MANAGEMENT REPORT
GENERAL INFORMATION
The principal activity of Eesti Telekom Group, the parent company of which is AS
Eesti Telekom (registration number 10234957; address: Valge 16, 19095 Tallinn),
is the provision of telecommunications services.
Since 1999, the shares of AS Eesti Telekom have been listed on the Tallinn and
London securities markets (OMX: ETLAT / LSE: EETD).
Changes in the structure of the Eesti Telekom Group
In October 2008, AS MicroLink Eesti acquired the majority participation in the
IT Training Center. The acquisition of the training company gives MicroLink
with the opportunity to provide high-quality training and consultation services
to both clients and partners in various cooperation projects in all three Baltic
countries.
Ownership structure of AS Eesti Telekom
During the fourth quarter of 2008, there were no significant changes in the
structure of the AS Eesti Telekom shareholders. The Eesti Telekom majority
shareholder TeliaSonera AB (through Baltic Tele AB) continues to own 60.12% of
the company's shares.
As of the end of the fourth quarter, the ratio of freely traded shares converted
to GDRs was 12.71%. Of these, 12.91% were converted into GDRs traded on the
London Stock Exchange.
As of 31 December 2008, the 10 largest shareholders in AS Eesti Telekom were:
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| | 31 December 2008 |
--------------------------------------------------------------------------------
| | Number of | Participation |
| | securities | |
--------------------------------------------------------------------------------
| | Changed compared |
| | to 30 September |
| | 2008 |
--------------------------------------------------------------------------------
| Baltic Tele AB | 82,936,299 | 60.12% | 0 |
--------------------------------------------------------------------------------
| Ministry of Finance | 33,346,464 | 24.17% | 0 |
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| Estonian Development Fund | 4,138,636 | 3.00% | 0 |
--------------------------------------------------------------------------------
| SEB clients | 2,864,734 | 2.08% | 1,477,025 |
--------------------------------------------------------------------------------
| Deutsche Bank (GDR accounts) | 2,264,220 | 1.64% | -767,577 |
--------------------------------------------------------------------------------
| ING Luxembourg S.A. | 2,055,783 | 1.49% | 40,000 |
--------------------------------------------------------------------------------
| Clearstream Banking | 584,976 | 0.42% | -26,860 |
| Luxembourg S.A. clients | | | |
--------------------------------------------------------------------------------
| UniCredit Bank Austria AG | 496,386 | 0.36% | -224,984 |
--------------------------------------------------------------------------------
| Mellon Treaty Omnibus | 392,152 | 0.28% | 0 |
--------------------------------------------------------------------------------
| State Street Bank and Trust | 335,945 | 0.24% | 335,945 |
| Omnibus Account | | | |
--------------------------------------------------------------------------------
AS Eesti Telekom shares
In the fourth quarter of 2008, the price of AS Eesti Telekom shares decreased by
38.10%. The share price at the beginning of the quarter was 98.57 EEK and 61.02
EEK at the end of the quarter. The highest and lowest share prices during the
reporting period were 101.70 EEK and 60.08 EEK respectively. The turnover for
the reporting period was 333 million EEK.
The price of AS Eesti Telekom shares in the fourth quarter of 2008 has moved on
higher levels than the indexes of OMX Tallinn and OMX Tallinn 10 tradeable
shares.
BUSINESS ACTIVITIES
Management commentary: The 2008 fourth quarter results met expectations. One can
also be satisfied with the results for the year since EBITDA increased compared
to last year. Market shares remained stable for the year and the number
of contractual mobile communications clients, mobile data communications
connections, triple packages and DigiTV clients demonstrated sound growth.
