Telecom Agency has determined that TDCs retail prices on landline subscriptions and landline call set-up charges must remain at their current nominal level. Consequently, any increase in the cost of providing these services could dilute TDCs earnings. The larger part of TDCs retail offerings of leased lines must comply with a rule of cost orientation, i.e. TDC is required to calibrate leased-line prices once a year in order to ensure that they exactly match the corresponding cost plus a mark-up set by the regulatory authorities. On the wholesale market, the majority of TDCs prices are regulated. Until 2002, interconnection prices were regulated mainly on the basis of historical cost analyses and best-practice benchmarking against corresponding international prices. Since January 1, 2003, prices of switched interconnection traffic, interconnection capacity, shared access and unbundled access to the local loop (also known as raw copper) as well as related co-location have been based on the results of the Long Run Average Incremental Cost model (or LRAIC). These changes in the regulatory regime brought significant market price reductions for TDCs services at January 1, 2003. For 2004 and 2005, a review and update of the model has resulted in minor price adjustments. The

52

Until market analyses of the relevant submarkets have been completed and the Danish National IT and Telecom Agency has decided whether to adopt new regulative measures or revoke former measures, the current regulation will be maintained in each relevant submarket. Decisions for all the markets, except the market for television and radio transmission, are expected during the first half of 2005. Almost half of TDCs 2004 net revenues are related to operations outside Denmark including operations in a number of emerging markets. TDCs international operations may be affected by a lack of foreign liberalization in the telecommunications sector and political, economic and legal developments in these foreign countries.

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Safe harbor statement

Safe harbor statement


Certain sections of this Annual Report contain forwardlooking statements that are subject to risks and uncertainties. Examples of such forward-looking statements include, but are not limited to: - statements containing projections of revenues, income (or loss), earnings per share, capital expenditures, dividends, capital structure or other financial items. - statements of our plans, objectives or goals for future operations including those related to our products or services. - statements of future economic performance. - statements of the assumptions underlying or relating to such statements. Words such as believes, anticipates, expects, intends, aims and plans and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. These statements are based on current plans, estimates and projections, and therefore undue reliance should not be placed on them. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that the predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements made by us or on our behalf. These factors include, but are not limited to: - changes in applicable Danish and EU legislation - increases in the interconnection rates we are charged by other carriers or decreases in the interconnect rates we are able to charge other carriers - decisions from the Danish National IT and Telecom Agency whereby the regulatory obligations of TDC are extended - developments in competition within domestic and international communications solutions - introduction of and demand for new services and products - developments in the demand, product mix and prices in the mobile market, including marketing and customer-acquisition costs - developments in the market for multimedia services - the possibilities of being awarded licenses - developments in our international activities, which also involve certain political risks - investments in and divestitures of domestic and foreign companies. We caution that the above list of important factors is not exhaustive. When relying on forward-looking statements to make decisions with respect to TDC, investors and others should carefully consider the foregoing factors and other uncertainties and events. Such forward-looking statements speak only as of the date on which they are made and we do not undertake any obligation to update or revise any of them, whether as a result of new information, future events or otherwise.

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Financial Statements
57 65 66 68 69 109 110 Significant Accounting Policies Statements of Income Balance Sheets Statements of Cash Flow Notes Management Statement Auditors Report

Significant Accounting Policies

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Significant Accounting Policies


The Annual Report 2004 of TDC has been prepared in accordance with the Danish Financial Statements Act, the accounting standards issued by the Danish Institute of State Authorized Public Accountants and the requirements of the Copenhagen Stock Exchange relating to the presentation of financial statements by listed companies. ments and other assets in the Balance Sheets. Previously, under proportional consolidation, TDCs shares of each of the enterprises accounting items were recognized on a line-by-line basis in the Consolidated Financial Statements. Net income and shareholders equity have not been impacted by this change in accounting policy. Following the divestment of Belgacom in March 2004, the changed policy enhances comparability of TDCs financial performance. The jointly controlled enterprises comprise primarily Polkomtel and One as well as Belgacom until March 2004. With effect from January 1, 2004, the new Danish Accounting Standard No. 22 means that TDC is to change its accounting policy for revenue recognition. The impact for TDC is related primarily to non-refundable up-front connection fees. Such fees and incremental direct costs are deferred and recognized as income over the expected term of the related customer relationship. Previously, the fees were recorded as revenue at the time of connection, and incremental direct costs were expensed as incurred.

Changes in accounting policies


The accounting policies have been changed in relation to: proportional consolidation revenue recognition TDC has discontinued the proportional consolidation of jointly controlled enterprises. TDCs jointly controlled enterprises are now reported using the equity method. Consequently, the Groups share of results before taxes are included in net financials as income from investments, the share of taxes are classified as such, and the share of the enterprises equity is included in invest-

Impact on Consolidated Financial Statements

DKKm TDC Group Discontinuation

Previous accounting policies 2004 Total revenues Earnings before interest, taxes, depreciation and amortization Total income taxes Net income Total assets Shareholders equity Deferred tax, net Total liabilities Net interest-bearing debt Total cash flow1 14,086 (1,388) 8,834 88,871 36,795 4,618 52,076 20,720 1,212 15,287 (1,644) 1,800 94,680 33,673 3,699 61,007 28,697 3,588 (129) 37 (92) 278 (832) (328) 1,110 0 0 (70) 15 (55) 286 (700) (292) 986 0 0 49,421 2003 52,355 Revenue recognition 2004 (143) 2003 (37)

of proportional consolidation 2004 (4,240) 2003 (9,379)

Changed accounting policies 2004 45,038 2003 42,939

(1,525) 0 0 (1,603) 0 (125) (1,603) (710) 1,603

(3,563) 0 0 (5,451) 0 647 (5,451) (15) 492

12,432 (1,351) 8,742 87,546 35,963 4,165 51,583 20,010 2,815

11,654 (1,629) 1,745 89,515 32,973 4,054 56,542 28,682 4,080

Defined as increase (decrease) in cash and cash equivalents.

57

Significant Accounting Policies

The accumulated effect of the changed accounting policies at the beginning of the fiscal year is recognized directly in shareholders equity. Comparative figures and selected financial and operating data for previous years have been restated in accordance with the changed accounting policies. Except for the changes mentioned above, accounting policies are unchanged from last year. Certain reclassifications have been made between accounting items and in the notes. These reclassifications have no effect on net income or shareholders equity.

Balance Sheets under intangible assets as goodwill and amortized on a straight-line basis over the estimated economic life not exceeding twenty years. Goodwill of less than DKK 50,000 is expensed in the year of acquisition. Newly acquired enterprises are included in the Consolidated Financial Statements from the time of acquisition, whereas enterprises disposed of are included up to the time of disposal. Comparative figures are not restated as a consequence of the acquisition or disposal of enterprises. The effect of such acquisitions and disposals on the Statements of Income is disclosed in the notes.

Consolidation policies
The Consolidated Financial Statements include the Financial Statements of the Parent Company and subsidiaries in which TDC A/S has a direct or indirect dominant influence. Associated enterprises in which the Group has a significant influence are recognized using the equity method. The Consolidated Financial Statements have been prepared on the basis of the Financial Statements of TDC A/S and its consolidated enterprises, which are prepared in accordance with Group accounting policies combining items of a uniform nature. On consolidation, intra-group income and expenses, shareholdings, dividends, internal balances and realized and unrealized profits and losses in transactions between the consolidated enterprises have been eliminated. On acquisition of subsidiaries and associated enterprises as well as increases in the ownership shares herein, the purchase method is applied, and assets and liabilities acquired are measured at fair values on the date of acquisition. Provision is made for commitments concerning restructuring in acquired enterprises that have been decided and announced to the parties involved at the time of acquisition. The tax effect of the revaluation made and any provisions for restructuring costs are provided for. Any remaining positive differences between cost and fair value of the assets and liabilities acquired, including provision for restructuring costs, are recognized in the

Minority interests
Items of subsidiaries are fully recognized in the Consolidated Financial Statements. The share of results and shareholders equity in subsidiaries that is attributable to minority interests is recognized in separate items in the Statements of Income and Balance Sheets.

Foreign currency translation


Transactions in foreign currencies are translated at the transaction-date rates of exchange. Foreign exchange gains and losses arising from differences between the transaction-date rates and the rates at the date of payment are recognized as net financials in the Statements of Income. Cash, marketable securities, loans and other amounts receivable or payable in foreign currencies are translated into Danish kroner at the official rates of exchange quoted at the balance sheet date. Translation adjustments are recognized as net financials in the Statements of Income. The balance sheets and group goodwill of consolidated foreign enterprises are translated into Danish kroner at the official rates of exchange quoted at the balance sheet date, whereas the statements of income of the enterprises are translated into Danish kroner at monthly average rates of exchange. Translation adjustments arising from the translation into Danish kroner of shareholders equity at the beginning of the year at the official rates of exchange quoted at the balance sheet

58

date are recognized directly in shareholders equity. This also applies to adjustments arising from the translation of the statements of income from the monthly average rates of exchange to the rates of exchange quoted at the balance sheet date. Translation adjustments of receivables from foreign subsidiaries and associated enterprises that are considered to be part of the overall investment in the enterprise are recognized directly in shareholders equity. Translation adjustments of loans used to hedge net investments in foreign subsidiaries and associated enterprises are recognized directly in shareholders equity net of tax. Translation adjustments of derivative financial instruments that qualify as net investment hedges in foreign subsidiaries or associated enterprises are recognized directly in shareholders equity net of tax.

price of the options are recognized over the vesting period as wages, salaries and pension costs. The Group uses treasury shares to hedge its commitments under the share option program. Provision is made on a current basis to cover any uncovered part of commitments under the share option program.

Employee shares
Expenses in relation to employee shares are deducted from shareholders equity.

Revenue recognition
Net revenues consist of goods and services provided during the year after deduction of VAT and rebates relating directly to sales. The significant sources of revenue are recognized in the Statement of Income as follows: Revenue from telephony is recorded at the time the call is made. Sales related to prepaid products are deferred and revenue is recognized at the time of use. Revenue from leased lines is recognized over the rental period. Revenue from subscription fees is recognized over the subscription period. Revenue from non-refundable up-front connection fees as well as the related incremental direct costs are deferred and amortized over the expected term of the related customer relationship. If the related incremental direct cost exceeds revenue, the loss is recognized at the time of connection. Revenue from printed directories is recognized when the directory is distributed. Direct production costs are deferred until the distribution of the directory. Revenue from online directory services is recognized over the period during which the services are provided. Revenue from the sale of equipment is recognized upon delivery. Revenue from the maintenance of equipment is recognized over the contract period. Revenue arrangements with multiple deliverables are recognized as separate units of accounting, independent

Derivative financial instruments


On initial recognition, derivative financial instruments are recognized in the Balance Sheets at cost and subsequently remeasured at their fair values under other accounts receivable or other accounts payable. Changes in the fair values of derivative financial instruments that qualify as fair value hedges of a recognized asset or liability are recognized in the Statements of Income together with any changes arising in the value of the hedged asset or the hedged liability. Changes in the fair values of derivative financial instruments that qualify as hedges of future cash flows are recognized directly in shareholders equity until the hedged item is realized. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognized immediately in the Statements of Income.

Share options
Any differences between the market price of the Parent Companys shares at the grant date and the exercise

59

Significant Accounting Policies

of any contingent element related to the delivery of additional items or other performance conditions. Revenue is recognized gross when TDC acts as principal in a transaction. For agreements involving the resale of third-party services in which TDC acts as agent, revenue is recognized net of direct costs. The percentage of completion method is used to determine revenues from contract work in process based on an assessment of the stage of completion. Work performed for own purposes and capitalized is recognized as income at an amount corresponding to the costs incurred. These costs are expensed under the respective items in the Statements of Income.

Development projects, including costs of computer software purchased or developed for internal use, are recognized as intangible assets if the cost can be calculated reliably and if they are expected to generate future economic benefits. Development projects are amortized after completion of the development work over a period of three to five years. Costs of development projects include wages, external charges, depreciation and amortization that are directly or indirectly attributable to the development activities as well as interest expenses in the production period. Development projects that do not meet the criteria for recognition in the Balance Sheets are expensed as incurred in the Statements of Income. Acquisitions of individual items of intangible assets amounting to less than DKK 50,000 are expensed in the year of acquisition. Groups of minor assets acquired for collective use are capitalized and amortized over the estimated economic lives, not exceeding five years. Intangible assets are recorded at the lower of recoverable amount and carrying value.

One-time items
One-time items include significant amounts of a onetime nature that cannot be attributed to normal operations such as large divestment gains and losses, special impairment losses and provisions, as well as any reversals thereof.

Research
Research costs are expensed as incurred. Contributions received from third parties in connection with research projects are recognized as income concurrently with the incurrence of related expenses.

Property, plant and equipment


Property, plant and equipment, including improvements, are measured at cost, less accumulated depreciation and write-downs. Cost covers purchase price and costs directly attribut-

Intangible assets
Goodwill is recognized at cost less accumulated amortization and write-downs. Goodwill is amortized on a straight-line basis over the estimated economic life, determined on the basis of Managements experience within the individual business lines, however, not exceeding twenty years. Rights, patents, licenses and other intellectual property are measured at cost less accumulated amortization and write-downs and amortized on a straight-line basis over their estimated economic lives not exceeding twenty years, commencing on the date of the assets entry into service.

able to the acquisition until the date on which the asset is ready for use. The cost of self-constructed assets includes direct and indirect payroll costs, materials, parts purchased and services rendered by sub-suppliers or contractors, indirect production costs as well as interest expenses in the production period. Cost also includes estimated asset retirement costs if the related obligation meets the conditions for recognition as a liability. Indirect production costs comprise wages, salaries and pension costs together with other external charges calculated in terms of time consumed on self-constructed assets in the relevant departments.

60

The depreciation base is measured as cost less residual value. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets commencing on the date of the assets entry into service. The main depreciation periods are as follows: Land and buildings Buildings, etc. Telecommunications installations Cable installations Telephone exchange installations, etc. Other installations Equipment on customers premises Fixtures and fittings, motor vehicles, etc.

Property, plant and equipment are recognized at the lower of recoverable amount and carrying value.

Investments and other assets


Investments in subsidiaries and associated enterprises are recognized under the equity method in the Financial Statements of the Parent Company. A proportional share of the enterprises income before income taxes less amortization of goodwill is recognized under net financials in the Statements of Income. Intra-group profits and losses are eliminated. The share of the enterprises tax charge is expensed under income taxes. Investments in subsidiaries and associated enterprises are recognized in the Balance Sheets at the proportional share of the enterprises equity value calculated in accordance with Group accounting policies adjusted for unrealized Group internal profits or losses and with addition of residual goodwill value. Net income and shareholders equity of the Parent Company and the Group therefore coincide. Subsidiaries and associated enterprises with negative equity value are measured at DKK 0, and any receivables from these enterprises are written down by the Parent Companys share of the negative equity value. If the Parent Company has a legal or constructive obligation to cover the enterprises negative balance, a provision for that obligation is recognized. The total net revaluation of investments in subsidiaries and associated enterprises is allocated to revaluation surplus under the equity method under shareholders equity in the Financial Statements of the Parent Company. Minority passive investments and other financial assets are measured at fair values if the assets are intended to be disposed of before maturity. If the assets are held until maturity, they are measured at amortized cost. All fair value adjustments (except principal repayments) are recognized in the Statements of Income.

