Annual Report 2006 Worldreginfo - 7Fe843fb-288E-41Dd-8B23-Fac0e6b10839 Annual Report 2006
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Annual Report 2006 WorldReginfo - 7fe843fb-288e-41dd-8b23-fac0e6b10839 Annual Report 2006 1 1 O Telefónice Annual Report 2006 WorldReginfo - 7fe843fb-288e-41dd-8b23-fac0e6b10839 Content Auditor’s report 4 Financial and operational highlights 5 Letter from the Chairman of the Board of Directors 6 Letter from the Chairman of the Supervisory Board 10 Calendar of key events in 2006 12 1 About Telefónica 16 2 Board of Directors’ Report on Business Activity 28 Telefónica O2 Czech Republic Group 31 Integration 37 The telecommunications market in the Czech Republic 39 Networks and information systems 44 Voice services 46 Internet, data and value added services 48 Domestic and international wholesale services 51 Comments on the financial results 53 3 Corporate Governance 60 Corporate governance of the Telefónica O2 Czech Republic Group 63 Subsidiaries and associated companies 65 Organisation chart of Telefónica O2 Czech Republic 66 Governing bodies of Telefónica O2 Czech Republic 67 Board of Directors of Telefónica O2 Czech Republic 68 WorldReginfo - 7fe843fb-288e-41dd-8b23-fac0e6b10839 Executive management of Telefónica O2 Czech Republic 73 Report by the Supervisory Board 77 Supervisory Board of Telefónica O2 Czech Republic 78 Telefónica O2 Czech Republic’s Declaration of Compliance with the Code 87 of Good Corporate Governance based on OECD Principles 4 Financial Section 94 Consolidated financial statements for the year ended 31 December 2006 97 Financial statements for the year ended 31 December 2006 137 5 Information on the listed security issuer 178 6 Information for shareholders 190 7 Glossary of terms and acronyms 198 8 Appendix 204 Report of the Board of Directors of Telefónica O2 Czech Republic, a.s. On relationships between the controlling and the controlled entity and on relationships between the controlled entity and other entities controlled by the same controlling entity for 2006 (pursuant to provisions of Section 66a of Act No. 513/1991 Coll., the Commercial Code, as amended) WorldReginfo - 7fe843fb-288e-41dd-8b23-fac0e6b10839 Auditors’ report To the Shareholders of Telefónica O2 Czech Republic, a.s.: III. In addition, we have reviewed the accuracy of the information contained in the report on related parties of Telefónica O2 Czech Republic, a.s., for the year ended 31 December 2006, I. We have audited the consolidated financial statements of Telefónica O2 Czech Republic, a.s. presented in the annual report of the Company on pages 207–219. The management and its subsidiaries as at 31 December 2006, presented in the Annual Report of Telefónica O2 of Telefónica O2 Czech Republic, a.s., is responsible for the preparation of the report on related Czech Republic, a.s. (the Company) on pages 97–136, on which we have issued an auditors’ parties. Our responsibility is to issue a report based on our review. report dated 22 February 2007, presented in the Annual Report on page 99. We have also audited the separate financial statements of the Company as at 31 December 2006, which We conducted our review in accordance with applicable International Standards on Auditing are presented in the annual report of the Company on pages 137–175 on which we have issued and the related implementation guidance issued by the Chamber of Auditors of the Czech an auditors’ report dated 22 February 2007, presented in the Annual Report of the Company Republic. Those standards require that we plan and perform the review to obtain moderate on page 139 (both referred further as financial statements). assurance as to whether the report on related parties is free from material misstatement. The review is limited primarily to enquiries of company personnel, to analytical procedures II. We have also audited the consistency of the annual report with the financial statements applied to financial data and to examining, on a test basis, the accuracy of information, described above. The management of Telefónica O2 Czech Republic, a.s. is responsible and thus provides less assurance than an audit. We have not performed an audit and, for the accuracy of the Annual Report. Our responsibility is to express, based on our audit, accordingly, we do not express an audit opinion. an opinion on the consistency of the Annual Report with the financial statements. Based on our review, nothing has come to our attention that causes us to believe that the report We conducted our audit in accordance with International Standards on Auditing and the related on related parties of Telefónica O2 Czech Republic, a.s., for the year ended 31 December 2006 implementation guidance issued by the Chamber of Auditors of the Czech Republic. Those stan- is materially misstated. dards require that we plan and perform the audit to obtain reasonable assurance as to whether the information presented in