AS Eesti Telekom FINANCIAL RESULTS 07.02.07
Consolidated Interim Report of AS Eesti Telekom for the IV
Quarter and whole year 2006
MOST SIGNIFICANT FINANCIAL INDICATORS
Q4 Q4 Chang 12M 12M Chang
2006 2005 e, % 2006 2005 e, %
Net sales, 99.1 89.3 11.0 368.4 329.7 11.7
million EUR
EBITDA, million 32.8 32.1 2.0 140.7 137.4 2.4
EUR
EBITDA margin, % 33.1 35.9 38.2 41.7
EBIT, million EUR 25.2 19.5 29.5 106.0 89.3 18.6
EBIT margin, % 25.4 21.8 28.8 27.1
EBT, million EUR 25.8 20.0 28.8 108.6 91.8 18.3
Net profit for 25.8 20.0 28.8 84.7 69.5 21.9
period, million
EUR
EPS, EUR 0.19 0.15 28.0 0.61 0.50 21.5
CAPEX, million 14.0 15.2 -8.0 49.3 37.5 31.7
EUR
Net gearing, % -33.5 -41.2
ROA, % 28.8 24.4
ROE, % 43.4 36.7
CHAIRMAN’S STATEMENT
Financial Results
Sales revenues, operating expenses and profit
Financial results of the last quarter of 2006 were affected
by several circumstances. One of them was an end to the
effect of adding the new subsidiaries, AS MicroLink Eesti and
AS MicroLink. The given enterprises were acquired by Elion
Enterprises on 31 October 2005. Therefore, the turnover
resulting from the acquisition of the enterprises only
affected the results for the first month of the last quarter
in 2006. Another circumstance is reclassification leasing
claims related to some long term DigiTV and Internet access
contracts which was done retrospectively in the last quarter
of 2006 (look also Elion Group).
The strongest contribution to the increase in sales revenues
in the fourth quarter was made by mobile communications. The
growth was primarily caused by increased volumes of call
minutes. An increasingly discernible positive influence on
sale revenues was manifested by mobile data communications—by
the end of the year, the number of data communications users
had increased to over 110,000. By the end of the year, there
were already 15,000 3G users. During the past year, the
increase of the client base as a whole was also positive. If,
in the first half of 2006, the growth of the client base
significantly decelerated, then the situation in the second
half changed, and during the year as a whole, 82,000 (net)
active SIM cards were added, the same number as in 2005. By
the end of the year, Ratemobiil—the special package directed
at the users of Rate.ee—had attracted 35,000 clients. AS EMT
acquired a 51% share of OÜ Serenda Invest that manages
Rate.ee in April of 2006. Currently we can say that the
investment decision was correct, since EMT has significantly
strengthened its market position among young people and
introduced entirely new mobile services to the market.
The sales revenues for fixed communications in the past
quarter remained at the same level as the last quarter of
2005. At the same time, changes in the revenue structure
continued. Revenues from voice communications also continued
to decrease in the fourth quarter. However, the decrease was
compensated by revenues in various fields of activity. For
one thing, revenues earned from connection services
increased. Elion, which entered the television transmission
market in 2005, became the preferred provider of digital
television transmission during 2006, and the addition of
triple-solution clients significantly exceeded the company’s
own projections. A record number of permanent Internet
connection clients were added during the year. On
the other hand, sales revenues were added by the provision of
IT services which became a separate business activity.
In the fourth quarter of 2006, the group’s revenues from the
retailing and wholesaling of telecommunications, IT, and TV
equipment increased by 51% compared to the same period in
2005. The growth was mainly related to the reclassification
of leasing claims.
In the last quarter of 2006, the Eesti Telekom Group
operating expenses increased by 16% reaching
66.8 million euros (4th quarter 2005: 57.8 million euros).
The additional operating expenses are related primarily to
increasing volumes of merchandise procured for sale (incl.
reclassification of leasing). The second source of growth
for operating expenses has been mobile communications, where
the increasing minute volumes passing through the network
have been accompanied by greater interconnection fees. At the
same time, the increase in mobile communications costs has
been slowed by an improvement in the clients’ payment
behavior, which has allowed significantly reduce the
provisions made to cover accounts receivable in the last
quarter of 2006. Compared to the same period of 2005, the
operating expenses for fixed communications have decreased
slightly.
Eesti Telekom Group fourth quarter EBITDA increased by 2%
compared to the same period in 2005, reaching 32.8 million
euros (4th quarter 2005: 32.1 million euros). The EBITDA
margin decreased to 33.1% (4th quarter 2005: 35.9%).