20 years

10-20 years 5-15 years

3-5 years 3-8 years

Leasehold improvements are depreciated on a straightline basis over the shorter of the term of the lease, with a maximum of five years, and useful life. Fixed assets that have been disposed of or scrapped are eliminated from accumulated cost and accumulated depreciation. Gains and losses arising from sale of property, plant and equipment are measured as the difference between the sales price less selling expenses and the carrying value at the time of sale. The resulting gain or loss is recognized in the Statements of Income under other operating income or other external charges. Software that is an integral part of for example telephone exchange installations is presented together with the related assets. The useful lives are estimated individually. Installation materials are measured at the lower of weighted average cost and recoverable amount. Other individual items of fixed assets with a cost of less than DKK 50,000 together with maintenance and repair expenses are charged directly to the Statements of Income. Groups of minor assets acquired for subleasing purposes or collective use are capitalized and depreciated over the estimated useful life of the individual asset, not exceeding five years. Leased property, plant and equipment that qualify as capital leases are recorded as assets acquired.

61

Significant Accounting Policies

Inventories
Inventories are measured at the lower of weighted average cost and net realizable value. The cost of merchandise covers purchase price and delivery costs.

Dividends
Dividends expected to be distributed for the year are recorded in a separate item under shareholders equity. Dividends are recognized as a liability at the time of adoption by the Annual General Meeting.

Accounts receivable
Accounts receivable are measured at amortized cost. Write-downs for anticipated uncollectibles are based on individual assessments of major debtors and historically experienced write-down for anticipated losses on other accounts receivable.

Pensions
Pension costs for former civil servants and current members of the Groups pension funds, which all operate defined benefit plans, are calculated on the basis of the development in the actuarially determined pension obligations and on the basis of the yield on the pension funds assets in accordance with US GAAP (Statements of Financial Accounting Standards No. 87 and No. 88). The difference between the fair value of the pension funds assets and the actuarially determined pension obligations is included in the Balance Sheets under prepaid expenses or pension provisions, etc. In accordance with US GAAP, the one-time payment in 1994 to the Danish government related to former civil servants is amortized and recognized as expense over the average expected remaining service lives of the employees concerned. Pension costs relating to the pension funds, pension contributions under collective and individual labor agreements and amortization of pension costs for former civil servants are expensed in the Statements of Income.

Contract work in process


Contract work in process is measured at the selling price of the work performed. The selling price is measured at cost of own labor, materials, etc., the share of indirect production costs and the addition of a share of the profit based on the stage of completion. The stage of completion is measured by comparing costs incurred to date with the estimated total costs for each contract. Write-downs are made for anticipated losses on work in process based on assessments of estimated losses on the individual projects through to completion. Payments on account are offset against the value of the individual project to the extent that such billing does not exceed the amount capitalized. Received payment on account exceeding the amount capitalized is included under prepayments from customers.

Current and deferred corporate income taxes Marketable securities


Marketable securities recognized under current assets are measured at fair value at the balance sheet date. All fair value adjustments (except principal repayments) are recognized in the Statements of Income. The tax for the year comprises current tax, changes in deferred tax and adjustments from prior years. Current tax liabilities and current tax receivable are recognized in the Balance Sheets as tax payable or tax receivable. Deferred tax is measured under the balance-sheet liability method on the basis of all temporary differences between net carrying value and net tax value of assets and liabilities at the balance sheet date except for temporary differences arising from goodwill where amortization for tax purposes is disallowed. Tax computed on

Treasury shares
The cost of treasury shares is deducted from shareholders equity under retained earnings on the date of acquisition. Payments received in connection with the disposal of treasury shares are similarly recognized directly in shareholders equity.

62

expected dividends from associated enterprises is also recognized as deferred tax. Deferred tax is provided for re-taxation of losses realized in foreign enterprises following the decision to withdraw the enterprises from the Danish joint taxation scheme. Deferred tax assets including the tax value of tax loss carry-forwards are recognized at the value at which they are expected realized. Realization is expected to be effected either by elimination in tax on future earnings or by setoff against deferred tax liabilities within the same legal tax entity. Adjustment of deferred tax is made concerning elimination of unrealized intra-group profits and losses. Deferred tax is measured on the basis of the tax rules and tax rates in the respective countries that will be effective under the legislation at the balance sheet date when the deferred tax is expected to be realized as current tax. Changes in deferred tax as a result of changes in tax rates are recognized in the Statements of Income. Total current tax is allocated to the Danish companies participating in joint taxation in proportion to their respective taxable income.

Financial debts
Interest-bearing loans are recognized initially at the proceeds received net of transaction expenses incurred. In subsequent periods, loans are measured at amortized cost so that the difference between the proceeds and the nominal value is recognized in the Statements of Income over the term of the loan. Other financial debts are measured at amortized cost.

Statements of Cash Flow


Cash flows from operating activities are presented indirectly and are based on earnings before interest, taxes, depreciation and amortization adjusted for non-cash operating items, cash flow from one-time items for the year, changes in working capital, interest received and paid as well as income taxes paid. Cash flows from investing activities comprise the purchase and sale of intangible assets, property, plant and equipment as well as investments and other assets. Cash flows from acquired enterprises are recognized from the time of acquisition, while cash flows from enterprises disposed of are recognized up to the time of disposal. Cash flows from financing activities comprise changes in long-term debt, bank loans, purchase of treasury shares and dividends to shareholders. Cash and cash equivalents cover cash and marketable securities under current assets. Marketable securities cover short-term securities that are readily convertible into cash, and that involve an insignificant risk of changes in value.

Other provisions
Other provisions are recognized when - as a consequence of an event occurring before or on the balance sheet date - the Group has a legal or constructive obligation, where it is probable that economic benefits must be sacrificed to settle the obligation, and the amount of the obligation can be estimated reliably. Provisions for restructuring etc. are recognized when a final decision thereon has been made before or on the balance sheet date and has been announced to the parties involved, provided that the amount can be measured reliably. Provisions for restructuring are based on a defined plan, which means that the restructuring is commenced immediately after the decision has been made.

Segment reporting
Segment information is presented in respect of business segments and geographical markets. The segmentation is based on the segments risk profile and the Groups internal financial reporting system. Fixed assets in the segments cover fixed assets used directly in the operating activities of the segments, including intangible assets as well as property, plant and equipment.

63

Significant Accounting Policies / Statements of Income

Transactions between Group segments are carried out on an arms length basis. Segment liabilities cover liabilities that result from the operating activities of the segments, including pension provisions, other provisions, prepayments from customers, trade accounts payable, other accounts payable and deferred income.

United States Generally Accepted Accounting Principles (US GAAP)


As a consequence of the registration of American Depository Shares (ADSs) with the United States Securities and Exchange Commission, the Group has prepared a summary of the effect on net income and shareholders equity as if the Financial Statements had been prepared in accordance with generally accepted accounting principles in the United States.

Customer data
The number of customers is calculated at the end of the year, and includes customers with subscriptions. Customers without subscriptions are included according to the following general rules, though definitions vary from company to company. Landline customers who have generated traffic within the last month. Mobile customers who have been active within a period lasting up to 15 months. Internet customers who have been active within a period lasting up to 3 months. Service provider customers are also included in the customer base.

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Statements of Income TDC A/S 2003 0 0 871 871 0 (367) (237) (604) 267 (18) 249 (49) 200 3,364 701 155 2,848 (3,897) 3,171 3,371 (1,598) 14 (42) (1,626) 1,745 1,745 2004 0 0 763 763 0 (252) (235) (487) 276 (25) 251 (169) 82 4,899 5,914 165 2,692 (3,660) 10,010 10,092 (1,348) 31 (33) (1,350) 8,742 8,742 Net revenues Work performed for own purposes and capitalized Other operating income Total revenues Transmission costs, raw materials and supplies Other external charges Wages, salaries and pension costs Total operating expenses Earnings before interest, taxes, depreciation and amortization Depreciation, amortization and write-downs Earnings before one-time items, interest and taxes One-time items Earnings before interest and taxes Income before income taxes from subsidiaries Income before income taxes from associated enterprises Fair value adjustments Interest and other financial income Interest and other financial expenses Net financials Income before income taxes Income taxes related to income excl. one-time items and fair value adjustments Income taxes related to one-time items Income taxes related to fair value adjustments Total income taxes Income before minority interests Minority interests share of income excl. one-time items and fair value adjustments Net income Distribution of income 8,742 20,926 29,668 Net income for the year Transferred from retained earnings Total It is proposed that the total amount be distributed as follows: 2,436 7,858 19,374 29,668 Dividends Revaluation surplus under the equity method Retained earnings Total 2 8,742 4 5 8 (1,679) 365 (37) (1,351) 8,740 11 11 5 6 7 4 3 1, 2 Note 2004 43,570 1,225 243 45,038 (16,376) (8,234) (7,996) (32,606) 12,432 (8,193) 4,239 5,825 10,064 749 178 2,539 (3,439) 27 10,091

DKKm TDC Group 2003 41,413 1,291 235 42,939 (15,049) (8,032) (8,204) (31,285) 11,654 (7,743) 3,911 (1,719) 2,192 1,769 579 2,711 (3,869) 1,190 3,382 (2,116) 545 (58) (1,629) 1,753 (8) 1,745

65

Balance Sheets December 31

Assets TDC A/S 2003 0 53 53 0 0 0 0 0 0 45,383 3,342 6,915 91 40 664 56,435 56,488 0 0 0 0 2,364 4 0 1,428 1,757 6,876 12,429 2,028 0 4,374 18,831 75,319 2004 0 43 43 0 0 83 0 0 83 58,275 7,901 221 94 18 27 66,536 66,662 0 0 0 0 1,282 16 0 1,099 1,545 7,033 10,975 3,412 0 5,687 20,074 86,736 Goodwill Rights, software, etc. Intangible assets, net Land and buildings Telecommunications installations Other installations Installation materials Property, plant and equipment under construction Property, plant and equipment, net Investments in subsidiaries Amounts owed by subsidiaries Investments in associated enterprises Amounts owed by associated enterprises Minority passive investments Other financial assets Investments and other assets, net Total fixed assets Merchandise inventories Total inventories Trade accounts receivable Contract work in process Amounts owed by subsidiaries Amounts owed by associated enterprises Deferred tax assets Tax receivable Other accounts receivable Prepaid expenses Total accounts receivable Marketable securities Treasury shares Cash Total current assets Total assets 15 16 14 8 8 12 13 11 10 9 Note 2004 25,166 4,408 29,574 987 21,984 1,608 214 1,424 26,217 1,521 1,088 44 100 2,753 58,544 534 534 7,584 79 19 974 19 1,736 7,807 18,218 3,412 0 6,838 29,002 87,546

DKKm TDC Group 2003 23,876 4,080 27,956 1,031 21,228 1,765 307 929 25,260 6,784 1,069 89 746 8,688 61,904 620 620 8,067 80 353 927 15 2,626 7,465 19,533 2,028 0 5,430 27,611 89,515

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Liabilities and shareholders equity TDC A/S 2003 1,082 8,652 0 20,679 2,560 32,973 37 2,722 60 2,819 29,008 0 29,008 1,756 533 0 99 5,864 8 0 2,111 148 10,519 39,527 42,346 75,319 2004 1,082 8,652 4,419 19,374 2,436 35,963 20 2,834 10 2,864 27,423 0 27,423 158 684 0 112 17,566 0 0 1,842 124 20,486 47,909 50,773 86,736 Common shares Capital in excess of par value Revaluation surplus under the equity method Retained earnings Proposed dividends Shareholders equity Minority interests Pension provisions, etc. Deferred tax provisions Other provisions Total provisions Bonds, mortgages and other bank loans Other long-term debt Total long-term debt Current maturities of long-term debt Short-term bank loans Prepayments from customers Trade accounts payable Amounts owed to subsidiaries Amounts owed to associated enterprises Corporate income tax payable Other accounts payable Deferred income Total short-term debt Total debt Total liabilities Total liabilities and shareowners equity 8 20 20 21 17 18 19 8 19 Note 2004 1,082 8,652 23,793 2,436 35,963 27 131 5,139 1,228 6,498 28,312 705 29,017 598 728 532 5,614 2 675 4,267 3,625 16,041 45,058 51,583 87,546

DKKm TDC Group 2003 1,082 8,652 20,679 2,560 32,973 2 152 4,981 975 6,108 32,203 771 32,974 2,781 533 227 5,587 51 422 4,603 3,254 17,458 50,432 56,542 89,515

Notes not referenced in the Financial Statements: Acquisition of enterprises Disposal of enterprises Financial instruments, etc. Pension obligations Other financial commitments Contingent assets and contingent liabilities Related parties Overview of Group companies Reconciliation to United States Generally Accepted Accounting Principles (US GAAP) Auditors remuneration Net interest-bearing debt 30 31 32 22 23 24 25 26 27 28 29

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Statements of Cash Flow / Notes

Statements of Cash Flow Note 2004 Earnings before interest, taxes, depreciation and amortization Reversal of items without effect on cash flow Cash flow from one-time items for the year Change in working capital Cash flow from operating activities before net financials Interest received Interest paid Realized currency adjustments Cash flow from operating activities before tax Corporate income tax paid Cash flow from operating activities Investment in subsidiaries Investment in property, plant and equipment Investment in intangible assets Investment in financial assets Divestment of subsidiaries Sale of property, plant and equipment Sale of intangible assets and investments and other assets Dividends received from associated enterprises Cash flow from investing activities Proceeds from long-term loans Repayments of long-term debt Change in short-term bank loans Change in minority interests Dividends paid Acquisition of treasury shares, net Cash flow from financing activities Increase/(decrease) in cash and cash equivalents Cash and cash equivalents at January 1 Cash and cash equivalents at December 31 37 37 36 35 34 33 12,432 (722) (306) 1,313 12,717 2,485 (3,723) 108 11,587 (453) 11,134 (4,761) (4,443) (999) (113) 1,152 120 1,762 11,525 4,243 55 (6,696) 151 14 (2,555) (3,531) (12,562) 2,815 7,435 10,250

DKKm TDC Group 2003 11,654 135 (73) 525 12,241 2,506 (3,330) (151) 11,266 (544) 10,722 (7,904) (4,132) (874) (556) (30) 268 1,220 423 (11,585) 9,860 (1,389) (704) 0 (2,453) (371) 4,943 4,080 3,378 7,458

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Note 1 Segment reporting, activities

DKKm TDC Group TDC Mobile

TDC Solutions Group 2004 Net revenues EBITDA1 EBIT2 before one-time items EBIT2 Intangible assets and property, plant and equipment Liabilities of which segment liabilities3 Capital expenditures excl. share acquisitions 2,457 2,419 (7,610) (6,251) 18,173 (15,219) 14,537 (12,142) 2,286 2,792 2,313 1,456 18,590 5,894 2003 18,585 5,714

International Group 2004 15,105 2,682 1,404 1,432 2003 13,175 2,374 1,281 1,370

TDC Switzerland Group 2004 9,692 2,455 (245) (245) 2003 9,471 2,205 (368) (368)

TDC Directories Group 2004 1,436 472 361 361 2003 1,463 413 273 218

6,321 (3,874) (2,272) 1,023

6,044 (3,983) (2,228) 934

28,310 (7,876) (3,174) 1,196

29,630 (9,123) (3,670) 1,675

884 (852) (398) 54

938 (1,196) (406) 35

TDC Cable TV Group 2004 Net revenues EBITDA1 EBIT2 before one-time items EBIT2 Intangible assets and property, plant and equipment Liabilities of which segment liabilities3 Capital expenditures excl. share acquisitions 225 276 299 166 5,254 5,505 (1,030) (904) 1,178 (1,151) 1,146 (985) 925 (22,611) 921 (29,113) 55,791 (51,583) 53,216 (56,542) 126 126 (98) (108) 307 5,598 510 (376) 4,239 10,064 3,911 2,192 1,766 355 2003 1,524 173 Other4 2004 (3,019) 574 2003 (2,805) 775 TDC Group 2004 43,570 12,432 2003 41,413 11,654

1 2 3 4

Earnings before interest, taxes, depreciation and amortization. Earnings before interest and taxes. See definition under Significant Accounting Policies. Including TDC A/S, TDC Services and eliminations.

