gibtelecom annual report_v1

Annual Report

2011

Vision for the future.

2 | Annual Report 2011

Gibtelecom believes in supporting the community

Group highlights for the 2011 fi nancial year

£33.5mm £11.8mm £7.0mm 8.90p Revenue Adjusted operating profi t Free cash fl ow Total dividends 3.2% growth 3.1% growth 2.7% decrease 7.1% growth


2011 has proved to be another notable year for Gibtelecom with the Company reaching a number of important milestones as it pushes forward in pursuit of excellence and business opportunities.

Once again and despite the lingering effects of the worldwide economic recession, the Company’s turnover continues to grow as demand increases for its services. Building on its solid reputation as Gibraltar’s leading telecommunications provider and its secure fi nancial position, the Company is investing heavily in the future. This is especially so in such key areas as next generation technology, network

infrastructure and international route diversifi cation. To this end, I would highlight the Europe-India Gateway (EIG) submarine cable project, perhaps the most ambitious and potentially important commercial project with which Gibtelecom have ever been involved. This high bandwidth, fi bre optic cable connects three continents and provides seamless interconnection with other major cable systems connecting Europe, Africa, Asia and North America. The submarine cable was landed successfully in Gibraltar in May last year and partial activation was recently achieved. This investment will not only provide the Company with signifi cantly improved route diversity, resilience and capacity but will also support Gibraltar’s telecommunications needs for many years to come. Additionally it places Gibtelecom in a good position to seek business opportunities outside of Gibraltar in terms of sales of bandwidth and transit capacity to other operators within Europe and elsewhere.

In 2010, the Company celebrated the 20th anniversary of the creation of its antecedent company, Gibraltar Nynex Communications (GNC), following the privatisation of the then Gibraltar Government Telephone Department on 8 May 1990. In these past twenty years the Company has evolved out of all recognition and

transformed itself into the modern, innovative and effi cient business that it is today. It is an achievement worthy of recognition and I pay tribute to all those, serving and retired, who have contributed to the Company’s success over this period.

Also in May 2010 Gibtelecom was awarded the prestigious ‘Recognised for Excellence’ award by the European Foundation for Quality Management (EFQM). The Company has always demonstrated its commitment to quality, excellence and improvement and this accreditation, breaking new ground for a local company, provides further evidence that Gibtelecom is a leading business in Gibraltar worthy of being bench marked.

The training and continual development of its staff is an important element in Gibtelecom’s success and drive for excellence, especially in the fast moving areas of telecommunications and information technology. For the third year running, the Company in partnership with the Government enrolled a new intake of apprentices for their Telecommunications Apprenticeship Scheme. This public/private sector partnership is now recognised as a model for this type of scheme in Gibraltar.

Gibtelecom’s substantial investment in people, infrastructure and technology, together with its commitment to delivering quality service to its customers, places the Company in a strong position to meet the challenges of a business operating in the dynamic and fast moving world of communications.

Joe HollidayChairman

Chairman’s Foreword

Gibtelecom continues to meet its many and diverse regulatory obligations, whilst maintaining the edge in an increasingly competitive environment.


Despite the challenging worldwide economic climate, ever increasing regulatory demands and competitive pressures, 2010 has been another good year for Gibtelecom with overall business turnover and profi tability increasing year on year. With steady growth in the internet, leased circuits and data hosting services, the Company remains on track not only to retain its position as the leading local telecommunications provider but also to looking beyond Gibraltar to pursuing business opportunities overseas.

