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ANNUAL REPORT
2003

Table of contents

  • Page 1
    ANNUAL REPORT 2003

  • Page 2
    CONTENTS 13 4 The broadband challenge 11 Corporate bodies 13 Market background 18 Tiscali shares 21 Tiscali Group: operating performance 42 Corporate Governance 51 Introduction Report on Operations Report on Parent Company's operations 51 Parent Company: operating performance 4

  • Page 3
    ...loss accounts Parent Company: notes to the annual accounts 105 Form and content of the annual accounts 109 Analysis of Balance sheet items 139 Cash flow statement 55 61 99 Report 141 Report of the board of auditors 144 Auditor's report of Tiscali Group 147 Auditor's report of the Parent Company

  • Page 4
    ...were issued by the EU in February 2003. The new regulations have opened up the broadband market, benefiting alternative operators and Internet users, who gained acces to a wide range of more attractively priced packages as a result. 4 Tiscali: the new opportunities offered by broadband Tiscali has...

  • Page 5

  • Page 6
    ... on the five key markets that accounted for 90% of ADSL users at the end of 2003, and wich generate 80% of Group revenues: Italy, France, the UK and the Netherlands. Unbundling the local loop. To achieve success in the ADSL market, the Company must have an effective business model based on the...

  • Page 7

  • Page 8
    Renato Soru Chairman, CEO VALUE THROUGH DIVERSITY Ruud Huisman 8 CEO, ad interim CEO Benelux and Scandinavia Massimo Cristofori SVP & CFO Pierpaolo Festino SVP Marketing & Sales Stephane Huet SVP Business Services Mario Mariani SVP Access & Media Salvatore Pulvirenti SVP & CIO Paolo ...

  • Page 9
    Sergio Cellini CEO Tiscali Italy Naveed Gill GM Tiscali Czech Republic Rafi Kouyoumdjian CEO Tiscali France Michele Lavizzari GM Tiscali Spain Pasquale Lionetti CEO Tiscali Switzerland Diego Massidda CEO Tiscali South Africa Carl M˙˙ uehlner CEO Tiscali Germany Mary Turner CEO Tiscali UK

  • Page 10
    10

  • Page 11
    ... Tomaso Barbini Franco Bernabé Victor Bischoff Massimo Cristofori** Gabriel Pretre Mario Rosso The Board of Directors comprises the following committees: • Internal Audit Committee (Victor Bischoff and Tomaso Barbini). • Remuneration Committee (Mario Rosso, Renato Soru and Victor Bischoff...

  • Page 12
    ... market In 2003, the demand for broadband services rose significantly in the consumer segment of the European Internet market, outstripping growth in the number of dial-up connections, and consolidating the trend established in the second half of 2002. In western Europe, the number of active users...

  • Page 13
    ... attract new users and traffic to basic services such as e-mail, which do not require a particularly fast connection. Spending on Internet access saw major variations in 2003 versus the previous year, with a 194% increase for broadband and a 15% drop for dial-up. Internet spending in western Europe...

  • Page 14
    ... provided 92% of DSL connections at end-2003. Although competition increased in Europe's main markets in 2003 (particularly in France, where several OLOs have emerged to challenge the dominant position of the former incumbent and its ISP), in Italy Telecom Italia's share of the broadband market...

  • Page 15
    ... to projected rises from 47% to 53% in Germany and from 56% to 64% in the UK. Growth is expected to be higher in countries where Internet penetration rates are relatively low, such as the Czech Republic and Greece. 16 The broadband services market has become increasingly competitive, prompting...

  • Page 16
    ... the three ways of accessing the broadband market. Gross Margin offered by the three ADSL models - 2003 20% 70% Wholesale Bit-stream Unbundling At end-2003, unbundled services accounted for 8% of total DSL connections. Unbundled services have grown significantly in France and the Netherlands...

  • Page 17
    ... International S.A. Capital increase to issue shares in exchange for the entire share capital of Tiscali Internet Limited Capital increase to issue shares in exchange for the Internet business of VTL Inc Capital increase to issue shares in respect of the exercise of the third tranche of the Connect...

  • Page 18
    ... was EUR 22.7 million. The monthly value of trades was EUR 2.4 billion in December, up 64% on the September figure. The value of trades for the year was EUR 6.5 billion, making Tiscali the most liquid stock on the Italian Nuovo Mercato and one of the most frequently traded Internet stocks in Europe.

  • Page 19
    ...of the Tiscali stock over the year was in line with the Numtel index, but slightly down on the Bloomberg Internet Index, which includes Europe's main Internet stocks. Despite the lack of confidence due to world economic conditions, the value of the stock grew over the year, thanks to a strong set of...

  • Page 20
    ... itself as a provider of broadband Internet access services. This was made possible by a significant improvement in the regulatory situation for this market in Europe and an effective and targeted sales policy. Growth in the number of ADSL users accelerated in 2003, boosting access revenues. EBITDA...

