TDE.L Regulatory News (TDE)

21 Apr 2008 16:47

Telefonica O2 Czech Republic, A.S.21 April 2008 Press release Telefonica O2 Czech Republic - 2008 First Quarter Financial Results Prague, 21st April 2008 Telefonica O2 Czech Republic, a.s. is pleased to announce its unauditedfinancial results for the first quarter of 2008. These results are consolidatedand prepared according to International Financial Reporting Standards and fullyinclude the results of Telefonica O2 Slovakia. "I am pleased that the group's revenues performance for the first quarter of2008 was supported by continuing growth of our mobile segment. Our strategy inthe fixed line business focusing on growth areas of broadband, IPTV andconvergent services resulted in 28% growth of ADSL and IPTV customers comparedto the same period last year. At the same time we were able to maintain healthyprofitability level while absorbing the impact of the start up costs of ourSlovak operation," said Salvador Anglada, Chief Executive Officer and Chairmanof the Board of Directors of Telefonica O2 Czech Republic, when commenting onthe operator's financial results. 1Q 2008 Group Highlights(1) 1Q 2008Revenues CZK 15.4 bn. (+ 1.5%)- of which business revenues CZK 15.3 bn (+ 1.6%)OIBDA CZK 6.7 bn. (- 4.5%)OIBDA margin 43.8% (- 2.8 p.p.)Operating income CZK 3.4 bn. (+ 5.4%)Net Income CZK 2.4 bn. (+ 5.4%)Net gearing -4.9%(2)CAPEX CZK 806 mil. (- 1%)CAPEX/Revenues 5.2%Group Headcount 9,314 (- 2%)CZ mobile registered customers 5,159 ths. (+ 6.6%)- of which contract 2,306 ths. (+ 17.3%)ADSL accesses 587 ths. (+ 16.9%)O2 TV customers 87 ths.Fixed telephony accesses 1,996 ths. (- 12.8%)SK mobile registered customers 523 ths. Consolidated Financial Statements Revenues, operating costs and OIBDA Consolidated revenues reached CZK 15.4 billion in 1Q 2008, up 1.5% yoy, whileconsolidated business revenues grew 1.6% yoy to CZK 15.3 billion. The Czechmobile business with 6.1% business revenues growth was the key driver of thisperformance. Business revenues in the domestic fixed segment went down 5.9% yoyin 1Q 2008. Total consolidated operating costs reached CZK 8.8 billion in 1Q2008, up by 6.3% yoy. Consolidated OIBDA thus amounted to CZK 6.7 billion in 1Q2008, down by 4.5% yoy. OIBDA margin (OIBDA over Business revenues) reached43.8% in 1Q 2008 compared to 46.6% in 1Q 2007. The Slovak operation dilutedOIBDA margin by close to 3 p.p. in 1Q 2008. Depreciation and Amortization Consolidated depreciation and amortization amounted to CZK 3.4 billion in 1Q2008, a decline of 12.7% yoy. Operating Income, Income before tax and Net income Consolidated operating income and consolidated income before tax went up by 5.4%yoy and 7% yoy to reach CZK 3.4 billion in 1Q 2008, on the back of the decreasein consolidated depreciation and amortization. On top of that the financialincome positively contributed the consolidated income before tax and net income.Consolidated net income amounted to CZK 2.4 billion, up by 5.4% yoy. CAPEX Total consolidated CAPEX amounted to CZK 806 million in 1Q 2008, down 1% yoy.CAPEX in the Czech Republic was largely related to increasing the capacity andcoverage of the GSM network, ADSL and IPTV rollout, fixed access networkimprovement and information systems upgrade. CAPEX in Slovakia was spent on GSMnetwork rollout and systems deployment. Low CAPEX is mainly a result of a delayin investments which had been planned for 1Q 2008. Therefore CAPEX evolution inthe first quarter does not represent the expected investments to be made in therest of the year. We maintain our full year guidance for Group CAPEX of aroundCZK 9 billion. Free Cash Flows In 1Q 2008, the total amount of the Groups' free cash flows amounted to CZK 3.6billion, down by 11.1% yoy. Operating cash flows went down 0.6% yoy to CZK 5.3billion due to the decline in OIBDA and higher tax paid, while net cash used ininvesting activities increased 36.4% yoy to CZK 1.6 billion. Cash and Debt levels The group's consolidated