WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 rch 009 CONTENTS PAGE
1 INTRODUCTION ...... 1
1.1 Highlights of the Telekom Slovenia Group in 2008 ...... 1 1.2 Future ambitions ...... 6 1.3 The Telekom Slovenia Group on the map of Europe ...... 8 1.4 The Telekom Slovenia Group ...... 9 1.5 Statement by the President of the Management Board ...... 10 1.6 Statement of Responsibility of the Management Board ...... 13 1.7 Report by the Supervisory Board of Telekom Slovenije, d. d. for the 2008 business year ...... 14 1.8 Governance and management report ...... 15 1.9 Telekom Slovenije, d. d. retains investors‟ trust ...... 24 1.10 Significant events in the Telekom Slovenia Group in 2008 ...... 30 1.11 Significant events after the balance-sheet date ...... 32 1.12 Honest, open and up-to-date communication ...... 33 1.13 Risk management ...... 35 1.14 Intensive investment activities in the future ...... 41 1.15 Growth in broadband and mobile connections ...... 42
BUSINESS REPORT OF THE TELEKOM SLOVENIA GROUP ...... 43
2 SLOVENIA ...... 43
2.1 Environment analysis ...... 43 2.1.1 Macroeconomic environment ...... 43 2.1.2 Development opportunities and slowing growth on the ICT market ...... 44 2.1.3 Regulatory environment ...... 49 2.1.4 Competition signalling interest in providing convergent services ...... 51 2.1.5 Maintaining our leading market shares ...... 52 2.2 Sales and marketing ...... 61 2.2.1 Fixed telephony services ...... 64 2.2.2 Mobile services ...... 67 2.2.3 Leased lines and VPN services ...... 68 2.2.4 Enhanced range of broadband services ...... 68 2.2.5 Wholesale (inter-carrier operations) ...... 70 2.2.6 Systems integration ...... 72 2.2.7 Extensive development of new content ...... 72 2.2.8 Construction and maintenance of the network ...... 73 2.2.9 In harmony with nature ...... 74 2.3 Significant projects at the Telekom Slovenia Group ...... 74 2.4 Leader in the development of convergent services and the network ...... 76 2.5 Network development and management ...... 77 WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 2.5.1 Fixed network ...... 77 2.5.2 Mobile network...... 78
3 SOUTH EASTERN EUROPE AND THE DEVELOPMENT OF OPERATIONS (M&A) ...... 80
3.1 Environment analysis ...... 80 3.1.1 Market shares ...... 81 3.1.2 Regulation ...... 83 3.2 Sales and marketing ...... 85 3.3 Network and service development...... 87
4 OPERATING RESULTS OF THE TELEKOM SLOVENIA GROUP ...... 89
4.1 Telekom Slovenia Group ...... 89 4.2 Performance and financial management ...... 90 4.3 Telekom Slovenije, d. d...... 95 4.4 Mobitel, d. d...... 96 4.5 South Eastern Europe and other companies ...... 96
5 SUSTAINABILITY REPORT ...... 99
5.1 Responsible monitoring of sustainable development ...... 99 5.2 Responsible human resource management ...... 99 5.3 Social responsibility ...... 105 5.4 Environmental responsibility ...... 107 5.5 Responsibility to customers ...... 110 5.6 Responsibility to suppliers ...... 114 5.7 Responsible security policy ...... 115
6 FINANCIAL REPORT ...... 116
6.1 Introductory notes ...... 116 6.2 Financial report of the Telekom Slovenia Group...... 117 6.2.1 Financial statements of the Telekom Slovenia Group ...... 117 6.2.2 Notes to the consolidated financial statements and summary of significant accounting policies of the Telekom Slovenia Group ...... 123 6.2.3 Independent Auditor's Report ...... 166 6.3 Financial report of Telekom Slovenije, d. d...... 167 6.3.1 Financial statements of Telekom Slovenije, d.d...... 167 6.3.2 Notes to the financial statements and summary of significant accounting policies of Telekom Slovenije, d.d...... 173 6.3.3 Independent Auditor's Report ...... 209
7 DICTIONARY OF TELECOMMUNICATION TERMS ...... 210 WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 General data on the parent company Telekom Slovenije, d. d.
Company: Telekom Slovenije, d. d. Registered office: Ljubljana Address: Cigaletova ulica 15, 1000 Ljubljana ID number: 5014018 VAT number: SI 98511734 Court reg. entry no: entry no. 1/24624/00, District Court Ljubljana Number of shares: 6,535,478 No-par value shares – code: TLSG
Telephone: 00386 1 234 10 00 Fax: 00386 1 231 47 36 Website: http://www.telekom.si E-mail: [email protected]
Main activities
Activity code 61.100 Wired telecommunications activities 61.200 Wireless telecommunications activities 61.900 Other telecommunications activities 58.120 Publishing directories and mailing lists 63.110 Data processing and related activities 71.129 Other engineering activities and technical consultancy 80.200 Security systems service activities
Subsidiaries in the Group
Company: Mobitel, telekomunikacijske storitve, d. d. Registered office: Ljubljana Address: Vilharjeva 23, 1000 Ljubljana Telephone: 00386 1 472 29 00 Fax: 00386 1 472 29 90 Website: http://www.mobitel.si E-mail: [email protected]
Company: Planet 9, d. o. o. Registered office: Ljubljana Address: Vilharjeva 78, 1000 Ljubljana Website: http://www.planet.si
Company: Soline, Pridelava soli, d. o. o. Registered office: Portoroţ Address: Seča 115, 6230 Portoroţ Website: http://www.soline.si
Company: M-PAY, d. o. o. Registered office: Maribor Address: Ul. Vita Kraigherja 3, 2000 Maribor Website: http://www.moneta.si
Company: Interseek, internetne iskalne tehnologije, d. o. o. Registered office: Ljubljana Address: Stegne 31, 1000 Ljubljana Telephone: 00386 1 513 84 00 Fax: 00386 1 519 73 88 WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290
Website: http://www.interseek.com E-mail: [email protected]
Company: GVO, Gradnja in vzdrţevanje telekomunikacijskih omreţij, d. o. o. Registered office: Ljubljana Address: Cigaletova 10, 1000 Ljubljana Telephone: 00386 1 234 1000 Fax: 00386 1 234 1803 Website: http://www.gvo.si E-mail: [email protected]
Company: Avtenta.si, d. o. o., sistemska integracija in poslovne rešitve Registered office: Ljubljana Address: Verovškova ulica 55, 1000 Ljubljana Telephone: 00386 1 583 68 00 Fax: 00386 1 583 68 01 Website: http://www.avtenta.si
Company: Teledat, zaloţništvo imenikov in podatkovnih baz, d. o. o. Registered office: Ljubljana Address: Cigaletova 15 Telephone: 00386 1 234 11 50 Fax: 00386 1 234 11 90 Website: http://www.teledat.si E-mail: [email protected]
Company: On.net, Druţba za informacijske sisteme, d. o. o. Registered office: Skopje, Macedonia Address: Bul. Partizanski odredi, no. 70, DTC Aluminka, 5th floor Website: http://www.on.net.mk
Company: Ipko, d.o.o. Registered office: Priština, Kosovo Address: Blv. Mati Tereze, RTK Website: http://www.ipko.net
Company: Aneks, d. o. o., druţba za inţeniring in svetovanje uvoz-izvoz Registered office: Banja Luka, Bosnia and Herzegovina Address: Ulica Majke Jugovića 25 Website: http://www.aneks.com
Company: SIOL, d. o. o. Registered office: Zagreb, Croatia Address: Margaretska 3
Company: Albania Online SP, d.o.o. Registered office: Tirana, Albania Address: Rr. Donika Kastrioti, 4 Website: http://www.albaniaonline.net/
Company: Gibtelecom, d.o.o. Registered office: Gibraltar, Gibraltar Address: Gibtelecom, Suite 942, Europort, Gibraltar. Website: http://www.gibtele.com/ WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290
1 INTRODUCTION
In 2008, the Telekom Slovenia Group closely monitored and dictated development trends in the field of multimedia services and content. By integrating and mixing content, a mobile telephone becomes a television, a television becomes a games console and cinema, and the Internet becomes a concert hall.
We offer users "everything live" and make it possible for their lives to "go live" with our services.
Mission and vision of the Telekom Slovenia Group
Mission
We are the first to provide users with the latest communications experience.
Our solutions offer first-class quality, reliability and security.
We enrich our customers' lives by connecting fun, innovative and business content and applications. We bring people together, to communicate, share and work. Our customers talk, laugh, write - communicate - with whomever they want, whenever needed: they are first.
We work in a stimulating, exciting and challenging environment where teamwork offers fun, leadership and inspiration to be the first.
Being the first, we create value for ourselves, our customers, partners and shareholders.
Vision: The first!
1.1 Highlights of the Telekom Slovenia Group in 2008
Significant achievements
Telekom Slovenije, d. d. - The number of broadband connections increased by 47,703 (14,402 of which on the inter- operator market). - The number of traditional voice telephony connections fell by 91,669 compared with the previous year.
Mobitel, d. d. - EBIT increased by 2% to EUR 80.6 million despite intense competition and a reduction in market share.
Multimedia content and publishing - Reorganisation of Planet 9, d. o. o. – centralisation of TV-related activities.
South Eastern Europe - Continued consolidation of broadband and cable operators, particularly in Albania and Bosnia-Herzegovina - merger of Blic.net and Aneks, d. o. o. - Establishment of the subsidiary SIOL, d.o.o. in Croatia. - Almost two times more broadband users. - Intense activities to purchase of Cosmofon mobile operator in Macedonia. - Monitoring other potential acquisitions in the region.
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Financial and business results from the Telekom Slovenia Group
Net sales revenues Compared to the same period last year net sales revenues grew by 8%, reaching EUR 842.4 million, exceeding the plan amount by 3%.
EBITDA was EUR 312.2 million, representing growth of 5% on 2007, and was at the planned level.
Operating profit (EBIT) EBIT reached EUR 128.5 million and was 6% lower than in 2007 and at the planned level.
Net Profit Net profit reached EUR 86 million. This was a fall of 3% compared to 2007, due largely to the negative net financial revenues/expenses figure. Nevertheless, it still exceeded the planned amount by 5%.
Key financial performance indicators
Index in mio EUR / in% 2007 2008 08/07 Operating revenues 787.2 851.7 108 EBITDA 298.2 312.2 105 EBITDA margin 37.9% 36.7% 97 EBIT 136.4 128.5 94 RoS (EBIT/net sales) 17.5% 15.3% 87 Net profit 88.4 86.0 97 Total assets 1,740.5 1,788.4 103 RoA (net profit/average assets) 5.5% 4.9% 89 Equity 1,062.7 1,065.7 100 Debt/equity 63.8% 67.9% 107 RoE (net profit/average equity) 9.0% 8.4% 94 Net financial debt (NFD) 310.6 380.0 122 NFD / EBITDA 1.0 1.2 117 Share price in EUR 414.2 118.6 29 Market capitalization 2,707.0 775.1 29 CAPEX 312.9 253.3 81 EBITDA - CAPEX -14.7 58.9 - (EBITDA-CAPEX) in EBITDA (%) -4.9% 18.9% - Employees 4,395 4,668 106
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Operating revenues of the Telekom Slovenia Group (in million EUR)
EBITDA and the EBITDA margin for the Telekom Slovenia Group (in million EUR and %)
350 45% 300 40% 35% 250 30% 200 25% 150 20% 15% 100 10% 50 5% 0 0% 2002 2003 2004 2005 2006 2007 2008 EBITDA 240 242 235 277 293 298 312 EBITDA margin 41.9% 41.3% 36.5% 39.8% 39.1% 37.9% 36.7%
Added value of the Telekom Slovenia Group (in million EUR)
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Operating revenues and net profit of the Telekom Slovenia Group (in million EUR)
Net profit of the Telekom Slovenia Group (in million EUR) and ROE (in %)
120 14%
100 12% 10% 80 8% 60 6% 40 4%
20 2%
0 0% 2002 2003 2004 2005 2006 2007 2008 Net profit 52 70 65 99 103 88 86 ROE 8.1% 10.8% 8.8% 12.0% 11.5% 9.0% 8.4%
Composition of the funds of the Telekom Slovenia Group (in million EUR)
2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 2002 2003 2004 2005 2006 2007 2008 Liabilities 612 539 567 483 482 678 723 Equity 683 690 847 915 989 1,063 1,066
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Investments in fixed assets by areas of operation (in million EUR)
Net financial debt to equity by period (in million EUR)
1,100 1,063 1,064 989 1,000 915 900 847 800 690 700 367 354 600 380 311 500 235 400 170 300 200 100 0 31/ 12/ 03 31/ 12/ 04 31/ 12/ 05 31/ 12/ 06 31/ 12/ 07 31/ 12/ 08
Equity Net financial Debt
Employee structure by area of operation
5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2002 2003 2,004 2,005 2,006 2,007 2,008
Telekom Slovenije Mobitel South East Europe Other companies
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1.2 Future ambitions
+ the first + a step ahead of the competition + development of services and technology + growth + challenges
The development of new services and content, moving closer to users via multimedia, modernising the network with new technology – these are the competitive advantages that ensure the Telekom Slovenia Group remains first in Slovenia and continues to consolidate its position in South Eastern Europe. We are convinced that based on sound business relationships, a competitive approach, respect for market liberalisation and collaborating in the development of regulations, we will be first on every market in which we operate.
The common objective of every company in the Group is to increase value for the Group, our users, partners and owners.
Strategic objectives of the Telekom Slovenia Group include:
1. We see our vision of being “the first!” as a business challenge within a framework of regulation and market liberalisation and competition. This compels us to utilise our competitive advantages in technology, marketing and organisation. We want to make sure our relations with competing operators are proper and fair, as an expression of market competitiveness and legally defined regulatory actions.
2. We want to remain the driving force in building broadband capacity in Slovenia, and match the markets with the highest broadband penetration in Europe. The optimal combination of technologies for fixed and mobile 3G networks is our key competitive advantage, which we use for our own development and to satisfy Slovenian users. We are introducing new fibre optic access network possibilities to FTTx provision (Home, Node, Curb, Building), based on the principles of economy and being close to our users.
3. We want to be among the first in Europe to complement the top quality of our services with convergent services and gradual reorganisation of marketing and network management. Opportunities for synergy are essential to maintaining the leading market and technological position in Slovenia.
4. We will continue to address the TIME challenge (Telecommunication, Information, Multimedia, Entertainment), with a new emphasis on all activities that concern content development and supply. We support the company‟s organic growth with continual monitoring of opportunities and potential acquisitions.
5. We will continue the internationalisation of our operations by expanding to the markets of South Eastern Europe, where we aim to become the first alternative provider of telecommunication services and content in the region. Our achievements to date (especially in Kosovo) give us the strength to make major acquisitions, which we see as key milestones in transforming the Telekom Slovenia Group from being the leading Slovenian operator into a key provider for the entire South Eastern European region.
Strategic thinking for future success
In the past, the Telekom Slovenia Group has met every objective it has set itself. The reorganisation and modernisation of business processes and standardisation of sales channels has placed our users at the heart of our operations. We have won their trust by developing new content and multimedia services. Today, they can access an enormous range of mobile, Internet and television content, offering a completely different experience of the world. Recently, we have not only closely followed the development of new content and services, but we have also been defining it. In doing so, we have provided more user- friendly technological solutions and higher quality networks, via which services are available anytime, anywhere.
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Europe. We have made some acquisitions that have paved our way into the local electronics communications markets. We have become one of the largest and most respected business groups in Slovenia and South Eastern Europe.
The strategic objectives of Telekom Slovenije Group from 2005 to 2008 and their realisation
Strategic objective Realisation Assessment Operational reorganisation (HR Changing the corporate culture into a reorganisation, Planet 9, d. o. o.) user-oriented service company Modernising business processes Standardising sales channels (Mobitel realised centres) TV (SiOL TV, HDTV, electronic programme guide, expansion of channels, video on demand, HD video on demand) mobile telephony ("Povezani", Mobile TV, Expanding portfolio of services "Itak", family package) realised Internet (overhaul of www.siol.net portal, monitoring multimedia events, Gorillaz Sound System, Siddharta saga) Seeking and creating new synergies convergence services (double and triple realised play packages, and M4-quad play) Expansion to markets of South Eastern Europe: Kosovo, Macedonia, Bosnia and Geographical expansion Herzegovina, Albania realised Acquisition of GSM licence in Kosovo and successful launch of mobile operations Purchase of 50% share in Gibtelecom Listing shares on Ljubljana Stock Increasing company value Exchange‟s Prime Market realised 8.4% ROE
Strategically oriented towards the future
The Telekom Slovenia Group prepares business plans for four-year cycles. We annually assess their realisation and adapt them on an ongoing basis to technological innovations and user expectations. The business plans are prepared and adopted by the Management Board and approved by the Supervisory Board. The Supervisory Board discussed the 2009 Business Plan for the Telekom Slovenia Group, with projections until 2012 and approved it at its meeting on 20 January 2009. In the plan, the Management Board defined the Group‟s geographical expansion, particularly on the markets of South Eastern Europe, as a priority. We will continue the consolidation and rationalisation of purchasing, development and sales processes, and offer users more and more new content and services by means of an innovative development policy.
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1.3 The Telekom Slovenia Group on the map of Europe
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1.4 The Telekom Slovenia Group
On 31 December 2008, the Telekom Slovenia Group comprised the parent company, Telekom Slovenije, d. d. and 24 associated companies for which the ownership share is given below.
Slovenia Abroad
Changes in the organisation of Telekom Slovenia Group 2008
- SIOL, d. o. o. (Croatia) was established and registered in April 2008, and operations began on 1 October 2008. - The General Meeting of Planet 9, d. o. o. passed a resolution on an increase in share capital, which involved a cash injection of EUR 4,556.76 by the partner Telekom Slovenije, d. d. The majority partner, Mobitel, d. d., declined to offer a similar increase in share capital, which led to Telekom Slovenije, d. d. increasing its stake in Planet 9, d. o. o. from 24% to 50%. - Blic.net, d. o. o. and Aneks, d. o. o. were merged to form the new Aneks, d. o. o., in which Telekom Slovenije, d. d. holds a 70% ownership share. - Aneks, d.o.o. from Banja Luka acquired a 100% ownership stake in the company Netkom in the Bosnia and Herzegovina. - AOL SP, d.o.o. from Tirana purchased the company H-communications. - On 20 December 2008, AOL SP, d. o. o. signed a contract purchasing a 100% stake in the company Bindi Integrated Service Sh.pk.
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1.5 Statement by the President of the Management Board
Dear shareholders, investors and partners,
The 2008 business year is now behind us, one of the most dynamic of the past decade for the Telekom Slovenia Group and the entire global economy. It was a year that will go down in the annals of economic history as a year of financial insecurity and the start of a global economic crisis. The consequences of the crisis, such as the falling stock markets and loss of investor confidence and interest spread rapidly from the United States across all the markets of the world, including Slovenia. Despite the many new and unexpected challenges, the Telekom Slovenia Group closed the 2008 business year successfully and in line with its plans. The carefully established and well implemented strategy of investing in innovation (technology, solutions and services), winning new markets, and developing convergent services maintained the Group‟s strength and stability even in a time of crisis. Managing crisis situations is nothing new in our sector. In Europe and around the rest of the world, fixed telephony has been losing users and market strength, broadband connections are reaching their peak, and the major boom in mobile telephony is already a thing of the past. Nevertheless, our industry remains one of the main bearers of economic development. Our sector helps the economy to be faster, more effective, and more rational, which means more competitive, while improving people‟s quality of life. The Telekom Slovenia Group is doing this on eight markets in South Eastern Europe.
Personally, I am extremely satisfied with last year‟s results. We achieved our plans, and even exceeded some of them. In the face of the greatest of challenges, we kept calm heads and remained focused on the market and our users. We successfully turned a moment of crisis into an opportunity and are reaping the results. I am proud that we are one of the few European telecom companies to have achieved growth in revenues and EBITDA in 2008. Last year, the Telekom Slovenia Group generated operating revenues totalling EUR 851.7 million, 8% higher than the previous year. The net profit of EUR 86 million is 3% down on 2007. Despite the crisis we allocated over EUR 250 million to investment, half of which on the fibre optic network, and half on investment in the mobile network and investments abroad. We signalled our intention to continue expanding with the purchase of the Macedonian mobile operator, Cosmofon, and there are new acquisition opportunities on the horizon.
Customer satisfaction is our goal
The optimism found in the Telekom Slovenia Group‟s communication and decision-making is based on close connections with our users, recognising and understanding their needs, and adapting our products and services to their wishes. Greater competition and the first phases of the crisis have made users increasingly price sensitive. The continuing process of adaptation, consolidation, convergence, development and major investments in development and market expansion are the key competitive advantages of all the Group‟s companies, and together with the operational cost optimisation represent a firm basis for maintaining and developing competitiveness. We remain solid and self-confident as the first ranking provider of fixed and mobile telecommunications, broadband Internet access, integrated information solutions and every form of electronic media, content and entertainment. Through good relations with users and investment in brands we have achieved two very complimentary titles, "Superbrand" and "Trusted Brand", and were assessed as the Highest Quality Mobile Network in Slovenia.
The increasingly difficult conditions on the market demand greater user-friendliness and adaptability in relations on a daily basis, and innovation and creativity in our market approach. During the past business year, we overhauled our broadband packages, introduced the M4-quad play package, enriched the range of our online media, television and interactive content, redesigned the Slovenian search engine Najdi.si, upgraded most of the mobile network to include mobile broadband Internet, redesigned the M:Stik offer service, developed the M:Rokovnik (M:Organiser) service, offered mobile TV for the first time, completely overhauled the print version of the Slovenian telephone directory, and offered young people the first mobile telephony flat rate, with the "Itak Dţabest" package. The success of the strategy is seen in the Group‟s established high market shares and growing user satisfaction. Without that, we could not have celebrated the tenth anniversary of the Mobi packages, the connection of the 200,000th SiOL broadband user, or seen the number of mobile broadband Internet users surpass 700,000. In order to be even closer to our users‟ needs, we concluded a series of new partnerships with institutions, bloggers and media, and involved recognised international stars of culture and sport in the promotion of our brands, such as Magnifico, Siddharta, Gorillaz Sound System, and Primoţ Kozmus.
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The investment cycle was the right decision
The strategy of optimising the operations of all companies in the Group and increased investment in the construction and upgrading of infrastructure, introducing new technologies and solutions, expanding broadband connections, and continuing to win foreign markets has borne fruit in last year‟s positive business results. Through the rapid construction of broadband networks and maintaining the number of mobile solution users, the Telekom Slovenia Group has placed itself in the group of European operators with the highest broadband and mobile penetration. At the end of the year, we were providing more than 320,000 users with a broadband connection, almost one tenth of those via the fibre optic network. The number of VoIP service users had grown to almost 110,000, and the number of IP TV users to almost 90,000. Mobitel UMTS (3G) network was upgraded with HSDPA and HSUPA technology, which enables mobile broadband connection to the Internet, and new mobile services covering 73.3% of the Slovenian population by end of 2008. The mobile broadband connection (GPRS/UMTS) was used by over 700,000 users last year, who transferred 15 times as much data as during the previous year. Despite the drop in user numbers for traditional fixed telephony, the number of voice telephony users still rose, and at the end of 2008 stood at almost 2.4 million, of which almost 1.5 million were mobile telephony users. Over one third of all broadband connections, and almost one quarter of mobile users are outside Slovenia.
In 2008, the first positive results were recorded from the Group‟s expansion of operations. In addition to Slovenia, the Group also operates on the markets of Albania, Bosnia and Herzegovina, Croatia, Gibraltar, Kosovo, Macedonia and Serbia. After just over two years of operations, Ipko in Kosovo has become the third largest company in the Group with over 500 employees, 70,000 broadband users (70% of the market), and 350,000 mobile users (one third of the Kosovo market). In Albania, work is underway to consolidate the companies AOL SP, d. o. o., AFB and H-Communications into a strong first-alternative provider. In Bosnia and Herzegovina we merged Aneks and Blic.net into a new Aneks company, and are still strengthening with Netkom and others. New possibilities for acquisitions are opening up on the markets of South Eastern Europe, and we are actively investigating the potential purchase of the Macedonian mobile operator Cosmofon. The financial investment in Gibtelecom offered greater returns last year than the previous year.
These results have consolidated our positions as one of the key telecommunications players in the individual markets of South Eastern Europe, primarily in the area of broadband connections, which we will upgrade with fixed and mobile telephony services and with our content provision. I am convinced that the strategic emphasis on international operations will significantly contribute to reaching our long-term objectives and ensuring the Group‟s value continues to grow.
Share value damaged by global financial crisis and failure to sell state-owned stake
The financial results from last year‟s Group operations were good. The TLSG shares remain part of the Ljubljana Stock Exchange‟s Prime Market. From the beginning of the year until the end of the action to sell off the state‟s 49.13% ownership stake, the share price increased, but following the government‟s decision to retain its stake it fell rapidly, and the decline continued until the end of the year, due to the impact of the global financial crisis. Demand for shares fluctuated. At the end of 2008, the Republic of Slovenia, with the para-state funds KAD and SOD, was still the largest shareholder in the company. The lowest share price in 2008 was EUR 116.73, with a maximum of EUR 415.64, and an average value of EUR 230.36. Turnover, including block trade, reached EUR 90 million. Given that we operate in one of the most promising regions in Europe, and that we have a sound strategy, I am sure that once normal conditions are re-established on international stock markets and investor confidence returns the share price will increase again, as at present it is significantly undervalued. The positive operating results achieved from year to year and clear plans for the future offer solid grounds for investor confidence in the Telekom Slovenia Group.
The right values, the best team
We are well aware at the Telekom Slovenia Group that the core of our competitiveness is our employees. A two-year project to increase cohesion within the Group is already bearing fruit. We have become quicker, more responsive and more flexible. Work is divided on the basis of the skills and capabilities of individual companies and people. We are focused on understanding technological innovation, the development of advanced new services and user experiences, and market development. Business success and positive results come from carefully realising our business strategies, clear and bold objectives and careful, committed and integrated work by employees within every company in the Group. The organisational climate is good, and satisfaction, motivation and creativity of Group employees, who numbered 4,668 by the end of the year, are all above average. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 11
Our identity on the market is based on our brands, and our corporate culture. This is not only based on an identifiable vision and clear mission, but also on a clear strategy, values, commitment, trust and teamwork. To maintain this level we are investing heavily in training and motivational programmes, with targeted management programmes a priority. By exchanging expert knowledge and business experience, our employees ensure greater productivity and targeted development, while high levels of motivation and dedication to work mean projects are always realised on time. I am convinced that the Telekom Slovenia Group has an excellent team, whose fruitful cooperation and interaction will ensure the growth, competitiveness and excellent reputation of the companies, employees, solutions and content we will offer the market in the future.
Our values are about more than just business operations. We are also aware of our responsibility to society as a whole, which we accept as one of Slovenia‟s most important companies. I am pleased when I say that as well as working hard, we know how to recognise and understand the needs of the environment in which we work. We believe that the focus on sustainable development, expressed as the exercise of social responsibility and active environmental protection, is one of the cornerstones of success for each of our companies. A commitment to wider social progress and respect for prescribed environmental standards has been part of our every practice for over a decade. We also encourage top-level achievements in Slovenian sports, culture and science through sponsorship and donations. I am particularly proud of the concern we have shown for people who have suffered disasters and difficult social issues, and we have been happy to contribute to solutions. In 2008, we were awarded a Family- Friendly Company certificate, which makes us even more attractive in the market for promising young staff.
Synergies give us strength and stability
In terms of organisation and management, last year was dedicated to achieving convergence and closer cooperation between the parent company and its subsidiaries. Capable specialists in the management teams of the subsidiaries are responsible for achieving higher standards of management, greater transparency in operations and better information provision though continual improvement in operations. Exemplary cooperation, commitment to innovation, security and quality in service development, and the use of CRM data ensure we achieve excellent, long-term relations with satisfied users.
The desire for greater integration, dynamism, and faster response within the Group last year led us to merge SiOL content into the company Planet 9, d. o. o. Cooperation on content was also deepened by Teledat and Interseek. Avtenta.si successfully concluded its reorganisation, which is already being reflected in its business results. The Group engaged experts from the Boston Consulting Group to advise on its continued reorganisation. The plans and proposals of the working group have been put forward, and the company‟s new Supervisory Board will discuss them in 2009. In the future, given the economic crisis, the Telekom Slovenia Group would like to see greater support in vital business decisions from all owners.
Taking the right direction forward
I am proud that users see us as an advanced provider of solutions and major competitor on the electronic communications market, making a major contribution to the development of the economies of Slovenia, South Eastern Europe and the Mediterranean region. The commitment and above-average motivation of our employees lie behind our success in realising our planned results: to the satisfaction of all the Group‟s employees, you our investors, our users, and society as a whole.
Of course, our story is not yet complete. We want to increase our efficiency, be leaders in the electronic communications market, achieve ever better business results and increase the value of our company. We want to be first. Our objective is to remain the leading provider in Slovenia, to retain an average market share in our service sectors of over 60% in 2010. Our performance in Kosovo is exceptionally important. We want to establish ourselves as the leading operator in every sector we are present to ensure a return on the money invested there as soon as possible. We will build on our organic growth with new acquisitions, mainly in the area of multimedia content and broadband connections. Geographically, we also want to make a more decisive entry into the telecommunications markets of Macedonia, Croatia and Serbia. We will continue to reduce the number of employees, which we have been doing for some years using "soft" methods. We are not planning any redundancies. We will continue to review internal processes, seek new reserves, and ensure that the right people are in the right positions, while seeking solutions that keep the social perspective in primary focus. We will continue to invest in maintaining our competitive advantages in the areas of technology, marketing and internal organisation. We will upgrade integrated service quality control and continually seek synergies within the Group, mainly in convergent WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 12
solutions and fresh market approaches. We will upgrade our IT support, and continue to standardise internal operations. More and more energy will be directed towards innovation and development.
We will take on new challenges resolutely, but also with full transparency and care. I know that we have the knowledge, desire, assets, willpower and internal potential to achieve our objectives. Together with our employees, we will continue to ensure the growth, development and successful market performance of the Telekom Slovenia Group. And in all objectives, we very much hope that we will have the support of you, our investors, shareholders and partners.
Together with my colleagues from the Management Board and all our employees, I thank you for your trust and support.
Bojan Dremelj MSc, President of the Management Board Telekom Slovenije, d. d.
1.6 Statement of Responsibility of the Management Board
The members of the Management and Supervisory Boards of Telekom Slovenije, d. d. hereby state that the Annual Report of the Telekom Slovenia Group and the company Telekom Slovenije, d. d. and all its constituent parts, including the statement on corporate governance have been compiled and published in accordance with the Companies Act and International Financial Reporting Standards.
The Management Board is responsible for the preparation of the Annual Report of the Telekom Slovenia Group and Telekom Slovenije, d. d., including the financial statements and notes, which give a true and fair presentation of the financial position and the results of operations of both the Group and the company.
The Management Board also states that the financial statements of the Group and the company were compiled under the assumption of a going concern, that the chosen accounting policies have been consistently applied and that any changes have been disclosed.
The Management Board is responsible for the adoption of measures to prevent and detect fraud and misstatements and for ensuring the preservation of the assets of Telekom Slovenia Group and Telekom Slovenije, d. d.
Management Board of Telekom Slovenije, d. d.
Ljubljana, February 2009
Bojan Dremelj, MSc Dušan Mitič, Ţeljko Puljjić dr. Filip Ogris–Martič Darja Senica, President of the Vice-President of the Member of the Member of the Member of the Management Management Management Management Management Board Board Board Board Board and Workers director
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1.7 Report by the Supervisory Board of Telekom Slovenije, d. d. for the 2008 business year
The Supervisory Board oversaw the operations of Telekom Slovenije, d. d., within the scope of its powers, and followed the recommendations of the Association of Supervisory Board Members and Corporate Governance Code. The statement on compliance with this code was approved at its April meeting.
During the 2008 business year, the Supervisory Board comprised: Damijan Koletnik (President), Dr Andrej Brodnik, Dr Peter Groznik, Karmen Ponikvar, Dr Borut Štrukelj, Pavel Ţakelj, Martin Gorišek, Milan Richter and Branko Sparavec. There were no changes in the Supervisory Board‟s composition in 2008.
Supervisory Board members met at 13 regular meetings, which focused primarily on the operations and development plans of the company and the Telekom Slovenia Group and the realisation of the long-term strategy for development, operations and expansion to foreign markets. The focus of the Supervisory Board's work was on the efficiency, sustainable development and the future development of the Group and company.
The audit and technical committees, which met six and five times respectively, were of great assistance in the Supervisory Board‟s work.
Work of the Supervisory Board in 2008
The Supervisory Board monitored the business performance of Telekom Slovenije, d. d. and all the companies in the Telekom Slovenia Group on a regular quarterly basis, and checked their compliance with business and development plans. It was informed of the Management Board‟s work on a regular basis, and regularly met with the Management Board. It also actively monitored the realisation of the company‟s investment plans, especially in the field of implementing new technologies and services, and broadband access.
Particular attention was focused on the expansion of operations to foreign markets, where Telekom Slovenije, d. d. achieved some exceptional and noteworthy results in 2008. The Supervisory Board adopted several important resolutions aimed at increased investment efficiency abroad. It also studied the financing of the subsidiary in Kosovo, Ipko, d. o. o. and the purchase of the company Netkom in the in Bosnia and Herzegovina, which was carried out by the Group's local subsidiary, Aneks, d. o. o.
Members of the Supervisory Board were provided with detailed information on plans for the future organisation of the Telekom Slovenia Group, which are based on utilising synergies among all companies, convergent networks and services, development trends, and experience of some of the largest and most successful telecommunications operators in the world. To that end, the external consultancy company, Boston Consulting Group GmbH, made a presentation to the Supervisory Board on experiences and proposals for the transformation of telecommunications operators to meet the challenges of the future. The company‟s Management Board concluded a contract engaging consultants to provide a feasibility study for the transformation of the Telekom Slovenia Group into a next generation operator. The first phase of the Group transformation has concluded, and the Supervisory Board was briefed on that subject.
The successful continuation of long-term strategic plans and our reorganisation as a modern, high- technology company will ensure that Telekom Slovenije, d. d., together with its subsidiaries, is better equipped to face the challenges the global recession will bring. The members of the Supervisory Board are sure that the economic crisis offers a new opportunity for the company. Although the financial crisis and approaching recession have yet to affect the company‟s operations, the Supervisory Board has already warned the Management Board of key areas in which it must be particularly attentive and effective in implementing measures since ensuring the company‟s real growth remains the primary objective for the future.
In the human resources field, the Supervisory Board discussed and approved some urgent changes in the leadership or management boards of Telekom Slovenije, d. d. subsidiaries in Slovenia and abroad.
In their official capacity, Supervisory Board members are independent and avoid conflicts of interest, which could affect their judgement in their work. The Supervisory Board continuously strives to improve its performance standards and the effectiveness of its control function.
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Opinion on the Annual Report of the Telekom Slovenia Group and Telekom Slovenije, d. d.
At the close of the 2008 business year, the Supervisory Board found that the operations of Telekom Slovenije, d. d. were very good, meeting the set plans and exceeding the planned profit. Last year, the Telekom Slovenia Group generated EUR 851.7 million in operating revenues, up 8% on the previous year. EBIT for the Group was EUR 128.5 million in 2008. The net profit was down by 3% compared to the previous year at EUR 86 million, which nevertheless exceeded plans by 5%. All subsidiaries contributed to the very good results, especially the excellent results achieved by Mobitel, d. d. In 2008, Telekom Slovenije, d. d. generated operating revenues of EUR 415.2 million, which is 3% more than the previous year. In 2008, the company‟s EBIT was EUR 40.7 million and EBITDA was EUR 130 million. The net profit was EUR 96 million, which is 13% more than the net profit achieved in 2007.
The Supervisory Board has studied the audit report in detail, from which it is evident that the financial statements were prepared in accordance with accounting standards and other relevant regulations, and that they represent a true and fair presentation of the financial position of Telekom Slovenije, d. d. and the Telekom Slovenia Group as at 31 December 2008. The Supervisory Board therefore recommends that the General Meeting gives its discharge of liability to the Management Board and Supervisory Board for 2008.
After a detailed inspection and in-depth discussion, the Supervisory Board approved the annual report on the operations of Telekom Slovenije, d. d. in its proposed form.
Damijan Koletnik, President of the Supervisory Board of Telekom Slovenije, d. d.
1.8 Governance and management report
+ respecting recommendations + the Code + consistent principles + Articles of Association + internal and external auditing
The governance and management of the Telekom Slovenia Group is executed in accordance with the applicable legislation and the highest national and international standards. We strive to enforce consistent standards of governance and management in every company in the Group. Companies abroad consistently respect the legislation of the local country in full.
In 2008, Management Board of Telekom Slovenije, d. d., as the parent company of the Telekom Slovenia Group, enabled and ensured the recommended governance and management standards were respected and that these functions were performed in line with applicable legislation and internal acts. We are bound by the Corporate Governance Code in the implementation of the governance and management functions.
Governance
The governance of the Telekom Slovenia Group‟s parent company uses a two-tier system. The Management Board represents and acts on behalf of the company, while the main duty of the Supervisory Board is to control the company‟s operations. Shareholders exercise their rights in company matters via the General Meeting, which is the highest body of the company.
Corporate Governance Code
Alongside the legislation in force and the independent regulations of the Ljubljana Stock Exchange, the Corporate Governance Code constitutes a fundamental set of guidelines for corporate governance and management within Telekom Slovenije, d. d. and across the Telekom Slovenia Group.
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Statement of compliance with the Corporate Governance Code
The company Telekom Slovenije, d. d. hereby submits its statement of compliance with the Corporate Governance Code (Official Gazette of the Republic of Slovenia, No 118/2005 of 17 December 2005, including amendments, with effect from 5 February 2007), which is available to the public in Slovene and English on the website of the Ljubljana Stock Exchange.
The statement of compliance relates to the period since the last statement, i.e. since 25 April 2008, until the day of publication: 27 March 2009.
The company complied with the recommendations of the Corporate Governance Code (hereinafter: the Code) and its amendments, applicable as of 5 February 2007, with the exception of the cases listed below.
Certain Code recommendations were not relevant for the company during the period in question, consequently the company was not in a position to act in breach, and they do not therefore need to be listed. The obligations binding on the company or its bodies for certain cases shall be fulfilled by the company if and when such cases occur. Otherwise the company will explain any failure to comply with the Governance Code in the next statement.
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The Management Board and the Supervisory Board assesses that the company failed to respect certain recommendations contained in the Code, as explained below:
Chapter 1: Relationship between the corporation, shareholders and other stakeholders
Recommendation 1.2.6: The company does not organise the collection of proxies, as it wishes to encourage active shareholders to personally attend General Meetings or to authorise proxies to exercise their rights on their behalf at the General Meeting.
Chapter 3: Supervisory Board
Recommendation 3.4.1: Supervisory Board members are entitled to payments, listed in the first paragraph of Recommendation 3.4.1, with the exception of special remuneration for performing their function. The General Meeting did not decide on the remuneration of Supervisory Board members.
Chapter 7: Auditing and internal controls system
Recommendation 7.1.4: The external auditor was not present at the 2008 General Meeting. The company will endeavour to ensure the external auditor‟s presence at the 2009 General Meeting.
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Telekom Slovenije, d. d. will continue to abide by the Corporate Governance Code in future. The company also endeavours to respect, to the highest extent possible, the non-binding recommendations contained in the Code and thus continually improve its system of governance.
Any divergence from the Corporate Governance Code will be duly and appropriately published by the company.
Bojan Dremelj MSc Damijan Koletnik, President of the Management Board President of the Supervisory Board
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General Meeting
The rules and conditions for convening the General Meeting and other matters relevant to holding the meeting are defined in the Articles of Association of Telekom Slovenije, d. d., in accordance with the applicable legislation. The company‟s Articles of Association are published on the website www.telekom.si.
The General Meeting is convened by the Management Board on its own initiative, at the request of the Supervisory Board or at the request of shareholders representing at least 5% of share capital. It may also be convened by the Supervisory Board, especially if the Management Board does not convene it in within reasonable time. The General Meeting is convened at least once a year, and whenever it benefits the company, or whenever it is required in accordance with the law and the Articles of Association of the company. The notice convening the General Meeting is published at least one month before the meeting is to be held, in the manner defined by law and the company's Articles of Association. Shareholders whose ownership share is at least 5% of share capital are sent a written invitation to attend the General Meeting and the General Meeting materials in full.
The General Meeting takes valid decisions if shareholders with a voting right and representing at least 51% of share capital are present.
The most important issues decided by the General Meeting are: - the appointment of Supervisory Board members, - the use of the distributable profits, - discharge of liability for the Management Board and the Supervisory Board, - amendments to the Articles of Association, and - the appointment of an auditor.
The General Meeting makes decisions based on a majority of votes cast by shareholders, with the exception of the following matters, where a three-quarters majority of the represented share capital is required to carry a motion: - an amendment to the Articles of Association, - increases and decreases in share capital, - changes in the status of the company or its winding-up, and - the exclusion of pre-emptive subscription rights for shareholders when issuing new shares.
2008 General Meeting
The 14th General Meeting took place on 30 June 2008. The proportion of voting rights represented at the General Meeting by the five largest shareholders was 76.86% of all shares with voting rights. At the General Meeting, shareholders: - passed a resolution amending the activities of the company in accordance with the Decree on the Standard Classification of Activities and authorised the Supervisory Board to bring the text of the Articles of Association into compliance with this resolution; - were informed of the Supervisory Board‟s written report on its approval of the annual report for the 2007 business year; - adopted a decision on the use of the distributable profits for 2007; - gave their discharge of liability to the Management Board for the 2007 business year; - appointed the external auditor for the 2008 business year.
The resolutions passed by the 14th General Meeting were made public on the SEOnet website of the Ljubljana Stock Exchange and on the website of Telekom Slovenije, d. d. (www. telekom.si).
Supervisory Board
In its work, the Supervisory Board observes the recommendations of the Association of Supervisory Board Members, the Corporate Governance Code and applicable legal provisions.
By diligently and professionally supervising the management of Telekom Slovenije, d. d., it ensures its WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 17
long-term growth and development, in line with the company‟s strategic policies. Its members work professionally and independently.
The Supervisory Board‟s term of office is four years, and members may be re-elected on their term‟s expiry. The working method, convening of meetings and other matters important for the work of the Supervisory Board are defined in the company‟s Articles of Association and the Rules of Procedure of the Supervisory Board. Both documents have been published on www. telekom.si.
Members of the Supervisory Board are appointed by the General Meeting, taking account of legal requirements and recommendations from the Association of Supervisory Board Members. The Supervisory Board has nine members, six shareholder representatives, and three employee representatives.
In 2008, the Supervisory Board held 13 regular meetings and one correspondence session. The adopted decisions and the work of the Supervisory Board are described in greater detail in the Supervisory Board Report on pages 14 and 15 of this Annual Report.
The Members of the Supervisory Board
On the last day of 2008, the members of the Supervisory Board were:
Shareholder representatives:
1. Dr Andrej Brodnik - Director of the Primorska Institute of Natural Science and Technology, University of Primorska - Lecturer, Faculty of Computer and Information Science, University of Ljubljana.
2. Dr Peter Groznik - Doctorate degree in finance and master‟s degree in economics, - Faculty of Economics, Ljubljana, University of Ljubljana,Monetary and Economics Chair, - President of the board of company KD Skladi
3. Damijan Koletnik, President of the Supervisory Board - Graduate of economics - Director of the companies Holding Elektrarne Maribor and Dravske Elektrarne Maribor.
4. Karmen Ponikvar - Graduate of economics, - Section Undersecretary, Insurance Supervision Agency - Member of Council of Experts and Senate of the Insurance Supervision Agency.
5. Dr Borut Štrukelj - Doctor of molecular biology, - Full professor, Faculty of Pharmacy, University of Ljubljana - Head of the Chair of Pharmaceutical Biology at the Faculty of Pharmacy, University of Ljubljana, - Supervisory Board member for the Slovenian Agency for Medicinal Products and Medical Devices, - Member of the Council of Slovenian Agency for Medicinal Products and Medical Devices - Biological medicines expert for the European Medicines Agency – EMEA, London - Biological substances expert for the EDQM European Pharmacopoeia in Strasbourg - Member of Management Board of GenePlanet Ltd, Dublin, Ireland.
6. Pavel Ţakelj - Graduate of electrical engineering, - before retirement, director of the Ljubljana business unit and member of the Management Board of Telekom Slovenije, d. d. - Member of the Management Board of ARNES.
The term of office of the Supervisory Board‟s shareholder representatives expires on 26 April 2009.
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Employee representatives:
1. Martin Gorišek - Electronics engineer - Head of the sector for maintenance of electrical machinery and air-conditioning equipment at Telekom Slovenije, d. d. - member of the Works Council.
2. Milan Richter - Electrical and electronic engineer - employed in the network management sector at Telekom Slovenije, d. d. - President of the SELEKS union - President of the Trade Unions Conference of Telekom Slovenije, d. d. - member of the Works Council.
3. Branko Sparavec - Low current electrical engineer, studying at Faculty of Organisational Science - Head of the sector for technical support for users at Telekom Slovenije, d. d. - Participated in Seminar on Effective Human Resources Management in Telecommunications.
The term of office of the Supervisory Board‟s employee representatives expires on 14 November 2009.
There were no changes in the Supervisory Board‟s composition in 2008.
Supervisory Board committees
The Audit Committee and Technical Committee operate as part of the Supervisory Board.
The Audit Committee comprises: 1. Karmen Ponikvar, President of the Committee 2. Dr Franc Koletnik, external member 3. Damijan Koletnik 4. Milan Richter 5. Pavel Ţakelj 6. Dr Borut Štrukelj.
In 2008, the Committee met six times and discussed reports from the Internal Audit Service and the Service‟s annual work plan.
The Technical Committee comprises: 1. Dr Andrej Brodnik, President of the Committee 2. Martin Gorišek 3. Pavel Ţakelj.
The Committee met five times, and discussed technical and information issues.
Remuneration of Supervisory Board members
Supervisory Board members are entitled to an attendance fee in the amount of EUR 825 gross per meeting, while the President of the Supervisory Board is entitled to EUR 1,072.50 per meeting. A member is entitled to the full attendance fee for participation in work at regular or extraordinary meetings, and to 80% of the regular attendance fee for participation in correspondence sessions.
Under certain conditions, Supervisory Board members are also entitled to a refund for costs incurred during the performance of their work in the Supervisory Board (daily allowances, transport costs and overnight accommodation costs). More detailed information on the remuneration of Supervisory Board members in 2008 is provided in the Financial Report on page 201 of this Annual Report.
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Management Board
The framework for the operation of the five-member Management Board of Telekom Slovenije, d. d. is defined in the company‟s Articles of Association and the Rules of Procedure of the Management Board, which are published on the website: www.telekom.si. These fundamental documents define the working method, areas of competence for individual board members, decision-making powers, convening of meetings and other matters of relevance to the Management Board‟s work.
Members of the Management Board are appointed and discharged of liability by the Supervisory Board. The term of office of the Management Board is four years, with reappointment possible. A person may be appointed as a Management Board member if, in addition to meeting legal requirements, they hold a university degree, have at least three years of experience in managerial positions or in bodies of a company comparable in size, and the professional, organisational and other skills needed for performing the most responsible tasks. These terms do not apply to the worker director as a member of the Management Board.
Individual Management Board members manage the operations of the company independently and take decisions within the business area assigned to them by the Rules of Procedure of the Management Board. The division into business areas does not interfere with the rules of responsibility of Management Board members.
Meetings of the Management Board are convened and led by the President of the Management Board.
The Management Board adopts decisions by a majority of votes of all board members, except in the following matters, which require unanimous agreement: - when proposing an annual report and when proposing the use of the distributable profit, and - human resource and social matters relating to employee interests.
The Management Board requires the consent of the Supervisory Board when: - concluding legal transactions that represent a liability for the company and do not involve the acquisition of revenues, and when taking out long-term loans, all in excess of EUR 2 million, - making investments and purchases and selling fixed assets worth over EUR 100,000, when they are not included in the business plan of the company, and - approving mortgages.
The Management Board of Telekom Slovenije, d. d. comprises:
1. Bojan Dremelj MSc, President of the Management Board Bojan Dremelj became a member of the Management Board of Telekom Slovenije, d. d. on 16 May 2005, and was appointed President of the Board on 13 March 2006. He has a first degree in mathematics and a master‟s degree in computer science. His further studies have focused on economics and management. Immediately after graduating, he worked in the IT sector in the telecommunications industry, first as head of the CAD department and later as director of IT. He continued his career as director of marketing in Slovenia and managing director of a company in Germany. From 1998 to 2004 he was managing director or president of the management board at Si.mobil, the mobile telephony operator. He is a member of the Supervisory Board of IEDC – Bled Business School.
2. Dušan Mitič, Vice-president of the Management Board Dušan Mitič was appointed as a member of the Management Board of Telekom Slovenije, d. d. on 1 March 2004, and started his second term in 2008. He completed studies at the Faculty of Electrical Engineering and Computer Science at the University of Ljubljana and went on to study project management, teamwork, marketing, market communication and sales. He also completed the IEDC General Management Programme (GMP). After finishing his studies, he started work for Iskratel in 1990. For a year, he acquired further professional expertise at Siemens AG in Munich, Germany, where he worked on developing ISDN telecommunications software. On his return from Germany, he performed numerous important duties at Iskratel. He participated in developing the EWSD commutation system for Centrex; he was the head of the GSM development and project management sector, and head of technical sales and marketing, while most recently he has been the head of sales for all markets with the exception of the CIS.
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3. Dr Filip Ogris-Martič, Member of the Management Board Dr Filip Ogris-Martič was appointed as a member of the Management Board of Telekom Slovenije, d. d. in April 2006, and his term-in-office began on 1 May of the same year. He holds a law doctorate and is a licensed tax advisor. He arrived in Telekom Slovenije, d. d. as an independent corporate and tax advisor. He was employed at Tobačna Ljubljana, d. o. o. from 1995 to 1998 and 1999 to 2005, where as a company director he was responsible for finance, IT, the legal sector, internal auditing, HR and production. Prior to that, he accumulated work experience in the auditing firms Ernst & Young and KPMG, and with the Regional Court in Klagenfurt, Austria.
4. Ţeljko Puljić MSc, Member of the Management Board Ţeljko Puljić MSc was appointed as a member of the Management Board of Telekom Slovenije, d. d. in April 2006, and his term-in-office began on 1 May of the same year. He has an master's degree in electrical engineering. He arrived from Iskratel, where he was employed from 1984. Since 2002, he has been the director of a business unit and the director of quality control in the company. Since November 2002, he has been a member of the Management Board of the ETSI and a member of the national delegation with the ETSI GA. He began his career at Unionlnvest in Sarajevo, and was also the Winter Olympic Games project manager for telephony and communications in Sarajevo.
5. Darja Senica, Member of the Management Board and Worker Director Darja Senica is a member of the Management Board and the Worker Director; her second term- in-office began in April 2006. She holds a bachelor's degree in economics and has 25 years of work experience. She worked in the fields of finance, investment and sales at the Telekom Slovenije, d. d. business unit in Celje. Since beginning her work, she has been active in the union and in the Works Council, of which she was president for four years until her appointment as worker director.
There were no changes in the composition of the Management Board in 2008.
Remuneration of the Management Board
In accordance with the Companies Act (ZGD-1), when setting the overall income of an individual management board member (salary, participation in profit, reimbursement of funds, insurance premiums, commissions, and other additional payments), a supervisory board must ensure that the overall income is in appropriate relation to the tasks performed by board members and the financial position of the company. In accordance with the company‟s Articles of Association, the president, vice-president and board members are entitled to a participation in profit, which is decided on by the company‟s General Meeting. The income of an individual Management Board member is defined in an employment contract. More detailed information on the remuneration of Management Board members in 2008 is provided in the Financial Report on page 201 of this Annual Report.
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Management and governance of subsidiaries
Consistent standards are applied to the management and governance of subsidiaries in the countries in which the Telekom Slovenia Group operates. The highest possible criteria, as applied to the parent company, also apply to the subsidiaries. The parent company holds a majority ownership or a majority of voting rights in all its subsidiaries.
The parent company‟s Management Board exercised the General Meeting function of subsidiaries in Slovenia in which Telekom Slovenije, d. d. is the sole partner and shareholder. Other subsidiary companies in Slovenia and abroad have other shareholders alongside Telekom Slovenije, d. d.
Company Management Governance system Mobitel, d. d. Board of Directors: One-tier Bojan Dremelj MSc, President, Dr Filip Ogris-Martič, Ţeljko Puljić MSc, Klavdij Godnič, Chief Executive Officer, Metod Zaplotnik, Tjaša Škrilec and Brane Miklavčič. *Igor Marinšek was a member of the Board of Directors and executive director until 14 March 2008.
Company Management GVO, d. o. o. Managing Director: Joţefa Guzej
Company Management Avtenta.si, d. o. o. Managing Director: Iztok Klančnik
Company Management Teledat, d. o. o. Managing Director: Bojana Sonnenwald Turk
Company Management Planet 9, d. o. o. Managing Director: Tomaţ Jontes
Company Management Interseek, d. o. o. Managing Director: Aleksander Sašo Štravs Deputy Managing Director: Zvone Jagodic
Company Management* On.net, d. o. o. Supervisory Board: Dušan Mitič, Vladimir Peševski Managing Director: Predrag Čemerikić *Management and governance are conducted in compliance with the legislation of the Republic of Macedonia.
