AS EESTI TELEKOM

ANNOUNCEMENT

19.08.99

 

AS EESTI TELEKOM H1 1999 RESULTS 

 

Estonian Telecom, the leading provider of a range of 

telecommunication services in Estonia, today announces its maiden 

half-year results, for the six months ended June 30 1999.

 

Highlights

 

- Net sales up 17% to 1,687 mln kroons

 

- EBITDA up 20% to 870 mln kroons

 

- EBITDA margin 52%

 

- Net margin 21%

 

- Earnings per share 2.52 kroons

 

 

Commenting on the results the Chairman, Toomas Somera, said :

 

“The development of telecommunications services in Estonia continues 

to be rapid and Estonian Telecom has had a successful first half in 

1999 reflected in both revenue growth and efficiency improvement.”

 

 

For further information please contact:

 

Raul Kalev

Investor Relations / Estonian Telecom                   + 372 646 0220

 

Hille Vork      

Financial Manager / Estonian Telecom                    +372 627 2460

 

Tim Thompson / Nicola Cronk

Buchanan Communications                                 0171 466 5000

 

 

 

CHAIRMAN’S STATEMENT

 

The first half of 1999 was successful for Estonian Telecom Group.  

The development of telecommunications services in Estonia continues 

to be rapid and the total revenue in the first half year increased by 

17% to 1,699 mln kroons (1998: 1,457). Both subsidiaries of the 

company contributing to the growth. Total revenue of Estonian 

Telephone Company amounted to 1,177 mln kroons (growth of 14%) and 

total revenue of Estonian Mobile Telephone Company reached 740 mln 

kroons (growth of 18%).

 

Operating Expenses

 

Total operating expenses of Estonian Telecom Group in the first half 

of 1999 amounted to 820 mln kroons. Growth of operating expenses has 

been slower the revenue growth (13% compared with the same period in 

1998) resulting in ratio of operating expenses into total revenue 

falling from the 50% level at the end of the first half of 1998 to 

48% at the end of the same period of this current year.

 

Operating expenses, of the parent company, Estonian Telecom Ltd, grew 

54% this period in comparison with the same period last year.  The 

majority of this increase relates to a one-off  expense, the IPO and 

the listing of the company on Tallinn and London Stock Exchanges. 

 

Despite unfavourable market conditions in Estonia, both the 

subsidiaries performed well:

 

? Estonian Telephone Company has succeeded to improve its 

efficiency.  It has continued to grow and also to provide good 

results, total revenue increasing 14%.  Operating expenses were 

11%.  The Company continues to reduce it’s head count, at the end 

of June 1999, the number of employees being 3013.

 

? The total revenue of Estonian Mobile Telephone Company increased 

by 18%. Operating expenses during the period amounted to 357 mln 

kroons. 

 

Depreciation and Amortisation

 

In the period under review, depreciation and amortisation increased 

by 136 mln kroons or 46% compared with the same period of 1998 and 

amounted to 431 mln kroons.

 

Depreciation of Estonian Telephone Company amounted to 323 mln kroons 

(growth by 48,0%). The company started revaluation of its fixed 

property at the end of 1998.  During first half of the current year 

revaluation amounted to 32 mln kroons. The process should be 

completed by the end of 1999.

 

Depreciation of Estonian Mobile Telephone Company for the period was 

108 mln kroons, 40% increase on the previous period,  year on year. 

This is an effect of the extensive capital expenditure made in 1998.

 

 

 

Income Tax

 

The amount of income tax in the first half of the year was 69,9 mln 

kroons (effective tax rate 17%), consisting on the current income tax 

in the amount of 62,5 mln kroons, and deferred income tax in the 

amount of 7,4 mln kroons. All companies of the group benefited from 

the incentives in the Income Tax Law, allowing capex incurred outside 

Tallinn and adjacent counties to be tax-deductible.  1998 was the 

last year both subsidiaries were subject of the corporate income tax 

relief. Starting from 1999, 26% income tax will be payable on taxable 

income of the companies.

 

Profit

 

Net profit of Estonian Telecom Group amounted to 265 mln kroons (net 

of minority interest). Restructuring of the Group which took place in 

the 1st half of 1999 makes it impossible to compare net profits of 

the period with the result of the corresponding period of 1998. 

 

Earnings per share of Estonian Telecom Group in the first half of 

1999 was 2,52 kroons.

