Annual report 2012

Letter from the President of the Management Board

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Dear shareholders, investors and partners,

A difficult year is behind us. The Group nevertheless ended the year feeling optimistic, despite the economic crisis.

I have assumed my role as President of the Management Board during a difficult period. A new strategic business plan for the Telekom Slovenije Group until 2016 was adopted in May. When I assumed office in September, I openly committed myself to implementing that plan. Now more than ever, Telekom Slovenije needs a clear vision and development strategy, and an effective system of corporate governance. Among all of the Group’s objectives, two are of particular importance: the Telekom Slovenije Group will continue to be the leading telecommunications provider in Slovenia, while becoming a leading alternative provider on the foreign markets where the Group operates. Together with my colleagues, we have set five priorities to set us on that path: 

  • stabilising the Group’s position on the telecommunications market in Slovenia and abroad;
  • ensuring new revenues sources and cost efficiency;
  • consolidating brands and defining a communications strategy;
  • establishing an efficient organisational structure and human resources management system; and
  • a proactive attitude towards investors and regulatory bodies, and the more rapid resolutions of complaints.


Positive shifts in operations and projects aimed at securing new revenue sources

It is satisfying to report that we achieved the majority of planned operating results and implemented several breakthrough projects. The aim of those projects is to secure new revenue sources to facilitate future profitability. We modernised networks in Slovenia and offered increasingly mobile users many new services and applications. Positive shifts were seen in the operations of the Group’s companies in South-Eastern Europe. We reversed negative trends in revenues in Macedonia and achieved growth for the first time in several years. In Kosovo, we built our own fibre optic backbone network, which will soon be linked in a regional fibre optic network. The Group also enjoys a good position in Bosnia and Herzegovina, where it is one of the fastest growing operators.

We are developing long-term sustainable operations, while responsibly managing the economic, social and environmental impacts of the Group’s operations in accordance with sustainable development principles. A great deal of attention is given to the development of services at all levels. The majority of Slovenian telecommunications traffic and data transfer flows through our infrastructure. We demonstrate that we are not merely the owner of the infrastructure, but a comprehensive provider of all services and solutions linked to the concept of TIME, which integrates telecommunications, information technology, media and entertainment. Here lie our opportunity and challenge, and the times dictate that we seize that opportunity.


Higher profits despite an expected decline in revenues

The bases for defining the Group’s future operating conditions lie in the adverse macroeconomic conditions and trends on the global market of traditional telecommunications, which are not very encouraging. Revenues generated by the primary services of fixed and mobile telephony continue to decline at the majority of leading operators, and the same holds true for Telekom Slovenije. A great deal of effort is therefore being invested with the aim of maintaining current users and introducing new, technologically advanced services and content. We have also focused on the Group-wide reduction of all types of costs. Of long-term importance to maintaining and increasing the profitability of operations is the expansion of operations to the growing segments of television, digital advertising, and management and cloud computing services. These are new and innovative services linked to user mobility, which are made possible by electronic communications.

Through the implementation of its business plan, the Telekom Slovenije Group generated EUR 793.1 million in operating revenues, a decrease of 3.8 % compared with the previous year. Earnings before interest and taxes (EBIT) reached EUR 62.5 million, a decrease of 1 % compared with the previous year. EBITDA (earnings before interest, taxes, depreciation and amortisation) reached EUR 241.6 million or 30.5 % of operating revenues. The Telekom Slovenije Group generated a net profit of EUR 43.7 million, an increase of 28 % or EUR 9.7 million relative to 2011.

Of great importance to the relatively good operating results were the operations of subsidiaries, in particular at the Macedonian company One, where operating revenues were up 7 % and positive EBITDA was achieved. The EBIT of the aforementioned mentioned company remains negative, but a reversal in that trend is planned.

The operating results achieved would not have been possible without three core drivers: the continued enhancement of cost efficiency, the comprehensive restructuring of operations and the optimisation of business processes. The re-engineering and optimisation of those processes, which is far from complete, brought encouraging savings in 2012.