Company Management* Ipko, d. o. o. Board of Directors: Dušan Mitič, president, Bujar Musa, vice-president, Akan Ismaili Executive Director, Klavdij Godnič, Tomaţ Kraškovic MSc. *Management and governance are conducted in compliance with the legislation of the Republic of Kosovo.
Company Management* AOL SP, d. o. o. Directors: Dušan Mitič, Robert Mane, Ylli Panariti, Executive Director Boštjan Kralj MSc, and Bujar Musa** *Management and governance are conducted in compliance with the legislation of Republic of Albania. **Directors were entered into the register on 26 February 2008, before which the company was managed by Robert Mane as a sole director.
Company Management* Aneks, d. o. o. Board of Directors: Ţeljko Puljić MSc - president, Boštjan Kralj MSc, Darko Simićević Managing Director: Nebojša Antonijević *Management and governance are conducted in compliance with the legislation Bosnia and Herzegovina.
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Company Management* Gibtelecom, d.o. o. Board of Directors: Joe Holliday – president, Tim Bristow – CEO, Dilip Dayaram Tirathdas, Bojan Dremelj MSc, Dr Filip Ogris-Martič, Klavdij Godnič *Management and governance are conducted in compliance with the legislation of Gibraltar.
Company* Management SIOL, d. o. o. Managing Director: Janez Marovt *The company was established in April 2008. Management and governance are conducted in compliance with the legislation of Croatia.
Internal auditing
Internal auditing within the Telekom Slovenia Group is carried out by the Internal Audit Service, which is directly accountable to the Management Board of the parent company. Organisationally, it is part of the Secretariat of the Management Board of Telekom Slovenije, d. d.
The Service verifies operational effectiveness by evaluating the function of internal controls, limiting risks in work procedures, and issuing recommendations on more effective conduct. This contributes to greater efficiency and better company performance. The Service also: - provides consultancy services; - participates in various projects; - develops work methods; - monitors the quality of internal auditing; - cooperates with other supervisory bodies and external auditors; - participates in professional associations.
Its work is performed in accordance with the Standards for Professional Conduct in Internal Auditing, the Professional Code of Ethics, legislation and other regulations. The volume and subject of regular audits are defined by the annual work plan, which is defined on the basis of risk assessments. Every year the plan is adopted by the Management Board and approved by the Supervisory Board‟s Audit Committee.
The Internal Audit Service carried out 22 audits, one from the 2007 plan, 14 from the 2008 plan, 5 extraordinary audits and 2 checks on the implementation of recommendations issued. It submitted 134 recommendations on more effective risk management and improvements to working processes.
These audits were carried out in four business areas: purchasing, sales, networks and business support.
It only carries out extraordinary audits when requested by the Management Board or the management of subsidiaries or the Supervisory Board‟s Audit Committee.
Audit reports were studied by the management teams of the companies in which the audits were carried out. They were followed up by decisions requiring the audited organisation units to implement the Internal Audit Service‟s recommendations within agreed deadlines. The Service reports twice a year to the Management Board on its work and the implementation of its recommendations, and its reports are also studied by the Supervisory Board‟s Audit Committee.
In 2009, the Internal Audit Service is planning audits in a number of areas of the Group's operations, and its work will be assessed by external specialists.
External auditing
At the 14th General Meeting of Telekom Slovenije, d. d. of 30 June 2008, the auditing company Ernst & Young, d. o. o., Ljubljana, was appointed to audit the 2008 financial statements. The company has been auditing Telekom Slovenije, d. d.'s financial statements since 2005, and also audits the financial statements of the Telekom Slovenia Group.
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1.9 Telekom Slovenije, d. d. retains investors’ trust
+ crisis of capital + trust of major shareholders + stable dividends + active investor relations
Shares in Telekom Slovenije, d. d. remained among the most interesting for investors in 2008, despite the financial crisis and the general fall in share prices. Despite the fall in investor confidence, TLSG shares were the second most traded shares on the Ljubljana Stock Exchange, which was reflected in the increase in the number of shareholders.
The changes in the value of shares in Telekom Slovenije, d. d. in 2008 reflected conditions on the Slovenian and international capital markets, which were directly affected by the growing financial crisis and the falling stock indices. The number of shareholders in the company still increased, which shows that TLSG shares remain interesting for investors, despite the difficult market conditions. This also confirms our conviction that there is still positive development potential in the telecommunications sector.
General data on Telekom Slovenije, d. d. shares as at 31 December 2008
Code TLSG Listing Prime Market of the Ljubljana Stock Exchange Share capital (EUR) 272,720,664.33 Number of ordinary registered non-par 6,535,478 value shares Number of shareholders 12,991
Number of treasury shares 30,000
Ownership structure and number of shareholders
The ownership shares for individual investors, legal entities, mutual funds and banks increased in comparison to 2007. The ownership share of the largest owner – the Republic of Slovenia – increased by 0.01 percentage points or 1,151 shares, due to transfers from individual owners as a result of judicial execution. The ownership shares of foreign legal entities, brokerage houses, investment companies, fund management companies and insurance companies all fell.
The number of shareholders on the last day of 2008 increased by 592 compared to the previous year, with 12,991 shareholders holding shares in Telekom Slovenije, d. d.
Ownership structure as at 31 December 2008
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Unwavering trust of major shareholders
The ten largest shareholders in the company retained almost the same position in the ownership structure in 2008 as the year before. The only new entry in the top ten shareholders was Alpe-Adria Privatbank AG, which replaced Admark Trust Reg, c/o. Mareco Treuhand, which withdrew from ownership of the company.
At the close of 2008, the ten largest shareholders owned 80.98% of share capital, 0.5 percentage points above the previous year.
Comparison of the top 10 shareholders in 2007 and 2008
Shareholders as at 31 December 2007 % Shareholders as at 31 December 2008 % Republic of Slovenia 52.53 Republic of Slovenia 52.54 Slovenska odškodninska druţba d. d. 14.25 Slovenska odškodninska druţba d. d. 14.25 Kapitalska druţba d. d. 5.59 Kapitalska druţba d. d. 5.59 NFD 1 delniški investicijski sklad, d. d. 2.17 NFD 1 delniški investicijski sklad, d. d. 2.39 Kapitalska druţba d. d. – PPS 1.77 Kapitalska druţba d. d. – PPS 1.77 Admark Trust reg, c/o. Mareco Treuhand 1.21 Alpe-Adria Privatbank AG 1.16 Confinvest Aktiengesellsschaft 0.89 Confinvest Aktiengesellsschaft 1.10 Maksima holding d. d. 0.78 Delniški vzajemni sklad Triglav steber I 0.82 Delniški vzajemni sklad Triglav steber I 0.76 Maksima holding d. d. 0.78 Poteza naloţbe d. o. o. 0.53 Poteza naloţbe d. o. o. 0.58 Total 80.48 Total 80.98
Number of shares owned by the Management Board and the Supervisory Board of Telekom Slovenije, d. d. as at 31 December 2008
Number Name and surname Function of shares Equity (%) Management Board Bojan Dremelj, MSc President of the Management Board 100 0.0015 Dušan Mitič Vice-President of the Management Board 500 0.0077 Dr Filip Ogris-Martič Member of the Management Board 403 0.0062 Ţeljko Puljić, MSc Member of the Management Board 300 0.0046 Darja Senica Member of the Management Board and Worker Director 338 0.0052 Supervisory Board Dr Andrej Brodnik Member of the Supervisory Board - - Dr Peter Groznik Member of the Supervisory Board 35 0.0005 Damijan Koletnik President of the Supervisory Board - - Karmen Ponikvar Member of the Supervisory Board - - Dr Borut Štrukelj Member of the Supervisory Board - - Pavel Ţakelj Member of the Supervisory Board 95 0.0015 Martin Gorišek Member of the Supervisory Board 125 0.0019 Milan Richter Member of the Supervisory Board 1 0.0000 Branko Sparavec Member of the Supervisory Board - - Total 1,897 0.0291
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TSLG among most traded shares despite crisis
There was a major fall in all share prices on the Ljubljana Stock Exchange. This led to a fall in the main share index (SBI20) of 67.5%. The TLSG share price also fell, recording a fall in value of 71% compared with the start of the year. On the final trading day of the year, the share price stood at EUR 118.60. Despite this, Telekom Slovenije, d.d. shares remained the second most traded on the stock exchange, with turnover of EUR 78.9 million.
The fall in share value can be primarily ascribed to the major shock that has affected the global economy and to some extent the uncompleted procedure to sell the state-owned stake in Telekom Slovenije, d. d. The psychological effects of the crisis, which were greater than the real economic effects, caused uncertainty among investors and led to investment activity drying up. The deepening of the global financial crisis towards the end of the business year, further weakened the company's share price.
Trading in TLSG on the Ljubljana Stock Exchange
Share price 2007 2008 Year high (EUR) 499.94 415.64 Year low (EUR) 313.65 116.73 Average annual share price (EUR) 417.12 230.36 Turnover Turnover (EUR million) 242.64 78.88 Daily turnover – year high (EUR million) 10.84 2.42 Daily turnover – year low (EUR million) 0.11 0.01
Movement in the TLSG share price compared to the SBI20 index in 2008
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Key TLSG share indicators 31.12.2007 31.12.2008 Market price of share (EUR) 414.2 118.6 Book value of share (EUR)1 132.2 134.0 Earnings per share (EPS)2 13.6 13.2 P/E ratio3 30.5 9.0 P/BV ratio 3.1 0.9 Dividend yield4 (%) 1.5 10.8 Capital gain per share5 (%) 32.0 -71.3
1 The book value per share is calculated as the ratio of the book value of the Telekom Slovenije, d. d. share capital at year-end, to the number of shares issued, minus the number of treasury shares.
2 Net earnings per share is calculated as the ratio of the net profit of the Telekom Slovenia Group in the period under consideration to the number of issued shares, minus the number of treasury shares.
3 P/E ratio is calculated as the ratio of the share price on the final trading day to the earnings per share
4 Dividend yield is calculated as the ratio of the gross dividend per share to the share price on the final trading day.
5 Capital gain per share is calculated as follows: (share price on the last trading day – share price at the start of the year)/share price at the start of the year.
Net earnings per share (in EUR)
Market price of shares in EUR and P/E ratio
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Market price and book value of shares in EUR and market/book value ratio
Treasury shares
On 31 December 2008, the company held 30,000 treasury shares or 0.46% of total equity. This amount has remained unchanged since their acquisition in 2003.
Rules on the restriction on trading in company shares based on inside information
Telekom Slovenije, d. d. was one of the first companies on the Ljubljana Stock Exchange to adopt Rules on the restriction on trading in company shares based on inside information, even before it became a requirement. The Rules significantly restrict the opportunity for people to trade on the basis of inside information.
Stable dividend policy
The dividend policy of Telekom Slovenije, d. d. and the Telekom Slovenia Group is development-oriented and geared towards preserving and strengthening the company's competitive market position. The dividend is defined in the company‟s Articles of Association as a percentage of the net profit, with priority given to assuring funding for investments and thus increasing shareholder value.
The value of dividends depends on the operating results achieved, an optimum tax policy and the investment policy. At the same time, the interests and expectations of owners are taken into consideration. A stable dividend policy will continue to be pursued in the future.
In 2008, a dividend for 2007 in the amount of EUR 12.80 gross per share was payed, according to the AGM resolution. The proposed dividend per share for 2008 is EUR 6.00.
Gross dividend per share (in EUR)
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Plan of Public Announcements for 2009
Publication Date * Information from the Supervisory Board meeting Friday 27 February 2009 Publication of Unaudited consolidated Financial statements of Telekom Slovenia Group and unconsolidated Financial statements of Telekom Slovenije, d.d. for the year 2008 Convocation of the 15th Annual General Meeting of Telekom Slovenije, d.d. Friday 20 March 2009 Information from the Supervisory Board meeting: Annual Report 2008 of Telekom Friday Slovenia Group and Telekom Slovenije, d.d., proposal for the use of distributable 27 March 2009 profit, preparations for Annual General Meeting Publication of the Annual report 2008 of Telekom Slovenia Group and Telekom Slovenije, d.d. Publication of Compliance with the Corporate Governance Code 15th Annual General Meeting of Telekom Slovenije, d.d. Wednesday 22 April 2009 Publication of 15th General Meeting resolutions Thursday 23 April 2009 Publication of the Annual information update Friday 24 April 2009 Information from the Supervisory Board meeting Friday 29 May 2009 Publication of Business report for January - March 2009 Convocation of the 16th Annual General Meeting of Telekom Slovenije, d.d. 16th Annual General Meeting of Telekom Slovenije, d.d. Tuesday 30 June 2009 Publication of 16th General Meeting resolutions Wednesday 1 July 2009 Information from the Supervisory Board meeting Friday 28 August 2009 Publication of Business report for January - June 2009 Information from the Supervisory Board meeting Friday 27 November 2009 Publication of Business report for January - September 2009 Publication of Financial calendar 2010 Friday 18 December 2009 *Dates are provisional and subject to change.
The planned announcements will be published on the websites of Ljubljana Stock Exchange via the SEOnet system and on the company‟s website at www.telekom.si. Any changes to anticipated publication dates will be announced in due time on the company website.
Management Board of Telekom Slovenije, d. d.
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1.10 Significant events in the Telekom Slovenia Group in 2008
+ multimedia services + SiOL TV + M4 – quad play + security services + for young people and the whole family
Our users are among the most demanding, since we have always been among the first in Europe or even the entire world to provide new services. They want the services available wherever, they want to be informed whenever of news and innovation at home and abroad – and they also want to have fun. This is an additional challenge for us, so we encourage them to make even greater use of our services by developing new multimedia services. In 2008, we offered them convergent services, united in Mobitel‟s M4-quad play package, and new mobile applications, while SiOL TV broke the boundaries of traditional television, and the Internet became one of the main tools for experiencing events.
January - Multimedia services and content was combined in the company Planet 9, d. o. o., while the SAP business system was transferred from the IT Sector of Telekom Slovenije, d. d. to the company Avtenta.si, d. o. o. - Mobitel, d. d. offered the deaf and hearing-impaired a special free-of-charge offer via a video- telephony service of sign language interpretation. - Teledat, d. o. o. presented a new edition of the business directory Bizi.si.
February - Mobitel centres were expanded to include the Teletrgovina offer. Users can now find everything relating to mobile communications, fixed telephony, the Internet and SiOL TV in one place. - The “TI SI” (You Are) campaign by Telekom Slovenije, d. d., which the company has used to promote SiOL TV and its multimedia services and content since mid-October 2007 concluded with the selection of a "TI SI faca” (You are cool) winner. The “TI SI” portal recorded over 100,000 visitors during the campaign, who submitted 17,500 votes for their favourites. - Najdi.si maps have been available via mobile phones since February.
March - Telekom Slovenije, d. d. was officially presented with an environmental certificate for the eco- standard ISO 14001:2004. This included the company committing itself to reducing its energy consumption by 5% until 2010. - Mobitel, d. d. offered commercial users a comprehensive telecommunication service offer with the M4-quad play. Sold under the M4 brand, it includes Mobitel GSM/UMTS, SiOL broadband Internet, SiOL telephony and SiOL TV. - Mobitel, d. d. offered users the "Tris" package, which includes cheaper calls to three selected numbers. - Telekom Slovenije, d. d. welcomed the management of the European Network Operators Association (ETNO) and directors of regulatory departments and sectors in European telecom companies. - The privatisation commission passed a decision that it would not sell the state-owned stake in Telekom Slovenije, d. d. to any party.
April - The renovated testing and development laboratory of Telekom Slovenije, d. d., BrihtaLab was opened. - Four months after the start up of the second mobile GSM network in Kosovo, the subsidiary of Telekom Slovenije, d. d., Ipko, LLC, sold 250,000 SIM cards. - Mobitel, d. d. introduced a 3.5G network, based on the Mobitel UMTS network. This upgraded the entire UMTS network with the latest HSDPA 7.2 Mb/s and HSUPA technology, which offers a user-to-network uplink speed of up to 1.4 Mb/s. - Avtenta.si, d. o. o. became Cisco‟s first silver partner in Slovenia. - The Telekom Slovenia Group organised its first “Dialogue” business event; the special guest was Garry Kasparov, chess grandmaster and former world champion, visionary, strategist, thinker and speaker.
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May - Avtenta.si, d. o. o. signed a partnership agreement with IBM Slovenija on Internet Security systems. - Mobitel, d. d. presented a new offer to young people, the "Itak-plus" subscriber package, which offers calls and SMS and MMS messages for 1 cent.
June - Telekom Slovenije, d. d. introduced the new SiOL PlaC web service for saving and exchange of multimedia content and files, and the SiOL service website was upgraded. - The Telekom Slovenia Group made a successful presentation at the first regional capital markets conference in Zagreb. - Telekom Slovenije, d. d. and Slovenian music star, Magnifico, agreed on a one-year campaign in the countries of South Eastern Europe. Via Internet and mobile content, they will create a unique interactive project: “Magnifico – Antivirus”. - Mobitel, d. d. presented two new call centre services along with the Ministry of Public Administration: “Halo uprava” and “Halo inšpekcija” (Hello Administration and Hello Inspection), which offer users general information on public administration services 24-hours a day. - Mobitel, d. d. introduced two new services: M:Namiznik (M:Desktop) and M:Rokovnik (M:Organiser). The first allows SMS messages to be sent from a computer, the second enables secure copying of data from a mobile telephone to a server.
July - Moody's credit rating house issued a new credit rating for Telekom Slovenije, d. d. and confirmed the long-term credit rating as A3. - Mobitel, d. d. introduced the euro-tariff early, offering users lower prices for mobile services in EU states. - The teledata service 1188SMS was made accessible from abroad.
August - Telekom Slovenije, d. d. signed a contract with the European Investment Bank for a long-term loan with a total value of EUR 87 million to finance the mobile telephony construction project in Kosovo. - Telekom Slovenije, d. d. used the “Vesolje veselja” (Universe of Fun) slogan to present changes and new features in SiOL broadband services: a broader range of subscriber packages and new multimedia content and services. - Mobitel, d. d. introduced a new special offer – “Druţinsko vez” (Family Ties), which enables communication between family members, included in the package via free SMS and MMS messages.
September - Telekom Slovenije, d. d., via its subsidiary Aneks, d. o. o., purchased a 100% ownership stake in the major cable TV operator Netkom, consolidating its market position in Bosnia and Herzegovina. - Telekom Slovenije, d. d. and Mobitel, d. d. earned the title Trusted Brand. Telekom Slovenije, Mobitel, Najdi.si and SiOL were awarded the title Superbrand. - The independent research magazine, Connect, confirmed that the Mobitel network is the best quality, compared to other domestic mobile operators. - A large “Vesolje veselja” concert was organised in front of the Telekom Slovenije, d. d., featuring Murat & Jose, Siddharta, Billysi and Gorillaz Sound System; 20,000 people attended the concert with another 10,000 watching online. - Avtenta.si, d. o. o. received its first Microsoft certificate Hyper-V, which proves its competence with Windows Server Hyper-V technology. - The Brihta programme to promote employee innovation at Telekom Slovenije, d. d. was recognised at the 1st Human Resource Forum, becoming a finalist in the selection of the Best Innovative Human Resource Practice in 2008.
October - The Finance newspaper stated the Telekom Slovenia Group as the second largest business group in Slovenia. - Telekom Slovenije, d. d. presented a pilot partnership project on e-invoices with Abanka. This will allow users to save time and material costs and make paying bills easier. The lower number of printed bills will also reduce the burden on the environment. - Mobitel, d. d. celebrated the tenth anniversary of the Mobi prepaid package. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 31
- Mobitel, d. d. offered users a new service, M:Konferenca (M:Conference), which allows conference calling via mobile or fixed telephones. - Najdi.si celebrated its eighth anniversary with a redesigned browser.
November - Telekom Slovenije, d. d. and Mobitel, d. d. both received a Family-Friendly Company certificate. - The Telekom Slovenia Group's annual report was selected as one of the best in Slovenia by the Finance newspaper, ranking third overall and first for its business report. - A new Slovenian telephone directory was issued on CD, and the web version was also redesigned. - Mobitel, d. d. presented a new special offer in November – "Itak Dţabest". - Avtenta.si, d. o. o. gained the title SAP Certified Hosting Partner, which confirms that the company can offer its clients top quality and comprehensive SAP solutions. - Najdi.si presented Najdi.si Light, an alternative entry point to the browser, aimed at searching websites and databases only. - Telekom Slovenije, d. d. started cooperation with Ekošole (Eco-Schools). They will give a prize to the best ”Ekoface”, who will demonstrate their knowledge in local and national quiz competitions, known as “Ekokviz”.
December - Telekom Slovenije, d. d. offered business users new packages for micro and small enterprises. - Teledat, d. o. o. started a new campaign: "1188 – Enostavno. Vedno. Povsod.” (1188 – Simple. Anytime. Anywhere) aimed at promoting the 1188 service; it included a new website: http://www.1188.si/.
1.11 Significant events after the balance-sheet date
January - Based on the Rules of the Ljubljana Stock Exchange and applicable legislation, Telekom Slovenije, d. d. published its 2009 Financial Calendar. - Telekom Slovenije, d. d. received a judgment from the Ljubljana District Court, in which the court rejected a claim by Telekom Slovenije, d. d. against T-2, d. o. o., requiring a prohibition on violation of the Centrex and Telekom Slovenije brands and acts of unfair competition. Telekom Slovenije, d. d. appealed the decision. - Telekom Slovenije, d. d. received a judgment from the Supreme Court of the Republic of Slovenia, rejecting a review requested by Telekom Slovenije, d. d. of a judgment of the Administrative Court of the Republic of Slovenia. The Administrative Court judgment rejected the lawsuit lodged by Telekom Slovenije, d. d. against a Competition Protection Office decision, in which it found an abuse of a dominant position by Telekom Slovenije, d. d., which it committed in 1999 by rejecting an offer from the company ABM, d. o. o. of business cooperation in the form of including a CD with an Internet access programme of ABM, d. o. o. in the ISDN 3000 package. Telekom Slovenije, d. d. lodged a constitutional appeal against the decision. - Telekom Slovenije, d. d. received a decision from the Ljubljana District Court rejecting the proposed indictment by the district state prosecutor‟s office in a criminal case against Peter Grašek, as the responsible person, and Telekom Slovenije, d. d., which charged the accused with the criminal act of creating a monopoly pursuant to Article 231 of the Penal Code, which was committed during the period from 19 April 2001 to 31 December 2003 by concluding subscription contracts for Centrex telecommunications services. The criminal proceedings started on the basis of a charge by vendors of internal telephone exchanges, Kron Telekom, Sinfonika, Iskra Prins, Pro Com, Telefax, Telego, and In.life, who asserted in the proceedings that the perpetrators‟ conduct had caused them damages amounting to EUR 12,202,753.68. Following investigation of the proposed indictment, the court found that the act that was the subject of the charge was not a criminal act. The decision is not yet final in law.
February
- The subsidiary On.net, d. o. o., as the only provider, requested a DVBT licence in Macedonia. - Telekom Slovenije, d. d. hosted a professional meeting of the Works Council Association. - The first generation of students started the Telekom Slovenia Group‟s Business Academy, an education programme intended primarily to provide technical staff with economic training. The programme is run by the Faculty of Economics and the CISEF. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 32
- Telekom Slovenije, d. d. received a decision from the Competition Protection Office on the start of proceedings to investigate an alleged violation of Article 9 of ZPOmK-1 and Article 82 of the EC Treaty. Based on information it received from the company Amis, d. o. o. and data it collected when implementing controls relating to ZPOmK-1, the Office assessed that Telekom Slovenije, d. d. probably did abuse its dominant position on the inter-operator market in unbundled local loop and sub-loop access for the provision of broadband and voice services. Telekom Slovenije, d. d. operates in line with applicable legislation and good business practice, so the procedure investigating the alleged violation will find that no abuse of a dominant position took place.
March
- The issue of a binding offer to purchase Cosmofon, the second largest Macedonian mobile operator. - The decision was taken to merge the following three Albanian companies: AOL SP, d.o.o. (Albanian online service provider), AFB d.o.o. (Albanian fibre optic backbone provider) and H-Communications d.o.o. The merged company will be renamed Primo. Sales of services under the Primo brand began at the end of 2008, when the first retail outlet was opened.
1.12 Honest, open and up-to-date communication
+ communicating with customers + sound brands + multimedia communication + open and honest relations with the commercial public + employee trust
In the service sector, the Telekom Slovenia Group placed considerable focus in 2008 on the development of multimedia content and convergent services. We informed our users of these developments in a regular and consistent manner, ensuring we further strengthen our brand. Since the best relations are built up "live" we had regular meetings with the media, the commercial public and employees.
Consolidating user trust
Communications with users were linked primarily to the SiOL and Mobitel brands. The largest and most notable communications campaigns in 2008 included: - “The weightlifter” – a security package, - On-line campaign on the introduction of SiOL PlaC services, - SiOL “Vesolje veselja” (Universe of Fun) advertising campaign, - Event and advertising campaign to mark the 200,000th subscriber to SiOL broadband, - Issue of exclusive guide to SiOL TV content as a supplement to Pilot, Stop and Vikend magazines, - Promoting 1888 number via campaign for 1188, 1188sms and 1188 link, - Multimedia on-line competition “Ti Si zvezda?” (Are you a star?), in collaboration with Porsche Slovenija, - Communication with the target group of people aged 15 to 30 offering packages "Itak plus", "Gofla" and "Itak Dţabest" with the slogan “Cel cirkus! Totalna komunikacija po nič!” (The whole circus! Total communication for nothing!). - The integrated advertising campaigns Instant Internet and Unlimited Internet intended for all users promoted broadband Internet by purchasing a portable USB-modem or data card. We offered users unlimited data transfer in the Mobitel network, and unlimited use of the NeoWLAN wireless network.
Communicating with the commercial public
Communications in the business sector included: - Promoting IP Centrex sales in business press and direct mailing, - Presenting advantages of e-invoicing in cooperation with Abanka, - Organising the third traditional golf tournament in autumn, - Invitation to small business events linked to sponsorship (Grease musical at the Ljubljana Festival, The Nutcracker as part of sponsorship of SNG Maribor), - The M:Konferenca, M:Rokovnik, M:Namiznik services and advanced Mobile TV service, WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 33
- Issue of two business directories, intended for and distributed to businesses, - Advertising campaign with quality business mobile telephones at favourable prices with an option of communicating for EUR 0 within the MPO network with the "Povezani"(Connected) packages.
The trust of users and experts
Following Reader's Digest research, the brands Telekom Slovenije, SiOL and Mobitel were all given the title of Trusted Brand. The first in the field of telephony, the second relating to Internet services and the third in relation to maintaining customer satisfaction. All three brands as well as Najdi.si were also given the title Superbrand – a title given by Slovenian experts to the strongest brands.
The quality of products and services offered by Mobitel, d. d. as the leading Slovenian operator was confirmed by the independent research magazine, Connect, which stated that it was the best quality domestic network of any mobile operator, and gave it an award for being the best technical network.
Multimedia communications with the media
We attempted to present as many things as possible to the media "live" – at regular quarterly press conferences, formal and informal meetings with journalists, and via multimedia services. Journalists could find information in the press centre, at the following address: http://www.telekom.si/en/company/press_room/, and they could also follow the General Meeting live online.
We built communications with the following key press releases: - Business information on the Group, - Information on new services, products and market campaigns to support sales, - Construction of the fibre optic infrastructure, - Reporting on organisation, human resource changes and legal matters within the Group, - Useful advice to service and equipment users, - Reporting on events on the markets of South Eastern Europe.
In total, we published over 10,000 announcements in the media, most of which related to operations, the sale of the state-owned share in Telekom Slovenije, d. d., marketing new services and sponsorship or donations within the Group. Announcements via electronic media increased significantly.
Four levels of communications with employees
Our employee communications strategy is united under the slogan Uspešni skupaj (Successful Together), and again in 2008 took place on four internal levels: - Building trust: Up-to-date notification of all business and strategically relevant information relating to individual companies and the Group. The Management Board of Telekom Slovenije, d. d. meets employees at all locations and personally presents the Telekom Slovenia Group's business results, planned organisational changes and strategy; - Knowledge for success: Encouraging employees to engage in innovative thinking under the new internal brand Brihta and via a special portal, promoting and encouraging knowledge acquisition and life-long learning; - Successful together: Meeting at the traditional Telekom Slovenia Group Day at Otočec, which involves a whole range of activities for all employees; - Caring for the environment: Realising our employees‟ commitment to protecting and caring for the environment.
Special care is given to communication with students with Telekom Slovenije scholarships, with student at target faculties, with retired employees and people with long-service anniversaries, and we also played host to participants in summer research camps.
Ecology and humanitarianism were major elements of our employee communications. Employees at Telekom Slovenije, d. d. promised to reduce electricity use by 10%, and in a humanitarian campaign selling children's T-shirts with the company logo contributed funds to buy clothing for premature babies at the Paediatric Clinic in Ljubljana.
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Consistent communications with influential groups
Over the past year, communications with the state as the majority owner, ministries and regulators focused on the sales of the state-owned stake in Telekom Slovenije, d. d., which was ended in March. The company communicated a great deal with its owners throughout the year given the ongoing events.
Actively building relations with investors
At Telekom Slovenije, d. d., we work hard to achieve regular, consistent and high quality communication with investors and other interested parties. The transparency of Telekom Slovenia Group‟s operations is ensured in line with the information disclosure policy defined for companies listed in the Prime Market.
Our strategy is based on open, transparent and up-to-date communications, focused on domestic and foreign investors and analysts. Telekom Slovenije, d. d. has significantly increased the volume of communications and expanded their content, while adding new communications tools.
Telekom Slovenije, d. d. regularly participates in conferences and meetings with investors and analysts. It communicates with them via its first quarterly electronic news, called TLSG news. We also have regular personal contacts and meetings with investors.
The company has expanded its website for investors on the www.telekom.si, while shareholders can find more information from our help desk and in the publication Telekomov delničar.
Proof of the company‟s high quality reporting can be seen in it again being placed on the short list for the Ljubljana Stock Exchange‟s Portal 2008 award for the most transparent public limited company.
Telekom Slovenije, d. d. will continue to focus on investors in the future, achieving a high level of communication and providing a high volume of quality information.
1.13 Risk management
+ risk management + systematic + risk assessment + control environment + measures
Risk management is an integral part of the policies, strategies and operations of the Telekom Slovenia Group. Therefore, we are continuously updating and improving our risk management system. This enables us to detect and assess risks in a timely manner, adopt the correct decisions for effective risk management and achieve our business and strategic objectives.
The Telekom Slovenia Group has continued with its systematic approach to risk management to ensure the increased likeliness that we will achieve our objectives, for more efficient asset management, to better understand risks and their consequences and to respond more rapidly to internal and external changes. We have continued to inventory risks and have also begun to catalogue risks. All risks identified will be systematically collected in the catalogue. For each risk, we will define a description, the associated objectives, an assessment, a control environment and implemented and planned measures for their management.
Significant risks in 2008
In 2008, the list of identified risk did not change significantly from the previous year, with only the assessment and reallocation of risks changing, while additional measures for the more effective management of certain risk were adopted. Management assesses that all significant risks to which the Telekom Slovenia Group is exposed are appropriately managed, and that measures implemented ensure that they remain at an acceptable level.
All risks identified in 2008 to which the Telekom Slovenia Group will be exposed over the next medium- term period from 2009 to 2012, and existing and planned methods for their management are presented below. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 35
Business risks
Business risks are linked to the successful implementation of the Telekom Slovenia Group's strategy, the ability to ensure the generation of operating revenues in the short and long-term and with maintaining the value of assets and the Group's reputation.
Significant business risks Risk Method of management Risk of changes to macroeconomic Consistent monitoring of economic trends and actively adapting conditions affecting operations in specific operations to new conditions. key markets Following regulatory measures, actively cooperating in market analyses (prior to the imposition of measures), informing authorities
of possible irregularities, actively briefing the relevant EU
institutions, exhausting all legal remedies with regard to disputed Risk of regulatory pressures regulatory decisions, ensuring compliance with internal acts and legislation in all processes. Introduction of an additional system of internal controls, optimisation of revenue processes from realisation to payment and introduction of information support with respect to managing revenue-loss, fraud and credit-risk. The organisation of an expanded operational group for RA Revenue-loss risk (Revenue Assurance) is also planned, including the formal definition of duties, competencies and responsibilities, as well as the organisation of an RA committee. Thought must also be given in the near future to an internal organisational unit for preventing the outflow of revenues. Active presence in the market, continuous development of new products, service and content, transition to convergent services, searching for new markets and market approaches, continuous Risk of changes in the market and the concern for the quality of service and customers, a range of management of market share additional benefits, in-depth market research, more detailed market segmentation and the adaptation of sales activities to a specific segment. Prudent planning of a specific acquisition in the context of Risks related to expansion to new investment assessment criteria (synergies), the execution of due markets diligence reviews of companies, post-acquisition reviews and integration activities. Appropriate planning and verification of the economic efficiency of Investment risk investments and the constant improvement of the quality of preparations, execution, activation and monitoring of investments. Restructuring of the range of products and services and the Risk of a general drop in retail and definition of a price strategy, focused and guided transition of users wholesale fixed and mobile telephony from traditional services to new IP services, increasing productivity price levels (VoIP) and streamlining business processes. Risk of communication noise or Proactive and regular communication, personal contacts, and misunderstandings in relations with the frequent meetings and gatherings where a great deal of information media, the internal, general and financial can be obtained. publics and other institutions Compliance with legislation, standards and stock exchange rules. Monitoring key market trends, motivating employees to provide innovative ideas and improvements, timely response to customers' Risk of introducing new services and needs, shortening the time from idea to realisation, defining and products managing business processes, and IT system support for new products. Measures to increase employee satisfaction, to improve the quality of the work environment, to raise the level of team work, to employ Employee-related risks highly trained personnel, to educate and train employees, to motivate and stimulate employee identity with the company. Active defence before the courts and the contesting of lawsuits, striving for out-of-court settlements of disputes and consulting with Legal risks linked to lawsuits and internal and external legal experts to avoid further lawsuits in legislation sensitive business decisions. Influencing legislative solutions through cooperation in the legislative process, by issuing expert proposals.
Business risks, which have a significant impact on the Group's long-term development, are managed by implementing and regularly verifying the relevance of the parent company's and subsidiaries' strategies. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 36
Risks arising from the wider political, economic and legal environment are managed primarily by regularly monitoring legislation and macroeconomic parameters, and by actively adapting operations to new conditions.
One of the most significant risks is the risk of regulatory pressures, which could have far-reaching consequences on our operations if unexpected and unwanted measures are implemented. Electronic communications in Slovenia are governed by the Electronic Communications Act, the implementation of which is supervised by APEK. To mitigate risks, the company proactively participates in market analysis processes, legislative changes at the national and European levels, and in industry associations. The company reports irregularities to the relevant institutions, including representatives of the European Commission, and uses all the legal remedies at its disposal to contest disputed decisions. The significance of this risk and the probability that it will be realised over the next medium-term period is high.
The company continues to employ a system of additional internal controls and optimises revenue processes in order to mitigate revenue-loss risk. We have introduced IT support for managing revenue- loss and credit risks, while the establishment of a committee and expanded operational group for RA (Revenue Assurance) is planned.
The Group counters the risk of increased competition and the risk of a drop in the prices of services through innovation, by promoting investments in new markets, new technologies and next generation networks, by developing and offering new services (multimedia content services) and packages and by offering convergent services.
Legal risks relate to existing lawsuits and the possibility of future lawsuits. Despite our belief that certain lawsuits are unsubstantiated, the risk remains that the court may rule in favour of the plaintiffs. There is also a risk of future lawsuits: due to its size and the scope of its operations, the company continuously works with a number of business partners in a competitive environment, in which every action aimed at protecting the legitimate business interests of the competition can be construed as hindering competition.
This type of risk is managed through active defence before the courts and by contesting lawsuits. We consult with internal and external legal experts in sensitive business decisions to avoid future lawsuits. We also strive for the out-of-court settlement of disputes.
Legislation is monitored daily. However, adopted changes in many areas are inconsistent. We mitigate related risks by participating in the legislative process and by providing substantiated expert proposals during public consultations regarding specific draft legislation and through informal influence.
Business risk chart Risk/assessment of risks and exposure* low moderate high Risk of changes to macroeconomic conditions affecting operations in individual markets Risk of regulatory pressures Revenue-loss risk Risk of changes in the market and the management of market share Risks related to expansion to new markets Investment risk Risk of a general drop in retail and wholesale fixed and mobile telephony price levels (VoIP) Risk of communication noise or misunderstandings in relations with the media, the internal, general and financial publics and other institutions Risk of introducing new services and products Employee-related risks Legal risks linked to lawsuits and legislation * Significance x Probability
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Financial risks
The following groups of risks have been identified in the financial risk management policy:
Significant financial risks Risk Method of management - Liquidity risk measures: Introduction of a system for planning and managing cash flows, approved short-term credit lines at domestic banks, introduction of criteria for monitoring and Liquidity risk and long-term solvency risk planning cash flows at other Group companies, short-term financing within the Group and the use of a cash-pooling method. - Long-term solvency risk measures: maintaining stable components of equity. - Existing measures for managing risks: a systematic collection process, managing the accounts of significant customers, requesting the submission of payment collateral. Credit risk - Planned measures: we will introduce the systematic management of credit risk with the completion of the credit risk management project in 2009. Monitoring financial markets, using the appropriate financial Interest-rate risk instruments and the contractual option to swap a variable interest rate for a fixed interest rate. Currency risk The use of appropriate financial instruments.
The objective of managing financial risks is to ensure the lowest possible level of exposure to specific risks and to achieve stable financial operations, as an integral part of the financial management function. Activities aimed at controlling financial risks represent a part of the daily work process, which facilitates a rapid and timely response to changes in financial categories.
The company has established a system for the effective planning and management of financial assets to manage liquidity risk, which is seen as the inability to provide sufficient financial resources to settle current liabilities. The system provides for precise cash flow management, maturity matching of claims and liabilities, and the timely detection of deviations and liquidity measure decisions. In addition to our own resources, we have open credit lines at domestic banks, which give the company a high level of financial flexibility to bridge any unforeseen cash shortfalls. Cash surpluses are invested at banks if the form of deposits, which represent a high-quality liquidity reserve.
Criteria for monitoring and planning cash flows have also been introduced at other Group companies. The parent company manages liquidity at the Group level through short-term financing within the Group and by employing a method of balancing of cash flows.
The company's long-term solvency is ensured by maintaining a stable structure of financial resources with a predominant proportion of equity. This ensures a high credit rating and ample access to financial resources under favourable conditions at home and abroad.
Management assesses that liquidity risk and long-term solvency risk are low.
We carried out the following activities in 2008 to mitigate credit risk, which is manifested primarily as the risk of non-payment for services provided: monitoring of significant customers and their financial discipline and the quality of collateral on claims, based on a system of account managers, mandatory submission of bank guarantees by customers for specific services, implementation of a systematic and active claims collection process, integration of customer accounts from two systems to a single system, collection of claims via an external agency, which results in a portion of claims being collected through the courts, introduction of electronic execution, which has accelerated the payment of claims, kick-off of the credit risk management project, which will facilitate the systematic monitoring of the credit risk associated with all customers. The aim of the project is to reduce the number of days from the generation of claims to payment and to reduce the amount of related write-offs, the adoption of new general terms for the provision of telecommunication services that will facilitate greater flexibility in the claims collection process and improved protection against default.
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Taking into account the aforementioned activities, management assesses that exposure to credit risk is low.
The company was exposed to currency risk, as the risk of changing foreign currency rates, in its transactions with the suppliers of goods, services and fixed assets outside the euro area and in international telecommunications traffic. This risk is assessed as low, as a large portion of claims and liabilities from international transactions are netted. Exposure to this risk is somewhat higher in transactions with suppliers outside the euro area at certain subsidiaries, but is hedged by using the appropriate financial instruments.
All loans raised by the Group abroad are denominated in euros, and thus no related currency risk exists.
The company is exposed to interest-rate risk, as the risk of changing market interest rates, for long-term loans with a variable interest rate tied to the EURIBOR. The latter is subject to market fluctuations, which could result in higher financing costs. The company has therefore hedged interest-rate risk for 52% of all loans, while the remaining loans were raised with the contractual option to swap a variable interest rate for a fixed interest rate. The company enters into derivative transactions for the sole purpose of hedging risks. Given the aforementioned measures, management assesses that exposure to interest-rate risk is moderate. Financial risk chart Risk/assessment of risks and exposure* low moderate high Liquidity risk and long-term solvency risk Credit risk Interest rate risk Currency risk * Significance x Probability
Operational risks
Significant operational risks Risk Method of management Risks associated with the functioning and Continuation of the continuous operations programme and security of ICT networks and services business continuity planning (BCP). Preventive maintenance, replacement of critical elements, Network and technology obsolescence risk introduction of new technological solutions and upgrading of the network. Implementation of a fraud management system (FMS) to Risk of abuse prevent abuses, and the organisation of an operational group for that purpose. Risks associated with planning and Introduction of a service oriented architecture (SOA). developing ICT technologies Risks associated with the execution and The definition of risks and methods for managing, as an quality of projects integral part of the start-up plan of every new project. The introduction of contemporary approaches and standards, Risks associated with process efficiency precise monitoring of process efficiency and the merging of functions within the Group.
Operational risks are linked to the functioning, security and abuse of existing ICT networks and the planning and implementation of new ICT networks, services and devices, and to the effectiveness of processes.
The significance of risks associated with the functioning and security of ICT networks, services and devices is increasing in all respects (confidentiality, integrity and availability) due to convergence. In 2008, we continued to implement the continuous operations programme, defined critical elements and BCP scenarios, provided redundant elements and connections, invested in server equipment and established key systems in high-security areas (all key systems are connected to uninterrupted power supply (UPS) systems).
The risk of network and technology obsolescence is mitigated through preventive maintenance, the replacement of key elements, by updating and upgrading and by implementing new technological solutions.
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The convergence of technologies results in a growing number of new forms of abuse. In accordance with the programme adopted to prevent revenue loss, we implemented an FMS system at the end of 2008 to prevent abuses, and established an operational group for the daily monitoring, detection and prevention of abuses.
The risks associated with the planning and development of new ICT technologies are managed through the introduction of a service-oriented architecture (SOA).
The definition of risks associated with the execution and quality of projects and methods for managing those risks are an integral part of the start-up plan of every new project. In 2008, we named a project administrator who monitors and reports all relevant events to the Management Board.
The success of operations is based on efficient processes and clearly defined competencies, responsibilities and tasks. The introduction of an ISO9001 system and appropriate IT support with the possibility of introducing contemporary approaches such as EFQM, TPS, Lean and Kaizen will be required to support the management of risks associated with process efficiency and to reduce related costs.
Operational risk chart Risk/assessment of risk and exposure* low moderate high Risks associated with the functioning and security of ICT networks and services Network and technology obsolescence risk Risk of abuse Risks associated with planning and developing ICT technologies Risks associated with the execution and quality of projects Risks associated with process efficiency * Significance x Probability Insurance risks
Significant insurance risks Risk Method of management Risk of damage/destruction of property – Risk is transferred to an insurance company through insurance direct damage (e.g. natural disasters, fire coverage of the relevant amount. and earthquakes) Liability risk (e.g. general civil liability and Risk is transferred to an insurance company up to a specific management's professional liability) amount.
Insurance risks relate to sudden and unexpected events that can result in a loss, but there is no possibility of benefit.
Insurance risks are selectively transferred to an insurance company. Coverage of that portion of the portfolio that bears risks is deferred to insurance companies, while we assume qualitative and diversified risks that cannot have a negative impact on financial settlements in the scope of internal self-insurance. By employing a selective approach to managing insurance risks, we optimise insurance costs and achieve the best ratio of risks assumed to insurance costs.
Insurance risk chart Risk/assessment of risk and exposure* low moderate high Risk of damage/destruction of property – direct damage (e.g. natural disasters, fire and earthquakes) Liability risk (e.g. general civil liability and management's professional liability) * Significance x Probability
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1.14 Intensive investment activities in the future + contemporary network + new content + significant companies abroad
The Telekom Slovenia Group exploits investment opportunities both domestically and abroad. In Slovenia, we invest a great deal in the construction and modernisation of the network, in the development of innovative products and in providing financial stability through strategic investments. In South Eastern Europe, where our aim is to become a leading alternative operator, we achieve our objectives by acquiring new companies, which are important for our overall development.
Investments in fixed assets
The Telekom Slovenia Group has continued its intensive investment activities, having earmarked EUR 253.3 million for the construction, modernisation and development of networks and services.
The structure of investments by companies is Index in thousand EUR 2007 2008 08/07 Telekom Slovenije, d. d. 130,575 119,027 91 Mobitel, d. d. 46,097 70,752 153 Content 1,283 3,944 307 Interseek, d. o. o. 1,149 1,990 173 Teledat, d. o. o. 70 419 599 Planet 9, d. o. o. 64 1,535 2.398 Other companies 3,579 2,452 69 Avtenta.si, d. o. o. 1,369 633 46 GVO, d. o. o. 2,210 1,455 66 Soline, d. o. o. 0 364 - South Eastern Europe 131,338 57,081 43 Ipko, d. o. o. 126,400 43,871 35 On.net, d. o. o. 3,072 4,054 132 Aneks, d. o. o. 1,866 8,003 429 AOL SP, d. o. o. 1,153 - Total 312,872 253,256 81
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1.15 Growth in broadband and mobile connections
+ doubling of the number of connections + accelerated development in Kosovo + growth in the number of mobile telephones + successful sales
Sales in 2008 were characterised by 39% growth in broad connections within the Group (98% growth in South Eastern Europe) and 273% growth in mobile connections in Kosovo. In this way, we remain in step with trends on telecommunication markets and compensate for the expected drop in the number of fixed telephony connections.
Broadband connections
Index Number of retail connections as at 31.12.2007 31.12.2008 08/07 Slovenia 173,103 206,404 119 Bosnia and Herzegovina 2,723 7,700 283 Macedonia 20,447 32,448 159 Kosovo 35,220 67,847 193 Albania - 7,407 - Total SE Europe 58,390 115,402 198 Total Telekom Slovenia Group 231,493 321,806 139
Voice telephony
The number of mobile and fixed telephony connections rose by 6% from the previous year. The most significant factor in this increase was the range of mobile telephony service in Kosovo, where we recorded 349,000 users.
Number of mobile and fixed telephony connections/users
Index Number of connections/users as at 31.12.2007 31.12.2008 08/07 Slovenia, mobile telephony 1,263,183 1,209,434 96 Slovenia, fixed telephony 735,986 648,657 88 SE Europe – fixed telephony - 15,272 - SE Europe - Kosovo, mobile telephony 93,631 349,010 373 Total Telekom Slovenia Group 2,092,800 2,222,373 106
Minutes in voice telephony The total number of minutes in voice telephony was down 5% from the same period last year, primarily as a result of a 19% drop in call forwarding in fixed telephony at Telekom Slovenije d. d. The aforementioned decrease was offset by growth in Kosovo, where we recorded 204 million mobile telephony minutes during the year.
Index Millions of minutes 2007 2008 08/07 Slovenia, mobile telephony 2,034.5 1,974.4 97 Slovenia, fixed telephony 1,901.9 1,544.6 81 SE Europe - Kosovo, mobile telephony - 204.5 - Total Telekom Slovenia Group 3,936.4 3,723.5 95 WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 42
BUSINESS REPORT OF THE TELEKOM SLOVENIA GROUP
2 SLOVENIA
2.1 Environment analysis
+ economic crisis + opportunity for growth + transition to a fibre optic network + market regulation + market leaders
The conditions that dominated global markets in 2008 demanded a great deal of flexibility, knowledge and analysis. The crisis, however, has only begun, and some experts predict that its consequences will be felt for years to come. These new conditions did not have a significant impact on the Telekom Slovenia Group, as we maintained our markets shares in Slovenia and the markets of South Eastern Europe at levels similar to those achieved the previous year. We are already preparing ourselves for tougher market conditions through new products and services, with the greatest attention given to the development of convergent services.
2.1.1 Macroeconomic environment
The global economy was faced with an economic crisis of massive proportions in 2008, which was initially seen in the US, and later felt in Europe and the rest of the world. Throughout the year, the European Commission made downwards revisions to euro area forecasts, while some countries, such as Germany and Italy, had already slid into recession.
Since the autumn forecast, conditions in the international economic environment and expectations regarding future trends have deteriorated sharply due to the deepening of the global financial crisis and its transfer to the real sector. Based on revised assumptions regarding forecasts of economic growth in Slovenia's most important trading partners, global oil prices and the value of the euro, and based on new data regarding economic trends in Slovenia, the Institute of Macroeconomic Analysis and Development (IMAD) has revised its autumn forecasts of economic trends for the period from 2008 to 2010.
Global economic growth1 will slow considerably this year and next year. According to IMF forecasts, economic growth is expected to be approximately 2.2% in 2009. A recession has been forecast in 2009 for the majority of Slovenia's most important trading partners. At the same time, uncertainty regarding future economic trends in these countries is unusually high, and represents the primary risk for further deterioration of economic conditions in Slovenia.
Economic growth in Slovenia was 4.1% in 2008 due to the global financial crisis according to IMAD figures, while economic growth is expected to slow to 1.1% in 2009. Investment activity is also expected to slow mainly due to the tightening of lending terms and a deterioration in the business climate, with investments expected to decrease by 2% next year. The most significant drops are expected in construction investment and investments in plant and equipment. Private consumption will rise next year (by 2.8%), but at a slower pace than in 2008 (3.4%). Conditions in the international economic environment are expected to stabilise in the second half of the year, resulting in a recovery in global economic growth. Thus, economic growth in Slovenia could strengthen to 3.1% in 2010.
In line with forecasted economic trends, employment growth will come to a standstill in 2009.
Inflation was 2.2% in 2008 due to the drop in oil prices on global markets, and is expected to be 3% in 2009.
1 Source: Autumn Forecast of Economic Trends 2008, IMAD, Ljubljana, September 2008; Economic Outlook, Current Economic Trends, November 2008; Revised Autumn Forecast of Economic Trends for the Period from 2008 to 2010, December 2008.
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Key macroeconomic indicators in Slovenia
Real growth rates in %, unless otherwise stated 2008 2009 2010 2003 2004 2005 2006 2007 forecast forecast forecast GDP** 2.8 4.3 4.3 5.9 6.8 4.1 1.1 3.1 GDP in million EUR (current prices and a fixed 25,114 27,073 28,704 31,008 34,471 37,403 38,905 41,435 exchange rate of EUR 239.64) GDP per capita in EUR (current prices and current 12,900 13,599 14,346 15,446 17,076 18,623 19,859 21,344 exchange rate) Registered unemployment 10.9 10.3 10.2 9.4 7.7 6.7 7.7 8.1 rate in % Productivity growth in % 3.2 4.0 4.5 4.2 3.7 1.3 2.5 2.8 (GDP per employee) Inflation (end of year)* 4.6 3.2 2.3 2.8 5.6 2.2 3.0 3.0 Average annual inflation* 5.6 3.6 2.5 2.5 3.6 5.7 1.1 3.0 * Inflation is measured by the consumer price index. ** Proportions of GDP are calculated from GDP at current prices and a fixed exchange rate.
Monthly and annual growth in the consumer price index, December 2007 – December 2008
1.5 8.0 7.0 1.0 6.0
0.5 5.0 % 4.0 % 0.0 3.0 XII 07 I 08 II 08 III 08 IV 08 V 08 VI 08 VII 08 VIII 08 IX 08 X 08 XI 08 XII 08 2.0 -0.5 1.0 -1.0 0.0 Monthly growth in the consumer price index Annual growth in the consumer price index
Source: SORS, 6 January 2009
International studies suggest that leading telecommunications operators are optimistic with regard to operations, as the telecommunications sector is thought to be less sensitive to the effects of the global economic crisis compared to other sectors of the economy. At the same time, the impact will differ between individual markets segments of the telecommunications sector: e.g. voice services as opposed to data services, and prepaid services as opposed to subscriber services. The most effective tool to fight the recession is innovation, while the following areas represent opportunities for growth: content, entertainment, games and the gaming industry, as well as education.
Source: Research: Arthur D. Little, November 2008, 100 interviews with leading telecommunications operators
2.1.2 Development opportunities and slowing growth on the ICT market
The future development of the electronic communications market will depend primarily on the development of increasingly demanding broadband services and the resulting technical advances. The most significant challenges faced by operators today, which will also bring competitive advantages in the future, include: - increasing transfer speed to the end user, - ensuring sufficiently high traffic capacities and symmetry, - eliminating bottlenecks in the access segment, - providing fibre optic connections, ensuring broadband access to all households (in densely and sparsely populated regions), and - outsourcing of services. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 44
Due to an increasingly broad range of services, operators will be forced to open networks for the development of new services by third-party developers. Some European operators have already released their own SDK2 and have called on external developers to use it.
Value of the EU25 telecommunications market 350,000
300,000
250,000
200,000
150,000 mio EUR mio 100,000
50,000
0 2005 2006 2007 2008F 2009F
Fixed voice telephony Business data services Internet access and services
Mobile voice telephony Mobile data services Pay TV
Source: EITO Report, 2008.