  • Page 21
    ... generated by the Group's extensive network infrastructure and falling traffic acquisition and line rental costs. The result is even more significant given the increasing contribution from the broadband business, which in the wholesale market is less profitable than narrowband access (see earlier...

  • Page 22
    ... difference, based on an analysis of the value of the Group companies to which this item refers. This was carried out using a discounted cash flow calculation with data taken from the business plans for all business units in each country in which Tiscali operates. The results showed that the net...

  • Page 23
    ... main business lines: access, which accounts for around 68% of total revenues, business services (18%), portal services (5%) and voice services (8%). Breakdown of revenues by business line 120% 100% Others 3% Voice 7% Others 1% Voice 8% Business services 18% Portal 5% 80% Business services 14...

  • Page 24
    ...Tiscali's core business, and the Group is one of Europe's three biggest operators by number of active users. Tiscali's active user base numbered 7.8 million at 31 December 2003, including some 840,000 broadband (ADSL) customers. Access revenues totalled EUR 613 million, up 19% on 2002, and accounted...

  • Page 25
    ... new dial-up customers, and so numbers remained steady at around 7 million (as of 31 December). Internet traffic volumes posted strong growth: the number of online minutes jumped by 9% in 2003 to 43.5 billion. As stated earlier, Tiscali's 7.8 million active users include 840,000 broadband customers...

  • Page 26
    ... 38 28 43 13 0 Germany YE02 YE03 France Italy Benelux UK ARPU (average revenue per user) was broadly stable in 2003 at about EUR 6 per month for dial-up and EUR 27 for broadband. 27 Business services Revenues from business services were EUR 161.2 million, a 51% increase on the EUR 106.6 million...

  • Page 27
    ...broadband access (leased lines and xDSL), virtual private networks (VPN), web housing, web hosting, wholesale IP services and voice traffic, together with a range of value-added services such as managed hosting, firewalls and security solutions. In particular, the activities of Tiscali International...

  • Page 28
    ...an increase of ...business and pre-paid services. In France, Tiscali is market leader in the area of pre-paid cards, while in the UK it offers a range of residential and business telephone services. With the acquisition of npower (consolidated from September), Tiscali UK gained around 200,000 customers...

  • Page 29
    ...of Tiscali's revenues are generated in the five biggest European markets. Italy, France and the UK account for around 20% each, and Benelux and Germany for 10%. Austria 2% Nordics 6% South Africa 4% Czech Rep. 2% Spain 2% Switzerland 2% TiNET 2% Italy 19% Benelux 10% UK 19% Germany 10% France...

  • Page 30
    .... Sales and marketing costs were EUR 140 million, or 16% of revenues. This was broadly stable on the percentage registered in 2002, although the costs went up in absolute terms owing mainly to a focus on advertising new access services. Most of the costs went on the launch of ADSL services, with...

  • Page 31
    ... regards the broadband market. Tiscali Internet Limited 32 In March 2003 Tiscali acquired UK Company Tiscali Internet Ltd and its dial-up user base of over 13,000, for around EUR 600,000 paid for in newly-issued Tiscali shares (152,380 shares). Home.se AB In April 2003, Tiscali acquired Home.se AB...

  • Page 32
    ... French market, in July 2003, Tiscali completed the acquisition of Cable & Wireless in France (annual sales of EUR 35 million), through its French subsidiary Liberty Surf Group S.A.. The operation will increase Tiscali's business services revenues in France to EUR 50 million. The acquisition cost of...

  • Page 33
    ... (9.1) 57.0 117.1 2.5 5.6 LIABILITIES AND SHAREHOLDERS' EQUITY 31.12.2003 31.12.2002 CHANGE % CHANGE 34 Short-term liabilities Banks Other financial payables Payables to suppliers Other payables Accrued liabilities and deferred income Tax payables Total current liabilities Medium-/long-term...

  • Page 34
    ... 31 December 2003. This is a lower figure than at 31 December 2002, as the Group made a net loss for the year of EUR 245.9 million. Net financial indebtedness The Group's financial assets and liabilities are summarised below. Cash Current accounts Investments in short-term money market instruments...

  • Page 35
    ... purchase of new servers and routers. Most of the investment was spent in Italy and the Netherlands, and on the Tiscali international network. In the second half of the year, investment in tangible assets related to the roll out of the infrastructure necessary to support unbundled ADSL services. In...

  • Page 36
    ..., the Group has exceeded its targets by over 100%, with user numbers up by 50% compared to 31.12.2003. Strong growth in ADSL customer numbers in the first two months of 2004 was driven by necessary investment in promotional campaigns aimed at capturing new clients and investment in unbundling. On...

  • Page 37
    ...-affect Tiscali's results, since the Group has sufficient credits on past tax losses (accumulated in the start-up phase) to offset any increased tax payments required. In addition, the report has no effect on the total tax assets relating to the tax losses carried forward announced to the market...

  • Page 38
    ... outlook By expanding its broadband business, Tiscali will no longer be a "free" Internet services provider, but a supplier of integrated broadband services. The need to invest and attract new clients is therefore becoming increasingly important, as the market is currently offering significant...

