Tiscali 2005 Annual Report Download

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ANNUAL REPORT 2005

Table of contents

  • Page 1
    ANNUAL REPORT 2 0 0 5

  • Page 2
    ... IP and VoIP networks in Europe. T hrough its network infrastructure, T iscali is able to supply its customers residential and business with a full range of services, from Internet access - dial-up and ADSL to more specific and technologically advanced products in order to satisfy all market needs.

  • Page 3
    ANNUAL REPORT 2005

  • Page 4
    ... of changes in Shareholders' Equity 59 Directors and Auditors Milestones Core countries' snapshot Key Figures Results by segment A strategic asset: International Network Infrastructure 7 8 10 12 14 Market overview Regulatory background Tiscali Stock Result and performance of the Tiscali Group...

  • Page 5
    ... Statements of the Parent Company as of 31 st December 2005 Result and performance of Tiscali S.p.A. Transition to International Accounting Standards (IAS / IFRS) Balance Sheet Income Statement Notes to the Parent Company financial statements 110 112 114 107 108 Reports of the Independent Auditors...

  • Page 6

  • Page 7
    T iscali Group 5 T I S C A L I G R O U P

  • Page 8
    ... I Management Vittorio Serafino Chairman Tommaso Pompei CEO Massimo Cristofori CFO Sergio Cellini CEO Tiscali Italy Mary Turner CEO Tiscali UK Luca Scano CEO Tiscali Netherlands Carl Müehlner CEO Tiscali Germany Naveed Gill CEO Tiscali Czech Republic Mario Mariani SVP Business Development...

  • Page 9
    BOARD OF DIRECTORS Chairman Vittorio Serafino Chief Executive Officer Tommaso Pompei * Chief Financial Officer Massimo Cristofori Directors Victor Bischoff Francesco Bizzarri Gabriel Prêtre Gabriele Racugno Mario Rosso * Appointed on 11.01.2006 BOARD OF STATUTORY AUDITORS Chairman Aldo Pavan ...

  • Page 10
    ... of Milan. NARROWBAND (DIAL-UP) In March 1999, Tiscali launched the first free Internet access service in Italy giving a significant boost to the growth of the whole market and establishing itself as an undisputed first mover. 8 January 2000 ACQUISITION OF WORLD ONLINE - PAN- EUROPEAN FOOTPRINT...

  • Page 11
    ... ADSL CUSTOMERS August 2004 DISPOSAL OF AUSTRIA, SWITZERLAND, SOUTH AFRICA Core Countries focus BROADBAND (DSL) Following the implementation of its 2004 strategic plan, Tiscali has focused its activities in the European markets with the highest growth and value creation potential: Italy, UK...

  • Page 12
    ...United Kingdom 2005 2004 Change Revenues (EUR ml) EBITDA (EUR ml) ADSL subscribers (000) Market share ULL subscribers (000) Number of Colocations Coverage on households ULL Investments (EUR ml) 325 69 934 10% 25 3% 9 255 48 387 7% - 28% 44% 141% 43% - The Netherlands 2005 2004 Change Revenues...

  • Page 13
    ... 95 -5 225 3% - 6% 180% - 4% - 33% Launched trial phase in the Frankfurt area - Italy 2005 2004 Change Revenues (EUR ml) EBITDA (EUR ml) ADSL subscribers (000) Market share ULL subscribers (000) Number of Colocations Coverage on households ULL Investments (EUR ml) 196 27 303 5% 104 367 35% 29...

  • Page 14
    G R O U P T I S C A L I Broadband Growth ADSL SUBSCRIBERS 000 700 799 856 1,033 1,200 1,380 1,485* 1,715 2,000 1,600 1,200 800 400 * Net of 60k subscribers in resell wholesale model 0 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 disposed to KPN. ADSL REVENUES EUR (ml) 36.9 65.8 87.7 146.5 150.3 ...

  • Page 15
    ... 31 / 12 / 2004 12% 51% 38% 90% Total Assets Net Financial Debt Shareholders' Equity Capex Non Financial Figures (000) 1,043 290 311 169 31 / 12 / 2005 1,468 421 318 130 31 / 12 / 2004 Net additions Access users ADSL (broadband) subscribers 4,723 1,715 5,229 1,033 205 (505) 682 157 of which...

  • Page 16
    ... by segment T I S C A L I G R O U P Revenues by country Revenues by business line United Kingdom 44% Italy 26% The Netherlands 14% Germany 12% Others 4% Access 74% Voice 12% B2B 8% Media and Value Added Services (VAS) 5% Others 1% Group Total Revenues (EUR ml) Group Total Revenues (EUR ml...