In the fourth quarter, Eesti Telekom Group depreciation was
7.6 million euros, which is 40% less than a year earlier (4th
quarter 2005: 12.6 million euros). The majority of the
decrease in depreciation resulted from the implementation of
new depreciation rates. At the beginning of 2006, TeliaSonera
established new uniformly applied useful life spans for fixed
assets in its 100% subsidiaries. Based on thorough analysis,
the Eesti Telekom Group also decided to implement the
depreciation periods proposed by TeliaSonera (with some
changes based on local circumstances) in the Eesti Telekom
Group starting on 1 May 2006. The depreciation already
calculated on fixed assets was not adjusted in connection
with the establishment of the new periods. The remaining
useful life of existing fixed assets will be adjusted. The
second important factor affecting the drop in depreciation
was the moderate investments made during the past year.
The Eesti Telekom Group earned an EBIT of 25.2 million euros
(4th quarter 2005: 19.5 million euros). The group’s (net)
financial revenues remained at the same level as the same
period in 2005, reaching 0.6 million euros. The net profit
for Eesti Telekom Group in the fourth quarter of 2006 was
25.8 million euros (4th quarter 2005: 20.0 million euros).
The EPS earned was 0.19euros (4th quarter 2005: 0.15 euros).
The consolidated sales revenues for the Eesti Telekom Group
in 2006 reached 368.4 million euros, increasing 12% compared
to 2005 (2005: 329.7 million euros). More than one third the
additional sales revenues came from the mobile communications
field. For the year, a significant contribution was also made
by fixed communications, for which external sales revenues
grew by almost 200 million euros. The principal growth
factor was the addition of revenues from new subsidiaries.
Sales revenues from trading grew 30% during the year.
In 2006, the group’s operating costs expenses 231.4 million
euros (2005: 192.8 million euros). The majority of the
increase in operating expenses is related to the increased
volumes of commercial activities. The operating expenses for
mobile and fixed communications have also increased by over
ten percent.
The consolidated EBITDA for 2006 was 140.7 million euros
(2005: 137.4 million euros). The EBITDA margin decreased
slightly, reaching 38.2% in 2006 (2005: 41.7%). The reason
for the decrease in the margin
was the greater ratio of fields of activity with lower
profitability—IT services and trading—in 2006 sales revenues.
The depreciation in 2006 was 34.7 million euros (2005: 48.1
million euros). In the past year, the Group earned an EBIT of
106.0 million euros (2005: 89.3 million euros). In one year,
the financial revenues (net) increased by 0.2 million euros
reaching 2.6 million euros. In 2006, in connection with
larger dividends, the
amount of income tax paid on dividends also increased by 1.6
million euros, reaching 23.9 million euros. The
Eesti Telekom Group earned a net profit of 84.7 million euros
in 2006 or 0.61 euros per share (2005:
69.5 million euros or 0.50 euros per share).
Balance sheet and cash flows
As of 31 December 2006, the Eesti Telekom Group total assets
were 307.8 million euros (31 December 2005: 297.8 million
euros). In one year, the group’s non-current assets increased
by 21.7 million euros. The growth of the non-current assets
is based on greater investments by the group’s enterprises
this year. During the past year, the current assets decreased
by 11.6 million euros, whereas the cash and cash equivalents
and short-term investment declined by 18.0 million euros. The
reason for the reduction in cash and short-term investments
is a dividend payment that was 8.8 million euros larger,
increased dividend income tax, and an increase in
investments.
As of 31 December 2006, the group’s equity was 263.2 million
euros (as of 31 December 2005: 258.2 million euros). On the
one hand, equity was also reduced by the dividend payment
that was larger than in 2005. On the other hand, equity was
increased by a net profit that was 15.2 million euros larger
than in 2005.
As of 31 December 2006, the long-term liabilities of Eesti
Telekom Group totaled 0.5 million euros (as of
31 December 2005: 0.4 million euros) and short-term
liabilities totaled 41.8 million euros (31 December 2005:
38.2 million euros). At the end of the year, provisions
totaling 2.3 million euros had been made. The group’s net
debt at the end of 2006 was -88.4 million euros and net
gearing was -33% (31 December 2005: -106.3 million euros and
-41%).
In 2006, the cash flow from operations for the Eesti Telekom
Group was 121.6 million euros (2005:
128.2 million euros). The cash flow into investment
activities in 2006 was 48.8 million euros (2005:
49.6 million euros). In one year, cash flow into the
acquisition of tangible and intangible fixed assets
increased, reaching 49.2 million euros in the past year
(2005: 35.4 million euros). The cash flow into financial
activities was 79.5 million euros in 2006 (2005: 72.3 million
euros), including 79.4 million euros (2005:
70.5 million euros) that was paid out in dividends.
