Annual Report 2004 Slovak Telecom, A

Experience. Responsibility. Courage to explore. Annual ReportAnnual 2004

Annual Report 2004 Slovak Telecom, a. s. Námestie slobody 6 817 62 Bratislava 15

tel.: +421 (0)2 – 5881 1111 fax: +421 (0)2 – 5249 1767 http://www.telecom.sk We have matured. e-mail: corporate.ofﬁ [email protected] We respect our past. Today new goals and challenges

customer services centre: +421 – (0)800 123 456 lie ahead of us. We are ready to resolve them to the utmost satisfaction of our clients and partners. Annual Report 2004 ©2005, issued by Slovak Telecom, a. s.

Obalka 904,5x280 celok 1 31/3/05, 9:25:49 AM Revenues SKK million SKK million EBITDA/ EBITDA Margin EBITDA Revenues EBITDA Margin

SKK million Net Income/ SKK million CAPEX Net Income Margin CAPEX Net Income Net Income Margin Net Income

Net Debt SKK million Employees/ Lines per Employees Employees Net Debt Lines per Employees

Net Debt = Cash and Cash Equivalents + Marketable Securities – Liabilities to Banks Lines = Main Telephone Lines, ISDN B-channels and Public Payphones Employees = end of the year without Rádiokomunikácie branch

Obalka 904,5x280 celok 2 31/3/05, 9:25:50 AM blok AJ217x280 1

rpslfrpoi itiuinfrteya 04 74 40 73 18 45 Proposal for profit distributionfor theyear 2004 24 Independent Auditor‘s totheShareholders ofSlovak Report Telecom, a.s. Consolidated financialstatements for theyear ended31December 2004 Finance 20 13 34 10 When we enjoy helping, we helpthemost We changetomake progress. We progress becausewe are notafraid ofchange We have achieved alotandstillwant toachieve more Clear objectives, clearstrategy 8 –we where know we are heading Organisational Structure Corporate Bodies Members oftheExecutive Management Board Address ofMiroslav Majoroš, President/CEO Address ofHorstHermann, ChairmanoftheBoard ofDirectors Corporate Identity Company Profile 2004 Milestones 1 Contents

63 Contents 65

69 16

6 4 2 71

73 31/3/05, 10:41:29 AM blok AJ217x280 2 2004 Milestones

• • • • • • April 2004 • • March 2004 • February 2004 • • 2004 January 2 2004 Milestones The visualsof theprice communication cam- The company was granted thetopaward in Launchofmaxclub–theloyalty programme Implementation ofthePCsfor Schoolsproject Prices for callsabroad were cutontheoccasion Launchoftheimplementation ofNGNtechno- The Slovak Youth Chamberhonoured Slovak The STDSLcustomerbasesurpassed10,000 Shareholders adoptedthedecisiontoimple- The was PCsfor officially Schoolsproject The company was re-branded from Sloven-

Advertisement“. klinec award inthecontest of “Most Creative paign “Bench, Tram, Glass” won theStrieborný for itsintranet site. the nationwide Corporate Medium2003contest for Slovak Telecom’s customers. informatisation inSlovakia. projects was started, representing oneofthelargest of Slovakia’s accession totheEuropean Union logy toournetwork. category. 2003’ award provider intheInternet services Telecom withthe ‘Most Successful Company of technology. ment Generation theNGN(Next Network) donation by Deutsche Telekom AG. computer classroom thankstoa SKK 1bn schoolwitha andsecondary primary new launched, itpossibletoequipeach making duced. a. s. anda new corporate identity was intro- ské telekomunikácie, a. s. toSlovak Telecom, 4

38 • 2004 September • • August 2004 • • July 2004 • • • June 2004 • • May 2004

The range offered ofservices viathe1181 The firstmigration ofcustomersfrom analogue Family Internet –thenew flat-rate dial-up- The company’s www.telecom.sk internet portal Slovak Telecom theInfovek supported Summer Slovak Telecom’s CEO, Miroslav Majoroš, was New STPohoda callingplans andSTExtra The company isoneofthefirstaccreditation The eTablo 2004onlineinternet contest for Broadband DSLtechnologywas rolled outto 40

of afound numberby faxore-mail. suchascallcompletionservices anddelivery and was by extended services 12149 enquiry exchanges toNGNtechnology was carriedout. tomers was launched. designedfor residentialbased product cus- Awards.won Industry theprestigious Microsoft tion andPCliteracy. Schools project, focusing onteachers’ educa- gramme. Charles Europe tomeetHisRoyal HighnessPrince the onlyrepresentative ofCentral andEastern were introduced tothemarket. certificate. ECDL (so-calledEuropean PC “driving” license) centres tobegiven accreditation togrant the ofthePCsfor Schoolsproject. as part schoolgraduatessecondary was announced creased launched. andnew STDSLproducts the massmarket, thetransmission rate was in- 42

46 as part of the Seeing isBelieving pro- oftheSeeing as part 48

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• • • 2004 October • • 1 The “SMS over fixed was lines“service intro- Slovak Telecom completed thePCsfor Schools ofthe Asoneoftheorganisers andpartners Slovak Telecom publiclyannounced itsinterest The eČasopis2004and 2004Žiacka knižka 3 duced. ofthecompany.support totheinternet thankstothe ing connected classroom, withmore than90%ofthembe- schools werenew computer equippedwitha which timeallSlovak andsecondary primary record-breaking 6months, ina project during Slovakia. development ofaninformation in society suggesting how toproceed withthesystematic prepared proposals for theGovernment ofinformation Europe?“,part a thecompany international conference sortium. a. s. from theAmerican Atlantic West B.V. con- 49% share inEuroTelin acquiringa Bratislava, ofthePCsfor Schoolsproject.as part online internet competitions were announced 2004 Milestones

“Will Slovakia “Will become 21

37 • • • • December 2004 • • • November 2004

STDSLwas madeavailable to2.9million The company was granted theISO9002cer- Slovak Telecom completed theacquisitionof Digitalisation ofthepublictelecommunica- Pavol Kukura,representative ofthecompany, a Slovak Telecom was honoured withtheBest The company becameone ofthefounding 39

Slovakia. citizens in119municipalitiesthroughout tificate for businesssegment salesprocesses the European Commission. EuroTel Bratislava, a. s., itsapproval after by tions network was finished. Association at theEU) for 2005. Telecommunications Network Operators vice-chairmanwas ofETNO(European elected versionelectronic categories. 2003AwardAnnual Report intheprinted and president oftheBLFfor 2005. Social Responsibility. The CEOwas appointed and signedtheMemorandum onCorporate members oftheBusinessLeaders Forum (BLF) 41

73 31/3/05, 10:41:31 AM blok AJ217x280 4 Company Profile

• • • • include: our businessactivities As pertheExcerpt from theCompanies Register 1April 1999 Date ofincorporation: joint-stock company Legal form: Nám. slobody6, 81762Bratislava Registered office: group ofcompanies. ofDeutsche part Telekom multinational Group –a a broad range ofvalue addedservices. We form casting ofradio andtelevision signalsandoffer We alsoprovide for thedistributionandbroad- and Internet services, includingbroadband access. wide range ofdata services anda phone services history. We provide national andinternational tele- providedservices inSlovakia withanextensive leader inthefieldoftelecommunications We are a 2 performance of activities related totheprepa- ofactivities performance establishment, operation, construction, main- provision oftelecommunication andradio- transmission, broadcasting andreception of

contracts, contracts, gies owned by other entities underconcluded facilities, networks, andinformation technolo- tenance, oftelecommunications andservicing legal entities, diation ofinformation) for individualsand (transmission, processing, creation andme- communication againstpayment services holding relevant licences, signals for operators statutory andoperators radio, television andothercommunication 4 Company profile

38 With thecompletion EuroTel ofthetransaction Bratislava from theAtlantic West B.V. consortium. purchased theremaining 49%ofshares inEuroTel work andNMTanalogue network. Slovak Telecom and 1,800 MHz)digitalnetwork, publicdata net- operates thefollowing three networks: GSM(900 operates data networks. EuroTel Bratislava, a. s. provides mobilecommunication and services the soleowner ofEuroTel Bratislava, a. s. which On 31December 2004Slovak Telecom became Subsidiaries (FNM) with15%ofshares. 34% ofshares, Fund andtheNational Property Telecommunications oftheSlovak Republicwith of by theMinistry Transport, Postal and Services Deutsche Telekom AG with51%ofshares, followed The shareholder majority ofSlovak Telecom is Shareholders • • •

connection ofa connection ofthePTNspecific part publishing, distributionandsaleofdirectories preparation andupdating ofinformation 40

ices, includingbillingandclearingthereof. and tariffs for domesticandinternational serv- ofSlovakactivities Telecom, proposing prices telecommunications related tothebusiness concluding ofinternational agreements in international telecommunications network, (public telecommunications network) tothe (onvariousservices media), of subscribersindividualtelecommunications telecommunications sector, databases for information systems inthe line withtheorders ofcompetent authorities, in alert state ofmilitary situations andduringa ration oftasksinemergency andperformance 42

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• • • • of developingport aninformation society: business development insup- focused onactivities information andcommunication technologiesand national organisations operating inthefieldof Our company isa member ofthefollowing key associations by profession andindustry Membership andcooperation withSlovak nikácie branch. Transmission, were provided by theRádiokomu- transmission activities, originallyplannedfor RK owns (towers, poles, buildingsetc.). In2003the mainly ontheleaseofrooms inpremises that it sole partner. ofRK The activities Tower are focused Transmission, s.r.o., withSlovak Telecom asthe two subsidiaries, namelyRK Tower, s.r.o. andRK nikácie, o. z., in2002Slovak Telecom founded As a ofRádiokomu-result oftherestructuring pendent legalentity. Bratislava, a. s.separate willremain a andinde- 1 Slovak Commerce Association ofElectronic ITAssociation Slovakia (ITAS), Communications Technologies Slovak Foreign Policy Association (SFPA), Forum, 3 (SAEO),

5 Company profile

37 • • • • of thefollowing organisations: Studies in Telecommunications) member andisa (European Institutefor Research andStrategic (ITU).shareholder inEURESCOM Ourcompany isa of theInternational Telecommunications Union dio-communications anddevelopment sectors We are represented inthestandardisation, ra- Involvement ininternational organisations merce. of Commerce andtheFrench ChamberofCom- Commerce andIndustry, theAmerican Chamber Wemember oftheSlovak are Chamberof alsoa •

ETSI (European Telecommunications Standards ETIS(e-and Telecommunications Information ETP(European Telecommunications Plat- ETNO(European Telecommunications Network The BusinessAlliance ofSlovakia (PAS) –Centre 39

Institute). Services), form), Operators Association), of Economic Development. 41

73 31/3/05, 10:41:32 AM blok AJ217x280 6 Corporate Identity

• • • • • Slovak Telecom’s missionisasfollows: Company mission of theSlovak oflife Republicandquality here. worlds, committed tothepositive development integrating communication andinformation companyreliable andcustomer-friendlyservice The visionofSlovak Telecom istobethemost Company vision 2 We attract, motivate anddevelop capable, We are committed tofinancialgrowth ofthe We provide telecommunica- state-of-the-art We utiliseourknow-how integration inservice We feel personallyresponsible for eachcus-

ing employees. committed employees andreward perform- company, the region, ening thepositionofSlovak Republicin business growth inthecountry andstrength- enablingtions infrastructure andproducts business andprivate life easier, as benefitfor ourcustomerstomake their customers, able, reliable andinnovative for our partner to beperceivedservices asthemostafford- what we promise andconstantly improve our tomer call, understand customerneeds, deliver 4

6 Corporate Identity

38 in theeyes ofourcustomersandcolleagues. trustworthy partner ciples oftheCode makes us a shared principles andrules. Adhering totheprin- prerequisite for successful co-operation basedon Acceptancekey oftheEmployee Code ofEthics isa customers. as well aswithourcolleagues, i.e. ourinternal partners,tions withourcustomersandexternal Behaviour. The standards are appliedinrela- to theStandards ofCustomer Orientation and dards that ourcompany follows, iscloselylinked The Code ofEthics, includingtheBehaviour Stan- − Deutsche Telekom AG. values andstrategy shareholder ofourmajority link between ourcompanyalso a andthevisions, ourbusinessstrategy.Ethics strongly supports is It com. Basedonourvisionandvalues, theCode of that shapesthecorporate culture ofSlovak Tele- Employee Code ofEthics isthebasicdocument Employee Code ofEthics T – Top Excellence I –Integrity R –Respect I –Innovation P –Passion for ourcustomer S –Superiorvalue ST SPIRIT–corporate values that we aspire to: Corporate values 40

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not only to the quality ofourproducts,not onlytothequality butalsoto corporate socialresponsibility. We feel committed porate inthefieldof citizen through ouractivities We haveresponsible cor- positionedourselves asa a fundamental attribute of a modern company. We consider corporate socialresponsibility Corporate socialresponsibility 1

7 Corporate Identity

37 principles ofcorporate responsibility. Leaders Forum, theaimofwhichistospread the foundingthat memberoftheBusiness we were a live anddobusiness. This inthefact isreflected oflifethe quality inthecommunity inwhichwe 39

73 31/3/05, 10:41:32 AM blok AJ217x280 8 Chairman of the Board ofDirectors Chairman oftheBoard Address ofHorstHermann,

already positively onourcompany’s impacted by many strategic decisions, someofwhichhave as thepreferred operator lastyear was marked In thecontinuous topositionSlovak effort Telecom customers andby theshareholders. Our achievements are positively perceived by our can beconsidered a success for Slovak Telecom. with regard totheresults achieved, theyear 2004 the telecommunications market. Inthisview and Innovations proved tobethekey value driver in building oninnovations by technology. supported new andattractive while portfolio product with a needs, they always have torespond tosuchneeds ofthecustomers detailed knowledge monstrate a Slovakia aswell. Suchtopcompanies have tode- succeed. This istruefor thewholeworld andfor ing market, where onlythebestcompanies can increasing competition,very challeng- seenasa munications is, services duetoitsregulation and The market oftelecommunications andinfo-com- 2

8 Address ofHorstHermann, ChairmanoftheBoardDirectors

38 decided about the implementation of the so called decided abouttheimplementation ofthesocalled At thebeginningof 2004theBoard ofDirectors internet access via theDSLtechnology. services, thekey of2005willbebroadband product ments.large array ofvoice Inadditiontoa anddata accordingup new products tocustomer require- saw new offers. Slovak Telecom willcontinue toset significantly, thecallingplansandinternet services expanded andservices ofproducts The portfolio challenges tocome. successful andcompetitiveas a operator for the extensive inorder toestablishitself restructuring marked theentrance ofSlovak Telecom into an well accepted. The changeofthebrand also is even more market andcustomerfocused was SlovakThe new brand underlyinga Telecom which mentally influence ourmarket position. operations, otherwillinthenearfuture funda- 40

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speed upthedevelopment and ofnew products best European telecommunications operators, to ofcompany’sciency operations comparable tothe in thecompany. The goalistoattain theeffi- widen thescope oftransformationand changes we adopteddecisionstoincrease thedynamics customer requests andeven fiercer competition, telecom market, ever new andexpanding Last year, withitsdynamicdevelopment inthe tion withthe T-Mobile International Group. and EuroTel andininternational scaleincorpora- both ways –inSlovakia between Slovak Telecom business willenabletomaterialize synergies in EuroTel Bratislava. The fullcontrol over themobile the acquisitionofremaining 49%ofshares of Telecom was taken by asto ofDirectors theBoard decision inthelife ofSlovakAnother important nificantly. will improve ofthecompany theefficiency sig- mitting voice, data andmultimediaapplications uniform high-speednetwork capableoftrans- a by meansofthistechnology. The of construction has completed thedigitalisation ofitsnetwork telecommunications technologies, Slovak Telecom pushing through more intensively inthearea of that voicefact anddata convergence isgradually GenerationNext Network technology. Given the 1

9 Address ofHorstHermann, ofDirectors ChairmanoftheBoard

37 ment andinformation ofSlovakia. society foundation develop- ofthebroadband services driven company bean important willcertainly transformation toa competitive andcustomer tasks that we are ready tofulfil. Continuing our conviction that theyear 2005willbringnew passed thisexam” andalsoexpress my I would like tosay my thankyou for “having all employees andmanagersofSlovak Telecom. The year 2004againwas a challenging onefor to theinternet. equipped withnew PCclassrooms andconnected Schools” schoolswere andsecondary allprimary called unique project school system –ina “PCs for utmost consequence oftheSlovak inthehistory of project managed tosuccessfully implement a penetration throughout Slovakia. Slovak Telecom eSlovakia strategy theinternet –insupporting in thepastyear ofits andcontinued –aspart responsible corporate citizen ofa its conduct also am very gladthat Slovak I Telecom haspreserved be abletoface allchallengesofthemarket. Generationso-called Next Operator that will to a only approach toletusconvert Slovak Telecom technologies. We are confident that thisisthe services, andallthat withthehelpofcutting-edge Slovak Telecom, a. s. ofDirectors Chairman oftheBoard Horst Hermann 39

