Tiscali 2008 Annual Report Download - page 32

REPORT ON OPERATIONS
31
Following a significant refocusing of the scope of consolidation, the
Group concentrated its activities in two principal European countries,
Italy and the UK, offering its products to consumer and business
customers, mainly by means of four business lines: (i) the “Access”
line, via Broadband (LLU; Wholesale/bitstream) and Narrowband;
(ii) the “Voice” line, inclusive of telephone traffic services, both
traditional (CS and CPS) and VoIP; (iii) the “Business Services” line
(so-called B2B), which includes VPN and Hosting services, the
concession of domains and Leased Lines, provided to companies
and, in conclusion, (iv) the “Media and value added services” line,
which includes media, advertising and other services.
Tiscali Group revenues during 2008 came to EUR 983.6 million,
up by 11.4% when compared with the figure of EUR 883.1 million
reported in 2007. The 2008 figure includes both the organic
growth and that via external lines relating to the acquisition of
the Pipex division in the UK, during September 2007.
During 2008, internet access and voice services – the Group’s
core business – represented around 89.7% of total turnover.
Group profitability increased, with Gross Operating Income
(Adjusted EBITDA) before provisions of EUR 155.1 million, up
by 29.4% compared to the Adjusted EBITDA of EUR 119.9
million recorded in 2007. Profitability as a percentage of
revenues therefore increased by two percentage points (15.8%
in 2008 compared to 13.6% in 2007).
At the end of 2008, ADSL users amounted to more than 2.3 million,
of which over 1.2 million direct customers (LLU) and around 1.4
million customers who acquire voice services via VoIP and CPS.
Note that the reclassified income statement shown on page 32
can be reconciled with the consolidated income statement
included in these financial statements.
Main risks and uncertainties which Tiscali S.p.A. and
the Group are exposed to
Risks relating to the general economic situation
The economic, equity and financial situation of the Group is
influenced by various factors which make up the macro-economic
picture – such as, for example, changes in GDP (Gross Domestic
Product), confidence in the economic system shown by savers
and the trends relating to interest rates.
During 2008, the financial markets were characterized by great
volatility which heavily influenced many financial institutions, leading
to an impact on the entire global macro-economic system.
The progressive weakening of the economic system, combined
with a drop in the available income of households, downsized the
general level of consumption, triggering off a downtrend which is
envisaged will have further effects in 2009.
At present, it is impossible to be certain that the measures adopted
by Governments and by the monetary authorities in response to
this situation will be able to lead to a general improvement in the
economic situation within an acceptable timescale. Consequently,
it is not possible to establish by way of priority how much time
will effectively be necessary so that the markets return to operating
under normal conditions.
If this period of economic uncertainty should protract significantly
over time, the activities, strategies and prospects of the Tiscali
Group could be negatively influenced by this state of play and,
consequently, also the equity, financial and economic position of
the Company could be affected.
Risks associated with the performance of the telecommunications
market
The telecommunications market in which the Tiscali Group operates
is extremely competitive in terms of innovation, prices, efficiency
and customer service. Tiscali competes with other groups of
International standing, as well as with various local operators.
The success of the Group’s activities will depend on its ability to
maintain and increase the market shares where it currently operates
by means of innovative and high quality services which ensure
adequate levels of profitability. If the Company is not able to
maintain the competitive level with respect to the leading
competitors in terms, among other things, of price and quality,
Tiscali Group market shares could fall with a negative impact on
the economic and financial results of the Group.
Risks associated with financial requirements
The evolution of the Group’s financial situation depends on
different factors, in particular, for example, the achievement of
the envisaged objectives, the trend in the general conditions of
the economy, the financial markets and the sector in which the
Group operates. During the first few months of 2009, following
a review of the main preliminary results in 2008 and of the Group’s
financial position, also in light of the deterioration of the macro-
economic conditions and the sharpening of the competitive context
in the sector, Tiscali took steps to launch a process aimed at
restructuring the Group’s borrowing as well as ensuring the long-
term financial equilibrium. In consideration of this and so as to
be able to avail of the necessary timescale for drawing up these
Plans, the Company requested the leading financial institutions
to grant a period of suspension on the interest payments, principal
amounts and financial covenants, so as to achieve the operating
objectives established for the year underway.
The Company has also specified that the route taken has the aim
of renegotiating the financial debt with leading lending institutions,
who are willing to negotiate, and that the business activities in
Italy and the UK are proceeding regularly vis-à-vis both customers
and suppliers. Despite management being confident in reaching
an agreement before long with the leading banks aimed at