Significant financial indicators
Eesti Telekom Group
--------------------------------------------------------------------------------
| | Q4 | Q4 | Change | 12 | 12 mos. | Change, |
| | 2008 | 2007 | , % | mos. | 2007 | % |
| | | | | 2008 | | |
--------------------------------------------------------------------------------
| Total revenues, | 1,573 | 1,570 | 0.2 | 6,190 | 6,261 | -1.1 |
| million EEK | | | | | | |
--------------------------------------------------------------------------------
| EBITDA, million EEK | 531 | 576 | -7.9 | 2,348 | 2,336 | 0.5 |
--------------------------------------------------------------------------------
| Margin, % | 33.8 | 36.7 | | 37.9 | 37.3 | |
--------------------------------------------------------------------------------
| EBIT, million EEK | 387 | 444 | -12.9 | 1,773 | 1,840 | -3.7 |
--------------------------------------------------------------------------------
| Margin, % | 24.6 | 28.3 | | 28.6 | 29.4 | |
--------------------------------------------------------------------------------
| EBT, million EEK | 400 | 455 | -12.1 | 1,824 | 1,882 | -3.1 |
--------------------------------------------------------------------------------
| Net profit for the | 400 | 455 | -12.1 | 1,438 | 1,512 | -4.8 |
| period, million EEK | | | | | | |
--------------------------------------------------------------------------------
| EPS, EEK | 2.89 | 3.28 | -11.9 | 10.40 | 10.91 | -4.7 |
--------------------------------------------------------------------------------
| CAPEX, million EEK | 281 | 351 | -20.0 | 755 | 863 | -12.5 |
--------------------------------------------------------------------------------
| Net gearing, % | -19.9 | -25.2 | | | | |
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| ROA, % | 29.7 | 31.7 | | | | |
--------------------------------------------------------------------------------
| ROE, % | 44.6 | 46.8 | | | | |
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Mobile communications segment
--------------------------------------------------------------------------------
| | Q4 | Q4 | Change | 12 | 12 mos. | Change, |
| | 2008 | 2007 | , % | mos. | 2007 | % |
| | | | | 2008 | | |
--------------------------------------------------------------------------------
| Total revenues, | 904 | 990 | -8.7 | 3,682 | 3,904 | -5.7 |
| million EEK | | | | | | |
--------------------------------------------------------------------------------
| EBITDA, million EEK | 338 | 293 | 15.4 | 1,414 | 1,387 | 1.9 |
--------------------------------------------------------------------------------
| Margin, % | 37.4 | 29.6 | | 38.4 | 35.5 | |
--------------------------------------------------------------------------------
| EBIT, million EEK | 278 | 235 | 18.1 | 1,159 | 1,169 | -0.9 |
--------------------------------------------------------------------------------
| Margin, % | 30.7 | 23.7 | | 31.5 | 30.0 | |
--------------------------------------------------------------------------------
| EBT, million EEK | 287 | 239 | 20.1 | 1,187 | 1,185 | 0.2 |
--------------------------------------------------------------------------------
| Net profit for the | 287 | 239 | 20.1 | 965 | 935 | 3.2 |
| period, million EEK | | | | | | |
--------------------------------------------------------------------------------
| CAPEX, million EEK | 99 | 133 | -25.5 | 297 | 330 | -9.9 |
--------------------------------------------------------------------------------
| ROA, % | 45.8 | 46.8 | | | | |
--------------------------------------------------------------------------------
| ROE, % | 76.0 | 80.6 | | | | |
--------------------------------------------------------------------------------
Broadband services segment
--------------------------------------------------------------------------------
| | Q4 | Q4 | Change | 12 | 12 mos. | Change, |
| | 2008 | 2007 | , % | mos. | 2007 | % |
| | | | | 2008 | | |
--------------------------------------------------------------------------------
| Total revenues, | 826 | 781 | 5.8 | 3,280 | 2,984 | 9.9 |
| million EEK | | | | | | |
--------------------------------------------------------------------------------
| EBITDA, million EEK | 188 | 213 | -11.8 | 928 | 882 | 5.3 |
--------------------------------------------------------------------------------
| Margin, % | 22.8 | 27.3 | | 28.3 | 29.6 | |
--------------------------------------------------------------------------------
| EBIT, million EEK | 111 | 145 | -23.9 | 633 | 630 | 0.6 |
--------------------------------------------------------------------------------
| Margin, % | 13.4 | 18.6 | | 19.3 | 21.1 | |
--------------------------------------------------------------------------------
| EBT, million EEK | 109 | 146 | -25.3 | 632 | 720 | -12.2 |
--------------------------------------------------------------------------------
| Net profit for the | 109 | 146 | -25.3 | 499 | 599 | -16.7 |
| period, million EEK | | | | | | |
--------------------------------------------------------------------------------
| CAPEX, million EEK | 166 | 215 | -23.0 | 428 | 513 | -16.6 |
--------------------------------------------------------------------------------
| ROA, % | 18.6 | 22.6 | | | | |
--------------------------------------------------------------------------------
| ROE, % | 31.6 | 37.2 | | | | |
--------------------------------------------------------------------------------
IT services segment
--------------------------------------------------------------------------------
| | Q4 | Q4 | Change | 12 | 12 mos. | Change, |
| | 2008 | 2007 | , % | mos. | 2007 | % |
| | | | | 2008 | | |
--------------------------------------------------------------------------------
| Total revenues, | 132 | 92 | 43.3 | 371 | 365 | 1.6 |
| million EEK | | | | | | |
--------------------------------------------------------------------------------
| EBITDA, million EEK | 8 | 10 | -22.2 | 21 | 24 | -12.9 |
--------------------------------------------------------------------------------
| Margin, % | 5.9 | 11.0 | | 5.6 | 6.5 | |
--------------------------------------------------------------------------------
| EBIT, million EEK | 2 | 4 | -58.2 | -4 | 2 | N/A |
--------------------------------------------------------------------------------
| Margin, % | 1.2 | 4.0 | | -1.1 | 0.4 | |
--------------------------------------------------------------------------------
| EBT, million EEK | 2 | 4 | -57.5 | -5 | 8 | N/A |
--------------------------------------------------------------------------------
| Net profit for the | 1 | 4 | -62.7 | -5 | 8 | N/A |
| period, million EEK | | | | | | |
--------------------------------------------------------------------------------
| CAPEX, million EEK | 16 | 3 | N/A | 30 | 33 | -7.6 |
--------------------------------------------------------------------------------
| ROA, % | -4.2 | 2.5 | | | | |
--------------------------------------------------------------------------------
| ROE, % | -9.9 | 3.5 | | | | |
--------------------------------------------------------------------------------
Sales revenues, operating costs and profits
The fourth quarter results of the Eesti Telekom Group for 2008 corresponded to
the expectations of the management board. The Group's sales revenues increased
by 0.2% to 1,573 million EEK in the fourth quarter of 2008 compared to the same
period of the previous year (4th quarter 2007: 1,570 million EEK). The modest
increase in sales revenues were primarily affected by the reduction in
interconnection fees (for the period of 1 July 2008-30 June 2009, the state
regulator fixed an interconnection fee of 1.37 EEK instead of the former 1.66
EEK) and the reduction in revenues received from the sale of telecommunications
and IT merchandise.