 

 

                        Estonian        Estonian Telephone      Estonian Mobile 

                        Telecom         Company                 Telephone Company

 

Profit after tax, mEEK  347             144                     215

margin, %               20,6            12,3                    29,1

growth, yoy, %          0,1             -15,3                   19,3

EBIT, mEEK              438             176                     282

margin, %               26,0            15,0                    38,1

growth, yoy, %          1,6             -13,7                   20,4

EBITDA, mEEK            870             499                     391

margin, %               51,6            42,6                    52,8

growth, yoy, %          19,6            18,2                    25,2

 

 

Investment & Growth

 

Investments of Estonian Telecom Group amounted to 401 mln kroons.

 

Total investments of Estonian Telephone Company in the first half of 

1999 amounted to 297 mln kroons. 72 mln kroons of which, was invested 

outside Tallinn and Harju County. Income tax allowances applied in 

respect of those investments. The largest of the current investment 

projects is RAS-1000, a development of a radio-link telephone 

connection for the areas where installation of fixed telephone lines 

is unfeasible. Exchanges in Tartu and Tallinn were the other main 

investment projects.

 

As at June 30, 1999 there are 34,6 main lines per 100 inhabitants in 

Estonia and digitalisation rate was 52%.  

 

Estonian Mobile Telephone Company invested 103 mln kroons into the 

network.   The number of radio channels in the GSM network increased 

by roughly 13%.   At the same time, the number of base stations in 

the GSM network grew by 10%. By the end of June 1999, the coverage of 

the GSM network by territory had increased from 95% (end 1998) to 

97%.  During the second half of 1999, the company will continue to 

improve on the quality of network coverage and to develop additional 

services. 

 

 

Changes to the Structure of the Group

 

In February, the initial public offering of the Company was 

completed, during which the Estonian State sold 49% of the company’s 

shares to local and international investors. Estonian Telecom became 

listed on both the Tallinn and London Stock Exchanges.

 

The Restructuring Agreement, concluded in December 1998 between the 

Estonian Government; Telia AB and Sonera Holding B.V, stated the 

share capital of Estonian Telecom was to be raised to EEK 

1373,832,780.  The Payment Settlement Agreement was signed on March 

24, 1999 and 63,883,178 new shares were issued.  The  shares were 

exchanged for all the shares of Estonian Mobile Telephone Company and 

Estonian Telephone Company owned by Telia, Sonera and Baltic Tele AB.

 

After the restructuring, ownership structure of Estonian Telecom is 

following:

Republic of Estonia             37 485 000 A-shares     =       27,28%

                                          1 B-share

Public Investors                32 580 422 A-shares     =       23,72%

Telia AB                        16 142 523 A-shares     =       11,75%

Sonera Holding B.V.             16 142 523 A-shares     =       11,75%

Baltic Tele AB                  35 032 710 A-shares     =       25,50%

 

 

This agreement made Estonian Telecom  100%-owner of Estonian Mobile 

Telephone Company and Estonian Telephone Company.

 

 

Annual General Meeting

 

The Annual General Meeting of the shareholders of Estonian Telecom 

took place in May and  the company’s new Supervisory Board was 

elected.  On the new Board, both strategic investors are represented, 

along with the Estonian State and public investors.  In addition, 

there are two independent members, including Mr. Aare Tark who was 

elected to be Chairman of the Supervisory Board.

 

The changes to the structure of the group have led to the addition of 

new functions at the parent company level. In connection with this, 

the Supervisory Board appointed a third member to the Management 

Board.  Mr Mart Nurk, former Vice President of Telia AB, was 

designated development director of Estonian Telecom.

 

The General Meeting passed a decision concerning the distribution of 

dividends for the financial year of 1998.  It resolved to pay out 20% 

of net profits or 0.8537 kroons per share as a dividend.  The number 

of shares eligible for dividends was 73,500,001.

 

Strategy

 

During the second half of 1999, Estonian Telecom will be reviewing 

strategy and the operations of the group in order to bring it more in 

line with the new structure and  focus on developing synergies within 

the group in order to continue to adapt to the ever-changing market.

 

 

SUBSIDIARY OVERVIEW

 

Estonian Mobile Telephone Company (“EMT”)

 

The total revenue of Estonian Mobile Telephone Company for the first 

half-year amounted to 746 mln kroons and net profit was 215 mln 

kroons.

