TDE.L Regulatory News (TDE)

23 Feb 2006 16:15

Cesky Telecom A.S.23 February 2006 > PRESS RELEASE - 23. 02. 2006 > 2005 AUDITED FINANCIAL RESULTS CESKY TELECOM, a. s., is pleased to announce its audited financial results forthe fiscal year 2005. These results are consolidated and prepared according toInternational Financial Reporting Standards. The results of 2005 excluding the impact of one off charges and accountingpolicy changes made in 2005 show improvement in revenues trend in the secondhalf of 2005, returning to growth in Q4. Similarly the consolidated EBITDAincreased by 3% and 4% yoy in Q3 and Q4 respectively. The presented statutoryresults are influenced by several accounting policy changes made in 2005, whichare commented in detail below. "We are pleased to report the improving trends in CESKY TELECOM Group'sperformance in 2005, in both fixed line and mobile segment. When compared to2004 pro-forma results restated for the impact of accounting policy changes, theconsolidated revenues and EBITDA show growth in the second half of 2005. Theseresults prove that our strategy of innovation and strong marketing support ofrange of new services, including high speed broadband based Internet and fastmobile data services, while at the same time protecting the traditional revenuesources, was successful", said Jaime Smith, CEO and Chairman of the Board ofDirectors. Change in accounting policy During 2005, CESKY TELECOM made several changes in its accounting policy, whichimpacted its results in fixed line segment and consequently consolidatedresults. Application of these changes had an immaterial impact on mobilebusiness results. Changes relate to revenue recognition of the connection feesrelated to the activation of the fixed line for all periods starting 1996, andtreatment of the premium rate numbers revenue ("color lines"). In previousperiods, the Company had recognized activation fees in full in the incomestatement upon connection of the customers to the network in the respectiveaccounting period. Based on the accounting policy introduced in 4th quarter2005, connection fees are deferred and recognized in the income statement overthe estimated average remaining customer relationship period. Revenues from thepremium rate numbers ("color lines") are now recognized only at the amount ofthe net margin, compared to previously applied accounting where we recognizedgross revenues and the cost related to payment to premium content providers. As the result of the accounting policy changes made in Q4 2005, the revenuesfrom connection fees increased by CZK 606 million in 2005 while netting of "color lines" decreased revenues and costs by CZK 253 million in 2005, with noimpact on EBITDA and decreased retained earnings by CZK 1.4 billion as at theend of 2005. To provide more relevant disclosure of individual income statement items weassumed reporting structure close to Telefonica structure and we adjusted thestructure of income statement and both CESKY TELECOM and Eurotel standalonerevenues and opex accordingly in 2005. Newly presented parameter of OIBDA iscomparable with previously reported EBITDA with the exception of the impairmentcharge which is now included within OIBDA while before it was reported below thedepreciation and amortization line. The impairment charge in 2005 represents aone-off depreciation charge relating to the changed estimates of the economiclife of certain equipment in the fixed line business and intangible assets(brand names and trade marks) acquired by the purchase of the remaining share inEurotel in 2003. It has not impacted the cash flow of the Group. To allow for relevant year on year comparison of 2005 and 2004 results, inaddition to IFRS statements, we restated 2004 results, on a pro-forma basis, toinclude accounting policy changes as if they were applied in 2004. The resultsin the table below are presented under the original reporting structure. CZK in mil. 2004 Actual 2004 Restated Difference Revenues 62,141 62,175 34Operating expense (33,076) (32,737) (339) Following section contains 2005 actual numbers including the effects ofaccounting policy changes compliant with statutory IFRS statements and 2004restated pro forma numbers. Both, 2005 and 2004 restated results are shown onthe basis of the new reporting structure. Consolidated Financial Statements Revenues, operating costs and OIBDA Consolidated revenues (business and recurring revenues) reached CZK 61 billionin 2005, 0.8% down yoy, but they increased by 1.0% yoy in Q4. Total consolidatedoperating costs reached CZK 32.7 billion, up by 0.2% yoy, with a 5.2% and 