“ beyond complexity lies simplicity!�
Albert Einstein
simplicity
Belgacom
annual report 2006
This title captures in a nutshell the Belgacom Group’s objectives for 2007. The telecommunications sector is particularly complex, and the number of service offerings has risen steadily in the past few years. This is why the Belgacom Group has opted for convergence and simplicity, through clear offers and transparent interactions. Our main objective is to make high-performance products with unlimited communication possibilities available for everyone.
annual report 2006
“ beyond complexity lies simplicity!�
Albert Einstein
simplicity
Belgacom
annual report 2006
This title captures in a nutshell the Belgacom Group’s objectives for 2007. The telecommunications sector is particularly complex, and the number of service offerings has risen steadily in the past few years. This is why the Belgacom Group has opted for convergence and simplicity, through clear offers and transparent interactions. Our main objective is to make high-performance products with unlimited communication possibilities available for everyone.
annual report 2006
key figures
Group financials
Year ended 31 December
2004
2005
2006
5,540
5,458
6,100
0
238
0
Total revenue
5,540
5,696
6,100
EBITDA(1) before non-recurring items
2,394
2,214
2,149
2,353
2,098
2,149
-742
-726
-802
1,611
1,372
1,347
-27
64
104
1,584
1,436
1,451
-508
-339
-358
Minority interests
152
139
121
Net income (Group share)
922
959
973
Year ended 31 December
2004
2005
2006
Revenue
1,899
1,883
1,643
The reported Group revenue increased by 7.1%.
-556
-696
-676
78
389
-2,279
1,421
1,575
-1,313
Income Statement (in EUR million) Total revenue before non-recurring items Non-recurring revenue
(1)
EBITDA
Depreciation and amortization Operating income (EBIT) Net finance revenue (costs) Income before taxes Tax expense
Cash Flow and Capital Expenditures (in EUR million) Cash flows from operating activities Capital expenditures Cash flows generated by / (used in) other investing activities Free cash flow(2)
-1,658
-1,102
751
Net increase / (decrease) of cash and cash equivalents
Cash flows used in financing activities
-237
473
-562
As of 31 December
2004
2005
2006
Balance sheet (in EUR million) Balance sheet total
5,368
5,831
7,300
Non-current assets
3,963
3,808
5,504
406
884
327
2,223
2,221
2,391
Minority interests
407
370
8
Liabilities for pensions, other post-employment benefits and termination benefits
760
1,010
886
Net financial position
110
534
-1,636
Investments, cash and cash equivalents Shareholders’ equity
Year ended 31 December
2004
2005
2006
Basic earnings per share (EUR)
2.57
2.78
2.87
Diluted earnings per share (EUR)
2.57
2.77
2.87
Dividend per share, gross (in EUR)(3)
1.38
1.52
1.60
Interim/special dividend per share, gross (in EUR)
0.55
0.00
0.29
358,612,854
345,406,186
338,621,113
2004
2005
2006
Data per share
Weighted average number of ordinary shares As of 31 December Operating data Total access channels (in thousands)(4)
5,252
5,251
5,238
Total retail and wholesale ADSL access channels (in thousands)
1,024
1,268
1,493
Active mobile customers (in thousands)(5)
4,198
4,253
4,311
Minutes transported by International Carrier Services (in billions) Employees
(1) Earnings Before Interests, Taxes, Depreciation and Amortization. (2) Cash flow before financing activities. (3) 2006 dividend to be approved by the Annual General Shareholder meeting.
6.9
9.6
12.2
16,933
16,335
18,180
(4) PSTN + ISDN BA + ISDN PRA + ADSL retail. (5) Customers who received/made a call or received/sent an SMS over the past three months.
139,665 Belgacom TV customers
Revenue (in EUR million)
33% MCS
11% ICS
4,500
Net income Net income (Group share) amounted to EUR 973 million.
Revenue 2006 by segments (before eliminations)
5,696 5,540
5,000
4,000
new active customers at Proximus
6,100
6,000 5,500
58,077
56% FLS 04
05
06
Net income (in EUR million) 1,000 922
959
973
05
06
800 600 400 200 0
EBITDA The reported EBITDA of the Group including non-recurring items increased by 2.4%.
04
EBITDA (in EUR million)
EBITDA 2006 by segments (before eliminations)
2,400 2,353
2,200 2,098
2,000
2,149
47% MCS
1,800 2% ICS
1,600 1,400
52% FLS
1,200 1,000
Earnings per share Earnings per share increased by 3.2% to EUR 2.87.
04
05
06
Earnings per share (in EUR) 3 2.78
2.87
2.57
2
1
0
04
05
06
key figures
Group financials
Year ended 31 December
2004
2005
2006
5,540
5,458
6,100
0
238
0
Total revenue
5,540
5,696
6,100
EBITDA(1) before non-recurring items
2,394
2,214
2,149
2,353
2,098
2,149
-742
-726
-802
1,611
1,372
1,347
-27
64
104
1,584
1,436
1,451
-508
-339
-358
Minority interests
152
139
121
Net income (Group share)
922
959
973
Year ended 31 December
2004
2005
2006
Revenue
1,899
1,883
1,643
The reported Group revenue increased by 7.1%.
-556
-696
-676
78
389
-2,279
1,421
1,575
-1,313
Income Statement (in EUR million) Total revenue before non-recurring items Non-recurring revenue
(2)
EBITDA
Depreciation and amortization Operating income (EBIT) Net finance revenue (costs) Income before taxes Tax expense
Cash Flow and Capital Expenditures (in EUR million) Cash flows from operating activities Capital expenditures Cash flows generated by / (used in) other investing activities Free cash flow(2) Cash flows used in financing activities
-1,658
-1,102
751
Net increase / (decrease) of cash and cash equivalents
-237
473
-562
As of 31 December
2004
2005
2006
Balance sheet (in EUR million) Balance sheet total
5,368
5,831
7,300
Non-current assets
3,963
3,808
5,504
406
884
327
2,223
2,221
2,391
Minority interests
407
370
8
Liabilities for pensions, other post-employment benefits and termination benefits
760
1,010
886
Net financial position
110
534
-1,636
Investments, cash and cash equivalents Shareholders’ equity
Year ended 31 December
2004
2005
2006
Basic earnings per share (EUR)
2.57
2.78
2.87
Diluted earnings per share (EUR)
2.57
2.77
2.87
Dividend per share, gross (in EUR)(3)
1.38
1.52
1.60
Interim/special dividend per share, gross (in EUR)
0.55
0.00
0.29
358,612,854
345,406,186
338,621,113
2004
2005
2006
Data per share
Weighted average number of ordinary shares As of 31 December Operating data Total access channels (in thousands)(4)
5,252
5,251
5,238
Total retail and wholesale ADSL access channels (in thousands)
1,024
1,268
1,493
Active mobile customers (in thousands)(5)
4,198
4,253
4,311
Minutes transported by International Carrier Services (in billions) Employees
(1) Earnings Before Interests, Taxes, Depreciation and Amortization. (2) Cash flow before financing activities. (3) 2006 dividend to be approved by the Annual General Shareholder meeting.
6.9
9.6
12.2
16,933
16,335
18,180
(4) PSTN + ISDN BA + ISDN PRA + ADSL retail. (5) Customers who received/made a call or received/sent an SMS over the past three months.
139,665 Belgacom TV customers
Revenue (in EUR million)
33% MCS
11% ICS
4,500
Net income Net income (Group share) amounted to EUR 973 million.
Revenue 2006 by segments (before eliminations)
5,696 5,540
5,000
4,000
new active customers at Proximus
6,100
6,000 5,500
58,077
56% FLS 04
05
06
Net income (in EUR million) 1,000 922
959
973
05
06
800 600 400 200 0
EBITDA The reported EBITDA of the Group including non-recurring items increased by 2.4%.
04
EBITDA (in EUR million)
EBITDA 2006 by segments (before eliminations)
2,400 2,353
2,200 2,098
2,000
2,149
47% MCS
1,800 2% ICS
1,600 1,400
52% FLS
1,200 1,000
Earnings per share Earnings per share increased by 3.2% to EUR 2.87.
04
05
06
Earnings per share (in EUR) 3 2.78
2.87
2.57
2
1
0
04
05
06
Contents 02 > the Belgacom Group 06 > highlights 2006 08 > a message from the Chairman 10 > interview with the CEO 12 > Group strategy 16 > business update 18 > Fixed Line Services 22 > Mobile Communications Services 26 > International Carrier Services 28 > human resources 32 > corporate social responsibility 36 > corporate governance and management 48 > shareholder information 55 > financial report
Contents · 1
The Belgacom Group is the benchmark Belgian provider in the field of integrated telecommunications services.
the Belgacom Group
Company profile The Belgacom Group is the benchmark Belgian provider in the field of integrated telecommunications services. With a history as the country’s incumbent operator, the Belgacom Group, through its strong brands of Belgacom, Proximus, Telindus and Skynet, has developed a complete range of offers and solutions. Thanks to its 18,000-strong workforce, its expertise in fixed and mobile networks and its capacity to innovate, it is able to provide a reliable, high-quality service to all its customers – whether they are private individuals, professionals, companies or organizations. Telephony, data exchange, interactive content, practical services, entertainment, ICT solutions, data transmission capacity – the Belgacom Group offers a complete quadruple-play solution, based on fixed and mobile telephony, the Internet, and television. It is committed to meeting the demands of its business and residential customers, and innovates in order to anticipate their future needs, drawing from the latest technological developments. With a view to closing the digital gap, the Group is also devoted to the development of e-services and to providing a comprehensive range of innovative applications. The Belgacom Group (BELG), quoted on Euronext Brussels since March 2004, posted a total revenue of EUR 6.1 billion and a net operating profit before depreciation and amortization (EBITDA) of EUR 2.15 billion for the financial year ending 31 December 2006. Its activities are divided into three branches:
Fixed Line Services (FLS) Within the Group, these fixed-line activities are conducted by Belgacom, Telindus and Skynet. Together, these companies offer
2 · The Belgacom Group
>
vision and mission
residential and professional customers a complete range of voice, data transmission, and Internet access services, as well as interactive content via the Web and the interactive Belgacom TV platform. Thanks to its sales network and websites, Belgacom has the largest commercial telecom coverage in Belgium. Belgacom is also the main Internet service provider, commanding over 50% of the residential market. In 2006, Telindus became a wholly-owned subsidiary of Belgacom. The two companies joined forces in order to offer the best ICT solutions for large companies. Launched in June 2005, Belgacom TV had acquired 139,665 subscribers by 31 December 2006. The successful launch of this innovative interactive television platform was recognized internationally with a special mention at the World Communication Awards 2006. Belgacom Skynet is dedicated to the development of interactive digital media services, and provides an extensive range of Internet content and e-marketing solutions. Finally, through its National Wholesale division, Belgacom also provides wholesale services to other telecom service providers and operators in Belgium.
Mobile Communications Services (MCS) The Belgacom Group’s mobile activities are marketed by the subsidiary Belgacom Mobile, under the Proximus brand. In August 2006, following Belgacom’s purchase of Vodafone’s 25% stake in Belgacom Mobile, the latter became a wholly-owned subsidiary of Belgacom. This acquisition does not undermine Belgacom’s commercial partnership with Vodafone: on the contrary, the cooperation was reinforced through the 5 year extension of the commercial agreement covering aspects like the
Become a Group that offers its customers integrated high-speed solutions. By bringing together our expertise in fixed and mobile communications, information technology and media, we aim to offer each of our residential and professional customers a unique experience, the product of the combined talent of our teams.
development of new and existing products (e.g. the Vodafone Live! portal) and purchase activities. Proximus is the leading mobile telecommunications operator in Belgium, serving about 4.3 million customers, representing a market share of 45.5% of active customers on 31 December 2006. Under the Proximus brand and Pay & Go, but also through its business partnership with Plug Mobile, Belgacom Mobile offers its residential and professional customers an extensive range of mobile telecommunications products and services, as well as the broader HSDPA coverage in Belgium. This offer includes traditional voice and data services (SMS, MMS), a broad range of mobile solutions for companies (mobile Internet, push e-mail), and roaming agreements with over 400 foreign networks in more than 200 countries.
International Carrier Services (ICS) The international carrier activities of the Belgacom Group are provided by its subsidiary ICS (International Carrier Services), 72% of which is owned by Belgacom SA and 28% by Swisscom Fixnet. This co-venture is the preferred supplier of Swisscom and the Belgacom Group as regards international connectivity services. It also provides voice and data capacity and connectivity services to telecommunications operators around the world. Belgacom ICS is now the world’s eighth-largest voice-traffic operator, and the world leader in the field of signaling services for mobile operators. The company is based in Brussels and has branches in Bern, Singapore, New York and Dubai. More information: www.belgacom.be/group
The Belgacom Group · 3
>
In the making: a new, customer-centric structure As announced at the end of 2006, the Belgacom Group intends to restructure internally in order to respond more effectively to customer requirements, as the telecom market continues to evolve toward convergence. With this in mind, on the heels of its acquisition of Vodafone’s 25% stake in Proximus, in September 2006, the Group launched a large-scale study workshop entitled the “Fixed-Mobile Study”. Like the Telindus and Belgacom co-venture, this acquisition allows the Group to pursue its strategy of total convergence. To meet these requirements, the Board of Directors decided to continue with Belgacom’s transformation into an integrated operator catering to residential and professional customers. This convergent, customercentric approach rests on four pillars: two customer-oriented entities to approach the specific market segments, one network and IT entity, and one entity incorporating the support services. The Group’s legal structure remains unchanged, but Belgacom’s Management Committee has been assigned new tasks, based on a more horizontal structure.
The new structure: two customer-oriented entities to approach the specific market segments, one network and IT entity, and one entity incorporating the support services.
2007, a year of transition On 2 March 2007, the first levels of this new structure, which will be operational as of 1 June 2006, were communicated to the company’s entire workforce. The business segments (Consumer and Enterprise), and the IT department and networks (Service Delivery Engine) will be restructured into a matrix system to be superimposed on the current structure consisting of three Business units (FLS, MCS and ICS). However, all the tasks in the administrative and support departments will be progressively integrated in order to maximize their effectiveness. More details in the Corporate Governance section.
Chief Executive Officer Didier Bellens(1)
Finance & CFO Ray Stewart
Human Resources Astrid De Lathauwer
Strategy William Mosseray
Executive Vice-President
Executive Vice-President
Executive Vice-President
Consumer Michel Georgis
Enterprise Bridget Cosgrave(2)
Enterprise international Ronald Everaert
Service Delivery Engine Scott Alcott
Executive Vice-President
Executive Vice-President
Executive Vice-President
Executive Vice-President
(1) Staff & Support functions as Communication, Legal, Public Affairs, Corporate Relations, CSR report directly to the President and CEO. (2) Bridget Cosgrave serves also as President of the Board of Belgacom ICS.
4 · The Belgacom Group
The Group’s brands
The Belgacom Group · 5
100%
Belgacom acquires Vodafone’s 25% share in Proximus.
Proximus launches Family Calls, a new, simple offer for the whole family.
highlights 2006
Belgacom TV exceeds the objective set for 2006, i.e. 139,665 customers.
January • Belgacom and Telindus announce that the takeover bid for all Telindus shares and warrants in circulation closed successfully on 6 January 2006. 90.86% of Telindus shares were purchased under the bid. • Belgacom Skynet acquires Extenseo, the Belgian market leader in Search Engine Marketing (SEM). Skynet thus becomes the main player in search engine solutions on the Belgian market. • Belgacom and Skynet enhance their online music offer by forming a partnership with iTunes Music Store. • Proximus launches M-Pay, a new system enabling payments by mobile phone.
February • MTN Group signs an outsourcing contract with Belgacom International Carrier Services for its international voice and data traffic. • Belgacom presents the annual results, which correspond to market expectations with a revenue increase of 2.8%. • Belgacom TV continues to expand its offering by launching thematic channel packages and on-demand content for its customers.
March • Telindus signs an important contract with the city of Sofia to equip its subway with a video monitoring system.
April • Proximus simplifies its rates for prepaid cards and introduces a single rate for calls to all fixed and mobile networks, plus 20% more calling credit for life. • Belgacom TV reaches the 50,000 subscriber-mark.
May • The Belgacom Group presents convincing initial quarterly results. • In order to protect the environment, Belgacom urges its customers to switch to the electronic bill.
6 · Highlights 2006
100,000th blog registered by Skynet
>
highlights of early 2007
January – Belgacom and Proximus join forces and enable customers to surf wirelessly at over 1,000 hotspots, via both networks, regardless of the user’s type of connection. February – Belgacom launches the Happy Time International rate plan, allowing customers to call an international destination of their choice, free of charge. February – Sybase 365 and Belgacom International Carrier Services combine the connectivity of their international SMS communities. This initiative enables the exchange of messages between over 2 billion subscribers of almost 400 mobile operators from around the world. February – Belgacom sells its remaining stake in Mobistar for a total of EUR 147,812,795. March – Belgacom kept its promises in 2006, and sees its revenue increase by 7.1%.
June
November
• Belgacom TV celebrates its first year of existence, with customer numbers exceeding expectations: 73,653 customers. • Proximus becomes the first operator to launch high-speed, mobile Internet by enhancing its 3G network with the new HSDPA technology. • Telindus and Belgacom expand their ICT portfolio with the new Telindus/Belgacom ICT brand.
• Omantel and Belgacom ICS sign a Memorandum of Understanding on the development of their international carrier services for the Middle East. • Belgacom successfully launches an inaugural bond issue (EUR 1.8 billion). • The Belgacom Group announces good results for the third quarter, and decides to raise its forecasts. • Proximus launches Family Calls, a new, simple offer for the whole family.
July • Telindus acquires InfraSystems Solutions and expands to northern Europe.
August • Two years after the launch of its free blog service, Skynet registers its 100,000th blog. • The Belgacom Group’s mid-year results are in line with expectations. • The Belgacom Board of Directors decides to grant an interim dividend of EUR 100 million and buy back company shares for a maximum amount of EUR 200 million. • Belgacom sells its 5.8% share in Neuf Cegetel to SFR. • Belgacom acquires Vodafone’s 25% share in Proximus.
December • Eric Brant succeeds Bart Becks as head of Belgacom Skynet. • In accordance with the decision of the Board of Directors’ meeting of August, Belgacom proceeds with the payment of an interim dividend of EUR 0.29. • Belgacom renews its Board of Directors, which now counts 16 members instead of 18. • The Group reveals a new internal structure, organized around four pillars: two customer-oriented entities to approach the specific private and professional segments, one network and IT unit, and one unit incorporating the support services.
September • OneAccess, a French company, acquires the Telindus Access Products division. • Belgacom TV already exceeds the objective set for 2006, i.e., 102,971 customers. • Proximus acquires Euremis, the main Belgian provider of mobile sales force solutions.
October • Belgacom completes a share buy-back for a total of EUR 200 million.
Highlights 2006 · 7
a message from the Chairman
Last year, in our previous annual report, we promised “the future… now”. And, as you can read in this 2006 annual report, we have kept this promise! Belgacom has further enhanced its offer of innovative products and services for the whole Belgian market. The Belgacom Group’s transformation in 2006 was propelled by two driving forces: convergence and a desire to better respond to our customers’ needs. Everyone within the Group can be proud of what we have achieved in 2006: we have successfully implemented these trends, by showing our energy and willingness to take the initiative in a market where competition continues to be fierce.
Challenges and opportunities As usual, the annual report is the ideal opportunity to present a detailed picture of the highlights of the past 12 months. At the beginning of the year, Belgacom and Telindus arrived at a partnership agreement. The first challenge in 2006 consisted of establishing a genuine collaboration between the two companies. Following an exemplary alignment between the companies, our Group is able to offer customers comprehensive and integrated solutions under the new Telindus-Belgacom ICT brand. This result, which was achieved thanks to mutual trust and numerous synergies, now gives us an additional asset in the ICT sector.
The success of Belgacom TV Another major challenge was to develop digital television. We attained this objective, since Belgacom TV has become, in the space of just a few months, a key player in the Belgian television landscape. We also managed to exceed the objectives that we set in terms of subscriber numbers. This success proves that the Group judiciously gauged the evolution of the market and technology, and that we made winning strategic choices.
8 · A message from the Chairman
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The Belgacom Group’s transformation in 2006 was propelled by two driving forces: convergence and a desire to better respond to our customers’ needs. Everyone within the Group can be proud of what we have achieved in 2006.
As for opportunities, we demonstrated that we could seize the moment by acquiring Vodafone’s remaining 25% share in Proximus, our mobile subsidiary. The brisk completion of this operation allowed us to move one step further towards convergence.
Thanks to the involvement of everyone All these successes that were notched up during the year were largely due to the teams behind the Group: the teams of Belgacom, Proximus, Telindus, Win, Skynet, Belgacom ICS, and other group entities. I am aware that taking up challenges and seizing opportunities requires a daily effort and focus. Because, in our lines of business, competition is fierce and never lets up. Being able to offer the best product at the best price, being the fastest, understanding our customers’ needs and adequately responding to them, and providing each customer with the service he/she has a right to expect, makes all the difference.
Belgacom Group’s management for their unremitting and determined efforts to make Belgacom a true model in the European telecom arena. In conclusion, I would like to add that the Board of Directors, during its last meeting in 2006, approved management’s decision to continue to transform the Belgacom Group into an integrated operator. This convergent, customer-centric approach will rest on four pillars: two customer-oriented entities to approach the specific market segments, one network and IT unit, and one unit incorporating the support services. In 2007, the main mission of the Belgacom Management Committee will be to see this transformation through and, above all, to bring the benefits of this transformation to our customers, partners, employees and shareholders.
I would like to stress the importance of each one of our employees in our company’s success: is it not said that a chain is only as strong as its weakest link? It is thanks to everyone’s efforts and involvement, at all levels, that the Group achieved good results in 2006.
Professional social partners Managing a group such as Belgacom requires a collective commitment, every day. Flexibility, dialog and mutual understanding are some of the qualities that are essential to sound company management. That is why I would also like to highlight the contribution of our social partners: in 2006, on a daily basis, they demonstrated a constructive attitude and great professionalism, which contributed significantly to social peace.
Theo Dilissen Chairman of the Board of Directors
I would also like to thank all the Board members for their commitment and their accurate strategic decisions. My thanks also go to the
A message from the Chairman · 9
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“If we benchmark ourselves against the industry, we are a top market performer. Thanks to enthusiastic and talented teams, Belgacom has never been better positioned. We are ready for the future.”
Didier Bellens - President & CEO
interview with the CEO
What were the key milestones for Belgacom in 2006? Last year was all about building up our strength at Belgacom. The acquisition of Telindus and the purchase of the 25% of Vodafone stake in Proximus clearly positioned us as the frontrunner in the Belgian market. 2006 was a year of accomplishments for Belgacom. Our operational results were beyond expectations, and we saw in real signs of how our strategic decisions of the past would turn into true advantages for the future. We now have in-house all the resources that are necessary to meet our customers’needs, whether they be residential or corporate. And we are the only player on the Belgian market who can do this.
How did Belgacom’s different businesses perform last year? Let’s start with the Fixed Line Business, which still makes up most of our Group’s activities. Belgacom TV was clearly our star service of 2006 in this field, and is a prime example of our innovative power: in a market that had become desperately stagnant due to a de facto monopoly of cable operators, Belgacom succeeded in reinventing television. Belgacom TV simply revolutionized the market. In 2006, thanks to the upsurge in video and television on demand, our customers discovered a new way of watching television. Our know-how also received international acclaim: Belgacom TV is cited as a successful pioneer in the field of ADSLdelivered interactive television. But this would not have been possible without our continuous investments in broadband over the past years. Belgacom, which was the first company in Belgium to offer its customers ADSL, still commands the high-speed Internet market: 99% of Belgian households can access this service. The strategic choice we made in 2003 to invest in our Broadway project clearly demonstrates that our vision for the future was on target: our customers are indeed requiring increasingly more bandwidth and services. This is only deliverable with the deployment of VDSL and fiberto-the-curb. Thanks to the extension of our fiberoptic network and a national VDSL coverage of over 45%, we can meet customer demand. More than 80% of the population now has access to our TV offering. Broadband is indeed the cornerstone of future services, and Belgacom is ideally placed to offer its customers the premium platform. Although the traditional voice business remains under pressure from both the fixed and mobile sectors, we are relentlessly developing new sources of revenue, and keeping our costs under strict control. We have continued to launch new products and services, while simplifying our
10 · Interview with the CEO
procedures and industrial processes. Belgacom achieved this in a positive working climate, and created value for all of its stakeholders. Taking a closer look at our mobile business, we can see that our teams are sparing no effort to maintain our market leadership. In 2006, we managed to retain our customers at Proximus, with a churn rate that decreased year-over-year from 16.6 to only 15.8%. We evidently know what our customers want and how to respond to their needs. By the end of the year, we had gained almost 60,000 new customers, and we intend to further step up our efforts to win over new customers in the years to come.
innovative new products, services and applications for our customers, particularly in the area of broadband. Mobile has to tackle the challenges posed by the changing regulatory environment and the fierce market competition. For 2007, our priorities are still customer segmentation, multi-brand strategy and our market share leadership. Our International Carrier business continues to implement its mobile data application projects and monitor the possible consolidation of this market. The future to me looks promising: I am convinced that in 2007, Belgacom will once again prove to be a cutting-edge, flexible and innovative group, able to create value for its stakeholders with a focus on excellent customer service. I would therefore like to attract and retain the most talented people, and ensure that Belgacom remains an inspiring place to work.
Proximus continues to be the most innovative mobile player on the Belgian market; we are the only operator to offer 3G services to our customers, covering over 80% of the Belgian population. With the demand for advanced data services growing by the day, we are keeping our lead in the corporate market.
Do you have any concluding remarks?
Another achievement is our international carrier activity: in 2006, Belgacom ICS continued its transformation from a regional singleproduct provider into a leading international player, ready to take on all the upcoming market challenges.
I want to thank all our stakeholders for believing in this exceptional company. To our employees, our customers, our shareholders, we can say that we have proven it in 2006 and we will do so once more in 2007: Belgacom is forging ahead.
Finally, I would like to point out that the acquisition of Telindus has strengthened our position in the ICT market, we can now provide our corporate customers efficiency and a global telecom solution attuned to their specific needs. Belgium’s biggest 400 customers already have a single point of contact at Belgacom.
We have never been better positioned, we provide converged broadband solutions, we have all the strengths in-house and we have a passion for our customers. Belgacom is ready for the future.
So what are the biggest challenges facing the Group in 2007? Our biggest challenge is to keep working on enriching the diversity of our offering, to make it an even stronger pillar of our company. With an extensive range of services, which we must simplify and customize for our customers, Belgacom must become more cohesive and agile than ever. This means that we have to revise our organization to reflect the strategic choices we made in 2006 and operate in a new structure. To address the customer-centricity imperative, we will set up a consumer and an enterprise business unit, both of which will be fully supported by an Integrated Service Delivery Engine and a single Staff and Support unit. This transformation will take some time, but will optimize the Group’s strengths and boost our efficiency. Apart from this major project, we must of course continue to focus on our everyday business: in Fixed Lines, we have to keep launching
Interview with the CEO · 11
Continuous self-assessment in order to adapt its structure to its changing activities. To listen, anticipate and act with a visionary spirit, to focus human and technical resources on our customers.
12
Strategy Exposed to rapid changes since market liberalization, Telecom companies are now facing a comprehensive sector mutation. The traditional telecom sector is expanding towards media and IT and the increase in competitive pressure urges Belgacom Group to accelerate its transformation into an integrated broadband solutions group.
Key achievements in 2006 SigniďŹ cant steps have been accomplished over the year in order to enable this transformation. Telindus acquisition was ďŹ nalized and an active collaboration has effectively started in order to open the door of IT integration to the Belgacom Group. Following the minority buy-out in our mobile company, Proximus, we also completed an important milestone on the road to convergence. Belgacom ICS, on its part, found new ways to grow its total trafďŹ c through an outsourcing deal with MTN Group that permitted the newly merged Swisscom and Belgacom carrier entity to reach another level of scale.
convergence One focussed strategy. Broad opportunities.
13
Become an Integrated Broadband Solutions Group Roof Our Vision
Pillars Our Strategic Directions
Foundations Our People
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>
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to deliver the ultimate customer experience for consumer & enterprise segments, thanks to diverse & talented teams
Excel & Delight
Lead & Innovate
Become a Service and Simplicity Reference
Lead in Voice and Broadband
Excel in Leveraging Group Synergies
Lead in ICT Service Integration
Maximize Convergence Value
Develop Infotainment & E-Services
Ensure optimal deployment of talents and competences within the organization
Strategy update: a continuum in constant evolution Become a Group that offers its customers integrated broadband solutions. By bringing together our expertise in fixed and mobile communications, information technology and media, we aim to offer each of our residential and professional customers a unique experience, the product of the combined talent of our teams. Along the priority lines that were defined last year, we are confirming our focus on the following key items: • become a customer-centric organisation; • pursue cost reduction and containment at all levels; • explore group synergies; • protect core business; • develop multi-play; • launch and monetize advanced data and innovative e-services; • pursue a selective international growth. Proposed strategy will enable us to introduce key nuances to manage the dramatic changes that the industry is undergoing and will also provide a significant positive evolution of the Group’s capabilities following the successful entry into the TV market, the strengthening of our ICT competencies and the minority buy-out of Vodafone in Proximus. The new points of attention are: • simplify internally to permit offering simpler solutions to our customers; • work as an integrated group; • pursue business and processes transformation; • play a leading role in Media and ICT; • maximize the value of convergence; • focus on new business development to compensate core business erosion. We have adopted the temple illustrated above as an image to help in visualising our strategy formulation.
A new customer-centric organization in the making On December 14, 2006, we communicated our intention to pursue integrated solutions leveraging our strong brands (Belgacom, Proximus) through customer-centric business units with specific market segment focuses (consumer and professional). In so doing, we are concentrating our in-house strengths in providing integrated services by combining our capabilities in fixed-line, 14 · Strategy
Grow & Transform Become Faster and Leaner through All IP Create Stickiness through Multiplay
Foster culture change and develop change management
IT consulting, wireless and media aggregation and distribution. Today, there are no other companies in Belgium that can match this four-pronged strategy based on wholly-owned assets. The new customer segmented organisation will be put in place during the course of 2007 and with it new collaborations will emerge between the former fixed line and mobile teams to serve our customers with more compelling offers. The Belgacom Group will coordinate the delivery of integrated and converged solutions with the IT and Network division and support departments in order to maximize efficiency and synergies.
Human Resources: the foundation of Belgacom Group strategy Long lasting organisations are built on solid foundations and our employees are our most valuable asset in our quest to pursue our vision. Changes are needed at multiple levels: • reorganize different Group businesses into a new customer centric organization; • accelerate the development of convergent solutions; and • continue on our path towards operational and financial excellence. This will only happen if accompanied by a change in mindset: the Belgacom Group needs to focus on change management and culture change as important levers in support of its strategy. Changes in the business will also require a focus on the identification and development of new skills and competencies. Employee diversity will be a key theme within the Belgacom Group for the coming years.
Excel and Delight The focus on excellence remains a key concern for the Group. We must continue to strive for cost competitiveness. Managing costs and resources, implementing synergies in all domains and becoming leaner are top priorities on our agenda. The Delight notion has been added to highlight the heightened focus on streamlining the business processes as foundation for building a customer-centric company. Our customers are asking for simplicity (clear offers, hassle-free service set-up, seamless interactions between services,…). To offer this we are looking internally at portfolio simplification, processes reengineering, new servicing standards where simplicity helps increasing customer satisfaction.
Lead and Innovate As an integrated broadband player, the ambition of Belgacom Group is to retain our leadership position in traditional core services (voice and
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broadband) and to become leader in new markets such as Media/TV and ICT. In today’s Telecom sector, leadership goes hand in hand with the capability to innovate. Innovation entails more than just technology. It encompasses new business models, new market propositions as well as new ways to deliver services in an integrated fashion (convergence). The Belgacom TV launch with the development of a full eco-system around TV; Proximus’ ability to materialize new revenue streams from mobile data and Telindus moving up the value chain toward the application layer are foundations on which we build our leadership ambitions. Telindus core business is complementary to the one of Belgacom. Combining the 2 companies is a bit like combining best of both worlds: a Belgian leader in Telecom with a European champion of the ICT landscape able to deliver our Belgian customers with a converged solution through a single interface. Telindus joining the Group allows Belgacom to gradually evolve from an operator to a service integrator whilst Telindus itself will move-up the value chain migrating from systems integrator to sourcing partner.
Grow and Transform In order to compensate for revenue erosion in the core business, Belgacom Group has been pursuing organic growth in Media and ICT. Customers find convenient to receive one bill or only have one contact point for several products. Our competitors have launched a series of offers to exploit this market space and to build a stronger relationship with their customers. We now have all the necessary means in-house to deliver a comprehensive set of solutions to our customers hoping to encourage our customers to take more services from the Group and hence to increase their loyalty.
We are concentrating our in-house strengths in providing integrated services by combining our capabilities in fixed-line, IT consulting, wireless and media aggregation and distribution.
We must undergo a deep transformation of the organisation to become more responsive to the market. Migration to “all IP” is much more than a technical evolution of our service delivery engine. It encompasses infrastructure, processes, and ultimately personnel (new skills and new competences are needed). As organic growth might not entirely off-set the decline in core revenues, Belgacom Group must continue to pursue selective opportunities for growing the business beyond Belgium, leveraging Belgacom ICS and Telindus as main growth vectors. Telindus is still in the process of expanding both its geographic delivery capabilities and its competencies portfolio. Now that the merger with Swisscom’s Carrier Unit is completed, Belgacom ICS can again look beyond its current size and scope. External growth may be part of this evolution as scale still matters.
Conclusion and Business Prospects We remain focused to drive execution along our established strategic directions; finding a good balance between anticipation and fast response in the ever more converging market. The Belgacom Group sees convergence as an opportunity if we can serve our customer with the appropriate level of dedication and convenience combining telecom, mobility, data and IT, entertainment and security. We believe the Belgacom Group is well-placed in the convergence arena to offer our customers solutions that answer their needs based on internally mastered capabilities. Customer centricity remains the key to adapt to our customers’ needs. Further segmentation and simplicity efforts will be pursued in order to maximise our impact in the market whilst we constantly strive for efficiency gains at all levels.
Strategy · 15
Technologies, like customer requirements, evolve daily, which is why the Belgacom Group strives to be proactive and provide products and solutions that meet the needs of tomorrow.
16
Business update 18 > Fixed Line Services 22 > Mobile Communications Services 26 > International Carrier Services
change One client. Multiple play.
17
+8.3%
overall Internet revenue
Belgian Internet market* 3,000 2,500 2,000
2,443 2,187 2,033
1,500 1,000 500 0
04
05
06
* In thousands of Internet connections (narrowband + broadband, residential + business customers).
Fixed Line Services (FLS) The Belgian Market Households (‘000)
2004
2005
2006
4,402
4,437
4,476
Market share of Households (%) Fixed Telephony Belgacom Cable and OLO No Phone/mobile only Total Fixed Line Voice Market FLS Retail Voice Market share (on value)* FLS Retail Voice Traffic Market share (on own network)
74%
72%
72%
67%
64%
61%
7%
8%
11%
26%
28%
28%
2004 78.1%
2005 77.6%
2006 77.0%
67.9%
71.3%
75.9%
* Source – Gartner.
The telecom market as a whole is stable in terms of number of customers using a fixed line or mobile-only users. The number of Internet subscribers on the other hand, continues to grow. Broadband volumes are increasing, replacing narrowband connections. Market share figures show a stable retail Broadband market among the main players in the different regions. In Flanders, the broadband market is mainly divided between two companies: Belgacom and Telenet. In Wallonia and Brussels, however, competition is fragmented, particularly between Cable companies, although consolidation amongst Cable companies has begun. Stimulated by the ongoing convergence of services such as “telecom and media” via digital TV, “voice and data” via VoIP offerings and “fixed and mobile”, market players are extending their scope to other adjacent domains.
Consumer attracted by simple and flexible bundled offers 2006 was the year in which converging operators moved towards “flexible service offerings”. Operators responded to the evolving needs of the users with solutions ranging from “naked services” to full “quadruple play” bundles. • Mobile operators offering DSL solutions without a fixed voice line and pushing a “cut-the-line” strategy that encourages fixed/mobile 18 · Business update
substitution through their MVNO (Mobile Virtual Network Operator) offering via low-cost distribution channels. • Cable companies are extending their service portfolio with mobile solutions, enabling them to provide full quadruple play offers. The battle for the customer is also fought by means of new, “cheap” offers, increased bandwidths and heavy promotions. Free offers have never been offered so extensively resulting in customer migrations between telecom, cable, mobile and ICT operators.
Interactive Digital TV as new market value creator Television now offers greater choice and flexibility, all in full digital quality. Extended TV offers, with (or without) interactive and on-demand services in a complete product bundle, increased customer awareness. While retaining the customer for his access, whether it be fixed, Internet or mobile, telecom operators have generated new market value by introducing digital TV.
Integration playing its role in the professional market The professional market in Belgium is undergoing a transformation to an integrated operator model, whether with mobile/fixed data solutions or IT/Telecom solutions. Trends indicate that operators are extending their service offerings from a geographical point of view. Operators are increasingly concentrating on small and medium business market segments through joint and bundled product offers and customized ICT packages. A growing number of customers are requesting integrated ICT solutions and are looking for providers who can offer and integrate as many components of such solutions as possible. The ICT market is witnessing a growing demand for outsourcing, driven by a need for cost efficiency and an increasing focus by corporate customers on their core business.
FLS, living up to expectations Fixed Line core business limits its revenue decline The year-over-year decrease of Fixed Line Core(1) revenue was limited to 1.3%. FLS improved its revenue guidance from -3% to -2% in the course of 2006 based on better-than-expected results for the first nine months. (1) Fixed Line Core revenue is the total FLS revenue, excluding Belgacom TV, Telindus and disposed companies.
139,665
Belgacom TV customers by end 2006
Voice Access Line Loss
Voice Traffic Market Share
(in thousands of equilines)
(on own network) (in %)
0
(channels in %)
80
90 75.9
-50 70 65
-200
60
67.8
34
33
13
15
16
05
06
30
55 50
04
05
06
51
51
The monthly Voice Access ARPU(2) decreased 1.6% to EUR 14.2, driven by promotional offers and the change in product mix, while Voice Traffic ARPU decreased 4.2% to EUR 13.0, mainly due to new rate plans, including “free calling” during off-peak hours. FLS’ market share on the Belgacom network continued to increase during 2006 (+4.6pp. versus +3.5pp. in 2005) as did the national traffic volumes, another illustration of the success of the FLS price packages. FLS maintained its broadband market share in the Belgian residential retail market just above 50%. Although broader adoption of “ADSL Light” offers and promotions are driving the average ADSL ARPU down (-3.6% to EUR 31.6), a sharp focus on customer acquisition and retention via attractive offers kept the DSL customer growth trend moving at the same pace as last year (+150,618 lines versus 149,044 in 2005), resulting in an overall Internet revenue increase of 8.3%. In this converging market where Broadband is becoming the foundation for customer stickiness, the fight for market leadership in this segment remains fierce. Competitors are using different axes, whether it be pricing, bundled offers or additional Internet services. In line with the evolution of customer behaviour and dedicated to remain competitive, Belgacom continues to offer several exclusive and free services on the adsl. be website via its subsidiary Skynet. Services include music offering in cooperation with iTunes, free domain names and digital photo prints, the football portal (www.11online.be) and free PC data back-up on the Belgacom servers. Within the data connectivity domain, migration from LAN/WAN to Ethernet networks is ongoing generating a decline in total data revenue of 5.7%. To compensate in part this revenue decline, FLS launched: • E-learning solutions dedicated to the healthcare sector; • IP-Tel solutions requiring no investments from the customer; • Security solutions; • Data Center solutions.
(2) Average Revenue Per User.
30
20
20
10
10
0
56
56
56
44
44
44
04
05
06
60 40
52
04
05
06
Cable Other ADSL Belgacom Retail ADSL
Voice revenue, which still represents 48% of the total core revenue, shows a slower decline compared to the previous year (-6.6% versus -7.3% in 2005). This is partly attributable to the ongoing success of flat rates and unlimited calling offers launched mid 2005. FLS’ year-on-year voice access line loss increased (162,931 equivalent lines lost compared to 149,888 in 2005), negatively impacting Voice revenue.
80
50
40 -163
90 70
50
60
-150
04
80
100 35
70
71.3
-126 -150
(in %)
100
75
-100
Relative weight of Belgacom retail volume versus Telenet in Flanders
Broadband Market Belgium
0
Telenet Cable Belgacom Retail ADSL
Belgacom TV, a success story Several campaigns and promotional offers have boosted the number of Belgacom TV customers as from April 2006. This brisk pick-up meant that the 100,000 year-end target was attained earlier than expected. By the end of September, Belgacom reported 102,971 Belgacom TV customers. The enthusiasm of the Belgacom TV team paid off and led to a year-end customer base of 139,665 Belgacom TV customers, by far exceeding its guidance. The monthly ARPU of Belgacom TV was EUR 12.0. The ARPU evolved from EUR 11.9 in the first quarter to EUR 12.6 at the end of 2006 thanks to the increasing use of additional on-demand services. By the end of 2006, the population coverage of Belgacom TV reached 79.5%, in line with the stated target. True to the announcement a year ago, and guided by specific customer requirements, Belgacom has innovated and expanded its offering in 2006 to be able to meet an increasingly demanding market. An interactive TV guide, an extensive array of channels including local television content, easy navigation, parental control, and on demand programs and videos have now become an established part of TV viewing. Where soccer is concerned, everything is in place to make the 2006-2007 season even more exciting, guided by two main principles: ease of use and value for money. On top of service optimization and in order to improve the customer reach, FLS launched Belgacom TV on “ADSL Light” in April 2006. The roll-out of a “second tv set” functionality for iDTV customers was completed at the beginning of July. In order to support the acquisition of new customers, Belgacom rebranded its TV identity and launched a new section on its website fully dedicated to digital TV, providing information on product features.
Belgacom/Telindus: a major opportunity for business customers The corporate ICT market is quickly moving towards convergence. This creates new, exciting opportunities for end-to-end ICT solutions and outsourcing. Following its acquisition, Telindus became the IT Services Branch of the Group, addressing top corporate customers in Belgium and abroad. Together, Belgacom and Telindus are building a Belgian champion in European ICT, presenting the market a united Connectivity and IT Service. Business update · 19
BLiX
(Belgacom Customer Loyalty Index) 75 70
70
72
71
68 65 60 55 50
Four new customer value propositions have been launched in 2006 under the “change it your way”-Telindus logo and style. These four unique selling propositions assist customers to achieve the “Real-Time Enterprise”, based on flexible business processes. The propositions include secured & well managed infrastructure, risk management and IT governance, collaboration and integrated business applications. The Telindus partnership allows Belgacom’s FLS division to revitalize its position in the value chain on the Belgian market. No other company in Belgium can offer this integrated approach of capabilities, ICT know-how and international coverage.
National wholesale market Belgacom is the leading provider of network services and solutions to telecommunication companies, including fixed and mobile operators, ISPs and other Service Providers and resellers. In a consolidating market segment, the Belgacom wholesale department serves about 100 customers, of which 20 are interconnected with Belgacom. In 2006, wholesale revenues increased 15.3%, mainly driven by a traffic volume increase and a sustained demand growth for broadband and capacity. The primary focus is on delivering competitive, high – quality services, maintaining a responsive wholesale organization and making intensive use of e-tools.
Customer-centric approach pays off Customer-segmented marketing
H1’05
H2’05
H1’06
H2’06
Customer-oriented sales channels Within sales, a key objective is to reach maximum market potential. A continuous optimal mix of different sales channels enabled Belgacom to reach full customer coverage. As a result of combining exclusive deals, optimizing the use of direct and indirect channels and bringing value in business partnerships, the Belgacom sales channel network is still perceived as one of its major strengths.
Optimized operations Thanks to an ongoing optimization of Belgacom’s operations related to provisioning, repair and call center activities, service levels remain highly appreciated by our customers. This is also reflected in customer satisfaction and loyalty scores which have again exceeded expectations. Thanks to structural process enhancements driven by customer feedback and a continuous focus on quality improvement, customers showed a high level of satisfaction. In collaboration with an independent research agency, Belgacom developed an indicator called BLiX (Belgacom Loyalty Index) which measures the Belgacom brand attractiveness and customer loyalty.