In the fourth quarter of 2008, the consolidated turnover of the mobile
communications services segment reached 904 million EEK, decreasing by 9%
compared to the fourth quarter of 2007 (4th quarter 2007:
990 million EEK). The
reduction of revenues was caused by a drop in interconnection revenues based on
the reduction in interconnection fees, which was partially compensated by a
certain increase in the number of call minutes incoming to the network, an
increase in mobile data communications, and growth in the volume of
subcontracting services. In addition, the revenues received from the retailing
and wholesaling of telecommunications goods decreased in the fourth quarter
compared to a year ago, which is caused by changes in consumer behavior.
At the end of 2008, the client base of AS EMT was 14 thousand more than a year
earlier, reaching,
779 thousand active SIM cards (December 2007: 765 thousand
cards). Compared to a year ago, the number of
contractual clients has increased
by 18 thousand, reaching 487 thousand by the end of 2008, while at the same
time, the number of pre-paid card users has decreased by more than four thousand
during the year to
292 thousand at the end of the 2008. EMT assesses its market
share of active SIM cards to be 47%. The estimated penetration of active cards
in Estonia is on 121%. The number of call minutes initiated by EMT clients
showed an increase of 1% compared to the last quarter of 2007.
Pursuant to the resolution of the Communications Board, the termination fee for
voice calls in the mobile phone networks (interconnection fee) for AS EMT, Elisa
Eesti AS and Tele2 Eesti AS for the period 1 July 2006 to 30 June 2007 was fixed
at 2.05 EEK per minute and the interconnection fee was fixed at 1.66 EEK for the
period 1 July 2007 to 30 June 2008. Since Elisa Eesti AS and Tele2 Eesti AS
disputed the decisions in court, and in the course of provisional legal
protection, the validity of the aforementioned administrative act was suspended
the interconnection fees of all three mobile operators remained at 2.50 EEK
until 5 November 2007. On 5 November 2007, the ruling of the Tallinn Circuit
Court came into force, whereby the provisional legal protection was cancelled,
and from the given date, all three mobile operators undertook to implement
interconnection fees of 1.66 EEK. The litigation with Tele2 concluded at the end
of December to the benefit of the latter. The litigation Elisa Eesti AS is
continuing and EMT is participating in the litigation as a third party. For the
period between 1 July 2008 and 30 June 2009, the Competition Board, which is the
legal successor to the Communications Board, established a fee of 1.37 EEK per
minute for the termination of voice calls in the mobile phone networks of AS
EMT, Elisa Eesti AS and Tele2 Eesti AS.
On 12 July 2008, the Competition Board announced new market analysis results,
based on which they plan to declare ProGroup Holding OÜ an undertaking with
significant market power in the market for the termination of voice calls in
its mobile phone network, in addition to AS EMT, Elisa Eesti AS and Tele2 Eesti
AS. According to the resolution plan, within the framework of the price control
obligation, the given companies will be obligated to apply benchmark-based
interconnection fees that correspond to the average in the European countries
during the next three years, which will make 1.36 EEK per minute the maximum
tariff to be applicable as of 1 July 2009.
The revenues received from the mobile Internet continued to demonstrate very
rapid growth. In the last quarter of 2008, the revenues from AS EMT mobile data
communications exceeded the revenues for the same period of 2007 by more than a
third. At the same time, the volume of data that was forwarded increased several
times. As of December 2008, the users of AS EMT mobile data communications
numbered 168 thousand, i.e. 7 thousand users more than at the same time last
year. The increase in the popularity of mobile data communications is based on
the rapid expansion of the 3G coverage area. Today, most data communications
takes place in the 3G network, which allows clients to use high-quality and
rapid data communications at speeds approaching ADSL at conveniently manageable
prices. Since EMT is the only operator in Estonia that provides EDGE data
communications throughout its GSM coverage area, then investments in new base
stations during the last months of the year were primarily direct at expanding
external and internal 3G coverage in cities. At the same time, the constant
improvement of the GSM network continues.
A regulation of the European Parliament and Council applies to AS EMT, as it
does to other mobile operators in the European Community, which specifies that
as of September 2007 the rate per minute for outgoing and incoming calls made
within the borders of the European Community cannot exceed the price ceiling
established by regulation. In addition, in the third quarter, discount contracts
for roaming services came into force that reduced both revenues and costs from
roaming fees. Therefore, for the year as a whole, the revenues received from
roaming clients have decreased by almost 13%.