0.3%yoy decrease in Q3 and Q4. The impairment charge reached CZK 1.3 billion in2005, while in 2004 the amount was negligible. The consolidated OIBDA amountedto CZK 27.3 billion, down by 6.9% yoy. OIBDA excluding the impairment chargewould decrease by 2.6% yoy. The reported OIBDA margin (OIBDA over Businessrevenues) reached 44.9%, compared to 48.2% in 2004. OIBDA margin excludingimpairment charge would reach 47.0% in 2005. Depreciation and Amortization Consolidated depreciation and amortization in 2005 amounted to CZK 17.8 billion,down by 14.3% yoy. The significant decrease is a result of low CAPEX in recentyears and changes in goodwill and certain intangible assets amortization. Operating Income, Income before taxes and Net income Consolidated operating income and consolidated income before taxes went up by11.0% yoy and 7.2% yoy and reached CZK 9.5 billion and CZK 8.7 billionrespectively in 2005, at the back of decrease of the consolidated depreciationand amortization. Consolidated net income amounted to CZK 6.2 billion, up by9.0% yoy. Capex CESKY TELECOM continued its conservative investment policy in 2005. The majorinvestments were made in the growth areas (Internet, data services, UMTS). Totalconsolidated CAPEX amounted to CZK 6.1 billion, 5.2% up yoy. While CAPEX infixed line business decreased by 12.1% yoy to CZK 2.2 billion, CAPEX of Eurotelincreased by 19.0%, mainly due to the investments made in UMTS network. Free Cash Flows The total amount of free cash flows generated by the CESKY TELECOM Group reachedCZK 18.7 billion, down by 4.1% yoy, mainly as a result of decrease in OIBDA Debt levels CESKY TELECOM Group's consolidated debt amounted to CZK 9.4 billion at 31December 2005, down by 63.0% compared to the same period last year. This numberrepresents gross leverage of 10% and net leverage of 6%. Significant cash flowsgenerated by both CESKY TELECOM and Eurotel and distribution of Eurotel'sretained earnings to CESKY TELECOM enabled the reduction of consolidated debt byCZK 16.1 billion in the course of 2005. This reduction is related mainly to therepayment of the acquisition financing of the purchase of the remaining 49% ofEurotel in November 2003. In Q3, CESKY TELECOM also repaid CZK 4 billion ofdomestic bonds, issued in July 2002. Fixed Line Business Overview* The activities in the fixed line business in 2005 focused mainly on developmentand marketing of new Internet and data services. This allowed us to respond toincreasing demand among our customers for broadband Internet, data and othervalue added services. Thus revenues from Internet, broadband, data and othertelco services accounted for 26% of the business revenues in 2005, the same asin the previous year. Revenues Total revenues (business and recurring revenues) in fixed line business wentdown by 4.5% yoy to CZK 32.3 billion in 2005, while they decrease by 2.6% yoy inQ4. Business revenues decreased by 3.1% to CZK 31.9 billion, driven mainly by adecline in traditional voice services which had not been fully compensated bythe increase in recently introduced broadband Internet based services, data andvalue added services. The overall number of CESKY TELECOM's fixed lines amounted to 3,126 thousand atthe end of 2005, down by 7.2% compared to 2004. PSTN lines recorded a 7.0%decrease and reached 2.7 million, while number of ISDN channels went down by8.7% to 449 thousand. As a result, revenues from monthly subscriptions andconnection charges decreased by 3.7% to CZK 11.8 billion. Revenues from traditional voice services (communication traffic andinterconnection) declined in total by 5.2% yoy to CZK 10.9 billion in 2005.Revenues from communication traffic declined by 19.5% yoy to CZK 6.2 billion.This is a result of lower voice traffic generated by CESKY TELECOM's customersin 2005, which decreased by 14.8% compared to 2004. Fixed to mobilesubstitution, lower number of the fixed lines and increased competition are themain drivers for the decreasing voice traffic. Interconnection revenues increased by 23.2% to CZK 4.7 billion in 2005, mainlydue to growth in revenues from international operators, as a result of theextension of international carrier transit services provided in the Central andEastern Europe market space. Revenues from the broadband services amounted to CZK 1.8 billion in 2005, up by84.9% yoy. From this, CZK 1.5 billion represented revenues from retail broadbandand CZK 283 million from wholesale services. CESKY TELECOM recorded 173 thousandnet adds to ADSL connections in 2005. The net adds of ADSL connections in 2H2005 reached 111 thousand compared to 62 thousand in 1H 2005, as