"I am pleased to present the second annual report of KeyTech Limited. The Company has performed well this past year and most pleasing was the smooth transition from 1999 into the year 2000. We recognized the importance of communications to Bermuda and thus we are proud to have met this challenge. We have also been successful during this past year in reaching a settlement in our dispute with a significant shareholder of Bermuda Cablevision Limited, and now that company can direct its attention to developing and improving its core business.
The communications industry is continuing to evolve at a rapid pace. The changes that are occurring are indicative of the removal of the historic demarcations that separated various service providers. The mergers have and are resulting in the formation of large multi-disciplinary communications companies. In Bermuda, we still have distinct separations and we urge the Ministry of Telecommunications and eCommerce to adopt the necessary changes to our regulations for the benefit of all.
Reports of Subsidiaries
BTC
The development of an improved and more robust network continues and in the areas where this is complete, a much improved level of service is being experienced. It is our estimate that it will require another two years before the project is complete.
We continue to focus on service delivery and making the necessary changes to achieve this. We believe that it is necessary to have a stable and dependable fixed line network that will be capable of providing multiple services.
Our wireless division is continually seeking to provide a high quality of digital service. Being safety conscious, we are constantly ensuring that cellular emissions are well within government regulations. Technology is developing rapidly and more use will be made of the wireless technology. We have introduced a roaming service and are certain that this will prove to be an added bonus to our cellular customers. The introduction of the Globalstar satellite services has been delayed because we have not yet received approval from the Telecommunications Commission for the rates and conditions for this service.
Logic
In 1999, after considerable effort to perfect the use of voice service over the internet, Logic was
unsuccessful in its attempt to obtain permission under its license to commercially offer the service to customers in Bermuda. A very recent amendment to its license by the Minister of Telecommunications and eCommerce will now allow the service to be offered. Consumers can expect to see reduced international calling charges as a result of this action taken by the Minister.
Financial Overview
KeyTech produced another solid financial performance in year 2000. Net income was $14.2 million ($7.28 per share), slightly above last year's figure of $14.0 million ($7.00) per share). During the same period, shareholders' equity increased to $91 million ($46.63 per share), up from $81 million ($41.22 per share) in 1999.
Operating revenues show a 4% increase over last year mainly as a result of strong demand for local voice, data, cellular and internet services. As expected, international call revenue declined by 35% to $21.0 million even though volume increased. This was the result of reduced interconnection fees received from International Carriers.
As was the case last year, KeyTe c h 's investment portfolio contributed significantly to net income. Investment income and realized gains on sale of investments amounted to $4.4 million ($1.5 million in 1999).
Operating expenses increased by $5.6 million to $73 million, or 8.3%, mainly as a result of increased amortization and depreciation, up from $16.8 million in 1999 to $20.6 million in the current year.
Outlook for 2001
As the traditional markets in which the KeyTech subsidiaries serve approach maturity, and subsidies in these markets are removed, the Company will expand its horizons and service offerings to leverage new technologies as they become available. In particular, KeyTech will focus on its cellular, data and internet services to maximize potential earnings. Portability of communications is becoming prime for the consumer so the Company will aggressively build on its strengths to meet these customers' needs. To this end, KeyTech will spend $21 million by way of capital expenditure in 2001 and hence maintain or grow revenues. With tight control over operating expenses and a stable revenue stream, KeyTech expects to continue with a strong financial performance in 2001.
General
Bermudians are experiencing the benefits of competition in communications. There are still many
more benefits that can and will accrue. We are advocates of an open market and are confident of our ability to prosper in such an environment. Our Company will continue to alter its shape to enable us to provide the services demanded in this increasingly competitive environment and achieve the efficiencies necessary to remain profitable. We thank all of our staff for their efforts and support and particular mention needs to be made of those who manned the switches and computers during the transition into the year 2000.