Growth of the telecommunications market in 25 European Union Member States (excluding Romania and Bulgaria) was lower in 2008, in line with the slowdown in economic growth. This is expected to be the case in future as well, with 1.4% growth forecast for 2009.
Fixed telephony is expected to fall at a rate of 5%, while Internet access and mobile data services will record moderate growth of 9.3% and 8.9%, respectively. Slowing growth in the value of the telecommunications market has also been felt in Slovenia, with growth of 4.4% forecast for 2009.
Value of the Slovenian telecommunications market 1,000 900 800 700 600 500 400 mio EUR mio 300 200 100 0 2005 2006 2007 2008F 2009F
Fixed voice telephony Business data services Mobile voice telephony Mobile voice telephony Pay TV
Source: EITO Report, 2008. Similar to other EU Member States, the largest surge in value in the past in Slovenia was recorded by mobile data services, which achieved 40% growth between 2005 and 2006, while growth in Internet access was 24% over the same period. Both segments will face a slowdown in the future. Mobile data
2 Software development kit WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 45
transfer is expected to record growth of 9.8% in 2009, while 15.9% growth is forecast for Internet access and services. Pay-TV growth will continue, with growth of 21.1% projected for 2009.
Falling number of fixed telephony connections
The number of fixed connections has fallen due to a switch to mobile connections and the transition to broadband connections. Some 96% of the Slovenian population has a mobile telephone, a figure that is lower than the EU average of 111.8 mobile telephone per 100 inhabitants. The primary reason for this can be found in the high standards for measuring active users (use over a period of 30 days).
For some time now, competitive and technological pressures have resulted in falling prices and a drop in fixed telephony traffic. This in turn results in a drop in traditional telephony revenues.
The number of competitors in the fixed telephony market has risen in recent years. With the development of IP technology, new market entrants are gaining market share at the expense of traditional telecommunications operators. In their search for new growth opportunities, operators are accelerating investments in new markets and new technologies, such as broadband access, multimedia content and next generation networks (NGN).
The use of voice telephony continues to decline, but remains the most important revenue source. In line with global trends, the importance of VoIP telephony will also rise in Slovenia. IP telephony recorded a 26.6% share at the end of 2008, an increase of 12.4 percentage points from the previous year.
Rapid growth in broadband access
Growth in broadband access, as a key indicator of the development of information and communications technology, is rising sharply. Despite the fact that broadband penetration per capita lags somewhat behind the EU27 average (similar to Austria and Italy), we see this as a challenge for further development.
Penetration of broadband access to the Internet rose in 2008, by 4.3 percentage points with regard to households, and 1.4 percentage points with regard to the overall population compared to the third quarter of 2008. By the end of 2008, penetration had reached 62.3% for households and 20.9% with regard to the overall population.
Penetration of broadband access Broadband penetration rate per housholds
90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Denmark Germany Slovenia Italy Austria Hungary Slovakia BB penetration per housholds EU average
Source: Point Topic, Q 2, 2008.
Compared with other national operators, whose average market share is 45.6% (figures for July 2008), Telekom Slovenije, d. d.'s 49.1% share of broadband connections at the end of 2008 remains above average. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 46
The integration of markets and operators continues, with the majority of these operators providing services in all four of the following segments: fixed telephony, fixed data transfer, IP TV and mobile telephony and mobile data transfer. At the same time, demand for convergent services is growing, as users increasingly opt for these services on account of more favourable prices and simplified operations (one account).
Forecast triple play penetration in Western Europe
Source: Analysys Mason, 2008 The convergence services
180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2007 2008
Independent BB acces double play - market triple play - market quad play – market
Source: Report for the 4th quarter of 2008, APEK.
The number of package connections, which surpassed the number of independent broadband connections back in 2007, is also growing.
The increasing demand for bandwidth and higher data transfer rates that facilitate new multimedia services has, in many countries, resulted in a tendency for rapid development of fibre optic connections to homes. Initiatives have come from countries, alternative competitive operators and national telecommunications operators.
Penetration of fibre-to-the-home (FTTH) is in its initial stages in Slovenia. Nevertheless, the number of broadband FTTH connections is rising sharply, and already account for 10.4% of all broadband connections. The number of connections rose by 7.2 percentage points compared with the previous year, WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 47
ranking Slovenia among the fastest growing in this area by global standards.
The high data transfer capacity of fibre optics also make it the most optimal infrastructure for the high capacity TIME3. Therefore, the number of connections is continuously rising.
Number of FTTH connections
50,000
40,000
30,000
20,000
10,000
0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Source: Report for the 4th quarter of 2008, APEK.
Economies with the highest fibre-to-the-home (FTTH) and fibre-to-the-building + LAN (FTTB) penetration, 2Q 2008
economies with prime architecture FTTH economies with prime architecture FTTB Source: FTTH Council Europe, July 2008
Multimedia content and services are also becoming increasingly important. Traditional telecommunications operators are entering the market of television broadcasting and multimedia services, such as video on demand and personal video recorders, with the aim of increasing average revenue per user (ARPU). Telekom Slovenije, d. d. offers users all of these services.
3 Telecommunication, Information, Multimedia, Entertainment WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 48
2.1.3 Regulatory environment
Changes in European legislation
In September, the European Parliament discussed a new telecommunications legislation package. Members of Parliament: - voted for changes in universal service and proposed that the definition of universal service include mobile and broadband connections; - supported a proposal regarding the transferability of telephone numbers. Operators must carry out a transfer in one day or face the prescribed penalty; - supported the establishment of the Body of European Regulators in Telecommunications (BERT), which will function independently and comprise regulators from all Member States; - called on the Commission to impose better measures with regard to coordinating the use of the digital dividend4 at the European level.
The European Council agreed with Parliament's positions. This will facilitate a second reading during the Parliament's current term, which ends in the summer.
In 2006, the European Commission adopted a regulation that provides for the gradual lowering of the maximum allowable prices for mobile roaming in European Union Member States. At the end of August 2008, the highest prices for outgoing calls abroad were lowered to a maximum of EUR 0.46. These prices will be lowered by an additional three cents in 2009. A similar trend of falling prices was seen for incoming calls: the maximum price was lowered to EUR 0.22 in 2008. The price will be further cut to EUR 0.19 in 2009 (all prices are exclusive of VAT). A new proposal, which foresees the extension of the aforementioned regulation until 2012, is currently in the legislative process. The proposal also broadens the scope of regulated services, to include packet data transfer and SMS messaging.
New development strategy in Slovenia
The Ministry of the Economy has published its Strategy for Developing Broadband Networks in the Republic of Slovenia, which includes broadband access development objectives.
On 24 December 2008, the Ministry of the Economy submitted a draft act amending the Electronic Communications Act for public consultation.
The General Act on the Secrecy, Confidentiality and Security of Electronic Communications and the Retention and Protection of Stored Data was adopted.
Relevant markets
Markets 1-7 (retail markets)
APEK issued a decision in which it finds that further regulation of market 7 is no longer required.
There were no new analyses, decisions or supervisory procedures on these relevant markets. New analyses of former markets 3, 4, 5 and 6 will be carried out during the first half of 2009.
Relevant markets 8, 9, 10 (network interconnection)
APEK has found that Telekom Slovenije, d. d. is an operator with significant market power on all three markets. Decisions were issued for market 10 (transit) on 6 February 2008, for market 9 (intermediation) on 21 March 2008, and for market 8 (call termination) on 14 April 2008. The following measures were imposed on Telekom Slovenije d. d. on all three markets: - compliance with all reasonable requests for operator access to network elements and capacities, - the obligation of equal treatment, - the obligation of transparency, - the obligation of price control and cost accounting, whereby the company was obliged to prepare a cost accounting model according to the LRIC method by 30 November 2008,
4 The transition from analogue to digital terrestrial television by the end of 2012 will free up an enormous portion of the spectrum in Europe known as the "digital dividend", due to increased efficiency of digital technology transfer.
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- the obligation to separate account records for 2008.
In addition to Telekom Slovenije, d. d., T-2, Amis, In.life, Ljubljanski kabel, Sinfonika, Tuš Telekom and Upc were also identified as operators with significant market power on the call termination market on individual public telephone networks at fixed locations (market 9 and new market 3). As of 1 June 2008, all new operators with significant market power were obliged to lower prices that do not exceed the prices of Telekom Slovenije d. d. by more than 40% to level IX, or EUR 0.0234.
Pursuant to the aforementioned decision, Telekom Slovenije d. d. submitted to the APEK a description of its cost accounting system for markets 8 and 9 based on the LRIC method, together with cost documentation. The company published a description of the system and the auditor's report on its websites.
APEK called on Telekom Slovenije d. d. to submit data regarding the preparation of an LRIC model for IP and TDM telephony.
Relevant markets 11, 12 (unbundled loop, broadband access)
Pursuant to APEK's decision, Telekom Slovenije d. d. submitted a description of its cost accounting system for market 11 based on the LRIC method, together with cost documentation. The company published a description of the system and the auditor's report on its websites.
APEK has initiated procedures to assess whether the increase in electricity prices for collocations was justified. The procedure has not been concluded, thus new prices are still in effect. A supervisory procedure is underway to determine the appropriateness of prices for operators' own fibre optics to the collocation.
In January, APEK initiated a supervisory procedure for market 12, and called on Telekom Slovenije d. d. to justify published prices for the leasing of capacities between broadband remote access servers (BRAS) and customer edges. The procedure is ongoing.
A procedure has also been initiated to eliminate irregularities linked to naked ADSL. In September, a decision was handed down that Telekom Slovenije d. d. must offer naked ADSL in the scope of BRO within 15 days. In response, the Company published an amended draft offer, and will appeal the decision. Based on a referral from Amis, APEK began a misdemeanour procedure and issued a misdemeanour decision in October. Telekom Slovenije, d. d. submitted a request for judicial protection in response.
On market 12, APEK called on Telekom Slovenije d. d. to submit cost calculations for fibre optic broadband access. The company submitted its study, which APEK will use during the preparation of analyses of the aforementioned market.
Relevant markets 13, 14 (leased lines)
On 30 May 2008, APEK initiated a procedure to identify operators with significant market power on market 13 (minimum set of leased lines). It found that ex ante regulation is no longer necessary on this market.
On market 6 (former market 14, access parts of leased lines), APEK identified Telekom Slovenije, d. d. as an operator with significant market power, by a decision of 24 June 2008. It imposed the following measures on the company: - compliance with all reasonable requests for operator access to network elements and capacities, - the obligation of equal treatment, - the obligation of transparency, - the obligation of price control and cost accounting whereby the company was obliged to lower prices for leasing by 1 October 2008 and 1 January 2009 (both times by 33%), and to prepare a cost accounting system by 31 December 2008, based on the full allocation of costs and current cost methods (FAC and CCA). - the obligation to separate account records for 2008.
In March, APEK called on Telekom Slovenije d. d. to eliminate irregularities linked to prices of access parts of leased lines. APEK halted the procedure, as no irregularities were identified. In November, APEK initiated another procedure to eliminate irregularities linked to reference access line offer (RALO). The procedure is ongoing. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 50
Access to and call-forwarding from public mobile telephone networks (former market 15)
In October 2008, APEK submitted a new analysis of market 15 for public consultation, according to which Mobitel d. d. and Si.mobil d. d. became operators with significant market power and share joint dominance. Since the analysis presents the European Commission with a distorted and misleading picture of the Slovenian mobile market, Mobitel d. d. presented the Commission with the true situation. The latter therefore expressed its doubts regarding APEK's findings during the notification period, and requested additional clarification. In December, APEK withdrew the analysis in question and initiated a new analysis. The obligations imposed on Mobitel d. d. in a decision from 2005 therefore remain in force. The new analysis is expected during the first half of 2009.
Call termination in an individual public mobile telephone network (market 7)
In accordance with the obligations imposed on Mobitel d. d. in the Agency's decision of 13 April 2007, the company calculated the cost price of call termination based on the historical cost accounting and full allocation of costs methods (FAC, HCA) by the imposed deadline of 28 February 2008. The new lower price took effect on the market on 1 April 2008. The cost price of call termination must be recalculated by 31 March 2009 according to the long run incremental cost method (LRIC).
Other procedures before APEK
APEK initiated and halted several procedures based on the complaints of operators. These included: 17 preliminary procedures, 23 decisions halting procedures, 3 successful requests for judicial protection (violations from 2006), 2 indictments (Ministry of the Economy), and 1 mediation procedure at the proposal of Telekom Slovenije, d. d.
2.1.4 Competition signalling interest in providing convergent services
Fixed telephony services Mobile telephony services - Amis - Si.mobil - T-2 - Debitel - Detel - Izimobil - Tuš Telekom - M mobil - UPC - Tušmobil - T- 2
Internet services Bandwidth leasing (retail and operator - T- 2 market) - UPC - Ljubljanski kabel - Amis - Stelkom - Tuš Telekom - Slovenske ţeleznice - Si.mobil - Dars
TV services IT services - UPC - SRC.si - T-2 - Nil - Tuš Telekom - S&T - Amis - Smart com - Actual
The primary objective of all operators on the telecommunications market is to attract as many users as possible by developing and offering new services. Since users are increasingly demanding, operators have focused on providing convergent services, with which users receive various services (telephony, Internet and television) in one package. Mobitel d. d. was the first on the market to offer the convergence of fixed and mobile services, and was followed by T 2, which established a mobile network and began offering mobile telephony services in addition to IP TV and IP telephony. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 51
The second half of 2008 was marked by triple play packages for EUR 30. Triple play packages were offered by Telekom Slovenije, d. d. ("Vesolje veselja" package with an emphasis on triple play for EUR 30 and a competitive offer of portable computers), Tuš Telekom (Internet, TV and telephony), T-2 (Internet, TV and mobile telephony), Amis and UPC (digital triple play).
Mobile competition
Six mobile operators were functioning on the Slovenian mobile services market at the end of 2008. Four of these provided infrastructure (Mobitel, d. d., Si.mobil, d. d., Tušmobil, d. o. o. and T-2, d. o. o.) and two acted as service providers (Debitel, d. d. and Izimobil, d. d.).
The following events characterised the mobile communications market in 2008: Tušmobil received a decision from APEK allocating radio frequencies for UMTS services in April. Si.mobil investigated the possibility of linking up with a fixed operator. It was also mentioned as a possible buyer of T-2. In April, Si.mobil introduced a package of unlimited mobile access to the Internet. Tušmobil reached 100,000 users a little over one year following its market entry. The new Tušmobilinternet service facilitates the transfer of data in two packages, and also introduced a web store. Tušmobil included the service "Videoteka" in its range of television services. T-2 became the fourth operator on the mobile communications market in June. The company received a licence to provide UMTS services and introduced a package of high-speed Internet access, television services and 2 SIM cards with a subscription to mobile services in the T-2 network. Debitel continues to provide its services via Mobitel's GSM/UMTS network. Attention was given to end users and not to the development and building of a mobile network. Voljamobil and Izi mobil provide mobile telephony services in the Mobitel, d. d. network. Izi mobil offered a data transfer package via the UMTS system. Mercator's M mobil continued to provide services in cooperation with Si.mobil.
2.1.5 Maintaining our leading market shares
Number of users/connections
2,500,000
2,053,368 1,928,412 2,000,000 1,819,572
1,500,000
857,148 1,000,000 837,552 880,708
344,840 420,375 500,000 279,814
0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006 2007 2008
mobile fixed Broadband
Source: Report for the 4th quarter of 2008, APEK, Telekom Slovenia Group, own calculations.
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The Telekom Slovenia Group's market shares by services
Source: Report for the 4th quarter of 2008, APEK, Telekom Slovenia Group, own calculations.
In line with European trends and regulatory pressure, the Telekom Slovenia Group's market has fallen slightly in key segments. Nevertheless, the market shares of Group companies exceed those of leading operators in Europe, where the shares of alternative service providers are notably higher. Despite the falling trend seen in Europe, our market share of broadband access began to grow during the second half of last year, and had risen 0.9 percentage by the end of the year from the share recorded at the end of June.
Telekom Slovenije d. d.'s share of the Slovenian telecommunications market (fixed and mobile telephony and fixed broadband access)
market share in % 99.4 98.9 98.5 97.8 96.7 96.1 94.3 92.6 100 90.9 89.1 87.9 85.6 90 80 71.9 71.9 71.2 70.3 69.0 67.6 66.7 65.5 63.8 62.0 70 60.6 58.9 60 50 62.0 56.4 54.6 52.9 53.5 51.9 51.5 40 50.2 49.2 48.2 48.5 49.1 30 20 10 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006 2007 2008
Fixed Mobile Broadband
Source: Report for the 4th quarter of 2008, APEK. * Fixed broadband access also includes figures from Mobitel d. d.'s resale of services.
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Success on the fixed telephony market
Telekom Slovenije d. d.'s share has fallen on the fixed telephony market due to the rising market shares of alternative operators. The company's market share was 85.6%, down 7 percentage points from a year earlier. This drop is driven by the fact that the company's position on the Slovenian fixed telephony market is highly exposed to the loss of market share to alternative operators due to its dominant market share and IP telephony.
Market shares of fixed telephony connections of Telekom Slovenije d. d. and other operators
99.4 98.9 98.5 97.8 96.7 20 96.1 94.3 100 92.6 90.9 89.1 87.9 18 85.6 90
16 80
14 70
12 60 market share % share market in
10 50 -
market share share in market % - 8 7.9 40 7.3 6.7 6 5.6 30 4.8
competition competition 4 4.0 20 3.1 2.9 1.9 2.9 Slovenija Telekom 2 2.1 2.3 10 1.6 1.1 1.7 1.0 1.5 1.2 1.2 0.6 0.6 0.8 1.0 0 0.0 0.0 0.0 0.0 0.00.2 0.20.3 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006 2007 2008 T-2 UPC Amis Ljubljanski kabel Tuš Telekom Others Telekom Slovenije
Source: Report for the 4th quarter of 2008, APEK.
Market shares of fixed telephony connections
dec.08 Telekom 0.2 Slovenije 0.5 2.9 1.7 1.1 T-2 7.9 UPC
Amis
Ljubljanski kabel Tuš Telekom 85.6 Others
Source: Report for the 4th quarter of 2008, APEK.
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VoIP market shares of operators
100 90 80 70 60 50 40 30
market share in % share market 20 10 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2006 2007 2008 Others 0.0 0.0 0.1 0.2 0.9 1.6 1.0 1.8 2.2 2.4 2.7 4.0 Tuš Telekom 2.0 2.3 2.5 2.2 2.1 1.8 1.6 1.3 1.1 1.1 1.0 0.9 UPC Ljubljanski kabel 0.4 1.0 1.7 1.9 1.9 1.9 1.9 1.8 Amis 2.7 3.5 5.3 5.6 5.7 5.7 5.5 6.4 UPC 0.6 2.2 5.4 8.1 9.1 9.5 10.4 10.8 T-2 58.9 51.8 44.1 38.7 39.8 34.7 34.8 33.5 32.2 33.7 33.0 29.7 Telekom Slovenije 39.1 45.9 53.3 58.9 53.5 55.2 50.2 47.8 47.7 45.7 45.5 46.4
* Includes figures from Mobitel d. d.'s resale of services. Source: Report for the 4th quarter of 2008, APEK.
Leader in fixed broadband access
Telekom Slovenije d. d. held the highest share of the fixed broadband access market at 49.1%. This share has fallen somewhat compared with the previous year, primarily as a result of extraordinary price pressures from T-2, which Telekom Slovenije d. d. is unable to follow due to regulatory restrictions. Nevertheless, the company's share began to grow again during the second half of the year, driven by its aggressive market approach.
Telekom Slovenije d. d., which had more than 15,000 users of FTTH connections at the end of the year, contributed significantly to growth in the share of FTTH technology. The shares of end users accessing the Internet via other technologies have also fallen. This includes xDSL, the share of which was down primarily due to the migration of users to fibre optic connections. As the graph below illustrates, Telekom Slovenije d. d. was the market leader in terms of the number of fixed broadband connections, and with regard to the absolute increase in the number thereof.
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Positioning of the Telekom Slovenia Group with regard to the number of broadband connections and growth in Q4
Source:: Report for the 4th quarter of 2008, APEK, internal figures from Telekom Slovenije d. d.
Operators' market shares of the fixed broadband access segment with regard to the number of connections
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2006 2007 2008 Others 11.4 14.7 15.5 13.8 8.7 9.0 9.0 8.2 7.9 8.0 8.0 7.8 UPC Tabor 2.5 2.6 2.5 2.3 2.3 2.3 2.1 2.0 1.8 1.9 1.6 1.7 KRS Rotovţ 3.1 2.9 2.7 2.5 2.4 2.4 2.3 2.1 2.0 1.9 1.8 2.1 UPC Ljubljanski kabel 0.5 0.7 0.8 1.0 2.1 2.3 2.3 2.7 2.0 2.1 2.1 1.9 Tuš Telekom 2.9 2.8 2.8 3.0 3.5 3.6 3.5 3.3 3.2 3.2 3.1 3.0 Amis 6.0 5.8 5.5 6.8 7.5 7.8 8.2 8.8 8.8 9.0 9.2 8.7 UPC 9.5 9.0 8.6 8.6 8.5 8.6 8.5 8.5 8.3 8.1 7.9 7.5 T-2 2.1 5.2 7.0 9.1 11.3 12.1 12.7 14.2 16.8 17.6 17.9 18.2 Telekom Slovenije 62.0 56.4 54.6 52.9 53.5 51.9 51.5 50.2 49.2 48.2 48.5 49.1
Source: Report for the 4th quarter of 2008, APEK.
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Shares of broadband access technologies
0.5 0.4 0.5 0.4 0.4 0.4 0.3 0.4 0.3 100% 0.3 0.2 0.3 0.0 0.4 0.8 1.0 1.6 1.6 2.1 3.2 5.5 7.6 9.4 10.4 90% 29.6 31.2 31.0 29.1 25.8 25.7 25.4 24.7 23.5 23.4 80% 22.6 22.3 70%
60%
50%
40% 72.2 72.2 72.1 71.7 69.8 68.0 67.8 69.5 70.7 68.7 67.7 67.0 30%
20%
10%
0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006 2007 2008
Other technologies FTTH Cable modem xDSL
Source: Report for the 4th quarter of 2008, APEK.
Development potential of the TV services market
The number of IP TV connections was also up in 2008, with Telekom Slovenije d. d. holding a dominant market share. It should be noted that the accuracy of third and fourth quarter data is being verified, as the data reflect a significant deviation from past market trends.
Market shares of IP TV service-providers
0.1 1.0 1.4 1.1 0.9 1.0 1.0 100% 1.0 0.9 1.1 1.9 2.4 2.9 2.7 2.9 90% 30.1 33.5 34.3 80% 37.4 35.4 36.0 37.0 35.8 36.3 37.0 46.5 43.5 70%
60%
50%
40% 69.9 66.5 65.6 63.6 30% 62.6 62.6 60.8 61.4 60.4 59.1 49.8 52.7 20%
10%
0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006 2007 2008
Tuš Telekom Amis T-2 Telekom Slovenije
Source: Report for the 4th quarter of 2008, APEK. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 57
First on the mobile telephony market
Mobitel d. d. has maintained its dominant share of the mobile telephony market, despite growing competition. The company recorded 128,771 new users in 2008, while 182,520 users left.
Market shares of active users for various operators at the end of 2008 and the end of 2007
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2006 2007 2008 T-2 0.05 0.1 0.3 Tušmobil 0.6 2.1 3.4 4.4 5.8 Izimobil 0.3 0.7 1.0 1.2 1.5 2.1 2.4 2.4 2.5 2.5 2.5 2.5 Debitel 5.2 5.3 5.3 5.3 5.4 5.5 5.6 5.6 5.4 5.2 5 4.8 Simobil 20.9 22.1 22.5 23.1 24.1 24.7 25.3 25.8 26.2 26.8 27.3 27.8 Mobitel 71.9 71.9 71.2 70.3 69.0 67.6 66.7 65.5 63.8 62.0 60.6 58.9
Source: Report for the 4th quarter of 2008, APEK.
Leader in the content market
The Telekom Slovenia Group's content segment is merged tied to the Interseek Group, which manages the following brands: Interseek.com, Najdi.si, Nepremicnine.net, Novogradnje.si, Avtooglasnik.com, Bistreglave.com, Shrani.si, Simpatije.com and Adpartner.si.
According to data from the April 2008 MOSS survey 5 regarding visits to Slovenian websites, the search engine Najdi.si was the most frequently visited website, recording 765,595 monthly visits, or 68% of all Internet users in Slovenia. The real estate advertising site Nepremičnine.net ranked 22nd among all Slovenian websites, with 101,515 monthly visits, while the web service Shrani.si ranked 26th with 90,935 monthly visits.
According to Mediana figures, the Najdi.si search engine held a 48.5% share of the Internet advertising market in 2008, which represents approximately 3.5% of total advertising spending in Slovenia.
In terms of overall advertising, RTV Slovenija, POP TV/Pro Plus, Dnevnik, Delo and Europlakat/Metropolis represent the Interseek Group's main competitors, while Google, Httpool, 24UR.com/Pro plus, Iprom and Finance-on.net represent the main competitors in Internet advertising.
The company Planet 9, d.o.o. specialises in multimedia content and services on the Telekom Slovenia Group's mobile and web portals: SiOL.net, Planet.si, the mobile portal Planet, Dajmedol, BTC and Zaposlitev.net. According to the autumn MOSS survey, SiOL.net was visited by 584,991 Internet users, ranking SiOL.net third, with 46% of regular users in Slovenia. Mobile Planet is the largest and most frequently visited mobile portal in Slovenia. Planet 9 provides a great deal of sport and music entertainment and other attractive and innovative content on the most popular Slovenian mobile and web portals.
5 Measurement of visits to websites. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 58
Comparison of shares on the Internet advertising market
Teledat, d. o. o.
Teledat d. o. o. company holds a 100% market share of electronic and printed white pages, as the licensed publisher (Telekom Slovenije d. d. being the issuer) of the universal Slovenian telephone directory. The company's share of the yellow pages segment is estimated at more than 50%. The remaining share of the market is held by Potrošniški vodnik, published by Slovenska knjiga, and the Yellow Pages of Slovenia (rumenestrani.com), published by Inter Marketing, as well as smaller municipal and sector directories and catalogues.
The main competitive advantage of the 1188 service is its recognisability, which is higher compared with similar services in other European countries. In 2008, the company also introduced new services: 1188 call completion and 1188SMS (access to a telephone number via SMS messaging). There is currently no competition for 1188 services, but this can be expected to change in 2009, as such competition is already present in Europe. Despite the fact that Teledat d. o. o. is currently the only provider of such services on the market, the number of calls has been falling for several years, in line with a general global trend. The company will therefore attempt to compensate for the loss in revenues with advertising revenues in this media.
Teledat d. o. o. is increasingly focused on the marketing of advertising space. The basis for this strategy is a high frequency of visits to the web telephone directory www.tis.telekom.si. According to the autumn MOSS survey, the web telephone directory was the ninth most frequently visited website. Visits to the Bizi.si website were also up 39%. resulting in 12% growth in revenues from sales of advertising space in 2008.
Growth in the number of individual visitors to tis.telekom.si
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08
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Growth in the number of one-time visitors to bizi.si
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08
In response to sales results and global trends, the company changed its distribution and sales model in 2008 for the book-format of the Slovenian telephone directory, which is now offered free-of-charge. The aim of this strategy is also to increase the interest of advertisers. The number of subscribers to the web telephone directory rose by 10% (to more than 6,000) in 2008, while paid access was also up 75%.
Expected growth in systems integration
The Slovenian ICT market where Avtenta.si, d. o. o. operates is growing at an annual rate of 7%, while specific sectors, such as utility, are growing at twice the pace, with outsourcing growing at an annual rate of 12%. That percentage is expected to rise further in the future and, at 18.5%, will grow twice as fast as other IT segments. Therefore, Avtenta.si, d. o. o. will develop its own services in this segment and sell them on the open market.
According to an IDC report regarding the IT services industry in 2007, the company has garnered a significant market share, particularly in the areas of network consulting services and network and desktop outsourcing. In terms of total revenues, the company achieved sixth place among IT companies, according to the ranking of the magazine Kapital, which also includes multinationals in Slovenia, such as HP, IBM and SAP. The following remain Avtenta.si, d. o. o.'s main competitors: o Nil d. o. o. – networking solutions and IP telephony o S&T – IP telephony o SRC.si – systems integration
Breakdown of the best Slovenian IT services companies in 2007, in terms of shares of revenues generated SRC.SI 9.8% Actual IT 4.9% S&T 4.8%
HERMES Softlab 3.8%
SAP others 3.7% 59.3% Avtenta.si 3.3% NIL Comtron 2.7% 2.7% IBM Marand 2.4% 2.6%
Source: IDC, 2008 Avtenta.si, d. o. o.'s main competitive advantage is its offer of integrated IT and telecommunications WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 60
services. In 2008, the company attracted business that was previously covered by standard IT solution suppliers. The company made a particularly important breakthrough in the sale of document systems, where it ranks among the leading providers in Slovenia. The company received the title of SAP Hosting Partner, which will enable it to penetrate the small and medium-sized enterprise (SME) market with SAP solutions. Previously, it only provided theses services to Telekom Slovenia Group companies.
2.2 Sales and marketing
+ favourable growth + lower prices + wide range of services and content + satisfied users + sales promotions
With a diverse range of products and services brought us closer to our customers. We were the first on the market to offer quad play, which combines fixed and mobile telephony with television and Internet access. We upgraded SiOL television with games, a video store, an electronic programme guide and new programmes. We updated SiOL's website and linked it to the mobile Planet.
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Portfolio of product, services and content in the fixed network
Source: Telekom Slovenije, d.d.
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Portfolio of products, services and content in the mobile network
Source: Mobitel, d.d.
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2.2.1 Fixed telephony services
Revenues from the fixed segment
Operating revenues of Telekom Slovenije, d. d. as fixed operator totalled EUR 415 million, up by 3% from 2007. Net sales revenues were also up by 3% from 2007, reaching EUR 410 million. Growth was also favourable compared with the majority of European operators, who have recorded a drop in revenues for several years in the fixed segment.
Due to market saturation, competitive pressures and a drop in traffic, revenues from traditional telephone connections were down by 14%. This drop in connections was driven by a falling number of PSTN and basic ISDN connections, weak sales of new connections, a drop in traffic and in part due to a reduction in subscription prices (as of 1 February 2008) in accordance with APEK's decision. The largest drop in these revenues was recorded by the residential user segment (down by 19% from 2007), while the business user segment recorded an 8% drop in revenues from traditional telephony. This drop is being compensated for by growth in operator revenues.
Revenues in the operator segment were up by 24% from 2007, the growth driven primarily by a significant increase in international transit traffic. Revenues from network interconnection are rising, resulting in an increase in the share of international traffic for other operators and inter-network traffic in Slovenia. The number of subscribers in the networks of other domestic operators is on the rise. We also recorded growth in revenues from broadband services for end users, and from bandwidth lease and collocation. With regard to bandwidth lease and VPN, revenues from sales of leased domestic lines and the flexible and ATM networks are down, while revenues from VPN services are increasing.
In the breakdown of total operating revenues in 2008, the importance of broadband and international operator services, bandwidth lease, network interconnection, VoIP telephony and value-added services have all gained in importance.
Services for end users
As a result of the transition to mobile and broadband connections, the number of fixed voice telephony connections and the volume of outgoing traffic per user have fallen, while sales of IP Centrex services have risen.
The number of traditional PSTN telephone connections are falling due to the transition to other connections (for residents, due to the use of mobile telephones and the rapid growth in VoIP connections) and, in the context of the number portability, to fully unbundled access. With regard to the ISDN, this is also due to the fact that ADSL access is no longer conditional on an ISDN connection. In order to limit the switching of traditional voice telephony subscribers to other IP telephony operators, we carried out sales promotions to stimulate a switch to Telekom Slovenije d. d.'s IP telephony. We executed a limited-time offer of unlimited telephony for the price of basic telephony and prepared an offer of subsidised telephones. By offering a special interface, we also facilitated the connection of ISDN terminals to IP telephony. Due to market saturation, the development of new services (VoIP) and the rising number of wholesale lines rentals (WLR), sales of traditional telephony connections will continue to decline in future.
We recorded 111,614 disconnections due to the transition to broadband connections and VoIP telephony. In the context of an 18% drop in the number of connections, the volume of outgoing traffic was down by 23% for residential users, due to a drop in internal traffic and dial-up Internet access. The number of connections for business users was down by 2%, while traffic was down by 13%. End user VoIP traffic was however up, reaching a 6% share.
Index Sales of connections 2007 2008 08/07 Voice telephony: 19,484 22,358 115 PSTN 8,819 8,284 94 ISDN BA 2,351 1,500 64 ISDN PA/DID 16 7 44 Centrex 7,989 7,555 95 IP Centrex 309 5,012 1622
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Number of connections by type
Index Number of connections 31.12.07 31.12.2008 08/07 Voice telephony 735,986 648,657 88 PSTN 433,607 370,828 86 ISDN BA 137,437 110,028 80 ISDN PA/DID 823 781 95 Centrex 162,690 161,251 99 IP Centrex 1,429 5,769 404
Traffic volume in minutes
Residential and business traffic Index 2007 2008 (in millions of minutes) 08/07 Internal traffic 1,329.6 1,117.5 84 Fixed to mobile network traffic 130.3 125.9 97 Fixed to other fixed network traffic 34.0 75.1 221 International traffic 79.7 74.9 94 Dial-up Internet access 315.4 140.3 44 Other traffic, of which: 12.9 10.9 84 1188 traffic 5.2 4.4 84 090 traffic 3.9 3.5 91 Total 1,901.9 1,544.6 81
Average revenue per line and average revenue per user (ARPU) in the fixed network
In addition to a drop in traffic, a change to the subscription and lower prices of calls from the fixed to mobile network resulted in changes in ARPU. Total monthly revenues per line in the business user and residential user segments were down by 8% and 7%, respectively, from 2007. The most significant drop in revenues was recorded by PSTN connections, driven by both a drop in the volume of traffic and fewer PSTN subscribers. The smallest drop in ARPU for business users was recorded by ISDN PA connections.
Index ARPU – business users (in EUR per line) 2007 2008 08/07 PSTN 19.9 17.8 90 ISDN BA 39.3 36.7 93 ISDN PA/DID 1,029.2 1,011.9 98 Centrex 15.2 14.1 93 Total voice telephony 24.5 22.5 92
Index ARPU – residential users (in EUR per line) 2007 2008 08/07 PSTN 16.6 15.5 93 ISDN BA 23.0 22.2 97 Total voice telephony 17.8 16.5 93
Prices
Based on APEK's decision, we amended telephone subscription fees as of 1 February 2008, in accordance with a price-capping method, which defines subscription fees taking into account inflation and adjusted by factor "X", as defined by APEK. Trigger prices are also defined. Subscription fees for PSTN connections were cut by 4.8%, while ISDN BA connection fees were raised by 2.4%. Prices for fully unbundled access were also cut by 4.9%.
Due to APEK's cut in mobile operators' call termination prices, we lowered prices for outgoing calls from the Telekom Slovenije d. d. network to mobile networks by 17% as of 1 March 2008. In addition, the prices of outgoing calls to Si.mobil, d. d. and Mobitel, d. d.'s networks were cut as of 1 June, as both WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 65
operators lowered call termination prices in April. The prices of telephone information rose in January by 25% and in July by 74%.
With regard to broadband services, the price of triple play with a full programme scheme and additional programmes was increased by EUR 1, the price equalling that of triple play with the full programme scheme, with or without a TDM connection. The least expensive triple play with the basic programme scheme costs EUR 30, including VAT. We also standardised prices for basic high-speed access for ADSL and VDSL technologies.
Sales channels
Telekom Slovenije, d. d. sells its services via call centre, the Internet, field sales, 20 Mobitel centres and via external agents. The call centre achieves the highest share at 52%, followed by Mobitel centres with 18%, personal sales and external sales channels. With the introduction of personal incentives, the personal sales of Group employees has also risen.
Services for business users
The trend of transition to IP telephony is also present for business users, primarily due to the resulting cut in costs. The specific nature of the requirements of larger business users has dictated the preparation of individual solutions, primarily in terms of a gradual migration to IP telephony. The following combinations were prepared for such a gradual transition: - the combination of CTX and IP CTX connections in a single fixed business network, and - the combination of IPPBX and IPCTX connections in a single fixed business network. These hybrid combinations for a gradual connection provide a significant competitive advantage.
In 2008, the first fixed-mobile convergent solution was developed, combining fixed and mobile telephony in a single "virtual" business network, in which users can make calls via single system of short extensions according to a single tariff. This solution also eliminates the need for GSM interfaces. The first commercial fixed-mobile convergence (FMC) project is also under way.
In the scope of IPCTX, telephony and call centre services were upgraded.
A "business double play" solution was developed for the small office/home office (SOHO) segment.
We marketed value-added service for business users, to ease their workload.
These services include: - A toll-free 080 number: we included 161 numbers, bringing the total to 900 and nearly 700 business partners. In June, we introduced the possibility of a toll-free 080 number at the connection point of another operator. In December, we prepared several new solutions for automated telephone answering systems, where the elimination of problems associated with excess calls during large campaigns over a short period of time stands out. - 089 Televoting: we carried out 80 cases of televoting and received nearly 550,000 calls. We also facilitated voting from the IP SiOL network and the T-2 and Tuš Telekom networks. The most significant polling campaign was for the selection of the Slovenian song for Eurosong, in which we received more than 100,000 calls over the course of three evenings. - Value-added 090 services: we facilitated the redirection of 090 calls within the TDM network, which allows service providers to use the same 090 number in different locations. The highest number of calls were recorded during Big Brother (760,000 calls in three months); otherwise the highest number of calls were typically recorded during TV programmes with prize games. In December, we also enabled access from Si.mobil, meaning that 090 numbers are accessible from all networks, except Tušmobil's. We recorded a total of 430 090 numbers and 200 service providers.
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2.2.2 Mobile services
In 2008, Mobitel d. d. continued to focus on customer satisfaction. The company informed subscribers of new services via a call campaign from the Customer Service Centre and direct mailing, and via an SMS messaging campaign. The company used its contacts with subscribers to present offers, service and devices, and used their feedback to improve its range of products and services.
In addition, Mobitel d. d. took over the entire retail network of the Telekom Slovenia Group, through which it sells services.
Mobitel, d. d. also prepared a number of new products and services, including the following: - in accordance with the Telekom Slovenia Group's strategy to introduce convergent services, Mobitel d. d. was the first mobile operator in Slovenia to introduce quad play, which includes a comprehensive range of telecommunication services. Sold under the brand name M4, it includes Mobitel GSM/UMTS, broadband SiOL Internet, SiOL telephony and SiOL TV; - for demanding subscribers to Mobitel's Itak package, the company introduced data packets with leased capacities of 5 GB per month (Itak Internet L) or 50 GB per month (Itak Internet XL), together with a HSDPA modem, which facilitates transfer speeds of up to 7.2 Mb/s; - for younger users between the ages of 15 and 30, the company has developed the package "Itak Dţabest", with a monthly subscription fee that includes a broad range of mobile services, a mobile Internet and calls to other Slovenian mobile and fixed networks. The package provides subscribers communication with a monthly subscription fee of between EUR 0 and EUR 15 and a range of functional mobile phones intended for the young for 1 cent; - the company has prepared new "Povezani" (Connected) subscription packages with a monthly subscription fee that includes a specific amount of call minutes, SMS and MMS messages and GPRS/UMTS data transfer. Unused quantities from the current month may also be transferred to the next month, the first time this possibility has been seen on the Slovenian telecommunications market. The new "Itak Plus" package permits Itak subscribers to call and send one another SMS and MMS messages for 1 cent, while facilitating access to and browsing on mobile Planet at no cost; - subscriber may transfer entire songs from the mobile portal Planet; - Mobitel d. d. is the only Slovenian mobile operator to offer users the possibility to receive live television programmes on their mobile phones via the Mobile TV service. Users may choose between 11 television programmes, search for programmes using an electronic programme guide (EPG) or search engine by programme title, and use an SMS reminder that a desired programme is about to start; - two new free services, M:Namiznik (M:Desktop) and M:Rokovnik (M:Organiser) are available on the company's website in the scope of Moj Mobitel (My Mobitel). M:Namiznik allows users to send SMS messages (also longer than 160 characters) via a personal computer, while a personal telephone directory and archive of sent SMS messages are also available. M:Rokovnik facilitates the storage of data from a mobile phone (saving of contacts, calendar, tasks, notes and shortcuts) on a secure server, free of charge. In this way, a user can quickly and simply recover data in the event of the theft or loss of a mobile phone. It also simplifies the transfer of data from an old mobile phone to a new one; - family members of subscribers and users can communicate among themselves free-of- charge (call minutes and SMS and MMS messages) for a low monthly subscription fee, while a number of benefits are also available to Mobitel GSM/UMTS subscribers (the inclusion of additional mobile numbers) and to subscribers of M4 services (the inclusion of IP numbers, 1 GB transfers and the use of Mobile TV free-of-charge).
Number of Mobitel network users
Index USER GROUP 31.12.2007 31.12.2008 08/07 Postpaid 764,872 775,650 101 Prepaid 498,311 433,784 87 MVNO users 164,878 158,140 96 Broadband 0 2,745 TOTAL 1,428,061 1,370,319 96
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ARPU by user type
2.2.3 Leased lines and VPN6 services
Leased lines, block forwarding and ATM belong to a group of access technologies in decline, and are thus not being developed either in terms of marketing or technology.
In market terms, the most interesting service in this area is VPN, as it replaces current technologies (leased lines, block forwarding, ATM) and uses the IP/MPLS network to function. The service enables users to switch to IP technology, and at the same time offers a relatively high level of security for the transfer of commercial data and high-speed transfer capacities.
In 2008, 1,486 new VPN connection agreements were signed, meaning an increase in sales volume and growth in the number of business users of VPN services.
VPN sales are relatively high compared with sales of traditional leased lines, which is in accordance with the strategy to migrate to new data transfer technologies.
2.2.4 Enhanced range of broadband services
Sales of broadband services in 2008 were characterised by the introduction of new products and services and sales campaigns in the second half of the year. The August "Vesolje veselja" promotion, in which new subscribers were given the opportunity to purchase a discounted portable computer with the conclusion of a triple play subscription, contributed significantly to this growth.
The construction of the FTTH network and sales of related access continued. A range of broadband "resale" services was prepared with Mobitel d. d., which combines Telekom Slovenije d. d. services (Internet access, VoIP and IP TV) in a package that includes mobile telephony (quad play).
We adapted our wide range of subscriber packages to various user profiles as follows: - SiOL triple play was created for users who opt for the Internet in combination with IP telephony and IP TV for the first time, and for less demanding users. This package offers a selection between various types of programme schemes, taking into account the users' wishes, habits and lifestyle. The most complete packages include the most frequently watched movie programmes, such as HBO and HBO Comedy.
6 VPN is a private network that links the remote units of a company in a virtual private network, by using a public network. This ensures effective and secure communication between locations. By using a VPN, it is possible to link all types of locations, while facilitating work-at-home and virtual offices. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 68
- SiOL double play and SiOL triple play allow subscribers to call telephone numbers in the SiOL network and more than 700,000 telephone numbers in the Telekom Slovenije d. d. network free-of- charge. The quality of the IP telephony voice transmission is equal to that in fixed and mobile telephony. - SiOL Internet subscribers may try SiOL TV for two months, free-of-charge. If subscribers do decide for SiOL TV after the trial period, they return the equipment without obligation.
Telekom Slovenije d. d. has created a new offer and a number of new features that it will offer to subscribers in the future, including: - the exchange of an old SiOL TV interface for a SiOL TV+ interface, in which logging on to the new interface is expected to be easier, facilitating more frequent use, - a range and sales of HD programmes, - a loyalty programme, - testing of new software versions for Sinope R2, Proteus and Prospero modems, - providing automated settings for adapting a VoIP connection for the transfer of DATA traffic (e.g. faxes, POS and alarms).
SiOL broadband services
The number of broadband access connections has risen by 19%. Significant growth was recorded by VDSL (up by 2.5%), and particularly FTTH access (up by 7.5%), which facilitates greater bandwidth and serves as the basis for new broadband services (e.g. IP TV and video on demand). The number of television service subscribers via broadband access connections doubled, reaching more than 90,000 at the end of the year.
Connection sales
Index Sales of connection 2007 2008 08/07 Broadband connections 43,488 57,299 132 xDSL 42,377 43,897 104 FTTH 1,111 13,351 1.202 WiMAX 0 51
Number of connections by technology and services used
Number of connections 31.12.2007 31.12.2008 Index 08/07
Broadband connections 173,103 206,404 119 xDSL 171,652 190,930 111 FTTH 1,451 15,426 1063 WiMAX 0 48
BB Services 31.12.07 31.12.2008 Index 08/07
Broadband Internet access 173,103 200,795 116
VoIP 58,512 105,229 180
IP TV 42,512 84,615 199
CATV 541 5,608 1037 Note: The difference between the number of broadband connections and the number of broadband Internet connections is represented by the broadband connections that do not include Internet access (e.g. independent IP TV or VoIP, or a combination of the two).
The number of VoIP and IP TV connections were up by 80% and 99%, respectively, from the previous year, primarily in double play and triple play service packages. Growth in the latter is a result of the construction of new broadband (primarily FTTH) connections and the introduction of the coding of signals in MPEG-4 technology, which facilitates the connection of remote subscribers. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 69
Average monthly revenue per xDSL line
ARPL in EUR 2007 2008 Index 08/07 xDSL-ARPL – residential users 20.7 25.5 123 xDSL-ARPL – business users 45.0 38.4 85 Total ARPL 32.9 27.8 84
The ARPL associated with xDSL services for business users is significantly higher than that recorded for residential users, as business users use more demanding and expensive packages of services and access with increased bandwidth. The drop in ARPL for business users is primarily driven by the fact that subscribers to old xDSL packages with a higher subscription fee are migrating to less expensive packages and, in relative terms, to a greater extent than other users cancelling their xDSL connections. Growth in ARPL for residential users is a result of the migration to packages with several broadband services (double play and triple play).
Autumn promotion – "Vesolje veselja" (“Universe of Fun”)
At the end of August, a promotion to push sales of broadband services began, resulting in an increased number of activities in all areas (e.g. inclusion and/or migration to higher packages and migration to fibre optic). The key message of the promotion was triple play for EUR 30, while the primary objective was to change the perception of SiOL as the most expensive broadband services provider. The promotion was support by the possibility of purchasing a portable computer for EUR 1 for triple play subscribers with fibre optic access and for EUR 99 for those on the copper access network.
2.2.5 Wholesale (inter-carrier operations)
Telekom Slovenije d. d. continues to sell broadband access on the wholesale inter-carrier market. Total sales of broadband access to operators in 2008 were just 82% of that recorded in 2007. Physical sales of connections from the fully unbundled access sales model are coming to the forefront, while the "wholesale" sales model is losing significance, resulting in a change in the sales structure due to the aforementioned shifts between various sales models. On 22 September 2008, we introduced "naked ADSL" to operators as a new form of broadband access. Sales began significantly in December.
Sales of broadband Index 2007 2008 access – carriers 08/07 xDSL WS 9,132 7,087 78 xDSL SRD 12,864 8,360 65 PRD 23,367 20,800 89 Naked ADSL 0 1,133 Total 45,363 37,380 82
Number of broadband Index connections – carriers 2007 2008 08/07 xDSL WS 19,218 18,629 97 xDSL SRD 21,043 22,392 106 PRD 36,118 48,627 135 Naked ADSL 0 1,133 Total 76,379 90,781 119
There has been a particularly notable rise in international transit traffic on the wholesale market, with the increase in revenues due to the increase in traffic resulting in an increase in related costs. Low margins are characteristic of this type of service.
Some 1.04 billion minutes in inter-carrier traffic was generated in 2008, representing an increase of 21% from 2007.
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network interconnection traffic. The high growth in traffic from network interconnection with domestic fixed telephony operators is driven by the developing market and the migration of subscribers to these operators, while revenues from call termination and network interconnection leasing increased as a result of the growth of fixed operators.
Index Wholesale traffic (in millions of minutes) 2007 2008 08/07 Network interconnection 428.9 516.2 120 With fixed networks 203.0 275.4 136 Call termination 116.0 171.8 148 Call originating 35.8 35.8 100 Transit 51.2 67.8 132 With mobile networks 224.8 240.6 107 Call termination 112.7 114.2 101 Call originating 110.6 122.2 111 Transit 1.5 4.2 282 Network interconnection with 0881 operators 1.1 0.2 14 International operator traffic 378.5 501.7 133 Call termination 154.3 141.1 91 in the Telekom Slovenije network 68.5 59.0 86 in mobile networks 83.0 75.9 91 in other fixed networks 2.8 6.2 225 Transit 224.2 360.6 161 Access to the 0880 Internet network 37.3 1.8 5 Inter-operator voice services 13.8 19.4 141 Total 858.5 1,039.1 121
Revenues of EUR 134.7 million were generated on Telekom Slovenije d. d.'s inter-carrier market, an increase of 24% from 2007. The following contributed most to this growth: increased revenues from network interconnection with carriers (primarily fixed operators), growth in revenues from international carrier services (the most notable growth) and an increase in revenues from bandwidth lease. Revenues from call termination traffic and network interconnection leasing also rose, driven by the growth of other fixed operators.
International carrier services generated 49% of the revenues in this segment. Revenues were up due to increased marketing of transit and IP services.
Revenues from network interconnection were up 23% from last year to by EUR 27.5 million, due to call forwarding by mobile operators abroad and network interconnection with fixed operators.
Revenues from bandwidth lease were also up by 37%. This growth was driven by intense sales of fibre optics and international leased lines to domestic operators. More than half of revenues were generated by sales of optical fibres, which were up EUR by 3.8 million from a year earlier. At the end of the year, there were a total of 534 pairs of optical fibres.
In accordance with APEK's decision regarding the "access parts of leased lines, regardless the technology that provides the leasing or allocated capacity", Telekom Slovenije d. d. was forced to lower prices for the access parts of leased lines. This, however, had no impact on revenues in 2008.
We continued to market broadband access on the operator market, generating EUR 4.2 million in revenues in the "wholesale" xDSL segment. Lower prices resulted in a drop in revenues by 29% in 2008. Further contributing to the low level of revenues was the fact that "wholesale" xDSL services are not as interesting to operators as unbundled access to the local loop, despite their lower prices. Revenues from shared and bundled access and fully unbundled access were also up.
Collocation services generated EUR 3.4 million in revenues, an increase of 7% from the previous year. At the end of the year, domestic operators had 331 shared locations covering 2,737 m2.
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interconnection. By the end of the year, the company had entered into network interconnection agreements with 13 operators.
Mobitel d. d. has signed agreements with two public mobile telephony operators for the provision of mobile telephony services in Mobitel's network (Debitel and Izi mobil). The company also has national roaming agreements with Tušmobil (since 2007) and T-2 (since 2008), which allow the aforementioned companies to use Mobitel d. d.'s network in addition to their own networks. Four mobile telephony service providers roam in Mobitel's network in Slovenia.
Roaming As at 31 December 2008, Mobitel users were able to roam in the following networks of other service providers: - GSM: 337 operators in 185 countries, - GPRS: 187 operators in 94 countries, - UMTS: 69 operators in 39 countries.
2.2.6 Systems integration
In 2008, Avtenta.si, d. o. o. recorded an 18% increase in sales revenues. One of the company's primary objectives was to raise awareness of the company as a systems integrator within the Telekom Slovenia Group and among users and the competition on the open market. Therefore, the company's main focus was on market presence through the exploitation of the Group's advantages (e.g. its range of fixed, mobile and broadband communication services and access to the Group's end users).
In 2008 the company made a breakthrough on the market in the area of high value-added services, such as document systems and consultancy services. The first results of the company's work are expected in 2009, including the sale of four outsourcing services, which were announced in cooperation with Mobitel d. d. in 2008.
In the first quarter, Avtenta.si, d. o. o. adapted its sales processes and necessary personnel capacities with respect to cooperation with Cisco and received the title "Cisco Silver Certified Partner". The objective for 2009 is to obtain the last level of certification, e.g. as "Cisco Gold Certified Partner".
One of the most recognisable elements of Avtenta's range of services is its training centre, which became the leading IT training centre in Slovenia in 2008. In 2009,the company plans to strengthen cooperation between the centre and sales, as these will be organisationally linked to facilitate the maximum use of synergic effects.
2.2.7 Extensive development of new content
Interseek, d. o. o., Planet 9, d. o. o., and Teledat, d. o. o. are tasked with providing quality, innovative and user-friendly content within the Telekom Slovenia Group. In 2008, Planet 9, d. o. o. underwent the most changes, as it merged with Telekom Slovenije, d. d.'s Multimedia Services and Content Department (part of the former SiOL).
The Interseek Group has followed a strategy that includes exploiting the synergies between existing activities and new yellow pages and small advertisement products. The company's main product is its own media network of search engines and websites.
In 2008, the company's sales revenues were up 39% from the previous year. All sales sectors achieved the planned level of revenues, in particular revenues from small advertisements, which included revenues from the product "spon", a paid link on the homepage of the Najdi.si website and advertising revenues from the real estate advertising website "nepremicnine.net".
More than 74% of all consolidated revenues of the Interseek Group are generated by the sale of advertising space. These include revenues from reach advertising, targeted advertising, as well as direct marketing and small advertisements.
