TDE.L Regulatory News (TDE)

25 Oct 2007 15:00

Telefonica O2 Czech Republic, A.S.25 October 2007 Press release Telefonica O2 Czech Republic - 2007 First Nine Months Financial Results Prague, 25th October 2007 Telefonica O2 Czech Republic, a.s. is pleased to announce its unauditedfinancial results for the first nine months of 2007. These results areconsolidated and prepared according to International Financial ReportingStandards and fully include the Slovak operation. "I am pleased that the company's results for the first three quarters of 2007confirmed a solid performance. Once again, consolidated revenues grew thanks tothe strong mobile segment as well as the strengthening fixed line segment. Thelatter indicates an improving trend driven largely by growth in the area ofbroadband based services and ICT business. The progress of our activities inSlovakia is also going according to our plans. The results of the first ninemonths of 2007 allow us to confirm our guidance for the entire year. We expectthat consolidated revenues will growth by roughly 3% and our operating incomebefore depreciation and amortization (OIBDA) will be at the same level as for2006, or about 1% lower," said Salvador Anglada, Chief Executive Officer andmember of the Board of Directors of Telefonica O2 Czech Republic, when speakingof the operator's financial results. 9M and 3Q 2007 Group Highlights(1) Revenues of CZK 47.1 billion (+ 3.3%) and CZK 16 billion (+ 3.4%) OIBDA of CZK 21.4 billion (- 3.3%) and CZK 7.2 billion (- 5.2%) OIBDA margin of 45.8% (- 3.1 p.p.) and 45.6% (- 4 p.p.) Operating income of CZK 10.6 billion (+ 10.9%) and CZK 3.8 billion (+ 11.2%) Net Income of CZK 7.6 billion (+ 10.9%) and CZK 2.7 billion (+ 5.5%) Net gearing at minus 14.3% (- 16.4 p.p.)(2) CAPEX of CZK 4.6 billion (+ 14.4%) and CZK 1.9 billion (+ 38.3%) CAPEX/Revenues 9.8% and 11.6% Group Headcount 9,384 (- 5.6%) Czech mobile customers 4,967 thousand (+ 4.3%), contract customers 2,161thousand (+ 21.3%) ADSL accesses (retail and wholesale) 545 thousand (+ 27.7%) O2 TV customers 53 thousand Fixed telephony accesses 2,135 thousand (- 15.8%) Registered mobile customers in Slovakia close to 500 thousand 2007 FY guidance confirmed Consolidated Financial Statements Revenues, operating costs and OIBDA Consolidated revenues (business and recurring revenues) reached CZK 47.1 billionin 9M 2007, up 3.3% yoy and CZK 16 billion in 3Q alone, up 3.4% yoy. In linewith the previous two quarters of the year, the domestic mobile business was thekey driver of this growth. Revenues in the domestic fixed segment were flat in9M 2007 compared to the same period of last year, confirming the trend seen in1Q. The contribution of Slovak operation to consolidated revenues was still notmaterial in 9M 2007. Total consolidated operating costs reached CZK 26.2 billionin 9M 2007, up by 8.7% yoy, largely driven by start-up costs incurred inSlovakia. Higher sub-deliveries for ICT projects contributed to the growth inoperating expenses in the Czech Republic in 9M 2007. Consolidated OIBDA amountedto CZK 21.4 billion in 9M 2007, down by 3.3% yoy, while OIBDA reached CZK 7.2billion in 3Q alone, down 5.2% yoy. OIBDA margin (OIBDA over Business revenues)reached 45.8% and 45.6% in 9M and 3Q 2007, compared to 48.9% and 49.6% in thecomparable periods of 2006. The Slovak operation diluted OIBDA margin by about 2p.p. in 9M 2007. Despite the decrease in Group OIBDA margin in 9M 2007, it stillremains in high level which ranks Telefonica O2 Czech Republic group above theaverage compared to its peers. The management expects the OIBDA margin in 4Q2007 not to decrease as sharply as it did in 4Q 2006. Depreciation and Amortization Consolidated depreciation and amortization amounted to CZK 10.9 billion in 9M2007, a continued decline of 13.9% yoy. Operating Income, Income before tax and Net income Consolidated operating income and consolidated income before tax went up by10.9% yoy and 12.5% yoy to reach CZK 10.6 billion and CZK 10.5 billionrespectively in 9M 2007, on the back of the decrease in consolidateddepreciation and amortization and low amount of financial expenses. Consolidatednet income amounted to CZK 7.6 billion and CZK 2.7 billion, up by 10.9% yoy and5.5% yoy in 9M and 3Q 2007. CAPEX Total consolidated CAPEX amounted to CZK 4.6 billion in 9M 2007, up 14.4% yoydriven by CAPEX in Slovakia. CAPEX in the Czech Republic was largely related toincreasing the capacity of the GSM network. ADSL rollout related to speedupgrades, fixed access network improvement and information systems upgrade.CAPEX in Slovakia was related to GSM network rollout and systems deployment(billing, collection, call