  • Page 39
    ... claim for damages against World Online (currently 99.5%-owned by Tiscali) and the financial institutions involved in its stock market listing, alleging, in particular, that some of the information provided in the IPO prospectus and in certain public statements issued by the Company and its chairman...

  • Page 40
    ...right to a 1% commission on the total sum paid by Tiscali for the purchase of World Online International N.V., since they put the Company's management in contact with Tiscali. The sum claimed is around EUR 69 million. In December 2003, the Dutch court entered an interlocutory judgement requiring the...

  • Page 41
    ... the Code. Article 10 (Company Administration) of the Company's Articles of Association states that the Board of Directors may comprise between three and eleven members, as decided by the Shareholders' meeting. The Board of Directors currently has six members. The Board of Directors appointed by the...

  • Page 42
    ... by the Director Franco Bernabè provided consultancy services to the Tiscali Group under market terms and, at any rate, for an overall sum not in excess of 5% of the annual revenues of both Groups. None of the Directors plays any role in the Boards of auditors of other listed companies or banking...

  • Page 43
    ...in electronic format in a special section of the Investor Relations page of its website. The Board of Directors believes that minority Shareholders' prerogatives have been respected in so far as the Company's current Articles of Association do not provide for majorities other than those laid down by...

  • Page 44
    ...Group and a member of the Management Committee-as Chief Operating Officer of the Company, investing him with full authority in respect of the ordinary management of Company and Group activities. Committees Remuneration Committee In March 2001 the Company's Board of Directors set up its own internal...

  • Page 45
    ...-or by its affiliates-with regard to companies in the Tiscali Group; f) evaluating all bids of significant amounts for consulting assignments at Group companies; g) reporting to the Board of Directors on the work performed and the adequacy of the system of internal audit; this report should be made...

  • Page 46
    ...of Directors and implements the Board's recommendations by developing, managing and monitoring the internal audit system, for which a Co-ordinator is appointed and equipped with the necessary means. The Internal Audit Co-ordinator has no line manager, and reports directly to the Chief Executive, the...

  • Page 47
    ... Shareholders. Among its other duties, the Investor Relations Office-which reports directly to the Chief Financial Officer-writes press releases and has them distributed, including via a network of companies that carry out these activities professionally. Directors, Statutory Auditors, the Investor...

  • Page 48
    ...PURCHASED NO OF SHARES SOLD NO OF SHARES HELD AS OF 31.12.02 NAME - SURNAME Board of Directors Renato Soru Franco Bernabè Tomaso Barbini Mario Rosso Victor Bischoff Gabriel Pretre Mario Rosso POSITION Chairman and Chief Executive Director Director Director Director Director Director 108,100,000...

  • Page 49
    ... Company reported value of production of EUR 180 million, an increase of 28% on the previous year, with growth in all business areas. In particular, access revenues rose by 44% versus the previous year, as 50% of dial-up traffic switched to the single national number (702), and the broadband (ADSL...

  • Page 50
    ... for Group companies in other European countries. However, Tiscali remained a market leader on the online advertising market. Business services Revenues from business services were up 29% versus the previous year, at EUR 8.4 million. The increase was largely due to a number of projects carried...

  • Page 51
    ... mainly spent on expanding production capacity, particularly the growth of ADSL services, and on carrying out necessary network upgrades (ie the extra bandwidth per client with ADSL services compared to dial-up). Significant events taking place after year end No significant events took place in the...

  • Page 52
    ...consolidate and increase market share in Italy and the rest of Europe in Internet access services, at the same time increasing the profitability of all business units. The key market remains broadband, and the second half of the year should see the launch of ADSL services and voice services over the...

  • Page 53
    ... III 1) Investments Investments in: a) non-consolidated subsidiaries b) affiliated companies c) parent companies d) other companies Receivables a) Other securities d) Own shares 3) 4) Other securities Own shares Long-term investments Non-current assets Due 31.12.2003 12 Months 31.12.2002 - 31.12...

  • Page 54
    ... work in progress Finished products and goods Advance payments Inventories Receivables 1) 2) 5) Receivables from customers From non-consolidated subsidiaries Other receivables Receivables III 1) 6) Short term financial assets Holdings in non-consolidated subsidiaries Other securities Due 31.12.2003...

  • Page 55
    ... to non-consolidated subsidiaries Due to affiliated companies Taxes payable Due to social security agencies Other payables Payables E) Accrued liabilities and deferred income Accrued liabilities Deferred income Accrued liabilities and deferred income Liabilities Due 31.12.2003 459,500 33,503 28,357...

  • Page 56
    ... EUR/000 Memorandum Accounts GUARANTEES RECEIVED Sureties Collateral securities Total guarantees received COMMITMENTS Warrants Commitments Total commitments GUARANTEES GIVEN Sureties Collateral securities Total guarantees given 31.12.2003 31.12.2002 1,826 1,826 13,578 13,578 2,448 1,571 4,019...

