Tiscali Reports Q3 Loss

Pre-tax loss was €33.3M in Q3, down by 54% from €73.6M in 3Q03

November 12, 2004

5 Min Read

CAGLIARI, Italy -- Tiscali’s board of directors has approved the 3Q04 results.

Third quarter 2004 results were substantially ahead of 3Q03, in spite of the seasonalityof summer months affecting dial-up minutes and the pace of new ADSL adds. Thegroup is well on track to achieving its full-year target of 1.7 million broadbandcustomers.

During the quarter Tiscali implemented the disposals of subsidiaries in Austria, Norway,Sweden, Switzerland and South Africa, for a total of EUR 81.3 million, as part of theannounced disposal plan. This plan comes under the group’s strategy of focusing onmarkets that offer the best value creation opportunities.

On the basis of the implemented disposal plan and of other actions already taken,Tiscali’s board of directors has confirmed its confidence in the financial sustainability ofthe business plan which is currently being implemented, aimed at meeting the rapidgrowth in demand for broadband services throughout Europe.

Revenues and gross profit

The group posted third-quarter revenues of EUR 270.6 million, up 22% versus 3Q03,but in line with the previous quarter, also due to the sale of the Austrian and Norwegiansubsidiaries.

At the end of September, the Group had 1.542 million ADSL customers, up from602,000 at 30 September 2003 (+156%). 102,000 new customers signed up during thequarter (+7% vs. 2Q04). The number of active users totalled 7.7 million, of which 6.2million are dial-up users. These results were affected by the strong seasonality ofsummer months and the return to normal levels of growth in ADSL user numbers, inline with the group’s strategy, focused on boosting higher-margin customer numbersfollowing the launch of unbundled services.

Around 160,000 ADSL users are already receiving unbundled services. The groupexpects an increasing number of customers to migrate from wholesale to unbundledservices, especially once double (voice and data) and triple play services (voice, dataand content) are on offer.

Operating performance

Operating costs fall as a proportion of revenues

Operating costs fell both in absolute terms (-8% versus 3Q03, at EUR 87 million) andas a proportion of revenues (from 43% in 3Q03 to 32% in 3Q04). These costs also fellsubstantially versus the previous quarter both in absolute terms and as a proportion ofrevenues (35% vs. 32%), following a reduction in the amounts spent on marketing andgeneral and administrative costs.

Operating costs break down as follows:

marketing costs totalled EUR 27.4 million (10% of revenues), down 24%versus 3Q03 (16% of revenues) and 9% versus the previous quarter (11% ofrevenues). This reduction related to a reallocation of investments and toseasonal factors: investment is expected to rise in the fourth quarter of 2004,when the group will focus on promoting its unbundled broadband and voiceservices.

personnel costs came to EUR 40.1 million (15% of revenues), up 12%versus 3Q03 (16% of revenues) and slightly decreasing (-2%) compared tothe previous quarter (16% of revenues).

general and administrative costs were EUR 19.5 million (7% of revenues),up 19% versus 3Q03 (11% of revenues), and 18% lower than in the previousquarter (9% of revenues).

Third-quarter EBITDA was up 82% at EUR 25.7 million (9% of revenues), from EUR14.1 million in 3Q03 (6% of revenues), and 6% ahead of the previous quarter (EUR24.3 million). The increase was achieved thanks to a reduction in operating costs.

Depreciation, amortisation and provisions totalled EUR 57.6 million, down from EUR66.8 million in 3Q03. The reduction (despite the increase in investments) is attributableto lower goodwill amortisation following a review of the residual life of the assets, andthe harmonisation of depreciation rates introduced for the purpose of preparing theannual report for the year ending 31 December 2003. The 3Q04 figure decreased alsocompared to EUR 64.1 million registered in 2Q04 which included higher provisions.

In particular, depreciation of tangible assets came to EUR 17.8 million in 3Q04, whileamortisation of intangible assets was EUR 37.1 million, of which EUR 13.8 millionrelated to goodwill.

The loss at EBIT level was EUR 31.8 million, versus losses of EUR 52.4 million in3Q03 and EUR 39.7 million in the previous quarter.The group made a pre-tax loss of EUR 33.3 million in the third quarter of 2004, amarked improvement (+54%) on the losses of EUR 73.6 million recorded in 3Q03 andof EUR 65.5 million recorded in 2Q04. The pre-tax loss included an extraordinaryincome item relating to capital gains on the sales of subsidiaries in Austria, Norway andSweden of EUR 17 million.

Investment totalled EUR 35.6 million in 3Q04, of which around EUR 30.1 million wasspent on tangible assets and EUR 5.5 million on intangible assets. The increase ininvestment compared to the previous quarters relates to the roll-out of infrastructure tosupport the supply of unbundled ADSL services in France and Italy, and to a lesserextent, in the Netherlands, where investments should be completed by the end of2004.

Financial resources and debt

The operating cash flow after capex and before interests on financial and leasing debtstood at EUR -12 million, a sharp improvement vs 2Q04 (EUR -20.5 million). Capex in3Q04, for EUR 35.6 million, were higher than capex in 2Q04 (EUR 19 million). Workingcapital absorption, on the other hand, was unusually low.Free cash flow stood at EUR -11.3 million, more than halved versus the third quarter of2003 (EUR -30 million).

This included an extraordinary cash item of EUR 26 million deriving from the disposalsof subsidiaries in Austria, Norway, Sweden and Switzerland (net of the deferredpayments and of the respective net financial positions). It also included financialcharges for EUR 18 million, higher than the EUR 4.5 cash interest charge in 2Q04(corresponding to the quarterly interest charges on the bonds due July 2005). In fact,the annual interest expenses for the bonds matured July 2004 and due September2006 were also entirely paid in the quarter.

At 30 September 2004, the Tiscali group had liquid financial resources of EUR 133.3million, while net debt stood at EUR 382.4 million.

Tiscali

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