Revenues were up 25% vs 1H03 to €538; Renato Soru resigns as chairman; board appoints Vittorio Serafino

September 27, 2004

6 Min Read

MILAN, Italy -- The board of directors of Tiscali has approved the Group’s first-half 2004 results, whichbroadly confirm the figures provided for the release of its 2Q04 results.

In August and September 2004, Tiscali also announced the sale of subsidiaries inAustria, Norway, Sweden, South Africa and Switzerland for a total of over EUR 80million in cash, as the first wave of the announced disposal plan. This plan is consistentwith the Group’s strategy of refocusing its activities and concentrating on those marketswhich offer the best growth and profitability potential.These disposals, while representing 9% of first-half revenues, correspond to ca 1% of1H04 EBITDA, less than 5% of the Group’s ADSL users and less than 6% of dial-upusers of 30th June 2004.

Resignations of Renato Soru and appointment of Vittorio Serafino as Chairmanof Tiscali

The Board of Directors of Tiscali, upon proposal by Renato Soru, has appointedVittorio Serafino, Executive Chairman of Tiscali following the resignation of RenatoSoru himself. The appointment of Vittorio Serafino as board member will have to beratified in the next shareholders’ meeting.

Serafino, 54, has a long standing experience in merchant and commercial banking: hewas deputy general manager of IMI with the responsibility of the retail and institutional banking business. Following the merger with Sanpaolo, which resulted in the creationof the largest Italian banking group, he was responsible for the commercial bankingbusiness. Until 2002, he was managing director of Banco di Napoli, within theSanpaolo IMI group, which was subsequently merged with the parent company.Lately, he acted as deputy chairman of Fideuram Vita.

“As already announced, following my appointment as President of the SardinianRegion, I have resigned from the chairmanship and from the Board of Directors ofTiscali. I leave a growing Company, with improving operating performance, afterstarting the refocusing on the key strategic markets and on the broadband accessbusiness model. During the last months I prepared the Company to my departure, withthe appointment as CEO of Ruud Huisman, with whom I have long worked with my fullsatisfaction. I have submitted to the Board of Directors the candidature of VittorioSerafino as my replacement, which has been unanimously approved. Vittorio Serafinowill bring to Tiscali his long standing experience in the financial markets”, statesRenato Soru.“I will remain a key shareholder of Tiscali and, as such, I will continue to followattentively the future of the Company”, concludes Renato Soru.

1H04 results

Revenues and gross margin

  • The Group posted first-half revenues of EUR 538.0 million, an increase of 25% versusthe first six months of 2003.

  • At the end of June 2004, ADSL customer numbers were more than triple the figure at30 June 2003 (+16% vs 31.03.04), with 17,000 new subscribers signing up each weekon average. The number of active users totalled 7.9 million, of which 6.5 million aredial-up users. 55% of ADSL users in the Netherlands are now receiving unbundledservices.

  • In September 2004, VoIP (Voice over IP) services were launched in the Netherlandsand in France, anticipating the ULL offer in October. This service enables Tiscali’scustomers to make telephone calls using their ADSL connections at very competitiveprices.

  • Access revenues rose by 22% versus 1Q03 to EUR 365.9 million (68% of totalrevenues). First-half ADSL revenues soared to EUR 145.3 million (40% ofaccess revenues) from EUR 60.3 million (16% of access revenues) in 1H03.

  • Dial-up revenues were affected by a drop in user numbers and online minutescompared to 1H03, as a result of both greater migration of users to broadbandservices and seasonal factors affecting the month of June.

  • Revenues from business services shot up by 47% versus 1H03, to EUR 102million (19% of the total), thanks to the expanded basis of consolidation andsynergies arising from the integration of the businesses acquired in 2003. Thisbusiness line has now become Tiscali’s second biggest revenue source, andoffers strong synergies with the B2C market.

  • Voice revenues rose by 32% versus 1H03 to EUR 42.8 million (8% of totalrevenues). The revenue increase in this business area was due to both organicand external growth, following the acquisition of npower in the UK, which wasconsolidated from the second half of 2003.

  • Portal revenues were slightly down on 1H03, at EUR 22.6 million (4% of totalrevenues). The first six months of the year also saw Tiscali confirmed as one ofEurope’s leading web properties, with over 17 million unique visitors in June2004, a 30% increase on June 2003.



The change in the access revenues mix due to sustained growth in ADSL usernumbers—most of whom receive wholesale services—had an impact on gross profit,which came in at EUR 246.8 million, an increase of 14% on 1H03. The gross marginnarrowed to 46% of revenues, from 50% in the first half of last year. This deteriorationis due to the increasing proportion of ADSL services provided, as wholesale broadbandservices offer far lower profitability than dial-up services. The gross margin is expectedto progressively improve over the next few quarters with growth in unbundledbroadband services.

Operating performance

Operating costs fall as a proportion of revenues

Operating costs fell from 43% of revenues in 1H03 to 37% this time. In absolute terms,however, operating costs rose by +8% yoy to EUR 198.5 million. This reduction inoperating costs as a proportion of revenues is attributable to lower marketing,personnel and general and administrative costs.

Operating costs break down as follows:

  • marketing costs were 6% higher than in 1H03 at EUR 70.7 million, but fellas a proportion of revenues from 15% to 13%

  • personnel costs rose by 13% versus 1H03 to EUR 77.9 million (but fell from16% to 14% of revenues)

  • general and administrative costs increased by 3% versus 1H03 to EUR50.0 million, but fell as a proportion of revenues from 11% to 9%

  • First-half EBITDA was up 47% at EUR 48.2 million, from EUR 32.7 million in 1Q03,while the EBITDA margin expanded from 8% to 9% in the same period.

  • Depreciation, amortisation and provisions totalled EUR 99.7 million, compared withEUR 131.4 million in 1H03. In particular, depreciation of tangible assets accounted forEUR 40 million, while amortisation of intangible assets was EUR 59.7 million, of whichEUR 28.2 million related to goodwill.

  • The company made a loss at operating level (EBIT) of EUR 66.4 million, a markedimprovement (+33%) on the 1H03 figure (EUR -98.8 million).

  • The company made a pre-tax loss before minorities (EBT) of EUR 134.3 million,compared with a loss of EUR 141.6 million in 1H03. The pre-tax loss figure – with aconservative approach - already incorporates an extraordinary capital loss of EUR 17million on the sale of Swiss subsidiary Tiscali AG (lower book value than disposalprice), which was completed on 16th September 2004. The EBT does not include theextraordinary income from the other disposals already announced for EUR 42 million,which will be booked by year end.

  • The group made a first-half net loss of EUR 134.3 million, compared with a loss of EUR129.3 million in 1H03. This included extraordinary income of EUR 12.9 million.

  • Investment totalled EUR 51.2 million in 1H04, of which around EUR 29.7 million wasspent on tangible assets and EUR 21.5 million on intangible assets.

  • The investment intangible assets includes EUR 4 million relating to leasing costs capitalised under IAS17 (not mentioned in the second-quarter report).



Financial resources and debt

Cash burn was EUR 88.6 million in 1H04 (EUR 58.6 million in the first quarter and EUR30.0 million in the second quarter).

In July 2004, the cash burn dropped to around EUR 7 million, before thereimbursement of the 2004 bond (including payments of coupon).

As of 30th June 2004, the Tiscali Group had liquid financial resources of EUR 228.5million, while net debt (excluding liabilities to other lenders) stood at EUR 371.1 million.

Tiscali

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