TDE.L Regulatory News (TDE)

26 Apr 2007 15:54

Telefonica O2 Czech Republic, A.S.26 April 2007 Press release Telefonica O2 Czech Republic - 2007 First Quarter Financial Results Prague, 26th April 2007 Telefonica O2 Czech Republic, a.s. is pleased to announce its unauditedfinancial results for the first quarter of 2007. These results are consolidatedand prepared according to International Financial Reporting Standards and fullyinclude the Slovak operation. "The results of the first quarter of 2007 have met our expectations in terms ofrevenue growth. In the mobile segment, the number of contract customers andvoice traffic continued to grow as a result of the successful strategy toactively migrate prepaid customers to contracts. In the fixed line segment werecorded further revenue growth in the area of broadband connections, andactivity in ICT/Business Solutions also increased. This led to a reversal in thetrend of fixed segment revenues, which, in the first quarter of 2007, reachednearly the same levels as those of the same period last year," said Jaime Smith,CEO and Chairman of the Board of Directors, Telefonica O2 Czech Republic, whenspeaking of the operator's financial results. Group Highlights Revenues of CZK 15.2 billion (+ 2.4%) Operating costs of CZK 8.2 billion (+ 5.8%) OIBDA of CZK 7.0 billion (- 2.1%), OIBDA margin of 46.6% Operating income of CZK 3.2 billion (+ 5.5%) Net Income of CZK 2.3 billion (+ 12.5%) Net gearing at minus 2.4% (- 5.2 p.p.) CAPEX of CZK 814 million (-16.3%) - CAPEX/Revenues ratio of 5.4% Group Headcount 9,501 (- 6.1%) Consolidated Financial Statements Revenues, operating costs and OIBDA Consolidated revenues (business and recurring revenues) reached CZK 15.2 billionin the first quarter of 2007, up 2.4% yoy. The domestic mobile business was thekey driver of this growth. Revenues in the domestic fixed segment recordedslight decrease in 1Q 2007 compared to the same period of last year, reversingthe recent trend. Total consolidated operating costs reached CZK 8.2 billion, upby 5.8% yoy. Increase in external costs and costs related to the Slovak projectwere the major drivers of the OPEX increase in 1Q 2007. Consolidated OIBDAamounted to CZK 7 billion, down by 2.1% yoy. OIBDA margin (OIBDA over Businessrevenues) reached 46.6% in the first quarter of 2007, compared to 48.9% in thesame period of 2006. Slovak operation diluted OIBDA margin by about 2 p.p. in 1Q2007. Depreciation and Amortization Consolidated depreciation and amortization amounted to CZK 3.9 billion, acontinued decline of 7.6% yoy. Operating Income, Income before tax and Net income Consolidated operating income and consolidated income before tax went up by 5.5%yoy and 7% yoy to reach CZK 3.2 billion and CZK 3.1 billion respectively in thefirst quarter of 2007, on the back of the decrease in consolidated depreciationand amortization and financial expenses. Consolidated net income amounted to CZK2.3 billion, up by 12.5% yoy. CAPEX Total consolidated CAPEX amounted to CZK 814 million in 1Q 2007, down 16.3% yoy.While CAPEX in domestic fixed segment decreased by 14.5% yoy to CZK 400 millionand was spent largely on ADSL rollout related to speed upgrades and IPTVdevelopment, investments in the mobile segment went down by 45.6% to CZK 273million and were directed largely to the CDMA and GSM networks. CAPEX for othersubsidiaries amounted to CZK 141 million and was represented mainly byinvestments related to the launch of the Slovak operation. The yoy decline inCAPEX is mainly a result of lower investments in the UMTS network compared tothe same period last year and a delay in investments which had been planned for1Q 2007. Therefore CAPEX evolution in the first quarter does not represent theexpected investments to be made in the rest of 2007. We maintain our full yearguidance for Group CAPEX of around CZK 9 billion. Free Cash Flows The total amount of the Groups' free cash flows amounted to CZK 4.1 billion in1Q 2007, up by 23.9% yoy. Operating cash flows went down 2.2% yoy to CZK 5.4billion, following the decrease in OIBDA, while lower investments resulted innet cash used in investing activities decreasing by 78.4% compared to 1Q 2006. Cash and Debt levels The group's consolidated financial debt (long-term and short-term) amounted to CZK 9.6 billion at 31 March 2007, down by 0.3% compared to theend of March 2006. The amount of cash and cash equivalents reached CZK 11.7billion on the same day. This resulted in net leverage of minus 2.4% and grossleverage of 10.5% compared to 6.2% and 