  • Page 57
    .../000 Profit&Loss Accounts A) 1) 2) 3) 4) 5) Value of production Revenues from sales and services Changes in inventories of work in progress, semi-finished and finished products Changes in contract work in progress Increases in assets for work in progress (internal) Other income Value of production...

  • Page 58
    ...from disposal of non-current assets c) Taxes relating to previous years Extraordinary income (charges) Profit (loss) before tax 22) Income tax a) Current taxes b) Deferred taxes Net Profit (loss) for the year before minority interest Minority interests Net Group profit (loss) 31.12.2003 31.12.2002...

  • Page 59
    ... Internet Ltd, which was created to incorporate a dial-up user base acquired by the Group, became part of Tiscali UK Ltd as of 31 December 2003; • Nextra S.p.A. (now Tiscali Business Solutions S.p.A.), a Company specialising in business services, acquired in the first quarter of 2003; • the ISP...

  • Page 60
    ... Tiscali Ã-sterreich AG at the end of the year and took on its name; • the business division of Cable & Wireless in France, acquired by Tiscali Telecom S.A., a subsidiary of Liberty Surf; • a branch of business of npower, acquired by Tiscali UK Ltd. Tiscali Armement Sarl, a Company that managed...

  • Page 61
    ... set out in the strategic plan, including the disposals, represent a key factor in the development of Tiscali's financial position and the stability of its businesses and finances; this would consequently ensure the Group is able to redeem the next bond issues falling due and comply with the related...

  • Page 62
    ...profits over a number of years. Costs incurred in 2003 relating to specific advertising campaigns for the launch of new broadband products and services are posted under the appropriate line under "assets" and amortised using the straight-line method over a two-year period starting from the financial...

  • Page 63
    ... leading market research companies forecast a CAGR of 8% in 2002-2007, compared to 2.4% for European GDP growth. Broadband, particularly ADSL, has become a major opportunity for Tiscali (starting from the second half of 2003), and represents the Group's main growth driver. Tiscali's market share is...

  • Page 64
    ...) across the various Group companies. This has led to a change in the estimated residual life of specific equipment belonging to certain Group companies, thereby reducing amortisation charges by around EUR 12.1 million in 2003, and increasing net result and consolidated shareholders' equity by the...

  • Page 65
    ...consolidated subsidiaries and affiliated companies Non-current assets consisting of investments in non-consolidated subsidiaries and affiliated companies are valued at equity, i.e. booked in proportion to the Group's portion of the shareholders' equity of the Company as shown on its accounts for the...

  • Page 66
    ... and costs relating to ADSL activation (installation and modems/equipment) for the new broadband services are recorded on the profit and loss account in relation to the expected duration of the customer accounts, estimated at 36 months based on Company data and recent trends. Amounts relating to...

  • Page 67
    ...losses are booked to the profit and loss account. The exchange rates used to convert items and accounts in foreign currencies are shown below: EXCHANGE RATES Swiss franc Czech koruna Danish krone Euro British pound Norwegian krone Swedish krona US dollar South African rand ISO CODE CHF CSK DKK EUR...

  • Page 68
    ... for the management of the new technology platform (access systems and network management) and the introduction of billing and administration systems. These increases relate to Group IT systems (EUR 5 million), investments made by Liberty Surf (EUR 3.2 million) and Tiscali International Network (EUR...

  • Page 69
    ...and reporting system was adapted to the new size and complexity of the Group. 71 Specifically, the Tiscali Group consisted of parent Company Tiscali S.p.A. and two sub-holding companies, World Online International and Liberty Surf Group, both of which produced a set of "consolidated" accounts. These...

  • Page 70
    ... within the World Online International and Liberty Surf Group sub-groups. Three types of valuation were used: the current market value, calculated by multiplying the number of Tiscali shares issued for the transfer of shares in the companies in question by the average Tiscali share price in January...

  • Page 71
    ... the impairment test carried out for the 2002 accounts showed that goodwill relating to the UK subsidiaries was worth significantly more than the book value, the board of directors decided to increase the Group's consolidated shareholders' equity (to correct the higher than necessary write-down made...

  • Page 72
    ... notes on accounting policies, at the end of 2003, Tiscali reviewed the residual useful life of the consolidation difference, following the extraordinary write-downs made in 2001. This assessment was carried out with reference to the amounts attributable to the different Group companies, largely...

  • Page 73
    ... Ã-sterreich GmbH World Online Holding S.A. 200 Tiscali Datacomm AG (Datacomm AG) 41,732 World Online GmbH Tiscali Business GmbH 47,186 Tiscali Deutschland GmbH 229,955 Gugliuelmo GmbH Tiscali GmbH Tiscali Business S.A. Tiscali International Network S.A. 7,517 Liberty Surf Group S.A. Tiscali Access...

  • Page 74
    ... World Online Holding S.A. 28 Tiscali Datacomm AG (Datacomm AG) 18,382 World Online GmbH Tiscali Business GmbH 12,938 Tiscali Deutschland GmbH 100,961 Gugliuelmo GmbH 4,193 Tiscali GmbH 2,568 Tiscali Business S.A. Tiscali International Network S.A. 4,133 Liberty Surf Group S.A. 56,940 Tiscali Access...

