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United Group: We are Posting Losses Due to Investment
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United Group: We are Posting Losses Due to Investment


Kurir sent to the United Group several questions about their operation

1 The United Group is continuously recording a negative net result in its financial statements. How do you comment the rising net loss of the United Group over the periods in which the activity of competition is growing aggressively in the local and regional markets?

– The United Group is posting record results in its operation, which make it by far the most successful telecommunications and media group in the region. The net loss you mention is associated with the Group’s large investment during the expansion of operation and acquisitions as the taking over of each of the companies entails all one-off costs of the integration of the acquired companies in the Group. As a consequence of large investments, the United Group has been posting, year after year, record results in regard to all operational indicators – particularly the growth in revenue and profitability expressed in EBITDA. These and all other financial data can be easily checked.

2 VAT and other tax obligations of the United Group equal around 10 million euros. Has the stock of these obligations been reduced or increased to date?

– The United Group regularly settles VAT and all other tax obligations, which is why it has no due obligations. The volume of obligations changes dynamically over the year in line with the scope of business activities.

3 Is it true that the entities of the United Group paid to Mr Šolak 30 million euros as a borrowing, whereby the obligation to pay the tax on dividend worth 4.5 million euros was formally avoided? Was the borrowing returned to the company in the first quarter of 2020, in accordance with the agreement?

– In accordance with the International Accounting Standards, the United Group regularly reports on all transactions with related parties, and all transactions can be seen in our quarterly and annual reports. Mr Dragan Šolak returned to the United Group the entire borrowing which you mention in March 2019, together with the contractual interest. The United Group has no claims in respect of borrowings to Mr Šolak.

4 In January 2020, the United Group had the need for additional financing and further borrowing was made via bonds in the amount of around 1.8 billion euros. Are these bonds presented as high yield junk bonds?

– All bonds issued by the United Group since 2014 are considered high-yield, which is a standard categorisation of bonds in the market outside an investment-grade rating. The bonds of the United Group are not junk bonds with C and lower ratings.

foto: Shutterstock

5 In regard to the previous question, all three bond issues saw a significant fall in prices in early in June, i.e. bonds were traded much below their nominal value. What is the reason for the falling market price of corporate bonds of the United Group?

– Like everywhere in the world, the reason for the declining market value of bonds is the atmosphere of the Covid-19 pandemic. The current global trend is such that the bond prices have come close to nominal values, but we believe that everything will return to the pre-pandemic levels, once the situation concerning the virus calms down globally.

6 In fact, the entire operations and profits of the United Group take place in the territory of Serbia, Croatia, Bosnia and Herzegovina, Slovenia and Montenegro. The formal legal operation of the United Group is organised through as many as 65 legal persons, of whom 18 are registered in tax havens (Cyprus, Malta, Luxemburg etc.). The decision to organise operation in such way, i.e. through a highly complex organisational structure with high costs of maintenance and payments for operation, had to be calculated. What is the amount of annual tax optimisation and tax savings due to operations organised in such way?

– We regularly pay all taxes, audit reports are also always regular and without qualifications. According to regulations of the Republic of Serbia, the states you mention are not tax havens, i.e. countries with preferential tax systems, given that they are not in the list of the Ministry of Finance.

7 During 2019, the Competition Protection Commission was looking into the use of the dominant market-monopoly position of the United Group due to the Group’s decision to raise its prices, which was not justified given the rising costs. Is the United Group still achieving an over-average ARPU in the market, which is significantly higher than the one recorded by competitors?

– The procedure carried out by the Competition Protection Commission ended in 2019 as after almost 18 months it ascertained that SBB did not abuse the dominant position by raising the prices of its services.

8 The United Group was sued in the procedure with the public-utility company “Beogradske Elektrane” and “EPS-Distribucija” in regard to the unauthorised use of their infrastructure. The lawsuit is worth 11 million euros and the United Group’s leadership is convinced that they will successfully win and that no financial implications in line with the accounting standards requirements are reflected in the Group’s financial statements. On what elements is the management’s conviction based, which is why, from the aspect of reporting, these lawsuits are treated as non-existent?

– Given the nature of your question, we can raise doubts that your editors have some information about what the verdict will be like, and before we give an answer, it would be important if you revealed information about the court proceedings which is not available to the public.

Comment on answers

They boast about the things of which they accuse their competitor

Double standards of the United Group

Based on the analysis of the United Group’s answers, it is obvious that this company applies double standards. While it criticises others – in this case Telekom – about its losses, it justifies the losses in its own balance sheet with the expansion of operation and acquisitions. The United Group is thereby showing exclusivity, i.e. what applies to them does not apply to others. More concretely, although Telekom Serbia is recording a rising net result and a market share at an optimal level of debt, it seems that different criteria apply to other companies in the investment cycle.

As for the answer to the last question, concerning the lawsuit of two state-owned companies against the United Group, i.e. the claim of 11 million euros from the company, which is not presented in its financial statements, we can retort only with a counter-question – does the United Group have in advance the information that it will win the lawsuit and will not have to pay the damages of 11 million euros.