center). After the lower investments activities in1Q, CAPEX spending accelerated in 2Q and 3Q. Based on the actual CAPEX amountreported in 9M 2007 we expect the full year Group CAPEX to be about 5 to 10%below our original target of around CZK 9 billion. Free Cash Flows In 9M 2007 the Group confirmed its ability to generate strong free cash flow.The total amount of the Groups' free cash flows amounted to CZK 13 billion in 9M2007, up by 1.9% yoy. Operating cash flows went down 5.9% yoy to CZK 16.5billion. Improvement in payment conditions (longer maturity of invoices)resulted in net cash used in investing activities decreasing to CZK 3.4 billiondespite higher amount of CAPEX spending, 28.9% lower than 9M 2006. Cash and Debt levels The group's consolidated financial debt (long-term and short-term) amounted to CZK 9.3 billion on 30 September 2007, down by 0.9% compared tothe end of December 2006. The amount of cash and cash equivalents and short termfinancial investments reached CZK 20.7 billion on 30 September 2007 as a resultof cash building for the dividend payment of CZK 16.1 billion on 3 October 2007.This resulted in net leverage of minus14.3% and gross leverage of 11.6% comparedto 2.1% and 10.6% at 31 December 2006. Net leverage would reach 5.9% excludingthe effect of the dividend payment. Czech Republic Overview The Company's strategy in the third quarter of 2007 continued to focus on newand enhanced products and services in the growth areas. These include broadbandbased and data services, IT and comprehensive customer solutions in the fixedsegment. In the mobile segment Telefonica O2 continued to focus on improving ofthe attractiveness of voice packages with the aim of increasing voice traffic.The company also improved its portfolio of mobile data services with the aim toenable 100% availability of data connection within a single tariff independentof technologies. In addition, the Company continued to encourage prepaid tocontract migration with the aim of developing the ARPU potential of thesecustomers and reducing churn. CZ Mobile Segment Overview(3) Total business revenues in the mobile segment increased by 5.4% yoy in 9M and 3Q2007 alone and amounted to CZK 24 billion and CZK 8.3 billion respectively. Revenues from voice services (monthly fees, traffic and interconnection)increased in total by 5.8% yoy to CZK 18 billion in 9M 2007. The total number of registered mobile customers increased by 4.3% yoy to 4,967thousand at the end of September 2007. The total number of contract customersreached 2,161 thousand, up by 379 thousand yoy, representing 21.3% growthfollowing the active prepaid to contract migration strategy. Contract customers'net adds amounted to 84 thousand in 3Q 2007. Contract customers accounted for43.5% of the total customer base at the end of 3Q 2007, up from 37.4% a yearago. The number of prepaid registered customers decreased by 172 thousand yoy (and by11 thousand in 3Q alone) to 2,806 thousand at the end of 9M 2007, down by 5.8%yoy. Under the methodology, which defines a prepaid customer as generatingrevenue in the last 3 months, the number of mobile active prepaid customersamounted to 2,447 thousand at 30 September 2007, down by 7.1% yoy. The blended monthly average churn rate reached 1.6% in 9M 2007, up from 1.5% in9M 2006, while it went down to 1.3% in 3Q 2007 alone from 1.5% in 3Q06. Revenues from monthly fees increased by 10.8% yoy to CZK 5.3 billion in 9M 2007,mainly as a result of the 21.3% yoy growth in the contract customer base. Traffic revenues increased by 5% yoy to CZK 9 billion in 9M 2007, while outgoingtraffic usage increased by 22.3% yoy in the same period. Average MOU persubscriber improved to 115 minutes in 9M 2007, up from 100 minutes (+15% yoy) in9M 2006, mainly due to the growing number of contract customers generatinghigher average traffic per customer and tariffs designed to stimulate traffic.Average MOU reached 117 minutes in 3Q 2007 alone up from 102 in 3Q06. Interconnection revenues amounted to CZK 3.8 billion in 9M 2007, up by 1.5% yoydue to 8.4% growth in incoming traffic. In 9M 2007, blended monthly ARPU(4) reached CZK 518, up by 2.5% yoy, while itreached CZK 535 in 3Q 2007 alone compared to CZK 519 in 3Q 2006. Contractmonthly ARPU reached CZK 907 in 9M 2007, down by 8.5% yoy and CZK 909 in 3Q 2007(CZK 989 in 3Q 2006). 