Crnogorski Telekom 2015 Annual ReportContents: To Our Shareholders



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Crnogorski Telekom

2015 Annual ReportContents:
To Our Shareholders

About Crnogorski Telekom

Selected Financial and Operational Data of Crnogorski Telekom for 2015

Letter to Our Shareholders


Management report

Management Report for the Financial Year 2015

Crnogorski Telekom’s Management

Board of Directors

Executive Management Board

Vision and Strategy

Regulatory Environment

Promotions and Offers


Human Resources
Corporate Responsibility
Financial Statements

Independent Auditor’s Report

Statement of Financial Position

Statement of Comprehensive Income

Statement of Cash Flows

Statements of Changes in Equity

Notes to the Financial Statements
Further Information


To Our Shareholders
About Crnogorski Telekom
Crnogorski Telekom (CT) is the largest telecommunications company in Montenegro. It provides a full range of fixed and mobile telecommunication services (voice, messaging, internet, TV, leased-line circuits, data networks and ICT solutions).
Crnogorski Telekom fully digitalised the fixed-line network in 2007 and brought ADSL coverage of PSTN customers close to a 100% base by the end of 2012. In December 2007, Crnogorski Telekom started an IPTV service. At the end of 2011 CT started offering ICT solutions, promoted under the name “Integris”.
CT was the second entrant into the mobile market in Montenegro. From its founding in 2000, it has always offered innovative and advanced services to the Montenegrin market and has been experiencing dynamic growth. Telekom uses mobile technologies such as UMTS, HSDPA, GPRS and EDGE. A 3G network was launched in the summer of 2007, while 4G service was launched in 2012.
In 2006, the T-Com and T-Mobile brands were launched.
In May 2009, Crnogorski Telekom a.d., T-Mobile Crna Gora d.o.o and Internet Crna Gora d.o.o were merged into one legal entity, Crnogorski Telekom a.d.
In 2012, the T-Com and T-Mobile brands were replaced by the Telekom brand, under which all products are now marketed.
On 1 April 2005, Magyar Telekom obtained a 76.53% interest in Crnogorski Telekom. Deutsche Telekom AG holds 59.21% of the Magyar Telekom shares. Deutsche Telekom and Magyar Telekom have a number of subsidiaries worldwide, with which Crnogorski Telekom has regular transactions. Details of related party transactions are given in the company’s Financial Statements, Note 28.

Selected Financial and Operational data of



Crnogorski Telekom


Main financial KPIs (m)

2014

2015

Δ

Δ%

Revenues

104,6

98,6

-6,0

-6

EBITDA w/o SI

41,1

36,8

-4,3

-10

EBITDA w/o SI margin (%)

39,3

37,3

-2,0

 

EBITDA

41,0

34,4

-6,7

-16

EBITDA margin (%)

39,2

34,8

-4,4

 

Operating profit

23,0

16,7

-6,4

-28

Net profit

21,6

15,9

-5,7

-26

Total Assets

186,9

190,6

3,7

2

CAPEX

16,2

17,0

0,7

4

Number of employees

698

588

-110

-16































Fixed line operations KPIs (in thousands)

Dec 31, 2014

Dec 31, 2015

Δ

Δ%

Fixed-voice connections, Total

162,0

148,6

-13,5

-8

Fixed voice Market share (%)

98,4

95,7

-2,6

 
















Fix broadband connections, Total

77,8

76,4

-1,4

-1,8

BB Internet Market share (%)

81,7

77,5

-4,2

 
















IPTV connections, Total

64,3

62,9

-1,4

-2,1

Pay TV Market share (%)

41,8

37,4

-4,4

 































Mobile line operations KPIs (in thousands)

Dec 31, 2014

Dec 31, 2015

Δ

Δ%

Number of customers, Total

346

330

-16

-5

Prepaid

197

175

-23

-11

Postpaid, Total

149

155

7

4

Mobile customers market share (%)

34,1

32,7

-1,4

 

Mobile internet customer number

114

119

5

5

Mobile Internet customers market share (%)

38,3

36,7

-1,6

 

Mobile penetration (%)

163

163

-1

 

