Tiscali 2008 Annual Report Download - page 40

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;
REPORT ON OPERATIONS
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Request for suspension of the payment of interest
and principal (standstill), drawing up of a new
business plan and launch of the financial debt
renegotiation process
Following examination of the main preliminary results for 2008
and the Group’s 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, the Board
of Directors assessed the need to prepare a new Business
Plan and an associated Financial Plan which will permit the
Group to launch a process aimed at restructuring the debt
and guaranteeing financial balance over the long-term. In
consideration of this and for the purpose of being able to avail
of the timescale necessary for the preparation of said Plans,
the Company requested the leading financing institutions to
grant of period of suspension for the payment of interest,
principal and financial covenants (standstill). In light of this
request, on 10 March 2009, the Company suspended said
payments, including those falling due in the same month. 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.
The 2009-2013 Business Plan is based on the guidelines aspiring
to the maximization of the operating efficiency, the reduction of
costs and investments and the generation of short/medium-term
cash. The structure of the guidelines is differentiated for each
operating unit in relation to the particular features of the related
context/market.
4.7 Assessment of the business as a going-concern
and business outlook and prospects
Events and uncertainties regarding the business
continuity
The Tiscali Group ended the year with a loss of EUR 271.1
million and total net 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.