(Translation of the Estonian original) 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 AS Eesti Telekom Council has given the Board approval to initiate mergers and enter into relevant agreements with the goal to simplify Eesti Telekom Group structure, by merging AS EMT with its 100% subsidiaries EMT Esindused AS and AS Mobile Wholesale, and Elion Ettevõtted AS with its 100% subsidiary Elion Esindus AS. The aim is to achieve greater efficiency in business processes. The mergers are planned to be concluded by August 2009 at the latest. The planned merger will not cause any changes in financial reporting as the results of EMT Group and Elion Group are already consolidated. In June 2009, AS MicroLink Eesti, wholly owned by AS Eesti Telekom, sold its enterprise resource planning and software development operations to AS Helmes. From now on, AS MicroLink Eesti will concentrate on providing ICT outsourcing, such as information management, IT systems hosting and management for businesses as well as training computer users and top specialists. The sale of dispensable operations of its subsidiary will not have great impact on AS Eesti Telekom economic results. Shareholders' general meeting The regular general meeting of the AS Eesti Telekom shareholders took place on 20 May 2009. The general meeting approved the 2008 Annual Report and the Proposal for the Distribution of Profits. The AS Eesti Telekom shareholders were paid a dividend of 0.67 EUR per share, or a total of 92.6 million EUR, for the previous financial year. The dividends were paid out on 16 June 2009 based on the list of shareholders that was fixed as of 5 June 2009 at 11:59 pm. Accumulated profits of 61.7 million EUR were retained. The general meeting recalled the current AS Eesti Telekom supervisory board and elected the following as members of the new supervisory board: Mats Salomonsson, Juha-Pekka Weckström, Freenasp Mobedjina, Lars Gunnar Klasson, Tarmo Porgand, Jüri Raatma and Aare Tark. The general meeting selected AS PricewaterhouseCoopers (reg. code 10142876) as the AS Eesti Telekom auditor for the 2009 financial year. The provision of and payment for the auditing services shall take place based on a contract to be concluded with the auditing firm. Ownership structure of AS Eesti Telekom During the second quarter of 2009, there were no significant changes in the structure of the AS Eesti Telekom shareholders. The Eesti Telekom majority shareholder TeliaSonera AB (through Baltic Tele AB) continues to own 60.12% of the company's shares. As of the end of the second quarter, the ratio of freely traded shares converted to GDRs was 12.71%. Of these, 10.33% were converted into GDRs traded on the London Stock Exchange. As of 30 June 2009, the 10 largest shareholders in AS Eesti Telekom were: -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | | 30 June 2009 | -------------------------------------------------------------------------------- | | No of shares | Participation | -------------------------------------------------------------------------------- | | Changes since | | | 31 March 2009 | -------------------------------------------------------------------------------- | Baltic Tele AB | 82, | 60.12% | - | | | 936,299 | | | -------------------------------------------------------------------------------- | Ministry of Finance | 33,346,46 | 24.17% | - | | | 4 | | | -------------------------------------------------------------------------------- | Development Fund | 4,138,636 | 3.00% | - | -------------------------------------------------------------------------------- | SEB clients | 2,349,205 | 1.70% | (469,541) | -------------------------------------------------------------------------------- | ING Luxembourg S.A. | 2,137,813 | 1.55% | 82,030 | -------------------------------------------------------------------------------- | Deutsche Bank (GDR accounts) | 1,810,971 | 1.31% | (435,867) | -------------------------------------------------------------------------------- | Clearstream Banking Luxembourg | 623,158 | 0.45% | 44,857 | | S.A. clients | | | | -------------------------------------------------------------------------------- | Mellon Treaty Omnibus | 496,473 | 0.36% | 133,000 | -------------------------------------------------------------------------------- | UniCredit Bank Austria AG | 439,918 | 0.32% | (32,230) | -------------------------------------------------------------------------------- | State Street Bank and Trust | 381,045 | 0.28% | 45,100 | | Omnibus Account | | | | -------------------------------------------------------------------------------- AS Eesti Telekom shares In the second quarter of 2009, the price of AS Eesti Telekom shares decreased by 9.77%. The share price at the beginning of the quarter was 4.81 EUR and 4.34 EUR at the end of the quarter. The highest and lowest share prices during the reporting period were 5.45 EUR and 4.28 EUR respectively. The turnover for the reporting period was 10.7 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). At the same time, there is a continuing growth of mobile postpaid, mobile and fixed broadband and TV customers. Significant financial indicators Eesti Telekom Group -------------------------------------------------------------------------------- | | Q2 | Q2 | Chang | HY1 | HY1 | Change | | | 2009 | 2008 | e, % | 2009 | 2008 | , % | -------------------------------------------------------------------------------- | Total revenues, million | 86.2 | 100.1 | (13.9 | 171.6 | 195.0 | (12.0) | | EUR | | | ) | | | | -------------------------------------------------------------------------------- | EBITDA, million EUR | 34.3 | 39.2 | (12.6 | 67.3 | 76.0 | (11.5) | | | | | ) | | | | -------------------------------------------------------------------------------- | Margin, % | 39.7 | 39.1 | | 39.2 | 39.0 | | -------------------------------------------------------------------------------- | EBIT, million EUR | 24.6 | 29.9 | (17.7 | 47.6 | 57.8 | (17.6) | | | | | ) | | | | -------------------------------------------------------------------------------- | Margin, % | 28.6 | 29.9 | | 27.7 | 29.6 | | -------------------------------------------------------------------------------- | EBT, million EUR | 25.9 | 31.1 | (16.7 | 50.0 | 60.0 | (16.7) | | | | | ) | | | | -------------------------------------------------------------------------------- | Profit for the period, | 0.4 | 6.5 | | 24.4 | 35.4 | | | million EUR | | | | | | | -------------------------------------------------------------------------------- | Basic earnings per share, | 0.003 | 0.05 | | 0.18 | 0.26 | | | EUR | | | | | | | -------------------------------------------------------------------------------- | Comprehensive income for | 0.4 | 6.5 | | 24.4 | 35.4 | | | the period, | | | | | | | | million EUR | | | | | | | -------------------------------------------------------------------------------- | CAPEX, million EUR | 8.0 | 11.8 | (32.2 | 15.8 | 19.4 | (18.3) | | | | | ) | | | | -------------------------------------------------------------------------------- | Net gearing, % | (7.5) | (14.3 | | (7.5) | (14.3) | | | | | ) | | | | | -------------------------------------------------------------------------------- | ROA, % | 0.1 | 2.1 | | 8.3 | 11.6 | | -------------------------------------------------------------------------------- | ROE, % | 10.3 | 11.9 | | 20.8 | 24.3 | | -------------------------------------------------------------------------------- Mobile communications segment -------------------------------------------------------------------------------- | | Q2 | Q2 | Chang | HY1 | HY1 | Change | | | 2009 | 2008 | e, % | 2009 | 2008 | , % | -------------------------------------------------------------------------------- | Total revenues, million | 49.1 | 60.0 | (18.1 | 96.4 | 115.8 | (16.8) | | EUR | | | ) | | | | -------------------------------------------------------------------------------- | EBITDA, million EUR | 19.1 | 23.3 | (18.1 | 36.6 | 44.3 | (17.5) | | | | | ) | | | | -------------------------------------------------------------------------------- | Margin, % | 38.9 | 38.9 | | 38.0 | 38.3 | | -------------------------------------------------------------------------------- | EBIT, million EUR | 14.8 | 19.1 | (22.5 | 28.0 | 36.1 | (22.6) | | | | | ) | | | | -------------------------------------------------------------------------------- | Margin, % | 30.1 | 31.8 | | 29.0 | 31.2 | | -------------------------------------------------------------------------------- | EBT, million EUR | 15.7 | 19.7 | (20.7 | 29.5 | 37.2 | (20.7) | | | | | ) | | | | -------------------------------------------------------------------------------- | Profit for the period, | 0.6 | 5.6 | | 14.5 | 23.0 | | | million EUR | | | | | | | -------------------------------------------------------------------------------- | Comprehensive income for | 0.6 | 5.6 | | 14.5 | 23.0 | | | the period, | | | | | | | | million EUR | | | | | | | -------------------------------------------------------------------------------- | CAPEX, million EUR | 3.7 | 4.6 | (17.7 | 8.5 | 8.2 | 3.9 | | | | | ) | | | | -------------------------------------------------------------------------------- | ROA, % | 0.5 | 4.1 | | 11.4 | 17.8 | | -------------------------------------------------------------------------------- | ROE, % | 16.0 | 20.4 | | 32.4 | 42.1 | | -------------------------------------------------------------------------------- Broadband services segment -------------------------------------------------------------------------------- | | Q2 | Q2 | Chang | HY1 | HY1 | Change | | | 2009 | 2008 | e, % | 2009 | 2008 | , % | -------------------------------------------------------------------------------- | Total revenues, million | 47.1 | 51.4 | (8.3) | 93.6 | 100.2 | (6.6) | | EUR | | | | | | | -------------------------------------------------------------------------------- | EBITDA, million EUR | 14.9 | 15.7 | (5.1) | 30.8 | 31.5 | (2.3) | -------------------------------------------------------------------------------- | Margin, % | 31.7 | 30.6 | | 32.9 | 31.4 | | -------------------------------------------------------------------------------- | EBIT, million EUR | 10.0 | 11.1 | (9.8) | 20.9 | 22.3 | (6.2) | -------------------------------------------------------------------------------- | Margin, % | 21.2 | 21.5 | | 22.4 | 22.3 | | -------------------------------------------------------------------------------- | EBT, million EUR | 10.1 | 11.2 | (9.6) | 21.1 | 22.6 | (6.6) | -------------------------------------------------------------------------------- | Profit for the period, | (0.4) | 2.7 | | 10.5 | 14.1 | | | million EUR | | | | | | | -------------------------------------------------------------------------------- | Comprehensive income for | (0.4) | 2.7 | | 10.5 | 14.1 | | | the period, | | | | | | | | million EUR | | | | | | | -------------------------------------------------------------------------------- | CAPEX, million EUR | 4.1 | 6.9 | (40.7 | 7.0 | 10.5 | (33.8) | | | | | ) | | | | -------------------------------------------------------------------------------- | ROA, % | (0.2) | 1.6 | | 6.4 | 8.3 | | -------------------------------------------------------------------------------- | ROE, % | 8.3 | 8.8 | | 18.1 | 18.5 | | -------------------------------------------------------------------------------- IT services segment -------------------------------------------------------------------------------- | | Q2 | Q2 | Chang | HY1 | HY1 | Change | | | 2009 | 2008 | e, % | 2009 | 2008 | , % | -------------------------------------------------------------------------------- | Total revenues, million | 4.4 | 5.6 | (20.1 | 8.4 | 10.6 | (21.0) | | EUR | | | ) | | | | -------------------------------------------------------------------------------- | EBITDA, million EUR | 0.5 | 0.5 | 15.6 | 0.3 | 0.7 | (55.7) | -------------------------------------------------------------------------------- | Margin, % | 11.7 | 8.1 | | 3.7 | 6.6 | | -------------------------------------------------------------------------------- | EBIT, million EUR | 0.1 | 0.1 | 94.5 | (0.9) | (0.1) | N/A | -------------------------------------------------------------------------------- | Margin, % | 3.0 | 1.2 | | (10.3 | (0.7) | | | | | | | ) | | | -------------------------------------------------------------------------------- | EBT, million EUR | 0.1 | 0.0 | 169.3 | (0.9) | (0.1) | N/A | -------------------------------------------------------------------------------- | Profit for the period, | 0.1 | 0.0 | | (0.9) | (0.1) | | | million EUR | | | | | | | -------------------------------------------------------------------------------- | Comprehensive income for | 0.1 | 0.0 | | (0.9) | (0.1) | | | the period, | | | | | | | | million EUR | | | | | | | -------------------------------------------------------------------------------- | CAPEX, million EUR | 0.1 | 0.3 | (58.1 | 0.3 | 0.6 | (49.7) | | | | | ) | | | | -------------------------------------------------------------------------------- | ROA, % | 