Dear Shareholders,

Time flies when you're working a lot on new challenges and innovations! It seems like it was yesterday when I shared with you my impressions on 2014 and now it’s again that time of year: time to inform you about Crnogorski Telekom’s most significant moments in 2015 when it comes to business developments, plans for the coming year and our related strategic directions. This is the time to share with you some of our concerns about the tough times coming, but also to assure you that, regardless of the tests to which the market have put us over the last year, we still have enough creative energy and strength to deal with all the challenges ahead of us. But first let me provide you with an overview of the most significant points of our activities in the previous year. In 2015 we went through many developments, in sometimes less than favourable circumstances, with many complex and challenging projects (All–IP, Managed Services, One Billing & CRM, etc.) being implemented in parallel. But we’ve also achieved a lot. Once again it was confirmed that a team, if really committed, can achieve its best results during the toughest times.
Speaking of our financial achievements let me inform you that our revenues, amounting to EUR 98.6 million, were in line with expectations. We experienced a YoY decrease of EUR 6.0m or -6%, driven by lower Service revenues, which was partly compensated by higher ICT and Equipment revenues. Furthermore, EBITDA before Special Influences was in line with expectations and EUR 4.3m or 10% lower YoY, while the operating Cash Flow was 17% lower YoY, but still exceeded expectations. As the overall telecommunication market is shrinking every year, I am proud that we have been achieving our targets.
The 2015 business year was successful, with results justifying the efforts and resources that we have invested, in spite of all the challenges embodied in the continuously increasing regulatory requirements, more aggressive competition and customers who are always looking for more benefits at lower costs.
Speaking of our 2015 achievements in more details, our primary focus was intensive fiber network rollout, expanding ICT business, further network modernisation, completion of our Hybrid Access project, minimising the negative effects of the extensive regulatory changes and completion of the Managed Service and One Billing & CRM project.
Regarding the fiber network rollout, I am glad to inform you that we ended the year with 11,600 customers and coverage of more than 42,000 households. This means that every sixth home in Montenegro is now capable of connecting to our high-quality fiber network.

Recognising the importance of this service, in 2016 we will make the biggest step since the beginning of the project. We plan to cover 11,000 households and increase the number of customers by almost 3,000. Furthermore, besides the existing 10 cities, fiber will come to three new cities: Pljevlja, Rožaje and Ulcinj. This speed-up of our fiber rollout is part of our strategic initiative to cover all households in urban areas by 2018. In parallel with coverage, we are also planning to increase utilisation of the fiber network from the current 27% to 29% by the end of 2018.


Let us continue this series of success stories with the results from comparative testing of all three mobile networks done by independent P3 Communications Company. According to the results, Crnogorski Telekom was certified as the operator with the best results in 2015! Such remarkable results were achieved thanks to the efforts and investments in the expansion of our 3G and 4G networks in 2015. We were primarily focused on keeping our leadership position in 4G and expanding coverage in densely populated areas. We also have deployed new 3G sites to support growing traffic demand.

We have also developed ambitious plans for 2016. Namely, we will continue with 4G coverage expansion, aimed at providing better service quality in large cities. We also plan capacity expansion in the 3G network in order to be able to fulfil customers’ demands in the best possible way.


Speaking of our ICT business, I am happy to inform you that we maintained the successful pace in 2015. Four years after entering this field, we keep on growing, with revenues of more than EUR 5 million generated in 2015. It is not only that we earned a lot, we have also positioned ourselves as a reliable ICT partner for important investment projects in Montenegro, such as Porto Montenegro and the Hilton Hotel, as a result of which I can proudly inform you that we successfully completed implementation of the biggest ICT contract, for Porto Montenegro, worth EUR 2.5 million.
After comprehensive testing throughout the year, in November we commercially launched Hybrid Access. Being the first operator in DT Europe to achieve this, we are blowing a strong wind into others’ backs, making Hybrid Access a success story. By the end of 2015 there were 205 Hybrid customers, while in 2016 we expect that more than 2,000 customers will enjoy the benefits of this new technology.
One of our most recent successes was completion of the PSTN transformation project, after which Montenegro became the third All-IP country in the DT group. The process was very complex, but we still managed to completely retire our PSTN technology in November. Many benefits have been provided through implementation of this project, with special emphasis on convergent solutions for fixed and mobile networks, readiness for new or optimised products and services such as BB internet, faster service activation, etc.
Now, looking forward to the future, I have to underline that, regardless of the fact that the current circumstances are quite challenging, we must not lose sight of our priority: to be a strong and financially sustainable company, putting our customers at the heart of everything we do, showing them how we can assist them in their communication and their overall lifestyle by providing support when needed, flexibility where possible and a range of attractive and simple products. Such an example in 2015 was the launch of Pickbox, which represents the new way of watching TV and which has already obtained a reputation as a service offering excellent content and absolute freedom to watch anything, anywhere and at any time. We must spoil our customers with the best service and most comprehensive solutions in the market, keep on being innovative and exploring new revenue streams and ways to maximise the benefits obtained from the existing ones.
Unfortunately, as we announced last year, our watchword in the previous period had to be ‘cost control’. That is why we were forced to implement the Managed Services project and outsource a part of our activities. However, I can assure you that the management did everything as promised to preserve the interests of all our colleagues transferred to Ericsson, with whom we signed a seven-year contract in the area of network and service maintenance. This is for sure one of the Company’s biggest projects, enabling us now to additionally focus on new products and services on our strategic road of preserving our leadership position in the field of technology and creating a superior customer experience.
Apart from the Managed Services, there was another crucial project we were predominantly occupied with in 2015: the One Billing & CRM project. The project was successfully concluded with the "go-live" on 5 October, after 2 years and 3 months of extensive work. This included the full migration of all existing customer segments (consumer, business) for all lines of business: postpaid/prepaid mobile, fixed voice, internet and IPTV. The One Billing & CRM project was the first project in the Deutsche Telekom Group (and beyond) to succeed in the implementation of a fully convergent system. The system provides unmatched capabilities to support strategic initiatives like FMC products, best customer experience, the PAN-European network and e-Company.
Also, in 2016 the management intends to propose to the General Assembly to pay dividends. This is the best way to show to our shareholders that we care about their interests and it is the best basis to motivate our shareholders for further investments into the infrastructure of the country.
Finally, I would like to take the opportunity to thank all of our employees for a job well done in 2015. I’m really proud of the results of our joint work efforts, making me calm and confident that we have a strong foundation to build on in the coming years, which will for sure impose on us new tests of our capacity. I guess it would be enough to mention the upcoming auction for new spectrum bands – 800 MHz and 2600 MHz – as a regulatory challenge imposing a very complex type of auction requiring hard work and extensive knowledge and expertise.
Dear shareholders, let me now also thank you, for the fifth time, for your contribution to the success of our Company. We would never be this successful without your trust and confidence, and this is why we will keep on counting on your support in our efforts to maintain and improve our position in the market and in our customers’ lives.