Investing in innovation and new technologies has been a key strategy for Gibtelecom, and this year we have

seen some of the Company’s transformational projects coming to fruition. Foremost amongst these is the Europe India Gateway (EIG) submarine cable project, which is being partially activated this year. Gibraltar’s demand for internet bandwidth has grown on an exponential scale in recent times, largely driven by the e-gaming industry. This sector, and Gibraltar’s fi nance centre too, have a high dependency on state-of-the-art communications and Gibtelecom has been committed to investing in providing robust and diverse national and international fi bre optic routes. The EIG high bandwidth fi bre optic system will not only complement existing routes but also provide Gibraltar with an alternative submarine path, without the limitations on capacity or the incidence of interruptions that face land based routes. The cable, which has a current capacity of 3.84 terabits along the entire route, was laid through the Mediterranean and in the Bay last summer, with testing and commissioning works taking place throughout most of 2010. This project is an important step forward in building both Gibtelecom, and Gibraltar, as an international communications hub. To this end we are setting up an international arm that will not only market Gibtelecom worldwide, in

terms of bandwidth and transit traffi c sales, but also manage our other international traffi c, routes and relationships.

Given the problems encountered in 2010 with interruptions to the civil electricity supply, the Company has pushed ahead with an ambitious programme to increase the resilience of its systems and become more self-dependant in standby power generation. The objective is for most of the Company’s thirty odd sites around the Rock to have automated power back up, through standby generators wherever practicable. Substantial enhancements have also been carried out to the fi xed and mobile infrastructure networks to facilitate the changing topography of Gibraltar as a result of new building developments and to provide further resilience. The Company’s new server hosting business is also going from strength to strength, and is currently being expanded with the creation of a fourth data centre facility at our Mount Pleasant premises.

Gibtelecom continues to meet its many and diverse regulatory obligations, whilst maintaining the edge in an increasingly competitive environment. Gibtelecom, as the former incumbent, unbundled its fi xed line infrastructure for use by other local operators several years ago yet still to this day no competitors have chosen to take up this opportunity to potentially reach all Gibraltar consumers. The implementation of Europe wide roaming tariffs posed little hardship on Gibtelecom, as the Company was already largely compliant with the pricing caps imposed by the European Commission. Another European Union regulatory requirement is the implementation of fi xed and mobile number portability which are due to come on stream during 2011 and for which Gibtelecom is ready. All this, together with the resources expended on communication licences, mobile spectrum and other fees, as well as the cost of regulatory compliance, represent a substantial challenge and fi nancial burden for a company the size of Gibtelecom.

As important is the continued investment by the Company in delivering a great customer experience, focused on service excellence and quality products. Gibtelecom has expanded its mobile reach both internationally and locally by increasing mobile, data and pre-paid roaming services to cover customer’s most popular destinations and through expanding radio signalling technology in Gibraltar. The foundations are

Chief Executive Offi cer’s Statement


also being laid for the development of a Next Generation Network (NGN), which will bring closer together the fi xed line, internet and mobile technologies. The fi rst steps on this path of convergence is upgrading the core internet network and then deploying new technology in some twelve fi xed line remote concentrator units around the Rock to enable telephone lines in 2012 to transport various multi-media services and at much higher internet speeds than are available today. We also upgraded Gibtelecom’s website in 2010 and launched a new Wi-Fi portal service, which allows users to purchase a range of internet packages online for use in various locations throughout Gibraltar. The Company is also embarking on a major computerisation project for a replacement customer management system that will provide all customers’ services accounts and billing facilities for fi xed, internet and mobile technologies, as well as a fi xed line and convergent technologies management system for the next decade and beyond.

Gibtelecom’s drive for operational excellence was suitably recognised with the award of the “Recognised for Excellence” (with four stars) certifi cate in May 2010, which was a crowning achievement of the improvement journey on which the Company has embarked. Our strengths, as determined by the European Foundation for Quality Management [EFQM], were good leadership, delivering people empowerment and a good customer experience, supported by strong technical and fi nancial management. The challenge now is building on this achievement and staying ahead of the curve in the fast moving world of telecommunications, to continue to be our customers and partners communications company of choice.