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 3.8% yoy to CZK 245 in 9M 2007 (CZK 253 andCZK 243 in 3Q 2007 and 3Q 2006 respectively). Total revenues from value added services (including SMS, MMS and content)increased by 2.8% yoy to CZK 3.4 billion as a result of the growing volume ofSMS and MMS messages. In 9M 2007, O2 customers sent and received in total2,247 million SMS, up by 8.0% yoy. Revenues from Internet and Data recorded a 17.5% yoy increase and reached CZK1.4 billion. The total number of data customers (GPRS and CDMA) increased by13.8% to 182 thousand at 30 September 2007. Data ARPU improved by 4% yoy to CZK110 in 9M 2007. Non-SMS data ARPU represented 43% of total data ARPU in 9M 2007compared to 40% in the same period of 2006 as a result of the growth in CDMA andGPRS customers and growth in MMS. Equipment sales (including connection fees) decreased by 1.6% yoy in 9M 2007 to CZK 1.1 billion. Other business revenues decreased by 25% yoy toCZK 144 million. CZ Fixed Segment Overview(5) Total business revenues in the fixed line segment went up by 0.1% to CZK 22.5billion in 9M 2007, driven by the healthy growth of revenues from broadbandInternet based services, value added services and IT services, which in totalmore than offset declines in traditional voice revenues. Revenues frombroadband, data and other value added telecommunication services accounted for27.8% of business revenues in 9M 2007 compared to 24.9% in 9M 2006. Fixed linebusiness revenues decreased 0.2% in 3Q 2007 alone. Revenues from traditional access decreased by 7.3% yoy to CZK 7.3 billion in 9M2007 and by 11.5% in 3Q 2007 alone. The tariff rebalancing introduced in April2006 no longer has a positive effect on this revenues stream as seen last year.The total number of fixed telephony accesses amounted to 2,135 thousand at theend of September 2007, down by 15.8% yoy mainly as the result of the strongfixed to mobile substitution effect. However, the decline in fixed telephonyaccesses decelerated during 2007. The net losses decreased to 72 thousand in 3Q2007 from 81 thousand in 2Q 2007 and 129 thousand in 3Q 2006. This is a resultof improving the number of gross adds and lower number of disconnectionsfollowing the Company's effort to enhance the quality of fixed lines viabroadband and bundled offers. Revenues from traditional voice services (voice traffic and interconnection)declined in total by 7.3% and 4.5% yoy in 9M and 3Q 2007 to CZK 7.1 billion andCZK 2.3 billion respectively. Revenues from voice traffic declined by 20.0% yoyto CZK 3.4 billion in 9M 2007, as a result of lower voice traffic generated byour customers, which decreased at the same time by 19.7% yoy to 2,041 millionminutes. Interconnection revenues went up 9% yoy in 9M 2007 and amounted to CZK 3.6billion driven by higher international transit traffic and an increase in thenumber of LLU. Revenues from Internet & broadband increased in total by 17.7% yoy to CZK 2.9billion in 9M 2007 (16.5% to CZK 983 in 3Q 2007) as a result of 38.3% growth inrevenues from broadband based services which more than offset decreasingrevenues from narrowband, confirming the company's successful strategy to focuson ADSL and IPTV based services. Revenues from broadband services (ADSL, IPTV and content) amounted to CZK 2.7billion in 9M 2007, up by 38.3% yoy. Of this, CZK 2.4 billion representedrevenues from retail broadband (up 44.4% yoy) and CZK 299 million from wholesaleservices (up 3.1% yoy). The total number of ADSL accesses (retail andwholesale) reached 545 thousand at 30 September 2007,compared to 427 thousand a year ago (up 27.7% yoy). The total number of O2 TV'scustomers increased to 53 thousand at the end of September 2007, representing 16thousand net adds in 3Q 2007, up from 12 thousand in 2Q 2007. During 3Q 2007Telefonica O2 further improved the content proposition of its O2 TV service. Thecompany enlarged the portfolio of TV channels by adding two new ones (O2 TVSport plus and O2 TV Films plus). In addition it expanded the number ofavailable to watch on the video on demand feature, following a contract with TheWalt Disney Company, one of Hollywood's biggest entertainment companies. From 14September, Telefonica O2 has provided live broadcast of all O2 Extraliga icehockey games via O2 TV, on the Internet and mobile phones. Revenues from narrowband Internet decreased by 62.7% yoy to CZK 188 million in9M 2007 on the back of 68.1% decrease in dial up Internet traffic. Revenues from data services decreased by 2.6% yoy to CZK 3 billion, mainly dueto a 9.4% decline in revenues from leased lines, while revenues from datanetwork services increased by 6.5% yoy as a result of the growth of IP Connectand IP VPN connections. Revenues from IT services and business solutions reached CZK 1.3 billion in 9M2007, 2.4 times higher than in the same period in 2006, as a result ofgrowing activities in ICT and IT services for Government and large corporatecustomers. Substantial