financial debt (long-term and short-term) amounted to CZK 9.3 billion on 31 March 2008, up by 0.5% compared to the end of December 2007. The amount of cash and cash equivalents and short term financial investments reached CZK 13.4 billion at the end 1Q 2008. This resulted in net leverage of minus 4.9% and gross leverage of 10.9% compared to minus 0.4% and 11.2% at 31 December 2007. Czech Republic Overview The Company's activities in the first quarter of 2008 continued to focus on newand enhanced products and services in the growth areas. These include broadbandbased services, IT and comprehensive customer solutions in the fixed segment. Inthe mobile segment Telefonica O2 continued to focus on voice traffic stimulationand marketing of its mobile data services. In addition, the Company continued toencourage prepaid to contract migration with the aim of developing the ARPUpotential of these customers. CZ Mobile Segment Overview(3) Total business revenues in the mobile segment increased by 6.1% yoy in 1Q 2008and amounted to CZK 8.2 billion. Revenues from voice services (monthly fees, traffic and interconnection)increased in total by 4.9% yoy to CZK 6 billion in 1Q 2008. The total number of registered mobile customers increased by 6.6% yoy to 5,159thousand at 31 March 2008. The total number of contract customers reached 2,306thousand, up by 340 thousand yoy, representing 17.3% growth following the activeprepaid to contract migration strategy. Contract customers accounted for 44.7%of the total customer base at the end of March 2008, up from 40.6% a year ago. The number of prepaid registered customers decreased by 20 thousand yoy (0.7%yoy) to 2,853 thousand at the end of March 2008, while it decreased by 29thousand in 1Q 2008 alone. Under the methodology, which defines a prepaidcustomer as generating revenue in the last 3 months, the number of mobile activeprepaid customers amounted to 2,451 thousand at 31 March 2008, down by 6.2% yoy. The blended monthly average churn rate reached 1.7% in 1Q 2008, down from 2% in1Q 2007. Revenues from monthly fees increased by 9.3% yoy to CZK 1.9 billion in 1Q 2008,driven by a 17.3% yoy growth in the contract customer base. Traffic revenues increased by 3.8% yoy to CZK 2.9 billion in 1Q 2008, on theback of 14.5% growth in outgoing traffic volumes. Average MOU per subscriberimproved to 117 minutes in 1Q 2008, up from 109 minutes in 1Q 2007, mainly dueto the growing number of contract customers generating higher average trafficper customer and attractiveness of tariffs designed to stimulate traffic whichwere well accepted among the customers. Interconnection revenues amounted to CZK 1.3 billion in 1Q 2008, up by 1.4% yoy. In 1Q 2008, blended monthly ARPU(4) reached CZK 509, up from CZK 501 in 1Q 2007(+1.6% yoy). Contract monthly ARPU reached CZK 853 in 1Q 2008, compared to CZK910 in 1Q 2007 (-6.3% yoy). The main reason for the lower contract ARPU is thedilution caused by customer migration from the prepaid to the contract segment.Prepaid monthly ARPU increased by 0.9% yoy to CZK 237 in 1Q 2008 from CZK 235 in1Q 2007. Total revenues from value added services (including SMS, MMS and content)increased by 9.4% yoy to CZK 1.2 billion as a result of the growing volume ofSMS and MMS messages. In 1Q 2008, O2 customers sent and received in total 816million SMS, up by 8.8% yoy. Revenues from Internet and Data recorded a 12.5% yoy increase and reached CZK503 million. The total number of data customers (GPRS, CDMA and UMTS flat rate)increased by 17.9% to 205 thousand at 31 March 2008. Data ARPU improved by 5.6%yoy to CZK 113 in 1Q 2008. Non-SMS data ARPU represented 43% of total data ARPUin 1Q 2008 compared to 41% in 1Q 2007 as a result of the growth in mobile datacustomers. Equipment sales (including connection fees) decreased by 7.9% yoy in 1Q 2008 toCZK 325 million. Other business revenues reached CZK 115 million. CZ Fixed Segment Overview(5) Total business revenues in the fixed line segment