Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d.
Annual Report 2010
Telekom Slovenia Group Telekom Slovenije, d. d.
Ljubljana, 5 April 2011
WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d.
Contents
1 INTRODUCTION ...... 1
1.1 Highlights of the Telekom Slovenia Group ...... 1 1.2 Letter from the President of the Management Board ...... 2 1.3 Statement of responsibility of the Management Board ...... 5 1.4 Strategic development plan ...... 6 1.5 The Telekom Slovenia Group on the map of Europe ...... 9 1.6 Organisation of the Telekom Slovenia Group ...... 10 1.7 Report of the Supervisory Board ...... 12 1.8 Corporate governance statement ...... 15 1.9 Share trading and ownership structure ...... 25 1.10 Significant achievements of the Telekom Slovenia Group ...... 29 1.11 Significant events after the balance sheet date ...... 30 1.12 Risk management ...... 31
2 BUSINESS REPORT OF THE TELEKOM SLOVENIA GROUP ...... 42
2.1 Financial results of the Telekom Slovenia Group ...... 42 2.1.1 Key financial performance indicators...... 42 2.2 Financial management and performance ...... 43 2.3 Investments ...... 46 2.4 Business environment and trends in the sector ...... 47 2.4.1 Macroeconomic environment ...... 47 2.4.2 Trends in the ICT sector ...... 47 2.4.3 Regulation of the electronic communications market and the competition protection ...... 50 2.5 Sales and marketing ...... 53 2.5.1 Market position ...... 53 2.5.2 Brand Management ...... 55 2.5.3 Sales and marketing ...... 58 2.5.4 Development of services and the network ...... 62 2.5.5 Financial results from the operations of Telekom Slovenia Group companies ...... 66
3 SUSTAINABILITY REPORT ...... 69
3.1 Responsible management of sustainable development ...... 70 3.2 Responsible human resource management ...... 73 3.2.1 Commitment to non-discrimination ...... 73 3.2.2 Employee structure ...... 74 3.2.3 Educational structure of employees ...... 74 3.2.4 Employment of disabled persons ...... 75 3.2.5 Organisational climate and employee satisfaction and culture ...... 75 WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d.
3.2.6 Employee training and development ...... 76 3.2.7 Managing innovation ...... 78 3.2.8 Cooperation with employee representatives ...... 78 3.2.9 Responsibility for employees and related groups outside the workplace...... 78 3.2.10 Health and safety at work ...... 79 3.2.11 Family-Friendly company certificate ...... 79 3.2.12 Communication with employees ...... 80 3.3 Social responsibility ...... 80 3.3.1 Major sponsorships and donations ...... 80 3.3.2 Protection of competition ...... 82 3.4 Environmental responsibility ...... 82 3.4.1 Environmental developments in 2010 ...... 83 3.4.2 Overview of the key environmental objectives in 2010 ...... 83 3.4.3 Environmental indicators ...... 85 3.5 Responsibility to customers ...... 88 3.6 Responsibility for quality ...... 90 3.7 Responsibility to suppliers ...... 91 3.8 Responsibility for security ...... 92 3.9 Content according to GRI G3 reporting guidelines...... 93 3.10 Suistainability verification statement...... 95
4 FINANCIAL REPORT ...... 96
4.1 Introductory notes ...... 96 4.2 Financial report of the Telekom Slovenia Group ...... 97 4.2.1 Financial statements of the Telekom Slovenia Group ...... 97 4.2.2 Notes to the consolidated financial statements of the Telekom Slovenia Group and summary of significant accounting policies of the Group ...... 104 4.2.3 Independent Auditor's Report for the Telekom Slovenia Group ...... 152 4.3 Financial report of Telekom Slovenije, d. d...... 153 4.3.1 Financial statements of Telekom Slovenije, d. d...... 153 4.3.2 Notes to the financial statements and summary of significant accounting policies of Telekom Slovenije, d. d...... 160 4.3.3 Independent Auditor's report ...... 202
5 ABBREVIATIONS OF TECHNICAL TERMS ...... 203 WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d.
1 INTRODUCTION
1.1 Highlights of the Telekom Slovenia Group
In 2010 the Telekom Slovenia Group: - generated EUR 843.5 million in operating revenues, down 1.5% on the previous year; - introduced several new services, products and content on all markets, which will improve the quality of the user experience and thus customer satisfaction; - had 333,214 broadband connection and 2,604,128 fixed and mobile telephony connections; and - began to comprehensively restructure operations and optimise processes, which will ensure the future commercial success and development of the Telekom Slovenia Group.
In 2011 the Group will: - implement planned measures aimed at improving operations; - continue to restructure and optimise business processes; and - merge Telekom Slovenije, d. d. and Mobitel, d. d. to create a stronger and more efficient parent company, and thus a more successful Telekom Slovenia Group in the long term.
Operating revenues (in EUR million) and revenues per employee of the Telekom Slovenia Group (in EUR thousand)
880 192 860 190
840 188 186 820 184 800 182 780 180 760 178 740 176 720 174 700 172 680 170 2006 2007 2008 2009 2010 Operating revenues 749 787 852 856 844 Operating revenues per av. employee in T EUR 189 185 188 179 177
EBITDA and EBITDA margin (as a percentage of operating revenues) of the Telekom Slovenia Group
350 45
40 300 35 250 30
200 25
150 20 15 100 10 50 5
0 0 2006 2007 2008 2009 2010 Delež EBITDA v posl. prih. v % 293 298 312 268 247 EBITDA margin in % 39.1 37.9 36.7 31.3 29.3
* EBITDA – earnings before interest, taxes, depreciation and amortisation.
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Structure of the Telekom Slovenia Group's equity and liabilities (in EUR million)
2.500
2.000
1.500
1.000
500
0 2006 2007 2008 2009 2010 Liabilities 482 678 725 924 850 Equity 989 1.063 1.014 1.002 808
1.2 Letter from the President of the Management Board
Dear investors, shareholders and partners,
The 2010 financial year was dynamic and characterised by tremendous challenges. It was a year in which we searched for an exit from the grips of the recession and financial uncertainty. It also marked the beginning of a slow and unstable global economic recovery. For the Telekom Slovenia Group, it was a year of significant changes. We established the underlying strategic and commercial bases for the long-term development and growth of our companies.
The beginning of the demanding, but unavoidable, process of restructuring operations represents the basic precept. The merging of the parent company Telekom Slovenije, d. d. and Mobitel, d. d. and the consolidation of Group companies represent a transition to the more efficient implementation of processes and the improved exploitation of synergies between electronic communications, information technology and media. I believe that the effect of the restructuring of operations will bring long-term benefits to users, owners and employees.
To ensure a clear and transparent starting point for further development, we have also verified the fair value of investments in some subsidiaries and appraised real estate. Assessments by the certified appraiser resulted in the revaluation of investments in companies in south-eastern Europe and Najdi in Slovenia. These had a significant impact on expenses in the previous year and thus on the operating result. I must emphasise that the revaluation had no impact on the current operations of companies, while the solvency of the Telekom Slovenia Group remains unchanged.
The Management Board of Telekom Slovenije, d. d. immediately adopted and began to implement measures, approved by the Supervisory Board, to improve the situation. These measures are comprehensive and include reducing all types of costs, the restructuring of operations in Macedonia and Kosovo, the possible sell-off of non-strategic investments, the restructuring of business processes, the optimisation of working capital, the protection of claims from regulated services, the optimisation and sale of real estate and changes in sales and marketing. The operating environment also demands personnel changes, the establishment of a new system of governance of subsidiaries and the reduction of labour costs.
Operating results marred by impairments The Telekom Slovenia Group generated operating revenues of EUR 843.5 million, down 1.5% on the previous year. Net loss in the amount of EUR 210.3 million, which is incomparably lower than in 2009, was the result of the impairment of financial investments in south-eastern Europe and the impairment of receivables owing to default by alternative operators. Here I must state my belief that the Group's largest investments in Kosovo and Macedonia are justified in the long term, despite the problems faced in these countries, and must be developed. These markets are less developed in terms of telecommunications, and thus present a business opportunity. Excluding the effect of impairments, operating profit would have reached EUR 32.7 million, and would have been EUR 20 million higher in the context of regular payments by alternative operatives (which would have precluded the need to impair receivables).
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The conditions on the Group's key markets, which reflect all the characteristics of global markets where the effects of the recession and financial crisis can still be felt, are also reflected in operating results. The emergence of new technologies, stiff competition, more demanding and aware users and pressures from regulatory bodies all affect operating conditions. Conditions, the economic environment and business expectations have also changed on our markets. Taking an aggressive market approach in the region, and investments in the modernisation of the organisation, networks and services ensure the appropriate conditions for the future growth of the entire Group.
The user is and remains the focus of our attention The newly defined mission of the Telekom Slovenia Group is "We are the best at connecting people – any time, any place". The user is the focus of our operations. All of our activities are thus aimed at the continuous improvement of the user experience and increased customer satisfaction. To that end in 2010, we focused on innovation, adapting to the needs of users, consolidation, ensuring convergence, development and investment, and on the optimisation of operations on foreign markets.
We earmarked EUR 113.6 million for investments that will expand our services and solutions, and bring them even closer to users, who increasingly require interpersonal communications and connectivity, and the optimisation of operations.
Our response is a range of unique, advanced, secure, continuously accessible and competitively priced user experiences of the highest quality. To that end, we revamped our range of broadband service packages during the previous financial year. We upgraded and expanded IPTV services, introduced the new SiOL BOX multimedia centre, and enriched our range of online media and television and interactive content. We upgraded the TIS (telephone directory), expanded the range of broadband mobile internet and mobile television services and broke new ground in Macedonia with Digital TV.
We see the key advantage of Telekom Slovenia Group companies in the synergies created by fixed and mobile telecommunication and internet solutions, and their upgrading through systems integration and the continuous introduction of new and interesting media and content. We are the only service provider on our key markets who can fully satisfy the needs of users for advanced communication services, the optimisation of work and access to content in one location. We are leaving behind other services providers on the market with our broad range of services in all segments, while ensuring a high level of customer satisfaction through prudent after-sales support. Good relations with users and investment in brands have once again brought the Group the flattering "Superbrand" and "Trusted Brand" titles.
Creating the future today The main activities that will characterise future operations are the organisational restructuring of the Telekom Slovenia Group in Slovenia in the scope of the Orion project and the drafting of a long-term strategic plan for the entire Group. The Company's Management Board has set itself five challenges for the future as its key priorities: the consolidation of operations and the restructuring of the organisation; quality dialogue with employees; a focus on the operations of companies in Macedonia and Kosovo; the ordering of relations with regulatory bodies; and the ordering of relations with alternative operators.
Organisational restructuring primarily includes Telekom Slovenije and Mobitel. However, other Group companies are included in the process as appropriate. Nearly 250 employees, representing all Group companies, are directly participating in the Orion project. The project was formally kicked off last July, when five main working groups of experts and several sub-groups were created. By the end of the year, all processes were catalogued by key work areas. Companies were compared and harmonised, and the basic organisational structure defined. The process is fully in line with established plans in terms of timing. In parallel with restructuring processes, the Management Board, together with external service providers and key internal personnel, also drafted a new strategy for the Telekom Slovenia Group. The new organisational structure must be comparable with the most successful European operators in terms of key performance indicators. The aim of the Telekom Slovenia Group is to establish the highest development standards and criteria.
The precondition for the successful completion of the organisational restructuring is the trust of all employees. They are therefore informed constantly with regard to the objectives and aims of the
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WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d. restructuring and the progress of processes. We set up an online centre with all key information regarding the overall process, the composition of working groups, objectives, mission, vision and values. We personally presented the project to employees at meetings throughout Slovenia and provided first-hand answers to their questions.
Success is based on people and their values The Telekom Slovenia Group is aware that the core of our competitiveness is hidden in consolidated processes and satisfied employees. A year-long project to increase cohesion within the Group is already bearing fruit. Our identity on the market is based on our brands and our corporate culture. This is not only based on an identifiable vision and clear mission, but also on a clear strategy, values, commitment, trust and teamwork. To maintain this level, we are investing heavily in training, motivational programmes and the management by objectives process. Employees ensure higher productivity and targeted development via the exchange of professional knowledge and business experience. The high rate of motivation and commitment continues to be reflected in successful project realisation. I believe that the Telekom Slovenia Group has a highly-trained team, whose fruitful cooperation and interaction will ensure the growth, competitiveness and excellent reputation of its companies and employees, and the solutions and content offered to the market.
We know how to recognise commitment to the company and understand the needs of the environment in which we operate. We believe that focusing on sustainable development, demonstrating social responsibility and active environmental protection are the cornerstones of every company’s success and penetrability. We also encourage top-level achievements in sports, culture and science through sponsorships, donations and patronage in the environment in which we operate. As responsible members of society, we understand the pressures and social problems faced by people.
Long-term increase in the value of the Group The Republic of Slovenia remains the company's largest single owner, followed by the KAD and SOD funds. Last year Telekom shares largely followed the general trend in SBI TOP share prices on the Ljubljana Stock Exchange, and ended 2010 at EUR 86. I expect the share price to rise again following the introduction of the new organisational structure, the re-establishment of normal conditions on the international stock markets and the return of investor confidence, as the share price is at present significantly undervalued. Its operating results and clear plans for the future represent reasons for investor confidence in the Telekom Slovenia Group.
We are well aware of the challenges posed by the future The Telekom Slovenia Group is an advanced and competitive player on today's market. Its solutions make an important contribution to the development of Slovenia’s economy and other markets in south- eastern Europe. Our aim is to further improve the efficiency of operations, to be a leader on the electronic communications market, to achieve ever better operating results and increase the value of the Group. We are therefore determined to implement strategic measures aimed in particular at the retail segment. We focus on creating the highest possible value for ourselves, and our customers, partners and shareholders. The priorities and strategic guidelines that we will follow to that end are clear. The stabilisation of sales and selective growth in services await us on our primary market of Slovenia. Operations outside of Slovenia must be restructured and uniform operating standards introduced. Another significant challenge will be the development of a uniform international wholesale approach. We will promote innovation in the development and marketing of services, solutions and content, and thus increase revenues while maintaining high market shares. We expect additional revenues from the development of digital media advertising (initially in Slovenia) and increased content monetisation, which is a current European and global trend.
There are many challenges and opportunities before us. We will face them bravely, prudently and in a fully transparent manner. We will invest in maintaining our competitive advantages in the areas of technology, marketing and internal organisation. We will upgrade integrated service quality control and continually seek synergies within the Group, mainly in convergent solutions and fresh market approaches. By adapting and computerising business processes, by ensuring an effective management system and by developing our human resources, we will create a learning and adaptable environment in which the user is the centre of attention. We have the know-how, desire, will and competence to achieve our objectives.
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Dear investors, shareholders and partners, together with our employees, we will continue to ensure the growth, development and successful market approach of the Telekom Slovenia Group for you, our esteemed investors. In this, we are counting on your continued support and creative participation.
Together with my colleagues from the Management Board and all employees, I thank you for your trust. Ivica Kranj čevi ć President of the Management Board of Telekom Slovenije, d. d.
Ljubljana, April 2011
1.3 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.
Management Board of Telekom Slovenije, d. d.
Ivica Kranj čevi ć Zoran Vehovar, MSc Marko Dr Jožko Peterlin Darja Senica Boštjan čič President of the Vice-President of the Member of the Member of the Member of the Management Board Management Management Board Management Board Board and
Management Board
Workers Director
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1.4 Strategic development plan
The Telekom Slovenia Group will build its strategic development plan for the period 2011 to 2015 as the leading telecommunications operators in Slovenia and a provider of innovative services, and on the markets of south-eastern Europe as a growing and profitable alternative operator, whose cost effectiveness will be ensured in part by synergies within the Telekom Slovenia Group.
Changes in the local, regional and global economic environment as a result of the economic crisis have required the Telekom Slovenia Group to give thorough consideration to its future strategic policies and objectives. One of the primary tasks of the Management Board of the parent company, Telekom Slovenije, d. d., following its formation and assumption of responsibilities in the first half of 2010, was the drafting of a new strategic plan for the next 10 years.
In drafting the strategic plan, the Management Board searched for answers to key strategic issues with the help of a thorough analysis of the economic environment, markets, risks, trends in consumer demand and technological trends, and an analysis of the activities of regulatory bodies. Based on the findings of these analyses, it developed a strategy for the Telekom Slovenia Group for the period 2011 to 2015, which includes a vision, objectives, strategic guidelines and functional strategies. The business plan of the Telekom Slovenia Group for 2011 was approved by the Supervisory Board of the parent company, Telekom Slovenije, d. d. at its meeting of 2 February 2011. The strategic business plan for the period 2011 to 2015 is in the approval phase.
Mission, vision and values
Mission Telekom Slovenia Group is making possible for its users, that they are always and everywhere best connected with own nearbys, co-workers and contents We are the best at connecting individuals and families, and we are the best at connecting them to services that make their life easier, with relevant information and high-quality content. We provide for the high-quality, comprehensive and reliable connection of companies and institutions, and individual devices.
Vision The leader in integrated communications, simple to use. By connecting all mobile and fixed information and communication technologies, services, multimedia content and devices, the Group will provide individuals and businesses a simple and secure user experience of the highest quality. It will thus remain the leader in the telecommunications sector in Slovenia and become a leader in the IT and media sectors. The Group will be a cost effective and profitable ICT operator on markets outside of Slovenia.
Mission Vision Values Telekom Slovenia Group is making possible for its The leader in We are a well-tuned team. users, that they are integrated We live with the user. always and everywhere communications, We are reliable and best connected with own simple to use. innovative. nearbys, co-workers and We are proud of our roots contents and talents.
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Values
We are a well-tuned team. The employees in the Telekom Slovenia Group work in a creative environment, in constant touch with the most cutting-edge technologies. We value commitment, self-initiative and entrepreneurial thinking.
We live with the user. Our guiding principle is a satisfied customer. We ensure a friendly user experience with an attractive offer, carefully thought-out services and content, and excellent support.
We are reliable and innovative. We have the most reliable and extensive networks, which will continue to ensure high-quality services in the future. We are pioneers in the introduction of the latest generations of mobile and fixed telecommunications and multimedia content, and above all ensure their interconnectivity.
We are proud of our roots and talents. We invest responsibly in Slovenian society and the environment, and support the development of local expertise and the exchange of experiences and innovative solutions between the markets on which we operate. We are responsibly aware of our importance to all of our partners and owners.
Strategic guidelines and objectives of the Telekom Slovenia Group
The key strategic goal of the Telekom Slovenia Group is to be the leading telecommunications operator in Slovenia in 2015, and a provider of innovative services, with a stable market share, that builds on its competitive advantages with regard to customers, quality and technological innovation. The Telekom Slovenia Group will be a growing and profitable alternative operator on the markets of south-eastern Europe, whose cost effectiveness will be ensured in part by synergies within the Telekom Slovenia Group.
We will focus on the Slovenian market, where market synergies are in place: − between fixed, broadband and mobile communication services for residential users; − between telephony and ICT services (Avtenta.si, d. o. o.) for business users; − between Planet 9, d. o. o. and Najdi, informacijske tehnologije, d. o. o.; and − between GVO, d. o. o. and Telekom Slovenije, d. d.
In order to exploit the aforementioned synergies and strategic advantages, the Telekom Slovenia Group needs an appropriate organisational structure that will facilitate the optimisation of operations. To that end, the Management Board drafted a detailed report in the scope of the Orion project, with a primary focus on the merging of Telekom Slovenije, d. d. and Mobitel, d. d. into a single company. The merger will facilitate the rounding off and optimisation of service-related business processes in one location. The Supervisory Board approved the detailed report at its December meeting, while introduction of adopted technical solutions began at the beginning of 2011. The merged company will begin operating on 1 July 2011.
With its new organisational structure, the Telekom Slovenia Group will be prepared to implement its new strategic guidelines, which include the following:
- growth in revenues and maintaining the market shares of telecommunication services in Slovenia; - development of ICT services; - development of digital media advertising and the monetisation of digital media and applications in Slovenia; - development of international wholesale services; - profitable growth in selected countries of south-eastern Europe; - systematic reduction of procurement costs and investments; - development of human resources, increase in labour productivity, and restructuring from a technologically oriented company to a sales and service oriented company; - quality and business excellence; and - sustainable development.
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Realisation of plans in 2010
The Telekom Slovenia Group generated EUR 843.5 million in operating revenues in 2010, down 1.5% on the previous year. EBITDA stood at EUR 247.2 million, down 8%. The EBITDA margin was down 6% to stand at 29.3%.
During the second half of 2010, Telekom Slovenije began verifying the fair value of investments in subsidiaries in Macedonia, Kosovo, Albania, the Republic of Srpska, and in the subsidiary Najdi, Informacijske storitve. The assessment of the certified appraiser indicated that the recoverable amount of investments in foreign subsidiaries has fallen below their book value. For this reason, the Telekom Slovenia Group recorded impairments of assets in the amount of EUR 211.2 million, disclosed under other operating expenses. Together with impairments owing to the non-payment of contractual obligations by alternative operatives, this resulted in a significant deterioration in the Group's operating result in 2010.
EBIT (earnings before interest and taxes) was negative in the amount of EUR 178.5 million due to the aforementioned impairments. Excluding the impairment of goodwill and other property, plant and equipment and intangible assets in the total amount of EUR 211.2 million, operating profit would have stood at EUR 32.7 million and would have been EUR 20 million higher in the context of regular payments by alternative operatives (which would have precluded the need to impair receivables). Following the calculation of corporate income tax in the amount of EUR 7.9 million, the Telekom Slovenia Group disclosed a net loss of EUR 210.3 million in 2010.
The adjusted values of investments resulted in a decrease in equity and in the debt-to-equity ratio. The Group, however, remains less indebted than the average European telecommunications operators.
Plans for 2011
Owing to the operating results achieved in 2010 and other objective economic and market circumstances, the Management Board of Telekom Slovenije, d. d. has already adopted and is in the process of implementing measures to improve the situation and realise plans for 2011.
The aforementioned measures are primarily based on: - reducing all types of costs; - the restructuring of operations in Macedonia and Kosovo; - the possible sell-off of non-strategic investments; - changes in sales and marketing, - the restructuring of business process and the reduction of procurement costs; - the optimisation of working capital; - the protection of claims for regulated services and - the optimisation and sale of real estate.
In the current circumstances, the governance of subsidiaries must be adapted or a new method of governance established. Costs must also be reduced. The merger of Telekom Slovenije and Mobitel, planned for the middle of the year, is needed to meet long-term market objectives and to exploit all synergies in the area of electronic communications, IT and media. Only consolidated operators, who cost-effectively draw on economies of scale and scope that arise from offering numerous services in a single network, can survive in the long term.
The target net profit for the Telekom Slovenia Group in 2011 is EUR 28.1 million.
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1.5 The Telekom Slovenia Group on the map of Europe
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1.6 Organisation of the Telekom Slovenia Group
As at 31 December 2010 the Telekom Slovenia Group comprised the parent company Telekom Slovenije, d. d., 14 direct subsidiaries, 10 indirect subsidiaries and one joint venture.
* Telekom Slovenije, d. d. increased the capital of the Macedonian company One in the total amount of EUR 40 million in November and December 2010. The final increase in capital was registered on 12 January 2011.
Changes in the composition of the Group in 2010 were as follows:
- In January 2010 the subsidiary Primo Communications, d. o. o. took over its subsidiary Bindi Integrated Services JSC.
- The Dutch company Telekom Slovenije Finance B.V. ceased operations in March following a fast- track liquidation procedure. The company was established for the purpose of issuing bonds that were subsequently issued directly by Telekom Slovenije, d. d. There was thus no reason for the company's continued existence.
- Germanos Telecom, AD Skopje was renamed One to One, AD Skopje on 13 April 2010.
- The Dutch subsidiary SIOL, B.V. began liquidation proceedings on 26 May 2010. For this reason, the company's name was changed to SIOL, B.V. in liquidation.
- The Macedonian company One, AD Skopje was transformed into a limited liability company on 15 October 2010. For this reason, the company's name was changed to One, d. o. o. e. l., Skopje. The name was subsequently changed to One, d. o. o., Skopje with the entry of a new shareholder.
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- On 10 November 2010 the Macedonian company One, d. o. o., Skopje acquired a 16.62% participating interest in the Macedonian subsidiary On.net, d. o. o., Skopje from a minority shareholder.
- By increasing the capital of the Macedonian company One, d. o. o., Skopje, Telekom Slovenije, d. d. acquired a 20.53% participating interest in the aforementioned company, while the participating interest of SIOL, B.V. was reduced to 79.47%.
- The Croatian company Pogodak Tražilica, d. o .o., which is fully owned by the subsidiary Najdi, informacijske storitve, d. o. o., began liquidation proceedings on 27 December 2010. For this reason, the company's name was changed to Pogodak Tražilica, d. o. o. in liquidation.
- On 30 December 2010 Telekom Slovenije, d. d. purchased Mobitel, d. d.'s 50% participating interest in Planet 9, d. o. o., thereby becoming the sole owner.
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1.7 Report of the Supervisory Board
The Supervisory Board functioned during the financial year in the composition as elected at the 15th General Meeting on 22 April 2009. Toma ž Berginc, MSc served as President, while Dr Toma ž Kalin and Milan Richter served as Vice-Presidents. Other members of the Supervisory Board were Ciril Kafol, MSc, Dr Jaroslav Berce, Dr Marko Ho čevar, Dr Zvonko Kremljak, Branko Sparavec and Martin Gori šek.
Work of the Supervisory Board The Supervisory Board of Telekom Slovenije, d. d. held 14 ordinary sessions in 2010. No correspondence sessions were held. The number of sessions reflects the extraordinarily complex problems in operations in 2010. The majority of sessions were held at the company's registered office while one was held in Pristina and another in Skopje. The Supervisory Board prudently and responsibly monitored and supervised the operations of Telekom Slovenije, d. d. Its primary focus was of the operations of the Telekom Slovenia Group as a whole, while it also monitored the operations of individual Group companies.
The Supervisory Board assesses that the Management Board of Telekom Slovenije, d. d. provided sufficient data, reports and information. Materials were received on time, so that members of the Supervisory Board could prepare for and discuss individual items on the agenda.
The members of the Supervisory Board function independently.
The Supervisory Board comprises competent members who are experts in their fields. With their experiences and familiarity of the company, employee representatives also bring a different view to the motives and behaviour at the company.
The majority of members of the Supervisory Board attended all sessions. All members were present at eight sessions. One member was absent from four session, while two members were absent from three sessions. The majority of decisions were approved unanimously, reflecting the uniform view of members with regard to problems and their resolution.
One of the most important decisions made by the Supervisory Board in 2010 was the creation and appointment of Telekom Slovenije, d.d.'s new Management Board. The new President of the Management Board, Ivica Kranj čevi ć, was appointed in 2009 on the basis of public tender. His term of office began when the term of office of the previous President of the Management Board, Bojan Dremelj, MSc, expired on 13 March 2010. Du šan Miti č ended his term of office prematurely on 30 April 2010, while Dr Filip Ogris-Marti č and Željko Pulji ć, MSc completed their four-year terms of office. The term of office of Workers Director Darja Senica also expired in 2010. She was reappointed as member of the Management Board and Workers Director. The Supervisory Board appointed the remaining members of the Management Board: Zoran Vehovar, MSc and Marko Bo štjan čič on 1 May 2010, and Dr Jo žko Peterlin on 1 June 2010. The members of the Management Board were approved based on the proposal of the Supervisory Board's Human Resources Committee and the President of the Management Board. The new Management Board began functioning in its full composition on 1 June 2010 and immediately faced extensive and complex challenges. In the area of human resources, the Supervisory Board approved the replacement of members of boards of directors and the managing directors of subsidiaries.
The Supervisory Board monitored the operating results of the Telekom Slovenia Group. Since assessments of operations and forecasts of results indicated deviations from the annual plan, the Supervisory Board approved a revised plan for 2010 in the middle of the year and laid it upon the Management Board to draft the Telekom Slovenia Group's strategic plan for the period until 2015, which is expected to be adopted soon.
The Supervisory Board regularly monitored results, in terms of both costs and revenues, and requested that the Management Board implement prompt measures. It constantly emphasised that raising revenues in the short term is not possible, and that this alone will not lead to a significant improvement in operations. Special attention was given to the results of subsidiaries abroad (primarily to One, d. o. o. and Ipko, d. o. o.), as it was apparent at mid-year that they would not achieve their business plans. The refinancing of loans and an increase in the capital of a Macedonian company
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WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d. were required. There were thus personnel changes and changes to business plans at the aforementioned companies.
Owing to the failure to achieve business plans in previous years and in 2010, and due to amended plans for the future, an assessment of Telekom Slovenije, d. d.'s financial investments in certain subsidiaries was required at the end of 2010. Appraisals indicated the need to impair investments in the total amount of EUR 211.2 million, which had a significant impact on operating results in 2010. The Supervisory Board gave special attention to the inappropriate governance mechanisms of acquired companies and the establishment of actual operational controls at these companies. Thus, legal relations with minority shareholders, particularly at On.net, d. o. o., had to be put in order. Measures to simplify the governance of these companies were also adopted.
Doubts arose again with regard to the purchase price of certain companies and their subsequent governance. An audit of the purchases of Interseek, d. o. o., On.net, d. o. o. and Cosmofon (now One, d. o. o.) was carried out in 2010 with the aim of clarifying circumstances and certain past business decisions. The audit identified certain business decisions that can not be assessed as prudent. The Supervisory Board insisted that individual cases be researched in depth and that legal proceedings based on expert legal opinions be initiated against those responsible.
The Supervisory Board also continuously monitored certain investments, in particular in digital cable TV in Macedonia, the construction of the regional (Balkan) fibre optic network, the construction and utilisation of the fibre optic network in Slovenia and the upgrading of electrical devices at the Cigaletova location.
Given that the majority of unfavourable trends in the operations of the Telekom Slovenia Group were linked to markets outside of Slovenia, the Supervisory Board also closely monitored developments in Slovenia and the efforts of the Management Board to maintain market shares in key segments, while maintaining the profitability of operations.
In addition to audits of Telekom Slovenia Group companies' operations by the relevant auditors, members of the Supervisory Board reviewed individual projects and adopted recommendations for the Management Board to improve internal controls. Certain findings were the result of an additional legal audit.
While monitoring the results of the Telekom Slovenia Group, it became clear that Telekom Slovenije, d. d. required a new strategic business plan. In line with the competences of its members, the Supervisory Board decided that the drafting of this plan would be monitored by one of its special committees. The most important project in the scope of the Telekom Slovenia Group's strategic plan is the restructuring of Group companies' operations, the essence of which is the merger of the fixed and mobile operators, Telekom Slovenije, d. d. and Mobitel, d. d. The project's name is Orion. The Supervisory Board monitors the project's process through a committee that also monitors the drafting of the Group's strategy, as Orion is currently the most important project in the Group. The project aims to identify synergies between the mobile and fixed operators, offer the market new convergent services and optimise the costs of the Group, while merging two companies with different operational cultures. The first results of the project should be evident with the formal legal merging of the companies on 1 July 2011. The Supervisory Board has given the project its full support.
In the scope of monitoring the operations of the Telekom Slovenia Group, the Supervisory Board requested that the Management Board amend the business plan and draft measures for the implementation of a new business plan. What was perceived during the financial year was clearly evident at the end of the year following the appraisal of investments abroad. The impairment of capital investments and assets abroad, as well as some in Slovenia, was required. The company's current liquidity was never threatened, nor was the repayment of its liabilities arising from bond issues. The Supervisory Board will regularly monitor and exert its influence over the implementation of the company's plans and new strategy, which will ensure that the company achieves expected results in the coming years.
Work of Supervisory Board committees The Supervisory Board's committees discussed important topics related to the Supervisory Board's work and advised it in important matters. This contributed significantly to improving the work and
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WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d. effectiveness of the Supervisory Board. The work of committees is described in detail in the section Corporate governance statement in the Business Report section of the annual report.
Assessment of the work of the Management Board and Supervisory Board The work of the Supervisory Board and its committees was carried out in 2010 in line with legal provisions, the Corporate Governance Code and other recommendations of the Ljubljana Stock Exchange. The Supervisory Board precisely and comprehensively verified and monitored the governance of the company. At its sessions, the Supervisory Board worked with the Management Board and its authorised representatives. It continuously assessed the work of the Management Board, in particular when it discussed interim results from the company's operations. The Management Board and Supervisory Board worked well at sessions, while the presidents of the Management Board and Supervisory Board communicated regularly between sessions. The members of the Supervisory Board continuously demonstrated their willingness for training and professional development. They attended several training programmes as a group, while individual training was also organised. Several external expert opinions were drafted for the Supervisory Board, primarily regarding possible lawsuits and claims for damages due to poor past business decisions. The Supervisory Board monitored possible conflicts of interest between its members and took a position in one case.
Approval of the annual report and the proposed use of the distributable profit for 2010
The Supervisory Board thoroughly reviewed the annual report of Telekom Slovenije, d. d. and the Telekom Slovenia Group for 2010 by the legally prescribed deadline. The Supervisory Board finds that the Telekom Slovenia Group did not perform in line with expectation in 2010. Deep-rooted changes in operations are required for the Telekom Slovenia Group to reach a level comparable with that of similar European operators in terms of performance indicators. Projects were launched in 2010 aimed at re-establishing the Telekom Slovenia Group as one of the most successful companies in Slovenia and at ranking Telekom Slovenije, d. d. among other comparable operators. The Group's main projects are the merger of Telekom Slovenije, d. d. and Mobitel, d. d. and the drafting of the Telekom Slovenia Group's new strategy.
The Telekom Slovenia Group generated EUR 843.5 million in operating revenues in 2010. EBITDA, adjusted for the effect of impairments, stood at EUR 247.2 million in 2010, or 92% of that achieved a year earlier. Earnings before interest and taxes (EBIT) was negative in the amount of EUR 178.5 million due to the aforementioned impairments. Following the calculation of corporate income tax in the amount of EUR 7.9 million, the Telekom Slovenia Group disclosed a net loss of EUR 210.3 million in 2010 .
The Supervisory Board was briefed on and discussed the audit report, in which the certified auditors of Ernst & Young find that the financial statements, which are an integral part of the annual report, present a true and fair picture of the financial position of the company and the Group, their financial and operating results and changes in equity. The Supervisory Board had no comments regarding the audit report. It likewise had no comments or reservations that would prevent the adoption of a decision to approve the annual report and consolidated annual report.
The Supervisory Board finds that the annual report is a credible reflection of developments and a comprehensive source of information regarding operations in 2010. The annual report of Telekom Slovenije, d. d. and the consolidated annual report of the Telekom Slovenia Group, with the accompanying audit report for 2010, were approved by the members of the Supervisory Board at its meeting of 21 April 2011. We thus hereby formally approve the annual report in accordance with the provisions of Article 282 of the ZGD-1.
Toma ž Berginc, MSc President of the Supervisory Board of Telekom Slovenije, d. d.
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1.8 Corporate governance statement
Corporate governance at Telekom Slovenije, d. d. and the Telekom Slovenia Group is based on upholding valid legislation and on the recommendations of Slovenia’s Corporate Governance Code, and is modelled on international recommendations of best corporate governance practices, such as the EU recommendations and the OECD principles of corporate governance. Uniform principles of governance are applied at the Group's subsidiaries, in accordance with the valid regulations of individual countries.
Corporate governance system
The parent company Telekom Slovenije, d. d. has a two-tier corporate governance system. The Supervisory Board monitors and responds to the work of the Management Board, and carries out its supervisory function in the scope of its competences. Members of the Management Board are appointed and discharged by the Supervisory Board. The Management Board represents the company and manages its transactions independently, on its own account. To that end, the Management Board makes decisions that are in line with the company's strategic objectives and in the interest of shareholders. In addition to valid legislation, the functioning of the Supervisory Board, Management Board and General Meeting is set out in the rules of procedure of the Management Board and Supervisory Board, and in Telekom Slovenije, d. d.'s Articles of Association. The aforementioned documents are accessible at www.telekom.si in the Investor relations section.
General Meeting
Work of the General Meeting The shareholders of Telekom Slovenije, d. d. met at the 17th General Meeting held on 1 July 2010.
A total of 5,258,387 shares or 80.83% of voting rights were represented.
Shareholders adopted the following resolutions: - A resolution on amendments to Telekom Slovenije. d. d.'s Articles of Association, which primarily relate to the convening of the General Meeting, conditions for participation in the General Meeting, conditions for proposing resolutions and conditions for profit sharing by the Management Board. - Shareholders approved the proposed use of the distributable profit for 2009. - Following the decision that a vote of confidence as regards the members of the Supervisory Board be carried out separately, shareholders conferred official approval on the members of the Supervisory Board and shareholder representatives for the period 26 April to 31 December 2009. With a majority of 66.724% of votes, shareholders voted against the adoption of a resolution conferring official approval on the Management Board, members of the Supervisory Board and shareholder representatives for the period 1 January to 25 April 2009, and on employee representatives for the period 1 January to 31 December 2009. - The audit firm Ernst & Young, d. o. o. was appointed to audit the financial statements of Telekom Slovenije, d. d. for the 2010 financial year.
Shareholders were also briefed on the Supervisory Board's report confirming the annual report for 2009, and on the rules regarding other rights of members of the Management Board pursuant to the Act Governing the Earnings of Management Staff at Companies Under the Majority Ownership of the Republic of Slovenia and Self-Governing Local Communities.
Three shareholders stated they would challenge resolution 4.1 on the use of distributable profit, while one motion related to resolution 4.2 on the conferring of official approval on the Management Board for the 2009 financial year. The aforementioned motions were not brought forth.
Exercise of shareholders’ rights Telekom Slovenije, d. d. shareholders exercise their rights in company matters at the General Meeting, which functions pursuant to the Companies Act (ZGD-1). The convening of the General Meeting and other important matters related thereto are governed pursuant to valid legislation by the Telekom Slovenije, d. d.'s Articles of Association, which are published at www.telekom.si in the Investor relations section.
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The corporate governance system of Telekom Slovenije, d. d. upholds the principle of equal treatment of shareholders, and facilitates the consistent exercise of their legally defined rights. In announcing the convening of the General Meeting correctly and in due time, the company facilitated the active exercising of shareholders' rights. Pursuant to the amended ZGD-1, last year the General Meeting adopted amendments 37 and 38 to the company's Articles of Association, relating to the conditions and deadlines for convening the General Meeting, the right to participate, the appointment of proxies and the submission of proposed resolutions. The main changes were as follows: - the possibility to appoint a proxy via electronic medium; - the convening of the General Meeting must be published at least 30 days prior to General Meeting; - the date published in the Official Gazette is deemed to be the official date of the meeting's convening; - shareholders, whose holdings together represent one-twentieth of share capital, may request an additional item to be included on the agenda following the publication of the General Meeting's convening. The procedure for doing so is also described; and - shareholders may submit proposals in writing to each point on the agenda. The procedure for doing so is also prescribed.
Amendments to the Articles of Association are published in their entirety in the resolutions of the 17th General Meeting, which are accessible at www.telekom.si in the Investor relations section, where all materials from the General Meeting are also published. The convening of the General Meeting is also published in the Official Gazette. Materials are accessible by shareholders at the website stated above, and at the information offices at the company's registered office from the date of publication of the convening of the General Meeting until the date of the meeting. The company regularly publishes important information for shareholders on its website in the Investor relations section and on the Ljubljana Stock Exchange's SEOnet system. The company also publishes a TLSG newsletter four times a year.
More information regarding communications with investors may be found in the section Communication in the Sustainable Development Report.
Supervisory Board
Work of the Supervisory Board The Supervisory Board carried out its task of supervising the company's transactions objectively and professionally, and was regularly briefed on the operations of the parent company and of the Telekom Slovenia Group. It met at 14 sessions, at which it discussed the following important matters: - the audit of investments in companies from previous years; - the consolidation and restructuring of the Telekom Slovenia Group's operations; - the approval of plans for the next period; - cost control; - the appointment of the Management Board; and - the strengthening of cooperation between the Internal Audit Service and the Supervisory Board's Audit Committee.
Additional information regarding the work of the Supervisory Board is presented in the Report of the Supervisory Board.
Composition of the Supervisory Board The Supervisory Board comprises nine members, six of whom are shareholder representatives and three of whom are employee representatives. The members of the Supervisory Board submitted a statement of compliance with criteria of independence in accordance with the Corporate Governance Code.
The Supervisory Board comprised the following members as at 31 December 2010:
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Shareholder representatives:
1. Tomaž Berginc, MSc (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, social information technology; - employed at the University of Ljubljana’s Faculty of Social Sciences. 4. Dr Marko Ho čevar - employed at the University of Ljubljana’s Faculty of Economics; - member of the supervisory board of Elan. 5. Ciril Kafol, MSc - holds a master’s degree in economics; - Managing Director of DARS. 6. Dr Zvonko Kremljak - holds a doctorate in science; - employed at the Ministry of the Economy.
Employee representatives:
1. Milan Richter (Vice-President) - electrical and electronic engineer, - employed in 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 the network maintenance centre and the provision of services in Celje, Telekom Slovenije, d. d. - member/president of the Works Council. 3. Branko Sparavec - holds a degree in management; - head of the user technical support group at Telekom Slovenije, d. d.
The Supervisory Board functioned in the same composition for the entire year. The four-year term of office of shareholder representatives ends on 26 April 2013, while that of employees representatives ends on 13 November 2013.
Supervisory Board committees – composition and function The Audit Committee met 12 times, primarily to discuss reports from the Internal Audit Service and its annual work plan. It also verified the Telekom Slovenia Group's annual report.
The committee's members are: - Dr Marko Ho čevar - Dr Jaroslav Berce - Dr Zvonko Kremljak - Branko Sparavec - Dr Sergeja Slapni čar (external committee member)
Two sessions were also attended by the certified auditors of Ernst & Young, while two sessions were attended by the company's lawyer (when the Audit Committee reviewed provisions and the risks arising from lawsuits). Representatives of Telekom Slovenije, d. d.'s Internal Audit Service were regularly invited to sessions. The Audit Committee initially worked with the auditors of PWC during the audit of the company's strategic investments and possible damages incurred during the purchase
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WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d. thereof. This function was subsequently assumed by the Management Board. Special attention was given to risk management and the regular monitoring of this area. The Audit Committee worked with the external auditors of Ernst & Young during the audit of operations, and with P&S Capital, d. o. o., which reassessed the value of investments abroad. The committee verified risks arising from lawsuits and the related provisions.
The Technical Committee met six times to discuss technical and IT matters, including the construction of a regional fibre optic network.
Its composition was as follows: - Ciril Kafol, MSc - Dr Toma ž Kalin - Martin Gori šek
The committee reviewed the information systems scheme and the progress of IT system projects, as well as the development of Telekom Slovenije, d. d.'s network and services. It was briefed on the progress of construction of the fibre optic network and its capacity. It also monitored the planning phase of the construction of the regional (Balkan) fibre optic network. Special attention was given to the completion of the upgrading of electrical devices at Cigaletova 15. The committee also reviewed individual purchases of technical equipment.
The Human Resource Committee met seven times to discuss candidates for members of the company's Management Board and candidates for management positions at important subsidiaries. It also discussed the Management Board's remuneration system.
Its composition was as follows: - Toma ž Berginc, MSc - Dr Toma ž Kalin - Milan Richter
The committee carried out all preparatory steps for the selection of new Management Board members and issued preliminary opinions for approval by the Supervisory Board regarding the appointment of new members of boards of directors and managing directors at subsidiaries. Following preliminary discussions by the Human Resource Committee, the Supervisory Board approved the new employment contracts of Management Board members, which were drafted in line with the new act in this area. A remuneration system for members of the Management Board was also developed on the basis of the aforementioned act.
In 2010 the Supervisory Board established a committee to monitor Telekom Slovenije's strategy and the Orion project . The committee met eight times to discuss the progress and content of the consolidation of companies within the Telekom Slovenia Group and the drafting of the company's strategy.
Its composition was as follows: - Dr Jaroslav Berce - Dr Zvonko Kremljak - Milan Richter - Dr Bogomir Kova č (external committee member)
The committee initially focused on the business plan methodology, and was later included in the overall process of drafting the document. The strategic business plan will be finalised in 2011. The committee also followed the progress of preparations for and the implementation of the Orion project.
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, attendance fees were set in the following amounts: - EUR 275 per session for members of the Supervisory Board other than the President; and - EUR 357.50 per session for the President of the Supervisory Board.
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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 Financial Report.
Management Board
Work of the Management Board
The Management Board of Telekom Slovenije, d. d. met at 16 regular sessions in its previous composition and a mixed composition in 2010. In its new composition, the Management Board met and took decisions at 36 regular and 9 correspondence sessions. In addition to business decisions regarding the regular operations of the parent company and the Telekom Slovenia Group as a whole, the Management Board, in its current composition, focused on preparing for and carrying out the merger of Telekom Slovenije, d. d. and Mobitel, d. d. in the scope of the Orion project.
It also drafted the strategic development plan for the period 2011 to 2015, in which it set out the basic development strategies for the future operations of the merged parent company and the Telekom Slovenia Group. In 2011, in accordance with the recommendations of the Corporate Governance Code, the Management Board will adopt a Governance Policy, as a commitment to continuously improving the effectiveness of corporate governance of Group companies.
Composition of the Management Board Telekom Slovenije, d. d. is managed by a five-member Management Board, whose four-year term of office began in 2010. The Management Board comprised the following member as at 31 December 2010:
1. Ivica Kranj čevi ć (President) - holds a degree in electrical engineering; - has spent a significant part of his career working in the telecommunications sector, managing areas related to engineering, technology and informatics at the former PTT, Telekom Slovenije, d. d. and Mobitel, d. d.; - he began his term of office on 13 March 2010.
2. Zoran Vehovar, MSc (Vice-President) - holds a master's degree and degree in electrical engineering; - has spent the last 14 years at Mobitel, d. d., managing various organisational units in the area of mobile communications; - is a frequent speaker at domestic and foreign professional meetings and conferences; - he began his term of office on 1 May 2010.
3. Marko Boštjan čič - holds a degree in law; - has worked his entire career in telecommunications; - he began his term of office on 1 May 2010.
4. Dr Jožko Peterlin - holds a doctorate in economics; - has worked his entire career in the field of finance, and is an expert in risk management, lecturing at the faculty and professional meetings; - he is the president of the Slovenian Corporate Treasurers' Association, and is a member of two international treasurers' committees; - he began his term of office on 1 June 2010.
5. Darja Senica (Workers Director) - holds a degree in economics; - worked in the areas of finance and marketing at PTT Celje and at Telekom's business unit in Celje. At Telekom Slovenije, she has participated in various projects, including the restructuring and reorganisation project, and in projects related to the wage system and collective agreement;
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- was president of the Works Council and a member of Telekom Slovenije's Supervisory Board; - she began her third term of office on the Management Board on 8 April 2010.
