Slovak Telekom, a.s.

Transcription

THIS DOCUMENT IS A TRANSLATION OF THE PROSPECTUS IN SLOVAK LANGUAGE APPROVED BY THE NATIONAL BANK
OF SLOVAKIA MADE UNDER THE SOLE RESPONSIBILITY OF SLOVAK TELEKOM A.S.
Offering of up to 42,341,537 Shares
in the form of Offer Shares and Global Depositary Receipts
with one Global Depositary Receipt representing an interest in one Share
Offer Price Range: EUR 17.70 to EUR 23.60 per Offer Share and U.S.$ 19.00 to U.S.$ 25.30 per Global Depositary Receipt
This document has been approved by the National Bank of Slovakia (the NBS), which is the Slovak competent authority for the purposes of
Directive 2003/71/EC, as amended (the Prospectus Directive), as a prospectus (the Prospectus) in accordance with Slovak Act No. 566/2001 Coll.
on securities and investment services, as amended (the Slovak Securities Act), and Regulation (EC) No. 809/2004 of 29 April 2004 implementing
the Prospectus Directive, as amended (the Prospectus Rules). This Prospectus has not been, and will not be, approved by any competent authority
of the European Economic Area (EEA) other than the NBS. The Company has requested that the NBS notify the United Kingdom Financial
Conduct Authority (the FCA) and Czech National Bank by providing a certificate of approval of the Prospectus (the Notification).
This Prospectus has been prepared by Slovak Telekom, a.s. (the Company or Slovak Telekom), a company organised under the laws of the
Slovak Republic. The Company accepts responsibility for the Prospectus and having taken all reasonable care to ensure that such is the case, to
the best of the knowledge and belief of the Company, the information contained in this Prospectus is in accordance with the facts and contains
no omission likely to affect its import. The Prospectus has been prepared for the purposes of: (i) an offering (the Offering) by the National
Property Fund of the Slovak Republic (the Selling Shareholder) of up to 42,341,537 ordinary shares in the Company, each fully paid-up with a
nominal value of 10 EUR per share (the Offer Shares), in the form of the Offer Shares and global depositary receipts (the GDRs, and together
with the Offer Shares, the Offer Securities), with one GDR representing an interest in one Share (as defined below); (ii) an application to Burza
cenných papierov v Bratislave a. s. (the Bratislava Stock Exchange) for admission of 86,411,300 ordinary shares, each fully paid-up with a
nominal value of 10 EUR (the Shares, and together with GDRs, the Securities), comprising 100% of the registered capital of the Company to
trading on the Main Listed Market of the Bratislava Stock Exchange; and (iii) an application to (A) the FCA in its capacity as competent
authority (the United Kingdom Listing Authority or the UKLA) under the United Kingdom Financial Services and Markets Act 2000 (the FSMA)
for admission of up to 42,341,537 GDRs to listing on the official list of the FCA (the Official List) and to (B) the London Stock Exchange plc
(the London Stock Exchange) for admission of up to 42,341,537 GDRs to trading on the main market for listed securities of the London Stock
Exchange. The Bratislava Stock Exchange and the London Stock Exchange are both regulated markets in the EEA for the purposes of Directive
2004/39/EC (the Directive on Markets in Financial Instruments). Prior to the Offering, there has been no public market for the Securities.
The Offering is structured as (i) an offering of the Offer Securities to the public in the Slovak Republic and of the Offer Shares in the Czech
Republic and (ii) an institutional offering of the Offer Securities outside of the Slovak Republic and the Czech Republic. The Offer Securities are
being offered in the United States to certain qualified institutional buyers (QIBs) as defined in, and in reliance on, Rule 144A (Rule 144A) under
the U.S. Securities Act of 1933, as amended (the Securities Act), and outside the United States in offshore transactions in reliance on Regulation
S under the Securities Act (Regulation S). The Securities have not been and will not be registered under the Securities Act and may not be
offered or sold in the United States, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of
the Securities Act. Prospective purchasers are hereby notified that the seller of the Securities may be relying on the exemption from the provisions of
Section 5 of the Securities Act provided by Rule 144A or another exemption from, or transaction not subject to, registration under the Securities Act.
There will be no public offering of the Offer Securities in any jurisdiction other than the Slovak Republic and, in respect of the Offer Shares, the
Czech Republic, although the Offer Securities may also be offered to institutional investors in accordance with applicable law. The Offering does
not constitute an offer to sell, or solicitation of an offer to buy, the Securities in any jurisdiction in which such offer or solicitation would be
unlawful. For a description of these and certain further restrictions on offers, sales and transfers of the Securities and the distribution of this
Prospectus, see ‘‘The Offering’’, ‘‘Plan of Distribution (Terms of the Offer)’’, ‘‘Terms and Conditions of the Global Depositary Receipts’’ and
‘‘Transfer Restrictions’’.
In connection with the Offering, the Selling Shareholder has agreed that Citigroup Global Markets Limited and Erste Group Bank AG, as
stabilisation managers (the Stabilisation Managers), will have the right to acquire up to 4,234,153 Offer Securities, in order to stabilise the stock
market price of the Offer Securities at a level higher than that which would otherwise prevail. The acquisition of the Offer Securities in
connection with stabilising transactions will be subject to the applicable provisions of Commission Regulation (EC) No. 2273/2003 (the
Stabilisation Regulation). The transactions to purchase the Offer Securities may be effected only during the period commencing on the earlier of
the first listing day of the Shares on the Bratislava Stock Exchange and of the GDRs on the London Stock Exchange and terminating 30 days
after that date (the Stabilisation Period). The transactions to purchase the Offer Securities may only be effected at a price not exceeding the
relevant Offer Price. The Stabilisation Managers will not, however, be required to take any stabilisation actions. If any such actions are taken by
the Stabilisation Managers, they may be discontinued at any time, but not later than the end of the Stabilisation Period. No assurance can be
given that such stabilisation actions, if taken, will bring the expected results. See ‘‘Plan of Distribution (Terms of the Offer) – Stabilisation’’.
Investing in the Securities involves a high degree of risk. Prospective investors should read the entire document and, in particular, see ‘‘Risk Factors’’
beginning on page 25.
The GDRs are to be issued against the deposit of Shares with Citibank Europe plc, acting through its Slovak branch, Citibank Europe plc,
pobočka zahraničnej banky, as custodian (the Custodian) for Citibank, N.A., a national banking association organised under the laws of the
United States, as depositary (the Depositary). The GDRs offered and sold in the United States (the Rule 144A GDRs) will be evidenced by a
Master Rule 144A Global Depositary Receipt (the Master Rule 144A GDR) registered in the name of Cede & Co., as nominee for The
Depository Trust Company (DTC), and the GDRs offered and sold outside the United States (the Regulation S GDRs) will be evidenced by a
Master Regulation S Global Depositary Receipt (the Master Regulation S GDR, and together with the Master Rule 144A GDR, the Master
GDRs) registered in the name of Citivic Nominees Limited as nominee for Citibank Europe plc, as common depositary for Euroclear Bank SA/
NV (Euroclear) and Clearstream Banking, société anonyme (Clearstream). It is expected that delivery of the Offer Securities will be made against
payment therefor in same day funds through the facilities of Centrálny depozitár cenných papierov SR, a.s. (the Slovak Central Depository) in the
case of the Offer Shares, and DTC, Euroclear and Clearstream, in the case of the GDRs, on 12 May 2015 (the Closing Date).
The Company will apply for admission of the Shares to trading on the Main Listed Market of the Bratislava Stock Exchange and the trading is
expected to commence on 12 May 2015 under the symbol ‘‘STX’’. It is expected that admission to the Official List and unconditional trading
through the International Order Book (IOB) on the London Stock Exchange (together with the admission to trading on the Bratislava Stock
Exchange, the Admission) will commence on the London Stock Exchange at 8.00 a.m. (London time) on 12 May 2015 under the symbol
‘‘STXX’’. No assurance can be made that applications for the Admission will be approved.
Joint Global Coordinators and Joint Bookrunners
Citigroup
J.P. Morgan
Joint Lead Manager and Retail Offering Co-ordinator
Erste Group
Joint Lead Manager and Regional Offering Co-ordinator
WOOD & Company
The date of this Prospectus is 17 April 2015.
TABLE OF CONTENTS
SUMMARY .....................................................................................................................................
RISK FACTORS .............................................................................................................................
Risks Related to the Group’s Business and Industry ............................................................
Legal and Regulatory Risks....................................................................................................
Risks Related to the Slovak Republic....................................................................................
Risks Related to the Group’s Relationship with Deutsche Telekom....................................
Risks Related to the Securities and the Offering...................................................................
IMPORTANT INFORMATION ABOUT THIS PROSPECTUS ................................................
Notice to United States Investors...........................................................................................
Notice to New Hampshire Residents only .............................................................................
Notice to United Kingdom and other European Economic Area Investors ........................
Available Information .............................................................................................................
Service of Process and Enforcement of Civil Liabilities ........................................................
FORWARD-LOOKING STATEMENTS ......................................................................................
PRESENTATION OF FINANCIAL AND OTHER INFORMATION......................................
Presentation of Financial Information....................................................................................
The Company’s Independent Auditors ...................................................................................
Certain Definitions ..................................................................................................................
Certain Currencies ...................................................................................................................
Non-IFRS Information ...........................................................................................................
Rounding .................................................................................................................................
Exchange Rate Information ....................................................................................................
Foreign Language Terms ........................................................................................................
Information Derived from Third Parties ................................................................................
THE OFFERING ............................................................................................................................
USE OF PROCEEDS......................................................................................................................
EXPECTED TIMETABLE OF PRINCIPAL EVENTS ...............................................................
DIVIDENDS ....................................................................................................................................
CAPITALISATION .........................................................................................................................
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION ...........................................
Selected Consolidated Income Statement Information...........................................................
Selected Consolidated Statement of Comprehensive Income Information ............................
Selected Consolidated Statement of Financial Position Information ....................................
Selected Consolidated Statements of Cash Flows Information .............................................
Other Financial Information(1) ................................................................................................
Reconciliation of Operating Profit to Adjusted EBITDA and Operating Free Cash Flow.
BUSINESS .......................................................................................................................................
Overview ..................................................................................................................................
Group Structure ......................................................................................................................
History .....................................................................................................................................
Fixed-line Business ..................................................................................................................
Mobile Business .......................................................................................................................
Other Businesses ......................................................................................................................
Marketing and Distribution ....................................................................................................
Brands ......................................................................................................................................
Customer Service .....................................................................................................................
Networks..................................................................................................................................
Billing and Collections ............................................................................................................
Information Technology..........................................................................................................
Key Suppliers...........................................................................................................................
Intellectual Property ................................................................................................................
Quality Control .......................................................................................................................
Insurance..................................................................................................................................
Employees ................................................................................................................................
Corporate Responsibility.........................................................................................................
Principal Tangible Fixed Assets..............................................................................................
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Material Contracts...................................................................................................................
Legal Proceedings ....................................................................................................................
Key Sector-specific Regulations Applicable to the Group.....................................................
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS .......................................................................................................
Overview ..................................................................................................................................
Recent Developments and Trends ..........................................................................................
Key Factors Affecting Results of Operations ........................................................................
Segmentation............................................................................................................................
Seasonality ...............................................................................................................................
Restatement of Presentation and Internal Controls Remediation .........................................
Description of Key Income Statement Line Items.................................................................
Segmental comparison of results of operations for the years ended 31 December 2014,
2013 and 2012..........................................................................................................................
Liquidity and Capital Resources.............................................................................................
Contractual Obligations ..........................................................................................................
Other provisions and contingencies ........................................................................................
Risk Management....................................................................................................................
Critical Accounting Policies ....................................................................................................
SLOVAK TELECOMMUNICATIONS MARKET ......................................................................
MANAGEMENT.............................................................................................................................
Overview ..................................................................................................................................
Corporate Governance ............................................................................................................
Executive Management Board ................................................................................................
Board of Directors ..................................................................................................................
Supervisory Board ...................................................................................................................
Code of Conduct .....................................................................................................................
Remuneration and the Remuneration Committee .................................................................
Audit Committee .....................................................................................................................
Nomination Committee ...........................................................................................................
Interests of the Management in the Company.......................................................................
Conflicts of Interest .................................................................................................................
PRINCIPAL AND SELLING SHAREHOLDERS.......................................................................
General.....................................................................................................................................
Principal Shareholder ..............................................................................................................
Selling Shareholder ..................................................................................................................
Shareholders’ Agreement .........................................................................................................
RELATED PARTY TRANSACTIONS.........................................................................................
Deutsche Telekom Related Parties .........................................................................................
Slovak Government Related Parties .......................................................................................
Additional Information ...........................................................................................................
TELECOMMUNICATION REGULATION IN THE SLOVAK REPUBLIC ...........................
International Obligations.........................................................................................................
EU Telecom Regulatory Framework......................................................................................
Slovak National Telecom Regulatory Framework.................................................................
Further Applicable Regulation ...............................................................................................
THE BRATISLAVA STOCK EXCHANGE AND SLOVAK SECURITIES REGULATION .
Introduction .............................................................................................................................
The Markets of the Bratislava Stock Exchange.....................................................................
Trading and Settlement ...........................................................................................................
SAX Index ...............................................................................................................................
Trading Volumes and Liquidity..............................................................................................
Notification and Reporting Requirements..............................................................................
Major Shareholding Notifications...........................................................................................
Suspension and Ceasing of Trading in the Shares.................................................................
Takeover Rules ........................................................................................................................
Delisting ...................................................................................................................................
Squeeze-out and Buy-out ........................................................................................................
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DESCRIPTION OF SHARE CAPITAL AND SUMMARY OF ARTICLES OF
ASSOCIATION................................................................................................................................
Adoption of the New Articles ................................................................................................
Share Capital ...........................................................................................................................
Shareholder Rights ..................................................................................................................
Increases in Share Capital.......................................................................................................
Decreases in Share Capital......................................................................................................
Acquisition of Shares by the Company..................................................................................
Form, Ownership and Transfer of the Shares .......................................................................
Reporting Requirements..........................................................................................................
Summary of the Articles of Association ................................................................................
TERMS AND CONDITIONS OF THE GLOBAL DEPOSITARY RECEIPTS .......................
1.
Deposit of Shares ...........................................................................................................
2.
Withdrawal of Deposited Property ................................................................................
3.
Suspension of Issue of GDRs and of Withdrawal of Deposited Property ..................
4.
Transfer and Ownership .................................................................................................
5.
Cash Distributions ..........................................................................................................
6.
Distributions of Shares...................................................................................................
7.
Distributions Other than Cash or Shares ......................................................................
8.
Rights Issues ...................................................................................................................
9.
Redemption.....................................................................................................................
10. GDR Record Dates........................................................................................................
11. Conversion of Foreign Currency ...................................................................................
12. Distribution of any Payments ........................................................................................
13. Capital Reorganisation ...................................................................................................
14. Elective Distributions......................................................................................................
15. Taxation and Applicable Laws ......................................................................................
16. Voting Rights..................................................................................................................
17. Liability ...........................................................................................................................
18. Issue and Delivery of Replacement GDRs and Exchange of GDRs ...........................
19. GDR Fees and Charges .................................................................................................
20. Listing .............................................................................................................................
21. The Custodian ................................................................................................................
22. Resignation and Termination of Appointment of the Depositary ...............................
23. Termination of Deposit Agreement ...............................................................................
24. Amendment of Deposit Agreement and Conditions .....................................................
25. Notices ............................................................................................................................
26. Reports and Information on the Company...................................................................
27. Copies of Company Notices ..........................................................................................
28. Moneys Held by the Depositary....................................................................................
29. Severability......................................................................................................................
30. Governing Law ...............................................................................................................
31. Contracts (Rights of Third Parties) Act 1999 ...............................................................
DESCRIPTION OF KEY PROVISIONS RELATING TO THE GLOBAL DEPOSITARY
RECEIPTS WHILE IN MASTER FORM ....................................................................................
Exchange..................................................................................................................................
Payments and Distributions ....................................................................................................
Surrender of GDRs .................................................................................................................
Notices .....................................................................................................................................
Information..............................................................................................................................
Governing Law........................................................................................................................
DESCRIPTION OF ARRANGEMENTS TO SAFEGUARD THE RIGHTS OF THE
HOLDERS OF THE GLOBAL DEPOSITARY RECEIPTS .......................................................
TRANSFER RESTRICTIONS .......................................................................................................
Rule 144A................................................................................................................................
Regulation S ............................................................................................................................
Other Provisions Regarding Transfers of the GDRs.............................................................
TAXATION .....................................................................................................................................
Certain Slovak Tax Considerations ........................................................................................
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Certain Czech Tax Considerations .........................................................................................
Certain U.S. Federal Income Tax Considerations .................................................................
United Kingdom Tax Considerations.....................................................................................
Stamp Duty and Stamp Duty Reserve Tax ...........................................................................
PLAN OF DISTRIBUTION (TERMS OF THE OFFER)...........................................................
General Information about the Offering ................................................................................
Offer Period .............................................................................................................................
Offer Price ...............................................................................................................................
Retail Offering .........................................................................................................................
Underwriting Agreements........................................................................................................
Lock-up Provisions..................................................................................................................
Change and Withdrawal of Subscriptions ..............................................................................
Allocation of the Offer Securities ...........................................................................................
Admission to Trading .............................................................................................................
Stabilisation .............................................................................................................................
Existing shareholdings .............................................................................................................
Selling Restrictions ..................................................................................................................
No Public Offering outside the Slovak Republic and the Czech Republic ..........................
CLEARING AND SETTLEMENT ...............................................................................................
Clearing and Settlement of the Shares ...................................................................................
Clearing and Settlement of GDRs..........................................................................................
Settlement of the GDRs..........................................................................................................
INFORMATION RELATING TO THE DEPOSITARY ............................................................
INDEPENDENT AUDITORS .......................................................................................................
LEGAL MATTERS ........................................................................................................................
ADDITIONAL INFORMATION ..................................................................................................
Authorisations and Consents ..................................................................................................
No Material Adverse Change .................................................................................................
Documents on Display ............................................................................................................
Publication of the Prospectus .................................................................................................
Websites ...................................................................................................................................
GLOSSARY .....................................................................................................................................
RESPONSIBILITY STATEMENT AND SIGNATURES............................................................
INDEX TO FINANCIAL STATEMENTS ...................................................................................
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F-1
SUMMARY
Summaries are made up of disclosure requirements known as ‘‘Elements’’. These Elements are numbered in Section A
–Section E (A.1 – E7). This summary contains all the Elements required to be included in a summary for this type of
securities and issuer. Because some Elements are not required to be addressed, there may be gaps in the numbering
sequence of the Elements. Even though an Element may be required to be inserted in the summary because of the type
of securities and issuer, it is possible that no relevant information can be given regarding the Element. In this case a
short description of the Element is included in the summary with the mention of ‘‘not applicable.’’
Section A – Introduction and warnings
A.1
Warning
This summary should be read as an introduction to the Prospectus; any decision to
invest in the securities should be based on consideration of the Prospectus as a
whole by the investor. Where a claim relating to the information contained in the
Prospectus is brought before a court, the plaintiff investor might, under the
national legislation of the member states of the EEA, have to bear the costs of
translating the Prospectus before the legal proceedings are initiated; and civil
liability attaches only to those persons who have tabled the summary including any
translation thereof, but only if the summary is misleading when read together with
the other parts of the Prospectus or it does not provide, when read together with the
other parts of the Prospectus, key information in order to aid investors when
considering whether to invest in such securities. The Person responsible for the
summary is the Company represented by Mr. Miroslav Majoroš, Chairman of the
Board of Directors, and Mr. Michal Vaverka, Vice Chairman of the Board of
Directors.
A.2
Subsequent resale or
final placement of
securities by financial
intermediaries
Not applicable. The Company has not consented to the use of the Prospectus for
subsequent resale or final placement of securities by financial intermediaries.
Section B – Issuer
B.1
The legal and
commercial name
Slovak Telekom, a.s. (the Company)
B.2
Domicile / Legal Form / The Company is a joint-stock company incorporated under the laws of the Slovak
Republic.
Legislation / Country
of Incorporation
The registered seat of the Company is at Bajkalská 28, 817 62 Bratislava, Slovak
Republic.
B.3
Key factors relating to,
the nature of issuer’s
current operations and
principal activities
The Group (as defined in element B.5 below) is the largest multimedia and
telecommunications operator in the Slovak Republic by revenue, offering a full
range of broadband, fixed telephony, Pay-TV, mobile data and voice services as
well as a comprehensive suite of ICT services. The Group is part of the Deutsche
Telekom Group and markets most of its services under the Deutsche Telekom ‘‘T’’
brand. Before liberalisation of the Slovak telecommunication market, in 2002, it
was the only provider of fixed telephony services in the Slovak Republic. The
Group carries out substantially all its activities in the Slovak Republic.
In terms of market position the Group is the market leader (measured by revenue)
in fixed voice, fixed broadband and Pay-TV for the year ended 31 December 2014.
It is also the second largest provider of mobile telecommunication services by
service revenue.
Fixed-line services provided by the Group consist mainly of core fixed voice and
broadband internet complemented by a range of value-added services offered
through the Group’s extensive fixed-line telecommunications network benefiting
from an on-going roll-out of modern fibre optic technology. The Group provides
comprehensive and premium content through its Pay-TV services, including a high
definition and interactive IPTV platform. The Group is also a leading provider of
ICT services and offers wholesale services to a number of retail Internet service
providers (ISPs) and other licensed operators in the Slovak Republic and abroad.
1
The Group also offers a full range of voice and data mobile services, including
traditional and value-added voice services, international roaming services,
interconnection services with other mobile operators inside and outside the
Slovak Republic, messaging and data services using 2G (GSM), 3G (UMTS) and
4G (LTE) network technologies.
As the first multimedia operator in the Slovak Republic, the Group offers the
television services via both cable and satellite technology. Except for standard TV
channels, the Group offers premium and exclusive sports content. High-end TV
service with interactive features (VOD, catch-up TV functions, recording)
supported by IPTV technology are offered under TV Magio brand, while linear
mass market television services mostly provided via satellite technology are offered
under DIGI brand operated through the Group’s wholly-owned subsidiary DIGI
SLOVAKIA s.r.o. (DIGI).
The Group considers itself to be the leader in the Slovak market for ICT solutions.
The Group’s ICT solutions are provided through the Company and its subsidiary
PosAm. The Group’s ICT business consists primarily of cloud-based services
(private as well as public), tailor-made IT solutions, mobile device management and
car monitoring, offering customers both cost efficiency and flexibility with the
higher security and service availability. The Group also operates modern data
centres across the Slovak Republic. The Group also introduced a cloud application
platform in 2014, and offers applications focused on providing a quality customer
experience tailored to the Slovak market. The Group also offers virtual servers
(IaaS), web hosting services, M2M (Machine-to-machine) & IoT (Internet of
Things) solutions, and healthcare information systems for hospitals.
B.4a
Significant trends
Pricing and competition
The Group is subject to significant competition for its products and services. In
light of this competition, overall prices for most products and services offered to
customers in the telecommunications markets in the Slovak Republic have steadily
decreased in recent years. The Group seeks to maintain and improve its competitive
position by offering products and services that it believes are more appealing to
customers. The Group seeks to provide customers with access to premium and
exclusive content, high levels of customer support, leading network infrastructure
and superior mobile spectrum portfolio. In addition, the Group benefits from
having a relatively higher proportion of post-paid mobile telephone customers.
Nevertheless, the overall pricing environment may be disturbed by the entry of a
significant new operator or competitor, as occurred when O2 started offering
mobile services in 2007.
Bundling of products and services
Telecommunication service providers, including the Group, increasingly seek to
offer bundled offerings of multiple products. These offerings combine fixed and/or
mobile services and allow for differentiation based on quality and value of service
provided. In addition, bundled offerings generally drive and support telephony and
broadband internet products and often help to reduce customer churn as compared
with individually sold products and services. Management believes that offering an
integrated mobile and fixed service portfolio with high quality and reliability
enables it to sell additional as well as premium versions of existing services, such as
internet in mobile data packages or data consuming premium services, such as
Magio Go, while also reducing churn because customers often prefer bundled
products due to the convenience and cost savings that are available when acquiring
fixed-line and mobile telephony, fixed and mobile broadband internet and television
services from a single provider for one price. Product bundles also grant
opportunities to cross-sell services to customers, thereby encouraging them to
procure additional services from the Group, such as by encouraging broadband
customers to acquire pay-TV services from the Group, as well as increase network
utilization.
Bundled services also facilitate the Group’s ability to capitalize on developing
market trends, such as the emergence of fixed-mobile convergence in the Slovak
Republic, which is the bundling or packaging of fixed and mobile services together
into a single customer package. Accordingly, since 2015 the Group has started
offering product bundles that combine both fixed-line services and mobile services.
2
Macroeconomic conditions in the Slovak Republic
The Group’s results of operations have been and will continue to be influenced by
macro economic conditions in the Slovak Republic, including trends in real GDP
and private consumption. As real GDP increases, the Group generally experiences
an increase in demand for its telecommunications services. In particular, increased
domestic consumption tends to result in increased spending on telecommunications
services, particularly by consumers. For example, consumers may be more likely to
subscribe for broadband or pay-TV packages, or may subscribe to higher-cost
packages, during periods of relatively favourable economic conditions. Conversely,
during periods of low or negative growth in GDP or consumer spending, both B2C
and B2B customers tend to reduce their expenditures on telecommunications
services. Moreover, such reductions may not be fully offset during subsequent
periods of improved economic conditions
Interconnection charges and regulations
The Group generates revenues from other network operators in the form of access
and interconnection fees for voice calls terminated on the Group’s networks, and is
required to pay access and interconnection fees to other network operators for calls
terminated on their networks, in each case both domestic and international. These
access and interconnection fees are based on set termination rates for both fixed
and mobile voice calls. In recent years, the Slovak NRA has taken action to
significantly reduce these termination rates and the reductions in FTRs and MTRs
have significantly affected the Group’s revenue in recent periods. Management
believes that there is limited scope for further reductions in interconnection rates, as
MTRs are generally in-line with EU and regional medians and FTRs are already at
low levels, such that the impact on the Group’s revenues in future periods is likely
to be more limited.
The Group also generates revenues from retail and wholesale international voice
and data roaming charges for calls and SMS made by visitors to the Slovak
Republic using the Group’s mobile network, and incurs costs associated with the
Group’s access and interconnection expenses for calls and SMS made by the
Group’s subscribers who are abroad and have to rely on other network operators
for fulfilment of their calls. Applicable European Union regulations have required
significant reductions in such fees.
In addition, the Group has been designated as having significant market power in
fixed voice and fixed broadband markets in the Slovak Republic. The Slovak NRA
has imposed certain obligations on the Group relating to, among other things,
access and use of specific network facilities, non-discrimination, transparency or the
level of tariffs at the regulated wholesale or retail markets. As a result, the Group is
required to provide certain services to customers, and it may be limited in its ability
to adjust pricing in order to maintain regulatory required margins. The Group is
also required to make fixed voice, fixed broadband and mobile roaming services
available on a wholesale basis. While the Group seek to change market prices for
these services, in some cases it is requested to offer the services below cost.
Cost reduction program
In order to maintain its competitive position and its financial performance, the
Group has undertaken a number of initiatives in order to reduce its costs and
improve its operating efficiencies. A cost reduction program undertaken by the
Group from 2010 through 2014 included personnel reductions; technology
improvements and modernization; rationalization of the Group’s real estate;
energy efficiency improvements; improving operational efficiency; and
implementing electronic billing and other systems. Measures introduced since
2014 have sought to further the transformation of the Group into an ‘‘eCompany’’
by reducing the use of paper, streamlining and simplifying support processes,
including customer payment methods, using more online channels for sales and
focusing on an omnichannel approach to customers through a stable and developed
online platform.
In addition, as a member of the Deutsche Telekom group, the Group participates in
a number of cost-reduction programs, which complement the programs adopted at
the Group level. Key accomplishments during the period under review include
switching its fixed-line network to all-IP, which was completed in December 2014,
as well as an employee reduction program led by Deutsche Telekom, which is
expected to be finalised by 2016. The Group has also undertaken other
3
improvements to reduce costs, such as the combination of its fixed-line and mobile
businesses resulting from the merger with T-Mobile Slovakia, which previously
operated as a separate legal entity within the Group, and which was largely finalised
by the end of 2012.
Capital expenditures and investments in network
The Group’s ability to provide fixed and mobile telephony, fixed and mobile
broadband internet and TV to retail customers as well as telecommunications and
ICT solutions to business customers depends in large part on its ability to provide
attractive and competitive product offerings to its customers by upgrading and
maintaining its fixed and mobile networks. In light of the growing penetration of
smartphones and the increasing demand for data services, upgrading and
maintaining the Group’s networks is key to the provision of services to its
customers and meeting the increasing needs of the customers for high-quality fixed
and mobile data services. Perception of network quality and speed are important
factors in the Group’s ability to be able to attract and retain its customers, and
therefore minimize churn by offering the best products and services to its
customers. In particular, in recent years the Group has invested in rolling-out a
fixed-line fibre network, and its LTE mobile network. The Group was the first
mobile operator in the Slovak Republic to launch commercial LTE services, in
November 2013, giving it a ‘‘first mover’’ advantage, and has the largest 4G
network coverage in the Slovak Republic, covering 52% of the population of the
Slovak Republic in January 2015.
B.5
Description of the
issuer’s group
The Company is a parent company of a group that comprises the Company and its
consolidated subsidiaries Zoznam, s.r.o. and Zoznam Mobile, s.r.o. (internet
content), Telekom Sec, s.r.o. (security services), PosAm, spol.s r.o. (IT and data
services) and DIGI SLOVAKIA, s.r.o. (digital and cable television services) (the
Group). The Group conducts majority of its operations through the Company.
The following chart shows the structure of the Group as at the date of this
Prospectus; the percentages show shares in the registered capital and voting rights:
Telekom Sec, s.r.o.
DIGI SLOVAKIA,
s.r.o.
Zoznam, s.r.o.
Zoznam Mobile, s.r.o.
PosAm, spol. s.r.o.

100%
100%
100%
100%
51%

Established 2006
Acquired in 2013
Acquired in 2005
Acquired in 2005
Acquired in 2010

Main activities:
Main activities:
Main activities:
Main activities:
Main activities:

security services;

automated data

processing.

digital and cable

internet content and

specific IT and
television and internet
advertisement
advertisement
infrastructure
services;
services.
services,
solutions for

TV program
broadcasting.
4
graphic design.
corporate
customers.
B.6
Interests in shares /
voting rights /
controllers
The Company is controlled by Deutsche Telekom AG on the basis of holding 51%
of the registered capital and voting right in the Company. Deutsche Telekom AG
holds the controlling interest in the Company through its indirectly wholly owned
subsidiary Deutsche Telekom Europe B.V. (before 1 March 2015, the name of the
entity was CMobil B.V.).
Prior to the Offering, the remaining 49% of the Shares are owned by the National
Property Fund of the Slovak Republic (the Selling Shareholder).
B.7
Selected historical
financial information
The historical financial information set forth below as at and for the years ended
31 December 2014, 2013 and 2012 has been extracted without material adjustment
from the Company’s audited consolidated financial statements as of 31 December
2014, 31 December 2013 and 31 December 2012 and for the years then ended.
Selected Consolidated Income Statement Information
Year ended 31 December
2014
2013
2012
(EUR million)
Revenues..........................................................
767.6
809.0
826.8
Staff costs .......................................................
Material and equipment .................................
Depreciation, amortization and impairment
losses ...............................................................
Interconnection and other fees to operators ..
Other operating income ..................................
Other operating costs......................................
(130.1)
(101.2)
(132.4)
(104.5)
(129.8)
(92.6)
(195.0)
(65.7)
12.6
(218.9)
(236.9)
(70.5)
10.9
(206.2)
(236.4)
(87.0)
10.5
(181.1)
Operating profit...............................................
69.3
69.3
110.5
Financial income.............................................
Financial expense............................................
2.9
(1.2)
2.6
(1.8)
4.9
(1.8)
Net financial result ..........................................
1.7
0.8
3.1
Profit before tax..............................................
71.0
70.2
113.6
Income tax expense.........................................
(27.4)
(20.9)
(50.5)
Profit for the year ...........................................
43.6
49.3
63.1
Selected Statement of Financial Position Information
As at 31 December
2014
2013
2012
(EUR million)
ASSETS
Non-current assets
Property and equipment .................................
Intangible assets..............................................
Available-for-sale investments ........................
Deferred tax ....................................................
Term deposits .................................................
Trade and other receivables............................
Prepaid expenses and other assets ..................
792.2
404.4
32.1
0.8
—
1.7
13.2
817.6
443.0
176.6
0.9
1.1
9.1
12.8
918.5
358.1
—
0.2
—
9.1
14.2
1,244.4
1,461.2
1,300.2
Current Assets
Inventories ......................................................
Investments at amortized cost ........................
Term deposits .................................................
Loans ..............................................................
Escrow ............................................................
Current income tax receivables.......................
Cash and cash equivalents..............................
12.1
3.1
172.0
219.6
150.0
1.0
112.1
6.5
10.0
93.1
14.2
3.1
49.9
142.3
—
13.0
130.7
7.8
0.8
229.1
14.0
74.3
—
106.0
—
—
110.5
9.8
4.0
371.5
Assets held for sale .........................................
779.5
8.6
590.9
19.8
690.1
—
788.1
610.7
690.1
2,032.5
2,071.9
1,990.3
TOTAL ASSETS............................................
5
As at 31 December
2014
2013
2012
(EUR million)
EQUITY AND LIABILITIES
Shareholders’ equity
Issued capital ..................................................
Share premium................................................
Statutory reserve fund ....................................
Other...............................................................
Retained earnings and profit for the
year .................................................................
864.1
386.1
172.8
(1.9)
864.1
386.1
172.8
1.8
864.1
386.1
170.6
0.6
187.6
160.4
183.8
Total Shareholders’ equity...............................
1,608.7
1,585.3
1,605.4
Non-current liabilities
Deferred tax ....................................................
Provisions........................................................
Trade and other payables ...............................
Other liabilities and deferred income..............
115.9
25.8
0.6
3.5
128.3
16.9
1.1
2.8
150.5
18.2
0.3
4.8
Total Non-current liabilities ............................
145.8
149.1
173.8
Current liabilities
Provisions........................................................
Current income tax liabilities .........................
Total Current liabilities ...................................
37.4
129.0
110.6
0.9
278.0
34.3
225.2
74.0
4.0
337.6
5.2
133.5
72.2
0.1
211.1
Total liabilities ................................................
423.8
486.7
384.9
TOTAL EQUITY AND LIABILITIES .........
2,032.5
2,071.9
1,990.3
At the General Meeting held on 31 March 2015, the shareholders approved a
dividend of 80% of the Company‘s distributable profit in respect of 2014,
amounting to an aggregate of EUR 32.5 million. These dividends are expected to be
paid in late April 2015. In January 2015, the Company paid its fine of
EUR 38.838 million to the European Commission. In March 2015, the Company
and the claimant on the CDI Case entered into a settlement agreement. Except as
described above, no significant change in the financial or trading position of the
Group has occurred between 31 December 2014 and the date of this Prospectus.
B.8
Selected key pro forma Not applicable. The Prospectus does not include any pro forma financial
information. The Company has no obligation to present pro forma financial
financial information,
information in the Prospectus.
identified as such.
B.9
Profit forecast or
estimate
Not applicable. The Prospectus does not include a profit forecast or estimate by the
Company and no profit forecast or estimate has been published by the Company.
B.10
Qualifications in the
audit report
Not applicable. There are no qualifications in the audit report on the historical
financial information.
B.11
If the issuer’s working
capital is not sufficient
for the issuer’s present
requirements, an
explanation should
be included.
Not applicable. Management is of the opinion that the Group has sufficient
working capital for its present requirements, that is, for at least the 12 months
following the date of this Prospectus.
B.31
Information about the issuer of the underlying shares
B.1
Legal and commercial
name
B.2
Domicile / Legal Form / The Company is a joint-stock company incorporated under the laws of the Slovak
Legislation / Country of Republic.
Incorporation
The registered seat of the Company is at Bajkalská 28, 817 62 Bratislava, Slovak
Republic.
6
B.3
Key factors relating to,
the nature of issuer’s
current operations and
principal activities
The Group is the largest multimedia and telecommunications operator in the
Slovak Republic by revenue, offering a full range of broadband, fixed telephony,
Pay-TV, mobile data and voice services as well as a comprehensive suite of ICT
services. The Group is part of the Deutsche Telekom Group and markets most of
its services under the Deutsche Telekom ‘‘T’’ brand. Before liberalisation of the
Slovak telecommunication market, in 2002, it was the only provider of fixed
telephony services in the Slovak Republic. The Group carries out substantially all
its activities in the Slovak Republic.
In terms of market position the Group is the market leader (measured by revenue)
in fixed voice, fixed broadband and Pay-TV for the year ended 31 December 2014.
It is also the second largest provider of mobile telecommunication services by
service revenue.
Fixed-line services provided by the Group consist mainly of core fixed voice and
broadband internet complemented by a range of value-added services offered
through the Group’s extensive fixed-line telecommunications network benefiting
from an on-going roll-out of modern fibre optic technology. The Group provides
comprehensive and premium content through its Pay-TV services, including a high
definition and interactive IPTV platform. The Group is also a leading provider of
ICT services and offers wholesale services to a number of retail Internet service
providers (ISPs) and other licensed operators in the Slovak Republic and abroad.
The Group also offers a full range of voice and data mobile services, including
traditional and value-added voice services, international roaming services,
interconnection services with other mobile operators inside and outside the
Slovak Republic, messaging and data services using 2G (GSM), 3G (UMTS) and
4G (LTE) network technologies.
As the first multimedia operator in the Slovak Republic, the Group offers the
television services via both cable and satellite technology. Except for standard TV
channels, the Group offers premium and exclusive sports content. High-end TV
service with interactive features (VOD, catch-up TV functions, recording)
supported by IPTV technology are offered under TV Magio brand, while linear
mass market television services mostly provided via satellite technology are offered
under DIGI brand operated through the Group’s wholly-owned subsidiary DIGI
SLOVAKIA s.r.o. (DIGI).
The Group considers itself to be the leader in the Slovak market for ICT solutions.
The Group’s ICT solutions are provided through the Company and its subsidiary
PosAm. The Group’s ICT business consists primarily of cloud-based services
(private as well as public), tailor-made IT solutions, mobile device management and
car monitoring, offering customers both cost efficiency and flexibility with the
higher security and service availability. The Group also operates modern data
centres across the Slovak Republic. The Group also introduced a cloud application
platform in 2014, and offers applications focused on providing a quality customer
experience tailored to the Slovak market. The Group also offers virtual servers
(IaaS), web hosting services, M2M (Machine-to-machine) & IoT (Internet of
B.4a
Significant trends
The Group is subject to significant competition for its products and services. In
light of this competition, overall prices for most products and services offered to
customers in the telecommunications markets in the Slovak Republic have steadily
decreased in recent years. The Group seeks to maintain and improve its competitive
position by offering products and services that it believes are more appealing to
customers. The Group seeks to provide customers with access to premium and
exclusive content, high levels of customer support, leading network infrastructure
and superior mobile spectrum portfolio. In addition, the Group benefits from
having a relatively higher proportion of post-paid mobile telephone customers.
Nevertheless, the overall pricing environment may be disturbed by the entry of a
significant new operator or competitor, as occurred when O2 started offering
mobile services in 2007.
Telecommunication service providers, including the Group, increasingly seek to
offer bundled offerings of multiple products. These offerings combine fixed and/or
mobile services and allow for differentiation based on quality and value of service
7
provided. In addition, bundled offerings generally drive and support telephony and
broadband internet products and often help to reduce customer churn as compared
with individually sold products and services. Management believes that offering an
integrated mobile and fixed service portfolio with high quality and reliability
enables it to sell additional as well as premium versions of existing services, such as
internet in mobile data packages or data consuming premium services, such as
Magio Go, while also reducing churn because customers often prefer bundled
products due to the convenience and cost savings that are available when acquiring
fixed-line and mobile telephony, fixed and mobile broadband internet and television
services from a single provider for one price. Product bundles also grant
opportunities to cross-sell services to customers, thereby encouraging them to
procure additional services from the Group, such as by encouraging broadband
customers to acquire pay-TV services from the Group, as well as increase network
utilization.
Bundled services also facilitate the Group’s ability to capitalize on developing
market trends, such as the emergence of fixed-mobile convergence in the Slovak
Republic, which is the bundling or packaging of fixed and mobile services together
into a single customer package. Accordingly, since 2015 the Group has started
offering product bundles that combine both fixed-line services and mobile services.
The Group’s results of operations have been and will continue to be influenced by
macro economic conditions in the Slovak Republic, including trends in real GDP
and private consumption. As real GDP increases, the Group generally experiences
an increase in demand for its telecommunications services. In particular, increased
domestic consumption tends to result in increased spending on telecommunications
services, particularly by consumers. For example, consumers may be more likely to
subscribe for broadband or pay-TV packages, or may subscribe to higher-cost
packages, during periods of relatively favourable economic conditions. Conversely,
during periods of low or negative growth in GDP or consumer spending, both B2C
and B2B customers tend to reduce their expenditures on telecommunications
services. Moreover, such reductions may not be fully offset during subsequent
periods of improved economic conditions
Interconnection charges and regulations
The Group generates revenues from other network operators in the form of access
and interconnection fees for voice calls terminated on the Group’s networks, and is
required to pay access and interconnection fees to other network operators for calls
terminated on their networks, in each case both domestic and international. These
access and interconnection fees are based on set termination rates for both fixed
and mobile voice calls. In recent years, the Slovak NRA has taken action to
significantly reduce these termination rates and the reductions in FTRs and MTRs
have significantly affected the Group’s revenue in recent periods. Management
believes that there is limited scope for further reductions in interconnection rates, as
MTRs are generally in-line with EU and regional medians and FTRs are already at
low levels, such that the impact on the Group’s revenues in future periods is likely
to be more limited.
The Group also generates revenues from retail and wholesale international voice
and data roaming charges for calls and SMS made by visitors to the Slovak
Republic using the Group’s mobile network, and incurs costs associated with the
Group’s access and interconnection expenses for calls and SMS made by the
Group’s subscribers who are abroad and have to rely on other network operators
for fulfilment of their calls. Applicable European Union regulations have required
significant reductions in such fees.
In addition, the Group has been designated as having significant market power in
fixed voice and fixed broadband markets in the Slovak Republic. The Slovak NRA
has imposed certain obligations on the Group relating to, among other things,
access and use of specific network facilities, non-discrimination, transparency or the
level of tariffs at the regulated wholesale or retail markets. As a result, the Group is
required to provide certain services to customers, and it may be limited in its ability
to adjust pricing in order to maintain regulatory required margins. The Group is
also required to make fixed voice, fixed broadband and mobile roaming services
available on a wholesale basis. While the Group seek to change market prices for
these services, in some cases it is requested to offer the services below cost.
8
In order to maintain its competitive position and its financial performance, the
Group has undertaken a number of initiatives in order to reduce its costs and
improve its operating efficiencies. A cost reduction program undertaken by the
Group from 2010 through 2014 included personnel reductions; technology
improvements and modernization; rationalization of the Group’s real estate;
energy efficiency improvements; improving operational efficiency; and
implementing electronic billing and other systems. Measures introduced since
2014 have sought to further the transformation of the Group into an ‘‘eCompany’’
by reducing the use of paper, streamlining and simplifying support processes,
including customer payment methods, using more online channels for sales and
focusing on an omnichannel approach to customers through a stable and developed
online platform.
In addition, as a member of the Deutsche Telekom group, the Group participates in
a number of cost-reduction programs, which complement the programs adopted at
the Group level. Key accomplishments during the period under review include
switching its fixed-line network to all-IP, which was completed in December 2014,
as well as an employee reduction program led by Deutsche Telekom, which is
expected to be finalised by 2016. The Group has also undertaken other
improvements to reduce costs, such as the combination of its fixed-line and
mobile businesses resulting from the merger with T-Mobile Slovakia, which
previously operated as a separate legal entity within the Group, and which was
largely finalised by the end of 2012.
The Group’s ability to provide fixed and mobile telephony, fixed and mobile
broadband internet and TV to retail customers as well as telecommunications and
ICT solutions to business customers depends in large part on its ability to provide
attractive and competitive product offerings to its customers by upgrading and
maintaining its fixed and mobile networks. In light of the growing penetration of
smartphones and the increasing demand for data services, upgrading and
maintaining the Group’s networks is key to the provision of services to its
customers and meeting the increasing needs of the customers for high-quality fixed
and mobile data services. Perception of network quality and speed are important
factors in the Group’s ability to be able to attract and retain its customers, and
therefore minimize churn by offering the best products and services to its
customers. In particular, in recent years the Group has invested in rolling-out a
fixed-line fibre network, and its LTE mobile network. The Group was the first
mobile operator in the Slovak Republic to launch commercial LTE services, in
November 2013, giving it a ‘‘first mover’’ advantage, and has the largest 4G
network coverage in the Slovak Republic, covering 52% of the population of the
Slovak Republic in January 2015.
B.4b
Trends affecting the
issuer and the
industries in which
it operates
The trends described in B.4a are likely to continue to have an effect on the
Company for the foreseeable future.
9
B.5
Description of the
issuer’s group
The Company is a parent company of the Group that comprises the Company and
its consolidated subsidiaries Zoznam, s.r.o. and Zoznam Mobile, s.r.o. (internet
content), Telekom Sec, s.r.o. (security services), PosAm, spol.s r.o. (IT and data
services) and DIGI SLOVAKIA, s.r.o. (digital and cable television services). The
Group conducts majority of its operations through the Company.
The following chart shows the structure of the Group as at the date of this
Prospectus; the percentages show shares in the registered capital and voting rights:
Telekom Sec, s.r.o.
DIGI SLOVAKIA,
s.r.o.
Zoznam, s.r.o.

100%
100%
100%
100%
51%

Established 2006
Acquired in 2013
Acquired in 2005
Acquired in 2005
Acquired in 2010

Main activities:
Main activities:
Main activities:
Main activities:
Main activities:

security services;

automated data

processing.

digital and cable

Interests in shares /
voting rights /
controllers

specific IT and
advertisement
advertisement
infrastructure
services;
services.
services,
solutions for