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Notes

TDC Mobile International Group, segmentation

DKKm

Domestic operations 2004 Net revenues EBITDA1 EBIT2 before one-time items EBIT2 Intangible assets and property, plant and equipment Liabilities of which segment liabilities3 Capital expenditures excl. share acquisitions 747 669 (1,202) (1,161) 4,197 (2,773) 3,833 (1,150) 1,117 1,117 923 860 6,503 2,041 2003 5,613 1,672

European network operators (Bit) 2004 927 191 (37) (37) 2003 870 189 (30) (30)

Service providers (Talkline) 2004 7,675 450 324 352 2003 6,692 513 388 540 Total 2004 15,105 2,682 1,404 1,432 2003 13,175 2,374 1,281 1,370

1,515 (152) (144) 164

1,585 (136) (131) 204

609 (949) (926) 112

626 (2,697) (936) 61

6,321 (3,874) (2,272) 1,023

6,044 (3,983) (2,228) 934

1 2 3 4

Earnings before interest, taxes, depreciation and amortization. Earnings before interest and taxes. See definition under Significant Accounting Policies. Including TDC A/S, TDC Services and eliminations.

Note 2 Segment reporting, geographical segments

DKKm TDC Group

Domestic activities 2004 Net revenues EBITDA1 EBIT2 before one-time items EBIT2 Intangible assets and property, plant and equipment Liabilities of which segment liabilities3 Capital expenditures excl. share acquisitions 3,620 3,458 1,196 1,675 (16,810) (16,278) (3,174) (3,670) 22,130 (40,552) 20,295 (43,865) 28,310 (7,876) 29,630 (9,123) 4,399 4,724 4,269 3,350 (245) (245) (368) (368) 23,260 9,265 2003 22,633 8,780 Switzerland 2004 9,692 2,455 2003 9,471 2,205

Other international activities 2004 10,618 712 85 5,585 2003 9,309 669 10 (790) TDC Group 2004 43,570 12,432 4,239 10,064 2003 41,413 11,654 3,911 2,192

5,351 (3,155) (2,879) 438

3,291 (3,554) (1,712) 372

55,791 (51,583) 5,254

53,216 (56,542) 5,505

Earnings before interest, taxes, depreciation and amortization. Earnings before interest and taxes. 3 See definition under Significant Accounting Policies.
1 2

70

Note 3 Wages, salaries and pension costs TDC A/S 2003 (214) (19) (4) (237) (14) (2) 338 2004 (212) (20) (3) (235) (14) (3) 334 Wages and salaries Pensions Social security Total Remuneration for the Executive Committee1 Remuneration for the Board of Directors2 Average number of full-time employee equivalents3 2004 (7,189) (472) (335) (7,996) (14) (3) 20,200

DKKm TDC Group 2003 (7,516) (359) (329) (8,204) (14) (2) 21,595

2 3

Wages and salaries do not include remuneration for the former members of the Executive Committee J. Kenneth Raley and James N. Wilson as this is comprised in the fees for employees stationed in Denmark by SBC Communications Inc. Former directors from SBC Communications Inc. did not receive remuneration. Denotes the average number of full-time employee equivalents including permanent employees, trainees and temporary employees. Employees in acquired enterprises are included as the average number of full-time employee equivalents from the time of acquisition until December 31. Employees in enterprises disposed of are included as the average number of full-time employee equivalents from January 1 to the time of disposal.

Remuneration for the present Executive Committee1 TDC A/S 2004 Henning Dyremose Hans Munk Nielsen 8.4 5.7

DKKm / TDC Group 2003 8.1 5.6

Including pensions, benefits and bonuses. Excluding share options.

In the event of termination by the Company or due to change of control, the members of the Executive Committee are entitled to termination benefits of 12 to 36 months salary plus pensions, benefits as well as compensation for bonuses and share options.

In addition, the yearly remuneration for the Chairman of the Audit Committee, Kurt Anker Nielsen, amounts to DKK 150,000 and the yearly remuneration for the other members of the Audit Committee amounts to DKK 100,000.

Share option program


TDCs revolving share option program comprises about 200 managers employed in TDCs Danish and foreign enterprises. After the Earnings Release for the year has been published, share options are granted to participants in accordance with contracts of employment. The number of options is based on an agreed percentage of the employees basic salary and a calculated price per option (number of options = basic salary times option percentage divided by price per option). The option percentage

Remuneration for the present Board of Directors


The yearly remuneration for the Chairman of the Board, Thorleif Krarup, amounts to DKK 750,000, which is unchanged compared with 2003. The yearly remuneration for the Vice Chairman of the Board, Niels Heering, amounts to DKK 500,000. The yearly remuneration for the other members of the Board of Directors amounts to DKK 250,000 compared with DKK 200,000 in 2003.

71

Notes

varies for the different employees within a range of 20-30%. In addition share options are granted on an individual basis in special cases. The option price is calculated at the time of granting using the Black-Scholes formula. The share option exercise price is determined as TDCs share price on the Copenhagen Stock Exchange on the day of granting. One third of the options granted for a given year may be exercised one year after the granting, another third one year later, and the last third one year after that. For participants covered by TDCs Insider Register, share options may be exercised only during four-week periods following the publication of the Quarterly Reports. Share options that are not exercised within ten years of granting are canceled. Share options are granted to the members of the Executive Committee according to the above-mentioned principles. Until 2003 the Chairman of the Board received 2,500 share options a year, and other Danish members of the Board received 500 share options annually. Board members will no longer receive share options.

employment with the individual employee and usually varies within a range of 10-25%. The on-target bonus percentage is somewhat lower for the Managers Compensation Program. As a general rule, in 2004 the bonus could be maximum 200% of the on-target bonus. The bonus program for the members of the Executive Committee is based on the same principles as those for other managers.

Employee share ownership program


In November 2003, approximately 15,500 employees in the TDC Group were offered the option of purchasing up to 90 shares at a price of DKK 100 per share. Shares were offered to employees in Danish companies in the TDC Group, in which TDC owns more than 50% of the shares. 12,509 employees acquired 1,090,370 shares.

Share option program for employees in foreign subsidiaries


In November 2004, employees in 100% owned foreign subsidiaries were granted options, which give the right to purchase 90 shares in TDC A/S at an exercise price of DKK 78 per share. Employees in the USA were, due to the time of taxation, offered options that give the right to purchase 113 shares in TDC A/S at an exercise price of DKK 108 per share. The options can be exercised five years after the granting, provided the employee has been continuously employed in one of the 100% owned subsidiaries or in a company controlled by TDC A/S. 3,095 employees were granted 278,711 options with a total fair value of DKK 27m. The calculations of fair values have been based on the BlackScholes option-pricing model. The following assumptions have been used for the calculations: a dividend per share of DKK 12.50, a volatility of 28%, a risk-free interest rate of 3.3% and remaining option lives of 5 years.

Bonus program
Around 300 top managers participate in a bonus program called the Top Managers Compensation Program, and around 2,000 managers and specialists participate in a bonus program called the Managers Compensation Program. The bonus program is based on specific, individual annual targets including personal, financial and operational targets. These targets depend on the organizational position within the Group and are weighted in accordance with specific rules. Naturally, all targets must support improved profitability and business development at TDC. Bonus payments are calculated as the individual employees basic salary times the bonus percentage times the degree of target fulfillment. The bonus percentage achieved when targets are met is called the on-target bonus percentage. For the Top Managers Compensation Program, this percentage is fixed in the contract of

72

Share options1

DKKm TDC Group2


Other Board of Directors (number) Executive Committee (number) management employees (number) Total (number) Average exercise price per option in DKK Average fair value per option in DKK
3

Total fair value in DKKm3

Outstanding at January 1, 2003 Change of Board of Directors Share options issued in March 2003 Share options issued in April 2003 Share options issued in September 2003 Exercised in 2003 Canceled in 2003 Value adjustment Outstanding at December 31, 2003 Change of Board of Directors Share options issued in March 2004 Share options issued in September 2004 Exercised in 2004 Canceled in 2004 Value adjustment Outstanding at December 31, 2004 Average remaining option lives at December 31, 2004 (years) Average remaining option lives at December 31, 2003 (years)

15,500 (8,000) 0 5,000 0 0 0 12,500 (2,000) 0 0 0 0 10,500

209,353 0 29,358 0 26,904 0 0 265,615 18,040 47,651 (9,700) 0 321,606

1,534,730 8,000 1,468,264 0 0 0 0 3,010,994 2,000 781,463 0 (263,337) 0 3,531,120

1,759,583 1,497,622 5,000 26,904 0 0 3,289,109 799,503 47,651 (273,037) 0 3,863,226

336 152 172 206 252 245 216 153 257

24 27 35 50 48 50 37 72 39

42.2 40.1 0.2 1.3 75.2 159.0 42.2 1.8 (19.6) (31.6) 149.5

7.1

6.3

7.5

7.4

8.1

6.5

8.1

7.9

2 3

The number of share options has been adjusted to the recent decisional law on an employees right to retain share options upon termination of employment. The information is exclusive of share options for employees in foreign subsidiaries. The number of share options for the Board of Directors and the Executive Committee is identical for TDC A/S and the TDC Group. Calculations of fair values at issuance and at year-end have been based on the Black-Scholes option-pricing model. The following assumptions have been used for the calculation at year-end 2004: a dividend per share of DKK 12.50, a volatility of 28%, a risk-free interest rate of 2.9% - 3.8% and remaining option lives of 4-10 years.

Expenses in relation to the share option program for employees in foreign subsidiaries amount to DKK 1m. Expenses in relation to unhedged share options during 2004 amount to DKK 0m compared with DKK 15m in 2003.

73

Notes

Number of share options TDC A/S / TDC Group

Exercised At January 1, 2004 Issued during the year during the year

Canceled during the year

At December 31, 2004 Fair value in DKKm1

Present Board of Directors2 Thorleif Krarup Leif Hartmann, Niels Heering, Steen Jacobsen and Bo Magnussen, each Executive Committee Henning Dyremose Hans Munk Nielsen 171,749 93,866 47,651 18,040 0 (9,700) 0 0 219,400 102,206 5.98 3.03 2,000 0 0 0 2,000 0.06 2,500 0 0 0 2,500 0.14

Calculations of fair values at issuance and at year-end have been based on the Black-Scholes option-pricing model. The following assumptions have been used for the calculation in 2004: a dividend per share of DKK 12.50, a volatility of 28%, a risk-free interest rate of 2.9% - 3.8% and remaining option lives of 4-10 years. The other members of the Board of Directors hold no share options in TDC A/S.

The exercise prices of outstanding share options are specified as follows TDC A/S 2003 347,215 53,759 219,630 186,813 40,275 9,830 30,351 887,873 2004 243,991 243,585 197,718 193,906 32,246 9,830 30,515 951,791 Share options (numbers) Exercise price in the interval DKK 150-200 Exercise price in the interval DKK 200-250 Exercise price in the interval DKK 250-300 Exercise price in the interval DKK 300-400 Exercise price in the interval DKK 400-500 Exercise price in the interval DKK 500-600 Exercise price in the interval DKK 600-700 Total 2004 1,263,234 900,913 1,022,525 365,631 119,381 9,830 181,712 3,863,226 TDC Group 2003 1,531,587 53,759 1,023,031 365,783 121,372 9,830 183,747 3,289,109

74

Number of shares in TDC A/S TDC A/S 2004 Present Board of Directors1 Thorleif Krarup Niels Heering Jan Bardino Leif Hartmann Steen Jacobsen Bo Magnussen Kurt Anker Nielsen Total Executive Committee Henning Dyremose Hans Munk Nielsen Total 31,674 249 31,923 31,672 247 31,919 260 348 159 449 249 99 2,446 4,010 260 348 157 247 247 97 311 1,667 / TDC Group 2003

The other members of the Board of Directors hold no shares in TDC A/S.