Fixed-communications (Elion Group)
Q4 Q4 Chang 12M 12M Chang
2006 2005 e, % 2006 2005 e, %
Net sales, 51.4 46.3 10.8 187.1 165.2 13.2
million EUR
EBITDA, million 11.6 13.8 -15.7 56.4 56.4 0.0
EUR
EBITDA margin, 22.6 29.7 30.1 34.1
%
EBIT, million 7.3 7.9 -7.4 37.3 31.6 17.8
EUR
EBIT margin, % 14.2 17.0 19.9 19.1
EBT, million 7.3 8.1 -9.3 37.8 32.7 15.9
EUR
Net profit for 7.3 8.1 -9.3 30.2 24.6 22.9
period, million
EUR
CAPEX, million 6.6 11.1 -40.1 31.8 25.2 25.8
EUR
ROA, % 20.0 17.9
ROE, % 31.3 22.7
One principal factor behind Elion’s results is the end of the
effect created by the acquisition of MicroLink Eesti. In the
last quarter, only the results for October were influenced by
the addition of revenues from new subsidiaries.
The second principal factor that strongly influenced the
quarterly result is change in accounting principle of
equipment leased to customers. In April 2006, Elion came out
with its DigiTV offer. Equipment provided to customers
signing long-term DigiTV contracts was accounted as
operational lease. The same principle was used in case of
customers who used the “crazy offer” campaign for signing
long-term Internet access contracts. A suggestion was made by
the auditors that equipment of the kind should be accounted
as finance lease and not as operating lease. At the end of
2006, Elion decided to reclassify the equipment. As a result,
net sales of the fourth quarter were increased
retrospectively by 3.9 million euros. Operating expenses
were increased by 6.5 million euros (incl. 0.4 million
euross accounted previously as depreciation). The EBITDA was
down by 2.6 million euros and net profit by 2.1 million
euros. As by its essence, reclassification of leasing is a
periodization issue, then the decrease in profit in 2006
leads to higher profit in the next years and the total impact
on profit will be zero.
If the influence of the acquisition of the MicroLink Group
companies and reclassification of lease were deducted from
the Elion Group last quarter results for 2006, the increase
in sales revenues would have been close to zero.
Of the Elion Group’s principal fields of activity, the
fastest growth in the last quarter of 2006 was demonstrated
by monthly fees for integrated solutions. This year, the
revenues in the given field of activity exceeded the results
of the last quarter of 2005 by 78%. The increase was caused
by the continued popularity of integrated solutions among the
customers. One of the motivating forces is DigiTV that is
offered as one component of the triple solution. The
technical problems that occurred in the fall of 2006 were
solved by the beginning of the last quarter, and by the end
of the year, the total of DigiTV subscribers increased to
28,400, by growing by 10,000 during the quarter (30 September
2006: 18 400). During the past quarter, the theme packages
offered the customers were supplemented. In November, at the
DigiExpo Fair in Tallinn, remote video rental, which enables
users to order films and programs directly from the TV
screen, was demonstrated to the visitors for the first time.
In February 2007, the first HD TV channel in Estonia and the
Baltic States, Voom HD should reach the viewers.
During the last quarter, Elion permanent Internet connections
achieved the fastest growth rate of the year—15,700 new
connections were added during three months. The rapid
increase in connections was supported by the acquisition of
Norby Telecom’s private client service business by Elion in
November of 2006. By the end of 2006, the company had 141,700
permanent connection clients (30 September 2006: 126,000, 31
December 2005: 108,000). Since, in the past year, Elion
concentrated primarily on offering integrated solutions, then
the revenues from monthly fees earned from connection
services decreased by 31%, compared to the last quarter of
2005. In addition to integrated solutions, the decrease was
also caused by the increase in the ratio of Korterimaja
Internet customers in the client base.
The number of Elion voice interfaces1 remained stable in the
last quarter of 2006, and as of 31 December 2006, the company
had 463,900 interfaces (30 September 2006: 468,076; 31
December 2005: 458,450). The stabilization of the number of
voice interfaces during 2006 was caused by the company’s
active efforts to maintain clients and find new customers.
Various client segments have also been offered different
solutions to meet their needs. Therefore, a campaign for a
discount package targeting price-sensitive clients was
organized during the last quarter. The addition of new
integrated solution users has also added voice interfaces,
since telephone connections are a component of both double
and triple packages. However, the amount of monthly fees
earned from voice communications connections still dropped
12% compared to the same period in 2005, since the ratio of
packages with low monthly fees has increased among
connections.
In the last quarter of 2006, Elion Group revenues from IT
services decreased by 25% compared to the last quarter of
2005. The drop in the fourth quarter was caused by an
incorrect intra-company posting of revenue accounts in the
third and fourth quarters of 2006. Starting in June, a part
of the account settlements related to MicroLink Eesti and
Elion Enterprises were incorrectly recognized as external
turnover. In November, these transactions were reclassified
as internal turnover. Since the entire amount was recognized
in fourth quarter revenues, this resulted in a decrease in
revenues compared to the same period in 2005.
