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ANNUAL REPORT
TELEKOM SLOVENIA GROUP TELEKOM SLOVENIJE, D. D.
2009
Ljubljana, 16 November 2009 ana, 16. november 2009
Ljubljana, 10. marec 2009 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02
CONTENTS page 111 IIIINNNTTTRRROOODDDUUUCCCTTTIIIIOOONNN ...... 111
1.1 Mission and vision of the Telekom Slovenia Group...... 1 1.2 Highlights of the Telekom Slovenia Group in 2009 ...... 1 1.3 Development strategy: efficient, innovative and connected ...... 3 1.4 The Telekom Slovenia Group on the map of Europe ...... 5 1.5 Organisation of the Telekom Slovenia Group ...... 6 1.6 Letter from the President of the Management Board ...... 8 1.7 Statement of responsibility of the Management Board ...... 11 1.8 Report of the Supervisory Board of Telekom Slovenije, d. d. for the 2009 financial year ...... 13 1.9 Corporate governance statement ...... 15 1.10 Shares: increased demand from investors ...... 25 1.11 Significant developments, events at the Telekom Slovenia Group in 2009 and after the balance sheet date ...... 30 1.12 Active communication ...... 32 1.13 Risk management ...... 35
222 BBBUUUSSSIIIINNNEEESSSSSS RRREEEPPPOOORRRTTT OOOFFF TTTHHHEEE TTTEEELLLEEEKKKOOOMMM SSSLLLOOOVVVEEENNNIIIIAAA GGGRRROOOUUUPPP ...... 444 000
2.1 Growth in broadband and mobile connections ...... 40 2.2 Financial results of the Telekom Slovenia Group ...... 41 2.3 Financial management and performance ...... 42 2.4 Focus on development investments ...... 46 2.4.1 Investments in fixed assets ...... 46 2.4.2 Significant projects of the Telekom Slovenia Group...... 46 2.4.3 Active drawing of European funds ...... 47
333 SSSLLLOOOVVVEEENNNIIIIAAA...... 444 888
3.1 External influences on operations and market position ...... 48 3.1.1 Macroeconomic environment ...... 48 3.1.2 In step with trends on the ICT market ...... 49 3.1.3 A European and global leader in terms of ICT market maturity ...... 49 3.1.4 Regulatory environment ...... 53 3.1.5 Market position in key service sectors ...... 55
3.2 Sales and marketing ...... 58 3.2.1 Brand management ...... 58 3.2.2 Marketing of services to end users ...... 60 3.2.3 Fixed telephony segment ...... 61 3.2.4 Mobile services ...... 62 3.2.5 Bandwidth leasing and VPN services ...... 62 3.2.6 SiOL broadband services ...... 63 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02
3.2.7 Wholesale (inter-operator segment) ...... 64 3.2.8 Systems integration: an increased number of external users ...... 65 3.2.9 Quality and innovative content ...... 65 3.2.10 Construction and maintenance of the network ...... 66 3.2.11 Soline ...... 66
3.3 Intensive development of convergent services and the network ...... 66 3.3.1 The most state-of-the-art development techniques for services and content ...... 66 3.3.2 Network development and management ...... 68
3.4 Financial results from the operations of companies in Slovenia ...... 70 3.4.1 Telekom Slovenije, d. d...... 70 3.4.2 Mobitel, d. d...... 70 3.4.3 Other Slovenian companies ...... 71
444 SSSOOOUUUTTTHHH---EEEAAASSSTTTEEERRRNNN EEEUUURRROOOPPPEEE AAANNNDDD GGGIIIIBBBRRRAAALLLTTTAAARRR ...... 777 222
4.1 Analysis of the environment and market positions ...... 72 4.1.1 Macroeconomic environment ...... 72 4.1.2 Market shares ...... 73 4.1.3 Regulatory enivornment ...... 77
4.2 Sales and marketing ...... 77 4.3 Network and service development...... 79 4.4 Operating results ...... 80
555 SSSUUUSSSTTTAAAIIIINNNAAABBBIIIILLLIIIITTTYYY RRREEEPPPOOORRRTTT ...... 888 111
5.1 Responsible management of sustainable development ...... 81 5.2 Sustainable development objectives in 2009 ...... 82 5.3 Responsible human resource management ...... 84 5.3.1 Statement of non-discrimination ...... 85 5.3.2 Redirecting to the Plus corporate culture ...... 85 5.3.3 Employee structure ...... 85 5.3.4 Educational structure of employees ...... 86 5.3.5 Employment of disabled persons ...... 87 5.3.6 Responsibility for employees in the workplace ...... 87
5.4 Social responsibility ...... 91 5.5 Environmental responsibility ...... 93 5.6 Responsibility to customers ...... 99 5.7 Responsibility for quality ...... 101 5.8 Responsibility to suppliers ...... 103 5.9 Responsibility for security ...... 103 5.10 Content according to GRI G3 reporting guidelines...... 105
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666 FFFIIIINNNAAANNNCCCIIIIAAALLL RRREEEPPPOOORRRTTT ...... 111 000666
6.1 Introductory notes ...... 106 6.2 Financial report of the Telekom Slovenia Group...... 107 6.2.1 Financial statements of the Telekom Slovenia Group ...... 107 6.2.2 Notes to the consolidated financial statements of the Telekom Slovenia Group and summary of significant accounting policies of the Group ...... 114 6.2.3 Independent Auditor's Report for the Telekom Slovenia Group ...... 164
6.3 Financial report of Telekom Slovenije, d. d...... 165 6.3.1 Financial statements of Telekom Slovenije, d. d...... 165 6.3.2 Notes to the financial statements and summary of significant accounting policies of Telekom Slovenije, d. d...... 172 6.3.3 Independent Auditor's Report for Telekom Slovenije, d. d...... 211
777 AAABBBBBBRRREEEVVVIIIIAAATTTIIIIOOONNNSSS OOOFFF TTTEEECCCHHHNNNIIIICCCAAALLL TTTEEERRRMMMSSS ...... 222 111222 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02
2009 Annual Report Telekom Slovenia Group
General data on the parent company Telekom Slovenije, d. d.
Business name: Telekom Slovenije, d. d. Registered office: Ljubljana Address : Cigaletova ulica 15, 1000 Ljubljana Registration number: 5014018 Tax identification number: SI 98511734 Entry in companies register: 1/24624/00, Ljubljana District Court Number of shares: 6,535,478 Ticker symbol of no-par-value shares: TLSG
Tel: +386 1 2341000 Fax: +386 1 2314736 Website: www.telekom.si Email: [email protected]
Main activities
Activity code 61.100 Wired telecommunication activities 61.200 Wireless telecommunication activities 61.900 Other telecommunication activities 58.120 Publishing of directories and mailing lists 63.110 Data processing, hosting and related activities 71.129 Other engineering activities and related 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 Tel: +386 1 472 29 00 Fax: +386 1 472 29 90 Website: www.mobitel.si Email: [email protected]
Company: Planet 9, d. o. o. Registered office: Ljubljana Address: Vojkova cesta 78, 1000 Ljubljana Website: www.planet.si
Company: Soline, pridelava soli, d. o. o. Registered office: Portorož Address: Se ča 115, 6230 Portorož Website: www.soline.si Email: [email protected]
Company: M-Pay, d. o. o. Registered office: Maribor Address: Ul. Vita Kraigherja 3, 2000 Maribor Website: www.m-pay.com
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2009 Annual Report Telekom Slovenia Group
Company: Avtenta.si, sistemska integracija in poslovne rešitve, d. o. o. Registered office: Ljubljana Address: Verovškova ulica 55, 1000 Ljubljana Tel: +386 1 583 68 00 Fax: +386 1 583 68 01 Website: www.avtenta.si Email: [email protected]
Company: Najdi, informacijske storitve, d. o. o. Registered office: Ljubljana Address: Cigaletova ulica 15, 1000 Ljubljana Tel: +386 1 500 85 00 Fax: +386 1 234 11 90 Website: www. najdi.si Email: info@ najdi.si
Company: GVO, gradnja in vzdrževanje telekomunikacijskih omrežij, d. o. o. Registered office: Ljubljana Address: Cigaletova ulica 10, 1000 Ljubljana Tel: +386 1 234 1000 Fax: +386 1 234 1803 Website: www.gvo.si Email: [email protected]
Company: Ipko Telecommunications, d. o. o. Registered office: Priština, Kosovo Address: Lagjja Ulpiana, Rruga Zija Shemsiu 34 Website: www.ipko.net Email: [email protected]
Company: On.net, d. o. o. Skopje Registered office: Skopje, Macedonia Address: Bul. Partizanski odredi, No. 70, DTC Aluminka, 5 th floor Website: www.on.net.mk Email: [email protected]
Company: Germanos Telecom AD Skopje Registered office: Skopje, Macedonia Address: Bul. Vidoe Smilevski Bato 4, 1 st floor Website: www.germanos.mk
Company: ONE AD Skopje Registered office: Skopje, Macedonia Address: Bulevar Kuzman Josifovski Pitu 15 Website: www.one.mk Email: [email protected]
Company: Digi Plus Multimedia Ltd Skopje Registered office: Skopje, Macedonia Address: Bul. Partizanski odredi, No. 70, DTC Aluminka, 5 th floor
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2009 Annual Report Telekom Slovenia Group
Company: Aneks, d. o. o. Banja Luka Registered office: Banja Luka, Bosnia and Herzegovina Address: Majke Jugovi ća 25 Website: www.aneks.si Email: [email protected]
Company: SiOL, d. o. o. Registered office: Zagreb, Croatia Address: Margaretska 3
Company: Primo Communications, d. o. o. Registered office: Tirana, Albania Address: Rr. Donika Kastrioti, 4 Website: www.primo.al Email: [email protected]
Company: Gibtelecom Limited Registered office: Gibraltar, Gibraltar Address: Gibtelecom, Suite 942, Europort, Gibraltar Website: www.gibtele.com/ Email: [email protected]
Company: SIOL BV Registered office: Amsterdam, Netherlands Address: Locatellikade 1, Parnassustoren
Company: Telekom Slovenije Finance BV Registered office: Amsterdam, Netherlands Address: Locatellikade 1, Parnassustoren
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2009 Annual Report Telekom Slovenia Group
1 INTRODUCTION
At Telekom Slovenia Group we are focused solidly on the future, to ensure a successful present for our users, employees and partners, and for society in general.
It was with this conviction that we moved forward during a demanding 2009. We met our users’ expectations by means of technological advances, and user-friendly services and content. We upgraded our business processes, set up a more efficient internal organisational structure, and secured opportunities for development in new markets.
This is our path, and through it we aim to connect people and environments of all kinds. It is by no means a smooth path, but our know-how and innovation make us stable and strong.
1.1 Mission and vision of the Telekom Slovenia Group
Mission:
We are the first Communications Experience Provider.
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 gives us fun, leadership and inspiration to be the first .
As the first, we create value for ourselves, and our customers, partners and shareholders.
Vision: The first!
1.2 Highlights of the Telekom Slovenia Group in 2009
In 2009 the Telekom Slovenia Group:
• generated EUR 856.1 million of operating revenues, up 1% on 2008
• had 2,138,560 mobile telephony connections and 320,865 broadband connections at the end of the year
• offered a range of new broadband and mobile packages to users in all the key markets
• actively entered the Macedonian market by purchasing the second-largest mobile operator, thereby strengthening our position as one of the leading telecom operators in south-eastern Europe
In 2010 we will:
• carry out a strategic optimisation of internal processes and organisational structure in all of the companies
• consolidate the operations of the new companies in south-eastern Europe
• provide new broadband and mobile services and content to users
• strengthen efficiency in all aspects of the business, and increase the value of the Telekom Slovenia Group WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 1 2009 Annual Report Telekom Slovenia Group
Operating revenues and revenues per employee of the Telekom Slovenia Group
900 210
800 190 700 170 600 150 500 130 400 110 300 200 90
100 70
0 50 2002 2003 2004 2005 2006 2007 2008 2009 Operating revenues 572 586 643 697 749 787 852 856 Operating revenues per av. employee in T EUR 154 160 177 187 189 185 201 185
EBITDA and EBITDA margin of the Telekom Slovenia Group
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 2009 EBITDA 240 242 235 277 293 298 312 268 EBITDA margin 41.9 41.3 36.5 39.8 39.1 37.9 36.7 31.3
Added value of the Telekom Slovenia Group
300 80 70 250 60 200 50 150 40 30 100 20 50 10 0 0 2002 2003 2004 2005 2006 2007 2008 2009 Added value 194 214 212 258 272 271 281 223 Added value per average employee in TEUR 52 59 58 69 69 64 66 48
Net profit and ROE of the Telekom Slovenia Group
120 1400%
100 1200% 1000% 80 800% 60 600% 40 400%
20 200%
0 0% 2002 2003 2004 2005 2006 2007 2008 2009 Net profit 52 70 65 99 103 88 86 25 ROE 8.1 10.8 8.8 12.0 11.5 9.0 8.4 2.4
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1.3 Development strategy: efficient, innovative and connected
+ optimisation of operations and organisation + focus on the user + first in broadband + strengthening of the companies’ joint activities
In the Telekom Slovenia Group’s strategic policy, the user is the focus of our present and future activities. The development of broadband, convergent services, and our mobile, internet and television content allow us to bring continual innovations to the user experience via our technologically advanced network. A core objective of all the companies in the Telekom Slovenia Group is increasing value for our users, shareholders, employees and partners.
At the Telekom Slovenia Group business plans are drawn up annually for the year ahead, with a projection for the next three years. The plan is approved by the Supervisory Board, at the proposal of the Management Board. In the business plan for 2010 and the projection to 2013 the Supervisory Board confirmed the existing strategy of development along five core pathways that have previously constituted our development compass.
Strategic objectives of the Telekom Slovenia Group
1. We see our vision of being "the first" as a business challenge within a framework of regulation and market liberalisation in a competitive environment. 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 action.
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 optical fibre network access possibilities in 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 new emphasis on all activities related to the development and supply of content. We support organic growth, with continual monitoring of opportunities and potential acquisitions.
5. We will continue the internationalisation of our operations by expanding into 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 region of south-eastern Europe.
The Telekom Slovenia Group’s strategic objectives and policies are also presented on its website (www.telekom.si ).
Ready for change The four-yearly business plans are reviewed annually, and adapted on an ongoing basis to technological innovations and user expectations. The major changes in the economic environment meant that last year we were particularly diligent in doing so, although the changes did not catch us unprepared. Our commercial strategy first entailed a response to the inevitable decline in fixed telephony services being faced by the entire telecommunications sector. It also proved to be very appropriate for dealing with the economic crisis. In this sense the following proved to be particularly important: ••• expansion into new markets ••• the establishment of the user as the focus of our operations by modernising business processes WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 3 2009 Annual Report Telekom Slovenia Group
and standardising sales channels, whereby user confidence was strengthened by o developing new content and multimedia services o launching a variety of mobile, internet and television content allowing users to experience the world in an entirely different way o not merely following the development of new content and services, but instead leading it o attending to increasingly user-friendly technological solutions and high-quality networks, via which services are available anytime, anywhere
Implementation of the strategy in 2009 and future operations In order to ensure the continuing growth and development of the Telekom Slovenia Group, last year we developed new content and services, carried out a technological modernisation of the network, actively encouraged growth in sales of broadband connections and strengthened our position in all markets, particularly in the broadband and mobile segments.
We have put the optimisation of the Telekom Slovenia Group’s operations and organisation at the forefront. This process includes local and regional optimisation, computerisation, increased cost control and restructuring, exploitation of synergies in the Group, and the establishment of a system of management by objectives using measurable indicators.
We continue to internationalise by strengthening our position on various markets. After successfully carrying out a geographical expansion of business into ICT markets in south-eastern Europe and the Mediterranean, in the last three years we have focused on: o partnerships o consolidation and optimisation of business (mergers in Macedonia and Albania) o strengthening of joint activities on foreign markets by companies in the Group
One of the core objectives on the Slovenian market remains the consolidation of business by rationalising the procurement, development and sales processes and the support systems, and by strengthening the innovative development policy in the provision of new content and services for users. Because there was a hold-up in the initial process of consolidation and reorganisation at the Slovenian companies, the completion of this process remains a priority.
The organisational changes announced in Slovenia will not yet be reflected in the results in 2010. Given the limited possibilities of growth on the Slovenian market, expectations are more focused on the markets of south-eastern Europe.
Realisation of the forecasts for 2009 In the second half of the year we felt the increased impact of the economic crisis when economising on the part of users was reflected more strongly in a decline in revenue. At the same time pressures to cut margins in mobile and broadband services continued, while the price competition strengthened. In addition to regulatory measures by the Post and Electronic Communications Agency (APEK), and the current economic crisis, the harsh economic climate is a major factor impacting the performance of the companies in the Telekom Slovenia Group.
The forecasts for 2009 were realised as follows:
• The Telekom Slovenia Group’s operating revenues exceeded those recorded in 2008, in the context of growth in Macedonia and Kosovo and a decline on the domestic market. • EBITDA was down on 2008, by 4 percentage points more than forecast. • Net profit was down 15% on the forecast. • Capital expenditure was down 27% on 2008, in line with the investment policy.
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1.4 The Telekom Slovenia Group on the map of Europe
Hungary
Slovenia CroatiaCroatia Romania
Serbia Bosnia and Herzegovina
Kosovo Bulgaria Montenegro Macedonia
Albania
Greece Spain
Gibraltar
Morocco
Provider of all services Internet provider International point of presence
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1.5 Organisation of the Telekom Slovenia Group
As at 31 December 2009, the Telekom Slovenia Group consisted of the parent company Telekom Slovenije, d. d., 14 direct subsidiaries and 12 indirect subsidiaries.
Slovenia Abroad
Telekom Slovenije, d.d.
MOBITEL, d.d. ON.NET DOO Skopje 100% (Makedonija) 83,38%
PLANET 9 d.o.o. IPKO Telecommunication d.o.o. 50% (Kosovo) 93,11%
M-Pay d.o.o. Ipko Net Albania, d.o.o. 50% 100% Media Works, d.o.o. SOLINE d.o.o. 100% 100% DSN, d.o.o. GVO, d.o.o. 50% 100% ANEKS d.o.o., Banja Luka (BiH – Republika Srpska) 70% AVTENTA.SI d.o.o. 100% PRIMO Communications, d.o.o. (Albanija) 75% Najdi, informacijske storitve, d.o.o. 100% Bindi Integrated Services JSC (Albanija) 100% MEGANET d.o.o. 50,1% Gibtelecom Limited POGODAK TRAŽILICA d.o.o. (Gibraltar) 50% (Hrvaška) 100% SIOL d.o.o. Pogodak, d.o.o. (Hrvaška) 100% (Srbija) 100% SIOL B.V. PLANET 9 d.o.o. (Nizozemska) 100 % 50% ONE AD Skopje (Makedonija) 100% Telekom Slovenije Finance B.V. (Nizozemska) 100%
GERMANOS TELECOM AD-Skopje (Makedonija) 100%
DIGI PLUS MULTIMEDIA LTD., Skopje (Makedonija) 100%
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Changes in the organisation of the Telekom Slovenia Group in 2009:
• AOL SP, d. o. o . (Albania) changed its name to Primo Communications, d. o. o. , taking over two Albanian subsidiaries, H-Communications, d. o. o. and AFB, d. o. o.
• The subsidiary Aneks, d. o. o. Banja Luka (Republika Srpska) took over its subsidiary Netkom, d. o. o. in May.
• In May Telekom Slovenije, d. d. became the 100% owner of the Dutch company OTE MTS Holding BV, which on the same day changed its name to SIOL BV . The company is the 100% owner of the Macedonian company Cosmofon Mobile Telecommunications Services AD Skopje , which was renamed ONE Telecommunications Services AD Skopje in November.
• In May Telekom Slovenije, d. d. became the 100% owner of the Macedonian company Germanos Telecom AD Skopje .
• In May Najdi.si, d. o. o. merged with Interseek, d. o. o., the new company taking the name Najdi.si, d. o. o. In July Telekom Slovenije, d. d. acquired the remaining 25% in Najdi.si, d. o. o., thus becoming the sole owner . Najdi.si, d. o. o. was merged with Teledat, d. o. o. on 31 December 2009, and thus ceased to exist. On the same day Teledat, d. o. o. was renamed Najdi, informacijske storitve, d. o. o.
• In September 2009 Telekom Slovenije, d. d. established Digi Plus Multimedia Ltd Skopje to market digital TV (DVB-T) services.
• In November the subsidiary SIOL BV established a Dutch company under the name Telekom Slovenije Finance BV , which is 100% owned by SIOL BV.
• In December Telekom Slovenije, d. d. purchased a 29.36% holding in Ipko Telecommunications, d. o. o. from minority partners, taking its total holding to 93.11%.
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1.6 Letter from the President of the Management Board
Dear investors, shareholders and partners, The companies of Telekom Slovenia Group have experienced one of the most challenging business years ever. The operation of our business system was substantially affected by the general recession as well as the difficult situation in the market of electronic communications and the population's diminished purchasing power. We at Telekom Slovenia Group observed the situation in the market, took the required measures on all levels and created the conditions for a developmental breakthrough. In recession conditions we were ensuring the stability of Telekom Slovenia Group through increased development of converged services and content and by offering new bundled broadband and mobile services adapted to the increasingly advanced user demands. We executed a strategic expansion of our operation in Southeastern Europe and a consolidation of companies in that area and partly in Slovenia. Dealing with crisis situations is not new to the telecommunications industry, so the experience we have gained in the past helps us as we face the challenges of the economic crisis. Our industry is constantly experiencing technological changes; it has been experiencing an inevitable decrease in landline telephony for several years, while the times of major growth in broadband connections, and more so of mobile telephony, are over. The telecommunications industry remains one of the most propulsive global industries and an important vehicle of economic development. It helps the economy to become faster, more efficient, more rational and subsequently more competitive while increasing the quality of life of individuals. This is also true of Telekom Slovenia Group. The trust placed in our future development potential is also reflected in the sale of 300 million Telekom Slovenije, d. d. bonds, completed in a few days, which we used to replace the more expensive financing sources of our expansion. In 2009, we implemented our development strategy in two key directions: With investments in strategic Southeastern European markets and with important steps toward consolidating the Slovenian companies. The strategic development and adaptation of the user-oriented convergence services and content were carried out simultaneously. We rounded out our investments in Southeastern Europe by acquiring Cosmofon, the second largest telecommunications operator in Macedonia, along with its distributor Germanos. This step brought us significantly closer to positioning Telekom Slovenia Group as one of the most important telecommunications providers in the region. Activities such renaming Cosmofon to ONE AD and merging all the operations in the Macedonian market under one brand, consolidation of the companies in Albania and Bosnia and Herzegovina, organizational changes in Telekom Slovenije, d. d., and the mergers of Slovenian companies are seen as significant strategic steps toward a restructuring and a more efficient internal organization as well as an optimization of business processes. I am pleased that Ivica Kranj čevi ć, who is taking over as President of the Management Board on 13 March 2010, has taken on the completion of that process as one of his priorities.
Telekom Slovenia Group's Operating Results Even though we managed to increase operating income (856.1 million euros) by one percent in comparison to 2008, we can only be partially content with the financial operating results of 2009. They strongly reflect the impact of the all-pervasive crisis. Due to the increase in prices of services and material, and investments in new markets, there was a 9-percent increase in operating expenses, while financial expenses increased by more than fifty percent. Net profit in the amount of 24.6 million euros approximately equals a third of the profit generated the year before due to the impact of the economic crisis, a decrease in company investments in information and communication technologies, and restrictive, sometimes even incomprehensible, measures introduced by the regulating authority. We were also burdened by the higher cost of providing multimedia services, especially in terms of securing copyrights and broadcasting rights.
The Group's two largest companies experienced a decrease in income as a result of a decreased demand and price pressure. This consequently resulted in a 50-percent lower earnings before interest and taxes (EBIT). The results generated by the companies in Southeastern Europe also contributed to this result. Even though the total income of the mentioned companies was almost doubled to 136.5 million euros and all the existing companies from that region increased their income, the lower income of the companies in the Macedonian market and the negative EBIT in the amount of 13.6 million euros have taken their toll. We consider that the main causes for this are in post-acquisition activities, delays in the introduction of new technologies and services, the price pressure exerted by the competitors and the persisting monopoly position of the primary operators, which is the result of slow market liberalization.
Satisfied Users Ensure Our Future It is of strategic importance for Telekom Slovenia Group to exceed its users’ expectations and achieve their satisfaction with the services and content that respond to their wishes, needs and demands. The optimism we feel when we plan and implement changes comes from the tight connection we have with our users and the fact that we recognize their needs and develop comprehensive solutions adapted to WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 8 2009 Annual Report Telekom Slovenia Group them. Constant adaptation, company consolidation, development of convergence services and high- quality and stabile networks also act as our competitive advantage. Along with optimization, they are a solid foundation for preserving and upgrading competitiveness.
In 2009, we refreshed the broadband and mobile services pricing plans, expanded the offer of web media, television and interactive content and we also updated the Najdi.si search engine. We designed the Itak Foun, our own mobile phone for young people; we presented a solar-powered mobile phone, launched digital television in Macedonia and much more. Our Telekom Slovenije, Mobitel and Najdi.si brands once again won the Superbrand and Trusted Brand titles. In our parent company, we introduced a program called “Me + Everyone” in order to work toward changing our business culture, strengthening the employees’ awareness of how crucially important it is to have satisfied customers in order to achieve long- term growth and development. The success of the strategy is reflected in traditionally high market shares and the increasing user satisfaction.
Deliberate investments in networks place us in the ranks of the leading European and global companies Only a high-quality network can provide high-quality services, so in spite of the increasingly difficult market conditions, we continued our strategic investments in the construction and upgrade of the existing infrastructure by introducing new advanced technologies, solutions and content, expanding landline and mobile broadband connections and continuing to conquer foreign markets. This allows us to often become the first choice for users in all geographic markets with our established brands and high-quality user experience. The new economic conditions also required adaptations in terms of investments, to which we nevertheless allocated a total of 184.8 million euros. 63.3 million euros were allocated for investments in Southeastern Europe.
Because of the ongoing Telekom Slovenia Group’s investments in broadband and mobile networks, the Republic of Slovenia is in the same ranks as the countries with the highest broadband and mobile penetration on a European as well as the global scale. Our Kosovar company met its tender conditions two years before the deadline and constructed one of the highest quality mobile networks in that part of Europe, which is a match for the most developed global networks. It covers 99.7 percent of the population and 98.5 percent of the entire territory of Kosovo.
Geographic Expansion Is Bringing Positive Results The results of the geographical expansion of the Group’s operation are so far deemed as positive. In just over three years, the fastest growing European mobile operator Ipko, d. o. o. from Kosovo has become the Group’s third largest company with more than 500 employees. In terms of mobile telephony, they increased the number of active users to 531 thousand and maintained their market share of one third. They had 59 thousand users in the broadband segment, where they gained a 62-percent market share. In Macedonia, we were focused last year on introducing ONE, the new joint brand, and other post- acquisition activities, which resulted in market share fluctuation. Due to the clean-up of the database of inactive subscribers, the market share of mobile subscribers decreased by 3 percent, and despite the 6- percent increase in the number of subscribers, the broadband access market share dropped by 4 percent. We won the concession for digital television and attracted 11 thousand users in just over a month. After the consolidation of all the Macedonian companies was completed, their importance increased considerably as a result of their comprehensive offer of all types of electronic communications services. In Albania, the consolidation of companies into a strong first alternative provider is in the final stages. In the Republic of Srpska, we are seeing the results of the merger of subsidiaries and their joint operation in the market.
Through these results we strengthened our position as one of the key telecommunications players in individual Southeastern European markets, especially in the field of broadband connections, which we will be upgrading with landline and mobile telephony services and content. I am convinced that the strategic emphasis on the international operations will keep providing an essential contribution to achieving long- terms goals and a constant increase in the value of the Group’s companies. At the end on 2009, or at the beginning on 2010, the management of Telekom Slovenije, d. d. suggested that the Supervisory Board appoint Branko Babi č as the CEO of IPKO, d. o. o., and Klavdij Godni č, the former CEO of Mobitel, d. d. as the CEO of ONE, in order to enable the fastest possible transfer of marketing and management practices. We are convinced that they can use their knowledge and experience to contribute to implementing business processes in accordance with the Group’s standards.
The Stable Position of the TLSG Shares on the Stock Market Investors are showing increased interest in the TLSG shares. The number of shareholders has increased to 13,402, and the share's uniform quotation increased by 14 percent in one year. For 2009, we will recommend a distribution of the dividend in the gross amount of 3 euros per share, which will preserve WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 9 2009 Annual Report Telekom Slovenia Group our stable dividend policy. Because we operate in one of the industries with the highest business potential and in a promising region in terms of development, I am convinced that the share prices will recover when normal operating conditions of international stock exchange markets are restored and the general trust of the investors returns.
Employees, our Competitive Advantage and Priority The employees of Telekom Slovenia Group – at the end of the year, there were already 5,145 of us – and their know-how and professional work present an important competitive advantage for the companies and a key factor for success. By investing in training, motivation programs, team work and target management procedures, we further strengthen that advantage. We have a team which will keep ensuring growth, competitiveness and the high reputation of the company as well as the solutions and content we offer in the market. These objectives can also benefit from the future, more interconnected, organization of Telekom Slovenije, d. d. and its subsidiaries, as the processes will be more efficient, the employees will be more satisfied, and there will also be more space and possibilities for collaboration, greater innovation and creativity at work, as well as promotions.
The systematic activities of the recent years, which have focused on raising the level of satisfaction, motivation, creativity and innovation of our colleagues and on making tighter connections within the Group, are already bringing results. We have become faster and a lot more responsive and flexible. This way, we introduce new technologies and develop new advanced services and user experience more efficiently, as well as transferring know-how and good practice to new markets. Business success and the achieved profit are a result of careful management of the business strategy, clearly and boldly set goals as well as meticulous and interconnected work of our colleagues from all the Group’s companies. But our values are not only focused on in-house collaboration and operation. We can also recognize and understand the needs of the environment in which we operate. We implement the principles of sustainable development in our business processes. We believe that a company's success and growth are based on focusing on sustainable development, exercising social responsibility and actively protecting the environment. We provide sponsorships and donations to further encourage top results in Slovenian sports, culture and science. We also understand people’s distress and social problems and we take part in alleviating them.
Efficient Management Achieves Synergies Ensuring convergence and a closer interconnectivity between the parent company and its subsidiaries are the main principles for managing the companies of the Group and making changes in their organization. We build excellent long-term relationships with our users and increase the level of their satisfaction through the collaboration of leading experts which ensure increasingly higher standards of management and improved information support, by supporting innovativeness, security and quality in terms of service development and through the efficient use of CRM data. One of the results of implementing these orientations is last year’s process of mergers into Najdi, informacijske tehnologije, d. o. o. Avtenta, d. o. o., is successfully operating as a strong system integrator and is at the same time taking part in optimizing the Group’s processes and IT. The plans and proposals for our further reorganization are ready and the new Management Board and the Supervisory Board will be making the related decisions in 2010. As a result of the critical economic conditions and harsh competition in the telecommunications market, Telekom Slovenia Group deserves faster and more durable support of its owners when making urgent business decisions in the future.
The New Management Joins Us on Our Planned Path The four-year mandates of most of the members of the current Management Board will expire in the first semester of 2010. We are the first Management Board to finish our mandates after the break-up of PTT. We are happy with the results of our work. Telekom Slovenia Group went from being a “protected state monopolist” to a serious international company, which is able to operate in any market in entirely competitive conditions. I am proud that wherever we are, users accept us as an advanced solution provider and a competitive player, whose solutions are an important contribution to the development of the Slovenian economy and Southeastern European markets to the delight of all the Group’s colleagues, you, the investors, our users and the company as a whole. The members of the Management Board, our colleagues and I would like to thank you for the trust and support you have shown us and I would also like to wish my successor and colleague Ivica Kranj čevi ć successful management and excellent operating results.
Bojan Dremelj,MSc President of the Management Board, Telekom Slovenije, d. d. Ljubljana, 12 March 2010
WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 10 2009 Annual Report Telekom Slovenia Group
Esteemed shareholders and business partners,
I accepted the management of Telekom Slovenije, d. d., being clearly aware that I am stepping at the helm of the top telecommunications company in Slovenia and one of the leading ones in the region in a very demanding and insecure time. I accepted the challenge certain that the prospects of the sector, past development achievements of the Telekom Slovenia Group and the know-how of its employees are the best foundation for its future growth and development.
Today, Telekom Slovenia Group is one of the key competitive players that contribute significantly to the development of the Slovenian economy and individual markets in Southeastern Europe with their solutions. It is a stable international group with good results and the right business strategy, considering the circumstances in the economy and the sector, which are common in the rest of Europe as well.
Ensuring adequate structure on the level of the group and individual companies is of key importance for progress in the development and the growth of the entire group. I have set this challenge as one of my priorities that I will take on prudently but resolutely and in close cooperation with other members of the Management Board. Before the beginning of my term, the supervisory board already named Zoran Vehovar, MSc and at 30 th March 2010 Marko Boštjan čič as new members of the Management Board. This important goal can only be achieved together, with collaboration, alliance and with the support of employees at Telekom Slovenije, d. d., and the group's companies.
In 2010, we are putting internal goals before further geographical expansion. We will focus on improving the internal structure and eliminating all obstacles that the group has influence on. We will continue with the optimizing processes from the aspects of structure and costs. By upgrading broadband and mobile services and content, with a fresh market approach and by encouraging innovativeness, we will be able to offer a complete and high-quality user experience to users on all our markets.
We will also be prepared to adapt individual strategic directions, so that Telekom Slovenia Group keeps increasing the efficiency of its operations, winning on the market of electronic communications and achieving good business results in times of great changes in the business environment as well. This is the only way of increasing the company's value and, in effect, the demand for our shares. As a group of socially responsible companies we will incorporate sustainability into our operations to an even greater extent, and create value for owners, users, employees, suppliers and social community by looking after the entire environment. Our goal is to be and to remain the first.
Ivica Kranj čevi ć, President of the Management Board, Telekom Slovenije, d. d. Ljubljana, 13 March 2010 1.7 Statement of responsibility of the Management Board
Statement of responsibility of the Management Board
The members of the Management Board and Supervisory Board of Telekom Slovenije, d. d. hereby declare that the annual report of the Telekom Slovenia Group and Telekom Slovenije, d. d. and all its constituent parts, including the corporate governance statement, have been compiled and published in accordance with the Companies Act and the International Financial Reporting Standards.
The Management Board is responsible for compiling the annual report of the Telekom Slovenia Group and Telekom Slovenije, d. d., including the financial statements and notes, to present a true and fair picture of the financial position and the results of the operations of both the Group and the Company.
The Management Board also declares that the financial statements of the Group and the Company have been compiled on a going-concern basis, that the chosen accounting policies have been consistently applied and that any changes therein have been disclosed.
The Management Board is responsible for taking measures to prevent and detect fraud and irregularities, and for securing the value of the assets of Telekom Slovenia Group and Telekom Slovenije, d. d.
WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 11 2009 Annual Report Telekom Slovenia Group
Ivica Kranj čevi ć, President of the Management Board
Dušan Miti č, Vice-President of the Management Board
Željko Pulji ć, Member of the Management Board
Dr Filip Ogris-Marti č Member of the Management Board
Darja Senica, Member of the Management Board - Workers Director
Ljubljana, 23 March 2010 Management Board, Telekom Slovenije, d. d.
WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 12 2009 Annual Report Telekom Slovenia Group
1.8 Report of the Supervisory Board of Telekom Slovenije, d. d. for the 2009 financial year
The Supervisory Board of Telekom Slovenije, d. d. held 14 ordinary sessions and three correspondence sessions in the 2009 financial year. The Supervisory Board held three ordinary sessions in its previous composition, while the remainder were with the new composition as elected at the 15 th General Meeting on 22 April.
The new Supervisory Board elected by the General Meeting consists of Tomaž Berginc, Ciril Kafol, Dr Tomaž Kalin, Dr Marko Ho čevar, Dr Jaroslav Berce and Dr Zvonko Kremljak. Milan Richter, Branko Sparavec and Martin Gorišek also sit on the Supervisory Board as employee representatives. At their first session the members of the new Supervisory Board elected Tomaž Berginc as president of the Supervisory Board, Dr Tomaž Kalin as vice-president (shareholder representative), and Milan Richter as vice-president (employee representative). At its second session the new board appointed members to its three committees. Ciril Kafol (president), Dr Tomaž Kalin and Martin Gorišek were appointed to the technical committee, Marko Ho čevar (president), Dr Zvonko Kremljak, Dr Jaroslav Berce and Branko Sparavec to the audit committee, and Tomaž Berginc (president), Dr Tomaž Kalin and Milan Richter to the human resources committee. The human resources committee met two times last year in its old composition and four times with the new composition , the technical committee met three times in the new composition , and the audit committee met three times in each composition .
The Supervisory Board monitored the performance of Telekom Slovenije, d. d. and all the companies in the Telekom Slovenia Group on a regular basis (quarterly), and checked compliance with the business and development plans. It was also regularly briefed on the work of the Management Board between sessions. It monitored in detail how the Company was implementing its business plans and investment plans. The greatest attention was devoted to performance, the Company’s development plan, and the implementation of the long-term strategy of development, operations and expansion into foreign markets. The focuses in the Supervisory Board’s work were on efficiency, on overcoming the consequences of the global financial and economic crisis, on convergence, synergies and corporate consolidation in the Telekom Slovenia Group at home and in the rest of the world, and on sustainable development and the Company’s future.
The Supervisory Board approved the EUR 300 million bond issue for the purpose of prepaying financial liabilities deriving from the loan agreement with the club of banks. This measure significantly improved the maturity breakdown of the financial resources. Approval was also granted to the purpose of certain long- term loans at various commercial banks. The Supervisory Board also constantly monitored the current liquidity and debt ratio of the Company and the Group. A ceiling was set on indebtedness, and it was found that the Management Board consistently upheld the ceiling.
Particular attention was devoted to expansion into foreign markets, the most notable development in 2009 being the purchase of Cosmofon, Macedonia’s second-largest mobile operator, and Germanos Telecom, its distributor. It was the old Supervisory Board that gave the go-ahead for the purchase process, including the financial arrangements with banks, and later the approval for the submission of a binding bid, while the new Supervisory Board passed the relevant supplementary resolutions on financing the purchase of the two Macedonian companies. The new Supervisory Board ordered an external audit of the purchase of Cosmofon and its general operations in Macedonia, for the sake of transparency and given the size and importance of the transaction. It was also regularly briefed on the consolidation and merger of the Macedonian companies On.net, Cosmofon and Germanos to give them a new integral image and a single name, ONE, which is already on the market. Approval was given to all activities in connection with the project to launch DVB-T digital cable television in Macedonia, and the Supervisory Board also made several suggestions during the execution phase to make the project faster and more successful.
The Supervisory Board monitored the performance of other subsidiaries in the rest of the world, passing several resolutions in this connection to ensure their continuing growth. The resolutions were related to capital injections and the reprogramming of certain loans that the companies obtained from Telekom Slovenije, d. d., and to the exit of minority shareholders and the acquisition of sole ownership in accordance with the purchase agreements. The majority of these resolutions entailed the operationalisation of individual provisions in the partnership agreements signed during the acquisition of the companies.
Noteworthy developments regarding the subsidiaries in Slovenia included the approval given to the purchase of the final quarter of the holding in Najdi.si and the approval for the merger with Teledat, d. o. o. The new company commenced trading on 1 January of this year under the name Najdi, informacijske storitve, d. o. o. WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 13 2009 Annual Report Telekom Slovenia Group
An important development relating to human resources was the appointment of a new President of the Management Board of Telekom Slovenije, d. d. On 13 March of this year the four-year term of the previous President of the Management Board Bojan Dremelj ended, and was replaced by Ivica Kranj čevi ć, who was chosen on the basis of public advertising of the position, and received the most support among the members of the Supervisory Board. The Supervisory Board discussed and approved some urgent changes in the management and boards of Telekom Slovenije, d. d. subsidiaries in Slovenia and abroad. It was briefed on the surveys of the organisational climate and employee satisfaction. The remuneration of members of Telekom Slovenije’s Management Board was brought into line with the government recommendations for the maximum earnings of board members at companies under majority state ownership.
The personalities, range of expertise and personal responsibilities of the members of the current Supervisory Board provide the foundation for good, effective work. The individual members of the Supervisory Board are recognised experts in telecommunications, informatics, corporate governance, risk management, finance, controlling and management. The President of the Supervisory Board has all the requisite professional qualifications for holding his supervisory office, as do all the other board members. The various individuals have obtained certification to sit on a supervisory board. The Supervisory Board will be briefed in the new Corporate Governance Code for public companies, and will outline their clarifications in 2010. The Supervisory Board is of the opinion that it had the relevant material, reports, figures and information at its disposal for its work, and the requisite clarifications to these from the Management Board at individual sessions. The cooperation between the Management Board and the Supervisory Board was fitting and proper, and proceeded in the common endeavour to achieve further growth at the Company, with responsible action vis-à-vis all stakeholders.
The major features of the 2009 financial year were the financial crisis and global recession, and, for national electronic communications operators, the very unfavourable market and regulatory trends. The Supervisory Board regularly drew attention to key areas worthy of particularly concern and flexibility from the Management Board under these circumstances. Its judgement was that the responses to the deterioration in the economic situation needed to be faster. The key duty that it has placed in the hands of the new President of the Management Board and new Management Board members, who start their work in March and May respectively, is full consolidation and optimisation throughout the Group inside and outside Slovenia. In the summer the Supervisory Board was briefed in detail on the precepts for the future organisation of the Telekom Slovenia Group, which are based on exploiting synergies between all the companies, on convergent networks and services, on development trends, and on the experience of some of the largest and most successful telecommunications operators in the world. It gave support in principle to the beginning of the second phase of the internal reorganisation of the Group on the basis of findings by consultants BCG. The new Management Board will be responsible for implementation, as the feeling is that such a complicated project can only be successfully overseen by a Management Board that is beginning its term of office.
At the end of the 2009 financial year, the Supervisory Board found that Telekom Slovenije, d. d. had only partly performed in line with the expectations and trends typical of the financial year. After a detailed review and in-depth discussion, the Supervisory Board approved the annual report for Telekom Slovenije, d. d. in its proposed form. Last year the Telekom Slovenia Group generated EUR 856.1 million in operating revenues, up 1% on the previous year. EBITDA amounted to EUR 64.1 million in 2009, while net profit amounted to EUR 24.6 million.
The Supervisory Board was also briefed in detail on the audit report, from which it is evident that the financial statements were compiled in accordance with financial reporting standards and other relevant regulations. The Supervisory Board has also established that the financial statements present a true and fair picture of the financial position of Telekom Slovenije, d. d. as at 31 December 2009. It therefore recommends that the General Meeting confer its official approval upon the Management Board and Supervisory Board for their work in 2009.
Tomaž Berginc,
President of the Supervisory Board of Telekom Slovenije, d. d.
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1.9 Corporate governance statement
+ application of good practice recommendations + responsibility + transparency + standard corporate governance principles
In their work the Management Board and Supervisory Board of Telekom Slovenije, d. d. as the parent company in the Telekom Slovenia Group apply current legislation and uphold the Slovenian and international standards and recommendations of good practice in corporate governance. The companies of the Telekom Slovenia Group apply standard principles of management and supervision, and consistently apply the legislation of the relevant country.
The practice of corporate governance at Telekom Slovenije, d. d. and the Telekom Slovenia Group proceeds from the recommendations of Slovenia’s Corporate Governance Code , and is modelled on international standards of corporate governance, such as the EU recommendations and the OECD principles of corporate governance . Following the adoption of the new Corporate Governance Code, which entered into force on 1 January 2010, we have begun to bring the exercise of management and supervisory offices into line with the new recommendation in individual aspects.
Corporate governance system
Telekom Slovenije, d. d. has a two-tier system of corporate governance. The Supervisory Board is responsible for supervising the work of the Management Board, and in conjunction with the Management Board takes decisions to benefit the parent company and the entire Telekom Slovenia Group. Under current legislation and bylaws, the Management Board is responsible for running the Company, and representing it in legal and public matters. The shareholders exercise their rights in company matters via the General Meeting, which is the Company’s supreme governing body. Certain subsidiaries in the Telekom Slovenia Group have a single-tier system of corporate governance.
Corporate Governance Code
Alongside current legislation and the independent rules of the Ljubljana Stock Exchange, the Corporate Governance Code constitutes a fundamental set of guidelines for corporate governance and management at Telekom Slovenije, d. d. and across the Telekom Slovenia Group.
Statement of compliance with the Corporate Governance Code
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, with amendments effective as of 5 February 2007), which is publicly accessible in Slovene and English on the website of the Ljubljana Stock Exchange.
The statement relates to the period from the last statement, namely from 27 March 2009 to the publication of this statement on 31 March 2010.
The company complied with the recommendations of the Corporate Governance Code (hereinafter: the Code) and its amendments, applicable from 5 February 2007 to 1 January 2010, except in the cases stated below.
Certain recommendations of the Code were not relevant for the Company during the period in question. Consequently, the Company was not in breach of these recommendations, and they are not listed below. The obligations binding on the Company or its bodies in certain cases will be fulfilled by the Company if and when such cases arise. Otherwise, the Company will explain any failure to comply with the Code in its next statement.
The Management Board and the Supervisory Board assess that the Company failed to comply with certain recommendations of the Code, as explained below:
Chapter 1: Relationship between the company, shareholders and other stakeholders
Recommendation 1.2.6: The Company does not organise the collection of proxies, as it wishes to WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 15 2009 Annual Report Telekom Slovenia Group encourage active shareholders to personally attend General Meetings or to authorise proxies to exercise their rights on their behalf at General Meetings.
Chapter 2: Management Board
Recommendations 2.3.2 and 2.3.3: The government resolution on recommendations for government representatives on the supervisory bodies of companies under majority state ownership applies to the Company. On the basis of the aforementioned resolution, the wages of members of the Management Board were cut in 2009. Due to a fixed wage system, the aforementioned resolution does not facilitate complete compliance of criteria regarding the determination and structure of Management Board members' wages, as set out in the Code.
Chapter 3: Supervisory Board
Recommendation 3.4.1: In determining the wages of Supervisory Board members, the General Meeting did not define all types of wages as set out in this recommendation. In determining the wages of Supervisory Board members, the Company is bound by the government resolution on positions regarding the payment of session fees and bonuses aimed at limiting the effects of the financial crisis.
Chapter 7: Auditing and internal controls system
Recommendation 7.1.4: The external auditor was not present at the General Meeting in 2009.
Telekom Slovenije, d. d. will continue to follow the recommendations of the Code in future. The Company also strives to respect, to the greatest extent possible, the non-binding recommendations of the Code, and thus continually improve its governance system.
Any possible deviation from the given statement of compliance with the Code will be published promptly by the Company.
Ivica Kranj čevi ć Tomaž Berginc President of the Management Board President of the Supervisory Board
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General Meeting
Work of the General Meeting The shareholders of Telekom Slovenije, d. d. met twice last year.
The 15 th Ordinary General Meeting, which was held on 22 April, was attended by representatives of 78.83% of the voting shares, and passed two resolutions: • a resolution appointing the six new shareholder representatives to the Supervisory Board • a resolution remunerating the members of the Supervisory Board
The details of the aforementioned resolutions are presented in part of this section reporting the work of the Supervisory Board, and in the Supervisory Board’s report.
The 16 th Ordinary General Meeting was convened on 30 June, and was attended by representatives of 80.15% of voting shares. The shareholders: • were briefed on the Supervisory Board’s report approving the annual report • approved the proposed use of the distributable profit for 2008 • conferred official approval upon the Management Board and the Supervisory Board for their work during the previous year • appointed the audit firm Ernst & Young to audit the financial statements of Telekom Slovenije, d. d. for the 2009 financial year
The resolutions from the two meetings are published on the Ljubljana Stock Exchange’s SEOnet website, and on the Company’s own website ( www.telekom.si ) in the Investor relations section, where the entire material from the meetings is also published. The General Meetings were convened and run in accordance with Telekom Slovenije, d. d.’s Articles of Association as published on the aforementioned website.
Shareholders’ powers and rights In its corporate governance system Telekom Slovenije, d. d. upholds the principle of equal treatment of shareholders, and facilitates the responsible exercise of their legally defined powers and rights. In announcing the convening and timetable of the General Meeting correctly and in due time, and in acting with due professionalism, the Company allowed shareholders to actively exercise their voting rights last year.
Last year’s two General Meetings were convened by the Management Board at its own proposal. Company law and the Articles of Association also allow a General Meeting to be convened as follows: - a General Meeting is convened by the Management Board at the request of the Supervisory Board or at the request of shareholders representing at least 5% of the Company’s share capital - a General Meeting can be convened by the Supervisory Board, the Company’s Articles of Association specifically allowing for this when the Management Board fails to convene the General Meeting on time
A General Meeting is held at least once a year, but can be held more frequently if deemed beneficial or necessary. The notice convening the General Meeting is published at least 30 days before the meeting is to be held, in the manner defined by law and the Company’s Articles of Association. All shareholders who register with the Company’s registered office at least three days before the General Meeting is convened are entitled to attend. The meeting is quorate when attended by representatives of voting shareholders accounting for at least 51% of the Company’s share capital.
The General Meeting generally takes decisions via a majority vote by the shareholders, unless a higher majority or another requirement is stipulated by law or by the Articles of Association. The General Meeting requires a three-quarters majority when ruling on: - amendments to the Articles of Association - increases and decreases in share capital - changes of legal status or the winding-up of the Company - exclusion of shareholders’ right of pre-emption in new share issues
Supervisory Board
Work of the Supervisory Board The Supervisory Board of Telekom Slovenije, d. d. met at 16 ordinary sessions, of which 13 were in its new composition, the term of office of the previous Supervisory Board having ended in April. The General WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 17 2009 Annual Report Telekom Slovenia Group
Meeting therefore appointed six new shareholder representatives to the Supervisory Board. The term of office of the employee representatives ended in November, and on 15 October 2009 they were reappointed by the Works Council for another four-year term.