a result ofsuccessful pre Christmas campaign. The total number of ADSL connections reached274 thousand at 31 December 2005, compared to 101 thousand at the end of 2004.Out of the total connections, CESKY TELECOM's retail customers represented about80%. Internet Express services are now available in 1,322 locations in the CzechRepublic representing potential coverage of more than 90% of fixed linesoperated by CESKY TELECOM. Revenues from dial up (narrowband) Internet decreased by 44.9% yoy to CZK 1.2billion. Dial up Internet traffic went down by 41.7% yoy to 2,818 millionminutes in 2005, as a result of dial up traffic migration to ADSL broadbandInternet access and other fast Internet service alternatives. Revenues from data services decreased by 0.9% yoy to CZK 4.4 billion, mainly dueto decline in revenues from leased lines, which went down by 4.5% yoy. Datanetwork services increased by 5.2% yoy and reached CZK 1.7 billion in 2005 dueto the growth of IP Connect and IP VPN connections and introduction of new ADSLbased data services. Equipment revenues amounted to CZK 771 million, up by 5.2% yoy, reflecting theincreased commercial activities in this area. Revenues from IT services andbusiness solutions reached CZK 231 million in 2005 compared to CZK 79 million in2004. OPEX The fixed line operating costs (excluding non-recurring items) went down by 4.6%in 2005 compared to 2004 and amounted to CZK 17.4 billion. They decreased by6.0% yoy in Q4. The controllable operating costs (operating costs excludingsupplies expenses) decreased even by 8.4% yoy in 2005 and confirmed themanagement's effort to increase cost efficiencies. Supplies expenses grew by 2.4% in 2005 to CZK 6.6 billion. Interconnection costsincreased by 6.7% to CZK 4.9 billion, cost of goods sold went up by 11.1% to CZK401 million while other supplies decreased by 13.5% to CZK 1.3 billion. Personnel costs, including headcount reduction costs, amounted to CZK 5.7billion, down by 0.9% yoy. The number of CESKY TELECOM's employees was reducedby 14% yoy in 2005 and reached 7,524 at the end of 2005. The operationalefficiency measured by number of fixed lines per employee improved by 8.5% yoyto 415 lines as at the end of 2005. The cost of subcontracts (external services) decreased in total by 7.0% yoy andreached CZK 4.9 billion in 2005. Out of this cost category, the reduction isreported in all items except utilities (material and energy) supplies, whichamounted to CZK 468 million, the same as in 2004. Marketing and sales went downby 8.9% yoy to CZK 774 million, network & IT repairs and maintenance by 10.3%yoy to CZK 1.5 billion and rentals, buildings and vehicles costs by 5.4% yoyto CZK 828 million. Other subcontract costs including consultancy fees went downby 5.2% yoy to CZK 1.3 billion. Taxes, comprising taxes other than income tax and provisions decreased by 70.3%yoy to CZK 246 million in 2005. OIBDA of CESKY TELECOM including business revenues, other revenues,non-recurring revenues and costs and impairment charge amounted to CZK 14.2billion in 2005, down 8.9% yoy, representing an OIBDA margin (OIBDA overbusiness revenues) of 44.5%. OIBDA excluding the impact of impairment wouldreach CZK 14.7 billion, down 5.9% yoy and OIBDA margin would reach 46% in 2005. Mobile Business Overview* In the competitive environment of the Czech mobile market, Eurotel confirmed itsstrong financial and operational performance in 2005. At the end of 2005,Eurotel won back its leadership position in total number of subscribers, mainlydue to strong figures in Q4. Similarly to the fixed line business, the customersin the mobile market also continue to demand data, Internet and value addedservices including content. Revenues This trend is clearly reflected in changing Eurotel's revenue structure. In2005, total business revenues of Eurotel increased by 2.0% yoy and amounted toCZK 30 billion, while they grew by 4.2% yoy in Q4. Eurotel's revenues from voice services (monthly fees, traffic andinterconnection) increased in total by 0.2% yoy to CZK 22.8 billion. The total number of Eurotel's customers at the end of 2005 amounted to 4,676thousand, which represents a 6.4% increase compared to the end of 2004. Eurotelthus regained overall # 1 position at 2005 YE, primarily thanks to the recordbreaking growth of the number of contract customers. Eurotel's attractiveChristmas campaign helped to increase its customer base by 187 thousand in Q4,which is more than the number added by the two competitive operators together. At the end of 2005, Eurotel recorded 1,546 thousand contract customers (GSM,CDMA and NMT), up by 488 