In the fourth quarter of 2006, the decrease in call revenues
earned from end consumers continued. Compared to the same
period in 2005, the revenues earned from local calls
decreased by 16%. The reduction in revenues from local calls
is caused primarily by the free calls provided to users of
various call or integrated solutions. The revenues earned
from international calls decreased by 18%. The revenues for
calls made from fixed-line telephones to mobile networks
decreased by 6%. In the last quarter, other voice
communications revenues,
including revenues earned from interconnection fees and call
transit, remained at the same level as the last quarter of
2005.
Elion estimates its market share for call minutes initiated
from fixed-line networks to be 83% (December 2006: 85%). The
market share of local call minutes 85% (December 2006: 86%),
international call minutes, 65% (December 2005: 66%), call
minutes made to mobile phones, 70% (December 2005: 72%), and
dial-up minutes, 97% (December 2005: 97%).
The Communications Board has disclosed the draft of a
resolution for the declaration of undertakings with
significant market power in the telephone network
interconnection services market for domestic consultation. In
the market for call initiation, it is planned to declare only
Elion Enterprises as an undertaking with significant market
power; while the specific telephone networks Elion, Elisa,
Starman, STV, Televõrgu AS, Telset, Tele2, Norby, Top
Connect, RIKS, and ViaTel would be declared in the call
termination market; and in the transit market, Elion and
Elisa would be declared. There are plans to establish
obligations for access, non-discrimination, transparency, and
price controls, as well as cost accounting for the
undertakings with significant market power.
The revenues earned from the retail sales of
telecommunications, IT, and TV equipment increased in the
last quarter, as is typical of the end of the year. In
addition to the seasonal factor, sales were affected by
reclassification of leasing.
During the last quarter of 2006, Elion Group operating
expenses were 40.4 million euros (4th quarter 2005: 32.5
million euros). The changes that took place in the components
of individual operating costs reflect the developments that
took place in sales revenues. Thus, in comparison to the same
period in 2005, the greatest increase was in costs related to
connection fees. Costs for goods procured for retail sale
also were up, compared to the same period in 2005. The main
reason for the growth was reclassification of leasing. The
rapid growth of wages in Estonia as a whole also affected
Elion. The personnel costs in the fourth quarter were 15%
higher than in the same period of 2005. At the same time, the
number of Elion employees has also increased by 6%. The
number of employees has primarily increased in the fastest-
growing subsidiaries of the group—Elion Esindus and MicroLink
Eesti. Employees were also added in connection with the
takeover of the private client business from Norby Telecom.
The costs related to Elion call services remained at the same
level as the last quarter of 2005. However, the costs related
to providing call services to end consumers decreased,
although the costs related to interconnection services and
call transit increased.
The Elion Group EBITDA in the fourth quarter was 11.6 million
euros, which was at the same level with the same period of
2005 (4th quarter 2005: 13.8 million euros). The EBITDA
margin was 22.6%. Elion Group depreciation decreased by 27%
on the year to 4.3 million euros (4th quarter 2005: 5.9
million euros) in the last quarter of 2006. The reduction in
depreciation was caused by the implementation of new
depreciation norms starting in May of 2006 (the effect on
depreciation is approximately -0.4 million euros per month).
The EBIT of the Elion Group in the fourth quarter was 7.3
million euros, which was 9% less than in the last quarter of
2005 (4th quarter 2005: 7.9 million euros). The financial
revenues (net) in the last quarter of 2006 were 0.06 million
euros (4th quarter 2005: 0.2 million euros). The net profit
of the Elion Group in the fourth quarter was 7.3 million
euros (4th quarter 2005: 8.1 million euros).
In the last quarter of 2006, the Elion Group invested 6.6
million euros (4th quarter 2005: 11.1 million euros).
Majority of the investments went into the development of
client solutions—expanding the permanent connection network,
enabling digital TV reception, and for several cooperation
projects designed to improve the communications possibilities
of local governments in various parts of Estonia. Almost a
quarter of the investments were used to develop the backbone
network.
Elion Group sales revenues for 2006 were 13% greater than
sales revenues in 2005. As far as the year as a whole, the
consolidation of MicroLink Eesti manifested a significant
influence on the increase of sales revenues. For the year,
faster growth was also demonstrated by revenues earned from
the monthly fees
for integrated services, which increased by 68%. Retail sales
revenues for merchandise increased by 45%, or
more than 9.5 million euros. The annual growth of sales
revenues from IT services was 25%. During the year, revenues
earned from monthly Internet and voice communications
connections decreased.
In 2006, the operating expenses of the Elion Group reached
134.2 million euros (2005: 109.7 million euros), increasing
23% on the year. Almost half of the additional operating
costs resulted from the greater volumes of retail sales
merchandise. Other growth factors affecting operating
expenses were costs related to personnel and interconnection
fees, as well as call transit.