  • Page 17
    EBITDA by country ADSL subscribers by country United Kingdom 48% The Netherlands 27% Italy 19% Germany 3% Others 3% United Kingdom 54% Italy 18% The Netherlands 15% Germany 13% Others nm Group EBITDA (EUR ml) Group ADSL subscribers (ml) 117.1 1.7 15 T I S C A L I G R O U P

  • Page 18
    ... A strategic asset: the International Network Infrastructure Fully IP network technology Consolidated experience in the realization and management of IP network Integrated technology Proprietary network infrastructure through Indefeasible Rights of Use (IRU) agreements THE NETWORK IN FIGURES: More...

  • Page 19
    ... Amsterdam London Düsseldorf Antwerp Bruxelles Frankfurt Prague Munich Paris Basel Zurich Vienna Bratislava Milan Venice Turin Genoa Bologna Rome Barcelona Naples Madrid Bari Cagliari METROPOLITAN AREA NETWORK IP/MPLS OVER DWDM RINGS Palermo Athens Catania 17 T I S C A L I G R O U P

  • Page 20
    ...the product offered to the end- user. Bit- stream model: the interconnection to the network of the national telecoms operators is charged at cost. Bit- stream allows alternative operators such as Tiscali to use their own networks, which means they only have to pay the national carrier for access to...

  • Page 21
    BI T- STREAM End Users Local Exchange MAN Incumbent ATM / IP Network DSLAM International Network DSLAM Port National Network ATM / IP Backhaul and Conveyance OLO Access Link UNBUNDLI NG Tiscali Metropolitan Network DSLAM Shared Access DSLAM Port Backhaul and Conveyance 19 Internet T I...

  • Page 22
    ... production time for the spot, reaching also a large target. Thanks to this offer Tiscali enables its ADSL users to make calls using the standard telephone set at competitive call rates. In addition Tiscali ADSL users living in areas covered by the unbundling network do not pay the Telecom Italia...

  • Page 23
    ...The advertising campaign focused on the convenience and quality of the Tiscali offer: Tiscali ADSL including VoIP, 4Mb at Euro 29.95 per month with free national calls and a saving of 60% on international calls and an higher bandwidth. Spontaneous Brand Awareness on " Tiscali" name in September 2005...

  • Page 24

  • Page 25
    Report on Operations

  • Page 26

  • Page 27
    ...the United Kingdom, Italy and Germany. Other important markets, including Holland, are nearing maturity and display a decreasing rate of growth. 2004 2005 2006 2007 SOURCE: JP MORGAN ESTIMATES, COMPANY DATA. According to IDC, by 2010 the revenues deriving purely from access to broadband should...

  • Page 28
    ... offers through such services in order to increase the ARPU and customer loyalty. Even though access will remain the most important application in the medium term, the operators are adapting their strategies to an orientation of access services focused on multiplay. In 2005, the number of broadband...

  • Page 29
    ... SUBSCRIBERS NUMBER OF ULL LINES (000) 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Alternative operators need to reduce their costs in order to deal with ever increasing volumes and price reductions. To this end 2005 saw a strong development of the unbundling network, to the detrim ent of wholesale...

  • Page 30
    ...into 2006 (to exceed 50%). INTERNET ACCESS MARKET - ITALY DIAL- UP LINES DIAL- UP REVENUES BROADBAND LINES BROADBAND REVENUES NUMBER OF LINES (000) 10,000 EUR (ML) 4,000 3,500 UNITED KINGDOM DSL ULL SUBSCRIBERS NUMBER OF DSL LINES (000) 12,000 NUMBER OF ULL LINES (000) 8,000 7,000 8,000 3,000...

  • Page 31
    ...: TISCALI ESTIMATES ON GARTNER, IDC AND DATAXIS DATA The Netherlands The Dutch market has the highest broadband penetration in INTERNET ACCESS MARKET - UNITED KINGDOM DIAL- UP LINES DIAL- UP REVENUES BROADBAND LINES BROADBAND REVENUES Europe. The household's penetration rate as at 31 December 2005...

  • Page 32
    ... penetrations of broadband in Western INTERNET ACCESS MARKET- HOLLAND DIAL- UP LINES DIAL- UP REVENUES BROADBAND LINES BROADBAND REVENUES Europe, Germany is a market that has significant growth potential. Between 2003 and 2005, the penetration rate more than doubled. For 2005, this rate was at...

  • Page 33
    ... the18 Member States. INTERNET ACCESS MARKET- GERMANY DIAL- UP LINES DIAL- UP REVENUES BROADBAND LINES BROADBAND REVENUES With regard to countries in which Tiscali Group operates the Commission's observations relate to: for Italy, the definition of the criteria for a cost based interconnection...

  • Page 34
    ..., 8 th May 2003. R E P O R T O N Italy The price is based on the " retail minus" formula which allows very low margins of around 20% . In the first quarter of 2006, AGCOM approved a provision that introduced a wholesale offer orientated at cost. United Kingdom Wholesale model allows alternative...

  • Page 35
    ... concluded that there are no dominant providers in the residential market. The absence of a bit stream offer for the residential customer base creates difficulties in ranking the investments, as the move is directly from wholesale reselling to ULL, while the same holds true for consolidation of the...