TV program
corporate
graphic design.
customers.
broadcasting.
B.6
PosAm, spol. s.r.o.
The Company is controlled by Deutsche Telekom AG on the basis of holding 51%
of the registered capital and voting right in the Company. Deutsche Telekom AG
holds the controlling interest in the Company through its indirectly wholly owned
subsidiary Deutsche Telekom Europe B.V. (before 1 March 2015, the name of the
entity was CMobil B.V.).
Prior to the Offering, the remaining 49% of the Shares are owned by the National
Property Fund of the Slovak Republic (the Selling Shareholder).
B.7
Selected historical
financial information
The financial information set forth below as at and for the years ended 31 December
2014, 2013 and 2012 has been extracted without material adjustment from the
Company’s audited consolidated financial statements as of 31 December 2014,
31 December 2013 and 31 December 2012 and the years then ended.
2014
2013
2012
(EUR million)
Revenues..........................................................
767.6
809.0
826.8
Staff costs .......................................................
Material and equipment .................................
Depreciation, amortization and impairment
losses ...............................................................
Interconnection and other fees to operators ..
Other operating income ..................................
Other operating costs......................................
(130.1)
(101.2)
(132.4)
(104.5)
(129.8)
(92.6)
(195.0)
(65.7)
12.6
(218.9)
(236.9)
(70.5)
10.9
(206.2)
(236.4)
(87.0)
10.5
(181.1)
Operating profit...............................................
69.3
69.3
110.5
Financial income.............................................
Financial expense............................................
Net financial result ..........................................
2.9
(1.2)
1.7
2.6
(1.8)
0.8
Profit before tax..............................................
71.0
70.2
113.6
Income tax expense.........................................
(27.4)
(20.9)
(50.5)
Profit for the year ...........................................
43.6
49.3
63.1
10
4.9
(1.8)
3.1
Selected Statement of Financial Position Information
As at 31 December
2014
2013
2012
(EUR million)
ASSETS
Non-current assets
Property and equipment .................................
Intangible assets..............................................
Deferred tax ....................................................
Term deposits .................................................
792.2
404.4
32.1
0.8
—
1.7
13.2
817.6
443.0
176.6
0.9
1.1
9.1
12.8
918.5
358.1
—
0.2
—
9.1
14.2
1,244.4
1,461.2
1,300.2
Current Assets
Inventories ......................................................
Investments at amortized cost ........................
Term deposits .................................................
Loans ..............................................................
Escrow ............................................................
Current income tax receivables.......................
Cash and cash equivalents..............................
12.1
3.1
172.0
219.6
150.0
1.0
112.1
6.5
10.0
93.1
14.2
3.1
49.9
142.3
—
13.0
130.7
7.8
0.8
229.1
14.0
74.3
—
106.0
—
—
110.5
9.8
4.0
371.5
Assets held for sale .........................................
779.5
8.6
590.9
19.8
690.1
—
788.1
610.7
690.1
2,032.5
2,071.9
1,990.3
TOTAL ASSETS ...........................................
As at 31 December
2014
Issued capital ..................................................
Share premium................................................
Statutory reserve fund ....................................
Other...............................................................
Retained earnings and profit for
the year ...........................................................
2013
2012
(EUR million)
864.1
386.1
172.8
(1.9)
864.1
386.1
172.8
1.8
864.1
386.1
170.6
0.6
187.6
160.4
183.8
Total Shareholders’ equity...............................
1,608.7
1,585.3
1,605.4
Deferred tax ....................................................
Provisions........................................................
115.9
25.8
0.6
3.5
128.3
16.9
1.1
2.8
150.5
18.2
0.3
4.8
Total Non-current liabilities ...........................
145.8
149.1
173.8
Current liabilities
Provisions........................................................
Current income tax liabilities .........................
Total Current liabilities ..................................
37.4
129.0
110.6
0.9
278.0
34.3
225.2
74.0
4.0
337.6
5.2
133.5
72.2
0.1
211.1
Total liabilities ................................................
423.8
486.7
384.9
TOTAL EQUITY AND LIABILITIES .........
2,032.5
2,071.9
1,990.3
At the General Meeting held on 31 March 2015, the shareholders approved a
dividend of 80% of the Company‘s distributable profit in respect of 2014,
amounting to an aggregate of EUR 32.5 million. These dividends are expected to be
paid in late April 2015. In January 2015, the Company paid its fine of EUR 38.838
million to the European Commission. In March 2015, the Company and the
11
claimant on the CDI Case entered into a settlement agreement. Except as described
above, no significant change in the financial or trading position of the Group has
occurred between 31 December 2014 and the date of this Prospectus.
B.9
Profit forecast or
estimate
Not applicable. The Prospectus does not include a profit forecast or estimate by the
Company and no profit forecast or estimate has been published by the Company.
B.10
Qualifications in the
audit report
Not applicable. There are no qualifications in the audit report on the historical
financial information.
D.4 /
D.2
Key information on the
key risks that are
specific to the issuer.
Risks Related to the Group’s Business and Industry
*
The Group is subject to significant competition from new and established
competitors and to changing market conditions.
*
The businesses in which the Group operates are subject to rapid and
significant changes in technology, and any failure to adapt to new
technological developments, or the cost of doing so, may materially and
adversely affect the Group’s business, financial condition and results of
operations.
*
The Group enters into wholesale agreements offering fixed voice, broadband
and certain mobile services to its competitors and is required under
applicable regulations to offer such services on terms that may increase the
ability of its competitors to compete with the Group.
*
The Group’s revenue from fixed and mobile voice and mobile messaging
services has declined significantly in recent years, and the Group may not be
able to offset these declines.
*
The Group’s revenue from fixed and mobile interconnection services and
international mobile roaming has declined significantly in recent years and
may continue to decline.
*
The Group relies on the integrity of its networks and its information
technology systems for the operation of its business, and these systems may
be disrupted by systems failures or security breaches.
*
The Group is reliant on third parties and suppliers for operation of part of its
network and infrastructure, equipment and provisions of certain services.
*
The Group is reliant on specific third party suppliers and manufacturers to
provide specialty, high-demand products to meet consumer expectations.
*
The Group relies on its network infrastructure and platforms which are
vulnerable to disruptive events.
*
The Group operates in a capital-intensive business, and any inability to meet
its capital expenditure requirements or failure to invest in the continued
upgrades of its network capabilities could materially and adversely affect its
business, financial condition and results of operations.
*
Acquisitions or investments may not generate expected benefits or synergies
and could disrupt the Group’s on-going business, distract its management or
increase its expenses.
*
The Group competes in part by offering converged and bundled products,
and it may not succeed in further developing such products or may be
unsuccessful in marketing such products.
*
The Group collects and maintains data on its customers digitally and is
therefore exposed to risks of unauthorised or unintended data release
through system failures or hacking.
*
Any inability by the Group to obtain and maintain competitive content for
its broadcast services on satisfactory terms may adversely affect the Group’s
competitive position, business, financial condition and result of operations.
*
The Group depends on the image and recognition of its brands including ‘T’
or ‘Telekom’, Zoznam, PosAm and DIGI, and any failure to maintain the
positive image and recognition of these brands could materially and
adversely affect the Group’s business and results of operations.
*
The Group uses a number of retailers, franchise shops and other distributors
to distribute or sell its products, and any interruption to these contractual
12
relationships could increase the Group’s costs and/or have a material adverse
effect on its business, financial condition and results of operations.
*
The Group may face difficulties in recruiting and retaining experienced
personnel.
*
A significant event that exceeds the coverage limits of the Group’s insurance
could result in substantial losses.
Legal and Regulatory Risks
*
Investigations and litigation against the Group may lead to awards of
damages, fines or other penalties, which may have a material adverse effect
on the Group’s business, financial condition and results of operations.
*
The Group is subject to Slovak and European Union competition law
regulations.
*
The Group’s ability to provide commercially viable telecommunications
services depends in part upon various intellectual property rights it owns, and
the Group may be subject to claims from third parties for infringement of
intellectual property rights.
*
Spectrum limitations may adversely affect the Group’s ability to provide
services to its customers.
*
Licences and authorisations material to the business of the Group may be
difficult to obtain or may be withdrawn.
*
The Group may encounter difficulties in obtaining the required location,
construction and use permits to build or renew its fixed and mobile
infrastructure and/or the permits and approvals which the Company requires
for its business may be missing, insufficient, defective or inadequate.
*
Any inability by the Group to provide emergency call service or interference
with other radio equipment may result in financial and regulatory penalties,
legal proceedings and damage to reputation.
*
Actual or perceived health risks or other problems relating to mobile
handsets or base stations could lead to decreased mobile communications
usage, significantly increased costs involved in offering mobile telephone
services, litigation risk and/or difficulties in obtaining permits for base
stations.
Risks Related to the Slovak Republic
*
The Group operates solely in the Slovak Republic, and its business, financial
condition and the results of operations are dependent on economic
conditions in the Slovak Republic. Investing in less developed markets,
such as the Slovak Republic, entails certain risks, which may be greater than
risks inherent in more developed markets.
*
Certain global events may indirectly affect the outlook for the Slovak
Republic and adversely affect the Group.
*
The Group’s ability to conduct business and its financial condition, results of
operations and prospects could be adversely affected by corruption and
money laundering.
*
The Slovak legal system and Slovak legislation continue to develop, which
may create an uncertain environment for investment and for business
activity.
*
A special levy is imposed on regulated industries in the Slovak Republic, and
the Slovak taxation system is subject to change and may issue inconsistent
interpretations of tax legislation.
Risks Related to the Group’s Relationship with Deutsche Telekom
*
The Group is dependent on its controlling shareholder, Deutsche Telekom,
and a change in or loss of this relationship may adversely affect the Group’s
business and results of operations.
*
Interests of Deutsche Telekom may differ from those of holders of the
Securities.
13
B.32
Issuer of the depositary
receipts
*
The Company may decide not to, or may be unable to, pay dividends or
other shareholder remuneration.
*
The Principal Shareholder will retain a significant percentage of the
Company’s shares and future sales of substantial amounts of the
Securities, or the perception that such sales could occur, could adversely
affect the market value of the Securities.
The Depositary is Citibank, N.A., a national banking association organised under
the laws of the United States. The Depositary is an indirect wholly-owned
subsidiary of Citigroup Inc., a Delaware corporation.
The Depositary was originally organised on 16 June 1812 under the National Bank
Act of 1864 and is primarily regulated by the United States Office of the
Comptroller of the Currency. Its principal executive office is at 399 Park Avenue,
New York, NY 10043, United States of America.
Section C – Securities
C.1
Type and class of the
securities being
offered and/or admitted
to trading
This Prospectus relates to the Offering by the Selling Shareholder of up to
42,341,537 ordinary shares in the Company, each fully paid-up with a nominal
value of 10 EUR per share, in the form of the Offer Shares or GDRs, with one
GDR representing an interest in one Share. The Shares are ordinary shares in
registered non-bearer form.
The GDRs are to be issued against the deposit of the Offer Shares with Citibank
Europe plc, acting through its Slovak branch, Citibank Europe plc, pobočka
zahraničnej banky, as custodian for the Depositary. The GDRs will be governed by
English law and will be issued in registered form.
This Prospectus has been also drawn up for the purposes of admission to trading on
the Main Listed Market of the Bratislava Stock Exchange of all Shares issued by
the Company, i.e. 86,411,300 ordinary shares, each with a par value of EUR 10 per
share and which are fully paid-up. The Shares are ordinary shares in registered
non-bearer form.
The security identification number (ISIN) of Shares is: SK 1110017722 (series 1)
Bratislava Stock Exchange trading symbol for the Shares: ‘‘STX’’
The security code numbers and trading symbols of the GDRs are as follows:
Rule 144A GDR Common Code: 122274519
Rule 144A GDR ISIN: US8315901046
Rule 144A GDR CUSIP: 831590 104
Rule 144A GDR SEDOL: BWFDGC1
Regulation S GDR Common Code: 122274756
Regulation S GDR ISIN: US8315902036
Regulation S GDR CUSIP: 831590 203
Regulation S GDR SEDOL: BWFDGD2
London Stock Exchange GDR trading symbol: ‘‘STXX’’
Currency of the
securities issue
The currency of the Shares is EUR.
C.3
Number of Shares
As at the date of the Prospectus, the Company’s issued share capital is
EUR 864,113,000 divided into 86,411,300 ordinary shares, with a par value of
EUR 10 per share and all of which are fully paid.
C.4
Rights attached to the
securities.
Holders of the Shares have the right to vote at all General Shareholders’ Meetings
of the Company (General Shareholders’ Meetings), subject to certain Slovak law
requirements.
C.2
The currency of the GDRs is U.S. dollars.
As required by Slovak Act No. 513/1991 Coll. the Commercial Code, as amended
(the Slovak Commercial Code) and the Company’s Articles of Association, all of the
Shares have the same nominal value and grant to their holders identical rights.
Each Share gives its holder the right to, inter alia:
*
the right to receive dividends if any when declared by the Company;
14
*
a right of pre-emption on subscription for new shares in the Company;
*
the right to receive a shareholding in the share capital of the Company in the
case of a decrease in share capital equivalent in proportion to that owned
immediately prior to the decrease in share capital;
*
the right to receive an amount of the Company’s liquidation proceeds after
fulfilment of its obligations to creditors, proportionate to their shareholding;
*
the right of shareholders subject to certain conditions to buy out their shares
by the Company in case of change of legal form of the Company, merger of
the Company or delisting of the Company’s shares;
*
the right to attend any General Meeting, submit proposals at General
Meetings, take part in discussions and vote at General Meeting;
*
the right to request certain information and explanations, including copies of
certain documents relating to the business of the Company; and
*
the right to challenge the decisions of the General Meeting in court
proceedings subject to conditions set out in the Slovak Commercial Code.
One GDR represents an interest in one Share on deposit with the Custodian on
behalf of the Depositary. A holder of GDRs will have the rights set out in the terms
and conditions of the GDRs, including:
*
the right to withdraw the Deposited Shares and all rights, interests and other
securities, property and cash deposited with the Custodian which are
attributable to the Deposited Shares;
*
the right to receive payment in U.S. dollars from the Depositary in an
amount equal to cash dividends or other cash distributions received by the
Depositary from the Company in respect of the Deposited Shares;
*
the right to receive from the Depositary additional GDRs representing
additional Shares received by the Depositary from the Company by way of
free distribution (or if the issue of additional GDRs is deemed by the
Depositary not to be practicable and in certain other circumstances, the net
proceeds in U.S. dollars from the sale of such additional Shares);
*
the right to instruct the Depositary regarding the exercise of any voting rights
notified by the Company to the Depositary, subject to certain conditions; and
*
the right to receive from the Depositary copies received by the Depositary of
notices provided by the Company to holders of Shares or other material
information,
in each case subject to applicable law and the detailed terms set out in the terms and
conditions of the GDRs.
C.5
Restrictions on the free
transferability of the
securities.
The Shares are freely transferable subject to selling and transfer restrictions under
the relevant laws in certain jurisdictions applicable to the transferor or transferee,
including the United States, the United Kingdom and the EEA and other
jurisdictions.
The GDRs are freely transferable, subject to certain transfer restrictions under the
relevant laws in certain jurisdictions applicable to the transferor or transferee,
including the United States, the United Kingdom, the EEA and other jurisdictions
and the terms and conditions of the GDRs. The Depositary shall refuse to accept
for transfer any GDRs if it reasonably believes that such transfer would result in a
violation of any applicable laws.
Each purchaser of the Securities, by accepting delivery of this Prospectus, will be
deemed to make certain representations to ensure compliance with the applicable
securities laws of the United States.
In addition, following the Offering, the Selling Shareholder, Deutsche Telekom
Europe B.V. and the Company will be subject to customary contractual lock-up
provisions relating to the sale or issuance of additional Securities for 180 days
following completion of the Offering, subject to certain customary exceptions or
with the prior written consent of the Joint Global Coordinators.
C.6
Admission to trading on Application will be made to the: (1) Bratislava Stock Exchange for admission of the
a regulated market
Shares to trading on the Main Listed Market of the Bratislava Stock Exchange; and
(2) (i) FCA in its capacity as competent authority under the FSMA, for up to
42,341,537 GDRs to be admitted to listing on the Official List of the FCA and (ii)
15
London Stock Exchange, for admission to trading of up to 42,341,537 GDRs on
the London Stock Exchange’s main market for listed securities.
Dividend policy
C.7
Dividends, if and when declared, are distributed to shareholders on a pro-rata basis
proportionately to their participation in the paid-up share capital of the Company.
Each fully paid-up Share gives its owner the right to receive dividends. The
Company will pay any dividends in EUR.
To the extent that the Company declares and pays dividends, holders of GDRs on
the relevant record date will be entitled to receive dividends payable in respect of
Shares underlying the GDRs.
The Company has not adopted a formal dividend policy. Pursuant to the
Memorandum of Understanding entered into in February 2014 between the Selling
Shareholder, the Slovak Republic acting through the Ministry of Economy,
Deutsche Telekom AG and the Company in connection with the Offering, the
Company agreed to guidance that the dividends declared and paid in respect of any
year following the year in which the Offering takes place are to be from 50% to 80%
of the Company’s distributable profit determined in accordance with the Slovak
Commercial Code from the immediately preceding year, provided that any annual
dividend shall depend on the overall financial position of the Company and its
working capital needs at the relevant time (including but not limited to the
Company’s business prospects, cash requirements, financial performance, and other
factors including tax and regulatory considerations, payment practices of other
European telecommunications operators and the general economic climate). The
Board of Directors shall consider all these conditions before deciding on any
proposal for profit distribution and may determine that it is unable or elect not to
propose dividends. Any final determination on distribution of profits is at the
disposal of the General Meeting.
C.13
Information about the underlying shares
C.1
securities being offered
and/or admitted to
trading
42,341,537 ordinary shares in the Company, each fully paid-up with a nominal
value of 10 EUR per share. The Shares are ordinary shares in registered non-bearer
form.
The security identification number (ISIN) of Shares is: SK 1110017722 (series 1)
The Bratislava Stock Exchange trading symbol for the Shares is: ‘‘STX’’
C.2
Currency of Shares
The currency of the Shares is EUR.
C.3
Number of Shares
As at the date of the Prospectus, the Company’s share capital is EUR 864,113,000
divided into 86,411,300 Shares, with a par value of EUR 10 per share and which are
fully paid.
C.4
Rights attached to the
Shares
Holders of the Shares have the right to vote at all General Shareholders’ Meetings
of the Company (General Shareholders’ Meetings), subject to certain Slovak law
requirements.
As required by the Slovak Commercial Code and the Company’s Articles of
Association, all of the Shares have the same nominal value and grant to their
holders identical rights. Each Share gives its holder the right to, inter alia:
*
the right to receive dividends if any when declared by the Company;
*
a right of pre-emption on subscription of new shares in the Company;
*
the right to receive a shareholding in the share capital of the Company in the
case of a decrease in share capital equivalent in proportion to that owned
immediately prior to the decrease in share capital;
*
the right to receive an amount of the Company’s liquidation proceeds after
fulfilment of its obligations to creditors, proportionate to their shareholding;
and
*
the right of shareholders subject to certain conditions to buy out their shares
by the Company in case of change of legal form of the Company, merger of
the Company or delisting of the Company’s shares;
*
the right to attend any General Meeting, submit proposals at General
Meetings, take part in discussions and vote at General Meeting;
16
C.5
transferability of the
Shares
*
the right to request certain information and explanations, including copies of
certain documents relating to the business of the Company;
*
the right to challenge the decisions of the General Meeting in court
proceedings subject to conditions set out in the Slovak Commercial Code.
The Shares are freely transferable subject to selling and transfer restrictions under
the relevant laws in certain jurisdictions applicable to the transferor or transferee,
including the United States, the United Kingdom and the EEA and other
jurisdictions.
provisions relating to the sale or issuance of additional Securities for 180 days
C.6
Admission to trading on An application will be made for all the Shares, including the Shares underlying the
a regulated market
GDRs, to be admitted to trading on the main listed market of the Bratislava Stock
Exchange.
C.7
Dividend policy
Dividends, if and when declared, are distributed to shareholders on a pro-rata basis
proportionately to their participation in the paid-up share capital of the Company.
Each fully paid-up Share gives its owner the right to receive dividends. The
Company will pay any dividends in EUR.
The Company has not adopted a formal dividend policy. Pursuant to the
Memorandum of Understanding entered into in February 2014 between the Selling
Shareholder, the Slovak Republic acting through the Ministry of Economy,
Deutsche Telekom AG and the Company in connection with the Offering, the
Company agreed to guidance that the dividends declared and paid in respect of any
year following the year in which the Offering takes place are to be from 50% to 80%
of the Company’s distributable profit determined in accordance with the Slovak
Commercial Code from the immediately preceding year, provided that any annual
dividend shall depend on the overall financial position of the Company and its
working capital needs at the relevant time (including but not limited to the
Company’s business prospects, cash requirements, financial performance, and other
factors including tax and regulatory considerations, payment practices of other
European telecommunications operators and the general economic climate). The
Board of Directors shall consider all these conditions before deciding on any
proposal for profit distribution and may determine that it is unable or elect not to
propose dividends. Any final determination on distribution of profits is at the
disposal of the General Meeting.
C.14
Information about the global depositary receipts
C.1
securities being offered
and/or admitted to
trading
Up to 42,341,537 GDRs to be issued on the Closing Date by the Depositary against
the deposit of the Offer Shares with Citibank Europe plc, acting through its Slovak
branch, Citibank Europe plc, pobočka zahraničnej banky, as custodian for the
Depositary. The GDRs are governed by English law and will be issued in registered
form.
The security code numbers and trading symbols of the GDRs are as follows:
Rule 144A GDR Common Code: 122274519
Rule 144A GDR ISIN: US8315901046
Rule 144A GDR CUSIP: 831590 104
Rule 144A GDR SEDOL: BWFDGC1
Regulation S GDR Common Code: 122274756
Regulation S GDR ISIN: US8315902036
Regulation S GDR CUSIP: 831590 203
Regulation S GDR SEDOL: BWFDGD2
London Stock Exchange GDR trading symbol: ‘‘STXX’’
17
C.2
Currency of the GDRs
The currency of the GDRs is U.S. dollars.
C.4
Rights attached to
the GDRs
One GDR represents an interest in one Share on deposit with the Custodian on
behalf of the Depositary. A holder of GDRs will have the rights set out in the terms
and conditions of the GDRs, including:
*
the right to withdraw the Deposited Shares (as defined therein) and all rights,
interests and other securities, property and cash deposited with the Custodian
which are attributable to the Deposited Shares;
*
the right to receive payment in U.S. dollars from the Depositary of an
amount equal to cash dividends or other cash distributions received by the
Depositary from the Company in respect of the Deposited Shares;
*
the right to receive from the Depositary additional GDRs representing
additional Shares received by the Depositary from the Company by way of
free distribution (or if the issue of additional GDRs is deemed by the
Depositary not to be practicable and in certain other circumstances, the net
proceeds in U.S. dollars of the sale of such additional Shares);
*
the right to instruct the Depositary regarding the exercise of any voting rights
notified by the Company to the Depositary subject to certain conditions; and
*
the right to receive from the Depositary copies received by the Depositary of
notices provided by the Company to holders of Shares or other material
information,
in each case subject to applicable law and the detailed terms set out in the terms and
conditions of the GDRs.
C.5
transferability of
the GDRs
The GDRs are freely transferable, subject to certain transfer restrictions under the
relevant laws in certain jurisdictions applicable to the transferor or transferee,
including the United States, the United Kingdom, the EEA and other jurisdictions,
contractual lock-ups for certain shareholders and the Company and the terms and
conditions of the GDRs. The Depositary shall refuse to accept for transfer any
GDRs if it believes that such transfer would result in a violation of any applicable
laws.
Each purchaser of the Securities, by accepting delivery of this Prospectus, will be
deemed to make certain representations to ensure compliance with the applicable
securities laws of the United States.
provisions relating to the sale or issuance of additional Security for 180 days
—
Exercise of and benefit
from the rights
attaching to the Shares.
Description of the rights
attached to the GDRs.
Cash Distributions
Whenever the Depositary shall receive from the Company any cash dividend or
other cash distribution on or in respect of the Deposited Shares (including any
amounts received in the liquidation of the Company) or otherwise in connection
with the Deposited Property (as defined in the terms and conditions of the GDRs)
in a currency other than U.S. dollars, the Depositary shall if practicable, convert or
cause to be converted the same into U.S. dollars in accordance with the Deposit
Agreements and shall promptly distribute any such amounts to the Holders in
proportion to the number of Deposited Shares represented by the GDRs so held by
them respectively, subject to and in accordance with the provisions of the Deposit
Agreements.
Distributions of Shares
Whenever the Depositary shall receive from the Company any distribution in
respect of Deposited Shares which consists of a dividend in, or free distribution of,
Shares, the Depositary shall cause to be distributed to the Holders entitled thereto,
in proportion to the number of Deposited Shares represented by the GDRs held by
them respectively, additional GDRs representing an aggregate number of Shares
received pursuant to such dividend or distribution by an increase in the number of
GDRs evidenced by the Master GDRs or by an issue of certificates in definitive
registered form in respect of GDRs, according to the manner in which the Holders
18
hold their GDRs; provided that, if and insofar as the Depositary deems any such
distribution to all or any Holders not to be practicable (including, without
limitation, owing to the fractions which would otherwise result or to any
requirement that the Company, the Custodian or the Depositary withhold an
amount on account of taxes or other governmental charges) or to be unlawful, the
Depositary shall sell such Shares so received (either by public or private sale and
otherwise at its discretion, subject to applicable laws and regulations) and distribute
the resulting net proceeds of such sale as a cash distribution pursuant to the Deposit
Agreements to the Holders entitled thereto.
Distribution Other Than Cash or Shares
Whenever the Depositary shall receive from the Company any distribution in
securities (other than Shares) or in other property (other than cash) on or in respect
of the Deposited Property, the Depositary shall distribute or cause to be distributed
such securities or other property to the Holders entitled thereto, in proportion to
the number of Deposited Shares represented by the GDRs held by them
respectively, in any manner that the Depositary may deem practicable for
effecting such distribution; provided that, if and insofar as the Depositary deems
any such distribution to all or any Holders not to be practicable (including, without
limitation, due to the fractions which would otherwise result or to any requirement
that the Company, the Custodian or the Depositary withhold an amount on
account of taxes or other governmental charges) or to be unlawful, the Depositary
shall deal with the securities or property so received, or any part thereof in such
manner as the Depositary may determine to be practicable, including, without
limitation, by way of sale of the securities or property so received, or any part
thereof (either by public or private sale and otherwise at its discretion, subject to
applicable laws and regulations), and shall (in the case of a sale) distribute the
resulting net proceeds of such sale as a cash distribution pursuant to the Deposit
Agreements to the Holders entitled thereto.
Rights Issues
If and whenever the Company announces its intention to make any offer or
invitation to the holders of Shares to subscribe for or to acquire Shares by way of
rights, the Depositary shall as soon as practicable give notice to the Holders in
accordance with the terms and conditions of the GDRs of such offer or invitation
specifying, if applicable, the earliest date established for acceptance thereof, the last
date established for acceptance thereof and the manner by which and time during
which Holders may request the Depositary to exercise such rights as provided
below or, if such be the case, specify details of how the Depositary proposes to
distribute the rights or the proceeds of any sale thereof. If, at its discretion, the
Depositary shall be satisfied that it is lawful and practicable and to the extent that it
is so satisfied, the Depositary shall distribute rights to the Holders entitled thereto
in proportion to the number of Deposited Shares represented by the GDRs held by
them respectively in such manner as the Depositary may at its discretion determine.
If and insofar as the Depositary is not satisfied that any such arrangement and
distribution to all or any Holders is lawful and practicable (including, without
limitation, owing to the fractions which would otherwise result or to any
requirement that the Company, the Custodian or the Depositary withhold an
amount on account of taxes or other governmental charges) or is so satisfied that it
is unlawful, or if the Company requests that the rights not be made available to
Holders, the Depositary will, provided that Holders have not taken up rights
through the Depositary as provided above, sell such rights (either by public or
private sale and otherwise at its discretion subject to applicable laws and
regulations and the Depositary shall, to the extent reasonably practicable,
consult the Company in relation to the manner and terms of any such sale prior
to such sale) and distribute the net proceeds of such sale as a cash distribution
pursuant to the Deposit Agreements to the Holders entitled thereto except to the
extent prohibited by applicable law.
Voting Rights
The Company will notify the Depositary of any meeting at which the holders of
Shares or other Deposited Property are entitled to vote, or of solicitation of
consents or proxies from holders of Shares or other Deposited Property. As soon as
reasonably practicable after receipt from the Company of such notice, the
19
Depositary shall fix the record date (which shall be as close as possible to the
corresponding record date set by the Company) in respect of such meeting or
solicitation of consent or proxy. The Depositary shall, if requested by the Company
in writing and not prohibited by applicable law, and at the Company’s expense,
mail by regular, ordinary mail delivery (or by electronic mail or as otherwise may be
agreed between the Company and the Depositary in writing from time to time) or
otherwise, distribute to Holders as of the record date: (a) such notice of meeting or
solicitation of consent or proxy, (b) a statement that the Holders at the close of
business in New York City on the record date will be entitled, subject to any
applicable law, the provisions of the Deposit Agreements, the terms and conditions
of the GDRs, the Articles and the provisions of or governing the Deposited
Property (which provisions, if any, shall be summarised in pertinent part by the
Company), to instruct the Depositary as to the exercise of the voting rights, if any,
pertaining to the Shares or other Deposited Property represented by such Holder’s
GDRs and (c) a brief statement as to the manner in which such voting instructions
may be given . Voting instructions may be given to the Depositary only in respect of
a number of GDRs representing an integral number of Shares or other Deposited
Property in respect of which the requirements and conditions for voting as may be
set forth under applicable law have been complied with by Holders. Upon the
timely receipt from a Holder as of the record date of voting instructions in the
manner specified by the Depositary, the Depositary shall endeavour, insofar as
practicable and permitted under applicable law (including, but not limited to, any
Slovak legal prohibitions or conditions to voting), the provisions of the terms and
conditions of the GDRs, the Articles and the provisions of the Deposited Property,
to vote or cause the Custodian to vote the Shares and/or other Deposited Property
(in person or by proxy) represented by such Holder’s GDRs in accordance with
such instructions.
—
Description of the bank
or other guarantee
attached to the
depositary receipt
Not applicable. There are no bank or other guarantees attached to the GDRs.
Section D – Risks
D.1
key risks that are
specific to the issuer
*
The Group is subject to significant competition from new and established
competitors and to changing market conditions.
*
The businesses in which the Group operates are subject to rapid and
significant changes in technology, and any failure to adapt to new
technological developments, or the cost of doing so, may materially and
adversely affect the Group’s business, financial condition and results of
operations.
*
The Group enters into wholesale agreements offering fixed voice, broadband
and certain mobile services to its competitors and is required under
applicable regulations to offer such services on terms that may increase the
*
The Group’s revenue from fixed and mobile voice and mobile messaging
services has declined significantly in recent years, and the Group may not be
able to offset these declines.
*
The Group’s revenue from fixed and mobile interconnection services and
international mobile roaming has declined significantly in recent years and
may continue to decline.
*
The Group relies on the integrity of its networks and its information
technology systems for the operation of its business, and these systems may
be disrupted by systems failures or security breaches.
*
The Group is reliant on third parties and suppliers for operation of part of its
network and infrastructure, equipment and provisions of certain services.
*
The Group is reliant on specific third party suppliers and manufacturers to
provide specialty, high-demand products to meet consumer expectations.
20
*
The Group relies on its network infrastructure and platforms which are
vulnerable to disruptive events.
*
The Group operates in a capital-intensive business, and any inability to meet
its capital expenditure requirements or failure to invest in the continued
upgrades of its network capabilities could materially and adversely affect its
*
Acquisitions or investments may not generate expected benefits or synergies
and could disrupt the Group’s on-going business, distract its management or
increase its expenses.
*
The Group competes in part by offering converged and bundled products,
and it may not succeed in further developing such products or may be
unsuccessful in marketing such products.
*
The Group collects and maintains data on its customers digitally and is
therefore exposed to risks of unauthorised or unintended data release
through system failures or hacking.
*
Any inability by the Group to obtain and maintain competitive content for
its broadcast services on satisfactory terms may adversely affect the Group’s
competitive position, business, financial condition and result of operations.
*
The Group depends on the image and recognition of its brands including ‘T’
or ‘Telekom’, Zoznam, PosAm and DIGI, and any failure to maintain the
positive image and recognition of these brands could materially and
*
The Group uses a number of retailers, franchise shops and other distributors
to distribute or sell its products, and any interruption to these contractual
relationships could increase the Group’s costs and/or have a material adverse
effect on its business, financial condition and results of operations.
*
The Group may face difficulties in recruiting and retaining experienced
personnel.
*
A significant event that exceeds the coverage limits of the Group’s insurance
could result in substantial losses.
*
Investigations and litigation against the Group may lead to awards of
damages, fines or other penalties, which may have a material adverse effect
on the Group’s business, financial condition and results of operations.
*
The Group is subject to Slovak and European Union competition law
regulations.
*
The Group’s ability to provide commercially viable telecommunications
services depends in part upon various intellectual property rights it owns, and
the Group may be subject to claims from third parties for infringement of
intellectual property rights.
*
Spectrum limitations may adversely affect the Group’s ability to provide
services to its customers.
*
Licences and authorisations material to the business of the Group may be
difficult to obtain or may be withdrawn.
*
The Group may encounter difficulties in obtaining the required location,
construction and use permits to build or renew its fixed and mobile
infrastructure and/or the permits and approvals which the Company requires
for its business may be missing, insufficient, defective or inadequate.
*
Any inability by the Group to provide emergency call service or interference
with other radio equipment may result in financial and regulatory penalties,
legal proceedings and damage to reputation.
*
Actual or perceived health risks or other problems relating to mobile
handsets or base stations could lead to decreased mobile communications
usage, significantly increased costs involved in offering mobile telephone
services, litigation risk and/or difficulties in obtaining permits for base
stations.
21
*
The Group operates solely in the Slovak Republic, and its business, financial
condition and the results of operations are dependent on economic
conditions in the Slovak Republic. Investing in less developed markets,
such as the Slovak Republic, entails certain risks, which may be greater than
risks inherent in more developed markets.
*
Certain global events may indirectly affect the outlook for the Slovak
Republic and adversely affect the Group.
*
The Group’s ability to conduct business and its financial condition, results of
operations and prospects could be adversely affected by corruption and
money laundering.
*
The Slovak legal system and Slovak legislation continue to develop, which
may create an uncertain environment for investment and for business
activity.
*
A special levy is imposed on regulated industries in the Slovak Republic, and
the Slovak taxation system is subject to change and may issue inconsistent
interpretations of tax legislation.
D.3
key risks that are
specific to the securities
*
The Group is dependent on its controlling shareholder, Deutsche Telekom,
and a change in or loss of this relationship may adversely affect the Group’s
business and results of operations.
*
Interests of Deutsche Telekom may differ from those of holders of the
Securities.
*
The Company may decide not to, or may be unable to, pay dividends or
other shareholder remuneration.
*
The Principal Shareholder will retain a significant percentage of the
Company’s shares and future sales of substantial amounts of the
Securities, or the perception that such sales could occur, could adversely
affect the market value of the Securities.
*
The rights of minority shareholders will be governed by the laws of the
Slovak Republic, whose corporate governance standards differ from those of
other jurisdictions.
*
There has been no prior public market for the Securities and an active and
liquid market for the Securities may not develop.
*
Volatility in the price of the Securities may have an adverse impact on
holders of the Securities.
*
The acquisition of a direct shareholding in the Company reaching or
exceeding certain thresholds is subject to prior approval of the NBS and there
are certain limitations regarding the cross-ownership of the Company as a
licensed broadcaster.
*
The Selling Shareholder is a public law entity separated from the Slovak
Republic which is not an obligor or guarantor of any liabilities of the Selling
Shareholder. The Selling Shareholder may be dissolved in the future, which
may cause issues with enforcing potential claims against the Selling
Shareholder.
*
Trading in the Shares may be suspended or halted.
*
International investors may not be able to enforce judgments obtained in
United States courts against the Company.
*
Shareholders in certain jurisdictions may not be able to participate in future
equity offerings.
*
Capital gains from the sale of the Securities may be subject to Slovak income
tax.
22
D.4
Information about the underlying shares
D.2
D.5
Key information on
the key risks that are
specific to the issuer.
Please see risks in element D.1 above.
Information about depositary receipts
D.3
key risks that are
specific to the
securities.
In addition to the risks relating to the Shares specified in element D3 above, the
following risks are specific fro the GDRs:
*
Voting rights with respect to the Offer Shares represented by the GDRs are
limited by the terms of the Deposit Agreements for the GDRs and relevant
requirements of Slovak law.
*
Holders of the GDRs may be subject to limitations or delays in repatriating
their earnings from distributions made on the underlying Shares.
*
Income from GDRs may not qualify as dividends under Slovak tax law.
Section E – Offer
E.1
Net proceeds and
expenses
The Company will not receive any proceeds from the sale of Securities by the
Selling Shareholder.
The net proceeds received by the Selling Shareholder after deduction of its share of
expenses relating to the Offering will be approximately EUR 855 million, assuming
an offer price at the mid-point of the Share Offer Price Range and not applying the
Retail Offering Discount.
Expected fees and commissions payable by the Company in connection with the
Offering and Admission are approximately EUR 2,500,000.
E.2a
Reasons for the offer,
use of proceeds,
estimated net amount
of the proceeds
The Offering is being conducted in order to allow the Selling Shareholder to dispose
of all of its Shares (subject to stabilisation arrangements), while raising the
Company’s profile with the international investment community and establishing a
market for the Shares and GDRs which may benefit the Company if it desires to
access the equity capital markets in the future.
E.3
Description of the
terms and conditions
of the offer
The Offer Securities are being offered to the public in the Slovak Republic and the
Offer Shares are being offered to the public in the Czech Republic. The Offer
Securities are being offered outside the United States in reliance on Regulation S
and within the United States to QIBs in reliance on Rule 144A under the Securities
Act.
The Offering shall consist of the following:
(a)
an offering of the Offer Securities to Retail Investors in the Slovak Republic
and an offering of the Offer Shares to Retail Investors in the Czech Republic
(the Retail Offering); and
(b)
an offering of the Offer Securities to Institutional Investors (the Institutional
Offering).
For these purposes:
*
Institutional Investors means investors eligible to participate in the Offering
pursuant to applicable laws and regulations and who are not Retail Investors
(as defined below); and
*
Retail Investors means any individuals or legal entities who have residence or
registered seat in the Slovak Republic or the Czech Republic and who are not
persons falling within the definition of a qualified investor under the
Prospectus Directive.
The offer period in respect of the Institutional Offering shall commence on 21 April
2015 and end at 12:00 p.m. (Bratislava time) on 6 May 2015.
The offer period in respect of the Retail Offering shall commence on 22 April 2015
and end on 5 May 2015 (which shall be included in the offer period).
Offer Shares are offered at the Share Offer Price Range of EUR 17.70 to 23.60 per
Offer Share.
GDRs are offered at the GDR Offer Price Range of U.S.$ 19.00 to 25.30 per GDR.
Subscription for GDRs will be expressed in U.S. dollars.
23
The final offer price for the Offer Shares and the final offer price for the GDRs will
be determined by the Selling Shareholder in consultation with the Joint Global
Coordinators and is expected to be determined on the business day following the
last day of the Offer Period, which is expected to be 7 May 2015.
E.4
Material/conflicting
interests.
Not applicable. There are no interests, including conflicting interests, that are
material to the Offering.
E.5
Name of the person or
entity offering to sell
the security / Lock-up
agreements
The Offer Securities are being offered by the Selling Shareholder.
E.6
Dilution
No new Company shares will be issued in connection with the Offering.
Accordingly, there will be no dilution of the existing shareholdings.
E.7
Estimated expenses
charged to the investor
Not applicable. No commissions, fees or expenses in connection with the Offering
will be charged to investors by the Company or the Selling Shareholder.
Europe B.V. and the Company will be subject to contractual lock-up provisions
relating to the sale or issuance of additional Securities for 180 days following
completion of the Offering, subject to certain customary exceptions or with the
prior written consent of the Joint Global Coordinators.
The Depositary will be entitled to charge certain fees to the holders of GDRs.
24
RISK FACTORS
Investment in the Securities involves a high degree of risk. Investors may lose the value of their entire
investment or part of it and should carefully review this Prospectus in its entirety. Investors should be
aware that the value of the Securities may go down as well as up and that investors may not be able to
realise their initial investment. These risk factors, individually or together, could have a material adverse
effect on the Group (i.e., the Company together with its subsidiaries, taken as a whole), its business,
results of operations, financial condition, liquidity, cash flows, prospects and/or the rights of the holders
of such Securities.
Investors should note that the risks described below are not the only risks the Group faces. These are the
risks that the Group currently considers to be material. There may be additional risks that the Group
currently considers to be immaterial or of which it is currently unaware, and any of these risks could
have similar effects to those set forth below.
The Group is subject to significant competition from new and established competitors and to changing market
conditions.
The telecommunications sector in the Slovak Republic is highly competitive. In its fixed voice and
broadband service, as well as in the area of ICT services, the Group faces competition from UPC,
Orange, SWAN, BENESTRA (formerly GTS) and Slovanet, among others. In the fixed-line business,
the Group faces competition from both national telecommunications companies as well as specialised
local and regional operators. In the mobile voice and data business, the Group faces significant
competition from well-established telecommunications companies, including the local subsidiaries of
major international operators, as well as prospective new entrants. For example, SWAN, a regional
broadband and IPTV service provider which acquired two 15MHz blocks of spectrum in the
1,800MHz band at the end of 2013, is developing its own mobile network to start offering mobile
data services, and reached 20% population coverage in December 2014. In March 2015, the
Regulatory Authority for Electronic Communications and Postal Services (the Slovak NRA) issued
interim measures ordering the Company, as well as Orange and O2, to provide national roaming
services to SWAN in networks using 900MHz and 1,800MHz bands. Discussions on providing
national roaming services are currently on-going with SWAN. See also ‘‘Business – Legal Proceedings
– Regulatory proceedings concerning national roaming agreement with SWAN’’).
Entrance into the market of any new competitors has proven disruptive for market participants in the
past, including O2’s market entrance in 2007. Such competition could be further compounded in the
event of competitor consolidation or cooperation amongst existing competitors, such as through
infrastructure sharing or wholesale agreements, or through the acquisition of additional spectrum
licenses. These competitors may seek to offer services on different pricing or other terms, and may be
subject to fewer regulatory requirements in the Slovak Republic than the Group, resulting from the
regulator’s efforts to even the playing field in the face of the Group’s perceived inherited dominant
market position in the fixed-line market.
The Group also faces significant competition in its Pay-TV business. Competition in this area has
been driven by price, the range and quality of channels offered, the ability to offer digital TV services
such as personal video recording (PVR), video-on demand (VOD), high definition TV (HDTV) and
the level of customer service. Increased competition in the Slovak Pay-TV market may also arise from
local players upgrading from basic internet services to DTH or IPTV services and internet-based
content providers, such as Netflix, which could create significant price pressure and decrease demand
for the Group’s Pay-TV services as internet-based providers continue to offer comparable content that
is immediately accessible at low cost to consumers.
As a result of these and other competitive factors, the Group may face decreasing revenue and
margin pressure, and its market share may decline. Such developments may adversely affect the
Group’s profitability and cash flows. The Group’s future success in growing its business and market
share will depend on its ability to maintain or achieve product and service offerings that are
perceived as different, of higher quality, with better customer experience to its competitors. A failure
to do so may affect the Group’s business, financial condition and results of operations.
25
The businesses in which the Group operates are subject to rapid and significant changes in technology, and any
failure to adapt to new technological developments, or the cost of doing so, may materially and adversely affect
the Group’s business, financial condition and results of operations.
The markets in which the Group operates are characterised by rapid and significant changes in
technology, customer demand and behaviour, and as a result are characterised by a changing
competitive environment. New technologies and the Group’s timely implementation of such
technologies, including those within broadband (e.g., FTTH (GPON) and VDSL2), mobile (e.g.,
LTE), ICT (e.g., IMS, Cloud Computing and metadata collection), television (e.g., VOD) and other
developments, such as IP transport and aggregation, have had and are expected to continue to have a
continued effect on the telecommunications industry and the Group’s business. Implementing these
new and changing technologies requires significant levels of capital expenditure. Furthermore, these or
other developments, new and established information and telecommunication technologies or products
may not only fail to complement one another, but in some cases may even substitute or decrease
demand for other products and services offered by the Group.
In order to compete effectively, including retaining its market share and profitability, the Group is
required to anticipate and react to technology changes in its industry by, among other things,
developing new and enhanced products and services in a timely manner and offering these on
attractive commercial terms. In addition, new technologies may become prevalent in the future,
rendering the Group’s current technologies and systems obsolete. Future product offerings, new
technological developments and the operation of the Group’s existing and future networks and
technologies may also entail additional and potentially significant costs for the Group or require
significant capital expenditures resulting from a range of factors, potentially at an increasing pace as
compared to historic developments. Such factors may include increased customer demand for
bandwidth, complexity of new solutions, potential incompatibility of new technology with the Group’s
current systems and the cost of content. The level and timing of future operating expenses and capital
requirements may differ materially from expectations due to various factors, many of which are
beyond the Group’s control. If the Group is not able to fund these costs, or if it chooses not to fund
these costs, then its business, financial condition and results of operations could be adversely affected.
In recent years, a number of local and regional providers have rolled out fibre networks to offer
broadband, TV products and landline telephony. Many local providers are able to offer only limited
fibre coverage, but their networks are built in small and medium-sized cities, giving them access to a
concentrated customer base. Such efforts may result in increased pressure on prices for the Group’s
products, particularly in broadband and Pay-TV. Such price pressure could have an adverse effect on
the Group’s customer base development, market shares and price levels, which could adversely affect
its business, financial condition and results of operations.
Any failure by the Group to effectively anticipate, react to or access technological changes in the
telecommunications market, could cause the Group to lose customers, fail to attract new customers or
to expand its current product lines, or incur substantial or unanticipated costs and investments in
order to maintain its customer base, all of which could have a material adverse effect on its business,
financial condition and results of operations.
The Group enters into wholesale agreements offering fixed voice, broadband and certain mobile services to its
competitors and is required under applicable regulations to offer such services on terms that may increase the
The Group is required to offer certain fixed voice, fixed broadband and mobile services on a
wholesale basis to other telecommunication providers that compete with the Group, and may be
required to offer other services, such as IPTV, on a wholesale basis in the future. While the Group
seeks to offer such services on market terms where it is permitted to do so, for example unregulated
services such as its national roaming agreement with O2, it is in many instances required pursuant to
applicable competition law and other regulations to offer fixed-line and broadband access and other
services on terms that enable its competitors to offer lower prices to their customers than the Group
is able or willing to offer. Key terms of such wholesale agreements including pricing are subject to
regulation or regulatory intervention.
For example, if the Group does not reach a commercial agreement with SWAN relating to the
national roaming, the Slovak NRA will resolve the dispute by imposing terms for such an agreement.
In such resolution, the Slovak NRA may impose terms which otherwise would not be acceptable to
the Group, and which may be detrimental to the Group. For further information, see ‘‘Business –
Key Sector-specific Regulations Applicable to the Group’’, ‘‘Business – Legal Proceedings – Regulatory
26
proceedings concerning national roaming agreement with SWAN’’ and ‘‘Telecommunication Regulation in
Slovak Republic’’. Any inability of the Group to obtain favourable terms with respect to these
agreements could have a material adverse effect on its business, financial condition and results of
operations.
In addition, the European Commission strongly supports the implementation of Equivalence of Input
(the EOI) or Equivalence of Output (the EOO) principles in regulated wholesale services to ensure
effective non-discrimination. Compliance with these principles may require changes in the Group’s
organization, processes or other aspects of the Group’s business. Imposition of EOI and EOO on the
Group by the Slovak NRA could have a material adverse effect on its business, financial condition
and results of operations.
The Group’s revenue from fixed and mobile voice and mobile messaging services has declined significantly in
recent years, and the Group may not be able to offset these declines.
The Group has historically generated a significant portion of its revenue from fixed and mobile voice
traffic and, to a lesser extent, mobile messaging services. Revenue from these services has declined in
recent years. In mobile voice and messaging it is mainly attributable to significant price competition
from O2. The decline in revenue from fixed voice reflects shifting customer preferences in favour of
mobile communication. The share of fixed voice in total revenue decreased from 15.3% in 2012 to
12.5% in 2014, and of mobile voice in total revenue decreased from 28.9% in 2012 to 23.6% in 2014,
in each case measured exclusive of interconnection revenue. The Group expects its revenue from
mobile voice and messaging services to decline further as consumers increasingly migrate to data
services and seek to optimise their consumption patterns. Increasingly, the Group also competes not
only with other providers of telecommunications services, but also with alternative technologies that
may adversely affect demand for the Group’s products and services. For example, in recent years,
demand for alternative platforms and over-the-top (OTT) applications, including Skype, Viber and
Whatsapp, has grown, decreasing or replacing demand for fixed and mobile voice services.
There can be no assurance that the Group will be able to offset these declines through increased data
traffic or other services, or that, if realised, such increases will be sufficient to offset the reductions in
revenue from fixed and mobile voice traffic through other sources of revenue. Any resulting
reductions in the Group’s revenue could materially and adversely affect the Group’s financial
condition and results of operations.
The Group’s revenue from fixed and mobile interconnection services and international mobile roaming has
declined significantly in recent years and may continue to decline.
The Group is party to interconnection and carrier services agreements with other operators that allow
it to transmit local and long distance and international calls that originate on its fixed-line and
mobile networks but terminate on other operators’ networks, and vice versa. Both fixed and mobile
termination rates are regulated in the Slovak Republic in accordance with EU law, and the Slovak
NRA has taken action to significantly reduce these rates in recent years. Fixed termination rates have
declined from a blended rate of EUR 0.00801 per minute in 2011 to EUR 0.001234 per minute in
2014, and mobile termination rates have been reduced in line with recommendation from the
European Commission from EUR 0.0635 per minute at the start of 2011 to EUR 0.01226 per minute
in 2014. This level is broadly in line with median rates in Western and Central and Eastern Europe,
which are EUR 0.0118 per minute and EUR 0.0168 per minute, respectively, according to BEREC
MTR Report. Historically, the Group generated significant amounts of revenue from these
interconnection fees, but these amounts have decreased significantly in recent years both absolutely
and as a share of revenue and may continue to decline in the future. Revenue from interconnection
fees amounted to EUR 21.1 million, EUR 36.0 million and EUR 47.9 million, or 2.7%, 4.5% and
5.8% of revenue for the years ended 31 December 2014, 2013 and 2012, respectively.
The Group also generates revenues from retail and wholesale international voice and data roaming
charges. These charges consist of fees charged to customers who are travelling outside of their home
network and fees charged to operators of visitors from abroad in the Group’s network. Applicable
European Union regulations have required significant annual reductions in such fees. While, to date,
the impact on revenue of reductions in regulated roaming rates has largely been offset by increases in
volumes of roaming traffic, there can be no assurance that future reductions will be offset by
increases in volume. Such reductions may have a material adverse effect on the Group’s financial
condition, results of operations and prospects.
27
The Group relies on the integrity of its networks and its information technology systems for the operation of its
business, and these systems may be disrupted by systems failures or security breaches.
The Group relies on certain sophisticated critical systems, including (but not limited to) switching and
service platforms, key active access and transport network elements with its key interconnection
points, as well as the Group’s customer and service management, billing, Operations Support System
(OSS), Enterprise Resource Planning (ERP) and other IT systems. The hardware supporting those
systems is housed at relatively few locations, and damage to any of these locations could materially
and adversely affect the Group’s business, financial condition and results of operations.
Furthermore, the Group’s information technology system comprises numerous intra-linked systems
that are periodically updated, upgraded, enhanced and integrated with new systems. Failure to
maintain or update these systems, particularly where updates may be required to support new or
expanded products or services, could result in their inability to support or expand the Group’s
business. Such developments could materially and adversely affect the Group’s business, financial
condition and results of operations. The Group also currently expects to switch from its current ERP
system to ‘‘OneERP’’, developed to introduce standardised processes across the Deutsche Telekom
Group. The costs of implementing this program may be significantly larger than anticipated and the
implementation may not bring contemplated benefits for the Group. As a result, the Group’s
business, financial condition and results of operations may be adversely affected.
The Group is reliant on third parties and suppliers for operation of part of its network and infrastructure,
equipment and provisions of certain services.
The Group purchases its network equipment, including its core, service and network (NT)
management platforms, access active equipment, transmission equipment and the software required to
operate such equipment from a concentrated number of key suppliers, including Ericsson Slovakia,
Alcatel-Lucent Slovakia a.s., Cisco, Oracle Slovensko and NetCracker EMEA Ltd (see ‘‘Business –
Key Suppliers’’). If it cannot obtain the equipment or ongoing maintenance it requires from these
suppliers on commercially acceptable terms or at all, it may need to seek alternative suppliers, or it
may incur additional costs or be subject to delays in its network expansion or upgrade plans. In
addition, equipment from alternative suppliers may not be compatible with the Group’s existing
equipment or the supplier may fail to integrate the equipment to the Group’s satisfaction. The
Group’s employees also may not be familiar with the technical specifications and maintenance
requirements of equipment from alternative suppliers. Any of the foregoing could result in a
disruption of service or additional costs, which could have a material adverse effect on the Group’s
The Group relies on third parties for the supply and maintenance of equipment and certain critical
systems, such as satellite access for television transmission, NT platforms and elements, handsets, such
as smart phones and other hardware, as well as certain value added services that the Group offers to
its customers. The Group is also partially dependent on an external consultant for operation of its
new Customer Relationship Management (CRM) system. Any failure to perform by such suppliers
and operators or difficulties or delays in interconnecting with other networks and services may delay
or prevent the Group from providing products and services to its customers, which may materially
and adversely impact the Group’s business, financial condition and results of operations.
Furthermore, the Group relies on the third parties that built the key elements of its fixed and mobile
networks to provide ongoing upkeep and maintenance services. The Group can offer no assurance
about the quality of these support services, or the level of control that the Group would have should
such quality deteriorate. In the event that the Group’s current outsourcing arrangements become
unsatisfactory, or their outsourcing partners fail to fulfil their obligations, the Group may not be able
to find new outsourcing partners on economically attractive terms or on a timely basis or at all.
The Group is reliant on specific third party suppliers and manufacturers to provide specialty, high-demand
products to meet consumer expectations.
Key high-demand specialty handset products are provided by a limited number of suppliers,
particularly Apple and Samsung. The Group is reliant on this limited number of suppliers to obtain
these products and remain competitive in the market. The failure of the Group to procure these highdemand products from these suppliers on favourable terms, or to procure the models of these
products at the level of quality and in the volumes the Group requires, could result in decreased
revenues, a loss in market share, consumer confidence and loyalty and could materially and adversely
affect the Group’s business, financial position and results of operations.
28
The Group relies on its network infrastructure and platforms which are vulnerable to disruptive events.
The Group’s equipment and networks may be damaged, disrupted and service operation could be
harmed by events such as fire, flood, lightning storms, heavy rain, snow and power outages and
equipment or system failures, including those caused by terrorist attacks, malicious or unauthorised
access, PC viruses, malware or targeted information technology based attack. Major damage or
disruptions could result in failure of the Group’s networks or systems. In addition, the Group fully
depends on electric power supplies by third parties and backup solutions available for critical systems
can mitigate risk of power outage only for a limited time. Such developments could affect the quality
of the Group’s services or cause service interruptions, and there can be no assurance that the Group’s
business continuity plans, network security policies and monitoring activities may be sufficient to
mitigate the impact of or prevent such disruptive events. Network or system failures could also harm
the Group’s reputation or impair the Group’s ability to retain and attract new customers, which
could have an adverse effect on the Group’s business, financial condition and results of operations.
The Group operates in a capital-intensive business, and any inability to meet its capital expenditure
requirements or failure to invest in the continued upgrades of its network capabilities could materially and
adversely affect its business, financial condition and results of operations.
The Group requires substantial capital to build, maintain and operate its telecommunications
networks, and to ensure their continued competitiveness. The Group also requires significant amounts
of capital to develop, market and distribute its services and products. In particular, the Group expects
to make significant investments in upgrading and expanding its broadband network and its mobile
data services, in connection with its fibre and LTE rollout. The Group has made capital expenditures
defined as additions to property, plant and equipment and intangible non-current assets of EUR 119.0
million, EUR 174.9 million (including the acquisition of spectrum licenses for EUR 63.5 million) and
EUR 104.6 million (including the acquisition of spectrum licenses for EUR 1.8 million) for the years
ended 31 December 2014, 2013 and 2012, respectively. Capital expenditures during these periods
related primarily to roll-out of the LTE and 3G mobile networks, renewal of the 2G network,
upgrades of the fixed-line network and fibre rollout and investment in new CRM systems, as well as
acquisition of customer premises equipment (such as set-top-boxes, home access gateways and optical
network terminations) and TV content. The Group has budgeted EUR 123.0 million for capital
expenditures in 2015.
The Group currently expects to fund its capital expenditure requirements from cash flows generated
by its operations. However, if the Group is, for any reason, unable to obtain adequate funding as
required, it may be required to limit its operations and its expansion plans, including plans to expand
its network and service offering, which could have a material adverse effect on the Group’s business,
financial condition and results of operations.
Acquisitions or investments may not generate expected benefits or synergies and could disrupt the Group’s ongoing business, distract its management or increase its expenses.
From time to time, the Group may consider additional opportunities for potential acquisitions. The
Group may not be successful in its efforts to identify targets meeting its acquisition or investment
criteria for inorganic growth, or accurately estimate the financial effects of any such transactions on
its business. In addition, acquisitions may divert management attention or financial or other resources
away from the Group’s existing business or require additional expenditures. Such developments could
have a material and adverse effect on the Group’s business, financial condition and results of
operations.
The integration of any acquired operations into the Group’s existing business may also result in a
failure to retain customers or management personnel or to align information technology systems,
networks and supply chain arrangements. For example, the Group acquired a 51% interest in PosAm
in 2010, but the remaining interest is owned by the Chief Executive Officer and other senior managers
of PosAm, who are responsible for a number of key customer relationships. Although to date the
Group believes relations with the PosAm management have been positive, if disagreements were to
occur in the future, they could have an impact on PosAm customer retention or the business or
operations of PosAm. In addition, the Group may not be able to capture the full benefit of, or
expected synergy from, an acquisition unless and until it completes an integration process. For
example, while the Group acquired control over DIGI in September 2013 it is still operated as a
distinct business within the Group, separate from the Pay-TV services offered by the Group through
its fixed-line business. A failure to capture the expected synergies from acquisitions or investments
29
through integration may have a material and adverse effect on the Group’s business, financial
The Group competes in part by offering converged and bundled products, and it may not succeed in further
developing such products or may be unsuccessful in marketing such products.
Although the Slovak telecommunications market has traditionally been characterized by single-product
offerings, in recent years the offering of multi-product packages has become increasingly popular
amongst consumers, influenced by providers offering customers products and services bundles such as
multi-play packages. Bundled services are typically offered to customers at a discount from the
amount each service would have cost the consumer had it been purchased individually. Price
competition has driven the price of bundled services down even further from the original discounted
level, resulting in decreased services revenues. The Group believes that its ability to offer new
converged and bundled products, either by enhancing existing products or developing new products,
will continue to be an important factor in its business, contributing to reduced churn rates and
stabilising the Group’s customer base. However, the offering of bundled products can be complex due
to the technological, logistical and pricing challenges of combining two or more services in a
competitively priced single offering. Furthermore, the Group faces limitations in its ability to offer
bundled products, or the price at which such products can be offered, under applicable competition
law and consumer protection regulation. A failure to offer attractive new bundled products in the
future, or to successfully market such offerings to customers, or regulatory challenges or objections to
creating such bundles could adversely affect the Group’s ability to leverage its multi-play platform to
attract and retain customers. Any failure to attract and retain customers may materially and adversely
affect the Group’s business, financial position and results of operations.
The Group collects and maintains data on its customers digitally and is therefore exposed to risks of
unauthorised or unintended data release through system failures or hacking.
In the conduct of its business, the Group collects and maintains significant amounts of data on its
customers which it is required to maintain and use in accordance with applicable regulations. See
‘‘Telecommunication Regulation in Slovak Republic – Further Applicable Regulation – Data protection’’.
The telecommunications sector has become increasingly digitalised, automated and online-based in
recent years, increasing the Group’s exposure to risks of unauthorised or unintended data release
through hacking and general information technology system failures. Unanticipated information
technology problems, system failures, computer viruses, intentional/unintentional misuses, hacker
attacks or unauthorised access to the Group’s servers or other failures could result in a failure to
maintain and protect customer data in accordance with applicable regulations and requirements and
could affect the quality of the Group’s services, compromise the confidentiality of the Group’s
customer data or cause service interruptions, and may result in the imposition of fines and other
penalties. The occurrence of any of these events could harm the Group’s reputation and materially
and adversely affect the Group’s business, financial condition or results of operations.
Any inability by the Group to obtain and maintain competitive content for its broadcast services on satisfactory
terms may adversely affect the Group’s competitive position, business, financial condition and result of
operations.
The Group markets its product offerings in part on the basis of the content that it makes available
to customers, including specialized sports video and music offerings. Any inability of the Group to
obtain or retain attractive and competitively priced content offerings on its network could result in
decreased demand for its existing and future TV and mobile services.
If the Group is not able to secure a sufficient amount of attractive content on acceptable terms, sales
of the Group’s products and services with a content component, such as Pay-TV, broadband and
mobile data, could be adversely affected, which may have an adverse effect on the Group’s business,
financial condition or results of operations. In particular, the Group’s Pay-TV business depends on
the Group’s ability to source attractive TV content at competitive prices. Failure to extend or renew
one or more of the Group’s agreements with key content providers, such as the Premier League
(scheduled to expire in 2016), or the UEFA Champions League (scheduled to expire in 2018), upon
expiry without substitution with comparably attractive content, or extension or renewal of such
agreements on less advantageous terms, could adversely affect the Group’s competitive position,
business, financial condition and result of operations, particularly if the rights to such content are
subsequently acquired by the Group’s competitors.
30
The Group depends on the image and recognition of its brands including ‘T’ or ‘Telekom’, Zoznam, PosAm
and DIGI, and any failure to maintain the positive image and recognition of these brands could materially and
The Group markets its product offerings in part on the basis of the content that it makes available
to customers, including specialised sports and music offerings. The Group’s ability to attract new
customers and retain existing customers depends in part on its ability to maintain favourable brand
images. The Group seeks to maintain and improve the position of its brands in the market, including
through advertising, sponsorship and ensuring that overall performance in terms of service provision
and management are subject to regular review and improvement initiatives. In addition, the Group
shares some of its branding with Deutsche Telekom, including ‘‘T’’ and ‘‘Telekom’’.
Any failure to maintain and improve the Group’s brand image, or adverse publicity affecting the
brands the Group shares with Deutsche Telekom, or relatively greater appeal of brands of the Group
competitors, could have a material adverse effect on the Group’s business, financial condition and
results of operations.
The Group uses a number of retailers, franchise shops and other distributors to distribute or sell its products,
and any interruption to these contractual relationships could increase the Group’s costs and/or have a material
adverse effect on its business, financial condition and results of operations.
The Group markets its products through door-to-door agents, telesales teams, retail shops, as well as
franchise shops and other distributors in addition to its own channels. Approximately 14% of the
Group’s total B2B customer sales transactions in 2014 were generated through third parties (dealers).
The Group’s franchisees or other distributors may stop distributing the Group’s products to end
customers, or terminate their relationship with the Group, for reasons beyond the Group’s control. A
failure by the Group to maintain these distribution relationships, or a failure by distribution partners
to provide sufficient customer intake for the Group, could have an adverse effect on the Group’s
The Group may face difficulties in recruiting and retaining experienced personnel.
The Group depends on attracting and maintaining a labour force of experienced, qualified employees.
Competition in the Slovak telecommunications industry for personnel with relevant expertise is intense
due to the relatively small number of available qualified individuals.
The Group seeks to offer compensation and benefits that are generally competitive on the Slovak
labour market. Nevertheless, there are specific job positions in specific areas of the business where the
Group may offer lower wages than its competitors, or where recruiting qualified and experienced
employees could be more challenging due to the scarcity of qualified potential employees. Competition
for qualified employees in these areas could lead to certain difficulties in recruiting qualified and
experienced employees or can take greater length of time to recruit such employees, or resulting in a
need to pay higher wages.
In addition, the Group’s ability to maintain its competitive position and to implement its business
strategy depends to a large extent on the services of its senior management teams. If one or more
members of the Group’s management teams were unable or unwilling to perform or continue in their
present positions, it may be difficult for the Group to replace those individuals in a timely manner, in
some cases taking up to six months to find qualified personnel or even restructuring positions
internally to cover all responsibilities if the position could not be filled. Any inability of the Group to
retain, manage and/or recruit sufficient qualified and experienced personnel, or senior management
could have an adverse effect on its business, financial condition and results of operations.
A significant event that exceeds the coverage limits of the Group’s insurance could result in substantial losses.
The Group maintains insurance policies against certain losses, including property damage and
business interruption (resulting from damage to property), third party liability and other, in
accordance with the Deutsche Telekom Group policies. See ‘‘Business – Insurance’’. However, the
Group’s policies may not be sufficient to provide protection against all losses. To the extent any loss
is not covered by the Group’s insurance policies, or exceeds the coverage limits specified therein, the
Group would not be able to obtain compensation for its losses from the insurer and may have to
incur expenses to remedy the damage caused by relevant disruptions. In addition, depending on the
severity of the property damage, it may not be able to rebuild damaged property in a timely manner
or at all. The Group does not maintain separate funds or otherwise set aside reserves for these types
of events or other insurable losses. Any such losses or third-party claims for damages not covered by
31
insurance may have a material adverse effect on the Group’s business, financial condition and results
of operations.
Investigations and litigation against the Group may lead to awards of damages, fines or other penalties, which
may have a material adverse effect on the Group’s business, financial condition and results of operations.
The Group is involved in legal proceedings from time to time, which may lead to the imposition of
damages, fines or other penalties on the Group. As at the date of this Prospectus the total amount of
claims against the Group is estimated at EUR 1.9 billion including the estimated default interest and
costs of proceedings. However, out of that amount EUR 1.56 billion is related to two claims which
the Company considers unfounded. See ‘‘Business – Legal Proceedings – Claims by Mr Ješko’’. The
Group has made provisions against losses in the amount of EUR 32.1 million.
The European Commission as well as the Antimonopoly Office of the Slovak Republic (the Slovak
Competition Authority) have in the past found the Company to have infringed competition law by
abusing its dominant position. In 2007, the Slovak Competition Authority imposed a fine of
EUR 17.5 million for the Company’s abuse of its dominant position, in total of nine counts,
committed by engaging in margin squeeze and tying on the markets of, fixed voice services, fixed data
services and fixed telephone network access services (the Voice Case). In addition, in 2014, the
European Commission imposed a fine of EUR 38.8 million jointly and severally on the Company and
Deutsche Telekom for the Company’s alleged abuse of dominant position through margin squeeze
and a refusal to supply in relation to unbundled local loops (the EC Case), which the Company paid
in full in January 2015. In the same decision, the Commission imposed a separate fine of
EUR 31.1 million solely on Deutsche Telekom.
The decision of the Slovak Competition Authority in the Voice Case is currently being reviewed by
the first instance review court, and the legal effect of the decision is suspended pending judicial
review. Although the first instance review court initially annulled the decision in the Voice Case in its
entirety in 2012, it did not uphold the Company’s argumentation in all nine counts of the abusive
conduct described in the Slovak Competition Authority’s decision. In 2014, the annulment was
reversed by the Supreme Court, and the case was returned for further proceedings before the first
instance court. The Company is not obliged to pay the fine pending a final decision of the court.
The decision of the European Commission in the EC Case has been appealed to the General Court
of the European Union and is currently pending before it. The appeal did not suspend the
enforceability of the Commission decision and, accordingly, as of 31 December 2014, the Company
recognised the entire fine imposed jointly and severally on itself and Deutsche Telekom as a liability
(EUR 38.838 million), and the Company paid this amount in January 2015. The Company has
reserved its rights to determine and claim partial reimbursement of the fine from Deutsche Telekom.
The Company and Deutsche Telekom are currently negotiating the reimbursement, including a
suitable procedural framework to determine if and to what extent such reimbursement should be
provided. There can be no assurance that Deutsche Telekom will reimburse any amount. The
Company has also been informed by Deutsche Telekom that it may consider claiming from the
Company partial reimbursement of the fine imposed solely on Deutsche Telekom.
In addition to the fines paid by the Company, based on the Commission’s decision in the EC Case,
other parties, such as competitors of the Group or consumers who consider that they may have been
harmed by the anticompetitive behaviour, may bring material follow-on claims in the Slovak courts
for damages caused by misconduct by the Group. In such follow-on actions, claimants can rely on
the proof of existence of the anti-competitive conduct as established by the Commission decision and
thus do not have to prove the existence of the anti-competitive conduct. The courts then only assess
whether there is a causal link between the Company’s conduct and the harm allegedly suffered as well
as the quantum of such harm. The number of follow-on claims has increased in the European Union
in recent years and there is also a trend in EU legislation to facilitate such claims. In particular,
Directive 2014/104 on actions for damages under national law for infringements of competition law
enshrines the right of every person who has suffered harm caused by an infringement of competition
law to obtain full compensation and establishes a favourable legal environment for claimants to
enforce their claims more effectively. In addition, in 2013 the European Commission adopted a
Communication on quantifying harm in actions for damages based on breaches of EU competition
law which serves as important guidance not only to the claimants when calculating claims but also to
national courts. In connection with existing EU case law, these developments will further facilitate the
pursuit of follow-on damages claims. Accordingly, one or more claims may be brought against the
32
Company on the basis of the Commission’s decision in the EC Case, and these claims may be
material.
Two follow-on damages claims have already been brought against the Company in connection with
the Slovak Competition Authority decision in the Voice Case in 2013, and the plaintiffs, SWAN and
Slovanet, are currently seeking damages in the principal amount of approximately EUR 48.0 million
and EUR 30.8 million, respectively, increased by costs of proceedings and default interest at the
statutory rate. The Company currently estimates the aggregate value of both claims (including costs
of proceedings and default interest) at approximately EUR 121.3 million. Proceedings in both cases
have been suspended pending the court’s consideration of the underlying decision of the Slovak
Competition Authority in the Voice Case; the claimants are seeking to overturn the suspension and
have the proceedings resumed.
The Group may be subject to further claims in respect of the Voice Case, the EC Case or other
proceedings in which it may be involved from time to time. Any such claims, if determined adversely
to the Group, may have a material adverse effect on the Group’s business, financial condition and
results of operations.
The Group is also subject to other claims before Slovak courts. These claims include proceedings for
damages allegedly caused by the shutdown in the 1990s of Radio CD International broadcasting, a
program of Slovak Radio directed to the territory of Austria and broadcast by the Company (the
CDI Case), in which it is alleged that a predecessor of the Company improperly discontinued
broadcasting Radio CD International’s programming. At first instance, the Company was ordered to
pay damages in the principal amount of approximately EUR 32.2 million together with interest at an
annual rate of 17.6% from 4 September 1996 until fully paid and costs of proceedings of
EUR 3.7 million. The Company currently estimates the aggregate value of the claim (including
default interest and costs of proceedings) at approximately EUR 141.1 million. Currently, the dispute
is pending on appeal before the Supreme Court. In March 2015, the Company and the claimant
entered into a settlement agreement providing for financial compensation by the Company in an
amount not exceeding the Company’s prior provision in respect of such amounts and release of
further claims. The settlement agreement has been filed with, and is subject to approval by, the
relevant court. There is no statutory period for the court to grant such approval.
The Group is subject to applicable consumer protection legislation, and may from time to time be
subject to regulatory proceedings or legal disputes concerning its compliance with such legislation,
such as with respect to whether its standard form consumer contracts contain unfair terms or are in
accordance with applicable requirements. Any failure to comply with consumer protection legislation
may result in the imposition of regulatory fines and/or damages in connection with claims brought by
consumers or consumer associations. Moreover, it may also harm the Group’s reputation and result
in negative public relations. Currently, the Group is facing several proceedings related to consumer
protection, none of which is material; however, they may become material in the future, in particular
if initiated by large numbers of other consumers or consumer associations.
The Group believes it makes appropriate provisions where a loss or liability is probable in respect of
particular litigation and proceedings and can be either quantified or estimated with reasonable
precision, and reviews on a regular basis the level of provisioning it considers appropriate in respect
of on-going litigation. There can be no assurance that any judgments against the Group will not be
for amounts in excess of the levels provisioned, or that the Group may not be subject to additional,
and potentially significant, claims. In addition, litigation may result in negative publicity for the
Group. If the Group is unable to successfully manage the risks related to litigation, this could have a
material adverse effect on the Group’s future results of operations and its financial condition.
The Group is subject to Slovak and European Union competition law regulations.
The Group is subject to Slovak and European competition law regulation. These regulations prohibit
agreements and practices, the purpose or result of which is to restrict competition as well as
behaviour that constitute an abuse of a dominant position. Furthermore, both Slovak and European
laws contain merger control regulation that may have an adverse impact on any acquisition or
disposal activity by the Group. In certain markets where the Group is designated as an undertaking
with significant market power or where an acquisition would lead to significant impediment of
competition, primarily as a result of creation or strengthening of the dominant position on such
market, the Group’s ability to make acquisitions may be restricted by regulatory and competition
concerns. See ‘‘Telecommunication Regulation in Slovak Republic – Further Applicable Regulation –
General Competition Law’’.
33
In light of the Group’s size and position in the markets in which it operates, particularly in fixed-line
and broadband services, competition regulation significantly restricts the Group’s ability to operate. In
particular, the Company must adhere to a number of ex ante regulatory obligations stemming from
its position of a significant market power undertaking on multiple relevant markets in Slovak
Republic (see ‘‘Telecommunication Regulation in Slovak Republic – Slovak National Telecom Regulatory
Framework – Obligations imposed on SMP Undertakings’’). Further, the Company’s practices and
agreements have been, and will continue to be, subject to review by the European Commission and
the Slovak Competition Authority for possible infringements of the European as well as Slovak
competition regulations (which typically implement the requirements of EU competition law), and the
Group has been subject to fines and penalties for violations of such requirements, such as in the
Voice Case and EC Case. While the Group seeks to ensure that its operations are in compliance with
applicable regulations, no assurance can be given that the relevant authorities will agree with the
Group’s interpretation of such regulations. Any actions by Slovak or European Union competition
authorities may limit the Group’s operations, including the prices that it may charge or the services
that it may offer, which may have a material adverse effect on the Group’s business, financial
The Group’s ability to provide commercially viable telecommunications services depends in part upon various
intellectual property rights it owns, and the Group may be subject to claims from third parties for infringement
of intellectual property rights.
The Group relies on third-party licences and other intellectual property arrangements to conduct its
business. Intellectual property rights owned by the Group or its subsidiaries or licensed to any of
them may be challenged or circumvented by competitors or other third parties. In addition, the
relevant intellectual property rights may be or may become invalid, unenforceable or may not be
broad enough to protect the interests of the Group or may not provide it with any competitive
advantage. For example, the Group’s rights to broadcast exclusive content may be subject to
infringement. Any loss or withdrawal of those intellectual property rights could adversely affect the
Group’s ability to provide services and could adversely affect its business, financial condition, results
of operations and prospects.
In addition, the Group may be subject to claims for copyright or trademark infringement in
connection with content that it distributes through its broadband, mobile data, Pay-TV and other
services such as its Internet portals, VOD and digital archiving services and broadcasting services.
Any such claims or lawsuits could be time consuming, result in costly litigation and diversion of
technical and management personnel, require payment of royalties or licence fees in respect of future
periods and, potentially, for past violations, require the Group to develop non-infringing technology
or to cease broadcasting or distribution of the infringing content or services and/or enter into royalty
or licensing agreements. The Group is currently subject to nine disputes related to intellectual
property rights and collective rights management societies, the total amount of which is estimated at
EUR 6.2 million including the estimated default interest and costs of proceedings.
Spectrum limitations may adversely affect the Group’s ability to provide services to its customers.
The number of customers that can be accommodated on a mobile network is constrained by the
amount of spectrum allocated to the operator of the network and is also affected by customer usage
patterns and network infrastructure. The spectrum is a continuous range of frequencies within which
the waves have certain specific characteristics. The Group currently has spectrum assignments in key
bands (450MHz, 800MHz, 900MHz, 1,800MHz, 2,100MHz and 2,600MHz) used for mobile
communications across the EU, as well as assignments in less significant bands, such as 26 GHz. As
the Group’s customer base grows and the Group offers a broader range of services, it may require
additional capacity for mobile voice and data. However, the currently available spectrum may be
limited by competition, regulation or financial constraints, and the Group may face a bottleneck,
especially in metropolitan areas.
In some important frequency bands the maximum amount of spectrum that can be allocated to one
undertaking is or in the future may become limited by spectrum caps set by the Slovak NRA. The
spectrum caps may limit the ability of the Group to acquire additional spectrum through tenders or
by purchase from other licence holders. Moreover, the Group’s ability to acquire new spectrum
licences may be limited by a maximum number of spectrum licences set by the Slovak NRA in a
particular frequency band. For example, a frequency cap in the 1,800MHz band limits the amount of
the spectrum which may be held by an individual operator to 2x20MHz, and accordingly the Group
would not be allowed to acquire more than 2x4.8MHz spectrum in the 1,800MHz band in the
34
upcoming auction currently planned by the Slovak NRA for the second half of 2015. For more
information on spectrum caps and limitations on number of licence holders see ‘‘Telecommunication
Regulation in Slovak Republic – Slovak National Telecom Regulatory Framework – The national
licensing system’’.
Were the Group to require additional spectrum permits, it would consider requesting additional
assignments of radio frequencies, and it would consider submitting bids if additional spectrum permits
were to be tendered in the future. Were the Group not successful in the pursuit of such permits for
any reason, such as prohibitive cost or limited number of available licences, it could find itself at a
competitive disadvantage in the Slovak mobile market.
Licences and authorisations material to the business of the Group may be difficult to obtain or may be
withdrawn.
The Group’s telecommunications operations in the Slovak Republic are dependent upon and subject
to concessions/licences/authorisations and approvals granted by the Slovak NRA. In particular, the
Slovak NRA is responsible for granting licences for the provision of telecommunications services,
allocating frequencies and assigning telephone numbers necessary for the Group’s operations. See
‘‘Telecommunication Regulation in Slovak Republic’’. Frequency allocation in some frequency bands is
or in the future may become restricted by spectrum caps or by a maximum number of spectrum
licences set by the Slovak NRA. These restrictions may limit the Group’s ability to acquire new
frequency spectra either through tenders or through purchase from other operators.
Some of these licences and other authorisations are particularly complicated and lengthy to obtain
and may subject the Group to ongoing compliance obligations. Each licence can only be obtained
after fulfilment of prescribed legal conditions. For example, in order to receive and maintain
permission to provide payment services (which is granted by the NBS for an indefinite period), the
stipulated conditions which the Group must fulfil includes, for example, professional competence and
trustworthiness of natural persons, suitable organisational conditions for carrying on the business of a
payment institution, appropriate financial background, risk management systems, internal control
systems, prevention of money laundering and terrorist financing, suitable and adequate technical
systems, resources and procedures for the proper provision of payment services, and material and
equipment required for the payment institution’s operations.
The Group’s key frequency spectrum licenses have scheduled expiration dates between 2025 and 2028,
but the licences (as well as other authorisations and approvals) may, under certain circumstances
specified in the applicable laws, be withdrawn prematurely by the competent authorities. Spectrum
licences as well as some other licences are subject to payment of fees and other conditions and a
failure to comply with these conditions may result in termination or withdrawal of the licences or
other sanctions. For example, a failure to pay fees or other breach of conditions of a spectrum
licence would lead to termination of the licence and it would disqualify the Group from spectrum
tendering for three years following the termination. Spectrum licences that were awarded in a tender
are not automatically renewed and the relevant spectrum will be allocated to a new user upon
expiration of the licence based on a new regulated tender process. The Slovak NRA may decide on
tender proceedings also in case of expiry of spectrum licences that were awarded without tender in
the past. The most important frequencies held by the Company (including 4G licences) are
determined to be re-allocated through tenders. The Slovak NRA is currently investigating compliance
by the Group with a requirement to start using the frequencies under one of its key spectrum licences
(4G license for the use of frequencies in the 800 and 2,600MHz bands) within six months from the
legal effect of the decision on their allocation. No breach of licence conditions has been declared and
no licence withdrawal proceedings have commenced as of the date of this Prospectus. The Company
believes there is no legal basis for the Slovak NRA to determine that the Company has not complied
with its licence obligations. However, if the Slovak NRA were to make a finding to the contrary, this
could result in the withdrawal of the licence relating to these frequencies. Such a withdrawal, if it
were to occur, could have a material adverse effect on the results of the operations and financial
condition of the Company.
Usage of spectrum is subject to recurring fees, set and modified from time to time by the Slovak
NRA, which has a considerable amount of discretion in this matter. These fees may be increased in
future, materially or adversely affecting the Group’s business.
As technology develops and new and/or additional services are provided the Group may be required
to obtain new licences from additional regulators depending on the relevant technology or service,
such as the Regulatory Office for Network Industries, the NBS, the National Security Authority or
35
the Council for Broadcasting and Retransmission, which may be difficult to obtain and/or be issued
subject to conditions that the Group finds hard or costly to meet. In addition, the Group is
periodically required to seek renewals of its licences and approvals.
A withdrawal or inability to renew licences and authorisations, whether as a result of alleged breaches
of conditions or otherwise, or to obtain newly required licences and authorisations, could have a
material adverse effect on the Group’s business, financial condition and results of operations.
The Group may encounter difficulties in obtaining the required location, construction and use permits to build
or renew its fixed and mobile infrastructure and/or the permits and approvals which the Company requires for
its business may be missing, insufficient, defective or inadequate.
The procedure for obtaining location, construction and use permits for the building of mobile and
fixed-line infrastructure is a relatively slow process in the Slovak Republic, particularly in relation to
the obtaining of permits in urban areas. Such permits are also subject to review by municipalities,
architecture and environment protection authorities. Construction activities in protected areas may be
subject to environmental or ecological construction disputes and protests, which may result in a
temporary or permanent cessation of construction. The Group may also face difficulties in particular
where it does not own or control the sites where its equipment is housed, potentially resulting in
disputes with property owners. With respect to its fixed-line operations, the Group may encounter
difficulties in obtaining the required permits to lay its ducts. In such cases the Group usually relies on
statutory rights to use third party land or buildings. However, the Group may face difficulties in
individual cases arising in particular from the fact that certain owners may refuse to accept statutory
restrictions of their property rights or may dispute the fulfilment of statutory conditions for such
restrictions.
The Group’s technology (fixed and mobile) is in many cases hosted in third party premises. The use
of such premises in many cases has been acquired through a rental contract or through a ‘‘right to
use’’ in buildings which have previously been owned by the Group and sold to third parties. There
may be cases at these premises where the landlord (or, as the case may be, the tenant) changes or
faces financial difficulties or where the owner disputes the Group’s ‘‘right to use’’. These cases could
result in the need for expensive technology relocation processes or expensive modification of the site
in order to secure access to and operation of technologies. For example, at one site in Bratislava,
following the bankruptcy of the owner, the Group temporarily lost access to technology and
electricity feeds due to the freezing of the owner’s assets, resulting in a temporary inability of the
Group to provide services from that location. Such occurrences, if prolonged or not promptly
remedied, could materially and adversely affect the Group’s business, financial condition and results
of operations.
In addition, the permits and approvals (including permits and approvals granted by the owner of the
relevant land, building or premises) which the Group requires for its business may be missing or
deemed insufficient, defective or inadequate. If any permits or approvals are found to be missing,
insufficient, defective or inadequate, the Group could be subject to certain sanctions. The delays
associated with obtaining the required permits could have a material adverse effect on the services
provided by the Group to its customers, its future results of operations and its financial condition.
See ‘‘Telecommunication Regulation in Slovak Republic’’.
Any inability by the Group to provide emergency call service or interference with other radio equipment may
result in financial and regulatory penalties, legal proceedings and damage to reputation.
The Group is obliged to provide an emergency call service through its fixed and mobile voice services
and the Group is also responsible for operation of the nationwide emergency call system. Any
hazardous interference with providing such a service, as a result of the Group’s network or systems
malfunctioning or otherwise, may result in severe consequences for the caller in the case of emergency
(especially in areas where no other operators networks are available) and potential financial penalties
or legal proceedings, which could have a material impact on the Group’s results of operations and/or
reputation. In addition, regulation aimed at preventing hazardous interference with other radio
equipment, as well as requirements stemming from international cross-border coordination
agreements, technical standards and norms, and limitations towards the maximum amount of
electromagnetic emissions may interfere with or add significant cost to the Group’s operation of its
base stations.
36
Actual or perceived health risks or other problems relating to mobile handsets or base stations could lead to
decreased mobile communications usage, significantly increased costs involved in offering mobile telephone
services, litigation risk and/or difficulties in obtaining permits for base stations.
The biological effects of radio frequency electromagnetic fields have been studied for more than 50
years. Public opinion is influenced by some studies that have shown that there may be regions within
a few metres and directly in front of the antennas of base stations where radio wave levels can exceed
recommended exposure levels. These regions are generally not accessible to the public, but members
of the public may challenge plans by mobile operators to install base stations in their
neighbourhoods. In addition, there are allegations that there may be health risks associated with the
effects of electromagnetic signals from mobile telephone handsets. Actual or perceived health risks of
mobile communications devices could adversely affect the Group through a reduction in subscribers,
reduced usage per subscriber, and exposure to potential liabilities.
The Group operates solely in the Slovak Republic, and its business, financial condition and the results of
operations are dependent on economic conditions in the Slovak Republic. Investing in less developed markets,
such as the Slovak Republic, entails certain risks, which may be greater than risks inherent in more developed
markets.
All of the Group’s operations are located in the Slovak Republic, and as a result the Group’s
business is highly dependent on economic conditions in the Slovak Republic. In particular, a
slowdown in growth or deterioration of general economic conditions in the Slovak Republic may
adversely affect demand for telecommunications services by the Group’s customers. Economic
conditions in the Slovak Republic are in turn significantly influenced by economic conditions in the
European Union, and particularly by conditions in Germany, the Slovak Republic’s primary trading
partner. GDP growth in the Slovak Republic was 1.8%, 0.9% and 2.3% in 2012, 2013 and 2014,
respectively, according to the IMF. Political conditions or other crises having an impact on the
Slovak Republic, Germany or the European Union as a whole could in turn impact economic growth
in the region. The Slovak economy is also characterized by significant regional differences, with
wealth concentrated in Bratislava and declining with distance from the capital city. Therefore, declines
in economy activity in Bratislava could greatly impact the Group’s operations as a whole.
Furthermore, an investment in a country such as the Slovak Republic is subject to greater risks than
an investment in a country with a more developed economy and more developed political and legal
systems. The Slovak Republic joined the EU in 2004 and the Eurozone on 1 January 2009, but is still
characterised by relatively less developed economic structures and markets. The development of the
Slovak Republic’s legal infrastructure and regulatory framework is still on-going. An investment in
the Slovak Republic therefore carries risks that are not typically associated with investing in more
mature markets. Investors should exercise particular care in evaluating the risks involved and must
decide for themselves whether, in light of those risks, an investment in a Slovak company is
appropriate. Generally, investments in less developed markets, such as the Slovak Republic, are only
suitable for sophisticated investors who can fully appreciate the significance and consequences of the
risks involved.
Additionally, international investors’ reactions to events occurring in one country sometimes
demonstrate a ‘‘contagion’’ effect, in which an entire region or class of investment becomes
disfavoured by international investors. Accordingly, negative economic or financial developments in
other countries could adversely affect investment in the Company.
Conditions resulting from any crises similar to the Russian annexation of Crimea and ongoing
conflict in Ukraine, the global financial and economic crisis that started in 2008, the European
sovereign debt crisis or the recent political turmoil in Europe, the Middle East and Africa may also
negatively affect the economic performance of, or investor confidence in, less developed markets,
including the Slovak Republic.
Certain global events may indirectly affect the outlook for the Slovak Republic and adversely affect the Group.
Starting in 2007 and continuing into 2009, the global economy experienced a significant downturn,
the effects of which are on-going. Governments in the United States, Europe and elsewhere have
implemented (and continue to implement) significant economic stimulus packages in response to this
global financial crisis. Notwithstanding these actions, the volatility and market disruption in the
global banking and other economic sectors have continued to a degree unprecedented in recent
history. Like many other countries, during this period the Slovak Republic experienced contraction in
37
its economy and other adverse economic and financial effects as a result of the global financial crisis,
including limited access to the international capital markets.
In 2010, high budget deficits and rising direct and contingent sovereign debt in Greece, Ireland, Italy,
Portugal and Spain resulted in concerns about the ability of these states to continue to service their
sovereign debt obligations, triggering a sovereign financial crisis in Europe. These concerns impacted
financial markets and resulted in high and volatile bond yields on the sovereign debt of many EU
nations. There have been various national and supra-national responses to these concerns, including
the creation of a joint EU-IMF European Financial Stability Facility in May 2010, assistance
packages to Greece, Ireland and Portugal, and plans to expand financial assistance to Greece;
although notwithstanding these, uncertainty over the outcome of the EU governments’ financial
support programmes and worries about sovereign finances persisted and, despite increased purchases
of sovereign bonds by the European Central Bank and measures taken by other central banks to
enhance global liquidity, ultimately concerns spread from ‘‘peripheral’’ to ‘‘core’’ EU member states
during the latter part of 2011. In December 2011, European leaders agreed to implement steps (and
continue to meet regularly to review, amend and supplement such steps) to encourage greater longterm fiscal responsibility on the part of the individual member states and bolster market confidence in
the euro and European sovereign debt. Since then, the financial support for stressed nations and
financial institutions has continued, with a further offer of bail-out funds to Greece in the amount of
EUR 130 billion in February 2012, a EUR 10 billion support package for Cyprus financed by the
IMF and the European Stability Mechanism (ESM), and a support package of EUR 41.4 billion to
Spain. Negotiations surrounding the Greek bailout following the newly elected Greek government’s
position to end austerity measures connected to the bailout remain contentious, and any resolution,
including the possibility of Greece’s exit from the Eurozone, could negatively impact the EU and
Slovak economies.
The Slovak economy remains vulnerable to external shocks and would be negatively affected by
economic slowdown in the EU, particularly considering exports to the EU are a key driver of the
Slovak economy. Public debt surpassed an important threshold of the national ‘‘Debt Brake’’ (55.7%
of GDP in 2014 according to IMF) and if surpassing of the 55% threshold is confirmed by Eurostat
for 2014 (publication is expected in late April 2015), certain austerity measures will be automatically
imposed upon the government budget pursuant to applicable law. These measures can result in
significant limitations with regard to the government’s ability to increase its spending or to decrease
taxes.
Investors should ensure that that they have sufficient knowledge and awareness of the global financial
crisis, the Eurozone crisis and the economic situation and outlook in the Slovak Republic to enable
them to make their own evaluation of the risks and merits of an investment in the Offer Securities.
In particular, investors should take into account the current uncertainty as to how the global financial
crisis, the Eurozone crisis and the wider economic situation will develop over time and how they will
affect the Slovak economy.
The Group’s ability to conduct business and its financial condition, results of operations and prospects could be
adversely affected by corruption and money laundering.
Independent analysts and media reports have identified corruption and money laundering as problems
in the Slovak Republic. In Transparency International’s Corruption Perceptions Index for 2014, which
evaluated data on corruption as perceived by domestic and foreign analysts and managers in
countries throughout the world and ranked countries from 1 (least corrupt) to 175 (most corrupt), the
Slovak Republic was ranked 54.
Efforts to reduce corruption, such as the law on the protection of whistleblowers, stricter rules for
financing political parties and launching the e-marketplace for state orders, may be adversely affected
by factors such as undeveloped or untested legislation, problems with legislation, the perceived lack of
independence of parts of the judiciary, and close ties between the political and business elite. The
European Commission has recommended that the Slovak Republic strengthen the independence of the
judiciary, in particular by specifying criteria for when presidents and vice-presidents of courts can be
removed from office, has suggested increasing the transparency of party funding at local and regional
levels, and has recommended strengthening control mechanisms to prevent conflicts of interest. In
August 2014, the Commission suspended the Slovak Republic’s ability to draw EU funding in the
majority of operational programs due to previous errors made when drawing the funds and running
the operational programs. The operational programs may be unblocked as the government progresses
with addressing the identified shortcomings; however, the restricted ability to use EU funds in
38
particular in infrastructure development projects may have an adverse effect on the economy of the
Slovak Republic, and in turn on the results of operation and prospects of the Group.
The Slovak legal system and Slovak legislation continue to develop, which may create an uncertain
environment for investment and for business activity.
The legal infrastructure and the law enforcement system in the Slovak Republic is less developed
when compared to some western European countries. The average length of judicial proceedings in
commercial matters in 2012 in the Slovak Republic was 14 months and may be longer when taken
together with appeals, extraordinary remedial procedures or proceedings before the Slovak
Constitutional Court. In some circumstances, it may not be possible to obtain legal remedies to
enforce contractual or other rights in a timely manner or at all. The lack of an institutional history
remains a problem in the Slovak Republic. As a result, shifts in government policies and regulations
tend to be less predictable than in countries with more developed democracies. A lack of legal
certainty or the inability to obtain effective legal remedies in a timely manner or at all may have a
material adverse effect on the Group’s business, results of operations or financial condition.
The uncertainties relating to the Slovak legal and judicial system could have an adverse effect on the
economy. The Slovak Republic is a civil law jurisdiction and judicial decisions under Slovak law
generally have no precedential effect. Courts are generally not bound by earlier court decisions taken
under the same or similar circumstances, which can result in the inconsistent application of Slovak
legislation to resolve the same or similar disputes. While the role of judicial decisions as guidelines in
interpreting applicable Slovak legislation is generally limited, almost all decisions of all courts are now
available on-line and judges and clerks are increasingly given access to court decisions from all other
courts of the country, which may improve uniformity of decision making. Still, whilst the Slovak
judicial system has gone through several reforms to modernise and strengthen the independence of the
judiciary, these reforms may not be sufficient. In addition, the uniform application of law is hindered
by the quality (particularly clarity and transparency) and stability of the legal framework. The
credibility of the system may be put at risk by issues raised with respect to the integrity of public
servants and officials, as well as by high level corruption cases.
In addition, the shortcomings of the Slovak legal and judicial system could negatively affect the
ability of the investors to enforce their rights against the Company, whether under corporate law or
securities laws. Investors should be also aware that, in the Slovak Republic, there may be fewer
judges specialised and experienced in complex matters involving investments in securities when
compared to judges in western European countries. Therefore, the matters brought before the Slovak
courts may be subject to delays and may not be conducted in a manner similar to more developed
legal systems and may, as a result, lead to delays in proceedings or losses on the investments.
Any or all of these factors could have a material and adverse effect on the Group’s business, financial
conditions and results of operations.
A special levy is imposed on regulated industries in the Slovak Republic, and the Slovak taxation system is
subject to change and may issue inconsistent interpretations of tax legislation.
The legal and fiscal framework within the Slovak Republic is changing on a continuous basis. Due to
the recent economic crisis, the Slovak Republic has faced significant budget deficits and, as a result,
the government has implemented certain austerity measures and tight budgetary controls, resulting in
the imposition of tax increases, the introduction of new taxes and the broadening of tax base. There
can be no assurance that these austerity measures will not be continued or increased or that new
taxes would not be imposed in the future, should the budgetary objectives under the EU rules or the
national ‘‘Debt Brake’’ legislation be missed.
Tax rules, including those relating to the telecom industry in the Slovak Republic, and their
interpretation, may change, possibly with retrospective effect. Significant tax disputes with tax
authorities, any change in the tax status of any member of the Group or any change in Slovak
taxation legislation or its scope or interpretation could also affect the Group’s business and financial
position.
As part of the budget deficit control measure, the Slovak government has introduced a special levy at
the rate of 4.356% per annum from profit before tax of certain regulated undertakings, which include
telecom companies, from September 2012. The levy is payable if the revenues from regulated activities
are at least 50% of the total revenues of the relevant entity. The Group incurred costs of
EUR 2.5 million, EUR 3.1 million and EUR 2.1 million in respect of this levy in the years ended
31 December 2014, 2013 and 2012, respectively.
39
When enacted in 2012, the relevant legislation stated that the special levy should not apply after
December 2013. However, an amendment to that legislation adopted in 2013 has extended the special
levy to apply until December 2016. It is possible that the special levy will be further prolonged or
additional similar taxes or levies could be imposed in the Slovak Republic in the future, although
none are currently proposed by the government to be approved in the parliament. The imposition of
any such new taxes or levies in the Slovak Republic could have an adverse effect on the Group’s
business, results of operations and financial condition.
The Group is dependent on its controlling shareholder, Deutsche Telekom, and a change in or loss of this
relationship may adversely affect the Group’s business and results of operations.
The Company has entered into a number of agreements and arrangements with Deutsche Telekom,
which indirectly owns a majority share of the Group, and its affiliates. These arrangements include
shared accounting and procurement services across the Deutsche Telekom network, with plans to
expand the scope of shared services in the near future. These arrangements also include a branding
programme for the Group that is consistent with and based upon the Deutsche Telekom ‘‘T’’ brand
branding model and utilising various trademarks and other intellectual property in the ownership of
Deutsche Telekom. The Group also benefits from several of Deutsche Telekom’s preferential
arrangements with a variety of suppliers and vendors, including a number of interconnection
agreements with international operators which have been concluded by the Group pursuant to
Deutsche Telekom’s Preferred Partners Agreement with such international operators. Were Deutsche
Telekom’s shareholding in the Company to be reduced below 51%, Deutsche Telekom or some of its
affiliates would have a right to terminate certain agreements concluded with the Group with an
immediate effect. Furthermore, the Group outsources various functions to third parties as well as to
its majority shareholder and its affiliates. Such functions include, but are not limited to, network
maintenance, bill printing and distribution services, fleet management, accounting and technology
logistics. See ‘‘Related Party Transactions’’. The termination of these arrangements or loss of support
from Deutsche Telekom may impose additional costs and expenses on the Group, which may be
significant, and result in the loss of the Group’s ability to use Deutsche Telekom branding, knowhow, shared accounting, procurement or other services and otherwise to benefit from the Group’s
relationship with Deutsche Telekom. Any such change may have a material and adverse effect on the
Group’s business and results of operations.
Interests of Deutsche Telekom may differ from those of holders of the Securities.
Following the Offering, Deutsche Telekom will continue indirectly to hold 51% of the Company’s
share capital and voting rights, and it may acquire additional Shares in the future. The Supervisory
Board and Board of Directors are both elected by a simple majority of the Company’s shares
represented at the relevant General Meeting, and the members of the Executive Management Board
are selected by the Board of Directors. As a result, following the Offering, Deutsche Telekom will
continue to have effective control over the management of the Group, except for certain limited
matters which require approval by qualified two-thirds majority of shareholders present at the
General Meeting, such as changes to the Company’s Articles of Association. See ‘‘Management’’ and
‘‘Principal and Selling Shareholders – Principal Shareholder’’. The interests of Deutsche Telekom may
differ from and, in some circumstances, conflict with, the interests of the holders of the Shares and
GDRs, and Deutsche Telekom may be able to require the Company to enter into transactions that
may not be in the best interests of minority shareholders, and its concentration of ownership may
have the effect of delaying or deterring a change in control, which could deprive the minority
shareholders of an opportunity to receive a premium for their shares as part of a future sale of the
business. Any such divergence of interests may materially and adversely affect the value of an
investment in the Securities.
The Company may decide not to, or may be unable to, pay dividends or other shareholder remuneration.
The Company has not adopted a formal dividend policy and there can be no assurance that it will
pay dividends. Pursuant to the Memorandum of Understanding entered into in February 2014
between the Selling Shareholder, the Slovak Republic acting through the Ministry of Economy,
Deutsche Telekom AG and the Company in connection with the Offering, the Company agreed to
guidance that the dividends declared and paid in respect of any year following the year in which the
Offering takes place are to be from 50% to 80% of the Company’s distributable profit determined in
accordance with the Slovak Commercial Code from the immediately preceding year, provided that
40
any annual dividend shall depend on the overall financial position of the Company and its working
capital needs at the relevant time (including but not limited to the Company’s business prospects,
cash requirements, financial performance, and other factors including tax and regulatory
considerations, payment practices of other European telecommunications operators and the general
economic climate). The Board of Directors shall consider all these conditions before deciding on any
proposal for profit distribution and may determine that it is unable or elect not to propose dividends
in the future or otherwise return funds to holders of the Securities.
In addition, any decision to pay dividends is subject to approval of a simple majority of shares
represented at the General Meeting. As Deutsche Telekom will continue to be the beneficial owner of
51% of the Company’s shares following the Offering, the decision whether to pay dividends, and the
level at which any dividends are paid, will be within the sole control of Deutsche Telekom. See also
‘‘– Interests of Deutsche Telekom may differ from those of holders of the Securities.’’ Should the
Company or its Principal Shareholder decide in the future against remunerating the Company’s
Security holders, or be unable to pay shareholder remuneration, the trading price of the Securities
may be adversely affected.
The Principal Shareholder will retain a significant percentage of the Company’s shares and future sales of
substantial amounts of the Securities, or the perception that such sales could occur, could adversely affect the
market value of the Securities.
The Offering consists solely of a sale of Securities by the Selling Shareholder, and the Principal
Shareholder (indirectly wholly owned by Deutsche Telekom) is not selling shares in the Offering.
Accordingly, immediately following the Offering, the Principal Shareholder will continue to hold 51%
of the Company’s shares.
In connection with the Offering, the Principal Shareholder and the Company have agreed with the
Joint Global Coordinators on certain restrictions on the issue, sale or other disposition of the
Securities for a period of 180 days after the Closing Date, except with the prior written consent of
the Joint Global Coordinators, and subject to certain exceptions. See ‘‘Plan of Distribution (Terms of
the Offer)’’. Subsequent to the expiration of the lock-up period, future sales of the Company’s shares
could be made by the Principal Shareholder. This concentration of ownership in a single shareholder
and the possibility that this shareholder may sell its shares could have a material adverse effect on
the market price of the Securities.
Furthermore, the market price of the Securities could be adversely affected if the Principal
Shareholder were to sell, or the Company were to issue and sell, a substantial number of Shares
either in the form of Shares or GDRs in the public market. Sales by the Principal Shareholder could
also make it more difficult for the Company to raise proceeds by selling Shares either in the form of
Shares or GDRs in the future at a time and price that it deems appropriate. The sale of a significant
amount of Securities in the public market, or the perception that such sales may occur, could
materially affect the market price of the Securities.
Risks Related to the Securities and the Offering
The rights of minority shareholders will be governed by the laws of the Slovak Republic, whose corporate
governance standards differ from those of other jurisdictions.
The Company is a joint stock company organised under the laws of the Slovak Republic. The rights
of holders of the Shares are governed by the Company’s Articles of Association and by Slovak law.
These rights, including the rights of minority shareholders, may differ in some respects from the
rights of shareholders in corporations organised outside of the Slovak Republic. In addition, the
