11 Nov 2009 15:30
Telefónica O2 Czech Republic - 2009 Nine Months Financial Results
November 11, 2009
Telefónica O2 Czech Republic, a.s. announces its unaudited financial results for the first nine months of 2009. These results are consolidated and prepared according to International Financial Reporting Standards and fully include the results of Telefónica O2 Slovakia, Telefónica O2 Business Solutions and other smaller operating companies.
Operational Highlights
Telefónica O2 Czech Republic continued to keep solid commercial momentum in fixed and mobile segments.
Mobile customer base in the Czech Republic increased by 88 thousand in 3Q 2009 (contract: +84 thousand, prepaid: +4 thousand).
ADSL retail accesses grew by 18.0% year-on-year to 651 thousand.
Telefónica O2 Slovakia confirmed strong commercial growth and good financial performance, capturing 100% of Slovak market growth for the third consecutive quarter.
Consolidated business revenues declined 6.7% year-on-year in 9M 2009 impacted by challenging economic environment, universal service and MTR cuts, while OIBDA went down 5.0% year-on-year in 9M 2009.
Strict financial discipline allowed the Group to increase OIBDA margin by 0.9 p.p. to 45.8%.
Full year guidance1 confirmed for OIBDA and Operating Cash Flow.
"Our performance in the third quarter has been negatively impacted by lower consumption, particularly in the mobile segment, resulting from continuous macroeconomic deterioration. Despite difficult environment, we maintained strong commercial performance leveraging on successful proposition meeting our customers' needs. Mobile customers continue to subscribe for O2 NEON flat rate tariffs and new O2 ZERO tariff which enable them a control over their spending. Solid demand for new flexible broadband centric proposition led to further growth of broadband customer base. Also Slovakia confirmed its strong momentum and again outperformed the market. Due to strict financial discipline our OIBDA declined at a lesser rate than revenues and OIBDA margin improved by 0.9 p.p. compared to 2008. I can assure you that we stay focused on delivering our full year guidance for OIBDA and Operating Cash Flow," says Salvador Anglada, Chief Executive Officer and Chairman of the Board of Directors of Telefónica O2 Czech Republic, when commenting on the operator's financial results.
Consolidated Financial Statements
Similarly to the first half of 2009, financial performance of Telefónica O2 Czech Republic group in 3Q 2009 was negatively impacted by challenging environment and MTR cuts. In addition, revenues from Universal Service (USO) booked in 3Q negatively impacted year-on-year revenues comparison in the last quarter. Consolidated business revenues went down 6.7% yoy to CZK 44,742 million in 9M 2009 and 10.6% yoy to CZK 15,005 million in 3Q alone. Excluding the impact of USO2, Group business revenues would decline 6.1% yoy in 3Q 2009 (-7.2% yoy in 2Q 2009). Fixed business revenues in the Czech Republic declined by 9.1% yoy to CZK 20,045 million in 9M 2009 and by 14.7% yoy to CZK 6,775 million in 3Q (-5.2% yoy in 3Q 2009 excluding USO impact), mobile revenues in the Czech Republic declined by 6.9% to 23,413 million in 9M 2009 (-9.5% yoy to CZK 7,773 million in 3Q). On the other hand, revenues in Slovakia continued to grow healthy and recorded a 53.9% yoy revenues growth in local currency in 9M 2009.
Company's focus on efficiency enhancement resulted in 8.5% decrease in consolidated operating costs to CZK 25,238 million in 9M 2009 (-14.0% yoy to CZK 8,415 million in 3Q). Reductions have been reported in majority of cost categories (both commercial and non-commercial). Cost of goods sold decreased by 20.9% to CZK 1,782 million in 9M 2009 (-30.5% in 3Q 2009 alone) as a result of continuous effort to deliver value to the customers in a more efficient way, while marketing and sales expenses dropped 10.6% in 9M 2009 to CZK 2,076. For non-commercial expenses, it is worth highlighting a 2.5% decline in network &IT repairs and maintenance expenses to CZK 1,789 million in 2009 (-8.5% in 3Q 2009) due to continuous focus on efficiency in this area. Group Operating income before depreciation and amortization (OIBDA) went down 5.0% yoy to CZK 20,471 million in 9M 2009 (-6.1% yoy to CZK 6,778 million in 3Q alone). OIBDA margin thus reached 45.8% and 45.2% in 9M and 3Q 2009 respectively, representing 0.9 and 2.2 p.p. yoy improvement.