Our commitment to investing in people is on-going, with substantial investment continuing to be made in technical training. A Gibtelecom team leader is now one of the top certifi ed CISCO internet engineers in the world. The development of our staff more generally is also crucial to our continued success and this year the Company is launching a new training and development programme, which is the successor to the Management Development Programme (MDP) and Gibtelecom Development Programme (GDP) which were run in conjunction with Durham University Business School, and in which all employees participated. The Company-wide training plan has been developed to continue addressing business development needs across all departments and levels in the organisation, such as communications

skills, leadership, people management and customer services to complement the various professional qualifi cations some managers and staff have been undertaking. In addition the third intake of apprentices has successfully completed a National Vocational Qualifi cation [NVQ] Level 1 in basic hand skills/working with tools. Consequently, all of our 16 apprentices are now at varying stages of attaining an NVQ in telecommunications, which takes four years to complete.

We have continued to provide an Undergraduate Scheme, which is now in its ninth year, as well as the very popular summer student placement programme. In addition, this year Gibtelecom have also supported the Government’s Business & Administration Vocational Training Scheme, which is a joint initiative between the public and private sectors.

Gibtelecom believes in supporting the community, and we have continued to sponsor a range of local youth, sporting and cultural organisations, as well as charitable events. The Company engaged with the Department of Education to install Wi-Fi networks at both comprehensive schools in 2009-10, providing coverage to allow all departments to access the internet. Although no longer the lead commercial sponsor of the Gibraltar International Chess Festival, Gibtelecom continues to support the event and the Company will play a key role in ensuring that this prestigious Gibraltar tournament retains its status of being at the forefront of chess technology.

Tim BristowChief Executive Offi cer

Gibtelecom continues to meet its many and diverse regulatory obligations, whilst maintaining the edge in an increasingly competitive environment.


Together we commit to delivering a quality service to you.

From right to left:Tim Bristow [CEO], Joe Holliday [Chairman], Brigita Boh, Zoran Vehovar, Dilip Dayaram-Tirathdas, Jožko Peterlin


The Directors present their report, business review and audited fi nancial statements for the year ended 31 December 2010 for Gibtelecom Limited (“Gibtelecom”).

The Group has been trading as Gibtelecom since July 2002, and as of 1 October 2003 this name was formally adopted by the Company (previously Gibraltar Nynex Communications Limited [GNC]). In January 2009 the subsidiary company, Gibraltar Telecommunications International Limited (Gibtel), all its assets or liabilities having been transferred to the parent company several years ago, was struck off having been a non-trading subsidiary following its acquisition by GNC. Gibconnect Limited remains a nominal non-trading company as at 31 December 2010.

Principal ActivitiesGibtelecom is registered in Gibraltar and its principal activities are the provision of fi xed line, internet and mobile services, together with the supply of various communications equipment in Gibraltar. The share capital of the Company is jointly owned by Telekom Slovenije, listed on the Ljubljana Stock Exchange, and the Government of Gibraltar.

Gibtelecom is authorised under the Communications Act 2006 to provide fi xed line, internet, mobile, satellite and other radio-communication services. The current authorisations supplement the licences issued by the Government of Gibraltar on 1 August 2003 for a period of 15 years, which in turn replaced the previous licences issued to GNC in May 1990 and Gibtel in January 1988.

Corporate GovernanceGibtelecom’s Board of Directors is strongly committed to maintaining high standards of corporate governance, which it considers are critical to business success and delivering value to stakeholders. Gibtelecom acts in accordance with corporate governance best practice and guidelines, through adopting proper standards of business practice and procedures and by expecting all its executives and employees to uphold the highest ethical standards of honesty, integrity and fairness.

The Board provides leadership of the Company whilst ensuring that a framework of prudent and effective controls exists in order to assess and manage risk. The Board met in Gibraltar four times during 2010, and a robust system of management controls, business planning and reporting provides the necessary oversight for all aspects of the Company’s operations. In 2010 the Board conducted an extensive review of the Company’s corporate governance procedures and performance, the outcome of which was very satisfactory. Gibtelecom holds the ISO 9001:2008 certifi cation. In 2010, the Company received the prestigious European Foundation of Quality Management [EFQM] ‘Recognised for Excellence’ (with four stars) award, a fi rst for a Gibraltar company. Gibtelecom’s quality systems are audited twice a year by the Company’s independent external assessors, combined with bi-annual surveys of customers being conducted by an independent third party. In addition, the Company hosts a series of customer seminars and focus groups to obtain feedback on extant and developing services.