Following its reorganisation, Planet 9, d. o. o. provides quality, entertaining and informative multimedia content and services for the web and the mobile portal Planet and its associated information access WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 72
points (SMS, MMS, and voice station). The website SiOL.net provides the same content. The range of services has been expanded to include SiOL TV, which facilitates the reception of television programmes, video on demand (VoD) and the use of interactive services via the television. In 2008, the company was primarily focused on the development of various new products and services.
SiOL TV – new functionality and new channels SiOL TV is one of the Telekom Slovenia Group's most successful services. Accordingly, Planet 9, d. o. o. has continued to develop this service in terms of content and technical services. The company has updated its range of services and programme scheme and added new HD technology content, where the company ranks as the first in Slovenia to offer several HD movies via a video on demand library. The selection pay games was supplemented and the user interface upgraded, which will provide users content in the form of series of multimedia services, such as karaoke, and enable the use of existing services in various ways.
Key to the successful expansion of SiOL TV and the doubling of its users was the upgrading of the service platform with increasingly sophisticated user experiences. A great deal of attention was given to interactive services (e.g. a comprehensive electronic programme guide, a wide selection of games and specific purpose navigation keys) and the upgrading of programmes (e.g. Fox, National Geographic and ESPN). The company has further adapted to the wishes of its customers and become more flexible via package offers. Future development will be focused on personalisation, content diversity, service sophistication and platform convergence.
Web services Planet 9, d. o. o. has upgraded and redesigned it service pages, which include complete information support for the services of Telekom Slovenije, d. d. and Mobitel, d. d. The company has introduced support for the processes of ordering and managing new TV services, standardised all sub-pages for specific web services, upgraded its e-mail system and updated its web mail service and blog system.
Mobile services On the mobile Planet, the company has facilitated the automatic adaptation of pictures to the size of a mobile phone's screen, together with Mobitel d. d., thus improving the user experience when viewing portal content and optimising the internal process of transferring pictures to the editing system. It has offered users a television receiver to view programmes available via mobile TV.
Media coverage of events The company has facilitated media coverage of several major events and introduced various support activities, such as support of the Telekom Slovenije First Division Football League, cycling in Spain, the cycling world championships, the Ebel Hockey League and the start of most league matches. Full multimedia support was also provided for the Gorillaz Sound System event.
SMS clubs An application for SMS clubs will be available in the future, which will facilitate notification via SMS, the execution of prize contests and clubs for external subscribers and Planet 9, d. o. o. The application will include Mobitel and Si.mobil users.
Teledat, d. o. o. sales in 2008 included four major areas: 1188 services, the marketing of advertising space, product sales (TIS and Bizi.si) and the processing of data for all operators. Net sales revenues of EUR 7,550 thousand were generated, representing an increase of 38% from the previous year. The reason for the increase are revenues from information services, as a result of the inclusion of the activities of the 1188 call centre and new services.
2.2.8 Construction and maintenance of the network
GVO, d. o. o. generates revenues within the Telekom Slovenia Group from direct sales on the market and indirectly via affiliated companies. The company generated operating revenues of EUR 40.7 million in 2008. Investment works accounted for the largest share of revenues, followed by revenues from the elimination of errors and maintenance.
Sales outside the Telekom Slovenia Group were up more than 50% from 2007. Favourable results were a result of the following factors: - successful sales of works linked to the construction of Slovenian motorways, WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 73
- successful application for public tenders at the Ministry of Defence – special public tender and other public contractor procedures, - successful sales to construction companies.
2.2.9 In harmony with nature
Mobitel d. d. is 100% owner of Soline, d. o. o. which, through a concession relation, has established an intriguing marketing form of measures to preserve the natural and cultural heritage and maintain the water infrastructure in the saltpan region. The government has given its assurance that a three-way concession relation (a concession for the mining rights to extract mineral raw materials, e.g. desalination, and the protection of natural beauty and water management) will help maintain the exceptional natural beauty and cultural heritage of the region.
The company achieved or exceeded all of its objectives in 2008. The exception was the volume of extracted salt, which was only one-fifth of the average annual production.
Investments in shelf storehouses (290 pallet locations are now available), in the research and development laboratory and in an area for serving warm drinks and snacks were completed.
The company carried out all planned activities relating to the renovation and maintenance of seawalls (public water management), as approved by the Ministry of the Environment and Spatial Planning and ARSO. Moreover, additional emergency activities were carried out on the seawalls, as the saltpans were struck by a damaging flood at the beginning of December. Damage was estimated at approximately EUR 1.5 million.
The company is still encountering problems with the government in the management of the park, as long- standing issues arising from non-compliance with the concession agreement remain unresolved. These include: depreciation of fixed assets and buildings, the transfer of ownership to the concessionaire and the granting of water rights associated with the management of the Jernej canal. Negotiations with those involved did not produce the expected results. The resolution of the aforementioned issues will continue in 2009.
2.3 Significant projects at the Telekom Slovenia Group
+ infrastructure + sales + live reception + technology + management and standardisation
Significant projects executed in 2008 were aimed at maintaining and upgrading the infrastructure and the development of new services and content for all users. To ensure the stability of the Group, we also executed several organisational projects that will make us more flexible and competitive in the future on all markets where we operate.
The most significant projects at the Telekom Slovenia Group in 2008 were as follows:
1. Infrastructure projects designed to upgrade, modernise or introduce new technologies that will facilitate more contemporary solutions in the future. The most important of these projects were: - "Burja", the objective of which was the accelerated construction of the FTTH network and an expanded range of new services. - Network Engineer, with which we established a production environment for the geographical information system and introduced the capture and digitalisation of spatial data regarding the existing telecommunications network and the transfer to the NE database and the Survey and Mapping Authority of the Republic of Slovenia. - OSS Inventory which will provide information support for the management of the entire network of the Telekom Slovenia Group. - Aggregation of the IP/MPLS network, the aim of which is to upgrade the existing aggregate network with new network services and with additional functionality or WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 74
mechanisms that will ensure the increased availability and reliability of the network and associated IP services provided. Another goal is to satisfy APEK requirements. - SOA which will be used to migrate Mobitel's accounting system (Mobile) to a service- oriented architecture (SOA).
2. Sales projects aimed at creating attractive new services and content for existing users and their introduction to the market. - "Burja" the sales portion of which is aimed at expanding the range of products and services for existing subscribers and attracting new subscribers. - The CRM2 project is the continuation of work on optimising user-oriented processes and information support to improve user relations. - The CRM3 project includes the establishment of a new contemporary service billing system. In 2008, we continued with the Telekom Slovenia Group's strategy of updating, consolidating and integrating information systems at all companies. - Mobile TV, which allows users to receive live television programmes via mobile phones anywhere Mobitel's UMTS/HSDPA network signal is available. - M:Namiznik (M:Desktop), which facilitates SMS messaging via a personal computer. - M:Rokovnik (M:Organiser), which facilitates the saving of contacts, calendar, tasks, notes and shortcuts on a secure server.
3. Service projects: - M-vrata (Framework PushDispatcher, Service Proxy), - M skupnost (M community), - SMS Centre, - MMS Centre, - SMS/MMS messaging, - E-mail server/upgrades, anti-spam, - Integral, - Video network platforms, - Mobile TV - DVB-H, - M 4 - quad play, which is the Group's first FMC service and facilitates the convergence of fixed (SiOL TV and IP telephony) and mobile services. - The upgrading of business double play services for the SOHO segment and the inclusion of Avtenta.si, d. o. o. services, (e.g. rental of an Exchange server and secure network data storage) therein. - Upgrading of the business telephony system: we translated new client application versions and updated them with Telekom Slovenije d. d.'s corporate image. - Integration of the MS OCS and business IP telephony which OCS client users may use as a substitute for an existing client application. - Business access which facilitates the use of services available to other IP Centrex business telephony users, by users of internal telephone exchanges.
4. Strategic and organisational projects: - Ipko MVNO, the primary objective of which was the establishment of a virtual operator in Ipko's network. - Introduction of the SAP R3 enterprise information system with which Mobitel d. d. continued to pursue the objective to standardise the information system and business processes within the Telekom Slovenia Group and to reduce joint costs of development and maintenance of IT support. - Integrated document management with which Mobitel d. d. established a new document information system that includes the introduction of internal electronic operations. - Standardisation of purchasing processes, the primary objective of which was the standardisation of purchasing processes at the Mobitel d. d. level and the establishment of a central database.
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2.4 Leader in the development of convergent services and the network
+ trust + quality + new technologies + convergence + video
The Telekom Slovenia Group is developing new services for users, in which convergence in several areas plays a leading role. We are also focusing a great deal of attention on the development of the infrastructure and networks in order to maintain a high level of quality and the trust of our users. In 2008, we were the first in Slovenia to offer quad play services which includes fixed and mobile telephony, as well as Internet access and television.
Convergence in the Telekom Slovenia Group means coming together and exploiting advantages and synergies in the area of voice and multimedia communications and content for the home and the office brought about by fixed access, and the benefits in the area of voice and multimedia communications, information and entertainment brought about by mobility.
In 2008, development of fixed-mobile convergent services was again focused on user expectations regarding the accessibility and availability of any service from any network or terminal, regardless of time or location. The emphasis was on personalisation and simplicity of use, and increasing the effectiveness of communication in the workplace. Since this involves voice and video communication and access to multimedia content, it increases demand for broadband and mobile access.
Changing conditions in the telecommunications sector dictate that we take coordinated action in the development of the network. The anticipated drop in the number of subscribers in the traditional voice telephony segment also results in decreased usage of TDM network capacity. We have therefore continued with the optimisation of this network, the objectives of which are to improve the exploitation of resources, purchase backup equipment, free up physical space, reduce electricity consumption and lower operating costs.
In the broadband network segment, we have begun optimising the networks relating to the following areas: ECI HiFocus DSLAM, ATM/DSLAM, transfer systems, TDM voice telephony and accelerated transition to an All-IP network. Our objectives are a gradual transition from less competitive to higher quality networks, which will provide users with higher-speed and improved quality data transfers. Telekom Slovenije d. d. has begun to consolidate it existing networks In the future, the company will further standardise its network control plane, which will facilitate more rapid and simplified development of new applications and services.
A great deal of attention will be given to the development of mobile services in the future, such as the opening of interfaces and the linking of mobile services with web services, location services, messaging services, video services and mobile information services. The greatest demand from external services providers is for voice services. We will therefore continue to offer mobile web roaming. Special emphasis in this regard will be placed on the introduction of alternative service charging solutions, and the possibility of using all access channels (SMS, WAP, Voice, Video, MMS and Web). At the same time, we will also offer a range of pre-packaged services, primarily packaged themes that will facilitate easy access to the mobile services market for less experienced providers. In this way, we will expand our range of products and services on the market. We, therefore, expect an increase in data transfers via mobile networks and the education of the market. This will increase the share of mobile Internet users, and thus opportunities for the subscriber services offered by Mobitel d. d.
Emphasis will also be placed on video services, as the UMTS network and its faster data transfer provide an excellent user experience. We will upgrade and optimise the network for video content transfer, as well as VoD and Video Blog solutions, which will be accessible via the mobile portal and tailored to the web user experience. We will also make it possible for users to preview audio and video content, thus simplifying the purchasing decision and establishing a fair relationship between the seller and buyer.
Mobitel d. d. will continue to offer, develop and support a wide range of innovative services, which are made possible on the development, administration and usage levels by the multi-level architecture within the service network.
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2.5 Network development and management
For several years, the telecommunication market has been characterised by the transition to an information society, the lowering of the costs of end-user services, the maintenance and modernisation of the information and telecommunications infrastructure and changing business relationships in the marketing of telecommunications services and content. For this reason, the Telekom Slovenia Group dedicates a great deal of attention to the development of its network. This makes the high-quality functioning of content possible, and ensures users uninterrupted access anytime, anywhere.
In 2009, the Telekom Slovenia Group will begin introducing a single platform for the development of applications, to include the full integration of all new applications and internal processes. The project is expected to be completed by 2011. The ultimate goal is to establish a real-time link between any service to any user end device through any network. This will bring us closer to meeting users' requirements and wishes for services.
2.5.1 Fixed network
The Telekom Slovenia Group pursues the following objectives to ensure the high availability of the network, as the basis for high-quality telecommunication services: - ensuring the optimal use of network resources, - increasing responsiveness and error elimination efficiency, - optimisation of operating costs, - contributing to the building of an efficient, modular and flexible network of the future, - network management.
Access network
The basic principle of planning the access network is to ensure a high-quality, reliable, permanent and secure network that will provide broadband access to the largest possible number of users. A broadband, fibre optic FTTH network, which Telekom Slovenije d. d. already installs in new buildings and regions with the highest demand for high transfer speeds, best satisfies these criteria. By improving fibre optic access systems, the company provides improved transfers to those subscribers for which this wasn't possible in the past.
We have begun introducing wireless access technologies in areas where investment in the construction of the infrastructure is most economically demanding. This has been made possible at Telekom Slovenije d. d. by WiMAX technology, and at the Telekom Slovenia Group level by the UMTS/HSPA network and the neoWLAN network.
In 2008, the number of subscribers with PSTN and ISDN connections fell by 11.7% and 13.5%, respectively, compared with the previous year, while the number of broadband service users and VoIP subscribers was up. The share of subscribers using services via FTTH was up by more than 20%. The number of ADSL broadband service subscribers was up 2.7% to more than 200,000 users.
Backbone network
All elements of the backbone network in the core and at international connections must ensure the reliable, stable and secure functioning of services. This is achieved through the redundancy of network element processes and transmission paths, the supply of power from two sources and the air conditioning of premises via two independent air conditioning systems. All network elements and ancillary devices must be centrally monitored and managed and periodically upgraded.
The new IP/MPLS design represents a modern, intelligent and secure transport network which, based on network, service and application convergence, reduces the complexity of the network and provides all services on a single platform. This in turn increases the availability and reliability of the network and services.
We continued building the FTTH network in 2008. The construction of 35,000 connections and the expansion of FTTH devices to 31 new locations are planned. We have also focused on eliminating network bottlenecks, where broadband access is limited. In total, we have built more than 69,000 FTTH connections, including 28,000 new connections in 2008.
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In 2007 and 2008, we exceeded the planned building of 75,000 connection points by 9%, reaching 82,130, plus an additional 25,740 installations which are not yet connected to an exchange.
We have also continued to supplement VDSL2 capacities. The network has been upgraded with the aforementioned technology in 298 locations, three of which were set up to test FTTB functionality. There were also 301,789 xDSL connection points built into Telekom Slovenije d. d.'s network, with 67% of the network capacity in use.
We have also continued with the introduction of EMX technology, which ensures broadband services in parts of the network with multiplex devices (several users on the same twisted pair where ADSL access is not possible). To resolve bottlenecks, we introduced the MiniMSAN technical solution.
Technology verification and validation
In 2008, 106 verification and validation procedures were carried out and 58 authorisations issued to connect electronic communications equipment to the Telekom Slovenije d. d. network. At BrihtaLab, we organised 53 events, such as presentations of external manufacturers, internal presentations to Telekom Slovenije d. d. employees, Faculty of Engineering students and to Zois scholarship recipients.
With regard to triple play, we continued managing the inter-sector group, the objective of which is to raise the quality of these services. We were involved in setting up and verifying four pilot projects (IMS, DPI, artificial line and various profiles for IP TV and IP telephony device settings). During the second half of the year, we placed a great deal of emphasis on finding technical solutions for monitoring the quality of the IP TV flow at various points on the IP/MPLS network and on measuring the quality of experience (QoE).
Control and support systems
Effective IT support systems and tools are necessary for Telekom Slovenije d. d. to control, manage and maintain the telecommunications network and services. They also facilitate the smooth inclusion and elimination of errors in services, which become increasingly complex with the implementation of new technologies.
We completed the IP/MPLS and CATV over FTTH control project, including the handover, and trained operators. We also completed a project related to the transfer of quality indicator reports to the data warehouse system and the migration of the TeMIP system to a new hardware platform, together with the doubling of the number of servers. In September, the evaluation procedure for the purchase and integration of a system for the management of customer premises equipment (CPE) in accordance with recommendation TR-69 was completed, and the final report issued by the technical committee.
With regard to electric-energy and conditioning systems (EECS) control, we included additional collocations and inspected the air-conditioning systems and electric energy (EE) systems at three larger locations and high-security systems areas. The project was completed in October. We also inspected elements used in the provision of IP telephony services.
To improve and automate the inclusion of services and elimination of errors, we are implementing a customer relations management (CRM) system, a new inventory system and a new error elimination system that will offer significantly improved support of processes and shorten the time required to carry out specific activities through full integration. All three systems are expected to be moved to the production environment in mid-2009.
With regard to network planning, we implemented a specific-purpose GIS Network Engineer system, with which we will introduce direct project designing of the cable network and the direct storage of information regarding the network in the central information system. In 2008, all data regarding infrastructure locations were entered in the system, thereby fulfilling Telekom Slovenije d. d.'s obligations in accordance with public infrastructure rules.
2.5.2 Mobile network
Development of the network was characterised by upgrades of enhanced data rates for GSM (EDGE), while the upgrade of the third generation of telecommunications protocol, which enables the UMTS network to transfer more data at a higher rate (HSDPA), was completed in its entirety. The proportion of WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 78
data traffic via the aforementioned systems is rising sharply, requiring the constant upgrading of the mobile network.
In September, we optimised the packet core network, by increasing processor capacity on SGSN; GGSN and CGS network elements for charging content, and reconfigured the core network, so that SGSN11 and SGSN31 now operate in a "pool" operation mode.
By the end of the year, 91% of base stations in the GSM network had been upgraded to EGDE, while all base stations in the UMTS network were upgraded with HSDPA. We also began upgrading with HSUPA, which will facilitate faster transfers from users to the network.
Radio and core network elements
UMTS radio frequency network (UTRAN) In 2008, Mobitel, d. d. focused on the construction and connection of base stations and cellular city structures as part of a complete network. By 2007, UMTS network coverage was already so strong that catching a good signal was no longer an obstacle to a growing number of users or the use of data services. Nevertheless, the coverage of cities or large urban centres is not yet complete, and rapid data services are not yet available in all urban areas. Growth in the number of UMTS users has increased the need for appropriate coverage in buildings, particularly in new structures (iron and concrete structures and metallic glass structures). The solution for this are fibre optic distribution systems, femtocells and remote radio units (RRU). All of the aforementioned technical solutions were implemented in 2008. The quality of the network was insufficient in some parts of urban areas, due to difficulty in acquiring new locations.
By the end of 2008, 45 new UMTS base stations were connected to the network. Some 73.4% of the population was covered by 603 base stations. The UMTS network was upgraded with software version P6.1, while based stations were upgraded with HSPA. All UMTS base stations were upgraded.
Increasing data traffic also required the broadening of transmission paths to base stations. We, therefore, doubled the transmission capacity to 8 X E1 lines at 333 base stations in 2008.
GSM radio frequency network (BSS) The connection of 37 GSM base stations to the network in 2008 brought the total to 932. The upgrading of GSM base stations with EDGE technology was also completed, the EDGE signal now covering 97.5% of the population.
Core network element The year 2008 was characterised by the gradual completion of several extremely large projects linked to the modernisation and evolution of the network. The more important projects included MSS Ph2 (Mobile Softswitch Solution), IN (Intelligent Network)/IMS (IP Multimedia Subsystem), IMS trial, the replacement of IVR (Interactive Voice Response) systems and the evaluation of future SMSC (Short Message Service Centre) solutions. The company was the only mobile operator in Slovenia to enable 112 call locating, and made all necessary preparations for the introduction of enhanced multi-level prevention and pre-emption service (eMLPP).
Packet network
GPRS/UMTS packet network Most activities were linked to upgrading the core element of the packet network, due to the introduction of the new unlimited Internet service. In 2008, Mobitel d. d. recorded 24,000 users of the mobile packet network, who generated more than 5 TB of traffic on a daily basis. Data transfer speeds on the packet network increased from 20 Mbps to 650 Mbps for more than 1,500 data connections per second and 130,000 packets per second. A significant portion of activities were therefore focused of the development of systems and fixed-mobile convergence services, and the building of a new MPLS-based IP network. At the end of 2008, the company included a new high-capacity GGSN (Gateway GOPRS support node) J120 in the production environment, which facilitates the processing of more than 600,000 packets per second.
Service and business network IP infrastructure Most significant with regard to the development of the IP infrastructure was the building of a new MPLS- based IP Mobicore network. In addition, the hardware and software platforms in the system for calculating packet traffic by CBC content were upgraded. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 79
3 SOUTH EASTERN EUROPE AND THE DEVELOPMENT OF OPERATIONS (M&A)
3.1 Environment analysis
+ first among alternative operators + rapid increase in the number of broadband connections + great opportunities for development + market liberalisation
The year 2008 in the South Eastern European markets, was marked by the successful introduction of mobile telephony in Kosovo. The number of broadband connections almost doubled, strengthening Ipko d. o. o.’s market share. A great deal of attention on these markets was given to network development and the provision of new contents.
South Eastern European markets, with the exception of Croatia, are comparatively underdeveloped economically which, coupled with political stability, constitutes significant potential for economic growth in the future. The region‟s GDP is at the level of developing countries, and in some of these countries is as much as six times lower than Slovenia‟s GDP. The potential for economic growth, increasing GDP and purchasing power and the overall development of welfare represents major opportunities for Slovenian companies.
GDB growth per countries
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0 Kosovo Albania BiH Macedonia Serbia Croatia Slovenia
2007 E 2008 E 2009
Source: IMF Current international dollar
Development of the telecommunications market in countries of South Eastern Europe in 2008
Source: SEE Country comparative report.
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3.1.1 Market shares
Kosovo
Ipko, d. o. o. is the leading provider of Internet services in Kosovo, achieving a 59% market share in 2008, despite the aggressive entry of the operator PTK on the broadband access market, with ADSL technology and fibre optic connections. Broadband access market share Q4 2007 Q4 2008
others others PTK 0% 10% 19% PTK 9%
Ipko Ipko 58% 59% Kujtesa Kujtesa 22% 23%
Source: Q4 2008 market share – "Gani Bobi" research institute.
Ipko, d. o. o. entered the mobile telephony market in December 2007, planning a 50% market share in the long-term. At the end of 2008 it had 349,010 active users (mostly prepaid customers), representing a 35% market share. Business users represented 2% of all users.
Mobile telephony market share Q1 2008 Q4 2008
Ipko 20% Ipko 35%
Vala 65% Vala 80%
Macedonia
The number of broadband Internet users in Macedonia increased sharply (by approximately 86%) compared to the previous year, reaching 186,000 users by the end of 2008.
On.net, d. o. o. is the second largest provider of broadband access and accounts for a 20% market share with 32,500 users. This is a 9% drop compared to last year, although the number of users increased by WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 81
59%. The national operator MT, which also holds the largest market share (44%), attracted the majority of users through a more aggressive advertising approach. The remaining share is controlled by cable operators, which provide the most favourably-priced packages.
Broadband access market share Q4 2007 Q4 2008
others others 11% 7% On.net 20% On.net CableTel CableTel 29% 12% 7%
Telekabel 12% Telekabel 17%
MT 44% MT 41%
Bosnia and Herzegovina
The largest Internet service provider in Bosna and Herzegovina is Teol, an Internet unit within the national operator Telekom Srpska under the majority ownership of Telekom Srbija. The majority of users still use dial-up Internet access, while the most widely used forms of broadband access are ADSL, offered by Teol, and wireless WiFi access, which is primarily sold by Aneks d. o. o.
A new service provider, Elta Kabel, entered the cable Internet access segment, which had previously provided services in cooperation with Blic.net, d. o. o. Due to problems in providing the appropriate quality of services, Blic.net d. o. o. stopped including new cable Internet subscribers through Elta Kabel, while offering old (existing) users the transition to a more reliable and higher-quality WADSL.
Netkom is the other cable television provider in Banja Luka, providing Internet services in cooperation with Aneks d. o. o. In September, Aneks d. o. o. acquired the aforementioned company, completed all the requisite activities associated with registration and obtained the requisite licence from the Competition Protection Office in Sarajevo. Activities related to the merger of Netkom with Aneks were completed by the end of the year.
In 2008, Aneks d. o. o. held a 24% share of the broadband Internet access market, up 4 percentage points from the previous year. Broadband access market share Q4 2007 Q4 2008
others others Zona 11% 11% Blic.net 2% Aneks Lanaco 20% 24% 1% Lanaco 10% Elta kabel 3%
Sprinter 14%
Teol Teol 45% 59%
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Albania
The Albanian Internet access market is poorly developed with only 5% penetration of broadband Internet access to households. The mobile telephony market is the most developed, while only 8 out of 100 persons had a fixed-line telephone connection in 2008. The voice telephony and Internet markets have begun to develop, attracting an increasing number of service providers.
The highest market share on the Internet access market (43%) was held by the national operator AlbTelecom, which offered favourably-priced packages through a large marketing campaign in the last quarter of 2008. AOL SP, d. o. o. responded with its own reasonably-priced offer and as a result achieved a 17% market share. Fierce competitors in this area are ABCOM whose capital was increased by an international private fund and Abissnet.
In 2008, AOL SP, d. o. o. acquired the company H-Communication, which provides fixed-line telephony services in the region of Tirana and Durrës. In December it acquired Bindi Integrated Service, thus expanding its portfolio of services. The largest mobile telephony market shares are held by AMC and Vodafone, while Eagle Mobile also attracted many users with a more aggressive market approach.
Broadband access market share Q3 2008 Q4 2008
others others AOL Abcom 2% 7% AOL 17% 24% 15% Abcom 19%
Abissnet 23%
Albtelecom Abissnet Albtelecom 43% 26% 24%
3.1.2 Regulation
Kosovo
The liberalisation of Kosovo‟s telecommunications sector is being supervised by European institutions, with the aim of establishing an administrative, competitive and regulatory framework in the country in line with European standards. The role of the national telecommunications regulatory authority (TRA) is thus limited to providing the bases for market operation, such as assigning licences and area codes, and partially network interconnection. TRA does not yet perform market analyses or issue decisions to operators with significant market power. The first market analyses will be carried out in 2009.
Ipko, d. o. o. operates in Kosovo as an infrastructure operator with "greenfield" investments 7, offering complete services on its own network and own last mile. Regulatory issues are mostly only confronted when setting conditions and prices for network interconnection. In 2008, Ipko received the area code 043 for mobile and fixed IP telephony services. Part of it will also be reserved for virtual mobile network operators.
Ipko applied for a digital TV service licence at the media regulatory authority (Media Commission), which it received by the year's end. At the same time, the infrastructure was being established for the provision of digital TV services.
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Macedonia
The telecommunication service market in Macedonia is otherwise liberalised; however, it is still relatively opposed to alternative providers, which utilise the capacities of the national operator for their services. On.net, d. o. o. signed an ADSL inter-operator agreement with the national operator, not for cost-oriented reasons, but as a result of negotiations between On.net, d. o. o. and MT. Thus, they mutually determined the prices which enable normal operations on the ADSL broadband access market.
The national operator published amendments to the draft offer on local loop unbundling, which included a 20% reduction in prices. The prices of network interconnection were lowered by the same rate.
The winner of the tender related to the granting of an UMTS licence on the Macedonian market was the Greek mobile operator Cosmofon, a mobile operator owned by the Greek national operator OTE, in which Deutsche Telekom acquired a 25% plus one share stake. With its entrance into the ownership structure of OTE, the Serbian, Bulgarian, Romanian and Albanian markets have opened up for Deutsche Telekom, although it will likely sell Cosmofon due to legal restrictions. This potential sale could be an opportunity for the Telekom Slovenia Group to enter the mobile telephony market in Macedonia.
At the beginning of September, mobile number portability came into effect causing a market share drop for the national fixed telephony operator.
Bosnia and Herzegovina
Despite liberalisation, the regulation of telecommunication services in Bosnia and Herzegovina is still fairly disinclined to alternative providers, as the regulative body is too slow in resolving complaints lodged by the latter concerning the operation of national telecoms.
In July, RAK published a decision on local loop unbundling for alternative operators, in which it stipulated the obligations and conditions regarding unbundled access to the access cable network and collocations. It also issued a decision on the portability of telephone numbers to other operator networks. The two decisions have yet to be implemented.
Aneks, d. o. o., by purchasing and subsequently merging the cable television operator Netkom, in addition to the infrastructure and existing subscribers, also obtained the licence to provide CATV services and copyrights for broadcasting TV programmes.
Albania
In July, the new Electronic Communications Act entered into force in Albania, modelled on EU legislation. The regulation of the telecommunications sector is covered by the national regulator TRE. Regulated markets are determined based on the Telecommunications Act and Protection of Competition Act and on conditions on the national market. The legislation is no different from the EU, although its implementation remains unfeasible.
TRE will identify operators with significant market power in the future and formulate legislation for local loop unbundling.
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3.2 Sales and marketing
Portfolio of products, services and content
Country Brand Service (AOL SP, d.o.o.) Primo* Internet Albania VoIP VPN Web design Fibre optics E-mail solutions Programming Hosting (Aneks, d. o. o.) Blic.net Internet Bosnia and E-mail solutions Herzegovina Broadcasting Hosting VPN Cable TV Fixed telephony Security (Ipko, d. o. o.) Ipko GSM Kosovo Internet Fixed telephony Digital TV Converged services – Bundled services Web-portal Teleservices Ring Back Tone GPRS VPN (On.net, d. o. o.) On.net, d. o. o. Internet Macedonia VPN Web hosting Leased line
Ontel Telephony
* We launched new Primo brand in December 2008.
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Sales and marketing
Kosovo
Sales and the number of mobile and broadband Internet users is on the rise and is higher than forecast. Ipko, d. o. o. has its own sales centres in Priština and in all larger cities, while cooperating with agents in sales activities, meaning it has several hundred sales points at its disposal to market its complete range of services.
By the end of 2008, the company had more than 349,000 mobile telephony users and almost 68,000 broadband access users.
In the second quarter of the year, Ipko commercially offered fixed VoIP telephony services, becoming a provider of comprehensive telecommunication services in Kosovo. A large part of broadband connections are sold in a double play package with the distribution of analogue television channels. By introducing digital pay-TV it aims to upgrade its portfolio of services and achieve the goal of increasing ARPU (Average Revenue per User). To that end, it has already obtained a licence from the Media Commission.
Ipko, d. o. o. is also developing in terms of fixed-mobile convergence in the sales segment with an Internet access, mobile and fixed telephony package offer.
Number of users Index 31 December 2007 31 December 2008 08/07 Mobile telephony - users 349,010 - Post-paid 6,776 - Pre-paid 342,234 - Broadband Internet access 35,220 67,847 193
Macedonia
At the end of 2008, On.net, d. o. o. offered fixed telephony through PSTN and VoIP technologies under the On.tel brand and is constantly expanding its sales network. It opened two new sales centres in Skopje and elsewhere, and is building cooperation with sales partners.
Number of users/minutes Index 31 December 2007 31 December 2008 08/07 Fixed telephony, VoIP 5,046 10,577 210 Broadband Internet access 23,076 32,448 141
Bosnia and Herzegovina
The Telekom Slovenia Group expanded its portfolio of services to voice telephony with the merger of Blic.net, d. o. o. with Aneks, d. o. o. and continues its strategy as a complete telecommunication service provider in this part of the region.
Revenues from inter-operator services generated by international call termination account for the majority of revenues and are also the main generator of total revenue growth.
Albania
The takeover in Albania was executed later than planned due to the hedging of risks. The majority of revenues are generated by international call termination, fixed telephony and broadband Internet access. AOL SP, d. o. o. provides broadband access through ADSL technology, fibre optic connections for larger users and via cable and wireless access. The company also provides dial-up Internet access, which is the most popular form of Internet access due to the low purchasing power in the country.
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3.3 Network and service development
+ network upgrades + IP telephony + fibre optic network + comprehensive support + modern telecommunication services
In order to ensure quality services, Telekom Slovenia Group companies have developed, constructed and modernised their own network in all countries where they operate. The networks are among the most modern in Europe, and based on the provision of fast, secure and reliable data transfers.
Kosovo
Ipko, d. o. o.‟s mobile network is one of the fastest constructed mobile networks in Europe and in terms of quality comparable to networks in countries with a considerably more developed telecommunications market. The base stations and all fundamental network components are provided additional power supply from generators, so power outages, which occur frequently in Kosovo, do not affect the operation of the network and the provision of mobile telephony services. Due to the high reliability of GSM network locations, the company has already started implementing the project concerning the collocation of mobile and fixed network locations and the shifting of fixed network POP locations to GSM network locations. As a result, the reliability of the fixed network's functioning improves, while reducing long-term operating costs associated with the functioning and maintenance of both networks.
Due to the rapid increase in users, an increased number of international calls and the large number of foreigners using Ipko's network, the company plans to upgrade its voice traffic transmission capacities to STM-1.
GSM signal coverage in Kosovo
Legend: orange – covered, yellow – not covered
With regard to the fixed segment of operations, Ipko d. o. o. expanded its broadband service network. It increased the capacity of its own network in 11 places on the access network and also started expanding the hybrid fibre optic coaxial network. Due to the increase in the number of broadband access users and increased need for bandwidth, the company also expanded its capacities with its connection to Telekom WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 87
Srbija. It will continue to upgrade and increase its capacities in the future through the Kosovo railway infrastructure and along main road links.
In 2008, the construction of the backbone fibre optic network will continue, which will link all the main cities and locations where Ipko d. o. o. provides broadband services. This will enable the company to provide new and higher quality services as well as standardisation in a common network. The company postponed activities for the construction of its own network until the outcome of the Kosovo railway tender for the use of its fibre optic infrastructure is known, which is the most cost-effective option.
Macedonia
In terms of network development, On.net, d. o. o. focused on constructing an IP backbone network, fibre optic connections between points, the unbundling of local loops and the completion of IP network components for the operation of IP telephony. Due to increased needs for bandwidth, it upgraded connections to Telekom Srbija, Telekom Slovenije, d. d. and to the national operator as well as the connection to Frankfurt through Balkantel/Pantel with the connection for call termination needs.
It linked the collocations of the unbundled local loop with its own fibre optic infrastructure, where the equipment had already been installed to provide broadband services. They built the fibre optic connection to Kosovo.
The connection to T-Mobile and Cosmofon for call termination and local call needs was upgraded.
Bosnia and Herzegovina
Network development was focused on modernising and expanding the network for providing broadband services and fixed telephony. Aneks, d. o. o. increased its capacities and improved the quality of the wireless WADSL network services.
Aneks expanded the hybrid fibre-coaxial network (HFC) in Banja Luka with a fibre optic cable, achieving a significant improvement in the quality of all services. Plans were also begun to construct new HFC networks in the wider area of Banja Luka and Prijedora.
In order to ensure international IP connectivity to broadband users, the company paid a great deal of attention to IP transit connections. It has set up a connection with Telekom Srpska and with Telekom Slovenije, d. d. through the company Akton.
The construction of fibre optic connections from the Croatian border towards Banja Luka was completed as part of the process of building the backbone fibre optic network in the territory of the former Yugoslav republics. In addition, the equipment for the STM-16 connection has also been supplied and assembled.
Albania
In Albania, the Telekom Slovenia Group offers end-users Internet access services and broadband connections through its own network which is a combination of copper pairs through which ADSL services are provided, coaxial cable used for the LAN network, a fibre optic network and wireless connections. In the future, network development will be based on the expansion of the broadband Internet access network, fibre optic connections to special business clients, the coaxial network and copper pairs to residential clients, as well as wireless access, particularly in areas where access is not possible through ground networks. Network development in Albania is therefore based on the support of the comprehensive portfolio of telecommunication services.
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4 OPERATING RESULTS OF THE TELEKOM SLOVENIA GROUP
4.1 Telekom Slovenia Group
+ higher revenues + positive results + reorganisation + strategic investment
The performance of companies in the Telekom Slovenia Group followed global economic trends. Nevertheless, Group companies performed well, successfully converting the crisis into opportunities and finishing the year free of any major problems.
Key performance indicators
Index in thousand EUR 2007 2008 08/07 Operating revenues 787,244 851,735 108 Net sales revenues 780,077 842,356 108 Other operating revenues 7,167 9,379 131 OPEX - operating expenses before amortisation 492,693 544,356 110 EBITDA 298,210 312,246 105 Depreciation and amortisation 161,775 183,750 114 EBIT – operating profit 136,435 128,496 94 Net financial revenues/expenses -9,653 -13,591 141 Tax on profit, including deferred taxes 38,412 28,920 75 Net Profit 88,370 85,985 97 EBITDA margin (in %) 37.9% 36.7% 97 Profit margin (in %) 11.2% 10.1% 90 Total assets 1,740,525 1,788,363 103 Equity 1,062,741 1,065,670 100 ROE (in %) 9.0% 8.4% 94 CAPEX 312,872 253,256 81 Number of employees 4,395 4,668 106 Added value 270,850 280,871 104 Added value per employee 61.6 60.2 98
Compared with 2007, the Telekom Slovenia Group's operating revenues rose by 8% in 2008. Net sales revenues were also up 8% compared with 2007, reaching EUR 842.4 million.
Operating expenses stood at EUR 728.1 million, an increase of 11% from the previous year. The highest share among operating expenses was represented by cost of services in the amount of EUR 306 million, a 16% increase on 2007, and depreciation and amortisation of EUR 183.7 million, the 14% growth of which compared to 2007 can be mainly attributed to major investments.
EBITDA stood at EUR 312.2 million in 2008, up 5% on 2007. Earnings before interest and taxes (EBIT) reached EUR 128.5 million, a 6% drop compared to 2007, while 2008 net profit was also down 3%, at EUR 86 million.
Total assets as at the last day of 2008 stood at EUR 1,788.4 million, a 3% (EUR 47.8 million) increase from the end of 2007.
Non-current assets in the amount of EUR 1,527.0 million, representing 85.4% total assets, rose by 5% (EUR 72.7 million) compared to the balance at the end of 2007. The increase in non-current assets compared to the start of the year can be attributed to investments and is reflected in an increase in tangible fixed assets (of EUR 40.2 million) and an increase in intangible assets (of EUR 16.1 million).
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Current assets, which stood at EUR 261.3 million as at 31 December 2008, fell by 9% due a decrease in cash and cash equivalents in the amount of EUR 41.8 million and a decrease in current financial investments by EUR 7.3 million.
The value of reserves and equity at the end of 2008 stood at EUR 1,065.7 million and represented 59.6% of total assets and was at the same level as at the beginning of 2008.
Non-current liabilities valued at EUR 344.8 million represented 19.3% of total assets and were down EUR 32.6 million compared to 2007 due to a reduction in long-term loans received.
Current liabilities represented 21.1% of total assets and rose by 18% to EUR 377.9 million, of which short- term loans recorded an increase of EUR 51.8 million.
Performance by company activity
31 December 2008 in thousand EUR Fixed-line Mobile Other Eliminations Consolidated
Operating revenues 452,967 43.2% 484,373 46.2% 110,258 10.5% -195,863 851,735
Share of income from joint venture 4,867 Operating expenses 415,219 45.2% 400,506 43.6% 103,258 11.2% -190,877 728,106 EBIT 37,748 83,867 7,000 -4,986 128,496
Depreciation and amortisation 95,776 52.0% 85,586 46.5% 2,875 1.6% -487 183,750 Staff costs 77,390 50.9% 45,067 29.6% 29,572 19.5% -7,478 144,551 EBITDA 133,524 169,453 9,875 -5,473 312,246
EBITDA margin 29.5% 35.0% 9.0% 36.7% 0
Profit before tax 104,911 58.1% 68,436 37.9% 7,367 4.1% -65,809 114,905 Net Profit 94,970 62.6% 51,211 33.7% 5,613 3.7% -65,809 85,985
Profit margin (in %) 21.0% 10.6% 5.1% 10.1%
4.2 Performance and financial management
The comprehensive financial management of the Telekom Slovenia Group is coordinated by the parent company, which is responsible for ensuring and maintaining optimal liquidity and solvency, for coordinated control over financial flows and the management of financial risks of the Telekom Slovenia Group. In addition, the parent company draws up financial policy guidelines for the Group and ensures the coordinated operations of all companies in the Group, taking into account the particularities of various national environments, in which individual companies operate. The vision of financial management in the future is to create centrally controlled finances at the Group level in the form of a strategic finance functions.
The main task of financial management is to ensure the solvency of the Telekom Slovenia Group. In 2008, this was managed through the parent company based on precise planning, the management and balancing of cash flows, maturity matching of receivables and liabilities and short-term financing within the Group. Short-term credit lines were opened at domestic banks simultaneously providing for a high level of financial flexibility to bridge unforeseen cash shortfalls.
In 2008, the parent company also strengthened its role of financing the Telekom Slovenia Group, mainly by providing the required financial resources under favourable conditions for all Group companies. At the same time, monthly monitoring and reporting on the amount of net debt was initiated at the Group level. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 90
Capital structure and liabilities from financing
By the end of 2008, the Telekom Slovenia Group achieved a ratio of equity to liabilities from financing of 1.47, ensuring financial strength and a high credit rating for the Group.
Compared to the balance as at the end of 2007, the financing structure tilted towards liabilities. Compared to the end of 2007, financial liabilities increased by 5.1%, primarily as a result of intensified investment activity. The Group ended 2008 with financial liabilities of EUR 420 million, representing 23.5% of total assets. The still relatively low indebtedness at the Group level represents a solid foundation for financing future investment opportunities.
Structure of liabilities .Net financial debt in million EUR
Maturity of sources of financing
Ratio between current and non-current financial liabilities
Compared to 2007, current liabilities as a proportion of total financial liabilities rose at the expense of a large portion of non-current financial liabilities, which will mature in 2009.
Acquiring sources of financing
Borrowing at banks and within the Telekom Slovenia Group by its subsidiaries is coordinated by the parent company. The parent company is responsible for financing within the Group should the WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 91
subsidiaries wish to obtain financial resources for strategic investments. If other needs arise, subsidiaries themselves raise loans, providing that the borrowing is carried out with the prior consent of and coordination of lending terms by the parent company. In this manner all Group companies achieve reasonably favourable financing terms, which apply to the Telekom Slovenia Group.
In 2008, only Telekom Slovenije, d. d. raised loans. These were two long-term loans raised at the European Investment Bank in the amount of EUR 87 million with a maturity of 9 years, approved by the bank to finance the mobile telephony development project in Kosovo. One loan in the amount of EUR 61 million is secured by a bank guarantee issued by Raiffeisen Zentralbank Oesterreich Ag as an agent and Nova Ljubljanska banka, d. d. The European Investment Bank did not request guarantees from commercial banks for the EUR 26 million loan but assumed the corporate risk based on the credit rating of Telekom Slovenije, d. d.
Given that the parent company is responsible for acquiring financial sources for the strategic investments of subsidiaries, the composition of mutual financing in the Group is significant. The amount of granted loans is linked to the investment activity of individual subsidiaries, while the size of loans received depends on the liquidity surpluses of these companies.
Telekom Slovenije, d.d.‟s financing of subsidiaries represented approximately 76% of all mutual financing, while the remaining 24% represented subsidiaries' financing of the parent company. In 2007, this ratio was less favourable for the parent company, standing at 82%.
The mutual financing structure as at 31 December 2008
24%
76%
Loans to subsidiaries Loans from subsidiaries
Cost of borrowing
Despite tighter terms of borrowing on the international and domestic market in 2008, the Telekom Slovenia Group managed to raise loans under relatively favourable terms. At the end of 2008 the weighted mark-up on the variable part of the interest rate of all loans stood at 29 basis points. The high credit rating and Group's positive negotiating approach on the financial market contributed to this interest rate.
In 2008, in order to hedge exposure to interest-rate risk, the Group used derivatives hedge the interest rate for 52% of all loans; other loans are raised with a contractual option to swap a variable interest rate for a fixed interest rate. On numerous occasions this year, the Group explored the possibility of purchasing additional financial instruments to hedge interest-rate risks. However, no transactions were concluded due to less favourable conditions on the money market
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The ratio of variable to fixed or hedged financial liabilities of the Group
A3 credit rating confirmed in 2008
In July, the international credit rating agency Moody‟s Investors Service released a new credit rating report for Telekom Slovenije, d. d., in which it confirmed the existing long-term rating of A3, received for the first time by the company in April 2007. In addition to key business and financial indicators, the credit rating takes into account the business environment, in which the company operates, the company‟s leading position in the market, strategic orientations and the Government‟s ownership share.
Risk management
In 2008, the primary focus of financial risk management was on liquidity and solvency risk, in addition to the interest-rate and credit risk. Most activities in this regard were performed by the parent company. A more in-depth description of the financial risk management process is found in the risk management section.
Financial investments of Telekom Slovenije, d. d.
The majority of financial investments were carried out by Telekom Slovenije, d. d.
Long-term financial investments Long-term financial investments, primarily in the form of financial investments in subsidiaries and associated companies, financial investments in shares and participating interest and loans to subsidiaries, represent a significant asset item of Telekom Slovenije.
Investments in subsidiaries In 2008, Telekom Slovenije, d. d. also took advantage of its investment opportunities and made the first step in expanding the Group to foreign markets by acquiring a 75% stake in AOL SP, d. o. o. in Albania and 70% stake in Aneks, d. o. o. in Bosnia and Herzegovina, and by establishing the subsidiary SiOL, d. o. o. in Croatia.
The 2008 year was marked by capital increases in the subsidiaries AOL SP, d. o. o. in Albania, IPKO, d. o. o. In Kosovo and Planet 9, d. o. o., in addition to the acquisitions of new companies abroad.
At the same time, the company sold a 30% stake in Blic.net in 2008 for 2.4 million EUR.
The Telekom Slovenia Group continued its strategy of internationalising operations. It invested EUR 27.1 million in acquisitions and capital increases in companies at home and abroad.
Investments in shares and participating interests In addition to investments in subsidiaries, the portfolio of long-term financial investments mainly comprises shares of Slovenian banks, with which the company is operates, although these participating interests do not exceed a 1.6% ownership stake in any individual bank. Telekom Slovenije, d. d. increased its WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 93
ownership share in Banka Celje and Nova Ljubljanska banka by purchasing new shares issued during the capital increase. In addition, the company increased its participating interest in IEDC – Bled School of Management. Total investments in bank shares and participating interests of companies amounted to EUR 0.3 million.
Short-term financial investments At the end of the year, short-term financial investments stood at EUR 21.1 million, mainly in the form of cash surpluses invested in domestic banks as deposits, and represent a quality liquidity reserve.
The company deposited available funds at various domestic banks by selecting the most favourable bidder. For this purpose 90 deposit transactions were concluded totalling EUR 323 million. It achieved an average weighted interest rate of 4.43% per annum for an average 15-day time deposit.
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4.3 Telekom Slovenije, d. d.
Telekom Slovenije, d. d. generated EUR 415.2 million in operating revenues, up by 3% from the previous year. Operating expenses reached EUR 374.5 million, an increase of 9% from the previous year.
Earnings before interest and taxes (EBIT) reached EUR 40.7 million, down by one-third compared to the previous year. This was primarily driven by lower revenues from internal telephone traffic and subscription fees for traditional voice telephony, in addition to higher costs of telecommunication services linked to traffic volume and a lower profit margin.
The net profit of Telekom Slovenije, d. d. reached EUR 96 million, a 13% increase from the previous year. The profit margin stood at 23.1%. EBITDA (earnings before interest, taxes, depreciation and amortisation) stood at EUR 130 million, a drop of 9% from the previous year.
Key performance indicators
Index in thousand EUR 2007 2008 08/07 Operating revenues 404,213 415,198 103 Net sales revenues 399,630 410,162 103 Other operating revenues 4,583 5,036 110 OPEX - operating expenses before amortisation 261,374 285,328 109 EBITDA 142,839 129,870 91 Depreciation and amortisation 82,263 89,197 108 EBIT - operating profit 60,576 40,673 67 Net financial revenues/expenses 40,137 65,055 162 Tax on profit, including deferred taxes 16,040 9,760 61 Net Profit 84,673 95,968 113 EBITDA margin in % 35.3% 31.3% 89 Profit margin (in %) 20.9% 23.1% 110 Added value 181,397 193,672 107 Added value per employee 86 101 118
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4.4 Mobitel, d. d.
In 2008, Mobitel, d. d. generated EUR 450.5 million in operating revenues, up 4% from the previous year. Operating expenses stood at EUR 369.9 million, an increase of 4% from the previous year. EBITDA reached EUR 155.6 million, a 5% increase from 2007, while EBITDA as a proportion of operating revenues was 34.5%.
EBIT stood at EUR 80.6 million. The company generated a net profit of EUR 59 million, up 17% on the previous year.
Key performance indicators
Index in thousand EUR 2007 2008 08/07 Operating revenues 434,470 450,485 104 Net sales revenues 433,084 449,325 104 Other operating revenues 1,386 1,160 84 OPEX - operating expenses before amortisation 285,636 294,848 103 EBITDA 148,834 155,637 105 Depreciation and amortisation 69,852 75,056 107 EBIT – operating profit 78,982 80,581 102 Net financial revenues/expenses -7,860 -4,401 56 Tax on profit inc. deferred taxes 20,520 17,225 84 Net Profit 50,602 58,955 117 EBITDA margin in % 34.3% 34.5% 101 Profit margin (in %) 11.6% 13.1% 112 Added value 122,811 127,641 104 Added value per employee 122 120 98
4.5 South Eastern Europe and other companies
Companies in South Eastern Europe
+ outlined strategy + doubling revenues + licence to provide mobile service + merging of companies + acquisitions
The Telekom Slovenia Group makes great effort to achieve stability in the operations of its companies in South Eastern Europe. The Group facilitates their growth with appropriate investments and development, as seen in the successful market penetration and increase in the number of users. Even more attention in the future will be given to these companies, as they represent our strategic investments, while we will continue to expand the Group to include new members on new markets.
Ipko, d. o. o.
By providing fixed telephony, Ipko has become a provider of complete telecommunication services in Kosovo. In the mobile segment, it has expanded its offer to GPRS and data packages in addition to MMS, thus entering the mobile Internet access market.
In 2008, the company generated EUR 42 million in operating revenues, or six times more than the figure achieved in 2007. The high growth in revenues can be attributed to an expansion of the offer to include mobile telephony. EBITDA stood at EUR 14.8 million, an increase of more than 50% compared to the previous year. Operating profit was positive due to lower operating expenses than planned, a success considering it was the first year of operations in mobile telecommunications.
Net profit amounted to EUR - 9.4 million due to additional financial expenses for loans received. In 2007, WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 96
with the loan received from the parent company, Ipko, d. o. o. managed to pay for the licence to provide mobile telephony services in the amount of EUR 75 million, subject to amortisation over 15 years. The proportion of amortisation for the first year is high, demonstrating the high costs in the initial phase of mobile telephony operations.
On.net, d. o. o.
Operating revenues stood at EUR 16.3 million, nearly double the revenues generated the previous year. A negative operating result of EUR 0.5 million was generated due to higher service costs, attributed to the national operator‟s high prices for network interconnection.
Aneks, d. o. o.
The Telekom Slovenia Group expanded its portfolio of services to voice telephony with the merger of Blic.net, d. o. o. and Aneks, d. o. o. and continues its outlined strategy as a provider of complete telecommunication services in this part of the region. Operating revenues of EUR 10 million were generated. Price pressures from competitors, the reduced prices of call termination of BH Telekom and Telekom Srpska and the initial difficulties following the merger were the main reasons for the smaller volume of operations.
AOL SP, d. o. o.
Operating revenues totalled EUR 3.9 million. Operating profit was lower at EUR 35 thousand due to high operating expenses.
Other companies
The Interseek Group
The Interseek Group promoted development in all activities: in the existing search engine activity and in other new activities. The three-year development plan (2008-2010) will be completed in two years (2008- 2009). This is vital to maintain competitiveness, to increase revenue-generating opportunities and to mitigate risks due to dependency on the search engine activity. The timely completion of investments in 2009 is vital to facilitate operations during the economic slowdown and as a response to increased investments by competitors. Together, new products in new activities will form a quality portfolio and also facilitate successful development in foreign markets.
The Interseek Group generated EUR 9.5 million in operating revenues. An increase in the scope of operations, due to increased promotion on the Slovenian market (exchanging advertising space), had an impact on operating revenues and expenses. EBITDA of EUR 1.5 million was achieved.
Teledat, d. o. o.
As of 1 July 2007, the 1188 call centre activity was excluded from Telekom Slovenije, d. d. and moved to Teledat d. o. o. Therefore, 2007 and 2008 operating results are not directly comparable. The company generated EUR 7.6 million in operating revenues in 2008. EBITDA of EUR 2.1 million was achieved.
Planet 9, d. o. o.
The company was reorganised in 2008, with the centralisation of all activities linked to television. Planet 9 now provides quality, entertaining and informative multimedia content in and services for the web and mobile portal Planet and related informative access points (SMS, MMS, voice station).and for the web portal SiOL.net. The company‟s offer has been expanded to include SiOL TV, which facilitates the reception of television programmes, the viewing voice on demand (VoD) and the use of interactive services via a television. The company generated EUR 21 million in operating revenues in 2008.
Avtenta.si, d. o. o.
The company's primary focus was on making a breakthrough on the external market in the area of high value-added services (document systems and consultancy services).
The training centre remains one of the more recognisable elements of Avtenta‟s offer, which achieved a WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 97
record result in 2008 and positioned itself as the leading IT training centre in Slovenia. In 2009, we plan to strengthen cooperation between the training centre and sales, as these will be organisationally linked units to facilitate synergic effects.
GVO, d. o. o.