growth in this category of revenues (CZK 538 million,i.e. +212.8% yoy) in 3Q related to the customer solution for governmentcustomers. Equipment sales amounted to CZK 313 million, down by 28.2% yoy due tothe lower number of units sold and special discount offers. Slovakia In line with the first two quarters, Telefonica O2 Slovakia successfullycontinued in setting its footprint on the Slovak market in 3Q 2007. After thelaunch of prepaid services in February and a credit-based billing tariff inJune, the company enlarged its portfolio with a fully fledged contract service.The contract offer generated fairly strong demand and helped to increase thenumber of total registered customers to nearly 500 thousand at the end ofSeptember 2007. Majority of these are represented by prepaid customers usingTelefonica O2 SIM card as their second SIM. Expansion of the service portfoliowith postpaid tariff supports the company's aim to acquire new customers andmigrate existing prepaid customers to postpaid tariffs. This will lead to highercustomer activity in terms of network usage with a positive impact on ARPU andfinancial performance. In 3Q 2007, Telefonica O2 Slovakia substantially focusedon further roll-out of its own network, which will allow for the gradualmigration of the traffic from national roaming with positive impact on margins.By the end of 3Q, the company had in operation more than 500 BTS, thus exceedingthe license requirement to operate at least 400 BTS. At the same time thepopulation coverage reached more than 34%, almost 3 times above the licenserequirement of 12%. In the area of IT and systems, the company implemented a newbilling application and the first phase of a new collection system, bothsupporting the launch of the core postpaid offer. To further improve customersatisfaction, a new call center was opened in Banska Bystrica. Group Operating Expenses Total Group operating costs (including the Slovak operation) amounted to CZK26.2 billion in 9M 2007, up by 8.7% yoy, with an increase of 11.1% to CZK9 billion in 3Q 2007 alone. This increase is to a large extent related to highersupplies (interconnection and sub-deliveries for ICT projects), externalservices (sales and marketing costs, network & IT maintenance and othersubcontracts) and operating costs related to activities in Slovakia. Supplies expenses grew by 11.7% yoy to CZK 12.6 billion in 9M 2007.Interconnection costs increased by 8.6% yoy to CZK 8.2 billion due to higheractivities in transit business, growth in mobile traffic generated by customersin the Czech Republic and interconnection charges recorded in Slovakia. Cost ofgoods sold went up by 13.1% yoy to CZK 2.5 billion as a result of increasedcosts in Slovakia, while cost in the Czech Republic grew slightly. Othersupplies increased by 25.7% to CZK 1.9 billion largely due to increasedsub-deliveries for ICT related projects. Personnel costs, including headcount reduction costs, amounted to CZK 5.3billion, up by 1.4% yoy in 9M 2007, as a result of a generalincrease in wages, methodology changes and higher personnel costs insubsidiaries (TO2 Services and TO2 Slovakia) related to headcount growth.However, in 3Q 2007 alone, personnel costs went down 1.3%. The total number ofGroup employees reached 9,384 at 30 September 2007, down 5.6% yoy. Telefonica O2Czech Republic headcount went down by 9.6% yoy to 8,877. The cost of external services increased in total by 11.8% yoy and reached CZK7.7 billion in 9M 2007. Marketing and sales in total went up by 18.3% yoy to CZK2.4 billion due to marketing activities in Slovakia and increased sales expensesdriven by a different sales channels mix. Network & IT repairs and maintenanceincreased by 7.7% yoy to CZK 2 billion due to higher costs related tomaintenance staff outsourcing and the increased complexity of the network.Rentals, buildings and vehicles costs reached CZK 1.4 billion, up by 15.7% yoywhile utilities supplies increased by 9.6% yoy to CZK 562 million. Otherexternal services including consultancy fees, call centers and other externalservices went up 4.8% yoy to CZK 1.4 billion due to increased costs related tocustomer care and costs incurred in Slovakia. Taxes, comprising taxes other than income tax, fees and provisions decreased by19.3% yoy to CZK 518 million mainly as a result of lower bad debt provisions. Outlook for the rest of 2007 Similar to the first nine months of 2007 and fully in line with its strategy,the Company will continue to address the current trends in the Czechtelecommunication market, specifically in the areas of broadband, data, valueadded services and convergent products. The Company expects that the recent