MANAGEMENT REPORT GENERAL INFORMATION The principal activity of Eesti Telekom Group, the parent company of which is AS Eesti Telekom (registration number 10234957; address: Valge 16, 19095 Tallinn), is the provision of telecommunications services. Since 1999, the shares of AS Eesti Telekom have been listed on the Tallinn and London securities markets (OMX: ETLAT / LSE: EETD). Changes in the Eesti Telekom Group structure On August 31, 2009, with merger entries of Äriregister (Estonian Business Register) the merger came into effect, merging 100% subsidiaries EMT Esindused AS and AS Mobile Wholesale with AS EMT, and 100% subsidiary AS Elion Esindus with Elion Ettevõtted AS. The aim of mergers is to achieve greater efficiency in business processes. The mergers will not cause any changes in information disclosed to stock exchange as the results of EMT Group and Elion Group are already consolidated. Ownership structure of AS Eesti Telekom As of the third quarter of 2009, the TeliaSonera Group owned 60.98% of the AS Eesti Telekom shares. The percentage of freely traded shares is 11.85% of the total number of shares. 1.07% of these have been converted into GDRs traded on the London Stock Exchange. As of 30 September 2009, the 10 largest AS Eesti Telekom shareholders were: -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | | 30 September 2009 | -------------------------------------------------------------------------------- | | No of shares | Participation | -------------------------------------------------------------------------------- | | Changes since | | | 30 June 2009 | -------------------------------------------------------------------------------- | TeliaSonera group | 84,119,23 | 60.98% | 1,182,940 | | | 9 | | | -------------------------------------------------------------------------------- | Ministry of Finance | 37,485,10 | 27.17% | 4,138,636 | | | 0 | | | -------------------------------------------------------------------------------- | SEB clients | 2,412,819 | 1.75% | 63,614 | -------------------------------------------------------------------------------- | ING Luxembourg S.A. | 2,137,813 | 1.55% | 0 | -------------------------------------------------------------------------------- | State Street Bank and Trust | 623,145 | 0.45% | 242,100 | | Omnibus Account | | | | -------------------------------------------------------------------------------- | Mellon Treaty Omnibus | 609,406 | 0.44% | 112,933 | -------------------------------------------------------------------------------- | UniCredit Bank Austria AG | 494,398 | 0.36% | 54,480 | -------------------------------------------------------------------------------- | Clearstream Banking Luxembourg | 472,201 | 0.34% | (150,957) | | S.A. clients | | | | -------------------------------------------------------------------------------- | Nordea Bank Finland PLC | 427,020 | 0.31% | 49,130 | -------------------------------------------------------------------------------- | Evli Bank PLC customers | 381,303 | 0.28% | 310,686 | -------------------------------------------------------------------------------- On August 24, 2009, TeliaSonera announced a cash offer for the shares of Eesti Telekom. The acceptance period of the cash offer ended on October 9, 2009. TeliaSonera was offering 5.94 EUR for each share of Eesti Telekom. Following the acquisition of shares in the cash offer, Teliasonera will own, directly and indirectly, a total of 134,614,949 shares, constituting 97.58% of all shares of Eesti Telekom. Taking into consideration the results of the cash offer, TeliaSonera's Group Management has decided to initiate actions for the squeeze-out of remaining minority shareholders in accordance with Article 182-1 of the Securities Market Act of Estonia. Shareholders' extraordinary general meeting The extraordinary AS Eesti Telekom general shareholders' meeting took place on 1 October 2009. The general meeting approved a supplementary proposal for the distribution of profits. The AS Eesti Telekom shareholders will be paid supplementary dividends of 0.45 EUR per share or a total of 61.6 million EUR. The dividends will be paid on 30 October 2009, based on the list of shareholders that was fixed as of 15 October 2009 at 11.59 pm. The general meeting confirmed a dividend policy for the financial years of 2009, 2010 and 2011 that conforms to current AS Eesti Telekom practices, whereby dividends that are paid out in 2010, 2011, and 2012 according to the law, will comprise 100 percent of the net profits accumulated by the end of the financial year. AS Eesti Telekom shares In the third quarter of 2009, the price of AS Eesti Telekom shares increased by 42.24%. The share price at the beginning of the quarter was 4.45 EUR and 6.33 EUR at the end of the quarter. The highest and lowest share prices during the reporting period were 6.40 EUR and 4.03 EUR respectively. The turnover for the reporting period was 33.3 million EUR. BUSINESS ACTIVITIES Management commentary: The Group's sales revenues in the second quarter were primarily impacted by regulations (European Union regulations applied on the mobile sector) and the economic downturn (reduction of sales of goods and changes in consumer behavior). Due to the efficiency plans in all subsidiaries the decrease in EBITDA is smaller than in Sales and EBITDA margin has increased year-to-year. Significant financial indicators Eesti Telekom Group -------------------------------------------------------------------------------- | | Q3 | Q3 | Chang | 9 | 9 mos. | Change | | | 2009 | 2008 | e, % | mos. | 2008 | , % | | | | | | 2009 | | | -------------------------------------------------------------------------------- | Total revenues, million | 85.7 | 100.1 | (14.3 | 257.4 | 295.1 | (12.8) | | EUR | | | ) | | | | -------------------------------------------------------------------------------- | EBITDA, million EUR | 34.6 | 40.2 | (13.7 | 101.9 | 116.2 | (12.3) | | | | | ) | | | | -------------------------------------------------------------------------------- | Margin, % | 40.4 | 40.1 | | 39.6 | 39.4 | | -------------------------------------------------------------------------------- | EBIT, million EUR | 25.0 | 30.8 | (18.6 | 72.6 | 88.6 | (18.0) | | | | | ) | | | | -------------------------------------------------------------------------------- | Margin, % | 29.2 | 30.7 | | 28.2 | 30.0 | | -------------------------------------------------------------------------------- | EBT, million EUR | 25.0 | 31.0 | (19.3 | 75.0 | 91.0 | (17.6) | | | | | ) | | | | -------------------------------------------------------------------------------- | Profit for the period, | 25.0 | 31.0 | (19.3 | 49.5 | 66.4 | (25.5) | | million EUR | | | ) | | | | -------------------------------------------------------------------------------- | Basic earnings per share, | 0.18 | 0.22 | (19.1 | 0.36 | 0.48 | (25.3) | | EUR | | | ) | | | | -------------------------------------------------------------------------------- | Comprehensive income for | 25.0 | 31.0 | (19.3 | 49.5 | 66.4 | (25.5) | | the period, | | | ) | | | | | million EUR | | | | | | | -------------------------------------------------------------------------------- | CAPEX, million EUR | 7.2 | 10.9 | (34.4 | 23.0 | 30.3 | (24.1) | | | | | ) | | | | -------------------------------------------------------------------------------- | Net gearing, % | (8.4) | (13.1 | | (8.4) | (13.1) | | | | | ) | | | | | -------------------------------------------------------------------------------- | ROA, % | 9.5 | 10.8 | | 17.1 | 21.8 | | -------------------------------------------------------------------------------- | ROE, % | 11.5 | 13.3 | | 29.7 | 34.7 | | -------------------------------------------------------------------------------- Mobile communications segment -------------------------------------------------------------------------------- | | Q3 | Q3 | Chang | 9 | 9 mos. | Change | | | 2009 | 2008 | e, % | mos. | 2008 | , % | | | | | | 2009 | | | -------------------------------------------------------------------------------- | Total revenues, million | 51.5 | 61.7 | (16.5 | 147.9 | 177.6 | (16.7) | | EUR | | | ) | | | | -------------------------------------------------------------------------------- | EBITDA, million EUR | 18.7 | 24.5 | (23.6 | 55.3 | 68.8 | (19.7) | | | | | ) | | | | -------------------------------------------------------------------------------- | Margin, % | 36.2 | 39.6 | | 37.4 | 38.7 | | -------------------------------------------------------------------------------- | EBIT, million EUR | 14.5 | 20.2 | (28.3 | 42.5 | 56.3 | (24.6) | | | | | ) | | | | -------------------------------------------------------------------------------- | Margin, % | 28.1 | 32.7 | | 28.7 | 31.7 | | -------------------------------------------------------------------------------- | EBT, million EUR | 14.6 | 20.3 | (28.4 | 44.0 | 57.5 | (23.4) | | | | | ) | | | | -------------------------------------------------------------------------------- | Profit for the period, | 14.6 | 20.3 | (28.4 | 29.0 | 43.3 | (33.0) | | million EUR | | | ) | | | | -------------------------------------------------------------------------------- | Comprehensive income for | 14.6 | 20.3 | (28.4 | 29.0 | 43.3 | (33.0) | | the period, | | | ) | | | | | million EUR | | | | | | | -------------------------------------------------------------------------------- | CAPEX, million EUR | 1.7 | 4.5 | (61.9 | 10.2 | 12.7 | (19.2) | | | | | ) | | | | -------------------------------------------------------------------------------- | ROA, % | 13.5 | 6.7 | | 23.6 | 33.2 | | -------------------------------------------------------------------------------- | ROE, % | 18.9 | 9.2 | | 44.9 | 58.4 | | -------------------------------------------------------------------------------- Broadband services segment -------------------------------------------------------------------------------- | | Q3 | Q3 | Chang | 9 | 9 mos. | Change | | | 2009 | 2008 | e, % | mos. | 2008 | , % | | | | | | 2009 | | | -------------------------------------------------------------------------------- | Total revenues, million | 49.9 | 56.6 | (11.9 | 143,5 | 156,9 | (8.5) | | EUR | | | ) | | | | -------------------------------------------------------------------------------- | EBITDA, million EUR | 15.4 | 15.8 | (2.8) | 46,1 | 47,3 | (2.5) | -------------------------------------------------------------------------------- | Margin, % | 30.8 | 27.9 | | 32,1 | 30,1 | | -------------------------------------------------------------------------------- | EBIT, million EUR | 10.4 | 11.1 | (6.5) | 31,3 | 33,4 | (6.3) | -------------------------------------------------------------------------------- | Margin, % | 20.8 | 19.6 | | 21,8 | 21,3 | | -------------------------------------------------------------------------------- | EBT, million EUR | 10.0 | 10.9 | (8.5) | 31,0 | 33,4 | (7.2) | -------------------------------------------------------------------------------- | Profit for the period, | 10.0 | 10.9 | (8.5) | 20,5 | 25,0 | (17.8) | | million EUR | | | | | | | -------------------------------------------------------------------------------- | Comprehensive income for | 10.0 | 10.9 | (8.5) | 20,5 | 25,0 | (17.8) | | the period, | | | | | | | | million EUR | | | | | | | -------------------------------------------------------------------------------- | CAPEX, million EUR | 5.4 | 6.2 | (13.1 | 12,4 | 16,7 | (26.1) | | | | | ) | | | | -------------------------------------------------------------------------------- | ROA, % | 6.4 | 6.7 | | 12.4 | 14.6 | | -------------------------------------------------------------------------------- | ROE, % | 9.3 | 9.2 | | 25.5 | 26.2 | | -------------------------------------------------------------------------------- IT services segment -------------------------------------------------------------------------------- | | Q3 | Q3 | Chang | 9 | 9 mos. | Change | | | 2009 | 2008 | e, % | mos. | 2008 | , % | | | | | | 2009 | | | -------------------------------------------------------------------------------- | Total revenues, million | 3.6 | 4.7 | (22.7 | 12.0 | 15.3 | (21.6) | | EUR | | | ) | | | | -------------------------------------------------------------------------------- | EBITDA, million EUR | 0.8 | 0.1 | 534.7 | 1.1 | 0.8 | 29.6 | -------------------------------------------------------------------------------- | Margin, % | 20.8 | 2.5 | | 8.8 | 5.3 | | -------------------------------------------------------------------------------- | EBIT, million EUR | 0.4 | (0.3) | N/A | (0.5) | (0.4) | (44.6) | -------------------------------------------------------------------------------- | Margin, % | 9.8 | (5.9) | | (4.2) | (2.3) | | -------------------------------------------------------------------------------- | EBT, million EUR | 0.4 | (0.3) | N/A | (0.5) | (0.4) | (26.5) | -------------------------------------------------------------------------------- | Profit for the period, | 0.4 | (0.3) | N/A | (0.5) | (0.4) | (26.5) | | million EUR | | | | | | | -------------------------------------------------------------------------------- | Comprehensive income for | 0.4 | (0.3) | N/A | (0.5) | (0.4) | (26.5) | | the period, | | | | | | | | million EUR | | | | | | | -------------------------------------------------------------------------------- | CAPEX, million EUR | 0.1 | 0.2 | (76.9 | 0.4 | 0.9 | (57.2) | | | | | ) | | | | -------------------------------------------------------------------------------- | ROA, % | 3.6 | (3.2) | | (4.6) | (4.0) | | -------------------------------------------------------------------------------- | ROE, % | 5.1 | (6.2) | | (7.0) | (6.4) | | -------------------------------------------------------------------------------- Sales revenues, operating costs, and profit The Group's