1.3 | 0.6 | | (7.8) | (1.4) | | -------------------------------------------------------------------------------- | ROE, % | 1.9 | 1.4 | | (12.1 | (3.4) | | | | | | | ) | | | -------------------------------------------------------------------------------- Sales revenues, operating costs, and profit The Group's sales revenues in the second quarter of 2009 reached 86.2 million EUR (2nd quarter 2008: 100.1 million EUR), and was impacted primarily by regulations imposed on the mobile sector by the European Union and the cooling of the economy. The mobile communications segment's consolidated turnover for the second quarter of 2009 reached 49.1 million EUR, decreasing 18% compared to the second quarter of 2008 (2nd quarter 2008: 60.0 million EUR). The reason for the decrease in total revenues was a reduction in revenues from call services caused by a drop in retail and interconnection prices, which was partially compensated by the growth of volumes for mobile data communications and subcontracting services. During the second quarter, a decrease was also experienced in revenues received from retailing and wholesaling compared to a year ago, which was caused by changes in consumer behavior. In addition, call minutes initiated by the customers decreased by 7% and the number of call minutes entering the EMT network decreased by 4% compared to the second quarter of 2008, which resulted from the customers' wish to limit consumption. As of the end of the second quarter of 2009, the EMT customer base was smaller by 9 thousand compared to the previous year, declining to 746 thousand active SIM cards (30 June 2008: 755 thousand cards). Compared to the previous year, the number of contractual customers increased by 4 thousand, reaching 484 thousand by the end of the second quarter of 2009; at the same time, the number of active users of prepaid cards decreased by 13 thousand to 262 thousand. EMT assesses its market share of active SIM cards to be 47%. The estimated penetration of active cards in Estonia is 118%. As of May, EMT provides a new MinuEMT (MyEMT) mobile and Internet package to its customers, whereby the customer can choose the volumes of the three basic mobile communications - calls, text messages, and Internet - that he or she wishes to use. The MinuEMT solution was well-received by the customers since it includes flexible and personal approaches for various customer segments. Pursuant to a resolution of the Communications Board, the interconnection fee for AS EMT, Elisa Eesti AS and Tele2 Eesti AS was fixed at 0.11 EUR for the period 1 July 2007 to 30 June 2008. For the period 1 July 2008 to 30 June 2009, the Competition Board, which is the legal successor to the Communications Board, established a fee of 0.09 EUR per minute for the termination of voice calls in the mobile phone networks of AS EMT, Elisa Eesti AS and Tele2 Eesti AS. Based on a decision dated 26 March 2009, the Competition Board announced new market analysis results, based on which ProGroup Holding OÜ, in addition to AS EMT, Elisa Eesti AS and Tele2 Eesti AS, was declared an undertaking with significant market power in the market for the termination of voice calls in its mobile phone network. According to the resolution, within the framework of the price control obligation, the given companies will be obligated to apply benchmark-based interconnection fees that correspond to the average in the European countries until 30 June 2012, which makes 0.09 EUR per minute the maximum tariff to be applicable as of 1 July 2009. 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%. The broadband services segment's sales revenues reached 47.1 million EUR in the second quarter (2nd quarter 2008: 51.4 million EUR). Compared to the same period of the previous year, the decrease of revenues in the broadband services segment totaled 8%. The decrease in revenues was related primarily to a reduction in the sales volumes of telecommunications and IT goods, as well as the reduction of minute volumes of call services. As a result of the drop in volumes, retail sales revenues decreased by 38% and the revenues earned from end consumers for domestic call services decreased by 17%, due to the general drop in minute volumes in the Estonian market. The turnover for international call services decreased by 25%, which is related primarily to a reduction in the minute volumes for international calls initiated in mobile networks. The turnover for subcontracted call communications services decreased by 7% based on a reduction in additional services. At the same time, the revenues earned from the sale of connections increased by 1.4%. The greatest increase was in monthly fees received for triple-play solutions, which grew by 1.0 million EUR compared to the previous year. The sales turnover for data communications solutions and leasing revenues from permanent lines increased 7% and 5% respectively. As a result of the continuing trend of replacing individual call communications and Internet services with triple-play service packages, the revenues from the given individual products decreased by 0.9 million EUR. The adjustment of the triple-play product portfolio for private customers initiated at the end of the first quarter, as well as the introduction of updated Kodulahendus products and the Start package has been successful for Elion. Within the framework of the updated Kodulahendus products, Elion customers are provided with a free second viewing location and WiFi access in the 800 Elion WiFi networks throughout Estonia. In the second quarter, the number of users of the Elion triple-play package increased by 5,000, reaching 87.1 thousand as of 30 June (30 June 2008: 62.3 thousand). As of the end of the second quarter, Elion had 88.4 thousand IP and cable-TV (30 June 2008: 67.7 thousand). Elion assesses that the company's market share in the cable market increased by 5% during the year, reaching 29% by the end of the second quarter (30 June 2008: 24%). The total number of Elion customers with permanent Internet connections increased by 6.9 thousand compared to the previous year, reaching 175.2 thousand by the end of June (30 June 2008: 168.3 thousand). The slight reduction in the number of connections is caused by an increase in the number of products disconnected due to arrears accounts. 