  • Page 75
    ...Ã-sterreich GmbH 1,927 World Online Holding S.A. Tiscali Datacomm AG (Datacomm AG) 20,705 World Online GmbH Tiscali Business GmbH Tiscali Deutschland GmbH 60,726 Gugliuelmo GmbH Tiscali GmbH 11,200 Tiscali Business S.A. Tiscali International Network S.A. Liberty Surf Group S.A. 43,482 Tiscali Access...

  • Page 76
    ...; • acquisition of Cable & Wireless France by French subsidiary Tiscali Telecom S.A. (EUR 5.6 million); • acquisition of the Internet business of multi-utility npower UK by subsidiary Tiscali UK, for EUR 10.2 million; • acquisition in the UK of Tiscali Internet Ltd, the Internet business of...

  • Page 77
    ...completion of the parent Company headquarters in Cagliari, on which work had begun the previous year. The total investment in the new premises was EUR 34.5 million. The "plant and machinery" line largely includes dedicated equipment and networks, routers, servers and telephone exchanges that make up...

  • Page 78
    ...-bearing loans to directors of the former World Online International, before the Company became part of the Tiscali Group. The figure refers in particular to a loan to the current General Manager of the Tiscali Group, for which a repayment plan has been drawn up. Tax credits applied for include...

  • Page 79
    ...end (EUR 51.6 million) that relate to past losses generated by Group companies. Specifically, the figure refers to Tiscali's Dutch and South African subsidiaries, Tiscali BV (EUR 48.9 million) and Tiscali PTY (EUR 2.5 million). As stated in the section on accounting policies, the deferred tax assets...

  • Page 80
    ...: • deferred charges not relating to 2003 for the costs of activating customer ADSL lines (around EUR 25 million); • multi-year line rental charges of around EUR 6 million for international circuits relating to the subsidiary Tiscali International Network S.A.; • marketing costs of around EUR...

  • Page 81
    ... Company and Group. 31.12.2003 NET SHAREHOLDERS' PROFIT EQUITY Tiscali S.p.A. Elimination of effects of transactions between consolidated companies, after tax adjustments: Cancellation of write-downs of holdings in subsidiaries Effects of the change in/harmonisation of Group accounting policies...

  • Page 82
    .... 84 C) Staff severance indemnity reserve The table below sets out changes for the year. STAFF SEVERANCE INDEMNITY RESERVE 31.12.2002 PROVISIONS AMOUNTS USED (866) (76) (942) OTHER CHANGES - 31.12.2003 Manual workers Office staff Senior managers Total 6 6,723 273 7,002 1 4,589 200 4,790 7 10...

  • Page 83
    ...Tiscali S.p.A. Tiscali S.p.A. Tiscali S.p.A. Tiscali International BV * Original issue value: EUR 150 million. Amount remaining following the buyback operation carried out in December 2003 The remaining portion of the bond issued by Tiscali UK Holdings Plc relates to financing for the acquisition...

  • Page 84
    ...into with Banca IMI S.p.A. on 19 June 2000 with a notional value of EUR 87.5 million. These agreements relate solely to the EUR 250 million bond maturing in July 2005. All such agreements to date have been taken out as part of the Company's interest rate risk hedging strategy, and expire on the same...

  • Page 85
    ... BabyXL (ADSL network) in 2002 (EUR 1.3 million), an agreement with BT Ignite over the acquisition of an access network (EUR 3.7 million) and refunds of modem and installation fees paid to broadband customers (EUR 2.1 million). Payables of EUR 2.4 million relating to Tiscali International BV due to...

  • Page 86
    ..., while the remainder were issued to guarantee agreements in which the Tiscali Group is a supplier. 88 Profit and Loss Account A) Value of production Breakdown of value of production REVENUES FROM SALES AND SERVICES Access Voice Business Portal Other revenues Total 31.12.2003 612,933 70,394 161...

  • Page 87
    ... Tiscali International Network, which sells bandwidth and services to other operators and large multinationals and contributes an increasing proportion of total Group revenues. It is active throughout Europe, with offices in France, Spain, Italy and the Netherlands. B) Production costs Purchases...

  • Page 88
    ... EUR 19 million (relating to the launch of new broadband products on the international market) as capitalised costs. Maintenance. This item came to around EUR 21.5 million, and was largely spent on maintenance agreements for network equipment and software. Maintenance costs accounted for 3% of total...

  • Page 89
    ....2003 2,582 5,448 8,030 31.12.2002 257 33 5,052 3,762 9,104 CHANGE (257) (33) (5,052) 2,582 1,686 (1,074) This item mainly consists of telephone license costs in Italy and France, plus other minor expenses. C) Financial income and charges FINANCIAL INCOME From securities listed under non-current...