  • Page 36
    ... 23 rd 2005, closing date of the delisting process from the French Stock Exchange, Tiscali shares were also listed on Euronext in Paris. As of December 31 st 2005, the Company had a market capitalization of EUR 1,061 million. The number of shares comprising the share capital increased from 393...

  • Page 37
    ...1 st while the minimum price, EUR 2.27, on 29 th April 2005. Compared to market indexes, Tiscali stock registers a trend in line with the three market references, S&PMIB, MIBTEL and Morgan Stanley Technology Index in the first and last months of the year whereas the stock underperformed such indexes...

  • Page 38
    ... below. TISCALI FREENET UNITED INTERNET BT ILIAD KPN 200% 180% 160% 140% 120% 100% 80% 60% jan- 05 feb- 05 mar- 05 apr- 05 may- 05 jun- 05 jul- 05 aug- 05 sep- 05 oct- 05 nov- 05 dec- 05 Trading volumes stood at a daily average of 6.6 million shares for an average daily value of EUR...

  • Page 39
    AVERAGE DAILY TRADES OF TISCALI SHARES ON ITS TWO MARKETS NUMBER OF SHARES DATE SHARES BORSA ITALIANA IN % SHARES EURONEXT IN % SHARES TOTAL IN % January- 05 February- 05 March- 05 April- 05 May- 05 June- 05 July- 05 August- 05 September- 05 October- 05 November- 05 December- ...

  • Page 40
    Revenues 736.2 EUR (ml)

  • Page 41
    ... time that Tommaso Pompei was appointed as the Group's Chief Executive 0 1 ST QUARTER 1 ST HALF 9 MONTHS 12 MONTHS RESULTS AND PERFORMANCE CONSOLIDATED INCOME STATEMENT EUR (000) 2005 2004 CHANGE CHANGE % Revenues Other operating income Purchases of materials and external services Personnel costs...

  • Page 42
    ...which also posted the highest increase in terms of new subscribers to ADSL services (+141%) during the year. The performances were also excellent in Italy and The Netherlands. The former posted sales growth of 9% while the latter posted a positive change of 17% (which takes into account the disposal...

  • Page 43
    ... offered at 19.95 Euro. During the fourth quarter, the diffusion of the ULL network that was developed with ADSL2+ technology allowed additional 24 Mb/s products to be launched. The operating subsidiary in the United Kingdom (Tiscali UK) ended the 2005 financial year with a 28% increase in revenues...

  • Page 44
    ...access revenues). Active dial-up customers amounted to 3 million, a slowdown that is in part attributable to the migration towards ADSL products. 250 50% 200 39% 39% 40% 150 30% 100 20% 50 10% Market trend was offset by the improvement of value-added 0 2004 2005 0 service offers for dial...

  • Page 45
    ... the United Kingdom and Italy each number approximately 1 million users. Dial-up customers are still one of Tiscali's key strengths, mainly due to the fact that a significant number of them choose to improve access to the Internet by switching to an ADSL offer. 2005 BUSINESS SERVICES REVENUE TREND...

  • Page 46
    ... in terms of these costs as a percentage of revenues (from 16% to 14%). Employees as of 31 st December 2005 were 1,906 of which 300 in the United Kingdom, 270 in the Netherlands, 279 in Germany, 174 in the Czech Republic and 873 at the Italian subsidiaries (Tiscali Italia S.r.l. and Tiscali Services...

  • Page 47
    ... year (EUR 15.1 million or 8% of revenues). The Operating result is in line with an amount which, though negative at EUR 17.6 million, is an improvement compared to EUR 30.7 million in 2004. The Gross operating result (EBITDA) achieved in 2005 by Tiscali UK ( United Kingdom ) is positive at EUR 68...

  • Page 48
    ... the financial year takes into account the results achieved by Group companies as well as those set forth by the relative business plans, refer to the subsidiaries in the Netherlands and the United Kingdom. In Italy, the investments in the infrastructure of the unbundling network amounted to EUR 34...

  • Page 49
    ... to focus on growing unbundled ADSL services, which allow the Group to offer its customers competitive and innovative products and access services. Sale of international optic fibre network to Telecom Italia On 2 nd August, Telecom Italia S.p.A. and Tiscali S.p.A. announced an agreement for the...

  • Page 50
    ... approval of Euronext Board of Directors was motivated by the low trading volumes of Tiscali in the French market, which accounted for less than 1% of total. Luca Scano, Managing Director of Tiscali B.V. On 23 rd December 2005, Luca Scano was appointed Managing Director of Tiscali B.V., the Dutch...

  • Page 51
    EBITDA 117.1 EUR (ml)

  • Page 52
    ... General Manager. Following the resignation of Director Rudolf Derk Huisman, the Board of Directors held on 11 st January 2006 has co-opted Tommaso Pompei amongst its members, appointing him at the same time Chief Executive Officer. The Board of Directors has set up an Internal Audit Committee...