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 second quarter, the number of Elion's total means of communication totaled 460 thousand (30 June 2008: 473 thousand interfaces). The reduction in number of total means of communications 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 80% (30 June 2008: 81%). The market share for local call minutes is 82% (30 June 2008: 83%), 69% for international call minutes (30 June 2008: 66%), and 70% for call minutes made to mobile phones (30 June 2008: 71%). The increase of the international call market share is explained by a change in accounting methods. The company assesses that the given market share has remained at the same level for the last few years. At the beginning of the second quarter, Elion, EMT, and MicroLink in cooperation with the Behold the World! Foundation started a large-scale project to introduce people to the Internet, entitled “Join Us!”. The project was initiated in order to reduce the information stratification of the society, which results to a great extent from the fact that 300,000 adults living Estonia today lack access to the Internet. The purpose of the project is to organize computer-related basic training and refresher courses for 100,000 people and to increase the number of Internet users by 50,000 families during the next three years. In June, Elion signed a cooperation agreement with the Tallinn Business Incubators Foundation, which enables start-up businesses to use IT and communications services provided by Elion under favorable conditions. The purpose of the cooperation is to promote the competitiveness of start-up businesses by providing companies with modern information technology solutions and consultations by competent specialists that correspond to the company's needs, in addition to discounted prices. In June, Elion signed a cooperation agreement with one of Russia's most influential telecommunications companies, Synterra CJSC, which creates a basis for close cooperation between Estonia and Russia related to services for an information society. The cooperation enables Estonian Internet users to have faster access to Russian Internet resources and vice versa. In subsequent stages, there are plans to cooperate in the field of IP services, in order to provide access to the customers of both companies; cooperation will also be initiated to broker IP transit traffic between Russia and Europe. The companies in the Synterra Group provide call and data communications services, and have connections throughout Russia. The Group is primarily focused on servicing large infrastructure companies, state companies and government institutions. In 2008, the Group's consolidated revenues were more than 527 million dollars. In April, AS Starman filed an action against Elion in Harju County Court for 0.4 million EUR plus interest for the amount allegedly overpaid as a rental fee for cable conduits between 1 February 2006 and 1 January 2008. Elion increased the rental fee on 1 February 2006 and decreased it on 1 January 2008 based on amended regulations. Elion filed actions against Elisa and Tele2 for 1.7 and 1.9 million EUR respectively, which is also subject to late penalties, for overpaid connection fees paid in 2006-2007. The IT services segment's sales revenues in the second quarter of 2009 reached 4.4 million EUR (2nd quarter 2008: 5.6 million EUR). Compared to the same period in the previous year, the sales revenues decreased by 20%, whereas the sales revenues for IT merchandise decreased by 45.1%; the sales revenues for project-based services increased by 16%; and the sales revenues for permanent services decreased by 4.3%. The reduction of the 2009 national budget by 500 million EUR had a significant impact on Estonia's IT sector. Several procurements have been postponed and the results of completed procurements have been cancelled. At the same time, the activation of European Union Structural Fund financing had a positive impact in the second quarter. The sales revenues from infrastructure solutions were significantly smaller in the second quarter than in the same period last year. The reason is the general decline in the IT market. Currently, the same recessionary trend is being experienced by all IT companies that deal with merchandise sales. In the field of business solutions, the important projects in the second quarter included the introduction of IncidentMonitori at Eesti Energia, the introduction of various information systems and development projects at the Tax and Customs Board and Ministry of Defense, as well as the sale of some large licenses. At the end of June 2009, in connection with its focus on the provisions on permanent IT services, MicroLink Eesti withdrew from the fields of financial software installation and software development. In order to guarantee MicroLink's financial software and software development clients with continued high-quality service, MicroLink chose Helmes as a reliable and suitable partner. MicroLink's financial software business (Dynamics AX and SAP) will continue as a 100% subsidiary of Helmes. The software development business will be merged with Helmes. MicroLink will focus on providing permanent IT services, by providing information management, IT system hosting and management services, training for computer users and top specialists, as well as consultations services (ITIL, ISKE, etc.). In the field of permanent services, during the second quarter, AS MicroLink Eesti won the procurement organized by the Ministry of Social Affairs for the management of workstations. In the second quarter MicroLink Eesti also continued to provide management services for work stations at the Tallinn City Government. The sales revenues for permanent services in the second quarter remained at the same level as during the first quarter. The operating costs of the Eesti Telekom Group decreased by 15% in the second quarter of 2009 compared to the same period in 2008, reaching 52.4 million EUR (2nd quarter 2008: 61.4 million EUR). The operating costs in the mobile communications segment decreased by 18% compared to the second quarter of 2008, reaching 30.1 million EUR (2nd quarter 2008: 36.8 million EUR). The greatest decrease was in operating costs related to retailing and wholesaling, which corresponds to the drop in merchandise sales turnovers. A decrease was also experienced in interconnection costs based on a drop in interconnection prices. The successful implementation of efficiency plans also helped to reduce costs. The operating costs in the broadband services segment decreased