Annual Report. The year we c80m0y100k0 C. became Ziggo. c55m0y100k0 C. c0m60y100k0 C. c0m35y100k0 C

Transcription

1 Annual Report The year we c80m0y100k0 C became Ziggo c55m0y100k0 C 2008 c0m60y100k0 C c0m35y100k0 C

2 Contents Company profile Highlights Chairman s statement CEO s review Management Board review Strategy Operating review Financial review Corporate Responsibility Corporate Governance Board profiles Supervisory Board members Board of Management Financial statements Consolidated income statement Consolidated balance sheet Consolidated statement of changes in equity Consolidated cash fl ow statement Notes to the consolidated financial statements General Accounting policies Signifi cant accounting judgements and estimates Business combinations Depreciation and amortisation Net fi nancial income and expense Employee benefi ts expense Income taxes Property and equipment Intangible assets Financial assets Inventories Trade accounts receivable Other current assets Cash and cash equivalents Shareholder s equity Loans from fi nancial institutions Loans payable to related parties Provisions Other current liabilities

3 Commitments and contingencies Related party disclosures Financial risks Financial instruments Group companies Subsequent events Parent company financial statements 70 6 Appropriation of result 75 7 Auditor s report 77 8 Contact details and address 79 Disclaimer This annual report and account contains certain forward-looking statements with respect to the fi nancial condition, results, operations and businesses of Zesko Holding B.V.. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this annual report and accounts should be construed as a profi t forecast. Financial statements have been audited by Ernst & Young Accountants (see page 77 for full report). The majority of the share capital of the company is held (through holding companies) by two private equity fi rms, Warburg Pincus and Cinven. Cinven is a leading European buyout fi rm that acquires companies that require an equity investment of d 100 million or more. Cinven was founded in 1977 and has been responsible for many buyout industry fi rsts, including the fi rst d 1 billion plus buyouts in France, the Netherlands, Spain and the UK. Cinven focuses on six sectors across Europe: business services; consumer; fi nancial services; healthcare; industrials; and TMT (technology, media and telecoms) and has offi ces in London, Paris, Frankfurt, Milan and Hong Kong. Warburg Pincus is a leading global private equity fi rm. The fi rm invests in a range of sectors including healthcare, fi nancial services, energy technology, media, telecommunications, consumer, industrial and real estate. Founded in 1966, Warburg Pincus has raised 12 private equity funds which have invested more than $29 billion in approximately 600 companies in 30 countries. The fi rm has offi ces in Beijing, Frankfurt, Hong Kong, London, Mumbai, New York, San Francisco, Shanghai and Tokyo. 3

4 Company profi le Ziggo is a national Dutch provider of entertainment, information and communication through television, broadband internet and telephony services. The company serves around 3.3 million households, with 1.4 million broadband internet customers, more than 1.1 million customers for digital television and over 0.8 million telephony subscribers. Business to business customers use services such as data communication, telephony, television and internet. The company owns a next-generation network capable of providing the bandwidth for all future services currently foreseen. Ziggo has opted for a central location in Utrecht, combined with regional offi ces to ensure local presence in Groningen, Zwolle, Eindhoven, The Hague and Heerhugowaard. In 2008, the company employed almost 2,000 FTE and an additional 500 FTE were contracted on a temporary basis, mainly at our call centres. 4

5 Highlights Key Financial figures Amounts in millions of euro Revenues 1, ,093.9 EBITDA 1) Operating profi t Net loss (353.2) (264.8) Capital Expenditure Cash fl ow before fi nancing activities and acquisition of subsidiaries ) EBITDA: Operating profi t plus depreciation, amortisation and impairments The accounting period under review is 1 January 2008 until 31 December The Company on 1 February 2007 and consolidated the results from this date on. Personnel personnel (FTE) end of year 1,916 2,121 Subscribers (x 1,000) Homes passed 4,038 3,960 Analogue Television 3,255 3,277 Digital Television 1, Internet 1,375 1,347 Telephony Total Revenue Generating Units 6,563 6,161 5