Note 4 One-time items TDC A/S 2003 0 0 (49) (49) 14 (35) 2004 0 0 (169) (169) 31 (138) Profit on sale of major enterprises Impairment losses Restructuring costs, etc. One-time items before tax Income taxes related to one-time items One-time items after tax 2004 6,440 0 (615) 5,825 365 6,190

DKKm TDC Group 2003 171 (220) (1,670) (1,719) 545 (1,174)

75

Notes

Note 5 Fair value adjustments TDC A/S 2003 15 140 155 (42) 113 2004 11 154 165 (33) 132 Fair value adjustments of minority passive investments Other fair value adjustments Fair value adjustments before tax Income taxes related to fair value adjustments Fair value adjustments after tax 2004 12 166 178 (37) 141

DKKm TDC Group 2003 412 167 579 (58) 521

Note 6 Interest and other financial income TDC A/S 2003 2,447 370 31 2,848 2004 2,441 234 17 2,692 Interest income Interest from subsidiaries and associated enterprises Currency translation adjustments, net Total 2004 2,507 32 0 2,539

DKKm TDC Group 2003 2,679 32 0 2,711

Note 7 Interest and other financial expenses TDC A/S 2003 (3,653) (244) 0 (3,897) 2004 (3,305) (355) 0 (3,660) Interest expenses Interest to subsidiaries and associated enterprises Currency translation adjustments, net Total 2004 (3,412) 0 (27) (3,439)

DKKm TDC Group 2003 (3,809) 0 (60) (3,869)

76

Note 8 Income taxes TDC A/S


Charged to the Statements of Income Corporate income tax payable (tax receivable) Deferred tax provision (tax asset) Charged to the Statements of Income Corporate income tax payable (tax receivable)

DKKm TDC Group

Deferred tax provision (tax asset)

169 (29) (1,490) (1,350)

(1,428) 0 0 (277) 25 (98) 1,157 (478) (1,099)

2,722 0 0 108 4 0 2,834

At January 1, 2004, net Adjustment relating to changes in accounting policies Currency translation adjustments, net Additions and disposals relating to acquisition and sale of enterprises Income taxes Adjustment of tax for previous years Tax related to changes in shareholders equity Tax on income in subsidiaries and associated enterprises Tax paid/refunded relating to prior years Tax paid on account relating to 2004 Total which can be specified as follows:

(1,065) (40) (246) (1,351)

694 (287) 8 (68) 930 (70) (98) 138 (591) 656

3,699 355 (8) (126) 135 110 0 4,165

0 (1,099) (1,099)

2.834 0 2,834

Tax payable/deferred tax provision Tax receivable/deferred tax assets Total

675 (19) 656

5,139 (974) 4,165

Reconciliation of effective tax rate TDC Group 2004 Danish statutory corporate income tax rate Amortization of goodwill disallowed for tax purposes Other non-taxable income and non-tax deductible expenses Net tax value of non-capitalized tax losses and utilized tax losses Different tax rates in foreign subsidiaries Change of tax rates Tax on income in associated enterprises Amendment of tax legislation Other Effective tax rate excluding one-time items and fair value adjustments One-time items and fair value adjustments Effective tax rate including one-time items and fair value adjustments 30.0 11.2 (0.2) 0.6 (2.4) 0.8 0.5 0.0 0.6 41.1 (27.7) 13.4 2003 30.0 10.1 (0.9) 0.0 (1.5) 2.0 2.7 4.8 (0.6) 46.6 1.6 48.2

77

Notes

Specification of deferred tax, net

DKKm TDC Group 2004


Tax assets Tax liabilities Total

2003

Allowances for uncollectibles Provisions for redundancy payments Current Intangible assets Property, plant and equipment Prepaid expenses Tax value of tax loss carry-forwards Other Non-current Deferred tax, net at December 31

(56) (135) (191) (20) (47) 0 (1,195) (608) (1,870) (2,061)

0 0 0 519 2,753 2,123 0 831 6,226 6,226

(56) (135) (191) 499 2,706 2,123 (1,195) 223 4,356 4,165

(29) (102) (131) 217 2,554 2,085 (885) 214 4,185 4,054

The Groups capitalized tax loss carry-forwards are expected to be utilized before the end of 2009. Furthermore, the Group has tax losses to carry forward against future taxable income that have not been capitalized in these Financial Statements due to uncertainty of their recoverability. At December 31, 2004, these tax losses amounted to a tax value of DKK 499m, compared with DKK 386m at December 31, 2003. Most of the Danish Group companies and some foreign subsidiaries participate in joint taxation. The total income tax payable is allocated to the Danish companies participating in joint taxation in proportion to their respective taxable income. The income tax effect from the Danish joint taxation for the years 2001-2003 is based on an estimated tax value of goodwill related to Talkline. Income taxes relating to one-time items for 2004 have been positively impacted by DKK 218m from an adjustment to the value of goodwill following a decision from the National Assessment Council in October 2004. TDC has complained about the decision. The outcome could result in additional income. Together with the other Group companies participating in joint taxation, TDC A/S assumes joint and several liability for the tax liability at any given time.

78

Note 9 Intangible assets TDC A/S

DKKm TDC Group

Rights, software, etc. Goodwill

Rights, software, etc. Total

87 0 0 0 15 0 0 0 0 102 (34) 0 0 (25) 0 0 0 0 (59) 43 53 0 0

Accumulated cost at January 1, 2004 Adjustment relating to changes in accounting policies Currency translation adjustments, net Work performed for own purposes and capitalized Additions of other assets during the year Additions relating to the acquisition of enterprises Additions relating to increased ownership shares of enterprises Disposals relating to the divestment of enterprises Assets disposed of or fully amortized during the year Accumulated cost at December 31, 2004 Accumulated amortization and write-downs at January 1, 2004 Adjustment relating to changes in accounting policies Currency translation adjustments, net Amortization for the year Write-downs during the year Additions relating to increased ownership shares of enterprises Disposals relating to the divestment of enterprises Assets disposed of or fully amortized during the year Accumulated amortization and write-downs at December 31, 2004 Carrying value at December 31, 2004 Carrying value at December 31, 2003 Carrying value of capitalized interest at December 31, 2004 Carrying value of capitalized interest at December 31, 2003

33,311 (4,410) 264 2,632 76 (115) (91) 31,667 (6,794) 1,769 (63) (1,534) (13) (10) 53 91 (6,501) 25,166 23,876 -

9,014 (1,563) 20 48 954 804 0 (122) (70) 9,085 (3,571) 200 (8) (1,212) (228) 0 75 67 (4,677) 4,408 4,080 185 138

42,325 (5,973) 284 48 954 3,436 76 (237) (161) 40,752 (10,365) 1,969 (71) (2,746) (241) (10) 128 158 (11,178) 29,574 27,956 185 138

The carrying value of UMTS licenses in countries where the UMTS network is not in operation amounts to DKK 1,184m compared with DKK 1,126m in 2003. The carrying value of software amounts to DKK 1,628m compared with DKK 1,421m in 2003. Interest capitalized during 2004 amounts to DKK 61m compared with DKK 58m in 2003.

79

Notes

Note 10 Property, plant and equipment

DKKm TDC Group


Property, plant TelecomLand and buildings munications installations Other installations Installation materials and equipment under construction Total

Accumulated cost at January 1, 2004 Adjustment relating to changes in accounting policies Currency translation adjustments, net Transfers (to)/from other items Additions relating to increased ownership shares of enterprises Work performed for own purposes and capitalized Acquisitions from third parties Additions relating to changed consolidation of investments Disposals relating to the divestment of enterprises Assets disposed of during the year Accumulated cost at December 31, 2004 Accumulated depreciation and write-downs at January 1, 2004 Adjustment relating to changes in accounting policies Currency translation adjustments, net Transfers to/(from) other items Disposals relating to the divestment of enterprises Additions relating to increased ownership shares of enterprises Assets disposed of during the year Depreciation for the year Write-downs during the year Accumulated depreciation and write-downs at December 31, 2004 Carrying value at December 31, 2004 Carrying value at December 31, 2003 Carrying value of capital leases at December 31, 2004 Carrying value of capital leases at December 31, 2003 Carrying value of capitalized interest at December 31, 2004 Carrying value of capitalized interest at December 31, 2003

4,660 (1,562) 0 17 49 0 32 0 0 (35) 3,161 (2,444) 377 0 3 0 0 19 (129) 0 (2,174) 987 1,031 0

60,612 (3,841) 60 1,530 1,892 791 911 0 0 (1,314) 60,641 (36,376) 833 (12) (566) 0 0 1,227 (3,693) (70) (38,657) 21,984 21,228 947

7,727 (2,321) 15 (325) 64 336 510 20 (102) (256) 5,668 (4,983) 1,342 (11) 563 55 (8) 240 (1,245) (13) (4,060) 1,608 1,765 45

471 0 2 (144) 22 0 107 0 0 (97) 361 (164) 0 (2) 0 0 0 76 0 (57) (147) 214 307 -

1,355 (413) 8 (1,078) 7 50 1,510 0 0 (2) 1,437 (13) 0 0 0 0 0 0 0 0 (13) 1,424 929 -

74,825 (8,137) 85 0 2,034 1,177 3,070 20 (102) (1,704) 71,268 (43,980) 2,552 (25) 0 55 (8) 1,562 (5,067) (140) (45,051) 26,217 25,260 992

0 0

1,213 177

39 0

1,252 177

214

214

The estimated useful lives of certain types of telecommunications installations and other installations have been changed. These changes have increased depreciation for 2004 by DKK 39m. Interest capitalized during 2004 amounts to DKK 11m compared with DKK 24m in 2003. At January 1, 2004, the value of land and buildings assessed for Danish tax purposes amounted to DKK 2,608m, compared with DKK 2,642m at January 1, 2003. 80

At December 31, 2004, the carrying value of land and buildings unassessed for Danish tax purposes amounted to DKK 199m, compared with DKK 147m at December 31, 2003. The TDC Group has recourse guarantee obligations of payment and performance in connection with lease contracts. Reference is made to note 27 Contingent assets and contingent liabilities. The carrying value of mortgaged assets amounted to DKK 312m at December 31, 2004, compared with DKK 324m at December 31, 2003.

Note 11 Investments and other assets

DKKm TDC Group


Amounts Investments in associated enterprises owed by associated enterprises Minority passive investments Other financial assets Total

Accumulated cost at January 1, 2004 Adjustment relating to changes in accounting policies Currency translation adjustments, net Additions during the year Additions relating to the acquisition of enterprises Reductions relating to increased ownership shares of enterprises Disposals relating to the divestment of enterprises Disposals during the year Accumulated cost at December 31, 2004 Accumulated write-ups and write-downs at January 1, 2004 Adjustment relating to changes in accounting policies Currency translation adjustments, net Changes in shareholders equity in investments Reductions relating to increased ownership shares of enterprises Write-ups and write-downs for the year: Income before income taxes, net Income taxes Fair value adjustments One-time items Dividends Disposals during the year Accumulated write-ups and write-downs at December 31, 2004 Carrying value at December 31, 2004 Carrying value at December 31, 2003

574 5,652 141 83 39 (117) (31) (90) 6,251 (238) 796 66 99 29 749 (246) 5,475 (11,525) 65 (4,730) 1,521 6,784

0 1,069 (1) 33 0 0 0 (13) 1,088 0 0 0 0 0 0 0 1,088 1,069

378 (291) 0 1 1 0 0 (45) 44 (36) 38 0 0 12 0 (14) 0 44 89

736 0 0 31 1 0 (3) (665) 100 10 0 0 0 145 (155) 0 100 746

1,688 6,430 140 148 41 (117) (34) (813) 7,483 (264) 834 66 99 29 749 (246) 157 5,475 (11,525) (104) (4,730) 2,753 8,688

The carrying value of associated enterprises includes goodwill of DKK 77m at December 31, 2004 compared with DKK 2,769m at December 31, 2003. Additions during the year amounted to DKK 4m. Amortization for the year aggregated DKK 76m and write-downs for the year totaled DKK 5m.

81

Notes

TDC A/S

DKKm TDC A/S

Amounts Investments in subsidiaries Amounts owed by subsidiaries Investments in associated enterprises owed by associated enterprises Minority passive investments Other financial assets Total

Accumulated cost at January 1, 2004 Currency translation adjustments, net Transfers (to)/from other items Additions during the year Disposals during the year Accumulated cost at December 31, 2004 Write-ups and write-downs at January 1, 2004 Adjustment relating to changes in accounting policies Currency translation adjustments, net Transfers (to)/from other items Write-ups and write-downs for the year: Income before income taxes, net Income taxes Dividend received Fair value adjustments Disposals during the year Write-ups and write-downs at December 31, 2004 Carrying value at December 31, 2004 Carrying value at December 31, 2003

48,914 247 4,540 0 0 53,701 (2,831) (700) 189 8,051 4,899 (1,320) (3,714) 0 0 4,574 58,275 45,383

3,342 34 0 4,525 0 7,901 0 0 0 0 0 0 0 0 0 0 7,901 3,342

4,849 38 (4,540) 59 (30) 376 2,066 0 (37) (8,051) 5,914 (170) 0 0 123 (155) 221 6,915

91 0 0 3 0 94 0 0 0 0 0 0 0 94 91

13 0 0 0 (10) 3 27 0 0 0 0 11 (23) 15 18 40

654 0 0 27 (654) 27 10 0 0 0 145 (155) 0 27 664

57,863 319 0 4,614 (694) 62,102 (728) (700) 152 0 10,813 (1,490) (3,714) 156 (55) 4,434 66,536 56,435

The carrying value of investments in subsidiaries includes goodwill of DKK 20,508m at December 31, 2004 compared with DKK 21,591m at December 31, 2003. There were no additions during the year and amortization for the year aggregated DKK 1,279m. The carrying value of investments in associated enterprises includes goodwill of DKK 35m at December 31, 2004 compared with DKK 2,615m at December 31, 2003. Additions during the year amounted to DKK 4m. Amortization for the year aggregated DKK 71m and write-downs for the year totaled DKK 5m.

82

Note 12 Trade accounts receivable

DKKm TDC Group 2004 2003 9,500 (1,433) 8,067 (2,062) 189 (356) 796 (1,433)

Trade accounts receivable Allowances for uncollectibles Total Allowances for uncollectibles at January 1 Adjustment relating to changes in accounting policies Additions Deductions Allowances for uncollectibles at December 31

8,993 (1,409) 7,584 (1,433) (531) 555 (1,409)

Note 13 Contract work in process

DKKm TDC Group 2004 2003 195 (115) 80 48 449

Value of contract work in process Billing on account Total Profit included in the carrying value Total revenues for the year

186 (107) 79 57 401

Note 14 Prepaid expenses TDC A/S 2003 2004 Pension assets relating to the three Danish pension funds 6,509 290 77 6,876 6,750 219 64 7,033 (see note 25 for details) Prepayment regarding former civil servants Other prepaid expenses Total 6,750 273 784 7,807 2004

DKKm TDC Group 2003

6,509 360 596 7,465

83

Notes

Note 15 Treasury shares TDC A/S 2003 0 480 (109) (371) 0 2004 0 3,573 (42) (3,531) 0 Carrying value at January 1 Additions Disposals The years net movement transferred to shareholders equity Carrying value at December 31 2004 0 3,573 (42) (3,531) 0

DKKm TDC Group 2003 0 480 (109) (371) 0

% of Nominal Shares value common shares

Holding at January 1, 2004 Additions Disposals Holding at December 31, 2004

3,167,764 18,717,633 (303,252) 21,582,145

15,838,820 93,588,165 (1,516,260) 107,910,725

1.46 8.65 (0.14) 9.97

Purchase of the Groups treasury shares is primarily used to hedge the Groups commitments under the share option program for the Board of Directors, the Executive Committee and other management employees. In June, the Group purchased 18,084,363 treasury shares in connection with SBC Communications sale of TDC shares.

Note 16 Cash TDC A/S 2003 974 3,400 4,374 2004 1,887 3,800 5,687 Cash Short-term bank deposits Total 2004 3,038 3,800 6,838

DKKm TDC Group 2003 2,030 3,400 5,430

84

Note 17 Shareholders equity

DKKm TDC Group

Capital in Common shares excess of par value Retained earnings Proposed dividends Total

Shareholders equity at January 1, 2003 Adjustment relating to changes in accounting policies Adjusted shareholders equity at January 1, 2003 Distributed dividends Currency translation adjustments, net Additional minimum pension liability in Belgacom Write-offs of treasury shares Tax related to changes in shareholders equity Net income for the year Proposed dividends1 Shareholders equity at December 31, 2003 Distributed dividends Currency translation adjustments, net Reversal of additional minimum pension liability in Belgacom Write-offs of treasury shares Tax related to changes in shareholders equity Net income for the year Proposed dividends1 Shareholders equity at December 31, 2004

1,082 1,082 1,082 1,082

8,652 8,652 8,652 8,652

23,102 (645) 22,457 17 (47) (99) (371) (463) 1,745 (2,560) 20,679 5 137 99 (3,531) 98 8,742 (2,436) 23,793

2,470 2,470 (2,470) 2,560 2,560 (2,560) 2,436 2,436

35,306 (645) 34,661 (2,453) (47) (99) (371) (463) 1,745 0 32,973 (2,555) 137 99 (3,531) 98 8,742 0 35,963

Net of dividends related to treasury shares amounting to DKK 270m in 2004 and DKK 38m in 2003.