Financial PerformanceThe overall turnover of the business increased year-on-year by over 5 per cent to £33,425,690. Gibtelecom’s profi t on ordinary activities before taxation for the twelve months to 31 December 2010 was £8,753,139, an increase of some 7 per cent year-on-year. Overall the expenditure side of running the business was well contained in 2010, with the cost of each £1 of revenue raised reducing from 73 to 72 pence.

The introduction of the new Gibraltar Income Tax Act has also had a substantive positive impact on the Company’s profi ts for the year. Whilst the new company tax rate from 1 January 2011 is 10 per cent across the board (previously 22 per cent), it is to be 20 per cent for various utility companies including telecommunications businesses. The main change impacting on Gibtelecom’s retained profi ts has been the adjustment under the new Income Tax Act in the basis of company taxation from the prior year approach to an actual basis, and the transitional arrangements introduced to accommodate this change has resulted in cessation rules being applied with effect from 31 December 2010. The above change, together with other adjustments such as deferred taxation and development aid relief, has resulted in a positive tax credit for the year of £3,142,983. Gibtelecom’s consolidated profi t after tax for the twelve months ending 31 December 2010 was consequently £11,896,122, the computation of which is explained in note 8 to the accounts.

Directors’ Report and Business Review

The overall turnover of the business increased year-on-year by over 5% to £33,425,690.


The Directors declared dividends from the 2010 earnings of £6 million, of which £4 million was paid prior to 31 December 2010, with the fi nal dividend of £2 million being declared after the year end and paid in March 2011. This equates to £3,000,000 being paid to each shareholder in respect of the 2010 earnings. This approach to dividend payments represents a return by the Company to declaring and paying an interim dividend during the fi nancial year, with a fi nal dividend being paid after 31 December year end. For the fi nancial years 2005 to 2009 Gibtelecom had declared and paid all dividends related to a fi nancial year in the fi nancial year concerned, but to better manage cash fl ows and potential end of year provisions, such as any pension liability movements, for 2010 the Company returned to the policy of paying any fi nal dividend after 31 December fi nancial year end.

The Group’s undistributed profi t for the fi nancial year carried forward to retained earnings, following the payment of the interim dividend, is £7,896,122. The retained earnings of the Group as at 31 December 2010 consequently stood at £13,044,348, albeit this amount has been reduced by the payment of the fi nal dividend in respect of 2010 of £2 million in March 2011. This abnormal increase in the level of retained earnings during the year was primarily a consequence of

the effects of the new Income Tax Act highlighted above, together with the reduction of the Company’s pension liability following the FRS17 (Financial Reporting Standard on Retirement Benefi ts) valuations which reduced the pensions defi cit from £6,197,100 to £4,610,400 year-on year.

Gibtelecom operates two pension schemes for employees, one for all former GNC employees and new recruits to Gibtelecom (Gibraltar Nynex Communications Staff Pension Scheme) and the other for former Gibtel employees (Gibtel Pension Fund), both providing defi ned post-retirement benefi ts based on fi nal pensionable salary. The Company remains committed to continue making the necessary contributions to

ensure that the Pension Funds are funded going forward. As at 31 December 2010, it is estimated that the two Pension Funds combined have assets valued at over £24 million and a combined asset cover of approximately 80 per cent of the potential liabilities. The review of operating two pension schemes, to identify approaches for merging them or bringing them closer together, is now underway. The independent study team of BDO Investment Management Limited (London based actuaries) and Hassans (Gibraltar legal advisors) are expected to have their fi ndings ready for submission to the Company during 2011.