73 31/3/05, 10:41:34 AM blok AJ217x280 10 Address ofMiroslav Majoroš, President/CEO

other hand, 2004 saw anincrease inthe effi- growth ofthe overall internet market. Onthe grew fasterthanthedynamic portfolio service share ofprovided internet services, whichinour 2003, could nothave beenoffsethigher even by a 5.2% drop intotalearnings over alsoina reflected telecommunications industry. The decline, which tions networks intotalearningsgenerated by the providedservices over thefixed telecommunica- reduced share ofearningsfrom voicesulting ina marketservices continued togrow lastyear, re- The competition onthetelecommunications increased theirpace. ofalltransformationquality processes andalso munications operator substantially changedthe Telecom generationso-called next telecom- toa since ournew strategy aimingtochangeSlovak in theongoingtransformation ofthecompany, Thesignificant lastyear milestone represented a only ourcompany, butthewholeofSlovak society. successes ofwhichinfluenced theimportance not for Slovak Telecom. was It alsoa year ofmajor The year 2004brought withitmany challenges 2

10 Address ofMiroslav Majoroš, President/CEO

38 monitored parameters ofourcompany’s evalua- Customer isoneofthestrategically satisfaction more attractive andeffective. our marketing communication hasbecome much the new corporate identity, butthat thankstoit proven that ourcustomersnot onlyidentify with and corporate customers. Market surveys have sive communication tobothresidential services communications operator providing comprehen- long-term objective tobecome a universal tele- signal that we hadchangedandwould fulfilour lekom AG. This stepwas, at thesametime, clear a of thestrategic foreign investor −Deutsche Te- changes inthepastfour years following theentry our company, whichhasundergone revolutionary past year.natural milestoneinthelife of was It a were amongthekey changestotake place inthe change ofcorporateRe-branding anda identity as intherest oftheworld. tele brought usmore inlinetoefficiently functioning ofallcorporateciency processes, whichinturnhas 40

communications operators inEurope, aswell 42

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in thetelecommunications market andbrought conditions alsoinchangedregulatory flected Slovakia’s accession to theEuropean Unionre- Slovak Telecom at theyear endcameto38,334. of theyear. The ADSLcustomerbaseregistered by chance toenjoy the benefitsofADSLat theend habitants in119Slovak towns andvillageshadthe throughout Slovakia. Asmany as2.9millionin- the expansion ofADSLtechnologypenetration totheinternet.connection Here we accelerated The year 2004was alsomarked by broadband operators for ourcompany. advantages over othertelecommunications success that willreap many long-termstrategic network through NGNisundoubtedlya major digitalisation ofthepublictelecommunications scope that israrea alsoinEurope. Completion of Telekom AG Group todeploy thetechnology to we were thefirstcompany withintheDeutsche rise tothechallengewithprestige, even though I am extremely gladthat we have managedto ing themquicklyavailable totheentire market. for thecentralised launchofnew services, mak- isthemostadvancedIt technology that allows us complete thedigitalisation ofournetwork. tion ofnew technology. NGNtechnology helped centre ofourattention intermsoftheintroduc- Generation Network) technologywas at the Implementation NGN(Next of state-of-the-art the telecommunications industry. fixed lineoperators withanextensive in history exceeding thelevel ofEuropean incumbents, i.e. the residential aswell ascorporate segments index ofcustomersatisfaction, withitsvalue in in marked improvement oftheso-called TRI*M to a customer oriented one. resulted Ourefforts changing from a technology oriented company tion. We accommodate toourcustomer’s needs, 1

11 Address ofMiroslav Majoroš, President/CEO

37 for Schools project became oneofthemostsig- for Schoolsproject than 90%ofallschoolsto theinternet. The PCs modern computer classroom more andconnect a schoolswith andsecondary to equipallprimary shareholder −Deutsche Telekom AG, enabledus siderable financialcontribution ofourmajority our company’s mission. Wecon- are proud that a mation andcommunication isa society of part for thedevelopmentSupport modern infor- ofa inSlovakia.sibility of spreading theideaofcorporate socialrespon- association ofcompanies that hastheobjective of theBusinessLeaders Forum (BLF) –aninformal year Slovak Telecom founding member becamea brought various notablecultural events tolife. Last philanthropic alsoin2004; projects oursupport We and charity actively andeffectively supported llenge for ourcompany, butrather anobligation. of life oftheSlovakcha- population isnotonlya To contribute totheimprovement ofthequality penetration. technology implementation, andgrowth ofADSL of thepublictelecommunications network, NGN investments inthecompletion ofdigitalisation ofthisamount accountedThe biggestpart for 38% oftotalrevenues in2004, i.e. SKK6.4bn. with totalinvestments constituting asmuch We kept onheavily investing inourinfrastructure, to besignedat thebeginningof2005. The firstinterconnection contracts are expected networks ofothertelecommunications operators. on theinterconnection ofournetwork withthe services. We continued withintensive negotiations a comprehensive range oftelecommunications bile operators andalternative operators offering Slovak Telecom hasfaced thecompetition ofmo- communications services. For sometimenow about a rise incompetition inthearea oftele- 39

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market. willbemarked It by of theintroduction oftheSlovakin thehistory telecommunications all probability,year ofthegreatest changes bea be capitalisedonthisyear. The year 2005will, in convinced that theexperience gainedlastyear will andfortheir hard theirgoodwork. effort I am like tothankallthemanagersandemployees for would difficult yearThe year andsoI 2004was a in allofSlovakia. ofinformatisation inthehistory nificant projects 2

12 Address ofMiroslav Majoroš, President/CEO

38 Slovak Telecom, a. s. President/CEO Miroslav Majoroš successful than2004. year, butI firmly believe itwillbeeven more Telecom. willundoubtedlybea It challenging innovations andthetransformation ofSlovak against a background ofongoingtechnological stay loyal toourbrand. All ofthiswilltake place that andservices willpersuadecustomersto ducts will notstandaside, ofpro- butlaunchthetype line operators, andby ever fiercer competition. We communications, byofalternative the entry fixed a new brand inthefieldofmobile andproducts 40

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74 blok AJ217x280 13 Senior ExecutiveSenior Vice-President/CFO Dr. MarkPeter Montagne von Lillienskiold

Directors. ber 2000, heisalsoa member oftheBoard of ExecutiveSenior Vice-President/CFO inDecem- MATÁV andDeutsche Telekom AG. Appointed positions for companies such asBayer, B.A.T., University. Hehasworked intopmanagerial Mark von studiedlaw Lillienskiold at Bonn 1

7 Members oftheExecutive Management Board 9

13 Members oftheExecutive Management Board

President/CEO Ing. Miroslav Majoroš 41

rate social responsibility. Leaders Forum, theleaderinfieldofcorpo- Mr. Majoroš isalsopresident oftheBusiness a elected member oftheBoardDirectors. Telecom andinApril ofthesameyear was 2003hebecamePresident/CEOJanuary ofSlovak vízia andIBM, bothinSlovakia andabroad. In positions incompanies suchasSlovenská tele- Bratislava andhasheldseveral topmanagerial nology oftheSlovak University of Technology in EngineeringandInformationof Electrical Tech- Miroslav Majoroš graduated from theFaculty 43

73 31/3/05, 10:41:37 AM blok AJ217x280 14 Executive Vice-President/CHRO PhDr. Anna Hudáková

Amatil Slovakia andReemtsma/Slovak Inter- ment positionsincompanies suchasCoca-Cola sional background includes seniormanage- of Pavol Jozef Šafárikin Prešov and herprofes- Anna Hudáková graduated from the University top managerialpositions. Mr. Müllerjoinedthe Telekom AG anditsforeign acquisitions, occupying many years withtheparent company Deutsche the Technical University inBerlin. Hehasspent Müllercompleted universityHerbert studiesat 2

14 Members oftheExecutive Management Board

38 Slovak Association. Resources Management andDevelopment Hudáko Vice-President/CHRO 2001. inJanuary Anna national Tabak. She was appointed Executive Vice-President/COO inAugust 2003. CTO.acting Hewas Executive appointed Senior tive Vice-President for Marketing and andSales company inNovember Execu- 2002asSenior 40

44 vá isalsopresident oftheHuman 46

48 Senior ExecutiveSenior Vice-President /COO Dipl. Ing. Müller Herbert

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Executive Vice-President/CIO Igor Hurčík 1

3 Dr. TorstenMinkwitz. Executive Vice–President/CIO was heldby 2004,Until 31January thepositionof Development. of Financial &Business Services Advisory for Deloitte& Touche Slovakia asDirector CIO inFebruary 2004, IgorHurčíkworked world. Before joiningSlovak Telecom asits institutions inEurope andtherest ofthe managerial positionsinseveral financial at ZürichUniversity. Hehasoccupied top Igor Hurčíkstudiedlaw andeconomics 5

15 Members oftheExecutive Management Board

43 Executive Vice-President/CSRO PhD. Kukura, Pavol Ing.

45 the EU). cations Network Operators’ Association at Meeting ofETNO(European Telecommuni- Kukura isalso Vice-Chairman oftheGeneral Vice-President/CSRO 2003, inOctober Pavol Lucent Technologies. Appointed Executive tional companies, e.g. Alcatel, AT&T, and managerial positionsinseveral interna- of Technology in Bratislava. Hehasheldtop mation Technology oftheSlovak University Faculty EngineeringandInfor- ofElectrical Pavol Kukura studiedandworked at the

73 31/3/05, 10:41:50 AM blok AJ217x280 16 Corporate Bodies

n.PtrSrpo member member member member member vice-chairman Ing. Peter Stropko Ing. Gabriela Vavríková Dr. MarkPeter Montagne von Lillienskiold Dr. Rentschler Ralph Ing. Miroslav Majoroš Ing. ŠtefanBugár Horst Hermann Board ofDirectors 2

16 Corporate Bodies

chairman 66

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n.ĽdvtHno member member chairman vice-chairman Ing. Alojz Glinský JUDr. Eleonóra Valentová Ing. Ľudovít Hintoš Ing. Jozef Opát Ing. Pavel Kyman Matheis Albert Hans-Peter Engel Dr. Frank-Reinhard Bartsch Ing. Martin Velecký Board Supervisory 1

17 Corporate Bodies

65 member member member member member 67

73 31/3/05, 10:41:59 AM blok AJ217x280 18 Organisational Structure

pany’s operations. with theobjective ofefficiently runningthecom- • • • follows: ofthecompanytermines thebasicstructure as a. s. ofthemanagement system that ispart de- The organisational ofSlovak structure Telecom, Organisational ofthecompany structure 2 branch Slovak Telecom, a. s. corporate bodies 4

6 Human Resources Unit Unit reporting toCEO Unit reporting 8

18 Organisational structure

28 Rádiokomunikácie, o. z. Slovak Telecom, a. s. Strategy &Regulatory

Corporate bodies 30 Board ofDirectors Supervisory Board Supervisory Technologies Unit General Meeting 32 Information Affairs Unit 34 Branch

38 Directors andthecompany’sDirectors businessactivities. company. oversees It ofthe Board of theactivities bodyofthe Board isthesupervisory Supervisory ofAssociation.is definedby theArticles pany. The scope ofpowers oftheGeneral Meeting General Meetingisthesupreme body ofthecom- Corporate bodies 40

52 Operations Unit 54 Finance Unit

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following ofcommercial portfolio services: RK Tower, s.r.o., Rádiokomunikácie provides the nies Register. Inco-operation withitssubsidiary, of Slovak Telecom, a. s. registered intheCompa- Rádiokomunikácie, o.z. isanorganisational unit form theExecutive Management Board. The CEOandthe above mentioned chiefofficers • • • • • • Slovak Telecom, a. s. hasthefollowing structure: and delegates powers. necessary Executive Management ofthecompany Board appointsBoard ofDirectors membersofthe corporate bodiesby theBoard ofDirectors. The ticles ofAssociation, orare delegated toother corporate bodiesby law, orpursuant totheAr- ofother unless thesefallunderthejurisdiction adopts decisionsonallmatters ofthecompany, manages thecompany’sDirectors and activities pany indealingswiththird parties. The of Board company inallmatters andrepresents thecom- company. onbehalfofthe isauthorised toact It bodyofthe isthestatutory Board ofDirectors 1 Finance toChiefFinance Unitreporting Information Technologies to Unitreporting HumanResources toChief Unitreporting Operations toChiefOperating Unitreporting Strategy Affairs &Regulatory Unitreporting toChiefExecutive Unitreporting Officer 3 Officer Chief Information Technologies Officer Human Resources Officer Officer to ChiefStrategy Officer &Regulatory

19 Organisational structure

37 Telecom isbeingpursuedfurther. tion tospinoffRádiokomunikácie from Slovak our company tofocus oncore activities, theinten- 2004. With tothestrategic respect intentions of workforceIts constituted 435asat 31December andoverallproductivity of thebranch. efficiency gies, whichledtoa significant increase inthe tural changesandinvestments innew technolo- In 2004, Rádiokomunikácie continued with struc- proper digitalbroadcasting inSlovakia. anothersteptowardsthus taking introducing DVB-T standard inBanskáBystrica andZvolen, a ofdigitalbroadcasting inthepilot project In December 2004, Rádiokomunikácie launched • • • • • • • • •

Specialassemblyactivities, of production Design activities Frequency planning, measuringcoverage and Lease oftechnologypremises andmasts Mobile transmissions Slovak –distributionofradio Linkservices and Television broadcasting (transmitters and broadcasting ontheFM, Radio MWandSW 39

broadcasting andcomponentsconstructions related to signals useful/interfering of transmission andradio relay routes Transfer ofmodulations anddata by means Lumen, RádioOkey) Rádio Twist, RádioExpres, Fun Rádio, Rádio televízia, Televízia Markíza, Slovenský rozhlas, television broadcasting viasatellite (Slovenská license holders converter) operator forTV thestatutory and holders bands foroperator thestatutory andlicense 41

73 31/3/05, 10:42:00 AM blok AJ 217x280 20 31/3/05, 10:42:00 AM blok AJ 217x280 21 31/3/05, 10:42:03 AM blok AJ217x280 22 – we where know we are heading. Clear objectives, clearstrategy

reached thelevel of160,000by theyear end. Access the course oflastyear; thetotalnumberofusers of analoguedial-upinternet usersrose slightly in ST DSLcustomerbaserose to38,334. The number Slovakia by theyear end. At theend of2004the which was accessible to2.9 millioninhabitants in mainly by theexpansion ofbroadband internet, 30% year-on-year. The growth was influenced ice providers inSlovakia grew by approximately Slovakia. Total estimated earningsof internet serv- cally developing telecommunications market in In 2004theinternet market was the mostdynami- growth invoice revenues service of14%. customers achieved anestimated year-on-year that focused mainlyon VoIP for services business line revenues by 7%. In2004alternative operators competition, ledtoa year-on-year drop infixed of fallingprices invoice causedby services growing general tendency traffic inthefixed network anda 25.5% at theendof2004,lower volume ofvoice a The declineoffixed linepenetration from 26.3%to year-on-year growth53.7 billionwitha of10.2%. amounted toapproximatelytions industry SKK In 2004thetotalearningsoftelecommunica- Slovak telecommunications market in2004 possibilities andby targeting theresources, investments andcompany onperformance. toa activities minimum, by maximizingvoice contributions service aimedat fundinggrowth obtaining a competitive costs structure, by customerretention, by reducing faultsinoperational changing market conditions. We were successful inreaching thegoalssetoutfor 2004, namely by ofthecompanyefficiency tothelevel ofEuropean fixed lineoperators andonadjusting it to recent years, we are alsoundergoing a process ofrestructuring. isfocused onincreasing It the With totheradical respect changesthat have beenshapingthetelecommunications market in 2

20 Clear objectives, clearstrategy –we where know we are heading.

38 which isnow entitled toimpose new obligations Telecommunications Office oftheSlovak Republic, Telecommunications reinforced thepositionof into Slovak legislation. The onElectronic Act incorporate thenew framework EUregulatory 2004.ary The was mainpurposeoftheAct to Communications, on1Janu- whichtookeffect was incorporated into thenew onElectronic Act of thetelecommunications market. EUlegislation alsoinmodifiedconditionsreflected for regulation Slovakia’s accession totheEuropean Unionwas to theEuropean Union Legislation andSlovakia’s accession grew onlyslowly. technologies, suchasLeased LinesorFrame Relay ket. Ontheotherhand, revenues from standard being themostdynamicsegment ofthemar- Network basedonIPMPLStechnology services growth of11%inthepastyear, with Private Virtual The datamarket service registered anestimated competition todial-upinternet. provided by bothmobileoperators, posedserious to theinternet through GPRS/EDGEtechnologies, 40

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In 2004we intensified thetransformation and solutionsinorder tomake theirlives easier. have beenplanningtobring attractive innovations clear signalthat we havea changed andthat we new businessnameshouldgive ourcustomers brand, logoandtheentire corporate identity. The 2004by a in January change ofbusinessname, telecommunications operator, was underlined munications operator, butalsoasa universal voicebe perceived telecom- services notonlyasa of informatisation inSlovakia. to Oureffort of broadband internet access andonsupport of themostadvanced technologies, development Last year we focused mostlyontheimplementation 2004 inSlovak Telecom with seven companies. tions. At theendof2004we intensively negotiated interconnection whowere interested innegotia- was submittedtoalleligibleapplicants for the was amendedbasedonthedecision. The draft nections. contract Ourdraft oninterconnection technical andoperating conditions ofintercon- second instance decisiononthe tember itissueda entered thenegotiations and at theendofSep- Telecommunications Office oftheSlovak Republic for thepurposeofproviding voice services. The alternative operators onnetwork interconnection During 2004we continued innegotiations with Network interconnection Union. with theaccession ofSlovakia totheEuropean activities, andfor competitive pressure connected of new companies tothemarket andtheir implementation oftheEUlegislation, theentry on therelevant market. We are ready for the withsignificant market poweron undertakings 1