  • Page 90
    ... in 2002, and mainly related to bonds issued by Tiscali Finance S.A. and Tiscali International BV. Other financial charges relate to bank overdrafts and interest on financial leasing operations. D) Adjustments to the value of financial assets Adjustments to the value of financial assets included...

  • Page 91
    ... assets; • other extraordinary charges (EUR 6.6 million) relate to Dutch subsidiary Tiscali International BV, and are mainly due to restructuring charges, including charges attributable to the management of World Online International before it was acquired by the Tiscali Group (EUR 1.2 million...

  • Page 92
    ...000. The services provided (dark fibre and related maintenance) were charged at market prices. Shardna S.p.A. (controlled by shareholder and chairman Renato Soru) was invoiced for EUR 124,000 for a sub-lease on a Tiscali building in Cagliari. The invoice also passed on costs incurred by the Company.

  • Page 93
    ... Best Engineering Spa STS Studi Tecnologie Sistemi S.P.A. Gilla Servizi Telecomunicazione S.r.l. (2) Andala S.p.A. Nextra S.p.A. Tiscali Datacomm AG (3) Connect Sofware Inc Tiscali Armement Sarl Tiscali Finance Sa Tiscali Internet Limited Ltd Tiscali Deutschland GmbH World Online GmbH Brandgate GmbH...

  • Page 94
    ...Ltd Tiscali Business Austria GmbH Tiscali Holdings UK Plc. Tiscali Uk Ltd Telinko Uk Ltd Connect Free Internet Services Ltd Springboard Internet Services Ltd World Online Telecom Ltd. World Online Ltd. Tiscali Luxembourg S.A. Tiscali B.V. 12Move Vof (6) Sonera Plaza Wolstar B.V. World Online Partner...

  • Page 95
    The Tiscali Group's basis of consolidation is shown below. List of investments in affiliated companies COMPANY NAME HEAD OFFICE SHARE CAPITAL PROFIT (LOSS) FOR THE YEAR (132) (5) (2,632) (31) (2) % OWNED Holdings in affiliated companies Freetravel S.p.A. (being wound up) Stud Scarl Netchemya ...

  • Page 96
    ...Write-downs on long-term investments Change in net working capital, of which: - change in receivables - change in inventories - change in accrued income and deferred charges - change in payables - change in accrued liabilities and deferred income Cash flows from operations Net changes in non-current...

  • Page 97
    PARENT COMPANY ANNUAL ACCOUNTS Balance Sheet Assets (IN EUR) Assets A) Capital contributions due from shareholders Portion called up 31.12.2003 31.12.2002 Capital contributions due from shareholders B) I 1) 2) 3) 4) 5) 6) 7) Non-current assets Intangible assets Start-up and expansion costs ...

  • Page 98
    ... 5) Current assets Inventories Raw materials, supplies and consumables Contract work in progress Advance payments 31.12.2003 31.12.2002 940,962 1,430,923 - 1,207,975 - II 1) 2) 3) 5) Total Receivables From customers From subsidiaries From non-consolidated subsidiaries and affiliated companies...

  • Page 99
    ... Due to other lenders Advance payments Due to suppliers Due to subsidiaries Due to non-consolidated subsidiaries and affiliated companies Due to tax authorities Due to social security agencies Other payables Due 31.12.2003 31,945,826 8,447,775 12 Months 31.12.2002 12,460,008 14,520,600 - 23,436...

  • Page 100
    ... A) 1) a) GUARANTEES GIVEN By third parties and Group companies Sureties 31.12.2003 31.12.2002 565,976,059 254,828,643 Total guarantees given B) OTHER MEMORANDUM ACCOUNTS 565,976,059 254,828,643 - Leasing payments falling due Warrants Guarantees 28,292,225 15,879,064 42,055,418 110...

  • Page 101
    ...(IN EUR) Profit&Loss Accounts A) 1) 2) 3) 4) 5) Value of production Revenues from sales and services Changes in inventories of work in progress, semi-finished and finished products Changes in contract work in progress Increases in assets for work in progress (internal) Other income - Other revenues...

  • Page 102
    ... to the value of financial assets Write-ups Write-downs of equity investments Adjustments to the value of financial assets E) 20) 21) Extraordinary income (charges) Extraordinary income a) Income Extraordinary charges a) Charges b) Capital losses on disposals of non-current assets Extraordinary...

  • Page 103
    ...and losses that 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 non-current assets. With specific reference to the parent Company accounts, the same criteria are used...

  • Page 104
    ... taken to recoup such costs. Please note that advertising costs incurred in the first half of the year in relation to the launch of new broadband products and services are recorded as capitalised costs. Industrial patent rights and intellectual property rights are recorded at their acquisition cost...

  • Page 105
    ... each payment refers. g) Investments Investments in Group and affiliated companies Investments in Group and affiliated companies that are classed as non-current financial assets are valued at cost, based on the acquisition or subscription price. The cost is lowered when there is a permanent loss...

  • Page 106
    ... revenues and costs (installation and modems/equipment) for broadband services (ADSL) are charged to the profit and loss account in line with the expected duration of the customer's account with the Company, estimated at 36 months years based on Company data and recent trends. Amounts relating to...