Consolidated net income amounted to CZK 8,896 million, down by 1.2% yoy in 9M 2009 (-1.0% to CZK 3,174 million in 3Q) due to decline in OIBDA which was not fully offset by lower depreciation charge and lower income tax.
Consolidated CAPEX reached CZK 4,536 million in 9M 2009, 9.3% up yoy (-5.6% yoy in 3Q 2009) due to accelerated investment in 3G network expansion (different phasing compared to 2008). New generation mobile network covered 12 out of 13 key regional towns at the end of 9M 2009.
The consolidated financial debt amounted to CZK 2,932 million while cash and cash equivalents and short term financial investments reached CZK 15,183 million at the end of September 2009, up from CZK 7,153 million at the end of 2008. In 3Q 2009, the Company continued in accumulating cash for a dividend payment (CZK 16,104 million) which was made on 7 October 2009, i.e. in 4Q.
CZ Mobile Segment Overview3
Mobile segment continued to report solid commercial performance leveraging on successful customer proposition seen already in 1H 2009. Similarly to 2Q 2009, the financial performance in 3Q 2009 was negatively impacted by difficult economic environment and additional MTR cuts (-22.7% year-to-date4).
Total mobile customer base in the Czech Republic reached 4,923 thousand at the end of September 2009 (+4.5% yoy). Number of contract customers went up 13.0% yoy reaching 2,746 thousand at the end of 3Q 2009 with 83.5 thousand net adds in the quarter (+38.4% yoy). This positive performance was driven by continuous uptake of O2 NEON tariffs and solid interest in O2 ZERO tariff among the customers, which was launched on July 1, 2009. O2 ZERO is a simple tariff with no monthly fees and no contractual commitment allowing customers flexible control of their expenses. Number of prepaid active customers reached 2,177 thousand at the end of 3Q 2009, -4.6% yoy. It is worth highlighting further improvement in prepaid customer base development. In 3Q 2009, number of prepaid customers grew by 4.2 thousand compared to net loss of 14.2 thousand and 96.1 thousand in 2Q and 1Q respectively. This is a result of a successful customer proposition "NA!VÍC" focused on regular top-ups. At 30 September 2009, contract customers represented 55.8% of the base (+4.2 p.p. yoy).
Total number of data customers on flat rate tariffs reached 252 thousand at the end of September 2009 (+16.0% yoy).
The blended monthly average churn rate reached 1.9% in 9M 2009, 0.1 p.p. down yoy, while it reached 2.0% in 3Q 2009, flat compared to 3Q 2008.
In terms of usage, mobile traffic5 carried in the Czech Republic grew by 10.6% yoy to 6,024 million minutes in 9M 2009 (+11.6% yoy in 3Q alone) due to higher contract base and successful proposition of flat rate tariffs (O2 NEON).
In 9M 2009, blended ARPU6 reached CZK 521, down 7.7% yoy largely due to customers optimizing their behaviour and MTR cuts. Contract ARPU reached CZK 770 in 9M 2009, down by 13.0% yoy and CZK 744 in 3Q 2009, down 15.2% yoy. Customer migration from prepaid to the contract tariffs contributed to contract ARPU dilution. Prepaid ARPU decreased by 12.2% yoy to CZK 223 in 9M 2009, and by 15.5% yoy to CZK 222 in 3Q 2009 impacted by customers optimizing their behaviour in the current environment and migration of high value prepaid customers to contracts.
