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EESTI TELEKOM
COMMENTARY TO FINANCIAL RESULTS
COMMENTS ON FIRST QUARTER RESULTS OF 2001
26 April 2001
FIRST QUARTER RESULTS OF 2001
‘The first year in full competition’
Eesti Telekom, the leading provider of telecommunication
services in Estonia, today announces its results for the
three months ended March 31, 2001.
Financial highlights
Q1 2001 Q1 2000 Change
Total revenue, mEEK 1,050 939 12%
EBITDA, mEEK 537 503 7%
EBITDA margin, % 51 54
EBIT, meek 276 256 8%
EBIT margin, % 26 27
Profit before minority 276 247 12%
interest and
extraordinary items,
mEEK
Net profit for the 275 246 12%
period
EPS, EEK 2,00 1.79 12%
No of A- shares 137,383,178 137,383,178 0
Investments, meek 195 244 -20%
Net gearing, % -9 -5
Commenting on the results the Chairman, Jaan Männik, said:
“The entire telecommunications market in Estonia is now
liberalized. Eesti Telekom Group has succeeded to maintain
high profitability and a strong cash flow position.”
For further information please contact:
Krister Björkqvist + 372 6272 465
CFO
Hille Võrk + 372 6272 460
Financial Manager
CHAIRMAN’S STATEMENT
The entire telecommunications market in Estonia is now
liberalized. Eesti Telekom Group has succeeded to maintain
high profitability and a strong cash flow position.
Revenue and expenditure
Total revenue of Eesti Telekom Group in the first quarter of
2001 amounted to 1,050 mln kroons, up by 12%, compared to
the same period in 2000. Operating expenses were 513 mln
kroons, up by 18%. EBITDA of the Group amounted to 537 mln
kroons with EBITDA margin 51%.
Total revenue of Eesti Telefon Group amounted to 758 mln
kroons, up by 14%, however, two circumstances should be
taken into account when analysing the revenue. Resulting
from the termination of the OÜ Albufent lawsuit against AS
Eesti Telefon (see “Changes in liabilities and
contingencies”), 46 mln kroons of reserves were released
under other revenue in the first quarter of 2001. New
interconnection agreements with mobile operators and changes
in interconnection charges resulted in a significant
increase in both mobile calls related revenue (up by 36%)
and operating expenses.
Growth in local call revenue has continued. The share of
local call revenue in total revenue has risen to 20% (18% in
the first quarter of 2000). Local call revenue was up by
31%, compared to the same period in 2000. Approximately 40%
of the local call minutes are dial-up minutes. By the end of
March, the number of Internet dial-up service users had
grown over 50 000. The company had also registered more than
6800 ADSL users, corresponding to 79% of the permanent
connections market share. Strong competition has influenced
revenue from the other call categories. In March 2001, Eesti
Telefon’s market shares in trunk and international call
minutes through the company’s network were 88% and 70%
correspondingly. Revenue from trunk calls was down by 26%,
compared to the same period in 2000, revenue from
international calls down by 37%. Main line revenue was down
by 7%, on the annual bases.
Total expenses of Eesti Telefon Group amounted to 467 mln
kroons, up by 29%. The growth mainly resulted from the
abovementioned new interconnection agreements. The number of
employees of the company had fallen to 1,993 by the end of
March (2,379 as of December 31, 2000). However, a part of
the decline resulted from the transfer of some employees to
the new subsidiary AS Connecto, whose number of employees
was 349 by the end of March. EBITDA of the group was 291 mln
kroons, down by 4%, with EBITDA margin being 38%.
Total revenue of EMT Group amounted to 506 mln kroons, up by
27%. A part of the growth results from the new
interconnection agreement between EMT and Eesti Telefon,
valid from January 1, 2001, and new interconnection charges.
The fastest growing components of the revenue were SMS and
event based data revenue. As a result of several successful
marketing campaigns and events, the growth of the subscribed
customers has accelerated again. In total, 14 thousand new
customers joined the operator during the first quarter, 13
thousand of them were subscribed customers and only 1
thousand chose the prepaid package. The total number of
customers was 341 thousand, of which 232 thousand (68%) were
post-paid customers. The higher share of contractual clients
and changes in interconnection charges, have resulted in
improved ARPU. In March 2001 ARPU was 466 kroons (398 in
December 2000; 479 in March 2000). From May 1 2001, several
changes in minute tariffs of contractual packages should
become effective which is likely to limit the further growth
of ARPU.
Total expenses of EMT Group amounted to 255 mln kroons, up
by 34%. The growth mainly results from the new
interconnection agreements. Also, personnel expenses have
grown by 93% compared to the same period in 2000. EBITDA of
the group totalled to 252 mln kroons, up by 21% with EBITDA
margin being 50%.
Net profit and earnings per share
Net profit of Eesti Telekom Group in the first quarter of
2001 amounted to 275 mln kroons, up by 12%. Earnings per
share were 2.00 kroons (1.79 kroons in the first quarter of
2000).