  • Page 53
    ... the Company has published on the " Investor Relations" page of its website www.tiscali.com the professional curricula of its Directors, thus enabling Shareholders and Investors to assess the professional experience and authority of members of the Board of Directors. price-sensitive communications...

  • Page 54
    ...Internal Audit Office, in accordance with the principles and application criteria set forth by art. 10 of the Code. The Internal Audit Coordinator has no line manager, and reports directly to the Chief Executive, the Internal Audit Committee and the Board of Auditors at least once every three months...

  • Page 55
    ... for consulting assignments at Group companies; G) reporting to the Board of Directors on the work performed and the adequacy of the internal audit system; this report should be made at least every six months, upon approval of the annual and half-yearly reports; H) operating as a Supervisory Body...

  • Page 56
    ... rd February 2006 the Chief Executive Officer has subm itted to the Board of Directors the m ain guidelines of the new organization and governance model adopted by the Company and by Tiscali Group. Management Committee and International Committee appointed the 22 Septem ber 2005 were dism issed and...

  • Page 57
    ... & Operations Control Internal Services (HR, Purchasing, Facility) Operations United Kingdom Italy Netherlands Germany Czech Republic Tiscali UK Plc Tiscali Italia S.r.l. Tiscali B.V. Tiscali GmbH Tiscali Business Gmbh Tiscali Telekomunikace Sro 55 R E P O R T O N Management Commitee...

  • Page 58
    ...Handling of confidential information and communications with the market, Investor Relations Office As part of the corporate governance model adopted pursuant to Legislative Decree 231/2001, the Company has codified a number of procedures for supervising the management of confidential information. In...

  • Page 59
    ... of service and content offers. Thanks to the changed economic conditions and improved regulations, the investments already started in financial year 2005, both in Italy and the Netherlands, are being expanded with development projects for unbundling network infrastructure in the United Kingdom and...

  • Page 60

  • Page 61
    T iscali Group Consolidated Financial Statements as of 31st December 2005

  • Page 62

  • Page 63
    ...2005 EUR (000) Revenues Other income Purchase of materials and outsource services Personnel costs Other operating costs...Share of profit or losses of associates with equity method Net financial income (Charges...E N D I N G Restructuring costs, provisions for risks and write- downs (10) 55,880 69,...

  • Page 64
    ... finance leases Payables to suppliers Other current liabilities (30) (30) (30) (31) (32) 211,044 19,679 16,711 160,418 125,846 533,698 - 250,387 25,324 19,220 182,720 121,506 599,157 T I S C A L I G R O U P Liabilities directly related to assets held for sale Total liabilities and shareholders...

  • Page 65
    ... of Changes in Equity Share capital Share premium reserve Balance at 1 January 2005 196,619 1,436,719 (1,763) (1,321,773) Translation reserve Retained earnings Shareholders' equity (Group) 309,802 3,948 Minority interest EUR (000) 313,750 Increases Transfers covering losses Exchange differences...

  • Page 66
    ...term financing liabilities Change of medium/long- term financing liabilities Payables to shareholders for financing Changes in shareholders' equity Change of shareholders' equity pertaining to minorities Effect of changes on foreign currency exchange rates NET CASH ARISING FROM /(USED IN ) FINANCING...

  • Page 67
    ... of Italy at the Company Registry of Cagliari. The addresses of the registered office and of the principal places of business of the Group are disclosed in the introduction to the financial statements. The principal activities of Tiscali and of its subsidiaries are described within the income...

  • Page 68
    ...Group in exchange for control of the acquiree, plus any cost directly attributable to the business combination. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair values at the acquisition date...

  • Page 69
    ... post-acquisition changes in the net assets of the associate, less any impairment in the value of individual investments. Any excess of the cost of acquisition over the Group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate at the date...

  • Page 70
    ... to the Tiscali network to " networks managers" in the various geographic areas and relevant user equipment. These capitalised costs are amortised on a straight-line basis in relation to the minimum legal duration of the customer contract, currently of 12 months, after which the contract is tacitly...

  • Page 71
    ... Unit (CGU) to which the asset belongs. The recoverable amount is the higher between the " fair value" less costs to sell and its useful life. In assessing value in use the estimated future cash flows are discounted to their present value using a pretax discount rate that reflects current market...

  • Page 72
    ... and other receivables management policies the Group does not use derivative financial instruments for trading purposes. Derivative instruments are recorded and subsequently measured at fair value. For hedging instruments, the Group adopts the rules established by IAS 39 on " Hedge Accounting" , as...

  • Page 73
    ... date. Revenues related to the activation of broadband services (ADSL), consistently with the relevant costs capitalised among intangible assets, are recognised in profit and loss on a straight-line basis in relation to the m inim um legal duration of the custom er contracts, generally of 12 months...

  • Page 74
    ... ) net of intra- group revenues and not including other income Y E A R Revenues by business segment (EUR 000) 2005 2004 T H E Dial up access revenues Broadband ADSL access revenues Access revenues Voice revenues Business revenues Media revenues (portal and others) Other revenues Total 213,095...