85

Notes

DKKm TDC A/S

Revaluation Capital in Common shares excess of par value surplus under the equity method Retained earnings Proposed dividends Total

Shareholders equity at January 1, 2003 Adjustment relating to changes in accounting policies Adjusted shareholders equity at January 1, 2003 Distributed dividends Currency translation adjustments, net Additional minimum pension liability in Belgacom Dividends received Write-offs of treasury shares Sale of investments Tax related to changes in shareholders equity Transferred to distribution of income Transferred from distribution of income Shareholders equity at December 31, 2003 Distributed dividends Currency translation adjustments, net Reversal of additional minimum pension liability in Belgacom Dividends received Write-offs of treasury shares Sale of investments Tax related to changes in shareholders equity Transferred to distribution of income Transferred from distribution of income Shareholders equity at December 31, 2004

1,082 1,082 1,082 1,082

8,652 8,652 8,652 8,652

2,222 (645) 1,577 121 (99) (5,300) 62 3,639 0 152 99 (3,714) 24 7,858 4,419

20,880 0 20,880 17 (168) 5,300 (371) (62) (463) (25,133) 20,679 20,679 5 (15) 3,714 (3,531) (24) 98 (20,926) 19,374 19,374

2,470 2,470 (2,470) 2,560 2,560 (2,560) 2,436 2,436

35,306 (645) 34,661 (2,453) (47) (99) (371) (463) (25,133) 26,878 32,973 (2,555) 137 99 (3,531) 98 (20,926) 29,668 35,963

At December 31, 2004, common shares were made up of 216,459,540 shares of a nominal value of DKK 5 each. There have been no changes in common shares during the last five years.

86

Note 18 Minority interests

DKKm TDC Group 2004 2003 550 (346) (1) 8 (209) 0 0 2

Minority interests at January 1 Adjustment relating to changes in accounting policies Currency translation adjustments Minority interests share of net income Reductions relating to the acquisition of enterprises Additions relating to the acquisition of enterprises Additions during the year Minority interests at December 31

2 0 (2) 0 13 14 27

Note 19 Provisions TDC A/S

DKKm TDC Group

Pension provisions, etc. Other provisions

Pension provisions, etc. Other provisions

37 0 0 0 0 2 (19) 0 0 20

60 0 0 0 10 0 0 (60) 0 10

Provisions at January 1, 2004 Adjustment relating to changes in accounting policies Currency translation adjustments, net Additions relating to the acquisition of enterprises Provisions made during the year Change in present value Provisions used during the year Unused provisions reversed during the year Disposals relating to the divestment of enterprises Provisions at December 31, 2004

1,138 (986) 1 0 0 2 (24) 0 0 131

1,225 (250) (8) 446 272 13 (392) (73) (5) 1,228

Pension provisions, etc. are mainly provisions related to foreign defined benefit plans and other similar payments relating to the reduction in the number of employees. Other provisions are related mainly to the reduction in the number of employees, restructuring costs and asset retirement obligations.

87

Notes

Note 20 Long-term debt TDC A/S 2003 30,750 14 30,764 (1,756) 29,008 2004 27,581 0 27,581 (158) 27,423 Bonds, mortgages and other bank loans Other long-term debt Total Due within twelve months Total at December 31 Long-term debt is due as follows: 165 13,308 15,535 29,008 32,804 30,921 5,083 4,475 17,865 27,423 29,901 27,973 1-2 years 2-5 years After 5 years Total Fair value Nominal value 5,186 4,723 19,108 29,017 31,936 30,111 2004 28,798 817 29,615 (598) 29,017

DKKm TDC Group 2003 34,840 915 35,755 (2,781) 32,974

1,046 15,216 16,712 32,974 37,796 36,044

Note 21 Short-term bank loans TDC A/S 2003 426 107 533 308 2004 640 44 684 499 Repayable in DKK Repayable in foreign currencies Total Quarter-end average amount outstanding 2004 665 63 728 507

DKKm TDC Group 2003 426 107 533 333

88

Note 22 Acquisition of enterprises TDC A/S TDC Group

Percentage Date of entry in financial statements of voting shares acquired in % Date of entry in financial statements

Percentage of voting shares acquired in %

01.01.04 19.05.04 01.10.04 -

3.7 0.3 11.0 -

Pricerunner AB Telmore A/S TDC Mobil Center A/S Connect Partner A/S Incuba A/S Service Hosting A/S Hungarian Telephone and Cable Corp. Song Networks Holding AB NetDesign A/S TDC Mobil Center A/S

01.01.04 27.01.04 01.04.04 12.05.04 19.05.04 06.07.04 01.10.04 01.11.04 01.12.04 01.12.04

3.7 80.0 6.0 100.0 0.3 25.0 11.0 99.4 100.0 2.0

Enterprises acquired in 2004 and 2003 are included in the Consolidated Statements of Income with the key figures shown below.

DKKm TDC Group 2004 Net revenues Total operating expenses Earnings before interest, taxes, depreciation and amortization (EBITDA) Earnings before one-time items, interest and taxes Net income excluding one-time items Net income 1,397 (1,313) 85 (578) (384) (384) 2003 154 (155) (1) (355) (257) (250)

89

Notes

Note 23 Disposal of enterprises

During the year, the TDC Group disposed of its shares in Dan Net A/S, Gatetrade.net A/S, Pricerunner AB, Speech Ware A/S, Inform Net Partners s.r.l., Geovision A/S and Migway A/S and disposed of its indirect ownership share in Belgacom S.A. The enterprises disposed of in 2004 and 2003 figure in the Consolidated Statements of Income with the following key figures:
DKKm TDC Group 2004 Net revenues Total operating expenses Earnings before interest, taxes, depreciation and amortization (EBITDA) Earnings before one-time items, interest and taxes Net income excluding one-time items Net income 261 (152) 137 101 361 6,788 2003 398 (261) 142 85 1,434 926

None of the disposals qualify as a discontinuing operation (as defined in the Danish Financial Statements Act).

Note 24 Financial instruments, etc. A: Foreign currency exposures DKKm

The TDC Group has entered into a number of financial contracts in order to reduce foreign currency exposure. The financial contracts used are currency swaps and forward-exchange contracts. The net currency position for financial assets and liabilities in foreign currencies and foreign currency derivative financial instruments at December 31, 2004 is specified below:

Maturity profile of net currency position at December 311 Exchange rate EUR CHF SEK Other Total 7.4381 4.8174 0.8250 < 1 year 10,103 (4,663) 495 (238) 5,697 1 - 2 year 3,421 (18) (12) 0 3,391 2 - 5 year 3,327 (65) (5) 2 3,259 > 5 year (13,052) (265) 0 0 (13,317) Total 2004 3,799 (5,011) 478 (236) (970)

TDC Group

2003 439 (5,456) 260 1,634 (3,123)

Currency mix at December 312: DKK 2004 2003


1 2

EUR 45% 44%

CHF 6% 6%

SEK 1% 0%

Other 2% 7%

46% 43%

Excluding derivatives applied to hedge net investments, cf. table below. The percentage distribution on currencies is measured on the basis of gross currency positions.

90

Maturity profile of nominal amounts and fair values of derivative financial instruments at December 31 1 DKKm TDC Group Total nominal amounts < 1 year Swaps Interest-rate swaps Currency swaps Forward-exchange contracts Purchased forwardexchange contracts Total at December 31 of which: derivative assets derivative liabilities 944 (530) 197 0 15,882 22,186 0 26,087 0 15,317 0 4,459 15,882 68,049 18,898 73,960 (38) 414 25 197 0 6,304 8,173 17,914 4,765 10,552 0 4,459 12,938 39,229 19,900 35,162 (5) 457 (355) 527 1-2 years 2-5 years > 5 years 2004 2003 2004 Fair values 2003

Including derivatives applied to hedge net investments, cf. table below.

Hedging of net investments in foreign enterprises Foreign currency hedging of net investments in foreign Group subsidiaries and associated enterprises outside Denmark

DKKm

TDC Group 2004


Net investments, carrying value Hedged Not hedged Deferred recognition of change in fair value Net investments, carrying value Hedged Not hedged

2003
Deferred recognition of change in fair value

CHF SEK EUR PLN Other Total at December 31

22,981 5,193 3,116 1,639 328 33,257

(23,005) 0 0 0 0 (23,005)

24 (5,193) (3,116) (1,639) (328) (10,252)

(18) (1) (2) 205 6 190

23,313 791 8,515 1.278 285 34,182

(23,494) 0 0 0 0 (23,494)

181 (791) (8,515) (1,278) (285) (10,688)

36 12 40 (185) (14) (111)

Net investments in foreign Group subsidiaries and associated companies are hedged for foreign currency risks only for TDC Switzerland.

91

Notes

Interest-rate exposure

Interest-rate swap agreements have been used to restructure monetary assets and liabilities in order to achieve the intended duration and reduce interest-rate exposure of the total portfolio. The maturity profile and interest rates of monetary assets and liabilities at December 31, 2004 are specified as follows:

Effective interest rates at December 31, 2004 (% per annum) Assets Cash Marketable securities Loans Other interest-bearing financial assets Non interest-bearing financial assets Total monetary assets Liabilities Long-term loans Short-term bank loans Non interest-bearing financial liabilities Total monetary liabilities Monetary assets and liabilities, net Monetary assets and liabilities, including interest-rate swaps, net 4.79% 2.34% 3.44% 1.97% 1.97% 6.05% 6.05% 6.07% 4.17% 5.47% 5.47% 6.42% 7.12% 5.50% 5.50% 5.51% 5.51% < 1 year 2.11% 4.00% 4.25% 2.24% 1 - 2 year 6.01% 5.00% 6.01% 2 - 5 year 2.64% 4.44% 5.00% 2.66% > 5 year 3.26% 3.26%

92

DKKm

TDC Group

Maturity profile and interest profile (DKKm) < 1 year Fixed Floating Fixed Floating Fixed Floating Fixed Floating 3,800 3,036 500 0 0 0 1 0 2 7,339 1 - 2 year 0 0 1,721 0 0 0 1 0 0 1,722 2 - 5 year 0 0 0 1,191 0 11 1 0 0 1,203 > 5 year 0 0 0 0 0 69 0 0 0 69

Fixed Floating Fixed Floating

(588) (10) 0 (728) 0 (1,326) 6,013

(5,180) (5) 0 0 (1) (5,186) (3,464)

(4,713) (4) 0 0 (6) (4,723) (3,520)

(18,222) (886) 0 0 0 (19,108) (19,039)

93

Notes

C: Undrawn credit lines

DKKm TDC Group

The undrawn credit lines at December 31, 2004 are specified as follows:

Committed Committed Maturities credit lines syndicated credit lines

Unutilized part of CP program

Unutilized part of bond program Total

< 1 year > 1 year Total

5,668 0 5,668

1,914 2,603 4,517

11,157 0 11,157

0 11,455 11,455

18,739 14,058 32,797

TDC A/S

Committed Committed Maturities credit lines syndicated credit lines

Unutilized part of CP program

Unutilized part of bond program Total

< 1 year > 1 year Total

5,544 0 5,544

1,914 2,603 4,517

11,157 0 11,157

0 11,455 11,455

18,615 14,058 32,673

D: Credit risks

All financial instruments are agreements entered into with major banks. The counterparty risk is considered to be minimal.

94

Note 25 Pension obligations

A: Domestic defined benefit plans

At December 31, 2004, approximately 4,100 of the TDC Groups employees were entitled to a pension from the three pension funds related to TDC under conditions similar to those provided by the Danish Civil Servants Pension Plan. Since 1990, no new members have joined the pension fund schemes, and the pension funds are prevented from admitting new members in the future due to the bylaws. The pension funds operate defined benefit plans and, in accordance with existing legislation, bylaws and the pension regulations, TDC is required to make contributions to meet the premium reserve requirements. Plan benefits are based primarily on years of credited service and on participants compensation at the time of retirement.

Components of pension cost/(income) 2004 Service cost1 Interest cost2 Expected return on plan assets Recognized net actuarial (gain)/loss Amortization of transition obligation3 Amortization of prior service cost Net periodic pension cost/(income) recognized in the Statements of Income Domestic redundancy programs4 Pension cost/(income) recognized in the Statements of Income 181 740 (1,368) 0 269 (15) (193) 486 293

DKKm 2003 200 713 (1,448) (33) 288 (16) (296) 463 167

1 2 3

The actuarial present value of benefits attributed to services rendered by employees during the period. The increase in the projected benefit obligation due to passage of time. The transition obligation is the difference between the fair value of the plan assets and the projected benefit obligation at the date of adoption of FAS No. 87. The transition obligation is amortized as a component of pension cost over the average expected remaining service period for plan participants at the date of adoption. Plan curtailment losses in connection with redundancies and special termination benefits are measured in accordance with FAS No. 88. The losses are included in one-time items.

95

Notes

Obligations and funded status 2004 Change in benefit obligations: Projected benefit obligation (PBO)1 at January 1 Service cost Interest cost Curtailment in connection with redundancies Special termination benefit Actuarial (gain)/loss Benefit paid Projected benefit obligation (PBO)1 at December 31 Change in plan assets: Fair value of plan assets at January 1 Actual return on plan assets TDCs contribution Benefit paid Fair value of plan assets at December 31 Funded status Unrecognized net actuarial (gain)/loss Unrecognized net transition obligation Unrecognized prior service cost Prepaid benefit cost (pension asset recognized in the Balance Sheet) 20,417 1,028 535 (815) 21,165 4,458 1,803 626 (137) 6,750 15,403 181 740 (14) 447 765 (815) 16,707

DKKm 2003 14,521 200 713 11 415 228 (685) 15,403

20,057 968 77 (685) 20,417 5,014 713 942 (160) 6,509

The actuarial present value of all benefits based on employee service rendered prior to that date, measured using assumptions as to future compensation levels.