sales revenues in the third quarter of 2009 reached 85.7 million EUR (3rd quarter 2008: 100.1 million EUR). The decrease in sales revenues resulted primarily from the reduction in the sales volumes of telecommunications and IT merchandise and a drop in revenues from call services and international interconnection services. The mobile communications segment's consolidated turnover for the third quarter was 51.5 million EUR, decreasing 16% compared to the third quarter of 2008 (3rd quarter 2008: 61.7 million EUR). The reason for the decrease in total revenues was basically a reduction in revenues from call services caused by a drop in retail prices, which was partially compensated by the growth of volumes for mobile data communications and subcontracting services. During the third quarter, a decrease was also experienced in revenues received from the retailing and wholesaling of telecommunications merchandise compared to a year ago, which was caused by changes in consumer behavior. In addition, the call minutes initiated by the customers and the number of call minutes entering the EMT network decreased by 4% compared to the third quarter of 2008, which resulted from the customers' wish to limit consumption. By the end of the third quarter of 2009, the following applied to the EMT client base: the number of contractual clients had not decreased and remained at 484 thousand; since the entire market had contracted, the number of pre-paid card users decreased by 33 thousand, declining to 260 thousand. EMT assesses its market share of active SIM cards to be 47%. The estimated penetration of active cards in Estonia is 119%. EMT successfully continued to offer its new MinuEMT (MyEMT) mobile and Internet package, whereby customers can choose the volumes of the three basic mobile communications - calls, text messages, and Internet - that he or she wishes to use. The MinuEMT package includes very favorable prices and personalized discounts based on the customers' history with EMT. The sale of MinuEMT services has progressed well and a total of 45 thousand private and business clients have subscribed. Based on a 26 March 2009 decision by the Competition Board, as of 1 July 2009, a maximum interconnection tariff of 0.087 EUR per minute, instead of 0.088 EUR per minute, came into force for AS EMT, Elisa Eesti AS and Tele2 Eesti AS, as well as ProGroup Holding OÜ. The maximum rate for interconnection fees to be established for the periods 1 July 2010 to 30 June 2011 and 1 July 2011 to 30 June 2012 will be announced by the Competition Board at least 2 months before the beginning of the corresponding period, but pursuant to the decision, the decrease or increase in the interconnection fees to be applied shall not be more than 10%. As of 1 July 2009, the following price obligations, which apply to the Community's internal roaming services (euro tariffs), came into force for mobile communications operators in the European member states based on Regulation no. 544/2009 of the European Parliament and Council dated 18 June 2009 (which amended EU Regulation no. 717/2007 that deals with roaming in public mobile phone networks within the borders of the Community): the call minute prices decreased at both the wholesale (0.26 EUR per minute) and retail level (outgoing calls 0.43 EUR per minute, incoming calls 0.19 EUR per minute); maximum fees were implemented for SMS texting (wholesale 0.04 EUR and retail 0.11 EUR), as well as wholesale prices for data communications services (1 EUR/1MB). In addition, as of 1 July 2009, the fees for roaming calls will be calculated by the second (except during the first 30 seconds of the call initiation fee). The broadband services segment's consolidated turnover reached 49.9 million EUR in the third quarter. Compared to the same period of the previous year, the decrease of revenues in the broadband services segment totaled 12%. The decrease in turnover was related primarily to a reduction in the sales volumes of telecommunications and IT goods as well as a reduction in minute volumes of call services and international interconnections services. As a result of the drop in volumes, retail sales revenues decreased by 36%, and the revenues earned from end consumers for domestic call services decreased by 15%, due to the general drop in minute volumes in the Estonian market. The turnover for international call services decreased by 24%, which is primarily related to a reduction in the minute volumes for international calls initiated from mobile networks. Due to the drop in the minute volumes for international call transit, the turnover for international interconnection services decreased in the third quarter by 24% compared to the previous year. At the same time, the revenues earned from the monthly fees for triple-play and data communications solutions increased by 8% compared to the previous year. As the result of successful marketing campaigns, the number of Elion IP and cable-TV customers increased by 6,000 in the third quarter reaching 94.4 thousand as of 30 September (30 September 2008: 75.4 thousand). Elion assesses that the company's market share in the cable broadcast market increased by 1% in the third quarter to 30% at the end of September (30 September 2008: 26%). As of 1 October, Elion digital TV's basic Estonian and Slavic packages were supplemented by 20 channels, of which four are totally new channels (Discovery Investigation, Nat Geo Music, Life TV, and RTV). The other 16 channels that were added to the basic packages are popular channels transferred from theme packages, which were previously available for an additional fee. At the end of September, Elion introduced a hyper-fast Internet service, which has quickly become popular among the customers. During the first week, more than 200 users subscribed to the service and 25,000 people checked on the availability of the service in their homes. Elion's hyper-fast Internet, with a monthly fee of 6.33 EUR, provides download speeds of up to 100 Mbit/s and upload speeds of up to 20 Mbit/s. This additional service is available to Kodulahenduse customers, whose current Internet download speeds are up to 12 Mbit/s, and in whose apartment buildings a fiber-optic network has been installed. Currently, there are 100,000 households in apartment buildings with the technical requirements for Elion's hyper-fast Internet in all of Estonia's largest cities. The total number of Elion's customers with permanent Internet connection increased by 1,700 connections during the quarter, reaching 176.8 thousand by the end of September (30 September 2008: 171.9 thousand). The company's assessment is that Elion's market share of the permanent Internet connection market in Estonia has not changed, and continues to be 54%. By the end of the third quarter, the number of Elion's total means of communication totaled 460 thousand (30 