Company will be subject to the Corporate Governance Code for Slovakia published in 2008 (the
Code). While based on OECD principles, the Code requires that the Supervisory Board includes
independent directors without specifying their number (although it states that it is good practice for
the Supervisory Board should be majority independent and it is best practice for all members of the
Supervisory Board to be independent) and the Code does not require that the Board of Directors
includes any independent directors. After the Offering, the Company’s Articles of Association will
require one member of the Company’s Supervisory Board to be independent. In addition, under the
Code, the employee representatives on the Supervisory Board may be considered to be independent.
Accordingly, the rights of minority holders of the Shares or GDRs may differ materially from those
applicable under the UK Corporate Governance Code or in other jurisdictions. In addition, it may be
difficult for investors to prevail in a claim against the Company under, or to enforce liabilities
predicated upon, the securities laws of jurisdictions outside of the Slovak Republic.
41
There has been no prior public market for the Securities and an active and liquid market for the Securities may
not develop.
There has been no public market for the Securities before the Offering. Although the Company has
applied for the Shares to be admitted to trading on the Main Listed Market of the Bratislava Stock
Exchange and for the GDRs to be admitted to the Official List and to the London Stock Exchange
to admit such GDRs to trading on its market for listed securities, an active liquid trading market
may not develop or be sustained after the Offering on either or both of these markets. Due to the
absence of a prior market, the Offer Price may not accurately reflect the market price of the
Securities following the Offering and investors should not view the Offer Price as any indication of
the price that will prevail in the trading market. If a market for the Securities does not develop, the
price of the Securities and the ability to sell the Securities could be adversely affected.
In addition, the securities market in the Slovak Republic is substantially smaller, less liquid and
significantly more volatile than major securities markets in the United States or the United Kingdom.
As at 31 December 2014, only 61 issuers had their shares traded on the regulated markets of the
Bratislava Stock Exchange, total equity market capitalisation was only EUR 3.9 billion and share
trading volume was EUR 56 million in the year 2014. The small number of listed companies and low
trading volumes tend to decrease the liquidity and increase the volatility of the Slovak securities
market. Accordingly, there may not be a liquid market for the Shares, the trading price of the Shares
may be subject to significant volatility, and the trading price of the Shares may differ significantly
from, and not be correlated with, that of the GDRs.
Volatility in the price of the Securities may have an adverse impact on holders of the Securities.
The price of the Securities may be very volatile and may be influenced by various factors affecting
the Group, its competitors or the financial markets generally, overall investor perceptions of emerging
markets and the telecommunications industry in particular. The price of the Securities could be
significantly affected by factors such as fluctuations in the operating results of the Group or its
competitors from one period to another; announcements by the Group or its competitors regarding
the launch of new products, offers or technologies; announcements by competitors, companies with
similar business activities or that otherwise affect the telecommunications industry (including those
relating to the operating or financial performance of those companies or those relating to
technological changes); announcements regarding changes in the Group’s management team or key
personnel; announcements concerning changes in the Group’s shareholding structure; changes in
financial estimates by securities analysts; changes in the regulatory environment or in the Group’s
litigation profile; changes to the Group’s credit rating and announcements regarding the Group’s asset
perimeter (e.g. acquisitions, sales, etc.). Furthermore, international securities markets have experienced
significant price and volume fluctuations in recent years. Such fluctuations in the future could
adversely affect the market price of the Securities without regard to the results of operations or
financial condition of the Company.
Slovak law imposes restrictions and penalties on insider trading and price manipulation and the
Slovak market is regulated and supervised by the NBS. However, the Slovak securities market and its
regulation and supervision are still developing towards the standards in established securities markets,
such as those in the United States and the United Kingdom. Liquidity and trading volumes on the
Bratislava Stock Exchange are extremely low when compared to stock exchanges in more established
securities markets. These factors may have impact on the volatility of the price of the Securities.
The acquisition of a direct shareholding in the Company reaching or exceeding certain thresholds is subject to
prior approval of the NBS and there are certain limitations regarding the cross-ownership of the Company as a
licensed broadcaster.
The Company is active in the market of payments through telecommunication devices, where it acts
as a payment services provider processing payments between customers and third party providers of
services or goods. In connection with these activities, the Company is licensed as a ‘‘limited’’ payment
institution under Section 79a of Slovak Act No. 492/2009 Coll. on payment services, as amended (the
Payment Services Act), which implements Directive 2007/64/EC on payment services in the internal
market and Directive 2009/110/EC on the taking up, pursuit and prudential supervision of the
business of electronic money institutions.
Under the Payment Services Act, the prior consent of the NBS is necessary for the acquisition of a
direct share of registered capital or voting rights in the Company that would reach or exceed 10%,
20%, 30% or 50%, or whereby the Company would become a subsidiary of an entity. This
42
requirement applies to any acquisition of Shares that results in exceeding any of the relevant
thresholds and including through cancellation of GDRs and receipt of Shares. The relevant provision
of the Payment Services Act applies only with respect to direct shareholders, and accordingly GDR
holders are not required to receive the prior consent of the NBS. Although there is no indication of
such change as of the date of this Prospectus, there can be no assurance that the relevant law or
regulatory approach may change in the future such that GDR holders may be considered direct
shareholders who are required to obtain the prior consent of the NBS for acquisition of qualified
interest in the Company.
The Payment Services Act and applicable secondary legislation provide for review of the request by
the NBS within up to three months from the submission of all required documents and information.
Any acquisition of Shares made without prior approval of the NBS under the Payment Services Act
or with an approval issued on the basis of false information provided to the NBS is deemed to be
void as a matter of Slovak law. In such a case, any third party could claim that the acquirer had not
obtained title to the Shares and has no ownership rights in respect of the Shares.
In connection with the Offering, the Depositary has received prior approval under the Payment
Services Act from the NBS to acquire up to 49% of the Shares. However, this approval is only valid
for one year from the effective date. While in the Deposit Agreements the Depositary and the
Company have agreed to take the required steps to maintain this approval so long as it is required,
there can be no assurance that a timely application for renewal of the approval will be made, or that
if such application is made, it will be granted in a timely manner or at all. Failure of such approval
to be renewed would result in the prohibition of further deposits into the GDR facility against the
issuance of GDRs if such deposits would result in the Depositary exceeding its shareholding above
the applicable threshold. In such circumstances, holders of Shares would be unable to deposit Shares
with the Depositary against issuance of GDRs.
In addition, because the Company is a licensed television broadcaster in the Slovak Republic, no
person already holding more than 25% of the share capital or voting rights in another Slovak
nationwide or multiregional broadcaster or in a Slovak national press publisher is permitted to
acquire more than 25% of the share capital or voting rights in the Company. There are certain
additional limitations arising from Slovak regulation of cross ownership of media companies, see
‘‘Description of Share Capital and Summary of Articles of Association – Form, Ownership and Transfer
of the Shares – Limitations on the Ownership of the Shares’’.
The Selling Shareholder is a public law entity separate from the Slovak Republic which is not an obligor or
guarantor of any liabilities of the Selling Shareholder. The Selling Shareholder may be dissolved in the future,
which may cause issues with enforcing potential claims against the Selling Shareholder.
The Selling Shareholder is a legal entity established by law to perform public interest activities under
the laws of the Slovak Republic, mainly in relation to transfer of interests in certain state-owned
entities. The Selling Shareholder is neither a body of the Slovak Republic nor acting on its behalf.
The Slovak Republic provides no guarantees for any actions or liabilities of the Selling Shareholder
with regard to disposition of any of its property. In the event that the Selling Shareholder would not
be able to meet any of its obligations, investors may likely not have any remedies under Slovak law
against the Slovak Republic. Any enforcement action would be therefore limited to assets of the
Selling Shareholder legally separated from assets of the Slovak Republic.
There are on-going public discussions in the Slovak Republic about the future of the Selling
Shareholder. Dissolution of the Selling Shareholder is listed as one of the government’s tasks for the
election period of 2012 to 2016. According to available public information, it has been proposed that
the dissolution should be completed in 2015; nevertheless, no specific government actions have been
taken in this regard. The process of dissolution would have to be effected by a special legislation.
While the rights and obligations of the Selling Shareholder may pass to another public entity via legal
succession under such special legislation, it cannot be predicted whether they would be transferred to
their full extent. There can be no assurance that investors will be able to pursue or enforce claims
against any legal successor of the Selling Shareholder in the case it will be dissolved in the future.
Trading in the Shares may be suspended or halted.
The Bratislava Stock Exchange may suspend or cease trading in the Shares in a number of
circumstances, such as if the Company failed to comply with certain reporting obligations or in the
event of market manipulation. Any such suspension should not exceed three months. If the trading of
the Shares is suspended, this could also adversely affect the trading market the GDRs. If the Shares
43
cease to be traded on the Bratislava Stock Exchange and they are not traded on any other regulated
market, the Company would be obliged to make a mandatory bid to purchase any outstanding
Shares, including shares represented by GDRs. See ‘‘The Bratislava Stock Exchange and Slovak
Securities Regulation – Suspension and Ceasing of Trading in the Shares’’.
Voting rights with respect to the Offer Shares represented by the GDRs are limited by the terms of the Deposit
Agreements for the GDRs and relevant requirements of Slovak law.
GDR holders have no direct voting rights with respect to the Offer Shares represented by the GDRs.
GDR holders are able to exercise voting rights with respect to the Offer Shares represented by GDRs
only in accordance with the provisions of the deposit agreements expected to be entered into on the
Closing Date between the Company and the Depositary (the Deposit Agreements) and applicable law.
Currently, Slovak law does not recognise the exercise of the voting rights by GDR holders and
GDRs as financial instruments are not regulated or recognised under Slovak corporate law.
Therefore, there are practical limitations upon the ability of GDR holders to exercise their voting
rights due to the additional procedural steps involved in communicating with such holders. Holders of
the Shares will receive notice directly from the Company and will be able to exercise their voting
rights either personally or by proxy. GDR holders, by comparison, will not receive notice directly
from the Company. Rather, in accordance with the Deposit Agreements, the Company will provide
notice to the Depositary. The Depositary then, as soon as practicable, at the Company’s expense, will
distribute to GDR holders notices of meetings, copies of voting materials (if and as received by the
Depositary from the Company) and a statement as to the manner in which GDR holders may give
instructions.
In order to exercise their voting rights, GDR holders must then instruct the Depositary how to vote
the Shares represented by the GDRs they hold. As a result of this additional procedural step
involving the Depositary, the process for exercising voting rights may take longer for GDR holders
than for holders of the Shares. The Company will use reasonable efforts to ensure the GDR holders
receive voting materials in a timely manner, but the Company cannot assure GDR holders that they
will receive voting materials in time to enable them to return voting instructions to the Depositary in
a timely manner, and GDRs for which the Depositary does not receive timely voting instructions will
not be voted. See ‘‘Description of Share Capital and Summary of Articles of Association – Summary of
the Articles of Association – General Meeting of Shareholders and Voting Rights’’ and ‘‘Terms and
Conditions of the Global Depositary Receipts – 16. Voting Rights’’.
Investors may not be able to enforce judgments obtained in United States courts against the Company.
The Company is incorporated in the Slovak Republic, the Company’s directors and executive officers
are non-residents of the United States and the Company’s assets, directors and officers are located
outside of the United States. There is no treaty between the United States and the Slovak Republic
providing for reciprocal recognition and enforcement of foreign court judgments in civil and
commercial matters. As a result, investors in the Securities may be unable to effect service of process
on the Company or on its directors and officers in the United States, and may be unable to enforce
judgments against them obtained in the United States. A foreign court may not accept jurisdiction
and impose civil liability if proceedings were commenced in a foreign jurisdiction predicated solely
upon U.S. federal securities laws.
Holders of the GDRs may be subject to limitations or delays in repatriating their earnings from distributions
made on the underlying Shares.
The Company anticipates that any dividends that it may pay in respect of the Shares held by its
shareholders or by the Depositary or its nominee on behalf of GDR holders will be declared and
paid in euro, and in the case of the GDRs will be paid to the Depositary and, subject to the terms
and conditions of the GDRs, will be converted into U.S. dollars by the Depositary and distributed to
holders of the GDRs, net of all fees, taxes, duties, charges, cost and expenses which may become or
have become payable under the Deposit Agreements or under applicable law in respect of such
GDRs. Accordingly, the value of any dividends received by shareholders whose domestic currency is
other than euro will be subject to fluctuations in the relevant exchange rate. Similarly, the value of
dividends received by holders of the GDRs will be subject to fluctuations in the exchange rate
between the euro and the U.S. dollar.
44
Shareholders in certain jurisdictions may not be able to participate in future equity offerings.
Slovak law provides for pre-emption rights to be granted to existing shareholders in the Company in
case of future issue of shares by the Company. However, securities laws of certain jurisdictions may
restrict the Company’s ability to allow participation by shareholders in future offerings. In addition,
pursuant to Condition 8 of the Terms and Conditions of the GDRs, the Company may, subject to
applicable law, instruct the depositary not to subscribe for shares on behalf of holders of GDRs. In
particular, holders of the Shares and GDRs in the United States may not be entitled to exercise these
rights, unless either the Shares, GDRs and any other securities that are offered and sold are
registered under the Securities Act, or the Shares, GDRs and such other securities are offered
pursuant to an exemption from, or in a transaction not subject to, the registration requirements of
the Securities Act. The Company cannot assure prospective investors that any exemption from such
overseas securities law requirements would be available to enable U.S. or other shareholders,
including holders of the GDRs, to exercise their pre-emption rights or, if available, that the Company
will utilise any such exemption.
Capital gains from the sale of the Securities may be subject to Slovak income tax.
The disposal of the Securities generally results in the recognition of a capital gain or loss equal to the
difference between the sale price and the acquisition costs. Capital gains realized upon disposal of
Securities by a Slovak tax resident or a Slovak permanent establishment of a Slovak tax non-resident
should be subject to Slovak income tax. In addition, capital gains arising on a sale of Shares by a
Slovak tax non-resident may be subject to tax in the Slovak Republic, depending on the tax residency
status of the buyer of the Shares and other relevant criteria, unless relief is provided pursuant to an
applicable double tax treaty. Capital gains arising on sale of GDRs by Slovak tax non-residents
should not generally be subject to tax in the Slovak Republic. See ‘‘Taxation – Certain Slovak Tax
Considerations’’.
Income from GDRs may not qualify as dividends under Slovak tax law.
Slovak tax law provides that dividends distributed to a person with a share on the registered capital
of the company which distributes the dividends are not subject to tax in the Slovak Republic. GDR
holders do not directly participate in the registered capital of the Company, and dividends are paid to
the Depositary and then, in accordance with the provisions of the Deposit Agreement, transferred to
the GDR holders. As Slovak tax law does not explicitly regulate or recognise GDRs, such income of
a GDR holder may not qualify as dividend income, and accordingly may be taxed in the Slovak
Republic when paid to a Slovak tax resident or a Slovak permanent establishment of a Slovak tax
non-resident. See ‘‘Taxation – Certain Slovak Tax Considerations – Income Tax on GDRs – Taxation
on income arising from holding of GDRs’’.
45
IMPORTANT INFORMATION ABOUT THIS PROSPECTUS
Each investor, by accepting delivery of this Prospectus, agrees that this Prospectus is being furnished
by the Company solely for the purpose of enabling investors to consider the purchase of the
Securities which are subject to the Offering and for the purposes of admission of the Shares to
trading on the main listed market of the Bratislava Stock Exchange and GDRs to trading on the
main market for listed securities of the London Stock Exchange. Any reproduction or distribution of
this Prospectus, in whole or in part, any disclosure of its contents or use of any information herein
for any purpose other than considering an investment in the Securities is prohibited, except to the
extent that such information is otherwise publicly available.
This Prospectus, including the financial information included herein, is in compliance with the
Prospectus Rules, which comply with the provisions of the Prospectus Directive for the purpose of
giving information with regard to the Company, the Selling Shareholder and the Securities.
The Company accepts responsibility for all the information contained in this Prospectus. See
‘‘Responsibility Statement and Signatures’’.
None of Citigroup Global Markets Limited, J.P. Morgan Securities plc, Erste Group Bank AG and
Wood & Company Financial Services, a.s. (together the Banks) nor the Depositary makes any
representation or warranty, express or implied, nor accepts any responsibility, with respect to the
accuracy or completeness or verification of any of the information in this Prospectus. This Prospectus
is not intended to provide the basis of any credit or other evaluation and should not be considered as
a recommendation by any of the Company, the Selling Shareholder or the Banks that any recipient
of this Prospectus should subscribe for or purchase the Offer Securities. Each subscriber for or
purchaser of Securities should determine for itself the relevance of the information contained in this
Prospectus, and its subscription for or purchase of Securities should be based upon such investigation,
as it deems necessary, including the assessment of risks involved and its own determination of the
suitability of any such investment, with particular reference to their own investment objectives and
experience and any other factors that may be relevant to such investor in connection with the
subscription for or purchase of the Offer Securities.
Each subscriber for or purchaser of Offer Securities also acknowledges: (i) it has not relied on the
Banks or any person affiliated with the Banks in connection with any investigation of the accuracy of
any information contained in this Prospectus or their investment decision; and (ii) it has relied only
on the information contained in this Prospectus, and that no person has been authorised to give any
information or to make any representation concerning the Company or its subsidiaries or the Offer
Securities (other than as contained in this Prospectus) and, if given or made, any such other
information or representation should not be relied upon as having been authorised by the Company,
the Selling Shareholder or the Banks.
This Prospectus relates to an offer to the public to purchase the Offer Securities in the Slovak Republic
and the Offer Shares in the Czech Republic only. This Prospectus does not constitute an offer to the
public generally to subscribe for or purchase or otherwise acquire the Offer Securities in any other
jurisdiction. In making an investment decision regarding the Offer Securities, an investor must rely on its
own examination of the Company and the terms of the Offering, including the merits and risks involved.
Investors should rely only on the information contained in this Prospectus. None of the Company, the
Selling Shareholder, the Banks has authorised any other person to provide investors with different
information. If anyone provides any investor with different or inconsistent information, such investor
should not rely on it. The information appearing in this Prospectus is accurate only as of its date.
Every significant new factor, material mistake or material inaccuracy relating to information included
in the Prospectus which is capable of affecting the assessment of the Securities and which arises or is
noted between the time when the Prospectus is approved and the closing of the Offering or, as the
case may be, the time when trading on a regulated market begins, whichever occurs later, shall be
disclosed by the Company in a supplement to the Prospectus.
The contents of the website of the Company, or the website of any other member of the Group, do
not form any part of this Prospectus.
This Prospectus refers to credit ratings of the Slovak Republic which have been rated by the credit
rating agencies Standard & Poor’s Financial Services LLC, part of McGraw Hill Financial (S&P),
Moody’s Investor Service, Inc. (Moody’s) and Fitch Ratings Limited (Fitch). Each of S&P, Moody’s
and Fitch is established in the European Union and is registered under Regulation (EC) No. 1060/
2009, as amended (the CRA Regulation).
46
Investors should not consider any information in this Prospectus to be investment, legal or tax advice.
An investor should consult its own legal counsel, financial adviser, accountant and other advisers for
legal, tax, business, financial and related advice regarding subscribing for and purchasing the Offer
Securities. None of the Company, the Selling Shareholder or the Banks makes any representation to
any offeree or purchaser of or subscriber for the Securities regarding the legality of an investment in
the Securities by such offeree or purchaser or subscriber under appropriate investment or similar laws.
The Banks are acting exclusively for the Selling Shareholder and no one else in connection with the
Offering and will not be responsible to any other person for providing the protections afforded to
their respective clients or for providing advice in relation to the Offering. Apart from the
responsibilities and liabilities, if any, which may be imposed on any of the Banks by applicable
regulatory regime, none of the Banks accepts any responsibility whatsoever for the contents of this
Prospectus or for any other statement made or purported to be made by it or any of them or on its
or their behalf in connection with the Company or the Securities. Each of the Banks accordingly
disclaims, to the fullest extent permitted by applicable law, all and any liability whether arising in tort
or contract or otherwise (save as referred to above) which it might otherwise have in respect of this
Prospectus or any such statement.
In connection with the Offering, the Banks and any of their respective affiliates acting as an investor
for its or their own account(s) may subscribe for or purchase the Offer Securities and, in that
capacity, may retain, subscribe for, purchase, sell, offer to sell or otherwise deal for its or their own
account(s) in such securities, any other securities of the Company or other related investments and
may offer or sell such Offer Securities or other investments in connection with the Offering or
otherwise. Accordingly, references in this Prospectus to the Offer Securities being issued, offered,
subscribed or otherwise dealt with should be read as including any issue or offer to, or subscription
or dealing by, the Banks or any of their respective affiliates acting as an investor for its or their own
account(s). The Banks do not intend to disclose the extent of any such investment or transactions
otherwise than in accordance with any legal or regulatory obligation to do so. In addition certain of
the Banks or their affiliates may enter into financing arrangements (including swaps) with investors in
connection with which such Banks (or their affiliates) may from time to time acquire, hold or dispose
of the Offer Securities.
The Selling Shareholder may withdraw the Offering at any time prior to Admission, the Selling
Shareholder and the Banks reserve the right to reject any offer to subscribe for or purchase the Offer
Securities, in whole or in part, and to sell to any investor less than the full amount of the Offer
Securities sought by such investor.
This Prospectus does not constitute or form part of an offer to sell, or a solicitation of an offer to
subscribe for or purchase, any security other than the Offer Securities. The distribution of this
Prospectus and the offer and sale of the Offer Securities may be restricted by law in certain
jurisdictions. No action has been or will be taken by the Company, the Selling Shareholder and the
Banks to permit a public offering of the Offer Securities or the possession or distribution of this
Prospectus in any jurisdiction where action for that purpose may be required, except with respect to
the public offer in the Slovak Republic. Any investor must inform themselves about, and observe any
such restrictions. See ‘‘Terms and Conditions of the Global Depositary Receipts’’ and ‘‘Transfer
Restrictions’’ elsewhere in this Prospectus. Investors must comply with all applicable laws and
regulations in force in any jurisdiction in which it subscribes for, purchases, offers or sells the Offer
Securities or possesses or distributes this Prospectus and must obtain any consent, approval or
permission required for its subscription for, purchase, offer or sale of the Offer Securities under the
laws and regulations in force in any jurisdiction to which such investor is subject or in which such
investor makes such subscriptions, purchases, offers or sales. None of the Company, the Selling
Shareholder or the Banks is making an offer to sell the Offer Securities or a solicitation of an offer
to buy any of the Offer Securities to any person in any jurisdiction except where such an offer or
solicitation is permitted or accepts any legal responsibility for any violation by any person, whether
or not an investor, or applicable restrictions.
The Offering does not constitute an offer to sell, or solicitation of an offer to buy, securities in any
jurisdiction in which such offer or solicitation would be unlawful. Accordingly, the Offer Securities
may not be offered or sold, directly or indirectly, and neither this Prospectus nor any other offering
material or advertisements in connection with the Offer Securities may be distributed or published in
or from any country or jurisdiction except under circumstances that would result in compliance with
any applicable rules and regulations of any such country or jurisdiction. For further information on
47
restrictions on offers and sales of the Offer Securities, see ‘‘Plan of Distribution (Terms of the
Offer)’’.
Neither the delivery of this Prospectus nor any sale made hereunder shall under any circumstances
imply that there has been no change in the Company’s affairs or that the information set forth in
this Prospectus is correct as of any date subsequent to the date hereof.
In connection with the Offering, Citigroup Global Markets Limited and Erste Group Bank AG as
the Stabilising Managers will have the right to acquire Offer Securities on the Bratislava Stock
Exchange and/or the London Stock Exchange representing not more than 4,234,153 Offer Securities
by retaining the Stabilisation Proceeds (as defined under ‘‘Plan of Distribution (Terms of the Offer) –
Stabilisation’’, in order to stabilise the price of the Offer Securities at a level higher than that which
may otherwise prevail if stabilisation actions were not taken. It is anticipated that under the
Institutional Underwriting Agreement, the acquisition of the Offer Securities as part of stabilising
transactions by the Stabilising Managers will be subject to the applicable provisions of the
Stabilisation Regulation. The purchase transactions related to the Offer Securities may be effected
during the period not longer than the Stabilisation Period at a price not higher than the Offer Price.
The Stabilising Managers will not, however, be required to take any of the above stabilisation
actions. If such actions are taken by the Stabilising Managers, they may be discontinued at any time,
however, not later than before the end of the Stabilisation Period. At the end of the Stabilisation
Period the Stabilising Manager(s) will return to the Selling Shareholder any Offer Securities which
have been purchased in the market as a result of stabilisation activities and/or any remaining
Stabilisation Proceeds which were not used for stabilisation activities.
For the purposes of this Prospectus, the expression ‘‘Prospectus Directive’’ means Directive 2003/71/
EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented
in each relevant member state of the EEA), and includes any relevant implementing measure in each
relevant member state of the EEA and the expression ‘‘2010 PD Amending Directive’’ means
Directive 2010/73/EU.
NOTICE TO UNITED STATES INVESTORS
THE OFFER SECURITIES HAVE NOT BEEN REGISTERED WITH, OR APPROVED OR
DISAPPROVED BY, THE U.S. SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION IN THE UNITED STATES OR ANY OTHER U.S.
REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE
NOT PASSED ON OR ENDORSED THE MERITS OF THE OFFERING OR THE ADEQUACY
OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE IN THE UNITED STATES.
The Offer Securities have not been and will not be registered under the Securities Act or with any
securities regulatory authority of any state or other jurisdiction of the United States and may not be
offered or sold within the United States, except pursuant to an exemption from, or in a transaction
not subject to, registration under the Securities Act and in compliance with any state securities laws.
Investors are hereby notified that sellers of the Offer Securities may be relying on the exemption from
the provisions of Section 5 of the Securities Act provided by Rule 144A. For a discussion of certain
restrictions on transfers of the Offer Securities in other jurisdictions, see ‘‘Terms and Conditions of the
Global Depositary Receipts’’ and ‘‘Transfer Restrictions’’.
Recipients of this Prospectus in the United States are hereby notified that this Prospectus has been
furnished to them on a confidential basis and is not to be reproduced, retransmitted or otherwise
redistributed, in whole or in part, under any circumstances. Furthermore, recipients are authorised to
use it solely for the purpose of considering a purchase of the Offer Securities in the Offering and may
not disclose any of the contents of this Prospectus for any other purpose. This Prospectus is personal
to each offeree and in the United States does not constitute an offer to any other person or the
public generally to subscribe for or otherwise acquire the Offer Securities.
NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED
48
STATUTES (‘‘RSA 421-B’’) WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT
A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE
OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF
NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE,
COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT
AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION
MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE
MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY
PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE
MADE, TO ANY INVESTOR, CUSTOMER OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
NOTICE TO UNITED KINGDOM AND OTHER EUROPEAN
ECONOMIC AREA INVESTORS
Except in the Slovak Republic and the Czech Republic this Prospectus and the Offering are only
addressed to and directed at persons in member states of the EEA (except for the Slovak Republic
and the Czech Republic), who are ‘‘qualified investors’’ (Qualified Investors) within the meaning of
Article 2(1)(e) of the Prospectus Directive (including any relevant implementing measure in each
relevant member state of the EEA). In addition, in the United Kingdom, this Prospectus is only being
distributed to and is only directed at (1) Qualified Investors who are investment professionals falling
within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order
2005 (the Order) or high net worth entities falling within Article 49(2)(a)-(d) of the Order or (2)
persons to whom it may otherwise lawfully be communicated (all such persons together being referred
to as relevant persons). The Offer Securities are only available to, and any invitation, offer or
agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, (1)
in the United Kingdom, relevant persons and (2) in any member state of the EEA other than the
United Kingdom, the Slovak Republic and the Czech Republic, Qualified Investors. This Prospectus
and its contents should not be acted upon or relied upon (1) in the United Kingdom, the Slovak
Republic and the Czech Republic, by persons who are not relevant persons or (2) in any member
state of the EEA other than the United Kingdom, by persons who are not Qualified Investors.
This Prospectus has been prepared on the basis that all offers of the Offer Securities outside of the
Slovak Republic following approval by the NBS will be made pursuant to an exemption under the
Prospectus Directive, as implemented in the member states of the EEA, from the requirement to
produce a Prospectus for offers of the Offer Securities. Accordingly, any person making or intending
to make any offer within the EEA for the Offer Securities, other than in the Slovak Republic, should
only do so in circumstances in which no obligation arises for the Company, the Selling Shareholder
or any of the Banks to produce a Prospectus for such offer. None of the Banks, the Selling
Shareholder or the Company has authorised or authorises the making of any offer of the Offer
Securities through any financial intermediary, other than offers made by the Banks which constitute
the final placement of the Offer Securities contemplated in this Prospectus.
Each person in a member state of the EEA other than the Slovak Republic that has implemented the
Prospectus Directive (a Relevant Member State) other than, in the case of (a) below, persons receiving
offers contemplated in this Prospectus in the United Kingdom, who receives any communication in
respect of, or who acquires any Offer Securities under, the offers contemplated in this Prospectus will
be deemed to have represented, warranted and agreed to and with each Bank and the Company that:
(a)
it is a qualified investor within the meaning of the law in that Relevant Member State
implementing Article 2(1)(e) of the Prospectus Directive; and
(b)
in the case of any Offer Securities acquired by it as a financial intermediary, as that term is
used in Article 3(2) of the Prospectus Directive:
(i)
the Offer Securities acquired by it in the Offering have not been acquired on behalf of, or
with a view to the offer or resale to, persons in any Relevant Member State other than
qualified investors, as that term is defined in the Prospectus Directive, or in circumstances
in which the prior consent of the Bank has been given to the offer or resale; or
(ii)
where the Offer Securities have been acquired by it on behalf of persons in any Relevant
Member State other than qualified investors, the offer of those Securities is not treated
under the Prospectus Directive as having been made to such persons.
49
For the purposes of this provision, the expression an ‘‘offer to the public’’ in relation to any Offer
Securities in any Relevant Member State means the communication in any form and by any means of
sufficient information on the terms of the Offering and any Securities to be offered so as to enable an
investor to decide to purchase or subscribe for the Offer Securities, as the same may be varied in that
Relevant Member State by any measure implementing the Prospectus Directive in that Relevant
Member State and the Prospectus Directive includes any relevant implementing measure in each
Relevant Member State.
AVAILABLE INFORMATION
For so long as any of the Offer Securities are restricted securities within the meaning of Rule
144(a)(3) under the Securities Act, the Company will, during any period in which the Company is
neither subject to Section 13 or Section 15(d) of the United States Securities Exchange Act of 1934,
as amended, nor exempt from reporting pursuant to Rule 12g3-2(b) thereunder, provide to any holder
or beneficial owner of such restricted Securities or to any purchaser of such restricted Securities
designated by such holder or beneficial owner upon the request of such holder, beneficial owner or
purchaser, the information required to be delivered to such persons pursuant to Rule 144A(d)(4)
under the Securities Act (or any successor provision thereto).
SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES
The Company’s and the Selling Shareholder’s presence outside the United States and the United
Kingdom may limit a foreign investor’s legal recourse against the Company and the Selling
Shareholder. The Company is incorporated under the laws of the Slovak Republic, and the Selling
Shareholder is a special public law entity established under the laws of the Slovak Republic. A
majority of the directors and executive officers named in this Prospectus reside outside the United
States and the United Kingdom, principally in the Slovak Republic and Germany. Substantially all of
the Company’s and the Selling Shareholder’s assets and almost all of the assets of the directors and
executive officers are located outside the United States and the United Kingdom, principally in the
Slovak Republic. In addition, it may be difficult for investors to enforce, in original actions brought
in courts in jurisdictions outside the United States liabilities predicated upon U.S. securities laws.
Recognition and Enforcement of U.S. and other Non-EU Judgements
Judgments rendered by a court in any jurisdiction outside the Slovak Republic are likely to be
recognised by courts in the Slovak Republic if an international treaty providing for the recognition
and enforcement of judgments in civil cases exists between the Slovak Republic and the country in
which the judgment is rendered, and/or law of the Slovak Republic provides for the recognition and
enforcement of foreign court judgments.
There is currently no treaty between the United States and the Slovak Republic providing for
reciprocal recognition and enforcement of foreign court judgments (other than arbitration awards) in
civil and commercial matters. Furthermore, under Slovak private international law there is no
reciprocity principle applied in relation to civil and commercial foreign judgments. A final and
conclusive judgment for the payment of money rendered by any federal or state court in the United
States based on civil liability, whether or not predicated solely upon US federal securities laws,
therefore would not automatically be recognised or enforceable in the Slovak Republic.
A judgment of a court of law of a non-EU member state made in personam for a certain sum, which
is not impeachable as void or voidable under the internal laws of the foreign jurisdiction (the Non-EU
Judgment) would be recognised in the Slovak Republic provided that the relevant conditions in
respect of recognition and enforcement of foreign judgments set out in the Act No. 97/1963 Coll. on
Private and Procedural International Law (the Private International Law Act) are met, which includes
without limitation the following: (a) the Non-EU Judgment is final and enforceable according to the
law of the state where it was issued; (b) the matter is not within the exclusive jurisdiction of the
Slovak Republic; (c) the Non-EU Judgment is a decision on the merits of the case; (d) a party to the
dispute against whom an enforcement is sought was not denied access to the foreign court, mainly it
must have been served with a statement of claim or summons for the hearing; (e) the Non-EU
Judgment is not irreconcilable with a prior Slovak judgment or an earlier foreign judgment which
may be recognised in the Slovak Republic; (f) the Non-EU Judgement is not against the public policy
(ordre public) of the Slovak Republic; (g) the application for recognition before Slovak courts is duly
50
made according to the Private International Law Act procedural rules and encloses all the
documentation thereby required.
Recognition and Enforcement of Judgements Obtained at English Courts and other EU Judgements
A court judgment rendered in an EU member state other than the Slovak Republic (an EU
Judgment) would be recognised in the Slovak Republic only if the relevant conditions provided by
Council Regulation (EC) No 1215/2012 on Jurisdiction and the Recognition and Enforcement of
Judgments in Civil and Commercial Matters (Brussels I Recast) are met, including: (a) such
recognition is not manifestly contrary to public policy in the Slovak Republic; (b) where it was given
in default of appearance, if the defendant was served with the document which instituted the
proceedings or with an equivalent document in sufficient time and in such a way as to enable him to
arrange for his defence and failing that, if the defendant failed to commence proceedings to challenge
the judgment when it was possible for him to do so; (c) it is not irreconcilable with a judgment given
in a dispute between the same parties in the Slovak Republic; (d) it is not irreconcilable with an
earlier judgment given in a EU member state (other than the Slovak Republic) or in a third state
involving the same cause of action and between the same parties, provided that the earlier judgment
fulfils the conditions necessary for its recognition in the Slovak Republic; and (e) the EU Judgment
does not conflict with the provisions of the Brussels I Recast dealing with jurisdiction in matters
relating to insurance, jurisdiction over customer contracts and exclusive jurisdiction.
An EU Judgment can be enforced in the Slovak Republic based on a final decision of a Slovak
competent court approving the enforcement, only if the provisions provided by the Brussels I Recast
are met, including: (i) it is enforceable in the EU member state where the EU Judgment was made;
(ii) the Slovak competent court is provided with a copy of the EU Judgment which satisfies the
conditions necessary to establish its authenticity; (iii) the Slovak competent court is provided with an
original certificate issued by the relevant EU member state’s court or other competent authority
substantially in the form set out in Annex I of the Brussels I Recast and none of the conditions
above preventing the recognition of an EU Judgment is applicable; (iv) where the EU Judgment
orders a periodic payment by way of penalty (including, but not limited to, default interest), the
amount of the payment has been finally determined by the courts of the EU member state of origin;
and (v) the right to enforce the final judgment is not restricted by any limitation period.
In addition to and independently from the procedure provided by the Brussels I Recast, EC
Regulation No. 805/2004 of the European Parliament and of the European Council regulates the
creation of a European enforcement order for uncontested claims in civil and commercial matters (the
European Enforcement Order Regulation). Under the European Enforcement Order Regulation, a
claim shall be regarded as uncontested if: (a) the debtor has expressly agreed to it by admission or by
means of a settlement which has been approved by a court or concluded before a court in the course
of proceedings; or (b) the debtor has never objected to it, in compliance with the relevant procedural
requirements under the law of the EU member state of origin, in the course of the court proceedings;
or (c) the debtor has not appeared or been represented at a court hearing regarding that claim after
having initially objected to the claim in the course of the court proceedings, provided that such
conduct amounts to a tacit admission of the claim or of the facts alleged by the creditor under the
law of the EU member state of origin; or (d) the debtor has expressly agreed to it in an authentic
instrument.
A judgment that has been certified as a European Enforcement Order in the EU member state of
origin shall be recognised and enforced in the other EU member states without the need for a
declaration of enforceability and without any possibility of opposing its recognition.
A judgment on an uncontested claim delivered in a EU member state shall, upon application at any
time to the court of origin, be certified as a European Enforcement Order if: (a) the judgment is
enforceable in the EU member state of origin; and (b) the judgment does not conflict with the rules
on jurisdiction as laid down in the Brussels I Recast; and (c) the court proceedings in the EU
member state of origin meet the minimum requirements as set out in the European Enforcement
Order Regulation (where the claim is deemed uncontested because the debtor has never objected to
the claim or has not appeared or been represented at a court hearing as detailed above); and (d) the
judgment was given in the EU member state of the debtor’s domicile within the meaning of the
Brussels I Recast, in cases where: (i) a claim is uncontested (where the debtor has never objected to
the claim or has not appeared or been represented at a court hearing as detailed above); and (ii) it
relates to a contract concluded by a person (a ‘‘consumer’’) for a purpose which can be regarded as
being outside his trade or profession; and (iii) the debtor is the consumer.
51
The European Enforcement Order certificate shall take effect only within the limits of the
enforceability of the judgment. The enforcement procedures shall be governed by the law of the EU
member state of enforcement. A judgment certified as a European Enforcement Order shall be
enforced under the same conditions as a judgment handed down in the EU member state of
enforcement.
Enforcement shall, upon application by the debtor, be refused by the competent court in the EU
member state of enforcement if the judgment certified as a European Enforcement Order is
irreconcilable with an earlier judgment given in any EU member state or in a third country, provided
that: (a) the earlier judgment involved the same cause of action and was between the same parties;
and (b) the earlier judgment was given in the EU member state of enforcement or fulfils the
conditions necessary for its recognition in the EU member state of enforcement; and (c) the
irreconcilability was not and could not have been raised as an objection in the court proceedings in
the EU member state of origin. Under no circumstances may the judgment or its certification as a
European Enforcement Order be reviewed as to its substance in the EU member state of enforcement.
Sovereign Immunity
Important limitations exist in relation to enforcement proceedings against the Slovak Republic’s assets
and such limitations may apply regardless of any contractual waiver of immunity. These limitations
may be relevant in the event of enforcement of rights of investors against the Selling Shareholder.
Even if a valid enforcement title exists (such as a final judgment of a Slovak court or other
judgement recognised in the Slovak republic) certain assets of the Slovak Republic, including funds
forming part of, or originating from, the state budget, are immune from attachment and from
execution and are not available to creditors in any formal enforcement proceedings in the Slovak
Republic. Furthermore, execution proceedings cannot be performed in respect of assets which the
court will consider (after commencement of the execution proceedings) as necessary in order for the
Slovak Republic to perform its functions as a sovereign state or if such assets are necessary for
performance of public services (in Slovak: verejnoprospešné účely).
52
FORWARD-LOOKING STATEMENTS
Some statements in this Prospectus may be deemed to be ‘‘forward-looking statements’’. Forwardlooking statements include statements concerning the Company’s plans, objectives, goals, strategies
and future operations and performance and the assumptions underlying these forward-looking
statements. The Company uses the words ‘‘anticipates’’, ‘‘estimates’’, ‘‘expects’’, ‘‘believes’’, ‘‘intends’’,
‘‘plans’’, ‘‘may’’, ‘‘are expected to’’, ‘‘could’’, ‘‘will’’, ‘‘will continue’’, ‘‘should’’, ‘‘would be’’, ‘‘seeks’’,
‘‘approximately’’, ‘‘estimates’’, ‘‘predicts’’, ‘‘projects’’, ‘‘aims’’ or ‘‘anticipates’’, and other similar
expressions to identify forward-looking statements. This applies, in particular, to statements
containing information on future financial results, plans, or expectations regarding the Company’s
business and management, the Company’s future growth or profitability and general economic and
regulatory conditions and other matters affecting the Company. Forward-looking statements are
contained in ‘‘Risk Factors’’, ‘‘Business’’, ‘‘The Slovak Telecommunications Market’’ and other sections
of this Prospectus.
Forward-looking statements reflect the Company’s current views of future events. They are based on
the Company’s assumptions and involve known and unknown risks, uncertainties and other important
factors that could cause circumstances or the Company’s results, performance or achievements to be
materially different from any future circumstances, results, performance or achievements expressed or
implied by such statements. The occurrence or non-occurrence of an assumption could cause the
Company’s actual financial condition and results to differ materially from, or fail to meet
expectations expressed or implied by, such forward looking statements. The Company’s business is
subject to a number of risks and uncertainties that could also cause a forward looking statement,
estimate or prediction to become inaccurate. These risks include, but are not limited to, the following:
*
overall business conditions;
*
changes in tax requirements (including tax rate changes, new tax laws and revised tax law
interpretations);
*
economic and political conditions in the Slovak Republic, as well as inflation, interest rate
fluctuations, foreign currency and exchange rate fluctuations and other capital market conditions
in the Slovak Republic;
*
the timing, impact and other uncertainties of future actions;
*
the condition and performance of the Slovak economy, including the Slovak telecoms sector;
*
the effects of changes in laws, regulations and taxation or accounting standards or practices in
the jurisdictions where the Company conducts its operations;
*
the effects of competition and the Company’s ability to maintain or increase market share for
its products and services;
*
the Company’s ability to control expenses and to meet its funding obligations and develop and
maintain additional sources of financing;
*
the Company’s ability to continue to diversify its client base;
*
acquisitions or divestitures by the Company or in the business areas in which the Company
conducts its operations;
*
legal and regulatory developments and the outcome of legal proceedings to which the Company
is or may become a party;
*
technological changes; and
*
the Company’s ability to manage the risks associated with the aforementioned factors.
Additional factors that could cause the Company’s actual results, performance or achievements to
differ materially include, but are not limited to, those discussed under ‘‘Risk Factors’’ and
‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’.
Forward-looking statements speak only as at the date of this Prospectus. Accordingly, except as
required by the Prospectus Rules and other applicable regulations, the Company is not obliged to,
and does not intend to, update or revise any forward-looking statements made in this Prospectus
whether as a result of new information, future events or otherwise. All subsequent written or oral
forward-looking statements attributable to the Company, or persons acting on the Company’s behalf,
are expressly qualified in their entirety by the cautionary statements contained throughout this
Prospectus. As a result of these risks, uncertainties and assumptions, a prospective purchaser of the
Offer Securities should not place undue reliance on these forward-looking statements.
53
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
Presentation of Financial Information
The Group’s consolidated financial information set forth herein has, unless otherwise indicated, been
extracted, without material adjustment, from the Group’s audited consolidated financial statements as
of 31 December 2014, 2013 and 2012 and for the years then ended (the Financial Statements) set
forth on pages F-1 through F-60 of this Prospectus. The Financial Statements have been prepared in
accordance with International Financial Reporting Standards (IFRS) as adopted in the European
Union and have been audited.
Except for the information extracted from the Financial Statements this Prospectus does not include
any audited financial information.
The Euro is the presentation currency for the Financial Statements. The Financial Statements and
financial information included elsewhere in this Prospectus have, unless otherwise noted, been
presented in Euros.
The Company’s Independent Auditors
The Financial Statements included in the Prospectus have been audited by PricewaterhouseCoopers
Slovensko, s.r.o. as stated in their audit report appearing herein. PricewaterhouseCoopers Slovensko,
s.r.o. have registered offices at Námestie 1. mája 18, 815 32 Bratislava, Slovak Republic.
PricewaterhouseCoopers Slovensko, s.r.o. is a corporate member of the Slovak Chamber of Auditors,
licence number 161.
Certain Definitions
In this Prospectus, all references to:
*
EU are to the European Union;
*
NBS are to the National Bank of Slovakia; and
*
Slovakia and Slovak pertain to the Slovak Republic.
For a list of key defined terms and abbreviations used in this Prospectus see ‘‘Glossary’’.
Certain Currencies
In this Prospectus, the following currency terms are used:
*
U.S.$ or U.S. dollar means the lawful currency of the United States; and
*
EUR, Euro, euro or E means the lawful currency of the member states of the European Union
that adopted the single currency in accordance with the Treaty of Rome establishing the
European Economic Community, as amended.
Non-IFRS Information
This Prospectus includes certain measures that are not measures defined by IFRS, namely, Adjusted
EBITDA, Adjusted EBITDA margin and Operating Free Cash Flow. Information regarding Adjusted
EBITDA, Adjusted EBITDA margin and Operating Free Cash Flow is sometimes used by investors
to evaluate the efficiency of a company’s operations and its ability to employ its earnings toward
repayment of debt, capital expenditures and working capital requirements. Adjusted EBITDA,
Adjusted EBITDA margin and Operating Free Cash Flow alone do not provide a sufficient basis to
compare the Group’s performance with that of other companies and should not be considered in
isolation or as a substitute for operating income or any other measure as an indicator of operating
performance or as an alternative to cash generated from operating activities as a measure of liquidity.
In addition, these measures should not be used instead of, or considered as an alternative to, the
Group’s historical financial results as reported in the Financial Statements. The Group presented
these non-IFRS measures because it believes they are helpful to investors and financial analysts in
highlighting trends in the Group’s overall business. In addition, investors should be aware that the
Group is likely to incur expenses similar to the adjustments in this presentation in the future and that
certain of these items could be considered recurring in nature. The Group’s presentation of Adjusted
EBITDA and related margins should not be construed as an implication that its future results will be
unaffected by unusual or non-recurring items. Investors are encouraged to evaluate these items and
the limitations for purposes of analysis in excluding them. For a definition of non-IFRS measures
and a reconciliation of non-IFRS measures to operating profit, see ‘‘Consolidated Historical Financial
Information’’.
54
Rounding
Certain figures included in this Prospectus have been subject to rounding adjustments. Accordingly,
figures shown for the same category presented in different tables may vary slightly and figures shown
as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.
Exchange Rate Information
The table below sets forth, for the periods and dates indicated, the high, low, period end and period
average exchange rate between the euro and the U.S. dollar. Fluctuations in the exchange rate
between the euro and the U.S. dollar in the past are not necessarily indicative of fluctuations that
may occur in the future. These rates may also differ from the actual rates used in the preparation of
the Financial Statements and other financial information presented in this Prospectus.
EUR per U.S.$1.00
High
Year
2010 .......................................................................
2011 .......................................................................
2012 .......................................................................
2013 .......................................................................
2014 .......................................................................
January 2015..........................................................
February 2015........................................................
March 2015............................................................
April 2015 (through 16 April) ...............................
Low
0.837
0.776
0.827
0.783
0.824
0.893
0.890
0.947
0.948
0.687
0.672
0.743
0.724
0.717
0.830
0.879
0.891
0.921
Period
end
Period
average(1)
0.748
0.773
0.758
0.725
0.824
0.885
0.890
0.930
0.934
0.756
0.719
0.779
0.753
0.754
0.861
0.881
0.923
0.934
Source: European Central Bank
Note:
(1) The average rates are calculated as the average of the daily exchange rates on each business day.
No representation is made that the euro or U.S. dollar amounts referred to herein could have been
or could be converted into euros or U.S. dollars, as the case may be, at these rates, at any particular
rate or at all. The rate on 16 April 2015 was EUR 0.934 = U.S.$1.00.
Foreign Language Terms
This Prospectus is drawn up and approved in the Slovak language and translated into the English
language. Certain legislative references and technical terms in the English version have been cited in
their original Slovak language in order that the correct technical meaning may be ascribed to them
under applicable law.
Information Derived from Third Parties
The Company has obtained certain statistical and market information that is presented in this
Prospectus, in particular in sections ‘‘Risk Factors’’, ‘‘Business’’, ‘‘Slovak Telecommunications Market’’
and ‘‘The Bratislava Stock Exchange and Slovak Securities Regulation’’ on such topics as the Slovak
telecoms sector and market, trading on the Bratislava Stock Exchange, Slovak population and
unemployment statistics and the Slovak economy in general and, in some instances, the Group’s
competitors from the following third-party sources:
*
AIMmonitor website;
*
Bratislava Stock Exchange: 2014 Factbook;
*
International Monetary Fund: World Economic Outlook Database – October 2014 (IMF);
*
Economist Intelligence Unit (EIU);
*
TeleGeography’s Global Comms: Slovakia Country Report, March 2014 (TGC);
*
Analysys Mason: Data Hub (February 2015) (Analysys Mason);
*
BEREC Reports: MTR Benchmark Snapshot (January 2005 – January 2014) (BEREC MTR
Report);
55
*
International Data Corporation: CEE + WE database (4Q 2014) (IDC);
*
Ovum: Pay-TV & FTA Forecasts, CEE 2005-2019 (September 2014), Pay-TV & FTA Forecasts,
WE 2005-2019 (December 2014) (Ovum);
*
Pyramid Research: Mobile Data (Feb 2015) (Pyramid);
*
World Cellular Information Service: Smartphone Connections Data (Aug 2014) (WCIS);
*
European Communications Office Report: The licensing of mobile bands’’ (23 June 2014) (ECO
Report);
*
Gartner’s 30 Leading Locations for Offshore Services, 2014 (Gartner);
*
The World Bank Data: Slovak Republic;
*
business and financial reports and announcements published by Deutsche Telekom AG, Orange
Slovensko a.s., O2 Slovakia s.r.o. and France Telekom on their respective websites;
*
GfK Slovakia’s Advertising Tracking Study; and
*
TREND TOP v infotechnológiách, May 2014.
The Company has accurately reproduced such information and, as far as it is aware and is able to
ascertain from information published by such third parties, no facts have been omitted that would
render the reproduced information inaccurate or misleading. Nevertheless, prospective investors are
advised to consider this data with caution. Market studies are often based on information or
assumptions that may not be accurate or appropriate, and their methodology is inherently predictive
and speculative. Prospective investors should note that the Company’s estimates are based on such
third-party information. Neither the Company nor the Joint Global Coordinators have independently
verified the figures, market data or other information on which third parties have based their studies.
In addition, the official data published by Slovak governmental agencies is substantially less complete
or researched than that of more developed countries. Official statistics may also be produced on
different bases than those used in more developed countries. Any discussion of matters relating to the
Slovak Republic in this Prospectus must, therefore, be subject to uncertainty due to concerns about
the completeness or reliability of available official and public information.
56
THE OFFERING
This part of the Prospectus provides certain general information on the Company, Offer Securities and
the Offering and it should be read in conjunction with other information included elsewhere in this
Prospectus.
The Company
Slovak Telekom, a.s., a joint-stock company incorporated under
the laws of the Slovak Republic and registered in the Commercial
Register maintained by the Bratislava I District Court,
Identification No.: 35 763 469, Section: Sa, Insert No.: 2081/B.
Its registered seat is at Bajkalská 28, 817 62 Bratislava, Slovak
Republic, and its telephone number is +421 2 5881 1111.
The Company was incorporated (registered in the Commercial
Register) on 1 April 1999.
For more information on the Company and the Group, its business
and results of operation see ‘‘Business’’ and ‘‘Management’s
Discussion and Analysis of Financial Condition and Results of
Operations’’.
The Selling Shareholder
The National Property Fund of the Slovak Republic with registered
address at Trnavská cesta 100, 821 01 Bratislava, Slovak Republic.
For more information on the Selling Shareholder see ‘‘Principal and
Selling Shareholders – Selling Shareholder’’.
The Shares
86,411,300 ordinary shares, each fully paid-up with a nominal value
of 10 EUR, comprising 100% of the registered capital of the
Company issued under the laws of the Slovak Republic (the
Shares).
The shares are book-entered non-bearer shares registered with
Centrálny depozitár cenných papierov SR, a.s. (Slovak Central
Depository).
Each Share is the part of single issue with ISIN SK 1110017722
(series 1).
Bratislava Stock Exchange trading symbol for the Shares will be:
‘‘STX’’.
For more information on the Shares and the rights attached to
them see ‘‘Description of Share Capital and Summary of Articles of
Association’’.
The Offer Shares
42,341,537 Shares, each fully paid-up with a nominal value of
EUR 10 per share being offered by the Selling Shareholder through
the Offering (the Offer Shares).
GDRs
One GDR will represent one Offer Share on deposit with the
Custodian, as custodian for the Depositary. The GDRs will be
issued by the Depositary pursuant to the Deposit Agreements and
shall be governed by English law.
The currency of the GDRs is U.S. dollars and the GDRs have no
nominal value.
The Rule 144A GDRs will be evidenced initially by the Master
Rule 144A GDR and the Regulation S GDRs will be evidenced
initially by the Master Regulation S GDR and each such Master
GDR will be issued pursuant to the relevant Deposit Agreement.
Pursuant to the Deposit Agreements, the Offer Shares represented
by the GDRs will be held by the Depositary or by the Custodian for
the account and to the order of the Depositary in one or more
separate accounts maintained by the Custodian.
57
From time to time the Depositary may deduct per-GDR fees and
other fees, charges and expenses as well as taxes and governmental
charges from dividend distributions and may otherwise assess other
per-GDR fees and other fees, charges and expenses to the GDR
holders. See ‘‘Terms and Conditions of the Global Depositary
Receipts – 19. GDR Fees and Charges’’.
Except in the limited circumstances described herein, definitive
GDR certificates will not be issued to holders in exchange for
interests in the GDRs represented by the Master GDRs. Subject to
the terms of the Deposit Agreements, interests in the Master
Regulation S GDR may be exchanged for interests in the
corresponding number of GDRs represented by the Rule 144A
Master GDR, and vice versa.
The security identification numbers for the GDRs offered hereby
are as follows:
Regulation S GDRs:
Rule 144A GDRs:
CUSIP:
ISIN:
Common Code:
SEDOL:
CUSIP:
ISIN:
Common Code:
SEDOL:
London Stock Exchange
GDR trading symbol:
831590 203
US8315902036
122274756
BWFDGD2
831590 104
US8315901046
122274519
BWFDGC1
STXX
For more information on the GDRs see ‘‘Terms and Conditions of
the Global Depositary Receipts’’.
The Offering
The Offering consists of an offering by the Selling Shareholder of
up to 42,341,537 Offer Shares, in the form of Offer Shares and
GDRs, with one GDR representing an interest in one Offer Share.
The Offering is structured as an offering of the Offer Securities (i.e.,
the Offer Shares and GDRs) to the public in the Slovak Republic,
an offering of the Offer Shares to the public in the Czech Republic
as well as an institutional offering. The Offer Securities are being
offered in the United States to QIBs in reliance on Rule 144A, and
outside the United States in offshore transactions in reliance on
Regulation S.
For more information about the Offering see ‘‘Plan of Distribution
(Terms of the Offer)’’.
Offer Structure
The Offering shall consist of the following:
1)
an Offering of the Offer Securities to retail investors (the
Retail Offering). It is intended that up to 10% of the Offer
Securities may be allocated to retail investors. The number of
Offer Securities allocated to the Retail Offering may be
increased as described in ‘‘Plan of Distribution (Terms of the
Offer) – Allocation of the Offer Securities’’; and
2)
an Offering of the Offer Securities to institutional investors
(the Institutional Offering).
For more information about the Offering see ‘‘Plan of Distribution
(Terms of the Offer)’’.
Joint Global Coordinators
Citigroup Global Markets Limited with registered address at
Citigroup Centre, Canada Square, London E14 5LB, United
Kingdom.
58
J.P. Morgan Securities plc. with registered address at 25 Bank
Street, London E14 5JP, United Kingdom.
Retail Offering Coordinator
Erste Group Bank AG with its registered address at Graben 21,
1010 Vienna, Austria.
Joint Lead Managers
WOOD & Company Financial Services a.s., with its registered
address at Palladium, Nam. Republiky 1079/1a, 110 00 Prague 1,
Czech Republic.
Offer Period
The offer period in respect of the Institutional Offering shall
commence on 21 April 2015 and end at 12:00 p.m. (Bratislava time)
on 6 May 2015.
The offer period in respect of the Retail Offering shall commence
on 22 April 2015 and end on 5 May 2015 (which shall be included in
the offer period).
Offer Price Range
EUR 17.70 to EUR 23.60 per Offer Share.
U.S.$ 19.00 to U.S.$ 25.30 per GDR.
Institutional Investors may submit orders in respect of the Offer
Securities at any price within the Offer Price Range and the GDR
Offer Price Range, respectively.
Retail Investors must place orders for Offer Shares and GDRs at
the top of the relevant Offer Price Range. By submitting an order, a
Retail Investor will have agreed to subscribe for, or purchase, the
relevant number of Offer Securities at the Offer Price determined as
set forth below, subject to any applicable Retail Offering Discount
(as defined below). Retail Investors will not be eligible to submit
limit orders.
Retail Offering Discount
Each Retail Investor who is resident or has a registered seat (as
applicable) in the Slovak Republic and who submits to the Retail
Offering Coordinator or to a Retail Offering Selling Agent (as
defined below) an order for Offer Shares during the period starting
from 22 April 2015 and ending (i) at 8:00 a.m. (Bratislava time) on
the day immediately following after the day on which the total
number of Offer Securities, in respect of which orders eligible for
the Retail Offering Discount (as defined below) are placed as part
of the Retail Offering, reaches or exceeds 10% of the total number
of Offer Securities, or (ii) at 18:00 p.m. (Bratislava time) on 5 May
2015 (the Preferential Retail Offer Period), whichever is earlier, will
be eligible for a 5% discount from the price payable by such Retail
Investor in respect of up to 423 Offer Shares purchased by such
Retail Investor. Occurrence of termination of the Preferential Offer
Period as a result of the total number of Offer Securities in respect
of which orders are placed as part of the Retail Offering reaching or
exceeding 10% of the total number of Offer Securities shall be
announced by the Selling Shareholder and/or the Company by way
of a press release. See ‘‘Plan of Distribution (Terms of the Offer) –
Offer Price’’.
Share Capital
The Company’s issued share capital consists of 86,411,300 Shares,
which are fully paid-up and issued. As the Offering comprises an
offering of existing Shares by the Selling Shareholder and does not
include an issuance of new shares, following the Offering the
Company’s issued share capital will continue to consist of
86,411,300 Shares, which are fully paid-up and issued. The
nominal value of each Share is EUR 10. No dilution will result
from the Offering.
For more information on the share capital see ‘‘Description of Share
Capital and Summary of Articles of Association’’.
59
Depositary
Citibank, N.A. with registered address at 388 Greenwich Street,
14th Floor, New York, NY 10013, United States of America.
For more information on the Depositary see ‘‘Information Relating
to the Depositary’’.
Custodian
Citibank Europe plc, acting through its Slovak branch, Citibank
Europe plc, pobočka zahraničnej banky, with principal office
address at Mlynské nivy 43 (Apollo Business Center I), 825 01
Bratislava.
Stabilising Managers
Citigroup Global Markets Limited and Erste Group Bank AG
Stabilisation
In connection with the Offering the Stabilising Managers will have
the right to acquire Offer Securities on the Bratislava Stock
Exchange and/or the London Stock Exchange pertaining to not
more than 4,234,153 Offer Securities by retaining the Stabilisation
Proceeds in order to stabilise the price of the Offer Securities at a
level higher than that which may otherwise prevail if stabilisation
actions were not taken. It is anticipated that under the Institutional
Underwriting Agreement, the acquisition of the Offer Securities as
part of stabilising transactions by the Stabilising Managers will be
subject to the applicable provisions of the Stabilisation Regulation.
The purchase transactions related to the Offer Securities may be
effected during the period not longer than the Stabilisation Period
at a price not higher than the Offer Price. The Stabilising Managers
will not, however, be required to take any of the above stabilisation
actions. If such actions are taken by the Stabilising Managers, they
may be discontinued at any time, however, not later than before the
end of the Stabilisation Period. At the end of the Stabilisation
Period the Stabilising Manager(s) will return to the Selling
Shareholder any Offer Securities which have been purchased in
the market as a result of stabilisation activities free and clear of all
encumbrances and/or any remaining portion of the Stabilisation
Proceeds which was not used for the stabilisation activities, as well
as any interest that has accumulated for the amounts corresponding
to the Stabilisation Proceeds.
Closing Date
The Offer Shares and GDRs are expected to be delivered to
purchasers in the Offering in exchange for payment therefor on
12 May 2015.
Listing and Trading
Prior to the Offering, there has been no market for the Offer
Securities.
An application will be made for the Shares to be admitted to
trading on the main listed market of the Bratislava Stock Exchange.
Trading in the Shares on the Bratislava Stock Exchange is expected
to commence on 12 May 2015. Prices for the Shares traded on the
Bratislava Stock Exchange may not reflect the value of the GDRs.
An application will be made (A) to the UKLA for a listing of up to
42,341,537 GDRs to be issued on the Closing Date against the
deposit of Offer Shares with the Custodian to be admitted to listing
on the Official List and (B) to the London Stock Exchange for such
GDRs to be admitted to trading on the London Stock Exchange’s
main market for listed securities through its IOB. It is expected that
the Admission will become effective and that unconditional
dealings in the GDRs will commence on the London Stock
Exchange at 8:00 a.m. (London time) on 12 May 2015.
For more information on admission to trading see ‘‘Plan of
Distribution (Terms of the Offer) – Admission to Trading’’.
60
Lock-Up
Each of the Company and the Selling Shareholder will agree that
neither it, nor any of its affiliates or subsidiaries, nor any person
acting on its or their behalf will and the Principal Shareholder will
agree that subject to certain exceptions including transfers between
existing shareholders at the date of this Prospectus, from the date
hereof until 180 days after the Closing Date, without the prior
written consent of the Joint Global Coordinators: (i) issue, offer,
sell, lend, mortgage, assign, charge, pledge, contract to sell, sell or
grant any option or contract to purchase, purchase any option or
contract to sell or issue, grant any option, right or warrant or
contract to purchase, lend, or otherwise transfer or dispose of (or
publicly announce any such action), directly or indirectly, any
Securities or any securities convertible or exchangeable into or
exercisable for, or substantially similar to, any Securities or any
security or financial product whose value is determined directly or
indirectly by reference to the price of the underlying securities,
including equity swaps, forward sales and options or global
depositary receipts representing the right to receive any such
securities; (ii) enter into any swap or other agreement that transfers,
in whole or in part, directly or indirectly, any of the economic
consequences of ownership of Securities; or (iii) enter into any
transaction with the same economic effect as, or agree to, or
publicly announce any intention to enter into any transaction
described above, subject to certain limitations. See ‘‘Plan of
Distribution (Terms of the Offer) – Lock-up Provisions’’.
Use of Proceeds
The Selling Shareholder will receive all of the net proceeds from the
Offering. The Company will not receive any proceeds from the sale
of Securities by the Selling Shareholder.
For more information see ‘‘Use of Proceeds’’.
Taxation
For a discussion of certain United States, United Kingdom, Slovak
and Czech tax consequences of subscribing for or purchasing of
and holding the Securities, see ‘‘Taxation’’.
Dividends
Subject to applicable Slovak law, purchasers of the Shares and the
GDRs will be entitled to dividends declared, if any, in respect of
any record date which falls after the date of the completion of the
Offering. The decision on distribution of dividends is in the sole
discretion of the General Meeting.
To the extent that the Company declares and pays dividends,
holders of GDRs on the relevant record date will be entitled to
receive dividends payable in respect of Shares underlying the
GDRs. See ‘‘Terms and Conditions of the Global Depositary
Receipts – 5. Cash Distributions’’.
For more information on dividends see ‘‘Dividends’’.
Voting Rights
Shareholders are generally entitled to one vote per Share at a
shareholders’ meeting. See ‘‘Description of Share Capital and
Summary of Articles of Association – Summary of the Articles of
Association – General Meeting of Shareholders and Voting Rights’’.
Under the Deposit Agreements, one GDR carries the right to
instruct the Depositary to vote one Share, subject to the terms and
conditions of the GDRs described under ‘‘Terms and Conditions of
the Global Depositary Receipts’’ and provisions of applicable
Slovak law. See ‘‘Risk Factors – Risks Related to the Securities
and the Offering – Voting rights with respect to the Offer Shares
represented by the GDRs are limited by the terms of the Deposit
Agreements for the GDRs and relevant requirements of Slovak law.’’
61
The Depositary will endeavour to exercise or cause to be exercised
on behalf of holders of GDRs, at any meeting of holders of the
Shares of which the Depositary receives timely notice, the voting
rights relating to the Shares underlying the GDRs in accordance
with instructions it receives from holders of GDRs, subject to the
terms and conditions of the GDRs. See ‘‘Terms and Conditions of
the Global Depositary Receipts – 16. Voting Rights’’.
Transfer Restrictions
The Securities will be subject to certain restrictions as described
under ‘‘Transfer Restrictions’’ and ‘‘Description of Share Capital
and Summary of Articles of Association – Form, Ownership and
Transfer of the Shares – Limitations on the Ownership of the
Shares’’.
Settlement Procedures – Offer
Shares
Payment for the Offer Shares is expected to be made in EUR
through the facilities of the Slovak Central Depository on the
Closing Date. Transfers of Offer Shares within the Offering and
secondary market sales of Offer Shares will be settled and cleared
through the settlement system managed by the Slovak Central
Depository, in accordance with applicable Slovak regulations.
For more information see ‘‘Clearing and Settlement’’.
Settlement Procedures – GDRs
Payment for the GDRs is expected to be made in U.S. dollars in
same-day funds through the facilities of DTC, Euroclear and
Clearstream on the Closing Date. The Company has applied to
DTC to have the Rule 144A GDRs accepted for clearance through
DTC and to Euroclear and Clearstream to have the Regulation S
GDRs accepted for clearance through the systems of Euroclear and
Clearstream. Upon acceptance by DTC, a single Master Rule 144A
GDR will be issued and registered in the name of Cede & Co, as
nominee for DTC. The Master Regulation S GDR will be
registered in the name of Citivic Nominees Limited, as nominee
for Citibank Europe plc as common depositary for Euroclear and
Clearstream, Luxembourg. Except in limited circumstances
described herein, investors may hold beneficial interests in the
GDRs evidenced by the corresponding Master GDRs only through
DTC, Euroclear or Clearstream, as applicable.
Transfers within DTC, Euroclear and Clearstream will be in
accordance with the usual rules and operating procedures of the
relevant system.
For more information see ‘‘Clearing and Settlement’’.
Risk Factors
Investors should consider carefully certain risks discussed under
‘‘Risk Factors’’.
62
USE OF PROCEEDS
The Offering is being conducted in order to allow the Selling Shareholder to dispose of and transfer
its shareholdings in the Company, while raising the Company’s profile with the international
investment community and establishing a market for the Securities which may, amongst other things,
benefit the Company if it desires to access the equity capital markets in the future.
The Company will not receive any of the proceeds from the sale of Securities offered by the Selling
Shareholder.
The Selling Shareholder will receive all of the net proceeds from the Offering, which will amount to
approximately EUR 855 million million, assuming an offer price at the mid-point of the Share Offer
Price Range and not applying the Retail Offering Discount. The net proceeds to the Selling
Shareholder will be reduced to the extent that the Stabilising Managers exercise the Put Option. The
total commissions payable by the Selling Shareholder in connection with the Offering will be
approximately EUR 19 million, assuming a offer price at the mid-point of the Share Offer Price
Range.
The Selling Shareholder’s proceeds from the Offering are intended to be used for general budgetary
purposes of the Slovak Republic.
The total fees and expenses payable by the Company in connection with the Offering and Admission
are expected to amount to approximately EUR 2.5 million.
63
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
The following table sets out the expected timetable of principal events:
Event
Time and Date
Prospectus published
21 April 2015
Commencement of the Institutional Offer Period
21 April 2015
Commencement of the Retail Offer Period
22 April 2015
Commencement of the Preferential Retail Offer Period
22 April 2015
End of the Preferential Retail Offer Period
The earlier of (i) 7:00 a.m. (London
time) / 8:00 a.m. (Bratislava time) on
the day immediately following after the
day on which the total number of Offer
Securities in respect of which orders
eligible for the Retail Offering
Discount are placed as part of the
Retail Offering reaches or exceeds 10%
of the total number of Offer Securities,
or (ii) 5 May 2015 (such date to be
included in the Preferential Retail Offer
Period).
End of the Retail Offer Period
5 May 2015 (such date to be included in
the Retail Offer Period)
End of the Institutional Offer Period
11:00 a.m. (London time) / 12:00 p.m.
(Bratislava time) on 6 May 2015
Announcement of results of the Offer and notification of
allocations
7 May 2015
Publication of the pricing notification containing the Share
Offer Price and the GDR Offer Price
7 May 2015
Admission and commencement of dealings in the Shares
on the Bratislava Stock Exchange
7:30 a.m. (London time) / 8:30 a.m.
Admission and commencement of dealings in the GDRs
on the London Stock Exchange
8:00 a.m. (London time) / 9:00 a.m.
The Selling Shareholder shall have the right to change all dates and times concerning the Offering
subject to applicable Slovak law.
64
DIVIDENDS
The procedure for determining the dividends that the Company may distribute on Shares is set forth
in Section 178 of the Slovak Commercial Code and the Company’s Articles of Association. Before the
winding-up of the Company, shareholders are only entitled to the distribution of ‘‘distributable
profit’’ (as defined in the Slovak Commercial Code), which is net profit that has been: (i) reduced by
contributions to the reserve fund, or any other funds if applicable, created by the Company under the
law and by the accumulated loss of previous years; and (ii) increased by the retained profit of
previous years and other of the Company’s own resources whose utilisation is not stipulated by law.
Furthermore, the Company may not distribute net profit or other of its own resources among
shareholders if the equity stated in the approved annual financial statements is, or would be in
consequence of the profit distribution, lower than the value of the registered capital increased by the
reserve fund, or any other funds if applicable, created by the company which must not be, under the
law or the Articles of Association, used for payments to shareholders, reduced by the value of unpaid
registered capital, provided this value has not yet been included in the assets reported in the balance
sheet under a special Act.
The Company’s profit must be used primarily to pay the taxes and other fiscal obligations vis-a-vis
the state. It then must be used for contributing to the reserve fund, which is a mandatory fund that
each joint-stock company incorporated under Slovak law must establish. Currently, the Company has
accumulated the reserve fund in the maximum amount of 20% of its registered capital as set out in
the Articles of Association in accordance with the Slovak Commercial Code. Therefore, as long as the
reserve fund is not used, the Company is not required to make contributions to the reserve fund in
the future. Deciding on the use of the reserve fund is within the competence of the General Meeting.
Once all mandatory payments have been made from the Company’s net profit, the distribution of
dividends is decided on by the General Meeting. The law does not stipulate when or how often the
dividends must be distributed and the decision on dividends is in the sole discretion of the General
Meeting. The relevant record date (rozhodný deň) determined by the General Meeting must be a date
which is not earlier than fifth and not later than the thirtieth day after the date of the General
Meeting. The shareholder’s claim for dividends becomes due on the day determined by the General
Meeting but not later than on the sixtieth day after the relevant record date. The shareholder’s
entitlement to dividends becomes statute-barred four years after it became due. After the lapse of the
four-year period, the Company may invoke statute of limitations and refuse to pay dividends to the
shareholder. The method of payment of the dividends is determined by the General Meeting and falls
within its sole discretion provided that the principle of equal treatment of all shareholders is adhered
to. There are no dividend restrictions or special procedures for non-resident shareholders, including
the Depositary, with respect to dividend rights. Subject to the principle of equal treatment there are
no mandatory rules on rates of dividends, methods of their calculation, their periodicity, or their
cumulative or non-cumulative nature.
The Company has historically paid dividends on its shares. Dividends paid to shareholders have
amounted to EUR 16.4 million, EUR 70.6 million, EUR 92.0 million, EUR 130.0 million and
EUR 132.9 million in the years ended 31 December 2014, 2013, 2012, 2011 and 2010, respectively.
Dividends paid per share calculated on the basis of the new number of shares in issue as at the date
of this Prospectus (i.e., 86,411,300) were EUR 0.19 per share in 2014, EUR 0.82 per share in 2013,
EUR 1.06 per share in 2012, EUR 1.50 per share in 2011 and EUR 1.54 per share in 2010. The payout ratio (measured as the ratio of the total amount of paid dividends to the Company’s distributable
profit for the prior period) was 80%, 34.4%, 113.4%, 80.7% and 45.4% in 2014, 2013, 2012, 2011 and
2010, respectively.
In the General Meeting held on 31 March 2015, the shareholders approved a dividend of 80% of the
Company’s distributable profit in respect of 2014, amounting to EUR 0.38 per share and an
aggregate of EUR 32.5 million. Purchasers of the Offer Securities in the Offering will not be entitled
to this dividend.
The Company has not adopted a formal dividend policy. Pursuant to the Memorandum of
Understanding entered into in February 2014 between the Selling Shareholder, the Slovak Republic
acting through the Ministry of Economy, Deutsche Telekom AG and the Company in connection
with the Offering, the Company agreed to guidance that the dividends declared and paid in respect of
any year following the year in which the Offering takes place are to be from 50% to 80% of the
Company’s distributable profit determined in accordance with the Slovak Commercial Code from the
immediately preceding year, provided that any annual dividend shall depend on the overall financial
65
position of the Company and its working capital needs at the relevant time (including but not limited
to the Company’s business prospects, cash requirements, financial performance, and other factors
including tax and regulatory considerations, payment practices of other European telecommunications
operators and the general economic climate). The Board of Directors shall consider all these
conditions before deciding on any proposal for profit distribution and may determine that it is unable
or elect not to propose dividends. Any final determination on distribution of profits is at the disposal
of the General Meeting.
Any decision to pay dividends is subject to approval of a simple majority of shares represented at the
General Meeting. As Deutsche Telekom will continue to be the beneficial owner of 51% of the
Company’s shares following the Offering, the decision whether to pay dividends, and the level at
which any dividends are paid, will be within the sole control of Deutsche Telekom. See ‘‘Risk Factors
– Risks Related to the Group’s Relationship with Deutsche Telekom – Interests of Deutsche Telekom
may differ from those of holders of the Securities’’ and ‘‘– The Company may decide not to, or may be
unable to, pay dividends or other shareholder remuneration.’’
To the extent that the Company declares and pays dividends, holders of GDRs on the relevant
record date will be entitled to receive dividends payable in respect of Shares underlying the GDRs.
See ‘‘Terms and Conditions of the Global Depositary Receipts – 5. Cash Distributions’’.
66
CAPITALISATION
The following table sets forth the Group’s total capitalisation as at 31 December 2014 and is
extracted from the Financial Statements. For further information regarding the Group’s financial
position, see ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’
and the Financial Statements included elsewhere in this Prospectus.
As at
31 December
2014
EUR million
Equity
Issued capital .......................................................................................................................
Share premium ....................................................................................................................
Statutory reserve fund .........................................................................................................
Other....................................................................................................................................
Retained earnings and profit for the year ...........................................................................
864.1
386.1
172.8
(1.9)
187.6
Total equity..........................................................................................................................
1,608.7
Total capitalisation...............................................................................................................
1,608.7
In the General Meeting held on 31 March 2015, the shareholders approved a dividend of 80% of the
aggregate of EUR 32.5 million. These dividends are expected to be paid in late April 2015.
The following table sets forth the Group’s total capitalisation as at 31 March 2015 as extracted from
the Company’s accounting records and is not audited:
As at
31 March
2015
EUR million
Equity
Issued capital .......................................................................................................................
Share premium ....................................................................................................................
Statutory reserve fund .........................................................................................................
Other....................................................................................................................................
Retained earnings and profit for the three months.............................................................
864.1
386.1
172.8
(1.9)
176.6
Total equity..........................................................................................................................
1,597.7
Total capitalisation...............................................................................................................
1,597.7
As of the date of this Prospectus there are no restrictions on the use of capital resources that have
materially affected, or could materially affect, directly or indirectly, the Group’s operations.
As of 31 December 2014 and 31 March 2015 the Group had no indebtedness. The group is financed
from its own funds. Since 31 March 2015 there have been no material changes in the total
capitalisation and indebtedness of the Group.
67
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
Complete historical financial information for the years ended 31 December 2014, 2013 and 2012 is
provided in the Financial Statements attached to this Prospectus.
The selected consolidated financial information set forth below as at and for the years ended
31 December 2014, 2013 and 2012 has been extracted without material adjustment from the Financial
Statements.
The financial data set forth below should be read in conjunction with, and is qualified in its entirety
by reference to, the Financial Statements and related notes attached to this Prospectus and
‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’.
2014
2013
2012
(EUR million)
Revenue ........................................................................................
Staff costs ....................................................................................
Material and equipment ..............................................................
Depreciation, amortisation and impairment losses .....................
Interconnection and other fees to operators ...............................
Other operating income ...............................................................
Other operating costs...................................................................
Operating profit............................................................................
Financial income..........................................................................
Financial expense.........................................................................
767.6
(130.1)
(101.2)
(195.0)
(65.7)
12.6
(218.9)
69.3
2.9
(1.2)
809.0
(132.4)
(104.5)
(236.9)
(70.5)
10.9
(206.2)
69.3
2.6
(1.8)
826.8
(129.8)
(92.6)
(236.4)
(87.0)
10.5
(181.1)
110.5
4.9
(1.8)
Profit before tax...........................................................................
71.0
70.2
113.6
Taxation.......................................................................................
(27.4)
(20.9)
(50.5)
Profit for the year ........................................................................
43.6
49.3
63.1
Selected Consolidated Statement of Comprehensive Income Information
2014
2013
2012
(EUR million)
43.6
49.3
63.1
Other comprehensive income
Gain on remeasurement of available-for-sale investments ..........
Deferred tax income/(expense).....................................................
0.1
—
—
—
—
—
Net other comprehensive income to be reclassified to profit or
loss in subsequent periods ...........................................................
0.1
—
—
(Loss)/gain on remeasurement of defined benefit plans ..............
Deferred tax (expense)/income.....................................................
(1.8)
0.4
1.4
(0.3)
(2.1)
0.4
Net other comprehensive income not to be reclassified to profit
or loss in subsequent periods.......................................................
(1.4)
1.1
(1.8)
Total comprehensive income for the year, net of tax ....................
42.2
50.5
61.4
68
Selected Consolidated Statement of Financial Position Information
As at 31 December
2014
2013
2012
(EUR million)
ASSETS
Non-current assets
Property and equipment ..............................................................
Intangible assets...........................................................................
Available-for-sale investments .....................................................
Deferred tax.................................................................................
Term deposits ..............................................................................
Trade and other receivables.........................................................
Prepaid expenses and other assets ...............................................
792.2
404.4
32.1
0.8
—
1.7
13.2
817.6
443.0
176.6
0.9
1.1
9.1
12.8
918.5
358.1
—
0.2
—
9.1
14.2
1,244.4
1,461.2
1,300.2
Current Assets
Inventories ...................................................................................
Investments at amortized cost .....................................................
Available-for-sale investments .....................................................
Term deposits ..............................................................................
Loans ...........................................................................................
Escrow .........................................................................................
Trade and other receivables.........................................................
Prepaid expenses and other assets ...............................................
Current income tax receivables....................................................
Cash and cash equivalents...........................................................
12.1
3.1
172.0
219.6
150.0
1.0
112.1
6.5
10.0
93.1
14.2
3.1
49.9
142.3
—
13.0
130.7
7.8
0.8
229.1
14.0
74.3
—
106.0
—
—
110.5
9.8
4.0
371.5
Assets held for sale ......................................................................
779.5
8.6
590.9
19.8
690.1
—
788.1
610.7
690.1
2,032.5
2,071.9
1,990.3
864.1
386.1
172.8
1.8
160.4
864.1
386.1
170.6
0.6
183.8
1,608.7
1,585.3
1,605.4
115.9
25.8
0.6
3.5
128.3
16.9
1.1
2.8
150.5
18.2
0.3
4.8
145.8
149.1
173.8
37.4
129.0
110.6
0.9
278.0
34.3
225.2
74.0
4.0
337.6
5.2
133.5
72.2
0.1
211.1
Total liabilities .............................................................................
423.8
486.7
384.9
TOTAL EQUITY AND LIABILITIES ......................................
2,032.5
2,071.9
1,990.3
TOTAL ASSETS ........................................................................
Issued capital ...............................................................................
Share premium.............................................................................
Statutory reserve fund .................................................................
Other............................................................................................
Retained earnings and profit for the year ...................................
Deferred tax.................................................................................
Provisions ....................................................................................
Trade and other payables ............................................................
Other liabilities and deferred income ..........................................
Current liabilities
Provisions ....................................................................................
Trade and other payables ............................................................
Other liabilities and deferred income ..........................................
Current income tax liabilities ......................................................
69
864.1
386.1
172.8
(1.9)
187.6
Selected Consolidated Statements of Cash Flows Information
2014
2013
2012
(EUR million)
Net cash flows from operating activities .....................................
Net cash used in investing activities ............................................
Net cash used in financing activities............................................
265.0
(375.5)
(25.4)
290.4
(357.9)
(74.8)
293.1
(7.6)
(92.7)
Net increase/(decrease) in cash and cash equivalents ..................
Cash and cash equivalents at the beginning of the period..........
(136.0)
229.1
(142.4)
371.5
192.9
178.6
Cash and cash equivalents at the end of the period ...................
93.1
229.1
371.5
Other Financial Information(1)
2014
Adjusted EBITDA(2)....................................................................
Adjusted EBITDA margin(3) .......................................................
Operating Free Cash Flow(4) .......................................................
310.7
2013
(EUR million)
337.3
40.5%
194.9
41.7%
226.4
2012
353.4
42.7%
250.8
Notes:
(1) This Prospectus contains certain measures that are not measures defined by IFRS, namely, Adjusted EBITDA, Adjusted EBITDA
margin and Operating Free Cash Flow. These measures were calculated by the Company using the data in the Financial
Statements and have not been audited. Information regarding Adjusted EBITDA, Adjusted EBITDA margin and Operating Free
Cash Flow is sometimes used by investors to evaluate the efficiency of a company’s operations and its ability to employ its
earnings toward repayment of debt, capital expenditures and working capital requirements. Adjusted EBITDA, Adjusted
EBITDA margin and Operating Free Cash Flow alone do not provide a sufficient basis to compare the Group’s performance with
that of other companies and should not be considered in isolation or as a substitute for operating income or any other measure as
an indicator of operating performance or as an alternative to cash generated from operating activities as a measure of liquidity. In
addition, these measures should not be used instead of, or considered as an alternative to, the Group’s historical financial results as
reported in the Financial Statements. These non-IFRS measures have been presented because the Group believes that they are
helpful to investors and financial analysts in highlighting trends in the Group’s overall business. In addition, investors should be
aware that the Group is likely to incur expenses similar to the adjustments in this presentation in the future and that certain of
these items could be considered recurring in nature. Presentation of Adjusted EBITDA and related margins, should not be
construed as an implication that the Group’s future results will be unaffected by unusual or non-recurring items. Investors are
encouraged to evaluate these items and the limitations for purposes of analysis in excluding them. For a reconciliation of
Operating profit and Adjusted EBITDA to Operating Free Cash Flow, please see the following page.
(2) The Group’s Adjusted EBITDA (for the financial years ended 31 December 2014, 2013 and 2012) is calculated as operating profit
plus depreciation, amortisation and impairment losses adjusted for special factors which include severance payments and
provisions for legal and regulatory cases. Adjusted EBITDA is not defined under IFRS and should not be treated as an alternative
for the profit/(loss) categories defined under IFRS, either as a measure of the operating result or as a measure of cash flows from
operating activities under IFRS. Moreover, it cannot be treated as a liquidity ratio.
(3) The Group’s Adjusted EBITDA margin (for the financial years ended 31 December 2014, 2013 and 2012) is calculated as Adjusted
EBITDA divided by revenue. Adjusted EBITDA margin is not defined under IFRS and should not be treated as an alternative for
the profit/(loss) categories defined under IFRS, either as a measure of the operating result or as a measure of cash flows from
operating activities under IFRS.
(4) The Group’s Operating Free Cash Flow (for the financial years ended 31 December 2014, 2013 and 2012) is calculated as Adjusted
EBITDA less recurring cash capital expenditure (defined as payments to acquire intangible assets and property, plant and
equipment) less cash capital expenditure related to payments for acquired spectrum licenses. Operating Free Cash Flow is not
defined under IFRS and should not be treated as an alternative for the profit/(loss) categories defined under IFRS, either as a
measure of the operating result or as a measure of cash flows from operating activities under IFRS.
70
Reconciliation of Operating profit to Adjusted EBITDA and Operating Free Cash Flow
2014
2013
2012
(EUR millions)
Special factors..............................................................................
Severance payments..............................................................
Provisions for legal and regulatory cases.............................
69.3
195.0
46.4
4.3
42.1
69.3
236.9
31.1
5.4
25.7
110.5
236.4
6.5
6.5
—
Adjusted EBITDA ........................................................................
310.7
337.3
353.4
Payments to acquire intangible assets and PPE ..........................
Cash capital expenditure related to payments for acquired
spectrum licenses .....................................................................
178.3
111.9
104.5
Recurring cash capital expenditure ...............................................
115.8
110.9
102.6
Adjusted EBITDA.......................................................................
Recurring cash capital expenditure .............................................
310.7
(115.8)
337.3
(110.9)
353.4
(102.6)
Operating Free Cash Flow ...........................................................
194.9
226.4
250.8
71
(62.5)
(1.0)
(1.8)
BUSINESS
Overview
The Group is the largest multimedia and telecommunications operator in the Slovak Republic by
revenue, offering a full range of broadband, fixed telephony, Pay-TV, mobile data and voice services
as well as a comprehensive suite of ICT services. The Group is part of the Deutsche Telekom Group
and markets most of its services under the Deutsche Telekom ‘‘T’’ brand. Before liberalisation of the
Slovak telecommunication market in 2002, it was the only provider of fixed telephony services in the
Slovak Republic. The Group carries out substantially all its activities in the Slovak Republic.
The Group owns and operates the largest fixed and a high quality mobile telecommunications
network, covering almost the entire territory of the Slovak Republic. As of 31 December 2014 the
Group had 628,953 fixed-line voice accesses (excluding VoIP accesses), 422,091 broadband internet
accesses (including those of DIGI) and 467,547 TV accesses (including those of DIGI) and served
2,219,913 mobile customers expressed as number of active SIM cards. The Group reported full-year
revenues of EUR 767.6 million for the year ended 31 December 2014.
In terms of market position the Group is the market leader (measured by revenue) in fixed voice,
fixed broadband and Pay-TV for the year ended 31 December 2014. It is also the second largest
provider of mobile telecommunication services by service revenue. See ‘‘Slovak Telecommunications
Market – General Overview of Slovak Telecommunications Market’’.
Fixed-line services provided by the Group consist mainly of core fixed voice and broadband internet
complemented by a range of value-added services offered through the Group’s extensive fixed-line
telecommunications network benefiting from an on-going roll-out of modern fibre optic technology.
The Group provides comprehensive and premium content through its Pay-TV services, including a
high definition and interactive IPTV platform. The Group is also a leading provider of ICT services
and offers wholesale services to a number of retail Internet service providers (ISPs) and other licensed
operators in the Slovak Republic and abroad.
The Group also offers a full range of voice and data mobile services, including traditional and valueadded voice services, international roaming services, interconnection services with other mobile
operators in the Slovak Republic and abroad, messaging and data services using 2G (GSM), 3G
(UMTS) and 4G (LTE) network technologies.
As the first multimedia operator in the Slovak Republic, the Group offers television services via both
cable and satellite technology. Except for standard TV channels, the Group offers premium and
exclusive sports content. High-end TV service with interactive features (VOD, catch-up TV functions,
recording) supported by IPTV technology are offered under TV Magio brand, while linear mass
market television services mostly provided via satellite technology are offered under the DIGI brand
operated through the Group’s wholly owned subsidiary DIGI SLOVAKIA s.r.o. (DIGI).
The Group considers itself to be the leader in the Slovak market for ICT solutions. The Group’s ICT
solutions are provided through the Company and its subsidiary PosAm. The Group’s ICT business
consists primarily of cloud-based services (private as well as public), tailor-made IT solutions, mobile
device management and car monitoring, offering customers both cost efficiency and flexibility with
higher security and service availability. The Group also introduced a cloud application platform in
2014, and offers applications focused on providing a quality customer experience tailored to the
Slovak market. The Group operates modern data centres across the Slovak Republic. The Group also
offers virtual servers (IaaS), web hosting services, M2M (Machine-to-machine) & IoT (Internet of
For management and financial reporting purposes, the Group’s businesses are organised in the
following segments:
*
Fixed-Line Business. This segment includes fixed-line services provided to business and residential
customers such as voice, broadband (excluding DIGI), Pay-TV (excluding DIGI) and ICT
(excluding PosAm), as well as the Company’s role as wholesale provider for other
telecommunication operators in the Group’s fixed network. The fixed-line segment generated
43% of the Group’s total revenues in 2014.
*
Mobile Business. This segment includes mobile voice, SMS, MMS and mobile data services
provided to business and residential customers, as well as the Company’s role as wholesale
provider for other telecommunication operators in the Group’s mobile network. The mobile
segment generated 49% of the Group’s total revenues in 2014.
72
*
Other Businesses: This segment includes the following services provided by separate subsidiaries
of the Group which, together, generated 8% of the Group’s total revenues in 2014:
*
DIGI. This sub-segment includes digital television and broadband services provided mainly
to residential customers focusing on value-for-money as compared to the Group’s premium
Pay-TV offering under the ‘‘Magio’’ brand, which is included in the fixed-line business
segment. DIGI generated 46% of the Group’s television revenues and 4% of the Group’s
total revenues in 2014.
*
PosAm. This sub-segment includes ICT services provided by PosAm, an established IT
company with a focus on bespoke solutions for corporate clients, which has been active in
the Slovak market for more than 20 years, It has more than 200 employees working on IT
projects and solutions geared towards the Group’s B2B customers. PosAm revenues
generated 61% of the Group’s ICT revenues and 4% of the Group’s total revenues in 2014.
*
Zoznam. This sub-segment includes online services provides through subsidiaries Zoznam
and Zoznam Mobile. The Group offers over 40 online products through Zoznam.sk, one
of the Slovak Republic’s most-visited internet portals during the year ended 31 December
2014 according to AIMmonitor, as well as mobile internet content services. Diverse
revenue streams consist of display advertisement, web directory and e-commerce services.
Zoznam accounted for 1% of the Group’s total revenue in 2014.
Strengths
Management believes that the Group benefits from the following key strengths:
Attractive Slovak market fundamentals with significant growth opportunities
The Slovak Republic, where the Group operates, benefits from strong macroeconomic and market
fundamentals, with significant potential for medium-term growth. Slovak economy is export-driven,
supported by foreign investment inflows and private consumption, and benefiting from Eurozone
membership and associated monetary policy stability. As at 31 December 2013, population of the
Slovak Republic was approximately 5.4 million, and it had a nominal GDP per capita of EUR 13,643.
Real GDP in the Slovak Republic grew by 2.3%, 0.9% and 1.8% in 2014, 2013 and 2012, respectively,
based on data from the IMF. IMF is forecasting Slovakia’s GDP growth to outpace the median
GDP growth of CEE and Western European peers from 2014 through 2018, supported by growing
private consumption and foreign direct investment at levels above the median for other CEE countries
and inflation expected to be approximately at the median level of other CEE countries, according to
the EIU. The Slovak Republic also benefits from low debt to GDP levels compared to the median
level in Western Europe, which provides support to Slovak Republic’s robust credit rating of A+
from Fitch, A by S&P and A2 by Moody’s. The Group believes that these underlying economic
conditions create a favourable environment for the growth of demand for telecommunications services
in the Slovak Republic.
Fixed-line market
Broadband penetration in the Slovak Republic, expressed as a percentage of households, was below
the median for Western Europe and other CEE countries in 2014, according to Analysys Mason,
while fiber penetration of broadband in the Slovak Republic is above the levels of most European
countries. The Group believes that there is a potential for increased penetration of Pay-TV, with
‘‘traditional’’ Pay-TV (as compared to services such as SkyLink, which offer low-price connections
with limited offerings) penetration in the Slovak Republic, expressed as a percentage of households, is
below the median for CEE countries and ARPA of the ‘‘traditional’’ Pay-TV operators is below the
median for other CEE countries, according to Ovum.
Mobile market
While wireless penetration rates in the Slovak Republic are high, as with most of Europe, they are
nevertheless below the median of Western Europe and other CEE countries according to IDC,
suggesting some potential for further increases in penetration. In addition, following significant
reductions in recent years, from EUR 0.1101 per minute in 2005 to EUR 0.0551 per minute in 2012
and EUR 0.0123 per minute in 2014, the mobile termination rates (MTRs) have stabilized in-line with
the Western European median of EUR 0.0118 per minute (calculated as the median of rates in
Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway,
Portugal, Spain, Sweden, Switzerland and the United Kingdom according to BEREC MTR Report)
and the median in other CEE countries is EUR 0.0168 per minute (calculated as the median of rates
73
in Croatia, Czech Republic, Hungary, Poland, Romania and Slovenia, according to BEREC MTR
Report).
Consumers in the Slovak mobile telephone market have historically favoured post-paid mobile
contracts over pre-paid services. The higher proportion of post-paid customers in turn supports
relatively lower churn rates than the Western European or CEE median, according to Pyramid and
IDC.
The share of mobile data revenue in total mobile revenue in the Slovak Republic is also below
median levels in CEE and, in particular, Western Europe, representing only 22% of the total mobile
revenues in 2014 according to IDC, as compared to a CEE median of 28% and a Western European
median of 29%. Management believes there is significant potential for the share of mobile data
revenues to increase with the further deployment of 4G LTE technology and growing wireless
penetration.
Market leading integrated telecommunications operator
The Group is the only fully integrated telecommunication operator in the Slovak Republic. The
Group has market leading positions in fixed voice (by revenue, according to IDC), fixed broadband
(by revenue, according to Analysys Mason) and, since the acquisition of DIGI in 2013, Pay-TV
services (by revenue, based on management estimates) as well as ranking second in mobile (by service
revenue, based on the Company’s and competitors’ public data). The Group is also a leading provider
of cloud services and mobile device management.
The Group’s status as an integrated telecommunication operator with leading positions across the
major product segments strongly positions the Group to capitalize on trends in the Slovak
telecommunications market towards bundled and combined product offerings containing fixed voice,
fixed broadband, mobile and Pay-TV. By combining its network with the Group’s product
differentiation based on premium and exclusive content, the Group believes that there are significant
opportunities to increase revenue generating units and, ultimately, revenues, by cross-selling premium
and bundled services. At present, in the fixed-line business approximately 68% of the Group’s
customers currently only subscribe for a single service (generally fixed voice), and only approximately
21% of the more than 364,000 homes passed with fiber to the home (FTTH) as of 31 December 2014
are customers of the Group, offering significant opportunities for increased sales.
Fixed-line business
The Group is a clear leader in the fixed voice and broadband markets in the Slovak Republic, with a
market share of 84% in fixed voice (expressed as percentage of revenue), according to IDC market
and Company financial data and 38% in fixed broadband, according to Analysys Mason market and
Company financial data. In addition, following the acquisition of DIGI in September 2013, the
Group became the largest Pay-TV operator in the Slovak Republic, and estimates that it accounts for
37% of total Pay-TV revenue. The Group’s Pay-TV market position is supported by access to
premium and exclusive sports content.
Mobile business
The Group has a well-established position as the second largest mobile operator in the Slovak
Republic, with a market share of 33% of total service revenue. The Group is a leader in LTE (4G)
technology in the Slovak market, which is increasingly demanded by and necessary to attract and
retain high-value customers. The Group was the first mobile operator in the Slovak Republic to
launch commercial LTE services in November 2013, giving it a ‘‘first mover’’ advantage, and has the
largest 4G network outdoor coverage in the Slovak Republic, covering approximately 52% of the
population in January 2015.
Best-in-class network providing superior customer experience
Fixed-line network
The Group offers a leading fixed-line network in the Slovak Republic, across all product areas, with
broadband coverage reaching 93% of households. The Group is rolling out advanced broadband
technology, providing fibre to the home (FTTH) coverage offering download speeds of up to 300
Mbps to approximately 364,000 subscribers (as of 31 December 2014), more than any other provider
During 2014 the Group switched to an all-IP fixed network, offering significant operational benefits,
including improved efficiency, reduced electricity consumption, reduced maintenance expenses, and a
74
scalable infrastructure capable of being readily adapted to new product offerings. The Group’s
network offerings are further enhanced by its leading Pay-TV network consisting of both the
premium Magio product and DIGI, which it offers to 100% of Slovak households through satellite
technology (both DIGI and Magio satellite products), as well as to approximately 44% of households
through IPTV (assuming current status of active technology with coverage calculations based on the
number of households with ability to receive multicast products) and approximately 4% of households
through cable technology.
Mobile network
The Group operates what it believes to be the quality leading nationwide mobile network in the
Slovak Republic. The Group was the first mobile operator in the Slovak Republic to offer high speed
packet access and dual carrier (HSPA+/DC) service with speeds of up to 42 Mbps, and has continued
to be a first mover in the market with the first commercial introduction of LTE (4G) technology in
November 2013 and outdoor coverage of 52% of the Slovak population as of 31 December 2014.
According to independent benchmarks performed in the last two years and recently in February 2015,
the Group’s network performed best in many of the key performance indicators among Slovak
operators. Network testing in February 2015 conducted by P3 communication, taking into account
both mobile voice and data factors such as speech quality, voice call success ratios, smartphone file
upload transfer speeds, Web Browsing and YouTube Video performance, resulted in a network
ranking ahead of both O2 and Orange. The Group offers a broad spectrum portfolio, with less
fragmented spectrum that facilitates offering higher-speed services, including nationwide LTE (4G).
Complementing its broad geographic coverage, the Group has licenses for the LTE (4G) 2,600MHz
spectrum and other key spectrum elements necessary to offer superior speed and high coverage in the
Slovak Republic’s largest cities, Bratislava and Košice, both of which are near international borders,
without interference with other local or foreign operators.
Attractive product offering supported by established brand and distribution network
The Group seeks to offer a superior customer experience, through its integrated network and
innovative service offering across its product lines. The Group seeks to leverage the superior
parameters of its network through offering premium and exclusive content, such as HBO and
Cinemax, as well as a range of exclusive sports content, including Digi Sport, Premier League,
Champions League, Series A (Italy), Fortuna Liga (Slovakia) and Ligue 1 (France). The Group also
seeks to offer own innovative services to its mobile customers or solutions developed through key
partnerships, such as offerings of digital music, smartphone security, smartphone insurance and
content organisers.
As the incumbent telecommunications operator, the Group has a long and well-known history in the
Slovak Republic with strong brand recognition based on the ‘‘Telekom’’ and ‘‘T’’ brands that the
Group licenses from the Deutsche Telekom Group. The Group boasts the highest brand awareness
among telecommunications provider in the Slovak Republic, with 99% of the population aware of the
Group in October 2014 according to GfK Slovakia. The Group seeks to leverage this strong brand
perception and recognition through its nationwide multichannel distribution network, seeking to target
a wide range of customer segments and demographics through branded stores and resellers. The
Group operates 23 flagship stores in prime locations throughout major urban centres that focus on
quality and care transactions, accompanied by 91 franchise stores to provide a supplementary
footprint in smaller towns and less central locations. The Group also engages in internal and external
telesales, direct B2B account managers, door to door sales, partnerships with retail chains and a web
portal for both sales and care transactions.
Sustainable cash flow generation
The Group has exhibited strong financial performance based on positive cash flows and prudent
management policies. The Group has exhibited consistently high Adjusted EBITDA margins
(calculated as percentage of Adjusted EBITDA from total revenues), of 40.5%, 41.7% and 42.7% for
the years ended 31 December 2014, 2013 and 2012, respectively, contributing to strong operating free
cash flow conversion (calculated as percentage of Operating Free Cash Flow from Adjusted EBITDA)
of 62.7%, 67.1% and 71.0% for the years ended 31 December 2014, 2013 and 2012, respectively. See
‘‘Consolidated Historical Financial Information – Reconciliation of Operating profit to Adjusted
EBITDA and Operating Free Cash Flow’’. The Group expects that improvements such as shifting to
an all-IP based fixed-line network will result in further efficiencies, leading to reduced expenses for
maintenance and electricity.
75
Committed and high-calibre management team and continued support from DT
The Group is managed by an experienced team combining international and regional talent. Its key
personnel have significant experience in the telecommunications and service industries in the Slovak
Republic and CEE, including the Group’s Chief Executive Officer, who has over 30 years of industry
experience. Management performance is aligned with the Group’s interests through annual
performance targets.
As a member of the Deutsche Telekom Group, the Group benefits from Deutsche Telekom’s technical
and operational excellence and experience. In particular, the Group benefits from the access to
Deutsche Telekom Group’s scale and reach, offering benefits such as international know-how and
expertise, brand and marketing arrangements, global product and service offerings, handset
procurement and other equipment and shared services, as well as preferential roaming rates. In
addition, the Group follows Deutsche Telekom Group policies in areas such as transaction execution,
management best practices and corporate governance.
Strategy
The key focus of the Group’s strategy is to operate as a leading telecommunications company, using
leading technology to generate the best possible customer experience. The strategy, which is aligned
with that of the Deutsche Telekom Group, is based on the following pillars: (i) integrated IP
networks, (ii) best customer experience, (iii) winning with partners, and (iv) leading in business.
In order to implement the Group’s strategy and maintain and develop its market position, the Group
intends to execute the following principal elements of its strategy:
Reinforce market leadership on the ground of superior customer experience
The Group seeks to provide a superior customer service in order to secure its position as the leading
integrated telecommunications service provider in the Slovak Republic. The Group seeks to achieve
this objective by offering a best-in-class integrated network and systems platform. In order to do so,
it seeks to leverage its leading positions in fibre and differentiated spectrum ownership, enabling it to
offer superior speeds, particularly in urban areas, as well as the widest 4G coverage. This platform
has been enhanced by the migration to an all-IP based fixed-line network by December 2014,
enabling the Group to offer the best time to market and a superior customer experience. The Group
also seeks to offer its customers simple, easy to understand packages that are free of hidden charges.
The Group intends to further differentiate its offerings by following global trends and innovations in
the industry and by providing premium and exclusive content to its customers. The Group aims to
complement this superior quality of service by promoting best-in-class customer care and actively use
its customer relationship management systems in order to maximize customer satisfaction and loyalty.
The Group believes this focus on technology, quality of service and customers’ service will increase
customer loyalty and ensure a positive experience for its customers.
Maintain competitive edge through fixed-mobile convergence supported by technological leadership
The Group aims to enhance its fixed broadband network by continuing to roll out its optical network
to increase the number of households covered, building on the current position as the market leader.
Expansion of the LTE network (which already has the broadest 4G coverage in Slovakia) will
position the Group to monetise the increasing demand for mobile broadband services. The Group’s
acquired spectrum bands provide it with a significant technological advantage in major cities close to
Slovakia’s borders, where the 2,600MHz spectrum in particular limits cross-border interference, and
the 2x40MHz (FDD) spectrum 2,600MHz band offers superior speeds of up to 300 Mbps in urban
areas. Unique spectrum ownership is one of prerequisite for better customer experience while using
ICT solutions e.g. cloud applications on mobile devices. The Group believes that fixed mobile
convergence, defined as bundling or packaging fixed and mobile services together into a single
customer package, will result in significant opportunities for the Group to enhance its competitive
position and to maintain its market leadership. The Group increasingly focuses on offering of
bundled products, as opposed to individual products, targeting whole families and customer segments
in order to meet complex customer requirements.
The Group completed its transition to an all-IP network in December 2014, driving network
simplification, cost reduction and efficiency. The Group plans to leverage this network to support
fixed-mobile convergence by utilizing its fixed transport technologies to support mobile network
backhauling needs, boosting data bandwidth by employing mobile and fixed access networks and offloading mobile data networks by utilizing more efficient fixed networks, and to implement the
76
Deutsche Telekom Group’s Pan-IP system of access to standardized IP platform offerings in order to
further increase efficiency of service provision and to leverage the innovative and technical abilities of
the Deutsche Telekom Group.
The Group also intends to engage in a significant simplification of its product portfolio, making
product offers more understandable and transparent for customers and thereby increasing customer
satisfaction and loyalty.
Capture growth in new business areas and innovations
The Group is well-positioned to capitalize on new developments in the telecommunications market as
a source of continued growth. It is already one of the leading ICT services providers in the Slovak
Republic focused on managed solutions, cloud solutions, development of customer tailored
applications and solution implementations. The Group believes that significant opportunities exist for
expanding its business into new areas with innovative product offerings, and intends to focus on
capturing opportunities in big data, cloud, M2M, insurance, financial services, localization services,
smart home solutions, security services, health services, e-commerce and e-entertainment services such
as cloud family solutions. The implementation of new services is facilitated by the Group’s own
solutions or via strong partnerships with developers of innovative solutions, based on the Group’s
introduction of products such as the ‘‘mWallet’’ mobile payment system; the ‘‘Pôjde to’’ smartphone,
tablet, computer and television advisory, support and repair system; insurance services; cloud virtual
servers and application shops; and mobile device management.
In addition, the Group seeks to expand its existing ICT services, consolidating its position as the
leading provider of cloud solutions, data centres and managed solutions. The Group will do this with
a focus on bringing secure and affordable cloud services to small, medium as well as large enterprises
and providing custom-tailored solutions that enable the Group to leverage the breadth and
capabilities of its network an experienced IT professionals.
Finally, the Group intends to make disciplined and targeted mergers and acquisitions, particularly in
any relevant areas (including ICT), in order to gain additional product capabilities and technological
expertise.
Drive agility and operating efficiency through eCompany initiatives
The Group plans to implement an extensive eCompany transformation that would enable the Group
to be leaner, more agile and responsive by transferring all customer facing processes online. Key
initiatives include semi-automated online shopping, as well as online helpdesks and services, as well as
digitizing the procurement process. These changes will also help the Group to respond more rapidly
and efficiently to changes in its operating environment.
As part of becoming an eCompany, the Group is focused on simplifying and automating internal
processes, enabling it to offer integrated fixed and mobile solutions, consolidated fixed and mobile
billing and CRM, and consolidated solutions for system and hardware diagnosis.
The operating efficiencies generated by the eCompany initiatives are expected to result in reduced
operating costs for services, increased efficiency of capital investments in technologies and networks,
and allow for the development of fixed and mobile networks in accordance with the Pan-IP
integration framework.
Group Structure
The Group consists of the Company, which is the parent entity, and its wholly owned subsidiaries
Zoznam, s.r.o., Zoznam Mobile, s.r.o., Telekom Sec, s.r.o. (which does not engage in significant
activities), and DIGI SLOVAKIA, s.r.o., as well as PosAm, spol. s r.o., in which the Company holds
a 51% share. All subsidiaries are incorporated in the Slovak Republic and are fully consolidated.
Except for these subsidiaries the Company has no shareholdings in any other undertakings that could
have a significant effect on the assessment of its own assets and liabilities, financial position or profits
and losses. The majority of the Group’s business, including provision of fixed and mobile services, is
conducted through the Company.
77
The following chart presents the Group’s structure; the percentages show shares in the registered
capital and voting rights:
Telekom Sec, s.r.o.
DIGI SLOVAKIA,
s.r.o.
Zoznam, s.r.o.
PosAm, spol. s.r.o.