  • Page 75
    ...INCOME STATEMENT 31.12.2005 EUR (000) Revenues and other income Italy United Kingdom The Netherlands Germany Other Segment results Unallocated Operating assets To third parties Inter- group Total revenue...816) Non allocated components include the values which relate to corporate assets. 73 T I S C...

  • Page 76
    ...0 0 5 OTHER SEGMENT DATA AND FINANCIAL POSITIONS 31.12.2005 EUR (000) Assets Italy United Kingdom The Netherlands Germany Other Segments Unallocated Continuing operations D E C E M B E R Segment assets Investments - equity method Investments in other companies 214,036 1,099 15 3,406 218,556 216...

  • Page 77
    ASSETS PER BUSINESS LINE 31.12.2005 EUR (000) ACCESS ACCESS VOICE BUSINESS SERVICES MEDIA NON ALLOCATED Total Broadband 79,942 84,770 164,713 Narrowband 18,100 15,601 33,701 Goodwill Intangible assets Property, plant and machinery Equity Investments Other financial assets Deferred tax assets 1,...

  • Page 78
    ... year is related to the significant increase in revenues. The cost figures, in particular those relative to the line/traffic rental costs, show the reduced im pact of these on revenues, thanks to the efficiency arising from the progressive developm ent of the " unbundling" ADSL network. S T AT...

  • Page 79
    1,715,000 ADSL subscribers

  • Page 80
    ...12. Income taxes EUR (000) 2005 2004 to assume will be generated in the light of the approved business plans and the current progress of the Groups companies to which the tax losses apply. The balance is related in particular to the Tiscali Group companies listed below: T H E F O R Corporate tax...

  • Page 81
    ... the current business plan there are no reasonable assumptions justifying a higher amount, in particular considering the time factor. Therefore, only the benefits for the Group companies already capable of generating taxable income, which are those operating in the Netherlands and the United Kingdom...

  • Page 82
    ... to Tiscali International Network S.A. (Tinet Link - France), and subsidiaries Tiscali International Network SAU (Spain) and Tiscali International Network Ltd (United Kingdom), after execution of the contract with Telecom Italia Sparkle, which are to be put into liquidation. EUR (000) 31.12.2005 31...

  • Page 83
    ...in Spain and of Tinet Link are shown below: Disposal price Shareholders' equity of the Group at disposal date (proquota) including goodwill Profit from disposal 319,405 149,938 Income Statement - Discontinued Operations Assets Held For Sale - EUR (000) 31.12.2005 31.12.2004 169,467 Revenue Gross...

  • Page 84
    ...the higher between the " fair value" less costs to sell and its useful life. The future expected cash flows are discounted using a discount rate that reflects the current market estimate of the cost of money, the cost of capital and the specific risks of the unit. If the estimated recoverable amount...

  • Page 85
    ... activation costs related to the ADSL service. These costs are amortised over twelve months. The increases refer in particular to the costs incurred in the financial year 2005 by subsidiaries operating in the United Kingdom and in The Netherlands. the " churn rate" of the client base. 16. Property...

  • Page 86
    ... from the sale of internet services, billing of internet access services, billing of usage-based fees for traffic generated by Tiscali subsidiaries on third-party fixed lines, advertising revenues and business and telephone services provided by the Group. T H E " Other non current financial assets...

  • Page 87
    ...current accounts. Please see the appropriate section of the management report for a detailed analysis of the financial position. maximum amount of EUR 20 million for 3 years, and its purpose is the purchase of NORTEL equipment used in Italy for the ULL project. Please note that the contract related...

  • Page 88
    ... payments: Y E A R The balance of Other non current liabilities chiefly relates to medium-long term trade payables to suppliers related to the purchase of equipment which are tied to IRU ( Indefeasible T H E F O R Right of Use) contracts, arising from the investments for the ULL project...

  • Page 89
    ... accruing on 31 December 2005, which directly increased the loan. are spread over a time span of 12 months, i.e. the minimum legal duration of the contract with the customer. This mainly concerns the Dutch subsidiary Tiscali BV and Italian subsidiary Tiscali Italia S.r.l. Other liabilities mainly...

  • Page 90
    362,000 Unbundling subcribers

  • Page 91
    ... issued Tiscali S.p.A. shares) had been wrongfully determined due to an inexact representation by Vodafone of the value of the revenues of such business. Vodafone has fully The Dutch tax authorities have filed several assessment notices for World On Line International NV (and its direct subsidiary...

  • Page 92
    ...services for the listing of World Online International NV and are based on the premise that Tiscali International BV (a direct subsidiary of the legal entity that was listed) did not have the right to deduct these costs for VAT purposes as it is attributable to World Online International NV, a legal...