Plan assets 2004 Weighted-average asset allocations by asset category at December 31: Equity securities Debt securities Real estate Other Total 13 71 14 2 100

% 2003 11 72 15 2 100

Weighted-average assumptions used to determine benefit obligations 2004 Discount rate General salary inflation General price inflation 4.50 2.25 2.25

% 2003 4.80 2.25 2.25

96

Weighted-average assumptions used to determine net periodic pension cost 2004 Discount rate Expected return on plan assets General salary inflation General price inflation 4.80 6.10 2.25 2.25

% 2003 5.00 6.50 2.25 2.25

The basis for determining the overall expected rate of return is the pension funds long-term strategic asset allocation of approximately 35% equity securities, 50% debt securities and 15% real estate. The overall expected rate of return is based on the average long-term yields on the plan assets invested or to be invested. The expected return on plan assets for 2005 amounts to 5.80%. The average remaining service periods of active plan participants expected to receive benefits was estimated to be 13.5 years at December 31, 2004 compared with 12.9 years at December 31, 2003. Cash flows TDCs current contributions were DKK 65m in 2004, against DKK 77m in 2003. Furthermore, extraordinary contributions were DKK 470m. For 2005 the expected current contributions amount to DKK 154m. Other information Approximately six hundred members of the defined benefit plans will ultimately have part of their pension payment reimbursed by the Danish government. The related benefit obligations, approximately DKK 450m, have been deducted, arriving at the projected benefit obligation. TDC A/S has assumed all pension obligations for the members of the three Danish pension funds. Accordingly, the net periodic pension cost as well as the pension assets for the three Danish pension funds is related to TDC A/S. Subsidiaries employing the members pay contributions to TDC A/S, which is included in the pension costs of the respective subsidiary. The amendments to e.g. the Civil Servants Pension Act in 1999 may result in changed plan benefits for certain members of the pension funds compared with former rules. Three members have brought a case against Jydsk Telefons Pensionskasse claiming that the members affected can refuse to accept the new rules as it is claimed that the change results in a reduction of the plan benefits, which in the plaintiffs opinion violates the pension funds pension regulation. The case may affect all three pension funds in TDC. On September 3, 2004, the Western Division of the Danish High Court found in favor of the members, stating that the change in plan benefits that followed from the amendment of the rules in 1999 is without effect. Jydsk Telefons Pensionskasse has appealed against the judgment to the Supreme Court. Based on a legal evaluation, Management is of the opinion that the Supreme Court will most likely find in favor of Jydsk Telefons Pensionskasse. If the outcome of the case is not in the pension funds favor, payment of contributions to the pension funds to meet the premium reserve requirements may be necessary, as well as higher future pension costs in TDCs Consolidated Financial Statements. The contribution payments necessary for the pension funds to meet the premium reserve requirements are estimated to constitute up to DKK 400m at December 31, 2004. The increase in the projected benefit obligations in TDCs Consolidated Financial Statements is estimated to be DKK 225-350m at December 31, 2004. Consequently, the increase in the expected pension obligations in TDCs Consolidated Financial Statements may, in accordance with FAS 87, have to be amortized over the average remaining service periods of active plan participants, which means that the increase in the annual pension costs is estimated to be DKK 17-26m per year.

97

Notes

B: Foreign defined benefit plans

Pension costs for members of foreign Group companies that operate defined benefit plans are determined on the basis of the development in the actuarially determined pension obligations and on the yield on the pension funds assets. The difference between the actuarially determined pension obligations and the fair value of the pension funds assets is included in the Balance Sheets under pension provisions, etc. TDCs foreign defined benefit plans are immaterial.

C: Pensions for former Danish civil servants

In addition to the defined benefit plans, the Group has paid annual pension contributions to the Danish government. The pension contributions were paid for employees who, due to previous employment agreements, have retained their rights as civil servants to defined pension benefits from the Danish government. In 1994, the Group reached an agreement with the Danish government to make a one-time payment of DKK 1,210m of which DKK 108m was considered as interest compensation for the period July 1, 1994, to August 1, 1995. This agreement was in respect of the Groups pension obligation to employees who participated in the Danish civil servants pension plan. Under the agreement, the Groups pension contributions to the Danish government ceased at July 1, 1994. The agreed non-recurring payment is treated as a prepayment, which will be expensed over the average expected remaining service lives of the active employees concerned. In connection with the reduction in the number of employees in 2004 and previous years, some of the retired employees have retained their rights to civil servant pensions from the Danish government. The Company estimates that the retirements will not cause further payments on the part of the Company.

Note 26 Other financial commitments TDC A/S 2003 0 0 0 2004 Lease commitments: 0 0 0 Rental expense relating to properties in the period of interminability Accumulated lease commitments for machinery, equipment, computers, etc. Total which can be specified as follows: 0 0 0 0 0 0 0 0 0 0 Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years Total Total rental expense for the year for all operating leases Capital and purchase commitments: 0 0 0 0 0 0 0 0 Investments in property, plant and equipment Investments in intangible assets Commitments related to outsourcing agreements Other purchase commitments 198 6 356 412 924 2,442 2,159 5,525 1,048 4,317 1,208 5,525 2004

DKKm TDC Group 2003 3,983 603 4,586

702 1,869 2,015 4,586 879

195 4 395 345

98

Note 27 Contingent assets and contingent liabilities

Contingent assets The TDC Group is awaiting the outcome of certain cases brought against other telecommunications companies. A potential favorable outcome for TDC of one or more of these cases could result in substantial additional income. Contingent liabilities The TDC Group is a party to certain pending lawsuits and cases pending with public authorities and complaint boards. Based on a legal assessment of the possible outcome of each of these lawsuits and cases, Management is of the opinion that these will have no significant adverse effect on the TDC Groups financial position. In connection with capital sale and leaseback agreements, the Group has provided guarantees covering intermediary leasing companies payment of the total lease rentals. The Group has made legally releasing non-recurring payments to the intermediary lessors of an amount corresponding to the total lease charges. At December 31, 2004, the guarantees amounted to DKK 3,030m compared with DKK 3,472m at December 31, 2003. The guarantees provided by the TDC Group are economically defeased by means of payment instruments issued by creditworthy obligors unrelated to the TDC Group that secure or otherwise provide for payment of the regular lease payments and purchase-option prices due from the intermediary leasing companies. These instruments are lodged as security for payment of the regular lease payments by the intermediary leasing companies. TDC A/Ss share of the guarantees amounted to DKK 3,030m at December 31, 2004, compared with DKK 3,472m at December 31, 2003. In accordance with Section 32 of the Danish Civil Servants Act, the Group has a termination benefit obligation for former Danish civil servants and for employees with civil servant status who were hired before April 1, 1970, and who are members of the related Danish pension funds. The Group has provided the usual guarantees in favor of suppliers and partners. These guarantees amounted to DKK 135m at December 31, 2004 compared with DKK 154m at December 31, 2003. TDC A/Ss share of the guarantees amounted to DKK 36m at December 31, 2004, compared with DKK 42m at December 31, 2003. Recourse guarantees provided by TDC A/S for its subsidiaries amounted to DKK 742m at December 31, 2004 compared with DKK 3,416m at December 31, 2003. TDC A/S has committed to contributing, if necessary, additional capital to TDC Switzerland in order to generate taxable income sufficient to utilize the accumulated tax loss carry-forwards prior to their expiration. Further, TDC A/S has issued letters of support and undertaken loan commitments for some of its subsidiaries.

Note 28 Related parties Name of related party KTAS Pensionskasse Jydsk Telefons Pensionskasse Fyns Telefons Pensionskasse SBC Communications Inc. Nature of relationship Pension fund Pension fund Pension fund Ownership (until June 2004) Domicile Copenhagen, Denmark rhus, Denmark Odense, Denmark Texas, USA

Danish Group companies have entered into certain lease contracts with the related Danish pension funds. The lease contracts are interminable until 2020 at the latest. The aggregate amount payable under such agreements amounted to DKK 1,242m at December 31, 2004 compared with DKK 1,321m at December 31, 2003. The rental expense was DKK 139m for 2004 compared with DKK 132m in 2003. The lease contracts are regarded as operating leases. In addition, annual contributions are paid to the pension funds, see note 25 Pension obligations. The Group has no other transactions with related parties. TDC A/S has related party transactions with a number of Group companies (see notes 1 and 29). All the transactions are made on an arms length basis.

99

Notes

Note 29 Overview of Group companies at December 31, 2004


Number of subsidiaries and Common shares (amount) Company name Domicile Currency million TDC Group ownership share (%) associated enterprises not listed here
1

TDC Solutions Group TDC Solutions A/S Contactel s.r.o. TDC Hosting A/S TDC Internordia AB Operators Clearing House A/S2 Service Hosting A/S TDC Call Center Europe A/S TDC Carrier Services USA, Inc. TDC Norge AS TDC Produktion A/S TDC Switzerland AG3 Telecom Invest A/S TDC Song Holding AB NetDesign A/S TDC Mobile International Group TDC Mobile International A/S TDC Mobil A/S Bit GSM Tele Danmark Connect 1 A/S One GmbH2 Polkomtel S.A.2 Talkline Management und Finance Holding GmbH Talkline GmbH & Co. KG Talkline InfoDienste GmbH Tele Danmark Consult A/S TDC Mobil Center A/S Telmore International Holding A/S Telmore A/S Copenhagen, Denmark Taastrup, Denmark Vilnius, Lithuania Taastrup, Denmark Vienna, Austria Warsaw, Poland Elmshorn, Germany Elmshorn, Germany Elmshorn, Germany Taastrup, Denmark Odense, Denmark Taastrup, Denmark Taastrup, Denmark DKK DKK DKK DKK 9.0 2.5 1.0 1.0 PLN EUR 2,050.0 6.1 DKK DKK EUR DKK 600.0 1.0 55.7 7.0 100.0 100.0 100.0 100.0 15.0 19.6 100.0 100.0 100.0 100.0 84.9 80.0 100.0 1 1 1 2 1 Copenhagen, Denmark Prague, Czech Republic rhus, Denmark Solna, Sweden Copenhagen, Denmark Brndby, Denmark Snderborg, Denmark New York, USA Oslo, Norway Odense, Denmark Zrich, Switzerland Copenhagen, Denmark Stockholm, Sweden Farum, Denmark DKK CZK DKK SEK DKK DKK DKK USD NOK DKK CHF DKK SEK DKK 1,140.0 2,353.0 4.2 62.3 1.0 0.5 0.5 0.0 124.8 0.5 923.6 10.0 291.0 2.3 100.0 99.4 100.0 2 24 100.0 100.0 100.0 100.0 25.0 100.0 100.0 100.0 100.0 100.0 1 4

100

Number of subsidiaries and Common shares (amount) Company name Domicile Currency million TDC Group ownership share (%) associated enterprises not listed here1

TDC Cable TV Group TDC Cable TV A/S Dansk Kabel TV A/S Connect Partner A/S TDC Directories Group TDC Directories A/S TDC Frlag AB TDC Hakemistot OY TDC Switzerland Group TDC Switzerland AG3 TDC Services Group TDC Services A/S TDC Reinsurance A/S2 Tele Danmark Reinsurance S.A.2 Other1 TDC ADSB Invest ApS ADSB Telecommunications B.V.2 Hungarian Telephone and Cable Corp.2 Copenhagen, Denmark Amsterdam, the Netherlands Delaware, USA USD 0.0 DKK 100.0 100.0 32.9 42.6 5 Copenhagen, Denmark Copenhagen, Denmark Luxembourg DKK DKK DKK 170.0 25.0 10.0 100.0 100.0 100.0 Zrich, Switzerland CHF 923.6 100.0 5 Rdovre, Denmark Halmstad, Sweden Helsinki, Finland DKK SEK EUR 5.5 0.2 0.0 100.0 100.0 100.0 1 3 Copenhagen, Denmark Taastrup, Denmark Herlev, Denmark DKK DKK DKK 140.0 21.4 3.3 100.0 100.0 100.0

2 3

In order to give the reader a clear presentation, some minor enterprises owned indirectly are not listed separately in the overview. The enterprise is included under the equity method. TDC Solutions A/S owns 17.4% of TDC Switzerland AG.

101

Notes

Note 30 Reconciliation to United States Generally Accepted Accounting Principles (US GAAP)

The Groups accounting policies have been described below where these differ significantly from accounting principles applicable in the United States (US GAAP): Amortization of goodwill In accordance with Danish accounting principles, goodwill is amortized on a straight-line basis over the estimated economic life, determined on the basis of Managements experience within the individual business lines, however, not exceeding twenty years. With the adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets beginning January 1, 2002, US GAAP prohibit the amortization of goodwill and require that goodwill be tested at least annually for impairment. Development costs In accordance with Danish accounting principles, development costs are recognized as intangible assets if the cost can be calculated reliably and is expected to generate future economic benefits. Development costs are amortized over a period of three to five years. Under US GAAP, development costs are expensed as incurred, except for computer software developed for internal use. Capitalization of software costs In accordance with Danish accounting principles, the cost of computer software includes indirect production costs. Under US GAAP, only direct costs are included. Depreciation in year of acquisition or construction According to TDC Group accounting policies until year-end 1992, a full years depreciation was charged on fixed assets in the year in which the asset was acquired or under construction. Under US GAAP, such depreciation commences from the time of acquisition or from the date of the assets entry into service. Formation of the Group In accordance with Danish accounting principles, certain property, plant and equipment acquired upon the formation of the Group were measured at fair value, whereas goodwill and rights were capitalized. The capitalized excess values are depreciated over the useful lives. Under US GAAP, the transfer of assets between companies under joint control is accounted for using the pooling-of-interests method. Accordingly, any adjustment of property, plant and equipment to fair value and any capitalization of goodwill and rights related to the formation of the Group are eliminated in the Groups Financial Statements. Capital sale and leaseback agreements In accordance with Danish accounting principles, non-recurring payments that have been made to legally extinguish future lease payments are offset against the lease obligations in the balance sheets. Under US GAAP, in certain circumstances the non-recurring payments and the corresponding lease obligations must be shown as assets and as liabilities in the balance sheet. Recognition of change in ownership interest gain In accordance with Danish accounting principles, a gain arising from a decrease in the investors ownership interest in an investee is taken to the statement of income. US GAAP requires in certain circumstances that such a gain be credited directly to shareholders equity.

102

Revenue recognition In accordance with Danish accounting principles, elements in revenue arrangements with multiple deliverables are recognized as separate units of accounting independent of any contingent element related to the delivery of additional items or other performance conditions. Under US GAAP, multiple element contracts as from June 15, 2003 are recorded in accordance with EITF No. 00-21 Accounting for Revenue Arrangements with Multiple Deliverables under which the amount allocable to a delivered item is limited to the amount that is not contingent upon the delivery of additional items or meeting other performance conditions. Minority passive investments In accordance with Danish accounting principles, minority passive investments are measured at fair values. Fair value adjustments are recognized in the statements of income. Under US GAAP, minority passive investments with no readily determinable fair value are measured at cost. Sale and leaseback of property In accordance with Danish accounting principles, the property sale and leaseback agreements entered into with related defined benefit plans are regarded as operating leases and, accordingly, the resulting gain is recognized in the statement of income. US GAAP does not recognize sale and leaseback accounting for transactions in which the seller has continuing involvement in the property other than a normal leaseback. Asset retirement obligations In accordance with Danish accounting principles, the effect of a change in the fair value of an asset retirement obligation is capitalized and depreciated over the remaining useful life of the underlying asset. Under US GAAP, such asset retirement obligations are accounted for in accordance with Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations. Accordingly, the accumulated accretion and depreciation expense through December 31, 2002 is recognized in the accounts as a cumulative catch-up adjustment. Employee share offering program In accordance with Danish accounting principles, an employee share offering is considered a transaction within shareholders equity. US GAAP require that the excess of the fair value over proceeds from sale of shares to employees be considered employee compensation costs. Gain related to sale of shares In accordance with Danish accounting principles, a gain arising from sale of shares where the sales price is not fixed is recognized when the inflow of economic benefits is estimable. Under US GAAP, a gain should not be recorded until the final price is established.