Telekom: We Paid for Cable Operators at Market Prices

Kurir sent questions about operation to Telekom Serbia as well. This is what they answered.

1 After more than a year from the acquisition of the key cable operators, are the consolidation and integration of the companies in the Telekom Serbia’s system, and the implementation of the envisaged synergies, realised in accordance with plan?

– The consolidation is taking place in accordance with the pre-defined plan. Last year, we grouped cable operates in a single brand – Supernova, and this year we are working on their full integration into the Telekom Serbia’s system. Although the operators will be integrated into Telekom, they will retain in the market their recognisable Supernova brand.

2 After the acquisition of the operators, how do your comment further organic movement, i.e. the change in the number of users and the key indicators of the operation of your entire cable business?

– Last year, Telekom Serbia recorded significant organic growth in television and internet users. This makes us particularly happy. We managed to reverse the downward trend of the number of users into an upward trend. In telecommunications, this trend is exceptionally important. Last year, we had an inflow (organic growth) of 90,000 new TV users. This suggests the potential for us to maintain over the coming years the continuous rise in new internet and TV users. The initial plan was to have, as a group, more than one million users in each service (fixed, internet and TV). Now that we have exceeded this, we are aiming towards two million users.

3 While the activities of the consolidation of the market of cable operators began in the first half of the decade, Telekom Serbia implemented its key acquisitions only somewhat more than a year ago. Why did you wait so much to implement the acquisitions? Did Telekom pay the premium on the acquisitions implemented “with several years of delay”?

– Telekom Serbia bought cable operators at market prices, at the right business moment for our company. The acquisition of cable operators was carried out in parallel with the building of the optical network of our company and investment in better programme contents. Due to the strategy and business approach that we apply, Telekom Serbia will doubtless be a telecommunications leader in the region.

4 How do you comment the allegations that Telekom Serbia is over-indebted? In the context of rising debts in the past period, how do you perceive the need for additional financing in the coming period on the one hand and the availability of financing sources on the other?

– Telekom Serbia is not over-indebted and those are malicious speculations. It is true that Telekom had a strong investment cycle, but it is also true that, when it comes to indebtedness, we are among averagely indebted telecommunications companies. It should be particularly borne in mind that Telekom Serbia improved all important parameters of operations – profit by 12%, EBITDA by 24%, and the number of internet and TV users by as many as 660,000. This is a trend which indicates that Telekom Serbia will continue to record an upward trend in terms of its revenue and that its revenue will be stable and predictable over the next five years.

5 Has the investment cycle in regard to the acquisition of companies ended and what is the further business strategy of Telekom Serbia?

– For a telecommunications company to be able to develop, it must constantly invest and adjust its operation to market needs. When it comes to Telekom Serbia, for the time being, the main portion of its planned acquisitions in Serbia, Bosnia and Herzegovina and Montenegro has ended. Our aim is to be the leader in all telecommunications services in these three countries. At the same time, we are expanding our operation in the countries of Europe and America, where many our people live and work.

6 What are the results of the segments of fixed and mobile telephony within Telekom Serbia, and how do you compare these results with general industry trends and cable operators without a fixed and mobile infrastructure? How will in the coming period mobile and fixed telephony influence the results, and to what extent and how it will determine the further strategy of development?

– The standard fixed telephony is becoming an additional service, along with the internet and multimedia. As regards mobile telephony, it has transformed in such way that the main revenue is generated by subscription, within which the user defines, according to his needs, the number of free-of-charge minutes, text messages and traffic data he needs. Mobile telephony is therefore less profitable than before. However, mobile telephony will be the basis for the development of numerous digital services, without which the future cannot be imagined. The greatest potential of mobile telephony lies in this very fact. Thus, the operator having both the cable and mobile network has a strong advantage compared to operators without it, as it offers to its users a complete service. Telekom Serbia has adjusted its operation to future trends and has ensured a safe future.

7 From the first speculations about the sale of Telekom since 2005 until today, how do you comment the movement of the company’s value?

– It is hard to compare these two time periods, but at this moment it is certain that if a company’s profit is based on multimedia, the internet and digital services, it is worth more than based on classic services (speech, text messages, international traffic). The reason is simple. The internet, multimedia and digital services constitute the basis of services for revenues in the future. For the sake of reminder, in addition to the transformation of revenue, number of users and EBITDA, we have also transformed our company, which is why we can reliably say that we have increased the value of our company in the past two years.

Comment on answers

The consolidation of acquired operators according to plan

Entry into the cable market – in time or with a delay

While expecting the financial results, which will in the coming years show the justifiability and quality of Telekom’s acquisitions and investment, in the answers to the questions of Kurir, the management of Telekom believes that the company did not pay a price higher than market price during the acquisition of cable operators, i.e. that it did not pay the premium of the late entry into the cable market. As they believe, the consolidation and integration of the acquired operators take place according to plan, and the number of users continues to grow organically. The transformation of traditional services of fixed and mobile telephony towards new services and the entire integrated service for their users represent, according to Telekom, the further strategy of development, which should position the company ahead of its competitors. Besides, the further strategy also implies geographical diversification, where services are spread, in addition to regional markets, to the countries of Europe and America as well.


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