9.9% at 31 March 2006. CZ Mobile Segment Overview Activities in the mobile segment continued to focus on offering data, Internetand value added services including content. At the same time we improved theattractiveness of our traditional voice packages with the aim of increasingvoice traffic. In addition, we continued to encourage prepaid to postpaidmigration with the aim of developing the ARPU potential of these customers andreducing churn. Total business revenues in the mobile segment increased by 4.8% yoy and amountedto CZK 7.6 billion in the first three months of 2007. Revenues from voice services (monthly fees, traffic and interconnection)increased in total by 5.8% yoy to CZK 5.6 billion. The total number of mobile customers increased by 3.1% yoy to 4,839 thousand atthe end of March 2007. The total number of contract customers reached 1,966thousand at 31 March 2007, up by 323 thousand yoy, whichrepresents 19.7 % growth following the active prepaid to contract migrationstrategy. Contract customers net adds amounted to 91 thousand in 1Q 2007.Contract customers accounted for 40.6% of the total customer base at the end of 1Q 2007, up from 35.0% a year ago. The number of prepaid customers decreased by 179 thousand yoy (and by 116thousand in 1Q 2007 alone) to 2,873 thousand at the end of 1Q 2007, down by5.9% yoy. Under the methodology, which defines a prepaid customer as generatingrevenue in the last 3 months, the number of mobile prepaid customers amounted to2,614 thousand at 31 March 2007, down by 5.7% yoy. The blended monthly average churn rate amounted to 2.0% in 1Q 2007, up from 1.8%in 1Q 2006. Revenues from monthly fees increased by 8.7% yoy to CZK 1.7 billion, mainly as aresult of the 19.7% yoy growth in the contract customer base. Traffic revenues increased by 6.1% yoy to CZK 2.8 billion, while outgoingtraffic usage increased by 20.2% yoy in 1Q 2007. Average MOU per subscriberimproved to 109 minutes in 1Q 2007, up from 96 minutes (13.5% yoy) in 1Q 2006,mainly due to the growing number of contract customers generating higher averagetraffic per customer and traffic stimulation activities. Interconnection revenues amounted to CZK 1.2 billion in 1Q 2007, up by 1.3% yoy,mainly due to a 11.7% growth in incoming traffic driven by increased mobile tomobile traffic. In 1Q 2007, blended monthly ARPU reached CZK 496, up by 1.2% yoy. Contractmonthly ARPU reached CZK 902 in 1Q 2007, down by 9.4% yoy. The main reason forlower contract ARPU is the dilution caused by customer migration from theprepaid to the contract segment. Prepaid monthly ARPU increased 2.7% yoy to CZK232 in 1Q 2007. Total revenues from value added services (including SMS, MMS and content)increased by 1.4% yoy to CZK 1.1 billion as a result of the growing volume ofSMS and MMS messages. O2 customers sent and received in total 750 million SMS in1Q 2007, up by 8.7% yoy. Revenues from Internet and Data recorded a 17.9% yoy increase and reached CZK447 million. The total number of data customers (GPRS and CDMA) increased by18.4% to 174 thousand at 31 March 2007. The total number of CDMA based servicecustomers amounted to 99 thousand (up by 25.3% yoy) and the total number of GPRScustomers reached 75 thousand (up by 10.3% yoy) at that date. Data ARPU improvedto CZK 107 in 1Q 2007 compared to CZK 106 in the same period of the previousyear. Non-SMS data ARPU represented 41% of total data ARPU in 1Q 2007 comparedto 39% in 1Q 2006 as a result of the growth in CDMA and GPRS customers andgrowth in MMS. Equipment sales (including connection fees) decreased by 7.3% yoy in 1Q 2007 toCZK 353 million as a result of the lower number of handsets sold and lower connection fees charged to new contract customers. Other business revenues (IT services and other revenues) decreased by 21.6% yoyto CZK 58 million. CZ Fixed Segment Overview Total business revenues in the fixed line segment went down by 0.1% in 1Q 2007.A continuing focus on broadband Internet based services and increasing activityin the ICT/Business Solution area led to the reverse in the trend of fixedsegment revenues. Revenues from Internet, broadband, data and other value addedtelecommunication services accounted for 28.6% of business revenues in 1Q 2007,compared to 26.0% in 1Q 2006. In March and April 2007, Telefonica O2 CzechRepublic introduced in the market its first convergent product (O2 DuoMobile) and first triple play offer (O2 Trio). With this offer we confirmed ourstrategy to aim at increasing the value of the fixed line proposition andreducing churn. Total