21 Clear objectives, clearstrategy –we where know we are heading.

37 carrier selection, andnumber carrier pre-selection for call-by-callwill offer customersopportunities other fixed alternative operators. These changes interconnection ofournetworks withnetworks of 2005 willbringtheconclusion ofcontracts onthe shaping thetelecommunications market theyear tronic Communications isexpected andintermsof legislation,new amendment onElec- tothe Act a more intensive competition generally. Intermsof operators tothefixed network market andby communications, ofalternative by theentry brand inthefieldofmobile andnew products market. willbemarked It ofa by theentry new oftheSlovakin thehistory telecommunications We theyear expect 2005toseemajorchanges Strategic orientation for 2005 optimumcostpreserving efficiency. to offer new innovative while andservices products single technologicalplatform and ona IP services Operator that isabletointegrate voice, data and GenerationNext its strategic goalofbecoming a introducing NGNtechnologywe moved closerto an extent unmatched throughout Europe. By AG Group toimplement theNGNtechnologyin the pioneercompany withintheDeutsche Telekom from thelicence conditions. Moreover, we were the privatisation ofthecompany in2000and tion andsosatisfied ourobligation arisingfrom new technology we completed network digitalisa- Generation Network) technology. Thanks tothe NGN(Nextto implement thestate-of-the-art To become a competitive company we decided its positiononthemarket. under new market conditions andtostrengthen the company sothat itcould successfully survive process, goalofwhichwas tochange theprimary 39

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membership inthisGroup. and itscustomerswilltake fulladvantage of the T-Mobile International Group were created the preconditions for integration ofEuroTel to to thefullacquisitionofEuroTel Bratislava, a. s. mobile communication year. next services Owing We anticipate majorchangesinthemarket of of agreater numberofoperators. of fixed voice willallow services for theexistence since itisquiteunlikely market that theshrinking consolidation ofalternativesee further operators, portability. Ontheotherhand, we to alsoexpect 2

22 Clear objectives, clearstrategy –we where know we are heading.

38 efficiency andproductivity.efficiency Gene with transformation ofthecompanyNext into a to90,000.connections We willalsocontinue thereby thetotalnumberof DSL taking 50,000 clients for thebroadband connection, penetration andtowinat leastanother will endeavour toachieve greater broadband customerrequirementsreflect andneeds. We thatcustomer baseandtooffer better products the mainobjectives of2005istostabilisethe of thetelecommunications market. Oneof from ourstrategydirectly andthedevelopment The objectives that we setfor 2005were derived 40

42 ration Operator, whileincreasing itsinternal 44

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73 31/3/05, 10:42:07 AM blok AJ 217x280 26 31/3/05, 10:42:09 AM blok AJ 217x280 27 31/3/05, 10:42:11 AM blok AJ217x280 28 We have achieved alotandstillwant toachieve more. its products andservices. its products ofhowreflection customersperceive thecompany, company’s own development. The TRI*M index isa with othercompanies aswell asanoverview of is independent. The index enablescomparison carried outby and theNFOAISAresearch agency Indicator) by companies allover theworld. is It The TRI*M index isusedasaKPI(Key Performance in customersatisfaction, retention andimage. to 10%ofthetopfixed linescompanies inEurope business customers. Ourcompany thusbelongs operators’ benchmarkfor bothresidential and values highlyinexcess oftheEuropean fixed as our customersknown TRI*M, where we reached survey andloyalty monitoringthesatisfaction of In 2004we enjoyed extraordinary success ina Through theeyes ofthecustomers Customers at thecentre ofourattention customers. All inall, we have madeahugestepforward tobecome Generation aNext Operator. and ultimately strengthened ourmarket for positionthrough and better services our new products We have re-shaped ourcompany, increased ourefficiency, deployed world cutting-edgetechnology 2 Customer retention development –households

24 We have achieved alotandstillwant toachieve more.

38 namely theprovision ofdata tokey services Certification tojustonearea, was restricted advantage intheever growing competition war. and sodefineditasasignificant competitive over quality service othercharacteristics certain took into account thepreference ofcustomersfor the ISOstandards. thisdecisionweWhen taking applied tohave ourcompany inlinewith certified At thedecisionoftopmanagement, lastyear we We were awarded theISOcertificate andloyalty.their satisfaction that they toretain positively toourefforts react to theindividualneedsofallourcustomersand that thissurvey ouractive approach hasreflected in ourcompany. isalsosatisfying It for ustoknow significant leapandtheoutcome ofmajorchanges The current marksa rise incustomersatisfaction

Customer retention development –business 40

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one oftheNMChalls. and serves asanenquiry It Management Centre,Service whichissituated near creation ofanew workplace for theKey Customers The alsoincludedthe NMCreconstruction project managed by ourspecialists. oftheircorporatefunctioning networks that are who willbeabletowatch inreal timethe place willalsoserve for visitsby key customers, the demanding24-houroperation. The NMCwork- their communication andcreates conditions for NMC colleagues. The layout ofthecentre bestsuits and alsofor aproper work environment for the for presentationessential factor toourcustomers 2005. Creating representative premises was an so that theNMCcould work initsnew guisefrom atnew theendofDecember, premises starting – December 2004)withtherelocation tothe The reconstruction took3months (October the handsofprofessionals. networks that andservices theirnetworks are in customers whocare abouttheavailability oftheir premises itwillbeeasierfor ustoconvince Centre (NMC). Intheserefurbished representative premises oftherenovated Network Management a day cannow welcome customersinattractive ment ofallcommunication networks 24hours which enablesthemonitoringandmanage- The Network Management Competence Centre Management CentreService Network Management Centre andKey Customer to usinDecember 2004. officially awarded theISO9001/2000certificate RW TÜV Systems company GmbHcertification in publicadministration. Representatives of and and large customersinthebusinesssector 1

25 We have achieved alotandstillwant toachieve more.

37 Managers. vided by ourAccount ManagersandKey Account key customers enjoyed theindividual care pro- cies, andbrand shops. authorisedpartners Our enterprises, callcentres sales– agen- andindirect specialised approach tosmallandmediumsized sales channels, namely: STPoints with ofSale In 2004we provided through ourservices several Improved ofsaleschannels quality the form ofacredit card. means ourmaxclubmembersgainabenefitin issuing maxcards isHVBBankSlovakia, which or at companies. various partner for Ourpartner telephone calls, togetdiscounts at ST’s salespoints card whichhe/shecanuse to make payments, loyaltymultipurpose max clubmemberreceives a maximum benefitstoourcustomers. Every ofourcustomers.on thepart “Max club“brings meant a step towards achieving greater loyalty ofloyaltyIntroduction programme inApril 2004 Appreciating ourloyal customers • • • • • The Centre provides thefollowing: single-contact point for ourlargest customers.

Ensuringcompliance withcommitted Quality Monitoringoftraffic andmanagement of co-ordination Direct withallSTunitsand Active dispatching andpro-active faultma- for service key Anon-stopfaultreporting and 39

Agreements). Level parameters (basedonService & Service customer networks. provisionservice process. organisations inthe participating partner nagement. number.on asingleservice wholesale customersfor alloffered products 41

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All that’s required isto callourwell toll- known 2004. Customers nolongerneed togoanywhere. centresfrom enquiry toactive saleschannelin transformation ofCustomer Centres Services (CSC) Another saleschannelwas created by adynamic veniently viatheInternet. whichtheyand services willbeabletoorder con- offer ourcustomersanotherway toourproducts the level ofbankapplications. Infuture we will application ofaEuropean standard security at launch ofe-commerce basedonanew modern concerning thepreparation ofasystem for the In 2004work also culminated onactivities 120,000 changestooptionalcallingplans. tions. Through saleswe indirect mademore than sales withrevenues farexceeding ourexpecta- withinindirect (shops ofauthorisedpartners) We carriedoutthepilotoperation ofbrand shops and salessystems. emphasis ontheprofessionalism ofsalespeople focus onindividualcustomertarget groups and new salesconcept by ischaracterised astrong The by redesignwas ofallsalesprocesses. supported Moreover, theattractive designofPoints ofSale tothebestarchitectural design.of Architects awardedcategory eachyear by theAssociation “CEZAR 2004” award architecture intheinterior designwastectural proven by a nomination to The right investment ofarchi- andhigh-quality with emphasisonthecustomers’ convenience. identifiable imageofPoints ofSale, ofcourse, a unified, characteristic, notableandclearly work of38Points withtheaimtocreate ofSale In 2004we completed fullredesign ofthenet- 2

26 We have achieved alotandstillwant toachieve more.

38 accounted for some12% andinternet services total revenues in2004. Revenues from data services and leasesrepresented more than70%ofthe andcustomer premises equipmentservices sales Voice revenues combined withsupplementary andservices Products to thisservice. many otherareas that we are constantly adding and leaseofreal estate andinformation from timetables, accommodation, rent, thepurchase programmes, concerts, joboffers, busandtrain for everyday life suchascinemaandtheatre hours aday on12 111. provides It information the Info Asistent service, whichisavailable 24 A completely cameintheshapeof new service call completion andreverse search options. quantity ofinformation by e-mailorfaxandalso (1181) orabroad (12 149), sendinganunlimited inSlovakiaof your friendsorbusiness partners numbers, addresses, web sitesore-mailaddresses ofgettinginformationpossibility abouttelephone hours aday, 365days ayear. These includethe Operator-assisted services, whichare available 24 In 2004we and introduced Enquiry new Directory inbound callsincreased by 25%over 2003. sales results oftelephonesales–thenumber the risingtrend ofincoming callsandalsoby the this convenient way ofshoppingcanbeseenby sations). Proof that ourcustomersappreciated 500 (companies andorgani- holds) and0800123 456 (house- on0800123 andservices all products on offer. They willalsoreceive information about free numbersandorder any orservice product 40

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on Sundays andholidays. than30minutes and free calls 1 for callsshorter the STPohoda callingplanwas theprice ofSKK evenings andat weekends. Aspecialelement of were able tomake advantageous callsinthe Pohoda andSTExtra. Thanks tothem, customers also tonew callingplanslaunched inJuly2004–ST charge withoutlimitation. This solutionwas applied Republic), whichmeanscustomerscancallfree of telecommunications provider intheSlovak of “free days” intheSTMaxiplan(asfirst One oftheinnovations was theintroduction alsointhefieldofvoicenew products services. “Solutions for betterlife” In accordance withthenew brand promise – Voice services revenues. (Carrier amounted to9%ofthetotal services) revenues andrevenues from interconnection fees nikácie branch reached almost 5%ofthetotal of thetotalrevenues respectively. Rádiokomu- (ST DSL, STOnlineDSL, dial-upinternet) for 2% 1 Optional callingplansdevelopment

Total number 3

, we introduced various 19

27 We have achieved alotandstillwant toachieve more ...

37 the product wonthe product asmany as26,000customers. historic success insales–withinfive-months time became ourstrong card, generating almost a traditional telephoneline. Family Internet for totheinternet through customersconnecting totheSlovakInternet service market. isdesigned It In August 2004, we introduced a new Family affordable toSlovak households. withanaimtomakeservices internet more to themarket various attractive and products internet. Inthecourse oflastyear, we brought both narrowband andbroadband access tothe providerservice intheSlovak Republicoffering Our company isthemostsuccessful internet Internet services and holidays. our network during off-peaktimes, weekends customer paidnothingfor callsmadewithin new level tocommunication, ofquality asthe The callingplanbrought STExtra acompletely 39

73 31/3/05, 10:42:19 AM blok AJ217x280 32 in residential segment 2004 Development ofDial-upSTOnlinecustomers -based high-speedinternet. Last year saw aboomintheuseofADSLtechnology- of traffic volume reached 60%. Online. Ourshare onthedial-up market interms were usingtheinternet through connection ST As at 31December 2004over 102,000 customers 2 Map oftheDSLcoverage Devínska NováVes Záhorská Bystrica 4 Bratislava Stupava Devín 87,809 Čuňovo 6 Ivánka priDunaji Zohor Rusovce existujúce STDSLlokality Dunajská Lužná

Malcky 8 Bernolákovo Rovinka Holíč Svätý Jur Lozorno Jarovce Kalinkovo Veľký Biel

Jablonica 10 Most priBratislave Borinka Limbach Skalica Senica Vajnory Miloslavov Hamuliakovo 12 Modra Tomášov Malinovo Zálesie Senec Nová Dedinka Pezinok Šamorín pod Bradlom Brezová Trnava 14 Myjava

nad Váhom Nové Mesto 16 Streda Dunajská Galanta Hlohovec Sereď Turá Stará Ohrady 18 Piešťany Šaľa nad Bebravou Bánovce

Nitra 20 Komárno Trenčín Topoľčany Ilava Trenčianske Teplice Púchov Nové Zámky Nová Dubnica 22 Dubnica nadVáhom Šurany Vráble Zlaté Moravce

Bystrica Povašská 24 Štúrovo Partizánske Bytča Bojnice 26 Banská Štiavnica Prievidza Žiar nadHronom Levice Vrútky Nové Mesto Kysucké Handlová 28 We have achieved alotandstillwant toachieve more. Čadca Nová Baňa Žilina

nad Váhom Teplička 30 Banská Bystrica Martin Kremnica Zvolen 102,236 Ružomberok 32 Veľký Krtíš Dolný Kubín 34 Námestovo Detva 36 Mikuláš Liptovský Lučenec

Tvrdošín 38 Brezno Trstená with positive responses. Moreover, campaignsof DSL 768toST1024inApril 2004alsomet increases ofSTDSL384to512and market at thebeginningofMay 2004. The speed customers andwhichwas introduced tothe doma plan, which isdesignedfor residential thankstothenew,particularly affordable STDSL The interest inthe high-speedinternet increased customers subscribingtoSTDSLreached 38,334. customers, by 31December 2004numberof Whereas at thebeginningof2004we had4,210 internet access. lion Slovaks totake advantage ofhigh-speed covered areas, thusallowing asmany as2.9mil- also improved thepenetration oftheformerly made available tonew locations in2004, butwe palities throughout Slovakia. STDSLwas notonly internet was available in119towns andmunici- At theendof2004, ofhigh-speed theservice Štrbské Pleso 40 Liptovský Hrádok Smokovec Starý Štrba Sobota Rimavská 42 Revúca Svit Lomnica Tatranská 44

Poprad 46 Kežmarok Nová Ves Spišská

Levoča 48 Rožňava 50 Stará ľubovňa

54 Prešov Bodvou Moldava nad Košice Bardejov Sabinov 56

Ľubotice 58 nad Topľou Vranov

Svidník 60 Trebišov 62 Humenné Michalovce Stropkov 64

66 Snina

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virtual network. virtual the customergainedadvantages ofa private callingplan,in asingleBusinessPartner whereby which appliestoallcallsbetween linesincluded were provided with adiscount oninternal calls, all advantages oftheplan. Corporate customers period, we enabledourcustomerstomake useof payment. By cancelling the6months’ subscription the riskofcompensation supplementary spend withinthree months. This alsoeliminated limited by theminimumamount they hadto committed payment. The customerwas thusnot (BP, BP60, BP300)was thecancellation ofthe feature for callingplans theBusinessPartner communication needsat thesametime. Anew of theircallsandbringglobalsolutionsto corporate customers, whichimprove theefficiency We brought telecommunication solutionsto Our solutionsfor corporate customers almost 67%at theendofyear. provider intheDSLinternet market represented the year. The share ofSTOnlineDSLasaninternet advantageous installation service ran throughout 1 Development ofSTDSLcustomers

3 July 2003 5

October 2003 9

13 January 2004 15

17 April 2004 19

J ly 2004 u 23

October 2004 27

29 We have achieved alotandstillwant toachieve more.

31 December 2004 33

37 service providers internetservice traffic collect todirectly offer –ISPDialUpPlus, enablingotherinternet weinternet services prepared additionalspecial In accordance promote withouraimtofurther Presence) ofotheroperators viaaccess links. traffic from enduserstonetworks (Points of Link service. ensures ofdata It thecollection offers istheCarrierOne ofthemostimportant to otheroperators providers. andinternet service In 2004we continued offering wholesaleservices Wholesale/Carrier services to MPLS VPN through ADSL. Moreover, we introduced ofaccess thepossibility for individualbanksandauthorisation centres. terminals requiring permanent communication tomated Teller Machine)equipment andpayment provision, namelytheinterconnection ofATM (Au- whichfocuses onanewproduct area ofservice Another innovation was the Transaction NetFix GenerationNGN (Next Network). (Asynchronous Transfer Mode), Frame Relay and tion of VPNs onthree different platforms –ATM whichallowsBusiness Netproduct implementa- private in2004was the virtual networks (VPN) One ofthemostsignificant innovations inthedata the sameperiodrepresented 10%onaverage. growth ofdata revenues ontheSlovak market in revenues, whichsaw more than16%increase. The ring helpedtoaccelerate thegrowth rate ofdata comprehensive customersolutions. The restructu- in 2004toenablethemore flexible creation of was ofdataThe restructured products portfolio Data PrivateVirtual Networks 39