At its constitutive session on 4 May 2009, the members of the Supervisory Board elected new executive officers, were introduced to the Management Board and outlined a short-term plan of work. Over the next months the new Supervisory Board thoroughly investigated the Company’s development policies, its current operations, and global trends in telecommunications. The work of the Supervisory Board is presented in full in the Supervisory Board report.
In its work the Supervisory Board introduced a new method of work as defined in its rules of procedure and the Company’s Articles of Association, which also set out how sessions are convened and other matters relating to the functioning of the Supervisory Board. The two documents are published on the website ( www.telekom.si ). In its work the Supervisory Board is obliged to uphold the Corporate Governance Code, existing legislation, and the recommendations of the Slovenian government and the Slovenian Directors’ Association.
The Supervisory Board members have the requisite expertise and knowledge to do the job effectively and efficiently. They work independently, and aspire to complete transparency. By diligently and professionally supervising the management of Telekom Slovenije, d. d., they attend to the Company’s long-term growth and development, in line with the current strategic policies.
Supervisory board The members of the Supervisory Board are elected by the General Meeting, the legal requirements and expert recommendations having been taken into consideration. The Supervisory Board has nine members: six shareholder representatives, and three employee representatives. The term of office is four years, and board members may be re-elected after their terms end.
Until 26 April 2009, the Supervisory Board consisted of Damijan Koletnik (president), Dr Andrej Brodnik, Dr Peter Groznik, Karmen Ponikvar, Dr Borut Štrukelj, Pavel Žakelj, Martin Gorišek, Milan Richter and Branko Sparavec.
New members of the Supervisory Board were elected at Telekom Slovenije, d. d.’s 15th General Meeting to serve as shareholder representatives. Since 26 April 2009 the composition of the Supervisory Board has been as follows:
Shareholder representatives:
1. Tomaž Berginc (president) • holds a master’s degree in economics • CEO of ETI Elektroelement d. d. Izlake • president of the supervisory board of RC IRC Celje, d. o. o.
2. Dr Tomaž Kalin (Vice-President) • holds a doctorate in engineering • independent consultant
3. Dr Jaroslav Berce • holds a doctorate in science • employed at the University of Ljubljana’s faculty of social sciences
4. Dr Marko Ho čevar • holds a doctorate in science • employed at the University of Ljubljana’s faculty of economics • member of the supervisory board of Elan
5. Ciril Kafol • holds a master’s degree in economics and a degree in engineering • head of system solutions division at Iskrameco, d. d.
6. Dr Zvonko Kremljak WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 18 2009 Annual Report Telekom Slovenia Group
• holds a doctorate in science • employed at the Ministry of the Economy
The four-year term of office of the Supervisory Board’s shareholder representatives ends on 26 April 2013.
Employee representatives:
1. Milan Richter (Vice-President) - electrical and electronic engineer, employed at the network operation and infrastructure department at Telekom Slovenije, d. d. - president of the SELEKS trade union - president of the trade unions conference of Telekom Slovenije, d. d. - member of the Works Council
2. Martin Gorišek - electronic engineer, head of network maintainance center maintenance at Telekom Slovenije, d. d.
3. Branko Sparavec - holds a degree in management - head of the user technical support group at Telekom Slovenije, d. d.
The four-year term of office of the Supervisory Board’s employee representatives ends on 13 November 2013.
Supervisory Board committees The change in the composition of the Supervisory Board also brought a change in its Audit and Technical Committees. The Supervisory Board also appointed a human resources committee to ensure the requisite transparency and expertise in the process of selecting the President of the Management Board of Telekom Slovenije, d. d.
The Audit Committee met six times to discuss reports from the internal audit office and the office’s annual plan of work. Three of the meetings were in the committee’s new composition of: - Dr Marko Ho čevar - Dr Jaroslav Berce - Dr Zvonko Kremljak - Branko Sparavec - Dr Sergeja Slapni čar (external committee member)
The Technical Committee met three times to discuss technical matters and information-related matters, all three meetings taking place in its new composition of: - Ciril Kafol - Dr Tomaž Kalin - Martin Gorišek
The Human Resources Committee met four times in the process of selecting the President of the Management Board of Telekom Slovenije, d. d., and after compiling a shortlist and hearing the candidates’ presentations proposed Ivica Kranj čevi ć to the Supervisory Board. Its composition was as follows: - Tomaž Berginc - Dr Tomaž Kalin - Milan Richter
Remuneration of Supervisory Board members In accordance with the government’s position on the payment of attendance fees and bonuses to supervisory board members at companies under partial or total direct or indirect state ownership, the 15 th General Meeting in April cut the gross attendance fees for Supervisory Board members. The attendance fees are:
- EUR 275 per meeting for members of the Supervisory Board other than the President - EUR 357.50 per meeting for the President of the Supervisory Board WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 19 2009 Annual Report Telekom Slovenia Group
Under certain conditions, members of the Supervisory Board are also entitled to the reimbursement of expenses related to their work on the Supervisory Board.
Details of the remuneration of the Supervisory Board are given in the accounts.
Management Board
Work of the Management Board The five-member Management Board of Telekom Slovenije, d. d. worked for optimal management and the implementation of a business strategy favouring the long-term performance of the parent company and the entire Telekom Slovenia Group. Its work was based on mutual trust, and the regular exchange of ideas and opinions. It acted in accordance with the Company’s Articles of Association and its own rules of procedure, which are published on the website ( www.telekom.si ) and set out the method of work, the areas of responsibility of the individual members of the Management Board, the decision-making powers, the convening of sessions, and other matters of importance to the work of the Management Board.
The Management Board’s term of office is four years, with the option of reappointment. Any person who, in addition to meeting the legal requirements, has a university-level qualification, at least three years of working experience in managerial positions or on the governing bodies of a company of comparable size, and the requisite professional, organisational and other skills for performing tasks of great responsibility may sit on the Management Board. These conditions do not apply to the Workers Director.
The Management Board takes decisions by majority vote of its members, except in the following matters when a consensus is required: - the proposal of the annual report and the proposal for the use of the distributable profit - HR and social issues relating to employee interests
The Management Board requires the approval of the Supervisory Board regarding: - legal transactions that entail a liability on the part of the Company and do not entail the generation of revenue, and long-term loans, where these exceed EUR 2 million - investments, purchases and sales of non-current assets in excess of EUR 100,000, where these are not included in the Company’s business plan - mortgage approvals
Composition of the Management Board Telekom Slovenije, d. d. is managed by a five-member Management Board, consisting of:
Bojan Dremelj (President of the Management Board) • holds a master’s degree in computer science and a degree in engineering mathematics • holds additional qualifications in the areas of economics and management • member of the supervisory board of the IEDC Bled School of Management • ends his four-year term as President of the Management Board on 12 March 2010
Dušan Miti č (Vice-President) • holds a degree in electrical engineering • has undergone additional training in project management, teamwork, market communications and sales • first appointed to the Management Board on 1 March 2004, began second term of office in 2008
Dr Filip Ogris-Marti č • holds a doctorate in law and is a licensed tax advisor • ends his four-year term on the Management Board on 30 April 2010
Željko Pulji ć • holds a master’s degree in electrical engineering • member of the board of directors of the ETSI, and member of the national delegation to the ETSI GA since November 2002 • ends his four-year term on the Management Board on 30 April 2010
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Darja Senica (Workers Director) • holds a degree in economics • worked in finance, investment and sales at Telekom Slovenije, d. d. • was active in the union and the Works Council between her initial employment and her appointment as Workers Director • begins her third four-year term on the Management Board on 8 April 2010
Given the imminent end of the President of the Management Board’s term of office, in November the Supervisory Board advertised the position, and appointed Ivica Kranj čevi ć from a list of 11 candidates. On 4 February 2010 the Supervisory Board also appointed Zoran Vehovar as a member of the Management Board.
Ivica Kranj čevi ć, President of the Management Board • holds a degree in electrical engineering • has spent a significant part of his career with the old PTT, Telekom Slovenije, d. d. and Mobitel, d. d., managing areas related to engineering, technology and informatics • begins his term of office on 13 March 2010
Zoran Vehovar • holds a master’s degree and degree in electrical engineering • has spent the last 14 years at Mobitel, d. d., managing various units in the area of mobile communications • is a frequent speaker at domestic and foreign professional meetings and conferences • begins his term of office on 1 May 2010
Marko Boštjan čič • has a law degree and has been working all his career in telecommunications. • he come from the mobile operator Bmobile (SI) Limited, where he was both the chief financial officer and the chief operations officer; • begins his term of office on 1 May 2010.
A comprehensive presentation of the Management Board is given on the website ( www.telekom.si ) in the Organisation section.
Remuneration of the Management Board The earnings of each member of the Management Board are set out in the employment contract. In solidarity with a number of employees who were obliged to waive part of their pay because of the economic crisis, the Supervisory Board approved the Management Board’s proposal to cut the pay of the Management Board members and the directors of the subsidiaries. The President of the Management Board’s pay was cut by a quarter. The annual bonuses for the members of the Management Board were no higher than two months’ worth of their ordinary pay.
The profit-sharing, reimbursement of expenses, insurance premiums, commission and other earnings of members of the Management Board are set by the Supervisory Board. In accordance with the law it ensures that their total earnings are proportionate to their duties and the Company’s financial position. Under the Articles of Association the General Meeting may decide on the Management Board’s profit- sharing entitlements. The earnings of the Management Board in 2009 are reported in the accounts.
Management and governance of subsidiaries
The same standards of corporate governance that apply to the parent company in the Telekom Slovenia Group are applied to the governance and management of the subsidiaries. At subsidiaries of which the Telekom Slovenia Group is the sole owner or shareholder, the Company’s Management Board exercises the powers of the General Meeting, while at others board members are also appointed by other partners. WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 21 2009 Annual Report Telekom Slovenia Group
Composition of management and supervisory bodies at subsidiaries of Telekom Slovenije, d. d. as at 31 December 2009
Slovenia Company Management Mobitel, d. d. Board of directors: Dr Filip Ogris-Marti č, Željko Pulji ć, Klavdij Godni č (CEO), Metod Zaplotnik, Tjaša Škrilec and Branko Miklav čič * The company has a single-tier system of corporate governance. ** Bojan Dremelj was the President of the Board of Directors until 18 December 2009, when he submitted his resignation. *** Klavdij Godni č submitted his resignation as CEO and from his position on the Board of Directors on 28 February 2010. **** Metod Zaplotnik submitted his resignation from the Board of Directors on 15 February 2010. ***** Ivica Kranj čevi ć joined the board of directors on 12 February 2010, and was elected as President on 1 March 2010. ****** Zoran Vehovar and Zoran Janko joined the board of directors on 1 March 2010, the latter becoming the new CEO on the same day. GVO, d. o. o. Managing Director: Jožefa Guzej * Edo Škufca took over the running of the company on 1 March 2010. AVTENTA.SI, d. o. o. Managing Director: Iztok Klan čnik Najdi, informacijske storitve, d. o. o. Managing Director: Bojana Sonnenwald Turk * The business name was Teledat, d. o. o. until 31 December 2009. Planet 9, d. o. o. Managing Director: Rudolf Skobe
* Tomaž Jontes was the company’s Managing Director until 3 March 2009. Other countries Ipko Telecommunications, d. o. o . Board of directors: Dušan Miti č (President), Bujar Musa (Vice-President), Akan Ismaili (CEO), Klavdij Godni č * Management and governance are realised in line with the relevant legislation in Kosovo. ** Tomaž Kraškovi č was a member of the Board of Directors until 27 August 2009, when Branko Babi č replaced him, later becoming CEO on 1 January 2010.
Aneks , d. o. o. Banja Luka Board of Directors: Željko Pulji ć (President), Boštjan Kralj, Darko Simi ćevi ć Managing Director: Igor Bohor č * Management and governance are realised in line the relevant legislation in Republika Srpska (Bosnia and Herzegovina). ** Nebojša Antonijevi ć was the company’s Managing Director until 7 December 2009, and later replaced Darko Simi ćevi ć on the board of directors on 5 February 2010. Primo Communications , d. o. o. Directors: Dušan Miti č, Ylli Panariti (CEO), Boštjan Kralj, Bujar Musa * Management and governance are realised in line with the relevant legislation in Albania. Gibtelecom Limited Board of Directors: Joe Holliday (President), Tim Bristow (CEO), Dilip D Tirathdas, Dr Filip Ogris- Marti č, Klavdij Godni č * Management and governance are realised in line with the relevant legislation in Gibraltar. ** Bojan Dremelj was a member of the Board of Directors until 18 December 2009, when he submitted his resignation. *** Ivica Kranj čevi ć joined the Board of Directors on 1 January 2010. SiOL, d. o. o. Managing Director: Janez Marovt * Management and governance are realised in line with the relevant legislation in Croatia. WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 22 2009 Annual Report Telekom Slovenia Group
On.net, d. o. o. Supervisory Board: Dušan Miti č, Vladimir Peševski, Mitja Štular Managing Director: Predrag Čemeriki ć Procurator: Janez Marovt * Management and governance are realised in line with the relevant legislation in Macedonia. SIOL BV Board of Directors: Boštjan Kralj and Darja Vrhunc (A directors), Dr Filip Ogris-Marti č and Dušan Miti č (B directors) * Management and governance are realised in line with the relevant legislation in the Netherlands. ** Until 12 May 2009, the Board of Directors consisted of Erini Nikolaidi and Aimilia Filippou (A directors), and Colin Douglas Longhurst and Peggy Jo Gunn (B directors). ONE AD Skopje Board of Directors: Olivier GJ Poncin (CEO), Dejan Kalinikov (Executive Director), Boštjan Kralj, Dr Filip Ogris-Marti č, Dušan Miti č (Non- Executive Directors) Procurator: Janez Marovt * Management and governance are realised in line with the relevant legislation in Macedonia. ** Until 26 May 2009 the Board of Directors consisted of Megaklis Stoukidis, Petros Lefkotivz, Konstantinos Liamidis, Georgios Tsonis and Stefanos Oktapodas. Janez Marovt has been the Procurator since 26 May 2009. *** Until 30 October 2009 the company’s business name was Cosmofon Mobile Telecommunications Services AD Skopje. **** Olivier GJ Poncin was the CEO until the beginning of 2010, the company’s Board of Directors then assuming temporary control until the appointment of a new CEO. **** Klavdij Godni č joined the Board of Directors and was appointed CEO on 1 March 2010. ****** Dr Filip Ogris-Marti č submitted his resignation from the Board of Directors on 28 February 2010, and Ivica Kranj čevi ć was appointed a Non-Executive Director on 1 March 2010. Germanos Telecom AD Skopje Board of Directors: Boštjan Kralj (Executive Director), Dr Filip Ogris-Marti č and Dejan Kalinikov (Non-Executive Directors) Procurator: Igor Lokar * Management and governance are realised in line with the relevant legislation in Macedonia. ** Until 26 May 2009 the Board of directors consisted of Christos Makripoulias, Megaklis Stoukidis, Petros Lefkotivz, Ioannis Karagiannis and Dimitros Lolis. Dušan Miti č was a member of the Board of Directors between 26 May and 13 August 2009, when he was replaced by Dejan Kalinikov, who was Procurator between 26 May and 15 July 2009. Igor Lokar has been Procurator since 15 July 2009. Digi Plus Multimedia Ltd Skopje Managing Director: Predrag Čemeriki ć
* Management and governance are realised in line with the relevant legislation in Macedonia. ** Predrag Čemeriki ć was the company’s Managing Director from its establishment on 17 September 2009 until his recent resignation from the position on 2 March 2010 .Janez Marovt has been Managing Director since 31 March 2010.
Internal auditing
The Internal Audit Service comes under the organisational aegis of the Management Board secretariat at Telekom Slovenije, d. d., and is directly answerable to the Management Board. It conducts internal auditing for the entire Telekom Slovenia Group.
In its work it abides by the standards for professional practice in internal auditing, the code of professional ethics, legislation and other regulations. The scope and areas of regular audits are defined by the annual plan of work, which is compiled on the basis of risk assessments. It is adopted by the Management Board each year, subject to the approval of the Supervisory Board’s Audit Committee.
Performance efficiency is reviewed by assessing the functioning of internal controls and by limiting risks in work procedures. Recommendations for greater efficiency are also issued, thereby contributing to greater WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 23 2009 Annual Report Telekom Slovenia Group cost-effectiveness and better company performance. In addition, the Internal Audit Service: • provides advice • develops work methods • participates in various projects • monitors the quality of internal auditing • works with other supervisory departments and the external auditors • participates in professional associations
The Internal Audit Service conducted 20 audits last year, all in relation to risks in key areas of business for the Telekom Slovenia Group, i.e. security policy, procurement processes and financial management.
The audit reports were debated by the senior management of the companies at which the audits were conducted, before resolutions on recommendations and the relevant deadlines were issued. The Internal Audit Service reports on a half-yearly basis to the Management Board on its work and the implementation of its recommendations, and its reports are also studied by the Audit Committee of the Supervisory Board of Telekom Slovenije, d. d.
The definition of the areas of audit for 2010 proceeds from the Telekom Slovenia Group’s strategic policies for consolidation, the identification of synergies, the transfer of best practices, and the standardisation of processes at companies in the Group. The audits will focus on the management of operational and financial risks, on security policy, on organisational changes to companies in the Group in the management of commercial risks, and on the launch of new services and products.
External auditing
At the 16 th Ordinary General Meeting of Telekom Slovenije, d. d. held on 30 June 2009, the audit firm Ernst & Young, d. o. o. Ljubljana was appointed to audit the financial statements for the 2009 financial year.
WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 24 2009 Annual Report Telekom Slovenia Group
1.10 Shares: increased demand from investors
+ growth in share value + EUR 300 million of bonds sold + active investor relations + again shortlisted for Ljubljana Stock Exchange’s Portal prize
Shares in Telekom Slovenije, d. d. remain among the most attractive on the Slovenian stock market, while further evidence of investor confidence came with the successful completion of the bond issue.
General information about Telekom Slovenije, d. d. shares as at 31 December 2009
Ticker symbol TLSG Listing Ljubljana Stock Exchange, prime market Share capital (EUR) 272,720,664.33 Number of ordinary registered no-par-value shares 6,535,478 Number of shares held in treasury 30,000 Number of shareholders 13,402
Information about the movement of the share price and other information of importance to investors is published on the website ( www.telekom.si ) in the Investor relations section.
An increase in the number of shareholders
The main demand for TLSG shares in 2009 came from banks, resident corporates, small investors and mutual funds. As at 31 December 2009, there were 13,402 shareholders entered in Telekom Slovenije, d. d.’s register of shareholders, an increase of 411 on a year earlier.
Ownership structure as at 31 December 2009
Republic of Slovenia 52.54
SOD (state found) 14.25
KAD with PPS (state found) 7.36
Treasury share 0.46
Individual shareholders 10.61
Individual investors 6.32
Domestic legal persons 6.21
Foreign legal investors 2.25
The largest shareholders retain their holdings
As at 31 December 2009, the ten largest shareholders held 79.99% of the Company’s share capital, down 0.99 percentage points on a year earlier. Hypo Bank, d. d. and NLB, d. d. entered the ranks of the ten largest shareholders, while Confinvest Aktiengesellschaft and Maksima holding, d. d. dropped out of the list.
WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 25 2009 Annual Report Telekom Slovenia Group
Comparison of the top ten shareholders in 2009 and 2008
2008 2009
Largest shareholders as at 31 Dec 2008 Largest shareholders as at 31 Dec 2009 Holding, % Holding, %
Republic of Slovenia 52.54 Republic of Slovenia 52.54 Slovenska odškodninska družba, d. d. 14.25 Slovenska odškodninska družba, d. d. 14.25 Kapitalska družba, d. d. 5.59 Kapitalska družba, d. d. 5.59 NFD 1 delniški investicijski sklad, d. d. 2.39 NFD 1 delniški investicijski sklad, d. d. 2.37 Kapitalska družba, d. d. (PPS) 1.77 Kapitalska družba, d. d. (PPS) 1.77 Alpe-Adria Privatbank AG 1.16 Delniški vzajemni sklad Triglav steber 1 0.85 Confinvest Aktiengesellschaft 1.10 Poteza naložbe, d. o. o. 0.70 Delniški vzajemni sklad Triglav steber 1 0.82 Alpe-Adria Privatbank AG 0.70 Maksima holding, d. d. 0.78 Hypo Bank, d. d. 0.67 Poteza naložbe, d. o. o. 0.58 NLB, d. d. 0.55 Total 80.98 Total 79.99
Number of shares held by the Management Board and Supervisory Board of Telekom Slovenije, d. d. as at 31 December 2009
Number of Name Office Holding, % shares Management board Bojan Dremelj President of the Management Board 100 0.0015 Vice-President of the Management Dušan Miti č 500 0.0077 Board Dr Filip Ogris-Marti č Member of the Management Board 645 0.0099 Željko Pulji ć Member of the Management Board 300 0.0046 Member of the Management Board Darja Senica 338 0.0052 and Workers Director Supervisory board Tomaž Berginc President of the Supervisory Board 0 - Dr Jaroslav Berce Member of the Supervisory Board 0 - Dr Marko Ho čevar Member of the Supervisory Board 0 - Ciril Kafol Member of the Supervisory Board 0 - Vice-President of the Supervisory Dr Tomaž Kalin Board 100 0.0015 Dr Zvonko Kremljak Member of the Supervisory Board 0 - Martin Gorišek Member of the Supervisory Board 125 0.0019 Vice-President of the Supervisory Milan Richter Board 1 0.0000 Branko Sparavec Member of the Supervisory Board 0 - Total 2,109 0.0323
Share trading and major share-related financial data
Telekom Slovenije, d. d. shares gradually rose in price over the first half of the year, before slipping back slightly to end the year at EUR 134.66. To a great extent this movement tracked that of the SBI 20. The standard price was up 13.83% on the beginning of the period. WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 26 2009 Annual Report Telekom Slovenia Group
The rise in the share price is a reflection of the moderate optimism on the stock market compared with the previous year, and investors’ confidence in the Telekom Slovenia Group’s development potential, further evidence of which came with the successful completion of the Telekom Slovenije, d. d. bond issue.
Trading statistics for TLSG shares on the Ljubljana Stock Exchange in 2009
Standard price 2008 2009 High, EUR 415.64 178.44 Low, EUR 116.73 118.30 Average, EUR 230.36 148.51 Volume Volume, EUR million 78.88 33.77 Highest daily volume, EUR million 2.42 5.29 Lowest daily volume, EUR million 0.0100 0.0026
Standard price and volume of trading of TLSG shares on the Ljubljana Stock Exchange in 2009
EUR
200 5500
180 5000
160
4500 140 TLSG
120 SBI20 4000
100
3500 80
60 3000
TLSG in EUR SBI20
Key TLSG share indicators
31.12.2008 31.12.2009
Market price of one share, EUR 118.60 134.66 1 Book value of one share, EUR 134.00 136.87 2 Earnings per share (EPS) 13.20 3.78 3 P/E ratio 9.00 35.60 P/BV ratio 0.89 0.98 4 Capital return per share, % -71.30 13.83
WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 27 2009 Annual Report Telekom Slovenia Group
1 The book value of one share is calculated as the ratio of the book value of Telekom Slovenije, d. d.’s equity to the number of shares issued minus the number of shares held in treasury. 2 Earnings per share is calculated as the ratio of the Telekom Slovenia Group’s net profit (majority interests) for the accounting period to the number of shares issued minus the number of shares held in treasury. 3 The price-to-earnings ratio is calculated as the ratio of the market price of one share on the final trading day in the period to the earnings per share. 4 The capital return per share is calculated as the ratio of the share price on the final trading day of the period minus the share price on the first trading day of the period to the share price on the first trading day of the period.
Implementation of the stable dividend policy
The General Meeting of 30 June 2009 passed a resolution on the payment of dividends for 2008 in the amount of EUR 6.00 per share, thereby maintaining the stable dividend policy. Shareholders entered in the Company’s register of shareholders as holding the entitlement to dividends two days after the passing of the resolution are entitled to dividends. A gross dividend of EUR 3 per share has been proposed for 2009.
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, priority being given to securing funds for investments, and thus increasing shareholder value. The dividend depends on performance, the optimum tax policy and the investment policy. The interests and expectations of the owners are taken into consideration.
Market price and book value of shares and market/book value ratio
450 3.50 400 3.00 350 2.50 300 250 2.00
200 1.50 150 1.00 100 0.50 50 0 0.00 2006 2007 2008 2009
EUR RAZMERJE
Share price on the last trading day Book value of share P/B ratio
Treasury shares
The number of Telekom Slovenije, d. d. treasury shares has remained unchanged since 2003, at 30,000.
Rules restricting trading in corporate shares based on inside information
Telekom Slovenije, d. d. was one of the first companies on the Ljubljana Stock Exchange to have in place formal rules restricting trading in the Company’s shares and shares in associates based on inside information when it was admitted to the exchange, thereby limiting the opportunity to exploit inside information via trading. The rules were updated in 2009 and brought into line with current legislation and the recommendations of Ljubljana Stock Exchange.
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Telekom Slovenije, d. d. bonds With the aim of securing more advantageous financing for existing liabilities, on 3 December 2009 the Company announced its intention to issue 7-year bonds with a total nominal value of EUR 300 million. Following the Company’s representations to European investors, the entire bond issue was successfully sold on 10 December. The procedure officially closed on 21 December. The bonds were admitted for trading on the Luxembourg stock exchange on the same day.
Plan of public announcements for 2010
Date* Event
Thursday, 25 February • Publication of the Supervisory Board’s report on the unaudited consolidated financial statements of the Telekom Slovenia Group and the unconsolidated financial statements of Telekom Slovenije, d. d. for 2009 • Publication of the unaudited consolidated financial statements of the Telekom Slovenia Group and the unconsolidated financial statements of Telekom Slovenije, d. d. for 2009
Wednesday, 31 March • Publication of the Supervisory Board’s report on the adoption of the annual report of the Telekom Slovenia Group and Telekom Slovenije, d. d. for 2009 and on the proposed use of the distributable profit and preparations for the General Meeting • Publication of the annual report of the Telekom Slovenia Group and Telekom Slovenije, d. d. for 2009 • Publication of the statement of compliance with the Corporate Governance Code
Friday, 23 April • Publication of the annual document
Friday, 14 May • Announcement convening the 17 th General Meeting of Telekom Slovenije, d. d.
Thursday, 27 May • Publication of the Supervisory Board’s report on the interim report for the first quarter of 2010 • Publication of the interim report for the first quarter of 2010
Thursday, 17 June • 17 th General Meeting of Telekom Slovenije, d. d.
Friday, 18 June • Publication of the resolutions of the 17 th General Meeting of Telekom Slovenije, d. d.
Monday, 16 August • Payment of dividends
Thursday, 26 August • Publication of the Supervisory Board’s report on the half-yearly report for 2010 • Publication of the half-yearly report for 2010
Thursday, 25 • Publication of the Supervisory Board’s report on the interim report for the first November three quarters of 2010 • Publication of the interim report for the first three quarters of 2010
The announcements will be published on SEOnet and on the Company’s website ( www.telekom.si ). Any changes to the projected dates will be announced in due time on the aforementioned websites.
Management Board, Telekom Slovenije, d. d.
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1.11 Significant developments, events at the Telekom Slovenia Group in 2009 and after the balance sheet date
+ new broadband services + entry into the Macedonian ICT market + launch of e-invoicing + development of convergent services and content, including SiOL iO web television
With a variety of new broadband and mobile services and content, we kept pace with the growing requirements of our users. In order to ensure the conditions for the continuing strategic development of our services tailored to the user, we undertook major acquisitions and consolidation of companies in south-eastern Europe and in Slovenia.
January • In cooperation with Abanka and NLB, Telekom Slovenije, d. d. begins work to launch e-billing, making it the first company in Slovenia to introduce such service.
February • Telekom Slovenije subsidiary On.net, d. o. o. is the sole bidder to apply for a DVB-T licence in Macedonia.
March • Telekom Slovenije, d. d. presents a comprehensively updated range of services and launches a new user experience, simplified subscription procedures and a more transparent range of broadband services on the market; • Avtenta.si is the first to be accredited for SiHramba.eu archiving services, and thus complies with all the provisions of valid archiving legislation; • Ipko migrates from analogue to digital television signal transmission; and • Mobitel, d. d. introduces the "Say it All" service for extended mobile conversations.
April • Telekom Slovenije, d. d. and Planet 9, d. o. o. update the interface for SiOL TV plus services to expand functionality, transparency and usability. • The international rating agency Moody’s Investors Service reconfirms the existing A3 rating for long- term credit risk, which the Company first received in April 2007 • Telekom Slovenije, d. d., Mobitel, d. d. and Planet 9, d. o. o. are among the first operators in Europe to introduce web TV with the SiOL iO service. The service enables people to watch TV online, and to access on-demand content and live video from various locations. • In conjunction with Microsoft, Teledat, d. o. o. develops a special tool for Internet Explorer 8.0 for TIS (the telephone directory) and bizi.si that simplifies browsing for users and offers greater security, reliability, speed and usability online. • New members of the Supervisory Board are elected at Telekom Slovenije, d. d.’s 15 th General Meeting to serve as shareholder representatives.
May • GVO begins the construction of an open broadband network in the Milinjska and Dravska valleys, financed in part via a grant from the European Union; • Mobitel, d. d. offers mobile phone users a new service: the direct crediting of their mobile accounts; and • Ipko, d. o. o. presents its latest product, the family TRIO package, which is a combination of internet, digital television and fixed telephony services at one price.
June • The new Slovenian telephone directory (TIS) is published on CD and online, with an improved search facility, and a range of advanced tools for business users. • Telekom Slovenije, d. d. offers its SiOL TV users a range of new TV channels, while SiOL TV is available in three different packages from 1 July. • Telekom Slovenije, d. d. introduces e-invoicing with Abanka, d. d. and NLB, d. d. to allow users to make savings in time and material, improving their environmental performance. • Mobitel, d. d. allows Si.mobil users to use the Moneta system, and payments at Petrol outlets. • The 16 th General Meeting of Telekom Slovenije, d. d. is held on 30 June. WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 30 2009 Annual Report Telekom Slovenia Group
July • An external environmental audit by SIQ makes 13 recommendations, but finds no instances of non- compliance. • Telekom Slovenije, d. d. acquires a 25% stake in Najdi.si, d. o. o., becoming its sole owner.
August • Mobitel, d. d. launches its smartphone with the Android platform (HTC Hero with Google) in Slovenia. • Telekom Slovenije is awarded international certification by the FTTH Council, confirming that its optical network complies with the council’s international recommendations and standards.
September • Mobitel, d. d. launches the Samsung E1107 Crest Solar, a solar-powered mobile, in Slovenia. • GVO, d. o. o. begins building the second-largest open broadband network in the municipalities of Ormož, Sveti Tomaž and Središ če ob Dravi. • Ipko Telecommunications, d. o. o. officially launches its DUO package (digital cable TV and internet). • At the Trusted Brand awards ceremony, Telekom Slovenije, Mobitel and SiOL are award recipients for the second consecutive year. • Telekom Slovenije, d. d. establishes a Macedonian subsidiary, Digi Plus Multimedia Ltd Skopje.
October • Telekom Slovenije, d. d. makes into the finals of the Portal prize, which the Ljubljana Stock Exchange awards for the quality and accuracy of notification by issuers in its prime market and standard market. • Mobitel prepares a special campaign of Itak packages for existing and new adult subscribers, which runs until the end of 2009 and the new M:Medij (M:Media) solution for companies, which facilitates two-way communication with customers via SMS and MMS messaging.
November • The APEK selects Telekom Slovenije, d. d. and Teledat, d. o. o. as providers of universal services of fixed telephony and telephone directory services for a period of five years. • The international rating agency Moody’s Investors Service downgrades Telekom Slovenije, d. d. one level to Baa1 for long-term credit risk, partly as a result of uncertainty related to the changeover to a convergence strategy, enhanced competitive and regulatory pressure, and the current impact of the macroeconomic environment. • Cosmofon and On.net, d. o. o. Skopje launch ONE, a new brand under which they will operate and consolidate their position within the Telekom Slovenia Group. • ONE AD launches BoomTV, the first wireless digital TV for households in Macedonia. • Avtenta.si, d. o. o. becomes an EMC Velocity Affiliate Partner, and can thus offer an entire range of data storage products and solutions.
December • Telekom Slovenije, d. d. announces and successfully completes a bond issue in the amount of EUR 300 million. • The Supervisory Board of Telekom Slovenije, d. d. appoints Ivica Kranj čevi ć as the new President of the Management Board, his term of office beginning on 13 March 2010.
We give regular updates about the latest news and development at the Telekom Slovenia Group on the website ( www.telekom.si ) in the Press room and Public releases sections. The changes in the make-up of the Telekom Slovenia Group are described in full under the section Organisation of the Telekom Slovenia Group , while the changes in the governing bodies of the companies are described in the Corporate governance statement .
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Significant events after the balance sheet date
January • The Telekom Slovenia Group hosts a consultation meeting on waste management; • Telekom Slovenije, d. d. and Mobitel, d. d. receive recognition as respected employers for 2009; • Avtenta.si receives status as an Exchange and OCS Service Provider, which facilitates the provision of "packaged services";
February • Mobitel, d. d. is recognised by Cankarjev Dom as sponsor of the year for 2009; • Najdi, d. o. o. participates at the Informativa fair where it presents the Najdi.si and 1188 brands; • Aneks, d. o. o. presents the latest digital television service "Blic TV"; and • The Macedonian company ONE, d. o. o. offers a service to verify the volume of internet traffic.
March • Telekom Slovenije, d. d. encourages users to migrate to SiOL TV via the communication campaign "The Time is Now for Digital". • The Telekom Slovenia Group hosts the most important business users with performance Shen Wei. • Brands Telekom Slovenije, SiOL and Mobitel has also received the Superbrand title. • Telekom Slovenije Finance BV Dutch company was put into liquidation on 24 th March 2010.
1.12 Active communication
+ connectivity with users + multimedia communication + important commercial public + active relations with investors + employee trust
The Group openly and promptly communicates significant business events and new services and content. Users are provided comprehensive information via electronic and traditional communication channels.
Closely linked to users
Communication with users represents one of the key activities in the management of the Group's strongest brands: SiOL, Mobitel and Telekom Slovenije. An important innovation is the marketing of broadband services under the SiOL brand, with an emphasis on strengthening subscriber loyalty, specific user groups and a shift from service-oriented communication to content-oriented communication (e.g. why does SiOL represent more than television, etc.).
The Group has enhanced the use of communication channels such as digital public relations and online social networks in the area of broadband and mobile services, and with regard to the Najdi, Planet 9, ONE, Ipko and Gibtelecom brands. Activities via these networks have become an integral part of communication efforts, including the Itak Džafest campaign, which received the Prizma award for communication excellence.
The Group's numerous communication activities included the following: • subscriber campaign such as SiOL Za četek (SiOL, the Beginning) and the communication of the SiOL brand as fun for the whole family; • the creation of a SiOL product profile on Facebook and tweets on Twitter; • Mobitel and Itak activities on Facebook, including new applications such the most popular Slovenian Facebook application, "Form Your Own Band"; • the Vesolje veselja Festival in the Ljubljana city centre with Joss Stone as the star attraction; • the upgrading of the service section of the www.siol.si website and the introduction of the virtual interactive assistant Tia; • a "retention" programme, expansion of the loyalty programme, communicating changes in programme schemes to subscribers and other activities aimed at increasing subscriber loyalty; • support for new SiOL sales channels (Mobitel centres and others); WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 32 2009 Annual Report Telekom Slovenia Group
• support for the launch of new and the adaptation of existing packages of services and products (solar- powered telephones); • support for introduction of Mobitel's loyalty programme and a revamped website; • support for new Ipko, d. o. o. services (digital TV, Duo and Trio services and other) and a corporate communication campaign in Kosovo; and • communication support for the new ONE brand in Macedonia and the introduction of new Allo packages.
Active communication with the commercial public
Business users and the commercial public represent one of the Group's key target publics. Activities in this segment included the following:
• a communication campaign for business packages of SiOL communication solutions for SMEs; • Telekom Slovenije brand communication activities at the International Trade fair in Celje and other events for the commercial public; • a communication campaign to support the introduction of updated business packages; • invitations to cultural and sporting events sponsored by the Group; • communication activities to support the updated Bizi.si business directory; and • the introduction of the personal telephone advisor service at Mobitel, d. d.
Creative communications with the media
The Group has expanded its range of tools for communication with the media. In addition to quarterly press conference and formal and informal meeting with journalists, the Group also uses multimedia services. Journalists can find information in the press centre at the website ( www.telekom.si ), under the heading Press room . The Group communicates with journalists via social websites, in particular Facebook, as an important source of information for journalist, employees, other stakeholders and those helping to form public opinion.
Communication messages included: • the Group's operations; • new services, products and sales campaigns; • construction of the fibre optic infrastructure and networks; • organisational and personnel changes and legal matters; • useful advice for service and equipment users; and • reporting on events on the markets of south-eastern Europe.
Telekom Slovenia Group companies prepared more than 90 press releases and 20 press conferences and meetings. The number of announcements published in electronic media continues to rise, the total having exceeded 10,000. The main topics were operations, social responsibility and new products.
Increased communication with employees
Internal communication activities are carefully planned and executed. The Group strives for the constant, multi-directional flow of information, which is an important condition for employee satisfaction, and consequently customer satisfaction. The results of a study of the organisational climate at the parent company have indicated that employees desire an increased level of internal communication. Therefore, the Group enhanced activities in the Plus campaign and sought out new communication channels, such as wage vouchers, coffee machines, water dispensers, cafeterias, lifts, hallways, etc.
The Telekom Slovenia Group's central communication channel remains the intranet. The parent company's intranet site may be accessed by the employees of all subsidiaries, the majority of which also have their own intranet. The Group's "Successful Together" communication strategy was implemented again in 2009 on four levels, represented by four intranet sub-sites: • Building Trust : up-to-date notification regarding all commercially and strategically relevant information; • Knowledge for Success : encouraging innovation via the Brihta portal, and promoting and encouraging knowledge and lifelong learning, as well as the library, • Successful Together : invitation to all employees to Itak Džafest concerts and the Vesolje veselja Festival; gifts for female employees on 8 march and pre-new year gifts for all; and • Caring for the Environment : realising employees’ commitment to protecting and caring for the WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 33 2009 Annual Report Telekom Slovenia Group
environment.
The Group has enhanced communication with employees as follows: • the launch of the special "Me + Everyone" portal, through which employees submitted their ideas regarding Plus, Plus new-year's wishes and their thoughts regarding Plus workshops; • the receipt of the "e-Skupaj" e-journal and the printed "Škrjan ček" in-house magazine by all Group employees; • the drafting of the bilingual brochure, "Getting to Know Each Other", in which the Group presented companies and its current strategies and operational guidelines; and • the steering of communication to humanitarian activities and the environment (direct assistance from employees for premature babies through the purchase of backpacks; a communication campaign on separate waste collection, an environmental brochure with tips on environmentally friendly conduct in the workplace, etc.).
Attention is also given to communication with scholarships holders, students at selected faculties and retired persons.
Regular communication with influential publics
Communication with the state as majority owner, the relevant ministry, the regulatory body and the Competition Protection Office was consistent and open, and primarily focused on content linked to regulation and relations with other ICT service providers.
Actively building relations with investors
Providing regular, consistent and quality information to existing and potential investors is one of Telekom Slovenije, d. d.'s key tasks. A great deal of attention was given to improving the level of reporting. Progress in this direction was made by increasing the frequency of messages, expanding the content of messages and through the use of new communication tools. To that end, the Group: • participated at a number of investment conferences (e.g. in Ljubljana, Belgrade, Vienna and Stegersbach); • attended presentation meetings (road shows) in financial centres, such as London, Paris and Frankfurt; • maintained regular contact and held meetings with investors and analysts; • continuously updated and upgraded Investor Relations section at website ( www.telekom.si ); • sent investors and analysts the TLSG e-news and the annual publication Telekomov delni čar (Telekom Shareholder); and • ensured the transparency of the Telekom Slovenia Group’s operations in line with the information disclosure policy defined for companies listed on the prime market, and posted 107 notices in the stock exchange's notification system.
Proof that the Company is moving in the right direction is its inclusion for the third consecutive year on the short list for the Ljubljana Stock Exchange's Portal award for the most transparent public limited company.
The Group's aim in the future is to continue ensuring a high level of communication and to maintain constructive dialogue with investors and all interested publics through open and transparent communication. WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 34 2009 Annual Report Telekom Slovenia Group
1.13 Risk management
+ additional risk management measures + updated risk register + effective risk recognition and management
In a demanding year Telekom Slovenije placed even greater emphasis on the prompt identification of risks, and effectiveness in managing them. The risk management was improved and upgraded by means of innovations.
Risk management objectives The Telekom Slovenia Group considers risks to be an integral part of innovative development and improving the range of services, content and products that satisfy users and increase the value of companies. Through comprehensive and prompt recognition, risk assessment and proper decisions regarding the effective risk management, the Group: • increases the likelihood of achieving its strategic and business objectives; • mitigates the impact of damaging events and circumstances; and • optimises the risk/return ratio.
Risk management system The risk management system at the parent company and Telekom Slovenia Group level is coordinated by the risk management department, which constitutes part of Telekom Slovenije, d. d.'s finance department. The risk management department is responsible for the development of methodologies and tools, and warns of potential risks in individual areas and in business functions. It also participates in the implementation of risk management process by providing technical assistance.
Identifying, assessing and managing risks are integrated into everyday business processes, while the effective implementation of risk management process is the responsibility of the management of an individual company, sector managers and specialist departments at the parent company. The Management Board periodically reviews the most significant risks and adopts measures to manage them.
A critical process in assessment is risk analysis. On the basis of this analysis, each risk is assigned one of the following levels with regard to materiality and the likelihood of an unforeseen event occurring: low, medium of high. This is illustrated on the risk chart.
The most significant risks to which Group companies are exposed and forecasts of global risks that directly or indirectly impact the Group are periodically reported to the Management Board.
Improvements in risk management in 2009 During the recession, the Group intends to place more focus on updating and improving the risk management system. The following important steps have been taken: • the risk register was updated; • for every known risk, the Group redefined or updated descriptions, the associated objectives, assessments, the control environment and planned or implemented measures to manage these risks; and • a design proposal was drafted for the introduction of comprehensive risk management with the aim of further improving the success of the associated programme.
The Telekom Slovenia Group breaks down significant risks into three categories: business, financial and operational. The list of significant risks has changed somewhat in the last year due to the effects of the economic environment, while the assessments of certain risks have also changed. Additional measures were adopted to manage these risks more effectively. Due to the particularities of segments, credit risk was broken down into subscriber and operator risks. For the first time, the Group defined risks in the areas of quality and environmental management.
Risk management in the Telekom Slovenia Group is a process that is continuously updated and developed. A project is being prepared to introduce comprehensive risk management, initially at the parent company, and later throughout the Group. The framework and process of risk management will be updated.
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Business risks
Significa nt business risks Type of risk Method of management Risk of changes to macroeconomic • Consistent monitoring of economic trends and actively adapting conditions affecting operations in key operations to new conditions. markets • Monitoring regulatory measures, actively participating in market analyses before the imposition of measures and alerting Risk of regulatory pressures authorities of possible irregularities. • Actively briefing the relevant EU institutions and exhausting all available legal remedies with regard to disputed regulatory decisions. • Ensuring compliance with internal acts and legislation in all processes. Revenue -loss risk • Introducing an additional system of internal controls, optimising revenue processes from realisation to payment and introducing information support with respect to managing revenue-loss, fraud and credit-risks. • Actively cooperating with the market regulatory authority, lobbying the regulatory authority and actively collecting outstanding receivables from operators. • Final establishment of an expanded operational group for RA (Revenue Assurance) and the organisation of an RA committee in 2010. Risk of changes in the market and the • Active market presence, continuous development of new products, management of market share services and content and a shift to convergent services. • Searching for new markets and market approaches, continuous concern for the quality of services and customers and a range of additional benefits. • In-depth market research, more detailed market segmentation and the adaptation of sales activities to a specific segment. Risks related to expansion to new • Prudent planning of a specific acquisition in the context of markets investment assessment criteria (synergies) and the execution of due diligence reviews of companies. • Post-acquisition reviews and integration activities. Investment risk • Planning and verifying the economic efficiency of investments, • continuous improvement of the quality of preparations, execution, activation and monitoring of investments. Risk of a general drop in retail and • Restructuring of the range of products and service, defining a wholesale fixed and mobile telephony pricing strategy and exploiting the comprehensiveness of the price levels (VoIP) range of products and services for the expansion of operations. • Focused and guided transition from traditional to IP services, increasing productivity and streamlining business processes. Risk of communication noise or • Proactive and regular communication, personal contacts, and misunderstandings in relations with frequent meetings and gatherings where information can be the media, the internal, general and obtained. financial publics and other institutions • Complying with legislation, standards and stock exchange rules. • Verifying the understanding of information provided and the consistent application of the "right of correction or reply" in accordance with the Media Act. Risk of introducing new services and • Monitoring key market trends, motivating employees to provide products innovative ideas and improvements, timely response to customers' needs and shortening the time from idea to realisation. • Defining and managing business process and IT system support for new products. Employee -related risks • Measures to increase employee satisfaction, improving the quality of the work environment and raising the level of teamwork. • Employing highly-skilled personnel, educating and training employees and promoting innovation, motivation and identification with the Company. Legal risks linked to lawsuits and • Active defence before the courts and the contesting of lawsuits, legislation striving for out-of-court settlements of disputes and consulting with internal and external legal experts to avoid further lawsuits in sensitive business decisions. • Influencing legislative solutions through cooperation in the WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 36 2009 Annual Report Telekom Slovenia Group
legislative process, by issuing expert proposals.
Liability risk • Risk is transferred to an insurance company up to a specific (e.g. general civil liability and amount. management's professional liability)
Effective business risk management is linked to: • implementing the Telekom Slovenia Group's strategy and the capacity to generate operating revenues; and • maintaining the value of assets and reputation, and increasing the value of brands.
Business risk chart Risk/Extent* 2008 2009 Risk of changes to macroeconomic conditions affecting operations in key 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 Liability risk (e.g. general civil liability and management's professional liability) * significance x probability Legend: green – low risk yellow – medium risk red – high risk
Due to the current low level of control over upgraded information systems, revenue-loss risk was assessed as high. However, the expansion of control (e.g. Revenue Assurance) and the effective management of this area is planned in 2010.
Financial risks
Significant financial risks Risk Method of management Liquidity risk and solvency risk • Liquidity risk measures: system for planning and managing cash flows, approved short-term credit lines at domestic banks, introduction of criteria for monitoring and 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. Subscriber credit risk • Verifying subscribers' credit ratings and requesting the submission of payment collateral. • Introduction of debt collection adapted to subscribers' credit ratings – dynamic system of reminders. • Introduction of the monitoring of daily shifts in a subscriber's traffic with regard to average usage and informing subscribers of increased usage and the implementation of specific measures. Operator credit risk • Accelerated collection of outstanding receivables and the introduction of bank guarantees or other collateral instruments. Interest -rate risk • Monitoring of financial markets, the use of interest-rate hedging instruments for 55% of loans and the contractual option to swap a variable interest rate for a fixed interest rate. Currency risk • The use of appropriate financial instruments. WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 37 2009 Annual Report Telekom Slovenia Group
A general deterioration in payment discipline has been seen in the business environment owing to the recession, something the Telekom Slovenia Group is also facing, particularly with regard to operators. Thus credit risk has increased. Consequently, the Group's solvency risk has risen from low to medium. Additional measures have been adopted in response to mitigate exposure to these risks. The following activities have been implemented: • monitoring of significant customers and their financial discipline and the quality of collateral on receivables, based on a system of account managers; • mandatory submission of bank guarantees by customers for specific services; • implementation of a systematic and active receivables collection process; • collection of receivables via an external agency, resulting in a portion of receivables being collected before court-enforced recovery; • systematic monitoring of the credit risk associated with all customers with the introduction of credit rating categories and credit limits, the aim of which is to reduce the number of days from the generation of receivables to payment and to reduce the amount of related write-offs; • monitoring the above-average daily usage of subscribers and excessively high monthly invoices and the implementation of associated measures; and • monitoring of agreed payment terms in subscriber agreements.
Financial risk chart Risk/Extent* 2008 2009 Liquidity risk and solvency risk Subscriber credit risk Operator 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 • Annual updating of and improvements to the business security of ICT networks and services continuity plan. • Introduction of annual testing of the business continuity plan by individual sectors and responsible persons. Network and technology obsolescen ce • Preventive maintenance and the replacement of critical risk elements. • Introduction of new technological solutions and upgrading of the network. Risk of abuse • Use and upgrading of systems to prevent abuse, further construction and upgrading of the technical security system (access control) and procedures regarding entry to company facilities. • Participation in process and procedures for identifying fraud and abuse in the ICT sector. Risks associated with planning and • developing ICT technologies Introduction of a service-oriented architecture (SOA). Risks associated with the execution and • Definition of risks and methods for managing them, as an quality of projects integral part of the start-up plan of every new project. Risks associated with process e fficiency • Introduction of contemporary approaches and standards, precise monitoring of process efficiency and the merging of functions within the Group. Risks associated with quality and • Continuous compliance with the ISO system and other environmental management international recommendations and the acquisition of new certificates of compliance with regard to the provision of STS services (ISO 16001, ISO 20000, ISO 27001, and OHSAS 18001). • Continuous monitoring and compliance with associated legislation. Risk of damage/destruction of property – • direct damage (e.g. natural disasters, fire Risk is transferred to an insurance company through and earthquakes) insurance coverage of the relevant amount. WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 38 2009 Annual Report Telekom Slovenia Group
Through operational risk management, the Group improves the reliability of operations and security, prevents the abuse of existing and planned ICT networks, services and devices, and facilitates the introduction of new networks, services and devices. Increased process efficiency is also ensured.