  • Page 93
    ... SpA (2) Tiscali International Network SA Tiscali International Network SAU Tiscali International Network GmbH Tiscali International Network Ltd Tiscali Business International Ltd World Online Ltd. World Online Telecom Ltd. Tiscali Holdings UK Ltd Tiscali Uk Ltd Telinco Uk Ltd Connect Free Internet...

  • Page 94
    ... Partner BV The Netherlands Tiscali Business Solution GmbH & Co KG Germany 100% 100% F O R Tiscali Italia Srl Italy 100% 100% Connect Software Inc USA S T AT E M E N T S WOL Portal BV The Netherlands 100% Tiscali Media Srl Italy 60% Tiscali Motoring Srl Italy in liquidazione 100% Time...

  • Page 95
    ... 100% Tiscali International BV The Netherlands Tiscali España SL Spain Tiscali Business Ltd UK 100% in liquidazione 100% 100% World Online Telecom Ltd UK Tiscali Network Sro Czech Rep. Tiscali Business GmbH Germany 100% 100% Tiscali Holdings Ltd UK 100% Tiscali Ltd UK World Online Sro Czech...

  • Page 96
    ...,973 shares of World Online International NV to Tiscali S.p.A. after which the ownership percentage of Tiscali S.p.A. in World Online International NV will increase by 0.146%, from 95.5% to 99.646%. List of holdings in affiliated companies measured according to the equity method Company name Country...

  • Page 97
    ... arising from the consolidation of foreign companies outside the Euro area have been presumed to be equal to zero. IAS 38 Consolidation difference IAS 16 Property, plant and machinery F O R IAS 38 ADSL activation costs T H E Financial instruments Tiscali has made use of the option provided by...

  • Page 98
    Gross margin 387.4 EUR (ml)

  • Page 99
    ... at 31 st December 2004 In compliance with Italian accounting Effect of conversion to IFRS Assets and related liabilities disposed of and/or held for sale IFRS Non current assets Goodwill Other intangible assets Property, plant and machinery Equity Investments Other financial assets Deferred...

  • Page 100
    ... cost s f or broadband (ADSL) services have been capit alised and amort ised on a straight- line basis in relation to the minimum legal duration of customer contracts, currently 1. IAS 38 / Intangible assets- Purchase of materials and outsource services equal to 12 months, while the " bounty costs...

  • Page 101
    ... after the end of the financial year, have been discounted with the consequent economic effects. 6. IAS 19 / Employee benefits- Personnel costs The liability related to staff severance (TFR) of the Italian companies of the Group has been restated according to the actuarial method. Adjustment is...

  • Page 102
    ... to banks and other lenders Obligations under finance leases Payables to suppliers Other current liabilities (40,396) (40,396) (19,905) (19,905) - - - T I S C A L I Liabilities directly related to assets held for sale Total liabilities Total Shareholders' equity and liabilities (41,759) (39...

  • Page 103
    NOTE 4 IAS 16 Property, plant and machinery NOTE 5 IAS 37 Provisions, contingent liabilities and assets NOTE 6 IAS 19 Employee benefits NOTE 7 IAS 18 Revenue IAS 32 Financial instruments: Presentation and disclosure IAS 39 Financial instruments: Recognition and measurement NOTE 8 IFRS 1 First ...

  • Page 104
    ... (ADSL) service activation costs Activation costs have been capitalised and amortised on a straight- line basis in relation to the minimum legal duration of the customer contract, currently equal to 12 months. Conversely, the so- called " bounty costs" (accessory costs for customer acquisition...

  • Page 105
    ... cost and the effective interest method is applied to financial charges (increase of shareholders' equity equal to EUR 0.1 million). Accounting of additional charges following capital increase by the parent company at the end of 2004, with contextual cancellation of the same to reduce the Share...

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    T iscali S.p.A. Financial Statements as of 31st December 2005

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  • Page 109
    ...new Tiscali products ('Media & VAS' - Value Added Services) carried out for the Group were transferred, on the same date, to Tiscali Services S.r.l. Both companies are entirely and directly controlled by Tiscali S.p.A. adjustment of the originally agreed upon price that was issued at the closing of...

  • Page 110
    ... Financial Total long-term assets were influenced by the disposal of the investment in Liberty Surf Group and the reporting of the investments in Tiscali Italia S.r.l. and Tiscali Services S.r.l. following their transferral in January 2005. With reference to current assets, the decrease in loans as...

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    ... consist of short-term loans granted to / from subsidiaries and banks, which are managed, insofar as intra-group relations are concerned, through reciprocal treasury current accounts. These assets and liabilities do not carry a significant risk of changes in value upon conversion into cash...

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    ... due from shareholders Non current assets: Intangible assets: - - 1) Start- up and expansion costs Industrial patent rights and intellectual property rights Concessions, licenses, trademarks and similar rights Payments on account and tangible assets in course of acquisition Other Total...