Technology and innovation Belgacom has an extensive and technologically advanced network infrastructure with national coverage, and plans to further invest in this network.
Through creative promotions and specific marketing campaigns, FLS was able to meet the expectations of existing and new customer segments. Being closer to the customer brings greater benefits and value, and this resulted in a higher than expected customer satisfaction level.
In preparation for Belgacom’s future needs, the Broadway project was launched, bringing fiber to the street cabinet and rolling out the VDSL platform between the street cabinet and the customer. The rollout was kept on track, reaching a VDSL coverage of 45% at the end of 2006, for which EUR 103 million capex was spent in 2006.
A higher focus on the communication means and partnerships with key players vis-à-vis our professional customers, has increased customer reach. A few examples are the adapted website with information for business customers, and the improved communication to our corporate customers with respect to the opportunities of converging data and voice technologies.
In addition to the fiber and VDSL investments, FLS started the rollout of ADSL2 + in the second half of 2005 in order to improve the quality and accessibility of Belgacom TV services for Belgian households.
Thanks to this, many customers choose for Belgacom and its capacity to provide integrated high value services instead of only a partial service.
20 · Business update
Thanks to this combined rollout of VDSL and ADSL2 +, 79.5% of Belgian households had by the end of 2006 potential access to Belgacom TV. Moving from basic Broadband services towards more extensive communication services (VoIP, Videotelephony), new entertainment services (iDTV, VoD) and full personalization via home networks and security, FLS will need a scalable ethernet aggregation network to
Belgacom TV Customers
Belgacom TV ARPU
(in thousands of customers)
(EUR/month/user)
150
15.0 140
125
12.5 11.9
100
10.0
103
75
0
12.6
Q3’06
Q4’06
7.5
74
50 25
12.4 10.1
5.0 33
Q4’05
42 2.5
Q1’06
Q2’06
Q3’06
Q4’06
0
Q1’06
Q2’06
support the huge capacities in a flexible way. FLS therefore launched a new program in 2006 focusing on a detailed analysis on how to move to a core infrastructure based on IP. The analysis focuses on more than just a network upgrade or expansion; it also looks at the impact on process and system optimizations. The main drivers for this study are: • uniform customer experience through all sales and contact channels; • simplifying the product portfolio; • drastic reduction of the time to market of new services; • optimization of the life cycle and streamlining of important network and IT projects and processes to ensure high availability and stable performance; • support for the implementation of an agile enterprise architecture.
Regulation Fixed interconnection Belgacom’s interconnection rates are regulated and fixed in a reference offer called BRIO. For BRIO 2006, the Belgian regulator (BIPT(1)) required Belgacom to reduce its interconnection rates by approximately 6.5% versus the BRIO 2005 rates. In its decision on the fixed call termination market of 11 August 2006, the BIPT also imposed a price control on the alternative operators in the form of a maximum termination rate limited to a 15% premium on Belgacom’s rates. Telenet and Versatel currently charge substantially higher rates. For these operators, the BIPT decided to use a transition mechanism based on a glide path until 1 January 2009: the maximum delta authorized for Belgacom’s rates will be 370% from 1 January 2007, 190% from 1 January 2008 and 15% from 1 January 2009.
Regulatory outlook for 2007 The EU is currently moving forward with a new round of regulatory framework reviews. It intends to keep the pressure at the wholesale level (e.g. broadband access and local loop unbundling), but is proposing deregulation at retail level (fixed calls and leased lines). The exact impact of this potential retail deregulation nationally is still unclear as the market analyses on this subject have only just been finalized by the BIPT.
Outlook for 2007 From 2007 on, the financial result of Belgacom TV and Telindus will be fully integrated in the result of FLS. The 2007 guidance is therefore on the total FLS result. Market changes are more than ever driven by multiple play, convergence and ongoing IP technology emergence. FLS constantly has to challenge itself, differentiating through quality and simplicity of services and products offered to the customers. Therefore FLS expects its total revenue to decline between 1% and 2%, while the EBITDA margin will be kept fairly stable compared to 2006. In 2007, Belgacom expects to add new TV customers at the same pace as 2006, with an average monthly ARPU of EUR 15.
Wholesale Line Rental (WLR) In its final decision of 19 June 2006 on the analysis of the fixed retail telephony access markets, the BIPT obliged Belgacom to sell telephone subscriptions to its competitors. As requested by the BIPT, Belgacom submitted its reference offer proposal on 2 October 2006. The regulator has opted for a retail-minus approach (11% discount on Belgacom’s standard tariff). The implementation of WLR, initially scheduled for 1 April 2007, has been delayed by at least two months.
(1) Belgian Institute for Postal services and Telecommunications.
Business update · 21
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Proximus is the first and only mobile operator to offer 3G services in Belgium to both professional and residential customers.
Mobile Communications Services (MCS) The market today
High-quality customer portfolio
During 2006, competition continued to intensify in the Belgian mobile market, not only from existing mobile operators but also from new mobile service providers and MVNOs.
Proximus still has a very high-quality customer portfolio, with the highest active rate on the market. By the end of 2006, Proximus increased its percentage of active customers to 98.2%, versus 97.9% the previous year.
The market has also seen the emergence of a new trend: a strong prepaid to postpaid conversion, with a decline in the prepaid market and a rise in the postpaid market. This change in mix has been stimulated by very attractive postpaid offers, with the lowest commitment level ever for postpaid customers. This changing market environment has put a considerable pressure on pricing.
Proximus lives up to expectations In this highly competitive and maturing market, Proximus continues to focus on its long-term strategy of defending its market share by strengthening its customer-oriented approach, while avoiding a price war. The initiatives taken in the course of 2006 to defend its market share were clearly visible in the fourth quarter of 2006. In December 2006, the active penetration rate of Belgium’s mobile telephony reached an estimated 89.7% (compared with 84.1% at the end of 2005), with an estimated 9.5 million users. In 2006, the Proximus active customer base increased by 58,077 new customers, bringing the total number of active customers to 4,311,436. This was mainly the result of the accelerated acquisition level during the last quarter of 2006 in which 71,031 new active customers were attracted by targeted acquisition campaigns and the launch of segmented rate plans, such as Pay & Go Generation, or by the extension of the Smile 5 postpaid offer. The increased pick-up of customers during the last quarter was not sufficient however to prevent Proximus’ active market share to decline to 45.5% at the end of 2006. Even so, Proximus maintained its market share leadership position on the Belgian mobile market. The financial results are in line with the provided guidance. Fierce competition and the decreased Mobile Termination rates as of November 2006 led to lower revenues. The revenue decline was however limited to 2% thanks to the launch of new pricing plans and a better customer mix. Even with the revenue decline, Proximus maintained an EBITDA margin of 46.8% thanks to a strict cost control.
22 · Business update
Various initiatives to retain our customers led to a further reduction in terms of customer churn, which is now 15.8%, compared with 16.6% at the end of December 2005. The number of postpaid customers increased by 206,549 year-overyear, resulting in a postpaid/prepaid ratio of 46/54 at the end of December 2006, compared to 42/58 the previous year. The 2006 blended gross ARPU was EUR 40.9 for the active customer base, compared to EUR 41.2 in 2005. This represents an average of EUR 68.4 per postpaid customer (compared to EUR 71.9 in 2005), and EUR 19.6 per prepaid customer (versus EUR 19.9 in 2005). The blended net ARPU (ARPU minus Credits and Discounts) for 2006 was EUR 37.7 compared to EUR 38.7 the previous year. The decrease in ARPU is due to the success of the Smile bundles for postpaid customers and the new Pay & Go price plans for prepaid customers.
A future-proof network The Proximus GSM/GPRS network covers more than 99% of the Belgian population. The great care invested in its configuration and maintenance ensures first-rate quality and reliability. The Belgian player with the greatest international reach, Proximus expands its roaming coverage continuously for prepaid and postpaid customers. GPRS roaming agreements do also expand and Proximus has now 3G roaming agreements with 69 operators in 42 countries. Proximus continues to invest in building a superior network for its customers and to reassert its position as the leading innovator in this area. Over a three-year period (2004-2006), Proximus invested almost EUR 200 million in its state-of-the-art 3G network, ensuring 3G leadership, covering more than 80% of the Belgian population. The Proximus 3G network coverage far exceeds the 3G legal deployment obligations. By end of 2006, more than 100,000 3G devices were detected on the Proximus network.
+58,077 new active customers in 2006
Number of active customers
Percentage of churn
(in thousands) 4,350
18.5 4,311
4,300
17.5
4,250 4,200
4,253 4,201
17.7
17.0
4,198
16.5
4,150
16.6
16.0
4,100
15.8
15.5
4,050 4,000
18.3
18.0
15.0 03
04
05
06
14.5
03
04
05
06
Ever since the launch of the 3G network in 2004, Proximus has been the first and only mobile operator to offer 3G services in Belgium to both professional and residential customers. The 3G Mobile TV and Music Download services available through the Vodafone live! portal are evolving rapidly. The number of Mobile TV channels has more than doubled since the launch, bringing the total number to 31 at the end of 2006. A 3G Broadband Vodafone Mobile Connect Card, using HSDPA technology and offering improved data services, was introduced for both residential and business customers. Several price plans are offered in line with the needs of these two customer segments. With demand for handheld solutions on the rise, 3G Broadband provides important added value, allowing real-time access to e-mail, calendar and contacts. During 2006, Proximus increased the number of mobile e-mail solutions, such as Vodafone’s Windows Mobile e-mail, and introduced new e-mail handsets (3G BlackBerry, PDAs and Smartphones).
as Wireless Office. This allows employees to call each other free of charge in the company building on their mobile, to both fixed and mobile numbers. The range of roaming plans for business customers was also further extended in 2006 with new attractive offers such as Vodafone World Exclusive and Vodafone Data Roaming Bundle.
Wide range of multimedia services Through the Vodafone live! portal, customers can access a wide range of online services, such as ringtones, news, sports, games, music videos, film trailers, and information. The portal was redesigned and is continually updated to provide richer content, including sports, Proximus is the only operator offering videos of all the goals and summaries of the Belgian football league competition. Other new launches in 2006 included Proximus M-Pay, a new, fast and secure way of purchasing digital products online via a mobile phone or the Internet, and PlazZza, an easy-to-use search engine for mobile Internet and an innovative mobile marketing tool for companies.
Innovation in products & services
Increased mobility
In anticipation of its customers’ demands, e.g., for more mobility and personalized services, Proximus innovates and develops its product and service range continuously, with an eye to superior quality. In a highly competitive mobile telephony market, Proximus keeps its focus on customer satisfaction and service excellence.
Proximus is undertaking a wide range of initiatives to encourage the use of advanced data services. A growing proportion of the company’s total revenue is generated by advanced data services, and their utilization is evolving very positively. At the end of 2006, data, including advanced data, represented 19% of the total revenue.
Simple price plans for everyone
More than ever, business customers want to choose when and where they work. They need to have access to the Internet, e-mail and applications such as company intranets and business applications while they are on the move. There is also a growing demand from residential customers for mobile connectivity: they want to be connected everywhere they go and at all times. Proximus was the first mobile operator in Belgium to offer instant messaging using Windows Live Messenger on its mobile phones. This system offers the same experience to the customer using a personal computer or using his own mobile phone.
Mobile telephony rates are decreasing, and Proximus has helped shape this trend by launching new, less expensive and simplified rate plans for its customers to ensure that they get the most value for their money. After the successful launch of the “Smile” postpaid offer in 2005, Proximus also realigned its prepaid tariffs in 2006 (e.g. “Pay & Go Generation”). For its postpaid customers, the “Smile” pricing plan range has been enhanced with “Smile 5”, lowering the monthly charge to customers to EUR 5, which makes the postpaid payment method much more accessible. On top of their basic pricing plan, members of the same family can opt for the new “Family call” plan, allowing them to call home and each other for only EUR 5 a month. 2006 also saw the introduction of several new rate plans for business customers with the aim of offering rates adapted to their needs, such
Proximus continuously invests in developing new innovative services that meet customers’ needs and simplify their everyday lives. Since September, postpaid customers have been able to pay their parking fees in Antwerp and Mortsel via their Proximus bill, and prepaid customers via their call credit, using the SMS parking service of these two cities.
Business update · 23
Proximus is determined to keep its position as the preferred mobile operator in Belgium, across all customer segments.
First partnership offer for residential customers In November, in collaboration with the television channel RTL-TVI, Proximus launched Plug Mobile, its first partnership offer for residential customers. Plug Mobile is an extension of Proximus’ existing brand portfolio, and addresses the Belgian French speaking youth. The introduction of Plug Mobile gives Proximus the opportunity to reach new target groups/niches and to offer new, enriched multimedia content.
Acquisition of Euremis Proximus believes that partnerships in the ICT field are key to providing customized solutions to cater to the diverse needs of its customers, and drive the growing mobile data & IT business. In September, Proximus acquired Euremis, the leading Belgian provider of mobile CRM solutions for the mid-market segment. Euremis will significantly strengthen Proximus’ ability to offer end-to-end solutions to its business customers.
Regulatory aspects Mobile interconnection (MTR) In its ruling of 11 August, the BIPT decided to progressively decrease mobile termination rates, while maintaining the degree of asymmetry of these tariffs between the operators. The first tariff decrease of 16% came into effect on 1 November; a second decrease of around 20% is planned for May 2007. In 2007, the BIPT will make an additional decision concerning the tariffs for 2008 with the aim of reaching symmetry between Proximus and Mobistar in 2008. It will also decide on whether to reduce the tariff difference with Base so that symmetry is reached soon after 2008 (unless objective cost differences beyond the operator’s control would justify a degree of asymmetry). The BIPT ruling has been appealed by all three mobile operators, but has in the meantime become applicable.
International roaming On 12 July 2006, the European Commission issued a draft regulation on international roaming. The regulation proposes wholesale and retail price controls that would significantly reduce roaming prices for end users. A regulation, unlike a directive, has immediate effect in all Member States and does not require further transposition into national law.
24 · Business update
Wholesale prices (charges between the mobile operators) would be determined in function of the average EU mobile termination rate, where for retail tariffs a maximum mark-up percentage on the wholesale tariff would be set. The draft put forward that wholesale regulation would apply immediately, where retail price regulation would apply 6 months afterwards. However a change in the modalities and/or timing of the regulation elements cannot be excluded. The proposed regulation also introduces a mechanism for increasing roaming price transparency for consumers. The draft proposal is going through the EU approval process. Changes to the draft regulation are discussed by the EU Council and the European Parliament. We expect that the regulation will be finalized by July 2007.
Mobile access & call origination In November, the BIPT issued a draft decision regarding the competitiveness of the “wholesale market for mobile access & call origination”. The draft concludes that this market is competitive, and that no regulatory remedies should be imposed on any of the market players. A final decision on this market is expected by mid-2007.
Regulatory outlook for 2007 The BIPT is expected to announce the results of the reviewed analysis of the mobile termination rates and of the initial analysis of the mobile access & call origination market in the course of the first half of 2007. By mid-2007, there will likely be more clarity on the EU regulation for international roaming. Belgacom Mobile’s GSM license, which started in 1995, will expire in 2010 and is subject to tacit renewal in 2008. Taking the possibility to deploy UMTS technology in the GSM-frequencies into account, some changes to the initial license conditions are expected in 2007. It is also likely that new frequency allocations will occur for the 3.5 GHz and 10 GHz spectrum, as well as possible allocations for lower frequency bands specifically for digital broadcasting such as DVB. At EU level, the review of the e-communications framework is likely to impact mainly spectrum management. For other elements, such as the list of markets subject to ex ante regulation and eventual new rules regarding media services, it is still unclear which final decisions will be taken.
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Proximus will offer its customers fully integrated solutions that make their lives easier.
Outlook for 2007
Guidance
One of Proximus’ priorities for 2007 is an increased effort to maintain and support its market leadership. Proximus is determined to keep its position as the preferred mobile operator in Belgium, across all customer segments. Therefore the main focus in 2007 will clearly be on the acquisition of new customers, while efforts to retain existing customers will continue by offering the best value for money.
Proximus believes that its forthcoming initiatives, continued intense competition and regulatory pressure will have an impact on its revenues and EBITDA margin.
Proximus believes in the importance of partnerships to offer customized services satisfying the various needs of its customers. It will therefore expand its current portfolio of partners in 2007.
In addition to this, Proximus estimates that the Mobile Termination Rate decreases will have a negative impact of EUR 77 million on 2007 revenues, or -4%, and will lower the EBITDA by EUR 35 million.
Proximus will also continue to develop its portfolio of high-quality products and services, its network and its customer service. This will be accomplished through: • servicing management, improving interactions with the customer in all types of service; • additional 3G network investments and the launch of new or enhanced products and services; • responding to the global communication needs of our customers.
Therefore Proximus estimates that its total revenue will decline between 5% and 7% while the EBITDA margin might decline to around 45%.
The fierce competition and an increased effort to maintain and support its market leadership will cause Proximus’ revenue to go down between 1% and 3%.
Proximus assumes there will be no Retail Roaming regulation impact in the course of 2007.
Overall, Proximus will continue to invest in its brand. Belgacom’s acquisition of Vodafone’s 25% stake in Proximus will in time allow Proximus to offer its customers fully integrated solutions that are adapted to their lifestyle, behavior and needs, and so make their lives easier. Proximus will be able to develop joint products and services with Belgacom to respond to the market trend towards convergence. Although the impact will be limited in 2007, the first steps will definitely be taken. The developments in advanced data services will help Proximus to secure long-term revenue. Although voice communication is currently still the main source of revenue, it is under strong pressure owing to fierce competition as well as to regulatory obligations to come. In 2007, Proximus will continue to develop new revenue opportunities in adjacent areas to stimulate long-term revenue growth. While facing increasing pressure on its revenues, Proximus will continue to control its costs through the operational excellence program launched in 2005. It aims to achieve operational excellence through optimal cost management and by leveraging Group synergies.
Business update · 25
Belgacom ICS already is the player with the largest number of direct interconnections with mobile operators across the world.
International Carrier Services (ICS) Market growth and competition evolution Belgacom ICS operates in the global carriers’ carrier market, which can be characterized as a commodity market with low barriers to entry, and hence is affected by strong competition, overcapacity, severe downward pressure on prices and limited customer captivity. In the last years price decreases have systematically offset the continuing volume growth that has been generated by the development of mobile telephony, especially in the Middle East, Africa, the Asia-Pacific region, China and India. Recent industry trends are irreversibly reshaping the telecommunication market. The adoption of IP technologies is accompanied by innovative yet disruptive business models while the introduction of converged service offerings (triple/quadruple-plays) increase the complexity within the value chain. On the other hand, as customers are reluctant to pay for low value offerings, a new wave of commoditization of basic services is taking place. In this context, incumbents and challengers are compelled to review their strategic objectives in terms of addressed market and strategic position in the value chain. In today’s environment the largest players benefit from economies of scale to enjoy profitable growth, whereas smaller players, under growing pressure, have to re-assess the long-term sustainability of non-core activities, for instance, through the redefinition of their sourcing strategies. Recent movements in the carrier wholesale market are confirming the trend towards consolidation. Belgacom ICS’ recipe for success in such a dynamic yet challenging market is the relentless anticipation of changes through a visionary strategy of consolidation and insourcing, capital investment in IP-base Next Generation Networks & real-time traffic routing infrastructure, and strategic supply relationships towards mobile operators.
Products and services In the past years Belgacom ICS has transformed itself from a regional size single product organization into a leading player ready to address all upcoming challenges in the market and notwithstanding tough competition, it can boast of an overall positive performance in 2006.
26 · Business update
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Unlike many telecom operators today, Belgacom ICS is constantly investing in the expansion and evolution of its transport network in order to answer its customers’ needs through adapted and improved services.
The merger of the respective carrier operations of Belgacom and Swisscom Fixnet into Belgacom ICS was the first consolidation agreement in Europe, providing Belgacom ICS the economies of scale to enter the league of large players and to generate multiple synergies, worth a total of about EUR 40 million. The last cornerstone of the successful Post Merger Integration will be put in place in the first quarter of 2007, when all the Swiss traffic is moved to a new NGN switching platform. In 2006, a revolutionary insourcing project with the MTN Group further strengthened Belgacom ICS’ market leadership in Africa. Under the agreement, this African group of mobile operators outsources its international connectivity to Belgacom ICS. Another important strategic milestone was the signing of a Memorandum of Understanding with Omantel that will enable Belgacom ICS to reinforce its presence in the fast growing Middle East region. Meanwhile, Belgacom ICS has also been developing its mobile data business and its mobile customer base with a particular focus on growth regions such as the Middle East and Africa. Belgacom ICS already is the player with the largest number of direct interconnections with mobile operators across the world. Belgacom ICS is among the world leaders in mobile data products and excellent results are being posted in this area. Future growth will be secured thanks to the implementation of a new SMS transit platform. Belgacom ICS recently became the biggest GRX provider worldwide (GRX is the backbone network for mobile data roaming) and is supporting the mobile operators in the deployment of HSDPA. Belgacom ICS will continue to enrich its mobile services portfolio with roaming, numbering, messaging and presence solutions targeting existing, emerging and virtual mobile network operators.
Technology Following the consolidation of the former Swisscom ICS traffic and in order to secure growth and innovation, the legacy switching infrastructure has been upgraded with a next generation-based capacity extension whilst a new soft switching platform has been deployed. This New Generation Network architecture makes it possible to achieve better scalability and will allow Belgacom ICS to further aggregate traffic as it shifts to IP while addressing the VOIP market with dedicated hosted services. The NGN technologies will also allow the development of SIP-based inter-carrier services. Unlike many telecom operators today, Belgacom ICS is constantly investing in the expansion and evolution of its transport network in order to answer its customers’ needs through adapted and improved services. On top of this, the optimization of the two networks that were the legacy of the joint venture with Swisscom ICS has been at the origin of the roll out of the PEN4Future(2) project in 2006. Belgacom ICS has implemented in its core European backbone the first Next Generation optical network, ensuring a greater flexibility, increasing the overall quality and supporting efficient transport of all traffic types at competitive prices. Belgacom ICS’ PEN4Future links 16 network nodes in 7 European countries: Belgium, France, United Kingdom, the Netherlands, Germany, Switzerland, and Italy.
The Instant Voice product, a connectivity offering specifically targeting XSPs(1) and voice-over- broadband providers that leverages the Next Generation Softswitch technology, has been successfully launched. Finally, the roll out of a new Pan-European Network using state-ofthe-art optical equipment will improve the cost and performance of the Belgacom ICS network and create new business opportunities.
(1) Generalized acronym to describe any type of Service Provider. Example: ISPs. (2) PEN4Future: Belgacom ICS’ new optical backbone.
Business update · 27
Encouraging communication, creativity and innovation. Reecting the values of an ever-changing society as closely as possible. The Belgacom Group has made its diverse workforce one of its main growth engines.
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diversity All different. All one.
Human resources The Belgacom Group is evolving With the acquisition of Telindus, the Belgacom Group welcomed onboard over 2,500 new employees, strengthened its position on the professional market and enhanced its international presence. This acquisition was a milestone in the implementation of our strategy to offer services and solutions that integrate telecom and IT. Moreover, following the Group’s acquisition of Vodafone’s 25% stake in Belgacom Mobile, all Proximus employees are now also fully part of the Belgacom Group. This will ensure closer cooperation within the Group and allow us to anticipate the needs of our customers even better. By combining the talent, expertise and creativity of its entire staff, the Belgacom Group possesses all the knowledge and skills needed to respond quickly to new market trends, which are increasingly evolving towards integrated solutions.
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Staffing rate native/non-native employees
Gender staffing breakdown
Staff evolution
23,000 22,000 21,000 20,000 19,000 18,000
94.5% Native
29.5% Female
5.5% Non-native
70.5% Male
17,000 16,000 15,000 14,000
interactive >communication
02
03
04
05
06*
* including Telindus.
With the introduction of “The Tribe”, a new, light-hearted and interactive way of communicating was born. The Tribe is about eight wildly divergent characters who land in a situation in which they must find ways to work and live together. Each character has their own personality and behavior. Belgacom Group employees are regularly given a say (through voting buttons) on how the story should develop. By critically thinking about and discussing the issues raised in The Tribe with colleagues, Belgacom employees can find out for themselves which working methods and approaches produce the best results, not just for the characters of The Tribe, but for the Belgacom Group as a whole.
In this context, a study was launched to examine the opportunities convergence can offer to the Belgacom Group, the synergies that can be developed between the various subsidiaries and the changes this will generate in terms of the way we serve our customers. This study has already produced some results with regard to the new structure that the Belgacom Group is preparing to introduce (see foreword by D. Bellens), and the study will be continued in 2007.
Diversity For the Belgacom Group, diversity means working together with people who have a unique combination of talents and characteristics. The Group’s success depends entirely on its ability to understand and anticipate customer needs, now and in the future. By creating a diverse workplace, which reflects society as closely as possible, we will connect better with the communities we serve. It will also allow us to promote creativity and innovation, improve leadership effectiveness, create a more fulfilling employee experience and increase customer satisfaction. Bringing different ideas together leads to innovation, essential for staying one step ahead of the competition in a dynamic environment. The ultimate aim of the diversity policy is to move boundaries. To successfully meet the challenges of the future, the Belgacom Group brings together the creativity, resourcefulness, know-how and insight of all its employees. The diversity action plan will be implemented in a phased approach: create awareness, create emotions, create commitment. The awareness phase has been characterized by the development of a dedicated website on the intranet, several communications, and the creation of a logo: All different. All One. Although we are all different, with our own strengths and unique skills, we belong to one company, working together for the same goal. In the next phase we will launch a varied training program for all employees, regional working groups, network initiatives and continue communication efforts to raise awareness. The employees of the Belgacom Group come from all walks of life, from different backgrounds and cultures. The Group respects these differences and sees them as a strength.
30 · Human resources
01
Employee wellbeing The balance between private life and professional life is obviously a matter of personal choice. It is the foundation for employee growth. In order to help all employees achieve that balance, the Belgacom Group offers a wide variety of different solutions, such as teleworking, holiday camps for children, a childcare service during the summer months and a sick child home-care service, numerous health care benefits and all kinds of social welfare benefits.
Room to develop oneself Each employee has different skills and competencies, and has equal development opportunities. The Belgacom Corporate University (BCU) and the John Cordier Academy (JCA) offer a differentiated training catalog and a variety of learning methods (classroom-based, e-learning, BCU@home, etc.). In 2006, 93.6% of employees followed at least one training course, with an average of 37.5 training hours per employee. The BCU@home program gives employees an opportunity to work on their personal development at home by means of five-minute training modules which are offered as part of an extensive e-learning catalog. In order to support and stimulate its current and future leaders, the Belgacom Group will add a third pillar to its leadership programs in 2006: House of Development 3. After leadership (House 1) and business acumen – finance – strategy (House 2), the emphasis this time will be on innovation, one of the major challenges of the ICT sector. This program has been developed and is run in close cooperation with senior management and two of the most renowned Belgian business schools: Vlerick Leuven Gent Management School and Solvay Business School.
Coaching, crucial in a changing environment The Belgacom Group believes that companies need to be able to adapt to the changing environment in order to last, and that coaching plays a central role in achieving this. Therefore, the Belgacom Group supports leading academic research into the importance & effects of coaching on sustainable entreprises. Beyond the benefits of coaching within a working environment, the Group also wants to contribute to society
• 28 courses • 350 participants • 2 courses/person (average) • 720 subscriptions • 1,000 employees on a waiting list
by extending its support to research in the world of sports. Sport, we feel, is essential to the development of youth, where coaching plays a key role.
started by a group of enthusiastic employees and offers an impressive range of courses and workshops, from photography and video-making to painting, drama and even disco dancing.
The Belgacom Chair “Building organisations that last” at Vlerick Leuven Gent Management School, will further stimulate research and teaching on the subject of building enduring working relationships and teamwork. These values have proven to be essential in the contribution to fundamental human satisfaction and to the achievement of qualitative performance.
The courses and workshops are held in the Belgacom Creativity Center, where employees can use a professional photography and video studio as well as a music studio free of charge.
Room for ideas To maintain the Belgacom Group’s growth and its leading position in the telecom market, the Group must face the challenge of adjusting to anticipated trends and developments. The only way it can achieve this ambitious objective is by giving employees the necessary room for ideas. After all, it is ideas that make the world go round: all the more so in the telecom sector. When strong ideas collide, this often leads to innovation. As an employer, the Group therefore aims to create the necessary room for ideas. At Proximus, the launch of the “Room for Ideas” campaign served as an encouragement to all employees to think creatively, win over others to their ideas and put their ideas into practice. Our employees can also give free reign to their creative talent outside working hours in The Pulse, free hobby workshops that stimulate our employees’ creativity and team spirit. The Pulse is an initiative that was
Employee satisfaction The dedication, motivation and passion of employees play a major role in the success of the Belgacom Group. Employee satisfaction is therefore a permanent concern. In 2006, a uniform group-wide employee survey was carried out for the first time. This enables us to identify and take the measures that are needed. 84% of the employees are satisfied to work for their company within the Belgacom Group. The Belgacom Group offers an extensive remuneration package. To make the remuneration more transparent and clear, Belgacom launched “Your reward”, an application which gives employees a personalized overview of their total remuneration at a glance. Payroll activities have been insourced to improve quality and lower costs. In addition, Belgacom introduced the electronic pay slip. To guarantee absolute data confidentiality, Belgacom used the expertise of Certipost, a Group subsidiary that specializes in certified electronic transmissions. The electronic pay slip has been made clearer and easier to read and, what is more, saves paper!
Measures taken to raise awareness and to build the framework for a diverse workplace: • An internal diversity survey amongst employees • A diversity & equal opportunities policy • A non-discrimination policy & procedure • A diversity site on the Intranet • Several employee communications focusing on the different benefits of diversity • All employees received a notebook, including a 2007 diversity calendar • The creation of a diversity scorecard
Planned initiatives in 2007 • Launch of a training program for all employees • Launch of employee sounding boards • Develop non-discriminatory recruitment practices that promote diversity • Launch of a women network initiative • Continue communication efforts to increase awareness
Human resources · 31
Environmental awareness, attention to the needs of all stakeholders, and acting for the common good are some of the commitments made by the Belgacom Group in the area of social responsibility.
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Corporate social responsibility Belgacom has a long-standing tradition of social commitment. In fact, as we showed in our recent overview, the men and women that make up our Group incorporated the concepts of responsibility and corporate citizenship in their daily work long ago, without these being formally imposed. Since 2006, the Group’s aim has been to go one step further by gradually integrating the principles of corporate social responsibility into the core of its activities. The Belgacom Group concurs with and applies the definition of corporate social responsibility formulated in the European Commission’s Green Paper: “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.” The Belgacom Group has chosen the concept of rather than merely corporate responsibility, to indicate that its policy extends beyond mere business ethics: it also incorporates the Group’s environmental responsibilities.
commitment One deep commitment. Living action.
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Anchoring the Group in a real action plan In its previous annual report, the Belgacom Group already indicated that it was committed to setting up a series of concrete initiatives to improve the coordination of its existing activities in the field of corporate social responsibility. We are now one year down the road and these objectives have been achieved. In early 2006, the Belgacom Group created the position of Group CSR Director. Reporting directly to the CEO, the CSR Director’s mission is to further expand and develop the CSR program within the Belgacom Group as well as coordinate all existing and future initiatives in this field, with the help of the Management Committee. In 2006, we made an initial assessment of our progress and we have published the results in the second half of 2006. The results can be found on the website www.belgacom.be/group. The publication of this assessment is only the beginning and our main objective remains to continue to meet and exceed the Belgacom Group stakeholders’ expectations in the field of corporate social responsibility. Additionally, we intend to increase the involvement of all our employees, through CSR education made available by the Belgacom Corporate University e-learning training sessions.
An everyday commitment…
aims to develop healthcare services delivered to old people’s homes via a high-speed line. As for price, the Belgacom Group always endeavors to offer its customers the best value for their money, regardless of the type of product. For example, we offer our customers a range of ADSL packages, adapted to every budget. In the field of fixed telephony, Belgacom devised the “Happy Time” and “Happy Time International” rate plans, which enable customers to call any destination in Belgium and certain destinations in Europe free of charge in the evening and on weekends. Not to be outdone, Proximus has launched the simple, transparent “Smile” calling packages for residential customers. To allow both fixed and mobile customers to determine which rate plan is best adapted to their latest calling patterns, “rate check-up” programs are also available. Finally, the Belgacom Group significantly reduces the inequalities experienced by the socially disadvantaged as regards access to communication by providing, to this group, the use fixed and mobile telecommunications services at special reduced rates, as part of our universal services. Finally, in the field of Internet access and electronic communications, the Group wants to enable all its customers to use multimedia applications in complete security. To that end, Belgacom provides e-mail boxes with anti-virus and anti-spam solutions free of charge.
The Belgacom Group is fully aware of the social aspect of telecommunications. We want to provide as many people and organizations as possible access to the world of communications, information and entertainment, and, in so doing, improve their quality of life.
… in our relationships with our suppliers
... to our customers
The Belgacom Group requires all its suppliers to have certification guaranteeing compliance with security standards.
In this context, the Belgacom Group has developed a wide range of solutions designed to facilitate the everyday life of its customers. The teleworking and teleconference solutions are but two of these. Teleworking helps employees combine their family and working lives, and provides an alternative to the problems of mobility and urban traffic congestion. Teleconferences enable considerable reductions in travel, time and energy. In the field of products and services, Belgacom puts its social commitment into practice by developing projects in the health sector. Intended for seniors, the “Medical Care Continuity” project, for example,
34 · Corporate social responsibility
The Belgacom Group has always attached great importance to the quality of its suppliers, and particularly to their commitments to social, environmental and sustainable development standards.
For many years now, Proximus has applied the Code of Ethical Purchasing developed by the Vodafone Group. This code was established in agreement with suppliers and certain international nongovernmental organizations. Proximus’ suppliers who adhere to this Code undertake to comply with social and environmental standards, particularly with regard to child labor, health, safety, discrimination, etc. Finally, our purchasing policies are judged in comparison with those applied by other European telecommunication operators and with a series of international standards.
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International Polar Foundation
By having supported the International Polar Foundation for three years now, Belgacom is participating in explorer Alain Hubert’s efforts to save our planet. In addition to providing financial backing to this organization, which aims to raise the general public’s awareness of polar exploration and the consequences of global warming, Belgacom has also invested in an electronic billing program, enabling a significant reduction in paper consumption. By the end of 2006, 200,000 customers had opted for this solution.
… to protect the environment
... with regard to our employees
For a number of years, the Belgacom Group has taken up the challenge to integrate, to the best of its abilities, its activities in its natural environment. Proximus systematically ensures that its base stations are integrated as harmoniously as possible with the surrounding landscape.
The Belgacom Group is evolving in a business sector which, for years, has been marked by fierce competition. A skilled, motivated and results-oriented workforce is one of the essential ingredients for maintaining our leadership position in this competitive environment.
In the area of energy usage, in 2005 the Belgacom Group responded to an initiative of the Belgian federal government, committing to reduce its energy usage in its administrative buildings, and reduce its vehicle fleet by 7.5% by 2012. With the application of remote equipment management, the Belgacom Group was able to reduce field service trips and thus lower its vehicle count from 7,444 in 2005 to 7,074 in 2006.
This is why the Group attaches particular importance to the principle of diversity, a key factor in the shaping of a sustainable company. In keeping with this view, the Belgacom Group adopted a Diversity Charter that reflects its commitment to respect and promote the application of the non-discrimination principle in all its forms, hiring staff whose backgrounds reflect the diversity of Belgian society. The concept of diversity in the Belgacom Group is discussed in greater depth in the section on human resources in this annual report.
In the area of mobility, for a number of years, the Belgacom Group has been encouraging its employees to embrace the use of public transportation. It is not by coincidence that our head offices are located in the center of town and easily accessible by train, bus and tram. Another important aspect of the mobility policy consists of reducing commuting by encouraging “Telesite working”. This formula allows employees to use satellite offices located closer to their homes. The Belgacom Group also attaches particular importance to waste management. At the forefront of the general trend in Belgium, Belgacom applies the latest waste management measures, notably through its participation in the Recupel and Bebat programs. Similarly, the promotional efforts to encourage the use of electronic reloading systems for its Pay & Go cards (such as via cash-points or the Internet) have also had a positive impact on reducing the tonnage of household packaging waste. Finally, for a number of years, the Group has developed a series of measures aimed at reducing paper usage. This policy is not only internal in scope: it also extends to our customers. In 2004, Belgacom launched an online billing program. Efforts were made to raise customer awareness of the opportunities that this new billing method offered, and of its positive impact on the environment. By the end of 2006, no less than 200,000 Belgacom residential customers had opted for the electronic bill.
A project for the future 2006 can be regarded as our transition year, in which an initial assessment was made of all the Belgacom Group’s CSR activities, and a strategy developed for the future. In 2007, the first major step in this strategy will be to conduct an internal audit aimed at identifying the various measurement indicators used in the Belgacom Group. Additionally in 2007, the Belgacom Group will publish its CSR report, compiled in compliance with GRI guidelines (Global Reporting Initiative). The GRI has the role of developing globally applicable directives to measure the economic, environmental, and social performance of companies. In association with the United Nations Environment Program (UNEP), the GRI measures the active participation of companies, NGOs, accounting organizations, associations of business people and other stakeholders from around the world.
Corporate social responsibility · 35
Transparency is a fundamental value of the Belgacom Group, which is why we want to be a frontrunner in the application of legal procedures and the corporate governance best practices.
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transparency One clear organization. Effective decision.
Corporate Governance Corporate governance aims to define a set of rules and behaviours according to which companies are properly managed and controlled, the result being increased transparency. It is a system of checks and balances between the shareholders, the Board of Directors and management. Belgacom is committed to be compliant with the legal, regulatory and best practice elements and more specifically to the best practices of Belgium’s Corporate Governance Code. Additionally it has continued to reinforce its internal compliance program.
Belgacom governance model At Belgacom, the Articles of Association are strongly influenced by the specific legal status of the company. As a limited liability company under public law, Belgacom is in first instance governed by the Law of 21 March 1991 on autonomous public sector enterprises (“the 1991 Law”). For matters not explicitly regulated otherwise by the 1991 Law, Belgacom is governed by Belgian corporate law. The key features of Belgacom’s governance model are: • a Board of Directors, which defines Belgacom’s general policy and strategy and supervises operational management; • the creation by the Board of Directors within its structure of an Audit and Compliance Committee, a Nomination and Remuneration Committee and a Strategic and Business Development Committee; • a Chief Executive Officer, who takes primary responsibility and ownership for operational management (including, but not limited to, day-to-day management); • a Management Committee which assists the Chief Executive Officer in the exercise of his duties. 37
Members Board of Directors in 2006 Name Theo DILISSEN (1) Didier BELLENS
(1)
Age
Position
53
Chairman of the Board
Director Term since expires 2004
2009
Name Maurice LIPPENS (2) (1)
Age
Position
63
Director
Director Term since expires 2004
2007
51
President and CEO
2003
2009
Michel MOLL
58
Director
1994
2006
Johny CORNILLIE (1)
55
Director
1994
2006
Oren G. SHAFFER (2)
64
Director
2004
2007
Didier DE BUYST (1)
40
Director
1996
2006
Robert TOLLET (1)
60
Director
2003
2009
Pierre-Alain DE SMEDT (2)
62
Director
2004
2010
Norbert VAN BROEKHOVEN (1)
60
Director
1994
2006
Carine DOUTRELEPONT
(2)
Martine DUREZ (1) Philip HAMPTON
(2)
Georges JACOBS (2)
46
Director
2004
2007
Lutgart VAN den BERGHE
56
Director
1994
2012
Paul VAN de PERRE (1)
52
Director
2004
2010
66
Director
2004
2007
Philippe VAN de VYVERE
(2)
(2)
54
Director
2004
2010
53
Director
1994
2012
53
Director
2004
2006
(1) Appointed by the Belgian State. (2) Appointed by the shareholders’ meeting and independent.
Board of Directors As provided for in the 1991 Law, the Board of Directors is composed of: • Directors appointed by the Belgian State pro rata to its shareholding; the aggregate number of directors being determined by the shareholders’ meeting; • Directors appointed by a separate vote among the other shareholders, for the remaining seats. It will be suggested to the Extraordinary Shareholders’ Meeting of April 11, 2007 to decrease the number of members of the Board of Directors in order to have no more than 16 members, including the person appointed as Chief Executive Officer.
Functioning of the Board of Directors The Board of Directors meets whenever the interests of the company so require or at the request of at least two directors. In principle, the Board of Directors shall meet every year in four regularly scheduled meetings. The Board of Directors must also evaluate the strategic longterm plan in an extra meeting per year. In principle, the Board’s decisions are made by a simple majority of the directors present or represented. For certain issues, a qualified majority is required. The Board of Directors has adopted a Board Charter which, together with the charters of the Board Committees, reflects the principles by which the Board of Directors and its Committees operate. The Board Charter provides, among other things, that important decisions should have broad support, understood as a qualitative concept indicating effective decision-making within the Board of Directors following a constructive dialogue between directors. They should be prepared by standing or ad hoc Board Committees having significant representation of non-executive, independent directors within the meaning of Article 524, § 4 of the Belgian Company Code.
Committees of the Board of Directors In accordance with the bylaws Belgacom has an Audit and Compliance Committee, a Nomination and Remuneration Committee and a Strategic and Business Development Committee. Audit and Compliance Committee The Audit and Compliance Committee (ACC) consists of five non executive directors, the majority of whom must be independent. Pursuant to its charter, it is chaired by an independent director. The Audit and Compliance Committee’s role is to assist and advise the Board of Directors in its oversight of: • the quality and integrity of the statutory and the consolidated annual accounts and the financial statements of the Company; 38 · Corporate governance
• the relationship with the Company’s statutory auditors; • the Company’s internal audit function; • the Company’s compliance with legal and regulatory requirements; and compliance within the Company with the Company’s Code of Conduct and the Dealing Code; • the evaluation of the risk framework and the methodology of risk assessment; • the quality and integrity of the quarterly reporting. The Audit and Compliance Committee meets at least once every quarter. Mr. Philip Hampton (Chairman), Messrs. Pierre-Alain De Smedt, Michel Moll, Oren G. Shaffer and Paul Van de Perre are the members of the Audit and Compliance Committee. Nomination and Remuneration Committee The Nomination and Remuneration Committee (NRC) consists of four directors. Pursuant to its charter, this committee is chaired by the Chairman of the Board of Directors, who is an ex-officio member. One member is chosen among the directors appointed by the Belgian State. Two members must be appointed among the independent directors. The Nomination and Remuneration Committee’s role is to assist and advise the Board of Directors regarding: • the nomination of candidates for appointment to the Board of Directors and the Board Committees; • the appointment of the President and Chief Executive Officer and appointment by the President and Chief Executive Officer of the members of the Management Committee; • the appointment of the Secretary General; • the remuneration of the members of the Board of Directors and the Board Committees; • the remuneration of the President and Chief Executive Officer and members of the Management Committee; the review on an annual basis of the remuneration philosophy and strategy of all personnel and specifically the compensation packages of top senior management; • the oversight of the decisions of the President and Chief Executive Officer with respect to the appointment, the dismissal and the compensation of management, in order to allow the Board of Directors, when it chooses to do so, to exercise its overall supervising duties; • corporate governance issues. The Nomination and Remuneration Committee meets at least four times per year. The first meeting intends to review the performance, budgets for payout of bonus and merits and long term and short term incentive plans. At that meeting an annual review of the philosophy
Current Members Board of Directors Name Theo DILISSEN
Age
Position
53
Chairman of the Board
Director Term Since expires 2004
2009
Name
Position
63
Director
2004
2007
58
Director
1994
2012
64
Director
2004
2007
(1)
Maurice LIPPENS (2) (1)
Didier BELLENS
51
President and CEO
2003
2009
Michel MOLL
Pierre-Alain DE SMEDT
62
Director
2004
2010
Oren G. SHAFFER (2)
Carine DOUTRELEPONT Martine DUREZ (1)
(2)
Director Term Since expires
Age
46
Director
2004
2007
Michèle SIOEN
42
Director
2006
2012
56
Director
1994
2012
Robert TOLLET (1)
60
Director
2003
2009
Philip HAMPTON
52
Director
2004
2010
Lutgart VAN den BERGHE
54
Director
2004
2010
Georges JACOBS (2)
66
Director
2004
2007
Paul VAN de PERRE (1)
53
Director
1994
2012
42
Director
2006
2012
Mimi LAMOTE
(1)
(1) Appointed by the Belgian State on 23 December 2006. (2) Proposed for nomination to the shareholders’ meeting of 2007.
and strategy of the remuneration will also be discussed. In a second meeting the Nomination and Remuneration Committee will fix the performance measurement targets of the President & Chief Executive Officer and the members of the Management Committee through KPI’s. On top of these meetings the Committee will organize a meeting on Human Resources and a meeting on Corporate Governance.