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specific solutionsfor and internal theirexternal technology. We that know large companies need grating voice anddata usingleading-edge services Business customerswere offered solutionsinte- Our successes intenders throughout theworld. tootheraffiliatesthem toconnect orpartners with international even services faster, enabling means we canprovide ourbusinesscustomers tive international data services. The agreement the technologicalbasisalsofor offering competi- the world. The network co-operation created of ournationalconnects network toallparts worldwide “Telekom GlobalNetwork” usage, ofDeutsche we becameapart Telekom’s Thanks toco-operation inthearea ofnetwork voice termination. with regard tonetwork usageandinternational agreement marksadeepeningoftherelationship network tocustomersinSlovakia. services The for theco-operation inproviding international of bothcompanies. The contract forms thebasis Contract onSynergy was signedby representatives AG onworld-wide basis. At theendofMay the serves majorcustomersofDeutsche Telekom and telecommunications provider service that tems International, theinformation technology in theco-operation ofourcompany and T-Sys- The year 2004proved tobeasignificant milestone Cross-border co-operation in Slovakia. to legitimately collect “Voice over IP(VoIP)” traffic another wholesaleoffer, allows otheroperators using the “Reverse Charging” principle. Voice Plus, from theirusersandcharge themwiththeirprices 2

30 We have achieved alotandstillwant toachieve more. , which 32

38 analogue userswere switchedto the NGNtech- culminated inDecember 2004whenthelast The process of digitalisation ofournetworks EUR 20million. investments into theNGNtechnology have been complete thenetwork digitalisation, ofwhich have invested approximately EUR85millionto of 2003thedigitalisation rate was 85.52%. We munication toallcustomers. services By theend the cornerstones for offering moderntelecom- arose from theprivatisation obligation andlaid Completing digitalisation by theendof2004 Completion ofnetwork digitalisation VÚB bank. has offered alsoto itsservices Tatra bankaand (Railway Company). The commercial callcentre Slovak RepublicandŽelezničnáspoločnosť, a. s. ofLabour,Ministry SocialAffairs andFamily ofthe CCC customersincludeHVBBankSlovakia, the and thefirstcentre was builtinPrešov. Existing tion intheperiodfrom April toDecember 2004 of callcentre followed services apilotopera- forservices third parties. The commercial offer – theprovision ofcommercial call centre (CCC) In 2004we appliedanew businessplanofST Innovations inourbusiness andsolutionstovariousservices clients. ratio tooffer underlinesourability top-quality tenders, succeeding in19ofthem. This success wishes. in33public In2004we participated allows ustotailoreachsolutionthecustomer’s voice inaway anddata portfolio services that communication needs. We therefore designedour 40

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pleted preparations for achangeofcorporate At thebeginningof 2004we successfully com- Marketing communication Creative andefficient communication or numberportability. andcarrierpre-selection by-call carrierselection network allows for theimplementation ofcall- telecommunication incumbents. The fullydigitised network operator intheworld inthegroup of sation usingNGNwe becamethelargest IPNGN platform. Thanks tothecompletion ofdigitali- ments by utilisingthisinnovative andmodern gradual renewal ofnetwork infrastructure ele- to introduce NGNandsocreate space for the the firstcompany intheDeutsche Telekom Group to thedigitalisation. At thesametimewe became especially considering thescope oftasksrelated cess ontheglobal telecommunication market, in lessthansixmonths, ita making unique suc- of 152,000customersat 310sites was carriedout Generationnology (Next Network). The migration 1 telecomunications network Development ofdigitalisation oftheSTpublic Digitalisation rate 3

31 We have achieved alotandstillwant toachieve more.

37 liga clubs, we alsoorganise various accompanying competition. Inadditiontofundingfor STExtra- a general sponsorofthetopSlovak ice-hockey sponsorship.sports Since 2002we have as acted Efficient marketing communication includesalso Super benefitspackage. 16,500 customersordered afixed linewiththe –Decembercampaign (October 2004)almost of superbenefits. Inthecourse ofthe3-month benefits onoffer andcreate theirown package 699 (excl. VAT). Customers could chooseany ofthe cordless telephonesetat theexcellent price ofSKK months, free Family Internet for 3months anda installation for justSKK1, free localcallsfor 12 great response. The offer was trulyabroad one: The “Super benefitspackage” campaignmetwith fixed line” attractive campaigns(“Ilove Sunday” existing customersalike by means ofseveral topotential and andservices using ourproducts During 2004we communicated thebenefitsof products, andinternet anddata solutions. voice brand imageandalsotosupporting services life” greatly contributed tostrengthening thenew on thebrand promise of “Solutions for abetter carried outunderthenew design withanemphasis in Slovakia. Advertising campaignsandprojects cation strategy was amongthemostsuccessful regular surveys showed that ournew communi- award inthecreativity classandtheresults of class,efficiency the Striebornýklinec(Silver Nail) Providers category, thebronze EFFIEaward inthe Brandsuch astheBest inSlovakia intheInternet neral public. In2004we received several awards, brand values toourcustomersandthege- identity andintroduced thenew logo, sloganand 39

, “International callsfrom afixed line”). 45

63 , “Win witha 65

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2003 –websites category. the competition Corporate Mediumofthe Year categories,print andelectronic and3 2003–bothinthe competition Annual Report (Podnikové médiumroka 2003), 1 competition Corporate Mediumofthe Year 2003 the topaward intheintranet ofthe category Proof ofourefficient communication camewith and therange onoffer. ofproducts eSlovakia initiative, thePCsfor Schoolsproject of market liberalisation, ourparent company, the attention primarilytotopicsrelated tothefield or rather anobjective appraisal. The mediapaid considerably shifted publicity towards apositive more thanin2003. The qualitative evaluation of neration of4,551mediaoutputslastyear, i.e. 31% market andinourcompany resulted inthege- media inevents onthetelecommunications The substantial interest ofnational and regional Corporate communication second year oftheSTreet hockey league. as 364schoolhockey inthe ballteamstookpart similartoice-hockey.free-time activity Asmany was toprovide schoolpupilswithaneasy primary hockey schoolleaguefor 13-14year-olds. Ouraim sing ahockey balltournament calledtheSTreet the 2004/05schoolyear we continued inorgani- for thebestunder-20player intheSTExtraliga. In in theannouncement of “Newcomer ofthe Year” ofyoung talent wassupport started, culminating projects. Inthe2004/2005seasonacompetition in 2

st 26 place inthe 28 rd 30 place in

32 We have achieved alotandstillwant toachieve more.

38 solutions. chain ofproviding comprehensive customer wethis product aimtoclosethetechnological solutions.Network) andsecurity product With develop andintroduce managedLAN(Local Area GPRS/EDGE etc.). Lastbutnotleast, we planto privatethe virtual network (e.g. through dial-up, MPLS VPN product, especiallyintermsofaccess to environment. We willalsocontinue innovating the customer voice anddata solutionsinthe IP willensure theconvergenceproduct ofefficient Virtual Voice toourcustomers. Netproduct This area includethesuccessful ofthe introduction andservices goalsfor 2005intheproduct Other (e.g. tripleplay –voice, video, internet; Voice over IP). for ofcompletely theintroduction new services of voice, data andIPservices, andprepares us logy NGNgives usadvantages intheintegration Deployment oftheworld leading-edgetechno- 90,000 STDSLsubscribersby theendof2005. locations tohave in2005andexpect asmany as to make available theSTDSLservice in350new development on thebroadband market. We plan provider willtherefore beakey area for ourfuture with attractive content. The positionofcontent besides fastaccess willalsoprovide customers the wholeinternet businessinSlovakia, which Broadband internet willbeanaccelerator for in2005 Our direction 40

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73 31/3/05, 10:42:21 AM blok AJ 217x280 38 31/3/05, 10:42:22 AM blok AJ 217x280 39 31/3/05, 10:42:26 AM blok AJ217x280 40 We progress becausewe are notafraid ofchange. We changetomake progress. munication withinthecompany. by intensiveall supported discussions andcom- improvement system, automation, process changes, mation projects, acompany-wide conti basic toolsoftransformation includedtransfor- of thechurningandinfluxnew custo customers tooptionalcallingplans, stabilisation Above alltheresults concerned themigration of oftheCustomer BaseStabilisationpart project. months we have generated optimisticresults as activities).networks andsupport Injustsix formance improvement (focused onser on network improvement) andCompany per- development), Innovation andgrowth (focused Top linegrowth (focused oncustomerandmarket inthreetools andkicked key offprojects areas: In 2004, we definedanddeployed transformation to achieve ourobjectives. manner ofimplementing the strategy inorder workflow organisation. alsodetermined the It terms ofservices, technologies, processes and the aimofdefiningourstrategic in direction over thelastyear hasbeenimplemented with The transformation process that intensified forward Transformation –eNGinethat drives us goals setby ourshareholders. the marketplace, provide bestworking environment conditions for ouremployees andtosatisfy the meet customerdemands, iscapableofintroducing innovative solutionsandadvanced to services company isthebestpossiblemeansofdeveloping into Generation aNext Operator whoisableto work ofouremployees. was It evident that thenew approach appliedfor thetransformation ofour The success of2004was achieved through theefforts, inparticular persistence andprofessional 2

mers. The 30

nuous 32 vices,

We progress becausewe are notafraid ofchange. We changetomake progress. 34

38 applied toallcore customerprocesses in2005. proach toprocess improvements, whichwillbe project. we Inthisproject testedasystematic ap- ofaprocesswas thekick-off improvement pilot development ofemployees. The first stepin2004 mation, andincreased theinvolvement and organisational structure, provided more infor- increased flexibility through changesinthe to that. We introduced innovative technologies, customers. were All other activities subordinated on theprovision toour orservices ofproducts We focused onprocesses that hadanimpact -mana our company functioned, itaprocess- making fully inanew environment andchangedtheway our company’s readiness todo businesssuccess- ofthetransformation,As part we kept increasing efficiency Process changes–streamlining andmore fined by ourshareholders ontheother. on onehand,services andsatisfy thegoalsde- to introduce innovative solutionsandadvanced to meetever changingcustomerdemands, and Generationso-called Next Operator that isable the onlypossiblemeansofdeveloping into a used inthetransformation ofourcompany is hasbecomeIt obvious that achangedapproach 40

ged enterprise ofaEuropean standard. 44

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74 blok AJ217x280 41

sioning systems were automated and we also processes. In2004ournationwide provi- service with ourcustomersinthesales andprovisioning tools toourcolleagues contact working indirect These delivered projects sophisticated support provisionstandard of service toourcustomers. were toimprove themostsignificant efforts the Business Intelligence projects II) and and (Phase I ProvisioningThe Service andAssurance project operational support. ment, corporate security, humanresources and customer care, billingprocess, network manage- development,of product marketing andsales, ful implementation inareas ofnew ITprojects level. This created theprerequisite for success- of ourdata centre facilitiestoaworld-class siderably by finalisation andmodernisation ofIToperationsquality have improved con- delivery.internal service The standard and der toimprove time, andcosts quality ofour new ITdelivery process management inor- and tight financialdiscipline)ITimplemented (in anenvironment ofheadcount reduction In order tomeetourambitiouscompany goals regional affiliates synergy projects. ance improvement andDeutsche Telekom AG top-line growth, customerexcellence, perform- forts. The key areas ofourfocus in2004were allowing ustofocus andtosucceed inouref- foundations whichwere buildinprevious years, andontheotherhandweproject didutilize the on onehandthecompany-wide transformation The majordrivers ofITunitkey were activities for greater customersatisfaction Information technologies 1

35 We progress becausewe are notafraid ofchange. We changetomake progress.

37 (CoE) project. andfinally theCentre(efficiency) ofExcellence ture stan three majorefforts, (infrastruc- ITarchitecture among theGroup members. The CIOGroup leads of existing synergies andre-using ofknow-how co-operation isaimingat findingandexploiting Makedonski TelecomSlovak Telecom.and This individual CIOsofMATAV, Hrvatski Telecom, isledbyThis CIO effort T-Com andmembers are co-operation effort, theregional T-Com CIOGroup. Deutsche Telekom AG Group’s regional affiliate Since 2002we are anactive memberofthe cations Office andSlovak legislation. addressing areas regulated by the Telecommuni- issuesandoncorporatesecurity level ITwas we addressed Sarbanes-Oxley andGroup Act IT compliance projects. On T-Com compliance level fewIn 2004we and criticalregulatory started and customersatisfaction. efficiency, ofITservices andquality performance consider akey toolfor internal monitoringofthe Levelsis ofService Agreements (SLA), whichwe are currentlyAll ITactivities provided ontheba- sales andnetwork infrastructure. co-operation between ITand customercare and Our integration was theresult effort ofaclose provisioningservice timesbasedonITsolutions. all improvement andshorter quality ofservice provisioning processes, thusleadingtoanover- mation ofcustomercommunication andservice brought alonggreater transparency andauto- capabilities.new service These systems changes andaddedmore theirfunctionalities extended 39

dards), streamlining ofIToperations 45

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service levelsservice ofcustomersolutions. provisioning andenablethemanagement ofthe will secure ahighlevel of automation ofservice customers’ needs. We are building systems that performance. Ouraimistoadjustallsystems to supervise, analyse andmanageourcompany’s network technologiesandprocesses will letus systems designedfor monitoring andmanaging offunctioning. andthequality efficiency New IT for internallooking instruments toincrease IT as ourobligation. ofthisprocess, Aspart we are We regard theongoingcreation of ITarchitecture ties. platformbut alsoasaproduction tothird par- providerand service notonlytothe T-Com Group topositionitselfasanITsolution Our ITstarted commercial basis. care toall T-Com regional Group memberson Telecom-IT specificsolutionsfor billingandcustomer CoE isonthedevelopment andprovision of for BillingandCustomer Care. The focus ofour We are aGroup leaderintheCentre ofExcellence multiple deployments amongGroup members. a concrete for ITsolutionandbuildsacapability solution centre, where theindividualCoE develops The Centre ofExcellence isaregional IT project long-term data storage. in fullcompliance withEUstandards concerning IT operating processes. Ourarchiving solutionis catalogue, ITcost modelandtheunification of lead thestandardisation Product oftheITservices solution hasbeenchosenasaGroup standard. We best market practice andourinnovative archiving lining project. Ouroperational benchmarksare We are theGroup leaderinIToperations stream- 2

36 We progress becausewe are notafraid ofchange. We changetomake progress.

38 individual teammembers. ofteamsand and itincreases the productivity quently usedtostrengthen teamco-operation, long term. The teambuildingmethodisfre- and create teams that are prosperous over the to helpmanagerschoosethebestcolleagues nostic anddevelopment programmes are used identification ofkey employees. Various diag- selection, training, development aswell asin consultants whoassistthem intherecruitment, by theirown internalsupported professional employees andmanagers alike. Managersare emphasisisputoncommunicationmary with praisal ofgoalsat allmanagement levels. Pri- have prepared changesinthesettingandap- remuneration andmotivation ofemployees. We pany; we are changingourapproaches tothe withinthecom-Our aimistoincrease efficiency is continuing. tation ofourcustomer-centric corporate values tion andloyalty tothecompany. The implemen- maintain andincrease thelevel oftheirmotiva- new challengesandworking conditions, to period. We needtoprepare ourcolleagues for our attention throughout thetransformation Human resources potential isat thecentre of also aboutachangeofemployee structure. portfolio;new technologiesandthe service itis The company’s transformation isnotonlyabout ployers inSlovakia. as oneofthelargest andmostattractive em- Telecom hassucceeded inkeeping itsposition ployees. isthankstoitsemployees It that Slovak mitment, persistence andmotivation ofourem- The successes we have achieved thecom- reflect Without ourpeopleitjustwouldn’t work 40

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tion amongattractive employers ontheSlovak prove that we have preserved aprominent posi- the company (20%). The stated figures clearly of employees having spent 5to15years with company for lessthan5years andalarge group employees having beenemployed withthe on thenumberofyears worked, with22% of intheemployeealso reflected based structure The influxofnew andhighly-qualifiedstaffis of around 40%. company isrisinggradually, reaching thelevel is 39years. The percentage ofwomen inthe age group; theaverage ageinthecompany aged 31to50years represent thestrongest school withschool-leaving exam. Employees half ofemployees having completed secondary have auniversity education, withmore than nikácie branch. More thanathird ofemployees 31 December 2004, includingtheRádiokomu- Slovak Telecom employed 6,069employees asat Employee structure 1 Employee by structure education level

3 school leaving exam schoolwithout Secondary school Primary

19 University degree school leaving exam schoolwith Secondary

37 We progress becausewe are notafraid ofchange. We changetomake progress. pillar is a part ofthistransformationpillar isapart project. cused onouremployees. The employee support intensified thetransformation that fo- project this beingproven that by in2004we thefact its employees duringthetransformation pro Our company hasbehaved responsibly towards labourmarket.the external education andexperience hadtobesought in resources, in35% ofcasespeoplewithspecific positions were successfully staffed from internal new professional challenges. In65%ofcases and development ofemployees alsothrough dures in2004. thecareer Ouraimistosupport 800 positionswere proce- staffed viaselection are procedures. staffed through selection Upto ofjobpositions. andquality structure Vacancies formed andsoanassociated changetothe per- andmannerofactivities to thestructure The company’s meansachange restructuring HR andthetransformation process loyalty programmes produce goodresults. market andthat our employee retention and