The term of office of the President of the Management Board, Bojan Dremelj, MSc, expired on 13 March 2010, while the terms of office of members dr Filip Ogris-Marti č and Željko Pulji ć, MSc expired on 30 April 2010. The term of office of the Vice-President of the Management Board, Dušan Miti č, also expired on 30 April 2010.
A comprehensive presentation of the Management Board is given at www.telekom.si in the Organisation section.
Remuneration of the Management Board The earnings of the Management Board are set out in members' employment contracts and are in line with the Act Governing the Earnings of Management Staff at Companies Under the Majority Ownership of the Republic of Slovenia and Self-Governing Local Communities (ZPPOGD). The conditions for profit sharing by the Management Board are governed by the company's Articles of Association. In accordance with a General Meeting resolution, the 45th amendment to the Telekom Slovenije, d. d.'s Articles of Association was adopted, setting out the remuneration of the Management Board and profit sharing. Under the amended Articles of Association, the Management Board may share in profits, provided that the law so permits, if the company's return on equity exceeds 5%. The total amount of remuneration of the Management Board may not exceed 2% of the amount earmarked for the payment of dividends to shareholders.
The earnings of the Management Board in 2010 are presented in the Financial Report.
Management and governance of subsidiaries
The Management Board of the parent company actively monitored and, through membership on supervisory boards and boards of directors, supervised the operations of Telekom Slovenia Group subsidiaries in accordance with strategic guidelines and with the aim of achieving established business objectives. The same standards of corporate governance that apply to the parent company of the Telekom Slovenia Group are applied to the governance and management of the subsidiaries.
Composition of management and supervisory bodies at subsidiaries of the Telekom Slovenia Group as at 31 December 2010
Slovenia Mobitel, d. d. Board of Directors: Ivica Kranj čevi ć, President, Zoran Janko, Zoran Vehovar, MSc, Marko Boštjan čič, Dr Jožko Peterlin, Tjaša Škrilec and Branko Miklav čič CEO: Zoran Janko Notes: The company has a single-tier system of corporate governance. Metod Zaplotnik was a member of the Board of Directors until 15 February 2010, while Klavdij Godni č was a member of the Board of Directors and CEO until 28 February 2010. On 30 April 2010 Dr Filip Ogris-Marti č and Željko Pulji ć, MSc were relieved of their positions based on their resignations. Ivica Kranj čevi č is a member of the Board of Directors since 12 February 2010, and President since 1 March 2010. Zoran Vehovar, MSc is a member of the Board of Directors since 1 March 2010, while Zoran Janko is CEO since the same date. Marko Boštjan čič is a member of the Board of Directors since 1 May 2010, and Vice-President since 10 June 2010. Dr Jožko Peterlin is a member of the Board of Directors since 1 June 2010.
GVO, d. o. o. Managing Director: Edo Škufca Notes: Jožefa Guzej served as Managing Director until 28 February 2010.
Avtenta.si, d. o. o. Managing Director: Iztok Klan čnik Iztok Klan čnik was relieved of his position as Managing Director on 28 February 2011, and replaced by Vedran Krevatin on 1 March 2011.
Najdi, informacijske storitve, d. o. o.
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Managing Director: Bojana Sonnenwald Turk
Planet 9, d. o. o. Managing Director: Rudolf Skobe
Other countries
Ipko Telecommunications, d. o. o. Board of Directors: Ivica Kranj čevi ć (President), Bujar Musa (Vice-President), Akan Ismaili, Klavdij Godni č and Branko Babi č CEO: Branko Babi č Notes: Management and governance are realised in line with the relevant legislation in Kosovo. As of 15 April 2010 Ivica Kranj čevi ć is the President of the Board of Directors, replacing Dušan Miti č who was relieved of his position on the same day. Branko Babi č was relieved of his position as member of the Board of Directors and CEO on 1 February 2011, and replaced by Robert Erzin, MSc on the same day.
Aneks, d. o. o., Banja Luka Managing Director: Igor Bohor č, MSc Notes: Management and governance are realised in line with the relevant legislation in the Republic of Srpska (Bosnia and Herzegovina). Darko Simi čevi ć was a member of the Board of Directors until 5 February 2010, when he was relieved of his position and replaced by Nebojša Antonijevi ć, MSc. As of 15 April 2010 Zoran Vehovar, MSc is a member of the Board of Directors, replacing Željko Pulji ć, MSc who was relieved of his position on the same day. All members of the Board of Directors, including President Zoran Vehovar, MSc, Boštjan Kralj, MSc and Nebojša Antonijevi ć, MSc, were relieved of their positions at the General Meeting of 16 July 2010. Their term of office ended when the aforementioned change was registered on 6 August 2010.
Primo Communications, d. o. o. Directors: Robert Erzin, MSc, Visar Dobroshi, Meta Zakrajšek and Barbara Kozari ć CEO: Visar Dobroshi Notes: Management and governance are realised in line with the relevant legislation in Albania. On 1 May 2010 Robert Erzin, MSc replaced Dušan Mitič, who was relieved of his position on the same day, as Managing Director. On 27 July 2010 the company's General Meeting relieved Ylli Panariti, Bujar Musa and Boštjan Kralj, MSc from their positions based on their resignations, and appointed Visar Dobroshi as CEO and Meta Zakrajšek and Barbara Kozarić as directors. Visar Dobroshi and Robert Erzin, MSc have tendered their resignations. Visar Dobroshi will serve in his function until the end of March 2011, while Robert Erzin, MSc will serve in his function until the end of January 2011.
Gibtelecom Limited Board of Directors: Joe Holliday (President), Tim Bristow, Dilip D. Tirathdas, Dr Jožko Peterlin, Zoran Vehovar, MSc and Brigita Boh, MSc CEO: Tim Bristow Notes: Management and governance are realised in line with the relevant legislation in Gibraltar. Ivica Kranj čevi ć and Dr Filip Ogris-Marti č were members of the Board of Directors until 20 May 2010, when they were replaced by Dr Jožko Peterlin and Zoran Vehovar, MSc. Klavdij Godni č was replaced as member of the Board of Directors on 27 October 2010 by Brigita Boh, MSc.
SIOL, d. o. o., Croatia Managing Director: Janez Marovt Note: Management and governance are realised in line with the relevant legislation in Croatia.
On.net, d. o. o., Skopje Managing Director: Klavdij Godni č Procurator: Janez Marovt Note: Management and governance are realised in line with the relevant legislation in Macedonia. Predrag Čemeriki ć was Managing Director until 11 November 2010. Dušan Miti č and Dr Mitja Štular were members of the Supervisory Board until 16 July 2010, when they were relieved and replaced by Klavdij Godni č and Lea Benedej čič. Aleksandar Trajkovski was a member of the Supervisory Board from 14 October 2010, when he replaced Vladimir Peševski who
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WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d. resigned his position in 2009. The entire Supervisory Board, comprising Klavdij Godni č, Lea Benedej čič and Aleksandar Trajkovski, was dismissed on 11 November 2010 owing to a change to the articles of association.
SIOL, B.V. in liquidation Liquidator: Barbara Kozari ć Notes: Management and governance are realised in line with the relevant legislation in the Netherlands. Boštjan Kralj, MSc and Darja Vrhunc were A directors, and Dr Filip Ogris-Marti č and Dušan Miti č, B directors until 30 April 2010. Tomaž Cirman was liquidator until 30 November 2010, and replaced by Barbara Kozari ć, effective 1 December 2010. The company is in liquidation since 26 May 2010.
One, d. o. o., Skopje Directors: Klavdij Godni č and Dejan Kalinikov Notes: Management and governance are realised in line with the relevant legislation in Macedonia. Olivier Poncin and Dr Filip Ogris-Marti č were members of the Board of Directors until 28 February 2010. Klavdij Godni č and Ivica Kranj čevi ć are members of the Board of Directors since 1 March 2010. Dušan Miti č was a member of the Board of Directors until 1 May 2010, when he was replaced by Branko Babi č. On 15 October 2010 the entire Board of Directors, comprising Klavdij Godni č, Dejan Kalinikov, Ivica Kranj čevi ć, Branko Babi č, Boštjan Kralj, MSc and Procurator Janez Marovt, was dismissed and replaced Directors Klavdij Godni č and Dejan Kalinikov. Dejan Kalinikov tendered his resignation on 17 January 2011 and was relieved of his position as Director by the General Meeting. The company will have only one director owing to a change in its governance.
One to One, AD, Skopje Board of Directors: Klemen Ramoveš (Executive Director); Tatjana Veljkovikj and Dejan Kalinikov (Non- Executive Directors) Notes: Management and governance are realised in line with the relevant legislation in Macedonia. The company's name was Germanos Telecom, AD, Skopje until 13 April 2010. ON 15 April 2010 Tatjana Veljkovikj replaced Dr Filip Ogris-Marti č, who was relieved of his position on the same day, as member of the Board of Directors. Igor Lokar was Procurator until 5 July 2010, when he was relieved of his position by the Board of Directors. Boštjan Kralj, MSc was Executive Director until 9 August 2010, when he was relieved of his positions and replaced by Klemen Ramoveš. Dejan Kalinikov and Tatjana Veljkovikj tendered their resignations from their positions on the Board of Directors on 17 January 2011. Their were relieved by the General Meeting and replaced by Janez Marovt and Barbara Kozari ć.
Digi Plus Multimedia Company Telecommunication Services Skopje, Ltd. Managing Director: Janez Marovt Notes: Management and governance are realised in line with the relevant legislation in Macedonia. Predrag Čemeriki ć was the company's Managing Director until 30 March 2010.
Internal controls related to financial reporting
With respect to ensuring financial information that meets the criteria of the International Financial Reporting Standards, the Group has established internal controls that mitigate the risks linked to financial reporting.
Accounting controls ensure: - the credibility, - accuracy and - completeness of financial data.
We provide for the regular professional training of employees, which ensures that they contribute high- quality, accurate and timely financial information in their work. The core SAP information system plays an important role in ensuring quality financial information.
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, the Internal Audit Service abides by the standards for professional practice in internal auditing, the code of professional ethics, legislation and other regulations. The scope and areas of
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WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d. 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.
The Internal Audit Service verifies performance efficiency by assessing the functioning of internal controls, by limiting risks in work procedures and by issuing recommendations for more efficient conduct, thereby contributing to greater cost-effectiveness and better company performance.
The Internal Audit Service conducted 25 audits and issued a total of 151 recommendations relating to the following areas of the Telekom Slovenia Group's operations: - corporate governance, - business process and internal controls, - procurement procedures, - investment projects, and - information security.
All reports were submitted to and discussed by companies' responsible management bodies, in accordance with the valid Rules of Procedure for Internal Auditing at the Telekom Slovenia Group. Audit reports for foreign companies were translated into English.
The Internal Audit Service reports on a half-yearly basis to the Management Board on its work and the implementation of its recommendations. Its reports are also studied by the Audit Committee of the Supervisory Board of Telekom Slovenije, d. d.
External auditing At the 17th ordinary General Meeting of Telekom Slovenije, d. d. held on 1 July 2010, the audit firm Ernst & Young, d. o. o., Ljubljana was appointed to audit the financial statements for the 2010 financial year. Audit costs are disclosed in the Financial Report of Telekom Slovenije, d. d.
Statement of compliance with the Corporate Governance Code
Telekom Slovenije, d. d. hereby submits its statement of compliance with the Corporate Governance Code, which was adopted on 8 December 2009 and entered into force on 1 January 2010 (hereinafter: the Code). The Code is publicly accessible in Slovene and English on the website of the Ljubljana Stock Exchange.
In accordance with the Recommendations on Corporate Reporting of 22 November 2010 issued by the Ljubljana Stock Exchange, the statement relates to the previous financial year, namely from January 2010 to 31 December 2010. There were no changes from the end of the accounting period to the publication of this statement on 22 April 2011.
Certain recommendations of the Code were not relevant for the company during the period in question. Consequently, the company was not in a breach of these recommendations, and they are not listed below. The obligations binding on the company or its bodies for certain cases will be fulfilled by the company if and when such cases occur. Otherwise, the company will explain any failure to comply with the Code in the 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: CORPORATE GOVERNANCE FRAMEWORK
Recommendation 1: When the next amendments are made to the Articles of Association, the company will also propose an amendment to include among the objectives that it pursues the long-term creation of value for shareholders and the consideration of the social and environmental aspects of operations with the aim of ensuring sustainable development. The company is nevertheless already pursuing these objectives.
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WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d.
Recommendation 2 (2.1 and 2.2): The adoption of a corporate governance policy is a recommendation introduced by the new Code. The company will strive to adopt a corporate governance policy by the end of 2011.
Chapter: RELATIONSHIP BETWEEN THE COMPANY AND SHAREHOLDERS
Recommendation 4.2: The call for significant shareholders to publicly disclose their investment policy in listed companies will be taken into account in the convening of the General Meeting in 2011.
Chapter: SUPERVISORY BOARD
Recommendation 6.3: This recommendation was not in force when the current Supervisory Board was established. However, the Supervisory Board will strive to make firm commitments with respect to its activities relating to the establishment and implementation of governance institutes at the company in 2011.
Recommendation 8.10: The Supervisory Board is obliged to comply with the Act Governing the Earnings of Management Staff at Companies Under the Majority Ownership of the Republic of Slovenia and Self-Governing Local Communities (ORZPPOGD4) in defining the objectives of members of the Management Board and criteria for variable remuneration.
Recommendation 9 (9.1, 9.2 and 9.3): The Supervisory Board is expected to carry out a self- assessment during the first half of 2011.
Recommendation 12 (12.1 and 12.2): The government resolution on recommendations for representatives of the Republic of Slovenia on the supervisory bodies of companies under majority state ownership was applied in determining the remuneration of members of the Supervisory Board until the appointment of bodies by the Capital Assets Management Agency of the Republic of Slovenia (AUKN). Other possible forms of remuneration, in line with the provisions of the Code and the AUKN, will be proposed at the General Meeting in 2011. Chapter: MANAGEMENT BOARD
Recommendation 16 (16.1 and 16.2): The company is obliged to comply with the Act Governing the Earnings of Management Staff at Companies Under the Majority Ownership of the Republic of Slovenia and Self-Governing Local Communities (ORZPPOGD4) in defining the system of remuneration for the Management Board.
Chapter: TRANSPARENCY OF OPERATIONS
Recommendation 20: The company will strive to adopt a corporate communications strategy in 2011. It has nevertheless defined a corporate communications strategy in the company's other acts.
Recommendation 20.2: The company complies in full with the rules of communication applying to listed companies. To that end, it has also adopted the relevant documents, which all stakeholders have been briefed on. In light of the anticipated organisational changes, the company is drawing up a master communications strategy document, which it intends to adopt in 2011. ------
Telekom Slovenije, d. d. will continue to follow the recommendations of the Code in the future, and will upgrade its corporate governance system accordingly.
Any deviation from the given statement of compliance with the Code will be published promptly by the company. Ivica Kranj čevi ć Toma ž Berginc, MSc President of the Management Board President of the Supervisory Board
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WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d.
1.9 Share trading and ownership structure
General information regarding Telekom Slovenije, d. d. shares as at 31 December 2010
Ticker symbol TLSG Ljubljana Stock Exchange, Listing prime market
Share capital (EUR) 272,720,664.33 Number of ordinary registered no-par-value 6,535,478 shares Number of shares held in treasury 30,000 Number of shareholders 12,676
Information about the movement of share prices and other information of importance to investors is published on the website www.telekom.si in the Investor relations section.
Ownership structure and largest shareholders
There were no significant shifts in the ownership structure of Telekom Slovenije, d. d. Primarily resident corporates and banks invested in TLSG shares. The most significant changes in ownership were recorded by resident corporates, who increased their stake by 0.43 percentage points to 6.64%, and by investment companies, who reduced their stake by the same amount to 2.76%.
As at 31 December 2010 there were 12,676 shareholders entered in the register of shareholders, a decrease of 726 on the same day in 2009.
Ownership structure as at 31 December 2010
52,54 % Republic of Slovenia
14,25 % SOD - state fund
10,25 % Individual shareholder
6,64 % Domestic legal persons
7,36 % KAD with PPS (state fund)
6,13 % Institucional investors
2,37 % Foreign legal persons
0,46 % Treasury shares
Changes in the ownership structure and number of shareholders Ownership Ownership as at as at 31 Name of shareholder 31 December December 2009 2010 in % in % Republic of Slovenia 52.54 52.54 Slovenska odškodninska družba, d. d. 14.25 14.25 Individual shareholders (domestic and foreign) 10.25 10.61 Resident corporates 6.64 6.21 Kapitalska družba, d. d. 5.59 5.59 Investments funds and management companies 2.76 3.19 Foreign corporates 2.37 2.25 Banks 1.81 1.63 Kapitalska družba, d. d. (PPS) 1.77 1.77 Mutual and other funds 1.23 1.20 Telekom Slovenije, d. d. 0.46 0.46 Insurance companies 0.17 0.17 BPH 0.16 0.13 Total 100.00 100.00
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WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d.
Ten largest shareholders
There was no significant change in the company's ownership. As at 31 December 2010, the ten largest shareholders held 79.99% of the company's share capital, the same as the previous year. In 2010 Intersvet, d. o. o. and Perspektiva FT, d. o. o. entered the ranks of the ten largest shareholders, while Alpe Adria Privatbank AG and NLB, d. d. dropped off the list.
Comparison of the top ten shareholders in 2009 and 2010
Shareholder as at 31 December 2010 % Shareholder as at 31 December 2009 % 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. 2.36 NFD 1 delniški investicijski sklad, d. d. 2.37 Kapitalska družba, d. d. (PPS) 1.77 Kapitalska družba, d. d. (PPS) 1.77 Delniški vzajemni sklad Triglav steber 1 0.85 Delniški vzajemni sklad Triglav steber 1 0.85 Perspektiva FT, d. o. o. 0,75 Poteza naložbe, d. o. o. 0.70 Intersvet, d. o. o. 0.66 Alpe Adria Privatbank AG 0.70 Hypo Bank, d. d. 0.64 Hypo Bank, d. d. 0.67 Poteza naložbe, d. o. o. (in bankruptcy) 0.58 NLB, d. d. 0.55 Total 79.99 Total 79.99
Number of shares held by the Management Board and the Supervisory Board of Telekom Slovenije, d. d.
The table below lists the members of the Management Board and Supervisory Board who held TLSG shares as at 31 December 2010. Other members of the aforementioned bodies did not hold the company's shares.
Trading in corporate shares by representatives of the company and reporting on such transactions are governed at Telekom Slovenije, d. d. by the Rules Restricting Trading in Corporate Shares Based on Inside Information.
Overview of shares held by the Management Board and the Supervisory Board of Telekom Slovenije, d. d. Number of Name Office % of equity shares Management Board Member of the Management Board and Darja Senica 338 0.0052 Workers Director Supervisory Board Dr Tomaž Kalin Vice-President of the Supervisory Board 100 0.0015 Martin Gorišek Member of the Supervisory Board 125 0.0019 Milan Richter Vice-President of the Supervisory Board 1 0.0000 Total 564 0.0086
Share trading and key share-related financial data
TLSG shares primarily followed the movement in prices of blue-chip shares on the Ljubljana Stock Exchange, which is represented by the SBI TOP. The share price fell 36.76% compared with the prices at the beginning of the accounting period. The share price closed at EUR 86 on the last trading day of December 2010.
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WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d.
Trading statistics for TLSG shares on the Ljubljana Stock Exchange in 2010
Standard price in EUR 2010 2009 High 137.03 177.69 Low 83.60 118.00 Average 104.39 148.57 Volume in EUR thousand 2010 2009 Total volume for the year 20,824.94 33,768.95 Highest daily volume 1,031.68 5,923.80 Lowest daily volume 0.79 2.62 Average 82.97 134.54 * Note: With the migration of the Ljubljana Stock Exchange to the Xetra® international trading platform on 6 December 2010, the official price became the standard price, which replaced the former unit price.
Movement in the TLSG share price compared to the SBI TOP
140 1,050 EUR
130 TLSG 1,000
120
950 110
SBITOP 100 900
90
850 80
70 800
TLSG in EUR SBITOP
Key financial data relating to shares
31 December 31 December
2010 2009 Market price (P) of one share on the last day of trading of the year in EUR 86.00 135.00 1 Book value (BV) of one share in EUR 95.54 129.72 2 Earnings per share (EPS) -36.19 9.57 P/BV 0.90 1.04 3 Capital return per share in % -36.76% 14.41%
1 The book value of one share is calculated as the ratio of the book value of Telekom Slovenije, d. d.’s equity as at 31 December to the weighted average number of ordinary shares during the accounting period. 2 Earnings per share is calculated as the ratio of the Telekom Slovenia Group's net operating profit for the accounting period to the weighted average number of ordinary shares during the accounting period excluding treasury shares. 3 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.
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WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d.
Dividend policy
The dividend policy of Telekom Slovenije, d. d. is development-oriented and geared towards 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 in accordance with the development plan.
The General Meeting decides on the amount of gross dividend per share separately for each financial year. A resolution was passed at the 17th General Meeting held on 1 July 2010 on the payment of dividends in the gross amount of EUR 3 per share.
Treasury shares
The company held 30,000 treasury shares as at 31 December 2010, representing 0.46% of equity. The number of treasury shares has remained unchanged since their acquisition in 2003.
Data and explanations related to the Mergers and Acquisitions Act
Telekom Slovenije, d. d. recorded the following situation as at 31 December 2010 in areas related to mergers and acquisition legislation:
- There were no significant changes compared with the previous year in the structure of Telekom Slovenije, d. d.'s share capital as stated in the subsection on ownership structure in this section. - All TLSG shares are freely transferable. - Telekom Slovenije, d. d. did not have securities providing special controlling rights, nor did it place limits on voting rights. - The company was not aware of any agreements between shareholders that might place any limits on the transfer of securities or voting rights. - Management has no powers to issue or purchase treasury shares. - The company's rules on the appointment and replacement of members of management bodies, and regarding changes to the Articles of Association and the powers of management are set out in its Articles of Association.
Shareholders with a significant direct or indirect holding of the company's securities (i.e. a qualifying holding of 5% or more of voting rights) on 31 December 2010 were as follows:
- Republic of Slovenia 52.54% - Slovenska odškodninska družba, d. d. 14.25% - Kapitalska družba, d. d. 5.59%
The company's financial calendar for 2011 is published in the SEOnet system and on the company's website at www.telekom.si in the Investor relations section, where any changes to the financial calendar will be published in 2011.
Communication with investors
The Group communicated with international investors, stock market analysts and other financial publics at conferences, such as the International Investors' Conference organised by Raiffeisen Zentrobank in Zuers, Austria in April 2010, and through a "roadshow" organised by the Vienna and Ljubljana Stock Exchanges, in cooperation with Unicredit, London in October 2010. The Group participated in all major Slovenian financial events, such as the Slovene Capital Markets Day held in Ljubljana in May and December 2010.
It published a quarterly TLSG news letter and regularly reported business events on SEOnet. Telekom Slovenije was the only company in Slovenia to organise and broadcast its General Meeting over the internet. The publication Delni čar (Shareholder) was issued to coincide with the General Meeting, and a copy sent to all shareholders. As in previous years, the company was among the finalists for the Portal award.
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WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d.
1.10 Significant achievements of the Telekom Slovenia Group
January - Telekom Slovenije, d. d. and Mobitel, d. d. are both recognised as respected employers for 2009. - Avtenta.si, d. o. o. 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. - Aneks, d. o. o., Banja Luka presents the latest digital television service, "Blic TV". - In its offer, the company introduces combined packages with higher data transfer rates, including the "3 in 1" triple play package (internet, telephony and television). - The Macedonian company One, d. d., Skopje (now 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 campaign "The Time is Now for Digital".
April - The socially responsible environmental campaign Eco-Quiz, whose main sponsor is Telekom Slovenije, d. d., receives the prestigious Gold Quill PR award. - After one year, Avtenta.si, d. o .o. successfully carries out the first re-accreditation of the sihramba.eu archiving service, demonstrating for the second time that the service complies with all currently valid archiving legislation.
May - Just five months after the global presentation of the first 3D TVs, Planet 9, d. o. o., together with Telekom Slovenije, d. d., facilitates the viewing of 3D content on a 3D TV by broadcasting live matches from the French Open tennis tournament. - One, d. o. o. receives first prize in the category of corporate humanitarian activities among large and medium-sized companies for 2009, in a selection process organised by the Centre for Institutional Development (CIRA).
June - Najdi, informacijske storitve, d. o. o. offers users new online dictionaries. With the addition of Spanish, French and Italian, users now have at their disposal 10 dictionaries in 5 languages. - Telekom Slovenije, d. d. transitions to the computerised/electronic ordering of goods and services on 1 June, introducing nearly paperless operations.
July - Tia, the interactive online assistant who helps users find answers to questions related to the company, is upgraded with user links to chat rooms and the remote helpdesk. - Telekom Slovenije, d. d. hosts the Slovenian Prime Minister and the Minister of the Economy. They are briefed by the company on current topics within the Telekom Slovenia Group and on solutions to key challenges facing the Group. The meeting includes discussions focusing on the reorganisation of all Slovenian companies, which will lead to the merger of Telekom Slovenije, d. d. and Mobitel, d. d., on the legislative and regulatory framework, on difficulties arising from the default of alternative operators and on the Group's international operations in south-eastern Europe. - Telekom Slovenije, d. d. introduces the new "Custom Office" service, which enhances the range of business packages.
August - GVO, d. o. o. takes an important step in realising its strategic objectives abroad with the conclusion of its first such transaction. The initial team makes its way to Bušt ěhrad in the Czech Republic, where it will install a fibre optic cable connection for a solar power plant.
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WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d.
- Telekom Slovenije, d. d. launches SiOL BOX, a new TV communicator that brings several new features and functionalities, and represents a new user experience. With it, the company begins introducing the concept of "social television" under the SiOL brand.
September - Telekom Slovenije, d. d., with partner company presents the new MiniMSAN product, which makes the final for this year's award from the prestigious InfoVision Awards broadband forum.
October - At the Golden Drum international advertising festival, Mobitel, d. d. receives the prestigious Silver Drum award for the publication Letopis družbe Mobitel – Ogledalo uspeha (Mobitel Company Profile – Mirror of Success). - Mobitel launches a new corporate advertising campaign, which brings together tradition, care for the environment, humanitarian activities and top-flight sport under the slogan, "You Are as Big as Your Heart". - Through the sale of the SiOL BOX mascot Xobi, funds are raised for the Mali Princ (Little Prince) organisation. - Najdi, informacijske storitve, d. o. o. presents the Najdi.si map with a new look and updated content. The free Najdi.si service also offer new functionalities, such as camera views, views of city passenger traffic routes and satellite images.
November - Meetings between Telekom Slovenia Group employees, the Management Board of Telekom Slovenije, d. d., the CEO of Mobitel, d. d., the directors of organisational units of both companies and the directors of other Telekom Slovenije, d. d. subsidiaries are held throughout Slovenia. More than half of the Group's employees attend the eight meetings. - Just six months after the first 3D TVs were presented in Slovenia, Telekom Slovenije, d. d. offers SiOL TV users 3D content on demand, which they can watch on a 3D-ready TV, together with special glasses. - Telekom Slovenije, d. d. receives an award from the daily newspaper Finance for best annual report in sustainable development reporting. - The doors open to seven so-called "demo-points", where users can test and subscribe to SiOL broadband services. - In mid-November Telekom Slovenije, d. d. launches the new Trio 10M subscriber packages and offers HD channels to users on the copper-based network. Access to Twitter is introduced as a new SiOL BOX feature. - Telekom Slovenije, d. d. offers its business partners the new Click to Call 080 solution in the scope of its toll-free call number service.
December - At the beginning of December, Telekom Slovenije, d. d. introduces a new service, Secure Home, for the remote surveillance and security of apartments and small business premises. - Mobitel, d. d. selects the winners of the M:Android competition, in which more than 100 developers submitted over 150 concepts for new applications for Android mobile phones. The competitions was held in cooperation with HTC. - Avtenta.si, d. o. o.'s SAP Hosting status is successfully recertified. The audit was carried out by authorised experts from SAP AG from Waldorf, Germany.
Significant business events in 2010 are also published on the company's website at www.telekom.si.
1.11 Significant events after the balance sheet date
January - The Serbian company Pogodak, d. o .o., Belgrade, which is fully owned by the subsidiary Najdi, informacijske storitve, d. o. o., begins liquidation proceedings on 11 December 2011. For this reason, the company's name is changed to Pogodak, d. o. o., Belgrade – in liquidation.
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WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d.
February - Mobitel, d. d. and Microsoft organise the M:Windows Phone 7 competition for best Slovenian applications for mobile phones with the Windows Phone 7 operating system. - At its regular session, the Supervisory Board of Telekom Slovenije, d. d. is briefed on the next steps in the merger of Mobitel, d. d. and Telekom Slovenije, d. d., which it approves unanimously. - Telekom Slovenije, d. d. digitalises its cable TV service in line with current trends in fibre optic networks and cable systems. - Coinciding with the European Data Protection Day, the subsidiary Avtenta.si, d. o. o. receives the ISO/IEC 27000 information security certificate, as recognition of its high level of personal data security. - Telekom Slovenije, d. d. introduces the SiOL BOX S TV communicator, which offers an advanced digital TV experience and is a somewhat simpler version of the SiOL BOX.
March - The 18th general meeting of Telekom Slovenije, d. d. is held on 24 March 2011 at the request of shareholders, who together represent 5.82% of the company's share capital.
April - Planet 9, d. o. o. is merged with Najdi, informacijske tehnologije, d. o. o. The company's Managing Director is Rudolf Skobe.
1.12 Risk management
The Telekom Slovenia Group comprehensively updated its risk management system last year. The Group adopted a risk assessment and reporting methodology, and established a risk management committee with the aim of ensuring a systematic and effective risk management system. The use of the methodology was presented at workshops organised for the entire Telekom Slovenia Group.
The primary objectives of the comprehensive and prompt identification of risks and their effective management are as follows: - to increase the likelihood of achieving the Group's strategic and business objectives; - to respond more rapidly to internal and external changes; - to improve cash management; - to mitigate the impact of potential negative events; and - to optimise the risk/return ratio.
The risk management system within the Telekom Slovenia Group is coordinated by the risk management department, which constitutes part of Telekom Slovenije, d. d.'s finance department. The risk management department keeps a register of risks, 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 processes by providing technical assistance.
Identification of risks, risk management strategies and monitoring the implementation of measures
Risks are identified during the drafting of the business plan and when revisions thereto are adopted. They are also identified for every major business decision or project and for every significant change on the market. Priorities are set and the most appropriate risk management method selected with regard to the risk assessments performed and the weighing of costs and benefits. To that end, the Group decides between strategies that include assuming risk, avoiding risk, transferring risk to a third party and mitigating risk. Risks are mitigated by using various methods to protect the Group, such as establishing internal controls, implementing scenarios to reduce risks to an acceptable level, through transactions on the money market and by using derivatives, in particular interest-rate swaps (IRS) and interest-rate caps.
Regular risk reporting is carried out at the end of every quarter, while the implementation of risk management measures is monitored monthly. Risk owners, i.e. members of the Management Board,
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WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d. managing directors of Group companies, sector directors, heads of departments and other organisational units and authorised experts, are responsible for the initial recognition and monitoring of risks.
The risks faced by the Telekom Slovenia Group derive from the internal and external environments. External risks include the most significant market and regulatory risks, while internal risks include the risk of the inappropriate planning and execution of projects, the risk of inappropriate consolidation processes, the risk of poor management of strategic investments abroad and employee-related risks.
Risks from the external environment
Market risks, the impact of the economic crisis and the competitive environment The impact of the economic crisis is seen on the one hand in users, who have become more price- sensitive and thus less profitable, and in operators, who are financially strapped and recording losses due to past price wars, on the other hand. Financial difficulties and the threat of bankruptcy increase the risk of default by operators.
Highly-competitive electronic communication markets give users a large selection of various offers from numerous operators. The Telekom Slovenia Group faces the risk of adapting too slowly to new business models when introducing new services and products.
The risk of losing full ownership of a user and the associated loss of revenue is a significant business risk. It is of increasing importance to the user that the quality of service meets his or her expectations, while it is significantly less important who provides that service. The Group manages risks by communicating an image of a credible, trustworthy partner who brings the user sufficient added value. In addition, the Group continuously creates new packages of integrated solutions and services (mobile, fixed and IT) for residential and business users. Through its superior quality of services and by providing comprehensive support and customer care, the Group will further exploit opportunities for "cross-selling " and "upselling".
Regulatory risks: over-regulation in Slovenia and insufficient regulation on the markets of south-eastern Europe The fixed and mobile telecommunications markets in Slovenia are already over-regulated, while the regulation of fibre optic connections and broadband access is planned. The regulatory body could further tighten operating conditions due to a change to the future market position of the merged company. The regulatory body imposed the majority of measures with the aim of increasing competitiveness and establishing alternative operators on the market, which drives down the market share of the Telekom Slovenia Group. Additional regulation would increase the risk of a further decline in market share in the future.
To mitigate regulatory risks in Slovenia, the Group will do more than follow regulatory body's requirements; it will also actively participate in market analysis processes prior to the imposition of measures, and lobby the Competition Protection Office and APEK with the aim of helping to shape regulatory changes. The Group will exhaust all available legal remedies in the event inappropriate and disproportionate measures are introduced.
In contrast, the markets in Kosovo and Macedonia are subject to insufficient regulation, or no regulatory measures are implemented. The lack of regulation could result in the abuse of the dominant position held by operators on these markets. Irrational regulation, such as the abrogation of asymmetry without legal grounds, represents an additional risk. In addition to adverse regulatory conditions in Macedonia, there is also the risk of highly unfavourable political conditions for foreign investments.
Risks from the internal environment
Risks related to the planning and execution of projects and the consolidation of processes The restructuring of Group companies' operations is a response to changing market conditions and the basis for more efficient control of operating costs, the provision of integrated services to users and the implementation of policies adopted in the Group's strategic business plan until 2015. Significant changes in the organisational structure could result in bottlenecks or the slowed functioning of
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Risk of poor management of strategic investments abroad The Group will focus on improving the exploitation of synergies to mitigate the risk of the ineffective operations of companies abroad. This requires the thorough restructuring of foreign companies' operations. Consolidation will be carried out primarily on the network and in the area of support, and to a lesser degree in sales and marketing. Attention must be given to information security legislation when consolidating information systems at the international level.
Employee-related risks The process of merging companies within the Group will result in numerous changes that could meet opposition owing to the fear of uncertainty and the desire to maintain the status quo. Also tied to the merger is the risk of future performance, which derives in part from differences in organisational cultures and in part from insufficient knowledge of associated companies. We have also identified insufficiently transparent competences and responsibilities. Employee-related risks will be managed by monitoring and motivating key perspective personnel, through the regular provision of information, and by setting priorities and delegating.
Significant risks by individual area and market
Significant risks, to which the Group assesses that it will be exposed to in the future as well, are presented below. These risks are broken down into three groups: business, financial and operational. The list and assessment of risks was expanded to include the mobile communications market in 2010. The Group also identified and assessed significant risks in Macedonia and Kosovo.
Risks for the fixed telecommunications market
Business risks
Business risks are linked to the successful implementation of the Telekom Slovenia Group's strategy, the ability to ensure the generation of operating revenues in the short and long term, and to maintaining the value of assets and the Group's reputation.
IDENTIFIED BUSINESS RISKS Risk Method of management - A proactive sales approach, the development of different business models (leasing models for equipment, equipment Risk of changes to co-financing, an integrated turnkey offer, an additional range macroeconomic conditions of services with business partners within the Group and with affecting operations in key external partners, etc.). markets - Consistent monitoring of economic trends and actively adapting the range of products and services to new conditions. - Active participation in market analyses before the imposition of measures, alerting authorities of possible irregularities and monitoring regulatory measures. - Monitoring market development and conditions on other EU markets. Risk of regulatory pressures - 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.
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- Active market presence, continuous development of new products, services and content, and a shift to convergent services and the optimisation of the existing range of products and services. - Searching for new markets and market approaches, continuous concern for the quality of services and customers and a range of additional benefits. Risk of the migration of users to - Preparation and in-depth market research, more detailed other operators market segmentation and the adaptation of sales activities to a specific segment. - Proactive approach to subscribers with regard to notification of changes to the range of products and services and prices, and benefits and advantages. - Aggressive presentation of the Group's competitive advantages, its loyalty programme and other benefits. - Restructuring of the operations of foreign companies. Risk of poor management of - Improved exploitation of synergies, and consolidation in the strategic investments abroad areas of the network and support. Risk of regulation of call - Replace of numbering (under the responsibility of Ipko, termination to numbering d. o. o.). Ipko, d. o. o. - Planning and verifying the economic efficiency of investments. Investment risk - Continuous improvement of the quality of preparations, execution, activation and monitoring of investments. - Restructuring of the range of products and services, defining a pricing strategy and exploiting the Risk of a general drop in retail comprehensiveness of the range of products and services and wholesale fixed and mobile for the expansion of operations. telephony price levels (VoIP) - Focused and guided transition from traditional to IP services, and increasing productivity and streamlining business processes. - Open, proactive, regular and transparent communication, personal contacts, meetings and gatherings with journalists Risk of communication noise or and editors where information can be obtained. misunderstandings in relations - Complying with legislation and stock exchange with the media, the internal, communication standards. general and financial publics and - Verifying the understanding of information and the other institutions application of the "right of correction or reply" in accordance with the Media Act. - Monitoring key market trends, regulations and the operations of other operators; motivating employees to provide innovative ideas and improvements, timely response to customers' needs and shortening the time from idea to realisation; integrated and universal management of projects to launch new services; mandatory use of tested and validated solutions and devices. - Defining and managing business processes and IT system Risk of introducing new services support for new products. and products - Intensive monitoring of the quality of services and the appropriateness of processes immediately following their introduction, and prompt measures to address identified deficiencies. - Actively searching for reliable potential subscribers; concluding agreements via pilot installations; ordering of equipment with regard to actual market needs; striving for integrated solutions. - Precisely defined strategy that is in line with national Risks associated with date policies; inclusion on various councils at the national level; services political lobbying; researching of best practices.
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- Integrated solutions: inclusion of key partners and their experts; establishment of a pilot programme through a public-private partnership. - Measures to increase employee satisfaction and exhaustive provision of information, particularly in light of coming Employee-related risks changes (Orion). - Consistent implementation of internal restructuring. - Active defence before the courts and the contesting of lawsuits, striving for out-of-court settlements of disputes and Legal risks linked to lawsuits and consulting with internal and external legal experts to avoid legislation further lawsuits in sensitive business decisions. - Influencing legislative solutions through cooperation in the legislative process, by issuing expert proposals. Risk of limiting the provision of - Monitoring of operators' payments and requesting collateral wholesale services by sample for liabilities. offers owing to payment - Introduction of limits on the supply of wholesale services in indiscipline accordance with RUO, RIO, BRO, etc.
BUSINESS RISK CHART Significance* 2008 2009 2010 Risk of changes to macroeconomic conditions affecting operations in key markets Risk of regulatory pressures Risk of the migration of users to other operators Risks related to expansion to new markets Risk of poor management of strategic investments abroad Risk of regulation of call termination to numbering (Ipko) 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 introduci ng new services and products Risks associated with date services Employee -related risks Legal risks linked to lawsuits and legislation Risk of limiting the provision of wholesale services by sample offers owing to payment indiscipline * Effect x probability
Legend: green – low risk; yellow – medium risk; red – high risk; white – no risk identified.
Financial risks
The groups of risks presented below have been identified in the financial risk management policy. Detailed information about these risks is provided in the Financial Report of the Telekom Slovenia Group.
IDENTIFIED FINANCIAL RISKS Risk Method of management - Liquidity risk measures : system for planning and managing cash flows (daily monitoring, with three-month Liquidity risk and solvency risk forecasts), approved short-term credit lines at domestic banks, introduction of criteria for monitoring and planning
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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. - Introduction of quantitative measures and bases for the ongoing (quarterly) assessment and evaluation of solvency. – Monitoring on the basis of a time series: a) liquidity ratios: - short-term, accelerated and quick ratios, b) working capital management indicators: accounts receivable turnover, ratio of working capital to sales revenue, c) ratio of net debt to EBITDA and ratio of EBIT to finance costs for interest. - Introduction of an automated process in the CRM for measures in the area of sales in connection with credit risk. - 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 Subscriber credit risk specific measures. - Comprehensive and accurate subscriber data that includes a subscriber's tax number. - Coding of customers in the CRM (one code for one customer). - Accelerated collection of outstanding receivables and the introduction of bank guarantees or other collateral Operator credit risk instruments. - Conclusion of agreements on the repayment of debt. - Monitoring of financial markets, the use of interest-rate hedging instruments for 28% of loans and the contractual option to swap a variable interest rate for a fixed interest rate. Interest-rate risk - In addition to the comprehensive assessment of the target level of the hedged interest-rate position, a target proportion of loans with a fixed interest rate and loans secured by derivatives. - The use of appropriate financial instruments. Currency risk - Assessment regarding the use of appropriate financial instruments in the event of exposure to currency risk rises. Risk of amendments to tax - Monitoring of tax legislation, studying the consequences of legislation financial decisions in advance.
FINANCIAL RISK CHART Significance* 2008 2009 2010 Liquidity risk and solvency risk Subscriber credit risk Operator credit risk Interest-rate risk Currency risk Risk of amendments to tax legislation * Effect x probability
Operational risks
Operational risks are linked to the functioning, security and abuse of existing ICT networks and the planning and implementation of new ICT networks, services and devices, and to the effectiveness of processes.
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IDENTIFIED OPERATIONAL RISKS Risk Method of management - Updating of the business continuity plan. Instructions were adopted for the duty service in the event of a security incident and instructions regarding the reporting and classification of security incidents. - Linking of the emergency management plan with disaster Risks associated with the recovery plans for individual systems that support operations functioning and security of ICT and the provision of services. networks and services - Introduction of annual testing of the business continuity plan by individual sectors and responsible persons. - Enhancement of the ICT network and elements for increasing resistance to possible network failures. - Establishment of bi-level maintenance of the IP contact centre and regular preventive inspections. - Preventive maintenance and the replacement of critical elements, acquisition of additional back-up equipment from equipment that has been removed. - Introduction of new technological solutions and upgrading of Network and technology the network, taking into account real disposable resources. obsolescence risk - The clearance of more complex faults requires a higher level of expertise of maintenance personnel and more time to clear faults. The Group improves the current situation by drafting individual proposals for upgrading the existing network. - Use and upgrading of systems to prevent fraud. - Upgrading of technical security systems in facilities where increased security risks have been identified, and the Risk of fraud regular maintenance of technical security systems. - The aim is to ensure more coordinated functioning in this area between individuals responsible for work processes. Risks associated with planning - Introduction of a service-oriented architecture (SOA) and the and developing ICT technologies redundancy of network elements. Risks associated with the - The definition of risks and methods for managing, as an execution and quality of projects integral part of the start-up plan of every new project. - Introduction of contemporary approaches and standards, Risks associated with process precise monitoring of process efficiency, and the correction efficiency of processes and the merging of functions within the Group, as necessary. - Regular implementation of all measures for the maintenance of formalised quality and environmental management systems; emphasis on the implementation of internal audit, on corrective and preventive actions, and on external auditing. - Systematic approach to continous improvement in the last Risks associated with quality year of the significantly upgraded KRI/KPI system as the and environmental management basis for performance management. - The project to improve the situation in the area of IT support for reporting at Telekom Slovenije, d. d. - Replacement of all contracted partners for whom the Group has identified not-fulfilling the contract provisions. Strengthening of the relationship with the primary comprehensive waste management service provider. Risk of damage/destruction of property – direct damage (e.g. - Risk is transferred to an insurance company through natural disasters, fire and insurance coverage of the relevant amount. earthquakes)
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- Introduction of an additional system of internal controls and the implementation of redundant technological solutions to ensure the continuous charging of services, optimisation of revenue processes from realisation to payment, and the introduction of information support with respect to managing revenue-loss, fraud and credit-risk. Revenue-loss risk in "switch to - The organisation of an expanded operational group for RA bill" processes (Revenue Assurance) is also planned, including the formal definition of duties, competences and responsibilities, as well as the organisation of an RA committee. - Comprehensive control and management of data regarding the network and integration with IT work flows as the basis for introducing new IT support for the charging of services.
OPERATIONAL RISK CHART Significance* 2008 200 9 2010 Risks associated with the functioning and security of ICT networks and services Network and technology obsolescence risk Risk of fraud Risks associated with planning and developing ICT technologies Risks associated with the executio n and quality of projects Risks associated with process efficiency Risks associated with quality assurance and environmental management Risk of damage/destruction of property – direct damage (e.g. natural disasters, fire and earthquakes) Re venue -loss risk in "switch to bill" processes * Effect x probability
Risks for the mobile telecommunications market Business risks
Identified business risks Risk Method of management Risk of changes to macroeconomic conditions - Adapting the range of products and services to new affecting operations in key conditions. markets - Fast-track drafting of materials for the Competition Risk of regulatory pressures Protection Office. - Strengthened cooperation with the APEK. - Active market presence, striving to keep the range of services and devices current and aggressive market Risk of the migration of users to communication. other operators - Active recruitment of customers from other operators, particularly those who have left Mobitel in recent years. - Participation of other sectors (e.g. procurement and controlling), in addition to the director of the technology sector, in the processes of procurement, cost control and Investment risk negotiations. - Exploitation of the Group's synergies, where possible (e.g. Ipko and One). - Extensive simulations of the impact of new pricing models Risk of a general drop in retail and changes to existing price models on the company's and wholesale fixed and mobile revenues. telephony price levels (VoIP) - An analysis is being prepared of possible changes to retail pricing models, with the aim of increasing revenues.