On 14 December 2006, the Board of Directors has coopted Ms. Carine Doutrelepont and Messrs. Georges Jacobs, Maurice Lippens and Oren. G. Shaffer until the General Shareholders Meeting of 11 April 2007. On the same date the Board of Directors has decided to recommend these members for nomination at the General Shareholders Meeting for a new mandate until the General Shareholders Meeting of 2013.
Mr. Theo Dilissen (Chairman), Ms. Martine Durez, Mr. Georges Jacobs and Ms. Lutgart Van den Berghe are the members of the Nomination and Remuneration Committee.
Directors’ remuneration
Strategic and Business Development Committee The Strategic and Business Development Committee (SBC) consists of five directors. Pursuant to its charter, the President and Chief Executive Officer and the Chairman of the Board of Directors are ex officio members, and the committee is chaired by the Chairman of the Board of Directors. One additional member is chosen among the directors appointed by the Belgian State. Two members must be appointed among the independent directors. The Strategic and Business Development Committee’s role is to assist and advise the Board of Directors on matters concerning the Company’s general policy and strategy, as well as on major issues regarding its strategic development. The Strategic and Business Development Committee meets at least twice a year. Mr. Theo Dilissen (Chairman), Mr. Didier Bellens, and Messrs. Maurice Lippens and Robert Tollet are currently the members of the Strategic and Business Development Committee. Messrs. Johny Cornillie and Oren G. Shaffer attend the meetings of the Strategic and Business Development Committee as observers. The Board of Directors has decided to review the role and composition of the Strategic and Business Development Committee in 2007.
Changes in the composition of the Board of Directors On 23 December 2006, the mandates of Ms. Martine Durez and Messrs. Johny Cornillie, Didier De Buyst, Michel Moll, Norbert Van Broekhoven and Paul Van de Perre have expired. On 31 December 2006, the mandates of Ms. Carine Doutrelepont and Messrs. Georges Jacobs, Maurice Lippens, Oren G. Shaffer and Philippe Van de Vyvere have expired. On 23 December 2006, the Belgian State has appointed, under an Order deliberated in Council of Ministers, Mss. Martine Durez, Mimi Lamote, Michèle Sioen and Messrs. Michel Moll and Paul Van de Perre until 23 December 2012.
The remuneration and compensation of the directors has been decided by the General Meeting of 2004. The calculation of this compensation has not changed in 2006: an annual fixed compensation of EUR 50,000 for the Chairman of the Board of Directors and of EUR 25,000 for the other members of the Board of Directors, with the exception of the President & CEO, is foreseen. All members of the Board of Directors, with the exception of the President & CEO, have the right to an attendance fee of EUR 5,000 per attended meeting of the Board of Directors. Finally attendance fees of EUR 2,500 have been foreseen for each member of an advising committee to the Board of Directors, with the exception of the President & CEO. For the Chairman these attendance fees are doubled. For the Chairman of the Board of Directors the communication costs are also doubled. The directors do not receive performance-based remuneration such as bonuses or longterm share-related incentive programs, nor do they receive benefits linked to pension plans.
Transactions between the company and its board members and executive managers A general policy on conflicts of interest is applicable within the company. It prohibits the possession of financial interests that may affect one’s personal judgment or professional tasks to the detriment of the Belgacom Group. In accordance with Article 523 of the Belgian Commercial Companies Code, the President & CEO Didier Bellens declared that he had a conflict of interest in connection with the Employee Incentive Plan item of the agenda of the Board of Directors’ meeting of 23 February 2006. He is in fact a proposed beneficiary of the Senior Management Short & Long term Incentive Plan 2006. He has informed Belgacom’s auditor of this conflict of interest and has decided not to participate in the deliberation or voting on such items on the agenda.
Transactions between the company and the Belgian State The Board of Directors has applied, per analogy, the procedure of Article 524 of the Belgian Commercial Companies Code regarding the (Following on page 42)
Corporate governance · 39
1
3
5
7
9
2
4
6
8
10
Current members of the Board of Directors Theo Dilissen (1). Chairman of the Board of Directors of Belgacom since October 2004. Previously Mr. Dilissen was CEO, Managing Director and Vice-Chairman of Real Software and from 1989 to 2000 he was COO and member of the Board of ISS (a Danish publicly listed company). In September 2005, he was appointed as President and CEO of Aviapartner. Since October 2006, Mr. Dilissen is also independent member of the Board of Directors of Antwerp World Diamont Centre. He studied Sociology and holds a Master in Business Administration. Didier Bellens (2). President and Chief Executive Officer and Director of Belgacom since March 2003. More info see p. 46, Members of the Belgacom Management Committee. Pierre-Alain De Smedt (3). Director since March 2004. Mr. De Smedt is Chairman of Febiac (Fédération belge de l’Automobile et du Cycle). From 1999 till end of 2004 he was Executive Vice President of Renault. He was chairman of Autolatina, VAG and Ford’s joint venture subsidiary in Latin America. He served as Chairman of Volkswagen Brazil and Argentina before being appointed as Chairman of Seat. Mr. De Smedt is member of the Board of Deceuninck Plastics Group, of the Compagnie Nationale à Portefeuille and of the Group Valeo. He is a graduate in engineering and economics from the University of Brussels (ULB). Carine Doutrelepont (4). Ms. Doutrelepont is a lawyer at the Brussels’ Bar. She is the founding partner of the Belgian lawfirm Doutrelepont & Partners, which is a member of the EEIG Afschrift, Doutrelepont & Partners, and is specializing in Information and Communication Technologies, Intellectual property, Media law, Competition matters and European law. She holds a PhD in law from the University of Brussels (ULB) and worked with the Max Planck Institute (Munich). She is a Professor of Media Law, Intellectual Property Law, and European Law at the ULB Faculty of law, at the Institute for European Studies, as well as in universities in other countries. She is also President of the Information and Communication Law Center of the ULB. For years, she worked as an Expert for the European Commission (General Directorate Internal Market) and at the Belgian Senate. She is also a member of the Belgian Competition Authority. Martine Durez (5). Ms. Durez was the Chief Financial and Accounting Officer at La Poste till January 2006 when she became Chairman of the Board of La Poste. Ms. Durez was also Professor of Financial Management and Analysis at the University of Mons-Hainaut till 2000. She has also served as a member of the High Council of Corporate Auditors and the Committee of Accounting Standard and as a special emissary at the Cabinet for Communication and State Companies. She serves as a regent of the National Bank of Belgium. Ms. Durez graduated as a Commercial Engineer and holds a degree in Applied Economics from the University of Brussels (ULB). 40 · Corporate governance
Philip Hampton (6). He spent the first ten years of his career at Lazard Brothers in London, New York and Paris. He then took up the positions of Finance Director for British Steel plc, British Gas plc and British Telecommunications Group plc and for Lloyds TSB Group plc. He is currently Chairman of J. Sainsbury plc. Mr. Hampton is a Chartered Accountant and holds an MBA from INSEAD, Fontainebleau. Georges Jacobs (7). Baron Jacobs is Chairman of the Board of Directors of UCB. He started as an economist at the International Monetary Fund (USA). Later, he joined the UCB Group and was appointed Director and CEO of UCB in 1987 until 1 January 2005, when he became Chairman of the Board. Furthermore, Baron Jacobs is member and Chairman of the Board of Delhaize and a member of the Board of Bekaert and Brussels Airlines. He holds a law degree and a degree in economics, as well as a Master of Arts in Economics from the University of California, Berkeley. Mimi Lamote (8). Until June 2006 she was CEO of SCF (BelgiumLithuania) listed on the Belgian stock market. From 2001 until 2005 Mrs. Mimi Lamote was General Manager of C & A Belgium-Luxembourg. Since December 2006, she is President of the Social Economical Forum of the Flemish Government. From 2001 until 2004 she was member of the Board of Directors of the Federation of Enterprises in Belgium (FEB). In the same period, Mrs. Lamote was also member of the Board of Directors of Fedis (Federation of Distribution). She holds an university degree in Applied Economic Sciences of the University of Antwerp and a master in Retail Management of the Tias University of Tilburg. Maurice Lippens (9). Mr. Lippens is co-founder of Fortis, the first European cross-border banking and insurance group created in 1990. He served as the executive Chairman of Fortis until 2000 and since then he is the non-executive Chairman of the Board of Directors. He is a member of the Board of several companies including Groupe Bruxelles Lambert and Total. He holds a law degree from the University of Brussels (ULB) as well as an MBA from Harvard Business School. Michel Moll (10). He is President & CEO of the limited company BATS (Belgian Advanced Technology Systems), specialized in Security Electronics, in Liège. Until December 2005, Mr. Moll was President of the venture company BRUFICOM and before that he was manager and director of the National Investment Corporation (SNI) in Brussels. He serves as a non executive director in industrial and financial companies such as Société Nationale de Construction Aérospatiale and the Belgian Corporation for International Investment (SBI). He is also a Censor of the National Bank of Belgium. Mr Moll graduated as Engineer in applied economics from the business school of the University of Louvain (UCL).
11
12
13
14
15
Directors active in 2007. The 16th director will be appointed at the Annual Shareholder Meeting of 11 April 2007.
16
18
17
19
Directors whose term expired in 2006 Oren G. Shaffer (11). He is Vice Chairman and Chief Financial Officer of Qwest Communications International Inc. Formerly, Mr. Shaffer was President and Chief Operating Officer of Sorrento Networks and from 1994 to 2000 he was Chief Financial Officer of Ameritech. He was a member of the Board of Directors at Belgacom from 1996 to 2000. He is a member of the Board of Intermec and the Daiwa family of NYSE listed investment funds. He holds a Bachelor of Science in business administration from The University of California at Berkeley and a Master of Science in management from The Massachusetts Institute of Technology. Michele Sioen (12). In 1988, Ms. Sioen started her career at Atoll (IT-sector). She was appointed director of the Board of Directors of Sioen Industries in 1990 and actively joined the Sioen Industries group. Between 2000 and 2005 she was General Manager of its Coating Division. Since 2005 she is CEO of the Sioen Industries group. Furthermore, Michele Sioen is president of Febeltex Bruxelles-Wallonie since 2001 (the association of textile professionals) and also president of the social board. Ms. Sioen holds a degree in Economics and several post-university degrees. Robert Tollet (13). Mr. Tollet is the Chairman of the Board of Directors of the Société Fédérale de Participations et d’Investissement, a public sector holding company and serves on the Board of Credibe. He is also the Chairman of the Central Council for the Economy. Mr. Tollet holds a degree in Economics and a degree in Economic Analysis and Policy from the University of Brussels (ULB). Lutgart Van den Berghe (14). Ms. Van den Berghe holds a PhD in economics from Gent University where she is an extraordinary professor. As executive director, she heads the Competence Centre Entrepreneurship, Governance and Strategy at the Vlerick Leuven Gent Management School as well as the Belgian Governance Institute. She lecturers on Corporate Governance and serves as a non-executive director in a number of listed and non-listed multinational companies such as Electrabel, CSM (The Netherlands), SHV Holding (The Netherlands) and Solvay BV (The Netherlands).
Johny Cornillie (16). He is a former chief of the private office of the Minister-President of the Government of Flanders. Until 1997 he was CEO of Van Gansewinkel group and until 2002 Chairman of SEGHERS better technology group. He is currently a director of CVBA Arcofin and NV Auxipar and advisor of international companies PSA-HNN and Van Gansewinkel Group. Mr. Cornillie graduated as an engineer in applied economics from the University of Leuven. Didier De Buyst (17). He was CEO of Inter-Eco Group, an engineering and consultancy office, from 1993 to 2003. He was also a Member of the Board of the Federaal Agentschap voor Nucleaire Controle (Federal Agency for Nuclear Monitoring) between 1997 and 2003 and Chairman of the Audit Committee between 2002 and 2003. He is now mediator/ arbitrator for (inter) national industrial disputes of a technological nature and is also a part-time professor at the Department of Architecture of the Universiteit Hogescholen Limburg. Mr. De Buyst is a civil engineer (with a Master in Engineering), holds a PhD in Engineering obtained in 1993 (University of Gent) and several degrees from the Vlerick Leuven Gent Management School and the Harvard Business School. Mr. De Buyst acts also as a guest lecturer in strategic management for the MBA students of the Vlerick Leuven Gent Management School. Norbert Van Broekhoven (18). He was CEO of Van Broekhoven’s Algemene Ondernemingen NV. He is currently CEO of Actima NV and director and advisor of several Belgian companies. Mr. Van Broekhoven graduated as a civil engineer from the University of Leuven. Philippe Van de Vyvere (19). Mr. Van de Vyvere is the founder, CEO and Chairman of Sea-Invest, Europe’s largest bulk and fruit transshipment company. He is currently a non-executive board member for ING Belgium and Immobel. Mr. Van de Vyvere holds a degree in Economics.
Paul Van de Perre (15). He is the co-founder of GIMV (Venture Capital Firm) and was formerly a director of Sidmar (Arcelor). He is currently CFO and director of MethaPharma (nutraceuticals) and Greenbridge (incubator). Mr. Van de Perre is CEO of Five Financial Solutions, a division of Praxis in Management (corporate finance) and CEO of Caesar Real Estate Fund (real estate finance). Mr. Van de Perre holds an MBA in Economics and is a certified accountant (IAB).
Corporate governance · 41
Activity Report and Attendance at Board and Committee meetings Name Theo DILISSEN
Total Board ACC(1) NRC(2) SBC(3) (total 6) (total 5) (total 6) (total 4) remuneration 6/6
Didier BELLENS
6/6
Johny CORNILLIE
5/6
Didier DE BUYST
6/6
Pierre-Alain DE SMEDT
6/6
Carine DOUTRELEPONT
6/6
Martine DUREZ
6/6
Philip HAMPTON
5/6
Georges JACOBS
6/6
6/6
5/5 5/6 4/5 6/6
Total Board ACC(1) NRC(2) SBC(3) (total 6) (total 5) (total 6) (total 4) remuneration
4/4 EUR 164,000
Maurice LIPPENS
5/6
4/4
NR
4/4
EUR 62,000
Michel MOLL
6/6
3/5
EUR 64,500
EUR 52,000
Oren G. SHAFFER
6/6
5/5
EUR 69,500
EUR 57,000
Robert TOLLET
5/6
EUR 69,500
Norbert VAN BROEKHOVEN
6/6
EUR 57,000
Lutgart VAN den BERGHE
6/6
EUR 69,500
Paul VAN de PERRE
5/6
EUR 72,000
Philippe VAN de VYVERE
3/6
EUR 72,000
(1) ACC: Audit and Compliance Committee. (2) NRC: Nomination & Remuneration Committee. (3) SBC: Strategic and Business Development Committee.
transfer of the claim of Belgacom (BICS) with regard to the historic debt of Congo to the Belgian State. A Committee of three independent directors formulated on 24 August 2006 the following recommendation, after positive advice of the Belgian Export Credit Agency and Euler Hermes Credit Insurance: “The capital gain for Belgacom S.A. is nihil. For Belgacom Group, taking into account the 72% stake in BICS, the capital gain is estimated at 72% of EUR 2.0 million or EUR 1.44 million. The Committee is of the opinion that all current and future costs for recovering the debt should be born by the State. On ground of these elements and taking into account the fact that said debt has been totally written off in the BICS accounting books, the Committee recommends to the Board to assess that the contemplated transaction between the Belgian State and Belgacom (BICS), related to Congo’s debt towards Belgacom is not clearly unjust; to approve the transfer of the claim of EUR 49.6 million from BICS to the Belgian State for an amount of minimum EUR 2.0 million, taking into account that Belgacom needs to use its best endeavours that the costs of recovering the debt must be born by the Belgian State.” In its meeting of August 24, 2006 the Board of Directors decided, “to assess that the contemplated transaction between the Belgian State and Belgacom (BICS), related to Congo’s debt towards Belgacom (BICS), is not clearly unjust; to approve the transfer of the claim of EUR 49.6 million from Belgacom ICS to the Belgian State for an amount of minimum EUR 2.0 million, taking into account that Belgacom needs to use its best endeavours to ensure that the costs of recovering the debt shall be borne by the Belgian State; to authorize the President & CEO, with power of subdelegation, to take all required measures to implement the transfer, and to this effect, to accomplish all required formalities and to sign all documents, acts and deeds.” The report on the findings of the Auditors, members of the Joint Auditors of Belgacom NV van publiek recht/Belgacom SA de droit public, dated October 20, 2006 states: “In the framework of our mission, we have performed the following procedures: a. We have obtained the Advice of the committee of three independent directors dated August 24, 2006 and compared the information with the reports of the independent experts. b. We have obtained the minutes of the Board of Directors meeting of August 24, 2006 and compared them with the data incorporated in the Advice. Based on the work performed, we report the following findings: a. With respect to item a. above, we found that the information included in the Advice corresponds with the information included in the reports of the independent experts; b. With respect to item b. above, we found that the information included in the minutes of the Board of Directors meeting corresponds with the data incorporated in the Advice.” 42 · Corporate governance
Name
3/4
EUR 59,500 EUR 57,000
6/6 5/5
EUR 72,000 EUR 64,500 EUR 42,000
Dealing Code In its meeting of 15 December 2005 the Board of Directors approved a change in the closed periods, due to the introduction of quarterly reporting: as from 2006 there is a closed period of 1 month preceding the announcement of interim results (quarterly and mid-year) and a closed period of 2 months before the announcement of the annual results.
Management President and Chief Executive Officer The President and Chief Executive Officer is appointed by the Belgian State by Royal Decree deliberated in the Council of Ministers. Appointments are for a renewable six-year term, and can only be terminated by Royal Decree deliberated in the Council of Ministers. Pursuant to the 1991 Law and the Company’s Articles of Association, the President and Chief Executive Officer is a member of the Board of Directors. The President and Chief Executive Officer and the Chairman of the Board of Directors must come from different language groups The President and Chief Executive Officer is entrusted with the dayto-day management and reports to the Board of Directors. In addition, pursuant to the 1991 Law and the company’s Articles of Association, the Board of Directors may, deciding by a majority of two thirds of its members present or represented, delegate all or part of its powers to the President and Chief Executive Officer with the exception of: • the approval of the Management Contract with the Belgian State and changes thereto; • the establishment of the business plan and general policy of the company; • the supervision of the President and Chief Executive Officer; • and other powers explicitly reserved by law to the Board of Directors which include, for example, the establishment of the annual accounts for submission to the General Shareholders Meeting and the preparation of merger proposals. The Board of Directors has delegated broad powers to the President and Chief Executive Officer. The current President and Chief Executive Officer is Mr. Didier Bellens. Mr. Bellens has a six year fixed term contract starting as from March 1, 2003. If the employer terminates the contract prematurely, except for serious misconduct, a severance pay of 3 times annual gross salary(1) will be due.
(1) Basic annual salary + variable remuneration + post-employment benefits.
The President & Chief Executive Officer is bound to a non competition clause of 12 months prohibition to work for any other mobile or fixed licensed operator active on the Belgian market, and will receive an amount equal to one year salary as compensation.
Management Committee The composition and the powers of the Management Committee are determined by the President and Chief Executive Officer. The Management Committee’s role is to assist the President and Chief Executive Officer in the exercise of his duties. The Management Committee aims to decide by consensus, but in the event of disagreement, the view of the President and Chief Executive Officer will prevail. The Management Committee generally meets on a weekly basis. The current members of the Management Committee, in addition to the President and Chief Executive Officer, are as follows: Name Scott ALCOTT
William MOSSERAY
42
Position Chief Operating Officer, Fixed Line Services Chief Executive Officer, International Carrier Services Chief Human Resources Officer Chief Executive Officer & Managing Director, Telindus Group Chief Executive Officer, Mobile Communications Services Chief Strategy Officer
Ray STEWART
57
Chief Financial Officer
Bridget P. COSGRAVE Astrid DE LATHAUWER Ronald EVERAERT Michel GEORGIS
Age 40 45 43 56 53
The realignment of the Belgacom Group Organisation in order to create an integrated broadband company results in a reassignment of responsibilities in the Management Committee. In December 2006, the Board of Directors approved the following changes: • Michel Georgis, in addition to his responsibility as CEO of Proximus, is appointed Executive Vice-President, Consumer Business Unit for both fixed and mobile communications. • Bridget Cosgrave is appointed Executive Vice-President, Enterprise Business Unit for both fixed and mobile communications, in addition to her responsibility as Chairman of International Carrier Services. • Ronald Everaert, as CEO of Telindus, will report to Bridget Cosgrave, and remains a member of the Management Committee. • Scott Alcott is appointed Executive Vice-President Network and IT and will be responsible for developing the technological blueprint for the integrated broadband company.
• Astrid De Lathauwer, Ray Stewart and William Mosseray remain in their current function. Mrs. De Lathauwer has also been appointed Change & Integration Leader and will manage the group’s transition towards an integrated broadband company. For members of the Belgacom Management Committee the policy is to have a termination indemnity that is capped at a maximum of two years of remuneration after 12 years of service. Two members of the Management Committee have deviating clauses because of historical reasons, whereby one member will be paid 30 months gross salary upon termination, and the other member’s contract has no specific clause, in which case Belgian law prevails. The members of the Belgacom Management Committee who are bound to a non-competition clause of 12 months prohibition to work for any other mobile or fixed licensed operator active on the Belgian market, will receive an amount equal to 6 months salary as compensation.
Executive Remuneration The Nomination & Remuneration Committee sets the remuneration policy and individual packages for the CEO and the members of the Management Committee. Belgacom has developed an executive remuneration policy which rewards executives competitively, taking into account Group, Line of Business and Individual performance. The company wants to position executive pay towards the median in the market for base salaries, and towards the upper quartile for total remuneration in case of sustained excellent performance. This positioning is verified on an annual basis by the Nomination & Remuneration Committee, by benchmarking executive pay against a set of peer companies in the ICT sector, both in Belgium and in Europe. The remuneration philosophy strives to align management and shareholders’interests. Short term employee benefits Base salaries of the CEO and the Management Committee are reviewed annually by the Nomination & Remuneration Committee, based on an extensive review of performance and potential assessment provided by the CEO, as well as external benchmarking data. The annual bonus scheme rewards performance against a set of predefined key performance indicators, which are set by the Board of Directors upon advice of the Nomination & Remuneration Committee. For 2006, these performance indicators included financial metrics as well as metrics related to new product introduction, customer satisfaction and employee commitment.
(Following on page 46)
Corporate governance · 43
Members of the Belgacom Management Committee Didier Bellens. Didier Bellens was appointed as President and Chief Executive Officer and Director of Belgacom in March 2003. Mr. Bellens started his career at Deloitte Haskin & Sells. He was financial director of the Groupe Bruxelles Lambert until 1985 before taking up the position of Deputy General Manager of the Pargesa Holding, responsible for management of holdings, mergers and acquisitions. In 1992 he returned to the Groupe Bruxelles Lambert as Managing Director, position that he occupied until 2000. In this capacity he was responsible for strategic participations in companies such as Royale Belge, BBL and CLT. He played an instrumental role in the merger of AXA with Royale Belge, the change in ownership of BBL and the merger of CLT and UFA. Between 2000 and 2003 he acted as Chief Executive Officer of RTL Group where he managed the company with an emphasis on international development. He concluded the merger with Pearson Television and the IPO of RTL Group. Didier Bellens is Chairman of the Board of Directors of BICS. He is member of the Board of Directors of Proximus, AXA Belgium, VOKA-Flanders’Chamber of Commerce and Industry, and the Foundation Erasme. He is member of the Management Committee of the FEB-Federation of Enterprises in Belgium. Previously, he served as member of the Board of Directors of, amongst others, IMERYS in Paris, the Banque Bruxelles Lambert, M6 in Paris and the Banque Internationale in Luxembourg. Mr. Bellens holds a degree in Economics and Business Administration from the University of Brussels (ULB). He is also advisor to CV Capital Partners. Scott Alcott. Scott Alcott is Chief Operating Officer of Belgacom’s Fixed Line Services since July 2004. Previously, Mr. Alcott had served as Belgacom’s Chief Strategy Officer, Chief Information and Technology
44 · Corporate governance
Officer and as General Manager of Marketing and Product Management and a Director of Skynet, and a director of Belgacom’s Multimedia Venture Capital Fund. In 1995, Mr. Alcott joined Ameritech (now SBC) as Director Marketing & Product Management – Long Distance Division, and later as Director New Product Development/Packaging. Mr. Alcott holds a B.S. in Economics from the Wharton School at the University of Pennsylvania. Bridget P. Cosgrave. Bridget P. Cosgrave has served as CEO and previously President of the International Carrier Services of Belgacom since 2001. On top of, since June 2006, Bridget is COO a.i. of Belgacom Fixed Line Services. She joined the Board of Directors of Belgacom Mobile in 2004. In 1996, she was elected and served her full term until 2001 as the Deputy Director General of the European Telecommunications Standards Institute (ETSI). From 1993 to 1996, Ms. Cosgrave was a Project Director at BT Plc. Ms. Cosgrave has a B.A. (Hons.) from Queen’s University at Kingston, Canada and an MBA from the London Business School. Astrid De Lathauwer. Astrid De Lathauwer has served as Chief Human Resources Officer for Belgacom since 2002. Ms. De Lathauwer joined Belgacom in 2000 and previously held the positions of Top Group Resources & Talent Director and HR Director of Belgacom. Prior to joining Belgacom, Ms. De Lathauwer worked in marketing and human resources with AT & T and Monsanto. Ms. De Lathauwer holds a degree in History of Art from the University of Ghent and a degree in International Politics and Diplomatic Sciences from the University of Leuven.
From left to right: William Mosseray, Didier Bellens, Ray Stewart, Michel Georgis, Astrid De Lathauwer, Bridget P. Cosgrave, Scott Alcott and Ronald Everaert.
Ronald Everaert(1). Ronald Everaert joined the board of directors of Telindus Group in 1994 and became Chairman in April 2002. On August 27, 2003 he accepted the responsibility as President and CEO of Telindus. Since February 2006 he is also member of Belgacom Management Committee. Until early 2003, Ronald Everaert held a position as President and CEO at Mercator NV, a leading financial and insurance company. Prior to that he was Managing Director at A. Johnson & Co NV, the Benelux daughter of a Swedish specialty steel manufacturer. He started his career as account-officer at the Chase Manhattan Bank. Ronald Everaert holds a Masters in Public Administration from Ghent University (B) as well as an MBA from the Vlerick Management School (B). He is a fellow of management programs at IFL (Stockholm), AIM (Switzerland) and North Western University (Chicago). He is also Honorary Chairman of VOKAChamber of Commerce of East Flanders and Boardmember of the Flemish Chinese Chamber of Commerce. Michel Georgis. Since May 2005, Michel Georgis occupies the post of CEO of Proximus. Prior to this position, he was Chief Operations Officer at Proximus, where he has been working since 2000. Mr Georgis started his career at Coca-Cola Belgium. In 1991 he joined Interbrew, where he filled different positions before becoming Sales & Marketing Director Central & Eastern Europe. Mr Georgis holds a Master’s degree in Applied Economics from the university of Leuven.
William Mosseray. William Mosseray was appointed Belgacom Chief Strategy Officer in July 2004, after having served as Chief Restructuring and Change Officer since 2002. Mr. Mosseray joined Belgacom in 1993 as Executive Advisor to the CEO, a position he occupied until 1996 when he left for the USA to join Ameritech, the leading telecom operator in the Midwest region and Belgacom’s main private shareholder. Mr. Mosseray returned to Belgacom in 1997 and successively served as General Manager for the Special Business Division, Head of Corporate Strategy & Development and Chief Human Resources Officer. He obtained a law degree from the KULeuven and a tax law degree from ICHEC. Mr. Mosseray also holds an MBA from the Vlerick Leuven Ghent Management School and recently completed the Stanford Executive Program at the Stanford Business School in California. Ray Stewart. Ray Stewart has served as the Chief Financial and Administration Officer of Belgacom since 1997. Mr. Stewart was employed by SBC, but became an employee of Belgacom on 1 April 2004. Prior to Belgacom, from 1994 until 1997 he was the Chief Financial Officer for Matav which is the incumbent Telephone Company for Hungary. From 1991 to 1994 he was the Chief Financial Officer for Ameritech International which was the International Business Development unit for Ameritech headquartered in Chicago. He has a Business Undergraduate degree in Accounting and a Masters of Business Administration in Finance. He is also a Certified Public Accountant.
(1) Since February 2006.
Corporate governance · 45
The amount of remuneration and other benefits granted directly or indirectly to the members of the Belgacom Management Committee, by Belgacom or by any other undertaking belonging to the Belgacom Group is: (Benefit based on gross or net remuneration, depending on the type of benefit, employer social contribution not included): (in EUR)
President and CEO
Other Members of the Management Committee
Short-term employee benefits (1)
1,406,211
4,107,664
(1) Basic annual salary + variable remuneration.
Board of Auditors The Board of Auditors of the company is composed of the following persons: • ERNST & YOUNG Réviseurs d’Entreprises S.C.C./Bedrijfsrevisoren B.C.V., represented by Marnix Van Dooren, also Chairman of the Board of Auditors; • Romain LESAGE, Member of the Court of Auditors, Commissaire; • Pierre RION, Member of the Court of Auditors, Commissaire; • CALLENS, GUEVAR, VAN IMPE & Co S.C.C./B.C.V., represented by Herman VAN IMPE.
Long term employee benefits Long term employee benefits consist of post-employment benefits and equity benefits. The members of the Management Committee participate in a complementary pension scheme. In 2006, the company contributed an amount of EUR 448,331 for the President and CEO, and an amount of EUR 854,127 for the other members of the Management Committee in insurance premiums for post-employment benefits.
Commissaire Ernst & Young is responsible for the audit of the consolidated financial statements of Belgacom and its subsidiaries. The other members of the Board of Auditors are, together with Ernst & Young, entrusted with the audit of the non-consolidated financial statements of the parent company. Mr. Lesage’s mandate will expire on 30 June 2008, the mandates of Mr. Rion, Ernst & Young, and Callens, Guévar, Van Impe & Co. will expire at the annual General Shareholders Meeting in 2010.
On an annual basis the members may also receive a stock option grant. On an individual basis, the Belgacom Management Committee received the following options:
Additional fees paid to the statutory auditors
(in options)
2006
Scott ALCOTT
17,494
Bridget P. COSGRAVE
31,409
Astrid DE LATHAUWER
23,316
Ronald EVERAERT
0
In accordance with the provisions of Article 134 § 2 of the Belgian Companies Code, Belgacom declares the supplementary fees that it granted during the 2006 financial year to two auditors, members of the Joint Auditors: Ernst & Young Réviseurs d’entreprises S.C.C. and Callens, Guevar, Van Impe & Co. S.C.C. The Group expensed during the year 2006 an amount of EUR 298,169 for non-mandate fees for Ernst & Young Réviseurs d’entreprises S.C.C, the Group’s auditors. This amount is detailed as follows:
Michel GEORGIS
17,249
(in EUR)
Auditor Network of auditor
William MOSSERAY
17,451
Other mandatory audit missions
91,341
54,044
Ray STEWART
31,867
Tax advice
4,375
26,661
Didier BELLENS
0(1)
Other missions
119,464
2,284
(1) Didier Bellens was granted 102,576 options in 2006 which he refused on the basis of a common agreement with the Board regarding equity ownership by the management.
Total
215,180
82,989
Grants vest over a period of 3 years in equal instalments, and are exercisable during a period of 7 years. One member of the the Management Committee exercised 26,000 options during 2006. On a cumulative basis, the President and CEO holds 248,969 options, and the other members of the Management Committee 586,787 options.
The Group also expensed during the year 2006 an amount of EUR 7,650 for non-mandate fees paid to Callens, Guevar, Van Impe & Co. S.C.C. This amount is detailed as follows: (in EUR) Other mandatory audit missions Tax advice
46 · Corporate governance
Auditor 5,350 0
Other missions
2,300
Total
7,650
Government Commissioner The State has appointed Mr. Roger De Borger as Government Commissioner in order to supervise, in conformity with the 1991 law, the management of Belgacom from an administrative point of view.
Departure from the Belgian Corporate Governance Code Belgacom complies with the principles and provisions of the Belgian Corporate Governance Code, except provisions 5.3/1, 5.4/1 and 8.9. Since provision 8.9 is not relevant to Belgacom, given its current shareholder structure, the Articles of Association do not provide for shareholders representing 5% of the capital to submit proposals to the Annual General Meeting. Under the Articles of Association, shareholders must represent at least one-fifth of the company’s share capital to be entitled to do so. Contrary to provisions 5.3/1 and 5.4/1, the Company has chosen to reflect also in the Nomination & Remuneration Committee the balance between the directors appointed by the Belgian State and the independent directors.
Compliance Role of Compliance at Belgacom In the context of an increasingly complex legal and regulatory environment, compliance plays an important role in the business world. The Belgacom Group Compliance Office is responsible for coordinating the compliance activities within the Belgacom Group, explaining the rules that apply, providing the requisite tools to encourage compliance by management and ensuring a consistent approach to compliance within the Group. All employees are expected to comply with the Code of Conduct and the various policies, which are updated at regular intervals. To raise awareness of compliance, a communication campaign was launched at the beginning of 2006 whereby all the Group’s employees received a copy of the Belgacom Code of Conduct. The Top Group Resources within the Group have all signed individual agreements to comply with the Code of Conduct. In addition to the existing helpdesk, a “Code Focus” was set up to enable employees to anonymously report any breaches of the law, the Code of Conduct or other regulations. Organization of compliance activities The Compliance Office is managed by the Head of Compliance Services, who reports directly to the Chairman of the Audit and Compliance Committee (ACC). The ACC Charter determines the ACC’s responsibility in helping and advising the Board of Directors with respect to monitoring Belgacom’s compliance with the legal and regulatory requirements, as well as internal compliance with the Code of Conduct.
The Group Compliance Council is a decision-making and advisory body for the Compliance Office at an operational level. The Council is chaired by the Head of Compliance Services, and is composed of compliance managers from the main subsidiaries and individuals exercising key positions within the Group. The Compliance Program Ten compliance domains form the pillars of the Belgacom Compliance Program: Code of Conduct Corporate governance Compliance with rules and regulations Accounting practice Risk management
Competition law Chinese walls Privacy The environment Dealing Code
These domains were determined on the basis of the company’s specific activities and operational environment, and are supported by a “domain owner”. In addition to these 10 domains, various policies and procedures have been drawn up in the different legal entities that relate to other subjects or explain component aspects in more detail. A compliance structure was developed not only at group level but also in each of the main subsidiaries, each of which is headed by a compliance manager. In consultation with the domain owners and within the framework specified by the Group Compliance Office, the compliance manager determines the specific compliance approach to be adopted within his/her subsidiary. A specific compliance plan, which is made up of five components (policy drafting, communication, training, internal control and processes, and reporting), is drawn up for each domain. In 2006, the Head of Compliance Services presented two reports to the Audit & Compliance Committee. Special attention was given to the Dealing Code (insider trading), dawn raid procedures and the Chinese Walls. It was decided to appoint a Chinese Wall IT Officer for the latter. A decision was also made to conduct, twice a year, as from 2007, a survey on compliance, covering a representative sample of employees and, in the process, gather information from the employees themselves. In addition to its coordination task, the Compliance Office is also responsible for making Belgacom Group employees aware of the necessity of being fully cognizant and complying with internal and external regulations. Several campaigns promoting compliance activities within the company have been organized to raise employee awareness in this area.
Corporate governance · 47
To remain a leading supplier of integrated solutions, the Belgacom Group strives to effectively combine its human and technological resources, with an eye to creating lasting shareholder value.
48
value
One shared ambition. Growing value.
Shareholder information Investor Relations The mission of the Investor Relations department (IR) is to provide Belgacom’s current and potential shareholders with the best possible communication. Through a transparent and consistent dialog with investors and financial analysts, the Group strives for a fair share value. As enhancement of its communication process, Belgacom reports as of 2006 on a quarterly basis, giving the market more frequently updates on facts and figures. The 2007 reporting dates are indicated in the financial calendar. An important objective of the IR department is to make Belgacom Group’s senior management accessible to the Belgian and international investment community. A primary goal is to ensure a two-way communication, where Belgacom’s management can clarify the company’s results, strategies and decisions, and where shareholders and analysts can voice the concerns and perceptions of the market.
49
Ownership on 31 December 2006 Belgian State 50% + 1 share Belgacom own shares 7.7% Free-Float 42.3%
>
On 11 November 2006, the Belgacom Group organized, for the first time, an Investor & Analyst Day. An occasion for investors and analysts to obtain a more detailed insight into different aspects of Belgacom. This event also gave those present an opportunity to talk in person to the Group’s senior management and a number of line managers. The day started with a presentation on the results of the third quarter 2006, followed by presentations on a wide range of subjects such as Strategy, Network, Mobile regulation, Fixed-Mobile Study, etc. Most of the presentations were given by line managers, in their respective areas of expertise. The full-day webcast of the event as well as slide shows of the presentations are available on the Belgacom Investor Relations website (http://www.belgacom.be/investor). Belgacom intends to organize a similar event every two years.
Twice a year, following the full-year and half-year results, Belgacom organizes a road show, covering the most important money centers of Europe and the United States. In between the road shows, a wide variety of investors and analysts had the opportunity to talk to senior management in one-on-one meetings or conference calls. In addition, Belgacom participated in three major international investment conferences. Belgacom also approaches retail shareholders by participating in the yearly VFB (Vlaamse Federatie van Beleggingsclubs en Beleggers) event. Institutional as well as retail shareholders can always count on the support of the Investor Relations team. The website (www.belgacom.be/ investor) is an integral part of the communication channel to the investment world. The “Investor Corner” contains printable versions of published reports, presentations and webcasts of conferences, scripts of conference calls and much more. Stock market: Ticker: ISIN: National SVM code: Bloomberg code: Reuters code:
First Market of Euronext Brussels BELG BE0003810273 3810.27 BELG BB BCOM
Share capital At the end of December 2006, the capital amounted to EUR 1 billion (fully paid up), represented by 361,775,135 shares, with no nominal value and all having the same rights, provided such rights are not suspended or cancelled. The share capital has not changed over the past five years.
Authorized Capital Under Belgian company law, Belgacom may increase or decrease its share capital by decision of the General Shareholders Meeting, taken with a majority of 75% of the votes cast, at a meeting where at least 50% of the share capital of the Company is present or represented. On 19 February 2004, the General Shareholders Meeting authorized the Board of Directors to increase the share capital, once or several
50 · Shareholder information
times, by an amount not exceeding EUR 200 million (Article 5 of the Belgacom Articles of Association). The authorization includes the power to issue convertible bonds and warrants. The consideration may take any form, including contributions in cash or in kind, incorporation of reserves or issue premiums. The authorization to the Board of Directors was granted for a renewable period of five years. When using its power to issue additional capital, the Board of Directors may, by a majority of two-thirds of the votes cast, restrict or withdraw the pre-emption rights of the existing shareholders. This may also be done to the benefit of one or more specific persons, whether or not such persons are employees of Belgacom or one of its subsidiaries. However, in the case of warrants, such a restriction or withdrawal may not be done primarily to benefit specific persons, other than employees of Belgacom or one of its subsidiaries. The Articles of Association have also explicitly granted the Board of Directors authority to proceed with a capital increase in any form, as well as power to withdraw or restrict the pre-emption rights of the existing shareholders in that regard in the event of a public tender offer for the securities of the company. Without such specific authorization in the Articles of Association, the powers granted to the Board of Directors to increase the capital would be suspended by law as soon as Belgacom received notice from the Banking, Finance and Insurance Commission of a public tender offer for the securities of the company. This specific authorization has been granted to the Board of Directors for a renewable period of three years, effective upon closing of the IPO (March 2004). The powers of authorized capital are limited by law in the case of a public tender offer: the issue is capped at ten percent of the shares in existence prior to the capital increase and the issue price may not be lower than the price of the tender offer. In addition, pursuant to the 1991 Law, all issues of shares, convertible bonds or warrants are subject to prior approval by the Belgian State (by Royal Decree deliberated in the Council of Ministers). No such issues may be made to persons other than public authorities if, as a result of the issue, the public authorities’ direct participation in the share capital at the time of the issue no longer exceeds 50% of the share capital.
>
Changes in the share capital and number of shares
Belgacom ownership structure Ownership
On 25 August 2006, the Belgacom Board of Directors approved a share buyback for a maximum amount of EUR 200 million, within the limitations decided at the General Meeting of 13 April 2005. Therefore, the share price could not be more than 5% above the highest closing price in the thirty-day trading period preceding the transaction, and not more than 10% below the lowest closing price in that same thirty-day period. The buyback started on 28 August 2006 and was completed on 11 October 2006. In total, 6,782,656 shares were bought back at an average rounded price per share of EUR 29.49. In the course of 2006, 138,549 treasury shares were used in a Discount Share Purchase Plan for Belgacom management. In addition 211,015 options were exercised during 2006. This brings the total number of treasury shares at the end of 2006 to 27,813,657, which represents 7.7% of the total shares. Under Belgian law, companies are prohibited from owning more than 10% of their outstanding share capital.
Treasury shares evolution Status 31 December 2005 Options exercised during 2006 Discount Purchase Plan employees
Institutional as well as retail shareholders can always count on the support of the Investor Relations team. The website (www.belgacom.be/investor) is an integral part of the communication channel to the investment world.
21,380,565 -211,015
Belgacom ownership Belgian State Belgacom own shares Free-Float Total
Shares
% total shares
% voting rights
% dividend rights
180,887,569
50.0%
54.2%
52.5%
27,813,657
7.7%
0.0%
3.1%
153,073,909
42.3%
45.8%
44.4%
361,775,135
100.0%
100.0%
100.0%
Effective or potential voting rights End 2004 End 2005 End 2006 Number of outstanding shares (effective voting rights attached to 350,699,171 340,394,570 333,961,478 shares representing the capital) Future, potential or not, voting rights resulting from rights and commitments at the conversion into or the subscription for shares to be issued 1,128,500 1,476,492 1,867,222 - Options Total shares with effective or 351,827,671 341,871,062 335,828,700 potential voting rights
-138,549
Shares bought back in 2006
6,782,656
Status 31 December 2006
27,813,657
The voting rights of the treasury shares are suspended by law. The dividend rights of the treasury shares acquired in 2004 are also suspended, whereas the dividend rights for shares acquired in 2005 and 2006 are cancelled.
Shareholder information 路 51
Belgacom share compared to BEL20 index and Euro STOXX Volume (in thousands)
Price (in EUR)
4,500
34
4,000 3,500
31
3,000 2,500 28 2,000 1,500 25
1,000 500 0
03/01
22
23/02
19/04
09/06
01/08
21/09
11/11
30/12
Belgacom share price Bel 20 - restated Stoxx Telco - restated Belgacom share volume Source: Bloomberg
Share price evolution Although the Belgacom share was under considerable pressure during the first half of 2006, it won back ground during the second half of 2006 and outperformed the DJ STOXX Telecommunications index. The Belgacom share price took a serious hit after the January analyst dinner in London, at which Belgacom reminded the analysts of Belgacom TV’s impact on the Fixed line services result. Analyst models were adapted, expectations lowered. On 24 February 2006, Belgacom announces its 2005 full year result together with the 2006 guidance, which reflected the expected fierce competition in the Belgian telecom market in the course of 2006. This kept the share price under pressure although the market got somewhat reassured during the roadshow which took place early March. In April, the share price ran up for the expected dividend over the 2005 result. The Belgacom share went ex-dividend on 18 April 2006. After a short uplift in April following speculation on a deal with Vodafone, the share price sank further reaching its 2006 year low on 31 May with EUR 24.6. End of August 2006, Belgacom announced better than expected 2006 half-year results and was even able to raise somewhat the guidance for its Mobile business. In addition, Belgacom announced a EUR 200 million share buyback, an interim dividend of EUR 100 million and the agreement with Vodafone to buy their minority stake in Proximus. The market viewed this as positive, resulting in a steadily growing share price. The share price, which was already supported by the share buyback, increased further on the back of Belgacom’s third quarter results announced on 10 November 2006. Not only were these better than expected by the market, Belgacom also raised its full year guidance for both Fixed Line and Mobile Communication Services.