The company successfully completed its fifth year of operations as an independent company. During the year, the company was thoroughly restructured from an organisational, process and personnel perspective, and its market orientation discussed.
The company has proved itself as a reliable partner by participating in public tenders for the construction of open broadband networks in areas where, due to difficult terrain, dispersed settlements and other factors, there is no market interest in constructing broadband networks. Projects, which are co-financed by the European Union and the Republic of Slovenia, also interest the Telekom Slovenia Group, as GVO, d. o. o. will construct, manage and maintain these networks for the next 20 to 30 years. Telekom Slovenije, d. d. will cooperate as a partner in the construction and management, while providing the most contemporary broadband services.
The company will follow its vision in the future, to remain the leading provider in Slovenia and to expand its offer to South Eastern European markets.
Soline, d. o. o.
Despite major problems due to flooding in December and the associated extensive damage, Soline, d. o. o. ended the 2008 financial year with a profit for the first time.
Gibtelecom, d.o.o.
Gibtelecom is the national and largest telecommunication operator in Gibraltar. Gibraltar has 28,000 inhabitants and slightly less than 24,000 fixed telephone connections, all owned by Gibtelecom. Competition on the domestic fixed telephony market is only present on the international calls segment, where alternative VoIP providers hold a 20% to 25% market share of all international calls. At the end of 2008, the number of mobile telephony users stood at 28,012, three quarters of which were prepaid users. Gibtelecom has a 100% market share, although 5 GSM operators from neighbouring countries cover Gibraltar with their signals due to its small size. The country was granted the country calling code 350, which Spain did not recognise until the “Cordoba” Agreement in February 2007, which allows calls from Spain and additional revenues from roaming. Gibtelecom provides complete telecommunication solutions.
At the end of 2008, 8,144 ADSL users were connected through Gibwireline (ISP is the other company) and 7,436 ADSL users through Gibconnect (Gibconnect and ISP are on and the same).
The Telekom Slovenia Group‟s ownership share in Gibtelecom represents a stable financial investment, generating income from dividend payments.
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5 SUSTAINABILITY REPORT
5.1 Responsible monitoring of sustainable development
According to the rankings, published on the basis of surveys by the financial daily newspaper Finance, the Telekom Slovenia Group is ranked among the 30 most socially responsible Slovenian companies.
Sustainable development objectives in 2008
What were our plans and what have we achieved?
2008 Objectives 2008 Results Status We will receive the Family-Friendly After meeting the relevant criteria, we were ACHIEVED Company certificate. awarded the Family-Friendly Company certificate on 27 November 2008. We will focus on ecological projects. By preparing the Eco-Quiz, we actively ACHIEVED supported the Eco-School project (Ekošola). We will implement environmental We monitor electricity, water, fuels, heating, ACHIEVED accounting. cleaning & waste management costs on a monthly basis. We will try different approaches to increase We received the Trusted Brand award from PARTLY customer satisfaction. the readers of Reader‟s Digest. ACHIEVED (long-term objective)
Sustainable development objectives
What will we achieve in 2009 and what are our long-term objectives?
Sphere Objectives EMPLOYEES Fulfilment of mandatory objectives, established in line with Management by Objectives, with an emphasis on customer satisfaction. EMPLOYEES Introduce all 16 measures, adopted in line with the Family-Friendly Company certificate by 2011. SOCIAL Link the participation in sponsorships and donations to multimedia services and the ENVIRONMENT multimedia platform. NATURAL Introduce “ecology islands” - waste collection points at all business locations within ENVIRONMENT three years. NATURAL Minimise the relative consumption of electrical energy over the medium term by 5%. ENVIRONMENT NATURAL Minimise fuels consumption of the car fleet by 10% by 2010. ENVIRONMENT NATURAL Reduce mixed communal waste by 20% by the end of 2009. ENVIRONMENT USERS Increase customer satisfaction.
5.2 Responsible human resource management
+ improved educational structure + increased number of educational courses/training + new internal brand Brihta + finalists in the selection for the most innovative human resource practice + receipt of the primary Family-Friendly Company certificate
The ranking of the Group by the financial daily newspaper Finance as one of the Slovenian companies with the best personnel is not surprising, as the ranking was based on surveys and educational data. The latter is key to our quality and operations due to the rapid development of new technologies.
Rapid development of new technologies in electronic communications demands highly motivated and professionally qualified employees, as ample knowledge is a prerequisite for quality operations and WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 99
constant growth. In 2008, we recruited human resources by employing external experts and trainees, by reallocating employees within the Group, but primarily by employing students who have proven themselves through their quality work and integrated themselves in the business environment.
Employee structure
In 2008, we concluded a project related to the human resource strategies of the Telekom Slovenia Group. Its purpose was to prepare human resource policies that will contribute to the better use of human resources.
At the close of 2008, there were 4,668 employees in the Telekom Slovenia Group. The increase in the number of employees by 273 compared to 2007 can be attributed to the rapid growth of companies in South Eastern Europe.
The transfer of certain activities among companies in the Group in order to optimise business processes, which is vital due to market changes and increased competition, resulted in considerable changes in the number of employees at the parent company, Mobitel, d. d., Planet 9, d. o. o. and Avtenta.si, d. o. o.
Employee structure by companies in the Telekom Slovenia Group 31 31 Balance as at 31 December December December Change in 2007 2008 2008 Telekom Slovenije, d. d. 2,119 1,920 -199 Mobitel, d. d. 1,009 1,066 57 Multimedia Content 178 240 62 Interseek, d. o. o. 59 73 14 Teledat, d. o. o. 80 80 0 Planet 9, d. o. o. 39 87 48 Other companies 599 611 12 Avtenta.si, d. o. o. 102 140 38 GVO, d. o. o. 450 420 -30 Soline, d. o. o. 47 51 4 South Eastern Europe 490 831 341 Ipko, d. o. o. 348 541 193 On.net, d. o. o. 114 118 4 Aneks, d. o. o. 28 63 35 AOL SP, d. o. o. 0 109 109 Telekom Slovenia Group 4,395 4,668 273
Educational structure of employees
The number of employees by level of education completed in the Telekom Slovenia Group is illustrated in the table below:
Share Share Change in Balance as at 31 December 2007 (in %) 2008 (in %) 2008 Level I 28 0.6% 19 0.4% -9 Level II 39 0.9% 43 0.9% 4 Level III 62 1.4% 55 1.2% -7 Level IV 585 13.3% 561 12.0% -24 Level V 1,676 38.1% 1,655 35.5% -21 Level VI 934 21.3% 1,084 23.2% 150 Level VII 987 22.5% 1,160 24.9% 173 Above level VII 84 1.9% 91 1.9% 7 Total 4,395 100% 4,668 100% 273 WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 100
The educational structure highlights the following major improvements: - 14.5% of employees have an education level of less than V, meaning 47 fewer employees than 2007, - at least one half of all employees have an education level of VI or higher, which represents an increase of 267 employees compared to 2007.
The increase in the number of employees with a level VI and VII education is a result of new employment of professionally qualified employees and the completion of on-the-job studies.
Employment of disabled persons Due to the nature of activities within the Group's companies, we do not employ a significant number of disabled persons. The Decree establishing Employment Quotas for Disabled Persons (Official Gazette of the Republic of Slovenia, No. 32/07) specifies the proportion of disabled people for a certain activity. As of 1 March 2008, a quota of 2% (previously 3%) is in affect for the telecommunications sector, while a quota of 3% remains in construction.
Company Balance at 31 December 2008 Consequences Exceeds the quota by 36 Telekom Slovenije, d. d. disabled persons. Entitled to compensation for exceeding the Exceeds the quota by 13 GVO, d. o. o. prescribed quota. disabled persons. Exceeds the quota by 2 disabled Teledat, d. o. o. persons. Does not pay a contribution, nor does it Avtenta.si, d. o. o. Meets the quota. receive compensation. The company pays the appropriate monthly Mobitel, d. d. Does not meet the quota. contribution for failure to meet the quota.
In 2008, the Telekom Slovenia Group employed 121 disabled persons, or 2.63% of all employees, which is 6 less compared to 2007.
Responsibility for employees in the workplace
Organisational climate and employee satisfaction The Telekom Slovenia Group measures the organisational climate and employee satisfaction at all companies in Slovenia, and for the first time at Ipko, d. o. o. We used the standard SiOK questionnaire and achieved a very high response rate, demonstrating employee commitment. Following an analysis, all employees were briefed on the results.
The average organisational climate and employee satisfaction scores were positive and higher than the average of Slovenian companies included in the SiOK survey. The results will provide support in adopting measures for continued improvement in individual companies.
Annual appraisal interviews Company Activity in 2008 Telekom - annual appraisal interviews and assessment of behaviour and competencies carried out in line Slovenije, d. d. with the 180 or 270 degree method GVO, d. o. o. - change in the annual cycle of conducting annual development interviews, which have been Teledat, d. o. o. shifted to the spring - assessed achievement of objectives for 2007 (very successful: performance bonuses, approved wage increases in February 2008 and presentation of the aforementioned to employees) - setting of mandatory objectives for 2009 for managers and employees in accordance with the implemented Management by Objectives system Mobitel, d. d. - annual development interviews, which are becoming part of the organisational climate, were performed for the first time - implemented all activities associated with introducing Management by Objectives, appraisal in line with the 180 or 270 degree method and the updating of annual development interviews Avtenta.si, d. o. o. - established system of setting and appraising objectives and competencies, which was not yet implemented as of 2008 WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 101
Employee training and development
Due to rapid changes in the ICT sector, our performance and competitiveness are closely linked to constant improvement of knowledge. Therefore, we continuously develop the culture of life-long learning and encourage the education of all employees through our highly developed training activities. Employees are invited to attend training events throughout the year in line with individually established objectives.
Proportion of training in Slovenia and abroad: Proportion Proportion Index 2007 (in %) 2008 (in %) 08/07 Slovenia 9,152 93.5% 10,501 94.0% 115 Abroad 638 6.5% 668 6.0% 105 Total number of participants in educational courses/training 9,790 100.0% 11,169 100.0% 114
In 2008, the Telekom Slovenia Group recorded growth in the area of training: - 11,169 participants in training events, an increase 1,521 participants compared to the previous year; - the proportion of employees involved in training processes increased by 2.5 percentage points; - on average each employee attended approximately 4 working days of training, an increase of 0.5 days from the previous year; - the average number of participants in at least one form of training and the number of hours spent on training per employee also rose; - a 9.9% increase in direct costs for training was recorded, in line with increased activity in the area of human resource development.
The structure of training areas remained unchanged compared to 2007, as illustrated by the graph below. Business communication and skills 4% Economics Other Telecomunication 1% 6% tehnologies Legislation 25% 2%
Energetics and Engineering 1%
Security and Foreign Sales helth at work languages 12% 13% 5%
Communication 4% Information Management scienece 13% 14%
Training activities by individual companies in 2008:
Company Activity Telekom Slovenije, d. d. System of talent management and employee succession introduced, which facilitates: - greater recognition and human resource mobility, - retaining the most skilled personnel, - increased efficiency, - better financial and business results. Mobitel, d. d. - own production of general and specific e-courses, carried out with purchased courses, included in the ECHO system for carrying out e-training. - Employees are thus provided a further opportunity to quickly access required knowledge with the support of modern telecommunication and information technologies.
We recruited internal experts for the process of functional education and training, who are responsible for transferring knowledge within companies (in-house) and among service providers. Experts from Group companies were also actively involved as lecturers, moderators and panel participants at important domestic and foreign professional meetings and conferences. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 102
The 2008/2009 training programme was issued for support to employee training. With reviews and articles published through the internal magazine “Škrjanček” in the supplement “Podjetniki” we encouraged self- education and use of the professional library.
On its intranet sites, Telekom Slovenije, d. d. encourages innovative thinking, fresh ideas and updates which would reduce the length of business processes, provide new technological solutions and improve customers relations using the slogan "Knowledge for Success" under a new internal brand Brihta, with a special sub-portal and through other activities. There were roughly 100 suggestions submitted last year, one fifth of which were useful. Of these, 9 were financially rewarded. The Brihta programme was recognised at the 1st Human Resource Forum, as a finalist in the selection of the Best Innovative Human Resource Practice in 2008.
The financial daily newspaper Finance ranked the Telekom Slovenia Group as one of the best Slovenian companies in terms of human resources. The ranking was based on a survey of basic indicators regarding human resources and data on corporate education and training. According to the magazine Manager, Telekom Slovenije, d. d. was ranked 8th among Slovenian companies which pay tuition fees, 5th among the highest providers of scholarships and 15th among the most intense providers of scholarships.
Professional library Telekom Slovenije, d. d.‟s professional library is a physical and virtual intranet area, in which knowledge and information from sciences vital to the operation of the Group intertwine. It holds more than 10,000 books and more than 100 magazines. The reading area within the library facilitates the searching of various commercial databases. Published materials from internal education programmes represent a new feature in 2008. A smaller library is also operated by Mobitel, d. d. All materials from the library are available to Group employees, internal lecturers and students who have been granted scholarships.
Material motivation of employees We reward employees of all companies within the Group according to the collective agreement and internal acts. Remuneration is paid to both individuals and groups, including year-end and Christmas bonuses. The flexible part of wages is a significant part of motivation, as it is directly connected to achieving planned business objectives.
On-the-job studies, scholarships and apprenticeships Through internal scholarships for on-the-job studies, certain companies provide employees the opportunity to attend training courses and upgrade their qualifications in the company‟s interest. In 2008, 272 employees concluded on-the-job study agreements, an increase of 156 employees compared to the previous year. Compulsory job training is provided for scholarship holders and students to accelerate, their integration in the company. Through apprenticeship and mentorship, we ensure the transfer of information, knowledge and experience and effectively introducing employees to their work and the company‟s organisational culture.
Recruitment of potential employees In 2008, Telekom Slovenije, d. d., Avtenta.si, d. o. o., Mobitel, d. d. and Najdi.si, d. o. o. presented themselves as attractive employers to potential new employees at the job fair, staged by the Faculty of Electrical Engineering and Faculty of Computer and Information Science in Ljubljana. With our active scholarship policy, we recruit new experts upon the completion of their studies. Telekom Slovenije, d. d. and GVO, d. o. o. selected 38 new students for scholarships based on study grants tenders for 2008/2009 and candidate interviews. A Summer Camp was organised by Telekom Slovenije, d. d. for secondary school pupils, interested in pursuing a career in electronic communications.
Cooperation with research institutions In order to achieve the best possible development results, cooperation with research institutions, which possess a wide range of knowledge on the most up-to-date technologies, is vital. Telekom Slovenije, d. d. concluded: - a contract with the Faculty of Electrical Engineering, University of Ljubljana on upgrading knowledge, recruitment and education of new employees and - a contract with the Joţef Štefan Institute of Slovenia and the international postgraduate school on mutual cooperation related to post-graduate studies (primarily doctorate degrees).
In the field of research and development, the Telekom Slovenia Group is contractually involved with several Slovenian and foreign academic institutions, including the following: Faculty of Electrical Engineering and Faculty of Computer and Information Science, University of Ljubljana, University of WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 103
Primorska, Joţef Stefan Institute, University of Tuzla and the organisation Sintesio. In addition, we actively cooperate: - in inter-laboratory affiliation, - in exchanging experiences related to test procedures, broadband technologies, NGN networks, IP TV and VoD with the Ministry of Higher Education, Science and Technology, - with the Metrology Institute of the Republic of Slovenia, SIST, Telecom Italia Labs and HP Labs (Grenoble), - through membership in various associations in Slovenia (such as the ICT network) and abroad (Home Gateway Initiative) and as the leader of the work group for IPv6 in the field of CPE devices.
Cooperation with employees
In 2008, the works council and the trade union conference of Telekom Slovenije, d. d. addressed all major matters directly or indirectly associated to the position of company employees. They were constantly briefed on current events within and outside the company.
Both workers‟ bodies were continuously briefed on and discussed changes to the organisational structure and to the systematisation of jobs. They also discussed proposals for the sale of holiday and rental apartments owned by Telekom Slovenije and reports from related committees.
Initiatives from members of the works council included the purchase of defibrillators for all locations, where several employees work. The initiative was implemented.
In the past year, the trade union conference also managed to sign an agreement regarding the payment of annual leave allowance, and Christmas and performance bonuses for 2008.
Responsibility for employees, pensioners and other company-related groups We provide various benefits and activities for employees of the Telekom Slovenia Group: - opportunity for employees to resolve their housing issues by raising housing loans, offered through a tender; - solidarity assistance is also paid in a number of special social and health situations; - participation in sports activities in rented or leased sporting facilities, in organised recreational sporting activities and competitions, with the best athletes taking part in European championship events; - organised jubilee meetings, in which employees also receive symbolic gifts; - social gatherings for employees at the end of the year; - attending or purchasing discounted tickets for events, which we sponsor; - celebration of personal milestones, and - socialising at the traditional Telekom Slovenia Group Day, which took place in Otočec in June.
We also support: - pensioners through the Pensioners‟ Association, and - children of employees: by giving gifts to preschool children, with scholarships to underage children and school children who have lost their parents.
Health and safety at work and fire safety The following activities related to health and safety at work have been carried out: - Telekom Slovenije, d. d. experts in the field of safety at work performed tasks related to safety at work and fire safety for the subsidiaries GVO, d. o. o., Avtenta.si, d. o. o. and Teledat, d. o. o.; - measurement of environmental conditions and lighting in the work environment for all locations where deemed necessary; - during theoretical and practical safety at work training, workers were specifically told of the required measures that must be taken in work at heights, road traffic safety and fire safety; - all workers attending training were tested on the knowledge of risks and legally prescribed measures for safe work.
Healthcare In accordance with the provisions of the Health and Safety at Work Act, the Rules on Preventive Medical Examinations for Workers and the Declaration of Safety with Risk Assessment, preventive medical examinations were carried out. At the same time we: - vaccinated employees that work in the field, particularly in forests, against tick-borne meningoencephalitis, WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 104
- organised the preventive flu vaccination of employees, - installed defibrillators in the 12 larger branch offices across Slovenia and carried out appropriate training of employees for the correct use of these devices, and - in some companies a number of employees were sent to spas for an active medical leave.
Personal protective equipment In 2008 we: - supervised the use of personal protective equipment during inspections of the teams of field workers, - supervised the implementation of the provision regarding the replacement of worn out personal protective equipment, and - performed an annual inspection of work equipment.
Fire safety Fire safety training for workers was an integral part of the safety at work training. Fire rules were drawn up according to the time schedule, while all fire extinguishers and hydrant networks were inspected and serviced. In April, we carried out the first evacuation drill from the building located on Cigaletova street, during which we successfully evacuated 232 people using the fire escape and other fire emergency exits.
Family-Friendly Company certificate In the past year, several activities associated with the candidacy for the Family-Friendly Company certificate were also carried out. A comprehensive approach was formed during the project, with proposed measures to improve the coordination of work and family life. We adopted 16 measures from various areas, which will be gradually implemented by 2011. All activities and the preparation of documentation were appropriate and as a result Telekom Slovenije, d. d. and Mobitel, d. d. received the basic certificate confirming their status as a family-friendly company.
5.3 Social responsibility
+ invested 0.7% of operating revenues in sponsorships and donations + employees contributed funds to the Association Supporting prematurely Born Children + continued traditional sponsorships
The general public recognises the Telekom Slovenia Group as an important and reliable sponsor and donator.
The Telekom Slovenia Group defined four areas of cooperation, target groups, and the structure and amount of sponsorships and donations. The special feature of our policy is that the majority of resources are earmarked for projects and activities involving our employees. The fact that the general public views the Telekom Slovenia Group as an important sponsor and donator is proof itself that we are a true partner the environment can rely on, which also enhances the value of our corporate brand.
The amount of sponsorships and donations was down slightly in 2008 compared to the previous year, although we still manage to invest 0.7% of operating revenues for this purpose.
Education Humanitarian 4.7% Science 8.6% 5.8% Health Other 1.3% 0.1%
Sport 29.7%
Culture 49.7%
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Most significant sponsorships and donations
In 2008, we can highlight the mutual involvement of Group companies in sponsorship and donation projects and the development of joint multimedia projects with large-scale media attention. The most important of these projects were: Field Sponsorship/Donation SPORTS - Sponsor of the Slovenian Olympic Team and General Sponsor of the Slovene Athletics Association. Sponsorship involvement with the Slovene Olympic Committee has also been approved for the next Olympic cycle 2008-2012. - Sponsors of the athlete and gold medallist Primoţ Kozmus and silver medallist yachtsman Vasilij Ţbogar at the 2008 Olympic Games, for whom we also organised a special reception upon their return from Beijing. - Sponsor of Slovenia‟s premiere football league - Prva Liga Telekom Slovenije – and sponsor of the Slovenia‟s national football team. - Sponsor of the Nordic Ski Team, marked mainly by the excellent results of Petra Majdič, and the Alpine Ski Team. - Sponsors of the Slovene Kayak Association and of the Union Olimpija basketball team. - Among other high profile events, we supported the Golden Fox World Cup ski event, the Planica World Cup ski jumping event, cycle race across Slovenia and the Ljubljana Marathon. CULTURE - Co-founders of the Post Office and Telecommunications Museum in Polhov Gradec, - Sponsor of the Slovenian Drama Week at the Prešern Theatre in Kranj, the Ljubljana Festival, the Lent Festival, LiFFe, Borštnikovo srečanje (theatre event), the National Opera and Ballet in Maribor and the Slovene Ethnographic Museum. - Sponsor of Antivirus – Magnifico‟s concert tour across Slovenia and in countries, where Telekom has subsidiaries, and sponsors of the project Saga – Siddharta (band). - Sponsor of the fashion show Bistvo vesolja (The Key to the Universe) by Urša Draţ and the Alan Hranitelj‟s exhibition. SCIENCE AND EDUCATION - Joined the project Safe.si, intended to educate young people on the secure use of the Internet and e-mail. - As founders, we donated telecommunication equipment and connections to Šolski center za pošto, ekonomijo in telekomunikacije (School centre for postal services, economics and telecommunications) to mark its 30th anniversary. We also equipped IEDC Bled with telecommunications equipment. - We are an important donator of the newly-established Euro-Mediterranean University. - Sponsors of the Institute and Academy for Multimedia, Hiša eksperimentov (House of Experiments), the Effie Awards for Communication Effectiveness, Slovenian Advertising Festival, Slovenian Marketing Conference, Golden Drum Festival, NT Conference, Circom Conference and the 2008 Telecommunications Conference. - We supported pupils by participating at the 2008 Graduation Parade and also by rewarding golden graduates and young reading badge winners, who read for nine consecutive elementary school years to receive a “reading badge” with modern mobile phones in cooperation with the Reading Badge Association. HUMANITARIAN ACTIVITIES - For a number of years, we have supported free-toll 080 helpline numbers for people in distress (Samarijan, Sopotnik, Friend of Youth Association of Slovenia), participated in collecting donations through 089 and 090 numbers (during the TV show Trenja and with regard to current topics and events).The most significant change has been introduced in the SMS Donation service, where users now donate EUR 1 instead of the previous EUR 0.96. - By purchasing children‟s promotional T-shirts during December, employees contributed funds to the Association Supporting Prematurely Born Children. - Mobitel, d. d. together with Samsung supported the Europa Donna organisation . ECOLOGY - Emphasis on the education: with Eco-Schools we prepared a project including an on-line Eco-Quiz. Participation in this quiz will benefit schools, as they will receive an eco flag. - Environmental projects in the Krajinski Park and Sečovlje saltpans (Sečovlje Salina Nature Park). WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 106
5.4 Environmental responsibility
+ prepare the Eco-Quiz within the scope of Eco-Schools project + renew cooperation with ETNO and set ambitious environmental goals - objectives, targets and programmes + environmental load caused by radiation is considerably lower than the levels legally prescribed + controlling the costs of electricity, fuels, heating, cleaning and waste management
Due to the nature of our activities as a high-technology services Group we are not a major polluter. Nevertheless, we take great care to reduce the impacts on the environment and raise awareness regarding the importance of environmental responsibility among employees, suppliers, subcontractors, partners and users.
Spreading best environmental practices The Telekom Slovenia Group, due to its high-technology services activities is not a major polluter in South Eastern Europe, in terms of the volume of emissions and waste. Nevertheless, we are aware of the significance of environmental responsibility and the need to spread ecological culture among our stakeholders. Environmental awareness as a basis for sustainable development will be spread by: - enhanced environmental communication both with the internal and external publics, primarily through an proactive relationship with subscribers, users, suppliers and subcontractors, - responsible management of natural resources, - reduced emissions into the environment, - while supporting activities which contribute to preserving biodiversity (e.g. the dependant company Soline, d. o. o., which preserves the salt marsh habitat of the Sečovlje saltpans).
We transfer best practices to other companies in the Group. Environmental activities are coordinated and synergies are sought after. This is demonstrated also in:
- the first successful audit of an integrated systems of quality management and environmental responsibility in accordance with ISO 9001 and ISO 14001 standards at the subsidiary with most civil works activities, GVO, d. o. o., and - Avtenta.si, d. o. o., Mobitel, d. d. and Telekom Slovenije, d. d., which have introduced the waste separation at the orign with recycling bins.
We have set up an Environmental website “Caring for the environment / Skrbimo za okolje”, where all the documentation related to environmental management system can be found, and where quick flow of environmental data is ensured.
We are involved in the Eco-Schools project. It will spread environmental awareness among our future customers and users. In 2008, we prepared a special project, an on-line Eco-Quiz, in which anyone can test knowledge of ecology.
Progress in 2008: a path of continual improvements Following the successful external audit of the system‟s compliance with the requirements set out in the ISO 14001:2004 standard, improvements have been done in three major areas over the past two years: - enhanced integration of environmental activities into every-day company operations (as a result, ambitious and measureable environment objectives, targets and programmes have been set for 2009; - environmental compliance statement as a mandatory element of project start-up documentation and procurement procedures has been introduced; - improved environmental communication with all publics, accomplished primarily by: brief basic environmental training, which will be attended by all employees of the Group over the next four years as part of their health and safety at work training, training a sufficient number of internal auditors, participating in external trainings, publishing a series of articles in the in-house magazine “Škrjanček”, including "green" suggestions in each issue of the e-journal of the Group “eSkupaj”, preparing an environmental brochure for all employees of the Telekom Slovenia Group, proactive environmental communication with our subscribers, users and other interested parties, and continual upgrading of quality of environmental accounting.
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As for preventive and corrective actions, primarily adopted based on the findings of internal and external audits, we judge that possibilities for improvement still exist. To this end, we trained 25 new internal auditors from companies in the Telekom Slovenia Group in 2008.
Cooperation with the work group for sustainable development of the European Telecommunication Networks Operators Association (ETNO) has been re-established, enabling also environmental benchmarking. In 2009, we will start participating in the Energy task team (subgroup). Besides we will: - prepare a 2008 Sustainability report in line with the ETNO guidelines (www.etno.be) ; - over the next 5 years direct our environmental efforts according to key EU environmental guidelines, expressed by the slogan “3 times minus 20%” (meaning a 20% reduction of emissions and consumption of energy and increase of energy generated from renewable resources); while at the same time: exploring the possibility of purchasing “smart” energy from renewable resources and the energy and economic efficiency of the transition to alternative fuels (hybrids, LPG) for our car fleet;
based on 2008 data, assess the trend of our ecological CO2 footprint – an estimate of half a million tonnes of CO2 for our parent company is the starting point for subsequent environmental endeavours; - by the end of 2010 create an energy survey card (and if necessary prepare projects for the energy- efficient retrofitting) of commercial buildings.
Environmental achievements in 2008 in the fixed services sector Environmental accounting was integrated in the regular KPI (key performance indicators) reporting system of the Technology and infrastructure area. The major environmental costs are: electrical energy consumption, use of fuels for vehicles, heating and “the clean-up” that includes waste management. Cost control was also of prime concern.
Electricity Electrical energy consumption is the largest environmental expense. We are in the period of decline of traditional TDM technologies and accelerated growth of modern IP solutions. Consumption is increased due to the simultaneous functioning of both technologies. The IP technological solutions introduced and the requirements of co-locators (who lease our premises for their own devices - more than one-tenth of consumption), require upgrading of electrical power supplies and primarily of air-conditioning systems. Following an in-depth analysis of the situation, we designed a strategy for improvement.
Until TDM technologies eliminated, the highest environmental gains are incurred when replacing the old air-conditioning devices with up-to-date “free-cooling split air-conditioning systems”. Due to those activities annual growth of costs was significantly reduced (index 07/06 of 145, compared to index 08/07 of 114), although we still reached consumption level of 50.5 million kWh.
Electricity consumption 2008– Telekom Slovenije, d. d. in EUR (upper line, left scale) and in kWh
450.000 6.000.000
400.000 5.000.000 350.000
300.000 4.000.000
250.000 3.000.000 200.000
150.000 2.000.000
100.000 1.000.000 50.000
- 0
Fuels In 2008 we developed a new information sub-system (within SAP) to monitor the consumption of motor fuels (in litres, per km etc.). As it became operational only in September 2008, the graph shows the costs of motor vehicle fuels and heating costs. Here we must take into account the external circumstances - the rise in energy prices, particularly in midd-2008. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 108
Clean-up and Waste Management “The clean-up” includes costs for cleaning premises, waste management costs and other costs for minor clean-up measures. The biggest progress was achieved in the field of waste management. With the introduction of “ecological islands” – waste collection points with specific-purpose containers (two islands completed, two underway, in all commercial locations in the next 3 years), by concluding agreements with authorised waste management companies and by introducing recycling bins at all office buildings , we significantly reduced the costs. A special feature of our sector is a large volume of waste electronic equipment. In 2009, we will identify the locations, where unauthorised waste disposal into our containers is being made by the nearby inhabitants and protect all “ecological islands” in 2010.
Cleaning areas, chimneys, waste removal, rodent and pest control
Costs (in EUR)
Key environmental objectives, targets and programmes for 2009
A short summary of our goals – indicative strategic objectives and associated environmental targets and programmes – is given in the table. In addition, we will comply with all legal requirements.
Indicative strategic objectives Key associated objectives and programmes Minimise the relative consumption of electrical energy over - improvements to the electricity consumption monitoring the medium term by 5%. system (consumption optimisation - next phase), - introduction of the “free-cooling split” air-conditioning systems, Minimise fuel consumption of the car fleet by 10% by 2010. - optimising vehicle use (workforce management - project start up in 2009) and encouraging remote tele-work, A 20% reduction in mixed communal waste by the end of - preparing IT support for mass balance and thus 2009. improving control of high-value waste (raw materials - particularly copper) in two years, Minimising emissions, the risks of spills and other aspects. - reducing the risk of hazardous chemical spills by purchasing absorbents for all commercial locations, - continuing to equip the parking areas with oil spill traps, WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 109
- minimising emissions into the atmosphere and noise by replacing old generators with new, more environmental- friendly installations, - replacement of old open batteries with closed systems, - connecting the last commercial building (in Koper) to the public sewage system within two years, Updating - update of the system by the end of 2009 based on the - the internal auditing system, findings from the analyses of results of internal audits, - corrective and preventive actions management corrective and preventive actions from previous years, as - project controls of environmental programmes and well as opportunities to improve environmental planning, - integration of environmental planning into the - enhanced project (milestones) supervision in Telekom Slovenia Group planning system. implementing environmental programmes.
Environmental achievements in 2008 – mobile segment of the network Reception-transmission stations represent a significant part of the infrastructure for signal provision and consequently quality mobile telecommunication services. Precise planning is necessary to responsibly place stations within the environment, as this is the only way to combine the provision of a quality signal and the control of environmental impacts. Therefore Mobitel, d. d.: - in planning and placing infrastructure in the environment, relies upon top experts which through constant training at home and abroad oversee new technical solutions; - operates in accordance with European and Slovene legislation and amendments to the provisions set out therein; - since 2004, operates pursuant to the Code of Best Practices at the national level, meaning that by complying with provisions, the company ensures a constant decrease in the burden placed on the environment and consumer and the use of the best technology; - in accordance with legislation for obtaining requisite permits and consent for placement of buildings in the environment, it acquires the mandatory opinion of an external institution, authorised by the Environmental Agency of the Republic of Slovenia, which considers the greatest possible burden under the worst possible conditions and includes all surrounding sources of electromagnetic radiation for each individual station. - in accordance with each expert opinion, performs measurements that demonstrate the actual impact of radiation on the surrounding environment, - in addition to legislation, it also implements additional measures on its own initiative for ensuring the transparency of procedures and cooperates with local communities, as it: informs the competent municipalities in advance of plans and provides an opportunity to establish dialogue during planning phase, and provides all information to the interested inhabitants living near stations (reports on measurements, access to documents and participation in performing measurements).
The measurements of the electromagnetic radiation carried out for all Mobitel, d. d. stations indicate that the environmental burden from electromagnetic radiation is significantly lower than the thresholds specified in the Regulation on Electromagnetic Radiation in the Natural and Residential Environment, throughout the areas measured. The majority of stations recorded a value that is even 100 times lower than those specified.
At the same time, Mobitel d. d. works with several professional services: - since its establishment, it has been an active member and supporter of the EMS Forum, which in Slovenia provides training, affiliation and objective information in the field of electromagnetic radiation; - the company provides all necessary data to state institutions, which monitor and supervise electromagnetic radiation, as Slovenia is one of the EU member states, which have introduced an electromagnetic radiation registry.
Best practices are also transferred to all countries and regions, in which mobile telephony is established.
5.5 Responsibility to customers
+ Avtenta.si, d. o. o. received Slovenian Archive Accreditation for their service siHramba.eu + the brands Telekom Slovenije, SiOL and Mobitel received the title Trusted Brand and the title Superbrand, together with Najdi.si + Mobitel, d. d. was acknowledged as the best technical network by the magazine Connect + received complaints with regard to just 0.3% of issued invoices.
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Our users are more demanding from year to year and constantly raise their expectations. Therefore in the future, our aim is to develop even more services tailored to the individual user and thus increase customer satisfaction.
User- and environment-friendly products and services In the development phase itself, the Telekom Slovenia Group strives for products and services, which are user-friendly, aimed at special consumer groups, ecology-oriented and which simplify processes related to the entire social community.
We thus provide certain benefits to special consumer groups: - with regard to traditional telephony, end-users or disabled subscribers are entitled to a 50% discount when concluding a new subscription and a 5% discount on the subscription fee for PSTN; - with regard to broadband Internet access, students and disabled persons who enter into a contract on the use of SiOL TV, SiOL telephony, double play, double play TV, double play FON TV and triple play are entitled to a discount of EUR 2 on their monthly subscription fee (including VAT). - customers with lower income and special needs are provided access to traditional telephony if they meet the conditions from Article 3 or 4 of the Rules for Customer Categories Entitled to Special Tariff Options and Packages (Official Gazette of the Republic of Slovenia, No. 101/05).
The Group develops services that are user friendly and ensure the best user experience. When updating processes for establishing user services, we strive to shorten the period from the user‟s order to actual connection, while at the same time minimising the extent of administrative activities required before implementing the user‟s order (placing service orders on-line is a new feature). Given that the demands and expectations of our users have been increasing in recent few years, we expect greater development of services tailored to the user in the future.
In 2008, the companies in the Telekom Slovenia Group introduced various user-friendly services. Telekom Slovenije, d. d.: in cooperation with Abanka and NLB, presented the partner pilot project "e-račun" (e-invoice), which will save users time and money (material costs), simplify the payment of invoices and minimise the environmental burden; in supporting loyal users not only congratulated the 200,000th subscriber to the broadband SiOL Internet and thanked the 1st and 100,000th subscriber of IP SiOL telephony for their trust, but also offered an updated loyalty programme to its loyal users, which provided additional benefits and lower prices for the purchase of selected products. Mobitel, d. d.: in a special offer enabled the deaf and hearing-impaired communication in sign language with the free-of-charge video-telephony within the Mobitel network; with the Ministry of Public Administration presented two new call centre services: "Halo uprava" (Hello Administration) and "Halo inšpekcija" (Hello Inspection), which provide general information on public administration services 24 hours a day; prematurely introduced the Euro tariff, which offers users lower prices when using mobile services in EU member states; provided the new service M:Konferenca (M:Conference) to users, which provides the possibility of holding live meetings through a mobile or stationary phone. Teledat, d. o. o.: presented an updated Bizi.si business directory; enabled access to 1188SMS services abroad; introduced 1188++ on a trial basis, which automatically connects a caller to a number after dialling 1188. The web portal Najdi.si: provided data to visitors on the current snow conditions at Slovenian ski resorts; enabled access to maps via mobile phones; launched Lahki (Light) Najdi.si, an alternative entry browser intended only for browsing web pages and databases.
Concern for children’s Internet security Internet security is also important for children, which are introduced to Internet surfing at a very young age. We therefore supported Safe.si aimed at spreading Internet security awareness among children and young adults. Safe.si developed the friendly Sejfko, who has a wide range of tips on Internet behaviour so that socialising and other activities on the virtual web will be most enjoyable and worry-free. Some 12 tips WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 111
are demonstrated in the form of stickers, which kids receive at children‟s fairs, in schools and at Mobitel centres.
The children‟s corner of Telekom Slovenia, also intended for the youngest children, has a new educational game on secure Internet surfing.
Customer satisfaction Satisfied and loyal users are vital for companies, as they purchase frequently and repeatedly, respond less to the competition and are less price-sensitive. Therefore, the measurement of satisfaction has been the subject of monthly surveys since 1995, which largely contribute to the realisation of the needs and wishes of our users. We monitor the satisfaction of residential and business users and prepare improvements based results.
In the residential segment, the most satisfied user are those who call the 1188 number, followed by broadband service users (Internet, television and telephony). In the business segment, the most satisfied customers are users of VPN services, followed by subscribers to the Internet and IP telephony. In both segments, users are least satisfied with the resolution of complaints, which is associated with the very nature of this segment, as this involves users who have submitted complaints.
Index of satisfaction for the residential segment
15%
10%
5%
0% 080 8000 complaints fault 1188 SiOL tf SiOL TV internet technical handling handling support -5%
-10%
Source: Survey measuring the satisfaction in the residential segment, Q1-Q3 2008
Index of satisfaction for the business segment
19% 17% 15% 13% 11% 9% 7% 5% 3% 1% -1% SiOL tf Centrex internet fault handling technical VPN key accounts complaints support handling
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Source: Survey measuring the satisfaction in the business segment, Q1-Q3 2008 The brand tracking survey showed: - that the general public views SiOL8 as a leading, friendly, trustworthy provider of broadband services with a stable network, which provides quality services; - Telekom Slovenije, d. d. is perceived as a leading, socially responsible, technologically sound provider, with a stable network. More than 75% of current users are satisfied both with the functioning and stability of the Internet and with the technical support.9
User trust has also been confirmed by high-valued awards: - Trusted Brand: the title, based a questionnaire of readers of the magazine Reader’s Digest, has been awarded for the second consecutive year to the brands: Telekom Slovenije for telephony, SiOL for Internet services and Mobitel for maintaining user satisfaction; - Superbrand: the title from the Slovenian professional public for the strongest brands was also awards to Telekom Slovenije, Mobitel, SiOL and Najdi.si; - The title of best technical network awarded by the magazine Connect based on an independent survey is recognition of Mobitel d. d. as the leading Slovenian operator with the highest quality range of products and services.
Shares and costs of complaints and potential reduction measures
With regard to accepting and resolving complaints at Telekom Slovenije, d. d., subscribers may forward complaints via, a toll free number 080, fax or by filling out an on-line form. The complaint resolution principle is flexibility in finding solutions to the benefit of both parties. At the same time, each complaint is treated as feedback that facilitates the improvement of internal procedures and the created of the sales offer. In 2008, complaints represented just 0.3% of all issued invoices.
Responsibility for quality in all segments of operation
Formalised quality management systems The quality of the services, network and our work is one of the key competitive advantages of the Telekom Slovenia Group's offer in Slovenia and on the markets of South Eastern Europe. Data proves that our quality is stable and a step ahead of the competition. Quality consistency is primarily ensured by introducing formalised quality management systems.
System Company Activities in 2008 ISO 14001 Telekom Slovenije, d. d. - compliance certificate awarded at the beginning of the year - environmental management of the company meets the requirements of the ISO 14 001, - in June, the first regular annual audit performed by SIQ - successfully concluded with the approval of the Measures undertaken report, GVO, d. o. o. - an integrated system ( ISO 9001 plus ISO 14001) implemented, - first successful external audit at the end of the year, - certificate awarded in early 2009, ISO 9001 and ISO 14001 Telekom Slovenia Group - joint training of internal assessors organised, ISO 9001 GVO, d. o. o. - successful external re-auditing of the system, Avtenta.si, d. o. o. - successful external re-auditing of the system, - measures for improving efficiency, user satisfaction and the development of human resources adopted based on the recommendations, BS OHSAS 18001 Telekom Slovenije, d. d. - knowledge acquired, ISO 27001 Avtenta.si, d. o. o. - security of personal and business data system implemented – external audit in 2009, Accreditation from the Republic of Avtenta.si, d. o. o. - the first major provider with accreditation for a Slovenia Archive for siHramba.eu perspective service for the long-term safekeeping of service documents and archive materials in electronic form.
8 The general public still sees SiOL as a service provider, even though SiOL no longer exists as an operator. 9 Source: Brand tracking, n=652, 1st summer 2008. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 113
Quality of the fixed network and services
Determining quality Activities in 2008 indicators APEK & regulation deriving - all APEK required reports, reports to the ministries and to the Republic of Slovenia from the Electronic Statistical Office provided on time, Communications Act - upgrading the system of regular measurements of required indicators for other operators against payment, - transferring of data processing into the data warehouse / business intelligence environment, due to the increased volume of work, KPIs (Key Performance - the system was successfully presented to the technical committee of the Supervisory Indicators) Board, - system established in technology and Infrastructure area, - emphasis on efficiency during the quick transition from a mixed TDM environment to all IP-based solutions, Benchmarking - benchmarking performed with 8 Western and Central European operators (ETNO II) and 39 global operators.
With these and other activities related to quality, we identified several key areas for improvement quality and efficiency: - in the perspective of selection of universal service provider in autumn 2009, due diligence of the economics of solutions in the rural environment will be required. These are more demanding, more expensive and take considerably longer than those in towns, and involve more fault reports (due to Slovenia‟s high exposure to summer thunderstorms, which is force majeure); - with new systems of remote diagnostics and management we will reduce the costs per intervention: due to the complexity, broadband connections are more demanding to the user, frequently we can establish the non-existence of fault only once on-site; - number of faults restorations almost stagnated (index 08/07 of 103 ). We expect a further decline of field fault clearances, corresponding to the increase of number of fibre optic accesses; - in 2008, we have set up a system monitoring all segments of the IP network, which will be additionally upgraded with better IT support in 2009.
The formalised quality management systems, KPI based network and services management, the aforementioned measures and the continual activities on process optimisation will ensure that we remain - the FIRST.
Quality of the mobile network and services Mobitel, d. d. strives to improve the quality of mobile services. Indicators demonstrating the quality of services provided are defined in such manner to best reflect the user experience. One of these indicators is the proportion of connection losses for various services. Measurements by independent institutions and comparison with international data show that the company is a leading operator by European and global standards. Excellent results can be attributed to the knowledge and long-term experience of Mobitel, d. d. experts.
At the end of 2008, the following mobile coverage was provided: - 99.7% of the population with a GSM signal, - 97.5% of the population with a signal enabling EDGE technology, - 73.4% of the population and 30.9% of the territory with the UMTS signal enabling CS64 speeds and - 73.4% of the population and 30.9% of the territory with the UMTS signal enabling HSDPA speeds.
5.6 Responsibility to suppliers
+ defined strategic tasks in selecting suppliers + meetings for partners + regularly updating investors through web tools
The Telekom Slovenia Group strives for long-term partnerships with suppliers, partners and investors, built on the mutual exchange of information and knowledge.
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Suppliers The companies in the Telekom Slovenia Group build and maintain long-term partnerships with their suppliers and contractors, as they are aware of the responsibility for providing quality, technologically advanced services and solutions for subscribers. Strategic tasks in selecting suppliers and contractors include: finding quality, optimal and environmental-friendly materials, participating in the design and implementation of innovative products and solutions, constantly spreading awareness regarding its active role in environmental protection and rational energy management.
5.7 Responsible security policy
+ obtaining the SIST-BS 5979 security certificate + actively responding to individual incidents
The Telekom Slovenia Group acts responsibly with regard to the security of buildings, systems and information technologies.
Security policy In 2008, we developed and implemented a security policy, in line with the business plan, which: - is an integral part of the company's overall policy; - supports the security function and treats it as an integral part of the strategic objectives and guidelines. We developed security systems and implemented individual forms of security, which support the operations of the company on the open market of telecommunication service providers.
Building and system security In line with plans, we continued building the technical security system and raising the quality of physical security services. In 2008, we improved the rationalisation of the technical security and quality systems with the aim of providing a secure work environment.
The security control department and control centre obtained the SIST-BS 5979 security certificate and relevant licences based on its modern equipment, qualified personnel, technical capabilities and solutions. By constantly training our own human resources, we have provided the conditions for the continued quality development of security at the company and within the Group.
We are also successful in spreading a culture of security among employees, as we have a positive impact on preventive actions and minimisation of security risks through the provision of basic information and the development of the security sector as an integral part of business processes.
Information technology security In 2008, we continued activities in the information technology security sector: - ensuring business continuity, - recording critical business processes, - analysing impacts on the business processes, - risk assessments by business processes, - strategic planning, and - draft plans for improving business processes.
We provide data security through established internal procedures and rules of conduct regarding the handling of personal data, trade secrets and other types of information, in accordance with the adopted security policy. We also actively responded to individual incidents in implementing information security.
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6 FINANCIAL REPORT
6.1 Introductory notes
In addition to the introductory notes, the financial statements for the period January – December 2008 herein consist of two major chapters, namely:
- Financial statements of Telekom Slovenia Group, and - Financial statements of Telekom Slovenije, d. d..
The financial statements of Telekom Slovenia Group and Telekom Slovenije, d.d. were prepared in accordance with the International Financial Reporting Standards as adopted by EU (hereinafter: IFRS).
The auditing firm ERNST & YOUNG, Revizija, poslovno svetovanje, d. o. o. have audited both sets of financial statements and have issued separate auditors' reports, which are enclosed with each set of the financial statements.
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6.2 Financial report of the Telekom Slovenia Group
6.2.1 Financial statements of the Telekom Slovenia Group
Consolidated income statement for the year ended 31 December 2008
In TEUR
Notes 2008 2007
Revenue 3 842,356 780,077
Other income 4 9,379 7,167
Share of profit of a joint venture 4,867 3,659
Cost of goods and materials sold -60,460 -59,620
Cost of raw materials -9,537 -8,078
Cost of services 5 -305,963 -264,252
Staff costs 6 -144,551 -126,694
Depreciation and amortisation 12, 13 -183,750 -161,775
Other operating expenses 7 -23,845 -34,049
Total operating expenses -728,106 -654,468
Profit from operations 128,496 136,435
Finance revenue 8 7,601 7,722
Finance cost 9 -21,192 -17,375
Profit before tax 114,905 126,782
Income tax expense 10 -28,920 -38,412
Net profit for the year 85,985 88,370
Attributable to:
Equity holders of the parent 85,818 88,340
Minority interest 167 30
Earnings per share - basic and diluted in EUR 11 13.19 13.58
The accompanying notes are an integral part of these consolidated financial statements.
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Consolidated balance sheet at 31 December 2008
In TEUR
Notes 31 December 2008 31 December 2007
ASSETS
Intangible assets 12 255,144 239,081
Property, plant and equipment 13 1,175,639 1,135,411
Investment in joint venture 14 38,619 37,675
Other investments 15 18,525 13,215
Other non-current assets 16 29,578 22,688
Investment property 17 5,253 5,715
Deferred tax assets 18 4,275 502
Total non-current assets 1,527,033 1,454,287
Assets held for sale 627 637
Inventories 19 28,421 25,224
Current trade and other receivables 20 187,917 169,702
Income tax receivable 4,399 1,667
Current financial assets 21 21,121 28,401
Cash and cash equivalents 22 18,845 60,607
Total current assets 261,330 286,238
Total assets 1,788,363 1,740,525
The accompanying notes are an integral part of these consolidated financial statements.
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Consolidated balance sheet at 31 December 2008 (continued)
In TEUR
Notes 31 December 2008 31 December 2007
EQUITY AND LIABILITIES
Issued capital 23 272,721 272,721
Reserves 550,683 294,379
Fixed assets revaluation reserves 101,031 108,690
Other revaluation reserve 1,626 920
Treasury shares -3,671 -3,671
Retained earnings 143,040 389,580
F/X differences arising from foreign subsidiaries 5 5
Minority interest 235 117
Total capital and reserves 23 1,065,670 1,062,741
Non-current deferred income 24 9,169 7,255
Provisions 25 30,580 28,533
Interest bearing borrowings 26 241,145 273,729
Other non - current financial liabilities 27 63,909 48,648
Total non-current liabilities 344,803 358,165
Trade and other payables 28 159,240 153,917
Income tax payables 1,954 6,980
Interest bearing borrowings 26 177,431 125,609
Other current liabilities 1,411 239
Deferred income 29 18,437 17,260
Accruals 19,417 15,614
Total current liabilities 377,890 319,619
Total liabilities 722,693 677,784
Total equity and liabilities 1,788,363 1,740,525
The accompanying notes are an integral part of these consolidated financial statements. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 119
Consolidated statement of changes in equity for the year ended 31 December 2008
In TEUR
Foreign Total attrib. Issued FA rev, Other rev. Treasury Retained currency to the Minority capital Reserves reserves reserve shares earnings difference parent interest Total
01.01.2008 272,721 294,379 108,690 920 -3,671 389,580 5 1,062,624 117 1,062,741
Revaluation of investments (note15) 1,989 1,989 1,989
Change in fair value of derivative financial instruments -1,283 -1,283 -1,283
Deferred tax liabilities 2 1 3 3 Total income and expense recognised in equity 0 0 2 706 0 1 0 709 0 709
Net profit for 2008 85,818 85,818 167 85,985 Total income and expense for the year 0 0 0 0 0 85,818 0 85,818 167 85,985 Transfer to retained earnings and reserves (Note 23) 5,043 -7,661 2,618 0 0
Transfer to reserves 219,171 -219,171 0 0
Dividend payment -83,270 -83,270 -83,270
Other 3 -449 -446 -49 -495 Transfer to other reserves – resolution of the Management 32,087 -32,087 0 0
31.12.2008 272,721 550,683 101,031 1,626 -3,671 143,040 5 1,065,435 235 1,065,670
The accompanying notes are an integral part of these consolidated financial statements. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 120
Consolidated statement of changes in equity for the year ended 31 December 2007
In TEUR
Foreign Total attrib. Issued FA rev, Other rev. Treasury Retained currency to the Minority capital Reserves reserves reserve shares earnings difference parent interest Total
1.1.2007 272,721 289,336 91,883 295 -3,671 338,693 15 989,272 0 989,272
Revaluation of land and buildings at 01.01.2007 (see note 13) 44,108 44,108 44,108
Financial asset revaluation 183 183 183
Deferred tax liabilities -8,521 -8,521 -8,521
Change in deferred tax liability due to change in tax rates (Note 10) -3,742 -3,742 -3,742 Change in fair value of derivative financial instruments 442 442 442 Foreign currency difference 0 -10 -10 -10 Total income and expense recognised in equity 0 0 31,845 625 0 0 -10 32,460 0 32,460
Net profit for the year 88,340 88,340 30 88,370 Total income and expense for the year 0 0 0 0 0 88,340 0 88,340 30 88,370 Transfer to retained earnings and reserves (Note 23) 5,043 -7,482 2,439 0 0 Payment of dividends -39,879 -39,879 -39,879 Minority interest 87 87
Other -7,556 -13 -7,569 -7,569
31.12.2007 272,721 294,379 108,690 920 -3,671 389,580 5 1,062,624 117 1,062,741
The accompanying notes are an integral part of these consolidated financial statements.