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- All complex matters are communicated comprehensively Risk of communication noise or using various communication tools. The quality of misunderstandings in relations information receipt is monitored and additional information with the media, the internal, activities implemented if communication noise arises or if general and financial publics and there is suspicion that the risk of communication noise other institutions exists. - Prior to the introduction of new services and pricing models, it is necessary to verify to what extent they would be Risk of introducing new services accepted by the market. and products - The development of services is oriented to services requiring lower maintenance costs. At the same time, existing services are actively justified. Risk of the departure of key - The systematic monitoring and treatment of key personnel personnel is part of the company's business policy. Risk of obsolescence or - Active concern for employee training through planning for insufficient expertise of every organisational unit and employee. employees Risk related to the suspension of - Soft approach to encouraging employees to retire, resulting employment in new employment opportunities. - Compliance with the law, and the effectiveness and preventive nature of legal assessments of business Legal risks linked to lawsuits and decisions that could result in legal risks. legislation - Influencing legislative solutions through cooperation in the legislative process, by issuing expert proposals. Business risk chart Significance* 2010 Risk of changes to macroeconomic conditions affecting operations in key markets Risk of regulatory pressures Risk of the migration of users to ot her operators 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 Risk of the departure of key personnel Risk of obsolescence or insufficient expertise of employees Risk related to the suspension of employment Legal risks linked to lawsuits and le gislation * Effect x probability
Financial risks
Identified financial risks Risk Method of management - Daily, monthly and annual cash-flow plans. Liquidity risk and solvency risk - Ensuring the appropriate level of working capital. - Well-established procedures for assessing the credit ratings of new customers. Subscriber credit risk - Well-established collection procedures, monitoring the balance and level of unpaid receivables. - Ongoing filing of motions for execution. - Collateral: sureties, bills of exchange, bank guarantees. Operator credit risk - Individual agreements on the repayment of debt. Interest -rate risk - Interest-rate risk hedged by interest-rate collars. - No risk management measures have been adopted, as the Currency risk company assesses this risk as low.
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Financial risk chart Significance* 2010 Liquidity risk and solvency risk Subscriber credit risk Operator credit risk Interest-rate risk Currency risk
Operational risks Identified operational risks Risk Method of management - Redundancy must be ensured between internal and external Dependence on external partners resources, particularly in the provision of IT support. Impact of external projects - Realisation of the planned exploitation of all IT resources. - Well-ordered premises with secure access, backup power Ensuring the availability of the IT supply, and the redundant set-up of servers and disk infrastructure systems. Ensuring the availability of Redundant set-up of servers, and data security and archiving. e-communications Ensuring IT infrastructure - Systematic use and amending of passwords – centralised security administration. - Business continuity plan (BCP) and disaster recovery plan Ensuring data availability (DRP) - Functioning of the Service Desk according to ITIL Provision of user support recommendations, outsourcing of printer and work station administration. - Continuous investment in the modernisation of the network, Network and technology which has been slowed due to problems of main suppliers obsolescence risk and CAPEX limitations. - Project prioritisation. - Project portfolio management. - Quality preparation of projects. Risks associated with the - Control of implementation, the use of resources and the execution and quality of projects quality of project outputs at several levels, using several methods. - Timely identification of projects encountering difficulties and the drafting of appropriate measures for their rectification. - Several projects are being implemented with customers to Risks associated with process update work procedures (e-pen, computerisation and efficiency automation of forms, e-archiving), the aim of which is to speed up subscriber-related procedures and reduce costs. Risks associated with quality and environmental management (problems associated with - Participation in the EMS forum, through PR and cooperation possible radiation and the with local communities. resulting acquisition of new sites for base stations) Risk of damage/destruction of - Implementation of a business continuity plan and a business property – direct damage (e.g. decision on how to ensure a highly available network, even natural disasters, fire and in emergencies; insurance of assets. earthquakes)
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Operational risk chart Significance* 2010 Dependence on external partners Im pact of external projects Ensuring the availability of the IT infrastructure Ensuring the availability of e -communications Ensuring IT infrastructure security Ensuring data availability Provision of user support Network and technology obsolesce nce risk Risks associated with the execution and quality of projects Risks associated with process efficiency Risks associated with quality and environmental management (problems associated with possible radiation and the resulting acquisition of new sites for base stations) Risk of damage/destruction of property – direct damage (e.g. natural disasters, fire and earthquakes) * Effect x probability
Significant risks in Macedonia
The following significant risks remain high in Macedonia, even after the implementation of measures for their management: - the risk of the migration of users to other operators owing to the aggressive approach of the competition; - the risk of lower revenues owing to the deteriorating economic situation, resulting in declining purchasing power, and due to the unfinished merger of On.net and One and the BOOM project; - the risk of regulatory pressures – the amendment and adoption of rules that are contrary to the interests of the company; - the risk of rising costs owing to the illegal functioning of base stations (e.g. licences, lobbying, etc.), which is caused by changing construction legislation in Macedonia; - the risk of negative publicity with respect to the Group and company in the local media; and - the risk of fraud.
Significant risks in Kosovo
Significant operating risks in Kosovo include: - the risk of the migration of users to other operators; - the risk of lower revenues owing to the deteriorating economic situation and the declining purchasing power of the population; drop in transfers from abroad; - the risk of a poor response from users to the introduction of new packages; - operator credit risk; - the risk of fraud and - the risk of terrorist acts and vandalism.
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2 BUSINESS REPORT OF THE TELEKOM SLOVENIA GROUP
2.1 Financial results of the Telekom Slovenia Group
2.1.1 Key financial performance indicators
2009/31 December 2010/31 December Index in EUR million/% 2009 2010 10/09 adjusted Operating revenues 856.1 843.5 99 EBITDA* 267.8 247.1 92 EBITDA margin 31.3% 29.3% 94 EBIT 70.2 -178.5 - Return on sales: ROS (EBIT/net sales revenue) 8.3% neg. - Net profit 29.5 -210.3 - Assets 1,925.5 1,658.2 86 Equity 1,001.6 807.8 81 Equity ratio 52.0% 48.7% 94 Net financial debt 590.2 503.4 85 NFD/EBITDA* 2.2 2.1 94 Investment in property, plant and equipment (CAPEX) 184.8 113.6 61 EBITDA - CAPEX 83.0 130.5 157 Ratio of (EBITDA-CAPEX) to EBITDA (cash margin) 31.0% 53.5% 172 * EBITDA – earnings before interest, taxes, depreciation and amortisation
The comparative period is adjusted to the change in accounting policy. An explanation is given in the Financial Report.
Income statement analysis
Operating revenues of the Telekom Slovenia Group totalled EUR 843.5 million, down 1.5% on 2009 owing to lower other operating revenues. Net sales revenue totalled EUR 839.3 million, down 1% on the previous year.
The Group's operating expenses exceeded EUR 1 billion, at EUR 1,026.5 million, up 30% on the previous year. Among the other operating revenues totalling EUR 254.5 million (compared with EUR 30.9 million the previous year the most increase were due to impairments of financial investments. Costs of services in the amount EUR 331.6 million (down 4%) represent the majority of operating expenses, followed by amortisation and depreciation totalling EUR 214.5, an increase of 8%.
EBITDA, adjusted for the effect of impairments, stood at EUR 247.2 million in 2010, or 92% of that achieved a year earlier. Earnings before interest and taxes (EBIT) was negative in the amount of EUR 178.5 million due to the aforementioned impairments. Impairments amounted to EUR 211.2 million, meaning EBIT would have stood at EUR 33.7 million, excluding the effect of impairment.
The Group generated finance income of EUR 4.3 million and finance costs of EUR 28.2 million, resulting in a net financial loss of EUR 23.9 million, an improvement of EUR 3 million on 2009.
Following the calculation of corporate income tax in the amount of EUR 7.9 million, the Telekom Slovenia Group disclosed a net loss of EUR 210.3 million in 2010.
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Analysis of the balance sheet as at 31 December 2010 and the cash flow statement
The Telekom Slovenia Group's total assets stood at EUR 1,658.3 million, down 14% on the end of 2009. This was primarily the result of a decrease in intangible assets owing to impairments in the amount of EUR 189.1 million, while impairments of property, plant and equipment amounted to EUR 98.3 million.
The proportion of non-current assets was down 3.2 percentage points to stand at 82.9% of the company's total assets. Non-current assets were down 17% on the previous year in terms of value.
Current assets totalled EUR 283.8 million. The proportion of total assets accounted for by current assets was up 3.2 percentage points, primarily owing to an increase in cash and cash equivalents of EUR 25.5 million and an increase in current financial investments of EUR 12.8 million. Operating and other receivables and inventories were up compared with the balance at the end of 2009.
Equity and reserves in the amount of EUR 807.8 million represent 48.7% of total assets, and were down 19% on the end of 2009.
Non-current liabilities in the amount of EUR 500.5 million represent 30.2% of total assets and were down 20% on the balance at the end of 2009, primarily owing to a decrease in long-term loans in the amount of EUR 123,5 million.
The Telekom Slovenia Group operated with a positive cash flow in 2010, more than doubling the cash and cash equivalents on its accounts compared with the balance at the beginning of the year. Net cash flows from operating activities totalled EUR 264.2 million, and were more than enough to cover the negative cash flow from financing activities of EUR 98.5 million and from investing activities in the amount of EUR 140.1. The Group did not require additional borrowing in 2010. Net financial debt was thus down EUR 86.8 million or 15%.
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.
2.2 Financial management and performance
The Group consistently completed the underlying task of the financial function by ensuring the current and long-term solvency of the Telekom Slovenia Group as a whole. The solvency of Group companies was ensured on the basis of effective cash management, precise cash flow planning and short-term financing within the Group. Short-term credit lines at domestic banks facilitated a high level of financial flexibility to bridge unforeseen cash shortfalls.
Once again in 2010, the basis of the financial function was ensuring the current and long-term solvency of the Telekom Slovenia Group as a whole. The implementation of financial policy and the definition of key strategies for all Group companies is the responsibility of the parent company, Telekom Slovenije, d. d. The latter balances the level of borrowing of all Group companies and the related liquidity and solvency for the coordinated control over financial flows and the management of the Telekom Slovenia Group's financial risks. Standard guidelines facilitate the coordinated functioning of all Group companies, while taking into account the particularities of individual national environments.
The solvency of Group companies is ensured on the basis of effective cash management, precise cash flow planning and short-term financing within the Group. Short-term credit lines at domestic banks facilitate a high level of financial flexibility to bridge unforeseen cash shortfalls.
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Equity structure and liabilities from financing
The ratio of equity to total liabilities of the Telekom Slovenia Group stood at 0.95 at the end of 2010, compared with 1.08 at the end of 2009. The change in the equity structure derives primarily from a decrease in the value of equity as the result of the impairment of assets. The Group's equity was down 19.3% in 2010.
Total financial liabilities of the Group stood at EUR 585.9 million at the end of 2010, representing 35.3% of total assets. Bank loans accounted for 43.8% or EUR 256.7 million of financial liabilities. Financial liabilities were down EUR 54.3 million or 17.5% in 2010 owing to the repayment of loans raised.
Structure of equity and liabilities. Net financial debt
100% 90% 80% 48.0% 51.3% 70% 60% 50% 40% 30% 52.0% 48.7% 20% 10% 0% 2009 2010
Equity Liabilities
Maturity of sources of financing
Ratio of current to non-current financial liabilities
100% 14.1% 90% 18.9% 80% 70% 60% 50% 85.9% 81.1% 40% 30% 20% 10% 0% 2009 2010 Current liabilities Non -current liabilities
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In addition to the decrease recorded in 2010, there was also a change in the maturity breakdown of financial liabilities. Compared to 2009, current liabilities as a proportion of total financial liabilities were up primarily at the expense of a large portion of non-current financial liabilities that will mature in 2011.
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.
The Group did not require additional borrowing in 2010.
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 86.6% of total mutual financing, while subsidiaries' financing of the parent company accounted for 14.4%.
Breakdown of mutual financing as at 31 December 2010 Other loans are raised with a contractual option to swap a variable interest rate for a fixed interest rate. 14.4%
85.6%
Loans to subsidaries Loans from subsidaries
Borrowing costs
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 derivatives to hedge its interest-rate exposure for 41.8% of loans. Other loans are raised with a contractual option to swap a variable interest rate for a fixed interest rate.
The ratio of variable to fixed or hedged financial liabilities of the Group
100% 90%
80% 41.8% 50.0% 70% 60% 50% 40% 30% 50.0% 58.2% 20% 10% 0% 2009 2010
Hedge of fixed liabilities Variable liabilites
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Credit rating review The international ratings agency Moody’s Investors Service published a new report in December 2010 in which it confirmed the existing long-term credit risk rating at "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 Risk Management section.
Financial investments
The majority of Group's financial investments were carried out by Telekom Slovenije, d. d.
Non-current financial investments
Non-current financial investments, primarily in the form of financial investments in subsidiaries, financial investments in shares and participating interests and loans to subsidiaries, represent a significant asset item of Telekom Slovenije, d. d.
Investment activities were characterised in 2010 by the optimisation and consolidation of operations on the markets of south-eastern Europe, where no significant investments were made. The only transactions made were the purchase of a 29.36% participating interest in Ipko Telecommunications, d. o. o. from minority shareholders in the amount of EUR 32.18 million, and an increase in the capital of One, d. o. o., Skopje in the amount of EUR 40 million, by which Telekom Slovenije, d. d.'s became a 25.62% owner.
Investments in shares and participating interests primarily comprise 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.
2.3 Investments
The Telekom Slovenia Group earmarked EUR 113.6 million for the construction, modernisation and development of networks and services. Of the aforementioned amount, 70% was earmarked for companies in Slovenia and EUR 32.9 million for companies in south-eastern Europe.
Structure of investments by company
Index in EUR thousand Y 2009 Y 2010 10/09
SLOVENIA 121,498 80,723 66 Telekom Slovenije, d. d. 70,003 43,234 62 Mobitel, d. d. 40,775 22,929 56 Other companies in Slovenia 10,720 14,560 136 SOUTH-EASTERN EUROPE 63,278 32,852 52 Ipko Telecommunications, d. o. o. 29,610 9,093 31 Companies in Macedonia 25,365 17,199 68 Other companies in south-eastern Europe 8,303 6,560 79 Telekom Slovenia Group 184,776 113,575 61
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2.4 Business environment and trends in the sector
2.4.1 Macroeconomic environment
Slovenia 1
According to IMAD calculations, economic growth will reach 0.9% in Slovenia in 2010. There was a perceptible increase in economic activity in the second quarter of 2010 for the first time since the outbreak of the crisis. Stimuli for the strengthening of economic activity come primarily from the international environment. Foreign demand has strengthened. Problems in the domestic environment, in particular in construction and related activities, represent the obstacle to more rapid economic growth. The global economic recovery accelerated sharply in the first half of the year, while economic activity slowed during the second half of the year, in line with expectations.
According to an IMAD estimate, domestic consumption will be 0.5% lower in 2010 compared with the previous year. The reasons lie primarily in the construction sector, limited access to sources of financing, payment indiscipline and conditions on the labour market, which is characterised by a declining number of employed person. That decline, however, slowed in 2010, such that the fall in the number of employed persons will be 2.3 percentage points lower on average compared with 2009. The decline in employment is expected to slow further in 2011, while an improvement is expected in 2012. Domestic consumption is thus expected to recover over the next two years, which could have a positive effect on sales of Telekom Slovenia Group's services.
In the context of a recovery in domestic consumption and relatively strong foreign demand, economic growth is forecast at 2.5% in 2011 and 3.1% in 2012. Improving conditions on the labour market and in construction and related activities will have the greatest impact on economic growth. The improving situation will also be stimulated by renewed growth in private consumption and investment spending.
South-eastern Europe
The markets of south-eastern Europe are economically less developed and thus have the potential for future economic growth. Among emerging European markets, 2 Kosovo achieves the highest growth. Its per capita GDP, however, is the lowest in the region. GDP growth of 4.6% and 5.9% is forecast for 2010 and 2011, respectively 3. The economic crisis has had a moderate impact on Kosovo. Following a decline in 2009, imports were up in 2010, while transfers from abroad, an important source of private sector financing, also strengthened. 4
Economic growth of 1.2% and 3% in 2010 and 2011, respectively, is forecast for Macedonia 5. Following a 2% drop in 2009, domestic consumption was up 0.1% during the first half of 2010 6. According to IMF forecasts, the Macedonian economy is expected to recover significantly in 2011, 7 in part owing to an increase in domestic consumption. This also represents an opportunity for growth for One.
2.4.2 Trends in the ICT sector
Major global development trends in the ICT sector are linked to: - an increase in transfer speed to the end user; - the provision of broadband access to all households;
1 Sources: Autumn Forecast of Economic Trends in 2010, September 2010 and Economic Mirror, February 2011, Institute of Macroeconomic Analysis and Development, Ljubljana (IMAD). 2 The International Monetary Fund (IMF) classifies Albania, Bosnia and Herzegovina, Kosovo, Macedonia, Serbia, Turkey, Poland, Romania, Hungary, Bulgaria, Croatia, Lithuania, Latvia and Estonia in the group of emerging European markets. 3 Sources: International Monetary Fund (IMF), World Economic Outlook, October 2010. 4Source: IMF Country Report No. 10/245 http://www.imf.org/external/pubs/ft/scr/2010/cr10245.pdf. 5Source: International Monetary Fund (IMF), World Economic Outlook, October 2010. 6 Source: Republic of Macedonia, Ministry of Finance, Quarterly Economic Report – Q2/2010. 7 Source: IMF Country Report No. 11/42 http://www.imf.org/external/pubs/ft/scr/2011/cr1142.pdf.
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- the makeover of telecommunication offers in response to "over-the-top" (OTT) providers; and - a shift in the migration to "All IP" from the fixed network to include the mobile network and new IPTV trends.
The ICT sector has seen major shifts in recent years. Operators are attempting to standardise control of their networks. At the same time, they must open their markets for the development of new services by external developers. The key technological trend that facilitates this is All IP connectivity to the user terminal, and to a mobile terminal in the future. To that end, a data package transfer that operators can charge for is sufficient for users. The latter, however, have no control over content or how it is charged. Therefore, the business transformation of existing telecommunication operators is unavoidable. There are two likely scenarios: operators will become merely bit pipe providers, or they will transform themselves into new operators who will provide services with added value and successfully exploit a targeted marketing model, similar to OTT and internet service providers.
Following a year characterised by the crisis in 2009, the EITO 8 has noted a strengthening of the global ICT market, and forecasts growth of 1.9% in 2010. The main drivers of growth will be China, India and Brazil, while the stabilisation of the market is forecast for the EU. The European Commission 9 deems the ICT sector one of the most important drivers of development of the European Economy. Technological advances and investment in this sector contribute to the increased efficiency of other sectors.
The key trends characterising and affecting the telecommunications market in Europe and Slovenia are as follows: - the increasing saturation of and slowing growth on the broadband access market; - growth in IPTV, which offers users a new experience in home entertainment; - the rapid development of fibre optic connections, which facilitate high speeds and new multimedia services; - growth in mobile broadband access, which is forecast to be the highest in western Europe; - the decline in traditional telephony (which is being replaced by VoIP), with an increasing frequency of calls from the mobile network and a decline in calls from the fixed network; and - prevailing demand for packages of services and the development of packages of convergent services.
Development of the ICT market in Slovenia and south-eastern Europe
Slovenian ICT market
The Slovenian ICT market is comparable with developed European markets in terms of technological development, as it offers all of the latest telecommunication services. It is also comparable in terms of sector and competition-related regulations. Market competition is exceptionally fierce, both in terms of the number of operators and pricing. At 23.6%, Slovenia is just below the average European broadband access penetration rate of 25.6% (situation in July 2010).
Development of broadband services In line with European and Global trends, the development of broadband services last year in Slovenia was focused primarily on the development of pay-TV multimedia services. This trend, which brings a competitive advantage to telecommunication operators over cable operators, will continue in the future. Thus, similar to other EU countries, growth in fixed broadband connections is slowing, and stood at 5% in 2010, nearly one half of the 9% growth recorded in 2009.
Growth in the IPTV market
8 Source: EITO (European Information Technology Observatory): Newsletter November 2009, ICT market is set to stabilise in the EU in 2010; New data and insights on international ICT markets, March 2010, International ICT markets, March 2010. 9 Source: Investment in digital economy holds key to Europe's future prosperity, European Commission Report, May 2010 http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/1221&format=HTML&aged=0&language=SL&gui Language=en .
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At 29%, Slovenia ranks second among European countries in terms of IPTV penetration. By continuously upgrading its range of TV programmes and multimedia content, Telekom Slovenije, d. d. is dictating the tempo of growth of the Slovenian IPTV market. In step with global trends, the company launched SiOL BOX on the market in autumn 2010. The latter offers users new TV functionalities, and represents the integration of the internet and TV set, which is one of the key trends in the contemporary development of TV content.
Fibre optic connections The development of IPTV and additional services requires a greater bandwidth, and an optimal fibre optic infrastructure to achieve that. Slovenia is among the global leaders in terms of fibre optic access penetration (FTTx), ranking ninth according to the latest figures. The number of fibre to the home (FTTH) connections continued to rise last year, with 16% growth achieved on the market. At the end of the year, fibre optic connections accounted for 16% of all broadband connections.
Mobile broadband access 10 At 2.3%, broadband access via USB modems and cards which, owing to comparable speeds, can replace fixed broadband access, Slovenia lags behind the European average of 6.1%. At the European level, mobile broadband access achieves the highest growth (of 30% from July 2009 to July 2010), while this trend is expected to continue. The key factor in this growth are new platforms and the pricing policies of operators, which are increasingly competitive with respect to fixed access.
Mobitel was one of the first in Europe to introduce the latest HSPA technology, thus increasing the capacity and speed of the mobile internet, which is comparable with fixed broadband access. With the latest technology and a range of affordable data packages, the company is striving to achieve increased growth in mobile broadband access in Slovenia as well.
Fixed and mobile telephony The trend of users migrating from traditional telephony to VoIP continued in the fixed telephony segment. Likewise, the number of calls from the mobile network has continued to increase compared with calls from fixed locations. According to SORS figures, there were 821,000 fixed telephony connections at the end of the third quarter, 38% of which were VoIP. SORS figures also indicated that calls from mobile networks accounted for 74% of all telephone traffic in the third quarter of 2010, up 3 percentage points on the same period the previous year. Mobile telephony penetration was also up, to stand at 103.5% in the fourth quarter, an increase of 0.9 percentage points on the previous year (Source: APEK, 4Q 2010, SORS 3Q 2010)
Continuing market trend of package sales of services Demand for various broadband packages, in particular triple play packages that include internet, IPTV and VoIP services, is growing sharply. Packages of services are more affordable for users and a simpler solution for operations owing to a single invoice. Quad play packages that include mobile telephony are also increasing in popularity in Slovenia. Their number more than tripled in 2010, from 1,715 at the end of 2009 to 5,825 at the end of 2010 (Source: APEK, Q4 2010). Mobitel's quad play package combines a Mobitel mobile telephone number and SiOL broadband services. Triple play and double play packages are also available.
ICT markets in south-eastern Europe:
The telecommunications markets of south-eastern Europe are among the least developed, but have developed rapidly in recent years. Telekom Slovenia Group companies have contributed to that fact with the development of networks and services. The broadband access market is growing in both Kosovo and Macedonia, where 43% of households or 12% of the population had broadband access at the end of the third quarter. The telecommunications market in Macedonia currently accounts for 7% of GDP, or nearly 4 percentage points above the EU average.
Broadband household penetration in the countries of south-eastern Europe, where the Telekom Slovenia Group holds investments, is relatively low compared with the 23% penetration rate in Slovenia, representing an opportunity for further growth. The number of mobile phone users per capita is also lower than in Slovenia.
10 European Commission, Report COCOM10-29, November 2010.
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rate in % 120 113 103 100 95 85 80 73
60 41 40 23 25 21 11 20 11 8 4 6 4 0 Slovenia BiH Kosovo Macedonia Albania Fixed telefony Mobilte telefony Broad band access Development of the telecommunications market in countries of south-eastern Europe in 2010
One unit is equal to the number of connections per 100 inhabitants.
Sources: Enlargement Countries Monitoring Report IV - December 2010; APEK and own per capita calculations for Slovenia. The figures for fixed telephony penetration are for March 2010, as that is when APEK began to show a lower number of fixed telephony connections owing to a change in the VoIP definition.
2.4.3 Regulation of the electronic communications market and the competition protection
Regulation of electronic communications
Slovenia
Among the most important developments is the regulation of fibre optic networks. The APEK became one of the first European regulatory bodies to begin such regulation. This new form of regulation will govern access to Telekom Slovenije, d. d.'s fibre optic network and unbundled local loops on the network. The proposed regulation entails obligations that no other EU regulatory body has introduced to date. The affect of these obligations could be a decrease in the company's revenues. The proposal does not include recommendations from the European Commission to promote investment in third generation networks. The Group will therefore strive for regulatory solutions that are in line with European guidelines and practice.
The APEK is expected to issue a decision on relevant markets 4 and 5 (unbundled loop and broadband access) in the first quarter of 2011, by which it would regulate both the copper-based and fibre optic networks. A new decision on market 1 (fixed access), on which it will include and thus regulate VoIP, can be also be expected. With regard to mobile networks, the APEK is expected to re- analyse market 15 (call forwarding), where Mobitel is one of the few regulated operators on European markets.
The Telekom Slovenia Group strives to anticipate regulatory changes and responds to them actively. The most significant regulatory developments were as follows: - The Administrative Court ruled in favour of all four of the Group's appeals against APEK decisions related to the securing of receivables. The APEK halted supervisory proceedings following the publication of new RIO, RUO, BRO and RALO sample offers. The decisions related to the retail market, network interconnection, the unbundled loop, broadband access and access parts of leased lines. - Following Telekom Slovenije, d. d.'s submission of the calculation of prices, the APEK carried out its own calculation for relevant markets 2 and 3 (network interconnection) and issued a temporary
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decision enforcing its calculation. It also initiated supervisory proceedings, which have not yet been concluded. - Following the APEK's publication of the analysis of markets 4 and 5 (unbundled loop and broadband access) which expands the definition of markets to the fibre optic network, the Group submitted its comments, on the basis of which the analysis was amended in the section relating to pricing measures. - On market 7 (inter-operator market), new lower prices for call termination in mobile networks entered into force on 1 January 2010, in line with the APEK's decision. Disagreements arose with certain operators with respect to the charging and price of network interconnection services. Those disagreements are being resolved through the appropriate legal channels. - There were no regulatory developments on market 15 – access to and call-forwarding from public mobile telephone networks (inter-operator market). The Group is facing problems with payments by operators, which are being resolved through permanent measures for the payment of receivables.
Telekom Slovenije, d. d. received a decision from the Administrative Court of the Republic of Slovenia in November by which the court ruled in favour of Telekom Slovenije, d. d. and reversed the APEK's decision. According to the latter, the APEK ordered Telekom to provide operators, who access its network via bitstreaming, conditions that would enable them to offer broadband services via connections without PSTN or ISDN services, under the same circumstances and conditions that Telekom provides itself. Under the same decision, the APEK ordered Telekom Slovenije, d. d. to appropriately amend and introduce a sample offer for broadband access with bitstream services within 15 days.
South-eastern Europe
The regulatory environment remains weak in the countries of south-eastern Europe (particularly in Kosovo), or favours leading operators, who remain under majority state ownership.
In Macedonia , regulated markets are defined in accordance with the European directive on relevant markets. As an independent supervisory body, the Electronic Communications Agency (AEK) currently carries out market analyses of the majority of relevant markets. The operator One is defined as just one of two operators with significant market power on market 16, call termination in mobile networks.
The following significant regulatory changes occurred last year: - public debate began on the status of public services; - the drafting of a final document for the "bottom-up LRIC" model for calculating fees in the fixed and mobile networks; - the drafting of a final market analysis document for markets 8, 9 and 10; and - a public debate on the review of significant markets.
On 30 September 2010 the ART in Kosovo adopted the Decree on the Registration of Prepaid Mobile Phone Users. Pursuant to the aforementioned decision, mobile operators must register all prepaid users between 1 December 2010 and 28 February 2011. The decree will bring greater transparency and a more realistic picture of the market, and will help Ipko, d. o. o. analyse the portfolio of prepaid mobile users, and later segment and differentiate those users.
The ART issued a decision in 2010 that binds mobile operators to conclude an agreement with the Kosovo police force. The ART imposed a fine on Ipko, d. o. o., which refused to sign an agreement owing to discrepancies with the telecommunications law and the law governing criminal proceedings.
Following a decree by the IMC, cable operators in Kosovo are obliged to transmit on their cable platforms (must-carry obligation), without any damages whatsoever, all local television stations holding an IMC licence to use radio frequencies. Coverage depends on local conditions. Ipko, d. o. o. objected to this obligation from the outset, and reached an agreement on compensation for broadcasting with several television stations. There has been a recent trend of complaints by local television stations against the IMC and a refusal to pay any fee whatsoever for broadcasting. The other problems is technical in nature, as Ipko, d. o. o. does not have the technical capacity to broadcast local television stations at the local level, and was therefore forced to broadcast nationally, which resulted in higher costs. The problem with the IMC decree has not yet been resolved. The decree is expected to be
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WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d. amended in the first four months of 2011 with regard to the broadcasting obligation, and will set out the method and obligation to pay costs. Significant regulatory-related activities of the subsidiary Ipko include: - with regard to network interconnection, the company waived price asymmetry, which was in force for three years to protect Ipko as a new operator, owing to the conclusion of an agreement on new prices; - the company filed an appeal with the ART owing to illegal call termination (SIM to SIM connection) by the new operator, MVNO; and - the company strove to conclude an agreement on network interconnection of premium (value- added) numbers.
Significant proceedings against Telekom Slovenia Group companies before the Competition Protection Office
Significant proceedings against the parent company
- proceedings to determine the alleged abuse of a dominant position on the inter-operator market for unbundled local loop and sub-loop access for the purpose of providing broadband and voice services, which was initiated ex officio by the Competition Protection Office through decision no. 306-96/2008 of 4 February 2009; - proceedings to determine the abuse of a dominant position on the relevant markets for call termination and call forwarding and access to the fixed location public telephone network, on the relevant broadband access bitstream market, on the relevant unbundled local loop and sub-loop access market and the broadband access market, which was initiated ex officio by the Competition Protection Office through decision no. 306-6/2009 of 24 April 2009; - proceedings of the Competition Protection Office no. 306-22/2010-5 initiated ex officio on the basis of a referral by T2, d. o. o. (we received the decision on the initiation of proceedings on 11 August 2010). The company is accused of breaching Article 9 of the ZPOmk-1 and Article 102 of the Treaty on the Functioning of the European Union due to the likelihood that Telekom Slovenije, d. d. abused its alleged dominant position on the inter-operator market for unbundled local loop and sub-loop access for the purpose of providing broadband services to end users, and thus unjustifiably and in a non-transparent manner rejected inquiries by other operators providing broadband services for unbundled local loop access on the market, inappropriately and in an unreasonable amount of time rectified technical faults on the network, and thus denied other operators access to the network infrastructure or set unfair and inequitable conditions to put them in a negative competitive position; and - proceedings by the Competition Protection Office no. 306-75/2008-4, initiated ex officio by a decision of 8 September 2008, to determine the alleged abuse of a dominant position on the inter- operator market for broadband bitstream access.
Significant proceedings against subsidiaries
- The Competition Protection Office at 19.03.2010 initiated proceedings against Mobitel, d. d. to determine an alleged breach of Article 9 of the ZPOmK-1 and Article 82 of the EC Treaty. The Office assessed that it is likely that Mobitel, d. d. abused its dominant position on the inter-operator call termination market via the public telephone network, and thus restricted call termination via network interconnection in Mobitel's network for other operators, except for its parent company Telekom Slovenije, d. d.
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2.5 Sales and marketing
2.5.1 Market position
Slovenian market
The Telekom Slovenia Group's market shares in Slovenia were down slightly on the previous year. Price pressures from alternative operators represent a significant factor in Telekom Slovenije, d. d.'s declining market share. As a good manager, the company cannot and will not follow alternative operators owing to regulatory restrictions. The number of users in the VoIP and IPTV segment is rising in line with expectations. The market shares of Telekom Slovenia Group companies still exceed those of other leading European operators with respect to alternative service providers.
Telekom Slovenia Group market shares by service in the fourth quarter of 2010
Telekom Slovenije other operators fixed broadband access IP TV
60% 43,1 Market Share 43% 60,2 % Market Share Annual change - 2,8 perc. points Annual change - perc. points
211.665 connections 57% 119.539 connections Annual change 0 % 40% Annual change + 9 %
57% 42,7% Market Share 54,7 % Market Share Annual change -5,3 perc. points 45% Letna sprememba - 1,6 perc. points 55% 171.717 connections 1.161.236 connections Annual change + 19 % 43% Annual change - 2 %
VoIP mobile telephony
Mobitel
* The graph for VoIP includes both the number of VoIP services and the number of IP Centrex connections. Sources: Report for the 4th quarter of 2010, APEK, Telekom Slovenia Group, own calculations. Note: There is a more significant deviation from previous periods for VoIP, as the APEK amended figures for 2009 related to IP telephony, both in terms of market shares and the number of connections on the market.
Fixed telephony market Owing to a dominant market share and growing IP telephony, on the Slovenian market, as elsewhere in Europe and around the world, traditional telephony is being most affected by the takeover of its market share by alternative operators. Telekom Slovenije, d. d.'s market share of fixed telephony is 77%, meaning the company covers nearly 500 thousand Slovenian households with traditional telephony and SiOL telephony. Telekom Slovenije, d. d.'s market share declined by 5.9 percentage points in year-on-year terms.
Fixed broadband access In the context of generally lower growth, Telekom Slovenije, d. d. continues to hold the leading position on the market, with a 43.1% share of fixed broadband access. The number of connections remained at the 2009 level. For the first time since entering the market, T-2, d. o. o. recorded a drop in its share of the fixed broadband access market in the first quarter of 2010, its market share then continuing to fall until the end of the year. Tušmobil's market share has fallen constantly since the middle of 2007.
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A total of 58% of broadband users access the internet using xDSL technology, down 1.4 percentage points on the previous quarter. The proportion of xDSL access is declining due to the migration of users to fibre optic connections and cable access, which rose throughout 2010, with currently nearly one quarter of broadband users using this form of access.
The rising proportion of FTTH technology is also contributing to higher internet user access speeds. Thus, nearly one quarter of users have a speed of 10M or higher, of which FTTH accounts for 70%. Telekom Slovenije, d. d. had slightly more than 30,000 FTH connection users at the end of the year, an increase of 28% in year-on-year terms. It is also evident from market shares that T-2, d. o. o.'s share of the fibre optic market has fallen since the beginning of 2009, while that of Telekom Slovenije, d. d. has risen over the same period.
IPTV market Telekom Slovenije, d. d. maintains a dominant, 60% share of the IPTV market. The number of pay-TV connections remains stable, with a rising proportion of IPTV and satellite TV. IPTV represent the fastest growing market among broadband services. That growth, however, has already slowed slightly. The market grew by 97% in 2008, by 31% in 2009, and 12% in 2010, with Telekom Slovenije, d. d. accounting for more than half (58%) of total growth in IPTV connections in 2009 and 47% in 2010.
Mobile telephony The Group has maintained its leading position on the mobile telephony market. Improving results can be primarily attributed to a more competitive offer of package services and their more effective marketing. Prices stabilised last year, following adverse price pressures in 2009. Operators and service providers are aware that the existing level of prices hinders the quality construction of networks and the development of services. Therefore, nearly all operators opted to raise prices.
Multimedia content and publishing Najdi.si and siol.net remain two of the most frequently visited Slovenian websites 11 . The Group is the only provider of 1188 information services and the universal Slovenian telephone directory (white pages) in Slovenia. The online telephone directory is frequently-visited, while calls to 1188 are declining, similar to elsewhere in the world.
The Group remains competitive in the business directory segment with the new online product Firma.si (yellow pages), where it recorded more than 67,000 visits in December 2010. The online advertising service, ADpartner, remains the advertising network with the greatest reach in Slovenia.
Markets of south-eastern Europe
On the growing Macedonian market , One, d. o. o. had an estimated 14.3% share of the broadband access market (down 1.1 percentage points on the previous year), making it the second largest operator. Household broadband penetration has risen to 44%. The Group's estimated share of the mobile telephony market was 26.7% at the end of 2010, down 0.9 percentage points on 2009. One, d. o. o. and On.net, d. o. o. are increasing their shares of the fixed telephony market, primarily in the residential user segment. That share was up 0.8 percentage points on the previous year, to an estimated 14.9%.
In Kosovo in December 2009, Ipko, d. o. o. transitioned to a new system for charging services and introduced a new, 90-day active subscriber definition that is in line with the Telekom Slovenia Group's standards. Therefore, market shares for last year are not comparable with those from previous years.
Ipko, d. o. o. remains the leading internet service provider, with an estimated market share of 45% at the end of the third quarter. There were 397,000 active, primarily prepaid, mobile telephone users at the end of the year. The company's market share at the end of the third quarter was 29%. In addition to the price comparability of the leading mobile operator, the decline in the company's market share was driven by the entry of a new operator. Ipko, d. o. o. held a 6% share of the fixed telephone market at the end of the third quarter.
11 Source: MOSS, December 2010.
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2.5.2 Brand Management
Telekom Slovenia Group companies manage a rich portfolio of brands. Many of them are considered the most respected and recognised in their segments. The Telekom Slovenije, SiOL and Mobitel brands are among the most respected in Slovenia, and once again received the titles of Trustedbrand and Superbrand in 2010.
Since Telekom Slovenije is known among business users as a good, stable, technologically sound and trustworthy company, the Group continues to use the corporate Telekom Slovenije brand for the portfolio of business services. The SiOL brand also represents the Group on the residential user market. A special group is responsible for the brand management project in the scope of the Telekom Slovenije and Mobitel merger (Orion project).
The brand policies of subsidiaries in south-eastern Europe are based on uniformity and the long-term introduction of a uniform Telekom Slovenia Group corporate brand. Company brands represent both corporate and service/product brands, making it possible to communicate more clearly and effectively, to optimise investment in brands and to promote their recognition. In this way, the Group strengthened the Ipko brand in Kosovo, the One and Boom TV brands in Macedonia and the Primo brand in Albania.
Brand Product/service
- Telephony (SiOL, - Subscriber PSTN and ISDN) information
- SiOL internet - SiOL Secure Home Residential (FTTH, xDSL) - TV (SiOL TV, SiOL users - Packet services BOX, CATV) - Multimedia portals - Value added - F/M connections services - Slovenian (Smart Number, Click telephone directory to Call service, 090 - web browser service)
- Centrex (IP and - TV (SiOL TV, SiOL traditional) BOX, CATV) - IP Centrex - Custom Office Business - VPN - Value added
users - Leased lines services - SiOL internet (Smart Number, Click (FTTH, xDSL) to Call service, 090 - Telephony (PSTN service) and ISDN) - Single business - Business triple play network - Security (internet) - Business directory and web browser - Construction and maintenance of the network
- Network - Internet access interconnection - Bandwidth Operators - Local loop - International unbundling (LLU) operator co-locations services - ADSL - operator - WRL
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Brands and services of companies in south-eastern Europe
Country/company Brand Services Albania - Primo Pr imo - 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
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- Bandwidth leasing - Network interconnection - Cable TV - Convergent services – packages of
services - Online roaming - Website design - 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 - Convergent services – packages of services - Web portal – news and entertainment - Email solutions
Macedonia: On.net One - Fixed telephony - Mobile telephony – GSM, UMTS - SMS, MMS, WAP, VMS - Mobile data transfer – GPRS/EDGE/UMTS/HSDPA - Internet - Fixed telephony – PSTN, VoIP - Bandwidth leasing - Network interconnection
- Mobile portal (WAP) - Live TV – mobile TV - News and entertainment - FunDial – ring tones
- Digital video broadcasting (DVB-T)
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2.5.3 Sales and marketing
Telekom Slovenia Group's turnover in numbers
Broadband connections The number of the Telekom Sloveniae Group’s broadband connections on the end user market was up 11,972 on 2009, with more than 333,000 connections as at 31 December 2010.
Index Retail connections as at 31. 12. 2009 31. 12. 2010 10/ 09 Slovenia 211,025 211,665 100 Bosnia and Herzegovina – Republic of Srpska 12,549 15,958 127 Macedonia 34,435 35,987 105 Kosovo 59,434 64,861 109 Albania 3,799 4,743 125 Total SE Europe 110,217 121,549 110 Total Telekom Slovenia Group 321,242 333,214 104 The number of connections is in line with the standard method for counting connections at the Telekom Slovenia Group level.
Fixed voice and mobile telephony connections The number of Telekom Slovenia Group mobile and fixed telephony connections was down 6% on 2009. The fall was offset by a rise in the number of mobile connections in Macedonia and fixed connections in south-eastern Europe. Index Number of connections as at 31. 12. 2009 31. 12. 2010 10/ 09 Slovenia – mobile telephony 1,183,277 1,161,236 98 Slovenia – fixed telephony 572,059 522,393 91 SE Europe – mobile telephony 955,283 858,266 90 - Macedonia (One) 423,553 461,038 109 - Kosovo (Ipko) 531,730 397,228 75 SE Europe – fixed telephony 59,883 62,233 104 Total Telekom Slovenia Group 2,770,502 2,604,128 94 The number of connections is in line with the standard method for counting connections at the Telekom Slovenia Group level.
Slovenia Fixed telephony services The trend of a declining number of fixed voice telephony connections among end users as a result of the transition to mobile and broadband connections has slowed. At the end of the year, the number of fixed connections was down 9% on the balance at the end of 2009. Outgoing traffic, which was down 18% in the residential user segment and 16% in the business user segment, is also declining. The proportion of VoIP traffic of all end users is rising steadily, reaching 15% at the end of the year, up 4 percentage points on the previous year when it stood at 11%.
Average revenue per line and user in the fixed network (ARPU) remained at the level recorded the previous year in the residential user segment, while average revenue per line and per user was down 3% and 6%, respectively, in the business user segment. In addition to the drop in traffic, the reason for this movement was a change in subscription fees for basic PSTN, PRS and ISDN connections, and cheaper calls to mobile networks. Last year's change in the settlement period to one minute, when the Group simultaneously lowered the prices of calls to all Slovenian mobile networks, had a positive impact.
The Group introduced the possibility of transferring numbers for all subscribers, which can be carried out within an area code and has a positive impact on customer satisfaction. The range of traditional
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WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d. telephony services was also simplified and is thus more transparent. To increase the loyalty of traditional telephony subscribers, the company developed a DVB-T equipment package that includes a TV set and built in or stand-alone DVB-T receiver.
Mobile services A total of 1,285,530 subscribers used Mobitel's network at the end of 2010, which is 3% more than planned. In line with plans, the number of broadband connections with a voice telephony connection was increased. This is the result of the technological upgrading of the network with the most state-of- the-art HSPA+ technology, which supports high speeds and the effectiveness of marketing activities.
In addition to the aforementioned technology, which the Group was among the first in Europe to introduce, we also launched several new services and technological developments on the market. Users were thus offered the latest dimensions of mobile service use. New developments included the following: - Mobile TV service, NeoWLAN (connection to the publicly accessible wireless network) and Integral (we offered mobile email management to the users of the majority of "Connected" packages); - the following were included in the range of mobile phones: the latest BlackBerry Storm 2 smart phones and mobile phones using the Android platform, such at the Sony Ericsson X10, HTC Desire and the highest capacity Samsung Galaxy S and Samsung Galaxy Tab; - the microSIM card for use in iPads, Nokia Messaging service and a new version of the M:Namiznik (M:Desktop) service; - the local development of Android applications was promoted via contests for local developers and computer science and IT students; - the Communicator service, which facilitates calls, the sending of SMS and MMS and video calls by linking mobile phones with fixed VoIP telephones and computers; and - the upgrading of subscriber packages, adapted to the habits of the majority of users, and many other services.
Broadband services Through targeted sales activities, the Group increased the number of subscribers by 0.3% to 211,665 at the end of the year on a highly competitive market and in the current adverse economic conditions. New features in the range of SiOL products and services were aimed primarily at improving the profitability of services, enhancing the portfolio of broadband services, and at maintaining existing and attracting new subscribers.
The main new features in SiOL services for residential services were as follows: - SiOL BOX , a new service that provides the user a completely new experience of watching and using the TV, and represents a real home interactive centre; - enhancement of the loyalty programme (products on instalment and subscriber fee discounts); - benefits in the scope of free services during the promotional period – TV programme schedule and free films in the SiOL video store; and - Secure Home , a remote surveillance and security service for apartments and small business premises using broadband access. The Group was the first to enter the residential user market in Slovenia with this type of service. New services for business users: - Single Business Network , a service that combines the services of Telekom Slovenije and Mobitel, and facilitates the integration of fixed broadband and mobile services within a company; and - Custom Office , a service developed in cooperation by Telekom Slovenije and Avtenta.si that allows companies to use computer equipment and software, and ensures a high level of data security, constant maintenance and the upgrading of equipment.
The service was launched in conjunction with comprehensive communication activities. For SiOL BOX, these activities included a live interactive SiOL BOX cubical in Ljubljana and Maribor, where SiOL BOX could be tested, as well as online activities and activities on social networks.
Wholesale (inter-operator segment) The Group recorded a 6% increase in revenues compared with 2009 on the inter-operator market. The highest growth (of 29%) was recorded in the quad play segment and in fully unbundled access, while
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WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d. the sharpest decline was recorded in sales of in shared access in network interconnection with operators.
With regard to broadband access , the Group recorded the highest growth in sales of fully unbundled access (up 7%) and quad play sales. Sales of broadband operator access were down 31% owing to the gradual saturation of the Slovenian market. With sales of connections without traditional voice telephony coming to the fore, the sales structure is changing in favour of fully unbundled access and independent WS xDSL.
Revenues in the co-location services segment exceeded those generated in 2009. The reason behind this growth was the fact that the Group did not accrue revenues from co-locations in 2009, while they were taken into account in revenues in 2010.
Call termination in the Telekom Slovenije network accounts for the highest proportion of revenues from network interconnection , which were down 17% on the previous year.
Revenues from international operator services were down 6% on 2009. This can primarily be attributed to a sharp fall in prices of international traffic terminated in mobile networks and a decrease in incoming international traffic. Growth continues to be recorded in revenues from international transit traffic, international internet access leasing and the leasing of international operators lines.
The number of call minutes in inter-operator traffic was up 5% in the traditional inter-operator services segment in the fixed and mobile network . 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.
Revenues from operator bandwidth leasing were down 7% on the previous year. The drop in revenues is primarily the result of the optimisation of leased lines of major operators.
The Group has recorded a considerable amount of unpaid overdue receivables owing to the payment indiscipline of operators. Domestically, such receivables totalled EUR 15.8 million at the end of 2010, 92% of which are related to the operator T-2, d. o. o. Impairments of EUR 13.5 million were created as a consequence. Internationally, the Group recorded unpaid liabilities in the amount of EUR 2.2 million at the end of the year. Agreements on instalment repayment were concluded for a portion of the aforementioned amount.