52 · Shareholder information
The share price reached its 2006 high on 18 December with EUR 33.8 per share. On the last trading day of 2006, the Belgacom share closed at EUR 33.37, which means a year-over-year gain of 21%.
Belgacom share information The Belgacom share has been listed in a total of 53 indexes, including BEL20 and the major European/telecom indexes. The table below shows the main indicators on the Belgacom share performance. 2004
Closing prices (in EUR) Closing price last trading day of year Year high Year low Annual trading volume (number of shares) Average trading volume per day (number of shares) Market Capitalization 31 Dec. (in EUR billion)
2005
2006
(22 March - 31 Dec)
(1 Jan - 31 Dec)
(1 Jan - 31 Dec)
31.80
27.55
33.37
32.49
33.62
33.80
24.34
26.94
24.60
191,111,739 217,819,245
241,516,832
941,437
847,546
947,125
11.15
9.38
11.14
2.57
2.78
2.87
1.38
1.52
1.60
0.55
-
-
-
-
0.29
12.36
9.93
11.62
Key figures Earnings per share (in EUR) Ordinary dividend per share, gross (in EUR) Extra-ordinary dividend per share, gross (in EUR) Interim dividend per share, gross (in EUR) Price/Earnings ratio 31 December
EUR 1.60 Normal dividend per share in 2006
Dividend per share (in EUR) 2.5 2.0
0.55
1.5
0.29 1.52
1.60
1.38
1.0
Normal dividend Extra dividend Interim dividend
0.5 0
04
05
06
Shareholder remuneration Return to shareholders A share buyback, approved by the Board of Directors on 25 August 2006 for a maximum amount of EUR 200 million, started on 28 August 2006 and was completed on 11 October 2006. In total, 6,782,656 shares were bought back for a total amount of EUR 200 million at a rounded average price of EUR 29.49 per share. The share buyback brings the own shares to 7.7% of the total shares. In addition to the share buyback, the Board of Directors approved on 25 August 2006 an interim dividend of EUR 100 million or EUR 0.29 gross per share. The interim dividend was paid on 6 December 2006. The Board of Directors decided on 1 March 2007 to propose to the Annual Shareholder meeting of 11 April 2007 an ordinary dividend of EUR 552 million (EUR 1.60 dividend per share), on top of the interim dividend paid in December 2006.
Dividend policy There are no changes in the dividend policy whereby Belgacom intends to declare and distribute an annual dividend of 50% to 60% of its annual net income. This amount may be adjusted to reflect one-time gains or losses, and the amount of dividends declared may vary from year to year. In determining the amount of any annual dividends to propose to the shareholders, the Board of Directors will take into account the dividend payment practices of other European telecommunications operators. The amount of any annual dividends and the determination of whether to pay dividends in any year may be affected by a number of factors, including the Group’s business prospects, cash requirements, financial performance, the condition of the market and the general economic climate, and other factors, including tax and other regulatory considerations.
Financial calendar 11 April 2007
Annual General Shareholder meeting
18 May 2007
Announcement of first quarter results 2007
24 August 2007 9 November 2007
Announcement of half-year results 2007 Announcement of third quarter results 2007
Shareholder information · 53
54
financial report 56 >
Key ďŹ gures
57 >
Management report
73 >
Consolidated ďŹ nancial statements
112 >
Report of the auditor
113 >
Extract from the Belgian GAAP non-consolidated ďŹ nancial statements of Belgacom SA under public law
55
> key figures
Year ended 31 December
2004
2005
2006
Income Statement (in EUR million) Total revenue before non-recurring items Non-recurring revenue Total revenue EBITDA (1) before non-recurring items EBITDA (1) Depreciation and amortization Operating income (EBIT) Net finance revenue (costs) Income before taxes Tax expense Minority interests Net income (Group share)
5,540 0 5,540 2,394 2,353 -742 1,611 -27 1,584 -508 152 922
5,458 238 5,696 2,214 2,098 -726 1,372 64 1,436 -339 139 959
6,100 0 6,100 2,149 2,149 -802 1,347 104 1,451 -358 121 973
Year ended 31 December
2004
2005
2006
Cash Flow and Capital Expenditures (in EUR million) Cash flows from operating activities Capital expenditures Cash flows generated by / (used in) other investing activities Free cash flow (2) Cash flows used in financing activities Net increase / (decrease) of cash and cash equivalents
1,899 -556 78 1,421 -1,658 -237
1,883 -696 389 1,575 -1,102 473
1,643 -676 -2,279 -1,313 751 -562
As of 31 December
2004
2005
2006
Balance sheet (in EUR million) Balance sheet total Non-current assets Investments, cash and cash equivalents Shareholders’ equity Minority interests Liabilities for pensions, other post-employment benefits and termination benefits Net financial position
5,368 3,963 406 2,223 407 760 110
5,831 3,808 884 2,221 370 1,010 534
7,300 5,504 327 2,391 8 886 -1,636
Year ended 31 December
2004
2005
2006
2.57 2.57 1.38 0.55 358,612,854
2.78 2.77 1.52 0.00 345,406,186
2.87 2.87 1.60 0.29 338,621,113
2004
2005
2006
16,933 17,108 323,847 323,847 139,945 137,549
16,335 16,388 333,034 347,577 135,103 128,010
18,180 18,163 335,869 335,869 118,294 118,294
Data per share Basic earnings per share (EUR) Diluted earnings per share (EUR) Dividend per share, gross (in EUR) (3) Interim/special dividend per share, gross (in EUR) Weighted average number of ordinary shares Year ended 31 December Data on employees Number of employees (full-time equivalents) (4) Average number of employees over the period Total revenue before non-recurring items per employee (EUR) Total revenue per employee (EUR) EBITDA (1) before non-recurring items per employee (EUR) EBITDA (1) per employee (EUR) (1) Earnings Before Interests, Taxes, Depreciation and Amortization. (2) Cash flow before financing activities. (3) 2006 dividend to be approved by the Annual General Shareholder meeting. (4) 2006: Including 2,753 Telindus employees
56 · Belgacom annual report 2006
> management report
contents 58 >
Comments on consolidated figures
67 >
58 > Income statement
Quarterly results 67 > Belgacom Group Financials
58 > Revenue per business segment
68 > Fixed line Services – financials
58 > Operating expenses before depreciation and amortization
69 > Fixed line Services – operationals 70 > Mobile communications services – financials
59 > Operating income before depreciation and amortization (EBITDA)
70 > Mobile communications services – operationals 71 > International carrier services - financials
60 > Operating income (EBIT)
71 > International carrier services – operationals
60 > Net finance revenue/cost 60 > Tax expense 60 > Minority interest 60 > Net income (Group share) 60 > Balance sheet 61 > Liquidity and capital resources 61 > Cash Flow 61 > Capital expenditures
72 >
Other information 72 > Rights, commitments and contingencies as of 31 December 2006 72 > Use of financial instruments 72 > Research and development activities 72 > Treasury shares 72 > Major risks and uncertainties 72 > Post-balance sheet events
61 > Capital resources 62 >
Comments on business segment figures 62 > Fixed Line Services (FLS) 64 > Mobile Communications Services (MCS) 66 > International Carrier Services (ICS)
Management Report · 57
> comments on consolidated figures
Income statement Total revenue of the Belgacom Group increased 7.1% year-over-year to EUR 6,100 million. Excluding non-recurring revenue, and adjusted for the contribution of entities disposed of in 2005 and new entities acquired in 2006, the Group’s revenue decreased 0.9% (EUR 51 million) to EUR 5,399 million.
The Group’s operating income before depreciation and amortization increased 2.4% to EUR 2,149 million. However, excluding non-recurring items (1) recorded in 2005, and adjusted for the contribution of 2006 new entities, the Group EBITDA decreased 4.0% (EUR 88 million) to EUR 2,121 million.
Revenue per business segment Year ended 31 December
2004 (in EUR million)
2005 (%)
(in EUR million)
2006 (%)
(in EUR million)
(%)
Variance 2006 versus 2005 (%)
Fixed Line Services
3,092
56
2,961
54
3,630
59
22.6
Mobile Communications Services
2,239
40
2,181
40
2,136
35
-2.0
645
12
713
13
736
12
3.2
-435
-8
-396
-7
-401
-7
1.1
5,540
100
5,458
100
6,100
100
11.8
International Carrier Services Intersegment eliminations Total Non-recurring revenue Total
0
238
0
5,540
5,696
6,100
Fixed Line Services revenue increased 22.6%. 2005 however includes revenues from disposed companies, whereas the revenue of 2006 includes the revenue contribution of Telindus Group. When adjusted for these disposed companies in 2005 and the revenue contribution of Telindus in 2006, the FLS revenue decreased 0.8%. The revenue was mainly impacted by a decline in traditional voice services, partially offset by the growth in broadband and national wholesale products. Mobile Communications Services total revenue evolution was impacted by new, cheaper pricing plans, but the decrease was limited to 2.0%. Net
7.1
Service revenue declined 2.2%, mainly driven by higher credits and discounts granted within the framework of the Market Share Leadership Program, which resulted in positive customer indicators such as a net increase of customers, a higher percentage of active customers and a reduced churn rate. International Carrier Services revenue increased 3.2%. This is the result of a significant volume increase following the joint venture with Swisscom Fixnet AG and the outsourcing deal with MTN, effective since July 2005 and February 2006 respectively.
Operating expenses before depreciation and amortization Year ended 31 December (in EUR million)
2004
2005
2006
Variance 2006 versus 2005
Costs of materials and charges to revenue
28.9%
1,461
1,555
2,005
Personnel expenses and pensions
993
957
1,106
15.5%
Other operating expenses
693
731
841
15.0%
3,146
3,244
3,952
21.8%
Total Non-recurring expenses Total
41
355
0
-
3,187
3,598
3,952
9.8%
(1) In the first half of 2005, a non-recurring revenue of EUR 238 million was booked related to the gain on the disposal of shares in Belgacom Directory Services SA. In the second half of 2005 a non-recurring expense of EUR 355 million was booked related to the termination benefits and other related costs in the frame of the collective agreement in respect of the work organisation.
58 · Belgacom annual report 2006
Costs of materials and charges to revenue Costs of materials and charges to revenue increased 28.9% (EUR 450 million), including the significant contribution of new entities acquired in 2006. Adjusted for the contribution of entities disposed of in 2005 and new entities acquired in 2006, the costs of materials increased 1.9% or EUR 30 million. This increase was partly driven by the costs related to the revenue growth in the International Carrier Services segment. In the Mobile segment, higher interconnection and commission expenses were offset by lower roaming-out and handset costs, while within the Fixed Line segment, costs of materials and charges to revenue increased despite the revenue decline, due to the product mix evolution (growth of transit traffic within National Wholesale, additional costs related to Belgacom TV, etc.). Personnel expenses and pensions Year ended 31 December (in EUR million)
2004
2005
2006
Salaries and wages
746
717
832
Social security expenses
163
163
194
Pension costs
17
16
19
Post-employment benefits other than pensions and termination benefits
39
40
31
Other personnel expenses
27
21
29
993
957
1,106
16,933
16,335
18,180
Total Number of employees at year end (full-time equivalents) (1)
Overall personnel expenses and pensions increased in 2006 by EUR 149 million or 15.5%. However, this increase was mainly driven by the acquisition of Telindus, employing 2,753 full-time equivalents at the end of 2006. On the other hand, 908 full-time equivalents left Belgacom in the course of 2006 within the framework of restructuring programs (564 full-time equivalents, mainly linked to BeST and the 2005 labor agreement) and natural attrition (344 full-time equivalents). Adjusted for the contribution of entities disposed of in 2005 and new entities acquired in 2006, personnel expenses and pensions decreased 2.9% (EUR 28 million). Other operating expenses Other operating expenses increased by 15.0% (EUR 110 million). When adjusted for the disposal of consolidated companies and the contribution of new entities acquired in 2006, other operating expenses increased 4.7% or EUR 35 million. The major driver of this increase is the cost related to the further development of Belgacom TV in 2006.
(1) Number of full-time equivalents, calculated on the basis of the consolidation percentage of subsidiaries owned less than 100%.
Operating income before depreciation and amortization (EBITDA) Year ended 31 December
2004
2005
(in EUR million)
(%)
Fixed Line Services
1,257
Mobile Communications Services
1,135
International Carrier Services Intersegment eliminations Total Non-recurring revenue Non-recurring expenses Total
2006
(in EUR million)
(%)
53
1,147
47
1,041
2
0
0
0
2,394
100
Variance 2006 versus 2005 (%)
(in EUR million)
(%)
52
1,116
52
-2.7
47
1,000
47
-3.9
27
1
33
2
23.1
-1
0
0
0
-16.2
2,214
100
2,149
100
-3.0
0
238
0
-41
-355
0
-100.0
2,353
2,098
2,149
2.4
Management Report · 59
The EBITDA of Fixed Line Services, excluding non-recurring items, decreased 2.7% compared to 2005. When adjusted for the disposal of consolidated companies and the contribution of new entities, the FLS EBITDA decreased 4.7%. Mobile Communications Services EBITDA decreased 3.9% year-overyear, driven by higher credits and discounts granted to customers, partly compensated by strict cost control through operational excellence. International Carrier Services EBITDA increased by EUR 6 million yearover-year as a consequence of increased volume and cost synergies resulting from the joint venture with Swisscom, combined with a better transit margin.
Operating income (EBIT) The operating income of the group decreased 1.8% to EUR 1,347 million, driven by the EBITDA evolution. When excluding non-recurring items, the Group operating income decreased 9.5% (EUR 141 million).
Net finance revenue/cost The improvement of the net finance revenue from EUR 64 million in 2005 to EUR 104 million in 2006 is the result of the increase of gains realized on the disposal of associates and other participating interests. Indeed, in 2005 Belgacom disposed of its interests in satellite companies and its minority stake in Alert Services Holding following the exercise of its put option, resulting in a total gain of EUR 62 million. In 2006, gains on disposal amounted to EUR 122 million, including a gain of EUR 118 million on the disposal of Neuf Cégétel shares.
Tax expense The effective tax rate of the years 2005 and 2006, 23.57% and 24.65% respectively, is lower than the tax rate applicable in Belgium, 33.99%, due to non-taxable income from the disposals of consolidated and nonconsolidated companies.
Minority interest The Group’s main minority interest was Vodafone’s 25% stake in Belgacom Mobile, until this interest was acquired early November 2006.
Net income (Group share) Net income (Group share) increased from EUR 959 million in 2005 to EUR 973 million in 2006, favorably impacted by a positive evolution of the financial result and lower minority interests in 2006.
Balance sheet The acquisition of Telindus Group and the Vodafone share in Belgacom Mobile in 2006 have had a significant influence on the evolution of the Group’s balance sheet. Goodwill was recognized on the 2006 balance sheet primarily due to the above mentioned acquisitions. Intangible assets and property, plant and equipment are the Group’s main assets. Year-over-year, despite the acquisition of Telindus Group, intan-
60 · Belgacom annual report 2006
gible assets are decreasing, and property, plant and equipment are increasing very slightly due to depreciation and amortization being higher than capital expenditures. In 2005 and 2006, the capital expenditures principally concerned investments in the “Broadway project” (infrastructure enabling VDSL services to be offered), Belgacom TV and the 3G mobile network. The increase in intangible assets for 2005 was due to the acquisition of Belgacom TV broadcasting rights, including the soccer rights from the Belgian Football League. Deferred income tax assets relate mainly to tax losses carried forward that Belgacom SA has accumulated, amongst others, as a result of the non-recurring expenses related to the BeST restructuring program launched in 2002, the transfer of the pension obligations for statutory employees in 2003 and the provision recorded in 2005 resulting from the collective agreement in respect of the work organization. Based on Belgacom’s current business plan, such tax losses will be utilized during the coming years. Trade receivables increased significantly in 2006 due to the acquisition of Telindus Group. Year-over-year, the evolution of cash and cash equivalents results from a different evolution of the cash provided by operating activities and the cash used for investing and financing activities. In 2006, the Group realized significant acquisitions only partly financed through debt. This evolution is presented in the consolidated cash flow statement of the consolidated financial statements. Shareholders’ equity increased in 2006 primarily due to net income being higher than decreases resulting from the dividends payments and the share buy-back. The decrease of minority interests is a result of the acquisition of Vodafone’s shares in Belgacom Mobile. These impacts are presented in the consolidated statement of changes in equity of the consolidated financial statements. In order to finance the purchase of Vodafone’s 25% stake in Belgacom Mobile for an amount of EUR 2 billion, Belgacom issued a EUR 1,650 million bond. In 2004 and 2006, the liability for pensions, other post-retirement benefits and termination benefits decreased, due to the fact that payments exceeded the costs incurred for the year. This liability increased in 2005 following the establishment of a liability to cover the commitments made by the Group in a collective agreement which far exceeded the pension payments, other postemployment benefits and termination benefits for the year. Trade payables increased in 2005 principally due to the acquisition of soccer and broadcasting rights, with an installment schedule extending beyond one year. The increase of trade payables in 2006 resulted from the acquisition of Telindus Group.
Liquidity and capital resources Cash Flow As of 31 December (in EUR million)
2004
2005
2006
Cash flows from operating activities
1,899
1,883
1,643
-556
-696
-676
78
389
-2,279
Capital expenditures Cash flows from/(used in) other investing activities Cash flow before financing activities or “Free cash flow” Cash flows used in financing activities Net increase/(decrease) of cash and cash equivalents
1,421
1,575
-1,313
-1,658
-1,102
751
-237
473
-562
Cash inflows from operating activities generated in 2006 (EUR 1,643 million) were lower than in the previous year (EUR 1,883 million) as a result of a lower EBITDA and the acquisition in 2005 of Belgacom TV broadcasting rights, including Belgian soccer rights, payable in three years. Exceptionally in 2006, the cash inflows were not sufficient to finance the other investing activities of the year as the Group made some significant acquisitions: Telindus Group for EUR 584 million and Vodafone’s share in Belgacom Mobile for EUR 2 billion. Cash received from the disposal of consolidated and other participating interests decreased from EUR 373 million in 2005 to EUR 272 million in 2006. The Group financed the 2006 net cash needs by decreasing the net cash position and by issuing a EUR 1,650 million bond.
Capital expenditures Year ended 31 December
2004 (in EUR million)
2005 (%)
(in EUR million)
2006 (%)
(in EUR million)
(%)
Variance 2006 versus 2005 (%) -8.2
Fixed Line Services
338
61
488
70
448
66
Mobile Communications Services
205
37
195
28
214
32
9.4
13
2
19
3
15
2
-22.1
International Carrier Services (1) Intersegment eliminations (1) Total
0
0
-6
-1
0
0
-100.0
556
100
696
100
676
100
-2.9
(1) 2005 includes IRU - Irrevocable right of use of the Belgacom network.
The 2006 capital expenditures of Fixed Line Services decreased 8.2% year-over-year (EUR 40 million) as 2005 was highly impacted by the acquisition of Belgacom TV broadcasting rights, including Belgian soccer rights. Capital expenditures in 2006 include EUR 99 million investment related to Belgacom TV, EUR 33.5 million capital expenditure for Telindus and EUR 103 million for Broadway investments. Mobile Communications Services capital expenditures grew 9.4% yearover-year (EUR 18 million), mainly driven by higher 3G-related investments to increase the population coverage (a total investment of EUR 79.5 million in 2006). International Carrier Services capital expenditures decreased year-overyear by EUR 4.2 million. However, the 2005 capital expenditures were impacted by the right to use the Belgacom network (IRU) after the transfer of ICS activities to the subsidiary Belgacom International Carrier Services. Excluding the IRU of EUR 6.2 million, capital expenditures increased EUR 2.0 million to EUR 15 million, mainly driven by new network investments.
Capital resources As a rule, the Group mainly finances its development with the cash flows from its operations. The Group also has a USD 2.5 billion Euro Medium Term Note (“EMTN”) program and a EUR 1 billion Commercial Paper (“CP”) program. At 31 December 2006, there was an outstanding balance of EUR 1,650 million under the EMTN program, corresponding to the unsubordinated debentures newly issued in 2006 to finance the acquisition of minority interests in Belgacom Mobile, with an average remaining maturity of 7 years. At 31 December 2006, there was no outstanding balance under the CP Program. The Group is also backed by long-term credit facilities of EUR 586 million and short-term credit facilities of EUR 518 million. These facilities are provided by a diversified group of banks. At 31 December 2006, there was no outstanding balance under the longterm facilities and an outstanding balance of EUR 43 million under the short-term facilities.
Management Report · 61
> comments on business segment figures
Fixed Line Services (FLS)
Year ended 31 December Year ended 31 December
2005
2006
(in EUR million)
Variance (%)
Variance
(in EUR million)
2005
2006
Variance 2,951
2,912
-1.3
-38
Total segment revenue
2,961
3,630
22.6%
Voice Access
781
739
-5.3
-42
75.7%
Voice Traffic
717
659
-8.0
-58
FLS Core Costs of materials and charges to revenue
-591
-1,038
Personnel expenses and pensions
-788
-938
19.0%
Internet
429
464
8.3
35
Other operating expenses
-435
-538
23.7%
Data
215
203
-5.7
-12 -12
-1,814
-2,514
38.6%
Total operating expenses before depreciation and amortization Total segment result (1) Segment result margin
1,147
1,116
-2.7%
38.7%
30.7%
-8.0 p.p.
Non-recurring revenue
238
0
Non-recurring expense
-355
0
1,031
1,116
8.3%
-492
-568
15.5%
538
547
1.7%
Operating income before depreciation and amortization Depreciation and amortization Operating income
(1) Operating income before depreciation and amortization and before non-recurring revenue and expenses.
FLS Core
Belgacom TV
Telindus
FLS Total
Total Revenue
2,912
15
702
3,630
Operating Expenses before depreciation and amortization
-1,786
-53
-675
-2,514
1,127
-38
27
1,116
38.7
-
3.9
30.7
EBITDA EBITDA margin (in %)
62 · Belgacom annual report 2006
161
148
-7.6
Other retail (1)
244
239
-2.2
-5
National Wholesale
390
449
15.3
60
15
11
-27.7
-4
Disposed companies
Others
8
0
-
-8
Telindus
0
702
-
702
Belgacom TV
2
15
-
13
2,961
3,630
22.6
669
Total revenue before non-recurring items (2)
(1) Other retail mainly includes revenues from international activities and fixed business subsidiaries. (2) Some minor product definitions were changed in 2005. Figures of the previous year have been restated accordingly.
Segment revenue
Year ended 31 December 2006 (in EUR million)
Terminals
Total FLS revenue before non-recurring items increased 22.6% year-overyear (EUR 669 million). However, this includes the contribution of Telindus acquired in January 2006. The Telindus Group revenue contribution amounted to EUR 702 million, which represents 19.3% of the total FLS revenue. When adjusted for the disposal of consolidated companies in 2005 and the contribution of new entities in 2006, FLS revenue decreased 0.8% (EUR 27 million). The FLS core revenue decrease was limited to 1.3% (EUR 38 million). Although traditional fixed voice access and traffic services continued to be impacted by competitive pressure and substitution, the year-over-year revenue decline was reduced from 7.3% last year to 6.6% in 2006 thanks to the launch mid-2005 of flat rates and unlimited calling offers. Internet revenues (dial-up and broadband access and connectivity) grew 8.3% year-over-year, primarily as a result of the broadband retail line increase which showed a growth of 150,618 lines in 2006. On the data revenue side, the 5.7% year-over-year decline was mainly driven by the decrease of leased line revenue due to the switch to DSLsolutions. National Wholesale revenue increased 15.3% year-over-year thanks to the growth of carrier broadband lines as well as increased transit traffic. The decrease in Other revenue was mainly driven by declining satellite activities.
Total access channels (in thousands)
Total retail and wholesale ADSL access channels (in thousands) (1)
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Operating expenses before depreciation and amortization Adjusted for the contribution of new entities acquired in 2006, FLS operating expenses before depreciation and amortization increased 1.6% yearover-year (EUR 29 million). Despite the revenue decline, the costs of materials and charges to revenue grew due to the product mix evolution (transit traffic growth within National Wholesale, additional costs related to Belgacom TV, etc.). As regards the other costs, the reduction of personnel expenses and pensions (EUR 26 million, positively influenced by headcount reductions but negatively impacted by the annual increases in salary levels) was offset by increasing other operating expenses (EUR 28 million, mainly costs related to the further development of Belgacom TV in 2006).
Operating income before depreciation and amortization (EBITDA) Total FLS EBITDA increased 8.3% year-over-year to EUR 1,116 million. Excluding non-recurring items recorded in 2005, and adjusted for the disposal of consolidated companies and new entities acquired in 2006, FLS EBITDA decreased 4.7% (EUR 54 million). With 38.7%, the EBITDA margin of FLS’ core business was kept stable compared to the 38.7% margin of 2005. Although the number of Belgacom TV customers by the end of 2006 was far above expectations, Belgacom managed to keep costs under control. During 2006, Belgacom TV had a dilutive impact of EUR 38 million on the FLS EBITDA, fully in line with the higher end of the range given as guidance to the market. Telindus contributed EUR 27 million to the FLS EBITDA, with a yearly EBITDA margin of 3.9%.
Operating income (EBIT)
rate plans, including ‘free’ calling during off-peak hours. The traffic ARPU year-over-year decrease slowed down over the last two quarters. During 2006, FLS signed up 139,665 Belgacom TV customers with an ARPU of EUR 12 over the full year. Thanks to an increasing paying customer base and the usage of ‘on demand’ services, the ARPU increased from EUR 11.9 in the first quarter of 2006 to EUR 12.6 in the last quarter. Year ended 31 December
2005
2006
Variance
PSTN
3,064
2,920
-4.7%
ISDN
370
360
-2.7%
ADSL, VDSL
852
985
15.6%
4,287
4,265
-0.5%
Number of access channels (in thousands) Residential
Total Business PSTN
254
247
-2.7%
ISDN
585
584
-0.2%
ADSL, VDSL
125
142
14.1%
Total
964
973
1.0%
4,949
5,374
8.6%
803
778
-3.2%
Traffic (in millions of minutes) Residential National Fixed to Mobile International Total
FLS operating income increased 1.7% year-over-year to EUR 547 million. Excluding non-recurring items recorded in 2005, and adjusted for the disposal of consolidated companies and new entities acquired in 2006, the FLS EBIT decreased 11.2% (EUR 73 million). In addition to the EBITDA decline as compared with 2005, the adjusted depreciation increased 4%, mainly driven by the amortization of soccer and other broadcasting rights acquired for Belgacom TV since July 2005.
Business
Operationals Flat rate plans for voice traffic launched mid-2005 enabled FLS to increase its voice traffic market share on the Belgacom network by 4.6 p.p. in 2006, a higher growth than the gain of 3.5 p.p. in 2005. However, despite the success of flat-rate offers, yearly voice access line loss increased compared to last year. In 2006, Belgacom lost 162,931 lines compared to 149,888 equivalent lines in 2005. The line losses mostly affected the residential segment. Voice access ARPU decreased 1.6% to EUR 14.2, driven by periodical customer promotions and changes in the product mix, while the traffic ARPU year-over-year showed a 4.2% decline, mainly as a result of the new
National Fixed to Mobile International
352
344
-2.3%
6,105
6,496
6.4%
1,966
1,801
-8.4%
505
484
-4.2%
397
369
-7.0%
2,868
2,654
-7.5%
ARPU Voice Access (1)
14.5
14.2
-1.6%
ARPU Voice Traffic (2)
13.5
13.0
-4.2%
ARPU ADSL Residential (3)
32.7
31.6
-3.6%
-
12.0
-
Total ARPU (in EUR)
ARPU Net Belgacom TV (4)
(1) ARPU Voice Access is equal to total voice access revenue, excluding activation revenue, divided by the average voice access channels for the period considered, divided by the number of months in that same period. (2) ARPU Voice Traffic is equal to total voice traffic revenue, excluding payphone traffic revenue, divided by the average voice access channels for the period considered, divided by the number of months in that same period. (3) ARPU ADSL Residential is equal to total ADSL revenue divided by the average number of ADSL lines for the period considered, divided by the number of months in that same period, for the residential segment. (4) Net ARPU Belgacom TV includes only customer-related revenue and takes into account promotional offers.
Management Report · 63
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Mobile Communications Services (MCS) Year ended 31 December (in EUR million)
2005
2006
Variance
Total segment revenue
2,181
2,136
-2.0%
Costs of materials and charges to revenue
-688
-683
-0.6%
Personnel expenses and pensions
-149
-147
-0.9%
Other operating expenses
-304
-305
0.6%
-1,140
-1,136
-0.3%
Total operating expenses before depreciation and amortization (1)
1,041
1,000
-3.9%
47.7%
46.8%
-0.9 p.p.
Depreciation and amortization
-214
-214
-0.1%
Operating income
827
786
-4.9%
Total segment result Segment result margin
Year ended 31 December
2006
1,839 364 2,203
Variance (%)
Variance
1,786
-2.9%
-53
406
11.7%
42
2,192
-0.5%
-11
(in EUR million)
Voice services (1) Data services (1) Total Service revenue Credits and discounts
-126
-162
-27.9%
-35
Net Service revenue
2,077
2,030
-2.2%
-46
Handsets
87
86
-1.6%
-1
Other revenue
17
20
17.2%
3
Total revenue
2,181
2,136
-2.0%
-44
(1) Including roaming-in.
With EUR 2,136 million, the year-over-year decrease of MCS’ total revenue was limited to 2.0%, in line with the full year guidance. Total service revenue decreased only slightly year-over-year thanks to the growing data services revenue, driven by higher advanced data revenue. In 2006, data, including advanced data services, represented 20.0% of the Net Service revenue, 2.5 p.p. ahead compared to last year. Voice services revenue decreased 2.9% year-over-year, mainly explained by lower access revenue due to the shift to new bundled pricing plans, lower roaming-in revenue and the impact of lower termination rates as of November. The additional negative impact of credits and discounts granted in 2006 in the framework of the Market Share Leadership Program, led to a Net Service revenue decline of 2.2%. Handset revenue slightly declined compared to 2005 as the higher prices for 3G-related handsets did not fully offset the lower volumes.
Operating expenses before depreciation and amortization
(1) Operating income before depreciation and amortization.
2005
Segment revenue
MCS operating expenses before depreciation and amortization decreased 0.3% year-over-year. Within the section “cost of materials and charges to revenue”, higher interconnection and commission costs were offset by lower roaming-out and handset costs. Despite increases related to the Universal Service Obligation contribution and higher external fees, the overall level of costs was contained thanks to the operational excellence program.
Operating income before depreciation and amortization (EBITDA) MCS EBITDA decreased 3.9% year-over-year (EUR 41 million), mainly caused by the revenue decline. Thanks to efficient cost control, Proximus limited the year-over-year EBITDA margin decline to under 1 p.p., i.e. 46.8%.
Operating income (EBIT) MCS operating income decreased 4.9% year-over-year to EUR 786 million.
Operationals Continued efforts in the Market share leadership program led to an overall positive impact on the main customer performance indicators. Despite the competitive pressure, Proximus was able to improve its customer base by 58,077 active customers, which is even more than the 55,606 active customers added during 2005. Besides an increased customer activity rate reaching 98.2% in 2006, Proximus also enhanced the quality of its customer portfolio. The postpaid/prepaid ratio was improved to 46/54 from 42/58 in 2005. Proximus also succeeded in lowering churn from 16.6% in 2005 to 15.8% in 2006.
64 · Belgacom annual report 2006
Year ended 31 December
2005
2006
Number of active customers (1) (in thousands)
4,253
4,311
1.4%
Prepaid
2,475
2,327
-6.0%
Postpaid
Variance
1,778
1,985
11.6%
Active customers as a percentage of total customers (2)
97.9%
98.2%
0.2 p.p.
Annualized churn rate (3) (blended - variance in p.p.)
16.6%
15.8%
-0.8 p.p.
ARPU (4) (in EUR) Prepaid
19.9
19.6
-1.8%
Postpaid
71.9
68.4
-4.9%
Blended
41.2
40.9
-0.9%
Blended voice
34.3
33.2
-3.1%
Blended data
6.9
7.6
10.2%
Net ARPU (5) (in EUR) Prepaid
18.1
17.6
-3.1%
Postpaid
68.5
63.8
-6.8%
Blended
38.7
37.7
-2.7%
Market share of active customers (6) Prepaid
46.6%
43.0%
-3.5 p.p.
Postpaid
51.1%
48.8%
-2.4 p.p.
Total
-2.9 p.p.
48.4%
45.5%
UoU (7) (units)
213.6
218.9
2.5%
MoU (8) (min)
165.8
164.1
-1.0%
47.8
54.8
14.7%
SMS (9) (units)
(1) Active customers are customers who have made or received at least one call or sent or received at least one SMS in the last three months. (2) Percentage based on total number of Belgacom Mobile SIM cards in circulation. (3) Annualized churn is the total annualized number of SIM cards disconnected from the Belgacom Mobile network (including the total number of port-outs due to mobile number portability) during the given period, divided by the average number of customers for that same period. (4) ARPU has been calculated on the basis of monthly averages for the period indicated. Monthly blended ARPU is total service revenues, excluding roaming-in and activation revenues, divided by Belgacom Mobile’s active postpaid and prepaid customer base for that period. (5) Net ARPU is equal to ARPU minus credits and discounts. (6) 2005 Belgacom Mobile estimate replaced by actual figure. (7) UoU (Units of use): voice minutes of use + SMS (where 1 SMS equals 1 minute) per active customer per month. (8) MoU (Minutes of Use): duration of all calls from or to Proximus, per active customer and per month. (9) SMS: number of SMS messages per active customer per month.
Management Report · 65
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International Carrier Services (ICS) (2) Year ended 31 December (in EUR million)
Total segment revenue Costs of materials and charges to revenue
2005
2006
Variance
713
736
3.2% 3.2%
-621
-641
Personnel expenses and pensions
-20
-20
0.3%
Other operating expenses
-44
-41
-7.3%
-686
-703
2.4%
27
33
23.1%
3.8%
4.5%
0.7 p.p.
-20
-20
0.1%
7
13
90.9%
Total operating expenses before depreciation and amortization Total segment result (3) Segment result margin
In 2006, ICS revenue increased 3.2% compared to the previous year. Voice revenue growth was mainly the result of higher fixed inbound/ outbound volumes generated by the Swiss partner and the outsourcing agreement signed in February 2006 with the MTN Group, a leading provider of cellular and communications services in Africa. Non-voice revenue increased 14.4%. However, in 2005 it included a gain of EUR 3.8 million resulting from Swisscom Fixnet AG’s contribution of assets measured at fair value, which was higher than the share of assets disposed of and measured at historical cost. Independently of this, nonvoice revenue increased 28% thanks to a significant increase of mobile data revenues, mainly driven by SMS and signaling products.
Operating expenses before depreciation and amortization
(3) Operating income before depreciation and amortization.
ICS operating expenses before depreciation and amortization increased year-over-year 2.4%, primarily due to higher charges to revenue following the revenue growth. Other operating expenses decreased 7% mainly due to cost synergies resulting from the joint venture.
Segment revenue
Operating income before depreciation and amortization (EBITDA)
Depreciation and amortization Operating income
Year ended 31 December (in EUR million)
2005
2006
675
693
2.6%
38
43
14.4%
713
736
3.2%
Voice Non Voice Total revenues
Variance
In 2006, ICS EBITDA amounted to EUR 33 million, an increase of 23% compared with the previous year. 2005 however, was favorably impacted by settlements with foreign operators and a EUR 3.8 million gain. Independently of this, the ICS EBITDA showed an increase of 67%, thanks to the additional business from the Swiss partner, the outsourcing deal with the MTN Group, the stronger transit unit margin and the increase in mobile data.
Depreciation and amortization Year ended 31 December (in billion of minutes)
2005
2006
Variance
Total
9.57
12.21
27.5%
Total to fixed destination
4.94
6.10
23.4%
Total to mobile destination
4.63
6.11
31.9%
BICS volumes included at 100%, for the comparison.
As was the case in 2005, depreciation in 2006 was also impacted by the review of the useful lifetime of some assets to reflect new technologies. The level of depreciation and amortization costs in 2006 therefore remained stable compared to previous year.
Operating income (EBIT) The ICS EBIT was EUR 13 million, an increase of EUR 6 million compared to 2005.
(2) The year-over-year comparison of ICS results is affected by Swisscom Fixnet AG’s contribution of its international carrier activities to Belgacom International Carrier Services SA (BICS), in exchange for 28% ownership and joint control with the Belgacom Group, effective since 1 July 2005. Since that date, revenues and expenses of the ICS segment have been proportionally consolidated at 72%.
66 · Belgacom annual report 2006
> quarterly results
Belgacom Group Financials Quarters 2005 (in EUR million)
Quarters 2006
1
2
3
4
1
2
3
4
1,339
1,370
1,388
1,361
1,507
1,525
1,535
1,533
Group financials Total revenue before non-recurring items Non-recurring revenue Total revenue
238
0
0
0
0
0
0
0
1,577
1,370
1,388
1,361
1,507
1,525
1,535
1,533
EBITDA before non-recurring items
575
578
557
503
545
565
536
502
EBITDA
814
578
557
149
545
565
536
502
Depreciation and amortization
-168
-174
-189
-195
-196
-203
-200
-203
Operating income (EBIT)
646
404
369
-47
349
362
337
299
13
42
0
9
5
-1
60
41
Income before taxes
659
446
369
-37
354
361
396
340
Tax expense
-128
-122
-112
23
-103
-104
-91
-59
Net Income
532
323
257
-14
251
257
305
281
Net finance revenue (costs)
Minority interests
38
37
33
32
36
37
37
11
494
286
224
-45
215
219
268
270
Fixed Line Services
753
746
724
739
909
905
890
925
Mobile Communications Services
530
555
553
543
527
542
547
520 187
Net income (Group share) Total revenue per business segment
International Carrier Services
158
175
200
180
172
178
199
-102
-106
-89
-100
-101
-100
-101
-99
1,339
1,370
1,388
1,361
1,507
1,525
1,535
1,533
Fixed Line Services
300
298
294
256
277
292
267
280
Mobile Communications Services
272
272
253
244
264
266
258
213
International Carrier Services
4
9
11
3
5
7
12
10
Intersegment eliminations
0
0
0
0
0
0
0
0
575
578
557
503
545
565
536
502
Fixed Line Services
53
74
200
161
74
117
105
152
Mobile Communications Services
47
49
35
64
46
47
48
73
7
2
2
9
0
2
5
7
-6
0
0
0
0
0
0
0
101
125
237
234
120
166
158
232
Intersegment eliminations Total EBITDA per business segment
Total Capital expenditures per business segment
International Carrier Services Intersegment eliminations Total
Management Report · 67
Fixed line Services – financials Q1 2005
Q2 2005
Q3 2005
Q4 2005
2005
Q1 2006
Q2 2006
Q3 2006
Q4 2006
2006
750
741
723
737
2,951
728
742
713
729
2,912
Voice Access
199
196
194
192
781
187
187
183
182
739
Voice Traffic
190
186
168
174
717
172
166
158
163
659
Internet
105
107
107
109
429
111
116
118
120
464 203
(in EUR million)
FLS Core
Data
52
53
53
57
215
53
54
48
47
Terminals
41
39
40
41
161
38
36
38
39
151
Other retail
65
61
65
52
244
53
67
53
63
236
National Wholesale
94
95
94
108
390
112
113
112
113
449
Others
3
4
2
5
15
3
3
3
2
11
Disposed companies
3
5
0
0
8
0
0
0
0
0
Telindus
0
0
0
0
0
179
160
172
191
702
Belgacom TV
0
0
1
2
2
2
4
4
5
15
753
746
724
739
2,961
909
905
890
925
3,630
Total revenue before non-recurring items
(in EUR million)
Q1
Q2
Q3
Q4
2006
2006
2006
2006
2006
Total FLS (without recurring items) Revenue Operating Expenses before depreciation and amortization
909
905
890
925
3,630
-632
-614
-623
-646
-2,514
EBITDA
277
292
267
280
1,116
EBITDA margin (in %)
30.5
32.2
30.0
30.2
30.7
728
742
713
729
2,912
FLS Core Revenue Operating Expenses before depreciation and amortization
-447
-450
-443
-446
-1,786
EBITDA
282
292
271
283
1,127
EBITDA margin (in %)
38.7
39.4
37.9
38.8
38.7
2
4
4
5
15
Operating Expenses before depreciation and amortization
-13
-15
-11
-15
-53
EBITDA
-11
-11
-7
-9
-38
-
-
-
-
-
Belgacom TV Revenue
EBITDA margin (in %) Telindus Revenue Operating Expenses before depreciation and amortization EBITDA EBITDA margin (in %)
68 · Belgacom annual report 2006
179
160
172
191
702
-172
-149
-169
-185
-675
6
11
3
7
27
3.5
6.9
1.9
3.4
3.9
Fixed line Services – operationals Q1 2005
Q2 2005
Q3 2005
Q4 2005
2005
Q1 2006
Q2 2006
Q3 2006
Q4 2006
2006
PSTN
3,145
3,102
3,073
3,064
3,064
3,042
2,988
2,951
2,920
2,920
ISDN
375
374
372
370
370
368
366
363
360
360
ADSL, VDSL
759
785
813
852
852
895
922
948
985
985
4,279
4,261
4,258
4,287
4,287
4,305
4,276
4,262
4,265
4,265
PSTN
263
261
259
254
254
252
250
249
247
247
ISDN
597
591
589
585
585
585
584
585
584
584
Number of access channels (in thousands) Residential
Total Business
ADSL, VDSL
111
116
119
125
125
130
135
138
142
142
Total
971
968
967
964
964
967
969
972
973
973
1,249
1,171
1,171
1,358
4,949
1,406
1,326
1,259
1,382
5,374
199
208
193
203
803
198
203
187
190
778
91
88
84
89
352
90
87
82
85
344
1,539
1,468
1,448
1,650
6,105
1,694
1,616
1,529
1,657
6,496
Traffic (in millions of minutes) Residential National Fixed to Mobile International Total Business National
531
510
449
476
1,966
492
454
414
442
1,801
Fixed to Mobile
130
132
119
125
505
127
123
113
120
484
International
104
105
93
94
397
98
93
87
91
369
Total
765
747
661
695
2,868
717
670
614
653
2,654
ARPU Voice Access
14.6
14.5
14.5
14.5
14.5
14.2
14.3
14.2
14.2
14.2
ARPU Voice Traffic
14.2
13.9
12.7
13.3
13.5
13.3
13.0
12.5
13.0
13.0
ARPU ADSL Residential
33.3
33.4
32.7
31.9
32.7
30.7
31.8
31.8
31.7
31.6
-
-
n.r.
n.r.
n.r.
11.9
10.1
12.4
12.6
12.0
ARPU (in EUR)
ARPU Net Belgacom TV
Management Report · 69
Mobile communications services – financials (in EUR million)
Q1 2005
Q2 2005
Q3 2005
Q4 2005
2005
Q1 2006
Q2 2006
Q3 2006
Q4 2006
2006
444
473
472
450
1,839
441
461
456
428
1,786
Voice services (1) Data services
(1)
Total Service revenue
85
91
96
92
364
92
96
103
116
406
529
565
568
542
2,203
533
557
559
543
2,192
Credits and discounts
-21
-34
-42
-29
-126
-33
-43
-35
-50
-162
Net Service revenue
508
530
525
513
2,077
500
514
523
493
2,030 86
Handsets
18
20
23
26
87
22
23
18
22
Other revenue
4
4
5
4
17
4
5
6
5
20
Total revenue
530
555
553
543
2,181
527
542
547
520
2,136
(1) Including roaming-in
Mobile communications services – operationals Q1 2005
Q2 2005
Q3 2005
Q4 2005
2005
Q1 2006
Q2 2006
Q3 2006
Q4 2006
2006
Number of active customers (in thousands)
4,195
4,214
4,228
4,253
4,253
4,260
4,253
4,240
4,311
4,311
Prepaid
2,485
2,492
2,485
2,475
2,475
2,447
2,407
2,346
2,327
2,327
Postpaid
1,710
1,722
1,742
1,778
1,778
1,813
1,846
1,894
1,985
1,985
Percentage active customers on total customers
97.7%
97.8%
98.0%
98.2%
97.9%
98.2%
97.9%
97.9%
98.7%
98.2%
Annualized churn rate (blended - variance in p.p.)