September 2008: 471 thousand interfaces). The reduction in the number of total means on communication resulted from an expected reduction in the number of telephone connections in the private and business segments, as well as a reduction in the number of pay phones throughout Estonia. Elion assesses its market share for call minutes initiated in the fixed network to be 79% (September 2008: 80%). The market share for local call minutes is 81% (September 2008: 82%), 68% for international calls (September 2008: 67%) and 70% for call minutes made to mobile phones (September 2008: 71%). In the telecommunications and IT goods market, Elion increased its market share in the third quarter in the field of audio-video goods from 12.5% to 16.8%. Despite very competitive prices, Elion was able to maintain its position as the market leader in the field of IT goods (a market share along with AS EMT, its affiliated company, of 29%). In August, the Competition Board completed its proceeding regarding the fees established for Elion's fixed line services and rental of copper pairs, by acknowledging their legality. The IT services segment's sales revenues in the third quarter of 2009 reached 3.6 million EUR (3rd quarter 2008: 4.7 million EUR). Compared to the same period in the previous year, the sales revenues decreased by 23%, whereas the sales revenues for IT merchandise decreased by 58%; the sales revenues for project-based services increased by 48%; and the sales revenues for permanent services decreased by 6%. The increase in revenues from project sales compared to last year was affected by the IT Koolituskeskuse OÜ Group's data being recognized in the consolidated sales revenues of the IT services segment in 2009, while on the other hand, project sales revenues decreased in connection with the sale of the software development and financial software business to AS Helmes at the end of June 2009. If we examine this field of activity separately, the sales revenues for services in the field of document management and archiving increased by 8% and the sales revenues for IT training and consultation decreased by 21% compared to the third quarter of last year. In the third quarter, the general downward trend continued in the IT market. Numerous procurements have been postponed and the results of completed procurements have been cancelled. A certain positive impact can be felt from the activation of EU Structural Fund financing. At the same time, the wave of company bankruptcies and liquidations is gathering speed. Yet, the volume of doubtful receivables in the IT services segment has remained at the same level compared to the end of the second quarter of this year. The turnover of merchandise sales for infrastructure solutions was significantly lower for the third quarter than for the same period of the previous year (0.7 million EUR vs. 1.8 million EUR). The reason is the general decline in the IT market. Currently, all companies in the IT sector that deal with the sale of merchandise are noticing the same downward trend. The summer period, which was accompanied by a decrease in turnover (23%) compared to the second quarter, also had an impact. In the project business, several important contracts were signed in the third quarter with the ITIL (Information Technology Infrastructure Library) and ISKE (a three-level baseline protection system for information systems) fields of activity, including projects to introduce IncidentMonitor software. Continuing work on document management projects is progressing with several customers. Several important service contracts were concluded in the field of document management (ERGO Insurance, Border Guard Administration, etc.). In the field of permanent services, the company has focused on export to Russia in the third quarter, which resulted in several new contracts for permanent services being signed. In the third quarter, an equipment hosting contact was also concluded with Telefonica Wholesale Services. In addition AS MicroLink Eesti applied for export supports from Enterprise Estonia and received a positive answer. The operating costs of the Eesti Telekom Group decreased by 15% in the third quarter of 2009 compared to the same period in 2008, reaching 51.3 million EUR (3rd quarter 2008: 60.1 million EUR). The operating costs in the mobile communications segment decreased by 12% compared to the third quarter of 2008, reaching 33.0 million EUR (3rd quarter 2008: 37.4 million EUR). The greatest decrease was in operating costs related to retailing and wholesaling, which corresponds to the drop in the turnover from merchandise sales. A decrease was also experienced in interconnection costs based on a slight drop in call volumes and a small price decrease and also in operating costs resulted from the efficiency projects. The operating costs in the broadband services segment decreased during the last quarter by 15% compared to the same period in 2008, reaching 34.7 million EUR (3rd quarter 2008: 40.8 million EUR). Most of the reduction in operating costs resulted from a drop in direct sales costs, which was related to decreases in retail sales volumes, international interconnection services, and call minute volumes. A significant impact on the decrease in operating costs also resulted from the efficiency projects initiated last year, which are related to reductions in personnel costs, maintenance costs of buildings and network resources, transport costs, office costs and marketing costs. The operating costs in the IT services segment decreased in the third quarter by 37% reaching 2.9 million EUR (3rd quarter 2008: 4.6 million EUR). The operating costs for the quarter were affected on the one hand by almost 0.3 million EUR of increased costs that accompanied the consolidation of the IT Koolituskeskus (Training Center), and on the other hand, by the fact that the costs related to the software development and financial software business that was sold at the end of June are not included in this year's third quarter. Also, the lower sales turnovers were accompanied by significantly lower purchasing costs for merchandise and both of the Group's companies have succeeded in reducing other operating costs (including a reduction of 37% in the other operating costs of MicroLink Eesti as an independent company and 61% by the IT Koolituskeskus). The Eesti Telekom Group EBITDA decreased in the third quarter of 2009 by 14% compared to the same period in the previous year, reaching 34.6 million EUR (3rd quarter 2008: 40.2 million EUR). The EBITDA in the mobile communications services segment decreased by 24% in the third quarter compared to the same period of last year. In the third quarter, the EBITDA for the broadband segment has decreased by 3% compared to the same period of last year, reaching 15.4 million EUR (3rd quarter 2008: 15.8 million EUR). The EBITDA for the IT services