Elion Group EBITDA was 56.3 million euros in 2006 (2005: 56.3
million euros). The EBITDA margin dropped somewhat, reaching
30.1% in 2006 (2005: 34.1%). The decrease in the margin was
caused by an increase in the ratio of fields of activity with
low profitability in the turnover. Depreciation dropped
during the year by 23% to 19.1 million euros (2005: 24.7
million euros). During the past year, the Elion Group earned
EBIT of 37.3 million euros (2005: 31.6 million euros). In
2006, Elion EBT was 37.8 million euros (2005: 32.7 million
euros). In connection with the reduction in the income tax
rate, the costs for income taxes paid on dividends reached
7.6 million euros (2005: 8.1 million euros). In 2006, the
Elion Group earned a net profit of 30.2 million euros (2005:
24.6 million euros). During the year, 31.8 million euros
(2005:
25.2 million euros) was invested into fixed assets.
At the end of 2006, the Elion Group employed 1,757 workers
(2005: 1,663).
At the beginning of 2007, the litigation between Elion
Enterprises and Elion Mobiilsideteenuste AS was resolved. On
5 December 2005, Elisa Mobiilsideteenused filed an action
against Elion Enterprises for the payment of unpaid
interconnection fees and the penalties calculated thereon in
the amount of 753 thousand euros. The reason for the action
was the claim that Elion had applied the incorrect call
termination fee for the Elisa mobile network. Since, in the
period 1 January 2005 to 1 August 2005, an interconnection
contract between Elion and Elisa Mobiilsideteenused was
lacking, and therefore a contractual price was also lacking,
Elion applied the principle of receiving a reasonable price,
i.e. payment that includes a reasonable profit. On 15 January
2007, the Harju County Court passed judgment, according to
which Elion must pay 0.639 million euros to Elisa for the
unrealized interconnection fees. Elion had taken into account
the possible payment obligation and it will not affect the
company’s business activities. At the same time, Elion has
never disputed the interconnection fees as such, but it did
not agree with the amount of the fees. Therefore, Elion is
satisfied with the court resolution, which recognized the
fact that the interconnection fees demanded by Elisa were too
high and assigned a lower price.
Mobile communications (EMT Group)
Q4 Q4 Chang 12M 12M Chang
2006 2005 e, % 2006 2005 e, %
Net sales, 60.2 51.4 17.0 223.8 196.8 13.8
million EUR
EBITDA, million 21.7 18.7 16.6 86.0 82.3 4.5
EUR
EBITDA margin, % 36.2 36.3 38.4 41.8
EBIT, million EUR 18.5 12.0 55.6 70.4 58.9 19.6
EBIT margin, % 30.8 23.2 31.5 30.0
EBT, million EUR 18.8 12.1 55.3 71.3 59.5 19.8
Net profit for 18.8 12.1 55.3 55.0 45.3 21.4
period, million
EUR
CAPEX, million 7.3 4.1 80.7 17.5 12.2 44.0
EUR
ROA, % 46.9 38.9
ROE, % 78.2 63.7
The growth rate of EMT Group sales revenues remained rapid in
the last quarter of 2006. Thanks to the increase in retail
sales typical of the end of the year, the growth rate of
revenues for the group even increased compared to the third
quarter, reaching 17 percent.
The increase of revenues from principal activities is related
primarily to an increase in the number of call minutes. In
2006, the number of call minutes initiated from the EMT
network increased approximately 20% compared to 2005. The
greater number of call minutes, in turn, resulted from an
increase in the number of clients, as well as the more active
use of call services by the customers.
As of the end of December 2006, AS EMT had 759 thousand
active SIM-cards, which is 82 thousand more than at the end
of 2005 (31 December 2005: 677 thousand). Throughout the
year, the company maintained its 47% market share. The number
of contractual clients remained stable throughout the year.
During the last quarter, 6 thousand contractual SIM-cards
were added; as of 31 December 2006, the number of active
cards had increased to 433 thousand (31 December 2005: 406
thousand).
If, as far as pre-paid cards, the beginning of 2006 started
passively, and the first half of the year ended with a
decline in the number of active SIM-cards, then at the end of
summer, the negative trend reversed and the number of pre-
paid cards again started an increase, which continued until
the last quarter of the year. During the fourth quarter, 32
thousand active pre-paid cards were added and the total
number of cards grew to
326 thousand (31 December 2005: 271 thousand). The principal
portion of the growth in the number of pre-paid cards again
resulted from Ratemobiil. On April 5, 2006, AS EMT acquired
51% of the shares of Serenda Invest OÜ. Serenda Invest OÜ
owns the trademark Rate and also administers Rate.ee,
Estonia’s most popular Internet communications environment
for young people. In the summer of 2006, AS EMT introduced
Ratemobiil, a special mobile package oriented to Rate.ee
users, which, by the end of the year, had already acquired
tens of thousands of users. A discount campaign by Simpel,
EMT’s oldest pre-paid card, has become a tradition at the end
of the year, and at the end of this year, attracted thousands
of new customers for the service. Based on the rapid
increase in the number of pre-paid cards in the second half
of 2006, the ratio of pre-paid cards among the total number
of active EMT cards also increased, reaching 42% by the end
of December (31 December 2005: 39%).