went down by 5.9% to CZK 7billion in 1Q 2008. Revenues from broadband, data and other value addedtelecommunication services accounted for 31.2% of business revenues in 1Q 2008compared to 27.9% in the same period of 2007. Revenues from traditional access decreased by 16.6% yoy to CZK 2.1 billion in 1Q2008 on the back of 12.8% decline in the number of fixed telephony accesses,which amounted to 1,996 thousand at the end of March 2008, mainly as the resultof the strong fixed to mobile substitution effect. However, the decline in fixedtelephony accesses decelerated between 1Q 2007 and 1Q 2008. The net customersdecrease reached 73 thousand in 1Q 2008 compared to 114 thousand in 1Q 2007.This is a result of improving the number of gross adds and lower number ofdisconnections following the Company's effort to enhance the quality of fixedlines via broadband and bundled offers. Total number of customers subscribed forone of the bundled products (O2 Duo, O2 Trio and O2 Duo Mobil) reached some 120thousand at the end of March 2008. Revenues from traditional voice services (voice traffic and interconnection)declined in total by 8% to CZK 2.2 billion in 1Q 2008. Revenues from voicetraffic declined by 9.8% yoy to CZK 1.1 billion in 1Q 2008, as a result oflower voice traffic generated by our customers, which decreased at the same timeby 16.1% yoy to 641 million minutes. Growth of revenues from broadband basedservices, value added services and IT services did not offset declines intraditional voice revenues. Interconnection revenues went down 6.1% yoy in 1Q 2008 and amounted to CZK 1.1billion driven by decrease in revenues from incoming voice which was not fullycompensated by international transit traffic and an increase in the number ofLLU. Revenues from Internet & broadband increased in total by 9.7% yoy to CZK 1billion in 1Q 2008 as a result of 16.7% growth in revenues from broadbandbased services (ADSL, IPTV and content) which more than offset continuingdecrease in revenues from narrowband, confirming the company's strategy to focuson ADSL and IPTV based services and premium content. Revenues from broadband services amounted to CZK 1 billion in 1Q 2008, up by16.7% yoy. Of this, CZK 921 million represented revenues from retail broadband(up 20.5% yoy) and CZK 90 million from wholesale ADSL services (down 11.8%yoy). The total number of ADSL accesses (retail and wholesale) reached 587thousand at 31 March 2008, compared to 502 thousand a year ago (up 16.9% yoy).The total number of O2 TV's customers increased to 87 thousand at the end of 1Q2008, representing 14 thousand net adds in 1Q 2008. Revenues from data services decreased by 4.6% yoy to CZK 985 million as a resultof 18.1% decline in revenues from leased lines, while revenues from data networkservices increased by 10.8% yoy as a result of the growth of IP Connect and IPVPN connections. Revenues from IT services and business solutions reached CZK 365 million in 1Q2008, 40.9% up yoy, and were also contributed by revenues from recentlyacquired Deltax Systems. Equipment sales amounted to CZK 104 million, down by 1%yoy due to the lower number of units sold and special discount offers. Otherbusiness revenues went up by 16.3% yoy to CZK 171 million. Slovakia In 1Q 2008, the key activities in Slovakia continued to focus on marketing ofcompany's postpaid offer, promotion of attractive prepaid tariffs with the aimto further expand the customer base and improve the customer mix, and customercare enhancement. In March, Telefonica O2 Slovakia introduced a new offer forthe sole traders, entrepreneurs and small businesses. "Always More Convenient"feature allows for automatic adjustment of tariffs reflecting the actual usagelevel of client in particular billing period, resulting in more advantageousrates at higher usage level and savings when client calls less, respecting theseasonality of the business. These commercial efforts should lead to increase incustomers' activity in terms of