100%
100%
100%
100%
51%

Established 2006
Acquired in 2013
Acquired in 2005
Acquired in 2005
Acquired in 2010
Main activities:
Main activities:
Main activities:
Main activities:
Main activities:

security services;

automated data

processing.

digital and cable

specific IT and
advertisement
advertisement
infrastructure
services;
services.
services,
solutions for

TV program
broadcasting.
graphic design.
corporate
customers.
History
Historically, the fixed-line telephony business in the Slovak Republic was conducted by Správa pôšt a
telekomunikáciı́ (PTA), a state-owned enterprise. In November 1990, PTA entered into a joint venture
agreement with Atlantic West, a joint venture of the U.S.-based mobile telephone operators Bell
Atlantic (now Verizon Communications Inc.) and AT&T Wireless Services, Inc., to form EuroTel, the
first mobile operator in the Slovak Republic. EuroTel was awarded a license for construction and
operation of the public telephone network and the public data network, and launched mobile
telecommunications services in September 1991.
In January 1993, PTA’s fixed-line telephone business and interest in EuroTel were transferred to the
newly formed state enterprise Slovenské telekomunikácie š. p., which was subsequently later
transformed into state-owned joint stock company Slovenské telekomunikácie a.s.
In July 2000, the Slovak state entered into a privatisation agreement with Deutsche Telekom AG,
resulting in the transfer of a 51% interest in Slovenské telekomunikácie, a. s. to Deutsche Telekom
and the Company becoming part of the Deutsche Telekom Group.
In 2004, Slovenské telekomunikácie, a.s. was renamed ‘‘Slovak Telecom, a.s.’’, concurrently with the
launch of the new corporate identity, logo, vision, mission and corporate culture. With effect from
31 December 2004, the Company purchased a 49% interest in Eurotel from Atlantic West B.V., as a
result of which Eurotel became wholly-owned by the Company. In 2005, the Company acquired
Zoznam business and EuroTel was renamed T-Mobile Slovensko a.s. and began to operate under the
T-Mobile brand. The Company changed its business name to current ‘‘Slovak Telekom, a.s.’’ in 2006
and fixed-line activities were re-branded.
T-Mobile Slovensko was merged into Slovak Telekom in 2010 to facilitate offering integrated and
bundled services and to increase operational efficiency. In the same year, the Group also acquired a
51% interest in PosAm, thus expanding its ability to offer bespoke IT and infrastructure solutions to
corporate customers. In 2011, the Group opened its largest and most modern data centre.
The Company acquired DIGI in September 2013, significantly increasing the Group’s Pay-TV
subscriber base and evolving into the largest Pay-TV operator in the Slovak Republic. In the same
year, it launched its nationwide 4G/LTE network strengthening its position as a mobile provider. In
2014, the Group launched its fixed-mobile convergence offerings to focus on cross-selling to fixed
voice and fixed broadband customers to decrease monthly churn rates.
Fixed-line Business
The Group’s fixed-line services consist of voice, broadband, Pay-TV (excluding DIGI), ICT (excluding
PosAm) and data network and the Company’s role as wholesale provider for other telecommunication
operators. The Group’s basic telephony services are primarily provided via its widespread metallic and
78
optic fibre networks connecting each customer’s premises to the Group’s network. As at 31 December
2014, the Group had approximately 0.93 million physical fixed-line accesses in service, with capability
to provide multiple type of service through most of them The Group offers services through a
modern fibre optic network, VDSL, ADSL and other technology. In the past seven years, the Group
has focused on expanding service accessibility to its customers, with fibre (FTTH/B) connections
technology available to approximately 364,000 households (representing the number of households
where at least the basement of building is reached by fibre) by the end of 2014.
In the fixed-line business, the Group seeks to increase the number of revenue generating units (RGUs)
through a new integrated powerplay portfolio and continue to benefit from being an integrated
player. Under this powerplay portfolio, the Group aims to offer simple, technology independent
services that are easy to understand and communicate and limited in number of rate plans (maximum
three). The offerings are also flexible, with transparent pricing and simple discounting schemes, are
easy to up-sell and cross-sell, and are concentrated under a single contract. The competitive edge is
provided by focusing on integrated offerings and bundling, offerings with premium content and
maintaining a leading position in network quality.
The Group seeks to maximise the number of RGUs by bundling fixed broadband services together
with its premium TV service and high quality fixed voice service, and by exploiting the potential of
rural areas outside the existing fixed network footprint through expanded coverage, including offering
combined solutions such as satellite TV service.
Selected key performance parameters for the Group’s retail fixed-line business are listed in the
following table:
For the year ended 31 December
2014
Total physical accesses (million)(1) ..............................................
Fixed voice accesses .................................................................
Broadband accesses..................................................................
Pay-TV accesses .......................................................................
Fixed coverage (% households passed)
Broadband (total) ....................................................................
Broadband (fibre).....................................................................
2013
0.93
0.63
0.41
0.24
93%
19%
2012
0.96
0.68
0.40
0.20
92%
18%
1.00
0.74
0.40
0.18
90%
18%
(1) The number of physical accesses is different from the total of fixed voice accesses, broadband accesses and television accesses
because duo play and triple play overlaps are excluded. For example, one triple play offer is counted as one fixed voice, one
television and one broadband access, but at the same time only as one physical access.
Fixed Voice
The Group benefits from its status as the traditional provider of fixed voice services in the Slovak
Republic, with the strongest and broadest coverage, reliable network with high sound quality and a
loyal customer base. The Group also offers a broad service portfolio including voice over IP and can
rely on its significant sales force and top quality customer service.
The Group serves both consumer and business customers, offering a variety of tariffs tailored to each
segment. The Group’s strategy for the fixed voice services is to promote customer loyalty by active
customer relationship management and supporting customers’ positive experience, and expanding the
portfolio with converged fixed-mobile voice services, traffic stimulation within the Group’s network,
and gradual migration to voice services via broadband. The innovation and enhanced service offering
is supported by the all-IP transition of the Group’s network, which was completed in 2014.
The Group has sought to limit the decline in fixed voice traffic and its impact on fixed voice revenue
through the development of retention and relevance programs, such as minute-bundle campaigns and
strategic up-sell efforts to convert subscribers to all-inclusive and bundled packages. See ‘‘– Marketing
and Distribution – Bundling’’. Such offerings also have a positive effect on reducing churn rates.
The Group currently offers various tariff packages to B2C customers, individuals and small
enterprises. These packages generally involve a trade-off between higher fixed monthly charges and
per call charges, such as choosing between paying one monthly rate for unlimited calls to both fixed
and mobile lines across the Slovak Republic and the EU, or paying for a package ranging from 50400 minutes, with an additional rate for each additional minute depending on the plan. Each B2C
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tariff package includes a period of free calls within the Group’s own network from 19:00 – 07:00.
Small business customers may also choose from packages that include calls to the USA and Canada.
The Group also offers fixed voice packages for B2B customers. Service offerings include basic
offerings and complex offerings, and either single access and branch access (private branch exchange,
or PBX) offerings. Customers may choose between tariffs with a package of minutes to fixed or
mobile networks, tariffs with a shared volume of minutes, semi-flat tariffs offering flat rates for
certain type of calls, and tariffs with unlimited minutes to networks in Slovakia and other selected
countries subject to fair use policy. Add-ons to these packages include intra-company calls (with
VPN) and advanced features that are useful mostly for large enterprises and call centres. The Group
offers also services based on IP voice and hosted PBX.
Broadband
The Group is focused on horizontal growth by increasing its broadband customer base through
further expanding its fibre penetration, and vertical growth through cross-selling products to current
customers. In providing services to both new and existing customers, the Group intends to emphasize
its value for price, network quality, broad coverage, broadband speed and quality customer service.
The Group provided high-speed internet access through its optical and metallic network under the
FTTH (GPON), ADSL and VDSL standards through approximately 0.41 million accesses as at
31 December 2014. The Group’s network covered 93% of Slovak households and approximately 19%
of Slovak households had access to optical connection as of 31 December 2014.
The Group’s broadband services are priced based on download speeds, which range from 2 Mbps for
the cheapest offering to 300 Mbps supported by the Group’s optical network for the premium service.
In 2012, the Group increased the download speeds of its existing metallic network and the upload
speed of its existing fibre optic networks. In 2013, the Group further increased its broadband
download speeds on its metallic connections with the introduction of new VDSL technology, offering
speeds ranging up to 50 Mbps.
In 2014, the Group introduced a simplified portfolio of three broadband plans of speeds ranging up
to 300 Mbps as part of its Chytrý balı́k (Smart Pack) offering for B2C consumers, individuals and
small enterprises. Such simplified portfolios are competitively priced so as to push up-sell and crosssell to customers. The broadband plans offer unlimited data transfers and are marketed under the
‘‘Magio Internet’’ brand. The optic offering consists of ‘‘Magio Internet M’’ with 6 Mb/s download
and 0.5 Mb/s upload speed, ‘‘Magio Internet L’’ with 40 Mb/s download and 4 Mb/s upload speed
and premium ‘‘Magio Internet XL’’ with 300 Mb/s download and 30 Mb/s upload speed.
The Group offers a full spectrum of B2B fixed internet services, including ‘‘Firemny Internet’’ as a
service targeted at mainstream business customers with standard requirements including Wi-Fi router
and mobile backup capabilities. There are also other dedicated business offerings, such as ‘‘Business
Internet’’ with symmetrical accesses and value-added data network services such as hardware,
consultancy and virtual LANs.
The most advanced business services are provided on data network services, either on the MPLS or
Ethernet line for connecting different localities of the customer into a single network. Advanced
features include the option to access to the Internet, network monitoring, advanced backups (fixed,
mobile, radio), advanced SLA, and web filtering. The Group also provides certain top customers with
specialized leased lines.
Television
The Group offers a variety of television programming options within its fixed-line business through its
flagship Magio TV digital offering. Magio TV Go and Magio TV Go Plus allow customers to watch
selected TV programs on any mobile device with internet access. Magio branded products and IPTV
transmissions offer higher-end segments of the market a variety of content, with focus on premium
quality and interactive services. As of 31 December 2014, Magio TV was used by approximately
0.24 million customers, including approximately 0.16 million IPTV and 0.08 million satellite accesses.
The Group’s Magio TV services are priced based on the number of channels on offer, starting at 57
channels up to 112 channels.
The main features of the Magio IPTV service include VOD and DVR services, realtime TV
controller, picture-on-picture functionality and mobile OTT offerings. Through VOD, over 600 movies
are available, primarily in Slovak or Czech, and new movies are accessible three to six months after
theatre release. In cooperation with Film Europe Cinema, some new releases are available the day the
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film premieres. DVR programs contain up to 250 hours of SD content, and up to 110 hours of HD
content. Mobile OTT offerings through Magio Go include offerings include the opportunity to watch
TV on multiple screens with interactive functions and VOD with HBO Go.
Through its acquisition of DIGI SLOVAKIA in September 2013, the Group expanded its reach into
more basic television services. Since then, the Group has been working to integrate the Magio HD
interactive platform with DIGI TV’s exclusive premium content, which includes broadcasts of Premier
League and Champions League football matches. The premium content also includes HBO. As of
31 December 2014, DIGI was used by approximately 0.23 million customers.
The DIGI acquisition captured economy of scale advantages which have driven unit costs down,
provided access to enhanced television content and helped to protect its price premium in case of
Magio. Due to DIGI’s sport capabilities and its professional staff, the Group is now able to
broadcast as many as three live matches simultaneously (which is unprecedented in Slovak sport
broadcasting history). The Group has also seen increases in customer satisfaction since 2010 (as
measured by a TRI*M survey conducted in 2014) in its optic, metallic and satellite TV services,
primarily due to good customer service and technical support, comprehensive instruction manuals and
expertise.
ICT
In the information and communication technology (ICT) services market, the Group focuses on
providing broad, comprehensive standardized services rendered by the Company or customized ICT
services for corporations, which it complements through its IT solutions for large or multinational
business customers through its subsidiary PosAm. See ‘‘– Other Businesses – PosAm’’. The Group’s
ICT department maintains up-to-date processes and the Group has deployed a highly experienced
group of specialists fully dedicated to the development of ICT solutions.
In 2013, the Group started offering its ‘‘TelekomCloud’’ virtual server infrastructure offering and
currently has more than 100 corporate customers. The Group has responded to the growing demand
for transmitting an increasingly larger volume of data with its introduction of a secure tool for
sharing corporate documents on Telekom Drive, which offers storage for company documents,
enabling users to access documents from any device (PC, smartphone or tablet) and facilitating the
secure sharing of documents with colleagues as well as external partners. Over 8TB of HDD is
currently in use. It also provides automatic backup of important documents and password encoding.
In 2014, the Group also introduced its TelekomCloud application marketplace which offers growing
numbers of applications that provide high quality services focused on the Slovak market. The Group
maintains strict selection criteria for its apps and targets B2B customers for sales.
The Group has intensified cooperation with other important vendors of information systems where
the Group is the main supplier of cloud infrastructure.
The vast majority of the Group’s banking sector customers and other large enterprises use the
Telekom’s mobile device management solution which provides on-premise and cloud solutions and
advanced customer service.
The Group also operates main IT data centres in Bratislava, Košice and Prešov, with approximately
1,300 square meters of total capacity for external customers, which can be further increased to 1,700
square meters. In recent periods the occupancy of the Group’s modern data centre in Bratislava,
which was built exclusively for its B2B customers, has increased. These data centres feature modern
technology and offer very high security, availability and connectivity parameters supported by the
Group’s more than 10 years of experience in providing data centre services. The aggregate occupancy
rates of the Group’s data centres increased from 66% in 2012 to 71% in 2014 and the increase
presents the opportunity to grow margin through improved capacity utilization.
The Group also offers webhosting and security services. Other areas of focus include healthcare
information systems for healthcare professionals and hospitals. In addition, the Group operates
Telekom Fleet, which represents a new generation system for management, control and monitoring of
vehicle fleets and fuel balance. The service uses a GPS monitoring system to monitor fuel flow
combined with Telekom mobile data services.
The Group’s innovative machine to machine communication (M2M) allows data, calls and/or
messages to be sent automatically without human involvement as a growing trend of the ‘‘Internet of
things’’ (i.e., the network of physical objects embedded with electronics, software, sensors and
connectivity to enable it to achieve greater value and service by exchanging data with the
manufacturer, operator and/or other connected devices). The service is primarily used for the purposes
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of fleet management, security, remote administration, smart metering and various industry specific
solutions with a focus on providing connectivity, service management and custom solutions for
customers. The Group also provides related consultancy and project management services.
Wholesale
Wholesale services in the fixed-line segment consist primarily of the fixed interconnection services and
data services provided to national and international partners. In recent years, the Slovak NRA has
taken action to significantly reduce fixed termination rates. The rate has declined from a blended rate
of EUR 0.00801 per minute in 2011 to EUR 0.001234 per minute in 2014.
In cooperation with wholesale partners, in 2013, the Group contributed to the expansion of
broadband services and access in the Slovak Republic, with a year-on-year increase in the number of
accesses of 45% and reaching a year-end total of more than 87 thousand accesses. During 2014, the
Group continued in support of spreading broadband services in the Slovak Republic via wholesale
partners. The Group achieved annual growth of nearly 27% in 2014, reaching more than 111
thousand accesses sold to wholesale partners by year end.
The Group also achieved significant success in the field of providing access to the international IP
network, with its wholesale offerings within IP transit. New solutions brought almost a 20% increase
of sold IP transit capacity which exceeded 11 Gbps at the year end 2013 and more than 50% increase
in year 2014 reaching 17 Gbps of sold IP transit capacity by 31 December 2014.
The Group also provides voice connectivity services to wholesale customers, including access and
interconnection products. In 2013, the Group introduced a simplified Reference Interconnection Offer
for mutual voice networks interconnection with alternative operators, including interconnection
network topology, traffic routing procedures and provisioning processes. The Group further upgraded
the Reference Interconnection Offer in 2014 based on IP technology interconnection, implementing
the new interconnection regime with all existing fixed interconnection partners, which allowed the
Group’s wholesale partners to use the Group’s existing infrastructure. The Group also increased the
number of sold unbundling of the local loop accesses (ULL accesses) by 24% from the year ended
31 December 2012 to the year ended 31 December 2013, and by a more than 200% increase from the
year ended 31 December 2013 to the year ended 31 December 2014, in order to provide their own
voice, data and broadband services to their end users.
The international hubbing service represents the transit of incoming voice traffic from networks of
other operators (both fixed and mobile) that is terminated in networks of other operators in the
Slovak Republic or abroad. Despite decreases in termination rates, annual international hubbing
revenues have remained stable primarily due to an increasing number of hubbing partners and a
growing proportion of mobile traffic in total hubbing traffic.
Mobile Business
The Group provides traditional mobile communications services through its mobile voice and mobile
data product lines and operates a network with 2G (GSM), 3G (UMTS) and 4G (LTE) technologies.
The Group is currently focused on expanding its mobile data offerings, leveraging its first mover
advantage in the commercial launch of a 4G (LTE) network and its strategic spectrum resources. The
Group believes that it has the most extensive 4G coverage in the Slovak Republic.
In its mobile business, the Group seeks to maintain the value of subscribed mobile service customers
against a competitive market background. To this end, the Group seeks to expand the scope and
number of mobile services used by each customer. A key strategy for the Group in growing its
mobile segment involves promoting and expanding fixed-mobile convergent offerings to maximize
cross-selling opportunities and customer loyalty. The Group aims to focus on cross-selling to new and
existing fixed voice and fixed broadband customers and providing combined family offers to reduce
churn rates and increase revenue. Customers can then receive fixed and mobile services from one easy
platform. The Group seeks to offer accessibility through hardware (reflected in attractive handset
subsidies), providing high-quality and available (24/7) support, and seeking to build a user community
by offering specific benefits such as flat tariffs within the Group’s network and ‘‘user get user’’ offers
to support inter-network communication. The Group is focused on monetizing the mobile data
growth opportunity, increasing sales of preferably 4G smartphones with internet access, optimizing its
product portfolio and effectively using an integrated customer approach in sales.
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Selected performance parameters for the Group’s mobile business are listed in the following table:
For the year ended 31 December
2014
Total number of active SIMs (million) .......................................
Prepaid(1) ..................................................................................
Postpaid(2) ................................................................................
Mobile Coverage (% population, outdoor)
2G ............................................................................................
3G ............................................................................................
4G LTE....................................................................................
Blended mobile ARPU (EUR per month)(3) ...............................
2013
2012
2.2
0.8
1.4
2.3
0.8
1.5
2.3
0.8
1.5
99%
81%
52%
11.9
99%
81%
24%
12.9
99%
77%
—
13.9
(1) Active prepaid SIMs defined as activated SIMs that have been topped up in the last 12 months.
(2) Active postpaid SIMs defined as SIMs with valid contracts that have not been de-activated or suspended.
(3) Including visitors’ roaming revenues.
B2C Tariffs
The Group seeks to attract mobile voice postpaid customers via subsidies on new handsets or
discounted prices for services, thereby reducing the up-front cost to its customers and providing more
value for price. Through offering these benefits the Group also seeks to convert its existing pre-paid
customers into postpaid customers. With respect to its product offerings, the Group offers unlimited
data plan volumes as well as unlimited voice and SMS traffic. Unlimited data offers include speed
step down feature depending on tariff plan. The Group also offers mobile data volumes (up to 10
GB) on mobile internet plans.
Postpaid tariffs
The Group’s post-paid ‘Happy’ plans were first introduced in August 2012, and the Group continues
to develop its post-paid offerings, tailored for various segments of the post-paid subscriber market.
Post-paid customers choose a basic voice tariff from a range of nine ‘Happy’ plans, which include a
certain number of minutes for voice usage and unlimited calls during designated periods. Data
offerings within the ‘Happy’ plans vary according to the selected package.
In addition to the ‘Happy’ plans, the Group also offers Neobmedzený mobilný internet (Unlimited
mobile internet) plans for mobile internet to tablets and notebooks, and value-added services,
including Navigácia Sygic GPS (Sygic GPS Navigation), which offers customers one of two map
packages that can be downloaded to a phone or tablet and used for a low monthly fee, and other
applications such as Deezer and ESET Mobile Security.
The Group also seeks to offer attractive handset pricing, in which the price is divided into a flat
initial payment combined with monthly instalments in order to expand the range of phones available
to customers.
Since 2013 customers have had the option to purchase insurance when purchasing a new phone,
tablet or modem, covering, water, fire or flood damage, as well as manufacturing defects or a direct
lighting strike.
Prepaid tariffs
In October 2014, the Group introduced the new tariff Easy Pecka which replaced older tariffs
including Easy Free, Easy Time and Easy Fix in an effort to simplify prepaid portfolios through a
single tariff. Calls to all Slovak networks cost with Easy Pecka EUR 0.09 per minute, SMS costs
EUR 0.06 and data EUR 0.1 per MB.
The main benefits of Easy Pecka are daily caps of 50 cents for usage, including 50 cents per day for
calls and SMS to Telekom network, 50 cents for calls and SMS to Orange network and 50 cents for
calls and SMS to O2 network. There is also 50 cent daily cap for data usage.
Heavy data users may choose to buy data packages of 1000 MB that is valid over a 30 day period.
Such packages are available for users of Easy Pecka as well as for users of older tariffs. Add-on
packages are available for all tariffs, including Surf 1000.
83
Three unit bundles are available exclusively for Easy Pecka customers, Mix S, M, L, through which
customers receive a mix of free calls, SMS and data.
B2B Tariffs
The Group offers special tariffs to cover the requirements of a variety of business customers.
Customers may sign a framework contract that provides them with additional benefits (including
discounts and a budget for ordering new mobile devices) in exchange for a commitment to the
contract duration and minimal monthly spend. Strong emphasis is placed on monetizing mobile data.
Value-added services dedicated to business customers include intra-company calls/VPN, custom APN,
and custom IP addresses, among others.
Newly introduced tariffs for the segment’s small and medium companies are provided as a fixed
combination of voice, messaging and data services with additional value added services via Firma
Profi. Larger enterprises are using MT Professional Plus tariffs, which is a modular approach with
more options and flexibility. Business customers may also choose a shared pool of data via Biznis
Data Share.
Wholesale
Wholesale services in the mobile segment consist primarily of interconnection services provided to
national and international partners as well as roaming services such as the national roaming
agreement with O2 Slovakia, s.r.o. The Group offers international roaming agreements in order to
enable Slovak Telekom customers traveling outside of the Slovak Republic to use their mobile
telephones, and provides roaming services to customers of foreign mobile operators while in the
Slovak Republic. These roaming agreements include arrangements with providers in certain
jurisdictions that may be affiliated with persons or entities that are subject to United States and/or
EU sanctions; the Group’s annual revenues related to ordinary traffic from, and costs associated with,
such arrangements, have been less than EUR 0.1 million for each of the years ended 31 December
2014, 2013 and 2012, and these arrangements are not material to the Group’s business, financial
condition or results of operations.
Due to regulatory changes, both domestic and international interconnection fees have been decreasing
in recent years. Increases in total number of minutes have only partially offset decreases in revenue
caused by decreases in fees. See ‘‘Risk Factors – Risks Related to the Group’s Business and Industry –
The Group’s revenue from fixed and mobile interconnection services and international mobile roaming has
declined significantly in recent years and may continue to decline’’.
Other Businesses
DIGI SLOVAKIA
DIGI provides digital satellite television and internet services as well as cable television, and offers
premium and exclusive TV content such as DIGI Sport and HBO channels. It has operated in the
Slovak Republic since 2006 and became part of the Group in September 2013. As at 31 December
2014, DIGI had approximately 0.23 million TV subscribers.
DIGI focuses on mass market value-for-money Pay-TV offerings, which makes it distinct from the
premium offerings under the Group’s flagship Magio brand while still allowing for potential content
sharing and synergies between DIGI and Magio in the future. Its services are characterised by
favourable pricing, easy installation, unlimited availability of satellite broadcasting and industry
standard sound and video quality. These characteristics currently position Digi TV service amongst
the leaders in the direct-to-home market in the Slovak Republic. In addition to digital satellite
television, DIGI provides cable TV and internet in Bratislava and nine Slovak towns: Handlová,
Komárno, Košice, Prievidza/Bojnice, Ružomberok, Senica, Šal’a, Žiar nad Hronom and Brezno. It
also maintains strong coverage of Hungarian speakers in the Slovak Republic, reaching up to 30% of
the customer base.
The DIGI service options include:
*
Satellite: Satellite based DIGI service (DTH) offers simple installation and wide satellite
coverage in the Slovak Republic. There are two DIGI program packages, with the basic package
covering 65 channels, along with a broader offering including channels in several different
languages, HBO offerings and exclusive sport channels. In May 2014, DIGI launched a new
DTH service based on MPEG4 technology, enabling distribution of HD content. The new
service can be added on to DIGI’s existing packages.
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*
Cable television and internet: DIGI SLOVAKIA provides cable television and internet services in
ten Slovak towns and cities. As is the case with the DTH business, there are two offerings: basic
and the more expansive as well as the HBO package. There are also two internet offerings,
differentiated by speed.
DIGI launched three new sport channels in the Slovak Republic at the end of August 2014: DIGI
Sport 2, DIGI Sport 3 and DIGI Sport 4. Running the four channels makes it possible to broadcast
three matches of the UEFA Champions League live, which the Group believes is a unique service
offering in Central and Eastern Europe.
PosAm
PosAm has been active in the Slovak market since 1990 and became part of the Slovak Telekom
group in 2010. The main goal of the company is to provide partners and customers with unique
solutions using the potential of a broad spectrum of information technologies. PosAm concentrates its
efforts on the provision of bespoke ICT services and bespoke solutions for corporate customers.
As part of its portfolio, PosAm offers individual software development, its own application solutions,
system integration, consultation services, outsourcing and infrastructure solutions. It benefits from
partner relations with world leaders in technologies, combined with innovative management and a
strong local team. It has made substantial investments in employee education and training.
PosAm provides services for the Group’s large or multinational customers from segments such as
banking, insurance, financial institutions, industry, utilities, telecommunications, media, state
administration and local government. PosAm’s customer base includes key blue chip, best-in class
customers.
PosAm is certified by ISO 9001: 2008, ISO/IEC 20000-1: 2011, ISO/IEC 27001: 2005, OHSAS 18001:
2007 and ISO 14001: 2004. PosAm is the holder of the Slovak National Quality Award (Národná
cena SR za kvalitu), and was the first Slovak-based enterprise to receive the ‘‘Recognised for
Excellence in Europe’’ award in 2005 from the European Quality Management Foundation (EFQM).
PosAm has been a full EFQM member since 2007. PosAm was also awarded the ITAPA
(Information Technologies and Public Administration) award for the Register of Financial Statements
in 2014. The system reduces the administrative burden for businesses, removes duplicate submission of
data to state authorities, improves the business environment and increases its transparency.
Zoznam
Zoznam, s.r.o. operates one of the Slovak Republic’s most-visited and comprehensive Slovak internet
portals, Zoznam.sk. Zoznam specialises in Slovak internet website search as well as more than 40
other on-line products, including the news server Topky.sk. Zoznam also offers additional content
through specialised magazines focused on various areas such as Môjdom.sk, Dromedár.sk,
oPeniazoch.sk, Podkapotou.sk, Feminity.sk, Špuntı́k.sk, Urobsisám.sk, PC.sk, Plnı́Elánu.sk,
Vyšetrenie.sk, Kariérainfo.sk, as well as the mail.zoznam.sk free mail service, Pauzicka.sk
entertainment portal, Rexı́k.sk website for children, Free.sk community portal for multimedia content
sharing, and Kariera.sk job portal. A directory of companies (Katalóg firiem) offers small companies
opportunities to present themselves and their contact details on the internet in a professional way. In
addition, the ticket sale platform Predpredaj.sk is an important e-ticketing platform, combining
promotion of events and concerts and sale of tickets on a single site. In July 2013 a new cloud data
storage service, Moja Úschovňa, was added to the Úschovňa.sk service. In 2014, Zoznam has
launched the new online TV guide Telkáč.sk and AndroidPortal.sk magazine, which provides mobile
technology news. The Group also offers mobile internet content such as logos, MMS and ringtones
through Zoznam Mobile.
An independent internet visit audit by AIMmonitor showed 2,237,930 real users of the Zoznam.sk
portal and its products (excluding the news server Topky.sk; which posted an additional 1,544,531
real users, according to AIMmonitor) in December 2014.
Marketing and Distribution
Bundling
The Group believes that bundled offerings within the fixed-line business will help it to increase its
appeal to customers by offering a combination of high-quality products and services. The launch of
its new fixed portfolio in April 2014 both simplified and greatly reduced the number of the Group’s
fixed-line products and bundles on offer. Its new collection of fixed-line bundles, Chytrý balı́k (Smart
85
Pack), have been designed to increase the cross-sell and up-sell potential of the Group’s fixed-line
business offerings. Cross-selling opportunities exist as customers are offered marginal discounts on
additional services as they add additional services from the Group’s fixed-line offerings to their bill.
At the same time, the Group exploits up-selling potential by offering customers the flexibility to add
more minutes to their fixed-line voice service, channels to their television service or speed to their
broadband for an additional cost. Early sales results have surpassed internal forecasts of cross-sell
success and customer retention. The Group credits Chytrý balı́k bundles with improving trends within
its fixed-line customer base.
The portfolio is modular and flexible, allowing the combination of any of the services (rateplans) with
each other. Three product lines (TV, BB, Fixed voice) have the same monthly fees on each level
which is defined as basic (M) EUR 10, medium (L) EUR 15 and Premium (XL) EUR 20. When put
into bundles, each bundle is discounted, offering the additional product for a lower incremental price
than were the products purchased separately. The higher level of the plan taken, the lower the
incremental fee charged. The same applies to cross-selling (the more products taken, the lower the
incremental monthly fee).
The majority (68% as of 31 December 2014) of the fixed-line segment customers subscribed in the
past through ‘‘single play’’ packages, 25% through duo play and approximately 7% triple play which
the Group believes offers significant opportunities for shifting an increased proportion of its
customers to bundled plans.
New products
A new product called Magenta 1 has been introduced by the Group in February 2015, as a part of
its strategy of marketing bundled offerings. It is a bundled offering of TV, broadband internet and
advantageous mobile calling plans, targeting family communication and entertainment needs. The
offering first became available to customers in March 2015.
Marketing
The Group enters into partnerships designed to enhance its appeal to consumers. These generally
consist of sponsorships and partnerships that provide additional value to customers or deeper
integration into the Group’s systems, and partnerships that serve to differentiate the Group’s overall
service offerings. For example, the Group partnered with the Slovak Olympic Committee and the
Slovak Olympic Team at the XXII Winter Olympic Games at Sochi, and currently sponsors the
Telekom Night Run and Magio Beach, a city beach in Bratislava and Košice. The Group has also
partnered with ESET, an Internet security company, for over five years, resulting in the Group
becoming the largest distributor of the ESET software in the Slovak Republic. This partnership
provides the Group with additional revenue through ESET licensing fees, increases security within the
Group’s network and decreases spam, resulting in higher customer satisfaction. More recently, in 2014
the Group partnered with Deezer music to bundle its music service with the Group’s mobile and fixed
services. PosAm maintains partnerships with several technology providers including Bull, Cisco
Systems, Citrix, Dell, Desko, ESET, Hitachi Data Systems, Hewlett-Packard, IBM, Konica-Minolta,
Lenovo, Microsoft, OKI, Oracle, SAP, VMware and Xyzmo. The Group has also sought out
exclusive partnerships and offerings within its DIGI offerings, see ‘‘– Other Businesses – DIGI
SLOVAKIA’’.
B2C Marketing
The Group regularly assesses its B2C marketing campaigns, with the goals of increasing customer
satisfaction and customer loyalty, decreasing churn rates, and enhancing cross-selling and upselling
opportunities. It also runs device campaigns, such as tablet or notebooks campaigns, soliciting
marginally higher service fees from customers in exchange for a new tablet or notebook.
B2B Marketing
The Group categorises its B2B customers as top accounts, consisting of its more than 200 largest
customers; large accounts, consisting of more than one thousand customers; and small and medium
enterprises, consisting of almost six thousand customers. These categories are based on a combination
of actual spend and the perceived potential for future business. The Group allocates a dedicated sales
and marketing team accompanied with a dedicated administrative support to each category of
customers. The remaining part of the smallest business customers (VSE/SoHo) is serviced by B2C
channels.
86
Brands
Each of the ‘‘T’’, Magio, PosAm, DIGI and Zoznam brands plays a distinct role in covering key
market segments in which the Group operates. The Group leverages each of its brands, promoting
the individual brand characteristics and using differentiated strategies to reach customers.
According to GfK Slovakia’s Advertising Tracking Study, as at October 2014 Slovak Telekom had
the highest brand awareness among telecoms in the Slovak Republic. The ‘T’ brand is the Group’s
core brand, maintaining premium positioning through promotion in sponsorships and sports
affiliations, including the Slovak Olympic Team in the XXII Winter Games in Sochi, and sponsoring
the ‘Magio Beach’ city beaches and the Telekom Night Run.
Distribution Channels
The Group’s fixed and mobile services and products are marketed and distributed through a variety
of channels, enabling the Group to target a wide range of customer segments across all of its product
offerings.
*
Own stores. The Group runs branded flagship stores in shopping malls and the centres of large
cities. As at 31 December 2014, the Group had 23 such stores.
*
Franchise shops. To supplement its flagship stores, the Group also operates out of smaller shops
in less populated locations with lower capacity of agents and a higher focus on sales. As at
31 December 2014, the Group’s services and products were sold in 91 franchise shops in leading
retailers across the country.
*
Telesales and call centre. Telesales concentrate mainly on service prolongation for existing
customers as well as the acquisition of additional services for existing customers. To a lesser
extent telesales acquires new customers. Own and external telesales and call centres together
include approximately 50 sales representatives in telesales and 150 FTEs in call centres. External
telesales aim to increase proactive activations out of the Slovak Telekom customer database, and
maintains approximately 70 FTEs.
*
Internet. The Group operates an online portal with integrated social media apps for sales and
customer selfcare transactions.
*
Door-to-Door. Door-to-door sales are primarily focused on the Group’s fixed offerings. The
channel operates through six branches and approximately 50 sales representatives.
*
Own direct sales person. A dedicated sales force is used to target the Group’s B2B customers.
*
Retail chains. Strategic partnerships with retail chains generated customer transactions through
the sale of pre-paid mobile offerings.
Customer Service
The Group has harmonised the customer care processes for its fixed and mobile customers, such that
all voice (mobile and fixed), internet and Pay-TV customers can be assisted through one customer
service line, apart from DIGI which maintains its own line. Call centres operate several toll free
numbers where customers can receive any necessary information on the Group’s services and
products.
Customers’ technical issues, outages and malfunctions are handled on a dedicated toll free line, where
emphasis is placed on customer satisfaction and efficiency. Assistance is also offered in 114 ‘‘Telekom
Centres’’ across the Slovak Republic. These sites offer features such as free water and coffee, a kids’
corner and gifts for the customers, and they host small regional events for visiting customers.
Product and service issues, claims and technical questions can also be fielded electronically, such as by
email, chat on the Company’s web sites or on its Facebook page, or through the new Telekom
application for mobile phones, which allow customers to direct processes such as service activation or
deactivation, usage and spending controls, invoice control and payments, and updates to the
customer’s profile.
The Company measures customers’ satisfaction across all channels, frequently through surveys such as
an NG ICCA or TRI*M system survey. An NG ICCA survey is an automated customer based
survey which can be executed via SMS or automated phone calls, that covers a range of relevant
issues, and are offered to customers the day after they have had contact with the Company. The
TRI*M system measures retention levels for both business and customer segments in certain product
areas, tracking of changes in retention over time. This system enables the Group’s results to be
87
compared with those of other telecommunications providers from Europe and other developed
international markets, and is undertaken annually through phone interviews and random sampling.
Dissatisfied customers may also provide immediate feedback via SMS or phone calls. A dedicated
Group team is responsible for collection of this feedback, and internal initiatives may be employed to
address shortcomings.
According to NG ICCA surveys conducted for customer interactions through call centers, points of
sale, automated calls and technical support, overall customer satisfaction has increased by 11.9 points,
or 3%, from 2013 to 2014.
Networks
The fixed-line and mobile networks of the Group support a wide range of voice, data and wholesale
services for various traffic types, from basic voice calls to bandwidth intensive data applications. The
Group owns the core elements of its network free from major encumbrances.
Fixed-line Networks
The Group has an extensive fixed-line network, covering the vast majority of the Slovak Republic
measured by households passed. The Group’s access network is mainly used to offer voice, Internet
access, Pay-TV and data services to its customers through an array of different technologies. The
Group provides symmetric and asymmetric solutions (which concern the ratio between upload and
download capacity) mainly based on IP-MPLS, SHDLS, VDSL and ADSL technologies.
In recent years, the Group has implemented a significant upgrade of its fixed-line technology active
infrastructure, changing to an IP-based network. This process has involved customer migration from
the legacy PSTN, SDH and ATM technologies by the end of 2014. The full IP transition provides
costs saving and operational efficiency opportunities for the Group and will also support more
advanced product offerings in the future.
The Group’s optical network covered approximately 364,000 households (representing the number of
households where at least the basement of building is reached by fibre) reaching coverage of 19% of
all Slovak households, the most extensive coverage in the Slovak Republic. The Group believes that
the current household coverage levels provide for growth opportunities’ as the number of fibre
connected subscribers was only approximately 78 thousand as of 31 December 2014. Further
development of the fibre network is subject of the Integrated Network Strategy project.
Mobile Network
The Group holds licences from various radio frequency spectrums, including for the prime
communications bands from 450MHz to 2.6GHz (including 50MHz TDD), with its holdings at the
higher end of the spectrum offering better capacity and speed while the lower end provides coverage.
Its licenses for these frequencies expire between 2025 and 2028. Some spectrum licences have coverage
and minimum throughput obligations imposed by the regulator, and are subject to a new tendering
process upon expiration.
The Group’s 2G network is a digital mobile network based on GSM technology. It is a dual-band
network, operating on two frequencies (1,800MHz and 900MHz) and offering voice, short message
service (SMS), multimedia service (MMS), value-added service (VAS) and data services. The data
services on the 2G network are provided with full EDGE support. Compared to circuit-switched data,
which offers a maximum transmission speed of 9.6 Kbps, EDGE enables data transmission speeds of
up to 236 Kbps, allowing for mobile internet access. The Group’s 3G network is based on UMTS
Technology operating in 2,100MHz frequency spectrum band with high speed packet access (HSPA+)
technology (single of dual carrier installed), which can support download speeds of up to 42 Mbps.
The Group was the first Slovak operator to launch LTE technology into full-scale commercial
operation. As at 31 December 2014, the Group had 936 LTE standing base stations, offering up to
150 Mbps. The deployment involved specific functionalities such as ‘‘CSFB’’ voice service
functionality enabling voice calls switch between 2G/3G and 4G networks. The Group believes that
its LTE offerings enable it to meet growing customer demands for the high-speed mobile internet
necessary to use multifunctional mobile applications.
As of 1 January 2015, the Group operated 2,066 mobile sites, including 936 sites with LTE
technology installed. Many of the sites use a combination of different bands of 2G, 3G and 4G, but
these different broadcasts are not considered separate technology sites. As at January 2015, the
Group’s mobile network provides outdoor population coverage of 99% by 2G, 81% by 3G and 52%
by 4G-LTE.
88
Mobile backhaul technology of the sites is either IP based microwave connections or increasingly fibre
optics dedicated IP connection. The sites backhauling connectivity through fibre optics in 2014 was
34.9%, up from 25.4% in 2013 and 15.3% in 2012.
The Group’s mobile network coverage across most data speeds is broad, with a growing presence in
4G coverage as well. See ‘‘– Mobile Business’’. Network testing in October 2013 conducted by the
International Wholesale Business Unit, and taking into account both mobile voice and data factors
such as 2G speech quality, smartphone file transfer speeds and voice call success ratios resulted in a
Group network ranking ahead of both O2 and Orange. A survey by P3 communications conducted in
2013 (commissioned by the Group) found the Slovak Telekom network to excel in these key
parameters.
Billing and Collections
Over 57% of monthly payments are realized by cashless transactions via bank payment orders or
direct debit. The remaining payments are cash transactions at local post offices (36%), with a small
proportion of payments directly at the Group’s points of sale (6%).
The Group has a strict arrears management process. This process includes a standard set of
customer-facing communications which are sent out according to the severity of the status of a late
payment, including notices for overdue payments, first and second reminders and more formal
collection letters.
As a result of the rental collection and arrears management process, the Group has a low level of bill
payments that are in arrears or classified as bad debt. The Group has an established process for
managing its customers which fall into arrears and operates in close cooperation with external legal
counsel.
The standard billing frequency for both fixed and mobile customers is monthly, although a small
portion of fixed customers are billed on a bi-monthly basis. There is one bill cycle for fixed customers
and four bill cycles for mobile customers. On average, the Group issues 1.6 million invoices of which
an increasing share is in electronic format. More than 57% of customers obtain their invoice
electronically. Paper invoices are printed by an outsourced printshop and delivered by post.
The Group’s collection process is supported by software that assists with payment allocation and
collection for both fixed and mobile customers. All IT platforms are operated by internal IT located
in the Group’s data centre.
Information Technology
The Group’s IT portfolio consists of over 220 software applications, modules and platforms designed
to support functions such as customer relations management, billing, service and resource
management, unified communication and integration, production, enterprise support, product, service
and resource lifecycle management, supply and partner management and strategic management. The
Group also expects to switch from its current ERP system to a ‘OneERP’ solution, developed to
introduce standardised processes across the Deutsche Telekom Group. Implementation of the program
has started in 2014, with planned go-life in 2017.
The Group collects and maintains significant amounts of data on its customers which it is required to
maintain and use in accordance with applicable regulations. As the telecommunications sector has
become increasingly digitalised, automated and online-based in recent years, the Group has also had
to increase measures preventing the exposure to risks of unauthorised or unintended data release
through hacking and general information technology system failures. The Group has launched
advanced implementation of identity management to improve information access control, introduced
advanced encryption GEA3 in the mobile network to improve customer privacy, and implemented a
security monitoring system based on emerging technology. See ‘‘Risk Factors – Risks Related to the
Group’s Business and Industry – The Group collects and maintains data on its customers digitally and is
therefore exposed to risks of unauthorised or unintended data release through system failures or hacking’’
and ‘‘Telecommunication Regulation in Slovak Republic – Further Applicable Regulation – Data
protection’’.
In 2014, as part of its IT Transformation Program, several data centre and physical infrastructure
consolidation activities resulted in a significant reduction of physical servers and enterprise storages.
Various governance and vendor management improvements were introduced in order to reduce
development costs. The Group expects its improved development methodology to increase customer
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satisfaction and decrease delivery times. The Group has also improved its demand management and
continued to optimise S&M costs.
Key Suppliers
Throughout its operations, the Group is dependent on several vendors in the key supply areas of
network services and IT services. The supplies include equipment and services that the Group has
used and uses to build, develop, maintain and roll-out its networks and IT infrastructure. The
vendors also provide maintenance support for the relevant networks as well as software and hardware
solutions. The procurement process is managed by the Company’s procurement and logistics section
in line with Detsche Telekom Group practices. The key network and IT vendors are Ericsson
Slovakia, Alcatel-Lucent Slovakia a.s., Cisco, Oracle Slovensko and NetCracker EMEA Ltd. See
‘‘Risk Factors – Risks Related to the Group’s Business and Industry – The Group is reliant on third
parties and suppliers for operation of part of its network and infrastructure, equipment and provisions of
certain services.’’
Intellectual Property
The Group believes it takes appropriate steps to protect its intellectual property rights and to
generate value from these rights where appropriate. In order to protect these rights, the Group uses a
combination of patents, trademarks, service marks, trade secrets, copyrights, database protection,
confidentiality agreements with its employees and third parties and protective contractual provisions.
It has also registered various domain names, including ‘‘www.telekom.sk.’’
The Group owns one utility model, two designs and 114 trademarks registered at the Industrial
Property Office of the Slovak Republic. Six trademarks are also registered internationally through the
Madrid International Trademark System in the neighbouring countries such as the Czech Republic,
Hungary and Austria and the Group has seven additional trademark applications pending. The
Group licenses the key ‘‘Telekom’’ and ‘‘T’’ brands from the Deutsche Telekom Group. See ‘‘Related
Party Transactions – Deutsche Telekom Related Parties – Licensing Agreements’’.
The Group has no material research and development policies.
Quality Control
The Company has been developing an integrated management system since 2004 starting with quality
management system ISO 9001. The current final report prepared by TÜV SÜD Slovakia (10/2013)
recommended issuing EN ISO 9001: 2008 quality management system certificates, EN ISO 14001:
2004 environmental management system certificates and ISO/IEC 27001: 2005 information security
management system certificate. The integrated management system is complemented with an
occupational health and safety protection management system in compliance with OHSAS 18001
standard.
PosAm also maintains certifications from the International Organization for Standardization and is
the holder of the National Quality Award (Národná cena SR za kvalitu) in the Slovak Republic. It
was the first Slovak-based enterprise to receive the ‘‘Recognised for Excellence in Europe’’ award in
2005 from the European Quality Management Foundation (EFQM), and has been a full EFQM
member since 2007.
Insurance
The Group buys insurance coverage in amounts it believes are consistent with its risk management
policies and with customary industry practices. The Group maintains insurance policies against certain
losses, including property damage and business interruption (resulting from damage to property),
third party liability and other, in accordance with the Deutsche Telekom Group’s policies. The Group
intends to maintain insurance coverage consistent with its risk management policies and industry
standards, although the coverage may change and insurance premiums may increase. In addition to
its own polices, losses of the Group exceeding the local limit or local insurance coverage are insured
also by Deutsche Telekom global insurance programs to the extent that the risk is not otherwise
insured or damage exceeds the limits of the Group’s own policies. See ‘‘Risk Factors – Risks Related
to the Group’s Business and Industry – A significant event that exceeds the coverage limits of the
Group’s insurance could result in substantial losses’’ and ‘‘Related Party Transactions – Deutsche
Telekom Related Parties – Provision of Services among Related Parties – Insurance agreement’’.
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Employees
In December 2014, the Group had 3,646 internal employees and 537 external employees employed via
personnel agencies and temporarily assigned to work for the Group, in each case measured as fulltime equivalents (FTEs). Internal head count of the Group was 3,649 as at 31 December 2014.
According to internal calculations, monthly average voluntary attrition rate of internal employees of
the Group from January 2012 through December 2014 averaged 0.3%.
The following table sets forth a breakdown of Group employees from December 2012 through
December 2014:
2014
(FTE)
Internal
employees
External
employees
Slovak Telekom .........
PosAm........................
Zoznam ......................
DIGI ..........................
3,078
249
59
260
500
12
0
25
Group Total...............
3,646
537
2013
(FTE)
Internal
employees
External
employees
3,577
262
59
285
3,307
260
65
258
544
10
0
22
4,183
3,889
577
Total
2012
(FTE)
Internal
employees
External
employees
3,852
270
65
280
3,511
259
70
0
479
8
0
0
3,990
267
70
0
4,466
3,840
486
4,326
Total
Total
As at 31 December 2014, FTEs decreased by 283, or 6.3% to 4,183 from 4,466 as at 31 December
2013. FTEs increased by 140, or 3.2%, to 4,466 from 4,326 as at 31 December 2012. The increase in
the number of FTEs in 2013 is attributable to the Group’s acquisition of DIGI.
In recent years, the Group has promoted activities and projects focused on improving employees
performance and drive, talent management and professional development, engagement, motivation,
satisfaction and retention, working and social conditions. Focus has also been place on strengthening
employer branding, as well as on reorganisation activities.
From January 2011 to January 2015, the Group eliminated 157 organisation units and managerial
positions. In fact, managerial positions decreased by a higher percentage than employees. The Group
has a personnel restructuring plan under which it expects a headcount reduction of approximately 241
employees in 2015.
Collective Labour Agreement
The current collective labour agreement between Slovak Telekom and its employees, represented by
the Telekom Trade Union and the Slovak Trade Union of Posts and Telecommunications came into
force on 1 April 2015 and is valid through 31 March 2017. It embodies an agreed set of conditions
which covers a broad ranging of topics, from negotiation and information rights to health care and
work protection. No average salary increase for employees was agreed for 2015, but in 2016 there will
be further negotiation on this topic. The collective labour agreement also covers a change in the
Group’s benefit schemes. Collective labour agreements are typically concluded on an annual or
biennial basis.
Benefit Plans
For a discussion of the benefit plans provided to employees, see Note 29 to the Financial Statements.
Health and safety
The Group pays careful attention to the working conditions of its employees, and to occupational
health and safety in particular, and attributes its relatively low, and declining, rate of working
accidents to its efforts in this regard. Individual health and safety activities are carried out in
accordance with international standards (OHSS 1800). To support employees’ health care, the Group
offers a comprehensive health program. The Group also allows using flexible forms of work
(including telecommuting and flexible working hours). Since 2010, the Group has ranked amongst the
top three finishers in the annual ‘‘Healthy Company of the Year’’, in which several dozen
manufacturing and non-manufacturing companies compete.
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Corporate Responsibility
The Group runs several community outreach and public service programs and as part of its corporate
responsibility initiative. On ‘‘Safer Internet Day’’, the Group provides webcasts aimed at teaching
how to use the internet safely with respect to children’s exposure. The Group also gives customers the
option to increase their invoice for fixed and mobile services by one euro which will then be donated
to the organization ‘‘Good Angels’’ which is geared toward aiding sick members of the community.
Each July, the Group provides activities to the visitors of Magio Beach, and in September, the Group
broadcasts special commercials in sign language to support the International Week of the Hearing
Impaired. The Group also partnered with Open Door Day at the School for Children with Hearing
Impairment which helps families with deaf or hearing impaired children. Finally, the Group supports
higher education and students from Slovak technical universities through its 9th Annual Telekom Day
Student Conference.
Principal Tangible Fixed Assets
The principal tangible fixed assets of the Group are mainly the components of the Group’s network
and IT infrastructure and include (i) ducts, cable and other outside plants, (ii) telephone exchanges,
multiservice broadband equipment, service platforms, servers and related equipment, (iii) radio and
transmission equipment such as routers and switches, (iv) land and buildings and (v) other property
and equipment. The Group leases the building in which it has its principal office and registered seat.
There are no major encumbrances on the Group’s fixed tangible assets. The Group is not aware of
any environmental issues that may substantially affect the utilisation of its tangible fixed assets. For
more information on principal tangible fixed assets of the Group, see Note 13 to the Financial
Statements.
Material Contracts
The Group has an obligation under a put option related to the remaining 49% PosAm stake,
recognized as financial liability with a fair value of EUR 11.6 million as of 31 December 2014. The
Group has not entered into any other material contracts outside of its ordinary course of business.
See Note 16 to the Financial Statements for information on the DIGI acquisition.
Legal Proceedings
From time to time the Group has been, and expects to continue to be, subject to legal, regulatory
and tax proceedings and claims, including those described below. As at the date of this Prospectus
the total amount of claims against the Group is estimated at EUR 1.9 billion including the estimated
default interest and costs of proceedings, of which EUR 1.56 billion relates to two claims which the
Company considers unfounded, see ‘‘– Claims by Mr Ješko’’ below. This total amount does not
account for any potential follow-on claims related to the EC case described below. The Group has
made provisions against losses in the amount of EUR 32.1 million. Other than the proceedings
described below, there are no, and have not been any, governmental, legal or arbitration proceedings
(including any such proceedings which are pending or threatened of which the Company is aware),
which may have, or have had during the 12 months prior to the date of this Prospectus, a significant
effect on the financial position or profitability of the Company. See also ‘‘Risk Factors – Legal and
Regulatory Risks – Investigations and litigation against the Group may lead to awards of damages, fines
or other penalties, which may have a material adverse effect on the Group’s business, financial condition
and results of operations’’.
EC Case
In April 2009, the European Commission opened proceedings against the Company for alleged abuse
of its dominant position in connection with a potential refusal to supply and margin squeeze on the
markets for unbundled local loops and regional as well as national wholesale broadband access.
Margin squeeze refers to a specific type of abusive conduct by a vertically integrated undertaking
active both on the upstream and the downstream market that charges excessive wholesale prices to
other operators thereby ‘squeezing’ their margins on the retail market and thus making their retail
offer uncompetitive with its own retail offer. Allegations of misconduct in the markets for regional
and national wholesale broadband access were subsequently dropped in the course of the proceedings.
In October 2014, the Commission issued a decision holding the Company and Deutsche Telekom
jointly and severally liable for the Company having abused its dominant position in refusal to supply
and margin squeeze in relation to unbundled local loops during the period from August 2005 through
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December 2010. The Commission imposed a fine of EUR 38.8 million on the Company and Deutsche
Telekom, jointly and severally, and an additional fine of EUR 31.1 million on Deutsche Telekom.
In December 2014, the Company lodged an appeal against the decision with the General Court of the
European Union. A decision of the General Court can be further appealed to the Court of Justice of
the European Union.
The appeal did not suspend the enforceability of the Commission decision and, accordingly, as of
31 December 2014, the Company recognised the entire fine imposed jointly and severally on itself and
Deutsche Telekom as a liability (EUR 38.838 million), and the Company paid this amount in January
2015. The Company has reserved its rights to determine and claim partial reimbursement of the fine
from Deutsche Telekom. The Company and Deutsche Telekom are currently negotiating the
reimbursement, including a suitable procedural framework to determine if and to what extent such
reimbursement should be provided. There can be no assurance that Deutsche Telekom will reimburse
any amount. The Company has also been informed by Deutsche Telekom that it may consider
claiming from the Company partial reimbursement of the fine imposed solely on Deutsche Telekom.
In addition to the fines paid by the Company, based on the Commission’s decision in the EC Case,
other parties, such as competitors of the Group or consumers who consider that they may have been
harmed by the anticompetitive behaviour, may bring material follow-on claims in the Slovak courts
for damages caused by misconduct by the Group. In such follow-on actions, claimants can rely on
the proof of existence of the anti-competitive conduct as established by the Commission decision and
thus do not have to prove the existence of the anti-competitive conduct. The courts then only assess
whether there is a causal link between the Company’s conduct and the harm allegedly suffered as well
as the quantum of such harm.
Voice Case
The Company has been subject to several investigations by the Slovak Competition Authority for
alleged abuse of dominant position in connection with its practices vis-à-vis its competitors, in
particular by margin squeeze and not offering access to unbundled local loops and telephone network
termination points. In all of these cases, save one, known as the Voice Case, the Slovak Competition
Authority closed the proceedings without an infringement decision being issued after the infringement
decisions originally issued by the Slovak Competition Authority were overturned by the courts. In the
Voice Case, which is based on the abuse of dominant position by margin squeeze and tying on
several markets (fixed voice services, fixed data services and fixed telephone network access services),
comprising, in total nine counts of abusive conduct, the Slovak Competition Authority issued an
infringement decision imposing a fine of EUR 17.5 million on the Company. The decision, issued in
2007, was affirmed by the Slovak Competition Authority’s appellate body in 2009. The Company
then challenged this decision in courts. The first instance review court suspended the legal effects of
the contested decision pending judicial review; therefore, the Company is not obliged to pay the fine
imposed in the Voice Case pending a final court decision. The first instance review court subsequently
annulled the decision in its entirety in 2012; however, the court did not uphold the Company’s
argumentation in all nine counts of conduct described in the Competition Authority’s decision. In
2014, the annulment was reversed by the Supreme Court, and the case was returned for further
proceedings where it is currently pending before the first instance court. The Supreme Court did not
assess and address the merits of the case, but merely confirmed that the Slovak Competition
Authority had jurisdiction to issue the decision, and stated that if the first instance court holds a
different view on the jurisdiction issue, it should make a preliminary reference to the Court of Justice
of the European Union. No hearing has taken place since the case was returned to the first instance
court. Should the courts ultimately annul the decision of the Competition Authority, the latter will
have to reconsider the case and rule again being bound by the court’s legal interpretation.
The practices sanctioned by the Slovak Competition Authority are no longer being pursued by the
Company following the introduction of specific wholesale regulation by the Slovak NRA that resulted
in a change of the Company’s operating practice in 2012.
Following the Slovak Competition Authority’s decision in the Voice Case, two alternative operators,
SWAN, a.s. and Slovanet, a.s., filed claims against the Company in 2013, asserting that they incurred
losses as a result of the Company’s anti-competitive conduct. The principal value of the SWAN claim
is approximately EUR 48 million and the principal value of the Slovanet claim is approximately
EUR 30.8 million. Both claims are increased by costs of proceedings and default interest at the
statutory rate. The Company currently estimates the aggregate value of both claims (including costs
of proceedings and default interest) at approximately EUR 121.3 million. In both cases the claimants
93
indicated that they intend to extend their claims, which are currently based only on the Company’s
conduct on the voice services markets and telephone network access services, to include losses they
incurred on data services markets. The Company believes that a part of the claim corresponding to
the loss of profit regarding voice services for the years 2005 through 2008 is time-barred on the basis
that the statute of limitations commenced when the claimants learned of their loss. SWAN and
Slovanet have also both quantified their claims on the basis of internal calculations of counterfactual
market scenarios based on numerous assumptions. Under Slovak procedural law, if the quantification
of a claim is very cumbersome or impossible, the court may determine the quantum based on its own
assessment. Both of these proceedings have been suspended pending the judicial review of the Slovak
Competition Authority’s underlying infringement decision. The claimants are seeking to overturn the
suspension and have the proceedings resumed; no decision has been rendered so far. If the courts
reviewing the Voice Case decision will ultimately uphold the decision, both claimants in the damages
claims will not be obliged to prove the existence of the anti-competitive conduct of the Company, as
this will already be considered established by the Slovak Competition Authority’s decision.
CDI Case
The CDI dispute is a legacy case, dating back as early as 1989. In the 1990s, CDI Holding AG
(CDI) jointly operated a radio station under a contract with the Slovak Radio (Slovenský rozhlas); the
Company’s legal predecessor, Rádiokomunikácie odštepný závod, was sub-contracted to broadcast the
station. Broadcasts were intermittently shut down during 1993 and 1994 and then permanently
discontinued from 1996. After broadcasts were discontinued, CDI entered into liquidation proceedings
and claimed that the liquidation was the result of the unlawful termination of broadcasting by the
Company’s legal predecessors. In 1999 CDI filed a claim for damages in the amount of CDI’s alleged
enterprise value at the time of the broadcast shutdown in 1996. The claim was later assigned to
CDI’s founder, Mr. Schuster, and in 2010 to the company Candelar Limited.
The case has already been heard by several courts in the Slovak Republic, and CDI has filed two
complaints with the European Court for Human Rights. In 2007 a first instance court dismissed
CDI’s claim. On appeal the Supreme Court set aside the first instance judgment and returned the case
to the lower court. In 2011 the first instance court upheld CDI’s claim and ordered the Company to
pay damages in the principal amount of approximately EUR 32.2 million together with interest at an
annual rate of 17.6% from 4 September 1996 until fully paid. The Company filed an appeal against
that judgment, on the basis that the opinion that the first instance court did not address a number of
evidence and assertions provided by Company, and that the first instance court made a number of
errors. During 2012 the first instance court made a decision on trial costs, and required the Company
to pay the plaintiff EUR 3.7 million; the Company appealed to the Supreme Court against the
decision on additional trial costs, and the Company is not obliged to pay at least until the Supreme
Court renders a decision on the appeal. The case is currently pending at the Supreme Court. The
Company currently estimates the aggregate value of the claim (including default interest and costs of
proceedings) at approximately EUR 141.1 million.
In March 2015, the Company and the claimant entered into a settlement agreement providing for
financial compensation by the Company in an amount not exceeding the Company’s prior provision
in respect of such amounts and release of further claims. The settlement agreement has been filed
with, and is subject to approval by, the relevant court. There is no statutory period for the court to
grant such approval.
Claims by Telink / Control Solutions
The Company is party to three disputes arising out of a contract for works entered into by and
between the Company and TELINK, spol. s r.o. (Telink) entered into in 2000. Telink was to provide
an integrated management system designed for the centralization of operation and maintenance of the
connection and transmission technologies and access networks, to have been performed from 2000 to
2004. The Company discontinued the performance of the contract in 2002, and ceased to place orders
for the remaining parts of the works. Telink claimed that the Company was obliged to make such
orders; the Company argued that the contract was merely a framework agreement and individual
orders were at its discretion. Telink’s shareholders have also made parallel claims for the diminution
in the value of their shares in Telink and forgone dividends. These claims have been assigned to
Control Solutions, s.r.o. (Control Solutions) and are being pursued in Slovak courts against the
Company as well as Deutsche Telekom. Originally, three claims for losses suffered by the
shareholders were initiated, but one action was dismissed on procedural grounds.
94
The principal amount of Telink’s claim is approximately EUR 2.3 million, and Control Solutions’
claims are in the amount of EUR 2.1 million and EUR 4.7 million, respectively, increased by costs of
proceedings and default interest at the statutory rate. The Company currently estimates the aggregate
value of all three claims (including default interest and costs of proceedings) at approximately
EUR 16.8 million. The Company believes that the claims made by Control Solutions are unfounded,
because they refer to indirect shareholder losses. The Company also believes that the substantial
majority of the claim made by Telink is unfounded, and it will continue to defend the claims.
All three proceedings are currently pending at the first instance. In February 2015, Telink assigned its
claim to Control Solutions and in March 2015, Control Solution petitioned the court to replace
Telink as the claimant in the proceedings; the petition is currently pending before the court.
Following the court’s approval, Control Solutions will be acting as the claimant in relation to all
three claims.
Claims by Mr Ješko
The Company is aware of two claims by a dissatisfied customer for reimbursement of lost time due
to defects in his mobile phone. The aggregate amount of both claims is approximately
EUR 1.56 billion, consisting of original claims of approximately EUR 3,000 together with default
interest apparently calculated by applying an annual default interest rate of 20% on a monthly basis.
Although the actions were filed in 2008, they have not been served on the Company and no hearings
have been held. The court has requested the claimant to supplement his submissions as they failed to
satisfy essential procedural requirements, and the claimant has filed numerous procedural requests, in
particular for being relieved from the requirement to pay court fees. The Company considers the
claims to be unfounded.
Claims by Slovenská produkčná
In 2014 Slovenská produkčná, a.s., the exclusive seller of advertising space of two Slovak TV
channels, JOJ and JOJ PLUS, brought an unfair competition claim against DIGI in Slovak courts,
alleging that DIGI’s satellite and cable packages include certain Czech TV channels (PRIMA Family,
PRIMA Cool and NOVA) and that DIGI has not obtained the consent of the relevant broadcasters,
and that as a result DIGI is engaged in unfair competition. The plaintiffs petitioned the court to
order DIGI to refrain from such conduct. Although no monetary claim is being made, an
unfavourable outcome may require DIGI to exclude these channels from its packages, which could
adversely impact the appeal of these plans to customers, having also indirect adverse effect on the
Group, notably on the Group’s TV products.
Claims against Zoznam
Zoznam is a party to two matters relating to the website bleskovky.sk. The website was previously
operated by Zoznam and Ringier Slovakia, a.s., the publisher of the Slovak daily Nový čas, under a
co-operation agreement entered into in 2004. In 2008 Zoznam rescinded the agreement due to alleged
competitive conduct by Ringier outside the cooperation agreement. Ringier contested the validity of
the rescission and filed two actions against Zoznam. In the first action, Ringier petitioned the court
to order Zoznam to transfer the domain to Ringier and to pay a contractual penalty of
approximately EUR 166,000. In the second action, Ringier claims approximately EUR 4.6 million in
damages. The Company currently estimates the aggregate value of both claims (including costs of
proceedings; default interest was not claimed by the claimant) at EUR 4.8 million. Ringier’s claim
was upheld at first instance, but the appellate court reversed the decision due to procedural
irregularities in February 2015 and the case has been remanded to the first-instance court. Proceedings
regarding the damages claim have been suspended pending a final decision in the first proceedings.
Regulatory proceedings concerning national roaming agreement with SWAN
In December 2014, SWAN has initiated dispute resolution proceedings at Slovak NRA concerning
alleged breach by the Company of the obligation to provide national roaming services to SWAN, see
‘‘– Key Sector-specific Regulations Applicable to the Group’’. The Company as well as O2 and Orange
are currently negotiating the terms of a national roaming agreement with SWAN. In March 2015, the
Slovak NRA issued an interim measure ordering the Company to provide SWAN with national
roaming services in networks using 900 MHz and 1,800MHz bands under such conditions that
SWAN’s end-users could benefit from the same range and quality of electronic communication
services as the end-users of Slovak Telekom pending the outcome of the dispute resolution
proceedings. In April 2015, the Company filed an appeal against the interim measure; however, the
95
measure remains in force pending a decision on the appeal. It is expected that the first-instance
decision of the Slovak NRA on the merits of the dispute resolution proceedings could be rendered in
the second half of 2015 (the first-instance decision will be appealable). National roaming services are
to be provided at SWAN’s request. The price for such services is either to be agreed between the
parties or, in the absence of an agreement, it will be set by the Slovak NRA. The Slovak NRA may
set the price in an amount which may not be acceptable to the Group. The price will then be payable
retrospectively as from the commencement of providing national roaming services. Interim measures
of this sort have also been issued against Orange and O2.
Other
The Group is also facing other claims in various areas such as customer disputes, human resources,
suppliers, dealers, real estate and other. In relation to intellectual property rights and collective rights
management societies, the Group is subject to nine disputes, the total aggregate amount of which is
currently estimated at EUR 6.2 million including the estimated default interest and costs of
proceedings. This includes the above mentioned claims against Zoznam and a claim by the Slovak
Audiovisual Producers’ Association (SAPA), a collective rights organisation claiming to represent
foreign film producers and requesting the Company to pay fair compensation (levies) for using
audiovisual works in the Company’s Magio products. The Company currently estimates the aggregate
value (including costs of proceedings) of the claim by SAPA at approximately EUR 1.3 million.
Key Sector-specific Regulations Applicable to the Group
Public Service and Public Network Provider
As providers of public services and public networks, the Company and DIGI are subject to a number
of obligations under the Act on Electronic Communications and the General Authorisation
No. 1/2014 to Provide Networks and Services. The General Authorisation No. 1/2014 was adopted in
October 2014 (see ‘‘Telecommunication regulation in Slovak Republic – Slovak National Telecom
Regulatory Framework – The national licensing system – General authorisation to provide networks and
services’’). The Group does not expect that the new General Authorisation will have any material
impact on its operations, however, the Company has challenged the General Authorisation for lack of
clarity of certain provisions by an action filed with the Supreme Court of the Slovak Republic. The
court’s decision is currently pending. The Company and DIGI are subject to the following main
obligations stemming from their position of providers of public services and public networks:
*
to conclude a contract on provision of public services (e.g. public telephone services) with each
person interested in the services subject to certain exceptions stipulated by the Act on Electronic
Communications, e.g. when it is reasonable to assume that the person will not fulfil its
obligations under the contract (it owes money to the provider or to other undertaking, etc.);
*
to meet certain transparency requirements, such as publishing standard business terms and
conditions, standard prices and complaints procedure;
*
to comply with the basic standards of itemised invoicing prescribed by the Slovak NRA;
*
to inform the subscriber at least one month in advance about a substantial change of
contractual conditions in a written form, by electronic mail, SMS or by telephone and at the
same time inform him about his right to withdraw from the contract of the provision of public
services without sanctions in the event that he does not accept such changes;
*
to interconnect its public network with public networks of other operators, if practicable;
*
to enable co-location and sharing of its facilities to other undertakings under certain
circumstances;
*
to take appropriate technical and organisational measures to protect security of its networks and
services which having regard to the state of technology shall ensure a level of security adequate
to the risk posed (measures shall be taken in particular to prevent and minimise impact of
security incidents on end-users and interconnected networks);
*
to maintain integrity of its networks in order to ensure the continuity of the services provided
via the networks;
*
to comply with technical standards and technical specifications for networks or services;
*
to avoid harmful interference when operating networks and equipment;
96
*
to enable interception and recording of network operation on legal request of the Police Force
and the Slovak Information Service; and
*
to respect various end-user rights set out in the Act on Electronic Communications (e.g. right to
withdraw from a contract on provision of public services without sanctions if an end-user does
not accept a substantial change in contractual terms and conditions).
In addition, the Company, as a provider of public services and public networks meeting the relevant
criteria under the Act on Electronic Communications, is also subject to the obligation to keep
separate accounting of costs and revenues relating to the provision of electronic communications
networks or services to the extent necessary for a structurally separated and legally independent
undertaking, so that it is possible to identify all costs and revenues from these activities with their
respective calculation supporting materials and detailed calculation methods, including a detailed
breakdown of fixed assets and structured costs.
Furthermore, the Company as the provider of public telephone services is obliged for example to:
*
ensure number portability;
*
provide free-of-charge access to emergency services by means of the single European emergency
call number ‘‘112’’ and other national emergency call numbers to all end-users;
*
handle all calls to and from the European telephony numbering space at rates similar to those
applied for calls to and from other Member States;
*
provide its subscribers with access to the telephone directory enquiry service; and
*
prior to connecting a call to a premium-rate service provide the caller, in the form of an
automatic free voice notification in the Slovak language, with the information that the caller is
calling the service with premium rate tariff.
Obligations of the Company as an SMP Undertaking
The Company must adhere to a number of obligations stemming from its position of a significant
market power undertaking (SMP Undertaking) (see ‘‘Telecommunication Regulation in Slovak Republic
– Slovak National Telecom Regulatory Framework – Obligations imposed on SMP Undertakings’’).
On 18 November 2014 the Slovak NRA issued a new decision on determination of relevant markets
which formally replaced the seven relevant markets determined under the previously applicable Slovak
NRA decision on determination of relevant markets dated 20 January 2011 by a new set of relevant
markets. Nevertheless, the decision did not bring any dramatic changes in the market definitions (see
‘‘Telecommunication Regulation in Slovak Republic – Slovak National Telecom Regulatory Framework –
Market analyses conducted by the Slovak NRA and definitions of relevant markets’’ below for
description of the respective relevant markets). The change in the relevant markets was prompted by
the adoption of a new Commission Relevant Markets Recommendation 2014/710/EU of 9 October
2014 (see ‘‘Telecommunication Regulation in Slovak Republic – EU Telecom Regulatory Framework –
SMP Undertakings’’).
Despite the adoption of the new decision on relevant markets, the existing obligations imposed on the
Company on the old relevant markets remain valid until they are replaced by new obligations
reflecting the changed list of relevant markets. Before the Slovak NRA decides on imposition of new
obligations on the Company, it has to carry out new market analyses and issue new decisions on
determination of SMP Undertakings on the respective newly defined markets. The market analyses
are currently on-going and their results are expected by the end of 2015. As no obligations on the
new relevant markets have been issued to date, this section further focuses on the old obligations
imposed on the old relevant markets. Hence, unless stated otherwise, all references to relevant
markets in this section below are references to the relevant markets defined in the Slovak NRA
decision on determination of relevant markets dated 20 January 2011.
The Company has originally been designated as having significant market power (SMP) in all seven
relevant markets regulated by the Slovak NRA which are listed below. This is mainly due to the fact
that the Company enjoys the position of incumbent as a result of its having been a former stateowned monopoly, which still controls crucial parts of the network infrastructure including, most
importantly, local loops (i.e. physical links connecting network termination points at the subscribers’
premises to the main distribution frames or equivalent facilities in the fixed public telephone network).
Fixed voice services are subject to rigorous regulation exercised through relevant markets No. 1, 2
and 3 including access obligations and wholesale price control imposed by the Slovak NRA which
limit the Company’s pricing flexibility both on the retail voice market and in the case of retail
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bundles containing fixed voice services mainly because it is necessary to maintain sufficient margin
between wholesale and retail prices to avoid margin squeeze.
Wholesale fixed broadband services are currently regulated through relevant markets No. 4, 5 and 6
(see ‘‘– Wholesale Physical Access’’, ‘‘– Wholesale Broadband Access’’ and ‘‘– Wholesale Terminating
Segments of Leased Lines’’ below). The obligations limit the Company’s pricing flexibility both on
retail broadband market and in case of retail bundles containing fixed broadband services mainly
because it is necessary to maintain sufficient margin between wholesale and retail prices to avoid
margin squeeze.
Mobile voice services are currently regulated through relevant market No. 7. In 2013 the Slovak
NRA introduced price regulation of MTRs based on the pure LRIC approach as recommended in
the Commission Recommendation on the Regulatory Treatment of Fixed and Mobile Termination
Rates in the EU No. 2009/396/EC (see ‘‘Telecommunication Regulation in Slovak Republic – EU
Telecom Regulatory Framework – SMP Undertakings’’ below), which led to further decrease of MTRs.
The obligations imposed by the Slovak NRA on the Company in the respective relevant markets
include the following (for more details regarding general content of the obligations also refer to
‘‘Telecommunication Regulation in Slovak Republic – EU Telecom Regulatory Framework – SMP
Undertakings’’ below):
Retail Fixed Telephone Access
The Company must ensure non-discriminatory treatment of end-users and is subject to a ban on
unjustified bundling of services with provision of other services or goods if they can be provided
separately. At present, there is no price control on this market.
Wholesale Fixed Call Origination
The Company must ensure non-discrimination and transparency by way of mandatory publication of
reference offers. The Company must also provide access to specific network facilities and keep
separate accounting.
The Company is obliged to follow a binding pricing methodology issued by the Slovak NRA. The
currently applicable controlled price calculated by the Company in accordance with the methodology
and subsequently approved by the Slovak NRA is EUR 0.003454 per minute set as the maximum
wholesale price for conveyance of a call or a call to the Internet network from a termination point in
the Company’s fixed public telephone network to the point of interconnection with other fixed or
mobile network.
Wholesale Fixed Call Termination
reference offers. The Company must also provide access to specific network facilities.
The Company is obliged to adhere to a binding price cap set by the Slovak NRA in the amount of
EUR 0.001234 per minute set as the maximum wholesale price for a call terminated in the
Company’s fixed public telephone network that had originated in other domestic or foreign fixed or
mobile network.
On 12 February 2014 the Company filed for judicial review of the decision on price caps on the
grounds of non-inclusion of a part of effectively spent costs in the price calculation. The case, heard
before the Supreme Court, is currently pending.
Wholesale Physical Access
The Company must provide access to specific network facilities, including full unbundled and shared
access to metallic local loops or their parts; full unbundled access to fibre lines; and access to ducts
and infrastructure for drawing metallic or blowing fibre cables. The Company must also ensure nondiscrimination and transparency by way of mandatory publication of reference offers and keep
separate accounting for the relevant activities.
The Slovak NRA has imposed price regulation of: (1) establishment and use of full unbundled or
shared access to a metallic local loop or its part, (2) establishment and use of full unbundled access
to fibre lines, (3) establishment and use of access to ducts and infrastructure for drawing metallic or
blowing fibre cables and (4) co-location. In all these areas, the Company is obliged to follow a
binding pricing methodology issued by the Slovak NRA. The decision on binding pricing
methodology concerning access to metallic lines, fibre lines and access to ducts and infrastructure was
issued on 17 December 2014. The Slovak NRA examined the maximum prices calculated by the
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Company as per the binding pricing methodology and subjected the proposed prices to the
mandatory public consultation procedure and consultation with the Slovak Competition Authority.
The decision of the Slovak NRA on approval or change of the maximum prices is expected in the
second quarter of 2015. The binding pricing methodology for co-location was issued by the Slovak
NRA on 30 May 2013. Co-location prices calculated by the Company as per the pricing methodology
were already approved by the Slovak NRA and consists of different maximum one-off prices for
different co-location related services and monthly prices for use and lease of different parts of the
Company’s physical infrastructure.
Wholesale Broadband Access
The Company was originally designated as having SMP on this market and obligations were imposed
on it by a decision issued in January 2009 (Please note that at the time when the decision was issued,
a former decision of the Slovak NRA on determination of relevant markets dated 28 January 2004
was still valid. Nevertheless, the January 2009 decision is still relevant as the definition of relevant
market No. 5 remained unchanged in the new decision on determination of relevant markets of
20 January 2011). In 2012 the Slovak NRA carried out a new market analysis on this relevant
market and subsequently commenced new proceedings on designation of SMP Undertaking and on
imposition of obligations. The new decision on designation of the Company as an SMP Undertaking
and on imposition of obligations on this market was issued in February 2013 (it repealed the original
decision of January 2009). The Company challenged the decision by an action for judicial review filed
with the Supreme Court of the Slovak Republic. In September 2014 the court reversed the February
2013 decision and remanded the case back to the Slovak NRA for new proceedings. In December
2014, the Slovak NRA terminated the proceedings on the grounds that due to the fact that in the
meantime the relevant market at issue was abolished by the new decision on determination of relevant
markets of 18 November 2014 it can no longer introduce new obligations on SMP Undertakings on
this relevant market.
The Company is of the view that as a result of the cancellation of the February 2013 decision
repealing the January 2009 decision by the Supreme Court of the Slovak Republic and the
termination of the proceedings by the Slovak NRA, previous obligations imposed on it by the
January 2009 decision continue to apply. The obligations in particular include the duty of
transparency (obligation to issue a binding reference offer and to disclose to the Slovak NRA all
agreements on provision of wholesale broadband access entered into by the Company), the duty of
non-discrimination, the duty of accounting separation and the duty to provide access (e.g. obligation
to provide wholesale broadband access to third parties, obligation not to withdraw wholesale
broadband access already granted, obligation to negotiate in good faith with undertakings requesting
access, duty to enable co-location, etc.). Moreover, the Company must follow a binding pricing
methodology set by the Slovak NRA requiring it to charge only cost-oriented prices for various types
of wholesale broadband access determined in accordance with principles set by the Slovak NRA.
Please note that in contrast to the currently applicable legislation, under the relevant legislation
applicable at the time when the January 2009 decision was adopted, the Company had to follow the
binding pricing methodology immediately after the January 2009 decision on designation of SMP
Undertaking and on imposition of obligations became final and binding (see ‘‘Telecommunication
Regulation in Slovak Republic – Slovak National Telecom Regulatory Framework – Obligations imposed
on SMP Undertakings – Price control’’).
The Company expects that Slovak NRA will set aside the January 2009 decision by means of a new
decision on designation of SMP undertaking and on imposition of obligations on the newly defined
relevant market No. 3 (b) (‘‘Wholesale central access services provided at a fixed location for products
intended for mass market.’’) after the new round of market analyses expected in the last quarter of
2015 and it is likely that the Slovak NRA will re-introduce similar obligations for the Company as
described above following analysis of relevant market No. 3 (b) either on whole territory of the
Slovak Republic (in case of nation-wide market definition) or in some regions/municipalities (in case
of local markets definition).
Wholesale Terminating Segments of Leased Lines
On this relevant market the Company has been designated as having SMP only in ‘‘segment A’’, i.e.
terminating segments of leased lines with capacity up to and including 2 Mbit/s. Thus, all obligations
listed below concern only this particular segment of the market.
99
reference offers. The Company must also provide access to specific network facilities and keep
separate accounting for the relevant activities.
The Slovak NRA has also imposed price regulation of (1) lease of terminating segments of leased
lines and (2) co-location. In both areas of price control on this market the Company is obliged to
follow a binding pricing methodology set by the Slovak NRA. Price control of lease of terminating
segments currently entails EUR 746.62 set as a maximum wholesale price for establishing access to
terminating segments of leased lines; and EUR 44.71 per month set as a maximum wholesale price
for the use of terminating segments of leased lines. Price control of co-location on this market
currently entails regulation of maximum one-off prices for different co-location services and maximum
monthly prices for use and lease of different parts of the Company’s physical infrastructure.
Wholesale Mobile Termination
reference offers. The Company must also provide access to specific network facilities.
The Company is also obliged to adhere to a binding price cap set by the Slovak NRA in the amount
of EUR 0.01226 per minute for all calls terminated in the Company’s public mobile network that had
originated in other domestic or foreign mobile or fixed networks. The decision on determination of
the Company as an SMP Undertaking and on imposing obligations as well as the decision setting
binding price cap were challenged by the Company. On 2 January 2014 the Company filed for
judicial review of both decisions at the Supreme Court of the Slovak Republic. On 25 February 2015
the Supreme Court dismissed the Company’s action relating to the SMP decision. As for the action
filed against the price cap decision, the court has not rendered its decision yet.
Obligations set out in the individual authorisations for the use of frequencies
The Company is subject to obligations stemming from the individual authorisations for the use of
frequencies such as duty to pay respective recurring fees and one-off fees for the allocated frequencies,
duty to conform to the rules of use of the frequency spectrum in the border areas set out in
international agreements concluded between the Slovak NRA and foreign administrations and other
duties. Non-compliance with the obligations set out in individual authorisations for the use of
frequencies can lead to withdrawal of the respective authorisations or to withdrawal of the frequencies
allocated to the Company by the Slovak NRA. The most important frequency spectrum bands in the
Company’s portfolio are the following: 800MHz, 900MHz, 1,800MHz, 2,100MHz, 2,100MHz (TDD),
2,600MHz (FDD) and 2,600MHz (TDD). Upon expiration of the individual authorisations allocating
frequencies that have been granted to the Company through tenders, the respective frequencies will be
re-allocated through new tenders and the Company will have to compete with other bidders to reattain them. If the Slovak NRA considers it necessary to restrict the number of rights for the use of
frequencies or if it follows from the Plan of Use of the Frequency Spectrum, tender proceedings may
be ordered by the Slovak NRA also for frequency bands allocated to the Company on the basis of
applications (see ‘‘Telecommunication Regulation in Slovak Republic – Slovak National Telecom
Regulatory Framework – The national licensing system – Individual authorisations for the use of
frequencies’’).
In December 2013 the Company won an important tender for the allocation of frequency bands of
800MHz and 2,600MHz used for high-speed mobile internet services (4G LTE). The frequencies were
allocated to the Company until the end of 2028 for a one-off fee of EUR 60.8 million. The Company
is obliged to pay a quarterly recurring fee of EUR 69,999.99 for the use of the allocated frequencies
in the 800MHz band and a quarterly recurring fee of EUR 351,000 for the use of the allocated
frequencies in the 2,600MHz band. In both cases the recurring fees are payable as from 1 January
2016. Furthermore, the decision on allocation of the frequency bands set out other important
obligations for the Company including a minimum coverage obligation, minimum transmission speed
requirements and the obligation to provide national roaming (see below).
Under the frequency allocation decision in question, the Company must ensure minimum coverage by
mobile services in the 800MHz frequency band of at least 25% of the Slovak population by the end
of 2015, 50 % of the Slovak population by the end of 2017 and 70% of the Slovak population by the
end of 2018, as well as minimum coverage by mobile services in the 2,600MHz frequency band of at
least 10 % of the Slovak population by the end of 2015 and 25% of the Slovak population by the
end of 2018.
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Moreover, the Company is obliged to provide national roaming to the fourth Slovak mobile operator
SWAN (new entrant) for networks in 900MHz and 1,800MHz frequency bands as from the date
when SWAN reaches the coverage of at least 20% of the Slovak population by services provided in
the 800MHz and/or 1,800MHz frequency bands. SWAN has reached 20% population coverage using
frequencies in the 1,800MHz frequency band as of 15 December 2014 according to the Slovak NRA
see ‘‘– Legal Proceedings – Regulatory proceedings concerning national roaming agreement with
SWAN’’. Obligation of the Company to provide national roaming to SWAN will expire at the end of
2018. The obligation to provide SWAN with national roaming applies also to other two Slovak
telecom operators, Orange and O2.
Finally, according to the frequency allocation decision the company must secure minimum
transmission rates for end users of 2 Mbit/s for downlink and 256 Kbit/s for uplink in both
frequency bands.
SWAN claims that it has reached the prescribed minimum coverage in December 2014, which was
also confirmed by the Slovak NRA. On that basis, SWAN demands the provision of national
roaming from all three operators, including the Company. Negotiations between the Company and
SWAN regarding the provision of the national roaming are currently on-going with the involvement
of the Slovak NRA. In December 2014, SWAN has also initiated dispute resolution proceedings
before the Slovak NRA. In March 2015, the Slovak NRA issued interim measures ordering the
Company, as well as Orange and O2, to provide national roaming services to SWAN at its request,
see ‘‘– Legal Proceedings – Regulatory proceedings concerning national roaming agreement with
SWAN’’.
Universal service provider
Since 4 April 2006 the Company acts as the sole provider of the universal service in the Slovak
Republic. The decision of the Slovak NRA No. 3125/OTR/2012 applicable from August 2012 reduced
the scope of the universal service obligations previously imposed on the Company. The universal
service obligations currently imposed on the Company only include services for disabled users with
hearing, speech and visual impairments, in particular the obligation:
*
to provide for equivalent access and availability of public telephone service, telephone directory
service and comprehensive telephone directory enquiry service, including the possibility of carrier
selection for disabled users; and
*
to lease or sell, if requested by a disabled user, a specially equipped telecommunications terminal
equipment appropriate to the disability for the same price as standard telecommunications
terminal equipment.
The Company currently fulfils its stipulated obligations by means of:
*
a text to speech relay service and text phones provided for users with hearing impairments or
serious speech impairments; and
*
free access to telephone directory enquiry service and mobile phone with special application for
users with visual impairments.
To date, the Company has filed several requests for compensation of net costs incurred for the
provision of universal service for the years 2005 to 2006, 2007 to 2008, 2009 to 2010 and most
recently for years 2011 to 2012, amounting to EUR 158.39 mil. in total. The first three requests for
compensation were dismissed by the Slovak NRA on the ground that the costs did not represent an
unfair burden on the Company (under the Act a universal service provider may claim the
compensation only if the costs represented an unfair burden).
The Company filed for judicial review of the first three decisions of the Slovak NRA. The decisions
were subsequently overturned by the Supreme Court, remanded back to the Slovak NRA for further
proceedings and are currently pending. The decision regarding compensation for 2005 to 2006 is
expected to be issued by 1 July 2015. The decisions on compensation for 2007 to 2008, 2009 to 2010
and for 2011 to 2012 are expected by the end of 2015.
TV broadcasting, on-demand audiovisual media services and retransmission provider
Television Broadcasting
The Company and DIGI are active in the field of television broadcasting in the Slovak Republic (for
a description of the applicable regulatory environment see ‘‘Telecommunication Regulation in Slovak
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Republic – Further Applicable Regulation – Broadcasting, retransmission and provision of on-demand
audiovisual media services’’).
The Company holds a license for multiregional television broadcasting for programme service Magio
Infokanál issued by the Council for Broadcasting and Retransmission for a period of 12 years until
12 August 2020. The licence can be extended upon application from the Company for additional
12 years.
DIGI holds a licence for multiregional television broadcasting of the programme service Infokanál
DIGI issued by the Council for Broadcasting and Retransmission. The license is effective until
16 August 2019 and can be extended on application by DIGI by additional 12 years. Moreover,
DIGI holds the following digital broadcasting licences:
*
licence No. TD/35 issued for an indefinite period of time for nationwide digital broadcasting of
television programme service DIGI SPORT 1;
*
television programme service DIGI SPORT 3;
*
television programme service DIGI SPORT 4; and
*
television programme service DIGI SPORT 2.
Retransmission
The Company and DIGI also provide retransmission services in the Slovak Republic. In both cases
the services are provided on the basis of a simple notification and registration by the Council for
Broadcasting and Retransmission. The registration is valid for an indefinite period of time. The
Company is registered as a nationwide retransmission provider since 18 May 2006. DIGI is registered
as a multiregional retransmission provider since 20 March 2002. Retransmission of programme
services is subject to consent of the original content providers (broadcasters) with whom the Company
and DIGI have separate agreements.
On-demand Audiovisual Media Services
The Company and some of its subsidiaries provide on-demand audiovisual media services such as
Magio / Domáca videopožičovňa (in English: Magio/Home Video Rental) on the basis of a simple
notification and registration by the Council for Broadcasting and Retransmission. The registration is
valid for an indefinite period of time.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the Group’s financial condition and results of operations should be read in
conjunction with the Financial Statements and the other information included elsewhere in this
Prospectus. This section contains forward-looking statements that involve risks and uncertainties. The
Group’s actual results may differ materially from those discussed in such forward-looking statements as a
result of various factors, including those described under ‘‘Risk Factors’’ and ‘‘Forward-Looking
Statements’’. Financial information in this section which does not appear in the Financial Statements has
been extracted from the Company’s accounting records and has not been audited. Audited and not
audited financial information is indicated in each table used below.
Overview
The Group is the largest multimedia and telecommunications operator in the Slovak Republic by
revenue, offering a full range of broadband, fixed telephony, Pay-TV, mobile data and voice services
as well as a comprehensive suite of ICT services. The Group is part of the Deutsche Telekom Group
and markets most of its services under the Deutsche Telekom ‘‘T’’ brand. Before liberalisation of the
Slovak telecommunication market in 2002, it was the only provider of fixed telephony services in the
Slovak Republic. The Group carries out substantially all its activities in the Slovak Republic.
In terms of market position the Group is the market leader (measured by revenue) in fixed voice,
fixed broadband and Pay-TV for the year ended 31 December 2014. It is also the second largest
provider of mobile telecommunication services by service revenue. See ‘‘Slovak Telecommunications
Market – General Overview of Slovak Telecommunications Market’’.
Fixed-line services provided by the Group consist mainly of core fixed voice and broadband internet
complemented by a range of value-added services offered through the Group’s extensive fixed-line
telecommunications network benefiting from an on-going roll-out of modern fibre optic technology.
The Group provides comprehensive and premium content through its Pay-TV services, including a
high definition and interactive IPTV platform. The Group is also a leading provider of ICT services
and offers wholesale services to a number of retail Internet service providers (ISPs) and other licensed
operators in the Slovak Republic and abroad.
The Group also offers a full range of voice and data mobile services, including traditional and valueadded voice services, international roaming services, interconnection services with other mobile
operators inside and outside the Slovak Republic, messaging and data services using 2G (GSM), 3G
(UMTS) and 4G (LTE) network technologies.
As the first multimedia operator in the Slovak Republic, the Group offers the television services via
both cable and satellite technology. Except for standard TV channels, the Group offers premium and
exclusive sports content. High-end TV service with interactive features (VOD, catch-up TV functions,
recording) supported by IPTV technology are offered under TV Magio brand, while linear mass
market television services mostly provided via satellite technology are offered under DIGI brand
operated through the Group’s wholly-owned subsidiary DIGI SLOVAKIA s.r.o. (DIGI).
The Group considers itself to be the leader in the Slovak market for ICT solutions. The Group’s ICT
solutions are provided through the Company and its subsidiary PosAm. The Group’s ICT business
consists primarily of cloud-based services (private as well as public), tailor-made IT solutions, mobile
device management and car monitoring, offering customers both cost efficiency and flexibility with
higher security and service availability. The Group introduced a cloud application platform in 2014,
and offers applications focused on providing a quality customer experience tailored to the Slovak
market. The Group operates modern data centres across the Slovak Republic and offers virtual
servers (IaaS), web hosting services, M2M (Machine-to-machine) & IoT (Internet of Things) solutions,
and healthcare information systems for hospitals.
Recent Developments and Trends
Over the medium term, Management expects the Group’s revenues to stabilise, with further decreases
in fixed and mobile voice revenues expected to be largely offset by growth in mobile data revenues
and revenues from ICT services. As a result, Management expects that, assuming a three-player
mobile market in the Slovak Republic, the Adjusted EBITDA trend should flatten and stabilise over
the next two years. Management expects that the Group’s net income will be positively affected as
depreciation associated with historical investments decreases, particularly starting in 2016 (as discussed
under ‘‘– Key Factors Affecting Results of Operations – Depreciation and amortisation’’). Over the
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medium term capital expenditures are expected to average approximately EUR 110 – 130 million
annually and be focused on investments in network and content, although special factors such as
licence payments and inorganic growth may lead to higher levels of capital expenditure.
During the first quarter of 2015, the Group’s business has generally performed in line with
Management’s expectations. In particular, the decline in revenue observed over the past several years
has abated, resulting in a slight decline in revenue in the three months ended 31 March 2015 as
compared to the three months ended 31 March 2014. The continuing decline of voice revenues, both
fixed and mobile, was partially offset by increasing revenues from Pay-TV as well as mobile data.
Moreover, there were no further regulatory decreases in MTRs and FTRs during the first quarter of
2015, contributing to stabilisation of revenue. The overall number of Pay-TV accesses and fixed
broadband accesses both increased during the period. While the contribution of increased revenue
from mobile data during the quarter was insufficient to offset fully the decline in mobile voice
revenues, the overall revenue decline in the mobile segment slowed. Revenue from ICT services, which
are included in both the fixed-line business and PosAm, remained comparable to the three months
ended 31 March 2014 notwithstanding that revenues at PosAm decreased, reflecting seasonal
fluctuations associated with variations in the timing of customer orders and the recognition of
associated revenue. Revenues from DIGI were positively impacted by a migration of customers to a
set-top-box rental model as well as sales of DIGI’s sport channels to Czech households through an
agreement with O2 Czech Republic. Direct costs varied in line with revenue, and indirect costs
declined as compared to the first quarter of 2014, reflecting in large part efficiency improvements in
connection with the Group’s ongoing cost management. Overall, the Group’s Adjusted EBITDA for
the three months ended 31 March 2015 decreased slightly as compared to the three months ended
31 March 2014, in line with Management’s expectations.
At the General Meeting held on 31 March 2015, the shareholders approved a dividend of 80% of the
aggregate of EUR 32.5 million. These dividends are expected to be paid in late April 2015.
In January 2015, the Company paid the fine of EUR 38.838 million in connection with the EC Case.
In March 2015, the Company and the claimant in the CDI Case entered into a settlement agreement
providing for financial compensation by the Company in an amount not exceeding the Company’s
prior provision in respect of such amounts and release of further claims, and subject to approval by
the court. There is no statutory period for the court to grant such approval. See ‘‘– Other provisions
and contingencies’’ and ‘‘Business – Legal Proceedings’’. Except as described above, no significant
change in the financial or trading position of the Group has occurred between 31 December 2014 and
the date of this Prospectus. See also ‘‘Capitalisation’’.
Key Factors Affecting Results of Operations
The Group’s results of operations are affected by a number of factors, including those set out under
the captions ‘‘Risk Factors’’, ‘‘Business – Key sector-specific regulations applicable to the Group’’ and
‘‘Telecommunication Regulation in the Slovak Republic’’. Management believes that the items below
have had the most significant impact on the Group’s results of operations during the period under
review and may continue to have an impact on future results.
The Group is subject to significant competition for its products and services. In light of this
competition, overall prices for most products and services offered to customers in the
telecommunications markets in the Slovak Republic have steadily decreased in recent years. The
Group seeks to maintain and improve its competitive position by offering products and services that
it believes are more appealing to customers than those of its competitors. The Group seeks to provide
customers with access to premium and exclusive content, high levels of customer support, leading
network infrastructure and superior mobile spectrum portfolio. In addition, the Group benefits from
having a relatively higher proportion of post-paid customers, accounting for approximately 64% of
total mobile customers as of 31 December 2014. Management believes that post-paid customers
generate greater revenues, measured by ARPU, and tend to be more loyal and less likely to switch
providers. Nevertheless, the overall pricing environment may be disturbed by the entry of a significant
new operator or competitor, such as when O2 started offering mobile services in 2007. See ‘‘Risk
Factors – Risks Related to the Group’s Business and Industry – The Group is subject to significant
competition from new and established competitors and to changing market conditions’’.
104
Telecommunication service providers, including the Group, increasingly seek to offer bundled
offerings of multiple products. These offerings combine fixed and/or mobile services and allow for
differentiation based on quality and value of service provided. In addition, bundled offerings generally
drive and support telephony and broadband internet products and often help to reduce customer
churn as compared with individually sold products and services. Management believes that offering an
integrated mobile and fixed service portfolio with high quality and reliability enables it to sell
additional as well as premium versions of existing services, such as internet in mobile data packages
or data consuming premium services, such as Magio Go, while also reducing churn because customers
often prefer bundled products due to the convenience and cost savings that are available when
acquiring fixed-line and mobile telephony, fixed and mobile broadband internet and television services
from a single provider for one price. Product bundles also provide opportunities for the Group to
cross-sell services to customers, thereby encouraging them to procure additional services from the
Group, such as by encouraging broadband customers to acquire pay-TV services from the Group, as
well as increase network utilisation.
The Group offers its customers fixed voice, fixed broadband internet and television on a stand-alone
basis and in the form of duo-play or triple-play packages. As of 31 December 2014, approximately
68% of the Group’s fixed-line customers purchased only a single product, most commonly fixed voice
(approximately 50% of total fixed-line customers); approximately 25% purchased two products, and
only 7% purchased three products. The Group’s product bundles typically offer customers a discount
to the aggregate price compared to the sum of stand-alone products’ fair values, which management
believes makes the product bundles more attractive for customers. In addition, bundled product
offerings are often associated with reduced rates of customer churn, as customers seeking to change
providers must change providers for multiple services, increasing both the inconvenience associated
with a switch as well as the difficulty of finding a superior alternative product. For example, in 2014,
the bundle Chytrý balı́k was launched, contributing to reduced churn of B2C customers in 2014 as
compared to 2013.
For business customers, combined offerings are focused on providing more value via new services or
add-on services, such as the ‘‘mobile voice + fixed broadband’’ cross-sell offer with complementary
access to entry-level file storage and sharing service. More than 75% of B2B customers are using a
combination of the Group’s mobile, fixed voice and fixed broadband services. Revenue growth from
B2B customers has been achieved through organic increases in the number of active accesses and
cross-selling of new services.
Bundled services also facilitate the Group’s ability to capitalise on developing market trends, such as
the emergence of fixed-mobile convergence in the Slovak Republic, which is the bundling or
packaging of fixed-line and mobile services together into a single customer package. Accordingly,
starting in 2015 the Group has offered product bundles that combine both fixed-line and mobile
services. Management believes that fixed-mobile cloud convergence, which is an advanced B2B version
of fixed-mobile convergence, will become increasingly important for business customers, not only in
terms of product bundling, but also in terms of integrated and cross-functioning services. Such
services include fixed connectivity with integrated mobile backup, cloud applications and call
handover between fixed and mobile networks.
Management also believes that its ability to compete effectively will depend on its ability to offer
more attractive bundled offerings than other market participants, many of whom are pursuing similar
strategies. See also ‘‘Risk Factors – Risks Related to the Group’s Business and Industry – The Group
competes in part by offering converged and bundled products, and it may not succeed in further
developing such products or may be unsuccessful in marketing such products’’.
The Group’s results of operations have been and will continue to be influenced by macro-economic
conditions in the Slovak Republic, including trends in real GDP and private consumption. As real
GDP increases, the Group generally experiences an increase in demand for its telecommunications
services. In particular, increased domestic consumption tends to result in increased spending on
telecommunications services, particularly by consumers. For example, consumers may be more likely
to subscribe for broadband or pay-TV packages, or may subscribe to higher-cost packages, during
periods of relatively favourable economic conditions. Conversely, during periods of low or negative
growth in GDP or consumer spending, both B2C and B2B customers tend to reduce their
expenditures on telecommunications services. Moreover, such reductions may not be fully offset
105
during subsequent periods of improved economic conditions. Real GDP in the Slovak Republic grew
by 2.3%, 0.9% and 1.8% in 2014, 2013 and 2012, respectively, based on data from the IMF. The IMF
has forecasted Slovak GDP growth to outpace the median GDP growth of both CEE and Western
European peers from 2014 through 2018, supported by growing private consumption and foreign
direct investment at levels above the median for other CEE countries, and inflation is expected to be
below the median for other CEE countries, according to the EIU. As at 31 December 2013, the
population of the Slovak Republic was approximately 5.4 million, and in 2014 it had a nominal GDP
per capita of EUR 13,643. See ‘‘Risk Factors – Risks Related to the Slovak Republic’’.
Interconnection and roaming charges and competition regulations
The Group generates revenues from other network operators in the form of access and
interconnection fees for voice calls terminated on the Group’s networks, and is required to pay access
and interconnection fees to other network operators for calls terminated on their networks, in each
case both domestic and international. These access and interconnection fees are based on set
termination rates for both fixed and mobile voice calls. In recent years, the Slovak NRA has taken
action to significantly reduce these termination rates. In line with 2009 recommendations from the
European Commission, the mobile termination rate (MTR) has been significantly reduced, from
EUR 0.0635 per minute at the start of 2011 to EUR 0.01226 per minute in 2014. The fixed
termination rate (FTR) has also declined, from a blended rate of EUR 0.00801 per minute in 2011 to
EUR 0.001234 per minute in 2014. Historically, the Group has generated significant amounts of
revenue from these interconnection fees. While the introduction of unlimited calling plans has
generally resulted in increased call volumes, these increases have been outweighed by the decrease in
termination rates and the Group’s revenue from MTRs has declined.
The reductions in FTRs and MTRs have significantly affected the Group’s revenue in recent periods.
Revenue attributable to FTRs has declined from EUR 6.7 million in the year ended 31 December
2012 to EUR 3.1 million in the year ended 31 December 2014, and revenue attributable to MTRs
declined from EUR 41.2 million in the year ended 31 December 2012 to EUR 18.0 million for the
year ended 31 December 2014. As a share of revenue, fixed termination fees amounted to 0.9%, 1.6%
and 1.9% of fixed-line revenue and mobile termination fees amounted to 4.8%, 7.4% and 9.4% of
mobile revenue in the years ended 31 December 2014, 2013 and 2012, respectively. See ‘‘Risk Factors
– Risks Related to the Group’s Business and Industry – The Group’s revenue from fixed and mobile
interconnection services and international mobile roaming has declined significantly in recent years and
may continue to decline.’’ Management believes that there is limited scope for further reductions in
interconnection rates, as MTRs are generally in-line with EU and regional medians and FTRs are
already at low levels, such that the impact on the Group’s revenues in future periods is likely to be
more limited.
The Group also generates revenues from retail and wholesale international voice and data roaming
charges for calls and SMS made by visitors to the Slovak Republic using the Group’s mobile
network, and incurs costs associated with the Group’s access and interconnection expenses for calls
and SMS made by the Group’s subscribers who are abroad and have to rely on other network
operators for fulfilment of their calls. Applicable European Union regulations have required
significant reductions in such fees. The Group’s revenue from these roaming charges, including
charges for visitors in the Group’s network, amounted to EUR 30.4 million, EUR 32.3 million and
EUR 37.6 million, or 9.1%, 8.9% and 9.5% of mobile service revenue in the years ended 31 December
2014, 2013 and 2012, respectively. While reductions in roaming charges reduce the revenue or cost
associated on a per call, message or data unit basis, these reductions also tend to result in increased
usage of roaming services by both the Group’s customers (when abroad) as well as by visitors to the
Slovak Republic. See ‘‘ Risk Factors – Risks Related to the Group’s Business and Industry – The
Group’s revenue from mobile and fixed interconnection services and international mobile roaming has
declined significantly in recent years, and may continue to decline.’’
In addition, the Group has been designated as having significant market power in fixed voice and
fixed broadband markets in the Slovak Republic. The Slovak NRA has imposed certain obligations
on the Group relating to, among other things, access and use of specific network facilities, nondiscrimination, transparency or the level of tariffs at the regulated wholesale or retail markets. As a
result, the Group is required to provide certain services to customers, and it may be limited in its
ability to adjust pricing in order to maintain regulatory required margins. The Group is also required
to make fixed voice, fixed broadband and mobile roaming services available on a wholesale basis.
While the Group seeks to charge market prices for these services, in some cases it is requested to
offer the services below cost. See ‘‘Risk Factors – Risks Related to the Group’s Business and Industry –
106
The Group enters into wholesale agreements offering fixed voice, broadband and certain mobile services
to its competitors and is required under applicable regulations to offer such services on terms that may
increase the ability of its competitors to compete with the Group’’.
In order to maintain its competitive position and its financial performance, the Group has undertaken
a number of initiatives in order to reduce its costs and improve its operating efficiencies. A cost
reduction program undertaken by the Group from 2010 through 2014 included: headcount reductions;
technology improvements and modernisation; rationalisation of the Group’s real estate; energy
efficiency improvements; improving operational efficiency; and implementing electronic billing and
other systems. Measures introduced since 2014 have sought to further the transformation of the
Group into an ‘‘eCompany’’ by reducing the use of paper, streamlining and simplifying support
processes, including customer payment methods, using more online channels for sales and focusing on
an omni-channel approach to customers through a stable and developed online platform. In March
2015 the Group launched a new web platform that allows customers to manage fixed-line and mobile
services through a responsive web interface. The Group aims to become the first telecommunications
operator in the Slovak Republic to offer self-care troubleshooting of outages on fixed-line access
points and mobile handsets, allowing customers to carry out diagnostics and even repair the outages
remotely.
In addition, as a member of the Deutsche Telekom group, the Group participates in a number of
cost-reduction programs, which complement the programs adopted at the Group level. Key
accomplishments during the period under review include switching its fixed-line network to all-IP,
which was completed in December 2014, as well as a headcount reduction program led by Deutsche
Telekom, which is expected to be finalised by 2016. During the period under review Group has also
undertaken other initiatives to reduce costs, such as the combination of its fixed-line and mobile
businesses resulting from the merger with T-Mobile Slovakia, which previously operated as a separate
legal entity within the Group, and which was largely finalised by the end of 2012.
Between 1 January 2012 and 31 December 2014 the Group achieved net savings of EUR 17.9 million
for maintenance related costs, which include energy costs, rent, building maintenance, network and IT
maintenance and frequency related costs, EUR 12.4 million for personnel related costs (excluding
severance payments for staff downsizing in the ongoing personnel restructuring), EUR 1.5 million for
marketing related costs, and EUR 12.2 million for other costs, including costs of materials and office
supplies, postage and bank fees, consultancy, outsourcing, and other operating expenses (excluding
provisions for legal and regulatory cases) compared to the indirect costs reported for the year ended
31 December 2011. These saving are largely attributable to the achievements of the Group’s cost
reduction program.
The Group’s ability to provide fixed and mobile telephony, fixed and mobile broadband internet and
Pay-TV to retail customers as well as telecommunications and ICT solutions to business customers
depends in large part on its ability to provide attractive and competitive product offerings to its
customers by upgrading and maintaining its fixed and mobile networks. In light of the growing
penetration of smartphones and the increasing demand for data services, upgrading and maintaining
the Group’s networks is key to the provision of services to its customers and meeting the increasing
needs of the customers for high-quality fixed and mobile data services. Perception of network quality
and speed are important factors in the Group’s ability to be able to attract and retain its customers,
and therefore minimise churn. In particular, in recent years the Group has invested in rolling-out a
fixed-line fibre network, and its LTE mobile network. For example, in recent years the Group has
expanded its fibre to the home (FTTH) coverage (with speeds up to 300 Mbps) to approximately
0.364 million subscribers, more than any other provider in the Slovak Republic, and plans to invest
in further expanding its FTTH network. The Group was the first mobile operator in the Slovak
Republic to launch LTE technology into a full-scale commercial operation, in November 2013, giving
it a ‘‘first mover’’ advantage, and has the largest outdoor LTE network coverage in the Slovak
Republic, covering 52% of the population of the Slovak Republic in January 2015.
During the years ended 31 December 2012, 2013 and 2014, the Group has made capital expenditures,
defined as additions of property, plant and equipment and intangible non-current assets (excluding
amounts in respect of business combinations and spectrum acquisitions), of 15.5%, 13.8% and 12.4%
of revenue, respectively. In addition, capital expenditures for the years ended 31 December 2013 and
2012 included costs of acquired spectrum licences in the amounts of EUR 63.5 million and
107
EUR 1.8 million, respectively. The Group has budgeted EUR 123.0 million for capital expenditures
during 2015 of which EUR 22.9 million had been made through 31 March 2015. Capital expenditures
for 2015 are expected to be primarily for further rollout of fixed-line optical and metallic coverage,
LTE coverage and consolidation of IT platforms, individual solutions for business customers as well
as acquisition of customer premises equipment (such as set-top-boxes, home access gateways and
optical network terminations) and TV content for which the broadcasting rights meet the criteria for
recognition as intangible assets, amounting to a total of EUR 70.7 million. All of such principal
investments were in progress as of 31 March 2015 and are financed using internal sources of the
Group. See ‘‘Risk Factors – Risks Related to the Group’s Business and Industry – The Group operates
in a capital-intensive business, and any inability to meet its capital expenditure requirements or failure to