In addition to the increase in the client base, the number of
call minutes used per client also increased. Despite the fact
that the average rate per minute in the Estonian market
continued to drop, the increase in the client base and number
of call minutes compensated for the drop in rates, and the
revenues earned from domestic call services (including the
fees for packages that allow for a certain number of call
minutes for a monthly fee) increased in the fourth quarter by
4% compared to the same period in 2005.
Together with the increase in the number of call minutes
initiated from the EMT network, the number of terminated
minutes in the EMT network has also increased at
approximately the same rate. Since the litigation between the
Communications Board and mobile communications operators
Elisa Mobiil and Tele2 Eesti regarding declaring the given
operators undertakings with significant power continued
throughout the fourth quarter of 2006, the termination fees
of all the operators remained unchanged at 0.16 euros per
minute. Therefore, the increase in the number of terminated
call minutes was accompanied by a significant, over 10%,
increase in interconnection revenues.
An increase in the number of mobile messages has been
traditional for the fourth quarter and end of the year. At
the end of 2006, the increase was especially brisk, and the
number of SMS messages more than doubled, and the number of
MMS messages grew by over 25%. Since Ratemobiil clients could
still send messages for free during the fourth quarter, then
the increase in revenues earned from messages in the fourth
quarter of 2006, remained more modest than the same period in
2005, while still reaching 19%.
In December 2006, AS EMT earned revenues of 20.45 euros per
customer (September 2006: 21.67 euros, December 2005: 20.71
euros). The average monthly revenue per customer in 2006 was
21.22 euros, which is 1% less than in 2005.
The fourth quarter was also successful for EMT Esindused and
MWS, the companies in the EMT Group that deal with the sale
of merchandise. Compared to the last quarter of 2005, sales
revenues increased by 44%, and increases took place in sales
to both retail consumers and other companies in the Eesti
Telekom Group.
EMT Group operating expenses in 2006 remained modest compared
to previous quarters, reaching 16%. One of the factors that
caused a more modest increase in operating costs in the
fourth quarter was the reduction in the seasonality of
marketing activities. If, in 2005, numerous marketing
campaigns and discount sales took place in the last quarter,
in 2006, these were spread more evenly throughout the year,
and therefore, a sharp increase in marketing costs did not
occur in the last quarter.
The other circumstances that affected the increase of
operating expenses were the adjustment of provisions and
reserves at the end of the year. During 2006, the customers’
payment behavior improved significantly, whereby the
provision for doubtful debts was reduced. If, in the last
quarter of 2005, the reserve for employees’ bonuses in the
EMT Group was increased in connection with the improved
financial results at the end of the year, then the 2006
results were more in line with the company’s projections,
whereby the provisions for the bonus reserve was more even
distributed over the year and an increase at the end of the
year did not occur.
The sales revenues and operating costs grew at the same rate,
and also brought the EBITDA to a 17% increase. The EBITDA for
the fourth quarter of 2006 was 21.7 million euros (4th
quarter 2005: 18.7 million euros). The EBITDA margin in the
fourth quarter was 36.2%, which was the same level as the
margin for the fourth quarter of 2005. The aforementioned
change in provisions also had a significant influence on
maintaining the level of the margin, as opposed to the
previous quarters of 2006.
EMT Group depreciation declined by 52% in the fourth quarter
of 2006, reaching 3.2 million euros
(4th quarter 2005: 6.7 million euros). Starting in May of
2006, the EMT Group implemented new depreciation rates, the
influence of which is approximately -0.3 million euros per
month. The EMT Group EBIT increased in the fourth quarter by
56%, reaching 18.5 million euros (4th quarter 2005: 12.0
million euros). In the last quarter, the group earned
financial revenues (net) of 0.3 million euros (4th quarter
2005:
0.2 million euros). EMT Group net profit was 18.8 million
euros (4th quarter 2005: 12.1 million euros).
The EMT Group invested 7.3 million euros in the last quarter
of 2006 (4th quarter 2006: 4.1 million euros). The principal
portion of the investments went into the expansion of the 2G
and 3G networks and guaranteeing service quality even under
conditions of rapid user growth. During the last quarter, in
compliance with the requirements of the International
Financial Reporting Standards, a 1.2-million-euros reserve
was established to cover possible expenses to restore the
rented land under operator towers after the end of the rental
period.