103

Notes

The effect on Group net income and shareholders equity is stated below as if the Financial Statements had been prepared in accordance with US GAAP:

DKKm Net income 2004 As reported in accordance with Danish accounting principles Reversal of amortization of goodwill Reversal of depreciation of any write-up to fair value of property, plant and equipment arising on formation of the Group: Additions during the year/accumulated cost Depreciation for the year/accumulated depreciation Reversal of capitalized indirect production costs in relation to software costs Reversal of capitalization of development costs Depreciation in year of acquisition or construction Revenue recognition Adjustment relating to sale and leaseback of property to pension funds Asset retirement obligations Employee share issue Changes to fair value of minority passive investments Reversal of gain related to sale of shares Difference in gain related to sale of enterprises Other Deferred tax, US GAAP adjustments Cumulative effect of change in accounting policy regarding asset retirement obligations at January 1, 2003, net of tax Net income/shareholders equity in accordance with US GAAP 9,974 (63) 2,996 39,663 35,507 (8) 2 (2) 7 9 3 0 50 234 (559) (99) 61 (4) (6) (5) (8) 9 14 (121) (29) (234) 0 (35) 13 (109) (14) 42 (1) (101) (67) 0 (18) 0 (134) 89 (112) (16) 44 (8) (110) (70) 0 (69) (234) (4) 28 25 31 (1,211) 1,204 (1,211) 1,179 8,742 1,509 2003 1,745 1,689 Shareholders equity 2004 35,963 4,020 2003 32,973 3,117

Financial ratios 2004 Earnings per share of nominal value DKK 5 in accordance with US GAAP (basic): Net income before cumulative effect of change in accounting policies Cumulative effect of change in accounting policies, after tax Net income Earnings per share of nominal value DKK 5 in accordance with US GAAP (diluted): Net income before cumulative effect of change in accounting policies Cumulative effect of change in accounting policies, after tax Net income 48.65 48.65 14.01 (0.30) 13.71 48.74 48.74 14.03 (0.30) 13.73 2003

104

Balance sheet items from the Consolidated Balance Sheets and as adjusted in accordance with US GAAP As reported in the Consolidated Balance Sheets at December 31 2004 Intangible assets Property, plant and equipment Investments and other assets Other accounts receivable Prepaid expenses Deferred tax, net: current non-current Other provisions Long-term debt Deferred income Other short-term debt Shareholders equity (191) 4,356 1,228 29,017 3,625 12,416 35,963 (131) 4,185 975 32,974 3,254 14,204 32,973 (191) 4,267 1,332 32,047 3,755 12,416 39,663 29,574 26,217 2,753 1,736 7,807 2003 27,956 25,260 8,688 2,626 7,465

DKKm Approximate amounts as adjusted to conform to US GAAP at December 31 2004 33,481 26,110 2,793 4,766 7,812 2003 30,472 25,133 9,180 6,098 7,474 (133) 4,159 975 36,446 3,638 14,204 35,507

Note 31 Auditors remuneration TDC A/S 2003 2004 The remuneration of auditors elected by the Annual General Meeting: 13 0 0 13 17 1 0 18 PricewaterhouseCoopers Ernst & Young Other auditors Total Hereof fees in respect of non-audit services: 10 0 0 10 14 1 0 15 PricewaterhouseCoopers Ernst & Young Other auditors Total 24 1 1 26 37 7 2 46 2004

DKKm TDC Group 2003

37 3 1 41

22 0 1 23

105

Notes

Note 32 Net interest-bearing debt

DKKm TDC Group 2004 2003 (148) (2,028) (5,430) 32,974 2,781 533 28,682

Other accounts receivable Marketable securities Cash Total long-term debt Current maturities of long-term debt Short-term bank loans Total

(83) (3,412) (6,838) 29,017 598 728 20,010

Note 33 Reversal of items without effect on cash flow

DKKm TDC Group 2004 2003 (25) (281) (1) 442 135

Change in provisions Change in pension assets (Profit)/loss on disposal of associated enterprises Other adjustments Total

(236) (378) (18) (90) (722)

Note 34 Change in working capital

DKKm TDC Group 2004 2003 133 656 (551) 287 525

Change in inventories Change in trade accounts receivable Change in trade accounts payable Change in other items, net Total

144 1,419 (225) (25) 1,313

106

Note 35 Investment in subsidiaries

DKKm TDC Group 2004 2003 234 17 0 8 (70) (45) 17 0 0 0 (33) 128 209 0 337 7,584 0 7,921 (17) 7,904

The fair value of acquired assets and liabilities consists of the following at the time of acquisition: Intangible assets Property, plant and equipment Investments and other assets Inventories Accounts receivable Deferred tax assets/(liabilities) Cash and cash equivalents Provisions Long-term debt Corporate income tax receivable/(payable) Short-term debt Net assets Minority interest items Previous investments recognized under associated enterprises Acquired net assets Goodwill Goodwill, changed consolidation method Acquisition cost Cash and marketable securities in acquired subsidiaries Net cash flow on acquisition 804 2,034 41 46 619 123 472 (446) (18) (1) (1,032) 2,642 (13) (92) 2,537 2,632 64 5,233 (472) 4,761

Note 36 Divestment of subsidiaries

DKKm TDC Group 2004 2003

The carrying value of assets and liabilities consists of the following at the time of divestment: Intangible assets Property, plant and equipment Investments and other assets Inventories Accounts receivable Cash and cash equivalents Deferred tax assets/(liabilities) Provisions Corporate income tax receivable/(payable) Short-term debt Net assets Gain/(loss) on divestment of subsidiaries Cash and marketable securities in divested subsidiaries Net cash flow on divestment 109 47 34 0 138 34 (3) (5) (69) (67) 218 968 (34) 1,152 2 15 0 1 17 30 0 (4) 0 (20) 41 (41) (30) (30)

107

Notes

Note 37 Cash and cash equivalents

DKKm TDC Group 2004 2003 5,594 (2,212) (4) 3,378 2,028 5,430 7,458 11,166 18,624

Cash and cash equivalents at January 1 Adjustment relating to changes in accounting policies Unrealized gain/(loss) on marketable securities and currency translation adjustments, net Adjusted cash and cash equivalents at January 1 Cash and cash equivalents at December 31 are specified as follows: Marketable securities with insignificant risk of changes in value Cash Cash and cash equivalents at December 31 Undrawn credit lines at December 31 Total cash, cash equivalents and undrawn credit lines at December 31

7,458 (23) 7,435 3,412 6,838 10,250 10,185 20,435

108

Management Statement
Today the Board of Directors and the Executive Committee approved the Annual Report of TDC A/S for 2004. The Annual Report has been prepared in accordance with the Danish Financial Statements Act, the accounting standards issued by the Danish Institute of State Authorized Public Accountants and the requirements of the Copenhagen Stock Exchange relating to the presentation of financial statements by listed companies. In our opinion, the accounting policies applied are appropriate and the Annual Report gives a true and fair view of the assets, liabilities, financial position, results of operations for the year of the Group and the Parent Company and Group cash flows for the year. The Annual Report is recommended for approval by the Annual General Meeting.

Copenhagen, February 23, 2005

Executive Committee

Henning Dyremose

Hans Munk Nielsen

Board of Directors

Thorleif Krarup

Niels Heering

Jan Bardino

Christine Bosse

Preben Damgaard

Leif Hartmann

Steen Jacobsen

Bo Magnussen

Kurt Anker Nielsen

Per-Arne Sandstrm

109

Auditors Report

Auditors Report
To the shareholders of TDC A/S
We have audited the Annual Report of TDC A/S for 2004, prepared in accordance with the Danish Financial Statements Act and the additional Danish financial reporting requirements. The Annual Report is the responsibility of the Board of Directors and the Executive Committee. Our responsibility is to express an opinion on the Annual Report based on our audit. in the Annual Report. An audit also includes assessing the accounting policies used and significant estimates made by the Board of Directors and the Executive Committee, as well as evaluating the overall Annual Report presentation. We believe that our audit provides a reasonable basis for our opinion. Our audit did not give rise to any qualifications.

Opinion
In our opinion, the Annual Report gives a true and fair view of the Groups and the Companys financial position at 31 December 2004 and of the results of the Groups and the Companys operations and consolidated cash flows for the financial year 2004 in accordance with the Danish Financial Statements Act and the additional Danish financial reporting requirements.

Basis of opinion
We conducted our audit in accordance with International and Danish Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance that the Annual Report is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures

Copenhagen, February 23, 2005

PricewaterhouseCoopers Statsautoriseret Revisionsinteressentskab

Ernst & Young Statsautoriseret Revisionsaktieselskab

Fin T. Nielsen Danish State Authorized Public Accountant

Leif Shermer Larsen Danish State Authorized Public Accountant

110

Supplementary information
112 Information to shareholders and financial calendar 115 Corporate governance 116 Strategy 117 Employees 119 Vision and corporate social responsibility 120 Glossary 122 Management executives 123 Board of Directors 125 Executive Committee

111

Information to shareholders and financial calendar

Information to shareholders and financial calendar


Graph of TDCs share price developments
In 2004, TDCs share price increased 8.8%. In comparison, the share value in the Dow Jones Euro Communications Index, covering all European telecoms shares, increased 11.8% in Danish kroner. The comparison has not been adjusted for payment of dividends.
TDC compared with DJ Euro Communications Index (not adjusted for dividends)

Shareholders
According to our Articles of Association, a 9.5% cap applies to individual shareholdings and control. However, under certain conditions and with the consent of the Board of Directors, shareholders may own or control more. TDCs Board of Directors has decided to propose to the Annual General Meeting, which will be held on March 17, 2005, that TDC lifts the provision in the Articles of Association stipulating that no shareholder may own more than 9.5 percent of the common shares. Capital The Capital Group Companies, Inc. 333 South Hope Street Los Angeles, California 90071-1406, USA Franklin/Templeton Franklin Resources, Inc. One Franklin Parkway San Mateo, CA 94403-1906, USA

TDC

DJ Euro Communications Index

Arbejdsmarkedets Tillgspension Kongens Vnge 24 DK-3400 Hillerd, Denmark

Dividends
For 2003 TDC paid a dividend of DKK 12 per share, corresponding to a return of 5.5%. In comparison, on average the companies in the Dow Jones Euro Communications Index paid dividends corresponding to a return of 2.7%. Since 1996, TDCs dividend policy has been to increase dividends by DKK 0.5 per share per year.
DKK per share*

Stock exchange listing


The Companys shares are listed on the Copenhagen Stock Exchange (ISIN DK00-1025333-5) and on the New York Stock Exchange in the form of American Depository Shares, ADSs (NYSE ticker symbol TLD). The value of one ADS is half of the value of one share.
TDCs shareholder structure

* Note: The above dividend for 2004 has been proposed to the

shareholders in General Meeting

112

Headquarters
TDC A/S Nrregade 21 DK-0900 Copenhagen C Denmark Tel. +45 33 43 77 77 Fax +45 33 43 76 19 tdc.dk CVR No. 1477 3908

Dividends
The dividends are determined by the Company at the Annual General Meeting. Dividends to shareholders will be paid in Danish kroner (DKK) and are normally subject to a 28% withholding tax levied by the Danish government prior to payment. Non-resident shareholders may apply for repayment of part of the withholding tax from the Danish tax authorities. The amount of repayment depends on the double tax treaties entered into between the countries in question. Shareholders permanently resident in the United States of America or Canada holding American Depository Shares (ADSs) will receive dividends in USD less 15% withholding tax levied by the Danish government, cf. the tax treaties concluded between the Danish government and the individual countries. A prerequisite for the low withholding tax is that documentation of residency is obtained from the local taxation authorities (in the US, IRS form 6166 is used) and communicated to the ADS depository bank, cf. below. TDC has received Qualified Dividend Certification under The Jobs and Growth Tax Relief Reconciliation Act of 2003.

Inquiries
Shareholders, financial analysts, representatives of banks, brokerage firms and other investment professionals should address inquiries to: TDC A/S Investor Relations Nrregade 21 DK-0900 Copenhagen C Denmark Tel. +45 33 43 76 80 Fax +45 33 43 76 78 Email ir@tdc.dk

Annual General Meeting


The Companys Annual General Meeting will be held in Copenhagen on March 17, 2005.

Financial calendar 2005


March 17 March 18 March 22 March 23 April 4 April 5 May 3 May 10 June July 7 August 4 October 4 November 2 December 31 Annual General Meeting Common shares and ADSs are traded without dividends Record date for shares in receipt of dividends Payment of dividends on common shares Payment of dividends on ADSs Start of closing period for 1Q 2005 First-quarter report 2005 Investor day Form 20-F is registered with USAs. Securities and Exchange Commission (SEC) Start of closing period for 2Q 2005 Second-quarter report 2005 Start of closing period for 3Q 2005 Third-quarter report 2005 End of the fiscal year 2005

113

Information to shareholders and financial calendar / Corporate governance

Inquiries regarding holdings of and dividends on the Companys shares should be made to the authorized issuing agent who also keeps the Companys register of shareholders: Danske Bank Operation-Securities/Aktiebog Holmens Kanal 2-12 DK-1092 Copenhagen K Denmark Tel. +45 33 44 51 40 Fax +45 33 44 53 76 Inquiries regarding holdings of and dividends on American Depository Shares (ADSs) should be addressed to the depository bank, transfer agent and registrar for the ADSs (CUSIP No. 879242105): The Bank of New York, ADR Division 101 Barclay Street 22nd floor New York NY 10286 USA Tel. +1 888 269 2377 Fax +1 212 571 3050

114

Corporate governance
Introduction
TDCs shares are listed on the Copenhagen Stock Exchange and its American Depository Shares (ADSs) are listed on the New York Stock Exchange (NYSE). TDCs Board of Directors supports and upholds high corporate governance standards and is constantly developing and updating the companys approach to corporate governance. Although, in general TDC is in compliance with the corporate governance rules of NYSE, the differences between TDCs corporate governance practices and the NYSE corporate governance standards are set out on www.tdc.com. In 2002, the Board followed the recommendation of the Copenhagen Stock Exchange and carefully considered all 31 recommendations on corporate governance issued by the Nrby Committee, a Danish Corporate Governance Committee. In October 2003, certain adjustments to TDCs corporate governance standards were made. Information on TDCs compliance with the Nrby Committee recommendations is available on www.tdc.com. As a US registrant, TDC is also subject to the rules promulgated under the US Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act). The Sarbanes-Oxley Act introduced a number of corporate governance requirements applicable to both US issuers and non-US issuers such as TDC. For example, pursuant to requirements promulgated under the Sarbanes-Oxley Act, TDC has implemented policies and procedures regarding preapproval of services from the Groups independent auditors, and a process to support the certification by the CEO and CFO of TDC of the annual report on Form 20-F. TDCs Board of Directors also established an Audit Committee during 2004 and TDC has begun the process of preparing the required documentation of the internal controls for financial reporting, which will allow for managements assessment of the effectiveness of internal controls over financial reporting as required by Section 404 of the Sarbanes-Oxley Act, starting with TDCs annual report on Form 20-F for the fiscal year ending December 31, 2005.

