Tiscali 1Q03 results: revenue and profit growth

Cagliari, 15th May 2003 - The board of directors of Tiscali has approved the group's results for the first quarter of 2003.

This was the group's fourth consecutive quarter of organic revenue growth, and the second quarter running of positive EBITDA, marking a considerable improvement in profitability. These results are particularly significant considering the difficult conditions affecting the economy and the internet services market, where broadband market regulations, despite some improvements, continue to hamper alternative operators.

Revenues boosted by strong broadband growth The Tiscali group's first quarter revenues came in at EUR 212.5 million, 9% ahead of 1Q02 and 6% up on 4Q02. The main growth driver in the access business was the increase in the number of ADSL users, which more than quadrupled versus 1Q02 to 360,000 (+68% vs 4Q02), and is continuing to grow at the average rate of 11,000 new subscribers per week (400,000 as of end-April). Access revenues contributed 70% of the total for the quarter, with EUR 148.3 million (+8%), up from EUR 137.6 million in 1Q02. The growth rate versus 4Q02 was also 8%.

Active user numbers rose from 7.3 million in 4Q02, to 7.6 million as of 31 March 2003. Traffic was up 9% compared 1Q02, at 11.3 billion minutes. Portal revenues (6% of the total) held up at 4Q02 levels, thanks to buoyant sales of value-added services, which offset negative seasonal factors and the slowdown in the advertising market. However, portal revenues came in 39% lower than in 1Q02, due to the sale of the group's portals in the US and Spain in the first half of 2002.

Tiscali was confirmed as one of Europe's leading web properties in the first quarter of 2003, with 15 million unique visitors, a rise of 33% compared to 1Q02. Revenues from corporate services (16% of revenues) were up 56% versus 1Q02 at EUR 34.2 million, and 6% ahead of 4Q02, showing that this business is highly complementary to the consumer sector. Voice revenues (7% of the total) increased by 30% compared to 1Q02 to EUR 15.6 million, a 7% advance on 4Q02.

Strong operating performance The group restructuring completed in 2002 continued to boost operating performance in the first quarter of 2003. Gross profit rose from EUR 84.4 million in 1Q02 to EUR 105.6 million (+25%), also representing a 3% advance on 4Q02. For the fourth quarter running, the gross margin stood at 50% of revenues, up from 43% in 1Q02. Operating costs totalled EUR 89.9 million, or 42% of revenues, in line with 1Q02-but down from 45% of revenues in 4Q02. The 1Q03 figure was 8% higher than in 1Q02, due to an increase in sales and marketing expenses (in line with revenue growth), although this was partially offset by a further reduction in other operating costs.

Breakdown of operating costs:
- sales and marketing costs of EUR 32.2 million (15% of revenues)
- personnel costs of EUR 33.7 million (16% of revenues)
- general and administrative costs of EUR 24.0 million (11% of revenues)

The major restructuring programme carried out in recent years has produced an efficient cost base, which can support growth.
EBITDA increased by 18% on 4Q02 (EUR 13.2 million) to EUR 15.6 million. This was a substantial improvement on the 1Q02 figure of EUR 1 million.

Depreciation, amortisation and provisions, totalled EUR 44.5 million, up from EUR 34.7 million in 1Q02, mainly due to investments made in 2002. Goodwill amortisation accounted for EUR 37.4 million. First quarter EBIT showed a loss of EUR 66.2 million, a 37% improvement on the EUR 105.9 million loss posted in 1Q02, and a slight improvement on the 4Q02 figure (EUR -67.5 million), despite higher depreciation and amortisation charges.

Improvement in cash flow
Cash burn fell by 84% versus 1Q02 to EUR 23.9 million, a 25% reduction on 4Q02. Note that the 1Q03 figure included a investments of EUR 5.1 million in the group's new headquarters in Cagliari. Total investments for the quarter came to EUR 14 million. At 31 March 2002 the Tiscali group had cash resources of EUR 314.6 million, while net debt stood at EUR 158.7 million.

First quarter: key acquisitions

As part of its strategy for consolidating its position in a number of European markets, Tiscali made three acquisitions in 1Q03 (all paid for in shares): two in the consumer segment, and one in B2B.
On 31 January Tiscali acquired Airtelnet, the Spanish internet business of the Vodafone Group plc, for EUR 9.86 million, to be paid for in newly-issued Tiscali shares. This acquisition will strengthen Tiscali's position on the Spanish market and raise profitability. Airtelnet has around 110,000 active dial-up users, of which 5,000 are business customers. On 6 February 2003, Tiscali completed the acquisition of Wanadoo group company Wanadoo Belgium SA via its subsidiary Tiscali Belgium NV, for EUR 9.5 million, to be paid for in newly-issued Tiscali shares. Wanadoo Belgium is one of the country's leading ISPs, posting revenues of around EUR 13 million in 2002. The company has around 85,000 active users, of which 25,000 are ADSL customers.
On 18 March, Tiscali acquired Nextra SpA from the Telenor group for EUR 2.4 million, to be paid for in newly-issued Tiscali shares. Bologna-based Nextra SpA is one of Italy's leading suppliers of internet services to the corporate sector, and has around 3,000 business customers, mostly located in north-east and central Italy. The company has 35 employees, posted 2002 revenues of around EUR 10.7 million, and has net cash of EUR 2.1 million.

2003 targets raised

Given our first quarter results, we can now confirm our improved full-year estimates. We project revenue growth of over 20%, an EBITDA margin of 7%, investments at 6% of revenues and ADSL user base expansion to 700,000. We also confirm our target of achieving positive cash flow generation in the second half of the year.
Lastly, in 2003 the bottom line could benefit from the use of tax credits of up to EUR 1.1 billion accrued in respect of previous years' losses.