New conditions regarding the use of appropriate financial instruments as collateral for liabilities were coordinated with the APEK and introduced in basic agreements with the aim of reducing bad claims and protecting the Group's interests. With the consent of the competent body, the provision of individual services may now be limited in the event of default of failure to provide payment collateral. In September 2010 the Group submitted a motion to initiate bankruptcy proceedings against T-2, d. o. o., which have yet to begin because T-2, d. o. o. submitted a motion for compulsory settlement in early 2011. The Group has also accelerated the collection of outstanding receivables from international operators. Collections from major debtors are handled individually, occasionally with the assistance of foreign lawyers. Systems integration Avtenta.si, d. o. o. continued with its planned strategy to increase its market share outside the Telekom Slovenia Group in the area of systems integration. The decline in activity at Slovenian companies was reflected in Avtenta.si's revenues, which were down on the previous year in line with expectations.
Regular sales activities were supported by numerous marketing events aimed at raising recognition of the company's solutions on the Slovenian market. The company's training centre, which was recognised this year as the best Microsoft training centre in Slovenia, remains one of the most recognisable elements of Avtenta.si, d. o. o.'s range of services
Multimedia content and publishing The area of multimedia content and publishing includes Najdi's internet advertising and call centre services, and the convergent content and services provided by Planet 9, d. o. o. for IPTV, mobile phones and personal computers.
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The Slovenian internet advertising market is currently facing a downturn, along with the recession and the competitively low prices of advertisements on social networks.
Planet 9, d. o. o. primarily sells services to service providers for end users within and outside the Telekom Slovenia Group. It also markets services to lessors of advertising space and media agencies. The company's revenues were up 12% in 2010, primarily owing to increased sales of advertising space. Its most important marketing activities included the upgrading of subscriber content and new IPTV, video and internet TV services, with a great deal of emphasis on the development of content for SiOL BOX and the development of new online and mobile services (in particular interactive SMS games).
Construction and maintenance of the network GVO, d. o. o. is responsible for the construction and maintenance of the network. In accordance with the strategy to increase its share of services provided outside the Telekom Slovenia Group, the company generated just 49% of its net sales revenues at Group companies last year. Revenues generated on the market were up more than 50% on 2009.
The market where the company focuses on attracting new business has seen a sharp drop in demand for construction services. GVO successfully submitted bids in several public tenders issued by municipalities for the construction, management and maintenance of broadband networks. However, agreements will only be signed if municipalities are successful in the tender issued by the competent ministry. The company also attracts business in the area of electrical construction and machine works, where it was frequently successful last year.
South-eastern Europe
In Kosovo , Ipko, d. o. o. faces significant price pressures from the competition, which its has responded to by lowering prices and introducing new products that include various benefits. Lower prices resulted in lower sales revenue compared with the previous year. Sales have also slowed due to the loss of the main mobile phone distributor and the signing of an agreement with a new distributor in the middle of the year. For this reason, it was not possible to purchase Ipko SIM cards or prepaid mobile phone cards in a large area of Kosovo for some time. There was notable growth in revenues from TV services, despite intense price competition. Sales rose in particular following the presentation of a new attractive package offer of digital TV programmes.
Ipko, d. o. o. had 397,000 active mobile phone users (90-day definition) at the end of the year, representing a decrease on the end of 2009. The reasons lie in the comparable prices offered by the main operator and in the entry of a new mobile operator with even more affordable prices, which has a significant impact on a market with weak purchasing power and thus price-sensitive users.
The main new services offered included: - a new, price-competitive prepaid mobile telephone package, and - a new package offer of Ipko digital TV programmes that was created in cooperation with DigitAlb and tailored to the wishes of users (e.g. live sporting events and a family package). Macedonian companies generate the majority of their revenues from mobile telephony, followed by network interconnection, roaming and internet services.
The decline in revenues compared with 2009 was the result of several factors. One, d. o. o. was forced to respond to price slashing initiated by the competition, resulting in declining revenues. The global recession also had a more significant impact than expected.
Revenues from mobile telephony were down compared with 2009. The reasons include promotional offers and lower prices, which helped the company increase the number of mobile connections compared with 2009, but drove down average revenue per line. Lower prices on the prepaid user market had an even greater effect of declining revenues, as the average number of prepaid users declined overall, despite renewed growth in the second half of the year.
The churn rate on the subscriber market stabilised, but remains quite high on the prepaid user market owing to fierce price competition.
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One, d. o. o. was active on the market with various promotions and new packages, aimed at customers with both high and low purchasing power. In addition to its standard mobile services, the company introduced various options to purchase additional, fixed quantities of minutes, data and text messages. It introduced the One Zona service that provides customers cheaper international calls to selected countries. Blackberry services for business users were launched on the market during the first quarter, while updated packages were introduced in the middle of the year.
Through cross-selling during the year in the mobile and fixed segments, One, d. o. o. significantly increased the number of customers who use more than one service (e.g. duo and trio packages), primarily in different combinations with Boom TV. The option to receive three TV interfaces with one subscription was introduced at the beginning of the year for Boom TV. The programme scheme was updated in December, with the addition of Albanian-language programmes and the SportKlub and SportKlub+ programmes.
Aneks, d. o. o. is an important market player in Bosnia and Herzegovina in the international call forwarding segment. It also has a solid base of residential users. In 2010 the company expanded the provision of services from the Republic of Srpska to several larger cities across Bosnia and Herzegovina, which has facilitated growth in the number of connections and services.
Aneks, d. o. o. provides analogue cable TV, internet and fixed telephony services, and began offering digital TV in 2010. Growth in the number of digital TV and fixed telephony (VoIP) users was achieved through successful public relations and marketing campaigns.
In Albania , Primo, d. o. o. provides internet access services, broadband connections and fixed telephony via its own network and leased lines. Services are provided to end users (residential and business users) and other operators. The company's revenues were down compared with 2009, primarily on account of a drop in revenues from international call termination and broadband internet access. There was a notable drop in international inter-network traffic in September due to the entry into force of the regulatory body's decision on the regulation of the related prices. The decrease in the number of fixed telephony customers is the result of the termination of agreements with non-paying customers, aggressive price cutting by one of the company's main competitors and the migration to mobile telephony.
2.5.4 Development of services and the network
Development of services
The global spread of Web 2.0 technology is increasingly evident in the ICT service segment. Telekom Slovenije, d. d. is developing new services to that end, and facilitating their use on new platforms. Last year the company continued to introduce open platforms that facilitate the more rapid, simpler and cheaper development of new services. Such platforms may also be used by external programmers for the development of new applications.
First services on an open platform for business users Following the establishment of the first open platform for commercial telephony services more than a year ago, the first service, called Monitor, was developed on the aforementioned platform. The service facilitates the real-time monitoring of calls by IP Centrex users, and is in use today at hotels. The company also developed a completely new prepaid telephony IP service via this platform, which will be implemented as a turnkey service and available to new users.
Two new open platforms established An entirely new platform was introduced last year that will facilitate calls via a web browser without terminal equipment and expand the range of 080 call services.
A media platform to support value-added services and video/voice applications based on VoXML technologies was also purchased. This platform represents a very powerful tool for the development of new services, and thus the generation of additional revenues. The first customer was included on the
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WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d. platform in February, while the number of customers continued to grow during the year. The company is also drafting procedures to migrate existing services to this platform. Operating expenses will be reduced and customers provided additional services by consolidating network elements.
New services for business users Several new services were developed and introduced for business users. These include: - the validation and verification of the IP DECT system, which facilitates wireless fixed communication using IP technology, was completed and the first users integrated; - a solution was developed for two banks for the transfer of payment transaction via IP protocols, while the solutions is being upgraded for other banks; and - the new products, Single Business Network and Business Access were introduced in the IT services segment.
Expansion of development The development of services also focuses on other areas. One of those areas is security, where the Group offers advanced services for more demanding, primarily business users. The SiOL Secure Home service, which facilitates residential security via IP connections, was offered to a wide group of users. The Group is preparing to launch the first telemedicine services.
Advances in the development of mobile services Project activities relating to mobile services and launched at the end of 2009 continued. These include the upgrading of the Planet mobile portal, ECDS and OCMP. Emphasis is placed on the development of system elements (e.g. a central directory and archive, standard user profiles, a video platform, etc.) and on the further opening of Mobitel's network to external service providers via M:vrata (M:Portal) and M:vstopnica (M:Tickets), etc. The company's activities included: - the upgrading of the mobile TV service; - the upgrading of the Ericsson ECDS video streaming platform, and the optimisation and enhancement of the www.m-medij.si website with video content; and - the development of a mobile portal for Gibtelecom, to which new content will be added in the future in cooperation with Planet 9.
Network development and management
Fixed network
Ensuring a highly accessible network, as the basis for high-quality ICT services, is of strategic importance to the Telekom Slovenia Group. The following objectives are pursued in network development: - ensuring the rational use of network resources; - improving responsiveness and the success rate of fault clearance; - optimising operating costs, - improving process and network management; - building a high-capacity, modular and flexible network of the future; and - active participation in the development and introduction of new services.
Network resources Telekom Slovenije's activities in the area of network resources follow the trend of a continuing decline in traditional PSTN and ISDN connections and growth in broadband services, VoIP and the proportion of services provided via the fibre optic network (FTTH).
The decline in PSTN and ISDN connection points has been followed dynamically through the optimisation of units when network resources are freed up. Through interventions, the Group has reduced the utilisation of connection points, the former by 6.3% and the latter by 7%. In contrast, the Group has increased the number of xDSL and FTTH broadband access connection points and increased the utilisation of the broadband network.
The project to secure critical network elements on the IP/MPLS network and service servers continued, thus increasing their availability and flexibility. The number of connection points on the VoIP
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WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d. network is rising continuously, with 182,283 active connections in the business and residential user segments at the end of 2010.
Backbone network All elements of the backbone network in the core and at international connections ensure the reliable, stable and secure functioning of services. It is defined as a "carrier grade" network, the definition that applies to extremely reliable and well-tested systems.
Development of the new IP/MPLS network The migration of business and residential users to the new IP/MPLS network was completed in all regions last year. The IP/MPLS network is a modern, intelligent and secure transmission network that is less complex and provides all services on a single platform. A Service Delivery PoP was established in Ljubljana, through which all Telekom Slovenije, d. d. services are directed on the IP/MPLS network. A second Service Delivery PoP will be established in Maribor in 2011.
Traffic management processes are being improved with the aim of further improving the functioning of the network, optimising the network and reducing investment costs. Last year in cooperation with the Jožef Stefan Institute, the Group developed a simulation model of a new aggregate network with which the distribution of content and servers along the network can be expected. On this basis, investment in network elements and connections was optimised. The Group intends to continue simulations in the network by introducing a more precise network model, which will be made possible by the even better simulation of traffic flows.
In the future, the Group intends to expand the backbone network, which is based on DWDM and IP/MPLS technologies, to subsidiaries in south-eastern Europe and establish PoPs in Sarajevo, Priština, Skopje and Tirana. This will facilitate the standardised provision of services within the Telekom Slovenia Group and the possibility of integrating back-office OSS and BSS systems. Expert reports have been drafted for access solutions to locations. An estimate has been prepared of the investment required to establish the network and a tender executed for the supply of DWDM equipment for the backbone network. An M320 router was installed at a location in Skopje in the scope of this project.
Other network improvements
The project to optimise the network has continued. Several activities have been carried out in the scope of the project to ensure the optimal exploitation and utilisation of network elements and resources. A project was kicked off to introduce the IPv6 protocol, the successor to the IPv4 protocol. The former provides the IP addresses of computers and network devices. A great deal of attention is given to weighing possible scenarios for introducing the new protocol in the network. Technical solutions for broadband access are being developed in the BrihtaLab in cooperation with CPE equipment manufacturers.
Access network
Development activities in the access network were primarily aimed at resolving bottlenecks in the broadband access network. To that end, the new MiniMSAN technical solution was developed together with partner company. The functioning of the solution was tested in the BrihtaLab, and a working group established for the MiniMSAN product launch. A temporary licence was received for the A44 product, following the testing of the connectivity of other operators' modems and the stability of the product's functioning.
Other broadband network development activities worthy of note include: - a demonstration broadcast of the 3D TV signal and the introduction of new SiOL services; - the continuation of the QuE functionality project on modems in cooperation with the Faculty of Electrical Engineering in Ljubljana; - the development of a new technical solution for the dynamic construction of the fibre optic network with the aim of improving the processes involved in the construction of the FTTH fibre optic network and improving its utilisation; - a draft Telekom Slovenije NGA strategy, technical solutions and commercial offer were prepared in the area of next generation access (NGA) networks that use optical fibre; and
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- instructions were drafted for the introduction of SiOL BOX and scenarios distributed for its integration with different types of modems.
Control and support systems Effective support systems are necessary to manage everyday control processes, and to manage and maintain the telecommunications network and services. They ensure the smooth inclusion and clearance of faults in services, which are becoming increasingly complex with the implementation of new technologies. Control and support systems were upgraded and developed as follows: - new CRM2 systems (customer relationship management systems) were transferred to full production. These systems will provide better support for processes and shorten the time required to carry out to out activities; - in the implementation of the GIS Network Engineer system (solutions for managing the telecommunications network); - in the management of equipment at the premises of broadband service users (CPE); and - various developments to improve the functionality of systems.
Technology verification and validation In 2010, 116 authorisations were issued to connect to electronic telecommunications equipment in Telekom Slovenije, d. d.'s network. At the BrihtaLab, the Group organised 24 presentations of equipment for external experts and internal presentations. The greatest emphasis was placed on monitoring the functioning of the IPTV system and testing equipment for different broadband services. 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.
Development of the fixed network at subsidiaries In Kosovo, Ipko, d. o. o. continued to expand the underground network to the broadband HFC network, while the implementation of uninterrupted power supply systems in the network is under way. The US DOCSIS standard was replaced by the European standard with the aim of increasing capacity. This will facilitate an increase in "downstream" capacity.
An important project was launched to introduce a wireless IP backbone network with the aim of redesigning the aggregation of all wireless capacities in a common infrastructure that will use existing capacities and facilitate future construction.
Mobile network
The development of Mobitel's network, in terms of setting up new base stations, has slowed. The development of various traffic optimisation and control mechanisms continued for the optimal exploitation of network resources. At the end of the year, there were 893 functioning GSM base stations in the 900 MHz frequency band and 97 base stations in the 1800 MHz frequency band. The UMTS network comprised 715 functioning base stations, of which 229 were upgraded with HSPA+ technology, which facilitates very high data transfer speeds.
Cooperation within the Telekom Slovenia Group in the development of networks was strengthened, most intensively with regard to facilitating the functioning of Ipko's network in Kosovo. Cooperation with the Macedonian operator One and with the parent company Telekom Slovenije is increasingly closer in the areas of facilitating international connections, transmission systems and business solutions. The implementation of a control signalisation system with One was successfully completed, which is part of efforts to standardise systems and improve procurement synergies.
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2.5.5 Financial results from the operations of Telekom Slovenia Group companies
Telekom Slovenije, d. d.
Telekom Slovenije, d. d. generated operating revenues of EUR 382.5 million in 2010, down 4% on the previous year.
Operating expenses totalled EUR 380.8 million, and were at the level recorded in 2009. The streamlining of operations resulted in lower costs in all areas where this was possible. On the other hand, other operating expenses rose to EUR 23.0 million owing to the creation of adjustments to receivables, which had a negative effect on EBIT. It should also be noted that the risk of further write- offs of receivables remains high in 2011 due to default by alternative operators.
EBITDA (earnings before interest, taxes, depreciation and amortisation) was down 14% compared with 2009, at EUR 88.1 million.
Earnings before interest and taxes (EBIT) stood at EUR 1.7 million in 2010.
Telekom Slovenije, d. d. recorded a net loss of EUR 235.4 million in 2010, primarily owing to the impairment of financial investments: finance costs totalled EUR 296.0 million in 2010, compared with EUR 28.5 million in 2009.
Key performance indicators
Index in EUR thousand 2009* 2010 10/09 Operating revenues 398,464 382,531 96 Net sales revenues 396,490 381,168 96 Other operating revenues 1,974 1,363 69 OPEX (operating expenses before depreciation/amortisation) 295,847 294,443 100 EBITDA 102,617 88,088 86 Depreciation/amortisation 83,229 86,390 104 EBIT (operating income) 19,388 1,698 9 Net finance income 44,698 -237,390 - Corporate income tax, including deferred taxes 1,855 -280 - Net profit/loss 62,231 -235,412 - EBITDA margin 25.8% 23.0% 89 Operating margin 15.6% neg. - * The comparative period is adjusted to the change in accounting policy. An explanation is given in the Financial Report.
Mobitel, d. d.
Mobitel, d. d. generated EUR 392.2 million in operating revenues in 2010, down 4% on 2009, but 2% higher than planned. The company remains focused on maintaining its subscriber base. The result of marketing campaigns was a 1% increase in the subscriber base compared to the previous year. Operating expenses were down 4% as the result of the optimisation of operations. The problem of write-offs of receivables from other operators should also be noted at Mobitel. These had a direct negative effect on the company's results in the amount of EUR 6.2 million. Despite the aforementioned write-offs, the company exceeded planned EBITDA, which reached EUR 120.3 million, by 3%. Net profit amounted to EUR 37.4 million.
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Key performance indicators
Index in EUR thousand 2009 2010 10/09 Operating revenues 410,202 392,213 96 Net sales revenues 407,598 390,747 96 Other operating revenues 2,604 1,466 56 OPEX (operating expenses before depreciation/amortisation) 282,862 271,928 96 EBITDA 127,340 120,285 94 Depreciation/amortisation 73,882 72,260 98 EBIT (operating income) 53,458 48,025 90 Net finance income -1,013 -1,080 107 Corporate income tax, including deferred taxes 11,292 9,593 85 Net profit/loss 41,153 37,352 91 EBITDA margin 31.0% 30.7% 99 Operating margin 10.0% 9.5% 95
Other Slovenian companies
Najdi, informacijske storitve, d. o. o. The Najdi Group generated EUR 14.1 million in operating revenues in 2010, down on the previous year. The reasons lie primarily in a decline in the number of clicks on advertisements on the najdi.si website and the general economic situation, as companies reduce their marketing budgets, which generate more then half of Najdi's revenues. EBIT was negative in the amount of EUR 5.1 million, in part due to other operating expenses (of EUR 7.0 million), which include impairments of intangible assets, investments in companies in Croatia and Serbia and the write-off of investments in intangible assets from previous years.
Planet 9, d. o. o. The company generated EUR 31.4 million in operating revenues, up 11% on 2009. EBIT amounted to EUR 724 thousand.
Avtenta.si, d. o. o. The company continued with its planned strategy to increase its market share outside the Telekom Slovenia Group. Sales activities in previous years and the building of long-term relationships with customers have facilitated the achievement of established objectives, despite the slowing of developments on the IT market. Operating expenses were up owing to higher costs of goods sold, while costs associated with subcontractors were also up. EBIT was negative in the amount of EUR 870 thousand.
GVO, d. o. o. The company generated EUR 33.9 million in operating revenues, 36% of which was generated directly on the market, an increase of 47% on 2009. The company achieved its objective to increase the proportion of services on the market and expanded its core activity of building networks for the Telekom Slovenia Group's subsidiaries. EBIT amounted to EUR 7.3 million. The improvement in EBIT (from EUR 1.8 million in 2009 to EUR 7.3 million in 2010) is, in addition to the prudent organisation of work and market approach, the result of the transfer of costs of the construction of the private section of open broadband networks incurred last year to investments under construction.
Soline, d. o. o. In line with expectations, operating revenues in the amount of EUR 3.4 million were lower than those generated in 2009 (in part owing to lower grants and subsidies), but higher than planned. Visits by tourists to the Se čovlje Saltpans Regional Park were up 3% on the previous year. Contributing most to
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WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d. revenues were the claim for the reimbursement of funds from the EKRP project, an increase in the company's share of the domestic market and the strengthening of cooperation with partners on the US, Japanese and German (EU) markets. The company ended the year with a net profit of EUR 199 thousand.
Other companies in south-eastern Europe:
Kosovo Ipko, d. o. o. generated operating revenues of EUR 65.8 million, up nearly 5% on 2009. EBIT was negative in the amount of EUR 13.4 million, primarily due to the impairment of assets and receivables, while EBITDA of EUR 6,1 million was achieved.
Revenues from mobile telephony were down in the end-user segment. This was the result of a decline in the number of mobile connections and a price war in the prepaid segment, and due to the financial crisis and a decline in transfers from expatriates, which increased the price sensitivity of users.
Macedonia Companies in Macedonia generated a total of EUR 72.5 million in operating revenues, up 34% on 2009, when One and One to One joined the Telekom Slovenia Group in mid-year.
Revenues from mobile services were down primarily due to numerous benefits (including traffic) that One was forced to introduce owing to pressure from the competition. These benefits resulted in an increase in the number of mobile connections and traffic, but not to an increase in revenues.
One, d. o. o. is the second largest operator on the Macedonian market. The companies were "cleaned" of unreasonable items, thus establishing a healthy basis for future operations. The combined EBIT of Macedonian companies was negative in the amount of EUR 21.8 million, while EBITDA of EUR 4.2 million was achieved.
Bosnia and Herzegovina Aneks, d. o. o. generated operating revenues of EUR 13.7 million, up 3% on 2009, and is pursuing an increase in the number of connections and end-user services. EBITDA stood at EUR 2.0 million, double the EBITDA generated in 2009.
Albania The operating revenues of Primo, d. o. o. were down on 2009 at EUR 5.0 million, owing to new regulatory requirements in the area of transit traffic. In September and November, the regulatory body rescinded the sample offer for network interconnection (RIO) for mobile operators, who then raised prices charged to Albanian operators to the level of international prices. This was followed by a significant cut in prices, resulting in negative EBIT and EBITDA.
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3 SUSTAINABILITY REPORT
The Telekom Slovenia Group enhanced its sustainable development orientation in 2010 with a document in which it confirmed its commitment to the principles of sustainable development and set out its environmental policy. Sustainable development is one of Group's core guidelines, on which it will build its strategic development in the period 2011 to 2015.
RESPONSIBLE ENVIRONMENTAL MANAGEMENT TAKING INTO ACCOUNT THE PRINCIPLES OF SUSTAINABLE DEVELOPMENT
Dear Shareholders,
The Telekom Slovenia Group is the leading provider of ICT services in Slovenia. It develops and introduces fixed and mobile telephony services, services in the areas of internet connections, content and IPTV, and systems integration services. Group employees are committed to the principles of sustainable development in their work. Special attention is given to responsible environmental management.
The Group develops and carries out activities aimed at protecting the environment and preserving natural resources wherever it is present. The Group methodically reduces its impacts on the environment and living space. The use of resources and energy and costs are regularly monitored. The Group sets itself and achieves environmentally friendly strategies and targets that are balanced against the particularities of the Group's operations and development. It is focused on the constant improvement of its environmental protection activities. The Group's own best environmental practices and examples from other European operators included in the industry association, ETNO, are transferred to other Group companies.
The Group takes into account globally recognised environmental development guidelines in the development of its services. It consistently monitors and complies with the requirements of the Slovenian and EU legal frameworks. It also monitors and complies with other normative and ethical requirements linked to the environmental aspects of ICT services and operations. The Group is involved in technical initiatives aimed at the objective communication of scientific positions regarding the effects of its activities on the environment. It is also actively involved in fulfilling the environmental commitments of the European Union and the Group's other stakeholders.
The Group actively includes its employees, suppliers, external contractors and business partners in the process of sustainable development. It spreads the knowledge and culture of social responsibility among employees through training programmes. The Group's objectives and activities are proactively communicated at all levels of the company and to all interested parties. It monitors their initiatives and questions, and responds in a constructive manner. The Group also provides its users the opportunity to practice responsible environmental management. With the help of its electronic services, the Group can significantly reduce our carbon footprint, in both business and private lives. Together with its employees, the Group contributes to implementing the core principle of sustainable development: providing future generations a quality of communications, life and the environment comparable to the one we enjoy today.
Ljubljana, November 2010
Ivica Kranj čevi ć President of the Management Board, Telekom Slovenije, d. d.
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3.1 Responsible management of sustainable development
Sustainable development objectives
Area Long -term objectives and strategies Achieved in 2010 Employees Fulfillment of mandatory objectives The objective to improve (customer satisfaction, control costs) customer satisfaction was established in line with management by exceeded by 10%. objectives, with an emphasis on The objective to control costs customer satisfaction. was assessed with regard to the achievement of planned costs. The majority of sectors did not exceed planned costs. Employees Introduce measures adopted in line with All activities were carried out the Family-Friendly company certificate according to plan. by 2011. Social environment Link participation in sponsorships and Achieved result of synergies in donations to multimedia services and key sponsorship areas (e.g. the multimedia platform, and develop sports and culture). synergies within the Group. Natural environment Responsible usage of natural Several environmental resources, in particular reducing the objectives were achieved or use of energy, emissions and other progress made towards their environmental impacts, and the support achievement (for more details, of activities to preserve the natural see the table Overview of key environment and biodiversity. environmental targets and objectives). Users Increase customer satisfaction The objective was achieved (110%).
Presentation and reporting on sustainable development
Organisational profile In addition to the parent company, with its registered office in Ljubljana, the Telekom Slovenia Group comprised 14 subsidiaries and 10 indirect subsidiaries in Slovenia, Macedonia, Kosovo, Croatia, Bosnia and Herzegovina, Albania and Gibraltar as at 31 December 2010. The organisation of the Telekom Slovenia Group is presented in the section of the 2010 annual report bearing the same name, where year-on-year changes in the Group's organisation are reported. The annual report is published at www.telekom.si and includes data regarding the ownership structure, markets and financial figures, as well as information regarding brands, products and services.
The parent company defines, guides and supervises the implementation of sustainable development policies, and is responsible for the enforcement of these policies at the Group's subsidiaries.
The contact for information regarding the Sustainable Development Report is the Public Relations Department ([email protected]) .
Reporting characteristics, scope and limitations The Telekom Slovenia Group and Telekom Slovenije, d. d. report yearly on progress in the area of sustainable development for the previous calendar year.
The Sustainable Development Report for 2010 was drafted on the basis of data collected using a standard questionnaire. Significant indicators and content reported by the Group are based on Global Reporting Initiative guidelines (GRI G3 – Sustainability Reporting Guidelines), and derive from existing sustainability objectives and relate to the key impacts of the activities of the parent company and the Telekom Slovenia Group. Coordination of content was overseen by a team of experts from various fields, responsible for the drafting of the annual report and sustainability report.
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Sustainable development reporting is carried out at the Telekom Slovenia Group level and at the level of the parent company. Standard reporting guidelines have not yet been introduced across the Group. Progress was made in 2010 with the introduction of environmental bookkeeping at companies in south-eastern Europe.
Corporate governance and obligations
Corporate governance Telekom Slovenije, d. d., the parent company of the Telekom Slovenia Group, is governed by a five- member Management Board and a nine-member Supervisory Board, comprising six shareholder representatives and three employee representatives. The corporate governance of the company is based on the relevant legislation, the provisions of the parent company's Articles of Association and the on rules of procedure of the Management Board and Supervisory Board. The aforementioned documents are published on the company's website at www.telekom.si in the Investor relations section. Additional information regarding corporate governance may be found in the Corporate Governance Statement section of the Telekom Slovenia Group's 2010 annual report.
Minor shareholders may address the Supervisory Board with their proposals and suggestions via the email address for contact with investors. There were no suggestions received in 2010. A Works Council, with three employee representatives appointed to the Supervisory Board, functions at Telekom Slovenije, d. d. Employees are briefed on the functioning of the Works Council and employee representatives by internal communication channels, while employees may address members of the Works Council directly.
Commitments to external initiatives and membership in associations Telekom Slovenia Group companies are involved in the following social, environmental and economic initiatives: - the Family-Friendly company certificate (Telekom Slovenije, d. d. and Mobitel, d. d.), - Sinergija (network of socio-commercial benefit – Telekom Slovenije, d. d.), - signatories of the European Framework for Safer Mobile Use by Young Teenagers and Children (Mobitel, d. d.), - United Nations Association of Slovenia for Sustainable Development (Mobitel, d. d.) - support of activities for safer internet use – SAFE.SI (Telekom Slovenije, d. d. and Najdi.si, d. o. o.), and - in 2010 the siol.net website, together with five Slovenian websites, signed a code for the regulation of hate speech on websites.
Membership in professional associations: - Telekom Slovenije, d. d. is a member of the European Telecommunications Network Operators' Association (ETNO), - 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.
Telekom Slovenije is also a member of the following associations: - SIST – Slovenian Institute for Standardisation, - Institute for Labour Relations and Social Security, - INIS – Institute for Non-Ionising Radiation, - FTTH Council, - Home Gateway Initiative, - Broadband Forum, and - TeleManagement Forum. The majority of Telekom Slovenia Group companies are members of chambers of commerce and economic associations in the countries in which they are established.
Inclusion of stakeholders The existence of a mutual impact of a relationship that links the Group's activities and interests with the interests of stakeholder groups forms the basis for cooperation with those groups.
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The key stakeholders included in the Group's activities are users, employees, local and wider communities, government institutions and regulatory bodies, shareholders and potential investors, suppliers, the media, educational institutions and other interest groups.
Communication with stakeholders The Management Board, sector directors, individual expert staff, and the public relations department are responsible for the productive, effective, clear and transparent communication with individual stakeholder groups. Special attention is given to the following stakeholder groups when communicating significant business decisions, developments in operations and developments in the areas of services and products: - private (residential) and business users, - employees, - the media, - investors, and - other influential publics (e.g. the government and regulatory bodies).
Additional information regarding communications with users, employees and investors is given in the sections Responsibility for users and Responsible human resource management in the Sustainable Development Report and in the section Share trading in the Business Report section of the annual report.
Communication with the media The Group ensures regular and proactive communication with the media, using a wide range of tools. In addition to regular quarterly press conferences, at which the media is presented interim reports on operations, the Group also organises press conferences for other significant occasions and various meetings with journalists. The Group also communicates with the media via online content. Information is published regularly on the company's website at www.telekom.si in the Investors relations section. The Group also communicates regularly with the media via social networks.
Telekom Slovenia Group companies organised more than 15 press conferences and other meetings, and issued more than 100 press releases. There were more than 10,000 releases in the media, while the number of electronic releases, particularly over the internet, is also rising. Trends indicate that the general media reports more about subsidiaries, while media covering the economy report about the parent company.
The Group communicated with the media primarily regarding the following: - the Group’s operations, - new services, content and sales promotions, - developments in the network and the construction of the infrastructure, - progress of the Orion project, - organisational and personnel changes and legal matters, and - the operations of subsidiaries, particularly in south-eastern Europe.
Communication with influential publics The Group communicated regularly with key influential publics with regard to regulatory and legislative matters, and regarding the settling of relationships with other ICT operators. Influential publics include government institutions of the Republic of Slovenia as majority owner, the competent ministries, regulatory bodies and the Competition Protection Office.
Recognitions and awards Telekom Slovenia Group companies received the following recognitions and awards in 2010: - award for best sustainability report for 2010, in the competition for best annual report sponsored by the daily newspaper Finance , - the SiOL, Telekom Slovenije, and Mobitel brands received the titles Trusted Brand 2010 and Superbrand, - One, d. o. o. received first prize in the category of corporate humanitarian activities among large and medium-sized companies for 2009, in a selection process organised by the Centre for Institutional Development (CIRA), - the socially responsible environmental campaign Eco-Quiz received the international Gold Quill award,
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- at the Golden Drum international advertising festival, Mobitel, d. d. received the prestigious Silver Drum award for the publication Letopis družbe Mobitel – Ogledalo uspeha (Mobitel Company Profile – Mirror of Success), - the e-publication SiOL TVoj was included on the short list for the international Digital Magazine Award, - the new MiniMSAN product made the final for this year's award from the prestigious InfoVision Awards broadband forum, - One, d. o. o. received awards in two categories at the Macedonian national contest recognising achievement in the area of corporate social responsibility, and - to mark the 20th anniversary of the hotline for children and adolescents, the Slovenian Friends of Youth Association publicly thanked Telekom Slovenije for its financial support over the years of this important communication channel for children and adolescents.
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 2010 Group companies: - provided 4,841 jobs in seven European countries; - earmarked EUR 162.5 million for employees' wages; - earmarked EUR 4.4 million for sponsorships and donations in the countries where they operate; - paid dividends of EUR 19.5 million (around one-quarter of which was paid to minor shareholders) to the parent company's 13,177 shareholders, meaning a gross dividend per share of EUR 3; - generated EUR 843.5 million in operating revenues; and - earmarked EUR 113.6 million for investments in the construction, modernisation and development of telecommunications networks (of which EUR 32.9 million was invested in the networks of emerging markets in south-eastern Europe).
See the Business Report of the Telekom Slovenia Group for additional information regarding the Telekom Slovenia Group's financial results.
3.2 Responsible human resource management
The Telekom Slovenia Group places special emphasis on activities to create a user-oriented environment that facilitates quality services and the satisfaction of both users and employees. To that end, the Group increased the proportion of employees included in training programmes to more than 90%. It has continued to standardise human resource systems and transfer best practice between companies.
Last year was characterised by organisational changes with the aim of streamlining operations, increasing the efficiency of processes and transferring certain activities to Telekom Slovenia Group companies. The latter involves eliminating processes with similar content, which is crucial due to the streamlining of operations, market changes and competitive operators. The aforementioned changes also affected human resource activities.
The area of human resources was included during the first half of the year in the preparation of the Orion project, "Restructuring of the Operations of Telekom Slovenia Group Companies", an important part of which is the merger of Telekom Slovenije, d. d. and Mobitel, d. d. The restructuring of operations is a response to changing market conditions and the basis for more efficient control of operating costs, the provision of integrated services to users and the implementation of policies adopted in the Group's strategic business plan. The restructuring will be carried out in line with the project plan. 3.2.1 Commitment to 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.
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3.2.2 Employee structure
There were 4,841 employees in the Telekom Slovenia Group at the end of the year. Their number was down 6% overall, and by 4% in Slovenia and 11% in south-eastern Europe. The reasons for the declining number of employees lie primarily in departures due to business reasons, retirements, the termination of temporary employment contracts, etc. The reduction in the number employees at companies in south-eastern Europe was mainly driven by the consolidation of activities of companies in Macedonia and Kosovo. New hires were made primarily of key experts and temporary employees.
The majority of employees at Telekom Slovenia Group companies in Slovenia are employed under collective agreements, while employees on individual contracts represent a small proportion.
Employment structure by company in the Telekom Slovenia Group
Change in Situation as at: 31.12.2009 31.12.2010 2010 SLOVENIA 3,773 3,620 -153 Telekom Slovenije 1,877 1,741 -136 Mobitel 1,054 1,031 -23 Other Slovenian companies 842 848 6 SOUTH -EASTERN EUROPE 1,372 1,221 -151 Kosovo – Ipko, d. o. o.* 539 471 -68 Companies in Macedonia 635 556 -79 Other companies in SE Europe 198 194 -4 Telekom Slovenia Group 5,145 4,841 -304 Note: A total of 70 persons on expatriate contracts were included among Ipko Group (Ipko and Media Works) employees in 2009. Therefore, the reduction in the number of employees in 2010 does not reflect the actual situation, but is the result of amending the methodology of recording the number of regular employees within the Telekom Slovenia Group.
3.2.3 Educational structure of employees
The proportion of employees with education levels VI and VII was up again on the previous year, from 52.4% to 53.7%. The increase was largely the result of the hiring of highly-qualified staff and the completion of higher levels of education by existing employees. The proportion of employees with an education level of V or lower continues to decline, by 1.1 percentage points in the last year. The number of employees by individual education level, in particular those with level IV and V, is lower owing to the decline in the total number of employees.
Educational structure of Telekom Slovenia Group employees
1.800
1.600
1.400
1.200
1.000
800
600
400
200
0 I. - IV. deegre V. deegre VI. deegre VII. - IX. deegre
2007 2008 2009 2010
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3.2.4 Employment of disabled persons
At the end of the year there were 135 disabled persons of various disability levels working in the Group, an increase of 7% on the previous year. In line with its policy to actively facilitate the employment of disable persons, Group companies in Slovenia once again exceeded the legally prescribed quota for disabled employees of 2% for the telecommunications sector and 3% for the construction sector. Telekom Slovenije, d. d., GVO, d. o. o. and Avtenta.si, d. o. o. were thus entitled to compensation in the amount of 25% of the minimum monthly wage for each disabled employee above the prescribed quota.
3.2.5 Organisational climate and employee satisfaction and culture
Organisational climate
Organisational climate was measured at the Group level for the second consecutive year. A comparison of results for the Group from 2010 with those of 2009 indicates a drop in the average assessment of the organisational climate by 0.08 points, from 3.56 in 2009 to 3.48. The results can be prescribed primarily to intensive organisational changes in Group companies which, as expected, affect employees and to the general crisis conditions in the external environment. The gap between the results was lowest with regard to employee satisfaction (-0.03 points), and highest in professional training and education (-0.12 points) and in career development (-0.13). The Group's results are notably higher in all categories than the average of Slovenian companies included in the SiOK survey.
Employee satisfaction
There was no significant change in the assessment of employee satisfaction compared with the previous year, the average assessment having stood at 3.63 in 2009 compared with 3.60 in 2010. Satisfaction with direct superiors was up slightly, while satisfaction with training and advancement opportunities was down.
Employee satisfaction in the Telekom Slovenia Group in 2010
Group Telekom 2010 -Job Satisfaction 0,5 0,132 0,054 -0,011 -0,016 -0,025 -0,048 -0,052 -0,079 -0,085 -0,114 5 -0,123 0
4 -0,5
3 -1
2 -1,5
1 -2 4,15 4,125 3,82 3,952 3,884 3,92 3,841 3,92 3,835 3,748 3,46 3,346 3,389 3,47 3,422 3,12 3,174 3 2,877 3,9 3,8 3,4 0 -2,5 workers - Satisfaction with work with Satisfaction Satisfaction with salary salary with Satisfaction Satisfaction with co with Satisfaction rooms,...) Satisfaction with management with Satisfaction Satisfaction with work schedule work with Satisfaction Satisfaction with direct superior direct with Satisfaction Satisfaction with job stability security stability job with Satisfaction Satisfaction with promotional chances chances promotional with Satisfaction Satisfaction with education possibilities possibilities education with Satisfaction Satisfaction with status in the organization organization in the status with Satisfaction Satisfaction with working conditions (equipment, conditions working with Satisfaction Group Telekom 2009 Group Telekom 2010 Group Telekom 2009 / 2010
Organisational culture
The organisational culture was measured for the first time in 2010, with the aim of identifying similarities and differences in the current and desired employee cultures in Slovenian companies comprising the Telekom Slovenia Group. The results of measurements indicate that current organisational cultures are rather harmonised, which represents a good guide for planning organisational changes and the merger of companies.
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Annual appraisal interviews
In line with the management by objective system, the Group used annual appraisal interviews to assess the achievement of objectives and job performance, approve the advancement of employees and set objectives for 2011. Annual appraisal interviews, including an assessment of competences and behaviour, were carried out at Telekom Slovenije, d. d., GVO, d. o. o., Najdi, informacijske storitve, d. o. o., Avtenta.si, d. o. o., Ipko Telecommunications, d. o. o., Aneks, d. o. o. and in part at One, d. o. o.
3.2.6 Employee training and development
The Telekom Slovenia Group sees knowledge as the key competitive advantage of a contemporary learning organisation, which becomes the basis of success and includes the building and transfer of knowledge in practice. The Group gives a great deal of importance to knowledge within the Group, which derives from experiences and hidden practices (tacit and implied knowledge). As a contemporary learning organisation, the Group introduces learning processes, creates a treasury of knowledge, ensures interaction between the individual, the team and the company, and transfers its practices to its business partners.
Funds earmarked for training and education were down in line with the decrease in the number of employees. The number of training hours within the Group was down 13%, although the number of hours per employee (28.2) was at the level recorded the previous year.
The Group continued to promote internal training, which was up 15.7%, bringing additional savings. The Group actively updated the internal training system, which is particularly well-developed at Slovenian companies, as follows: - more than half of training events were carried out with the help of internal experts; - Mobitel, d. d. and Telekom Slovenije, d. d. continued with their own e-courses, carried out for employees of both companies; 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. The training inclusion rate was up 16.3 percentage points, meaning that 92% of employees were included in some form of training compared with 75.6% the previous year. International workshops were organised within the Group regarding the network, where experts met and exchanged knowledge. The ratio of training in Slovenia to training abroad rose slightly compared to the previous year in favour of Slovenia.
Key figures regarding employee training within the Telekom Slovenia Group
2009 2010 Change in 2010 Number of training participants 3,889 3,758 -131 Number of training hours 145,236 113,056 -32,180 Direct training costs, in EUR thousand 4,151 3,010 -1,141 Number of employees as at 31 December 5,145 4,891 - 304 16.3 75.6% 91.9% Proportion of employees included in training percentage points Number of training hours per employee 28.2 28 -0.6
Structure of training by type
The structure of training areas at the Group level changed slightly. Primarily at subsidiaries, greater emphasis was placed on management (the proportion having increased from 7.6% in 2009 to 10.9% in 2010) and on foreign languages (up from 2.8% in 2009 to 25.6% in 2010), while the proportion of ICT training was down (from 28% in 2009 to 18%).
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Structure of training by type in %
Other trainings 12,0% Business communication and Telecommunication Economics skills technologies 1,1% 4,4% 18,0%
Legislation 1,6%
Energetics and engineering 0,7%
Security and health at work Sales 14,3% 19,3%
Foreign languages 4,0%
Information science Communication Management 9,6% 4,0% 10,9%
Key and perspective personnel
A great deal of emphasis was again placed on the development of key and perspective personnel, including the drafting of individual employee development plans. The potential of employees was tested at Mobitel, d. d. and Najdi, informacijske storitve, d. o. o., followed by the drafting of an action plan and the execution of individual training programmes. Telekom Slovenije, d. d. held workshops with directors and perspective employees.
The Group continued to employ a system of talent management and employee succession that facilitates greater recognition and human resource mobility, the retention of the most skilled personnel and increased efficiency, thus contributing indirectly to improved financial results. Some perspective candidates assumed management functions in 2010, indicating that the Group set the correct objectives in this area.
On-the-job studies, scholarships, apprenticeships and the recruitment of new personnel
Despite the active reduction of costs in all areas, the Group supports employees in their pursuit of education at various schools and faculties in line with the needs of individual companies. A total of 139 persons concluded on-the-job study agreements in 2010, down 28% on the previous year.
Pupils and students completed their compulsory job training at Group companies, where this was in the interest of the individual company. Mentors assisted in the effective introduction of apprentices to the company's work environment and organisational culture.
Motivation of employees
The variable portion of wages, which is dependent on achieving planned business objectives, represents an important element of the material motivation of employees. The Group also pays voluntary supplementary pension insurance for the employees of Slovenian companies.
The most important form of non-material motivation is ensuring constant employee satisfaction. In addition to a suitable work environment, preventive medicine and medical examinations, this includes other forms of non-material motivation such as the education and training of employees' own choice, foreign language courses and visits to trade fairs.
The employees of all companies within the Group are rewarded according to the applicable collective agreement and internal acts. The Group promotes collective and individual remuneration, which is linked to the achievement of business objectives. Collective remuneration includes the payment of year-end and Christmas bonuses, while individual remuneration is dependent on the achievement of personal objectives and is paid in various forms (e.g. work performance bonuses, awards and advancement).
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Professional library
The Telekom Slovenia Group's professional library comprises more than 10,000 books from the fields of telecommunications, information technology, economics, law, management and other sciences. More than 100 domestic and foreign magazines are available to the employees of all companies. In 2010 the library fund received 171 books, 295 periodicals and standards and 111 units of e-material. Materials for internal trainings are continuously accessible on the intranet library.
Cooperation with research institutions
Employee training also entails the Telekom Slovenia Group's cooperation with various research institutions with the aim of achieving the best results in the development of new services, content and business practices. The most important forms of cooperation include Telekom Slovenije, d. d.'s cooperation with the Faculty of Engineering at the University of Ljubljana and with the internationally recognised Jožef Štefan Institute in the field of post-graduate studies.
Mobitel employs four young researchers completing their doctorate degrees at various faculties in the scope of the young researchers project.
3.2.7 Managing innovation
Promoting innovation has been integrated into the parent company's management by objective process, in which innovativeness and initiative are assessed, in addition to the achievement of personal objectives. Employees may submit useful proposals, and technical and other improvements through the Brihta portal. A total of 46 proposals were accepted in 2010, 22 more than the previous year. Of these, 25 were useful proposals that received practical awards, while 21 technical and other improvements resulted in monetary awards.
3.2.8 Cooperation with employee representatives
The process of restructuring the operations of Telekom Slovenia Group companies in the scope of the Orion project requires closer cooperation between representatives of the Works Council and trade unions. Both workers' bodies were actively included in this process. Cooperation between the employer and employees and social dialogue were carried out in accordance with the established principles of agreement and consultation. Employee representatives were provided regular and timely information in accordance with the applicable legislation.
Employee and trade union representatives actively participated in agreements regarding 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.
3.2.9 Responsibility for employees and related groups outside the workplace
The Telekom Slovenia Group pays special attention to the lives of employees and their children and pensioners. Group companies were active in the following areas: - sporting and social events, and pre-new year and jubilee meeting were organised; - pensioners' clubs of Telekom Slovenije, d. d. and other interest groups were supported; - gifts were given to the preschool children of employees and to minors and the school children of deceased employees, with some companies awarding scholarships; - solidarity assistance was paid in special social and health situations; - recreational activities were organised for employees by leasing various sporting facilities; - the parent company earmarked grants in the form of sponsorship and donations via tender for the leisure-time activities of employees; - at the urging of the company, employees were included in various socially responsible charity projects, such as the "Let's Clean Slovenia in One Day" campaign; and - the Group facilitated discounts for the purchase of tickets for certain cultural events, for admission to the House of Experiments and free admission to certain museums.
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3.2.10 Health and safety at work
To ensure health and safety at work, which is one of main tasks of all Telekom Slovenia Group companies, the Group organised several theoretical and practical safety at work training events. Special attention was given to measures regarding recurring workplace injuries, 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.
In addition, the Group also: - measured environmental conditions and lighting in the work environment for all locations where deemed necessary; and - companies that received funds for exceeding the quota of disabled employees earmarked those funds for improving working conditions for disabled persons, for their education, for preventive medicine and for preventing disability.
Personal protective equipment
Annual inspections of personal protective equipment are also carried out to ensure safety at work, while the use of equipment is supervised, particularly during inspections of teams of field workers. Worn out personal protective equipment was regularly identified and replaced as necessary. Fire safety Fire safety training in an integral part of safety at work training, and is aimed at preventing such accidents. Group companies were successful in this area, as no fires were reported. Regular preventive activities were carried out and fire rules drafted. Fire extinguishers and hydrant networks were inspected and serviced, and other fire safety measures implemented.
Healthcare In addition to legally prescribed preventive and periodic medical examinations, activities in the area of healthcare were aimed at further measures to maintain the health of employees.