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Consolidated cash flow statement for the year ended 31 December 2008 In TEUR 2008 2007 Operating activities Profit before tax 114,905 126,782 Adjustments for: Depreciation and amortisation 183,750 161,775 Depreciation and amortisation of investment property 73 47
Loss on disposal and write-downs of intangible assets and PPE 1,572 3,106 Gains on disposal of FA -3,335 -1,177
Finance income -7,601 -10,348 Finance cost 21,192,348 16,500
Change in assets held for sale 10 839 Change in trade and other receivables -18,215 -38,390 Change in other non-current assets -6,428 732 Change in inventories -3,197 -3,084
Change in provisions 2,047 4,428 Change in deferred income 3,091 1,543 Change in accruals 3,803 4,295 Change in trade and other payables 20,648 21,354
Tax paid -41,027 -37,070 Cash flow from operating activities 271,288 251,332
Investing activities Receipts from investing activities 15,002 37,118 Proceeds from sale of PPE 5,433 1,856 Dividends received 4,491 3,784 Interest received 2,478 6,564 Proceeds from sale of non-current financial assets 2,400 3,938 Proceeds from sale of current financial assets 200 20,976 Disbursements from investing activities -251,830 -350,950 Purchase of property, plant and equipment -204,210 -203,257 Purchase of intangible assets -30,295 -96,720 Purchase of investmet property -92 0 Purchase of financial assets -324 -1,965 Investments in subsidiaries and joint ventures net of cash acquired -12,103 -48,433 Interest bearing loans -4,806 -575 Cash flow from investing activities -236,828 -313,832
Financing activities Receipts from financing activities 113,071 290,928 Paid in capital 9,169 0 Non-current borrowings 87,891 100,299 Short-term borrowings 16,011 190,629 Disbursements from financing activities -189,293 -235,893 Repayment of short-term borrowings -39,845 -138,561 Repayment of non-current borrowings -45,982 -40,953 Interest paid -20,286 -16,500 Dividends paid -83,180 -39,879 Cash flow from financing activities -76,222 55,035
Net increase in cash and cash equivalents -41,762 -7,465
Closing balance of cash 18,845 60,607 Opening balance of cash 60,607 68,072
The accompanying notes are an integral part of these consolidated financial statements. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 122
6.2.2 Notes to the consolidated financial statements and summary of significant accounting policies of the Telekom Slovenia Group
1. General information and summary of significant accounting policies
Financial statements The financial statements are the consolidated financial statements of Telekom Slovenia Group (hereinafter the “Group”) for the year ended 31 December 2008. In accordance with the article 54 of the Company Act the Group is required to prepare and publish consolidated financial statements in accordance with International Financial Reporting Standards as adopted by EU (IFRS) as the parent company‟s shares are listed on the Ljubljana Stock Exchange. The financial statements were authorised for issue by the Board on 25 February 2009. The Telekom Slovenia Group consists of the parent company, Telekom Slovenije, d.d., and the following subsidiaries: - Mobitel, d.d., (100%), - GVO, d.o.o., (100%), - Teledat, d.o.o., (100%), - Avtenta.si, d.o.o., (100%), - Soline, d.o.o., (100%), - Planet 9, d.o.o., (100%), - Interseek, d.o.o. (75%), - Ipko, d.o.o., Kosovo, (63,75%), - On.net, d.o.o., Macedonia, (83,38%), - Aneks, d.o.o., Bosnia and Herzegovina, (70%), acquired in 2008, - AOLSP, d.o.o., Albania, (75%), acquired in 2008, - SIOL, d.o.o., Croatia, (100%), established in 2008.
The Group Interseek with the parent company Interseek, d.o.o. also has the following 100% owned subsidiaries Najdi.si, d.o.o. in Slovenia, Pogodak traţilica, d.o.o. in Croatia and Pogodak, d.o.o. in Serbia and a 50.1% owned subsidiary Meganet, d.o.o. in Slovenia. The investment in Blic.net, d.o.o. has been decreased to 70% during the year, and subsequently merged into Aneks d.o.o., Bosnia and Herzegovina. The group AOL SP consists of the parent company AOL SP, d.o.o. and 100% subsidiaries: AFB, d.o.o., Albania and H-COMMUNICATIONS, d.o.o., Albania. Telekom Slovenije, d.d. holds 100% economic ownership in all subsidiaries through holding call options and grating put options to minority holders. M-Pay, d.o.o. is a 50% subsidiary of Mobitel, d.d.; in consolidated financial statements, the company is recognised under equity method as an associate.
Investments in joint venture represent mostly ownership of 50% of Gibtelecom, d.o.o. acquired in 2007. The company is not a listed company.
General information concerning parent company Telekom Slovenije, d.d., with its registered address in Cigaletova 15, Ljubljana, Slovenia, is a public company, incorporated and domiciled in the Republic of Slovenia, whose shares are listed on Ljubljana stock exchange. As of 31 December 2008, the Republic of Slovenia as the majority shareholder holds 3,434,021 shares or a 52.54% interest in Telekom Slovenije, d.d..
Principal activities Telekom Slovenija, d.d. is the owner of almost all telecommunications capacities in the territory of Slovenia. It provides local and international fixed-line telephone services, internet services in Slovenia, other telecommunications services, and sells various mostly telecommunications merchandise. Principal activities of Mobitel, d.d. include construction and management of the mobile telephony infrastructure, provision of telecommunication services in the field of public mobile telecommunications, and sale of merchandise - mobile phone handsets and accessories. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 123
Mobitel, d.d. has two subsidiaries: - Since 2002, Mobitel, d.d. holds a 100% share in Soline, d.o.o.. The principal activity of the subsidiary is the traditional salt production, while the subsidiary is also engaged in the preservation and management of the landscape park. - Planet 9, d.o.o. was together established in June 2003 jointly with SiOL, d.o.o. (later merged with Telekom Slovenije, d.d.). The activity of the subsidiary is the preparation and provision of multimedia content and services to users of the mobile broadcast and internet network; - M-Pay, d.o.o., (50% interest). The principal activity of the company is mobile payments processing. AOLSP, d.o.o. and its subsidiary AFB, d.o.o. provides internet services, its subsidiary H- COMMUNICATIONS, d.o.o. is fixed line operator; all in the Albania territory.
The Group also provides Internet services through Aneks, d.o.o. in Bosnia and Herzegovina; On.net, d.o.o. in Macedonia as well as through Interseek, d.o.o. in Slovenia, Croatia and Serbia. The subsidiary Ipko, d.o.o. performs a telecommunications services in Kosovo. GVO, d.o.o. performs building and maintenance works on telecommunication networks, predominantly for Telekom Slovenije, d.d.. Avtenta.si, d.o.o is a system integrator of business solutions.. Teledat, d.o.o., is the publisher of telephone register and maintenances other business databases.
Gibtelecom, d.o.o is provider of telecommunications services in Gibraltar.
Summary of significant accounting policies The significant accounting policies used in the preparation of the consolidated financial statements of Telekom Slovenije, d.d. are set out below. a. Statement of compliance The accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (»IFRS«) promulgated by the International Accounting Standards Board (»IASB«), as adopted by the EU, and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (»IFRIC«), Effective from the listing date the Group is required to prepare its consolidated financial statements in accordance with IFRS adopted by the EU (Regulation EC No 1606/2002). At this particular time, due to the endorsement process of the EU and the activities of the Group, there is no difference in the policies applied by the Group between IFRS and IFRS adopted by the EU. b. Basis for preparation The financial statements have been prepared on a historical cost basis except for the measurement at fair value of financial assets available for sale and derivative financial instruments, and certain classes of property, plant and equipment which are revalued to fair value under the alternative treatment available in IAS 16 (refer below to accounting policy (j) property, plant and equipment, owned assets). The accounting policies used are consistent with those applied in the previous year, except for the adoption of new standards and interpretations, noted below. The adoption of these standards and interpretations did not have any effect on the financial position or performance of the Group:
IAS 39 and IFRS 7 - Credit Crisis Reclassification. Changes in IAS 39 and IFRS 7 allow reclassification of financial instruments from held for trading category into other categories provided certain conditions are met. In 2008, the Group did not make any reclassifications.
IFRIC 11 - IFRS 2 - Group and Treasury Shares Transactions. This interpretation addresses accounting treatment of share-based payments.
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IFRIC 14 - IFRS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. Interpretation provides guidance on how to assess the limit on the amount of surplus in a defined benefit scheme that can be recognised as an asset under IAS 19 – Employee benefits. The consolidated financial statements are presented in Euro, rounded to the nearest thousand Euros. c. Basis of consolidation The consolidated financial statements comprise of the financial statements of Telekom Slovenije, d.d. and its subsidiaries as at 31 December 2008. Financial statements of subsidiaries are prepared for the same reporting year as the financial statements of the parent company using consistent accounting policies. In case of inconsistencies of the accounting policies, the consolidated financial statements include relevant modifications.
All inter-company transactions, balances and including unrealized gains on transactions between group companies are eliminated.
All subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control over the subsidiary ceases. In case the Group‟s control over a subsidiary ceases during the year, the consolidated financial statements include the results of the subsidiary until the date that such control over the subsidiary still existed.
Minority interest represents the portion of profit or loss and net assets not held by the Group, and is presented separately in the income statement and within equity in the consolidated balance sheet, separately from the parent shareholders equity. Acquisition of minority interest is accounted for using the entity concept method, whereby the difference between the consideration and the book value of the share of the net assets acquired is recognized as equity transaction.
When in a business combination the Group acquires less then 100% interest in the acquiree and the Group grants put option to the remaining shareholders of the acquiree exercisable at the later date, the put option on minority interest is recognized as a financial liability under other non-current liabilities (note 27) and corresponding minority interest is derecognised. The difference between the value of the put option and the cost of business combination is recognized as goodwill. Any subsequent changes in the value of the put option are recognised as an adjustment to goodwill. This is further described in the note 14. d. Functional currency and foreign currency transactions The consolidated financial statements are presented in Euro (EUR) which is the functional and presentation currency of the parent company and its subsidiaries in Slovenia. Foreign currency transactions are translated into the functional currency at the exchange rate ruling at the date of the transactions.
Monetary assets and liabilities in foreign currency are translated at the exchange rate of the functional currency prevailing at the balance sheet date. All differences resulting from foreign currency translation are recognized in the income statement.
Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rates prevailing at the dates of the initial transactions. Non-monetary assets and liabilities measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
The following functional currencies are used by foreign subsidiaries: Macedonia: On.net, d.o.o.: Macedonian Denar Kosovo: Ipko, d.o.o.: EUR Bosnia and Herzegovina: Aneks, d.o.o.: Bosnian mark Albania AOL SP, d.o.o.: LEK Croatia: SIOL, d.o.o.: KUNA
As at the reporting date, the financial statements of subsidiaries listed above are translated into the presentation currency of the consolidated financial statements. The rate of exchange ruling at the reporting date is used for the balance sheet, while the weighted average exchange rates for the reporting year are used in the income statement.
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The exchange differences arising on translation of the functional currency into the presentation currency are recognized directly in equity, until a foreign subsidiary is sold, when the foreign exchange differences are recognized in the income statement. e. Profit from operations Profit from operations is defined as result before income taxes and finance items. Profit from operations includes a share of profits of joint ventures. Finance items comprise interest revenue on cash balances in the bank, deposits, interest bearing available for sale investments, interest expense on borrowings, gains and losses on derivatives and on sale of available for sale financial instruments and foreign exchange gains and losses on all monetary assets and liabilities denominated in foreign currency. f. Significant accounting estimates The preparation of the financial statements required management to make certain estimates and assumptions which impact the carrying values of the Group‟s assets and liabilities and the disclosure of contingent items at the balance sheet date and reported revenues and expenses for the period then ended. Estimates are used for, but not limited to: - depreciable lives and residual values of property, plant and equipment and intangible assets, - allowances for inventories and doubtful debts and, - legal claims.
Future events and their effects cannot be perceived with certainty. Accordingly, the accounting estimates made require the exercise of judgement and those used in the preparation of the financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Group‟s operating environment changes. Actual results may differ from those estimates. The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Provisions and contingent liabilities As set out in notes 25 and 31, the Group is a participant in several lawsuits and administrative proceedings including those related to its pricing policies. The Group‟s treatment of obligations with uncertain timing and amount depends on the management‟s estimation of the amount and timing of the obligation and probability of an outflow of resources embodying economic benefits that will be required to settle the obligation (both legal or constructive). A provision is recognised when the Group has a present obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Contingent liabilities are not recognised because their existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. Contingent liabilities are assessed continually to determine whether an outflow of resource embodying economic benefits has become probable. If it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability, a provision is recognised in the financial statements of the period in which the change in probability occurs.
Interconnect The Group provides and enters into the contracts for interconnect services and the revenue is recognised on the basis of the reasonable estimation of expected amount. Such estimation is regularly reviewed, however for some operators the final agreement and invoicing is determined on a yearly basis.
Impairment of UMTS licence in Slovenia and GSM licence in Kosovo The Group determined that no indication of impairment of UMTS and GMS licences existed during the year 2008. Accordingly no impairment test has been performed. The carrying value of UMTS licence at 31 December 2008 was 52,725 TEUR (31 December 2007: 56,866 TEUR). The carrying value of GSM licence at 31 December 2008 was 65,833 TEUR (31.12.2007: 70,833 TEUR. Further details are given in note 12.
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Impairment of goodwill The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of a value in use of the cash generating unit to which the goodwill is allocated. Estimating a value amount requires management to make an estimate of the expected future cash flows from the cash generating unit and also to choose suitable discount rate in order to calculate the present value of those cash flows. The carrying value of goodwill at 31 December 2008 was 57,652 TEUR (31 December 2007: 52,121 TEUR). Further details are given in note 12. g. Significant management judgements In the process of applying the accounting policies, management had made the following judgment, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statement.
The Group has concluded that there are no indicators of impairment of property, plant and equipment and intangible assets at year end and that there are no indicators that fair values of plant and equipment carried at revalued cost differ materially from carrying values. h. Early application of IFRS and IFRS's and IFRIC interpretations not yet effective The Group has not early adopted any IFRS and IFRIC interpretation issued and not yet effective.
The following new and amended IFRIC will be adopted in future periods as required by International Financial Reporting Standards:
IFRIC 13 - Customer Loyalty Programmes - effective for periods beginning on 1 July 2008. This interpretation requires customer loyalty credits to be accounted for as a separate component of the sales transaction in which they are granted.
The following new and amended IFRIC will be adopted in future periods as required by International Financial Reporting Standards and as adopted by EU:
IFRIC 12 - Service Concession Agreement. This interpretation outlines the approach to account for contractual arrangements arising from entities providing public services. It provides that the operator should not account for infrastructure as property, plant and equipment, but rather recognize a financial asset and/or intangible asset.
IFRIC 15 - Agreement for the Construction of Real Estate. IFRIC 15 was issued in July 2008 and becomes effective for financial years beginning on or after 1 January 2009. The interpretation is to be applied retrospectively. It clarifies when and how revenue and related expenses from the sale of a real estate unit should be recognised if an agreement between a developer and a buyer is reached before the construction of the real estate is completed. Furthermore, the interpretation provides guidance on how to determine whether an agreement is within the scope of IAS 11 or IAS 18.
IFRIC 16 - Hedges of a Net Investment in a Foreign Operation. IFRIC 16 was issued in July 2008 and becomes effective for financial years beginning on or after 1 October 2008. The interpretation is to be applied prospectively. IFRIC 16 provides guidance on the accounting for a hedge of a net investment. As such it provides guidance on identifying the foreign currency risks that qualify for hedge accounting in the hedge of a net investment, where within the group the hedging instruments can be held in the hedge of a net investment and how an entity should determine the amount of foreign currency gain or loss, relating to both the net investment and the hedging instrument, to be recycled on disposal of the net investment.
The following new standard will be adopted in future periods as required by International Financial Reporting Standards and EU:
IFRS 8 - Operating segments - effective from 1 January 2009. This standard replaces - IAS 14 Segment reporting - and adopts a management approach to segment reporting and in case the numbers used by management for internal performance measurement of operating segments are different to the numbers reported in the financial statements requires a reconciliation of numbers used by management to the financial statements. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 127
IAS 23 - Borrowing costs - effective for periods beginning 1 January 2009. The revised IAS 23 requires capitalisation of borrowing costs that relate to the qualifying asset. The transitional requirements of the standard require it to be adopted as a prospective change from the effective date.
IAS 1 - Revised Presentation of Financial Statements. The revised IAS 1 Presentation of Financial Statements was issued in September 2007 and becomes effective for financial years beginning on or after 1 January 2009. The Standard separates owner and non- owner changes in equity. The statement of changes in equity will include only details of transactions with owners, with all non-owner changes in equity presented as a single line. In addition, the Standard introduces the statement of comprehensive income: it presents all items of income and expense recognised in profit or loss, together with all other items of recognised income and expense, either in one single statement, or in two linked statements. The Group is still evaluating whether it will have one or two statements.
IFRS 2 - Share-Based Payment (Amendments). The IASB issued an amendment to IFRS 2 in January 2008 that clarifies the definition of a vesting condition and prescribes the treatment for an award that is cancelled. This amendment will be effective for financial years beginning on or after 1 January 2009.
The following new and amended standards will be adopted in future periods as required by International Financial Reporting Standards, if endorsed by EU:
IFRS 3R - Business Combinations and IAS 27R - Consolidated and Separate Financial Statements. The revised standards were issued in January 2008 and become effective for financial years beginning on or after 1 July 2009. IFRS 3R introduces a number of changes in the accounting for business combinations that will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs, and future reported results. IAS 27R requires that a change in the ownership interest of a subsidiary is accounted for as an equity transaction. Therefore, such a change will have no impact on goodwill, nor will it give raise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes introduced by IFRS 3R and IAS 27R must be applied prospectively and will affect future acquisitions and transactions with minority interests.
Amendments to IAS 32 and IAS 1 - Puttable Financial Instruments. Amendments to IAS 32 and IAS 1 were issued in February 2008 and become effective for annual periods beginning on or after 1 January 2009. The amendment to IAS 32 requires certain puttable financial instruments and obligations arising on liquidation to be classified as equity if certain criteria are met. The amendment to IAS 1 requires disclosure of certain information relating to puttable instruments classified as equity. The Group does not expect these amendments to impact the financial statements of the Group
IAS 39 - Financial Instruments: Recognition and Measurement - Eligible Hedged Items. These amendments to IAS 39 were issued in August 2008 and become effective for financial years beginning on or after 1 July 2009. The amendment addresses the designation of a one-sided risk in a hedged item, and the designation of inflation as a hedged risk or portion in particular situations. It clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as hedged item.
Improvements to IFRSs, not yet endorsed by EU:
In May 2008 the Board issued its first omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The Group has not early adopted any of the amendments.
IAS 1 - Presentation of Financial Statements. Assets and liabilities classified as held for trading in accordance with IAS 39 Financial Instruments: Recognition and Measurement are not automatically classified as current in the balance sheet.
IAS 16 - Property, Plant and Equipment. Replace the term “net selling price” with “fair value less costs to sell”. Items of property, plant and equipment held for rental that are routinely sold in the ordinary course of business after rental, are transferred to WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 128
inventory when rental ceases and they are held for sale.
IAS 23 - Borrowing costs. The definition of borrowing costs is revised to consolidate the two types of items that are considered components of „borrowing costs‟ into one - the interest expense calculated using the effective interest rate method calculated in accordance with IAS 39.
IAS 28 - Investment in Associates. If an associate is accounted for at fair value in accordance with IAS 39, only the requirement of IAS 28 to disclose the nature and extent of any significant restrictions on the ability of the associate to transfer funds to the entity in the form of cash or repayment of loans applies. An investment in an associate is a single asset for the purpose of conducting the impairment test. Therefore, any impairment test is not separately allocated to the goodwill included in the investment balance.
IAS 31 - Interest in Joint ventures. If a joint venture is accounted for at fair value, in accordance with IAS 39, only the requirements of IAS 31 to disclose the commitments of the venturer and the joint venture, as well as summary financial information about the assets, liabilities, income and expense will apply.
IAS 36 - Impairment of Assets. When discounted cash flows are used to estimate „fair value less cost to sell‟ additional disclosure is required about the discount rate, consistent with disclosures required when the discounted cash flows are used to estimate „value in use‟.
IAS 38 - Intangible Assets. Expenditure on advertising and promotional activities is recognised as an expense when the Group either has the right to access the goods or has received the service. The reference to there being rarely, if ever, persuasive evidence to support an amortisation method of intangible assets other than a straight-line method has been removed.
IFRS 7 - Financial Instruments: Disclosure. Removal of the reference to „total interest income‟ as a component of finance costs.
IAS 8 - Accounting Policies, Change in Accounting Estimates and Errors. Clarification that only implementation guidance that is an integral part of an IFRS is mandatory when selecting accounting policies.
IAS 10 - Events after the Reporting Period. Clarification that dividends declared after the end of the reporting period are not obligations.
IAS 18 - Revenue. Replacement of the term „direct costs‟ with „transaction costs‟ as defined in IAS 39.
IAS 19 - Employee Benefits. Revised the definition of „past service costs‟, „return on plan assets‟ and „short term‟ and „other long-term‟ employee benefits. Amendments to plans that result in a reduction in benefits related to future services are accounted for as curtailment. Deleted the reference to the recognition of contingent liabilities to ensure consistency with IAS 37.
IAS 20 - Accounting for Government Grants and Disclosures of Government Assistance. Loans granted in the future with no or low interest rates will not be exempt from the requirement to impute interest. The difference between the amount received and the discounted amount is accounted for as government grant. Also, revised various terms used to be consistent with other IFRS.
IAS 27 - Consolidated and Separate Financial Statements. When a parent entity accounts for a subsidiary at fair value in accordance with IAS 39 in its separate financial statements, this treatment continues when the subsidiary is subsequently classified as held for sale.
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IAS 29 - Financial Reporting in Hyperinflationary Economies. Revised the reference to the exception to measure assets and liabilities at historical cost, such that it notes property, plant and equipment as being an example, rather than implying that it is a definitive list. Also, revised various terms used to be consistent with other IFRS.
IAS 34 - Interim Financial Reporting. Earnings per share is disclosed in interim financial reports if an entity is within the scope of IAS 33.
IAS 39 - Financial Instruments: Recognition and Measurement. Changes in circumstances relating to derivatives are not reclassifications and therefore may be either removed from, or included in, the „fair value through profit or loss‟ classification after initial recognition. Removed the reference in IAS 39 to a „segment‟ when determining whether an instrument qualifies as a hedge. Require the use of the revised effective interest rate when re-measuring a debt instrument on the cessation of fair value hedge accounting.
IAS 40 - Investment Property. Revision of the scope such that property under construction or development for future use as an investment property is classified as investment property. If fair value cannot be reliably determined, the investment under construction will be measured at cost until such time as fair value can be determined or construction is complete. Also, revised of the conditions for a voluntary change in accounting policy to be consistent with IAS 8 and clarified that the carrying amount of investment property held under lease is the valuation obtained increased by any recognised liability.
The companies in the Group are reviewing the not yet effective standards and interpretations and at this stage cannot reasonably assess the impact of the new requirements. The Group will comply with the new standards and interpretations as and when effective. . i. Intangible assets Intangible assets are stated at cost less accumulated amortisation less impairment losses.
Intangible assets include: - software that was acquired separately from hardware and used for more than one year, - licences for computer software, - licenses for the use of the radio frequency spectrum for GSM and UMTS services in the territory of the Republic of Slovenia and Kosovo.
Expenditure on computer software is capitalised at cost and amortised on a straight-line basis over its estimated useful lives. The estimated useful lives which ranges from 2–5 years. The cost of licenses is capitalised and amortised on a straight-line basis over the contract period of the relevant license, which is 9-20 years.
Intangible assets are subject to amortisation once the assets are available for use.
Subsequent expenditure on intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. j. Property, plant and equipment Owned assets Property, plant and equipment are stated at cost or valuation less accumulated depreciation and impairment losses. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads. Internal expenses capitalised in fixed assets are netted off against the relevant expenses in the income statement. When an item of property, plant and equipment comprises major components having different useful lives, these components are accounted for as separate items of property, plant and equipment. Subsequent to initial recognition certain classes of property, plant and equipment are carried at revalued amount, being the fair value at the date of the revaluation less any subsequent depreciation and subsequent accumulated impairment losses. Those classes comprise land and buildings, cable and lines, exchange switches and other equipment in fixed lines operations. When an asset‟s carrying amount is increased as a result of a revaluation, the increase is credited directly to equity within revaluation WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 130
reserves. The revaluation to fair value of these assets is based on a report of an independent appraiser. According to the policy adopted by the Group, the revaluation to fair value is carried out when fair values differs materially from carrying value.
Leased assets - finance lease Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Plant and equipment acquired by way of finance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset or the lease term.
Leased assets - operating lease All leases other than finance leases are regarded as operating leases. Lease payments under an operating lease are recognised as an expense in the income statement on a straight-line basis over the lease term. If the operating lease contract is terminated prior to the expiration of the lease term, each lease payment required by the lessor as a penalty for the breach of contract is recorded as expense in the period, in which the contract is terminated.
Subsequent expenditure Expenditure incurred to replace a component of an item of property, plant and equipment is capitalised. Other subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the item of property, plant and equipment. All other expenditure is recognised in the income statement as an expense as incurred. In the event of subsequent expenditure on the asset, the remaining useful life of the asset is re-evaluated. If the asset has already been fully depreciated, the subsequent expenditure is treated as a new item with new useful life.
Cost of borrowing Cost of borrowing is recognised as expense when incurred.
Estimated cost of restoring the leased base station locations to their original condition The base stations are set up on leased land. When concluding lease contracts, the Group undertook the obligation to restore the property to its original condition upon expiration of the contract and the withdrawal from the location. The cost of restoration of the location to its original condition is recognised as a component of the cost of purchase of the asset and is depreciated over its useful life. The provisions required for the restoration, discounted to the present value, are recognised under provisions ((aa) and Note 25).
Government grants related to assets Government grants related to assets are presented in the balance sheet as deferred income in the amount of the grant. They are intended to compensate the costs of depreciation of these assets. The grant is recognised to income on a straight-line basis over the life of the depreciable asset.
Depreciation Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of items of property, plant and equipment.
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The estimated useful lives are as follows:
Property, plant and equipment Useful lives in years
- buildings 7 to 50 - cable lines 20 to 50 - cable network 7 to 25 - other network 2 to 12.6 - exchange switches 4 to 7 - other equipment 2 to 20 - low value assets 3 to 10
Land and assets under construction are not depreciated. An item of property, plant and equipment under construction is recognized at cost and depreciated when brought to working condition for its intended use. k. Investment property Investment properties are measured initially at costs, including transactions costs.
Subsequent to initial recognition, investment properties are stated at cost less accumulated depreciation.
Depreciation is calculated individually, on a straight-line basis over the estimated useful lives of items of property, plant and equipment. Land is not depreciated.
The estimated useful lives of investment property is as follows:
Investment property Useful lives in years
- buildings 20
l. Financial instruments Primary financial instruments (cash and cash equivalents, trade and other receivables, trade payables and borrowings, investments) are recognised in the financial statements. The accounting policies applied to recognition and measurement of these items are disclosed in the respective accounting policies to the financial statements. m. Investments Investments in joint ventures Investments in joint ventures are accounted for in the consolidated financial statements using the equity method. A joint venture is an investment into a jointly controlled entity based on a contractual foundation arrangement. Financial statements of joint ventures represent the basis for accounting under the equity method. The reporting date of joint ventures is equal to the reporting date of the Group. Joint ventures use consistent accounting policies, as used by the Group.
Investments in joint ventures are carried in the balance sheet at cost plus post-acquisition changes in the Group's share of equity of the joint venture and less impairment loss. The income statement reflects the share of the results of operations of the joint venture. Where there has been a change recognized directly in the equity of the joint venture, the Group recognizes its share of any changes and discloses this in the statement of changes in equity.
Investments in debt and equity securities Investments are classified as available-for-sale and are stated at fair value. Any associated unrealised gains or losses are recognised directly in equity. When the investment is disposed of, the cumulative gain or loss previously recorded in equity is recognised in the income statement.
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Interest on debt securities is recognised in the income statement using effective interest rate.
The fair value of investments in debt and equity securities listed on the stock exchange is their quoted price. If the financial instruments are not listed on the stock exchange and their fair value cannot be reliably determined, they are stated at cost.
Available-for-sale investments are recognised (or derecognised) on the date of commitment to purchase or sell.
Loans Loans are stated at amortised cost less impairment losses.
Impairment of financial assets The Group assesses at each balance sheet date whether financial assets or groups of financial assets are impaired.
Assets carried at amortized costs - impairment If there is objective evidence that an impairment loss on loans and receivables or held to maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset‟s carrying amount and the present value of estimated future cash flows discounted at the financial asset‟s original effective interest rate. The carrying amount of the asset is reduced either directly or through use of an allowance account. The amount of the loss is recognised in the income statement.
The Group and the Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial assets, whether significant or not, it is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment.
Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the income statement and only to the extent that the carrying amount of the financial asset does not exceed its amortised cost at the reversal date.
Available-for-sale financial assets - impairment If an item of available-for-sale assets is impaired, an amount comprising the difference between its acquisition cost (net of any principal repayment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss, is transferred from equity to the income statement.
Reversals of impairment losses on debt instruments are reversed through profit or loss, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognised in the income statement.
De-recognition of financial assets A financial asset is de-recognised when: - the rights to receive cash flow from the asset have expired, - the group retains the right to receive cash flow from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement, or - the group has transferred its rights to receive cash flows from the assets and either has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. n. Derivative financial statements Derivative financial instruments are used to hedge the Group‟s exposure to risks arising from financing WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 133
and investing activities.
Derivative financial instruments are recognized initially at cost. After initial recognition, derivative financial instruments are measured at fair value. The method of recognition of gains or losses arising from the change in fair value depends upon the fact whether hedge accounting has been applied or not. When hedge accounting has been applied, the recognition of gains or losses arising from the change in fair value depends on the type of hedging (refer to Note „o‟). The fair value of foreign currency forward contracts is determined as the present value of the given price in the forward contract. The fair value of a call option is determined by the seller of the option. The model of valuation is based on the calculation of the present value of expected cash flows, taking into account the market conditions at the date of calculation.
When hedge accounting has not been applied, derivative financial instruments are accounted for at fair value with changes in fair value recognised in the income statement. o. Hedging When a derivative instrument is designated as a hedge of the exposure to variability in cash flow that is attributable to a particular risk associated with a recognised asset or liability or a highly probable forecasted transaction, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity.
When the forecasted transaction results in the recognition of an asset or a liability, the associated cumulative gains or losses that were recognised directly in equity are removed from equity and entered into the initial measurement of the acquisition cost or other carrying amount of the asset or liability. For all other cash flow hedges, amounts that have been recognised directly in equity are included in net profit or loss in the same period during which the hedged forecasted transaction affects net profit or loss. The ineffective portion of the cash flow hedge is immediately recognized in the income statement
The change in the instrument‟s time value is excluded from the assessment of hedge effectiveness and is immediately reported in the income statement.
If the hedging instrument expires, yet the forecasted transaction is still expected to occur, the cumulative gain or loss on the hedging instruments that initially had been reported directly in equity when the hedge was effective remains separately in equity until the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, the cumulative gain or loss on the hedging instrument that initially has been reported directly in equity is reported in the income statement. p. Other non-current assets Prepaid rentals are deferred over the contract period and are progressively transferred to rental expenses. Rentals are prepaid for a period ranging from 3 to 29 years.
Sale incentives given to subscribers in the form of subsidized mobile phone handsets or subsidised internet and television modems, cameras (subsidies) are recognised and deferred in the amount by which the handset‟s cost exceeds its selling price under the condition, that subsidies shall be covered by the average monthly subscription fee earned over the expected life of the subscriber contract. Therefore, the difference between the selling price and the purchase cost of GSM or UMTS handsets or internet and television modems sold is reported within deferred costs. Subscription period applicable to UMTS handsets and internet and television modems is 24 months, and 12 months for GSM handsets.
Over the period of the subscription agreement, deferred costs of subsidies are amortised proportionally to the income statement, starting at the inception of the contractual period.
If a subscription agreement is terminated or a subscriber is disconnected from the network due to non- payment of bills, subsidies are impaired accordingly. r. Trade receivables Trade receivables are stated on initial recognition at cost and subsequently measured at amortised cost less impairment losses. s. Inventories Inventories are stated at the lower of cost and net realisable value. Cost includes the purchase price, import duties and other costs directly attributable to the acquisition.
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Slow-moving items of inventories are written down to net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. t. Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with maturities of up to three months with insignificant risk of change in fair value. u. Impairment of assets The carrying amounts of the Group‟s assets, other than inventories (refer to note s) and deferred tax assets (refer to note 18) are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset‟s recoverable amount is estimated.
An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement except in case when the asset was already revalued and the surplus recognized in revaluation reserves.
The recoverable amount is the greater of an asset‟s (or cash generating unit‟s) net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. v. Dividends Dividends are recognised as a liability in the period in which they are approved. z. Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value.
Subject to initial recognition interest bearing borrowings are stated at amortised cost with any differences between cost and the redemption value being recognised in the income statement over the terms of the loans on an effective interest basis. aa. Provisions A provision is recognised in the financial statements when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If material, the provisions are determined by discounting the expected future cash-flows.
Provisions for termination benefits and anniversary bonuses Health, pension and social insurance contributions from gross wages and salaries are being paid by the Group during the year at the statutory rates. Contributions are recognised as an expense in the income statement in the period in which they are incurred.
In accordance with the statutory requirements, the collective agreement, and the internal rules and regulations, the Group is obliged to pay to its employees an anniversary bonus and termination pay upon retirement, for which provisions are formed. The Group has no other pension liabilities
Provisions are formed in the amount of the estimated future payments of anniversary bonuses and termination payments, discounted as at the balance sheet date. A calculation is made per employee on the basis of the cost of termination pay upon retirement and the cost of all expected anniversary bonuses to the time of retirement, using the projected unit credit method.
Provisions for costs of restoring the lease base station locations to their original condition The provisions are made for costs of removal of base stations and restoration of leased property to its original condition. Provisions are formed in the amount of estimated future cost of removal of base stations from the leased locations, discounted to the present value. ab. Trade and other payables Trade and other payables are stated at fair value on initial recognition and subsequently measured at amortised cost. ac. Revenue Revenue comprises the selling value of goods sold and services rendered during the period. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 135
Revenue from services is recognised when services are rendered and when there are no significant uncertainties regarding recovery of the consideration due.
Sales revenue includes the sales value of goods sold in the accounting period.
Revenue consists principally of revenue from monthly subscription fees, revenue from connection fees, revenue from call charges and charges for other services, revenue from provision of network services to other telecommunications companies (interconnection), revenue from the rental of network, and revenue from sale of merchandise.
Revenue from subscription fees is recognised in the period to which it relates.
Revenue from connection fees is recognised at the time of conclusion of the agreement with the customer.
Revenue from call charges and charges for other services is recorded at the time when the call is made.
Revenue from prepaid call cards is deferred and recognized in the period in which the call is made.
Revenue from interconnection services and from rental of network is recognized in the period in which a service is provided.
Revenue from sale of merchandise is recognised when the sale is carried out.
Revenue from sale of voice services with added value is recognised in the financial statements in net amount when the service is rendered. ad. Customer acquisition costs Group pays commission to dealers for acquisition of new subscribers of mobile telephony. The amount of commission depends on the type of subscription package. Commission which do not relate to the customer acquisition are reported in income statement when incurred. Customer acquisition cost, including sales incentives are expensed pro rata over the contracted subscription period ((p) - Other non- current assets). ae. Finance revenue Interest revenue is recognised as the interest accrues (using the effective interest method that is the rate exactly discounts estimated future cash receipts over the expected life of the financial instrument) to the net carrying amount of the financial assets.
Dividend income of other companies is recognised in the income statement on the date that the right to receive dividend payment is established. af. Income tax Income tax comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the balance sheet date, and any adjustments to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amounts of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilised. A deferred tax asset or liability is recognised irrespective of the time period in which temporary differences are settled.
Deferred tax relating to items recognised directly in equity is recognised in equity. ag. Segment reporting The Group has two main business segments: fixed line telephony, and mobile telephony.
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Revenues of these segments are the same as are reported in stand-alone financial statements of Telekom Slovenije, d.d. for fixed line services and Mobitel, d.d. for mobile services, whiles revenues of other subsidiaries are allocated to Group segments based on the type of revenue earned.
The Group does not analyse results on a geographical basis as majority of the Group‟s operations are conducted in Slovenia.
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2. Segment reporting
Year 2008 In TEUR Fixed line telephone Mobile telephone services services Other Eliminations Consolidated
External sales 379,624 441,500 21,232 0 842,356
Inter segment revenue 66,894 41,713 87,804 -196,411 0
Segment revenue 446,518 483,213 109,036 -196,411 842,356
Other revenue 6,449 1,160 1,222 548 9,379 Share of income from joint ventures 4,867
Cost of goods and materials sold -19,281 -39,374 -13,031 11,226 -60,460
Cost of raw materials and consumables -9,405 -8,728 -11,441 20,037 -9,537
Cost of services -200,565 -214,119 -45,416 154,137 -305,963
Staff costs -77,390 -45,067 -29,572 7,478 -144,551
Amortisation/depreciation expense -95,776 -85,586 -2,875 487 -183,750
Other operating expenses -12,802 -7,632 -923 -2,488 -23,845
Operating expenses -415,219 -400,506 -103,258 190,877 -728,106
Profit from operations 37,748 83,867 7,000 -4,986 128,496
Net finance cost -13,591
Profit before tax 114,905
Income taxes -28,920
Net profit for the period 85,985
Segment assets and liabilities
Property, plant, equipment, and intangible assets 805,807 613,529 11,447 0 1,430,783 Investments and other non-current assets 479,599 32,518 -56 -425,339 86,722 Investment properties 0 5,111 142 0 5,253
Current assets 174,685 177,458 50,872 -141,685 261,330 Provisions and non-current deferred income 26,048 12,170 4,844 -3,313 39,749 Current liabilities and deferrals 275,036 215,264 42,520 -154,930 377,890
Other segment information
Capital expenditure in intangible assets 12,240 14,703 7,934 -6,858 28,019
Capital expenditure in PPE 119,898 100,789 3,874 -10,019 214,542
Amortisation 5,984 18,489 728 0 25,201
Depreciation 89,792 67,096 2,148 -487 158,549
Impairment losses 8,329 2,199 506 -19 11,015 WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 138
Year 2007 In TEUR Fixed line telephone Mobile telephone services services Other Eliminations Consolidated
External sales 369,051 400,121 10,905 0 780,077
Inter segment revenue 47,049 32,963 71,443 -151,455 0
Segment revenue 416,100 433,084 82,348 -151,455 780,077
Other revenue 4,780 1,386 1,339 -338 7,167
Share of income from joint ventures 3,659
Cost of goods and materials sold -20,588 -38,687 -12,810 12,465 -59,620
Cost of raw materials and consumables -9,224 -8,060 -11,951 21,157 -8,078
Cost of services -161,863 -183,486 -25,830 106,927 -264,252
Staff costs -74,489 -39,765 -22,715 10,275 -126,694
Amortisation/depreciation expense -89,563 -69,852 -2,230 -130 -161,775
Other operating expenses -12,606 -15,638 -3,965 -1,840 -34,049
Operating expenses -368,333 -355,488 -79,501 148,854 -654,468
Profit from operations 52,547 78,982 4,186 -2,939 136,435
Net finance cost -9,653
Profit before tax 126,782
Income taxes -38,412
Net profit for the period 88,370
Segment assets and liabilities
Plant and equipment, and intangible assets 737,629 560,422 21,594 54,847 1,374,492 Investments and other non-current assets 427,687 26,272 630 -381,011 73,578 Investment properties 14,942 5,154 80 -14,461 5,715
Current assets 171,593 179,523 40,931 -105,809 286,238 Provisions and non-current deferred income 23,512 10,691 3,936 -2,351 35,788 Current liabilities and deferrals 283,928 105,652 30,582 -100,543 319,619
Other segment information
Capital expenditure in intangible assets 28,474 97,772 14,169 -4,733 135,682
Capital expenditure in PPE 150,998 50,718 5,046 -3,849 212,913
Amortisation 6,875 13,170 311 0 20,356
Depreciation 82,688 56,682 1,919 130 141,419
Impairment losses 2,288 5,730 504 0 8,522
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3. Revenue In TEUR 2008 2007
Voice 162,494 186,285 6,918 1,894 Voice transfer through IP network 346,876 Mobile telephone services 369,160 76,243 63,853 Internet and broadband access 38,566 27,283 Interconnection 48,673 International operator services 77,480 17,744 13,029 Leased lines 13,682 16,038 Unbundled access and co-locations 1,794 Voice services with added value 2,448 21,843 Data services 22,624 2,519 Network construction and maintenance 3,839 1,845 Sale of advertising space 11,024 9,942 Other services 10,048 37,176 Revenue from sale of merchandise 29,263 1,027 Other revenue 823
Total revenue 842,356 780,077
In TEUR 2008 2007
729,038 676,697 Revenue from sale of services on domestic market 84,055 66,212 Revenue from sale of services on foreign market
Revenue from sale of merchandise on domestic market 29,237 37,120 48 Revenue from sale of merchandise on foreign market 26
Total revenue 842,356 780,077
4. Other income In TEUR 2008 2007
175 Government grants 90 Net gains on disposal of property, plant and equipment 3,288 1,861 Other income 6,001 5,131
Total other income 9,379 7,167
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5. Cost of services In TEUR
2008 2007
Cost of communication and transportation services and rent 12,666 13,451 Cost of maintenance 22,157 14,355 Cost of telecommunication services 146,145 125,827 Cost of leased lines 3,286 6,961 Cost of sale incentives 15,423 14,894 Cost of professional services 16,694 15,206 Cost of insurance, marketing and entertainment 39,562 35,295 Cost of sale commission 8,048 5,766 Cost of banking services 2,922 3,025 Cost of other services 39,060 29,472
Total cost of services 305,963 264,252
6. Staff costs In TEUR
2008 2007 Wages and salaries 102,722 88,088 Social security contributions 19,789 18,829 Other staff costs 22,040 19,777 Total staff costs 144,551 126,694
The average number of employees in the Group in the year 2008 was 4,435 (in 2007: 4,132).
7. Other operating expense In TEUR
2008 2007 Provision for legal cases (note 25) 2,633 6,233 Impairment of current assets 11,015 13,031 Other costs 10,197 14,785 Total other operating expense 23,845 34,049
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8. Finance revenue
In TEUR
2008 2007 Dividends 716 963 Interest income on loans 5,080 6,504 Foreign exchange gain 708 167 Change in fair value of derivative financial instruments 24 0 Other financial income 1,073 88 Total finance revenue 7,601 7,722
9. Finance expense In TEUR 2008 2007 Interest expenses 19,810 16,555 Change in fair value of derivative financial instruments 1,063 380 Other financial expenses 319 440 Total finance expense 21,192 17,375
10. Income tax
Income tax expense recognised in the income statement In TEUR 2008 2007 Current tax -32,952 -37,224 Deferred tax benefits/liabilities 4,032 -1,188 Income tax expense in the income statement -28,920 -38,412
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Reconciliation of actual tax expense and computed tax expense (at the effective tax rate)
In TEUR 2008 2007
Profit before tax 114,905 126,782
Income tax using the domestic corporation tax rate of 22% (23% in2007) -25,279 -29,160 Deferred tax write off 0 -2,731
Current year tax loss not recognised as deferred tax asset -2,274 -3,366 Tax-free dividends 53 0 Non-deductible expenses -2,459 -3,615 Change in tax rate -7 -398 Tax incentives used in the current period 1,763 793 Reversal of tax incentives used in previous periods -132 0 Effect on different tax rate 166 60 Other -751 5 Total income tax expense -28,920 -38,412
Effective tax rate in the year 2008 was 25,17% (2007: 30,3%).
In accordance with Slovenian income tax regulations, the Group is entitled to an annual tax incentive in the amount equal to 20% of investments in research and development, and in the amount of 30% of investments in equipment, to a maximum of EUR 30,000.
Deferred tax credit/expense recognised in the income statement is attributable to the following items In TEUR 2008 2007 Intangible assets 232 -133 Property, plant and equipment 2,729 -1,026 Investments 0 -48 Provisions -45 22 Receivables and inventories 1,239 14 Accrued costs -29 -17 Other -94 0 Deferred tax credit/expense 4,032 -1,188
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Deferred tax credit/expense recognised in equity
In TEUR 2008 2007 Change in fair value of available-for-sale investments -543 0
Change in fair value of financial instruments designated as hedges 216 7 Property, plant and equipment 4 -6,475
Deferred tax assets/liabilities -323 -6,468
11. Earnings per share
Earnings per share is calculated by dividing the profit attributable to equity holders of the company and the Group by the weighted average number of ordinary shares in issue during the year.
The weighted average of ordinary shares in issue during the year is calculated on the basis of data of shares in issue during the period, considering any potential redemptions and sales in that period and the period, during which these shares were generating the profit. Adjusted net earnings per share also includes all potential ordinary shares that originated in exchangeable bonds, options and forward contracts. When calculated, earnings and the number of shares are adjusted for effects of all adjustable potential ordinary shares that would occur, if in the accounting period, they would be swapped for ordinary shares. In TEUR 2008 2007 Net profit attributable to holders of ordinary shares of the parent company 85,818 88,340 Adjusted net profit attributable to holders of ordinary shares of the parent company 85,818 88,340
Weighted average number of ordinary shares for net earnings per share 6,505,478 6,505,478 Adjusted average number of ordinary shares for net earnings per share 6,505,478 6,505,478
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12. Intangible assets
The movement in intangible assets was as follows In TEUR Other intangible Intangibles in 2008 Goodwill Licenses Software assets construction Total COST 1.1.2008 42,960 198,382 85,958 14,507 10,101 351,908 Additions 0 3,730 7,206 19 18,744 29,699 Acquisition of subsidiary 15,195 67 22 185 0 15,469 Transfer to use 0 4,047 10,148 37 -14,232 0 Disposal, write-offs -503 -181 -665 -3,331 -824 -5,504 Transfer 0 0 2,900 -2,900 0 0 31.12.2008 57,652 206,045 105,569 8,517 13,789 391,572 ACCUMULATED AMORTISATION 1.1.2008 124 48,581 61,106 3,016 0 112,827 Additions 0 1,680 0 0 0 1,680 Acquisition of subsidiary 0 6 19 150 0 175 Disposal, write-offs -124 -6 -665 -2,660 0 -3,455 Amortisation 0 11,971 13,129 101 0 25,201 31.12.2008 0 62,232 73,589 607 0 136,428 CARRYING AMOUNT 1.1.2008 42,836 149,801 24,852 11,491 10,101 239,081 31.12.2008 57,652 143,813 31,980 7,910 13,789 255,144
Intangible assets, except of the goodwill, have definitive life period and are amortised on a straight line basis over the estimated useful life.
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The movement in intangible assets was as follows In TEUR
Other intangible Intangibles in 2007 Goodwill Licenses Software assets construction Total COST 1.1.2007 19,456 107,037 66,902 5,764 2,515 201,674 Additions 22,630 87,048 7,569 839 21,369 139,455 Acquisition of subsidiary 11,788 0 1,712 0 0 13,500 Transfer to use 0 4,303 9,355 65 -13,723 0 Disposal, write-offs 0 -6 -183 -2,472 -60 -2,721 Transfer 0 0 603 -603 0 0 Goodwill allocation -10,914 0 0 10,914 0 0 31.12.2007 42,960 198,382 85,958 14,507 10,101 351,908 ACCUMULATED AMORTISATION 1.1.2007 124 38,192 47,052 2,950 0 88,318 Additions 0 0 3,773 0 0 3,773 Acquisition of subsidiary 0 0 435 0 0 435 Disposal, write-offs 0 0 -55 0 0 -55 Amortisation 0 10,389 9,901 66 0 20,356 31.12.2007 124 48,581 61,106 3,016 0 112,827 CARRYING AMOUNT 1.1.2007 19,332 68,845 19,850 2,814 2,515 113,356 31.12.2007 42,836 149,801 24,852 11,491 10,101 239,081
Goodwill The increase in the goodwill relates to the acquisition of Aneks, d.o.o. and AOLSP, d.o.o., which is further described in note 14.
The recoverable amount of goodwill arising from the acquisition of Ipko, d.o.o has been determined based on the value in use calculation using cash flow projections based on the company‟s financial projections approved by the Management Board covering a five year period. The pre tax discount rate applied to cash flow projections is 23.2% and cash flow projections beyond five year period are extrapolated at 0% growth rate.
The recoverable amount of goodwill arising from the acquisition of On.net, d.o.o. has been determined based on the value in use calculation using cash flow projections based on the company‟s financial projections approved by the Management Board covering a four year period. The pre tax discount rate applied to cash flow projections is 15% and cash flow projections beyond four year period are extrapolated at 3% growth rate.
Licences Licences represent licences for the use of radio frequency spectrum used by GSM 900 and 1800, and UMTS mobile telephony on the territory of the Republic of Slovenia and newly acquired GSM licence in Kosovo.
The carrying amount of the UMTS licence obtained amounts to 52,725 TEUR (2007: 56,866 TEUR), while the carrying amount of GSM licence in Kosovo amounts to 65,833 TEUR (2007: 70,833 TEUR).
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13. Property, plant and equipment
Movement in property, plant and equipment
In TEUR
Network Assets equipment under Land and Cables Switching of mobile Other constructi 2008 buildings and lines exchanges operations equipment on Advances Total
COST
1.1.2008 245,982 969,111 289,604 502,488 415,540 64,796 1,241 2,488,762
Additions 4,788 10,631 131 23,146 9,052 164,034 2,963 214,745
Acquisition of subsidiary 24 2,030 4,052 473 675 65 0 7,319
Transfer from assets under construction 30,955 51,706 9,728 51,431 39,559 -183,379 0 0
Disposal, write-offs -2,478 -683 -1,366 -3,717 -45,789 -575 -3,028 -57,636
Transfer 0 0 -19,155 16,017 3,138 0 0 0
31.12.2008 279,271 1,032,795 282,994 589,838 422,175 44,941 1,176 2,653,190
ACCUMULATED DEPRECIATION
1.1.2008 35,857 571,594 228,044 238,240 279,616 0 0 1,353,351
Additions 0 96 0 5 102 0 0 203
Acquisition of subsidiary 8 510 2,410 227 327 0 0 3,482
Disposal, write-offs -1,704 -576 -1,564 -2,816 -31,374 0 0 -38,034
Depreciation 8,323 39,567 13,605 51,984 45,070 0 0 158,549
31.12.2008 42,484 611,191 242,495 287,640 293,741 0 0 1,477,551
CARRYING AMOUNT
1.1.2008 210,125 397,517 61,560 264,248 135,924 64,796 1,241 1,135,411
31.12.2008 236,787 421,604 40,499 302,198 128,434 44,941 1,176 1,175,639
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Movement in property, plant and equipment
In TEUR
Network Assets equipment under Land and Cables Switching of mobile Other constructi 2007 buildings and lines exchanges operations equipment on Advances Total
COST
1.1.2007 225,590 926,328 249,131 486,591 359,078 39,044 476 2,286,238
Revaluation effect 10,957 0 0 0 0 0 0 10,957
Additions 3,430 1,918 13,330 1,056 17,350 172,783 3,045 212,912
Acquisition of subsidiary 0 0 0 0 12,749 0 0 12,749
Transfer from assets under construction 6,867 48,813 27,268 21,920 44,443 -147,031 -2,280 0
Disposal, write-offs -862 -7,948 -125 -7,079 -18,080 0 0 -34,094
31.12.2007 245,982 969,111 289,604 502,488 415,540 64,796 1,241 2,488,762
ACCUMULATED DEPRECIATION
1.1.2007 61,517 533,577 214,089 202,323 243,831 0 0 1,255,337
Revaluation effect -33,151 0 0 0 0 0 0 -33,151
Acquisition of subsidiary 0 0 0 0 12,203 0 0 12,203
Disposal, write-offs -594 -359 0 -5,595 -15,909 0 0 -22,457
Depreciation 8,085 38,376 13,955 41,512 39,491 0 0 141,419
31.12.2007 35,857 571,594 228,044 238,240 279,616 0 0 1,353,351
CARRYING AMOUNT
1.1.2007 164,073 392,751 35,042 284,268 115,247 39,044 476 1,030,901
31.12.2007 210,125 397,517 61,560 264,248 135,924 64,796 1,241 1,135,411
Land and buildings, cables and lines, switching exchanges and other equipment are stated at fair value. Network equipment of mobile operations and other items of property, plant and equipment are stated at cost. Cables and lines, switching exchanges and other equipment were valued by a licensed valuer as at 1 January 2004 using the DRC method. Land and buildings were valued by a licensed valuer to fair value as at 1 January 2007 using comparable market prices.
Property, plant and equipment are free of encumbrances.
14. Business combinations
Acquisition of Aneks, d.o.o. Bosnia and Herzegovina In January 2008, Telekom Slovenije, d.d. acquired 70% share in Aneks, d.o.o. Banja Luka, Bosnia and Herzegovina and sold 30% share in the company Blic.net, d.o.o., Banja Luka. During the year, both these companies have merged into Aneks, d.o.o.. Aneks, d.o.o. is internet provider in Bosnia and Herzegovina market. The Group has a call option and the minority shareholders have a put option on the remaining shares in Aneks, d.o.o. exercisable in the period 2009 and not later then May end of 2014 at the estimated market value of the company on an exercise date. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 148
Fair value of identifiable assets and liabilities of Aneks, d.o.o. on acquisition date: In TEUR
Fair value of assets Intangibles 62 Property, plant and equipment 212 Long term investment 3 Inventory 95 Receivables and accruals 1,221 Cash and cash equivalents 932 Total assets 2,525
Liabilities 1,057 Total liabilities 1,057
Fair value of net assets 1,468 Consideration paid 8,900 Goodwill 7,432
Consideration paid in cash -6,230 Net cash acquired 932 Cash flow on acquisition -5,298
Consideration paid in cash and liabilities 8,900 Consideration paid in cash -6,230 Put option liability 2,670
From the date of the acquisition, Aneks, d.o.o. has contributed 383 TEUR to the net profit of the Group.
During the year 2008, Aneks, d.o.o. acquired a 100% interest in Netkom, d.o.o. As a result of this acquisition, the acquired amount is disclosed in the table of movements in intangible assets which includes, in addition to the acquired assets, also goodwill in the amount of 1,455 TEUR (note 12), and property, plant and equipment (note 13). As the acquisition of Netkom, d.o.o. does not have a significant impact on the financial statements, no additional disclosures were made.
As of the date of these financial statements, the Group has accounted for the difference between the consideration paid and the fair value of assets acquired provisionally as goodwill, as purchase price allocation exercise has not been completed.
