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, 1,551 1,398 11.0 5,765 5,159 11.7
million EEK
EBITDA, million 513 502 2.0 2,201 2,151 2.4
EEK
EBITDA margin, % 33.1 35.9 38.2 41.7
EBIT, million EEK 394 305 29.5 1,658 1,398 18.6
EBIT margin, % 25.4 21.8 28.8 27.1
EBT, million EEK 404 314 28.8 1,699 1,436 18.3
Net profit for 404 314 28.8 1,326 1,088 21.9
period, million
EEK
EPS, EEK 2.91 2.27 28.0 9.58 7.88 21.5
CAPEX, million 219 238 -8.0 771 586 31.7
EEK
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 were 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
1045 million kroons (4th quarter 2005: 904 million kroons).
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 513 million
kroons (4th quarter 2005: 502 million kroons). The EBITDA
margin decreased to 33.1% (4th quarter 2005: 35.9%).
In the fourth quarter, Eesti Telekom Group depreciation was
118 million kroons, which is 40% less than a year earlier
(4th quarter 2005: 198 million kroons). 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 394 million kroons
(4th quarter 2005: 305 million kroons). The group’s (net)
financial revenues remained at the same level as the same
period in 2005, reaching 9 million kroons. The net profit for
Eesti Telekom Group in the fourth quarter of 2006 was 404
million kroons
(4th quarter 2005: 314 million kroons). The EPS earned was
2.91 kroons (4th quarter 2005: 2.27 kroons).
The consolidated sales revenues for the Eesti Telekom Group
in 2006 reached 5,765 million kroons, increasing 12% compared
to 2005 (2005: 5,159 million kroons). 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 kroons. 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 3,621 million
kroons (2005: 3,017 million kroons). 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 2,201 million kroons
(2005: 2,151 million kroons). 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 543 million kroons (2005: 753
million kroons). In the past year, the Group earned an EBIT
of 1,658 million kroons (2005: 1,398 million kroons). In one
year, the financial revenues
(net) increased by 3 million kroons reaching 41 million
kroons. In 2006, in connection with larger dividends,
the amount of income tax paid on dividends also increased by
25 million kroons, reaching 373 million kroons. The Eesti
Telekom Group earned a net profit of 1,326 million kroons in
2006 or 9.58 kroons per share (2005: 1,088 million kroons or
7.88 kroons per share).
Balance sheet and cash flows
As of 31 December 2006, the Eesti Telekom Group total assets
were 4,816 million kroons (31 December 2005: 4,659 million
kroons). In one year, the group’s non-current assets
increased by 339 million kroons. 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 182 million kroons, whereas the cash and
cash equivalents and short-term investment declined by 283
million kroons. The reason for the reduction in cash and
short-term investments is a dividend payment that was 138
million kroons larger, increased dividend income tax, and an
increase in investments.
As of 31 December 2006, the group’s equity was 4,118 million
kroons (as of 31 December 2005:
4,040 million kroons). 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 238 million kroons larger than in 2005.
As of 31 December 2006, the long-term liabilities of Eesti
Telekom Group totaled 8 million kroons (as of
31 December 2005: 6 million kroons) and short-term
liabilities totaled 654 million kroons (31 December 2005: 598
million kroons). At the end of the year, provisions totaling
36 million kroons had been made. The group’s net debt at the
end of 2006 was -1,383 million kroons and net gearing was -
34% (31 December 2005: -1,663 million kroons and -41%).
In 2006, the cash flow from operations for the Eesti Telekom
Group was 1,903 million kroons (2005:
2,006 million kroons). The cash flow into investment
activities in 2006 was 764 million kroons (2005:
776 million kroons). In one year, cash flow into the
acquisition of tangible and intangible fixed assets
increased, reaching 770 million kroons in the past year
(2005: 554 million kroons). The cash flow into financial
activities was 1,244 million kroons in 2006 (2005: 1,131
million kroons), including 1,242 million kroons (2005: 1,104
million kroons) that was paid out in dividends.
Fixed-communications (Elion Group)
Q4 Q4 Chang 12M 12M Chang
2006 2005 e, % 2006 2005 e, %
Net sales, 804 725 10.8 2,927 2,585 13.2
million EEK
EBITDA, million 182 216 -15.7 882 882 0.0
EEK
EBITDA margin, 22.6 29.7 30.1 34.1
%
EBIT, million 114 123 -7.4 583 495 17.8
EEK
EBIT margin, % 14.2 17.0 19.9 19.1
EBT, million 114 126 -9.3 592 511 15.9
EEK
Net profit for 114 126 -9.3 473 385 22.9
period, million
EEK
CAPEX, million 104 174 -40.1 497 395 25.8
EEK
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 61 million
kroons. Operating expenses were increased by 101 million
kroons (incl. 7 million kroons accounted previously as
depreciation). The EBITDA was down by 40 million kroons and
net profit by 33 million kroons. 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 632 million kroons (4th quarter 2005: 509
million kroons). 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 182 million
kroons, which was at the same level with the same period of
2005 (4th quarter 2005: 216 million kroons). The EBITDA
margin was 22.6%. Elion Group depreciation decreased by 27%
on the year to 68 million kroons (4th quarter 2005: 93
million kroons) 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 -6 million kroons per month).
