TDE.L Regulatory News (TDE)

26 Jul 2007 15:27

Telefonica O2 Czech Republic, A.S.26 July 2007 Press release Telefonica O2 Czech Republic - 2007 First Half Financial Results Prague, 26th July 2007 Telefonica O2 Czech Republic, a.s. is pleased to announce its unauditedfinancial results for the first half of 2007. These results are consolidated andprepared according to International Financial Reporting Standards and fullyinclude the Slovak operation. "I am pleased that the company's financial results for the first half of 2007have met our expectations. Consolidated revenues grew once again, owing not onlyto the traditionally strong performance of the mobile segment, but also areversal of the trend in the fixed lines segment. During this period, ayear-on-year increase in revenues was recorded in the latter segment, which weachieved thanks to continuing revenue growth from broadband Internet and from ITand ICT services. The innovative products O2 Internet ADSL and O2 TV and theintroduction of new convergent services in the form of packages that combinemobile and fixed-line telephony, high-speed internet access and IPTV haveenabled us to increase the number of new activations, thereby reducing a declinein the area of fixed lines," said Salvador Anglada, Chief Executive Officer andmember of the Board of Directors of Telefonica O2 Czech Republic, when speakingof the operator's financial results. Group Highlights(1) Revenues of CZK 31.1 billion (+ 3.2%) OIBDA of CZK 14.2 billion (- 2.2%), OIBDA margin of 45.9% Operating income of CZK 6.7 billion (+ 10.7%) Net Income of CZK 4.9 billion (+ 14.2%) Net gearing at minus 9.8% (- 7.8 p.p.)(2) CAPEX of CZK 2.8 billion (+ 2.5%) - CAPEX/Revenues ratio of 8.9% Group Headcount 9,365 (- 6.5%) Mobile customers 4,894 thousand (+ 2.6%), contract customers 2,077 thousand (+ 20.3%) ADSL accesses (retail and wholesale) 526 thousand (+ 36.3%) O2 TV customers 38 thousand Fixed telephony accesses 2,207 thousand (- 17.2%) Consolidated Financial Statements Revenues, operating costs and OIBDA Consolidated revenues (business and recurring revenues) reached CZK 31.1 billionin the first half of 2007, up 3.2% yoy and CZK 15.9 billion in 2Q alone, up 4%yoy. Similarly to the previous quarter, the domestic mobile business was the keydriver of this growth. Revenues in the domestic fixed segment recorded slightincrease in 1H 2007 compared to the same period of last year, confirming thereverse in trend seen in 1Q. Contribution of Slovak operation to consolidatedrevenues was not material in the first six months of 2007. Total consolidatedoperating costs reached CZK 17.1 billion, up by 7.4% yoy. Increase in externalcosts and costs incurred in Slovakia were the major drivers of the OPEX increasein 1H 2007. Consolidated OIBDA amounted to CZK 14.2 billion, down by 2.2% yoy,while OIBDA reached CZK 7.1 billion in 2Q alone, down 2.3% yoy.OIBDA margin (OIBDA over Business revenues) reached 45.9% in the first half of2007, compared to 48.5% in the same period of 2006. Slovak operation dilutedOIBDA margin by about 2 p.p. in 1H 2007. Depreciation and Amortization Consolidated depreciation and amortization amounted to CZK 7.5 billion in thefirst half of 2007, a continued decline of 11.5% yoy. Operating Income, Income before tax and Net income Consolidated operating income and consolidated income before tax went up by10.7% yoy and 12.8% yoy to reach CZK 6.7 billion and CZK 6.6 billionrespectively in the first half of 2007, on the back of the decrease inconsolidated depreciation and amortization and low amount of financial expenses.Consolidated net income amounted to CZK 4.9 billion, up by 14.2% yoy. CAPEX Total consolidated CAPEX amounted to CZK 2.8 billion in 1H 2007, up 2.5% yoy.CAPEX in the Czech Republic was spent largely on the GSM network capacityincrease, ADSL rollout related to speed upgrades, fixed access networkimprovement and information systems upgrade. CAPEX in Slovakia was representedmainly by investments into network and systems deployment. After the lowerinvestments activities in 1Q, CAPEX spending accelerated in 