business revenues in the fixed segment decreased by 0.1% yoy to CZK 7.5billion driven by the healthy growth of revenues from broadband Internet basedservices and IT services, which offset declines in traditional voice revenues. The total number of fixed telephony accesses amounted to 2,288 thousand as atthe end of March 2007, down by 18.8% yoy mainly as the result of the strongfixed to mobile substitution effect. The net losses of fixed telephony accessreached 114 thousand in 1Q 2007 compared to 162 thousand in 1Q 2006. Revenuesfrom traditional access decreased by 1.5% yoy to CZK 2.5 billion in 1Q 2007,confirming a positive impact of the residential monthly fees increase in April2006 seen from Q3 2006. Revenues from traditional voice services (voice traffic and interconnection)declined in total by 9.6% yoy to CZK 2.4 billion. Revenues from voice trafficdeclined by 22.2% yoy to CZK 1.2 billion, as a result of lower voicetraffic generated by our customers, which decreased by 16.6% yoy to 764 millionminutes. Interconnection revenues went up 7.7% yoy in 1Q 2007 and amounted to CZK 1.2billion driven by higher international transit traffic and increase in number ofLLU. Revenues from Internet & broadband increased in total by 20.7% yoy to CZK 951million as a result of 51.1% growth in revenues from broadband based serviceswhich more than offset decreasing revenues from narrowband, confirming oursuccessful strategy to focus on growing services based on ADSL technology.Narrowband Internet represents a decreasing proportion of Internet revenues withlimited downside potential. Revenues from broadband services (ADSL, IPTV and content) amounted to CZK 866million in 1Q 2007, up by 51.1% yoy. Of this, CZK 764 million representedrevenues from retail broadband (up 56.2% yoy) and CZK 102 million from wholesaleservices (up 21.4% yoy). The total number of ADSL accesses reached 503 thousandat 31 March 2007, compared to 338 thousand a year ago (up 48.8% yoy).Total number of O2 TV's customers increased to 26 thousand at the end ofMarch 2007, representing 10 thousand net adds in 1Q 2007 alone. To furthersupport O2 TV rollout, Telefonica O2 Czech Republic now offers its customers theability to set up the service by themselves using a self-installation package.Currently about 40% of all O2 TV installations are made via theself-installation package. Revenues from narrowband Internet decreased by 60.5% yoy to CZK 85 million in 1Q2007. In the same period, dial up Internet traffic went down by 67.9% yoy to 146million minutes, as a result of continuing dial up traffic migration to ADSLbroadband Internet access and other fast Internet service alternatives. Revenues from data services decreased slightly by 0.3% yoy to CZK 1 billion,mainly due to a 7.2% decline in revenues from leased lines to CZK 551 million,while revenues from data network services increased by 9.0% yoy to CZK 482million as a result of the growth of IP Connect and IP VPN connections and theintroduction of new ADSL based data services. Equipment sales amounted to CZK 105 million, down by 33.1% yoy due to the lowernumber of units sold and special discount offers. Revenues from IT services andbusiness solutions reached CZK 259 million in 1Q 2007 compared to CZK 108million in 1Q 2006, as a result of our growing activities in ICT and IT services(e-toll project, etc). Slovakia Telefonica O2 Slovakia successfully established its business in the Slovakmarket in 1Q 2007. The Company launched its pre-registration campaign for O2Jednotkas on 15 December 2006, which resulted in over 600 thousand registeredpre-subscribers. These customers have been offered telephone calls for SKK 2 perminute within the O2 Slovakia network for an unlimited time. Telefonica O2Slovakia began commercial operation on 2 February 2007. The comprehensive O2Narovinu tariff designed for prepaid customers was launched in February. O2Narovinu customers can make phone calls to all networks in Slovakia on any dayand at any time at a flat rate of SKK 8.50 per minute. By the end of March 2007the Company had recorded 387 thousand active customers and recently we announcedthis number had reached over 400 thousand. Group Operating Expenses Total Group operating costs (including Slovak operation) amounted to CZK 8.2billion in 1Q 2007, up by 5.8% yoy. This increase is to a large extent theresult of higher external services (marketing and sales costs, network & ITmaintenance and other subcontracts) and operating costs related to activities inSlovakia. Supplies expenses grew by 