2000 2001 2002
(NOK in millions)
External revenues ************************************************* 2,487 2,942 4,367 Internal revenues************************************************** 375 432 484 Gains on disposal of fixed assets and operations************************ 13 12 11 Total revenues *************************************************** 2,875 3,386 4,862 Total operating expenses******************************************** 2,740 4,227 5,745 Operating profit (loss)********************************************* 135 (841) (883) Associated companies********************************************** 20 (547) (270) Net financial items ************************************************ (8) (410) (815) Profit before taxes and minority interests**************************** 147 (1,798) (1,968) Reconciliation of EBITDA to operating profit (loss)
EBITDA********************************************************* 611 248 139 Depreciation, amortization and write-downs**************************** 476 1,089 1,022 Operating profit (loss)********************************************* 135 (841) (883) Investments:
Capex********************************************************* 573 835 435 Investments in businesses***************************************** 1,540 906 2,490 Total full-time equivalent employees (period end)*********************** 1,148 1,344 1,332 Of which abroad************************************************ 98 198 243
2000 2001 2002
Operating profit (loss)
(NOK in millions)
Broadcast************************************************************ 227 (527) (161) Content & Interactive ************************************************** (57) (140) (275) Internett ************************************************************* 54 (92) (371) Other**************************************************************** (89) (82) (76) Total operating profit (loss)(*)****************************************** 135 (841) (883) (*) Includes amortization and write-downs of our net excess values (1) by******* 45 71 156 (1) Net excess values are the difference between our acquisition cost and our share of equity at acquisition
of subsidiaries.
Operating Profit (Loss)
Operating loss increased in 2002 compared to 2001 mainly due to increased sales of and marketing activities for the ADSL product and consolidation of new subsidiaries. In addition, expenses for workforce reductions and expenses related to termination of contracts amounted to NOK 92 million, an increase of NOK 43 million compared to 2001. In 2002, write-downs of NOK 135 million were recorded compared to NOK 494 million in 2001. In Broadcast, there was a decrease in operating loss of NOK 366 million mainly due to reduced write-downs in 2002 compared to 2001. The consolidation of Canal Digital from June 30, 2002, had a negative impact on operating profit of approximately NOK 185 million, including amortization of goodwill and other excess values. The increase in operating loss in Content & Interactive was due to the development of interactive TV and broadband services, resulting in increased operating expenses, including amortization, depreciation and write-downs. In Internet, expenses related to increased acquisition of ADSL customers in the residential market in Norway and Sweden resulted in increased operating loss in 2002 compared to 2001. The operating loss in Telenordia Privat AB (Sweden) was NOK 65 million. ‘‘Other’’ consists of projects and support functions.
We recorded an operating loss in 2001 compared to an operating profit in 2000 due to increased expenses related to the digitalisation of cable TV, business development for broadband services and the launch of ADSL, as well as write-downs and increased amortization and depreciation in 2001. Operating loss in Broadcast in 2001 was due in part to write-downs of NOK 494 million, and operating profit in 2000 was positively affected by the NOK 65 million effect of reversing of provisions made in 1999. In addition, operating loss in 2001 compared to an operating profit in 2000 in Broadcast was mainly due to increased expenses in connection with the development and launching of new digital products in Avidi and the winding-up of Coloursat and increased amortization and depreciation. The increased operating loss in Content &
Interactive in 2001 was due to the costs for the development of content and higher amortization and
depreciation. Expenses related to sales of ADSL in the residential markets in Norway and Sweden as well as the consolidation of Telenordia Privat AB resulted in an operating loss in 2001 compared to an operating profit 2000 in Internet.
Revenues
2000 2001 2002
(NOK in millions)
External revenues
Broadcast********************************************************* 2,072 2,231 3,221 Content & Interactive *********************************************** 72 188 160 Internet*********************************************************** 306 508 976 Other************************************************************* 37 15 10 Total external revenues********************************************* 2,487 2,942 4,367 Internal revenues *************************************************** 375 432 484 Gains on disposal of fixed assets and operations************************** 13 12 11 Total revenues***************************************************** 2,875 3,386 4,862
External revenues in Broadcast increased by NOK 990 million in 2002. External revenues at Canal Digital were NOK 1,139 million and external revenues from the full year consolidation of Sweden On Line amounted to NOK 126 million. External revenues in Satellite Broadcasting decreased by NOK 346 million due to the phasing out of analogue broadcasting and because revenues from sales to Canal Digital, which previously were reported as external revenues, were eliminated following the consolidation of Canal Digital.
Such revenues were NOK 206 million for the period from June 30, 2002, resulting in a net effect of the consolidation of Canal Digital on external revenues in Broadcast of NOK 933 million. Avidi (Cable-TV) reported external revenues of NOK 657 million, an increase of NOK 77 million compared to 2001 due to increased prices and subscribers adopting new services. External revenues at Telenor Vision, Sweden, increased by NOK 106 million to NOK 330 million in 2002 due to the full year’s consolidation of Sweden On Line.