There was strong growth in net profit of the EMT Group. Net
profit amounted to 183 mln kroons, up by 34%. Notable
revenue growth accompanied by high EBITDA margin contributed
to the profit. Another factor behind the growth was modest
depreciation in the first quarter of 2001, compared to the
same period of 2000 when fastened amortisation of NMT
network took place. Also, net financing revenue almost
doubled compared to the previous year.
Net profit of Eesti Telefon Group amounted to 94 mln kroons,
down by 15%. The main factors behind the reduction in profit
were strong competition on international and trunk calls
market and changes in interconnection charges. There was
improvement in net financing result. Net financing costs
were 43% lower in the first quarter of 2001 compared to the
same period a year ago, resulting from restructuring Eesti
Telefon’s loans in 2000 and replacing external financing
with more favourable inter-company financing.
Investments
Eesti Telekom Group invested 195 mln kroons in the first
quarter of 2001 (2000: 244 mln kroons).
Eesti Telefon Group invested 129 mln kroons. The development
of ADSL network had the highest share in total investments
of the group. The number of main lines per 100 inhabitants
was 35.9 at the end of March (260 lines per employee).
Digitalisation rate in Estonia raised to 71.2%.
65 mln kroons were invested by EMT Group during the first 3
months of 2001. Majority of the investments went into the
construction and improvement of base stations, and
exchanges. 7 mln kroons were invested into acquisition of
associates or increasing the current ownership in
subsidiaries.
On March 7, 2001, several Estonian companies, including
Eesti Telefon and EMT, and the government introduced the
look@world project aimed at supporting the use of Internet,
improving the quality of life in Estonia and the competitive
power of the state in Europe. An intention of the
participants is to boost Internet penetration in Estonia to
74 per cent, thus taking Estonia past Finland in that
category in three years. Both Eesti Telefon and EMT will
invest 30 mln kroons into the project during the next three
years.
Main areas of contribution for Eesti Telefon in the frame of
the project will be offering Internet access to possibly
numerous people and advantageous permanent connections to
non-profit organisations; development of infrastructure for
the Internet content and environment; support to the
Internet training programs. Contribution areas for EMT are
worded as enabling Internet always and everywhere,
establishment of an Innovation Centre and support and
propaganda to IT-education.
Several new technologies and solutions implemented by the
two companies during the first quarter of 2001 can be
regarded as steps on the way toward fulfilling the set
assignments.
At the beginning of this year Eesti Telefon started to
provide wireless connections that allow using both DSL-
technology based data communication services and digital
telephony communication. The new solution is based on
Airspan system AS4000. Through the new technology, Eesti
Telefon is able to offer leased-line Internet connection in
the areas where Atlas ADSL network is missing. Eesti Telefon
will invest 20 mln kroons in 2001 for the implementation of
the wireless leased-line Internet connection.
Eesti Telefon, in cooperation with Wicom Communications Ltd
started to deliver fully IP-based telephony solutions
implemented as an outsourced service to the customers in
Estonia. The solutions utilize data networks for call
transmission within the corporate intranet. In this new
solution, a traditional telephone is no longer required. It
will be replaced by a software application in a workstation
equipped with a microphone and headphones. Full PBX
functionality will be supplied by a service centre hosted by
Eesti Telefon. The use of VoIP technology for both voice and
data transmission widens the possibilities of fixed
telephony. Unlike the traditional phone, the virtual phone
is not fixed to any physical location and can be used at any
places where there is an access to the local area network.
Call centre agents can log on and work anywhere, even at
home, as long as there is an IP-connection to the company’s
network.
EMT has started technical testing for GPRS-network. GPRS-
mobile connection creates an Internet connection for mobile
phones and WAP can also be used over GPRS with increased
connection speed. It also provides the possibility to
prepare for the implementation of the third generation
system (UMTS). EMT’s GPRS will come into commercial use in
the second half of the current year.
EMT, together with Mgine Technologies, introduced the new
PinPoint software that allows increasing the accuracy of
mobile phone positioning by 30%. The software will be
gradually implemented in position-based services.
Several changes have taken place in the structure of Eesti
Telekom Group during the last few months.
On December 23, 2000, AS Eesti Telefon signed an agreement
to acquire an additional 30% of the shares of AS
Telefonipood. Contractual payments were made in the
beginning of 2001 and Eesti Telefon became 100% owner of AS
Telefonipood. The increasing share in AS Telefonipood is a
part of Eesti Telefon’s strategy aimed on improving the
effectiveness of the private customer service. Telefonipood
is the owner of one of the largest telephone-shops chains in
Estonia. Both fixed and mobile telephones are on sale in
shops of the chain. The chain also cincludes about 34% of AS
EMT subscriptions.
On January 23, 2001, AS EMT acquired 26% ownership in an
information technology company Voicecom OÜ. The remaining
shares of Voicecom OÜ belong to Estonian private
individuals. The company has created several solutions for
telecommunications and banking sector.