The EBIT of the Elion Group in the fourth quarter was 114
million kroons, which was 9% less than in the last quarter of
2005 (4th quarter 2005: 123 million kroons). The financial
revenues (net) in the last quarter of 2006 were 1 million
kroons (4th quarter 2005: 3 million kroons). The net profit
of the Elion Group in the fourth quarter was 114 million
kroons (4th quarter 2005: 126 million kroons).
In the last quarter of 2006, the Elion Group invested 104
million kroons (4th quarter 2005: 174 million kroons).
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 150
million kroons. 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
2,099 million kroons (2005: 1,716 million kroons), 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 882 million kroons in 2006 (2005: 882
million kroons). 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 299 million kroons (2005: 387
million kroons). During the past year, the Elion Group earned
EBIT of 583 million kroons (2005: 486 million kroons). In
2006, Elion EBT was 592 million kroons (2005: 495 million
kroons). In connection with the reduction in the income tax
rate, the costs for income taxes paid on dividends reached
119 million kroons (2005: 126 million kroons). In 2006, the
Elion Group earned a net profit of 473 million kroons (2005:
385 million kroons). During the year, 497 million kroons
(2005: 395 million kroons) 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
11,784 thousand kroons. 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 10 million kroons 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, 942 805 17.0 3,502 3,079 13.8
million EEK
EBITDA, million 340 292 16.6 1,346 1,288 4.5
EEK
EBITDA margin, % 36.2 36.3 38.4 41.8
EBIT, million EEK 290 187 55.6 1,102 922 19.6
EBIT margin, % 30.8 23.2 31.5 30.0
EBT, million EEK 294 189 55.3 1,115 931 19.8
Net profit for 294 189 55.3 861 709 21.4
period, million
EEK
CAPEX, million 115 64 80.7 274 191 44.0
EEK
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 2.50 kroons 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 320 kroons per
customer (September 2006: 339 kroons, December 2005: 324
kroons). The average monthly revenue per customer in 2006 was
332 kroons, 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 340 million kroons (4th
quarter 2005: 292 million kroons). 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 50 million kroons (4th quarter 2005: 105
million kroons). Starting in May of 2006, the EMT Group
implemented new depreciation rates, the influence of which is
approximately -5 million kroons per month. The EMT Group EBIT
increased in the fourth quarter by 56%, reaching 290 million
kroons (4th quarter 2005: 187 million kroons). In the last
quarter, the group earned financial revenues (net) of 4
million kroons (4th quarter 2005: 3 million kroons). EMT
Group net profit was 294 million kroons (4th quarter 2005:
189 million kroons).
The EMT Group invested 115 million kroons in the last quarter
of 2006 (4th quarter 2006: 64 million kroons). 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 19-million-kroon 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 1,346
million kroons, which was 5% more than 2005 (2005: 1288
million kroons). 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
13 million kroons (2005: 10 million kroons). Due to larger
dividends paid by the parent company, the income tax amount
increased in 2006, reaching 254 million kroons (2005: 221
million kroons). The EMT Group earned a net profit of 861
million kroons (2005: 709 million kroons). During the year,
274 million kroons (2005: 191 million kroons) 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 Estonian kroons (EEK)
IV Quarter IV Quarter
2006 2005
Restated
Net sales
1,551,095 1,397,631
Cost of production
(921,080) (842,168)
Gross profit 555,463
630,015
Sales, administrative, and research
& development expenses (242,519) (260,457)
Other operating revenues and
expenses 6,978 9,708
Operating profit 304,714
394,474
Net income / (expenses) from
associated companies (1,424) (102)
Other net financial items
10,749 9,020
Net profit for the period 313,632
403,799
Attributable to:
Equity holders of the parent
401,301 313,632
Minority interest
2,498 -
313,632
403,799
Earnings per share for profit
attributable to the equity holders
of the parent during the reporting
period (expressed in EEK per share)
Basic earnings per share
2.91 2.27
Diluted earnings per share
2.91 2.27
EBITDA 502,483
512,651
Depreciation, amortization and write-