The Board of Directors


The Board of Directors has 10 members, six elected at the Annual General Meeting and four elected by the employees. In 2004, the Board of Directors held 17 meetings and one strategy seminar. The current Board of Directors committees include the Audit Committee and the Compensation Committee. The Audit Committee was appointed in August 2004. The Audit Committee is chaired by Kurt Anker Nielsen, and the other members are Christine Bosse and Per-Arne Sandstrm. All members are financially literate, have the necessary ability and experience in understanding financial statements and fulfill the independence requirements prescribed by the Sarbanes-Oxley Act. For the purpose of fulfilling the requirements of the SarbanesOxley Act, the Board has determined that Kurt Anker Nielsen qualifies as an audit committee financial expert within the meaning of Item 16A of Form 20-F. In 2004, the Audit Committee held two meetings. The primary purposes of the Audit Committee are to assist the Board of Directors in fulfilling its oversight of: (i) the integrity of the Groups annual report and financial reporting process and the Groups systems of internal accounting and financial controls the engagement of the independent auditors and the evaluation of the independent auditors qualifications and independence

(ii)

(iii) the Groups compliance with legal and regulatory requirements relating to the annual report and financial reporting, including the Groups disclosure controls and procedures (iv) the performance of the internal audit function and oversight of the performance of the independent auditors. The Compensation Committee consists of the Chairman of the Board of Directors, and the Vice Chairman of the Board of Directors. The Compensation Committee approves the compensation and other terms of employment for the members of the Groups Executive Committee and the framework of the Group incentive program.

115

Strategy / Employees

Strategy
Vision
TDC will strive to be the best provider of communications solutions in Europe. In the Nordic region, we will: serve our customers on a pan-Nordic basis Improve our market position, presence and cost structure challenge competitors by leveraging opportunities offered by technology transitions and customer orientation. In the Baltic area and Central Europe, we will: build long-term relationships by leveraging our geographic proximity and trustworthiness as a Danish company obtain control to improve governance and realize synergies, when possible.

Business description
TDC is a growth oriented, value creating provider of communications solutions. TDC focuses on the growth areas of broadband solutions as well as mobile telephony. TDC achieves financial results through profitable revenue growth combined with cost efficiency and disciplined capital expenditure management. With a Danish heritage, we will realize our vision through a three-tiered strategy:

3. Seed strategy
In order to secure future growth prospects, we will: develop relationships with partners offering complementary assets and competencies transfer to other countries a limited number of business concepts that proved successful in our core geographies.

1. Core strategy
In Denmark and Switzerland, we will strengthen our leadership through a full set of product and service offerings. We are committed to: earning our customers long term loyalty by offering the best customer experience and value for money proactively driving technology transitions, when profitable for TDC, and partner with leading providers to offer customer-oriented communications solutions securing profitable access to quality networks, irrespective of ownership.

2. Expansion strategy
In geographies where TDC has a presence, we will leverage our core competencies for expansion. If control cannot be achieved within a reasonable timeframe, we will divest when a satisfactory price can be negotiated.

116

Employees
In a technological service company, employees make all the difference. Therefore we will continue to focus on competence and management development, diversity, employee satisfaction and motivation. The Board of Directors greatly appreciates the employees fine work performance.

Employee satisfaction
Every year we carry out employee satisfaction surveys in our domestic business lines. These surveys contribute to a continual development process by measuring how well our vision is an integral part of our employees everyday life. And based on the results, specific development activities are implemented in each department.

Competence and management development


For TDC, competence and management development are crucial. Job appraisal interviews are held every year for all employees at which individual action plans are drawn up covering a wide range of job and competence development activities: courses, e-learning, on-the-job training, mentor schemes and networking. TDC has a Corporate Talent Management program to ensure that at any time we have a sufficient number of competent managers to undertake top management functions in the Group.

Diversity
For TDC, diversity and corporate social responsibility are not just a question of being socially responsible, but also a lever for our ability to apply diversity in developing a sustainable business. For the past three years, TDC has been part of a project supported by the European Social Fund and has created schemes for mentoring for female managers, and taken initiatives including employing more staff with disabilities and integrating ethnic minorities, for example when recruiting trainees.

Number of employees1 TDC Group


2003 2004

Number of employees in TDC Domestic companies International companies Average age Average years of service
1

21,125 16,014 5,111 42 16

20,573 14,998 5,575 42 16

The number denotes end-of-year full-time employee equivalents including permanent employees, trainees and temporary employees.

117

Employees / Vision and corporate social responsibility

Working environment
TDC wishes to pioneer environmental initiatives, create an inspiring and stimulating working environment, influence developments in health and safety work in Denmark, and base our environmental work on the most recent research and development results. In July 2004, TDC A/S and its Danish subsidiaries, TDC Directories A/S, TDC Cable TV A/S, TDC Mobil A/S, TDC Services A/S were certified in accordance with the Ministry of Labours Executive Order No. 923 on environmental management systems, and OHSAS 18001, which is an international environmental management standard. TDC Solutions A/S was certified in June 2003.

Employee shares
In November 2003, all of our domestic employees had an opportunity to purchase up to 90 shares of TDC stock at a price of DKK 100 per share. 12,509 or 81% of the employees participated. In continuation of TDCs 2003 share program for Danish employees, we offered our employees in fully-owned foreign subsidiaries a share option program in November 2004. Each employee was offered an option to purchase up to 90 shares of TDC stock at a price of DKK 78 per share. The options can be exercised five years after the grant date with only one exercise window. A total of 278,711 shares with an option value of approx. DKK 27m were issued to 3,095 employees.

118

Vision and corporate social responsibility


It is TDCs vision to be the best provider of communications solutions in Europe. We realize our vision by consistently delivering customer value through customer focused solutions and outstanding customer care; making sure our employees are dedicated, enthusiastic and proud; creating value for our customers; and actively and responsibly helping to develop society. TDC executes its social responsibility first and foremost by rolling out new technology and providing innovative services. By making considerable investments in infrastructure, TDC plays an important part in providing the basis for Denmark as an information society to hold a strong position against international competition. In addition, latitude, tolerance and social responsibility rank high on TDCs staff policy agenda with a focus on diversity, equality and retaining employees with reduced working capacity. TDC is also actively engaged in environmental work promoting, for example, waste minimization and recovery. Read more about TDCs vision and corporate social responsibility on www.tdc.dk.

119

Glossary

Glossary
Abbreviation Explanation

Churn Dial up EDGE (Enhanced Data rates for GSM Evolution)

Customer attrition. A traditional landline data connection. New coding of the GSM network that considerably accelerates transmission speed. Requires specific mobile phones and modems, but data can be sent and received seven times faster than today, which allows interactive transmitting of pictures, wireless pictures and video postcards via e-mail and other airborne multimedia. A network access standard highly suited for transmission of sporadic traffic such as terminal traffic, file transfer and other typical LAN traffic. A package-switched data service for the GSM system, where users are connected to the mobile Internet all the time, but only pay for the volume of data sent or received, and where in the long run it will be possible to send data in small packages on the Internet at a speed of 115 kb/s. A special handset is required. A network protocol that handles exchange of information (data packages) on the Internet. A short-distance data communications network (typically within a company) used to link computers, which allows data and printer sharing, etc. A further development of SMS that also contains pictures and sound. Technology that integrates information on network connection with IP within a specific autonomous system or at an operator thereby simplifying and improving exchange of IP-based data packages.

Frame Relay

GPRS (General Packet Radio System)

IP (Internet Protocol)

LAN (Local Area Network)

MMS (Multimedia Messaging Service)

MPLS (Multi-protocol label switching)

120

Abbreviation

Explanation

PDA (Personal Digital Assistant)

A pocket-size palmtop computer without a keyboard where input is made via a touch screen or small pen. It is typically used as an electronic diary, notebook, etc. and can communicate via an infrared/Bluetooth modem or mobile phone. Traditional landline telephony. Short text messages that can be sent or received on mobile phones. A high-speed network for mobile telephony. Third generation (3G) mobile telephony with transmission speed of up to 2 Mbit/s.

PSTN (Public Switched Telephone Network) SMS (Short Message Services)

UMTS (Universal Mobile Telecommunication System)

VoIP (Voice over IP) VPN (Virtual Private Network)

Technology that enables Internet-based telephony. A large network that operates in the same way as a LAN allowing geographically distant offices or computers to communicate with the same protection, speed and accessibility as a local area network. Wireless network with a range of 1-5 km. Wireless local area network constructed so that it can be accessed by equipment with wireless modems within a geographically limited area. Digital broadband products including ADSL, SDSL and SHDSL.

WiMAX (World Interoperability for Microwave Access) WLAN (Wireless-Local Area Network)

xDSL (X-Digital Subscriber Line)

121

Management executives

Management executives
Business Lines
TDC Solutions A/S Kim Frimer President TDC Mobile International A/S Henning Vest President TDC Switzerland AG Hans Peter Baumgartner President TDC Cable TV A/S Niels Breining President TDC Directories A/S Christian Lanng Nielsen President TDC Services A/S Klaus Pedersen President

Corporate Staff
Business Development Torben V. Holm Senior Vice President Corporate Communications Ulf Lund Senior Vice President Corporate Marketing Rikke Dalsgaard Vice President Corporate HR Henriette Fenger Ellekrog Senior Vice President Legal Affairs Gitte Forsberg Senior Vice President, General Counsel Regulatory Affairs Jens Hauge Senior Vice President Financial Secretariat Eigil Waagstein Senior Vice President Corporate Financial Services Janne Dyrlev Senior Vice President Corporate Accounting & Tax Pernille Erenbjerg Senior Vice President Internal Audit Michael xenbjerg Nielsen Vice President Treasury Flemming Jacobsen Vice President Investor Relations Ole Seberg Vice President

122

Board of Directors

Thorleif Krarup Chairman Age 52. Elected by the shareholders at the Annual General Meeting. First elected 2003. BSc (Economics), 1975, Graduate Diploma in Business Administration (Finance), 1977 and Graduate Diploma in Business Administration (Management Accounting), 1980. Vice Chairman of the Boards of H. Lundbeck A/S, LFI A/S and Chr. Hansen Holding A/S. Member of the Boards of Group 4 Securicor plc., Bang & Olufsen A/S, Lundbeckfonden, Scion DTU A/S and Danmark-Amerika Fondet. Address: TDC A/S, Nrregade 21, 0900 Copenhagen C, Denmark

Christine Bosse Age 44. Elected by the shareholders at the Annual General Meeting. First elected 2004. LLM, 1987. Group CEO TrygVesta A/S. Member of several Boards in the TrygVesta Group. Member of the Board of Flgger A/S and member of the Danish Welfare Commission. Address: TrygVesta A/S Klausdalsbrovej 601 2750 Ballerup Denmark

Leif Hartmann Age 61. Elected by the employees. First elected 1996. Systems Technician at TDC A/S. Address: TDC A/S Nrregade 21 0900 Copenhagen C Denmark

Steen M. Jacobsen Age 55. Elected by the employees. First elected 1996. Specialist Technician at TDC A/S.

Jan Bardino Age 52. Elected by the employees. First elected 2004. MSc (Computer Science).

Bo Magnussen Age 57. Elected by the employees. First elected 1996. Senior Clerk at TDC A/S. Chairman of Lederforeningen at TDC (Association of Managers and Employees in Special Positions of Trust). Address: TDC A/S Nrregade 21 0900 Copenhagen C Denmark

Address: TDC A/S Nrregade 21 0900 Copenhagen C Denmark

Systems Developer at TDC A/S. Address: TDC A/S Nrregade 21 0900 Copenhagen C Denmark

Design & production: DDB Danmark. Idea, process & editing: Morten Hvolbl Nielsen, Brian Bo Nielsen and Mads Pauli Christiansen. Translation: Access Translations. Photos of ExCo: Sren Wesseltoft. Photos of Board: Juhl & Sthr, Christer Carlson and others. Printed by: Scanprint A/S.

Board of Directors

Preben Damgaard Age 41. Elected by the shareholders at the Annual General Meeting. First elected 2004. BSc (Economics), 1985. Graduate Diploma Business Administration, 1987. President, Damgaard Company A/S. Chairman of the Boards of Dannebrog Rederi and Heart Made A/S. Member of the Boards of Rockwool International, Proactive A/S, DTU-Innovation A/S, ERP International 2 A/S, Giritech A/S, Bang&Olufsen A/S. Address: Damgaard Company A/S Tesch All 11 2840 Holte, Denmark

Kurt Anker Nielsen Age 59. Elected by the shareholders at the Annual General Meeting. First elected 2003. MSc (Economics and Business Administration), 1972. Member of the Boards and Chairman of the Audit Committees of Novo Nordisk A/S and ZymoGenetics, Inc, Seattle, USA. Vice Chairman of the Board of Novozymes A/S. Member of the Board and the Audit Committee of Norsk Hydro ASA, Oslo, Norway. Member of the Boards of Novo A/S, Coloplast A/S and Dakocytomation A/S. Address: Novo A/S Krogshjvej 41 2880 Bagsvrd Denmark

Niels Heering Vice Chairman Age 50. Elected by the shareholders at the Annual General Meeting. First elected 1991. LLM, 1981. Attorney-at-law, 1984. Managing Partner at Gorrissen Federspiel Kierkegaard Lawfirm. Chairman of the Boards of CKBF Invest A/S, Comlex A/S, Ellos A/S, EQT Partners A/S, Jeudan A/S, MRE A/S, Nesdu A/S, NTR Holding A/S, and Sthr Holding A/S. Member of the Boards of Columbus IT Partner A/S, Danske Private Equity A/S, J. Lauritzen A/S, Ole Mathiesen A/S and Venjo A/S. Address: Gorrissen Federspiel Kierkegaard Lawfirm H.C. Andersens Boulevard 12 1553 Copenhagen V Denmark

Per-Arne Sandstrm Age 57. Elected by the shareholders at the Annual General Meeting. First elected 2004. BSc (Engineering), 1967. Chairman of the Boards of the Nordic technology companies Atea Holding AB, Birdstep Technology ASA, Nordic Service Group AB and Umetrics AB. Address: TDC A/S, Nrregade 21 0900 Copenhagen C Denmark

Executive Committee

Henning Dyremose President and Chief Executive Officer Appointed 1998. Age 59. MSc (Chemical Engineering), 1969 and Graduate Diploma in Business Administration (Organization), 1972. Chairman of the Boards of TDC Solutions A/S, TDC Mobile International A/S, TDC Switzerland AG, TDC Cable TV A/S and TDC Directories A/S. Vice Chairman of the Board of TDC Services A/S. Chairman of the Danish Trade Council. Vice Chairman of the Confederation of Danish Industries and Chairman of the Confederations Permanent Committee on Industrial Affairs. Vice Chairman of the Boards of Brdrene A. O. Johansen A/S and A. O. Invest A/S. Member of the Boards of Carlsberg A/S and Carlsberg Breweries A/S.

Hans Munk Nielsen Senior Executive Vice President and Chief Financial Officer Appointed 1991. Age 58. MSc (Economics), 1973. Stanford Executive Program, 1983. Chairman of the Board of TDC Services A/S. Vice Chairman of the Boards of TDC Solutions A/S, TDC Mobile International A/S, TDC Switzerland AG, TDC Cable TV A/S and TDC Directories A/S. Chairman of the Boards of CMO-Denmark Fonden and its subsidiaries. Member of the Boards of Nordea Invest A/S and Copenhagen Stock Exchange A/S.

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