The sales revenues for the broadband services segment increased by 6% in the
fourth quarter compared to the same period of the previous year reaching 826
million EEK (4th quarter 2007: 781 million EEK). The greatest revenue increase
resulted from the sale of international interconnection and subcontracting
services that increased by 105% and 53% respectively. The increase in revenues
from international interconnection services resulted primarily from the
significant increase of volumes for incoming international call minutes. The
revenue increase from subcontracting services is also related to the growth of
minute volumes and the increase in brokered subservices. At the same time, the
revenues for call services earned from end consumers decreased by 11% due to the
drop in minute volumes.
Based on the significant increase in the relative importance of the volume and
revenues of comprehensive service packages, the revenues from monthly fees for
call connections and Internet connections decreased in the last quarter by 11%
and 13% respectively. At the same time, the revenues earned from the sale of
comprehensive service packages considerably exceeded the given decrease. The
revenues in the broadband segment from connection fees for comprehensive service
packages increased in the fourth quarter by 51%. In addition, the other
business revenues of the group increased by 5 million EEK as a result of the
revaluation of networks that were acquired for free.
The total number of Elion clients with permanent Internet connections increased
by 3,500 connections in the fourth quarter, reaching 175.4 thousand by the end
of December (31. December 2007: 163.1 thousand). The company assesses that
Elion's market share based on the permanent connections of private clients has
not changed and continues to be 54%.
As the result of an active marketing campaign, the number of Elion
triple-package users increased during the quarter by 5,800, reaching 76.1
thousand as of 31 December (31 December 2007: 53.5 thousand). By the end of the
fourth quarter, Elion had 82.5 thousand IP and cable television clients (31
December 2007: 57.7 thousand). Elion assesses that the company's market share in
the cable coverage market was 26% by the end of the year (31 December 2007:
19%), which, in the given market, confers the greatest increase in 2008, in
absolute terms.
In December, Elion signed a contract with the nonprofit Baltic Authors and
Distribution Association that will guarantee the clients reception of 10
Russian-language TV channels, including the rights for transmitting the Pervõi
Baltiiski Kanal, which is the most popular channel among the local population,
on Elion's DigiTV.
As of the middle of December, Elion is the first in Estonia to offer games as a
new content service in its Internet-based DigiTV. Each of the games can be
ordered separately or as a theme package. During the first three months of 2009,
Elion will introduce three game packages to the market—for small children, older
children and adults.
By the end of fourth quarter, the number of Elion's active call interfaces
totaled 469 thousand (31 December 2007: 482 thousand interfaces), remaining
stable at the same level during the year.
Elion assesses its market share for call minutes initiated in the fixed network
to be 80.5% (December 2007: 81%). The market share for local call minutes is 82%
(December 2007: 83%), 66% for international call minutes (December 2007: 64%)
and 71% for call minutes made to mobile phones (December 2007: 72%).
In December the Supreme Court decided not to hear the Tele 2 Eesti AS appeal in
cassation regarding the establishment of price controls for mobile units. Based
on the decision, Elion renewed its claim against Tele2 Eesti AS for the refund
of overpaid interconnection fees totaling 34.5 million EEK from 2006-2007.
Based on 2007 cost information and the requirements of the Competition Board, as
of 1 December 2008, Elion reduced the monthly fee for rental of copper pairs and
selected copper pairs by 3 EEK on average and the fees for broadband access by
9-16% depending on speed. The price changes do not have any significant impact
on Elion's results.
As a result of the general cooling of retail sales in the Estonian economy, the
retail sales of telecommunications and IT merchandise by the Elion group
decreased by 18% in the fourth quarter compared to last year.
The 2008 fourth quarter results for the IT services segment include the
consolidated data from the companies of the IT Training Center Group that was
acquired in October 2008.
In the fourth quarter of 2008, the sales revenues for the IT services segment
reached 132 million EEK
(4th quarter 2007: 92 million EEK). Compared to the
same period of the previous year, the sales revenues increased by 43%, whereas
sales revenues for IT services (including IT training) increased by 6% and IT
merchandise by 89%.
In the fourth quarter, the sales turnover for infrastructure solutions was
significantly higher than in the same period of the previous year (67 million
EEK vs. 36 million EEK). The reason is the Tiger's Leap project. Within the
framework of the given project, an order was placed for more than four thousand
HP laptops produced for schoolteachers. The transaction totaled 34 million EEK.
During the fourth quarter in the project business, work was completed on the
development projects for the
e-health digital prescription and Statistical
Office's KUNDE information system. Work continues on the Estonian Post document
management project, North-Estonia Regional Hospital identity management project
and Ergo Insurance archiving solution.
In the field of permanent services during the fourth quarter, AS MicroLink Eesti
won three procurements organized by the Ministry of Social Affairs for hosting
information services. Within the framework of these procurements, MicroLink
Eesti will host and manage the Ministry of Social Affairs information system and
the register with information on those on file as unemployed and job seekers as
well as information on the provision of labor market services, and the register
of those dealing with pharmaceuticals.
The operating costs of the Eesti Telekom Group increased by 5% in the fourth
quarter of 2008 compared to the same period of 2007, reaching 1,050 million EEK
(4th quarter 2007: 1,004 million EEK).