New investment cycle

Despite the adverse economic situation, the Group intensified its investment activities with the aim of expanding accessibility to new, state-of-the-art and high-quality telecommunication services. EUR 128.1 million was earmarked for investments in fixed assets at the Group level, an increase of 39 % relative to 2011, while EUR 78.2 million was earmarked for the parent company Telekom Slovenije. Investments as a proportion of operating revenues thus reached 16 %, comparable with other successful operators in the European Union. The investments carried out confirm the Group’s awareness of the need to transform the Group into a contemporary, advanced operator that introduces new business models.

The majority of investments were earmarked for the construction and modernisation of networks. At the forefront were third and fourth generation mobile networks, the shortening of the local loop and the upgrade of local copper-based networks and fibre optic networks for the needs of broadband internet access. Other investments were earmarked for new services such as cloud computing, digital advertising, management services, etc. 

Among the most important investment projects kicked off last year is the introduction of fourth generation LTE mobile telecommunications technology, which will significantly improve the convergent core network. The latest and significantly faster mobile broadband data services will be offered in Telekom Slovenije’s network in 2013. The aforementioned services will initially cover all major Slovenian cities.


Development of corporate governance

The Group is developing an organisational structure that will strengthen the corporate governance system of Group companies. It is based on a matrix model that is in line with the latest best practices of comparable international and Slovenian companies. Functions at the parent company thus have more influence over the organisation and functioning of the same or similar functions at subsidiaries. This strategic process applies standard corporate governance principles, and the harmonisation of operations at Group companies. Strategic standards for the entire Group have been drafted taking into account the parent company’s areas of operation (sales, the network, finance, IT, personnel, legal and general affairs and support).


Positive economic, social and environmental impacts

The Telekom Slovenije Group implements sustainable development principles through consistent compliance with the law and contractual relations, and through a responsible attitude to users and employees. This document demonstrates that we increasingly see non-financial indicators as clear and measurable indications of our success.

As a major employer, the Group ensures a positive working environment, training and career development, and a high level of health and safety at work in all local environments. It is very satisfying that those efforts led to a tangible improvement in the organisational climate at all Group companies in 2012. It means a great deal to us that such an achievement occurred during the comprehensive re-engineering of business processes and the simultaneous reorganisation of the Group, and thus serves as impetus to continue our efforts.

We use the expertise we possess as a high-tech company for the efficient use of environmental, energy and related technologies to the benefit of our users, for ourselves and for the benefit of society as a whole. Through new solutions and the development of mobile and cloud computing services, the Group is providing private and business users services that reduce its environmental impact.

Energy consumption is one of the key environmental impacts in telecommunications. Telekom Slovenije therefore implemented an ISO 50001 system for efficient energy management, which we expect to limit energy consumption while increasing cost efficiency. A 3 % reduction in electricity consumption measured in kWh was recorded at Telekom Slovenije in 2012. Although we have achieved the majority of our established objectives, many opportunities for improvement lie before us.

The Telekom Slovenije Group shares the value it generates with the social environment and is considered one of the most important supporters of sporting, cultural, educational and humanitarian activities. Here, we should make special note of our support for top-flight sports and vulnerable social groups that have become even more vulnerable in the current adverse economic conditions.


Responsiveness for long-term development

Based on operating results for 2012 and previous years, I believe we can look optimistically into the future. The work of all Group employees and the previous President of the Management Board are reflected in the results we have achieved. I would also like to thank my colleagues on Telekom Slovenije’s Management Board for their positive cooperation and hard work. Together, we are prepared for the challenges that lay ahead in the future.

We are aware that results cannot be achieved by themselves, and that we will have to continue with measures that have already proven effective to achieve our objectives. We, ourselves, will also change and adapt on the dynamic telecommunications market. We have already adopted a quality and deliberate medium-term operating and development strategy that is constantly updated with the latest practices and findings. We provide new and technologically advanced products and services that contribute to developmental breakthroughs in the knowledge society. I believe that we have the experience, knowledge, ability and will keep the world going round, together.   

 

Ljubljana, 26 March 2013

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Rudolf Skobe, MSc
President of the Management Board Telekom Slovenije, d.d.