6 Chairman s statement A steady course in a dynamic industry The telecom and media industries have become very dynamic ever since the traditional players were challenged by new entrants from the cable sector. With the formation of Ziggo, a major player in television, internet and telephony, the field is likely to remain interesting for the foreseeable future. Ziggo is steering a steady course through developments related to bundling of services, interactive and HD digital television, ever higher broadband and VoIP telephony. The company possesses a next-generation network capable of delivering bandwidths that far exceed what is possible via ADSL. Ziggo is ready today to deliver tomorrow s services to its customers. The company is well placed to profi t from the expected further growth of broadband services, including HD and interactive digital television. We expect Ziggo to take up a leading role in shaping this future. The three top managers of the individual companies that were merged into Ziggo, supported by their senior team, have performed their diffi cult and complex task admirably well, although some matters took longer than expected. Ziggo is now an integrated company, under one fl ag. It has both a strong central location and regional presence for its customer facing units and network operations. There is a very good spirit in the company with people motivated to do well. In the course of the year, the world was confronted with a credit crisis which fi rst hit banks and then businesses with almost unprecedented speed and scale. Ziggo operates in a sector which is at the heart of what customers need and want, and the company turned out good results for The Supervisory Board and the Board of Management worked well together, holding 10 meetings. Each major challenge was explicitly and openly discussed. The Supervisory Board believes the fi nancial statements contained in this report form a sound basis for the account that the Board of Management must give of its management of the company and the Supervisory Board must give of its supervision of the management. There is still work to be done both on the further improvement of customer service and on operational excellence. The Supervisory Board, however, is confi dent that the people, systems and processes are in place to do this work successfully. Wim Dik Chairman April

7 CEO s review The year we became Ziggo We are building our company with the ambition to offer our customers the best way to enjoy the continuously changing world of information, communication and entertainment. We knew that building the company would neither be quick nor easy. Indeed, 2008 was a challenging year for all of us, a year of transformation: the year we became Ziggo. On 16 May we launched our new name to the public, outlining our ambition to become a company that does things differently. We intend to place our customers at the heart of everything we do and all our decisions about systems, processes and organizational matters are based upon that central principle. One illustration of that principle was the choice for a central location for staff functions, complemented by regional offi ces for our customer services and network operations around the country, close to our customers. Following the launch we entered a period of our customer service operations being under pressure, resulting in too many of our customers not seeing their expectations met. The subsequent months were crucial in our planning and thanks to meticulous preparation the subsequent CRM data migration was a success, placing us in the excellent position of having one single unifi ed customer database. After achieving this milestone we kept concentrating on bringing our customer service operations back to an acceptable level in Towards the end of the year we had indeed turned the corner, although improvements are still being made. The launch of the new brand, the migration of customer data and the improvements to customer service were very important changes. We continued to invest in our unifi ed next-generation network which is ready to provide the bandwidth needed for all future services currently foreseen. Ziggo showed steady growth in 2008 as compared to Total revenues in 2008 reached d billion, an increase of 13.2% when compared with Our EBITDA (operational result) grew by 15.0%. The total number of subscriptions (RGU) grew 6.5% to 6.6 million. We also made a debt prepayment of d million. At the end of 2008 we are a healthy company, still picking up speed, still improving and building. We expect the trend towards digital and on-demand television to continue and accelerate. Towards the end of 2008 it became clear that the Dutch telecom regulator (OPTA) would impose the obligation to allow other parties to resell our analogue television signal. We regret the time and attention we must give to a technology that now belongs to the past, believing that the future is both digital and interactive, but we are in the process of defi ning a model to be able to meet this obligation. I would like to take this opportunity to thank the people of Ziggo, and also many contractors from other companies, for all their efforts and commitment. Some of our colleagues have left, many more stayed and were joined by new arrivals. We ask a lot from our people and have appreciated everyone s dedication. Bernard Dijkhuizen Chief Executive Offi cer April