The management of risks associated with the functioning and security of ICT networks is becoming increasingly important with the introduction of convergent technologies and services, particularly in terms of confidentiality, integrity and availability.
The risk of abuse was assessed at the same level as last year. Although new methods of abuse are constantly emerging, the Group manages them by upgrading the system for preventing those abuses in line with the programme adopted to prevent revenue loss. A special operational group is responsible for the daily monitoring, detection and prevention of abuses.
To ensure the constant compliance of its operations with quality and environmental standards, last year the Group defined additional risks associated with quality and environmental management.
Operational risk chart Risk/Extent* 2008 2009 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 Risks associated with quality and environmental management Risk of damage/destruction of property – direct damage (e.g. natural disasters, fire and earthquakes) * significance x probability WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 39 2009 Annual Report Telekom Slovenia Group
2 BUSINESS REPORT OF THE TELEKOM SLOVENIA GROUP 2.1 Growth in broadband and mobile connections
+ more than 100,000 new users + accelerated development in south-eastern Europe + sharp growth in mobile telephony in Kosovo
Successful sales in Kosovo and entry to the Macedonian market have contributed to the doubling of mobile connections in south-eastern Europe, while growth in broadband connection is being recorded in Slovenia, Republika Srpska and Macedonia.
Broadband connections
The number of the Telekom Slovenia Group's broadband connections on the end user market in 2009 remained at the level recorded in the previous year. The number of connections in Slovenia, Republika Srpska and Macedonia has risen.
Number of broadband connections Index Number of retail connections 31.12.2008 31.12.2009 09/08 Slovenia 206,404 211,025 102 Bosnia and Herzegovina – Republika Srpska 7,700 12,549 163 Macedonia 32,448 34,435 106 Kosovo* 67,847 59,434 88 Albania** 7,407 3,799 51 Total south-eastern Europe 115,402 110,217 96 Total Telekom Slovenia Group 321,806 321,242 100 * The number of connections at the end of December 2009 is in line with the standard method for counting connections at the Telekom Slovenia Group level.
Mobile telephony and fixed voice connections
The number of Telekom Slovenia Group mobile and fixed telephony connections was up 25% on the same period last year. The main factors in the increase were the purchase of Cosmofon/One and the effective marketing of mobile telephony services in Kosovo.
Number of mobile and fixed telephony connections Index Number of connections 31.12.2008 31.12.2009 09/08 Slovenia, mobile telephony 1,209,434 1,183,277 98 Slovenia, fixed voice telephony 648,657 572,059 88 South-eastern Europe, mobile telephony, of which: 349,010 955,283 274 - Macedonia – ONE - 423,553 - - Kosovo – Ipko* 349,010 531,730 152 South-eastern Europe, fixed voice telephony 15,272 59,883 392 Total Telekom Slovenia Group 2,222,373 2,770,502 125 * In 2008 there was a 30-day definition of an active user, while the figures for 31 December 2009 are in line with a 90-day definition.
Fixed and mobile telephony traffic
The total amount of fixed and mobile telephony traffic in terms of minutes was up 6% on the same period in 2008. The fall in fixed telephony minutes was mitigated by Ipko, d. o. o. in Kosovo, where 345 million minutes were recorded in the mobile telephony segment, and by the purchase of Cosmofon/One. WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 40 2009 Annual Report Telekom Slovenia Group
2.2 Financial results of the Telekom Slovenia Group
+ operating revenues of EUR 856.1 million up 1% on 2008 + effects of the recession drove down profit + takeovers of companies affected the short-term financial results of the Company, while laying the foundation for future development
Despite numerous adverse effects from the recession, the Telekom Slovenia Group's operating revenues in 2009 were up 1% on 2008. Alongside price pressures, a drop in purchasing power and other effects of the recession, operating results were also affected by takeovers and the ownership consolidation of companies, which represent a new spring board for the Telekom Slovenia Group's growth and development.
Key financial performance indicators for the Telekom Slovenia Group
Actual Actual Index in million EUR/% 2008 2009 09/08 Operating revenues 851.7 856.1 101 EBITDA 312.2 267.8 86 EBITDA margin 36.7% 31.3% 85 EBIT 128.5 64.1 50 Return on sales: ROS (EBIT/net sales revenue) 15.3% 7.6% 50 Net profit 86.0 24.6 29 Assets 1,788.4 1,967.5 110 Return on assets: ROA (net profit per average assets) 4.9% 1.3% 27 Equity 1,065.7 1,048.0 98 Equity ratio 59.6% 53.3% 89 Return on equity: ROE 8.4% 2.4% 29 Net financial debt 379.7 590.2 155 NFD/EBITDA 1.2 2.2 181 Investment in property, plant and equipment (CAPEX) 253.3 184.8 73 EBITDA - CAPEX 59.0 83.1 141 Ratio of (EBITDA-CAPEX) to EBITDA (cash margin) 18.9% 31.0% 164
Analysis of the Telekom Slovenia Group's income statement
The Telekom Slovenia Group generated operating revenues of EUR 856.1 million in 2009, an increase of 1% on 2008. Net sales revenue demonstrated a similar trend, at EUR 847.5 million. Falling revenues in Slovenia were offset by revenue growth in the countries of south-eastern Europe, particularly in Macedonia and Kosovo. The main reasons for a decline in revenues at the two largest companies, Telekom Slovenije, d. d. and Mobitel, d. d., of 4% and 9% respectively were as follows: ••• a range of affordable packages that helped Mobitel, d. d. stabilise its market shares; and ••• lower revenues in the end user segment at Telekom Slovenije, d. d. owing to the decline in traditional voice services, growth in the direct costs of IPTV-related content and one-off events.
Operating expenses totalled EUR 795.7 million and were up 9%, primarily as the result of rising costs of services and amortisation and depreciation costs.
Earnings before interest and taxes (EBIT) were down one-half on 2008, which can be attributed to the aforementioned reasons, delays in the introduction of new technologies and services, price pressures and the gradual liberalisation of markets.
The ROS indicator (return on sales) stood at 7.6% and was lower on account of higher operating expenses, which also resulted in a lower EBIT.
WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 41 2009 Annual Report Telekom Slovenia Group
Analysis of the balance sheet and cash flow statement
Total assets stood at EUR 1,967.5 million as at 31 December 2009 and were up 10% on the balance at the end of 2008, primarily due to the takeover of Macedonian companies.
Non-current assets , which represent 86.4% of the Company’s total assets, were up 11% to stand at EUR 1,700 million.
Equity and reserves in the amount of EUR 1,048 million represent 53.3% of total assets, and were down 2% on the end of 2008.
Non-current liabilities in the amount of EUR 623.4 million represent 31.7% of total assets, and were up 80.8%, primarily owing to an increase in other non-current liabilities (e.g. the issue of bonds).
Current liabilities in the amount of EUR 296.1 million represent 15.0% of total assets and were down 21.6% on the balance at the end of 2008.
ROA and ROE indicators ROA (return on assets) was down on the previous year in 2009, at 1.3%, due to an increase in total assets and lower net profit. ROE (return on equity) stood at 2.4%, primarily owing to a lower net profit in 2009.
Cash flow The reason for the increase in net financial debt lies in the financing of the purchase of Macedonian companies, which is also illustrated by cash flows from investing activities . Cash flows from operating activities were positive in the amount of EUR 235.4 thousand. In addition to loans, the Group disclosed proceeds from the issue of Telekom Slovenije, d. d. corporate bonds in the amount of EUR 297.7 million among receipts from financing activities . The Group used the aforementioned bond proceeds to repay a portion of long-term loans.
Segment reporting
Pursuant to IFRS 8 – Operating Segments, which requires the disclosure of operations by segments, the Group defines operating segments by types of services (e.g. fixed and mobile telephony and other services) and geographical regions (e.g. Slovenia and foreign markets), which are defined by the registered office where an activity is performed, in accordance with the internal reporting needs of management.
For the purpose of transparency, operations are presented below for two geographical regions, Slovenia and south-eastern Europe, and by types of service therein.
2.3 Financial management and performance
+ concern for solvency and liquidity + systematic financial management + realised strategic investment opportunities
Despite pressures from the economic environment, the Telekom Slovenia Group ensured its solvency through comprehensive and systematic financial management.
The solvency of Telekom Slovenia Group companies was managed through the parent company based on the precise planning, management and balancing of cash flows, maturity matching of receivables and liabilities and short-term financing within the Group. Moreover, short-term credit lines opened at domestic banks facilitated a high level of financial flexibility to bridge unforeseen cash shortfalls.
In 2009 the parent company also enhanced its role in the financing of 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.
Through coordinated financial management, the parent company provided and maintained optimal liquidity and solvency for the coordinated control over financial flows and the management of the Telekom Slovenia Group's financial risks. Standard guidelines facilitated the coordinate function of all Group WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 42 2009 Annual Report Telekom Slovenia Group
companies, while taking into account the particularities of individual national environments. The vision of financial management in the future is to create centrally controlled finances at the Group level in the form of strategic finance functions.
Equity structure and liabilities from financing
The structure of the Telekom Slovenia Group's sources of financing at the end of 2009 ensured its financial strength and high credit rating. The ratio of equity to financial liabilities stood at 1.14 to 1. Financial liabilities were up 5% on 2008 primarily as the results of investment activity. The level of financial liabilities provides for the Group's solvency, and stood at EUR 676 million as at 31 December 2009, or 34% of total assets.
Structure of equity and liabilities. Net financial debt
100% 700
600 80% 40.40% 46.70% 500 60% 400
40% 300 590 59.60% 53.30% 200 20% 380
100 0% 2008 2009 0 2008 2009 Equity Liabilities Net financial debt in mio EUR
Maturity of sources of financing
Ratio of current to non-current financial liabilities
100% 14.10%
80% 37.00%
60%
85.90% 40% 63.00%
20%
0% 2008 2009
Non-current financial liabilities Current financial liabilities
Current liabilities as a proportion of total financial liabilities were up on 2008, primarily owing to the refinancing of non-current liabilities and the issue of bonds at the end of 2009.
Securing sources of financing Securing sources of financing for Telekom Slovenia Group companies at banks and within the Group is coordinated by the parent company. The parent company is responsible for financing the strategic investments of other companies. In other cases, subsidiaries raise loans themselves with the prior consent and the coordination of lending terms by the parent company. In this manner, all Group companies achieve reasonably favourable financing terms, which apply to the entire Telekom Slovenia Group.
With regard to securing sources of financing, the parent company was most active in the first half of the year with the raising of a loan through a syndicate of 10 banks in the amount of EUR 295 million, which it used in March to refinance short-term loans and in May for the purchase of Cosmofon (ONE) in Macedonia in the amount of EUR 190 million. Due to the inappropriate maturity of this loan (3 and 5 years), the Company began the process of issuing a 7-year bond in the amount of EUR 300 million in the second half of the year. The bonds were issued in December, and the proceeds were used the same month for the early repayment of the entire loan. At the end of the year bonds represented 49% of all WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 43 2009 Annual Report Telekom Slovenia Group financial liabilities, while bank loans represented 51%. Loans from the European Investment Bank accounted for 31% of the latter.
Given that the parent company is responsible for securing financial sources for the strategic investments of subsidiaries, the breakdown of mutual financing within the Group is very important. The amount of loans granted is linked to the investment activity of individual subsidiaries, while the size of loans received depends on the liquidity surpluses of these companies. The parent company's financing of subsidiaries represented 96% of total mutual financing, while subsidiaries' financing of the parent company accounted for 4%.
Breakdown of mutual financing as at 31 December 2009
4%
96%
Loans to subsidiaries Loans from subsidiaries
Borrowing costs
Despite tighter borrowing terms on domestic and international markets, the Telekom Slovenia Group continued to raise loans under relatively favourable conditions in 2009. The weighted mark-up on the variable portion of the interest rate on all loans stood at 53 basis points at the end of the year.
The Group used financial derivatives to hedge its interest rate exposure for 55% of all loans. Other loans are raised with a contractual option to swap a variable interest rate for a fixed interest rate. In June the Group used additional financial instruments to hedge against interest-rate risks in loans totalling EUR 61 million.
The ratio of variable to fixed or hedged financial liabilities of the Group
100%
80% 48.00% 50.00%
60%
40%
52.00% 50.00% 20%
0% 2008 2009
Variable liabilities Hedge of fixed liabilities
Two credit rating reviews
The international rating agency Moody's Investors Service published two credit rating reports for Telekom Slovenije, d. d. The existing long-term credit risk rating of "A3", which the Company first received in April 2007, was confirmed during the regular review process in April 2009. However, in the credit rating report published for the needs of the bond issue, the long-term credit risk rating was downgraded from "A3" to "Baa1". The Rating Outlook remained negative .
Risk management
The primary focus of the Group's financial risk management was on liquidity and solvency risk and on interest-rate and credit risk. The majority of activities in this regard were performed by the parent company. A detailed description of the financial risk management process is found in the section Risk Management.
WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 44 2009 Annual Report Telekom Slovenia Group
Financial investments
The majority of the Group's 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, financial investments in shares and participating interest and loans to subsidiaries, represent a significant asset item of Telekom Slovenije, d. d. In 2009 Telekom Slovenije, d. d. took full advantage of investment opportunities in south-eastern Europe, taking an important step in its strategy to become one of the most important multimedia telecommunications providers in the region. The Company made the following investments: • purchase of a 100% participating interest in Cosmofon (ONE) and Germanos Telecom in Macedonia; • final payment of liabilities arising from the purchase of the Albanian company AOLSP- Primo in the amount of EUR 725 thousand; • a capital injection in Ipko, d. o. o. in the amount of EUR 6.37 million; • payment for the remaining 25% participating interest in Najdi.si in the amount of EUR 2.35 million; • establishment of Digi Plus Multimedia Ltd in Macedonia with paid-up founding capital of EUR 699 thousand; and • acquisition of an additional 29.4% participating interest in Ipko, d. o. o. through the buyout of shares from existing minority shareholders.
Investment in shares and participating interests primarily entail shares in Slovenian banks with which the Company cooperates, and in Zavarovalnica Triglav, d. d. However, these participating interests do not exceed a 1.6% ownership stake in an individual company. Total investments in corporate shares and participating interests amounted to EUR 2.8 million.
WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 45 2009 Annual Report Telekom Slovenia Group
2.4 Focus on development investments
+ modernising networks + raising the quality of services + investments in networks and services totalling EUR 184.8 million + new project management methodology
In changing operating conditions due to the economic crisis, the Telekom Slovenia Group reconsidered its investment projects and adjusted plans accordingly. Several projects were completed that improve the quality of the network and services, and thus provide a high-quality user experience.
2.4.1 Investments in fixed assets
The Telekom Slovenia Group earmarked EUR 184.8 million for construction, modernisation and development of networks and services. In south-eastern Europe,
Investments in fixed assets at Telekom Slovenia Group companies
Actual Actual Index in EUR thousand 2008 2009 09/08 SLOVENIA 196,175 121,498 62 Telekom Slovenije 119,027 70,003 59 Mobitel 70,752 40,775 58 Multimedia content 3,944 7,964 202 Najdi.si 1,990 0 0 Najdi, informacijske storitve (Teledat) 419 2,845 679 Planet 9 1,535 5,119 333 Other companies 2,452 2,756 112 Avtenta.si 633 197 31 GVO 1,455 1,243 85 Soline 364 1,316 362 SOUTH-EASTERN EUROPE 57,081 63,278 111 Kosovo – Ipko 43,871 29,610 67 Macedonia 4,054 25,365 626 On.net 4,054 22,405 553 ONE AD Skopje (Cosmofon) - 2,776 - Germanos - 184 - Bosnia and Herzegovina (Republika Srpska) – Aneks 8,003 7,657 96 Albania – Primo 1,153 646 56 TELEKOM SLOVENIA GROUP 253,256 184,776 73
2.4.2 Significant projects of the Telekom Slovenia Group
Telekom Slovenije, d. d.’s project management methodology was completed and approved at the beginning of the year. The Management Board approved a methodology manual with all of the requisite forms and rules for project work. This has defined the Company's method of project work, which will bring results in new projects implemented in line with the adopted methodology.
Projects are broken down into the following four main areas with regard to content: - infrastructural projects, - sales projects, - service projects, and - strategic and organisational projects.
WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 46 2009 Annual Report Telekom Slovenia Group
Fixed telephony segment
Projects already underway were implemented and new projects drawn up with the main emphasis on improving the quality of the network resulting in a higher quality of services.
The following projects were completed in 2009: • Revenue Assurance – implementation of a Fraud Management System (FMS) and a Revenue Assurance System (RAS); • e-invoicing – the introduction of e-invoicing for telecommunication services; • RM-CA2 – consolidation of customer accounts and the drafting of reports; • ASCADE-carrier cockpit 2 – implementation of a software solution for inter-operator statement of account and additional services for the international statement of account; • Network Engineer (NE) – implementation of a spatial information system; • monitoring of the quality of IPTV services on the IP/MPLS network – establishment of conditions to ensure the quality of IPTV services in all segments of the network, from the delivery point to the end user; and • Soho Plus – the upgrading of existing packages, which provides users the most state-of-the-art communication experience and integrated solutions for micro and small enterprises.
Mobile services
In addition to the service and sales projects described in the section Sales and Marketing, the following projects were implemented by Mobitel, d. d. in the mobile telephony segment: • SAP RMCA – introduction of new customer accounts in the SAP SD module for the Company's material operations; • infrastructure project SOA (service-oriented architecture) – expedites migration to the statement of account system and the convergence of mass telecommunication services, and the implementation of new services; and • organisational project Electronic Document Management – optimisation of operations and cost cutting with the introduction of electronic operations.
2.4.3 Active drawing of European funds
The Telekom Slovenia Group also participates in projects, the aim of which is to contribute to reducing economic and social differences between regions within the single European market and to promote the balanced and sustainable development of those regions with the help of Slovenian and EU regional policy financial instruments (European Regional Development Fund). As a private partner, co-investor and contractor, in 2009 GVO, d. o. o. collaborated in two of the largest projects to date aimed at the construction of open broadband networks in Slovenia. The total value of the two projects, which are being implemented in 10 Slovenian municipalities, is EUR 25 million. Of this amount, the European Union and the Republic of Slovenia will contribute EUR 16.9 million, while GVO, d. o. o. will contribute EUR 8.1 million.
GVO, d. o. o. is constructing open broadband network with public funds in those regions where a broadband network does exist, and where there is no market interest in the construction of such networks. These are sparsely populated remote regions, far from Slovenian urban centres. As a private partner in the projects, GVO, d. o. o. will first construct both networks, and then manage and maintain them for a period of 20 years, resulting in a return on its project investment. All interested operators will use the networks under the same conditions during the management phase.
WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 47 2009 Annual Report Telekom Slovenia Group
3 SLOVENIA 3.1 External influences on operations and market position
3.1.1 Macroeconomic environment
The international financial and economic crisis and, to a lesser degree, the expected cyclical cooling of infrastructure investment resulted in a sharp drop in economic activity in the first half of 2009. Slovenian GDP was down 8.8% on the same period in 2008 1. The International Monetary Fund (IMF) estimated that the global economic crisis had driven down global trade in merchandise and services by more than one- tenth in 2009. The crisis has resulted in a contraction in Slovenian trade, which represented nearly 70% of GDP in 2008, of more than one-fifth. Imports contracted slightly more than exports, in part owing to a drop in domestic consumption, which in the context of economic growth has helped maintain the positive contribution of net trade.
Autumn projections for 2009 envisaged a contraction in economic growth of 7.8%, while economic growth is expected to recover gradually in 2010 and 2011, to 0.9% and 2.5% respectively.
The uncertain economic situation and a notable deterioration in labour market conditions resulted in a drop in private consumption for the first time in nine years. During the first half of 2009 household consumption was down 1.3% in real terms on the same period last year. Household consumption in 2010 is forecast to remain at the 2009 level in real terms.
The stabilisation of the economic situation in some major economies in the second quarter of 2009 indicated the recovery from the recession which, according to the majority of forecasts, is expected to be very gradual. Short-term indicators of economic activity in Europe confirm the expectation of international institutions with regard to a slow recovery. The international economic and financial crisis has resulted in a sharp deterioration in the public finance position in the majority of EU Member States.
Major macroeconomic indicators in Slovenia
2010 2011 2006 2007 2008 2009 forecast forecast GDP (real growth), in % 5.8 6.8 3.5 -7,8 0.9 2.5 GDP, in EUR million 31,050 34,568 37,135 34.894 36,386 38,058 (current prices and exchange rates) GDP per capita, in EUR (current prices 15,467 17,123 18,367 17.177 17,866 18,647 and exchange rate) Registered unemployment rate, in % 9.4 7.7 6.7 9,1 10.6 10.9 Productivity – GDP per employee, in % 4.2 3.7 0.7 -5,7 2.5 3.4 Inflation (end of year)**, in % 2.8 5.6 2.1 1,8 2.0 2.7 Average annual inflation**, in % 2.5 3.6 5.7 0,9 1.5 2.5
** Proportions of GDP are calculated from GDP at current prices and a fixed exchange rate (EUR 1 = SIT 239.640). * Inflation is measured by the consumer price index.
Telecommunication sector during the economic crisis The telecommunications sector has withstood the crisis better than other sectors, thanks to stable cash flows and a relatively low debt ratio. International studies suggest that leading operators are optimistic with regard to operations. Particularly noteworthy among the possible risks arising from the crisis are a drop in the number of new subscribers, an increase in receivables (negative impact on cash flow) and difficult access to new sources of financing. A more significant impact can be seen in voice telephony as opposed to data services, and prepaid services as opposed to subscriber services. Innovations, particularly in the following areas, have proven to be a tool to fight the recession: content, entertainment, games and the gaming industry, and education. The Telekom Slovenia Group has focused intensively on the development and marketing of these areas in recent years.
1 Sources: Autumn Forecast of Economic Trends, 2009, September 2009, Economic Mirror, February 2010; Institute of Macroeconomic Analysis and Development, Ljubljana. WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 48 2009 Annual Report Telekom Slovenia Group
3.1.2 In step with trends on the ICT market
The electronic communications market continues to develop very rapidly, despite the adverse economic situation, which demands responsiveness and the continuous introduction of new services from telecommunications operators, while bringing significant benefits to users. The general movement in telecommunications is a migration to "All IP", which means that all services offered to users by telecommunications operators will use IP technology. Its main advantage lies in a high level of adaptability to developments and in the changing of the range of services at lower costs.
Trends similar to those in other EU Member States have been identified in the development of the Slovenian ICT market: • slowing growth in fixed broadband connections, • growth in mobile broadband connections, • falling prices of calls and the mobile telephony market, and • rising demand for packages of various services, and the associated replacement of traditional telephone connections with IP telephone connections.
The Telekom Slovenia Group is also in step with current technological challenges on ICT markets, that bring ICT service providers a competitive advantage: • an increase in transfer speed to the end user, • the provision of broadband access to all households, • responsiveness to competitive "over the top" (OTT) providers (e.g. Skype), which demands new IT services from network operators, • new billing models, particularly for internet access and standard VoIP, • a trend of more intelligent IPTV user terminals (STB and TV), • simultaneous support for IPv4 and IPv6 protocols in line with a clear strategy for migration to IPv6, which the Group is actively implementing, and • the trend of operators to standardise the control level of networks and the opening of a network for the development of new services by external parties, which the Group is also pursuing.
3.1.3 A European and global leader in terms of ICT market maturity
Telephony market: increasingly mobile users Traditional telephony is being replaced by mobile and IP telephony in Europe and Slovenia. In Slovenia, total outgoing traffic in minutes from fixed locations and the mobile network was up 2% over the first nine months of 2009. According to the SORS figures, traffic from fixed locations was down 14%, while traffic from mobile networks was up 11%. Despite growing competition in the IP telephony segment, Telekom Slovenije, d. d. has successfully defended its high market share. VoIP is increasingly at the centre of users' attention, primarily owing to lower prices and favourably-priced packages of broadband services.
Broadband access: Slovenia stands above the European average Broadband access, as a key indicator of the development of information and communication technology, is spreading rapidly. Slovenia surpassed the European average in terms of household broadband penetration to become a global leader, with opportunities for further expansion. In terms of the number of connections and market share, Telekom Slovenije, d. d. again defended its leading position this year on the fixed broadband connection market. The Slovenian broadband connection market is slowing gradually, with 9% growth in fixed broadband connections in the year 2009.
Exceptional growth has been recorded on the VoIP market (54% growth in year 2009) and on the IPTV market (31% growth in the number of IPTV connections), as the result of a sharp increase in demand for convergent services, namely packages of various services, particularly triple play packages.
Telekom Slovenije, d. d. has maintained its enviable market share with regard to other incumbents in the EU-27, whose market shares fluctuate sharply, from just over 25% in the UK to more than 80% in Cyprus (EU Commission, 14 th Implementation Report, January 2009). The reasons behind the success are aggressive marketing and sales approaches, technical capabilities (coverage for broadband services), loyalty programmes for existing users, the quality of services, customer service, brand reputation and competitive prices, particularly for the best-selling packages.
WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 49 2009 Annual Report Telekom Slovenia Group
Broadband household penetration, in third quarter 2009
90%
80%
70% average EU 27 - estimation 60%
50%
40%
30%
20%
10%
0%
Source: Analysys Mason, 2009 and SURS, 2009.
European leader in IPTV market maturity With an IPTV household penetration rate of 27% at the end of September 2009, Slovenia was one of the leading European countries. Telekom Slovenije, d. d. is the leading driver of growth on the IPTV market in Slovenia, and contributes significantly to the development of the market. According to analysts, the success of IPTV services lies primarily in the possibility of selection (e.g. video-on-demand and various content), comfort and the possibility of control (e.g. delay and video-on-demand). Telekom Slovenije, d. d. achieves one of the highest IPTV penetration rates among its broadband service subscribers (51.9% in the end of 2009) compared with certain other European operators.
IPTV household penetration
40% 34% 35%
30% 27% 25%
20% 16% 15% 13%
9% 10% 8% 7% 6% 6% 6% 5% 4% 4% 5% 3% 3% 3% 3% 3% 2% 1% 1% 1% 0%
Sources: Analysys Mason, Eurostat, APEK, 2008, 2009.
WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 50 2009 Annual Report Telekom Slovenia Group
High level of fibre optic access: eighth in the world and third in Europe The increasing demand for bandwidth and higher data transfer rates that facilitate new multimedia services has, in many countries, resulted in a trend of rapid development of fibre optic connections. Slovenia is among the global leaders with regard to household fibre optic access penetration (FTTH), and ranks third in Europe behind Sweden and Norway. The number of broadband FTTH connections is rising sharply, and accounted for 14.7% of all broadband connections at the end year 2009. In the year 2009 was recorded growth of 54% in the number of connections.
European countries with the highest fibre-to-the-home (FTTH) and fibre-to-the-building + LAN (FTTB) penetration, first half of 2009
Source: Global FTTH Ranking, September 2009, FTTH Council Europe (http://www.ftthcouncil.eu/documents/press_release/PR_EU_rankings_Final.pdf).
Economies with the highest fibre-to-the-home (FTTH) and fibre-to-the-building + LAN (FTTB) penetration, first half of 2008
Source: Global FTTH Ranking, February 2009, FTTH Council Europe.
WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 51 2009 Annual Report Telekom Slovenia Group
Economies with the highest fibre-to-the-home (FTTH) and fibre-to-the-building + LAN (FTTB) penetration at the end of year 2009
South Korea Japan Hong Kong Taiwan Lithuania Sweden Norway Slovenia Estonia USA Denmark Singapore Slovakia Finland Netherlands China Russia Italy Latvia France Czech … Portugal Bulgaria % 0 5 10 15 20 25 30 35 40 45 50 55 Fiber to the Home Fiber to the Building + Lan
Source: Global FTTH Ranking, February 2009, FTTH Council Europe.
Growth in mobile broadband access A high mobile telephony penetration rate also results in very high growth in mobile broadband internet access. Mobile internet services only represent around 3% of mobile operators' traffic, but are expected to continue growing in the future.
According to the European Commission, the key factors in the increased use of mobile broadband access are the emergence of new platforms (as the result of increased competition) and the pricing policies of providers. With a mobile broadband access penetration rate of 22%, Slovenia is well above the European average of 13%.
Mobile broadband access penetration rate in (January 2009)
30%
25%
20% 25,9% 22,8% 22,0%
15% 20,5%
10% 14,9% 14,0% 13,6% 13,2% 13,0% 12,1% 3,9% 10,1% 10,0% 5% 3,5% 8,0% 2,7% 6,7% 6,2% 1,1% 5,6% 5,7% 0%
Source: 14th Implementation Report, European Commission, March 2009. The analysis and consulting firm Analysys Mason forecasts that the mobile broadband internet will primarily be an additional service on the European market, and not a household's only means of access to the broadband internet. The majority of households will use both forms of internet access.
WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 52 2009 Annual Report Telekom Slovenia Group
Prevailing demand for packages of services The integration of the fixed and mobile markets and operators continues, with the majority of these operators providing services in all four of the following segments: fixed telephony, fixed data transfer, IPTV and mobile telephony, and mobile data transfer. One reason for growing demand for VoIP telephony and the decline of traditional fixed telephony lies in the sharp increase in demand for packages of various services, triple play in particular, that include internet, IPTV and VoIP services. According to reports from the APEK, the structure of packages has changed significantly on the Slovenian market in the last year in favour of triple play packages, which already accounted for 70% of all packages at the end of June 2009, an increase of 8 percentage points on the previous period.
Demand for convergent services (double and triple-play packages) is growing inexorably, while users are increasingly opting for such packages owing to the price benefit and the simplification of operations.
Number of convergent services in Slovenia
500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 4 Q 2007 1 Q 2008 2 Q 2008 3 Q 2008 4 Q 2008 1 Q 2009 2 Q 2009 3 Q 2009 4 Q 2009
Solo broadband acces Double play Triple play Quadruple play
Sources: APEK up to Q4 2009.
Analysys Mason also forecasts a rising proportion of packages in the coming years, and a decline in the proportion of stand-alone internet access.
Forecast triple play penetration in western Europe
Source: Triple play: are operators up to the task? Figure 1: Breakdown of subscriptions and household penetration of triple-play in Western Europe, 2006–2013 (Source: Analysys Mason, 2008).
3.1.4 Regulatory environment
EU telecommunications reform The European Parliament adopted a new regulatory framework on 24 November 2009. The framework was published in the Official Journal on 18 December. Member States have until 25 May 2011 to make WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 53 2009 Annual Report Telekom Slovenia Group the relevant adjustment to their legislation. Changes to the common legislation for the telecommunications sector will strengthen the rights of users and stimulate competition between providers.
Developments relating to Slovenian legislation The Act Amending the Electronic Communications Act was published in the Official Gazette of the Republic of Slovenia (No. 110/09) on 29 December 2009. The amendments relate to joint investments and joint use of facilities, the introduction of functional separation, certain provisions relating to radio frequencies and the dissemination of location and traffic-related data have been amended, and the retention time of traffic data has been shortened. The section on misdemeanours has also been amended, a fine dependent on the operator’s annual turnover having been introduced.
In accordance with national legislation on data retention, which implements Directive 2002/58/EC on personal data and electronic communications and Directive 2006/24/EC of 15 March 2009 on the retention of traffic-related data, electronic communications operators are obliged to retain data on internet access, email and internet telephony. The obligation to retain data involves risks relating to the processing of individuals’ traffic-related data. Thus special measures are required to guarantee data protection and prevent abuse. Telekom Slovenije, d. d. has introduced appropriate technical measures and solutions, in the form of a data retention system to address this issue, which also satisfies the information security requirements regarding the retention of traffic-related data as required by legislation.
Relevant markets The Post and Electronic Communications Agency (hereinafter: APEK) has carried out markets analyses and supervisory proceedings that have affected the Telekom Slovenia Group's operations in various ways. The APEK's most important decisions are given below:
• At the beginning of March, the APEK published analyses of retail markets 3 and 5 and markets 4 and 6, in which it found that these markets were competitive and that further regulation of the retail market was no longer necessary. In August the APEK reversed all four previous decisions that had defined Telekom Slovenije, d. d. as an operator with significant market power.
• On 19 May 2009, during supervisory proceedings, the APEK issued a temporary decisions on the "new" markets 2 and 3 setting prices as calculated by the APEK itself. Telekom Slovenije initiated the appropriate legal remedies with regard to the decision. At the same time, the APEK has initiated supervisory proceedings regarding the calculated prices. The proceedings are on-going.
• On 15 June 2009 the APEK published a preliminary analysis of wholesale markets 4 and 5, in which the market definition was extended to the optical network. On 12 August 2009 the APEK published an analysis of "new" markets 4 and 5. It then published an amended analysis on 24 September 2009, changes having been made to the section relating to pricing measures, on the basis of comments.
• In proceedings to rectify irregularities relating to the introduction of bank guarantees in WLR, RIO and RALO reference offers between April and June, the APEK issued a decision prohibiting Telekom Slovenije, d. d. from using bank guarantees to secure its receivables. Telekom Slovenije, d. d. appealed the decision through the appropriate legal remedies.
• On the basis of a report by Amis, the APEK initiated supervisory proceedings over the provision of EMX, modems for operators and VPNs as part of BRO. All the proceedings have already been concluded and decisions issued, on the basis of which Telekom Slovenije, d. d. has adjusted its reference offers.
Other proceedings before the APEK The APEK initiated and stopped various proceedings based on operator complaints. Telekom Slovenije, d. d.'s proposal relating to the call termination price in Tušmobil, d. o. o.'s network was rejected on 16 June 2009, since a decision was issued in the interim period on call termination in mobile networks, in which the call termination price for Tušmobil, d. o. o. was fixed.
Universal services No bids were submitted by operators in the public tender to provide universal services in the part relating to connection to the public telephone network and access to publicly accessible telephone services at a fixed location, and the provision of public telephone booths and the provision of measures for end users (disabled persons). The APEK selected Telekom Slovenije in administrative proceedings to provide the WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 54 2009 Annual Report Telekom Slovenia Group aforementioned package of services for a period of five years. The concession expires on 1 December 2014. Two operators submitted bids in the public tender for the provision of universal services in the part relating to the publication of the telephone directory and the provision of directory enquiries. The APEK selected Teledat as service provider in its decision of 30 November 2009. A concession was awarded to the Company for a period of five years.
3.1.5 Market position in key service sectors
Telekom Slovenia Group companies have maintained their positions with regard to the competition, thanks to the development of existing and new subscriber packages and services that meet the demands of users. In an environment of increasing competition, telecommunication operators and mobile service providers are further strengthening activities to attract new subscribers, while price pressures are also increasing, particularly with regard to various packages of services.
The Telekom Slovenia Group recorded less severe falls in market shares in the previous year in key segments. The number of users continues to rise in all segments. The number of users, particularly in Kosovo, is rising in the mobile telephony segment, while the number of broadband service users is rising in Slovenia.
Number of users/connections
2,500,000
2,019,983 2,076,755 1,898,216 2,000,000 1,801,621
1,500,000
921,680 1,000,000 829,455 850,137 871,259
397,417 456,608 500,000 322,169 253,052
0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2006 2007 2008 2009
Mobile Fixed Broadband
Sources: APEK report for 3 rd quarter of 2009, SORS 3Q2009, Telekom Slovenia Group, own calculations.
Telekom Slovenia Group market shares by service
Telekom Slovenije Other operators Fixed broadband access
61% 46% 61.1 % market share 46.1 % market share Annual change -3 ppt Annual change -0.9 ppt 109,471 connections 211,025 connections 54% Annual Change +2 % 39% Annual change +29 %
40.1 % market share 44% 40% 44% 56.3 % market share Annual change -7.6 ppt Annual change -2,6 ppt 60% 56% 56% 143,808 connections 1,183,277 connections Annual change +30 % Annual change -2 %
VoIP Mobile telephony
Mobitel
Sources: APEK report for 4rd quarter of 2009, Telekom Slovenia Group, own calculations. WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 55 2009 Annual Report Telekom Slovenia Group
Expected drop in fixed telephony At the end of 2009 Telekom Slovenije, d. d. held a 76.1% market share, a decline of 10 percentage points compared with the end of 2008. Owing to a dominant market share and IP telephony, primarily alternative operators are garnering a share of the Slovenian market, representing one of the reasons for the aforementioned decline.
Leading provider of broadband access There is a notable slowdown in the growth of fixed broadband connections on the market. With a 46.1% share of the market, Telekom Slovenije, d. d. remains the leading provider of broadband access.
Significant development potential of the TV services market The trend of a growing proportion of IPTV connections continues. Telekom Slovenije, d. d. is dictating the pace of development of the growing IPTV connection market. The Company holds a dominant share of the market, and accounted for 31% of the total growth in IPTV connections in the aforementioned period. The share of IPTV is also rising in relation to cable television, having gained 10 percentage points in the last year.
Market share of IPTV services on the Slovenian market
100
90
80
70
60
50
40
30
20 market share share market in % 10
0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2006 2007 2008 2009 Tušmobil 0.1 1.0 1.4 1.1 0.9 1.0 1.0 1.1 1.0 1.0 0.9 0.9 0.7 Amis 1.1 1.9 2.4 2.9 3.2 3.4 3.4 4.9 5.3 5.7 T-2 30.1 37.4 33.5 34.3 35.4 36.0 37.0 35.8 36.3 37.0 36.7 33.6 32.8 31.9 32.5 32.4 Telekom Slovenije 69.9 62.6 66.5 65.6 63.6 62.6 60.8 61.4 60.4 59.1 58.9 62.0 62.8 62.3 61.3 61.1
Sources: APEK report for the 4rd quarter of 2009.
Stable on the mobile telephony market Despite growing competition, the Group has maintained its solid number one position on the mobile telephony market. Mobitel, d. d. has fought the continuing fall in market share primarily through a new, more affordable package of services.
First in the content segment In Slovenia, the Telekom Slovenia Group linked a significant portion of the content segment at Najdi, informacijske storitve, d. o. o. , which manages the Najdi.si brand (with websites), TIS, 1188, Firma.si, Borzadela.si and Bizi.si.
In its core activity of marketing online search engines, Najdi.si is one of the most frequently visited websites in Slovenia, according to data from MOSS surveys regarding visits to Slovenian websites, with nearly 600,000 monthly visitors. Since the measurement methodology and the company performing the measurement have changed since the last measurement, the end results are not directly comparable with previous periods. According to data from Mediana, last year Najdi.si held a 39.6% share of the Slovenian internet advertising market, which accounts for around 4% of the overall advertising market. The decline in market share can be contributed to a drop in media exchanges and an increase in the presentation of advertisements in competitive forms of media, as the result of the approval of large discounts. As market shares are not determined with regard to the level of invested funds, the actual market situation cannot be determined.
Planet 9, d. o. o. specialises in multimedia content and services on mobile and web portals, which it sells to service providers for end users in the Telekom Slovenia Group and across Slovenia and south-eastern Europe. WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 56 2009 Annual Report Telekom Slovenia Group
Comparison of shares on the internet advertising market
Year 2009 Year 2008 InDirekt Delo.si 0.3% InDirekt 2.2% Diva.si Delo.si Dnevnik.si 0.1% 1.5% Senca.net 0.6% 6.1% Diva.si 2.4% Dnevnik.si Senca.net POPT.TV.si 0.4% 2.2% Žurnal24.si 1.9% 0.3% 3.3% Httpool Žurnal24.si 6.3% 5.4% Httpool SiOL.net 4.8% 6.8% Najdi.si SiOL.net 38.3% 7.1%
Finance.si Najdi.si 45.2% Finance.si 10.7% 6.0%
24ur.com 24ur.com 27.6% 20.4%
New 5-year concession for the universal telephone directory The predecessor of Najdi, informacijske storitve, d. o. o., Teledat, d. o. o., was once again awarded a 5- year concession as publisher of the universal Slovenian telephone directory. The company remains the sole provider of electronic and printed white pages, and holds a 54% share of the yellow pages segment. Since the Slovenian telephone directory is primarily financed via the sale of advertising space, the generation of revenue is strongly linked to the state of the economy. The value of the advertising space market in all Slovenian directories is currently between EUR 5.5 million and EUR 6 million. According to MOSS surveys, the www.tis.telekom.si online directory remains one of the most frequently visited websites, providing a good basis for the marketing of advertising space.
The Group has maintained its leading share in the 1188 call centre segment, while recognising that the majority of telecommunication operators provide information regarding their subscribers. Global and European trends indicate an annual drop in the number of calls to 1188 call centres of between 15% and 25%. Slovenia is faced with a similar trend. The Group will try to halt that trend by investing in the promotion and development of new services. There is currently no real competition for 1188 services, but this can be expected to change in the future.
There is a great deal of competition in the business directory segment, PIRS and IPIS representing Bizi.si's main competitors. The business model of the Bizi.si directory envisages the online marketing of advertising space, which puts it in a leading position, as it is one of very few online products to offer this service.
Systems integration Slovenia is considered one of the most developed countries in the ICT sector, as investments in this area are aimed at services and not at purchases of material equipment, as is the case for other new EU Member States and the countries of south-eastern Europe. The consulting firm, IDC Corporation, which regularly monitors the Slovenian IT market, projected a sharp drop in investments in IT projects during 2009, particularly in the manufacturing and trade sectors. The negative trend is not expected to be felt until 2010, when the value of the IT market will remain at the 2009 level.
According to an audit from the same consultancy firm, Avtenta.si, d. o. o. is the fifth largest systems integrator in Slovenia, with a 4.2% market share. The company is distinguished by competent workers and a well-rounded range of integrated service from the ICT sector. To ensure continued user demand it is important for the company to cover areas that analysts assess will be the focus of investment in the next two years, namely in solutions that will bring a quick return on investment or a decrease in operating costs (e.g. the streamlining of business processes, the consolidation of IT equipment and virtualisation).
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3.2 Sales and marketing
+ revised architecture of brands + satisfied users + active marketing
Adaptability, innovation and readiness for changes represent the Group's response to market challenges in all of the Telekom Slovenia Group's segments of operations.
3.2.1 Brand management
Telekom Slovenije, d. d. has revised the architecture of its brands on the basis of analyses of its reputation, attributes and brand positioning in absolute and relative terms with regard to the competition and on the basis of future development of the sector. The Group has the strongest brands in Slovenia at its disposal, Mobitel, Telekom Slovenije and SiOL having received the titles of Trusted Brand and Superbrand (the latter two companies for the third consecutive year). The Najdi.si brand has also received the Superbrand title.
We use the term Telekom Slovenia Group equally at the group level, while the composite logo comprises the corporate brands of the parent company and subsidiaries in Slovenia and abroad.
Since Telekom Slovenije is known among business users as a good, stable, technologically sound and trustworthy company, the Group continues to use the corporate brand and a monolithic architecture for the portfolio of business services. On the local market, the Group has reintroduced an independent and fresh SiOL brand in the corporate brand. In terms of content, the Group has linked the SiOL brand with the user experience, an updated subscription process and a more transparent range of broadband services.
Key service brands by user segment
The decision to change the architecture is the first step towards closer cooperation between the companies of the Telekom Slovenia Group, also with regard to defining the optimal current and future architecture of the Group's services and material brands. The aim of further workshops is to reach a common understanding of the Group's content and services and to simplify the architecture of brands, in terms of covering key segments identified, particularly content and convergent services. WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 58 2009 Annual Report Telekom Slovenia Group
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3.2.2 Marketing of services to end users
In the key user segment, the Group has continued its strategy of offering comprehensive solutions that are tailored to the needs and desires of each user. The Group offers services in an administrative model, typically with no initial investment, but with a long-term commitment.
The total business network (TBN), provided together with Mobitel, d. d., also plays an important role within the package of administrative service, which includes connectivity, data and voice transfer and other elements offered to larger business users by Telekom Slovenije, d. d. The Group has signed more than 10 TBN agreements with the largest business users, as the result of the coordinated actions of both companies' sales teams.
Updating the range of business packages, aimed primarily at small office/home office (SOHO) segment, in the final quarter helped the Group achieve its established objectives.
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3.2.3 Fixed telephony segment
Revenues from the fixed segment
The operating revenues of Telekom Slovenije, d. d. as fixed operator reached EUR 398.5 million in 2009, down 4% on 2008. Net sales revenue was down 3.3%, at EUR 396.5 million. A small drop in revenues was expected, as most European operators have recorded declining revenues in the fixed segment for several years owing to the transition to VoIP and fixed-mobile alternatives, the adverse economic situation also contributing to the decline.
Due to market saturation, competitive pressures and a drop in traffic, revenues from traditional telephone connections have declined, particularly in the residential user segment. Nearly the entire decline was offset by growth in broadband services and revenues from the operator segment, which also results in higher costs. Revenues in the operator segment were up 5% on the previous year. Their growth is linked to sharply higher international transit traffic, where revenues were up 35% on 2008, and to 12% growth in bandwidth leasing for operators.
In the breakdown of total operating revenues, broadband services for end users, VoIP telephony, bandwidth leasing (primarily VPN services), international operator services and network interconnection have all gained in importance, while the importance of old technology services is declining.
Fixed telephony services
With the established regulation on the relevant markets, conditions were created that impair Telekom Slovenije, d. d.'s ability as an operator with a dominant market position on the retail market to sufficiently cover costs, primarily with regard to telephone subscriptions. Telekom Slovenije had to first on 1 February 2008 and then again on 1 February 2009 adjust its prices on the retail sales market for PSTN, ISDN BA and PA services owing to the introduction of price caps. All the findings apply to the entire traditional telephony services segment, which includes a portion of traditional Centrex/GeoCentrex services in addition to PSTN and ISDN services.
The number of traditional telephone connections continues to decline and stood at 557,137 at the end of the year, down 13% on 2008, owing to the migration of subscribers to mobile and broadband connections in the context of number portability to fully unbundled access and "independent wholesale xDSL". At the same time, the number of users of fixed broadband connections is up 2%. Owing to market saturation, declining interest in traditional telephony and the development of new services (VoIP), sales of traditional voice telephony connections will continue to be low in the future.
Sales of traditional Centrex connections are gradually declining owing to the extensive marketing of IP Centrex and IP PABX services. The Group recorded 10,916 new IP Centrex connections with the help of a sales promotion for new subscribers.
Number of connections by type
Actual Actual Index Number of connections 31.12.2008 31.12.2009 09/08 Voice telephony 648,657 572,059 88 PSTN 370,828 319,196 86 ISDN BA 110,028 87,585 80 ISDN PA/DID 781 728 93 Traditional Centrex 161,251 149,628 93 IP Centrex and IP PABX 5,769 14,922 259
The volume of outgoing traffic is falling primarily due to a drop in internal and dialup internet access, while the share of end-user VoIP traffic is increasing, having reached 11%.
The main factors in the changes in average revenue per line and user (ARPU) were a change in the subscription fees imposed by the APEK, falling prices of calls from the fixed mobile network, rising prices for information calls and a change in the settlement period for calls from the fixed to mobile networks. 61 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 2009 Annual Report Telekom Slovenia Group
Sales of Telekom Slovenije, d. d.'s residential services are made via the following five main sales channels: - call centres, - the internet, - field sales, - other internal sales channels, - Mobitel centres, and - external agents.
Numerous sales activities are aimed primarily at sales of broadband connections and related services.
3.2.4 Mobile services
Mobitel, d. d. has given special attention to existing users in the adverse market conditions. It has updated its package offer in response to stiff competition and a declining market share. Mobitel, d. d. has offered new, more affordable packages that already include a specific range of services, and has carried out activities to maintain and increase customer satisfaction and thus build loyalty. The company informed subscribers of new services via a call campaign from the Customer Service Centre and direct mailing, and via a text message campaign. It began introducing a new personal telephone advisor service aimed at medium-sized enterprises, which has been extremely well received.
The number of Mobitel subscribers has risen, while the total number of users has fallen by 26,157 owing to a drop in the number of prepaid customers. The number of mobile broadband connections has risen sharply in line with market trends.
Number of network users
Actual Actual Index USER GROUP 31.12.2008 31.12.2009 09/08 Subscribers 775,650 821,141 106 Prepaid customers 433,784 362,136 83 MVNO users 158,140 133,947 85 TOTAL 1,367,574 1,317,224 96
Mobitel, d. d. has offered users various new products and services, including the following:
• Mobile phones with the Android platform represent an innovation on the Slovenian mobile telecommunications market. The company introduced the efficient HTC Hero and Samsung i7500 Galaxy mobile phones, and will continue to expand the range of mobile phones on this platform.
• With the introduction of the new payment system on Ljubljana city buses , Moneta users can pay with their mobile phones.
• The solar Samsung E1107 Crest Solar mobile phone was introduced in an effort to preserve Slovenia's natural heritage and protect the global environment.
3.2.5 Bandwidth leasing and VPN 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. These technologies will be fully replaced by VPN L2 and L3 services, which are more interesting in market terms and use the IP/MPLS network to function. High growth in sales of these services was recorded in 2009. Sales of leased lines in 2009 did not fall significantly compared with 2008, as these lines remain a back-up to VPN connections.
Owing to a sharp increase in competition, all activities are aimed at increasing the flexibility of sales and the related change in pricing and sales models. The range of services in this segment has been enhanced by the following: 62 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 2009 Annual Report Telekom Slovenia Group
• the upgrading of the IP/MPLS network, which provides users several types of SLAs; • the introduction of a new VPN management service, by which the company will ensure subscriber connectivity, and manage and maintain active LAN equipment; • the preparation of special packages for ATMs in the scope of the VPN management service; and • the introduction of the Remote Help ("panic button") service for older individuals, which the company is developing with the Association of Social Institutions and the Ministry of Labour, Family and Social Affairs.
3.2.6 SiOL broadband services
Despite the stiff competition and a regulatory environment that restricts the company, sales of broadband connections continue to grow in the business and residential subscriber segments. Contributing significantly to that success are SiOL services sales campaigns, a new SiOL business package and successful sales of packages that include various combinations of VoIP telephony services, internet access and IPTV services.
Growth in the number of broadband connections continues to be favourable, although there was a notable slowdown in the second half of the year due to increasing penetration and market competition. Owing to the unfavourable economic conditions, the company has also stimulated sales to subscribers through a number of promotional offers aimed at various target groups..