thousand yoy, which represents a 46.0 % growth. Despitethe fact that SIM card penetration has been continuously growing and reached112% of the population at the end of 2005, the net additions of contractcustomers reached 158 thousand in Q4, compared to 118 thousand in Q3 and 66thousand in Q4 2004. The contract customers accounted for 33% of the totalcustomer base, compared to 24% at the end of 2004. Successful migration ofpre-paid customers to contract services played an important role in the growthof the contract customer numbers. In addition, by the end of 2005, 641 thousandof contract customers subscribed for the new tariffs, which Eurotel introducedon 1 February 2005. Out of this total number, 202 thousand represented newcustomers of Eurotel, 269 thousand existing contract customers migrating fromother tariffs and 170 thousand migrated from prepaid services. Total number of prepaid customers amounted to 3,130 thousand at the end of 2005,which shows a decrease by 205 thousand (6.2%) compared to the end of 2004. Thisdecrease was substantially influenced by significant migrations of customersfrom prepaid to contract segment, as a result of Eurotel marketing activities inthis area. Under the methodology, which defines a prepaid customer as customergenerating revenue in the last 3 months, the number of Eurotel's prepaidcustomers at the end of 2005 amounted to 2,770 thousand, down by 6.8% yoy. Revenues from monthly fees increased by 10.6% yoy to CZK 5.9 billion as a resultof significant growth in contract customers base. Traffic revenues decreased by 3.0% yoy to CZK 11.3 billion, while the totalusage traffic increased almost by 10% yoy in 2005. The reason is higher share ofcontract customers with monthly packages, which include free minutes and marketpressure on revenue per minute. The increased voice traffic can be attributed toincreasing number of customers and success of usage stimulation activities. Interconnection revenues amounted to CZK 5.5 billion in 2005, down by 3.0% yoy,due to decreased interconnection rates charged to other operators. A continuous increase in multiple SIM card users together with lower ARPUgenerated by new customers had a negative impact on the blended ARPU. In 2005,ARPU reached CZK 510 compared to CZK 526 last year and CZK 503 in the first halfof 2005. Average MOU per subscriber was 92 minutes in 2005, up from 90 minutesin 2004. The total revenue from value added services (including SMS, MMS and content)increased by 4.1% yoy to CZK 4.1 billion. Eurotel customers sent and received intotal 2,519 million SMS in 2005, up by 9.9% yoy. Revenues from Internet and Data recorded a 97.5% increase in 2005 and reachedCZK 1.4 billion. At the end of 2005, the total number of Eurotel Data Express(an unlimited high-speed Internet access service based on CDMA technology)customers amounted to 70 thousand (up by 40 thousand yoy) and total number ofEurotel Data Nonstop (unlimited mobile Internet access service based on GPRStechnology) customers was 67 thousand (up by 14% yoy). Lower number of sold handsets led to a 9.5% yoy decrease in the equipment sales(including connection fees) to CZK 1.6 billion. Lower sales of handsets wereinfluenced by increasing proportion of customers taking a benefit of moreadvantageous tariff in return for commitment to stay with Eurotel for a specifictime period. Other business revenues (IT services and other revenues) decreased by 37.4% toCZK 176 million. Operating costs of Eurotel increased by 4.8% yoy to CZK 16.8 billion, with a6.9% yoy increase in Q4, which was caused by higher subsidies for new contractcustomers. Supplies expenses, which comprise interconnection and roaming, cost of goodssold and other supplies reached CZK 9.6 billion in 2005, 0.7% up yoy. The majoritem in this category relates to interconnection and roaming costs, whichamounted to CZK 5.8 billion, 4.7% up yoy. Similarly to the equipment sales, thecost of goods sold decreased in 2005 and amounted to CZK 3.3 billion, down by6.3% yoy. Other purchases and cost of sales increased by 7.1% to CZK 495million. The number of Eurotel's employees as of 31 December 2005 amounted to 2,490,almost same as at the end of 2004. The staff costs increased by 27.2% yoy to CZK2.2 billion, as a result of one-off items posted in Q2 which were commented in1H 2005 earnings announcement. The cost of subcontracts in Eurotel increased by 3.3% yoy to CZK 4.3 billion in2005. Marketing and sales expenses increased by 12.1% to CZK 1.9 billion, mainlydue to the growth of commissions. Network & IT repairs and maintenance wentdown by 6.0% yoy in 2005 to CZK 878 