On February 16, 2001, Eesti Telefon, EMT and two major
commercial banks signed the agreement of the establishment
of AS Sertifitseerimiskeskus. The company will provide
public key infrastructure-based certification-related
services. The statutory core businesses will be
certification and timestamp related services. 12 mln kroons
have been invested in the establishment of AS
Sertifitseerimiskeskus, 3 mln kroons by each participant of
the project.
Also in February 2001, EMT’s subsidiary AS Esmofon acquired
the remaining 32% of the shares of AS Esmofon Tartu and
became 100% owner of the company.
On April 11, 2001, AS Eesti Telefon signed the sale and
purchase agreement of shares with Eniro Eesti AS thereby
selling 60% of AS Teabeliin to a subsidiary of Eniro AB.The
sales price of the transaction was 43.5 mln kroons.
Changes in liabilities and contingencies
The new compensation system of Eesti Telecom Group was
introduced in the beginning of 2001. A part of the new
system is a stock option scheme where convertible bonds
issued in 2001 can be exchanged for the shares of Eesti
Telekom in 2003 and 2004. During the course of the initial
subscription of the convertible bonds, which took place
between December 18 2000, and January 5 2001, 20,750 A
series and 20,750 B series bonds were subscribed by 144
employees of the Group. The Management Board of AS Eesti
Telekom accepted all subscription application. During the
period until March 31, 2001, some bonds have been bought
back from employees who have left the group and some bonds
have been issued to new key-persons who have joined the
group. As of March 2001, in total 21,500 A series and 21,500
B series bonds were issued. The bonds can be exchanged for
215,000 shares of Eesti Telekom in 2003 and for 215,000
shares of Eesti Telekom in 2004.
On January 18, 2001, Eesti Telekom signed a 40 mln EUR
syndicated loan agreement. The loan has a maturity of 5
years and interest rate of Euribor + 0.775%. Members of the
syndicate are Bankgesellschaft Berlin AG, The Dai-Ichi
Kangyo Bank Ltd, Landesbank Schleswig Holstein Girozentrale,
Leonia Bank plc, Swedbank and AS Hansapank.
A court case had been initiated against Eesti Telefon in the
amount of 55 mln kroons by an insolvent OÜ Albufent.On
February 6, 2001, OÜ Albufent submitted to the Tallinn City
Court an application to drop unconditionally the claim
against Eesti Telefon. On February 19 2001, the Tallinn City
Court issued a decree to end the proceedings in the
aforementioned case. Within years, Eesti Telefon had built
up a reserve amounting to 46 mln kroons against the claim,
which the company is now able to release through profit and
loss account.
Changes in regulations
On February 13, 2001, Estonian Parliament adopted the
Amendment Act to the Telecommunications Act to stipulate the
fees for interconnection services. By the Act,
interconnection minute tariffs of an operator with
significant market power should not exceed, until December
31 2001, the following limits:
· 15% of the national call minute tariff for the local
level interconnection;
· 25% of the national call minute tariff for the single
transit interconnection, regional level;
· 35% of the national call minute tariff for the double
transit interconnection, national level.
As a response to the Amendment Act, Eesti Telefon changed
classification and tariffs of its calls from April 1, 2001.
As of this date, Eesti Telefon customers can make calls
(both local and trunk calls) within Eesti Telefon network as
well as to all other Estonian networks with the price 34
cents per minute on peak hours, 28 cents per minute on off-
peak hours and 14 cents per minute at night. To determine
new minute prices Eesti Telefon reduced interconnection
prices adjusting the methods of cost accounting of the
customers and interconnection price. New interconnection
prices are:
· For national level 7-18 cents per minute (different
prices are set for the peak/off-peak hours and night time);
· For regional and local level 6-14 cents per minute.
Those tariffs are the same for all operators in Estonia.
Eesti Telefon’s interconnection fees follow the European
best practices. Estonian National Communications Board has
confirmed accordance of the methodology behind the new
prices with the laws.
The new classification of calls was not only in response to
the regulations. It is also in accordance with Eesti Telefon
network construction. Eesti Telefon has constructed an
effective network enabling to provide flat intra-Estonian
call price and offer to other operators only two
interconnection levels: national and regional.
Information to shareholders
The ordinary General Meeting of Eesti Telekom shall be held
on May 23, 2001, at 2.00 p.m. at National Library of Estonia
(Tõnismägi 2, Tallinn). The 2000 Annual Report and
resolution projects are available for all shareholders on
Internet page <a href='http://www.telekom.ee' target='_blank'>http://www.telekom.ee</a> and in the office of AS
Eesti Telekom at Roosikrantsi 2, Tallinn since May 2, 2000
on working days from 10.00 a.m. to 2.00 p.m.. Any questions
in regard of the General Meeting can be asked by phone +372
6 311 212 or mailed to mailbox@telekom.ee.
Hille Võrk
Financial manager
6 272 460
Lapas karte