Connection sales
Actual Actual Index Connection sales Jan–Dec Jan–Dec 09/08 2008 2009 Broadband connections 57,299 30,625 53 xDSL 43,948 22,482 51 FTTx 13,351 8,143 61
In the breakdown in terms of technology, the proportion accounted for by VDSL2 increased (to 3.9%), while the proportion accounted for by FTTx was up significantly (to 11.2%), which is providing greater bandwidth and creating a basis for higher quality broadband services (e.g. IPTV and video-on- demand). Business and residential users are migrating to a large extent from old xDSL packages to packages with more broadband services and packages without traditional voice telephony, which include a supplement for digital access. These connections accounted for 42% of all broadband connections in the xDSL segment at the end of the year.
Number of connections by technology and service used
Actual Actual Index Number of connections 31.12.2008 31.12.2009 09/08 Broadband connections 206,404 211,025 102 xDSL 190,978 187,455 98 FTTx 15,426 23,570 153
Actual Actual Index Broadband services 31.12.2008 31.12.2009 09/08 Broadband internet access 200,795 203,960 102 VoIP 105,229 128,886 122 IPTV 84,615 109,471 129 CATV 5,608 8,875 158 The difference between the number of broadband connections and the number of broadband internet connections is broadband connections that do not include internet access (e.g. independent IPTV or VoIP or a combination of the two).
IPTV broadband connections achieved an exceptionally high share, at 52%. The number of television service subscribers was up 29% on a year earlier to pass 109,000 by the end of the year.
VoIP technology is increasingly replacing traditional voice telephony, these connections having accounted for 61% of all SiOL broadband connections at the end of the year. VoIP connections accounted for 18% of the total 700,945 telephone connections (traditional voice telephony, IP 63 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 2009 Annual Report Telekom Slovenia Group
Centrex and IP PABX and VoIP). The growth in IPTV services is the result of the construction of new broadband (primarily FTTx) access and competitive offers, particularly in service packages.
3.2.7 Wholesale (inter-operator segment)
The Group recorded growth on the previous year in the majority of operator services on the inter- operator market, particularly in quad play, broadband xDSL access, shared unbundled access and bandwidth leasing for operators. Conversely, there is a notable drop in sales of shared access and co-location services.
Sales of connections without traditional voice telephony are coming to the fore. Thus, the sales structure is changing in favour of PRD and independent WS xDSL. A new broadband access service for operators is "independent wholesale xDSL". At the end of the year there were a total of 99,204 active operator connections, an increase of 9% on 2008. Through the marketing of broadband access in the wholesale xDSL sales model, revenues were up 15% on 2008, while revenues were down in the co-location services segment.
There is a notable increase in outstanding receivables in business with operators, receivables on the domestic and international markets having stood at EUR 8.57 million and EUR 9.85 million, respectively, as at 31 December 2009. The majority of outstanding receivables from domestic operators are accounted for by services from the sample offer for unbundled access and co-location, the lease of optical lines and network interconnection. An out-of-court settlement was reached with Amis in December 2009.
To reduce the scope of outstanding receivables from domestic operators, the Group shortened the deadline for reminders and thus accelerated the pace of court-enforced recovery in the event an operator does not respond to a written reminder. The Group has also accelerated the collection of outstanding receivables from international operators.
Network interconnection with domestic operators recorded 7% revenue growth. More than one- third of revenues are accounted for by call termination in the Telekom Slovenije, d. d. network from mobile networks, one-quarter by voice services (090, 080), followed by call termination from fixed networks at one-fifth.
Also up were revenues from international operator services by which the Group generates nearly two-thirds of total revenues on the inter-operator market. The Group is also recording sharp growth in absolute terms owing to the increase in international transit traffic.
Traffic with mobile telephony operators is rising primarily on account of an increase in international network interconnection traffic. The high growth in traffic from network interconnection with domestic fixed telephony operators is the result of the developing market and the migration of subscribers to new operators. As a result of the latter's growth, revenues from call termination and network interconnection leasing are increasing.
Growth in revenues from bandwidth leasing is driven primarily by the intense and active sales of fibre optics and international leased lines to domestic operators.
Mobile inter-operator access and connection
Mobitel, d. d. has signed inter-operator access agreements with the following companies: - Debitel and Izi mobil for the provision of mobile telephony services in its network, and - Tušmobil and T-2 for national roaming services, which enables them to use the Mobitel network, as well as their own networks.
Mobitel, d. d. had entered into network interconnection agreements with 11 operators as at 31 December 2009.
New lower prices entered into force on 1 April 2009, pursuant to the APEK's temporary decision of 16 April 2009 on market 7 (call termination in public mobile networks).
At the end of the year Mobitel users were able to roam in the following networks of other providers: - GSM: 361 operators in 192 countries, 64 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 2009 Annual Report Telekom Slovenia Group
- GPRS: 211 operators in 103 countries, and - UMTS: 95 operators in 54 countries.
3.2.8 Systems integration: an increased number of external users
In line with forecasts, Avtenta, d. o. o. achieved a breakthrough on the international market by entering into several new significant agreements and strengthening relations with key customers. A great deal of effort and knowledge was invested in the development of a solution for a credible electronic document archiving system, and was the first in Slovenia to be thus accredited by the Archives of the Republic of Slovenia.
The company also followed the sales trend at the operational level with the training of technical staff for areas demonstrating the appropriate potential on the market and within the Group. The effects of the economic crisis have been felt even in the area of training, which is one of the most recognisable elements of the company's range of services, as a drop in sales of training compared with 2008 was recorded. With regard to Microsoft training, Avtenta.si, d. o. o. received two significant awards, as the best Microsoft training centre and as the second best Microsoft certification centre.
3.2.9 Quality and innovative content
The mission of companies that co-develop content is to provide quality, reliable and attractive services and content that facilitate communication, entertainment and the active co-creation of a digital life throughout the environment. Najdi, informacijske storitve, d. o. o. and Planet 9, d. o. o. deal with content within the Telekom Slovenia Group.
Najdi, informacijske storitve, d. o. o. generates the majority of revenues through sales of advertising space, small advertisements and the intermediation of advertising space in online media. The latter generated the most significant growth in sales revenue last year, which is particularly satisfying given the negative trend in the advertising industry. The company is planning a number of sales activities to improve sales results.
Since the end of 2009 its activities also include the following segments: subscriber information, sales of advertising space, sales of all versions of the Slovenian telephone directory and sales of Bizi.si. Revenues in the aforementioned segments have risen slightly due to an increase of one-third in revenues from information services.
Planet 9, d. o. o. is guided by innovation and usefulness for end users in the designing of services and content, and is therefore a step ahead of other companies. Its main advantage lies in the provision of convergent content and services for television screens, mobile phones and personal computers. In 2009 the Group developed and introduced a number of innovations that increase the return on services: • Taking into account market dynamics, the umbrella business model of SiOL TV services was thoroughly revamped, by enhancing it with new channels and introducing service-content packages that also differ from basic value-added services. Subscribers are provided access to advanced interactive services and content. • The range of websites managed, developed and maintained by Planet 9, d. o. o. was joined at the beginning of the year by the umbrella website (www.mobitel.si ), which combines the visual and functional elements of up-to-date websites. The Group entered the field of digital communities with the Itak.si project. • In line with trends and the development strategy of standardisation, a portion of iO television services were moved to the internet. Users were offered access to a range of television programmes and a plethora of content on demand. • On service websites, support for the innovative e-invoicing project, managed by Telekom Slovenije, d. d., was introduced.
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3.2.10 Construction and maintenance of the network
GVO, d. o. o. generates sales revenue within the Telekom Slovenia Group and on the market. In the last year the company has responded quickly and successfully to the decrease in the volume of work for Group companies. Net revenues from sales outside the Telekom Slovenia Group were up 119% on the previous year.
The company operates in a market where changing economic conditions have been strongly reflected. The attraction of new business has been hindered by a decrease in investment activity, while the deteriorating payment discipline of some companies, which limits the number of business partners, also represents an obstacle. Therefore, sales are increasingly focused on attracting business in the area of electrical, construction and machine works, which the company largely pursues independently with the aim of partially offsetting the drop in orders from the parent company.
Among last year's most important projects were the construction of open broadband networks in seven municipalities in the Koroška region and three municipalities in the Podravska region, works in the motorway programme and projects for the Ministry of Defence.
3.2.11 Soline
Mobitel, d. d. is 100% owner of Soline, d. o. o., which manages the Se čovlje saltpans, a special environmental investment by the mobile operator. Through a concession relation, the company 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-party concession relation (a concession for mining rights to extract raw materials, e.g. desalination, and the protection of natural beauty and water management) will help maintain the precious natural and cultural heritage.
The number of tourist visits to the Se čovlje Saltpans Regional Park was up one-quarter in 2009. In addition to good weather, the increase in the number of visits was also prompted by the erection of the largest 3-D model in Slovenia. Sales of own products and merchandise in own business units were up slightly during the reporting period. Notable growth was also recorded in sales in the EU.
In August 2009 the Slovenian government adopted a decision on a clean-up programme for the Se čovlje and Strunjan saltpans to repair the damage caused by a flood in December 2008. Soline successfully cleaned up the seawalls in line with the aforementioned programme.
3.3 Intensive development of convergent services and the network
+ use of Web 2.0 technologies + open platforms + convergence of services and content + an effective and stable network
The Group has responded to significant changes in development techniques and the range of telecommunication services by introducing open platforms and developing new services and content that bring users commercial and personal benefits and provide new user experiences .
3.3.1 The most state-of-the-art development techniques for services and content
In 2009 the Group began introducing open platforms on which applications can be developed, even by external programmers, which facilitates the simpler and less expensive development of new services. Convergent services and content were at the fore of the development of services. These facilitate the exploitation of 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 benefits in the area of voice and multimedia communications, information and entertainment brought about by mobility.
Open platform initially for business users Last year the Group introduced an open platform for commercial IP telephony, which is already in use. The first service developed on this platform, Monitor, which is based on Java technologies, was launched in 2008. This service enables the real-time monitoring of calls by IP Centrex users, and is 66 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 2009 Annual Report Telekom Slovenia Group already in use at hotels. On the same platform in 2010 the Group will develop an entirely new prepaid telephony service that will be adapted to the special requirements of customers. A new platform that will facilitate calls via a web browser is also being introduced.
Several innovations are being developed for business users in 2010: • more new services with an emphasis on an improved data communication experience, such as the use of various terminals and a single identity and video and information regarding the presence/availability of users; • the upgrading of commercial IP telephony that allows the changeover to a single-caller identity regardless of the terminal type, and the use of a soft client on a mobile terminal for accessing these services anywhere in the world over the internet and at local call rates; • IP telephony for major customers can also be offered as a separate server in a customer's data centre environment. This has been successfully tested in a laboratory on the market, at one of the Group's largest customers; • increasing the range of services for smaller customers via the introduction of new elements (mini PBX).
New areas of development for new revenue sources The most important of last year's activities included the testing of equipment for controlling and analysing turnover via the Group's backbone network. This equipment will assist the Group in providing services such as parental control and dynamic bandwidth monitoring .
A significant investment last year was the purchase of a media platform to support value-added services and video/voice applications based on VoXML technologies. The platform was successfully established in the first half of the year and integrated with all IP telephony platforms. By transferring certain existing services to this platform, the Group aims to reduce operating costs in the future, while opportunities for new revenue sources from entirely new services have been presented.
Considerable focus was placed on videoconferencing and collaboration platforms . Testing of one platform – using the latest technology to offer HD images even on lower capacity, less reliable connections – has already been successfully completed.
To ensure its long-term success, the Company is also focusing on other perspective areas. Telekom Slovenije, d. d. is already offering an advanced security service for more demanding customers. A platform for these types of solutions on less-expensive IP equipment for users with less demanding requirements is also in the testing and evaluation phase. Telemedicine services also have a bright future. The Group is preparing to launch the first of these services and is searching for opportunities to expand the range of services.
A basic infrastructure has been established to offer IT services, including the leasing of disc space and data and server storage, which will be supplemented through the subsidiary Avtenta, d. o. o. As a telecommunications operator, Telekom Slovenije, d. d. is able to offer these services bundled with an existing telecommunications package, particularly for SMEs. The Group has completed the pilot set up of "hosted" security solutions for small enterprises. This service will be offered on the market soon.
Advanced content and mobile services The development of convergent content and services is guided by innovation and usefulness for the end user, who selects services on his or her television screen, mobile phone and personal computer. Development of these services and content is carried out by Mobitel, d. d., Planet 9, d. o. o. and Najdi.si, informacijske storitve, d. o. o.
Three web portals were upgraded last year: "Dajmedol", "BTC City" and "Hosting". New mobile portals, such as a mobile portal for events aimed at large business users, the mobile portal for the website ( www.itak.si ) and several demo portals, were set up.
The most important activities at the Telekom Slovenia Group were as follows: • completion of the Pla.NET portal, and the kick-off activities in the moj.mobitel.si project; • development of Mobitel's M:Vrata (M:Portal) communication system intended for companies and organisations (external service providers) for the development of various mobile services; • continued development of MobileTV;
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• introduction of the My video service; • upgrading of the voicemail service; • testing of the M:Vstopnica (M:Tickets) service v2.0; • support of Mobitel services through the use of the M:Certifikat (M:Certificate) technology; and • migration of the Site Manager application to the Ipko environment and participation in the MMS Ipko negotiations.
3.3.2 Network development and management
Fixed network
The Telekom Slovenia Group pursues the following objectives to provide a highly accessible network, as the basis for high-quality telecommunication services: • ensuring the optimum use of network resources, • improving responsiveness and the success rate of fault clearance, • optimising operating costs, • improving processes, • helping to build a high-capacity, modular and flexible network of the future, and • network management.
Backbone network The backbone network meets the most demanding standards and thus the definition of "carrier grade", which applies to extremely reliable and well-tested systems. Network elements in the core and at international connections ensure the reliable, stable and secure functioning of services. All of the network elements and auxiliary devices are centrally monitored and managed, and upgrades are also performed periodically.
The changeover to the new IP/MPLS network was carried out last year. The new IP/MPLS design is a modern, intelligent and secure transmission network which, based on network, service and software convergence, reduces the complexity of the network and provides all services on a single platform. From a commercial aspect, the network provides: • support for the rapid construction of broadband capacities; • support for the accelerated development of multimedia and convergence services and their launch on the market, the expansion of operations to new markets and accelerated regionalisation within the Group; and • support for the liberalisation and regulation of the electronic communications market.
The Group's aim in the future will be to further improve the functioning of the network, optimise the network and reduce costs and network investment. To that end, its has begun implementing traffic management. In cooperation with the Jožef Štefan Institute in Ljubljana, the Group is developing a simulation model of a new aggregate network (using the OPNET network simulator), which is already providing tangible results.
Broadband access network Growth in the number of connections to VoIP technologies and a decrease in the number of connections to PSTN and ISDN technologies continued in 2009. The number of connections to xDSL and FTTH technologies is growing. By continually optimising network elements, the Group is dynamically following the contraction of the network, which facilitates the optimal use of resources and an increase in the number of reserve units, thus avoiding repair costs to the greatest possible extent.
Last year the construction of FTTx was focused on areas where the Group achieved the most new connections with a minimum investment. These are primarily areas with new zoning plans and partnership programmes. The Group maintains its leading positions in specific areas by building modern networks. FTTH is still given priority in construction, while an FTTN solution is employed if it is more favourable.
With regard to FTTx, last year the Group recorded growth in installed and utilised capacities. Capacity utilisation of the optical network also increased compared with the end of 2008. The Group
68 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 2009 Annual Report Telekom Slovenia Group continued filling VDSL2 capacity in locations that are interesting in terms of sales. At present the network has been upgraded with VDSL2 technology in 335 locations.
Control and support systems Effective IT support systems and tools are necessary to control, manage and maintain the telecommunications network and services. They are important for the smooth inclusion and elimination of faults in services, which are becoming increasingly complex with the implementation of new technologies. Control systems were expanded and upgraded with new equipment, through the introduction of new systems and by improving existing processes.
Technology verification and validation In 2009, 71 verification and validation procedures were carried out and 55 authorisations issued to connect to electronic telecommunications equipment in the Telekom Slovenije, d. d. network. At BrihtaLab the Group organised internal presentations and events for external experts. With regard to triple play, the Group continued managing the inter-sector group, the objective of which is to raise the quality of these services.
Mobile network
The trend of growing traffic in the packet network continued last year, requiring several upgrade to its core element. The Group thus followed the needs for growth in data traffic and growth in the number of users. Around 65% of the capacity of the packet network's core element was utilised at the end of the year. Improvements, upgrades and repairs were made to the IP network, security systems and the internet access network.
At the end of the year, there were 867 functioning GSM base stations in the 900 MHz frequency band and 98 base stations in the 1800 MHz frequency band. Over the same period, the UMTS network had 672 functioning base stations.
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3.4 Financial results from the operations of companies in Slovenia
3.4.1 Telekom Slovenije, d. d.
Telekom Slovenije generated operating revenues of EUR 398.5 million in 2009, down 4.0% on the previous year. Operating expenses totalled EUR 385.2 million, an increase of 2.8% compared with 2008.
EBITDA (earnings before interest, taxes, depreciation and amortisation) was down 21% compared with 2008, at EUR 102.6 million, while the EBITDA margin fell from 31.3% in 2008 to 25.8%.
Earnings before interest and taxes (EBIT) stood at EUR 13.3 million in 2009, down 67.3% on the previous year. The EBIT margin stood at 3.3%, having fallen 6.5 percentage points compared with 2008. The settlement with Amis was one factor in the significantly lower EBIT in 2009.
Corporate income tax including deferred taxes totalled EUR 0.6 million, and was down 93.8% compared with 2008. The main reason for the lower corporate income tax lies in a lower taxable base owing to a significantly lower pre-tax profit.
Telekom Slovenije generated a net profit of EUR 57.4 million in 2009, down more than 40% on 2008. Accordingly, net profit as a proportion of operating revenues was down 8.7 percentage points on 2008, at 14,4%. In 2009 Telekom Slovenije received dividends from subsidiaries and Gibtelecom in the amount of EUR 57.4 million.
Key Performance Indicators
Index in EUR thousand 2008 2009 09/08 Operating revenues 415,198 398,464 96 Net sales revenue 410,162 396,490 97 Other operating revenues 5,036 1,974 39 Operating expenses 374,525 385,177 103 OPEX (operating expenses before 285,328 295,847 104 depreciation/amortisation) EBITDA 129,870 102,617 79 Depreciation/amortisation 89,197 89,330 100 EBIT (operating income) 40,673 13,287 33 Net finance income 65,055 44,698 69 Corporate income tax, including deferred taxes 9,760 610 6 Net profit 95,968 57,375 60 EBITDA margin 31.3% 25.8% 82 Operating margin 23.1% 14.4% 62 CAPEX 119,027 70,003 59 Number of employees at end of period 1,920 1,877 98 Value-added 193,672 160,809 83 Value-added per employee 101 86 85
3.4.2 Mobitel, d. d.
Despite the economic crisis and difficult market conditions, Mobitel, d. d. achieved 91% of the revenues generated in 2008. The optimisation of operating expenses resulted in a 4% decrease compared with 2008.
EBITDA reached EUR 127.3 million, down 18% on 2008, while the EBITDA margin was 31%. Earnings before interest and taxes (EBIT) stood at EUR 53.5 million, or two-thirds of the record EBIT generated in 2008. The company generated a net profit of EUR 41.2 million, or 70% of the amount generated in 2008.
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Key Performance Indicators
Index in EUR thousand 2008 2009 09/08 Operating revenues 450,485 410,202 91 Net sales revenue 449,325 407,598 91 Other operating revenues 1,160 2,604 224 Operating expenses 369,904 356,744 96 OPEX (operating expenses before depreciation/amortisation) 294,848 282,862 96 EBITDA 155,637 127,340 82 Depreciation/amortisation 75,056 73,882 98 EBIT (operating income) 80,581 53,458 66 Net finance income -4,401 -1,013 23 Corporate income tax on profit, including deferred taxes 17,225 11,292 66 Net profit 58,955 41,153 70 EBITDA margin 34.5% 31.0% 90 Operating margin 13.1% 10.0% 77 CAPEX 70,752 40,775 58 Number of employees at the end of period 1,066 1,054 99 Value-added 127,641 100,339 79 Value-added per employee 120 95 80
3.4.3 Other Slovenian companies
Najdi, informacijske storitve, d. o. o. The company generated EUR 15.9 million in operating revenues in 2009, while EBITDA of EUR 2 million was achieved.
Planet 9, d. o. o. The company generated EUR 28.1 million in operating revenues, an increase of 35% on 2008. Operating expenses totalled EUR 26.7 million, resulting in EBIT of EUR 1.4 million.
Avtenta.si, d. o. o. The company's operating results were in line with expectations. The results of sales to users outside the Telekom Slovenia Group were particularly encouraging. Avtenta.si, d. o. o. recorded a 6% increase in sales revenues in 2009.
GVO, d. o. o. The company generated net sales revenue of EUR 35.6 million, EUR 8.4 million of which was generated directly on the market, representing an increase of 119% compared with 2008. It thus achieved its objective to increase the proportion of services on the market, by expanding its core activity of building networks for the Telekom Slovenia Group's subsidiaries. EBIT stood at EUR 1.8 million, down 43% on 2008, owing to an increase in the costs of services, labour and material. Net profit amounted to EUR 1.5 million.
Soline, d. o. o. Operating revenues in the amount of EUR 3.7 million were up 69% on 2008. The company received state aid for the repair of flood damages. Operations are hindered by infrastructure investment maintenance and the rehabilitation of seawalls. Nevertheless, the company ended the year with an operating profit of EUR 457 thousand.
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4 SOUTH-EASTERN EUROPE AND GIBRALTAR 4.1 Analysis of the environment and market positions
+ significant potential for economic growth + leading alternative telecommunications providers + entry to the Macedonian market + new brands and the strengthening of existing brands + market liberalisation
The year was characterised by the takeover of companies in Macedonia and the launch of the ONE brand, under which the Group began marketing a comprehensive range of telecommunication services, and by the consolidation of companies and high growth in the number of mobile connections in Kosovo. The groundwork has thus been laid for the Telekom Slovenia Group's growth on markets with significant development potential.
4.1.1 Macroeconomic environment
With the exception of Croatia, the markets of south-eastern Europe are considerably underdeveloped economically, and thus represent significant potential for future economic growth in the context of political stability. The region's GDP is at the level of emerging countries, and in some countries as much as six times lower than Slovenia's GDP. The proximity and knowledge of these markets, the potential for economic growth and rising GDP and purchasing power represent opportunities and challenges for Slovenian companies. Owing to the general crisis, these challenges are being pushed back to 2010–2011, when the IMF forecasts a recovery.
Per capita GDP (current prices) in the countries of south-eastern Europe, in EUR
25,000
20,000
15,000 EUR 10,000
5,000
0 Kosovo Albania BiH Macedonia, Serbia Croatia Slovenia FYR 2007 2008 2009 2010 2011 2012 2013
Source: International Monetary Fund (IMF), World Economic Outlook Database, October 2009.
Development of the telecommunications market in the countries of south-eastern Europe (2009 forecast) penetration in % 100 90 80 70 60 50 40 30 20 10 0 BiH - Republika Srbska Kosovo Macedonia, FYR Albania
Fixed telephony/housholds Broadband/housholds Širokopasovnega dostopa/ gosp.
Source: Business Plan of the Telekom Slovenia Group 2010–2013
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4.1.2 Market shares
Kosovo Ipko, d. o. o. is the leading alternative provider of telecommunications services in Kosovo. It maintains a leading share of the market for internet services, offering its services through a modern hybrid-coaxial network, broadband wireless links and an optical network. In 2009 it increased its market share by 3 percentage points, despite the original operator embarking on a more aggressive approach to the broadband access market with ADSL technology and optical links.
Comparison of broadband access market shares, 2008 and 2009
PTK PTK 17% 19%
Kujtesa Kujtesa Ipko 21% 22% 62% Ipko 59%
Note: Market shares are estimated; sources: Q4 2008 Gani Bobi research, Q4 2009 Index Kosova research (November 2009).
At the end of 2009, two years following its entry on the mobile telephony market, the company's high- quality network covered 99% of the population, and included nearly 532,000 active (90-day definition of activity) mostly prepaid users, which translates into a market share of about 35%.
Comparison of mobile telephony market shares, 2008 and 2009
Ipko Ipko 35% 35%
Vala Vala 65% 65%
Source: Own analysis
Ipko began offering VoIP services in September 2008, and by the end of 2009 it had achieved an estimated 9% market share, with nearly 8,000 connections. Ipko’s fixed telephony is attractive primarily for international calls, which are less expensive than those offered by its main competitor.
In March 2009 Ipko began offering digital cable television (DVB-C), and began the gradual withdrawal of programming delivered via analogue cable television. By the end of the year it had nearly 43,000 digital cable TV connections and a 55% market share.
Digitalb 15%
Ipko 55%
Kujtesa 30%
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Macedonia At the end of 2009 ONE (On.net and One AD), the second largest broadband access provider, had a market share of 16% or more than 34,000 users, down 4 percentage points on the end of 2008, although the actual number of users was up 6%. It offers broadband services via wireless broadband, bitstream and local loop unbundling.
Comparison of broadband access market shares, 2008 and 2009
others ONE + others ONE + 11% On.net 7% CableTel On.net 16% 12% 20% CableTel 10%
Telekabel Telekabel 14% 17% T-Home T-Home MK MK 44% 49%
Sources: Own analysis, operator and AEC reports
ONE AD is the successor of Cosmofon, a previously established mobile telephony provider in Macedonia. There was a change in market share in 2009 owing to the cleaning of the database of inactive prepaid users as a result of a change in the methodology for counting active subscribers (e.g. the transition to a 90-day basis compared with the previous 12 + 3-month final basis), the company's takeover and the launch of the new brand. The regulatory authority’s most recent report for the third quarter of 2009 puts ONE’s market share at 22.6%, while according to the company’s own estimates it was 27% in the third quarter and 28% in the final quarter of 2009.
Comparison of mobile telephony market shares, 2008 and 2009 Sources: Own analysis, operator and AEC reports
ONE and On.net offer fixed telephony via mobile-fixed connections and inter-operator leasing of subscriber connections. Thanks to their attractive offer and the broad geographic reach of fixed- mobile technology, they are increasing their market shares in fixed telephony, primarily in the residential segment, as cable operators are also increasing their market shares.
In line with its rebranding, in November 2009 ONE began offering digital television services under the “boom! TV” brand, thus becoming an integral provider of telecommunications services on the Macedonian market. By the end of the year the company had over 11,000 television users.
Bosnia and Herzegovina Aneks, d. o. o. is the second-largest provider of broadband access services in Republika Srpska in Bosnia and Herzegovina. It provides services via wireless broadband access and a coaxial cable network. Although it lost market share in 2009 as a result of aggressive marketing by the original operator, the overall number of Aneks’s broadband connections increased. The company's market share was down 5 percentage points on the end of 2008, despite an increase in the number of users, as a result of the competition's offers, such as packages with lower speeds and lower prices and ADSL access throughout Republika Srpska.
In three years Aneks, d. o. o. has become one of the major international call forwarding companies. Today it has around 6 million forwarded minutes per month, a share of approximately 28% of the call termination market. Since purchasing Netkom, a cable operator in Banja Luka, and two network purchases (Prijedor and Gradiška) in 2008 and 2009, Aneks, d. o. o. has become a real competitor in cable TV and cable broadband access. By the end of 2009 it had 13,000 cable connections.
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Comparison of broadband access market shares, 2008 and 2009
ostali ostali 11% Lanaco Zona 8% Aneks 1% Aneks 2% Elta 19% 24% Zona kabel 5% 2%
Elta kabel 3%
m:tel m:tel 59% 66%
Source: Own analysis for Bosnia and Herzegovina – Republika Srpska
Albania Given the lack of reporting on the market situation by the regulatory authority, it is hard to determine Primo, d. o. o.'s market share of the broadband access network. The estimated share of the largest public provider of telecommunications services on the fixed network is around 80%. The size of the market for fixed telephony services at the end of 2008 was estimated at 316,400 telephone connections, entailing a penetration of 8 connections per 100 users. There were about 471,000 internet users at the end of 2008.
Brands
The brand policies of subsidiaries in south-eastern Europe are being developed with a focus on uniformity, namely the long-term introduction of a uniform Telekom Slovenia Group corporate brand. In 2007 the Group successfully launched the Ipko brand in Kosovo, and the Primo brand in Albania a year later (with the simultaneous merger of AOLSP, H-communications and AFB).
In November 2009 Cosmofon and On.net launched ONE, a new brand under which they will operate and consolidate their position within the Telekom Slovenia Group, as an operator with wide presence in south-eastern Europe.
Brands and services of companies in south-eastern Europe
Country/company Brand Services Albania - Primo Primo • internet • fixed telephony • operator selection • bandwidth leasing • network interconnection • online roaming • website design • email solutions • domain registration Bosnia and • internet Herzegovina • fixed telephony – VoIP Aneks • operator selection/pre-selection • bandwidth leasing • network interconnection • cable TV • convergence services – packages of services • online roaming • website design
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• email solutions • domain registration • integrated solutions • software development/programming Kosovo - Ipko • mobile telephony – GSM • SMS, MMS, WAP, VMS • mobile data transfer – GPRS/EDGE • internet • fixed telephony – VoIP • bandwidth leasing • network interconnection • digital cable TV • convergence services – packages of services • web portal – news and entertainment • email solutions
Macedonia: • fixed telephony On.net
ONE • mobile telephony – GSM, UMTS • SMS, MMS, WAP, VMS • mobile data transfer – GPRS/EDGE/UMTS/HSDPA • internet • fixed telephony – PSTN, VoIP • bandwidth leasing • network interconnection
• retail outlet network • online store • mobile and fixed telephony equipment • electronic devices (e.g. computers, cameras, TVs and games)
• mobile portal (WAP) • Live TV – mobile TV • news and entertainment • FunDial – ring tones
• digital video broadcasting (DVB-T)
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4.1.3 Regulatory enivornment
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 basis for market operation, such as the allocation of licences and area codes, and partly network interconnection.
Macedonia The legal framework for the telecommunications sector in Macedonia is defined by the Electronic Communications Act, while the Competition Acts defines the rules for protecting market competition.
The AEC (Agency for Electronic Communications) is an independent body responsible for carrying out tasks defined in the Telecommunications Act. The Ministry of Transport and Communication is responsible for drafting laws and drawing up the national strategy for the development of communications. The AEC initiated procedures for reviewing existing regulations governing bitstream access and local loop unbundling, and also the presentation of regulations governing new generation networks. The adoption of guidelines for evaluating price squeezing is underway.
Bosnia and Herzegovina The telecommunications and electronic media market is regulated by the RAK, which is an independent authority responsible for the whole of Bosnia and Herzegovina. It issues broadcasting and telecommunications licences, and is responsible for the market deregulation process.
Despite liberalisation, the regulation of telecommunication services in Bosnia and Herzegovina is still quite unwelcoming to alternative providers, as the regulatory body is too slow in resolving complaints lodged by such providers against the national telecoms. At the beginning of December 2009 the key operators in Bosnia and Herzegovina issued RIO and RUO documents, whose implementation is expected in 2010.
Albania An Electronic Communications Act, modelled on EU legislation, is in force in Albania. The regulation of telecommunications is covered by the national regulatory authority, the TRE.
At the moment the regulated markets are defined on the basis of the Telecommunications Act, the Competition Protection Act and conditions on the national market. The legislation does not differ from that of the European Union, but implementation remains difficult or impossible. The TRE will define operators with significant market power, while the legislation for local loop unbundling is being drafted, but has yet to be implemented.
4.2 Sales and marketing
+ high growth in the number of users in Kosovo + marketing of digital TV services + introduction of packages of services
The Group is also adapting its range of products and services on the markets of south- eastern Europe with new packages of services. Entry on the Macedonian market was supported by the launch of the new ONE brand, under which the Group will provide high- quality ICT services to users.
Kosovo Ipko, d. o. o. is an integral provider of telecommunications services in Kosovo. Sales and the number of mobile telephony, VoIP and televisions users are rising. The company has its own sale centres in Priština and in all larger cities. It also works with agents, and thus has several hundred points of sale at its disposal to market its complete range of services.
At the end of 2009 Ipko, d. o. o. had nearly 532,000 active mobile telephony users and just over 59,000 broadband access users. It has offered digital cable TV since March, and had reached nearly 43,000 connections by the end of 2009. It also has more than 16,000 analogue cable TV connections. Sales grew further in September with the launch of a duo package (internet + television) at an 77 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 2009 Annual Report Telekom Slovenia Group affordable price. After two years of operations, the company ended the year with a net profit.
Changes in the number of connections and services in Kosovo
Connections/services on the end-user Index 31.12.2008 31.12.2009* market 09/08 Mobile telephony – users 349,010 531,730 152 Subscribers 6,776 4,317 64 Prepaid customers 342,234 527,413 154 Broadband internet access 67,847 59,434 88 VoIP 4,788 7,817 163 Cable TV connections 13,314 59,613 448 *Note: The figures relate to active users. Active users are those that have met one of the following conditions over the last 90 days: the user has paid the subscription fees for its connection at least once, used at least one chargeable service, or filled its prepaid account.
Macedonia There were around 2,000 fewer mobile telephony users at the end of 2009, compared with 2008. Nevertheless, the number of subscribers was up 8%, while the number of prepaid customers was down 5%. The number of users of other services is up, primarily owing to the purchase of new companies.
On the basis of the authorisation for the use of frequencies, Telekom Slovenije, d. d. established Digi Plus Multimedia Ltd in September. The company's core activity is the transmission and marketing of digital TV services throughout Macedonia using DVB-T technology. The company had 11,035 subscribers at the end of the year.
Germanos is one of best-known retail chains in the field of telecommunications and entertainment electronics in Macedonia, and represents a strategically important distribution channel for the services of ONE AD. It markets ONE products, mobile telephones and related accessories, game consoles and IT equipment (e.g. computers and laptops). There were a total of 43 stores at the end of the year, 16 of which are in Skopje.
Changes in the number of connections and services in Macedonia
Connections/services on the end-user Actual Actual Index market 31.12.2008 31.12.2009 09/08 Mobile telephony – users 425,564 423,553 100 Subscribers 145,161 156,527 108 Prepaid customers 280,403 267,026 95 Broadband connections 32,448 34,435 106 Traditional fixed voice telephony 22,182 55,922 252 DVB-T televisions connections 0 11,035 - Note: The figures relate to active users. Active users are those that have met one of the following conditions over the last 90 days: the user has paid the subscription fee for its connection at least once, used at least one chargeable service, or filled its prepaid account.
Bosnia and Herzegovina The number of cable TV users has doubled to 13,103, while the number of users of broadband services is up 63%. Revenues from inter-operator services generated by international call termination account for the majority of revenues and are also the main generator of overall revenue growth.
Albania Primo, d. o. o. generates the majority of its revenues via international call termination, fixed telephony and broadband internet access. It offers broadband access using ADSL technology, fibre optic connections for major users, as well as cable and wireless access.
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4.3 Network and service development
+ continuous network upgrades + construction of a fibre optic network + nearly complete coverage of Kosovo with a mobile signal + comprehensive support of development and maintenance
In order to ensure high-quality services, Telekom Slovenia Group companies develop, construct and upgrade their own networks in all the countries where they operate. The networks are among the most advanced in Europe, and provide fast, secure and reliable data transfer.
Kosovo Ipko, d. o. o.’s mobile network was one of the fastest-constructed mobile networks in Europe, and in quality terms is comparable to networks in countries with a considerably more developed telecommunications market. The base stations and all fundamental network components are provided with a backup power supply from generators, so power cuts, 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 begun implementing the collocation of mobile and fixed network locations, and transferring fixed network POP locations to GSM network locations.
In 2009 the company received all the requisite hardware and software, and integrated all new upgrades for Class 4 and Class 5 switches for VoIP telephony, which will meet the VoIP requirements in 2010. The company covered the northern part of Kosovo with 11 base stations, and it also set up new base stations, thus attracting new users. The largest investments in the fixed network went into the construction of the hybrid optical-coaxial network.
GSM signal coverage in Kosovo
Macedonia The purchase of companies has completely altered the Telekom Slovenia Group's development plans in Macedonia. In May Telekom Slovenije, d. d. was granted a DVB-T license, and in July it initiated the construction of a DVB-T network. The network was functional in October, while phase one, which ensured coverage in all of the country's major cities and towns, was completed by the end of December.
Merger processes meant that investment was quite limited, and there was little network development. Most attention went to the merger of ONE (Cosmofone) and On.net, the exchange of network data and the quest for synergies in the merger. Systems located at Greece’s Cosmo were relocated, along with a GRX provider, from Greece to Macedonia. With regard to content, the company
79 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 2009 Annual Report Telekom Slovenia Group launched the Planet mobile (WAP) portal, where users can find different ring tones, java games, etc. At the same time, mobile television was launched under the name Live TV. ONE also offers a mobile internet service via a 3G network. In line with demand, the company also upgraded the network to HSDPA 7.2 in Skopje and other towns.
Bosnia and Herzegovina The most important investment project in 2009 was the construction of the optical network as part of the Balkan Optics project along the Banja Luka - Kotor Varoš - Vitovlje - Vitez - Travnik - Sarajevo line, the purpose of which is to consolidate the regional position of the Telekom Slovenia Group. The wireless broadband network in Banja Luka was reconstructed and expanded with eight new base stations. Seven new base stations were added to the optical network in Žaluzani, Vrbanja, Čelinac, Kotor Varoš, Lisina, Stadion and Bolnica. In September, as the first operator in Republika Srpska, the company launched a triple-play package of services (telephony, internet and cable TV), which was well received.
Albania A hybrid-optical network (HFC) project was launched in 2009, and it includes 200 mini-projects covering nearly all urban areas in Tirana. Initially six of these projects were implemented with a view to developing a triple-play solution. A Class 4 project aimed at combining all VoIP systems into a single system and a Class 5 project for residential users were completed.
4.4 Operating results
Kosovo Ipko, d. o. o. generated operating revenues of EUR 62.5 million, nearly double the operating revenues generated in 2008. Its EBITDA was EUR 26.3 million. The company also generated a positive operating income (EBIT) of EUR 9.5 million. Despite additional finance expenses for borrowings, the company generated a net profit of EUR 79 thousand, after just two years of operations (since the launch of mobile operations). In 2007 Ipko used a loan from Telekom Slovenije, d. d. to pay for the licence to provide mobile telephony services, which cost EUR 75 million.
Macedonia Companies in Macedonia generated total operating revenues of EUR 54.3 million, an increase of 234% on 2008, when the Group's only market presence was On.net. Total EBITDA of all companies reached EUR 1.5 million, up 23% on EBITDA generated in 2008. The data for ONE AD and Germanos are included from the takeover date of 1 June 2009. The Group became the second biggest player on the Macedonian market through the purchase of new companies and the rebranding of existing companies. The foundations on which future operations will be built have been laid, and will facilitate the exploitation of synergies in Macedonia and across the whole region.
Bosnia and Herzegovina In 2009 Aneks, d. o. o. generated operating revenues of EUR 13.3 million, an increase of 34% on 2008. EBITDA reached EUR 926 thousand, also representing an increase of 34% compared with 2008. The aim in the future is to expand operations from Republika Srpska in Bosnia and Herzegovina to the Federation of Bosnia and Herzegovina.
Albania Primo, d. o. o. generated operating revenues of EUR 6.2 million, an increase of 62% compared with 2008. EBITDA was up 86%, at EUR 964 thousand.
Gibraltar Gibtelecom the national and the largest telecommunications operator in the territory of Gibraltar. The Telekom Slovenija, d.d., ownersheep share in Gibtelecom represents a stable financial investment, generated income from regular dividend payment.
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5 SUSTAINABILITY REPORT 5.1 Responsible management of sustainable development
Dear Stakeholders, I regard the fact that sustainable development is an integral part of the Telekom Slovenia Group's business processes as a great motivation and responsibility as I assume management of Telekom Slovenije, d. d. For Group companies, social responsibility means complete, planned and long-term conduct that will raise the quality of all those who are directly or indirectly associated with Group companies. The principles of sustainable development are increasingly integrated in our operations, products, services and content. By understanding interdependence and interconnectivity, the Group places itself at the forefront in creating a balance between the economy, a profitable activity and civil society.
Strategic priorities in the area of sustainable development are realised in the long-term, and are linked to the Group's strategic policies. Among these, streamlining operations and the organisational structures of companies is a priority task in 2010. As the leading telecommunications group in Slovenia and one of the leaders in south-eastern Europe, this will also serve to enhance the broader long-term economic effects in the countries where the Group operates. By integrating the principles of sustainable development in our operations, the Group will generate new added value and an additional edge over our market competitors .
Promoting a user-oriented business environment that enables employees to develop their own potential is crucial to achieving sustainable objectives. At the fore of achieving objectives are management by objectives and the implementation of measures in the scope of the Family-Friendly Company certificate. One of the most important achievements of 2009 was the launch of the Plus corporate culture process. Its aim is to redirect the organisational culture to enhance employee awareness of the importance of customer satisfaction at all levels for the future growth and development of the Group.
The cornerstone of responsibility to the environment is enabling employees, users and other stakeholders a healthy lifestyle to the maximum extent possible, in accordance with the principles of sustainable development. Environmental objectives are closely linked to everyday operations, as a number of activities are carried out to reduce energy consumption and limit emissions into the environment. Measurements at all of Mobitel's base stations indicate low levels of electromagnetic radiation, which in most cases are as much as 100 times below the permitted levels. The Group manages the entire environmental cycle with the help of the ISO 14001 standard, which was also implemented at the subsidiary GVO, d. o. o. in 2009. An external audit at Telekom Slovenije, d. d. indicated non-conformaces for the first time. The Group applies many other standards and recommendations in its operations, which serve as an integral part of its strategic policies and facilitate the implementation thereof.
Sustainable development reporting was adapted to GRI guidelines for the first time in 2009, while the benchmarks of the European Telecommunications Network Operators' Association (ETNO) were applied for the first time for environmental reporting. The quality of reporting and the international comparability of the Group's reports will continue to be upgraded in this direction.
The Telekom Slovenia Group perceives the difficult economic conditions as an opportunity to apply the principles of sustainable development more broadly across its operations. The Group believes that brand recognition linked to the principles of sustainable development will also play an important role in the telecommunications sector in the context of achieving a suitable quality of services by all those operating on the market and given generally equal competitive prices. The Group is therefore forging responsibility to the natural and social environments, to users and to the general public on the basis of sound internal principles that, first and foremost, include universal responsibility for employees and the strengthening of their awareness of the importance of social responsibility. Only united in this way will we be able to be part of the strategic challenges of linking business objectives with the principles of sustainable development. Ivica Kranj čevi ć, President of the Management Board, Telekom Slovenije, d. d.
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Sustainable development objectives in 2009
Area 2009 objectives 2009 Results Status EMPLOYEES Fulfilment of mandatory Based on the required ACHIEVED objectives, established in line measurable sub-objectives, 95% with management by objectives, of the objective to improve with an emphasis on customer customer satisfaction was satisfaction. achieved . The objective to control costs was assessed with regard to the achievement of planned costs by sector. EMPLOYEES Introduce all 16 measures, - Existing family-friendly practices ACHIEVED adopted in line with the Family- were formalised. Friendly Company certificate by - A family-friendly children's 2011. drawing contest was introduced, with the drawings appearing on the 2010 calendar. - First graders were provided scarves. - Secondary school pupils and students were invited to the Vesolje veselja concert and were hosted at a summer camp. SOCIAL Link the participation in Several projects were sponsored ACHIEVED ENVIRONME sponsorships and donations to and also supported by the use of NT multimedia services and the online and mobile media. multimedia platform. (See the sub-section Social Responsibility for details). NATURAL Responsible management of Measures implemented to reduce ACHIEVED ENVIRONME natural resources, the reduction emissions and energy NT of emissions and other consumption. environmental impacts and the (See the sub-section support of activities to preserve Environmental Responsibility for the natural environment and details). biodiversity.
USERS Increase customer satisfaction. Call centre services were ACHIEVED improved through upgrades, the introduction of e-invoicing and through the Plus programme (Me + Everyone, Together for the User). Activities to strengthen employee awareness of customer satisfaction were enhanced.
Reporting parameters
Report characteristics The Telekom Slovenia Group and Telekom Slovenije, d. d. draft a yearly sustainable development report for the previous calendar year.
Reporting scope and limitations The collection of data for the drafting of the 2009 sustainability report was carried out on the basis of a standard questionnaire. Reporting topics were selected based on the Global Reporting Initiative guidelines (GRI G3 – Sustainability Reporting Guidelines), in line with existing sustainability objectives and the effects of the activities of the Telekom Slovenia Group and the parent company. Coordination of content was overseen by a team of experts from various fields, responsible for the drafting of the 2009 annual report and sustainability report.
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In terms of reporting on sustainable development, the expansion of the Telekom Slovenia Group via new companies on the Macedonian market in the second half of 2009 represented a limitation, as there was insufficient time to introduce all of the existing sustainability reporting guidelines that apply to other Group companies. The Group intends to introduce the aforementioned standard guidelines in 2010.
See the section The organisation of the Telekom Slovenia Group for more details on regarding changes to the Group's composition.
Governance, obligations of the Company and the inclusion of stakeholders
Corporate governance Governance of Telekom Slovenije, d. d., as the parent company of the Telekom Slovenia Group, is carried out via a two-tier system, comprising a five-member Management Board and a nine-member Supervisory Board. The competences of the Management Board and Supervisory Board derive from valid legislation and are set out in the Company's Articles of Association and in the rules of procedure for the Management Board and Supervisory Board. The aforementioned documents are available at the website ( www.telekom.si ). Additional information regarding corporate governance may be found in the section Corporate Governance Statement .
Minor shareholders may address the Supervisory Board of Telekom Slovenije, d. d. via email with their suggestions. Last year, however, no such activity was recorded. A Works Council, with three employee representatives appointed to the Supervisory Board, functions at Telekom Slovenije, d. d. Information regarding the functioning of the Works Council and employee representatives on the Supervisory Board is passed along by internal communication channels. Employees may address the Works Council directly with suggestions.
Organisational profile
In addition to the parent company, Telekom Slovenije, d. d. located in Slovenia, at the end of 2009 the Telekom Slovenia Group comprised 14 subsidiaries and 12 indirect subsidiaries in 7 countries (Slovenia, Croatia, Bosnia and Herzegovina, Kosovo, Macedonia, Albania and Gibraltar).
The parent company defines, guides and supervises the implementation of sustainable development policies at companies in Slovenia, and strives to transfer best practices to the Telekom Slovenia Group's other markets.
Current changes are published on an on-going basis on the website, www.telekom.si, where the annual reports of the Telekom Slovenia Group and Telekom Slovenije, d. d. are also published. These reports contain data regarding the ownership structure, markets and financial figures.
Commitments to external initiatives Telekom Slovenia Group companies support and are included in the following economic, environmental and social initiatives: • Family-Friendly Company certificate (Telekom Slovenije, d. d. and Mobitel, d. d.) • the Synergy Network (www.energijasi.com ) (Telekom Slovenije, d. d.) • In 2009 Mobitel, d. d. joined the initiative, European Framework for Safer Mobile Use by Younger Teenagers and Children, and signed the related code of conduct.
Membership in associations Telekom Slovenia Group companies are members of the following associations: Professional associations • Telekom Slovenije, d. d. is a member of the European Telecommunications Network Operators' Association (ETNO; www.etno.be ) and its sustainability workgroup • Telekom Slovenije, d. d. and Mobitel, d. d. are founding members and supporters of Forum EMS (www.forum-ems.si ), which provides education, links and objective information regarding electromagnetic radiation in Slovenia. • Institut za delovna razmerja in socialno varnost, • Institut za razvoj družbene odgovornosti, 83 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 2009 Annual Report Telekom Slovenia Group
• INIS – Institut za neonizirano sevanja, • FTTH, • Home Gateway Initiative, • Broadband Forum, • TeleManagement Forum, • SIST, Slovenski institute za standardizacijo.
Commercial associations • Chamber of Commerce and Industry of Slovenia
Recognitions and awards Group companies received the following recognitions and awards in 2009: • Telekom Slovenije, d. d. and Mobitel, d. d. received the "Respected Employer 2009" award, given by the website, mojedelo.com. • The Mobitel, Telekom Slovenije and SiOL brands received the titles Trusted Brand and Superbrand (the latter two brands for third consecutive year). The Najdi.si brand also received the Superbrand title. • The predecessor of Najdi, informacijske storitve, d. o. o., Teledat, d. o. o., ranked among the top 101 employers in the 2009 Zlata nit (Golden Thread) selection (http://zlatanit.com ).
Inclusion of stakeholders
Owing to the nature of its activities, the Telekom Slovenia Group enters into mutual relationships with a number of stakeholders. The existence of any interaction, contact or relationship that affects the Group's activities forms the basis for cooperation with individual groups of stakeholders.
The Management Board, sector directors, individual expert staff and the public relations department are responsible for direct communication with users and employees, local and wider communities, government institutions and regulatory bodies, industry associations, shareholders, potential investors, suppliers, the media and other interest groups. To that end, they use electronic, traditional and multimedia communication channels and tools. They also use surveys and emphasise personal contact. A list of those responsible for communication with journalists is also published on the Group's website. Additional information regarding communication with stakeholders is given in the section Active Communication .
Economic effects
With the development and introduction of telecommunication services, Telekom Slovenia Group companies make a significant contribution to the economic development of the countries in which they operate via employment, construction of the infrastructure, investments in the wider community, through suppliers and by contributing to state budgets. In 2009 Group companies: - provided 5,145 jobs in seven European countries; - earmarked EUR 152.9 million for employees' wages; - earmarked EUR 6.1 million for sponsorships and donations in the countries where they operate; - paid dividends of EUR 39 million (around one-quarter of which was paid to minor shareholders) to the parent company's 12,927 shareholders, meaning a gross dividend per share of EUR 6; - generated EUR 856.4 million in operating revenues; and - earmarked EUR 184.8 million for investments in the construction, modernisation and development of telecommunications networks (of which EUR 63.3 million was invested in the networks of emerging markets in south-eastern Europe).