18.1%
16.1%
16.2%
16.2%
16.6%
15.6%
15.1%
16.7%
16.2%
15.8%
Prepaid
19.3
20.3
21.1
19.1
19.9
18.3
20.2
20.0
20.0
19.6
Postpaid
69.1
74.8
73.5
70.3
71.9
69.3
69.7
69.7
65.1
68.4
Blended
39.6
42.5
42.5
40.3
41.2
39.8
41.5
41.9
40.3
40.9
Blended voice
33.1
35.5
35.3
33.4
34.3
32.9
34.3
34.1
31.7
33.2
Blended data
6.5
7.0
7.3
6.9
6.9
6.9
7.2
7.8
8.7
7.6
Prepaid
18.1
18.0
18.3
18.1
18.1
17.1
17.9
18.4
16.8
17.6
Postpaid
66.9
71.4
69.4
66.2
68.5
64.8
65.0
65.4
60.3
63.8
Blended
38.0
39.8
39.2
38.0
38.7
37.2
38.2
39.1
36.4
37.7
ARPU (in EUR)
Net ARPU (in EUR)
Market share of active customers * Prepaid
45.9%
45.9%
46.0%
46.6%
46.6%
46.3%
46.0%
45.2%
43.0%
43.0%
Postpaid
54.2%
53.3%
52.5%
51.1%
51.1%
50.1%
48.9%
47.9%
48.8%
48.8%
Total
48.9%
48.7%
48.5%
48.4%
48.4%
47.9%
47.3%
46.4%
45.5%
45.5%
UoU (units)
208.7
221.2
210.9
214.3
213.6
208.6
218.6
211.9
230.7
218.9
MoU (min)
162.6
172.7
162.3
165.6
165.8
160.6
169.1
160.3
164.3
164.1
SMS (units)
46.0
48.4
48.6
48.7
47.8
48.0
49.5
51.6
64.4
54.8
(1) Estimation based on quarterly results as communicated by competition.
70 · Belgacom annual report 2006
International carrier services - financials (in EUR million)
Voice Non Voice Total revenues
Q1 2005
Q2 2005
Q3 2005
Q4 2005
2005
Q1 2006
Q2 2006
Q3 2006
Q4 2006
2006
151
169
186
169
675
163
167
187
176
693
7
6
14
10
38
9
10
12
11
43
158
175
200
180
713
172
178
199
187
736
Q3 2006
Q4 2006
International carrier services – operationals Q1 2005
Q2 2005
Q3 2005
Q4 2005
2005
Q1 2006
Q2 2006
Total
1.72
1.86
3.07
2.93
9.57
2.87
2.92
3.18
3.24
12.21
Total fixed
0.86
0.88
1.60
1.59
4.94
1.55
1.47
1.50
1.58
6.10
Total mobile
0.86
0.97
1.46
1.33
4.63
1.31
1.45
1.68
1.66
6.11
(in billion of minutes)
2006 (1)
(1) BICS volumes included at 100%, for the comparison.
Management Report · 71
> other information
Rights, commitments and contingencies as of 31 December 2006 Disclosures related to rights, commitments and contingencies are reported in note 35 of the consolidated financial statements.
Treasury shares Disclosures related to treasury shares are reported in note 16 of the consolidated financial statements.
Major risks and uncertainties Use of financial instruments Disclosures related to the use of financial instruments are reported in note 22 of the consolidated financial statements.
Research and development activities In 2006, the research and development activities were mainly focused on: • Improving existing services such as fast Internet and television over IP in terms of providing additional functionalities and solutions without internal cabling; • Creating new services such as Voice over IP, Fixed and Mobile convergence; • Improving communication and sales channels towards customers (Belgacom website, TV content, etc.) • Introducing new technologies (such as Ethernet) throughout the whole network, new xDSL developments, DWDM, and SOA architecture. The Group is working together with universities and industrial partners on a new Multimedia Content Distribution Platform and a number of other projects in the fields of video, multimedia and home networking. Finally, the Group is participating in various projects at the I.B.B.T. (Interdisciplinair Instituut voor Breedband Technologie – Interdisciplinary Institute for Broadband Technology). This institute was set up by the Flemish government with the aim of developing information and communication technology (ICT), with special emphasis on broadband access applications.
72 · Belgacom annual report 2006
The Group’s future revenues and profits depend on market growth, technology evolution as well as the continuing strong competition in Belgium reinforced by the presence of MVNO’s. This competition could lead to further tariff reductions with possible supplementary promotions. The Group will continue to build a superior offer for its customers through servicing management and through the development of new products and services. This will be done through additional investments. Moreover, thanks to the acquisition of the Vodafone 25% stake in Belgacom Mobile SA, the Group will be able to offer fully integrated solutions, to develop joint products and services to respond to market evolution towards convergence. Some of the tariffs are subject to approval by or are determined by the B.I.P.T. (Belgian telecom regulator) and the European Commission, which may have an influence on pricing, revenues and profits.
Post-balance sheet events Disclosures related to post-balance sheet events are reported in note 43 of the consolidated financial statements.
> consolidated ďŹ nancial statements
contents 74 >
Consolidated income statement
99 > Note 20. Other current payables
75 >
Consolidated balance sheet
99 > Note 21. Derivatives
76 >
Consolidated cash flow statement
77 >
Consolidated statement of changes in equity
78 >
Notes to the consolidated financial statements 78 > Note 1. Corporate information 78 > Note 2. Significant accounting policies 83 > Note 3. Goodwill 84 > Note 4. Intangible assets with finite useful life 85 > Note 5. Property, plant and equipment 86 > Note 6. Investments in subsidiaries and joint ventures 90 > Note 7. Enterprises accounted for under the equity method 91 > Note 8. Other participating interests 91 > Note 9. Income taxes 93 > Note 10. Assets and liabilities for pensions, other post-employment benefits and termination benefits 96 > Note 11. Other non-current assets 96 > Note 12. Trade receivables 96 > Note 13. Other current assets 96 > Note 14. Investments 96 > Note 15. Cash and cash equivalents 96 > Note 16. Equity 97 > Note 17. Interest-bearing liabilities 99 > Note 18. Provisions
100 > Note 22. Financial risk management objectives and policies 102 > Note 23. Net revenue 102 > Note 24. Other operating revenue 102 > Note 25. Non-recurring revenue 102 > Note 26. Costs of materials and charges to revenue 102 > Note 27. Personnel expenses and pensions 102 > Note 28. Other operating expenses 103 > Note 29. Non-recurring expenses 103 > Note 30. Depreciation and amortization 103 > Note 31. Net finance income/(costs) 103 > Note 32. Earnings per share 103 > Note 33. Dividends paid and proposed 104 > Note 34. Related party disclosures 105 > Note 35. Rights, commitments and contingent liabilities 106 > Note 36. Cross-border lease arrangements 107 > Note 37. Net financial positionof the Group 107 > Note 38. Fair value of financial instruments 108 > Note 39. Share-based Payment 109 > Note 40. Relationship with the auditors 109 > Note 41. Segment reporting 111 > Note 42. Recent IFRS pronouncements 111 > Note 43. Post balance sheet events
99 > Note 19. Other non-current payables
Consolidated ďŹ nancial statements ¡ 73
> consolidated income statement (year ended 31 December)
Note
2004
2005
2006
Net revenue
23
5,415
5,384
6,022
Other operating revenue
24
125
74
78
Non-recurring revenue
25
0
238
0
5,540
5,696
6,100
(in EUR million)
Total revenue Costs of materials and charges to revenue
26
-1,461
-1,555
-2,005
Personnel expenses and pensions
27
-993
-957
-1,106
Other operating expenses
28
-693
-731
-841
Non-recurring expenses
29
-41
-355
0
Total operating expenses before depreciation and amortization
-3,187
-3,598
-3,952
Operating income before depreciation and amortization
2,353
2,098
2,149
-742
-726
-802
1,611
1,372
1,347 154
Depreciation and amortization
30
Operating income Finance revenue
37
90
-64
-26
-50
31
-27
64
104
7
-1
0
0
1,583
1,436
1,451
-508
-339
-358
1,075
1,098
1,093
152
139
121
922
959
973 2.87
Finance costs Net finance revenue/(costs) Loss from enterprises accounted for using the equity method Income before taxes Tax expense
9
Net income Minority interests
16
Net income (group share) Basic earnings per share (in EUR)
32
2.57
2.78
Diluted earnings per share (in EUR)
32
2.57
2.77
2.87
Weighted average number of ordinary shares
32
358,612,854
345,406,186
338,621,113
Weighted average number of ordinary shares for diluted earnings per share
32
358,698,931
345,572,258
338,774,209
74 · Belgacom annual report 2006
> consolidated balance sheet (as of 31 December)
(in EUR million)
Note
2004
2005
2006
ASSETS Non-current assets
3,963
3,808
5,504
Goodwill
3
30
0
1,760
Intangible assets with finite useful life
4
471
602
590
Property, plant and equipment
5
2,658
2,497
2,527
Enterprises accounted for under the equity method
7
26
0
0
Other participating interests
8
211
198
234 351
Deferred income tax assets
9
476
440
Pension assets
10
6
5
5
Other non-current assets
11
86
65
36
1,405
2,022
1,796
53
61
83
12
844
947
1,207
Current assets Inventories Trade receivables Current income tax assets
9
50
67
97
Other current assets
13
52
64
81
Investments
14
81
86
91
Cash and cash equivalents
15
325
798
236
5,368
5,831
7,300
Total assets
LIABILITIES AND EQUITY Equity
16
2,630
2,591
2,399
Shareholders’ equity
16
2,223
2,221
2,391
1,000
1,000
1,000
Treasury shares
-271
-564
-754
Restricted reserve
100
100
100
59
68
68
2
4
5
1,332
1,614
1,972
Issued capital
Remeasurement to fair value Stock compensation Retained earnings Foreign currency translation Minority interests
16
Non-current liabilities
0
0
1
407
370
8
1,294
1,542
3,053
Interest-bearing liabilities
17
303
296
1,917
Liability for pensions, other post-employment benefits and termination benefits
10
760
1,010
886
Provisions
18
191
193
208
9
38
42
38
19
2
1
4
1,445
1,698
1,848
58
111
71
782
1,038
1,086
9
224
202
189
20
381
347
502
5,368
5,831
7,300
Deferred income tax liabilities Other non-current payables Current liabilities Interest-bearing liabilities
17
Trade payables Income tax payables Other current payables Total liabilities and equity
Consolidated financial statements · 75
> consolidated cash flow statement (year ended 31 December)
(in EUR million)
Cash flow from operating activities Net income (group share) Adjustments for: • Minority interests • Depreciation and amortization on intangible assets and property, plant and equipment • Increase of impairment on intangible assets and property, plant and equipment • Increase of provisions • Deferred tax expense • Increase of impairment on participating interests • Loss from investments accounted for using the equity method • Fair value adjustments on financial instruments • Gain on disposal of consolidated companies • Gain on disposal of other participating interests and enterprises accounted for using the equity method • Gain on disposal of property, plant and equipment • Other non-cash movements Operating cash flow before working capital changes Decrease/(increase) in inventories Decrease/(increase) in trade receivables Increase in current income tax assets Decrease/(increase) in other current assets Increase/(decrease) in trade payables Increase/(decrease) in income tax payables Increase/(decrease) in other current payables Increase/(decrease) in net liability for pensions, other post-employment benefits and termination benefits Decrease in other non-current payables and provisions Decrease/(increase) in working capital, net of acquisitions and disposals of subsidiaries
Note
16 4, 5 4, 5 9 7 6 31
10
Net cash flow provided by operating activities (1) Cash flow from investing activities Purchase of intangible assets and property, plant and equipment Cash paid for acquisitions of other participating interests Cash paid for consolidated companies, net of cash acquired Dividends received from non-consolidated companies Cash received from sales of consolidated companies, net of cash disposed of Cash received from sales of intangible assets and property, plant and equipment Cash received from sales of other participating interests and enterprises accounted for using the equity method and from other non-current assets Net cash used in investing activities
3, 4, 5
31 6
Cash flow before financing activities Cash flow from financing activities Dividends paid to shareholders Dividends paid to minority interests Net acquisition of treasury shares Purchase of investments Increase of shareholders’ equity Issuance/(repayment) of long term debt Issuance/(repayment) of short term debt Net cash provided by/(used in) financing activities
33 16
Net increase/(decrease) of cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December (1) Net cash flow from operating activities includes the following cash movements: Interest paid Interest received Income taxes paid
76 · Belgacom annual report 2006
15
2004
2005
2006
922
959
973
152 742 20 9 162 22 1 7 0 -1 -37 -13 1,988
139 726 5 21 39 0 0 3 -249 -63 -12 3 1,570
121 802 16 36 75 0 0 -12 0 -122 -15 2 1,876
-4 29 -15 0 -28 26 11 -79 -30 -88
-10 -169 -17 -13 336 -18 -23 249 -22 313
12 -22 -26 5 -70 -16 36 -128 -24 -234
1,899
1,883
1,643
-556 0 0 15 0 60
-696 -9 0 0 237 26
-676 0 -2,592 7 0 34
4 -478
136 -308
272 -2,955
1,421
1,575
-1,313
-395 -192 -883 -43 0 -142 -3 -1,658
-679 -176 -292 -9 1 -56 110 -1,102
-614 -8 -191 -4 0 1,635 -67 751
-237
473
-562
562 325
325 798
798 236
-34 17 -239
-21 22 -316
-23 18 -313
> consolidated statement of changes in equity
(in EUR million)
Issued capital
Balance at 31 December 2003 1,000 Fair value changes in available-for-sale investments 0 Equity changes not recognised in the income statement 0 Net income 0 Total recognised income and expense 0
Foreign RemeasuStock Treasury Restricted currency rement to Compenshares reserve translation fair value sation
Retained Earnings
Shareholders’ Equity
Minority interests
Total Equity
-325 0 0 0 0
100 0 0 0 0
32 28 28 0 28
0 0 0 0 0
0 0 0 0 0
1,742 0 0 922 922
2,548 28 28 922 950
446 0 0 152 152
2,995 28 28 1,075 1,102
0 0
0 0
0 0
0 0
0 0
0 0
-395 0
-395 0
0 -192
-395 -192
0 0 0
22 303 -950
0 0 0
0 0 0
0 0 0
0 0 0
0 -303 0
22 0 -950
0 0 0
22 0 -950
0 0
45 633
0 0
0 0
0 0
0 0
0 -633
45 0
0 0
45 0
0 0 0 0
0 0 0 54
0 0 0 0
0 0 0 0
0 0 0 0
5 -5 2 2
0 0 0 -1,332
5 -5 2 -1,276
0 0 0 -192
5 -5 2 -1,468
Balance at 31 December 2004 1,000 Fair value changes in available-for-sale investments 0 Equity changes not recognised in the income statement 0 Net income 0 Total recognised income and expense 0
-271 0 0 0 0
100 0 0 0 0
59 8 8 0 8
0 0 0 0 0
2 0 0 0 0
1,332 0 0 959 959
2,223 8 8 959 967
407 0 0 139 139
2,630 8 8 1,098 1,106
0 0
0 0
0 0
0 0
0 0
0 0
-679 0
-679 0
0 -176
-679 -176
0 0
4 -300
0 0
0 0
0 0
0 0
0 0
4 -300
0 0
4 -300
0
3
0
0
0
0
1
4
0
4
0 0 0 0 0
0 0 0 0 -292
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
1 -1 2 -1 1
0 0 0 1 -677
1 -1 2 0 -968
0 0 0 0 -176
1 -1 2 0 -1,145
Balance at 31 December 2005 1,000 Fair value changes in available-for-sale investments 0 Currency translation differences 0 Equity changes not recognised in the income statement 0 Net income 0 Total recognised income and expense 0
-564 0 0 0 0 0
100 0 0 0 0 0
68 1 0 1 0 1
0 0 1 1 0 1
4 0 0 0 0 0
1,614 0 0 0 973 973
2,221 1 1 1 973 974
370 0 0 0 121 121
2,591 1 1 1 1,093 1,095
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
-517 -97 0 0
-517 -97 0 0
0 0 -8 -474
-517 -97 -8 -474
0 0
6 -200
0 0
0 0
0 0
0 0
0 0
5 -200
0 0
5 -200
0
4
0
0
0
0
0
4
0
4
0 0 0 0 0
0 0 0 0 -191
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
1 -1 2 -1 1
0 0 0 1 -614
1 -1 2 0 -804
0 0 0 0 -482
1 -1 2 0 -1,286
1,000
-754
100
68
1
5
1,972
2,391
8
2,399
Dividends to shareholders (relating to 2003) Dividends of subsidiaries to minority interests Treasury shares • Price adjustment on treasury shares acquired in 2003 • Cancellation of treasury shares acquired in 2003 • Acquisition of treasury shares • Sale of treasury shares under a discounted share purchase plan • Cancellation of treasury shares acquired in 2004 Stock options • Stock options granted and accepted • Deferred stock compensation • Amortization deferred stock compensation Total transactions with equity holders
Dividends to shareholders (relating to 2004) Dividends of subsidiaries to minority interests Treasury shares • Exercise of stock options • Acquisition of treasury shares • Sale of treasury shares under a discounted share purchase plan Stock options • Stock options granted and accepted • Deferred stock compensation • Amortization deferred stock compensation • Exercise of stock options Total transactions with equity holders
Dividends to shareholders (relating to 2005) Interim dividends to shareholders (relating to 2006) Dividends of subsidiaries to minority interests Acquisition of minority interests Treasury shares • Exercise of stock options • Acquisition of treasury shares • Sale of treasury shares under a discounted share purchase plan Stock options • Stock options granted and accepted • Deferred stock compensation • Amortization deferred stock compensation • Exercise of stock options Total transactions with equity holders Balance at 31 December 2006
Consolidated financial statements · 77
> notes to the consolidated financial statements
Note 1. Corporate information The consolidated financial statements of Belgacom SA (hereafter “the Group”) at 31 December 2006, 2005 and 2004 were approved by the Board of Directors on 1 March 2007. Belgacom SA is a “Limited Liability Company of Public Law” registered in Belgium. The transformation of Belgacom SA from “Autonomous State Company” into a “Limited Liability Company of Public Law” was implemented by the Royal Decree of 16 December, 1994. Belgacom SA headquarters are located at Boulevard du Roi Albert II, 27 1030 Brussels, Belgium. The main activities of the Group are: Fixed Line Services, Mobile Communications Services and International Carrier Services. Further information concerning the business segments is included under note 41. The number of employees of the Group (in full time equivalents) amounted to 18,180 at 31 December 2006, 16,335 at 31 December 2005 and 16,933 at 31 December 2004. For the year 2006, the average number of headcount of the Group was 113 management personnel, 15,559 employees, 2,702 workers and 13 of other categories.
Note 2. Significant accounting policies Basis of preparation The accompanying consolidated financial statements as of 31 December 2006 and for the year then ended have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted for use in the European Union. In addition, the Group has early adopted IFRS 2 “Share-Based Payment” in 2004. The Group did not early adopt any other IASB standards or interpretations. The consolidated financial statements have been prepared on an historical cost basis, except for the measurement at fair value of derivatives and available-for-sale financial assets. The carrying values of assets and liabilities that are hedged with fair-value hedges are adjusted to record the change in the fair value attributable to the risks that are being hedged.
Changes in accounting policies The accounting policies applied are consistent with those of the previous financial years except that the Group applied the new or revised IFRS standards and interpretations as adopted by the European Union that became mandatory on or after 1 January 2006. Some minor changes in accounting policies resulted from the revised IAS 19 (“Employee Benefits”), IAS 21 (“Effects of Changes in Foreign Exchange Rates”), IAS 39 (“Financial Instruments: Recognition and Measurement”) and the new interpretations, IFRIC 4 (“Determining whether an Arrangement Contains a Lease”) and IFRIC 6 (“Liabilities Arising from Participating in a Specific Market – Waste Electrical and Electronic Equipment”). The initial application of these revised or new interpretations did not have an effect on the financial statements for the current period or each other period presented. They did however give rise to additional disclosures.
Basis of consolidation The consolidated financial statements comprise the financial statements of Belgacom SA and its subsidiaries and joint ventures as well as the
78 · Belgacom annual report 2006
Group’s share of results in associates. Notes 6 and 7 list the Group’s subsidiaries, joint ventures and associates. Subsidiaries are those entities controlled by the Group. Control exists when Belgacom has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The investments in subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Inter-company balances and transactions, and resulting unrealized profits or losses between Group companies are eliminated in consolidation. When necessary, accounting policies of subsidiaries are adjusted to ensure that the consolidated financial statements are prepared using uniform accounting policies. Companies that are jointly controlled (defined as those entities in which the Group has joint control through a contractual arrangement requiring unanimous consent of the parties sharing control) are included using the proportionate consolidation method, from the date on which joint control is established and until the date on which the Group ceases to have joint control over the joint venture. The Group’s share of the assets, liabilities, expenses, income and cash-flow of joint ventures are combined on a lineby-line basis with similar items in the consolidated financial statements. The Group’s proportionate share of the inter-company balance and transactions and resulting unrealized profits or losses between Group companies and jointly controlled entities are eliminated in consolidation. Associated companies in which the Group has a significant influence, defined as an investee in which Belgacom has the power to participate in its financial and operating policy decisions (but not to control the investee), are accounted for using the equity method. Under that method, the investments held in associates are initially recorded at cost and the carrying amount is subsequently adjusted to recognize the Group’s share in the profit or losses of the associate as from the date of acquisition. These investments and the equity share of results for the period are shown in the balance sheet and income statement as investments in enterprises accounted for under the equity method and share in the result of the enterprises accounted for using the equity method, respectively. Subsidiaries and joint ventures acquired and held exclusively with a view of disposal within twelve months are consolidated and presented in the balance sheet as assets and liabilities held for sale.
Judgments In the process of applying the Group’s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognized in the financial statements: Cross-border lease arrangements The Group holds several cross-border lease arrangements with foreign investors relating to part of its fixed and mobile switches equipment. The Group determined that these arrangements in substance do not involve a lease and that the related lease debts and deposits must not be recognized in the financial statements because they do not meet the definition of an asset and a liability under IFRS. More details are given in note 36.
Acquisition of minority interests in Belgacom Mobile The Group acquired the remaining minority interests in Belgacom Mobile SA. The Group elected to record the excess of the acquisition price over the balance of minority interests at acquisition date as goodwill in the balance sheet.
Estimation uncertainty Estimates that have been made at each reporting date reflect conditions that existed at those dates (e.g. market prices, interest rates and foreign exchange rates). Although these estimates are based on management’s best knowledge of current events and actions that the Group may undertake, actual results may differ from those estimates. The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed in note 3 (Goodwill), note 8 (Other participating interests) and note 10 (Assets and liabilities for pensions, other post-employment benefits and termination benefits).
Foreign currency translation Foreign currency transactions The presentation currency for the Group is the Euro. Foreign currency transactions are translated, on initial recognition, at the foreign exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency of the entity at the balance sheet date using the exchange rate at that date. Net exchange differences on the translation of monetary assets and liabilities are classified in “other operating expenses” in the income statement in the period in which they arise. Foreign operations Some foreign subsidiaries and joint-ventures operating in non-EURO countries are considered as foreign operations that are integral to the operations of the reporting enterprise. Therefore, monetary assets and liabilities are translated using the exchange rate at balance sheet date, non-monetary assets and liabilities are translated at the historical exchange rate, except for non-monetary items that are measured at fair value in the domestic currency that are translated at the exchange rate when the fair value was determined. Revenue and expenses of these entities are translated at the weighted average exchange rate. The resulting exchange differences are classified in “other operating expenses” in the income statement. For other foreign subsidiaries and joint-ventures operating in non-EURO countries, assets and liabilities are translated using the exchange rate at balance sheet date. Revenue and expenses of these entities are translated at the weighted average exchange rate. The resulting exchange differences are taken directly to a separate component of equity. On disposal of such entity, the deferred cumulative amount recognized in equity relating to that particular foreign operation is recognized in the income statement. All exchange differences arising from a monetary item that forms part of the Group’s net investment in such entity are recognized in the same separate component of equity.
Goodwill The excess of consideration paid over the Group’s interest in the net fair value of identifiable assets, liabilities and contingent liabilities acquired in business combinations (“Goodwill”) is recognized as an asset. Goodwill arising from business combinations that occurred prior to 31 March 2004 have been amortized until 31 December 2004 over their estimated lifetime varying from 5 years to 15 years. Such goodwill is stated at cost less accumulated amortization and impairment losses. The amortization of goodwill until 31 December 2004 is classified in “depreciation and amortization” in the income statement. As of 2005, this goodwill is no longer amortized but is subject to an annual impairment test. Goodwill arising from business combinations that occurred after 31 March 2004 is stated at cost less accumulated impairment losses.
Intangible assets with finite useful life Intangible assets consist primarily of the Global System for Mobile communication (“GSM”) license, the Universal Mobile Telecommunication System (“UMTS”) license, internally developed software, customer bases and trade names acquired in business combinations and other intangible assets such as football rights and broadcasting rights and externally developed software. The Group capitalizes certain costs incurred in connection with developing or purchasing software for internal use when they meet the criteria set out in IAS 38. Capitalized software costs are included in internally generated and other intangible assets and are amortized over three to five years. Intangible assets with finite life acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Intangible assets with finite useful life are stated at cost less accumulated amortization and impairment losses. The residual value of such intangible assets is assumed to be zero. Customer bases and trade names acquired in business combinations are amortized on the basis of the expected pattern of economic benefits over their estimated useful life. GSM and UMTS licences, other intangible assets and internally generated assets with finite useful life are amortized on a straight-line basis over their estimated useful life. Amortization commences when the intangible asset is ready for its intended use. The useful life of the GSM and UMTS intangible assets has been determined based on the license terms. The useful life of football rights and broadcasting rights has been determined based on the term of the individual underlying contracts. The useful lives are assigned as follows: Useful life
(in years)
GSM/UMTS licenses
15 to 20
Customer bases and trade names acquired Other intangible assets and internally generated assets, including software
3 to 5 3 to 20
The amortization period and the amortization method for an intangible asset with finite useful life is reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates.
Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of additions and substantial improvements to property, plant and equipment is capitalized. The cost of maintenance and repairs of property, plant and equipment is charged to operating expenses when they do not extend the life of the asset or do not significantly increase its capacity to generate revenue. The cost of an item of property, plant and equipment includes the costs of its dismantlement, removal or restoration, the obligation for which the Group incurs as a consequence of installing the item. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year the asset is derecognised. Depreciation of an asset begins when the asset is ready for its intended use. Depreciation is calculated using the straight-line method over the estimated useful life of the asset.
Consolidated financial statements · 79
The useful lives are assigned as follows: (in years)
Useful life
Land and buildings
• Land • Buildings and constructions
indefinite 5 to 33
Technical and network equipment
• Switches • Cables and Operational support systems • Transmission • Equipment installed at client premises • Equipment for data transfer business and for commercial use • Mobile antennas
3 to 10 4 to 20 4 to 10 2 to 5 3 to 5 6
Furniture and vehicles
• Furniture and office equipment • Vehicles
3 to 10
Other tangible assets
2 to 33
4 to 5
Leasehold improvements are depreciated over the shorter of their estimated useful life or the remaining term of the lease. The asset’s residual values, useful life and depreciation methods are reviewed, and adjusted if appropriate, at each financial year end. Costs of material, personnel expenses and other operating expenses are shown net of work performed by the enterprise that is capitalized in respect of network construction. Interests incurred during the construction process of assets are not capitalised but immediately expensed.
Impairment of assets The Group reviews its assets at each balance sheet date for any indication of impairment. The Group compares at least once a year the carrying value with the estimated recoverable amount of intangible assets under construction and cash generating units including goodwill. The Group performs this annual impairment test during the fourth quarter of each year. When indication of impairment exists or when annual impairment testing for an asset or a cash generating unit is required, an impairment loss is recognized when the carrying value of the asset or cash generating unit exceeds the estimated recoverable amount, being the higher of the asset’s or cash generating unit’s fair value less costs to sell and its value in use for the Group. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash generating unit. Impairment losses on goodwill, intangible assets and property, plant and equipment are recorded in operating expenses. An assessment is made at each balance sheet date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, impairment losses in respect of assets other than goodwill are reversed in order to increase the carrying amount of the asset to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the income statement in operating expenses.
Deferred taxation Deferred taxation is provided for all temporary differences between the carrying amount of assets and liabilities in the consolidated balance sheet
80 · Belgacom annual report 2006
and their respective taxation bases. Deferred taxation is not provided on differences relating to goodwill for which amortization is not deductible for taxation purposes. Deferred tax assets associated to deductible temporary differences and unused tax losses carried forward are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary difference or the unused tax losses can be utilized. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset will be realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Provision for taxation that could arise if undistributed retained profit of certain subsidiaries is remitted to the parent company, is only made where a decision has been taken to remit such retained profit, i.e., where the subsidiary intends to distribute a dividend.
Pensions, other post-employment benefits and termination benefits The Group operates several defined benefit pension plans to which the contributions are made through separately managed funds. The Group also agreed to provide additional post-employment benefits to certain employees. The cost of providing benefits under the plans is determined separately for each plan using the projected credit unit actuarial valuation method. Actuarial gains and losses are recognized as income or expense when the cumulative unrecognized gains or losses for an individual plan at the end of the previous reporting period exceed 10% of the higher of the present value of the defined benefit obligation and the fair value of plan assets at the beginning of the year. This excess is recognized over the average remaining service life of the employees participating in the individual plan. The Group operates several restructuring programs that involve termination benefits or other forms of additional compensation. The actuarial gains and losses on these liabilities are recognized in the income statement when incurred. The total expense recognized in the income statement is classified in personnel expenses and pensions, except the interest cost of the liability for termination benefits and additional compensations resulting from the collective labour agreement of 2005 that is classified as finance cost.
Short term and long term employee benefits The cost of all short-term and long-term employee benefits, such as salaries, employee entitlements to leave pay, bonuses, medical aid and other contributions, are recognized during the period in which the employee renders the related service. The Group recognizes those costs only when it has a present legal or constructive obligation to make such payment and a reliable estimate of the liability can be made.
Financial instruments Fair value of financial instruments The following methods and assumptions were used to estimate the fair value of financial instruments: • for investments in quoted companies and mutual funds, the fair value is their quoted price; • for investments in non-quoted companies, fair value is estimated by reference to recent sale transactions on the shares of these non-quoted companies and, in the absence of such transactions, by using different valuation techniques such as discounted future cash flow models and multiples methods; • for investments in non-quoted companies for which no fair value can be reliably determined, fair value is based on the historical acquisition cost, adjusted for impairment losses, if any;
• for long term debts carrying a floating interest rate, the amortized cost is assumed to approximate fair value; • for long term debts carrying a fixed interest rate, the fair value is deter-
mined based on the market value when available or otherwise based on the discounted future cash flows; • for trade receivables, trade payables, other current assets and current liabilities, the carrying amounts reported in the balance sheet approximate their fair value considering their short maturity; • for cash and cash equivalents, the carrying amounts reported in the balance sheet approximate their fair value considering their short maturity; • for derivatives, fair values have been estimated by using different valuation techniques, in particular the discounting of future cash flows. Criteria for initial recognition and for de-recognition of financial assets and liabilities Financial instruments are initially recognized when the Group becomes party to the contractual terms of the instruments. Normal purchases and sales of financial assets are accounted for at their settlement dates. Financial assets (or a portion thereof) are de-recognized when the Group realizes the rights to the benefits specified in the contract, the rights expire or the Group surrenders or otherwise loses control of the contractual rights that comprise the financial asset. Financial liabilities (or a portion thereof) are de-recognized when the obligation specified in the contract is discharged, cancelled or expires. Criteria for offsetting financial assets and liabilities Where a legally enforceable right of offset exists for recognized financial assets and liabilities, and there is an intention to settle the liability and realize the asset simultaneously, or to settle on a net basis, all related financial effects are offset.
it is probable that the company will not be able to collect all amounts due. Allowances are calculated on an individual basis, and on a portfolio basis for groups of receivables that are not individually identified as impaired. Investments Investments include shares, fixed income securities and deposits with a maturity greater than three months but less than one year. Shares are initially recognized at cost, being the fair value of the consideration given and including acquisition costs associated with the investment. After initial recognition, shares are treated as available-for-sale, with re-measurement to fair value recorded directly in equity until the investment is sold, collected or otherwise disposed of or until the asset is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in financial income or expenses. Impairment losses are classified in financial expenses. Fixed income securities are initially recognized at cost, being the fair value of the consideration given and including acquisition costs associated with the investment. After initial recognition, fixed income securities that are classified as available-for-sale, are measured at fair value, with gains and losses on re-measurement recognized in equity until the investment is sold, collected or otherwise disposed of or until the asset is determined to be impaired, at which time the cumulative gain or loss reported in equity is included in financial income or expenses. Impairment losses are classified in financial expenses. Fixed income securities that are intended to be held-to-maturity are measured at amortized cost, using the effective interest rate method. Deposits are considered as held-to-maturity and measured at amortized cost.
Criteria for classifying financial instruments as held to maturity Some financial instruments are classified as held to maturity based on the ability and the intention of the Group to keep these instruments until maturity. The Group has already a large experience of respecting that statement. This is reinforced by the fact that the financial instruments classified as held to maturity are very short term.
Cash and cash equivalents Cash and cash equivalents include cash, current bank accounts and investments with an original maturity of less than three months, and that are highly liquid. Cash and cash equivalents are carried at amortized cost. An impairment loss is recorded in financial expense when the recoverable amount at the balance sheet date is lower than the carrying amount.
Other participating interests Other participating interests are equity instruments in entities that are not subsidiaries, joint ventures or associates. They are initially recognized at cost, being the fair value of the consideration given and including acquisition costs associated with the investment. These interests are classified as available-for-sale financial assets in the balance sheet. After initial recognition, other participating interests are carried at fair value, with recognition of the changes in fair value directly in equity, until the financial asset is sold, collected or otherwise disposed of, or until the asset is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in financial income or expenses. Impairment losses are classified in financial expenses.
Interest-bearing liabilities All loans and borrowings are initially recognized at cost, being the fair value of the consideration received, net of issuance costs associated with the borrowings. After initial recognition, debts not hedged are measured at amortized cost using the effective interest rate method, with amortization of discounts or premiums through the income statement. Debts that are hedged with interest rate swaps (IRS) and interest rate and currency swaps (IRCS) for fair value hedge purposes are re-measured to the extent of the risk being hedged. The gain or loss attributable to the hedged risk resulting from re-measurement to fair value is recognized in financial income or expense.
Other non-current financial assets Other non-current financial assets include derivatives (see below), longterm interest-bearing receivables such as loans to joint-ventures, personnel and cash guarantees and long-term investments such as notes and purchased bonds. Long-term receivables are accounted for as loans and receivables originated by the Group and are carried at amortized cost. Long-term investments are classified as held-to-maturity and are carried at amortized cost. An impairment loss is recorded when the carrying amount is greater than the estimated recoverable amount, and is classified in financial expenses.
Derivatives The Group makes use of derivatives such as IRS, IRCS, forward foreign exchange contracts and currency options to reduce its risks associated with interest rate and foreign currency fluctuations on underlying assets, liabilities and anticipated transactions. The derivatives are carried at fair value under the captions other assets (non-current and current), interest-bearing liabilities (non-current and current) and other payables (non-current and current). Any gains or losses arising from changes in fair value on derivatives during the year that do not qualify for hedge accounting are taken directly to the income statement. The Group uses IRS and IRCS to reduce its exposure to interest rate and foreign currency fluctuations on long-term debts. The interest coupons receivable and payable under the terms of these swaps are accrued over the period to which the coupon relates.
Trade receivables and other current assets Trade receivables and other current assets are shown on the balance sheet at nominal value (generally, the original invoice amount) less the allowance for doubtful debts. Such allowance is recorded in operating expenses when
Consolidated financial statements · 81
The table below summarizes the relationship between hedged items and hedging instruments: Hedging instrument
Hedged item
Type of hedge relationship
Risk(s) being hedged
Interest rate and currency swap
Fixed rate debt in foreign currency
Fair value
Currency and interest rate risk
Interest rate swap
Fixed rate debt
Fair value
Interest rate risk
Certain assets and improvements that are situated on property owned by third parties must eventually be dismantled, and the property must be restored to its original condition. The estimated costs associated with dismantling and restorations are recorded under property, plant and equipment and depreciated over the useful life of the asset. The total estimated cost required for dismantling and restoration, discounted to its present value, is recorded under provisions. Where discounting is used, the increase in the provision due to the passage in time is recognized in financial expense in the income statement.
Interest rate swap
Future issuance Cash flow of fixed rate debt
Interest rate risk
Assets held for sale
Most of these swaps qualify as fair value hedges and remain within the effectiveness limits of 80% - 125%, so their revaluation matches the revaluation of the hedged items that both are recorded via the income statement. Some IRS qualify as cash flow hedge. In this case, the effective portion of the gain or loss on the hedging instrument is recognized directly in equity, while any ineffective portion is recognized immediately in the income statement. Amounts taken to equity are transferred to the income statement when the hedged transaction affects the income statement. The Group does not hold or issue derivative financial instruments for trading purposes but some of its derivative contracts do not meet the criteria set by IAS 39 to be considered as hedges and are therefore treated as derivatives held-for-trading, with changes in fair value recorded in the income statement. The Group uses currency options and forward foreign exchange contracts to manage its foreign currency exposure arising from operational contracts. Nevertheless, since the matching between these instruments and the underlying exposure is not sufficiently effective, or the effectiveness cannot be easily demonstrated, these instruments are not accounted for as hedges and are consequently carried at fair value, with changes in fair value recognized in the income statement. Some debts issued by the Group include embedded derivatives. Such derivatives are separated from their host contract and carried at fair value with changes in fair value recognized in the income statement. The markto-market effects on these embedded derivatives is neutralised by those on other derivatives.
Inventories Inventories are stated at the lower of cost and net realizable value. Cost is determined based on the weighted average cost method except for IT equipments (FIFO method) and goods purchased for resale as part of specific construction contracts (individual purchase price). For construction contracts, the percentage of completion method is applied. The stage of completion is measured by reference to the amount of contract costs incurred for work performed at balance sheet date in proportion to the estimated total costs for the contract. Contract cost includes all expenditures directly related to the specific contract and an allocation of fixed and variable overheads incurred in connection with contract activities based on normal operating capacity.
Leases Leases through which the Group acquires the right to use assets and the leasing company retains substantially all the risks and the benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as an expense in the income statement on a straight-line basis over the lease term.
Provisions Provisions are recognized when the Group has a present legal or constructive obligation resulting from past events, for which it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. A past event is deemed to give rise to a present obligation if, taking into account the available evidence, it is more likely than not that a present obligation exists at the balance sheet date.
82 · Belgacom annual report 2006
Non-current assets held for sale are recorded at the lower of their carrying value or fair value less costs to sell, and are classified as current assets.
Share based payments The fair value of share options issued under the Group’s Employee Stock Option Plans is determined at grant date taking into account the terms and conditions upon which the options are granted, and by using a valuation technique that is consistent with generally accepted valuation methodologies for pricing financial instruments, and that incorporates all factors and assumptions that knowledgeable, willing market participants would consider in setting the price. The fair value of the share options is recognized in personnel expenses over their vesting period, together with an increase of the caption “stock compensation” of the shareholders’ equity for the equity part and an increase of a dividend liability for the dividend part. When the share options give right to dividends declared after granting the options, the fair value of this right is re-measured annually.
Revenue and operating expenses Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Specific revenue streams and related recognition criteria are as follows: • Revenue from wireline, carrier and mobile traffic is recognized on usage. • Revenue from connection fees and installation fees is recognized in income at the time of connection or installation. • Revenue from sales of communication equipment is recognized upon delivery to the third party distributors or upon delivery by the own Belgacom shops to the end-customer. • Revenues relating to the monthly rent or access fees, which are applicable to wireline and mobile revenues are recognized in the period in which the services are provided. • Subscription fees are recognized as revenue over the subscription period on a pro-rata basis. • Prepaid revenue such as revenue from pre-paid fixed and mobile phone cards is deferred and recognized based on usage of the cards. • Revenue is recognised net of expenses when the Group acts as an agent. • The cost of loyalty programs in respect of third party products granted is recorded in the income statement on the line item “cost of materials and charges to revenue”. Accruals for loyalty programs are recorded at cost at balance sheet date. The Group’s consolidated income statement presents operating expenses by nature. Operating expenses are reported net of work performed by the enterprise that is capitalized. The costs of materials and charges to revenues include the costs for purchases of materials and services directly related to revenue. Costs for commissions to dealers, advertising costs and other marketing costs are expensed as incurred. Non-recurring revenues and operating expenses include gains or losses on the disposal of consolidated companies exceeding individually EUR 5 million in a particular year and costs of restructuring programs.
Note 3. Goodwill (in EUR million)
The carrying amount of goodwill is allocated to the segments as follows: Goodwill
(in EUR million - as of 31 December)
Fixed Line Services
As of 1 January 2004 net of accumulated amortization and impairment
38
Mobile Communication Services
Amortization charge for the year
-8
International Carrier Services Total
As of 31 December 2004 net of accumulated amortization and impairment
30
Disposal of subsidiary
-19
Reclassifications
-11
As of 31 December 2005 net of accumulated amortization and impairment Acquisition of Telindus Group
0 231
Acquisition of Infrasystems
4
Acquisition of Extenseo
1
Acquisition of minority stake in Belgacom Mobile Acquisition of Euremis As of 31 December 2006 net of accumulated amortization and impairment
(in EUR million)
1,519 5 1,760
2004
2005
2006
30
0
236
0
0
1,524
0 30
0 0
0 1,760
The recoverable amount at segment level (including goodwill) is based on the value in use estimated through a discounted cash flow model. For the years 2007 till 2011, the free cash flows are based on the Five Year Plan as approved by the management and Board of Directors. For subsequent years, the data of the Five Year Plan are extrapolated based on the estimated consumer price indices evolution of 2% per year. Free cash flows of each segment are discounted at a specific post-tax weighted average cost of capital comprised between 7.50% and 9.00%. Pre-tax weighted average cost of capital was between 7.60% and 9.30%. The results of this analysis led to the conclusion that none of the goodwill is impaired at 31 December 2006. Sensitivity analysis demonstrates that the value in use exceeds the net carrying value of the cash generating units (segments) if key assumptions (discount rate, long term growth rate and five year business plan assumptions) would change significantly.
Goodwill
As of 31 December 2004 Cost
109
Accumulated amortization and impairment
-78
Net carrying amount
30
As of 31 December 2005 Cost
10
Accumulated amortization and impairment
-10
Net carrying amount
0
As of 31 December 2006 Cost Accumulated amortization and impairment Net carrying amount
1,770 -10 1,760
Goodwill decreased in 2005 due to the disposal of 100% of the shares of Belgacom Directory Services SA to Promedia Comm.V. (see note 6.3), and due to reclassifications to intangible assets with finite useful life. The purchase of the 25% minority stake of Vodafone BV in Belgacom Mobile SA led to a significant increase of goodwill in 2006 resulting from the difference between the acquisition cost (EUR 2,001 million) and the minority interests in the balance sheet at acquisition date (EUR 482 million). The acquisition of Telindus Group and some other entities in 2006 also resulted in an increase of goodwill of respectively EUR 231 million and EUR 10 million (see note 6.3). Goodwill has been tested for impairment at the segment level because the performance, financial position (including goodwill) and capital expenditures within the Group are only monitored at segment level.
