Tiscali 2008 Annual Report Download - page 95

Payables for finance leases (note 35)
Payables for finance leases refer to the short-term portion of
payables due to leasing companies for finance lease agreements.
For further details, see the related note.
Payables to suppliers (note 36)
EUR (000) 31.12.2008 31.12.2007
Payables to suppliers 268,899 239,127
Total 268,899 239,127
Payables to suppliers refer to trade payables for the supply of
services such as contents, telephone traffic and data traffic. The
increase when compared with the previous six-month period is
mainly attributable to payables for the acquisition of sites for the
unbundling network of the Italian and UK subsidiaries
The balance also includes EUR 10.4 million for the purchase
of IRU (Indefeasible Rights of Use) concerning investments
for the unbundling project.
As indicated in the commentary on business continuity on page
76, the Group is renegotiating a repayment plan with its main
suppliers both in the UK and in Italy aimed at guaranteeing the
financial balance of the Company. These plans, still being defined,
fall within the process for the suspension of the payments already
started with the Group’s main financial institutions.
Other current liabilities (note 37)
EUR (000) 31.12.2008 31.12.2007
Accrued expenses 45,984 76,927
Deferred income 61,215 65,269
Other payables 41,567 29,319
Total 148,765 171,515
Accrued expenses include EUR 41.4 million relating to operating
expenses, such as costs for contents, costs for network access,
costs for professional consulting and costs for line rentals.
Deferred income mainly refers to the deferral of the capital gain
on disposal relating to the sale & lease back transaction on the
Sa Illetta property, amounting to around EUR 27.6 million (which
will be released in portions over 15 years corresponding to the
duration of the lease agreement), deferrals on IRU sales contracts
for around EUR 16.8 million and other deferrals on portions of
revenues, not pertaining to the period, for the activation of
broadband (ADSL) services (deferred over a time span of 12
months) mainly relating to the Italian subsidiary.
The item other payables mainly includes payables due to the
tax authorities (VAT in the first instance) and due to social
security and welfare institutions for a total of EUR 18.7 million,
together with payables due to employees totalling EUR 21.1
million and other payables for the residual balance. Payables
to employees include around EUR 11 million in payables due
to directors of the UK subsidiaries following the conversion of
the stock options into a cash bonus during 2008.
Financial instruments
Financial risk management objectives
The Group’s Corporate Treasury division provides business
services, co-ordinates access to the local and international
financial markets, and monitors and handles the financial risk
associated with Group operations by means of internal risk
reports which analyze the exposures by degree and magnitude
of the risk. These risks include market risks (inclusive of
currency risks, fair value interest rate risks and price risks),
credit risks and risks in cash flow interest rates.
The use of financial derivatives is disciplined by policies
approved by the Board of Directors, which provides written
principles on foreign exchange risks, interest rate risks, credit
risks, on the use of financial derivatives and non-derivative
financial instruments, and the investment of surplus liquidity.
Market risk
Group activities expose it primarily to the financial risk of changes
in exchange rates for foreign currency and to the interest rate.
Handling of the foreign exchange risk
Analysis of foreign currency sensitivity
The currency of the Group’s consolidated financial statements
is Euro. Furthermore, it concludes and will continue to conclude
transactions in currencies other than Euro, mainly GBP, and is
therefore exposed to the risk of fluctuations in exchange rates
between the various currencies. At 31 December 2008, the
sales revenues of the Group expressed in GBP and converted
into Euro generated by activities in the UK came to 69% of total
sales revenues. Changes in the value of the exchange rate
between the Euro and GBP could reveal a change in the
conversion reserve on the consolidated shareholders’ equity of
Tiscali S.p.A.. At 31 December 2008, the Company had no
transactions hedging the exchange rate risk outstanding.
The following table shows the sensitivity to changes - reasonably
possible in the GBP exchange rate, maintaining all the other
variables the same - of the pre-tax profit (due to changes in the
fair value of the current assets and liabilities) and the Group’s
shareholders’ equity (due to changes in the fair value of the
forward agreement on exchange rates and in the hedging of net
investment in foreign operations):
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CONSOLIDATED FINANCIAL STATEMENTS AND EXPLANATORY NOTES