8 Management Board review 1

9 Strategy 1.1 In 2008 our first priority was strengthening our relationship with our customers. In addition, we maintained our market leadership in television and we were able to grow in internet and telephony. Excellent customer service is an essential condition for achieving our ambitions; that is why we have executed effective improvement programmes to solve the start-up problems of our new company. In parallel we started a number of strategic programmes aimed at making Ziggo the most attractive provider of television, internet and telephony services: - Enabling digital television in HD quality. - The introduction of EuroDOCSIS 3.0 enabling internet speed above 100 Mbps - Starting to prepare the introduction of interactive ( on-demand ) television. These programmes have meanwhile come to fruition in We would like our customers to choose us as their provider not just for television and radio, but also for internet and telephony. To stimulate this we have introduced high-value All-in-1 bundles of services for a very attractive price. Sales of these bundles are developing very well. 9

10 Operating review 1.2 In 2008 all operational disciplines were faced with the challenge of running current business as well as changing into a completely new confi guration. IT is a key enabler of effective processes and our IT organisation spent 2008 fi nishing many major technical implementations: - A new offi ce automation network and systems were put in place, with the infrastructure completely maintained and managed internally. This includes high-end storage and backup systems. - Call centre and offi ce (VoIP) telephony were newly built with integration of a Smart IVR, Softphone and intelligent routing technology. Customer contact centres were migrated to create a more fl exible workspace for agents and introduce the possibilities for adding capacity and/or external partners quickly - The two IT data centres were expanded to create more space, power and cooling capabilities for future projects. Connectivity between all major Ziggo locations was upgraded to a redundant high-speed situation. ITIL based process management was optimized to reduce delivery time of changes and optimize fi x times for incidents - We integrated existing CRM data into one new CRM system. This integration included the migration of Ziggo customers and their product portfolios. This proved to be a huge challenge, which we fi nalized in the last quarter of Substantial investments in network harmonization, expansion and upgrade In the fi rst half of 2008 we continued to invest substantially in our network in order to prepare for delivering signifi cantly higher bandwidths and for interactive services as well as preparing to reap the benefi ts of a single, harmonized network. - The telephony interconnection network was further expanded and telephone services are now completely insourced leading to substantial savings - We built a new, modern platform with complete redundant capacity. All customers will have been migrated to the new platform early in A new IP Core was implemented with a substantially higher capacity both for our consumer and business customers - We raised internet speeds for all our customers and started to prepare the implementation of the EuroDOCSIS 3.0 standard in anticipation of offering internet speeds of over 100 Mbps in We also prepared the network for interactive television in the fi rst quarter of We strongly improved the monitoring of the quality and availability of our network. 10

11 Customer Service: under pressure but steadily improving Ziggo wants customer satisfaction to be the main driver for everything we do. Yet, in May, the introduction of the Ziggo brand, a change in the billing process, introduction of the bundle proposition in our entire footprint and the migration to one customer database increased customer contact volumes sharply. The accessibility and service quality were severely reduced. The rest of the year was dedicated to restoring the quality of our customer service. Meanwhile our fi nal confi guration of contact centres was taking shape. This meant new infrastructures, systems, processes and people in Groningen, Heerhugowaard, The Hague and Eindhoven. The centres in Alkmaar and Amsterdam were closed as were Maastricht and Tilburg in January. In November all sites became part of one virtual contact centre in order to increase customer satisfaction and decrease the cost to serve. This was achieved successfully and further improvement is expected for In addition, we offered customers multiple channels to contact us. Contacts via our online virtual agent Tess grew substantially in the second half of Our performance improved in the fourth quarter of 2008 resulting in higher customer satisfaction, although still below target. Improvement continued strongly in the fi rst quarter of Harmonisation products and services after brand launch The brand launch was a major milestone for the marketing and sales team. The harmonization of our products and services by price, bandwidth, channels, tariffs etc. was achieved with minimal customer impact: All-in1, Television Z1, internet and telephony. - Our most important bundle proposition, All-in-1, had a very successful year - Television Z1 tariff was harmonized. The reduction of the amount of analogue channels to 30 (2009) was prepared - In December 2008 we took our fi rst steps to raise internet speeds, in fi rst instance to 30 Mbps. 11