2Q. Based on theactual CAPEX amount in the first half of 2007 we confirm our full year guidancefor Group CAPEX of around CZK 9 billion, of which about 20% to be spent inSlovakia. Free Cash Flows The total amount of the Groups' free cash flows amounted to CZK 9.6 billion in1H 2007, up by 23.4% yoy. Operating cash flows went up 8.5% yoy to CZK 12.1billion, following the increase in net profit and lower amount of income taxpaid. Lower investments resulted in net cash used in investing activitiesdecreasing by 28.3% compared to 1H 2006 to CZK 2.4 billion. Cash and Debt levels The group's consolidated financial debt (long-term and short-term) amounted toCZK 9.7 billion on 30 June 2007, up by 0.3% compared to the endof June 2006 and 3.7% up compared to 31 December 2006. The amount of cash andcash equivalents and short term financial investments reached CZK 17.3 billionon 30 June 2007. This resulted in net leverage of minus 9.8% and gross leverageof 12.6% compared to minus 2% and 11.4% at 30 June 2006. Czech Republic Overview The Company's strategy in the first half of 2007 focused on offering new andenhanced 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 improvementof the attractiveness of voice packages with the aim of increasing voicetraffic. In addition, the Company continued to encourage prepaid to postpaidmigration with the aim of developing the ARPU potential of these customers andreducing churn. To increase the value of fixed line proposition Telefonica O2introduced to the market the first bundled and convergent products in 1H 2007.In particular, O2 Duo and O2 Trio services, combining flat fee fixed voice withADSL Internet access and/or IPTV service and O2 Duo Mobil, a package comprisingmobile voice tariff with ADSL Internet access or IPTV service. CZ Mobile Segment Overview(3) Total business revenues in the mobile segment increased by 5.5% yoy and amountedto CZK 15.7 billion in the first six months of 2007. Revenues from voice services (monthly fees, traffic and interconnection)increased in total by 5.5% yoy to CZK 11.7 billion. The total number of mobile customers increased by 2.6% yoy to 4,894 thousand atthe end of June 2007. The total number of contract customers reached 2,077thousand at 30 June 2007, up by 350 thousand yoy, which represents 20.3 %growth following the active prepaid to contract migration strategy. Contractcustomers net adds amounted to 111 thousand in 2Q 2007 compared to 91 thousandin 1Q. Contract customers accounted for 42.4% of the total customer base at theend of 2Q 2007, up from 36.2% a year ago. The number of prepaid customers decreased by 226 thousand yoy (and by 172thousand in 1H 2007 alone) to 2,817 thousand at the end of 1H 2007, down by7.4% yoy. Under the methodology, which defines a prepaid customer as generatingrevenue in the last 3 months, the number of mobile prepaid customers amounted to2,540 thousand at 30 June 2007, down by 6.5% yoy. The blended monthly average churn rate reached 1.7% in 1H 2007, up from 1.5% in1H 2006. Churn rate in 2Q 2007 reached 1.4% compared to 1.2% in the same periodof 2006. Revenues from monthly fees increased by 10.1% yoy to CZK 3.4 billion, mainly asa result of the 20.3% yoy growth in the contract customer base. Traffic revenues increased by 5.5% yoy to CZK 5.8 billion, while outgoingtraffic usage increased by 22.2% yoy in 1H 2007. Average MOU per subscriberimproved to 115 minutes in 1H 2007, up from 99 minutes (16.2% yoy) in 1H 2006,mainly due to the growing number of contract customers generating higher averagetraffic per customer and successful offer of traffic stimulation tariffs. Interconnection revenues amounted to CZK 2.5 billion in 1H 2007, down by 0.2%yoy. In 1H 2007, blended monthly ARPU(4) reached CZK 510, up by 2.4% yoy, while itreached CZK 524 in 2Q 2007 alone compared to CZK 507 in 2Q 2006. Contractmonthly ARPU reached CZK 906 in 1H 2007, down by 8.7% yoy and CZK 910 in 2Q 2007(CZK 989 in 2Q 2006). The main reason for lower contract ARPU is thedilution caused by customer migration from the prepaid to the contract segment.Prepaid monthly ARPU