invest in the continued upgrades of its network capabilities could materially and adversely affect its
business, financial condition and results of operations’’.
Depreciation and amortisation
Depreciation, amortisation and impairment, which relates to goodwill, intangible assets including
customer relationships, licences, software development costs, broadcasting rights recognised as
intangible assets and property, plant and equipment, has had a significant impact on the Group’s
results of operations, and is expected to continue to have a significant impact for the foreseeable
future. A significant portion of the Group’s depreciation charge relates to depreciation on the
Group’s property, plant and equipment, primarily reflecting past investments. As a consequence of
these high levels of investment in the past, the current level of depreciation is relatively high and is
expected to decrease, particularly starting in 2016. In addition, the Group recognises amortisation
charges for intangible assets, in particular in respect of customer relationships, software and licences.
Notably, customer relationships with post-paid customers that were recognised at the acquisition of
T-Mobile in December 2004 had a net book value of EUR 57.6 million and remaining useful life of
three years, as of 31 December 2014. Depreciation and amortisation charges during a period may be
affected by additional factors such as reassessment of expected useful life of an asset or the pattern of
consumption of future economic benefits embodied in the asset, such as technology transformation
(i.e., accelerated replacement of property, plant and equipment, thereby reducing the useful life of the
asset), as well as impairment due to external factors.
Segmentation
The Group divides its operations into the following three segments, on the basis used by the
Executive Management Board to manage the Group’s business, allocate resources and make strategic
and operating decisions. The Group’s operating segments are:
*
Fixed-line Business. The fixed-line business includes fixed-line services provided to business and
residential customers such as voice, broadband (excluding DIGI), Pay-TV (excluding DIGI) and
ICT (excluding PosAm), wholesale services provided for other telecommunication operators in
the Group’s fixed network. Various non-recurring revenues, including sales of hardware and
activation and installation fees relating to fixed-line services, are also reported within this
segment.
*
Mobile Business. The mobile business includes mobile voice, SMS, MMS and mobile data
services provided to business and residential customers by the Group, as well as wholesale
services provided for other telecommunication operators in the Group’s mobile network. Nonrecurring revenues from sales of subsidised and non-subsidised handsets, activation and
prolongation fees charged for mobile services and similar charges are also reported within the
mobile segment.
*
Other Businesses include services provided by separate subsidiaries of the Group:
*
PosAm. This sub-segment includes ICT services provided by PosAm, an established
IT Company with a focus on bespoke solutions for corporate clients, which has been
active in the Slovak market for more than 20 years. It has more than 200 employees
working on IT projects and solutions geared towards the Group’s B2B customers.
*
DIGI. This sub-segment includes digital television (satellite and cable) and broadband
services provided mainly to residential customers. The Group acquired control over DIGI
with effect from 1 September 2013, for aggregate consideration of EUR 51.4 million. See
Note 16 to the Financial Statements for additional information on the DIGI acquisition.
*
Zoznam. The sub-segment includes online services provided through Zoznam and Zoznam
Mobile, the Company’s subsidiaries engaged in the internet search and portal business.
108
For more information regarding the Group’s financial segment reporting, see Note 4 to the Financial
Statements.
Seasonality
Seasonal effects have a relatively limited impact on the Group’s fixed-line business, reflecting that a
substantial proportion of revenue arises from monthly access fees, which are fixed, rather than
variable usage payments.
While the mobile business has historically experienced seasonal fluctuations in revenue, based on
changing trends in usage, the increasing popularity of semi-flat and flat tariff plans has significantly
reduced the impact of seasonality on the Group’s revenue. Nevertheless mobile roaming usage and
revenues still peak in the traditional summer vacation months of June, July, August and September.
Revenues from mobile messaging (SMS and MMS) services also tend to be highest in December and
January, reflecting the large volumes of message sent during the Christmas and New Year period.
Both fixed and mobile contract renewals and new customer acquisitions also tend to be greatest
during the Christmas sale period, generally from mid-October through the end of January or
February of the following year, as seasonal offers for service plans as well as for new hardware
(including personal computers and tablet devices) are perceived as more advantageous for customers.
Accordingly, the Group incurs a substantial portion of its subscriber acquisition and retention costs
during this period, as these are accounted with the new contracts with the customers.
Revenue from sales of ICT services tend to fluctuate throughout the year, due to variations in the
timing of customer contracts and the recognition of associated revenue. In particular, revenue from
ICT contracts with public sector organisations is often recognised only in the fourth quarter of the
year, as public sector customers seek to utilise state and/or municipal budgetary funds by the end of
the relevant year.
Restatement of Presentation of Certain Hardware Delivery Transactions and Internal Controls Improvements
In connection with the preparation of the Group’s financial statements as at and for the year ended
31 December 2014, the Group, in consultation with its auditors, determined that certain transactions
relating to the delivery of hardware in the Group’s ICT business where the Group was acting as
agent rather than principal were incorrectly accounted for on a gross, instead of net, basis during the
periods ended 31 December 2013 and 31 December 2012. As a result, the Group had recorded
revenue and the related costs, instead of only the Group’s commission from the transaction. In
accordance with IFRS, in connection with preparing the Financial Statements the Group restated the
presentation of the affected transactions for the years ended 31 December 2013 and 2012. The impact
on the Group’s income statement is set forth below.
For the year ended
31 December
2013
Revenue .............................................................................................................
Material and equipment ....................................................................................
Other operating costs.........................................................................................
2012
(EUR million)
(18.6)
(11.0)
14.2
11.0
4.4
—
The change in presentation did not have an impact on the Group’s profit, other comprehensive
income, statement of financial position, retained earnings, cash flow or earnings per share. See also
Note 2.21 to the Financial Statements.
The Group’s internal audit and compliance departments undertook an investigation of the procedures
and processes in its ICT business, and determined that there had been certain deficiencies in the
design and effectiveness of internal controls when entering into the relevant transactions. The Group
identified the relevant process and control gaps and has undertaken remedial measures.
109
Description of Key Income Statement Line Items
Revenue
Revenue is recognised upon the delivery of services and products and customer acceptance thereof,
and to the extent that it is probable that the economic benefits will flow to the Group and the
revenue can be reliably measured. Revenue from rendering of services and from sales of equipment is
shown net of value added tax and discounts, and is measured at the fair value of consideration
received or receivable.
The Group categorises its revenue as service revenue; terminal equipment revenue; systems solutions/
IT revenue; and other revenue.
Revenue from multiple revenue arrangements is considered as comprising identifiable and separable
components, to which general revenue recognition criteria can be applied separately. For example,
numerous service offers are made up of two components, a product and a service. When separable
components have been identified, an amount received or receivable from a customer is allocated to
individual deliverables based on each component’s fair value. The amount allocable to a delivered
item(s) is limited to the amount that is not contingent upon the delivery of additional items or
meeting other specified performance conditions (the non-contingent amount). The revenue relating to
the item(s) is recognised when risks and rewards are transferred to the customer, which occurs on
delivery. Revenue relating to the service element is recognized on a straight-line basis over the service
period.
Revenue from sale of hardware and software is recognised when risks of ownership are substantially
transferred to a customer, provided there are no unfulfilled obligations that affect the customer’s final
acceptance of the arrangement.
Telephone, Internet and Television services (fixed-line and mobile). Service revenue from provision of
fixed-line, mobile and television services is recognised when the services are provided in accordance
with contractual terms and conditions. Airtime revenue is recognised based upon minutes of use and
contracted fees less credits and adjustments for discounts, while subscription and flat rate revenue is
recognised in the period to which it relates. Revenue from prepaid cards is recognised when credit is
used by a customer, or after a period of limitation when unused credit elapsed.
Interconnection revenue. The Group collects a fee from other operators for calls and other traffic that
originates in other operators’ networks. These amounts are recognised as revenue at the time when
the call is received in the Group’s network. Revenue from interconnection fees is recognised gross of
the fees that the Group pays to other operators for calls and other traffic that originate in the
Group’s network but use other operators’ networks.
Content revenues. The Group recognises content revenue based on the agreement between the Group
and the content providers. Where the Group is acting as a principal in the transaction, the revenue
received from the subscribers is presented on gross basis and the portion paid to the content
providers is recognised as an operating expense. Where the Group acts as an agent, meaning that the
content provider is responsible for the service content and the Group does not assume the risks and
rewards of ownership, the revenue is presented net.
Sales of equipment. Revenue from sales of equipment is recognised when the equipment is delivered
and installation is completed. Completion of an installation is a prerequisite for recognizing revenue
on such sales of equipment where installation is not simple in nature and functionally constitutes a
significant component of the sale.
Activation fees. Costs directly related to the activation of a customer, such as SIM card costs and
commissions, are recovered as activation fees. These amounts are deferred over an expected customer
retention period. This period is estimated on a basis of an anticipated term of customer relationship
under the arrangement which generated the activation fee.
Systems Solutions/IT revenue. Contracts on network services, which consist of installations and
operations of communication networks for customers, have an average duration of two to three years.
Revenue from voice and data services is recognised under such contracts when voice and data are
used by a customer. Revenue from system integration contracts comprising delivery of customised
products and/or services is recognised when the customised complex solution is being delivered and
accepted by a customer. Contracts are usually separated into distinct milestones which indicate
completion, delivery and acceptance of a defined project phase. Upon completion of a milestone the
Group is entitled to issuing an invoice and to payment. Revenue from maintenance services, which is
generally a fixed fee per month, is recognised when the services are provided. Revenue from repairs
110
that are not part of a maintenance contract but billed on the basis of time and material used is
recognised when the services are provided.
Staff costs
Staff costs consist primarily of wages and salaries, as well as social security contributions.
Material and equipment
A portion of the Group’s subscriber acquisition and retention costs are included within cost of
materials, particularly handset and other hardware costs such as televisions, tablets and personal
computers, as well as SIM card costs. The write-down of inventories is also recognised within
material and equipment cost.
Depreciation, amortisation and impairment losses
Depreciation, amortisation and impairments relate to goodwill, intangible assets including customer
relationships, licences, software development costs, broadcasting rights recognised as intangible assets
and property, plant and equipment, including customer-driven equipment such as IPTV set-top-boxes,
modems and handsets.
Interconnection and other fees to operators
The Group is required to pay access and interconnection fees to other network operators for calls
terminated on their networks, in each case both domestic and international. These access and
interconnection fees are based on set termination rates for both fixed-line calls (FTRs) and mobile
calls and SMS (MTRs). This item also includes international interconnection and other mobile
roaming charges.
Other operating costs
Other operating expenses primarily comprise costs relating to repairs and maintenance, dealer
commissions paid to agents in connection with acquiring new customers and/or prolonging existing
contracts, as well as marketing and promotional expenditures, content fees (where the rights do not
meet the criteria for recognition as intangible assets), rentals and leases, energy costs, bad debts
expenses and services related to delivery of solutions for customers, consisting of costs of complex IT
solutions incurred in connection with the work of ICT project subcontractors. Other operating costs
also include own work capitalised, consisting of staff costs incurred in direct connection with the
creation, development, acquisition and deployment of non-current assets.
Results of Operations
Profit forecasts
There are no profit forecasts or profit estimates included in this Prospectus, and no profit forecast or
estimate has been published by the Company.
111
Years ended 31 December 2014, 2013 and 2012
The following table presents the Group’s results of operations for the years ended 31 December 2014,
2013 and 2012:
2014
Revenue, of which.........................................................................
Fixed-line Business...................................................................
Mobile Business .......................................................................
Other Businesses ......................................................................
Staff costs ....................................................................................
Material and equipment ..............................................................
Interconnection and other fees to operators ...............................
Other operating income ...............................................................
Other operating costs...................................................................
Financial income..........................................................................
Financial expense.........................................................................
Profit before tax...........................................................................
Taxation.......................................................................................
2013
2012
(EUR million, audited)
767.6
809.0
826.8
326.4
355.5
361.0
372.8
414.4
437.4
68.4
39.1
28.4
(130.1)
(132.4)
(129.8)
(101.2)
(104.5)
(92.6)
(195.0)
(236.9)
(236.4)
(65.7)
(70.5)
(87.0)
12.6
10.9
10.5
(218.9)
(206.2)
(181.1)
69.3
69.3
110.5
2.9
2.6
4.9
(1.2)
(1.8)
(1.8)
71.0
(27.4)
43.6
70.2
(20.9)
49.3
113.6
(50.5)
63.1
Revenue
Revenue decreased by EUR 41.4 million, or 5.1%, to EUR 767.6 million for the year ended
31 December 2014 from EUR 809.0 million for the year ended 31 December 2013, and decreased by
EUR 17.8 million, or 2.2%, from EUR 826.8 million for the year ended 31 December 2012. The
decrease in revenue for the year ended 31 December 2014 was attributable to a decline in fixed-line
business revenue of EUR 29.1 million, or 8.2%, and of mobile business revenue by EUR 41.6 million,
or 10.0%, partially offset by an increase in other segment revenue of EUR 29.3 million, or 74.9%.
The decrease in revenue for the year ended 31 December 2013 was attributable to a decline in fixedline business revenue of EUR 5.5 million, or 1.5%, and in mobile business revenue of
EUR 23.0 million, or 5.3%, partially offset by an increase in other businesses revenue of
EUR 10.7 million, or 37.7%.
The Group reports its segmental revenue for the purposes of preparing its IFRS financial statements
as presented in ‘‘– Segmental comparison of results of operations for the years ended 31 December
2014, 2013 and 2012’’. The following table presents a further breakdown by product line of the
Group’s segmental revenue for the years ended 31 December 2014, 2013 and 2012.
2014
2013
2012
Fixed-line Business .......................................................................
Voice ............................................................................................
Broadband and Pay-TV...............................................................
ICT ..............................................................................................
Other (including Wholesale) ........................................................
Mobile Business............................................................................
Voice ............................................................................................
Data and Messaging ....................................................................
Other (including Wholesale) ........................................................
Other Businesses ..........................................................................
DIGI (external, i.e., consolidated)...............................................
PosAm (external, i.e., consolidated) ............................................
Zoznam (external, i.e., consolidated)...........................................
(EUR million, unaudited)
326.4
355.5
96.2
110.7
90.2
91.5
21.8
26.3
118.2
127.0
372.8
414.4
181.3
205.9
104.9
100.1
86.5
108.4
68.4
39.1
27.7
9.1
34.5
24.2
6.2
5.8
361.0
126.9
91.3
12.9
130.0
437.4
239.1
90.4
108.0
28.4
—
22.8
5.6
Group (consolidated) ....................................................................
767.6
826.8
112
809.0
Fixed-line Business
Fixed-line business revenue decreased by EUR 29.1 million, or 8.2%, to EUR 326.4 million for the
year ended 31 December 2014 from EUR 355.5 million for the year ended 31 December 2013, and
decreased by EUR 5.5 million, or 1.5%, for the year ended 31 December 2013 compared to
EUR 361.0 million for the year ended 31 December 2012.
Voice. Voice revenue decreased by EUR 14.5 million, or 13.1%, to EUR 96.2 million for the year
ended 31 December 2014, from EUR 110.7 million for the year ended 31 December 2013 and
decreased by EUR 16.2 million, or 12.8%, to EUR 110.7 million for the year ended 31 December
2013 compared to EUR 126.9 million for the year ended 31 December 2012. The decrease in Voice
revenue during the periods under review mainly resulted from a decrease in the number of Voice
accesses by approximately 45 thousand, or 6.7%, during the year ended 31 December 2014 and by
approximately 66 thousand, or 8.9%, during the year ended 31 December 2013. In addition, average
revenue per access (ARPA) for fixed-line voice services, which is defined as monthly service revenue
from provision of fixed-line voice services divided by the average number of accesses for fixed-line
voice services reported in the respective calendar month, declined by 6.4% during 2014 and 4.0% in
2013, reflecting reduced demand for fixed-line voice telephone services, and contributing to the
decrease in Voice revenue. The reduced demand for fixed-line telephony reflects the tendency of users
to shift voice usage from traditional fixed-line telephony to mobile telephony.
Broadband and Pay-TV. Broadband and Pay-TV revenue decreased by EUR 1.3 million, or 1.4%, to
EUR 90.2 million for the year ended 31 December 2014, from EUR 91.5 million for the year ended
31 December 2013, and increased slightly by EUR 0.2 million, or 0.2%, for the year ended
31 December 2013 from EUR 91.3 million for the year ended 31 December 2012. The decrease in
Broadband and Pay-TV revenue during the year ended 31 December 2014 was mainly due to a
decline in Broadband ARPA, which is defined as monthly service revenue from provision of
broadband services divided by the average number of accesses for broadband services reported in the
respective calendar month, by EUR 1.0 per access, or 7.1%, which was largely attributable to strong
competition, particularly from smaller operators, and corresponding pressure to reduce retail prices.
The Group is also subject to significant regulation, in order to prevent abuse of dominant position on
the market and/or margin squeeze. The Group seeks to offset decreases in Broadband and Pay-TV
revenue by bundling of broadband and Pay-TV services with fixed-line voice services, which
contributes towards an increase in premium Pay-TV accesses.
ICT. ICT revenue decreased by EUR 4.5 million, or 17.1%, to EUR 21.8 million for the year ended
31 December 2014 from EUR 26.3 million for the year ended 31 December 2013, and increased by
EUR 13.4 million, or 103.9%, for the year ended 31 December 2013 from EUR 12.9 million for the
year ended 31 December 2012. The decrease in ICT revenue during the year ended 31 December 2014
and the increase in ICT revenue during the year ended 31 December 2013 were attributable to the
fact that in 2013 the Group contracted a major one-off transaction relating to development work on
a new CRM system and its sale to a subsidiary of Deutsche Telekom. The aggregate occupancy rates
of the Group’s data centres increased from 66% in 2012 to 71% in 2014.
Other revenues. Other revenues, comprising business data, wholesale, equipment and other nonrecurring revenues, decreased by EUR 8.8 million, or 6.9%, to EUR 118.2 million for the year ended
31 December 2014, from EUR 127.0 million for the year ended 31 December 2013, and decreased by
year ended 31 December 2012. The decrease in other revenues during the year ended 31 December
2014 was mainly due to the fact that in 2013 there was a one-off resale of Premier league TV
broadcasting rights for the Czech Republic in the amount of EUR 3.9 million. Moreover, revenue
from business data, where the Group formerly benefited from the ability to charge higher prices due
to limited competition, decreased by EUR 2.5 million in the year ended 31 December 2014 as
compared to the year ended 31 December 2013 due to strong price pressure from business customers.
The decrease in other revenues during the year ended 31 December 2013 was partly the result of
lower revenues from business data due to price competition from the Group’s competitors. In
addition, revenues from installation decreased by EUR 2.5 million for the year ended 31 December
2013 from the preceding year as a result of changes in accounting estimates. During 2012, the
expected lifetime of major contracts with business customers, over which activation revenues are
deferred, was reassessed. As a result of this reassessment, the corresponding share of deferrals for
such activation fees were partially released, creating a one-off favourable effect on 2012 revenues.
113
Mobile Business
Mobile business revenue decreased by EUR 41.6 million, or 10.0%, to EUR 372.8 million for the year
ended 31 December 2014 from EUR 414.4 million for the year ended 31 December 2013, and
Voice. Mobile voice revenue decreased by EUR 24.6 million, or 11.9%, to EUR 181.3 million for the
decreased by EUR 33.2 million, or 13.9%, for the year ended 31 December 2013 from
EUR 239.1 million for the year ended 31 December 2012. The decrease in mobile voice revenue
during the periods under review was mainly due to strong competition in the local market, as well as
ongoing severe reductions of the MTR in the Slovak Republic following recommendations from the
European Commission adopted in 2009, both of which created a push for lower retail prices of voice
plans. In addition, as semi-flat and flat voice plans have become increasingly common, the correlation
between the volume of minutes of use and revenue has declined.
Data and messaging. Non-voice revenue from mobile data and messaging increased by EUR 4.8 million,
or 4.8%, to EUR 104.9 million for the year ended 31 December 2014 from EUR 100.1 million for the
year ended 31 December 2013, and increased by EUR 9.7 million, or 10.7%, for the year ended
31 December 2013 from EUR 90.4 million for the year ended 31 December 2012. The increase in
revenue from mobile data and messaging during the period under review was attributable to an
increase in mobile data revenue, which increased by EUR 6.5 million, or 10.4%, in 2014 and
increased by EUR 13.2 million, or 26.7%, in 2013, partially offset by a decline in messaging revenue
by EUR 1.7 million, or 4.5%, in 2014 and by EUR 3.5 million, or 8.6% in 2013. The increase in
mobile data revenue reflected the growing number of subscribers with monthly plans with bundled
internet as well as higher usage due to the increasing popularity and spread of smart phones. This
decrease in messaging revenues was mainly due to the increasing popularity of tariffs with unlimited
SMS volume included in the monthly subscription fee, notwithstanding growth in SMS traffic by 19%
and 16% in 2014 and 2013, respectively.
Other revenues. Other revenue, comprising wholesale, equipment sales and other non-recurring
revenues, decreased by EUR 21.9 million, or 20.2%, to EUR 86.5 million for the year ended
year ended 31 December 2012. Wholesale revenues, which decreased by EUR 11.8 million, or 20.2%,
in 2014 and decreased by EUR 9.6 million, or 14.1%, in 2013, were adversely affected by reductions
in voice termination rates. Wholesale revenues also comprise visitors’ roaming revenue, which
decreased by EUR 1.1 million, or 19.3%, in 2014, and decreased by EUR 1.7 million, or 23.0%, in
2013, reflecting reductions in roaming rates required by EU regulation. Equipment sales comprise sale
of terminal equipment to the Group’s customers and sale of handsets to other resellers. Revenues
from equipment sales decreased by EUR 8.5 million, or 25.6%, in 2014, and increased by
EUR 10.7 million, or 47.6%, in 2013. The decrease of equipment sales revenues during the year ended
31 December 2014 was attributable to the fact that the Group collected revenues from instalment
sales of mobile handsets in the amount of EUR 10.5 million in 2013, which did not occur in 2014. In
an instalment sale, as handset revenue is not contingent upon delivery of the service, the Group is
entitled to recognise the handset’s fair value as revenue, whereas in a traditional subsidised sale, the
revenue from sale of handsets is limited to the upfront fee paid by the customer, which is generally
substantially lower than the stand-alone fair value of the handsets. The increase of equipment sales
revenue during the year ended 31 December 2013 was mainly attributable to sales to other handset
resellers, which increased by EUR 7.2 million as compared to 2012.
Other Businesses
Other business revenue increased by EUR 29.3 million, or 74.9%, to EUR 68.4 million for the year
increased by EUR 10.7 million, or 37.7%, for the year ended 31 December 2013 compared to
DIGI. Revenue from DIGI accounted for 3.6% of total revenue for the year ended 31 December
2014, up from 1.1% in the previous year. This increase was due to the fact that DIGI was acquired
and its revenues consolidated into the Group’s results since 1 September 2013. The consolidation of
DIGI contributed EUR 27.7 million and EUR 9.1 million to the increase in revenues of other
business in the years ended 31 December 2014 and 2013, respectively.
114
PosAm. Revenue from PosAm accounted for 4.5% of total revenue for the year ended 31 December
2014, compared to 3.0% for the year ended 31 December 2013 and 2.8% for the year ended
31 December 2012. Revenue from PosAm increased by EUR 10.3 million, or 42.6%, to
31 December 2013, and increased by EUR 1.4 million, or 6.1%, for the year ended 31 December 2013
compared to EUR 22.8 million for the year ended 31 December 2012. The revenue growth in both
years is largely attributable to the acquisition of a major public sector contract in 2013 relating to the
supply and implementation of large cloud and storage solutions.
Zoznam. Revenue from Zoznam, which runs one of the most popular internet portals in Slovakia and
engages in online advertising activities, only accounted for 0.8%, 0.7% and 0.7% of total revenue for
the years ended 31 December 2014, 2013 and 2012, respectively.
Staff costs
Staff costs decreased by EUR 2.3 million, or 1.7%, to EUR 130.1 million for the year ended
31 December 2014 from EUR 132.4 million for the year ended 31 December 2013. The decrease in
staff costs for the year ended 31 December 2014 reflected the decline of 283 full-time equivalents
(FTEs) as part of ongoing personnel restructuring and a one-off curtailment gain on provisions for
defined benefit plans in accordance with IAS 19. This decrease in staff costs was partially offset by
the cost increase of EUR 3.1 million resulting from the full-year consolidation of DIGI and an
increase of EUR 2.7 million as a result of annual salary increase in accordance with collective
agreement provisions. Staff costs increased by EUR 2.6 million, or 2.0%, to EUR 132.4 million for
the year ended 31 December 2013 from EUR 129.8 million for the year ended 31 December 2012.
The increase in staff costs during the year ended 31 December 2013 was primarily due to an increase
of social security contributions of EUR 3.2 million in line with changes in local legislation, increased
staff costs of EUR 1.8 million resulting from increased headcount following the acquisition of DIGI
and EUR 4.2 million due to salary increases stipulated by the collective agreement. These increases
were offset by a headcount reduction in connection with the on-going personnel restructuring, as
average headcount decreased from 3,893 in 2012 to 3,800 in 2013, though total headcount increased
from 3,835 as of 31 December 2012 to 3,890 as of 31 December 2013, reflecting the acquisition of
DIGI.
Material and equipment
Material and equipment costs decreased by EUR 3.3 million, or 3.2%, to EUR 101.2 million for the
year ended 31 December 2014 from EUR 104.5 million for the year ended 31 December 2013 and
increased by EUR 11.9 million, or 12.9%, for the year ended 31 December 2013 compared to
EUR 92.6 million for the year ended 31 December 2012. The decrease in material and equipment
costs for the year ended 31 December 2014 was attributable to lower costs incurred for subsidised
handsets sold with contracts with a 24-month commitment, one-off costs incurred in connection with
delivery of hardware to a major business customer and the resale of Premier league TV broadcasting
rights for the Czech Republic during the year ended 31 December 2013. The Group also reduced
material and equipment costs by EUR 1.1 million for overhead costs such as fuel, consumption of
low-value assets and stationary as a result of efficiency improvements. These cost reductions were
partially offset by increased costs of IT hardware sold as part of ICT contracts, which increased by
EUR 8.2 million from 2013. The increase in material and equipment costs during the year ended
31 December 2013 was primarily due to higher mobile equipment costs (by EUR 8.4 million) in
connection with higher mobile handset sales as well as the one-off costs associated with the resale of
the Premier league TV broadcasting rights for the Czech Republic. This was partially offset by
declining costs of goods sold, primarily for equipment in the in the fixed-line business, reflecting
management’s efforts to curtail subsidies for expensive equipment such as TVs, notebooks and tablets.
As the accounting treatment for the resale of Premier league TV broadcasting rights was the same as
that for the sale of merchandise, the costs associated with the resale of the Premier league TV
broadcasting rights were disclosed in the same category as costs for other items of merchandise, such
as mobile handsets and other equipment sold in the fixed-line business.
Depreciation, amortisation and impairment losses
The Group’s depreciation, amortisation and impairment losses decreased by EUR 41.9 million, or
17.7%, to EUR 195.0 million for the year ended 31 December 2014 from EUR 236.9 million for the
year ended 31 December 2013, and increased by EUR 0.5 million, or 0.2%, for the year ended
31 December 2013 compared to EUR 236.4 million for the year ended 31 December 2012. The
significant decrease in depreciation, amortisation and impairment losses for the year ended
115
31 December 2014 is attributable to impairment losses of EUR 16.7 million recorded in 2013 against
property classified as assets held for sale in connection with management’s intention to sell real estate
in the foreseeable future pursuant to IFRS requirements, and the completion of amortisation of retail
customer contracts which were initially recognised as intangible non-current assets in connection with
the Group’s acquisition of the remaining 49% interest in EuroTel Bratislava from Atlantic West in
2004.
Interconnection and other fees to operators
The Group’s interconnection and other fees to operators decreased by EUR 4.8 million, or 6.8%, to
EUR 65.7 million for the year ended 31 December 2014 from EUR 70.5 million for the year ended
31 December 2013, and 16.5 million, or 19.0%, to EUR 70.5 million for the year ended 31 December
2013 from EUR 87.0 million for the year ended 31 December 2012. The decrease during the year
ended 31 December 2014 was primarily due to a decrease in national voice interconnection costs by
44.8% (by 46.8% in year 2013) in the fixed-line business and by 39.1% (by 36.1% in year 2013) in the
mobile business, reflecting the impact of the regulation of the mobile termination rate. Roaming costs,
which are also subject to EU regulation, decreased by 20.6% in 2014 and 18.2% in 2013. During the
year ended 31 December 2014, international interconnection costs in the fixed-line business increased
by 3.0% in line with higher international transit traffic. International interconnection costs in the
mobile business decreased by 11.6%, reflecting the decrease in the MTR by approximately 22%.
Other operating income
The Group’s other operating income increased by EUR 1.7 million, or 15.6%, to EUR 12.6 million
for the year ended 31 December 2014 from EUR 10.9 million for the year ended 31 December 2013,
and increased by EUR 0.4 million, or 3.8%, to EUR 10.9 million for the year ended 31 December
2013 from EUR 10.5 million for the year ended 31 December 2012. The increase in other operating
income during the year ended 31 December 2014 was primarily due to a reversal of impairment of
property and equipment of EUR 2.5 million pursuant to the decision of management to continue to
use certain buildings and related land previously designated for sale, and corresponding reversal of
the prior impairment of these assets.
116
Other operating costs
Other operating costs increased by EUR 12.7 million, or 6.2%, to EUR 218.9 million for the year
increased by EUR 25.1 million, or 13.9%, to EUR 206.2 million for the year ended 31 December
2013 from EUR 181.1 million for the year ended 31 December 2012.
The following table presents the Group’s other operating costs for the years ended 31 December
2014, 2013 and 2012:
2014
Legal and regulatory claims........
Services related to delivery of
solutions for customers ...............
Repairs and maintenance............
Marketing costs...........................
Content fees ................................
Rentals and leases .......................
Dealer commissions ....................
Energy .........................................
IT services ...................................
Bad debts expenses......................
Installation services .....................
Printing and postage ...................
Fees paid to Deutsche Telekom
AG ..............................................
Consultancy.................................
Frequency and other fees to
Slovak NRA................................
Logistics ......................................
Other ...........................................
Own work capitalised .................
Total other operating costs ..........
(EUR
million
audited)
42.3
2013
(Share of
total other
(EUR
operating
million
costs) audited)
19.3%
26.1
2012
(Share of
total other
(EUR
operating
million
costs) audited)
12.7%
—
(Share of
total other
operating
costs)
0.0%
24.0
21.4
20.7
19.9
18.6
17.4
16.3
7.3
6.2
4.9
4.6
11.0%
9.8%
9.5%
9.1%
8.5%
7.9%
7.4%
3.3%
2.8%
2.2%
2.1%
25.4
22.8
22.4
15.3
18.6
19.1
17.4
8.5
5.6
3.7
4.6
12.3%
11.1%
10.9%
7.4%
9.0%
9.3%
8.4%
4.1%
2.7%
1.8%
2.2%
16.0
25.5
23.1
13.8
18.2
23.8
18.0
8.5
4.5
3.1
4.9
8.8%
14.1%
12.8%
7.6%
10.0%
13.1%
9.9%
4.7%
2.5%
1.7%
2.7%
4.2
3.0
1.9%
1.4%
4.4
4.0
2.1%
1.9%
4.7
9.2
2.6%
5.1%
2.8
2.3
20.0
(17.2)
1.3%
1.1%
9.1%
(7.9)%
2.5
2.8
20.2
(17.2)
1.2%
1.4%
9.8%
(8.3)%
3.5
3.3
19.1
(18.1)
1.9%
1.8%
10.5%
(10.0)%
218.9
100.0%
206.2
100.0%
181.1
100.0%
Expenses for legal and regulatory claims increased by EUR 16.2 million, or 62.1%, to
31 December 2013, and from nil for the year ended 31 December 2012. These amounts reflected
mainly provisions for the penalty in the EC case in the amount of EUR 38.8 million, recorded in
2013 and 2014 and paid in January 2015, as well as provisions for other legal and regulatory cases
recorded in 2014.
Services related to delivery of solutions for customers costs consist of costs charged to the Group by
subcontractors cooperating with the Group on ICT projects. Services related to delivery of solutions
for customers costs decreased by EUR 1.4 million, or 5.5%, to EUR 24.0 million for the year ended
EUR 9.4 million, or 58.8%, for the year ended 31 December 2013, from EUR 16.0 million for the
year ended 31 December 2012. The decrease in services related to delivery of solutions for customers
costs during the year ended 31 December 2014 was attributable to lower costs in the fixed-line
business, which in turn was in line with lower ICT revenues in 2014 as compared to 2013. The
increase in cost of services related to delivery of solutions for customers during the year ended
31 December 2013 was primarily attributable to the growth of the Group’s ICT revenues in both the
fixed-line business and PosAm compared to the year ended 31 December 2012.
Repairs and maintenance costs decreased by EUR 1.4 million, or 6.1%, to EUR 21.4 for the year
117
decreased by EUR 2.7 million, or 10.6%, to EUR 22.8 million for the year ended 31 December 2013
from EUR 25.5 million for the year ended 31 December 2012. The decrease in repairs and
maintenance costs during the periods under review was primarily due to re-negotiated contract prices
and reduced scope for network support and maintenance of approximately EUR 2.0 million each year
in connection with the Group’s focus on cost efficiency.
Marketing costs decreased by EUR 1.7 million, or 7.6%, to EUR 20.7 million for the year ended
EUR 0.7 million, or 3.0%, from EUR 23.1 million for the year ended 31 December 2012. The
decrease in marketing costs during the period under review was primarily due to a reduction in the
number of advertising campaigns and sponsoring activities.
Content fees increased by EUR 4.6 million, or 30.1%, to EUR 19.9 million for the year ended
year ended 31 December 2012. The increase in content fees for the year ended 31 December 2014 was
due to incremental TV content costs in connection with the full-year consolidation of DIGI. The
increase in content fees during the year ended 31 December 2013 was due to an increase of
EUR 2.9 million associated with costs for DIGI following its acquisition during 2013, largely offset
by the elimination of excess accruals for royalties, which are levied on the Group for re-transmission
of TV content and which are collected by several copyright administrations in accordance with local
legislation. In addition, the Group incurred EUR 1.2 million in one-off costs in connection with the
Group’s participation in a TV game, which were also reflected in higher mobile content revenues
booked in 2013. The majority of the Group’s content costs are incurred in the fixed-line business.
Costs of rentals and leases remained stable at EUR 18.6 for the years ended 31 December 2014 and
2013, and increased by EUR 0.4 million, or 2.2%, for the year ended 31 December 2013 from
EUR 18.2 million for the year ended 31 December 2012. The increase in rentals and lease costs
during the year ended 31 December 2013 was due to change of the Group’s car policy, as starting in
2013 the Group changed to leasing its fleet under operational lease arrangements, whereas previously
motor vehicles had been acquired as non-current assets pursuant to finance lease arrangements.
Effects of the changes in car policy are partially offset by savings in terms of rent of administrative
premises, which is attributable to consolidation of Group’s headquarter function in single location, as
well as reduction in the number of own shops.
Dealer commissions, which consist of fees paid to operators of franchise shops, decreased by
EUR 1.7 million, or 8.9%, to EUR 17.4 million for the year ended 31 December 2014 from
EUR 19.1 million for the year ended 31 December 2013, and decreased by EUR 4.7 million, or
19.7%, for the year ended 31 December 2013 from EUR 23.8 million for the year ended 31 December
2012. The decrease in dealer commissions during the year ended 31 December 2014 was mainly
achieved in the mobile business and reflects fewer sales transactions via indirect sales channels, as well
as efforts to optimise the sales channels structure and decrease the average cost per transaction across
all channels. The decrease in dealer commissions for the year ended 31 December 2013 was primarily
due to the Group’s efforts to optimise the sales channels structure and to decrease average costs per
transaction across all channels. Dealer commissions were also affected by a significant decrease in
sales transactions through indirect sales channels, particularly in the fixed-line business during 2013.
Energy costs decreased by EUR 1.1 million, or 6.3%, to EUR 16.3 million for the year ended
EUR 0.6 million, or 3.3%, to EUR 17.4 million for the year ended 31 December 2013 from
EUR 18.0 million for the year ended 31 December 2012. The decrease in energy costs for the year
ended 31 December 2014 reflected ongoing saving initiatives, mainly in connection with the migration
to all-IP and related dismantling of old technology. The decrease in energy costs during the year
ended 31 December 2013 reflected the Group’s efforts to negotiate more favourable energy prices as
well as the reduction of energy consumption, focused on sustainable cost and energy efficiency,
achieved mainly through continuing efforts aimed to reduce complexity of the Group’s applications
and systems and replacement of the Group’s network components with cost efficient upgrades.
IT services costs decreased by EUR 1.2 million, or 14.1%, to EUR 7.3 million for the year ended
31 December 2014 from EUR 8.5 million for the year ended 31 December 2013, and remained stable
at EUR 8.5 million in the year ended 31 December 2013 and the year ended 31 December 2012. The
decrease in IT services costs for the year ended 31 December 2014 reflected renegotiation of several
118
support contracts and SLAs targeted to reduce charges and lower costs for implementation of the
CRM system, which was upgraded during 2013.
Bad debt expenses increased by EUR 0.6 million, or 10.7%, to EUR 6.2 million for the year ended
EUR 1.1 million, or 24.4%, for the year ended 31 December 2013 from EUR 4.5 million for the year
ended 31 December 2012. The increase in bad debt expenses for the year ended 31 December 2014
reflected bad debt provisions of EUR 0.2 million for outstanding bills for roaming services in the
Slovak Republic provided to the Group’s Iranian roaming contract counterparty arising in connection
with fraudulent call activity, specific provisions of EUR 0.2 million for outstanding receivables of
business customers and a one-off expense of approximately EUR 0.2 million resulting from
methodological changes in the hard suspend process. The increase in bad debt expenses during the
year ended 31 December 2013 was attributable to re-assessment of the collectability of trade
receivables and unification of the provisioning policy for the fixed-line and mobile business, which
resulted in a one-time increase of bad debt expenses in 2013. In addition, in 2013, bad debt expenses
were affected by the creation of provisions for outstanding receivables from instalment sales of mobile
handsets, which were first introduced in December 2012.
Installation services costs increased by EUR 1.2 million, or 32.4%, to EUR 4.9 million for the year
ended 31 December 2014 from EUR 3.7 million for the year ended 31 December 2013, and increased
by EUR 0.6 million, or 19.4%, from EUR 3.1 million for the year ended 31 December 2012. The
increase in installation costs during the year ended 31 December 2014 was primarily due to the
Group’s decision to migrate its satellite Pay TV customers to a new platform, which required
outsourcing of services to re-position the customers’ satellite dishes. The increase in installation
services during the year ended 31 December 2013 primarily reflects a higher number of fixed-line
accesses in 2013 than in 2012 that were installed through a third party vendor rather than by internal
staff at the Company.
Printing and postage costs remained stable at EUR 4.6 million for the year ended 31 December 2014
and the year ended 31 December 2013, and decreased by EUR 0.3 million, or 6.1%, from
EUR 4.9 million for the year ended 31 December 2012. The decrease in printing and postage costs
reflected the increasing share of e-bills of total bills issued, to 45% during 2013 from 40% in 2012,
resulting in a significant reduction in the number of paper invoices and associated costs.
Costs for fees paid to Deutsche Telekom decreased by EUR 0.2 million, or 4.5%, to EUR 4.2 million
and decreased by EUR 0.3 million, or 6.4%, for the year ended 31 December 2013 from
EUR 4.7 million for the year ended 31 December 2012. A significant proportion of the fees paid to
Deutsche Telekom represents licences fees for using the ‘‘T’’ brand and are calculated as a percentage
of external revenues of the Group for the given year.
Consultancy costs decreased by EUR 1.0 million, or 25%, to EUR 3.0 million for the year ended
31 December 2014 from EUR 4.0 million, and decreased by EUR 5.2 million, or 56.5%, for the year
ended 31 December 2013 from EUR 9.2 million for the year ended 31 December 2012. The decrease
in consultancy costs during the year ended 31 December 2014 was primarily due to re-classification of
costs of outsourcing accounting services, which were reported as consultancy costs in 2013 but since
2014 have been classified as Other costs. The decrease in consultancy costs during the year ended
31 December 2013 was primarily due to lower legal advisory costs related to the litigation and
regulatory proceedings. See ‘‘Business – Legal Proceedings’’.
Costs for frequency and other fees paid to the Slovak NRA, including recurring fees paid for
utilisation of frequency bands, increased by EUR 0.3 million, or 12%, to EUR 2.8 million for the
EUR 3.5 million for the year ended 31 December 2012. The increase in frequency and other fees for
the year ended 31 December 2014 mainly reflected higher fees imposed by Slovak NRA for
microwave connectivity and fees related to point-to-point accesses used for LTE. The decrease in
frequency fees during the year ended 31 December 2013 mainly relates to lower fees imposed by
Slovak NRA for utilisation of the 450MHz, 900MHz, 1,800MHz and 2,100MHz frequency bands and
also lower fees for point-to-point accesses.
Other costs decreased by EUR 0.2 million, or 1.0%, to EUR 20.0 million for the year ended
119
EUR 1.1 million, or 5.8%, for the year ended 31 December 2013 compared to EUR 19.1 million for
the year ended 31 December 2012.
Own work capitalised, which represents the share of staff costs incurred in connection with the
creation, development and acquisition of non-current assets, remained flat at EUR 17.2 million for
the years ended 31 December 2014 and 31 December 2013, and decreased by EUR 0.9 million, or
5.0%, for the year ended 31 December 2013 compared to a credit of EUR 18.1 million for the year
ended 31 December 2012. The decrease in own work capitalised during the year ended 31 December
2013 was primarily due to downsizing of the Group’s staff, including employees engaged in the
Group’s development projects that are being capitalised as part of the cost of non-current assets.
Financial income
Financial income increased by EUR 0.3 million, or 11.5%, to EUR 2.9 million for the year ended
EUR 2.3 million, or 46.9%, to EUR 2.6 million for the year ended 31 December 2013, from
EUR 4.9 million for the year ended 31 December 2012. The increase in financial income for the year
ended 31 December 2014 was mainly due to higher interest earned from term deposits and available
for sale investments in 2014. The decrease in financial income for the year ended 31 December 2013
reflected an overall decrease in interest rates on the financial markets as well as decreased interest
earned on loans that had been granted to Deutsche Telekom as the loan was repaid.
Financial expense
Financial expense decreased by EUR 0.6 million, or 33.3%, to EUR 1.2 million for the year ended
31 December 2014 from EUR 1.8 million for the year ended 31 December 2013, and remained stable
at EUR 1.8 million for the year ended 31 December 2013 and the year ended 31 December 2012. The
decrease in financial expense for the year ended 31 December 2014 was mainly due to a decrease in
foreign exchange losses as a result of foreign exchange rate fluctuations between the years.
Taxation
Income tax expense increased by EUR 6.5 million, or 31.1%, to EUR 27.4 million for the year ended
EUR 29.6 million, or 58.6%, for the year ended 31 December 2013 compared to EUR 50.5 million
for the year ended 31 December 2012. The Group’s effective tax rate was 39%, 30% and 44% for the
years ended 31 December 2014, 2013 and 2012, respectively, as compared to a Slovak corporate tax
rate for the years ended 31 December 2014, 2013, and 2012 of 22%, 23% and 19% respectively. The
effective tax rates for the years ended 31 December 2013 and 31 December 2014 were significantly
higher than the nominal tax rates primarily due to non-tax deductible legal and regulatory expenses
in 2013 and 2014. Moreover, the changes in corporate tax rates for the years 2014 and 2013 (enacted
in 2013 and 2012, respectively) significantly affected the recalculation of deferred taxes resulting in an
income of EUR 5.8 million in 2013 and expense of EUR 26.3 million in 2012. In addition, the Group
made payments pursuant to a levy of 4.356% imposed by the Slovak government on regulated
industries, which went into effect on 1 September 2012. This resulted in an additional tax expense of
EUR 2.5 million, EUR 3.1 million and EUR 2.1 million for the years ended 31 December 2014,
31 December 2013 and 31 December 2012, respectively.
120
Segmental comparison of results of operations for the years ended 31 December 2014, 2013 and 2012
The following table presents a breakdown of the Group’s results of operations by segment for the
years ended 31 December 2014, 2013 and 2012:
2014
(EUR
million,
audited)
Fixed-line Business
Total external revenue, of which
Service revenue ........................
Terminal equipment ................
System solutions/IT .................
Other .......................................
Revenues within ST Group
(eliminated in consolidation).......
Content fees ................................
Customer solutions .....................
Interconnection and other fees to
operators .....................................
Material and equipment..............
Other direct costs ........................
Fixed segment gross margin.........
Mobile Business
Total external revenue, of which
Service revenue ........................
Terminal equipment ................
Other .......................................
Content fees ................................
operators .....................................
Mobile segment gross margin
Other Businesses
Total external revenue, of which .
Service revenue ........................
System solutions/IT .................
Other .......................................
Content fees ................................
operators .....................................
Other segment gross margin ........
2013
Share of
segment
revenue
(EUR
million,
audited)
2012
Share of
segment
revenue
(EUR
million,
audited)
Share of
segment
revenue
326.4
276.1
11.3
21.8
17.2
100.0%
84.6%
3.5%
6.7%
5.3%
355.5
294.0
11.3
26.3
23.9
100.0%
82.7%
3.2%
7.4%
6.7%
361.0
314.9
11.5
12.8
21.9
100.0%
87.2%
3.2%
3.5%
6.1%
0.7
(2.0)
(11.0)
(12.3)
(6.4)
0.2%
(0.6)%
(3.4)%
(3.8)%
(2.0)%
0.7
(1.5)
(9.6)
(20.5)
(6.6)
0.2%
(0.4)%
(2.7)%
(5.8)%
(1.9)%
0.3
(1.2)
(12.0)
(12.0)
(10.1)
0.1%
(0.3)%
(3.3)%
(3.3)%
(2.8)%
(32.3)
(14.3)
(0.2)
248.6
(9.9)%
(4.4)%
(0.1)%
76.2%
(31.0)
(13.1)
(0.1)
273.6
(8.7)%
(3.7)%
0.0%
77.0%
(35.6)
(9.6)
(0.2)
280.7
(9.9)%
(2.7)%
(0.1)%
77.7%
372.8
332.8
24.9
15.1
100.0%
89.3%
6.7%
4.1%
414.4
364.5
33.3
16.6
100.0%
88.0%
8.0%
4.0%
437.4
397.6
22.7
17.1
100.0%
90.9%
5.2%
3.9%
0.3
(4.0)
(3.3)
(0.1)
(9.7)
0.1%
(1.1)%
(0.9)%
0.0%
(2.6)%
0.2
(4.0)
(2.7)
—
(11.5)
—
(1.0)%
(0.7)%
0.0%
(2.8)%
0.2
(3.3)
(1.8)
—
(12.7)
—
(0.8)%
(0.4)%
0.0%
(2.9)%
(33.5)
(72.8)
(1.8)
247.8
(9.0)%
(19.5)%
(0.5)%
66.5%
(40.0)
(78.8)
(2.0)
275.6
(9.7)%
(19.0)%
(0.5)%
66.5%
(51.6)
(70.3)
(2.2)
295.6
(11.8)%
(16.1)%
(0.5)%
67.6%
68.4
23.4
34.4
10.6
100.0%
34.2%
50.3%
15.5%
39.1
9.1
24.2
5.8
100.0%
23.3%
61.9%
14.8%
28.4
—
22.8
5.6
100.0%
0.0%
80.3%
19.7%
8.7
(0.2)
(9.9)
(11.9)
(1.3)
12.7%
(0.3)%
(14.5)%
(17.4)%
(1.9)%
7.0
—
(3.3)
(5.2)
(1.1)
17.9%
0.0%
(8.4)%
(13.3)%
(2.8)%
7.9
—
—
(4.0)
(1.2)
27.8%
0.0%
0.0%
(14.1)%
(4.2)%
(0.5)
(10.6)
(2.3)
40.5
(0.7)%
(15.5)%
(3.4)%
59.1%
(0.2)
(7.3)
(0.8)
28.3
(0.5)%
(18.7)%
(2.0)%
72.1%
—
(8.2)
(0.5)
22.4
0.0%
(28.9)%
(1.8)%
78.9%
121
Liquidity and Capital Resources
The Group’s primary uses of cash are financing its operations, capital investments in maintaining its
network and infrastructure, spectrum licence and content acquisition, investments in financial
instruments and dividends paid to its shareholders. Dividends paid to shareholders have amounted to
EUR 16.4 million, EUR 70.6 million and EUR 92.0 million in the years ended 31 December 2014,
2013 and 2012, respectively. See ‘‘Dividends.’’
The Group’s primary sources of liquidity are, and following the Offering are expected to be, cash
flows generated from its operations. In the opinion of the Company, its working capital, including
cash-like items, is sufficient for and is expected to be used as a primary source for the Group’s
present requirements at least twelve months after the date of this Prospectus, including the Group’s
capital expenditures planned for 2015 as well as for all principal future investments on which the
respective Group management bodies have already made firm commitments.
Capital Expenditures
The Group defines capital expenditures as additions to property, plant and equipment and intangible
non-current assets.
Capital expenditures were EUR 119.0 million, EUR 174.9 million and EUR 104.6 million in the years
ended 31 December 2014, 2013 and 2012, respectively. In addition, the Group had capital
expenditures of EUR 63.5 million in the year ended 31 December 2013 and EUR 1.8 million in the
year ended 31 December 2012 for acquisition of spectrum licences. Capital expenditures during these
periods related primarily to roll-out of the LTE and 3G mobile networks, renewal of the 2G network,
upgrades of the fixed-line network and fibre rollout, investments in new CRM as well as acquisition
of customer premises equipment (such as set-top-boxes, home access gateways and optical network
terminations) and TV content.
The Group has approved a capital expenditure budget of EUR 123.0 million for the year ended
31 December 2015, of which EUR 22.9 million had been made through 31 March 2015. Capital
expenditures for 2015 are expected to be primarily for further rollout of fixed-line optical and metallic
coverage, LTE coverage and consolidation of IT platforms, individual solutions for business
customers as well as acquisition of customer premises equipment and TV content for which the
broadcasting rights meet the criteria for recognition as intangible assets, amounting to a total of
EUR 70.7 million. All of such principal investments are in progress as of 31 March 2015 and are
financed using cash flows generated from the Group’s operations and are made principally in the
Slovak Republic. The Group’s purchase commitments as of 31 December 2014 were EUR 79.1 million.
The Group regularly revises its planned capital expenditures based on developments in the market,
and accordingly actual capital expenditures for any future period may vary from capital expenditures
as previously budgeted or disclosed by the Group.
122
Statements of Cash Flows
The following table presents the Group’s consolidated cash flows for the years ended 31 December
2014, 2013 and 2012:
2014
2013
2012
Operating activities
Adjustments for:
Depreciation, amortisation and impairment losses..................
Income tax expense ..................................................................
Other ........................................................................................
Changes in working capital:
Change in trade and other receivables.....................................
Change in inventories ..............................................................
Change in trade and other payables ........................................
Cash flows from operations ..........................................................
Income taxes paid ....................................................................
Net cash from operating activities ................................................
43.6
49.3
63.1
195.0
27.4
28.3
236.9
20.9
29.6
236.4
50.5
(2.3)
20.4
2.5
(1.4)
315.8
(50.8)
(15.9)
0.2
13.4
334.3
(43.9)
(8.1)
(2.5)
13.5
350.6
(57.4)
265.0
290.4
293.1
Investing activities
Purchase of property and equipment and intangible assets ....
Proceeds from disposal of property and equipment and
intangible assets .......................................................................
Acquisition of interest in subsidiaries ......................................
Acquisition of investments at amortised cost ..........................
Proceeds from disposal of investments at amortised cost .......
Acquisition of available-for sale investments ..........................
Proceeds from disposal of available-for sale investments........
Disbursement of loans .............................................................
Repayment of loans .................................................................
Acquisition of term deposits ....................................................
Termination of term deposits ..................................................
Interest received .......................................................................
(178.3)
(111.9)
(104.5)
2.7
1.6
—
—
(32.9)
50.0
(150.0)
—
(423.5)
348.3
6.6
2.1
(52.7)
—
70.6
(231.5)
1.9
—
—
(207.5)
169.7
1.5
1.9
(2.4)
(70.6)
78.1
—
—
(140.0)
330.0
(136.0)
30.0
6.0
Net cash used in investing activities..............................................
(375.5)
(357.9)
(7.6)
Financing activities
Dividends paid .........................................................................
Other ........................................................................................
(16.4)
(9.0)
(70.6)
(4.3)
(92.0)
(0.7)
Net cash used in financing activities .............................................
(25.4)
(74.8)
(92.7)
Net increase/(decrease) in cash and cash equivalents ..................
Cash and cash equivalents at the beginning of the period..........
(136.0)
229.1
(142.4)
371.5
192.9
178.6
Cash and cash equivalents at the end of the period.......................
93.1
229.1
371.5
Net cash flows from operating activities
Net cash flows from operating activities primarily result from net income, adjusted for non-cash items
such as depreciation and amortisation, movements in provisions, income tax expense, changes in
working capital and income taxes paid.
Net cash flows from operating activities decreased by EUR 25.4 million, or 8.7%, to EUR 265.0 million
for the year ended 31 December 2014, from EUR 290.4 million for the year ended 31 December
2013. The principal movements were a decrease in profit for the year by EUR 5.7 million, or 11.6%,
from EUR 49.3 million to EUR 43.6 million for the year ended 31 December 2014, a decrease in
123
depreciation, amortisation and impairment losses by EUR 41.9 million, or 17.7%, to EUR 195.0 million
an increase in provision charge of EUR 2.7 million to EUR 28.2 million for the year ended
31 December 2014 from EUR 25.5 million for the year ended 31 December 2013, and an increase in
income tax expense of EUR 6.5 million to EUR 27.4 million for the year ended 31 December 2014
from EUR 20.9 million for the year ended 31 December 2013.
Working capital improved, as trade and other receivables increased by EUR 15.9 million for the year
ended 31 December 2013 but decreased by EUR 20.4 million for the year ended 31 December 2014
as a result of higher receivables towards the end of 2013 related to the billing of finalised ICT
transactions and better cash collection. Cash from change in inventories increased from
EUR 0.2 million for the year ended 31 December 2013 to EUR 2.5 million for the year ended
31 December 2014 as a result of improved logistics processes and optimisation of inventory stock.
These amounts were offset by changes in trade and other payables, which increased by
EUR 13.4 million for the year ended 31 December 2013 but decreased by EUR 1.4 million for the
year ended 31 December 2014, reflecting primarily higher payables towards the end of 2013 related to
subcontractors of the billed ICT transactions and higher other liabilities in 2014 related to legal and
regulatory fines.
Income tax paid increased to
EUR 43.9 million for the year
2013 mainly due to the increase
derived from current income tax
EUR 50.8 million for the year ended 31 December 2014, from
ended 31 December 2013, reflecting higher income tax expense for
in tax rate from 19% to 23%. In general, cash taxes for the year are
expense of the previous year.
Net cash flows from operating activities decreased by EUR 2.7 million, or 0.9% to EUR 290.4 million
for the year ended 31 December 2013, from EUR 293.1 million for the year ended 31 December
2012. The principal movements were a decrease in profit for the year by EUR 13.8 million from
EUR 63.1 million for the year ended 31 December 2012 to EUR 49.3 million for the year ended
31 December 2013 and a decrease in income tax expense by EUR 29.6 million from EUR 50.5 million
for the year ended 31 December 2012 to EUR 20.9 million for the year ended 31 December 2013,
reflecting the effect of re-calculation of deferred tax, partially offset by an increase in provision
charges by EUR 26.9 million from EUR 1.4 million for the year ended 31 December 2012 to
EUR 25.5 million in connection with increased provisions for legal and regulatory cases for the year
ended 31 December 2013.
In the Group’s working capital, trade and other receivables increased by EUR 8.1 million for the
year ended 31 December 2012 and further increased by EUR 15.9 million for the year ended
31 December 2013 as a result of the introduction of instalment sales of mobile handsets and higher
receivables towards the end of 2013 related to the billing of finalised ICT transactions. Inventories
increased by EUR 2.5 million for the year ended 31 December 2012 and decreased by EUR 0.2 million
for the year ended 31 December 2013 as a result of improved logistics processes and optimisation of
inventory stock. Change in trade and other payables remained approximately constant, increasing by
EUR 13.5 million for the year ended 31 December 2012 and further increasing by EUR 13.4 million
for the year ended 31 December 2013, mainly as a result of working capital steering and higher
payables towards the end of 2013 related to subcontractors of the billed ICT transactions.
Income taxes paid decreased by EUR 13.5 million to EUR 43.9 million for the year ended
31 December 2013, from EUR 57.4 million for the year ended 31 December 2012, reflecting the fact
that income tax paid in 2012 was significantly higher due to payment of current tax for 2011, in
which year tax prepayments were very low as a result of the merger between the Company and
T-Mobile, a.s., in 2010.
Net cash used in investing activities
Net cash used in investing activities increased by EUR 17.6 million to EUR 375.5 million for the
year ended 31 December 2014, from EUR 357.9 million for the year ended 31 December 2013. The
increase in net cash used in investing activities during the year ended 31 December 2014 reflected
primarily an increase in purchase of property and equipment and intangible assets to
31 December 2013 due to payment for LTE licences in 2014; disbursement of loans to the Principal
Shareholder in the amount of EUR 150 million, as compared to EUR nil for the year ended
31 December 2013; an increase in net acquisitions and terminations of term deposits to
31 December 2013, in connection with the Group’s cash management activities; and a reduction in
124
cash generated from disposal of investments at amortised cost to EUR nil for the year ended
31 December 2014 from EUR 70.6 million for the year ended 31 December 2013 in connection with
maturing government bonds in 2013, offset by a reduction in cash used for acquisition of available
for sale investments to EUR 32.9 million for the year ended 31 December 2014 from
EUR 231.5 million for the year ended 31 December 2013 in connection with the Group’s cash
management activities; an increase in proceeds from disposal of available for sale investments to
31 December 2013 in connection with maturing government bonds in 2014; and net cash generated
from acquisition of subsidiaries of EUR 1.6 million for the year ended 31 December 2014, as
compared to a use of cash of EUR 52.7 million for the year ended 31 December 2013 in connection
with the acquisition of DIGI.
Net cash used in investing activities increased by EUR 350.3 million to EUR 357.9 million for the
year ended 31 December 2013, from EUR 7.6 million for the year ended 31 December 2012. The
significant increase in net cash used in investing activities during the year ended 31 December 2013
reflected primarily the acquisition of DIGI, in which the Group paid EUR 53.0 million into a
separately established escrow account and EUR 40.0 million of this amount was paid to the seller as
the first part of the consideration; and an increase of net cash used in acquisition of bonds (classified
as available-for-sale investments) by EUR 231.5 million from EUR nil for the year ended
31 December 2012, offset by a decrease in the net acquisition of term deposits by EUR 68.2 million
from net payments for acquisition of term deposits of EUR 106.0 million for the year ended
31 December 2012 to net payments for acquisition of term deposits EUR 37.8 million for the year
ended 31 December 2013. The lower net cash used in investing activities for the year ended
31 December 2012 was also positively affected by EUR 190 million in net repayment of loans
provided to Deutsche Telekom AG.
Net cash used in financing activities
Net cash used in financing activities decreased by EUR 49.4 million, or 66.0%, to EUR 25.4 million
and decreased by EUR 17.9 million, or 19.3%, for the year ended 31 December 2013 compared to
EUR 92.7 million for the year ended 31 December 2012. The changes in net cash used in financing
activities primarily reflected the payment of dividends in the aggregate amount of EUR 16.4 million,
EUR 70.6 million and EUR 92.0 million in the years ended 31 December 2014, 2013 and 2012,
respectively.
Contractual Obligations
The Group has various contractual obligations and commercial commitments to make future
payments, primarily lease obligations and other contractual commitments.
Lease obligations
During 2014, the Group entered into a new finance lease agreement with respect to purchase of
hardware. For periods through 2014, the Group entered into finance lease contracts with respect to
vehicles, secured by the lessor’s title to the leased assets. These vehicles were leased for an average
term of four years, and the Group has an option to purchase the vehicles for the residual value at
the end of the lease term. The leases terminated during 2014, and the Group purchased the vehicles
for the residual value.
The table below presents the Group’s finance lease obligations, based on the present value of
payments.
As at 31 December
2014
2013
2012
Within 1 year ...............................................................................
Between 1 and 3 years .................................................................
0.3
—
0.3
—
0.1
—
Total ............................................................................................
0.6
0.1
—
During 2013, the Group entered into an operating lease contract for ten years with respect to an
administrative building in Bratislava, with an option to extend for two years on up to five occasions.
125
Starting in 2015, payments are to increase annually by reference to the Eurozone consumer price
index, up to an annual maximum of 3.5%.
The table below presents the Group’s future minimum operating lease payments as of the dates
indicated.
As at 31 December
2014
2013
2012
Within 1 year ...............................................................................
Between 1 and 5 years .................................................................
After 5 years ................................................................................
12.4
12.9
24.7
23.1
18.9
19.8
10.6
12.4
6.0
Total.............................................................................................
56.0
29.0
55.8
Purchase commitments
The Group has entered into purchase commitments in relation to contracts of acquisition of property
and equipment, intangible assets, services and inventory. For the year ended 31 December 2014,
service contracts included those for rental of shops, legal services, media agency services and the Tbrand licence fee for 2015. Inventory contracts were mainly related to purchases of Apple equipment.
The table below presents the Group’s purchase commitments as of the dates indicated.
As at 31 December
2014
2013
2012
Acquisition of property and equipment ......................................
Acquisition of intangible assets ...................................................
Purchase of services and inventory..............................................
14.6
15.3
1.8
1.3
62.7
97.3
Total.............................................................................................
79.1
113.9
10.7
14.9
74.4
100.0
Other provisions and contingencies
Provisions
The Group is subject to obligations for dismantlement, removal and restoration of assets associated
with its cell site operating leases. Cell site lease agreements may contain clauses requiring restoration
of the leased site at the end of the lease term, creating an asset retirement obligation. As of
31 December 2014, the Group had made a provision of EUR 12.5 million in respect of such
obligations.
The Group recognised a provision related to unpaid part of the purchase price for the acquisition of
DIGI, in the amount of EUR 1 million. This amount is payable, net of any indemnity payments by
the former owner of DIGI to the Group, on 31 August 2015.
The restructuring of the Group’s operations resulted in a headcount reduction of 285 employees in
2013, and further headcount reduction of 269 employees in 2014 in connection with its ongoing
restructuring program. A detailed formal plan that specifies the number of staff involved and their
locations and functions was defined and authorised by management and announced to the trade
unions. The amount of compensation to be paid for terminating employment was calculated by
reference to the collective agreement, and included within staff costs. The termination payments are
expected to be paid within twelve months of the statement of financial position date and are
recognised in full in the relevant period. The Group recognised an expense resulting from termination
benefits in amount of EUR 4.4 million, EUR 5.4 million and EUR 6.1 million in staff costs for the
years ended 31 December 2014, 2013 and 2012, respectively. The Group expects a further headcount
reduction of 241 employees during 2015. As of 31 December 2014, the Group had made a provision
of EUR 2.7 million in respect of such costs.
The group provides benefit plans for all its employees, and makes provisions for benefits payable in
respect of retirement and jubilee benefits. One-off retirement benefits are dependent on employees
fulfilling the required conditions to enter retirement and jubilee benefits are dependent on the number
126
of years of service with the Group. The benefit entitlements are determined from the respective
employee’s monthly remuneration or as a defined particular amount. The principal actuarial
assumptions used in determining the defined benefit obligation and the curtailment effect in 2014
include the discount rate of 1.84%. The expected expense for 2014 has been determined based on the
discount rate as at the beginning of the period of 3.25%. The average retirement age is 62 years, with
expected growth of nominal wages over the long term of 2.2% with minor adjustments for the first
two years and a weighted average duration of the defined benefit obligation is 13.4 years. As of
31 December 2014, the Company had made a provision of EUR 11.9 million in respect of retirement
benefits, and an additional EUR 0.2 million with respect to jubilee benefits.
Contingencies
The Group is a defendant in a number of lawsuits and regulatory proceedings. When considering the
recognition of a provision, management judges the probability of future outflows of economic
resources and its ability to reliably estimate such future outflows. If these recognition criteria are met
a provision is recorded in the amount of the best estimate of the expenditure required to settle the
present obligation at the end of the reporting period. Such judgments and estimates are continually
reassessed taking into consideration the developments of the legal cases and proceedings and opinion
of lawyers and other subject matter experts involved in resolution of the cases and proceedings. As at
31 December 2014, the Group recognised provision for known and quantifiable risks related to
proceedings against the Group, which represent the best estimate of the amounts, which are more
likely than not to be paid, in the aggregate amount of EUR 32.1 million. The actual amounts of
penalties, if any, are dependent on a number of future events the outcome of which is uncertain, and,
as a consequence, the amount of provision may change at a future date. See ‘‘Business – Legal
Proceedings’’ as well as Notes 29 and 36 to the Financial Statements for further information on these
proceedings.
Risk Management
Credit Risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other
party by failing to discharge an obligation.
The Group is exposed to credit risk from its operating activities and certain financing activities. The
Group’s credit risk policy defines products, maturities of products and limits for financial
counterparties. The Group manages its credit risk exposure both internally and based on the
recommendations of the Deutsche Telekom Group Treasury. The Group limits credit exposure to
individual financial institutions and securities issuers on the basis of the credit ratings assigned to
these institutions by reputable rating agencies and these limits are reviewed on a regular basis. The
Group is exposed to concentration of credit risk as at 31 December 2014 from holding state bonds in
the principal amount of EUR 103.0 million issued by the Netherlands; EUR 53.0 million issued by
the Slovak Republic; and EUR 52.1 million issued by Finland; and a loan receivable from the
Principal Shareholder’s group in the amount of EUR 150.0 million provided to Deutsche Telekom
(Germany).
The Group’s counterparty credit limits and maximum maturity can be decreased based on
recommendation by the Principal Shareholder’s group treasury in order to manage the Principal
Shareholder group’s overall risk exposure. The Group’s credit risk management takes into account
various risk indicators including, but not limited to CDS level, rating and negative movement of the
share price of the counterparty. The Group establishes an allowance for impairment that represents
its estimate of losses incurred in respect of trade and other receivables. Impairment losses are
recognised to cover both individually significant credit risk exposures and a collective loss component
for assets that are assessed not to be impaired individually. Objective evidence of impairment for a
portfolio of receivables includes the Group’s past experience of collecting payments, as well as
changes in the internal and external ratings of customers.
In respect of financial assets, which comprise cash and cash equivalents, loans, escrow, term deposits,
investments at amortised cost, available-for-sale investments, trade and other receivables, the Group’s
exposure to credit risk arises from the potential default of the counterparty, with a maximum
exposure equal to the carrying amount of the financial assets. In April 2012 the Group and Poštová
banka, a.s. (Poštová banka) signed an agreement about granting the Group a lien on certain
securities, to secure Poštová banka’s obligations in respect of certain payments it accepts on behalf of
127
the Group up to EUR 15.0 million, through a pledge of Slovak state bonds in the nominal value of
EUR 17.5 million. In the first quarter of 2015, this pledge was decreased to EUR 15.0 million.
The Group assesses its financial investments at each reporting date to determine whether there is any
objective evidence that they are impaired. A financial investment is considered to be impaired if
objective evidence indicates that one or more events have had a negative effect on the estimated
future cash flows of that investment. Significant financial investments are tested for impairment on an
individual basis. The remaining financial investments are assessed collectively in groups that share
similar credit risk characteristics.
An impairment loss in respect of a financial investment is calculated as the difference between its
carrying amount and the present value of the estimated future cash flows discounted at the original
effective interest rate. All impairment losses are recognised in profit or loss. An impairment loss is
reversed if the reversal can be related objectively to an event occurring after the impairment loss was
recognised. The reversal of the impairment loss is recognised in profit or loss.
Receivables
The Group establishes an allowance for impairment that represents its estimate of losses incurred in
respect of trade and other receivables based on historical experience. Impairment losses are recognised
to cover both individually significant credit risk exposures and a collective loss component for assets
that are assessed not to be impaired individually. Objective evidence of impairment for a portfolio of
receivables includes the Group’s past experience of collecting payments, as well as changes in the
internal and external ratings of customers.
The following table summarises the ageing structure of the Group’s trade and other receivables as at
the dates indicated.
Past due but not impaired (audited)
Neither
past due
nor
impaired
(audited)
At 31 December 2014 .............
At 31 December 2013 .............
At 31 December 2012 .............
94.9
121.4
101.3
5 30
days
0.3
0.3
1.1
31-90
days
0.0
0.1
0.1
91-180
days
0.1
0.0
0.1
181-365
days
0.1
0.1
0.1
4 365
days
0.1
0.1
0.2
No significant individually impaired trade receivables were included in the allowance for impairment
losses during the period under review.
Trade receivables that are past due as at the statement of financial position date, but not impaired,
are from creditworthy customers who have a good track record with the Group and, based on
historical default rates, management believes that no additional impairment allowance is necessary.
Liquidity Risk
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with
financial liabilities that are settled by delivering cash or another financial asset.
The Group’s seeks to manage liquidity risk by defining the level of cash and cash equivalents,
marketable securities and the credit facilities available to the Group to allow it to meet its obligations
on time and in full. The Group does not currently have any credit facilities in place. The funding of
liquidity needs is based on comparisons of income earned on cash and cash equivalents and availablefor-sale investments with the cost of financing available on credit facilities, with the objective of
holding predetermined minimum amounts of cash and cash equivalents and credit facilities available
on demand.
128
The table summarises the maturity profile of the Group’s financial liabilities based on contractual
undiscounted payments as at the dates indicated:
As at 31 December
2014
On demand ..................................................................................
Less than 3 months......................................................................
3 to 12 months.............................................................................
Over 1 year ..................................................................................
2013
2012
6.4
13.7
106.7
196.8
15.8
14.6
0.6
1.2
13.0
108.3
12.3
0.3
Foreign currency risk
Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will
fluctuate because of change in foreign exchange rates. The Group is exposed to transactional foreign
currency risk arising from international interconnectivity. In addition, the Group is exposed to risks
arising from capital and operational expenditures denominated in foreign currencies.
The Group can use forward currency contracts, currency swaps or spot-market trading to eliminate
the exposure towards foreign currency risk. It is the Group’s policy to negotiate the terms of the
hedge derivatives to match the terms of the hedged item to maximise hedge effectiveness. Such a
hedge however does not qualify for hedge accounting under the specific rules of IAS 39.
For all planned, but not yet determined, foreign currency denominated cash flows (uncommitted
exposure) of the following 12 months (rolling 12 month approach) a hedging ratio of at least 50% is
applied. The Group uses term deposits in foreign currencies to hedge these uncommitted exposures.
Short-term cash forecasts are prepared on a rolling basis to quantify the Group’s expected exposure.
The Group’s risk management policy requires the hedging of every cash flow denominated in foreign
currency exceeding the equivalent of EUR 250,000.
The Group’s foreign currency risk relates mainly to the changes in U.S. dollar foreign exchange rates,
with immaterial risk related to financial assets and financial liabilities denominated in other foreign
currencies.
Management estimates that an appreciation or depreciation of 10% in the exchange rate of the EUR
against the U.S. dollar, with all other variables held as constant, would affect each of profit before
tax and equity by less than EUR 1.0 million.
Critical Accounting Policies
The preparation of the Group‘s financial statements requires management to make judgements,
estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure
of contingent liabilities reported at the end of the period and the reported amounts of revenue and
expenses for that period. Actual results may differ from these estimates. In the process of applying
the Group‘s accounting policies, management has made the following judgements, estimates and
assumptions described below, which have the most significant effect on the amounts recognised in the
financial statements. See also Note 2.20 to the Financial Statements.
Useful lives of non-current assets
The estimation of the useful lives of non-current assets is a matter of judgment based on the Group’s
experience with similar assets. The Group reviews the estimated remaining useful lives of non-current
assets annually. 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 depreciation or
amortisation period, as appropriate, and are treated as changes in accounting estimates.
Management’s estimates and judgments are inherently prone to inaccuracy for those assets for which
no previous experience exists.
The Group reviewed useful lives of non-current assets during 2014 and changed accounting estimates
where appropriate.
129
Customer relationships
The Group maintains records of customer relationships obtained during the acquisition of control of
T-Mobile, DIGI and PosAm and regularly evaluates appropriateness of useful lives used to amortise
these intangible assets on the basis of churn of customers acquired through the business combination.
No changes to useful lives were necessary in 2014. If the useful lives of customer relationships were
shortened by one year, the amortisation would increase by EUR 8.1 million, and if the useful lives
were shortened by two years, amortisation would increase by EUR 21.3 million.
Activation fees and subscriber acquisition and retention costs
The Group defers activation, non-refundable up-front fees in cases when the delivery of products or
rendering of services does not present a separate earnings process and the activation fees are not
offset by a delivered product or rendered services. This period is estimated on a basis of an
anticipated term of customer relationship under the arrangement which generated the activation fee.
The estimated customer relationship period is reassessed at each financial year-end. Costs incurred in
direct relation to customer activation (such as SIM card costs and commissions) are deferred to the
extent of activation revenue and amortised in the same manner as the activation fees. Other
subscriber acquisition costs, which primarily include losses on subsidised handsets and hardware, are
expensed as incurred.
Easements
On disposal of certain properties where technological equipment is sited and required for the Group’s
operations, the Group enters into certain agreements to obtain easement rights to continue to use and
access this equipment for extended periods. Management has determined, based on an evaluation of
the terms and conditions of these sales agreements, that the Group does not retain the significant
risks and rewards of ownership of the properties and accounts for easements as a prepaid expense.
Assessment of impairment of goodwill
Goodwill arises on the acquisition of subsidiaries and represents an excess of consideration transferred
over Group’s interest in net fair value of the net identifiable assets acquired, liabilities and contingent
liabilities of the acquiree and the fair value of non-controlling interest in the acquiree. Following
initial recognition, goodwill is carried at cost less any accumulated impairment losses. Goodwill is not
amortised but it is reviewed for impairment annually or more frequently, if events or changes in
circumstances indicate that the carrying value may be impaired. The carrying value of goodwill is
compared to its recoverable amount, which is the higher of value in use and fair value less costs to
sell. Any impairment is recognised immediately as an expense and is not subsequently reversed.
Estimated impairment of trade and other receivables
The Group calculates impairment for doubtful accounts receivable based on estimated losses resulting
from the inability of its customers to make required payments. It is estimated on the basis of the
nature of the business (fixed-line, mobile, prepaid, etc.), for which the estimate is based on the aging
of the accounts receivable balance and the historical write-off experience, customer credit-worthiness
as well as changes in the internal and external ratings of customers. These factors are reviewed
annually and changes are made to the calculations when necessary.
Asset retirement obligation
The Group enters into lease contracts for land and premises on which mobile communication
network masts are sited. The Group is committed by these contracts to dismantle the masts and
restore the land and premises to their original condition. Management anticipates the probable
settlement date of the obligation to equal useful life of construction of a mast, which is estimated to
be 50 years. The remaining useful life of masts ranges from 28 to 50 at 31 December 2014.
Management’s determination of the amount of the asset retirement obligation involves estimates (in
addition to the estimated timing of crystallisation of the obligation) of an appropriate risk-adjusted,
pre-tax discount rate commensurate with the Group’s credit standing; the amounts necessary to settle
future obligations; and the inflation rate. See also Note 2.20 to the Financial Statements.
Provisions and contingent liabilities
The Group is a participant in several lawsuits and regulatory proceedings. When considering the
recognition of a provision, management judges the probability of future outflows of economic
resources and its ability to reliably estimate such future outflows. If these recognition criteria are met
a provision is recorded in the amount of the best estimate of the expenditure required to settle the
130
present obligation at the end of the reporting period. Such judgments and estimates are continually
reassessed taking into consideration the developments of the legal cases and proceedings and opinion
of lawyers and other subject matter experts involved in resolution of the cases and proceedings. See
‘‘– Other provisions and contingencies – Contingencies’’ and ‘‘Business – Legal Proceedings’’.
131
SLOVAK TELECOMMUNICATIONS MARKET
The Group performs substantially all of its activities in the Slovak Republic. No other geographic
market is relevant for the Group.
Slovak Macro Environment
Slovak Geography and Demographics
The Slovak Republic is situated in the centre of the European continent and is bordered by Poland
to the north, Ukraine to the east, Hungary to the south, and Austria and the Czech Republic to the
west. The population of the Slovak Republic as of 2013 was 5.4 million, comprising approximately
1.9 million households, with the urban population comprising 53.9% of the total population. The
Slovak Republic has a population density of 113 inhabitants per km2, compared to a 102 per km2
median for Central and Eastern European countries (CEE)1 and a 118 per km2 median for Western
European countries (WE)2 (Sources: Company’s estimate for the number of households in the Slovak
Republic and the World Bank).
Slovak Economy
The Slovak Republic has been a member of the European Union since May 2004 and part of the
Eurozone since January 2009. Key macroeconomic data for the Slovak Republic are presented in the
following table:
The Slovak Republic macroeconomic data
2012
2013
2014
2015
2016
2017
2018
Real GDP growth .............................................
Private consumption growth .............................
Volume of exports of goods and services
growth (%) ........................................................
FDI / GDP (%).................................................
Inflation (%) ......................................................
Public debt / GDP (%)......................................
Unemployment..................................................
1.8%
(0.4%)
0.9%
(0.7%)
2.3%
2.8%
2.7%
3.3%
2.9%
1.7%
3.1%
1.9%
3.1%
1.9%
9.9%
1.9%
3.6%
52.7%
13.6%
4.5%
2.2%
1.4%
55.4%
14.1%
6.3%
2.3%
0.3%
55.7%
12.6%
6.4%
3.2%
0.7%
55.7%
12.1%
6.0%
4.0%
2.0%
54.5%
11.8%
5.7%
3.7%
1.9%
52.7%
11.1%
5.7%
3.7%
2.0%
50.9%
10.5%
Note: 2012 and 2013 actual data, 2014 to 2018 estimates, sources IMF and EIU (Data reused by permission of The Economist
Intelligence Unit)
Nominal GDP has increased from EUR 45.2 billion in 2004 to EUR 73.9 billion in 2014, a 5.0%
annual compound growth rate, while real GDP has grown at a 3.8% annual compound growth rate
over the same period. Growth in real GDP in Slovakia is expected to primarily be driven by stronger
exports, rising domestic demand and falling unemployment.
Foreign direct investment levels have fluctuated, but generally support GDP growth, a trend that is
expected to continue The Slovak economy is characterised by high volumes of exports, and these
volumes are expected to continue to increase in excess of CEE and WE averages, according to the
IMF.
Public debt in the Slovak Republic has recently increased and reached 55.7% in 2014, which is higher
than the CEE median of 49.4%, and lower than the WE median of 86.0%, according to the IMF.
The Slovak Republic’s credit ratings A (Positive), A2 (Stable) and A+ (Stable) from Standard &
Poor’s, Moody’s Investors Service and Fitch Ratings, respectively.
In 2013, the Slovak government cut spending and reformed its fiscal policy to narrow the budget
deficit to below 3% of GDP, in order to meet EU requirements. In the same year, the corporation
tax rate was increased from 19% to 23%, and from 2014 decreased to 22%. The government also
introduced an additional levy on regulated industries, including telecommunications in 2012. The
average corporate tax rate in the Slovak Republic remains below the OECD average of 24.1%,
although above the EU average of 21.3%.
1
2
Unless otherwise stated hereunder all references to CEE include Bulgaria, Croatia, the Czech Republic, Hungary, Poland,
Romania and Slovenia and exclude the Slovak Republic
Unless otherwise stated hereunder all references to WE include Austria, Belgium, Denmark, Finland, France, Germany, Greece,
Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.
132
General Overview of Slovak Telecommunications Market
The principal market participants include the Group, Orange Slovensko, O2 Slovakia and UPC
Slovakia.
Orange Slovensko (formerly known as Globtel GSM) was the first telecommunication company to
launch digital mobile services in the Slovak Republic in 1997, and became the country’s largest
mobile operator in terms of subscribers. The company took on its current name in 2002 when it
became a part of France Telecom Group.
O2 Slovakia was awarded the country’s third GSM/UMTS mobile license in 2006 and became the
third mobile network operator in the Slovak Republic (after Orange Slovensko and the Group),
which entered the mobile market in 2007. O2 Slovakia was originally part of Telefonica Group, and
was acquired by Czech investment group PPF in January 2014.
UPC Slovakia launched its first residential broadband services in November 2003. It is the largest
cable operator in the Slovak Republic and the second-largest fixed broadband operator in the
country.
The Slovak telecommunications sector generated estimated service revenues of EUR 1.4 billion during
2014. Of this amount, approximately EUR 980 million, or 70%, is derived from mobile services,
including voice and data, and the balance from fixed-line services.
Slovak telecommunications market size
2012
2014E
Annual
compound
growth rate
2012-2014E
(service revenues, EUR million)
Fixed, of which .........................................................................
Fixed voice3 ..........................................................................
Fixed broadband ..................................................................
Pay-TV..................................................................................
Mobile4 .....................................................................................
439
143
172
123
1,149
419
114
168
136
983
(2.3%)
(10.8%)
(1.1%)
5.2%
(7.5%)
Total .........................................................................................
1,588
1,401
(6.1%)
Source: Company estimates for Pay-TV; IDC for fixed voice; Analysys Mason for fixed broadband; Company’s and competitors’
public data for mobile.
3
4
Service revenues, including VoIP.
Service revenues;, including voice, messaging and data.
133
The Group has an 84% revenue market share in fixed-line telephony according to IDC market data
and the Company’s information, 38% revenue market share in fixed broadband according to Analysys
Mason and the Company’s information and 37% revenue market share in Pay-TV (including DIGI)
according to the Company’s information and estimates for competitors. In the mobile market, with a
33% revenue market share the Group is the second operator after Orange Slovensko according to the
Company’s and competitors’ public data.
2014
(estimate)
Fixed voice5 ...................
Fixed broadband ...........
Pay-TV6 .........................
Mobile7 ..........................
Penetration rate
Total market
size
The Group
revenues market
share
(% of households
for fixed and PayTV, % of
population for
mobile)
(EUR million,
service revenues)
(%)
52%
60%
95%
125%
114
168
136
983
84%
38%
37%
33%
The Group
accesses/
subscribers
market share
(%)
85%
35%
26%
33%
Source: Company information for the Group; Company’s estimate of competitors for Pay-TV; IDC for fixed voice; Analysys Mason
for fixed broadband, Company’s and competitors’ public data for mobile; IDC for SIM penetration; Company estimates for
number of households in the Slovak Republic.
Consistent with European and global trends, the Slovak telecommunications market is experiencing an
increased tendency towards bundled product offerings, such as subscriptions of fixed-line telephony,
broadband and Pay-TV and mobile services from one integrated operator. This trend is driven by
factors including saturation in the broadband and Pay-TV market limited capacity for horizontal
consolidation in the mobile segment, technological evolution including IP migration and the
appearance of new media and business models, for example services such as WhatsApp, Viber,
Twitter and Netflix.
Telecommunications Market Segments in the Slovak Republic
Slovak fixed-line market
The principal participants in the fixed-line market are the Group, Orange Slovensko and UPC. The
fixed-line market is split between fixed voice, fixed broadband and Pay-TV. As in many other
European markets, Pay-TV and fixed broadband are seen as the key growth sectors in the fixed
market, while fixed voice is a declining business, reflecting the global tendency to shift voice usage
from traditional fixed-line telephony to mobile telephony.
The wholesale fixed-line market in the Slovak Republic was fully liberalised on 1 January 2003. The
Group is the incumbent fixed-line operator, with a market share of approximately 84% by revenue in
2014 according to the Company’s estimate.
Bundling is an increasingly important factor in the fixed-line market. For example, penetration of
triple play products (defined as digital cable TV triple-play subscribers and IPTV triple-play
households) have increased by an average 20.4% each year between 2012 and 2014, compared to
20.4% in CEE and 9.5% in WE according to Ovum.
Slovak fixed voice market
Consistent with the trend in other European fixed-line markets the market for traditional circuitswitched fixed-line telephony is expected to continue to decline in the Slovak Republic.
The estimated total fixed voice market revenues decreased from EUR 143 million in 2012 to
EUR 114 million in 2014, or 10.8%, and the total number of fixed voice connections including VoIP
5
6
7
Including VoIP (penetration excluding VoIP – 38%).
Pay-TV penetration including Skylink subscribers, paying only service fee; Pay-TV penetration excluding such Skylink subscribers
is 65%.
Mobile penetration based on number of active SIMs in line with Group’s methodology, including Sky Toll SIMs.
134
decreased from approximately 1,069 thousand in 2012 to 1,009 thousand in 2014. Fixed voice
penetration has accordingly decreased from 55% of total households in 2012 to 52% in 2014, based
on the Company’s estimate for the number of households and IDC data. The number of analogue
PSTN line and ISDN connections declined from approximately 869 thousand in 2012 to
approximately 737 thousand in 2014, while household penetration decreased from 45% to 38% during
the same period. In contrast, the number of VoIP subscribers increased at an annual compound
growth rate of 17% from 2012 to 2014, from approximately 199 thousand in 2012 to approximately
271 thousand in 2014, and VoIP penetration increased from 10% to 14%, based on the Company’s
estimate for the number of households and IDC data.
Principal market trends in the Slovak fixed voice market
The key trend on fixed-line telephony throughout Europe, including the Slovak Republic, is the shift
of voice usage from traditional fixed-line telephony to mobile telephony. According to IDC, from
2008 to 2014 total minutes used in the fixed-line network, excluding VoIP, decreased by 6% on
average per annum, from 2,054 million minutes in 2008 to 1,437 million minutes in 2014, while total
mobile minutes increased by 8% on average per annum, from 7,120 million in 2008 to 11,387 million
in 2014. Total fixed-line network minutes decreased by a median rate of 13% in WE and 11% in CEE
from 2008 to 2013, and total mobile minutes increased by a median rate of 4% per annum in WE
and 8% in CEE, according to IDC.
VoIP allows users to speak to other users over internet protocol-based connections. VoIP represents
an attractive proposition for many end-users, especially in the B2B segment, as well as operators as
the underlying technology is much less expensive than running operations over traditional voice
platforms.
Slovak fixed broadband market
By the end of 2014, the household fixed broadband penetration rate reached approximately 60% in
the Slovak Republic, as compared to the median level for CEE countries of 62% and to the median
level for WE countries of 76%, based on the Company’s estimate for the number of households and
Analysys Mason data. Fixed broadband penetration is relatively lower, in part because the xDSL
network in the Slovak Republic is not as wide spread as in other European countries.
Fixed broadband penetration in the Slovak Republic is facilitated by relatively high fibre penetration
of 15%, compared to the median of 10% for the CEE region and the median of 3% for the WE
region, based on the Company’s estimate for the number of households and Analysys Mason data.
Relatively high fibre penetration provides solid platform for growth in broadband and IPTV. The
high fibre penetration in part reflects that market participants have tended to enter the market by
building their own local/regional fixed wireless access networks and FTTx networks, without using the
Group’s xDSL infrastructure, contributing to broad development of FTTx services and infrastructure.
The Group believes that fixed broadband trends in the Slovak Republic will be further driven by
coverage extension and the conversion of metallic to fibre networks by operators.
Estimated consumer monthly ARPA in the Slovak Republic was EUR 12.3 in 2014, as compared to
consumer monthly ARPA for WE countries was EUR 21.1 and EUR 8.3 for CEE countries
according to Analysys Mason.
The Group is the main player in the Slovak Republic’s fixed broadband market, with approximately
0.41 million (without DIGI) accesses at the end of 2014 and a 35% share of the fixed broadband
accesses and 38% revenue market share by the end of 2014, according to the Company’s Analysys
Mason market data. The Group’s key competitors in fixed broadband market are UPC and Orange.
The Group also faces increasing levels of competition from local alternative network operators both
utilising its infrastructure and developing their own fixed broadband networks.
In the wholesale fixed business, the Group used to have a monopoly over unbundled local loop
(ULL) services, as an incumbent operator. The Group published its first reference unbundling offer
(RUO) for access to ULL in 2005, and GTS Slovakia became the first company in the Slovak
Republic to launch commercial ULL services over the Company’s network in 2010.
In 2006, the Group started offering a wholesale ADSL product that bundled ADSL access with a
fixed-line phone service followed by the unbundled product, offering just the ADSL access. Number
of provided wholesale xDSL accesses as of 31 December 2014 reached approximately 111 thousand.
135
Principal market trends in the Slovak fixed broadband market
Broadband penetration in the Slovak Republic is expected to increase, as only 60% of the total
Slovak households had access to broadband services as of 31 December 2014, compared to
approximately 76% in WE and 62% in CEE (Source: Company’s estimate for the number of
households in the Slovak Republic, Analysys Mason – ‘‘DataHub’’ (Feb – 2015)). The growth is
expected to be facilitated by continuous roll-out of fibre network in the country.
Slovak Pay-TV market
The Group estimates that the Slovak TV market had a Pay-TV penetration rate of 95% of
households in 2014. There are four Pay-TV distribution platforms in the Slovak Republic: cable,
satellite, IPTV and digital terrestrial. The market can be divided into ‘‘traditional’’ providers, offering
service package for subscription fee, and Skylink which charges a lower band subscription fee with
additional charge for access to content. The traditional Slovak Pay-TV market (i.e., excluding basic
service fee payers of Skylink) had estimated penetration of 65% of TV households in 2014, compared
to a 72% median in CEE and a 65% median in WE countries. ARPU for the total market in 2014 is
EUR 6.2, while excluding Skylink is EUR 8.9, compared to EUR 10.4 for CEE, according to
Company’s estimates for the Slovak Republic and Ovum for CEE and WE.
The Group’s key competitors in the Pay-TV market are UPC, Orange, and Skylink.
Principal market trends in the Slovak Pay-TV market
IPTV is the provision of TV services over broadband network, which allows telecommunications
operators to cross-sell Pay-TV offerings to broadband subscribers. The low to moderate cable
penetration increased demand for IPTV increasing fibre coverage provide a favourable environment
for the growth of IPTV services and this will tend to favour the operators with the most capable
networks.
Slovak mobile market
Introduction
With a mobile penetration rate of 125% as of December 2014, the Slovak Republic is a less
penetrated market than the broader CEE region8 with a median of 127% and WE with a median of
134%, according to IDC.
Slovak mobile telephony market has historically been largely a post-paid market. There are currently
approximately 4.6 million post-paid mobile subscribers in the Slovak Republic, representing 67% of
total mobile subscribers, while pre-paid accounts for 2.2 million subscribers or 33% of the total,
according to IDC.
Historically, the Slovak postpaid market was supported by subsidised hardware offered together with
voice services. Moreover, the introduction of a unified prepaid and postpaid offer (postpaid without
commitment) in 2009 together with pricing strategy applied by some market participant drive
increased demand for postpaid offers that became more accessible to customers, resulting in higher
penetration of post-paid customers, which correlates to lower churn. The blended churn rate in the
Slovak Republic in 2014 was 1.8% compared to 2.4% in CEE9 and 2.1% in WE10, according to
Pyramid.
Mobile operators and competitive environment
There are currently four operators with their own mobile network in Slovakia: the Group, Orange
Slovensko (wholly owned by France Telecom Group), O2 Slovakia (controlled by PPF) and SWAN,
controlled by Slovak holding Danubia Invest. O2’s offering of lower priced plans significantly
contributed to a decline of ARPU in the Slovak mobile market; this trend may be exacerbated by the
entry of a fourth mobile operator such as SWAN.
Measured by the number of subscribers, Orange is the leading network operator as of December 2014
with approximately 2.8 million subscribers (42%), followed by the Group with approximately
2.2 million subscribers (33%) and O2 Slovakia with approximately 1.7 million subscribers (25%). In
terms of mobile service revenues, Orange is the leading network operator as of December 2014 with
8
Median of Bulgaria (excluded due to structural change of the market – mandatory registration of all SIMs), Croatia, the Czech
Republic, Hungary, Poland, Romania and Slovenia – excludes the Slovak Republic.
9 Median of Bulgaria, Croatia (not available for churn), the Czech Republic, Hungary, Poland, Romania and Slovenia (not
available for churn) – excludes the Slovak Republic.
10 Median of Austria, Belgium, Denmark (not available for churn), Finland, France, Germany, Greece, Ireland, Italy, Netherlands,
Norway, Portugal, Spain, Sweden, Switzerland and the UK.
136
an approximately 48% revenues share, followed by the Group (33%) and O2 Slovakia (19%), based
on the Company’s and competitors’ public data.
The Group holds key spectrum licences for 2x4.4MHz in the 450MHz band, 2x10MHz in the
800MHz band, 2x10MHz in the 900MHz band, 2x15MHz in the 1,800MHz band, 2x20MHz in the
2,100MHz band, 5MHz unpaired block of 2,100MHz spectrum, 2x40MHz in the 2,600MHz band and
a 50MHz unpaired block of 2,600MHz spectrum. The acquired spectrum bands provide the Group
with competitive technological advantage in big cities close to borders (cross border interference can
be minimised by applying the 2,600MHz spectrum). Furthermore, the 2x40MHz spectrum 2,600MHz
band provides a competitive advantage in terms of superior speed of up to 300Mbps that may be
achieved in urban areas. The Group has used its newly acquired frequencies to expand and upgrade
its existing 4G network, including adding coverage of Bratislava. The Group’s outdoor population 4G
coverage reached 52% as of 31 December 2014.11
Orange Slovensko holds key spectrum licences for 2x10MHz in the 800MHz band, 2x10MHz in the
900MHz band, 2x20MHz in the 1,800MHz, 2x20MHz in the 2,100MHz band, 5MHz unpaired block
of 2,100MHz spectrum and 2x30MHz in the 2,600MHz band, according to ECO Report. According
to Orange announcement from October 2014, it targeted to reach 30% 4G outdoor population
coverage by the end of 2014.
O2 Slovakia holds key spectrum licences for 2x10MHz in the 800MHz band, 2x10MHz in the
900MHz band, 2x15MHz in the 1,800MHz band, 2x20MHz in the 2,100MHz band and a 5MHz
unpaired block of 2,100MHz spectrum, according to ECO Report. O2 Slovakia’s 4G outdoor
population coverage is below 5% as of December 2014 according to data published by O2 Slovakia.11
New entrant SWAN acquired 2x15MHz technology-neutral license in the 1,800MHz band in the
auction held in December 2013 and began testing LTE in late-March 2014. SWAN has reached 20%
population coverage using frequencies in the 1,800MHz frequency band as of 15 December 2014
according to the Slovak NRA.11
In addition to the three established mobile network operators, mobile offerings are available from
branded resellers, which are mobile operators which do not own the network and other infrastructure
needed to deliver the mobile telecommunication service to the customer. Branded resellers include, for
example, large retail brand Tesco Mobile (using O2 Slovakia’s infrastructure) and FunFon (using
Orange’s infrastructure). The Group has no license obligations in terms of MVNOs or branded
resellers.
Mobile voice still accounts for the majority of mobile service revenues, accounting for 65% of total
service revenue in 2014, a decrease from 73% in 2012. Mobile data service revenues accounted for
22% compared to 11% in 2012 and messaging service revenues for 13% compared to 16% in 2012,
according to IDC. Mobile data is rapidly gaining momentum.
Mobile data services include traditional messaging services carried over the circuit-switch network
(SMS) as well as messaging and non-messaging services carried over the packet-switch network and
the Internet. Mobile data usage has increased in recent years and is expected to increase further.
Smartphone penetration in 2014 is relatively low at 47% but growing compared to 35% in 2012,
according to WCIS. At EUR 2.4 per month in 2014, the data ARPU in the Slovak Republic has
increased 8.7% per year since 2012 with further potential upside, according to IDC.
Traditional messaging services, such as SMS, have historically represented an attractive source of
revenues and cash flow generation for mobile network operators due to the relatively high margins
and low network utilization. However, in recent years, many European countries have experienced a
strong substitution effect on SMS services due to the rapid expansion of data-based OTT services,
such as WhatsApp or Facebook Messenger, which enable users to access potentially unlimited
messaging services over mobile Internet. However, SMS service in the Slovak Republic still remains
an integral part of bundled mobile voice offerings.
The branded resellers account for approximately 3% of the total mobile subscribers market in the
Slovak Republic in 2014, according to Pyramid.
11 No disclosures on the recent / currently in progress auctions for 3.5GHz, 3.7GHz, and 3.8GHz frequency bands (suitable mainly
for mobile broadband as a supporting capacity layer in urban areas with high density of users). ECO Report data on licensed
frequency bands rounded.
137
Principal market trends in the Slovak mobile market
Despite the growth in mobile data usage, the uptake of mobile data services in the Slovak Republic
has so far been relatively low. Mobile data revenues excluding messaging accounted for 22% of
mobile service revenues12 in the Slovak Republic in 2014, compared to 28% in CEE and 29% in WE,
according to IDC.
The driving force of mobile data is the technological development of networks and end-user devices.
Data demand continues to grow along with operators’ ongoing network investments. The first LTE
license auction in December 2013 allowed operators to start to roll-out 4G network and increase
mobile data traffic. However, the uptake of mobile devices like smartphones and tablets, as well as
LTE penetration of mobile subscriptions still remain on a relatively low level. The roll-out of LTE
networks and growing smartphone penetration are considered prerequisites for boosting mobile data
revenues in the Slovak Republic given their superior capabilities compared to the preceding
generations of mobile telecommunications technology.
Major drivers for increased data demand will include video and music on demand, cloud services
(including storage), social networking applications and gaming and also increased number of digitally
available content.
Slovak ICT market
The Slovak ICT market includes markets for software solutions, system integration, cloud-based
services, outsourcing and IT consulting. The Group’s estimated market share as at the end of 2014
was 36% in cloud services,13 19% in data centres14 and 11% in IT services.15
Software solutions are experiencing increased demand driven by current the gradual implementation
of e-government services and the growing trend of online business concepts. Price and ability to
deliver the requested tailored solutions still remain the key decision-makingfactors in public tenders,
presenting an opportunity for local players.
System integration is also a fast-growing area with rising demand for data centres and data storages,
but the market is occupied by many competitors.
Customer demand for cloud services is growing in line with new success stories and positive
awareness on cloud security and privacy, and there is potential for overall market growth supported
with inflow of EU funds supporting information society services.
The demand for outsourcing services in the Slovak Republic is expected to increase. There is already
a significant shift from self-delivery of IT services in favour of outsourcing of IT services. According
to IT research and advisory company Gartner, the Slovak Republic is one of the top 30 locations for
offshore IT and business process services in the world. The whole CEE region is attractive due to its
available and skilled labour force, broad knowledge of languages, geographic and cultural proximity
to Western Europe, well-developed infrastructure and lower wage costs in comparison with Western
European or North American levels.
The IT consulting segment experiences increased price pressure due to competition from global
players.
Principal market trends in the Slovak ICT market
Telecommunication companies are well-positioned to deliver cloud services as they can leverage
network assets and take advantage of existing business relationships. Cloud solutions provide
infrastructure in the form of virtual servers for optimal computing power of customer’s applications
and can help to raise productivity and quality for broad range of customers, from the smallest
companies (via standardised and on-demand applications) to the biggest enterprises and the public
sector (via tailored solutions and IT professional services).
M2M (Machine-to-Machine) is becoming an increasingly important feature in the telecommunication
and IT landscape. Telecommunication operators continue to expand their position in M2M platforms
for vertical industries, such as automotive, consumer products, utilities, etc. Moreover, the industry is
12 Mobile service revenues as total spending by consumers and businesses on mobile voice and mobile data services.
13 Local market players only (excl. e.g. Google, Amazon); Company’s estimates based on publicly available customers data and
average value of a service package; methodologies differ per company; expert estimates used where missing data; excluding
DCOM project (i.e. data center for municipalities).
14 Company estimates by occupied sq.m.
15 Company estimates based on public data (Trend TOP, May 2014); excluding hardware resale and exported IT services (e.g. HP,
Accenture, IBM, etc.).
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shifting from pure machine-to-machine to more broader and advanced IoT (Internet of Things). IoT
are objects embedded with electronics, software, sensors and connectivity to enable them to achieve
greater value and service by exchanging data with the manufacturer, operator and/or other connected
devices.
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MANAGEMENT
Overview
The Company’s management structure is based on a two-tier board system, comprising a Supervisory
Board which is responsible for general supervision of the activities of the Company and a Board of
Directors which is the executive and statutory body of the Company. Together with the General
Meeting, these constitute the three main internal bodies of the Company required by the Slovak
Commercial Code. Day-to-day management was delegated by the Board of Directors to the Executive
Management Board, consisting of the Company’s Chief Executive Officer, Chief Financial Officer and
other senior managers.
The Company complies with the corporate governance requirements of the Slovak Commercial Code.
The main document setting out the Company’s governance structure as at the date of this Prospectus
are the Articles of Association as adopted on 9 February 2015 (Current Articles).
The General Meeting of the Company has also adopted new Articles of Association on 31 March
2015 (New Articles) which will become effective as of the date of the admission of the Shares to
trading on the main listed market of the Bratislava Stock Exchange. The New Articles will implement
a number provisions stemming from the adoption by the Company of certain aspects of the
Corporate Governance Code for Slovakia based on OECD principles, as described under ‘‘Corporate
Governance’’ below. The Company shall also form an Audit Committee, Remuneration Committee
and Nomination Committee under the New Articles.
See ‘‘Risk Factors – Risks Related to the Group’s Relationship with Deutsche Telekom’’ and ‘‘– Risks
Related to the Securities and the Offering – The rights of minority shareholders will be governed by the
laws of the Slovak Republic, whose corporate governance standards differ from those of other
jurisdictions’’.
Corporate Governance
The Company is compliant with the Slovak Republic’s corporate governance regime as set out in the
Slovak Commercial Code and its Current Articles. As a privately held company, the Company does
not comply with any corporate governance code because it is not required to do so as at the date of
this Prospectus.
In order to enhance the corporate governance standards that will apply to the Company as a publicly
traded company, the Company has adopted certain governance changes under the New Articles. The
aim of the changes is to comply with certain provisions of the Corporate Governance Code for
Slovakia published in January 2008 (the Code) prepared by the Central European Corporate
Governance Association as promulgated by the Bratislava Stock Exchange.
The Code is based on the OECD Principles issued in 2004, on the European Commission
Recommendation No 2004/913/EC fostering an appropriate regime for the remuneration of directors
of listed companies and on Recommendation No. 2005/162/EC on the role of non-executive or
supervisory directors of listed companies and on the committees of the (supervisory) board. The Code
is divided into individual principles that follow the OECD Principles, and each principle includes
‘‘Notes’’ explaining the principles in more detail.
The Code contains recommendations for management and supervision of Slovak public companies
including practices of the board of directors and supervisory board, safeguarding rights of minority
shareholders, transparency, accounting policies and auditing. There is no obligation to comply with
all provisions of the Code. However, in line with the ‘‘comply or explain’’ principle, Slovak law and
the Bratislava Stock Exchange’s listing rules require the Company to make an annual compliance
declaration and explanation of any deviations from the Code. After the admission to trading of the
Shares on the main listed market of the Bratislava Stock Exchange, the Company will annually
publish a declaration concerning its compliance with the Code and make it available on its website.
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As of the date of this Prospectus, the Company intends to apply the Code with the following
deviations that will be explained in the Company’s annual report:
Code
chapter
Deviation
I.C.3
The invitation to the General Meeting does not contain information on the system of
remuneration or a name list of beneficiaries. The Remuneration Committee submits to the
General Meeting its opinion on the system of remuneration of members of corporate
bodies directly at the General Meeting.
II.A.4
The Company does not enable voting at its General Meetings by means of
correspondence or by means of electronic devices.
II.B
The Company provides to the stock exchange and the National Bank of Slovakia a list of
persons who have access to confidential information only upon their request and in
accordance with the law.
II.B
The sale of assets of the Company to members of its bodies, their close persons and
shareholders is subject to the approval of the General Meeting or the Supervisory Board
in cases required under section 59a or 196a of the Slovak Commercial Code.
IV.A.9
The statutes of the Company’s committees (Audit Committee, Remuneration Committee
and Nomination Committee) and reports on their activities are not published as a part of
the annual report.
V.E.3
Invitation to the General Meeting does not contain information on the independence of
candidates for membership in the Supervisory Board. The independence of candidates for
membership in the Supervisory Board as defined in the Code is assessed by the
Nomination Committee which submits its opinion to the General Meeting directly at its
session. With regards to the requirement of the Code that the chairman of the Supervisory
Board should be independent, this cannot be influenced by the Company, as it depends on
which person will be elected as the chairman of the Supervisory Board by shareholders at
the General Meeting.
V.E.4.A
The invitation to the General Meeting does not contain recommendations of the
Nomination Committee. The Nomination Committee submits its recommendations to
the General Meeting directly at its session.
V.E.4.B
The invitation to the General Meeting does not contain recommendations of the
Remuneration Committee. The Remuneration Committee submits its recommendations
to the General Meeting directly at its session. The Remuneration Committee is not
comprised solely of Supervisory Board members, but one of its members is elected by the
General Meeting.
Independent Directors
The New Articles provide that at least one member of the Supervisory Board shall be independent in
accordance with the Code, which requires that the Supervisory Board includes independent directors
without specifying their number. It is expected that the newly created Nomination Committee will
assess the independence of all members of the Supervisory Board after the Offering. Following such
assessment, the exact number of independent members of the Supervisory Board will be known. The
chairman of the Supervisory Board will not be independent. This is a deviation from the Code, which
will be disclosed in the Company’s compliance declaration.
The Code does not require that the Board of Directors include any independent directors and the
Company does not expect that independent directors will be appointed to the Board of Directors.
The Code defines independence in chapter V, Article E.2 as absence of any of the obstacles to
independence listed therein. The list of obstacles is not exhaustive. Due to certain specific
circumstances, a person may not be deemed as independent even when he meets the criteria.
Under the Code, a candidate for the position of a member of the Supervisory Board would normally
not be considered independent if he or she: (i) is or was a member of the Company’s management or
management of an affiliated company of the Company in the past five years, (ii) is or was an
employee of the Company in the past three years (except for representatives of employees in the
141
Supervisory Board, provided that such candidate did not otherwise have any other managerial
position); (iii) has received any substantial remuneration from the Company (except for remuneration
for serving as a Supervisory Board member) or from an affiliated company of the Company; (iv)
represents the controlling shareholder of the Company in any way; (v) has or had a material direct or
indirect business relationship with the Company or its affiliated Company (as a shareholder, member
of its corporate bodies, leading employee, customer, supplier or creditor) in the past year; (vi) is or
was an external auditor or a partner or employee in an audit firm that carried out the audit of the
Company or of its affiliated company in the past three years; (vii) has any relationship to a company
(or companies) other than the Company, in which any of the members of the Board of Directors of
the Company holds an office; (viii) has been serving in the Supervisory Board of the Company for
more than 15 years and (ix) has a close family relationship to a member of the management or any
other person who fulfils any of the criteria under items (i) to (viii).
The concept of independence under the Code differs from that under the UK Corporate Governance
Code or in other jurisdictions. See ‘‘Risk Factors – Risks Related to the Securities and the Offering –
The rights of minority shareholders will be governed by the laws of the Slovak Republic, whose
corporate governance standards differ from those of other jurisdictions’’. For example, the independence
criteria under the Code imply that employee representatives on the Supervisory Board may be
considered to be independent.
The concept of independence is also defined in the Accounting Act, which requires that at least one
member of the Audit Committee must be independent. This would be relevant for the member of the
Supervisory Board who is at the same time an independent member of the Audit Committee. Under
the Accounting Act a person is considered independent if he has no economic or personal connection
with the company or its subsidiary, shareholders, members of the Board of Directors or auditor of
the company, is not a closely connected person to any of them and does not receive any
remuneration from the company or its subsidiary except for his work in the Supervisory Board or in
the Audit Committee.
Executive Management Board
Membership, powers and meetings of the Executive Management Board
The members of the Executive Management Board are appointed by the Board of Directors and
comprise the executive heads of selected key departments of the Company. The role of members of
the Executive Management Board is linked to the description of the employment position of each
respective director. The Executive Management Board is separate from the Board of Directors, except
that Ing. Miroslav Majoroš and Dr. Robert Hauber are members of both bodies.
The Executive Management Board currently has seven members. The members meet as often as
necessary, typically once a week. The Executive Management Board takes its decisions by simple
majority, provided that a quorum of at least half of the members of the Executive Management
Board is present. The Chairman of the Executive Management Board is the Chief Executive Officer
and has a casting vote. The Executive Management Board is responsible for the Company’s day-today management and administration.
Members of the Executive Management Board
The name, position, experience and outside appointments for each member of the Executive
Management Board are set forth below:
Name
Miroslav Majoroš ........
Robert Hauber ............
Branimir Marić............
Dušan Švalek...............
Ján Adamec .................
Ján Pitoňák..................
Petra Berecová.............
Year of
Appointment
2003
2011
2012
2012
2012
2012
2010
Position
Chairman, Chief Executive Officer
Vice Chairman, Chief Financial Officer
Chief Technology and Information Officer
Chief Mass Market Segment Officer
Chief ICT and Corporate Segment Officer
Chief Legal and Corporate Affairs Officer
Chief Human Resources Officer
Expiry of the
current term
indefinite
31 March 2016
indefinite
indefinite
indefinite
indefinite
indefinite
Miroslav Majoroš (Ing., born 1959) has served as the Chief Executive Officer of the Company since
2003. He joined Slovak Telekom in 2003 when he was also appointed as the Member of the Board of
Directors and was elected as the Chairman of the Board of Directors in 2005. He was nominated by
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Deutsche Telekom. He was a member of the Board of Directors of the subsidiary T-Mobile
Slovensko before its merger with the Company since 2003, and from the summer of 2009 to 30 June
2010 he was the Chairman of the Board. After completing his studies in 1983, Mr Majoroš worked at
the Slovak Television broadcasting company, where he held several positions and was appointed as
the head of the company in 1993. Subsequently, he took the role of the Sales Director of IBM
Slovakia for industry sectors from 1994 and he was the General Manager of IBM Slovakia from 1998
to 2000. He also served as the General Manager of IBM Czech Republic and Slovakia from 2000 to
2002. Mr. Majoroš has completed his university education at the Faculty of Electronics and
Informatics at the Slovak University of Technology in Bratislava and during his professional career
supplemented his education through management education programmes at the Harvard Business
School and Stanford Graduate School of Business. Mr Majoroš has also owned the companies
Mashumi s.r.o. and m-wave s.r.o. since 2013. He is a member of the board of directors and a
delegate of the Association of Delegates of Slovak Chamber of Commerce and Industry, member of
the Presidium of the National Union of Employers, a member of the Policy Board of the Business
Alliance of Slovakia, a co-chairman of the working group for regional policy and development in the
National Convention on the EU in the Slovak Foreign Policy Association, member of the
Commission for the Transformation of Posts and Telecommunications in the Parliamentary
Committee for the Economy, Privatization and Business and a member of the board of trustees of
the IT Association of Slovakia.
Robert Hauber (Dipl. Kfm., Dr., born 1971) has served as the Chief Financial Officer, Vice Chairman
of the Executive Management Board and Member of the Board of Directors of Slovak Telekom since
2011. He was nominated by Deutsche Telekom. Before his career with Deutsche Telekom he worked
for Hewlett Packard, Procter & Gamble and DaimlerChrysler, where he was involved in the merger
between Daimler-Benz & Chrysler. Within Deutsche Telekom, Dr. Hauber worked from 2002 to 2005
as Vice President Financial Controlling of T-Mobile International and from 2005 to 2009 as Senior
Vice President Financial Controlling of T-Mobile International. He served as the Head of Financial
Controlling of the Europe Segment of Deutsche Telekom between 2009 and 2011. In this role, he was
Member of the Board of Directors of T-Mobile Czech Republic and Member of the Supervisory
Board of T-Mobile Austria and Member of the Supervisory Board of Polska Telefonica Cyfrowa
(PTC). Dr. Hauber studied at the University of Stuttgart, University of Mainz and at the University
of Massachusetts. He holds a Master degree (Dipl. Kfm.) and a doctoral degree (Dr.) both in
business administration. Dr. Hauber is employed by Deutsche Telekom. He has also been the CFO
and Board member of German-Slovak Chamber of Industry and Commerce since 2011.
Branimir Marić (Dipl.-Ing., born 1974) has held the position of Slovak Telekom’s Chief Operating
Officer, Technology and IT from 2012. Branimir Marić began his career with Hrvatski Telekom in
the field of internet network management and development, and subsequently as the Head of the
Group for customer IP and data networks, and worked as Director of Technical Research and
Product Development. He held the position of Executive Director for Group Network Strategy and
Platform Development and at the same time he was a member of the Croatian T-Com’s Executive
Board. Following the merger of Hrvatski Telekom and T-Mobile Hrvatska in 2010 until he joined the
Company in 2012, Branimir Marić held the post of Operating Director for Service Management and
Network Operations Sector for fixed and mobile networks. He completed the Technical University in
Zagreb, Faculty of Electrical Engineering and Computing (field of radio communication).
Dušan Švalek (Ing., born 1969) has held the position of Slovak Telekom’s Chief Mass Market
Segment Officer since 2012. His career began with the positions of product and senior brand manager
at the companies Benckiser and Johnson & Johnson, respectively. He worked in the Boston
Consulting Group for six years. He joined T-Mobile Slovensko in 2004 as Director of the Customer
Service Division, and from 2007 he was Chief Marketing Officer. In 2010 he held the post of
Marketing Director at Slovak Telekom. Since 2011, Dušan Švalek has been responsible for marketing
strategy for individual segments and for product management and the development of voice and data
services in line with Deutsche Telekom’s international strategy. He studied international commerce
and obtained master degree at the University of Economics in Bratislava, and later studied Corporate
Economy and Management at the University of Navarra.
Ján Adamec (Ing., born 1966) has held the position of Chief ICT and Corporate Segment Officer
since 2013. Ján Adamec started working in Slovenské telekomunikácie, a. s., a predecessor of the
Company, in 1991. From 1991 to 2012, he held several key positions with the focus on care for the
corporate segment and key accounts. From 2012, he worked as the Director for ICT Services and
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Business Sales. Ján Adamec graduated from the Faculty of Electrical Engineering at the Slovak