12 Financial review 1.3 Amounts in millions of euro Consolidated financial statements Revenues 1, ,093.9 Cost of goods sold Operating costs and expenses of which depreciation and amortisation Operating profi t/(loss) Net fi nance costs (604.8) (410.2) Loss before tax (474.1) (374.0) Tax benefi t (expense) Net loss (353.2) (264.8) EBITDA EBITDA margin 50.6% 49.8% Reconciliation to pro forma consolidated income statement Adjustments to full year: Results from acquisitions (1) Revenues Cost of goods sold Operating costs and expenses (2) EBITDA Nonrecurring costs (3) Restructuring and acquisition costs Adjusted full year recurring EBITDA EBITDA margin (4) 54.6% 52.1% Pro forma consolidated income statement Total revenues 1, ,140.9 Consumer market 1, ,014.8 Business market Other revenues Cost of goods sold Gross margin 1, Operating costs and expenses Adjusted full year recurring EBITDA EBITDA margin 54.6% 52.1% 12

13 Revenues and Gross Margin Total revenues amount to d 1,238.6 million, a growth rate of 9%. 90% of the total revenues come from the residential market, 7% from the business market, and other revenues consist of non-customer related income. The 7% growth in subscriptions results in 10% revenue growth for the consumer market. B2B revenues stay on the same level as previous year. The main cost of goods sold are the cost for royalty and author rights and interconnection costs. These costs are lower than anticipated as a result of higher synergies realised in new contracts on especially telephony and the acquisition of Orange Broadband subscribers. Gross margin 2008 (84%) is slightly lower compared with 2007 (85%) mainly driven by the growth of the telephony and digital television base, with a lower gross margin. Operating costs and expenses The recurring operating costs and expenses amount to d million. In the full year comparison the overall recurring operational expenses decreased with about 5%, primarily as a result of the merger savings. We did face an increase in the costs for materials & logistics due to the growth in digital television and the costs for set-top boxes in relation thereto. A substantial amount of savings in net cost were achieved in Actual net cost savings are based on the comparison of actual performance with pre-merger stand-alone plans. Trends in 2008 included: cautious investment of the marketing & sales budget in existing company brands in the fi rst half year due to operational issues in call centres; and higher than anticipated personnel turnover, driving higher external staff costs. EBITDA Full year recurring EBITDA 2008 increased by 14% compared to full year 2007 (from d million to d million) as a result of improved revenues and realized synergies. CAPEX Total capital expenditures amount to d million, of which d 69.0 million is related to integration projects and d 35.0 million relates to acquisitions. Half of the network expenditures relate to the upgrade, new build and expansion of the network, the other half relates to maintenance (replacement). Capital management The primary object of the company s capital management is to ensure that the covenants agreed upon with the lenders of the credit agreement (Senior loan & mezzanine) will be met and an optimal debt to equity ratio is reached taking into account the company s liabilities. No changes were made in the objectives, policies or processes during the years ending 31 December 2008 and 31 December The fi nancial covenants were all met during the year 2008 as well as over

14 Corporate Responsibility 1.4 Ziggo s products and services are used on a daily basis by over 6 million people. We take our responsibility to provide a high quality, reliable service very seriously. Equally, we want to run our company in a way that benefits society as a whole. In 2008, we have remained committed to the principle of social responsibility, both as an employer and as a company that provides services that play an important role in people s lives. Employees A healthy and safe work environment is our fi rst concern. We established an Health, Safety and Environment (HSE) framework based on best practices from the three founding companies early on. When we were confronted with a fi re in a third party owned electrical facility housed at our location in Zwolle in October, we proved the robustness of our HSE framework. The Board of Management has regular, open dialogue with all layers within the company at least once a month. Openness is something the company tries to foster. The Social Plan, developed during 2007 with the works councils and trade union representatives, has been an effective tool to transfer from the three founding companies to the new company. The plan gave support, providing employees with the fl exibility to respond to major change. The Social Plan will run until June Society Ziggo plays an active role in emerging industry initiatives that increase the safety of using the internet, especially for children. The Notice and Takedown procedure is an example of this. In 2008 we started the second edition of the Ziggo High School Movie Awards (fi lm script contest for secondary schools), and we sponsored 3FM (Dutch radio station) Serious Request, which helps the Red Cross in dealing with a major issue each year. 14