Vaccinations against tick-borne meningoencephalitis for employees working in forests were organised, while a wider group of employees were included in a flu vaccination campaign. A certain number of employees from some companies were sent to spas for an active medical leave. A series of articles were run in the in-house magazine to raise awareness regarding healthcare . Mobitel, d. d. enhanced its active care for the health of employees with the help of the Naše zdravje (Our Health) website, which provides employees multifaceted information regarding healthcare.
The parent company continued to monitor the overall state of employee health using an anonymous analysis following the completion of periodic medical examinations.
Workplace injuries A total of 62 injuries were reported last year at Telekom Slovenia Group companies, 29 of which occurred at work and 12 of which were work-related. Some 21 employees were injured on their way to work. The most frequent injuries were the result of traffic accidents and falls due to carelessness. Work time lost was down 18% owing to the significant decline in the number of injuries. Work time lost totalled 10,758 hours or 21.9 days per injury.
3.2.11 Family-Friendly company certificate
Telekom Slovenije, d. d. and Mobitel, d. d. both hold a Family-Friendly company certificate. Measures adopted in the scope of the basic Family-Friendly company certificate were successfully implemented at both companies last year. This was confirmed by the audit committee of the Ekvilib Institute following the completion of the assessment period.
Major activities in the scope Family-Friendly company certificate included the following: - first graders received yellow scarves and symbolic SiOL notebooks; - a drawing contest, featuring Xobi, was organised for employees' children, with the best drawings appearing on a calendar;
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- employees' children created drawings, with call centres they visited as the theme. The drawing were displayed in business premises; and - holiday workshops were organised at Mobitel, d. d. for employees' children.
Measures were aimed at improving human resource management in terms of the work-family life balance. A positive attitude towards the Family-Friendly company certificate is also seen in the high proportion of exploitation of certain benefits and in positive assessments from the SiOK organisational climate measurement that relate to the Family-Friendly company certificate.
3.2.12 Communication with employees
Effective and proactive communication with employees is crucial for the success of the restructuring of operations in the scope of the Orion project. Communication activities within the Group thus focused on this area.
In addition to informing employees about all significant developments at the company via the in-house magazine Škrjan ček , the eskupaj e-journal and the intranet, the Group also actively communicated via the special Orion intranet sub-site, where employees are regularly informed about events at the management level and in specific project groups. The opportunity to pose questions was also provided, with spontaneous answers given. Collective meetings with employees at individual locations were organised, where employees were presented the expected effects and objectives of the merger, and new strategies. Employees were also briefed on the result of organisational climate and satisfaction measurements.
Under the slogan, "Merging the Best", the Group enhanced employees' trust in the merger process, which represents a new future, brings change and makes the Group stronger and more successful as one. Employees were invited to participate in a contest to select the name of the newly merged company. A total of 206 proposals were received and reviewed by a special commission.
Through a special communication campaign, employees were encouraged to participate in the "Let's Clean Slovenia" project and received a symbolic T-shirt for their participation.
3.3 Social responsibility
Despite the adverse economic conditions, the Telekom Slovenia Group solidified its active role in various socially significant activities. Prudent selection and the optimisation of long-term cooperation have made it possible to support a larger number of partners and projects than in the previous year. The Group focused its marketing activities on ensuring effective competition.
Areas of activity, target groups and the extent of support for socially responsible projects were selected on the basis of the sponsorship and donation strategy of the parent company and other subsidiaries of the Telekom Slovenia Group. In all significant sponsorship and donation activities, the Group generated added value for its users by investing in the social environment, and thus realised one of its key strategic objectives. In line with past tradition, a portion of funds was also earmarked for leisure-time activities involving the Group's employees.
Funds earmarked for sponsorships and donations were cut in 2010. Nevertheless, the Group worked with a larger number of the partners than the previous year by systematically selecting projects and by optimising long-term sponsorships. A total of 0.5% of operating revenue were earmarked for donations and sponsorships.
3.3.1 Major sponsorships and donations
For several years, one of the objectives of sponsorship and donation projects is the mutual involvement of Group's services via projects in which each element of the Group contributes its service platform. In this way, projects are enhanced and recipients receive more than mere financial
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To that end, the Group was involved in the following projects last year: - sponsorship of the Slovenian national football team during qualification for the 2010 World Cup, and during the World Cup itself; - sponsorship of the Slovenian Olympic Committee at the Winter Olympics in Vancouver, Canada; - the cycle race across Slovenia, in which the Group established a new benchmark for effective sponsorship through the active use of various online and mobile media and active market communication; and - support of the Sloka 2010 White-Water Kayak and Canoe World Cup in Tacen.
Other major sponsorship and donation projects of Telekom Slovenia Group companies
Area Sponsorship/donation SPORTS - sponsor of the Slovenian Olympic team, Slovenian national football teams, the Nordic ski team, the Slovenian Athletics Association and the Slovenian Kayak Association - sponsor of the Union Olimpija basketball club, the Pivovarno Laško and Krim handball clubs and numerous other sport clubs - sponsor of the Golden Fox World Cup ski event, the Planica World Cup ski jumping event, the cycle race across Slovenia, the Planet Tour golf tournament (Planet 9), Sloka 2010 and the 2010 Skopje marathon (One) CULTURE - support of the Ljubljana Festival, and the Godibodi, Tartini, Carniola, Trnfest, Čarobni dan festivals and the Ljubljana International Film Festival - sponsor of Cankarjev Dom, the National Opera and Ballet in Maribor, Borštnikovo sre čanje (theatre event), the Slovenian Drama Week in Kranj and the Ljubljana Puppet Theatre - long-time donator to the Slovenian Ethnographic Museum (Telekom Slovenije) - support of the 15th Biennial of Macedonian Architecture, the Bitola Open City and the Taksirat Festival (One) - sponsorship of the Children's Music Festival in Skadar (Primo) SCIENCE AND - contest for the development of new Andriod applications with the aim of EDUCATION promoting and establishing local know-how (Mobitel and One) - rewarding of golden graduates and support of the graduation parade - cooperation with the Reading Badge Association - sponsor of the House of Experiments - sponsor of the Microsoft NT Conference and the Cisco Expo Conference - sponsor of the Golden Drum Festival, the Slovenian Marketing Conference, the Slovenian Advertising Festival and the Effie awards HUMANITARIAN - support of the toll-free helpline for children and adolescents in distress and PROJECTS the pan-European number for people in distress - support of the Z glavo na zabavo (Party With Your Head) and Red Nose foundations - the collection of funds to help children from socially disadvantaged families in cooperation with famous Slovenian athletes (Mobitel) - support of campaigns to raise funds for persons in social distress via Telekom, d. d.'s call centres - SMS donations and support of the sight and hearing impaired (Mobitel) - cooperation with the Macedonian Disabled Workers' Association - donation to the children's oncological clinic and equipment for emergency rescue vehicles, support for the National Transplant Foundation and support of Solidarity Week (One) ENVIRONMENTAL • support of the Eco-School project through the online Eco-Quiz with the aim PROJECTS of environmental education of the young (Telekom Slovenije) • participation of employees in the "Let's Clean Slovenia in One Day" campaign • Mobitel, d. d.'s long years of cooperation with DOPPS
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• concern for the Se čovlje salt pans, where Soline, d. o. o. combines the preservation of natural and cultural heritage with entrepreneurship • participation of One employees in the "Tree Day" tree-planting campaign
3.3.2 Protection of competition
Due to the intense competition within the sector and their strong market positions on most markets, Telekom Slovenia Group companies are highly exposed to the protection of competition. Through its activities, the Group strives to ensure equitable and effective competition. In line with its official duties and on the basis of reports from other operators, the Competition Protection Office initiated two proceedings in 2010. Details regarding these proceeding may be found in the section Significant proceedings against Telekom Slovenia Group companies before the Competition Protection Office in the Business Report section of the annual report.
3.4 Environmental responsibility
During a year characterised by the restructuring of operations, the Telekom Slovenia Group further improved its responsible treatment of the natural environment. The company's environmental policy was updated and activities aimed at the efficient use of energy initiated. A comprehensive waste management system was established and the monitoring of environmental indicators initiated at subsidiaries in South-Eastern Europe. The Group worked consistently to realise its established environmental objectives.
The bases for continuous environmental activities, including at the merged company, were laid down last year in the adopted environmental policy of the Telekom Slovenia Group. The Group will continue its environmental activities by achieving the following objectives: - the development and implementation of activities aimed at protecting the environment and preserving natural resources wherever the Group is present; - the methodical reduction of environmental impacts; - the regular monitoring of the use of resources and energy and costs; - the setting of environmentally friendly strategies and targets that are balanced against the particularities of the Group's operations and development; - the constant improvement of environmental protection activities; - the transfer of best own and other environmental practices to all Group companies; - taking into account globally recognised environmental development guidelines in the development of services; and - compliance with valid legal requirements and standards, and other normative and ethical requirements.
Telekom Slovenia Group companies comprise a complex high-technology system. New opportunities to streamline processes at all levels will arise from of the Group's merged parent company. The consistent and focused implementation of all activities, including environmental activities, is crucial to ensuring the optimal use of all available resources. This is accomplished with a formalised system of management throughout the production cycle, from planning and procurement, to the construction and maintenance of networks, from the exploitation of services in all user segments to waste management.
Telekom Slovenia Group's environmental activities are directed and verified by an environmental management committee and an operational environmental team that functioned at the parent company in 2010. Administrators are responsible for the functioning of the environmental management system in individual units of a company, which also have waste management coordinators.
The Group regularly complies with the requirements of environmental regulations. All required reports are submitted by the relevant deadlines, without comment. Despite an increase in the number of inspections, the Group did not receive any cautionary environmental fines.
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3.4.1 Environmental developments in 2010
In line with its established environmental policy, the Group carried out the following significant environmental management activities: - the implementation of a project for the efficient use of energy in which the Group will search for internal reserves at companies; - the introduction of a new comprehensive waste management system; - Telekom Slovenije, d.d., environmental management system successfully passed a recertification assessment according to the SIST EN ISO 14001 standard; - the introduction of the monitoring of environmental indicators at subsidiaries in south-eastern Europe; - base stations using alternative energy power supplies (e.g. sun and wind) were set up in Kosovo; - the purchase and recycling of old mobile phones was facilitated at Mobitel centres; - a mobile phone with built-in solar cells and an energy-saving charger was added to the range of environmentally friendly products and services; - the environmental accounting and bookkeeping system was upgraded; and - the sustainability report of the Telekom Slovenia Group for 2009 was prepared for the first time in accordance with GRI guidelines, and was the first report from a Slovenian company to be submitted for independent external verification and registration.
Proactive communication, and the awareness and education of employees, suppliers and users on environmental topics represent an integral part of responsible environmental management. The Group was active in the following areas: - the environmental awareness of employees in the scope of the Plus campaign at Telekom Slovenije, d. d., GVO and Najdi, informacijske storitve continued; - activities in the area of environmental education so called "environmental primary school" was attended by 1,108 employees from Slovenian companies. Progress was thus made towards the objective of including all employees in Slovenia in the aforementioned programme by 2012; - articles were published in the in-house magazine "Škrjan ček" and environmental guidelines published in the e-journal "e-skupaj"; - the flow of and access to environmental documents and news on the intranet site "Caring for the Environment" was enhanced; - proactive communication with interested publics regarding electromagnetic radiation continued; - the Group continued to raise the environmental awareness of youth through the online Eco-Quiz project, through a Mobilatorij, the House of Experiments and - Group employees participated in the nationwide "Let's Clean Slovenia" campaign.
International comparability is also important in assessing the Group's achievements. This is done by participating in the sustainable development working group of the European Telecommunications Network Operators' Association (ETNO; www.etno.be). Key activities in this are were as follows: - the drafting of an environmental report according to ETNO guidelines; - participation in meetings via a teleconference link, resulting in a reduction in emissions; and - inclusion in the expert sub-group for energy (ETT – Energy Task Team).
3.4.2 Overview of the key environmental objectives in 2010
Objectives and targets Assessment Implementation success A: to reduce electricity consumption Indices of 90 in terms of value in euros ► by 5% to 31 December 2012 - initiated and 101 in terms of kWh compared with 2009. 2009. A1: to prepare for the implementation of Completion of preparatory activities; an energy review of one commercial ► implementation started in January 2011. facility per year. A2: to establish a centralised Implementation according to plan; all consumption control system and to analysers not yet connected to the control install analysers at each new electrical system. Activity continues in 2011, when connection – multi-year objective. the installation of analysers at 10 locations is planned.
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A3: to replace open batteries for the The objective for 2010 was met. The back-up power supply with closed replacement of classic battery types with systems at two locations and to regularly valve-regulated systems, and preventive maintain existing systems – multi-year inspections and the replacement of the objective. oldest batteries continues. A5: to replace air conditioners at 20 Targets exceeded – an additional 10 air locations with "free-cooling" systems with conditioners were relocated. the aim of eliminating all non- professional units by 2011. B: To improve the efficiency of fuel Fuel consumption in litres reduced by 5% ► consumption in the car fleet by 10% in year-on-year terms; objective to reduce (litres/EUR thousand of revenues) – consumption in the future as well. initiated in 2009. B1: to establish vehicle emission records Completed to the planned extent; to be for at least 50% of Telekom completed in 2011. Slovenije, d. d.'s car fleet in 2010. B2: to reduce work-related travel by 2% Achieved. in terms of kilometres driven compared with 2009. B3: to reduce regular* vehicle costs per Missed by 0.5 %. vehicle by 2% compared with 2009. ►
C: to reduce the volume of mixed Achieved. municipal waste by 10% to 31 December 2012. C1: to optimise the monitoring of waste – Application entered into production on 1 introduction of an application to enter ► February 2011 due to specification records and weight certificates. changes. C2: to exclude locations where municipal ► Partially implemented; to continue in 2011. waste is not generated from the system. C3: to insure five ecological islands in Completed. Three additional ecological 2010. islands to be insured in 2011. C4: to install standard identification ► Three tables were installed on every tables for the five most frequently location; to be completed in 2011. encountered types of waste. C5: to establish records and sell copper ► Agreements are being reached; cabling. implementation expected in 2011. D: to connect all treated wastewater ► Progress made; objective remains open to the public sewerage system by 31 primarily owing to the connection of December 2010. smaller locations to sewerage. D1: to connect the Koper business ► A sewerage trench was completed at the premises to the public sewerage system. end of 2010 according to plans; agreements still being reached on connecting. D2: to establish a record of locations not ► Records established; verification and connected to the public sewerage amendments continue. system. E: to reduce the spillage threat of ► Instructions were drafted and equipment hazardous materials (e.g. pumping purchased. Task remains open to due its and storage). high importance. E1: to place equipment to resolve spills. Equipment placed at all recorded locations. E2: to review documentation regarding Review carried out and instructions oil traps and draft new plans as updated. Documentation for the new oil necessary. traps included in 2011 objective. F: to reduce noise and emission into ► Use of environmentally friendly silent the atmosphere by modernising cooling units and external air conditioning
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WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d. technological devices . units. Objective remains open due to the large number of such units. F1: to modernise two generators in 2010 ► Three key generators replaced, despite a and to reduce emissions and noise to the reduction in investment funds. levels required by environmental permits. Continuation of activities planned in 2011. G: other areas G1: to update environmental clauses in / Responsible departments notified; business premise agreements with GVO, updating not yet complete. d. o. o. and other subsidiaries and tenants. G2: to review and update warehousing Completed. rules for relevant locations as necessary. G3: to review and update procurement Completed in full except for two cases for contracts as necessary. which signing was postponed until the first quarter of 2011. G4: to update the environmental Participation in the Let's Clean Slovenia, communications plan and participate in Energija.si and Eco-Quiz campaigns. at least three environmental campaigns with external service providers. G5: to carry out environmental training Seminars organised; plan of basic training with the aim of organising at least two significantly exceeded, as 1,108 seminars and including at least 300 employees were included in training. employees in the "environmental primary school". G6: to update records of local legislation. / Progress made, but non-systematically and not to the desired extent. G7: to establish a record of locations in ► First phase completed; supplementation SAP. by technical documentation, tenants, co- owners and co-locations proposed. G8: to build a bicycle shed at the Completed by the envisaged deadline. The Cigaletova location. possibility of purchasing bicycles for company use being studied. Legend: (completed), ► (continuing activity in 2011), / (incomplete; corrective and preventive action) A = objective; A1 = target * Opportunities for improving efficiency are still seen primarily in the consistent management of timetables and the monitoring of milestones.
3.4.3 Environmental indicators
Electricity
Electricity costs were down one tenth on the previous year, while the number of kWh was unchanged (index 101). A more notable drop in consumption was recorded over the last four months of the year. The effects of the savings project will be monitored using the established mechanisms of the environmental management system.
Companies in south-eastern Europe began monitoring electricity consumption in the scope of establishing environmental accounting. Electricity represents the highest environmental cost in the telecommunications sector. The level of electricity costs is conditional on various factors, such as different prices on markets and the reliability of supply. Energy is frequently supplied by generators, due to power supply outages and fluctuations in Kosovo and Albania, which increases costs. The introduction of alternative energy sources could contribute to the reduction of costs. A step was taken in that direction with the setting up of three solar- and wind-powered base stations in Kosovo. The monitoring of environmental indicators will be updated in 2011 with the monitoring of fuels costs.
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Changes in electricity costs by year in EUR million
5,5 5,0 4,5 4,0 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0,0 2006 2007 2008 2009 2010
Transportation and heating fuels
The Group met its objectives regarding the use of transportation fuels. It also continued to restructure the car fleet with the aim of reducing fuel consumption and CO 2 emissions. Heating fuel represents the main source of energy for heating purposes. With rising prices of refined petroleum products, this has negative impact of rising heating costs. The Group assesses that it can achieve significant savings through organisational measures that do not require major investments.
Changes in transportation fuel costs and heating cost in million EUR
1,20
1,00
0,80
0,60
0,40 0,20
- 2006 2007 2008 2009 2010
total vecihle fuels cost ( in € million) heating costs (in € million)
Municipal services and the cleaning of premises
The total costs of cleaning and municipal services were down last year. The costs of cleaning services represent the majority of these costs. Measures are being implemented in the scope of the Orion projects to reduce the costs of managing premises. The first results of these measures are expected in 2011.
Costs of cleaning and other municipal service in mio EUR
2,00 1,75 1,50 1,25 1,00 0,75 0,50 0,25 - 2006 2007 2008 2009 2010 86
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Updating of the comprehensive waste management system
The waste management system was comprehensively updated last year to improve its efficiency. The aim of the update is to achieve zero cumulative waste costs in 2015. The Group began to harmonise waste management at its two largest companies. Key measures included: - the selection of a primary comprehensive service provider instead of a larger number of partners; - a link in a joint plan with a new external service scheme in the area of packaging; and - replacement of the organization responsible for the joint plan for waste electrical and electronic equipment and waste batteries and accumulators.
The primary contractor ensures comprehensive traceability and waste reporting. The transition to comprehensive waste management will be supplemented by training activities.
Environmental activities in the mobile segment of operations
The year 2010 was characterised by numerous activities aimed at protecting nature and the environment. Environmental impacts were 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.
The Group developed environmentally friendly mobile telecommunications in its range of services and products. To that end, it: - included mobile phones manufactured by companies that take into account environmental impact in production in its range of products; - facilitated the environmentally friendly disposal and recycling of old mobile phones and batteries; - operated 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; - carried out measurements of electromagnetic radiation and, in addition to legally prescribed measures, carried out additional measurements on its own initiative to ensure the transparency of procedures and cooperated with local communities; - provided interested inhabitants living near stations access to reports on measurements and documents, and participation in performing measurements; - reduced energy consumption through the use of the latest IT equipment; - continued preparing for the full digitalisation of operations with customers; and - invested in raising awareness regarding the environmentally responsible treatment of employees and the wider environment. The measurements of the electromagnetic radiation carried out for all of the Group's base 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. The majority of stations recorded a value that is as much as 100 times lower than those specified.
In addition to the Forum EMS, Mobitel, d. d. provides all necessary data to the state institutions that monitor and supervise electromagnetic radiation. 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 activities are carried out.
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.
Soline, d. o. o. protects and preserves the natural and cultural heritage in the area of the regional park on behalf of the government, and produces salt by traditional method. Since 2003, when a concession to manage the regional park and utilise the natural resources of the Se čovlje Saltpans was received, the traditional process for producing salt, which is a precondition for preserving the salt mining activity linked to the plant and animal species and their habitat, has been nearly fully restored.
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Taking into account the sustainability of processes, the sustainable development of this region is ensured. By implementing measures to protect natural and cultural heritage, the Group raises awareness about the importance of preserving the Sečovlje Saltpans Regional Park. EU funds earmarked for protecting nature, raising awareness and research assists to that end.
3.5 Responsibility to customers
A satisfied customer is the basic guideline to the Group's operations and one of its core values. To enhance this satisfaction, activities are continuously focused on providing a user experience of the highest quality that is also simple and secure. It is based on user-friendly and technologically advanced services, products and content.
Creating new user experiences
The Group continued to adapt last year to the needs and wishes of individual user segments in all areas, and provided new services, products and content tailored to the user. These include the following: - the upgrading of loyalty programmes in all segments where they exist; - a range of advanced smart mobile phones and entertaining mobile applications for the most demanding users (Mobitel); - the introduction of the SiOL BOX service, which provides an entirely new user experience (Telekom Slovenije); - the introduction of the Mobitel Ena easier-to-use mobile phone for older users (Mobitel); - the introduction of new external sales channels for SiOL services; - the introduction of the new Umbrella brand intended for the family segment by One, d. o. o.; - the upgrading of Mobitel's subscriber packages that are better tailored to the needs of users; - the upgrading of the Adpartner Search advertising products and the upgrading of the advertising network (Najdi); and - the establishment of a unit responsible for production and the range of multimedia services for external subscribers (Planet 9).
Permanent benefits are offered to special user groups. Disabled persons, students and persons with special needs are entitled to discounts and specially priced packages in the areas of broadband access and traditional and mobile telephony. The deaf and hearing impaired are entitled to a package with low-priced text messaging and free video calls, while members of volunteer associations are provided a package of mobile services with no monthly subscription fee.
All of the following activities are aimed at customer satisfaction: - Telekom's interactive assistant Tia successfully helps the company's users find answers to the most frequently asked questions and guides them using automated answers; - the functionality of Tia the interactive assistant was expanded with the introduction of chat rooms, which facilitates interactive communication with our advisors; - the Technical Helpdesk Service (080 1000) received 1,179,510 calls and resolved 71% of all registered incidents; - a great deal of energy and activities were invested in the preventive monitoring of operations, in improving diagnostics, and in improving responsiveness and work efficiency; - by introducing a support system to manage network faults and services on the Remedy platform, the company ensured the assignment and monitoring of incidents, from the recording of contact, through registration to final clearance for all responsible groups, including subsidiaries; - control of the creditworthiness of subscribers prior to the execution of an order was established to mitigate risks and avoid default on receivables; and - an IT support CRM, which speeds up subscriber order and request processes and procedures and facilitates the management of subscriber contacts and submitted documents, was established.
The following internal activities that will contribute to raising customer satisfaction were also introduced:
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- a Coaching process that is integrated into the work of the telemarketing department. Assessing conversations, as an integral part of the process, effectively illustrates the quality of managing conversations with users; - My Day with a Customer is a project aimed at improving awareness of the importance of a customer; and - mentoring , which we use regularly as a process, meanings good training methods and the flow of knowledge and information, which is crucial to quality customer service.
Business user segment
Among the most important developments in the business user segment are the following: - the introduction of the Custom Office service; - the introduction of new, integrated convergent services such as the Single Business Network; - the upgrading of the Smart Number and the Click to Call service; and - a new business newsletter with presentations of key selected user experiences.
Concern for children’s internet security
Informing children, parents and teachers about the secure use of the internet is an integral part of the Group's social responsibility. 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. Secure internet use is also an integral part of the children's corner on the SiOL website, where an online adventure game has been added to raise awareness about the benefits and dangers of the internet. Constant communication for children and parents regarding internet security may be found in the children's corner.
Satisfaction with SiOL services During the past year, Telekom Slovenije has given special attention to the satisfaction of existing users of SiOL services, which was measured twice in 2010. The company received useful opinions and suggestions regarding services that led to the introduction of new products and services, such as the new Trio 10M package to meet the need for increased speeds, HD on the copper-based (xDSL) network, and HD and HBO in the basic and standard programme scheme. Several additional functions and services that users missed (e.g. a recorder, time delay, connection with a computer and access to news and sports results) were offered with SiOL BOX. It was seen that SiOL BOX users achieve a higher level of satisfaction with SiOL TV than users who have not yet used SiOL BOX. Customers also gave a positive assessment of the loyalty programme, with more than three quarters of users expressing their satisfaction.
Satisfaction of major business users The Group also measured business user satisfaction. Among major business users, 85% are satisfied with services. For them, the most important element is the reliable functioning of services, accessibility when reporting faults and the rapid clearance of faults. They expressed the highest level of satisfaction with technical support and contact staff and the reliability of Telekom Slovenije's services. Among those whose reported a fault, the majority were satisfied with the functioning of a service following the clearance of a fault. Three quarters of users would recommend Telekom Slovenije, d. d. to their business partners and acquaintances.
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. Telekom Slovenije, d. d. and Mobitel, d. d. have been ranked as the most reputable Slovenian telecommunication companies for several years.
The Group also monitors the perception of the general public with regard to broadband service providers. Results from 2010 indicate that: - SiOL is the best known brand in the category of internet access and packages of services with the widest range of choices (more than half of those surveyed would choose SiOL "today" as their broadband service provider); - SiOL is recognised as the leading and most reputable and family-oriented company, with state-of- the-art TV services and a wide selection of video and HD content. It was also rated higher than the competition; and
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- the Mobitel and Najdi.si brands are perceived by users as moderately innovative, and of a somewhat more serious and commercial nature.
The trust of users is also confirmed by prestigious awards and titled, such as Trusted Brand and Superbrand, which the Telekom Slovenije, SiOL, Mobitel and Najdi.si brands have received for several consecutive years.
Communication with users
Targeted, proactive and effective communication with customers is crucial for the sales, management and strengthening of the Group's most important brands: SiOL, Mobitel, Telekom Slovenije, Ipko and One. At the forefront in the past year were interactivity, convergence with the needs of users, the live presentation of user experiences and the introduction of anticipated new services tailored to the wishes of users. The most significant shift compared with the previous year was the Group's increased presence in social networks. These were used to support all communication campaigns, monitor responses and assist them with solutions or answers to their questions.
The most important communication activities included: - communication campaigns aimed at attracting subscribers with the help of various tools for all brands; - a comprehensive communication campaign to support the launch of SiOL BOX. In addition to traditional advertising, the aforementioned campaign included an interactive cubicle and live presentations (Telekom Slovenije, d. d.); - the introduction of new Trio packages of up to 10M and the Secure Home service; - communication campaigns aimed at informing the public about the rich content of SiOL TV; - presentations of SiOL for the business user segment at fairs and via the internet; - strengthening the Group's online presence via the Twitter and Facebook social networks with more than 38,000 fans of Mobitel's profile, 20,000 fans of SiOL's profile, 10,000 fans of the Xobi.zabava profile (SiOL BOX) and 56,000 fans of One's profile, communication with fans via various applications and prize games; - the promotion of new and updated packages of services at Mobitel, d. d., One, d. o. o. and Ipko, d. o. o.; and - the building of relations with subscribers via direct communications (e.g. e-newsletters, the reverse side of invoices, email, direct mail and calls from the call centre).
Proportions and costs of complaints
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. Telekom Slovenije, d. d. received complaints on just 0.32% of all issued invoices. The Group also works proactively to inform subscribers via service sites, portals and monthly invoices. 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.
3.6 Responsibility for quality
The quality of the network, services and work is one of the key comparative advantages of the Telekom Slovenia Group's on all of its markets. Stable quality is maintained in all areas with the aim of being better than the competition.
Consistent quality is ensured primarily by introducing and maintaining formalised systems of management such as: - the core SIST EN ISO 9001 quality management system, - the SIST EN ISO 14001 environmental management system, and - the ISO/IEC 27001 information security management system.
Systems are upgraded with the aim of integrated systems of management and business excellence. The Group has therefore gained additional knowledge from the following areas:
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- the OHSAS 18001 occupational health and safety management system, - the ISO/IEC 20000 IT services management system, and - the SIST EN 16001 energy management system.
System Company Activity in 2010 SIST EN ISO 14 001 Telekom Slovenije, - recertification assessment without identified d. d. irregularities SIST EN ISO 9001 and GVO, d. o. o. - successful regular assessment of the SIST EN ISO 14001 integrated ISO 9001 and 14001 quality and environmental management system SIST EN ISO 9001 Avtenta.si, d. o. o. – successful reassessment Gibtelecom SIST ISO IEC 27001 Avtenta.si, d. o. o. - completion of the process and receipt of confirmation regarding compliance with the requirements of the standard Accreditation from the Slovene - receipt of reaccreditation for the perspective Archive for its own siHramba.eu service of archiving materials in electronic form service Business excellence (EFQM) Gibtelecom - receipt of RfE recognition (Recognized for Excellence)
Quality of the fixed network and services
The technological quality of the network is crucial for the provision of high-quality telecommunications and ICT services. This 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.
KPIs and KRI remain the key mechanism for monitoring quality. Two breakthroughs were made in this area in 2010: the expansion of the monitoring of quality using key performance and risk indicators to companies on the markets of south-eastern Europe during the first quarter and the establishment of primary KRIs at the parent company in the final quarter.
Quality of the mobile network and services
Mobitel continues to ensure the quality of mobile services and improve the quality of the mobile network. Indicators of the quality of service increasingly reflect the user experience. According to comparative measurements by independent institutions, the company ranks among leading operators by European and global standards in terms of quality, while Mobitel boasts the highest-quality network. The company continued to streamline costs and investments in all segments. Significant savings were achieved through procurement conditions with the company's main supplier and with regard to the costs of leased lines. Already high coverage of the Slovenian territory was improved further, as was coverage of the population with the UMTS signal. Base stations in the UMTS network were upgraded with HDSPA technology. A third generation network was established through the construction of base stations with HSPA+ technology, which facilitates extremely high data transfer speeds.
With the help of the knowledge and experience gained in Slovenia, Ipko in Kosovo has built the highest quality mobile network in this part of Europe, which it also maintains and upgrades.
3.7 Responsibility to suppliers
The Telekom Slovenia Group creates long-term partnerships with suppliers. Only in that way can it provide high-quality and technologically advanced services to its users .
Supplier selection References from past transactions are taken into account when selecting suppliers who offer the highest-quality and appropriate equipment and services for the telecommunications network. Their
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A joint strategy in relation to suppliers, which entails achieving equal benefits for both companies during the preparatory phase of the merger, is being drafted in the scope of the Orion project A joint negotiating team is being assembled for the Group, which will manage the ordering process under the same criteria for both companies. A reduction in costs and investments in the telecommunications network can be expected owing to the lower prices achieved as a single company on the market.
Environmental commitment of suppliers Agreements on the provision of various services include a commitment by suppliers to comply with legal requirements and best practices in the area of environmental management, such as: - to act in accordance with valid environmental protection legislation in performing contractual works, and with legislation from other areas directly related to the environment (e.g. chemicals, the transport of hazardous materials and fire safety); - to respect the environmental policy of the ordering party. The supplier will be briefed on the policy by the person responsible for environmental management at the location in question; and - to establish and maintain communication with the person responsible for environmental management at the location in question.
- Telekom Slovenije, d. d. transitioned to the computerised/electronic ordering of goods and services in 2010, introducing nearly paperless operations.
3.8 Responsibility for security
The Telekom Slovenia Group is aware of the importance of corporate security. It therefore protects the assets of companies, business information and information technologies through high security standards and by spreading a culture of security.
Security policy implementation
The Group provided for a secure working environment and protected the company's assets by implementing a valid security policy. The culture of security has been strengthened and developed by introducing security workshops and training employees.
The financial year ended without any major incidents that could affect the company's operations. The company responded promptly to security incidents and implemented timely measures to protect employees and assets.
Building and system security With regard to securing its own infrastructure, the Group continued to exploit synergies in the area of technical and physical security. The upgrading to technical security systems and the connectivity of systems on IP protocol continued on the basis of risk assessments. Physical security was also optimised, thus contributing to the adopted cost reduction policy. The Group was more active on the security services market. The marketing of services such as Secure Home and Infranet, intended for business and residential users, and back-up security control centre services, for the needs of specialised security companies, is already producing positive effects.
Information and information technology security
The Group continued to implement activities in the information technology security sector. These included: - - ensuring business continuity, - - recording critical business processes, - - analysing impacts on business processes, and - - risk assessments by business process.
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A great deal of emphasis is given to improving internal procedures regarding the handling of personal data, trade secrets and other types of information, in accordance with valid legislation and the Group's security policy.
Telekom Slovenia Group
3.9 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 development for the organisation and strategy 2 Presentation of the organisation 2.1-2.10 Company name, brands, registered office, organisational structure, ownership structure, markets, key data, significant changes regarding composition and ownership, recognitions and awards 3 Reporting parameters 3.1-3.8 Data regarding the report, purpose of reporting and limitations 3.10-3.11 Explanation of the effects of changes to data from previous reports 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 stakeholders 4.1-4.4 Governance structure, mechanisms for the submission of recommendations and suggestion by minor shareholders to the Supervisory Board and by employees to the works council and employee representatives on the Supervisory Board 4.12-4.13 Commitments to and support of external initiatives and membership in associations 4.14-4.15 Inclusion of stakeholders and criteria for selecting stakeholders with whom cooperation has been established Economic impact indicators EC1 Direct economic value generated and distributed, including revenues, operating costs, employee compensation, donations and other community investments and payments to shareholders Environmental management indicators (environmental indicators) Environmental management indicators (environmental indicators) EN3EN3 Direct energy consumption by primary sources (fuels)Direct energy consumption by primary sources (fuels) EN4EN4 Indirect energy consumption by primary sources (electricity) Indirect energy consumption by primary sources (electricity) EN7 EN7 Initiatives to reduce indirect energy consumption and reductions achievedInitiatives to reduce indirect energy consumption and reductions achieved EN26EN26 Initiatives to mitigate the environmental impacts of products and services Initiatives to mitigate the environmental impacts of products and services EN28EN28 Observance of regulations Observance of regulations EN29EN29 Significant environmental impacts of transportation for the organisation's operations Significant environmental impacts of transportation for the organisation's operations Labour practices and decent work ind icators Labour practices and decent work indicators LA1LA1 Total workforce by employment type, employment contract and regionTotal workforce by employment type, employment contract
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and region LA7LA7 Rates of injuries, occupational diseases, lost days and absenteeism Rates of injuries, occupational diseases, lost days and absenteeism LA10LA10 Average hours of training per employee and by employment category Average hours of training per employee and by employment category LA11LA11 Programmes for training and lifelong learning Programmes for training and lifelong learning Social environmental indicators Social environmental indicators SO7SO7 Competition protection Competition protection Product and service responsibility indicators Produc t and service responsibility indicators PR5 PR5 Practices related to customer satisfaction Practices related to customer satisfaction
* Data regarding content is given in the Business Report section of the 2009 Annual Report of Telekom Slovenije, d. d. and the Telekom Slovenia Group. * Data regarding content is given in the Business Report section of the 2009 Annual Report of Telekom Slovenije, d. d. and the Telekom Slovenia Group.
Table: application of GRI guidelines Table: application of GRI guidelines
CC C+C+ BB B+B+ AA A+A+ Mandatory Self- Mandatory assessment Self- assessment Voluntary External Voluntary verification External verification
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3.10 Suistainability verification statement
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4 FINANCIAL REPORT
4.1 Introductory notes
In addition to the introductory notes, the financial statements herein consist of two major chapters, namely:
- Financial statements of Telekom Slovenia Group, and - Financial statements of Telekom Slovenije, d. d..
The financial statements of the Telekom Slovenia 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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4.2 Financial report of the Telekom Slovenia Group
4.2.1 Financial statements of the Telekom Slovenia Group
Consolidated income statement for the year ended 31 December 2010
In TEUR Note 2010 2009 adjusted Revenue 3 839,337 847,507 Other income 4 4,189 8,599 Share of profit of a joint venture 4,527 3,611
Cost of goods and materials sold -46,741 -45,978 Cost of raw materials and consumables -16,761 -15,899 Cost of services 5 -331,592 -346,199 Staff costs 6 -162,523 -152,909 Depreciation and amortisation 12, 13 -214,454 -197,681 Other operating expenses 7 -254,464 -30,885
Total operating expenses -1,026,535 -789,551
Profit from operations -178,482 70,166
Finance income 8 4,267 5,895 Finance cost 9 -28,174 -32,780
Profit before tax -202,389 43,281
Income tax expense 10 -7,928 -13,817
Net profit for the period -210,317 29,464
Attributable to: Equity holders of the parent -210,317 29,464 Minority interest 0 0
Earnings per share – basic and diluted in EUR 11 -32.33 4.53
The accompanying notes are an integral part of these consolidated financial statements.
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Statement of comprehensive income for the year ended 31 December 2010
In TEUR 2010 2009 adjusted Net profit for the period -210,317 29,464
Revaluation of AFS financial assets -766 -39 Deferred tax 153 7 Reclassification of revaluation of available-for-sale financial assets to profit or loss 545 0 Deferred tax on reclassification of revaluation of available-for-sale financial assets to profit or loss -109 0 Net gain from revaluation of available-for-sale financial assets -177 -32
Changes in fair value of cash flow hedges -81 -4,796 Deferred tax 16 463 Reclassification of changes in fair value of cash flow hedges 1,055 4,698 Deferred tax -211 -444
Net gain on changes in fair value of cash flow hedges 779 -79
Changes in fixed assets revaluation reserve 39,627 0
Deferred tax from changes in fixed assets revaluation reserve -7,925 0
Net gain from fixed assets revaluation reserve 31,702 0 F/X reserve 3,178 -2,966 Other comprehensive income 35,482 -3,077
Total comprehensive income -174,835 26,387 The majority share -174,835 26,387 The minority share 0 0
The accompanying notes are an integral part of these consolidated financial statements.
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Consolidated balance sheet at 31 December 2010 In TEUR 31 December 31 December 31 December Notes 2010 2009 adjusted 2008 adjusted ASSETS
Intangible assets 12 162,867 351,951 255,144 Property, plant and equipment 13 1,108,408 1,206,694 1,120,868 Investment in joint venture 14 41,023 38,863 38,619 Other investments 15 12,350 14,661 18,525 Other non-current assets 16 24,725 27,289 29,578 Investment property 17 6,413 5,121 5,253 Deferred tax assets 18 18,681 13,226 10,483 Total non-current assets 1,374,467 1,657,805 1,478,470
Assets held for sale 19 5,688 1,156 627 Inventories 20 20,955 24,998 28,421 Current trade and other receivables 21 196,724 204,496 187,917 Income tax receivable 276 15,307 4,399 Current financial assets 22 13,392 554 21,121 Cash and cash equivalents 23 46,726 21,210 18,845 Total current assets 283,761 267,721 261,330
Total assets 1,658,228 1,925,526 1,739,800
The accompanying notes are an integral part of these financial statements.
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Consolidated balance sheet at 31 December 2010
In TEUR 31 December 31 December 31 December Notes 2010 2009 adjusted 2008 adjusted EQUITY AND LIABILITIES
Issued capital 24 272,721 272,721 272,721 Treasury shares 24 -3,671 -3,671 -3,671 Reserves 24 357,620 573,531 543,457 Retained earnings 24 102,287 111,433 148,820
Fixed assets revaluation reserves 24 76,513 48,998 51,162
Financial instruments revaluation reserve 24 2,117 1,515 1,626 F/X reserves 24 225 -2,961 5 Minority interest 0 0 235 Total capital and reserves 807,812 1,001,566 1,014,355
Non-current deferred income 25 9,549 8,528 9,169 Provisions 26 37,814 30,529 30,580 Non-current operating liabilities 31 35 46 Interest bearing borrowings 27 131,224 254,683 241,145 Other non-current financial liabilities 28 312,221 326,331 63,863 Deferred tax liabilities 18 9,621 5,595 1,306 Total non-current liabilities 500,460 625,701 346,109
Trade and other payables 29 153,317 156,173 157,280 Income tax liabilities 5,590 2,419 3,400 Interest bearing borrowings 27 125,451 56,277 177,431 Other current financial liabilities 30 17,042 38,871 1,411 Deferred income 31 22,913 19,238 18,437 Accruals 25,643 25,281 21,377 Total current liabilities 349,956 298,259 379,336 Total liabilities 850,416 923,960 725,445
Total equity and liabilities 1,658,228 1,925,526 1,739,800
The accompanying notes are an integral part of these financial statements.
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Consolidated statement of changes in equity for the year ended 31 December 2010
In TEUR
Net gain or loss Net gain or loss on revaluation on changes in fair Total attrib. Issued Treasury Retained of AFS financial value of cash difference/X to the Minority capital shares Reserves earnings FA rev. reserves assets flow hedges reserve parent interest Total
Balance at 1 January 2010 272,721 -3,671 573,531 111,433 48,998 2,294 -779 -2,961 1,001,566 0 1,001,566 Net profit for the period -210,317 -210,317 -210,317
Other comprehensive income for the period 31,702 -177 779 3,178 35,482 35,482
Total comprehensive income for the period 0 0 0 -210,317 31,702 -177 779 3,178 -174,835 0 -174,835 Transfer to retained earnings and reserves 1,430 2,760 -4,190 0 0
Transfer to legal reserves -367 367 0 0 Transfer to other reserves (decision of the Management) -216,976 216,976 0 0 Payment of dividends -19,716 -19,716 -19,716
Other 2 784 3 8 797 797 Balance at 3 1 December 2010 272,721 -3,671 357,620 102,287 76,513 2,117 0 225 807,812 0 807,812
The accompanying notes are an integral part of these consolidated financial statements.
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Consolidated cash flow statement for the year ended 31 December 2009 In TEUR Net gain or loss on Net change in revaluation of fair value of Fixed assets available-for- hedging Issued Treasury Retained revaluation sale financial financial difference/X Total attrib. Minority capital shares Reserves earnings reserve assets instruments reserve to the parent interest Total
Balance at 31 December 2008 272,721 -3,671 550,683 143,040 101,031 2,326 -700 5 1,065,435 235 1,065,670
Effect of changes in accounting policy -7,226 5,780 -49,869 -51,315 -51,315
Balance at 1 January 2009 adjusted 272,721 -3,671 543,457 148,820 51,162 2,326 -700 5 1,014,120 235 1,014,355
Net profit for the period 29,464 29,464 29,464
Other comprehensive income for the period -32 -79 -2,966 -3,077 -3,077
Total comprehensive income for the period 0 0 0 29,464 0 -32 -79 -2,966 26,387 0 26,387 Transfer to retained earnings and reserves 1,430 690 -2,120 0 0
Transfer to reserves 680 -680 0 0 Transfer to other reserves under the resolution of the Management Board 28,012 -28,012 0 0
Dividends paid -39,033 -39,033 -180 -39,213
Other -48 184 -44 92 -55 37 Balance at 31 December 2009 adjusted 272,721 -3,671 573,531 111,433 48,998 2,294 -779 -2,961 1,001,566 0 1,001,566
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Consolidated cash flow statement for the year ended 31 December 2010 In TEUR
2010 2009 adjusted
Cash flows from operating activities Profit before tax -202,389 43.281 Adjustments for: Depreciation and amortisation 214,460 197.681 Depreciation of investment property 53 43 Loss on disposal and write-downs of intangible assets and PPE 212,640 5.291 Gains/loss on disposal of FA -1,702 -1.927 Movement in bad debt allowances 30,511 14.823
Finance income -4,267 -5.895 Finance cost 28,174 32.780
Change in assets held for sale -4,532 -529 Change in trade and other receivables -22,739 -31.402 Change in other non-current assets 1,272 2.421 Change in inventories 4,043 3.423
Change in provisions 7,285 -51 Change in deferred income 4,696 160 Change in accruals 362 3.446 Change in trade and other payables -253 -545
Tax paid -3,299 -27.562 Cash flow from operating activities 264,315 235.438
Cash flows from investing activities Receipts from investing activities 6,141 37.218 Proceeds from sale of PPE 2,947 5.836 Dividends received 2,953 3.793 Interest received 241 1.064 Proceeds from sale of non-current financial assets 0 6.008 Proceeds from sale of current financial assets 0 20.517 Disbursements from investing activities -146,356 -402.371 Purchase of property, plant and equipment -94,362 -158.052 Purchase of intangible assets -19,213 -26.724 Investments in subsidiaries and joint ventures net of cash acquired and acquisition of minority interests -32,761 -217.558 Interest bearing loans -20 -37 Cash used in investing activities -140,215 -365.153
Cash flows from financing activities Receipts from financing activities 1,619 682.058 Paid in capital 0 3.625 Non-current borrowings 600 346.762 Short-term borrowings 1,019 33.996 Bonds issued 0 297.675 Disbursements from financing activities -100,203 -549.978
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Repayment of short-term borrowings -17,741 -71.890 Repayment of non-current borrowings -38,100 -415.557 Sale of derivatives -3,749 0 Interest paid -21,126 -23.317 Dividends paid -19,487 -39.214 Cash flow from financing activities -98,584 132.080
Net increase/decrease in cash and cash equivalents 25.516 2,365
Closing balance of cash 46.726 21,210 Opening balance of cash 21.210 18,845
The accompanying notes are an integral part of these consolidated financial statements.
4.2.2 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 2010.
In accordance with 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 5 April 2011.
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% interest) - GVO, d. o. o. (100% interest) - Najdi Group (100% interest), - AVTENTA.SI d. o. o. (100% interest) - SOLINE d. o. o., in which Mobitel d. d. holds a 100% interest - PLANET 9 d. o. o. (100% interest), - IPKO Group, Kosovo (93.11% interest), - ON.NET d.o.o. Skopje, Macedonia, Telekom Slovenije, d.d. holds a 83.38% interest and ONE DOO Skopje, Macedonia holds a 16.62% interest, - ANEKS d. o. o. Banja Luka, Bosnia in Herzegovina (70% interest) - PRIMO Communications, Sh.p.k, Albania (75% interest), in 2009 renamed from the AOLSP Group, - SIOL d.o.o., Croatia (100% interest), - SIOL B.V. Group, Netherlands (100% interest), which in addition to the parent company SIOL, B.V. in liquidation includes a daughter company ONE DOO Skopje, Macedonia in which it holds a 74.38% interest, - ONE DOO Skopje, Macedonia (25.62% interest) - ONE TO ONE AD Skopje, Makedonija (100% interest), renamed from Germanos Telecom, and - DIGI PLUS MULTIMEDIA DOOEL Skopje, Macedonia (100% interest).