Acquisition of AOLSP, d.o.o., Albania In February 2008, Telekom Slovenije, d.d. acquired 75% stake in the company AOLSP, d.o.o., Tirana, which is an Internet provider on Albanian market.
The Group has a call option and the minority shareholders have a put option on the remaining shares in AOLSP, d.o.o. exercisable in the first half of 2011 and not later then the first six month of 2014 at the value determined on the basis of the market value of the company on an exercise date.
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Fair value of identifiable assets and liabilities of AOLSP, d.o.o. on acquisition date: In TEUR
Fair value of assets
Intangibles 306 Property, plant and equipment 1,953 Long term investments 85 Trade receivables 322 Inventory 110 Cash and cash equivalents 184 Total assets 2,960
Trade payables 528 Provisions 21 Borrowings 257 Other payables 515 Total liabilities 1,321
Fair value of net assets 1,639 Consideration paid and liabilities assumed 5,300 Goodwill 3,661
Consideration paid in cash -3,975 Net cash acquired 184 Cash flow on acquisition -3,791
Consideration paid and liabilities assumed 5,300 Consideration paid in cash -3,975 Put option liability 1,325
From the date of the acquisition, AOLSP, d.o.o. has contributed 327 TEUR to the net profit of the Group.
In 2008, AOLSP, d.o.o. acquired additional share in its subsidiary AFB, d.o.o. as well as a 100% interest in H-COMMUNICATIONS, d.o.o.. As a result of these acquisitions, the amounts relating to the two acquisitions are disclosed in the movement of intangible assets where in addition to assets, goodwill in the amount of 894 TEUR (note 12), and in property, plant and equipment are also included (note 13). As these acquisitions do not have a significant impact on the financial statements, no additional disclosures were made.
As of the date of these financial statements, the Group has accounted for the difference between the consideration paid and the fair value of assets acquired provisionally as goodwill, as purchase price allocation exercise has not been completed.
Acquisition of Interseek, d.o.o, Slovenia In August 2007, Telekom Slovenije, d.d. acquired 75% stake in Interseek, d.o.o., Ljubljana, Slovenia.
Interseek, d.o.o. is provider of Internet search services mostly in Slovenian market.
The Company has a call option and the minority shareholders have a put option on the remaining shares in Interseek exercisable in the period 2010 to 2014 at fair value at the exercise date plus a premium if the WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 150
fair value exceeds predetermined value on an exercise date.
Fair value of identifiable assets and liabilities of Interseek, d.o.o. on acquisition date:
In TEUR
Fair value of assets Intangible assets 1,243 Property, plant and equipment 546 Investment property 81 Financial assets 58 Deferred tax assets 10 Trade receivables 1,840 Cash and cash equivalents 170 Other assets 24 Total assets 3,972
Trade and other payables 2,451 Borrowings 964 Provisions 71 Total liabilities 3,486
Fair value of net assets 486 Consideration paid and liabilities assumed 11,400 Goodwill 10,914
Consideration paid in cash -8,550 Net cash acquired 170 Cash flow on acquisition -8,380
Consideration paid and liabilities assumed: 11,400 Consideration paid in cash -8,550 Liability for put option granted 2,850
The accounting recognised in the 31 December 2007 financial statements was based on a provisional assessment of fair value as the Group had not completed the purchase price allocation and provisionally allocated the whole difference between the acquisition cost and the fair value of net assets acquired to goodwill.
The purchase price allocation resulted in increase of other intangible assets of 10,914 TEUR. The 2007 comparative information has been restated to reflect this adjustment. The increased amortisation charged as a result of the allocation from the acquisition date to 31 December 2007 was not material. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 151
15. Other investments In TEUR 2008 2007 Investments in equity securities of banks 5,221 1,724 Investments in other equity securities 5,222 5,928 Loans to other entities 4,581 0 Loans to employees 2,727 2,781 Receivables from the sale of apartments 71 101 Loans to TK subscribers 150 717 Other non-current financial assets 553 1,964 Total other investments 18,525 13,215
All investments in equity securities are classified as available for sale. Of total 10,443 TEUR of available- for-sale equity securities in the Group financial statements, equity securities in the amount of 5,123 TEUR (2007: 1,149 TEUR) are recorded at fair value and are listed; the remainder are not listed and are carried at cost as their fair value is not reliably determinable.
Other non-current financial assets in the Group accounts include the fair value of a hedging instrument used to hedge against interest rate risk (refer to note “o” of the accounting policies and Note 33). The change in the fair value represents the change in the time value of the instrument, which is recognised in the income statement and the change in intrinsic value which is recognised in equity.
16. Other non-current assets
In TEUR 2008 2007 Long-term prepaid rentals 10,939 10,275 Long-term deferred sale incentives 17,213 10,649 Other non-current assets 1,426 1,764 Total other non-current assets 29,578 22,688
Movement in the above-mentioned deferred items (excluding sundry other non-current assets)
In TEUR Rentals Sales incentives 1.1. 2007 10,125 13,738 Increase 2,000 8,342 Transfer to expenses -1,850 -11,431 31.12. 2007 10,275 10,649 Increase 2,233 20,868 Transfer to expenses -1,569 -14,304 31.12.2008 10,939 17,213
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17. Investment property
Investment properties are stated at cost.
Movement in investment property In TEUR
2008 2007 1 January 5,715 5,197 Increase 92 565 Decrease -481 0 Depreciation of buildings -73 -47 31 December 5,253 5,715
The fair value of investment property approximates to its book value. In 2008, the revenue from property lease reached 77 TEUR (2007: 74 TEUR).
18. Deferred tax assets and liabilities
Deferred tax assets and liabilities are provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes, using tax rates enacted in the future years. In 2008, applicable tax rate was 22% (2007: 23%).
In TEUR
2008 2007 Intangible assets 1,631 1,398 Property, plant and equipment -4,193 -6,927 Investments in financial assets -451 -125 Trade receivables 2,524 1,295 Inventories 0 54 Other non-current assets 149 179 Provisions 4,615 4,628 Deferred tax assets 4,275 502
19. Inventories
In TEUR 2008 2007 Material 6,745 7,688 Finished products 362 484 Merchandise 21,309 17,011 Advances 5 41 Total inventories 28,421 25,224
As at 31 December 2008, impairment loss in the amount of 696 TEUR was recognised (2007: 2,934 TEUR).
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20. Trade and other receivables
In TEUR 2008 2007 Trade receivables 117,385 114,328 Receivables from foreign operators 19,123 13,459 Receivables due from domestic operators 22,584 13,504 Advances 2,573 1,777 VAT and other tax receivables 18,951 18,749 Deferred costs and accrued income 10,555 7,794 Current amounts of sale incentives 9,779 7,754 Other receivables 2,995 3,089 Provision for impairment -16,028 -10,752 Total receivables 187,917 169,702
Trade receivables are non interest bearing.
Movement of impairment allowance
In TEUR 2008 2007 1.1. -10,752 -10,661 Additions -10,825 -2,953 Reversal 2,978 1,663 Utilisation 2,571 1,199 31.12. -16,028 -10,752
At 31 December 2008, the analysis of trade receivables that were past due but not impaired is as follows:
In TEUR Neither past Past due due nor and Total impaired impaired Past due but not impaired
Up to 30 More than days 31-60 days 60-90 days 91-120 days 120 days 2008 187,917 138,140 5,198 20,515 4,973 3,250 3,916 11,925 2007 169,702 135,222 8,868 14,537 3,489 1,776 2,156 3,654
As at 31 December 2008, receivables past due more than 120 days but not impaired comprise 7,192 TEUR of receivables of Ipko, d.o.o., mainly in respect of VAT as a result of large investment in the past period. In 2009, this amounts is expected to be offset against current liabilities. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 154
21. Current financial assets In TEUR 2008 2007 Other loans 621 834 Other short-term financial assets 0 15 Fair value of derivatives 0 52 Term deposits 20,500 27,500 Total current financial assets 21,121 28,401
Surplus cash is deposited with various local banks. Most pay interest at fixed rates ranging from 5.80 to 6.25% (2007: 4.6% to 4.93%).
22. Cash and cash equivalents In TEUR 2008 2007 Cash in hand and bank balances 8,743 20,237
Deposits with banks 10,102 40,370 Total cash and cash equivalents 18,845 60,607
Cash at banks earns interest at floating rates based on daily bank deposit rates, while night deposits earn interest at contractually agreed rates.
Short term deposits are made for varying periods of between one to three months, depending on the immediate cash requirements of the Group and earn interest at the respective short term deposit rates.
23. Capital and reserves
Shares issued Authorised, issued and fully paid up capital amounts to 272,721 TEUR. It is divided into 6,535,478 ordinary shares.
Ownership structure as of 31 December 2008
Shareholder Number of shares Share in % Republic of Slovenia 3,434,021 52.54 Slovenska odškodninska druţba, d.d. 931,387 14.25 Kapitalska druţba, d.d. 365,175 5.59 PID - DZU 215,579 3.30 Legal entities 607,586 9.30 Individual shareholders 686,707 10.51 Other shareholders 295,023 4.51 Total 6,535,478 100.00
The balances and changes in equity are shown in the Statement of Changes in Equity. The number of issued shares did not change in 2008.
Reserves Originally, reserves were set up in accordance with the provisions of the Ownership Transformation of Companies Act, whilst in recent years reserves have been set up in accordance with the resolution of the WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 155
managing board. Consistent with the Companies Act, the managing board is entitled to appropriate one half of the profit for the period to reserves.
Structure of reserves
In TEUR 2008 2007 Capital surplus 145,596 131,178 Reserves for treasury shares 3,671 3,671 Legal reserves 51,348 0 Statutory reserves 105,005 54,544 Other reserves 245,063 104,986 Total reserves 550,683 294,379
Capital and statutory reserves can be used for purposes specified in the company‟s act and statutes. Statutory reserves may not exceed 20% of share capital.
Surplus paid-up capital arising from ownership transformation and transfer of tax-free portion of fixed assets revaluation reserves are included in capital surplus.
Reserves for own shares are formed in the amount paid for these shares. These reserves are not distributable. The Group has not acquired any additional own shares during the 2008 financial year.
The Group can transfer up to 50% of current year profits to other reserves. Other reserves are distributable in accordance with the law, Statute, business policy and resolution of the Annual General Meeting.
Retained earnings Retained earnings include retained net profit from previous periods and net profit for the current period. In the preparation of the consolidated financial statements, the fact that individual companies in the Group had formed various reserves in accordance with the Companies Act and individual statutes, was not taken into account. Therefore, at the year-end, the reserves in the amount of 102,242 TEUR were transferred from retained earnings to reserves.
According to the resolution of the Shareholders' meeting held on 30 June 2008, total retained earnings of 200,195 TEUR was appropriated as follows: 83,270 TEUR to dividend payout (2007: 39,879 TEUR), which represents 12.8 EUR per share (2007: 6,13 EUR), 135 TEUR was appropriated to incentive payment for the Supervisory Board, and 116,790 TEUR was appropriated to other reserves.
Dividend proposed Proposed for approval at AGM 39,032,868.00 EUR Dividend per ordinary shares 6.00 EUR
Treasury shares In 2003, the Group acquired 30,000 of its own shares at par value of 1,252 TEUR representing 0.46% of the Group's share capital.
Fixed asset revaluation reserve The transfer of 2,618 TEUR from revaluation reserves relating to property, plant and equipment to retained earnings and the transfer of 5,043 TEUR from revaluation reserve to capital reserve relates to additional depreciation resulting from the revaluation of property, plant and equipment. The revaluation reserve is not distributable.
Other revaluation reserves Other revaluation reserves relate to the revaluation of available for sale securities and the fair value of derivatives designated as hedging instruments for cash flow hedges.
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24. Non-current deferred income In TEUR 2008 2007 Co-location billed in advance 7,165 5,342 Government grants 1,528 1,415 Other 476 498 Total non-current deferred income 9,169 7,255
Co-location relates to payments received in advance for renting certain premises and equipment to other operators.
25. Provisions In TEUR
31.12.2007 Decrease Increase 31.12.2008 Provisions for probable payments resulting from legal actions 14,617 -816 3,973 17,774 Provisions for terminal bonuses on retirement 8,688 -343 446 8,791
Cost of base station removals 3,240 -16 366 3,590 Other 1,988 -1,856 293 425 Total provisions 28,533 -3,031 5,078 30,580
Provisions for probable payments resulting form legal actions Provisions for probable payments resulting from legal actions are formed on the basis of the estimation of the actions' outcome in consultation with the parent company's legal advisors. The date of payment cannot be determined.
Total damages claimed by pending legal actions brought against the Group companies amount to 299,382 TEUR, of which the largest claim of 129,557 TEUR was brought by T-2, d.o.o., AMIS, d.o.o. 56,825 TEUR, Sinfonica, d.d. 36,030 TEUR, Skynet, d.o.o. 29,934 TEUR, and Tuš Telekom, d.d. 28,176 TEUR.
In 2005, a law firm Colja Rojs & partnerji, o.p.,d.n.o., was engaged to represent the Company in the legal proceedings started by Western Wireless International, d.o.o.. Western Wireless International, d.o.o, claimed damages of 203,868 TEUR, plus penalty interest and litigation costs. According to the contract, the law firm was entitled to a maximum 1.5% of the damages claimed depending on the outcome of the dispute. The legal action by Western Wireless International, d.o.o. was withdrawn in 2006. In 2008 the law firm started a legal action against the company in the amount of 5,137 TEUR.
Based on the management board‟s assessment of the possible liabilities, a provision of additional 3,973 TEUR was made in 2008.
Provisions for termination and jubilee benefits Formation of provisions for terminal bonuses on retirement is based on the actuarial calculation. Liabilities reported by the Group are equal to the present value of estimated future payments.
The Group has no other pension liabilities.
Provisions for estimated cost of removal of base stations It is expected that the removal of base stations will commence after the year 2021 when the UMTS licence expires (not considering the option of extension). Provisions were formed in the amount of estimated cost of removal discounted to present value by using the discount rate of 5% (2007: 5%).
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26. Interest bearing borrowings
This note provides information about the contractual terms of the Group's interest-bearing borrowings. For more information relating to interest rate and foreign currency risk management refer to note 32 - Financial risk management.
In TEUR
2008 2007 Non-current borrowings Borrowings from foreign banks 295,385 319,200 - current portion of non-current borrowings -100,142 -45,516 - non-current portion of borrowings from banks 195,243 273,684
Borrowings from domestic banks 66,747 0 - current portion of non-current borrowings -20,952 0 - non-current portion of borrowings from banks 45,795 0
Other borrowings 825 0 - current portion of other borrowings -824 0 - non-current portion of other borrowings 1 0
Other 106 45 Total non-current borrowings 241,145 273,729
Current borrowings Borrowings from domestic banks 55,000 80,093 Current portion of non-current borrowings from foreign banks 100,142 45,516 Current portion of non-current borrowings from domestic banks 20,952 0 Current portion of other borrowings 824 0 Interest from loans 488 0 Other 25 0 Total current borrowings 177,431 125,609
Contractual terms agreed on borrowings
In TEUR Non- current Current Maturity in Last portion portion excess of 5 payment 31.12.2008 31.12.2008 years Interest rate agreed due Collateral 3 m EURIBOR + 0.020% 2010 - 2011 6 m EURIBOR – 0.025% 2017 3 m EURIBOR + 0.083% 2017 Non-current 3 m EURIBOR – 0.018% 2017 borrowings from 241.038 121.094 82.943 No collateral 3 m EURIBOR + 0.105% 2017 banks 6 m EURIBOR + 0.7% 2011 6 m EURIBOR + 0.55% 19.08.2009 3.35% 15.09.2009 Current borrowings from banks - 55.000 - 1 m EURIBOR + 0.650% 10.03.2009 No collateral
Borrowings are denominated in the EUR. A part of these borrowings bears a variable interest rate, and with the rest, the variable interest rate was changed into a fixed interest rate, by means of the financial derivatives obtained to this purpose.
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At the balance sheet date, borrowings from EIB Luxembourg in the total amount 230,385 TEUR, mature by 2017 (2007: 188.468 TEUR). Borrowings from a syndicate of commercial banks (50% participation of domestic banks) in the amount of 130,000 thousand EUR (2007: 130.000 thousand EUR), are repayable by 2011.
The banks that have approved long term loans require that certain debt covenants specified in the loan contracts be maintained, including: Consolidated Total Debt, Consolidated Net Tangible Worth, EBITDA, Consolidated Total Debt/EBITDA. The non-achievement of these covenants may result in early maturity of borrowings. The Group is in compliance with these covenants.
27. Other non-current liabilities In TEUR 2008 2007 Put options 63,190 48,150 - Interseek, d.o.o. 2,850 2,850 - Ipko, d.o.o. 50,875 43,480 - On.net, d.o.o. 1,800 1,800 - Aneks, d.o.o. 5,070 0 - AOLSP, d.o.o. 2,575 0 Other non-current liabilities 719 498 Total other non-currant liabilities 63,909 48,648
28. Trade and other liabilities In TEUR 2008 2007 Trade payables 117,035 106,433 Payables to domestic operators 9,393 6,395 Payables to foreign operators 8,886 13,438 VAT and other taxes payable 6,806 11,149 Payables to employees 10,750 8,973 Advances 192 74 Other payables 6,178 7,455 Total trade and other liabilities 159,240 153,917
Trade payables are non interest bearing and are normally settled on 30 to 90 days term. Payables to operators are non interest bearing and are normally settled on 15 to 30 days term.
29. Short-term deferred income In TEUR 2008 2007 Mobile telephony prepaid cards 2,447 2,467 Subscriptions billed in advance and short-term collocations 13,729 12,236 Current amounts of government grants 111 0 Current portion of government grants for PPE 2,150 2,557 Other deferred income 18,437 17,260
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30. Commitments
The Group as leases Non cancellable liabilities for operating leases payments for the lease of property plant and equipment are as follows:
In TEUR Payable in 2008 2007 - 1 year 7,416 8,598 - 1 year to 2 years 6,948 9,322 - 3 years to 5 years 11,916 14,840 - 5 years and over 26,816 30,249 Total 53,096 63,009
Total cost of operating leases for the 2008 financial year amounted to 13,578 TEUR (2007: 10,677 TEUR).
The Group as lessor Receivables from operating leases refer to lease of property, plant and equipment and are as follows:
In TEUR Receivable in 2008 2007 - 1 year 736 1,810 - 1 year to 2 years 419 3,600 - 3 years to 5 years 419 3,600 - 5 years and over 1,048 9,000 Total 2,622 18,010
In 2008, income from operating leases recognized in the income statement amounted to 5,298 TEUR (2007: 3,398 TEUR).
Capital commitments At 31 December 2008, the Group has commitments of 3,402 TEUR, principally relating to the completion of mobile network (2007: 7,122 TEUR).
31. Contingent liabilities In TEUR 2008 2007 Contingent liabilities from legal actions 299,382 217,476
At the balance sheet date, there were 58 pending legal actions brought against the Group companies in the total amount of 299,382 TEUR (2007: 217,476 TEUR). Based on the opinion of legal advisors the managing board expects the liability from the said legal actions to amount to 17,774 TEUR (Note 25).
32. Transactions with related parties
Related parties of the Group include the Republic of Slovenia as the majority shareholder of Telekom Slovenije, d.d., other shareholders, the managing board, the supervisory board and their family members. Transactions with related individuals Natural persons (president and members of the managing board, president and members of the supervisory board) hold 1,897 shares of Telekom Slovenije, d.d. or a 0.03 % shareholding. In 2008, no loans were granted to related individuals. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 160
Salaries and fees to the managing board and the supervisory board
In TEUR 2008 2007 Managing board 1,223 1,121 Supervisory board 267 282 Total salaries and fees 1,490 1,403
Information on groups of persons In TEUR Loans Share of profit paid according Outstanding Total to resolution of amount Repaid in Trade receipts the AGM 31.12.2008 2008 receivables Total members of the managing board 1,223 - - - - - Dremelj Bojan 272 - - - - - Mitič Dušan 237 - - - - - Ogris-Martič Filip 243 - - - - - Puljić Ţeljko 247 - - - - - Senica Darja 224 - - - -
Members of the supervisory board 132 135 - - -
Other members of management employed under a contract for which tariff under the collective agreement does not apply 3,288 - 180 27 4
Loans to other managers are at interest rates between 3.35% to 4.53% with term of 4 to 20 years. The Group has not granted any advances or guarantees.
Transactions with the Government of Republic of Slovenia and entities and institutions under its control The Group provides telecommunications services to the Government of Republic of Slovenia and various entities, agencies and companies in which the Slovenian state is either the majority or minority shareholder. All such transactions are concluded on normal commercial terms and conditions such as are not more favourable than those available to other customers.
Total income earned in the interim period from sales to the central and local governments and other public entities amounts to 38,137 TEUR in 2008 (2007: 48,262 TEUR). The Group does not monitor nor collect information on sales to companies owned or partially owned by the republic of Slovenia or entities under its control. Accordingly information on such sales has not been disclosed.
33. Financial risk management
The Group‟s principal financial instruments, other than derivatives, comprise cash and cash equivalents, trade and other receivables, trade and other payables, investments and borrowings. The main purpose of borrowings is to raise finance for the Group‟s operations.
The Group also enters into interest rate derivatives. The purpose is to manage the interest rate risks arising from its sources of finance.
It is and has been throughout 2008 and 2007 the Group‟s policy that no trading in derivatives shall be undertaken. The main risks arising from the Group‟s financial instruments are cash flow interest rate risk, WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 161
liquidity risk, foreign currency risk and credit risk. The Management Board reviews and agrees policies for managing each of these risks which are summarised below.
Foreign currency risk The Group provides its services predominantly in Slovenia. The currency risk in ordinary activities arises in connection with international operators and foreign suppliers of services, merchandise and property and plant and equipment.. The majority of deliveries and borrowings from foreign entities are denominated in Euro, which is also the functional currency of the Group. Therefore, the exposure to foreign currency risk is minimal.
Since the currency risk is assessed as minimal, the Group does not use any special instruments to hedge its exposure to such risks.
Interest rate risk Interest rate risk is the risk of the negative impact of changes in market interest rates on the results of the Group's operations. The interest structure of the balance sheet assets and liabilities is not matched, since the amount of borrowings is much higher than the amount of interest-earning investments. The negative movement (increase) of the variable Euribor interest rate represents an exposure to interest rate risk in respect of borrowings. All non-current borrowings bear interest at a variable interest rate based on 3 m and 6 m Euribor.
The adopted financial risk management allows the Group to hedge against interest rate risk by using interest rate swaps and put options. The Group uses derivative financial instruments exclusively for the purpose of risk hedging and at year-end, 53 percent of non-current loans were hedged against interest rate risk:
The table below sets the Group's derivative instruments used for hedging interest rate risk:
Date of Notional Fair value at Fair value at contract Maturity amount 31.12.2008 31.12.2007
In EUR In TEUR In TEUR Interest rate cap 04.11.2004 19.08.2009 80,000,000 465 824 Interest rate collar 19.01.2005 19.08.2011 50,000,000 -389 431 Participating interest rate swap 20.08.2004 15.09.2009 12,018,000 -34 53 Participating interest rate swap 05.11.2004 15.03.2010 10,887,500 -19 59 Participating interest rate swap 23.08.2007 15.12.2010 35,789,474 -1,072 -59
Total 188,694,974
On re-measurement of hedging instruments, the Company recognized a loss in the amount of 1,063 TEUR. For financial instruments, -1,497 TEUR relates to effective hedging, which is recognized in equity in the net amount of -1,283 TEUR (after deferred tax deduction).
Interest rate risk table The following table demonstrates the sensitivity to a reasonable possible change in interest rates, with all other variables held constant, of the Group‟s profit before tax (through the impact on floating rate borrowing, net of interest rates hedges). There is no impact on the Group‟s equity.
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Increase/decrease in basis points Effect on profit before tax in TEUR 2008 EURO +10 -172 EURO -10 +172 2007 EURO +10 -114 EURO -10 +114
Non interest bearing financial instruments are not included in the tables above as they are not subject to interest rate risk.
Credit risk The Group has a large number of customers, both individuals and legal persons. Since receivables are widely spread, the Group assesses the credit risk as low. The Group has developed well-established procedures of managing receivables and formation of allowances for receivables. Receivable balances are monitored on an ongoing basis with the result that Group's exposure to bad debts is not significant. The Group's maximum exposure to receivables equals the carrying amount of these receivables.
With respect to credit risk arising to from the other financial assets of the Group, which comprise cash and cash equivalents, deposits with banks, available for sale financial assets, the Group's exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments.
Liquidity risk Liquidity is subject to effective cash management and investment dynamics. The Group manages the liquidity risk by careful monitoring of the liquidity of assets and liabilities and cash flows from operations. Short-term deficits are bridged by current borrowings from the local banks. Short-term surpluses are placed in bank deposits and securities. Also a large portion of payments made by the customers is reasonable predictable and stable.
The table below summarises the maturity profile of the Group's financial liabilities as at 31 December 2008 and 31 December 2007 based on the contractual undiscounted payments:
In TEUR 2008 Past Less than 3 More than due On demand months 3 to 12 months 1 to 5 years 5 years Total Borrowings 0 666 69,546 107,219 158,202 82,943 418,576 Other liabilities 0 0 109 1,302 63,909 0 65,320
Trade and other payables 0 15,021 137,060 7,159 0 0 159,240 2007
Borrowings 0 0 26,921 114,234 256,140 56,889 454,184 Other liabilities 0 0 0 0 48,596 52 48,648 Trade and other payables 8,434 0 137,918 6,955 610 0 153,917
Capital management The primary objective of the Group's capital management is to ensure that it maintains strong credit rating and capital ratios in order to support its business and maximise shareholder value.
The Group monitors capital using a gearing ratio, which is net debt divided by total net debt plus total equity. The Group includes within net debt, interest bearing loans and borrowings, less current financial WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 163
assets and cash and cash equivalents.
In TEUR 31.12.2008 31.12.2007 Interest bearing loans and borrowings 419,987 399,577 Less current financial assets, cash and cash equivalents -39,966 -89,008 Net debt 380,021 310,569
Capital 1,065,670 1,062,741 Capital and net debt 1,445,691 1,373,310 Gearing ratio 26% 23%
Fair value The Group estimates that fair values of financial assets and liabilities are not significantly different to their carrying value.
34. General authorisation and the rights of use for radio frequencies and numbers
Fixed line operations The provision of electronic communications networks or the provision of electronic communications services is only subject to a general authorisation. Prior to the commencement of the provision of public communications networks or services, notification must be given in writing to the Agency for Post and Electronic Communications (Agency). The undertaking is not required to obtain an explicit decision or any other administrative act by the national regulatory authority before exercising the rights stemming from the authorisation.
Telekom Slovenije, d.d. has in the past notified the provision of the following electronic communications services: - Public Voice Services over a Fixed Public Telecommunications Network, - International Telecommunications Services, - Data Transmission Services, - Domestic and International Leased Line Services.
Pursuant to the notification the annual fee must be paid in the amount of 472 TEUR (2007: 488 TEUR). The amount of the fee to be paid is defined with a tariff, which is a general act of the Agency.
Telekom Slovenije, d.d. also has to pay annual fees for the rights of use for radio frequencies and for numbers. The fee for the rights of use for radio frequencies amounts to 264 TEUR (2007: 315 TEUR), and the fee for the rights of use for numbers amounts to 258 TEUR (2007: 345 TEUR). The amount of the fees to be paid is defined with in the tariff, which is a genera)l act of the Agency.
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Mobile line operations
Period Service concession agreements Starting date (years) Concession fee Concession Agreements for Telecommunications Services with the usage of radio frequency spectrum in GSM mobile telephone services in radio frequency Initial fee of bands from 890- 915 and from 935- 960 MHz by GSM 9,863 TEUR standards 02.04.1998 15
Concession Agreements for Telecommunications Initial fee of Services with the usage of radio frequency spectrum in 4,173 TEUR GSM mobile telephony in DCS1800 network 03.01.2001 15
15, extended Concession Agreements for Telecommunications Initial fee of Services with the usage of radio frequency spectrum in to 91,804 TEUR mobile network system: UMTS/ITM-2000 27.11.2001 21.09.2021
Concession Agreements for Telecommunications Initial fee of Services with the usage of radio frequency spectrum in 75,000 TEUR GSM mobile telephone services network in Kosovo 06.03.2007 15
The Group, based on legal requirements, pay annual fees as follows: - fees based on revenues from public telecommunication network, - fees for use of radio frequencies - fees for allocated block of numbers
In 2008, the Group paid 1,608 TEUR (2007: 1,756 TEUR) of these fees.
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6.2.3 Independent Auditor's Report
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6.3 Financial report of Telekom Slovenije, d. d.
6.3.1 Financial statements of Telekom Slovenije, d.d.
Income statement of Telekom Slovenije, d.d. for the year ended 31 December 2008
In TEUR
Notes 2008 2007
Revenue 3 410,162 399,630
Other income 4 5,036 4,583
Cost of goods and material sold -18,034 -20,417
Cost of raw materials -8,237 -8,244
Cost of services 5 -173,452 -154,637
Staff costs 6 -74,373 -71,787
Depreciation and amortisation 12, 13 -89,197 -82,263
Other operating expenses 7 -11,232 -6,289
Total operating expenses -374,525 -343,637
Profit from operations 40,673 60,576
Finance revenue 8 78,626 49,034
Finance cost 9 -13,571 -8,897
Profit before tax 105,728 100,713
Income tax expense 10 -9,760 -16,040
Net profit for the year 95,968 84,673 Earnings per share - basic and diluted in EUR 11 14.75 13.02
The accompanying notes are an integral part of the financial statements.
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Balance sheet of Telekom Slovenije, d.d. at 31 December 2008
In TEUR
Notes 31 December 2008 31 December 2007
ASSETS
Intangible assets 12 28,608 21,815
Property, plant and equipment 13 693,733 676,028 Investment in subsidiaries, and joint ventures 14 336,303 307,617
Other investments 15 130,546 116,713
Other non current assets 16 10,595 2,652
Investment property 17 0 14,461
Deferred tax assets 18 0 0
Total non-current assets 1,199,785 1,139,286
Assets held for sale 627 627
Inventories 19 10,222 8,732
Current trade and other receivables 20 92,064 84,659
Income tax receivable 3,969 1,636
Current financial assets 21 43,135 33,687
Cash and cash equivalents 22 9,603 13,112
Total current assets 159,620 142,453
Total assets 1,359,405 1,281,739
The accompanying notes are an integral part of the financial statements. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 168
Balance sheet of Telekom Slovenije, d.d. at 31 December 2008
In TEUR
Notes 31 December 2008 31 December 2007
EQUITY AND LIABILITIES
Issued capital 23 272,721 272,721
Reserves 23 439,168 287,335
Fixed assets revaluation reserves 23 95,944 103,543
Other revaluation reserve -1,219 125
Treasury shares 23 -3,671 -3,671
Retained earnings 23 68,526 200,195
Total capital and reserves 871,469 860,248
Non-current deferred income 24 8,988 7,229
Provisions 25 16,678 16,283
Interest bearing borrowings 26 190,288 130,430
Other non-current financial liabilities 18,691 15,638
Deferred tax liabilities 18 1,231 3,856
Total non-current liabilities 235,876 173,436
Trade and other payables 27 107,596 104,165
Income tax payables 0 0
Interest bearing borrowings 26 130,852 130,254
Other current liabilities 1,125 0
Deferred income 28 7,881 8,935
Accrued expenses 4,606 4,701
Total current liabilities 252,060 248,055
Total liabilities 487,936 421,491
Total equity and liabilities 1,359,405 1,281,739
The accompanying notes are an integral part of the financial statements.
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Statement of changes in equity of Telekom Slovenije, d.d. for the year ended 31 December 2008 In TEUR
Issued Other Treasury Retained capital Reserves FA rev. reserves reserves shares earnings Total
Balance at 01.01.2008 272,721 287,335 103,543 125 -3,671 200,195 860,248 Revaluation of investments in net amount (see Note 15) -546 -546
Change in fair value of financial instruments -798 -798 Deferred tax liability 2 2 Total income and expense recognised in equity 0 0 2 -1,344 0 0 -1,342 Net profit for the year 95,968 95,968 Total income and expense for the year 0 0 0 0 0 95,968 95,968 Transfer to retained earnings and reserves (see Note 23) 5,043 -7,601 2,558 0 Transfer to reserves according to the resolution of general assembly 116,790 -116,790 0 Payment of dividends -83,270 -83,270 Other -135 -135 Transfer to other reserves according to resolution of the management board 30,000 -30,000 0
Balance at 31.12.2008 272,721 439,168 95,944 -1,219 -3,671 68,526 871,469
Retained earnings available for distribution as at 31 December 2008 Net profit for the year 2008 95,968,153.63 EUR Carried forward retained earnings 2,557,763.42 EUR Transfer to other reserves - resolution of the Management Board -30,000,000.00 EUR Total retained earnings available for distribution 68,525,917.05 EUR
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Statement of changes in equity of Telekom Slovenije, d.d. for the year ended 31 December 2007 In TEUR Issued Other Treasury Retained capital Reserves FA rev. reserves reserves shares earnings Total
Balance at 01.01.2007 272,721 282,292 91,883 184 -3,671 153,208 796,617
Revaluation of land and buildings at 01.01.2007 (see note 13) 37,466 37,466 Deferred tax liability -7,085 -7,085 Change in deferred tax liability due to change in tax rates (see note 10) -3,742 -3,742 Change in fair value of financial instruments -59 -59 Total income and expense recognised in equity 0 0 26,639 -59 0 0 26,580 Net profit for the year 84,673 84,673 Total income and expense for the year 0 0 0 0 0 84,673 84,673 Transfer to retained earnings (see note 23) 5,043 -7,423 2,380 0 Payment of dividends -39,879 -39,879 Other -7,556 -187 -7,743
Balance at 31.12.2007 272,721 287,335 103,543 125 -3,671 200,195 860,248
The accompanying notes are an integral part of the financial statements. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 171
Cash flow statement of Telekom Slovenije, d.d. for the year ended 31 December 2008 In TEUR
2008 2007 Operating activities Profit before tax 105,728 100,713 Adjustments for: Depreciation and amortisation 89,197 82,263 Depreciation of investment property 19 226
Loss on disposal and write-downs of intangible assets and PPE 1,228 733 Gains on disposal of PPE -3,085 -684 Gains on disposal of investment property -1,066 0
Finance revenue -78,626 -49,034 Finance cost 13,571 8,897
Change in assets held for sale 0 598 Change in trade and other receivables -9,738 -14,968 Change in other non-current assets 6,518 -282 Change in inventories -1,490 -2,186
Change in provisions 395 -1,327 Change in deferred income 705 939 Change in accruals -95 1,488 Change in trade and other payables -3,723 20,286
Income tax paid -14,501 -21,283 Cash flow from operating activity 105,037 126,379
Investing activities Proceeds from investing activities 121,581 51,195 Proceeds from sale of PPE 4,460 1,475 Proceeds from sale of investment property 16,062 0 Dividend income 65,558 40,201 Interest income 1,601 1,581 Proceeds from sale of non-current financial assets 2,400 3,938 Proceeds from sale of current financial assets 31,500 4,000 Disbursements from investing activities -193,850 -324,533 Purchase of PPE -106,453 -106,534 Purchase of intangible assets -11,703 -15,659 Purchase of investments -324 -1,647 Purchase of investments in subsidiaries and associates -27,094 -64,235 Disbursements of loans -48,276 -136,458 Cash flow from investing activities -72,269 -273,338
Financing activities activities Proceeds from financing activities 136,455 337,000 Proceeds from non-current borrowings 87,000 100,000 Proceeds from borrowings 49,455 237,000 Disbursements from financing activities -172,732 -217,546 Repayment of current borrowings -56,281 -154,130 Repayment of non-current borrowings -20,084 -15,873 Interest paid -13,187 -7,775 Dividends paid -83,180 -39,768 Cash flow from financing activities -36,277 119,454
Net increase in cash and cash equivalents 3,509 -27,505
Cash and cash equivalents at end of period 9,603 13,112 Cash and cash equivalents at beginning of period 13,112 40,617
The accompanying notes are an integral part of the financial statements. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 172
6.3.2 Notes to the financial statements and summary of significant accounting policies of Telekom Slovenije, d.d.
1. General information
Financial statements The financial statements are the separate financial statements of Telekom Slovenije, d.d. (hereinafter the “Company”) for the year ended 31 December 2008. Based on a decision taken at the Annual Meeting in June 2007, the Company‟s separate financial statements are prepared in accordance with IFRS as adopted by the EU. The financial statements were authorised for issue by the Board on 25 February 2009. The Company also prepares consolidated financial statements for the Telekom Slovenia Group, and these are presented in Chapter: “Financial statements of Telekom Slovenia Group”. The consolidated financial statements are available from Telekom Slovenije, d.d., Cigaletova 15, Ljubljana, Slovenija and were authorised for issue by the Board on 25 February 2009.
General information Telekom Slovenije, d.d., with its registered address at Cigaletova 15, Ljubljana, Slovenia, is a public company, incorporated and domiciled in the Republic of Slovenia, whose shares are listed on the Ljubljana stock exchange. As of 31 December 2008, the Republic of Slovenia as the majority shareholder holds 3,434,021 shares or a 52.54% interest in the Company.
Principal activities Telekom Slovenije, d.d. is the owner of almost all telecommunications capacities in the territory of Slovenia. It provides local and international fixed-line telephone services, internet services, other telecommunications services, and sells various mostly telecommunications merchandise. As at 31 December 2008, Telekom Slovenije, d.d. has the following subsidiaries:
Subsidiary Principal activity Country Operating in
Mobitel, d.d. Mobile telephony Slovenia Slovenia Construction and maintenance of GVO, d.o.o. telecommunication networks Slovenia Slovenia Publication of telephone directories Teledat, d.o.o. and business bases Slovenia Slovenia System integration of business Avtenta. si, d.o.o. solutions Slovenia Slovenia Slovenia, Croatia, and Interseek, d.o.o. Internet services Slovenia Serbia Ipko, d.o.o. Telecommunication services Kosovo Kosovo On.net, d.o.o. Internet services Macedonia Macedonia Bosnia and Aneks, d.o.o. Internet services Herzegovina Bosnia and Herzegovina
AOL SP, d.o.o. Internet services Albania Albania
SIOL, d.o.o. Internet services Croatia Croatia
Mobitel, d.d. has two subsidiaries: - Soline, d.o.o., where Mobitel, d.d. has held a 100% interest since 2002. The principal activity of the subsidiary is traditional salt production, while the subsidiary is also engaged in the preservation and management of the landscape park. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 173
- Planet 9, d.o.o. which was established in June 2003 jointly with SiOL, d.o.o. (which was in 2007 merged with Telekom Slovenije, d.d.). The activity of the subsidiary is the preparation and provision of multimedia content and services to users of the mobile broadcast and internet network. Interseek, d.o.o., the parent company of Interseek Group, holds a 100% interest in the following subsidiaries: Najdi.Si, d.o.o., Slovenia, Pogodak traţilica, d.o.o. Croatia, Pogodak, d.o.o., Serbia, and a 50.1% interest in Meganet, d.o.o., Slovenia. AOL SP, d.o.o. has two subsidiaries: - AFB, d.o.o., where AOL SP, d.o.o. has 88% interest from 2004 on; in 2008 has acquired additional 12%; the company provides internet services - H-COMMUNICATIONS, d.o.o.,100 % in ownership of AOLSP, d.o.o. from 2008, the company is fixed line operator.
Telekom Slovenije, d.d. holds 100% economic ownership in all subsidiaries, except Meganet, d.o.o. through holding call options and grating put options to minority holders. An investment in joint ventures represents acquisition of 50% of Gibtelecom,d.o.o, which was acquired in 2007.
Summary of significant accounting policies The significant accounting policies used in the preparation of the separate financial statements of Telekom Slovenije, d.d. are set out below. a. Statement of compliance The accompanying separate financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS“) promulgated by the International Accounting Standards Board (“IASB“), and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (»IFRIC«), as adopted by the EU. At the balance sheet date, due to the endorsement process of the EU and the activities of the company, there is no difference in the policies applied by the company between IFRS and IFRS adopted by the EU. b. Basis for preparation The financial statements have been prepared on a historical cost basis except for the measurement at fair value of financial assets available for sale and derivative financial instruments, and certain classes of property, plant and equipment which are revalued to fair value under the alternative treatment available in IAS 16 (refer below to accounting policy (i) Property, plant and equipment – assets owned by the Company). The accounting policies used are consistent with those applied in the previous year, except for the adoption of new standards and interpretations noted below and the adoption of an accounting policy for joint venture investments. The adoption of these standards and interpretations did not have any effect on the financial position or performance of the Company:
IAS 39 and IFRS 7 - Credit crisis reclassification. Changes in IAS 39 and IFRS 7 allow reclassification of financial instruments from held for trading category into other categories provided certain conditions are met. In 2008, the Company made no reclassifications.
IFRIC 11 and IFRS 2 - Group and Treasury Share Transactions. This interpretation addresses accounting treatment of share-based payments.
IFRIC 14, IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. Interpretation provides guidance on how to assess the limit on the amount of surplus in a defined benefit scheme that can be recognised as an asset under IAS 19 - Employee benefits. The items in separate financial statements are denominated in Euros, rounded to the nearest thousand units. c. Functional currency and foreign currency transactions The separate financial statements are presented in Euro (EUR) which is the functional and presentation currency of the Company and its subsidiaries in Slovenia. Foreign currency transactions are translated WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 174
into the functional currency at the exchange rate ruling at the date of the transactions.
Monetary assets and liabilities in foreign currency are translated at the exchange rate of the functional currency prevailing at the balance sheet date. All differences resulting from foreign currency translation are recognized in the income statement.
Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rates prevailing at the dates of the initial transactions. Non-monetary assets and liabilities measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. d. Profit from operations Profit from operations is defined as result before income taxes and finance items. Finance items comprise interest revenue on cash balances in the bank, deposits, interest bearing available for sale investments, interest expense on borrowings, gains and losses on derivatives and on sale of available for sale financial instruments and foreign exchange gains and losses on all monetary assets and liabilities denominated in foreign currency. e. Significant accounting estimates The preparation of the financial statements required management to make certain estimates and assumptions which impact the carrying values of the Company‟s assets and liabilities and the disclosure of contingent items at the balance sheet date and reported revenues and expenses for the period then ended. Estimates are used for, but not limited to: - depreciable lives and residual values of property, plant and equipment and intangible assets, - allowances for inventories and doubtful debts and - legal claims.
Future events and their effects cannot be perceived with certainty. Accordingly, the accounting estimates made require the exercise of judgment and those used in the preparation of the financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Company‟s operating environment changes. Actual results may differ from those estimates. The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Provisions and contingent liabilities As set out in notes 25 and 30 the Company is a participant in several lawsuits and administrative proceedings including those related to its pricing policies. The Company‟s treatment of obligations with uncertain timing and amount depends on the management‟s estimation of the amount and timing of the obligation and probability of an outflow of resources embodying economic benefits that will be required to settle the obligation (both legal or constructive). A provision is recognised when the Company has a present obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Contingent liabilities are not recognised because their existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company. Contingent liabilities are assessed continually to determine whether an outflow of resource embodying economic benefits has become probable. If it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability, a provision is recognised in the financial statements of the period in which the change in probability occurs.
Interconnect The Company provides and enters into contracts for interconnect services and the revenue is recognised on the basis of the reasonable estimation of expected amount. Such estimation is regularly reviewed, however for some operators final agreement and invoicing is determined on a yearly basis.
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f. Significant management judgments In the process of applying the accounting policies, management had made the following judgment, apart from those involving estimations, which has the most significant effect on the amounts recognised in the financial statement. The Company has concluded that there are no indicators of impairment of property, plant and equipment and intangible assets at year end and that there are no indicators that fair values of plant and equipment carried at revalued cost differ materially from carrying values. g. Early adoption of IFRS and IFRSs and IFRIC Interpretation not yet effective The Company has not early adopted any standards or interpretations issued and not yet effective.
The following new and amended IFRIC will be adopted in future periods as required by International Financial Reporting Standards:
IFRIC 13 - Customer Loyalty Programmes - effective for periods beginning on 1 July 2008. This interpretation requires customer loyalty credits to be accounted for as a separate component of the sales transaction in which they are granted.
The following new and amended IFRIC will be adopted in future periods as required by International Financial Reporting Standards as adopted by EU: IFRIC 12 - Service Concession Agreement. This interpretation outlines the approach to account for contractual arrangements arising from entities providing public services. It provides that the operator should not account for infrastructure as property, plant and equipment, but rather recognize a financial asset and/or intangible asset. IFRIC 15 - Agreement for the Construction of Real Estate. IFRIC 15 was issued in July 2008 and becomes effective for financial years beginning on or after 1 January 2009. The interpretation is to be applied retrospectively. It clarifies when and how revenue and related expenses from the sale of a real estate unit should be recognised if an agreement between a developer and a buyer is reached before the construction of the real estate is completed. Furthermore, the interpretation provides guidance on how to determine whether an agreement is within the scope of IAS 11 or IAS 18.
IFRIC 16 - Hedges of a Net Investment in a Foreign Operation. IFRIC 16 was issued in July 2008 and becomes effective for financial years beginning on or after 1 October 2008. The interpretation is to be applied prospectively. IFRIC 16 provides guidance on the accounting for a hedge of a net investment. As such it provides guidance on identifying the foreign currency risks that qualify for hedge accounting in the hedge of a net investment, where within the group the hedging instruments can be held in the hedge of a net investment and how an entity should determine the amount of foreign currency gain or loss, relating to both the net investment and the hedging instrument, to be recycled on disposal of the net investment.
The following new standards will be adopted in future periods as required by International Financial Reporting Standards and EU:
IFRS 8 - Operating segments - effective from 1 January 2009. This standard replaces - IAS 14 Segment reporting - and adopts a management approach to segment reporting and in case the numbers used by management for internal performance measurement of operating segments are different to the numbers reported in the financial statements requires a reconciliation of numbers used by management to the financial statements.
IAS 23 - Borrowing costs - effective for periods beginning 1 January 2009. The revised IAS 23 requires capitalisation of borrowing costs that relate to the qualifying asset. The transitional requirements of the standard require it to be adopted as a prospective change from the effective date.
IAS 1 - Revised Presentation of Financial Statements. The revised IAS 1 Presentation of Financial Statements was issued in September 2007 and becomes effective for financial years beginning on or after 1 January 2009. The Standard separates owner and non- owner changes in equity. The statement of changes in equity will include only details of transactions with WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 176
owners, with all non-owner changes in equity presented as a single line. In addition, the Standard introduces the statement of comprehensive income: it presents all items of income and expense recognised in profit or loss, together with all other items of recognised income and expense, either in one single statement, or in two linked statements. The Company is still evaluating whether it will have one or two statements.
IFRS 2 - Share-Based Payment (Amendments). The IASB issued an amendment to IFRS 2 in January 2008 that clarifies the definition of a vesting condition and prescribes the treatment for an award that is cancelled. This amendment will be effective for financial years beginning on or after 1 January 2009.
The following new and amended standards will be adopted in future periods as required by International Financial Reporting Standards, if endorsed by EU:
IFRS 3R - Business Combinations and IAS 27R - Consolidated and Separate Financial Statements. The revised standards were issued in January 2008 and become effective for financial years beginning on or after 1 July 2009. IFRS 3R introduces a number of changes in the accounting for business combinations that will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs, and future reported results. IAS 27R requires that a change in the ownership interest of a subsidiary is accounted for as an equity transaction. Therefore, such a change will have no impact on goodwill, nor will it give raise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes introduced by IFRS 3R and IAS 27R must be applied prospectively and will affect future acquisitions and transactions with minority interests.
Amendments to IAS 32 and IAS 1 - Puttable Financial Instruments. Amendments to IAS 32 and IAS 1 were issued in February 2008 and become effective for annual periods beginning on or after 1 January 2009. The amendment to IAS 32 requires certain puttable financial instruments and obligations arising on liquidation to be classified as equity if certain criteria are met. The amendment to IAS 1 requires disclosure of certain information relating to puttable instruments classified as equity. The Company does not expect these amendments to impact its financial statements.
IAS 39 - Financial Instruments: Recognition and Measurement - Eligible Hedged Items. These amendments to IAS 39 were issued in August 2008 and become effective for financial years beginning on or after 1 July 2009. The amendment addresses the designation of a one-sided risk in a hedged item, and the designation of inflation as a hedged risk or portion in particular situations. It clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as hedged item.
Improvements to IFRSs, not yet endorsed by EU:
In May 2008 the Board issued its first omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The company has not early adopted any of the amendments.
IAS 1 - Presentation of Financial Statements. Assets and liabilities classified as held for trading in accordance with IAS 39 Financial Instruments: Recognition and Measurement are not automatically classified as current in the balance sheet.
IAS 16 - Property, Plant and Equipment. Replace the term “net selling price” with “fair value less costs to sell”. Items of property, plant and equipment held for rental that are routinely sold in the ordinary course of business after rental, are transferred to inventory when rental ceases and they are held for sale.
IAS 23 - Borrowing Costs. The definition of borrowing costs is revised to consolidate the two types of items that are considered components of „borrowing costs‟ into one - the interest expense calculated using the effective interest rate method in accordance with IAS 39.
IAS 28 - Investment in Associates. If an associate is accounted for at fair value in accordance with IAS 39, only the requirement of IAS 28 to WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 177
disclose the nature and extent of any significant restrictions on the ability of the associate to transfer funds to the entity in the form of cash or repayment of loans applies. An investment in an associate is a single asset for the purpose of conducting the impairment test. Therefore, any impairment test is not separately allocated to the goodwill included in the investment balance.
IAS 31 - Interest in Joint Ventures. If a joint venture is accounted for at fair value, in accordance with IAS 39, only the requirements of IAS 31 to disclose the commitments of the venturer and the joint venture, as well as summary financial information about the assets, liabilities, income and expense will apply.
IAS 36 - Impairment of Assets. When discounted cash flows are used to estimate „fair value less cost to sell‟ additional disclosure is required about the discount rate, consistent with disclosures required when the discounted cash flows are used to estimate „value in use‟.
IAS 38 - Intangible Assets. Expenditure on advertising and promotional activities is recognised as an expense when the Company either has the right to access the goods or has received the service. The reference to there being rarely, if ever, persuasive evidence to support an amortisation method of intangible assets other than a straight-line method has been removed.
IFRS 7 - Financial Instruments: Disclosures. Removal of the reference to „total interest income‟ as a component of finance costs.
IAS 8 - Accounting Policies, Change in Accounting Estimates and Errors. Clarification that only implementation guidance that is an integral part of an IFRS is mandatory when selecting accounting policies.
IAS 10 - Events after the Reporting Period. Clarification that dividends declared after the end of the reporting period are not obligations.
IAS 18 - Revenue. Replacement of the term „direct costs‟ with „transaction costs‟ as defined in IAS 39.
IAS 19 - Employee Benefits. Revised the definition of „past service costs‟, „return on plan assets‟ and „short term‟ and „other long-term‟ employee benefits. Amendments to plans that result in a reduction in benefits related to future services are accounted for as curtailment. Deleted the reference to the recognition of contingent liabilities to ensure consistency with IAS 37.
IAS 20 - Accounting for Government Grants and Disclosures of Government Assistance. Loans granted in the future with no or low interest rates will not be exempt from the requirement to impute interest. The difference between the amount received and the discounted amount is accounted for as government grant. Also, revised various terms to ensure consistency with other IFRS.
IAS 27 - Consolidated and Separate Financial Statements. When a parent entity accounts for a subsidiary at fair value in accordance with IAS 39 in its separate financial statements, this treatment continues when the subsidiary is subsequently classified as held for sale.
IAS 29 - Financial Reporting in Hyperinflationary Economies. Revised the reference to the exception to measure assets and liabilities at historical cost, such that it notes property, plant and equipment as being an example, rather than implying that it is a definitive list. Also, revised various terms to ensure consistency with other IFRS.
IAS 34 - Interim Financial Reporting. Earnings per share is disclosed in interim financial reports if an entity is within the scope of IAS 33.
IAS 39 - Financial Instruments: Recognition and Measurement. Changes in circumstances relating to derivatives are not reclassifications and therefore may be either WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 178
removed from, or included in, the „fair value through profit or loss‟ classification after initial recognition. Removed the reference in IAS 39 to a „segment‟ when determining whether an instrument qualifies as a hedge. Require the use of the revised effective interest rate when re-measuring a debt instrument on the cessation of fair value hedge accounting.
IAS 40 - Investment Property. Revision of the scope such that property under construction or development for future use as an investment property is classified as investment property. If fair value cannot be reliably determined, the investment under construction will be measured at cost until such time as fair value can be determined or construction is complete. Also, revised of the conditions for a voluntary change in accounting policy to be consistent with IAS 8 and clarified that the carrying amount of investment property held under lease is the valuation obtained increased by any recognised liability.
The Company is reviewing the not yet effective standards and interpretations and at this stage cannot reasonable assess the impact of the new requirements. The Company will comply with new standards and interpretations as and when effective. h. Intangible assets Intangible assets are stated at cost less accumulated amortisation less impairment losses. Intangible assets include: - software acquired separately from hardware and used for more than one year, - other intangible assets. Expenditure on computer software is capitalised at cost and amortised on a straight-line basis over its estimated useful lives, which ranges from 3 –5 years. The cost of licenses is capitalised and amortised on a straight-line basis over the contract period of the relevant license, which is 2-5 years. Intangible assets are subject to amortisation once the assets are available for use. Subsequent expenditure on intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. i. Property, plant and equipment Owned assets Property, plant and equipment are stated at cost or valuation less accumulated depreciation and impairment losses. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads. Internal expenses capitalised in fixed assets are netted off against the relevant expenses in the income statement. When an item of property, plant and equipment comprises major components having different useful lives, these components are accounted for as separate items of property, plant and equipment. The Company changed its accounting policy for land and business premises from the cost model to the revaluation model in 2007.