See the section Corporate Performance for additional details regarding the Telekom Slovenia Group's financial results.
5.2 Responsible human resource management
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Motivated, qualified and satisfied employees facilitate quality services, and thus satisfied customers. The Group strengthens universal responsibility for employees, encourages education and training, provides a healthy and safe work environment and is creating the new Plus corporate culture.
The Telekom Slovenia Group has continued to promote a user-oriented operating environment that enables employees to develop their own potential. The Group has ensured human resources by reallocating employees within companies and by hiring external experts, scholarship recipients and apprentices, primarily in the area of new technologies. It has continued planned employee education and training and enhanced e-learning.
The Group has introduced a number of organisational changes with the aim of increasing the efficiency of processes and streamlining operations, as one of its key strategic objectives. In addition to changes to the internal organisational structure of companies, the process of merging companies is also underway, through similar activities in Slovenia and on other markets. All of this requires the effective communication of changes. Continued high assessments from measurements of the organisational climate and employee satisfaction indicate that employees have accepted these changes positively.
5.2.1 Statement of non-discrimination
The Telekom Slovenia Group respects legal standards and prohibits any direct or indirect discrimination in employment, everyday activities, education and the development of each employee within its companies. The Group ensures that no company employs child or forced labour.
5.2.2 Redirecting to the Plus corporate culture »Me + Everyone«
On the basis of measurements of the organisational climate and in-depth interviews with employees of Telekom Slovenije, d. d., the Group has opted to make radical changes to the Company's corporate culture and gradually to that of the entire Telekom Slovenia Group, in line with its strategic policy of placing the user at the centre of its activities.
The Plus programme was developed with the aim of raising employee awareness of the key importance of customer satisfaction for the Company's long-term growth and development. Using the slogan "Me + Everyone", the Group has communicated in a simple way that every individual can contribute to the added value of the Company through a positive attitude to users, co-workers and their work.
The new Plus corporate culture is being introduced gradually. In the first phase, the Group: - organised Plus workshops for management staff and selected employee representatives who will disseminate information regarding this culture among employees; - placed motivational messages throughout the Telekom Slovenije, d. d. business premises; - sent the letter from the President of the Management Board to employees; and - refreshed the intranet's appearance.
The effects of introducing the Plus corporate culture will be identified by measuring the organisational climate in the SiOK study and with the help of annual interviews. On this basis, the Group will introduce improvements in the otherwise long-term process of monitoring the organisational culture.
5.2.3 Employee structure
The number of employees in the Telekom Slovenia Group rose by 10%, primarily owing to the purchase of the Macedonian companies ONE (formerly Cosmofon) and Germanos. There are 37 new employees at Telekom Slovenije, d. d., 15 of whom are scholarship recipients. Some 80 employees left the Company, primarily due to retirements and business reasons. Purchases of new companies have resulted in a change in the proportion of temporary employees, which rose from 16.4% to 18.8% of total employees in the Telekom Slovenia Group. The main reasons for this form of employment were an increase in the volume of work and replacement for departed employees and those on maternity leave. The number of employees at Planet 9, d. o. o. increased due to the transfer of activities following the merger of Najdi.si, d. o. o. and Teledat, d. o. o. (now Najdi, informacijske storitve, d. o. o.).
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Employee structure by company in the Telekom Slovenia Group
Change in Situation as at: 31.12.2008 31.12.2009 2009 SLOVENIA 3,837 3,773 -64 Telekom Slovenije 1,920 1,877 -43 Mobitel 1,066 1,054 -12 Multimedia content 240 232 -8 Najdi.si 73 0 -73 Najdi, informacijske storitve 80 128 48 Planet 9 87 104 17 Other Slovenian companies 611 610 -1 Avtenta.si 140 144 4 GVO 420 409 -11 Soline 51 57 6 SOUTH-EASTERN EUROPE 831 1,372 541 Ipko 541 539 -2 Macedonia 118 635 517 On.net 118 17 -101 ONE AD Skopje 0 426 426 Germanos 0 192 192 Other companies 172 198 26 Aneks 63 96 33 Primo 109 102 -7 TELEKOM SLOVENIA GROUP 4,668 5,145 477
*Najdi.si ny ceased to exist as at 31 December 2009 due to the merger the former Teledat, d. o. o., which became Najdi, informacijske storitve, d. o. o. on 31 December 2009.
5.2.4 Educational structure of employees
The proportion of employees with education levels VI and VII is rising from year to year, and stood at 52.4% at the end of the year. The sharp increase in 2009 was the result of new companies in the Group, the hiring of highly-qualified staff and the completion of higher levels of education by employees. The proportion of employees with an education level of V or lower continues to decline, by 2.3 percentage points in the last year.
Changes in the educational structure of Telekom Slovenia Group employees
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5.2.5 Employment of disabled persons
The Telekom Slovenia Group actively facilitates the employment of disabled persons. However, due to the nature of the Group's work and effective prevention, their number is small. At the end of the year there were 126 disabled persons of various disability levels working in the Group, an increase of 5% on the previous year. The legally prescribed quota for disabled employees of 2% for the telecommunications sector was exceeded by Telekom Slovenije, d. d., GVO, d. o. o. and Avtenta.si, d. o. o., which were entitled to compensation in the amount of 25% of the minimum monthly wage for each disabled employee above the prescribed quota.
Index Category/working hours 2008 2009 09/08 Disability category II: part-time (20 hours/week) 26 23 88.5 Disability category II: full-time (40 hours/week) 1 1 100.00 Disability category III: part-time (20 hours/week) 19 19 100.00 Disability category III: part-time (30 hours/week) 7 9 128.6 Disability category III: full-time 67 74 110.4 Total 121 126 105
5.2.6 Responsibility for employees in the workplace
Organisational climate and employee satisfaction
In 2009 the coordinated and uniform measurement of organisational climate and employee satisfaction was carried out for the first time at companies outside of Slovenia. The average assessment of the climate was good, and higher than the previous year at the majority of companies, as was the average assessment of satisfaction. Employees assessed the following as high: motivation, attitude towards quality, commitment and good relationships between employees, learning and professional training.
Measurement results are generally higher than the average of Slovenian companies included in the SiOK survey. The response of employees was also higher than the Slovenian average, an indication of their commitment. Measures for improvement will be adopted of the basis of the results, which will be shared with all employees.
Annual appraisal interviews
Annual appraisal interviews including an assessment of competences and behaviour were carried out using a uniform methodology at Telekom Slovenije, d. d., GVO, d. o. o. and in part at Avtenta.si, d. o. o., Ipko Telecommunications, d. o. o. and Primo, d. o. o. In line with the management by objective system, the Group assessed the achievement of objectives and job performance, approved the advancement of employees and set objectives for 2010. Annual appraisal interviews were also carried out by Mobitel, d. d. in line with its own methodology, and at the companies that merged to form Najdi, d. o. o. at the end of the year.
Employee training and development
The Telekom Slovenia Group methodically supports the continuous lifelong learning of its employees, thus improving its competitiveness in the rapidly developing telecommunications sector and expediting the introduction of new technologies and services, which increase customer satisfaction and the Group's performance.
The number of training hours was up by 2,777, with an emphasis on internal training. A greater number of employees were included in the training process, while training costs were cut by one- third.
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• more than half of training events were carried out with the help of internal experts; • Mobitel, d. d. continued with its own e-courses and, together with experts from Telekom Slovenije, d. d., carried out e-courses for the first time for employees of both companies; • the Group encouraged the self-education of employees and briefed them on education content and new material in the professional library via the in-house magazine "Škrjan ček"; and • as lecturers and moderators, the Group's experts actively participated in the most important professional meetings and conferences in Slovenia and abroad.
Indicators that illustrate the intensity of training are regularly monitored and analysed.
Key figures regarding employee training within the Telekom Slovenia Group
2008 2009 Change in 2009
Number of training participants 3,760 3,889 + 129 Number of training hours 142,459 145,236 + 2,777 Direct training costs, in EUR 3,827,440 4,151,414 + 323,974 Number of employees as at 31 December 2009 4,668 5,145 + 477 Proportion of employees included in training 80.5% 75.6% -4.9% Number of training hours per employee 30.5 28.2 -2.3
The structure of training areas changed slightly. Primarily at subsidiaries, greater emphasis was placed on sales (the proportion having increased from 11.9% in 2008 to 14.5%), and in general on information-communication technologies (up from 24.7% to 27.8%) and on IT and computers (up from 13.3% to 14.3%) owing to the launch of new projects.
Structure of training by type
In the scope of the system of talent management and employee succession, Telekom Slovenije, d. d. drafted a list of perspective and key personnel and prepared individual training plans. Mobitel, d. d. began the process of identifying and managing key personnel, while this area will also be enhanced at other Telekom Slovenia Group companies.
On-the-job studies, scholarships, apprenticeships and the recruitment of new personnel
The Group supports employees in their pursuit of education at various schools and faculties. Individual companies have published internal notices, by which they encourage continuing education in line with their needs. A total of 193 persons concluded on-the-job study agreements in 2009.
Group companies also present themselves to potential employees at various employment fairs, while future experts are recruited via an active scholarship policy. Telekom Slovenia Group companies had a total of 92 scholarship holders, the majority of which were employed at Telekom Slovenije, d. d. and GVO, d. o. o. Scholarship holders account for nearly 40% of new employees at the aforementioned companies. Students were briefed on career opportunities within the Telekom Slovenia Group at a summer camp organised by the parent company, while scholarship holders and students from specific fields of study completed their compulsory job training under the leadership of mentors.
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Last year mentors assisted in their effective introduction to the Company's work environment and organisational culture.
Material and non-material motivation of employees
The remuneration of employees is promoted at all companies, with rewards paid out in accordance with a company-level collective agreement or the internal acts of companies. The variable portion of wages, which is dependent on achieving planned business objectives, and the payment of voluntary supplementary pension insurance represent an important element of the individual motivation of employees. The Group also facilitates group remuneration with the payment of year-end and Christmas bonuses.
Non-material motivation is provided for by the constant concern for employee satisfaction (e.g. a suitable work environment, preventive medicine and medical examinations). To that end, the Group also enable employees to pursue education and training of their own choice, foreign language courses and visits to trade fairs.
Professional library
Both of the Telekom Slovenia Group's largest companies have a professional library that may also be used by the employees of other subsidiaries and scholarship holders. More than 10,000 books from the fields of telecommunications, information technology, economics, law, management and other sciences are available for the self-education of employees, as are standards and more than 100 domestic and foreign magazines. In 2009 the libraries received 196 books, 336 periodicals and standards and 193 units of e-material. Materials from internal training programmes are accessible on the intranet, while various databases may be accessed in the reading area.
Cooperation with research institutions
In order to achieve the best results in the development of new services, content and business practices, Telekom Slovenia Group companies cooperate with various research institutions. The most important activities include: • cooperation between Telekom Slovenije, d. d. and the Faculty of Electrical Engineering at the University of Ljubljana, aimed at encouraging students to study and work in the field of telecommunications and at educating the Group's scholarship holders; • cooperation with the Jožef Štefan Institute in the field of post-graduate studies; and • the establishment of a business academy in cooperation with the Faculty of Economics in Ljubljana, where attendees from technical and sales backgrounds acquire knowledge in the field of economics.
Managing innovation
The innovativeness of employees is systematically promoted, as it contributes to the constant improvement of services and business processes, and thus to customer satisfaction. Promoting innovation is an integral part of the management by objectives process, in which the competences assessed include "innovativeness and initiative".
Functioning on Telekom Slovenije, d. d.'s intranet sites is the innovative Brihta portal, through which employees may propose innovative ideas aimed at shortening business processes and providing new technological solutions for the benefit of users. The number of innovative ideas is rising from year to year. More than half of the 40 proposals submitted in 2009 were accepted, 11 of which resulted in monetary awards, while the same number of proposals were deemed beneficial.
Cooperation with employees
Representatives of the Works Council and the trade union conference were briefed in detail on events in a timely manner in accordance with valid legislation. Both workers' bodies were actively included in organisational changes at Telekom Slovenije, d. d. and in M&A activities. Cooperation between the employer and employees and social dialogue were carried out in accordance with the established principles of agreement and consultation.
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Employee and trade union representatives actively participated in the formulation of employment rights, in the organisational structure and in amendments to acts, in line with their responsibilities for employees. In addition to exercising standard legal rights, trade unions also took interest in the social aspect of employees' lives.
Responsibility for employees, pensioners and other company-related groups
The Telekom Slovenia Group also pays special attention to employees' lives outside the work environment: • year-end employee meetings were organised; • jubilee meetings, at which employees received symbolic gifts, were organised; • solidarity assistance was paid in special social and health situations; • recreational activities were organised in leased or rented sporting facilities; • recreational sporting activities and competitions were organised, with the best athletes taking part in European championship events; • Telekom Slovenije, d. d. earmarked grants in the form of sponsorships and donations via tender for the leisure-time activities of employees; • special attention was given to the personal and family events of employees; • discounted tickets to cultural events were provided; and • concerts and the SiOL "Vesolje veselja" festival were aimed at social gatherings for Telekom Slovenia Group employees.
The Group also supported: • pensioners' clubs and other interest groups; • year-end meetings of pensioners; and • gifts were given to preschool children and scholarships awarded to minors and school children of deceased employees.
Health and safety at work
Ensuring health and safety at work is one of main tasks of all Telekom Slovenia Group companies. The Group was active primarily in the following areas: • experts in the field of health and safety at work measured environmental conditions and lighting in the workplace, where deemed necessary, and at certain subsidiaries; • special emphasis was placed on measures regarding recurring workplace injuries during theoretical and practical workplace safety training; • at Mobitel, d. d., special attention was given to fire safety, work at heights and to the training of staff responsible for evacuation; • all workers attending training were tested on their knowledge of risks and legally prescribed measures for safe work; and • funds received for exceeding the quota of disabled employees were used to improve working conditions for disabled persons, for their education, preventive medicine and for preventing disability (e.g. the purchase of ergonomic chairs).
Healthcare
In accordance with the Health and Safety at Work Act, the Rules on Preventive Medical Examinations for Workers and the Declaration of Safety with Risk Assessment, employees received preventive medical examinations. Employees received 1,490 periodic preventive medical examinations, an increase of 72% from 2008. The Group also: • continued its vaccination campaign against tick-borne meningoencephalitis for employees working in the field, particularly in forests. The number of employees vaccinated in the campaign was up 80%; • organised preventive flu vaccinations; • sent a fixed number of employees from certain companies to spas for an active medical leave; and • continued a series of health-related articles in the in-house magazine, "Škrjan ček" .
Since 2008 Telekom Slovenije, d. d. has prepared an analysis on the state of health of employees following periodic medical examinations.
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Personal protective equipment
An annual inspection of personal protective equipment was carried out, while the use of equipment was regularly supervised, particularly during inspections of teams of field workers. Worn out equipment was regularly identified and replaced as necessary.
Workplace injuries
At Telekom Slovenia Group companies, 81 injuries were reported, 37 of which occurred at work and 17 of which were work-related. Some 27 employees were injured on their way to work. The most frequent injuries were the result of traffic accidents and falls. The Group recorded the loss of 1,643 working days owing to injuries, which translates into 20.3 working days per injury.
Fire safety
A great deal of emphasis is placed in fire safety, making this type of training an integral part of overall workplace safety training. No fires were reported at Group companies, while the following preventive measures were implemented: • fire rules were drafted according to a time schedule; • all fire extinguishers and hydrant networks were inspected and serviced; and • Telekom Slovenije, d. d. carried out an employee evacuation drill at the Maribor facility.
Family-Friendly Company certificate
The following major activities were carried out with regard to measures to promote the work-family life balance of employees, in the scope of the basic Family-Friendly Company certificate held by Telekom Slovenije, d. d. and Mobitel, d. d.: • flexible working hours were established for part-time employees; • an additional day off was given to the parents of children entering the first grade; • the "Vesolje veselja" event, a drawing contest on the theme of family and the creation of a calendar; and • the inclusion of questions regarding the Family-Friendly-Company project in the study of organisational climate.
A positive opinion was received from the Ekvilib Institute at the end of the audit period in November 2009.
5.3 Social responsibility
+ commitment to the social environment + linking services to sponsorships and donations + support of all stakeholders + enforcing effective competition
By investing in the social environment, the Group creates added value for its users who, like the general public, recognise the Telekom Slovenia Group as an important supporter. The Group emphasises the effectiveness of competition in its marketing activities, while working to promote a competitive culture.
Telekom Slovenia Group companies have defined five key areas in their sponsorship and donation strategies (sport, culture, science and education, humanitarian activities and the environment), as well as the target groups and funds necessary to achieve their objectives. The common objective is to fulfil the expectations of all stakeholders. Therefore, a significant portion of funds is also earmarked for activities involving Group employees, as they represent one of the major stakeholders. Their recognition in the wider environment also helps to strengthen the value of the corporate and individual product brands.
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Despite the recession in 2009, funds earmarked for sponsorships and donations remained at the level of the previous year, further confirming the Group's commitment to the social environment. Fund earmarked for these purposes represented 0.8% of operating revenues.
Humanitarian Science 5.8% 5.9% Education Health 1.8% 1.0% Other 6.1%
Culture 23.4%
Sport 56.2%
Major sponsorships and donations
The primary aim in selecting sponsorship and donation activities is the mutual involvement of services from individual Group companies via projects. In this way, recipients received greater financial support, while users were given new opportunities to monitor an event, and thus become a part of a project and become more involved with event organisers. Through the active use of various online and mobile media and active market communication, the following projects became the new benchmark for effective sponsorship: • the SiOL Vesolje veselja concert and the Itak concert with the group The Killers; • sponsorship of the Slovenian national football team during qualification for the World Cup; • live coverage of the cycle race across Slovenia; and • the Saga project of the band Siddharta.
Competition As major market players, Telekom Slovenia Group companies pay particular attention to ensuring effective competition and are highly exposed in this area. On the basis of reports from competitive operators, in 2009 the Competition Protection Office initiated four new proceedings against Telekom Slovenia Group companies (three against Telekom Slovenije, d. d. and one against Mobitel, d. d.) to investigate the alleged violation of Article 9 of the Prevention of Restriction of Competition Act and Article 82 of the EC Treaty. Other major sponsorship and donation projects of Telekom Slovenije, d. d. and other companies were as follows:
Field Sponsorship/donation SPORTS • sponsor of the Slovenian Olympic team, Slovenian national football teams, the Nordic ski team and general sponsor of the Slovenian Athletics Association • sponsor of the Union Olimpija basketball club and the youth sport ŠKL project, programmes which can be viewed online via SiOL IO • sponsor of the Golden Fox World Cup ski event, the Planica World Cup ski jumping event and the cycle race across Slovenia CULTURE • general sponsor of the Ljubljana Festival and the Lent and Ljubljana International Film Festivals • sponsor of Cankarjev Dom, the National Opera and Ballet in Maribor, Borštnikovo sre čanje (theatre event) and the Slovenian Drama Week in Kranj • long-time donator to the Slovenian Ethnographic Museum • sponsor of the group The Killers in performances across Slovenia
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• ONE's sponsorship of the Bitola Open City international youth art festival and the 14 th Biennale of Young Artists from Europe and the Mediterranean in Skopje, 2009 SCIENCE AND • sponsor of the House of Experiments and host of Mobilaboratorij, a digital EDUCATION literacy project • donators to the Euro-Mediterranean University • general sponsor of the Microsoft NT Conference • rewarding of golden graduates and sponsor of the graduation parade • cooperation with the Reading Badge Association • sponsor of the Golden Drum Festival, the Slovenian Marketing Conference and the Slovenian Advertising Festival HUMA NITARIAN • long years of support of the toll-free number for children and adolescents PROJECTS in distress under the auspices of the Friends of Youth Association, in the scope of which Mobitel, d. d. facilitates winter holidays for 90 children from socially disadvantaged families, and other activities • the first in Europe to introduce a pan-European toll-free number (116 123) for persons in distress, thus building on cooperation with the Association of Counsellors for Assisting Persons in Distress • support of campaigns to raise funds for persons in social distress via Telekom's call centres, organised by the Slovenian Red Cross and Caritas • SMS donations to support the Red Nose Foundation and the Europa Donna organisation • donation of defibrillators and assistance for hearing and sight impaired persons ENVIRONMENT • establishment of the online Eco-Quiz (as part of the Eco-Schools project) AL PROJECTS in the scope of environmental education for the young • Mobitel, d. d.'s long years of cooperation with DOPPS • concern for the Se čovlje salt pans, where Soline, d. o. o. combines the preservation of natural and cultural heritage with entrepreneurship • environmentally friendly mobile phones and chargers in Mobitel's offer and mobile phone cards • promoting the collection of used mobile phones at Mobitel centres
5.4 Environmental responsibility
+ realisation of ambitious environmental objectives + environmental awareness of co-workers and the young + fulfilment of all regulatory requirements + environmental accounting
The key environmental guideline of Telekom Slovenia Group companies is the realisation of a sustainable and healthy way of life for users, co-workers and other stakeholders. To that end, the Group meets its framework and operational environmental objectives.
ISO recommendations represent the incentive and tools for the Group's continuous improvement and clearly established objective, resources and milestones with regard to the environment. With their help, the Group manages the entire cycle, which includes sustainable environmental guidelines relating to: • planning and purchasing, • construction of an ICT infrastructure, • managing the operations and maintenance of networks and services, • using ICT services in all segments of users (B2B, B2C and C2C) 2 • waste management, particularly waste electrical and electronics equipment.
Important for the Group's environmental activities are the findings presented by the GeSI (Global e-
2 B2B – Business to Business, B2C – Business to Customer and C2C – Customer to Customer. 93 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 2009 Annual Report Telekom Slovenia Group
Sustainability Initiative), which was established by United Nations Environment Programme (UNEP) and the International Telecommunications Union (ITU), that ICT services could help reduce total 3 CO 2Eq emissions by 15% by 2020 – up to 10 times less than ICT services themselves generate. By actively reducing direct, indirect and other emissions 4 and focusing on the dematerialisation of operations, the Telekom Slovenia Group has joined the efforts to meet that objective.
An environmental management committee and an operational environmental team function at the parent company, which provides a number of environmental services for other Group companies. The first comprises representatives of management (directors), while the second comprises 11 members from the most important areas of operations. The individual units of a company have environmental management system administrators and waste management coordinators.
All activities relating to the environment are published on the intranet. The Group has clearly defined guidelines for employees on communication with internal and external public with regard to initiatives, issues and events relating to environmental management.
Environmental objectives closely linked to regular operations
Owing to its high-technology service activities, the Telekom Slovenia Group is not a major polluter. Nevertheless environmental objectives and targets are closely linked to regular operations, while an environmental culture is spread among employees, suppliers and users. The results of an external audit by the Slovenian Institute of Quality and Metrology indicate that the Group's PDCA (plan-do- check-act) improvement process is spiralling upward. Our primary objectives in this regard remain: • responsible management of natural resources; • reducing emissions and other environmental impacts, and • supporting activities that contribute to preserving biodiversity (e.g. Soline, d. o. o. which is responsible for preserving the habitat of the Se čovlje saltpans).
The Groups constantly met all regulatory requirements in 2009. All reports were submitted by established deadlines, without any remarks regarding their content. No environment-related fines were levied against the Group.
Improvements through technological investments and the environmental awareness of employees
The upgrading of environmental management systems at the parent company was characteristic of 2009. Synergies within and outside the Telekom Slovenia Group are brought about by the transfer of best practices. Improvements derive from technological investments and the changing attitude of employees to environmental issues. The most important of these were as follows: • the upgrading of the environmental accounting system with elements of environmental bookkeeping; • the introduction of e-invoice in operations; • an integrated ISO 9001 quality management system and ISO 14001 environmental management system at the subsidiary, GVO, d. o. o.; • an external audit of the ISO 14001 system at the parent company, in which non-conformances were identified; • new environmental initiatives via the innovative internal Brihta portal; • the collection of 130,000 used mobile phones and chargers at Mobitel centres; and • the enhancing of environmental activities at Mobitel, d. d. with the introduction of electronic operations, intensified waste separation, the streamlining of printing operations, promoting the use of company-owned bicycles and through other activities.
The Group has continued to enhance environment-related communication with all publics, with communication focusing on the following: • the environmental awareness of employees in the scope of the Plus campaign at Telekom
3 CO 2 equivalent – effect of other pollutants (e.g. methane) calculated in kilograms of CO 2, to arrive at the same negative effect. 4 According to the GHG (Greenhouse Gas) protocol and EU regulations, emissions can be broken down into three groups: direct emission (e.g. aggregates, heating, etc.), indirect emissions (e.g. use of electricity, district heating, etc.) and other emissions (e.g. transportation, etc.) 94 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 2009 Annual Report Telekom Slovenia Group
Slovenije, d. d.; • the preparation of an environmental brochure for employees; • articles in the in-house magazine "Škrjan ček" and environmental instructions in the e-journal "e- Skupaj"; • access to environmental documents and news on the intranet site "Skrbimo za okolje" (Caring for the Environment); • basic environmental training, which will be attended by all Slovenian employees by 2012 (25 employees from GVO, d. o. o., 80 from Avtenta, d. o. o., 21 from Najdi, d. o. o. and 311 from the parent company attended "okoljska osnovna šola" – environmental primary school – in 2009); and • continuing cooperation in the "Ekošole" (Eco-Schools) project via the online "Ekokviz" (Eco-Quiz) and support of "Hiša eskprerimentov" (House of Experiments), which also carries out environmental projects with the aim of raising the awareness of the Group's future customers and users.
In 2009 the Group more closely linked its environmental activities with those of the European Telecommunications Network Operators' Association (ETNO). Key activities were as follows: • drafting of an sustainability report according to ETNO guidelines (www.etno.be) for 2008 and benchmarking against 21 other European telecommunications operators; and • inclusion in the expert sub-group for energy issues (ETT – Energy Task Team).
Overview of key environmental objectives and targets
In addition to legal obligations in the field of environmental protection, the Group met its framework objectives, established in line with international best practices, and from which operational targets derive.
Obje ctives (O) and targets (T) Assessment of implementation success O A: to reduce electricity consumption Lowest growth since the launch of the environmental proportionately by 5% management system (EMS) (annual indices of costs 145:114:107), 2008 – growth also recorded by most EU telecoms. T A1: to complete and present a strategy for the ☺ Strategy completed and presented; assessment of development of electricity and air conditioning effects in progress. systems ☺ T A2: telemetric metering at 70 locations Telemetric metering project completed. ☺ T A3: to control the usage electrical connections – Consistently implemented during the renovation of installation of analysers in the renovation of connections; objective for 2010 is to continue the connections process. T A4: to replace open batteries with closed Partially completed owing to the recession and systems at 11 locations technological reasons; partial transfer to 2010. ☺ T A5: to replace air conditioners at 68 locations Replacement at all 68 locations; objective to replace all with “free-cooling” systems non-professional units by 2011 remains. T A6, A7 and A8: to reduce consumption at the Objective was not met – separate measurement of Cigaletova, Stegne and Maribor Titova locations consumption not yet in place. by 5% O B: to improve the efficiency of fuel No significant changes (average consumption of 8.6 consumption in the car fleet by 10% litres/100 km). ☺ T B1: to draft and integrate a reporting sub-system Prepared in SAP; to be integrated in the technical for the car fleet reporting system. T B2: to reduce work-related travel by vehicle by ☺ The objective was met, in part due to fewer faults in the 5% compared with 2008 field. O C: to reduce the volume of mixed municipal ☺ Achieved. The new objective is a further 10% reduction waste by 20% by 2012. T C1: to optimise the monitoring of waste A system has been developed, but is still in the testing phase; to be integrated in the technical reporting system. T C2: separate collection at the Cigaletova ☺ Implemented. location T C3: to exclude locations where municipal waste Partially completed. Activity to continue from January is not generated from the system 2010.
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T C4: to draft operational plans to protect Two-year objective: plans are being drafted; three "ecological islands" islands already built; to be completed by planned deadline. T C5: to establish records and sell copper cabling Two-year objective; on schedule. O D: to fully connect wastewater to the public Progress made; objective remains open. sewerage system T D1: to connect the Koper business premises to Project expected to be completed by the deadline of 31 the public sewerage system December 2010. T D2: to establish a record of locations not Record established in spring 2009 and constantly connected to the public sewerage system updated. O E: to reduce the spillage threat ( number of Progress made with the drafting of rules and the spills) of hazardous materials (e.g. pumping purchase of eco-containers; task remains open due to and storage) of heating oil. its importance. T E1: to place equipment to resolve spills ☺ Placement completed at all recorded locations. O F: to reduce noise and emissions into the Use of environmentally friendly HVAC and generator atmosphere through the modernisation of units. technical equipment T F1: to replace 12 generators in 2009 Four generators replaced; others to be replaced in the coming years due to a reduction in investment spending. O G: other areas Overall assessment. T G1: to re-include environmental management in Environmental requirements included in new business premises agreements with lessees and agreements; agreements from previous years in the sub-contractors process of being amended. T G2a: to draft and promote an environmental ☺ Competed and distributed in April 2009. brochure T G2b: communication plans Environmental communication: "Škrjan ček" in-house magazine, e-Skupaj, "Caring for the Environment" intranet site, and the campaign "Saving Energy and Working for the Environment". T G2c: education and training in 2009 Annual meeting with a seminar and training of internal auditors held. LEGEND: ☺ - completed; - continuing activity in 2010; - incomplete (corrective and preventive action)
We upgraded the environmental accounting system, e.g. the financial monitoring of the Company's environmental impacts, with elements of environmental bookkeeping. This is particularly important where environmental costs are highest and at the same time where opportunities for improvement are significant: e.g. consumption of electricity and motor vehicle fuels, heating and environmental clean-up.
Environmental indicators were used to draft the ETNO report on sustainable development for 2008, and for benchmarking and identifying several opportunities for environmental improvements. Since they involve the most recent available comparable data, some of them are published, although they relate to 2008.
Overview of key electricity objectives and targets
Electricity represents the most significant environmental cost for all ICT operators. Annual growth in energy costs has been reduced through the measures presented in the section Overview of key environmental objectives and targets (Index 07/06 – 145; Index 08/07 – 114; Index 09/08 – 107). Consumption is rising primarily due to the simultaneous functioning of state-of-the-art broadband connections and the gradually declining traditional telephony. Owing to the latter's and, in particular on account of the measures presented, the Group plans to reduce energy consumption in the coming years.
Energy efficiency also serves as a guide in the selection of equipment. Among the measures taken, the Group replaces old worn-out generators with higher-capacity, environmentally friendly ones, and limits the permitted consumption of new equipment on stand-by.
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Changes in electricity costs, in EUR
5.000.000
4.000.000
3.000.000
2.000.000
1.000.000
- 2007 2008 2009
Transportation and heating fuels
The Group reduced the consumption of fuels in 2009. Alongside a 12% decrease in car fleet fuel costs at Telekom Slovenije, d. d., heating costs were also cut, by 10%. Comparisons with ETNO figures indicate that opportunities for improvement also exist to reduce average fuel consumption from the current level of 8.6 litres/100 km, and with through the recycling of waste heat. The Group has also limited the environmental impacts of transport by encouraging the use of bicycles. Mobitel, d. d. purchased bicycles for business use and arranged a bicycle shed.
Changes in transportation fuel costs, in EUR
5 Comparison of car fleet emissions, kg CO 2Eq /1000 euros
4,5
4
3,5
3
2,5
2
1,5
1
0,5
0 ETNO 2007 ETNO 2008 EU22avg2008 TS 2008
Environmental clean-up
This segment includes the costs of cleaning premises, waste management and other minor clean-up
5 ETNO 200X: the sum of consumed resources (e.g. electricity) divided by the sum of revenues of the 22 participating telecoms. •EU22avg: the sum of the indicator values divided by 22.
97 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 2009 Annual Report Telekom Slovenia Group costs. Waste management costs were reduced last year. Returns on one-off costs for the implementation of a system, such as the purchase of separate containers for all locations and the establishment of three "ecological islands" have already been realised. Overall costs in this segment were up 6% owing to an increase in cleaning service costs.
In order to reduce the quantity of waste electrical and electronic equipment that typically arises in the ICT sector, the Group began testing the usefulness of dismantled broadband subscriber equipment. A systematic inspection found that fully 55% of the equipment inspected was suitable for further use. Thus significant environmental and economical savings were achieved. We developed web based application for waste related statistic which will assist in the monitoring of a new KPI in 2011: tonnes of waster per EUR 1,000 of revenues. The quantity of production waste at the parent company, expressed in tonnes per revenues, is comparable with the average for 22 EU countries.
Quantity of waste, expressed in kg per EUR 1,000 of revenues
1,8
1,6
1,4
1,2
1
0,8
0,6
0,4
0,2
0
Environmental indicators in 2009: mobile segment of operations
The Group provides a suitable signal through the socially responsible management of the mobile telecommunications infrastructure, and consequently quality services for the user. Environmental impacts are managed through the use of the latest technological solutions, conscientious adherence to the law, and through the prudently planned construction, maintenance and placement of stations within the environment. To that end, Mobitel, d. d.: • operates in line with the code of best practices at the national level, which binds the Company to decrease the burden on the environment and users and to the use of the best technologies; • builds upon the basic requirements of European and Slovenian legislation; • in planning and placing infrastructure in the environment, relies upon top experts, who through constant training at home and abroad, monitor new technical solutions; • in accordance with legislation regarding the placement of facilities in the environment, it obtains the mandatory expert opinion from 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; and • 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: o informs municipalities in advance of plans and thus facilitates dialogue during the planning phase, and o 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 as 98 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 2009 Annual Report Telekom Slovenia Group much as 100 times lower than those specified.
In addition to Forum EMS, Mobitel, d. d. cooperates with various associations and institutions. The Company provides all necessary data to the state institutions that monitor and supervise electromagnetic radiation, as Slovenia is one of the EU Member States that have introduced an electromagnetic radiation registry.
Best practices are also shared with subsidiaries in south-eastern Europe where mobile telecommunications have been established.
The Telekom Slovenia Group fulfils its environmental objective of supporting the preservation of the natural environment through Soline, d. o. o. (100% owned by Mobitel, d. d.), which manages the Se čovlje Saltpans Regional Park. The park is a saltpan ecosystem of international significance to environmental protection, which represents a remarkable cultural heritage linked to the traditional culture of salt miners and desalination.
With its special environmental investment and through a concession relation with the government, the mobile operator has established an intriguing marketing form of measures to preserve the natural and cultural heritage and maintain the water infrastructure in the saltpan region. Tourist visits were up one-quarter in 2009. The regional park recorded 22,127 visitors, while sales of its own salt products were at the level recorded in 2008.
5.5 Responsibility to customers
+ development of broadband and mobile services tailored to the user + high level of customer satisfaction + benefits for special user groups
The Telekom Slovenia Group provides a high-quality user experience. It develops and provides technologically advanced services, products and content that are user friendly, aimed at special consumer groups, environmentally oriented and that simplify processes related to the entire social community.
The following permanent benefits are offered to special user groups: - with regard to traditional telephony, disabled persons are entitled to a 50% discount when concluding a new subscription and a 5% discount on the PSTN subscription fee; - with regard to broadband access, students and disabled persons are entitled to a discount of EUR 2 on their monthly subscription for SiOL packages; - customers with low income and special needs are provided access to traditional telephony in accordance with Articles 3 and 4 of the Rules for Categories of Consumers Entitled to Special Tariff Options and Packages (Official Gazette of the Republic of Slovenia, No. 101/05): - a package with low-priced text messaging and free video calls is aimed at the deaf and hearing impaired; and - members of volunteer associations are provided the SOS package of mobile services with no monthly subscription fee.
In addition to a range of new services, products and content, simplified processes are also aimed at users. As a result, the volume of administrative work linked to an order is reduced, and the online ordering of services enabled. The Group fulfils market expectations through the development of broadband access and convergent services and content and can already today, and even more so in the future, offer a range of products and service tailored to the user.
Telekom Slovenia Group companies offered several new services to users in 2009. Telekom Slovenije, d. d.: • introduced e-invoicing for Abanka and NLB customers; • cared for existing users by enhancing the loyalty programme and via direct telephone communication with subscribers regarding benefits and the upgrading of existing subscriptions; and • established the interactive assistant Tia on the SiOL services website. The assistant enjoyed a very positive response from users and answered 700,000 user entries. Mobitel, d. d.: 99 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 2009 Annual Report Telekom Slovenia Group
• offered a range of solar-powered mobile phones. By collecting used mobile phones in its sales centres, the Company raised the environmental awareness of its users; • introduced a Mobitel loyalty programme and new subscriber packages and services; and • established a new state-of-the-art user-oriented website, and received the Netko award for website excellence. Najdi, informacijske storitve, d. o. o. and its predecessors: • upgraded the Najdi.si browser with a number of new functionalities and improvements; • presented the Firma.si company browser and the borzadela.si employment portal; and • prepared a new Slovenian telephone directory with a number of advanced tools for business users. Companies in south-eastern Europe: • Ipko, d. o. o. offered the first package of internet access and mobile and fixed telephony; and • In Macedonia, ONE offered users Allo.net packages and established a new website.
Concern for children’s internet security
Children encounter the internet at an early age; therefore their timely familiarisation with internet security is exceptionally important. To that end, the Group supports Safe.si, a national website aimed at raising internet security awareness among children and adolescents through various communication activities, prize contests and games. Internet security is also an integral part of the children's corner on the SiOL website. In addition to constant communications for children and parents regarding internet security, the Group has also developed a game on the same topic.
Customer satisfaction
The Telekom Slovenia Group is aware of the importance of satisfied and loyal users for long-term success. Therefore, the Group regularly surveys their opinions and identifies their wishes and needs. It monitors the satisfaction of residential (individuals) and business users and develops improvements based on results.
Above-average satisfaction was recorded for both segments of users of broadband services in 2009, particularly with regard to "technical expertise" and "respecting agreed deadlines for connections". Residential users were most satisfied with 1188 subscriber information number, internet services and SiOL TV, and least satisfied with the resolution of complaints, which is linked to the nature of this segment. Among business users, satisfaction with internet services and SiOL telephony improved.
The reputation of Telekom Slovenije, d. d. improved in the eyes of the general and business publics, which also improves the reputation of the corporate brand and consequently that of all Telekom Slovenia Group companies. The Company ranked third in the business public's view of investor- attractive companies.
Level of residential user satisfaction
1187
Internet
SiOL TV
SiOL tf
fault handling
technical support
080 8000
complaints handling
0 15 30 45 60 75 90 1 - 3 Q 2008 1-3 Q 2009 Source: Survey measuring satisfaction in the residential segment, Q1-Q3 2009
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Level of business user satisfaction
VPN
Internet
SiOL tf
Centrex
key accounts
fault handling
technical support
complaints handling
0 15 30 45 60 75 90 1 - 3Q 2008 1-3Q 2009 Source: Survey measuring satisfaction in the business segment, Q1-Q3 2009
The Group also participated in the brand tracking survey in 2009, the results of which indicated that: - SiOL 6 is the best known brand in the category of internet access and packages of services; - the general public views SiOL as a leading, reputable and technologically sound provider of user- oriented broadband services; and - users perceive the Mobitel and Najdi.si brands as moderately innovative, and of a somewhat more serious and commercial nature.
User trust has also been confirmed by reputable awards: The Telekom Slovenije in SiOL brands received the Trusted Brand title while, according to a Reader's Digest study, the Mobitel brand ranked as one of the most trusted brands among Slovenian consumers.
Proportions and costs of complaints and reduction measures
The principle of complaint resolution is flexibility in finding solutions to the benefit of both parties. Each complaint is treated as feedback that facilitates the improvement of internal processes and the development of the sales offer. All complaints received by Telekom Slovenije, d. d. were handled and additional measures adopted, primarily with regard to new sales offers. The majority of complaints at Mobitel, d. d. related to external GSM services. A number of measures, particularly in the area of data transfer, were adopted to reduce the number of complaints. The number of complaints as a proportion of issued invoices was also down 0.9 percentage points at Najdi, d. o. o.
5.6 Responsibility for quality
+ stable quality remains a comparative advantage + high-quality construction of the IP network + global leader in mobile network quality
The Telekom Slovenia Group provides high-quality services, networks and work. This is one of the Group's comparative advantages in Slovenia and on the ICT markets of south-eastern Europe. Data proves that quality is stable and a step ahead of the competition.
Formalised quality management systems
Quality is ensured primarily by introducing and maintaining formalised systems of management and recommendations that are based on a process approach. These systems include:
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• the core SIST EN ISO 9001 quality management system, • the SIST EN ISO 14001 environmental management system, • the SIST EN 16001 energy management system, • the OHSAS 18001 occupational health and safety management system, • the ISO/IEC 20000 IT services management system and • the ISO/IEC 27001 information security management system.
Group is gradually implementing a number of standards and recommendations for specific procedures (e.g. the SIST ISO 10002 customer satisfaction/complaint handling standard).
Achievements in the area of quality in 2009
Standard – recommendation Achievements Quality management - • GVO – received a certificate for the first integrated ISO 9001 and ISO SIST EN ISO 9001 14001 system; regular annual audit with migration to the new ISO 9001:2008 standard • Avtenta.si – successful regular annual audit Environmental management system – • Telekom Slovenije, d. d. – first regular audit with non-conformances SIST EN ISO 14001 • GVO, d. o. o. – integrated ISO 9001 system Information security management system – • Telekom Slovenije, d. d. – internal auditors certified (internal rules ISO IEC 27001 project – pre-audit by the Archives of Slovenia) • Avtenta.si – ready for audit in the scope of the SiHramba.eu (online data storage) project Electronic archiving of e-materials • Avtenta.si – certified by authorised representative - the Archives of Slovenia for SiHramba.eu SIST EN 16001 energy management • Telekom Slovenije, d. d. – knowledge acquired; planned visit to two system, ISO IEC 20000 IT services telecoms that have introduced these systems; decision regarding management system and SIST ISO 10002 further development in the first half of 2010 customer satisfaction standard Quality and environmental responsibility • done combined for all ISO certified for all Group companies, except training Gibtelecom and Aneks, d. o. o. due to their remote locations • regular annual meeting with seminars for local administrators and internal auditors • successful special programme for the internal audit department
Quality of the fixed network and services
The technological quality of the network is a precondition for the provision of quality services. Quality is ensured by enhancing the resilience of network systems and by systematically mitigating the impact of faults on services. Emphasis is placed on quality assurance in the IP environment.
Previous measures aimed at network quality were updated in 2009, while many opportunities for improvement still exist: • a comprehensive upgrade of the aggregation segment of the network was carried out with the installation of higher capacity and more reliable devices; • the infrastructure of the primary node at the Cigaletova location was thoroughly upgraded; • monitoring of IP segment functionality was improved significantly; • systems software ("firmware") was improved in subscriber and network devices; • the availability of services and network security was enchanced through the upgrading of firewalls; • system faults were down 22%, and are cleared more expediently and • increasing importance is given to pre-testing, while activities in the "Brihtalab" internet laboratory were increased by more than 50%.
Quality objectives for the Group's services are also achieved by Najdi, d. o. o., where responsiveness and the quality of the user experience are being improved.
Formalised quality management systems, monitoring and measures based on KPI processes will ensure that the Group remains The First.
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Quality of the mobile network and services
Continius improvements in the quality of mobile services are one of Mobitel, d. d.'s key objectives and of the Telekom Slovenia Group's entire mobile segment of operations. Quality indicators increasingly reflect the user perspective. In terms of the drop call ratio, measurements by independent institutions and a comparison of international data in 2009 once again confirmed that the Company is a leading operator by European and global standards.
The Company continues to improve its otherwise high coverage of the Slovenian population with GSM, EDGE, UMTS and HSDPA signals. With the help of knowledge and experience gained in Slovenia, Ipko, d. o. o. in Kosovo has built the highest quality mobile network in this part of Europe. In 2010 the Group will address the new challenge of building a quality mobile network in Macedonia following the takeover of ONE AD.
5.7 Responsibility to suppliers
+ maintaining long-term partnerships and cooperation + environmental criteria in the selection of suppliers + ensuring efficiency and transparency in the ordering process
Through responsible relationships with suppliers, Telekom Slovenia Group companies provide their own range of high-quality and technologically advanced services and content for users.
Supplier selection strategy
Strategic tasks in selecting suppliers and contractors include: • finding quality, optimal and environmentally friendly materials; • participating in the design and introduction of innovative products and solutions; and • constantly raising awareness regarding the Group's active role in environmental protection and rational energy management.
Partnerships with suppliers
Telekom Slovenije, d. d. and other Telekom Slovenia Group companies implement procedures for ordering goods, construction and services in line with the relevant rules, so that the use of resources is as efficient, effective and transparent as possible.
The Group maintains long-term partnerships and cooperation with suppliers, business partners and users that have earned its trust.
5.8 Responsibility for security
+ upgrading of the security system + no major security incidents
• The Telekom Slovenia Group protects the assets of companies, business information and information technologies through high security standards and by spreading a culture of security.
Security policy implementation
Security risks are mitigated by consistently implementing the adopted security policy, which is an integral function of all business processes. In 2009 the Group: • implemented and developed the security policy by upgrading the system for managing harmful events; • strengthened the responsible attitude towards the security of business information and the Companiy's assets by training and including employees in security processes; and • operated without major security incidents or the loss of company assets.
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Building and system security
The Group continued to upgrade the security system for the professional protection of employees, facilities and technological systems. The Group successfully exploited synergies in the area of technical and physical security during a financially demanding year. On the basis of expert assessments, technical security systems were built and physical security reduced at individual locations, thus limiting direct financial costs in the long-term.
An autonomous security-technical system that meets high security standards was established through the development of security services and the upgrading of the security control centre. The diversity of the system and appropriate licences provide the conditions necessary to carry out the building and system security function throughout the Telekom Slovenia Group and the wider economic environment.
Telekom Slovenije, d. d.'s security control department and control centre hold the SIST-BS 5979 security certificate based on the Company's state-of-the-art equipment, qualified personnel, technical capacities and solutions. By constantly training its own staff, the Company has provided the necessary conditions for the continued quality development of security at the Company and within the Group.
Information technology security
To ensure information technology security, the Group: • facilitated business continuity; • recorded critical business processes; • introduced recovery plans for specific business processes; and • analysed impacts on business processes and performed business process risk assessments.
The Group provides data security through prescribed internal procedures and rules of conduct regarding the handling of personal data, trade secrets and other types of information, in accordance with the valid security policy.
Data security was also ensured by a strict security policy regarding the disposal of media containing data, by coding all traffic outside the internal network and by protecting the network with additional active network equipment (e.g. at Najdi, d. o. o.). The Group also gives its attention to software in terms of security.
For additional information regarding the 2009 Annual Report of the Sustainable Development Report please contact [email protected].
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5.9 Content according to GRI G3 reporting guidelines
Content according to the GRI G3 Page 1 Strategy and analysis 1.1 Statement of the Management Board on the importance of sustainable 1 development for the organisation and strategy 2 Prese ntation of the organisation 2.1 - Company name, brands, registered office, organisational structure, 2, AR 09 (page) 2.10 ownership structure, markets, key data, significant changes regarding composition and ownerships, recognitions and awards 3 Report ing parameters 3.1 – 3.8 Data regarding the report, purpose of reporting and limitations 3 3.10 - Explanation of the effects of changes to data from previous reports 3, AR 09 (page) 3.11 and reasons, knowledge and significant changes with regard to the previous reporting period 3.12 GRI content 4 Governance, organisational commitments and the inclusion of 3 stakeholders 4.1 – 4.4 Governance structure, mechanisms for the submission of 3 recommendations and suggestion by minor shareholders to the Supervisory Board and by employees to the Works Council and employee representatives on the Supervisory Board 4.12 – Commitments to and support of external initiatives and membership in 3 4.13 associations 4.14 – Inclusion of stakeholders and criteria for selecting stakeholders with 4 4.15 whom cooperation has been established Economic impact indicators EC1 Direct economic value generated and distributed, including revenues, 4, 11, 12 operating costs, employee compensation, donations and other AR 09 (page) community investments and payments to shareholders Environmental management indicators (environmental indicators) EN3 Direct energy consumption by primary sources (fuels) 15, 16, 17 EN4 Indirect energy consumption by primary sources (electricity) 15, 16 EN7 Initiatives to reduce indirect energy consumption and reductions 15, 16 achieved EN26 Initiatives to mitigate the environmental impacts of products and 14, 15, 16 services EN28 Observance of regulations 14 EN29 Significant environmental impacts of transportation for the 15, 16, 17 organisation's operations Labour practices and decent work indicators LA1 Total workforce by employment type, employment contract and region 5 LA7 Rates of injuries, occupational diseases, lost days and absenteeism 10 LA10 Average hours of training per employee and by employment category 7 LA 11 Programmes for training and lifelong learning 7 Product and service responsibility indicators PR 5 Practices related to customer satisfaction 19
Table: application of GRI guidelines
C C+ B B+ A A+ Mandatory Self- assessment Voluntary External verification Verification by the GRI
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6 FINANCIAL REPORT
6.1 Introductory notes
In addition to the introductory notes, the financial statements herein consist of two major chapters, namely:
- Financial statements of Telekom Slovenije Group, and - Financial statements of Telekom Slovenije, d. d..
The financial statements of the Telekom Slovenije Group and Telekom Slovenije, d.d. were prepared in accordance with the International Financial Reporting Standards as adopted by EU (IFRS).
