Bulgarian Telecommunications Company Ead
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BULGARIAN TELECOMMUNICATIONS COMPANY EAD CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS CONSOLIDATED AND SEPARATE ANNUAL ACTIVITIES REPORT INDEPENDENT AUDITOR’S REPORT 31 December 2015 TABLE OF CONTENTS Page Annual activities report 3 Consolidated and separate financial statements: Consolidated and separate statement of financial position 28 Consolidated and separate statement of comprehensive income 30 Consolidated and separate statement of changes in equity 31 Consolidated and separate cash flow statement 33 Notes to the consolidated and separate financial statements 34 Independent auditors’ report Bulgarian Telecommunications Company EAD CONSOLIDATED AND SEPARATE ANNUAL ACTIVITIES REPORT 2015 CONTENTS OVERVIEW OF THE ACTIVITY OF THE COMPANY AND THE GROUP ............................... 3 FINANCIAL CONDITION AND RESULTS OF OPERATION ....................................................... 4 REVENUES ............................................................................................................................................. 5 EXPENSES .............................................................................................................................................. 9 ADJUSTED EBITDA AND PROFIT FOR THE PERIOD............................................................... 11 CASH FLOW ......................................................................................................................................... 11 LIQUIDITY AND CAPITAL RESOURCES ..................................................................................... 12 CAPITAL EXPENDITURES AND INVESTMENTS ....................................................................... 13 MAIN RISKS ......................................................................................................................................... 14 IMPORTANT EVENTS AFTER THE REPORTING PERIOD ...................................................... 18 EXPECTED DEVELOPMENT ........................................................................................................... 18 INNOVATION PROCESSES AND PRODUCT DEVELOPMENT ................................................ 18 INFORMATION ABOUT THE COMPANY’S MANAGING BOARD AND SUPERVISORY BOARD. ................................................................................................................................................. 19 INFORMATION ABOUT THE COMPANY’S SHARES ................................................................ 20 CORPORATE GOVERNANCE .......................................................................................................... 20 ADDITIONAL INFORMATION ........................................................................................................ 20 ABBREVIATIONS AND TERMS ....................................................................................................... 22 BULGARIAN TELECOMMUNICATIONS COMPANY EAD ANNUAL ACTIVITIES REPORT For the year ended 31 December 2015 This document reflects the activity in the reporting period of Bulgarian Telecommunications Company EAD (“VIVACOM” or the “Company”) on an individual and consolidated basis. OVERVIEW OF THE ACTIVITY OF THE COMPANY AND THE GROUP Bulgarian Telecommunications Company EAD is a single shareholder joint stock company, domiciled in Bulgaria, with its registration address: 115I “Tsarigradsko Shose” blvd., 1784 Sofia. VIVACOM’s activities include development, operation and maintenance of national fixed and mobile network and data system for the Republic of Bulgaria. As at 31 December 2015 the group includes VIVACOM, the subsidiary entities BTC Net EOOD and NURTS Bulgaria EAD and its wholly owned subsidiary NURTS Digital EAD (the “Group” or “VIVACOM Group”). As at 31 December 2014 the Group includes VIVACOM and its subsidiary entity BTC Net EOOD. On July 1, 2015 VIVACOM became the sole owner of NURTS Bulgaria EAD and its wholly owned subsidiary NURTS Digital EAD (“NURTS Group”). NURTS Bulgaria EAD is a commercial company registered in the Commercial Register in 1 April 2010 which owns and operates a unique broadcasting infrastructure of over 700 sites with national coverage and is one of the largest providers of transmission and collocation services. NURTS Digital EAD is a joint stock company registered in the Commercial Register on 15 April 2009 with principal activity terrestrial broadcasting of television and radio programs. We are the leading telecommunications operator in Bulgaria, based on revenue for the year ended December 31, 2015. We are fully integrated operator that provides mobile, fixed telephony, fixed broadband and pay TV (both DTH and IPTV) services nationwide to both residential and business customers. We