Employee agestructure 39

Up to30years 41

51 31 to50years

51 years ormore 63

69 cess,

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ing days peremployee exceeded 6days peryear. sessions, whereby theaverage numberoftrain- education lastyear. We prepared 2,394training company. Almost SKK50millionwas invested in inaEuropean-levelof efficient functioning andtrainedquality people, managerscapable 2004. The transformation pro weregerial skills at thecentre ofour attention in ogies anddevelopment ofpersonalandmana- The enhancement ofnew ofknowledge technol- Investments into employee education European SocialFund. for whichwe have appliedfor fundsfrom the have prepared two “ST Outplacement” projects gramme was prepared for theseemployees. We the my“Starting own business” training pro- pany. Inadditiontootherretraining courses, whenleavingprovided thecom- withsupport dismissed duetoorganisational changeswere to leadexit interviews. The employees whowere transformation process. Managerswere trained taskistohelpouremployeesIts cope withthe 2 Regional distributionofemployees rtsaa 35 % 8 % Bratislava 15% Trnava Nitra Banská Bystrica Žilina Prešov 7 Košice 16 11 8 % % % % 4

22 cess requires high- 24

38 We progress becausewe are notafraid ofchange. We changetomake progress. rate colours. ments ofanew quality, designandnew corpo- were equippedwith personalprotective gar- working garments for thework out they carry in particular. Employees whoneedprotective cus was placed onthesafety ofaltitudework conditions for employees. In2004astrong fo- work, andto increasing ofworking thequality We pay great attention tosafety andhealthat Safety at work voucher contributions ofcourse. contracting partners. There are alsoluncheon sion insurance, anddiscounts ofour onservices tivities, contributions pen- tosupplementary including healthcare, recreation, cultural ac- benefits they prefer from awideselection, in thisregard. Ouremployees canchoosethe The system offlexible benefitshasproven good financial remuneration andemployee benefits. petitive remuneration system, bothintermsof wage surveys withtheaim ofcreating acom- now. Eachyear, Slovak Telecom in participates the company hasbeenappliedfor several years of theirinfluence ontheoverall of functioning praising jobpositionsdependingontheextent fairness andtransparency. The principleofap- neration system ofitsemployees oninternal The company endeavours tobasetheremu- Remuneration andemployee benefits received managercertificate. aproject management toolsintraining, and22ofthem many as223employees learnedaboutproject employees training underwent inthisarea. As the growing management, needfor project 196 As aresult ofthecompany transformation and 40

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tions. to theCLAhelpedpreserve goodandfairrela- trade unions. Conclusion oftheamendments verance payments, were agreed uponwiththe regarding wages, employee benefitsandse- tions oftheCollective LabourAgreement (CLA) relations withsocialpartners. The new condi- so. We demonstrated ourresponsibility alsoin companies received anotherSKK190millionor insurance companies in2004. Healthinsurance We paidalmostSKK500milliontofundsand Fulfilling obligations 1

37 top performance. and alsothemotivation ofemployees todeliver ofouremployee and quality efficiency structure the market. We intend tocontinue increasing the andsostrengthen ourpositionon satisfaction market share, raise profitability andcustomer sing ourcustomerbase, we want toincrease the order tosatisfy customers’ needs. Through stabili- is toalignallefforts, andprocedures activities in ofthetransformationbasic priority programme customer-oriented generation next operator.a The We want touseourtransformation tochange Strategic for 2005 direction 39 We progress becausewe are notafraid ofchange. We changetomake progress.

73 31/3/05, 10:42:31 AM blok AJ 217x280 46 31/3/05, 10:42:32 AM blok AJ 217x280 47 31/3/05, 10:42:35 AM blok AJ217x280 48 When we enjoy helping, we helpthemost. conferences. cultural andwe andsocialeventssociety supported at aEuropean level, professional aswell asselected to peopleinneed, we regarding implemented uniqueprojects thebuildingupofaninformation (CSR) we have positionedourselves asamodelcorporate citizen ofSlovakia. In2004we offered help living standard ofthepopulation. inthefieldofcorporateThanks toactivities socialresponsibility We life inSlovakia notonlyaffect through ourbusinessactivities, butalsocontribute toimproving the windstorm swept through theHigh Tatra moun- funds andmaterials. InNovember a 2004 after byaffected the Tsunami by providing necessary reconstruction ofspecificinfrastructure inareas Association we have agreed tocontribute tothe In cooperation withtherenowned People inPeril ofasmile– gift “Úsmev ako dar“)andUNICEF. Association ofFriends ofChildren’s homes(The Slovakia (An hourfor children – “Hodina deťom“), ganisations, namelytheFoundation for Children of ofnational non-profit or- theactivities supported our country’s EUmembershiponeveryday life. We European of community andabouttheimpact obtain information oflife inthe aboutallaspects number, through whichpeoplewere ableto set upandfundedtheEuroline 0800103 104 Slovakia’s accession totheEuropean Unionwe situations orinvolved inacaraccident. With physical problems, peopleinlife-threatening advice linesfor peoplewithpsychological and Line0850111313)–non-stop and Emergency (“Nezábudka“ HelpLine0850110122 project In 2004we continued withtheLinkyživota oflifethe quality As acorporate citizen Slovak Telecom improves on 4pillars. shareholder, in2004we focused ouractivities philanthropy ofDeutsche Telekom AG –ourmajority Inspired by thesponsorship strategy and 2

14 When we enjoy helping, we helpthemost.

38 were oftheproject. given toschoolsaspart software, 3,671printers andotherperipherals As many as22,026 computers withthelatest technology, digitalleasedlinesandFrame Relay. schoolswereOther through connected ISDN use ofabroadband totheinternet. connection At theendof2004more than1,000 schoolsmade while applyingthemostadvanced technologies. 92%ofallschoolstotheinternet,connected Telecom. Asat 31December 2004we hadalso The was coordinated wholeproject by Slovak werekia equippedwithanew PCclassroom. schoolsinSlova- andsecondary elementary Deutsche Telekom AG, eachofthe3,500 plus Thanks tothedonation ofSKK1billionfrom inarecord-breakingSchools project 6months. programme we implemented theuniquePCsfor our society. Lastyear, oftheeSlovakia aspart aimed at accelerating theinformatisation of In 2002we initiated theeSlovakia programme of aninformation society Slovak Telecom –aleaderintheestablishment the restoration ofthedevastated area. In addition, we alsocontributed SKK1millionto for therestoration ofwoods intheNational Park. ing for theState Forests ofthe Tatra National Park contributed SKK20excluding VAT to thefund-rais- In theperiodofamonth eachofthe15,535callers tains,411 telephoneline. we setupthe0890411 40

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74 blok AJ217x280 49 Informatisation ofSlovak schools andsecondary primary and make useofthemin theteachingprocess. the aimofhelpingteachers acquire PCskills content ofa universal course for teacherswith teachers. Lastyear Summerschoolsbrought new Infovek association focused project on educating ofthe Summerschools−activities supported oftheeSlovakiaAs programme part we also schools.secondary of informatisation ofSlovak and elementary everbecame thegreatest activity inthefield community projects. The PCsfor Schoolsproject for education communication in andfurther by citizens whowere given new opportunities not onlyusedby students andteachers, butalso We have learnedthat thenew classrooms are European countries. of schoolsystem informatisation indeveloped succeeded inmoving closertotheparameters around 120to30pupilsperPC. Slovakia thus the numberofpupilspercomputer was cutfrom CentreSupport for 4years. Thanks totheproject, a free-of-charge warranty anda service Technical installation work. The schoolswere alsogranted Approximately 1,101 ofcableswere km usedfor 1

15 When we enjoy helping, we helpthemost.

37 long-term cooperation withtheAssociation of života project. We were also honoured for its PONTIS international foundation for theLinky In 2004we earnedthe awardVia Bona ofthe Our helpwas appreciated corporate and marketing communication. ferences onhumanresources, marketing and incon- alsoactively participated Our experts and international telecommunications business. bothfrom thenational toexperts of talking where ourrepresentatives hadtheopportunity in thefieldofinformation andcommunication We professional conferences selected supported Slovak Telecom leader –aknowledge Bagar inNitra. musical “Cabaret“ at the Theatre ofAndrej at theAréna Theatre inBratislava andthe the theatre play – “A Goat or Who IsSylvia?“ theviewersproduction hada chance tosee our contribution totheoriginalSlovak stage “Czech Theatre” festival inSlovakia. Thanks to time we becamea ofthe prestigious partner Vertical, andthefilmLastStation. For thethird exclusive Slovak film–Amazonia documentary thecreation ofanoriginalandsupported International Film Festival. We financially Last year we formed a withthe partnership Slovak Telecom –apatron ofart University ofKošice. in Bratislava, University ofŽilinaand Technical universities –Slovak University of Technology workplaces ofthefollowing inselected activities We educational alsoprovided fundstosupport by allteachersinSlovakia. 2yearsIn thenext thiscourse willbeattended 39

73 31/3/05, 10:42:39 AM blok AJ217x280 50

environmental andsocialresponsibility. We are ter, whichdefined thestandards ofcorporate the commitments ofETNO’s Char- Sustainability Operators Association at theEU). We observe ETNO (European Telecommunications Network Since 1996we have beenanactive memberof Slovak Telecom andtheenvironment inSlovakia.sibility promoting awareness ofcorporate socialrespon- association ofcompanies whichistheleader in the BusinessLeaders Forum –aninformal In 2004we became afounding memberof Palace inLondon. His Royal HighnessPrince Charlesat St. James’s Europeanthe mostimportant companies with countries, tothemeetingofrepresentatives of representative ofCentral andEasternEuropean Prince Charles. OurCEOwas invited, astheonly ofHisRoyalyears underthesupervision Highness gramme. The programme hasbeenrunningfor 12 is Believing” corporate socialresponsibility pro- launch oftheEuropean campaignofthe “Seeing Friends ofChildren’s Homes. We contributed tothe 2

16 When we enjoy helping, we helpthemost.

38 improve oflife thequality ofallcitizens. valuable cultural andso in supporting projects field ofeducation, informatisation ofsocie inthe andprojects activities continue tosupport the active involvement ofitsemployees. We will launch ofdifferent with community activities thropic activities. Ouraimistoencourage the ofphilan- public ontheneedandimportance companies andtoincrease theawareness ofthe ment ofcorporate socialresponsibility ofSlovak We develop- plantoactively influence further Plans for thefuture created amodernsystem ofwaste management. potential risksofindustrialaccidents andwe also implemented measures aimedat reducing and increasing thelevel ofwaste recycling. We fromwaste individualactivities production pollution ofreleased waste waters, reducing waters,tion ofground andsurface reducing released totheatmosphere, preventive protec- ties were focused mainlyonreducing emissions sustainable development. Lastyear ouractivi- corporate socialresponsibility inthecontext of one oftheEuropean companies that seesits 40

68 ty and and ty 70 31/3/05, 10:42:40 AM 72

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rpslfrpoi itiuinfrteya 04 74 48 49 46 45 73 47 Proposal for profit distributionfor theyear 2004 Independent Auditor‘s totheShareholders ofSlovak Report Telecom, a.s. Notes totheConsolidated Financial Statements Consolidated Cash–flow Statement Consolidated Statement ofChangesinShareholders‘ Equity Consolidated Balance Sheet Consolidated Income Statement General Information 1

Contents 37

63 Contents 65

44 71

73 31/3/05, 9:28:44 AM audit 217x280 2+2AJ celok 2 General information

ted inmillionsofSlovak crowns (“SKK million”). The consolidated financialstatements are presen- currency Reporting andpoliciesoftheGroup andarethe direction The are Directors responsible for establishing the shares oftheCompany. shares. The Slovak Government retained 49%of the Slovak Government andtheissuance ofnew tion involved thepurchase ofexisting shares from 51% oftheshares ofSlovak Telecom. The transac- control oftheCompany through theacquisitionof On 4August 2000Deutsche Telekom AG obtained company intheSlovak Republicon1April 1999. The Company was incorporated asajoint stock (“EuroTel”), together “the Group” nance Company B.V. and EuroTel Bratislava, a.s. s.r.o., RK Transmission, s.r.o., Slovak Wireless Fi- or “Slovak Telecom”) anditssubsidiariesRK Tower, prepared for Slovak Telecom, a.s. (“theCompany” These consolidated financialstatements have been 2 ubro mlye tpro n ,9 7,375 7,591 Number ofemployees at periodend Staff numbers

4 fwihErTl ,1 - 1,311 of whichEuroTel: 6

24 . 26

30 General information 32

38 Slovak Republic 817 62Bratislava Námestie slobody6 The Company’s registered address is: Registered address equipment. and operator ofradio andtelevision transmission telephony network. The Group isalsotheowner 900 MHzand1,800 bandsmobile MHzfrequency phony network andaGSMstandard technology tes ananaloguetechnologyNMT450mobiletele- networks. Through EuroTel, itssubsidiary itopera- standard telephonestocomputer communication rangingbusiness customerswithproducts from and internet access. alsoprovides It residential and includingleasedcircuits,services data networks and awiderange ofothertelecommunications national andinternational telephony services ons facilitiestherein. The Group provides local, operates ofthetelecommunicati- themajority intheSlovakservices Republicandowns and The Group suppliesfixed-line telecommunication accountable totheowners oftheGroup. 40

54 2004

2003 66

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74 audit 217x280 2+2AJ celok 3 Board of Directors on21FebruaryBoard ofDirectors 2005by: The consolidated financialstatements onpages47to74were authorisedfor issueonbehalfofthe The notesonpages51to 74from oftheseconsolidated anintegral financialstatements. part (All amounts are inmillionsofSlovak crowns) 1 aain6(8)116 (281) 287 6 218 (15,149) 719 (15,651) 1,177 5 4 1 Net profit Taxation Profit before tax Financial income, net Share ofprofit ofjoint venture Profit from operations Operating costs Revenue n.Šea uá n.Mrsa aoo Dr. Mark Peter Mon Ing. Miroslav Majoroš Ing. ŠtefanBugár of theBoard ofDirectors Chairman Deputy 3

Consolidated Income Statement at 31 December 5

15 Consolidated Income Statement at 31December 17

and MemberoftheBoard ofDirectors Chief Executive Officer 21

25 27 27

41 Notes 43 68417,776 16,844 3 45

47 and MemberoftheBoard ofDirectors Chief Financial Officer

53 2004 ,0 3,749 3,633 2,307 2,588 ,9 2,627 1,193 55

57 2003 59 tagne von Lillienskiold

73 31/3/05, 9:28:45 AM audit 217x280 2+2AJ celok 4 Consolidated Balance Sheet 31 December

The notesonpages51to 74from oftheseconsolidated anintegral financialstatements. part (All amounts are inmillionsofSlovak crowns) 2 rpry lnadeupet74,1 40,620 47,210 7 Property, planandequipment rvsos1 9 221 740 7,061 594 15 775 8,033 18 3,306 144 4,392 15 8,503 - 5,859 7,324 14,208 18 790 6,100 16 10,040 15 4 873 839 6,664 48,539 11,632 881 26,028 12,003 14 55,719 11,632 26,028 17 1,183 Total equityandliabilities 17 Total liabilities 14 Total current liabilities 44 14 19,176 14 Provisions 14 Borrowings 262 Trade andotherpayables anddeferred income 10,434 15,685 Current liabilities 465 - Total non-current liabilities Provisions 2,680 423 5,662 payablesOther anddeferred income Deferred tax 313 Borrowings 11 3,592 44,927 Non-current liabilities 13 1,427 9 Total share capitalandreserves 2,612 reserves Other 10 67,526 Retained earnings 12 reserve fund Statutory 19,853 - Share premium 268 Share capital Share capitalandreserves 8 ANDLIABILITIES EQUITY 1 463 Total assets Total current assets Cash andcashequivalents Income tax Receivables andprepayments Investments Assets heldfor sale Inventories Current assets Total non-current assets Deferred expenses and othernon-current assets Investment injoint venture Intangible assets Non-current-assets ASSETS

18 Consolidated Balance Sheetat 31December 20

44 Notes

54 2004 22115,564 22,241 79064,103 77,960 64,103 77,960 56 4 40 444 58 2003

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The notesonpages51to 74from oftheseconsolidated anintegral financialstatements. part (All amounts are inmillionsofSlovak crowns) 1 e rftfrteya ---237-2,307 - - 4,873 - 2,307 4,873 (2,056) 48,539 - (344) - - 3,749 - - 344 - - - 48,539 - (2,056) 10,040 - 3,749 - - 839 (322) 46,846 - - - 322 - 11,632 - 10,040 - 26,028 839 - - - 8,669 11,632 - 2004 DecemberAt 31 517 26,028 Net profit for theyear - - Acquisition 2 ofsubsidiary 11,632 Allocation tofunds At 2004 1 January 26,028 Year ended31December 2004 At 31 December 2003 Net profit for theyear Allocation tofunds Dividends At 2003 1 January Year ended31December 2003

11 Consolidated Statement ofChangesinShareholders‘ Equity

21 Notes 23 Consolidated Statement ofChanges 25

27 capital 6081,3 ,8 20348355,719 4,873 12,003 1,183 11,632 26,028 29 Share

35 premium

Share 37

41 in Shareholders‘ Equity

Statutory 43 reserve

fund 45

49 Retained earnings 51

reserves 59 Other

Equity 67 Total

73 31/3/05, 9:28:47 AM audit 217x280 2+2AJ celok 6 Consolidated Cashflow Statement at 31December

