Lattelekom Group INTERIM REPORT (January-June 2004)

Transcription

1 Lattelekom Group INTERIM REPORT (January-June 2004) (prepared in accordance with International Financial Reporting Standards) Non-audited

2 Introduction Lattelekom is the most experienced telecommunications company in Latvia providing basic telecommunications, data, Internet and Contact Center services, and also offering integrated information technology and telecommunications (IT&T) solutions. Lattelekom is one of the best telecommunications operators among the Baltic Sea region countries; it is a modern company not only in terms of technologies, but also business organization. Lattelekom has been working in a liberalized fixed telecommunications market already for one and a half years, having provided data, Internet and IT services under competition for a considerable period of time, and moreover, having previously competed with mobile operators in provision of voice telephony services. Lattelekom provides several services under independent brands. Lattelekom uses Verdi brand for provision of integrated IT&T solutions, Apollo for provision of Internet services, and 118 Contact Center for call center services. Lattelekom s subsidiary SIA Lattelekom Sakaru Sistēmas develop and offer information and communications technology solutions to corporate and business customers. Over the ten years of operations Lattelekom has invested close to half billion Lats (approximately EUR 700 million) in modernization of the fixed telecommunications network in Latvia. At the end of June 2004 the Lattelekom Concern employed 2,927 people. 51% of Lattelekom s share capital are owned by the Republic of Latvia, and 49% by TILTS Communications, which is owned on turn by TeliaSonera AB. Lattelekom owns 23% in the share capital of the mobile operator SIA Latvijas Mobilais Telefons. 1

3 Significant events during the first half of 2004 Lattelekom starts offering integrated IT&T solutions not only to companies in the Baltic States, but also in Sweden and Finland. A new tariff plan, Home Tariffs, is offered to residential customers. Availability of Wireless Internet is expanded in Latvia by combining the possibilities of fixed and mobile data transmission technologies. Lattelekom supports the study of information society development in Latvia initiated by the Information Society Office. Internet content building and mastering competition Golden Ant is organized for schools. Key figures January- June 2004 January- June 2003 January- December 2003 Revenue (LVL 000) 67,093 69, ,040 EBITDA (LVL 000) 34,146 34,571 69,188 EBITDA margin 51% 50% 49% Operating profit (LVL 000) 14,352 10,599 22,858 Operating margin 21% 15% 16% Profit (LVL 000) 17,451 12,713 27,226 Capital expenditure (LVL 000) 6,293 7,758 22,517 Digitalization rate 89.2% 84.5% 88.7% Total number of telephone lines ( 000) Staff at the end of period 2,927 3,249 3,035 Number of lines per employee

4 OPERATIONAL REVIEW Company Development Based on the possibilities of the existing telecommunications market and the business experience accrued, Lattelekom s long-term development objective is to maintain the leading position in a liberalized market. To attain this objective, a better understanding of customer needs must be achieved and appropriate service offers developed, and customer relationship management must be promoted. During the period under review Lattelekom continued implementation of an extensive customer service development program allowing for improvement of service quality and attraction of more customers to the company. A New Tariff Plan for Residential Customers In 2003 Lattelekom launched three new tariff plans for residential customers: Call Your Friend, Active Tariffs and Social Tariffs, as well as a new tariff plan for small companies Economic Dialogue, while this year the company offers the tariff plan Home tariffs, which is a unique offer in Latvia since the subscribers have a possibility to talk over the phone for up to two hours per month free of charge and save approximately 5 Lats per month. Lattelekom continued call discounts to certain international destinations during weekends and very favorable local call tariffs also during the first half of Conquering of the Nordic Market The professionalism and huge experience of Lattelekom employees, as well as the possibilities offered by the latest technologies have allowed for conquering not only the Baltic, but also Swedish and Finnish telecommunications markets. Lattelekom is the only national telecommunications operator in the Baltic States that has succeeded not only in the domestic market, but also at international level. Lattelekom has opened Points of Presence (PoP) in Stockholm and Helsinki. Now the large companies with branch networks covering not only the Baltic States but also Sweden and Finland can use the international data transmission solutions offered by Lattelekom to be able to monitor their business processes in a centralized way. Provision of such communications solutions is a logical step in Lattelekom s development, since an increasing number of companies are expanding their business beyond the boundaries of a single country. 3