network usage. During 1Q 2008, Slovak subsidiary booked provision related to uncollectedreceivables of initial base of post paid customers ultimately impacting GroupOIBDA level. As expected and previously reported, part of the customers acquired in initiallaunch campaign in Q1 2007 were using the service irregularly, resulting inlimited activity level. In line with its general commercial terms, Telefonica O2Slovakia deactivated these customers in the course of Q1 2008 resulting in 449thousand registered prepaid customers at the period end under reportingstandards comparable with other Slovak mobile operators. At the end of March2008, number of contract customers reached 74 thousand and total customer base523 thousand. Under the criterion taking into account the revenue generatingtransactions in the last 3 months, the number of mobile active prepaid customersamounted to 213 thousand. Telefonica O2 Slovakia continued rollout of its ownnetwork infrastructure and as of the end of March 2008 the company was able tocapture already 65% of customer generated traffic over its network. Group Operating Expenses Total Group operating costs (including the Slovak operation) amounted to CZK 8.8billion in 1Q 2008, up by 6.3% yoy. Supplies expenses grew by 3.8% yoy to CZK 4 billion in 1Q 2008. Interconnectioncosts increased by 7.5% yoy to CZK 2.7 billion due to interconnection chargesrecorded in Slovakia and higher activities in transit business in the CzechRepublic. Cost of goods sold went down by 6% yoy to CZK 766 million. Othersupplies increased by 1.1% to CZK 478 million. Personnel costs, including headcount reduction costs, amounted to CZK 1.8billion in 1Q 2008, up 2.2% yoy. The total number of Group employees (including Deltax) reached 9,314 at 31 March 2008, down 2% yoy. Telefonica O2 Czech Republic headcount went down by 6.3% yoy to 8,609. The cost of external services increased in total by 8.4% yoy and reached CZK 2.7billion in 1Q 2008. Marketing and sales in total went down by 4.9% yoy to CZK697 million. Network & IT repairs and maintenance decreased by 7.5% yoy to CZK618 million in 1Q 2008. Rentals, buildings and vehicles costs reached CZK 530million, up by 35.9% yoy while utilities supplies increased by 22.6% yoy to CZK260 million on the back of price increase. Other external services includingconsultancy fees, call centers and other external services went up 22.8% yoy toCZK 571 million. Taxes, comprising taxes other than income tax, fees and provisions increased by64% yoy to CZK 328 million mainly as a result of bad debt provisions created inSlovakia. Outlook for the rest of 2008 In the fixed line business the Company's effort will continue to focus onslowing down of the fixed lines cancellation rate. The Company believescontinuing enhancement of ADSL and IPTV value proposition will further increasethe value of the fixed line proposition and eventually reduce churn. Broadbandservices will be the fundamental product of the bundles. We see strong potentialin the area of IT and integrated customer solutions primarily for corporate andgovernment customers, where the Company will continue to focus its efforts in2008. The acquisition of Deltax Systems will further strengthen the Company'sposition on the fast growing ICT market. The strategy in the mobile segmentcontinues to focus on ARPU sustainment via onward prepaid to postpaid migrationand growing non-SMS mobile data and Internet revenues through broadband basedservices. The Company will continue to support the gradual deployment of the Slovakoperation mainly in the support functions. Commercial activities in Slovakiawill primarily focus on the improvement of customer mix via increasingproportion of postpaid customers and acquisition of new ones with the aim toincrease their activity. The main aspects of financial management of the Telefonica O2 Czech RepublicGroup will remain focused on profitable growth, efficient CAPEX levels andstrong free cash flows. We maintain