provide our fixed line services through our own fixed line network and our mobile services through our own mobile network based on GSM/GPRS/EDGE and UMTS/HSPA+ technologies. As at December 31, 2015, we served 3.0 million mobile subscribers, 1.1 million fixed telephony subscribers, 0.4 million fixed broadband subscribers and 0.4 million fixed pay-TV subscribers. For the year ended December 31, 2015, we generated total consolidated revenue of BGN 847.9 million and had consolidated Adjusted EBITDA of BGN 331.7 million. We are currently the third largest mobile operator in Bulgaria, based on number of subscribers, with 3.024 million subscribers as at December 31, 2015, an increase of 6.0% from 2.853 million subscribers as at December 31, 2014. This is primarily due to the implementation of an ongoing successful “value for money” strategy in the mobile market, which has led us to achieve an increase in our mobile market share and to develop a solid market share position. A central part of our strategy has been our focus on features that allow us to differentiate ourselves from our competitors, such as generous tariff plans, integrated IT systems and what we believe to be our “best-in-class” mobile network. As at December 31, 2015 our GSM mobile network covered 99.99% of the Bulgarian population, and our UMTS mobile network covered 99.92% of the Bulgarian population of which 71.56% with download speed up to 42 Mbit/s. Speeds of up to 63 Mbit/s are also available with the acquisition of additional spectrum in UMTS 2100 MHz in the third quarter of 2015. Our revenue share for the mobile services market is approximately 27% for the year ended December 31, 2015. We are the incumbent in the fixed voice line market with 69% revenue share and 65% subscriber share as at December 31, 2015 (Source: Analysys Mason’s Telecoms Market Matrix and European Core Forecasts). We offer fixed telephony, fixed broadband and pay-TV services to our residential and business customers. 3 BULGARIAN TELECOMMUNICATIONS COMPANY EAD ANNUAL ACTIVITIES REPORT (CONTINUED) For the year ended 31 December 2015 We were the market leader in the fixed broadband market with a 24% subscriber market share as at December 31, 2015, prior to Mobiltel’s acquisition of Blizoo (Source: Analysys Mason’s Telecoms Market Matrix and European Core Forecasts). Following Mobiltel’s acquisition of Blizoo, which has been fully consolidated as of October 1, 2015, Vivacom is the second largest fixed broadband operator. Our ongoing FTTx network build out enables us to benefit from the ongoing shift to FTTx from other broadband technologies as customers demand services at higher speeds. We began our FTTx roll out in 2011 and we have since achieved significant progress, with 1,034,000 fiber homes passed and 17% take-up rate as at December 31, 2015. We also operate our own scalable fiber backbone network which allows us to deliver complex corporate data solutions to business customers. Our market share on the pay-TV segment is growing, but still represents a small percentage from total revenues. VIVACOM is positioned as the third largest pay-TV provider and the largest IPTV operator, following Mobiltel’s acquisition of Blizoo. We sell our services and products through direct channels, such as VIVACOM owned stores, which are strategically located, and indirect channels, such as a smaller number of third party retail distributors. Our distribution network is further supported by remote channels such as telemarketing. As at December 31, 2015 VIVACOM has 240 owned branded retail locations with an additional 53 alternative sale points. FINANCIAL CONDITION AND RESULTS OF OPERATION The Group ended the financial year 2015 with a positive result of BGN 16.5 million (the Company - with a positive result of BGN 6.4 million), a decrease of BGN 9.8 million from BGN 26.3 million for the year ended December 31, 2014. Overall, the financial statements show increase in revenues and stable profitability. On November 22, 2013 VIVACOM successfully completed its bond offering of EUR 400 (BGN 782.3) million 6⅝% Senior Secured Notes due 2018 (the "Notes"). The maturity date of the Notes is November 15, 2018. The Company will pay interest on the Notes semi-annually in arrears on May 15 and November 15 of each year, commencing on May 15, 2014. In relation to the admission of the Notes the Company received a credit rating of 'B1' by Moody's Investors Service and 'BB-' by Standard & Poor's Ratings Services. Standard & Poor's lowered the company’s credit rating to 'B' on April 2, 2015 and subsequently to 'B-' on July 8, 2015. On October 22, 2015 Standard & Poor's revised its CreditWatch listing on its 'B-' long-term corporate credit rating of VIVACOM to negative from developing. On December 20, 2015 Moody’s reaffirmed its 'B1' credit rating of the Company