downs (118,177) (197,769)
CONSOLIDATED 2006 INCOME STATEMENT
In thousand of Estonian kroons (EEK)
2006 2005
Restated
Net sales
5,764,583 5,159,372
Cost of production
(3,254,730) (2,958,334)
Gross profit
2,509,853 2,201,038
Sales, administrative, and research
& development expenses (908,854) (811,991)
Other operating revenues and 8,806
expenses 57,237
Operating profit
1,658,236 1,397,853
Net income / (expenses) from
associated companies 193 452
Other net financial items
40,818 37,790
Profit before tax
1,699,247 1,436,095
Income tax on dividends
(373,377) (348,517)
Net profit for the period
1,325,870 1,087,578
Attributable to:
Equity holders of the parent
1,321,306 1,087,416
Minority interest
4,564 162
1,325,870 1,087,578
Earnings per share for profit
attributable to the equity holders
of the parent during the reporting
period (expressed in EEK per share)
Basic earnings per share
9.58 7.88
Diluted earnings per share
9.58 7.88
EBITDA
2,201,189 2,150,594
Depreciation, amortization and
write-downs (542,953) (752,741)
CONSOLIDATED BALANCE SHEET
In thousand of Estonian kroons (EEK)
31 December 31 December
2006 2005
ASSETS
Non-current assets
Property, plant and equipment
2,034,403 1,833,916
Intangible fixed assets
214,046 166,688
Investments in associates
17,247 2,951
Other financial fixed assets
121,036 44,194
Total non-current assets
2,386,732 2,047,749
Inventories
142,692 86,870
Trade and other receivables
887,363 836,945
Short-term investments
1,064,859 1,266,638
Cash and cash equivalents
324,405 405,548
Total
2,419,319 2,596,001
Assets classified as held-for-
sale 10,402 15,749
Total current assets
2,429,721 2,611,750
TOTAL ASSETS
4,816,453 4,659,499
EQUITY AND LIABILITIES
Capital and reserves attributable
to equity holders of the parent
Share capital
1,379,545 1,379,545
Share premium
356,018 356,018
Statutory legal reserve
137,955 137,955
Retained earnings
918,012 1,078,403
Net profit for the period
1,321,306 1,087,416
Total capital and reserves
attributable to equity holders of 4,112,836 4,039,337
the parent
Minority interest
5,030 1,160
Total equity
4,117,866 4,040,497
Provisions
Provisions for pension
8,777 7,791
Other provisions
27,427 7,821
Total provisions
36,204 15,612
Interest-bearing liabilities
Long –term liabilities
3,124 5,773
Short-term liabilities
2,742 3,173
Total interest bearing
liabilities 5,866 8,946
Non-interest-bearing liabilities
Long-term liabilities
5,152 -
Current liabilities
651,365 594,444
Total non-interest-bearing
liabilities 656,517 594,444
Total liabilities
662,383 603,390
TOTAL EQUITY AND LIABILITIES
4,816,453 4,659,499
CONSOLIDATED CASH FLOW STATEMENT
In thousand of Estonian kroons (EEK)
2006 2005
Operating activities
Net profit for the period
1,325,870 1,087,578
Adjustments for:
Depreciation, amortisation and
impairment of fixed and intangible 542,953 752,741
assets
(Profit) / loss from sales and
discards of fixed assets (44,022) (7,564)
Net (income) / expenses from
associated companies (193) (452)
Provisions
20,150 4,015
Financial items
17,898 67,432
Income tax on dividends
4 (53)
Miscellaneous non-cash items
(10,166) (18,971)
Cash flow before change in working
capital 1,852,494 1,884,726
Change in current receivables
43,537 (22,384)
Change in inventories
(55,782) 39,166
Change in current liabilities
62,353 104,428
Change in working capital
50,108 121,210
Cash flow from operating activities
1,902,602 2,005,936
Investing activities
Intangible and tangible fixed
assets acquired (769,868) (553,924)
Intangible and tangible fixed
assets divested 49,599 17,563
Shares, participations and
operations acquired (96,993) (294,052)
Shares, participations and 233,780
operations divested -
Net change in interest-receivables
short maturities 220,506 (87,660)
Loans granted
(179,621) (94,877)
Repayment of loans granted
12,060 2,715
Cash flow from investing activities
(764,317) (776,455)
Cash flow before financing
activities 1,138,285 1,229,481
Financing activities
Proceeds from non-convertible debts - 2,073
Repayment of borrowings - (13,836)
Repayment of finance lease (2,106) (15,719)
liabilities
Dividends paid
(1,241,591) (1,103,816
)
Cash flow used in financing
activities (1,243,697) (1,131,298
)
Cash flow for the year
(105,412) 98,183
Cash and cash equivalents at
beginning of year 430,393 331,359
Cash flow for the year
(105,412) 98,183
Effect of foreign exchange rate
changes (576) 851
Cash and cash equivalents at end of
period 324,405 430,393
_______________________________
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