  • Page 107
    ... costs R&D and advertising costs industrial patent and intellectual property rights concessions, licences, trademarks and similar rights goodwill payments on account and assets in course of acquisition other 5,770 20,299 38,355 160 5,712 6,862 77,158 WRITE-UPS OTHER INCREASES (WRITE-DOWNS) CHANGES...

  • Page 108
    ... services acquired as part of the "mobile Internet" project, investment relating to the development of the "datawarehouse" project (both projects were completed and entered operation during the year), and costs involved in the implementation of the Company's management and administration platform...

  • Page 109
    ... WRITE-DOWNS OTHER CHANGES (DISPOSALS) BALANCE 31.12.2003 472 3,693 1,255 5,420 1,447 4,773 371 6,591 - - - 1,919 8,466 1,626 12,011 industrial and commercial equipment - network and other specific equipment - other equipment - miscellaneous minor items other assets - office furniture...

  • Page 110
    ... of internal networks and equipment for site set-up, servers, personal computers and call centre equipment. The increases recorded under "specific plant" relate to new equipment (routers, servers and transmission equipment) purchased to support the development of ADSL services, and equipment costs...

  • Page 111
    ... 2003 and related changes with respect to the same period of the previous financial year, as well as a list of the Company's holdings in Group and affiliated companies pursuant to art. 2427, paragraph 5 of the Italian civil code. BREAKDOWN OF EQUITY INVESTMENTS SUBSIDIARIES COST 31.12.2003 WRITE...

  • Page 112
    ... to cover charges relating to shareholdings. In the 2003 accounts, the latter amount relates to Tiscali Deutschland GmbH (EUR 16.8 million) and World Online International N.V. (EUR 15.0 million). As indicated in the section on accounting policies above, equity investments are recorded at cost and...

  • Page 113
    ... Dienstleistungs AG Tiscali S.p.A. acquired 100% of Austrian ISP EUnet Edv und Internet Dienstleistungs in June 2003 for EUR 2.1 million, paid for in newly-issued shares in Tiscali S.p.A.. At the end of the year, the Company was sold to Tiscali subsidiary Tiscali International BV at its book value...

  • Page 114
    ... a substantial write-down in 2003. The write-down was made in line with the findings of the independent consultant's report, in relation to operating assets owned by the Tiscali Group in several countries, and reflects the current value of the Company, taking into account its business and financial...

  • Page 115
    ... Republic Sro This holding relates to a Czech Company that is not operating at present. Tiscali Internet Ltd In March 2003 Tiscali S.p.A. acquired the dial-up user base of the Company Dell Product (Europe) BV, from which it also acquired the entire share capital of Tiscali Internet Ltd, for a total...

  • Page 116
    ...Liberty Surf Group Sa Paris ( * ) 75,280 Tiscali Business Services Spa (Ex Nextra) Reno (Bo) 100 Quinary S.p.A. Milan 1,280 STS S.r.l. Rome 100 Tiscali Datacomm AG Basel 3,091 Tiscali Deutschland GmbH Hamburg ( * ) 74,471 Tiscali Finance S.A. Brussels 125 Tiscali Motoring S.r.l. Cagliari 100 Tiscali...

  • Page 117
    ...mainly consist of satellite equipment for the new Tiscali Sat service (around EUR 0.3m), and ADSL modems. "Contract work in progress" largely includes work on the Marte (computerisation of Sardinia's school system) and SIL (creation and management of an employment database) projects, both awarded by...

  • Page 118
    ... 1 YEAR TOTAL GROUP COMPANIES: Best Engineering S.p.A. Energy Byte S.r.l Excite Italia BV Ideare S.p.A. Informedia S.r.l. Liberty Surf Group S.A. Quinary S.p.A. STS S.r.l. Tiscali Datacomm AG Tiscali Deutschland GmbH Tiscali GmbH Tiscali Finance S.A. Tiscali International N.V. Nacamar Ltd Nacamar...

  • Page 119
    ...kind in the form of shares in Tiscali S.p.A.. Trade receivables relate to the billing of Group companies for IT, and housing and hosting services carried out by the holding Company, as well as to the passing on of costs incurred by Tiscali S.p.A. on behalf of Group companies. Other receivables Other...

  • Page 120
    ... relating to ADSL installation fees and modem/equipment charges owed by customers. Such charges are deferred over a period of three years (see accounting policies). The balance of deferred charges (EUR 0.8 million) relates to insurance, advertising costs, portal content and miscellaneous services...

  • Page 121
    ... value of EUR 3,593,147. 123 Increases in the share premium reserve totalled EUR 26,086,414. Changes in the share capital are listed below, next to the transaction to which they refer: ISSUE DATE NO. OF SHARES ISSUED SHARE CAPITAL INCREASE EURO Shares issued to Tryboard Holding S.A. in exchange...