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    Balance Sheet - Liabilities And Shareholders' Equity 31.12.2005 EUR A) Shareholders' equity I II III IV V VI VII Share capital Share premium reserve Revaluation reserve Legal reserve Reserve for own shares held Statutory reserves 198,369,071 196,619,071 957,871,960 1,440,874,031 - Other ...

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    2 0 0 5 Income Statement 2005 EUR D E C E M B E R 2004 A) Value of production 1) 3) 4) Revenues from sales and services Changes in contract work in progress Increases in assets for work in progress (internal) Other income Other revenues and income Contributions to the operating account Total...

  • Page 115
    ... (loss) 22) Corporate income tax for the financial year (9,074,506) (534,778,071) a) b) c) Current taxes Deferred taxes Deferred...Board of Di rect ors The Chai rm an Vittor io Se r a fino 113 T I S C A L I S . P. A . - F I N A N C I A L S T AT E M E N T S A S AT 3 1 D E C E M B E R 2005...

  • Page 116
    ... may come to light at a later date. Miscellaneous items included under single accounting entries have been valued separately. Assets destined for long-term use have been listed under noncurrent assets. No exceptions to the accounting policies set out in the legislation S . P. A . These financial...

  • Page 117
    ... loss in value no longer apply. Long-term investments in the form of loans are valued at their estimated realisable value. Receivables " Industrial patent rights and intellectual property rights" are recorded at their acquisition cost and amortised using the straightline method in accordance...

  • Page 118
    ... to the income statement on the appropriate line under " exchange rate gains and losses." No tangible or intangible assets or equity investments were reported at cost in foreign currencies. After the end of the financial year, there were no significant changes in the reference exchange rates for the...

  • Page 119
    ... territory and all corporate activities and services carried out for the Group. As at 31 st December 2005, " start-up and expansion costs" were largely related to expenses (subscription charges, legal and other fees) incurred for the increase in share capital that was subscribed at the end of the...

  • Page 120
    ... of tangible assets over the period is shown below: NET VALUE Balance 31.12. 2004 EUR (000) Land and buildings Increases Write ups and other changes (Depreciation, and writedowns) (Disposals) Balance 31.12.2005 T I S C A L I - Land - Industrial installations 4,247 20,260 24,507 - (4,247) (20...

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    .... SUBSIDIARIES Cost 31.12. 2005 Write- ups/ (downs) Long- term investments Book value Cost 31.12. 2004 Write- ups/ (downs) Book value Connect Software Inc. Energy Byte S.r.l. in liquidazione Excite Italia B.V. Ideare S.p.A. Liberty Surf Group SA Quinary S.p.A. Tiscali Business Service S.p.A. (ex...

  • Page 122
    ...Write- ups/ (downs) Other changes Balance 31.12. 2005 S T AT E M E N T S A S AT Best Engineering S.p.A. Connect Software Inc. Excite Italia B.V. Ideare S.p.A. Liberty Surf Group SA Quinary S.p.A. Tiscali Business Service S.p.A. Tiscali Czech Republic a.s. Tiscali Deutschland GmbH Tiscali Finance...

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    4,700,000 Active users

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    ... 2005. Specifically, all the IT, media development and new product assets for group-wide use by were transferred to Tiscali Services S.r.l., with a total equivalent value (and corresponding increase in the book value of the equity investment) of EUR 31.2 million. The investee company, which ended...

  • Page 125
    ...test of the book value of Tiscali's equity Tiscali Telecomunicaciones SA Though the value of this company, one of the group's operating companies in Spain (after write-downs booked in previous years) is EUR 0.1 million, it is classified as " held for sale." investment in World Online International...

  • Page 126
    ...Republic s.r.o.(* * ) Tiscali Deutschland GmbH S T AT E M E N T S A S AT Tiscali Finance SA Tiscali Italia S.r.l. Tiscali Motoring S.r.l. Tiscali Services S.r.l. Tiscali Telecomunicaciones SA World Online International N.V. (* * * ) Totale F I N A N C I A L (* ) Figures from the accounts at 31...

  • Page 127
    ...the Revenue Office in February 2006. Receivables from Group companies are detailed below: SUBSIDIARIES EUR (000) due within 1 year due after 1 year due within 1 year due after 1 year Energy Byte S.r.l Ideare S.p.A. Quinary S.p.A. Tiscali Deutschland Gmbh Tiscali Finance SA Tiscali International...

  • Page 128
    ... and Tiscali Services S.r.l.. Such losses can be used against taxes levied on these companies. A S AT These deferred tax assets were recorded during the previous financial year based on the reasonable certainty that Tiscali S.p.A. would generate taxable income in 2005, taking into account the...

  • Page 129
    ... Ulm Holding GmbH. The " Share premium reserve" increased by EUR 6.77 million due to this stock issue. The table below provides a breakdown of shareholders' equity to indicate how reserves can be used for tax purposes. Interest from customers ADSL revenue Accrued deferred charges 1 1 184 222...