At December 31, 2002, the number of subscribers of Broadcast was 2,405,000, a net increase of 3.5%
compared to December 31, 2001, and Canal Digital had 738,000 subscribers, a net increase of 12.3%
compared to December 31, 2001. Avidi increased the number of subscribers by 11,000 to 371,000 in 2002.
Telenor Vision had 1,296,000 subscribers at December 31, 2002, an increase of 1% compared to December 31, 2001.
The decrease in external revenues in Content & Interactive was mainly due to lower sales of CA modules and smart cards in Conax in 2002 compared to 2001. In 2001 there was greater demand for these products due to increased growth in the number of digital TV subscribers. Internett in Norway increased external revenues by NOK 293 million in 2002 compared to 2001, of which the increase in sales of ADSL was NOK 212 million. Furthermore, external revenues from pre-selection traffic (Internett) increased by NOK 81 million. Prior to 2002, these revenues were recorded as external revenues from Networks. Telenordia Privat AB was consolidated from October 1, 2001, and contributed NOK 175 million to the increase in external revenues.
The number of Telenor Internet subscribers in the Norwegian market increased by 15.5% to 960,000 at December 31, 2002, of which 533,000 were FriSurf subscribers and 90,000 were ADSL subscribers. Internet in Norway increased the number of ADSL subscribers by 67,000 to 90,000 during 2002. The customer base in Telenordia Privat AB (Sweden) was sold to the listed company Glocalnet AB at the end of December 2002 in exchange for 37.2% of the shares in Glocalnet AB. You should read ‘‘Item 4: Information on the
Company — Telenor Plus’’ for additional information on the transaction with Glocalnet AB.
Internal revenues primarily consisted of traffic revenues from Internett and Telenordia Privat AB, as well as satellite revenues in Broadcast, mainly sales to Satellite Services and Satellite Networks. The increase in 2002 compared to 2001 related to increased interconnection traffic in Sweden and sale of satellite capacity.
External revenues in Broadcast increased by NOK 159 million in 2001. Avidi achieved external revenues of NOK 525 million, an increase of NOK 83 million compared to 2000, including NOK 43 million related to the full year’s consolidation of the companies alfaNett and Monet in 2001. External revenues from Telenor
Vision increased by NOK 16 million in 2001 to NOK 261 million. Adjusted for the sale of the hotel-TV-operations to Otrum, the increase in external revenues from Vision was NOK 84 million. External revenues from Satellite Broadcasting increased by NOK 45 million. The increase was mainly related to the increase in subscription-based contracts from Canal Digital, which was partly offset by the reduced revenues from analogue TV distribution. The cable TV company, Sweden On-Line, was consolidated as of October 2001, and contributed with NOK 22 million in revenues.
At December 31, 2001, the number of subscriptions of Broadcast, including all the subscriptions in Canal Digital, was 2,323,000, an increase of 18% compared to 2000, adjusted for the sale of the hotel-TV-activity in Vision with 128,000 subscribers, and the acquisition of Sweden On-Line with 183,000 subscribers.
Canal Digital had 657,000 subscribers, an increase of 30% from the previous year. Avidi increased the number of subscribers by 2,500 to 360,000 in 2001 and had a market share of 43%. Telenor Vision had 1,306,000 subscribers at the end of 2001, a 36% increase in 2001 compared to 2000, including additions from the acquisition of businesses, and disposals from the hotel TV activity.
In 2001, the increase in external revenues from Content & Interactive was mainly due to increased sales of CA modules and smart cards in Conax in connection with the increase in the number of digital TV subscribers in Canal Digital and ViaSat. Internet in Norway had an increase in revenues of NOK 40 million from the sale of ADSL, and increased revenues of NOK 100 million from dial up access. The acquisition of Telenordia Privat AB in Sweden in October 2001 contributed with an increase in revenues of NOK
70 million. The number of Telenor Internet subscriptions in the Norwegian market was 831,000, of which 437,000 were FriSurf subscriptions. The number of ADSL subscriptions sold amounted to 28,000, of which 23,000 were connected subscriptions at December 31, 2001. The number of subscriptions in the Swedish market was 360,000 at the end of 2001, of which 50,000 were fixed telephony subscriptions, 306,000 subscriptions in dial up access (Internet) and 4,000 ADSL subscriptions.