Technical University in Bratislava.
Ján Pitoňák (JUDr., born 1972) has held the position of Chief Legal and Corporate Affairs Officer of
Slovak Telekom since 2012. His responsibilities include regulatory and legal affairs, compliance,
corporate security and public affairs. He started work for the Slovak Telekom Group in 2000 in
EuroTel (later T-Mobile) in the position of Head of Legal Department, then worked as Executive
Director of the Legal, Regulation and Regulatory Affairs Division, where he was responsible for
managing the legal and regulatory agenda, wholesale relations with carriers operating in the
telecommunications sector, and maintaining relations with public institutions. In 2001 he also became
the company’s legal officer. After the integration he held the post of Director heading the Corporate
Service Division. He completed his university studies at the Faculty of Law, Comenius University in
Bratislava.
Petra Berecová (Mgr., born 1975) was appointed as Chief Human Resources Officer of the integrated
Slovak Telekom company in 2010. Prior to joining Slovak Telekom, she worked in the automotive
industry as human resources director at Yazaki Slovakia. She started with T-Mobile Slovensko in
2005, as a senior manager for compensation and employee benefits. She managed T-Mobile’s Human
Resources Division from 2007, and as a member of top management she participated in the
Company’s business decisions. In 2010 she became the Executive Vice-President for Human
Resources/CHRO of Slovak Telekom, while continuing her function as Human Resources Director of
T-Mobile Slovensko. She studied at the Faculty of Philosophy at the Comenius University in
Bratislava and subsequently at the Faculty of Law, specializing in international relations and law
approximation. As from 2010, she has served as an invitee to the Compensation Committee of Slovak
Telekom. Ms Berecová is also a member of the HR Comm Slovak Association for Human Resources
Management and Development and a mentor within the Odyssey Mentoring program.
The business address of each member of the Executive Management Board is Bajkalská 28, 817 62
Bratislava, Slovak Republic.
Board of Directors
Membership and Powers of the Board of Directors
The Board of Directors consists of seven members with five-year terms of office. The members are
elected and dismissed by the General Meeting in accordance with applicable law and the Articles of
Association. Under the existing arrangements between the Company’s shareholders, four members are
nominated by Deutsche Telekom. When the New Articles take effect after the Offering, Deutsche
Telekom, through its beneficial ownership of 51% of the Company’s share capital, will have the
power to nominate and elect all of the members of the Board of Directors in the General Meeting.
The Board of Directors has a Chairman and a Deputy Chairman, both of whom are elected and
dismissed by the General Meeting. Any member of the Board of Directors may resign from his office
by means of delivering a written notice of resignation to the Board of Directors.
The Board of Directors manages the business operations of the Company on a day-to-day basis and
is empowered to enter into transactions on the Company’s behalf. Under the Current Articles, the
Board of Directors has the following powers in particular:
(a)
manages the business of the Company including with respect to all organisational, operational
and employment matters;
(b)
convenes General Meetings and implements the resolutions of the General Meeting;
(c)
ensures proper accounting and other records, preparation and publication of individual and
consolidated financial statements, publication of the annual report and consolidated annual
report (to the extent that the Company is subject to such obligations);
(d)
approves the corporate plan, operational plan and budget of the Company;
(e)
submits to the General Meeting for approval financial statements, which the Company is obliged
to prepared under special laws;
(f)
submits to the General Meeting for approval any proposal for the winding-up of the Company
with liquidation, or by merger with another company or by demerger;
(g)
submits to the General Meeting information on the financial results of the Company’s business
and a report on the status of assets for the preceding accounting period;
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(h)
submits to the Supervisory Board all documents, on which the Supervisory Board is supposed to
adopt an opinion;
(i)
decides on the establishment and change of composition or rules of conduct of bodies created
by the Board of Directors;
(j)
decides on any capital expenditure or investments of the Company, except for the ones that are
contained in the current corporate plan or in the operational plan and the budget, if their
overall value (individually or together with other capital expenditure or investment that are a
part of the same transaction or related transactions) exceeds EUR 75 million or an equivalent of
that amount;
(k)
decides on any loan or other indebtedness, which the Company accepts, any collateral or other
encumbrance that the Company establishes or any guarantee that the Company provides except
for those that are contained in the current corporate plan or operational plan and budget, if
their value (individually or together with other loans, debts, collaterals or guarantees that are a
part of the same transaction or related transactions) exceeds EUR 75 million or an equivalent of
that amount;
(l)
decides on any acquisitions by the Company or transfers of assets (including shares or other
equity interests) or liabilities of the Company, in each case the total value of which, individually
or together with other acquisitions or transfers that are part of the same transaction or
contemporaneous transactions, exceeds 20% of the Company’s net asset value;
(m) decides on the conclusion of contracts with an overall value exceeding EUR 10 million or
equivalent of this amount between the Company and (i) a shareholder; or (ii) a person
controlling a shareholder or controlled by a shareholder or controlled by the same entity as a
shareholder, unless such contract is a part of the scope of the framework agreement entered into
between the Company and a shareholder concerning the provision of services to the Company
by a shareholder or its related parties;
(n)
approves material changes of principles of internal management and organisation structure of
the Company;
(o)
submits to the General Meeting a proposal for the distribution of profit or coverage of loss;
(p)
submits to the General Meeting proposals for the listing of shares on a stock exchange;
(q)
approves the manner in which the representatives of the Company vote and resolve in the
corporate bodies of any companies directly or indirectly controlled by the Company on certain
matters.
The powers of the board of directors under the New Articles will not change, except that powers (j),
(k), (l) and (m) are not included in the New Articles.
When acting on behalf of the Company, at least two members of the Board of Directors must act
jointly and at least one of them must be the Chairman or the Deputy Chairman of the Board of
Directors.
Meetings of the Board of Directors
Meetings of the Board of Directors are convened six times a year by the Chairman of the Board of
Directors. Moreover, any member of the Board of Directors is entitled to convene a meeting of the
Board. Board meetings are convened by means of a written invitation, which must be delivered to the
members of the Board of Directors at least seven business days prior to the meeting, except if all
members waive this requirement in writing. The meetings take place in person in Bratislava, unless all
members agree to meet at a different location or by means of electronic communication.
The meetings of the Board of Directors are normally presided over by its Chairman or, in his
absence, the Deputy Chairman of the Board of Directors. The Board of Directors generally takes its
decisions by simple majority, provided that a quorum of majority of its members is present.
Resolutions of the Board of Directors are approved if a simple majority of members in attendance
voted in their favour, whereby the chairman has two votes in the case of a tie. By way of exception,
resolutions of the Board of Directors on certain reserved matters necessitate a qualified majority,
which is construed as follows: the resolution must be adopted by a simple majority of the attending
members, whereby such majority must include at least two nominees of each shareholder that holds
at least 25% of the Company’s shares. The qualified majority provisions will cease to apply under the
New Articles.
145
Members of the Board of Directors must exercise their office in person and they cannot be
represented at meetings by a representative. Each meeting of the Board of Directors must be recorded
in written minutes containing all relevant facts from the meeting, including the results of each vote
and the exact wording of all resolutions adopted. The minutes must be signed by the chairman of the
Board of Directors (or other member who presided over the meeting), as well as by the minutes clerk
and they must be delivered to each member of the Board of Directors, to shareholders and to the
chairman of the Supervisory Board. Under the New Articles, the minutes are not delivered to
shareholders. The minutes must also contain all resolutions adopted by a written declaration since the
preceding meeting of the Board.
Members of the Board of Directors
The name, position, experience, outside appointments and certain other information for each member
of the Board of Directors are set forth below:
Name
Miroslav Majoroš..........................
Michal Vaverka.............................
Robert Hauber ..............................
Martin Mác ...................................
Miloš Šujanský ..............................
Kerstin Günther ............................
Franco Musone Crispino ..............
Year of
Appointment
2003
2012
2011
2012
2012
2012
2013
Position
Chairman
Deputy Chairman
Member
Member
Member
Member
Member
Expiry of current term
28
17
28
17
17
17
29
April 2020(1)
September 2017
April 2016
September 2017
September 2017
September 2017
April 2018
(1) The General Meeting of 31 March 2015 re-elected Miroslav Majoroš as a member and the chairman of the Board of Directors for
another five-year term, which will end on 28 April 2020.
Short biographies of Miroslav Majoroš and Robert Hauber are set out under ‘‘– Executive
Management Board’’ above.
Michal Vaverka (Ing. MSc., born 1982) has served as the Deputy Chairman of the Board of Directors
nominated by the Ministry of Economy of the Slovak Republic since 2012. Prior to 2012, Mr
Vaverka has worked as Senior Financial Controller of Erste Bank AG. He studied at the Martin
Luther University in Halle-Wittenberg and the University of Economics in Bratislava.
Martin Mác (Ing., born 1973) has served as a member of the Board of Directors nominated by the
Ministry of Economy of the Slovak Republic since 2012. Mr Mác has worked as a director of
Zoznam s.r.o. since 2007. He studied at the University of Economics in Bratislava.
Miloš Šujanský (Ing., M.B.A., PhD., born 1963) has served as the member of the Board of Directors
nominated by the Ministry of Economy of the Slovak Republic since 2012. He has been a sole
shareholder and director of the company FINCORP, s.r.o. since 2002. He has also served as a
member of the Audit Committee of Slovak Telekom since 2010. Mr Šujanský studied at the
University of Economics in Bratislava and at the Rochester Institute of Technology.
Kerstin Günther (Dipl. Ing., M.B.A., born 1967) has served as a member of the Board of Directors
nominated by the Principal Shareholder since 2012. She has served as Senior Vice President
Technology Europe for Deutsche Telekom since 2012. She has also been the Chairman of the Board
of Directors of Magyar Telekom since 2013 and a member of Supervisory Board of PTC in 2012 and
2013. She has been a member of the Slovak Telekom compensation committee since 2013, with her
term scheduled to end in 2017. Ms Günther is also a member of Rotary International and SKM –
Katholischer Verein für soziale Dienste Bonn e.V. She studied at the Case Western Reserve University
Cleveland and at the Technical University Wroclaw.
Franco Musone Crispino (Dipl-Ökonom, born 1969) has served as the member of the Board of
Directors nominated by the Principal Shareholder since 2013. He has also been a member of the
Audit Committee of Slovak Telekom since 2013. Mr Crispino has worked as the Vice President
Corporate Finance Europe for Deutsche Telekom since 2010 and as executive director of T-Mobile
Global Holding GmbH since 2010. He has served as a member of Management Board in T-Mobile
Global Holding 2 GmbH and T-Mobile Worldwide Holding since 2012 and of CMobil B.V. since
2013. He studied economics at the University of Kassel.
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The business address of each member of the Board of Directors is Bajkalská 28, 817 62 Bratislava,
Slovak Republic.
Supervisory Board
Membership and Powers of the Supervisory Board
The Supervisory Board consists of nine members. Their term of office is five years. Three members of
the Supervisory Board are elected by employees and the remaining six members are elected by the
General Meeting. Under the existing arrangements between the Company’s shareholders, out of the
six members elected by the General Meeting three members of the current Supervisory Board were
nominated by Deutsche Telekom and three by the Selling Shareholder (or agencies of the Slovak
Republic). When the New Articles take effect after the Offering, Deutsche Telekom, through its
beneficial ownership of 51% of the Company’s share capital, will have the power to nominate and
elect the six members of the Supervisory Board that are not elected by employees.
The members of the Supervisory Board elected by employees enjoy special protection. If the
Company wishes to terminate the employment relationship of such member or to decrease the salary
during such person’s term of office as a member of the Supervisory Board or during a protective
period of one year after the end of the term, it may only do so with the prior consent of all other
members of the Supervisory Board. Any member of the Supervisory Board may resign from his office
by means of delivering a written notice of resignation to the Supervisory Board.
The primary responsibility of the Supervisory Board is the supervision of the Board of Directors in
its management of the Company and the pursuit of the Company’s business activities. The
Supervisory Board may at any time inspect accounting documents and records relating to the activity
of the Company. It also verifies whether the accounting records are accurate and properly maintained
and whether the Company pursues its business in accordance with the law, Articles of Association
and instructions of the General Meeting. Moreover, the Supervisory Board submits to the General
Meeting conclusions and recommendations relating to the following: (i) fulfilment by the Board of
Directors of tasks set by the General Meeting; (ii) compliance with the Articles of Association and
laws in the activities of the Company; and (iii) economic and financial activities of the Company,
accounting and documents.
As a part of its mandatory competence, the Supervisory Board inspects the financial statements and
the proposal for the distribution of profit (or the proposal for the coverage of loss) and submits its
opinion to the General Meeting.
The Supervisory Board also has a special competence in overseeing related party transactions. If a
member of the Board of Directors, proxy or other person who is entitled to act on behalf of the
Company and persons related to them or persons who act on their account is to be granted credit or
a loan by the Company, or have Company property transferred to them or provided for their use, or
have a debt secured through Company’s collateral, the Company may only do so with the prior
consent of the Supervisory Board and under arms’ length conditions. The consent of the Supervisory
Board is not required if the related party transaction concerns a benefit given by a controlling entity
to a controlled entity (e.g. a majority shareholder to its subsidiary).
The meetings of the Supervisory Board are convened by its chairman at least on a quarterly basis
(four times a year) by means of a written invitation stating the place, date, time and agenda of the
meeting. The Supervisory Board adopts resolutions on the basis of a simple majority of its members.
The dissenting opinions of members of the Supervisory Board are also communicated to the General
Meeting.
147
Members of the Supervisory Board
The name, position, experience, outside appointments and certain other information for each member
of the Supervisory Board are set forth below:
Name
Hans-Peter Schultz ........................
Michal Lukačovič..........................
Peter Weber...................................
Martin Habán ...............................
Denisa Herdová ............................
Miriam Kvočková .........................
Drahoslav Letko ...........................
Cornelia Elisabeth Sonntag...........
Tanja Wehrhahn ...........................
Year of
Appointment
2010
2012
2012
2012
2013
2013
2013
2010
2011
Position
Chairman
Vice-Chairman
Member
Member
Member
Member
Member
Member
Member
Expiry of current term
28 April 2020(1)
17 September 2017
17 September 2017
17 September 2017
18 March 2018
18 March 2018
18 March 2018
28 April 2020(1)
9 November 2016
(1) The General Meeting of 31 March 2015 re-elected Hans-Peter Schultz as a member and the chairman of the Supervisory Board for
another five-year term, and re-elected Cornelia Elisabeth Sonntag as a member of the Supervisory Board for another five-year
term; these terms will end on 28 April 2020.
Hans-Peter Schultz (Dr., born 1958) has served as a member of the Supervisory Board nominated by
the Principal Shareholder since 2010 and as the Chairman of the Supervisory Board since 2011. He
has worked as the Vice President for Area Management Slovakia since 2010 and as the Vice
President for Area Management Czech Republic until 2011. Between 2008 and 2010 Mr Schultz
served as the member of the board of directors of Crnogorski Telekom a.d. and between 2010 and
2013 as the member of supervisory board of T-Mobile Czech Republic. He studied at the Moscow
Technical University of Communication and Informatics and at Harvard University.
Michal Lukačovič (Ing., born 1978) has served as the Vice-Chairman of the Supervisory Board
nominated by the Ministry of Economy of the Slovak Republic since 2012. Mr Lukačovič has been a
director of WEON group, a.s. since 2007. He has been a member of the supervisory board of
RETRO Retail, a.s. since 2010 and an executive in companies All sense, s.r.o., SPORT ACTIVITIES,
s.r.o., Wellness activities, s.r.o., RETROkids events, s.r.o., all for kids slovakia, s.r.o., 3angel, s.r.o.
and SPORT RETRO, s.r.o.
Peter Weber (Ing., born 1945) has served as the member of the Supervisory Board nominated by the
Ministry of Economy of the Slovak Republic since 2012. Mr Weber has been a part-time consultant
of the Ministry of Finance of the Slovak Republic since 2014. He has also worked as a consultant
for PaR Solutions, s.r.o. since 2011. He has been an executive in FVE Mučı́n, s.r.o. since 2010. He is
the co-owner of Agronova Liptov, s.r.o., Fontana for You, s.r.o., BPE Prosiek, s.r.o., Fontana
Travel, s.r.o. and PizzaLand, s.r.o. He is a member of the board of directors of Agos Technologies,
a.s. Mr Weber is a member of the IT Association of the Slovak Republic, a member of the General
Board of the Association of Entrepreneurs of the Slovak Republic, a member of the Science,
Research and Innovation Committee of the Republic Union of Employers, a member of the
Administrative Board of the Žilina University and a member of the Scientific Board of the
Management Faculty of Comenius University. He studied at the Military Academy in Brno.
Martin Habán (Mgr., born 1984) has served as a member of the Supervisory Board nominated by the
Ministry of Economy of the Slovak Republic since 2012. Mr Habán is a self-employed attorney.
Between 2013 and 2014 he served as a member of the supervisory board of VBP PROPERTY a.s. He
is a member of the Slovak Bar Association. He studied law at the Comenius University in Bratislava.
Denisa Herdová (Ing., born 1979) has served as a member of the Supervisory Board nominated and
elected by employees since 2013. She has worked as the Mass Market and Infrastructure Senior
Manager in Slovak Telekom since 2012 and as a director in DIGI SLOVAKIA, s.r.o. since 2013.
Between 2010 and 2013, she owned the accounting company FCCA Partners, s.r.o. She studied at the
Economic University in Bratislava.
Miriam Kvočková (born 1975) has served as the member of the Supervisory Board nominated and
elected by employees since 2013. She has held the position of Technical Support Manager of Slovak
Telekom since 2010. She studied administration at the Economic High School in Martin.
148
Drahoslav Letko (Ing., born 1958) has served as a member of the Supervisory Board nominated and
elected by employees since 2013. He has worked in Slovak Telekom as a technician since 1982 and he
is the chairman of the Trade Union Telekom acting as the employees’ representative. He studied at
the University of Žilina.
Cornelia Elisabeth Sonntag (born 1968) has served as the member of the Supervisory Board
nominated by the Principal Shareholder since 2010. She has worked as the Vice President Area
Manager Czech Republic and former T-Mobile Slovensko for Deutsche Telekom since 2001. Since
2010 she has been the chairwoman of the Supervisory Board of T-Mobile Czech Republic. Between
2005 and 2010 she served as the Vice-Chairwoman of the Supervisory Board of Eurotel Bratislava
(later T-Mobile Slovensko). She studied at the Hotel Management School Bad Ueberkingen.
Tanja Wehrhahn (born 1969) has served as a member of the Supervisory Board nominated by the
Principal Shareholder since 2011. Until 2013 she was the Vice President eBusiness & eTransformation
for Deutsche Telekom AG. Since 2013, she has been the Senior Vice President Operating Office Sales
for Telekom Deutschland GmbH. She studied at the University Trier.
The business address of each member of the Supervisory Board is Bajkalská 28, 817 62 Bratislava,
Slovak Republic.
Code of Conduct
As part of the Deutsche Telekom Group, the Company adheres to Deutsche Telekom’s Code of
Conduct (the Code of Conduct). The Code of Conduct objectives include defining the Group’s mission
and corporate values; ensuring the Group’s employees understand their personal responsibility to the
Group’s customers, business partners, shareholders and their colleagues for executing their official
duties and performing their functions; and setting forth the fundamental principles of the Group’s
relationships with customers, business partners, state and municipal authorities and competitors. The
Code of Conduct applies to all employees of the Group and it also aims to facilitate the integration
of new employees into the Group’s corporate culture.
Remuneration and the Remuneration Committee
None of the members of the Company’s Executive Management Board, Board of Directors or
Supervisory Board (the Senior Management) have entered into service (management) agreements with
the Company which would stipulate the amount of remuneration. Nine members of the Senior
Management, namely Mr Miroslav Majoroš, Mr Branimir Maric, Mr Dušan Švalek, Mr Ján Adamec,
Dr Ján Pitoňák, Ms Petra Berecová, Mr Denisa Herdová, Mr Miriam Kvočková and Mr Drahoslav
Letko serve on the basis of employment agreements. Six of them are members of Executive
Management Board and three of them are members of Supervisory Board. The CEO is a member of
Executive Management Board as well as the chairman of the Board of Directors. The Company has
no contractual relationship with Mr. Robert Hauber, Ms Kerstin Günther, Mr Franco Musone
Crispino, Mr Hans-Peter Schultz, Ms Tanja Wehrhahn and Ms Cornelia Elisabeth Sonntag, who are
employees of the Deutsche Telekom Group. The Company also has no contractual relationship with
Mr Peter Weber, Mr Martin Habán and Mr Michal Lukačovič who serve on the Company’s
Supervisory Board as nominees of the Ministry of Economy of the Slovak Republic.
The remuneration package for members of Senior Management with employment contracts is
composed of a fixed and variable component. Remuneration for membership in Senior Management
is a fixed amount paid on monthly basis. Elements of fixed pay (for members who are also employees
of the Company), primarily comprising base salary and benefits, are set taking into account factors
such as the nature of the role, the experience and performance of the individual, and salary levels in
the telecommunication sector in the Slovak Republic. Benefits cover mostly health care as well as
meal vouchers. Members are also entitled to working tools (such as company phones, laptops, cars
and drivers), insurance premiums, expenses for company-related social functions and security measures
as well as reimbursements of certain expenses related to performance of their duties. Fixed pay
elements are normally reviewed annually to ensure they remain competitive. The value of these
benefits is included in the amounts of remuneration disclosed below.
Variable pay elements (which relate only to members of the Executive Management Board who are
also employees of the Company) are intended to motivate the members of Senior Management
towards the achievement of group-wide and personal objectives, which ultimately promote delivery of
the corporate strategy and the creation of shareholder value. Variable pay is used as a tool to
149
incentivise and reward Senior Management and furthermore, through the deferral of awards, ensure
part of their remuneration is aligned to their own and the Group’s future performance.
In the year ended 31 December 2014 the Group provided remuneration and other benefits to the
members of the Senior Management in total amount of EUR 3,048 thousand. Of that amount,
EUR 2,950 thousand was provided to the members of the Executive Management Board (including
EUR 18 thousand as a provision in connection with participation in the Share Matching Plan
described below), EUR 54 thousand to the members of the Board of Directors and EUR 44 thousand
to the members of the Supervisory Board. The Group provided contribution to the pension plans for
the members of the Senior Management in total amount of EUR 63 thousand. The Group has not
set aside any amounts in respect of pension benefits of the members of the Senior Management.
The Company does not have any stock option plan or other plans for involving the employees in the
capital of the Company for its employees or members of its Senior Management. However,
Mr Miroslav Majoroš, Mr Robert Hauber, Mr Branimir Marić, Mr Dušan Švalek, Mr Ján Adamec,
Mr Ján Pitoňák, Ms Petra Berecová and Ms Herdová participate in the Long Term Incentive Plan
and may participate in the Share Matching Plan at the Deutsche Telekom Group level. The long-term
compensation instrument is a four year cash plan based on phantom shares (instruments linked to
shares in Deutsche Telekom AG shares) and is granted to eligible employees based on their individual
performance rating. The Share Matching Plan is a long-term voluntary compensation instrument.
Eligible employees can volunteer to invest part of their target STI in DT shares (participation is
voluntary, but compulsory for Mr Miroslav Majoroš). After a four-year lock-up period, an additional
bonus in the form of matching shares is awarded.
Some of the management members (Ms Berecová, Mr Pitoňák, Mr Švalek, Mr Marić) who are
employed by the Company, are entitled to receive one-off compensation from the Company
equivalent to 12 base monthly salaries if their employment is terminated by specific reasons described
in the employment contract. If the statutory conditions are met, this one-off reward also includes a
gratuity payment and also the severance pay, in amounts according to the Slovak Labour Code and
the Company’s Collective Labour Agreement. Mr Majoroš is entitled to a termination payment only
if he complies with the non-compete clause, which prohibits him from performing earning activity
that competes with the business activity of the Company for a period of one year after the
termination of his employment. In such case he is entitled to compensation of one base monthly
salary for every month of compliance with the restriction obligation. In addition, Mr Majoroš is
entitled to a severance payment in cases specified in the Company’s Collective Labour Agreement,
currently seven average monthly salaries plus certain additional payments not exceeding EUR 10,000
for the time worked for the Group and retirement. If his employment is terminated during a calendar
year, Mr Majoroš is entitled to a pro-rata variable part of his salary. Mr Adamec, Ms Kvočková,
and Mr Letko are entitled to termination payment currently in the amount of eight average monthly
salaries and Ms Herdová in amount of six average monthly salaries plus certain additional payments
not exceeding EUR 18,000 for the time worked for the Group and retirement, in each case in
accordance with the Slovak Labour Code and the Company’s Collective Labour Agreement.
Under the New Articles, the remuneration rules for members of corporate bodies of the Company
will be approved by the General Meeting and the Remuneration Committee will be established. More
specifically, the General Meeting will approve: (i)the remuneration rules of the members of corporate
bodies; (ii) the remuneration of members of the Board of Directors, Supervisory Board, Audit
Committee, Nomination Committee and Remuneration Committee; and (iii) the system of
remuneration of the members of corporate bodies of the Company or the employees of the Company
in the form of shares, options for shares or other rights to shares of the Company or in the form of
remuneration based on the development of the prices of the shares including the changes to this
system of remuneration and of the long-term incentive schemes aimed at the members of the
corporate bodies and Senior Management of the Company. The rules of remuneration of the
members of corporate bodies (the Remuneration Policy) of the Company will be approved by the
General Meeting on the basis of a proposal prepared by the Remuneration Committee, which is
required to be formed under the New Articles. The Remuneration Committee will comprise three
members, two appointed by the Supervisory Board from the members of the Supervisory Board and
one elected by the General Meeting. Their term of office will be five years.
The statute of the Remuneration Committee was approved by the General Meeting of 31 March
2015.
150
As at the date of this Prospectus the elected members of the Remuneration Committee are: Cornelia
Elisabeth Sonntag and Miriam Kvočková. Both were elected into office on 16 April 2015 by the
Supervisory Board from among the members of the Supervisory Board. As at the date of this
Prospectus, the position of the third member of the Remuneration Committee is vacant.
Audit Committee
The Company currently has an audit committee (the Audit Committee). The Audit Committee’s role
and procedures will be enhanced under the New Articles. Under the New Articles the Audit
Committee shall be composed of three members, out of which two members will be appointed by the
Supervisory Board of the Company from the members of the Supervisory Board and one member
will be appointed by the General Meeting. The term of office of the members of the Audit
Committee is five years. At least one of the members of the Audit Committee must fulfil the
requirement of professional experience and independence under Slovak accounting legislation. As at
the date of this Prospectus the elected members of the Audit Committee are: Ing. Denisa Herdová
and Dr. Hans-Peter Schultz. Both were elected into office on 16 April 2015 by the Supervisory Board
from among the members of the Supervisory Board. As at the date of this Prospectus, the position of
the third member of the Audit Committee is vacant.
The Audit Committee supervises the preparation of financial statements and compliance with
accounting and auditing legislation and standards. It also supervises the systems of internal control
and risk management in the Company and makes recommendations and monitoring with respect to
appointing of the Company’s auditors. The terms of service of the members of the Audit Committee
as well as the statute of the Audit Committee will be approved by the Supervisory Board.
Nomination Committee
As at the date of this Prospectus, the Company currently has no nomination committee or other
body concerned specifically with appointment of the members of the corporate bodies of the
Company (the Nomination Committee). Under the New Articles, the Company shall establish the
Nomination Committee consisting of three members, out of whom two members will be appointed by
the Supervisory Board from the members of the Supervisory Board and one member will be
appointed by the General Meeting. The term of office of the members of the Nomination Committee
will be five years.
As at the date of this Prospectus the elected members of the Nomination Committee are: Miriam
Kvočková and Dr. Hans-Peter Schultz. Both were elected into office on 16 April 2015 by the
Supervisory Board from among the members of the Supervisory Board. As at the date of this
Prospectus, the position of the third member of the Nomination Committee is vacant.
The main role of the Nomination Committee will be to give recommendations regarding
appointments of the members of corporate bodies of the Company and to evaluate the independence
of members of the Company bodies. The Nomination Committee shall submit its recommendation to
the shareholders during the session of the General Meeting. The statute of the Nomination
Committee was approved by the General Meeting of 31 March 2015.
Interests of the Management in the Company
As at the date of this Prospectus, no Shares and/or options over Shares are held, directly or
indirectly, by the members of the Senior Management.
Conflicts of Interest
As at the date of this Prospectus, for at least the previous five years, none of the current members of
the Senior Management:
*
has had any convictions in relation to fraudulent offences;
*
has held an executive function in the form of a senior executive officer or a member of the
administrative, management or supervisory bodies of any company at the time of or preceding
any bankruptcy, receivership or liquidation; or
*
has been subject to any official public incrimination and/or sanction by any statutory or
regulatory authority (including any designated professional body) or has ever been disqualified
by a court from acting as a member of the administrative, management or supervisory bodies of
a company or from acting in the management or conduct of the affairs of any company.
151
There are no family relationships between the members of the Senior Management.
Mr Robert Hauber, Ms Kerstin Günther, Mr Franco Musone Crispino, Mr Hans-Peter Schulz, Ms
Tanja Wehrhahn and Ms Cornelia Elisabeth Sonntag are employees of the Deutsche Telekom Group.
None of the members of the Senior Management has any private interests or other duties which may
potentially conflict with their respective duties to the Company.
152
PRINCIPAL AND SELLING SHAREHOLDERS
General
The Company’s share capital amounts to EUR 864,113,000 and is comprised of 86,411,300 Shares,
each with a nominal value of EUR 10.
The following table sets out certain information regarding the shareholding structure of the Company.
After the Offering
After the Offering
(assuming no exercise of the (assuming the Put Option is
exercised in full)
Put Option))
Prior to the Offering
Total Shares
Total % of
issued share
capital and
voting rights
Total Shares
Total % of
issued share
capital and
voting rights
Total Shares
Total % of
issued share
capital and
voting rights
Deutsche Telekom Europe
B.V.(1)....................................
National Property Fund of
the Slovak Republic..............
Other(2)..................................
44,069,763
51.0
44,069,763
51.0
44,069,763
51.0
42,341,537
—
49.0
—
—
42,341,537
—
49.0
4,234,153
38,107,384
4.9
44.1
Total .....................................
86,411,300
100.0
86,411,300
100.0
86,411,300
100.0
Notes:
(1) Deutsche Telekom Europe B.V. (before 1 March 2015, the name of the entity was CMobil B.V.) is a wholly owned subsidiary of
Deutsche Telekom AG
(2) Consists of the Offer Shares sold in the Offering, including in the form of GDRs.
Principal Shareholder
Deutsche Telekom Europe B.V. (CMobil B.V. prior to 1 March 2015) (the Principal Shareholder) is a
wholly owned subsidiary of Deutsche Telekom AG. Deutsche Telekom AG owns the Principal
Shareholder indirectly through its wholly owned subsidiary Deutsche Telekom Europe Holding
GmbH, which in turn has a 100% share in Deutsche Telekom Europe Holding B.V., which is the
direct 100% shareholder in Deutsche Telekom Europe B.V.
The Principal Shareholder has no special voting rights and each Share it owns has a voting right
equal to each Offer Share.
The Company is directly controlled by the Principal Shareholder and indirectly controlled by
Deutsche Telekom AG on the basis of holding 51% of the share capital and voting rights in the
Company. The measures which seek to ensure that such control is not abused are contained in the
Slovak Commercial Code and the Company’s Articles of Association. See ‘‘Risk Factors – Risks
Related to the Group’s Relationship with Deutsche Telekom – Interests of Deutsche Telekom may differ
from those of holders of the Securities’’ and ‘‘– Risks Related to the Securities and the Offering – The
rights of minority shareholders will be governed by the laws of the Slovak Republic, whose corporate
governance standards differ from those of other jurisdictions’’.
The Principal Shareholder will not sell any Shares in the Offering and will continue to control the
Company after the Offering. The Company is not aware of any arrangements the operation of which
may at a subsequent date result in a change in control of the Company after the Offering.
Selling Shareholder
The National Property Fund of the Slovak Republic (the NPF or the Selling Shareholder) is the
owner of 49% of the Company’s shares.
Except for acting as the Company’s shareholder and exercising its rights as the Company’s
shareholder, the Selling Shareholder has had no material relationship with the Company, other than
contracts entered into in the ordinary course of the Group’s business, within the three years prior to
the date of this Prospectus. See ‘‘Related Party Transactions – Slovak Government Related Parties’’.
153
Shareholders’ Agreement
On 18 July 2000, the Company, the Selling Shareholder, the Slovak Republic represented by the
Ministry of Transport, Posts and Telecommunication (subsequently, the Slovak Republic has become
represented by the Ministry of Economy of the Slovak Republic) and Deutsche Telekom entered into
the Shareholders’ Agreement which provides for co-operation between the parties in order to achieve
the strategic objectives of the Company and the general governance of the Company, and sets out
non-compete provisions and certain transfer restrictions concerning the shareholders’ respective
shareholdings in the Company (the Shareholders’ Agreement).
Shareholders’ agreements are not recognised under Slovak corporate law. Consequently, although the
Shareholders’ Agreement is valid and binding as a matter of Slovak contract law, a corporate action
(e.g. adoption of a board resolution) made in breach of the Shareholders’ Agreement would be valid
and effective under Slovak corporate law. The other shareholder would have a damage or similar
claim against the breaching shareholder, but cannot challenge the validity of the concerned corporate
action.
As of the date of this Prospectus the Shareholders’ Agreement is in place and effective. The
Shareholders’ Agreement may remain effective also after the Admission. This could be the case if: (i)
the Selling Shareholder and Deutsche Telekom do not agree to terminate the Shareholders’
Agreement and at the same time the Selling Shareholder retains 10% or more of the Shares, thus
preventing Deutsche Telekom from unilaterally terminating the Shareholders’ Agreement (under the
termination right described below); or (ii) the conditions for unilateral termination are fulfilled,
however, the termination notice has not yet been served or the termination notice period is running.
The termination provisions of the Shareholders’ Agreement do not address a situation after the
Admission has already taken place and the New Articles (which are not in line with the special
shareholder arrangements under the Shareholders’ Agreement) have already become effective. From a
legal point of view, the continued existence and effectiveness of the Shareholders’ Agreement does not
affect the effectiveness of the New Articles. Therefore, the question of whether the Shareholders’
Agreement would have any effect at all as between Deutsche Telekom and the Selling Shareholder
would ultimately depend on their mutual agreement.
Certain key provisions of the Shareholders’ Agreement are summarised below:
Strategic Objectives
Under the terms of the Shareholders’ Agreement, Deutsche Telekom and the Slovak Republic agreed
on a number of medium-term and long-term objectives and strategies for the Company, including
increasing profitability and shareholders’ value and improving quality of service.
The General Meeting of Shareholders
The Shareholders’ Agreement stipulates that as long as the Slovak Parties (that is the Selling
Shareholder and Slovak Republic through any of its agencies) own shares in an aggregate nominal
value in excess of 25% of the Company’s registered capital, the approval of the issuance of new
shares, convertible bonds or warrants or other securities or instruments granting any right to the
Shares by the Company, any right to subscribe for Shares or any redemption or purchase of Shares
by the Company, shall require the consent of shareholders holding shares in an aggregate nominal
value of at least 75% of the Company’s registered capital (and each of the Shareholders shall use
their reasonable best efforts to procure that the Articles of Association so stipulate).
The Board of Directors
The Shareholders Agreement provides that, so long as Deutsche Telekom (together with its affiliates)
owns Shares representing more than 50% of the registered capital of the Company, it shall be entitled
to nominate four candidates for election to the Board of Directors, including the Chairman. In
addition, as long as the Selling Shareholder (including any other government agencies) owns shares
representing at least 25% of the registered capital of the Company, the Ministry of Economy shall be
entitled to nominate three candidates for election to the Board of Directors, including the Deputy
Chairman.
If Deutsche Telekom, together with its affiliates, ceases to own shares representing more than 50% of
the Company’s registered capital, or the Selling Shareholder (including any other government
agencies) cease to own Shares representing at least 25% of the Company’s registered capital, but
Deutsche Telekom, together with its affiliates, and the Selling Shareholder (including any government
agencies) will be able to exert a significant influence on the election of the directors, Deutsche
154
Telekom and the Selling Shareholder shall each have the right to nominate for election to the Board
of Directors the number of Directors whose relation to the total number of Directors on the Board
of Directors is as proportional as possible to the percentage of the aggregate registered capital of the
Company owned by Deutsche Telekom, together with its affiliates, on the one hand, and the Selling
Shareholder (including other government agencies) on the other hand.
For so long as the Selling Shareholder (including any other government agencies) holds in the
aggregate a shareholding interest of at least 25%, certain decisions of the Board of Directors can only
be passed subject to the following two-fold requirement: (i) the resolution must be passed by a
majority vote, and (ii) at least two Directors nominated by the Ministry must vote in favour thereof.
The decisions falling into this category are as follows:
*
any acquisitions by the Company or any subsidiary thereof, or transfers of assets (including
shares or other equity interests) or liabilities of the Company or its subsidiaries, in each case the
total value of which, individually or together with other acquisitions or transfers that are part of
the same transaction or contemporaneous transactions, exceeds 20% of net asset value of the
Company;
*
issuance of shares, convertible bonds or warrants or other securities or instruments granting any
right to equity interest in any subsidiary of the Company, any right to subscribe for shares of a
subsidiary or any redemption or purchase of shares by a subsidiary;
*
any related party agreement, other than pursuant to a framework agreement between the
Company and Deutsche Telekom AG for the provision of services to the Group on an arm’s
length commercial basis, the total value of which is in excess of EUR 10 million, or its
equivalent;
*
any capital expenditure or investment by the Company or any subsidiary, other than those
included in the Corporate Plan or the Operating Plan and Budget in effect at such time, the
total value of which, individually or together with other capital expenditures or investments that
are part of the same transaction or contemporaneous transactions, exceeds EUR 75 million, or
its equivalent;
*
any loan or other indebtedness incurred by the Company or any subsidiary, any security interest
or comparable encumbrance granted by the Company or any subsidiary or any guarantee
provided by the Company or any Subsidiary, other than those included in the Corporate Plan
or the Operating Plan and Budget in effect at such time, the total value of which, individually
or together with other loans, indebtedness, security interests or guarantees that are part of the
same transaction or contemporaneous transactions, exceeds EUR 75 million, or its equivalent;
*
any consent permitting Deutsche Telekom or any of its affiliates to undertake a
telecommunications activity (as defined in the law) in the Slovak Republic (other than through
or in joint venture with the Company or as a supplier to the Company or any of its
subsidiaries); and
*
any merger, liquidation, dissolution or similar change of the Company or any subsidiary.
The Supervisory Board
The Supervisory Board consists of nine members. The Shareholders’ Agreement provides that, for so
long as Deutsche Telekom, together with its affiliates, owns shares representing more than 50% of the
registered capital of the Company, it shall be entitled to nominate three candidates for election to the
Supervisory Board, including the Chairman. In a similar fashion, as long as the Selling Shareholder
(including any government agencies) owns shares representing at least 25% of the registered capital of
the Company, it will be entitled to nominate three candidates for election to the Supervisory Board,
including the Deputy Chairman. The remaining candidates for election to the Supervisory Board shall
be nominated by the employees of the Company, to the extent this remains a requirement pursuant
to applicable regulations.
If Deutsche Telekom, together with its affiliates, ceases to own shares representing more than 50% of
the Company’s registered capital, or the Selling Shareholder (including any government agencies)
ceases to own shares representing at least 25% of the Company’s registered capital, but Deutsche
Telekom, together with its affiliates, and the Selling Shareholder (including any government agencies)
will be able to exert a significant influence on the election of the members of the Supervisory Board,
Deutsche Telekom and the Ministry of Economy shall each have the right to nominate for election to
the Supervisory Board the number of candidates whose relation to the total number of members of
the Supervisory Board is as proportional as possible to the percentage of the aggregate registered
155
capital of the Company owned by Deutsche Telekom, together with any of its affiliates, on the one
hand, and the Selling Shareholder (including any government agencies), on the other hand, provided
that for the duration of the Shareholders’ Agreement the Ministry of Economy shall be allowed to
nominate at least one member of the Supervisory Board.
Transfer of shares
The Shareholders’ Agreement stipulates a pre-emption right of Deutsche Telekom. Specifically, neither
the Ministry of Economy nor the Selling Shareholder shall sell, assign or otherwise transfer any
shares to any person that is not a public institution other than in exchange for cash or a cash
equivalent, unless such shares are first offered to Deutsche Telekom. In the case the Ministry of
Economy or the Selling Shareholder wish to sell its shares to a third party the following two-stage
procedure applies:
*
Upon receipt of a bona fide written offer that the Ministry or the Selling Shareholder (the
Prospective Transferor) wishes to accept, or the entering into of any bona fide conditional
agreement to transfer shares, the Prospective Transferor shall without undue delay give written
notice of the identity of the proposed transferee (the Proposed Transferee), and the terms and
conditions of the proposed transfer, to Deutsche Telekom, including the cash price which the
Proposed Transferee has proposed, and which Deutsche Telekom must pay in order to exercise
its rights to purchase the shares hereunder. Such notice shall constitute an offer of the
Prospective Transferor to Deutsche Telekom, irrevocable for 60 days from the date such notice
is given, to transfer such shares on the terms and conditions described in the notice.
*
If Deutsche Telekom does not accept the offer in writing within the 60 day period, the
Prospective Transferor may transfer such shares to the Proposed Transferee on the terms and
conditions set forth in the notice.
The above restrictions on transfer shall not apply to the sale of shares in a public offering made
pursuant to the Shareholders’ Agreement, including the Offering under this Prospectus.
Termination
The Shareholders’ Agreement shall continue in effect so long as any of the Slovak Parties, Deutsche
Telekom or any of its affiliates own any shares in the Company, unless it is terminated in accordance
with its terms.
The Ministry of Economy may terminate the Shareholders’ Agreement on 45 days’ written notice to
the other Shareholders if any of the following occurs:
*
Deutsche Telekom, together with its affiliates, owns shares representing less than 20% of the
registered capital of the Company; or
*
the Selling Shareholder (including any government agencies) and Deutsche Telekom, together
with its affiliates, own shares representing less than 50% of the registered capital of the
Company.
Similarly, Deutsche Telekom may terminate the Shareholders’ Agreement on 45 days’ written notice
to the other Shareholders if any of the following occurs:
*
the Selling Shareholder (including any government agencies) owns Shares representing less than
10% of the registered capital of the Company; or
*
the Selling Shareholder (including any government agencies) and Deutsche Telekom, together
with its affiliates, own shares representing less than 50% of the registered capital of the
Company.
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RELATED PARTY TRANSACTIONS
The following is a summary of transactions with related parties as defined in IAS 24 ‘‘Related Parties
Disclosure’’, in accordance with IFRS. Transactions between related parties are effected on the same
terms, conditions and amounts as transactions between unrelated parties. The Group is, and has been, a
party to various agreements and other arrangements with certain related parties, the most significant of
which are described below.
Deutsche Telekom Related Parties
Following the Offering, Deutsche Telekom will continue to hold a majority of the Company’s share
capital through its subsidiaries. Deutsche Telekom is one of the world’s leading telecommunications
companies, offering its customers a broad spectrum of telecommunications and IT services. As one of
Europe’s largest telecommunications providers, Deutsche Telekom is represented in many of the most
important markets in Europe, Asia and America and in approximately 50 countries worldwide.
As part of the Deutsche Telekom Group, the Group benefits from its overall support scale and
operational expertise, in particular in regard to international telecommunications markets. The
Group’s access to such technical expertise is set out in various agreements between the Group and
Deutsche Telekom. The Group also benefits from the licensing of certain trademarks and domain
names from Deutsche Telekom, as well as access to certain services to the Group from expert
personnel in accordance with the terms of a framework contract. The Group does not expect any
changes to its relationship with Deutsche Telekom as a result of the Offering.
Business transactions relate mainly to telephone calls and other traffic in the related parties’ networks.
Other transactions include data services, management, consultancy, other services and purchases of
fixed assets. The most significant of these transactions are described below.
See also ‘‘Risk Factors – Risks Related to the Group’s Relationship with Deutsche Telekom – The
Group is dependent on its controlling shareholder, Deutsche Telekom, and a change in or loss of this
relationship may adversely affect the Group’s business and results of operations’’, and ‘‘– Interests of
Deutsche Telekom may differ from those of holders of the Securities’’.
Licensing Agreements
The key licence agreements with Deutsche Telekom Group comprise the Licence Agreement between
Deutsche Telekom AG (T-Com) and Slovak Telekom, a.s. dated 23 December 2005 for ‘‘T’’, ‘‘Tcom’’ brands and the Licence Agreement between T-Mobile Global Holding Nr. 2 GmbH and
EuroTel Bratislava, a.s. dated 16 March 2005 for the ‘‘T-Mobile’’ brand.
The licensing agreements are entered into for an indefinite period.
Loans to Deutsche Telekom Related Parties
Total loans to related parties amounted to EUR 150 million as at 31 December 2014, comprising a
short-term loan the Group granted Deutsche Telekom AG in November 2014 in the amount of
EUR 150 million, payable in May 2015 and with an interest rate of 0.18%. Interest related to the
loan amounted to EUR 45 thousand in 2014. See Notes 9, 25 and 35 to the Financial Statements.
The loans are documented under the Master Agreement for Upstream Loans entered into between
Deutsche Telekom AG and the Company in 2008. The transactions are performed on an arm’s length
commercial basis, with supporting documentation for transfer pricing tax purposes. The Company
expects to continue making loans to Deutsche Telekom from time to time after the Offering, subject
to market conditions.
Asset Purchases among Related Parties
The Group made purchases of fixed assets from Deutsche Telekom Related Parties in the amount of
EUR 1.2 million, EUR 7.3 million and EUR 1.2 million in the year ended 31 December 2014, 2013
and 2012 respectively. These purchases were primarily in relation to the Group’s new CRM system.
Provision of Services among Related Parties
The Company is also party to a number of agreements with Deutsche Telekom AG or its affiliated
companies for the provision of various services. A summary of such agreements is set forth below.
Master and Framework Cooperation Agreements
In 2012, the Company and Deutsche Telekom AG entered into a framework cooperation and service
agreement, under which Deutsche Telekom AG (or its affiliates) provide to the Company services in
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the telecommunications industry. The specific services are agreed under separate arrangements that are
renewed on a yearly basis and cover areas including corporate IT, wholesale roaming know-how and
strategy, central development of Deutsche Telekom shops concept, products and innovations, mobile
product and terminal management, IT procurement operations, network technology and other.
In 2008, the Company and T-Systems Business Services GmbH concluded a master agreement
regulating further cooperation of the parties in the deployment of global telecommunication network
and other areas. The cooperation consists of reciprocal services provided under the master agreement.
Additional services may be rendered under separate agreements. Originally, the services provided
under the agreement included the supply of telecommunication services by the Company to T-Systems
Business Services GmbH. The Company concluded a similar master agreement in 2004 with
T-Systems International GmbH. Currently, there are no material transactions effected under these
agreements.
Participation Agreement
In 2012 the Company signed a participation agreement with BuyIn, a joint venture company of
Deutsche Telekom AG and France Telekom. The Company has undertaken to pursue procurement
activities falling within the scope of the participation agreement exclusively through BuyIn. The
participation agreement covers procurement of network technology, customer equipment and service
platforms. The Company is currently involved in a process of broadening the scope of the
procurement activates performed under the participation agreement to include information
technologies. The agreement does not provide for any payments by the Company to BuyIn in
connection with the subject matter of the agreement.
Service Agreements
In 2013 Deutsche Telekom AG and the Company concluded an agreement on city-to-city bandwidth
services provided to the Company. The agreement was concluded for a definite term until 31 August
2015 and the Company does not expect it to be prolonged as it will no longer require the service. In
2013 Deutsche Telekom AG and the Company entered also into a contract on Deutsche Telekom
ICSS mobile services, pursuant to which Deutsche Telekom AG provides to the Company particular
platforms and services.
Further, pursuant to a service agreement concluded in 2012 between the Company and T-Systems
International GmbH concerning the Netcentrics Mobile Management, T-Systems International GmbH
provides to the Company online administration and management services for the Company’s mobile
device fleet. The services include, in particular, online administration and management of the mobiles’
installed software, password settings. Under business management contracts concluded in 2011 and
2012 between the Company and Deutsche Telekom Shared Services, s. r. o., the latter provides
specific intercompany services to the Company. The scope of services consists mainly of operational
accounting, namely accounts receivables (non-core), accounts payables, fixed assets, bank payments
processing, general ledger and related IT support as well as from operational procurement services
related to processing of shopping carts, purchase requisitions, purchase orders and invoices and
related help-desk support.
In 2011, the Company and Deutsche Telekom AG entered into a project service agreement, under
which the latter undertook to deliver software and perform services to the Company concerning the
implementation of Next Generation Customer-Relationship-Management. In 2012 Deutsche Telekom
AG assigned and transferred its rights under the project service agreement to T-Systems International
GmbH. Further, under a software delivery agreement entered into in 2012, the Company undertook
to provide services to T-Systems International GmbH and to act as the latter’s subcontractor.
A project service agreement is in place since 2012 between the Company and Deutsche Telekom AG
laying down the framework conditions for provision of shared platforms and services by Deutsche
Telekom AG to the Company.
In 2013, Telekom Deutschland GmbH and the Company concluded an individual agreement for
resellers, under which Telekom Deutschland GmbH provides to the Company audio conference
capacities for marketing to third parties.
Insurance agreement
In 2012, Deutsche Telekom AG and the Company concluded an agreement, under which Deutsche
Telekom AG includes the Company and the Company’s fully consolidated affiliates (i.e. currently
including Zoznam, s.r.o., Zoznam Mobile, s.r.o., Telekom Sec, s.r.o., PosAm, spol.s r.o. and DIGI
158
SLOVAKIA, s.r.o.) into Deutsche Telekom AG’s insurance portfolio in order to provide the
Company and its fully consolidated affiliates with insurance coverage. Deutsche Telekom AG has a
right to determine, alter, limit or amend the scope of its insurance portfolio. The Company pays costs
incurred by Deutsche Telekom AG in relation to its insurance portfolio on a pro rata basis.
Human resources and accounting
The Company further provides services in human resources, salary administration, and occupational
safety and health protection to Deutsche Telekom Shared Services, s. r. o. based on an agreement
entered into in 2012.
Interconnection agreements and IP transit agreements
The Company is also party to a number of interconnection and IP transit agreements with Deutsche
Telekom AG affiliates in other countries. In 2006, the Company and T – Mobile Czech Republic,
a.s., entered into an agreement on an interconnection of their telecommunications networks. In 2011,
the Company entered into a telecommunication services agreement and wholesale service agreement
concerning interconnection and routing of international calls with OTE International Solutions S.A.
In 2011, the Company also entered into a wholesale service agreement with ROMTELECOM S.A.
concerning the interconnection of their telecommunication systems. Finally, the Company and TSystems Austria GmbH concluded an IP transit supply agreement with a termination date of 31 May
2015. Under this agreement T-Systems Austria GmbH provides to the Company a fixed IP transit
line connecting the IP network of the Company and the IP backbone of T – Systems International
GmbH.
Roaming – International roaming agreements and agreements on roaming discounts
The Company is party to a number of direct international roaming agreements with Deutsche
Telekom AG affiliates in other countries: with Telekom Deutschland as of 1997, with T-Mobile Czech
Republic as of 1997, with Magyar Telekom as of 1997, with T-Mobile Austria as of 1997, with
Croatian Telekom as of 1997, with T-Mobile Poland as of 1997, with T-Mobile Netherlands as of
1998, with Telekom Romania as of 2000, with Cosmote Greece as of 1998, with T-Mobile Makedonia
as of 1997, with AMC Albania as of 2000, with T-Mobile USA as of 1997. In 2010, the Company
and Deutsche Telekom AG entered into an agreement on commercial roaming broker services
concerning commercial roaming discounts management with third parties on a group level via
commercial roaming broker. Intra-group commercial roaming discounts management was integrated
into the commercial roaming broker agreement in 2014 by an amendment. Also, in 2014, the
Company and Deutsche Telekom AG Company concluded an agreement on roaming discounts
concerning commercial roaming conditions between the Company and other affiliates of Deutsche
Telekom AG (as a substitution of former party-to-party agreements on roaming discounts with the
other affiliates from 2005).
Roaming – inter-carrier services and shared platforms
In 2003, the Company concluded an agreement on T-Systems global roaming eXchange with TSystems Austria GmbH concerning inter-carrier services for data roaming. In 2005, the Company
entered into an agreement on the usage of a shared platform for roaming traffic steering with
Deutsche Telekom AG.
Slovak Government Related Parties
The Slovak Government has significant influence over the financial and operating policy decisions of
the Group through the Selling Shareholder’s ownership of 49% of the shares of the Company.
Therefore, the Slovak Government and the companies controlled or jointly-controlled by the Slovak
Government (Slovak Government Related Entities) are classified as related parties of the Group.
Licensing fees
In 2014, the Group paid the Slovak NRA fees of EUR 60.8 million for the licence to provide mobile
services on 800 MHz and 2,600MHz frequency bands (the LTE licence) that was put in use in March
2014. In 2013, the Group paid to Slovak NRA a fee of EUR 1.0 million for the prolongation of the
licence for the provision of mobile services under the frequencies of 900MHz, 1,800MHz and
450MHz. The Group also incurred expenses with respect to other frequency and telecommunication
equipment related fees to Slovak NRA of EUR 2.8 million, EUR 2.5 million and EUR 3.5 million
for the year ended 31 December 2014, 2013 and 2012, respectively. The Group has no special
treatment with regard to the fees payable to Slovak NRA compared to other competitors.
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Contracts with Slovak Government Related Entities
During 2013, the Group entered into a contract for a period of two years with a Slovak Government
Related Entity on development, implementation and support of software solution of the municipalities
portal. The total value of the contract was approximately EUR 38.2 million. The Group recognised
revenue related to this contract of EUR 15.9 million and EUR 3.9 million for the years ended
31 December 2014 and 2013, respectively. The reason for the increase in 2014 is that the contract was
signed in the fourth quarter of 2013, therefore revenues recognised in 2013 were only partial. The
contract was entered into on standard commercial terms including customary termination conditions.
The contract governs delivery of the solution which is expected to be accepted and launched later this
year. There is a subsequent support and maintenance contract entered into for a five year term.
The Group also entered into several contracts with Slovak Government Related Entities on
development, support and other services in relation to the budget information system. More
specifically, the Group entered into three development contracts for the budget information system for
the period 2012 through 2015. The total value of these three contracts is approximately
EUR 16.5 million. The Group recognised revenue related to these contracts of EUR 3.9 million,
EUR 4.4 million and EUR 4.1 million for the years ended 31 December 2014, 2013 and 2012,
respectively. In addition, the Group entered into a service contract in relation to the budget
information system. The Group recognised revenue related to this contract of EUR 2.5 million,
EUR 2.3 million and EUR 2.4 million for the years ended 31 December 2014, 2013 and 2012,
respectively.
During 2010, the Group entered into a contract for a period of five years with a Slovak Government
Related Entity with respect to the establishment and delivery of communication systems, lease of
terminal equipment, delivery of internet connectivity and other telecommunications services. The total
value of the contract was approximately EUR 23.9 million. The Group recognised revenue related to
this contract of EUR 5.4 million, EUR 5.3 million and EUR 5.4 million for the years ended
31 December 2014, 2013 and 2012, respectively.
Master Agreement
In 2001, the Group signed a master agreement with a Slovak Government Related Entity to provide
communications infrastructure services. The contract amount depends on actual services provided
during the contract period. The contract is entered into for an indefinite period with 12 months’
notice. The Group recognised revenue related to this contract of EUR 10.3 million, EUR 9.8 million
and EUR 8.9 million for the year ended 31 December 2014, 2013 and 2012, respectively.
Other Transactions
The Group purchases services and goods from Slovak Government Related Entities in the normal
course of business. Specifically, the Group purchases electricity and electricity distribution services and
postal and cash collection services from Slovak Government Related Entities. The Group purchased
electricity and electricity distribution services in an aggregate amount of EUR 8.0 million,
EUR 8.3 million and EUR 8.6 million for the year ended 31 December 2014, 2013 and 2012,
respectively. The Group purchased postal and cash collection services in the aggregate amount of
EUR 4.4 million, EUR 4.7 million and EUR 5.4 million for the year ended 31 December 2014, and
2013 and 2012 respectively. The Group also routinely provides telecommunication and other
electronic communication or IT services to Slovak Government Related Entities as part of its
ordinary course business activities.
Additional Information
Additional information on related party transactions can be found in Note 35 to the Financial
Statements.
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TELECOMMUNICATION REGULATION IN SLOVAK REPUBLIC
The Company’s main operations are subject to industry sector-specific telecommunications regulation
which govern the conduct of its various operating segments, general competition law, as well as a
variety of other areas such as legislation concerning data or consumer protection.
The regulatory measures with the largest potential impact on the Company relate to significant
market power, price regulation, international roaming charges and licensing regimes for the use of
frequencies. Regulation of operators with significant market power is applied under Slovak national
law, after a market analysis carried out by the national regulator, although the Slovak regulation
stems from the relevant European Union (EU) Directives and is coordinated by the European
Commission (Commission).
International Obligations
As a member of WTO, the Slovak Republic has obligations arising from the General Agreement on
Trade in Services, especially its Annex on Telecommunications. It is also a signatory of the Fourth
Protocol to the General Agreement on Trade in Services and has accepted certain sector-specific
commitments as specified in the Schedule of Specific Commitments regarding the telecommunications
sector. Moreover, the Slovak Republic committed itself to the Reference Paper on regulatory
principles.
Until 2003 certain exemptions applied to the Company and it had an exclusive position in certain
telecommunication services. As of 2003, Slovak Republic offers competition in public voice services
and network infrastructure. The competition in private leased line services is permitted in connection
with public networks since 2003. The competition in all mobile and personal communication services,
including mobile supply of international voice is permitted. Licensing criteria have to be publicly
available. The telecommunications regulation body is separated from and not accountable to any
telecommunication service provider. The Slovak Republic has also committed to transparent and nondiscriminatory use of scarce resources, such as frequencies.
The Slovak NRA entered into many international agreements on frequency planning with NRAs of
(mostly) neighbouring countries with the aim of ensuring efficient use of spectrum in the border areas.
EU Telecom Regulatory Framework
The TV, fixed and mobile telephony and internet access services, which represent the core business of
the Company, are regulated at European Union level through the so called ‘‘Regulatory Framework
for Electronic Communications in the European Union’’ (EU Framework) established in 2002 and
substantially revised in 2009. The general aim of the EU Framework is to continue the liberalisation
of the EU telecommunications market, improve the functioning of the market, guarantee basic user
rights and stimulate investment in the sector. The EU Framework regulates a wide range of electronic
communications networks and services, including fixed and mobile telecommunications networks, fixed
and mobile voice services, satellite and internet networks and services.
The EU Framework consists of a package of five directives, two regulations and a number of other
legislative instruments. In contrast to EU regulations, which are directly applicable to companies and
individuals, the directives require incorporation into national legal systems through the enactment of
domestic legislation. The five key directives constituting the EU Framework are Directive 2002/21/EC
Framework Directive (Framework Directive), Directive 2002/19/EC Access and Interconnection
Directive (Access Directive), Directive 2002/20/EC Authorisation Directive (Authorisation Directive),
Directive 2002/22/EC Universal Service Directive (Universal Service Directive) and Directive 2002/58/
EC Directive On Privacy and Electronic Communications (Directive on Privacy and Electronic
Communications). The two key regulations are Regulation No. 531/2012 Regulation on Roaming on
Public Mobile Communications Networks (Roaming Regulation) and Regulation No. 1211/2009 On
Body of European Regulators for Electronic Communications (BEREC Regulation).
In each EU Member State (Member State), a national regulatory authority (NRA) is responsible for
enforcing national telecommunications laws in accordance with the EU Framework. NRAs have
powers under their relevant telecommunications laws in the area of generally applicable sector-specific
regulation (e.g. on interoperability and end-user protection) and also power to impose specific
obligations on operators that have significant market power (e.g. network access obligations and price
controls). NRAs also have the authority to allocate and to supervise the use of frequencies and
numbers.
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Licensing
According to the Authorisation Directive electronic communications networks or services can only be
provided on the basis of a general authorisation. In other words, the undertaking concerned may be
required to submit a notification to NRA but it may not be required to obtain an explicit decision or
any other administrative act by the NRA before it can start providing networks or services. However,
Member States can issue general authorisations (i.e. not issued to individual undertakings in
individual proceedings) setting out general conditions under which networks and services may be
provided by each undertaking. Undertakings providing cross-border services shall not be required to
submit more than one notification per Member State.
Notwithstanding the principle of general authorisation, Member States may still require individual
authorisations for the use of scarce resources, such as frequencies and numbers (e.g. calling numbers
and addresses of public networks and services). In particular, the NRAs may make the use of radio
frequencies subject to individual authorisation in order to:
*
avoid harmful interference;
*
ensure technical quality of service;
*
safeguard efficient use of frequency spectrum; or
*
fulfil other general interest objectives defined by Member States in conformity with Community
law.
The general authorisation to provide networks and services and the rights to use frequencies and
numbers may only be subject to the conditions set out in the Annex to the Authorisation Directive
(e.g. interoperability of services; interconnection of networks; accessibility and portability of numbers;
administrative charges). Where a Member State considers limiting the number of individual rights for
the use of radio frequencies, changing the existing conditions or their extension, certain conditions
and procedures have to be followed (e.g. consultation of all interested parties, publication of all
decisions and a periodic review of the limitations). Where rights of use is limited in this way, Member
States must grant individual authorisation on the basis of selection criteria which must be objective,
transparent, non-discriminatory and proportionate.
SMP Undertakings
To ensure that the telecommunications markets are competitive, NRAs can impose ex ante regulation
by means of market analysis and decisions imposing obligations on undertakings that have SMP
within a relevant market defined in a given country (SMP Undertakings). Ex ante regulation involves
NRAs imposing specific behavioural rules aimed at furthering market competition on particular SMP
Undertakings in advance as opposed to fining them after they breach general competition rules (ex
post supervision). However, compliance with ex ante regulation does not automatically absolve the
SMP Undertakings from liability for potential infringements of general competition law and ex post
investigations and sanctions by the relevant competition authorities. If an NRA finds that on a
particular relevant market an undertaking, either individually or jointly with others, enjoys a market
position equivalent to dominance, i.e. a position of economic strength affording it the power to
behave to an appreciable extent independently of competitors, customers and ultimately consumers, it
designates such undertaking an SMP Undertaking and imposes one or more obligations on it. Before
it can be established whether an undertaking or service provider has SMP, the NRA must apply the
principles of the general European competition law to determine in which relevant markets the
undertaking competes.
When determining the presence of SMP, NRAs are obliged to take into account the Commission’s
recommendations on relevant markets. The latest such recommendation is Commission
Recommendation C(2014) 7174 of 9 October 2014 on Relevant Product and Service Markets within
the Electronic Communications Sector Susceptible to Ex Ante Regulation in Accordance with
Directive 2002/21/EC of the European Parliament and of the Council on a Common Regulatory
Framework for Electronic Communications Networks and Services 2014/710/EU (Relevant Markets
Recommendation). In the recommendation, the Commission defined four product and service markets
in respect of which ex ante regulation might be warranted (See ‘‘– Slovak National Telecom
Regulatory Framework – Market analyses conducted by the Slovak NRA and definitions of relevant
markets’’ below for the definitions of the particular markets). When conducting market analysis,
NRAs must investigate instances of SMP in these four predefined markets. However, if it is justified
by specific national circumstances involving (i) presence of high and non-transitory barriers to entry;
(ii) a market structure which does not tend towards effective competition; and (iii) insufficiency of
162
competition law alone to adequately address the market failure(s) concerned, the NRAs may also
define further relevant markets and apply ex ante regulation to them.
Where, following a market analysis, an undertaking is identified as having SMP, NRAs are obliged to
impose one or more of the following obligations on that SMP Undertaking, according to the
circumstances:
*
obligation of transparency in relation to interconnection and/or access requiring operators to
make public specified information such as accounting information, technical specifications or
network characteristics;
*
obligation of non-discrimination in relation to interconnection and/or access to ensure that the
SMP Undertaking applies equivalent conditions in equivalent circumstances to other
undertakings providing equivalent services;
*
obligation of accounting separation in relation to specific activities concerning interconnection or
access;
*
obligation of access to, and use of, specific network elements and associated facilities (including
e.g.: obligation to give third parties access to network elements and/or unbundled access to the
local loop; obligation to negotiate in good faith with undertakings requesting access; obligation
not to withdraw access to facilities already granted; or obligation to interconnect networks or
network facilities (facilities include e.g.: buildings, building wiring, antennae, towers, ducts,
conduits, masts, manholes and cabinets))
*
obligation of price control, including cost orientation of prices or obligations concerning cost
accounting systems; or
*
as an exceptional measure, functional separation according to which a vertically integrated SMP
Undertaking must place activities related to the wholesale services in an independently operating
business entity.
In order to secure consistency among the Member States’ regulatory treatment of SMP Undertakings
within the respective relevant markets, the Commission issues recommendations on pricing
methodologies which the NRAs must take into account when imposing price control on SMP
Undertakings.
In May 2009, the Commission issued Recommendation on the Regulatory Treatment of Fixed
Termination Rates and Mobile Termination Rates in the EU No. 2009/396/EC (Recommendation on
Termination Rates) aimed at the harmonisation of price control applied by the NRAs in the wholesale
fixed and mobile termination markets, which sets cost calculation standards for fixed termination rates
(FTRs) and mobile termination rates (MTRs). The Recommendation on Termination Rates
introduced the so called ‘‘pure long-run incremental costs’’ (pure LRIC) approach of costs calculation,
which no longer takes into account various costs which had previously been considered when setting
termination rates. The new approach led to reduction in FTRs and MTRs applied among the EU
Member States.
On 20 September 2010 the Commission passed the Recommendation on Regulated Access to Next
Generation Access Networks (NGA) No. 2010/572/EU for the purpose of harmonising the regulatory
approach of NRAs with regard to broadband services markets (recommended relevant markets No. 4
and 5). This recommendation was further amended on 11 September 2013 by a new Commission
Recommendation on Consistent Non-discrimination Obligations and Costing Methodologies to
Promote Competition and Enhance the Broadband Investment Environment No. 2013/466/EU which
set the bottom-up long-run incremental costs-plus (BU LRIC +) costing methodology as the
recommended costing methodology with regard to copper and NGA wholesale access prices. In
addition, this Recommendation called for enhancement of obligation of non-discrimination by the
NRAs through implementation of Equivalence of Input (EOI) or Equivalence of Output (EOO)
principles into regulated wholesale services.
Universal service
One of the objectives of the EU Framework, enshrined in the Universal Service Directive, is to ensure
that end-users in each Member State have access to the so called ‘‘universal service’’, i.e. to a certain
minimum set of services of a specified quality to which all end-users have access at an affordable
price in the light of specific national conditions. This minimum set of services should be made
available to all users within a Member State’s territory, regardless of their geographical location. The
EU Framework sets out obligations in order to secure this objective.
163
First, Member States shall ensure that all reasonable requests for connection at a fixed location to a
public communications network are met by at least one undertaking and at a reasonable price. The
connection provided must be capable of supporting voice, facsimile and data communications at data
rates that are sufficient to permit functional internet access, taking into account prevailing
technologies used by the majority of subscribers and technological feasibility.
Second, Member States shall ensure that at least one comprehensive directory is available to end-users
and must be updated at least once a year. Similarly, at least one directory enquiry service must be
available to end-users, including users of public pay telephones.
Third, the public pay telephones or other access points to publicly available telephone services should
be provided to meet the needs of end-users and the NRAs must be able to impose obligations on
undertakings to ensure fulfilment of this requirement. However, if an NRA is satisfied that these
facilities or comparable services are widely available, it can decide not to impose any such obligations
on undertakings.
Finally, unless other requirements have been put in place which achieve an equivalent effect, Member
States are obliged to take specific measures to ensure that access to, and affordability of, the access
and directory services for disabled end-users is equivalent to the level enjoyed by other end-users.
Member States may take specific measures, in the light of national conditions, to ensure that disabled
end-users can also take advantage of the choice of undertakings and service providers available to the
majority of end-users.
Member States may designate one or more undertakings to guarantee the provision of universal
service. Undertakings which have universal service obligations may be subject to price control by
NRAs which may set price caps or common tariffs for the provision of universal service.
As to the financing of universal service, Member States are obliged to establish effective compensation
mechanisms for net costs incurred by designated universal service providers when obligations imposed
on them represent an unfair burden. The compensation may be paid either from public funds or from
shared contributions by other providers of electronic communications networks and services. Member
States may choose not to require contributions from undertakings whose national turnover is less
than a set limit.
Access, interoperability and interconnection
All providers of public electronic communications networks or services (irrespective of whether they
have been designated as SMP undertakings or not) who control access to end-users in the EU are
obliged to enter into negotiations upon a request of a competitor to conclude an interoperability
agreement. Interoperability refers to all measures, including access and interconnection that need to be
implemented to ensure end-to-end connections. NRAs can impose proportionate obligations on the
providers in order to ensure end-to-end connectivity. If commercial negotiation regarding access fails,
the NRA has the power to secure access, interconnection and interoperability in the interests of endusers. The interoperability obligations imposed by the NRA must be objective, transparent,
proportionate and non-discriminatory.
International roaming on mobile networks
The Roaming Regulation provides the framework for reductions of voice, SMS and data roaming
charges (i.e. additional fees for calls, SMS and data transfers initiated outside the subscriber’s home
country) on mobile networks in the European Union. The ultimate aim of the regulation is to
eliminate the difference between domestic charges and roaming charges and thereby establish an
internal market for mobile communications services. In accordance with the regulation the regulated
wholesale and retail roaming price caps for calls, SMS and mobile data services have decreased
annually since July 2012 until the end of July 2014 and are to remain at the current low levels until
July 2017 with regard to retail roaming charges and until July 2022 with regard to wholesale roaming
charges.
In addition to furthering the price reduction policy, the Roaming Regulation introduced certain
‘‘structural measures’’ aimed at creating more competitive retail roaming markets. For example, from
July 2014, retail roaming services are required to be ‘‘decoupled’’ from other service offerings,
meaning that roaming has to be offered separately from national services and has to be obtainable
from alternative roaming providers. Roaming customers must have the right to switch roaming
provider at any time. Where a roaming customer chooses to switch roaming provider, the switch must
be carried out without undue delay, under no circumstances exceeding three working days from the
conclusion of the agreement with the new roaming provider. The switch to an alternative roaming
164
provider or between roaming providers shall be free of charge for customers and shall be possible
under any tariff plan. The Roaming Regulation also introduced certain transparency obligations such
as duty of roaming providers to alert roaming customers free of charge to the fact that they will be
subject to roaming charges and provide them with basic personalised pricing information on such
charges (including VAT).
New EU Directive on NGA
A new EU Directive 2014/61/EU On Measures to Reduce the Cost of Deploying High-Speed
Electronic Communications Networks was enacted on 15 May 2014. Its main objective is to facilitate
and incentivise the roll-out of high-speed electronic communications networks, i.e. networks capable
of delivering broadband access services at speeds of at least 30 Mbps, by promoting the joint use of
existing physical infrastructure and by enabling a more efficient deployment of new physical
infrastructure so that such networks can be rolled out at lower cost. It establishes minimum
requirements relating to civil works and physical infrastructure, with a view to approximating certain
aspects of the laws, regulations and administrative provisions of the Member States.
The directive requires Member States to ensure that, upon written request of an undertaking
providing, or authorised to provide, public communications networks, any network operator has the
obligation to meet all reasonable requests for access to its physical infrastructure under fair and
reasonable terms and conditions, including price, with a view towards deploying elements of highspeed electronic communications networks. Every refusal of such access must be based on objective,
transparent and proportionate criteria and the reasons for refusal must be stated by a network
operator within two months from the request for access. In case of a dispute either party will be
allowed to refer the case to a competent national body for dispute resolution. The Member States
will have to ensure that all newly constructed buildings at the end-user’s locations or buildings that
underwent major renovation works, for which applications for building permits have been submitted
after 31 December 2016, are equipped with physical infrastructure capable of hosting elements of or
delivering of high-speed electronic communications networks, up to the network termination points.
All multi-dwelling buildings for which building permits have been submitted after 31 December 2016
should be equipped with access point. Member States may provide for exemptions from these
obligations in cases where the obligations would be disproportionate. The directive further deals with
issues pertaining to transparency of physical infrastructure and planned civil works, coordination of
civil works, permit-granting procedures and access to in-building physical infrastructure.
In case of any discrepancies between the directive and the EU Framework, provisions of EU
Framework prevail over the provisions of the directive. The directive must be implemented into
Slovak national law by 1 January 2016 and the legislation implementing it must enter into force by
1 July 2016 at the latest. Preparatory works on the new legislation already began.
The ‘‘Connected Continent’’ draft legislative package
On 11 September 2013, the Commission adopted a legislative package ‘‘Connected Continent: Building
a Telecoms Single Market’’ aimed at building a connected, competitive continent and enabling
sustainable digital jobs and industries. The legislative package is a part of a broader ‘‘Digital Agenda
for Europe’’ initiative and is mainly represented by the Proposal for a Regulation of the European
Parliament and of the Council Laying Down Measures Concerning the European Single Market for
Electronic Communications and to Achieve a Connected Continent, and amending Directives 2002/20/
EC, 2002/21/EC and 2002/22/EC and Regulations (EC) No. 1211/2009 and (EU) No. 531/2012. The
proposal was adopted by the Commission on 11 September 2013 and approved with amendments by
the EU Parliament on 3 April 2014. The legislative process is still on-going.
The European Telecommunications Network Operators (ETNO) has expressed concerns over the
package, in particular regarding the evolution of the open internet provisions which they consider
may introduce far-reaching restrictions on traffic management, affecting efficient management of
networks. The Body of European Regulators for Electronic Communications (BEREC) also raised
concerns regarding the proposed package in a statement it published on 17 May 2014. As the
legislative process is still on-going and the final wording of the regulation is unclear, the description
of the package below is limited only to a cursory overview. According to the Commission, the
legislative changes proposed complement the current regulatory framework and are intended to
address mainly the following:
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*
Simplifying EU rules for telecoms operators – A single authorisation for operating in all 28
member states (instead of 28 authorisations) and further harmonising the way operators can rent
access to networks owned by other companies in order to provide a competing service.
*
Roaming premiums – Incoming call charges while travelling in the EU would be banned.
Companies would have the choice to either (1) offer phone plans that apply everywhere in the
EU (‘‘roam like at home’’), the price of which will be driven by domestic competition, or (2)
allow their customers to ‘‘decouple’’ and opt for a separate roaming provider (without having to
buy a new SIM card). This builds on the 2012 Roaming Regulation which subjects operators to
wholesale price cuts of 67% for data from July 2014 (See ‘‘– International roaming on mobile
networks’’ above).
*
International calls within
for a fixed intra-EU call
calls, the price could not
prices would be set based
*
Legal protection for open internet (‘‘net neutrality’’) – Blocking and throttling of internet
content will be banned, giving users access to the full and open internet regardless of the cost or
speed of their internet subscription. Companies will still be able to provide ‘‘specialised services’’
with assured quality so long as this does not interfere with the internet speeds promised to other
customers.
*
New consumer rights, harmonised across Europe – This proposes new rights such as the right to
plain language contracts with more comparable information, greater rights to switch provider or
contract, introduction of the provider switching process led by the receiving provider, the right
to a 12-month contract (if the customer does not want a longer contract), the right to end a
contract if promised internet speeds are not delivered, and the right to have emails forwarded to
a new email address after switching internet provider.
*
Coordinated spectrum assignment – The European Commission proposes stronger coordination
of timing, duration and other conditions of assignment of spectrum between Member States.
*
More certainty for investors – The Recommendation on Costing Methodologies and NonDiscrimination of 11 September 2013 is the second element of this package. The European
Commission intends for it to increase certainty for investors, to increase their investment levels,
and reduce divergences between regulators, by (1) further harmonising and stabilising costs that
incumbent operators may charge for giving others access to their existing copper networks; and
(2) granting ‘‘access seekers’’ equivalent access to networks.
Europe – The proposal would mean companies cannot charge more
than they do for a long-distance domestic call. For mobile intra-EU
be more than EUR 0.19 per minute (plus VAT). Intra- European call
on cost recovery principles.
Slovak National Telecom Regulatory Framework
Overview of legislation and other sources of regulation
In the Slovak Republic, the EU Framework is implemented mainly through Act No. 351/2011 Coll.
on Electronic Communications as amended (Electronic Communications Act) and related legislation.
The related legislation includes Act No. 402/2013 Coll. on Regulatory Authority for Electronic
Communications and Postal Services, Transport Authority and on alteration and amendment of
certain acts, Act No. 122/2013 Coll. on Personal Data Protection as amended, Act No. 18/1996 Coll.
On Prices as amended, Act No. 71/1967 Coll. Administrative Code as amended and Act No. 145/1995
Coll. on Administrative Charges as amended. The field is also governed by relevant secondary
legislation issued on the basis of the above-mentioned acts, such as the Ordinance of the Government
of the Slovak Republic No. 420/2012 Coll. Establishing the National Table of the Frequency
Spectrum, The Plan of Use of the Frequency Spectrum, general authorisations and other measures
issued by the relevant authorities.
State administration authorities in the area of electronic communications
Government of the Slovak Republic
The Government’s role is limited to adopting basic strategic documents such as the National
Electronic Communications Policy, which sets basic goals in the field of electronic communications at
the national level for the coming years, and to adopting the National Table of the Frequency
Spectrum, which is the basic document governing the use of frequencies (see ‘‘– The national licensing
system’’ below).
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Ministry of Transport, Construction and Regional Development of the Slovak Republic
The Ministry’s role is focused on questions of general policy and strategic planning. It prepares a
proposal of the National Electronic Communications Policy and a proposal of the National Table of
the Frequency Spectrum and presents them to the Government for approval. It cooperates with the
Commission and Member States of the European Union, and provides for international relations in
the electronic communications sector at the European Union level and other international
organisations.
Regulatory Office for Electronic Communications and Postal Services
The Regulatory Office for Electronic Communications and Postal Services (Slovak NRA) is the main
telecommunication regulatory and supervisory authority and has the following main competencies:
*
Regulation of electronic communications, including the ex ante regulation of SMP Undertakings;
*
Administration of the frequency spectrum, including power to set administrative charges for the
use of frequencies;
*
Protection of the interests of end users with regard to the quality and prices of services;
*
Promotion of effective competition, effective investments and innovation, development of the
common market of the European Union, adequate access to networks, interconnection of
networks and interoperability of services and freedom of carrier selection;
*
Adoption of generally
Communications Act;
*
Determination and imposition of administrative fees;
*
Out-of-court resolution of disputes between undertakings and between undertakings and endusers;
*
State supervision in the area of electronic communications; and
*
Imposition of penalties and other sanctions for breaching obligations stipulated by the Electronic
Communications Act.
binding
legal
regulations
within
the
limits
of
the
Electronic
Slovak NRA is headed by a chairman, who acts as a statutory body and is elected and dismissed by
the National Council of the Slovak Republic upon a proposal of the Government. The chairman,
when absent, is deputised by the vice-chairman of the Slovak NRA who fulfils tasks assigned to him
by the chairman. The vice-chairman is appointed and dismissed by the Government. Both the
chairman and the vice-chairman are appointed for a six-year term.
The national licensing system
The licencing system in the field of electronic communications in the Slovak Republic is governed by
the Electronic Communications Act as well as by secondary legislation issued on its basis. The
licensing is administered by the Slovak NRA and applies in three main areas: (i) general licencing for
the provision of electronic networks/services (ii) licencing for the use of frequencies and (iii) licencing
for the use of calling numbers, numbering blocks and the addresses of public networks and services
(Numbers).
General authorisation to provide networks and services
In line with the EU Framework, the provision of networks and services is generally permitted upon
simple notification to the Slovak NRA without any special individual permits. The general
authorisation to provide networks and services is granted to all undertakings by means of a special
document adopted by the Slovak NRA (currently General Authorisation No. 1/2014 to Provide
Electronic Communications Networks or Electronic Communications Services) which also sets out
basic conditions for the provision of networks and services and stipulates an administrative fee for
doing so. The General Authorization sets out obligations of providers of public electronic
communications networks and services such as obligations relating to protection of end-users and
availability of services for disabled end-users, obligation to enable interception by competent
authorities, obligation to ensure compliance with technical standards and technical specifications for
networks and services (see ‘‘Business – Key Sector-specific Regulations Applicable to the Group – Pubic
Service and Public Network Provider).
The National Table of the Frequency Spectrum and the Plan of Use of Frequency Spectrum
Frequency licensing is governed by the Electronic Communications Act, the National Table of the
Frequency Spectrum (National Table) and the Plan of Use of Frequency Spectrum (Plan). The
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National Table is a governmental decree adopted by the Government of the Slovak Republic which
divides the frequency spectrum into frequency bands, specifies which bands may be used for civil and
which for military purposes, and stipulates what type of services may be used in each band (e.g.
digital TV, digital radio broadcast, analogue radio broadcast). The National Table furthermore
identifies the frequency bands that may be used under general authorisations for the use of
frequencies.
The basic rules set out in the National Table are further elaborated in the Plan issued by the Slovak
NRA. When adopting the Plan the Slovak NRA must take into account the need for European
synchronisation, the level of technical development of radio equipment, the provision of services in
the specific frequency band, consumer welfare, and the state defence and security. The Plan consists
of a general part and appendices, setting out conditions applicable for particular frequency bands (e.g.
whether individual authorisation is required, whether rights to use the frequencies may be transferred
or leased, a maximum number of frequency-allocating individual authorisations that may be issued, a
maximum amount of spectrum that may be held by one undertaking, standards that must be
observed in terms of the usage of devices, etc.). In accordance with the rules set out in the Electronic
Communications Act, the Slovak NRA may use the Plan to:
*
adopt restrictions on some types of radio network or wireless access technology;
*
restrict the extent of services in a specific frequency band; or
*
prohibit the provision of anything other than a specified service in a specific frequency band.
General authorisations for the use of frequencies
As a general rule, frequencies in the Slovak Republic may be used only on the basis of a general or
individual authorisation. The frequencies that may be used under general authorisations do not
require any individual licences and may be used freely by all undertakings subject to the conditions
set out therein. When adopting general authorisations, the Slovak NRA must follow the conditions
set out in the National Table and the Plan.
Individual authorisations for the use of frequencies
Some frequencies can be used only by holders of individual authorisations issued by the Slovak NRA.
Individual authorisations may take one of the following forms:
*
a decision on the allocation of frequencies and setting out the conditions under which the
frequencies may be used;
*
a decision on the allocation of frequencies;
*
a decision on the conditions under which the frequencies may be used (e.g. decision setting
technical specifications of electronic communications devices that may be used by an
undertaking); or
*
a terrestrial operating licence (special license for enabling the provision of terrestrial transmission
of digital TV and radio broadcasting).
Individual authorisations are granted either on application or through a tender. The Plan usually
stipulates which of the two regimes is applicable, although this question may also be decided by the
Slovak NRA on an ad-hoc basis if it finds it necessary to restrict the number of individual
authorisations. If an authorisation is granted on the basis of application, it is awarded on a ‘first
come, first served’ basis. Tenders may be carried out through electronic auctions or without an
auction. In case of tender proceedings without electronic auction, the tender bids are assessed by a
five-member selection committee on the basis of selection criteria published by the Slovak NRA. The
members of the committee are appointed by the chairman of the Slovak NRA and must meet the
requirements of professional competence, integrity and impartiality set out by the Electronic
Communications Act. If the tender proceedings are carried with electronic auction, the only selection
criterion is the amount of one-off fee for the use of frequencies in question offered by the bidders.
Before a successful tenderer starts to use the awarded (allocated) frequencies, the Slovak NRA must
issue a separate decision on the conditions of their use.
The Slovak NRA may issue individual authorisations for a maximum period of ten years. However,
the authorisation may be issued for a longer period if it is needed on the ground of a longer payback
period on specific network investments to be made by the holder. Furthermore, the statutory ten-year
limit does not apply to frequencies used for the transmission of analogue radio broadcasting. Any
holder of an individual authorisation that was issued upon application is entitled to apply for an
extension. However, getting an extension is not possible if the authorisations are issued through
168
tender proceedings. This means that, if the holder of a licence gained through a tender wishes to
continue using the frequencies after the authorisation expiration date, it must enter new tender
proceedings. Moreover, if the Slovak NRA considers it necessary to restrict the number of rights for
the use of frequencies or if it follows from the Plan, tender proceedings may be ordered by the
Slovak NRA also for frequency bands allocated on the basis of applications (some of the most
important frequencies held by the Company (including 4G licences) were allocated to it through
tenders).
Individual authorisations for the use of frequencies may impose various obligations on their holders,
e.g. the obligation to ensure minimum coverage of Slovak population by services provided using the
allocated frequencies, obligation to adhere to a set minimum quality standard of the services
provided, the obligation to provide a national roaming to new market entrants, or obligation to use
frequencies in border areas in accordance with rules set out in relevant international agreements on
use of frequency spectrum (for particular duties of the Company stemming from its individual
authorisations see ‘‘Business – Key Sector-specific Regulations Applicable to the Group – Obligations set
out in the individual authorisations for the use of frequencies’’ above). Non-compliance with obligations
set out in individual authorisations can lead to withdrawal of the respective authorisations or
allocated frequencies.
The Slovak NRA may decide to change an individual authorisation if:
*
this is required by an international agreement or membership of the Slovak Republic in an
international organisation;
*
the realities, on the basis of which the individual authorisation was granted, have substantially
changed; or
*
an application for a change of the authorisation is lodged with the Slovak NRA by its holder.
The Slovak NRA is obliged to withdraw an individual authorisation if:
*
the holder has not started using the allocated frequency within a set time limit (normally within
6 months from when the decision on allocation of frequencies became final and binding), or
used it for a purpose other than its prescribed purpose;
*
the holder has not used (or has ceased to use) the allocated frequency for the permitted purpose
or in the defined territory for more than six months;
*
the holder does not fulfil its obligations under the Electronic Communications Act or obligations
set out in the individual authorisation;
*
the holder has not paid a payment for the frequencies (see ‘‘– Fees’’ below);
*
the transfer or lease of the rights arising from the allocated frequencies has been effected in
contradiction with the Electronic Communications Act or the individual authorisation; or
*
the holder of the license does not respect the statutory ban on proprietary and monetary
interconnection between broadcasters and terrestrial multiplex providers.
The individual authorisation expires mainly:
*
upon the lapse of the period for which it was granted or upon death or dissolution of the
holder, unless the dissolved undertaking has a legal successor;
*
on the date stated in the written waiver of the individual authorisation delivered to the Slovak
NRA by the holder;
*
on the date when the holder ceased to provide electronic communications networks or services;
or
*
on the date when the broadcasting licence for a radio broadcast transmitted using the
frequencies was withdrawn or when the registration of retransmission for which the frequencies
were granted was cancelled.
Decisions on allocation of frequencies set out conditions under which the allocated frequencies can be
transferred or leased. The conditions must be in line with the respective stipulations of the Plan. Each
planned transfer of rights must be notified to the Slovak NRA at least four weeks in advance as well
as at latest five days after its execution. Information on each transfer is published by the Slovak
NRA. Under the Act on Electronic Communications a transfer or lease of allocated frequencies is
inadmissible: (i) in case of analogue TV and analogue radio broadcasting frequencies, (ii) if it follows
from their harmonisation, (iii) if the planned transfer or lease would lead to distortion of market
169
competition or (iv) if in course of the last three years before the intended transfer or lease the Slovak
NRA withdrew an individual authorisation held by the intended acquirer or lessee.
Individual authorisations for the use of numbers
The Slovak NRA administers Numbers. It issues the Numbering Plan (Numbering Plan) which lays
down rules for setting up and using Numbers and general terms and conditions of their allocation
and aims to provide for equivalent treatment of all providers of public services as well as compliance
with international agreements and obligations of the state.
The Slovak NRA allocates Numbers to particular undertakings by means of individual authorisations
for the use of numbers which are issued upon application. Undertakings using numbers are obliged to
pay recurring fees to the Office (see ‘‘– Fees’’ below).
The Slovak NRA is obliged to withdraw an individual authorisation if:
*
the holder failed to fulfil its obligations under the Electronic Communications Act or obligations
set out in the individual authorisation (this does not apply to paying the annual fee for the
allocated numbers);
*
the holder did not use that number for a period of at least 12 months from the allocation of
the number or stopped using the allocated numbers for at least three months;
*
the holder has not settled the recurring fee for the allocated numbers within three months from
its due date;
*
the holder no longer fulfils the conditions for the use of allocated harmonised number of social
value under Decision of EU Commission 2007/116/EC On Reserving the National Numbering
Range Beginning With ‘116’ for Harmonised Numbers for Harmonised Services of Social Value
(e.g. number 116 000 reserved for a hotline for missing children); or
*
it is necessary in terms of state defence, security of state or the protection of public order.
Under certain circumstances stipulated by the Electronic Communications Act, the Slovak NRA can
change an individual authorisation for the use of Numbers (e.g. if it is in the interest of adaptation to
market requirements or requirements of users).
Number portability
The Electronic Communications Act sets out obligations allowing for number portability imposed on
providers of public electronic communication services (including the Company), which must ensure
that a subscriber to such service may, upon request, retain his number independently of the
undertaking providing the service. This applies: (i) in the case of geographic numbers at a specific
location; and (ii) in the case of non-geographic numbers (e.g. mobile phone numbers) at any location.
For the service of number portability the providers are obliged to charge only costs-oriented
wholesale prices. Where service providers require direct payments from their subscribers for the
services related to number portability, they may not act as disincentive for their use. Such direct
payments almost ceased to exist on the Slovak market.
Service providers are obliged to port and activate the number as soon as possible but not later than
one day after conclusion of an agreement on portability. Service providers are required to compensate
subscribers for any delays in porting. The number-portability obligations do not apply to number
portability between fixed and mobile public networks.
Fees
The following administrative fees are levied in the electronic communications sector:
General administrative fee for the provision of services and networks
According to the currently effective general authorisation to provide networks and services (see
above), each provider of networks, services, or both must pay an administrative fee of 0.08% of its
annual revenues derived from the provision of services or networks in the previous closed accounting
period. Each undertaking is obliged to submit to the Office a declaration of the amount of revenues
by 10 April each year, or by 10 July each year if the undertaking applied for an extension of the
statutory term for submitting an income tax return.
170
Administrative fees for the use of frequencies
One-off fees are determined by the Slovak NRA for individual authorisations on an ad-hoc basis. If
the authorisations are awarded through tender proceedings, the one-off fee represents the expected
lowest bid or offer. The one-off fees are the highest fees levied by the Slovak NRA.
Recurring fees are usually monthly or quarterly (in special cases yearly or daily) tariff charges
calculated in accordance with a special regulatory measure adopted by the Slovak NRA. The amount
of recurring fees varies depending on the parameters of the frequencies used (see ‘‘Business – Key
Sector-specific Regulations Applicable to the Group – Obligations set out in the individual authorisations
for the use of frequencies’’ for further details on the one-off fees payable by the Company for the use
of frequencies).
General administrative charges
The Slovak NRA levies various one-off tariff procedural charges under the general legislation
governing such charges, mainly for filing various applications with the Slovak NRA. These charges
are non-significant and can be in the range between several thousand of euro for more complicated
matters and about 10 euro for more technical and administrative steps.
Fees levied for the use numbers
The Slovak NRA issues a special measure stipulating the amount of fees charged for the allocated
numbers. The fees are normally levied as recurring annual fees for a bundle of 1000 allocated
numbers. The amount charged depends on the type of the numbers allocated (e.g. for a bundle of
1000 assigned nine-digit numbers most commonly used in mobile telephony the Slovak NRA levies a
yearly fee of EUR 7).
Public networks and public services
For information on obligations relating to the provision of public electronic networks and services see
‘‘Business – Key Sector-specific Regulations Applicable to the Group – Public Service and Public
Network Provider’’ above.
Universal service
For information on obligations relating to the provision of public electronic networks and services see
‘‘Business – Key Sector-specific Regulations Applicable to the Group – Universal service provider’’
above.
Market analyses conducted by the Slovak NRA and definitions of relevant markets
The Slovak NRA determines list of relevant markets by way of special decision. While doing so it
must take into account the applicable relevant markets recommendations issued by the Commission.
Subsequently the Slovak NRA examines the state of competition on these markets and on the basis
of the market analysis it issues decisions determining SMP Undertakings and imposing obligations on
these SMP undertakings in the respective relevant markets. The market analyses are typically
conducted every three years.
On 18 November 2014 the Slovak NRA issued a new decision on determination of relevant markets
which formally replaced the former list set out in the previous decision dated 20 January 2011. The
new list of relevant markets is as follows:
Market 1:
Wholesale services of call termination in individual public telephone networks
provided at a fixed location.
Market 2:
Wholesale services of voice call termination in individual mobile networks.
Market 3:
a)
Wholesale services of local access provided at a fixed location.
b)
Wholesale central access services provided at a fixed location for products
intended for mass market.
Market 4:
Wholesale high-quality access services provided at a fixed location.
Market 5:
Wholesale services of call origination in a public telephone network provided at a
fixed location.
Market 6:
Retail services of access to public telephone network at a fixed location for residential
and non-residential customers.
171
The change in the relevant markets was prompted by the adoption of the new Relevant Markets
Recommendation by the Commission in October 2014. Despite the adoption of the new list of
relevant markets, the existing obligations imposed on SMP Undertakings on the old relevant markets
remain valid until replaced by new obligations reflecting the changed list of relevant markets. In order
to impose the new obligations the Slovak NRA must first conduct market analyses on the newly
defined relevant markets. The market analyses are currently on-going and are expected to be finished
in the last quarter of 2015. The old list of relevant markets as defined under the 2011 Slovak NRA
decision is as follows:
Retail level market
Market 1:
Access to the public telephone network at a fixed location for residential and nonresidential customers (Retail Fixed Telephone Access).
Wholesale level markets
Market 2:
Call origination on the public telephone network provided at a fixed location
(Wholesale Fixed Call Origination). Call origination on the public telephone network
provided at a fixed location is a conveyance of a telephone call or a call to the
internet network (used for a dial-up internet connection) from a termination point in
a fixed public telephone network defined by a specific network address to the point of
interconnection between two fixed networks or between a fixed and a mobile network.
Market 3:
Call termination on individual public telephone networks provided at a fixed location
(Wholesale Fixed Call Termination). Call termination on individual public telephone
networks provided at a fixed location is conveyance of a call directed at an end user
of a public telephone service at a fixed connection point from a point of
interconnection between two fixed networks or between a mobile and a fixed network
to a termination point of a fixed public telephone network defined by a specific
network address.
Market 4:
Wholesale (physical) access, including shared or fully unbundled access, provided
through infrastructure at a fixed location (Wholesale Physical Access)
Market 5:
Wholesale broadband access (Wholesale Broadband Access). Wholesale Broadband
Access consists of access to electronic communication networks allowing conveyance
of signals at the speed higher than 256 Kbit/s.
Market 6:
Wholesale terminating segments of leased circuits (Wholesale terminating segments of
leased circuits) are segments of leased circuits, which connect network termination
points with the point of interconnection.
Market 7:
Call termination on individual public mobile telephone networks (Wholesale Mobile
Termination). Call termination on individual public mobile telephone networks is a
service which consists of conveyance of a call directed at an end user of a mobile
telephone service from a point of interconnection between mobile networks or
between a mobile network and a fixed network to a termination point in a mobile
telephone network defined by a specific network address.
The new decision did not bring substantial changes in the existing market definitions, the new market
analyses may lead to changes in the existing obligations imposed on SMP Undertakings including the
Company.
Obligations imposed on SMP Undertakings
On each of the listed seven old relevant markets, the Slovak NRA designated respective SMP
Undertakings on which it imposed one or more obligations. The Company was designated as having
SMP in all seven originally defined relevant markets (see ‘‘Business – Key Sector-specific Regulations
Applicable to the Group – Obligations of the Company as an SMP Undertaking’’). The obligations that
the Slovak NRA may impose under the Electronic Communications Act are in line with the EU
Framework and include the following:
*
Transparency of access and interconnection, in particular the obligation to publish specific
information designated by the Slovak NRA such as accounting information, standard business
terms and conditions and network characteristics and/or the obligation to publish a mandatory
reference offer under conditions set by the Slovak NRA. A mandatory reference offer is a
document produced and published by the SMP Undertaking and approved by the Slovak NRA
that states conditions and specifications under which the SMP Undertaking provides certain
172
services (e.g. access and interconnection). The Slovak NRA decides which conditions and
specifications must be included in the mandatory reference offer and the SMP Undertaking is
obliged to apply these conditions and specifications to all its customers. The Slovak NRA may
decide on the change of the content of the reference offer.
*
Non-discrimination of access and interconnection, which entails applying comparable conditions
under comparable circumstances to other undertakings and providing other undertakings with
information and services under equal conditions and in equal quality as if used for one’s own
needs or would be provided to a controlled undertaking.
*
Accounting separation, which entails separation of specific activities in relation to access or
interconnection and making accounting of vertically integrated undertakings transparent to
ensure non-discrimination.
*
Access to specific network facilities including the obligation to give third parties access to
specified network elements and/or facilities including access to network elements which are not
active and/or unbundled access to the local loop, obligation to provide access to related facilities
and services in order to ensure interoperability and interconnection, obligation to enable colocation or other forms of shared use of associated facilities, obligation not to withdraw access
to facilities already granted, obligation to negotiate in good faith with undertakings requesting
access and obligation to provide access to operational support systems or similar software
systems necessary to ensure fair competition in the provision of services.
*
Regulation of services for end-users on retail level relevant markets, in particular ban on giving
preference to a certain group of end users and ban on unreasoned bundling of the provision of
services to provide other services or products where such provision of services or products is
feasible also in a separate manner. Furthermore, in order to prevent SMP Undertakings from
demanding inadequately high or low prices the Slovak NRA may impose price regulation on
retail level relevant markets.
*
Price regulation of access and interconnection (see below).
Functional separation
Where other obligations imposed on SMP Undertaking have failed to achieve effective competition,
and if there are important and persisting competition problems or market failures identified in
relation to the wholesale provision of certain access product markets, the Slovak NRA may as an
exceptional measure impose an obligation on vertically integrated undertakings to place activities
related to the wholesale provision of relevant access products in an independently operating business
entity.
Price control
The Slovak NRA may regulate prices of access (at the wholesale level) and on the end-users markets
(retail level). The Slovak NRA may also regulate prices of the universal service and number
portability fees.
As regards the first two areas of price control in the areas of wholesale access and end-user markets,
these are imposed only on SMP Undertakings within ex ante regulation. Price control of universal
service is applicable solely to the providers of universal service designated by the Slovak NRA.
Finally, price control in the area of number portability, if any, is applicable generally to all providers
of networks and services.
Although the Slovak NRA’s power to regulate prices is wide, the Electronic Communications Act
places certain statutory constraints upon it. First, the Slovak NRA must respect general principles of
the regulation set out in the Electronic Communications Act such as non-discrimination, technological
neutrality, proportionality and efficiency. Second, the Electronic Communications Act stipulates that a
price control can be imposed as a part of ex ante regulation only if other available measures are, or
would be, insufficient for eliminating the shortcomings found on a the relevant market. Finally, when
imposing price control on SMP Undertakings, the Slovak NRA is obliged to take into account any
investments in the networks made or expected to be made by the respective SMP Undertaking.
The Slovak NRA may use the following methods for price regulation:
*
directly define maximum or minimum prices;
173
*
set binding pricing guidelines, in particular: (i) maximum increases in prices within a defined
period, (ii) maximum weight of defined inputs for calculation of a price within a defined period,
or (iii) prohibit price increase on a particular relevant market for a maximum of 12 months; or
*
set a binding pricing methodology.
Where the Slovak NRA sets a binding pricing methodology, the SMP Undertaking is obliged to
calculate its prices in accordance with the methodology and submit the calculation to the Slovak
NRA for approval within the statutory time limit of two months from the day on which the decision
on price regulation became final and binding. The Slovak NRA then verifies the presented price
calculation and, if it is satisfied that the binding methodology was applied correctly, it approves the
resulting prices whereby they become binding as maximum prices upon the SMP Undertaking. The
Slovak NRA reviews the approved prices once a year and, if needed, may decide on their alteration
(see also ‘‘Business – Key Sector-specific Regulations Applicable to the Group – Obligations of the
Company as an SMP Undertaking’’ above).
Co-location and sharing of facilities
In order to prevent unreasonable infringements on third-party rights and promote reasonable
territorial planning, providers of public electronic communication networks and services are under
certain conditions obliged to enable other market players to use their own infrastructure. This is the
case, in particular, when an undertaking is unable to place a new line or install telecommunications
equipment without unreasonable interference in third-party real estate. If such circumstances arise, the
undertaking which controls the existing infrastructure is obliged to conclude an agreement on colocation or sharing of facilities with the requesting undertaking. The undertaking providing the colocation and sharing of its facilities may require payment for such a service. However, the Electronic
Communications Act prescribes that the co-location and sharing must be provided under nondiscriminatory conditions. An undertaking may refuse to conclude the agreement only if the colocation or shared use is technically impracticable or poses serious security risk.
The Slovak NRA may on its own initiative or upon request from an affected undertaking decide on
shared use of infrastructure and oblige a provider of public networks or services to share its
infrastructure with other undertakings.
Interconnection of networks
Under the Electronic Communications Act, an undertaking providing a public network has the right
and, upon request of another undertaking providing a public network, an obligation to negotiate on
network interconnection. An undertaking also has an obligation to interconnect its network with the
network of a requesting undertaking if it is feasible. An undertaking providing a public network is
obliged to enable interconnection in line with technical standards, in a reasonable time period and
under reasonable non-discriminatory conditions. These obligations apply generally to all undertakings
irrespective of their market power, although SMP Undertakings may be subject to more stringent
specific requirements in this area, see ‘‘– Obligations imposed on SMP Undertakings’’ above.
In order to promote transparency on the market, the Slovak NRA publishes the basic technical and
business terms and conditions of existing contracts on interconnection of networks on its webpage.
Contractual parties are obliged to submit the contract to the Slovak NRA for publication within 45
days of its conclusion.
In order to ensure interoperability and interconnection of networks the Slovak NRA may issue
decisions obliging undertakings which control at least one network termination point to ensure
interconnectivity between network termination points and interoperability of their services and may
also order interconnection of networks within a set time limit.
Penalties and other sanctions
The Slovak NRA can impose administrative penalties on undertakings for various violations of the
Electronic Communications Act or for violation of Slovak NRA’s decisions rendered under the
Electronic Communications Act. The amount of the penalty that can be imposed in a particular case
depends on the severity of the violation in question. Depending on the type of violation the Slovak
NRA can impose penalties up to EUR 3,000,000. The violations of the Electronic Communications
Act for which the Slovak NRA can impose a fine include for example:
*
most serious violations such as violation of specific transparency and non-discrimination
obligations imposed on SMP Undertakings (penalty up to EUR 3,000,000);
174
*
violations of other obligations imposed on an SMP Undertaking under the ex ante regulation,
universal service obligations or interconnection obligations (penalty up to EUR 1,500,000);
*
violations of certain notification obligations, e.g. an obligation to notify the Slovak NRA in
advance of relevant changes in the provision of networks or services or of the transfer of rights
to use frequencies, or realisation of a transfer or lease of the rights in contravention of the
Electronic Communications Act (penalty up to EUR 1,500,000);
*
violations of the conditions of the general authorization and violations of certain technical
obligations, such as operation of non-complying telecommunications equipment (penalty up to
EUR 1,500,000);
*
violations of bookkeeping standards, in particular standards relating to separation and
transparency of costs and revenues (penalty up to EUR 1,500,000); or
*
violations of privacy such as a failure to ensure the confidentiality of communications and
related traffic data (penalty up to EUR 1,500,000).
When imposing a penalty, the Slovak NRA must take into account the severity, manner, duration
and consequences of the breach. For a repeated breach, the Slovak NRA may impose a penalty
repeatedly.
In addition to penalties, the Electronic Communications Act provides for other forms of sanctions.
For example, where the holder of an individual authorisation for the use of numbers or frequencies
has not paid the recurring fee within three months from its due date or has not paid a one-off fee on
its due date, the Slovak NRA withdraws the individual authorisation.
Furthermore, in case of severe or repeated violation which has not been remedied despite the fact
that a penalty has been imposed or special measure put in place, the Slovak NRA may bar the
undertaking from providing electronic communication networks or services for a period up to 24
months, taking into account the severity and duration of the violation in question.
Finally, late payments of administrative fees, non-compliance with the conditions set out in the
individual authorisations and certain other instances of non-compliance can preclude undertakings
from prolonging their existing individual authorisations as well as from applying for new ones.
According to the Slovak NRA’s 2013 Annual Report, in 2013 it initiated 548 administrative
proceedings and imposed 373 penalties amounting to EUR 72,230 in total, which represents a yearover-year increase by 7.9%.
Appeals process
Save for specific statutory exceptions, the decisions of the Slovak NRA may be appealed to the
Chairman of the Slovak NRA. When deciding on the appeals the Chairman consults a special
committee established by him for this purpose.
Appeals cannot be brought on the following matters:
*
temporary measures taken by the Slovak NRA;
*
determination of the applicable price calculation methodology in terms of price regulation
imposed on an SMP Undertaking;
*
general authorisation to provide networks and services;
*
definition and analysis of relevant markets;
*
selection procedure applied when granting individual authorisations for the use of frequencies;
*
issuance of certificates on special professional competence;
*
price regulation applied for number portability; and
*
out-of-court dispute resolution.
Notwithstanding the statutory exceptions listed above, and subject to conditions set out in the Act
No. 99/1963 Coll. Code of Civil Procedure as amended, the decisions of the Slovak NRA are subject
to judicial review of the Supreme Court of the Slovak Republic (Supreme Court) which has the
jurisdiction to review the Slovak NRA’s decisions in terms of their legality. The decisions rendered by
the court pursuant to judicial review can further be reviewed by the Constitutional Court of the
Slovak Republic (Constitutional Court) in terms of their constitutional conformity (in particular with
regard to matters of due process).
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Further Applicable Regulation
Broadcasting, retransmission and provision of on-demand audiovisual media services
The Group’s business partially concerns provision of audiovisual content by means of TV
broadcasting, retransmission and on-demand audiovisual media services. The distribution of
audiovisual content is regulated by the following key EU and Slovak legislation: EU Directive 2010/
13/EU On the Coordination of Certain Provisions Laid Down by Law, Regulation or Administrative
Action in Member States Concerning the Provision of Audio-visual Media Services (AMS Directive),
Act No. 308/2000 Coll. on Broadcasting and Retransmission and on Amendments of Act No. 195/
2000 Coll. on Telecommunications as amended (Broadcasting Act), Act No. 220/2007 Coll. On Digital
Broadcasting as amended (Digital Broadcasting Act), Act No. 147/2001 Coll. Advertising Act as
amended (Advertising Act) and Act No. 343/2007 on the Conditions of Registration, Public
Distribution and Preservation of Audiovisual Works, Multimedia Works and Sound Recordings of
Artistic Performances including Amendments and Supplements to some other Laws as amended
(Audiovisual Act).
AMS Directive stipulates inter alia prohibition on restriction of cross-border audiovisual media
services, sets out conditions when certain programmes can be banned, sets which programmes must
be accessible without restrictions, strengthens production of EU programmes and regulates television
advertising. It distinguishes between linear audiovisual media services (television broadcasting) and
non-linear audiovisual media services (on-demand audiovisual media service). The AMS Directive has
been transposed into Slovak law by the Broadcasting Act and the Digital Broadcasting Act.
The Broadcasting Act established the Council for Broadcasting and Retransmission as a body
primarily responsible for monitoring compliance with broadcasting regulations, issuing licences for