2.3% yoy to CZK 3.8 billion in 1Q 2007.Interconnection costs increased by 3.8% yoy to CZK 2.6 billion due to higheractivities in transit business and growth in mobile off-net traffic generated byour customers. Cost of goods sold went up by 6.0% yoy to CZK 815 million as aresult of increased costs in Slovakia, while this cost in the CR went down yoy.Other supplies decreased by 10.2% to CZK 474 million. Personnel costs, including headcount reduction costs, amounted to CZK 1.8billion, up by 4.0% yoy in 1Q 2007 as a result of a general increase in wages,homogenization of compensation methodologies in the former CESKY TELECOM andEurotel businesses and higher personnel costs in subsidiaries (TO2 Services andTO2 Slovakia) related to headcount growth. The total number of Group employeesreached 9,501 at 31 March 2007, down 6.1% yoy. Telefonica O2 Czech Republicheadcount went down by 8.6% yoy to 9,188. The cost of external services increased in total by 14.5% yoy and reached CZK2.4 billion. Marketing and sales went up by 19.6% yoy to CZK 733 million due tohigher marketing activities related to mobile, ADSL and IPTV offers, andpromotions and marketing costs in Slovakia. Network & IT repairs and maintenanceincreased by 16.4% yoy to CZK 668 million due to higher costs related tomaintenance staff outsourcing and the increased complexity of the network.Rentals, buildings and vehicles costs reached CZK 390 million, up by 0.2% yoywhile utilities supplies increased slightly by 0.8% yoy to CZK 212 million.Other external services including consultancy fees and other external serviceswent up 26.9% yoy to CZK 425 million due to the re-branding costs of shops,increased costs related to customer care and costs incurred in Slovakia. Taxes, comprising taxes other than income tax, fees and provisions decreased by3.4% yoy to CZK 200 million. Outlook for 2007 In 2007, the Company's activities will continue to address the current trends inthe Czech telecommunication market, specifically in the areas of broadband,data, value added services and convergent products. The introduction of new convergent services offering a combination of fixed andmobile voice services, broadband services and IPTV should increase the value ofthe fixed line proposition and eventually reduce churn. Telefonica O2 CzechRepublic has already introduced its first convergent product and a triple playoffer at the beginning of 2Q 2007. The "O2 Duo Mobile" service includes O2Internet ADSL connection and mobile calling for one monthly fee, while "O2 Trio"offers O2 Internet ADSL, O2TV multimedia television, and unlimited national andlocal calls to fixed line networks in one package for a favorable priceincreasing the value-per-money proposition over just adding the three servicesindividually. The Company will also continue to roll out our newly introducedIPTV service, improve the provisioning and customer care and increase theattractiveness of the product through the offer of new channels, movies andinteractive services. We see strong potential in the area of IT and integratedcustomer solutions primarily for corporate and government customers, where theCompany will continue to focus its efforts in 2007. The strategy in the mobilesegment continues to focus on ARPU sustainability via prepaid to postpaidmigration and growing mobile data and Internet revenues through CDMA and HSDPAbased services. Maximum customer experience and satisfaction remain theprincipal goal and the customer is at the heart of all activities we do. The fixed/mobile integration process will continue through the realization ofongoing integration projects with the aim of achieving significant synergiesleading to revenue growth and OPEX and CAPEX savings. At the same time we willcontinue to benefit from the global experience and close interaction withTelefonica, O2 and other Telefonica Group operating companies, largely in theareas of procurement and process improvement and new product development. The Company will continue to support the gradual deployment of the Slovakoperation including the development of systems, processes and network rollout toachieve a quality and customer experience equal to O2 in the Czech Republicwhile applying a cost conscious approach. We maintain our full year guidance for 2007. We expect Group revenues to grow by1 to 3% and OIBDA to decline by -1% to 0% compared to 2006. The expectednegative impact of the Slovak operation is already included in this range. CAPEXis expected to be around CZK 9 billion in total, with around 20% of this