Total business revenues in the mobile segment in the Czech Republic declined by 6.9% to CZK 23,413 million in 9M 2009 and by 9.5% in 3Q 2009 alone, while mobile service revenues went down by 6.2% yoy and 8.8% yoy in these periods. Mobile termination rate cuts diluted mobile business revenues growth by 2.1 p.p. in 9M 2009 and by 3.4 p.p. in 3Q alone. As a result, decrease in mobile business revenues excluding MTR cuts slowed down to 6.1% yoy in 3Q 2009 from 6.2% in 2Q. For mobile service revenues, MTR cuts dragged 2.2 p.p. and 3.5 p.p. of them in 9M and 3Q 2009 respectively and excluding MTR cuts they would decrease 5.3% yoy in 3Q 2009, down from 5.8% in 2Q 2009. Significant decline was recorded for interconnection revenues, which dropped 11.1% yoy to CZK 3,564 million in 9M 2009 and 18.4% yoy in 3Q alone due to additional MTR cuts and lower roaming.
CZ Fixed Segment Overview7
The fixed line segment continued to report solid commercial performance in a slower market. The financial performance was negatively impacted by above mentioned universal service, while ICT revenues positively contributed to revenues in 3Q 2009.
Total number of fixed accesses declined by 5.4% yoy to reach 1,790 thousand at the end of 3Q 2009, with 13.9 thousand net losses in the quarter (down from 47.1 thousand in 2Q) helped by solid uptake of naked accesses following the introduction of new broadband centric proposition in May 2009.
Voice traffic generated in the fixed network went down 13.7% in 9M 2009 to 1,518 million minutes as a result of continued fixed lines losses and fixed to mobile substitution.
Retail ADSL accesses reached 651 thousand at the end of September 2009, up 18.0% yoy, with 17.0 thousand net additions in 3Q 2009 (1.5 times higher compared to the same period in 2008) due to continuous strong commercial activities around broadband centric proposition. The total number of O2 TV customers reached 136 thousand at the end of September 2009, up by 25.7% yoy.
Total business revenues in the fixed segment went down 9.1% yoy to CZK 20,045 million in 9M 2009 with a 14.7% yoy decline to CZK 6,775 million in 3Q alone (-5.2% excluding universal service). While revenues from traditional access fell by 18.7% yoy to reach CZK 5,395 million in 9M 2009 (-31.0% yoy in 3Q 2009) due to continuous fixed lines losses, Internet & broadband revenues increased in total by 19.3% yoy to CZK 3,660 million in 9M 2009 (+ 44.3% in 3Q) driven by 21.2% growth in broadband based services (+46.2% in 3Q 2009) as a result of broadband (ADSL and IPTV) customers growth and introduction of broadband centric proposition in May 2009. IT services and business solutions revenues increased by 14.1% yoy to CZK 1,494 million in 9M 2009 (+53.3% yoy in 3Q alone).
Slovakia
In 3Q 2009, Telefónica O2 Slovakia continued to deliver strong commercial and financial performance leveraging on successful customer proposition based on value and simplicity strategy (O2 Fér). Total number of active customers reached 463 thousand at the end of 3Q 2009, up by 67.0% yoy. In 3Q 2009, net additions reached 46.1 thousand, 20 times higher compared to the same period in 2008. Number of contract customers more than doubled (+101.3% yoy) and reached 157 thousand with 21.4 thousand net adds in the quarter, while number of prepaid active customers increased by 53.6% yoy to 306 thousand at the end of September 2009, with 24.7 thousand net additions in a quarter. Contract customers represented 34.0% of total customer base at the end of 3Q 2009, up 5.8 p.p. yoy. Total revenues of Telefónica O2 Slovakia increased by 53.9% yoy in local currency in 9M 2009 (+66.1% yoy in 3Q). Contract ARPU reached EUR 24.7 in 9M 2009 while prepaid ARPU was at EUR 8.2.
Attachment:
The consolidated balance sheet and income statement of Telefónica O2 Czech Republic prepared in accordance with International Financial Reporting Standards (all figures in CZK million).