analogue and digital TV and radio broadcasting in the Slovak Republic and carrying out registration
of retransmission providers and on-demand audiovisual media services providers (for an overview of
the broadcasting licenses and retransmission registrations of the Group see ‘‘Business – Key Sectorspecific Regulations Applicable to the Group – TV broadcasting, on-demand audiovisual media services
and retransmission provider’’). The Broadcasting Act also sets out rights and duties of broadcasters (in
general), retransmission providers and providers of on-demand audiovisual media services. In contrast,
the Digital Broadcasting Act contains special rules applicable to digital broadcasting, digital
broadcasters and to provision of services directly linked to digital transmission.
Broadcasting of a programme service is defined by the Digital Broadcasting Act as a dissemination of
an original coded or non-coded programme service intended for reception by public via
communications network or telecommunications device and is divided into broadcasting of radio
programme service (radio broadcasting) and broadcasting of TV programme service (TV
broadcasting). An on-demand audiovisual media service is defined by the Broadcasting Act as a
service of a primarily economic nature for the viewing of programmes at the moment chosen by the
user, provided by electronic means of communication at the user’s individual request on the basis of
a catalogue of programmes compiled by the provider of the on-demand audiovisual media service for
the purposes of providing information, entertainment or education to the general public; the provision
of audio recordings is not deemed an on-demand audiovisual media service. Retransmission is defined
as the reception and simultaneous, full and unmodified transmission of an original broadcast of a
programme service or its significant part intended by the broadcaster to be received by the public,
carried out by means of an electronic communication network; if retransmission is carried out by
means of a cable distribution system or a microwave system it is described as cable retransmission.
According to the Broadcasting Act, TV and radio broadcasting can be provided only under license
issued by the Council for Broadcasting and Retransmission. The license for TV broadcasting is valid
for a maximum period of 12 years and may be extended by the Council for Broadcasting and
Retransmission by additional 12 years. Digital terrestrial TV and radio broadcasting is regulated
separately by the Digital Broadcasting Act and is subject to license issued by the Council for
Broadcasting and Retransmission for an indefinite period of time unless the applicant requests
otherwise. In terms of territorial scope broadcasting licences may be (i) nationwide, (ii) multiregional,
(iii) regional, or (iv) local. In case of a breach of law the Council for Broadcasting and
Retransmission may impose fines ranging from EUR 33 to EUR 165,969 on broadcasters and in
certain cases may withdraw a license. Broadcasting license cannot be transferred to another natural or
legal person and in case of legal persons does not pass to legal successors.
Retransmission can be provided only on the basis of a registration by the Council for Broadcasting
and Retransmission valid for an indefinite period of time. Retransmission of programme services is
176
subject to consent of original broadcasters of the programme services. On-demand audiovisual media
services are provided upon simple notification to the Council for Broadcasting and Retransmission.
Broadcasters and providers of on-demand audiovisual media services are obliged to devote specific
percentage of their broadcast time to European works. The Council for Broadcasting and
Retransmission has the right to ensure that substantial proportion of the public is not deprived of
broadcasting of certain events, considered of major importance for society, solely on the basis of
exclusivity rights of broadcasters. For this purpose it may issue a list of events and implementation
procedures. The Broadcasting Act also sets rules of television advertising, product placement and
sponsorship (e.g. maximum time that can be spent on advertising and content of advertising).
Broadcasting Act sets out certain rules on plurality of information, transparency of ownership and
personal relations in broadcasting. According to the Broadcasting Act a publisher of a periodical that
is published at least five times a week and is available to the public in at least half of the territory of
the Slovak Republic cannot simultaneously hold a license for multiregional or nationwide
broadcasting. Moreover, one person cannot hold more than 25% interest or the same amount of
voting rights (cross ownership) in more than one licensed nationwide or multiregional broadcaster or
in a national periodical press publisher. The Broadcasting Act also prohibits cross ownership and
certain personal connections between radio and TV broadcasters, and between radio and TV
broadcasters and national periodical press publishers. Similarly, the Act on Digital Broadcasting
prohibits cross ownership and certain personal connections between digital broadcasting license
holders themselves, and between broadcasters and multiplex providers.
Data protection
The processing of personal data in the EU is regulated by Directive No. 95/46/EC on the Protection
of Individuals with Regard to the Processing of Personal Data and the Free Movement of such Data
(Data Protection Directive). The Data Protection Directive sets out detailed conditions for the
processing of personal data, regulates the transfer of this data outside of the EU/EEA and provides
individuals with rights in respect of the processing of their data including access to it.
In February 2012, the Commission presented a proposal for a reform of the EU data protection law.
The Commission’s proposal aims to update and modernise the principles enshrined in the 1995 Data
Protection Directive, aiming to bring them into the digital age. The proposed regulation (COM(2012)
11), once adopted, will substantially change the data protection regime in the EU. The regulation will
establish a single, pan-European law for data protection, replacing the current inconsistent patchwork
of national laws, meaning that companies will deal with one law, not 28 different data protection
laws. The draft regulation has been subject to a lot of controversy during the adoption process and
the definite date of its adoption is therefore difficult to predict. After its final adoption, EU member
states will have two years to apply the new regime. The new regime which the regulation introduces
will translate into additional expenses for ensuring compliance.
In the Slovak Republic, the Data Protection Directive has been transposed by Act No. 122/2013 Coll.
on the Protection of Personal Data (Slovak Data Protection Act). To a large extent, the requirements
of the Slovak Data Protection Act are stricter than the Data Protection Directive. The Slovak Data
Protection Act was amended in April 2014 by Act No. 84/2014 Coll. (Amendment). By adopting the
Amendment, the Slovak data protection regime was made somewhat less strict. However, it still
represents ‘‘gold-plating’’ when compared to the Data Protection Directive.
Personal data is defined extensively by the Slovak Data Protection Act and comprises any data by
which a natural person is identified or identifiable, either directly or indirectly. This definition mirrors
the definition of personal data in the Data Protection Directive. Any processing needs to be
supported by a legal basis which may in particular be (i) data subject’s consent, which needs to be
demonstrable, (ii) contract or pre-contractual relations with the data subject, (iii) an important task
carried out in the public interest, (iv) processing based on specific laws, (v) protection of life, health
or property of an individual, (vi) personal data published according to the law; or (vii) legitimate
interests of the data controller or third party in particular to protect the property, financial or other
interests of the controller.
All datasets which contain personal data need to be notified to the Data Protection Office, Slovak
data protection watchdog. Personal data may be processed as soon as notification is completed. The
notification obligation does not need to be fulfilled where a company nominates a data protection
officer. Nomination of a data protection officer is voluntary but, where company decides to nominate
a data protection officer, that officer needs to pass an exam at the Data Protection Office. All
datasets which contain biometric data (where processing is based on consent), datasets which contain
177
sensitive personal data (e.g. CCTV images) which are to be transferred to a third country not
ensuring adequate level of protection of personal data and in certain cases (depending on the
appreciation of the Data Protection Office) datasets processed for legitimate interests of data
controller (e.g. whistleblowing or employee monitoring schemes) need to be registered at the Data
Protection Office (notification is not sufficient). Only upon registration by the Data Protection Office
(which effectively means approval), datasets mentioned above may be processed. All contracts, the
subject of which is the processing of personal data on behalf of the data controller (e.g. outsourcing
or contracts with suppliers) need to be in writing and their content is prescribed by the Slovak Data
Protection Act.
Transfers of personal data within EU/EEA and within countries ensuring an adequate level of
protection of personal data are guaranteed by the Slovak Data Protection Act and the same
requirements are applicable as if the transferor and transferee were in the same member state.
Transfers of personal data to third countries outside the EU/EEA not ensuring an adequate level of
protection of personal data need to be supported by a (i) data transfer agreement which incorporates
standard contractual clauses approved by the Commission or (ii) Binding Corporate Rules (BCRs) or
transfer is based on other safeguards such as data subject’s consent (which is however not suitable for
bulk or massive data transfers). Transfers of sensitive personal data to a third country not ensuring
an adequate level of protection of personal data requires written consent of the data subject.
Transfers of employee data follow somehow stricter regime(data transfer agreement needs to
incorporate standard contractual clauses or BCRs must be in place). Transfers where standard
contractual clauses have been amended (and so have not been incorporated into the data transfer
agreement ‘‘as is’’) require approval of the Data Protection Office and translations. This may cause
significant delays.
Data subjects have several rights according to the Slovak Data Protection Act, i.e. subject access
rights, right to have their personal data corrected or updated or right to have their personal data
deleted.
Security of processing of personal data is prescribed by government decrees No. 164/2013 and
No. 117/2014. Datasets containing sensitive personal data which are connected to the internet network
require preparation of a security project.
Non-compliance with the provisions of the Slovak Data Protection Act can result in a fine of up to
EUR 200,000. Fines are being imposed rather frequently although they are usually set at the lower
range meaning that for simple offences they do not tend to go beyond EUR 5,000.
Specific supplemental rules for the telecommunications sector in the EU are set out in Directive No.
2002/58/EC on Privacy and Electronic Communications (e-Privacy Directive) and its amendments,
which govern, among other things, location data and telecommunications traffic data as well as
retention of data and cookies rules. The e-Privacy Directive has been transposed by the Electronic
Communications Act. Confidentiality of telecommunications communications and related traffic data
is ensured by imposition of obligations on the undertakings to adopt adequate technical and
organizational security measures as well as by the set of other related safeguards, including a general
prohibition of listening, wiretapping, storage and any form of interception or surveillance of
telecommunications communications and the related telecommunications traffic data. Contrary to the
provisions regarding cookie consent enshrined in the e-Privacy Directive which requires consent before
placing cookies on the end user’s device, the Electronic Communications Act regards browser settings
as providing the requisite consent (to the extent the browser is set for accepting the cookies). Any
infringements of personal data need to be reported to the Slovak NRA. In certain cases, the data
subjects will also need to be informed about the incident regarding their personal data breach.
Traffic data may be processed for the purpose of direct marketing or value added services only if the
user of services has given his consent. The use of calling systems with or without human intervention,
facsimile machines or electronic mail (e.g. automated robot calls) for the purpose of direct marketing
shall be allowed only with the prior opt-in consent of the user of services. The use of electronic mail
for the purposes of sending unsolicited communications is only allowed with the prior opt-in consent
of the person concerned, unless there has been a previous commercial relationship between the parties
(in which case opt-in consent is not required (implied consent being sufficient) but the person must be
given an opportunity to refuse receiving marketing messages in each and every message (possibility to
opt-out)). Sending messages through electronic mail from which it is not possible to identify the
sender (spam) is not allowed.
178
Electronic Communications Act in its original version contained also provisions regarding the
compulsory length of retention of data (for six or twelve months, depending on the data and form of
electronic communication). These provisions have however been suspended by the Constitutional
Court in 2014 (ref. No. PL. ÚS 10/2014-29 dated 23 April 2014). This was due to the fact that these
provisions transposed the Directive 2006/24/EC on the retention of data generated or processed in
connection with the provision of publicly available electronic communications services or of public
communications networks (Retention Directive) and the Retention Directive has been declared invalid
by Court of Justice of the European Union in cases C-293/12 and C-594/12 (Digital Rights Ireland/
Seitlinger).
Directive No. 2000/31/EC on certain legal aspects of information society services, in particular
electronic commerce in the internal market (e-Commerce Directive), sets out a framework for
electronic commerce and establishes rules on issues such as the transparency and information
requirements for online service providers, commercial communications and electronic contracts. In the
Slovak Republic, the e-Commerce Directive has been transposed by Act No. 22/2004 on Electronic
Commerce (Electronic Commerce Act). The Electronic Commerce Act also sets out the limitations of
liability of intermediary service providers (such as hosting, caching or mere conduit) by regulating
when they are and are not liable for material transmitted by or through their services.
General Competition Law
The EU Framework draws heavily on concepts of competition law. By way of example, the
Commission is required to set out guidelines for the analysis of relevant markets and SMP in
accordance with the principles of competition law. However, that does not mean that compliance with
sector-specific ex ante regulation automatically absolves the Group from complying with EU and
Slovak competition law. In other words, sector-specific ex ante regulation and general competition
regulation apply concurrently. That being said, compliance with ex ante sector regulation does not
automatically absolve the Group from liability for potential infringements of competition law. Even
though the Group may have complied with ex ante regulation, it may still be subject to ex post
investigations and sanctions by the relevant competition authorities.
The key legislative act governing the protection of competition in the Slovak Republic is Act No.
136/2001 Coll. on Protection of Competition as amended (Slovak Competition Act). At the same time,
Articles 101 and 102 of Treaty on the Functioning of the European Union apply concurrently to any
practices that may affect trade between Member States.
The practices prohibited by relevant Slovak and European competition law comprise, in particular,
agreements restricting competition and abuse of dominant position. The former include horizontal
agreements (such as price fixing between competitors, limiting or controlling production, markets,
technical development, or investment, market sharing, or bid rigging) as well as vertical agreements
(such as resale price maintenance, resale restrictions, or certain types of exclusivity arrangements). As
for abuse of dominant position, prohibited practices include, in particular, unfair pricing,
discrimination among trading parties, tying and bundling of products, margin squeeze, or refusal to
grant access to certain facilities.
The main administrative body responsible for the protection of competition at the national level is the
Slovak Competition Authority (the Antimonopoly Office of the Slovak Republic), while regulatory
oversight at the EU level is carried out by the Commission. The Commission and the Slovak
Competition Authority may impose fines of up to 10% of annual turnover on undertakings which
violate competition law by taking part in agreements restricting competition or by abuse of dominant
position. The decisions of the Slovak Competition Authority are subject to review by Slovak courts.
Decisions of the European Commission can be appealed to the General Court of the European Union
and then further to the Court of Justice of the European Union.
Slovak and European competition law also provide for prior clearance of concentrations exceeding
certain turnover thresholds set out in Council Regulation (EC) No. 139/2004 on the control of
concentrations between undertakings (the EC Merger Regulation) as amended and the Slovak
Competition Act. A merger or an acquisition of control is subject to prior clearance by the Slovak
Competition Authority where the aggregate Slovak turnover of the undertakings concerned exceeds
EUR 46 million and the Slovak turnover of each of at least two of the undertakings concerned
exceeds EUR 14 million; or where the Slovak turnover of at least one undertaking concerned (such as
in the case of an acquisition of the target, the turnover of the target) exceeds EUR 14 million and
the worldwide turnover of another undertaking concerned exceeds EUR 46 million. Implementation of
179
a concentration before it has been duly cleared by the relevant competition authority can trigger
sanctions of up to 10% of annual turnover.
Although relevant markets defined by the Slovak NRA for the purposes of ex ante regulation are
identified on the basis of competition law, they do not always have to coincide with the definition of
relevant market for the purposes of finding – ex post – an infringement of general competition law by
the Antimonopoly Office or by the Commission.
From time to time, the Group has been subject to investigations and proceedings by both the
Commission and the Slovak Competition Authority. See ‘‘Business – Legal Proceedings’’.
In addition to regulatory sanctions, anti-competitive conduct can give rise to damages claims by third
parties, in particular competitors or consumers. The Group is already facing two such claims (see
‘‘Business – Legal Proceedings’’) and further actions may be initiated against the Group.
Currently, Slovak law does not specifically provide a framework for such damages claims and
although they can, in principle, be based on general statutory provisions, they are largely untested
before Slovak courts. Damages claims and, in particular, the damages claims following on from the
decisions of the competition authorities finding infringement of the competition rules are likely to be
facilitated by the implementation of Directive No. 2014/104/EU on certain rules governing actions for
damages under national law for infringements of the competition law provisions of the Member
States and of the European Union (the Damages Directive). The Damages Directive seeks to provide
a specific framework for such claims by introducing, inter alia, a specific right to compensation, rules
on disclosure of evidence, limitation periods and quantification of harm. The Slovak Republic is
obliged to implement the Damages Directive by 27 December 2016.
Consumer protection legislation
The Group is also subject to consumer protection law enshrined mainly in Act No. 250/2007 Coll. On
Consumer Protection as amended (Consumer Protection Act) and in Act No. 40/1964 Coll. Civil Code
as amended (Civil Code). The Slovak consumer protection law is harmonised with the EU consumer
protection framework consisting of a number of EU legislative acts, most importantly Council
Directive 93/13/EEC of 5 April 1993 on Unfair Terms in Consumer Contracts as amended and
Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 Concerning
Unfair Business-to-Consumer Commercial Practices in the Internal Market and Amending Council
Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and
of the Council and Regulation (EC) No 2006/2004 of the European Parliament and of the Council as
amended.
The Consumer Protection Act defines consumer as any natural person who, in concluding or
discharging a consumer contract, is acting outside the scope of his or her business, employment or
profession. The Consumer Protection Act grants rights to consumers and affords them protection
inter alia against traders, i.e. against persons that, in concluding or discharging a consumer contract,
are acting within the scope of their business or profession. For the purposes of the Consumer
Protection Act, the Group is a trader with respect to telecommunications and other services provided
to consumers and, thus, has to comply with the relevant statutory obligations, including for example:
*
not to use unfair business-to-consumer commercial practices (the Consumer Protection Act
contains a general definition of the term ‘‘unfair business-to-consumer commercial practices’’
covering primarily misleading and aggressive practices towards consumers and in its Annex No.
1 lists business-to-consumer commercial practices which are always regarded as unfair);
*
not to make a sale of a product or a provision of a service conditional on the sale of another
product or the provision of another service (sale bundling) except if the trader sells the products
or provides the services also separately or if a separate sale of the products or a separate
provision of the services is technically impossible;
*
to provide the services in usual quality;
*
to invoice the services properly;
*
not to discriminate against any consumer;
*
not to request or accept payment for any service that the consumer did not order; etc.
The respective supervisory administrative body may impose fines for various violations of the
Consumer Protection Act up to EUR 332,000.
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In addition to the obligations listed above, the Group must adhere to the consumer protection rules
set out in the Civil Code. Mainly, it has to avoid using unfair terms in consumer contracts, i.e. terms
that cause significant imbalance in the parties’ rights and obligations to the detriment of the
consumer. The Civil Code includes a non-exhaustive list of terms in consumer contracts that are
normally regarded as unfair (e.g. terms that allow traders to alter contractual conditions unilaterally
without a reason agreed in the contract or terms requiring consumers to pay unreasonably high
contractual penalties) and lends to civil courts the authority to decide on an ad-hoc basis, whether a
particular term of a consumer contract is unfair. Unfair terms in consumer contracts are void by
operation of law. Terms in consumer contracts may not deviate from the Civil Code to the detriment
of consumers. In particular, consumers may not waive, in advance, their rights conferred to them
under the Civil Code or under special consumer protection legislation. When in doubt regarding the
content of consumer contracts, the interpretation more favourable for the consumer prevails.
Provision of payment services
In connection with the telecommunication services, the Company also provides certain ancillary
payment services to its customers. Such services involve processing payments between a customers and
third party provider of services or goods, typically through mobile telecommunication devices.
Therefore, the Company has to comply with rules set out in Act No. 492/2009 Coll. on Payment
Services and on Amendments to Certain Laws, as amended (Payment Services Act) and the related
legislation. The licensing and supervision in the field of payment services falls within the competence
of the NBS. Generally, a licence issued by the NBS is required in order to provide payments services
The Payment Services Act differentiates between regular payment institutions and limited payment
institutions. Limited payment institutions can provide payment services only for payment operations
for which the average total amount of payment operations, calculated for any rolling 12 month
period, does not exceed EUR 3,000,000 per month. The Company currently holds licence of such
limited payment institution which is subject to less stringent requirements (in comparison with the
regime of regular payment institutions).
Under the Payment Services Act, certain legal acts related to payment institutions require prior
consent of the NBS otherwise they are regarded as null and void under Slovak law. The following
prior consents of the NBS are currently applicable to the Company:
*
the acquisition of a direct share of registered capital or voting rights in the Company that
would reach or exceed 10%, 20%, 30% or 50% or whereby the Company would become a
subsidiary of an entity (see also ‘‘Risk Factors – Risks Related to the Securities and the Offering
– The acquisition of a direct shareholding in the Company reaching or exceeding certain thresholds
is subject to prior approval of the NBS and there are certain limitations regarding the crossownership of the Company as a licensed broadcaster’’);
*
the election or designation of persons nominated as members of the Company’s statutory body
as well as the appointment of a proxy (in Slovak: prokurista), and designation of a chief
employee and a chief employee responsible for performance of internal audit;
*
a change in the articles of association of the Company except for changes which are unrelated
to activities of the Company as a payment institution;
*
a renouncement of an authorisation for payment services; and
*
a winding-up of a Company in a liquidation.
Furthermore, the Payment Services Act sets out a number of obligations and requirements that the
Company must meet, mainly the following:
*
a transparent, credible and legal origin of the monetary contribution to the registered capital, as
well as of other financial sources of the payment institution;
*
suitability of persons with qualifying holding (i.e. holding of above 10% of registered capital or
voting rights) and transparency of those persons’ relationships with other persons, particularly
transparency of their holdings in registered capital and voting rights in other legal entities;
*
adequate and proportionate technical systems, resources and procedures for the sound provision
of payment services;
*
the payment institution’s registered office, head office and the provision of payment services
must be located in the territory of the Slovak Republic;
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*
sound and appropriate organisational and technical measures required for the payment
institution’s business, including prudent conduct of business, accounting, audit, internal control
system, data processing and risk management, reporting and record keeping.
The NBS may impose fines up to EUR 600,000, withdraw the license or impose other sanctions or
measures on payment institutions for violation of their obligations connected with the provision of
payment services. Moreover, the NBS may also impose fines on members of the payment institution’s
statutory and supervisory bodies as well as on the payment institution’s proxy for violations of their
legal obligations under the Payment Services Act.
Public procurement
The Group, in particular PosAm, derives significant income from the contracts with public authorities
and other entities controlled by the State. The award of such contracts is, as a general rule, subject to
public procurement rules.
Recently, new Directives on public procurement have been adopted by the EU. The new rules are set
out in Directive 2014/24/EU on public procurement and repealing Directive 2004/18/EC and Directive
2014/25/EU on procurement by entities operating in the water, energy, transport and postal services
sectors and repealing Directive 2004/17/EC.
Member States are to implement the new Directives by 18 April 2016. In the Slovak Republic, a
draft of the new Public Procurement Act implementing the Directives is undergoing the legislative
process, and should enter into force on 1 January 2016. Until then, public procurement rules are set
out in Act No. 25/2006 Coll. on public procurement, as amended (Public Procurement Act).
The Public Procurement Act covers the award of contracts on purchasing goods, services and works,
subject to a number of exemptions, such as employment contracts, contracts on the lease of real
properties or financial services contracts. The rules must be observed by the public sector (e.g. public
authorities, municipalities, but also business companies solely controlled by the State) and by certain
companies active in the utilities sector which, however, have a slightly less stringent regime than the
public sector. The public sector must follow the rules even when awarding contracts that fall below
the thresholds set by the EU Directives; however, the rules applicable to below-threshold contracts
are slightly less strict than those for above-threshold contracts.
An undertaking may participate in a public tender if it meets the personal, financial and technical
qualification criteria. Personal qualification criteria are the same for any tender, and mean that the
tenderer must prove, in particular, that it (or its representatives) was not involved in criminal activity,
illegal employment, is not subject to bankruptcy or liquidation proceedings, and is not in delay with
the payment of taxes or social security contributions. A participant in a cartel related to public
procurement (i.e. bid rigging), or an undertaking that failed to pay its subcontractors in connection
with the performance of a public contract is also excluded from participation in future public tenders
for a certain period of time. Financial and technical qualification criteria are specifically tailored for
each tender, and should prove that the tenderer has the financial strength and technical and
professional capacity and experience necessary to perform the contract. The tenderer may use
capacities of third parties to prove its financial or technical capacity.
If a tenderer considers the tender conditions to be unfair, or is treated in an unfair manner, it may
challenge the actions of the contracting authority. The process of using the remedies is very lengthy
and complicated. First (subject to certain exceptions), the tenderer must turn to the contracting
authority and give it an opportunity to remedy its decision or conduct. Failing this, the tenderer may
file objections (in Slovak: námietky) with the Public Procurement Office, which is the regulatory
authority responsible for overseeing public procurement in the Slovak Republic. If the objections are
dismissed, the tenderer may file an appeal with the Council of the Public Procurement Office. A
negative decision of the Council may be challenged before the court. Filing of the objections as well
as the appeal is subject to a payment of a substantial deposit (up to EUR 300,000, depending on the
value of the contract in question), which will be forfeited if the objections or the appeal is dismissed.
Furthermore, a contract entered into in breach of the public procurement rules (e.g. a contracting
authority entered into a contract without conducting a public tender, even though it was obliged to
do so) may be declared invalid by the courts upon a motion filed by the Public Procurement Office,
the public prosecutor or by an undertaking that could have been interested in being awarded the
contract.
A public tender usually takes several months to complete, but may take much longer if challenges are
filed against actions of the contracting authority.
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The Public Procurement Office may impose on a contractor a ban on participation in public tenders
for up to three years for certain breaches of the public procurement rules, for instance for submitting
falsified documents in a public tender, for failure to make payments to subcontractors, or where the
contracting authority rescinded a public contract due to a material breach of the obligations of the
contractor.
Special levy
In June 2012 the National Council of the Slovak Republic passed Act No. 235/2012 Coll. on a
Special Levy for Conducting a Business in Regulated Industries whereby a special levy was imposed
on undertakings in certain regulated industries, including electronic communications. The levy was
originally introduced in 2012 as part of the Slovak government’s consolidation efforts and was set to
expire by the end of 2013. However, in 2013 it was extended until the end of 2016. The annual rate
of the levy paid on the Company’s profit before tax is 4.356% per annum as determined in
accordance with the Slovak Accounting Standards.
Legislation Governing Transfer of State Assets
The Company was formed in 1999 as the legal successor of the state owned enterprise Slovenské
telekomunikácie, š.p. Until 2000 the Slovak Republic remained in control of 100% of the Company’s
shares. The Company was subsequently partially sold in April 2000, when Deutsche Telekom AG
acquired 51% of its shares. As the Offering concerns the sale of the remaining 49% share in the
Company still controlled by the state, it is subject to applicable legislation governing transfer of state
assets.
In the Slovak Republic, the transfer of state-owned assets is subject to rules and procedures set out in
Act No. 92/1991 Coll. on the conditions of transfer of state assets to other persons as amended (Act
on Transfer of State Assets). On 25 June 2014 the National Council of the Slovak Republic passed
amending Act No. 197/2014 Coll. that was directly linked to the intention of the Slovak government
to sell the remaining state-controlled shares in the Company. The amendment, for the first time in the
modern Slovak history, provides for the possibility of the transfer of the Selling Shareholder’s shares
in companies by way of offering shares to the public. As under the Act on Transfer of State Assets
the Company has a position of a natural monopoly, the transfer proposal for the sale of the Offer
Shares in the Offering must be discussed in the National Council of the Slovak Republic and
subsequently approved by the Slovak Government. The National Council of the Slovak Republic
discussed the transfer on 20 March 2015 and the Slovak Government approved the Offering on
1 April 2015.
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THE BRATISLAVA STOCK EXCHANGE AND SLOVAK SECURITIES
REGULATION
Introduction
The establishment and operation of stock exchanges in the Slovak Republic are governed by Slovak
Act No. 429/2002 Coll. on the Stock Exchange, as amended (the Stock Exchange Act). According to
the Stock Exchange Act, each stock exchange in the Slovak Republic must be incorporated as a joint
stock company and must obtain a licence from the NBS.
The Bratislava Stock Exchange was founded on 8 January 1991 and trading on the Bratislava Stock
Exchange commenced on 6 April 1993. Since 26 June 2001, the Bratislava Stock Exchange has been
operating under a licence, granted by the Financial Market Authority of the Slovak Republic (now
the capital markets department of the NBS). The licence was extended on 26 March 2008 to include
the operation of a multilateral trading facility (MTF). The Bratislava Stock Exchange is owned by
several shareholders. The Selling Shareholder is the majority shareholder with a 75.94% stake. Other
shareholders include Patria Finance, a.s. (KBC Group) with 11.77%, Allianz – Slovenská poist’ovňa,
a.s. (Allianz Group) with 5.07% and Slovenská sporitel’ňa, a.s. (Erste Group) with a 3.93%
shareholding. The remaining 3.29% stake is held by other members. The Bratislava Stock Exchange
has been a regular member of the Federation of European Securities Exchanges (FESE) since 1 June
2004. The official Bratislava Stock Exchange website is http://www.bsse.sk.
The Bratislava Stock Exchange is the only stock exchange operating in the Slovak Republic.
The organisation, operation, conditions for listing securities and rules for trading on the Bratislava
Stock Exchange are further governed by the articles of association and stock exchange rules (the
Stock Exchange Rules) adopted and published by the stock exchange and approved by the NBS.
Only members of the Bratislava Stock Exchange and the NBS can trade on the Bratislava Stock
Exchange. Membership can be granted only to financial institutions, including domestic and foreign
securities dealers, banks and asset managers, provided that they meet the conditions stipulated in the
Stock Exchange Act and Stock Exchange Rules. The Stock Exchange Rules differentiate between a
temporary membership, limited for a period of one year, and a regular membership, which is
unlimited in time. As at 31 December 2014, the Bratislava Stock Exchange had 15 regular members
(excluding the NBS).
Trading on the Bratislava Stock Exchange is supervised by both the Bratislava Stock Exchange and
the NBS, which monitors compliance with rules and regulations regarding insider-trading activity,
fairness in trading and other market-related matters.
The Markets of the Bratislava Stock Exchange
The following types of securities are currently traded on the Bratislava Stock Exchange: (i) shares in
Slovak joint-stock companies and co-operatives, (ii) fund units, and (iii) bonds, including mortgage
(covered) bonds and government bonds.
Securities may be traded on one of three regulated markets or on the MTF market. The regulated
markets comprise two listed securities markets and a Free Market (FM). The highest-ranking listed
securities market is the Main Listed Market (MLM) which comprises securities of issuers that meet
the most stringent criteria in terms of market capitalisation and reporting requirements. The second
regulated listed securities market is the Parallel Listed Market (PLM) which offers less strict market
capitalisation requirements than the MLM. The reporting requirements are substantially the same for
both MLM and PLM. The third regulated market is the FM, on which there are no minimum
market capitalisation requirements and the reporting requirements are less stringent. Finally, securities
on the Bratislava Stock Exchange may be traded through its MTF market, which has no minimum
capitalisation requirements and only requires limited information obligations imposed on issuers in
comparison with the regulated markets. All markets are exchange markets, conducted electronically
using an order-driven trading system. The securities listed on the Bratislava Stock Exchange may be
traded in euros or in a foreign currency.
To list shares on the MLM, (i) a company has to have an expected market capitalisation of at least
EUR 15 million; and (ii) the free float part of the issue (defined as the part of the issue held by
shareholders holding less than 5%) must be no less than 25% of the issue or have an expected market
capitalisation of at least EUR 5 million. Listing shares on the PLM requires (i) an expected market
capitalisation of at least EUR 3 million; and (ii) the free float part of the issue must be no less than
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25% of the issue or have an expected market capitalisation of at least EUR 1 million. The Company
expects its Shares to be traded on the MLM upon admission.
Trading and Settlement
Trading on the Bratislava Stock Exchange is conducted on working days between 8:30 a.m. and
4:00 p.m. and must be executed by Bratislava Stock Exchange members. Members enter into stock
exchange transactions on their own behalf and may conclude them either on their own account or on
the account of their clients. Non-members may take part in the trading only through a member. Each
member has to comply with the Stock Exchange Rules, the Stock Exchange Act, the Slovak Securities
Act and other applicable Slovak regulations when trading on the Bratislava Stock Exchange. The
trading can be made by authorised personnel acting for the members, i.e. licensed stockbrokers
holding valid qualification certificates. All members have equal rights and obligations.
Five types of transactions may be concluded on the Bratislava Stock Exchange: (i) electronic order
book transactions; (ii) block transactions; (iii) negotiated transactions; (iv) REPO transactions; and (v)
transactions relating to takeover bids. Trades are executed through the electronic stock exchange
trading system. Stockbrokers enter trading instructions into the trading system through workstations
connected to the Bratislava Stock Exchange’s central computer. Following the ‘matching of
instruction’ method, the trading system is divided into the auction trading module, the continuous
trading module, the market makers module and the block trading module.
The prices of securities traded on the Bratislava Stock Exchange are published on its website. Data
concerning the trades conducted on the relevant date are published at the end of each trading day.
The trading data are also provided by the Bratislava Stock Exchange to certain press agencies and
professional data distributors. On the following day, a modified version of the price list is published
by Slovak newspaper ‘‘Hospodárske noviny’’. The Bratislava Stock Exchange also publishes monthly
and yearly statistical data reports which are publicly available on its website.
Settlement of transactions is normally carried out on the third day after their execution (T+3). Block
transactions can be settled by the 15th day after the execution of the transaction at the latest (T+15).
Negotiated and REPO transactions concerning shares or fund units are settled in compliance with a
member’s instruction to the stock exchange trading system between T+0 and T+15.
SAX Index
The Slovak share index (SAX) is the official share index of the Bratislava Stock Exchange established
in 1993. Until 30 June 2001 it was based on average prices stated in the price lists. Effective from
1 July 2001 the official daily index value is calculated on the base of the last published prices of
included shares. As of 31 December 2014, shares of seven companies were included in the SAX.
The SAX is a capital-weighted index that compares the market capitalisation of a selected set of
shares with the market capitalisation of the same set of shares as of the reference date of
14 September 1993. More information on the SAX is available on the Bratislava Stock Exchange’s
website.
Trading Volumes and Liquidity
According to the most recent 2014 Fact Book16 issued by the Bratislava Stock Exchange, 272 issues
of securities (both debt and equity) were traded on the regulated markets of the Bratislava Stock
Exchange as of the last trading day of 2014. Of these issues, 23 were traded on the MLM, 38 on the
PLM, and 211 on the FM. All issues were EUR denominated, except for eight denominated in Czech
crowns.
As at 31 December 2014, 61 share issuers had their shares traded on the Bratislava Stock Exchange
and market capitalisation was only EUR 3.9 billion.
In 2014, a total of 11,269 trades were made on the Bratislava Stock Exchange and the trading
volume exceeded EUR 8.3 billion. In comparison with trading results in 2013, the number of trades
fell by 17.7% and the trading volume dropped by 3.6%.
Debt securities transactions with a total volume of EUR 8.3 billion in 2014 (an increase of 2.6%
compared to 2013) generated 99.3% of the total trading volume. In the same period, the trading
volume of equity securities was EUR 56.1 million (a decrease of 29.5% compared to 2013). A major
16 http://www.bsse.sk/Portals/2/Resources/statistics/year/Factbook-2014-BSSE.pdf.
185
proportion of the total trading volume was generated in negotiated deals, where the price is
determined by agreement between the parties and then reported to the Bratislava Stock Exchange.
The trading volume of REPO transactions in 2014 (including retransfers) amounted to EUR 2.4 billion,
representing a 21.8% decrease from 2013. A total of 104 REPO transactions were concluded, of which
97 transactions comprised a purchase or sale of equity securities in an amount of EUR 2.14 billion
(accounting for 89.4% of the total volume of REPO transactions).
Transactions by non-residents in 2014 accounted for 74% of the total trading volume. Transactions
on behalf of natural persons had a 0.9% share in the total turnover, the remainder was traded on
behalf of legal entities.
Notification and Reporting Requirements
Each issuer of securities admitted to trading on a regulated market of the Bratislava Stock Exchange
is required to comply with certain disclosure obligations towards investors, the Bratislava Stock
Exchange and the NBS. These duties result primarily from the Stock Exchange Act and the Slovak
Securities Act, which implement the Directive 2004/109/EC, as amended (the Transparency Directive),
and Directive 2003/6/EC, as amended (the Market Abuse Directive). Further duties are set out in
Slovak Act No. 431/2002 Coll. on Accounting as amended (the Accounting Act), Slovak Commercial
Code and the Stock Exchange Rules. The fulfilment of these obligations is supervised by the NBS as
well as by the Bratislava Stock Exchange.
Disclosure obligations comprise mainly:
*
mandatory publication of ‘‘regulated information’’ (information that the issuer has to publish
pursuant to the Stock Exchange Act and the Slovak Securities Act (Regulated Information)); and
*
additional disclosure obligations owed towards the Bratislava Stock Exchange under the Stock
Exchange Rules.
The content and scope of the issuer’s disclosure obligations depend on the market on which the
issuer’s securities are admitted (i.e. whether they are admitted on one of the listed regulated markets
(MLM or PLM) or on the FM), the nature of the issuer (state, private company, closed-ended fund,
etc.) and the nature of the securities concerned (shares or bonds). Each issuer has to apply the
principle of equal treatment to all owners of the securities which are admitted to trading on any
regulated market.
Regulated Information is published either on a regular basis or on an ad hoc basis, depending on the
nature of the information in question. If the Stock Exchange Act does not stipulate otherwise, an
issuer of shares listed on one of the regulated listed markets (MLM or PLM) is obliged to publish on
a regular basis:
*
annual financial reports including audited financial statements;
*
semi-annual financial reports including condensed interim financial statements which do not have
to be audited or reviewed by auditors; and
*
interim statements detailing the main events and transactions that took place in the relevant
period including a general description of the financial position and results of the issuer as well
as of the entities under its control (in the alternative to interim statements an issuer may publish
quarterly financial reports).
The Accounting Act requires that an issuer of listed securities prepare financial statements in
accordance with IFRS.
In accordance with the Transparency Directive as implemented by the Stock Exchange Act, each
issuer of shares listed on a regulated market is also obliged to publish on an ad hoc basis information
on the following:
*
changes of rights associated with various types of shares;
*
incurrence of indebtedness and on security provided for such indebtedness;
*
distribution and payment of dividends;
*
new share issues, including information concerning the assignment, subscription, termination or
exchange of the new shares;
*
qualified changes in voting rights;
*
qualified trading in own shares (acquisition/transfer);
186
*
the total number of voting rights and amount of registered capital;
*
selection of home member state under the Transparency Directive (if relevant); and
*
inside (price sensitive) information pursuant to section 132b of the Slovak Securities Act
implementing Article 6(1) of the Market Abuse Directive.
The Regulated Information is published on the issuer’s website and submitted to the official Slovak
Regulated Information System (Centrálna evidencia regulovaných informáciı́) operated by the NBS and
accessible online, as well as to the Bratislava Stock Exchange.
In addition to the Regulated Information, each issuer of shares listed on the MLM is obliged to
submit to the Bratislava Stock Exchange without delay all information necessary for the protection of
investors and the operation of the securities market under the Stock Exchange Rules, including in
particular:
*
information about changes in the issuer’s financial situation or other facts during the financial
year which could cause a significant change of the price of shares, restrict the issuer’s ability to
fulfil its obligations resulting from a share issue, or significantly affect its business activity;
*
information about the calling of ordinary and extraordinary general meetings, including their
agenda;
*
detailed information about the course of general meetings and about decisions adopted at the
general meetings;
*
draft amendments to the constitutional documents and updated wording of those documents;
*
information about changes of the members of a statutory body, members of supervisory bodies
and the most senior managers of the issuer;
*
information about payment of dividends including the amount of dividend before tax per share,
a decision specifying the date of record to claim the dividend payment and the date and manner
of dividend payment;
*
information on changes in the registered capital of the issuer;
*
information about any decision taken in the issuer’s general meeting to cease trading shares on
a stock exchange;
*
information about a change of particulars of shares, a change in the amount of issued shares
and any modification or cancellation of shares;
*
information on issuing new securities by the issuer, including issues of depositary receipts;
*
identification concerning the appointment of paying agents (if any);
*
information about admission of the issuer’s securities to trading on another regulated market;
and
*
any other information and documents the Bratislava Stock Exchange requests from the issuer.
The Bratislava Stock Exchange may request an issuer to publish certain information if it considers
the publication necessary in order to keep investors informed. If the issuer does not fulfil this request,
the Bratislava Stock Exchange may, after a consultation with the issuer, publish the information
itself.
Major Shareholding Notifications
In accordance with the Transparency Directive as implemented in the Slovak Republic, if a
shareholder has acquired or transferred shares (or certain other instruments enabling the shareholder
to exercise voting rights, including depositary receipts) it is obliged to notify the issuer and the NBS
about its share in the issuer’s voting rights if this share reaches, exceeds or falls below the thresholds
of 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75%. The issuer is required to publish this information
within three days of its receipt.
In addition to the major shareholding notifications under the Transparency Directive, there are
further notification requirements in respect of transfers of shares in the Company under special
regulation as described in ‘‘Description of Share Capital and Summary of Articles of Association –
Reporting Requirements’’.
187
Suspension and Ceasing of Trading in the Shares
If an issuer fails to meet its obligations under the Stock Exchange Act (including in respect of its
information obligations) the Bratislava Stock Exchange must suspend the trading of its securities
without delay and call upon the issuer to remedy the situation within a period determined by it. The
Bratislava Stock Exchange shall also suspend the trading in case of market manipulation or in case of
an unusually large change in the price of security. This suspension cannot exceed three months. The
Bratislava Stock Exchange has discretion not to suspend the trading if it would cause major threat to
the interests of investors or the operation of the market. If the issuer fails to remedy the breach
within the determined period, the Bratislava Stock Exchange is obliged to exclude the issuer’s
securities from trading on the Bratislava Stock Exchange. An issuer whose shares were traded on a
regulated stock exchange market but have been excluded from trading must place a mandatory
takeover bid (further details below) for all shares which, due to the exclusion, can no longer be
traded on the Bratislava Stock Exchange or another foreign regulated market.
Takeover Rules
The regulation of takeover bids in the Slovak Republic complies with EU Directive 2004/25/EC on
Takeover Bids as amended (the Takeover Directive). The Takeover Directive has been transposed into
the Slovak domestic legal system by means of an amendment of the Slovak Securities Act in 2006.
The Slovak Securities Act requires a person who has acquired a controlling shareholding in a
company listed on a regulated market (either by itself or together with other persons acting in
concert) (Offeror) to make a mandatory takeover bid for all shares in that company. A controlling
shareholding (Controlling Shareholding) for the purposes of the Slovak takeover rules is a
shareholding equal to or exceeding 33% of the voting rights in a company listed on a regulated
market (Target Company). If several persons acquire a Controlling Shareholding together acting in
concert, at least one of the persons has to make the mandatory takeover bid.
Each mandatory takeover bid must be approved by the NBS before its publication. The bid must
include, most importantly, information on: (i) the offered consideration for shares together with the
methods used for its calculation; (ii) the manner in which the offer can be accepted; (iii) means of
financing of the bid; (iv) expiration of the bid, which must not be less than 30 days or more than 70
days from the date of publication; (v) intentions of the Offeror with respect to the Target Company
(e.g., continuation of the business, disposition of the company’s assets); (vi) governing law and
jurisdiction of the contracts for purchase of the shares; and (vii) other information or facts which
may play a role in the decision-making of the Target Company’s shareholders with respect to the
mandatory takeover bid.
The consideration for shares may be offered in cash, securities or a combination thereof. If a part of
the consideration is offered in securities, cash consideration must be offered as an alternative.
Furthermore, the consideration for shares must be fair.
The Slovak Securities Act sets out conditions determining when the consideration can be regarded as
fair. First, the Offeror must present an expert opinion on the value of the shares and the
consideration must not be lower than the amount ascertained in that opinion. Second, it must not be
lower than the highest consideration which the Offeror or a person acting in concert with the Offeror
has provided for the shares within 12 months before the obligation to make a takeover bid occurred.
Third, it must not be lower than the value of net assets of the Target Company, including the value
of intangible assets, calculated per share according to the most recent financial statements audited
before the obligation to make a takeover bid occurred. Finally, for listed shares, the consideration
must not be lower than the average price of those shares over the 12 month period before the
obligation to make a takeover bid occurred. The fairness of the consideration is examined by the
NBS before it grants its approval of the bid.
The Offeror must inform the NBS, the Target Company and the public about its obligation to place
a takeover bid without delay after that obligation accrues. The Offeror then has 10 days within which
it is required to draft and present the proposed takeover bid to the NBS for its approval. The
Offeror has to publish the takeover bid without delay after the NBS grants its approval. The
takeover bid becomes effective upon its publication. The Offeror may not exercise any voting rights in
the Target Company which exceed the Controlling Shareholding before the publication of the
mandatory takeover bid.
188
Delisting
A general meeting of a Slovak joint stock company listed on a regulated market may decide to delist
the shares, provided that at least a two-thirds majority of the shareholders present at the meeting
vote in favour of that decision. If the general meeting has approved delisting, the company is
required to make a takeover bid for all shares owned by shareholders who voted against the delisting
or who did not take part in the general meeting at which the delisting was approved. The Bratislava
Stock Exchange may delist the shares only after the company notifies it of the fulfilment of its
obligations to make the takeover bid.
Squeeze-out and Buy-out
An Offeror that makes a takeover bid and as a result holds shares which represent at least 95% of
the registered capital and at least 95% of the voting rights in a listed company is entitled to require
the remaining shareholders to sell their shares to it for a fair consideration subject to approval by the
NBS (Squeeze-Out Right). If the Squeeze-Out Right is not exercised within three months after the
expiration of the takeover bid, it ceases to exist. The Squeeze-Out Right is accompanied by a
corresponding right of the remaining shareholders to demand an Offeror holding at least 95% of the
registered capital and at least 95% of the voting rights to buy their remaining shares for a fair
consideration (Buy-Out Right). If the Buy-Out Right is not exercised within three months after the
expiration of the takeover bid, it ceases to exist.
189
DESCRIPTION OF SHARE CAPITAL AND SUMMARY OF
ARTICLES OF ASSOCIATION
The following is a summary of the material terms of the Company’s Shares, as set out in the
Company’s Articles of Association and certain provisions of the Slovak Commercial Code, Slovak
Securities Act and other relevant laws. This description is only a summary. Investors are encouraged
to read the full Articles of Association which are available for inspection at the Company’s registered
office. See ‘‘Additional Information – Documents on Display’’.
The Current Articles were adopted at the General Meeting held on 9 February 2015 and they apply
in accordance with the Slovak Commercial Code.
Adoption of the New Articles
The General Meeting held on 31 March 2015 adopted the New Articles, which will become effective
on the date of admission of the Shares to trading on the main listed market of the Bratislava Stock
Exchange. The New Articles will reflect, among other things, the adoption by the Company of certain
provisions of the Corporate Governance Code for Slovakia based on OECD principles. See
‘‘Management – Corporate Governance’’ and ‘‘Risk Factors – Risks Related to the Securities and the
Offering – The rights of minority shareholders will be governed by the laws of the Slovak Republic,
whose corporate governance standards differ from those of other jurisdictions’’.
The New Articles contain the following principal changes compared with the Current Articles:
*
The Company is designated as a public (rather than private) joint-stock company.
*
Three supervisory committees have been set up: the Audit Committee, the Nomination
Committee and the Remuneration Committee. The Audit Committee had been established in the
Company already before the adoption of the New Articles. However, given that the Company
was a private joint-stock company, it was not obliged to ensure that its composition and
creation are compliant with the Slovak accounting legislation and the Code. The New Articles
include changes to bring the Audit Committee into compliance with both the Slovak accounting
legislation and the Corporate Governance Code.
*
All majority provisions that gave the Selling Shareholder a right of veto in the decision-making
of the Board of Directors or the General Meeting have been abolished. No resolution of the
General Meeting will require a 3/4 majority of votes to be passed.
*
There is no longer a quorum for the General Meeting – the General Meeting is quorate with
any percentage of attending shareholders.
*
The power of the General Meeting in the field of remuneration have been extended and
specified to cover the approval of the remuneration rules, share-based remuneration systems and
individual remuneration packages of all members of the Board of Directors, Supervisory Board,
Audit Committee, Nomination Committee and Remuneration Committee. In accordance with
the New Articles the General Meeting may adopt a resolution delegating and entrusting the
decision-making on individual remuneration packages of members of corporate bodies of the
Company into the scope of competence of the Remuneration Committee.
*
Changes in the convening of General Meetings – besides sending the invitation to all
shareholders, the Board of Directors must also publish it in a nationwide newspaper that
publishes stock exchange news; furthermore, the invitation itself must contain more information
than was previously required.
*
The invitation and all underlying documents concerning a General Meeting must be published
on the website of the Company for a continuous period of 30 days prior to the actual date of
the General Meeting.
*
The list of matters that require the consent of a 2/3 majority of shareholders present at the
General Meeting has been expanded, given the change of status of the Company as a public
joint-stock company. The requirement for a 2/3 majority corresponds to the statutory rules.
Furthermore, in accordance with the statutory rules, if the General Meeting is voting on
changing the shareholder rights associated with a certain kind of shares and on the restriction of
the transferability of the non-bearer shares, the consent of a 2/3 majority of all shareholders
holding such shares is necessary.
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*
Each member of the Board of Directors is explicitly obliged to inform the other members of the
Board of Directors of any circumstances that could give rise to a conflict of interest in his
decision-making on a particular matter. The remaining members of the Board of Directors shall
vote on whether or not the potentially conflicted member will participate in the decision-making
on that matter. The same rules apply to the Supervisory Board.
*
At least one member of the Supervisory Board must be independent.
*
The independence of members of the Supervisory Board will be regularly assessed by the
Nomination Committee.
*
Election of the Supervisory Board members has been streamlined and simplified – the General
Meeting takes a separate vote on each nominee.
Share Capital
As of 31 December 2014, the Company’s registered share capital consisted of 26,027,500 authorised,
issued and fully paid physical registered shares (in Slovak: listinné akcie na meno) each with a
nominal value of EUR 33.20. The Company’s extraordinary General Meeting held on 9 February
2015 approved the change of the form of the shares from physical registered shares to ordinary bookentered non-bearer shares (in Slovak: zaknihované akcie na meno) and changed the nominal value of
the shares from EUR 33.20 per share to EUR 10 per share. The changes were made in the context of
preparation for the Offering. As a result, the Company’s registered share capital as of the date of this
Prospectus consists of 86,411,300 ordinary book-entered non-bearer shares, each with a nominal value
of EUR 10.
As of 31 December 2014, the registered share capital has been paid up in full. There has been no
increase or decrease in the registered share capital of the Company between 1 January 2009 and the
date of this Prospectus. There has been no change in the number of shares outstanding between
1 January 2012 and 31 December 2014. The number of shares changed in February 2015, as
described above.
The Company has not issued preferred shares, rights, convertible bonds or any other equity or
equity-linked securities. All Shares bear equal rights with the other Shares of the Company. The
Company has no authorised but unissued capital. The Shares bear no redemption or conversion
rights.
No Shares or financial instruments linked to the Shares are held by the Company or any of its
affiliates, except as set forth in ‘‘Principal and Selling Shareholders’’. Except for 49% share capital of
PosAm (not owned by the Company) which is under a put option, no capital of any member of the
Group is under option nor is it agreed conditionally or unconditionally to be put under option. By
way of exception from the general statements in this paragraph, the Offering will involve a
stabilisation scheme. See ‘‘Plan of Distribution (Terms of the Offer) – Stabilisation’’.
As of the date of this Prospectus there have been no public takeover bids, mandatory takeover bids,
squeeze-outs or buy-outs in respect of the Company’s shares.
Shareholder Rights
Each shareholder of the Company shall have the same rights and the Company and its management
are obliged to treat all shareholders equally. Changing the rights of the shareholders requires
amendment to the Articles of Association which require approval by a two-thirds majority of
shareholders present at the General Meeting. These conditions are not more stringent than is required
by law.
The Shares provide the following rights:
Proprietary Rights
*
the right to receive dividends, if any, when declared by the Company;
*
a right of pre-emption on subscription of new shares in the Company;
*
the right to receive a shareholding in the share capital of the Company in the case of a decrease
in share capital equivalent in proportion to that owned immediately prior to the decrease in
share capital;
*
the right to receive an amount of the Company’s liquidation proceeds after fulfilment of its
obligations to creditors, proportionate to their shareholding; and
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*
the right of shareholders subject to certain conditions to have their shares bought out by the
Company in case of change of legal form of the Company, merger of the Company or delisting
of the Company’s shares;
Voting and Supervisory Rights Available to All Shareholders
the right to attend any General Meeting, submit proposals at General Meetings, take part in
discussions and vote at any General Meeting;
*
*
the right to request certain information and explanations, including copies of certain documents
relating to the business of the Company; and
*
the right to challenge the decisions of the General Meeting in court proceedings subject to
conditions set out in the Slovak Commercial Code;
Management and Supervisory Rights Available to Shareholders Holding at least 5% of Shares
*
the right to request the Board of Directors to convene a General Meeting and to include a
certain item in the agenda of the General Meeting;
*
the right to request that the Supervisory Board examine the conduct of the Board of Directors
in a certain matter;
*
the right to request the Board of Directors to raise a claim, on behalf of the Company, against
a shareholder who is in default in the payment of the issue price of Shares or to claim from a
shareholder any benefit paid by the Company to such shareholder, contrary to the Slovak
Commercial Code;
*
the right to request the Supervisory Board to raise a claim for damages on behalf of the
Company or any other claim that the Company has vis-à-vis members of the Board of
Directors; and
*
the right to request the Supervisory Board to raise a claim for the payment of the issue price of
shares of the Company if it subscribes its own shares contrary to the Slovak Commercial Code.
Increases in Share Capital
The share capital of the Company can be increased by either of the following methods:
*
Subscription for new shares. In this case either existing shareholders or new shareholders
contribute new cash or in-kind contributions to the Company’s share capital. In exchange, the
Company issues new shares. Existing shareholders have a pre-emptive right to subscribe for new
shares, which can be excluded, in whole or in part, only through a resolution of the General
Meeting.
*
Conditional increase in share capital. This alternative is applicable only if the General Meeting
has decided on the issuing of convertible bonds or priority bonds. In such case, the General
Meeting shall simultaneously decide on the increase of the registered capital, whereby the
increase will depend on the extent to which the holders of convertible bonds will exercise their
right to have shares issued or the holders of priority bonds will exercise their right to subscribe
for new shares. The increase of share capital is therefore ‘‘conditional’’, as it depends on the
discretion of third parties. The amount of the conditional increase of registered capital must not
exceed 50% of the share capital of the Company at the time when the General Meeting adopts
the decision on the conditional increase of registered capital. The details of how rights from
convertible bonds or priority bonds can be exercised must be set out in the resolution of the
General Meeting that approves the conditional increase of share capital
*
Increase from the equity of the Company. The General Meeting may resolve that retained profit
or funds created from profit whose utilisation is not set out by law, or other of the Company’s
own resources reported in individual financial statements as the Company’s equity, shall be used
to increase the registered capital. The standard requirements for capital distribution under the
Slovak Commercial Code apply, i.e. the use of the Company’s equity for the increase of share
capital must not result in the decrease of its equity below the aggregate sum of all mandatory
funds. Furthermore, the General Meeting’s resolution on the increase of share capital from the
equity of the Company must be based on approved financial statements that have been verified
by an auditor without reservations, and the underlying data of such financial statements must
not be older than six months at the time of the General Meeting resolution. If this method of
192
increase of share capital is used new shares are allocated to existing shareholders in proportion
to their existing shareholdings in the Company. Alternatively, instead of the issuing of new
shares, the Company may re-issue existing shares with a higher nominal value.
*
Combined increase of share capital. This is a combination of the increase by means of issuance
of new shares and increase from the Company’s equity. If the Company increases registered
capital by permitting subscriptions for new shares, the General Meeting may decide that a part
of the issue price of subscribed shares shall be covered from the Company’s own resources
reported under the Company’s equity in the financial statements. All requirements relating to the
increase of share capital from the equity of the Company set out in the paragraph above also
apply in this case. If the General Meeting resolves on the combined increase of share capital,
any increase of registered capital by in-kind contributions or any limitation or exclusion of the
shareholders’ pre-emption right to subscribe for new shares is not permitted, given that the
Company’s assets are used in the process.
*
Decision of the Board of Directors on the basis of authorisation of the General Meeting. The
articles of association or a General Meeting resolution may authorise the Board of Directors to
decide on the increase of registered capital up to a certain amount under the conditions
stipulated by the Slovak Commercial Code and the Articles of Association. The authorisation to
increase registered capital may be granted for a maximum of five years; the General Meeting
may repeatedly extend the validity of the authorisation, each time by a maximum of five years.
The authorisation by the General Meeting is subject to certain formalities: the General Meeting
resolution authorising the Board of Directors to increase share capital shall be entered into the
Commercial Register, stating the approved amount of share capital; the actual resolution of the
General Meeting shall be deposited in the Collection of Documents. The Board of Directors
must refrain from increasing the share capital prior to such said registration in the Commercial
Register. The details of the share capital increase are set out directly in the General Meeting
resolution that authorised the Board of Directors to effect the increase, such as: the highest sum
by which the share capital may be increased, the manner in which the share capital may be
increased as well as the nominal value, form, type and format of shares that may be issued in
order to increase the share capital, etc. As a part of the authorisation, the Board of Directors
may repeatedly increase the registered capital, provided the total amount of registered capital by
which the registered capital may be increased under the authorisation is not exceeded.
The decision on the increase of the share capital is in the competence of the General Meeting,
whereby the resolution on the increase must be passed by a two-thirds majority of the votes of
attending shareholders. If several types of shares have been issued, the same majority of the votes of
attending shareholders is required for each type of shares.
Decreases in Share Capital
The General Meeting may decide on the reduction of registered capital by a two-thirds majority of
the votes of attending shareholders upon a proposal of the Board of Directors. If several types of
shares have been issued, such a majority of the votes of attending shareholders is required for each
type of shares.
The Slovak Commercial Code provides for two methods of decreasing share capital:
*
Decrease by reduction of nominal value of the shares. The nominal value of book-entered shares
is reduced by changing the entry on the amount of their nominal value in the register of
securities maintained by the Slovak Central Depository; and
*
Decrease by withdrawal of shares. Shares may be withdrawn from circulation in one or more of
the following ways: (i) by agreement with the shareholders that answer the call of the Board of
Directors; (ii) on the basis of the rules (criteria) determined by the General Meeting; (iii) by
drawing lots; or (iv) if the Company owns any of its shares, by withdrawing those shares from
circulation. The General Meeting shall determine the details of the procedure for withdrawing
the shares from circulation. Importantly, other than by agreement with shareholders, shares may
be withdrawn from circulation only for an appropriate consideration and provided that such
manner was expressly permitted and regulated by the Articles of Association at the time the
shares were subscribed. Such wording is not contained in neither the Current Articles nor the
New Articles. Book-entered shares shall be withdrawn from circulation by their cancellation in
193
the register of book-entered securities maintained by the Slovak Central Depository. The
cancellation of book-entered shares shall be effected by the Board of Directors without undue
delay after the reduction of registered capital has been entered into the Commercial Register.
The Company’s share capital is decreased as of the day on which the decision to decrease the share
capital is entered into the Commercial Register. With regard to the protection of creditors the
Company is obliged to notify the creditors of its share capital decrease by publishing the registration
of such decision. Specifically, within 30 days from the date on which the notice of deposit of the
resolution of the General Meeting on the reduction of registered capital in the Collection of
Documents is published (the Deposit Date), the Board of Directors is obliged to report the reduction
of registered capital and its extent to the Company’s known creditors whose receivables towards the
Company were incurred before such publication and to notify them of their rights, as described
below. Such notice must be published on at least two consecutive occasions with an interval of at
least 30 days. The Company’s creditors that have receivables towards the Company which are not yet
due as of the Deposit Date are entitled, within 90 days from the day they received the notice on the
reduction of registered capital, otherwise within 90 days from its second publication, to request that
payment of their unpaid receivables is secured in a sufficient manner. A creditor whose receivable has
already been sufficiently secured does not have such right.
The choice of the method depends on the contemplated purpose of the decrease (e.g. to cover loss).
The purpose of the decrease in share capital must be specified in the resolution on the decrease of the
share capital.
There are no conditions in the Articles of Association governing changes in the registered share
capital which are more stringent than is required by the Slovak Commercial Code.
Acquisition of Shares by the Company
Pursuant to the Slovak Commercial Code, as a joint stock company, the Company may not purchase
its own shares, except in the following certain limited circumstances (in each case subject to the
compliance with a number of conditions as set out in the statute and/or in the Articles of
Association):
(a)
the acquisition of shares is necessary to protect the Company from serious and imminent
danger;
(b)
the shares so acquired are to be offered to employees of the Company or of an associated
company;
(c)
if the Company reduces the registered capital, subject to provisions of the Slovak Commercial
Code;
(d)
as a legal successor the Company enters into all rights and obligations of the person that was
the owner of such shares;
(e)
such acquisition concerns shares that the Company has acquired based on an obligation
stipulated by law or based on a court decision to protect minority shareholders;
(f)
such acquisition concerns shares whose issue price has been fully paid-up and the Company
acquires them without charge;
(g)
such acquisition concerns shares whose issue price has been fully paid-up and which have been
acquired by the Company in an auction during a court execution of a decision by which the
Company has recovered its receivables from the owner of the shares;
(h)
such acquisition concerns shares that have been acquired by the Company in the process of
expulsion of a shareholder for reasons laid down in the law; and
(i)
the holding of own shares is temporary (maximum 18 months), the General Meeting has
approved it and all rules for capital distribution have been complied with.
Form, Ownership and Transfer of the Shares
Form of the Shares
The Shares take the form of book-entered non-bearer shares. The Slovak Securities Act defines bookentered shares as shares having the form of a record in the register maintained by the Slovak Central
Depository or its members, or, in the register maintained by a custodian of the Shares as prescribed
by Slovak law, if the Shares are held through a holding account opened with the Slovak Central
Depository.
194
Limitations on the Ownership of the Shares
There are no provisions in the Articles of Association that would have an effect of delaying, deferring
or preventing a transfer of Shares or change in control of the Company nor are there provisions
restricting ownership of Shares or setting an ownership threshold above which shareholder ownership
must be disclosed. No restrictions exist in relation to the holding or exercising by foreigners or nonresidents of voting rights in respect of the Shares.
The Company is a limited payment institution under the Payment Services Act, as a result of which
the prior consent of the NBS is necessary for the acquisition of a direct share of registered capital or
voting rights in the Company that would reach or exceed 10%, 20%, 30% or 50% or whereby the
Company would become a subsidiary of an entity.
The Company and DIGI are licenced television broadcasters. Under applicable laws (see
‘‘Telecommunication Regulation in Slovak Republic – Further Applicable Regulation – Broadcasting,
retransmission and provision of on-demand audiovisual media services’’) a person cannot hold more than
a 25% interest or the same amount of voting rights (cross ownership) in more than one licensed
nationwide or multiregional broadcaster or in a national periodical press publisher. The Broadcasting
Act also prohibits cross ownership and certain personal connections between radio and TV
broadcasters, and between radio and TV broadcasters and national periodical press publishers.
Similarly, the Digital Broadcasting Act prohibits cross ownership and certain personal connections
between digital broadcasting license holders themselves, and between broadcasters and multiplex
providers.
Transfer of the Shares
The transfer of ownership of book-entry shares is effected by means of registration of the change of
ownership of shares with the Slovak Central Depository (whether directly through the Slovak Central
Depository or through a member of the Slovak Central Depository) or in the registry maintained by
a custodian in respect of a holding account pursuant to Section 105a of the Slovak Securities Act, if
the Shares are held through a holding account opened with the Slovak Central Depository.
Reporting Requirements
In addition to the disclosure requirements described in ‘‘The Bratislava Stock Exchange and Slovak
Securities Regulation – Major Shareholding Notifications’’, the following reporting requirements exist
with respect to shareholdings in the Company under applicable Slovak law:
Reporting under the Payment Services Act
Because the Company is a payment institution under the Payment Services Act, if a shareholder
intends to divest its shareholding interest in such manner that its direct shareholding interest would
fall below 20%, 30% or 50% or if the Company ceased to be its subsidiary, such shareholder is
obliged to notify the NBS of the contemplated divestment in advance. In contrast to the acquisition
of shares, where the consent of the NBS is necessary in order for the transaction to be legally
effective, in the case of divestment a mere notification is sufficient and the consent of the NBS is not
required.
Reporting under the Broadcasting Act
The Company is a holder of a broadcasting licence and therefore the Company must notify the
Council for Broadcasting and Retransmission of each change of its shareholders within 15 days of the
effective date. The closing of the Offering would trigger this notification duty.
Summary of the Articles of Association
Business Objectives
The Company is a Slovak company whose general objective is to be engaged in profit making
activities. No specific business objectives are set out in the Company’s foundation deed or the Articles
of Association. The Company’s principal business activities are described in ‘‘Business’’ above and
include mainly the provision of electronic communication networks and electronic communication
services, broadcasting, retransmission and ICT services. A full list of the Company’s permitted
business activities is set out in Article 2 of the Articles of Association.
195
General Meeting of Shareholders and Voting Rights
Powers of the General Meeting
The powers of the General Meeting comprise:
*
approving amendments to the Articles of Association;
*
resolving on the increase of the share capital (or the authorisation of the Board of Directors to
increase share capital);
*
resolving on the decrease of share capital;
*
resolving on the issuing of convertible bonds or priority bonds or other bonds;
*
resolving on the change of the form of issued shares from physical to book-entered and vice
versa;
*
election and recall of members of the Board of Directors and the Supervisory Board, except for
the members of the Supervisory Board elected by employees;
*
approval of the annual report on the financial results and operations of the Company;
*
approving individual and consolidated financial statements and extraordinary individual and
consolidated financial statements;
*
resolving on the distribution of profit and the determination of the amount of dividends and
directors’ fees;
*
resolving on the covering of loss;
*
resolving on the use of the reserve fund;
*
approving the remuneration rules of members of corporate bodies;
*
resolving on matters related to activities of the Company in the field of defence, protection and
security of the state in accordance with the relevant laws;
*
resolving on the use of repeater stations on Banská Bystrica II and Prešov III;
*
approving the listing of the Company’s shares on a stock exchange;
*
resolving on the winding-up of the Company or liquidation, merger or demerger of the
Company, as well as the change of legal form of the Company;
*
resolving on the appointment of a liquidator for the Company;
*
resolving on the termination of a stock exchange listing;
*
resolving on changing the Company’s status from private to a public joint-stock company;
*
approving the agreement on the transfer of business or a part of business;
*
approval of the auditor that will audit the financial statements; and
*
resolving on other matters that are within the competence of the General Meeting pursuant to
the Articles of Association or applicable law.
The Convening of the General Meeting
The General Meeting takes place at least once each year and is convened by the Board of Directors
no later than four months after the end of the preceding accounting period. The invitation to the
General Meeting must be sent to all shareholders at least 30 days prior to the General Meeting. After
the Shares of the Company are admitted to trading on the Bratislava Stock Exchange in connection
with the Offering, the Company will also publish the invitation to the General Meeting on its website.
Furthermore, the Board of Directors shall convene an Extraordinary General Meeting particularly in
the following cases:
*
the previous General Meeting resolved so (whereby any supplementing or change of the
approved agenda of the General Meeting requires the participation and consent of all
shareholders);
*
the loss suffered by the Company will reach at least one-third of the share capital or such level
of loss can be reasonably foreseen;
*
the Company has not been able to pay its debts as they become due for more than three
months;
196
*
a shareholder owning at least 5% of the Company’s shares requests the Board of Directors to
convene a General Meeting, stating a reason for doing so (in such case the Board of Directors
is obliged to convene a General Meeting within 40 days of the request; an additional condition
laid down by the Articles of Association is that the shareholder has owned such shares at least
three months prior to the deadline for the convening of the General Meeting).
In addition, if the Supervisory Board identifies any material breach of directors’ obligations or
material shortcomings in the business of the Company, it is also empowered to convene an
extraordinary General Meeting.
Voting at the General Meetings
The distribution of votes in the Company follows the ‘‘one vote per share’’ principle (regardless of
the fact that a multiple is used for ease of calculation of voting results at General Meetings).
The Articles of Association set out a quorum for the General Meeting to be able to pass resolutions.
Accordingly, the General Meeting is quorate if shareholders are present whose shares have a total
nominal value amounting to more than 76% of the share capital of the Company. If the General
Meeting is not quorate within 90 minutes of the time stipulated in the invitation to the General
Meeting, the Board of Directors shall convene another General Meeting. The second General Meeting
shall be convened within three business days with an unaltered agenda, whereby it shall take place at
least 30 days after the sending of the invitations. The second General Meeting is quorate if
shareholders are present whose shares have a total nominal value amounting to more than 45% of the
share capital of the Company.
Once the General Meeting is quorate, its resolutions are passed by a simple majority of votes cast by
the present shareholders, except for cases where the Articles of Association prescribe a higher
majority, whereby the list of matters that require a qualified majority is broader than the one
prescribed by the law.
Specifically, in accordance with the Slovak Commercial Code, the following resolutions require a twothirds majority of shareholders present at the General Meeting: (i) amendment of the Articles of
Association; (ii) increase of share capital (or the authorisation of the Board of Directors to increase
share capital); (iii) decrease of share capital; and (iv) the winding-up of the Company or a change of
its legal form. Under the law, a two-thirds majority would also be required for the delisting of shares
and transformation of the Company from a public company to a private company (though, by
definition, such resolutions are only relevant for companies whose shares are already listed and who
therefore already are public joint-stock companies). A three-fourths majority is required for approval
of issuances of convertible bonds or preference bonds by the Company. For details on changes to the
required voting majorities introduced in the New Articles, please refer to ‘‘– Adoption of the New
Articles’’ above.
In certain cases set out in the Slovak Commercial Code and Articles of Association, the resolution of
the General Meeting must take the form of a notarial deed.
197
TERMS AND CONDITIONS OF THE GLOBAL DEPOSITARY RECEIPTS
The following terms and conditions (the Conditions), subject to completion and amendment and
excepting sentences in italics, will apply to the global depositary receipts (the GDRs) and will be
endorsed on each GDR certificate (each a GDR Certificate).
The GDRs are issued in respect of the ordinary shares, having a nominal value of EUR 10.00 each
(the Shares) of Slovak Telekom, a.s. (the Company), pursuant to and subject to (i) in the case of the
Regulation S GDRs, the Regulation S Deposit Agreement to be entered into on or about the Closing
Date by and between the Company and Citibank, N.A., as depositary (the Depositary) (the
Regulation S Deposit Agreement) and, in the case of the Rule 144A GDRs, the Rule 144A Deposit
Agreement to be entered into on or about the Closing Date by and between the Company and the
Depositary (the Rule 144A Deposit Agreement). References in the Conditions to the Deposit
Agreement shall mean, in the case of Regulation S GDRs, the Regulation S Deposit Agreement and,
in the case of Rule 144A GDRs, the Rule 144A Deposit Agreement. Each GDR represents the right
to receive, subject to the terms of the Deposit Agreement and the Conditions, one Share on deposit
under the terms of the Deposit Agreement.
Pursuant to the provisions of the Deposit Agreement, the Depositary has appointed Citibank Europe
plc, acting through its Slovak branch, Citibank Europe plc, pobočka zahraničnej banky, as custodian
to receive and hold on its behalf the Shares from time to time deposited under the Deposit
Agreement (the Deposited Shares), and all rights, securities, property and cash deposited with the
Custodian which are attributable to the Deposited Shares (such rights, securities, property and cash
together with the Deposited Shares, the Deposited Property). The Depositary shall hold Deposited
Property for the benefit of the Holders (as defined below) as bare trustee in proportion to the number
of Shares in respect of which the GDRs held by them are issued. In these Conditions references to
the Depositary are to Citibank, N.A. and/or any other depositary which may from time to time be
appointed under the Deposit Agreement, references to the Custodian are to Citibank Europe plc,
acting through its Slovak branch, Citibank Europe plc, pobočka zahraničnej banky, or any other
custodian which may from time to time be appointed under the Deposit Agreement and references to
the Office mean, in relation to the Custodian, the principal office of the Custodian in Bratislava,
Slovak Republic (currently at Mlynské nivy 43, 825 01 Bratislava, Slovak Republic).
References in the Conditions to the GDRs shall include the GDRs issued pursuant to the terms of
the Regulation S Deposit Agreement (the Regulation S GDRs) and the GDRs issued pursuant to the
terms of the Rule 144A Deposit Agreement (the Rule 144A GDRs).
References in these Conditions to the Holder of any GDR shall mean the person registered as the
holder of any GDR on the books of the Depositary maintained for such purpose. References in these
Conditions to Beneficial Owner of any GDR shall mean any person who is the beneficial owner of
GDRs as determined in accordance with Rule 13d-3 and Rule 13d-5 under the Exchange Act. These
Conditions include summaries of, and are subject to, the detailed provisions of the Deposit
Agreement, which includes the forms of the GDR Certificate in respect of the GDRs. Copies of the
Deposit Agreement are available for inspection at the principal office of the Depositary. Holders and
Beneficial Owners are deemed, by virtue of being a Holder or Beneficial Owner, to have notice of,
and be subject to, all of the applicable provisions of the Deposit Agreement and Conditions. Terms
used in the Conditions and not defined herein but which are defined in the Deposit Agreement have
the meanings ascribed to them in the Deposit Agreement.
The Depositary shall hold Deposited Property for the benefit of the Holders as bare trustee in
proportion to the number of Shares in respect of which the GDRs held by them are issued and the
Holders will accordingly be tenants in common of such Deposited Property to the extent of the
Deposited Property corresponding to the GDRs in respect of which they are the Holders. For the
avoidance of doubt, in acting hereunder the Depositary shall have only those duties, obligations and
responsibilities expressly specified in the Deposit Agreement and these Conditions and, other than
holding the Deposited Property as bare trustee as aforesaid, does not assume any relationship of trust
for or with the Holders or the Beneficial Owners or any other person. Any right or power of the
Depositary in respect of Deposited Property is reserved by the Depositary under its declaration of
trust contained in this paragraph and is not given by way of grant by any Holder or Beneficial
Owner.
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Holders and Beneficial Owners of GDRs are not parties to the Deposit Agreement and thus, under
English Law, have no contractual rights against, or obligations to, the Company or Depositary.
However, the Deed Poll executed by the Company in favour of the Holders provides that, if the
Company fails to perform the obligations imposed on it by certain specified provisions of the Deposit
Agreement, any Holder may enforce the relevant provisions of the Deposit Agreement as if it were a
party to the Deposit Agreement and was the ‘‘Depositary’’ in respect of that number of Deposited
Shares to which the GDRs of which it is the Holder relate.
Holders and Beneficial Owners are deemed, by virtue of being a Holder or Beneficial Owner and
owning, acquiring or holding, as the case may be, a GDR, to have notice of and be subject to all
applicable provisions of the Deposit Agreement and the Conditions. The Depositary is under no duty to
enforce any of the provisions of the Deposit Agreement or the Conditions on behalf of any Holder or
Beneficial Owner of a GDR or any other person.
GDRs will initially take the form of global GDRs evidenced by one or more Master GDR Certificates
(each a Master GDR Certificate) registered (i) in the case of Regulation S GDRs, in the name of
Citivic Nominees Limited as nominee for Citibank Europe plc, as common depositary (the Common
Depositary), and will initially be held by the Common Depositary for Euroclear Bank, SA/NV, as
operator of the Euroclear System (Euroclear) and Clearstream Banking, société anonyme
(Clearstream), for the account of accountholders in Euroclear or Clearstream (Euroclear Participants
and Clearstream Participants, respectively), as the case may be, and (ii) in the case of Rule 144A
GDRs, in the name of Cede & Co., as nominee for The Depository Trust Company (DTC) for the
account of accountholders in DTC (DTC Participants).
The GDRs are exchangeable for certificates in definitive registered form in respect of GDRs representing
all or part of the interest of the holder in the Master GDR Certificate only in the limited circumstances
set out in ‘‘Description of Key Provisions Relating to the Global Depositary Receipts While in Master
Form’’.
Under the terms of the GDRs, each purchaser of GDRs is deemed to have represented and agreed,
among other things, that the GDRs have not been and will not be registered under the Securities Act
and may be offered, sold, pledged or otherwise transferred only in a transaction exempt from, or not
subject to, the registration requirements of the Securities Act. Each GDR will contain a legend to the
foregoing effect.
For a description of the restrictions on the transfer of the GDRs see ‘‘Transfer Restrictions’’ and ‘‘Plan
of Distribution (Terms of the Offer)’’.
1.
1.1
Deposit of Shares
The Depositary may, in accordance with the terms of the Deposit Agreement, but subject to the
Conditions, and upon delivery of (x) a duly executed or electronically submitted order (in a
form approved by the Depositary) and (y) a duly executed or electronically submitted deposit
certification substantially in the form attached to the Deposit Agreement by or on behalf of any
investor who is to become the Beneficial Owner of the GDRs (other than in the case of a
deposit of Shares by the Company or an Affiliate of the Company which shall be subject to
Clause 7.1.4 of the Deposit Agreement), from time to time issue and deliver further GDRs
having the same terms and conditions as the GDRs which are then outstanding in all respects
and, subject to the terms of the Deposit Agreement, the Conditions and applicable law, the
Depositary shall accept for deposit any further Shares in connection therewith, so that such
further GDRs shall form a single series with the already outstanding GDRs. References in these
Conditions to the GDRs include (unless the context requires otherwise) any further GDRs
issued pursuant to this Condition and forming a single series with the already outstanding
GDRs.
The deposit certificate to be provided pursuant to the Regulation S Deposit Agreement certifies,
among other things, that the person providing such certificate is not an ‘‘affiliate’’ of the Company,
is located outside the United States and will comply with the restrictions on transfer applicable to
Regulation S GDRs set forth under ‘‘Transfer Restrictions’’.
The deposit certificate to be provided pursuant to the Rule 144A Deposit Agreement certifies,
among other things, that the person providing such certificate is not an ‘‘affiliate’’ of the Company,
is a ‘‘Qualified Institution Buyer’’ (as defined in Rule 144A under the Securities Act), and will
comply with the restrictions on transfer applicable to Rule 144A GDRs set forth under ‘‘Transfer
Restrictions’’.
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1.2
Subject to the terms and conditions of the Deposit Agreement and applicable law, upon (i)
physical delivery to the Custodian of Shares, or book-entry transfer of Shares to an account of
the Custodian at Centrálny depozitár cenných papierov SR, a.s. or any successor thereto (the
Slovak Central Depository), (ii) physical or electronic delivery to the Depositary of the applicable
deposit certification unless the deposit of Shares is made by the Company or an Affiliate of the
Company in which case such deposit will be subject to Section 7.1.4 of the Deposit Agreement,
and (iii) payment of necessary taxes, governmental charges (including transfer taxes) and other
charges as set forth in the Deposit Agreement and fees of the Depositary as set forth in Clause
10.1 of the Deposit Agreement and Condition 19, the Depositary will (i) adjust its records for
the number of GDRs issued in respect of the Shares so deposited, (ii) notify DTC or the
Common Depositary, as the case may be, to increase the number of GDRs evidenced by a
Master GDR Certificate, and (iii) make delivery of the GDRs so issued to the applicable DTC
Participant, Euroclear Participant or Clearstream Participant specified in applicable order
received for such purpose.
1.3
Subject to the limitations set forth in the Deposit Agreement and applicable law, the Depositary
may (but is not required to) issue GDRs prior to the delivery to it of Shares in respect of which
such GDRs are to be issued against evidence to receive rights from the Company (or any agent
of the Company involved for the Company in the maintenance or ownership or transactions
records for the Shares) in the form of a written blanket or specific guarantee of ownership
furnished by the Company (or any agent of the Company involved for the Company in the
maintenance or ownership or transactions records for the Shares). No such issue will be deemed
a ‘‘Pre-Release Transaction’’ as defined in Condition 1.5.
1.4
Any further GDRs issued pursuant to Condition 1.1 which (i) represent Shares which have
rights (whether dividend rights or otherwise) which are different from the rights attaching to the
Shares represented by the outstanding GDRs, or (ii) are otherwise not fungible (or are to be
treated as not fungible) with the outstanding GDRs, will, subject to Clause 3.16 of the Deposit
Agreement be represented by a separate master partial entitlement GDR certificate (each a
Master Partial Entitlement GDR Certificate). Upon becoming fungible with outstanding GDRs,
such further GDRs shall be evidenced by a Master GDR Certificate (by increasing the total
number of GDRs evidenced by the relevant Master GDR Certificate or by the number of such
further GDRs, as applicable).
1.5
Subject to the further terms and provisions of the Deposit Agreement, Citibank, N.A., its agents
and affiliates, on their own behalf, may own and deal in any class of securities of the Company
and its affiliates and in GDRs. In its capacity as Depositary, the Depositary shall not lend
Shares or GDRs; provided, however, that the Depositary may (i) issue GDRs prior to the
receipt of Shares pursuant to Condition 1 and Clause 3 of the Deposit Agreement, and (ii)
deliver Shares prior to the receipt and cancellation of GDRs pursuant to Condition 2 and
Clause 3 of the Deposit Agreement, including GDRs which were issued under (i) above but for
which Shares may not have been received (each such transaction a Pre-Release Transaction). The
Depositary may receive GDRs in lieu of Shares under (i) above and receive Shares in lieu of
GDRs under (ii) above. Each such Pre-Release Transaction will be (a) subject to a written
agreement whereby the person or entity (the Applicant) to whom GDRs or Shares are to be
delivered (v) represents that at the time of the Pre-Release Transaction the Applicant or its
customer owns the Shares or GDRs that are to be delivered by the Applicant under such PreRelease Transaction, (w) agrees to indicate the Depositary as owner of such Shares or GDRs in
its records and transfer all beneficial right, title and interests in and to such Shares or GDRs, as
the case may be, to the Depositary and to hold such Shares or GDRs in trust for the
Depositary until such Shares or GDRs are delivered to the Depositary or the Custodian, (x)
unconditionally guarantees to deliver to the Depositary or the Custodian, as applicable, such
Shares or GDRs, (y) agrees not take any action with respect to such Shares or GDRs, as the
case may be, that is inconsistent with such transfer of beneficial ownership other than to deliver
such Shares or GDRs, as the case may be, to the Depositary in satisfaction of such Pre-Release
Transaction and (z) agrees to any additional restrictions or requirements that the Depositary
deems appropriate, (b) at all times fully collateralised with cash, U.S. government securities or
such other collateral as the Depositary deems appropriate, (c) terminable by the Depositary on
not more than five (5) business days’ notice, and (d) subject to such further indemnities and
credit regulations as the Depositary deems appropriate. The Depositary will normally limit the
number of GDRs and Shares involved in such Pre- Release Transactions at any one time to
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thirty per cent. (30%) of the GDRs outstanding (without giving effect to GDRs outstanding
under (i) above), provided, however, that the Depositary reserves the right to change or
disregard such limit from time to time as it deems appropriate. The Depositary may also set
limits with respect to the number of GDRs and Shares involved in Pre- Release Transactions
with any one person on a case by case basis as it deems appropriate.
The Depositary may retain for its own account any compensation received by it in connection
with the foregoing. Collateral provided pursuant to (b) above, but not the earnings thereon,
shall be held for the benefit of the Holders (other than the Applicant). The Depositary may
require that the person to whom any Pre Release Transaction is to be made pursuant to this
Condition 1.5 deliver to the Depositary a duly completed certification and agreement in
substantially the form set forth as Schedule 3 to the Regulation S Deposit Agreement or
Schedule 3 Part A to the Rule 144A Deposit Agreement.
1.6
Any person delivering Shares for deposit under the Deposit Agreement and Condition 1 and
any Holder or Beneficial Owner may be required and will be deemed to accept, by virtue of
being a Holder or a Beneficial Owner, that, from time to time, it will be required to furnish the
Depositary or the Custodian with such proof, certificates and representations and warranties as
to matters of fact, including without limitation the citizenship and residence of the depositor,
taxpayer status, payment of all applicable taxes or governmental charges, exchange control
approvals, legal or beneficial ownership of GDRs and Deposited Property, compliance with all
applicable laws, the terms of the Deposit Agreement, the Conditions and the provisions of, or
governing, the Deposited Property and the identity and genuineness of any signature on any of
the supporting instruments or other documents, and with such further documents and
information as the Depositary may deem necessary or appropriate for the administration or
implementation of the Deposit Agreement and the Conditions. The Depositary, the Registrar or
the Custodian may withhold acceptance of Shares for deposit, withhold delivery or registration
of issuance or transfer of all or part of any GDR Certificate, withhold adjustment of the Master
GDR Certificate to reflect increases in Shares represented thereby or withhold the distribution or
sale of any dividend or distribution of rights or of the net proceeds of the sale thereof or the
delivery of any Deposited Property, until such proof or other information is filed or such
certifications are executed, or such representations are made or such other documentation or
information is provided in each case to the satisfaction of the Depositary, the Registrar or the
Custodian.
1.7
Notwithstanding anything else contained in the Deposit Agreement or the Conditions, the
Depositary shall not be required to accept for deposit or maintain on deposit with the
Custodian (a) any fractional Shares or fractional Deposited Property, or (b) any number of
Shares or Deposited Property which, upon application of the ratio of GDRs to Shares or
Deposited Property, as the case may be, would give rise to fractional GDRs. No Share shall be
accepted for deposit unless accompanied by evidence, if any is required by the Depositary or the
Custodian, that is reasonably satisfactory to the Depositary or the Custodian that all conditions
for such deposit have been satisfied by the person depositing such Shares under the laws and
regulations of the Slovak Republic and any necessary approval has been granted by any
applicable governmental body in the Slovak Republic (if any), including, without limitation, if
applicable, any regulator of currency exchange.
1.8
Each person depositing Shares under the Deposit Agreement and the Conditions shall be
deemed thereby to represent and warrant that (i) such Shares (and the certificates therefor) are
duly authorised, validly issued, fully paid, non-assessable and legally obtained by such person,
(ii) all pre-emptive (and similar) rights with respect to such Shares have been validly waived or
exercised, (iii) the person making such deposit is duly authorised so to do, (iv) the Shares
presented for deposit are free and clear of any lien, encumbrance, security interest, charge,
mortgage or adverse claim, (v) the Shares presented for deposit have not been stripped of any
rights or entitlements, and (vi) in the case of the Regulation S Deposit Agreement, that the
Shares are not, and the Regulation S GDRs will not be, ‘‘restricted securities’’ (as defined in
Rule 144(a)(3) under the Securities Act). Such representations and warranties shall survive the
deposit and withdrawal of Shares and the issuance and cancellation of GDRs in respect thereof
and the transfer of such GDRs. If any such representations or warranties are false in any way,
the Company and the Depositary shall be authorised, at the cost and expense of the person
depositing Shares, to take any and all actions necessary to correct the consequences thereof.
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Each person depositing Shares, taking delivery of or transferring GDRs or any beneficial
interest therein, or surrendering GDRs or any beneficial interest therein and withdrawing Shares
under the Deposit Agreement and the Conditions shall be deemed thereby to acknowledge that
the GDRs and the Shares represented thereby have not been and will not be registered under
the Securities Act, and may not be offered, sold, pledged or otherwise transferred except in
accordance with the restrictions on transfer set forth in the applicable Securities Act Legend,
and such person shall be deemed thereby to represent and warrant that such deposit, transfer or
surrender or withdrawal complies with the foregoing restrictions. Such representations and
warranties shall survive any such deposit, transfer or surrender and withdrawal of the Shares or
the GDRs or any beneficial interest therein.
2.
2.1
Withdrawal of Deposited Property
Subject to the terms and provisions of the Deposit Agreement, the Conditions the procedures of
the Slovak Central Depository and applicable law, any Holder may request withdrawal of the
Deposited Property attributable to any GDR upon production of such evidence that such
person is the Holder of, and entitled to, the relative GDR as the Depositary may reasonably
require at the principal office of the Depositary accompanied by:
(a)
a duly executed order (in a form approved by the Depositary) requesting the Depositary to
cause the Deposited Property being withdrawn or evidence of the electronic transfer thereof
to be delivered to or upon the order in writing of, the person or persons designated in
such order;
(b)
the payment of such fees, taxes, duties, charges and expenses as may be required under the
Conditions or the Deposit Agreement including, but not limited to the fees of the
Depositary set forth in Clause 10.1 of the Deposit Agreement and Condition 19;
(c)
(x) surrender of a GDR Certificate at the Principal New York Office or Principal London
Office, if DTC, Euroclear or Clearstream book-entry settlement system is not then
available for GDRs, or (y) receipt by the Depositary at the Principal New York Office of
instructions from DTC, Euroclear or Clearstream, or a DTC Participant, Euroclear
Participant or Clearstream Participant or their respective nominees, on behalf of any
Beneficial Owner together with a corresponding credit to the Depositary’s account at DTC,
Euroclear or Clearstream for the GDRs so surrendered, if the book-entry settlement system
is then available for GDRs, in either case for the purpose of withdrawal of the Deposited
Property represented thereby; and
(d)
the delivery to the Depositary of, in the case of Rule 144A GDRs, a duly completed
withdrawal certificate pursuant to the Rule 144A Deposit Agreement.
2.2
Withdrawals of Deposited Shares may be subject to such transfer restrictions or certifications, as
the Company or the Depositary may from time to time determine to be necessary for
compliance with applicable laws.
2.3
Upon production of such documentation and the making of such payment as aforesaid in
accordance with paragraph 2.1 of this Condition 2, the Depositary will direct the Custodian,
within a reasonable time after receiving such direction from such Holder, to deliver at its office,
to, or to the order in writing of, the person(s) designated in the accompanying order:
(a)
a certificate for, or other appropriate instrument of title to, or evidence of book-entry
transfer of, the relevant Deposited Shares, registered in the name of the Depositary or its
nominee and accompanied by such instruments of transfer in blank or to the person or
persons specified in the order for withdrawal and such other documents, if any, as are
required by law for the transfer thereof; and
(b)
all other property forming part of the Deposited Property attributable to such GDR,
accompanied, if required by law, by one or more duly executed endorsements or
instruments of transfer in respect thereof as aforesaid or evidence of the electronic transfer
of such other Deposited Property;
provided that the Depositary:
(i)
may make delivery of (a) any cash dividends or cash distributions or (b) any proceeds
from the sale of any distributions of Shares or rights which are held by the Depositary in
respect of the Deposited Property represented by the GDRs surrendered for cancellation
and withdrawal; and
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(ii)
at the request, risk and expense of any Holder surrendering a GDR for cancellation and
withdrawal, will direct the Custodian to forward any cash or other property (other than
securities) held by the Custodian in respect of the Deposited Property represented by such
GDRs to the Depositary,
in each case at the principal office from time to time of the Depositary located in New York or
London (if permitted by applicable law from time to time).
2.4
Delivery by the Depositary and the Custodian of all certificates, instruments, dividends or other
property forming part of the Deposited Property as specified in this Condition will be made
subject to any laws or regulations applicable thereto.
2.5
If any GDR surrendered and cancelled represents fractional entitlements in Deposited Property,
the Depositary shall cause the appropriate whole number of Deposited Property to be
withdrawn and delivered in accordance with the terms of the Deposit Agreement and this
Condition 2 and shall, at the discretion of the Depositary, either (i) issue and deliver to the
person surrendering such GDR a new GDR representing any remaining fractional Share, or (ii)
sell or cause to be sold the fractional Share represented by the GDR surrendered and remit
proceeds of such sale (net of (a) fees and charges of, and expenses incurred by, the Depositary,
and (b) taxes withheld) to the person surrendering the GDR.
2.6
Notwithstanding anything to the contrary in the Deposit Agreement or the Conditions, the
Depositary shall not knowingly accept any Rule 144A GDRs for cancellation and withdrawal of
the Deposited Property represented thereby if the recipient thereof has instructed the deposit of
such Deposited Property into any unrestricted depositary receipt facility, unless the Depositary
shall have received an opinion of counsel reasonably satisfactory to it stating that the Deposited
Property so withdrawn are not at such time ‘‘restricted securities’’ within the meaning of Rule
144(a)(3) under the Securities Act.
3.
Suspension of Issue of GDRs and of Withdrawal of Deposited Property
The issuance and delivery of GDRs against deposits of Shares generally or deposits of particular
Shares may be suspended or withheld, or the registration of transfer of GDR Certificates in
particular instances may be refused, or the registration of transfers generally may be suspended
or refused, during any period when the transfer books of the Depositary, the Company, a
registrar of GDRs or any registrar of Shares are closed, or if any such action is deemed
necessary or advisable by the Company or the Depositary in good faith, at any time or from
time to time because of any requirement of law, any government or governmental body or
commission or any securities exchange on which the GDRs or Shares are listed, an applicable
court order, or under any provision of the Deposit Agreement, the Conditions, or the provisions
of or governing the Deposited Property, or any meeting of shareholders of the Company or for
any other reason. The Depositary may restrict the transfer of Deposited Shares where the
Company notifies the Depositary in writing that such transfer would result in ownership of
Shares exceeding any limit under any applicable law, government resolution or the Articles of
Association or would otherwise violate any applicable laws.
The Depositary will refuse to accept Shares for deposit under the Rule 144A Deposit
Agreement, if it has been notified by the Company in writing that the Deposited Shares or any
depositary receipts corresponding to Shares are listed on a U.S. national securities exchange or
quoted on a U.S. automated inter-dealer quotation system unless accompanied by evidence
satisfactory to the Depositary that any such Shares are eligible for resale pursuant to Rule 144A
under the Securities Act.
Notwithstanding any provision of the Deposit Agreement, the Conditions or any GDR
Certificate to the contrary, Holders and Beneficial Owners are entitled to surrender outstanding
GDRs to withdraw the Deposited Shares at any time subject only to (i) temporary delays
caused by closing the transfer books of the Depositary or the Company or the deposit of Shares
in connection with voting at a shareholders’ meeting or the payment of dividends, (ii) the
payment of fees, taxes and similar charges, (iii) compliance with any laws or governmental
regulations or an applicable court order relating to the GDRs or to the withdrawal of the
Deposited Shares.
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4.
4.1
Transfer and Ownership
GDRs are to be issued in registered form. Title to the GDRs passes upon registration in the
records of the Depositary. The Depositary will refuse to accept for transfer any GDRs if it
reasonably believes that such transfer would result in a violation of applicable laws. The Holder
of any GDR will (except as otherwise required by law) be treated as its absolute owner for all
purposes (whether or not any payment or other distribution in respect of such GDR is overdue
and regardless of any notice of ownership, trust or any interest in it or any writing on, or the
theft or loss of, any certificate issued in respect of it) and no person will be liable for so
treating the Holder.
The Depositary will maintain Holder records, including a register of Holders, at its principal
office in New York.
Interests in the Rule 144A GDRs may be transferred to a person whose interest in such GDRs
is subsequently represented by the Master Regulation S GDR Certificate only upon receipt by
the Depositary of written certifications and agreements, as required under the Regulation S
Deposit Agreement and the Rule 144A Deposit Agreement.
Interests in the Regulation S GDRs may be transferred to a person whose interest in such
GDRs is subsequently represented by the Master Rule 144A GDR Certificate only upon receipt
by the Depositary of written certifications and agreements, as required under the Rule 144A
Deposit Agreement.
Any interest in GDRs represented by one of the Master GDR Certificates that is transferred to
a person whose interest in such GDRs is subsequently represented by the other Master GDR
Certificate, will, upon transfer, cease to be an interest in the GDRs represented by such first
Master GDR Certificate and, accordingly, will be subject to all transfer restrictions and other
procedures applicable to interests in GDRs represented by such other Master GDR Certificate
for so long as it remains such an interest.
For a description of the restrictions on the transfer of the GDRs see ‘‘Transfer Restrictions’’.
4.2
Notwithstanding any other provision of the Deposit Agreement or the Conditions, each Holder
and Beneficial Owner, by virtue of their ownership of any GDR or any Deposited Property,
shall be deemed thereby to agree to comply with requests from the Company or the Depositary
pursuant to Slovak Republic law and any other stock exchange on which the Shares are, or
may be registered, traded or listed, or the Articles of Association, which are made to provide
information, inter alia, as to the capacity in which such Holder or former Holder, Beneficial
Owner or former Beneficial Owner holds or held, owns or owned a beneficial ownership interest
in GDRs (and Deposited Property, as the case may be) and regarding the identity of any other
person interested in such GDRs (and Deposited Property), the nature of such interest and
various related matters, whether or not they are Holders and/or Beneficial Owners at the time of
such request.
4.3
Applicable laws and regulations may require holders and beneficial owners of Shares, including
the Holders and Beneficial Owners of GDRs, to satisfy reporting requirements or obtain
regulatory approvals in certain circumstances. Holders and Beneficial Owners of GDRs are
solely responsible for complying with such reporting requirements and obtaining such approvals.
By virtue of their ownership of any GDR or any Deposited Property, each Holder and
Beneficial Owner shall be deemed thereby to agree to file such reports and obtain such
approvals to the extent and in the form required by applicable laws and regulations as in effect
from time to time. None of the Depositary, the Custodian, the Company or any of their
respective agents or affiliates shall be required to take any actions whatsoever on behalf of
Holders or Beneficial Owners to satisfy such reporting requirements or obtain such regulatory
approvals under applicable laws and regulations.
5.
Cash Distributions
Whenever the Depositary receives from the Company any cash dividend or other cash
distribution on or in respect of the Deposited Shares or receipt of proceeds from the sale of any
Shares, rights, securities or other entitlements under the terms of the Deposit Agreement or the
Conditions, the Depositary shall, if at the time of receipt thereof any amounts received in
Foreign Currency can in the judgment of the Depositary (pursuant to Condition 11) be
converted on a practicable basis into Dollars transferable to the U.S., promptly convert, or
cause to be converted, such dividends, distribution or proceeds into Dollars in the terms
204
described in Condition 11 and will promptly distribute the amount thus received (net of (a)
applicable fees and charges of, and expenses incurred by, the Depositary and (b) taxes withheld)
to the Holders entitled thereto. The Depositary shall distribute only such amount, however, as
can be distributed without attributing to any Holder a fraction of one cent, and any balance not
so distributable shall be held by the Depositary (without liability for interest thereon) and shall
be added to and become part of the next sum received by the Depositary for distribution to
Holders of GDRs then outstanding at the time of the next distribution. If the Company, the
Custodian or the Depositary is required to withhold and does withhold from any cash dividend
or other cash distribution in respect of any Deposited Property an amount on account of taxes,
duties or other governmental charges, the amount distributed to Holders in respect of the GDRs
representing such Deposited Property shall be reduced accordingly. Such withheld amounts shall
be forwarded by the Company, the Custodian or the Depositary to the relevant governmental
authority. Evidence of payment thereof by the Company shall be forwarded by the Company to
the Depositary upon request.
6.
Distributions of Shares
If any distribution upon any Deposited Property consists of a dividend in, or free distribution
of, Shares, the Company shall cause such Shares to be deposited with the Custodian and, if
applicable, registered in the name of the Depositary, the Custodian or any of their nominees, as
the case may be. Upon receipt of confirmation of such deposit from the Custodian, the
Depositary shall establish the GDR Record Date upon the terms described in Condition 10 and
shall, subject to the terms of the Deposit Agreement and the Conditions, either (i) distribute to
the Holders as of the GDR Record Date in proportion to the number of GDRs held as of the
GDR Record Date, additional GDRs, which represent the aggregate number of Shares received
as such dividend or free distribution, subject to the other terms of the Deposit Agreement and
Conditions and net of (a) the applicable fees and charges of, and expenses incurred by, the
Depositary and (b) taxes, by either (x) if GDRs are not available in book-entry form, issuing
additional GDR Certificates for an aggregate number of GDRs representing the number of
Shares received as such dividend or free distribution, or (y) if GDRs are available in book-entry
form, reflecting on the records of the Depositary such increase in the aggregate number of
GDRs representing such Shares and give notice to the Common Depositary of the related
increase in the number of GDRs evidenced by the Master GDR Certificate, or (ii) if additional
GDRs are not so distributed, each GDR issued and outstanding after the GDR Record Date
shall, to the extent permissible by law, thenceforth also represent rights and interests in the
additional Shares distributed upon the Deposited Property represented thereby, net of (a) the
applicable fees and charges of, and expenses incurred by, the Depositary and (b) taxes. In lieu
of delivering fractional GDRs, the Depositary shall sell the number of Shares represented by the
aggregate of such fractions and distribute the net proceeds of such sale upon the terms described
in Condition 5. In the event that the Depositary determines that any distribution in Shares
would violate applicable law, is not operationally practicable, is subject to any tax or other
governmental charges which the Depositary is obligated to withhold, or if the Company, in the
fulfillment of its obligations under Clause 7.1.4 of the Deposit Agreement, has furnished an
opinion of U.S. counsel determining that the distribution to Holders of the Shares and the
GDRs representing such Shares must be registered under the Securities Act or other laws in
order to be distributed to Holders (and no such registration statement has been declared
effective), the Depositary may dispose of all or a portion of such Shares in such amounts and in
such manner, including by public or private sale, as the Depositary deems necessary and
practicable, and the Depositary shall distribute the net proceeds of any such sale, after
deduction of (a) taxes and (b) fees and charges of, and expenses incurred by, the Depositary, to
Holders entitled thereto upon the terms described in Condition 5. The Depositary shall hold
and/or distribute any unsold balance of such property in accordance with the provisions of the
Deposit Agreement and the Conditions.
7.
Distributions Other than Cash or Shares
Whenever the Depositary receives from the Company property other than cash, Shares or rights
to purchase additional Shares and receives a notice from the Company indicating that the
Company wishes such distribution to be made available to Holders of GDRs, upon receipt of
satisfactory documentation within the terms of Clause 7.1.4 of the Deposit Agreement and after
making the requisite determinations set forth in Clause 5.1 of the Deposit Agreement, the
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Depositary shall distribute the property so received to the Holders of record as of the GDR
Record Date set in accordance with Condition 10, in proportion to the number of GDRs held
by them respectively and in such manner as the Depositary may deem reasonably practicable for
accomplishing such distribution (i) upon receipt of payment or net of the applicable fees and
charges of, and expenses incurred by, the Depositary, and (ii) net of any taxes withheld. The
Depositary may dispose of all or a portion of the property so distributed and deposited, in such
amounts and in such manner (including public or private sale) as the Depositary may deem
reasonably practicable or necessary to satisfy any taxes (including applicable interest and
penalties) or other governmental charges applicable to the distribution. If (i) the Company does
not request the Depositary to make such distribution to Holders or requests not to make such
distribution to Holders, (ii) the Depositary does not receive documentation within the terms of
Clause 7.1.4 of the Deposit Agreement, or (iii) the Depositary determines (in accordance with
Clause 5.1 of the Deposit Agreement) that all or a portion of such distribution is not lawful or
is not reasonably practicable, the Depositary shall sell or cause such property to be sold in a
public or private sale, at such place or places and upon such terms as it may deem practicable
and shall (x) cause the proceeds of such sale, if any, to be converted into Dollars in accordance
with Condition 11, and (y) distribute the proceeds of such conversion received by the Depositary
(net of (a) applicable fees and charges of, and expenses incurred by, the Depositary and (b)
taxes) to the Holders as of the GDR Record Date upon the terms of Condition 5. If the
Depositary is unable to sell such property, the Depositary may dispose of such property in any
way it deems reasonably practicable under the circumstances.
8.
8.1
Rights Issues
Whenever the Company intends to distribute to the holders of the Deposited Property rights to
subscribe for additional Shares, and provides a notice to the Depositary indicating that the
Company wishes such rights to be made available to Holders of GDRs, upon receipt of
satisfactory documentation within the terms of Clause 7.1.4 of the Deposit Agreement and after
making the requisite determinations set forth in Clause 5.1 of the Deposit Agreement, the
Depositary shall (x) establish a GDR Record Date (upon the terms described in Condition 10),
(y) establish procedures to distribute such rights (by means of warrants or otherwise) and/or to
enable the Holders to exercise the rights (upon payment of (a) the applicable fees and charges
of, and expenses incurred by, the Depositary and (b) taxes), and (z) issue and deliver GDRs
upon the valid exercise of such rights. The Company shall assist the Depositary to the extent
necessary in establishing such procedures. As soon as reasonably practicable upon receipt of
notice from the Company indicating that the Company wishes such rights to be made available
to Holders of GDRs, the Depositary shall give notice to the Holders, in accordance with
Condition 25, of such offer or invitation of rights, specifying, if applicable, the earliest date for
acceptance thereof, the last date established for acceptance thereof and the manner by which
and time during which Holders may request the Depositary to exercise such rights or, if such be
the case, specifying details on how the Depositary proposes to distribute such rights or the
proceeds of any sale thereof.
Nothing herein shall obligate the Depositary to make available to the Holders a method to
exercise such rights to subscribe for Shares (rather than for GDRs).
8.2
In the event that (i) the Depositary fails to receive satisfactory documentation within the terms
of Clause 7.1.4 of the Deposit Agreement or determines that it is not lawful or not reasonably
practicable to make the rights available to Holders or (ii) the Company requests that the rights
not be made available to Holders of GDRs or (iii) any rights made available are not exercised
and appear to be about to lapse, the Depositary shall determine whether it is lawful and
reasonably practicable to sell such rights, in a riskless principal capacity, at such place and upon
such terms (including public and private sale) as it may deem practicable. The Company shall
provide reasonable assistance to the Depositary to the extent necessary to determine such
legality and practicability. If the Depositary sells such rights, the Depositary shall, upon such
sale, (x) cause the proceeds of such sale, if any, to be converted into Dollars upon the terms
described in Condition 11, and (y) distribute the proceeds of such sale (net of (a) applicable fees
and charges of, and expenses incurred by, the Depositary and (b) taxes) upon the terms set
forth in Condition 5.
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If the Depositary is unable to make any rights available to Holders upon the terms described in
the Deposit Agreement or to arrange for the sale of the rights upon the terms described above,
the Depositary shall allow such rights to lapse.
The Depositary shall not be responsible for (i) any failure to determine that it may be lawful or
practicable to make such rights available to Holders in general or any Holder in particular, (ii)
any foreign exchange exposure or loss incurred in connection with any sale or exercise, or (iii)
the content of any materials forwarded to the Holders on behalf of the Company in connection
with the rights distribution.
8.3
Notwithstanding anything to the contrary in the Deposit Agreement or this Condition 8, if
registration (under the Securities Act or any other applicable law) of the rights or the securities
to which any rights relate may be required in order for the Company to offer such rights or
such securities to Holders and to sell the securities represented by such rights, the Depositary
will not distribute such rights to the Holders unless and until a registration statement under the
Securities Act covering such offering is in effect. In the event that the Company, the Depositary
or the Custodian shall be required to withhold and does withhold from any distribution of
rights an amount on account of taxes or other governmental charges, the amount distributed to
the Holders of GDRs representing such Deposited Property shall be reduced accordingly. In the
event that the Depositary determines that any distribution of Deposited Property or rights to
subscribe therefor is subject to any tax or other governmental charges which the Depositary is
obligated to withhold, the Depositary may dispose of all or a portion of such Deposited
Property or rights to subscribe therefor in such amounts and in such manner, including by
public or private sale, as the Depositary deems necessary and practicable to pay any such taxes
or charges. There can be no assurance that Holders generally, or any Holder in particular, will
be given the opportunity to exercise such rights on the same terms and conditions as the holders
of Deposited Property or to exercise such rights. Nothing in the Deposit Agreement or this
Condition 8 shall obligate the Company to file any registration statement in respect of any
rights or Deposited Property or other securities to be acquired upon the exercise of such rights.
9.
Redemption
If the Company intends to exercise any right of redemption in respect of any of the Deposited
Property, upon receipt of satisfactory documentation within the terms of Clause 7.1.4 of the
Deposit Agreement and after making the requisite determinations set forth in Clause 5.2 of the
Deposit Agreement, the Depositary shall send to each Holder a notice in accordance with
Condition 25 setting forth the intended exercise by the Company of the redemption rights and
any other particulars set forth in the Company’s notice to the Depositary. The Depositary shall
instruct the Custodian to present to the Company the Deposited Property in respect of which
redemption rights are being exercised against payment of the applicable redemption price. Upon