figureinvested in Slovakia. Attachment: The consolidated balance sheet and income statement of Telefonica O2 CzechRepublic prepared in accordance with International Financial ReportingStandards. For more information, please contact:MARTIN ZABKASpokespersontel: + 420 271 463 359fax: + 420 271 469 896e-mail: public.relations.cz@o2.com http://www.cz.o2.com/ About Telefonica O2 Czech Republic Telefonica O2 Czech Republic, a.s., is the first integrated operator in theCzech Republic formed on 1 July 2006 by the merger of the leading fixed lineoperator, CESKY TELECOM, a.s., and the strongest mobile operator, Eurotel Praha,spol. s r.o., into a single telecommunications organization. The organization isnow operating nearly eight million lines, both fixed and mobile, making it oneof the world's leading providers of fully converged services. Telefonica O2 Czech Republic offers the most comprehensive portfolio of voiceand data services in this country. A special attention is paid to theexploitation of the growth potential, in particular the data and Internetbusiness. Telefonica O2 Czech Republic operates the largest fixed and mobilenetwork including a unique 3rd generation network, CDMA (for data) and UMTS,enabling the transport of voice, data and video. Furthermore, Telefonica O2Czech Republic offers the largest network of WiFi hotspots in the country. About Telefonica O2 Europe Telefonica O2 Europe comprises mobile network operators in the UK, Ireland andSlovakia, along with integrated fixed/mobile businesses in Germany and the CzechRepublic - all of which use 'O2' as their consumer brand. Telefonica O2 Europealso owns 50% of the Tesco Mobile and Tchibo Mobilfunk joint venture businessesin the UK and Germany respectively as well as having 100% ownership of Be, aleading UK fixed broadband provider. In addition, the group includes the Isleof Man fixed/mobile operator, Manx Telecom. Telefonica O2 Europe, part of the Telefonica group, is headquartered in Slough,UK, and has more than 38 million mobile and fixed customers. About Telefonica Telefonica is one of the largest telecommunications companies in the world interms of market capitalisation. Its activities are centred mainly on fixed andmobile telephony, with broadband as the key tool for the development of both. The company has a significant presence in 23 countries and a customer base ofmore than 203 million worldwide. Telefonica is a 100% listed company, with in excess of 1.5 million directshareholders. Its share capital currently comprises 4,921,130,397 ordinaryshares traded on the Spanish Stock Market (Madrid, Barcelona, Bilbao andValencia) and on those in London, Paris, Frankfurt, Tokyo, New York, Lima,Buenos Aires and Sao Paulo. Attachment: Consolidated balance sheet and income statement of Telefonica O2 Czech Republicunder International Financial Reporting Standards. All figures in CZK million. INCOME STATEMENT Jan - Mar 2007 Jan - Mar 2006 Revenues 15,181 14,825Internal expenses capitalized in fixed assets 124 190Operating expenses (8,230) (7,777)Other operating expenses (47) (44)Gain on sale of fixed assets 7 15Impairment of fixed assets 5 (15)OIBDA 7,040 7,194 Depreciation and amortization (3,854) (4,173)Operating Income 3,186 3,021 Net financial income (expense) (46) (86) Income before tax 3,140 2,935Income tax (831) (882)Minority interest - - Net Income 2,309 2,053 BALANCE SHEET 31.3.2007 31.3.2006 - Intangible assets 7,854 9,224 - Goodwill 13,320 13,320 - Property, plant and equipment and investment property 76,170 85,205 - Long-term financial assets and other non-current assets 412 490 - Deferred tax assets 87 - Current assets 22,061 15,966 - Inventories 986 653 - Trade and other receivables 9,356 8,430 - Current tax receivable 1 - - Short-term financial investments 13 3,293 - Cash and cash equivalents 11,705 3,590 Non-current assets classified as held for sale 210 246 Total assets 120,115 124,451Equity 90,781 97,032 Non-current Liabilities 16,111 17,721 - Long-term financial debt 9,215 9,278 - Deferred tax liabilities 4,447 5,271 - Long/Term Provisions 2,012 2,060 - Other long/term liabilities 437 1,112 Current Liabilities 13,223 9,698 - Short-term financial debt 362 326 - Trade and Other payables 7,593 5,507 - Current tax payable 961 691 - Short-term provisions and other liabilities 4,307 3,174 Liabilities associated with non-current assets classified as held for - -sale Total Equity and Liabilities 120,115 124,451 This information is provided by RNS The company news service from the London Stock Exchange