the annual report that describes the facts reflected in the financial statements is consistent, in all material respect, with the financial statements. We have checked that the accounting information presented in the Annual Report on pages 5–92 and 181–196 Ernst & Young Audit & Advisory, s.r.o., člen koncernu is consistent with that contained in the audited financial statements as at 31 December 2006. License No. 401 Our work as auditors was confined to checking the Annual Report with the aforementioned Represented by scope and did not include a review of any information other than that drawn from the audited accounting records of the Company. We believe that our audit provides a reasonable basis for our opinion. Brian Welsh Magdalena Souček Based on our audit, the accounting information presented in the Annual Report is consistent, Partner Auditor, Licence No. 1291 in all material respects, with the above-mentioned financial statements. 23 April 2007, Prague, Czech Republic WorldReginfo - 7fe843fb-288e-41dd-8b23-fac0e6b10839 Financial and operational highlights Financial data are based on audited consolidated financial statements prepared in accordance with International Financial Reporting Standards. All figures, unless otherwise stated, are in CZK millions as at 31 December of each year. Financials 2006 2005 Ratios (in %) 2006 2005 Revenues1 61,311 61,040 OIBDA/Business Revenues (OIBDA margin)2 45.8 44.9 OIBDA – Operating income before finance costs, tax, Net income/Revenues 13.1 10.2 depreciation and amortization2 27,906 27,240 Capital expenditure/Revenues 10.6 9.9 Operating income 11,160 9,432 ROA (Net income/Total assets) 6.8 5.0 Income before taxes 10,940 8,748 ROE (Net income/Equity) 9.1 6.6 Net income 8,020 6,248 Gross gearing (Financial debts/Total equity) 10.6 10.1 Total assets 117,877 124,211 Macroeconomic indicators5 Property, plant and equipment 78,755 88,003 Population (in millions) 10.3 10.2 Total equity 88,481 94,975 GDP6 (in %) 6.1 6.1 Financial debts 9,363 9,631 Inflation (in %) 2.5 1.9 Capital expenditure 6,500 6,072 Unemployment (in %) 8.1 9.0 Operations CZK/USD exchange rate – average over the period 22.6 23.9 Fixed telephony accesses3 (x 1,000) 2,402 2,908 CZK/USD exchange rate – end of period 20.9 24.5 ADSL connections (x 1,000) 470 274 CZK/EUR exchange rate – average over the period 28.3 29.8 Pay TV – O2 TV (x 1,000) 16 – CZK/EUR exchange rate – end of period 27.5 29.0 Mobile customers (x 1,000) 4,864 4,676 – of which contract pre-paid 1,875 1,546 – pre-paid 2,989 3,130 Mobile data customers4 (x 1,000) 168 137 Group headcount 9,416 10,059 1 Business and recurring revenues.(excluding Gains from sale of non-current assets). 2 Including impairment charge; in 2005 the Group posted an impairment charge of CZK 1,261 million, compared to CZK 253 million in 2006. 3 Excluding incoming-only lines. 4 CDMA and GPRS. 5 Sources: Czech Statistical Office, Czech National Bank, Ministry of Finance, Ministry of Labour and Social Affairs. 6 At constant 1995 prices; the 2006 figure is an estimate. 4 5 Financial and operational highlights Annual Report 2006 WorldReginfo - 7fe843fb-288e-41dd-8b23-fac0e6b10839 Letter from the Chairman of the Board of Directors To Our Shareholders, Let me review the developments in the Telefónica O2 Czech Republic Group in 2006. The past year was a year full of memorable changes and events. The first results of these changes were already visible in 2006, but their full impact will be felt in the coming years. At the beginning of the year there were two companies present on the Czech telecommunica- tions market: ČESKÝ TELECOM, a.s. and Eurotel Praha, spol. s r.o. On 1 July 2006, these two companies joined forces to form Telefónica O2 Czech Republic, a.s. (Telefónica O2), the first integrated telecommunications operator in the Czech Republic. Since the beginning of Septem- ber 2006, the new company has been presenting itself and all its products and services under the O2 brand. After winning a mobile licence in Slovakia, we expanded our activities onto the market there. The launch of O2 TV, our IPTV product, introduced us to a new market – multimedia entertainment. Our ongoing efforts to grow our broadband internet and data ser- vices yielded a significant increase in the numbers of customers of these services in both the fixed line and mobile segments. The financial results exceeded our expectations from the beginning of the year. We succeeded in reversing the trend in revenues, which increased slightly in 2006 com- pared to 2005. Although our costs increased, mainly due to the launch of the integration process and the re-branding project, we managed to increase our OIBDA and maintain our margins. Jaime Smith Basterra When, in early March, we announced our plan to merge the two companies, we presented Chairman of the Board of Directors an implementation schedule for the individual integration projects and our targets for 2006 and beyond.