The operating costs in the mobile communications segment decreased by 11%
compared to the last quarter of 2007 to 569 million EEK (4th quarter 2007: 638
million EEK). The greatest decrease was in interconnection costs caused by the
drop in interconnection prices. The operating costs related to retailing and
wholesaling also decreased, which corresponds to the drop in merchandise sales
turnovers.
The operating costs in the broadband services segment increased during the last
quarter by 12% compared to the same period in 2007, reaching 644 million EEK
(4th quarter 2007: 575 million EEK). 45% of the increase in the operating costs
resulted directly from the increase of direct sales costs caused by the increase
in the sales volumes of services. 37% of the increase in costs (26 million EEK)
is related to efficiency projects and other one-time expenditures made for the
improvement of network resources and service quality. The third primary growth
factor for operating costs was personnel costs that increased by 9% compared to
the previous year. Almost half of the increase in personnel costs (5 million
EEK) was also of a nonrecurrent nature and related to efficiency projects and
the reorganization of work.
The operating costs in the IT services segment increased by 51% in the fourth
quarter compared to the same period in the previous year, reaching 124 million
EEK (4th quarter 2007: 82 million EEK). The operating costs for the quarter were
affected by increased costs accompanying the consolidation of the IT Training
Center, as an independent company, whereby the operating costs of AS MicroLink
Eesti increased by 9%.
The Eesti Telekom Group EBITDA decreased in the fourth quarter of 2008 by 8%,
reaching 531 million EEK (4th quarter 2007: 576 million EEK). The Group's EBITDA
margin in the fourth quarter of 2008 was 34%, which was somewhat lower than the
margin in the corresponding period of 2007. The EBITDA in the mobile
communications services segment increased by 15% in the fourth quarter compared
to the same period in the previous year reaching 338 million EEK (4th quarter
2007: 293 million EEK) in connection with the decrease of the interconnection
prices between telecommunications operators and the reduction in the relative
importance of merchandise with lower profitability. At the same time, the EBITDA
margin for the mobile communications services segment was negatively impacted by
a one-time provision of 62 million EEK. The EBITDA for the broadband services
segment decreased by 12% in the fourth quarter of 2008 compared to the same
period in the previous year, reaching 188 million EEK (4th quarter 2007: 213
million EEK) due to the one-time costs related to the efficiency projects. The
EBITDA for the IT services segment in the fourth quarter of 2008 was 8 million
EEK (4th quarter 2007: 10 million EEK).
The Group's depreciation costs reached 144 million EEK in the fourth quarter of
2008, increasing by 9% compared to the same period in 2007 (4th quarter 2007:
132 million EEK). The depreciation costs for the mobile communications service
segment increased by 2 million EEK in the fourth quarter of 2008 compared the
same period in 2007 (4th quarter 2007: 58 million EEK). The depreciation in the
broadband services segment has increased by 10 million EEK compared to the same
period in the previous year, reaching 78 million EEK (4th quarter 2007: 68
million EEK). Depreciation costs in the IT services segment reached 6 million
EEK in the fourth quarter of the 2008, decreasing by 1% compared to the same
period in 2007.
In the fourth quarter, the Eesti Telekom Group earned EBIT of 387 million EEK,
which was a decrease of 13% compared to the same period in the previous year
(4th quarter 2007: 444 million EEK). In the fourth quarter, the Eesti Telekom
Group earned pre-tax profits of 400 million EEK (4th quarter 2007: 455 million
EEK).
In the fourth quarter of 2008, the net profit for the Eesti Telekom Group was
400 million EEK (4th quarter 2007: 455 million EEK). The earnings per share were
2.89 EEK (4th quarter 2007: 3.28 EEK).
The 2008 consolidated sales revenues for the Eesti Telekom Group reached 6,190
million EEK, decreasing by 1% compared to 2007 (2007: 6,261 million EEK). The
sales revenues for the broadband services segment increased significantly
reaching 3,280 million EEK (2007: 2,984 million EEK). The sales revenues for the
mobile communications services segment in 2008 were 3,682 million EEK (2007:
3,904 million EEK). The sales revenues for the IT services segment increased by
2% during the year and reached 371 million EEK (2007: 365 million EEK).
The Group's operating costs reached 3,864 million EEK in 2008, decreasing 2%
compared to the previous year (2007: 3,947 million EEK).
In 2008, the consolidated EBITDA totaled 2,348 million EEK, increasing 1%
compared to the previous year (2007: 2,336 million EEK). The EBITDA margin
increased somewhat, reaching 37.9% in 2008 (2007: 37.3%). The depreciation for
2008 was 576 million EEK (2007: 496 million EEK).
During the last year, the Eesti Telekom Group earned EBIT of 1,773 million EEK
(2007: 1,840 million EEK).
On 1 July 2007, AS Microlink sold its shares of AS
MicroLink Eesti to AS Eesti Telekom. The Group's internal unrealized profit from
the sale of shares totaled 93.7 million EEK.
The Eesti Telekom Group earned a net profit of 1,438 million EEK in 2008 or
10.40 EEK per share (2007:
1,512 million EEK or 10.91 EEK per share).