For more information, please contact:Martin Žabka
Spokesperson
Telefónica O2 Czech Republic, a.s.
public.relations.cz@o2.com
tel: 800 163 342 (800 1 media)
About Telefónica O2 Czech Republic
Telefónica O2 Czech Republic is a major integrated operator in the Czech Republic. It is now operating more than seven million lines, both fixed and mobile, making it one of the world's leading providers of fully converged services. The organization offers the most comprehensive portfolio of voice and data services in this country. It is paying special attention to the exploitation of the growth potential, particularly in the data and Internet sector. Telefónica O2 Czech Republic operates the largest fixed and mobile network including a 3rd generation network, CDMA (for data), and UMTS, enabling voice, data and video transmission. Telefónica O2 Czech Republic is also a notable provider of ICT services.
About Telefónica O2 Europe
Telefónica Europe is a business division of Telefónica comprising mobile, fixed, and DSL operations in the UK, Ireland, the Isle of Man, Germany, the Czech Republic, and Slovakia. With the exception of Isle of Man, all the operating businesses use 'O2' as their consumer brand. Telefónica Europe also has 50% ownership of the UK and Irish Tesco Mobile and German Tchibo Mobilfunk joint venture businesses. Telefónica Europe is headquartered in Slough, UK, and has 49 million mobile and fixed customers.
| INCOME STATEMENT | Jan - Sep 2009 | Jan - Sep 2008 |
| Business revenues | 44,742 | 47,935 |
| Other recurring revenues | 66 | 168 |
| Revenues | 44,808 | 48,103 |
| Internal expenses capitalized in fixed assets | 565 | 298 |
| Operating expenses | (25,238) | (27,586) |
| Other operating income/(expenses) | 2 | (16) |
| Gain on sale of fixed assets | 358 | 828 |
| Impairment of fixed assets | (23) | (87) |
| OIBDA | 20,471 | 21,540 |
| Depreciation and amortization | (9,014) | (9,680) |
| Operating Income | 11,457 | 11,861 |
| Net financial income (expense) | (142) | 35 |
| Income before tax | 11,315 | 11,895 |
| Income tax | (2,419) | (2,890) |
| Net Income | 8,896 | 9,005 |
| BALANCE SHEET | 30.09.2009 | 31.12.2008 |
| Non-current assets | 81,325 | 86,166 |
| - Intangible assets | 8,928 | 8,900 |
| - Goodwill | 13,448 | 13,448 |
| - Property, plant and equipment and investment property | 58,632 | 63,429 |
| - Long-term financial assets and other non-current assets | 317 | 389 |
| - Deferred tax assets | - | - |
| Current assets | 26,202 | 17,361 |
| - Inventories | 606 | 779 |
| - Trade and other receivables | 9,970 | 9,203 |
| - Current tax receivable | 443 | 226 |
| - Short-term financial investments | 13 | 37 |
| - Cash and cash equivalents | 15,170 | 7,116 |
| Non-current assets classified as held for sale | 55 | 96 |
| Total assets | 107,583 | 103,623 |
| Equity | 71,037 | 78,168 |
| Non-current Liabilities | 6,217 | 6,977 |
| - Long-term financial debt | 2,895 | 3,098 |
| - Deferred tax liabilities | 3,205 | 3,300 |
| - Long/Term Provisions | 52 | 403 |
| - Other long/term liabilities | 65 | 176 |
| Current Liabilities | 30,329 | 18,478 |
| - Short-term financial debt | 37 | 98 |
| - Trade and Other payables | 11,496 | 15,004 |
| - Current tax payable | - | 9 |
| - Short-term provisions and other liabilities | 18,796 | 3,367 |
| Liabilities assoc. with non-current assets classified as held for sale | - | - |
| Total Equity and Liabilities | 107,583 | 103,623 |
1 OIBDA (excluding brand fees and impairment charge) decline of -4% to 0%, Operating Cash Flow (guided OIBDA less CAPEX) growth of +2% to +5%, in constant FX rate
2 CZK 968 million in 3Q 2008 and CZK 165 million in 3Q 2009
3 Figures are shown net of inter-segment charges between fixed and mobile segment
4 On July 1, 2009 MTR dropped to CZK 2.31 (after a drop from CZK 2.99 to CZK 2.65 in February 2009)
5 Inbound and outbound, excluding inbound roaming and roaming abroad
6 Including inter segment revenues
7 Figures are shown net of inter-segment charges between fixed and mobile segment