Tiscali 1999 Annual Report Download - page 23

Start-up and expansion costs, and costs for research, development and advertising included the following:
31/12/99 31/12/98 Change Change %
Start-up and expansion costs (Euro)
Incorporation expenses 1,653 2,479 (826) (33.33%)
Expenses relative to capital increase 6,906,737 89,218 6,817,519 7641.42%
Start-up costs 7,526,056 452,437 7,073,619 1563.45%
Network planning and organization costs 729,923 110,849 619,074 558.48%
Total 15,164,369 654,983 14,509,386 2,215.23%
Research, development and advertising costs
Advertising 637,740 909,225 (271,485) (29.86%)
Total 637,740 909,225 (271,485) (29.86%)
A) Start-up and expansion expenses
Increase in expenses during the financial year
Start-up and expansion expenses increased, with respect to the single line items falling under this heading,
for the reasons detailed hereunder:
- Expenses pertaining to share capital increase:
this line item mainly pertains to expenses incurred for quotation on the stock market;
- start-up costs:
mainly inherent to the procurement of the interconnection with Telecom Italia and Telecom S.p.A.
(exchanges) and advertising for the launch of the service "Tiscali Freenet".
Reason for posting this account:
In consideration of the impact of this account, we should like to point out the following facts:
Expenses for exchange start-up. When fully operational, the network will comprise a total of 24
functioning exchanges. To date, 8 exchanges are still to be activated: therefore, the start-up phase is still to
be completed.
The remarkable increase in minutes/traffic clearly shows that the investments, including launching expenses,
are linked to the Company’s new market objectives. This confirms that the expenses in question are both
exceptional and profit-generating over a number of years.
Completion of the network will enable the Company to reach a target level of subscribers (critical
productive capacity) which forms the basis for obtaining revenues from the new initiatives currently being
launched, such as voice services on Internet, e-commerce, on-line banking services, music, etc.
With regards to the launching campaign for “TiscaliFreeNet” we should point out that, being a free service,
it is not linked to the direct production of profit, since its main function has been to promote knowledge
of the Company and its services among consumers, right at a time when its listing on the stock exchange
has provided a foundation for all future profits. This campaign is allowing the Company to reach a number
of subscribers and a volume of traffic enabling it to subsequently launch innovative products, such as the
already mentioned internet voice; e-commerce; on line banking; and music services etc., and therefore belongs to
the same category as the other start-up expenses described above.