Mobitel, d.d. is the owner of a subsidiary Soline, Pridelava soli d. o. o., in which it holds a 100% interest. The company also acquired a 50% interest in the company M-Pay, d. o. o.
Planet 9 d. o. o. has been established by the companies Mobitel, d. d. and SiOL, d. o. o. (which merged with Telekom Slovenije, d. d. in 2007). After purchasing from Mobitel, d. d. a 50% interest in Planet 9 d. o. o. in December 2010, Telekom Slovenije, d. d., became a 100% shareholder of the company.
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The Najdi Group consists of a parent company Najdi, informacijske storitve, d. o. o., which holds a 100% interest in subsidiary companies POGODAK TRAŽILICA d. o. o. in liquidation in Croatia, POGODAK DOO BEOGRAD in Serbia, and 50.1% interest in the subsidiary MEGANET d. o. o., Slovenia.
Within the Ipko Group the parent company Ipko Telecommunications LLC holds a 100% interest in N.B. »Media Works« Sh.p.k, Kosovo. The interest of Telekom Slovenije, d. d., amounts to 93.11%, however, the parent company holds a call option and minority shareholders hold a put option for the remaining interest in the company.
In the SIOL. B.V. Group the parent company SIOL B.V. in liquidation holds a 74.38% interest in the company One doo Skopje. The remaining interest of 25.62% is held by Telekom Slovenije, d. d.
Telekom Slovenije, d. d. holds a 100% economic ownership in all subsidiaries through call options and granting put options to minority shareholders.
A 50% interest in Gibtelecom Limited represents the investment into a joint venture. Together with the company M-Pay, d. o. o., they are included in the consolidated statements by using the equity method.
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 2010, the Republic of Slovenia as the majority shareholder holds 3,434,021 shares or a 52.54% interest in the Group.
Principal activities Telekom Slovenija d.d. is the owner of almost all telecommunications capacities in the territory of Slovenia. It provides local and international fixed-line telephone services, internet services in Slovenia, other telecommunications services, and sells various mostly telecommunications merchandise. Principal activities of Mobitel d.d. include construction and management of the mobile telephony infrastructure, provision of telecommunication services in the field of public mobile telecommunications, and sale of merchandise - mobile phone handsets and accessories.
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. The principal activity of the company M-Pay, d. o.o., is mobile payments processing.
Planet 9 d. o. o., is a provider of multimedia content and services to users of the mobile broadcast and internet network.
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, 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.
Ipko Telecommunications LLC in Kosovo provides telecommunications services.
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 doo Skopje.
Primo Communications Sh.p.k provides Internet services and fixed telephony services.
One doo Skopje in Macedonia is the provider of integrated telecommunications services through its powerful telecommunications network and extensive sales network within the company One To One AD Skopje.
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Digi Plus Multimedia dooel Skopje 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. 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: - The changed accounting policy applied in the measurement of cable network and telephone switchboard after initial recognition from the revaluation model to the cost model as described in more detail in continuation, and - the adoption of new standards and interpretations noted below and considered in the compilation of the financial statements if the stated events occurred in the reporting period. The adoption of these standards and interpretations did not impact the financial position or performance of Telekom Slovenije, d.d., and the Telekom Slovenia Group in the period under review.
Change in the accounting policy As from 1 January 2010, the accounting policy applied in the subsequent measurement of cable network and switching exchange was changed from the revaluation model to the cost model. This change was supported by the fact that the majority of European Telecom companies value their telecommunications assets under the cost model. The new accounting policy will improve comparability with financial statements of other enterprises engaged in the same or similar activities.
IAS 16 prescribes treatment of property, plant and equipment however, it does not include special provisions for recognition of the above mentioned changes in the accounting policy: Therefore, Telekom Slovenije, d. d., and the Telekom Slovenia Group followed provisions of IAS 8 – Accounting policies, changes in accounting estimates and errors, and made adjustments in its financial statements of the previous periods in accordance with requirements of IAS 1 – Presentation of financial statements.
Effects of changes in the accounting policy, which are reported in the separate financial statements of Telekom Slovenije, d.d. and consequently also in the consolidated financial statements of the Group, are presented below: In TEUR Balance at 31.12.2008 Decrease in property, plant and equipment -54,771 Decrease in the fixed assets revaluation reserve -49,869 Decrease in reserves -7,226 Decrease in deferred tax liabilities -4,902
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Increase in income tax liability 1,446 Change in retained earnings 5,780
Decrease in property, plant and equipment Decrease in the fixed assets revaluation reserve -48,670 Decrease in reserves -44,291 Decrease in deferred tax liabilities -10,839 Increase in income tax liability -4,379 Change in net profit for the year 2,168 Change in retained earnings 4,856 Decrease in property, plant and equipment 3,815 Earnings per share – increase in the basic and diluted earnings per share by 0.75 EUR per share
Balance at 31 Dec 2010 Decrease in depreciation of property, plant and equipment -6,101 Increase in income tax liability 1,245 Increase in net profit 4,856 Earnings per share – increase in the basic and diluted earnings per share by 0.75 EUR per share
Newly adopted standards and interpretations The adoption of these standards and interpretations did not have a significant effect on the financial position or performance of the Telekom Slovenia Group.
Amendment to IFRS 2 - Cash-Settled Share-Based Payment Transactions in the Group 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. IFRIC 8 and 11 are replaced by the amendment.
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 1 July 2009. IFRS 3R introduces a number of changes in the accounting for business combinations that will impact the amount of goodwill recognized, 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 a hedged item.
IFRIC 17 - Distribution of Non-Cash Assets to Owners IFRIC 17 became 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 derecognized in books of accounts.
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IFRIC 18 - Transfers of Assets from Customers IFRIC 18 applies to transfers of assets 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 certain assets. This guidance applies only to assets used by entities 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 entities must identify the service or services rendered and allocate the received payment (the fair value of assets) to each identifiable service. Revenue should be recognized on delivery or performance of each individual service by the entities.
Improvements/amendments to IFRS 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 these amendments did impact the changes in the Group, however, it did not have any impact on its financial position or performance.
IAS 1 – Presentation of financial statements. Assets and liabilities held for trading under IAS 39 Financial Instruments: Recognition and measurement, are not automatically classified as current in the balance sheet. As a result of the amended standards, the Group did not reclassify its financial instruments from current to non-current assets or vice versa.
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 recognized as an expense when companies either have 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 amortization 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 7 – Cash flow statement
IAS 8 - Accounting Policies, Change in Accounting Estimates and Errors
IAS 10 – Events after the Reporting period
IAS 19 – Employee Benefits
IAS 20 - Accounting for Government Grants and Disclosures of Government Assistance
IAS 27 - Consolidated and Separate Financial Statements
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IAS 28 – Investments in Associates
IAS 29 - Financial Reporting in Hyperinflationary Economies
IAS 31 – Interests in Joint Ventures
IAS 32 – Financial Instruments: Presentation
IAS 34 – Interim Financial Reporting
IAS 36 – Impairment of Assets
IAS 39 – Financial Instruments: Recognition and Measurement
IAS 40 – Investment Property
IAS 41 - Agriculture – Additional biologic transformation
Improvements, issued in April 2009 In April 2009 the Board issued 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 these improvements did not have any impact on the financial position of the Group.
IFRS 2 - Share-Based Payments – specification when to apply IFRS 2 and IFRS 3
IFRS 5 - Non-current Assets Held for Sale – Disclosure
IFRS 8 - Operating Segments – Disclosure of Segments' assets
IAS 1 - Presentation of Financial Statements – current/non-current liabilities for swap instruments.
IAS 7 - Statement of Cash Flows – classifying expenditure for unrecognized assets
IAS 17 - Leases – classifying land and buildings.
IAS 18 - Revenue – designation whether an entity acts as a principal or an agent
IAS 36 - Impairment of Assets – the maximum unit to which goodwill may be attributed IAS 38 - Intangible Assets – amendments as a result of new IFRS 3 Standard and amendments in relation to determining fair value
IAS 39 - Financial Instruments – assessment of liquidating damages for prepayment of a credit as a derivative, cash flow hedges
IFRIC 9 - Reassessment 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 having a hedge.
Improvements issued in May 2010 In May 2010 the IASB issued Improvements to IFRSs, and an omnibus of amendments to its IFRS standards . The amendments have not been adopted as they become effective for annual periods beginning on or after either 1 July 2010 or 1 January 2011.
IFRS 3 - Business Combinations.
IFRS 7 - Financial Instruments: Disclosures
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IAS 1 - Presentation of Financial Statements
IAS 27 - Consolidated and Separate Financial Statements
IFRIC 13 - Customer Loyalty Programmes. 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 2010. Financial statements of subsidiaries are prepared for the same reporting year as the financial statements of the parent company using consistent accounting policies. In case of inconsistencies of the accounting policies, the consolidated financial statements include relevant modifications.
All inter-company transactions, balances and including unrealized gains on transactions between group companies are eliminated.
All subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control over the subsidiary ceases. In case the Group ’s control over a subsidiary ceases during the year, the consolidated financial statements include the results of the subsidiary until the date that such control over the subsidiary still existed. Minority interest, 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 or current liabilities (notes 28 and 30) and corresponding minority interest is derecognised. Put options by minority shareholders are recognised only for the current obligation and if the outflow of assets is likelier than not and the size of which could be reliably assessed. 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 of 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:
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Skupina Ipko, Kosovo - EURO, On.net doo Skopje, Macedonia - Denar, Aneks d. o. o., Banja Luka, Bosnia and Herzegovina – Bosnian mark, Primo Communications Sh.p.k, Albania - LEK, SIOL d. o. o., Croatia - KUNA, SIOL, B.V. Group, the Netherlands - EURO, One doo Skopje, Macedonia – Denar, One To One AD Skopje, Macedonia – Denar, Digi Plus Multimedia dooel, Skopje, Macedonia - 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 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 26 and 33, some of the subsidiaries of the Group are participants in several lawsuits and administrative proceedings including those related to their respective 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.
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Contingent liabilities are not recognised because their existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group.
Contingent liabilities are assessed continually to determine whether an outflow of resource embodying economic benefits has become probable. If it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability, a provision is recognised in the financial statements of the period in which the change in probability occurs.
Interconnect The Group provides and enters into the contracts for interconnect services and the revenue is recognised on the basis of the reasonable estimation of expected amount. Such estimation is regularly reviewed, however for some operators the final agreement and invoicing is determined on a yearly basis 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 an indication of impairment of UMTS and GMS licences appeared during the year 2010, particularly in Kosovo and Macedonia, while there was no indication of impairment of UMTS licenses in Slovenia. he carrying value of UMTS licence at 31 December 2010 was EUR 44,442 thousand (31 December 2009: EUR 57,548 thousand).
The carrying value of GSM licence at 31 December 2010 was EUR 55,731 (31 December 2009: EUR 84,274 thousand). 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 Group found indicators of goodwill impairment. Based on appraisals of companies and individual cash generating units by independent valuers, the Group recognised impairment in the amount of EUR 105,471 thousand. After impairments, the carrying value of goodwill at 31 December 2010 was EUR 3,382 thousand (31 December 2009: EUR 104,751 thousand). 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 and 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 :
Amendment to IFRS 1 - Limited Exemption from Comparative IFRS 7 Disclosures for first time adopters.
IAS 24 – Related Party Disclosures
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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.
IAS 32 Financial Instruments: Presentation, Classification of the Option to Purchase Shares Denominated in a Foreign Currency Applicable for periods beginning on or after 1 January 2010. The amended Standard allows entities issuing puttable financial instruments denominated in foreign currency not to account for these rights as derivatives but rather to recognize the effects in the profit or loss. These rights are classified as equity if they fulfil a number of specified criteria.
Amendment to IFRIC 14 - Prepayments of a minimum funding requirement The amendment to IFRIC 14 is effective for annual periods beginning on or after 1 January 2011 with retrospective application. The amendment provides guidance on assessing the recoverable amount of a net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset.
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments: IFRIC 19 is effective for annual periods beginning on or after 1 July 2010. The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be reliably measured, the instruments are measured at the fair value of the liability extinguished. Any gain or loss is recognized immediately in profit or loss. The adoption of this interpretation will have no effect on the financial statements of the Group.
The following new and amended standards and interpretations will be adopted in future periods as required by International Financial Reporting Standards and if endorsed by the EU:
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.
Amendment to IFRS 7 - Financial instruments - Disclosures to enhance the transparency of disclosure requirements for the transfer of financial assets. Issued in October 2010. The amendments will assist users to understand the implications of transfers of financial assets and the potential risks that may remain with the transferor.
IAS 34 - Interim Financial Reporting Effective for annual periods beginning on or after 1 January 2011. This improvement provides guidance to illustrate how to apply disclosure principles in IAS 34 and add disclosure requirements.
IAS 12 - Deferred tax: Recovery of Underlying Assets (Amended) The amendment is effective for annual periods beginning on or after 1 January 2012. This amendment concerns the determination of deferred tax on investment property measured at fair value. The aim of this amendment is to include a) a rebuttable presumption that deferred tax on investment property measured using the fair value model in IAS 40 should be determined on the basis that its carrying amount will be recovered through sale and b) a requirement that deferred tax on non-depreciable assets, measured using the revaluation model in IAS 16, should always be measured on a sale basis.
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.
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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 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 least once a year and at least 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. 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 are carried at fair value on the revaluation day less cost of depreciation and impairment losses. 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
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WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d. 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 a lessee 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 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 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
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
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WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d. foundation arrangement. Financial statements of joint ventures represent the basis for accounting under the equity method. The reporting date of joint ventures is equal to the reporting date of the Group. Joint ventures use consistent accounting policies, as used by the Group.
Investments in joint ventures are carried in the balance sheet at cost plus post-acquisition changes in the Group's share of equity of the joint venture and less impairment loss. The income statement reflects the share of the results of operations of the joint venture. Where there has been a change recognized directly in the equity of the joint venture, the Group recognizes its share of any changes and discloses this in the statement of changes in equity.
Investments in debt and equity securities 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.
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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. 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.
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The estimated useful lives of investment property
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.
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. In 2010, the 4.125% discount rate was used, and the turnover rate is considered with regard to age intervals and is between 0% and 2% (in 2009: discount rate 4.625%, turnover rate between 0% and 3%).
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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 condition. Provisions are formed in the amount of estimated future cost of removal of base stations from the leased locations, discounted to the present value. At the year-end, the amount of such provisions is re-assessed.
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 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.
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WorldReginfo - 3b4abfc3-6534-4884-8ade-0ba293160bfe Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d. 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. 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 Operating segments in 2010 In TEUR
Fixed line Mobile Eliminations telephone telephone and 2010 services services Other adjustments Consolidated External sales 370,981 433,301 35,055 0 839,337 Inter segment revenue 61,538 58,904 76,605 -197,047 0 Segment revenue 432,519 492,205 111,660 -197,047 1 839,337 Other revenue 2,073 1,611 936 -431 4,189
Share of income from joint ventures 4,527
Cost of goods and materials sold -9,949 -36,559 -14,322 14,089 -46,741 Cost of raw materials and consumables -8,993 -7,906 -7,086 7,224 -16,761 Cost of services -220,983 -230,738 -51,762 171,891 -331,592 Staff costs -81,460 -54,402 -29,395 2,734 -162,523 Amortisation/depreciation expense -95,812 -110,154 -6,777 -1,711 -214,454 Other operating expenses -69,289 -177,670 -5,560 -1,945 -254,464 Operating expenses -486,486 -617,429 -114,902 192,282 -1,026,535
Profit/loss from operations -51,894 -123,613 -2,306 -5,196 2 -178,482 Finance income 4,267 Finance expense -28,174 Profit before tax -202,389
Income tax -7,928 Net profit/loss for the year -210,317
Other segment information Balance as at 31 December 2010 Segment assets 926,744 759,570 69,483 -97,569 3 1,658,228 Impairment of segment assets -39,772 -60,497 -10,915 0 -211,184
Carrying amount of goodwill 1,531 0 1,851 0 3,382 Investments in associates and joint ventures under equity method 0 0 2,159 0 2,159 Capital expenditure in intangible assets 9,626 6,726 10,236 04 26,588 Capital expenditure in PP&E 50,864 30,810 1,044 04 82,718 Segment liabilities 139,235 134,181 40,164 536,836 5 850,416
1Intersegment revenue is eliminated from the consolidation. 2Operating profit of individual segments includes profit from intersegment transactions of EUR 5,196 thousand. 3Segment assets are net of loans of EUR 2,070 thousand, bank deposits of EUR 11,270 thousand , other investments of EUR 52 thousand, deferred tax assets of EUR 18,681 thousand, income tax receivable of EUR 276 thousand and eliminations of intragroup transaction of EUR -129,918 thousand. 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 EUR 256,675 thousand, bonds issued of EUR 297,051 thousand, finance lease liabilities of EUR 4,897 thousand, other financial liabilities of EUR 27,315 thousand, deferred tax liabilities of EUR 9,621 thousand, income tax payable of EUR 5,590 thousand and elimination of losses on intragroup transactions of EUR -64,313 thousand.
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Operating segments in 2009 In TEUR
Fixed line Mobile Eliminations 2009 adjusted telephone telephone and 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 3,611 Share of income from joint ventures
Cost of goods and materials sold -10,400 -36,941 -14,993 16,356 -45,978 Cost of raw materials and consumables -9,621 -9,343 -8,214 11,279 -15,899 Cost of services -224,079 -234,439 -54,078 166,397 -346,199 Staff costs -77,517 -50,373 -30,640 5,621 -152,909 Amortisation/depreciation expense -91,426 -98,793 -5,892 -1,570 -197,681 Other operating expenses -13,308 -13,099 -3,218 -1,260 -30,885 Operating expenses -426,351 -442,988 -117,035 196,823 -789,551
20,500 50,978 1,204 -6,127 2 70,166 Profit from operations 5,895 Finance income -32,780 Finance expense 43,281 Profit before tax -13,817 Income tax
Net profit for the year 29,464
Other segment information
Balance at 31 December 2009 adjusted Segment assets 913,271 840,860 77,150 94,245 3 1,925,526
Investments in associates and joint ventures under 250 250 equity method 4 Capital expenditure in intangible assets 9,925 25,105 4,948 0 39,978 4 Capital expenditure in PP&E 101,209 53,835 5,387 0 160,431 5 Segment liabilities 141,225 115,651 44,851 622,233 923,960
1Intersegment revenue is eliminated from the consolidation. 2Operating profit of individual segments includes profit from intersegment transactions of EUR 6,127 thousand. 3Segment assets are net of loans of EUR 1,479 thousand, deferred tax assets of EUR 13,226 thousand, income tax receivable of EUR 15,307 thousand and eliminations of intragroup transaction of EUR 64,233 thousand. 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 EUR 310,960 thousand, bonds issued of EUR 296,932 thousand , finance lease liabilities of EUR 6,345 thousand, other financial liabilities of EUR 61,960 thousand, deferred tax liabilities of EUR 5,595 thousand, income tax payable of EUR 2,419 thousand and elimination of losses on intragroup transactions of EUR -61,943 thousand.
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Geographical segments in 2010 In TEUR
Eliminations and 2010 Slovenian market Foreign markets adjustments Consolidated External sales 725,922 113,415 0 839,337 Inter segment revenue 154,047 43,000 -197,047 0 Segment revenue 879,969 156,415 -197,047 1 839,337 Other revenue 3,765 855 -431 4,189
Share of income from joint ventures 4,527
Cost of goods and materials sold -53,768 -7,062 14,089 -46,741 Cost of raw materials and consumables -21,532 -2,453 7,224 -16,761 Cost of services -405,982 -97,501 171,891 -331,592 Staff costs -150,204 -15,053 2,734 -162,523 Amortisation/depreciation expense -165,116 -47,627 -1,711 -214,454 Other operating expenses -36,931 -215,588 -1,945 -254,464 Operating expenses -833,533 -385,284 192,282 -1,026,535
Profit/loss from operations 50,201 -228,014 -5,196 2 -178,482 Finance income 4,267 Finance expense -28,174 Profit/loss before tax -202,389
Income tax -7,928 Net profit/loss for the year -210,317
Other segment information Balance at 31 December 2010 Segment assets 1,387,428 368,369 -97,569 3 1,658,228 Impairment of segment assets -8,538 -202,646 0 -211,184 Carrying amount of goodwill 1,851 1,531 0 3,382 Investments in associates and joint ventures under equity method 4 2,155 0 2,159 Capital expenditure in intangible assets 22,171 4,417 04 26,588 Capital expenditure in PP&E 58,994 23,724 04 82,718 Segment liabilities 250,644 62,936 536,836 5 850,416
1Intersegment revenue is eliminated from the consolidation. 2Operating profit of individual segments includes profit from intersegment transactions of EUR 5,196 thousand. 3Segment assets are net of loans of EUR 2,070 thousand, bank deposits of EUR 11,270 thousand, other investments of EUR 52 thousand, deferred tax assets of EUR 18,681 thousand, income tax receivable of EUR 276 thousand and eliminations of intragroup transaction of EUR -129,918 thousand. 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 EUR 256,675 thousand, bonds issued of EUR 297,051 thousand, finance lease liabilities of EUR 4,897 thousand, other financial liabilities of EUR 27,315 thousand, deferred tax liabilities of EUR 9,621 thousand, income tax payable of EUR 5,590 thousand and elimination of losses on intragroup transactions of EUR -64,313 thousand.
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Geographical segments in 2009
In TEUR Eliminations and 2009 adjusted 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 Segment revenue 916,112 134,299 -202,904 1 847,507 Other revenue 6,421 2,224 -46 8,599
Share of income from joint ventures 3,611
Cost of goods and materials sold -55,170 -7,164 16,356 -45,978 Cost of raw materials and consumables -24,151 -3,027 11,279 -15,899 Cost of services -434,837 -77,759 166,397 -346,199 Staff costs -147,000 -11,530 5,621 -152,909 Amortisation/depreciation expense -162,758 -33,353 -1,570 -197,681 Other operating expenses -22,383 -7,242 -1,260 -30,885 Operating expenses -846,299 -140,075 196,823 -789,551
Profit from operations 76,234 -3,552 -6,127 2 70,166 Finance income 5,895 Finance expense -32,780 Profit before tax 43,281
Income tax -13,817 Net profit for the year 29,464
Other segment information Balance at 31 December 2009 adjusted Segment assets 1,426,753 404,528 94,245 3 1,925,526 Investments in associates and joint ventures under equity method 5 245 0 250 Capital expenditure in intangible assets 19,620 20,358 04 39,978 Capital expenditure in PP&E 105,664 54,767 04 160,431 Segment assets 245,610 56,117 622,233 5 923,960
1Intersegment revenue is eliminated from the consolidation. 2Operating profit of individual segments includes profit from intersegment transactions of EUR 6,127 thousand. 3Segment assets are net of loans of EUR 1,479 thousand, deferred tax assets of EUR 13,226 thousand, income tax receivable of EUR 15,307 thousand and eliminations of intragroup transaction of EUR 64,233 thousand. 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 EUR 310,960 thousand, bonds issued of EUR 296,932 thousand, finance lease liabilities of EUR 6,345 thousand, other financial liabilities of EUR 61,960 thousand, deferred tax liabilities of EUR 5,595 thousand, income tax payable of EUR 2,419 thousand and elimination of losses on intragroup transactions of EUR -61,943 thousand.
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3. Revenue In TEUR
2010 2009 Voice 145,889 151,748 Voice transfer through IP network 6,670 5,717 Mobile telephone services 330,511 344,788 Internet and broadband access 102,051 94,191 Interconnection 47,970 46,917 International operator services 66,809 72,569 Leased lines and data transmission 48,003 42,349 Unbundled access and collocations 10,130 14,349 Voice services with added value 3,043 2,341 Network construction and maintenance 11,714 8,213 Sale of advertising space 8,179 8,370 Other services 16,140 17,678 Revenue from sale of merchandise 37,653 34,953 Other revenue 4,575 3,324 Total 839,337 847,507
4. Other income In TEUR
2010 2009 Government grants 758 745 Net gains on disposal of property, plant and equipment 343 1,443 Other revaluation operating income 132 329 Other income 2,956 6,082 Total other income 4,189 8,599
5. Cost of services In TEUR
2010 2009 Cost of communication and transportation services and rent 20,675 12,279 Cost of maintenance 37,399 35,611 Cost of telecommunication services 125,904 144,796 Cost of leased lines 9,081 4,778 Cost of sale incentives 24,074 25,885 Cost of professional services 14,085 17,359 Cost of insurance, marketing and entertainment 34,616 36,167 Cost of sale commission 9,579 8,967 Cost of banking services 1,855 2,623 Cost of multimedia content 17,468 14,116 Cost of other services 36,856 43,618 Total 331,592 346,199
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6. Staff costs In TEUR
2010 2009 Wages and salaries 113,015 109,527 Social security contributions 25,223 23,408 - of which pension insurance contributions 13,486 12,878 Other staff costs 24,285 19,974 Total 162,523 152,909
The average number of employees in the Telekom Slovenia Group was 4,672 (in 2009: 4,973) in 2010.
7. Other operating expense In TEUR
2010 2009 Provision (note 26) 6,623 400 Loss on disposal of property, plant and equipment 3,879 2,818 Impairment and write-off of current assets 32,046 11,225 Impairment of intangible and tangible FAs 211,184 0 Other costs 732 16,442 Total 254,464 30,885
8. Finance income In TEUR
2010 2009 Dividends 469 518 Interest income on loans 2,593 4,207 Foreign exchange gain 0 127 Other financial income 1,205 1,043 Total 4,267 5,895
9. Finance expense In TEUR
2010 2009 Finance expenses from bonds issued 15,122 456 Interest expense 7,364 27,529 Exchange rate losses 1,179 0 1,406 4,601 Change in fair value of derivative financial instruments AFS investment impairment 2,716 0 Other finance expenses 387 194 Total finance expenses 28,174 32,780
10. Income tax
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Income tax expense recognized in the profit or loss In TEUR
2010 2009 adjusted Current tax expense -17,510 -16,623 Deferred tax income/expense 9,582 2,806 Income tax expense in the profit or loss -7,928 -13,817
Reconciliation of actual and computed tax expense taking into account effective tax rate In TEUR
2010 2009 adjusted
Profit/loss before tax under IFRS -202,389 43,281 Income tax using the domestic corporate tax rate of 20% (21% in 40,478 -9,089 2009 )
Current year tax loss not recognised as deferred tax asset -11,232 -3,235
Tax-free dividends 188 26 Non-deductible expenses -40,378 -2,265 Change in tax rate 0 -39 Tax incentives used in the current period 1,239 1,869 Reversal of tax incentives used in previous periods 0 -48 Effect of lower tax rate -25 -1,586 Other 1,803 550 Total income tax -7,928 -13,817 In 2010, effective tax rate was 3.92% (2009: 31.92%).
In accordance with Slovenian income tax regulations, the Group is entitled to an annual tax incentive in the amount equal to 20% of investments in research and development, and in the amount of 30% of investments in equipment, to a maximum of EUR 30,000.
Deferred tax credit/expense recognised in the income statement
In TEUR 2010 2009 adjusted Intangible assets 2,750 18 Property, plant and equipment 1,671 2,506 Investments 544 0 Provisions 645 -232 Receivables and inventories 4,000 542 Accrued costs -28 -28 Other 0 0 Deferred tax assets/liabilities 9,582 2,806
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Deferred tax recognized in equity In TEUR 2010 2009
Change in fixed assets revaluation reserve -7,925 0
Change in fair value of available-for sale investments 44 7 Change in fair value of financial instruments designated as hedges -195 19 Deferred tax assets/liabilities -8,076 26
11. Earnings per share
Earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.
The weighted average of ordinary shares in issue during the year is calculated by reference to shares in issue during the period, considering any potential redemptions and sales in that period and the period during which these shares generated profit. Diluted earnings per share also include all potential ordinary shares that originated in exchangeable bonds, options and forward contracts. When calculated, earnings and the number of shares are adjusted for effects of all adjustable potential ordinary shares that would occur if they would be swapped for ordinary shares in the accounting period. In TEUR 2010 2009 adjusted Net profit attributable to holders of ordinary shares of the parent company -210,317 29,464 Adjusted net profit attributable to holders of ordinary shares of the parent company -210,317 29,464 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
Movement in intangible assets In TEUR
Other intangible Intangibles in 2010 Goodwill Licenses Software assets construction Total COST Balance at 1 January 2010 104,751 249,855 118,961 39,067 17,283 529,917 Translation to the presentation currency 0 707 147 34 2 890 Additions 0 309 3,789 240 22,250 26,588 Acquisition of new subsidiaries 3,170 0 0 0 0 3,170 Transfer to use 0 2,054 23,541 14 -25,609 0 Disposals 0 -13 -13,196 -33 -355 -13,597 Other transfers 1 932 5,966 -1,662 -6,896 -1,823 -3,483 Balance at 31 December 2010 108,853 258,878 131,580 32,426 11,748 543,485 ACCUMULATED AMORTIZATION Balance at 1 January 2010 0 84,865 87,662 5,210 229 177,966 Translation to the presentation currency 0 210 115 25 0 350 Additions 0 257 0 0 0 257 Impairment 105,471 48,740 1,877 20,298 405 176,791 Disposals 0 -11 -12,749 -203 0 -12,963 Other tranfers 1 0 -11 -90 -231 0 -332 Amortization 0 16,960 18,912 2,677 0 38,549 Balance at 31 December 2010 105,471 151,010 95,727 27,776 634 380,618
CARRYING AMOUNT Balance at 1 January 2010 104,751 164,990 31,299 33,857 17,054 351,951 Balance at 31 December 2010 3,382 107,868 35,853 4,650 11,114 162,867
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.
In their operations, the Group companies use also intangible assets, which have already been written off, yet are still in use (primarily software licenses).
The Group companies do not have limited property right on intangible assets, which are free of encumbrances.
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Movement in intangible assets In TEUR Other intangible Intangibles in 2009 Goodwill Licenses Software assets construction Total COST
Balance at 01.01.2009 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 01.01.2009 0 62,232 73,589 607 0 136,428 Translation to the presentation currency 0 -107 -60 -10 0 -177 Acquisition of new subsidiaries 0 9,051 5,047 189 0 14,287 Disposals 0 -1,379 -4,059 -418 0 -5,856 Amortization 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 01.01.2009 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
Goodwill and other intangible assets 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 October 2010, the Group established a need for impairment of goodwill, licenses and other non-current assets.
The recoverable amount of goodwill and other intangible assets arising from the acquisition of Ipko Telecommunications LLC has been determined based on the value in use calculation using the cash flow projections approved by the Management Board covering a five-year period. The pre tax discount rate applied to cash flow projections in 2010 was 18.6% to 12.6% in residual. Cash flow projections beyond five-year period were extrapolated at 3.5% annual growth rate. As at 31 December 2010, the Group impaired goodwill in the amount of EUR 46,019 thousand, licenses in the amount of EUR 17,622 thousand and other intangible assets in the amount of EUR 932 thousand.
The recoverable amount of goodwill and other intangible assets arising from the acquisition of companies in Macedonia (One doo Skopje, One To One AD Skopje, On.net doo Skopje and Digi Plus Multimedia dooel, Skopje), has been determined based on the value in use calculation using the cash flow projections approved by the Management Board covering a five-year period. The pre tax discount rate applied to cash flow projections in 2010 was 17.1% to 12.2% in residual. Cash flow projections beyond five-year period were extrapolated at 2% annual growth rate. As at 31 December 2010, the Group impaired goodwill in the amount of EUR 51,601 thousand, licenses in the amount of EUR 26,069 thousand and other intangible assets in the amount of EUR 16,888 thousand. In establishing
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The recoverable amount of goodwill and other intangible assets arising from the acquisition of Aneks, d. o. o., Banja Luka has been determined based on the value in use calculation using the cash flow projections approved by the Management Board covering a five-year period. The pre tax discount rate applied to cash flow projections in 2010 was 19.4% to 15.0% in residual. Cash flow projections beyond five-year period were extrapolated at 2% annual growth rate. As at 31 December 2010, the Group impaired goodwill in the amount of EUR 4,237 thousand, and other intangible assets in the amount of EUR 691 thousand.
The recoverable amount of goodwill and other intangible assets arising from the acquisition of Primo Communications Sh.p.k, Albania has been determined based on the value in use calculation using the cash flow projections approved by the Management Board covering a five-year period. The pre tax discount rate applied to cash flow projections in 2010 was 19.9% to 14.9% in residual. Cash flow projections beyond five-year period were extrapolated at 2% annual growth rate. As at 31 December 2010, the Group impaired goodwill in the amount of EUR 3,614 thousand, and other intangible assets in the amount of EUR 1,292 thousand.
The profit centres Teledat and Najdi.si, which represent the core activity of the Najdi.si Group have also been appraised. The value of the Teledat profit centre is determined on the expected free cash flow current value basis, and the value of the Najdi.si profit centre on the basis of the value assessment based on market comparisons. Considering the appraisals, the Group has established the need for the impairment of licenses and intangible assets arising from the acquisition of share in the Najdi Group totalling EUR 8,538 thousand.
After the impairments, the recoverable amount of goodwill amounted to EUR 3,382 thousand as at 31 December 2010 (31 December 2009: EUR 104,751 thousand); the carrying amount of other intangible assets which are a result of final reclassification of purchase values of individual companies is EUR 2,633 thousand.
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 EUR 44,442 thousand (in 2009: EUR 48,583 thousand), while the carrying amount of GSM licence amounts to EUR 3,198 thousand (in 2009: EUR 4,134 thousand).
The carrying amount of GSM licence in Kosovo after impairment (note above) as at 31 December 2010 amounts to EUR 52,533 thousand (in 2009: EUR 61,048 thousand). The carrying amount of GSM licence in Macedonia after impairment amounts to 0 EUR (in 2009: EUR 19,092 thousand), and of UMTS licence also 0 EUR (in 2009: EUR 8,965 thousand).
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13. Property, plant and equipment
Movements in property, plant and equipment
In TEUR
Network equipment Assets Land and Cables Switching of mobile Other under 2010 buildings and lines exchanges operations equipment construction Advances Total COST Balance at 1 Jan 2010 424,948 887,601 286,427 763,826 442,713 72,397 7,395 2,885,307 Translation to the presentation currency 274 4 0 2,382 260 188 -21 3,087 Revaluation -2,771 0 0 0 0 0 0 -2,771 Additions 78 4,105 60 2,218 3,938 78,728 -6,409 82,718 Transfer from assets under construction 9,081 17,108 2,321 19,494 46,419 -94,464 41 0 Disposals, write-offs -7,746 -74 -915 -11,619 -17,587 -233 -69 -38,243 Other transfers 1 332 594 0 0 -340 -1,002 0 -416 Balance at 31 Dec 2010 424,196 909,338 287,893 776,301 475,403 55,614 937 2,929,682 ACCUMULATED DEPRECIATION Balance at 1 Jan 2010 100,024 605,513 251,115 408,626 313,335 0 0 1,678,613 Translation to the presentation currency 136 0 0 1,303 179 0 0 1,618 Revaluation -42,385 0 0 0 0 0 0 -42,385 Impairment 19 2,753 0 16,434 13,561 914 0 33,681 Disposals, write-offs -1,177 -12 -843 -8,710 -15,594 0 0 -26,336 Depreciation 16,139 32,127 10,474 69,835 47,330 0 0 175,905 Other transfers 1 178 70 0 0 -70 0 0 178 Balance at 31 Dec 2010 72,934 640,451 260,746 487,488 358,741 914 0 1,821,274 CARRYING AMOUNT Balance at 1 Jan 2010 324,924 282,088 35,312 355,200 129,378 72,397 7,395 1,206,694 Balance at 31 Dec 2010 351,262 268,887 27,147 288,813 116,662 54,700 937 1,108,408
1Other transfers comprise transfers between intangible assets and property, plant and equipment, as well as transfers between groups of assets.
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Movements in property, plant and equipment In TEUR
Land and Network buildings, equipment Assets cable duct Cables Switching of mobile Other under system and lines exchanges operations equipment construction Advances Total COST Balance on 31 Dec 2008 – original 279,271 1,032,795 282,994 589,838 422,175 44,941 1,176 2,653,190 Change of accounting policy 0 -60,872 0 0 0 0 0 -60,872 Balance on 1 Jan 2009 – adjusted 279,271 971,923 282,994 589,838 422,175 44,941 1,176 2,592,318 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 Transfer of cable duct system 135,605 -135,605 0 0 0 0 0 0 Other transfers 1 -26 13,571 0 11,925 -16,129 -390 0 8,951 Balance at 31 Dec 2009 424,948 887,601 286,427 763,826 442,713 72,397 7,395 2,885,307 ACCUMULATED DEPRECIATION Balance on 31 Dec 2008 – original 42,484 611,191 242,495 287,640 293,741 0 0 1,477,551 Change of accounting policy 0 -6,101 0 0 0 0 0 -6,101 Balance on 1 Jan 2009 – adjusted 42,484 605,090 242,495 287,640 293,741 0 0 1,471,450 Translation to the presentation currency -72 0 0 -667 -72 0 0 -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 37,393 11,597 61,881 41,039 0 0 161,024 Transfer of cable duct system 42,492 -42,492 0 0 0 0 0 0 Other transfers 1 -6 6,000 0 3,552 -6,177 3,369 Balance at 31 Dec 2009 100,024 605,513 251,115 408,626 313,335 0 0 1,678,613 CARRYING AMOUNT
Balance on 31 Dec 2008 – original 236,787 421,604 40,499 302,198 128,434 44,941 1,176 1,175,639 Change of accounting policy 0 -54,771 0 0 0 0 0 -54,771 Balance on 1 Jan 2009 – adjusted 236,787 366,833 40,499 302,198 128,434 44,941 1,176 1,120,868 Balance on 31 Dec 2009 324,924 282,088 35,312 355,200 129,378 72,397 7,395 1,206,694
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As from the financial year 2010, the Group companies changed their accounting policy of measurement of cable network subsequent to initial recognition (with exception of the cable duct system, switching exchanges and some other items of equipment) from the revaluation model to the cost model. The effects and detailed explanation are provided in Section b. Summary of significant accounting policies, Chapter 1 General information.
Land and buildings and the cable duct system are carried at fair value, whereas other items of property, plant and equipment are stated at cost.
Land and buildings were valued by a licensed appraiser to fair value as at 1 January 2007 using comparable market prices. The licensed appraiser of real estate checked the assumptions used in this valuation as at 30 September 2010 and issued an opinion stating that additional revaluation was not necessary.
Cable ducts were valued by a licensed appraiser as at 1 January 2010 using the depreciated replacement cost method as no comparable prices are available for these assets. As a result of this valuation, a revaluation in the amount of EUR 39,627 thousand and an impairment loss in the amount of EUR 13 thousand were recognized.
As at 31 December 2010, the Group established the need for impairment of fixed assets in the total amount of EUR 33,681 thousand based on the findings that led to the impairment of goodwill and other intangible assets (Note 12).
As at 31 December 2010, the carrying amount of equipment under finance lease was EUR 8,306 thousand.
In its operations, the Group also uses property, plant and equipment, which have already been written off, yet they are still in use (particularly telecommunication equipment, such as network, centrals, modems, etc.).
The Group companies do not have limited property right on property, plant and equipment, which are free of encumbrances.
14. Investments in subsidiaries, associates and joint ventures
No investments in subsidiaries, associates and joint ventures were made in 2010.
15. Other investments In TEUR
2010 2009 Investments in equity securities of banks 4,277 4,571 Investments in other equity securities 3,942 5,685 Loans to others 0 925 Loans to employees 1,836 2,257 Receivables from the sale of apartments 21 44 Loans to telecommunications subscribers 1,493 47 Other non-current financial assets 781 1,132 Total 12,350 14,661
All investments in equity securities are classified as available for sale. Of total amount of EUR 8,219 thousand, EUR 4,317 thousand (2009: EUR 5,084 thousand) refer to financial instruments traded on the securities market and carried at the fair value. Other financial assets are not traded and are carried at cost, as their fair value cannot be reliably estimated.
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16. Other non-current assets In TEUR 2010 2009 Long-term prepaid rentals 12,161 11,889 Long-term deferred sale incentives 12,323 14,888 Other non-current assets 241 512 Total 24,725 27,289
Movement in deferred items (excluding sundry other non-current assets) In TEUR Rentals Sales incentives Balance at 1. 1. 2009 10,939 17,213 Increase 2,678 17,678 Transfer to costs -1,728 -20,003 Balance at 31. 12. 2009 11,889 14,888 Increase 2,066 16,773 Transfer to costs -1,794 -19,338 Balance at 31. 12. 2010 12,161 12,323
17. Investment property
Investment properties are stated at cost.
Movement in investment property In TEUR 2010 2009 Balance at 1 January 5,121 5,253 Increase 1,345 0 Decrease 0 -86 Depreciation -53 -46 Balance at 31 December 6,413 5,121
Investment property is land and buildings in Se čovlje and real estate on Vojkova 58 in Ljubljana. The fair value of investment property approximates to its book value. In 2010, the revenue from property lease reached EUR 105 thousand (2009: EUR 82 thousand).
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 2010, applicable tax rate was 20% (2009: 21%).
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In TEUR
2010 2009 adjusted Intangible assets 759 -1,734 Property, plant and equipment -3,878 2,206 Investments and financial assets -30 -423 Trade receivables 7,102 3,109 Inventories 0 -16 Other non-current assets 92 121 Provisions 5,015 4,368 Deferred tax assets/liabilities 9,060 7,631
Deferred tax liabilities increased primarily as a result of a revaluation of cable ducts in the amount of EUR 39,627 thousand (EUR 7,925 thousand).
19. Non-current assets held for sale
Non-current assets held for sale mainly relate to land and buildings which the Group will no longer use for business purposes in accordance with the process of rationalization and optimization of real estate and which are to be sold in the next 12 months according to the decision of the management board. In 2010, the Group recognized an impairment loss in the amount of EUR 658 thousand as the difference between the carrying amount and fair value, less costs of sales.
20. Inventories
In TEUR
2010 2009 Material 6,098 6,803 Finished products 306 506 Merchandise 14,542 17,686 Advances 9 3 Total 20,955 24,998
As at 31 December 2010, inventories were revalued to their recoverable amount and impairment loss in the amount of EUR 153 thousand was recognised (2008: EUR 603 thousand).
21. Trade and other receivables In TEUR
2010 2009 Trade receivables 142,869 134,489 Receivables from foreign operators 12,339 20,011 Receivables due from domestic operators 67,868 38,193 Advances 3,537 3,005 VAT and other tax receivables 8,519 17,990 Accrued income 16,816 13,283 Current amounts of sale incentives 3,495 6,701 Other receivables 2,758 1,675 Bad debt allowance -61,477 -30,851 Total 196,724 204,496
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Trade receivables are non-interest bearing.
Movement of bad debt allowance In TEUR 2010 2009 Balance at 1 January -30,851 -16,028 Acquisition of new subsidiaries 0 -10,194 Impairment allowance during the year -39,636 -13,933 Reversal 6,332 6,890 Utilization 2,876 2,395 F/X differences -198 19 Balance at 31 December -61,477 -30,851
At 31 December 2010, the maturity structure of trade receivables that were past due but not impaired In TEUR
Neither past Past due due nor and Total impaired impaired Past due but not impaired
Up to 30 More than days 31 - 60 days 61 - 90 days 91 -120 days 120 days 2010 196,724 125,857 17,755 20,228 9,397 5,929 2,428 15,130 2009 204,496 133,810 9,628 28,291 9,729 5,650 8,192 9,196
22. Current financial assets In TEUR 2010 2009 Other loans 2,070 554 Other current financial assets 52 0 Bank deposits 11,270 0 Total 13,392 554 23. Cash and cash equivalents In TEUR 2010 2009 Cash in hand and bank balances 31,559 19,208
Deposits with banks with maturity of up to three months 15,167 2,002 Total 46,726 21,210
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.
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24. Capital and reserves
Shares issued Authorised, issued and fully paid up capital amounts to EUR 272,721 thousand. It is divided into 6,535,478 ordinary shares.
Ownership structure as of 31 December 2010
Shareholder Number of shares Share in % Republic of Slovenia 3,434,021 52.54% Slovenska odškodninska družba, d.d. 931,387 14.25% Individual shareholders (local and foreign) 669,741 10.25% Local legal entities 433,705 6.64% Kapitalska družba, d.d. 365,175 5.59% PID - DZU 180,063 2.76% Foreign legal entities 155,102 2.37% Banks 118,038 1.81% Kapitalska družba – PPS 115,558 1.77% Mutual funds and other funds 81,308 1.23% Telekom Slovenije, d.d. 30,000 0.46% Insurance undertakings 10,970 0.17% BPH 10,410 0.16% Total 6,535,478 100%
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 Management Board. Consistent with the Companies Act, the Management Board is entitled to appropriate one half of the profit for the period to reserves.
Composition of reserves In TEUR 2010 2009 adjusted Capital surplus 135,831 139,782 Reserves for treasury shares and interests 3,671 3,671 Legal reserves 51,464 51,449 Statutory reserves 105,005 105,005 Other reserves 61,649 273,624 Total 357,620 573,531
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. Such reserves are not intended for distribution.
Surplus paid-up capital arising from ownership transformation in the amount of EUR 130,111 thousand, and transfer of tax-free portion of fixed assets revaluation reserves in the amount of EUR 5,720 thousand are included in capital surplus.
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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 2010 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 1 July 2010, total retained earnings of 2009 in the amount of EUR 61,470 thousand was appropriated as follows: EUR 19,516 thousand (2009: EUR 39,033 thousand) was appropriated to dividend payout - a dividend of EUR 3 per share (2009: EUR 6), while the remaining EUR 41,953 thousand was appropriated to retained earnings.
Dividend proposed Proposed for approval at AGM: EUR 19,516,434.00 Dividend per ordinary shares: EUR 3.00
Treasury shares In 2003, the Group acquired 30,000 treasury shares at par value of EUR 1,252 thousand representing 0.46% of the issued capital.
Fixed asset revaluation reserve In 2010, the fixed assets revaluation reserve increased by EUR 31,702 thousand as the result of a revaluation of cable ducts and reduced by EUR 4,128 thousand as follows: EUR 2,698 thousand was transferred from revaluation reserve to retained earnings on account of additional depreciation of property, plant and equipment; furthermore, EUR 1,430 thousand was transferred from revaluation reserves to capital reserves on account of the revaluation of property, plant and equipment. Revaluation reserves are not distributable.
Other revaluation reserves Other revaluation reserves relate to the revaluation of available-for-sale financial assets in the amount of EUR 2,117 thousand.