The auditing firm ERNST & YOUNG, Revizija in 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 2009
In thousand EUR Notes 2009 2008 Revenue 3 847,507 842,324 Other income 4 8,599 9,411 Share of profit of a joint venture 3,611 4,867
Cost of goods and materials sold -52,393 -60,460 Cost of raw materials -15,899 -9,537 Cost of services 5 -339,784 -305,963 Staff costs 6 -152,909 -144,551 Depreciation and amortisation 12, 13 -203,782 -183,750 Other operating expenses 7 -30,885 -23,845 Total operating expenses -795,652 -728,106
Profit from operations 64,065 128,496
Finance income 8 5, 895 7,601 Finance cost 9 -32,780 -21,192
Profit before tax 37,180 114,905
Income tax expense 10 -12,572 -28,920
Net profit for the year 24,608 85,985
Attributable to: Equity holders of the parent 24,608 85,818 Minority interest 0 167
Earnings per share - basic and diluted in EUR 11 3.78 13.19
The accompanying notes are an integral part of these consolidated financial statements. WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 107 2009 Annual Report Telekom Slovenia Group
Statement of comprehensive income for the year ended 31 December 2009
In thousand EUR 2009 2008 Net profit for the period 24,608 85,985
Revaluation of AFS financial assets -39 2,532 Deferred tax 7 -543 Net gain or loss from revaluation of AFS financial assets -32 1,989
Changes in fair value of cash flow hedges -4,796 -1,179 Deferred tax 463 250
Reclassification of changes in fair value of cash flow hedges 4,698 -321 Deferred tax -444 -33 Net gain or loss on changes in fair value of cash flow hedges -79 -1,283
Change in deferred tax on FA revaluation reserve 0 2
F/X reserve -2,966 0 Other comprehensive income -3,077 708
Total comprehensive income 21,531 86,693 The majority share 21,531 86,526 The minority share 0 167
The accompanying notes are an integral part of these consolidated financial statements.
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Consolidated balance sheet at 31 December 2009
In thousand EUR Notes 31 December 2009 31 December 2008
ASSETS
Intangible assets 12 351,951 255,144 Property, plant and equipment 13 1,255,364 1,175,639 Investment in joint venture 14 38,863 38,619 Other investments 15 14,661 18,525 Other non-current assets 16 27,289 29,578 Investment property 17 5,121 5,253 Deferred tax assets 18 6,546 4,275 Total non-current assets 1,699,795 1,527,033
Assets held for sale 1,156 627 Inventories 19 24,998 28,421 Current trade and other receivables 20 204,496 187,917 Income tax receivable 15,307 4,399 Current financial assets 21 554 21,121 Cash and cash equivalents 22 21,210 18,845 Total current assets 267,721 261,330
Total assets 1,967,516 1,788,363
The accompanying notes are an integral part of these consolidated financial statements.
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Consolidated balance sheet at 31 December 2009
In thousand EUR
Notes 31 December 2009 31 December 2008
EQUITY AND LIABILITIES
Issued capital 23 272,721 272,721 Treasury shares 23 -3,671 -3,671 Reserves 23 584,370 550,683 Retained earnings 23 102,762 143,040 FA revaluation reserve 23 93,289 101,031 Revaluation reserves for financial instruments 23 1,515 1,626 F/X reserves 23 -2,961 5 Minority interest 0 235 Total capital and reserves 1,048,025 1,065,670
Non-current deferred income 24 8,528 9,169 Provisions 25 30,529 30,580 Interest bearing borrowings 26 254,683 241,145 Other non-current financial liabilities 27 326,366 63,909 Deferred tax liabilities 18 3,294 0 Total non-current liabilities 623,400 344,803
Trade and other payables 28 158,591 159,240 Income tax payables 251 1,954 Interest bearing borrowings 26 56,277 177,431 Other current liabilities 29 38,871 1,411 Deferred income 30 19,238 18,437 Accruals 22,863 19,417 Total current liabilities 296,091 377,890 Total liabilities 919,491 722,693
Total equity and liabilities 1,967,516 1,788,363
The accompanying notes are an integral part of these consolidated financial statements.
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Consolidated statement of changes in equity for the year ended 31 December 2009
In thousand EUR Net gain or loss Net gain or loss on from revaluation of changes in fair F/X Issued Treasury Retained FA revaluation AFS financial value of cash flow differences Total attrib. to Minority capital shares Reserves earnings reserves assets hedges reserve the parent interest Total
Balance at 01.01.2009 272,721 -3,671 550,683 143,040 101,031 2,326 -700 5 1,065,435 235 1,065,670
Net profit for the period 24,608 24,608 0 24,608 Other comprehensive income for the period -32 -79 -2,966 -3,077 -3,077 Total comprehensive income for the period 0 0 0 24,608 0 -32 -79 -2,966 21,531 0 21,531 Transfer to retained earnings and reserves 5,043 2,655 -7,698 0
Transfer to legal reserves 680 -680 0 Transfer to other reserves (decision of the Management) 28,012 -28,012 0
Payment of dividends -39,033 -39,033 -180 -39,213
Other -48 184 -44 92 -55 37
Balance at 31.12.2009 272,721 -3,671 584,370 102,762 93,289 2,294 -779 -2,961 1,048,025 0 1,048,025
The accompanying notes are an integral part of these consolidated financial statements.
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Consolidated statement of changes in equity for the year ended 31 December 2008
In thousand EUR Net gain or loss FA from revaluation of Net gain or loss on F/X Issued Treasury Retained revaluation AFS financial change in fair value differences Total attrib. to Minority capital shares Reserves earnings reserves assets of cash flow hedges reserve the parent interest Total
Balance at 01.01.2008 272,721 -3,671 294,379 389,580 108,690 337 583 5 1,062,624 117 1,062,741
Net profit for the period 85,818 85,818 167 85,985 Other comprehensive income for the period 2 1,989 -1,283 0 708 708 Total comprehensive income for the period 0 0 0 85,818 2 1,989 -1,283 0 86,526 167 86,693 Transfer to retained earnings and reserves 5,043 2,618 -7,661 0 0
Transfer to reserves 219,171 -219,171 0 0 Transfer to other reserves (decision of the Management) 32,087 -32,087 0
Payment of dividends -83,270 -83,270 0 -83,270
Other 3 -448 -445 -49 -494
Balance at 31.12.2008 272,721 -3,671 550,683 143,040 101,031 2,326 -700 5 1,065,435 235 1,065,670
.
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Consolidated cash flow statement for the year ended 31 December 2009 In thousand EUR 2009 2008 Operating activities Profit before tax 37,180 114,905 Adjustments for: Depreciation and amortisation 203,782 183,750 Depreciation of investment property 43 73
Loss on disposal and impairment of intangible assets and PPE 5,291 1,572 Gains/loss on disposal of FA -1,927 -3,335
Finance income -5,895 -7,601 Finance cost 32,780.348 21,192
Change in assets held for sale -529 10 Change in trade and other receivables -16,579 -18,215 Change in other non-current assets 2,421 -6,428 Change in inventories 3,423 -3,197
Change in provisions -51 2,047 Change in deferred income 160 3,091 Change in accruals 3,446 3,803 Change in trade and other payables -545 20,648
Tax paid -27,562 -41,027 Cash flow from operating activities 235,438 271,288
Investing activities Proceeds from investing activities 37,218 15,002 Proceeds from sale of PPE 5,836 5,433 Dividends received 3,793 4,491 Interest received 1,064 2,478 Proceeds from sale of non-current financial assets 6,008 2,400 Proceeds from sale of current financial assets 20,517 200 Disbursements from investing activities -,402,371 -251,830 Purchase of property, plant and equipment -158,052 -204,210 Purchase of intangible assets -26,724 -30,295 Purchase of investment property 0 -92 Purchase of financial assets 0 -324 Investments in subsidiaries and joint ventures net of cash acquired and acquisition of minority interests -217, 558 -12,103 Interest bearing loans -37 -4,806 Net cash flow from investing activities -365,153 -236,828
Financing activity Proceeds from financing activities 682,058 113,071 Paid in capital 3,625 9,169 Proceeds from non-current borrowings 346,762 87,891 Proceeds from current borrowings 33,996 16,011 Bonds issued 297,675 0 Disbursements from financing activities -549,978 -189,293 Repayment of current borrowings -71,890 -39,845 Repayment of non-current borrowings -415,557 -45,982 Interest paid -23,317 -20,286 Dividends paid -39,214 -83,180 Net cash flow from financing activities 132,080 -76,222
Net increase in cash and cash equivalents 2,365 -41,762
Closing balance of cash 21,210 18,845 Opening balance of cash 18,845 60,607 The accompanying notes are an integral part of these consolidated financial statements.
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6.2.2 Notes to the consolidated financial statements of the Telekom Slovenia Group and summary of significant accounting policies of the Group
1. General information
Financial statements The financial statements are the consolidated financial statements of the Telekom Slovenia Group (the “Group”) for the year ended 31 December 2009.
In accordance with the article 54 of the Companies 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 23 March 2009.
The Telekom Slovenia Group consists of the parent company, Telekom Slovenije d. d., and the following subsidiaries or groups of subsidiaries: - Mobitel, d. d., (100%), - GVO, d. o. o., (100%), - Najdi Group, informacijske storitve, (100%), - Avtenta.si, d. o. o., (100%), - Soline, d. o. o., (100% interest held by Mobitel, d. d.), - Planet 9, d. o. o., (50% interest held by Telekom Slovenije, d. d. and 50% by Mobitel, d. d.), - Ipko Group, Kosovo, (93.11%), - On.net, d. o. o., Macedonia, (83,38%), - Aneks, d. o. o., Bosnia and Herzegovina, (70%), - Primo Group, Albania, (75%), previously the AOLSP Group - SIOL, d. o. o., Croatia, (100%), - SIOL, B.V., Group, the Netherlands, (100%), acquired in 2009; in addition to the parent SIOL, B.V., the Group comprises a wholly owned subsidiary ONE, d. d., Macedonia, - Germanos Telecom, d. d., Macedonia (100%), acquired in 2009 and - Digi Plus Multimedija, d. o. o., Macedonia (100 %), established in 2009.
In 2009, Najdi.si, d. o. o. merged with Interseek, d. o. o., (which changed its firm to Najdi.si, d. o. o.). The parent Najdi.si, d. o. o., holds 100% interests in the following subsidiaries: Pogodak tražilica, d. o. o. in Croatia and Pogodak, d. o. o. in Serbia, as well as a 50.1% interest in Meganet, d. o. o., Slovenia. In July Telekom Slovenije, d. d. realized its call option for additional 25% interest in Najdi.si, d. o. o., thus becoming the sole owner of the company. In the last quarter of 2009 Najdi.si, d. o. o. merged with Teledat, d. o. o., which changed its firm to Najdi, informacijske storitve, d. o. o..
In the Ipko Group, the parent Ipko, d. o. o. holds a 100% interest in Ipko, d. o. o., Albania and in Mediaworks, d. o. o.. In December Telekom Slovenije, d. d. realized its call option for 29.36% interest of the company thus increasing its interest share to 93.11%. The parent company holds a call option and minority shareholders hold put options for the remaining interest in the company.
The Primo Group consists of parent Primo, d. o. o., which changed its name from AOLSP, d. o. o. and its merger with two of its subsidiaries in Albania: AFB, d. o. o. and H-Communications, d. o. o.. Bindi Integrated Services, d. o. o. is also a wholly owned subsidiary of Primo, d. o. o..
At the end of October Cosmofon, d. d. assumed a new name of ONE, d. d..
Telekom Slovenije, d. d. holds 100% economic ownership in all subsidiaries through holding call options and grating put options to minority holders.
Mobitel, d. d. holds a 50% interest in M-Pay, d. o. o. An investment in joint ventures represents acquisition of 50% interest of Gibtelecom, d. o. o.. Both are included in the consolidation under the equity method.
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General information about the 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 2009, 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 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 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.
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 established in June 2003 jointly with SiOL, d. o. o. (who 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; The parent also holds a 50% interest in M-Pay, d. o. o.. The principal activity of the company is mobile payments processing.
GVO, d. o. o. performs building and maintenance works on telecommunication networks, predominantly for Telekom Slovenije d. d..
Najdi, informacijske storitve, d.o.o, the parent company in the Najdi, informacijske storitve Group. issues telephone directories and carries out service of information provision, maintains business databases as well provides Internet services in Slovenia and, through its subsidiaries, also in Croatia and Serbia.
Avtenta.si, d.o.o is a system integrator of business solutions.
The companies in the Ipko Group provide telecommunications services in Kosovo.
The Telekom Slovenia Group is the provider of Internet services in Bosnia and Herzegovina through its subsidiary Aneks, d. o. o. and in Macedonia through On.net, d. o. o..
The companies in the Primo Group provide Internet services and fixed telephony services.
ONE, d. d.. is the provider of integrated telecommunications services through its powerful telecommunications network and extensive sales network provided by Germanos Telecom, d. d..
Digi Plus Multimedija, d. o. o. provides digital TV marketing in Macedonia.
Gibtelecom is the 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 the Telekom Slovenia Group are set out below.
115 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 2009 Annual Report Telekom Slovenia Group 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).
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 1 - Revised Presentation of Financial Statements. The revised Standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with 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 recognised income and expense, either in one single statement, or in two linked statements. The Group has elected to present two statements.
IAS 23 - Borrowing Costs The Standard has been revised to require capitalisation of borrowing costs on qualifying assets and the Group has amended its accounting policy accordingly. In accordance with the transitional requirements of the Standard this has been adopted as a prospective change. Therefore, borrowing costs have been capitalised on qualifying assets with a commencement date on or after 1 January 2009. No changes have been made for borrowing costs incurred prior to this date that have been expensed.
IFRS 2 - Share-Based Payment (amended) - Vesting Conditions and Cancellations The Standard has been amended to clarify the definition of vesting conditions and to prescribe the accounting treatment of an award that is effectively cancelled because a non-vesting condition is not satisfied.
IFRS 7 - Financial Instruments: Disclosures The amended standard requires additional disclosure about fair value measurement and liquidity risk. Fair value measurements are to be disclosed by source of inputs using a three level hierarchy for each class of financial instruments. In addition, reconciliation between the beginning and ending balance for Level 3 fair value measurements is now required, as well as significant transfers between Level 1 and Level 2 fair value measurements. The amendments also clarify the requirements for liquidity risk disclosures. The fair value measurement disclosures and the liquidity risk disclosures are impacted by the amendments.
IFRS 8 - Operating Segments The new Standard requires an entity to adopt “management approach” to reporting on the financial performance of its operating segments. If the numbers used by management for internal performance measurement of operating segments are different to the numbers reported in the financial statements, this requires a reconciliation of numbers used by management to the financial statements.
Amendments to IAS 32 and IAS 1 - Puttable Financial Instruments
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The amendment to IAS 32 requires entities to classify certain items of puttable financial instruments and liabilities arising from liquidation as equity if they fulfil a number of specified criteria. Amendments to IAS 1 require disclosure of certain information regarding puttable financial instruments that are classified as equity.
IFRIC 9 - Reassessment of Embedded Derivatives and IAS 39 - Financial Instruments: Recognition and Measurement These amendments to IFRIC 9 require an entity to assess whether an embedded derivative must be separated from a host contract when the entity reclassifies a hybrid financial asset out of the fair value through profit or loss category. This assessment is to be made based on circumstances that existed on the later of the date the entity first became a party to the contract and the date of any contract amendments that significantly change the cash flows of the contract. IAS 39 now states that if an embedded derivative cannot be reliably measured, the entire hybrid instrument must remain classified as at fair value through profit or loss.
IFRIC 12 - Service Concession Agreements 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 13 - Customer Loyalty Programmes This interpretation requires customer loyalty credits to be accounted for as a separate component of the sales transaction in which they are granted. A portion of the fair value of the consideration received is allocated to the award credits and deferred. This is then recognised as revenue over the period that the award credits are redeemed. Some members of the Group started loyalty programs in 2009. Customers are able to redeem the points to claim discounts on subscription and purchase certain products on credit (instalments).
Under the new policy, consideration received is allocated between the products or services sold and the points issued, with the consideration allocated to the points equal to their fair value. Fair value of the points is determined by applying statistical analysis. The fair value of the points issued is deferred and recognised as revenue when the points are redeemed.
IFRIC 15 - Agreement for the Construction of Real Estate 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 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.
Improvements to IFRSs 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 adoption of the following amendments resulted in changes to accounting policies but did not have any impact on the financial position or performance of the Group.
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 statement of financial
117 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 2009 Annual Report Telekom Slovenia Group position. This amendment did not result in any re-classification of financial instruments between current and non-current in the statement of financial position.
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. The Group has amended its accounting policy accordingly.
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. The Group has reassessed the useful lives of intangible assets and found that the use of the straight-line method of amortisation is appropriate.
The following amendments had no impact on the accounting policies of the Group, its financial position or operations:
IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations
IFRS 7 - Financial Instruments: Disclosures
IAS 8 - Accounting Policies, Change in Accounting Estimates and Errors
IAS 10 - Events after the Reporting period
IAS 18 - Revenue
IAS 19 - Employee Benefits
IAS 20 - Accounting for Government Grants and Disclosures of Government Assistance
IAS 27 - Consolidated and Separate Financial Statements
IAS 28 - Investments in Associates
IAS 29 - Financial Reporting in Hyperinflationary Economies
IAS 31 - Interests in Joint Ventures
IAS 34 - Interim Financial Reporting
IAS 36 - Impairment of Assets
IAS 39 - Financial Instruments: Recognition and Measurement
IAS 40 - Investment Property c. Basis of consolidation The consolidated financial statements comprise of the financial statements of Telekom Slovenija, d. d. and its subsidiaries as at 31 December 2009. 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.
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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, which represents the portion of profit or loss and net assets not held by the Group, 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 than 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.
Business combinations are accounted for under the cost method. The costs that can be directly attributed to the acquisition are added to the cost of the investment. After initial recognition, goodwill arising on a business combination as a surplus of consideration over the assumed net assets of the company is carried at cost less any impairment losses.
Investments in associates and shares in companies under joint control are accounted for under the equity method. d. Functional currency and foreign currency transactions The consolidated financial statements are presented in thousand 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: The Ipko Group, Kosovo - EURO, On.net, d. o. o., Macedonia - Macedonian Denar Aneks, d. o. o., Bosnia and Herzegovina - Bosnian mark, The Primo Group, Albania - LEK, SIOL, d. o. o., Croatia - KUNA, The SIOL, B.V. Group, The Netherlands - EURO, Germanos Telecom, d. d., Macedonia - Macedonian Denar, Digi Plus Multimedija, d. o. o., Macedonia - Macedonian Denar.
As at the reporting date, the financial statements of subsidiaries listed above are translated into the presentation currency of the consolidated financial statements. The Bank of Slovenia rate of exchange ruling at the reporting date is used for the balance sheet, while the weighted average
119 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 2009 Annual Report Telekom Slovenia Group exchange rates for the reporting year are used in the income statement.
The exchange differences arising on translation of the functional currency into the presentation currency are recognized directly in equity and in the statement of comprehensive income, until a foreign subsidiary is sold, when the foreign exchange differences are recognized in the income statement and as a reclassification in the statement of comprehensive income.
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 32, 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
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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 or even more frequently.
Impairment of UMTS licence in Slovenia, GSM licence in Kosovo and GSM and UMTS licences in Macedonia The Group determined that no indication of impairment of UMTS and GMS licences existed during the year 2009. Accordingly no impairment test has been performed. The carrying value of UMTS licence at 31 December 2009 was 57,548 thousand EUR (31 December 2008: 52,725 thousand EUR). The carrying value of GSM licence at 31 December 2009 was 84,274 thousand EUR (31.12.2008: 65,833 thousand EUR). Further details are given in note 12.
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 attributed. 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 2009 was 104,751 thousand EUR (31 December 2008: 57,652). 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 concerning the carrying amount of intangible assets and property, plant and equipment, 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 adoption of IFRS’s and IFRIC’s 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 IFRSs will be adopted in future periods as required by International Financial Reporting Standards:
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.
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.
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The following new and amended IFRSs will be adopted in future periods as required by International Financial Reporting Standards :
IFRIC 17 - Distribution of Non-Cash Assets to Owners IFRIC 17 becomes effective for annual periods beginning on 1 July 2009. The interpretation provides guidance on how to account for non-cash distribution of assets to owners. The interpretation clarifies when an entity should recognize the liability, how it should be measured, and how to recognize and measure the related assets, as well as when such assets and liabilities should be derecognised in books of accounts.
IFRIC 18 - Transfers of Assets from Customers Applicable to transfers from customers on or after 1 July 2009. The interpretation provides guidance on how to account for property, plant and equipment transferred from customers or cash received for acquisition or construction of specified assets. This guidance applies only to assets used by an entity to connect the customer to a network or to provide the customer with an ongoing access to a supply of goods, services or, in some cases, to do both. The entity must identify the service or services rendered and allocate the received payment (the fair value of assets) to each identifiable service. Revenue should be recognised on delivery or performance of each individual service by the entity.
The following new and amended IFRSs will be adopted in future periods as required by International Financial Reporting Standards, if endorsed by the EU:
IFRS 2 - Cash-settled Share-based Payment Transactions in the Group Applicable for periods beginning on or after 1 January 2009. Amendments to IFRS 2 comprise three basic amendments: revised definition of share-based transactions and agreements, the scope of IFRS2, and additional clarification of how to account for cash-settled share-based payment transactions in the group.
IAS 32 - Financial Instruments: Presentation Classification of Rights Issues Denominated in Foreign Currency Applicable for periods beginning after 1 February 2010. Amendments to IAS 32 allow an entity issuing rights to purchase shares in foreign currency not to recognise the rights as derivatives and to recognise the effect in the profit or loss. These rights are now classified as equity instruments if they fulfil certain criteria.
IAS 24 - Related Party Disclosures Applicable for periods beginning after 1 January 2011. Amendments to IAS 24 define in more detail and simplify definition of a related party. Furthermore the amended standard reduces the scope of disclosures of transactions of a government owned entity with the government and other government owned entities.
IFRS 9 - Financial Instruments The Standard replaces IAS 39 and is applicable for periods beginning on 1 January 2013. The first part of the standard introduces new requirements for classifying and measuring financial assets.
The following new and amended IFRCs will be adopted in future periods as required by International Financial Reporting Standards, if endorsed by the EU:
IFRIC 19 - Extinguishing Financial Liabilities with Equity Instruments The interpretation becomes effective on 1 July 2010 and provides guidance on how to account for the extinguishment of a financial liability by the issue of equity instruments (a debt for equity exchange). The interpretation clarifies how to measure and recognise such exchanges.
Improvements to IFRS In April 2009, the Board issued its second omnibus of amendments to its standards and interpretations , primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The amendments described below have so far not been endorsed by the European Union.
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IFRS 2 - Share-based Payments - Specification when to apply IFRS 2 and IFRS 3
IFRS 5 - Non-current Assets Held for Sale - Disclosures
IFRS 8 - Operating Segments - Disclosure of Segment's Assets
IAS 1 - Presentation of Financial Statements - Current/non-current liability for exchangeable instruments
IAS 7 - Statement of Cash Flows - Classification of expenditure for non-recognised assets
IAS 17 - Leases - Classification of land and buildings
IAS 18 - Revenue - Designation whether an entity acts as a principal or an agent
IAS 36 - Impairment of assets - The largest units to which goodwill may be attributed
IAS 38 - Intangible Assets - Amendments to standard due to the adoption of new IFRS 3 and changes in determination of fair value
IAS 39 - Financial Instruments - Assessment of liquidation damages for prepayment of a credit as an embedded derivative, cash flow hedges
IFRIC 9 - Re-assessment of Embedded Derivatives - impact of IFRS 3 and IFRIC 9
IFRIC 16 - Hedges of a Net investment in a Foreign Operation - Amendment of restriction to an entity allowed to have a hedge
The Group is 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 new standards and interpretations as and when effective. i. Intangible assets Intangible assets with finite useful lives are stated at cost less accumulated amortisation less impairment losses, while intangible assets with infinite useful lives are stated at cost less impairment losses.
Intangible assets include: - goodwill arising on business combinations - licences for the use of radio frequency spectrum for mobile telephony, - licences for computer software, - software that was acquired separately from hardware and used for more than one year, - other intangible assets.
Expenditure on licences for the use of radio frequency spectrum for mobile telephony is capitalised is capitalised and amortised on a straight-line basis over the contract period of the relevant license, which is 9-20 years. Expenditure on licences for computer software is capitalised over the period of between 3 to 5 years, while expenditure incurred on software applications is capitalised at cost and amortised on a straight-line basis over the estimated useful lives which ranges from 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.
At year end, the Group checks for any indications of impairment of intangible assets and if such indicators exist, the recoverable amount of such assets is determined.
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j. Property, plant and equipment Property, plant and equipment owned by the Group are stated at cost or valuation less accumulated depreciation and impairment losses.
The cost of an item of property, plant and equipment includes all expenditures that are necessary to make the asset ready for its intended use including costs of preparing the construction site and easement fees.
Costs of borrowing that may be directly attributed to the acquisition, construction or production of an asset under construction are also a part of the cost of an item of property, plant and equipment.
Estimated cost of restoring the leased base station locations to their 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.
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 recognised in the profit or loss
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 cost, while land, buildings, cable and lines and exchange switches in fixed lines operations are carried at fair value on the revaluation day less cost of depreciation and impairment losses. Other items of property, plant and equipment are carried at fair value only when an asset’s carrying amount accounts for 20% of total property, plant and equipment, without taking into account assets in the course of construction and advances. The revaluation to fair value of these assets is based on a report of an independent appraiser. When an asset's carrying amount is increased as a result of a revaluation, the increase is credited directly to equity as a revaluation reserves in the statement of comprehensive income after the deduction of deferred tax liabilities.
Transfer of the amount of depreciation on the restated portion of property, plant and equipment from fixed asset's revaluation reserves to retained earnings is carried out by the Group on an ongoing basis.
The Group assesses annually whether there are any internal or external business circumstances that could provide significant indication that the fair value of the assets should be determined i.e. that the assets should be impaired. Fair value is determined with the assistance of an independent appraiser whenever, due to business circumstances, the need arises.
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 useful life of the asset.
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.
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.
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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 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 when incurred.
In the event of subsequent expenditure on the asset, the remaining useful life of the asset is re- assessed. If the asset has already been fully depreciated, the subsequent expenditure is treated as a new item with new useful life.
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 in the income statement on a straight-line basis over the life of the depreciable asset.
Depreciation is accounted for individually on a straight-line basis over the useful lives of an individual items of property, plant and equipment.
Depreciation is calculated individually and the Company is free to determine annual depreciation rates based on the useful life of an individual item of property, plant and equipment.
The estimated useful lives of property, plant and equipment 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 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. Investments 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.
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Investments in debt and equity securities that are classified as available-for-sale are stated at fair value.
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.
Any associated unrealised gains or losses are recognised directly in equity in net amount and as an item of comprehensive income. When the investment is disposed of, the cumulative gain or loss previously recorded in equity is recognised in the income statement and in the statement of comprehensive income as a reclassification.
Available-for-sale investments are recognised (or derecognised) on the date of commitment to purchase or sell.
Interest on debt securities is recognized in the income statement using the effective interest rate.
Loans are stated at amortised cost less impairment losses.
If a long-term investment is designated as available for sale, it is reclassified into non-current assets for sale and recognized at the lower of the carrying amount or fair value, less costs to sell
The Group assesses at each balance sheet date whether financial assets or groups of financial assets are impaired.
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.
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.
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 and recognised as reclassification in the statement of comprehensive income.
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. l. Derivative financial instruments Derivative financial instruments are used to hedge the Group’s exposure to risks arising from financing and investing activities.
Derivative financial instruments are recognized 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: - 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
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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 in the statement of comprehensive income. 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 reclassification is recognised in the statement of comprehensive income. - The ineffective portion of the cash flow hedge is immediately recognised in the income statement.
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.
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 transferred to the income statement. The reclassification is recognised in the statement of comprehensive income. m. Other non-current assets Prepaid rentals and compensations are deferred over the contract period and are progressively transferred to rental expenses.
Sale incentives given to subscribers are recognised in the amount by which the equipment’s cost exceeds its selling price, under the condition that subsidies shall be covered by the average subscription fee earned over the expected life of the subscriber contract. Therefore, the difference between the selling price and the cost is reported within deferred costs over the expected subscription period.
Over the period of the subscription agreement, deferred costs are amortised proportionally to the cost of sale incentives, 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.
The Group pays commission to dealers for acquisition of new subscribers of mobile telephony. The amount of commission depends on the type of subscription package. Customer acquisition cost , including sales incentives is expensed pro rata over the contracted subscription period. Cost of commission not related to the customer acquisition is recognized in the profit or loss when incurred. n. Investment property Investment properties are measured initially at costs, including transactions costs, less accumulated depreciation.
Depreciation is calculated individually, on a straight-line basis over the estimated useful lives of the investment property. Land is not depreciated.
The estimated useful lives of investment property are presented below:
Investment property Useful lives in years
- buildings 20 to 50 o. 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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Declining quantities of inventories of merchandise and materials are recognized under the average prices method.
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. p. Trade receivables Trade receivables are recognised at cost less any impairment losses.
Allowances for trade receivables due from local customers are based on the maturity of individual receivables, while the amount of allowance for individual classes of trade receivables is based on the assessed likelihood of their recovery.
Allowances for foreign trade receivables are made individually or based on the previous experience. r. 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. s. Dividends Dividends are recognised as a liability in the period in which they are approved. t. Non-current deferred income Non-current deferred income comprises co-locations billed in advance and lease of optics as well as government grants for fixed assets which are recognised in the amount of monetary assets received.
Non-current deferred income from co-locations and leases are transferred to operating revenue over contractually agreed term of lease or co-location. Government grants are used to cover depreciation costs of assets acquired with the grant and are expensed by transferring them to operating revenue in line with the computed depreciation. u. Provisions A provision is recognized in the financial statements when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. If material, the provisions are determined by discounting the expected future cash flows.
Provisions for probable liabilities from legal actions are formed on the basis of the estimation of the actions' outcome in consultation with legal advisors.
Provisions for termination benefits and anniversary bonuses In accordance with the statutory requirements, the collective agreement, and the internal rules and regulations, the Company is obligated to pay jubilee benefits and termination benefits upon retirement.
Provisions are formed in the amount of estimated future payments of termination benefits and jubilee benefits discounted at the balance sheet date. A calculation is made per individual employees taking into account the cost of termination benefit upon retirement and the cost of all expected anniversary benefits by the time of retirement. At each year-end, the amount of provisions is assessed and either increased or decreased accordingly.
The Group has no other pension liabilities.
Provisions for costs of restoring the lease base station locations to their original condition are made for costs of removal of base stations and restoration of leased property to its original
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Provisions for performance bonds issued are made if their amount can be reliably estimated considering contracts on services rendered. Assessment is made by the relevant company's professional and confirmed by the director. At each year-end, the eligibility of the amount of such provisions is reassessed. v. Interest bearing borrowings Interest-bearing borrowings are recognised initially at amounts from relevant documents that evidence the receipt of cash or payment of an operating debt, which is their fair value.
Subsequent 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 rate basis. z. Trade and other liabilities Trade and other payables are initially stated at cost. Subsequent to initial recognition, trade and other payables are stated at amortised cost. aa. Revenue Revenue includes the sales value of goods sold and services rendered in the accounting period.
The revenue from services is recognised when services are rendered and there are no significant uncertainties regarding recovery of the consideration due.
The revenue consists principally of monthly subscription fees, connection fees, revenue from call charges and charges for other services, revenue from the provision of interconnection services, revenue from network lease and revenue from sale of merchandise.
Revenue from monthly 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 other services rendered to the users is recognised in the period in which calls are made or services are rendered.
The revenue from prepaid cards is deferred and recognised in the period in which calls are made.
Revenue from interconnection services and network lease is recognised in the period in which services are provided.
Revenue from sale of merchandise is recognised when the sale is made.
Revenue from voice services with added value is recognised in net amounts in the period in which services are provided.
Under the customer loyalty programme, customer loyalty credits are accounted for as a separate component of the sales transaction in which they are granted. ab. Customer acquisition costs The 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. Further details are given in note m. - Other non-current assets.
129 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 2009 Annual Report Telekom Slovenia Group ac. Finance income Interest income is recognised in the profit or loss as the interest accrues using the effective interest method (the rate of interest directly discounting estimated future cash flows during the useful 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 dividends are declared. ad. Income tax Income tax for the year 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 is charged or credited directly to equity, if the tax relates to items that are credited or charged, in the same or a different period, directly to equity.
The Group accounts for deferred tax on account of the difference between the carrying amount and fair value of assets of the subsidiaries. ae. Segment reporting Segment disclosures must comply with the requirements of the management for internal use.
The Group has divided segments in to operating segments according to services rendered and geographical segments.
Operating segments are designated as fixed line telephony, mobile telephony, and other services which primarily include services of construction and maintenance of telecommunications networks, publishing of telephone directories and databases, business communications systems integration, and the provision of web-based content.
The Group applies the seat of activity as the criteria for designation of geographical segments, which include Slovene market and foreign markets.
Segment reporting is based on the financial statements of the Telekom Slovenia Group. All sales transactions between individual segments are carried at market value.
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2. Segment reporting
2.1. Operating segments In thousand EUR Fixed line Eliminations telephone Mobile telephone and 2009 services services Other adjustments Consolidated External sales 376,633 437,820 33,054 0 847,507 Inter segment revenue 66,236 53,380 83,288 -202,904 0 1 Segment revenue 442,869 491,200 116,342 -202,904 847,507 Other revenue 3,982 2,766 1,897 -46 8,599 Share of income from joint ventures 3,611
Cost of goods and materials sold -16,815 -36,941 -14,993 16,356 -52,393 Cost of raw materials -9,621 -9,343 -8,214 11,279 -15,899 Cost of services -217,664 -234,439 -54,078 166,397 -339,784 Staff costs -77,517 -50,373 -30,640 5,621 -152,909 Amortisation/depreciation expense -97,527 -98,793 -5,892 -1,570 -203,782 Other operating expenses -13,308 -13,099 -3,218 -1,260 -30,885 Operating expenses -432,452 -442,988 -117,035 196,823 -795,652 2 Profit from operations 14,399 50,978 1,204 -6,127 64,065 Finance income 5,895 Finance expense -32,780 Profit before tax 37,180 Income tax -12,572
Net profit for the year 24,608
Other segment information Segment assets 961,941 840,860 77,150 87,565 3 1,967,516
Investments in associates and joint ventures under equity method 250 250 Capital expenditure in intangible assets 9,925 25,105 4,113 04 39,143 Capital expenditure in PP&E 101,209 53,835 5,387 04 160,431 5 Segment liabilities 141,190 115,651 44,851 617,799 919,491
1Intersegment revenue is eliminated from the consolidation. 2Operating profit of individual segments includes profit from intersegment transactions of 6,127 thousand EUR. 3Segment assets are net of loans of 1,479 thousand EUR, deferred tax assets of 6,546 thousand EUR, income tax receivable of 15,307 thousand EUR and eliminations of intragroup transaction of 64,233 thousand EUR. 4Capital expenditure in intangible assets and property, plant and equipment are inclusive of additional acquisitions of intangible assets, land, buildings and equipment, as well as assets obtained through acquisition of subsidiaries. 5Segment liabilities are net of borrowings of 310,960 thousand EUR, bonds issued of 296,932 thousand EUR, finance lease liabilities of 6,345 thousand EUR, other financial liabilities of 61,960 thousand EUR, deferred tax liabilities of 3,294 thousand EUR, income tax payable of 251 thousand EUR and elimination of intragroup transactions of -61,943 thousand EUR.
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In thousand EUR Fixed line Eliminations telephone Mobile telephone and 2008 services services Other adjustments Consolidated External sales 379,624 441,500 21,200 0 842,324 Inter segment revenue 66,894 41,713 87,237 -195,844 0 1 Segment revenue 446,518 483,213 108,437 -195,844 842,324 Other revenue 6,449 1,160 1,821 -19 9,411 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 -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 2 Profit from operations 37,748 83,867 7,000 -4,986 128,496 Finance income 7,601
Finance expense -21,192 Profit before tax 114,905 Income tax -28,920
Net profit for the year 85,985
Other segment information 3 Segment assets 962,679 745,656 72,740 7,288 1,788,363
Investments in associates and joint ventures under equity method 895 895 4 Capital expenditure in intangible assets 12,240 14,703 1,076 0 28,019 Capital expenditure in PP&E 119,898 90,770 3,874 04 214,542 5 Segment liabilities 177,824 98,790 39,697 406,382 722,693
1Intersegment revenue is eliminated from the consolidation. 2Operating profit of individual segments includes profit from intersegment transactions of 4,986 thousand EUR. 3Segment assets are net of loans of 5,202 thousand EUR, deferred tax assets of 4,275 thousand EUR, income tax receivable of 4,399 thousand EUR and elimination of intragroup transaction of -6,588 thousand EUR. 4Capital expenditure in intangible assets and property, plant and equipment are inclusive of additional acquisitions of intangible assets, land, buildings and equipment, as well as assets obtained through acquisition of subsidiaries. 5Segment liabilities are net of borrowings of 418,576 thousand EUR, income tax payable of 1,954 thousand EUR and elimination of intragroup transactions of -14,148 thousand EUR.
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2.2. Geographical segments
Eliminations and 2009 Slovenian market Foreign markets adjustments Consolidated External sales 753,236 94,271 0 847,507 Inter segment revenue 162,876 40,028 -202,904 0 1 Segment revenue 916,112 134,299 -202,904 847,507 Other revenue 6,421 2,224 -46 8,599 Share of income from joint ventures 3,611
Cost of goods and materials sold -61,585 -7,164 16,356 -52,393 Cost of raw materials -24,151 -3,027 11,279 -15,899 Cost of services -428,422 -77,759 166,397 -339,784 Staff costs -147,000 -11,530 5,621 -152,909 Amortisation/depreciation expense -168,859 -33,353 -1,570 -203,782 Other operating expenses -22,383 -7,242 -1,260 -30,885 Operating expenses -852,400 -140,075 196,823 -795,652 2 Profit from operations 70,133 -3,552 -6,127 64,065 Finance income 5,895 Finance expense -32,780 Profit before tax 37,180 Income tax -12,572
Net profit for the year 24,608
Other segment information Segment assets 1,475,423 404,528 87,565 3 1,967,516
Investments in associates and joint ventures under equity method 5 245 0 250 Capital expenditure in intangible assets 18,785 20,358 04 39,143 4 Capital expenditure in PP&E 105,664 54,767 0 160,431 5 Segment assets 245,575 56,117 617,799 919,491
1Intersegment revenue is eliminated from the consolidation. 2Operating profit of individual segments includes profit from intersegment transactions of 6,127 thousand EUR. 3Segment assets are net of loans of 1,479 thousand EUR, deferred tax assets of 6,546 thousand EUR, income tax receivable of 15,307 thousand EUR and elimination of intragroup transactions of 64,233 thousand EUR. 4Capital expenditure in intangible assets and property, plant and equipment are inclusive of additional acquisitions of intangible assets, land, buildings and equipment, as well as assets obtained through acquisition of subsidiaries. 5Segment liabilities are net of borrowings of 310,960 thousand EUR, bonds issued of 296, 932 thousand EUR, financial lease liabilities of 6,345thousand EUR, other financial liabilities of 61,960 deferred tax liabilities of 3,294 thousand EUR, income tax payable of 251 thousand EUR and elimination of intragroup transactions of -61.943 thousand EUR.
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In thousand EUR
Eliminations and 2008 Slovenian market Foreign markets adjustments Consolidated External sales 796,122 46,202 0 842,324 Inter segment revenue 171,422 24,422 -195,844 0 1 Segment revenue 967,544 70,624 -195,844 842,324 Other revenue 8,017 1,413 -19 9,411 Share of income from joint ventures 4,867
Cost of goods and materials sold -68,940 -2,746 11,226 -60,460 Cost of raw materials -28,157 -1,417 20,037 -9,537 Cost of services -417,378 -42,722 154,137 -305,963 Staff costs -146,216 -5,813 7,478 -144,551 Amortisation/depreciation expense -167,087 -17,150 487 -183,750 Other operating expenses -19,199 -2,158 -2,488 -23,845 Operating expenses -846,977 -72,006 190,877 -728,106 2 Profit from operating 128,584 31 -4,986 128,496 Finance income 7,601 Finance expense -21,192 Profit before tax 114,905 Income tax -28,920
Net profit for the year 85,985
Other segment information 3 Segment assets 1,564,3561 216,719 7,288 1,788,363
Investments in associates and joint ventures under equity method 6 889 0 895 4 Capital expenditure in intangible assets 23,396 4,623 0 28,019 Capital expenditure in PP&E 162,885 51,657 04 214,542 Segment assets 296,093 20,218 406,382 5 722,693
1Intersegment revenue is eliminated from the consolidation. 2Operating profit of individual segments includes profit from intersegment transactions of 4,986 thousand EUR. 3Segment assets are net of loans of 5,202 thousand EUR, deferred tax assets of 4,275 thousand EUR, income tax receivable of 4,399 thousand EUR and elimination of intragroup transactions of -6,588 thousand EUR. 4Capital expenditure in intangible assets and property, plant and equipment are inclusive of additional acquisitions of intangible assets, land, buildings and equipment, as well as assets obtained through acquisition of subsidiaries. 5Segment liabilities are net of borrowings of 418,576 thousand EUR, income tax payable of 1,954 thousand EUR and elimination of intragroup transactions of -14,148 thousand EUR.
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3. Revenue In thousand EUR 2009 2008
Voice telephony 151,748 162,494 Voice transfer through IP network 5,717 6,918 Mobile telephone services 338,188 369,160 Internet and broadband access 94,191 76,243 Interconnections 43,794 38,566 International operator services 82,292 77,480 Bandwith lease 22,175 17,744 Unbundled access and collocations 14,349 13,682 Voice services with added value 2,341 2,448 Data transfer services 20,174 22,624 Network construction and maintenance 8,213 3,807 Sale of advertising space 8,370 11,024 Other services 17,678 10,048 Sale of merchandise and matetrials 34,953 29,263 Other revenue 3,324 83
Total revenue 847,507 842,324
4. Other income In thousand EUR 2009 2008
Government grants 745 90 Gains on disposal of property, plant and equipment 1,443 3,288 Other revaluation operating income 329 0 Other income 6,082 6,033
Total other income 8,599 9,411
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5. Cost of services In thousand EUR
2009 2008
Communication and transportation services and rent 12,279 12,666 Maintenance 35,611 22,157 Telecommunication services 144,834 146,145 Leased lines 4,778 3,286 Ssale incentives 19,470 15,423 Professional services 17,359 16,694 Iinsurance, marketing and entertainment 36,167 39,562 Sales commission 8,967 8,048 Banking services 2,623 2,922 Multimedia content 14,078 11,430 Other services 43,618 27,630
Total costs of services 339,784 305,963
6. Staff costs In thousand EUR 2009 2008 Wages and salaries 109,527 102,722 Social security contributions 23,408 19,789 Other staff costs 19,974 22,040 Total staff costs 152,909 144,551
The average number of employees in the Group in the year under review was 4,973 (in 2008: 4,435).
7. Other operating expenses In thousand EUR 2009 2008 Provision (Note 25) 400 2,633 Loss on disposal of property, plant and equipment 2,818 0 Impairment and write-offof current assets 11,225 11,015 Other expensess 16,442 10,197 Total other operating expenses 30,885 23,845
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8. Finance income
In thousand EUR
2009 2008 Dividends 518 716 Interest income 4,207 5,080 Foreign exchange gain 127 708 Change in fair value of derivative financial instruments 0 24 Other finance income 1,043 1,073 Total finance income 5,895 7,601
9. Finance expenses In thousand EUR 2009 2008 Interest expense 27,529 19,810 Change in fair value of derivative financial instruments 4,601 1,063 Other financial expenses 650 319 Total fianance expenses 32,780 21,192
10. Income tax
Income tax expense recognised in the income statement In thousand EUR 2009 2008 Current tax expense -14,856 -32,952 Deferred tax assets/liabilities 2,284 4,032 Income tax expense in the income statement -12,572 -28,920
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Reconciliation of actual and computed tax expense taking into account effective tax rate In thousand EUR 2009 2008
Profit before tax 37,180 114,905
Income tax using the domestic corporation tax rate of 21% (2008: 22%) -7,808 -25,279 Current year tax loss not recognised as deferred tax asset -3,235 -2,274 Tax-free dividends 26 53 Non-deductible expenses -2,265 -2,459 Change in tax rate -39 -7 Tax incentives used in the current period 1,869 1,763 Reversal of tax incentives used in previous periods -48 -132 Effect on lower tax rate -1,586 166 Other 514 -751 Total income tax expense -12,572 -28,920
In 2009, effective tax rate was 33.81% (2008: 25,17%).
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 recognised in the income statement is attributable to the following items In thousand EUR 2009 2008 Intangible assets 18 232 Property, plant and equipment 1,984 2,729 Investments 0 0 Provisions -232 -45 Receivables and inventories 542 1,239 Accrued costs -28 -29 Other 0 -94 Deferred tax credit/expense 2,284 4,032
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Deferred tax recognised in equity In thousand EUR 2009 2008 Change in fair value of available-for-sale investments 7 -543 Change in fair value of financial instruments designated as hedges 19 217 Property, plant and equipment 0 2 Deferred tax assets/liabilities 26 -324
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 thousand EUR 2009 2008 Net profit attributable to holders of ordinary shares of the parent company 24,608 85,818 Adjusted net profit attributable to holders of ordinary shares of the parent company 24,608 85,818 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 in 2009 In thousand EUR Other intangible Intangibles in 2009 Goodwill Licenses Software assets construction Total COST Balance at 1.1.2009 57,652 206,045 105,569 8,517 13,789 391,572 Translation to the presentation currency 0 -431 -78 -61 0 -570 Additions 9,280 5,728 3,757 82 22,798 41,645 Acquisition of new subsidiaries 44,111 39,239 8,432 21,762 0 113,544 Transfer to use 0 978 17,438 835 -19,251 0 Disposals 0 -1,704 -5,000 -541 -76 -7,321 Other transfers 1 0 0 -11,157 2,181 23 -8,953 Goodwill allocation -6,292 0 0 6,292 0 0 Balance at 31.12.2009 104,751 249,855 118,961 39,067 17,283 529,917 ACCUMULATED AMORTIZATION Balance at 1.1.2009 0 62,232 73,589 607 0 136,428 Translation to the presentation currency -107 -60 -10 -177 Acquisition of new subsidiaries 0 9,051 5,047 189 0 14,287 Disposals 0 -1,379 -4,059 -418 0 -5,856 Amortisation 0 15,068 16,518 5,071 0 36,657 Other tranfers 1 0 0 -3,373 -229 229 -3,373 Balance at 31.12.2009 0 84,865 87,662 5,210 229 177,966 CARRYING AMOUNT Balance at 1.1.2009 57,652 143,813 31,980 7,910 13,789 255,144 Balance at 31.12.2009 104,751 164,990 31,299 33,857 17,054 351,951
1Other transfers comprise transfers between intangible assets and property, plant and equipment, as well as transfers between groups of assets.
All the items of intangible assets, except goodwill, have finite useful lives and are amortized on a straight-line basis.
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The movement in intangible assets in 2008 In thousand EUR Other intangible Intangibles in 2008 Goodwill Licenses Software assets construction Total COST Balance at 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 subsidiaries 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 Balance at 31.12.2008 57,652 206,045 105,569 8,517 13,789 391,572 ACCUMULATED AMORTIZATION Balance at 1.1.2008 124 48,581 61,106 3,016 0 112,827 Additions 0 1,680 0 0 0 1,680 Acquisition of subsidiaries 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 Balance at 31.12.2008 0 62,232 73,589 607 0 136,428 CARRYING AMOUNT Balance at 1.1.2008 42,836 149,801 24,852 11,491 10,101 239,081 Balance at 31.12.2008 57,652 143,813 31,980 7,910 13,789 255,144
Goodwill The increase in the goodwill relates to the acquisition of SIOL, B.V. and Germanos Telecom, d. d., while reduction in goodwill represents final allocation of consideration of a temporary goodwill upon acquisition of Primo, d. o. o. and Aneks d. o. o., which is further described in note 14.
The Group assesses annually if there are any indications of goodwill impairment. For the purpose of goodwill impairment test, the Group determines value in use using the discounted cash flow model. As at 31 December 2009, there were no indications of goodwill impairment.
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 the cash flow projections approved by the Management Board covering a seven year period. The pre tax discount rate applied to cash flow projections was 15.4% and cash flow projections beyond seven year period were extrapolated at 4% annual growth rate. The management reassessed the recoverable amount and found no signs of impairment of this cash-generating unit to which goodwill of 46,019 thousand EUR is attributed..
The recoverable amount of goodwill arising from the acquisition of SIOL, B.V., Germanos Telecom, d. d. and On.net, d. o. o. has been determined based on the value in use calculation using the cash flow projections approved by the Management Board covering a seven year period. The pre tax discount rate applied to cash flow projections was 13.5% and cash flow projections beyond seven year period were extrapolated at 4% annual growth rate. The management reassessed the recoverable amount and found no signs of impairment of theses cash-generating units to which goodwill of 48,701 thousand EUR is attributed.
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Licences Licences represent licences for the use of radio frequency spectrum GSM 900 and 1800, and UMTS mobile telephony on the territory of the Republic of Slovenia, GSM licence in Kosovo, and GSM 900 and UMTS licences in Macedonia.
The carrying amount of the UMTS licence obtained in Slovenia amounts to 48,583 thousand EUR (2008: 52,725 thousand EUR), while the carrying amount of GSM licence amounts to 4,134 thousand EUR; the carrying amount of GSM licence in Kosovo amounts to 61,048 thousand EUR (2008: 65,833 thousand EUR); the carrying amount of GSM licence in Macedonia is 19,092 thousand EUR, and UMTS licence 8,965 thousand EUR.