  • Page 130
    ... minimum level required by law. Changes in share capital are listed below, next to the transaction - to which they refer: S . P. A . Issue date No. of shares issued Share capital increase Share premium reserve Issuance of Neue Medien Holding Ulm GmbH shares Total 22/06/2005 3,500,000 3,500,000...

  • Page 131
    ... to all amounts due to employees under current laws. D) Payables Due to banks EUR (000) 31.12.2005 31.12.2004 Advances and overdrafts Medium / long- term loans (CIS) Total 8,006 8,006 19,932 34,802 54,734 The amounts due to banks refer to short-term lines of credit from banks (for advances and...

  • Page 132
    ... A S AT Tiscali International Network B.V. Tiscali International Network SA Tiscali Business Service S.p.A. Total 129 14,599 - F I N A N C I A L Payables to the group's subsidiaries and affiliated companies mainly related to Tiscali International B.V.. We note that the loan agreement with the...

  • Page 133
    ...: Deferred income ADSL revenues Pre- paid internet services Pre- paid voice services Deferred income for contributions under law 388, art. 8 Long- term deferred income Other 583 583 1,006 590 1,737 57 2,833 2,972 9,196 10,035 Issuer Nominal value Yield Maturity Guarantor Tiscali Finance S.A. 209...

  • Page 134
    ...B.V. Tiscali International Network S.p.A. 123 108 1,024 750 303 363 150 114 The expenses invoiced by Tiscali Italia S.r.l. are related to Tiscali S.p.A.'s share of the general expenses which are connected to the administration of the operating unit. The costs charged by subsidiary Tiscali Services...

  • Page 135
    ...), the table below sets out the remuneration for Directors and Auditors, and the number of shares held by each. The " Extraordinary income" item includes the overall effect of the existing positions towards Excite Italia B.V. at the time of disposal, as provided by the contract. " Capital gains on...

  • Page 136
    2 0 0 5 NAME Position Term in office Emoluments Non- monetary benefits Other forms of remuneration D E C E M B E R Board of Directors Vittorio Serafino Chairman (1) Until approval of 2007 results 360,000 - - Rudolf Derk Huisman CEO and Director (2) 425,000 - - 3 1 Franco ...

  • Page 137
    ... flow from operations (420,222) 33,722 Changes in non- current assets - Tangible assets - Intangible assets - Long term investments Effect of: Transferral to Tiscali Italia S.r.l. (18) (14) 269,512 (18,512) (30,831) 2,453 - Increase in the value of the stake Net assets transferred Transferral...

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    Reports of the Independent Auditors

  • Page 140
    ...which have been disclosed in detail by the Directors in the report on operations and in the explanatory notes: a) During 2005 the Tiscali Group has continued the process of focusing its activities on the growth of its ADSL customer base, the development of its network infrastructure and carrying out...

  • Page 141
    ... year. The Tiscali Group is involved, at December 31, 2005, in certain legal disputes initiated by third parties against entities of the Group World Online International N.V., dating back to the time of the acquisition of the former World Online Group by the Tiscali Group. The Directors, based on...

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  • Page 143
    ... approved by the Board of Directors and published in a Section of Tiscali S.p.A. (Tiscali Group's) interim financial information for the period ended June 30, 2005, which we have audited and on which we issued a special purpose auditors' report dated October 3, 2005. 2. 3. In our opinion...

  • Page 144
    ... Tiscali Group is involved, at December 31, 2005, in certain legal disputes initiated by third parties against entities of the Group World Online International N.V., dating back to the time of the acquisition of the former World Online Group by the Tiscali Group. The Directors, based on their legal...

  • Page 145
    3 Fabrizio Fagnola Partner Milan, Italy May 2, 2006 This report has been translated into the English language solely for the convenience of international readers. 143 R E P O R T S Signed by O F DELOITTE & TOUCHE S.p.A. T H E Group, on the basis of its fiscal advisors' opinion, has made no ...

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    Report of the Statutory Auditors

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  • Page 149
    ... the Shareholders' Meeting of the Company Tiscali S.p.A. st During the year ending as at 31 December 2005 we performed the supervisory activity required by the law, in accordance with the code of practice recommended for Statutory Auditors by the National Board of Chartered Accountants. Considering...

  • Page 150
    ...accounting system, as well as the latter's ability to present a true and fair view of operations, by obtaining information from those in charge of functions, examining corporate documents, analysing the results of the work performed by the Independent Auditors and monitoring the activity of the head...

  • Page 151
    ... for the Corporate Governance of listed companies, revised edition of March 2006. Information on this regard can be found in the special report which the Directors submit to the Shareholders' Meeting. - During the 2005 Tiscali S.p.A. entrusted Deloitte & Touche S.p.A. - and some related entities...

  • Page 152
    ... Civil Code on the issue price of the shares in the case of share capital increase with exclusion of the right of option (Neue Medien Ulm Holding GmbH). - The supervisory activity described above was performed through ten meetings of the Board, nine meetings of the Internal Control Committee and by...

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