The notesonpages51to 74from oftheseconsolidated anintegral financialstatements. part (All amounts are inmillionsofSlovak crowns) 2 iied ad(,5)- (468) - (2,056) (235) (664) (24) (194) (653) - 655 511 - 282 Cash andcashequivalents at 31December Cash andcashequivalents at 1January 133 (5,610) and cashequivalents Net (decrease) increase incash - 40 - Net cashusedinfinancingactivities Dividends paid (6,250) Payments onderivatives 146 Interest paid Payment offinance leaseliabilities (9,369) Repayment ofloans Cash flows usedinfinancingactivities Net cashusedininvesting activities 2 Proceeds from saleofavailable-for-sale investments Proceeds from non-current investment settlement Proceeds from saleofproperty, plant andequipment Purchase ofproperty, plant andequipment Interest received Acquisition ofsubsidiary, netofcashacquired Cash flows usedininvesting activities Net cashflows from operating activities

Consolidated Cashflow Statement at 31December 18

42 Notes 44 98078,670 8,037 19

1,2)2,974 (10,023) (4,540) (14,922) 54 318 (1,156) (3,138) 2004 56512,711 15,685 56215,685 5,662 56

2003 66

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74 audit 217x280 2+2AJ celok 7

of accounting that measures theacquiree’s assets financial statements usingthepurchase method EuroTel hasbeenincludedintheconsolidated cannot berecovered. Unrealised lossesare eliminated unlesscosts group transactions, have beeneliminated infull. including unrealised profits arisingfrom intra- All intercompany balances andtransactions, on whichcontrol istransferred to theGroup. Subsidiaries are consolidated from thedate policies that may exist. made tobringinto lineany dissimilar accounting consistent accounting policies. Adjustments are yearfor thesamereporting astheCompany, using financial statements ofsubsidiariesare prepared subsidiaries asat 31December eachyear. The the financialstatements oftheCompany andits The consolidated financialstatements comprise tures (b) Accounting for subsidiariesandjoint ven- been measured at fairvalue. and available-for-sale financialassetsthat have basis, except for derivative financialinstruments ments have beenprepared ona historical cost undertakings. The consolidated financialstate- (“IFRS”) for Slovak Telecom anditssubsidiary with International Standards Financial Reporting been prepared inaccordance withandcomply These consolidated financialstatements have (a) Basisofpreparation ments are setoutbelow: preparation oftheseconsolidated financialstate- The principalaccounting policiesadoptedinthe Accounting policies 1

9 Notes totheconsolidated financialstatements

Notes totheconsolidated financialstatements 21

37 contractors’ fees, labour. materials anddirect points withincustomers’ premises, andincludes comprises allexpenditure uptothedistribution intended use. Inthecaseof network this bringing theassettoworking condition for its Cost includesallcosts attributable to directly iscarriedat acquisition cost.chased thereafter at values assignedtoitby theState. All landpur- Land, whichwas acquired before 1991, isstated are carried at cost lessaccumulated depreciation. All property, plant andequipment, otherthanland, (i) Cost (c) Property, plant andequipment an impairment oftheassettransferred. nated provides unlessthetransaction evidence of in suchentities; unrealised lossesare alsoelimi- are eliminated totheextent oftheGroup’s interest tween theGroup anditsjointly controlled entities acquisition. Unrealised be- gainsontransactions share ofthenetassetsandincludesgoodwillon in thebalance sheetat anamount its that reflects year. The Group’s interest insuchentities iscarried share ofthejoint ventures’ profit orlossfor the recognising intheincome statement theGroup’s joint venture partners. accounting Equity involves Group shares control oftheoperations withits Jointly controlled entities are thoseinwhichthe counted for by methodofaccounting. theequity Investments injointly controlled entities are ac- of acquisition. acquired onthebasisoffairvalues at thedate has beenallocated totheassetsandliabilities results for theyear. The purchase consideration December 2004, ontheGroup’s ithadnoimpact date. Astheacquisitionbecameeffective on31 and liabilitiesat theirfairvalue at acquisition 39

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charge for future periods. this exercise inthedepreciation willbereflected to expected usefuleconomic lives as a result of velopment plans. The ofany effect future revisions Management iscontinuing toassessnetwork de- capital work inprogress. No depreciation isprovided onfreehold landand of property, plant andequipment are: economic lives assignedto thevarious categories values over theirremaining usefullives. The useful their cost orvaluation totheirestimated residual the assetsare available for use, soastowritedown straight-line basisfrom thetime equipment ona Depreciation iscalculated onproperty, plant and (ii) Depreciation is includedinotheroperating costs. or lossresulting from suchretirement ordisposal corresponding accumulated depreciation. Any gain eliminated from thebalance sheet, alongwiththe that Items are disposedofare retired orotherwise (c) Property, plant andequipment (continued) Accounting policies(continued) charged totheincome statement asincurred. Maintenance, repairs andminorrenewals are of theexisting asset, willflow totheenterprise. the originalassessedstandard ofperformance able that future economic benefits, inexcess of Enhancement costs are capitalisedwhenitisprob- 2 Other fixed assets 6 to 25 y 25 to 6 to 30years 8 Other fixed 25to50yearsassets andtelevisionRadio equipment equipment Telephone exchanges andrelated plant Duct, cableandotheroutside Freehold buildings

Notes totheconsolidated financialstatements 22

26 4 to13years 30 years

ears 32

38 the commercial launch. ments. commences Amortization onthedate of control beingassumedare recorded asprepay- control isassumed; any payments madepriorto Licenses are recognized asintangible assetswhen the straight-line method. using finite usefullife are amortised assets witha assessed tobeeitherfiniteorindefinite. Intangible tion. The usefullives oftheseintangible assetsare capitalised at fairvalue asat thedate ofacquisi- ized at cost andfrom businesscombinations are Intangible assetsacquired separately are capital- impairment losses. goodwill ismeasured at cost lessany accumulated contingent liabilities. Following initialrecognition, fair value oftheidentifiable assets, liabilitiesand combination over theacquirer’s interest inthenet cost, beingtheexcess ofthecost ofthebusiness onacquisitionisinitiallymeasuredGoodwill at (d) Intangible assets ing use. through a rathersale transaction thancontinu- amount isrecoveredif theircarrying principally sell andreclassified from non-current tocurrent, amount andfairvaluetheir carrying lesscosts to assets heldfor saleandstated at thelower of Property, plant andequipment are classifiedas amount. it iswrittendown toitsestimated recoverable asset isgreater thanitsrecoverable amount, recoverable. amountWhere ofan thecarrying indicate amount may that thecarrying notbe impairment whenever events orcircumstances Property, plant andequipment are reviewed for 40

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ments madeunder operating leasesare charged the lessorare classifiedasoperating leases. Pay- benefits ofownership are effectively retained by Leases ofassetsunder which alltherisksand over theuseful life oftheassets. under finance leasecontracts are depreciated period. Property, plant andequipment acquired is charged totheincome statement over thelease in debt. The interest element ofthefinance charge obligations, netoffinance charges, are included balance outstanding. The corresponding rental constantso astoachieve rate ofinterest a onthe allocated between andfinance theliability charge underlying leasepayments. Eachleasepayment is the leaseat theestimated present value ofthe Finance leasesare capitalised at theinception of risks ofownership are classifiedasfinance leases. the Group hassubstantially allthebenefitsand Leases ofproperty, plant andequipment where (e) Leased assets may notberecoverable. circumstances indicate amount that thecarrying are reviewed for impairment whenever events or impaired. categories ofintangible Other assets stances indicate value that thecarrying may be more frequently ifevents orchangesincircum- is reviewedGoodwill for impairment annually, or categories ofintangible assetsare: The usefuleconomic lives assignedtothevarious (d) Intangible assets(continued) 1 odilindefinite 5years 10-20years Goodwill Brand intangible assets andother Software Licenses customer relationships Customer contracts andrelated 3

Notes totheconsolidated financialstatements 23

3-5 years 8 years 27

37 Accounting policies (continued) ance sheetwhenaright ofset-offexists. international operators are shown netinthebal- Amounts payable toandreceivable from thesame in whichthey are identified. borrowers. Baddebtsare writtenoffintheyear discounted at the market rate ofinterest for similar being thepresent value ofexpected cashflows, amount andtherecoverablerying amount, that the provision isthedifference between thecar- allamountsable tocollect due. The amount of is objective evidence that theGroup willnotbe provision for impairment isestablishedifthere amount lessprovision madefor impairment. Such Trade receivables are carriedat originalinvoice (h) Trade receivables slow-moving andobsoleteinventories. less sellingexpenses. Provision ismadeagainst selling price course intheordinary ofbusiness, average basis. Netrealisable value istheestimated realisable value.weighted Cost iscalculated ona Inventories are stated at the lower ofcost andnet (g) Inventories when incurred. Borrowing costs are recognised asanexpense Borrowing costs (f) termination takes place. recognised asanexpense intheperiodwhich to bemadethelessorby way is ofpenalty lease periodhasexpired, any payment required When anoperating leaseisterminated before the over theperiodoflease. to theincomestraight-line statement ona basis 39

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advised ofthespecificterms. fected, individual employees orafter have been andthenumbersofemployeesredundancy af- representative isinplace specifyingthetermsof an agreement withtheappropriate employee termination benefitsare recognised onlyafter constructively committed topayment. Employee period inwhichtheGroup becomes legallyor mination payments andare recognised inthe provisionsRestructuring includeemployee ter- Restructuring certain.reimbursement isvirtually ognised asa separate assetbutonlywhenthe an insurance contract, thereimbursement isrec- provisiona tobereimbursed, for example under amount canbemade. Where theGroup expects the obligation, anda reliable estimate ofthe outflow ofresources willberequired tosettle a result ofpastevents, itisprobable that an a present legalorconstructive obligation as Provisions are recognised whentheGroup has (k) Provisions of theborrowings. ognised intheincome statement over theperiod tion costs) andtheredemption value beingrec- any difference between proceeds (netoftransac- cost usingtheeffectiveamortised yieldmethod, In subsequent periods, borrowings are stated at ceeds received, costs netoftransaction incurred. Borrowings are recognised initiallyat thepro- (j) Borrowings in borrowings incurrent liabilities. the balance sheet, bankoverdrafts are included three month orless, netofbankoverdrafts. In depositswithanoriginalmaturity of short-term and cashequivalents comprise cashinhandand For thepurposeofcashflow statement, cash (i) Cash andcashequivalents 2

Notes totheconsolidated financialstatements 24

38 Accounting policies(continued) consolidated financialstatements. Revenues andcosts are shown gross inthese companies.external Group’s network, butusethenetworks ofthose for callsandothertraffic that originate inthe erators andothertelecommunication companies from mobileop- itscustomerstoexternal lected The Group ofcall revenue paysproportion a col- but usetheGroup’s network. networks operators ofexternal oroutsideSlovakia calls andothertraffic that originate inmobile relate. Carrier revenues service are derived from revenues andcosts totheperiodwhichthey better allocation ofthese ship periodtoachieve a deferred over theestimated customerrelation- Installation related fees anddirectly costs are andcustomeracceptanceand products thereof. Revenues are recognised upondelivery of services (l) Revenue recognition loss uponsettlement. tion for itsrecorded amount orincursa gain or the liability, theGroup eithersettlestheobliga- useful life oftherelated asset. Uponsettlement of capitalized cost isdepreciated over theestimated accreted toitspresent value eachperiod, andthe non-current asset. Subsequently, is theliability by amount oftherelated increasing thecarrying recorded, theGroup capitalizes therelated cost when itisincurred. When isinitially theliability for anassetretirement obligation intheperiod sets. The Group recordsliability thefairvalue ofa associated withtheretirement ofnon-current as- Asset retirement obligations relate tofuture costs Asset retirement obligations 40

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ity method,ity for differences alltemporary arising Deferred income taxisprovided, usingtheliabil- (o) Deferred income taxes net. they areactivities includedinfinancialincome, Where they ariseonforeign financing currency they areactivities includedwithinoperating costs. ofoperatinggains andlossesare incurred aspart counting periodinwhichthey arise. Where such are recognised asincome orexpenses for theac- Realised andunrealised exchange differences exchange rate at thedate ofthetransaction. rate. usingthe itemsare reported Non-monetary the balance sheetdate at are theclosing reported the transaction. itemsat Outstandingmonetary are translated into Slovak crowns at thedate of Transactions denominated inforeign currencies (n) Foreign translation currency intheperiodwhichtheyequity are declared. shares areDividends onordinary recognised in (m) Dividends 1

Notes totheconsolidated financialstatements 25

37 conform withcurrent year presentation. comparativesCertain have beenreclassified to (q) Comparatives cost.period astherelated salary is charged totheincome statement inthesame payments.gross salary The cost ofthesepayments ratesstatutory inforce duringtheyear, basedon ment’s schemesat healthandsocialsecurity the The Group makes contributions totheGovern- andpensionschemes (p) Socialsecurity differences canbeutilised. will beavailable againstwhichthetemporary tent that itisprobable that future taxableprofit tax. Deferred taxassetsare recognised totheex- sheet date are usedtodeterminedeferred income orsubstantively byenacted thebalance enacted the consolidated financialstatements. Tax rates valuesthe balance sheetandtheircarrying in between thetaxbasesofassetsandliabilitiesin 39

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ign currency deposits,ign currency forward foreign exchange rally denominated inEUR. The Group uses fore- ipment andmobilehandsets, which are gene- from Germany andAustria), GSM network equ- commitments topurchase equipment (mainly the foreign exposure currency ofits contract and contract commitments. The Group hedges posures arisefrom foreign borrowings currency to EURandUSD. The mainforeign ex- currency exposuresrious currency primarilywithrespect posed toforeign exchange riskarising from va- The Group operates internationally andisex- (i) Foreign exchange risk liquidity. tive financial instruments andinvesting excess risk, interest rate risk, credit risk, useofderiva- vering specificareas, suchasforeign exchange respective operating units. There are policiesco- hedge financialrisksinco-operation withthe Treasury identify, Departments evaluate and oftheCompanyof Directors andEuroTel. The der policiesapproved by therespective Boards oftheCompanyDepartments andEuroTel un- management iscarriedoutbyRisk the Treasury exposures.to hedgecertain swaps andforward foreign exchange contracts instruments interest suchascross currency rate the Group. The Group usesderivative financial verse of onthefinancialperformance effects markets andseekstominimisepotential ad- offinancial me focuses ontheunpredictability The Group’s overall riskmanagement program- exchange rates andinterest rates andcredit risk. marketdebt andequity prices, foreign currency nancial risks, ofchangesin includingtheeffects The Group’s expose ittoavariety activities offi- (a) Financial riskfactors Financial riskmanagement 2

Notes totheconsolidated financialstatements 26

38 IAS 39. qualify for hedgeaccounting undertherules of or cashflow hedgesat 31December 2004which The Group doesnotholdany fairvalue hedges (ii) a hedgeofforecasted orofa transaction (i) ahedgeofthefairvalue ofarecognized derivativesdesignates certain aseither: a derivative contract isentered into, theGroup nature oftheitembeinghedged. Onthedate nated asahedginginstrument and, ifso, the loss dependsonwhetherthederivative isdesig- The methodofrecognising theresulting gainor subsequently are remeasured at theirfairvalue. recognised inthebalance sheetat cost and Derivative financialinstruments are initially ments andhedgingactivities (b) Accounting for derivative financialinstru- reviewed onaregular basis. individual financialinstitutions. These limitsare -parties. The Group limitscredit exposure to andlimitsfor financialcounter-ties ofproducts The definesproducts, credit riskpolicy maturi- (iii) Credit risk mix offixed andvariable rate debt. up’s istomanageitsinterest cost policy usinga risk arisesfrom long-termborrowings. The Gro- market interest rates. The Group’s interest rate are substantially independent ofchangesin The Group’s income andoperating cashflows (ii) Interest rate risk to hedgeitsexposure toforeign risk. currency contracts interest andcross currency rate swaps 40

firm commitment (cashflow hedge). (fairvalueasset orliability hedge)or 42

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the income statement. istransferredloss that inequity was reported to ger expected tooccur, thecumulative gainor committed orforecasted isnolon- transaction is recognized intheincome statement. When a when thecommitted orforecasted transaction that timeremains andisrecognized inequity cumulative gainor loss existing at in equity criteria for hedgeaccounting underIAS39, any is sold, oronce ahedgenolongermeetsthe At thedate ahedginginstrument expires or ferred totheincome statement. reviewed andany changeinfairvalue istrans- income statement. The fairvalue isperiodically der IAS39are recognised immediately inthe that donotqualifyfor hedgeaccounting un- in thefairvalue ofany derivative instruments accounting undertherulesofIAS39. Changes management policiesdonotqualifyfor hedge fective economic hedgesundertheGroup’s risk derivativeCertain which provide transactions ef- the income statement. commitment orforecasted affects transaction the sameperiodsduringwhichhedgedfirm ment andclassifiedasrevenue orexpense in arein equity transferred totheincome state- asset orliability. Otherwise, amounts deferred in theinitialmeasurement ofthecost ofthe areequity transferred from andincluded equity bility, the gainsandlossespreviously deferred in results intherecognition ofanassetoralia- the forecasted orfirmcommitment transaction flow hedgesare recognized inequity. Where designated andqualifyashighlyeffective cash Changes infairvalue ofderivatives that are 1