our full year guidance for 2008. In 2008 we expect Group revenues(6)to grow by 2 to 4% and OIBDA(7) to grow 0% to 2% compared to 2007. CAPEX isexpected to be around CZK 9 billion in total. Attachment: The consolidated balance sheet and income statement of Telefonica O2 CzechRepublic prepared in accordance with International Financial ReportingStandards. Contact for further information:MARTIN ZABKASpokespersontel: + 420 271 463 359e-mail: public.relations.cz@o2.comhttp://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 more than seven million lines, both fixed and mobile, making itone of 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 3rd generation network, CDMA (for data) and UMTS, enablingthe transport of voice, data and video. Furthermore, Telefonica O2 CzechRepublic 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 40 million mobile and fixed customers. About Telefonica Telefonica is one of the world's largest telecommunications companies by marketcapitalisation. Its activities are centred mainly on fixed and mobiletelephony, while its broadband business is the key growth driver underpinningboth. It operates in 24 countries and its customer base exceeds 228 million globally.Telefonica's growth strategy is focused on the markets in which it has a strongfoothold: Spain, Europe and Latin America. Attachment: Consolidated balance sheet and income statement of Telefonica O2 Czech Republicunder International Financial Reporting Standards. All figures in CZK million. INCOME STATEMENT Jan - March 2008 Jan - March 2007Revenues 15,410 15,181Internal expenses capitalized in fixed assets 91 124Operating expenses (8, 792) (8,270)Other operating income/(expenses) 6 (7)Gain on sale of fixed assets 9 7Impairment of fixed assets - 5OIBDA 6,724 7,040 Depreciation and amortization (3,365) (3,854)Operating Income 3,359 3,186 Net financial income (expense) 2 (46) Income before tax 3,361 3,140Income tax (927) (831) Net Income 2,434 2,309 BALANCE SHEET 31.3.2008 31.12.2007Non-current assets 91,524 94,191 - Intangible assets 8,294 8,485 - Goodwill 13,447 13,320 - Property, plant and equipment and investment property 69,430 71,809 - Long-term financial assets and other non-current assets 354 577 - Deferred tax assets - Current assets 23,113 19,033 - Inventories 824 853 - Trade and other receivables 8,758 8,548 - Current tax receivable 84 8 - Short-term financial investments 68 48 - Cash and cash equivalents 13,378 9,576 Non-current assets classified as held for sale 322 328 Total assets 114,959 113,552Equity 85,255 82,792 Non-current Liabilities 8,731 9,017 - Long-term financial debt 2,915 3,062 - Deferred tax liabilities 3,308 3,353 - Long/Term Provisions 2,169 2,150 - Other long/term liabilities 339 452 Current Liabilities 20,972 21,743 - Short-term financial debt 6,397 6,207 - Trade and Other payables 10,365 11,080 - Current tax payable 904 870 - Short-term provisions and other liabilities 3,307 3,586 Liabilities associated with non-current assets classified as held for - -sale Total Equity and Liabilities 114,959 113,552 -------------------------- (1) Comparative period 3 months to 31 March 2007 (2) Long and short term financial debt less cash and cash equivalents and short-term fin. investments over equity (3) Figures are shown net of inter-segment charges between fixed and mobile segment (4) including inter segment revenues (5) Figures are shown net of inter-segment charges between fixed and mobile segment (6) In terms of guidance calculation, Revenues represent business revenues only (7) In terms of 2008 guidance calculation, OIBDA excludes other exceptional revenues/expenses not foreseeable in 2008. For comparison purpose, the equivalent other exceptional revenues/expenses registered in 2007 are also deducted from reported figures (the only unforeseeable expense deducted from 2007 OIBDA was the impairment charge). This information is provided by RNS The company news service from the London Stock Exchange