segment in the third quarter of 2009 was 0.8 million EUR (3rd quarter 2008: 0.1 million EUR). The Group's EBITDA margin in the third quarter of 2009 was 40.4%, which was slightly higher from the corresponding margin for the same period of the previous year. The Group's depreciation costs reached 9.6 million EUR in the third quarter of 2008, increasing 2% compared to the same period in 2008 (3rd quarter 2008: 9.4 million EUR). In the third quarter, the Eesti Telekom Group earned EBIT of 25.0 million EUR, which was a decrease of 19% compared to the same period in the previous year (3rd quarter 2008: 30.8 million EUR) and pre-tax profits of 25.0 million EUR (3rd quarter 2008: 31.0 million EUR). The profit for the Eesti Telekom Group for the third quarter of 2009 totaled 25.0 million EUR (3rd quarter 2008: 31.0 million EUR). The earnings per share were 0.18 EUR (3rd quarter 2008: 0.22 EUR). The comprehensive income of the Group for the third quarter of 2009 was 25.0 million EUR (3rd quarter 2008: 31.0 million EUR). Statement of financial position and cash flows As of 30 September 2009, the Eesti Telekom Group balance sheet totaled 259.6 million EUR (31 December 2008: 319.5 million EUR). Compared to the beginning of the year, the non-current assets have decreased by 7.7 million EUR, the balance of which reached 179.2 million EUR by the end of the quarter. The Group's current assets decreased by 52.2 million EUR during the first nine months, reaching 80.4 million EUR by the end of September (31 December 2008: 132.6 million EUR). Cash and cash equivalents, as well as the balance of short-term financial investments, decreased by 35.4 million EUR in connection with the dividends paid out in June and the income tax paid in July. As of 30 September 2009, the Eesti Telekom Group equity was 231.0 million EUR, which is 43.5 million EUR less than at the end of 2008 (31 December 2008: 274.5 million EUR). The reduction in equity is related to the payment of dividends. As of the end of September non-current liabilities totaled 1.9 million EUR (31 December 2008: 2.1 million EUR) and current liabilities totaled 26.7 million EUR (31 December 2008: 42.9 million EUR). The net debt of the Eesti Telekom Group at the end of the third quarter was -19.3 million EUR and the net gearing ratio was -8% (31 December 2008: -54.5 million EUR and -20%). The Eesti Telekom Group cash flow from operating activities during the first nine months of 2009 was 76.2 million EUR (9 months of 2008: 85.5 million EUR). The Group's cash flow from investing activities was 13.5 million EUR (9 months of 2008: -4.3 million EUR). The cash flow into the acquisition of tangible and intangible fixed assets during the first nine months was 23.0 million EUR (9 months of 2008: 30.3 million EUR). During the first nine months of 2009, the mobile communications segment invested 10.2 million EUR (9 months of 2008: 12.7 million EUR). In mobile communications, in addition to the constant development of the GSM network, a developmental priority was the implementation of technologies to support high-speed mobile data communications. The majority of data communications usage by EMT customers occurs in the 3G network, which enables the use of high-quality and rapid Internet connections at speeds approaching those of ADSL at conveniently manageable prices. Since EMT is the only operator in Estonia that provides EDGE data communications throughout its GSM coverage area, then investments in new base stations is primarily directed at expanding external and internal 3G coverage in cities and towns. At the same time, the constant improvement of the GSM network continued. Investments into fixed assets in the broadband services segment totaled 12.4 million EUR (9 months of 2008: 16.7 million EUR). The principal part of the capital investments was related to the development of network resources (core and fiber-optic cable networks), the improvement and expansion of the availability of the triple-service packages, and the fulfillment of regulation-based requirements. In the first nine months of 2009, the IT services segment invested 0.4 million EUR into fixed assets (9 months of 2008: 0.9 million EUR). Under the leadership of the Estonian Association of Information Technology and Telecommunications Companies (ITL), the Ministry of Economic Affairs and Communication and the telecommunications companies have agreed to develop a 100 Mbit/s capacity Internet network by 2015. The name of the project for the development of a new generation Internet network is EstWin. During the first stage of the EstWin project, a basic communications network comprising 6,640 kilometers of fiber-optic cable and 1,400 network connection locations will be installed. In the second stage of the project, the operators will connect an access network for consumers to the basic network. The estimated cost of the entire project is up to 383.5 million EUR, with the government planning to use 95.9 million EUR from various European structural funds to cover the government's obligations for the development of the basic network. In order to realize the EstWin project, the largest companies in the information technology and telecommunications sector founded the Estonian Broadband Development Foundation or ELA Foundation in the third quarter, for the purpose of developing the basic infrastructure required for the installation of a new generation broadband network in Estonia's rural areas by end of 2015. The founders of the ELA Foundation include Elion, EMT, Elisa, Tele2, Televõrk, Levira, Eltel, and Ericsson. Kalev Reiljan, Elion's Technology Director, was elected Chairman of the ELA Foundation Supervisory Board. The Eesti Telekom Group cash flow used in financing activities totaled 93.1 million EUR in the first nine months, of which 92.6 million EUR was used to pay dividends to the AS Eesti Telekom shareholders (9 months of 2008: 93.1 million EUR and 92.6 million EUR respectively) and 0.4 million EUR was paid to minority shareholders (Serenda Invest OÜ minority shareholders) (9 months of 2008: 0.5 million EUR). Definitions EBITDA margin = EBITDA / Net sales x 100% EBIT margin = EBIT / Net sales x 100% Net debt = Interest bearing liabilities - cash and cash equivalents - short term investments Net gearing = Net debt / Owner's equity x 100% ROA = Profit for the period / Average total assets x 100% ROE = Profit before tax / Average equity x 100% Basic earnings per share = Profit for the period / Average number of shares III QUARTER CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME -------------------------------------------------------------------------------- | | Notes | III Quarter | III Quarter | | | | 2009 | 2008 | -------------------------------------------------------------------------------- | Net sales | 2.1 (a) | 85,744 | 100,088 | -------------------------------------------------------------------------------- | Cost of production | 2.1 (a) | (49,099) | (56,028) | -------------------------------------------------------------------------------- | Gross profit | 2.1 (a) | 36,645 | 44,060 | -------------------------------------------------------------------------------- | Sales, administrative, and | 2.1 (a) | (11,850) | (13,508) | | research & development expenses | | | | -------------------------------------------------------------------------------- | Other operating revenues | 2.1 (a) | 268 | 344 | -------------------------------------------------------------------------------- | Other operating expenses | 2.1 (a) | (29) | (133) | -------------------------------------------------------------------------------- | Operating profit | 2.1 (a) | 25,034 | 30,763 | -------------------------------------------------------------------------------- | Finance income | | 135 | 284 | -------------------------------------------------------------------------------- | Finance costs | | (157) | (24) | -------------------------------------------------------------------------------- | Finance income, net | 2.1 (a) | (22) | 260 | -------------------------------------------------------------------------------- | Net income / (expenses) from | 2.1 (a) | 21 | (17) | | associated companies | | | | -------------------------------------------------------------------------------- | Profit before tax | 2.1 (a) | 25,033 | 31,006 | -------------------------------------------------------------------------------- | Profit for the period | 2.1 (a) | 25,033 | 31,006 | -------------------------------------------------------------------------------- | Other comprehensive income | | | | -------------------------------------------------------------------------------- | Exchange differences on | 2.1 (a) | (1) | - | | translating foreign subsidiaries | | | | -------------------------------------------------------------------------------- | Other comprehensive income for | 2.1 (a) | (1) | - | | the period | | | | -------------------------------------------------------------------------------- | Total comprehensive income | 2.1 (a) | 25,032 | 31,006 | -------------------------------------------------------------------------------- | Profit attributable to: | | | | -------------------------------------------------------------------------------- | Equity holders of the parent | 2.1 (a) | 25,026 | 30,920 | -------------------------------------------------------------------------------- | Minority interest | 2.1 (a) | 7 | 86 | -------------------------------------------------------------------------------- | | | 25,033 | 31,006 | -------------------------------------------------------------------------------- | Comprehensive income attributable | | | | | to: | | | | -------------------------------------------------------------------------------- | Equity holders of the parent | 2.1 (a) | 25,025 | 30,920 | -------------------------------------------------------------------------------- | Minority interest | 2.1 (a) | 7 | 86 | -------------------------------------------------------------------------------- | | | 25,032 | 31,006 | -------------------------------------------------------------------------------- | | | | | -------------------------------------------------------------------------------- | Earnings per share for profit | 7 (f) | | | | attributable to the equity | | | | | holders of the parent during the | | | | | reporting period (expressed in | | | | | EUR) | | | | -------------------------------------------------------------------------------- | Basic earnings per share | | 0.18 | 0.22 | -------------------------------------------------------------------------------- | Diluted earnings per share | | 0.18 | 0.22 | -------------------------------------------------------------------------------- | | | | | -------------------------------------------------------------------------------- | EBITDA | 2.1 (a) | 34,635 | 40,150 | -------------------------------------------------------------------------------- | Depreciation, amortization and | 2.1 (a) | (9,601) | (9,387) | | write-downs | | | | -------------------------------------------------------------------------------- THE FIRST NINE MONTHS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME -------------------------------------------------------------------------------- | | Notes | 9 months | 9 months | 2008 | | | | to | to | | | | | 30 | 30 | | | | | September | September | | | | | 2009 | 2008 | | -------------------------------------------------------------------------------- | Net sales | 2.1 | 257,388 | 295,076 | 395,588 | | | (b), | | | | | | 2.3 | | | | -------------------------------------------------------------------------------- | Cost of production | 2.1 (b) | (145,403) | (165,428) | (225,777) | -------------------------------------------------------------------------------- | Gross profit | 2.1 (b) | 111,985 | 129,648 | 169,811 | -------------------------------------------------------------------------------- | Sales, administrative, and | 2.1 (b) | (40,324) | (42,028) | (57,972) | | research & development | | | | | | expenses | | | | | -------------------------------------------------------------------------------- | Other operating revenues | 2.1 (b) | 1,214 | 1,257 | 2,001 | -------------------------------------------------------------------------------- | Other operating expenses | 2.1 (b) | (238) | (313) | (543) | -------------------------------------------------------------------------------- | Operating profit | 2.1 (b) | 72,637 | 88,564 | 113,297 | -------------------------------------------------------------------------------- | Finance income | | 2,499 | 2,736 | 3,527 | -------------------------------------------------------------------------------- | Finance costs | | (198) | (99) | (56) | -------------------------------------------------------------------------------- | Finance income, net | 2.1 (b) | 2,301 | 2,637 | 3,471 | -------------------------------------------------------------------------------- | Net income / (expenses) from | 2.1 (b) | 61 | (176) | (182) | | associated companies | | | | | -------------------------------------------------------------------------------- | Profit before tax | 2.1 (b) | 74,999 | 91,025 | 116,586 | -------------------------------------------------------------------------------- | Income tax on dividends | 2.1 (b) | (25,548) | (24,652) | (24,664) | -------------------------------------------------------------------------------- | Profit for the period | 2.1 (b) | 49,451 | 66,373 | 91,922 | -------------------------------------------------------------------------------- | Other comprehensive income | | | | | -------------------------------------------------------------------------------- | Exchange differences on | 2.1 (b) | - | - | 1 | | translating foreign | | | | | | subsidiaries | | | | | -------------------------------------------------------------------------------- | Other comprehensive income | 2.1 (b) | - | - | 1 | | for the period | | | | | -------------------------------------------------------------------------------- | Total comprehensive income | 2.1 (b) | 49,451 | 66,373 | 91,923 | -------------------------------------------------------------------------------- | Profit attributable to: | | | | | -------------------------------------------------------------------------------- | Equity holders of the parent | 2.1 (b) | 49,476 | 66,197 | 91,703 | -------------------------------------------------------------------------------- | Minority interest | 2.1 (b) | (25) | 176 | 219 | -------------------------------------------------------------------------------- | | | 49,451 | 66,373 | 91,922 | -------------------------------------------------------------------------------- | Comprehensive income | | | | | | attributable to: | | | | | -------------------------------------------------------------------------------- | Equity holders of the parent | 2.1 (b) | 49,476 | 66,197 | 91,704 | -------------------------------------------------------------------------------- | Minority interest | 2.1 (b) | (25) | 176 | 219 | -------------------------------------------------------------------------------- | | | 49,451 | 66,373 | 91,923 | -------------------------------------------------------------------------------- | | | | | | -------------------------------------------------------------------------------- | Earnings per share for | 7 (f) | | | | | profit attributable to the | | | | | | equity holders of the parent | | | | | | during the reporting period | | | | | | (expressed in EUR) | | | | | -------------------------------------------------------------------------------- | Basic earnings per share | | 0.36 | 0.48 | 0.66 | -------------------------------------------------------------------------------- | Diluted earnings per share | | 0.36 | 0.48 | 0.66 | -------------------------------------------------------------------------------- | | | | | | -------------------------------------------------------------------------------- | EBITDA | 2.1 (b) | 101,918 | 116,170 | 150,088 | -------------------------------------------------------------------------------- | Depreciation, amortization | 2.1 | (29,281) | (27,606) | (36,791) | | and write-downs | (b), 3 | | | | -------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF FINANCIAL POSITION -------------------------------------------------------------------------------- | | Notes | 30 | 31 December | 30 | | | | September | 2008 | September | | | | 2009 | | 2008 | -------------------------------------------------------------------------------- | ASSETS | | | | | -------------------------------------------------------------------------------- | Non-current assets | | | | | -------------------------------------------------------------------------------- | Property, plant and | 3 | 160,803 | 165,542 | 157,540 | | equipment | | | | | -------------------------------------------------------------------------------- | Intangible fixed assets | 3 | 12,909 | 14,592 | 12,570 | -------------------------------------------------------------------------------- | Investments in associates | 2.2, 5 | 737 | 676 | 682 | -------------------------------------------------------------------------------- | Other financial fixed | | 4,740 | 6,115 | 6,125 | | assets | | | | | -------------------------------------------------------------------------------- | Total non-current assets | 2.2 | 179,189 | 186,925 | 176,917 | -------------------------------------------------------------------------------- | Current assets | | | | | -------------------------------------------------------------------------------- | Inventories | 6 | 9,356 | 10,861 | 12,526 | -------------------------------------------------------------------------------- | Trade and other | | 51,294 | 66,576 | 65,534 | | receivables | | | | | -------------------------------------------------------------------------------- | Short-term investments | | - | 31,956 | 19,173 | -------------------------------------------------------------------------------- | Cash and cash equivalents | | 19,794 | 23,206 | 13,456 | -------------------------------------------------------------------------------- | Total current assets | 2.2 | 80,444 | 132,599 | 110,689 | -------------------------------------------------------------------------------- | TOTAL ASSETS | 2.2 | 259,633 | 319,524 | 287,606 | -------------------------------------------------------------------------------- | EQUITY AND LIABILITIES | | | | | -------------------------------------------------------------------------------- | Equity | | | | | -------------------------------------------------------------------------------- | Capital and reserves | 7 | | | | | attributable to equity | | | | | | holders of the parent | | | | | -------------------------------------------------------------------------------- | Share capital | | 88,169 | 88,169 | 88,169 | -------------------------------------------------------------------------------- | Share premium | | 22,753 | 22,753 | 22,753 | -------------------------------------------------------------------------------- | Statutory legal reserve | | 8,817 | 8,817 | 8,817 | -------------------------------------------------------------------------------- | Translation reserve | | 1 | 1 | - | -------------------------------------------------------------------------------- | Retained earnings | | 111,173 | 154,274 | 128,885 | -------------------------------------------------------------------------------- | Total capital and reserves | | 230,913 | 274,014 | 248,624 | | attributable to equity | | | | | | holders of the parent | | | | | -------------------------------------------------------------------------------- | Minority interest | 2.2, 7 | 123 | 513 | 428 | -------------------------------------------------------------------------------- | Total equity | | 231,036 | 274,527 | 249,052 | -------------------------------------------------------------------------------- | Non-current liabilities | | | | | -------------------------------------------------------------------------------- | Interest bearing loans and | 8 | 257 | 375 | 2 | | borrowings | | | | | -------------------------------------------------------------------------------- | Retirement benefit | 9 | 89 | 138 | 156 | | obligations | | | | | -------------------------------------------------------------------------------- | Provisions | 10 | 1,443 | 1,443 | 1,437 | -------------------------------------------------------------------------------- | Non-interest bearing | | 145 | 127 | 123 | | liabilities | | | | | -------------------------------------------------------------------------------- | Total non-current | 2.2 | 