13. Property, plant and equipment
The movements in property, plant and equipment in 2009 In thousand EUR Network equipment Land and Cables Switching of mobile Other Assets under 2009 buildings and lines exchanges operations equipment construction Advances Total
COST
Balance at 1.1.2009 279,271 1,032,795 282,994 589,838 422,175 44,941 1,176 2,653,190 Translation to the presentation currency -165 3 0 -1,404 -103 -136 1 -1,804
Additions 0 6,779 97 8,560 4,739 133,765 6,491 160,431 Acquisition of new subsidiaries 15,464 0 0 126,816 14,729 12,509 6 169,524 Transfer from assets under construction 0 31,660 6,577 32,264 47,098 -117,523 -76 0
Disposals, write-offs -5,201 -730 -3,241 -4,173 -29,796 -769 -203 -44,113 1 Other transfers -26 13,571 0 11,925 -16,129 -390 0 8,951
Balance at 31.12.2009 289,343 1,084,078 286,427 763,826 442,713 72,397 7,395 2,946,179
ACCUMULATED DEPRECIATION
Balance at 1.1.2009 42,484 611,191 242,495 287,640 293,741 0 0 1,477,551 Translation to the presentation currency -72 0 0 -667 -72 -811 Acquisition of new subsidiaries 6,557 0 0 57,241 8,180 0 0 71,978
Disposals, write-offs -545 -478 -2,977 -1,021 -23,376 0 0 -28,397
Depreciation 9,114 43,494 11,597 61, 881 41,039 0 0 167,125 1 Other transfers -6 6,000 0 3,552 -6,177 3,369
Balance at 31.12.2009 57,532 660,207 251,115 408,626 313,335 0 0 1,690,815
CARRYING AMOUNT
Balance at 1.1.2009 236,787 421,604 40,499 302,198 128,434 44,941 1,176 1,175,639
Balance at 31.12.2009 231,811 423,871 35,312 355,200 129,378 72,397 7,395 1,255,364
1Other transfers comprise transfers between intangible assets and property, plant and equipment, as well as transfers between groups of assets.
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The movements in property, plant and equipment in 2008 In thousand EUR Network equipment Land and Cables Switching of mobile Other Assets under 2008 buildings and lines exchanges operations equipment construction Advances Total
COST
Balance at 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 subsidiaries 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 between accounts 0 0 -19,155 16,017 3,138 0 0 0
Balance at 31.12.2008 279,271 1,032,795 282,994 589,838 422,175 44,941 1,176 2,653,190 ACCUMULATED DEPRECIATION
Balance at 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 subsidiaries 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
Balance at 31.12.2008 42,484 611,191 242,495 287,640 293,741 0 0 1,477,551
CARRYING AMOUNT
Balance at 1.1.2008 210,125 397,517 61,560 264,248 135,924 64,796 1,241 1,135,411
Balance at 31.12.2008 236,787 421,604 40,499 302,198 128,434 44,941 1,176 1,175,639
Land and buildings, cables and lines, switching exchanges and other equipment are stated at fair value, while 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. Business combinations
Acquisition of SIOL, B.V., the Netherlands In June 2009, Telekom Slovenije, d. d. acquired a 100% share of SIOL, B.V., the Netherlands, a company who holds a 100% interest in Cosmofon, d. d. in Macedonia, which has changed its name to ONE, d. d. and is provider of integrated communications services on Macedonian market.
Fair value of identifiable assets and liabilities of the SIOL, B.V., Group on acquisition date: In thousand EUR Carrying amount of net assets Fair value of net assets Intangibles 37,398 55,120 Property, plant and equipment 96,837 96,837 Trade receivables 22,589 22,589 Inventory 2,663 2,663 Cash and cash equivalents 2,640 2,640 Total assets 162,127 179,849
Supplier payables -20,519 -20,519 Deferred tax liabilities 0 -1,772 Interest bearing borrowings 0 0 Other current liabilities -12,972 -12,972 Total liabilities -33,491 -35,263
Fair value of net assets 128,636 144,586 Consideration paid and liabilities assumed -183,991 Goodwill -39,405
Consideration paid -183,991 Cash flow on acquisition 2,640 Net assets on acquisition -181,351
Final allocation of consideration is accounted for in the above table.
From the date of the acquisition, SIOL, B.V. has incurred 13,648 thousand EUR of losses.
Acquisition of Germanos, Telecom, d. d., Macedonia In June 2009, the parent company Telekom Slovenije, d. d. acquired 100% share of Germanos Telecom, d. d., Macedonia; the Company markets and sells services provided by ONE, d. d..
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Fair value of identifiable assets and liabilities of Germanos Telecom, d. d. on acquisition date:
In thousand EUR Carrying amount of net assets Fair value of net assets Intangibles 26 26 Property, plant and equipment 955 955 Other non-current assets 78 78 Trade receivables 1,380 1,380 Inventory 636 636 Cash and cash equivalents 211 211 Total assets 3,286 3,286
Supplier payables -2,172 -2,172 Interest bearing borrowings 0 0 Other current liabilities -14 -14 Total liabilities -2,186 -2,186
Fair value of net assets 1,100 1,100 Consideration paid and liabilities assumed -5,435 Goodwill -4,335
Consideration paid -5,435
Cash flow on acquisition 211 Net assets on acquisition -5,224
Final allocation of consideration is accounted for in the above table.
From the date of the acquisition, Germanos Telecom, d. d. has incurred 1,759 thousand EUR of losses.
Acquisition of Aneks d. o. o., Bosnia and Herzegovina In January 2008, Telekom Slovenije, d. d. acquired a 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 a single company Aneks, d. o. o.. Aneks, d. o. o. is internet provider in Bosnia and Herzegovina market. In the financial statements for the year ended 31 December 2008, the allocation of consideration had not been finalized and accordingly, the total difference between consideration paid and net value of acquired assets was recognized as goodwill.
Final allocation of consideration paid resulted in an increase of other intangible assets of 4,867 thousand EUR and the relevant reduction in goodwill. Comparative data for the financial year 2008 were restated accordingly to reflect the adjustment.
Increase in depreciation costs as a result of consideration allocation from the date of acquisition to 31 December 2008 is insignificant.
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Acquisition of Primo, d. o. o., Albania In February 2008, Telekom Slovenije, d. d. acquired a 75% stake in the company AOLSP, d. o. o., Tirana, which is an Internet provider on Albanian market. During the year the company assumed a new name of Primo, d. o. o..
In the financial statements for the year ended 31 December 2008, the allocation of consideration had not been finalized and accordingly, the total difference between consideration paid and net value of acquired assets was recognized as goodwill.
Final allocation of consideration paid resulted in an increase of intangible assets of 1,582 thousand EUR and the relevant reduction in goodwill. Comparative data for the financial year 2008 were restated accordingly to reflect the adjustment.
Increase in depreciation costs as a result of consideration allocation from the date of acquisition to 31 December 2008 is insignificant.
15. Other investments In thousand EUR 2009 2008 Investments in equity securities of banks 4,571 5,221 Investments in other equity securities 5,685 5,222 Loans to other entities 925 4,581 Loans to employees 2,257 2,727 Receivables from the sale of apartments 44 71 Loans to TK subscribers 47 150 Other non-current financial assets 1,132 553 Total other invesments 14,661 18,525
All investments in equity securities are classified as available for sale. Of total 10,256 thousand EUR of available-for-sale equity securities in the Group financial statements, equity securities in the amount of 5,084 thousand EUR (2008: 5,123 thousand EUR) 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 of the accounting policies and Note 34). 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 thousand EUR 2009 2008 Long-term prepaid rentals 11,889 10,939 Long-term deferred sale incentives 14,888 17,213 Other non-current assets 512 1,426 Total other non-current assets 27,289 29,578
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Movements in long-term prepaid rentals and deferred sale incentives
In thousand EUR Rentals Sales incentives Balance at 01.01.2008 10,275 10,649 Increase 2,233 20,868 Transfer to expenses -1,569 -14,304 Balance at 31.12.2008 10,939 17,213 Increase 2,678 17,678 Transfer to expenses -1,728 -20,003 Balance at 31.12.2009 11,889 14,888
17. Investment property
Investment properties are stated at cost.
Movement in investment property In thousand EUR 2009 2008 Balance at 01.01.2009 5,253 5,715 Increase 0 92 Decrease -86 -481 Depreciation of buildings -46 -73 Balance at 31.12.2009 5,121 5,253
The fair value of investment property approximates to its book value. In 2009, the revenue from property lease reached 82 thousand EUR (2008: 77 thousand EUR).
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 2009, applicable tax rate was 21% (2008: 22%).
In thousand EUR
2009 2008 Intangible assets -1,734 1,631 Property, plant and equipment -2,173 -4,193 Investments and financial assets -423 -451 Trade receivables 3,109 2,524 Inventories -16 0 Other non-current assets 121 149 Provisions 4,368 4,615 Deferred tax assets/liabilities 3,252 4,275
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19. Inventories
In thousand EUR 2009 2008 Material 6,803 6,745 Finished products 506 362 Merchandise 17,686 21,309 Advances 3 5 Total inventories 24,998 28,421
As at 31 December 2009, inventories were revaluated to their recoverable amount and impairment loss in the amount of 603 thousand EUR was recognised (2008: 696 thousand EUR).
20. Trade and other receivables
In thousand EUR 2009 2008 Trade receivables 134,489 117,385 Receivables from foreign operators 20,571 19,123 Receivables due from domestic operators 38,193 22,584 Advances 3,005 2,573 VAT and other tax receivables 17,990 18,951 Deferred costs and accrued income 12,723 10,555 Current amounts of sale incentives 6,701 9,779 Other receivables 1,675 2,995 Provision for impairment -30,851 -16,028 Total trade and other receivables 204,496 187,917
Trade receivables are non-interest bearing.
Movement of impairment allowance
In thousand EUR 2009 2008 Balance at 01.01.2009 -16,028 -10,752 Acquisition of new subsidiaries -10,194 0 Impairment allowance during the year -13,933 -10,825 Reversal 6,890 2,978 Utilization 2,395 2,571 F/X differences 19 0 Balance at 31.12.2009 -30,851 -16,028
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At 31 December 2009, age structure of trade receivables that that were past due but not impaired is as follows In thousand EUR Neither past Past due due nor and Total impaired im paired Past due but not impaired
Up to 30 More than days 31-60 days 61-90 days 91-120 days 120 days 2009 204,496 133,810 9,628 28,291 9,729 5,650 8,192 9,196 2008 187,917 138,140 5,198 20,515 4,973 3,250 3,916 11,925
21. Current financial assets In thousand EUR 2009 2008 Other loans 554 621 Term deposits 0 20,500 Total current financial assets 554 21,121
22. Cash and cash equivalents In thousand EUR 2009 2008 Cash in hand and bank balances 19,208 8,743 Deposits with banks with maturity of up to three months 2,002 10,102 Total cash and cash equivalents 21,210 18,845
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 thousand EUR. It is divided into 6,535,478 ordinary shares.
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Ownership structure as of 31 December 2009 Shareholder Number of shares Share in % Republic of Slovenia 3,434,021 52.54 Slovenska odškodninska družba, d. d. 931,387 14.25 Kapitalska družba, d. d. 365,175 5.59 PID - DZU 208,455 3.19 Legal entities 553,223 8.46 Individual shareholders 693,068 10.61 Other shareholders 350,149 5.36 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 2009.
Reserves Initially, 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.
Structure of reserves
In thousand EUR 2009 2008 Capital surplus 150,621 145,596 Reserves for treasury shares and interests 3,671 3,671 Legal reserves 51,449 51,348 Statutory reserves 105,005 105,005 Other reserves 273,624 245,063 Total reserves 584,370 550,683
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 treasury shares are formed in the amount paid for these shares. These reserves are not distributable. The Group has not acquired any additional treasury shares during the 2009 financial year.
The Group can transfer up to 50% of current year profits, reduced by amounts allocated to legal reserves and statutory reserves, 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.
According to the resolution of the Shareholders' meeting held on 30 June 2009, total retained earnings of 68,526 thousand EUR was appropriated as follows: 39,033 thousand EUR to dividend
150 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 2009 Annual Report Telekom Slovenia Group payout (2008: 83,270 thousand EUR), representing a dividend of 6.00 EUR per share (2008: 12,80 EUR), while 29,493 thousand EUR was unappropriated and transferred to retained earnings.
Dividend proposed Proposed for approval at AGM 19,516,434.00 EUR Dividend per ordinary shares 3.00 EUR
Treasury shares In 2003, the Group acquired 30,000 of treasury shares in the normal amount of 1,252 thousand EUR representing 0.46% of the Group's share capital.
Fixed asset revaluation reserve 2,655 thousand EUR of revaluation reserves relating to property, plant and equipment was transferred to retained earnings. In addition, 5,043 thousand EUR of revaluation reserve relating to additional depreciation resulting from the revaluation of property, plant and equipment was transferred to capital surplus. The revaluation reserve is not distributable.
Other revaluation reserves Other revaluation reserves relate to the revaluation of available-for-sale financial assets and the fair value of derivatives designated as cash flow hedges.
24. Non-current deferred income In thousand EUR 2009 2008 Co-location billed in advance 6,704 7,165 Government grants 898 1,528 Other 926 476 Total non-current deferred income 8,528 9,169
Co-location relates to payments received in advance for renting certain premises and equipment to other operators.
25. Provisions In thousand EUR Utilization 31.12.2008 and reversal Formation 31.12.2009 Provisions for probable payments resulting from legal actions 17,774 -1,076 141 16,839 Provisions for terminal benefits on retirement 8,791 -397 525 8,919 Cost of base station removals 3,590 -35 357 3,912 Other 425 -156 590 859 Total provisions 30,580 -1,664 1,613 30,529
Provisions for probable payments resulting 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.
Total damages claimed by pending legal actions brought against the Group amount to 256,807 thousand EUR, of which the largest claim of 129,557 thousand EUR was brought by T-2 d. o. o., 34,348 thousand EUR by Sinfonica, d. d., Sky.net, d. o. o. 33,047 thousand EUR and Tuš Telekom,
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An agreement on settlement of mutual obligations was signed for one of the major claims brought against the Company by AMIS, d. o. o. of 56,825 thousand EUR.
In 2005, a law firm Colja Rojs & partnerji o.p., d.n.o. was engaged to represent Mobitel, d. d. in the legal proceedings started by Western Wireless International, d.o.o.. Western Wireless International, d.o.o, claimed damages of 203,868 thousand EUR, 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. As a result of unsuccessful negotiations in 2008 the law firm started legal action in the amount of 5,137 thousand EUR.
Provisions for termination benefits 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% (2008: 5%).
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 34 - Financial risk management.
In thousand EUR
2009 2008 Non-current borrowings Borrowings from foreign banks 220,242 295,385 - current portion of non-current borrowings -32,755 -100,142 - non-current portion of borrowings 187,487 195,243
Borrowings from domestic banks 72,290 66,747 - current portion of non-current borrowings -5,133 -20,952 - non-current portion of borrowings 67,157 45,795
Other borrowings 39 825 - current portion of other borrowings 0 -824 - non-current portion of other borrowings 39 1
Other 0 106 Total non-current borrowings 254,683 241,145
Current borrowings Borrowings from domestic banks 18,249 55,000 Current portion of non-current borrowings from foreign banks 32,755 100,142 Current portion of non-current borrowings from domestic banks 5,133 20,952
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Current portion of other borrowings 0 824 Interest from loans 140 488 Other 0 25 Total current borrowings 56,277 177,431
Contractual terms agreed on borrowings
In thousand EUR Non- current Current Maturity Final portion portion over 5 Contractual rate of instalment 31.12.2009 31.12.2009 years interest due Collateral 3 m EURIBOR + 0.330% 2010 - 2011 None 3 m EUR IBOR + 1.900% 2014 None 1 m EURIBOR + 2.100% 2014 None Non- 3 m EURIBOR + 2.900% 2014 None current 6 m EURIBOR – 0.025% 2017 None 254,644 37,888 59,245 borrowings 3 m EURIBOR + 0.083% 2017 None from banks 3 m EURIBOR – 0.018% 2017 None 3 m EURIBOR + 0.105% 2017 None 3 m EURIBOR + 0.700% 2011 None 5.950% to 7.200% 2012 - 2014 None
Non-current
liabilities to 39 - others
Current 4.500% to 6.300
borrowings 3 m EURIBOR + 2.500% - 18,249 - 2010 Bills of exchange from banks 3 m EURIBOR + 6.000%
Borrowings from the 223,688 84,838 None group
Borrowings from foreign banks are denominated in Euro. 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.
At the balance sheet date, borrowings from EIB in the total amount 190,243 thousand EUR, mature gradually by 2017 (2008: 230,385 thousand EUR). Borrowings from a syndicate of commercial banks (90% participation of domestic banks) in the amount of 50,000 thousand EUR (2008: 130,000 thousand EUR), are repayable in 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.
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27. Other non-current liabilities In thousand EUR 2009 2008 Bonds issued 296,932 0 Put options 22,947 63,190 - Najdi, informacijske storitve, d. o. o., previously Interseek, d. o. o. 0 2,850 - Ipko, d. o. o. 13,502 50,875 - On.net, d. o. o. 1,800 1,800 - Aneks, d. o. o. 5,070 5,070 - Primo, d. o. o., previously AOLSP, d. o. o. 2,575 2,575 Finance lease 4,940 0 Other non-current liabilities 1,547 719 Total other non-currant liabilities 326,366 63,909
In December 2009, Telekom Slovenije, d. d. issued bonds in the notional amount of 300,000 thousand EUR. Bonds bear interest at the rate of 4.875% and mature in December 2016. They are measured at the amortised cost method using effective interest rate of 5.047%; however, when considering tax on interest paid, the rate of interest is 6.265%.
In accordance with the reassessed value of Ipko, d. o. o., in 2009 the put option of minority shareholders was increased to 71,064 thousand EUR. In December 2009, these put options were exercised to the amount of 57,562 thousand EUR resulting in an increase of the ownership share of Telekom Slovenije, d. d. to 93.11%.
28. Trade and other payables In thousand EUR 2009 2008 Trade payables 103,431 117,035 Payables to domestic operators 14,979 9,393 Payables to foreign operators 16,564 8,886 VAT and other taxes payable 8,146 6,806 Payables to employees 10,538 10,750 Advances 684 192 Other payables 4,249 6,178 Total trade and other payables 158,591 159,240
Trade payables are non interest bearing and are normally settled on 8 to 180 days term. Payables to operators are non interest bearing and are normally settled on 15 to 40 days term.
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29. Other short-term financial liabilities
In thousand EUR
2009 2008 Acquisition of additional share in a subsidiary 32,181 73 Interest swap 5,271 1,338 Finance lease 1,405 0 Other financial liabilities 14 0 Total other current financial liabilities 38,871 1,411
Liabilities for acquisition of additional share in a subsidiary relates to a put option exercised by the minority shareholders of Ipko, d. o. o..
30. Short-term deferred income In thousand EUR 2009 2008 Mobile telephony prepaid cards 4,655 2,447 Subscriptions billed in advance and short-term co-locations 13,986 13,729 Current portion of government grants for PPE 130 111 Other deferred income 467 2,150 Total short-term deferred income 19,238 18,437
31. Commitments
The Group as a lessee Non cancellable liabilities for operating leases payments for the lease of property plant and equipment.
In thousand EUR Payable in 2009 2008 - 1 year 17,099 7,416 - 1 year to 2 years 7,665 6,948 - 3 years to 5 years 12,101 11,916 - 5 years and over 22,629 26,816 Total 59,494 53,096
Total cost of operating leases for the 2009 financial year amounted to 19,779 thousand EUR (2008: 13,578 thousand EUR).
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The Group as a lessor Receivables from operating leases refer to lease of property, plant and equipment.
In thousand EUR Payable in 2009 2008 - 1 year 726 736 - 1 year to 2 years 1,450 419 - 3 years to 5 years 1,450 419 - 5 years and over 3,627 1,048 Total 7,253 2,622
In 2009, total amount of rentals reported in the income statement was 5,355 thousand EUR (2008: 5,298 thousand EUR).
Capital commitments At 31 December 2009, the Group has commitments of 4,707 thousand EUR, principally relating to the completion of mobile network (2008: 3,402 thousand EUR).
32. Contingent liabilities In thousand EUR 2009 2008 Contingent liabilities from legal actions 304,469 299,382
At the balance sheet date, there were 68 pending legal actions brought against the Group companies in the total amount of 304,469 thousand EUR (2008: 299,382 thousand EUR). Based on the opinion of legal advisors the managing board expects the liability from the said legal actions to amount to 16,839 thousand EUR (Note 25).
33. 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 2,109 shares of Telekom Slovenije, d. d., representing a 0.03 % shareholding.
In 2009, no loans were granted to related individuals.
Cost of wages and salaries In thousand EUR 2009 2008 Managing Board 1,157 1,223 Supervisory Board 90 267 Total of wages and salaries 1,247 1,490
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Disclosures relating to Management Board, Supervisory Board and other managers on individual contracts In thousand EUR Loans Receipts from participation in profits based on the Total decision of the Outstanding at Repaid in Trade receipts General Assembly 31.12.2009 2009 receivables Members of the Management Board 1, 157 - - - - - Dremelj Bojan 243 - - - - - Miti č Dušan 228 - - - - - Ogris-Marti č Filip 232 - - - - - Pulji č Željko 233 - - - - - Senica Darja 221 - - - - Members of the Supervisory Board 90 - - - - Other managers on individual contracts 3,577 - 185 24 6
Loans to other managers were approved at interest rates from 3.35% to 4.53% with term of 10 to 20 years.
The Group has not granted any advances or guarantees.
Break-down of receipts of members of the Management Board In EUR Reimburs Other Annual ement of Holiday Insurance payments- Salary bonus cos ts pay premiums Benefits PDPZ II* Total
Dremelj Bojan 190,646 34,751 2,108 1,085 2,272 10,029 2,605 243,496 Miti č Dušan 181,775 30,395 4,712 1,085 479 6,905 2,605 227,956 Ogris-Marti č Filip 181,418 30,342 6,956 1,085 2,440 6,905 2,605 231,751 Pulji č Željko 185,480 31,535 4,433 1,085 3,003 5,232 2,605 233,373 Senica Darja 181,590 29,148 1,648 1,085 2,314 2,424 2,605 220,814
Total 920,909 156,171 19,857 5,425 10,508 31,495 13,025 1,157,390
Salaries are not broken-down to fixed and variable part. In 2009, members of the Management Board did not receive any shares in the profit, options, commission or any other payments.
*PDPZII - Voluntary additional retirement insurance
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Break-down of receipts of members of the Supervisory Board In EUR Travel Meeting fees Committees expenses Total
External members from 01.01. to 25.04 2009 Brodnik Andrej 1,650 - - 1,650 Štrukelj Borut 2,475 1,650 957 5,082 Koletnik Damjan 3,217 2,723 - 5,940 Ponikvar Karmen 2,475 3,217 - 5,692 Žakelj Pavel 4,373 3,300 1,001 8,674 Groznik Peter 3,300 - 1,221 4,521
External members from 26.04. to 31.12. 2009 Berginc Tomaž 5,005 1,430 - 6,435 Kalin Tomaž 3,850 1,650 198 5,698 Kafol Ciril 3,575 715 - 4,290 Kremljak Zvonko 3,850 550 - 4,400 Ho čevar Marko 3,300 1,073 - 4,373 Berce Jaroslav 3,575 825 973 5,373
Internal members from 01.01. to 31.12. 2009 Rihter Milan 6,325 3,575 - 9,900 Gorišek Martin 7,150 550 107 7,807 Sparavec Branko 7,150 1,650 1,495 10,295 Total 61,270 22,908 5,952 90,130
In 2009, members of the Supervisory Board received no other payments.
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 31,055 thousand EUR in 2009 (2008: 38,137 thousand EUR). 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.
34. 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
158 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 2009 Annual Report Telekom Slovenia Group 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 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, 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 majority members 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 1m, 3 m and 6 m EURIBOR.
The adopted financial risk management allows the Group to hedge against interest rate risk by using interest rate call options on interest rate swaps and combinations of call and put options. The Group uses derivative financial instruments exclusively for the purpose of risk hedging and at 31 December 2009, 50 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 31.12.2009 31.12.2008
In EUR In thousand EUR In thousand EUR Interest rate swap 05.11.2004 15.03.2010 3,672,500 -19 -19 Interest rate swap 24.06.2009 15.06.2014 61,000,000 -772 0 Interest rate swap 23.08.2007 15.12.2010 31,578,947 -974 -1,072 Interest rate cap 04.11.2004 19.08.2009 80,000,000 0 465 Interest rate collar 19.01.2005 19.08.2011 50,000,000 -1,657 -389
Total 226,251,447
On re-measurement of hedging instruments that are no longer designated as accounting hedge, the Company recognized a loss in the amount of 2,220 thousand EUR. At the same time, total fair value of the financial instrument previously designated as hedge accounting of -2,416 thousand EUR was recognized in financial expenses as a result of reversal of the hedge financial instrument whose fair value was previously recognized in equity. This is due to the fact that the loan hedged by this financial instrument was repaid.
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For a financial instrument used for hedge accounting in notional amount of 31,579 thousand EUR, 98 thousand EUR relates to effective hedging, which is recognized in equity in the net amount of 78 thousand EUR.
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.
Effect on profit before tax in thousand EUR Increase/decrease in base rates s 2009 EURO +10 bt -293 EURO -10 bt +293 2008 EURO +10 bt -360 EURO -10 bt +360
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 bad debt allowance. 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 and from the companies in the Group. 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.
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The table below summarises the maturity profile of the Group's financial liabilities as at 31 December 2009 and 31 December 2008 based on the contractual undiscounted payments
In thousand EUR On Less than 3 3 to 12 More than Past due demand months months 1 to 5 years 5 years Total
2009 Borrowings and credits 36 0 24,992 31,249 195,438 59,245 310,960 Estimated interest on loans 0 0 980 2,636 6,995 259 10,870 Other financial liabilities 0 0 3,373 35,498 29,425 296,941 365,237 Estimated interest on bonds 0 0 0 18,281 91,406 18,281 127,969 Supplier payables 16,068 5,753 118,068 18,702 0 0 158,591 Derivative financial instruments 0 o 2,980 2,291 665 0 5,936
2008 Borrowings and credits 0 666 69,546 107,219 158,202 82,943 418,576 Estimated interest on loans 0 0 4,012 9,709 24,669 5,379 43,769 Other financial liabilities 0 0 109 1,302 63,909 0 65,320
Supplier payables 0 15,021 137,060 7,159 0 0 159,240 Derivative financial instruments 0 0 109 138 1,480 0 1,727
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 and other financial liabilities, less current financial assets and cash and cash equivalents.
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In thousand EUR 31.12.2009 31.12.2008 Interest bearing loans and borrowings 676,197 419,987 Less current financial assets, cash and short-term deposits -21,764 -39,966 Net debt 654,433 380,021
Capital 1,048,025 1,065,670 Capital and net debt 1,702,458 1,445,691 Gearing ratio 38% 26%
Fair value The Group estimates that fair values of financial assets and liabilities are not significantly different to their carrying value.
Fair value hierarchy In the recognition and disclosure of the fair value of financial instruments using the assessed value model, we applied the following hierarchy:
Level 1: Determining fair value directly by reference to the official published price on an active market. Level 2: Other models used in determining fair value based on assumptions and significant impact on fair value in line with observed current market transactions with the same instruments either directly or indirectly. Level 3: Other models used in determining fair value based on assumptions and significant impact on fair value that are not in line with observed current market transactions with the same instruments and investments recognised at cost.
In EUR Assets at fair value 31.12.2009 Level 1 Level 2 Level 3
AFS financial assets Equity securities 11,214 5,084 0 6,130
Derivatives Cash flow hedges -974 o -974 0 For trading -1,657 0 -1,657 0
All Level 3 securities are carried at cost.
35. General authorization 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 Agency of the provision of the following
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Pursuant to the notification the annual fee must be paid in the amount of 492 thousand EUR (2008: 478 thousand EUR). 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 246 thousand EUR (2008: 264 thousand EUR), and the fee for the rights of use for numbers amounts to 266 thousand EUR (2008: 258 thousand EUR). The amount of the fees to be paid is defined within the tariff, which is a general act of the Agency.
Mobile telephony services
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 Initial fee of radio frequency bands from 890 - 915 and from 9,863 thousand 935 - 960 MHz by GSM standards 02.04.1998 15 EUR Concession Agreements for Telecommunications Services with the usage of radio frequency Initial fee of spectrum in GSM mobile telephony in DCS1800 4,173 thousand network 03.01.2001 15 EUR Concession Agreements for Telecommunications Services with the usage of radio frequency 15, extended Initial fee of spectrum in mobile network system: UMTS/ITM- to 91,804 thousand 2000 27.11.2001 21.09.2021 EUR Concession Agreements for Telecommunications Services with the usage of radio frequency Initial fee of spectrum in GSM mobile telephone services 75,000 thousand network in Kosovo 06.03.2007 15 EUR Concession Agreements for telecommunications services with the usage of radio frequency Initial fee of spectrum in 2G-GSM 900 mobile telephony in 28,000 thousand Macedonia 21.11.2001 22 EUR Concession Agreements for telecommunications services with the usage of radio frequency Initial fee of spectrum in 3G-UMTS mobile network system in 10,000 thousand Macedonia 02.11.2008 10 EUR
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 2009, the Group paid 4,054 thousand EUR (2008: 1,608 thousand EUR) of fees.
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6.2.3 Independent Auditor's Report for the Telekom Slovenia Group
164 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 2009 Annual Report Telekom Slovenia Group
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 2009
In thousand EUR
Notes 2009 2008
Revenue 2 396,490 410,162
Other income 3 1,974 5,036
Cost of goods and materials sold -16,071 -18,034
Cost of raw materials -8,112 -8,237
Cost of services 4 -185,177 -173,452
Staff costs 5 -74,309 -74,373
Depreciation and amortisation 11, 12 -89,330 -89,197
Other operating expenses 6 -12,178 -11,232
Total operating expenses -385,177 -374,525
Profit from operations 13,287 40,673
Finance income 7 73,213 78,626
Finance cost 8 -28,515 -13,571
Profit before tax 57,985 105,728
Income tax expense 9 - 610 -9,760
Net profit for the year 57,375 95,968
Earnings per share - basic and diluted in EUR 10 8.82 14.75
The accompanying notes are an integral part of these financial statements .
165 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 2009 Annual Report Telekom Slovenia Group
Statement of comprehensive income for the year ended 31 December 2009
In thousand EUR
2009 2008 Net profit for the period 57,375 95,968
Revaluation of AFS financial assets 596 -682 Deferred tax -119 136 Net gain or loss from revaluation of AFS financial assets 477 -546
Changes in fair value of cash flow hedges -4,796 -1,248 Deferred tax 463 264 Reclassification of changes in fair value of cash flow hedges 4,894 236 Deferred tax -483 -50 Net gain or loss on changes in fair value of cash flow hedges 78 -798
Other 0 2
Other comprehensive income 555 -1,342
Total comprehensive income 57,930 94,626
The accompanying notes are an integral part of these financial statements.
166 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 2009 Annual Report Telekom Slovenia Group
Balance sheet of Telekom Slovenije, d. d. as at 31 December 2009
In thousand EUR
Notes 31 December 2009 31 December 2008
ASSETS
Intangible assets 11 28,891 28,608
Property, plant and equipment 12 671,723 693,733
Investment in subsidiaries and joint ventures 13 477,870 336,303
Other investments 14 229,877 130,546
Other non-current assets 15 11, 112 10,595
Total non-current assets 1,419,473 1,199,785
Assets held for sale 1,156 627
Inventories 17 8,065 10,222
Current trade and other receivables 18 91,249 92,064
Income tax receivable 9,574 3,969
Current financial assets 19 80,559 43,135
Cash and cash equivalents 20 5,146 9,603
Total current assets 195,749 159,620
Total assets 1,615,222 1,359,405
The accompanying notes are an integral part of these financial statements.
167 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 2009 Annual Report Telekom Slovenia Group
Balance sheet of Telekom Slovenije, d. d. as at 31 December 2009
In thousand EUR
Notes 31 December 2009 31 December 2008
EQUITY AND LIABILITIES
Issued capital 21 272,721 272,721
Treasury shares 21 -3,671 -3,671
Reserves 21 472,211 439,168
Retained earnings 21 61,470 68,526
Fixed assets revaluation reserves 21 88,307 95,944
Financial instruments revaluation reserve - 664 -1,219
Total capital and reserves 890,374 871,469
Non-current deferred income 22 8,279 8,988
Provisions 23 15,713 16,678
Interest bearing borrowings 24 203,737 190,243
Other non-current financial liabilities 25 301,577 18,736
Deferred tax liabilities 16 70 1,231
Total non-current liabilities 529,376 235,876
Trade and other payables 26 82,248 107,596
Interest bearing borrowings 24 64,638 130,852
Other current liabilities 27 37,670 1,125
Deferred income 28 7,031 7,881
Accruals 3,885 4,606
Total current liabilities 195,472 252,060
Total liabilities 724,848 487,936
Total equity and liabilities 1,615,222 1,359,405
The accompanying notes are an integral part of these financial statements.
168 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 2009 Annual Report Telekom Slovenia Group
Statement of changes in equity of Telekom Slovenije, d. d. for the year ended 31 December 2009
In thousand EUR Net gain or loss from revaluation of Net gain or loss on Issued Treasury FA revaluation AFS financial changes in fair value capital shares Reserves Retained earnings reserve assets of cash flow hedges Total
Balance at 01.01.2009 272,721 -3,671 439,168 68,526 95,944 -362 -857 871,469
Net profit for the period 57,375 57,375 Other comprehensive income for the period 0 477 78 555 Total comprehensive income for the period 0 0 57,375 0 477 78 57,930 Transfer to retained earnings and reserves 5,043 2,594 -7,637 0 Transfer to other reserves (decision of the Management) 28,000 -28,000 0 Payment of dividends -39,033 -39,033 Other 8 8 Balance at 31.12.2009 272,721 -3,671 472,211 61,470 88,307 115 -779 890,374
The accompanying notes are an integral part of these financial statements.
Retained earnings available for distribution as at 31 December 2009 Net profit for the year 2009 57.375.243,93 EUR Carried forward retained earnings 32.094.592,91 EUR Transfer to other reserves - resolution of the Management Board -28,000,000.00 EUR Total retained earnings available for distribution 61.469.836,84 EUR
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Statement of changes in equity of Telekom Slovenije, d. d. for the year ended 31 December 2008
In thousand EUR
Net gain or loss from Net gain or loss on Issued Treasury Retained FA revaluation revaluation of AFS changes in fair value of capital shares Reserves earnings reserve financial assets cah flow hedges Total
Balance at 01.01.2008 272,721 -3,671 287,335 200,195 103,543 184 -59 860,248 Net profit for the period 95,968 95,968
Other comprehensive income for the period 2 -546 -798 -1,342 Total comprehensive income for the period 0 0 0 95,968 2 -546 -798 94,626 Transfer to retained earnings and reserves 5,043 2,558 -7,601 0
Transfer to reserves (decision of the Shareholders' meeting) 116,790 -116,790 0 Transfer to other reserves (decision of the Management) 30,000 -30,000 0
Payment of dividends -83,270 -83,270
Other -135 -135 Balance at 31.12.2008 272,721 -3,671 439,168 68,526 95,944 -362 -857 871,469
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Cash flow statement of Telekom Slovenije, d. d. for the year ended 31 December 2009 In thousand EUR
2009 2008 Operating activities Profit before tax 57,985 105,728 Adjustments for:
Depreciation and amortisation 89,330 89,197 Depreciation of investment property 0 19 Loss on disposal and impairment of intangible assets and PPE 1,904 1,228 Gains/loss on disposal of FA -518 -3,085 Gains/loss on disposal of investment property 0 -1,066
Finance income -73,213 -78,626 Finance cost 28,515 13,571
Change in assets held for sale -529 0 Change in trade and other receivables -4,790 -9,738 Change in other non-current assets -517 6,518 Change in inventories 2,157 -1,490
Change in provisions -965 395 Change in deferred income -1,559 705 Change in accruals -721 - 95 Change in trade and other payables -24,416 -3,723
Tax paid -7,773 -14,501 Net cash flow from operating activities 64,890 105,037
Investing activities Proceeds from investing activities 117,066 121,581 Proceeds from sale of PPE 5,115 4,460 Proceeds from sale of investment property 0 16,062 Dividends received 57,759 65,558 Interest received 20,637 1,601 Proceeds from sale of non-current financial assets 17,794 2,400 Proceeds from sale of current financial assets 15,761 31,500 Disbursements from investing activities -374,789 -193,850 Purchase of property, plant and equipment -64,025 -106,453 Purchase of intangible assets -6,962 -11,703 Purchase of financial assets 0 - 324 Investments in subsidiaries and joint ventures -125,845 -27,094 Interest bearing loans -177,957 -48,276 Net cash flow from investing activities -257,723 -72,269
Financing activities Proceeds from financing activities 658,675 136,455 Proceeds from non-current borrowings 346,000 87,000 Proceeds from current borrowings 15,000 49,455 Bonds issued 297,675 0 Disbursements from financing activities -470,299 -172,732 Repayment of current borrowings -91,345 -56,281 Repayment of non-current borrowings -322,142 -20,084 Interest paid -17,779 -13,187 Dividends paid -39,033 -83,180 Net cash flow from financing activities 188,376 -36,277
Net increase in cash and cash equivalents -4,457 -3,509
Closing balance of cash 5,146 9,603 Opening balance of cash 9,603 13,112
The accompanying notes are an integral part of these financial statements. WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 171 2009 Annual Report Telekom Slovenia Group
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. (the “Company”) for the period ended 31 December 2009. In accordance with the resolution of the meeting of Shareholders’ of Telekom Slovenije, d. d. of June 2007, the separate financial statements are prepared in accordance with International Financial Reporting Standards as adopted by EU (IFRS).
The financial statements were authorised for issue by the Board on 23.03.2010.
The Company compiles consolidated financial statements of the Telekom Slovenia Group, which are included in the financial statements section of the report by the Telekom Slovenia Group and which are available from the head office of Telekom Slovenije, d. d., at Cigaletova 15, Ljubljana, Slovenia. The consolidated financial statements were approved by the Board on 23.03.2010.
General information Telekom Slovenije d. d., with its registered address at Cigaletova 15, Ljubljana, Slovenia, is a public company, whose shares are listed on the Ljubljana stock exchange.
As at 31 December 2009, the Republic of Slovenia as the majority shareholder holds 3,434,021 shares which accounts for 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 2009, 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 Najdi, informacijske storitve and business bases, Internet Slovenia, Croatia d. o. o. services provider Slovenia and Serbia System integration of business Avtenta. Si, d. o. o. solutions Slovenia Slovenia Internet services and mobile Planet 9, d. o. o. telecommunications services Slovenia Slovenia Ipko, d. o. o. Telecommunications services Kosovo Kosovo On.net, d. o. o. Internet services Macedonia Macedonia Bosnia and Bosnia and Aneks, d. o. o. Internet services Herzegovina Herzegovina Internet services Primo, d. o. o. Albania Albania Internet services SIOL, d. o. o. Croatia Croatia The SIOL, B.V. Financial holding Netherlands The Netherlands Germanos Telecom, d. d. Sales network of ONE, d. d. Macedonia Macedonia
Digi Plus Multimedia, d. o. o. Marketing and digital TV services Macedonia Macedonia
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Mobitel d. d. has two subsidiaries: - Soline, pridelava soli, 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. - 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.
In 2009, Najdi.si, d. o. o. merged with Interseek, d. o. o., (which changed its firm to Najdi.si, d. o. o.). The parent Najdi.si, d. o. o., holds 100% interests in the following subsidiaries: Pogodak tražilica, d. o. o. in Croatia and Pogodak, d. o. o., in Serbia, as well as a 50.1% interest in Meganet, d. o. o., Slovenia. In July Telekom Slovenije, d. d. realized its call option for additional 25% interest in Najdi.si, d. o. o., thus becoming the sole owner of the company. In the last quarter of 2009 Najdi.si, d. o. o. merged with Teledat, d. o. o., which changed its firm to Najdi, informacijske storitve, d. o. o..
Ipko, d. o. o. holds a 100% interest in Ipko, d. o. o., Albania and Mediaworks, d. o. o.. In December Telekom Slovenije, d. d. realized its call option for 29.36% interest of the company thus increasing its interest share to 93.11%. The parent company holds a call option and minority shareholders hold put options for the remaining interest in the company.
Primo, d. o. o. is the result of AOLSP, d. o. o. assuming the new name and a merger of two subsidiaries in Albania: AFB, d. o. o. and H-Communications, d. o. o.. Bindi Integrated Services, d. o. o. is a wholly owned subsidiary of Primo, d. o. o..
In June 2009, Telekom Slovenije, d. d. acquired a 100% interest in SIOL, B.V., the company holding a 100% interest in Cosmofon, d. d. At the end of October the latter assumed a new name of ONE, d. d. In November SIOL, B.V. established a fully owned subsidiary Telekom Slovenije Finance B.V., the Netherlands.
Furthermore, in 2009 Telekom Slovenije, d. d. acquired a 100% interest in Germanos Telecom, d. d.
In the second part of 2009, Telekom Slovenije, d. d. established a new and fully owned subsidiary Digi Plus Multimedia, d. o. o..
Telekom Sloveije, d. d. holds 100% economic ownership in all subsidiaries through holding call options and grating put options to minority holders.
An investment in joint ventures represents acquisition of 50% interest of Gibtelecom.
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 of Telekom Slovenije, d. d. 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 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 under IAS 16 (refer to accounting policy i. Property, plant and equipment).
The financial statement items are expressed in Euros rounded up to thousand units.
The accounting policies used are consistent with those applied in the previous year, except for the adoption of new standards and interpretations noted below.
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The adoption of these standards and interpretations did not have significant effect on the financial position or performance of the Company.
IAS 1 - Revised Presentation of Financial Statements. The revised Standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with 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 recognised income and expense, either in one single statement, or in two linked statements. The Company has elected to present two statements.
IAS 23 - Borrowing Costs The Standard has been revised to require capitalisation of borrowing costs on qualifying assets and the Company has amended its accounting policy accordingly. In accordance with the transitional requirements of the Standard this has been adopted as a prospective change. Therefore, borrowing costs have been capitalised on qualifying assets with a commencement date on or after 1 January 2009. No changes have been made for borrowing costs incurred prior to this date that have been expensed.
IFRS 2 - Share-Based Payment (amended) - Vesting Conditions and Cancellations The Standard has been amended to clarify the definition of vesting conditions and to prescribe the accounting treatment of an award that is effectively cancelled because a non-vesting condition is not satisfied.
IFRS 7 - Financial Instruments: Disclosures The amended standard requires additional disclosure about fair value measurement and liquidity risk. Fair value measurements are to be disclosed by source of inputs using a three level hierarchy for each class of financial instruments. In addition, reconciliation between the beginning and ending balance for Level 3 fair value measurements is now required, as well as significant transfers between Level 1 and Level 2 fair value measurements. The amendments also clarify the requirements for liquidity risk disclosures. The fair value measurement disclosures and the liquidity risk disclosures are impacted by the amendments.
IFRS 8 - Operating Segments The new Standard requires an entity to adopt “management approach” to reporting on the financial performance of its operating segments. If the numbers used by management for internal performance measurement of operating segments are different to the numbers reported in the financial statements, this requires a reconciliation of numbers used by management to the financial statements. Operating segments are disclosed in the financial statements of the Telekom Slovenia Group.
Amendments to IAS 32 and IAS 1 - Puttable Financial Instruments The amendment to IAS 32 requires entities to classify certain items of puttable financial instruments and liabilities arising from liquidation as equity if they fulfil a number of specified criteria. Amendments to IAS 1 require disclosure of certain information regarding puttable financial instruments that are classified as equity.
IFRIC 9 - Reassessment of Embedded Derivatives and IAS 39 - Financial Instruments: Recognition and Measurement These amendments to IFRIC 9 require an entity to assess whether an embedded derivative must be separated from a host contract when the entity reclassifies a hybrid financial asset out of the fair value through profit or loss category. This assessment is to be made based on circumstances that existed on the later of the date the entity first became a party to the contract and the date of any contract amendments that significantly change the cash flows of the contract. IAS 39 now states that if an embedded derivative cannot be reliably measured, the entire hybrid instrument must remain classified as at fair value through profit or loss.
IFRIC 12 - Service Concession Agreements 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 13 - Customer Loyalty Programmes This interpretation requires customer loyalty credits to be accounted for as a separate component of the sales transaction in which they are granted. A portion of the fair value of the consideration received is allocated to the award credits and deferred. This is then recognised as revenue over the period that the award credits are redeemed. The Company started loyalty programs in 2009. Customers are able to WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 174 2009 Annual Report Telekom Slovenia Group redeem the points to claim discounts on subscription and purchase certain products on credit (instalments).
Under the new policy, consideration received is allocated between the products or services sold and the points issued, with the consideration allocated to the points equal to their fair value. Fair value of the points is determined by applying statistical analysis. The fair value of the points issued is deferred and recognised as revenue when the points are redeemed.
IFRIC 15 - Agreement for the Construction of Real Estate 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 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.
Improvements to IFRSs 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 adoption of the following amendments resulted in changes to accounting policies but did not have any impact on the financial position or performance of the Company.
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 statement of financial position. This amendment did not result in any re-classification of financial instruments between current and non-current in the statement of financial position.
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. The Company has amended its accounting policy accordingly.
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. The Company has reassessed the useful lives of intangible assets and found that the use of the straight-line method of amortisation is appropriate.
The following amendments had no impact on the accounting policies of the Company, its financial position or operations:
IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations
IFRS 7 - Financial Instruments: Disclosures
IAS 8 - Accounting Policies, Change in Accounting Estimates and Errors
IAS 10 - Events after the Reporting period
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IAS 18 - Revenue
IAS 19 - Employee Benefits
IAS 20 - Accounting for Government Grants and Disclosures of Government Assistance
IAS 27 - Consolidated and Separate Financial Statements
IAS 28 - Investments in Associates
IAS 29 - Financial Reporting in Hyperinflationary Economies
IAS 31 - Interests in Joint Ventures
IAS 34 - Interim Financial Reporting
IAS 36 - Impairment of Assets
IAS 39 - Financial Instruments: Recognition and Measurement
IAS 40 - Investment Property c. Functional currency and foreign currency transactions The separate financial statements of Telekom Slovenije, d. d. 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 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 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.
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Provisions and contingent liabilities As set out in notes 23 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 or even more frequently. f. Significant management judgements In the process of applying the accounting policies, management had made the following judgment concerning the value of intangible assets and property, plant and equipment, 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 there are no indicators that fair values of plant and equipment carried at revalued cost differ materially from carrying values. g. Early adoption of IFRSs and IFRICs not yet effective The Company has not early adopted any standards or interpretations issued and not yet effective.
The following amended IFRSs will be adopted in future periods as required by International Financial Reporting Standards :
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.
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.
The following new and amended IFRSs will be adopted in future periods as required by International Financial Reporting Standards :
IFRIC 17 -Distribution of Non-Cash Assets to Owners IFRIC 17 becomes effective for annual periods beginning on 1 July 2009. The interpretation provides WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 177 2009 Annual Report Telekom Slovenia Group guidance on how to account for non-cash distribution of assets to owners. The interpretation clarifies when an entity should recognize the liability, how it should be measured, and how to recognize and measure the related assets, as well as when such assets and liabilities should be derecognised in books of accounts.
IFRIC 18 - Transfers of Assets from Customers Applicable to transfers from customers on or after 1 July 2009. The interpretation provides guidance on how to account for property, plant and equipment transferred from customers or cash received for acquisition or construction of specified assets. This guidance applies only to assets used by an entity to connect the customer to a network or to provide the customer with an ongoing access to a supply of goods, services or, in some cases, to do both. The entity must identify the service or services rendered and allocate the received payment (the fair value of assets) to each identifiable service. Revenue should be recognised on delivery or performance of each individual service by the entity.
The following new and amended IFRSs will be adopted in future periods as required by International Financial Reporting Standards, if endorsed by the EU:
IFRS 2 - Cash-settled Share-based Payment Transactions in the Group Applicable for periods beginning on or after 1 January 2009. Amendments to IFRS 2 comprise three basic amendments: revised definition of share-based transactions and agreements, the scope of IFRS2, and additional clarification of how to account for cash-settled share-based payment transactions in the group.
IAS 32 - Financial Instruments: Presentation Classification of Rights Issues Denominated in Foreign Currency Applicable for periods beginning after 1 February 2010. Amendments to IAS 32 allow an entity issuing rights to purchase shares in foreign currency not to recognise the rights as derivatives and to recognise the effect in the profit or loss. These rights are now classified as equity instruments if they fulfil certain criteria.
IAS 24 - Related Party Disclosures Applicable for periods beginning after 1 January 2011. Amendments to IAS 24 define in more detail and simplify definition of a related party. Furthermore the amended standard reduces the scope of disclosures of transactions of a government owned entity with the government and other government owned entities.
IFRS 9 - Financial Instruments The Standard replaces IAS 39 and is applicable for periods beginning on 1 January 2013. The first part of the standard introduces new requirements for classifying and measuring financial assets.
The following new and amended IFRSs will be adopted in future periods as required by International Financial Reporting Standards, if endorsed by the EU:
IFRIC 19 - Extinguishing Financial Liabilities with Equity Instruments The interpretation becomes effective on 1 July 2010 and provides guidance on how to account for the extinguishment of a financial liability by the issue of equity instruments (a debt for equity exchange). The interpretation clarifies how to measure and recognise such exchanges.
Improvements to IFRS In April 2009, the Board issued its second omnibus of amendments to its standards and interpretations , primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The amendments described below have so far not been endorsed by the European Union.
IFRS 2 - Share-based Payments - Specification when to apply IFRS 2 and IFRS 3
IFRS 5 - Non-current Assets Held for Sale - Disclosures
IFRS 8 - Operating Segments - Disclosure of Segment's Assets
IAS 1 - Presentation of Financial Statements - Current/non-current liability for exchangeable instruments
IAS 7 - Statement of Cash Flows - Classification of expenditure for non-recognised assets
IAS 17 - Leases - Classification of land and buildings
IAS 18 - Revenue -Designation whether an entity acts as a principal or an agent WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 178 2009 Annual Report Telekom Slovenia Group
IAS 36 -Impairment of assets - The largest units to which goodwill may be attributed
IAS 38 - Intangible Assets - Amendments to standard due to the adoption of new IFRS 3 and changes in determination of fair value
IAS 39 - Financial Instruments - Assessment of liquidation damages for prepayment of a credit as an embedded derivative, cash flow hedges
IFRIC 9 - Re-assessment of Embedded Derivatives - impact of IFRS 3 and IFRIC 9
IFRIC 16 - Hedges of a Net investment in a Foreign Operation - Amendment of restriction to an entity allowed to have a hedge
The Company is reviewing the not yet effective standards and interpretations and at this stage cannot reasonably 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 licences, - software acquired separately from hardware and used for more than one year, and - 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.