introduction of new bundled and convergentservices will increase the value of the fixed line proposition. The Company willalso continue to enhance its IPTV service. We see strong potential in the areaof IT and integrated customer solutions primarily for corporate and governmentcustomers, where the Company will continue to focus its efforts in the lastquarter of 2007. The strategy in the mobile segment continues to focus on ARPUsustainability via prepaid to contract migration and growing mobile data andInternet revenues through CDMA and HSDPA based services. The area of customer experience is a key priority for 2007. This includesimprovements in service delivery and provisioning, customer care and increase ofquality of service provided. The Company will continue to support the gradual deployment of the Slovakoperation. This includes further development of systems, processes and networkrollout. The key commercial goal remains to keep focused on customeracquisitions via introduction of new innovative services for all segments. Ouractivities in Slovakia should result in achieving of a quality and customerexperience equal to Telefonica O2 in the Czech Republic. Based on the financial results delivered in the first nine months of 2007, were-confirm our full year guidance for 2007. We expect Group revenues to growcloser to the upper range of 1 to 3% and OIBDA(6) to be within the originallycommunicated range of -1% to 0% compared to 2006. The expected negative impactof the Slovak operation is already included in this range. CAPEX is expected toreach about 5 to 10% below originally estimated CZK 9 billion. The operationaltarget in Slovakia remains to gain 5% market share at 2007 year end. 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 ABKASpokespersontel: + 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, EESKY 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 Isle ofMan fixed/mobile operator, Manx Telecom. Telefonica O2 Europe, part of the Telefonica group, is headquartered in Slough,UK, and has some 40 million mobile and fixed customers. 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 capitalization. Its activities are centered 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 212 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 - Sep 2007 Jan - Sep 2006 Revenues 47,101 45,602Internal expenses capitalized in fixed assets 394 622Operating expenses (26,159) (24,072)Other operating expenses 48 (46)Gain on sale of fixed assets 35 87Impairment of fixed assets 11 (42)OIBDA 21,430 22,151 Depreciation and amortization (10,873) (12,630)Operating Income 10,557 9,521 Net financial income (expense) (66) (196) Income before tax 10,491 9,325Income tax (2,984) (2,477) Net Income 7,597 6,848 BALANCE SHEET 30.9.2007 31.12.2006 - Intangible assets 7,954 8,308 - Goodwill 13,320 13,320 - Property, plant and equipment and investment property 72,717 78,755 - Long-term financial assets and other non-current assets 588 415 - Deferred tax assets 192 26 Current assets 30,651 16,850 - Inventories 711 987 - Trade and other receivables 9,245 8,336 - Current tax receivable 4 0 - Short-term financial investments 112 66 - Cash and cash equivalents 20,579 7,461 Non-current assets classified as held for sale 331 203 Total assets 125,753 117,877Equity 79,973 88,481 Non-current Liabilities 10,164 16,495 - Long-term financial debt 3,176 9,159 - Deferred tax liabilities 4,380 4,495 - Long/Term Provisions 2,110 2,037 - Other long/term liabilities 498 807 Current Liabilities 35,616 12,901 - Short-term financial debt 6,100 207 - Trade and Other payables 8,965 7,849 - Current tax payable 1,838 730 - Short-term provisions and other liabilities 18,713 4,115 Liabilities associated with non-current assets classified as held forsale Total Equity and Liabilities 125,753 117,877 -------------------------- (1) Comparative period 9 months and 3 months to 30 September 2006 respectively (2) Long and short term financial debt less cash and cash equivalents andshort-term fin. investments over equity (3) Figures are shown net of inter-segment charges between fixed and mobilesegment(4) including inter segment revenues (5) Figures are shown net of inter-segment charges between fixed and mobilesegment (6) In terms of guidance calculation, OIBDA excludes other exceptional revenues/expenses not foreseeable in 2007. For comparison purpose, the equivalent otherexceptional revenues/expenses registered in 2006 are also deducted from reportedfigures (the main unforeseeable expense deducted from 2006 OIBDA was theimpairment charge). This information is provided by RNS The company news service from the London Stock Exchange