increased by 3.9% yoy to CZK 241 in 1H 2007 (CZK249 and CZK 239 in 2Q 2007 and 2Q 2006 respectively). Total revenues from value added services (including SMS, MMS and content)increased by 2.7% yoy to CZK 2.2 billion as a result of the growing volume ofSMS and MMS messages. In 1H 2007 O2 customers sent and received in total 1.5billion SMS, up by 8.6% yoy. Revenues from Internet and Data recorded an 18.1% yoy increase and reached CZK920 million. The total number of data customers (GPRS and CDMA) increased by14.2% to 177 thousand at 30 June 2007. Data ARPU improved by 2.9% yoy to CZK 108in 1H 2007. Non-SMS data ARPU represented 42% of total data ARPU in 1H 2007compared to 39% to the same period of 2006 as a result of the growth in CDMA andGPRS customers and growth in MMS. Equipment sales (including connection fees) increased by 2.5% yoy in 1H 2007 toCZK 725 million. Other business revenues (IT services and other revenues)decreased by 13.4% yoy to CZK 116 million. CZ Fixed Segment Overview(5) Total business revenues in the fixed line segment went up by 0.3% in 1H 2007. Acontinuing focus on broadband Internet based services, bundles and fixed/mobileconvergent products and increasing activity in the ICT/Business Solution arealed to the reverse in the trend of fixed segment revenues. Revenues frombroadband, data and other value added telecommunication services accounted for27.7% of business revenues in 1H 2007 compared to 24.3% in 1H 2006. Total business revenues in the fixed segment increased by 0.3% yoy to CZK 15.1billion in 1H 2007 and up by 0.7% yoy in 2Q alone driven by the healthy growthof revenues from broadband Internet based services, value added services and ITservices, which more than offset declines in traditional voice revenues. The total number of fixed telephony accesses(6) amounted to 2,207 thousand as atthe end of June 2007, down by 17.2% yoy mainly as the result of the strong fixedto mobile substitution effect. The net losses of fixed telephony accessdecreased to 81 thousand in 2Q 2007 from 114 thousand in 1Q 2007. This is aresult of improving number of gross adds and lower number of disconnections.Revenues from traditional access decreased by 5.2% yoy to CZK 5.0 billion in 1H2007. Tariffs' rebalancing made in April 2006 has no more the positive effect onthis revenues caption as seen in previous quarters. Revenues from traditional voice services (voice traffic and interconnection)declined in total by 8.7% yoy to CZK 4.8 billion. Revenues from voice trafficdeclined by 21.1% yoy to CZK 2.4 billion, as a result of lower voicetraffic generated by our customers, which decreased by 19.6% yoy to 1,435million minutes. Interconnection revenues went up 7.9% yoy in 1H 2007 and amounted to CZK 2.4billion driven by higher international transit traffic and increase in number ofLLU. Revenues from Internet & broadband increased in total by 18.3% yoy to CZK 1.9billion as a result of 42.3% growth in revenues from broadband based serviceswhich more than offset decreasing revenues from narrowband, confirming oursuccessful strategy to focus on ADSL based services. Revenues from broadband services (ADSL, IPTV and content) amounted to CZK 1.8billion in 1H 2007, up by 42.3% yoy. Of this, CZK 1.6 billion representedrevenues from retail broadband (up 48.6% yoy) and CZK 204 million from wholesaleservices (up 7.4% yoy). The total number of ADSL accesses reached 526thousand at 30 June 2007, compared to 386 thousand a year ago (up 36.2% yoy). In1H 2007 ADSL accesses net adds amounted to 56 thousand. Total number of O2 TV'scustomers increased to 38 thousand at the end of June 2007, representing 22thousand net adds in 1H 2007. Revenues from narrowband Internet decreased by 61.9% yoy to CZK 143 million in1H 2007 on the back of 68.5% decrease in dial up Internet traffic. Revenues from data services decreased by 1.2% yoy to CZK 2.1 billion, mainly dueto a 7.3% decline in revenues from leased lines to CZK 1.1 billion, whilerevenues from data network services increased by 6.8% yoy to CZK 958 million asa result of the growth of IP Connect and IP VPN