Operating Expenses
2000 2001 2002
(NOK in millions)
External costs of materials and traffic charges**************************** 889 1,098 1,577 Internal costs of materials and traffic charges**************************** 237 344 900 Total costs of materials and traffic charges****************************** 1,126 1,442 2,477 Own work capitalized*********************************************** (32) (18) (31) Salaries and personnel costs****************************************** 465 655 787 Other external operating expenses ************************************* 433 780 981 Other internal operating expenses************************************** 256 261 503 Depreciation and amortization **************************************** 464 595 887 Write-downs******************************************************* 12 494 135 Losses on disposal of fixed assets and operations************************* 16 18 6 Total operating expenses******************************************** 2,740 4,227 5,745
Total costs of materials and traffic charges increased in 2002 mainly due to increased sales of ADSL, consolidation of Canal Digital and the full year effect of consolidation of Telenordia Privat AB and Sweden Online. The gross margin (revenues less costs of materials and traffic charges as a percentage of revenues) decreased by 8.6 percentage points to 48.9%. The decrease was mainly due to ADSL growth and the consolidation of Canal Digital.
Salaries and personnel costs in 2002 increased due in part to the consolidation of Canal Digital and in part to new employees due to the higher activity. At the end of 2002 and the beginning of 2003, there was a reduction in the number of employees as a restructuring measure, but the reduction in expenses will be obtained in 2003.
The increase in other operating expenses from 2001 to 2002 was due to the consolidation of Canal Digital, which amounted to NOK 313 million, and the full year effect of the consolidation of Telenordia Privat AB, which amounted to NOK 120 million. In 2002, we recorded NOK 92 million in expenses related to workforce reductions and termination of contracts compared to NOK 49 million in 2001. In Internet, other operating expenses increased from 2001 to 2002, partly as a result of increased advertising, marketing and sales commissions related to ADSL. In other areas, other operating expenses were reduced as a result of cost saving initiatives, mainly relating to consultancy and travel costs in Broadcast. Bad debt was reduced due to reversal of previous loss provisions.
Compared to 2001, depreciation and amortization increased in 2002, mainly as a result of the acquisition of Canal Digital and Telenordia Privat AB. The increase was also partly due to depreciation and amortization of investments relating to content and interactive services and the digital cable-TV network, partly offset by reduced depreciation as a consequence of the write-downs recorded at the end of 2001.
In 2002, write-downs of NOK 135 million were made, mainly on set-top boxes for the SMATV market, on platforms related to new broadcasting standards and on security technology (digital certificates) related to interactive TV payment system.
Costs of materials and traffic charges increased in 2001 compared to 2000 due to the increase in sales, mainly traffic and ADSL, of Internet and increased sale of Content & Interactive. Salary and personnel costs in 2001 increased primarily due to the recruitment of new employees as a result of increased activity in developing content and interactive service. We also increased the overall personnel in connection with the digitalisation of cable TV, including the call centre, and we increased the activity in Internet including the acquisition of Telenordia Privat AB. The increase in other operating expenses from 2000 to 2001 was due to the development of services in Content & Interactive, expenses related to the sale of ADSL and developing expenses and sales and marketing expenses related to digitalisation in Avidi, in addition to expenses for winding-up activities and loss contracts of NOK 49 million. In 2000, provisions of NOK 65 million were reversed in Broadcast. Compared to 2000, amortization and depreciation increased as a result of the
acquisition of businesses, the digitalisation of the cable-TV network and investments in satellite and terrestrial broadcasting. Furthermore, write-downs of NOK 494 million were made in 2001, mainly on satellites and satellite equipment.
Capital Expenditure
Capital expenditures decreased in 2002 compared to 2001, mainly due to the extensive upgrade of the cable-TV network performed in 2001. In addition, there was lower capital expenditure in the terrestrial transmission network in 2002. Capital expenditures increased in 2001 compared to 2000 due to the digitalization of the cable-TV network.
Associated Companies
2000 2001 2002
(NOK in millions)
Net (loss)(1) ********************************************************* (191) (464) (145) Amortization and write-downs of Telenor’s net excess values ***************** 18 80 125 Gain (loss) on disposal of ownership interests****************************** 229 (3) — Net result from associated companies*********************************** 20 (547) (270) (1) The figures are partly based on our management’s estimates in connection with the preparation of our
consolidated financial statements. The consolidated profit and loss statement contains only the line item
‘‘net result from associated companies’’. Telenor’s share of the other line items in the table is not included in our consolidated financial statements but this information is set forth in note 16 to our consolidated financial statements. Net excess values are the difference between our acquisition cost and our share of equity at acquisition of the associated companies.
Canal Digital was consolidated as a subsidiary as of June 30, 2002 and the figures are therefore not comparable with 2001. As Canal Digital was accounted for as an associated company for only six months in 2002, net loss in 2002 decreased compared to 2001. At the end of 2001 Otrum disposed of businesses that generated losses, which contributed to a reduction in net loss in 2002 compared to 2001. The fair value of Otrum was estimated to be lower than the book value and we wrote down our excess values related to Otrum during 2002.
In 2001, our share of the net loss for Canal Digital increased due to increased costs related to the change from analogue to digital services and an increase in subscriptions, and higher depreciation and amortization as a result of investments related to the digitalisation and set-top boxes. The sale and write-down of activity in Otrum had a negative effect on our share of the net loss in 2001.