during the last quarter by 10% compared to the same period in 2008, reaching 32.2 million EUR (2nd quarter 2008: 36.0 million EUR). Most of the reduction in operating costs resulted from a drop in direct costs, which was related to the decreases in retail sales volumes, call minute volumes and the volumes for call communications subcontracting services. A significant impact on the decrease in operating costs also resulted from the efficiency projects initiated last year, which are related to a reduction in maintenance costs for network resources, personnel costs, IT costs, invoice issuance costs and transport costs. The operating costs in the IT services segment decreased in the second quarter by 18% reaching 4.2 million EUR (2nd quarter 2008: 5.1 million EUR). The operating costs for the quarter were affected on the one hand by the expansion of business activities, and on the other hand, by the lower purchasing costs for merchandise that accompanied lower sales turnovers; in addition both of the Group's companies have succeeded in reducing other operating costs (including a reduction of 11.6% in the other operating costs of MicroLink Eesti as an independent company). The Eesti Telekom Group EBITDA decreased in the second quarter of 2009 by 13% compared to the same period in the previous year, reaching 34.3 million EUR (2nd quarter 2008: 39.2 million EUR). The EBITDA in the mobile communications services segment decreased by 18% in the second quarter compared to the same period last year. Since the decrease in the operating costs was almost proportional to the reduction in turnover, the EBITDA margin for the mobile communications services segment remained at the same level as the corresponding period in the previous year. In the second quarter, the EBITDA for the broadband segment has decreased by 5% compared to the same period last year, reaching 14.9 million EUR (2nd quarter 2008: 15.7 million EUR). The EBITDA for the IT services segment in the second quarter of 2009 was 0.5 million EUR (2nd quarter 2008: 0.5 million EUR). The Group's EBITDA margin in the second quarter of 2009 was 40%, which was 1% higher than the corresponding margin for the same period last year. The Group's depreciation costs reached 9.6 million EUR in the second quarter of 2009, increasing 4% compared to the same period in 2008 (2nd quarter 2008: 9.3 million EUR). In the second quarter, the Eesti Telekom Group earned EBIT of 24.6 million EUR, which was a decrease of 18% compared to the same period in the previous year (2nd quarter 2008: 29.9 million EUR) and pre-tax profits of 25.9 million EUR (2nd quarter 2008: 31.1 million EUR). On 16 June of this year, AS Eesti Telekom paid its shareholders dividends of 0.67 EUR per share totaling 92.6 million EUR, which is similar to last year (2008: 92.6 million EUR). In order to facilitate the payment to AS Eesti Telekom shareholders, AS EMT paid the parent company dividends of 56.2 million EUR (2nd quarter 2008: 52.4 million EUR) and Elion Enterprises paid 39.6 million EUR (2nd quarter 2008: 32.0 million EUR). The payment of dividends was accompanied by an income tax cost for the dividends of 25.5 million EUR (2nd quarter 2008: 24.7 million EUR), of which AS EMT pays 15.0 million EUR (2nd quarter 2008: 14.2 million EUR) and Elion Enterprise paid 10.5 million EUR (2nd quarter 2008: 8.5 million EUR). The profit for the Eesti Telekom Group for the first half-year of 2009 totaled 24.4 million EUR (first half-year of 2008: 35.4 million EUR). The earnings per share were 0.18 EUR (first half-year of 2008: 0.26 EUR). The total comprehensive income of the Group for the first half-year of 2009 was 24.4 million EUR (first half-year of 2008: 35.4 million EUR). Statement of financial position and cash flows As of 30 June 2009, the Eesti Telekom Group balance sheet totaled 265.8 million EUR (31 December 2008: 319.5 million EUR). Compared to the beginning of the year, the non-current assets have decreased by 5.7 million EUR, the balance of which reached 181.3 million EUR by the end of the quarter. The Group's current assets decreased by 48.1 million EUR during the first half-year, reaching 84.5 million EUR by the end of June (31 December 2008: 132.6 million EUR). Cash and cash equivalents, as well as short-term financial investments, have decreased by 39.2 million EUR in connection with the dividend paid out in June. As of 30 June 2009, the Eesti Telekom Group equity was 206.0 million EUR, which is 68.5 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 totaling 92.6 million EUR. At the same time, equity has been increased by a profit of 24.4 million EUR in the first half-year of 2009. As of the end of June, long-term obligations totaled 2.0 million EUR (31 December 2008: 2.1 million EUR) and short-term debt obligations totaled 57.8 million EUR (31 December 2008: 42.9 million EUR). The growth of short-term debt obligations results from the income tax liability for the 25.5 million EUR worth of dividends to be paid in July. The net debt of the Eesti Telekom Group at the end of the second quarter was -15.5 million EUR and the net gearing ratio was -7.5% (31 December 2008: -54.5 million EUR and -20%). The Eesti Telekom Group cash flow from operations during the first half-year of 2009 was 66.1 million EUR (first half-year of 2008: 73.1 million EUR). The Group's investment cash flow was 19.7 million EUR (first half-year of 2008: 25.5 million EUR). The cash flow into the acquisition of tangible and intangible fixed assets during the first half-year was 15.8 million EUR (first half-year of 2008: 19.4 million EUR). In the first six months of 2009, the mobile communications segment invested 8.5 million EUR (first half-year of 2008: 8.2 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 town. At the same time, the constant improvement of the GSM network continued. Investments into the broadband services segment totaled 7.0 million EUR (first half-year of 2008: 10.5 million EUR). The principal part of the capital volumes was related to the development of network resources, changes in the private customers' product portfolio, and the improvement of and expansion of the availability of the triple-service packages. In the first half-year of 2009, the IT services segment invested 0.3 million EUR into fixed assets (first half-year of 2008: 0.6 million EUR). In the first six months of this year, the Eesti Telekom Group cash flow into financial activities was 93.1 million EUR, of which 92.6 million EUR was used to pay dividends for AS Eesti Telekom shareholders (in the first six months of 2008, these amounts were 92.7 million EUR and 92.6 million EUR) and dividends totalling 0.4 million EUR (6 months of 2008: 0.5 million EUR) were paid to minority shareholders (Serenda Invest OÜ minority shareholders). 