5 Demand for Apollo On-line Internet Connections is increasing Demand for on-line Internet connections was increasing rapidly during the first half of Latvian households now mainly use on-line Internet connections instead of dial-up. The number of Internet connections is growing more rapidly outside Riga. The rapid growth of the number of on-line Internet connections has been furthered by the successful operations of Lattelekom Internet service provider Apollo: services have been developed for residential customers that are favorable in terms of both, price and quality; and from June 1 the installation charge and subscription to the popular connections Home DSL and City Internet has been reduced. Lattelekom in the Vanguard of Wi-Fi Development In the first half of the year Lattelekom continued work to develop wireless Internet in Latvia. To further the process, partnerships were established with such world-known companies as Intel and Hewlett Packard. Since this March Lattelekom has started to offer wireless Internet connections using not only Wi-Fi, but also GPRS mobile data transmission technologies enhancing the usage possibilities of portable PCs. Wi-Fi and GPRS based data transmission solutions are new not only in Latvia, they have been launched only recently in other countries as well, with rapid development expected in future. Lattelekom is an innovative company, which over a short time, combining the possibilities offered by the latest fixed and mobile technologies, has developed a modern service offer available in almost entire territory of Latvia. Developing Information Society Lattelekom was one of the first companies to become aware of the need to develop an information society in Latvia, having been actively involved in the process several years ago. There are several aspects important for the development of information society: voice and data transmission infrastructure, access to modern services provided by state institutions and companies to their clients via the Internet or over the phone, as well as the skills to use the modern technologies and motivation to become a part of information society. In early 2004 Lattelekom signed an agreement with Ventspils City Council on establishment of Lattelekom 118 Contact Center in Ventspils for provision of municipality services and information about work of the municipality to the population. Together with Microsoft Latvija, Lattelekom continued organization of the Golden Ant Internet home page competition for schoolchildren started in The competition helps to develop understanding of the possibilities offered by the Internet and the skills to use 4

6 them, moreover, while creating home pages about various subjects, the children have added new content to the Latvian Internet. Lattelekom, together with Microsoft, supported the study of information society development in Latvia initiated by the Information Society Office. The purpose of the study was to identify the potential drivers of information society development and to acquire information about reasons hindering its development in Latvia. The results of the study showed that the development of information society was mainly hindered by the low income level of the population and lack of motivation to use computers and the Internet. Although the prices of PCs and internet connections are becoming increasingly affordable in Latvia, the purchasing power of the population is still too low. FINANCIAL REVIEW The following comments refer to the consolidated interim financial statements of Lattelekom Group, which are prepared in accordance with International Financial Reporting Standards (IFRS) and are un-audited. The consolidated revenue of Lattelekom Group in the first half of 2004 was LVL 67.1 million, down by 3% compared to the same period of Revenue from international telephone services was LVL 2.4 million lower, and revenue from domestic services was LVL 1.8 million lower. However, revenue from other telecommunications services grew by LVL 1.9 million compared to the same period of Within this figure the fastest growth was in data transmission services 23%, Internet services 16%, and in sales of customer premises equipment 50%. In the first half of 2004 there was an overall decrease in the number of customer lines by 2% mainly due to migration of residential customers to mobile services. At the same time, the number of business customer lines continued to grow. Revenue (LVL million) The decline in total revenue by LVL 2.3 million was off-set by cost-savings of LVL 6.0 million, including the decrease in depreciation charge of LVL 2.5 million and LVL 0.8 million net income from sales of spare assets. The operating profit for the first half of 5

7 2004 reached LVL 14.4 million, an increase by LVL 3.8 million compared to the first half of the last year. Although EBITDA (earnings before interest, tax, depreciation and amortisation) was slightly down by LVL 0.5 million compared to the six months period of 2003, EBITDA margin improved to 51% (50% in the same period of 2003). EBITDA (LVL million) Net financial income of the Group was LVL 5.4 million for the period of the report, an improvement by 11% compared to the first half of the previous year. This was mainly due to further growth of net profit of Lattelekom s associate Latvijas Mobilais Telefons, a share of which is included in Lattelekom s results under equity accounting method for investments in associates. Although the profit before tax was by LVL 4.4 million higher than during the six months period of the last year, the tax charge for the reporting period was slightly lower mainly due to lower corporate income tax rate in As a result of the above mentioned factors, net profit of the Group reached LVL 17.5 million in the first half of 2004 and was 37% above the result generated in the comparable period of the previous year. Net profit (LVL million) The Group s net cash flow before financing was LVL 30.6 million in January-June 2004 in comparison with LVL 26.2 million in the same period of the last year. The main reason of the improvements in cash flow was by LVL 6.1 million lower cash expenditure on capital investments during the period under review. Because of the positive changes in 6

8 cash flow, the private bond issue of the total amount of LVL million was redeemed in June 2004 well before its maturity date. Despite the redemption of bonds the cash balance of the Group grew by LVL 5.0 million during the first half of Lattelekom has accumulated cash resources for the dividend payment of LVL 42.0 million, which is to be partly financed by back-up facilities available in the amount of LVL 31.5 million. 7