Notes totheconsolidated financialstatements 27

37 approximate theirfairvalues. a maturity oflessthanoneyear are assumedto justments for financialassetsandliabilities with The face values lessany estimated credit ad- Group for similarfinancialinstruments. the current market interest rate available tothe sent value oftheestimated future cashflows at financial instruments are calculated asthepre- date. The fairvalues ofderivative andother ket conditions existing at eachbalance sheet and makes assumptionsthat are basedonmar- techniques. The Group usesavariety ofmethods active market isdeterminedby usingvaluation instruments that are notpubliclytraded inan balance sheetdate. The fairvalue offinancial ments isbasedonquotedmarket prices at the The fairvalue ofpubliclytraded financialinstru- (c) Fair value estimation are disclosedinNote21. The fairvalues ofderivative instruments used hedged items. offsetting changesinfairvalues orcashflows of arein hedgingtransactions highlyeffective in basis, ofwhethertheinstruments that are used both at thehedgeinception andonanongoing ons. The Group alsodocuments itsassessment, cific firmcommitments orforecasted transacti- hedges tospecificassetsandliabilitiesorspe- allinstruments designatedincludes linking as varioustaking hedgetransactions. This process management objective andstrategy for under- instruments andhedgeditems, aswell asitsrisk therelationshiptransaction between hedging The Group documents at theinception ofthe 39

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Company obtainedfullcontrol ofEuroTel. Ifthe Board,tors andtheSupervisory at whichtimethe appointed new membersoftheBoard ofDirec- December 2004theGeneral AssemblyMeeting sole shareholder of EuroTel. Subsequently, on31 December 2004andSlovak Telecom becamethe ties subordinated totheEuropean Commission in Slovak Republicandby anti-monopoly authori- authorized by theAnti-Monopoly Authority ofthe shares heldby AWBV. The purchase was transaction into anagreement for thepurchase ofallEuroTel 2004SlovakOn 26September Telecom entered 2 Businesscombination profits andnetassetsofthejoint venture. the Group hada 51% economic interest inthe jointvestment venture, was considered a although shared withAtlantic West B.V. andhence thisin- solidated asofthat date. Previously, control was control ofEuroTel, andEuroTel hasbeenfullycon- On 31December 2004theCompany obtainedfull was inliquidation. 2004 thesubsidiary Wireless Finance Company B.V. andat 31December approved thedissolutionandliquidation ofSlovak 2004,On 19October EuroTel’s Board ofDirectors Details oftheGroup‘s subsidiariesare given below: 1 Investments insubsidiaries 2 uoe rtsaa ..Slovak Republic EuroTel Bratislava, a.s. Company B.V. SlovakFinance Wireless Republic Slovak RK Transmission,s.r.o. RK Tower, s.r.o. Slovak Republic Slovak RK Tower,s.r.o. Subsidiaries

18 Netherlands incorporation Country of 20

Notes totheconsolidated financialstatements 28

34 (2003: 53%) 100% (2003: 100%) 100% (2003: 53%) 100% (2003: 100%) 100% capital % Interest in 36

38 was includedinthe purchase consideration. transaction, the hedgingresult ofSKK1,116 million eign currencies heldincash. Oncompletion ofthe forward foreign contract currency andfor-were a fluctuations. The designated hedginginstruments to hedgetheriskofforeign exchange currency rate the Company hedging transaction entered into a As thepurchase price was denominated inUSD, net profit would have beenSKK3,228million. revenues would have beenSKK28,520millionand 2004,acquisition hadoccurred on1January Group venture are shown below. Movements inthevalue oftheinvestment injoint t3 eebr-2,612 - (151) (218) 2,044 2,612 719 At 31December 1,177 consolidation Elimination onfull Share oftax Share ofprofit before tax At 1January 40

46 services Full Wireless telephony Broadcasting iac Full Finance racsigFull Broadcasting Activities 48

351 - (3,571) 62 2004 Full consolidation Method of 64

68 2003 70 31/3/05, 9:28:51 AM 72

74 audit 217x280 2+2AJ celok 15 The assetsandliabilitiesarisingfrom theacquisitionare asfollows: investment injoint venture before fullconsolida- before 31December 2004over thevalue ofthe The excess ofthefairvalue ofnetassetsacquired follows: Details ofnetassetsacquired andgoodwillare as 1 ahotlwo custo 9,369 10,232 (863) Cash outflow onacquisition Cash andcashequivqlents acquired insubsidiary Purchase consideration settledincash 2,119 10,225 10,232 (8,113) 7 Goodwill Fair value ofnetassetsacquired Total purchase consideration costs– Direct relating toacquisition – Cash paid Purchase consideration e ses1,5 7,168 (243) (3,840) (468) - 214 1,784 16,557 (243) (2,436) 8,113 863 1,874 (3,938) (2,670) 1,784 214 142 (2,436) 1,569 863 1,874 (8,444) 7,851 - Net assetsacquired (49%) 1,569 Net assetsacquired before 31December 2004 Net assets Net deferred taxliability 6,921 Provisions Trade andotherpayables Borrowings 12,477 Cash andcashequivalents Receivables Inventories Customer contracts andrelated customerrelationships Brand Licenses intangible assets Other Property, plant andequipment

Notes totheconsolidated financialstatements 29

37 of EuroTel. synergies expected toarisefrom theacquisition ably measured duetotheirnature, including that cannotbeindividuallyseparated andreli- recognised above intangible are assets certain Included intheSKK2,119millionofgoodwill equity. is includedinotherreserves inshareholders’ tion (Note1)intheamount ofSKK4,873million 39

43 value

Fair 45

Acquiree‘s carrying 57

amount 61

73 31/3/05, 9:28:51 AM audit 217x280 2+2AJ celok 16

from EuroTel (2003: SKK761 million)andSKK Revenue includesSKK750millionofrevenues 3 Revenue 2 racsig84818 2,003 804 1,647 271 14,477 1,501 12,395 164 4,214 1,950 13,884 419 306 11,448 7,762 180 4,357 346 6,745 Other Broadcasting Online Carrier services Fixed network total Terminal equipment Data services Value addedservices Voice total voiceOther services Access fees Traffic charges

Notes totheconsolidated financialstatements 30

38 456 million). 270 millionfrom (2003: otherrelated parties SKK 40

6841, 776 16,844 54 2004

1 274 204 318 337 56

2003 66

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74 audit 217x280 2+2AJ celok 17 remuneration todirectors. scheme andSKK5million(2003: SKK4million)of million) ofcontributions totheState socialsecurity Staff costs includeSKK377million(2003: SKK 423 483 million). (2003:616 milliontootherrelated parties SKK SKK 1,014 million)related toEuroTel andSKK Operating costs includeSKK906million(2003: 4 Operating costs 1 et 671 858 140 (715) 131 86 1,045 343 123 203 (882) 131 404 174 101 63 404 127 105 20 85 443 (35) 380 252 2,831 3,201 218 188 (5) 824 505 2,383 3,326 workOwn capitalised 4 costs Other 989 Rents Security IT services 5,781 Postal expenses Marketing Provision for badanddoubtfuldebtswriteoffs 6,498 Provision for onerous contract costs (Note18) Restructuring Foreign exchange differences (net) Value addedservices Legal andconsulting fees Repairs andmaintenance Energy costs Network operators Depreciation (Note7and8) andamortisation Material andequipment Staff costs

Notes totheconsolidated financialstatements 31

37 rent assets. are attributable ofnon-cur- totheconstruction and equipment costs, labourandoverheads that workOwn capitalisedcomprises material direct 39

56115,149 15,864 15,651 16,533 53 2004

57 2003 59

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A new Slovak Corporate taxrate of19%(previously 2004. effective 25%)was 1January enacted expense andthetheoretical amount that would A reconciliation between income reported tax 6 Taxation 5 Financial income, net 2 noefo euiissl 24 (115) - (141) (152) 270 570 (143) 138 507 (109) (41) 10 (36) Net financialincome (87) Other (281) Income from securitiessold Net foreign exchange losses (22) Interest termdeposits income from short (223) Change infairvalues offinancialinstruments (Note21) Borrowing expense total Net foreign exchange gains Commitment fees and otherfinancialexpense Finance leases Interest expense interest arisingoncross currency rate swaps Interest arisingoninternational financialinstitutionsloans urn a hre10766 (12) 163 180 (1 033) 125 93 (117) Share ofdeferred taxofjoint venture Share ofincome taxofjoint venture Deferred taxincome (Note 16) Current taxcharge a rlae hrei epc ro er 1)34 3,632 2,588 (11) 908 (36) (1,044) 15 7 492 - - (205) 5 Tax (release) prioryears /charge inrespect ofincome jointEffect nottaxableandexpenses venture notdeductible ofincomeEffect nottaxableandexpenses notdeductible Change intaxrate – deferred joint venture taxeffect Change intaxrate –deferred (Note16) taxeffect Income taxcalculated at 19%(2003: 25%) Net profit before tax

Notes totheconsolidated financialstatements 32

38 arise usingstandard taxrates isasfollows: 40

56 2004 2004 2004 1 287 218 8 (116) 281 8 (116) 281

4 (3) (4) 58 (2) - 60

66 2003 2003 2003 68

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74 audit 217x280 2+2AJ celok 19

8 Intangible assets 7 Property, plant andequipment 1 ot1,7 4 ,6 ,1 ,0 25905 8,603 (20) (6 052) 904 (5,362) 2,119 (639) (20) - 904 2,564 (639) - 142 3168 - - (690) 1 427 3,168 - - - - 1,427 18 181 - 12,477 1,569 - - (1 741) - - - 2,119 (1,741) - - 1,874 - - - 142 - - - - Net bookvalue - Accumulated depreciation 12,477 - Cost - 2004 DecemberAt 31 Closing netbookvalue (Note 4) Amortisation - Acquisition ofsubsidiary Disposals Additions Opening netbookvalue Net bookvalue Accumulated depreciation Cost At 2004 1 January oto auto ,2 6574,4 18369219893,885 (102) 5,478 1,938 5,478 - (46,675) - 6,962 (24) 6,921 - 11,803 (5,859) (3) 668 (5,849) (3,677) (25) 40,244 - (7,082) 792 (21) 835 26,517 (25,751) (347) 153 6,421 (8,984) (19) - 3,791 (204) 40,620 (1,157) 3,152 1,627 (51) (4,032) 1,642 Net bookvalue - 77,511 1,572 - Accumulated depreciation (856) (8) 1,657 Cost orvaluation 2,057 180 2004 DecemberAt 31 (36,891) - (395) 1,002 4,406 - (15) Closing netbookvalue Depreciation charge (Note4) 4,392 13,732 sale (Note10) (2,349) 16,868 Transfers from assetsheldfor 35,583 (3,390) Acquisition ofsubsidiary 5,319 25,020 Disposals (21,851) Transfers 6,453 (8,152) Additions Opening netbookvalue (1,134) Net bookvalue Accumulated depreciation Cost orvaluation At 2004 1 January

Buildings Land and 21 lated customerrelationships Customer contracts andre- ,6 7531,9 ,2 ,8 ,1 47,210 1,914 3,285 47,210 4,721 1,914 14,493 3,285 17,533 4,721 5,264 14,493 17,533 40,620 5,264 1,642 2,057 1,002 13,732 16,868 5,319 23 6 3-(9 152 - (49) - 33 - 168 25

27 247 4 ,7 ,1 ,4 19 853 3,241 2,119 19853 1,874 3,241 142 2,119 1,874 12,477 142 12,477 plant outside and other Duct, cable 29

31 ,2 1427 1,427 - - - -

Notes totheconsolidated financialstatements 33

35 equipment related and exchanges Telephone 37

rn iessGowl te Total Other Goodwill Licenses Brand 39

43 equipment ssion transmi- and Radio

assets fixed Other 51

57 advances including progress in work Capital 59

65 Total 67

73 31/3/05, 9:28:53 AM audit 217x280 2+2AJ celok 20

depreciation (Note4). a related impairment lossofSKK173millionin fair value lesscosts tosell. The Group hasshown are carriedat thelower amount and ofcarrying they were originallypurchased. Assetsheldfor sale are nolongerrequired for thepurposesfor which itemsofproperty,certain plant andequipment As aconsequence oftheGroup oftherestructuring 10 Assetsheldfor sale Inventories are shown netofaprovision ofSKK97million(2003: SKK120million). 9 Inventories nation hasbeenallocated totheEuroTel mobile acquiredGoodwill through thebusinesscombi- periods, assetoutintheaccounting policies. under thestraight-line methodover therespective estimated ashaving finitelives andare amortised business combination. These intangible assetswere assets acquired oftheEuroTel through theeffect tionships, licenses andbrand represent intangible Customer contracts andrelated customerrela- 2 oiecmuiain26- 206 206 190 Other Mobile communication Network communication eae qimn 136 429 51 262 Related equipment Land andbuildings

Notes totheconsolidated financialstatements 34

38 completed 12month. salewithinthenext is notexpected to qualifyfor recognition asa reclassified tonon-current assetsbecausethesale Assets intheamount ofSKK152millionhave been at arm’s acting parties length. marketbeing a price agreed between unrelated the remaining 49%economic interest inEuroTel, consideration paidby Slovak Telecom toacquire value lesscosts tosellwas therelevance ofthe management basedthedetermination offair value lesscosts tosell. The key onwhich factor of theunithasbeendeterminedbasedonfair cash-generating unit. The recoverable amount 40

54 2004 2004 2 262 423 1 465 313

756 27 56

66 2003 2003

70 31/3/05, 9:28:54 AM 72

74 audit 217x280 2+2AJ celok 21 13 Cash andcashequivalents million). SKK 803millionrelates toEuroTel (2003: SKK908 for impairment ofSKK1,641 million, ofwhich Trade receivables are a shown after provision 11 Investments 12 Receivables andprepayments In April 2004theGroup solditscurrent investments inlinewithitsintention expressed in2003. 1 rpyet 753 268 77 62 262 362 135 1,853 82 171 2,896 51 Prepayments Deferred instalment fees receivables Other Amounts duefrom (Note22) related parties Foreign trade receivables Domestic trade receivables netet vial-o-ae-44 - Investments available-for-sale aheuvlns2643,295 2,684 Cash equivalents Cash

Notes totheconsolidated financialstatements 35

37 million). set-offs ofSKK138million(2003:after SKK413 international operators providing carrierservices, from includeamounts duefrom related parties Foreign trade receivables andamounts due 39

53 2004 2004 2004 ,9 2,680 3,592 ,6 15,685 12,390 5,662 2,978 55 -44 57

65 2003 2003 2003

73 31/3/05, 9:28:55 AM audit 217x280 2+2AJ celok 22

15 Interest bearingborrowings per share. All issuedshares were fullypaid. (2003: 26,027,500) withaparvalue ofSKK1,000 thorised andissued26,027,500 shares ordinary As of31December 2004theCompany hadau- shares from theSlovak Government. Deutsche Telekom AG of7,964,445 existing ordinary vatisation alsoinvolved transaction apurchase by and fullypaidby Deutsche Telekom AG. The pri- million. All newly issuedshares were subscribed were issuedat apremium totallingSKK11,632 with parvalue ofSKK1,000 pershare. The shares Company shares issued5,309,580new ordinary agreement effective 4August 2000, by whichthe 51% ofSlovak Telecom through aprivatisation SKK 1,000 pershare. Deutsche Telekom AG acquired authorised, issuedandfully paidat parvalue of stock company, with20,717,920 shares ordinary On 1April 1999Slovak Telecom becameajoint 14 Share capitalandreserves 2 fall dueasfollows: Repayments ofinterest bearingborrowings ofthelongterm portion lvkcmeca ak 745 - 37 3,938 (740) 5,087 (775) 4,124 ofinterestLong bearingborrowings termportion Less of interest current bearingborrowings portion Total interest bearingborrowings Slovak commercial banks Syndicated bankloan International financial institutionloans

fe ieyas951,685 985 2,023 684 5,704 635 fiveAfter years Between two andfive years Between oneandtwo years 4

Notes totheconsolidated financialstatements 36

38 included inotherreserves. before fullconsolidation ofSKK4,873millionis the value oftheinvestment inthejoint venture net assetsacquired before 31December 2004over 31 December 2004. The excess ofthefairvalue of of EuroTel were remeasured totheirfairvalues at terest inEuroTel (Note2), allassetsandliabilities On theCompany’s acquisitionofacontrolling in- 2,056 millionwas paidtotheshareholders. In May of2002SKK 2004adividendinrespect prior year profits tothereserve statutory fund. future losses. In2004, theGroup transferred 10%of created from retained earningstocover possible Slovak law andisnotdistributable. The reserve is The reserve issetupinaccordance statutory with 40

54 2004 2004 ,9 5,132 8,099 ,2 4,392 7,324 ,2 4,392 7,324 56

64 2003

2003 66

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74 audit 217x280 2+2AJ celok 23