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 II QUARTER CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME -------------------------------------------------------------------------------- | | Notes | II Quarter | II Quarter | | | | 2009 | 2008 | -------------------------------------------------------------------------------- | Net sales | 2.1 (a) | 86,227 | 100,131 | -------------------------------------------------------------------------------- | Cost of production | 2.1 (a) | (47,646) | (56,322) | -------------------------------------------------------------------------------- | Gross profit | 2.1 (a) | 38,581 | 43,809 | -------------------------------------------------------------------------------- | Sales, administrative, and | 2.1 (a) | (14,379) | (14,333) | | research & development expenses | | | | -------------------------------------------------------------------------------- | Other operating revenues | 2.1 (a) | 463 | 511 | -------------------------------------------------------------------------------- | Other operating expenses | 2.1 (a) | (45) | (81) | -------------------------------------------------------------------------------- | Operating profit | 2.1 (a) | 24,620 | 29,906 | -------------------------------------------------------------------------------- | Finance income | | 1,252 | 1,318 | -------------------------------------------------------------------------------- | Finance costs | | (19) | (38) | -------------------------------------------------------------------------------- | Finance income, net | 2.1 (a) | 1,233 | 1,280 | -------------------------------------------------------------------------------- | Net income / (expenses) from | 2.1 (a) | 93 | (52) | | associated companies | | | | -------------------------------------------------------------------------------- | Profit before tax | 2.1 (a) | 25,946 | 31,134 | -------------------------------------------------------------------------------- | Income tax on dividends | 2.1 (a) | (25,548) | (24,652) | -------------------------------------------------------------------------------- | Profit for the period | 2.1 (a) | 398 | 6,482 | -------------------------------------------------------------------------------- | Other comprehensive income | | | | -------------------------------------------------------------------------------- | Exchange differences on | 2.1 (a) | 2 | - | | translating foreign subsidiaries | | | | -------------------------------------------------------------------------------- | Other comprehensive income for | 2.1 (a) | 2 | - | | the period | | | | -------------------------------------------------------------------------------- | Total comprehensive income | 2.1 (a) | 400 | 6,482 | -------------------------------------------------------------------------------- | Profit attributable to: | | | | -------------------------------------------------------------------------------- | Equity holders of the parent | 2.1 (a) | 457 | 6,474 | -------------------------------------------------------------------------------- | Minority interest | 2.1 (a) | (59) | 8 | -------------------------------------------------------------------------------- | | | 398 | 6,482 | -------------------------------------------------------------------------------- | Comprehensive income attributable | | | | | to: | | | | -------------------------------------------------------------------------------- | Equity holders of the parent | 2.1 (a) | 459 | 6,474 | -------------------------------------------------------------------------------- | Minority interest | 2.1 (a) | (59) | 8 | -------------------------------------------------------------------------------- | | | 400 | 6,482 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | 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 | | 0.003 | 0.05 | -------------------------------------------------------------------------------- | Diluted earnings per share | | 0.003 | 0.05 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EBITDA | 2.1 (a) | 34,257 | 39,183 | -------------------------------------------------------------------------------- | Depreciation, amortization and | 2.1 (a) | (9,637) | (9,277) | | write-downs | | | | -------------------------------------------------------------------------------- I HALF YEAR CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME -------------------------------------------------------------------------------- | | Notes | I HY 2009 | I HY 2008 | 2008 | -------------------------------------------------------------------------------- | Net sales | 2.1 | 171,644 | 194,988 | 395,588 | | | (b), | | | | | | 2.3 | | | | -------------------------------------------------------------------------------- | Cost of production | 2.1 (b) | (96,304) | (109,400) | (225,777) | -------------------------------------------------------------------------------- | Gross profit | 2.1 (b) | 75,340 | 85,588 | 169,811 | -------------------------------------------------------------------------------- | Sales, administrative, and | 2.1 (b) | (28,474) | (28,520) | (57,972) | | research & development | | | | | | expenses | | | | | -------------------------------------------------------------------------------- | Other operating revenues | 2.1 (b) | 946 | 913 | 2,001 | -------------------------------------------------------------------------------- | Other operating expenses | 2.1 (b) | (209) | (180) | (543) | -------------------------------------------------------------------------------- | Operating profit | 2.1 (b) | 47,603 | 57,801 | 113,297 | -------------------------------------------------------------------------------- | Finance income | | 2,364 | 2,452 | 3,527 | -------------------------------------------------------------------------------- | Finance costs | | (41) | (75) | (56) | -------------------------------------------------------------------------------- | Finance income, net | 2.1 (b) | 2,323 | 2,377 | 3,471 | -------------------------------------------------------------------------------- | Net income / (expenses) from | 2.1 (b) | 40 | (159) | (182) | | associated companies | | | | | -------------------------------------------------------------------------------- | Profit before tax | 2.1 (b) | 49,966 | 60,019 | 116,586 | -------------------------------------------------------------------------------- | Income tax on dividends | 2.1 (b) | (25,548) | (24,652) | (24,664) | -------------------------------------------------------------------------------- | Profit for the period | 2.1 (b) | 24,418 | 35,367 | 91,922 | -------------------------------------------------------------------------------- | Other comprehensive income | | | | | -------------------------------------------------------------------------------- | Exchange differences on | 2.1 (b) | 1 | - | 1 | | translating foreign | | | | | | subsidiaries | | | | | -------------------------------------------------------------------------------- | Other comprehensive income | 2.1 (b) | 1 | - | 1 | | for the period | | | | | -------------------------------------------------------------------------------- | Total comprehensive income | 2.1 (b) | 24,419 | 35,367 | 91,923 | -------------------------------------------------------------------------------- | Profit attributable to: | | | | | -------------------------------------------------------------------------------- | Equity holders of the parent | 2.1 (b) | 24,450 | 35,277 | 91,703 | -------------------------------------------------------------------------------- | Minority interest | 2.1 (b) | (32) | 90 | 219 | -------------------------------------------------------------------------------- | | | 24,418 | 35,367 | 91,922 | -------------------------------------------------------------------------------- | Comprehensive income | | | | | | attributable to: | | | | | -------------------------------------------------------------------------------- | Equity holders of the parent | 2.1 (b) | 24,451 | 35,277 | 91,704 | -------------------------------------------------------------------------------- | Minority interest | 2.1 (b) | (32) | 90 | 219 | -------------------------------------------------------------------------------- | | | 24,419 | 35,367 | 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 | | 0.18 | 0.26 | 0.66 | -------------------------------------------------------------------------------- | Diluted earnings per share | | 0.18 | 0.26 | 0.66 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EBITDA | 2.1 (b) | 67,283 | 76,020 | 150,088 | -------------------------------------------------------------------------------- | Depreciation, amortization | 2.1 | (19,680) | (18,219) | (36,791) | | and write-downs | (b), 3 | | | | -------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF FINANCIAL POSITION -------------------------------------------------------------------------------- | | Notes | 30 June | 31 December | 30 June | | | | 2009 | 2008 | 2008 | -------------------------------------------------------------------------------- | ASSETS | | | | | -------------------------------------------------------------------------------- | Non-current assets | | | | | -------------------------------------------------------------------------------- | Property, plant and | 3 | 162,564 | 165,542 | 155,438 | | equipment | | | | | -------------------------------------------------------------------------------- | Intangible fixed assets | 3 | 13,625 | 14,592 | 13,222 | -------------------------------------------------------------------------------- | Investments in associates | 2.2, 5 | 716 | 676 | 699 | -------------------------------------------------------------------------------- | Other financial fixed | | 4,366 | 6,115 | 6,777 | | assets | | | | | -------------------------------------------------------------------------------- | Total non-current assets | 2.2 | 181,271 | 186,925 | 176,136 | -------------------------------------------------------------------------------- | Current assets | | | | | -------------------------------------------------------------------------------- | Inventories | 6 | 9,270 | 10,861 | 10,917 | -------------------------------------------------------------------------------- | Trade and other | | 59,327 | 66,576 | 70,288 | | receivables | | | | | -------------------------------------------------------------------------------- | Short-term investments | | - | 31,956 | - | -------------------------------------------------------------------------------- | Cash and cash equivalents | | 15,939 | 23,206 | 31,243 | -------------------------------------------------------------------------------- | Total current assets | 2.2 | 84,536 | 132,599 | 112,448 | -------------------------------------------------------------------------------- | TOTAL ASSETS | 2.2 | 265,807 | 319,524 | 288,584 | -------------------------------------------------------------------------------- | 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 | -------------------------------------------------------------------------------- | Retained earnings | | 2 | 1 | - | -------------------------------------------------------------------------------- | Net profit for the period | | 86,147 | 154,274 | 97,965 | -------------------------------------------------------------------------------- | Total capital and reserves | | 205,888 | 274,014 | 217,704 | | attributable to equity | | | | | | holders of the parent | | | | | -------------------------------------------------------------------------------- | Minority interest | 2.2, 7 | 116 | 513 | 342 | -------------------------------------------------------------------------------- | Total equity | | 206,004 | 274,527 | 218,046 | -------------------------------------------------------------------------------- | Non-current liabilities | | | | | -------------------------------------------------------------------------------- | Interest bearing loans and | 8 | 288 | 375 | 4 | | borrowings | | | | | -------------------------------------------------------------------------------- | Retirement benefit | 9 | 105 | 138 | 172 | | obligations | | | | | -------------------------------------------------------------------------------- | Provisions | 10 | 1,443 | 1,443 | 1,355 | -------------------------------------------------------------------------------- | Non-interest bearing | | 120 | 127 | 123 | | liabilities | | | | | -------------------------------------------------------------------------------- | Total non-current | 2.2 | 1,956 | 2,083 | 1,654 | | liabilities | | | | | -------------------------------------------------------------------------------- | Current