Balance sheet and cash flows
As of 31 December 2008, the Eesti Telekom Group balance sheet totaled 5,001
million EEK (31 December 2007: 5,023 million EEK). Compared to the beginning of
the year, the fixed assets have increased by 177 million EEK, the balance of
which reached 2,927 million EEK by the end of the year (31 December 2007: 2,750
million EEK). The Group's current assets have decreased by 200 million EEK
during the year, reaching 2,073 million EEK by the end of December (31 December
2007: 2,273 million EEK). Cash and cash equivalents, as well as the balance of
short-term financial investments, have decreased by 228 million EEK in
connection with the dividends paid out in June and the income tax on the
dividends paid out in July.
As of 31 December 2008, the Eesti Telekom Group equity was 4,296 million EEK,
which is 18 million EEK less than at the end of 2007 (31 December 2007: 4,314
million EEK). The decrease in equity is related to the payment of dividends.
As of the end of December, the Group had long-term obligations of 33 million
EEK (31 December 2007:
25 million EEK) and short-term debt obligations of 671
million EEK (31 December 2007: 683 million EEK). The net debt of the Eesti
Telekom Group at the end of the fourth quarter was -853 million EEK and the net
debt to equity ratio was -20% (31 December 2007: -1,087 million EEK and -25%).
The Eesti Telekom Group cash flow from operations in 2008 was 1,983 million EEK
(2007: 1,902 million EEK). The Group's cash flow used in investment activities
in 2008 was 568 million EEK (2007: 518 million EEK). The cash flow into the
acquisition of tangible and intangible fixed assets in 2008 was 755 million EEK
(2007: 863 million EEK). In 2008, the mobile communications segment invested 297
million EEK (2007: 330 million EEK). In mobile communications, in addition to
the constant development of the GSM network, a developmental priority was the
implementation of technologies to support high-speed mobile data communications.
In 2008, the investments into the broadband services segment totaled 428 million
EEK (2007: 513 million EEK). The majority of the investments were made in order
to develop the necessary network resources (IP core and fiber-optic cable
networks) and to improve the triple-service packages and increase its
availability. In 2008, the IT services segment invested 30 million EEK into
fixed assets (2007: 33 million EEK).
In 2008, the Eesti Telekom Group cash flow into financial activities was 1,449
million EEK, of which
1,456 million EEK was used to pay dividends (in 2007,
1,311 million EEK and 1,311 million EEK respectively).
Definitions
Net debt - Long- and short-term interest-bearing borrowings, less cash and cash
equivalents and short-term investments
ROA -Net profit for the last four quarters divided by the average total assets
for the same period
ROE - Pre-tax profit for last four quarters divided by the average equity for
the same period
IV QUARTER CONSOLIDATED INCOME STATEMENT
In thousand of Estonian kroons (EEK)
--------------------------------------------------------------------------------
| | IV Quarter | IV Quarter |
| | 2008 | 2007 |
--------------------------------------------------------------------------------
| Net sales | 1,572,666 | 1,569,617 |
--------------------------------------------------------------------------------
| Cost of sales | (944,258) | (926,289) |
--------------------------------------------------------------------------------
| Gross profit | 628,408 | 643,328 |
--------------------------------------------------------------------------------
| Selling, marketing, administrative and | (249,483) | (209,704) |
| research & development expenses | | |
--------------------------------------------------------------------------------
| Other operating revenues | 11,643 | 13,282 |
--------------------------------------------------------------------------------
| Other operating expenses | (3,593) | (2,676) |
--------------------------------------------------------------------------------
| Operating profit | 386,975 | 444,230 |
--------------------------------------------------------------------------------
| Finance income | 12,372 | 12,485 |
--------------------------------------------------------------------------------
| Finance costs | 685 | (524) |
--------------------------------------------------------------------------------
| Finance income, net | 13,057 | 11,961 |
--------------------------------------------------------------------------------
| Net income / (expenses) from associated | (94) | (1,390) |
| companies | | |
--------------------------------------------------------------------------------
| Profit before tax | 399,938 | 454,801 |
--------------------------------------------------------------------------------
| Income tax on dividends and on income | (190) | - |
--------------------------------------------------------------------------------
| Net profit for the period | 399,748 | 454,801 |
--------------------------------------------------------------------------------
| Attributable to: | | |
--------------------------------------------------------------------------------
| Equity holders of the parent | 399,078 | 453,144 |
--------------------------------------------------------------------------------
| Minority interest | 670 | 1,657 |
--------------------------------------------------------------------------------
| | 399,748 | 454,801 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Earnings per share for profit attributable | | |
| to the equity holders of the parent during | | |
| the reporting period (expressed in EEK) | | |
--------------------------------------------------------------------------------
| Basic earnings per share | 2.89 | 3.28 |
--------------------------------------------------------------------------------
| Diluted earnings per share | 2.89 | 3.28 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| EBITDA | 530,705 | 576,384 |
--------------------------------------------------------------------------------
| Depreciation, amortization and write-downs | (143,730) | (132,154) |
--------------------------------------------------------------------------------
YEAR CONSOLIDATED INCOME STATEMENT
In thousand of Estonian kroons (EEK)
--------------------------------------------------------------------------------
| | 2008 | 2007 |
--------------------------------------------------------------------------------
| Net sales | 6,189,597 | 6,261,002 |
--------------------------------------------------------------------------------
| Cost of sales | (3,532,648) | (3,542,791) |
--------------------------------------------------------------------------------
| Gross profit | 2,656,949 | 2,718,211 |