25. Non-current deferred income
In TEUR
2010 2009 Co-location billed in advance 6,432 6,704 Government grants 797 898 Other 2,320 926 Total 9,549 8,528
Co-location relates to payments received in advance for renting certain premises and equipment to other operators.
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26. Provisions
In TEUR
Utilisation and 31.12.2009 reversal Formation 31.12.2010 Provisions for probable payments resulting from legal actions 16,839 0 6,489 23,328 Provisions for terminal bonuses on retirement 8,919 -339 283 8,863
Cost of base station removals 3,912 -4 301 4,209 Other 859 -303 858 1,414
Total 30,529 -646 7,931 37,814
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 EUR 253,492 thousand (in 2009: EUR 256,807 thousand), of which the largest claims are as follows: by T-2, d. o. o., in the amount of EUR 129,557 thousand, SINFONIKA, d. d., in the amount of EUR 34,702 thousand, Sky.net, d. o. o., totalling EUR 33,047 thousand, and TU ŠMOBIL, d. o. o., EUR 28,176 thousand.
The Competition Protection Office of the Republic of Slovenia began, ex officio, a process of determining an alleged abuse of Telekom Slovenije's dominant position on inter-operators market of broadband access. The Competition Protection Office may impose a fine up to 10% of the annual turnover of the Company. Therefore, the Company made provisions in the amount of EUR 1,992 thousand, equalling 0.5% of the operating revenue generated in 2009.
Provisions for termination and jubilee benefits Formation of provisions for terminal bonuses on retirement is based on the actuarial calculation. Liabilities reported by the Group are equal to the present value of estimated future payments. The Group has no other pension liabilities.
Provisions for estimated cost of removal of base stations It is expected that the removal of base stations will commence after the year 2021 when the UMTS licence expires (not considering the option of extension). Provisions were formed in the amount of estimated cost of removal discounted to present value by using the discount rate of 5% (2009: 5%).
27. 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 35 - Financial risk management.
In TEUR
2010 2009 Non-current borrowings Borrowings from foreign banks 187,487 220,242 - current portion of non-current borrowings -57,149 -32,755 - non-current portion of borrowings from banks 130,338 187,487
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Borrowings from domestic banks 67,609 72,290 - current portion of non-current borrowings -66,723 -5,133 - non-current portion of borrowings from banks 886 67,157
Other borrowings 0 39 - current portion of other borrowings 0 0 - non-current portion of other borrowings 0 39 Total non-current borrowings 131,224 254,683 Current borrowings Borrowings from domestic banks 1,543 18,249 Current portion of non-current borrowings from foreign banks 57,149 32,755 Current portion of non-current borrowings from domestic banks 66,723 5,133 Interest 36 140 Total current borrowings 125,451 56,277
Contractual terms agreed on borrowings
In TEUR
Non-current Current Maturity in Last amount amount excess of 5 payment 31.12.2010 31.12.2010 years Interest rate agreed due Collateral 3mEURIBOR + 0.330% 2011 None 3mEURIBOR + 1.900% 2014 Bills of exchange 3mEURIBOR + 2.100% 2014 None 3mEURIBOR + 2.900% 2014 Bills of exchange 6mEURIBOR - 0.025% 2017 Bank guarantee Non-current borrowings 131.224 123.872 106.664 from banks 3mEURIBOR + 0.083% 2017 None 3mEURIBOR - 0.018% 2017 Bank guarantee 3mEURIBOR + 0.105% 2017 None 6m EURIBOR + 0.7% 2011 6m EURIBOR + 3.75% 2020 pledge 5.950 do 7.200% 2012-2014 Current borrowings 6.50% 2010 Bills of exchange 1.543 from banks 3 m EURIBOR + 6.000% 2011 3m EURIBOR + 3.500% 2014 None Financial liabilities to 3m EURIBOR + 3.850% 2010 None 212.785 85.649 2.747 group companies 6m EURIBOR + 3.850% 2012 1.191% do 9.000% 2010 None
All borrowings from foreign banks 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 the financial derivatives obtained to this purpose.
As at the balance sheet date, the outstanding amount of borrowing from EIB is EUR 160,428 thousand (2009: EUR 190,243 thousand). The principals gradually fall due for payment by 2017. The outstanding amount of borrowing from the banking union (90% of its resources being from the local banks), amounting to EUR 50,000 thousand as at the balance sheet date (2009: EUR 50,000 thousand), falls due in 2011.
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The banks that have approved long term loans require that certain debt covenants specified in the loan contracts be maintained, including: Consolidated Total Debt, Consolidated Net Tangible Worth, EBITDA, Consolidated Total Debt/EBITDA. The non-achievement of these covenants may result in the requirement to repay early these borrowings. As at 31 December 2010, the Group failed to meet some of its debt covenants due to the impairment of investments.
Consequently, and in accordance with IAS 1.74, as at 31 December 2010, all non-current borrowings whose debt covenants were not met, were reclassified to current financial liabilities. Financial liabilities of total EUR 31,926,470.56 were reclassified.
Subsequent to the balance sheet date, the Company received written declarations from the lenders stating that they agreed with certain covenants not being complied with and that they would not demand early repayment of these borrowings.
28. Other non-current liabilities In TEUR 2010 2009 Bonds issued 297,182 296,932 Put options: 11,648 22,947 - Ipko Telecommunications LLC 0 13,502 - On.net, d. o. o. 3,200 1,800 - Aneks, d. o. o. 5,070 5,070 - Primo Communications, Sh.p.k. 2,575 2,575 - Meganet, d. o. o. 803 0 Finance lease 3,387 4,940 Other non-current liabilities 4 1,512 Total 312,221 326,331
In December 2009, Telekom Slovenije, d.d. issued bonds in the notional amount of EUR 300,000 thousand. 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%.
29. Trade and other liabilities In TEUR 2010 2009 Trade payables 85,705 103,431 Payables to domestic operators 28,091 14,979 Payables to foreign operators 12,415 14,146 VAT and other taxes payable 8,429 8,146 Payables to employees 11,882 10,538 Advances 1,206 684 Other payables 5,589 4,249 Total 153,317 156,173
Trade payables are non interest bearing and are normally settled on 5 to 100 days term. Payables to operators are non interest bearing and are normally settled on 15 to 50 days term.
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30. Other current financial liabilities
In TEUR
2010 2009 Bonds issued -131 -78 Compensation for additional share in a subsidiaries: 13,509 32,181 - Ipko Telecommunications LLC 13,502 32,181 - Planet 9 d. o. o. 7 0 Interest rate swap 2,153 5,271 Finance lease 1,510 1,483 Other financial liabilities 1 14 Total other current financial liabilities 17,042 38,871
31. Short-term deferred income In TEUR 2010 2009 Mobile telephony prepaid cards 5,984 4,655 Subscriptions billed in advance and short-term collocations 14,689 13,986 Current amounts of government grants 119 130 Other deferred income 2,121 467 Total 22,913 19,238
32. Commitments
The Group as a lessee Liabilities from operating lease relate to property, plant and equipment (primarily leased lines, business premises lease and base stations lease. Non-cancellable operating lease is payable as follows: In TEUR Payable in 2010 2009 - up to 1 year 7,971 17,099 - 1 to 2 years 10,656 7,665 - 3 to 5 years 16,344 12,101 - more than 5 years 31,116 22,629 Total 66,087 59,494
In the financial year 2010, the Group had EUR 14,563 thousand of lease costs from operating lease contracts (2009: EUR 19,779 thousand).
The Group as a lessor Receivables from operating leases refer to lease of property, plant and equipment and are as follows. In TEUR Payable in 2010 2009 - up to 1 year 866 726 - 1 to 2 years 1,448 1,450 - 3 to 5 years 1,448 1,450 - more than 5 years 3,620 3,627 Total 7,382 7,253
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In 2010, total amount of rentals reported in the income statement was EUR 4,348 thousand (2009: EUR 5,355 thousand).
Obligations for intangible and tangible assets
At the balance sheet date, the Group discloses obligations for intangible assets in the amount of EUR 1,713 thousand, mainly relating to the implementation of the “Billing ” system. The assumed liabilities for property, plant and equipment as at 31 December 2010 are EUR 8,277 thousand (2009: EUR 4,707 thousand), mainly relating to the construction of the telecommunication network.
33. Contingencies In TEUR 2010 2009 Contingent liabilities from legal actions 253,741 256,807
At the balance sheet date, there were 73 pending legal actions brought against the Group companies in the total amount of EUR 253,741 thousand (2009: EUR 256,807 thousand). Based on the opinion of legal advisors, the managing boards of Group companies expect the liability from the said legal actions to amount to EUR 23,328 thousand (Note 26).
34. 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 564 shares of Telekom Slovenije, d.d., representing a 0.01% shareholding.
In 2010, no loans were granted to related individuals.
Cost of wages and salaries In TEUR 2010 2009 Management Board 1,283 1,157 Supervisory Board 69 90 Total 1,352 1,247
Information on groups of persons In TEUR Loans
Share of profit paid according to Outstanding resolution of the amount Repaid in Trade Total receipts AGM 31.12.2010 2010 receivables Total members of the Management Board 1,283 - - - - - Dremelj Bojan 150 - - - - - Miti č Du šan 185 - - - - - Ogris-Marti č Filip 174 - - - - - Pulji ć Željko 167 - - - -
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- Senica Darja 163 - - - - - Kranj čevi ć Ivica 135 - - - - - Bo štjan čič Marko 107 - - - - - Vehovar Zoran 110 - - - - - Peterlin Jo žko 92 - - - - Members of the supervisory board 69 - - - -
Other members of management employed under a contract for which tariff under the collective agreement does not apply 3.755 - 164 32 6
Loans to other managers were approved at interest rates from 4.13% to 5.45% 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
Other Other Salary receipts Reimbursement Holiday Insurance payments- of costs pay premiums Benefits PDPZ II* Total Dremelj Bojan 111,528 26,963 330 1,099 1,515 6,248 1,985 149,668 Miti č Du šan 134,814 40,444 1,052 1,099 399 4,605 2,205 184,618 Ogris-Marti č Filip 134,814 26,963 1,991 1,099 2,034 4,605 2,205 173,711 Pulji ć Željko 53,926 107,851 951 1,099 1,001 1,582 882 167,292 Senica Darja 152,743 0 1,554 1,099 2,314 2,475 2,646 162,831 Kranj čevi ć Ivica 119,918 0 1,872 0 1,123 10,573 1,544 135,030 Bo štjan čič Marko 98,817 0 1,096 0 516 5,501 1,544 107,474 Vehovar Zoran 98,817 0 1,686 0 585 6,864 1,544 109,496 Peterlin Jo žko 85,336 0 1,680 0 498 3,639 1,323 92,476 Total 990,713 202,221 12,212 5,495 9,985 46,092 15,878 1,282,596
Salaries are not broken-down to fixed and variable part. In 2010, members of the Management Board did not receive any shares in the profit, options, commission or any other payments.
Break-down of receipts of members of the Supervisory Board In EUR Attendance Travel fees Committees expenses Total External members from 1. 1. to 31. 12. 2010 Berginc Toma ž 5,005 2,503 159 7,667 Kalin Toma ž 3,025 3,575 79 6,679 Kafol Ciril 3,025 2,145 54 5,224 Kremljak Zvonko 3,850 5,500 165 9,515 Ho čevar Marko 3,300 4,290 153 7,743 Berce Jaroslav 3,025 6,023 77 9,125 Internal members from 1. 1. to 31. 12. 2010
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Richter Milan 3,850 4,400 59 8,309 Gori šek Martin 3,575 1,650 269 5,494 Sparavec Branko 3,575 3,300 2,703 9,578 Total 32,230 33,386 3,718 69,334
In 2010, 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 EUR 24,586 thousand (2009: EUR 31,055 thousand). 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.
35. Financial risk management
The Group ’s principal financial instruments, other than derivatives, comprise cash and cash equivalents, trade and other receivables, trade and other payables, investments and borrowings. The main purpose of borrowings is to raise finance for the Group ’s operations.
The Group also enters into interest rate derivatives. The purpose is to manage the interest rate risks arising from its sources of finance.
It is and has been 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. Most 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, 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 2010, 42 percent of non-current loans were hedged against interest rate risk.
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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 31.12.2010 31.12.2009 In EUR In TEUR In TEUR Interest rate swap 24.6.2009 15.6.2014 58,642,857 -1,129 -772 Interest rate collar 19.1.2005 19.8.2011 50,000,000 -1,024 -1,657 Total 108,642,857 -2,153 -2,429
On re-measurement of hedging instruments that are no longer designated as accounting hedge, the Group recognized revenue in the amount of EUR 276 thousand (in 2009 an expense of EUR -4,636 was recognised).
For a financial instrument used for hedge accounting in notional amount of EUR 29,474 thousand, which matured at 15 December 2010, EUR 974 thousand (in 2009: EUR 98 thousand) related to effective hedging, and recognised directly in statement of comprehensive income in the net amount of EUR 779 thousand (in 2009: EUR 78 thousand).
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.
Increase/decrease in basis points Effect on profit before tax 2010 EURO +10 bp -255 EURO -10 bp 255 2009 EURO +10 bp -293 EURO -10 bp +293
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.
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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.
The table below summarises the maturity profile of the Group's financial liabilities as at 31 December 2010 and 31 December 2009 based on the contractual undiscounted payments
In TEUR Less than 3 3 to 12 More than 5 Past due On demand months months 1 to 5 years years Total 2010 Borrowings 0 0 104 125,347 95,150 36,074 256,675 Estimated interest on loans 0 0 0 4,320 8,620 75 13,015 Other financial liabilities 0 1 13,864 3,177 14,220 300,000 331,262 Estimated interest on bonds 0 0 0 14,625 58,500 14,625 87,750
Supplier payables 7,752 25,274 107,975 12,316 31 0 153,348 Derivative financial instruments 0 0 628 810 715 0 2,153 2009 Borrowings 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 35,463 29,425 296,941 365,202 Estimated interest on bonds 0 0 0 18,281 91,406 18,281 127,968
Supplier payables 16,068 5,753 118,068 16,319 0 0 156,208 Derivative financial instruments 0 0 2,980 2,291 665 0 5,936
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 TEUR
31.12.2010 31.12.2009 adjusted Interest bearing loans and borrowings 585,938 676,162
Less current financial assets, cash and cash equivalents -60,118 -21,764 Net debt 525,820 654,398
Capital 807,812 1,001,566 Capital and net debt 1,333,632 1,655,964 Gearing ratio 39% 40%
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 TEUR Assets at fair value 31.12.2010 Level 1 Level 2 Level 3 AFS financial assets Equity securities and other investments 8,219 4,317 0 3,902 Derivatives Cash flow hedges -1,129 0 -1,129 0 For trading -1,024 0 -1,024 0
Assets at fair value 31.12.2009 Level 1 Level 2 Level 3 AFS financial assets Equity securities and other investments 11,214 5,084 0 6,130 Derivatives Cash flow hedges -974 0 -974 0 For trading -1,657 0 -1,657 0
All Level 3 securities are carried at cost.
36. 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
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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 has in the past notified the provision of the following electronic communications services: - Public Voice Services over a Fixed Public Telecommunications Network, - International Telecommunications Services, - Data Transmission Services, - Domestic and International Leased Line Services.
Pursuant to the notification the annual fee must be paid in the amount of EUR 496 thousand (2009: EUR 492 thousand). The amount of the fee to be paid is defined with a tariff, which is a general act of the Agency.
Telekom Slovenije 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 EUR 231 thousand (2009: EUR 246 thousand), and the fee for the rights of use for numbers amounts to EUR 246 thousand (2009: EUR 266 thousand). The amount of the fees to be paid is defined within the tariff, which is a general act of the Agency.
Mobile telephony services
Service concession agreements Starting date Period Concession fee Concession Agreements for Telecommunications Services with the usage of radio frequency spectrum in GSM mobile telephone services in radio frequency bands from 890 – 915 and from 935 – 960 MHz by Initial fee of 9,863 GSM standards 02.04.1998 15 TEUR Concession Agreements for Telecommunications Services with the usage of radio frequency spectrum in GSM mobile Initial fee of 4,173 telephony in DCS1800 network 03.01.2001 15 TEUR Concession Agreements for Telecommunications Services with the usage of radio frequency spectrum in mobile network 15, extended to Initial fee of 91,804 system: UMTS/ITM-2000 27.11.2001 21.09.2021 TEUR Concession Agreements for Telecommunications Services with the usage of radio frequency spectrum in GSM mobile Initial fee of 75,000 telephone services network in Kosovo 06.03.2007 15 TEUR Concession Agreements for telecommunications services with the usage of radio frequency spectrum in 2G-GSM 900 Initial fee of 28,000 mobile telephony in Macedonia 21.11.2001 22 TEUR Concession Agreements for telecommunications services with the usage of radio frequency spectrum in 3G-UMTS mobile Initial fee of 10,000 network system in Macedonia 02.11.2008 10 TEUR
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
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In 2010, the Group paid EUR 5,281 thousand (2009: EUR 4.054 thousand) of fees.
37. Auditor's cost
In TEUR 2010 2009 Audit of annual report 290 359 Other audit services 40 155 Tax advisory services 7 0 Other non-audit services 29 90 Total 366 604
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4.2.3 Independent Auditor's Report for the Telekom Slovenia Group
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4.3 Financial report of Telekom Slovenije, d. d.
4.3.1 Financial statements of Telekom Slovenije, d. d.
Income statement of Telekom Slovenije, d.d. for the year ended 31 December 2010
EUR '000
2009 Notes 2010 adjusted Revenue 2 381,168 396,490 Other income 3 1,363 1,974
Cost of goods and materials sold -9,287 -9,656 Cost of raw materials and consumables -7,526 -8,112 Cost of services 4 -177,385 -191,592 Staff costs 5 -77,213 -74,309 Depreciation and amortisation 11, 12 -86,390 -83,229 Other operating expenses 6 -23,032 -12,178 Total operating expenses -380,833 -379,076
Profit from operations 1,698 19,388
Finance income 7 58,574 73,213 Finance cost 8 -295,964 -28,515
Profit before tax -235,692 64,086
Income tax expense 9 280 -1,855
Net profit for the period -235,412 62,231
Earnings per share – basic and diluted in EUR 10 -36.19 9.57 The accompanying notes are an integral part of these financial statements.
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Statement of comprehensive income for the year ended 31 December 2010
EUR '000 2009 2010 adjusted Net profit for the period -235,412 62,231
Revaluation of available-for-sale financial assets -458 596 Deferred tax 91 -119 Reclassification of revaluation of available-for-sale financial assets to profit or loss 545 0 Deferred tax on reclassification of revaluation of available-for-sale financial assets to profit or loss -109 0 Net gain from revaluation of available-for-sale financial assets 69 477
Changes in fair value of cash flow hedges -81 -4,796 Deferred tax 16 463
Reclassification of changes in fair value of cash flow hedges 1,055 4,894 Deferred tax -211 -483
Net gain on changes in fair value of cash flow hedges 779 78
Changes in fixed assets revaluation reserve 39,627 0
Deferred tax from changes in fixed assets revaluation reserve -7,925 0
Net gain from fixed assets revaluation reserve 31,702 0
Other comprehensive income 32,550 555
Total comprehensive income -202,862 62,786
The accompanying notes are an integral part of these financial statements.
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Balance sheet of Telekom Slovenije, d.d. as at 31 December 2010
EUR '000
31. 12. 2009 31. 12. 2008 Notes 31. 12. 2010 adjusted adjusted ASSETS
Intangible assets 11 28,730 28,891 28,608 Property, plant and equipment 12 612,739 623,053 638,962
Investment in subsidiaries and joint ventures 13 273,614 477,870 336,303 Other investments 14 195,486 229,877 130,546 Other non-current assets 15 11,457 11,112 10,595 Deferred tax assets 16 10,780 6,680 6,208 Total non-current assets 1,132,806 1,377,483 1,151,222
Non-current assets held for sale 17 5,688 1,156 627 Inventories 18 7,017 8,065 10,222 Current trade and other receivables 19 73,010 91,249 92,064 Income tax receivable 0 9,574 3,969 Current financial assets 20 74,336 80,559 43,135 Cash and cash equivalents 21 25,249 5,146 9,603 Total current assets 185,300 195,749 159,620
Total assets 1,318,106 1,573,232 1,310,842
The accompanying notes are an integral part of these financial statements.
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Balance sheet of Telekom Slovenije, d.d. as at 31. December 2010
EUR '000
31. 12. 2009 31. 12. 2008 Notes 31. 12. 2010 adjusted adjusted EQUITY AND LIABILITIES
Issued capital 22 272.721 272.721 272.721 Treasury shares 22 -3.671 -3.671 -3.671 Reserves 22 251.213 461.372 431.942 Retained earnings 22 29,500 70.141 74.306
Fixed assets revaluation reserves 22 71.590 44.016 46.075
Financial instruments revaluation reserve 22 184 -664 -1.219 Total capital and reserves 621.537 843.915 820.154
Non-current deferred income 23 8.577 8.279 8.988 Provisions 24 21.889 15.713 16.678 Non-current operating liabilities 525 35 46 Interest bearing borrowings 25 130.338 203.737 190.243 Other non-current financial liabilities 26 308.001 301.542 18.690 Deferred tax liabilities 16 9.621 2.371 2.537 Total non-current liabilities 478.951 531.677 237.182
Trade and other payables 27 70.483 79.830 105.636 Income tax liabilities 3.802 2.168 1.446 Interest bearing borrowings 25 116.001 64.638 130.852 Other current financial liabilities 28 15.943 37.670 1.125 Deferred income 29 7.287 7.031 7.881 Accruals 4.102 6.303 6.566 Total current liabilities 217.618 197.640 253.506 Total liabilities 696.569 729.317 490.688
Total equity and liabilities 1.318.106 1.573.232 1.310.842
The accompanying notes are an integral part of these financial statements.
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Statement of changes in equity of Telekom Slovenije, d.d. for the year ended 31 December 2010 EUR '000
Net gain or loss Net change in fair Fixed assets on revaluation of value of hedging Issued Treasury Retained revaluation available-for-sale financial capital shares Reserves earnings reserve financial assets instruments Total
Balance at 1 Jan 2010 272,721 -3,671 461,372 70,141 44,016 115 -779 843,915
Net profit for the period -235,412 -235,412 Other comprehensive income for the period 31,702 69 779 32,550 Total comprehensive income for the period 0 0 0 -235,412 31,702 69 779 -202,862 Transfer to retained earnings and reserves 1,430 2,698 -4,128 0 0 Transfer to legal reserves 0 Dividends paid -19,516 -19,516 Decrease in other reserves -211,589 211,589 0 Balance at 31 Dec 2010 272,721 -3,671 251,213 29,500 71,590 184 0 621,537
The accompanying notes are an integral part of these financial statements. Retained earnings at 31 December 2010
EUR Net profit for 2010 -235,412,457.33 Retained earnings 53,323,267.72 Decrease in other reserves 211,589,189.61 Net retained earnings at 31 December 2010 29,500,000.00
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Statement of changes in equity of Telekom Slovenije, d.d. for the year ended 31 December 2009
EUR '000
Net gain or loss Net change in fair Fixed assets on revaluation of value of hedging Issued Treasury Retained revaluation available-for-sale financial capital shares Reserves earnings reserve financial assets instruments Total
Balance at 31 Dec 2008 272,721 -3,671 439,168 68,526 95,944 -362 -857 871,469 Effect of changes in accounting policy -7,226 5,780 -49,869 -51,315 Balance at 31 Dec 2008 adjusted 272,721 -3,671 431,942 74,306 46,075 -362 -857 820,154 Balance at 1 Jan 2009 adjusted 272,721 -3,671 431,942 74,306 46,075 -362 -857 820,154
Net profit for the period 62,231 62,231 Other comprehensive income for the period 0 477 78 555 Total comprehensive income for the period 0 0 0 62,231 0 477 78 62,786 Transfer to retained earnings and reserves 1,430 629 -2,059 0 Transfer to reserves 0 Transfer to other reserves under the resolution of the Management Board 28,000 -28,000 0 Dividends paid -39,033 -39,033 Other 8 8 Balance at 31 Dec 2009 adjusted 272,721 -3,671 461,372 70,141 44,016 115 -779 843,915
The accompanying notes are an integral part of these financial statements.
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Statement of cash flows of Telekom Slovenije, d.d. for the year ended 31 December 2010 EUR '000 2009 2010 adjusted Cash flows from operating activities Profit before tax -235,692 64,086 Adjustments for: Depreciation and amortization 86,390 83,229 Impairment and write-offs of fixed assets 1,410 1,904 Movement in bad debt allowances 13,201 -159 Gain/loss on disposal of property, plant and equipment -1,625 -518 Finance income -58,574 -73,213 Finance expense 274,817 28,515 Change in assets held for sale -4,532 -529 Change in trade and other receivables 14,612 -4,631 Change in other non-current assets -4,445 -517 Change in inventories 1,048 2,157
Change in provisions 6,176 -965 Change in deferred income 554 -1,559 Change in accruals -2,201 -721 Change in trade and other payables -1,740 -24,416 Income tax paid 9,142 -7,773 Net cash from operating activities 98,541 64,890 Cash flows from investing activities Receipts from investing activities 112,424 117,066 Proceeds from sale of fixed assets 2,860 5,115 Dividends received 12 41,749 57,759 Interest received 5,810 20,637 Disposal of non-current investments 42,246 17,794 Disposal of current investments 19,759 15,761
Disbursements from investing activities -125,295 -374,789 Purchase of property, plant and equipment -35,944 -64,025 Purchase of intangible assets -8,222 -6,962 Investments in subsidiaries and joint ventures -71,255 -125,845 Interest bearing loans -9,875 -177,957 Cash used in investing activities -12,872 -257,723 Cash flows from financing activities Receipts from financing activities 15,500 658,675 Proceeds from non-current borrowings 0 346,000 Proceeds from current borrowings 15,500 15,000 Bonds issued 0 297,675 Disbursements from financing activities -81,066 -470,299 Repayment of current borrowings 0 -91,345 Repayment of non-current borrowings -37,505 -322,142 Sale of derivatives -3,748 0 Interest paid -20,325 -17,779 Dividends paid -19,487 -39,033 Cash flow from/used in financing activities -65,566 188,376
12 Telekom Slovenije and Mobitel have agreed a mutual settlement of receivables of total EUR 39,000 thousand in relation to a revolving loan granted by Mobitel to Telekom Slovenije and dividends payable for financial year 2009 by Mobitel to Telekom Slovenije.
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4.3.2 Notes to the financial statements and summary of significant accounting policies of Telekom Slovenije, d. d.
1. General information
Financial statements The financial statements are the separate financial statements of Telekom Slovenije d.d. (hereinafter the “Company”) for the period ended 31 December 2010. In accordance with the resolution of the Shareholders’ Meeting 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 authorized for issue by the Board on 5April 2011. 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 5 April 2011. General about the Company 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 2010, 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, local broad-band services, other telecommunications services, and sells various mostly telecommunications merchandise. As at 31 December 2010, Telekom Slovenije has the following subsidiaries:
Subsidiary Principal activity Country Operating in
Mobitel, d.d. Mobile telephony Slovenia Slovenia Construction and maintenance of Slovenia GVO, d.o.o. telecommunication networks Slovenia Publication of telephone Najdi, informacijske storitve, directories and business bases, Slovenia, Croatia d.o.o. Internet 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 Telecommunications d.o.o. Telecommunications services Kosovo Kosovo On.net d.o.o. Skopje Internet services Macedonia Macedonia
Bosnia and Bosnia and Aneks d.o.o. Banja Luka Internet services Herzegovina Herzegovina
Primo Communications d.o.o. Internet services Albania Albania Siol d.o.o. Internet services Croatia Croatia The SIOL B.V. in liquidation Financial holding Netherlands The Netherlands
One d.o.o. Skopje Telecommunications services Macedonia Macedonia
One to one AD Skopje Sales network of ONE DOO Macedonia Macedonia Digi Plus Multimedia dooel Skopje Marketing and digital TV services Macedonia Macedonia
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Mobitel d.d. has 100% interest in Soline, pridelava soli, d.o.o. 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. The parent company Najdi, informacijske storitve, d.o.o., holds a 100% interest 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. At the end of December, the Croatian company instigated liquidation procedure and thus changed its name to Pogodak Tražilica d.o.o. in liquidation.
Planet 9 d.o.o. is the provider of multimedia content and services to users of the mobile broadcast and internet network. Pursuant to the Contract for sale and acquisition of a business share in »Planet 9 «, in December 2010 Telekom Slovenije, d.d. acquired from Mobitel, d.d. a 50% interest in Planet 9, d.o.o. and became its sole owner.
Ipko telecommunications d.o.o. holds a 100% interest in Ipko LLC Albania and N.B »Media Works« d.o.o. Telekom Slovenije, d.d. holds 93.11% interest in Ipko Telecommunications d.o.o.. The parent company holds a call option and minority shareholders hold a put option for the remaining interest in the company.
Telekom Slovenije, d.d. acquired an 11.44% share in One d.o.o. Skopje on 23 November 2010 with an investment of EUR 15 million. Until then SIOL B.V. in liquidation held a 100% ownership in the company. By the end of the year, Telekom Slovenije, d.d. increased the share capital of the company for further 25 million EUR (a total investment of 40 million EUR) to become the holder of 25.62% interest in One d.o.o. Skopje.
Telekom holds 100% economic ownership in all subsidiaries through holding call options and granting put options to minority holders. An investment in joint ventures represents the acquisition of 50% interest of Gibtelecom Limited.
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 European Union. 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 to the nearest thousand. The accounting policies used are consistent with those applied in the previous year, except for − The changed accounting policy applied in the measurement of cable network and telephone switchboard after initial recognition from the revaluation model to the cost model as described in more detail in continuation, and − the adoption of new standards and interpretations noted below and considered in the compilation of the financial statements if the stated events occurred in the reporting period. The adoption of these standards and interpretations did not impact the financial position or performance of Telekom Slovenije, d.d. in the period under review.
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Change in the accounting policy As from 1 January 2010, the accounting policy applied in the subsequent measurement of cable network and switching exchange was changed from the revaluation model to the cost model.
This change was supported by the fact that the majority of European Telecom companies value their telecommunications assets under the cost model. The new accounting policy will improve comparability with financial statements of other enterprises engaged in the same or similar activities.
IAS 16 prescribes treatment of property, plant and equipment however, it does not include special provisions for recognition of the above mentioned changes in the accounting policy: Therefore, Telekom Slovenije, d.d. followed provisions of IAS 8 – Accounting policies, changes in accounting estimates and errors, and made adjustments in its financial statements of the previous periods in accordance with requirements of IAS 1 – Presentation of financial statements.
Effects of changes in the accounting policy, which are reported in the separate financial statements of Telekom Slovenije, d.d. and consequently also in the consolidated financial statements of the Group, are presented below:
EUR ‘000 Balance at 31.12.2008 Decrease in property, plant and equipment -54,771 Decrease in the fixed assets revaluation reserve -49,869 Decrease in reserves -7,226 Decrease in deferred tax liabilities -4,902 Increase in income tax liability 1,446 Change in retained earnings 5,780
Balance at 31.12.2009 Decrease in property, plant and equipment -48,670 Decrease in the fixed assets revaluation reserve -44,291 Decrease in reserves -10,839 Decrease in deferred tax liabilities -4,379 Increase in income tax liability 2,168 Change in net profit for the year 4,856 Change in retained earnings 3,815 Earnings per share – increase in the basic and diluted earnings per share by 0.75 EUR per share
Balance at 31 Dec 2010 Decrease in depreciation of property, plant and equipment -6,101 Increase in income tax liability 1,245 Increase in net profit 4,856 Earnings per share - increase in the basic and diluted earnings per share by 0.75 EUR per share
Newly adopted standards and interpretations The adoption of these standards and interpretations did not have a significant effect on the financial position or performance of the Company. The effect of renewed standards IFRS 3R and IAS 27R on the financial position or performance of the Telekom Slovenia Group is disclosed in the Section Newly adopted standards and interpretations in the Financial Report of the Telekom Slovenia Group. Amendment to IFRS 2 - Cash-Settled Share-Based Payment Transactions in the Group 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. IFRIC 8 and 11 are replaced by the amendment.
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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 1 July 2009. IFRS 3R introduces a number of changes in the accounting for business combinations that will impact the amount of goodwill recognized, 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 a hedged item.
IFRIC 17 - Distribution of Non-Cash Assets to Owners IFRIC 17 became 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 derecognized in books of accounts.
IFRIC 18 - Transfers of Assets from Customers IFRIC 18 applies to transfers of assets 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 certain 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 recognized on delivery or performance of each individual service by the entity.
Improvements/amendments to IFRS 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 these amendments did impact the changes in the Company's accounting policies however, it did not have any impact on its financial position or performance.
IAS 1 – Presentation of financial statements. Assets and liabilities held for trading under IAS 39 Financial Instruments: Recognition and measurement, are not automatically classified as current in the balance sheet. As a result of the amended standards, the Company did not reclassify its financial instruments from current to non-current assets or vice versa.
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 recognized 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
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Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d. 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 amortization 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 7 – Cash flow statement
IAS 8 - Accounting Policies, Change in Accounting Estimates and Errors
IAS 10 – Events after the Reporting period
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 32 – Financial Instruments: Presentation
IAS 34 – Interim Financial Reporting
IAS 36 – Impairment of Assets
IAS 39 – Financial Instruments: Recognition and Measurement
IAS 40 – Investment Property
IAS 41 - Agriculture – Additional biologic transformation
Improvements/amendments, issued in April 2009 In April 2009 the Board issued 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 these improvements did not have any impact on the financial position of the Company:
IFRS 2 - Share-Based Payments – specification when to apply IFRS 2 and IFRS 3
IFRS 5 - Non-current Assets Held for Sale – Disclosure
IFRS 8 - Operating Segments – Disclosure of Segments' assets
IAS 1 - Presentation of Financial Statements – current/non-current liabilities for swap instruments
IAS 7 - Statement of Cash Flows – classifying expenditure for unrecognized assets
IAS 17 - Leases – classifying land and buildings
IAS 18 - Revenue – designation whether an entity acts as a principal or an agent
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IAS 36 - Impairment of Assets – the maximum unit to which goodwill may be attributed IAS 38 - Intangible Assets – amendments as a result of new IFRS 3 Standard and amendments in relation to determining fair value
IAS 39 - Financial Instruments – assessment of liquidating damages for prepayment of a credit as a derivative, cash flow hedges
IFRIC 9 - Reassessment 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
Improvements/amendments issued in May 2010 In May 2010 the IASB issued Improvements to IFRSs, and an omnibus of amendments to its IFRS standards . The amendments have not been adopted as they become effective for annual periods beginning on or after either 1 July 2010 or 1 January 2011.
IFRS 3 - Business Combinations
IFRS 7 - Financial Instruments: Disclosures
IAS 1 - Presentation of Financial Statements
IAS 27 - Consolidated and Separate Financial Statements
IFRIC 13 - Customer Loyalty Programmes 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 the 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 requires 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
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Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d. change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Actual results may differ from those estimates. The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Provisions and contingent liabilities As set out in Notes 24 and 31 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 recognized 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 recognized 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 recognized 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 recognized on the basis of the reasonable estimation of the expected amount. Such estimation is regularly reviewed, however for some operators, final agreements 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 to make a 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 recognized 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 property, plant and equipment and intangible assets differ materially from their 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 :
Amendment to IFRS 1 - Limited Exemption from Comparative IFRS 7 Disclosures for first time adopters.
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.
IAS 32 Financial Instruments: Presentation, Classification of the Option to Purchase Shares Denominated in a Foreign Currency Applicable for periods beginning on or after 1 January 2010. The amended Standard allows an entity issuing puttable financial instruments denominated in foreign currency not to account for these rights as derivatives but rather to recognize the effects in the profit or loss. These rights are classified as equity if they fulfil a number of specified criteria.
IFRIC 14 Prepayments of a minimum funding requirement (Amendment)
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The amendment to IFRIC 14 is effective for annual periods beginning on or after 1 January 2011 with retrospective application. The amendment provides guidance on assessing the recoverable amount of a net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset.
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments: IFRIC 19 is effective for annual periods beginning on or after 1 July 2010. The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be reliably measured, the instruments are measured at the fair value of the liability extinguished. Any gain or loss is recognized immediately in profit or loss. The adoption of this interpretation will have no effect on the financial statements of the Company.
The following new and amended standards and interpretations will be adopted in future periods as required by International Financial Reporting Standards and if endorsed by the EU
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.
Amendment to IFRS 7 - Financial instruments - Disclosures to enhance the transparency of disclosure requirements for the transfer of financial assets. Issued in October 2010. The amendments will assist users to understand the implications of transfers of financial assets and the potential risks that may remain with the transferor.
IAS 34 - Interim Financial Reporting Effective for annual periods beginning on or after 1 January 2011. This improvement provides guidance to illustrate how to apply disclosure principles in IAS 34 and add disclosure requirements.
IAS 12 - Deferred tax: Recovery of Underlying Assets (Amended) The amendment is effective for annual periods beginning on or after 1 January 2012. This amendment concerns the determination of deferred tax on investment property measured at fair value. The aim of this amendment is to include a) a rebuttable presumption that deferred tax on investment property measured using the fair value model in IAS 40 should be determined on the basis that its carrying amount will be recovered through sale and b) a requirement that deferred tax on non-depreciable assets, measured using the revaluation model in IAS 16, should always be measured on a sale basis.
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 amortized on a straight-line basis over its estimated useful lives, which ranges from 3 –5 years. The cost of licenses is capitalised and amortized 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.
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Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d. i. Property, plant and equipment Property, plant and equipment owned by the Company are stated at cost or revaluation 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 recognized 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 land, buildings and cable and lines are carried at fair value on the revaluation day less cost of depreciation and impairment losses. 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. 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 recognized 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 recognized 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.
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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 recognized as 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.
The estimated useful lives of property, plant and equipment are as follows Groups of property, plant and equipment Useful liv es 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 property, plant and equipment 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 less impairment loss 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 recognized in the net amount directly in equity in the statement of comprehensive income. When an investment is derecognized, accumulated gains or losses previously recognized in equity are also derecognized and transferred to the profit or loss. The reclassification is recognized in the statement of comprehensive income.
Available-for-sale investments are recognized (or derecognized) on the date of commitment to purchase or sell (trade date). Interest on debt securities is recognized in the income statement at the effective interest rate. Loans are stated at amortized cost less impairment losses.
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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, an 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 amortized 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 recognized in the income statement as revaluation financial expenses. 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 recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the income statement and only to the extent that the carrying amount of the financial asset does not exceed its amortized 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 recognized in profit or loss, is transferred from equity to the income statement with the reclassification recognized in the statement of comprehensive income. For debt instruments, classified as an available-for-sale financial asset, 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 recognized, the previously recognized impairment loss is reversed through profit or loss. A financial asset is de-recognized 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 recognized 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 recognized 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 recognized 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 recognized 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 recognized in the statement of comprehensive income. - the ineffective portion of the cash flow hedge is immediately recognized 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 recognized 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
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Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, d. d. 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 recognized 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 recognized 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 amortized 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 recognized at cost less any impairment losses.
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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, 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.
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 recognized as a liability in the period in which they are declared. 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 recognized in the amount of non-refundable 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 were calculated in 2010 using the discount rate of 4.125%, while personnel turnover rate is considered in terms of age intervals and ranges from 0% to 1.3% (2009: discount rate of 4.625%, personnel turnover rate from 0% to 3%).
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 recognized initially at amounts from relevant documents that evidence the receipt of cash or payment of an operating debt, which is their fair value.
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Subsequent to initial recognition interest bearing borrowings are stated at amortized cost with any differences between cost and the redemption value being recognized 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 amortized 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.
Revenue from services is recognized when services are rendered and there are no significant uncertainties regarding the recovery of the consideration due.
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 recognized in the period to which it relates.
Revenue from connection fees is recognized at the time of conclusion of the agreement with the customer.
Revenue from call charges and other services rendered to the users is recognized in the period in which calls are made or services are rendered.
Revenue from interconnection services and network lease is recognized in the period in which services are provided.
Revenue from sale of merchandise is recognized when the sale is made.
Revenue from voice services with added value is recognized 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 recognized in the income statement as the interest accrues (using the effective interest method) to the net carrying amount of the financial assets.
Dividend income is recognized 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 recognized in the income statement except to the extent that it relates to items recognized directly in equity, in which case it is recognized 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.
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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 at the balance sheet date.
A deferred tax asset is recognized 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 recognized 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. ad. Statement of cash flows
The statement of cash flows is compiled under the indirect method based on data from the balance sheet as at 31 December 2010 and 31 December 2009, profit and loss items for the financial year 2010, and additional information necessary to make adjustments of cash inflows and outflows. All significant adjustments were taken into account in the statement of cash flows for the year ended 31 December 2010 (dividend offsetting was not eliminated and the netting of revolving loans granted and received was made).
2. Revenue
EUR '000
2010 2009 Voice telephony 115,119 133,289 Voice transfer through IP network 5,845 4,847 Internet and broadband access 83,537 75,689 Interconnections 25,703 27,344 International operator services 66,189 70,159 Bandwidth lease and data transmission 49,432 46,813 Unbundled access and collocations 10,343 14,563 Voice services with added value 3,768 2,612 Sale of advertising space 827 32 Other services 9,618 10,790 Sale of merchandise and materials 10,417 9,578 Other revenue 370 774 Total revenue 381,168 396,490
EUR '000
2010 2009 Revenue from sale of services in domestic market 304,562 316,753 Revenue from sale of services in foreign markets 66,189 70,159
Revenue from sale of merchandise and materials in domestic market 10,417 9,578 Total revenue 381,168 396,490
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3. Other operating income
EUR '000
2010 2009 Government grants 160 189 Gains on disposal of fixed assets 218 0 Other revaluation operating income 21 0 Other income 964 1.785 Total other operating income 1,363 1,74
4. Costs of services
EUR '000
2010 2009 Communication and transport services, and rent 4.750 4.939 Maintenance 21.720 23.797 Telecommunication services 85.924 95.650 Costs of leased lines 5.367 4.688 Sale incentives 6.195 6.415 Professional services 5.729 8.313 Insurance, marketing and entertainment 6.955 8.500 Sales commission 1.583 1.662 Banking services 702 1.575 Multimedia services 32.735 29.464 Other services 5.725 6.589 Total costs of services 177.385 191.592
5. Staff costs
EUR '000
2010 2009 Wages and salaries 51,072 52,347 Social security contributions 11,649 11,382 - There of: pension contributions 5,132 4,823 Other staff costs 14,492 10,580 Total 77,213 74,309
In 2010, on average 1,796 (2009: 1,861) of staff were employed in the Company. . 6. Other operating expenses
EUR '000
2010 2009 Provisions (Note 24) 6,264 207 Loss from sale of property, plant and equipment 0 1,387 Impairment charge of current assets 15,484 6,150 Other expenses 1,284 4,434 Total 23,032 12,178
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7. Finance income
EUR '000
2010 2009 Dividend income 41,749 57,760 Interest income 16,767 15,453 Exchange rate gains 58 0 Total finance income 58,574 73,213
8. Finance expenses
EUR '000
2010 2009 Finance expenses from bonds issued 15,122 456 Interest expense 5,918 24,865 Exchange rate losses 0 41 Change in fair value of derivative financial instruments 891 3,153 Investment impairment 265,955 0 Other finance expenses 8,078 0 Total finance expenses 295,964 28,515
In the second half of 2010, Telekom Slovenije, d.d checked fair values of its investments in the following subsidiaries: One, One to one, On.net d.o.o. Skopje and Digi Plus Multimedia dooel Skopje in Macedonia; Ipko Telecommunications d.o.o. in Kosovo; Primo Communications d.o.o. in Albania, Aneks d.o.o. in the Republic of Serbia and Najdi, informacijske storitve in Slovenia.
The Company recognized impairment of its investments in subsidiaries to the amount of the difference between the carrying amount and the recoverable amount of the investments, and recognized the impairment in the income statement as a revaluation financial expense. The amount of impairment of individual investments is disclosed in Note 13 Investments in subsidiaries, associates and joint ventures. Other finance expenses refer to the impairment of a loan granted to the company One in the amount of EUR 7,889 thousand and EUR 189 thousand of interest on finance lease.
9. Income tax
Income tax expense recognized in the profit or loss:
EUR '000
2010 2009 adjusted Current tax expense -4,707 -3,678 Deferred tax income/expense 4,987 1,823 Income tax expense in the profit or loss 280 -1,855
Reconciliation of actual and computed tax expense taking into account effective tax rate:
EUR '000
2010 2009 adjusted Profit/loss before tax under IFRS -235,692 64,086 Income tax using the domestic corporate tax rate of 20% (21% in 2009) 47,138 -13,458
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Tax relief for dividends 7,932 11,523 Tax incentives used in the current period 683 862 Elimination of tax incentives used in previous years 0 -26 Change in tax rate 0 -37 Impairment of non-current investments -54,660 0 Non-deductible expenses -813 -719 Other items 0 0 Total income tax 280 -1,855
Effective tax rate applicable in 2010 was 0.12% (2009 adjusted: 2,89%).
In accordance with Slovenian income tax regulations, the Company is entitled to an annual tax incentive in an amount equal to 20% of investments in research and development, and 30% of the amount invested in equipment to a maximum of EUR 30,000.
Deferred tax recognized in the income statement is attributable to the following items:
EUR '000
2010 2009 adjusted Property, plant and equipment 1,562 1,996 Investments 110 0 Provisions 608 -127 Receivables 2,735 -18 Accrued costs -28 -28 Deferred tax assets/liabilities 4,987 1,823
Deferred tax recognized in equity
EUR '000
2010 2009 adjusted
Change in fixed assets revaluation reserve -7,925 0
Change in fair value of available-for sale investments -18 -119 Change in fair value of financial instruments designated as hedges -195 -20 Restatement of deferred tax liabilities 0 0
Deferred tax assets/liabilities -8,138 -139
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. Diluted 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.