liabilities | | | | | -------------------------------------------------------------------------------- | Trade and other payables | | 57,594 | 42,399 | 68,491 | -------------------------------------------------------------------------------- | Interest bearing loans and | 8 | 178 | 259 | 156 | | borrowings | | | | | -------------------------------------------------------------------------------- | Retirement benefit | 9 | 66 | 66 | 64 | | obligations | | | | | -------------------------------------------------------------------------------- | Provisions | 10 | 9 | 190 | 173 | -------------------------------------------------------------------------------- | Total current liabilities | 2.2 | 57,847 | 42,914 | 68,884 | -------------------------------------------------------------------------------- | Total liabilities | | 59,803 | 44,997 | 70,538 | -------------------------------------------------------------------------------- | TOTAL EQUITY AND | 2.2 | 265,807 | 319,524 | 288,584 | | LIABILITIES | | | | | -------------------------------------------------------------------------------- CONSOLIDATED CASH FLOW STATEMENT -------------------------------------------------------------------------------- | | Notes | I HY 2009 | I HY 2008 | -------------------------------------------------------------------------------- | Operating activities | | | | -------------------------------------------------------------------------------- | Net profit for the period | | 24,418 | 35,367 | -------------------------------------------------------------------------------- | Adjustments for: | | | | -------------------------------------------------------------------------------- | Depreciation, amortisation and | 2.1, 3 | 19,680 | 18,219 | | impairment of fixed and intangible | | | | | assets | | | | -------------------------------------------------------------------------------- | (Profit) / loss from sales and | | (188) | (445) | | discards of fixed assets | | | | -------------------------------------------------------------------------------- | Net (income) / expenses from | | (40) | 159 | | associated companies | | | | -------------------------------------------------------------------------------- | Provisions | | (181) | (362) | -------------------------------------------------------------------------------- | Financial items | | (3,062) | (3,573) | -------------------------------------------------------------------------------- | Income tax on dividends | | 25,548 | 24,652 | -------------------------------------------------------------------------------- | Miscellaneous non-cash items | | (284) | 5 | -------------------------------------------------------------------------------- | Cash flow before change in working | | 65,891 | 74,022 | | capital | | | | -------------------------------------------------------------------------------- | Change in current receivables | | 4,865 | (6,346) | -------------------------------------------------------------------------------- | Change in inventories | | 1,591 | 631 | -------------------------------------------------------------------------------- | Change in current liabilities | | (10,257) | 458 | -------------------------------------------------------------------------------- | Change in working capital | | (3,801) | (5,257) | -------------------------------------------------------------------------------- | Cash flow after changes in working | | 62,090 | 68,765 | | capital | | | | -------------------------------------------------------------------------------- | Interest received | | 4,250 | 4,451 | -------------------------------------------------------------------------------- | Interest paid | | (244) | (158) | -------------------------------------------------------------------------------- | Cash flow from operating activities | 2.2 | 66,096 | 73,058 | -------------------------------------------------------------------------------- | Investing activities | | | | -------------------------------------------------------------------------------- | Intangible and tangible fixed assets | 2.2, 3 | (15,805) | (19,355) | | acquired | | | | -------------------------------------------------------------------------------- | Intangible and tangible fixed assets | | 281 | 555 | | divested | | | | -------------------------------------------------------------------------------- | Net change in interest-receivables | | 31,956 | 47,917 | | short maturities | | | | -------------------------------------------------------------------------------- | Net cash changes of other long-term | | 3,303 | (3,642) | | receivables | | | | -------------------------------------------------------------------------------- | Cash flow from investing activities | 2.2 | 19,735 | 25,475 | -------------------------------------------------------------------------------- | Cash flow before financing | | 85,831 | 98,533 | | activities | | | | -------------------------------------------------------------------------------- | Financing activities | | | | -------------------------------------------------------------------------------- | Dividends paid | 7 (e) | (92,942) | (92,577) | -------------------------------------------------------------------------------- | Repayment of finance lease | 8 | (155) | (84) | | liabilities | | | | -------------------------------------------------------------------------------- | Cash flow used in financing | 2.2 | (93,097) | (92,661) | | activities | | | | -------------------------------------------------------------------------------- | Cash flow for the year | 2.2 | (7,266) | 5,872 | -------------------------------------------------------------------------------- | | | | | -------------------------------------------------------------------------------- | Cash and cash equivalents at | 2.2 | 23,206 | 25,359 | | beginning of year | | | | -------------------------------------------------------------------------------- | Cash flow for the year | 2.2 | (7,266) | 5,872 | -------------------------------------------------------------------------------- | Effect of foreign exchange rate | 2.2 | (1) | 12 | | changes | | | | -------------------------------------------------------------------------------- | Cash and cash equivalents at end of | 2.2 | 15,939 | 31,243 | | period | | | | --------------------------------------------------------------------------------
Consolidated Interim Report of AS Eesti Telekom II Quarter and I Half Year 2009 (EUR)
| Source: Eesti Telekom