million. Cost of rentals, buildings andvehicles amounted to CZK 809 million in 2005, up by 0.9% yoy. Utilities supplieswent up by 10.6% in 2005 and reached CZK 208 million. Other subcontracts(consultancy fees and other) amounted to CZK 545 million, down by 6.5% yoy. Taxes comprising taxes other than income tax, fees paid to the regulator andprovisions amounted to CZK 668 million in 2005, which represents a 16.2% yoyincrease. OIBDA of Eurotel reached CZK 12.9 billion in 2005, which represents a 5.5% yoydecrease with an OIBDA margin of 42.8%. The OIBDA margin before one-off itemsreached 45% in 2005. Outlook for 2006 In 2006, the CESKY TELECOM Group will continue to actively address the changesand trends in the Czech telecommunication market, specifically in the areas ofbroadband, Internet, data and value added services. The primary goal of ouractivities is to best meet our customer needs and to enable them to effectivelyuse our services for the competitive price. At the same time, CESKY TELECOMGroup will continue to concentrate on revenue retention in voice and traditionaldata services areas. As a result of the new ownership structure, CESKY TELECOM Group can achieve anumber of tangible material benefits emanating from its close interaction withTelefonica. The commercial and underlying technical development leading tointroduction and marketing of the new services and products (e.g. UMTS, IPTV, IPbased value added services, content, integrated business solutions), furtheroperational efficiencies facilitated by process and organizational redesignbased on sharing the best practice, synergies in the purchasing leading todecreased cost of resources and opex and capex savings, are the key areas ofexperience sharing and cooperation with the new majority shareholder. Severalareas are already in the execution phase, specifically IPTV (based onTelefonica's Imagenio product), purchasing of broadband and UMTS technology andrange of broadband based value added services. CESKY TELECOM Group is the onlyintegrated telecommunication provider in the Czech Republic covering both, fixedand mobile segment, which represents additional benefit for its customers. The key strategic effort of the management is to maintain its leading positionin the Czech telecommunication market. The main aspects of financial managementof the CESKY TELECOM Group will remain focused on above average OIBDA margins,efficient CAPEX levels and strong free cash flows. We expect to stop the declineof both revenues and OIBDA in 2006 and reach the same levels as in 2005. For further information, please contact: MARTIN ABKAPress SpokesmanTel: +420 271 463 359Fax: +420 271 469 896e-mail: tiskovy.odbor@ct.cz CESKY TELECOM, a. s., a member of the Telefonica Group, is the leadingtelecommunications company in the Czech Republic. Through its subsidiary companyEurotel Praha, spol. s r.o., it also has a significant presence in the Czechmobile services market. Further information about the firm and the services itoffers is available at www.telecom.cz, which was rated as BestWeb 2003 in theWebTop100 survey. Signum Temporis has consistently awarded CESKY TELECOM for being one of thedomestic capital market's most transparent firms in terms of providinginformation. Based on an open vote of specialists, members of the press and anine-member committee, CESKY TELECOM placed first in 2003, just as it did in2001. CESKY TELECOM ranks among the most prominent firms on the Czech capital marketin terms of capitalization and trading volumes. Its shares are also traded onthe London Stock Exchange in the form of GDRs. CESKY TELECOM's credit rating isthe highest a Czech corporation can receive from top international ratingagencies. About Telefonica Telefonica is one of the largest telecommunications companies in the world interms of market capitalisation. Its activities are centered mainly on thefixed and mobile telephony businesses with broadband as the key tool for thedevelopment of both. The company has a significant presence in 19 countries and a customer base that amounts more than 180 million accesses around the world. Telefonica has astrong presence in Latin America, where the company focuses an importantpart of its growth strategy. Telefonica is a 100% listed company, with more than 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. -------------------------- * EESKY TELECOM standalone, i.e. excluding minor subsidiary companies, beforeconsolidation adjustments * Eurotel standalone, before consolidation adjustments This information is provided by RNS The company news service from the London Stock Exchange