Useful lives of significant items of intangible assets are reassessed on an annual basis and if expectations differ significantly from earlier estimates, amortisation rates are restated. The effect is explained in the report of the period in which the change occurred.
Furthermore, at year end, the Company checks for any indications of impairment of intangible assets and if so, the recoverable amount of such assets is determined. i. Property, plant and equipment Property, plant and equipment owned by the Company are stated at cost or valuation less accumulated depreciation and impairment losses.
The cost of an item of property, plant and equipment includes all expenditures that are necessary to make the asset ready for its intended use including costs of preparing the construction site and easement fees.
The cost of an asset may include the initial assessment of costs of dismantling, removal and restoration providing the relevant project exists. At the year-end an assessment is made of any changes in the estimated costs.
Costs of borrowing that may be directly attributed to the acquisition, construction or production of an asset under construction are also a part of the cost of an item of property, plant and equipment.
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 recognised in the profit or loss on a monthly basis as a reduction of costs in line with the calculation of work orders and projects.
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 cost, while WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 179 2009 Annual Report Telekom Slovenia Group land, buildings, cable and lines and exchange switches are carried at fair value on the revaluation day less cost of depreciation and impairment losses. Other items of property, plant and equipment are carried at fair value only when an asset’s carrying amount accounts for 20% of total property, plant and equipment, without taking into account assets in the course of construction and advances. The revaluation to fair value of these assets is based on a report of an independent appraiser. When an asset's carrying amount is increased as a result of a revaluation, the increase is credited directly to equity as a revaluation reserves in the statement of comprehensive income after the deduction of deferred tax liabilities.
Transfer of the amount of depreciation on the restated portion of property, plant and equipment from fixed asset's revaluation reserves to retained earnings is carried out by the Company on an ongoing basis.
The Company assesses annually whether there are any internal or external business circumstances that could provide significant indication that the fair value of the assets should be determined i.e. that the assets should be impaired. Fair value is determined with the assistance of an independent appraiser whenever, due to business circumstances, the need arises.
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. The property, plant and equipment acquired under finance leases are depreciated over the useful life of the asset.
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.
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 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 when incurred.
In the event of subsequent expenditure on the asset, the remaining useful life of the asset is re-assessed. If the asset has already been fully depreciated, the subsequent expenditure is treated as a new item with new useful life.
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 in the income on a straight-line basis over the life of the depreciable asset.
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of items of property, plant and equipment. In a fiscal year, depreciation is allocated to individual periods on a straight-line basis.
Depreciation is calculated individually and the Company is free to determine annual depreciation rates based on the useful life of an individual item of property, plant and equipment.
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The estimated useful lives of property, plant and equipment 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 - exchange switches 4 to 7 - other equipment 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.
Useful lives of significant items of intangible assets are reassessed on an annual basis and if expectations differ significantly from earlier estimates, amortisation rates are restated. The effect is explained in the report of the period in which the change occurred.
Furthermore, at year end, the Company checks if there are any indications of impairment of an item of property, plant and equipment and if so, the recoverable amount of such assets is determined. j. Investments Initially, investments are measured at fair value increased by the cost of transaction that arise directly from the acquisition or issue of a financial instrument with exception of assets classified at fair value through profit or loss.
Investments in subsidiaries are accounted for at cost in the separate financial statements.
Investments in associates and joint ventures are carried at cost less impairment in the separate financial statements.
Investments in debt and equity securities classified as available-for-sale financial assets are carried at fair value.
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.
Any unrealized gains or losses arising on revaluation are recognised in the net amount directly in equity in the statement of comprehensive income. When an investment is derecognised, accumulated gains or losses previously recognised in equity are also derecognised and transferred to the profit or loss. The reclassification is recognised in the statement of comprehensive income.
Available-for-sale investments are recognised (or derecognised) on the date of commitment to purchase or sell.
Interest on debt securities is recognised in the income statement at the effective interest rate.
Loans are stated at amortised cost less impairment losses.
The Company assesses at each balance sheet date whether financial assets or groups of financial assets are impaired. If the value of an item of the financial assets has been significantly or permanently reduced, allowance of its initial value is charged to revaluation financial expenses.
At each balance sheet date it is assessed whether there is objective evidence that an impairment loss on loans 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 as revaluation financial expenses. WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 181 2009 Annual Report Telekom Slovenia Group
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.
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 with the reclassification recognised in the statement of comprehensive income.
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 through profit or loss.
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. k. 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 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: - 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 in the statement of comprehensive income. 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 reclassification is recognised in the statement of comprehensive income. - The ineffective portion of the cash flow hedge is immediately recognised in the income statement.
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.
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 transferred to the income statement. The reclassification is recognised in the statement of comprehensive income. l. Other non-current assets Prepaid rentals and compensations 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 are recognised in the amount by which the equipment’s cost exceeds its selling price, under the condition that subsidies shall be covered by the average subscription fee earned over the expected life of the subscriber contract.
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Therefore, the difference between the selling price and the cost is reported within deferred costs over the expected subscription period.
Over the period of the subscription agreement, deferred costs are amortised proportionally to the cost of sale incentives, 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. m. Investment property Investment property is stated at cost comprising purchase price and costs that may be directly attributed to the acquisition. Subsequent to initial recognition, investment property is stated at cost less accumulated depreciation.
Depreciation is calculated on a straight-line basis over the useful lives of the assets. Land is not depreciated.
The estimated useful life of investment property is the same as for other similar items of property, plant and equipment unless specifically determined in the accompanying document.
Estimated useful life of investment property Investment property Useful lives in years - buildings 20 to 50
n. Inventories A quantity unit of inventories of materials and merchandise is stated at cost comprising purchase price inclusive of discounts granted, import duties and other non-refundable purchase duties, as well as costs directly attributable to the acquisition.
Inventories of materials consumed and merchandise sold are accounted for under the moving average price method.
Low-value inventories are expensed when they are put to use. The Company maintains special records by quantity and value.
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.
At year-end, inventories are revalued to account for impairment if their carrying value exceeds their net realisable value. o. Trade and other receivables Trade receivables are recognised at cost less any impairment losses.
Allowances for trade receivables due from local customers are based on the maturity of individual receivables, while the amount of allowance for individual classes of trade receivables is based on the assessed likelihood of their recovery.
Allowances for foreign trade receivables are made individually based on the list of receivables prepared by the Sector for Operators and Foreign Operators Services quarterly and at the year-end.
Receivables due from subsidiaries and those for which individual agreement has been concluded, are not included in receivables due from local and foreign customers for which allowances are made.
In certain cases, allowances may be made of individual receivables.
Other receivables include short-term accrued income and short-term deferred costs associated with international services and deferred costs of advanced payment of rent and postal stationery.
WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 183 2009 Annual Report Telekom Slovenia Group p. 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. r. Dividends Dividends are recognised as a liability in the period in which they are approved. s. Non-current deferred income Non-current deferred income comprises co-locations billed in advance and lease of optics as well as government grants for fixed assets which are recognised in the amount of monetary assets received.
Non-current deferred income from co-locations and leases are transferred to operating revenue over contractually agreed term of lease or co-location. Government grants are used to cover depreciation costs of assets acquired with the grant and are expensed by transferring them to operating revenue in line with the computed depreciation. t. Provisions A provision is recognized in the financial statements when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. If material, the provisions are determined by discounting the expected future cash flows.
Provisions for probable liabilities from legal actions are formed on the basis of the estimation of the actions' outcome in consultation with legal advisors.
Provisions for termination benefits and anniversary bonuses In accordance with the statutory requirements, the collective agreement, and the internal rules and regulations, the Company is obligated to pay jubilee benefits and termination benefits upon retirement.
Provisions are formed in the amount of estimated future payments of termination benefits and jubilee benefits discounted at the balance sheet date. A calculation is made per individual employees taking into account the cost of termination benefit upon retirement and the cost of all expected anniversary benefits by the time of retirement, using the projected unit credit method. At each year-end, the amount of provisions is assessed and either increased or decreased accordingly.
The Company has no other pension liabilities. u. Interest bearing borrowings Interest-bearing borrowings are recognised initially at amounts from relevant documents that evidence the receipt of cash or payment of an operating debt, which is their fair value.
Subsequent 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 rate basis.
If the actual or agreed rate of interest does not significantly differ from the effective rate of interest, interest bearing borrowings are reported in the balance sheet at initial value reduced by any repayments. v. Trade and other liabilities Trade and other payables are initially stated at cost. Subsequent to initial recognition, trade and other payables are stated at amortised cost. z. Short-term deferred items Short-term deferred income includes accrued subscription fees carried in the amounts invoiced a month in advance, and short-term deferred revenue from international services assessed on the basis of services rendered for which calculations have not yet been confirmed.
Accrued costs comprise costs of holidays not taken, accrued payroll costs, awards and costs of international services assessed on the basis of services rendered for which invoices have not yet been issued. aa. Revenue Revenue includes the sales value of goods sold and services rendered in the accounting period. WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 184 2009 Annual Report Telekom Slovenia Group
The revenue from services is recognised when services are rendered and there are no significant uncertainties regarding recovery of the consideration due.
The revenue consists principally of monthly subscription fees, connection fees, revenue from call charges and charges for other services, revenue from the provision of interconnection services, revenue from network lease and revenue from sale of merchandise.
Revenue from monthly 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 other services rendered to the users is recognised in the period in which calls are made or services are rendered.
Revenue from interconnection services and network lease is recognised in the period in which services are provided.
Revenue from sale of merchandise is recognised when the sale is made.
Revenue from voice services with added value is recognised in net amounts in the period in which services are provided.
Under the customer loyalty programme, customer loyalty credits are accounted for as a separate component of the sales transaction in which they are granted. ab. Finance income Interest income is recognised in the profit or loss as the interest accrues (using the effective interest method) to the net carrying amount of the financial assets.
Dividend income is recognised in the income statement on the date dividends are declared. ac. Income tax Income tax for the year 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 is charged or credited directly to equity, if the tax relates to items that are credited or charged, in the same or a different period, directly to equity.
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2. Revenue In thousand EUR 2009 2008 Voice telephony 133,289 161,311 Voice transfer through IP network 4,847 6,567 Internet and broadband access 75,689 61,263 Interconnections 27,344 27,453 International operator services 70,159 65,788 Bandwidth lease 24,047 18,499 Unbundled access and collocations 14,563 13,727 Voice services with added value 2,612 3,088 Data transfer services 22,766 26,632 Sale of advertising space 32 85 Other services 10,790 11,922 Sale of merchandise and materials 9,578 13,022 Other revenue 774 805 Total revenue 396,490 410,162
In thousand EUR 2009 2008 Revenue from sale of services in domestic market 316,753 331,333 Revenue from sale of services in foreign markets 70,159 65,832 Revenue from sale of merchandise and materials in domestic market 9,578 12,997 Total revenue 396,490 410,162
3. Other income In thousand EUR 2009 2008 Government grants 189 88 Gains on disposal of property, plant and equipment 0 2,924 Other income 1,785 2,024 Total other income 1,974 5,036
WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 186 2009 Annual Report Telekom Slovenia Group
4. Costs of services
In thousand EUR 2009 2008 Communication and transport services, and rent 4,939 6,032 Maintenance 23,797 23,097 Telecommunication services 129,802 116,544 Professional services 8,313 8,710 Insurance, marketing and entertainment 8,500 8,724 Sales commission 1,662 1,730 Banking services 1,575 1,037 Other services 6,589 7,578 Total cost of services 185,177 173,452
5. Staff costs In thousand EUR 2009 2008 Wages and salaries 52,347 51,492 Social security contributions 11,382 11,139 - There of: pension and disability insurance contributions 4,823 4,956 Other staff costs 10,580 11,742 Total staff costs 74,309 74,373
The average number of employees in the period from January to December 2009 was 1,861 (2008: 1,906).
6. Other operating expenses In thousand EUR 2009 2008 Provisions (Note 24) 207 834 Loss from sale of property, plant and equipment 1,387 0 Impairment charge of current assets 6,150 8,329 Other expenses 4,434 2,069 Total other operating expenses 12,178 11,232
7. Finance income
In thousand EUR
2009 2008 Dividend income 57,760 65,559 Interest income 15,453 12,263 Exchange rate gains 0 131 Other finance income 0 673 Total finance income 73,213 78,626
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8. Finance expenses In thousand EUR 2009 2008 Interest expense 24,865 13,407 Exchange rate losses 41 0 Change in fair value of derivative financial instruments 3,153 164 Other finance expenses 456 0 Total finance expenses 28,515 13,571
9. Income tax
Income tax expense recognised in the income statement In thousand EUR 2009 2008 Current tax expense -1,911 -12,031 Deferred tax assets/liabilities 1,301 2,271 Income tax expense in the income statement -610 -9,760
Reconciliation of actual and computed tax expense taking into account effective tax rate In thousand EUR 2009 2008
Profit before tax under IFRS 57,985 105,728
Income tax using the domestic corporate tax rate of 21% (2008: 22%) -12,177 -23,260 Tax relief for dividends 11,523 13,702 Tax incentives used in the current period 862 989 Elimination of tax incentives used in previous years -26 -98 Change in tax rate -37 -6 Non-deductible expenses -755 -1,033 Other items 0 -54 Total income tax expense -610 -9,760
Effective tax rate applicable in 2009 was 1.05% (2008: 9.23%).
In accordance with Slovenian income tax regulations, the Company took into account 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 thousand EUR 2009 2008 Property, plant and equipment 1,474 1,391 Provisions -127 -147 Receivables -18 1,056 Accrued costs -28 -29 Deferred tax credit/expense 1,301 2,271
Deferred tax recognised in equity In thousand EUR 2009 2008 Change in fair value of available-for sale investments -119 136 Change in fair value of financial instruments designated as hedges -20 214 Restatement of deferred tax liabilities 0 2 Deferred tax assets/liabilities -139 352
10. 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 thousand EUR
2009 2008 Net profit attributable to holders of ordinary shares of the parent company 57,375 95,968 Adjusted net profit attributable to holders of ordinary shares of the parent company 57,375 95,968 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
WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 189 2009 Annual Report Telekom Slovenia Group
11. Intangible assets
The movement in intangible assets in 2009 In thousand EUR Other intangible Intangibles in 2009 Goodwill Licences Software assets construction Total
COST Balance at 1.1.2009 0 12,139 27,506 86 8,330 48,061 Additions 0 0 0 0 6,962 6,962 Transfer to use 0 954 4,298 0 -5,252 0 Disposal, write offs 0 -1,275 -394 0 0 -1,669 Balance at 31.12.2009 0 11,818 31,410 86 10,040 53,354 ACCUMULATED AMORTISATION Balance at 1.1.2009 0 4,669 14,720 64 0 19,453 Disposals, write offs 0 -1,275 -340 0 0 -1,615 Amortisation 0 2,003 4,616 6 0 6,625 Balance at 31.12.2009 0 5,397 18,996 70 0 24,463
CARRYING AMOUNT Balance at 1.1.2009 0 7,470 12,786 22 8,330 28,608 Balance at 31.12.2009 0 6,421 12,414 16 10,040 28,891
WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 190 2009 Annual Report Telekom Slovenia Group
The movement in intangible assets in 2008 In thousand EUR Other intangible Intangibles in 2008 Goodwill Licences Software assets construction Total
COST Balance at 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, write-offs 0 0 -1,223 0 0 -1,223 Balance at 31.12.2008 0 12,139 27,506 86 8,330 48,061 ACCUMULATED AMORTISATION Balance at 1.1.2008 0 2,929 12,720 59 0 15,708 Additions 0 38 0 0 0 38 Disposals, write-offs 0 0 -1,203 0 0 -1,203 Amortisation 0 1,702 3,203 5 0 4,910 Balance at 31.12.2008 0 4,669 14,720 64 0 19,453
CARRYING AMOUNT Balance at 1.1.2008 0 5,224 9,172 27 7,392 21,815 Balance at 31.12.2008 0 7,470 12,786 22 8,330 28,608
12. Property, plant and equipment
The movement in property, plant and equipment in 2009 In thousand EUR
Land and Cables and Switching Other Assets under 2009 buildings lines exchanges equipment construction Total
COST
Balance at 1.1.2009 134,863 1,019,045 278,811 303,700 27,753 1,764,172
Additions 0 0 0 0 64,024 64,024 Transfer from assets under construction 2,451 27,285 6,577 36,393 -72,706 0
Disposals, write-offs -1,417 -479 -3,241 -18,891 -419 -24,447
Balance at 31.12.2009 135,897 1,045,851 282,147 321,202 18,652 1,803,749 ACCUMULATED DEPRECIATION
Balance at 1.1.2009 7,971 609,386 239,816 213,266 0 1,070,439
Depreciation 3,310 39,637 11,260 28,498 0 82,705
Disposals, write-ffs -156 -478 -2,977 -17,507 0 -21,118
Balance at 31.12.2009 11,125 648,545 248,099 224,257 0 1,132,026
CARRYING AMOUNT
Balance at 1.1.2009 126,892 409,659 38,995 90,434 27,753 693,733
Balance at 31.12.2009 124,772 397,306 34,048 96,945 18,652 671,723
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The movement in property, plant and equipment in 2008 In thousand EUR
Land and Cables and Switching Other Assets under 2008 buildings lines exchanges equipment construction Total
COST
Balance at 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
Balance at 31.12.2008 134,863 1,019,045 278,811 303,700 27,753 1,764,172 ACCUMULATED DEPRECIATION
Balance at 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
Balance at 31.12.2008 7,971 609,386 239,816 213,266 0 1,070,439
CARRYING AMOUNT
Balance at 1.1.2008 128,841 397,683 42,924 93,083 13,497 676,028
Balance at 31.12.2008 126,892 409,659 38,995 90,434 27,753 693,733
Land and buildings, cables and lines, switching exchanges and partly also 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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13. Investments in subsidiaries and joint ventures
Investments in subsidiaries
The Company holds a controlling interest in the following subsidiaries: In thousand EUR Subsidiary 2008 Acquisitions Disposals 2009
Mobitel, d. d. 198,485 0 0 198,485 GVO, d. o. o. 5,758 0 0 5,758 Najdi, informacijske storitve, d. o. o., previously Teledat, d. o. o. 569 0 10,900 11,469 Avtenta.si, d. o. o. 1,723 0 0 1,723 Planet 9, d. o. o. 7 0 0 7 Najdi.si, d. o. o. 8,550 2,350 -10,900 0 Ipko, d. o. o. 56,231 45,291 0 101,522 On.net, d. o. o. 9,699 0 0 9,699 Aneks, d. o. o. 10,353 0 0 10,353 Primo, d. o. o., previously AOLSP, d. o. o. 7,652 73 0 7,725 SIOL, d. o. o. 501 0 0 501 SIOL, B.V. 0 92,909 0 92,909 Germanos Telecom, d. d. 0 245 0 245 Digi Plus Multimedia, d. o. o. 0 699 0 699 Total invested in subsidiaries 299,528 141,567 0 441,095
Najdi.si, d. o. o. was established with the merger of Najdi.si, d. o. o. to Interseek, d. o. o., which changed its name to Najdi.si, d. o. o., and subsequent additional acquisition of 25% interest in Najdi.si, d. o. o. by which the parent became the sole owner of the company. In the third quarter of the year, Najdi.si, d. o. o. merged with Teledat, d. o. o. which assumed a new name of Najdi, informacijske storitve, d. o. o..
In the first half of 2009, the parent increased the capital of Ipko, d. o. o., and towards the end of the year Telekom Slovenije, d. d. partially exercised its call option to acquire additional 29.36% interest of the company.
In the period under review, AOLSP, d. o. o. assumed a new name of Primo, d. o. o..The investment was increased further through additional payment as agreed in the contract.
In the period under review, Telekom Slovenije, d. d. acquired two entities: SIOL, B.V., holder of a 100% interest in Cosmofon, d. d. in Macedonia and Germanos Telecom, d. d. also located in Macedonia. In November 2009, SIOL B.V. established a new company Telekom Slovenije Finance B.V. located in the Netherlands.
In addition, Telekom Slovenije, d. d. established a new company Digi Plus Multimedia, d. o. o..
Investments in joint ventures
In April 2007, Telekom Slovenije, d. d. acquired a 50% interest in Gibtelecom, a telecommunication company in Gibraltar. Gibtelecom is a private entity that is not listed on any public exchanges.
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Information for associates, joint ventures and subsidiaries as at 31 December 2009 (a minimum of 20% interest)
Equity in Net income in Ownership thousand thousand Company Address (%) EUR EUR Mobitel, 1000 Ljubljana, telekomunikacijske storitve, d. d. Vilharjeva 23 100.00 409,023 41,153 GVO, Gradnja in vzdrževanje 1000 Ljubljana, telekomunikacijskih omrežij, d. o. o. Cigaletova 10 100.00 8,859 1,493 1000 Ljubljana, Najdi, informacijske storitve, d. o. o. Cigaletova 15 100.00 9,905 -688 Avtenta.si, d. o. o., 1000 Ljubljana, Sistemska integracija in poslovne rešitve Verovškova ulica 55 100.00 3,285 138 Soline, 6230 Portorož Pridelava soli, d. o. o. Se ča 115 100.00 4,225 448 Planet 9, internetne storitve in mobilne 1000 Ljubljana telekomunikacijske storitve, d. o. o. Vojkova 78 100.00 1,505 1,093 M-Pay, družba za mobilno pla čevanje, storitve in 2000 Maribor trgovino, d. o. o. Ul. Vita Kraigherja 3 50.00 163 11 Priština, Kosovo Ipko, d. o. o. Blv. Mati Tereze, RTK 93.11* 27,028 79 Skopje, Macedonia On.net, Družba za informacijske sisteme Blv. Partizanski odredi, sistemi, d. o. o. no. 70, DTC Aluminka 83.38* 5,478 -735 Banja Luka, Republic of Aneks, Družba za inženiring in Serbia, Ul. majke konzalting export-import, d. o. o. Jugovi ća 25 70.00* 6,919 74
Tirana, Albania Primo, d. o. o. Rr. Donika Kastrioti 4 75.00* 6,259 354 Zagreb, Croatia, SIOL, d. o. o. Margaretska 3 100.00 541 44 AZ Amsterdam, the Netherlands Locatellikade 1 SIOL, B.V. Parnassustoren 100.00 22,012 -13,648 Skopje, Macedonia Bul. Vidoe Smilevski Germanos Telecom, d. d. Bato 4, 1. floor 100.00 -5,932 -1,759 Skopje, Macedonia Blv. Partizanski odredi, Digi Plus Multimedia, d. o. o. no. 70, DTC Aluminka 100.00 336 -352 Gibtelecom, d. o. o. Suite 942, Europort 50.00 24,009 7,156
* Telekom Slovenije, d. d. has call options to acquire the shares from minorities and minorities have put options to sell the shares to Telekom Slovenije, d. d. WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 194 2009 Annual Report Telekom Slovenia Group
14. Other investments In thousand EUR 2009 2008 Investments in equity securities of banks 1,070 1,070 Investments in other equity securities 1,646 1,051 Loans to others 225,058 125,796 Loans to employees 2,018 2,418 Receivables from the sale of apartments 38 61 Loans to TK subscribers 47 150 Total other investments 229,877 130,546
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. Of total amount invested in other equity securities as at 31 December 2009, 1,493 thousand EUR represents traded securities i.e. Zavarovalnica Triglav, d. d. shares. As at 31 December 2009, the Company recorded 595 thousand EUR increase in the value of these shares to the market price. Other securities are carried at cost as they are not traded on the stock exchange and therefore, their fair value cannot be reliably estimated.
Increase in loans to others relates predominantly to a loan granted to ONE, d. d., a fully owned subsidiary of SIOL, B.V..
15. Other non-current assets
In thousand EUR 2009 2008 Long-term prepaid rentals 9,878 5,231 Long-term deferred sale incentives 859 3,087 Other non-current assets 375 2,277 Total other non-current assets 11,112 10,595
Movements in long-term prepaid rentals and deferred sale incentives are explained below:
In thousand EUR Rentals Sale incentives Balance at 01.01.2008 631 480 Increase 4,919 7,039 Transfer to expenses -319 -4,432 Balance at 31.12.2008 5,231 3,087 Increase 5,531 4,187 Transfer to expenses -884 -6,415 Balance at 31.12.2009 9,878 859
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16. Deferred tax assets and liabilities
In thousand EUR
2009 2008 Property, plant and equipment -4,829 -6,302 Investments and financial assets 212 350 Trade receivables 1,701 1,720 Provisions 2,725 2,852 Other non-current assets 121 149 Deferred tax assets/liabilities -70 -1,231
17. Inventories
In thousand EUR 2009 2008 Materials 4,675 4,907 Merchandise 3,390 5,315 Total inventories 8,065 10,222
As at 31 December 2009, inventories were restated to their realisable value and an impairment loss was recorded in the amount of 190 thousand EUR (208: 206 thousand EUR). Merchandise and materials are valued at net realisable value in the amount of 1,096 thousand EUR and 598 thousand EUR respectively, while other inventories are valued at initial cost as no adjustment was necessary in respect of these inventories.
18. Trade and other receivables
In thousand EUR 2009 2008 Trade receivables 47,653 54,047 Receivables from foreign operators 21,232 17,129 Receivables due from domestic operators 17,603 17,769 Advances 143 145 VAT and other tax receivables 6,140 5,164 Accrued income 2,459 2,618 Current amounts of sale incentives 5,358 4,976 Other receivables 1,142 856 Provision for impairment -10,481 -10,640 Total trade and other receivables 91,249 92,064
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Movement of impairment allowance
In thousand EUR 2009 2008 Balance at 1.1. -10,640 -6,578 Additions -7,920 -8,668 Impairment reversal 6,880 2,916 Utilisation 1,199 1,690 Balance at 31.12. -10,481 -10,640
At 31 December 2009, age structure of trade receivables that were past due but not impared is as follows: In thousan d EUR Neither past due nor Past due and Total impaired impaired Past due but not impaired
Up to 30 More than days 31 - 60 days 61 - 90 days 91 -120 days 120 days 2009 91,249 71,489 2,268 7,946 2,749 1,758 924 4,115 2008 92,064 76,676 1,928 6,861 2,276 1,323 374 2,626
Trade receivables are non interest bearing.
19. Current financial assets In thousand EUR 2009 2008 Other loans 80,559 43,135 Total current financial assets 80,559 43,135
The majority of other loans represents 80,072 thousand EUR lent to subsidiaries inclusive of deferred interest on long term and short term loans.
20. Cash and cash equivalents In thousand EUR 2009 2008 Cash in hand and bank balances 5,142 3,573 Deposits with banks with maturity of up to three months 4 6,030 Total cash and cash equivalents 5,146 9,603
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 0.500% and 0.530% per annum (2008: 2.920% and 2.223%).
21. Capital and reserves
Shares issued Authorised, issued and fully paid up capital amounts to 272,721 thousand EUR. It is divided into 6,535,478 ordinary non-par value shares.
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Ownership structure as at 31 December 2009 Shareholder Number of shares Interest in % Republic of Slovenia 3,434,021 52.54 Slovenska odškodninska družba, d. d. 931,387 14.25 Kapitalska družba, d. d. 365,175 5.59 PID - DZU 208,455 3.19 Legal entities 553,223 8.46 Individual shareholders 693,068 10.61 Other shareholders 350,149 5.36 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 the financial year under review.
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 of the period to reserves.
Composition of reserves
In thousand EUR 2009 2008 Capital reserves 141,265 136,222 Reserves for treasury shares 3,671 3,671 Statutory reserves 54,544 54,544 Other reserves 272,731 244,731 Total reserves 472,211 439,168
Capital and statutory reserves can be used for purposes specified in the Companies Act and the Company’s statutes. Statutory reserves should account for 20% of issued capital. These reserves are not distributable. The amount of capital reserves as at 31 December 2009 exceeds the required percentage of issued capital.
Capital reserves include capital surplus arising on ownership transformation and transfer of untaxed portion of revaluation reserves for property, plant and equipment.
Reserves for treasury shares are formed in the amount paid for these shares. These reserves are not distributable. The Company had not acquired any additional treasury shares during the financial year under review.
The Company may transfer up to 50% of the current year’s profits to other reserves, which are distributable.
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 2009, total retained earnings of 68,526 thousand EUR was appropriated as follows: 39,033 thousand EUR (2008: 83,270 thousand EUR) was appropriated to dividend payout - a dividend of 6 EUR per share (2008: 12.80 EUR), while the remaining 29,493 thousand EUR was appropriated to retained earnings to be carried forward to the next financial year. WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 198 2009 Annual Report Telekom Slovenia Group
Dividend proposed Proposed for approval at AGM 19,516,434.00 EUR Dividend per ordinary shares 3.00 EUR
Treasury shares In 2003, the Company acquired 30,000 treasury shares at par value of 1,252 thousand EUR representing 0.46% of the Company's issued capital.
Fixed asset revaluation reserve In the financial year under review, revaluation reserve was reduced by 7,637 thousand EUR as follows: 2,594 thousand EUR was transferred from revaluation reserve to retained earnings on account of additional depreciation of property, plant and equipment; furthermore, 5,043 thousand EUR was transferred from revaluation reserve to capital reserves on account of revaluation of property, plant and equipment. Revaluation reserves are not distributable.
Revaluation reserves for financial instruments Revaluation reserves for financial instruments include revaluation of available-for-sale financial assets and change in the fair value of financial instruments used for hedging. Revaluation reserves are not distributable.
22. Non-current deferred income In thousand EUR 2009 2008 Co-location billed in advance 6,704 7,165 Government grants 898 1,010 Other 677 813 Total non-current deferred income 8,279 8,988
Co-location relates to payments received in advance for renting certain premises and equipment to other operators.
23. Provisions In thousand EUR Utilisation 31.12.2008 and reversal Formation 31.12.2009 Provisions for probable payments resulting from legal actions 10,801 -1,076 0 9,725 Provisions for termination benefits on retirement 5,731 -198 240 5,773 Other provisions 146 -58 127 215 Total provisions 16,678 -1,332 367 15,713
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 provision of Internet services, actions of providers of services (competitors) due to opposition to prices, damages relating to cancellation of contracts, claims relating to damages which occurred during the performance of the activity - trespass to property, compensations relating to injury at work, and others.
Total claims brought against the Company amount to 201,092 thousand EUR, of which the major item represents a claim of 129,557 thousand EUR from T-2, d. o. o., 34,348 thousand EUR claimed by Sinfonika, d. d. and 28,176 thousand EUR claimed by Tuš Telekom, d. d. The Company is of the opinion that the claims have no legal basis.
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An agreement on settlement of mutual obligations was signed by the Company for one of the major claims brought against the Company by AMIS, d. o. o. of 56,825 thousand EUR, as well as for three other minor claims.
Provisions for termination benefits and jubilee benefits 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.
24. 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 33 - Financial risk management.
In thousand EUR
2009 2008 Non -current borrowings
Borrowings from foreign banks 215,242 217,385 - current portion of non-current borrowings -32,755 -27,142 - non-current portion of borrowings 182,487 190,243 Borrowings from domestic banks 26,000 0 - current portion of non-current borrowings -4,750 0 - non-current portion of borrowings 21,250 0 Total non-current borrowings 203,737 190,243
Current borrowings Borrowings from domestic banks 16,000 55,000 Borrowings from group companies 11,000 48,345 Current portion of non-current borrowings 37,505 27,142 Interest 133 365 Total current borrowings 64,638 130,852
Contractual terms of borrowings In thousand EUR Non-current portion Current portion Maturity over 5 Contractual rate of Final instalment 31.12.2009 31.12.2009 years interest due Collateral
3M EURIBOR + 0.330% 2010 - 2011 None 3M EURIBOR + 1.900% 2014 None Non-current 1M EURIBOR + 2.100% 2014 None financial 3M EURIBOR + 2.900% 2014 None 203,737 37,505 59,245 liabilities to 6M EURIBOR – 0.025% 2017 None banks 3M EURIBOR + 0.083% 2017 None 3M EURIBOR – 0.018% 2017 None 3M EURIBOR + 0.105% 2017 None
Current
financial Bill of liabilities to - 16,000 - 4.500% 15.02.2010 exchange banks Current financial 2.080% 15.03.2010 None liabilities to - 11,000 - 1.400% 26.08.2010 None group companies
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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 replaced by a fixed interest rate, by means of 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 these borrowings before their maturity. The Company is in compliance with these covenants.
25. Other non-current financial liabilities
In thousand EUR
2009 2008 Bonds issued 296,932 0 Finance lease 4,610 0 Other non-current financial liabilities 35 18,736 Total other non-current financial liabilities 301,577 18,736
In December 2009, Telekom Slovenije, d. d. issued bonds in the notional amount of 300,000 thousand EUR. Bonds bear interest at the rate of 4.875% and mature in December 2016. They are measured at the amortised cost method using effective interest rate of 5.047%; however, when considering tax on interest paid, the rate of interest is 6.265%.
26. Trade and other payables In thousand EUR 2009 2008 Trade payables 56,524 79,817 Payables to domestic operators 6,652 9,221 Payables to foreign operators 9,298 8,317 VAT and other taxes payable 2,373 777 Payables to employees 5,498 5,637 Other payables 1,903 3,827 Total trade and other payables 82,248 107,596
Trade payables are non interest bearing and are normally settled on 8 to 180 day term. Payables to operators are non-interest bearing and are normally settled on 15 to 40 day terms.
27. Other short-term financial liabilities
In thousand EUR
2009 2008 Acquisition of additional share in a subsidiary 32,181 0 Interest swap 4,179 1,125 Finance lease 1,310 0 Total other current financial liabilities 37,670 1,125
Liabilities for acquisition of additional share in a subsidiary relates to a put option exercised by the minority shareholders of Ipko, d. o. o.. WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 201 2009 Annual Report Telekom Slovenia Group
28. Short-term deferred income In thousand EUR 2009 2008 Subscriptions billed in advance and short term co-locations 6,425 7,225 Current portion of government grants for property, plant and equipment 130 111 Other deferred income 476 545 Total short-term deferred income 7,031 7,881
29. Commitments
The Company as the lessee Liabilities from operating lease relate to property, plant and equipment.
In thousand EUR Payable in 2009 2008 - 1 year 3,671 2,443 - 1 to 2 years 5,760 4,844 - 3 to 5 years 5,131 4,515 - more than 5 years 15,312 16,569 Total 29,874 28,371
In the financial year 2009, the Company recognised 3,671 thousand EUR (2008: 2,443 thousand EUR) of lease costs from operating lease contracts.
The Company as the lessor Receivables from operating leases relate to lease of property, plant and equipment.
In thousand EUR Payable in 2009 2008 - 1 year 4,364 4,814 - 1 to 2 years 8,728 8,593 - 3 to 5 years 8,728 8,593 - more than 5 years 21,820 21,484 Total 43,640 43,484
In 2009, income from operating leases recognised in the income statement amounted to 4,364 thousand EUR (2008: 4,814 thousand EUR).
30. Contingent liabilities In thousand EUR 2009 2008
Contingent liabilities from legal actions 201,092 261,516
At the balance sheet date, there were 51 pending legal actions brought against the Company in the total amount of 201,092 thousand EUR (2008: 261,516 thousand EUR). Based on the opinion of its legal advisors the Board expects the liability from said legal actions to amount to 9,725 thousand EUR (refer to note 24).
31. Transactions with related parties
Related parties of the Company include the Republic of Slovenia as the majority shareholder of Telekom WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 202 2009 Annual Report Telekom Slovenia Group
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) jointly hold 2,109 shares of the Company, representing a 0.03 % shareholding.
In the year under review, no loans were granted to related individuals.
Cost of wages and salaries
In thousand EUR
2009 2008 Managing Board 1,157 1,223 Supervisory Board 90 267 Total cost of wages and salaries 1,247 1,490
Disclosures relating to Management Board, Supervisory Board and other managers on individual contracts In thousand EUR Loans Receipts from participation in profits based on the Total decision of the Outstanding at Repaid in Trade receipts General Assembly 31.12.2009 2009 receivables Members of the Management Board 1, 157 - - - - - Dremelj Bojan 243 - - - - - Miti č Dušan 228 - - - - - Ogris-Marti č Filip 232 - - - - - Pulji č Željko 233 - - - - - Senica Darja 221 - - - - Members of the Supervisory Board 90 - - - - Other managers on individual contracts 3,577 - 185 24 6
Loans to other managers on individual contracts have been approved at interest rates ranging from 3.35% to 4.53% with term of 10 to 20 years.
The Company has not granted any advances or guarantees to the Management Board, Supervisory Board or other managers on individual contracts.
Break-down of receipts of members of the Management Board In EUR Reimburs Other Annual ement of Holiday Insurance payments- Salary bonus costs pay premiums Benefits PDPZ II* Total
Dremelj Bojan 190,646 34,751 2,108 1,085 2,272 10,029 2,605 243,496 Miti č Dušan 181,775 30,395 4,712 1,085 479 6,905 2,605 227,956 Ogris-Marti č Filip 181,418 30,342 6,956 1,085 2,440 6,905 2,605 231,751 Pulji č Željko 185,480 31,535 4,433 1,085 3,003 5,232 2,605 233,373 Senica Darja 181,590 29,148 1,648 1,085 2,314 2,424 2,605 220,814 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 203 2009 Annual Report Telekom Slovenia Group
Total 920,909 156,171 19,857 5,425 10,508 31,495 13,025 1,157,390
Salaries are not broken-down to fixed and variable part. In 2009, members of the Management Board did not receive any shares in the profit, options, commission or any other payments.
*PDPZ II - Voluntary additional retirement insurance
Break-down of receipts of members of the Supervisory Board In EUR
Travel Meeting fees Committees expenses Total
External members from 01.01. to 25.04 2009 Brodnik Andrej 1,650 - - 1,650 Štrukelj Borut 2,475 1,650 957 5,082 Koletnik Damjan 3,217 2,723 - 5,940 Ponikvar Karmen 2,475 3,217 - 5,692 Žakelj Pavel 4,373 3,300 1,001 8,674 Groznik Peter 3,300 - 1,221 4,521 External members from 26.04. to 31.12. 2009 Berginc Tomaž 5,005 1,430 - 6,435 Kalin Tomaž 3,850 1,650 198 5,698 Kafol Ciril 3,575 715 - 4,290 Kremljak Zvonko 3,850 550 - 4,400 Ho čevar Marko 3,300 1,073 - 4,373 Berce Jaroslav 3,575 825 973 5,373 Internal members from 01.01. to 31.12. 2009 Rihter Milan 6,325 3,575 - 9,900 Gorišek Martin 7,150 550 107 7,807 Sparavec Branko 7,150 1,650 1,495 10,295 Total 61,270 22,908 5,952 90,130
Members of the Supervisory Board received no other payments.
Transactions with Group companies WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 204 2009 Annual Report Telekom Slovenia Group
In thousand EUR 2009 2008 Receivables from Group companies 320,385 179,149 Mobitel, d. d. 16,322 3,690 GVO, d. o. o. 1,696 4,269 Najdi, informacijske storitve, d. o. o., previously Teledat, d. o. 1,467 84 o. Avtenta.si, d. o. o. 6,205 5,425 Soline, d. o. o. 0 0 Planet 9, d. o. o. 1,334 2,024 Najdi.si, d. o. o. 0 2 Ipko, d. o. o. 151,410 156,124 On.net, d. o. o. 30,669 4,365 Aneks, d. o. o. 10,514 3,108 Primo, d. o. o., previously AOLSP, d. o. o. 281 54 SIOL, d. o. o. 6 4 SIOL, B.V. consolidated with ONE, d. d. 95,239 0 Germanos Telecom, d. d. 5,242 0 Digi Plus Multimedia, d. o. o. 0 0 Gibtelecom, d. o. o. 0 0
Payables to Group companies 40,249 84,802 Mobitel, d. d. 12,636 48,931 GVO, d. o. o. 14,207 16,211 Najdi, informacijske storitve, d. o. o., previously Teledat, d. o. 1,510 3,106 o. Avtenta.si, d. o. o. 5,781 9,100 Soline, d. o. o. 59 87 Planet 9, d. o. o. 4,612 3,828 Najdi.si, d. o. o. 0 37 Ipko, d. o. o. 0 0 On.net, d. o. o. 498 804 Aneks, d. o. o. 775 643 Primo, d. o. o., previously AOSLP, d. o. o. 153 2,037 SIOL, d. o. o. 18 18 SIOL, B.V. consolidated with ONE, d. d. 0 0 Germanos Telecom, d. d. 0 0 Digi Plus Multimedia, d. o. o. 0 0 Gibtelecom, d. o. o. 0 0
Revenues from sales to Group companies 44,691 49,589 Mobitel, d. d. 31,640 32,322 GVO, d. o. o. 5,934 11,038 Najdi, informacijske storitve, d. o. o., previously Teledat, d. o. 389 355 o. Avtenta.si, d. o. o. 418 505 Soline, d. o. o. 4 4 Planet 9, d. o. o. 2,373 2,501 Najdi.si, d. o. o. 0 21 WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 205 2009 Annual Report Telekom Slovenia Group
Ipko, d. o. o. 1,726 2,223 On.net, d. o. o. 860 398 Aneks, d. o. o. 512 134 Primo, d. o. o., previously AOLSP, d. o. o. 375 82 SIOL, d. o. o. 24 6 SIOL, B.V. consolidated with ONE, d. d. 376 0 Germanos Telecom, d. d. 60 0 Digi Plus Multimedia, d. o. o. 0 0 Gibtelecom, d. o. o. 0 0
Acquisitions of goods and services from Group companies 96,710 78,429 Mobitel, d. d. 31,732 29,638 GVO, d. o. o. 9,340 9,630 Najdi, informacijske storitve, d. o. o., previously Teledat, d. o. 6,756 5,311 o. Avtenta.si, d. o. o. 8,471 4,381 Soline, d. o. o. 53 80 Planet 9, d. o. o. 22,855 15,070 Najdi.si, d. o. o. 0 63 Ipko, d. o. o. 0 0 On.net, d. o. o. 6,271 8,610 Aneks, d. o. o. 9,489 5,228 Primo, d. o. o., previously AOLSP, d. o. o. 1,525 364 SIOL, d. o. o. 216 54 SIOL, B.V. consolidated with ONE, d. d. 2 0 Germanos Telecom, d. d. 0 0 Digi Plus Multimedia, d. o. o. 0 0 Gibtelecom, d. o. o. 0 0
Telekom Slovenije d. d. generates revenues and expenses from interconnect charges with Mobitel d. d. The parent pays commission to Mobitel d. d. for the provision of services in the Mobitel centres.
Telekom Slovenije d. d. generates rental income from renting business promises and 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 and services of support. 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 directory 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 Ipko d. o. o. relate mainly to long term and short term loans and interest. Telekom Slovenije, d. d. pays for international IP services.
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.
Telekom Slovenije, d. d. receivables due from Aneks, d. o. o. relate to international IP services, while the subsidiary invoices the parent for the provision of international telephone services.
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Telekom Slovenije, d. d. receivables due from SIOL, B.V., consolidated with Cosmofon, d. d. relate to a long-term loan as do receivables due from Germanos Telecom, 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 in the period under review amounts to 23,162 thousand EUR (2008:29,574 thousand EUR). 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.
32. Cost of auditor In thousand EUR 2009 2008 Auditing of annual report 136 109 Other assurance work 100 23 Tax services 0 0 Other non audit services 41 0 Total cost of auditor 277 132
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 the Company’s policy that no trading in derivatives shall be undertaken. The main risks arising from the Company’s financial instruments are 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 fixed assets. 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 low, 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 1M, 3M and 6M Euribor.
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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 2009, 40% of non-current loans were hedged against interest rate risk.
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 31.12.2009
In EUR In thousand EUR Interest rate swap 05.11.2004 15.03.2010 3,672,500 -19 Interest rate swap 24.06.2009 15.06.2014 61,000,000 -772 Interest rate swap 23.08.2007 15.12.2010 31,578,947 -974 Total 96,251,447
On re-measurement of fair value of financial instruments designated as hedges at the year-end, the Company recognised a loss of 772 thousand EUR in financial expenses; in addition, total amount of fair value of the financial instrument designated as hedge accounting (2,416 thousand EUR) was recognised in the financial expenses since the hedged financial instrument, previously recognised in equity, was derecognised. The borrowings that were hedged with the instrument were repaid.
With respect to financial instruments in the notional amount of 31,579 thousand EUR relating to hedge accounting, the amount of 98 thousand EUR was estimated as effective hedging and recognised directly in equity in the net amount of 78 thousand EUR.
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). Changes in interest rate have no impact on the equity of the Company.
Effect on profit before tax in thousand EUR Increase/decrease in base rates 2009 EURO +10 bt -241 EURO -10 bt +241 2008 EURO +10 bt -217 EURO -10 bt +217
Non-interest bearing financial instruments are not included in the table 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 their carrying amount.
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.
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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 surpluses are placed in bank deposits, while short-term deficits are bridged by current borrowings from the local banks and group companies. The Company maintains a balance between continuity of funding and flexibility through the use of short term funding from banks.
Also, a large portion of payments made by the customers is reasonably predictable and stable, hence liquidity risk is assessed as low.
The table below summarises the maturity profile of financial liabilities of Telekom Slovenije, d. d. as at 31 December 2009 and 31 December 2008 based on the contractual undiscounted payments
In thousand EUR On Less than 3 3 to 12 More than 5 Past due demand months months 1 to 5 years years Total 2009 Borrowings and credits 0 0 32,901 31,737 144,492 59,245 268,375 Estimated interest on loans 0 0 980 2,636 6,474 259 10,349 Other financial liabilities 0 0 342 33,149 4,645 296,932 335,068 Estimated interest on bonds 0 0 0 18,281 91,406 18,281 127,969 Supplier payables 9,321 7,264 63,185 2,478 0 0 82,248 Derivative financial instruments 0 0 2,434 1,745 0 0 4,179 2008 Borrowings and credits 0 0 106,857 23,995 107,300 82,943 321,095 Estimated interest on loans 0 0 2,694 5,935 18,810 5,379 32,818 Other financial liabilities 0 0 0 45 18,691 0 18,736 Supplier payables 0 8,469 95,779 3,348 0 0 107,596 Derivative financial instruments 0 0 0 34 1,091 0 1,125
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 borrowings less current investments, cash and cash equivalents, and short-term deposits.
In thousand EUR
31.12.2009 31.12.2008 Interest bearing borrowings 607,622 340,956 Less current investments, cash and short-term deposits -85,705 -52,738 Net debt 521,917 288,218
Capital 890,374 871,469 Capital and net debt 1,412,291 1,159,687 Gearing ratio 37% 25% WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 209 2009 Annual Report Telekom Slovenia Group
Fair value The Company estimates that fair values of financial assets and liabilities are not significantly different to their carrying value.
Fair value hierarchy In the recognition and disclosure of the fair value of financial instruments using the assessed value model, we applied the following hierarchy:
Level 1: Determining fair value directly by reference to the official published price on an active market. Level 2: Other models used in determining fair value based on assumptions and significant impact on fair value in line with observed current market transactions with the same instruments either directly or indirectly. Level 3: Other models used in determining fair value based on assumptions and significant impact on fair value that are not in line with observed current market transactions with the same instruments and investments recognised at cost.
In EUR Assets at fair value 31.12.2009 Level 1 Level 2 Level 3 AFS financial assets Equity securities 2,716 1,493 0 1,223
Derivatives Cash flow hedges -974 0 -974 0
All Level 3 securities are carried at cost.
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 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 Agency of 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 fee payable in the period under review amounted to 492 thousand EUR (2008: 427 thousand EUR). 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 fees for the rights of use for radio frequencies and for numbers. The fee for the rights of use for radio frequencies for the period under review amounts to 246 thousand EUR (2008: 264 thousand EUR), and the fee for the rights of use for numbers amounts to 266 thousand EUR (2008: 258 thousand EUR). 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 for Telekom Slovenije, d. d.
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7 ABBREVIATIONS OF TECHNICAL TERMS
ADSL asymmetric digital subscriber line APEK Post and Electronic Communications Agency ARPU average revenues per user ATM asynchronous transfer mode B2B business to business BB broadband BSS business support system BW Broadworks CAPEX capital expenditure CATV community antenna television (cable TV) CMN central management CMS converged media services CO central office CoS class of service COTS commercial off-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 multiplexing EECS electrical energy and conditioning system EM element manager EMC electromagnetic compatibility eMLPP enhanced multi-level precedence and pre-emption EWSD electronic digital switching system FE fast ethernet (100 Mbit/s) FL functional location FM fault management (system) FMC fixed mobile convergence FRR rast reroute FTTB fiber to the building FTTC fiber to the curb 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 SMARS 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 protocol IPTV IP television ISDN integrated services digital network ISP internet service provider RCN regional cable network LAN local area network LTE Long Term Evolution MC multicast MMD multimedia domain WorldReginfo - a60cd9fe-bb95-40e8-9b35-76423f7e5f02 212 2009 Annual Report Telekom Slovenia Group
MMOG massively multiplayer online game MNP mobile number portability MPLS multi-protocol label switching MTBF mean time between failures MVNO mobile virtual network operator NeoWLAN wireless local area network NGN next generation networking NGOSS new generation operations systems software 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 pptical network POP point of presence POTS plain old telephone service PPPoE Point-to-point protocol over ethernet PSTN public switched telephone network QoE quality of experience QoS quality of service SDN subscriber distribution 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 single-pair 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 TeMIP telecom management information platform 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 VLAN virtual local area network VoD video-on-demand VoIP voice over internet protocol VPLS virtual private LAN service VPN virtual private network WAP wireless application protocol WGR wavelength grating router WiFi wireless fidelity WiMAX worldwide interoperability for microwave access xDSL family of DSL technologies
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