9 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UN-AUDITED) Accounting policies The consolidated interim financial statements of Lattelekom Group are prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. The accounting policies used in the preparation of the interim financial statements are consistent with those used in the annual financial statements for the year ended 31 December 2003, except revenue recognition from sale of prepaid calling (payphone) cards. According the industry best practice revenue from prepaid cards is now recognised when telecommunications services are provided rather than at a point of sale. This change in accounting policy does not have a material effect on the financial statements of the current period or any prior period presented. These interim financial statements should be read in conjunction with the 2003 annual financial statements. Condensed Consolidated Income Statement January - January - Full year June June LVL 000 LVL 000 LVL 000 Revenue 67,093 69, ,040 Other operating income 1, ,724 Payments to other telecommunications operators (8,784) (9,322) (18,226) Employee costs (10,227) (11,991) (22,431) Depreciation and amortisation (20,600) (23,053) (45,027) Other operating expenses (14,938) (14,415) (31,919) Net income/loss on disposal of assets 806 (919) (1,303) Total operating expenses (53,743) (59,700) (118,906) Operating profit 14,352 10,599 22,858 Net financial income including share of result of the 5,398 4,851 9,535 associate Profit before tax 19,750 15,450 32,393 Income tax (2,299) (2,737) (5,167) Net profit 17,451 12,713 27,226 Earnings per share (in LVL) Breakdown of Revenue by Service January - January - Full year June June LVL 000 LVL 000 LVL 000 Revenue from international telephone services 8,603 10,963 21,481 Revenue from domestic telephone services 43,660 45,504 90,420 Revenue from other telecommunications services 14,830 12,906 28,139 Total 67,093 69, ,040 8

10 Condensed Consolidated Balance Sheet June 30 June 31 December LVL 000 LVL 000 LVL 000 ASSETS Non-current assets 227, , ,405 Current assets Inventories 1,722 2,218 1,879 Receivables-net and prepayments 16,123 20,347 18,549 Cash and cash equivalents 24,003 26,840 19,049 41,848 49,405 39,477 Total assets 269, , ,882 EQUITY AND LIABILITIES Capital and reserves Ordinary share capital 146, , ,079 Reserves 13,795 13,795 13,795 Retained earnings 70,202 38,238 52, , , ,625 Non-current liabilities (1) 9,713 52,406 43,003 Current liabilities Trade and other payables 13,007 18,590 18,254 Borrowings 17,000 5,000 10,000 Other liabilities - 23,329-30,007 46,919 28,254 Total equity and liabilities 269, , ,882 (1) The private bond issue of the total amount of LVL million was redeemed in June Condensed Consolidated Statement on Changes in Equity Share Reserves Retained Total capital earnings LVL 000 LVL 000 LVL 000 LVL 000 Balance at 31 December ,079 10,679 37, ,749 Transfer to reserves - 3,116 (3,116) - Dividends - (9,350) (9,350) Net profit for the period ,713 12,713 Balance at 30 June ,079 13,795 38, ,112 Balance at 31 December ,079 13,795 52, ,625 Net profit for the period ,451 17,451 Balance at 30 June 2004 (2) 146,079 13,795 70, ,076 (2) On 23 August 2004 Lattelekom SIA Extraordinary Shareholders meeting decided to approve distribution of LVL 42.0 million as a dividend to shareholders of the Company for year

11 Condensed Consolidated Cash Flow Statement January - January - Full year June June LVL 000 LVL 000 LVL 000 Cash flow from operating activities Net profit 17,451 12,713 27,226 Adjustments for: depreciation and amortisation 20,600 23,053 45,027 (income)/loss on disposal of assets-net (806) 919 1,303 finance costs net 492 1,255 1,450 income from associate (5,836) (4,750) (9,601) foreign exchange gain (6) (1,295) (1,315) income taxes 2,299 2,737 5,167 34,194 34,632 69,257 Changes in working capital 53 (742) (3,515) Net cash interest expenses including dividends received 6,613 5,092 4,135 Tax paid (2,177) (1,201) (3,360) Net cash from operating activities 38,683 37,781 73,547 Net cash used in investing activities (8,127) (11,553) (26,781) Net cash used in financing activities (25,602) (9,350) (37,679) Net increase/(decrease) in cash and cash equivalents 4,954 16,878 9,087 Cash and cash equivalents at beginning of period 19,049 9,962 9,962 Cash and cash equivalents at end of period 24,003 26,840 19,049 10