--------------------------------------------------------------------------------
| Selling, marketing, administrative and | (907,058) | (900,011) |
| research & development expenses | | |
--------------------------------------------------------------------------------
| Other operating revenues | 31,317 | 28,114 |
--------------------------------------------------------------------------------
| Other operating expenses | (8,498) | (6,336) |
--------------------------------------------------------------------------------
| Operating profit | 1,772,710 | 1,839,978 |
--------------------------------------------------------------------------------
| Finance income | 55,185 | 48,626 |
--------------------------------------------------------------------------------
| Finance costs | (871) | (2,342) |
--------------------------------------------------------------------------------
| Finance income, net | 54,314 | 46,284 |
--------------------------------------------------------------------------------
| Net income / (expenses) from associated | (2,847) | (3,817) |
| companies | | |
--------------------------------------------------------------------------------
| Profit before tax | 1,824,177 | 1,882,445 |
--------------------------------------------------------------------------------
| Income tax on dividends and on income | (385,912) | (370,897) |
--------------------------------------------------------------------------------
| Net profit for the period | 1,438,265 | 1,511,548 |
--------------------------------------------------------------------------------
| Attributable to: | | |
--------------------------------------------------------------------------------
| Equity holders of the parent | 1,434,835 | 1,505,098 |
--------------------------------------------------------------------------------
| Minority interest | 3,430 | 6,450 |
--------------------------------------------------------------------------------
| | 1,438,265 | 1,511,548 |
--------------------------------------------------------------------------------
| | | |
--------------------------------------------------------------------------------
| Earnings per share for profit attributable | | |
| to the equity holders of the parent during | | |
| the reporting period (expressed in EEK) | | |
--------------------------------------------------------------------------------
| Basic earnings per share | 10.40 | 10.91 |
--------------------------------------------------------------------------------
| Diluted earnings per share | 10.40 | 10.91 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| EBITDA | 2,348,360 | 2,336,260 |
--------------------------------------------------------------------------------
| Depreciation, amortization and write-downs | (575,650) | (496,282) |
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
In thousand of Estonian kroons (EEK)
--------------------------------------------------------------------------------
| | 31 December | 31 December |
| | 2008 | 2007 |
--------------------------------------------------------------------------------
| ASSETS | | |
--------------------------------------------------------------------------------
| Non-current assets | | |
--------------------------------------------------------------------------------
| Property, plant and equipment | 2,590,170 | 2,405,114 |
--------------------------------------------------------------------------------
| Intangible fixed assets | 229,518 | 216,011 |
--------------------------------------------------------------------------------
| Investments in associates | 10,575 | 13,422 |
--------------------------------------------------------------------------------
| Other financial fixed assets | 97,014 | 115,059 |
--------------------------------------------------------------------------------
| Total non-current assets | 2,927,277 | 2,749,606 |
--------------------------------------------------------------------------------
| Current assets | | |
--------------------------------------------------------------------------------
| Assets classified as held-for-sale | - | 1,732 |
--------------------------------------------------------------------------------
| Inventories | 169,943 | 187,573 |
--------------------------------------------------------------------------------
| Trade and other receivables | 1,040,351 | 992,939 |
--------------------------------------------------------------------------------
| Short-term investments | 500,000 | 694,040 |
--------------------------------------------------------------------------------
| Cash and cash equivalents | 363,099 | 396,778 |
--------------------------------------------------------------------------------
| Total current assets | 2,073,393 | 2,273,062 |
--------------------------------------------------------------------------------
| TOTAL ASSETS | 5,000,670 | 5,022,668 |
--------------------------------------------------------------------------------
| 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 |
--------------------------------------------------------------------------------
| Translation reserve | 14 | - |
--------------------------------------------------------------------------------
| Retained earnings | 979,431 | 924,263 |
--------------------------------------------------------------------------------
| Net profit for the period | 1,434,835 | 1,505,098 |
--------------------------------------------------------------------------------
| Total capital and reserves attributable | 4,287,798 | 4,302,879 |
| to equity | | |
| holders of the parent | | |
--------------------------------------------------------------------------------
| Minority interest | 8,035 | 11,480 |
--------------------------------------------------------------------------------
| Total equity | 4,295,833 | 4,314,359 |
--------------------------------------------------------------------------------
| Non-current liabilities | | |
--------------------------------------------------------------------------------
| Interest bearing loans and borrowings | 5,872 | 1,343 |
--------------------------------------------------------------------------------
| Retirement benefit obligations | 2,158 | 3,239 |
--------------------------------------------------------------------------------
| Provisions | 22,571 | 20,673 |
--------------------------------------------------------------------------------
| Non-interest bearing liabilities | 2,772 | - |
--------------------------------------------------------------------------------
| Total non-current liabilities | 33,373 | 25,255 |
--------------------------------------------------------------------------------
| Current liabilities | | |
--------------------------------------------------------------------------------