connections. Revenues from IT services and business solutions reached CZK 810 million in 1H2007 compared to CZK 222 million in 1H 2006, as a result of our growingactivities in ICT and IT services for Government and large corporate customers.Substantial growth in this category of revenues in 2Q related to the customersolution for government customers. Equipment sales amounted to CZK 217 million,down by 31.1% yoy due to the lower number of units sold and special discountoffers. Slovakia In 2Q 2007, Telefonica O2 Slovakia successfully continued in setting itsfootprint on Slovak market. After the launch of prepaid services in February2007, which recorded enormous interest among the customers, the companyintroduced the first hybrid postpaid offer in June. The innovative postpaidproduct "O2 Volnost" is the first of its kind on the Slovak market allowingcustomers to use postpaid services without signing any written contract. In thefirst half of 2007 Telefonica O2 Slovakia also focused on roll-out of its ownnetwork with objective to at least fulfill the license condition of having 400own sites in operation by September 2007. In the first phase of the salesnetwork roll out Telefonica O2 Slovakia opened 12 brand shops in 1H 2007. Thesales network consists also of more than 3,500 indirect points of sale. Inaddition it launched its e-shop. By the end of June 2007 the Company hadrecorded 455 thousand registered customers. Majority of these are represented byprepaid customers. Current customer base usage patterns show that certainpercentage of customers using Telefonica O2 Slovakia SIM card as their secondSIM. The Company is taking measures to further stimulate customers to useTelefonica O2 Slovakia as their prime mobile provider, and preparing the launchof new services for postpaid customer segment in 2H 2007. Group Operating Expenses Total Group operating costs (including Slovak operation) amounted to CZK 17.1billion in 1H 2007, up by 7.4% yoy. This increase is to a large extent theresult of higher external services (sales and marketing costs, network & ITmaintenance and other subcontracts) and operating costs related to activities inSlovakia. Supplies expenses grew by 10.1% yoy to CZK 8.2 billion in 1H 2007.Interconnection costs increased by 7.3% yoy to CZK 5.4 billion due to higheractivities in transit business, growth in mobile off-net traffic generated bycustomers in the Czech Republic and interconnection charges recorded inSlovakia. Cost of goods sold went up by 20.4% yoy to CZK 1.7 billion as a resultof increased costs in Slovakia, while this cost in the CR was flat. Othersupplies increased by 9.9% to CZK 1.2 billion due to increased sub-deliveriesfor ICT related projects. Personnel costs, including headcount reduction costs, amounted to CZK 3.6billion, up by 2.8% yoy in 1H 2007 as a result of a general increase in wages,methodology changes and higher personnel costs in subsidiaries (TO2 Services andTO2 Slovakia) related to headcount growth. The total number of Group employeesreached 9,365 at 30 June 2007, down 6.5% yoy. Telefonica O2 Czech Republicheadcount went down by 9.8% yoy to 8,973. The cost of external services increased in total by 11.2% yoy and reached CZK 5billion in 1H 2007. Marketing and sales went up by 22.1% yoy to CZK 1.6billion due to higher marketing activities related promotion of new ADSL, IPTVand convergent offer in the Czech republic, and promotions and marketing costsin Slovakia. Network & IT repairs and maintenance increased by 9.5% yoy to CZK1.3 billion due to higher costs related to maintenance staff outsourcing and theincreased complexity of the network. Rentals, buildings and vehicles costsreached CZK 804 million, up by 2.9% yoy while utilities supplies increased by3.3% yoy to CZK 377 million. Other external services including consultancy fees,call centers and other external services went up 7.5% yoy to CZK 865 million dueto increased costs related to customer care and costs incurred in Slovakia. Taxes, comprising taxes other than income tax, fees and provisions decreased by34.7% yoy to CZK 320 million mainly