  • Page 122
    ...) (246) OTHER CHANGES - BALANCE 31.12.2003 25 3,749 459 4,233 This provision corresponds to all amounts due to employees under current laws. D) Payables 31.12.2003 to banks to other lenders to suppliers to subsidiaries and affiliated companies to tax authorities to social security agencies other...

  • Page 123
    ... Andaledda S.p.A. Gilla Servizi Telecomunicazioni S.r.l. Surfeu.com AG Tiscali I.T.S. S.r.l Tiscali Access S.A. Tiscali International Network BV Tiscali International Network Spa Tiscali Games GmbH Tiscali Business Service S.p.A. S.T.S. S.r.l. World OnLine SAU Freetravel S.p.A. 978 1,358 3,058 499...

  • Page 124
    "Payables to Group Companies" mainly relate to Tiscali International BV. This item (EUR 503.1 million) has increased by EUR 80.4 million since 2002, consisting of financial payables transferred by Tiscali Finance S.A. to Tiscali International BV (EUR 26.6 million); EUR 47.6 million deriving from ...

  • Page 125
    ... cards. The remaining EUR 1.9 million recorded under "other" comprises EUR 0.8 million relating to ADSL service revenues pertaining to subsequent years, EUR 0.6 million for rental charges owing to Telecom Italia, EUR 0.6 million in contributions paid by broadband users collected by the government...

  • Page 126
    ... Tiscali Finance S.A. ( * ) Original issue value: EUR 150 million. Amount remaining following the buyback operation carried out in December 2003 The reduction in the memorandum accounts is mainly due to a decrease in leasing payments falling due. The payment amounts and years to which they relate...

  • Page 127
    ... Business GmbH Tiscali Business Services S.p.A. Tiscali Datacomm AG Tiscali Deutshland Tiscali Espana SLU Tiscali Finance S.A. Tiscali International BV Tiscali International Network BV Tiscali International Network S.A. Tiscali International Network SAU Tiscali International Network S.p.A. Tiscali...

  • Page 128
    .... INCREASES IN ASSETS FOR WORK IN PROGRESS (INTERNAL) EUR/000 Personnel costs 31.12.2003 1,174 1,174 31.12.2002 - CHANGE 1,174 1,174 The EUR 1.2 million change is attributable to the capitalisation of internal costs involved in the production of management software to be used within the Group...

  • Page 129
    ...follows. "Rental of telephone lines and ports" went up by 40% as the Company took on more production capacity, particularly as regards use of ports and connectivity. "Traffic acquisition costs" rose to EUR 39.5 million and relate to voice services, international and mobile call termination costs and...

  • Page 130
    ... Network BV relate to the international backbone. Costs listed for Excite Italia BV, LibertySurf Group S.A. and Tiscali Deutschland GmbH mainly relate to their share of publicity campaigns run centrally in Italy. The costs invoiced by Tiscali Motoring cover content updates for its auto website...

  • Page 131
    ... years ended in 2002, and social security contributions increased as a proportion of personnel costs, from 15% in 2002 to 18% in 2003. OTHER OPERATING EXPENSES EUR/000 Government concessions and telecommunications licences Taxes other than corporate income tax Magazines and newspaper subscriptions...

  • Page 132
    ... exchange rate losses other 31.12.2003 1,757 283 59 611 6 34 2.750 31.12.2002 1,391 201 96 140 84 146 2.058 CHANGE 366 82 (37) 471 (78) (112) 692 This item mainly comprises interest on bank overdrafts. 134 Interest on loans was capitalised as additional charges on investments when the new...

  • Page 133
    ... signed with Telecom Italia were revised in 2003. Other information As required by law, the table below shows a breakdown of the number of employees by category. AVERAGE NUMBER OF EMPLOYEES AVERAGE 2003 Manual workers Office staff Middle managers Senior managers 8 700 64 35 806 31.12.2003...

  • Page 134
    ... dealings took place with related parties, defined as Companies in which members of the board of directors own a stake directly or indirectly or companies owned by shareholders in the Group. In particular, IT consultancy services were provided by Kelyan S.p.A., in which Bernabè Franco S.p.A. holds...

  • Page 135
    ... customers Other receivables Inventory Accrued income and deferred charges Other current assets Total current assets NON-CURRENT ASSETS Tangible assets Intangible assets Investments and securities Other non-current assets Total non-current assets TOTAL ASSETS 31.12.2003 % 31.12.2002 % CHANGE...

  • Page 136
    ... AND LOSS ACCOUNT EUR/000 VALUE OF PRODUCTION Operating costs: Purchases Services rendered Amortisation/depreciation Personnel costs Increase (decrease) in inventories Other running costs EBITDA Amortisation/depreciation Other provisions EBIT Financial income Financial charges Miscellaneous income...

  • Page 137
    ... Write-downs on investments Change in net working capital, of which: - change in receivables - change in inventories - change in accrued income and deferred charges - change in payables - change in accrued liabilities and deferred income B) Cash flows from operations Net changes in non-current...

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    Progetto Grafico: PFP Group - Milano Stampa: Bertieri Istituto Grafico, Monza (MI)