1,934 | 2,083 | 1,718 | | liabilities | | | | | -------------------------------------------------------------------------------- | Current liabilities | | | | | -------------------------------------------------------------------------------- | Trade and other payables | | 26,396 | 42,399 | 36,349 | -------------------------------------------------------------------------------- | Interest bearing loans and | 8 | 198 | 259 | 117 | | borrowings | | | | | -------------------------------------------------------------------------------- | Retirement benefit | 9 | 66 | 66 | 64 | | obligations | | | | | -------------------------------------------------------------------------------- | Provisions | 10 | 3 | 190 | 306 | -------------------------------------------------------------------------------- | Total current liabilities | 2.2 | 26,663 | 42,914 | 36,836 | -------------------------------------------------------------------------------- | Total liabilities | | 28,597 | 44,997 | 38,554 | -------------------------------------------------------------------------------- | TOTAL EQUITY AND | 2.2 | 259,633 | 319,524 | 287,606 | | LIABILITIES | | | | | -------------------------------------------------------------------------------- CONSOLIDATED CASH FLOW STATEMENT -------------------------------------------------------------------------------- | | Notes | 9 months to | 9 months to | | | | 30 September | 30 September | | | | 2009 | 2008 | -------------------------------------------------------------------------------- | Operating activities | | | | -------------------------------------------------------------------------------- | Profit for the period | | 49,451 | 66,373 | -------------------------------------------------------------------------------- | Adjustments for: | | | | -------------------------------------------------------------------------------- | Depreciation, amortisation and | 2.1, 3 | 29,281 | 27,606 | | impairment of fixed and intangible | | | | | assets | | | | -------------------------------------------------------------------------------- | (Profit) / loss from sales and | | (266) | (390) | | discards of fixed assets | | | | -------------------------------------------------------------------------------- | Net (income) / expenses from | | (61) | 176 | | associated companies | | | | -------------------------------------------------------------------------------- | Provisions | | (187) | (160) | -------------------------------------------------------------------------------- | Financial items | | (2,489) | (2,440) | -------------------------------------------------------------------------------- | Miscellaneous non-cash items | | 87 | (19) | -------------------------------------------------------------------------------- | Cash flow before change in working | | 75,816 | 91,146 | | capital | | | | -------------------------------------------------------------------------------- | Change in current receivables | | 11,899 | (1,359) | -------------------------------------------------------------------------------- | Change in inventories | | 1,506 | (977) | -------------------------------------------------------------------------------- | Change in current liabilities | | (15,837) | (6,434) | -------------------------------------------------------------------------------- | Change in working capital | | (2,432) | (8,770) | -------------------------------------------------------------------------------- | Cash flow after changes in working | | 73,384 | 82,376 | | capital | | | | -------------------------------------------------------------------------------- | Interest received | | 3,004 | 3,372 | -------------------------------------------------------------------------------- | Interest paid | | (176) | (246) | -------------------------------------------------------------------------------- | Cash flow from operating activities | 2.2 | 76,212 | 85,502 | -------------------------------------------------------------------------------- | Investing activities | | | | -------------------------------------------------------------------------------- | Intangible and tangible fixed assets | 2.2, 3 | (22,918) | (30,278) | | acquired | | | | -------------------------------------------------------------------------------- | Intangible and tangible fixed assets | | 415 | 614 | | divested | | | | -------------------------------------------------------------------------------- | Other financial investments acquired | | (102) | - | -------------------------------------------------------------------------------- | Net change in interest-receivables | | 31,956 | 25,184 | | short maturities | | | | -------------------------------------------------------------------------------- | Net cash changes of other long-term | | 4,132 | 203 | | receivables | | | | -------------------------------------------------------------------------------- | Cash flow from investing activities | 2.2 | 13,483 | (4,277) | -------------------------------------------------------------------------------- | Cash flow before financing | | 89,695 | 81,225 | | activities | | | | -------------------------------------------------------------------------------- | Financing activities | | | | -------------------------------------------------------------------------------- | Dividends paid | 7 (e) | (92,942) | (93,058) | -------------------------------------------------------------------------------- | Proceeds from finance lease | 8 | 48 | - | -------------------------------------------------------------------------------- | Repayment of finance lease | 8 | (210) | (84) | | liabilities | | | | -------------------------------------------------------------------------------- | Cash flow used in financing | 2.2 | (93,104) | (93,142) | | activities | | | | -------------------------------------------------------------------------------- | Cash flow for the year | 2.2 | (3,409) | (11,917) | -------------------------------------------------------------------------------- | | | | | -------------------------------------------------------------------------------- | Cash and cash equivalents at | 2.2 | 23,206 | 25,359 | | beginning of year | | | | -------------------------------------------------------------------------------- | Cash flow for the year | 2.2 | (3,409) | (11,917) | -------------------------------------------------------------------------------- | Effect of foreign exchange rate | 2.2 | (3) | 14 | | changes | | | | -------------------------------------------------------------------------------- | Cash and cash equivalents at end of | 2.2 | 19,794 | 13,456 | | period | | | | --------------------------------------------------------------------------------
Consolidated Interim Report of AS Eesti Telekom III Quarter and the first nine months 2009, EUR
| Source: Eesti Telekom
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