Rüdiger J. Schulz

Chief Executive Director

Management report
Management Report for the Financial Year 2015
Highlights


  • In 2015, revenue performance was in line with expectations. Total revenues decreased YoY by EUR 6.0 million or 6%, to a level of EUR 98.6 million. This amount includes EUR 0.9 million of Other operating income, mainly related to Dark fiber long term lease. Revenue decrease was driven by lower service retail and wholesale revenues, which was partly compensated by the increase in ICT and equipment revenues.

  • EBITDA before special influences was also developing according to expectations. It decreased by 10% YoY to EUR 36.8 million, with a margin of 37.3% (39.3% in 2014).

  • Net profit decreased YoY by EUR 5.7 million or 26%, to EUR 15.9 million. Besides a decrease in operating profitability, CT had significant restructuring costs in 2015, mainly related to severance payments of EUR 2.5 million (as opposed to EUR 0.1m in 2014).

  • Capital expenditure was EUR 17.0 million. In 2015 CT completed implementation of One Billing & CRM and migration to IMS.

  • A dividend of EUR 21.5 million was paid out.


Revenues and Profitability
In 2015, Crnogorski Telekom focused on further extending its 4G mobile network, on fibre network rollout, on expansion of the ICT service, on the sale of equipment and on the improvement of voice services. CT retained a stable fixed broadband and TV customer base. In the mobile segment CT was able to retain leadership positions in overall postpaid and in business-segment postpaid. Revenues and profitability were negatively impacted by regulation of fixed voice and fixed broadband retail prices.
Despite stable development of the number of customers, CT’s revenues decreased YoY by 6% and reached EUR 98.6 million. Retail revenues were down 5%, while wholesale revenues decreased by 11%. The major revenue downsides compared to 2014, related to:

  • Interconnection revenues (-16%), driven by decreased mobile termination rate and lower incoming traffic, as well as by lower revenue from visitors;

  • Fixed-line voice retail revenues (-13%), influenced by retail price regulation and decreasing usage;

  • Fixed broadband revenues (-6%), also impacted by retail price regulation;

  • Mobile prepaid revenues (-17%).

The main positive revenue developments were related to:

  • IPTV revenues (+3%);

  • Data service revenues (+15%), driven by the growth of ICT services;

  • Equipment revenues (+10%), mainly driven by handset sales.

Continuous efforts to increase efficiency and improve the cost base resulted in a YoY decrease in operating expenses before special influences of EUR 1.6 million or -3%, to a level of EUR 62.1 million.


YoY revenue decrease and cost efficiency resulted in a 10% YoY decrease of EBITDA before special influences, to the amount of EUR 36.8 million.
Operating profit (EBIT) decreased YoY by EUR 6.4 million to EUR 16.7 million, due to lower EBITDA and due to higher severance payments in 2015. Net profit decreased by EUR 5.7 million to EUR 15.9 million.
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