Fixed LineThe total number of fi xed lines remained largely stable from one year to the next. At the end of 2010 Gibtelecom had over 23,000 fi xed line customers. Although the longer term trend continues to see a decline in fi xed telephone lines, with customers increasing dependence on mobile services, in Gibraltar the number of fi xed lines is expected to be relatively stable in the coming years as a result of expansion in the local housing stock and new businesses establishing themselves on the Rock.

International traffi c continues on a slight downward trend in both the IDD (International Direct Dialling) and VoIP (Voice over Internet Protocol) markets. In 2010 Gibtelecom carried around one million international outgoing minutes less than in 2009 (down 8 per cent). This is mainly attributable to customers increasingly using alternative internet messenger services. Gibtelecom, however, estimates that it continues to command a considerable market share of total international traffi c, with the Company’s IDD traffi c and 884 (VoIP) service accounting for over 85 per cent of the projected market.

Gibtelecom’s worldwide cable

16 consortium members $700m fi bre optic cable, UK to India c$30m Gibtelecom investment 15,000 kilometres Partial activation in February 2011 Complements fi bre land routes 3.84 terabits capacity

Directors’ Report and Business Review - continued

This represents the beginnings of the Company building an overseas arm to sell communications bandwidth and transit traffi c capacity worldwide.


The amount of fi xed line local voice traffi c also continues to decline, reducing by some 3% over the period. This is mainly attributable to greater use of mobile phones and the internet, including social networking sites. Although interconnection minutes from Gibtelecom to alternative Gibraltar operators have remained relatively stable throughout the period, small increases in traffi c have been experienced in the opposite direction. This imbalance is probably attributable to incoming international traffi c being picked up and routed by alternative operators.

2010 also saw the end of the old 195 and 196 directory enquiry numbers, which were withdrawn at the end of September and replaced by the new regulatory-imposed 11811 (local) and 11888 (international) enquiries numbers. Despite parallel running which began earlier in March, some 95 per cent of customers were still calling the old 195 and 196 numbers in September. In the light of these statistics, Gibtelecom introduced an announcement advising callers to dial the correct 118 numbers rather than going to a number unobtainable tone. This announcement was terminated at the end of January 2011.

Investment in route diversifi cation and network resilience continued in 2010, with major enhancements to the fi xed fi bre network with new cables and Optical Distribution Frames (ODFs) being located around the Rock. Additionally, Gibtelecom embarked on a major programme to become self-dependant in standby electrical power generation in as many of its thirty odd sites around the Rock as possible. To this end, the fi xed line exchange and internet server room are now fed from a backup generator located at the Company’s John Mackintosh Square building. The Mount Pleasant premises, where the mobile switch and other equipment is located, has its own back-up generators. Most other remote sites now have generator back up power through in situ or mobile generators, in addition to batteries or other standby facilities.

These improvements are underpinned by the coming into partial service of the Europe India Gateway (EIG) submarine cable, in the fi rst quarter of 2011. May 2010 saw the landing of the fi rst commercial submarine cable in Gibraltar for nearly one hundred years. This high bandwidth state of the art fi bre optic system stretches over 15,000 kilometres, and connects three continents (Europe, Africa and Asia) linking also to other cable systems to reach North America and other parts of the world. The system

is being built by a consortium of 16 telecommunications companies at a budgeted cost of over $700 million, in which Gibtelecom’s investment is c$30 million. This investment by the Company will not only provide Gibraltar with signifi cantly improved route diversity, as well as high quality transmission and the capacity to help meet future growth in telecommunications traffi c, but represents the beginnings of the Company building an overseas arm to sell communications bandwidth and transit traffi c capacity worldwide.

During 2010 the Company wrote to customers residing in some new building developments in Gibraltar, whose in-building wiring is under the control of a third party, to explain that Gibtelecom was no longer able to offer its usual one-stop service.

Documents

gibtelecom annual report_v1