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EUR '000
2010 2009 adjusted Net profit attributable to holders of ordinary shares of the parent company -235,412 62,231 Adjusted net profit attributable to holders of ordinary shares of the parent company -235,412 62,231 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
11. Intangible assets
Movement in intangible assets
EUR '000
Other intangible Intangibles in 2010 Goodwill Licences Software assets construction Total
COST Balance on 1 Jan 2010 0 11,818 31,410 86 10,040 53,354 Additions 0 0 0 0 8,222 8,222 Transfer to use 0 2,971 14,379 0 -17,350 0 Disposal 0 -6 -95 0 0 -101 Balance on 31 Dec 2010 0 14,783 45,694 86 912 61,475 ACCUMULATED AMORTIZATION Balance on 1 Jan 2010 0 5,397 18,996 70 0 24,463 Additions 0 257 0 0 0 257 Disposal 0 -5 -93 0 0 -98 Amortization 0 2,238 5,879 6 0 8,123 Balance on 31 Dec 2010 0 7,887 24,782 76 0 32,745 CARRYING AMOUNT Balance on 1 Jan 2010 0 6,421 12,414 16 10,040 28,891 Balance on 31 Dec 2010 0 6,896 20,912 10 912 28,730 Movement in intangible assets
EUR '000
Other intangible Intangibles in 2009 Goodwill Licences Software assets construction Total
COST Balance on 1 Jan 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 0 -1,275 -394 0 0 -1,669 Balance on 31 Dec 2009 0 11,818 31,410 86 10,040 53,354 ACCUMULATED AMORTIZATION Balance on 1 Jan 2009 0 4,669 14,720 64 0 19,453 Disposal 0 -1,275 -340 0 0 -1,615 Amortization 0 2,003 4,616 6 0 6,625 Balance on 31 Dec 2009 0 5,397 18,996 70 0 24,463
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CARRYING AMOUNT Balance on 1 Jan 2009 0 7,470 12,786 22 8,330 28,608 Balance on 31 Dec 2009 0 6,421 12,414 16 10,040 28,891
There are no restrictions in place as regards the Company's ownership of its intangible assets and neither are any items of intangible assets pledged as collateral.
Contractual obligations for intangible assets amounted to EUR 524 thousand as at 31 December 2010 and mainly relate to the implementation of the »Revenue Assurance « and »Billing « systems.
12. Property, plant and equipment
Movement in property, plant and equipment
EUR '000
Land and buildings, Assets cable duct Cable Switching Other under 2010 system network exchanges equipment construction Total
COST Balance on 1 Jan 2010 268,529 852,347 282,147 321,202 18,652 1,742,877 Additions 0 0 0 0 35,943 35,943 Revaluation -2,771 0 0 0 0 -2,771 Transfer from assets under construction 6,062 13,351 2,321 20,737 -42,471 0 Disposal, write-offs -6,923 0 -901 -11,441 -220 -19,485 Balance on 31 Dec 2010 264,897 865,698 283,567 330,498 11,904 1,756,564 ACCUMULATED DEPRECIATION Balance on 1 Jan 2010 53,590 593,878 248,099 224,257 0 1,119,824 Revaluation -42,385 0 0 0 0 -42,385 Additions 12 12 Depreciation 9,749 27,542 10,218 30,758 0 78,267 Disposal, write-offs -701 0 -843 -10,349 0 -11,893 Balance on 31 Dec 2010 20,253 621,420 257,474 244,678 0 1,143,825 CARYING AMOUNT Balance on 1 Jan 2010 214,939 258,469 34,048 96,945 18,652 623,053 Balance on 31 Dec 2010 244,644 244,278 26,093 85,820 11,904 612,739
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Movement in property, plant and equipment
EUR '000
Land and buildings, Assets cable duct Cable Switching Other under 2009 system network exchanges equipment construction Total COST Balance on 31 Dec 2008 – original 134,863 1,019,045 278,811 303,700 27,753 1,764,172 Change of accounting policy -60,872 -60,872 Balance on 1 Jan 2009 – adjusted 134,863 958,173 278,811 303,700 27,753 1,703,300 Additions 0 0 0 64,024 64,024 Transfer from assets under construction 2,451 27,285 6,577 36,393 -72,706 0 Disposal, write-offs -1,417 -479 -3,241 -18,891 -419 -24,447 Transfer of cable duct system 132,632 -132,632 0 Balance on 31 Dec 2009 268,529 852,347 282,147 321,202 18,652 1,742,877
ACCUMULATED DEPRECIATION Balance on 31 Dec 2008 – original 7,971 609,386 239,816 213,266 0 1,070,439 Change of accounting policy -6,101 -6,101 Balance on 1 Jan 2009 – adjusted 7,971 603,285 239,816 213,266 0 1,064,338 Depreciation 3,310 33,536 11,260 28,498 0 76,604 Disposal, write-offs -156 -478 -2,977 -17,507 0 -21,118 Transfer of cable duct system 42,465 -42,465 0 Balance on 31 Dec 2009 53,590 593,878 248,099 224,257 0 1,119,824 CARRYING AMOUNT Balance on 31 Dec 2008 – original 126,892 409,659 38,995 90,434 27,753 693,733 Change of accounting policy -54,771 -54,771 Balance on 1 Jan 2009 – adjusted 126,892 354,888 38,995 90,434 27,753 638,962 Balance on 31 Dec 2009 214,939 258,469 34,048 96,945 18,652 623,053
As from the financial year 2010, the Company changed its accounting policy of measurement of cable network subsequent to initial recognition (with exception of the cable duct system, switching exchanges and some other items of equipment) from the revaluation model to the cost model. The effects and detailed explanation are provided in Section b. Summary of significant accounting policies, Chapter 1 General information.
Land and buildings and the cable duct system are carried at fair value, whereas other items of property, plant and equipment are stated at cost. Land and buildings were valued by a licensed valuer to fair value as at 1 January 2007 using comparable market prices. The licensed valuer of real estate checked the assumptions used in this valuation as at 30 September 2010 and issued an opinion stating that additional revaluation was not necessary.
Cable ducts were valued by a licensed valuer as at 1 January 2010 using the depreciated replacement cost method as no comparable prices are available for these assets. As a result of this valuation, the Company recognized a revaluation in the amount of EUR 39,627 thousand and an impairment loss in the amount of EUR 13 thousand.
Property, plant and equipment are free of encumbrances. As at 31 December 2010, the Company reported EUR 8,517 thousand of commitments for property, plant and equipment (31 December 2009: EUR 8,616
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As at 31 December 2010, the carrying amount of equipment under finance lease was EUR 2,193 thousand.
13. Investments in subsidiaries, associates and joint ventures
Investments in subsidiaries
The Company holds a controlling interest in the following subsidiaries:
EUR '000
Subsidiary 2009 Enhancement Impairment 2010
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. 11,469 0 0 11,469 Avtenta.si d.o.o. 1,723 0 0 1,723 Planet 9 d.o.o. 7 6 0 13 Ipko Telecommunications d.o.o. 101,522 13,502 -108,334 6,690 On.net d.o.o. Skopje 9,699 0 -9,699 0 Aneks d.o.o. Banja Luka 10,353 5,070 -5,823 9,600 Primo Communications d.o.o. 7,725 2,575 -7,700 2,600 Siol d.o.o. 501 0 0 501 SIOL B.V. in liquidation 92,909 0 -92,909 0 One d.o.o. Skopje 0 40,000 -40,000 0 One to one AD Skopje 245 0 -245 0 Digi Plus Multimedia dooel Skopje 699 0 -699 0 Total investments in subsidiaries 441,095 61,153 -265,409 236,839
Telekom Slovenije d.d. has a 100% economic ownership in all of its subsidiaries as a result of acquiring put options and granting call options to minority shareholders. Accordingly, the Company recognized an increase of total EUR 21,147 thousand relating to the non-current investments in the following subsidiaries: Ipko Telecommunications d.o.o., Aneks, d.o.o Banja Luka and Primo Communications d.o.o..
In accordance with the contract for acquisition and sale of a business share in »Planet 9 «, Telekom Slovenije, d.d. acquired from Mobitel d.d. a 50% interest in the company thus becoming the sole owner of Planet 9 d.o.o..
On 23 November 2010, Telekom Slovenije, d.d. invested EUR 15 million to acquire an 11.44% interest in One d.o.o. Skopje from the then 100% shareholder SIOL B.V. in liquidation, the Netherlands. By the end of the year, Telekom Slovenije, d.d. raised additional EUR 25 million of capital of the company bringing its total investment to EUR 40 million, thus becoming the owner of a 25.62% interest in One d.o.o. Skopje.
Based on the indication of impairment, the Company assessed the fair value of its non-current investments in the following subsidiaries: Ipko Telecommunications d.o.o., On.net d.o.o. Skopje, Aneks d.o.o Banja Luka, Primo Communications d.o.o., One d.o.o. Skopje, One to one AD Skopje, Digi Plus Multimedia dooel Skopje and Najdi, informacijske storitve. Due to the planned integration of the companies in Macedonia, these were valued as a group (Group One).
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The recoverable amount of the Group One is the value in use which was determined using the present value of future cash flows method, based on the five-year projection of the company. The pre-tax discount rate applied in the projections ranges from 17.1% in 2010 to 12.2% in the residual period. Cash flows over the five-year period were extrapolated with an average 2% growth rate. In accordance with the valuation, the Company recognized an impairment of its non-current investments in the companies in Macedonia, in the amount of EUR 143,552 thousand. The recoverable amount of the investment in Ipko d.o.o. is the value in use which was determined using the present value of future cash flows method, based on the five-year projection of the company. The pre-tax discount rate used in the projections ranges from 18.6% in 2010 to 12.6% in the residual period. Cash flows over five years were extrapolated with an average 3.5% growth rate. In accordance with the valuation, the Company recognized an impairment of its non-current investment in the company in the amount of EUR 108,334 thousand.
The recoverable amount of the investment in Primo Communications d.o.o. is the value in use which was determined using the present value of future cash flows method, based on the five-year projection of the company. The pre-tax discount rate used in the projections ranges from 19.9% in 2010 to 14.9% in the residual period. Cash flows over five years were extrapolated with an average 2% growth rate. In accordance with the valuation, the Company recognized an impairment of its non-current investment in Primo in the amount of EUR 7,700 thousand.
The recoverable amount of the investment in Aneks d.o.o. is the value in use which was determined using the present value of future cash flows method, based on the five-year projection of the company. The pre-tax discount rate used in the projections ranges from 19.4% in 2010 to 15% in the residual period. Cash flows over five years were extrapolated with an average 2% growth rate. In accordance with the valuation, the Company recognized an impairment of its non-current investment in Aneks in the amount of EUR 5,823 thousand.
In the valuation of Najdi, informacijske storitve d.o.o, both profit centres that present the company's activity were assessed in terms of their value. The value of Teledat profit centre was determined using the present value of future cash flows method, whereas the value of Najdi.si profit centre was determined using the comparable market prices method. According to the valuations, no impairment is necessary of the investment in Najdi, informacijske storitve d.o.o.
Investments in joint ventures
In April 2007, Telekom Slovenije, acquired a 50% interest in Gibtelecom, a telecommunication company in Gibraltar. Gibtelecom is a private entity that is not listed on any public stock exchanges.
Information for associates, joint ventures and subsidiaries as at 31 December 2010 (a minimum of 20% interest)
Ownership Equity (EUR Net income Company Address (%) ‘000) (EUR ‘000) 1000 Ljubljana, Mobitel, telekomunikacijske storitve, d.d. Vilharjeva 23 100.00 405,296 35,516 GVO, Gradnja in vzdr ževanje 1000 Ljubljana, telekomunikacijskih omre žij, d.o.o. Cigaletova 10 100.00 15,233 5,863 1000 Ljubljana, Najdi, informacijske storitve, d.o.o. Cigaletova 15 100.00 4,774 -5,070 Avtenta.si, Sistemska integracija in 1000 Ljubljana, poslovne storitve, d.o.o. Verov škova 55 100.00 2,248 -1,037 6230 Portoro ž, Soline Pridelava soli, d.o.o. Se ča 115 100.00 4,424 199 Planet 9, internetne storitve in mobilne 1000 Ljubljana telekomunikacijske storitve, d.o.o. Vojkova 78 100.00 2,041 536 M-Pay, Dru žba za mobilno pla čevanje, 2000 Maribor storitve in trgovino, d.o.o. Ul. Vita Kraigherja 3 50.00 172 9
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Prishtina 10000, Republik of Kosovo, Lagija Ulpiana, Rruga Ipko Telecommunications d.o.o. "Zija Shemsiu"nr 34 93.11* 4,585 -22,443
Skopje, Makedonija On.net, Dru žba za informacijske Bul. Partizanski odredi, sisteme, d.o.o. no. 70, DTC Aluminka 83.38* 430 -5,318 Banja Luka, Bosna in Aneks, Dru žba za in ženiring in Hercegovina, Majke svetovanje uvoz-izvoz, d.o.o. Jugovi ća 25 70.00* 7,093 183
Tirana, Albanija Autostrada Tiran ë- Durr ës, km 1, Komuna Primo Communications d.o.o. Kashar 75.00* 3,605 -2,906 Zagreb, Hrva ška, Siol, d.o.o. Margaretska 3 100.00 576 39
AZ Amsterdam, Nizozemska Locatellikade 1 SIOL B.V. Parnassustoren 100.00 43,231 -21,508
Skopje, Makedonija, Kuzman Josifovski Pitu One d.o.o. Skopje No 15 25.62 Company for electronic- telecomminication Skopje, Makedonija, materials and services Bul. Vidoe Smilevski One to one AD Skopje Bato 4 100 -7,275 -1,435
Digi Plus Multimedia Company Skopje, Makedonija, Telecommunications Bul. Partizanski odredi, Services, d.o.o. Skopje no. 70, DTC Aluminka 100 -997 -1,327
Gibtelecom Limited. Suite 942, Europort 50.00 27,205 9,046
* Telekom has call options to acquire the shares from non-controlling interests and non-controlling interests have put options to sell the shares to Telekom Slovenije, d.d.
14. Other investments
EUR '000
2010 2009 Investments in equity securities of banks 1,070 1,070 Investments in other equity securities 1,188 1,646 Loans to others 190,061 225,058 Loans to employees 1,656 2,018 Receivables from the sale of apartments 18 38 Loans to telecommunications subscribers 1,493 47
Total 195,486 229,877
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. ABanka d.d. shares. Of total amount invested in other equity securities as at 31 December 2010, EUR 1,043 thousand represents traded securities i.e. Zavarovalnica Triglav d.d. shares. As at 31 December 2010, the Company recorded a reduction of EUR 458 thousand 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.
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In June 2010, several loans granted to Ipko Telecommunications d.o.o. over the period from 2007 to 2009 were refinanced (inclusive of interest) into a new non-current loan in the amount of EUR 152,798 thousand.
15. Other non-current assets
EUR '000
2010 2009 Long-term prepaid rentals 10,144 9,878 Long-term deferred sale incentives 1,150 859 Other non-current assets 163 375
Total 11,457 11,112
Movements in long-term prepaid rentals and deferred sale incentives are explained below:
EUR '000
Rentals Sale incentives Balance on 1 Jan 2009 5,231 3,087 Increase 5,531 4,187 Transfer to expenses -884 -6,415 Balance on 31 Dec 2009 9,878 859 Increase 1,286 6,486 Transfer to expenses -1,020 -6,195 Balance on 31 Dec 2010 10,144 1,150
16. Deferred tax assets and liabilities EUR '000
2010 2009 adjusted Property, plant and equipment -6,813 -450 Investments and financial assets 109 212 Trade receivables 4,437 1,701 Provisions 3,334 2,725 Other non-current assets 92 121
Deferred tax assets/liabilities 1,159 4,309
Deferred tax liabilities increased by EUR 7,925 thousand as a result of a revaluation of cable ducts in the amount of EUR 39,627 thousand.
17. Non-current assets held for sale Non-current assets held for sale mainly relate to land and buildings which Telekom Slovenije, d.d. will no longer use for business purposes in accordance with the process of rationalization and optimization of real estate and which are to be sold in the next 12 months according to the decision of the management board.
In 2010, the Company recognized an impairment loss in the amount of EUR 658 thousand as the difference between the carrying amount and fair value, less costs of sales.
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18. Inventories
EUR '000
2010 2009 Materials 4,498 4,675 Merchandise 2,519 3,390 Total 7,017 8,065
As at 31 December 2010, inventories were restated to their net realizable value and an impairment loss was recorded in the amount of EUR 105 thousand (2009: EUR 190 thousand). Merchandise and materials are valued at net realizable value in the amount of EUR 547 thousand and EUR 213 thousand respectively, while other inventories are valued at initial cost as no adjustment was necessary in respect of these inventories.
No significant amounts of inventory surplus or deficit were recorded during the annual physical stock count of inventories.
19. Trade and other receivables EUR '000 2010 2009 Trade receivables 46,602 47,653 Receivables from foreign operators 14,466 20,672 Receivables due from domestic operators 25,979 17,603 Advances 490 143 VAT and other tax receivables 2,527 6,140 Accrued income 2,614 3,019 Current amounts of sale incentives 2,848 5,358 Other receivables 1,166 1,142 Bad debt allowance -23,682 -10,481 Total 73,010 91,249
Movement of bad debt allowance
EUR '000 2010 2009 Balance on 1 Jan -10,481 -10,640 Impairment -17,488 -7,920 Impairment reversal 2,349 6,880 Utilization 1,938 1,199 Balance on 31 Dec -23,682 -10,481
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At 31 December 2010, the maturity structure of trade receivables that were past due but not impaired was as follows:
EUR '000 Neither past Past due due nor and Total impaired impaired Past due but not impaired
Up to 30 31 - 60 61 - 90 91 -120 More than days days days days 120 days
2010 73,010 62,760 1,084 6,326 982 528 149 1,181 2009 91,249 71,489 2,268 7,946 2,749 1,758 924 4,115
Trade receivables are non-interest bearing.
20. Current financial assets
EUR '000 2010 2009 Other loans 63,284 80,559 Other current financial assets 52 0 Bank deposits 11,000 0 Total 74,336 80,559
Other loans comprise EUR 61,278 thousand granted to subsidiaries inclusive of deferred interest on long term and short term loans.
21. Cash and cash equivalents
EUR '000 2010 2009 Cash in hand and bank balances 23,248 5,142
Deposits with banks with maturity of up to three months 2,001 4 Total 25,249 5,146
Cash at banks earns interest at bank rates for positive cash balances (between 0.10% and 1.25% per annum); night deposits earn interest at contractually agreed rates of interest of between 0.500% and 0.530% per annum (2009: 0.500% and 0.530%).
22. Capital and reserves
Shares issued Authorised, issued and fully paid up capital amounts to EUR 272,721 thousand. It is divided into 6,535,478 ordinary non-par value shares.
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Ownership structure as at 31 December 2010
Shareholder Number of shares Interest in % Republic of Slovenia 3,434,021 52.54 Slovenska odškodninska družba, d.d. 931,387 14.25 Individual shareholders (local and foreign) 669,741 10.25 Local legal entities 433,705 6.64 Kapitalska družba, d.d. 365,175 5.59 PID - DZU 180,063 2.76 Foreign legal entities 155,102 2.37 Banks 118,038 1.81 Kapitalska dru žba – PPS 115,558 1.77 Mutual funds and other funds 81,308 1.23 Telekom Slovenije, d.d. 30,000 0.46 Insurance undertakings 10,970 0.17 BPH 10,410 0.16 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 Management Board. Consistent with the Companies Act, the Management Board is entitled to appropriate one half of the profit for the period to reserves.
Composition of reserves
EUR '000 2010 2009 adjusted Capital reserves 131,855 130,426 Reserves for treasury shares 3,671 3,671 Statutory reserves 54,544 54,544 Other reserves 61,143 272,731
Total 251,213 461,372
Capital reserves and statutory reserves may be used for purposes specified in the Companies Act and the Company ’s statutes. Statutory reserves may not exceed 20% of issued capital. These reserves are not distributable. The amount of capital reserves as at 31 December 2010 exceeds the required percentage of issued capital.
Capital reserves include capital surplus of EUR 126,135 thousand arising on ownership transformation and transfer of untaxed portion of revaluation reserves for property, plant and equipment in the amount of EUR 5,720 thousand.
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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.
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 1 July 2010, total retained earnings of 2009 in the amount of EUR 61,470 thousand was appropriated as follows: EUR 19,516 thousand (2009: EUR 39,033 thousand) was appropriated to dividend payout - a dividend of EUR 3 per share (2009: EUR 6), while the remaining EUR 41,953 thousand was appropriated to retained earnings.
Dividend proposed Proposed for approval at AGM: EUR 19,516,434.00 Dividend per ordinary shares: EUR 3.00
Treasury shares In 2003, the Company acquired 30,000 treasury shares at par value of 1,252 TEUR representing 0.46% of the Company's issued capital.
Fixed asset revaluation reserve In 2010, the fixed assets revaluation reserve increased by EUR 31,702 thousand as the result of a revaluation of cable ducts and reduced by EUR 4,128 thousand as follows: EUR 2,698 thousand was transferred from revaluation reserve to retained earnings on account of additional depreciation of property, plant and equipment; furthermore, EUR 1,430 thousand was transferred from revaluation reserves to capital reserves on account of the revaluation of property, plant and equipment. Revaluation reserves are not distributable.
Revaluation reserves for financial instruments Revaluation reserves for financial instruments include the revaluation of available-for-sale financial assets and the change in the fair value of financial instruments used for hedging. Revaluation reserves are not distributable.
In accordance with the Accounting manual of Telekom Slovenije, d.d. the Company impaired its investment in shares of Zavarovalnica Triglav, as the fair value of the shares was more than 30% below their market value as at 31 December 2010. The impairment loss was recognized in the income statement as finance expenses.
23. Non-current deferred income
EUR '000 2010 2009 Co-location billed in advance 6,432 6,704 Government grants 797 898 Property, plant and equipment obtained free-of charge 403 0 Other 945 677
Total 8,577 8,279
Co-location relates to payments received in advance for renting certain premises and equipment to other operators.
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24. Provisions
EUR '000
Utilisation 31.12.2009 and reversal Formation 31.12.2010 Provisions for probable payments resulting from legal actions 9,725 0 6,293 16,018 Provisions for termination bonuses on retirement 5,773 -210 0 5,563 Other provisions 215 -30 123 308
Total 15,713 -240 6,416 21,889
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 relate to claims for 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 other claims.
The Competition Protection Office of the Republic of Slovenia began, ex officio, a process of determining an alleged abuse of Telekom Slovenije's dominant position on inter-operators market of broadband access. The Competition Protection Office may impose a fine up to 10% of the annual turnover of the Company. Therefore, the Company made provisions in the amount of 0.5% of the operating revenue generated in 2009.
Total claims brought against the Company amount to EUR 201,337 thousand, of which the major item represents a claim of EUR 129,557 thousand from T-2, d.o.o., EUR 34,702 thousand claimed by Sinfonika, d.d. and EUR 28,176 thousand claimed by TU ŠMOBIL d.o.o.. The Company is of the opinion that the claims have no legal basis.
Provisions for termination benefits and anniversary bonuses Provisions for termination benefits on retirement are based on actuarial calculations. Liabilities reported by the Company are equal to the present value of estimated future payments. The Company has no other pension liabilities.
25. 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 34 – Financial risk management.
EUR '000
2010 2009 Non-current borrowings
Borrowings from foreign banks 182,487 215,242 - current portion of non-current borrowings -52,149 -32,755 - non-current portion of borrowings 130,338 182,487 Borrowings from local banks 21,250 26,000 - current portion of non-current borrowings -21,250 -4,750
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- non-current portion of borrowings 0 21,250
Total non-current borrowings 130,338 203,737 Current borrowings Borrowings from domestic banks 0 16,000 Borrowings from group companies 42,500 11,000 Current portion of non-current borrowings 73,399 37,505 Interest 102 133
Total current borrowings 116,001 64,638
Contractual terms of borrowings
EUR '000
Non- current Current Final portion portion Maturity Contractual rate of instalment 31.12.2010 31.12.2010 over 5 years interest due Collateral 3 m EURIBOR + 0.330% 2011 None 3 m EURIBOR + 1.900% 2014 Bills of exchange 3 m EURIBOR + 2.100% 2014 None Non-current financial 3 m EURIBOR + 2.900% 2014 Bills of exchange 130,338 73,399 35,546 liabilities to banks 6 m EURIBOR – 0.025% 2017 Bank guarantee 3 m EURIBOR + 0.083% 2017 None 3 m EURIBOR – 0.018% 2017 Bank guarantee 3 m EURIBOR + 0.105% 2017 None Current financial 37,500 1.416% 11.3.2011 None liabilities to - 2,000 - 1.728% 30.12.2010 None group companies 3,000 1.618% 26.8.2011 None
All borrowings from foreign banks 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 the financial derivatives obtained to this purpose.
The banks that have approved long term loans require that certain debt covenants specified in the loan contracts be maintained, including: Consolidated Total Debt, Consolidated Net Tangible Worth, EBITDA, Consolidated Total Debt/EBITDA. The non-achievement of these covenants may result in the requirement to repay early these borrowings. As at 31 December 2010, the Company failed to meet some of its debt covenants due to the impairment of investments. Consequently, and in accordance with IAS 1.74, as at 31 December 2010, all non-current borrowings whose debt covenants were not met, were reclassified to current financial liabilities. Financial liabilities of total EUR 31,926,470.56 were reclassified.
Subsequent to the balance sheet date, the Company received written declarations from the lenders stating that they agreed with certain covenants not being complied with and that they would not demand early repayment of these borrowings.
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26. Other non-current financial liabilities
EUR '000
2010 2009 Bonds issued 297,182 296,932 Finance lease 3,174 4,610 Compensation for acquisition of additional interest in a subsidiary 7,645 0
Total other non-current financial liabilities 308,001 301,542
In December 2009, Telekom Slovenije, d.d. issued global bonds in the notional amount of EUR 300,000 thousand. Bonds bear interest at the rate of 4.875% and mature in December 2016. They are measured under the amortized cost method using effective interest rate of 5.047%.
Compensation for acquisition of additional interest in a subsidiary relates to the exercise of a put option of non-controlling interests .
27. Trade and other liabilities
EUR '000
2010 2009 Trade payables 38,597 56,524 Payables to domestic operators 12,962 6,652 Payables to foreign operators 7,399 6,880 VAT and other taxes payable 3,101 2,373 Payables to employees 7,015 5,498 Other payables 1,409 1,903
Total 70,483 79,830
Trade payables are non interest bearing and are normally settled on 5 to 100 day term. Payables to operators are non-interest bearing and are normally settled on 15 to 50 day terms.
28. Other current financial liabilities
EUR '000 2010 2009 Bonds issued -131 -78 Compensation for additional share in a subsidiary 13,502 32,181 Interest rate swap 1,129 4,179 Finance lease 1,436 1,388 Compensation for acquisition of a 50% interest in Planet 9 d.o.o. 7 0
Total other current financial liabilities 15,943 37,670
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29. Short-term deferred income
EUR '000
2010 2009 Subscriptions billed in advance and short term co-locations 6,484 6,425 Current portion of government grants for property, plant and equipment 119 130 Other deferred income 684 476
Total 7,287 7,031
30. Liabilities and receivables from operating leases
The Company as the lessee
Liabilities from operating lease relate to property, plant and equipment (primarily leased lines).
EUR '000 Payable in 2010 2009 - 1 year 5,052 3,671 - 1 to 2 years 9,504 5,760 - 3 to 5 years 9,349 5,131 - more than 5 years 26,157 15,312 Total 50,062 29,874
In the financial year 2010, the Company had EUR 5,052 thousand (2009: EUR 3,671 thousand) of lease costs from operating lease contracts.
The Company as the lessor Receivables from operating leases relate to lease of property, plant and equipment, primarily VPN services, lease of fibre optics, bandwidth, unbundled access, broadband and call access on inter- operator market, and similar.
EUR '000 Receivable in 2010 2009 - 1 year 3,970 4,364 - 1 to 2 years 7,942 8,728 - 3 to 5 years 7,942 8,728 - more than 5 years 19,854 21,820 Total 39,708 43,640
In 2010, income from operating leases recognized in the income statement amounted to EUR 3,970 thousand (2009: EUR 4,364 thousand).
31. Contingencies EUR '000
2010 2009 Contingent liabilities from legal actions 201,337 201,092
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At the balance sheet date, there were 45 pending legal actions brought against the Company in the total amount of EUR 201,337 thousand (2009: EUR 201,092 thousand). Based on the opinion of its legal advisors the Board expects the liability from said legal actions to amount to EUR 16,018 thousand (refer to Note 24).
32. Related party transactions
Related parties of the Company include the Republic of Slovenia as the majority shareholder of Telekom Slovenije, d.d., other shareholders, the Management Board, the Supervisory Board and their family members.
Transactions with related individuals Natural persons (President and members of the Management Board, President and members of the Supervisory Board) hold a total of 564 shares of the Company or a 0.01% shareholding.
In the period under review, no loans were granted to related individuals.
Cost of wages and salaries EUR '000
2010 2009 Management Board 1,283 1,157 Supervisory Board 69 90
Total 1,352 1,247
Disclosures relating to Management Board, Supervisory Board and other managers on individual contracts EUR '000 Loans
Receipts from participation in profits based on the decision of the Outstanding at Repaid in Trade Total receipts General Assembly 31.12.2010 2010 receivables Members of the Management Board total 1,283 - - - - - Dremelj Bojan 150 - - - - - Miti č Du šan 185 - - - - - Ogris-Marti č Filip 174 - - - - - Pulji ć Željko 167 - - - - - Senica Darja 163 - - - - - Kranj čevi ć Ivica 135 - - - - - Bo štjan čič Marko 107 - - - - - Vehovar Zoran 110 - - - - - Peterlin Jo žko 92 - - - - Members of the Supervisory Board 69 - - - -
Other managers on individual contracts 3,755 - 164 32 6
Loans to other managers on individual contracts have been granted at interest rates ranging from 4.13% to 5.45% with repayment terms 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.
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Break-down of receipts of members of the Management Board
EUR '000
Other Annual Reimbursement Holiday Insurance payments- Salary bonus of costs pay premiums Benefits PDPZ II Total Dremelj Bojan 111,528 26,963 330 1,099 1,515 6,248 1,985 149,668 Miti č Du šan 134,814 40,444 1,052 1,099 399 4,605 2,205 184,618 Ogris-Marti č Filip 134,814 26,963 1,991 1,099 2,034 4,605 2,205 173,711 Pulji ć Željko 53,926 107,851 951 1,099 1,001 1,582 882 167,292 Senica Darja 152,743 0 1,554 1,099 2,314 2,475 2,646 162,831 Kranj čevi ć Ivica 119,918 0 1,872 0 1,123 10,573 1,544 135,030 Bo štjan čič Marko 98,817 0 1,096 0 516 5,501 1,544 107,474 Vehovar Zoran 98,817 0 1,686 0 585 6,864 1,544 109,496 Peterlin Jo žko 85,336 0 1,680 0 498 3,639 1,323 92,476
Total 990,713 202,221 12,212 5,495 9,985 46,092 15,878 1,282,596
Salaries of members of the Management Board are not divided into fixed and variable part and the members did not receive any shares in the profit, options or commission.
Break-down of receipts of members of the Supervisory Board
EUR '000
Travel Meeting fees Committees expenses Total External members from 1 Jan to 31 Dec 2010 Berginc Toma ž 5,005 2,503 159 7,667 Kalin Toma ž 3,025 3,575 79 6,679 Kafol Ciril 3,025 2,145 54 5,224 Kremljak Zvonko 3,850 5,500 165 9,515 Ho čevar Marko 3,300 4,290 153 7,743 Berce Jaroslav 3,025 6,023 77 9,125 Internal members from 1 Jan to 31 Dec 2010 Richter Milan 3,850 4,400 59 8,309 Gori šek Martin 3,575 1,650 269 5,494 Sparavec Branko 3,575 3,300 2,703 9,578
Total 32,230 33,386 3,718 69,334
Members of the Supervisory Board did not receive any other payments.
Transactions with the Group
EUR '000 2010 2009 Receivables from Group companies 268,205 320,385 Mobitel, d.d. 2,925 16,322 GVO, d.o.o. 1,596 1,696 Najdi Group 201 1,467
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Avtenta.si d.o.o. 6,087 6,205 Soline d.o.o. 1 0 Planet 9 d.o.o. 1,381 1,334 Ipko Group 146,757 151,410 On.net d.o.o. Skopje 33,305 30,669 Aneks d.o.o. Banja Luka 12,836 10,514 Primo Communications d.o.o. 411 281 Siol d.o.o. 0 6 SIOL B.V. in liquidation 61 20 One d.o.o. Skopje 56,154 95,219 One to one AD Skopje 5,690 5,242 Digi Plus Multimedia dooel Skopje 800 0 Gibtelecom Limited 0 Liabilities to Group companies 70,057 40,249 Mobitel, d.d. 42,916 12,636 GVO, d.o.o. 12,334 14,207 Najdi Group 1,799 1,510 Avtenta.si d.o.o. 4,741 5,781 Soline d.o.o. 64 59 Planet 9 d.o.o. 4,185 4,612 Ipko Group 3 0 On.net d.o.o. Skopje 477 498 Aneks d.o.o. Banja Luka 596 775 Primo Communications d.o.o. 369 153 Siol d.o.o. 18 18 SIOL B.V. in liquidation 0 0 One d.o.o. Skopje 2,555 0 One to one AD Skopje 0 0 Digi Plus Multimedia dooel Skopje 0 Gibtelecom Limited 0 0
EUR '000 2010 2009 Revenues from sales to Group companies 42,685 44,691 Mobitel, d.d. 27,890 31,640 GVO, d.o.o. 4,748 5,934 Najdi Group 724 389 Avtenta.sI d.o.o. 542 418 Soline d.o.o. 4 4 Planet 9 d.o.o. 1,756 2,373 Ipko Group 3,362 1,726 On.net d.o.o. Skopje 869 860 Aneks d.o.o. Banja Luka 841 512 Primo Communications d.o.o. 598 375 Siol d.o.o. 7 24
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SIOL B.V. in liquidation 0 0 One d.o.o. Skopje 1,294 376 One to one AD Skopje 50 60 Digi Plus Multimedia dooel Skopje 0 0 Gibtelecom Limited 0 0
Acquisitions of goods and services from Group companies 95,624 96,710 Mobitel, d.d. 32,305 31,732 GVO, d.o.o. 11,929 9,340 Najdi Group 6,788 6,756 Avtenta.sI d.o.o. 3,091 8,471 Soline d.o.o. 89 53 Planet 9 d.o.o. 26,235 22,855 Ipko Group 40 0 On.net d.o.o. Skopje 3,259 6,271 Aneks d.o.o. Banja Luka 8,213 9,489 Primo Communications d.o.o. 2,003 1,525 Siol d.o.o. 216 216 SIOL B.V. in liquidation 0 0 One d.o.o. Skopje 1,456 2 One to one AD Skopje 0 0 Digi Plus Multimedia dooel Skopje 0 Gibtelecom Limited 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, property, plant and equipment, to GVO d.o.o., as well as revenue from the provision of support services. The Company pays for the construction and maintenance of telecommunication capacities. Telekom Slovenije d.d. generates income from Avtenta.si, d.o.o. for the provision of telecommunications services on location and support services. The Company pays for computer support services. The Najdi Group pays for support services provided by the parent and charges the costs of services relating to the telephone directory.
Telekom 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 the Ipko Group are mainly from long term and short term loans and interest. Telekom pays for international IP services. Receivables from On.net d.o.o. are mainly from short term loans. Telekom 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.
Telekom Slovenije, d.d. receivables due from SIOL, B.V. consolidated with One AD relate to a long- term loan as do receivables due from One to one AD .
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Intragroup transactions stated are contracted on an arm's length basis. In 2010, Telekom Slovenije, d.d. granted guarantees for the following subsidiaries: Aneks, d. o. o. (EUR 2,050 thousand), One d. o. o. Skopje (EUR 3,200 thousand), Primo Communications d. o. o. (EUR 122 thousand) and Avtenta.si d. o. o. (EUR 756 thousand).
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 EUR 16,818 thousand (2009: EUR 23,162 thousand). 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.
33. Cost of auditor EUR '000 2010 2009 Auditing of annual report 76 136 Other assurance related services 24 100 Tax consultation 2 0 Other non audit services 7 41 Total 109 277
34. 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 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 property and plant and equipment. The majority of deliveries and borrowings from foreign entities are denominated in euro, which is also the functional currency of the Company. Therefore, the exposure to foreign currency risk is minimal.
Since the currency risk is assessed as minimal, the Company does not use any special instruments to hedge its exposure to such risks.
Interest rate risk Interest rate risk is the risk of the negative impact of changes in market interest rates on the results of the Company's operations. The interest structure of the balance sheet assets and liabilities is not
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The adopted financial risk management policy 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 2010, 27.8% 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 31.12.2010
EUR EUR '000 Interest rate swap 24.06.2009 15.06.2014 56,642,857 -1,129 Total 56,642,857 -1,129
On re-measurement of fair value of derivatives not designated as hedges at the year-end, the Company recognized a loss of EUR 357 thousand as finance expenses.
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 rates have no impact on the equity of the Company.
Increase/decrease in basis points Effect on profit before tax in EUR ‘000 2010 EURO +10 bt -204 EURO -10 bt 204 2009 EURO +10 bt -241 EURO -10 bt +241
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.
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
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As a large portion of payments made by the customers is reasonably predictable and stable, the 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 2010 and 31 December 2009 based on the contractual undiscounted payments
EUR '000 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 0 116,001 94,792 35,546 246,339
Interest 0 0 0 4,308 8,620 75 13,003 Other financial liabilities 0 0 13,863 951 10,819 300,000 325,633
Interest on bonds 0 0 0 14,625 58,500 14,625 87,750
Trade and other payables 1,873 5,588 61,037 1,985 525 0 71,008
Derivatives 0 0 72 342 715 0 1,129 2008 Borrowings and credits 0 0 32,901 31,737 144,492 59,245 268,375
Interest 0 0 980 2,636 6,474 259 10,349 Other financial liabilities 0 0 342 33,149 4,610 296,932 335,058
Interest on bonds 0 0 0 18,281 91,406 18,281 127,969
Trade and other payables 9,321 7,264 63,185 2,478 35 0 82,283
Derivatives 0 0 2,434 1,745 0 0 4,179
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 cash and cash equivalents, and short-term deposits.
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EUR '000
31.12.2010 31.12.2009 adjusted
Interest bearing borrowings 570,283 607,587
Less cash and short-term deposits -99,585 -85,705 Net debt 470,698 521,882 Capital 621,537 843,915 Capital and net debt 1,092,235 1,365,797
Gearing ratio 43% 38%
Fair value The Company estimates that fair values of financial assets and liabilities are not significantly different to their carrying values.
Fair value hierarchy The following hierarchy was used for determining and disclosing the fair value of financial instruments using valuation technique:
Level 1: quoted prices in active markets for identical assets or liabilities,
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly,
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data and investments measured at cost.
EUR Assets at fair value 31.12.2010 Level 1 Level 2 Level 3
Available-for-sale financial assets Equity securities 2,258 1,034 0 1,223
Derivatives Interest rate derivatives -1,129 0 -1,129 0
Assets at fair value 31.12.2009 Level 1 Level 2 Level 3
Available-for-sale 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.
35. General authorization and the rights of use for radio frequency and block 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
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Telekom Slovenije 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 EUR 496 thousand (2009: EUR 492 thousand). The amount of the fee to be paid is defined with a tariff under a general act of the Agency.
Telekom Slovenije also has to pay fees for the rights of use for radio frequencies and for block numbers. The fee for the rights of use for radio frequencies for the period under review amounts to EUR 231 thousand (2009: EUR 246 thousand), and the fee for the rights of use for block numbers amounts to EUR 246 thousand (2009: EUR 266 thousand). The amount of the fees to be paid is defined with a tariff under a general act of the Agency.
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4.3.3 Independent Auditor's report
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5 ABBREVIATIONS OF TECHNICAL TERMS
ADSL Asymetric Digital Subscriber Line APEK Post and Electronic Communications Agency ARPU Average Revenue Per User ATM Asynchronous Transfer Mode ATO Intelligent voice response B2B Business to Business AUKN B2C Business to Customer BB BroadBand BSS Business Support System CAD Computer Aided Design Capex Capital Expenditure CATV Cable Television CMN Central Management CMS Converged Media Services CO Central Office CoS Class of Service COTS Commercial Of The Shelf CPE Customer Premises Equipment CTX Centrex CWDM Coarse wavelength division multiplexing DCN Data Communication Network DECT Digital enhanced cordless telecommunications DHCP Dynamic Host Configuration Protocol DPI Deep Packet Inspection DSL Digital Subscriber Line DSLAM DSL Access Multiplexer DWDM Dense Wavelength Division Multiplex EDGE Enchanced Data for GSM Evolution EEKS Power Supply and Cooling Systems EM Element Manager EMC Electromagnetic Compatibility EMS Electro Magnetic Radiation EMX Enchanced Subscriber Multiplexer EN European Norm ETNO European Telecommunication Networks Operators Association FE Fast Ethernet FM Fault management (system) FMC Fixed Mobile Convergence FRR Fast ReRoute FTTB Fiber To The Business 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 GRI Global Reporting Initiative GSM Global System for Mobile communication GURS Surveying and Mapping Authority HD High Definition HDTV High Definition Television HSI High Speed Internet
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HSDPA High-Speed Downlink Packet Access HSUPA High-Speed Uplink Packet Access HW Hardware IaaS Infrastrucure as a Service IEC International Electrotechnical Commission IKT Information and communication technologies IMS IP Multimedia Subsystem IP Internet Protokol IPTV IP television ISO International Standard Organization ISDN Integrated Services Digital Netwotk ISP Internet Service Provider ITU International Telecommunication Union IVR Intelligent voice response
KKO Local cable Network KPI Key Permormance Indicators LAN Local Area Network LAS Local Agregation Switch LTE Long Term Evolution MC Multi Cast MMD Multi Media Domain MMOG Massively Multiplayer On-line Game MNP Mobile Number Portability MPLS Multiprotocol Label Switching MTBF Mean Time Between Failures MVNO Mobile Virtual Network Operator NeoWLAN Wireless Local Area nNtwork NGN Next Generation Networks NGOSS Next Generation Operational Support systems NPVR Network Based Personal Video Recorder OCS Office Communication Server OLT Optical Line Terminal Opex Operational Expenditure OSS Operational Support System PaaS Platform as a Service P2P Point to Point PDH Plesiochronous Digital Hierachy PM Performance Management System PON Passive Optical Network POP Point Of Presence POTS Plain Old Telephone Service PPPoE Point to Point Protocol over Ethernet PRD Local Loop Unbundling, Full PSTN Public Switched Telephone Network PTK Positive Temperature Coefficient Resistor QoE Quality of Experience QoS Quality Of Service RAS Regional Aggregation Switch RNO Distribution Access Network RR Radio Relay SaaS Software as a Service SBC Session Border Controller SDH Synchronous Digital Hierarchy SDP Service Delivery Platform SDTV Standard Definition Television SGSN Serving GPRS Support Node SHDSL Singlepair High bit rate DSL SIP Session Initiation Protocol
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SIST Slovenian Standard 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 STM Synhronous Transfer Mode SRO Environmental Management System SW Software TCO Total Cost of Ownership TDM Time Division Multiplex TeMIP Network Supervision Product 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 IP 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 Digital Subscriber Line (all technical solutions)
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General data on the parent company Telekom Slovenije, d. d.
Company: Telekom Slovenije, d. d. Registered office: Ljubljana Address: Cigaletova 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 1 234 10 00 Fax: +386 1 231 47 36 Website: http://www.telekom.si Email: [email protected]
Major activities
Activity code 61.100 Wired telecommunication activities 61.200 Wireless telecommunication activities 61.900 Other telecommunication activities 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: http://www.mobitel.si Email: [email protected]
Company: Planet 9, d. o. o. Registered office: Ljubljana Address: Vojkova 78, 1000 Ljubljana Website: http://www.planet.si
Company: Soline, Pridelava soli, d. o. o. Registered office: Portorož Address: Se ča 115, 6230 Portorož Website: http://www.soline.si Email: [email protected]
Company: M-Pay, d. o. o. Registered office: Maribor Address: Ul. Vita Kraigherja 3, 2000 Maribor Website: http://www.m-pay.com
Company: Avtenta.si, sistemska integracija in poslovne rešitve, d. o. o. Registered office: Ljubljana
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Address: Verovškova 55, 1000 Ljubljana Tel.: +386 1 583 68 00 Fax: +386 1 583 68 01 Website: http:// www.avtenta.si Email: [email protected] Company: Najdi, informacijske storitve, d. o. o. Registered office: Ljubljana Address: Cigaletova 15
Company: Meganet, d. o. o. Registered office: 1411 Izlake Address: Narof 10
Tel.: +386 1 500 85 00 Fax: +386 1 234 11 90 Website: http:// www. najdi.si Email: info@ najdi.si
Company: GVO, gradnja in vzdrževanje telekomunikacijskih omrežij, d. o. o. Registered office: Ljubljana Address: Cigaletova 10, 1000 Ljubljana Tel.: +386 1 234 1000 00 Fax: +386 1 234 1803 01 Website: http:// www.gvo.si Email: [email protected]
Company: Pogodak Tražilica, d. o. o. in liquidation Registered office: Zagreb, Croatia Address: Marti ćeva 13
Company: Pogodak, d. o. o., Belgrade in liquidation Registered office: Belgrade, Serbia Address: Maršala Birjuzova 3-5
Company: ¸ Ipko Telecommunications, d. o. o. Registered office: Priština, Kosovo Address: Lagija Ulpiana, Rruga “Zija Shemsiu”, Nr. 34 Website: http://www.ipko.net Email: [email protected]
Company: Ipko Net Albania, d. o. o. Registered office: Tirana, Albania Address: Donika Kastrioti, Nr. 4, Tirana
Company: N.B. Media Works, d. o. o. Registered office: Priština, Kosovo Address: Dardania SU1/1
Company: DSN, d. o. o. Registered office: Sojevo, Kosovo Address: US Bondsteel Camp
Company: One, d. o. o., Skopje Registered office: Skopje, Macedonia Address: Bulevar Kuzman Josifovski Pitu 15 Website: http:// www. one.mk Email: [email protected]
Company: SIOL, B.V. in liquidation
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Registered office: Amsterdam, the Netherlands Address: Locatellikade 1 Parnassustrn
Company: On.net, d. o. o., Skopje Registered office: Skopje, Macedonia Address: Bul. Partizanski odredi, no. 70, DTC Aluminka, 5th floor Website: http:// www.on.net.mk Email: [email protected]
Company: One to One, AD, Skopje Registered office: Skopje, Macedonia Address: Bul. Vidoe Smilevski Bato 4, 1st floor
Company: Digi Plus Multimedia Ltd., Skopje Registered office: Skopje, Macedonia Address: Bul. Partizanski odredi, no. 70, DTC Aluminka, 5th floor
Company: Aneks, d. o. o., Banja Luka Registered office: Banja Luka, Bosnia and Herzegovina Address: Majke Jugovi ća 25 Website: http://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: Autostrada Tiranë-Durrës, km 1, Komuna Kashar Website: http://www.primo.al Email: [email protected]
Company: Gibtelecom Limited Registered office: Gibraltar, Gibraltar Address: 15/21 John Mackintosh Square Website: http:// www.gibtele.com/ Email: [email protected]
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