as a result of lower bad debt provisions. Outlook for 2H 2007 In the second half of 2007, the Company will continue to address the currenttrends in the Czech telecommunication market, specifically in the areas ofbroadband, data, value added services and convergent products. The Company expects that the recent introduction of new convergent servicesoffering a combination of fixed and mobile voice services, broadband servicesand IPTV will increase the value of the fixed line proposition. The Company willalso continue to roll out 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 2007. Thestrategy in the mobile segment continues to focus on ARPU sustainability viaprepaid to postpaid migration and growing mobile data and Internet revenuesthrough CDMA and HSDPA based services. The area of customer experience belongs to key priorities for 2007. Thisincludes improvements in service delivery and provisioning, customer care andincrease of quality of service provided. The fixed/mobile integration process will continue through the realization ofongoing integration projects with the aim of achieving synergies leading torevenue growth and OPEX and CAPEX savings. At the same time we will continue tobenefit from the global experience and close interaction with Telefonica, O2 andother Telefonica Group operating companies, largely in the areas of procurementand process improvement and new product development. 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 new customers'acquisitions via introduction of new innovative services for all segments. Ouractivities in Slovakia should result in achievement of a quality and customerexperience equal to O2 in the Czech Republic. Based on the financial results delivered in the first half of 2007, we maintainour full year guidance for 2007. We expect Group revenues to grow by 1 to 3% andOIBDA(7) to decline by -1% to 0% compared to 2006. The expected negative impactof the Slovak operation is already included in this range. CAPEX is expected tobe around CZK 9 billion in total, with around 20% of this figure invested inSlovakia.(8) 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 206 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 - Jun 2007 Jan - Jun 2006Revenues 31,070 30,102Internal expenses capitalized in fixed assets 291 403Operating expenses (17,143) (15,956)Other operating expenses (79) (35)Gain on sale of fixed assets 32 29Impairment of fixed assets 10 (38)OIBDA 14,181 14,505 Depreciation and amortization (7,471) (8,443)Operating Income 6,710 6,062 Net financial income (expense) (56) (162) Income before tax 6,654 5,900Income tax (1,763) (1,618) Net Income 4,891 4,282 BALANCE SHEET 30.6.2007 30.6.2006 - Intangible assets 7,953 8,803 - Goodwill 13,320 13,320 - Property, plant and equipment and investment property 74,352 83,007 - Long-term financial assets and other non-current assets 413 428 - Deferred tax assets 137 - Current assets 26,870 21,005 - Inventories 619 583 - Trade and other receivables 8,986 9,058 - Current tax receivable 1 - - Short-term financial investments 79 63 - Cash and cash equivalents 17,185 11,301 Non-current assets classified as held for sale 223 247 Total assets 123,268 126,810Equity 77,268 84,772 Non-current Liabilities 16,227 17,199 - Long-term financial debt 9,298 9,268 - Deferred tax liabilities 4,318 5,024 - Long/Term Provisions 2,063 1,895 - Other long/term liabilities 548 1,012 Current Liabilities 29,773 24,839 - Short-term financial debt 408 407 - Trade and Other payables 7,808 6,245 - Current tax payable 1,361 297 - Short-term provisions and other liabilities 20,196 17,890 Liabilities associated with non-current assets classified as held for - -sale Total Equity and Liabilities 123,268 126,810 -------------------------- (1) Comparative period 6 months to June 2006 (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) excluding incoming only lines (7) 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). (8) Guidance assumes constant exchange rates as of 2006 This information is provided by RNS The company news service from the London Stock Exchange