 

Despite the continuing economical slowdown in Estonia, demand for 

EMT’s services has remained encouragingly high.  During the first six 

months of 1999, the company won a record number of new customers, 

52,700.  By the end of the first half, the total number of 

subscribers had increased to 204,200.  This increase was largely due 

to the success of the prepaid telephone card SIMPEL, messaging 

services and tariff incentives introduced as a response to 

competitors campaigns.

 

Estonian Mobile Company launched SIMPEL last December.  This has 

proved to be very successful in the first six months, with 

approximately two out of every three new EMT subscribers choosing to 

use the product.  Feedback from clients continues to be important in 

order to maintain SIMPEL’s popularity with customers. 

 

Several SMS-based products have been launched over the last six 

months and are also proving successful in the market place.  These 

services include listing ‘missed calls’ in telephone number format 

and “Info Message 700” which allows a user to request a wide range of 

information through his phone, including horoscopes; weather 

forecast; cinema or theatre programmes and currency exchange rates.  

Later this year this service will be broadened to include other 

information such as stock market prices and, in alliance with Optiva 

Bank, the ability to read the balance of accounts.  The company hopes 

to make alliances with other major Estonian banks.

 

In the increasingly competitive environment, the group recognises the 

need for retaining existing clients and is therefore particularly 

keen to increase customer loyalty.  In the last six months we have 

launched a programme of incentives based on rewarding the length of 

time the client has been with EMT.  The initial response from clients 

has been positive.

 

EMT has increasingly been working with Estonian Telephone Company in 

order to attract larger clients.  This combined force allows for 

tailored solutions being marketed to individual clients.

 

Estonian Telephone Company (“ETC”)

 

The total revenue of Estonian Telephone Company for the first half-

year amounted to 1 177 min kroons and net profit was 143 min kroons.

 

Core activities were the main source of income for the company, with 

call revenue forming 60%; monthly fees 16% and network services 

(leased lines, international accounting rates) 13% of total revenue. 

Both payphones and data services formed 2% of the revenue. 

 

Estonian Telephone Company intends to re-balance its tariffs 

gradually to fully reflect the actual costs of the services and 

thereby end cross-subsidising between services and customer groups. 

From February 1 1999 monthly fees for private clients were raised by 

32%. A 10% reduction of the same fees took place for business clients 

from the same date.

 

New call price structures were introduced on May 1 1999.  The charges 

per minute for local calls were reduced by 50% and trunk call rates 

reduced by 22%.  From the same date, a 0,48-kroon call set-up charge 

became effective.

 

Estonian Telephone Company has made a strong entrance on the Estonian 

data communication market, having become one of the largest data 

communication service providers in Estonia.  A large part of this 

growth has come from the successful launch of ATLAS, a new data 

communication product range containing many different services 

extending from simple dial-up to ultra fast connections.  The various 

product groups allow us to satisfy the needs of all our clients, from 

amateur beginners to companies with large data communication needs.  

Within six months, the number of the clients of ATLAS has doubled.  

The number of ISDN connections has grown by 39% within the same 

period.

 

In the second half of 1999 data communication will remain a priority 

of Estonian Telephone Company.  The company is making preparations to 

offer ADSL-connection by the year 2000, which will provide much 

faster communication speeds, possibly up to 18 times faster.

 

The company will continue to research the segmentation of it’s 

clients in order to identify more fully the needs of particular 

groups and offer client-focused solutions.  On the basis of the 

research, special service packages, bonus systems etc. will be 

developed.

 

One of the priorities of the company continues to be improving 

customer care, to this end, intensive training programs for sales 

personnel have already started.

 

 

NOTES

 

1. Consolidated Interim financial statements for the first half of 

1999 are in accordance with the International Accounting Standards 

(IAS).  

 

2. Calculations concerning revenue and expenses of International 

transactions have been changed in the consolidated accounts.  

Until 1999, net results of quarterly international settlements 

were shown.  Starting from 1999, gross method based on the amounts 

of minutes of outgoing from Estonia and incoming into Estonia 

international calls is in use.  Respective changes have been made 

into the statements of 1998 to make them comparable: net sales and 

operating expenses on materials, consumables, supplies and 

services were increased by 171,217 th. Estonian Kroons.

 

 

 

Additional information:

Raul Kalev, information manager         +372 646 0220, +372 50 77 797

Hille Võrk, CFO                         +372 627 2460