Consolidated financial statements · 83
Note 4. Intangible assets with finite useful life (in EUR million)
As of 1 January 2004 net of accumulated amortization and impairment
GSM and UMTS licenses
Internally generated assets
Customer bases and trade names acquired
Other intangible assets
Total
243
115
0
138
496
Additions
0
53
0
56
109
Reclassifications
0
-51
0
60
10
Impairment charge
0
0
0
-5
-5
Amortization charge for the year
-20
-21
0
-98
-139
As of 31 December 2004 net of accumulated amortization and impairment
223
96
0
151
471
Additions
0
44
0
211
255
Acquisition of subsidiary
0
0
0
20
20
Disposals
0
0
0
-2
-3
Disposal of subsidiary
0
0
0
-4
-4
Reclassifications
0
0
0
20
20
Impairment charge
0
0
0
-4
-4
Amortization charge for the year
-24
-27
0
-102
-153
As of 31 December 2005 net of accumulated amortization and impairment
199
113
0
290
602
Additions
0
41
0
90
130
Acquisition of subsidiary
0
6
73
9
88
Disposals
0
0
0
-1
-1
Reclassifications
0
0
0
3
3
Impairment charge
0
0
0
-14
-14
Amortization charge for the year
-24
-55
-28
-113
-220
As of 31 December 2006 net of accumulated amortization and impairment
175
105
45
265
590
GSM and UMTS licenses
Internally generated assets
Customer bases and trade names acquired
Other intangible assets
Total
(in EUR million)
As of 31 December 2004 Cost
377
240
0
538
1,155
Accumulated amortization and impairment
-154
-144
0
-387
-684
Net carrying amount
223
96
0
151
471
As of 31 December 2005 Cost
377
283
0
810
1,470
Accumulated amortization and impairment
-177
-170
0
-520
-867
Net carrying amount
199
113
0
290
602
377
320
73
921
1,690
-201
-215
-28
-656
-1,100
175
105
45
265
590
As of 31 December 2006 Cost Accumulated amortization and impairment Net carrying amount
The license fees relate to the Global System for Mobile communication (“GSM”) and Universal Mobile Telecommunication System (“UMTS”). In 1994, the Group acquired a GSM license in Belgium for an amount of EUR 226 million. Amortization started in 1995 over the useful life of the license (15 years). In March 2001, the Group acquired an UMTS license in Belgium for an amount of EUR 150 million. Amortization started in June 2004 over the useful life of the license, that is scheduled to end in 2020.
84 · Belgacom annual report 2006
Customer bases and trade names acquired include intangible assets recognized as part of business combinations that occurred in 2006 (see note 6.3). Other intangible assets mainly include football rights and broadcasting rights acquired, purchased software and rights of use for cables. Most of the acquisitions and additions of the three years presented have been realized in Western Europe.
Note 5. Property, plant and equipment (in EUR million)
As of 1 January 2004 net of accumulated depreciation and impairment
Land and buildings
Technical and network equipment
Furniture and vehicles
Other tangible assets
Assets under construction
Total
640
1,988
41
137
50
2,854
Additions
16
241
12
13
164
447
Disposals
-19
-1
0
-4
0
-24
Reclassifications
0
95
0
7
-111
-10
Impairment
0
-15
0
0
0
-15
Depreciation charge for the year
-40
-511
-19
-26
0
-595
As of 31 December 2004 net of accumulated depreciation and impairment
596
1,797
35
128
102
2,658
14
292
8
10
117
441
Additions Acquisition of subsidiary
0
6
0
0
0
6
-11
0
0
0
0
-11
Disposal of subsidiary
0
-13
0
0
0
-13
Reclassifications
0
78
0
10
-97
-9
Impairment
0
-1
0
0
0
-1
Depreciation charge for the year
-40
-489
-15
-29
0
-573
As of 31 December 2005 net of accumulated depreciation and impairment
Disposals
560
1,669
27
119
122
2,497
Additions
12
355
13
6
160
546
Acquisition of subsidiary
56
26
3
3
2
89
Disposals
-7
-5
0
-4
-1
-18
Reclassifications
0
148
0
-64
-87
-3
Impairment
0
-1
0
-1
0
-2
Depreciation charge for the year
-41
-512
-13
-15
0
-582
As of 31 December 2006 net of accumulated depreciation and impairment
580
1,680
30
43
195
2,527
Land and buildings
Technical and network equipment
Furniture and vehicles
Other tangible assets
Assets under construction
Total
(in EUR million)
As of 31 December 2004 Cost
775
8,722
152
259
102
10,011
Accumulated depreciation and impairment
-179
-6,925
-117
-132
0
-7,353
Net carrying amount
596
1,797
35
128
102
2,658
As of 31 December 2005 Cost
756
8,963
140
272
122
10,253
Accumulated depreciation and impairment
-196
-7,294
-113
-153
0
-7,756
Net carrying amount
560
1,669
27
119
122
2,497
As of 31 December 2006 Cost
812
9,516
162
99
195
10,783
Accumulated depreciation and impairment
-232
-7,835
-132
-57
0
-8,256
Net carrying amount
580
1,680
30
43
195
2,527
An impairment loss was recorded in 2004 on the intangible assets and technical and network equipment of the International Carrier Services segment for an amount of EUR 5 million (see note 4) and EUR 15 million respectively. The increase in 2006 resulting from acquisition of subsidiary relates primarily to the acquisition of Telindus Group, Infrasystems Group and Euremis SA (see note 6.3).
During the period from 1996 through 2001, the Group entered into several cross-border lease arrangements of technical and network equipment (see note 36). Such arrangements are still operational. Most of the acquisitions and additions of the three years presented have been realized in Western Europe.
Consolidated financial statements · 85
Note 6. Investments in subsidiaries and joint ventures Note 6.1. Investments in subsidiaries The consolidated financial statements include the financial statements of Belgacom SA and the subsidiaries listed in the following table. Country of incorporation
Name
Registered office
Belgacom SA under Public Law
Bld du Roi Albert II 27 1030 Bruxelles VAT BE 0202.239.951
Belgium
Belgacom Mobile SA
Rue du Progrès 55 1210 Bruxelles VAT BE 0453.918.428
Belgium
Belgacom Finance SA
Rue de Merl 74 2146 Luxembourg
Belgacom Group International Services SA
Group’s participating interests
2004
2005
2006
Mother company 75%
75%
100%
Luxemburg
100%
100%
100%
Geldenaaksebaan 335 3001 Heverlee VAT BE 0466.917.220
Belgium
100%
100%
100%
Finbel Re SA
Rue de Merl 74 2146 Luxembourg
Luxemburg
100%
100%
100%
Connectimmo SA
Bld du Roi Albert II 27 1030 Bruxelles VAT BE 0477.931.965
Belgium
100%
100%
100%
Citius Belgium SA
Bld du Roi Albert II 27 1030 Bruxelles VAT BE 0458.333.512
Belgium
100%
100%
100%
Belgacom Skynet SA
Rue Carli 2 1140 Evere VAT BE 0460.102.672
Belgium
100%
100%
100%
Skynet iMotion Activities SA
Rue Carli 2 1140 Evere VAT BE 0875.092.626
Belgium
-
100%
100%
WIN SA
Rue Marie-Henriette 60 5000 Namur VAT BE 0464.163.014
Belgium
100%
100%
100%
Belgacom Invest SARL
Rue de Merl 74 2146 Luxembourg
Luxemburg
100%
100%
100%
Extenseo SPRL
Rue Louis Marcx 23 1160 Bruxelles VAT BE 0464.699.779
Belgium
-
-
100%
Telindus Group NV
Geldenaaksebaan 335 3001 Heverlee VAT BE 0422.674.035
Belgium
-
-
100%
Telindus NV (4)
Geldenaaksebaan 335 3001 Heverlee VAT BE 0442.257.642
Belgium
-
-
100%
Telindus Sourcing SA (4)
Parc Scientifique - Bld Initialis 1 7000 Mons VAT BE 0457.839.802
Belgium
-
-
100%
Telindus BV (4)
Savannahweg 19 3542 AW Utrecht
The Netherlands
-
-
100%
Telindus International BV (4)
Savannahweg 19 3542 AW Utrecht
The Netherlands
-
-
100%
Telindus Networks SA (4)
Chemin des Primevères 45 1701 Fribourg
Switzerland
-
-
100%
Telindus SA (4)
Chemin des Primevères 45 1701 Fribourg
Switzerland
-
-
100%
Telindus SPA (4)
Via della Maglianella 65/D 00166 Roma
Italy
-
-
100%
Telindus G.m.b.H. (4)
Sylvesterallee 2 22525 Hamburg
Germany
-
-
100%
Netconcept G.m.b.H (4)
Wilhelm-Theodor-Römheld-Strasse 14 55130 Mainz
Germany
-
-
100%
Telindus SA (4)
Plaza Ciudad de Viena 6 28040 Madrid
Spain
-
-
100%
Telindus SA (4)
Route d’Arlon 81– 83 8009 Strassen
Luxemburg
-
-
65%
Telectronics SA (4)
Rue de l’Industrie 1 4823 Rodange
Luxemburg
-
-
65%
86 · Belgacom annual report 2006
Name Beim Weissenkreuz SA
Country of incorporation
Registered office (4)
Group’s participating interests
2004
2005
2006
Alleé Marconi 16 2120 Luxemburg
Luxemburg
-
-
65%
Telindus PSF SA (4)
2 Rue des Mines 4244 Esch sur Alzette
Luxemburg
-
-
65%
Telindus Ltd (4)
Hatchwood Place - Farnham Road Odiham, Hants RG29 1AB
United Kingdom
-
-
100%
Telindus Surveillance Solutions Ltd (4)
Brookmount Court, Unit D - Kirkwood Road CB4 2QH Cambridge
United Kingdom
-
-
100%
Telindus France SA (4)
ZA de Courtaboeuf- 10, Avenue de Norvège 91962 Les Ulis
France
-
-
100%
Groupe Telindus France SA (4)
ZA de Courtaboeuf- 10, Avenue de Norvège 91962 Les Ulis
France
-
-
100%
Telindus Ltd (Thailand) (4)
Bond Street 473 - Muang Thong Thani 3 Pakkred, Nonthaburi 11120 Bangkok
Thailand
-
-
100%
Telindus Comunicacoes e Servicos SA (4)
Torre de Monsanto - Rua Alfonso Praça 30 1495-061 Algés
Portugal
-
-
100%
Telindus Ltd (4)
Three Exchange Square 9th floor Central Hong Kong
China
-
-
100%
Yunnan Telindus Technology Co Ltd (4)
Room C22-23 Innovation Park - Jinkai Road 3 Kunming Nation-class Economic & Technological Development Zone Kunming, Yunnan
China
-
-
100%
Telindus Hungary Ltd (4)
Záhony U. 7 - Graphisoft Park 1031 Budapest
Hungary
-
-
75%
Infrasystems Sverige AB
Svetsarvägen 8 171 41 Solna
Sweden
-
-
100%
Infrasystems Solutions Stockholm AB
Svetsarvägen 8 171 41 Solna
Sweden
-
-
100%
Infrasystems Solutions Väst AB
Ringögatan 12 417 07 Göteborg
Sweden
-
-
100%
Euremis SA
Chaussée de Nivelles 81 1420 Braine-l’Alleud VAT BE 0477.133.397
Belgium
-
-
56%
Belgacom Directory Services SA
-
Belgium
100%
-
-
Expercom SA
-
Belgium
100%
-
-
Digital Age Design SA
-
Belgium
85%
-
Streamcase SA
-
Belgium
100%
-
-
Infosources SA and subsidiaries (1)
-
(2)
100%
-
-
Belgacom International Carrier Services SA (3)
-
Belgium
100%
-
-
Belgacom Deutschland G.m.b.H. (3)
-
Germany
100%
-
-
Belgacom UK Ltd (3)
-
United Kingdom
100%
-
-
Belgacom International Carrier Services Nederland BV (3)
-
The Netherlands
100%
-
-
Belgacom Incorporated (3)
-
United States
100%
-
-
Belgacom International Carrier Services Asia Pte Ltd (3)
-
Singapore
100%
-
-
Belgacom International Carrier Services (Portugal) SA (3)
-
Portugal
100%
-
-
(3)
-
Italy
100%
-
-
Belgacom International Carrier Services Spain SL (3)
-
Spain
100%
-
-
Belgacom International Carrier Services Italia Srl
Belgacom International Carrier Services Switzerland AG (3)
-
Switzerland
100%
-
-
Belgacom International Carrier Services Austria G.m.b.H (3)
-
Austria
100%
-
-
Belgacom International Carrier Services Sweden AB (3)
-
Sweden
100%
-
-
Belgacom International Carrier Services Japan KK (3)
-
Japan
100%
-
-
Belgacom International Carrier Services China Ltd (3)
-
China
100%
-
-
Belgacom Présence SA (3)
-
France
100%
-
-
(1) Hereafter “Group Infosources”. (2) Belgium, France, Germany and Switzerland. (3) These subsidiaries qualify as joint-venture interests starting mid 2005 (see note 6.2 and 6.3). (4) Subsidiaries of the Group Telindus that has been acquired early January 2006.
Consolidated financial statements · 87
Note 6.2. Investments in joint ventures The Group has a joint-venture interest in the following companies. Country of incorporation
Group’s participating interests
2004
2005
2006
Belgium
50%
50%
50%
Siriusdreef 10 2132 WT Hoofddorp
The Netherlands
50%
50%
50%
Allo Bottin SA
101/109, rue Jean-Jurès 92300 Levalloi-Perret
France
-
50%
50%
Belgacom International Carrier Services SA (1)
Rue Lebeau 4 1000 Brussels VAT BE 0866.977.981
Belgium
-
72%
72%
Belgacom International Carrier Services Deutschland G.m.b.H
Albert Einsteinstrasse 34 63322 Rödermark
Germany
-
72%
72%
Belgacom Deutschland G.m.b.H. (1)
Albert Einsteinstrasse 34 63322 Rödermark
Germany
-
72%
72%
Belgacom International Carrier Services UK Ltd
Great Bridgewaterstreet 70 M15ES Manchester
United Kingdom
-
72%
72%
Belgacom UK Ltd (1)
1,City Square Leeds - LS1 2 DP
United Kingdom
-
72%
72%
Belgacom International Carrier Services Nederland BV (1)
Stationsplein 8 C NL-6221 BT Maastricht
The Netherlands
-
72%
72%
Belgacom International Carrier Services North America Inc
2001 l street suite 750 20036 Washington
United States
-
72%
72%
Belgacom Incorporated (1)
Corporation trust center - 1209 Orange street USA - 19801 Willington Delaware
United States
-
72%
72%
Belgacom International Carrier Services Asia Pte Ltd (1)
8 Cross Street - # 11-00 PWC Building Singapore 048624
Singapore
-
72%
72%
Belgacom International Carrier Services (Portugal) SA (1)
Edificio Monumental Avenida Praia da Vitoria n° 71 A - 11° P-1069-006 Lisboa
Portugal
-
72%
72%
Belgacom International Carrier Services Italia Srl (1)
Via San Vito 7 20123 Milano
Italy
-
72%
72%
Belgacom International Carrier Services Spain SL (1)
Plaza Pablo Ruiz Picasso Torre Picasso s/n - Planta 4a 28020 Madrid
Spain
-
72%
72%
Belgacom International Carrier Services Switzerland AG (1)
Papiermülhestrasse 69 3014 Bern
Switzerland
-
72%
72%
Belgacom International Carrier Services Austria G.m.b.H (1)
Wagramer Strasse 19 1010 Wien
Austria
-
72%
72%
Belgacom International Carrier Services Sweden AB (1)
Drottninggaton 30 41114 Goteborg
Sweden
-
72%
72%
Belgacom International Carrier Services Japan KK (1)
9th Floor, Prudential Tower 13-10 Nagata-cho 2-chrome Chiyoda-ku - Tokyo 100-0014
Japan
-
72%
72%
Belgacom International Carrier Services China Ltd (1)
Three Pacific Place - Level 28 1, Queen’s road East Kowloon - Hong Kong
China
-
72%
72%
Belgacom International Carrier Services France SAS
Rue du Colonel Moll 3 75817 Paris
France
-
72%
72%
E-Port Communications Systems SA (4)
Slijkensesteenweg 2 8400 Oostende VAT BE 0864.818.940
Belgium
-
-
50%
France Italy
-
72% 72%
Name
Registered office
Certipost SA
Centre Monnaie 1000 Brussels VAT BE 0475.396.406
Certipost BV
Belgacom Présence SA (1)(2) Belgacom International Carrier Services Italia Srl (3) (1) These joint venture interests qualified as subsidiaries in 2004 (see notes 6.1 and 6.3). (2) Merged in 2006 with Belgacom International Carrier Services France SAS. (3) Merged in 2006 with Belgacom International Carrier Services Italia Srl. (4) Joint ventures of the Group Telindus that has been acquired early January 2006.
88 · Belgacom annual report 2006
-
The share of the assets, liabilities, income and expenses of the jointly controlled entities which are included in the consolidated financial statements, are detailed as follows: 2004
2005
2006
Non-current assets
-
70
62
Current assets
-
277
229
Total assets
-
348
292
Non-current liabilities
-
4
4
Current liabilities
-
278
272
Total liabilities
-
282
276
2004
2005
2006
-
713
686
(in EUR million - as of 31 December)
(in EUR million - year ended 31 December)
Total revenue Total operating expenses before depreciation and amortization
-
-686
-669
Depreciation and amortization
-
-20
Net finance revenue
-
1
-20 0
Income/(loss) before taxes
-
8
-3
Tax expense
-
-2
-3
Net income/(loss)
-
6
-6
Note 6.3. Acquisitions and disposal of subsidiaries and joint ventures and increases and decrease in participating interests In the first half of 2005, Belgacom and Swisscom Fixnet AG (“Swisscom”) agreed to combine their respective international carrier businesses effective 1 July 2005 into Belgacom International Carrier Services (“BICS”) SA that would carry on the combined business. To this purpose, Belgacom transferred on 1 January 2005 its international carrier branch of activity at historical book value to its 100% subsidiary BICS. Effective 1 July 2005, Swisscom contributed its international carrier assets to BICS in exchange for a 28% ownership in BICS and subsidiaries. These assets were contributed by Swisscom at fair value and comprised mainly non-current assets notably its international carrier customer base and indefeasible rights of use and technical network equipment in Switzerland and other countries. No cash was contributed and no goodwill was recognized as a result of this transaction. The dilution of the Group’s interest in BICS from 100% to 72% resulted in the disposal of net assets
for an amount of EUR 18 million and the recognition of a dilution gain of EUR 4 million (disclosed as other operating revenue). Prior to 1 July 2005, BICS was a 100% subsidiary of Belgacom and hence fully consolidated. Effective 1 July 2005, BICS is proportionally consolidated because Belgacom and Swisscom established joint control. In January 2005, the Group sold 100% of its shares of Belgacom Directory Services SA to Promedia Comm.V. which resulted in the recognition of a gain of EUR 238 million classified as non-recurring revenue in the income statement. The disposal of net assets in respect of these transactions of the year 2005 amounted to approximately EUR 34 million summarised as follows: 2005
(in EUR million)
Non-current assets disposed of
38
Current assets disposed of, excluding cash and cash equivalents
72
Cash and cash equivalents disposed of
28
Non-current liabilities disposed of
-1
Current liabilities disposed of
-103
Net assets disposed of
34
Consideration received
282
Gain on disposal (including non-recurring revenue)
249
The net cash inflow on disposal is as follows: (in EUR million)
2005
Cash received
264
Cash and cash equivalents disposed of with the subsidiaries
-28
Net cash inflow
237
In early January 2006, the Group acquired all outstanding shares and warrants of the Telindus Group, a leading provider of network-based ICT solutions and services, with its headquarters in Belgium and quoted on Euronext Brussels. On 14 March 2006, Belgacom asked the Brussels Euronext stock-market authority to delist the Telindus Group share. The total acquisition costs amounted to EUR 605 million. No equity instruments were or can be issued as part of the cost. The net amount of cash paid for the acquisition is EUR 584 million (after the deduction of cash acquired).
Consolidated financial statements · 89
The fair value of the identifiable assets and liabilities of the Telindus Group at the date of acquisition and the corresponding carrying amounts immediately prior to the acquisition were:
(in EUR million)
Fair value recognised on acquisition
Goodwill acquired (see note 3)
Carrying value
0
83
Intangible assets with finite useful life (see note 4)
84
20
Property, plant and equipment (see note 5)
89
85
196
196
22
22
1
1
Other participating interests (see note 8) Deferred income tax assets (see note 9) Other non-current assets Inventories Trade receivables (see note 12) Current income tax assets
35
35
236
236
4
4
Other current assets (see note 13)
22
22
Investments and cash and cash equivalents (see note 14)
21
21
710
726
-8
-6
-29
-29
-5
-3
Minority interests (see note 16) Non-current interest-bearing liabilities (see note 17) Liability for pensions and termination benefits (see note 10) Provisions and contingent liabilities
-2
-2
Deferred income tax liabilities (see note 9)
-31
-2
Current interest-bearing liabilities
-26
-26
-118
-118
Trade payables Income tax payables Other current payables (see note 20)
On 29 September 2006, Belgacom Mobile acquired the control of Euremis SA, the leading Belgian provider of mobile sales force solutions to the mid-market segment. This acquisition enables Belgacom Mobile to answer to the evolution of its customers’ needs and expand its product offering towards end-to-end mobile solutions. The fair value of the identifiable assets and liabilities of Infrasystems Group and Euremis at the date of acquisition and the corresponding carrying amounts immediately prior to the acquisition were:
(in EUR million) Total assets Total minority interests and liabilities
The consideration is detailed as follows: (in EUR million) Cash paid to shareholders
7
Cash to be paid to shareholders
4
Costs associated with the acquisition
0
Consideration
-302
Consideration paid
605
The consideration is detailed as follows:
11
The cash outflow on acquisition is as follows:
-337
Consideration
0
11
(in EUR million)
231
1
Consideration
-3
Goodwill arising on acquisition (see note 3)
4 -4
10
-115
424
7
Goodwill arising on acquisition (see note 3)
-117
373
Carrying value
-6
Net assets acquired
-3
Net assets acquired
Fair value recognised on acquisition
11
Net cash acquired of the subisidary
0
Net cash outflow
11
No other significant acquisitions, disposals or changes in participating interests of subsidiaries or joint ventures occurred in the three years presented.
(in EUR million) Cash paid to shareholders Costs associated with the acquisition Consideration
601 4 605
The cash outflow on acquisition is as follows:
The investments in enterprises accounted for under the equity method are summarized as follows: (in EUR million - as of 31 December)
(in EUR million) Consideration paid
605
Net cash acquired of the subisidary
-21
Net cash outflow
584
The goodwill mainly represents the future synergies with the Belgacom Group, the know-how of Telindus Group employees, and revenue protection. The acquisition took place early in January 2006. Therefore, the revenue and expenses of the Telindus Group have been incorporated into the Belgacom Group financial statements from 1 January 2006, contributing EUR 708 million to the total revenue and EUR 31 million to the operating income before depreciation and amortization. On 5 July 2006, Telindus acquired InfraSystems Group, a network and systems specialist established in Sweden, enabling Telindus to gain unique skills in the unified communication sector and a geographical presence in this country.
90 · Belgacom annual report 2006
Note 7. Enterprises accounted for under the equity method 2004
2005
2006
Alert Services Holding and subsidiaries
26
-
-
Total
26
0
0
Loss from these enterprises accounted for using the equity method is summarized as follows: (in EUR million - year ended 31 December)
2004
2005
2006
Alert Services Holding and subsidiaries
-1
-
-
Total
-1
0
0
In January 2005, Belgacom divested its minority interest in Alert Services Holding through the exercise of its put option towards Securitas Direct International in exchange of EUR 50 million cash. The divestment resulted in a gain of EUR 11 million recognized as finance revenue in the income statement (see notes 11 and 31).
Note 8. Other participating interests
Gross deferred income tax assets/(liabilities) relate to the following:
2004
2005
120
138
-
91
1
1
Deferred income tax liabilities
211
138
1
Accelerated depreciation for tax purposes
Eutelsat Communication SA
-
57
68
Mobistar SA
-
-
165
Other listed shares
-
2
-
Listed shares
0
59
233
Deferred taxation on sales of property, plant and equipment
-6
-6
-6
234
Other
-25
-30
-20
Gross deferred income tax liabilities
-63
-62
-57
Accelerated depreciation for tax purposes
0
0
4
Remeasurement of financial instruments to fair value
9
10
5
(in EUR million - as of 31 December)
Neuf Cégétel Other unlisted shares Unlisted shares
Total
211
198
2006
Note 9. Income taxes
In 2003 and 2004, the Group recorded impairment losses on its participating interest in neuf telecom SA, a French telecommunications provider, for EUR 47 million and EUR 20 million respectively in order to reduce the carrying amount to its recoverable amount, estimated to EUR 140 million and EUR 120 million respectively. The recoverable amount was determined based on EBITDA and sales multiples, business metrics (including cash flow valuation using a discount rate of 11%) and publicly available information on neuf telecom SA. These impairment losses are recorded as financial expenses (see note 31). In May 2005, neuf telecom SA and Cégétel SA merged into Neuf Cégétel SA, which became the primary alternative operator in the fixed line business in France. This merger diluted the participating interests of the Group to 5.8% of the combined entity Neuf Cégétel. This merger increased the recoverable value of the participating interest taking into account “EBITDA”, sales multiples, business metrics (including cash flow valuation using a 10.5% discount rate), and publicly available information of the combined entity. Based on these elements, the fair value of this participating interest was determined to be in the range between EUR 130 million and EUR 165 million at 31 December 2005, compared to a range between EUR 110 million and EUR 130 million at 31 December 2004. As a result, impairment losses for EUR 18 million have been reversed directly through equity in 2005, as remeasurement to fair value. In the second half of 2006, the Group disposed its interest in Neuf Cégétel for EUR 237 million resulting in a finance revenue of EUR 118 million (see note 31) after reversal of the remaining cumulative re-measurement to fair value. Through the acquisition of Telindus Group in 2006, the Group holds shares in its mobile competitor Mobistar SA for EUR 165 million (see note 6.3). In 2005, the Group divested several participating interests resulting in a gain of EUR 52 million recorded in finance revenue (see note 31). The remeasurements to fair value of the divested participating interests that had been recorded directly through equity in previous years are also included in the gain of EUR 52 million. The primary divested interest included therein was Eutelsat, which was sold in exchange for EUR 69 million cash and a 3% minority interest in the acquirer, Eutelsat Communications SA. This company was listed for the first time on the Paris stock exchange on the 2d December 2005, leading to a re-measurement to fair value recorded directly through equity of EUR 47 million as of 31 December 2005 that increased to EUR 61 million as of 31 December 2006. Total re-measurements to fair value of participating interests resulted in increases of the carrying values for EUR 25 million in 2004, EUR 66 million in 2005 and in a decrease of EUR 1 million in 2006. These amounts are recorded directly through equity.
(in EUR million - as of 31 December)
Remeasurement of financial instruments to fair value
2004
2005
2006
-30
-25
-30
-1
-1
-1
Deferred income tax assets
Post-employment and termination benefits Tax losses carried forward
23
28
22
380
404
315
Capital losses on investments in subsidiaries
69
2
2
Other
20
16
21
501
460
370
Gross deferred income tax assets
Net deferred income tax assets/(liabilities), when grouped per taxable entity, are as follows: (in EUR million - as of 31 December)
2004
2005
2006
Net deferred income tax liability
-38
-42
-38
Net deferred income tax asset
476
440
351
The Group has tax losses carried forward arising in Belgium that are available indefinitely to offset future taxable profits of the companies in which these losses arose. At 31 December 2006, Belgacom SA’s accumulated tax losses amount to EUR 982 million amongst others as a result of the non-recurring expenses related to the BeST restructuring program in 2002, the non-recurring expenses related to the transfer of the pension obligations for statutory employees in 2003 and the non-recurring expenses related to the collective labour agreement of 2005 (see note 10.1). Based on the current business plan of Belgacom SA, future taxable profit will be available against which the tax losses can be further utilized. Deferred tax assets have not been recognized in respect of the losses of subsidiaries that have been loss-making for several years. Cumulative tax losses carried forward and tax credits available for such companies amounted to EUR 43 million at 31 December 2004, EUR 42 million at 31 December 2005 and EUR 160 million at 31 December 2006. Belgacom’s share in the undistributed retained profit of subsidiaries amounts to EUR 2,753 million at 31 December 2006 and is taxable at an effective tax rate of 1.7% upon remittance to the parent company. No deferred tax liability is recorded for such undistributed earnings since they are not intended to be distributed to the parent company in the foreseeable future.
Consolidated financial statements · 91
In the income statement, deferred tax income/(expense) relate to the following: 2004
2005
2006
8
6
27
Deferred taxation on sales of property, plant and equipment
-6
0
0
Other
-1
-4
12
Accelerated depreciation for tax purposes
0
0
-1
Remeasurement of financial instruments to fair value
2
1
-5
10
5
-6
-173
24
-107
0
-67
0
-3
-4
5
-162
-39
-75
(in EUR million - year ended 31 December)
Relating to deferred income tax liabilities Accelerated depreciation for tax purposes
Relating to deferred income tax assets
Post-employment and termination benefits Tax losses carried forward Capital losses on investments in subsidiaries Other
The reconciliation of income tax expense applicable to income before taxes at the statutory income tax rate to income tax expense at the group’s effective income tax rate for the years ended 31 December is as follows: (in EUR million - year ended 31 December)
2004
2005
2006
Income before taxes
1,583
1,436
1,451
538
488
493
0
0
-1
0 -51
-105 -58
-42 -95
Non-deductible expenditures for income tax purposes
26
17
18
Other
-6
-3
-16
508
339
358
32.09
23.57
24.65
At Belgian statutory income tax rate of 33.99% Effect of reduction in income tax rates on closing balance of deferred income tax Income tax consequences of disposal of subsidiaries and other participating interests Non-taxable income from subsidiaries
Income tax expense Effective income tax rate (in %)
Deferred tax expense of the year
The consolidated income statement includes the following tax expense: 2004
2005
2006
-346
-301
-284
1
2
2
Expense resulting from changes in temporary differences
-162
-39
-76
Income resulting from a reduction in income tax rates
-
-
1
Income tax expense reported in consolidated income statement
-508
-339
-358
(in EUR million - year ended 31 December)
Current income tax Current income tax expense Adjustments in respect of current income tax of previous periods Deferred income tax
92 · Belgacom annual report 2006
In 2005, the income tax consequences of the disposal of subsidiaries and other participating interests mainly relate to the gain on the sale of Belgacom Directory Services’ shares and of the Group’s interests in satellite companies. In 2006, the income tax consequences of the disposal of other participating interests mainly relate to the gain on the sale of Neuf Cégétel shares. The non-taxable income from subsidiaries primarily relates to the income of Belgacom Group International Services, which is subject to a tax regime that is not based on taxable income, and to the notional interest deduction applicable in Belgium as from 2006. Non-deductible expenditures for income tax purposes primarily relate to various expenses that are disallowed for tax purposes and unrecognized tax losses carried forward.
Note 10. Assets and liabilities for pensions, other post-employment benefits and termination benefits The Group has several plans that are summarized below: (in EUR million - as of 31 December)
2004
2005
2006
580
810
687
8
13
5
155
165
172
Termination benefits and additional compensations in respect of restructuring programs Defined benefit plans for complementary pension plans (net liability) Post-employment benefits other than pensions Other liabilities Net liability recognized in the balance sheet
17
21
22
760
1,010
886
Defined benefit plans for complementary pension plans (net asset)
-5
-5
-5
Net asset recognized in the balance sheet
-5
-5
-5
The calculation of the net liability is based on the assumptions established at the balance sheet date. The assumptions for the various plans have been determined based on both macro-economic factors and the specific terms of each plan relating to the duration and the beneficiary population, in order to apply the most relevant measure of estimated outflow of resources.
Note 10.1. Termination benefits and additional compensations in respect of restructuring programs Termination benefits and additional compensations included in this chapter relate to the BeST and PTS restructuring programs, the external mobility offer and other restructuring programs. No plan assets are accumulated for these benefits. Belgacom implemented the People, Teams and Skills (“PTS”) restructuring program in the years 1997 and 1998. This program consisted of a voluntary early retirement program accepted by 6,290 employees. Under the terms of the plan, the Group will pay bridge pension amounts until the year 2007. During the first quarter of 2002, Belgacom SA implemented the Belgacom E-Strategic Transformation (“BeST”) restructuring program. The program offered all statutory employees aged 50 years and older, and having 20 or more service years in the company, the option to voluntarily early leave the company in return for a guaranteed monthly payment of a percentage of their base salary. The program allows the employees to receive full pension benefits and provides them with additional years of service towards their pension benefits. Under the terms of the plan, the Group will pay guaranteed salary allowances until the year 2012. The number of employees that accepted the offer was 4,157. In 2004, the Group implemented an external mobility offer whereby statutory employees can voluntarily apply for permanent or temporary outplacement to the e-ID cards and emergency call centre projects of the Ministry of Internal Affairs. At 31 December 2004, 507 people that applied for the outplacement jobs, have been assigned to both projects. As a result, the Group incurred in 2004 termination benefits and additional compensation costs for temporary leave for an amount of EUR 41 million. These restructuring expenses are disclosed as nonrecurring expenses in the income statement (see note 29). In 2005, a new collective agreement was approved by Belgacom. Through this agreement, 362 employees who could not be redeployed, left the company in accordance with agreed upon provisions as of 31 December 2005. Under the terms of this agreement, statutory employees became immediately inactive, until they officially retire (at 60 years), in return for a guaranteed minimum monthly payment and continued entitlement on all post-employment benefits. Contractual employees were dismissed prior to 31 December 2005 in return for a leave package. The agreement also included an innovative career outphasing program (tutorship), allowing the oldest and most experienced employees to gradually build of their career, whilst transferring their experience and knowledge to the younger employees. 2,792 employees, or 84% of the target population, signed up irrevocably for the program prior to 31 December
2005. Statutory employees gradually reduce their work time to zero from the age of 55 until 58 and stop working at the age of 58 until they officially retire at 60 years. During the tutorship period between 55 and 60, the statutory employees are entitled to the pro-rata portion of their salary and a complementary payment for inactivity if the pro-rata salary becomes lower than a guaranteed minimum. Contractual employees also gradually reduce their working time and leave definitively the company at 58 years. In order to cover the financial obligations of the Group under the terms of this collective agreement, the Group recognised in 2005 a liability for termination benefits, additional compensation and other post-employment benefits for an amount of EUR 350 million. This amount, together with the related impacts on other employee benefit accruals (EUR 5 million) is disclosed as non-recurring expenses in the income statement (see note 29). Any subsequent re-measurement of the liability for termination benefits and additional compensations is recognized immediately in the income statement. The funded status of the plans for termination benefits and additional compensations is as follows: (in EUR million - as of 31 December)
Defined Benefit Obligation Plan assets at fair value Benefit obligation in excess of plan assets
2004
2005
2006
580
810
687
0
0
0
580
810
687
The components of the expense recognized in the income statement are as follows: 2004
2005
2006
22
18
28
4
8
-2
Expense recognized in the income statement, before curtailment, settlement and special termination benefits
26
25
26
Special termination benefits
41
346
0
Expense recognized in the income statement
67
372
26
(in EUR million - year ended 31 December)
Interest cost Actuarial loss recognized
The movement in the net liability recognized in the balance sheet is as follows: 2004
2005
2006
665
580
810
67
372
26
Actual employer contribution
-153
-141
-149
At the end of the year
580
810
687
(in EUR million - as of 31 December)
At the beginning of the year Expense for the period
Consolidated financial statements · 93
Change in plan assets:
The history of the experience adjustments is as follows: 2004
(in EUR million - as of 31 December)
At the beginning of the year
2005
2006
(in EUR million - as of 31 December)
6
0
0
Actual employer contribution
153
141
149
Plan assets at fair value
Distributions to beneficiaries
-158
-141
-149
0
0
0
At the end of the year
Change in the defined benefit obligation: (in EUR million - as of 31 December)
At the beginning of the year Interest cost Actuarial loss recognized
2004
2005
2006
671
580
810
22
18
28
4
8
-2
Defined Benefit Obligation
101
128
-92
-132
Deficit/(surplus)
15
9
-4
Experience adjustment on plan liabilities: gain/(loss)
-1
2
5
Experience adjustments on plan assets: gain
0
7
1
The components of the expense recognized in the income statement are as follows: (in EUR million - year ended 31 December)
Current service cost - employer
41
346
0
-158
-141
-149
Interest cost
At the end of the year
580
810
687
Expected return on plan assets Past service cost recognized
2004
2005
2006
Discount rate
2.69 - 3.70
3.8 - 4.50
3.8 - 4.50
Future price inflation
1.33 - 1.40
1.8 - 2.00
1.8 - 2.00
Sensitivity analysis An increase or decrease of 0.5% in the effective discount rate involves a fluctuation of the liability by approximately EUR 11 million. The Group expects to pay an amount of EUR 120 million for termination benefits and additional compensations in 2007.
Note 10.2. Defined benefit plans for complementary pensions Belgacom SA and some subsidiaries have a joint complementary defined benefit pension plan for their employees. This plan provides pension benefits for services as of 1 January 1997. The related separately administrated pension fund was created in 1998. Belgacom Mobile, a subsidiary of Belgacom, has a complementary defined benefit pension plan for its employees. The related separately administered fund was created in 2001. Telindus BV, a subsidiary of Telindus Group established in the Netherlands, has also a complementary defined benefit pension plan for its employees financed through an insurance company. The funded status of the pension plans is as follows: (in EUR million - as of 31 December)
Defined Benefit Obligation Plan assets at fair value Deficit/(surplus) Unrecognized actuarial gain/(loss) Deficit/(surplus) after unrecognized actuarial gain/(loss) composed of: Net liability recognized in the balance sheet Net assets recognized in the balance sheet
2004
2005
2006
82
101
128
-67
-92
-132
15
9
-4
-12
-2
4
3
7
0
8 -5
13 -5
5 -5
Expense recognized in the income statement
2004
2005
2006
17
17
22
4
5
6
-5
-6
-8
1
0
0
17
16
19
The movement in the net liability/(assets) recognized in the balance sheet is as follows: (in EUR million - as of 31 December)
2004
2005
2006
At the beginning of the year
-4
3
7
Expense for the period
17
16
19
Acquisition of subsidiary
0
0
2
-11
-12
-29
Deficit/(surplus) after unrecognized actuarial gain/(loss) composed of:
3
7
0
Net liability at the end of the year
8
13
5
Net assets at the end of the year
-5
-5
-5
2004
2005
2006 92
Actual employer contribution
Change in plan assets: (in EUR million - as of 31 December)
At the beginning of the year
53
67
Expected return on plan assets
5
6
8
Actuarial gains on plan assets
0
7
1
Actual employer contribution
11
12
29
Acquisition of subsidiary
0
0
4
Benefits payments and expenses
-1
-1
-2
At the end of the year
67
92
132
2004
2005
2006
At the beginning of the year
61
82
101
Service cost
17
17
22
Interest cost
4
5
6
Plan amendments
1
0
0
Acquisition of subsidiary
0
0
6
Benefits payments and expenses
-1
-1
-2
Actuarial loss/(gain)
1
-2
-5
82
101
128
Change in the defined benefit obligation: (in EUR million - as of 31 December)
At the end of the year
94 · Belgacom annual report 2006
2006
82
Distributions to beneficiaries
(in % - as of 31 December)
2005
-67
Special termination benefits
The liability for termination benefits and additional compensations was determined using the following assumptions:
2004
The pension liability was determined using the following assumptions: 2004
2005
2006
Discount rate
6.10
5.50
4.25 - 5.50
Expected rate of return on plan assets
8.00
7.70
4.25 - 7.70
(in % - as of 31 December)
The components of the expense recognized in the income statement are as follows: 2004
(in EUR million - year ended 31 December)
Future price inflation Nominal future salary increase
2.30
2.00
2.00
4.80 - 5.30
4.50 - 4.75
4.00 - 4.75
4.25
3.95
3.95
Nominal future baremic salary increase
The expected return on plan assets is an assumption based on market data, historical returns of other Belgian pension plans and future long term expectations. It takes into account the asset allocation of the respective pension plans that may evolve over the time depending on achieved and future expected returns. The assets of the pension plans are detailed as follows:
2
2
2
Interest cost
9
10
12
Actuarial gain recognized
0
0
2
Expense recognized in the income statement, before curtailment, settlement and special termination benefits
11
11
17
Special termination benefits Expense recognized in the income statement
0 11
7 19
0 17
The movement in the net liability recognized in the balance sheet is as follows: 2004
2005
2006
153
155
165
11
19
17
-9 155
-8 165
-10 172
2004
2005
2006
0
0
0
Actual employer contribution
-9
-8
-10
Distributions to beneficiaries At the end of the year
9 0
8 0
10 0
2004
2005
2006 222
(in EUR million - as of 31 December)
2005
2006
Equities
61
60
55
Expense for the period
Bonds
39
40
43
Actual employer contribution At the end of the year
-
-
3
Insurance deposits (for the plan of Telindus BV)
2006
Current service cost - employer
2004
(in % - as of 31 December)
2005
At the beginning of the year
Change in plan assets: The actual return on plan assets is as follows: (in % - as of 31 December)
(in EUR million - as of 31 December)
2004
2005
2006
5
13
9
Actual return on plan assets
The Group expects to contribute an amount of EUR 20 million to these pension plans in 2007.
Note 10.3. Post-employment benefits other than pensions
Change in the defined benefit obligation:
Historically, the Group grants to its retirees post-employment benefits other than pensions in the form of train ticket discounts, hospitalization insurance, reimbursement of medical expenses and a socio-cultural aid premium. All post-employment benefits other than pensions are directly paid by the Group to the retirees and therefore no plan assets are accumulated for such benefits. In 2005, the employer cost assumptions in respect of hospitalization insurance premiums have significantly increased, which resulted in additional unrecognized actuarial losses for an amount of EUR 45 million. The funded status of the plans is as follows: (in EUR million - as of 31 December)
Defined Benefit Obligation Plan assets at fair value Benefit obligation in excess of plan assets
At the beginning of the year
2004
2005
2006
161
222
226
0
0
0
(in EUR million - as of 31 December)
At the beginning of the year
160
161
Service cost
2
2
2
Interest cost
9
10
12
Special termination benefits
0
7
0
Distributions to beneficiaries
-9
-8
-10
-1 161
50 222
1 226
Actuarial (gain)/loss At the end of the year
The liability for post-employment benefits other than pensions was determined using the following assumptions: (in % - as of 31 December)
2004
2005
2006
161
222
226
Discount rate
6.10
5.50
5.50
Unrecognized actuarial loss
-3
-54
-52
Future cost trend
3.10
3.04
3.04
Unrecognized past service cost
-3
-3
-3
Future price inflation
2.30
2.00
2.00
155
165
172
Net liability recognized in the balance sheet
The liability for post-employment benefits other than pensions is determined using the Belgian official mortality tables, adjusted for mortality experience of the statutory retirees.
The history of the experience adjustments is as follows: (in EUR million - as of 31 December)
Defined Benefit Obligation Plan assets at fair value Benefit obligation in excess of plan assets Experience adjustment on plan liabilities: gain/(loss)
2004
2005
2006
161
222
226
0
0
0
161
222
226
1
-50
-1
Sensitivity analysis An increase or decrease of 1% in the medical cost trend would result in an increase of EUR 17 million respectively a decrease of EUR 14 million of the defined benefit obligation, and in an increase or decrease of the expense (service and interest cost) of the year of EUR 1 million. The Group expects to contribute an amount of EUR 10 million to these plans in 2007.