Western Europe. is interest rate fluctuations, inSlovakia, U.S. and The Group’s majorfinancialmarket riskexposure to hedgethisexposure (Note21). swaps andaforward foreign contract currency Group entered into interest cross currency rate related toforeign debtrepayments. currency The The Group isexposed toforeign exchange risk interest ofthecross currency rateimpact swaps asfollows,currency into account taking the after Interest bearingborrowings canbeanalysed by 2007.September 93 million(SKK3,828million)whichexpires in dicated BankGuarantee for anamount of EUR - at 2002theGroup signedaSyn- 18September Government andaSyndicated BankGuarantee The IFIfacilities are guaranteed by theSlovak on theIFRSconsolidated financialstatements. leverage, interest cover based anddebtservice to achieve minimumratios offinancial inrespect to restrictive covenants whichrequire theGroup Investment Bank(togetherthe “IFI’s”) are subject Loans from the World BankandtheEuropean 1 arvle8335,402 5,132 8,363 8,099 Fair value amount Carrying Variable Fixed SSlovak crowns EEuro andEUmembercurrencies l u o r

v 3 o a

a k 5 n

c d r o 7 E w U

n 9

m s

e 11 m

b 13 e r

15 c u

r 17 r e

n 19 c i e 21 s

Notes totheconsolidated financialstatements 37 2004 was 5.22%(2003: 5.06%). The average effective interest rate at 31December fixed rate andvariable rate debtasfollows: Interest bearingborrowings canbeanalysed into standing at 31December 2004: and aforward foreign exchange contract out- bearing borrowings are asfollows: amountThe andfairvalue carrying ofinterest the periodtill31July2006. SKK 200million).(2003: The isavailable facility for drawn loanfacilitiesavailable ofSKK700million At 31December 2004, theGroup hastotalun- tranches. is unsecured andconsists ofrevolving andterm bank, N.A. and Všeobecná úverová banka, a.s. The syndicated bankloanprovided by Citi- 39

53 2004 2004 22004 ,9 5,132 1,132 4,000 8,099 2,708 5,391 88,099 88,099 0

, , 55 0 0 0 9 9 4 9 9

- 57 2003

2003 65 22003 55,132 55,087 0 , , 1 0

0 67 445 3 8 3 5 2 7 69

73 31/3/05, 9:28:55 AM audit 217x280 2+2AJ celok 24

Deferred tax(assets)/liabilitiesanddeferred taxincome are attributable tothefollowing items: Movements indeferred income taxes are asfollows: 16 Deferred tax 2 te 1)9(8 (36) (28) 2,202 5,859 (118) 9 2,202 (72) (81) 2,670 (118) (99) (17) - (29) - (117) - (4) 70 3,993 3,306 - (4) (48) - 647 2 - (48) (24) (97) (135) Net deferred taxliability 59 Other 3,481 Fair value adjustments Tax losscarriedforward 11 Fair value ofderivatives (Note21) (Note18) Restructuring Bad debtprovision Unrealised foreign exchange gains/losses Accelerated taxdepreciation eerdtxlaiiist estldatrmr hnoeya ,3 3,133 (130) 6,136 (409) Deferred more thanoneyear taxliabilitiesto besettledafter Deferred taxassetsto berecovered more thanoneyear after t3 eebr5893,306 - 4,339 5,859 3,306 2,670 11 (117) (1,044) - At 31December Acquisition ofsubsidiary (Credit) /charge toincome for theyear ofchangeinthetaxrateImpact from 25%to19in2003(Note6) January At 1

34 2003 36

Notes totheconsolidated financialstatements 38

40 ged toincome Credited /char- 42

of subsidiary Acquisition 54 2004 2004 ,2 3,003 5,727 56

64 2003

2003 66

2004 68

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74 audit 217x280 2+2AJ celok 25

parties includeamounts duefrom internationalparties Foreign trade payables andpayables torelated 17 Trade andotherpayables anddeferred income 1 te ogtr aals2 14 2,056 22 577 268 - 508 131 1,210 423 432 362 - 436 253 2,289 993 324 215 55 124 3,743 Deferred instalment fees andactivation costs longtermpayables Other Fair value ofderivative instruments (Note21) payablesOther anddeferred oneyear income dueafter Dividend payable Fair value ofderivative instruments (Note21) Deferred income Accruals andotherpayables Payables (Note22) torelated parties Amounts duetoemployees Foreign trade payables Domestic trade payables due withinoneyear Trade andotherpayables anddeferred income

37 of SKK138million(2003: SKK413million). operators providing carrierservices, set-offs after Notes totheconsolidated financialstatements 39

53 22004 ,6 6,100 6,664 0 55 8 790 881 0

4 57

65 22003 0

0 67 3

73 31/3/05, 9:28:57 AM audit 217x280 2+2AJ celok 26

considered useful improvements. to restoration astechnicalinstalments are often may, however, choosenot toexercise theirright creating assetretirement obligations. Landlords tion oftheleasedsiteat theendofleaseterm, agreements may contain clausesrequiring restora- tions associated withitsoperating leases. Lease The toassetretirement Group issubject obliga- from 31December 2004. benefits are expected tobepaidwithin12months recognised inthecurrent period. The termination full amount ofthecosts tobeincurred hasbeen ing amethodagreed withthetrade unions. The staff tobemaderedundant was calculated us- locations andfunctions. The amount payable to specifies thenumberofstaffinvolved andtheir detailed formalresentatives planthat basedona ment hasbeenreached withthelocalunionrep- result inthelossof1,797 jobsin2005. An agree- The oftheGroup’s restructuring operations will 18 Provisions 2 urn iblte 7 36 63 9 221 15 594 144 236 33 5 738 (274) 36 38 324 (245) - 7 236 (35) 236 504 43 63 - 63 - 83 - 3 63 - - - - 83 - - 132 - - 132 - 379 - - 31 - (13) 52 379 Current liabilities 15 - Non-current liabilities (197) - December At 31 127 of subsidiary - Acquisition 449 Amount used Unused amount reversed Additional provisions January At 1

18 ring Restructu-

20 7 3 36 33 3 236 738 38 43 63 83 132 379 22 3 34 243 7 43 63 130 -

26 obligations retirement Asset 28

claims Legal 36

38 in thepast. customer loyalty patterns experienced by EuroTel tion. The provision hasbeenrecognized basedon periodoftimefrom thedatecertain ofactiva- a commissions whencustomersremain active for EuroTel grants additional itsdealerscertain by loyalty program participants. previous experience oftheusagethesecredits spent. The provision hasbeenrecognized basedon change for credits awarded primarilyfor money inEuroTel’sto participants loyalty program inex- equipment, accessories, provided andservices gifts The loyalty program provision covers thecost of the amounts provided at 31December 2004. claims willnotresult inany significant lossbeyond propriate legaladvice, the outcome oftheselegal opinion oftheGroup’s directors, ap- taking after legal claimsbrought againsttheGroup. Inthe Provisions ofcertain includeamounts inrespect

Notes totheconsolidated financialstatements 40

program Loyalty 42

commissions Dealers 48

56 Other

62 Total 2004

68 Total 2003

(50) 70 31/3/05, 9:28:57 AM 72

74 audit 217x280 2+2AJ celok 27

sary radio frequenciessary was granted toEuroTel. 2003, thedate onwhichfullcontrol oftheneces- ices nolater than30months from 30September obliged tocommence theprovision ofUMTS serv- Under thetermsofUMTS license, EuroTel is Licenses ofpaymentsmajority duewithinoneyear. mobile telecommunications networks, withthe ments principallyrelate to thefixed-line and The commitments undercontractual arrange- The Group hadthefollowing capitalcommitments at 31December: Capital commitments 20 Commitments 19 Netcashflows from operating activities 1 aia xedtr hthsbe otatdfrbthsntbe rvddfr1091 1,029 Capital expenditure that hasbeencontracted for buthasnotbeenprovided for noetxspi 52 (647) 147 (532) 609 (88) 86 384 291 (131) 20 259 392 (265) 36 (719) (319) 5,781 (1,177) Net cashflows from operating activities (139) 6,498 Income taxes paid Cash generated from operations Increase intrade andotherpayables Decrease ininventories Decrease intrade andotherreceivables Operating profit before working capitalchanges Movements inprovisions Net foreign exchange gainsandothernoncashitems Loss ondisposalsfixed assets Share ofprofit ofjoint venture (Note 1) Interest income, net Depreciation (Notes4) andamortisation Income tax Adjustments for: Net profit

37 analyzed asfollows: under non-cancelable operating leasescanbe The aggregate future minimumleasepayments primarily tooffice, retail space andmotorvehicles. with termsranging from onetotenyears relating The Group iscommitted underoperating leases Operating leasecommitments 39

Notes totheconsolidated financialstatements 41

53 2004 2004 ,3 9,670 9,317 8,037 8,569 3,749 2,307 ,0 8,177 7,800 55 8 (116) 281

2003 65 2003 ,446 67

73 31/3/05, 9:28:58 AM audit 217x280 2+2AJ celok 28

future foreign expenditures. currency of foreign borrowings currency andanticipated exchangecurrency rates related torepayments to managetheexposure inforeign tofluctuations rate swaps andforward foreign contracts currency The Group hasentered into interest cross currency ognized immediately intheincome statement. fair values ofthesederivative instruments are rec- under thespecificrulesofIAS39. Changesinthe policies, they do not qualifyfor hedgeaccounting nomic hedgesundertheGroup’s riskmanagement While thesecontracts may provide effective eco- Movements inderivatives during theyear ended31December 2004are setoutbelow: 21 Derivative financialinstruments 2 prtn omtet u fe orya 4 - - 442 - 205 336 Operating commitments four year dueafter Operating commitments duebetween oneandfour year Operating commitments duewithinoneyear o urn iblte 3 5490 (99) 55 15 2 (16) 508 (10) 435 15 (27) (12) (83) - (97) 63 (27) - 14 508 - (73) - Net balance at 31December 2004 Deferred income tax(Note 16) (97) Non current liabilities Net balance at 31December 2004 Deferred income tax(Note 16) Up-front payment for interest differential Acquisition of subsidiary Change infairvalue (Note5) Movements duringtheyear: Net balance at 2004 1January Deferred income tax(Note 16) Fair value At 2004 1January

interest rate swaps 38 a poolunit.defined multicurrency The interest cipal receivable ofUSD23million, representing payable of USD21millionandoutstandingprin- swap withoutstanding principal multicurrency a able was 2.12%. Further, to theGroup was party payable was 2.586%andtheinterest rate receiv- est rates. At 31December 2004theinterest rate topay/receiveexpects interest at variable inter- principal receivable ofUSD29million. The Group cipal payable ofEUR34millionandoutstanding interestcurrency rate swaps withoutstandingprin- At tocross 31December 2004theGroup was party interestCross currency rate swaps Cross currency 40

Notes totheconsolidated financialstatements 42

44 5 9391 391 39 39 352 411 352 411

52 forwardy

Menové 54 2004 8 - 983 56

2003 66 Spolu

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74 audit 217x280 2+2AJ celok 29

agement isconfident that theGroup willsuffer ceedings inthenormalcourse ofbusiness. Man- The Group isinvolved pro- inlegalandregulatory 23 Contingencies includesDeutsche Other Telekom’s subsidiaries, associates andjoint ventures. other services. Furthermore, Deutsche Telekom and calls whichaccess eachothers’ networks andfor subsidiaries, associates andjoint ventures for to EuroTel andtoDeutsche Telekom AG andits Group receives revenues from andpays expenses lated businessesonnormalcommercial terms. The The Group provides totheState services andre- transactions 22 Related party At to 31December 2004theGroup was party Forward foreign exchange contracts swaps mature in2010. was paidupfront. interest Cross currency rate rate differential swap from themulticurrency 1 ietr 4 5 66 - 212 - 57 303 - 1,014 110 167 47 906 - - 232 399 5 761 - 223 - 750 38 81 - - - 106 3 23 - 1,110 - 7 4 63 75 25 - 19 Total - Directors Other - T-Mobile T-Systems Deutsche Telekom EuroTel

15 2004 17 eevbe aalsRvne Expenses Revenues Payables Receivables 18 2 ,0 ,2 ,1 ,2 1,497 1,522 1,217 1,020 1,302 124 82 51 19

23 2003

2004 31

37 2003 consolidated financialstatements (Note18). in excess oftheprovision already recorded inthe no material lossasa result ofsuchproceedings payable ofSKK1,049 million. payables toDeutsche Telekom dividend includeda on normalcommercial terms. At 31December 2003 are basedoncontractual agreements negotiated services.and consultancy All revenues andcosts T-Systems provide theGroup withmanagement mature in2005. million. The forward foreign exchange contracts and outstandingprincipalreceivable ofEUR134 standing principalpayable ofSKK 5,260 million forward foreign exchange contracts without- 39

Notes totheconsolidated financialstatements 43

45 2004

2003 53

59 2004 61

67 2003

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EuroTel hastheoptiontorenew thelicense for until 2011. Prior totheexpiration ofthislicense, which EuroTel currently operates anditisvalid into onegeneral license. This isthelicense under the Telecom Office consolidated EuroTel’s licenses operate a GSM 1800MHznetwork. InJuly2000, port, Post and Telecommunications tobuildand of two licenses granted of by theMinistry Trans- license was amendedandEuroTel received one 1997. InJuly1999, EuroTel’s originalGSM900MHz network inFebruary andlaunchedthisservice GSM 900MHz munications tobuildandoperate a of by theMinistry Transport, Post and Telecom- 1996, EuroTel received oneoftwo licenses granted data network inNovember services 1991. InAugust 1991andbegantoprovideSeptember managed NMT 450mobiletelecommunications in services switched packet data network. EuroTel launched public license andoperate toconstruct ceived a a now astheSlovak known Republic. EuroTel alsore- an analogNMT450MHznetwork intheregion awarded a 20-year exclusive license tooperate rangements. InNovember 1990, EuroTel was The Group isinvolved concession inservice ar- Concession24 Service Arrangements 2

38 the optiontorequest itsprolongation. license isvalid through to2022whenEuroTel has ices within30months from that date. The UMTS and isobligedtolaunchcommercial UMTS serv- frequencies underthetermsofUMTS license 2003, EuroTel was granted fullcontrol ofthe radio frequencies by EuroTel. On30September UMTS license alsoprovides for control ofrelated tem (“UMTS”) standard (the “UMTS license”). The on theUniversal Mobile Telecommunications Sys- public mobiletelecommunication network based a license for theimplementation andoperation of Effective 16July2002EuroTel was awarded the ice andthepayment quality fees. ofcertain minimum geographic coverage andlevels ofserv- milestones onanongoingbasis; attaining certain but are notlimitedto: build-out reaching certain EuroTel mustcomply. These obligations include, This license imposesvarious obligations withwhich the license. required topay fees for certain therenewal of up toanadditional10years. EuroTel may be 40

Notes totheconsolidated financialstatements 44

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Bratislava, 21February 2005 PricewaterhouseCoopers Slovensko, s.r.o. Bratislava, a.s., of isbasedsolelyonthereport as itrelates totheamounts includedfor EuroTel has beenfurnishedtous, andouropinion, insofar waterhouseCoopers Slovensko, s.r.o. whosereport totals. Those statements were auditedby Price- 42 percent, respectively, oftherelated consolidated assets andnetprofit constituting 18percent and owned subsidiary, whichstatements total reflect statements ofEuroTel Bratislava, a.s., awholly those statements. We didnotauditthefinancial February 2004expressed anunqualifiedopinionon datedaudited by 21 anotherauditorwhosereport of theCompany asof31December 2003were our audit. The consolidated financialstatements opinion onthesefinancialstatements basedon management. Ourresponsibility istoexpress an statements are theresponsibility oftheCompany’s cash flows for theyear thenended. These financial related consolidated statements ofincome and its subsidiariesasof31December 2004, andthe ted balance sheet ofSlovak Telecom, a.s. and We have auditedtheaccompanying consolida- 1

13 to theShareholders ofSlovak Telecom, a.s. 15

33 Independent Auditor‘s Report

37 Financial Reporting Standards.Financial Reporting year thenendedinaccordance withInternational results ofitsoperations anditscashflows for the the Company asof31December 2004, andofthe in allmaterial respects, thefinancialpositionof consolidated financialstatements present fairly, of PricewaterhouseCoopers Slovensko, s.r.o., the In ouropinion, basedonourauditandthereport provide areasonable basisfor ouropinion. ofPricewaterhouseCoopersreport Slovensko, s.r.o. presentation. We believe that ourauditandthe well asevaluating theoverall financialstatement significant estimates madeby management, as used inpreparing thefinancialstatements and also includesassessingtheaccounting principles res includedinthefinancialstatements. An audit evidence theamounts anddisclosu- supporting ment. An auditincludesexamining, onatestbasis, financial statements are free ofmaterial misstate- obtain reasonable assurance astowhetherthe require thattheauditto we planandperform national Standards onAuditing. Those standards We ourauditinaccordance conducted withInter- 39

Ernst & Young Slovakia, spol. sr.o. 49

55 Independent Auditor‘s Report

73 31/3/05, 9:29:00 AM audit 217x280 2+2AJ celok 32 approved by corporate bodiesisas follows: Proposal for profit distributionfor the year 2004

2 eanderig SKK336m Retained earnings SKK389m Distribution tofunds: Profit tax(in accordance after withSlovak Accounting Standards)

4 oilfn SKK14m SKK39m Social fund Reserve fund 6

44 Proposal for profit distributionfor theyear 2004 46

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