Tiscali 2008 Annual Report Download - page 121

8.5 Explanatory notes
Tiscali S.p.A. is a limited company incorporated under the laws
of the Republic of Italy at the Cagliari Companies’ Register. The
Tiscali Group provides telecommunications services on the
fixed network in the UK and Italy. Tiscali offers integrated
internet access, telephone and multimedia services and in
particular is positioned in the IP technology services sector
which makes it possible to provide voice, internet and video
services via the same technological platform.
These financial statements are presented in euro (EUR) which
is the currency used to conduct most of the parent company’s
operations.
The income statement and balance sheet, cash flow statement,
statement of changes in shareholders’ equity and values indicated
in the notes to the financial statements are presented in Euro.
Assessment of the business as a going-concern
and business outlook and prospects
Events and uncertainties regarding the business continuity
The statutory financial statements of Tiscali S.p.A. at 31 December
2008 closed with a loss of EUR 981.324 million. Further to the
loss reported in 2008, the share capital at 31 December 2008
was reduced by more than a third, the case envisaged by Article
2446 of the Italian Civil Code therefore emerging.
The Tiscali Group ended the year with a loss of EUR 271.1
million and total shareholders’ equity of EUR 4.8 million.
Furthermore, at 31 December 2008 the Group disclosed gross
financial debt of EUR 644.8 million and, as of the same date,
the levels of the financial covenants envisaged by certain loan
agreements were not observed. This circumstance led to the
reclassification under current liabilities of the medium/long-
term loans for EUR 439.6 million, in accordance with the
reference accounting standards.
The afore-mentioned result for the year was influenced by a series
of factors, including the change in the competitive and market
context, involving a sharpening in competition and a slowdown in
demand for telecommunications services, and the weakening of
the UK sterling against the Euro, with consequences on the ability
to service the long-term bank debt, denominated in Euro.
Among events subsequent to the end of the year, it is necessary
to mention both the afore-mentioned agreements for the disposal
of Tiscali International Network BV and the fact that the Group
has also decided to suspend the payments envisaged within the
sphere of the outstanding loan agreements and therefore has not
reimbursed portions of principal and interest for EUR 35 million
falling due in March 2009. The occurrence of these events,
together with the failed observance of certain financial covenants
as described previously, on the basis of the corresponding loan
agreements, permits the majority of the financial institutions the
faculty to request the early repayment of said loans.
As a result of all the circumstances indicated above, as of the
date the financial statements were drawn up uncertainty exists
with regard to the Company’s business continuity; however, the
Board of Directors has drawn up the consolidated financial
statements at 31 December 2008 on the basis of the
assumption of the business as a going-concern, in light of the
considerations which follow.
Action taken
Having taken due note of the Group’s equity, economic and
financial position, as well as in light of the deterioration of the
macro-economic conditions and the worsening of the competitive
context in the sector, already highlighted in the results at 31
December 2008 and the business outlook on the basis of the
trends underway during the first few months of 2009, the Board
of Directors assessed the need to prepare a new Business Plan
and an associated Financial Plan which will permit the Tiscali
Group to launch a process aimed at restructuring the debt and
guaranteeing financial balance over the long-term.
The plan proposed by the Board of Directors is based on the
following principle action, partly launched as of today’s date:
a) stipulation with senior financial institutions of a suspension
agreement (so-called standstill agreement) expiring on 5
June 2009, concerning the suspension of the payment of
principal and interest instalments due in accordance with
the medium/long-term loan agreements as well as the
related covenants. The senior financial institutions also
manifested their willingness in good faith, where necessary,
to consider an extension of the afore-mentioned standstill
agreement until 31 December 2009;
b) request to the banks and leasing companies for a
suspension agreement falling due on 30 June 2009 relating
to the short-term debt and the financial property leasing;
c) the appointment of advisors to support the Group in relation
to industrial, financial and legal aspects;
d) the definition of the new Business Plan, whose guidelines
were approved by the Board of Directors on 27 March;
e) the definition of the financial manoeuvre aimed at rendering
the Tiscali Group’s financial debt compatible with the related
income-related and financial prospects, also in light of the
matters envisaged in the guidelines of the Business Plan;
f) the launch of negotiation for the definition of an agreement
with the financial institutions, aimed at restructuring the
Group’s financial debt. The Board of Directors discloses that
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