Consolidated financial statements · 95
Note 10.4. Other liabilities The Group has a legal obligation to pay child allowance benefits to a limited number of statutory retirees and to the BeST, PTS and beneficiaries of the restructuring program of 2005. Telindus Group has a legal obligation to pay a one-time post-employment benefit in accordance with local law in France and in Italy. Those amounts are directly paid by the Group and therefore no plan assets are accumulated for such benefits. Any subsequent re-measurement of the liability is recognized immediately in the income statement. The funded status is as follows: (in EUR million - as of 31 December)
Defined Benefit Obligation Plan assets at fair value Net liability recognized in the balance sheet
2004
2005
2006
17
21
22
0
0
0
17
21
22
2004
2005
2006
Discount rate
5.00
5.00
4.00 - 5.00
Future price inflation
1.80
1.80
1.80 - 2.00
Note 11. Other non-current assets Note
2004
2005
2006
Derivatives held-for-hedging
21
59
49
16
Other derivatives
21
1
1
1
7
0
(in EUR million - as of 31 December)
Put option related to Alert Services Holding
13
0
Non-current investments
6
7
7
Other financial assets
7
8
12
86
65
36
2004
2005
2006
Gross receivables
984
1,066
1,340
Allowance for doubtful debtors
-140
-119
-133
Total
844
947
1,207
2005
2006
Total
Note 12. Trade receivables (in EUR million - as of 31 December)
Note 13. Other current assets (in EUR million - as of 31 December)
2004
VAT receivables
21
14
15
Prepaid expenses and accrued income
25
32
53
Other receivables Total
6
17
13
52
64
81
2004
2005
2006
Note 14. Investments (in EUR million - as of 31 December)
Shares
81
86
91
Total
81
86
91
Shares include sicavs and funds invested mainly in money markets instruments, euro-bonds and equity instruments. The shares are classified as available-for-sale and are measured at fair value, being their quoted price.
96 · Belgacom annual report 2006
(in EUR million - as of 31 December)
Fixed income securities Short-term deposits Cash at bank and in hand Total
2004
2005
2006
245
137
154
61
18
26
18
643
56
325
798
236
The Group invests part of its liquidities in commercial paper or treasury certificates held-to-maturity and carried at amortized cost. Short-term deposits are made for periods varying between one month and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. Cash at bank earns interest at floating rates based on daily bank deposit rates.
Note 16. Equity
The liability was determined using the following assumptions: (in % - as of 31 December)
Note 15. Cash and cash equivalents
Note 16.1. Shareholders’ equity At 31 December 2006, the share capital of Belgacom SA amounted to EUR 1 billion (fully paid up), represented by 361,775,135 shares, with no par value and all having the same rights, provided such rights are not suspended or cancelled in the case of treasury shares. The Board of Directors of Belgacom SA is entitled to increase the capital for a maximum amount of EUR 200 million. Distribution of retained earnings of Belgacom SA, the parent company, is limited by a restricted reserve built up in prior years in accordance with Belgian Company Law up to 10% of Belgacom’s issued capital. Belgacom SA has a statutory obligation to distribute 5% of the parent company income before taxes to its employees. In the accompanying consolidated financial statements, this profit distribution is accounted for as personnel expenses. On 30 December 2003, Belgacom SA purchased 12,380,950 treasury shares from its shareholder at that time, ADSB Telecommunications BV, for an amount of EUR 325 million or EUR 26.25 per share. In accordance with the Protocol Agreement concluded on 2 October 2003 between Belgacom and its shareholders at that time, the purchase price of that transaction would subsequently be adjusted to the share price in case of the initial public offering. This price adjustment has resulted in March 2004 in the reimbursement to Belgacom of EUR 22 million by ADSB Telecommunications. On 20 March 2004, the own shares acquired in December 2003 (EUR 303 million) were cancelled. Under the Protocol Agreement concluded on 2 October 2003, a second purchase of treasury shares from the shareholder at that time, ADSB Telecommunications BV, was carried out on 20 March 2004 for a total number of shares of 38,761,905 and for a total amount of EUR 950 million. In March 2004, Belgacom sold treasury shares for an amount of EUR 45 million to its employees, under a discounted share purchase plan (see note 39). On 19 March 2004, Belgacom launched an Employee Stock Option plan whereby 1,128,500 share options were granted to the key management and senior management of the Group (see note 39). On 14 September 2004, Belgacom cancelled 25,843,915 treasury shares acquired in March 2004 (EUR 633 million) in execution of a decision of the Board of Directors taken on 26 August 2004. On 24 February 2005, the Board of Directors decided to conduct a share buy-back for a maximum amount of EUR 300 million and for a share purchase price that must not be more than 5% above the highest and 10% below the lowest closing price in the thirty-day trading period preceding the transaction. The program was launched in May 2005 and completed on 17 August 2005. In total Belgacom bought 10,613,234 shares on the stock exchange at an average price per share of EUR 28.27. On 25 August 2006, the Board of Directors decided to conduct a share buy-back for a maximum amount of EUR 200 million that started on 28 August 2006 and was completed on 11 October 2006. In total
6,782,656 shares were bought back for a total amount of EUR 200 million at an average price per share of EUR 29.49. The voting and dividend rights in respect of treasury shares acquired in 2003 and 2004 are suspended while the voting and dividend rights in respect of treasury shares acquired in 2005 and 2006 are cancelled. Dividends allocated to treasury shares for which the dividend rights are suspended are accounted for under the caption “Reserves not available for distribution” in the statutory financial statements of Belgacom SA. In 2005 and 2006, Belgacom sold 139,198 respectively 138,549 treasury shares to its senior management for EUR 3 million respectively EUR 4 million under discounted share purchase plans at a discount of 16.67% (see note 39). During the years 2005 and 2006, Belgacom employees exercised 169,435 respectively 211,015 share options. In order to honour its obligation in respect of this exercise, Belgacom used treasury shares (see note 39). In 2005, Belgacom granted 538,541 share options to its key management and senior management with an exercise price of EUR 29.92. In 2006, Belgacom granted 608,928 share options to its key management and senior management with an exercise price of EUR 25.94 (see note 39). Number of shares: 2004(1) As of 1 January
2005
2006 361,775,135
400,000,000
361,775,135
-38,224,865
0
0
361,775,135
361,775,135
361,775,135
2004
2005
2006
As of 1 January
12,380,950
11,075,964
21,380,565
Acquisition
38,761,905
10,613,234
6,782,656
Sale under a discounted share purchase plan
-1,842,026
-139,198
-138,549
Exercice of stock option
0
-169,435
-211,015
-38,224,865
0
0
11,075,964
21,380,565
27,813,657
Cancellation As of 31 December
(1) Number restated to take into account the share split, from one to ten shares, that occurred on 19 February 2004.
Number of treasury shares:
Cancellation As of 31 December
Note 16.2. Minority interests Until October 2006, minority interests included primarily the 25% stake of the minority shareholder Vodafone BV in the equity, net income and dividend payments of Belgacom Mobile SA. As agreed on 24 August 2006 between Belgacom and Vodafone, Belgacom acquired the remaining 25% shares of Belgacom Mobile in early November 2006 following the approval by the Belgian competition authorities end October 2006 (see note 3).
Note 17. Interest-bearing liabilities Note 17.1. Non-current interest-bearing liabilities (in EUR million - as of 31 December)
Note
Unsubordinated debentures Credit institutions Other derivatives Total
21
2004
2005
2006
273
263
1,871
0
0
24
30
33
21
303
296
1,917
In November 2006, the Group issued three non-current unsubordinated debentures for a total nominal amount of EUR 1,650 million, to finance the acquisition of Vodafone’s minority stake in Belgacom Mobile SA. These debentures are measured at amortized costs and have a carrying amount of EUR 1,639 million at 31 December 2006.
Consolidated financial statements · 97
Non-current interest-bearing liabilities, by year of maturity, are summarized as follows (state of borrowings at 31 December 2006):
(in EUR million)
Nominal interest rate (1)
2004
2005
2006
2008
2009
2010-26
3.73%
0
0
300
0
300
0
Maturity date(2)
As of 31 December
Unsubordinated debentures
• Floating rate borrowings EUR
• Fixed rate borrowings JPY
4.63% to 4.74%(3)
217
217
217
-
-
217
4.125% to 4.375%
0
0
1,350
-
-
1,350
3.78%
0
0
24
-
-
24
217
217
1,891
0
300
1,591
Fair value remeasurement - loans hedged
56
46
14
Fair value remeasurement - derivatives
30
33
21
EUR Credit institutions
• Fixed rate borrowings EUR Total
Unsubordinated debentures - measurement at amortized cost Total
0
0
-10
303
296
1,917
(1) Interest rate for the year 2006 (for floating rate borrowings, average interest rate). (2) State of non-current interest-bearing liabilities per maturity date at 31 December 2006. (3) Has been converted by means of an interest rate and currency swap into a EUR loan with floating rate.
All long term debt is unsecured. The state of long-term borrowings at 31 December 2006 before any derivatives is as follows:
Note 17.2. Current interest-bearing liabilities
3.73% unsubordinated debentures in EUR: These are bonds issued by Belgacom SA at floating rate (Euribor 3m+13bps) for which interests are payable quarterly, and the capital is repayable in full on the maturity date.
Unsubordinated debentures current portion
4.63% to 4.74 % unsubordinated debentures in JPY: These are bonds issued by Belgacom SA for which interests are payable annually, and the capital is repayable in full on the maturity date.
(in EUR million - as of 31 December)
Note
Credit institutions current portion
2004
2005
2006
56
0
0
0
0
5 0
Derivatives held-for-hedging current portion
20
3
0
Other derivatives
20
1
0
0
1
111
66
62
111
71
Other current financial debt
4.125% to 4.375% unsubordinated debentures in EUR: These are bonds issued by Belgacom SA for which interests are payable annually, and the capital is repayable in full on the maturity date.
Total Fair value remeasurement loans hedged
-3
0
0
3.78% credit institutions in EUR: This is a long term bank loan issued by Telindus NV for which interests are payable semi-annually and the capital is amortized semi-annually. The interest rates on the long term debts after effect of derivatives on long term debts hedged, and after effect of measurement at amortized costs on long term debts not hedged, are presented in note 22.
Total
58
111
71
98 · Belgacom annual report 2006
Bank credit facilities at 31 December 2006 In addition to the interest-bearing liabilities disclosed in notes 17.1 and 17.2, the Group is backed by long term credit facilities of EUR 586 million and short term credit facilities of EUR 518 million. These facilities are provided by a diversified group of banks. At 31 December 2006, there is no outstanding balance under the long term facilities and there is an outstanding balance of EUR 43 million under the short term facilities, with an average remaining maturity of less than one month. The Group has also established a USD 2.5 billion Euro Medium Term Note (“EMTN”) Program and a EUR 1 billion Commercial Paper (“CP”) Program. At 31 December 2006, there is an outstanding balance under the EMTN Program of EUR 1,650 million, corresponding to the unsubordinated debentures newly issued in 2006 to finance the acquisition of the Vodafone’s stake in Belgacom Mobile SA, with an average remaining maturity of 7 years. At 31 December 2006, there is no outstanding balance under the CP Program.
Note 18. Provisions Worker’s accidents
Litigation
Illness days
Other risks
Total
49
71
38
51
210
3
33
11
6
53
-3
-9
-11
-6
-28
Withdrawals
-1
-35
0
-8
-44
As of 31 December 2004
49
59
39
43
191
2
16
11
12
42
-3
-4
-11
-5
-23
(in EUR million)
As of 1 January 2004 Additions Utilisations
Additions Utilisations Withdrawals As of 31 December 2005
0
-3
-6
-6
-16
48
68
32
45
193
2
27
11
9
49
-3
-5
-10
-5
-24
Additions Utilisations Withdrawals As of 31 December 2006
0
-8
0
-2
-11
47
82
32
46
208
The provision for workers’ accidents relates to compensation that Belgacom SA could pay to members of personnel injured (including professional illness) when performing their job and on their way to work. Until 31 December 2002, according to the law of 1967 (public sector) on labor accidents, compensation was funded and paid directly by Belgacom. This provision (annuities part) is based on actuarial data including mortality tables, compensation ratios, interest rates and other factors defined by the law of 1967 and calculated with the support of a professional insurer. Taking into account the mortality table, it is expected that most of these costs will be paid out until 31 December 2053. As from 1 January 2003, contractual employees are subject to the law of 1971 (private sector) and statutory employees remain subject to the law of 1967 (public sector). For both the contractual and statutory employees, Belgacom is covered as from 1 January 2003 by insurance policies for workers’ accidents and therefore will not pay directly members of personnel. The provision for litigation represents management’s best estimate for probable losses due to pending litigation where the Group has been sued by a third party or is subject to a judicial or tax dispute. The expected timing of the related cash outflows depends on the progress and duration of the underlying judicial procedures. The provision for illness days represents management’s best estimate of probable charges related to the granting by Belgacom of accumulating non-vesting illness days to its statutory employees. The provision has been determined based on statistical data. The provision for other risks primarily includes the provision for the incurred risks from the re-insurance company, the expected costs for dismantling and restoration of mobile antenna sites and buildings, environmental risks and sundry risks. It is expected that most of these costs will be paid during the period 2006-2018. The provision for restoration costs is estimated at current prices and discounted using a discount rate that varies between 2.62% and 5.52%, depending when the expenditures are expected to be required to settle the obligation.
Note 20. Other current payables VAT payables
2004
2005
2006
Other amounts payable
2
1
4
Total
2
1
4
(in EUR million - as of 31 December)
2005
2006
7
8
40
Payables to employees
87
77
93
Accrual for holiday pay
60
63
78
Accrual for social security contributions
33
35
48
Taxes withheld on remuneration
20
19
18
Deferred income
144
128
169
Accrued expenses
24
11
22
6
5
34
381
347
502
Note
2004
2005
2006
Derivatives held-for-hedging
11
59
49
16
Other derivatives
11
Other amounts payable Total
Note 21. Derivatives (in EUR million - as of 31 December)
Non-current assets 1
1
1
59
50
17
17
30
33
21
Derivatives held-for-hedging interest-bearing liabilities
17
3
0
0
Other derivatives interest-bearing liabilities
17
Total Non-current liabilities Other derivatives interest-bearing liabilities Current liabilities
Total
Note 19. Other non-current payables
2004
(in EUR million - as of 31 December)
1
0
0
35
33
21
The Group makes use of derivatives such as interest rate swaps (IRS), interest rate and currency swaps (IRCS), forward foreign exchange contracts and currency options. Belgacom owns mainly derivatives for hedge purposes. Hedges are fair value hedges, with re-measurement to fair value of both hedged items and hedging derivatives recorded in the income statement. Belgacom does not hold or issue derivatives for trading purposes but, when the relationship between hedging instrument and hedged item does not meet criteria for hedge accounting set by IAS 39, derivatives are accounted for as held-for-trading with re-measurement to fair value recorded into the income statement.
Consolidated financial statements · 99
The table below shows the positive and negative fair value of derivatives, included in the balance sheet respectively as current/non-current assets or liabilities, together with the notional amounts presented by the term of maturity. Fair value (in EUR million - as of 31 December 2004)
Positive
Notional amount
Negative
Within 2 months
3-12 months
1-5 years
Over 5 years
Interest rate and currency swaps
59
-3
217
242
Derivatives held as fair value hedges
59
-3
0
25
0
217
242
Interest rate swaps
0
-31
-
86
-
144
230
Equity options
1
-
-
-
-
1
1
Derivatives not qualifying as hedges
1
-31
0
86
0
145
231
59
-35
0
112
0
362
473
Negative
Within 2 months
3-12 months
Over 5 years
Total
Total
25
Total
Fair value (in EUR million - as of 31 December 2005)
Positive
Notional amount 1-5 years
Interest rate and currency swaps
49
-
-
-
-
217
217
Derivatives held as fair value hedges
49
0
0
0
0
217
217
Interest rate swaps
-
-33
-
-
-
144
144
Forward foreign exchange contracts
0
-
12
-
-
-
12
Equity options
1
-
-
-
-
1
1
Derivatives not qualifying as hedges
1
-33
12
0
0
145
157
50
-33
12
0
0
362
374
Negative
Within 2 months
3-12 months
Over 5 years
Total
Total
Fair value (in EUR million - as of 31 December 2006)
Positive
Notional amount 1-5 years
Interest rate and currency swaps
16
-
-
-
-
217
217
Derivatives held as fair value hedges
16
0
0
0
0
217
217
Interest rate swaps
-
-21
-
-
-
144
144
Forward foreign exchange contracts
0
0
36
-
-
-
36
Equity options
1
-
-
-
-
1
1
Derivatives not qualifying as hedges
1
-21
36
0
0
145
181
17
-21
36
0
0
362
398
Total
Note 22. Financial risk management objectives and policies The Group is exposed to market risks, including interest rates and foreign currency exchange rates risks, associated with underlying assets, liabilities and anticipated transactions. Based on the analysis of these exposures, Belgacom selectively enters into derivatives to manage the related risk exposures. Belgacom has established internal guidelines such that it will not reach a level of gearing that would cause its ratings to fall below certain levels.
Interest rate risk The Group manages its exposure to changes in interest rates and its overall cost of financing by using mainly interest rate swaps (IRS), interest rate and currency swaps (IRCS) and forward rate agreements. The main interest rate instruments used are IRS and IRCS. They are used to transform the interest rate exposure on the underlying assets or liabilities from a fixed interest rate to a floating interest rate or vice versa.
100 · Belgacom annual report 2006
Foreign currency risk The Group’s currency exposure relates to foreign currencies in which debts have to be paid and to operational activities in foreign currencies that are not “naturally” hedged. In order to hedge the currency exposure, the Group uses derivatives such as interest rate and currency swaps (IRCS), currency options and forward foreign exchange contracts.
Credit risk and significant concentrations of credit risk Concentration of credit risk relating to local accounts receivable is limited due to the large number of customers. For accounts receivables from foreign telecommunication companies, the concentration of credit risk is also limited due to the netting agreements with accounts payable to these companies, prepayment obligations, bank guarantees and credit limits of credit insurers. Credit risk arising from the inability of a counterpart to meet the terms of the Group’s financial instruments is generally limited to the amount, if any, by which the counterpart’s obligations exceed the obligations of the Group.
The Group’s maximum exposure to credit risk (not taking into account the value of any collateral or other security held) in the event the counterpart fail to perform their obligations in relation to each class of recognized financial assets, including derivatives, is the carrying amount of those assets in the balance sheet. The Group is exposed to credit loss in the event of non-performance by a counterpart on derivatives, but does not anticipate non-performance by any of these counterparts, given their very good credit rating. The amount
Direct borrowing Notional amount
IRCS agreements
Weighted Average average time to interest maturity (1) rate
(in EUR (as of 31 December 2004)
million)
of such exposure equals the market value of such contracts. The Group generally does not require collateral or other security from the counterpart as these are highly rated financial institutions. The tables below summarize the borrowings’ portfolio, the interest rate and currency swap agreements (IRCS), the interest rate swap agreements (IRS) and the net currency obligations of the Group at 31 December 2004, 2005 and 2006.
Amount payable (receivable)
IRS agreements
Weighted average interest rate
Average time to maturity
(in %)
(in years)
(in EUR (in %)
(in years)
million)
Amount payable (receivable)
Net currency obligations
Weighted average interest rate
Average time to maturity
million)
(in %)
(in years)
million)
(in EUR
Amount payable (receivable)
Weighted average interest rate
Average time to maturity
(in %)
(in years)
(in EUR
EUR
• Fixed • Variable
-
-
-
-
-
-
200
5.34
8.0
200
5.34
8.0
31
2.65
0.9
242
2.13
13.1
(200)
2.26
7.1
73
2.22
21.8
• Fixed • Variable
242
4.58
13.1
(242)
4.58
13.1
-
-
-
0
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
273
4.37
11.7
0
-
-
0
-
-
273
4.81
11.7
Weighted Average average time to interest maturity (1) rate
Amount payable (receivable)
Weighted average interest rate
Average time to maturity
Amount payable (receivable)
Weighted average interest rate
Average time to maturity
Amount payable (receivable)
JPY
Direct borrowing Notional amount
IRCS agreements
(in EUR (as of 31 December 2005)
IRS agreements
(in EUR
Net currency obligations
(in EUR
Weighted average interest rate
Average time to maturity
(in EUR
million)
(in %)
(in years)
million)
(in %)
(in years)
million)
(in %)
(in years)
million)
(in %)
(in years)
-
-
-
-
-
-
144
6.20
9.9
144
6.20
9.9
-
-
-
217
2.08
13.6
(144)
2.22
9.9
73
2.14
20.9
• Fixed • Variable
217
4.62
13.6
(217)
4.62
13.6
-
-
-
0
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
217
4.62
13.6
0
-
-
0
-
-
217
4.72
13.6
Weighted Average average time to interest maturity rate(1)
Amount payable (receivable)
Weighted average interest rate
Average time to maturity
Amount payable (receivable)
Weighted average interest rate
Average time to maturity
Amount payable (receivable)
(in %)
(in years)
(in %)
(in years)
EUR
• Fixed • Variable JPY
Direct borrowing Notional amount
IRCS agreements
(in EUR (as of 31 December 2006)
IRS agreements
(in EUR (in years)
million)
Net currency obligations
(in EUR million)
Weighted average interest rate
Average time to maturity
million)
(in %)
(in years)
(in EUR
million)
(in %)
1,379
4.37
7.7
-
-
-
144
6.20
8.9
1,523
4.54
7.8
300
3.76
2.9
217
2.83
12.6
(144)
2.96
8.9
373
3.53
6.2
217
4.26
12.6
(217)
4.26
12.6
-
-
-
0
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,896
4.26
7.5
0
-
-
0
-
-
1,896
4.34
7.5
EUR
• Fixed • Variable JPY
• Fixed • Variable Total
(1) Weighted average interest rate taking into account amortization of transactions costs and issue premiums (if any) for borrowings measured at amortized costs and taking into account last recent exchange rates for borrowings where interests can be paid in various foreign currencies.
Consolidated financial statements · 101
The table below summarizes the interest rate swap agreements (IRS) of the Group at 31 December 2004, 2005 and 2006. 2004
2005
2006
Notional amount (in EUR million)
(as of 31 December)
2006 Weighted average payable interest rate (in %)
Average time to maturity (in years)
Fixed rate to fixed rate
0
0
0
-
-
Fixed rate to variable rate
0
0
0
-
-
Variable rate to variable rate
31
0
0
-
-
Variable rate to fixed rate
200
144
144
6.20
8.9
Total
230
144
144
-
-
Note 23. Net revenue (in EUR million - year ended 31 December)
Sales of goods
2004
2005
2006
230
218
597
Rendering of services
5,185
5,166
5,425
Total
5,415
5,384
6,022
Note 24. Other operating revenue 2004
2005
2006
Income from directory business
28
0
0
Gain on disposal of intangible assets and property, plant and equipment
37
13
17
(in EUR million - year ended 31 December)
Gain on disposal of consolidated companies Other income Total
0
10
0
61
50
61
125
74
78
2004
2005
(in EUR million - year ended 31 December)
2006
2004
2005
2006
Salaries and wages
746
717
832
Social security expenses
163
163
194
Pension costs
17
16
19
Post-employment benefits other than pensions and termination benefits
39
40
31
Other personnel expenses
27
21
29
993
957
1,106
Total
Salaries and wages and social security expenses are shown net of work performed by the enterprise that is capitalized for an amount of EUR 36 million in 2004, EUR 37 million in 2005 and EUR 45 million in 2006.
Note 28. Other operating expenses (in EUR million - year ended 31 December)
Note 25. Non-recurring revenue (in EUR million - year ended 31 December)
Note 27. Personnel expenses and pensions
Rent expense
2004
2005
2006 107
87
85
Maintenance and utilities
167
164
171
Advertising and public relations
110
127
135
118
150
172
61
55
Gain on sale of Belgacom Directory Services
-
238
-
Consultancy
Total
0
238
0
Administration and training
66
Telecommunications, postage costs and office equipment
30
34
37
Outsourcing
36
38
55
Allowances on trade debtors
19
6
16
Impairment on intangible assets and property, plant and equipment
20
5
16
Taxes other than income taxes
49
38
56
Other operating charges(1)
-9
24
21
693
731
841
Gains on the disposal of subsidiaries and joint-ventures are reported as non-recurring revenue when they individually exceed EUR 5 million. In January 2005, the Group sold 100% of the shares of Belgacom Directory Services SA to Promedia Comm.V. resulting in the recognition of a gain of EUR 238 million (see note 6.3).
Note 26. Costs of materials and charges to revenue (in EUR million - year ended 31 December)
Purchases of materials
2004
Total
2005
2006
151
147
459
Purchases of services
1,310
1,408
1,546
Total
1,461
1,555
2,005
Purchases of materials are shown net of work performed by the enterprise that is capitalized for an amount of EUR 12 million in 2004, EUR 12 million in 2005 and EUR 48 million in 2006.
102 · Belgacom annual report 2006
(1) Including unrealized and realized net exchange losses amounting to EUR 2 million in 2004; and unrealized and realized net exchange gains amounting to EUR 1 million in 2005 and to EUR 4 million in 2006. This line item also includes a net decrease of provisions of EUR 30 million in 2004.
Other operating expenses are shown net of work performed by the enterprise that is capitalized for an amount of EUR 96 million in 2004, EUR 106 million in 2005 and EUR 112 million in 2006.
Note 29. Non-recurring expenses 2004
(in EUR million - year ended 31 December)
Note 32. Earnings per share
2005
2006
Termination benefits and additional compensation
41
355
-
Total
41
355
-
Losses on the disposal of subsidiaries and joint-ventures that individually exceed EUR 5 million and costs of restructuring programs are recorded as non-recurring expenses. The Group recorded in 2004 termination benefits and additional compensation benefits for temporary leaves for an amount of EUR 41 million in respect of the external mobility offer for the e-ID cards and emergency call centre projects of the Ministry of Internal Affairs (see note 10.1). The Group recorded in 2005 termination benefits, additional compensation benefits and other post-employment benefits in respect of the collective labor agreement concluded between Belgacom and the Unions in November 2005 for an amount of EUR 355 million (see note 10.1).
2004
Amortization of goodwill Amortization of licenses and other intangible assets
Diluted earnings per share is calculated by dividing the net income for the year attributable to ordinary shareholders, by the weighted average number of ordinary shares outstanding during the year, both adjusted for the effects of dilutive potential ordinary shares. The following table reflects the income and share data used in the computation of basic and diluted earnings per share. (year ended 31 December)
Net income attributable to ordinary shareholders (in EUR million) Adjustments for dilutive potential ordinary shares (in EUR million) Adjusted net income for calculating diluted earnings per share (in EUR million)
Note 30. Depreciation and amortization (in EUR million - year ended 31 December)
Basic earnings per share are calculated by dividing the net income for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.
2005
2006
Weighted average number of ordinary shares
2004
2005
2006
922
959
973
0
0
0
922
959
973
358,612,854
345,406,186
338,621,113
Adjustment for share options
86,076
166,072
153,096
358,698,931
345,572,258
338,774,209
8
-
-
139
153
220
Weighted average number of ordinary shares for diluted earnings per share
Depreciation of property, plant and equipment
595
573
582
Basic earnings per share (in EUR)
2.57
2.78
2.87
Total
742
726
802
Diluted earnings per share (in EUR)
2.57
2.77
2.87
Note 31. Net finance income/(costs) (in EUR million year ended 31 December)
Note
2004
2005
2006
15
0
0
Finance income Dividends received from other participating interests Gain on disposal of other participating interests and enterprises accounted for using the equity method
Note 33. Dividends paid and proposed 7-8
Interest income Fair value measurement of put option on Alert Services Holding Fair value adjustments
1
63
122
21
27
21
1
0
0
-
-
10
Finance costs Discounting charges on provisions Discounting charges on termination benefits
Fair value adjustments of financial instruments Total
(year ended 31 December)
Dividends on ordinary shares: Dividends proposed to the shareholders’ meeting (in EUR million) Number of shares with dividend rights Dividend per share (in EUR)
Interests and charges on debts
Impairment losses on other participating interests
On 19 February 2004, the shareholders have decided to split each existing ordinary share into ten new shares. The 538,541 stock options granted in 2005 are anti-dilutive for the periods presented and hence not included in the calculation of diluted earnings per shares, while the options granted in 2004 and 2006 are dilutive.
8
-34
-22
-35
-1
-1
-1
-
-
-13
-20
0
0
-9
-2
-
-27
64
104
In 2004, the Group obtained a dividend of EUR 15 million from its investments in satellites. In 2005, Belgacom disposed of its interests in certain satellite companies resulting in a gain of EUR 52 million (see note 8) and its minority interests in Alert Services Holding resulting in a gain of EUR 11 million (see note 7). In 2006, Belgacom disposed of its interest in Neuf Cégétel resulting in a gain of EUR 118 million (see note 8).
2004
2005
2006
500
534
552
361,775,135
351,161,901
344,713,982
1.38
1.52
1.60
Special dividend proposed to the shareholders’ meeting (in EUR million)
200
-
-
Special dividend per share (in EUR)
0.55
-
-
Interim dividend paid to the shareholders (in EUR)
-
-
100
Interim dividend per share (in EUR)
-
-
0.29
The proposed dividends for 2004 and 2005 have been effectively paid in April 2005 and April 2006 respectively. The interim dividend of 2006 has been paid in December 2006.
Consolidated financial statements · 103
Note 34. Related party disclosures Note 34.1. Consolidated companies Subsidiaries and joint-ventures are listed in note 6. Enterprises accounted for under the equity method are listed in note 7. Commercial terms and market prices apply for the supply of goods and services between Group companies. Joint-ventures Belgacom International Carrier Services SA and subsidiaries
Effective 1 July 2005, the Group holds a joint venture interest of 72% in Belgacom International Carrier Services SA and subsidiaries (hereafter “BICS”); the remaining 28% shares being held by Swisscom Fixnet AG (see note 6.3). BICS is involved in international carrier activities towards Belgacom SA and subsidiaries, Swisscom Fixnet AG and subsidiaries and other telecom operators. For the period from 1 July 2005 until 31 December 2005, sales and purchases from BICS to the Group amounted to EUR 27 million and EUR 22 million respectively. At 31 December 2005, BICS had trade receivables of EUR 4 million, trade payables of EUR 5 million and short-term loans of EUR 11 million towards the Group. For the year 2006, sales and purchases from BICS to the Group amounted to EUR 21 million and EUR 16 million respectively. At 31 December 2006, BICS had trade receivables of EUR 4 million, trade payables of EUR 3 million and short-term deposits of EUR 21 million towards the Group. Enterprises accounted for under the equity method Alert Services Holding and subsidiaries
Until January 2005, the Group held a 28% stake in Alert Services Holding and subsidiaries but the Group had no significant transactions with this minority participation during 2003 and 2004. In January 2005, the Group sold its 28% stake to Securitas Direct International (see note 7). Tritone
The Group holds a majority stake in Tritone Telecom BV whose operating activities ceased in July 2002. Belgacom granted loans until end 2002 to finance the unwinding of the operations of Tritone. Loans receivable from Tritone, net of the related allowance, are nil at 31 December 2006. The Group sells no goods or services anymore to Tritone since July 2002. Trade receivables from Tritone, net of the related allowance for doubtful debtors, are nil at 31 December 2006.
Note 34.2. Relationship with shareholders The Belgian State is the majority shareholder of the Group, with a stake of 50% plus 1 share. The Group holds treasury shares for 7.7%. The remaining 42.3% are traded on the First Market of Euronext Brussels since the March 2004 public offering initiated by the consortium ADSB Telecommunications BV (hereafter “ADSB”). Relationship with the Belgian State The Group supplies telecommunication services to the Belgian State and various administrations of the Belgian State. All such transactions are made within normal customer/supplier relationships on terms and conditions that are not more favourable than those available to other customers and suppliers. The services provided to those administrations do not represent a significant component of the Group’s net revenue.. Commercial relationship with the former shareholder ADSB and the shareholders of ADSB until the Initial Public Offering The few transactions of the Group with ADSB and ADSB’s shareholders (SBC Communications Inc, Singapore Telecommunications Limited and TDC A/S) until March 2004 related to international traffic termination and international network renting, and were carried out at arm’s length. In 2004, until the date of the IPO, the Group sold services to ADSB and ADSB’s shareholders companies for EUR 3 million. In the same period, purchases of the Group to ADSB and ADSB’s shareholders companies amounted to EUR 1 million.
104 · Belgacom annual report 2006
Other relationship with the former shareholder ADSB As decided in the Protocol Agreement dated 2 October 2003 between Belgacom and its shareholders at that time, the Group purchased 12,380,950 of its own shares from ADSB on 30 December 2003, for a total price of EUR 325 million. The purchase value has been adjusted downwards by EUR 22 million, at the time of the pricing of the initial public offering, based on the initial offer price per share (see note 16). In accordance with the same Protocol Agreement, the Group purchased on 20 March 2004 38,761,905 ordinary shares from ADSB at the initial offer price per share for an amount of EUR 950 million. Relationship with the minority shareholders of Belgacom Mobile Until early November 2006, Vodafone BV and subsidiaries (hereafter “Vodafone”) held a 25% stake in Belgacom Mobile (see note 16.2). The Group enters into transactions with Vodafone in the framework of its mobile telephony activity (roaming-in revenues and roaming-out costs). Vodafone also charges consultancy fees to Belgacom Mobile. These transactions are done at normal customer/supplier relationships on terms and conditions that are not more favourable than those available to other customers/suppliers. The Group sold services to Vodafone for EUR 76 million in 2004, EUR 72 million in 2005 and EUR 84 million until end of October 2006, when Vodafone ceased to be a related party to the Group. Vodafone sold services to the Group for EUR 89 million in 2004, EUR 91 million in 2005 and EUR 86 million until end of October 2006. Accounts receivable from Vodafone, net of the related allowance for doubtful debtors, amounted to EUR 10 million at 31 December 2004 and EUR 35 million at 31 December 2005. Trade payables to Vodafone amounted to EUR 6 million at 31 December 2004 and EUR 27 million at 31 December 2005. Relationship with the minority shareholders of Belgacom International Carrier Services SA and subsidiaries Swisscom Fixnet AG (hereafter “Swisscom”) holds a 28% stake in BICS since 1 July 2005. The Group enters into transactions with Swisscom and its subsidiaries in the framework of its international carrier activities. Swisscom is using BICS’s network to handle their outgoing international voice and data traffic while BICS is using Swisscom’s national network to terminate international voice and data traffic to Switzerland. These transactions are done at normal customer/supplier relationships on terms and conditions that are not more favourable than those available to other customers/ suppliers. During the second half of 2005, the Group sold services to Swisscom for EUR 44 million and Swisscom sold services to the Group for EUR 43 million. In 2006, the Group sold services to Swisscom for EUR(78 million and Swisscom sold services to the Group for EUR 75 million. Accounts receivable from Swisscom, net of the related allowance for doubtful debtors, amounted to EUR 11 million at 31 December 2005 and EUR 14 million at 31 December 2006. Trade payables to Swisscom amounted to EUR 14 million at 31 December 2005 and EUR 25 million at 31 December 2006.
Note 34.3. Relationship with other State-controlled enterprises The Group supplies telecommunication services to various Statecontrolled enterprises. All such transactions are made within normal customer/supplier relationships on terms and conditions that are not more favourable than those available to other customers and suppliers. The services provided to State-controlled enterprises do not represent a significant component of the Group’s net revenue.
Note 34.4. Relationship with key management personnel Prior to the Initial Public Offering of 22 March 2004, by virtue of a decision by the General Meeting of 12 April 1995, the members of the Board of Directors who represented the Belgian State, with the exception of the Chief Executive Officer (CEO), had the right to a directors’ fee that amounted to 619.73 EUR per meeting with a maximum of 9,915.74 EUR per year. They also had the right to directors’ emoluments for an amount
equivalent to that of the directors’ fee. The Chairman of the Board of Directors had, in pursuance of that same decision, also the right to a directors’ fee and directors’ emoluments for an amount that corresponded to the double of the amounts granted to the above mentioned members of the Board of Directors. Compensation of the directors was revised subsequent to the Initial Public Offering. Since then the calculation of this compensation is as follows: an annual fixed compensation of 50,000 EUR for the Chairman of the Board of Directors and of 25,000 EUR for the other members of the Board of Directors, with the exception of the President and Chief Executive Officer. All members of the Board of Directors, with the exception of the President and Chief Executive Officer, have the right to an attendance fee of 5,000 EUR per attended meeting of the Board of Directors. Attendance fees of 2,500 EUR per meeting are granted to each member of an advising committee to the Board of Directors, with the exception of the President and Chief Executive Officer. For the Chairman these attendance fees are doubled. The total remuneration for the directors amounts to EUR 1,011,000 for 2004, EUR 1,404,375 for 2005 and EUR 1,104,000 for 2006. The directors have not received any loan or advance from the Group. The number of meetings of the Board of Directors and advising committees are detailed as follows: 2004
2005
2006
Number of meetings Board of Directors
6
9
6
Audit and Compliance Committee
4
4
5
13
8
6
3
6
4
Nomination and Remuneration Committee Strategic and Business Development Committee
For the year ended 31 December 2004, a total amount of EUR 9,039,714 was paid in aggregate to the members of the “Belgacom Management Committee” (BMC), Chief Executive Officer included. In 2004, the members of the Belgacom Management Committee were B. Cosgrave, A. De Lathauwer, D. Bellens, R. Stewart, Ph. Vander Putten, W. Mosseray, S. Alcott, J.-C. Vandenbosch (1 month) and M. Vermaerke (3 months). For the year ended 31 December 2005, a total amount of EUR 6,961,434 was paid in aggregate to the members of the “Belgacom Management Committee” (BMC), Chief Executive Officer included. In 2005, the members of the Belgacom Management Committee were B. Cosgrave, A. De Lathauwer, D. Bellens, R. Stewart, W. Mosseray, S. Alcott, Ph. Vander Putten (4 months), and M. Georgis (8 months). For the year ended 31 December 2006, a total amount of EUR 8,316,554 was paid in aggregate to the members of the “Belgacom Management Committee” (BMC), Chief Executive Officer included. In 2006, the members of the Belgacom Management Committee are B. Cosgrave, A. De Lathauwer, D. Bellens, R. Stewart, W. Mosseray, S. Alcott, M. Georgis and R. Everaert. These total amounts of key management compensation include the following components: • short-term employee benefits: annual salary (base and variable) as well as other short-term employee benefits such as medical insurance, private use of management cars, luncheon vouchers, and including social security contributions paid on these benefits. • post-employment benefits: insurance premiums paid by the Group in the name of members of the BMC. The premiums cover mainly a postretirement complementary pension plan. • termination benefits paid out. (in EUR)
Short-term employee benefits
2004
2005
2006
7,388,615
5,927,742
7,009,718
491,892
1,033,692
1,306,836
Termination benefits
1,159,207
0
0
Total
9,039,714
6,961,434
8,316,554
Post-employment benefits
In addition to these pecuniary advantages, equity compensation benefits have been granted to the BMC members through a discounted share purchase plan in 2004 and employee stock option plans in 2004, 2005 and 2006. In 2004, the BMC members had the opportunity to participate in a discounted share purchase plan whereby they purchased 510,410 shares at a 16.67% discount compared to the issuance price of the initial public offering (24.50 EUR per share). The same year, the BMC members also had the opportunity to participate to an Employee Stock Option Plan whereby they were granted 356,581 share options. In 2005, the BMC members had the opportunity to participate to an Employee Stock Option Plan whereby they were granted 340,389 share options. In 2006, the BMC members had the opportunity to participate to an Employee Stock Option Plan whereby they were granted 138,786 share options.
Note 34.5. Regulations The telecommunications sector is regulated through the legislation adopted in the Belgian parliament, through a series of Royal and Ministerial Decrees, and also through decisions of the Belgian Institute for Postal services and Telecommunications, commonly referred to as the “BIPT/ IBPT”. The Belgian licensing regime provides for individual licenses for the provision of public fixed voice telephony services, public network infrastructure services and mobile telecommunications services. The company is also governed by certain provisions and principles of Belgian public and administrative law whereby Belgacom has obligations such as the delivery of regulated services and public services.
Note 35. Rights, commitments and contingent liabilities Operating lease commitments The Group rents sites for its telecom infrastructure and leases buildings, technical and network equipment, as well as furniture and vehicles under operating leases with terms of one year or more. Rental expenses in respect of these operating leases amounted to EUR 124 million in 2004, EUR 124 million in 2005 and EUR 146 million in 2006. Future minimum rentals payable under the non-cancellable operating leases are as follows at 31 December 2006: Within one year
From 1 to 3 years
Buildings
26
38
8
3
76
Sites
11
31
10
0
51
Technical and network equipment
98
(in EUR million)
From More 3 to 5 than years 5 years
Total
38
33
10
17
Furniture
2
2
1
0
4
Vehicles
33
36
1
0
70
109
140
30
20
299
Total
Claims and legal proceedings From time to time Belgacom has been, and expects to continue to be, subject to legal, regulatory and tax proceedings and claims arising in the ordinary course of its business. The Group is currently involved in various judicial and regulatory proceedings, including those for which a provision has been made (see note 18) and those described below, in the jurisdictions in which it operates concerning matters arising in connection with the conduct of its business. These include also proceedings before the Belgian Institute for Postal services and Telecommunications (“BIPT”), appeals against decisions taken by the BIPT on the one hand, and proceedings with the Belgian tax administrations with respect to real estate withholding taxes on the other hand. In September 2002, Codenet, Versatel, Colt and Worldcom filed a complaint with the Belgian Competition Council alleging that Belgacom’s “Benefit Excellence Program” constitutes an abuse of an alleged dominant position in the market through pricing and loyalty rebates. The complainants also filed a request for interim relief measures with the President of
Consolidated financial statements · 105
the Competition Council requesting, among other things, the suspension of the program. Belgacom’s “Benefit Excellence Program”, which was launched in March 2002, is a voice telephony tariff plan aimed at large corporate users offering specific base rates for national telephony and for fixed-to-mobile calls as well as an additional discount scheme. On 22 December 2004, the President of the Competition Council rejected the complainant’s request for interim relief measures because Belgacom had clarified the way the volume discounts are applied, and stated that there was, in his opinion, no serious risk that other licensed operators would disappear because of the ‘Benefit Excellence’ tariffs (and especially the volume discount). The issue of interim relief measures having been closed successfully for Belgacom, the case on the merits with respect to the alleged infringement is still pending and no calendar for the proceedings has been set. On 7 March 2006, Belgacom received a “statement of objections” from the Corps des Rapporteurs (College of Examiners), which is conducting the ongoing investigation for the “Benefit Excellence” complaint. The statement of objections, to which Belgacom responded on 23 May 2006, considers that various Belgacom pricing plans for business customers involve infringements of the competition rules. These infringements allegedly date back to October 2000, and some of them, in particular the loyalty rebates and the so-called discriminatory pricing conditions, are considered to be still in place to date. The Corps des Rapporteurs heard Belgacom on this matter on 6 June 2006. Once the investigation is completed, the Corps des Rapporteurs will submit a reasoned report to the Belgian Competition Council, which will then have to rule on the objections raised against the Belgacom pricing schemes in question. Belgacom may be subject to an obligation to increase the retail tariffs that are the subject of the claim and if it would ultimately be found to have committed an abuse of dominant position, it may be subject to a maximum fine of up to 10% of the Group’s annual turnover. Based on this, Belgacom has provided for a portion of the claim. In June 2003, BASE filed an action against Belgacom Mobile before the Commercial Court of Brussels. BASE alleges that Belgacom Mobile’s termination rates since 1 October 2000 are not in accordance with the official telecommunications regulations requiring cost oriented pricing and that Belgacom Mobile’s Proximus-to-Proximus tariffs constitute an abuse of Belgacom Mobile’s alleged dominant position in the Belgian market. BASE’s provisional estimate of the claim for compensation, based upon BASE’s briefs in August 2004, amounts to approximately EUR 700 million in reimbursement and damages, representing the amount of lost revenue that BASE allegedly suffered as a result of these practices, and is subject to increase. On 1 March 2004, Mobistar filed a request to intervene voluntarily in the action brought by BASE against Belgacom Mobile. Mobistar alleges that if the Commercial Court of Brussels were to find that Belgacom Mobile’s termination rates were not in accordance with the obligation of cost-oriented pricing, Mobistar should be awarded damages provisionally estimated by Mobistar to range between EUR 967,000 and EUR 56,000,000 depending on the termination rates upheld by the Court. Furthermore, Mobistar alleges that in addition to the Proximus-to-Proximus tariffs, certain tariff schemes offered by Belgacom Mobile to business and corporate customers constitute an abuse of Belgacom Mobile’s allegedly dominant position. Mobistar requests the Court to appoint a court expert to calculate the amount of alleged damages and seeks compensation for such damages, provisionally estimated at a minimum of EUR 50,000,000. As with the action filed by BASE, Belgacom Mobile is contesting the claim made by Mobistar. The pleadings in this case are ongoing. Belgacom believes that its mobile termination rates are in line with the rulings of the BIPT. Accordingly, no provision was recorded in the financial statements. In February 2005, BASE filed an additional action against Belgacom Mobile before the President of the Commercial Court of Brussels. This action is intimately linked with the existing file which opposes Belgacom Mobile against BASE and Mobistar: BASE alleges that Belgacom Mobile’s Proximus-to-Proximus tariffs in certain tariff plans constitute an abuse of Belgacom Mobile’s alleged dominant position in the Belgian market, these tariffs being lower than for calls to the other mobile networks and the tariff difference not being justified by a difference in underlying termination costs. On the basis of these allegations, BASE this time requested a cease-and-desist order of certain tariff plans. On 12 December 2005, the
106 · Belgacom annual report 2006
President of the Brussels Commercial Court ruled that there is no possible abuse of dominant position by Belgacom Mobile as the latter is considered not dominant on the mobile market. Consequently the request for a cease-and-desist order of certain Proximus–to-Proximus tariff schemes is rejected. On 19 January 2006, the Belgian Competition Authority performed a dawn raid at Belgacom Mobile’s premises based upon a complaint of Base dated 7 October 2005, alleging abusive pricing on the professional market. Several documents have been seized during this office search. Since then, the Competition Authority requested Belgacom Mobile to submit information and documentation as to its activities on the professional market. If the Competition Authority would ultimately find that Belgacom Mobile committed an abuse of dominant position, it may be subject to a maximum fine of up to 10% its annual turnover.