Subsequent to initial recognition certain classes of property, plant and equipment are carried at revalued amount, being the fair value at the date of the revaluation less any subsequent depreciation and subsequent accumulated impairment losses. Those classes comprise land and buildings, cable and lines, exchange switches and other equipment in fixed lines operations. When an asset‟s carrying amount is increased as a result of a revaluation, the increase is credited directly to equity within revaluation reserves. The revaluation to fair value of these assets is based on a report of an independent appraiser. According to the policy adopted by the Company, the revaluation to fair value is carried out when fair values differs materially from carrying value as determined by the management board.
Leased assets - finance lease Leases in terms of which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Plant and equipment acquired by way of finance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses. If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset or the lease term. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 179
Operating lease All leases other than finance leases are regarded as operating leases. Lease payments under an operating lease are recognised as an expense in the income statement on a straight-line basis over the lease term. If the operating lease contract is terminated prior to the expiration of the lease term, each lease payment required by the lessor as a penalty for the breach of contract is recorded as expense in the period, in which the contract is terminated. Subsequent expenditure Expenditure incurred to replace a component of an item of property, plant and equipment is capitalised. Other subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the item of property, plant and equipment. All other expenditure is recognised in the income statement as an expense as incurred. In the event of subsequent expenditure on the asset, the remaining useful life of the asset is re-evaluated. If the asset has already been fully depreciated, the subsequent expenditure is treated as a new item with new useful life. Cost of borrowing Cost of borrowing is recognised as an expense when incurred. Government grants related to assets Government grants related to assets are presented in the balance sheet as deferred income in the amount of the grant. They are intended to compensate the costs of depreciation of these assets. The grant is recognised to income on a straight-line basis over the life of the depreciable asset. Depreciation Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of items of property, plant and equipment. The estimated useful lives are as follows:
Groups of property, plant and equipment Useful lives in years
- buildings 7 to 50 - cable lines 20 to 50 - cable network 7 to 25 - other network 2 to 12,6 - exchange switches 4 to 7 - other devices 2 to 20
Land and assets under construction are not depreciated. An item of property, plant and equipment under construction is recognized at cost and depreciated when brought to working condition for its intended use. j. Investment property Investments properties are measured initially at cost, including transactions costs. Subsequent to initial recognition, investment properties are stated at cost less accumulated depreciation. Depreciation is calculated individually, on a straight-line basis over the estimated useful lives of items of property, plant and equipment. Land is not depreciated. The estimated useful of investment property is as follows:
Investment property Useful lives in years
- Buildings 20 to 50
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k. Financial instruments Primary financial instruments (cash and cash equivalents, trade and other receivables, trade payables and borrowings, investments) are recognised in the financial statements. The accounting policies applied to recognition and measurement of these items are disclosed in the respective accounting policies to the financial statements. l. Investments Investments in subsidiaries Investments in subsidiaries are accounted for at cost in the separate financial statements.
Investments in associates and joint ventures Investments in associates and joint ventures are carried at cost less impairment in the separate financial statements.
Investments in debt and equity securities Investments are classified as available-for-sale and are stated at fair value. Any associated unrealised gains or losses are recognised directly in equity. When the investment is disposed of the cumulative gain or loss previously recorded in equity is recognised in the income statement.
Interest on debt securities is recognised in the income statement at the effective interest rate. The fair value of investments in debt and equity securities listed on the stock exchange is their quoted price. If the financial instruments are not listed on the stock exchange and their fair value cannot be reliably determined, they are stated at cost. Available-for-sale investments are recognised (or derecognised) on the date of commitment to purchase or sell. Loans Loans are stated at amortised cost less impairment losses.
Impairment of financial assets The Company assesses at each balance sheet date whether financial assets or groups of financial assets are impaired.
Assets at amortized cost-impairment If there is objective evidence that an impairment loss on loans and receivables or held to maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset‟s carrying amount and the present value of estimated future cash flows discounted at the financial asset‟s original effective interest rate. The carrying amount of the asset is reduced either directly or through use of an allowance account. The amount of the loss is recognised in the income statement. The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the income statement and only to the extent that the carrying amount of the financial asset does not exceed its amortised cost at the reversal date.
Available-for-sale financial assets - impairment If an available-for-sale asset is impaired, an amount comprising the difference between its acquisition cost (net of any principal repayment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss, is transferred from equity to the income statement. Reversals of impairment losses on debt instruments are reversed through profit or loss, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognised in the income statement. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 181
De-recognition of financial assets A financial asset is de-recognised when: - the rights to receive cash flows from the asset have expired, - the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement, or - the Company has transferred its rights to receive cash flows from the assets and either has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. m. Derivative financial instruments Derivative financial instruments are used to hedge the Company‟s exposure to risks arising from financing and investing activities. Derivative financial instruments are recognized initially at cost. After initial recognition, derivative financial instruments are measured at fair value. The method of recognition of gains or losses arising from the change in fair value depends upon whether hedge accounting has been applied or not. When hedge accounting has been applied the recognition of gains or losses arising from the change in fair value depends on the type of hedging (refer to Note „n‟). The fair value of foreign currency forward contracts is determined as the present value of the given price in the forward contract. The fair value of a call option is determined by the seller of the option. The model of valuation is based on the calculation of the present value of expected cash flows, taking into account the market conditions at the date of calculation. When hedge accounting has not been applied, derivative financial instruments are accounted for at fair value with changes in fair value recognised in the income statement. n. Hedging When a derivative instrument is designated as a hedge of the exposure to variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecasted transaction, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity. When the forecasted transaction results in the recognition of an asset or a liability, the associated cumulative gains or losses that were recognised directly in equity are removed from equity and entered into the initial measurement of the acquisition cost or other carrying amount of the asset or liability. For all other cash flow hedges, amounts that have been recognised directly in equity are included in net profit or loss in the same period during which the hedged forecasted transaction affects net profit or loss. The ineffective portion of the cash flow hedge is immediately recognized in the income statement. The change in the instrument‟s time value is excluded from the assessment of hedge effectiveness and is immediately reported in the income statement. If the hedging instrument expires, yet the forecasted transaction is still expected to occur, the cumulative gain or loss on the hedging instruments that initially had been reported directly in equity when the hedge was effective remains separately in equity until the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, the cumulative gain or loss on the hedging instrument that initially has been reported directly in equity is reported in the income statement. o. Other non-current assets Prepaid rentals are deferred over the contract period and are progressively transferred to rental expenses. Rentals are prepaid for a period ranging from 3 to 29 years. Sale incentives given to subscribers in the form of subsidised internet and television modems (subsidies) are recognised and deferred in the amount by which the equipment‟s cost exceeds its selling price, under the condition that subsidies shall be covered by the average monthly subscription fee earned over the expected life of the subscriber contract. Therefore, the difference between the selling price and the purchase cost of internet and television modems is reported within deferred costs. The subscription period applicable to internet and television modems is 24 months. WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 182
Over the period of the subscription agreement, deferred costs are amortised proportionally to the income statement, starting at the inception of the contractual period. If a subscription agreement is terminated or a subscriber is disconnected from the network due to non- payment of bills, subsidies are impaired accordingly. p. Trade receivables Trade receivables are stated on initial recognition at cost and subsequently measured at amortised cost less impairment losses. r. Inventories Inventories are stated at the lower of cost and net realisable value. Cost includes purchase price, import duties and other costs directly attributable to the acquisition. Slow-moving inventories are written down to net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. s. Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with maturities of up to three months with insignificant risk of change in fair value. t. Impairment of non current assets The carrying amounts of the Company‟s non current assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset‟s recoverable amount is estimated.
An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement except when the asset was already revalued and the surplus recognized in revaluation reserves.
The recoverable amount is the greater of an asset‟s (or cash-generating unit‟s) net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. u. Dividends Dividends are recognised as a liability in the period in which they are approved. v. Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value. Subject to initial recognition interest-bearing borrowings are stated at amortised cost with any differences between cost and the redemption value being recognised in the income statement over the terms of the loans on an effective interest basis. z. Provisions A provision is recognised in the financial statements when the company has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If material, provisions are determined by discounting the expected future cash-flows. Provisions for termination payments and anniversary bonuses Health, pension and social insurance contributions from gross wages and salaries are paid by the Company during the year at the statutory rates. Contributions are recognised as an expense in the income statement in the period in which they are incurred. In accordance with statutory requirements, the collective agreement, and the internal rules and regulations, the Company is obliged to pay to its employees an anniversary bonus and termination pay upon retirement, for which provisions are formed. The Company has no other pension liabilities Provisions are formed in the amount of the estimated future payments of anniversary bonuses and termination payments, discounted as at the balance sheet date. A calculation is made per employee on the basis of the cost of termination pay upon retirement and the cost of all expected anniversary bonuses WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 183
aa. Trade and other payables Trade and other payables are stated at fair value on initial recognition and subsequently measured at amortised cost. ab. Revenue Revenue from services rendered is recognised when services are rendered and when there are no significant uncertainties regarding recovery of the consideration due. Revenue consists principally of revenue from monthly subscription fees, revenue from connection fees, revenue from call charges and charges for other services, revenue from provision of network services to other telecommunications companies (interconnection), revenue from the rental of network, and revenue from the sale of merchandise. Revenue from subscription fees is recognised in the period to which it relates. Revenue from connection fees is recognised at the time of conclusion of the agreement with the customer. Revenue from call charges and charges for other services is recorded at the time when the call is made. Revenue from interconnection services and from rental of network is recognized in the period in which a service is provided. Revenue from sale of merchandise is recognised when the sale occurs. Revenue from voice services with added value is recognised in the period to which it relates and reported in net amounts. ac. Finance revenue Interest revenue is recognised as the interest accrues (using the effective interest method that exactly discounts estimated future cash receipts over the expected life of the financial instrument) to the net carrying amount of the financial assets. Dividend income is recognised in the income statement on the date that the right to receive dividend payment is established. ad. Income tax Income tax comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the balance sheet date, and any adjustments to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amounts of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilised. A deferred tax asset or liability is recognised irrespective of the time period in which temporary differences are settled. Deferred tax relating to items recognised directly in equity is recognised in equity.
2. Segment reporting
The Board of Telekom Slovenije, d.d. determined that, as the risks and rates of return of the Company‟s various products and services are similar, the Company operates only one business segment for financial reporting purposes.
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3. Revenue In TEUR 2008 2007
Voice telephony 161,311 186,354 Voice tr Voice transfer through IP network 6,567 1,862 Internet and broadband access 61,263 53,332 Interconnections 27,453 22,560 InIInter International operator services 65,788 49,606 Bandwidth lease 18,499 13,618 Unbundl Unbundled access and collocations 13,727 16,413 Voice services with added value 3,088 2,634 Data transfer services 26,632 26,142 Sale of advertising space 85 270 Other services 11,922 8,703 Sale of merchandise and materials 13,022 17,104 Other revenue 805 1,032 Total revenue 410,162 399,630
In TEUR 2008 2007
Revenue from sale of services in domestic market 331,333 332,919 Revenue from sale of services in foreign markets 65,832 49,607 Revenue from sale of merchandise and material in domestic market 12,997 17,104
Total revenue 410,162 399,630
4. Other operating revenue In TEUR 2008 2007
Government grants 88 151 Gains on disposal of property, plant and equipment 2,924 1,309 Other income 2,024 3,123
Total other operating revenue 5,036 4,583
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5. Cost of services In TEUR 2008 2007
Communication and transport services, and rent 6,032 10,182 Maintenance 23,097 27,417 Telecommunication services 116,544 89,958 Professional services 8,710 8,899 Insurance, marketing and entertainment 8,724 8,384 Banking services 1,037 981 Other services 9,308 8,816
Total cost of services 173,452 154,637
6. Staff costs In TEUR
2008 2007 Wages and salaries 51,492 49,207 Social security contributions 11,139 10,830 - There of: pension contributions 4,956 4,553 Other staff costs 11,742 11,750 Total staff costs 74,373 71,787
The average number of employees in 2008 was 1,906 (2007; 2079).
7. Other operating expenses In TEUR
2008 2007 Provision for legal cases (note 25) 834 762 Impairment charge of current assets 8,329 3,597 Other expenses 2,069 1,930 Total other operating expenses 11,232 6,289
8. Finance revenue
In TEUR
2008 2007 Dividend income 65,559 40,201 Interest income 12,263 8,574 Exchange rate gains 131 233 Other finance income 673 26 Total finance revenue 78,626 49,034
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9. Finance expenses In TEUR 2008 2007 Interest expense 13,407 8,452 Change in fair value of derivative financial instruments 164 380 Other finance expenses 0 65 Total finance expenses 13,571 8,897
10. Income tax expense
Income tax expense recognized in the income statement In TEUR 2008 2007 Current tax expense -12,031 -16,001 Deferred tax income/expense 2,271 -39 Income tax expense in the income statement -9,760 -16,040
Reconciliation of actual and computed tax expense taking into account effective tax rate
In TEUR 2008 2007
Profit before tax under IFRS 105,728 100,713
Income tax using the domestic corporate tax rate of 22% (2007: 23%) -23,260 -23,164 Tax relief for dividends 13,702 8,724 Tax incentives used in the current period 989 418 Elimination of tax incentives used in previous years -98 0 Change in tax rate -6 -13 Non-deductible expenses -1,033 -2,005 Other items -54 0 Total income tax expense -9,760 -16,040
In accordance with Slovenian income tax regulations, the Company is entitled to an annual tax incentive in an amount equal to 20% of investments in research and development, and 30% of the amount invested in equipment to a maximum of EUR 30,000.
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Deferred tax recognised in the income statement is attributable to the following items In TEUR 2008 2007 Intangible assets 0 0 Property, plant and equipment 1,391 248 Investments 0 0 Provisions -147 -481 Receivables 1,056 223 Accrued costs -29 -29 Deferred tax credit/expense 2,271 -39
Deferred tax recognised in equity
2008 2007 Change in fair value of available-for sale investments 136 0 Change in fair value of financial instruments designated as hedges 214 0 Restatement of deferred tax liabilities 2 -7,085 Deferred tax assets/liabilities 352 -7,085
11. Earnings per share
Earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.
The weighted average of ordinary shares in issue during the year is calculated by reference to shares in issue during the period, considering any potential redemptions and sales in that period and the period during which these shares generated profit. Adjusted net earnings per share also include all potential ordinary shares that originated in exchangeable bonds, options and forward contracts. When calculated, earnings and the number of shares are adjusted for effects of all adjustable potential ordinary shares that would occur if they would be swapped for ordinary shares in the accounting period.
In TEUR 2008 2007
Net profit attributable to holders of ordinary shares of the parent company 95,968 84,673 Adjusted net profit attributable to holders of ordinary shares of the parent company 95,968 84,673
Weighted average number of ordinary shares for net earnings per share 6,505,478 6,505,478 Adjusted average number of ordinary shares for net earnings per share 6,505,478 6,505,478
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12. Intangible assets
The movement in intangible assets was as follows In TEUR Other intangible Intangibles in 2008 Goodwill Licences Software assets construction Total
COST 1.1.2008 0 8,153 21,892 86 7,392 37,523 Additions 0 0 0 0 11,761 11,761 Transfer to use 0 3,986 6,837 0 -10,823 0 Disposal 0 0 -1,223 0 0 -1,223 31.12.2008 0 12,139 27,506 86 8,330 48,061 ACCUMULATED AMORTIZATION 1.1.2008 0 2,929 12,720 59 0 15,708 Additions 0 38 0 0 0 38 Disposals 0 0 -1,203 0 0 -1,203 Amortization 0 1,702 3,203 5 0 4,910 31.12.2008 0 4,669 14,720 64 0 19,453
CARRYING AMOUNT 1.1.2008 0 5,224 9,172 27 7,392 21,815 31.12.2008 0 7,470 12,786 22 8,330 28,608
In TEUR Other intangible Intangibles in 2007 Goodwill Licences Software assets construction Total
COST 1.1.2007 0 3,918 15,715 86 2,172 21,891 Additions 0 4,235 6,189 0 5,220 15,644 Disposal 0 0 -12 0 0 -12 31.12.2007 0 8,153 21,892 86 7,392 37,523 ACCUMULATED AMORTIZATION 1.1.2007 0 1,872 11,260 53 0 13,185 Disposals 0 0 -12 0 0 -12 Amortization 0 1,057 1,472 6 0 2,535 31.12.2007 0 2,929 12,720 59 0 15,708
CARRYING AMOUNT 1.1.2007 0 2,046 4,455 33 2,172 8,706 31.12.2007 0 5,224 9,172 27 7,392 21,815
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13. Property, plant and equipment
The movement in property, plant and equipment was as follows
In TEUR
Land and Cables and Switching Other Assets under 2008 buildings lines exchanges equipment construction Total
COST
1.1.2008 134,165 968,932 270,449 288,890 13,497 1,675,933
Additions 0 0 0 0 106,409 106,409 Transfer from assets under construction 3,472 50,788 9,728 28,165 -92,153 0
Disposals, write-offs -2,774 -675 -1,366 -13,355 0 -18,170
31.12.2008 134,863 1,019,045 278,811 303,700 27,753 1,764,172
ACCUMULATED DEPRECIATION
1.1.2008 5,324 571,249 227,525 195,807 0 999,905
Depreciation 3,182 38,712 13,336 29,057 0 84,287
Disposals, write-offs -535 -575 -1,045 -11,598 0 -13,753
31.12.2008 7,971 609,386 239,816 213,266 0 1,070,439
CARRYING AMOUNT
1.1.2008 128,841 397,683 42,924 93,083 13,497 676,028
31.12.2008 126,892 409,659 38,995 90,434 27,753 693,733
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In TEUR
Land and Cables and Switching Other Assets under 2007 buildings lines exchanges equipment construction Total
COST
1.1.2007 122,194 928,060 253,186 258,907 15,509 1,577,856
Revaluation as of 1.1.2007 6,480 0 0 0 0 6,480
Additions 0 0 0 0 115,736 115,736 Transfer from assets under construction 5,831 48,820 17,908 44,773 -117,332 0
Disposals, write-offs -340 -7,948 -654 -14,781 -416 -24,139
Other transfers 0 0 9 -9 0 0
31.12.2007 134,165 968,932 270,449 288,890 13,497 1,675,933
ACCUMULATED DEPRECIATION
1.1.2007 33,368 533,475 214,089 185,182 0 966,114
Revaluation as of 1.1.2007 -30,986 0 0 0 0 -30,986
Depreciation 3,118 38,133 13,955 24,522 0 79,728
Disposals, write-offs -176 -359 -520 -13,896 0 -14,951
Other transfers 0 0 1 -1 0 0
31.12.2007 5,324 571,249 227,525 195,807 0 999,905
CARRYING AMOUNT
1.1.2007 88,826 394,585 39,097 73,725 15,509 611,742
31.12.2007 128,841 397,683 42,924 93,083 13,497 676,028
Land and buildings, cables and lines, switching exchanges and other equipment are stated at fair value. Other items of property, plant and equipment are stated at cost. Cables and lines, switching exchanges and other equipment were valued by a licensed valuer as at 1 January 2004 using the DRC method. Land and buildings were valued by a licensed valuer to fair value as at 1 January 2007 using comparable market prices.
Property, plant and equipment are free of encumbrances.
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14. Investments in subsidiaries and joint ventures
Investments in subsidiaries The Company holds a controlling interest in the following subsidiaries:
In TEUR
Subsidiary 2007 Acquisition Disposal 2008
Mobitel, d.d. 198,485 0 0 198,485 GVO, d.o.o. 5,758 0 0 5,758 Teledat, d.o.o. 569 0 0 569 Avtenta.si, d.o.o. 1,723 0 0 1,723 Planet 9, d.o.o. 2 5 0 7 Interseek, d.o.o. 8,550 0 0 8,550 Ipko, d.o.o. 40,166 16,065 0 56,231 On.net, d.o.o. 9,699 0 0 9,699 Blic.net, d.o.o. 5,890 0 -5,890 0 Aneks, d.o.o. 0 10,353 0 10,353 AOL SP, d.o.o. 0 7,652 0 7,652 SIOL, d.o.o. 0 501 0 501
Total investments in subsidiaries 270,842 34,576 -5,890 299,528
In the beginning of 2008, the Company had acquired 70% share in Aneks, d.o.o., Banja Luka, Bosnia and Herzegovina, which is internet provider on Bosnian market. During the 2008, the Company had sold 30% share in the company Blic.net, d.o.o., the remaining part was merged to the company Aneks, d.o.o., Banja Luka.
In 2008, Telekom Slovenije, d.d. acquired 75% interest in the company AOLSP, d.o.o., Tirana, Albania, Internet provider.
In 2008, Telekom Slovenije, d.d. established a new subsidiary in Croatia, SIOL, d.o.o., which is Internet provider.
In 2008, Telekom Slovenije, d.d. increased its interest in Planet 9, d.o.o. to 50%.
Investments in associates and joint ventures Telekom Slovenije, d.d. has a 50% interest in Gibtelecom, a telecommunication company in Gibraltar, which was acquired in April 2007. Gibtelecom is a private entity that is not listed on any public exchange.
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Information for associates, joint ventures and subsidiaries as at 31 December 2008 (a minimum of 20% interest)
Ownership Net income Company Address (%) Equity TEUR TEUR MOBITEL, 1000 Ljubljana, telekomunikacijske storitve, d.d. Vilharjeva 23 100.00 418,534 58,955 GVO, Gradnja in vzdrţevanje 1000 Ljubljana, telekomunikacijskih omreţij, d.o.o. Cigaletova 10 100.00 9,866 2,862 Teledat, zaloţništvo imenikov in podatkovnih baz, 1000 Ljubljana, d.o.o. Cigaletova 15 100.00 2,350 1,621 AVTENTA.SI, d.o.o., 1000 Ljubljana, sistemska integracija in poslovne rešitve Verovškova ulica 55 100.00 3,147 568 SOLINE 6230 Portoroţ Pridelava soli, d.o.o. Seča 115 100.00 3,823 18 PLANET 9, internetne storitve in mobilne 1000 Ljubljana telekomunikacijske storitve, d.o.o. Vojkova 78 100.00 412 162 M-Pay, druţba za mobilno plačevanje, storitve in 2000 Maribor trgovino, d.o.o. Ul. Vita Kraigherja 3 50.00 152 12 Interseek, internetne iskalne tehnologije, 1000 Ljubljana, d.o.o. Stegne 31 75.00* 9,975 356 Priština, Kosovo Ipko, d.o.o. Blv. Mati Tereze, RTK 63.75* 16,949 -9,448 Skopje, Macedonia On.net, Druţba za informacijske sisteme Blv. Partizanski odredi, sistemi, d.o.o. no. 70, BC Aluminka 83.38* 6,188 -759 Banja Luka, Republic of Aneks, Druţba za inţeniring in Serbia, Ul. Majke konzalting export-import, d.o.o. Jugovića 25 70.00 6,798 383
AOL SP, d.o.o. Tirana, Albania 75.00 6,266 1,093 Zagreb, Croatia, SIOL, d.o.o. Margaretska 3 100.00 497 5 Gibtelecom, d.o.o. Suite 942, Europort 50.00 29,937 9,734
* Telekom Slovenije,d.d. has a call option to acquire the shares from minorities and minorities have put option to sell the shares to Telekom Slovenije,d.d.
15. Other investments In TEUR 2008 2007 Investments in equity securities of banks 1,070 785 Investments in other equity securities 1,051 1,693 Loans to others 125,796 111,000 Loans to employees 2,418 2,429 Receivables from the sale of apartments 61 89 Loans to TK subscribers 150 717 Total other investmants 130,546 116,713
All investments in equity securities are classified as available for sale. Of total invested in securities of banks, a negligible amount are traded investments i.e. A banka, d.d. shares, which began quoted on the stock exchange in 2008. Of total amount invested in other equity securities as at 31 December 2008, EUR WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 193
897 thousand represents traded securities i.e. Zavarovalnica Triglav, d.d. shares which also began quoted on the stock exchange in 2008. As at 31 December 2008, the Company recorded decrease (Zavarovalnica Triglav shares) and increase (A banka shares) in the value of securities to the market price in net amount of -546 TEUR as decrease in revaluation reserves, taking into account deferred tax. Other securities are not traded on the stock exchange and therefore, their fair value cannot be reliably estimated, so they are carried at cost.
16. Other non-current assets
In TEUR 2008 2007 Long-term prepaid rentals 5,231 631 Long-term deferred sale incentives 3,087 480 Other non-current assets 2,277 1,541 Total other non-current assets 10,595 2,652
Movements in long-term prepaid rentals and deferred sale incentives are:
In TEUR Rentals Sale incentives 1.1. 2007 22 4,253 Increase 618 361 Transfer to expenses -9 -4,134 31.12. 2007 631 480 Increase 4,919 7,039 Transfer to expenses -319 -4,432 31.12.2008 5,231 3,087
17. Investment property
Movement in investment property In TEUR 2008 2007 1.1. 14,461 14,687 Depreciation -19 -226 Disposals -14,442 0 31.12. 0 14,461
In January 2008, the Company sold the investment property and as a result, no revenue from lease of investment property is recorded in the income statement. (In 2007, the revenue from lease of investment property rehed 988 TEUR).
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18. Deferred tax assets and liabilities
In TEUR 2008 2007 Intangible assets 0 0 Property, plant and equipment -6,302 -7,697 Investments in financial assets 350 0 Trade receivables 1,720 663 Provisions 2,852 2,999 Other non-current assets 149 179 Deferred tax assets/liabilities -1,231 -3,856
19. Inventories
In TEUR 2008 2007 Materials 4,907 5,156 Merchandise 5,315 3,576 Total inventories 10,222 8,732
As at 31 December 2008, inventories were restated to their realisable value and an impairment loss was recorded in the amount of 206 TEUR (2007: 224 TEUR). Merchandise and materials are valued at net realizable value in the amount of 1,197 TEUR and 91 TEUR respectively, while other inventories are valued at initial cost as no adjustment was necessary in respect of these inventories.
20. Trade and other receivables
In TEUR 2008 2007 Trade receivables 54,047 55,324 Receivables from foreign operators 17,129 11,690 Receivables due from domestic operators 17,769 11,656 Advances 145 895
VAT and other tax receivables 5,164 5,633 Accrued revenue 2,618 1,916 Current amounts of sale incentives 4,976 3,023 Other receivables 856 1,100 Provision for impairment -10,640 -6,578 Total trade and other receivables 92,064 84,659
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Movement of impairment allowance
In TEUR 2008 2007 1.1. -6,578 -6,764 Additions -8,668 -1,931 Impairment reversal 2,916 898 Utilisation 1,690 1,219 31.12. -10,640 -6,578
At 31 December 2008, age structure of trade receivables that were past due but not impaired is as follows:
In TEUR
Neither past due nor Past due and Total impaired impaired Past due but not impaired
Less than More than 30 days 31 - 60 days 61 - 90 days 91 -120 days 120 days
2008 92,064 76,676 1,928 6,861 2,276 1,323 374 2,626
2007 84,659 69,784 3,221 5,769 1,798 791 440 2,856
Trade receivables are non interest bearing, some of them are insured in the contracts with the other operators.
21. Current financial assets In TEUR
2008 2007 Other loans 43,135 33,635 Fair value of derivatives (interest rate swap) 0 52 Total current financial assets 43,135 33,687
Other loans include 42,602 TEUR lent to subsidiaries inclusive of deferred interest on long term and short term loans.
22. Cash and cash equivalents In TEUR
2008 2007
Cash in hand and bank balances 3,573 8,078
Deposits with banks with maturity of up to three months 6,030 5,034 Total cash and cash equivalents 9,603 13,112
Cash at banks earns interest at bank rates for positive cash balances between 0.10% and 0.20% per annum; night deposits earn interest at contractually agreed rate of interest of between 2.920% and 3.223% per annum (2007: 2.50% and 2.60%).
Short term deposits are made for varying periods of between one to three months, depending on the immediate cash requirements of the Company and earn interest at the fixed rate of between 2.60% and WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 196
3.00% (2007: 4.35%) as the Company ensures that deposits are placed with the banks which offer the best rates.
23. Capital and reserves
Shares issued Authorised, issued and fully paid up capital amounts to 272,721 TEUR. It is divided into 6,535,478 ordinary non-par value shares.
Ownership structure as at 31 December 2008
Shareholder Number of shares Interest in % Republic of Slovenia 3,434,021 52.54 Slovenska odškodninska druţba, d.d. 931,387 14.25 Kapitalska druţba, d.d. 365,175 5.59 PID - DZU 215,579 3.30 Legal entities 607,586 9.30 Individual shareholders 686,707 10.51 Other shareholders 295,023 4.51 Total 6,535,478 100.00
The balances and changes in the equity are shown in the Statement of Changes in Equity. The number of issued shares did not change in 2008.
Reserves Originally, reserves were set up in accordance with the provisions of the Ownership Transformation of Companies Act, whilst in recent years reserves have been set up in accordance with the resolution of the Managing Board. Consistent with the Companies Act, the Managing Board is entitled to appropriate one half of the profit for the period to reserves.
Composition of reserves
In TEUR 2008 2007 Capital reserves 136,222 131,178 Reserves for own shares 3,671 3,671 Statutory reserves 54,544 54,544 Other reserves 244,731 97,942 Reserves 439,168 287,335
Capital and statutory reserves can be used for purposes specified in the Company‟s act and statutes. Statutory reserves may not exceed 20% of share capital. These reserves are not distributable. The amount of capital reserves as at 31 December 2008, exceeds the required percentage of issued capital.
Paid-up capital surplus arising from ownership transformation, and transfer of the portion of fixed assets revaluation reserves that is tax-free, were also included in capital surplus.
Reserves for own shares are formed in the amount paid for these shares. These reserves are not distributable. The Company had not acquired any additional own shares during the period.
The Company can transfer up to 50% of current year profits to other reserves. Other reserves are distributable.
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Retained earnings Retained earnings include retained net profit from previous periods and net profit for the current period.
According to the resolution of the Shareholders' meeting held on 30 June 2008, total retained earnins of 200,195 TEUR was appropriated as follows: 83,270 TEUR to dividend payout (2007: 39,879 TEUR), which represents a 12.8 EUR per share (2007: 6,13 EUR), 135 TEUR was appropriated to incentive payment for the Supervisory Board, and 116,790 TEUR was appropriated to other reserves.
Dividend proposed Proposed for approval at AGM 39,032,868.00 EUR Dividend per ordinary shares 6.00 EUR
Treasury shares In 2003, the Company acquired 30,000 of its own shares at par value of 1,252 TEUR representing 0.46% of the Company's share capital.
Fixed asset revaluation reserve In 2008, revaluation reserve was reduced by 7,601 TEUR as follows: 2,558 TEUR was transferred from revaluation reserve to retained earnings on account of additional depreciation of property, plant and equipment, additionally, 5,043 TEUR was transferred from revaluation reserve to capital surplus on account of additional depreciation of property, plant and equipment. Revaluation reserves are not distributable.
Other revaluation reserves Other revaluation reserves relate to the revaluation of available for sale securities and the fair value of derivatives designated as hedging instruments for cash flow hedges. The revaluation reserve is not distributable.
24. Non-current deferred income In TEUR 2008 2007 Co-location billed in advance 7,165 5,342 Government grants 1,010 1,193 Property, plant and equipment obtained free-of charge 423 538 Other 390 156 Total non-current deferred income 8,988 7,229
Co-location relates to payments received in advance for renting certain premises and equipment to other operators.
25. Provisions In TEUR Utilisation 31.12.2007 and reversal Formation 31.12.2008 Provisions for probable payments resulting from legal actions 10.617 -816 1.000 10.801 Provisions for termination bonuses on retirement 5.666 -213 278 5.731 Other provisions 0 -3 149 146 Total provisions 16.283 -1.032 1.427 16.678
Provisions for probable liabilities from legal actions Provisions for probable payments resulting from legal actions are formed on the basis of the estimation of the actions' outcome in consultation with legal advisors. The date of payment cannot be determined. The legal actions comprise: damages from alleged abuse of the Company‟s monopoly position marketing the WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 198
provision of Internet services, actions of providers of services (competitors) due to opposition to prices, damages relating to cancellation of contracts, damages relating to damages which occurred during the performance of the activity - trespass to property, compensations relating to injury at work, and others.
At the balance sheet date, total claims brought against the Company amount to 261,516 TEUR, of which the major item represents a claim of 129,557 TEUR from T-2, d.o.o., AMIS, d.o.o. 56,825 TEUR, Sinfonika, d.d. 36,030 TEUR and 28,176 TEUR from Tuš Telekom, d.d.. The Company is of the opinion that the claims have no legal basis, accordingly only provision for legal costs has been made.
Provisions for termination benefits and anniversary bonuses Provisions for termination benefits on retirement are based on actuarial calculations. Liabilities reported by the Company are equal to the present value of estimated future payments.
The Company has no other pension liabilities.
26. Interest bearing borrowings
This note provides information about the contractual terms of the Company's interest-bearing borrowings. For more information relating to interest rate and foreign currency risk management refer to note 32 – Financial risk management.
In TEUR
2008 2007 Non-current borrowings Borrowings from foreign banks 217,385 150,468 - current portion of non-current borrowings -27,142 -20,083 - non-current portion of borrowings 190,243 130,385 Other 45 45 Total non-current borrowings 190,288 130,430
Current borrowings Borrowings from domestic banks 55,000 79,171 Borrowings from group companies 48,345 31,000 Current portion of non-current borrowings 27,142 20,083 Interest 365 - Total current borrowings 130,852 130,254
Contractual terms of borrowings
In TEUR Non-current Current Maturity Final portion portion over 5 Contractual rate of instalment 31.12.2008 31.12.2008 years interest due Collateral 3 m EURIBOR + 0.020% 2010 - 2011 Non-current 6 m EURIBOR – 0.025% 2017 financial liabilities 190,243 27,142 82,943 3 m EURIBOR + 0.083% 2017 Non secured to banks 3 m EURIBOR – 0.018% 2017 3 m EURIBOR + 0.105% 2017
Current financial liabilities to banks - 55,000 - 1 m EURIBOR + 0.650% 10.03.2009 Non secured
Current financial 4.429% 13.03.2009 liabilities to group - 48,345 - 5.407% 26.08.2009 Non secured companies 4.767% 19.12.2008
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Foreign borrowings are nominated in Euro (EUR). One portion of these borrowings bears a variable interest rate, and with the rest, the variable interest rate was changed into a fixed interest rate, by means of the financial derivatives obtained to this purpose.
The banks that have approved long term loans require that certain debt covenants specified in the loan contracts be maintained, including: Consolidated Total Debt, Consolidated Net Tangible Worth, EBITDA, Consolidated Total Debt/EBITDA. The non-achievement of these covenants may result in the requirement to repay early these borrowings. The Company is in compliance with these covenants.
27. Trade and other payables In TEUR 2008 2007 Trade payables 79,817 75,422 Payables to domestic operators 9,221 5,361 Payables to foreign operators 8,317 9,163 VAT and other taxes payable 777 3,195 Payables to employees 5,637 4,786 Other payables 3,827 6,238 Total trade and other payables 107,596 104,165
Trade payables are non interest bearing and are normally settled on 90 days term. Payables to operators are non interest bearing and are normally settled on 30 days terms.
28. Short-term deferred income In TEUR
2008 2007 Subscriptions billed in advance and short term collocations 7,225 8,030 Lease of lines billed in advance 0 0 Current portion of government grants for property, plant and equipment 111 0 Other deferred income 545 905 Total short-term deferred income 7,881 8,935
29. Commitments
The Company as the lessee Liabilities from operating lease relate to property, plant and equipment.
In TEUR Payable in 2008 2007 - 1 year 2,443 2,200 - 1 to 2 years 4,844 4,120 - 3 to 5 years 4,515 4,460 - more than 5 years 16,569 10,377 Total 28,371 21,157
In 2008, the Company had 2,443 TEUR (2007: 2,226 TEUR) lease costs from operating lease contracts.
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The Company as the lessor Receivables from operating leases relate to lease of property, plant and equipment.
In TEUR Receivable in 2008 2007 - 1 year 4,814 3,292 - 1 to 2 years 8,593 6,340 - 3 to 5 years 8,593 6,340 - more than 5 years 21,484 16,460 Total 43,484 32,432
In 2008, income from operating leases recognised in the income statement amounted to 4.816 TEUR (2007: 3,398 TEUR).
30. Contingent liabilities In TEUR 2008 2007 Contingent liabilities from legal actions 261,516 196,146
At the balance sheet date, there were 52 pending legal actions brought against the Company in the total amount of 261,516 TEUR (2007: 196.146 TEUR). Based on the opinion of its legal advisors the Board expects the liability from said legal actions to amount to 10,801 TEUR (refer to note 25).
31. Transactions with related parties
Related parties of the Company include the Republic of Slovenia as the majority shareholder of Telekom Slovenije, d.d., other shareholders, the Managing Board, the Supervisory Board and their family members.
Transactions with related individuals Natural persons (President and members of the Managing Board, President and members of the Supervisory Board) hold 1,897 shares of the Company or a 0.03 % shareholding.
In 2008, no loans were granted to related individuals.
Salaries and fees to the managing board and the supervisory board
In TEUR
2008 2007 Managing Board 1,223 1,121 Supervisory Board 267 282 Total salaries and fees 1,490 1,403
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Information on groups of persons In TEUR Loans Receipts based on the decision Total of the General Outstanding at Repayments Other receipts Assembly 31.12.2008 in 2008 receivables Members of the Management Board 1,223 - - - - - Dremelj Bojan 272 - - - - - Mitič Dušan 237 - - - - - Ogris-Martič Filip 243 - - - - - Puljić Ţeljko 247 - - - - - Senica Darja 224 - - - -
Members of the Supervisory Board 132 135 - - -
Other members of management employed under a contract for which tariff under the collective agreement does not apply 3,288 - 180 27 4
Loans to other managers are at interest rates from 3.35% to 4.53% with term of 4 to 20 years.
The Company has not granted any advances or guarantees.
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Transactions with Group companies In TEUR 2008 2007 Receivables from Group companies 179,149 151,881 Mobitel, d.d. 3,690 2,892 GVO, d.o.o. 4,269 4,301 Teledat, d.o.o. 84 75 Avtenta.si, d.o.o. 5,425 5,729 Soline, d.o.o. 0 7 Planet 9, d.o.o. 2,024 0 Interseek, d.o.o. 2 0 Ipko, d.o.o. 156,124 136,829 On.net, d.o.o. 4,365 2,048 Aneks, d.o.o. 3,108 0 AOL SP, d.o.o. 54 0 SIOL, d.o.o. 4 0 Gibtelecom, d.o.o. 0 0 Payables to Group companies 84,802 61,021 Mobitel, d.d. 48,931 33,785 GVO, d.o.o. 16,211 18,355 Teledat, d.o.o. 3,106 1,037 Avtenta.si, d.o.o. 9,100 7,364 Soline, d.o.o. 87 0 Planet 9, d.o.o. 3,828 51 Interseek, d.o.o. 37 7 Ipko, d.o.o. 0 0 On.net, d.o.o. 804 422 Aneks, d.o.o. 643 0 AOL SP, d.o.o. 2,037 0 SIOL, d.o.o. 18 0 Gibtelecom, d.o.o. 0 0 Revenues from Group companies 49,589 43,793 Mobitel, d.d. 32,322 30,086 GVO, d.o.o. 11,038 12,085 Teledat, d.o.o. 355 311 Avtenta.si, d.o.o. 505 351 Soline, d.o.o. 4 3 Planet 9, d.o.o. 2,501 0 Interseek, d.o.o. 21 24 Ipko, d.o.o. 2,223 610 On.net, d.o.o. 398 323 Aneks, d.o.o. 134 0 AOL SP, d.o.o. 82 0 SIOL, d.o.o. 6 0 Gibtelecom, d.o.o. 0 0 WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 203
Acquisitions of goods and services from Group companies 78,429 52,170 Mobitel, d.d. 29,638 29,447 GVO, d.o.o. 9,630 12,493 Teledat, d.o.o. 5,311 3,427 Avtenta.si, d.o.o. 4,381 3,548 Soline, d.o.o. 80 19 Planet 9, d.o.o. 15,070 54 Interseek, d.o.o. 63 11 Ipko, d.o.o. 0 0 On.net, d.o.o. 8,610 3,171 Aneks, d.o.o. 5,228 0 AOL SP, d.o.o. 364 0 SIOL, d.o.o. 54 0 Gibtelecom, d.o.o. 0 0
Telekom Slovenije, d.d. generates revenues and expenses from interconnect charges with Mobitel, d.d.. Telekom Slovenije, d.d. generates rental income from renting business promises, property, plant and equipment, to GVO, d.o.o., as well as for performing services of support. The Company pays for the construction and maintenance of telecommunication capacities. Telekom Slovenije, d.d. generates income from Avtenta.si, d.o.o. for telecommunications services on location. The Company pays for computer services. Telekom Slovenije, d.d. generates income from Teledat, d.o.o for providing support functions. The Company pays for telephone diary services. Telekom Slovenije, d.d. generates rental income from Planet 9, d.o.o for renting business premises, while the Company pays costs of multimedia services and contents. Receivables from On.net, d.o.o. are mainly from short term loans. Telekom Slovenije,d.d. pays for international telecommunication services for leased lines. Receivables from Ipko, d.o.o. are mainly from long term and short term loans an interest. Telekom Slovenije,d.d. pays for international IP services for leased lines. Aneks, d.o.o. earns income from interconnect charges to Telekom Slovenije,d.d..
Intragroup transactions stated are contracted on an arm's length basis.
Transactions with the Government of the Republic of Slovenia and entities and institutions under its control The Company provides telecommunications services to the Government of the Republic of Slovenia and various entities, agencies and companies in which the Slovenian state is either the majority or minority shareholder. All such transactions are concluded on normal commercial terms and conditions such as are not more favourable than those available to other customers.
Total income earned from sales to the central and local governments and other public entities amounts to 29,574 TEUR (2007:40.748 TEUR). The Company does not monitor nor collect information on sales to companies owned or partially owned by the Republic of Slovenia or entities under its control. Accordingly, the information on such sales has not been disclosed.
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32. Cost of auditor In TEUR 2008 2007 Auditing of annual report 109 103 Other auditing services 23 35 Tax services 0 0 Other non audit services 0 0 Total cost of auditor 132 138
33. Financial risk management
The Company‟s principal financial instruments, other than derivatives, comprise cash and cash equivalents, trade and other receivables, trade and other payables, investments and borrowings. The main purpose of borrowings is to raise finance for the Company‟s operations.
The Company also enters into interest rate derivatives. The purpose is to manage the interest rate risks arising from its sources of finance.
It is and has been throughout 2008 and 2007 the Company‟s policy that no trading in derivatives shall be undertaken. The main risks arising from the Company‟s financial instruments are cash flow interest rate risk, liquidity risk, foreign currency risk and credit risk. The Management Board reviews and agrees policies for managing each of these risks which are summarised below.
Foreign currency risk Telekom Slovenije, d.d. provides its services predominantly in Slovenia. The currency risk in ordinary activities arises in connection with international operators and foreign suppliers of services, merchandise and property and plant and equipment.. The majority of deliveries and borrowings from foreign entities are denominated in Euro, which is also the functional currency of the Company. Therefore, the exposure to foreign currency risk is minimal.
Since the currency risk is assessed as minimal, the Company does not use any special instruments to hedge its exposure to such risks.
Interest rate risk Interest rate risk is the risk of the negative impact of changes in market interest rates on the results of the Company's operations. The interest structure of the balance sheet assets and liabilities is not matched, since the amount of borrowings is much higher than the amount of interest-earning investments. The negative movement (increase) of the variable Euribor interest rate represents an exposure to interest rate risk in respect of borrowings. All non-current borrowings bear interest at a variable interest rate based on 3 m and 6 m Euribor.
The adopted financial risk management allows Telekom Slovenije, d.d. to hedge against interest rate risk by using interest rate swaps. The Company uses derivative financial instruments exclusively for the purpose of risk hedging and at 31 December 2008, 27 percent of non-current loans were hedged against interest rate risk.
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The table below sets the derivative instruments used by Telekom Slovenije, d.d. for hedging interest rate risk
Fair value at Date of contract Maturity Notional amount 31.12.2008
In EUR In TEUR Interest rate swap 20.08.2004 15,09,2009 12,018,000 -34
Interest rate swap 05.11.2004 15,03,2010 10,887,500 -19
Interest rate swap 23.08.2007 15,12,2010 35,789,474 -1.072
Total 58,694,974
On re-measurement of fair value of financial instruments designated as hedges at the year-end, the Company recognised a loss of 227 TEUR in financial expenses and a profit of 63 TEUR in financial revenue. In the income statement, this is recognised in the net amount of 164 TEUR under financial expenses from financial instruments in the notional amount of 35,789 TEUR. For hedge accounting, the amount of -1,012 TEUR is estimated as effective hedging and recognised directly in equity in the amount of -798 TEUR.
Interest rate risk table The following table demonstrates the sensitivity to a reasonable possible change in interest rates, with all other variables held constant, of the Company‟s profit before tax (through the impact on floating rate borrowings including interest rate hedges) There is no impact on the Company‟s equity.
Increase/decrease in basis points Effect on profit before tax in TEUR 2008 EURO +10 -159 EURO -10 +159 2007 EURO +10 -76 EURO -10 +76
Non interest bearing financial instruments are not included in the tables above as they are not subject to interest rate risk.
Credit risk The Company has a large number of customers, both individuals and legal persons. Since receivables are widely spread, the Company assesses the credit risk as low. The Company has developed well- established procedures of managing receivables and formation of allowances for receivables. Receivable balances are monitored on an ongoing basis with the result that the Company‟s exposure to bad debts is not significant. The Company's maximum exposure to receivables is equal to the carrying amount of these receivables.
With respect to credit risk arising from the other financial assets of the Company, which comprise cash and cash equivalents, deposits with banks, and available for sale financial assets, the Company's exposure to credit risk arises from default of the counterparty. The maximum exposure is equal to the carrying amount of these instruments.
Liquidity risk Liquidity is subject to effective cash management and investment dynamics. Telekom Slovenije, d.d. manages the liquidity risk by careful monitoring of the liquidity of assets and liabilities and cash flows from operations. Short-term deficits are bridged by current borrowings from the local banks and group companies. Short-term surpluses are placed in bank deposits and securities. Also, a large portion of payments made by the customers is reasonably predictable and stable.
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The Company maintains a balance between continuity of funding and flexibility through the use of short term funding from banks.
The table below summarises the maturity profile of financial liabilities of Telekom Slovenije, d.d. as at 31 December 2008 and 31 December 2007 based on the contractual undiscounted payments:
In TEUR On Less than 3 3 to 12 More than 5 31.12.2008 Due demand months months 1 to 5 years years Total Borrowings 0 0 106,857 23,995 107,345 82,943 321,140 Interest 0 0 2,694 5,935 18,810 5,379 32,818 Other liabilities 0 0 0 1,125 18,691 0 19,816 Trade and other payables 0 8,469 95,779 3,348 0 0 107,596
31.12.2007 Borrowings 0 0 10,109 120,145 79,718 50,712 260,684 Interest 0 0 2,710 7,107 17,020 6,177 33,014 Other liabilities 0 0 0 0 15,586 52 15,638 Trade and other payables 2,899 0 90,573 4,582 610 0 104,165
Capital management The primary objective of the Company's capital management is to ensure that it maintains strong credit rating and capital ratios in order to support its business and maximise shareholder value.
The Company monitors capital using a gearing ratio, which is net debt divided by total net debt plus total equity. Within net debt, the Company includes interest bearing loans and borrowings less cash and cash equivalents, and short-term deposits.
In TEUR 31.12.2008 31.12.2007 Interest bearing borrowings 321,140 260,684 Lees cash and short-term deposits -52,738 -46,799 Net debt 268,402 213,885
Capital 871,469 860,248 Capital and net debt 1,139,871 1,074,133 Gearing ratio 24% 20%
Fair value The Company estimates that fair values of financial assets and liabilities are not significantly different to their carrying value.
33. General authorisation and the rights of use for radio frequencies and numbers
Fixed line operations The provision of electronic communications networks or the provision of electronic communications services is subject to a general authorisation. Prior to the commencement of the provision of public communications networks or services, notification must be given in writing to the Agency for Post and Electronic Communications (Agency). The undertaking is not required to obtain an explicit decision or any WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 207
other administrative act by the national regulatory authority before exercising the rights stemming from the authorisation.
Telekom Slovenije, d.d. has in the past notified the provision of the following electronic communications services: - Public Voice Services over a Fixed Public Telecommunications Network, - International Telecommunications Services, - Data Transmission Services, - Domestic and International Leased Line Services.
Pursuant to the notification, the annual fee must be paid in the amount of 472 TEUR (2007: 488 TEUR). The amount of the fee to be paid is defined with a tariff under a general act of the Agency.
Telekom Slovenije, d.d. also has to pay annual fees for the rights of use for radio frequencies and for numbers. The fee for the rights of use for radio frequencies amounts to 264 TEUR (2007: 315 TEUR), and the fee for the rights of use for numbers amounts to 258 TEUR (2007: 345 TEUR). The amount of the fees to be paid is defined with a tariff under a general act of the Agency.
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6.3.3 Independent Auditor's Report
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7 DICTIONARY OF TELECOMMUNICATION TERMS
ADSL Asymetric Digital Subscriber Line APEK Post and Electronic Communications Agency ARPU Average Revenued Per User ATM Asynchronous Transfer Mode ATO Automatic telephony attendant
B2B Business to Business BB BroadBand BSS Business Support System BW Broadworks
Capex Capital Expenses CATV Community Antenna TeleVision CMN Central Management CMS Converged Media Services CO Central Office CoS Class of Service COTS Comercial Of The Shelf CPE Customer Premises Equipment CTX Centrex CWDM Coarse wavelength division multiplexing
DCN Data Communication Network DECT Digital enhanced cordless telecommunications DHCP Dynamic Host Configuration Protocol DPI Deep Packet Inspection DSLAM DSL Access Multiplexer DWDM Dense Wavelength Division Multiplex
EM Element Manager EMC Electromagnetic Compatibility
FE Fast Ethernet FL Functional location FM Fault management (system) FMC Fixed Mobile Convergence FRR Fast ReRoute FTTB Fiber To The Business FTTC Fiber To The Corb FTTEx Fiber To The Exchange FTTH Fiber To The Home FTTx Fiber to the X
GE Gigabit Ethernet GGSN Gateway GPRS support node GIS Geographical Information System GPRS General Packet Radio Service GSM Global System for Mobile communication GURS The Surveying and Mapping Authority of the Republic of Slovenia
HD High Definition HDTV High Definition Television HSI High Speed Internet HSUPA High-Speed Uplink Packet Access HW Hardware
IMS IP Multimedia Subsystem IP Internet Protokol IPTV IP television ISDN Integrated Services Digital Netwotk WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 210
ISP Internet Service Provider
KKO Local cable network
LAN Local Area Network LAS Local agregation switch LTE Long Term Evolution MC Multi Cast MMD Multi Media Domain MMOG Massively Multiplayer On-line Game MPLS Multiprotocol label switching MPO Mobile business network MTBF Mean Time Between Failures MVNO Mobile virtual network operator
NeoWLAN Wireless local area network NGN Next Generation Networks NPCM Next generation pulse code modulation NPVR Network based personal video recorder
OCS Office Communication Server OLT Optical Line Terminal Opex Operational Expenses OSS Operational Support System
P2P Point to Point PCM Pulse Code Modulation PDH Plesiochronous Digital Hierachy PM Performance management (system) PON Passive Optical Network POP Point Of Presence POTS Plain Old Telephone Service PPPoE Point to Point Protocol over Ethernet PRD Fully unbandled access PSTN Public Switched Telephone Network
QoE Quality of Experience QoS Quolity Of Service
RAS Regional agregation switch RR Radio relay network
SaaS Software as a Service SBC Session Border Controller SDH Synchronous Digital Hierarchy SDP Service Delivery Platform SDTV Standard Definition Television SGSN serving GPRS support node SHDSL Singlepair High bit rate DSL SIP Session Initiation Protocol SLA Service Level Agreement SME Small and Medium Eneterprises SNMP Simple Network Management Protocol SOA Service Oriented Architecture SOHO Small Office Home Office SS Soft Switch STB Set Top Box
SW Software
TCO Total Cost of Ownership TDM Time Division Multiplex WorldReginfo - 77f6e99d-e686-4835-b7d4-37445d78f290 211
TT Trouble Ticketing (system) TTM Time To Market UMA Universal Mobile Access UMTS Universal Mobile Telecommunications System
UTRAN UMTS Terrestrial Radio Access Network VCC Voice Call Continuity VDSL Very High Bit Rate Digital Subscriber Line VDSL2 Very High Bit Rate Digital Subscriber Line 2
LAN Virtual Local Area Network VoD Video on Demand VoIP Voice over IP VPLS virtual private LAN service VPN Virtual Private Network
WAP wireless application protocol WGR Wavelength Grating Router WiFi Wireless network WiMAX Worldwide interoperability for microwave access
xDSL Digital subscriber line
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