The EMT Group sales revenues increased by 14% in 2006
compared to 2005. For the year, the greatest additional
revenues were received from interconnection services,
domestic calls, and the sale of merchandise. The group’s
operating costs increased by 20%. The increase in operating
costs resulted primarily from the increase in procurement
costs of merchandise, and increases in interconnection and
roaming fees. In 2006, the EMT Group earned EBITDA of 86.0
million euros, which was 5% more than 2005 (2005: 82.3
million euros). The EBITDA margin decreased in a year from
42.8% to 38.4%. The decrease in the margin was caused by the
increase in the ratio of commercial activities with a lower
profitability than principal activities in the consolidated
sales revenues. EMT Group depreciation declined by 33% during
the year. The decline was caused by the implementation of new
depreciation rates as well as the modest investments made
during previous years. Thanks to a strong financial
position, EMT Group financial revenues (net) in 2006 reached
0.8 million euros (2005: 0.6 million euros). Due to larger
dividends paid by the parent company, the income tax amount
increased in 2006, reaching 16.2 million euros (2005: 14.1
million euros). The EMT Group earned a net profit of 55.0
million euros (2005: 45.3 million euros). During the year,
17.5 million euros (2005: 12.2 million euros) was invested in
fixed assets.
At the end of 2006, EMT Group employed 551 workers (2005:
507).
Ownership structure of AS Eesti Telekom
In the fourth quarter of 2006, the participation of Deutsche
Bank Trust Company in AS Eesti Telekom dropped below 10%
(10.01% at the end of the third quarter 2006). The Deutsche
Bank Trust Company represents the accounts of owners of AS
Eesti Telekom GDRs listed on the London Stock Exchange.
On 11 November 2006, the Riigikogu passed the Estonian
Development Fund Act. The goal of the Development Fund is to
stimulate and support changes in the Estonian economy that
should help to update the economy, guarantee the growth of
exports, and create new jobs that require high
qualifications. Upon its establishment, the Development Fund
will be given at least 3% of the AS Eesti Telekom shares that
belong to the state. The Development Fund may use the
resources received from dividends or from the sale of the
shares for investment activities. As of 31 December 2006, the
AS Eesti Telekom shares had not been transferred to the
Development Fund.
As of the end of 2006, 19.1% of the AS Eesti Telekom shares
could be freely traded. Almost half the freely tradable
shares had been converted to GDRs.
AS of 31 December 2006, the 10 largest shareholders in AS
Eesti Telekom were:
Participat
Number of ion
securities
Baltic Tele AB 74,110,079 53.7207%
Ministry of Finance / State 37,485,100 27.1721%
Treasury
Deutsche Bank Trust Company 12,505,821 9.0652%
Skandinaviska Enskilda Banken AB 2,238,107 1.6224%
clients
ING Luxembourg S.A. 1,491,330 1.0810%
Morgan Stanley Co International 1,191,442 0.8636%
Equity clients
Danske Bank clients 1,017,063 0.7372%
Trigon New Europe Small Cap Fund 645,240 0.4677%
Bank Austria Creditanstalt AG 579,526 0.4201%
clients
The Northen Trust Company 470,000 0.3407%
On 6 February, an extraordinary general meeting of the AS
Eesti Telekom shareholders took place. Baltic Tele AB applied
for the convening of the general meeting in connection with
internal structural changes in its parent company,
TeliaSonera AB. The given structural changes caused changes
in the work assignments of some of the Supervisory Board
members of AS Eesti Telekom who are employed by TeliaSonera
AB, whereby the Supervisory Board members’ performance of
their duties might be rendered difficult. Therefore, Baltic
Tele AB applied to have the given individuals replaced on the
AS Eesti Telekom Supervisory Board.
The extraordinary shareholders’ general meeting resolved the
following: to recall AS Eesti Telekom Supervisory Board
members, Erik Hallberg, Bengt Andersson, and Hans Tuvehjelm;
to consider the given individuals as being recalled and their
authorizations terminated as of the passing of the
resolution; to elect Terje Christoffersen, Jörgen Latte, and
Anders Gylder as new members of the AS Eesti Telekom
Supervisory Board; to consider the given individuals to be
elected and the term of the Supervisory Board member’s
authorization to be valid from the passing of the resolution
to 18 May 2007.