Capital expenditure commitments At 31 December 2006, the Group has contracted commitments of EUR 59 million, mainly for the acquisition of intangible assets and technical and network equipment.
Other rights and commitments At 31 December 2006, the Group has the following other rights and commitments: • The Group received bank guarantees from its suppliers and other third parties to guarantee the completion of contracts or works ordered by the Group for an amount of EUR 19 million; • The Group granted bank guarantees for an amount of EUR 37 million to its customers and other third parties to guarantee, among others, the completion of contracts, works ordered by its clients and the payment of rental expenses for renting of sites for antennas installation; • Belgacom has a right, established by Belgian legislation with respect to Universal Services, to receive a compensation from the Universal Services Obligation fund for offering Social Tariffs for the years 2005 and 2006. Since this right is contested by some operators and is under investigation by the European Commission, the Group qualifies the compensation receivable as a contingent asset; • The Group grante uarantees for EUR 4 million to the Walloon Region of Belgium to guarantee execution by Wallonie Intranet SA (hereafter “WIN SA”) of all obligations provided for in WIN SA’s contractual agreement with the Walloon Region. The commitment, which is renewable, amounts to EUR 7 million.
Note 36. Cross-border lease arrangements During the period 1996 through 2001, the Group entered into several cross-border lease arrangements with foreign investors relating to part of its fixed and mobile switches equipment. Under the terms of these agreements, which range in duration from 13 to 16 years, the Group received at the inception date of the arrangements a total amount of USD 681 million and placed a total amount of USD 652 million on deposit. The Group entered, in respect of the deposits, into non-refundable payment undertaking agreements with highly rated banks. In respect of these arrangements, the Group received fees from the foreign investors or realized gains for a total amount of EUR 23 million. These fees or gains are recognized in the income statement under the caption “other operating revenue” over the lifetime of the respective agreements. The fees effectively recognized in income amount to EUR 1.6 million in 2004 and 2005 and EUR 1.4 million in 2006. On 25 September 2002, the Group sold its investment in Ben Nederland Group but agreed it will continue to guarantee the payment of leasing debts amounting at 31 December 2006 to USD 47 million (EUR 36 million), in case the payment undertakers on the related crossborder lease arrangement would become insolvent. The risk that this guarantee will result in a payment by the Group is mitigated by the fact that the deposit institutions involved are rated AAA or AA by Standard & Poors. The term of the related leasing debt expires in 2012.
Early buy-out have been exercised by the Group with effect in January 2005 (for an arrangement of 1996 amounting to USD 71 million at inception), in January 2006 (for the second arrangement of 1996 amounting to USD 87 million at inception) and in January 2007 (for part of an arrangement of 1997 amounting to USD 67 million at inception).
(in EUR million as of 31 December 2005)
2006
15
15
947
947
0
67
67
0
Other current assets
13
41
41
0
Cash and cash equivalents
15
798
798
0
Interest-bearing liabilities, non-current and current
17
-111
-111
0
Other non-current payables
19
Trade payables Assets
Income tax payable
Non-current investments (1)
11
6
7
7
Current investments (1)
14
81
86
91
Cash and cash equivalents (1)
15
325
798
236
Non-current derivatives
11
59
50
17
17
-303
-296
-1,917
0
11 12
Financial liabilities
2005
Difference
Trade receivables
The Group defines net financial position as the net amount of investments, cash and cash equivalents, interest-bearing liabilities and related derivatives (including re-measurement to fair value). 2004
Estimated fair value
Other non-current assets
Note 37. Net financial position of the Group
Note
Carrying amount
Financial assets
Current income tax asset
(in EUR million - as of 31 December)
Note
Other current payables
20
-1
-1
0
-1,038
-1,038
0
-202
-202
0
-219
-219
0
Net difference between recorded amount and estimated fair value
0
Liabilities Non-current interestbearing liabilities (1) Current interestbearing liabilities (1)
17
Net financial position
-58
-111
-71
110
534
-1,636
(in EUR million as of 31 December 2006)
Note
Carrying amount
Estimated fair value
Difference
Financial assets Other non-current assets
11
19
19
0
(1) After remeasurement to fair value, if applicable.
Trade receivables
12
1,207
1,207
0
Non-current interest-bearing liabilities include non-current derivatives at fair value amounting to EUR 30 million in 2004, EUR 33 million in 2005 and EUR 21 million in 2006 (see note 17).
Current income tax asset
97
97
0
Other current assets
13
39
39
0
Cash and cash equivalents
15
236
236
0
Financial liabilities
Note 38. Fair value of financial instruments
Interest-bearing liabilities, non-current and current
17
-1,735
-1,725
9
Other non-current payables
19
-4
-4
0
The estimated fair values of financial assets and liabilities which are not carried at fair value in the balance sheet are presented in the following tables:
Trade payables
-1,086
-1,086
0
-189
-189
0
-333
-333
0
(in EUR million as of 31 December 2004)
Note
Carrying amount
Estimated fair value
Income tax payable Other current payables
Difference
Net difference between recorded amount and estimated fair value
20
9
Financial assets Other non-current assets
11
14
14
0
Trade receivables
12
844
844
0
50
50
0
Current income tax asset Other current assets
13
31
31
0
Cash and cash equivalents
15
325
325
0
Interest-bearing liabilities, non-current and current
17
-32
-33
0
Other non-current payables
19
-2
-2
0
-782
-782
0
-224
-224
0
-237
-237
0
Financial liabilities
Trade payables Income tax payable Other current payables Net difference between recorded amount and estimated fair value
20
0
Consolidated financial statements · 107
Note 39. Share-based Payment
The evolution of the stock option plans is as follows: Number of stock options
Discounted Share Purchase Plans In 2004, 2005 and 2006, the Group launched Discounted Share Purchase Plans (hereafter “DSPP”). Under the 2004 plan, Belgacom sold 1,842,026 shares to all employees with a discount of 16.67% compared to the issuance price of the initial public offering (24.50 EUR per share). Under the 2005 and 2006 plans, Belgacom sold respectively 139,198 shares and 138,549 shares to the senior management of the Group at a discount of 16.67% compared to the market price (respectively 29.92 EUR and 25.94 EUR per share). The cost of the discount amounted to EUR 8 million in 2004, EUR 0.7 million in 2005 and EUR 0.6 million in 2006 and was recorded in the income statement as personnel expenses (see note 27).
Employee Stock Option Plans In 2004, 2005 and 2006, Belgacom launched Employee Stock Option Plans (hereafter “ESOP”) whereby respectively 1,128,500, 538,541 and 608,928 share options were granted to the key management and senior management of the Group. The Group has early adopted IFRS 2 (“Share-based Payments”) in 2004, as issued on 19 February 2004 by recognizing the fair value of the share options at inception date over their vesting period (three years) in accordance with the graded vesting method. Such fair value amounts to EUR 5 million for the plan of 2004, EUR 2 million for the 2005 plan and EUR 2 million for the 2006 plan. The annual charge of the graded vesting is recognized in the income statement as personnel expenses and amounts to EUR 2 million in 2004, EUR 3 million in 2005 and EUR 2 million in 2006. At the moment of exercise, the employee will pay the exercise price of 24.50 EUR per share for the 2004 plan, 29.92 EUR per share for the 2005 plan and 25.94 EUR per share for the 2006 plan, with physical delivery of the share. The share options are exercisable until 22 March 2011 for the 2004 plan, 21 April 2012 for the 2005 plan and 24 April 2013 for the 2006 plan at the latest, except for the 2004 plan where the share options of the President and Chief Executive Officer are exercisable until 2012 at the latest. Only the 2005 and 2006 plans provide the beneficiaries with a right to the dividends declared after granting the options. The three plans have slightly different specific vesting conditions and exercise periods for the share options in case of voluntary or involuntary leave of a plan participant. For the 2004 plan, in case of voluntary leave of the employee, all unvested options forfeit except during the first year, for which the first third of the options vests immediately and must be exercised within two years as from the date of leave. In case of involuntary leave of the employee, all unvested options vest immediately and must be exercised within two years as from the date of leave. For the 2005 and 2006 plans, in case of voluntary leave of the employee, all unvested options forfeit except during the first year, for which the first third of the options vests immediately and must be exercised within two years as from the date of leave. In case of involuntary leave of the employee, all unvested options vest immediately and must be exercised within two years as from the date of leave or as a minimum 3 years as from 1 January of the year following the grant date.
Plan 2004
Plan 2005
Plan 2006
Outstanding at 1 January 2004
0
-
-
Movements during the period:
0
-
-
• Granted • Forfeited • Exercised • Expired
1,128,500
-
-
0
-
-
0
-
-
0
-
-
Outstanding at 31 December 2004
1,128,500
-
-
0
-
-
Exercisable at 31 December 2004 Movements during the year
• Granted • Forfeited • Exercised • Expired Total
-
538,541
-
-21,114
-
-
-169,435
-
-
-
-
-
-190,549
538,541
-
Outstanding at 31 December 2005
937,951
538,541
-
Exercisable at 31 December 2005
210,255
0
608,928
Movements during the year
• Granted • Forfeited • Exercised • Expired
-
-
-5,583
-1,600
-
-196,188
-5,562
-9,265
-
-
-
Total
-201,771
-7,162
599,663
Outstanding at 31 December 2006
736,180
531,379
599,663
Exercisable at 31 December 2006
386,879
177,562
31,722
The following assumptions were applied for determining the weighted average fair value of the stock options at grant date:
Option pricing model Contractual life of the options
Plan 2004
Plan 2005
Plan 2006
Binomial
Black Scholes
Black Scholes
7 years
7 years
7 years
Expected life
5 (to 6) years
6 years
6 years
Exercise price
EUR 24.50
EUR 29.92
EUR 25.94
27.50%
18.00%
21.00%
Expected volatility (compared to peer group volatility) Expected dividend pay-out ratio Risk free interest rate
Fair value of options granted
50% - 60% 50% - 60% 50% - 60% Euro swap annual rate
Euro swap annual rate
Zero coupon derived from IRS yield cruve
EUR 4.29
EUR 4.15
EUR 4.02
Weighted average share price at exercise during the year 2005
EUR 32.96
-
-
Weighted average share price at exercise during the year 2006
EUR 31.87
EUR 32.67
EUR 31.98
4
5
6
Weighted average remaining contractual life (years)
The volatility has been estimated based on the actual trading statistics of the share and taking into account alignment to certain peers, comparable in terms of risk profile.
108 · Belgacom annual report 2006
Note 40. Relationship with the auditors
Note 41. Segment reporting
The Group expensed during the year 2006 an amount of EUR 298,169 for non-mandate fees for the Group’s auditors. This amount is detailed as follows: (in EUR)
Other mandatory audit missions Tax advice
Auditor
Network of auditor
91,341
54,044
4,375
26,661
Other missions
119,464
2,284
Total
215,180
82,989
(in EUR million - year ended 31 December 2004)
Net revenue
The Board of Directors and the Chief Executive Officer manage the operations of Belgacom Group by business segments. These business segments are the primary segments and are described as follows: • Fixed Line Services. This segment provides retail voice, data, Internet and network integration services, to residential and business customers in Belgium, as well as regulated and commercial wholesale services to other carriers and service providers in Belgium. • Mobile Communications Services. This segment provides retail mobile telephony services to residential and business customers in Belgium and provides wholesale data services to third parties. • International Carrier Services. This segment provides voice, data and capacity and infrastructure services to telecommunications operators worldwide. The Group’s head office and central functions are included for financial reporting purposes within the Fixed Line Services segment. When a legal entity includes more than one segment, adjustments for intersegment pricing are determined on an arm’s length basis. Segment results, assets and liabilities include items attributable to a segment as well as those that can be allocated on a reasonable basis.
Fixed Line Services
Mobile Communications Services
International Carrier Services
Intersegment eliminations
Total
2,837
2,022
556
0
5,415
Other operating revenue
101
24
0
0
125
Intersegment revenue
154
193
88
-435
0
3,092
2,239
645
-435
5,540
1,257
1,135
2
0
2,394
Total segment revenue Total segment result
(1)
Non-recurring expense Operating income before depreciation and amortization Depreciation and amortization Operating income/(loss) Finance costs (net)
-41
0
0
0
-41
1,216
1,135
2
0
2,353
-500
-227
-15
0
-742
717
907
-13
0
1,611 -27
-
-
-
-
-1
-
-
-
-1
Income before taxes
-
-
-
-
1,583
Tax expense
-
-
-
-
-508
Net income
-
-
-
-
1,075
Minority interests
-
-
-
-
152
Net income (group share)
-
-
-
-
922
Fixed Line Services
Mobile Communication Services
International Carrier Services
Unallocated
Total
Loss from enterprises accounted for using the equity method
(1) Operating income before depreciation and amortization and before non-recurring expenses.
(in EUR million - as of 31 December 2004)
Enterprises accounted for under the equity method
26
-
-
-
26
2,807
1,130
242
1,189
5,368
Segment liabilities
-794
-406
-226
-1,721
-3,145
Capital expenditure
338
205
13
-
556
-20
Segment assets
Impairment losses recorded in the income statement
• on intangible assets, property, plant & equipment (into segment result)
• on consolidated companies (into segment result) • on other participating interests (into finance costs)
0
0
-20
-
-1
-
-
-
-1
-20
-
-
-
-20
Consolidated financial statements · 109
Fixed Line Services
Mobile Communications Services
International Carrier Services
InterSegment Eliminations
Total
2,745
2,001
637
0
5,384
52
17
5
0
74
163
163
70
-396
0
Total segment revenue
2,961
2,181
713
-396
5,458
Total segment result (1)
1,147
1,041
27
-1
2,214
Non-recurring revenue
238
0
0
0
238
Non-recurring expense
-355
0
0
0
-355
1,031
1,041
27
-1
2,098
-492
-214
-20
1
-726
538
827
7
0
1,372
Finance revenue (net)
-
-
-
-
64
Income before taxes
-
-
-
-
1,436
Tax expense
-
-
-
-
-339
Net income
-
-
-
-
1,098
Minority interests
-
-
-
-
139
Net income (group share)
-
-
-
-
959
Fixed Line Services
Mobile Communication Services
International Carrier Services
Unallocated
Total
(in EUR million - year ended 31 December 2005)
Net revenue Other operating revenue Intersegment revenue
Operating income before depreciation and amortization Depreciation and amortization Operating income
(1) Operating income before depreciation and amortization and before non-recurring revenue and expenses.
(in EUR million - as of 31 December 2005)
Segment assets
2,874
1,155
335
1,467
5,831
Segment liabilities
952
655
279
1,354
3,240
Capital expenditure
488
195
19
-6
696
-2
-2
-1
-
-5
Impairment losses recorded in the income statement
• on intangible assets, property, plant & equipment (into segment result)
110 ¡ Belgacom annual report 2006
(in EUR million - year ended 31 December 2006)
Net revenue
Fixed Line Services
Mobile Communications Services
International Carrier Services
InterSegment Eliminations
Total
3,367
1,975
680
0
6,022 78
Other operating revenue
57
20
1
0
206
141
54
-401
0
Total segment revenue
3,630
2,136
736
-401
6,100
Total segment result (1)
1,116
1,000
33
0
2,149
Operating income before depreciation and amortization
1,116
1,000
33
0
2,149
Depreciation and amortization
-568
-214
-20
0
-802
547
786
13
0
1,347
Finance revenue (net)
-
-
-
-
104
Income before taxes
-
-
-
-
1,451
Tax expense
-
-
-
-
-358
Net income
-
-
-
-
1,093
Minority interests
-
-
-
-
121
Net income (group share)
-
-
-
-
973
Fixed Line Services
Mobile Communication Services
International Carrier Services
Unallocated
Total
Segment assets
3,450
2,694
292
863
7,300
Segment liabilities
1,144
653
274
2,828
4,900
Capital expenditure
448
214
15
-
676
-6
-10
-
-
-16
Intersegment revenue
Operating income
(1) Operating income before depreciation and amortization and before non-recurring revenue and expenses.
(in EUR million - as of 31 December 2006)
Impairment losses recorded in the income statement
• on intangible assets, property, plant & equipment (into segment result)
For secondary segment reporting purposes, the Group has defined groups of countries characterized by similar economic environment and risks and returns. The group of countries “Western Europe” represents more than 90% of total revenue and total assets of the Group. As a consequence, the company concluded that it must not present secondary segment information.
Note 42. Recent IFRS pronouncements The Group does not early apply any standards or interpretations that are adopted for use in the European Union but not yet effective at 31 December 2006. The Group will investigate the possible impact of the application of such new standards or interpretations on the Group’s financial statements in the course of 2007.
Note 43. Post balance sheet events Shareholder return The Belgacom Board of Directors decided on 1 March 2007 to propose to the Annual General Meeting of 11 April 2007 an ordinary dividend of EUR 552 million (EUR 1.6 dividend per share), on top of the interim dividend paid in December 2006. Furthermore, the Board of Directors feels that the current level of net financial debt is acceptable and at this time sees no need to further reduce this position.
Cancellation of shares The Board of Directors decided on 1 March 2007 to propose to the Extraordinary General Meeting of 11 April 2007 a cancellation of 23,750,000 treasury shares.
Mobistar stake In January and February 2007, Belgacom sold its remaining stake in Mobistar for a total amount of EUR 166 million. The last tranche of 2,274,043 shares was sold on 22 February 2007 for a price of EUR 65 per share or a total amount of EUR 148 million.
Restructuring following acquisition of the Vodafone stake in Belgacom Mobile Following the acquisition of the Vodafone 25% stake in Belgacom Mobile, Belgacom continues to pursue a full convergence strategy offering integrated solutions to its customers. To continue the transformation process, the Belgacom Management Committee has redefined the senior management structure and has appointed the people who will be in charge of the new key positions within the Group. This is only a first step in the redefinition of the organization. In the coming weeks and months, Belgacom will continue to fine-tune and implement its new structure. For Staff and Support services, Belgacom is working towards an integration of all functions at Group level. The other Business Units will operate in a matrix structure whereby most senior managers will get a hierarchical and a matrix (Fixed/Mobile convergence) responsibility. For the above mentioned restructuring, the Belgacom Management Committee will work closely together with the social partners. Belgacom is convinced that its workforce can be optimized through natural attrition, further external mobility projects and voluntary leaves . Expectation is that the Group’s headcount will be reduced by about 1,500 people between now and 2011, on top of the “Collective Agreement” of 2005.
Consolidated financial statements · 111
> report of the auditor Ernst & Young Reviseurs d’Entreprises Bedrijfsrevisoren Avenue Marcel Thiry 204 Marcel Thirylaan 204 B-1200 Bruxelles - Brussel
Tel: +32 (0)2 774 91 11 Fax: +32 (0)2 774 90 90
REPORT OF THE AUDITOR TO THE GENERAL MEETING OF SHAREHOLDERS OF BELGACOM SA DE DROIT PUBLIC/NV VAN PUBLIEK RECHT ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2006 In accordance with legal requirements, we report to you on the performance of the audit mandate that has been entrusted to us. This report contains our opinion on the consolidated financial statements as well as the required additional comments and information.
Unqualified opinion on the consolidated financial statements We have audited the consolidated financial statements of Belgacom SA de droit public/NV van publiek recht and its subsidiaries (collectively referred to as “the Group”) for the year ended 31 December 2006, prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union, and with the legal and regulatory requirements applicable in Belgium. These consolidated financial statements comprise the consolidated balance sheet as at 31 December 2006, and the consolidated statement of income, changes in equity and cash flow for the year then ended, as well as the summary of significant accounting policies and other explanatory notes. The consolidated balance sheet shows total assets of EUR 7,300 millions and the consolidated income statement shows a profit for the year, share of the Group, of EUR 973 millions. Responsibility of the Board of Directors for the preparation and fair presentation of the consolidated financial statements The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Responsibility of the auditor Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with legal requirements, and the auditing standards applicable in Belgium, as issued by the Institute of Registered Auditors (“Institut des Réviseurs d’Entreprises/Instituut der Bedrijfsrevisoren”) and International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. In accordance with these standards, we have performed procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we have considered internal control relevant to the Group’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. We have evaluated the appropriateness of accounting policies used, the reasonableness of significant accounting estimates made by the Group and the presentation of the consolidated financial statements, taken as a whole. Finally, we have obtained from the Board of Directors and the Group’s officials the explanations and information necessary for executing our audit procedures. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, the consolidated financial statements for the year ended 31 December 2006 give a true and fair view of the Group’s financial position as at 31 December 2006 and of the results of its operations and its cash flows in accordance with IFRS as adopted for use by the European Union, and with the legal and regulatory requirements applicable in Belgium.
Additional comments and information The preparation and the assessment of the information that should be included in the annual report on the consolidated financial statements are the responsibility of the Board of Directors. Our responsibility is to include in our report the following additional comments and information, which do not modify the scope of our opinion on the consolidated financial statements: • The annual report on the consolidated financial statements deals with the information required by law and is consistent with the consolidated financial statements. We are, however, unable to comment on the description of the principal risks and uncertainties which the entities included in the consolidation are facing, and on their situation, their foreseeable evolution or the significant influence of certain facts on their future development. We can nevertheless confirm that the matters disclosed do not present any obvious inconsistencies with the information that we became aware of during the performance of our mandate. Brussels, 12 March 2007
Ernst & Young Reviseurs d’Entreprises SCCRL/ Bedrijfsrevisoren BCVBA represented by
Marnix Van Dooren Partner 112 · Belgacom annual report 2006
from the Belgian GAAP > extract non-consolidated financial statements of Belgacom SA under public law
contents 114 > Income statement 116 > Balance sheet after appropriation 118 > Appropriation statement
The financial information presented in this caption is an extract of the non-consolidated financial statements of Belgacom SA under public law as approved by the General Assembly on 11 April 2007 and as communicated to the National Bank of Belgium (in Dutch and French) in the month following the General Assembly. These financial statements were prepared in conformity with the accounting and reporting laws and regulations applicable in Belgium (“Belgian GAAP”). The Joint Auditors of Belgacom SA de droit public/ Belgacom NV van publiek recht have issued an unqualified opinion with respect to such nonconsolidated financial statements. A full set of the financial statements of Belgacom SA under Public Law is available on the Belgacom web site (www.belgacom.be/investor/en) as soon as they will be filed at the National Bank of Belgium.
Extract from the Belgian GAAP non-consolidated financial statements · 113
> income statement
(in EUR million - year ended 31 December)
2004
2005
2006
I.
Operating income
3,713
3,041
3,045
A. Turnover
3,525
2,856
2,828
0
0
2
124
134
169
65
51
46
-2,971
-2,337
-2,410
165
173
203
170
179
207
-5
-6
-4
1,522
994
1,070
C. Remuneration, social security costs and pensions
784
730
710
D. Depreciation of and other amounts written off formation expenses, intangible and tangible fixed assets
495
425
399
B. Increase (+); Decrease (-) in stocks of finished goods, work and contracts in progress C. Own construction capitalised D. Other operating income II.
Operating charges A. Raw materials, consumables and goods for resale 1. Purchases 2. Increase (-); Decrease (+) in stocks B. Services and other goods
E. Increase (+); Decrease (-) in amounts written off stocks, contracts in progress and trade debtor
-2
-4
-7
-21
2
12
28
17
21
0
0
0
Operating profit
743
703
635
Financial income
88
11
14
A. Income from financial fixed assets
61
0
0
3
4
8
24
7
6
-219
-208
-280
185
192
266
F. Increase (+); Decrease (-) in provisions for liabilities and charge G. Other operating charges H. Operating charges capitalised as reorganization costs III. IV.
B. Income from current assets C. Other financial income V.
Financial Charges A. Interest and other debt charges B. Increase (+); Decrease (-) in amounts written off current assets other than mentioned under II.E. C. Other financial charges
VI.
Profit on ordinary activities before taxes
114 · Belgacom annual report 2006
0
0
0
35
15
14
612
507
369
(in EUR million - year ended 31 December)
VI. VII.
Profit on ordinary activities before taxes Extraordinary income
32
351
68
0
0 66 0
Extraordinary charges
C. Provisions for extraordinary liabilities and charges (increase+, decrease -) D. Loss on disposal of fixed assets E. Other extraordinary charges F. Extraordinary charges capitalised as reorganization costs Profit for the period before taxes
IXbis. A. Transfer from deferred taxation
5
0
26
333
1
0
0
0
-95
-466
-45
0
0
1
22
4
5
-84
306
-130
0
0
0
157
155
168
0
0
0
549
392
392
0
0
0
-6
0
0
Income taxes
2
0
0
A. Income taxes
0
0
0
B. Adjustment of income taxes and write-back of tax provisions
2
0
0
544
392
392
B. Transfer to deferred taxation
XIII.
369
18
B. Amounts written off financial fixed assets
XII.
507
0
A. Extraordinary depreciation of and extraordinary amounts written off formation expenses, intangible and tangible fixed assets
XI.
612
0
E. Other extraordinary income
X.
2006
B. Adjustments to amounts written off financial fixed assets D. Gain on disposal of fixed assets
IX.
2005
A. Adjustments to depreciation of and to other amounts written off intangible and tangible fixed assets C. Adjustments to provisions for extraordinary liabilities and charges
VIII.
2004
Profit for the period
0
0
1
Transfer to untaxed reserve
Transfer from untaxed reserve
-12
0
0
Profit for the period available for appropriation
532
392
393
Extract from the Belgian GAAP non-consolidated financial statements · 115
> balance sheet after appropriation
(in EUR million - as of 31 December)
2004
2005
2006
11,809
11,853
14,889
0
0
0
ASSETS FIXED ASSETS I.
Formation expenses
II.
Intangible assets
137
105
83
III.
Tangible assets A. Land and buildings B. Plant, machinery and equipment C. Furniture and vehicles D. Leasing and other similar rights E. Other tangible assets F. Assets under construction and advance payments
1,680 234 1,254 29 74 34 55
1,566 225 1,175 25 52 28 63
1,567 215 1,152 24 41 21 113
IV.
Financial assets A. Affiliated enterprises 1. Participating interests 2. Amounts receivable B. Other enterprises linked by participating interests 1. Participating interests 2. Amounts receivable C. Other financial assets 1. Shares 2. Amounts receivable and cash guarantees
9,991 9,911 9,911 0 45 45 0 35 34 1
10,182 10,170 10,170 0 0 0 0 12 11 1
13,239 13,232 13,232 0 0 0 0 7 7 0
1,005
1,787
1,401
3 0 3
3 0 3
2 0 2
CURRENT ASSETS V.
Amounts receivable after more than one year A. Trade debtors B. Other amounts receivable
VI.
Inventories and contracts in progress A. Inventories 1. Raw materials and consumables 2. Work in progress 4. Goods purchased for resale B. Contracts in progress
40 40 25 0 15 0
45 44 24 0 20 1
49 49 22 0 27 0
VII.
Amounts receivable within one year A. Trade debtors B. Other amounts receivable
661 643 18
539 514 25
553 534 19
VIII.
Investments A. Own shares B. Other investments and deposits
279 271 8
570 564 6
762 754 8
IX.
Cash at bank and in hand
10
618
17
X.
Deferred charges and accrued income
12
13
17
12,813
13,640
16,290
Total assets
116 · Belgacom annual report 2006
(in EUR million - as of 31 December)
2004
2005
2006
LIABILITIES AND SHAREHOLDERS’ EQUITY SHAREHOLDERS’ EQUITY
4,964
4,819
4,560
I.
Capital
1,000
1,000
1,000
II.
Share premium account
0
0
0
III.
Revaluation surplus
IV.
Reserves A. Legal reserve B. Reserve not available for distribution C. Untaxed Reserves D. Reserves available for distribution
V. VI.
0
0
0
3,964 100 293 17 3,554
3,818 100 601 17 3,100
3,560 100 812 17 2,631
Profit (loss) carried forward
0
0
0
Investment grants
0
0
0
PROVISION AND DEFERRED TAXATION
859
1,170
1,052
VII.
852 0 0 0 852
1,164 0 0 0 1,164
1,046 0 0 0 1,046
7
6
6
A. Provisions for liabilities and charges 1. Pensions and similar obligations 2. Taxation 3. Major repairs and maintenance 4. Other liabilities and charges B. Deferred taxation
LIABILITIES
6,991
7,652
10,678
VIII.
Amounts payable after more than one year A. Financial debts 1. Subordinated debentures 2. Unsubordinated debentures 3. Leasing and similar obligations 4. Credit institutions 5. Other loans D. Other amounts payable
3,612 3,611 0 217 0 3,036 359 1
3,997 3,997 0 217 0 3,421 359 0
5,817 5,817 0 1,867 0 3,591 359 0
IX.
Amounts payable within one year A. Current portion of amounts payable after more than 1 year B. Financial debts 1. Credit institutions 2. Other loans C. Trade creditors 1. Suppliers 2. Suppliers bills D. Advances received on contracts in progress E. Taxes, remuneration and social security 1. Taxes 2. Remuneration and social security F. Other amounts payable
3,214 870 849 849 0 619 619 0 24 140 19 122 712
3,514 815 1,572 1,572 0 427 427 0 17 140 18 122 544
4,712 826 2,764 2,764 0 374 374 0 14 167 47 119 567
X.
Accrued charges and deferred income
164
140
149
12,813
13,640
16,290
Total libabilities and shareholders’ equity
Extract from the Belgian GAAP non-consolidated financial statements · 117
> appropriation statement
(in EUR million - year ended 31 December)
2004
2005
2006
A.
ProďŹ t to be appropriated
532
392
393
B.
Transfers from capital and reserves
196
162
278
C.
Transfers to capital and reserves
-21
-16
-20
F.
Distribution of proďŹ t
-706
-537
-651
118 ¡ Belgacom annual report 2006
> glossary 3G
Third-generation mobile telephony, better known as UMTS (Universal Mobile Telecommunications System).
ADSL
(Asymmetric Digital Subscriber Line): Technology which allows a high-speed, point-to-point digital connection over a copper pair.
ADSL2+
Advanced version of ADSL, which allows a bandwidth of up to 15 Mbps.
ARPU
(Average Revenue Per Unit): An indicator for determining a customer’s profitability.
ATM
(Asynchronous Transfer Mode): A technique enabling high-speed transfer of digital data. It consists in dividing information flow (voice, data and image) into fixed-size packets, known as “cells”.
BACKBONE
A high bandwidth line which acts as the mainstay linking access providers to the world network.
BILAN
(Belgacom Interconnection of LAN): A total telecom solution based on the Internet Protocol (IP), Frame Relay and ATM networks.
BLOG
A website on which one or several persons express their views on a regular basis.
BROADBAND
A high bandwidth network capable of transmitting large data flows.
BROBA
(Belgacom Reference Offer for Bitstream Access): Belgacom’s reference offer for binary rate access.
BRUO
(Belgacom Reference Unbundling Offer): Belgacom’s reference offer for local loop unbundling.
CDMA
(Code Division Multiple Access): A digital technique in which different conversations can be transmitted simultaneously and are differentiated by being tagged with a code.
DVB-H
(Digital Video Broadcasting - Handheld): Digital, microwave radio broadcasting system intended for reception on handheld devices.
DVB-T
(Digital Video Broadcast - Terrestrial): Broadcasting standard (signal transmission) of digital television via radio waves.
EPG FRAME RELAY
(Electronic Program Guide): Standard enabling the broadcasting, in teletext mode, of scheduled television programs in the form of an on-screen interactive guide. Data transmission protocol that divides a physical communications line into several virtual channels.
GPRS
(General Packet Radio Service): A second-generation mobile telephony standard. It enables direct Internet access and data exchange at speeds 18 times faster than those of the GSM protocol and allows volume-based pricing.
GSM
(Global System for Mobile Communications): An abbreviation which is often synonymous, in common parlance, with the mobile telephone or terminal. It is actually a European standard for a common digital cellular telephony system.
HDTV
(High Definition Television): High-resolution television, a sound and image quality standard which is still in development.
HSDPA
(High Speed Downlink Packet Access): A protocol for mobile telephony, sometimes called 3.5 G or even 3 G+.
IP
(Internet Protocol): A protocol for transmitting data packets, used for routing and transporting messages via the Internet.
IP VPN
(IP Virtual Private Network): A VPN offers the advantages of a private network (security, etc.) while using public infrastructures. The user thereby saves on network management and infrastructure costs. ISDN (Integrated Services Digital Network): A fully digitized fiber-optic network enabling simultaneous, high-speed transmission of voice, text, data and images (still or animated). ISP (Internet Service Provider): An organization that offers a connection to the Internet computer network. MMS (Multimedia Messaging Service): A technology for illustrating text messages (displayed on a mobile telephone) with photos, video and/or audio clips. MOBLOG Content posted to the Internet from a mobile device, such as a cellular telephone or personal assistant (PDA). MPEG-2/MPEG-4 (Moving Picture Experts Group): Standard for video compression. MPEG-4, which is more powerful (delivers the same quality as MPEG-2 with smaller packets of data), is the standard of the future for digital television applications. PABX (Private Automatic Branch eXchange): A company exchange around which the company’s internal telephone network is organized. It also enables data transmission. QUADRUPLE-PLAY A combined offer consisting of fixed and mobile telephony, Internet and television services from a high-speed access. SDSL (Symmetric Digital Subscriber Line): Technology that transports data at speeds of up to 2.3 Mbps, upstream and downstream. STREAMING A technique for downloading multimedia files enabling surfers to read the file in real-time, without waiting for full download. This is the case, for example, with sound or video on the Internet. TCP-IP (Transmission Control Protocol - Internet Protocol): A protocol used in conjunction with Internet Protocol (IP) to transmit data in billing units (datagrams or packets) between computers via the Internet. IP processes the actual delivery of data, whereas TCP ensures the followup of individual units of data to ensure they are routed efficiently over the Internet. TRIPLE-PLAY A combined offer consisting of fixed telephony, Internet and television from a high-speed access. UMTS (Universal Mobile Telecommunication System): A thirdgeneration mobile telecommunications system capable of providing multimedia services at a very high speed. VDSL (Very High Rate Digital Subscriber Line): An advanced version of ADSL, which allows a bandwidth of up to 20 Mbps. VOD (Video On Demand): An interactive video system, with the same functionalities as a VCR, which allows users to order films or television programs remotely and against payment. VOIP (Voice over Internet Protocol): A technique for transmitting voice conversations over the Internet or any other network supporting the TCP/IP protocol. VPN (Virtual Private Network): A private network whose architecture is based on the use of the TCP-IP protocol. WDM ([Dense] Wavelength Division Multiplexing): A technique enabling several independent flows of digital information to coexist on the same optical fiber. WIFI Stands for “Wireless fidelity”. WiFi technology enables short-range, wireless, high-speed surfing via a hotspot.
Glossary · 119
> general information
Additional Information
Disclaimer
Corporate name and legal form The autonomous public-sector company Belgacom is a Société anonyme de droit public/Naamloze vennootschap van publiek recht (limited liability company under public law) as defined by the Law of 21 March 1991 on the reform of certain public-sector commercial undertakings and organized under the laws of Belgium.
This communication contains forward-looking statements, including statements about the Company’s beliefs and expectations. These statements are based on the Company’ s current plans, estimates and projections, as well as its expectations of external conditions and events. Forward-looking statements involve inherent risks and uncertainties and speak only as of the date they are made. The Company undertakes no duty to and will not necessarily update any of them in light of new information or future events, except to the extent required by Belgian law. The Company cautions investors that a number of important factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements.
The Company is subject to the statutory and regulatory provisions of commercial law applicable to companies limited by shares in all matters not expressly determined by (or by virtue of) the Law of 21 March 1991 or specific legislation of any kind. Registered Office Boulevard du Roi Albert II/Koning Albert II-laan, 27 1030 Brussels Belgium VAT BE 0202.239.951 Brussels Register of Legal Entities Brussels Trade Registry 587.163 Consultation of the issuer’s documents The public documents concerning the issuer can be consulted at the registered office. Date of constitution The company was established as an autonomous public sector company, governed by the Law of 19 July 1930 setting up the Belgian National Telephone and Telegraph Company, the RTT (Régie des Téléphones et Télégraphes/Regie van telegraaf en telefoon). The transformation of Belgacom into a SA of public law was implemented by the Royal Decree of 16 December 1994, which was published in the Belgian Official Gazette on 22 December 1994, and went into effect on the same day. Objects of the Company As described in the Article 3 of the Articles of Association, the Company’s objects are: 1. to develop services within the field of telecommunications in Belgium or elsewhere; 2. to take all actions aimed at promoting, directly or indirectly, its activities or ensuring optimal use of its infrastructure; 3. to acquire participating interests in bodies, companies or associations – whether existing or to be created, Belgian, foreign or international, and public or private sector – that may contribute, directly or indirectly, to the achievement of its corporate objects; 4. to provide radio and television broadcasting services.
Editor-in-chief: Thierry Bouckaert Bd du Roi Albert II/Koning Albert II-laan, 27 – B - 1030 Brussels Conception and coordination: Frédéric Herzeele - Corporate Communication Manager Nancy Goossens - Investor Relations Officer Franck Vanbelle - Corporate Content & Publication Manager Graphics: Chris Communications - www.chriscom.be Prepress: Snel Grafics Printing: Massoz Pictures: Belgacom, Jean-Michel Byl, Getty Images and Corbis
120 · Belgacom annual report 2006
For financial information, please contact Ingvild Van Lysebetten Head of Investor Relations Bd du Roi Albert II/Koning Albert II-laan, 27 B - 1030 Brussels Tel: + 32 2 202 40 23 Fax: + 32 2 201 54 94 E-Mail: investor.relations@belgacom.be
For further information, please contact Thierry Bouckaert Press and External Communication Director Bd du Roi Albert II/Koning Albert II-laan, 27 B - 1030 Brussels Tel: + 32 2 202 82 50 Fax: + 32 2 203 65 93 E-Mail: about@belgacom.be Visit Belgacom’s website: www.belgacom.be Belgacom’s Annual Report is also published in Dutch and in French.
kerncijfers
financiële resultaten van de Groep
Boekjaar afgesloten op 31 december
2004
2005
2006
5.540
5.458
6.100
0
238
0
Resultatenrekening (in miljoen EUR) Totale opbrengsten voor niet-terugkerende elementen Niet-terugkerende opbrengsten Totale opbrengsten
5.540
5.696
6.100
EBITDA(1) voor niet-terugkerende elementen
2.394
2.214
2.149
2.353
2.098
2.149
-742
-726
-802
1.611
1.372
1.347
-27
64
104
1.584
1.436
1.451
-508
-339
-358
(2)
EBITDA
Afschrijvingen Bedrijfswinst (EBIT) Netto financiële opbrengsten (kosten) Winst voor belastingen Belastingen
152
139
121
Nettowinst (aandeel van de Groep)
922
959
973
2004
2005
2006
Opbrengsten
1.899
1.883
1.643
-556
-696
-676
De totale opbrengsten van de Groep verhogen met 7,1%.
78
389
-2.279
1.421
1.575
-1.313
Kasstroom en Investeringen (in miljoen EUR) Kasstroom uit operationele activiteiten Investeringen Netto kasstroom gegenereerd uit/(besteed in) andere investeringsactiviteiten Vrije kasstroom(2) Netto kasstroom besteed in financieringsactiviteiten
-1.658
-1.102
751
Netto toename/(afname) van kas en kasequivalenten
-237
473
-562
Op 31 december
2004
2005
2006
Balans (in miljoen EUR) Totaal balans
5.368
5.831
7.300
Vaste activa
3.963
3.808
5.504
406
884
327
2.223
2.221
2.391
Minderheidsbelangen
407
370
8
Schulden voor pensioenen, andere vergoedingen na uitdiensttreding en beëindigingsvoordelen
760
1.010
886
Netto financiële positie
110
534
-1.636
Beleggingen, kas en kasequivalenten Eigen vermogen (aandeel van de groep)
Boekjaar afgesloten op 31 december
2004
2005
2006
Gewone winst per aandeel (in EUR)
2,57
2,78
2,87
Verwaterde winst per aandeel (in EUR)
2,57
2,77
2,87
Dividend per aandeel, bruto (in EUR)(3)
1,38
1,52
1,60
Interim/bijzonder dividend per aandeel, bruto (in EUR)
0,55
0,00
0,29
358.612.854
345.406.186
338.621.113
2004
2005
2006
Gegevens per aandeel
Gewogen gemiddeld aantal gewone aandelen Per 31 december Operationele gegevens Totaal van de toegangskanalen (in duizenden)(4)
5.252
5.251
5.238
Totaal van de ADSL-toegangskanalen (retail en wholesale) (in duizenden)
1.024
1.268
1.493
Actieve mobiele klanten (in duizenden)(5)
4.198
4.253
4.311
Door International Carrier Services vervoerde minuten (in miljarden) Personeel
(1) Voorbereid onder de IFRS-normen zoals goedgekeurd voor toepassing in de Europese Unie. (2) Earnings Before Interests, Taxes, Depreciation and Amortization. (3) Kasstroom voor financieringsactiviteiten.
6,9
9,6
12,2
16.933
16.335
18.180
(4) PSTN + ISDN BA + ISDN PRA + retail ADSL. (5) Klant die in de voorbije drie maanden een oproep of een sms heeft gekregen of verstuurd.
58.077
Opbrengsten (in miljoen EUR)
Opbrengsten 2006 per segment (vóór eliminaties)
Belgacom TV klanten
Minderheidsbelangen
Boekjaar afgesloten op 31 december
139.665 6.100
6.000 5.500
5.696
33% MCS
5.540
5.000
11% ICS
4.500 4.000
Nettowinst De nettowinst (aandeel van de Groep) bedroeg 973 miljoen EUR.
nieuwe actieve klanten bij Proximus
56% FLS 04
05
06
Nettowinst (in miljoen EUR) 1.000 922
959
973
05
06
800 600 400 200 0
EBITDA De EBITDA van de Groep na niet-terugkerende elementen kende een toename van 2,4%.
04
EBITDA (in miljoen EUR)
EBITDA 2006 per segment (vóór eliminaties)
2.400 2.353
2.200 2.098
2.000
2.149
47% MCS
1.800 2% ICS
1.600 1.400
52% FLS
1.200 1.000
Winst per aandeel De winst per aandeel is met 3,2% toegenomen tot 2,87 EUR.
04
05
06
Winst per aandeel (in EUR) 3 2,78
2,87
2,57
2
1
0
04
05
06
“ beyond complexity lies simplicity!�
Albert Einstein
simplicity
Belgacom
annual report 2006
This title captures in a nutshell the Belgacom Group’s objectives for 2007. The telecommunications sector is particularly complex, and the number of service offerings has risen steadily in the past few years. This is why the Belgacom Group has opted for convergence and simplicity, through clear offers and transparent interactions. Our main objective is to make high-performance products with unlimited communication possibilities available for everyone.
annual report 2006