15 Corporate Governance 1.5 At the centre of Ziggo s Corporate Governance system is the threemember statutory Board of Management, appointed by the shareholders the Chief Executive Offi cer, Chief Financial Offi cer and Chief Commercial Offi cer. The Board of Management manages the company and is responsible for its strategy and vision. The Board operates under the supervision of a Supervisory Board. The members of the Supervisory Board are appointed by the shareholders on the nomination of the Supervisory Board itself, in accordance with the so-called Dutch structuurregime which has been adopted by Ziggo on a voluntary basis. The Supervisory Board assists the Board of Management by giving advice and supervises the conduct of the management of the company and the general course of affairs of the company. At the end of the Fiscal Year 2008 the Supervisory Board consisted of six members, including the independent Chairman. The Board of Management meets on a weekly basis with senior management. The Supervisory Board meets with the Board of Management on a monthly basis. 15

16 Board profiles 2

17 Supervisory Board members 2.1 From left to right: Paul Best, Wim Dik (chairman), Caspar Berendsen, Joseph Schull, David Barker (absent: Andy Sukawaty and Dirk Jan van den Berg) 17

18 Wim Dik Dutch nationality, Chairman (1939) Chairman of the Supervisory Board, Wim Dik is also Chairman of the Supervisory Board of Tele Atlas, a member of the Boards of Unilever (NV and PLC), and a Non-executive Director of Aviva, and LogicaCMG. Wim also chairs a number of social and cultural funds and institutions, is Vice Chairman of the Board of Stage Entertainment and a member of the Supervisory Board of Royal Theatre Carré, Amsterdam. Wim worked at Unilever for almost 25 years. He left the company in 1988 after serving as Chairman of the Board of the Dutch Unilever companies. During 1981 and 1982, Wim served as The Netherlands State Secretary for Foreign Trade. Between 1988 and 2000, he oversaw the privatisation of PTT (later KPN) as CEO and Chairman of the Board of Management. Joseph Schull Canadian nationality, Warburg Pincus (1961) Joseph joined Warburg Pincus in 1998 and is responsible for the fi rm s European media and communications investments as well as its investment activities in Emerging Europe. He is a director of FiberNet Communications, an Eastern European cable television operator, and has also been involved in Warburg Pincus investments in Loyalty Management Group, RBMH Media Holdings, and Centrum Group. Joseph previously worked at the Ford Foundation and was a University Lecturer at Oxford University during Caspar Berendsen Dutch nationality, Cinven (1975) Caspar joined Cinven in Since then he has worked on a number of transactions including Partnership Assurance, Maxeda, Truvo and Ziggo. He is a member of the Financial Services sector team. Prior to this, Caspar worked at JP Morgan in London advising Dutch and Belgian clients in a variety of sectors. David Barker British nationality, Cinven (1968) Since 1996, as a member of the Technology, Media, and Telecommunications team, David has played a role at Cinven in a large number of transactions, including the buyouts of Eutelsat, Springer, Aprovia, MediMedia, IPC and Foseco. Prior to Cinven, David worked at both Morgan Crucible and at Arthur Andersen. Paul Best British nationality, Warburg Pincus (1978) Paul joined Warburg Pincus in 2002 and has been involved in a number of investments including Premier Foods plc, Clondalkin Group Holdings, Ideal Stelrad Group (formerly Caradon Plumbing), Synesis Life, IMB Group and the Ziggo predecessor companies. Prior to joining Warburg Pincus, Paul worked at Morgan Stanley in the Investment Banking and Fixed Income divisions. 18