| Trade and other payables | 663,396 | 670,989 |
--------------------------------------------------------------------------------
| Interest bearing loans and borrowings | 4,061 | 2,778 |
--------------------------------------------------------------------------------
| Retirement benefit obligations | 1,032 | 4,814 |
--------------------------------------------------------------------------------
| Provisions | 2,975 | 4,473 |
--------------------------------------------------------------------------------
| Total current liabilities | 671,464 | 683,054 |
--------------------------------------------------------------------------------
| Total liabilities | 704,837 | 708,309 |
--------------------------------------------------------------------------------
| TOTAL EQUITY AND LIABILITIES | 5,000,670 | 5,022,668 |
--------------------------------------------------------------------------------
CONSOLIDATED CASH FLOW STATEMENT
In thousand of Estonian kroons (EEK)
--------------------------------------------------------------------------------
| | 2008 | 2007 |
--------------------------------------------------------------------------------
| Operating activities | | |
--------------------------------------------------------------------------------
| Net profit for the period | 1,438,265 | 1,511,548 |
--------------------------------------------------------------------------------
| Adjustments for: | | |
--------------------------------------------------------------------------------
| Depreciation, amortisation and impairment | 575,650 | 496,282 |
| of fixed and intangible assets | | |
--------------------------------------------------------------------------------
| (Profit) / loss from sales and discards of | (13,211) | (12,638) |
| fixed assets | | |
--------------------------------------------------------------------------------
| Net (income) / expenses from associated | 2,847 | 3,817 |
| companies | | |
--------------------------------------------------------------------------------
| Provisions | (3,920) | (2,811) |
--------------------------------------------------------------------------------
| Financial items | (42,268) | (46,671) |
--------------------------------------------------------------------------------
| Income tax | (270) | - |
--------------------------------------------------------------------------------
| Miscellaneous non-cash items | (6,193) | 554 |
--------------------------------------------------------------------------------
| Cash flow before change in working capital | 1,950,900 | 1,950,081 |
--------------------------------------------------------------------------------
| Change in current receivables | (11,086) | (76,497) |
--------------------------------------------------------------------------------
| Change in inventories | 10,751 | (38,043) |
--------------------------------------------------------------------------------
| Change in current liabilities | (16,392) | 16,476 |
--------------------------------------------------------------------------------
| Change in working capital | (16,727) | (98,064) |
--------------------------------------------------------------------------------
| Cash flow after changes in working capital | 1,934,173 | 1,852,017 |
--------------------------------------------------------------------------------
| Interest received | 54,078 | 52,047 |
--------------------------------------------------------------------------------
| Interest paid | (5,249) | (2,063) |
--------------------------------------------------------------------------------
| Cash flow from operating activities | 1,983,002 | 1,902,001 |
--------------------------------------------------------------------------------
| Investing activities | | |
--------------------------------------------------------------------------------
| Intangible and tangible fixed assets | (743,307) | (861,490) |
| acquired | | |
--------------------------------------------------------------------------------
| Intangible and tangible fixed assets | 10,219 | 14,768 |
| divested | | |
--------------------------------------------------------------------------------
| Acquisition of business combinations net | (24,163) | (4,934) |
| of cash acquired and settlements of | | |
| deferred consideration | | |
--------------------------------------------------------------------------------
| Net change in interest-receivables short | 194,042 | 369,746 |
| maturities | | |
--------------------------------------------------------------------------------
| Net cash changes of other long-term | (4,313) | (36,073) |
| receivables | | |
--------------------------------------------------------------------------------
| Cash flow from investing activities | (567,522) | (517,983) |
--------------------------------------------------------------------------------
| Cash flow before financing activities | 1,415,480 | 1,384,018 |
--------------------------------------------------------------------------------
| Financing activities | | |
--------------------------------------------------------------------------------
| Proceeds from non-convertible debts | 9,057 | 1,020 |
--------------------------------------------------------------------------------
| Repayment of finance lease liabilities | (2,409) | (1,819) |
--------------------------------------------------------------------------------
| Dividends paid | (1,456,054) | (1,310,568) |
--------------------------------------------------------------------------------
| Cash flow used in financing activities | (1,449,406) | (1,311,367) |
--------------------------------------------------------------------------------
| Cash flow for the year | (33,926) | 72,651 |
--------------------------------------------------------------------------------
| | | |
--------------------------------------------------------------------------------
| Cash and cash equivalents at beginning of | 396,778 | 324,405 |
| year | | |
--------------------------------------------------------------------------------
| Cash flow for the year | (33,926) | 72,651 |
--------------------------------------------------------------------------------
| Effect of foreign exchange rate changes | 247 | (278) |
--------------------------------------------------------------------------------
| Cash and cash equivalents at end of period | 363,099 | 396,778 |
--------------------------------------------------------------------------------
Gunnar Hannus
AS Eesti Telekom, Financial Manager
phone +372 6 111 472
e-mail: gunnar.hannus@telekom.ee
Consolidated Interim Report of AS Eesti Telekom for the IV Quarter and whole 2008 year, EEK
| Source: Eesti Telekom
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