Definitions
Net debt—Long- and short-term debt, less cash and cash
equivalents and short-term investments
ROA – Return on Assets—Net profit for the rolling four
quarters, expressed as percentage of average total assets
ROE – Return on Equity—Pre-tax profit for rolling four
quarters, expressed as percentage of average equity
IV QUARTER CONSOLIDATED INCOME STATEMENT
In thousand of euros (EUR)
IV Quarter IV Quarter
2006 2005
Restated
Net sales
99,134 89,325
Cost of production
(58,868) (53,826)
Gross profit 40,266 35,499
Sales, administrative,
and research & (15,499) (16,646)
development expenses
Other operating revenues 621
and expenses 446
Operating profit 25,213 19,474
Net income / (expenses)
from associated (91) (6)
companies
Other net financial
items 687 576
Net profit for the 25,809 20,044
period
Attributable to:
Equity holders of the
parent 25,649 20,044
Minority interest
160 -
25,809 20,044
Earnings per share for
profit attributable to
the equity holders of
the parent during the
reporting period
(expressed in EUR per
share)
Basic earnings per share
0.19 0.15
Diluted earnings per
share 0.19 0.15
EBITDA 32,766 32,114
Depreciation,
amortization and write- (7,553) (12,640)
downs
CONSOLIDATED 2006 INCOME STATEMENT
In thousand of euros (EUR)
2006 2005
Restated
Net sales
368,425 329,744
Cost of production
(208,015) (189,073)
Gross profit 160,410
140,671
Sales, administrative,
and research & (58,086) (51,896)
development expenses
Other operating revenues 563
and expenses 3,658
Operating profit 105,982
89,338
Net income / (expenses)
from associated companies 12 29
Other net financial items
2,609 2,415
Profit before tax 108,603
91,782
Income tax on dividends
(23,863) (22,274)
Net profit for the period
84,740 69,508
Attributable to:
Equity holders of the
parent 84,448 69,498
Minority interest
292 10
84,740 69,508
Earnings per share for
profit attributable to
the equity holders of the
parent during the
reporting period
(expressed in EUR per
share)
Basic earnings per share
0.61 0.50
Diluted earnings per
share 0.61 0.50
EBITDA 140,683
137,447
Depreciation,
amortization and write- (34,701) (48,109)
downs
CONSOLIDATED BALANCE SHEET
In thousand of euros (EUR)
31 December 31 December
2006 2005
ASSETS
Non-current assets
Property, plant and
equipment 130,022 117,209
Intangible fixed
assets 13,681 10,654
Investments in
associates 1,102 189
Other financial fixed
assets 7,736 2,823
Total non-current 152,541 130,875
assets
Inventories
9,120 5,552
Trade and other
receivables 56,713 53,490
Short-term investments
68,057 80,953
Cash and cash
equivalents 20,733 25,919
Total 154,623 165,914
Assets classified as
held-for-sale 665 1,007
Total current assets 155,288 166,921
TOTAL ASSETS 307,829 297,796
EQUITY AND LIABILITIES
Capital and reserves
attributable to equity
holders of the parent
Share capital
88,169 88,169
Share premium
22,753 22,753
Statutory legal
reserve 8,817 8,817
Retained earnings
58,672 68,923
Net profit for the
period 84,448 69,498
Total capital and 262,859 258,160
reserves attributable
to equity holders of
the parent
Minority interest
321 74
Total equity 263,180 258,234
Provisions
Provisions for pension
561 498
Other provisions
1,753 500
Total provisions
2,314 998
Interest-bearing
liabilities
Long –term liabilities 200
369
Short-term liabilities 175
203
Total interest bearing
liabilities 375 572
Non-interest-bearing
liabilities
Long-term liabilities 329
-
Current liabilities
41,631 37,992
Total non-interest- 41,960 37,992
bearing liabilities
Total liabilities 42,335 38,564
TOTAL EQUITY AND 307,829 297,796
LIABILITIES
CONSOLIDATED CASH FLOW STATEMENT
In thousand of euros (EUR)
2006 2005
Operating activities
Net profit for the period
84,740 69,508
Adjustments for:
Depreciation, amortisation
and impairment of fixed and 34,701 48,109
intangible assets
(Profit) / loss from sales
and discards of fixed assets (2,814) (483)
Net (income) / expenses from
associated companies (12) (29)
Provisions
1,288 257
Financial items
1,144 4,310
Income tax on dividends
- (3)
Miscellaneous non-cash items
(652) (1,212)
Cash flow before change in 118,395
working capital 120,457
Change in current
receivables 2,783 (1,431)
Change in inventories
(3,565) 2,503
Change in current liabilities
3,985 6,674
Change in working capital
3,203 7,746
Cash flow from operating 121,598
activities 128,203
Investing activities
Intangible and tangible fixed
assets acquired (49,203) (35,402)
Intangible and tangible fixed
assets divested 3,170 1,122
Shares, participations and (6,199)
operations acquired (18,793)
Shares, participations and - 14,941
operations divested
Net change in interest- 14,093
receivables short maturities (5,602)
Loans granted
(11,480) (6,064)
Repayment of loans granted
771 174
Cash flow from investing
activities (48,848) (49,624)
Cash flow before financing
activities 72,750 78,579
Financing activities
Proceeds from non-convertible - 132
debts
Repayment of borrowings - (884)
Repayment of finance lease (135) (1,005)
liabilities
Dividends paid
(79,352) (70,547)
Cash flow used in financing
activities (79,487) (72,304)
Cash flow for the year
(6,737) 6,275
Cash and cash equivalents at
beginning of year 27,507 21,178
Cash flow for the year
(6,737) 6,275
Effect of foreign exchange
rate changes (37) 54
Cash and cash equivalents at
end of period 20,733 27,507
_______________________________
1 The users of VoIP services and active users of call
services
Hille Võrk
AS Eesti Telekom, CFO
+372 6 311 212
hille.vork@telekom.ee