19 Andrew Sukawaty American nationality (1955) Chairman and CEO of the global mobile satellite communications service provider Inmarsat. He is also non-executive Chairman of Xyratex Ltd. Andy is a former Chairman of Telenet Communications NV and deputy chairman of O2 plc. Between 2000 and 2003, he was President and COO of Callahan Associates International. Andy is best known as the man who led the fastest growing wireless provider in the US, Sprint PCS, between 1996 and 2000 through a phase of explosive growth during the wireless and internet convergence. Prior to joining Sprint PCS, Andy was CEO of NTL Limited, and between 1989 and 1994, COO of Mercury One-2-One. During the late 70s and 80s, Andy was involved in the business development of mobile telephony and paging technologies in the US, serving in various managerial positions with US West Inc and AT&T. Andy is member of the Supervisory Board member since 15 January Due to personal circumstances he has not been able to attend meetings of the Supervisory Board as from September Dirk Jan van den Berg Dutch nationality (1953) Dirk Jan van den Berg was appointed as a member of the Supervisory Board in March He is president of the executive board of Delft University of Technology since March In previous positions he acted among others as her Majesty s ambassador in China, Permanent Representative for the Netherlands to the United Nations in New York, Secretary General of the Ministry of Foreign Affairs and Deputy Director General at the Ministry of Economic Affairs. 19

20 Board of Management 2.2 Bernard Dijkhuizen Chief Executive Offi cer (1949) Bernard stepped into the role of Chief Executive from his previous post as CEO of Essent Kabelcom Prior to October 2002, Bernard was Managing Director of Libertel Network (part of Vodafone). He has served as a Member of the Board of Management of Libertel with responsibility for Marketing, Strategy and Business Development. Bernard s early career was with Fokker in production, engineering and commerce. He served as a Member of the Board of Fokker Aircraft during the early 90s with responsibility for Marketing, Sales and Services. He then became CEO of Aircraft Services at Stork and later Managing Director of Philips Projects between 1998 and Walter Blom Chief Financial Offi cer (1967) Walter took up his present role after serving as Chief Financial Offi cer of Casema from Prior to the CFO role at Casema, Walter had been Financial Director at Multikabel for fi ve years. From 2000 to 2003, he was also Managing Director of Multikabel s Broadband Internet subsidiary QuickNet. Between 1992 and 1998, Walter worked at Energie Noord- West (now NUON) as a senior business analyst. Marcel Nijhoff Chief Commercial Offi cer (1961) Prior to accepting his current role, Marcel had been Chief Executive Offi cer at Multikabel for four years; from 2001 to 2003 he served as Chief Commercial Offi cer. Between 1999 and 2001, Marcel worked for PrimaCom Region Mitte in Leipzig, Germany. During the late 1990s he was Vice President Marketing with A2000, the cable operator for the greater Amsterdam area at the time (now merged into UPC). In previous roles, Marcel gained extensive experience in the media and communications industries with publishing, printing and advertising companies. 20

21 Senior Management Paul Hendriks Chief Technology Offi cer (1968) From 1992, Paul managed a series of divisions at KPN including Design & Development, Operations South-East, and Business Lines (Telephony and Broadband). He also managed a series of major change programs (Voice over IP and All IP). During his time with KPN, Paul served as crisis manager and managed the relationship with OPTA. Change management has been a continuing theme throughout Paul s career. He has acted as consultant, project manager and architect for a series of restructurings, reorganizations and innovations. Martine Ferment Chief Service Offi cer ad interim (from November) (1963) Martine Ferment is the founder and owner of Ferment Management, a leading fi rm in Europe for customer service, with a staff of 35 consultants. Martine has over 18 years CRM experience both as a customer service director and an executive management consultant. Ferment was formerly the Customer Service Director of Vodafone NL and Amazon.com. Her responsibilities included heading up the service operation including warehousing. As executive consultant Martine was the ad interim director for Casema (2003) (2007). Prior to those roles, Ferment was the Netherlands call centre practice senior manager for Ernst & Young. Tom Verhulst Chief Information Offi cer (1954) Before starting in his present role in April 2007, Tom was Manager Operations of Fortis and prior to that, a Program Manager Outsourcing at Delta Lloyd. In 2003, Tom served as Vice President Infrastructure for Atos Origin, moving to the group from his role as Chief Information Offi cer at Nuon. Earlier in his career Tom worked for BAC, Ernst & Young, Rabobank International, and Start. 21