receipt of confirmation from the Custodian that the redemption has taken place and that funds
representing the redemption price have been received, the Depositary shall convert, transfer, and
distribute the proceeds (net of applicable (a) fees and charges of, and the expenses incurred by,
the Depositary, and (b) taxes), retire GDRs and cancel GDRs upon delivery of such GDRs by
Holders thereof and on the terms set forth in the applicable Conditions. If less than all
outstanding Deposited Property is redeemed, the GDRs to be retired will be selected by lot or
on a pro rata basis, as may be determined by the Depositary. The redemption price per GDR
shall be the per share amount received by the Depositary upon the redemption of the Deposited
Property represented by GDRs (subject to the terms of the Deposit Agreement and the
applicable fees and charges of, and expenses incurred by, the Depositary, and taxes) multiplied
by the number of Deposited Property represented by each GDR redeemed.
10.
GDR Record Dates
Whenever the Depositary shall receive notice of the fixing of a record date by the Company for
the determination of holders of Deposited Property entitled to receive any distribution (whether
in cash, Shares, rights or other distribution), or whenever, for any reason, the Depositary causes
a change in the number of Deposited Property that are represented by each GDR, or whenever
the Depositary shall receive notice of any meeting of, or solicitation of consents or proxies of,
holders of Shares or other Deposited Property, or whenever the Depositary finds it necessary or
convenient in connection with the giving of any notice, solicitation of any consent or any other
matter, the Depositary shall fix a record date (the GDR Record Date) for the determination of
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the Holders of GDRs who shall be entitled to receive such dividend or distribution, to give
instructions for the exercise of voting rights at any such meeting, or to give or withhold such
consent, or to receive such notice or solicitation or to otherwise take action, or to exercise the
rights of Holders with respect to such changed number of Deposited Property represented by
each GDR. The Depositary shall make reasonable efforts to establish the GDR Record Date as
closely as possible to the applicable record date for the Deposited Property (if any) set by the
Company in the Slovak Republic. Subject to applicable law and the provisions of the Deposit
Agreement and Conditions, only the Holders of GDRs at the close of business in New York on
such GDR Record Date shall be entitled to receive such distribution, to give such voting
instructions, to receive such notice or solicitation, or otherwise take action.
11.
Conversion of Foreign Currency
Whenever the Depositary or the Custodian shall receive any Foreign Currency by way of
dividend or other distribution or as the net proceeds from the sale of securities, other property
or rights, and if at the time of the receipt thereof the Foreign Currency so received can in the
judgement of the Depositary be converted on a practicable basis into Dollars transferable to the
U.S. and distributed to the Holders entitled thereto, the Depositary shall convert or cause to be
converted by sale or in any other manner that it may determine, the Foreign Currency so
received into Dollars and shall distribute such Dollars (net of applicable fees, any reasonable
and customary expenses incurred on behalf of Holders in complying with currency exchange
control or other governmental requirements) in accordance with the terms of the applicable
Conditions. If the Depositary shall have distributed warrants or other instruments that entitle
the holders thereof to such Dollars, the Depositary shall distribute such Dollars to the holders
of such warrants and/or instruments upon surrender thereof for cancellation, in either case
without liability for interest thereon. Such distribution shall be made upon an averaged or other
practicable basis without regard to any distinctions among Holders on account of any
application of exchange restrictions or otherwise. If such conversion or distribution generally or
with regard to a particular Holder can be effected only with the approval or licence of any
government or agency thereof, the Depositary shall have the authority, with the assistance of the
Company, to file such application, for such approval or licence, if any, as it may consider
desirable. In no event, however, shall the Depositary be obligated to make such a filing. If at
any time the Depositary shall determine that in its judgement the conversion of any currency
other than Dollars and the transfer and distribution of proceeds of such conversion received by
the Depositary is not practicable or lawful, or if any approval or licence of any government or
agency thereof which is required for such conversion, transfer or distribution is denied or, in the
opinion of the Depositary, is not obtainable at a reasonable cost, or if any such approval or
licence is not obtained within a reasonable period as determined by the Depositary, the
Depositary may in its discretion (i) make such conversion and distribution in Dollars to the
Holders for whom such conversion, transfer and distribution is lawful and practicable, (ii)
distribute the Foreign Currency (or an appropriate document evidencing the right to receive
such Foreign Currency) to Holders for whom this is lawful and practicable, and (iii) hold (or
cause the Custodian to hold) such Foreign Currency (without liability for interest thereon) for
the respective accounts of the Holders entitled to receive the same.
12.
Distribution of any Payments
Any distribution of cash under Condition 5, 6, 7, 8, 9, 13 or 14 will be made by the Depositary
to those Holders who are Holders of record on the GDR Record Date established by the
Depositary in accordance with Condition 10 for that purpose and, distributions will be made in
Dollars subject to Condition 11 by cheque drawn upon a bank in New York City or, in the
case of the relevant Master GDR Certificate, according to usual practice between the Depositary
and DTC, Clearstream, and Euroclear, as the case may be. The Depositary may deduct and
retain from all moneys due in respect of such GDR in accordance with the Deposit Agreement
all fees, taxes, duties, charges, costs and expenses which may become or have become payable
under the Deposit Agreement or under applicable law in respect of such GDR or the relative
Deposited Property.
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13.
Capital Reorganisation
Upon any change in nominal or par value, split-up, cancellation, consolidation or any other
reclassification of Deposited Property, or upon any recapitalisation, reorganisation, merger or
consolidation or sale of assets affecting the Company or to which it is a party, any securities
which shall be received by the Depositary or the Custodian in exchange for, or in conversion,
replacement or otherwise in respect of, such Deposited Property shall, to the extent permitted by
law, be treated as new Deposited Property under the Deposit Agreement and the Conditions,
and the GDRs shall, subject to the terms of the Deposit Agreement, the Conditions and
applicable law, evidence GDRs representing the right to receive such replacement securities. The
Depositary may, with the Company’s approval, and shall, if the Company shall so request,
subject to the terms of the Deposit Agreement and the Conditions, and subject to the receipt by
the Depositary of an opinion of counsel reasonably satisfactory to the Depositary (obtained at
the expense of the Company) that such distributions are not in violation of any applicable laws
or regulations, execute and deliver additional GDRs or make appropriate adjustments in its
records, as in the case of a stock dividend on the Shares, or call for the surrender of
outstanding GDRs to be exchanged for new GDRs, in either case, as well as in the event of
newly deposited Shares, with necessary modifications to the form of GDR attached to the
Deposit Agreement specifically describing such new Deposited Property or corporate change.
Notwithstanding the foregoing, in the event that any security so received may not be lawfully
distributed to some or all Holders, the Depositary may, with the Company’s approval, and shall
if the Company requests, subject to the receipt by the Depositary of an opinion of counsel
reasonably satisfactory to the Depositary (obtained at the expense of the Company) that such
action is not in violation of any applicable laws or regulations, sell such securities at public or
private sale, at such place or places and upon such terms as it may deem proper, and may
allocate the net proceeds of such sales (net of (a) applicable fees and charges of, and expenses
incurred by, the Depositary, and (b) taxes) for the account of the Holders otherwise entitled to
such securities upon an averaged or other practicable basis without regard to any distinctions
among such Holders and distribute the net proceeds so allocated to the extent practicable as in
the case of a distribution received in cash pursuant to Condition 5. The Depositary shall not be
responsible for (i) any failure to determine that it is lawful or practicable to make such
securities available to Holders in general or to any Holder in particular, (ii) any foreign
exchange exposure or loss incurred in connection with such sale, or (iii) any liability to the
purchaser of such securities.
14.
Elective Distributions
Wherever the Company intends to distribute a dividend payable at the election of the holders of
Shares in cash or in additional Shares and provides a notice to the Depositary indicating that
the Company wishes such elective distribution to be made available to Holders of GDRs, upon
receipt of satisfactory documentation within the terms of Clause 7.1.4 of the Deposit Agreement
and after making the requisite determinations set forth in Clause 5.1 of the Deposit Agreement,
the Depositary shall make such elective distribution available to Holders. If the Depositary fails
to receive satisfactory documentation within the terms of Clause 7.1.4 of the Deposit Agreement
or determines that it is not lawful or not reasonably practicable to make the elective distribution
available to Holders of GDRs, or if the Company requests that such elective distribution not be
made available to Holders of GDRs, the Depositary shall, to the extent permitted by law,
distribute to the Holders, on the basis of the same determination as is made in the Slovak
Republic in respect of the Shares for which no election is made, either (X) cash upon the terms
described in Condition 5, or (Y) additional GDRs representing such additional Shares upon the
terms described in Condition 6. If the above conditions are satisfied, the Depositary shall
establish a GDR Record Date in accordance with Condition 10 and establish procedures to
enable Holders to elect the receipt of the proposed dividend in cash or in additional GDRs. The
Company shall assist the Depositary in establishing such procedures to the extent necessary. If a
Holder elects to receive the proposed dividend (X) in cash, the dividend shall be distributed
upon the terms described in Condition 5, or (Y) in GDRs, the dividend shall be distributed
upon the terms described in Condition 6. Nothing in the Deposit Agreement or this Condition
14 shall obligate the Depositary to make available to Holders a method to receive the elective
dividend in Shares (rather than GDRs). There can be no assurance that Holders and Beneficial
Owners generally, or any Holder or Beneficial Owner in particular, will be given the opportunity
to receive elective distributions on the same terms and conditions as the holders of the
Deposited Property.
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15. Taxation and Applicable Laws
15.1 Payments to Holders of dividends or other distributions made to Holders on or in respect of the
Deposited Property will be subject to deduction of Slovak Republic and other withholding taxes,
if any, at the applicable rates, and notwithstanding any other provision of the Deposit
Agreement or the Conditions, the Depositary and the Custodian will be entitled, subject to
applicable law, to deduct from any cash dividend or other cash distribution which either of
them receives from the Company such amount as is necessary in order to provide for any tax,
charge, fee or other amount that is, or could become, payable by or on behalf of the
Depositary to fiscal or other governmental authority on account of receiving such cash dividend
or other cash distribution.
The Holder or Beneficial Owner of any GDR or any Deposited Property shall be deemed
thereby to accept (by virtue of his ownership or deposit, as the case may be) that, in the event
that any tax or other governmental charge shall become payable with respect to any GDR,
Deposited Property or GDR Certificate, such tax or other governmental charge shall be payable
by the Holder and Beneficial Owner to the Depositary. The Custodian may refuse the deposit of
Shares and the Depositary may refuse to issue or deliver GDRs, to register the transfer, split-up
or combination of GDR Certificates and the withdrawal of Deposited Property until payment in
full of such tax, charge, penalty or interest is received. The Depositary may, for the account of
the Holder or Beneficial Owner, discharge the same out of the proceeds of sale, subject to
Slovak Republic law and regulations, of an appropriate number of Deposited Shares or other
Deposited Property with the Holder and Beneficial Owner remaining liable for any deficiency
and being entitled to distribution of any surplus. Any such request shall be made by giving
notice pursuant to Condition 25.
By virtue of its ownership of any GDR or Deposited Property, each Holder and Beneficial
Owner shall be deemed to agree to indemnify the Depositary, the Company, the Custodian, and
any of their agents, officers, employees and Affiliates for, and to hold each of them harmless
from, any claims with respect to taxes (including applicable interest and penalties thereon)
arising from any tax benefit obtained for such Holder or Beneficial Owner.
15.2 If any governmental or administrative authorisation, consent, registration or permit or any
report to any governmental or administrative authority is required under any applicable law in
the Slovak Republic in order for the Depositary to receive from the Company Shares to be
deposited under the Conditions or in order for Shares, other securities or other property to be
distributed under Condition 5, 6, 7, 13 or 14 or to be subscribed under Condition 8, the
Depositary shall request that the Company apply for such authorisation, consent, registration or
permit or file such report on behalf of the Holders within the time required under such law. In
this connection, the Company has undertaken in the Deposit Agreement, to take such action as
may be required in obtaining or filing the same, to the extent reasonably practicable. The
Depositary shall not distribute GDRs, Shares, other securities or other property with respect to
which such authorisation, consent or permit or such report has not been obtained or filed, as
the case may be, and shall have no duties to obtain any such authorisation, consent or permit
or to file any such report.
16. Voting Rights
16.1 Holders of GDRs will have voting rights with respect to the Deposited Shares. The Company
has agreed to notify the Depositary of any meeting of holders of Shares of the Company at
which holders of Shares or other Deposited Property are entitled to vote, or of solicitation of
consents or proxies from holders of Shares or other Deposited Property and the Depositary will
vote or cause to be voted the Deposited Shares in the manner set out in this Condition 16.
As soon as practicable after receipt from the Company of any such notice, the Depositary will
fix the GDR Record Date in respect of such meeting or solicitation of consent or proxy in
accordance with Condition 10. The Depositary shall, if requested by the Company in writing in
a timely manner in accordance with Clause 5.3 of the Deposit Agreement and at the Company’s
expense and provided no U.S., English or Slovak Republic legal prohibitions exist, distribute to
Holders as of the GDR Record Date: (a) such notice of meeting or solicitation of consent or
proxy, (b) a statement that the Holders at the close of business in New York on the GDR
Record Date will be entitled, subject to any applicable law, the provisions of the Deposit
Agreement, the Conditions, the Articles of Association and the provisions of or governing the
Deposited Property (which provisions, if any, shall be summarised in pertinent part by the
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Company), to instruct the Depositary as to the exercise of the voting rights, if any, pertaining
to the Shares or other Deposited Property represented by such Holder’s GDRs, and (c) a brief
statement as to the manner in which such voting instructions may be given.
16.2 Voting instructions may be given to the Depositary only in respect of a number of GDRs
representing an integral number of Shares or other Deposited Property. Subject to applicable
law, the provisions of the Deposit Agreement, the Conditions, the Articles of Association and
the provisions of the Deposited Property, if the Depositary has received voting instructions from
a Holders as of the GDR Record Date to vote the Deposited Property on or before the date
specified by the Depositary, the Depositary shall endeavour, in so far as is practicable and
permitted by Slovak Republic law and practice, to vote or cause the Custodian to vote Shares
and/or other Deposited Property represented by GDRs for which timely and valid voting
instructions have been received from GDR Holders in the manner so instructed by such
Holders.
16.3 Neither the Depositary nor the Custodian shall, under any circumstances exercise any discretion
as to voting and neither the Depositary nor the Custodian shall vote, attempt to exercise the
right to vote, or in any way make use of the Shares or other Deposited Property represented by
GDRs except pursuant to and in accordance with such instructions from Holders. If the
Depositary timely receives voting instructions from a Holder which fail to specify the manner in
which the Depositary is to vote the Deposited Property represented by such Holder’s GDRs, the
Depositary will deem such Holder (unless otherwise specified in the notice distributed to
Holders) to have instructed the Depositary to vote in favor of the items set forth in such voting
instructions. Notwithstanding anything else contained herein, the Depositary shall, if so
requested in writing by the Company, represent all Deposited Property (whether or not voting
instructions have been received in respect of such Deposited Property from Holders as of the
GDR Record Date) for the sole purpose of establishing quorum at a meeting of shareholders.
16.4 There can be no assurance that Holders generally or any Holder in particular will receive the
notice described above with sufficient time to enable the Holder to return voting instructions to
the Depositary in a timely manner.
By continuing to hold GDRs, all Holders and Beneficial Owners shall be deemed to have agreed
to the provisions of this Condition 16 as it may be amended from time to time in order to
comply with applicable Slovak Republic law.
A valid corporate decision of the Company will bind the Depositary (as registered owner of the
Shares) and the Holders and Beneficial Owners of GDRs shall be deemed to agree to being
bound by such a corporate decision of the Company.
16.5 Notwithstanding anything else contained in the Deposit Agreement or the Conditions, the
Depositary shall not have any obligation to take any action with respect to any meeting, or
solicitation of consents or proxies, of holders of Deposited Property if the taking of such action
would violate U.S., English or Slovak Republic laws. The Company agrees that it shall not,
except to the extent necessary to comply with applicable law, establish internal procedures that
would that would prevent the Depositary from complying with, or that are inconsistent with,
the provisions of this Condition 16 and, if so requested by the Depositary, agrees to deliver to
the Depositary an opinion of counsel reasonably satisfactory to the Depositary (obtained at the
expense of the Company) addressing any actions to be taken by the Depositary with respect to
the exercise of voting rights under this Condition 16.
17. Liability
17.1 Neither the Depositary nor the Company shall be obligated to do or perform any act which is
inconsistent with the provisions of the Deposit Agreement or the Conditions or shall incur any
liability (i) if the Depositary or the Company shall be prevented or forbidden from, or delayed
in, doing any act or thing required by the terms of the Deposit Agreement or the Conditions,
by reason of any provision of any present or future law or regulation of the U.S., England, the
Slovak Republic or any other country, or of any relevant governmental or regulatory authority
or stock exchange, or by reason of the interpretation or application of any such present or
future law or regulation or any change therein, or on account of the possible criminal or civil
penalties or restraint, or by reason of any provision, present or future, of the Articles of
Association or any provision of or governing any Deposited Property or by reason of any other
circumstances beyond their control (including, without limitation, acts of God or war,
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nationalisation, expropriation, currency restrictions, work stoppage, strikes, civil unrest, acts of
terrorism, revolutions, rebellions, explosions and computer failure), (ii) by reason of any exercise
of, or failure to exercise, any discretion provided for in the Deposit Agreement, the Conditions
or in the Articles of Association or provisions of or governing Deposited Property, (iii) for any
action or inaction in reliance upon the advice or information from legal counsel, accountants,
any person presenting Shares for deposit, any Holder, any Beneficial Owner or authorised
representative thereof, or any other person believed by it in good faith to be competent to give
such advice or information, but only insofar as the terms of this subsection (iii) are not
prohibited by applicable law, (iv) for the inability by a Holder or Beneficial Owner to benefit
from any distribution, offering, right or other benefit which is made available to holders of
Shares but is not, under the terms of the Deposit Agreement or the Conditions, made available
to Holders of GDRs or (v) for any consequential or punitive damages for any breach of the
terms of the Deposit Agreement or the Conditions
17.2 In acting hereunder the Depositary shall have only those duties, obligations and responsibilities
expressly specified in the Deposit Agreement and these Conditions and, other than holding the
Deposited Property for the benefit of Holders as bare trustee, does not assume any relationship
of trust for or with the Holders or the Beneficial Owners.
17.3 The Depositary, its controlling persons, its agents, any Custodian and the Company, its
controlling persons and its agents may rely on, and shall be protected in acting upon, any
written notice, request, direction or other document believed by it to be genuine and to have
been duly signed or presented by the proper party or parties (including a translation which is
made by a translator believed by it to be competent or which appears to be authentic).
17.4 No disclaimer of liability under the Securities Act is intended by any provision of the Deposit
Agreement or the Conditions.
17.5 Without limitation of the foregoing, neither the Depositary, nor the Company, nor any of their
respective controlling persons or agents, shall be under any obligation to appear in, prosecute or
defend any action, suit or other proceeding in respect of any Deposited Property or in respect
of the GDRs, which in its opinion may involve it in expense or liability, unless indemnity
satisfactory to it against all expense (including fees and disbursements of counsel) and liability
be furnished as often as may be required (and no Custodian shall be under any obligation
whatsoever with respect to such proceedings, the responsibility of the Custodian being solely to
the Depositary).
17.6 The Depositary has no obligation under the Deposit Agreement to take steps to monitor,
supervise or enforce the observance and performance by the Company of its obligations under
the Deposit Agreement or the Conditions.
17.7 Neither the Depositary, the Custodian nor any of their agents, officers, directors or employees
shall be liable (except by reason of its own negligence, wilful default or bad faith or that of its
agents, officers, directors or employees) to the Company or any Holder or owner of a GDR, by
reason of having accepted as valid or not having rejected any certificate for Shares or GDRs
purporting to be such and subsequently found to be forged or not authentic.
17.8 The Depositary and each of its agents (and any holding, subsidiary or associated company of
the Depositary) may engage or be interested in any financial or other business transactions with
the Company or any of its subsidiaries or affiliates or in relation to the Deposited Property
(including, without prejudice to the generality of the foregoing, the conversion of any part of
the Deposited Property from one currency to another), may at any time hold GDRs for its own
account, and shall be entitled to charge and be paid all usual fees, commissions and other
charges for business transacted and acts done by it as a bank or in any other capacity, and not
in the capacity of Depositary, in relation to matters arising under the Deposit Agreement
(including, without prejudice to the generality of the foregoing, charges on the conversion of any
part of the Deposited Property from one currency to another and any sales of property) without
accounting to Holders or any other person for any profit arising therefrom.
17.9 The Depositary shall endeavour to effect any such sale as is referred to or contemplated in
Conditions 6, 7, 8, 13 or 14 or any such conversion as is referred to in Condition 8 in
accordance with the Depositary’s normal practices and procedures, but shall have no liability (in
the absence of its own negligence, wilful default or bad faith or that of its agents, officers,
directors or employees) with respect to the terms of such sale or conversion or if such sale or
conversion shall not be possible.
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17.10 The Depositary shall, subject to all applicable laws, have no responsibility whatsoever to the
Company, any Holder, Beneficial Owner or person with an interest in a GDR, and the
Company shall, subject to all applicable laws, have no responsibility whatsoever to any Holder,
Beneficial Owner or person with an interest in a GDR, in each case as regards any deficiency
which might arise because the Depositary is subject to any tax in respect of the Deposited
Property or any part thereof or any income therefrom or any proceeds thereof.
17.11 In connection with any proposed modification, waiver, authorisation or determination permitted
by the terms of the Deposit Agreement or the Conditions, the Depositary shall not, except as
otherwise expressly provided in Condition 24, be obliged to have regard to the consequence
thereof for the Holders, Beneficial Owners, a person with an interest in a GDR or any other
person.
17.12 Notwithstanding anything else contained in the Deposit Agreement or the Conditions, the
Depositary may refrain from doing anything which could or might, in its reasonable opinion,
render it liable to any person and the Depositary may do anything which is, in its reasonable
opinion, necessary to comply with any law, directive or regulation.
17.13 The Depositary shall be under no obligation to check, monitor or enforce compliance with any
ownership restrictions in respect of GDRs or Shares under any applicable Slovak Republic law
as the same may be amended from time to time. Notwithstanding the generality of Condition 3,
the Depositary shall refuse to register any transfer of GDRs or any deposit of Shares against
issue of GDRs if notified by the Company, or if the Depositary becomes aware of the fact, that
such transfer or issue would be in violation of the limitations set forth above or any other
applicable laws.
17.14 The Depositary may call for, and shall be at liberty to accept as sufficient, evidence of any fact
or matter or the expediency of any transaction or thing, a certificate, letter or other
communication, whether oral or written, signed or otherwise communicated on behalf of the
Company, by the Board of Directors of the Company or by a person duly authorised by the
Board of Directors of the Company, or such other certificate from persons which the Depositary
considers appropriate and the Depositary shall not be bound in any such case to call for further
evidence or be responsible for any loss or liability that may be occasioned by the Depositary
acting on such certificate.
17.15 The Depositary and its agents shall not be liable for any failure to carry out any instructions to
vote any of the Deposited Property, or for the manner in which any vote is cast or the effect of
any vote (other than where such failure or action is a result of its own negligence, wilful default
or bad faith or is not in accordance with the terms of the Deposit Agreement and the
Conditions). The Depositary shall not incur any liability (save in the case of its own negligence,
willful default or bad faith) for any failure to determine that any distribution or action may be
lawful or reasonably practicable, for the content of any information submitted to it by the
Company for distribution to the Holders or for any inaccuracy of any translation thereof, for
any investment risk associated with acquiring an interest in the Deposited Property, for the
validity or worth of the Deposited Property, for the credit-worthiness of any third party, for
any tax consequences that may result from the ownership of GDRs, Shares or Deposited
Property, for allowing any rights to lapse upon the terms of the Deposit Agreement and the
Conditions, for the failure or timeliness of any notice from the Company.
17.16 No provision of the Deposit Agreement or the Conditions shall require the Depositary to
expend or risk its own funds or otherwise incur any financial liability in the performance of any
of its duties or in the exercise of any of its rights or powers, if it shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity and security against such risk
of liability is not assured.
17.17 The Depositary may, in the performance of its obligations hereunder, instead of acting
personally, employ and pay an agent, whether a lawyer or other person, including obtaining an
opinion of legal advisers in form and substance reasonably satisfactory to it, to transact or
concur in transacting any business and do or concur in doing all acts required to be done by
such party, including the receipt and payment of money. Save for the failure on the part of the
Depositary to exercise reasonable care in the selection or retention of any such agent, the
Depositary will not be liable to anyone for any misconduct or omission by any such agent so
employed by it or be bound to supervise the proceedings or acts of any such agent.
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17.18 None of the Depositary, the Custodian, the Company or any of their respective agents or
affiliates shall be required to take any actions whatsoever on behalf of Holders or Beneficial
Owners to satisfy reporting requirements or obtain regulatory approvals under applicable laws
and regulations which shall be the sole responsibility of the Holders and Beneficial Owners as
described in Condition 4.3.
17.19 The Depositary shall not be liable for any acts or omissions made by a successor depositary
whether in connection with a previous act or omission of the Depositary or in connection with
any matter arising wholly after the removal or resignation of the Depositary, provided that in
connection with the issue out of which such potential liability arises the Depositary performed
its obligations without negligence or bad faith while it acted as Depositary.
17.20 The Depositary shall not be liable for any acts or omissions made by a predecessor depositary
whether in connection with an act or omission of the Depositary or in connection with any
matter arising wholly prior to the appointment of the Depositary or after the removal or
resignation of the Depositary, provided that in connection with the issue out of which such
potential liability arises the Depositary performed its obligations without negligence or bad faith
while it acted as Depositary.
18.
Issue and Delivery of Replacement GDRs and Exchange of GDRs
Subject to the payment of the relevant fees, taxes, duties, charges, costs and expenses and such
terms as to evidence and indemnity as the Depositary may require, replacement GDRs will be
issued by the Depositary and will be delivered in exchange for or in replacement of outstanding
lost, stolen, mutilated, defaced or destroyed GDRs upon surrender thereof (except in the case of
destruction, loss or theft) at the Principal New York Office of the Depositary.
19. GDR Fees and Charges
19.1 The following GDR fees are payable under the terms of the Deposit Agreement:
(a)
Issuance Fee: by any person depositing Shares or to whom GDRs are issued upon the
deposit of Shares (excluding issuances pursuant to paragraph (d) below), a fee not in
excess of U.S.$5.00 per 100 GDRs (or fraction thereof) so issued under the terms of the
Deposit Agreement and the Conditions;
(b)
Cancellation Fee: by any person surrendering GDRs for cancellation and withdrawal of
Deposited Property, a fee not in excess of U.S.$5.00 per 100 GDRs (or fraction thereof) so
surrendered;
(c)
Cash Distribution Fee: by any Holder of GDRs, a fee not in excess of U.S.$5.00 per 100
GDRs (or fraction thereof) held for the distribution of cash dividends or other cash
distributions (i.e., upon the sale of rights and other entitlements);
(d)
Stock Distribution /Rights Exercise Fees: by any Holder of GDRs, a fee not in excess of
U.S.$5.00 per 100 GDRs (or fraction thereof) held for the distribution of GDRs pursuant
to stock dividends or other free stock distributions or upon the exercise of rights to
purchase additional GDRs;
(e)
Other Distribution Fee: by any Holder of GDRs, a fee not in excess of U.S.$5.00 per 100
GDRs (or fraction thereof) held for the distribution of securities other than GDRs or
rights to purchase additional GDRs;
(f)
GDR Services Fee: by any Holder of GDRs, a fee not in excess of U.S.$5.00 per 100
GDRs (or fraction thereof) held on the applicable record date(s) established by the
Depositary; and
(g)
GDR Transfer Fee: by any person presenting a GDR Certificate for transfer, a fee not in
excess of U.S.$1.50 per GDR Certificate so presented for transfer.
In addition, the Company, Holders, Beneficial Owners, persons depositing Shares for issuance of
GDRs or surrendering GDRs for cancellation and withdrawal of Deposited Property shall be
required to pay the following charges under the terms of the Deposit Agreement:
(i)
taxes (including applicable interest and penalties) and other governmental charges;
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(ii)
such registration fees as may from time to time be in effect for the registration of Shares
or other Deposited Property on the share register and applicable to transfers of Shares or
other Deposited Property to or from the name of the Custodian, the Depositary or any
nominees upon the making of deposits and withdrawals, respectively;
(iii) such facsimile transmission and delivery expenses as are expressly provided in the Deposit
Agreement to be at the expense of the person depositing or withdrawing Shares or of the
Holders and Beneficial Owners of GDRs;
(iv) the expenses and charges incurred by the Depositary in the conversion of foreign currency;
(v)
such fees and expenses as are incurred by the Depositary in connection with compliance
with exchange control regulations and other regulatory requirements applicable to Shares,
Deposited Property, GDRs and GDR Certificates; and
(vi) the fees and expenses incurred by the Depositary, the Custodian or any nominee in
connection with the servicing or delivery of Deposited Property.
19.2 Any other charges and expenses of the Depositary under the Deposit Agreement and the
Conditions will be paid by the Company upon agreement between the Depositary and the
Company. All fees and charges may, at any time and from time to time, be changed by
agreement between the Depositary and Company but, in the case of fees and charges payable by
Holders or Beneficial Owners, only in the manner contemplated by Condition 24. The
Depositary will provide, without charge, a copy of its latest fee schedule to anyone upon
request.
19.3 GDR fees payable upon (i) deposit of Shares against issuance of GDRs and (ii) surrender of
GDRs for cancellation and withdrawal of Deposited Property will be payable by the person to
whom the GDRs so issued are delivered by the Depositary (in the case of GDR issuance) and
by the person who delivers the GDRs for cancellation to the depositary (in the case of GDR
cancellations). In the case of GDRs issued by the Depositary into DTC, Euroclear or
Clearstream, the GDR issuance and cancellation fees and charges will be payable by the DTC
Participant(s), Euroclear Participant(s) or Clearstream Participant(s) receiving the GDRs from
the Depositary or the DTC Participant(s), Euroclear Participant(s) or Clearstream Participant(s)
surrendering the GDRs for cancellation, as the case may be, on behalf of the Beneficial
Owner(s) and will be charged by the DTC Participant(s), Euroclear Participant(s) or Clearstream
Participant(s) to the account(s) of the applicable Beneficial Owner(s) in accordance with the
procedures and practices of the DTC Participant(s), Euroclear Participant(s) or Clearstream
Participant(s) as in effect at the time. GDR fees in respect of distributions and the GDR
services fee are payable by Holders as of the applicable record date established by the
Depositary. In the case of distributions of cash, the amount of the applicable GDR fees is
deducted from the funds being distributed. In the case of distributions other than cash and the
GDR service fee, the Depositary will invoice the applicable Holders as of the record date
established by the Depositary, and such GDR service fee may be deducted from distributions
made to Holders. For GDRs held through DTC, Euroclear or Clearstream, the GDR fees for
distributions other than cash and the GDR service fee are charged to the DTC Participants,
Euroclear Participants or Clearstream Participants in accordance with the procedures and
practices prescribed by DTC, Euroclear or Clearstream from time to time and the DTC
Participants, Euroclear Participants or Clearstream Participants in turn charge the amount of
such fees to the Beneficial Owners for whom they hold GDRs.
19.4 The Depositary may reimburse the Company for certain expenses incurred by the Company in
respect of the Global Depositary Receipts program established pursuant to the Deposit
Agreement, by making available a portion of the GDR fees charged in respect of the Global
Depositary Receipts program or otherwise, upon such terms and conditions as the Company
and the Depositary may agree from time to time. The Company shall pay to the Depositary
such fees and charges and reimburse the Depositary for such out of pocket expenses as the
Depositary and the Company may agree from time to time. Responsibility for payment of such
charges may from time to time be changed by agreement between the Company and the
Depositary. Unless otherwise agreed, the Depositary shall present its statement for such expenses
and fees or charges to the Company once every three (3) months. The charges and expenses of
the Custodian are for the sole account of the Depositary.
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20.
Listing
The Company has undertaken in the Deposit Agreement to use its reasonable endeavours to
obtain and thereafter maintain, so long as any GDR is outstanding, admission of trading for
GDRs on the London Stock Exchange’s market. For that purpose the Company will pay all
fees and sign and deliver all undertakings required by the London Stock Exchange in connection
therewith. In the event that such listing is not maintained, the Company has undertaken in the
Deposit Agreement to use its reasonable endeavours to obtain and maintain a listing of the
GDRs on another internationally recognised investment exchange in Europe.
21.
The Custodian
The Depositary has agreed with the Custodian that the Custodian will receive and hold all
Deposited Property for the account and to the order of the Depositary in accordance with the
applicable terms of the Deposit Agreement. The Custodian shall be responsible solely to the
Depositary. Upon receiving notice of the resignation of the Custodian, the Depositary shall
promptly appoint a successor Custodian (after receiving the prior consent of the Company to
such appointment, which consent shall not be unreasonably withheld or delayed), which shall,
upon acceptance of such appointment, become the Custodian under the Deposit Agreement.
Whenever the Depositary, in its sole discretion, determines that it is in the best interest of the
Holders to do so, it may terminate the appointment of the Custodian and, in the event of the
termination of the appointment of the Custodian, the Depositary shall promptly appoint a
successor Custodian (after receiving the prior consent of the Company to such appointment,
which consent shall not be unreasonably withheld or delayed), which shall, upon acceptance of
such appointment, become the Custodian under the Deposit Agreement. The Depositary shall
notify Holders of such change as soon as is practically possible following such change taking
effect in accordance with Condition 25.
Citibank, N.A. may at any time act as Custodian of the Deposited Securities pursuant to the
Deposit Agreement, in which case any reference to Custodian shall mean Citibank, N.A. solely
in its capacity as Custodian pursuant to the Deposit Agreement. Notwithstanding anything
contained in the Deposit Agreement or the Conditions, the Depositary shall not be obligated to
give notice to the Company, any Holders of GDRs or any other Custodian of its acting as
Custodian pursuant to the Deposit Agreement.
22.
Resignation and Termination of Appointment of the Depositary
The Depositary may at any time resign as Depositary hereunder by written notice of resignation
delivered to the Company, which resignation shall be effective on the earlier to occur of (i) the
90th day after delivery thereof to the Company, after which the Depositary shall be entitled to
take the termination actions contemplated in Condition 23.1, and (ii) the appointment by the
Company of a successor depositary and the acceptance by such successor depositary of such
appointment.
The Depositary may at any time be removed by the Company by written notice of removal
delivered to the Depositary, which removal shall be effective on the later to occur of (i) the 90th
day after delivery thereof to the Company, after which the Depositary shall be entitled to take
the termination actions contemplated in Condition 23.1, and (ii) the appointment by the
Company of a successor depositary and the acceptance by such successor depositary of such
appointment.
22.1 The Company has undertaken in the Deposit Agreement to use its reasonable endeavours to
procure the appointment of a successor depositary following the receipt of a notice of
resignation from the Depositary or the giving of a notice of the termination of the appointment
of the Depositary. Upon any such appointment and acceptance, notice thereof shall be duly
given by the successor depositary to the Holders in accordance with Condition 25.
22.2 Any corporation into or with which the Depositary may be merged or consolidated shall be the
successor of the Depositary without the execution or filing of any document or any further act.
23. Termination of Deposit Agreement
23.1 The Company may at any time terminate the Deposit Agreement. Upon written direction of the
Company, the Depositary shall provide notice of such termination to the Holders of all GDR
Certificates then outstanding at least thirty (30) days prior to the date fixed in such notice for
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such termination. If ninety (90) days shall have expired after (i) the Depositary shall have
delivered to the Company a written notice of its election to resign pursuant to Clause 11.1 of
the Deposit Agreement and Condition 22, or (ii) the Company shall have delivered to the
Depositary a written notice of the removal of the Depositary pursuant to Clause 11.1 of the
Deposit Agreement and Condition 22 and, in either case, a successor depositary shall not have
been appointed and accepted its appointment as provided in Clause 11.1 of the Deposit
Agreement and Condition 22, the Depositary may terminate the Deposit Agreement by
providing notice of such termination to the Holders of all GDR Certificates then outstanding at
least thirty (30) days prior to the date fixed in such notice for such termination. The date fixed
for termination of the Deposit Agreement in any termination notice distributed by the
Depositary to the Holders of GDRs is referred to as the Termination Date. Until the
Termination Date, the Depositary shall continue to perform all of its obligations under the
Deposit Agreement and the Conditions, and the Holders and Beneficial Owners will be entitled
to all of their rights under the Deposit Agreement and the Conditions.
23.2 If any GDRs shall remain outstanding after the Termination Date, the Registrar and the
Depositary shall not, after the Termination Date, have any obligation to perform any further
acts under the Deposit Agreement or the Conditions, except that the Depositary shall, subject,
in each case, to the terms and conditions of the Deposit Agreement and the Conditions,
continue to (i) collect dividends and other distributions pertaining to Deposited Property, (ii) sell
securities and other property received in respect of Deposited Property, (iii) deliver Deposited
Property, together with any dividends or other distributions received with respect thereto and
the net proceeds of the sale of any securities or other property, in exchange for GDRs
surrendered to the Depositary (after deducting or charging, as the case may be, in each case, the
fees and charges of, and expenses incurred by, the Depositary, and all applicable taxes or
governmental charges for the account of the Holders and Beneficial Owners, in each case upon
the terms set forth in Clause 10.1 of the Deposit Agreement and Condition 19), and (iv) take
such actions as may be required under applicable law in connection with its role as Depositary
under the Deposit Agreement.
At any time after the Termination Date, the Depositary may sell the Deposited Property then
held under the Deposit Agreement and shall after such sale hold un-invested the net proceeds of
such sale, together with any other cash then held by it under the Deposit Agreement, in an unsegregated account and without liability for interest, for the pro-rata benefit of the Holders
whose GDRs have not theretofore been surrendered. After making such sale, the Depositary
shall be discharged from all obligations under the Deposit Agreement and the Conditions except
(i) to account for such net proceeds and other cash (after deducting or charging, as the case
may be, in each case, the fees and charges of, and expenses incurred by, the Depositary, and all
applicable taxes or governmental charges for the account of the Holders and Beneficial Owners,
in each case upon the terms set forth in Clause 10.1 of the Deposit Agreement and Condition
19), and (ii) as may be required at law in connection with the termination of the Deposit
Agreement. After the Termination Date, the Company shall be discharged from all obligations
under the Deposit Agreement and the Conditions, except for its obligations to the Depositary
under Clause 10 of the Deposit Agreement and Condition 19. The obligations under the terms
of the Deposit Agreement and the Conditions of Holders and Beneficial Owners of GDRs
outstanding as of the Termination Date shall survive the Termination Date and shall be
discharged only when the applicable GDRs are presented by their Holders to the Depositary for
cancellation under the terms of the Deposit Agreement and the Conditions.
24.
Amendment of Deposit Agreement and Conditions
All and any of the provisions of the Deposit Agreement and these Conditions may at any time
and from time to time be amended by written agreement between the Company and the
Depositary in any respect which they may deem necessary or desirable. Notice of any
amendment of the Deposit Agreement and these Conditions (except to correct a manifest error)
shall be duly given to the Holders by the Depositary and any amendment (except as aforesaid)
which shall increase or impose fees or charges payable by Holders or which shall otherwise, in
the opinion of the Depositary, be materially prejudicial to the interests of the Holders (as a
class) shall not become effective so as to impose any obligation on the Holders of the
outstanding GDRs until the expiry of thirty (30) days after such notice shall have been given.
Every Holder or Beneficial Owner at the time any amendment or supplement so becomes
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effective shall be deemed, by continuing to hold GDRs or any beneficial interest therein to
consent to and approve such amendment or supplement and to be bound by the terms of the
Deposit Agreement and the Conditions as amended and supplemented thereby.
In no event shall any amendment impair the right of any Holder to receive, subject to and upon
compliance with Clause 3 of the Deposit Agreement and Condition 2, the Deposited Property
attributable to the relevant GDR except in order to comply with mandatory provisions of
applicable law.
The parties hereto agree that substantial rights of Holders and Beneficial Owners shall not be
deemed materially prejudiced by any amendments or supplements which (i) are reasonably
necessary (as agreed by the Company and the Depositary) in order for the GDRs or Shares to
be settled in electronic-book entry form and (ii) do not impose or increase any fees or charges
to be borne by Holders or Beneficial Owners.
Notwithstanding anything in the Deposit Agreement or the Conditions to the contrary, if any
governmental body should adopt new laws, rules or regulations which would require an
amendment or supplement of the Deposit Agreement or the Conditions to ensure compliance
therewith, the Company and the Depositary may amend or supplement the Deposit Agreement,
and the Conditions at any time in accordance with such changed laws, rules or regulations.
Such amendment or supplement to the Deposit Agreement and the Conditions in such
circumstances may become effective before a notice of such amendment or supplement is given
to Holders or within any other period of time as required for compliance with such laws, rules
or regulations.
25.
Notices
Any and all notices to be given to any Holder shall be deemed to have been duly given if (a)
personally delivered or sent by mail, air courier or facsimile transmission, confirmed by letter,
addressed to such Holder at the address of such Holder as it appears on the books of the
Depositary or, if such Holder shall have filed with the Depositary a request that notices
intended for such Holder be mailed to some other address, at the address specified in such
request, or (b) if a Holder shall have designated such means of notification as an acceptable
means of notification under the terms of the Deposit Agreement and the Conditions, by means
of electronic messaging addressed for delivery to the e-mail address designated by the Holder for
such purpose.
Notice to Holders shall be deemed to be notice to Beneficial Owners for all purposes of the
Deposit Agreement and the Conditions. Failure to notify a Holder or any defect in the
notification to a Holder shall not affect the sufficiency of notification to other Holders or to the
Beneficial Owners of GDRs held by such other Holders.
Delivery of a notice sent by mail, air courier or facsimile transmission shall be deemed to be
effective at the time when a duly addressed letter containing the same (or a confirmation thereof
in the case of a facsimile transmission) is deposited, postage prepaid, in a post office letter box
or delivered to an air courier service, without regard for the actual receipt or time of actual
receipt thereof by a Holder. The Depositary or the Company may, however, act upon any
facsimile transmission received by it from any Holder, the Custodian, the Depositary or the
Company, notwithstanding that such facsimile transmission shall not be subsequently confirmed
by letter.
Delivery of a notice by means of electronic messaging shall be deemed to be effective at the
time of the initiation of the transmission by the sender (as shown on the sender’s records),
notwithstanding that the intended recipient retrieves the message at a later date, fails to retrieve
such message, or fails to receive such notice on account of its failure to maintain the designated
e-mail address, its failure to designate a substitute e-mail address or for any other reason.
26.
Reports and Information on the Company
If, so long as any of the Rule 144A GDRs or the Shares represented thereby remain
outstanding and are ‘‘restricted securities’’ within the meaning of Rule 144(a)(3) under the
Securities Act, the Company is neither a reporting company under Section 13 or Section 15(d)
of the Exchange Act nor exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange
Act, the Company hereby undertakes to provide to any Holder, Beneficial Owner or holder of
Shares or any prospective purchaser designated by such Holder, Beneficial Owner or holder of
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Shares, upon the request of such Holder, Beneficial Owner, holder of Shares or prospective
purchaser, copies of the information required to be delivered pursuant to Rule 144A(d)(4) under
the Securities Act and otherwise comply with Rule 144A under the Securities Act in connection
with resales of GDRs and Shares.
27.
Copies of Company Notices
On or before the day when the Company first gives notice, by publication, or otherwise, to
holders of any Shares or other Deposited Property, whether in relation to the taking of any
action in respect thereof or in respect of any dividend or other distribution thereon or of any
meeting or adjourned meeting of such holders or otherwise, the Company has undertaken in the
Deposit Agreement to transmit to the Custodian and the Depositary a copy of such notice and
any other material in English but otherwise in the form given or to be given to holders of
Shares or other Deposited Property.
In addition, the Company will transmit to the Depositary English-language versions of the other
notices, reports and communications which are generally made available by the Company to
holders of Shares or other Deposited Property. The Depositary will, at the expense of the
Company, make available a copy of any such notices, reports or communications issued by the
Company and delivered to the Depositary for inspection by the Holders and Beneficial Owners
at the Principal New York Office and Principal London Office, at the office of the Custodian
and at any other designated transfer office. The Depositary shall arrange, at the request of the
Company and at the Company’s expense, for the distribution of copies thereof to all Holders on
a basis similar to that for holders of Shares or other Deposited Property or on such other basis
as the Company may advise the Depositary.
28.
Moneys Held by the Depositary
The Depositary shall be entitled to deal with moneys paid to it by the Company for the
purposes of the Deposit Agreement in the same manner as other moneys paid to it as a banker
by its customers and shall not be liable to account to the Company or any holder or any other
person for any interest thereon, except as otherwise agreed.
29.
Severability
If any one or more of the provisions contained in the Deposit Agreement or in the Conditions
shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained therein or herein shall in no way be
affected, prejudiced or otherwise disturbed thereby.
30. Governing Law
30.1 The Deposit Agreement, the Conditions, the Deed Poll and the GDRs, and any non-contractual
obligations arising out of or in connection with them, are governed by English law, except that
the certifications from the persons making deposits or withdrawals of Shares pursuant to the
Deposit Agreement are governed by and shall be construed in accordance with the laws of the
State of New York. For the avoidance of doubt, the rights and obligations attaching to the
Deposited Shares will be governed by Slovak law.
30.2 The Company and the Depositary have agreed that the courts of England and the federal or
state courts in the City of New York shall have exclusive jurisdiction to hear any suit, action or
proceeding and to settle any disputes between them that may arise out of, or in connection
with, the Deposit Agreement and the Conditions and the legal relationship established by them
and accordingly any legal action or proceedings arising out of, or in connection with, the
Deposit Agreement, the Conditions or the GDRs and the legal relationship established thereby
(Proceedings) may be brought in such courts.
These submissions shall not limit the right of the Depositary to take Proceedings in any other
court of competent jurisdiction nor shall the taking of Proceedings in one or more jurisdictions
preclude the taking of Proceedings in any other jurisdictions (whether concurrently or not) to
the extent permitted by law.
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31.
Contracts (Rights of Third Parties) Act 1999
A person who is not a party to the Deposit Agreement has no right under the Contracts
(Rights of Third Parties) Act 1999 (the Act) of the United Kingdom to enforce any term of the
Deposit Agreement but this does not affect any right or remedy granted under the Deed Poll or
which otherwise exists or is available apart from the Act.
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DESCRIPTION OF KEY PROVISIONS RELATING TO THE GLOBAL
DEPOSITARY RECEIPTS WHILE IN MASTER FORM
The GDRs will initially be evidenced by (i) a single Master Regulation S GDR Certificate in
registered form and (ii) a single Master Rule l44A GDR Certificate in registered form. The Master
Regulation S GDR Certificate will be registered in the nominee name of Citivic Nominees Limited as
nominee of Citibank Europe plc, as common depositary for Euroclear Bank SA/NV, in its capacity as
operator of Euroclear and Clearstream, and the Master Rule 144A GDR Certificate will be registered
in the name of Cede & Co., as nominee for DTC. The Master GDR Certificates contain provisions
that apply to the GDRs while they are in master form, some of which modify the effect of the
Conditions of the GDRs set out in this Prospectus. The following is a summary of certain of those
provisions. Unless otherwise defined herein, the terms defined in the Conditions shall have the same
meaning herein.
Exchange
The Master Regulation S GDR Certificate and the Master Rule 144A GDR Certificate will be
exchanged for certificates in definitive registered form evidencing GDRs only in the circumstances
described in (a), (b), (c) or (d) below in whole but not in part. The Depositary will undertake in the
Master Regulation S GDR Certificate and the Master Rule 144A GDR Certificate to deliver
certificates evidencing GDRs in definitive registered form in exchange for either the Master
Regulation S GDR certificate or the Master Rule 144A GDR Certificate, as the case may be, to
GDR holders within 60 days of the occurrence of the relevant event, in the event that:
(a)
DTC, in the case of the Master Rule 144A GDR Certificate, or Euroclear or Clearstream, in
the case of the Master Regulation S GDR Certificate, notifies the Company that it is unwilling
or unable to continue as clearing or settlement system and a successor clearing or settlement
system is not appointed within 90 calendar days; or
(b)
in respect of the Master Rule 144A GDR Certificate, DTC or any successor ceases to be a
‘‘clearing agency’’ registered under the United States Exchange Act; or
(c)
either DTC in the case of the Master Rule 144A GDR Certificate, or Euroclear or Clearstream
in the case of the Master Regulation S GDR Certificate, is closed for business for a continuous
period of 14 days (other than by reason of holiday, statutory or otherwise) or announces its
intention to permanently cease business or does, in fact, do so and no alternative clearing
system satisfactory to the Depositary is available within 45 days; or
(d)
the Depositary has determined that, on the occasion of the next payment in respect of the
GDRs, the Depositary would be required to make any deduction or withholding from any
payment in respect of the GDRs which would not be required were the GDRs in definitive
registered form, provided that the Depositary shall have no obligation to so determine or
attempt to so determine.
Any such exchange shall be at the expense of the relevant Holder.
Upon any exchange of a part of the Master Regulation S GDR Certificate or the Master Rule 144A
GDR Certificate for a certificate evidencing a GDR or GDRs in definitive registered form or any
distribution of GDRs pursuant to the Conditions, or any reduction in the number of GDRs
evidenced hereby following any withdrawal of any Deposited Property pursuant to Condition 2, or
any increase in the number of GDRs following the deposit of Shares pursuant to Condition 1, the
relevant details shall be registered in the books maintained by the Depositary, whereupon the number
of GDRs represented by the Master Regulation S GDR Certificate or the Master Rule 144A GDR
Certificate shall be reduced or increased (as the case may be) for all purposes by the amount so
exchanged and registered, provided always that if the number of GDRs evidenced by the Master
Regulation S GDR Certificate or the Master Rule 144A GDR Certificate is reduced to zero the
Master Regulation S GDR Certificate or the Master Rule 144A GDR Certificate shall continue in
existence until the obligations of the Company under the corresponding Deposit Agreement, and the
obligations of the Depositary pursuant to the corresponding Deposit Agreement and the Conditions,
have terminated.
Payments and Distributions
Payments of cash dividends and other amounts (including cash distributions) in respect of the GDRs
represented by the Master Regulation S GDR Certificate and the Master Rule 144A GDR Certificate
221
will be made by the Depositary through DTC, Clearstream, or Euroclear on behalf of persons
entitled thereto upon receipt of funds therefor from the Company. Any free distribution of Shares to
the Depositary on behalf of the Holders may result in the books maintained by the Depositary being
adjusted to reflect the increased number of GDRs represented thereby.
Surrender of GDRs
Any requirement in the Conditions relating to the surrender of a GDR to the Depositary will be
satisfied by the production by DTC or the common depositary, as the case may be, on behalf of a
person entitled to an interest therein, of such evidence of entitlement of such person as the
Depositary may reasonably require, which is expected to be a certificate or other documents issued by
DTC, Clearstream, Euroclear or, if relevant, an alternative clearing system. The delivery or
production of any such evidence shall be sufficient evidence, in favour of the Depositary and the
Custodian, of the title of such person to receive (or to issue instructions for the receipt of) all moneys
or other property payable or distributable in respect of the Deposited Property represented by such
GDRs.
Notices
For as long as the Master Regulation S GDR Certificate is registered in the nominee name of a
common depositary on behalf of Clearstream and Euroclear and, in the case of the Master Rule
144A GDR Certificate, for so long it is registered in the nominee name of DTC, notices to Holders
may be given by the Depositary by delivery of the relevant notice to DTC, Clearstream, and
Euroclear for communication to Holders in substitution for publications required by Condition 25.
Information
For so long as any Rule 144A GDRs or shares represented thereby are ‘‘restricted securities’’ within
the meaning of Rule 144(a)(3) under the Securities Act, during any period in which it is neither a
reporting company under, and in compliance with the requirements of, Section 13 or 15(d) of the
Exchange Act nor exempt from the reporting requirements of the Exchange Act by complying with
the information furnishing requirements of Rule 12g3-2(b) thereunder, the Company has agreed in the
Rule 144A Deposit Agreement and the Rule 144A Deed Poll to provide, at its expense, to any
Holder of Rule 144A GDRs or of the Master Rule 144A GDRs or the Beneficial Owner of an
interest in such Rule 144A GDRs, and to any prospective purchaser of Rule 144A GDRs or shares
represented thereby designated by such person, upon request of such Beneficial Owner, Holder or
prospective purchaser, the information required by Rule 144A(d)(4)(i) and otherwise to comply with
Rule 144A(d)(4).
Governing Law
The Master Regulation S GDR Certificate and the Master Rule 144A GDR Certificate and any noncontractual obligations arising out of or in connection with them will be governed by and construed
in accordance with English law.
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DESCRIPTION OF ARRANGEMENTS TO SAFEGUARD THE RIGHTS OF THE
HOLDERS OF THE GLOBAL DEPOSITARY RECEIPTS
The following text should be read in conjunction with the terms and conditions of the GDRs, including,
inter alia, provisions for the deposit of Shares against issuance of GDRs, the cancellation of GDRs and
receipt of Shares, and payment of dividends, as set forth under ‘‘Terms and Conditions of the Global
Depositary Receipts’’.
The Depositary
The Depositary is Citibank, N.A., a national banking association organised under the laws of the
United States. The Depositary is an indirect wholly-owned subsidiary of Citigroup Inc., a Delaware
corporation. The Depositary is primarily regulated by the United States Office of the Comptroller of
the Currency. See ‘‘Information Relating to the Depositary’’.
There are no bank or other guarantees attached to the GDRs which are intended to underwrite the
Depositary’s obligations.
Rights of Holders of GDRs
Relationship of Holders of GDRs with the Depositary: The rights of Holders against the Depositary are
governed by the Conditions and the Deposit Agreements, which are governed by English law. The
Depositary and the Company are parties to the Deposit Agreements. Holders of GDRs have rights in
relation to cash or other Regulation S Deposited Property and Rule 144A Deposited Property
(including Regulation S Deposited Shares and Rule 144A Deposited Shares (the Deposited Shares),
which are fully paid Shares of the Company represented by GDRs) deposited with the Depositary
under the Deposit Agreements (the Deposited Property), by virtue of the Deposit Agreements and the
Conditions. The Depositary will hold the Deposited Property as bare trustee for the Holders;
however, the Depositary does not otherwise assume any relationship of trust for or with the Holders
or the beneficial owners of the GDRs or any other person.
Voting: With respect to voting of Deposited Shares and other Deposited Property represented by
GDRs, the Conditions and the Deposit Agreements provide that the Depositary shall send to any
person who is a Holder on the record date established by the Depositary for that purpose (which
shall be as close as possible to the corresponding record date set by the Company) such notice of
meeting or solicitation of consent or proxy along with a brief statement on the manner in which such
Holders may provide the Depositary with voting instructions for matters to be considered. The
Deposit Agreements provide that the Depositary will endeavour to exercise or cause to be exercised
the voting rights with respect to Deposited Shares in accordance with instructions from Holders. As
of the date of this Prospectus, the Company confirms that there are no restrictions under applicable
law, the Articles of Association of the Company or the provisions of the Deposited Shares that
would prohibit or restrict the Depositary from voting any of the Deposited Shares in accordance with
instructions from Holders.
Delivery of GDRs: The Deposit Agreements provide that the Deposited Shares can only be delivered
out of the Regulation S and Rule 144A GDR facilities to, or to the order of, a Holder of related
GDRs upon receipt and cancellation of such GDRs.
Rights of the Company
The Company has broad rights to remove the Depositary under the Conditions and the Deposit
Agreements, but no specific rights under the Deposit Agreements are triggered in the event of the
insolvency of the Depositary.
Insolvency of the Depositary
Applicable insolvency law: If the Depositary becomes insolvent, the insolvency proceedings will be
governed by the US law applicable to the insolvency of banks.
Effect of applicable insolvency law in relation to cash: The Conditions state that any cash held by the
Depositary for Holders is held by the Depositary as banker. Under currently applicable U.S. law, it is
expected that any cash held for Holders by the Depositary under the Conditions would constitute an
unsecured obligation of the Depositary. Holders would therefore only have an unsecured claim in the
event of the Depositary’s insolvency for such cash that would be also be available to general creditors
of the Depositary or the Federal Deposit Insurance Corporation (the FDIC).
223
Effect of applicable insolvency law in relation to non-cash assets: The Deposit Agreements state that
the Deposited Shares and other non-cash assets which are held by the Depositary for Holders are
held by the Depositary as bare trustee and, accordingly, the Holders will be tenants in common for
such Deposited Shares and other non-cash assets. Under current US law, it is expected that any
Deposited Shares and other non-cash assets held for Holders by the Depositary on trust under the
Conditions would not constitute assets of the Depositary and that Holders would have ownership
rights relating to such Deposited Shares and other non-cash assets and be able to request the
Depositary’s receiver or conservator to deliver such Deposited Shares and other non-cash assets that
would be unavailable to general creditors of the Depositary or the FDIC.
Default of the Depositary
If the Depositary fails to pay cash or deliver non-cash assets to Holders in the circumstances required
by the Deposit Agreements and the Conditions, the Depositary will be in breach of its contractual
obligations under the Deposit Agreements and the Conditions. In such case Holders will have a claim
under English law against the Depositary for the Depositary’s breach of its contractual obligations
under the relevant Deposit Agreement and the Conditions.
The Custodian
The Custodian is Citibank Europe plc, a public company with limited liability incorporated under the
laws of Ireland, acting through its Slovak branch, Citibank Europe plc, pobočka zahraničnej banky.
For the avoidance of doubt, as a branch of Citibank Europe plc, Citibank Europe plc, pobočka
zahraničnej banky, is not a separate legal entity but instead is simply rather a part of an entity
established under Irish law.
Relationship of Holders of GDRs with the Custodian
The Custodian and the Depositary are parties to a custody agreement, which is governed by New
York law. The Holders do not have any contractual relationship with, or rights enforceable against,
the Custodian. The Custodian will hold the Deposited Shares, each of which will be registered in the
Slovak Central Depository in the name of the Custodian and deposited in the Regulation S and Rule
144A GDR facilities. Under the Deposit Agreements and Slovak law applicable to custody of
securities, all Deposited Property is held by the Custodian, for the account and to the order of the
Depositary (on behalf of Holders) and must be identified as being held to the account of the
Depositary and segregated from all other property held by the Custodian.
Default of the Custodian
Failure to deliver cash: Dividend payments made to the Depositary denominated in euros or any other
currency which are made in accordance with the Depositary’s current procedures and pursuant to the
terms of the Deposit Agreements and Conditions will not be made through the Custodian. Rather,
payments in euros or any other currency other than US dollars are expected to be made to an
account outside of the Slovak Republic, converted into US dollars and, after deduction of any fees
and expenses of the Depositary, credited to the appropriate accounts of the Holders. Any dividend
payments made in US dollars will be made directly from the Company to an account in New York
and then credited to the US dollar denominated accounts of the Holders.
Failure to deliver non-cash assets: If the Custodian fails to deliver Deposited Shares or other non-cash
assets held for the Depositary as required by the Depositary or otherwise defaults under the terms of
the custody agreement, the Custodian will be in breach of its obligations to the Depositary. In such
case the Depositary will have a claim under New York law against the Custodian for the Custodian’s
breach of its obligations under the custody agreement. The Depositary can also remove the Custodian
and appoint a substitute or additional custodians and may exercise such rights if it deems necessary.
The Depositary’s obligations: The Depositary has no obligation to pursue a claim for breach of
obligations against the Custodian on behalf of Holders. The Depositary is not responsible for and
shall incur no liability in connection with or arising from default by the Custodian due to any act or
omission to act on the part of the Custodian, except to the extent that the Depositary failed to use
reasonable care in the selection of the Custodian.
Applicable law: The custody agreement is governed by New York law.
224
Insolvency of the Custodian
If the Custodian becomes insolvent, the insolvency proceedings will be governed by Irish law.
According to Slovak Act No. 7/2005 Coll. on bankruptcy and restructuring, as amended, where a
financial institution has its registered seat in an EU Member State other than the Slovak Republic
and has a branch or assets located in the Slovak Republic, the law of the jurisdiction in which the
financial institution has its registered seat applies in the case of insolvency proceedings with respect to
its branch or assets located in the Slovak Republic. Consequently, Citibank Europe plc, pobočka
zahraničnej banky, as a branch of Irish financial institution Citibank Europe plc, cannot be subject to
insolvency proceedings in the Slovak Republic.
Effect of applicable insolvency law in relation to cash: For the reasons set forth above, it is not
expected that any claim for cash will subsist against the Custodian as the Company will make
payments directly to the Depositary or its nominee, as the case may be, and no cash will be paid to
the Custodian.
Effect of applicable insolvency law in relation to non-cash assets: The Deposited Shares will be
registered in the Slovak Central Depository in the name of the Custodian on behalf of the Depositary
or its nominee, as the case may be. The Depositary or its nominee, as the case may be, will have
ownership rights over the Deposited Shares or other non-cash assets held by the Custodian at the
time of its insolvency and will be able to request the Custodian to deliver such Deposited Shares or
other non-cash assets to it. If the Custodian fails or refuses, such non-delivery will not affect the
Depositary’s or its nominee’s, as the case may be, legal title to or ability to transfer the underlying
shares of the Company. As the Depositary holds legal title to the Deposited Shares, in the event the
Custodian becomes insolvent, the Deposited Shares would be deemed to form part of the assets of
the Depositary (on behalf of the Holders) and the general creditors of the Custodian would not have
a claim in respect of the Deposited Shares.
The Depositary’s obligations: The Depositary has no obligation to pursue a claim in the Custodian’s
insolvency on behalf of the Holders. The Holders have no direct recourse to the Custodian.
Information for Retail Investors with regard to the Form and Holding of GDRs
The GDRs are governed by English law and their form is different from the registered form of
securities governed by Slovak law. The GDRs have characteristics of registered securities representing
interests in a Master GDR Certificate deposited with the relevant foreign securities depositary.
Investors should seek professional advice in case they have any doubts concerning specific issues in
connection with the holding of GDRs.
PERSONS HOLDING BENEFICIAL TITLE TO GDRs OR INTERESTS THEREIN ARE
REMINDED THAT THE ABOVE DOES NOT CONSTITUTE LEGAL ADVICE AND IN THE
EVENT OF ANY DOUBT REGARDING THE EFFECT OF THE DEFAULT OR INSOLVENCY
OF THE DEPOSITARY OR THE CUSTODIAN, SUCH PERSONS SHOULD CONSULT THEIR
OWN ADVISORS IN MAKING A DETERMINATION.
225
TRANSFER RESTRICTIONS
As a result of the following restrictions, holders of the Securities are advised to consult with legal
counsel prior to making any resale, pledge or transfer of the Securities. For a description of the
restrictions applicable to the GDRs, see ‘‘Terms and Conditions of the Global Depositary Receipts’’.
The Offering is being made to QIBs in the United States in accordance with Rule 144A, and outside
the United States in reliance on Regulation S. The Securities have not been and will not be registered
under the Securities Act or with any securities regulatory authority of any state or other jurisdiction
of the United States and, accordingly, may not be offered or sold within the United States except to
QIBs in reliance on the exemption from the registration requirements of the Securities Act provided
by Rule 144A and to persons outside the United States in offshore transactions in accordance with
Regulation S. Terms used in this section that are defined in Rule 144A or Regulation S are used
herein as so defined.
Rule 144A
Each purchaser of the Securities within the United States, by accepting delivery of this Prospectus
and the Securities, will be deemed to have represented, agreed and acknowledged that:
1.
the Securities have not been and will not be registered under the Securities Act or with any
securities regulatory authority of any state or other jurisdiction of the United States and are
subject to restrictions on transfer and are ‘‘restricted securities’’ as defined in Rule 144(a)(3)
under the Securities Act;
2.
it is (i) a QIB, (ii) aware, and each beneficial owner of such Securities has been advised, that the
sale of such Securities to it is being made in reliance on Rule 144A or another exemption from,
or in a transaction not subject to, the registration requirements of the Securities Act, and (iii)
acquiring such Securities for its own account or for the account of a QIB;
3.
it agrees (or, if it is acting for the account of another person, such person has confirmed to it
that such person agrees) that it (or such person) will not offer, resell, pledge or otherwise
transfer such Securities except: (a) in accordance with Rule 144A to a person that it and any
person acting on its behalf reasonably believe is a QIB purchasing for its own account or for
the account of a QIB, (b) in an offshore transaction (as such term is defined in Regulation S
under the Securities Act) in accordance with Rule 903 or 904 of Regulation S or (c) in
accordance with Rule 144 under the Securities Act (if available), in each case in accordance with
any applicable securities laws of any state of the United States. No representation is made as to
the availablity of the exemption provided by Rule 144 for resales of any Securities. The
purchaser will, and each subsequent holder is required to, notify any subsequent purchaser from
it of those Securities of the resale restrictions referred to above;
4.
the Offer Shares may not be deposited into any unrestricted depositary facility established or
maintained by a depositary bank (including the Depositary), unless and until such time as the
Securities are no longer ‘‘restricted securities’’ within the meaning of Rule 144(a)(3) under the
Securities Act;
5.
the Company, the Selling Shareholder, the Underwriters, the Depositary and their respective
affiliates will rely upon the truth and accuracy of the acknowledgements, representations and
agreements in the foregoing paragraphs. If it is acquiring Securities for the account of one or
more QIBs, it represents that it has sole investment discretion with respect to each such account
and that it has full power to make the foregoing acknowledgements, representations and
agreements on behalf of each such account; and
6.
it understands that the Rule 144A GDRs and Master Rule 144A GDRs will bear a legend
substantially to the following effect:
‘‘THIS RULE 144A GLOBAL DEPOSITARY RECEIPT AND THE ORDINARY SHARES
OF SLOVAK TELEKOM A.S. REPRESENTED HEREBY (‘‘THE SHARES’’) HAVE NOT
BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED (THE ‘‘US SECURITIES ACT’’), OR WITH ANY
SECURITIES
REGULATORY
AUTHORITY
OF
ANY
STATE
OR
OTHER
JURISDICTION OF THE UNITED STATES. THE HOLDER HEREOF BY PURCHASING
THE GDRs ACKNOWLEDGES AND AGREES FOR THE BENEFIT OF SLOVAK
TELEKOM A.S. AND THE DEPOSITARY NAMED BELOW THAT THE GDRs AND
THE SHARES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD, PLEDGED
226
OR OTHERWISE TRANSFERRED EXCEPT (A) TO A PERSON WHOM THE SELLER
AND ANY PERSON ACTING ON ITS BEHALF REASONABLY BELIEVE IS A
QUALIFIED INSTITUTIONAL BUYER (‘‘QIB’’) (WITHIN THE MEANING OF RULE
144A UNDER THE US SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (B) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE US
SECURITIES ACT, (C) PURSUANT TO AN EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE US SECURITIES ACT (IF AVAILABLE) OR (D)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE US
SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION OF THE UNITED
STATES. THE HOLDER OF THE GDRs WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY SUBSEQUENT PURCHASER OF SUCH GDRs OF THE
RESALE RESTRICTIONS REFERRED TO ABOVE. THE BENEFICIAL OWNER OF
SHARES RECEIVED UPON CANCELLATION OF ANY RULE 144A GLOBAL
DEPOSITARY RECEIPT MAY NOT DEPOSIT OR CAUSE TO BE DEPOSITED SUCH
SHARES INTO ANY DEPOSITARY RECEIPT FACILITY IN RESPECT OF SHARES
ESTABLISHED OR MAINTAINED BY A DEPOSITARY BANK, OTHER THAN A RULE
144A RESTRICTED DEPOSITARY RECEIPT FACILITY, SO LONG AS SUCH SHARES
ARE ‘‘RESTRICTED SECURITIES’’ WITHIN THE MEANING OF RULE 144(a)(3)
UNDER THE SECURITIES ACT. NO REPRESENTATION CAN BE MADE AS TO THE
AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT FOR RESALE OF THE SHARES OR ANY RULE 144A GLOBAL
DEPOSITARY RECEIPTS.
EACH HOLDER AND BENEFICIAL OWNER, BY ITS ACCEPTANCE OF THIS RULE
144A GDR CERTIFICATE OR A BENEFICIAL INTEREST IN THE RULE 144A GDRs
EVIDENCED HEREBY, AS THE CASE MAY BE, REPRESENTS FOR THE BENEFIT OF
SLOVAK TELEKOM A.S. AND THE DEPOSITARY NAMED BELOW THAT IT
UNDERSTANDS AND AGREES TO THE FOREGOING RESTRICTIONS.’’
Prospective purchasers are hereby notified that sellers of the Securities may be relying on the exemption
from the provisions of Section 5 of the Securities Act provided by Rule 144A.
Regulation S
Each purchaser of Securities outside the United States, by accepting delivery of this Prospectus and
the Securities, will be deemed to have represented, agreed and acknowledged that:
1.
(a) it is aware that the sale of the Securities to it is being made pursuant to and in accordance
with Rule 903 or 904 of Regulation S, (b) it is, or at the time such Securities are purchased will
be, the beneficial owner of those Securities and (c) it is purchasing such Securities in an offshore
transaction meeting the requirements of Regulation S;
2.
it understands that the Securities have not been and will not be registered under the Securities
Act or with any securities regulatory authority of any state or other jurisdiction of the United
States and are being offered outside the United States;
3.
it acknowledges that the Company, the Selling Shareholder, the Underwriters, the Depositary
and their respective affiliates will rely upon the truth and accuracy of the acknowledgements,
representations and agreements in the foregoing paragraphs; and
4.
it understands that the Regulation S GDRs and the Master Regulation S GDRs will bear a
legend substantially to the following effect:
THIS REGULATION S GDR CERTIFICATE, THE REGULATION S GDRS EVIDENCED
HEREBY AND THE SHARES OF SLOVAK TELEKOM, A.S., REPRESENTED THEREBY
(THE ‘‘SHARES’’) HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE ‘‘SECURITIES
ACT’’), OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR
OTHER JURISDICTION OF THE UNITED STATES, AND THE HOLDERS AND THE
BENEFICIAL OWNERS HEREOF, BY PURCHASING OR OTHERWISE ACQUIRING
THIS REGULATION S GDR CERTIFICATE AND THE REGULATION S GDRS
EVIDENCED HEREBY, ACKNOWLEDGE THAT SUCH REGULATION S GDR
CERTIFICATE, THE REGULATION S GDRS EVIDENCED HEREBY AND THE
227
SHARES REPRESENTED THEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT AND AGREE FOR THE BENEFIT OF THE COMPANY AND THE
DEPOSITARY THAT THIS REGULATION S GDR CERTIFICATE, THE REGULATION
S GDRS EVIDENCED HEREBY AND THE SHARES REPRESENTED THEREBY MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN
ACCORDANCE WITH THE SECURITIES ACT AND IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION OF
THE UNITED STATES.
Other Provisions Regarding Transfers of the GDRs
Interests in the Rule 144A GDRs may be transferred to a person whose interest in such GDRs is
subsequently represented by a Regulation S GDR only upon receipt by the Depositary of written
certification (in the form provided in the Deposit Agreement) from the transferor to the effect that,
amongst other things, such transfer is being made in accordance with Regulation S. Interests in
Regulation S GDRs may be transferred to a person whose interest in such GDRs is subsequently
represented by a Rule 144A GDR only upon receipt by the Depositary of written certifications from
the transferor (in the forms provided in the Deposit Agreement) to the effect that, amongst other
things, such transfer is being made in accordance with Rule 144A. Any interest in GDRs represented
by one of the Master GDRs that is transferred to a person whose interest in such GDRs is
subsequently represented by the other Master GDR will, upon transfer, cease to be an interest in the
GDRs represented by such first Master GDR and, accordingly, will thereafter be subject to all
transfer restrictions and other procedures applicable to interests in GDRs represented by such other
Master GDR for so long as it remains such an interest.
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TAXATION
The following description of principal United States federal income, United Kingdom, Slovak and Czech
tax consequences of ownership of the Offer Securities is based upon laws, regulations, decrees, rulings,
income tax conventions (treaties), administrative practice and judicial decisions in effect at the date of
this Prospectus. Legislative, judicial or administrative changes or interpretations may, however, be
forthcoming that could alter or modify the statements and conclusions set forth herein. Any such changes
or interpretations may be retroactive and could affect the tax consequences to holders of the Offer
Securities. This description does not purport to be a legal opinion or to address all tax aspects that may
be relevant to a holder of the Offer Securities.
Each prospective holder is urged to consult its own tax adviser as to the particular tax consequences to
such holder of the ownership and disposition of Shares or GDRs, including the applicability and effect of
any other tax laws or tax treaties, and of pending or proposed changes in applicable tax laws as of the
date of this prospectus, and of any actual changes in applicable tax laws after such date.
Certain Slovak Tax Considerations
The following section describes certain Slovak tax principles, relevant to both Slovak tax resident and
Slovak tax non-resident holders acquiring, holding and disposing of the Securities. It is based on
Slovak tax laws and their interpretation, applicable as of the date of this Prospectus. However, the
interpretation of Slovak tax law, including Double Taxation Treaties (DTT), may change, as can the
opinion of the tax authorities, possibly with retrospective effect.
This section should not be viewed as a comprehensive or complete description of all Slovak tax
aspects relevant for holders of the Securities. The summary does not discuss the tax aspects of the
following investors, subject to special tax rules in Slovakia (i) companies which have not been
established to conduct business activities, (ii) the National Bank of Slovakia, (iii) the National
Property Fund of the Slovak Republic, (iv) mutual fund management companies, (v) pension
management and supplementary pension management companies.
If a partnership is a holder of the Securities, the tax treatment of a partner in the partnership will
generally depend upon the status of the partner.
Potential purchasers of the Securities who are in any doubt as to their tax position regarding the
acquisition, holding and disposition of the Securities are strongly recommended to consult their tax
advisors, as the specific tax situation of each holder can only be addressed adequately by means of
individual tax advice.
General overview of relevant Slovak tax legislation
In general, the Slovak income tax implications of acquiring, holding and disposing of the Securities
depend, to a large extent, on the tax residency status of their holder. A Slovak tax resident is (i) a
legal entity with its registered seat or place of effective management situated within the territory of
the Slovak Republic; or (ii) an individual with permanent residency in the Slovak Republic, or
physical presence in the Slovak Republic for at least 183 days in the calendar year. If a legal entity
or an individual qualifies as a Slovak tax resident under Slovak legislation as well as a foreign tax
resident, based on tax legislation of a respective foreign country, their tax residency is determined
pursuant to the conditions set out in the relevant DTT (if any). A Slovak tax non-resident is an
individual or a legal entity that is not a Slovak tax resident.
Under Slovak legislation, a Slovak tax resident (either legal entity or individual) is subject to income
tax in the Slovak Republic on their worldwide income, while a Slovak tax non-resident is subject to
income tax in the Slovak Republic, solely on their Slovak source income. Slovak source income may
include, inter alia, capital gains realized on disposal of securities.
A legal entity is subject to a corporate income tax rate of 22%. An individual is generally subject to
personal income tax at a basic rate of 19%. A progressive income tax rate of 25% applies on the
portion of annual tax base exceeding the specific amount (EUR 35,022.31 for 2014). A legal entity is
required to file a corporate income tax return, while an individual receiving taxable income exceeding
the specific amount (EUR 1,901.67 for 2014) is required to file a personal income tax return.
An income tax return for each tax year must be filed within three months of its end. The tax year for
individuals is concurrent with the calendar year, while legal entities may opt to change their tax year
to a separate financial year. The filing deadline can be extended by a maximum of three months,
based on a written announcement filed with the tax authority before expiry of the regular filing
229
deadline. An extension of six months may be granted by the tax authorities, where the individual or
legal entity has received income from foreign sources.
If the income is subject to withholding tax or tax guarantee and the tax withheld is considered by a
taxpayer as final tax settlement, a tax return does not need to be filed. The withholding tax or tax
guarantee rate applicable for both individuals and legal entities is assessed at either 19% or 35%.
Income Tax on Shares
Taxation on acquisition of Shares
No Slovak income tax implications should arise for a holder of Shares upon purchase, irrespective of
whether they are considered a Slovak tax resident or a Slovak tax non-resident.
Where, however, a Slovak tax resident or a Slovak permanent establishment of a Slovak tax nonresident acquires the Shares from a holder that is neither a Slovak tax resident, nor a tax resident of
a European Economic Area (EEA) country, the acquirer of the Shares may be obliged to withhold a
tax guarantee. For more information please refer to ‘‘– Taxation on disposal of Shares – Slovak tax
non-resident holder – non-EU tax resident holder’’.
Taxation on dividends
Dividends distributed from profits generated after 1 January 2004 to either a legal entity or an
individual, with a share of the registered capital of a company which distributes dividends, should not
be subject to income tax in the Slovak Republic. Consequently, no tax on dividends will be withheld
at source in respect of Shares. The Company does not have any pre-2004 distributable profits.
Taxation on disposal of Shares
The disposal of Shares generally results in the recognition of capital gain or loss in an amount equal
to the difference between the sale price and the acquisition costs. In the case of individuals, certain
immaterial allowances may be available.
The loss achieved upon the disposal of Shares should, in general, not be tax deductible according to
Slovak tax legislation. There are, however, several exceptions to this general rule, allowing tax
deductibility of the loss in cases as follows:
*
disposal of securities traded at the stock exchange where the acquisition cost is no higher, and
the income from the disposal is no lower, than a deviation of 10% from the average quotation
published by the stock exchange on the date of purchase and date of disposal; and
*
disposal of securities by a holder of the securities engaged in trading, pursuant to special Slovak
legislation.
Slovak tax resident holder
Where Shares are held by a Slovak tax resident or a Slovak permanent establishment of a Slovak tax
non-resident, capital gains arising from the disposal of Shares should be subject to Slovak income tax
at the rates as specified above. The respective capital gain realized should be self-declared via a tax
return.
Slovak tax non-resident holder – EU tax resident holder
Capital gains realized upon disposal of Shares by a Slovak tax non-resident who is taxable on his or
her worldwide income in another EU Member State (an ‘‘EU tax resident’’) should not be taxable in
the Slovak Republic unless:
*
the acquirer of Shares is a Slovak tax resident, or a Slovak permanent establishment of a
Slovak tax non-resident; or
*
the value of the Company is represented mainly by the value of immovable property situated in
the Slovak Republic, i.e., the value of immovable property represents more than 50% of the
Company’s equity recognized in annual accounts in the prior accounting period,
unless the applicable DTT provides otherwise.
Should this be the case, capital gains realized upon the disposal of Shares should be taxable in the
Slovak Republic at the rates as specified above. The respective capital gain realized should be selfdeclared via a tax return.
230
Slovak tax non-resident holder – non-EU tax resident holder
Capital gains realized upon disposal of Shares by a holder that is neither a Slovak tax resident, nor
an EU tax resident (a ‘‘non-EU tax resident’’) to a Slovak tax non-resident should be taxable in the
Slovak Republic at the rates as specified above, unless the applicable DTT provides otherwise. The
respective capital gain taxable in the Slovak Republic should be self-declared via a tax return.
Taxation of capital gains achieved upon disposal of Shares by non-EU tax resident to a Slovak tax
resident or a Slovak permanent establishment of a Slovak tax non-resident depends on the tax
residency of the holder of Shares. If the holder of Shares, while being a non-EU tax resident is a tax
resident of:
*
a European Economic Area (EEA) country, the respective capital gain realized should be selfdeclared via a tax return, unless the relevant DTT provides otherwise;
*
a non-EEA country with which the Slovak Republic has concluded a DTT, a tax guarantee of
19% should apply unless the relevant DTT provides otherwise;
*
a non-EEA country with which the Slovak Republic has not concluded a DTT, but which is
listed in the White List (as described under ‘‘– White List’’, below), a tax guarantee of 19%
should apply; and
*
a non-EEA country not listed in the White List, a tax guarantee of 35% should apply.
Where a tax guarantee applies, a Slovak tax resident or a Slovak permanent establishment of a
Slovak tax non-resident as an acquirer of the Shares, is obliged to withhold the tax guarantee when
the payment is settled, remitted, or credited in favor of the seller. If the acquirer fails to withhold tax
guarantee, withholds incorrect amount of tax guarantee or does not pay the tax guarantee withheld
on time, the tax authority would seek for recovery of such tax guarantee as if it was the tax liability
of the acquirer itself.
A Slovak tax non-resident should be able to file a Slovak tax return, in which he or she would
declare related expenses (i.e., costs paid in relation to the share acquisition) and simultaneously,
should be able to credit the Slovak tax guarantee against their Slovak income tax liability.
Accordingly, they would pay tax only from the net income at the rates as specified above (as opposed
to 19% or 35% tax guarantee calculated from the gross income). A potential tax overpayment should
be refundable to the seller.
Income tax on GDRs
Taxation on acquisition of GDRs
No Slovak income tax implications should arise for a holder of GDRs upon their purchase,
irrespective of whether they are considered a Slovak tax resident or non-resident.
Taxation on income arising from holding of GDRs
GDRs as financial instruments are not explicitly regulated or recognized under Slovak corporate or
tax law. However, income arising from holding GDRs does not seem to qualify as dividend income
under strict interpretation, according to Slovak tax legislation. Hence, such income should not benefit
from the favourable Slovak tax treatment of dividends distributed from profits generated after
1 January 2004.
Where GDRs are held by a Slovak tax resident or a Slovak permanent establishment of a Slovak tax
non-resident, income arising from the holding of GDRs should be subject to tax in the Slovak
Republic at the rates as specified above. The respective income should be self-declared via a tax
return. Tax relief may be available for foreign tax paid on the income concerned, under the
appropriate provisions of the relevant DTT.
Realized foreign exchange differences should be tax effective, whilst unrealized foreign exchange
differences can be excluded from the tax base if the holder so decides in their tax return. Such a
decision is at the sole discretion of the holder.
Income arising from GDRs held by a Slovak tax non-resident should not trigger any taxation in the
Slovak Republic.
Taxation on disposal of GDRs
The disposal of GDRs generally results in the recognition of capital gain or loss in an amount equal
to the difference between the sale price and the acquisition costs. In the case of individuals, certain
immaterial allowances may be available.
231
The loss achieved upon disposal of GDRs should, in general, not be tax deductible according to
Slovak tax legislation. Some exceptions, similar to those described in the section dealing with the
disposal of Shares, should apply.
Where GDRs are held by a Slovak tax resident or a Slovak permanent establishment of a Slovak
non-resident, capital gains arising from the disposal of GDRs should be subject to Slovak income
at the rates as specified above. The respective capital gain realized should be self-declared via a
return. Tax relief may be available for foreign tax paid on the income concerned, under
appropriate provisions of the relevant DTT.
tax
tax
tax
the
Capital gains realized upon disposal of GDRs by a Slovak tax non-resident, should not be taxable in
the Slovak Republic.
Stamp duty
No Slovak stamp duty should be applicable to the acquisition, holding, disposal or other form of
transfer of Shares or GDRs.
Other taxes
In general, no Slovak transfer tax, gift tax or similar tax should be levied on the acquisition, holding,
disposal or other form of transfer of Shares or GDRs.
Tax treaties
As of 1 January 2015, the Slovak Republic was a party to DTTs with 65 countries: Australia,
Austria, Belarus, Belgium, Bosnia – Herzegovina, Brazil, Bulgaria, Canada, China, Croatia, Cyprus,
Czech Republic, Denmark, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland,
India, Indonesia, Ireland, Israel, Italy, Japan, Kazakhstan, Korea (South), Kuwait, Latvia, Libya,
Lithuania, Luxembourg, Macedonia, Malta, Mexico, Moldova, Mongolia, Montenegro, Netherlands,
Nigeria, Norway, Poland, Portugal, Romania, Russian Federation, Serbia, Singapore, Slovenia, South
Africa, Spain, Sri Lanka, Sweden, Switzerland, Syria, Taiwan, Tunisia, Turkey, Turkmenistan,
Ukraine, United Kingdom, United States, Uzbekistan and Vietnam.
White List
Published by the Ministry of Finance, the White List contains countries with which the Slovak
Republic has concluded a DTT or agreement on the exchange of information relating to taxes, and
countries which are party to a mutual international agreement containing provision for the exchange
of information for tax purposes.
As of 1 January 2015, the White List contained all 65 countries with which the Slovak Republic has
concluded a DTT. As of 1 January 2015, the White List also included an additional 22 countries:
Albania, Anguilla, Argentina, Aruba, Belize, Bermuda, British Virgin Islands, Cayman Islands,
Colombia, Costa Rica, Curacao, Faroe Islands, Ghana, Gibraltar, Greenland, Guernsey, Isle of Man,
Jersey, Montserrat, New Zealand, Sint Maarten and Turks & Caicos Islands.
Certain Czech Tax Considerations
The following summary does not purport to be a comprehensive description of all of the tax
considerations that may be relevant to a decision to purchase, hold or dispose of the Securities. It is
confined solely to matters of Czech tax laws, published administrative practice and judicial
interpretations as at the date of this Prospectus, all of which are subject to change, possibly with
retroactive effect, as well as on the income tax treaty between the Czech Republic and the Slovak
Republic as currently in force (the Czech-Slovak Tax Treaty). This summary is given by way of
general guidance only and does not address tax consequences applicable to all categories of investors,
some of which (such as dealers in securities, financial institutions and insurance companies,
partnerships or pension funds) may be subject to special rules that may differ significantly from those
outlined below.
Prospective investors in Securities are advised to consult their own tax advisors as to the tax
consequences of acquiring, holding or disposing of Securities including, without limitation, the
consequences of receipt of any dividends and/or income under GDRs and of sale of Shares or GDRs.
This summary is based on the assumption that the Company (i) is a Slovak tax resident (including
for the purposes of the Czecho-Slovak Tax Treaty) and is not considered to be resident for tax
purposes outside the European Union under the terms of any double taxation agreement; (ii) does
232
not have a permanent establishment in the Czech Republic; and (iii) is subject to Slovak corporate
income tax (in Slovak daň z prı́jmov právnických osôb) without an option of being exempt.
Scope of taxation
Investors in the Securities can be subject to Czech taxation either on a limited or unlimited basis.
Unlimited taxation which includes taxation on worldwide income will apply to investors who qualify
as Czech tax residents (the Czech Investors). By contrast, investors who qualify as Czech tax nonresidents (the Non-Czech Investors) will be taxed in the Czech Republic only on their Czech-sourced
income.
Scope of taxation may further differ based on whether an investor is an individual who is subject to
Czech personal income tax (the Individual Investor) or a legal person, mutual fund, trust or any other
entity which is regarded as a taxpayer for Czech corporate income tax purposes (the Corporate
Investor).
Taxation of income of Czech Investor from the Shares
Withholding tax on dividends
All dividends to be distributed to Czech Investors may be made by the Company free of withholding
or deduction of, for or on the account of any taxes of whatsoever nature imposed, levied, withheld or
assessed by the Czech Republic or any political subdivision or taxing authority thereof or therein.
Taxation of Dividends Distributed to Individual Investors
As a basic rule, dividends distributed to an Individual Investor will be treated as income from capital
assets and taxed (on a gross basis) as part of the Individual Investor’s ordinary income. The
applicable tax rate will be 15% and the tax will be payable on a self-assessment basis. Nevertheless,
there can be certain exceptions from tax reporting obligation (e.g. in case of employees whose
employment income is processed through regular payroll and whose other income including dividends
on the Shares does not exceed CZK 6,000 per year) and, accordingly, the circumstances of each
Individual Investor in each case must be considered. Dividends distributed to an Individual Investor
will generally be taxed by their recipient on a cash basis, except where the Individual Investor is
subject to Czech accounting standards for entrepreneurs (generally individuals engaged in active
business) and holds the Shares as part of his/her business assets. In this case the dividends will need
to be accounted for once declared and reported for tax purposes in the tax period in which they were
declared.
Taxation of Dividends Distributed to Corporate Investors
Unless exempt from tax, dividends distributed to a Corporate Investor will be included into a
separate tax base and taxed (on a gross basis) at a special tax rate of 15%. The dividends will need
to be accounted for once declared and reported for tax purposes in the tax period in which they were
declared.
Exemption from tax will be available under the terms of the Parent-Subsidiary Directive (90/435/EEC)
(the PS Directive), as transposed into Czech law. Accordingly, for an exemption to apply, the
Corporate Investor would have to meet, in addition to being a Czech tax resident subject to Czech
corporate income tax, the following eligibility requirements:
*
Take one of the eligible legal forms (as regards companies under Czech law, most frequently a
Czech joint-stock company (in Czech akciová společnost) or a Czech limited liability company
(in Czech společnost s ručenı́m omezeným); and
*
Have a holding of at least 10% in the registered capital of the Company for an uninterrupted
period of at least 12 months (the 12 months period may also be fulfilled subsequently); and.
*
Is the beneficial owner of the dividends.
Double taxation relief
If in accordance to Slovak laws any Slovak tax is withheld by the Company upon the distribution of
dividends, the Czech Investors will generally be entitled to claim an ordinary tax credit under the
terms of the Czech-Slovak Tax Treaty.
Pursuant to the Czech-Slovak Tax Treaty, the Slovak withholding tax (if any) must not exceed 5% of
the gross amount of dividends if the beneficial owner is a Corporate Investor who holds at least 10%
of the Shares. In all other cases, the withholding (if any) is limited to 15%.
233
Tax Implications of Holding of the Shares by Czech Investors
Czech Investors who are subject to Czech accounting standards for entrepreneurs (most companies
and certain individuals engaged in active business) or to Czech accounting standards for financial
institutions (banks, insurance companies, etc.) may be, under certain circumstances, required to remeasure the Shares to fair value for accounting purposes, whereby the unrealized gains and losses
would be accounted for as revenues and expenses, respectively. Save in certain specific situations, such
revenues and costs are fully relevant for tax purposes.
Tax Implications of Sale of the Shares by Czech Investors
Sale by Individual Investors
Unless exempt from tax, any gain from the sale of the Shares will generally be treated as other
income subject to tax at a rate of 15%. In addition, in case of an Individual Investor who has held
the Shares in connection with his/her business activities, any such gain should be treated as income
from business (trade) in which case a solidarity surcharge of 7% may also apply. Tax deductibility of
any losses incurred upon the sale of Shares will largely depend on the particular circumstances of
each Individual Investor. Nevertheless, in case of Individual Investors who have not held the Shares
in connection with their business activities, the loss from the sale of Shares will be treated as nondeductible unless it can be offset against taxable gain(s) from the sale of other securities (not held in
connection with business activities of the seller) realized in the same taxable period. No such set-off
will be possible with respect to a loss incurred upon the sale of Shares if income from such lossmaking sale is exempt from tax.
Income from sale of the Shares will be exempt from tax if the Shares have been held for more than
three years and such holding has not been in connection with the business activities of the seller. If
the Shares were held in connection with the seller’s business, income from their sale will be exempt
only if they are sold after three years following the termination of the business activities at the
earliest. Income from the sale of the Shares will also be exempt, if the total income of an Individual
Investor from the sale (or other forms of transfer for consideration) of any securities (including the
Shares) in a given year does not exceed a threshold of CZK 100,000.
Sale by Corporate Investor
Unless exempt from tax, any gain from the sale of the Shares will be subject to a standard tax rate
of 19%. Tax deductibility of losses incurred upon the sale of Shares will essentially depend on the
accounting treatment of the Shares or, more specifically, on whether the Shares are re-measured to
fair value for accounting purposes or not. If the Shares are re-measured to fair value (and unless
income from their sale is exempt from tax), any loss reflected in the profit & loss account of the
selling Corporate Investor will also be fully recognized for tax purposes. By contrast, if the Shares are
not re-measured (generally applicable if the Shares represent a controlling or material interest in the
Company), any losses from the sale of the Shares will be non-deductible for tax purposes.
Exemption from tax upon the sale of the Shares will be available under the same terms that apply to
exemption of dividends under the PS Directive, as transposed into Czech law. Accordingly, for
income from the sale of Shares to be exempt from tax, the Corporate Investor would have to meet,
in addition to being a Czech tax resident subject to Czech corporate income tax, the following
eligibility requirements:
*
Take one of the eligible legal forms (as regards companies under Czech law, most frequently a
Czech joint-stock company (in Czech akciová společnost) or a Czech limited liability company
(in Czech společnost s ručenı́m omezeným);
*
Have a holding of at least 10% of in the Shares registered capital of the Company for an
uninterrupted period of at least 12 months (the 12 months period may also be fulfilled
subsequently); and
*
Is beneficial owner of the income from the sale.
Taxation of GDRs
Financial instruments in the form of depositary receipts, such as GDRs, are not explicitly regulated
under the Czech tax law. Furthermore, given that the use of such instruments in transactions in the
Czech capital markets is rather limited, to the best of our knowledge no authoritative view directly
addressing the tax implications of GDRs has been expressed either by the tax authorities or the
courts. Therefore, the tax treatment of the GDRs outlined below is based on the application of the
234
general tax rules and principles. Consequently, it cannot be excluded that tax authorities and/or
courts may adopt a different position.
Tax treatment of GDRs
Under Czech tax law, when the law is applied in tax proceedings, the actual content of a legal
transaction and other facts decisive for the determination of the tax and/or its collection should
always be taken into account by tax authorities (Substance-over-Form). Given (i) the Substance-overForm principle, (ii) the legal and economic characteristics of GDRs (e.g. re-distribution of dividends,
voting rights or the possibility to withdraw the Deposited Shares) and (iii) the legal position of the
Depositary (acting as a bare trustee who holds the Deposited Shares for the benefit of the Holders of
GDRs), there are reasonable arguments supporting the view that for Czech tax purposes the Holders
of GDRs could be viewed as the owners of the Shares (for Czech tax treatment relating to the
holding and/or the disposal of the Shares please refer above). Such view would have, for example, the
following consequences:
*
The transfer of the Share by the investor to the Depositary in exchange for the issuance of the
GDR should not be viewed as the disposal of the Share. Instead, as indicated above, for Czech
tax purposes the investor (converting the Share into the GDR) should be viewed as continuing
to hold the Shares. Similarly, the withdrawal of the Deposited Share should also not represent
any (potentially taxable) disposal.
*
The sale of the GDR by the investor should, for Czech tax purposes, be viewed as the sale of
the Shares.
*
The redistribution of the cash dividend on the Deposited Share to the Investor in GDR should,
for Czech tax purposes, be viewed as the dividend distribution on the Share. However, due to
the conversion into Dollars performed by the Depositary, the Investor should also recognize a
foreign exchange gain/loss in relation to such redistribution.
*
More generally, any action taken by the Depositary should, for Czech tax purposes, be viewed
as taken directly by the Investor in GDR. Thus, for example if (i) the Depositary receives the
rights to subscribe for additional Shares, (ii) these rights are sold by the Depositary and (iii)
proceeds received by Depositary upon such disposal are distributed to the Investors, the
Inventor in GDR should for Czech tax purposes be viewed as (i) having received the
subscription rights to subscribe for additional Shares and (ii) subsequently having sold such
rights and (iii) having received the proceeds.
*
For the sake of completeness, if the ‘‘substance-based’’ approach is accepted by tax authorities,
the participation through the GDR should arguably be also taken into account for the purposes
of applying the PS Directive (including the capital gain exemption).
Risk of alternative interpretation
As indicated above, there is a high uncertainty about the tax treatment of GDRs under Czech tax
law and, as such, it cannot be ruled out that the above ‘‘substance-based’’ approach will be rejected
either by the tax authorities or the courts. The alternative interpretation would arguably follow the
legal form of the GDRs. According to the Capital Market Act, the GDR should qualify as the
‘‘investment securities’’ which in turn qualify as ‘‘investment instruments’’. Consequently, any income
derived from holding and/or disposal of GDRs realized by the Investors should, for Czech tax
purposes, be viewed as income from holding and/or disposal of the investment securities/investment
instruments. As a result of this, any action taken by the Depositary would not, for Czech tax
purposes, be viewed as an action taken by the Investor in GDR.
Non-Czech Investors
The Non-Czech Investors are subject to Czech taxation only on their Czech-sourced income.
Accordingly, unless the Non-Czech Investor has a permanent establishment (taxable presence) in the
Czech Republic with which the Securities are effectively connected, then any income of such Investor
under the Securities or any gain derived upon their disposal should fall outside of Czech taxation
scope.
For the purposes of further discussion, it is assumed that the Non-Czech Investor (i) has a permanent
establishment in the Czech Republic with which the Securities are effectively connected and (ii) is
required to maintain accounting books in accordance with Czech accounting laws. Unless expressly
stated otherwise below, the comments are limited only to the Non-Czech Investors who are Corporate
Investors.
235
Taxation of Dividends from the Shares
All dividends to be distributed to Non-Czech Investors (whether they are Individual or Corporate
Investors) may be made by the Company free of withholding or deduction of, for or on the account
of any taxes of whatsoever nature imposed, levied, withheld or assessed by the Czech Republic or any
political subdivision or taxing authority thereof or therein.
Unless exempt from tax, the dividends distributed to a Czech permanent establishment of a Corporate
Investor will be taxed in the same way as dividends distributed to a Czech Corporate Investor.
Nevertheless, the exemption of dividends from tax will only be available if the Non-Czech Investor
who holds the Shares through its Czech permanent establishment qualifies as resident for tax purposes
in one of the member states of the European Union or the European Economic Area and meets the
other eligibility requirements imposed under the PS Directive including, in particular, the minimum
holding of 10% in the registered capital of the Company for an uninterrupted period of at least 12
months.
Taxation of Income from the Sale of the Shares
Unless exempt from tax, any gain from the sale of the Shares which are effectively connected with
Czech permanent establishment will be taxed in the same way as a gain realized by a Czech
Corporate Investor. Nevertheless, income from sale of Shares will be exempt from tax if the NonCzech Investor who holds the Shares through its Czech permanent establishment qualifies as resident
for tax purposes in one of the member states of the European Union or the European Economic
Area and meets the other eligibility requirements imposed under the PS Directive including, in
particular, the minimum holding of 10% in the registered capital of the Company for an
uninterrupted period of at least 12 months.
Taxation for Income from GDRs
As indicated above, it could be reasonably argued that for Czech tax purposes the Holders of GDRs
could be viewed as the owners of the Shares (for Czech tax treatment relating to the holding and/or
the disposal of the Shares please refer above). Nevertheless, due to an existing uncertainty about the
tax treatment of GDRs under Czech tax law, it cannot be excluded that tax authorities and/or courts
may adopt a different view as discussed above.
Tax Securing
If income realized by a Non-Czech Investor, whether holding the Securities through a permanent
establishment in the Czech Republic or not, from the sale of the Securities is subject to taxation in
the Czech Republic (as discussed in the foregoing paragraphs), the Czech Investor paying the income
or the Non-Czech Investor paying the income through its permanent establishment in the Czech
Republic will be obliged to withhold an amount of 1% on a gross basis representing tax security,
unless the Non-Czech Investor selling the Securities is for tax purposes a resident of a member state
of the European Union or the European Economic Area or unless the obligation to withhold is
waived based on a tax authority decision. The tax security shall be credited against the final tax
liability of the Non-Czech Investor selling the Securities.
Other Taxes or Duties
Except as set out above, no registration tax, capital tax, customs duty, transfer tax, stamp duty or
any other similar tax or duty is payable in the Czech Republic in respect of or in connection with the
purchase, holding or disposition of the Securities.
Certain U.S. Federal Income Tax Considerations
The following is a summary of certain U.S. federal income tax considerations relevant to U.S.
Holders and non-U.S. Holders (as defined below) acquiring, holding and disposing of the Offer
Securities. This summary is based on the U.S. Internal Revenue Code of 1986, final, temporary and
proposed U.S. Treasury regulations, administrative and judicial interpretations, all of which are
subject to change, possibly with retroactive effect, as well as on the income tax treaty between the
United States and the Slovak Republic as currently in force (the Treaty).
This summary does not discuss all aspects of U.S. federal income taxation that may be relevant to
investors in light of their particular circumstances, such as investors subject to special tax rules
(including, without limitation: (i) financial institutions; (ii) insurance companies; (iii) dealers in stocks,
securities, or currencies or notional principal contracts; (iv) regulated investment companies; (v) real
estate investment trusts; (vi) tax-exempt organisations; (vii) partnerships, pass-through entities, or
236
persons that hold Securities through pass-through entities; (viii) holders that own (directly, indirectly
or constructively) 10% or more of the voting stock of the Company; (ix) investors that hold Securities
as part of a straddle, hedge, conversion, constructive sale or other integrated transaction for U.S.
federal income tax purposes; (x) investors that have a functional currency other than the U.S. dollar
and (xi) U.S. expatriates and former long-term residents of the United States), all of whom may be
subject to tax rules that differ significantly from those summarised below. This summary does not
address tax consequences applicable to holders of equity interests in a holder of Securities, U.S.
federal estate, gift or alternative minimum tax considerations, net investment income tax
considerations or non-U.S., state or local tax considerations. This summary only addresses investors
that will acquire Securities in the Offering, and it assumes that investors will hold their Securities as
capital assets (generally, property held for investment).
For the purposes of this summary, a U.S. Holder is a beneficial owner of Securities that is for U.S.
federal income tax purposes (i) an individual who is a citizen or resident of the United States, (ii) a
corporation created in, or organised under the laws of the United States or any state thereof,
including the District of Columbia, (iii) an estate the income of which is includible in gross income
for U.S. federal income tax purposes regardless of its source or (iv) a trust that is subject to U.S. tax
on its worldwide income regardless of its source. A Non-U.S. Holder is a beneficial owner of
Securities that is not a U.S. Holder.
If a partnership is a beneficial owner of Securities, the tax treatment of a partner in the partnership
will generally depend upon the status of the partner and the activities of the partnership. Partnerships
holding Securities and partners in such partnerships are urged to consult their tax advisors as to the
particular United States federal income tax consequences of an investment in the Offer Securities.
For U.S. federal income tax purposes, U.S. Holders of GDRs generally should be treated as owners
of the Shares represented by the GDRs. Accordingly, the U.S. federal income tax consequences below
generally should apply equally to U.S. Holders of GDRs.
Taxation of Distributions
Subject to the passive foreign investment company (PFIC) rules discussed below, a distribution made
by the Company on the Offer Securities (including amounts withheld in respect of non-U.S. income
tax, if any) will be treated as a dividend includible in the gross income of a U.S. Holder as ordinary
income to the extent of the Company’s current and accumulated earnings and profits as determined
under U.S. federal income tax principles. Such dividends will not be eligible for the dividends received
deduction allowed to corporations. To the extent the amount of such distribution exceeds the
Company’s current and accumulated earnings and profits as so computed, the distribution will be
treated first as a non-taxable return of capital to the extent of such U.S. Holder’s adjusted tax basis
in the Offer Securities and, to the extent the amount of such distribution exceeds such adjusted tax
basis, will be treated as gain from the sale of such shares. The Company does not expect to maintain
calculations of earnings and profits for U.S. federal income tax purposes. Therefore, a U.S. Holder
should expect that such distribution will generally be treated as a dividend.
’’Qualified dividend income’’ received by individuals and certain other non-corporate U.S. Holders,
will be subject to reduced rates applicable to long-term capital gain if (i) the Company is a ‘‘qualified
foreign corporation’’ (as defined below) and (ii) such dividend is paid on Securities that have been
held by such U.S. Holder for at least 61 days during the 121-day period beginning 60 days before the
ex-dividend date. The Company generally will be a ‘‘qualified foreign corporation’’ if (1) it is eligible
for the benefits of the Treaty and (2) it is not a PFIC in the taxable year of the distribution or the
immediately preceding taxable year. The Company expects to be eligible for the benefits of the
Treaty. As discussed below under ‘‘Passive Foreign Investment Company Rules’’, the Company does
not believe it was a PFIC for the taxable year ending 31 December 2014 and does not expect to be a
PFIC for the current year or for any future years.
Dividends on the Offer Securities generally will constitute income from sources outside the United
States for foreign tax credit limitation purposes. The amount of any distribution of property other
than cash will be the fair market value of the property on the date of the distribution.
The amount of dividend income paid in euro that a U.S. Holder will be required to include in
income will equal the U.S. dollar value of the distributed euro, calculated by reference to the
exchange rate in effect on the date the payment is received by the Depositary (in the case of GDRs)
or by the U.S. Holder (in the case of Offer Shares), regardless of whether the payment is converted
into U.S. dollars on the date of receipt. If the foreign currency so received is converted into U.S.
dollars on the date of receipt, such U.S. Holder generally will not recognise foreign currency gain or
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loss on such conversion. If the foreign currency so received is not converted into U.S. dollars on the
date of receipt, such U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar
value on the date of receipt. Any gain on a subsequent conversion or other disposition of the foreign
currency generally will be treated as ordinary income or loss to such U.S. Holder and generally will
be income or loss from sources within the United States for foreign tax credit limitation purposes.
Sale or other disposition
Subject to the PFIC rules discussed below, a U.S. Holder generally will recognise gain or loss for
U.S. federal income tax purposes upon a sale or other disposition of Securities in an amount equal to
the difference between the amount realised from such sale or disposition and the U.S. Holder’s
adjusted tax basis in such Securities, as determined in U.S. dollars. Such gain or loss generally will be
capital gain or loss and will be long-term capital gain (taxable at a reduced rate for non-corporate
U.S. Holders, such as individuals) or loss if, on the date of sale or disposition, such Securities were
held by such U.S. Holder for more than one year. The deductibility of capital loss is subject to
significant limitations. Such gain or loss realised generally will be treated as derived from U.S.
sources.
Because gains on a sale or other disposition of Securities generally will be treated as U.S. source, the
use of foreign tax credits relating to any Slovak income tax imposed upon gains in respect of
Securities may be limited. U.S. Holders should consult their tax advisors regarding the application of
Slovak taxes to a sale or other disposition of Securities and their ability to credit a Slovak tax
against their U.S. federal income tax liability.
The surrender of GDRs in exchange for Shares (or vice versa) should not be a taxable event for U.S.
federal income tax purposes and U.S. Holders should not recognise any gain or loss upon such a
surrender.
A U.S. Holder that receives foreign currency from a sale or disposition of Securities generally will
realise an amount equal to the U.S. dollar value of the foreign currency on the date of sale or
disposition or, if such U.S. Holder is a cash basis or electing accrual basis taxpayer and the Offer
Securities are treated as being traded on an ‘‘established securities market’’ for this purpose, the
settlement date. If the Offer Securities are so treated and the foreign currency received is converted
into U.S. dollars on the settlement date, a cash basis or electing accrual basis U.S. Holder will not
recognise foreign currency gain or loss on the conversion. If the foreign currency received is not
converted into U.S. dollars on the settlement date, the U.S. Holder will have a basis in the foreign
currency equal to the U.S. dollar value on the settlement date. Any gain or loss on a subsequent
conversion or other disposition of the foreign currency generally will be treated as ordinary income or
loss to such U.S. Holder and generally will be income or loss from sources within the United States
for foreign tax credit limitation purposes.
Passive foreign investment company rules
In general, a corporation organised or incorporated outside the United States is a PFIC in any
taxable year in which, after taking into account the income and assets of certain subsidiaries, either
(i) at least 75% of its gross income is classified as ‘‘passive income’’ or (ii) at least 50% of the average
quarterly value attributable to its assets produce or are held for the production of passive income.
Passive income for this purpose generally includes dividends, interest, royalties, rents and gains from
commodities and securities transactions.
The Company believes that it was not a PFIC for the year ending on 31 December 2014 and does
not expect to become a PFIC for the current year or for any future taxable year. There can be no
assurances, however, that the Company will not be considered to be a PFIC for any particular year
because PFIC status is factual in nature, generally cannot be determined until the close of the taxable
year in question, and is determined annually. If the Company is classified as a PFIC in any year that
a U.S. Holder is a shareholder, the Company generally will continue to be treated as a PFIC for that
U.S. Holder in all succeeding years, regardless of whether the Company continues to meet the income
or asset test described above. If the Company were a PFIC in any taxable year, U.S. Holders would
be required (i) to pay a special addition (which includes an interest charge) to tax on certain
distributions and gains on sale and (ii) to pay tax on any gain from the sale of Securities at ordinary
income (rather than capital gains) rates in addition to paying the special addition to tax on this gain.
Additionally, dividends paid by the Company would not be eligible for the reduced rate of tax
described under ‘‘– Taxation of Distributions’’.
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Non-U.S. Holders
A Non-U.S. Holder generally should not be subject to U.S. federal income or withholding tax on any
distributions made on the Offer Securities or gain from the sale, redemption or other disposition of
the Offer Securities unless: (i) that distribution and/or gain is effectively connected with the conduct
by that Non-U.S. Holder of a trade or business in the United States; or (ii) in the case of any gain
realised on the sale or exchange of Securities by an individual Non-U.S. Holder, that Non-U.S.
Holder is present in the United States for 183 days or more in the taxable year of the sale, exchange
or retirement and certain other conditions are met.
U.S. information reporting and backup withholding tax
A U.S. Holder may be subject to information reporting unless it establishes that payments to it are
exempt from these rules. For example, payments to corporations generally are exempt from
information reporting and backup withholding. Payments that are subject to information reporting
may be subject to backup withholding if a U.S. Holder does not provide its taxpayer identification
number and otherwise comply with the backup withholding rules. Backup withholding is not an
additional tax. Amounts withheld under the backup withholding rules are available to be credited
against a U.S. Holder’s U.S. federal income tax liability and may be refunded to the extent they
exceed such liability, provided the required information is timely provided to the U.S. Internal
Revenue Service (IRS). Non-U.S. Holders may be required to comply with applicable certification
procedures to establish that they are not U.S. Holders in order to avoid the application of such
information reporting requirements and backup withholding.
Foreign Financial Asset Reporting
Certain U.S. Holders that own ‘‘specified foreign financial assets’’ that meet certain U.S. dollar value
thresholds generally are required to file an information report with respect to such assets with their
tax returns. The Offer Securities generally will constitute specified foreign financial assets subject to
these reporting requirements unless the Offer Securities are held in an account at certain financial
institutions. U.S. Holders are urged to consult their tax advisors regarding the application of these
disclosure requirements to their ownership of the Offer Securities.
United Kingdom Tax Considerations
General
The following statements are intended to apply only as a general guide to certain U.K. tax
considerations, and are based on the Company’s understanding of U.K. tax law and current practice
of HM Revenue and Customs (HMRC), both of which are subject to change at any time, possibly
with retrospective effect. They relate only to certain limited aspects of the U.K. taxation treatment of
holders of Securities who (unless the position of non-UK holders is expressly referred to) are resident
and, in the case of individuals, domiciled in (and only in) the U.K. for U.K. tax purposes, who hold
the Offer Securities as investments (other than under an individual savings account or a self invested
personal pension) and who are the absolute beneficial owners of both the Offer Securities and any
dividends paid on them (U.K. Holders). The statements may not apply to certain classes of holders of
Securities such as (but not limited to) persons acquiring their Offer Securities in connection with an
office or employment, dealers in securities, insurance companies and collective investment schemes.
Potential investors in the Offer Securities who are in any doubt as to their tax position regarding the
acquisition, ownership and disposition of the Offer Securities or who are subject to tax in a
jurisdiction other than the U.K. are strongly recommended to consult their own tax advisers.
Dividends
Withholding tax
The Company will not be required to deduct or withhold U.K. tax at source from dividend payments
it makes.
Individuals
An individual U.K. Holder who receives a dividend from the Company will be entitled to a tax credit
which may be set off against his total U.K. income tax liability on the dividend. Such a U.K.
Holder’s liability to U.K. income tax is calculated on the aggregate of the dividend and the tax credit
(such aggregate being the gross dividend) which will be regarded as the top slice of the individual’s
income. The tax credit will be equal to 10% of the gross dividend (i.e. the tax credit will be one-ninth
of the amount of the declared dividend).
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An individual U.K. Holder who is not liable to U.K. income tax in respect of the gross dividend will
not be entitled to reclaim any part of the tax credit. An individual U.K. Holder who is liable to
U.K. income tax at the basic rate will be subject to U.K. income tax on the divide